Weekend press round-up: Gas bills soar as Ovo ‘moves £21m around’

In our latest round-up of national newspaper coverage, questions are raised after Ovo Energy paid £21 million to a company owned by its founder, while soaring gas prices have led to calls for greater protections for customers using communal heating. Elsewhere, a council in Shropshire has promised to put pressure on water companies following the frequent discharge of sewage into its county waterways.

Gas bills soar as Ovo ‘moves £21m around’

An energy supplier which advised customers to cuddle their pets to save money on heating bills paid £21 million to a company owned by its billionaire boss, while claiming £17 million in furlough support.

Ovo, which announced plans last week to lay off 1,700 staff, was billed £21 million by Imagination Industries Ltd, a private holding company whose majority shareholder is the Ovo founder Stephen Fitzpatrick, to cover “brand royalty fees”. Fitzpatrick owns the brand name and logo of Ovo, which pays Imagination Industries each year to license them.

Over the same period, Imagination Industries invested millions of pounds in Fitzpatrick’s other business ventures, including a flying taxi firm and a prosecco distributor, according to documents filed with Companies House in January.

Vertical Aerospace, which builds electric air taxis, was floated on the New York Stock Exchange last year for $2.2 billion and was given £5.6 million in loans from Imagination Industries. The company also loaned £4.4 million to Imagination Industries Incubator Ltd, Fitzpatrick’s investment vehicle; £1.6 million to the software development firm Imagine Just 3 Things Ltd; and £440,000 to Kensington RG Ltd, which is renovating the Kensington Roof Gardens nightlife venue in London.

The accounts also show that Imagination Industries invested directly in various associate companies in which it owns a stake, including Della Vite Trading Ltd, which sells prosecco, and the Akili Partners Limited investment fund.

There is no suggestion of illegality but the findings have raised questions about why Imagination Industries, which is the ultimate owner of the Ovo Group, took such a large royalty fee from its struggling subsidiary at a time when it was relying on government grants to get through the pandemic.

The figures, contained in company documents, come days after Ovo Energy made headlines by sending an email to customers recommending that, with energy prices surging, they could save money on bills by “having a cuddle with your pets” or “doing a few star jumps”. The company later apologised for the “poorly judged” advice.

The 1,700 staff lay off amounts to a quarter of the Ovo Energy workforce.

Ovo Group claimed £17 million of taxpayer money through the coronavirus job retention scheme in 2020, records show, but more than that was ultimately spent paying fees to Fitzpatrick’s holding company.

The £21 million royalty fee for 2020 — £5 million from Ovo Energy and £16 million from Ovo Group, of which it is a subsidiary — was significantly higher than the previous year’s fee of £13.8 million. Ovo indicated this was tied to the growth of the company, which expanded rapidly in 2020 after acquiring the energy business of SSE, a rival.

Darren Jones, chairman of parliament’s business, energy and industrial strategy committee, said: “For workers being made redundant at Ovo, it’ll seem pretty rich that their already wealthy boss has taken £21 million out of the business at such a difficult time for energy companies, not least given Ovo claimed £17 million in taxpayers’ money through furlough to try and protect jobs in the first place.”

Mike Warburton, a leading tax expert, said there was no suggestion the transfers were illegal, but added: “When Ovo Energy is wholly undercapitalised and in financial difficulty, for the parent company to charge it £20 million in royalty fees is quite brazen, frankly.”

Fitzpatrick said: “The Ovo brand licensing agreement was set up in 2014 as we prepared for external investment and is a common commercial agreement put in place to protect brand ownership. The licence fee is budgeted for annually as a normal business charge and has been referenced in all of our accounts filed at Companies House over the last eight years.

“Imagination Industries pays full UK taxes on its licence fee income, and has already reinvested these funds into founding several new businesses, including Vertical Aerospace, an electric aircraft company based in Bristol. All investments have been made in UK companies, most in the zero-carbon sector.”

You can read the full article in The Times

Energy bills: flat dwellers face massive rise despite price cap

Hundreds of thousands of people living in flats are facing “completely unaffordable” increases to their energy bills because their communal heating system’s supply is not protected by the government’s price cap.

While households with conventional heating systems have been told they could face 50%-plus increases to gas and electricity bills when the cap is increased on 1 April, people who bought or rent apartments in one of the 17,000 blocks in the UK that rely on communal heating and hot water systems are facing fourfold increases as suppliers pass on the huge wholesale price increases unchecked.

It is thought that up to 500,000 people live in developments where at least some of the heating or hot water is provided by a centrally controlled system, usually administered by the company that manages the estate.

Apartments in these developments are all supplied by a single energy supplier, and because this is classified as a commercial deal rather than domestic supply, the residents have not had bills protected by Ofgem’s price cap.

Among those affected are residents of the high-profile Chips building in the New Islington area of Manchester who have seen some of their energy charges triple after the building’s energy supplier collapsed in November.

Those living in the nine-storey building have control over their heating in their individual flats and how much energy they use but not over who supplies the power and what tariff they are on. All of their hot water is provided centrally from a green boiler.

Switch2 Energy, the billing service provider for the Chips scheme, and the building’s new energy supplier, Pozitive Energy, say the increases experienced by residents stem from the failure of the previous supplier, and reflect the rise in wholesale prices.

Lisa Gregory, who runs the Birmingham-based consultancy Ginger Energy, which is a big player in the sector, says this “truly dreadful” situation is an injustice that will have serious consequences for those affected.

“It is highly likely that many will struggle to pay the new costs and will then get into a debt situation,” she says. “We are about to have to tell the residents of some blocks that they will be paying four times the previous unit charge for their energy. While normal residential consumers are protected – at least for a period – through the price cap, the consumers in these blocks are fully exposed to the market changes.”

She says the classification dates back to a 2012 decision made by the industry regulator Ofgem and predates the current turbulent market conditions and the price cap.

“We are requesting an entire review of the price cap. It doesn’t include our residents; it doesn’t work for suppliers. The system is completely broken,” she says.

In late December, the government announced that it wants Ofgem to take over as the regulator for heat networks, as they are termed. However, it looks as though it will be months if not years before this is enabled as it will require legislation. In the meantime, those living in the unregulated homes could face years of paying higher bills than if their building had a conventional heating system.

This week the boss of British Gas’s parent firm warned that the problem of high energy bills could remain for a further two years.

Stephen Knight, a director of Heat Trust, the national consumer protection scheme for heat networks, says legislation to protect consumers who rely on communal heating schemes is long overdue.

“We welcome the government’s commitment to regulating heat networks and the news that Ofgem will have new powers to oversee the sector. In the absence of regulation, a growing number of consumers are being left unprotected. As the reliance of the country on heat networks grows, so will the scrutiny of their performance and service standards. To avoid any further delays, we need the government to commit to the legislation in May’s Queen’s speech,” he says.

Ofgem said it was committed to taking over the regulation of heat networks but said the timings were outside its control.

You can read the full story in The Guardian

Rising energy bills ‘unaffordable’ for quarter of households

Millions of families in England will be dragged into fuel poverty overnight when energy bills soar this April, research has found.

The number of households who will find them unaffordable is to treble to 6.3 million when the price cap lifts, according to the Resolution Foundation.

It said this meant more than a quarter of households would suffer “fuel stress”, the definition of fuel poverty in England, which means having to spend at least 10 per cent of family budgets on energy bills.

The figure is 9 per cent but will hit 27 per cent if the price cap rises by more than half to about £2,000 a year as expected on April 1. Ofgem will announce the new price cap level on February 7 but drastic rises in wholesale gas prices mean a large increase is all but inevitable.

Levels of fuel stress are likely to be highest in the northeast and the West Midlands, at 33 per cent and 32 per cent respectively, the foundation says. Others who will be hit hard include pensioners (38 per cent), those in local authority housing (35 per cent) and those in poorly insulated homes.

Its report says the sheer scale of energy bill increases mean that fuel stress will no longer be confined to the poorest households. However, low and middle-income families will find it hardest to cope as they spend a far greater share of their family budgets on these essentials. The government should target support at lower-income households, it adds, with this done through the benefits system.

It is calling for benefits to increase faster than planned or for additional payments to be made, based on the warm homes discount. This £140 payment should grow by at least £300, it says, and be widened to all families in receipt of pension credit or working-age benefits. This would cut the number of households in fuel stress by about five percentage points, equivalent to more than one million families, it says.

Further reductions could be achieved by spreading the costs of energy firm failures over a number of years, it adds. The think tank also calls for the temporary transfer to general taxation of the levies needed to transform Britain’s energy supply. This would cut all energy bills by about £245 and reduce the number of families in “fuel stress” by more than seven percentage points, or 1.7 million, at a cost of £4.8 billion.

Jonny Marshall, senior economist at the foundation, said: “Fuel stress levels are particularly high among pensioner households, and those in poorly insulated homes — a stark reminder of the need to modernise Britain’s leaky housing stock and curb national dependency on gas for power and heating.”

The Times

River pollution: Shropshire water suppliers to be held to account

Water companies will be held to account over river pollution, a council says.

Shropshire Council said the frequent discharge of sewage into county waterways is making them unsafe.

The authority has now promised to put pressure on utility firms to invest in drainage improvements and provide timescales for mitigating the effects of pollutants.

A dedicated group will be set up to address the issue, with input from the Environment Agency.

The issue was raised at a meeting of the full council by Labour Councillor Kate Halliday, who represents Belle Vue in Shrewsbury.

The meeting was held on the same day a report from the Environmental Audit Committee, warned a “chemical cocktail” of pollution in UK rivers was putting public health at risk, the Local Democracy Reporting Service said.

Ms Halliday said the main problem was the reliance on combined sewage overflows (CSOs), which mix rainwater and domestic waste, which release directly into rivers when they become overwhelmed during heavy rainfall.

The motion to set up the group received unanimous support across the chamber.

Seconding it, Radbrook Councillor Julia Evans said: “It’s a huge problem, with an antiquated sewage system that was basically built in the Victorian times and hasn’t had much funding and investment since.

“It’s holding these water companies to account, that they need to invest more money into the sewage system.”

BBC News

Utility Week’s weekend press round-up is a curation of articles in the national newspapers relating to the energy and water sector. The views expressed are not those of Utility Week or Faversham House.