Illustration: Rosie Carmichael
The council’s arrangements for making decisions about Bristol Energy have been condemned as “inadequate” in a damning independent report.
Bristol City Council’s external auditor Grant Thorton issued its opinion on the governance arrangements for the authority’s failed energy company as part of its audit of the council’s accounts for 2019/20.
It concluded the authority’s ruling Labour cabinet was not properly informed before it invested extra money into Bristol Energy in its last full financial year of trading.
It said the information the cabinet received from the shareholder group was “inadequate”, “did not clearly state the risks”, and was “out of date”.
The firm’s business plan was “unrealistic” and the council’s audit committee should have had “closer involvement” with the issues relating to the investment of taxpayer money, the auditor added.
The news follows revelations Bristol Energy lost more than £50 million in the five years before the council finally admitted defeat and sold it last year, having poured around £36.5 million into the doomed venture.
Opposition councillors have been warning about the folly of continuing to invest in Bristol Energy since 2016, when the current Labour administration inherited the company set up in 2015 under the previous cross-party cabinet.
The Labour leadership maintains they have taken “reasonable, well-governed decisions informed by independent advice and scrutiny” throughout, and that their governance of Bristol Energy has been open and transparent.
Mayor Marvin Rees said: “This report shows exactly why Bristol should never have been operating in the commercial energy market.”
The auditor’s much-awaited value-for-money report for the financial year 2019/20 noted that the council made changes to the governance arrangements for Bristol Energy and its other companies that year.
Bristol Energy (BE) is a subsidiary of Bristol Holding Limited, which is wholly owned by the council.
Information ‘inadequate’, business plan ‘unrealistic’
The auditor said: “Arrangements for communicating key inputs to cabinet from the shareholder group and Bristol Holding Limited, as well as the outcomes of scrutiny from the Overview and Scrutiny Management Board (OSMB), were inadequate.
“As a result, the information and papers provided at the January 2020 cabinet did not clearly state the risks faced by BE, or provide sufficient robust information to enable cabinet to make an informed decision.
“In our opinion, and supported by subsequent events, BE’s business plan represented an overly unrealistic view of how BE might perform.”
Cabinet members approved the business plan for BE for the years 2020/21 to 2024/25 at the meeting.
But they were not formally told that the independent shareholder advisor was “unable to support the business plan” or about other concerns raised at the shareholder group, the auditor noted.
An exempt financial report was “out of date”, the risks listed in the exempt version of the business plan “did not feature prominently”, and a report warning it would “not take much” before Bristol Energy needed more council taxpayer funds was buried in the appendices.
Company’s role ‘misjudged’
The auditor also said the council’s “misjudged” opinion that Bristol Energy was key to the success of another council energy initiative, City Leap, restricted business plan options for the firm, including its sale.
“Whilst previous consideration had been given to the sale of BE, this was not actioned until BE was in severe financial crisis and no other options were available,” the report said.
The auditor added that the council’s audit committee, charged with providing assurance about the authority’s governance and risks, had not “always been” well enough informed about BE in 2019/20.
Concerns over openness and transparency
“Audit committee members should have had a closer involvement with the issues relating to the council’s investment in BE during the year,” it said.
“The situation has been compounded by the fact that some information and decisions, such as decisions made by the shareholder representative (deputy mayor), are not routinely published.
“In our opinion and based on practice elsewhere, we consider that these decisions could be published by the council.
“This approach, which restricts access to information, some of which does not need to be confidential, is creating concerns that the council is not as open and transparent as it could be and should now be addressed within its governance arrangements.”
The auditor made 12 recommendations relating to governance, openness and scrutiny in relation to the council’s companies.
Grant Thornton is yet to decide whether it will undertake a public interest report into Bristol Energy which would assess the council’s involvement in the company from inception to sale.
‘We took reasonable, well-governed decisions’
Mayor Rees said: “This report shows exactly why Bristol should never have been operating in the commercial energy market. We were left needing to balance the legitimate needs of owning a commercial company in a high-paced, volatile marketplace without the possibility of a governance system that could meet those needs or the in-house experience of running an energy retail service.
“We took reasonable, well-governed decisions informed by independent advice and scrutiny, trying to protect taxpayers throughout a high-risk endeavour; one which was inherited from a previous administration along with a flawed business plan.
“Ultimately, we couldn’t have predicted the changes in the energy market and the impact of Covid-19 that finally put Bristol Energy beyond salvage.
“We acknowledge the report’s recommendations around governance but ultimately, none of the findings in this report have any effect on the eventual outcome. Nor would they have changed our decisions, which were always taken in the public interest as we grappled with the challenge we were given.
“Whatever could have been improved, the issues were well-aired during exempt sessions of Cabinet and all sides were able to comment, including scrutiny groups. Decisions were made appropriately with eyes open to the issues and risks, so it is frustrating that this wasn’t as well-evidenced in the records as it could have been.
“Inevitably when you put processes and practices under a microscope there are things you could do better, and we’re happy to make reasonable changes to maintain high standards of governance and transparent decision-making.”
Council acted with ‘integrity’ –
Deputy mayor and cabinet member for finance, Craig Cheney, told BBC Radio Bristol today (January 18) that the council acted on repeated advice from external experts that Bristol Energy would “start to turn a profit”.
“At no point did we sign off on taxpayer money knowing that that would never be returned,” Cllr Cheney said.
“There was always a view that we would be able to make the money back in the future.”
He said the council had acted with “integrity” and worked hard to be as transparent with information as possible.
“I think the problem all stems from the council being in a commercial marketplace.
“Once the council entered a commercial marketplace, which is something we inherited from the previous administration, we were then obliged to make decisions, often which were unable to share with the public because of the negative impact that could have on the company itself.
“From the minute that the company was set up in 2015/16, any decision to sell would have resulted in the loss of all the taxpayers’ money that had gone into it so far.
“So every decision we made from then on was to try and extricate ourselves from that situation by trading our way out of the problem.”