Weekend press round-up: Octopus seeks £1bn of government funding for Bulb takeover

In the latest round-up of the weekend’s papers, Octopus Energy seeks £1 billion of government funding as part of its takeover offer for Bulb and National Infrastructure Commission chair Sir John Armitt calls for compulsory water metering by the end of the decade to head off droughts.

Octopus Energy seeks £1bn taxpayer support to seal deal for stricken Bulb

Octopus Energy has asked the government for a £1bn taxpayer funding package to seal a takeover of Bulb, its stricken rival.

Sky News has learnt that privately owned Octopus is nearing a deal with ministers to acquire its smaller competitor, which collapsed late last year.

City sources said this weekend that a deal would involve Octopus paying between £100m and £200m to take on Bulb’s 1.6m-strong customer base.

It would also include a “significant” profit-share agreement to give the government a return for several years on earnings from Bulb customers.

The £1bn government funding package is being sought by Octopus because Bulb does not hedge its purchases of wholesale gas, leaving it exposed to soaring prices during an energy crisis which has deepened since Russia’s invasion of Ukraine.

A source close to the talks said the £1bn would be repaid by the company in full and denied descriptions of any further taxpayer support as a dowry.

Insiders said this weekend that an agreement between Octopus and the government to take over Bulb could be reached within weeks, although they cautioned that the complexity of the deal could yet prevent it from happening.

Bulb’s collapse last November was the most significant among dozens of supplier failures, with Ofgem, the industry regulator, facing heavy criticism for its approach to licensing new entrants to the market.

The company’s administrator, Teneo Restructuring, and the investment bank Lazard have been orchestrating the search for a buyer.

Octopus Energy tabled the only formal offer for Bulb ahead of a deadline last month, meaning that ministers have few options to remove the financial burden to taxpayers that the company has become.

If Octopus does strike a deal, it would take the likely total exposure to the government of Bulb’s collapse to more than £3bn, including the £1bn dowry.

The independent Office for Budget Responsibility said in March that the bailout would require more than £2bn to cover its operating losses.

The profit-share agreement, which would last several years, would, however, enable the government to recoup a small part of the cost to taxpayers.

One person involved in the discussions described it as “a fair deal for all parties”.

The repayment of the £1bn hedging costs package over time, combined with the up-front sale price and share of profits, could mean that Bulb’s failure ultimately costs taxpayers less than £2bn, according to one source.

A rescue by Octopus Energy would also secure Bulb’s customers under the leadership of a company that is regarded as industry-leading.

Some sector executives believe Bulb is losing as much as £5m every day because of its failure to hedge forward gas purchases.

Octopus Energy’s swoop on its smaller competitor in would take its customer base to 5m British households and cement its status as one of the most important utilities operating in the UK.

Sky News

Water firms’ mains leaking as hosepipe ban looms

A quarter of water companies in England and Wales have failed to meet targets for reducing wasteful mains leakage as millions of Britons face a hosepipe ban amid the driest conditions for decades.

The latest findings by Ofwat, the regulator, show that, while leakage has come down by 11 per cent in five years, only three quarters of water companies are meeting their individual leakage targets, which were brought in because a fifth of mains water was being lost daily.

The watchdog insisted that “progress has been made” on leaks but admitted “there is more that can be done”.

The underperforming utilities companies will be named later in the year and could be penalised financially. David Black, Ofwat’s chief executive, said: “We welcome the improvements companies have made in reducing leakage and it’s encouraging to see things heading in the right direction.

“That said, there is much further to go. In the drier weather, we are all acutely aware of the impact of climate change and the value and importance of water. Customers rightly expect water companies to lead by example in caring for water and helping households to do the same.”

Ofwat’s warning comes as swathes of Britain face hosepipe bans and the National Infrastructure Commission warns that it will cost between £21 billion and £40 billion to keep the UK supplied with water in coming decades. The lower bill is the cost of investment to improve supplies, while the higher cost would be for emergency measures such as road tankers during a severe drought.

Sir John Armitt, chairman of the commission, told The Observer: “You have to pay for it one way or another. That could be investing in new reservoirs or moving water around the country, as well as stopping leaks.”

On Friday Southern Water, which managed a 5 per cent reduction in its leakage rate, announced that it was taking drastic action because of parched rivers and soaring demand in one of the driest years on record.

Customers who use hosepipes to water gardens, wash cars or fill ponds and swimming pools face a potential fine of up to £1,000. The “temporary use ban” affects a million people across Hampshire and the Isle of Wight.

Other suppliers warned that they may also need to act, including Thames Water, South East Water and part of the area covered by Welsh Water. They have asked their combined 17.3 million customers to reduce usage.

As fears grow that droughts will become more frequent and severe in the UK because of global warming, Ofwat has been pushing companies to cut leakage rates, giving the sector a target of lowering them by at least 16 per cent between 2020 and 2025. The ultimate aim is a 50 per cent reduction by 2050.

Assessments of what is being lost through pipes are conducted annually. Some of the biggest reductions over the past couple of years have been made by Bristol Water, Portsmouth Water, Thames Water and Wessex Water.

The Times

Act now on water or face emergency queues on the streets, UK warned

hosepipe ban should be implemented as a national priority along with compulsory water metering across the UK by the end of the decade.

That is the key message that infrastructure advisers have given the government as the nation braces itself for a drought that is threatening major disruption to the nation. Failure to act now would leave Britain facing a future of queueing for emergency bottled water “from the back of lorries”.

The government was warned four years ago by the National Infrastructure Committee (NIC) that considerable new investment would have to be made in the nation’s water supply equipment by the 2030s. Although some improvements have been made by water firms, nearly 3billion litres of water is still lost every day.

Plugging these leaks will require an investment of around £20bn, Sir John Armitt, chair of the committee, told the Observer this weekend. Failure to invest now will mean, he added, that more than twice as much will have to be spent on distributing bottled water to UK residents by lorry as increasingly frequent droughts grip the nation.

“You have to pay for it, one way or another,” he said. “That could be investing in new reservoirs or moving water around the country, as well as stopping leaks.”

Water metering is considered by the industry as the best tool for cutting water use – the UK has the highest usage in Europe. It is estimated that water meters have been installed in only about half of households in England and Wales, but these customers use 33 litres a day less than the national average, of 141 litres a day.

The call by the NIC was backed by the Rivers Trust, which was one of the key agencies at the emergency National Drought Group meeting the government convened last week as dry conditions spread across England.

Mark Lloyd of the Rivers Trust said measures should be taken much earlier than the end of the decade. “There needs to be a nationally coordinated publicity campaign to reduce water use, and universal water metering,” he said. “Low flows in rivers are disastrous for wildlife and, ultimately, we need to take much more care of this incredibly precious resource.”

Mark Owen of the Angling Trust said hosepipe bans needed to be extended across the country, after Southern Water became the first firm to bring in a ban on Friday, for the Isle of Wight and Hampshire.

“We need to see these bans brought in proactively in many more places,” said Owen.

He criticised the lack of government planning for extreme weather. “There is no strategic, coherent, joined-up approach. The reaction is always kneejerk. What happens when we get to this stage – when it is very dry and hot –is that all of a sudden usage shoots up as people fill paddling pools and water their gardens.”

The Observer

Energy-intensive companies may face shutting early or rationing

Energy-intensive businesses soon may have to reduce the hours they operate or ration usage if wholesale prices remain so high, experts have warned.

The alert comes days after a leading supplier said it would stop selling power and natural gas to its biggest business customers to protect margins as wholesale energy costs surge.

Writing in The Times, Simon French, chief economist at Panmure Gordon, says: “Energy costs are approaching the level where energy-intensive businesses will be pulling back the hours they operate. This means production lines shutting early and hospitality businesses limiting their opening hours.” He adds that rationing is a live discussion in Germany and it would not surprise him if energy-intensive British businesses self-rationed.

Last week it emerged that Centrica would supply only those clients consuming up to ten gigawatt-hours of electricity and a million therms of gas. That means gradually getting rid of about 200 customers and not taking any new businesses outside the criteria.

Centrica is not the only large supplier to reduce its exposure to industrial and commercial consumers to protect its profit margins. ScottishPower said in March that it would gradually stop selling energy to businesses because of the market’s “unprecedented challenges”.

The Times