LABOUR-controlled Warrington Borough Council continues to defend its “high risk” investment strategy saying it remains “pleased” with investments in Together Energy and Redwood Bank after coming under increasing criticism from opposition Tories.
Members of the Tory group say they remain extremely concerned about the council’s investments in Together Energy and Redwood Bank which they say are high risk – and have called for the council to divest their interest in both companies.
But the Borough Council say they remain “pleased” with both investments, saying Together energy continues to contribute to Warrington’s green agenda and that Redwood Bank remains in a comparably strong position and continues to perform in line with the original business plan agreed in 2017.
At a recent Audit and Corporate Governance Committee meeting the Conservative representatives on the Committee continued to challenge the significant exposure (£41.2M in the 2020/21 Draft Statement of Accounts) that the council has to Together Energy and it’s claims about the Council’s green energy supply.
Tory finance spokesman Cllr Ken Critchley says Point 12. of the External Auditors recommendations presented to the meeting was that the council, “Identify and regularly assess key risks regarding the security and liquidity of the capital sum invested in Together Energy limited and develop risk mitigation plans, which will be put in place where the Council’s risk appetite is exceeded.”
Following questioning from Councillor Critchley, the external auditors confirmed that one of the appropriate mitigation plans would be the divestment of Together Energy.
Cllr Critchley asked the meeting if the exposure to Together Energy had remained as stated in the, Treasury Management Quarterly Monitoring Report, it was confirmed that the exposure did not currently exceed the figures in the report.
Cllr Carol Benson (Con), challenged the claim that the council’s investments in solar energy companies were providing green energy directly to the Council.
She went on to say that it could be misleading to say that the solar farms were providing 100% Green energy directly to Warrington Borough Council.
Rather the solar farms supply energy to the Grid locally to them in York and Hull and the Council buy energy from the Grid locally to Warrington.
She said the National Grid throughout the UK has a variable mixture of energy supplied from Nuclear, Gas, Biomass, Coal, hydro, wind and solar generation.
Warrington Borough Council has to use this mixed source as supplied, irrespective if they are generating some solar energy in Hull.
Following the meeting Cllr Critchley, commented: “The Conservative group remain extremely concerned regarding the council’s investment in Together Energy, this is a high-risk sector, at the recent full council meeting we proposed that the council dispose of its 50% shareholding to reduce the risks to the taxpayers and people of Warrington, that further injections of the Councils cash are required to support this company, Labour and the Lib Dems voted down our motion. It was reassuring to note at the A&CG meeting that the auditors considered divestment was one of the mitigation strategies that the council should be considering.”
Following the meeting, Cllr Benson added: “It is simply misleading to portray the solar farms as supplying energy directly to Warrington Borough Council. Whilst the Council could have entered into a green energy supply agreement with their energy supplier, it is not the case that this green energy is being supplied directly by the solar farms nor even 100% Green Energy into Warrington Borough Council. They are supplied by the National Grid.”
The Tory group has also raised concerns following the latest results of Redwood Bank Limited published for the year to the 31st of December 2020, which reveal continued losses at the Bank.
They say the Borough Council via its investment in Redwood Financial Partners Ltd, the holding company of Redwood Bank, has a significant financial exposure having invested £32 million in Redwood Financial Partners Ltd for one-third of its shares.
Redwood Bank has posted a loss before tax for the year ended 31st of December 2020 of £1.7 million, an increase of half a million over the losses posted in the previous year.
The Conservative Group say they remain extremely concerned regarding the Councils investment in Redwood Financial Partners Ltd and its subsidiary Redwood Bank. Since the Council’s investment the Bank has failed to make a profit.
The investment in the Bank remains one of the concerns of the External Auditors (Grant Thornton) who are requiring that impairment reviews are undertaken for this investment.
At the recent full Council meeting, The Conservative Group proposed a motion to require the Council to urgently consider the divestment of Redwood Financial Partners and its subsidiary Redwood Bank, in the interest of protecting the people of Warrington from the risks associated with this start-up company.
Cllr Critchley commented: “Further losses at Redwood Bank only reinforce the need for the Council to exit this poorly performing investment. The Council have invested £32 million for one third of a loss-making company, no dividends have been received and the true value of the Councils investment is being questioned by the External Auditor. It’s time that the Council exited from this high-risk company.”
Commenting on the Together Energy/green energy supply a Warrington Borough Council spokesperson said: “We are aware of the energy price situation and it is only right we continue to review our investment, as with all other investments we make. In the turbulent energy price market, with external advice, we are considering a range of options. However, Together Energy has adopted a prudent hedging and energy purchasing strategy and is nationally one of the leading companies in energy demand forecasting.
“We are pleased with our investments that are continuing to contribute to Warrington’s green agenda. We are, to our knowledge, the only Council in England which provides itself with 100% of its own green electricity from its own, wholly-owned solar farm. That energy is sold through to nPower – as they have a supply licence – as part of a Power Purchase Agreement. nPower, in turn, sells the energy back to Warrington.
“This has not only ensured that we have 100% green energy but has also protected Warrington from the massive increases in the wholesale energy market. Indeed, any surplus energy produced from the farm, or any extra energy imported from surplus wind generation in the grid overnight and stored in the batteries onsite, can then be sold at the current market price and produce an additional return for the Council.”
Regarding Redwood Bank a Warrington Borough Council spokesperson said: “We continue to be pleased with our investment in Redwood Bank. It was never solely about driving income but about providing a lever to support regional SMEs. Furthermore, given the turbulence caused by the pandemic, the bank is in a comparably strong position and continues to perform in line with the original business plan agreed in 2017.”
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Redwood Bank has just posted its 4th successive loss, bringing total losses to £10 million. I can’t judge how well this aligns with the business plan agreed between WBC and the other shareholders in the bank because that detail has never been shared with citizens. It isn’t reassuring, though – and the notion that the existence of an extra bank will somehow contribute to the prosperity of Warrington SMEs is cloud cuckoo land.
The actual entity which WBC invested in is Redwood Financial Partners Ltd (RFPL) – their accounts haven’t been published yet (I think they’re overdue).
Earlier this week I wrote to Charlotte Nichols MP, asking her to request that MHCLG send in external resources to oversee these investments. I haven’t received a response yet, and I’m not overly confident that she will act on the suggestion, but this feels like quite a risky time and we certainly need an outside view.
Monday’s Cabinet meeting will include a vote for the council executive to take action to safeguard the investment in Together Energy – an issue which was raised in Warrington Worldwide a few days ago. It isn’t clear what form this ‘action’ might take, though I suspect that it might involve further risky investments.
Let’s call this for what it is. The Conservatives nationally certainly don’t have clean hands – they’ve created budgetary strains on councils which have led to some questionable decisions. And central government has, until relatively recently, turned a blind eye to councils using low-interest PWLB loans to fund investments. That’s my bit of balance. Now for the hard words:
– Warrington Council has invested on a massive scale – over £1.6 Billion currently, with talk of a further Billion to come
– WBC – or at least some of its councillors and officers – has behaved arrogantly towards the public. Freedom of Information questions about investments are ignored. When, eventually, an answer is received it is usually meaningless or worse. Direct questions, in person and in writing, are blanked with the catch-all claim of ‘commercial confidentiality’
– the Redwood Bank deal should never have been approved. Even if the bank does well, WBC still lose their shirt. You don’t need to be a mathematician to realise this – it’s so bad that it’s obvious
– the Together Energy deal is, at best, very odd. An energy brokerage doesn’t have a lot of assets to use as collateral, and energy brokerages do go bust. We can forgive WBC for not foreseeing the current energy crisis – and who knows, it might actually help Together Energy – but this is precisely the kind of decision which the public should be properly consulted on in advance. Risky, opaque – these aren’t the sorts of investments a public body should indulge in
Ultimately, this comes down to trust. Do we believe that we have raised a generation of financial geniuses at WBC? I’d love to believe so, but I can’t help recalling that Lynton Green, Finance Director and Deputy Chief Executive, recently claimed that Redwood Bank is worth £120 million. Its value has never come close to that figure.
Tories state the blindingly obvious. A method of risk mitigation would be to get rid of the risk by selling it off. How can anyone believe they are receiving any, never mind 100% renewable electricity, all the generation goes into the network and you receive what you receive.
I’d like to know the genesis of these various investments, how they are first accepted within the council as something serious and worth spending time and energy taking forward, by whom and what problem are they trying to solve. Take Redwood. Who first thought back in 2014 that the council should consider getting into banking in order to help local SMEs – that was the original reason given. Maybe that’s a laudable aim but did anyone question whether it really is the job of a local authority to get so directly involved. After all it’s not that there wasn’t a shortage of banks and other lending institutions.
In any case the prime emphasis has since changed from helping SMEs to using income from the investment to support council services. So after WBC decided to explore banking how over the next three years did we move from that, to getting involved with the Rowland family and their off the shelf shell ‘bank’ that had never traded? Who actually drove this forward? Councillors or Officers or a combination? I’m not talking about the external due diligence once the decision to invest was taken, I’m talking about internal discussions before the decision to start down the road of a huge due diligence exercise.
It seems clear that whatever the process it’s not robust enough. I agree with Jim Sullivan. There should be some mechanism whereby the public are consulted about suggestions for investments. That could be done by a much wider committee of councillors, independent experts in the field of investment being considered and local community groups.
If a suggestion is approved and moves to a formal due diligence process such a committee should stay involved as a consultative body. Had there been such a process it’s a racing certainty that someone wouldn’t at least have questioned the skewed ratio of investment:ownership between the private shareholders and the council.
Rather disappointed to report that my MP, Charlotte Nichols, didn’t reply in any way to my request regarding an MHCLG investigation.
I would have understood if she had disagreed, but the minimum I expected was a response.
I have written directly to the Secretary of State, copying Charlotte Nichols in