Published on Tuesday, 14th August 2018

 

It what looks like a serious mistake, the City Council is to spend up to £3.5m winding down its energy company before it has even started trading.

 

The company, Victory Energy, was to supply electricity and gas to consumers both locally and across the region. Its selling points would have been local promotion, including at events and door-to-door, a community fund to plough back some of the expected profits and a focus on helping people reduce their electricity consumption. The aim was to generate a profit to fund local services.

 

An in-principle decision to form the company was taken last year. After the elections, the LibDems commissioned PriceWaterhouseCooper to review the business model and they came back with a clean bill of health. Even under the most pessimistic scenario, Victory Energy would start making a profit in the fourth year of operation – and actually once the community fund is factored in, it was earlier still. The £2m-a-year profit would cover the entire cost of the library service and the cost of keeping weekly bin collections. With more savings to find, both those are now no longer guaranteed.

 

I have heard the number of £19.3m stated as the worst case loss, but that is not accurate. Even if the company had failed, the customer book would have had value and the actual maximum risk was £6.5m. As it is, it will cost £2.5m-£3.5m to close the business and to write off the investment already made.

 

Victory Energy’s business plan had already been assessed by Baringa last year, but wanting a second opinion was understandable. What is harder to explain is why when that came back as positive, a decision was still taken to pull the plug.

 

You can read the full report here.

 

Tags: Commerialisation