By Joe Locker, Local Democracy Reporter
The former leader of Nottingham City Council says he takes responsibility for failings at Robin Hood Energy which contributed to its eventual collapse.
Jon Collins also acknowledged “in hindsight” the council should not have set up the firm – but has spoken out in detail on why he led the decision to go ahead with the company when it was founded.
Its eventual collapse after he left the council went on to cost taxpayers an estimated £38m.
The failure of the company is seen as one of a number of key reasons the council was left with depleted cash reserves, leaving it financially vulnerable as costs increased and government funding was cut.
The authority declared effective bankruptcy in November over a £23m budget gap this year. It is now planning sweeping cuts to services to save £53m next year.
Mr Collins served as a councillor for the St Ann’s ward for 32 years, and spent of 16 of them as leader of the Labour-led authority.
He stepped down in May 2019 and today works as a consultant.
Despite the successful opening of the city’s tram network and the redevelopment of Old Market Square under his leadership, his tenure was marred by his involvement in the founding of Robin Hood Energy (RHE) as a council-run company.
The firm finally collapsed in September 2020, 14 months after Mr Collins had left the council.
It had been set up in 2015 as a not-for-profit firm aimed at reducing fuel poverty and taking on the ‘Big Six’ leading energy firms.
Local councils had previously been encouraged by the coalition and Conservative Governments to be more entrepreneurial amid tightening budgets and austerity measures.
RHE boasted 125,000 customers at its peak, but what a public interest review later called “institutional blindness” led to its eventual collapse, with its demise ending up costing taxpayers at least £38m.
The failure of the company, and its resulting drain on council cash reserves, was listed among a number of reasons for the issuing of a Section 114 notice in November 2023, when then council effectively declared bankruptcy.
Speaking in an interview with the Local Democracy Reporting Service, Mr Collins, who was first appointed a director at RHE in 2016, admitted: “In hindsight you would not have done it.
“But people need to remember the context. It was the Big Six that were basically screwing people over in terms of energy, the Government encouraged small companies to set up as challengers. It was not something I just picked out the air.
“There was a proper external consultancy report that said we would make money on it every year. We had a business plan that would, over a four to five year period, turn investment into profit.”
However, he added: “The Government changed the regulatory framework and it allowed people to come into the market, get a few tens of thousands of customers, and then take advantage of that by selling the customers to other companies.
“That led to a good deal of instability in terms of price.”
While RHE reported losses in the first two years in operation, its turnover increased from £4.6m in 2016 to nearly £100m in 2019.
The firm said it would break even in 2018, with a surplus made in 2019.
In 2018 a profit was recorded, but cracks soon began to show.
According to Mr Collins RHE had been hit with issues in purchasing gas.
He says the company asked if it could have a financial guarantee so it could forward purchase gas in June of 2018.
Approval was only given in October, Mr Collins says, by which time there had already been a “massive gas hike” in the summer.
Reports from the time suggested gas hikes were due to companies attempting to replenish supplies run down due to a cold winter, as well as carbon trading reforms and an overall increase in the price of wholesale gas.
Some RHE prices increased by 14 per cent as a result.
“That was the reason a number of companies went bust at that time,” Mr Collins said.
He added there had also been some internal “politicking”, when Conservatives declared the company was failing in a series of posted pamphlets.
That same year it was revealed RHE broke rules over the declaration of a £7.5m investment from the city council.
The council had purchased 7.5 million shares, each worth £1, but the firm failed to notify Companies House of the move in time.
Critics at the time suggested it had perhaps helped the firm achieve a profit.
“The end result of that was the reputation of the company was undermined, the ability to forward purchase and to cash-flow operations were massively undermined and it was downhill from there,” he continued.
“That happened on my watch and I take responsibility for that.”
Mr Collins stepped down as a director in December 2018 and, just over a year later in October 2019, the situation came to a head when energy regulator Ofgem threatened to withdraw its licence over unpaid green taxes.
Ofgem demanded £9.5m in renewables obligations within the month and public funds were used to prop it up.
This amount of unpaid green taxes increased to £12m and the council later apologised in September 2020 when it announced RHE would cease trading at a loss of 230 jobs.
Emails were sent to customers about the transfer to British Gas, which purchased the customer list, in November that year.
A subsequent public interest report from auditors at Grant Thornton found the company had lost a total of £34.4m by March 2019 despite receiving £43m in public investment and £16.5m of loan guarantees.
“I am happy to take responsibility for where we were with RHE right up until the point I left which was May 2019,” Mr Collins said.
“I think it was a challenging set of circumstances up until that point and if I were describe it, it was a difficult situation handled badly after that.”
The Department for Energy Security and Net Zero confirmed new entrants had been encouraged to enter the energy market to increase competition around a decade ago.
Concerns eventually began to arise over the increasing number of customers who switched regularly as competition grew in a bid to get better deals.
This resulted in regulator Ofgem introducing measures such as a price cap in 2019.
However, many firms that exited the market in 2021, when RHE’s licence to trade was formally removed, pointed to the price cap as one factor in not being able to recoup costs.
The department says 30 suppliers went out of business in autumn 2021.
Since then questions have been raised over whether the companies were properly equipped in terms of expertise and financial resilience for when market conditions deteriorated.
Ofgem says it commissioned an independent review into regulation, published in May 2022, following the “volume of recent supplier failures in the UK retail energy market to analyse the root causes of, and learn any lessons from, these failures, with a view to shaping better regulation in the future”.
Energy UK, the trade association for the energy industry, was also contacted for comment.
