Council criticised over heating scheme

Council failure in cheap power scheme
as financial bill for it continues to rise


HIGHLAND COUNCIL failed to establish effective governance arrangements for innovative heat and power project
The Accounts Commission has considered a report on The Highland Council’s Caithness Heat and Power (CHaP) project, which was run by an arms-length community enterprise. In its findings, the Commission says the lack of appropriate risk management and effective governance arrangements for the project was a corporate failure by the council. It also highlights aspects of the performance of two senior officers in relation to governance.
The Highland Council established a not-for-profit company in 2004 to provide a heating system to 500 houses in Wick. The company failed to deliver its objectives and the project experienced technological and financial problems. The council’s total commitment to the project, including provisions, stands at around £13.8 million. It has spent around £10.5 million so far, but, because the project is still ongoing the full cost and any losses cannot be determined yet.
The Commission says that there were weaknesses in the council’s arrangements for oversight of the project. From the start, there was a lack of appropriate risk management. The council did not monitor progress effectively and failed to ensure that appropriate control mechanisms were in place.
The Commission notes that the council has taken action to avoid a similar situation happening again. The structure of the council has also changed in recent years and there is now less emphasis on area-based decision making.
Chair of the Accounts Commission for Scotland John Baillie said: “The CHaP project was established as an innovative scheme to benefit the local community. Unfortunately, the council’s arrangements for managing its interest in the project were not as good or as effective as they should have been. However, The Highland Council has been addressing the difficulties in governance and financial stewardship and has taken action to avoid a similar position developing again."
He continued:“many councils deliver projects and services through arms length bodies. The history of this project has important lessons for elected members and senior officers. Effective governance and risk management are always needed from the start to ensure best use of public money.”

Council takes steps

In their response to the criticism, Highland Council said it has put in place new governance arrangements to prevent a recurrence of the deficiencies experienced in the early operating years of Caithness Heat and Power, the community-owned enterprise formed to deliver a biomass district heating system in Wick.
The Accounts Commission has ruled that the lack of appropriate risk management and effective governance arrangements for the project was a corporate failure by the council.
The Council took control of the company in 2008 and, having identified failings of the company between 2004-2008, carried out its own internal audit, which identified an action plan to tackle the failings of the company and ensure these would not be repeated.
A spokesman said: “As the result of a detailed internal audit review, a number of improvement actions have been taken to ensure that these failings are not repeated in any future venture of this nature. A huge amount of effort has gone into finding a way forward for the district heating scheme in Wick. We have selected a preferred bidder, whom we hope will deliver a district heating scheme using renewable energy and at an affordable price for local residents.”
Ignis Energy Ltd has been invited by The Highland Council to be its Preferred Bidder to take over the district heating scheme – Caithness Heat and Power Ltd.
The Board of Caithness Heat and Power Ltd (CHAP) recently wrote to 260 householders in Wick who receive their heat and hot water through CHAP informing them of plans to work with the Council and Ignis with the aim of agreeing a contract soon.
The Council will consider the findings of the Commission in the near future. It has a duty to publish in a newspaper circulating in the Highlands, the time and venue of the meeting seven clear days in advance of the meeting at which the findings will be discussed. It has also to publish the recommendations of the Commission.
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