MPs fear taxpayer will be left on hook for Bulb sale

A heavyweight Parliamentary committee has raised concerns over the amount of taxpayer money used to facilitate the sale of Bulb to Octopus.

In particular, the Public Accounts Committee (PAC) assessment warns that there are “substantive risks” about Octopus’ ability to pay back around £3 billion of taxpayer money which was stumped up to cover the cost of placing Bulb in a Special Administration Regime (SAR) and used to support the failed supplier’s wholesale energy requirements until 31 March 2023.

Consequently, the PAC has warned that consumers could ultimately be saddled with any unrecoverable costs.

In November 2021, Bulb became the first supplier to be placed into SAR after it became the biggest retailer to fail in recent years. Nearly a year later, the government agreed to sell Bulb to Octopus.

The government provided a package of temporary taxpayer funding to enable Octopus to complete the acquisition of Bulb, which the UK’s now second biggest energy retailer is required to repay along with accompanying interest.

While the government expects to claw back most of its support for Bulb, the PAC report expresses concern that consumers may ultimately be left to foot the bill if this funding is not fully recovered.

The most recent estimate provided to Bulb’s administrators Teneo is that Octopus is expected to repay £2.8 billion to the government by September 2024 but this payment could be deferred for a further year if wholesale energy market conditions worsen before then.

This level of repayment will leave an estimated shortfall of £246 million, including a charge for accrued interest, which the government expects to recover from energy consumers. This would work out at £8 on the average household’s annual energy bill, Teneo and Department for Energy Security and Net Zero (DESNZ) have estimated.

This payment to cover this shortfall would be on top of the estimated £2.7 billion incurred for the 28 energy suppliers which failed before Bulb, under more widely used supplier of last resort arrangements.

The committee’s report states that prior to the government’s approval of the Energy Transfer Scheme, which enabled Octopus’ acquisition of Bulb, Ofgem identified risks around “low levels of investor support and its over-reliance on customer credit balances for cash to fund its businesses activities”.

To mitigate these risks and to protect the taxpayer from potential losses on its investment, Bulb has been placed in a legal ringfence within the Octopus Group until the taxpayer funding is repaid.

Ofgem also told the PAC that while the sale posed risks, these are inevitable with “nearly any” transaction within the current energy market and that it is satisfied with Octopus’s progress to a more financially resilient position.

Octopus told the committee that the ringfencing of Bulb means any profits and cash generated would remain in the business.

However, the final amount to be repaid and therefore the final cost to the taxpayer will not be known until the SAR winds up, says the report.

The PAC also urges Ofgem and the DESNZ to write to it by the end of the year to outline the steps they are taking to promote healthy competition in the energy market while only granting licences to suppliers with the “necessary financial resilience to survive challenging market conditions”.

Within 12 months, DESNZ should write to the PAC with details of the lessons it has learnt from the SAR and how it is using these to “monitor and ensure the successful recovery of temporary taxpayer funding”, the PAC recommends.

At the conclusion of the Bulb SAR, the department has also been asked to write to the committee with details of the final cost to the taxpayer, including how much has been repaid by Octopus and any shortfall that it plans to recover from consumers.

The report also calls for the department to provide a review of the effectiveness of the energy support mechanisms, which it has introduced, and their impact on the energy market and customers. This should include a specific focus on the impact of the way energy companies supply businesses.

Dame Meg Hillier MP, chair of the PAC, said: “Our report is a sobering reminder that we are still living with the fallout of the failure of so many energy suppliers in 2021-22.

“While the government and regulators did the right thing in moving swiftly to protect consumers, the uncomfortable truth remains that the recovery of that investment hangs on the commercial success of one company.

“The public can ill afford such uncertainty, particularly in challenging economic times.”

Octopus declined to comment when contacted.