Taxpayers in a town in the north of England are facing a financial blow of up to £ 52 million should energy provider Together Energy collapse, after the local Labor Control Board bought a 50 per cent stake in the troubled company.
Warrington City Council £ 18 million spent on half of the shares in Together Energy, based in Clydebank in the west of Scotland, in 2019.
Since then, the Cheshire council has arranged a revolving credit facility for Together worth £ 20m and provided a £ 14m guarantee to Orsted, a wholesale energy supplier to the Scottish company. This brings the council’s total estimated financial exposure to Together to £ 52m.
Warrington Council, like some other local authorities in England, borrowed to make various commercial investments that were intended to generate returns to offset cuts in their grants by the central government during the years of austerity.
Warrington’s activities also included a controversial £ 150 million loan to billionaire founder of online retailer THG, Matt Molding. Councils regularly borrow money to boost their income, but the scale of Warrington’s THG facility was unusual.
The council, which currently has net loans of £ 336.4 million, was quoted at the time of its investment in Together as saying it would “generate a commercial return to the council that could be reinvested in frontline services”.
But Together is now facing a similar fate as other energy suppliers hit hard by rising wholesale gas prices, with 26 companies collapsing over the past five months.
In an indication of the financial pressure on Together, the company delayed a £ 12.4m payment plus interest this is due to the energy regulator Ofgem.
This payment, which is required under a scheme administered by Ofgem to support renewable energy projects in Britain, initially owed by last September.
Together thereafter could not meet an extended deadline of late October for payment. It’s now at the end of this month.
Energy suppliers who fail to make payments under what are known as the renewable obligations can be stripped of their licenses by Ofgem, which puts them out of business.
Together was founded in 2016 by Paul Richards, once a British Gas employee, and was proud to employ staff from some of Scotland’s poorest areas. It doubled in size in 2020 when it acquired Bristol Energy, a supplier previously owned by the Bristol board, which had more than 144,000 customers.
Ken Critchley, a Conservative councilor in Warrington, said the situation involving Together was “extreme concern”.
“It’s a difficult company with a significant delay in payment to make at the end of January,” he added. “We were consistent in our view that it was a high-risk board investment and one that should not have been made.”
Andy Carter, Tory MP for Warrington South, said he had been asking questions over the past two years about the council’s investment in Together.
“The story of how Warrington Board’s investment in Together Energy is one of the best examples of what boards should not do,” he added.
In the financial year that the Warrington board made its initial investment in Together, the company made losses of £ 11 million and net liabilities of £ 19 million, although its directors at the time expressed confidence that it was “well positioned” to grow sales. and to achieve profitability. “in the future”.
The most recent available accounts for the company, for the year to October 2020, and before the current crisis in the energy market, showed that losses decreased to £ 3.8 million, but its net liabilities increased to £ 22.8 million , of which it attributed £. 17.2m in preference shares held by Warrington Board.
Together did not respond to questions about his cash position and whether he could make the £ 12.4m payment that Ofgem required.
A statement on the company’s website said: “There is a lot of media speculation surrounding the current challenges in the UK energy market, but Together Energy is stable.”
Warrington council declined to answer questions from the Financial Times.
In its 2020-21 accounts, the council said: “Warrington’s credit challenges are related to its higher risk appetite than the norm for the sector which is reflected in high debt levels and high exposure to commercial risk through its investment portfolio.”