Public Sector Focus

Can council-run energy companies help tackle fuel poverty?

Gail Scholes, lead officer at Robin Hood Energy, talks to PSE about the launch of the first council-owned not-for-profit energy supply company since nationalisation in 1948.

In September the Competition and Markets Authority (CMA) extended the timetable for its investigation into the energy market from December this year to June 2016.

However, the CMA’s provisional findings identified a large number of areas where there might be a competition problem, including a possible lack of consumer engagement in both domestic and microbusiness sectors.

In an attempt to tackle these issues, Nottingham City Council has taken an innovative approach with a commitment to provide affordable energy to local customers and to help tackle fuel poverty.

The local authority has developed Robin Hood Energy – a not-for-profit energy supply company. Its directors – who are not paid a salary – and other employees don’t receive bonuses and it has few overheads, which it claims help maintain low tariffs for customers.

We spoke to Gail Scholes, lead officer at Robin Hood Energy, shortly after the company was officially launched. She told PSE that what makes Robin Hood Energy different is that it is “completely not-for-profit” whereas other local authorities use  partnerships with the private sector (such as Cheshire East with Ovo Energy, who are delivering the Fairerpower energy service). And the planned Bristol Energy company will re-invest the profit it makes back into council services.

“Ours is different because it is fully-licenced but it is completely not-for-profit. So any surplus that is made within the company will either go back in terms of money being knocked off the tariffs – hopefully making sure Robin Hood Energy is always competitive and fair in the market – or it will be invested in local generation that it would be able to use,” said Scholes.

Energy supplied to customers will at first be sourced from the National Grid via a ‘Grid Master Trade Agreement’. But when Robin Hood Energy is more established, it may consider a Power Purchase Agreement with a local or a national energy generator to secure the lowest possible energy purchasing price as part of its commitment to help keep tariffs low for customers.

“We have, of course, got some set-up costs, supported via a loan at commercial rates, that need to be recovered. But after the initial set-up costs are recouped, any money made will be invested from that day forward,” said Scholes.

There are about 40 staff employed by Robin Hood Energy, but regular increases are built into its business plan, with a recruitment push expected in sales and customer service.

Switching

Robin Hood Energy forecasts that customers who have already switched from their existing providers during the ‘controlled market entry phase’ could save on average £237 on their annual energy bills.

In Nottingham, an estimated 60%-plus of residents have never switched energy provider. Scholes said: “We are hoping that the ‘trust’ element of knowing that it is your local authority which can help you through this process – in a different way to most companies – will encourage people to switch.” The council hopes its initiative will create some competition for the ‘Big Six’.

Scholes thinks other councils are likely to follow Nottingham’s lead and get into the energy business. But it is unlikely they will always be the cheapest provider, she said. “I’m sure that [other] energy providers are going to try to win that market-share back by putting in a cheaper offer.”

PSE was told the process of setting up Robin Hood Energy was pretty swift: it took about nine months to develop the full business case, from concept to full approval. That sign-off came in September 2014, then the first customers were signed up through the controlled market entry process from May 2015, Scholes said. But she did add that the process is not easy and setting up an energy company is “not for the faint-hearted”, especially in terms of regulation and compliance.

Some media commentators have suggested the project is naïve, considering the resources and expertise of the big energy companies, and suggest the company needs more professionals with industry experience. But Scholes dismissed these criticisms, saying: “Of course we have employed people from the industry, I don’t think we’d have got as far as we have if we hadn’t got that industry sector knowledge and experience.”

Asked what advice Scholes would give to other councils, she said when councillors start talking about setting up an energy company, officers should not think it is an impossible thing to do. “It is doable!”