CABINET – 06 July 2015 EXECUTIVE SUMMARY OF AGENDA ITEM 6 Report title: Establishment and trading of an Energy and Technology company Wards affected: City-wide Strategic Director: Barra Mac Ruairi, Place Report Author: William Edrich, Service Director - Energy RECOMMENDATIONS for the Mayor’s approval: 1. To agree the governance approach of Bristol Energy the principal elements being

a. The establishment of a shareholder’s group consisting of the Mayor, the assistant Mayors, the chair of overview and scrutiny management committee and two independent advisors one specialising in ethics and the other finance.

b. That the shareholder’s group will review the operation of Bristol Energy from a shareholder’s perspective, typically at the AGM in July and the annual business plan investment meeting in December.

c. That non-executive directors will be recruited and appointed to Bristol Energy.

d. Recruitment of non-executive directors for the company and the independent advisors on the shareholder’s group will be conducted via an open recruitment process and appointed on merit.

e. The summary of key reserved matters and delegations as outlined in appendix one and their incorporation into a shareholder agreement.

f. The remuneration of non-executive directors and advisors to the shareholder group be in line with similar remuneration levels for other similar sector bodies.

2. To note the establishment of Bristol Energy and Technology Services limited as a wholly Council owned private company and the appointment of interim directors.

3. To agree that the standard model Articles of Association from Companies House be utilised for Bristol Energy.

4. To agree the Business plan of Bristol Energy. (exempt under section Paragraph 3 of the Local Authorities (Access to information) (Variation) Order 2006 which amends Part 1 of Schedule 12a of the Local Government Act 1972)

5. To agree to provide a range of cash, credit, collateral and guarantee support to Bristol Energy (on market terms) in accordance with the company’s current and future approved business plan and delegate authority to the s151 officer to negotiate, sign and enter into the necessary contracts and agreements (including appropriate loans and guarantees) with due regard to the Council’s credit rating and cash position on an on-going and flexible basis.

6. To agree the provision of up to £1,500,000 set up costs (on market terms) be allocated to Bristol Energy for the establishment phase of the company.

7. To agree to proceed to controlled market entry (establishment phase) and full trading in accordance with the business plan.

8. To agree to recruit permanent staff to Bristol Energy. 9. To agree that all council staff time and other appropriate resource spend in

establishing the company will be loaned as a debt on the company’s accounts to be repaid at commercial market rates.

10. To note that the establishment of Bristol Energy is a principal key output of the ELENA programme.

Key background / detail: a. Purpose of report: To obtain Cabinet approval for the governance structure and business plan of Bristol Energy and Technology Service limited (Bristol Energy) to enter and trade in the UK energy retail market. To allocate up to £1,500,000 to Bristol Energy for controlled market entry and agree ongoing credit, cash and collateral arrangements during the company’s operation. To note that where investments (e.g. in human resource, credit, cash, collateral and investment finance) are treated as debt in Bristol Energy’s accounts, these will be repaid to Bristol City Council at commercial interest rates. b. Key details: The Cabinet, following consideration of the report, ‘Investing in a Low Carbon Future for Bristol - a Bristol Energy Company and Energy Investment Programme’ approved, in principle, the establishment of a municipal energy company in September 2010 with cross-party support. Following the review of the outline business case the cabinet in February 2015 agreed to proceed to establish a municipal energy company, subject to a positive outcome of a detailed business plan indicating the following.

1. Bristol Energy would make a satisfactory return on investment? Answer: The current business model is indicating a rate of return of 12% at year five and 35% year ten.

2. A comprehensive marketing and acquisition strategy? Answer: Due diligence by PwC has indicated that the customer number figures contained within the business model as prudent.

3. A comprehensive energy trading approach? Answer: Due diligence by PwC has indicated that the trading strategy within the business model is credible.

4. A governance structure, which ensures that the council as the shareholder can exert its social, environmental and economic ethos over the company, while allowing the company to compete in the commercial marketplace? Answer: The proposed governance structure with the checks and balances at Shareholder, Board and day to day operational level achieves this.

5. The overall strategic objectives of the company support the Council’s corporate objectives? Answer: It does wholly

The detailed business plan has provided the required level of detail and confidence, which has had a number of assurance tests, therefore officers now wish to proceed with Bristol Energy entering into the energy market. In addition the Cabinet at the 3rd February 2015 agreed the following recommendations, which have not been progressed due to time constraints caused by developing the detailed business plan. The omission of these items does not affect the viability of the proposal. a) To develop a business plan to establish a City “sovereign” wealth trust (along

similar lines as the Shetland Islands). Answer: this item has not been progressed due to time constraints. The timeframe on when this item will be progressed is unclear at the moment.

b) To develop a complementary business plan for the provision of smart meters that supports the ‘Bristol is Open’ initiative and the council’s digital strategy. Answer: this item has not been progressed due to time constraints. Work on this item will be carried out during the autumn and winter period.

AGENDA ITEM 6

BRISTOL CITY COUNCIL CABINET

6TH July 2015

REPORT TITLE: Establishment and trading of an Energy and Technology company

Ward(s) affected by this report: City-wide Strategic Director: Barra Mac Ruairi, Place Report author: William Edrich, Service Director - Energy Contact telephone no. 0117 92 24991 & e-mail address: bill.edrich@bristol.gov.uk Purpose of the report: To obtain Cabinet approval for the governance structure and business plan of Bristol Energy and Technology Service limited (Bristol Energy) to enter and trade in the UK energy retail market. To allocate up to £1,500,000 to Bristol Energy for controlled market entry and agree ongoing credit, cash and collateral arrangements during the company’s operation. To note that where investments (e.g. in human resource, credit, cash, collateral and investment finance) are treated as debt in Bristol Energy’s accounts, these will be repaid to Bristol City Council at commercial interest rates. RECOMMENDATIONS for the Mayor’s approval: 1. To agree the governance approach of Bristol Energy the principal elements being

a. The establishment of a shareholder’s group consisting of the Mayor, the assistant Mayors, the chair of overview and scrutiny management committee and two independent advisors one specialising in ethics and the other finance.

b. That the shareholder’s group will review the operation of Bristol Energy from a shareholder’s perspective, typically at the AGM in July and the annual business plan investment meeting in December.

c. That non-executive directors will be recruited and appointed to Bristol Energy. d. Recruitment of non-executive directors for the company and the independent

advisors on the shareholder’s group will be conducted via an open recruitment process and appointed on merit.

e. The summary of key reserved matters and delegations as outlined in appendix one and their incorporation into a shareholder agreement.

f. The remuneration of non-executive directors and advisors to the shareholder

group be in line with similar remuneration levels for other similar sector bodies. 2. To note the establishment of Bristol Energy and Technology Services limited as a

wholly Council owned private company and the appointment of interim directors. 3. To agree that the standard model Articles of Association from Companies House be

utilised for Bristol Energy. 4. To agree the Business plan of Bristol Energy. (exempt under section Paragraph 3 of

the Local Authorities (Access to information) (Variation) Order 2006 which amends Part 1 of Schedule 12a of the Local Government Act 1972)

5. To agree to provide a range of cash, credit, collateral and guarantee support to Bristol Energy (on market terms) in accordance with the company’s current and future approved business plan and delegate authority to the s151 officer to negotiate, sign and enter into the necessary contracts and agreements (including appropriate loans and guarantees) with due regard to the Council’s credit rating and cash position on an on-going and flexible basis.

6. To agree the provision of up to £1,500,000 set up costs (on market terms) be allocated to Bristol Energy for the establishment phase of the company.

7. To agree to proceed to controlled market entry (establishment phase) and full trading in accordance with the business plan.

8. To agree to recruit permanent staff to Bristol Energy. 9. To agree that all council staff time and other appropriate resource spend in establishing

the company will be loaned as a debt on the company’s accounts to be repaid at commercial market rates.

10. To note that the establishment of Bristol Energy is a principal key output of the ELENA programme.

The proposal: The Cabinet, following consideration of the report, ‘Investing in a Low Carbon Future for Bristol - a Bristol Energy Company and Energy Investment Programme’ approved, in principle, the establishment of a municipal energy company in September 2010 with cross-party support. Following the review of the outline business case the cabinet in February 2015 agreed to proceed to establish a municipal energy company, subject to a positive outcome of a detailed business plan indicating the following.

1. Bristol Energy would make a satisfactory return on investment? Answer: The current business model is indicating a rate of return of 12% at year five and 35% year ten.

2. A comprehensive marketing and acquisition strategy? Answer: Due diligence by PwC has indicated that the customer number figures contained within the business model as prudent.

3. A comprehensive energy trading approach? Answer: Due diligence by PwC has indicated that the trading strategy within the business model is credible.

4. A governance structure, which ensures that the council as the shareholder can exert its social, environmental and economic ethos over the company, while allowing the company to compete in the commercial marketplace? Answer: The proposed governance structure with the checks and balances at Shareholder, Board and day to day operational level achieves this.

5. The overall strategic objectives of the company support the Council’s corporate objectives? Answer: It does wholly

The detailed business plan has provided the required level of detail and confidence, which has had a number of assurance tests, therefore officers now wish to proceed with Bristol Energy entering into the energy market. In addition the Cabinet at the 3rd February 2015 agreed the following recommendations, which have not been progressed due to time constraints caused by developing the detailed business plan. The omission of these items does not affect the viability of the proposal. a) To develop a business plan to establish a City “sovereign” wealth trust (along similar

lines as the Shetland Islands). Answer: this item has not been progressed due to time constraints. The timeframe on when this item will be progressed is unclear at the moment.

b) To develop a complementary business plan for the provision of smart meters that supports the ‘Bristol is Open’ initiative and the council’s digital strategy. Answer: this item has not been progressed due to time constraints. Work on this item will be carried out during the autumn and winter period.

Strategic fit The strategic objectives driving Bristol Energy have not wavered through the development of the business plan. At its heart it is an ethical company, which will help local communities to thrive together in a more sustainable way. These ethical objectives can be summarised as follows: Bristol Energy will have a mission to deliver reduced social inequality, improved environmental performance and sustainable economic prosperity. These core objectives will be achieved by, amongst other things:

• focusing on locally generated, low carbon energy, with a mission to be the most environmentally conscious and trusted local energy supplier;

• providing a fairer deal for households currently on prepayment meters; • supporting community investment in renewable and low carbon projects; • developing district heating, electrical distribution and broadband/digital networks;

and • protecting the city’s critical infrastructure, thereby improving energy security and

resilience. As a result, Bristol Energy will be a completely different type of energy company, which will challenge the norm. The company is not wholly motivated by profit and will be a force for social good. Built on strong values of fairness, accountability and community, every customer will benefit. Bristol Energy will be a company the City can be proud of and it will support the business of the Council, generating a new revenue stream for the Council to reinvest into the City. The launch of Bristol Energy whilst Bristol is European Green Capital will maximise the profile of Bristol Energy and provide a vehicle to promote the city on the world stage and attract both public and private investment. The establishment of Bristol Energy will be a key milestone in the Bristol 2015 programme of events, showcasing Bristol as a national

leader on sustainability and energy. Legal structure A holding company, limited by shares and wholly owned by the Council, (Bristol Energy and Technology Services Ltd “BETS”)) with a wholly owned subsidiary company (limited by shares), remains the recommendation as being the most suitable structure that will achieve the Council’s objectives. The standard model of articles of association from Companies House have been adopted for BETS [and will be utilised for the subsidiaries, where appropriate] to provide Bristol Energy maximum flexibility to trade in accordance with the shareholder’s wishes. The governance arrangements, including Reserved Matters and Board appointment process can be found in Appendix One. A shareholder Agreement will give effect to these. Business plan and financial model Business plans, supported by a financial model, have been developed and a successful due diligence has been carried out by PwC. The business plan is indicating a rate of return of 12% at year five and 35% year ten. It should be noted that the Council is also exploring the opportunities presented by smart metering through the creation of metering and distribution companies to develop electricity, gas, digital and heat distribution networks, as well as improving the resilience of the City’s existing distribution network. The business cases for these companies along with the Energy service will be developed post July and will be subject to a series of other cabinet reports. Objectives and outcomes The detailed business plan provides the quantitative and qualitative evidence to demonstrate the viability of the Council meeting its objectives in relation to Bristol Energy. These objectives include: 1. To create a licensed gas and electricity supply energy company offering customers the

opportunity to purchase gas and electricity at a price that represents a fair deal to them. 2. To use Bristol Energy as a vehicle to route power from existing and planned Council-

owned or community-owned low-carbon generation assets to local consumers. 3. To position Bristol Energy as the preferred choice for local low carbon electricity

generators seeking offtake arrangements for their power. 4. To develop Bristol Energy such that it can scale up rapidly, in terms of customer

numbers and additional services that may be offered to consumers, and dovetail with the Council’s plans to distribute energy across locally built networks, and

5. For Bristol Energy to go-live during 2015 to coincide with Bristol’s European Green Capital 2015 year.

Timeline

Following Cabinet approval, Bristol Energy will

1. Enter into the energy industry’s controlled market entry process; a period of system testing involving small numbers of live customers, known as Controlled Market Entry (CME), to ensure that its systems and processes are robust. Summer 2015

2. Subsequently following completion of CME to enter into full trading at an increasing rate and eventually on an unrestricted basis. Autumn 2015

3. Recruit and nominate for shareholder approval non-executive Directors of the Boards. Autumn 2015

4. Recruit and nominate for shareholder approval executive Directors of the companies. Summer 2015

Consultation and scrutiny input: The development of the Bristol Energy has been the subject of Scrutiny and Party Group briefings. a. Internal consultation: Various consultations with elected members and Strategic and Service Directors of Bristol City Council during autumn/winter 2014 and Spring 2015. b. External consultation: Public engagement and market testing exercises have been undertaken during the first half of 2015, the findings of which are contained in the business plan. Other options considered: No changes as outline in the February 2015 cabinet report. Risk management / assessment:

Table 1 The risks associated with the implementation of the energy company: No. RISK

Threat to achievement of the key objectives of the report

INHERENT RISK (Before controls)

RISK CONTROL MEASURES Mitigation (ie controls) and Evaluation (ie effectiveness of mitigation).

CURRENT RISK (After controls)

RISK OWNER

Impact Probability Impact Probability

1. Detailed business model is inaccurate, leading to energy company failure and financial loss to the Council.

High High Specialist input from Cornwall Energy and other consultants to generate majority of assumptions. Key risks are around customer numbers and smart metering. Due diligence carried out by PwC.

Medium Low Bill Edrich

2. Incorrect specification for all system requirements.

High High Detailed business plan and negotiations with system providers supported by industry and IT experts, have lead to the choice of the system. Dedicated workstream for the detailed business plan. Due diligence carried out by PwC

Medium Medium Bill Edrich

3. In-house resource required to support project is not identified/not forthcoming.

High High Strong support at SLT, DLTs and Change Board occurred and is on-going.

Medium Medium Bill Edrich

4. Unable to meet project timetable due to delays in recruiting necessary staff with sufficient expertise.

High Medium Establishment phase has the required staff, recruitment on-going for permanent staff.

Medium Medium Bill Edrich

5. BCC/company relations are unclear or leave company unable to compete effectively in the market

High High Governance arrangements outlined in appendix one, including a variety of scrutiny meetings internally and externally

High Low Bill Edrich

6. Board membership is not sufficiently experienced, resulting in poor strategic decisions

High Medium Extensive, open Board recruitment process

High Low Bill Edrich

7. Poor energy company trading strategy results in it incurring significant financial losses.

High High Detailed business plan has developed a robust trading strategy including recruitment for a Director of Trading.

Medium Low

Bill Edrich

8. Interest from service providers and suppliers in the market is insufficient to meet the needs of the project and/or poor quality proposals are received from market

High Medium Soft market testing with service providers has occurred with significant interest.

Medium Low Bill Edrich

9. Loss of political/senior management support.

High Low Significant cross party support over a long period of time (> 4 years). Regular reporting to SLT, Change Board and Place DLT and wider stakeholder engagement strategy (including Members) for implementation throughout 2015.

Medium Low Bill Edrich

10. Project Nexus. Gas industry central system and rule change to enable smart meters and update settlement processes

Medium High Consider in detailed business plan with the option to fully outsource gas shipping function while new central systems are bedded in.

Medium High Bill Edrich

11. Reputational damage to the council from poor customer service or actions by the company

Medium High Company ti recruit experienced energy industry customer service staff and managers, assisted by establishment of a modern CRM system.

Medium High Bill Edrich

12. VAT & Tax implications are not thought through in terms of reputation and operationally.

Medium Medium The Council have requested expert advice from specialists on tax and VAT matters

Medium Low Peter Gillett

Table 2 The risks associated with not implementing the energy company: No. RISK

Threat to achievement of the key objectives of the report

INHERENT RISK (Before controls)

RISK CONTROL MEASURES Mitigation (ie controls) and Evaluation (ie effectiveness of mitigation).

CURRENT RISK (After controls)

RISK OWNER

Impact Probability Impact Probability

1. Reputational damage to the council and city during Green Capital year after publicly committing to setting up an energy company.

High High Undertake stakeholder engagement exercise, clearly explaining rationale for decision taken and highlighting work still being undertaken.

High Medium

2. Unable to deliver many of the strategic objectives that would be delivered by an energy company.

High High Seek alternative delivery routes, where possible subject to staff and funding being available.

Medium Medium

3. Unable to fulfil primary objective of the ELENA programme, risking Council’s reputation and jeopardising future funding opportunities.

High High Early engagement with EIB if Cabinet approval not forthcoming.

High Medium

4. No alternative income stream to Council

High High Other income streams would be sought but would not be of the

High High

same financial magnitude

5. Energy Service roles currently paid for by ELENA and other grant funding would either need to be funded by the Council if programme of work is to be delivered or made redundant.

High High Mitigation is to set up the energy company.

Low Low

Public sector equality duties: This proposal has been approved by the Equalities team. See Appendix Two for the full Equality Impact Assessment form. Eco impact assessment The significant impacts of this proposal are.... This proposal concerns approval for the governance and business plan of Bristol Energy. The company will have highly significant positive impacts and potential to reduce citywide emissions through energy management, new infrastructure, procurement, generation and supply of low-carbon energy. In addition, the company is seeking to provide social benefits, such as a fairer deal for households on pre-payment meters. Development of infrastructure such as district heating will also have negative impact due to the construction phase, as described in the checklist. Large projects in progress have already been assessed in previous Cabinet reports. There will be some impacts directly related to the establishment of the company: primarily related to office accommodation and travel for staff. The proposals include the following measures to mitigate the impacts...

• It is proposed that the company’s governance arrangements will include an Ethics Committee and the recruitment of specialist Non-Executive Directors, to ensure that the commitment to “triple bottom line” is implemented

• The company will implement an Environmental Management System, registered to the EU Eco Management & Audit Scheme

• Significant investment decisions will be assessed for social and environmental impacts, with appropriate mitigation as required.

The net effects of the proposals are... Positive Advice given by Steve Ransom, Programme Manager – Environmental Performance Date 27th May 2015 Resource and legal implications: Finance a. Financial (revenue) implications: No revenue implications Advice given by Tian Ze Hao, Finance Business Partner Date 20th May 2015 b. Financial (capital) implications: In addition to the £1.575m set up costs approved by the February cabinet, the Energy Company is seeking for approval to proceed to controlled market entry and full launch of

the Supply Company in accordance with the business plan. The business plan outlined the potential for the Energy Supply Company to provide a long-term dividend income stream to the Council. The business plan reports a range of operating surpluses following break-even in November 2017, based on the central customer uptake scenario. Although Bristol Energy moves into operating profitability in year 2017/18, from a cash flow perspective, it is expected to move into a permanent cumulative cash positive position from June 2019 onwards, representing a payback on initial investments in 4 years. Based on the output of the business plan, the rate of return of the company is 12% at year five and 35% at year ten, representing a credible long term investment proposition for the Council. The business plan has modelled a range of scenarios for sensitivity analysis under changes of growth profit margins, customer uptake numbers and industry exit prices. It is clear that customer numbers are a key profitability driver for Bristol Energy. Almost all modelled scenarios show that Bristol Energy becomes profitable within five years and only shows a cumulative loss after five years in the ‘disaster’ scenario. Supplementary to the funding support of £1.575m already approved by the February cabinet, the additional requirements in Council’s investments and supports for the Energy Company fall in to the following categories (based upon the central scenario in the business plan) :

1. Costs relate to Controlled Market Entry process, estimated at £1m, plus 50% contingency bringing the sum to £1.5m

2. Ongoing working capital cash support until the company moves into a permanent cash positive position in 2018/19. The business plan indicates the cash flow funding support (including cash collateral support) peaks at £10.9m in 2017/18.

3. Ongoing credit and collateral support for trading activities including the provision of parental guarantees.

4. The cost associated with the Council’s officers’ time spent on the programme. All of the above supports to the Energy Company will be provided on a commercial basis, either in the form of equity investments or through commercial loan agreements, subject to state aid requirements Specialist advice has been provided by the Council’s Treasury Management advisors on the appropriate commercial rate of interest the Council should charge on loans, to meet state aid regulations. These are as follows: Table 1 – Commercial Interest Rates for Loans to Wholly Owned Subsidiaries

Level of Collateral 1 Year 10 year

None / Low Collateral 11.20% 11.57%

Normal Collateral 7.52% 8.07%

High Collateral 5.02% 5.57%

The details of the loan term and the relevant rate for that term will require approval through the shareholder agreement. In the event that the detailed business case of the Energy Company is not agreed by the cabinet on 6th July, and the Energy Company does not progress to CME and full trading

stage, there are costs that have been spent or committed which will become abortive, non-recoverable costs that will have to be funded by the Council. The current estimate of non-recoverable costs is within the original £1.575m funding envelope that the cabinet agreed on 3rd February. It was reported to the cabinet at that time, that in this event, £1.575m would become abortive costs. Other risks and exposures that the Council should consider include:

1. Increase in working capital funding requirements: This may increase for a variety of reasons including: 1) Over trading. More customers than expected hence more interim funding required for trading activities. 2) Fewer customers than expected hence more interim funding required to cover operating costs. 3) It is also possible that the Council may need to act (and provide additional working capital support) to keep the company funded whereas a private sector owner may be prepared to let the company fail.

2. Parental guarantees: Early discussions with the potential wholesale trading

counterparties indicate parental guarantees will be required. The same may be true for those arrangements that the Energy Company has in place with other industry service providers. E.g. National grid and collateral requirements for CUSC, DCUSA. The Council will be required to carry out relevant risk assessments on the guaranteed liabilities and will be required to provide the relevant funds under the risk exposure in its own financial statements each time when a Parental Guarantee is issued, this will subsequently be audited. It is important to note that this presents a charge to the Council’s revenue accounts and therefore needs to be budgeted for.

3. Letters of Credit and Bank Guarantees: depending on the arrangement with wholesale trading counterparties, a Letter of Credit or a bank guarantee may also be required. Any Letters of Credit that the Company is asked to provide is likely to need the Council’s support by way of cash collateralisation or counterindemnity.

4. Cash Collateral: depending on the arrangement with wholesale counterparties, cash

collateral may also be required. On the basis that this cash collateral support would come from the Council, again it is subject to the risks highlighted in point 1.

5. In the event that the Energy Company should cease to be a going-concern, the Council may also be “politically” obligated to cover any shortfall in pension contribution, redundancy payment and prepayment of customer credit liabilities.

To mitigate the above risks, the Council should ensure that it has sufficient control and monitoring rights enshrined in the governance framework to closely manage the financial performance of the company. It should detail rules and processes for accessing ongoing financial support, and set out funding limits and payment time scales. In addition, the Council may consider attaching a fixed or floating charge over the company’s assets, which would protect the Council as the main lender. The business plan and related assumptions have undergone due diligence review from PWC, and have been found overall reasonable. However, specific improvements were suggested, including further redesign of the financial model using modelling best practice, further realignments to strategic rationale and further developments on the Target Operating Model. Additional advice is in the process of being procured to provide support on developing an operational financial model to deal with the ongoing financial management issues and provide assurance on ongoing cash flow, funding requirements

and funding mechanisms from the shareholder’s perspective. Depending on the decision of approval, additional governance arrangements should be put in place within the Council to manage the risk exposures and to oversee the decision making process. The council should ensure that it has sufficient control and monitoring rights enshrined in the Shareholder Agreement to enable it to understand and take timely business decisions on emerging issues which could threaten the viability of the business. Advice given by Tian Ze Hao, Finance Business Partner Date 20th May 2015 Comments from the Corporate Capital Programme Board: Not required. c. Legal implications: Legal advice (both detailed and comprehensive) has been obtained throughout the project to date, including advice on state aid and procurement issues associated with dealings between the Council and the company (including the transfer of assets, loans and guarantees), and this will continue to inform the terms of proposed arrangements between the company and the Council. The company will continue to be subject to the Utilities Contracts Regulations 2006 in respect of certain of its activities (allowing for use of certain exemptions to normal procurement requirements) The proposed governance arrangements will secure the Council position as the sole shareholder. A formal “shareholder agreement” will be concluded to give effect to these. Advice given by Eric Andrews, Solicitor Date 28th May 2015 d. Land / property implications: Bristol Energy will require its own accommodation for staff that will need to be sufficiently flexible to allow it to grow as staff numbers increase, in line with customer up take. In addition depending upon the outcome of the detailed business plan work during the first half of 2015 some of the back office functions may well be provided by the Bristol City Council, which may impact upon the BWP programme; if this is the case the implications will be set out in the detailed business plan. Bristol Energy may require land owned by Bristol City Council to locate generation infrastructure and this might provide potential financial benefit to the Council providing such land is leased or sold at open market rates; conversely, there would be no obvious downside risk to the Council from such land transactions, providing that in each case the terms of the transaction allowed for the possibility/risk that the ownership of the Energy Company might change either in full or part in the longer term. Advice given by Richard Fear – Service Manager (Property Management) Date 25th June 2015

e. Human resources implications: The approval of the recommendations in this report will enable Bristol Energy to commence permanent recruitment to key roles in Bristol Energy and in particular the Managing Director and Director roles in the Trading Company. The proposed remuneration packages for these roles have also been the subject of independent review. The positions will be advertised soon. The Shareholder Group will approve the remuneration package and appointment arrangements for the Director roles before a formal offer of employment is made. All employees who are hired directly by Bristol Energy will be employed in accordance with the Company’s HR policies and terms and conditions of employment. These will be approved by Bristol Energy Board of Directors for all employees below Director level. The Shareholder Group will approve the remuneration and terms and conditions of employment for all Directors. The arrangements for the transfer of staff from the City Council’s Energy Service to Bristol Energy have not yet been finalised will be the subject of a further report to Cabinet at a later date. Advice given by Mark Williams Date 28th May 2015 Appendices: App 1 Governance App 2 EQIA App 3 Other options App 4 QA during business plan Exempt Appendix – business plan

APPENDIX 1: GOVERNANCE ARRANGEMENTS The governance of organisations, institutions and companies is of paramount importance in ensuring success of the entity. History is littered with examples where good governance practices have broken down or were not instigated at the outset, leading to spectacular failure of the company or in some cases whole industrial sectors, which have impacted on the global economy. Bristol City Council is seeking to establish an energy company (Bristol Energy and Technology Services Ltd, hereafter referred to as Bristol Energy). Set out below is a summary of some of the proposed governance arrangements and issues that have been considered in the establishment of Bristol Energy.

• Longevity and flexibility of arrangements • The relationship of the Bristol Energy to the shareholder (Bristol City Council) • The role of Council’s Scrutiny Board • Reserved matters and delegations • Representation on the board • Roles and responsibilities • Strategic business planning • Cultural interface • Democracy and commercialism • Ethical considerations

Within this appendix we will seek to explore and propose routes, processes and solutions to the issues raised above. Longevity and flexibility of arrangements While the business plan of Bristol Energy is written to encompass the next ten years, the likelihood is that the Bristol Energy could be with the Council for decades, for example our twin city Hannover’s Energy Company is 125 years old and has been part of the city for that length of time. Therefore, the structure of Bristol Energy and its governance arrangement has been designed to allow the greatest freedom and flexibility possible to accommodation the desire of the shareholder and issues that might arise in the future. For example; the company can be part of a larger group structure, it can accommodate other equity investment, it allows joint venture arrangements, part or all of it can be floated on the stock exchange, it can be “shareholder democratised” through the issuing of shares to consumers or citizens of the city, parts of it can be brought back into the council, it can expand into other fields other than energy, it can work oversees, it can invest in other companies. This in-built flexibility will allow it to meet the challenges of the future in line with the desires of the shareholder at the time. The relationship of Bristol Energy to the shareholder (Bristol City Council) Legal advice has been sought to the most appropriate structural organisational arrangement to carry out the strategic sustainable energy aims of the Council from a procurement and management perspective. The result is the Council has established Bristol Energy and Technology Services limited that will purchase a licenced energy supply company; they will trade as Bristol Energy.

Along with the establishment of Bristol Energy outlined above, it is envisaged that the Council will establish a shareholder group (SHG) to review Bristol Energy and advise the shareholder representative. The role of the SHG will be to provide the necessary oversight from a shareholder’s perspective that the parameters, policies and boundaries that Bristol City Council as the shareholder establishes for the company are being adhered to. It is currently proposed that the SHG consists of the Mayor (shareholder representative), Cabinet, Chair of Overview and Scrutiny Management Committee and up to two independent advisors. The independent advisors would support two different aspects of the shareholder remit, one specifically with a specialism in ethics and the other finance. It is proposed that the shareholder group would have three task and finish sub-committees consisting as follows

• Audit & Risk committee The Audit & Risk committee would review the audit and risk policies, practices and procedures of Bristol Energy, ensuring that these are robust and being carried out. The committee would also review the annual report ahead of the AGM in July and annual business plan ahead of the business plan meeting in December. In addition it would ensure any exceptions and corrections highlighted by the auditors were being managed and completed by the Board.

• Ethics The Ethics committee would review the ethics policies, practices and procedures of Bristol Energy, with reference to the shareholder’s desires ensuring that these are robust and being carried out. The committee would also discuss and propose solutions in conjunction with the company, regarding ethical issues arising from the supply and generation of energy from an environmental, social and economic perspective.

• Nominations and Remuneration The Nominations and Remuneration committee would sit on-a-needs-too basis to either set the remuneration and performance of the executive Directors of Bristol Energy or to approve Bristol Energy’s nominations of Non-Executive Directors to the Bristol Energy’s Board or appointment of Executive Directors to Bristol Energy.

The shareholder representative would have discretion on who it wishes to appoint to the specific individual task and finish sub-committees to undertake the specific piece of work required. Therefore, it is envisaged

that the individual sub-committees would not have a permanent membership but would be-able to be flexible to meet future requirements. It envisaged that any non-member of the shareholder group would be required to sign appropriate non-competition and non-disclosure agreements and further details will be contained in the shareholder agreement. The role of Council’s Scrutiny Board Bristol City Council has a number of scrutiny boards established to review and scrutinise the decisions of the executive (Mayor) of the Council. The Council’s scrutiny process is managed through the Overview and Scrutiny Management (OSM) board. It is proposed that the Chair of OSM sits on the shareholder’s group to provide the linkage between the shareholder group and the Council’s scrutiny function. The OSM Chair would therefore, be-able to identify areas that councillors might wish to scrutinise the shareholder representative on with regards to the shareholder representative’s role in setting and reviewing policies and procedures of Bristol Energy. Reserved matters and delegations Standard operational practice between companies and shareholders and within group company structures is the establishment of a formal decision making processes, outlining which element of the structure can take what decisions. Typical known as reserved matters and delegations. A table of the key reserved matters and delegations is set out below.

Matters Shareholder Representative Bristol Energy

Varying Articles of Association ? Varying ownership and structure ? Winding up/entering administration ? Variations to shares (number of, rights, etc.) ? Altering the mandate with the Bank ? Altering the company name ? Contracts that have a material effect on BBC business ? Material legal proceedings outside of ordinary business ? Adopting/amending business plan (1 year) ? Adopting/amending strategic plan (3 years) ? Assigning any books debts of the company ? Contracts – significant/not relating to business ? Staff appointments & dismissals at Director level ? Remuneration of directors ? Appointment of auditors ? Dividends ? Day-to-day operational decisions Selection of the Chair of the Board Approval of resolutions at annual general meeting Specific tariffs Staff appointments below director level Remuneration policy for staff Approval of policies e.g. H&S etc Major changes to insurance and pension provisions - Decision /Approve ? – To suggest / propose

Representation on the board Successful boards have a broad range of experience and skills, which enable companies to operate dynamically within the constraints established by its shareholder and its market place. Typically boards are made up of Executive Directors who manage the day to day operation of the company and Non-Executive Directors (NEDSs) who in conjunction with the executive directors manage the strategic direction of the company. NEDs also provide valuable oversight and critical challenge to the executive, as well as providing access to other useful networks. The Council is proposing to establish an energy company that will span three significant arenas, these being the local authority arena, the energy market arena and the sustainability /social / “ethical” arena. Our understanding is that this is currently unique within the UK market and requires Bristol Energy to consider broadly the implications of its actions within these three arenas. Therefore, it is proposed that the board representation on the two energy companies is broad in its experience and skill set. It is envisaged that the recruitment to the boards would commence after approval at the July cabinet and will be via an open recruitment approach typically through placement of adverts, use of personal networks and possible use of a head-hunter agency. It is currently proposed that each of the board’s composition would be as follows.

Bristol Energy & Technology Services Number Consisting

Executive Directors 3 Strategic Director, MD Holding, MD Supply NEDs 4 Finance specialist, Marketing specialist, Industry specialist,

Governance/ethics specialist

Energy Supply Number Consisting Executive Directors 4 MD Holding, MD Supply, Director of Operations & Finance

Director NEDs 5 Finance specialist, Marketing specialist, Industry specialist x2

Governance/ethics specialist

Roles and responsibilities Identifying and outlining the roles and responsibilities of the leadership positions within the structure is crucial to good governance, allowing each party to understand their significance in achieving the outcomes that the Council wishes to obtain from establishing Bristol Energy. Set out in the table below is the high level roles and responsibilities of the main constituent positions and boards.

Constituent element Role and Responsibility

Shareholder Representative and Group

Twice yearly meetings (AGM & Investment) with Bristol Energy ensuring adherence with parameters, policies and processes. Ad hoc review through audit and ethic committees and review of nominations and remuneration submissions from Bristol Energy. Review and final approval on any reserved matters, submissions by Bristol Energy.

Bristol Energy & Technology Services Board

Maintenance and input into the strategic direction of the energy subject matter for the Council in line with Council policy and strategic corporate plan. Sign off on all submissions on grant applications and investment decisions to ensure that they support the strategic business plan and council wide policy and corporate plan. Day to day interface with the Council’s management and decision structure to assist in leveraging opportunities to further improved service delivery. Management of the content and process of the AGM and Investment meetings. Responding to ad hoc Shareholder committee meetings and requests for information. Sign off on policies and procedures for group and their interface with the Council, including remuneration policy for staff, suggested payment of annual dividends, etc as outlined in the reserved matters. Managing audit, ethics and remuneration and appointment board sub-committees.

Energy Supply Board Management of the supply of gas and electricity to third parties and the expansion of the supply business in line with the business plan. Operational and maintenance management of the energy generation and infra-structure assets to ensure the provision of excellent service and to maximise financial returns. Responding to and providing information on progress of the business plan to the relevant Bristol City Council boards and finance section. Drafting grant applications and capital investment application for approval, including input into the AGM and Investment meetings. Advising and disseminating policy and applied learning experience and information to other entities as appropriate.

Strategic business planning One of the principal objectives of establishing the proposed structure is to provide improved services to citizens and businesses within Bristol and its surrounding hinterlands through a more dynamic “21st Century” public service delivery approach. This principle requires that Bristol Energy while independent of day to day operational control from the Council, still align and interface with the strategic objectives of its shareholder and support the service delivery, policies and objectives of the Council and its other services.

To enable this to happen it is paramount that close strategic alignment of the council and company occurs and is aided through operational day to day activities. The outlined structure below has been designed to enable this to happen with strategic and operational business planning occurring via the following arrangements.

Bristol Energy Board meetings

Bristol Energy Management

group

Bristol City Council

Change, Capital and Property

Boards

Bristol City Council Place

DLT

Shareholder Representative

& Group

Twelve monthly Bristol Energy & Technology Services board meetings

Weekly Group management meeting consisting of the two MDs, FD Supply & other Directors as appropriate

Attendance of MD Bristol Energy & Technology Services at the above meetings as appropriate

Attendance of MD Bristol Energy & Technology Services at the above meetings as appropriate

Twelve monthly Energy Supply board meetings

Weekly management meeting of Energy Supply

Day to day operational meetings with other Services as appropriate

Joint Boards of Bristol Energy meeting September to develop strategic business plan September

Development of Strategic Business plan kicked off in September and finalised by December Investment meeting with shareholder group. Interlinks with Council business plan / budget development during autumn period

Bristol Energy Investment meeting December

Investment meeting with Shareholder

Shareholder Representative & Group meeting

Bristol Energy AGM meeting July

AGM meeting with Shareholder

Shareholder Representative & Group meeting

Cultural Interface The cultural interface between Bristol Energy and the council represents one of the greatest risks to what the Council wishes to achieve. While the formal structures and governance arrangements as set out above can provide a framework for a positive culture to occur, in themselves they will not achieve it. Therefore, considerable consideration needs to be given about how the cultural interactions between the two entities are going to be developed. How will the best of both worlds be brought together to form a

Feedback loops across these meetings

new way of achieving services for citizens and businesses? Due to the importance and magnitude of this specific area a more detailed stand-alone piece of work outlining the approaches, methods and raison d'être will be developed delivered in an applied way throughout the first few years of operational trading. Typically the areas that might be explored and set out in the stand-alone document and approach are as follows.

• What type of culture are we trying to develop as the whole (across both entities) organisation? • What is the shared message(s)? • What are the mechanisms for disseminating the share message? • How do we “square” i.e. explain differences in employment terms and conditions? • How do we ensure that these employment terms and conditions are perceived to be fair? • How do we ensure that the senior leadership (new and existing) truly sign up and promote the

culture? • Through Performance Management how do we continue to promote and strengthen the culture? • How do we promote the culture in everyday meetings? • What practical mechanisms e.g. set pieces, joint project working, training and development can be

used to foster the required culture? • How can induction be used to foster the required culture? • How do we use the culture to resolve disputes, how does the culture aid dispute resolution? • How can culture assist and develop directors that straddle the various aspects of the organisation?

Democracy and commercialism One of the challenges that officers have been grappling with while establishing Bristol Energy is the tension between democracy and commercialism as outlined in the following figure.

The proposed structural governance and management arrangements as outlined in this appendix seek to address these tensions in the following ways.

• Commercial vs Democratic Commercial confidentiality is important for commercial organisations to succeed; Bristol Energy will be no different. For example, at the most basic level the Bristol Energy would want to keep new tariff development and announcements confidential until release. The arrangements that have been proposed

Democratic Control Commercial Freedom

Transparency Confidentiality

Due process Swift Decisions

Council systems Industry standards

excludes elected members from be involved in the decision making process of the commercial decisions of the company, but does allow them through the shareholder representative and group to have democratic oversight of the decisions that have been made. The knowledge of this will mean that commercial decisions made by the board will always be played through from a democratic perspective.

• Confidentiality vs Transparency The proposed arrangement of the shareholder group in relation to the composition of the boards should allow for the company’s boards to manage in a commercial (confidential) fashion, while the shareholder group provides the necessary democratic oversight (transparency) through the twice yearly meetings and ad hoc reviews via the audit and ethic committees. It is through the discursive nature of and discourse at these meetings aided and abetted by the underlying culture that the tensions inherent within this area will be resolved in practical day to day consensual solutions.

• Swift Decisions vs Due Process The arrangements put in place with regards to the company structure, establishment and composition of the boards, reserved matter and delegations will ensure that the energy companies can progress commercial decisions quickly, however also embedded through the appointment of board directors by the shareholder the application of public sector due process within a commercial environment will be considered as part of the decision making process.

• Industry vs Council systems Within this tension lies an opportunity, the success of resolving the tension between Bristol Energy having their own systems and the council having its systems will result in improved overall delivery of services within the council through introducing new systems, while reducing the overall burden of overhead for Bristol Energy through sharing of systems. For example, the energy companies will be utilising the human resources systems of the council via a newly established “cell” such as payroll, training and development, performance management, recruitment, etc. This will mitigate the requirement of Bristol Energy from having to establish a HR section, yet will enable the council to learn in an applied and dynamic way faster and swifter HR processes of which the best and most appropriate elements can be transferred into the council. Ethical considerations The establishment of Bristol Energy raises issues with regards to the ethical dimension of commercial trading within a public sector ethos. For example a straight-forward ethical dilemma is the setting of tariffs. The shareholder and the rationale for establishing the company would be for tariffs to be set especially for the poorest and most vulnerable at the lowest level, yet another rationale for establishing Bristol Energy was to generate profits that could be returned to the council so that it can maintain and improve the services to the most vulnerable and poorest in society. This simple example demonstrates the ethical dimension that the company will have to operate in, these ethical issues will further play out in its relationship between the company and the shareholder and through its management structure into day to day operational activities. Therefore, in the structural arrangements an ethical committee for Bristol Energy will be established to consider, review and establish ethical policies and procedures that Bristol Energy can work within on a day to day basis. A similar sub-committee will also be established for the Shareholder group that can challenge and review the policies and procedures that Bristol Energy is working to. It is through these two committees that the ethical dimension of the activities of Bristol Energy will be

monitored and support the continued development and establishment of the culture of the organisation.

Bristol City Council Equality Impact Assessment Form

(Please refer to the Equality Impact Assessment guidance when completing this form)

Name of proposal The Establishment of an Energy Services & Technology company

Directorate and Service Area Place, Energy Service Name of Lead Officer Bill Edrich

Step 1: What is the proposal?

Please explain your proposal in Plain English, avoiding acronyms and jargon. This section should explain how the proposal will impact service users, staff and/or the wider community.

1.1 What is the proposal? Bristol is leading the way in the UK for sustainability matters; the Mayor and elected Members across all parties now want a step change on the delivery of the low carbon agenda, creating jobs, warmer homes, improvement to health, business opportunities and growth. In an exempt Cabinet report in 2010, it was approved in principle that the Council would establish a wholly owned energy company, with cross-party support. This option enables the council to retain full control over its operations and strategic direction. While the establishment of the company in itself is of low relevance to the Equality Act 2010, the work that the company will propose to undertake, support, facilitate and deliver will have significant relevance to a range of communities as highlighted within the Equality Act. This relevance is not only restricted to the works but also to the methods of engagement and communication. The governance arrangements are currently under discussion. However, it is anticipated that there will be a number of boards consisting of independent non-executive directors, who will be recruited according to a variety of roles, skills and expertise. Women are typically underrepresented in the energy/engineering field, however, an extensive and open Board recruitment process will be undertaken to align skills and experience with the company’s objectives and across the boards’ membership. It is proposed that a detailed engagement with communities via the equalities forums and other means will be undertaken from October 2015 as part of upscaling the business from its controlled market entry in July 2015. This will enable opportunities and approaches to be built into the company’s business model.

1.2 Relevance check for various elements of the Programme plan

Engagement Relevance for the Public Sector Equality Duty

Consideration given to reducing discrimination and advancing equality of opportunity

Governance Medium Equality Manager sits on the Board - completed

Senior Management Low Appointments are made based on experience or knowledge of setting up SME energy companies.

Political engagement Low The EqIA is updated for each report to elected members - completed

Overall business case Medium – this is an opportunity to reduce fuel poverty

The business case aims to be market lead on price for variable fuels and in the top 6 for price for direct debit fixed fuel rates - completed

Energy Company Business Case

Medium Maintain focus of the company on public benefit and reducing fuel poverty - ongoing

Trading Strategy low Little equalities relevance for businesses

Marketing and Website Medium Some customers will need more support to understand their options. Council tenants are a priority group to benefit and when information is designed to be accessible for people with little confidence in switching providers or in using SMART technology

Smart Metering business plan Medium SMART meters can prevent fuel debts accumulating. Need to be accessible for people a visual impairment. Effective transfer from expensive pre-payment meters is a priority consideration

Energy Service Business Case Medium Good detail is gathered on needs of customers from different socio-economic

backgrounds

Bristol Energy Staff Low No plans to reduce staffing levels

BCC Staff Transfer Medium New energy company needs to develop equalities policies for staff and customers

BCC Asset transfer Low Little equalities relevance for transfer of biomass boilers etc

BCC Contracts Low Little equalities relevance for transfer of biomass boilers etc

Bristol Energy TOM Medium EqIAs under reviewed regularly through its development

ICT Systems Medium Need to be accessible for the customer but minimum ability to influence as there is only one energy ICT system which can be purchased

Services Medium Good consideration of needs of customers with different needs

Process Documentation,

Staff Training

Low

Medium

Little equalities relevance

Staff need to be trained to handle enquiries from people with complex needs

Accession to industry Low Controlled market entry will not target vulnerable customers, however training for the customer facing staff during this period will include training in equalities and additional needs of vulnerable customers so when the company is widely promoted, the customer services staff are well rehearsed to provide a flexible and accessible service

FIT License Low

Green Deal low

Gas low

Customer Contracts Medium Ensure plain English version of contracts are publicised

Premises Medium New premises needs to be accessible to ensure disabled staff can work for the company or disabled partners can attend meetings at the company as needed

Step 2: What information do we have?

Decisions must be evidence-based, and involve people with protected characteristics that could be affected. Please use this section to demonstrate understanding of who could be affected by the proposal.

2.1 What data or evidence is there which tells us who is, or could be affected? It should be noted that the recent Hills Review found

“The three main groups of people likely to experience particularly negative health impacts of

fuel poverty are the elderly, infants, disabled people and those living with long term sickness. 34 per

cent of fuel poor households contain someone with a disability or long-term illness, 20 per cent have a child aged 5 or under, and 10 per cent a person aged 75 or over. Given their vulnerability to the

impacts of fuel poverty, these groups are an obvious priority for interventions that make it easier to keep

warm, even if they do not have the very greatest fuel poverty gaps” Hills 2012.

As this is a citywide programme, there is potential for all residents to be affected. Sources of data and evidence specific to people with protected characteristics are included in Section 3.1. 2.2 Who is missing? Are there any gaps in the data? 2.3 How have we involved, or will we involve, communities and groups that could be affected? The stakeholder consultation focussed on a number of consumer groups, including people who are on a low income and who are financially in need. This included those who are on pre-payment meters (PPM), who often pay the highest tariffs. Equalities communities are over represented amongst this user group. It also included older people, lone parents and has 13% involvement from BME consumers. Another target group was vulnerable consumers – again this would include older and disabled people and has high equalities relevance. The feedback was detailed and is commercially sensitive. However from an equalities perspective, equalities communities played an active part in responding to the segmentation survey. The main needs of PPM users and those in financial need is for the prices they pay to be less

than the prices they pay with a current supplier. The research indicated any web presence to encourage vulnerable or financially stretched customers to consider switching or engaging with the new energy company. In response the new service is planning for a significant proportion of marketing to be face to face, in addition telephone support is being carefully planned. People using pre-payment meters will be encouraged to have SMART meters installed, which gives the same control on energy usage but don’t incur high tariffs. In summary feedback from equalities communities was positive and they have influenced the design and marketing of the new service, but details are commercially sensitive and are therefore not replicated in detail here. Market Research

Qualitative Quantitative Secondary Sources

To date

In Bristol from 23rd March to 8th April, we conducted:

• Six focus groups with households (52)

• Two days of interviews with vulnerable households (9)

• Two focus groups with micro SMEs – under £1.5m t/o (18)

• Four interviews with small SMEs – £1.5m-£10m t/o (4)

All were energy decision makers.

From 26th March to 1st April, we conducted two surveys:

• A nationally representative online YouGov survey with energy decision makers (3,645)

• And a representative online survey of energy decision makers in Bristol (256)

• CMA energy investigation customer survey GfK, 2015

• Ofgem Customer Engagement Tracking by Ipsos MORI, 2014

• CACI Acorn data, 2015

• Switch UK figures, 2015

• CMA Energy Market Investigation: Microbusinesses , March 2015

Before launch

• Four focus groups outside Bristol - three household and one micro SMEs (w/c 27 April)

Step 3: Who might the proposal impact?

Analysis of impacts on people with protected characteristics must be rigourous. Please demonstrate your analysis of any impacts in this section, referring to all of the equalities groups as defined in the Equality Act 2010.

3.1 Does the proposal have any potentially adverse impacts on people with protected characteristics? Age • Poorer older people and younger families generally spend longer in their home than the

“average” householder.

• The vast majority of households have little or very basic understanding about how to control or adjust their heating systems. This is particularly pertinent to older households who have higher levels of technology phobia

• The city through its public health and care forums has recognised that levels of older people isolation is a particular area that it wants to tackle and reduce.

• Most households do not like the disturbance of building works, in general older people or younger families often put off work because of the disturbance factor.

• Many older and disabled people are put off the government’s energy efficiency programmes because of their complexity and fear of taking on debt.

• Sources: Department of Energy & Climate Change (2012) Annual Report on Fuel Poverty; National Energy Action (2012) Focus groups of older people, families and households with disabilities and long-term health conditions.

Disability • Many households that contain people with a physical disability generally spend longer in

their home than the non-disabled households, and require higher levels of heat. Economic activity levels are much lower for the disabled people in Bristol than for nondisabled people. Three quarters (75.4%) of disabled people aged 16 and over are economically inactive compared to a quarter (24.9%) of those not disabled.

• The vast majority of households have little or very basic understanding about how to control or adjust their heating systems. This is particularly compounded in households where the householder is physically disabled.

• Households with mental health disability, especially where the householder has a mental health disability have significant compounded and multiple issues leading to these homes paying the highest fuel costs and not accessing support, or utilising their heating systems efficiently resulting in them being the most coldest homes in the city.

• Many older and disabled people are put off the government’s energy efficiency programmes because of their complexity and fear of taking on debt.

• Most households do not like the disturbance of building works, in general households with a physical disability have a greater requirement to minimise disturbance and greater occupants needs that the “average” household.

• Sources: Census (2011), Department of Energy & Climate Change (2012) Annual Report on Fuel Poverty; National Energy Action (2012) Focus groups of older people, families and households with disabilities and long-term health conditions.

Ethnicity • Many Black and minority ethnic households live in the most poor quality housing that

costs more to heat than the “average” home. • The vast majority of households have little or very basic understanding about how to

control or adjust their heating systems. This is particularly compounded in some BME households where there can be a language or cultural barrier to the householder understanding their heating system. For example 5.1% of households in Bristol did not have anyone living in them who had English as a main language.

• Some BME households have cultural and /or language issues leading to these homes paying the highest fuel costs and not accessing support.

• Most households do not like the disturbance of building works, in some BME communities this is compounded by language barriers.

• BME communities are underrepresented in the construction industry, where many jobs will be created.

• Sources: - Kensington & Chelsea Community Enterprises CIC (2012) Switching household

energy tariffs – an action research study - Centre for Sustainable Energy (2005) Developing effective energy advice for BME

Communities, http://www.cse.org.uk/pdf/pub1042.pdf - Damon Gibbons & Rosanna Singler (2008) Cold Comfort: A review of coping

strategies employed by households in fuel poverty - Equality & Human Rights Commission (2009) Race discrimination in the

construction industry Gender representation • The number of women within the construction industry stands at 11% and within the

operatives on site at 2%. • 92% of single parents are women and the gender pay gap stands at 9.4% difference and

women spend more time in the home than men. • 64% of men aged 16 and over are in employment compared to 56% of women. • 45% of men aged 16 and over work full time compared to 30% of women. • 22% of women aged 16 and over work part time compared to 8% of men. • Sources: http://beonsite.org.uk/women-construction-project, Census 2011 Pregnancy & maternity • Households having their first child often experience a utility shock, due to the

unexpected increase in utility (heat, power, water) than before, which can lead to budgeting issues.

• The likely disturbance of building works should be considered. Religion & belief • Many religious communities contain within their belief systems care for the

environment. Religious communities can therefore provide positive support and engagement routes for the company, which can be highly successful.

Sexual orientation • A number of LGB households value their home as a “safe space” and are extremely

reticent about granting access. • Source: http://www.shu.ac.uk/_assets/pdf/ceir-LGBTcommunities-executive-summary-

Nov2012.pdf Transgender • A number of households with transgender individuals value their home as a “safe space”

and are extremely reticent about granting access. • Source: http://www.shu.ac.uk/_assets/pdf/ceir-LGBTcommunities-executive-summary-

Nov2012.pdf

Gypsies & Travellers • The Gypsies & Travellers community are particularly challenged in terms of access to

fuel at reasonable cost as compared to other households. Compounded by the community living in the most inefficient homes within the UK.

3.2 Can these impacts be mitigated or justified? If so, how? Age • The provision of energy efficiency and renewable energy measures can make a

significant difference to making their home warmer and reducing fuel bills. • Methods of behavioural support within the home will need to be explored within the

business model. • It is likely that one of the business approaches will be to support and develop a simple

referral mechanism between agencies that might help to provide a means of breaking down that social isolation.

• Explore how contractors working under the company’s brand can minimise disturbance especially for vulnerable households.

Disability • The provision of energy efficiency and renewable energy measures can make a

significant difference to making their home warmer and reducing fuel bills. • Methods of support within the home will need to be explored within the business

model. • Significant work around engagement, access, building of trust, reducing disturbance

time, advice and support will need to be explored during the consultation period and built into the operational procedures and work projects of the company.

• Explore how contractors working under the company’s brand can minimise disturbance and meet expectations of disabled households.

Ethnicity • The provision of energy efficiency and renewable energy measures can make a

significant difference to making their home warmer and reducing fuel bills. • Methods of support within the home will need to be explored within the business

model. • Significant work around engagement, access, building of trust, reducing disturbance

time, advice and support will need to be explored during the consultation period and built into the operational procedures and work projects of the company.

• Explore how contractors working under the company’s brand can minimise disturbance and meet cultural expectations.

• Explore within the business model, recruitment and through procurement how the number of BME participants can be increased within this sector.

• This will assist with communication and engagement with BME households and there must be an understanding of some cultural differences in visiting many households.

Gender representation • Explore within the business model, recruitment and through procurement how the

number of women participants can be increased within this sector. This will assist with communication and engagement with the single parent households where the women are in the majority.

Pregnancy & maternity • The provision of energy efficiency and renewable energy measures and fuel advice can

make a significant difference to making their home warmer and reducing fuel bills. Methods of support within the home, along with operative engagement will need to be explored within the business model.

Religion & belief • Religious communities can provide support at a practical level, such as identifying

households that require special assistance, distribution and endorsement of literature / information, etc.

Sexual orientation • Explore how contractors working under the company’s brand can minimise disturbance,

meet customer expectations of respect and inclusivity. Transgender • Explore how contractors working under the company’s brand can minimise disturbance

and meet cultural expectations. • Engagement and consultation with Bristol’s Transgender communities will be an

essential approach for minimising any potential negative impacts. Gypsies & Travellers • The company will explore the opportunity to provide lower cost fuel as part of its

business plan to become an energy company. Guidance and links with the council’s Gypsies & Travellers Team will be a necessity for realising positive outcomes for residents and their communities.

3.3 Does the proposal create any benefits for people with protected characteristics? The work projects and engagement approach of the company will have the following overarching positive benefits: • Reducing household fuel bills • Increasing household warmth • Creation of well-paid manual jobs • Supporting joined-up delivery of services to maximise support • Enabling long-term sustainable funding sources for communities • Improved health and educational outcomes • Local economic benefit These positive benefits will impact upon the following groups: • Black and Minority ethnic communities • People with disability • Young families • Older people

• Communities of religion and belief 3.4 Can they be maximised? If so, how?

Step 4: So what?

The Equality Impact Assessment must be able to influence the proposal and decision. This section asks how your understanding of impacts on people with protected characteristics has influenced your proposal, and how the findings of your Equality Impact Assessment can be measured going forward.

4.1 How has the equality impact assessment informed or changed the proposal? This is a new activity for the Council, therefore, the company is seeking to build the required effective reporting structures to ensure excellent customer satisfaction across the work projects and to ensure that the company is reaching all the demographic within the council area. The assessment highlights the risk to many equalities communities in terms of accessing people in their homes as identified by many as a ‘safe space’. To facilitate this need for understanding on a variety of equality communities it is essential that appropriate equality & diversity training be provided to all staff undertaking this work. Furthermore it is crucial that all customers are made aware of the new service, expectations and their rights and responsibilities related to the service. This information must be available on request in different formats and languages. 4.2 What actions have been identified going forward? 4.3 How will the impact of your proposal and actions be measured moving forward? The monitoring arrangements will be developed as part of the consultation process and then embedded into the company’s standard operational procedures.

Service Director Sign-Off: Bill Edrich

Equalities Officer Sign Off: Anne James

Date: 07/01/2015

Date: 15/05/2015

Appendix Three – other options

In establishing an energy and technology company, the Council must ensure that the energy company supports the Mayoral priorities and the Council’s corporate objectives, these being:

• Healthy and caring Bristol; • Keep Bristol working and learning; • Keep Bristol moving; • Building successful places; • Vibrant Bristol; and • Global Green Capital.

The principal strategic rationale for the establishment of Bristol Energy is to enable the Council to continue to provide support across the Mayoral and corporate priorities in a new flexible manner, while creating an independent (from HM Treasury) income stream for the Council. Specifically, the establishment of the energy company supports the Council’s overarching themes of economic prosperity and reducing inequalities through directly supporting the work carried out by the council in the ‘Global Green Capital’, ‘Healthy and caring Bristol’ and ‘Building successful places’ objectives of the corporate plan. With reference to the principal strategic rationale a review of alternative approaches was undertaken for the 3rd February 2015 cabinet report appendix one, this was also reviewed as part of the due diligence work undertaken by PwC.

Subsequent to the 3rd February 2015 officers have continued to explore options and opportunities with other organisations. As part of this approach officers have released a global advert seeking to explore if any other organisations would be interested in working with the council. The response to the global advert was considerable with around 92 organisations and individuals responding to the advert, (see table below) in addition because of the work that the council has been doing in developing the detailed business plan, it has received a number of other enquiries concerning collaboration or offers from other organisations.

Category Number Capital items 23 Collaboration 5 Consultants 35 Education & research 3 Governmental 3 Individual 7 Software & data 16 Total 92

A review of the information has indicated that there are a number of organisations that we wish to have or continue discussions with, because they could add value to the business approach of Bristol Energy and/or the Council. This work will continue over the next year and into the future and will form part of the on-going up-date to Bristol Energy’s business plan and/or the Council’s business plan.

However, currently no enquiry has been received that affects the strategic rationale for the Council to establish a wholly owned municipal energy company.

Appendix Four: Questions and answers concerning the business plan

Q&A’s arising from a variety of meetings held during the development of the Bristol Energy business plan January 2015 to July 2015.

In addition to the questions below an Overview and Scrutiny Management Board met on the 22nd April to review the proposed governance arrangements of Bristol Energy. This was held as a public forum and webcasted, the webcast can be found on the Council’s website.

1) What systems will we be buying?

Commercially confidential (answered on the day) outlining how Bristol Energy will purchase industry specific tried and tested operational systems.

2) How will we be buying electricity? Commercially confidential, answered on the day outlining how Bristol Energy will deploy a range of commodity trading strategies to purchase the electricity that it requires.

3) What is the customer base? [Redacted XXX] is a lot for just Bristol. Commercially confidential, answered on the day outlining how Bristol Energy will be required to offer tariffs nationally, but will naturally be focussed on Bristol and its natural hinterlands. The answer went on to discuss DNO areas, switchers and the contestable market.

4) Can I start buying and selling electricity to you from October? Yes individuals will be-able to purchase electricity from Bristol Energy when it enters the market. Unfortunately the market currently it not able to purchase electricity from individual’s solar roof at the moment.

5) How much will be spent on the website? The current estimated cost of the website is between £80-100k.

6) Where will the funding be coming from? The funding to establish Bristol Energy will come from the Council’s Reserves.

7) What are we doing about increasing our generating base? Bristol City Council has a range of programmes such as the provision of district heating and solar PV that seek to assist communities or the council install local electricity generation.

8) Has ELENA funding been used? Yes, ELENA funding has been used on the development of the outline business plan.

9) How will we make sure the poorest of society benefit given they are on

Prepayment Meters and cannot access the internet for switching? Commercially confidential, answered on the day outlining how Bristol Energy will support the poorest and non-internet connected through a range of activities and out-reach.

10) How will we select our Controlled Market Entry group? It is proposed that the initial Controlled Market Entry group of customers will be from friends, family and colleagues.

11) How will we be protected by a future Government privatising the market? Bristol Energy has been established as a share company and if a future government required the Council to sell its share of Bristol Energy then this could happen.

12) How do we ensure the profits remain secure? Bristol Energy and Bristol City Council as its shareholder will be obtaining tax advice regarding the disbursement of any profits that Bristol Energy makes.

13) What are the practicalities of switching? Bristol Energy will have the usual suite of industry compliant documents that will allow customers to switch to and from Bristol Energy.

14) Have bordering local authorities been approached? Commercially confidential, answered on the day.

15) What are the medium term costs in addition to the set up costs – do these cover

marketing etc? Yes, all costs have been included in the business plan.

16) Will this be 100% owned by the council? Currently it is proposed that Bristol Energy is a 100% Bristol City Council owned company. However, it should be noted that the Council released a joint venture interest document that has resulted in a number of enquiries and in addition Bristol Energy has been established in the most flexible manner to enable it to take advantage of future opportunities that might present themselves or to respond to the desires of the shareholder.

17) Will you be buying gas and generating electricity? Yes

18) The USP won’t be price – but where will it be pitched? Commercially confidential, answered on the day.

19) Will we be monitoring where gas is from? Currently energy suppliers cannot identify and sell green gas at the moment.

20) Will you be providing heating, potentially with new buildings? Bristol City Council is currently seeking to construct a range of district heating networks across the City.

21) Will you be looking at buildings that already have planning permission to do this

i.e. district heating ? Yes one of the principal strategic directions that Bristol City Council have embarked upon is the establishment of district heating networks across the city along the northern European municipal energy model.

22) Are we doing too much? This was a rhetorical question that came out of the discussion in so far as “are we doing enough?” In essence Bristol is recognised quite rightly as being one of the leaders in the energy, sustainability and environmental field over at least two decades. The establishment of Bristol Energy along the lines of a northern European municipal energy company is an important aspect of making the next step change required for the city to become sustainable in terms of; economic prosperity, reducing social inequalities and environmental sustainability.

23) Are we going to be fast enough? How can we ensure this moves – will it be through

Cabinet or the Mayor? Bristol Energy will be a fully incorporated share company at arm’s length from Bristol City Council, with a full board of experienced executive and non-executive directors managing the company, with the remit to act commercially within the marketplace within set boundaries as outlined by the shareholder.

24) How will you be insulated from political fallout? The remit and roles of the shareholder and the company will be defined in the governance arrangements, Reserved Matters document and shareholder agreements.

25) Has your business plan factored in tariff reductions? Yes, Commercially confidential, answered on the day.

26) The central scenario is quite high? Commercially confidential, answered on the day.

27) Are profits inflated or do they include costs? No the profits are not inflated and they do include all overhead and costs.

28) When will you be recruiting? Bristol Energy will be recruiting during 2015 and 2016 for staff at all levels.

29) Have you looked at job creation? Yes job creation is an important element for Bristol Energy and links to supporting both of the key requirements of Bristol Council of reducing social inequality and improving economic prosperity.

30) Assumption that we will be offering market rate for MD etc? Yes Bristol Energy will be paying the market rate for all jobs within the company, these rates will be benchmarked against similar sized companies and with reference to Bristol Energy’s shareholder’s public sector ethos.

31) Any other councils doing this? Yes Nottingham City Council is also establishing an energy supply company and officers are aware that a number of other local authorities are investigating becoming energy suppliers.

32) Is tax advice included in the due diligence? Yes and will also be subject to a separate and detailed piece of advice.

33) Are we planning on generation expansion for electricity? Yes Commercially confidential, answered on the day outlining the importance of developing generation capacity.

34) How will the company be set up? What will be the governance structure? Please see 6th July cabinet report appendix one.

35) Will you offer 100% renewable tariff? No Bristol Energy has the objective to be a low carbon energy supplier balancing environmental, economic and social objectives of its shareholder. It will however facilitate the construction of renewable energy generation and seek to move to as much renewable energy as possible within its generation portfolio.

36) Bristol Switch and Save promised a better tariff for the city but didn’t deliver

much. Have you learnt lessons from this? Yes the failure of national switching schemes to transform the energy market to provide services and price especially for the poorest households in society is an important sub-element to the rationale of establishment of Bristol Energy. In addition the lessons learnt from the switch and save campaign have been fed into the marketing plan.

37) All depends on customers – will you want Bristol City Council mentioned? Market testing has revealed a number of key messages around the relationship with Bristol City Council. These have been built into the marketing and acquisition plan of Bristol Energy.

38) Do you have a dedicated marketing officer? Yes Bristol Energy will have a dedicated Marketing team lead by a Marketing Manager.

39) Will schools be included in the numbers? Will they be customers? If they are local authority controlled, yes they will automatically become customers.

40) Customer numbers, how were the numbers assumed arrived at? Is the customer churn number industry standard? How have you modelled customer numbers? What assumptions have been made in this modelling?

Commercially Confidential, answered on the day however the customer numbers are based on a model which uses a number of research sources and some key assumptions regarding the rate, location and type of customers acquired. The detailed calculations undertaken to arrive at the customer numbers are set out in the business plan. The customer model has been subjected to due diligence by PwC.

41) How many customers will be from Bristol and how many will be from other places? Bristol Energy will be required to offer tariffs nationally, but will naturally be focussed on Bristol and its natural hinterlands.

42) How many of our customers will be our own social housing tenants? Can we just

automatically put new HRA tenants automatically onto the customer base of Bristol Energy?

We will not be able to automatically switch social housing tenants to Bristol Energy, though we are able to set Bristol Energy as the default energy supplier in void properties for new tenants.

43) How will we support the PAYG customer without the benefit of large numbers of

DD (premium customers) to support that? Commercially Confidential, answered on the day.

44) Don't we need to be more competitive at the Direct Debit tariff, as this is what

more affluent customers are likely to go for? Commercially Confidential, answered on the day.

45) If you don't know your wholesale price how can you set a tariff and know you will

make a profit? Commercially Confidential, answered on the day however the wholesale energy prices change daily, so within the business model we have based our tariffs on a snapshot in time in order to reflect the real world market.

46) If price is a big factor in people switching, what is the risk of the big 6 undercutting

Bristol Energy prices and effectively killing your market? Commercially Confidential, answered on the day.

47) In a low margin industry will Bristol Energy have to cut its margins further to be price competitive? What risks does this pose?

Commercially Confidential, answered on the day.

48) Have we done any 'sensitivity analysis' on our pricing proposition? What if we had

to drop our prices by 10 or 20% to stay competitive, if other suppliers drop their prices?

Commercially Confidential, answered on the day however yes sensitivity analysis has been carried out.

49) There's a 4 year period where the Council needs to support the cash flow of the

energy company - so this needs sustained support from the Council's officer and political leadership to 'see it through' into profitability. What are the risks of this support and investment funding not being sustained over the 4 years?

No Answer

50) In the rocket scenario, BCC needs to put in £15.7m - how can we budget for this? Can we afford this? Is there a plan in place for how BCC will plan its budgets each year given how large the range of customer levels is (and thus the range of levels of cash input?)

The management team of Bristol Energy will closely communicate with the senior leadership team at the Council, specifically regarding financial performance. Trading risk will be managed through a weekly trading risk committee reporting trading forecast and credit and collateral requirements to the Council’s s151 officer. In the event of the ‘rocket’ scenario, the Council will be fully aware of Bristol Energy’s customer numbers and what level of credit and collateral is required on an ongoing basis. These financial indicators will be incorporated within the budget forecasting for the Council linked to the weekly trading risk committee report.

51) Where is the cash coming from to support the company - reserves?

There is an initial funding requirement from the Council over the first four years to support Bristol Energy with set up, cash flow support and trading collateral support.

52) Does the credit and collateral count as state aid? The credit and collateral provided by Bristol City Council will be charged at commercial rates on a market investor principle and will therefore be state aid complaint.

53) What’s happening about smart meters? Isn’t the government planning to change

what currently happens? Commercially Confidential, answered on the day however the Government’s programme to roll-out smart meters to all domestic customers by 2020 creates a commercial opportunity for Bristol Energy and links to the Bristol City Council’s Bristol is Open initiative.

54) What is the impact in terms of costs and margin of operating a 'Smart from the start' proposition?

Commercially Confidential, answered on the day.

55) If lots of customers are NOT Bristol residents - why bother to give them smart meters?

Commercially Confidential, answered on the day.

56) Are any other Councils doing this yet? Will we be in competition with them? See answer to previous question.

57) Why hasn’t Virgin done this? Virgin Energy Limited was launched as a joint venture between Virgin Group and London Energy in 2000. In 2002 the company changed its name to Virgin Home Energy Limited, before being fined £2million by Ofgem for failing to stop its sales staff from mis-selling to customers. It has since been taken over by EDF Energy in December 2004.

58) If being a local company is part of our brand how does this contrast with working

nationally? Commercially Confidential, answered on the day.

59) If we're buying into the Bristol brand re green 2015, what's different about how we deliver energy? Are we greener as an energy company?

Bristol Energy has a mission to deliver social, environmental and economic benefits to local citizens, businesses and communities - both within Bristol and for communities throughout the UK. Whilst there will inevitably be some tension between these objectives, the social objective is an overriding ethos for Bristol Energy and the Council as its shareholder. Bristol Energy will enable the Council to invest in more locally sourced renewable energy, which, as well as increasing the City’s energy security and reducing its carbon emissions, will over time will enable Bristol Energy to bring an affordably (equivalently) priced green tariff to market.

60) Are we confident that we'll be 'operationally ready' to successfully launch the

customer proposition? Specifically, have we designed, built and tested the processes and systems to support customer sign-up, billing and supply, and get this right?

Commercially Confidential, answered on the day however CME is regulatory requirement of the electricity industry and is a essentially a live test of a new energy supplier’s IT systems, with a small number of customers, and is designed to ensure that those systems can communicate effectively with the rest of the energy industry. In

addition to successfully completing this system testing, Bristol Energy will also need to be able to function effectively as a retail business supplying energy to customers before it exits CME and begins the unrestricted acquisition of customers in the market. This will be achieved by implementing the end-to-end operating model of the company, i.e. the systems, the processes and people of the company, which has been developed with the input of a number of Services from across the Council. Extensive work has already been completed on the operating model.

61) We keep saying 'that's a piece of work we need to do, that's something we need to

look at' - if controlled market entry is only a few weeks away, how are we going to ensure we have robustly done all of these things?

Commercially Confidential, answered on the day.

62) Why nothing about the extent to which the council provides people and services to the company?

Commercially Confidential, answered on the day.

63) Given the levels of customer disillusionment in the market, how will we make sure we get our customer service and operations right first time so customers don't leave and never come back?

Bristol Energy aims to implement a best practice customer service model which is equivalent to Ecotricity and Good Energy who recently topped the customer satisfaction survey by ‘Which?’ (Ecotricity topping the tables with 84% for customer satisfaction with Good Energy second on 82%.) The phase of Controlled Market Entry, will enable us to test and refine our customer service and operations, so that we can achieve best practice protocols before engaging with a wider customer base.

64) What % of customers will be from the Bristol area? Previously answered

65) Will Bristol City Council be supplied by Bristol Energy? Yes

66) Do all council tenants have to be supplied by Bristol Energy? Previously answered.

67) Can we switch to Bristol Energy as a block provider of energy? Yes

68) When will we be able to see your tariffs/prices? Bristol Energy will provide tariffs when it launches later in the year.

69) Do you have a Board, who is the Chief Executive?

Yes Bristol Energy will have a board and Managing Director. Recruitment to these positions will occur during 2015.

70) Can you keep us up to date on developments following Cabinet? Yes there is a communications plan leading up to and including launch into unrestricted trading.

71) What will the mix of renewable energy be? Unsure at the moment but as mentioned previously Bristol Energy will seek to be a low carbon energy supplier.

72) Will the energy provided include nuclear sources? No Bristol Energy will not seek to directly purchase electricity from nuclear generators, although the electricity supply of the UK does include generation for nuclear sources.

73) Can you provide more details around the governance, the Directors of the energy

company? Please see appendix one of the cabinet report

74) Will you have a competitive tariff for businesses? Commercially Confidential, answered on the day but yes Bristol Energy will supply businesses.

75) What % of customers will be from the Bristol area? Commercially Confidential

76) Will there be a specific/special tariff for residents of Bristol? Commercially Confidential, answered on the day

77) The February Cabinet Report rejects white labelling because it didn’t meet the

strategic objectives of the Council, but these aren’t articulated? The strategic objectives of the council are articulated in the cabinet report, appendix three of the 6th July reviews the outcomes of the joint venture interest document. In essence Bristol City Council wishes to maintain strategic control of Bristol Energy so that it can support the economic, social and environmental aspirations of Bristol City Council

78) Do we have a feel for the proportion of customer that will be from Bristol? Commercially Confidential, answered on the day.

79) Are the district heating aspects completely separate from this venture? See previous answers.

80) What were the Governance discussions? See previous answers

81) If the Council has to be in this for 4 years, is there an intention of exiting?

Currently there is no intention of exiting, however an exit strategy has been developed as part of due diligence.

82) If you’re expecting to attract switchers, you won’t achieve the gross margin stated.

Why doesn’t it increase over time? Commercially Confidential, answered on the day.

83) Have you built into your model other neighbouring local authorities doing this as

well? Does this pose an additional risk? Commercially Confidential, answered on the day.

84) How green do you plan to be? What percentage of renewables? See previous answers

85) How important is the council’s own generation for this? Commercially Confidential, answered on the day

86) Will Bristol Energy have different tariffs for different areas? Commercially Confidential, answered on the day.

87) What level of confidence do you have in these figures? We are confident of the assumptions that have been used in the development of the financial model and subsequent business plan. These assumptions have been supported by a comprehensive due diligence exercise by PwC.