UK council has £52m exposure to troubled power company

Taxpayers in a northern England town are facing a financial hit of up to £52m should energy supplier Together Energy collapse, after the local Labour-controlled council bought a 50 per cent stake in the troubled company.

Warrington borough council spent £18m on half of the equity 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, has borrowed to make various commercial investments that were meant to generate returns to offset cuts in their grants by central government during the austerity years.

Warrington’s activities have also included a controversial £150m loan to the billionaire founder of the online retailer THG, Matt Moulding. Councils routinely lend money to boost their incomes, but the scale of the Warrington’s THG facility was unusual.

The council, which currently has net borrowing of £336.4m, was quoted at the time of its investment in Together as saying it would generate “a commercial return to the council which can be reinvested in frontline services”.

But Together is now facing a similar plight to other energy suppliers who have been hit hard by soaring wholesale gas prices, with 26 companies having collapsed in the past five months.

In an indication of the financial pressure on Together, the company has been delaying making a £12.4m payment plus interest that is due to the energy regulator Ofgem.

This payment, required under a scheme administered by Ofgem to support renewable energy projects in Britain, had initially been due by last September.

Together subsequently failed to meet an extended deadline of the end of October for the payment. It is now due at the end of this month.

Energy suppliers that fail to make payments under what is known as the renewables obligation can be stripped of their licences by Ofgem, putting them out of business.

Together was founded in 2016 by Paul Richards, once a British Gas employee, and prided itself on employing staff from some of Scotland’s poorest areas. It doubled in size in 2020 when it acquired Bristol Energy, a supplier previously owned by Bristol council, which had more than 144,000 customers.

Ken Critchley, a Conservative councillor in Warrington, said the situation involving Together was of “extreme concern”.

“This is a troubled company with a significant delayed payment to make at the end of January,” he added. “We have been consistent in our view that this is a high-risk council investment and one that should not have been made.”

Andy Carter, Tory MP for Warrington South, said he had been asking questions about the council’s investment in Together for the past two years.

“The story about how Warrington council’s investment in Together Energy is one of the best examples of what councils should not be doing,” he added.

In the financial year that Warrington council made its initial investment in Together, the company made losses of £11m and had net liabilities of £19m, although its directors expressed confidence at the time that it was “well positioned” to achieve sales growth and profitability “in the future”. 

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The most recent available accounts for the company, for the year to October 2020, and before the current crisis in the energy market, showed losses had narrowed to £3.8m but its net liabilities had increased to £22.8m, of which it attributed £17.2m to preference shares held by Warrington council.

Together did not respond to questions about its cash position and whether it would be able to make the £12.4m payment required by Ofgem.

A statement on the company’s website said: “There’s 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 accounts for 2020-21, the council said: “Warrington’s credit challenges relate to its higher risk appetite than is the norm for the sector which is reflected in high debt levels and high exposure to commercial risk through its investment portfolio.”