Robin Hood acquisition bid led to ‘strained relations’

Robin Hood Energy (RHE) and Nottingham City Council faced strained relations after the latter prevented the supplier from making two acquisitions, a report has revealed.

Nottingham City Council has accepted every recommendation made in auditor Grant Thornton’s report into RHE’s governance.

While it found improvements have been made to the governance arrangements over the past year, they were too late to protect the council’s finances.

As such an extraordinary meeting of the city council is due to be held tomorrow afternoon (27 August) in which it will discuss measures set out in an ‘action plan’ to tackle the issues raised.

According to the report, relations between the council and RHE have been under “increasing strain” due to a number of factors, including the fact that the council did not authorise the supplier to proceed with two acquisitions which it believed would have helped to cushion the impact of market pressures and improve its financial position.

In January 2019 RHE entered into negotiations to acquire not-for-profit Our Power, with Robin Hood negotiating a nominal purchase price of £1. However, in order to be able to forward purchase energy for the increased customer base, RHE sought an additional parent company guarantee (PCG) of £3 million from the council. After initially being approved, it was subsequently rejected because the authority believed that insufficient justification had been provided for the acquisition.

“Indeed no formal written proposal was ever presented to the council – and the associated risks were too high. Our Power therefore went into the supplier of last resort (SoLR) process instead”, the report added.

This was the second time the supplier had been denied authorisation to acquire a customer base, with the first having been an unnamed smaller opportunity the previous January.

Further concerns were raised in the report about the low level of knowledge of the energy sector held by local government officers, resulting in some of the risks associated with running an energy supplier being misunderstood.

The report said there was an opportunity in the summer of 2018 for the council to understand and better mitigate risks. Consultants were commissioned to assess the benefits of RHE and Nottingham City Council working closely and potentially even merging with fellow council-backed retailer Bristol Energy and Bristol City Council. Yet senior council officers were “completely unaware” of the report or the possible merger.

The council’s determination that RHE be a success led to what the report labelled “institutional blindness” to the escalating risks involved. Where concerns were raised by some, they were downplayed and the resulting actions “insufficient”.

More friction ensued after a delay of around 10-months to RHE’s 2018/19 audit. To avoid being fined for late filing of its accounts at Companies House, RHE took a decision in December last year to shorten its accounting period by one day, which automatically gave it another 3 months to file its accounts.

During the lengthy period of the audit the relationship between the company and council deteriorated after RHE requested an uncapped ‘letter of comfort’ from the council, in which the council would in effect agree to meet any liabilities incurred by the supplier. The council had provided the company with an uncapped letter in previous years.

Grant Thornton expressed concerns about whether this was appropriate, especially given RHE’s deteriorating cashflow position.

Throughout this period, RHE was accusing the council of delaying the audit by not providing the letter of comfort while the council was not prepared to provide a letter of comfort because the company had not provided it with appropriate cashflow forecasts to enable the authority to properly consider the level of financial support requested.

“In reality, issues concerning the letter of comfort did not lead to the delays in the audit – BDO made clear to us that there were a range of outstanding audit queries throughout this time waiting to be resolved between themselves and the company”, the report added.

Meanwhile BDO had its own concerns about the robustness of the company’s cashflow forecasts, and even took the unusual step of writing personally to each individual member of the board setting out their requirements in relation to the assessment of going concern and expressing concern about the delays in providing the information requested.

BDO suggested the directors seek legal advice, an action which the report said is very rare in the context of a local authority company and reflects poorly on RHE’s governance and on the council’s governance agreements for the company.

Councillor David Mellen, leader of Nottingham City Council, said: “We accept the findings of this report which, despite our best intentions, reveal failures in the council’s governance of Robin Hood Energy over the several years following the formation of the company.

“The report makes a number of recommendations to review our current practice of company governance which we are fully committed to carrying out. Some of the recommendations have already started to be put into place while a review of future options for RHE will be completed shortly.

“There is much more to do however and the council is working hard to try to protect as much of its investment in the company as possible.

“We very much regret the past failings in the council’s governance of Robin Hood Energy. The change in leadership at both Nottingham City Council and Robin Hood Energy over the last year has seen changes in governance procedures and financial rigour. We now need to look forward and continue to make the necessary improvements including those recommended by the external auditor. We will continue to build on the work done so far but we fully accept there is much more to do over the coming months to address the findings of this report.”

RHE is currently undergoing a strategic review in which “all options” for the business are being considered following a tumultuous year for the supplier.

In December 2019, chief executive Gail Scholes and chief finance officer Robert Bain were suspended from their roles and an internal investigation launched. In March this year, the supplier reported a £23 million loss for the 2018/19 financial year.

It was also revealed last year that Robin Hood Energy was one of four suppliers that had missed the deadline for making buyout payments under the Renewables Obligation scheme.

Nottingham City Council loaned the company £9.4 million to pay off the debt, and a further £2.7 million the following February to assist with cashflow through the winter season.

Earlier this year Bristol Energy was put up for sale by Bristol City Council. According to the council’s draft statement of accounts for year ending 31 March 2020 the supplier’s former managing director, Marek Majewicz, recieved a compensation payout of almost £86,000 when he left the loss-making company.