National Audit Office report on Investigation into Bulb Energy

There has been a substantial reduction in potential cost to the taxpayer of supporting the transfer of Bulb Energy (Bulb) to a new ringfenced supplier under the Octopus Energy Limited Group (Octopus), but risks remain, a new National Audit Office (NAO) report says. 

The NAO’s Investigation into Bulb Energy reports that the Special Administration Regime (SAR) which has been in place since November 2021, has cost taxpayers an estimated £3.02bn as of January 2023. This taxpayer funding is expected to be largely recoverable from Octopus, which will be the UK’s third-largest energy supplier when its customers are combined with that of Bulb.

Overall, the expected net cost to the taxpayer is nil as the government has the option to recover any shortfall in taxpayer funding (after recoveries from Octopus) from energy bill payers.

The NAO’s report sets out the facts of the special administration regime and sale process and makes no assessment of the decision to take Bulb into SAR nor whether other approaches may have provided better value for money.

Following the recent machinery of government changes, responsibility for the five objectives the Department of Business, Energy & Industrial Strategy (BEIS) set itself for Bulb’s sale now rests with the new Department for Energy Security & Net Zero (DESNZ). These include:

• Ensuring Bulb customers continue to be protected
• Minimising costs to consumers
• Preventing or minimising negative impacts on the wider energy market
• Delivering the sale process
• Exiting the Special Administration Regime as quickly as possible and ensuring all costs are recovered.

BEIS supported selling Bulb over alternative options for ending the SAR, but limited interest from buyers meant the sale took 10 months to complete (from February 2022 to December 2022). Among reasons cited by other potential bidders for the lack of interest in Bulb include: wholesale price volatility; regulatory uncertainty; and that strategically it was the wrong time to invest in an energy retailer.

Three individuals from Teneo Financial Advisory Limited were appointed joint special administrators by the High Court. The administrators agreed various measures with Octopus to protect taxpayers, including ringfencing the new supplier (HiveCo), which was purchased by a wholly owned subsidiary of the Octopus group. As a result of this ringfence, Octopus will not pay management fees, issue inter-company loans or make dividend payments from HiveCo to the wider Octopus group until it has repaid taxpayer funding.

BEIS agreed to pay HiveCo’s energy costs from 21 December 2022 (following the transfer of Bulb’s customers and certain business assets and liabilities to HiveCo) until 31 March 2023 to help  it manage its exposure to wholesale price volatility.

BEIS, supported by HM Treasury, instructed the administrators to adopt an energy purchasing strategy which required them to buy gas and electricity at the day-ahead wholesale price, and expressly discouraged the administrators from entering into hedges or forward purchasing agreements. This exposed taxpayers to price volatility. In November 2022 the Office for Budget Responsibility forecast a gross cost to the taxpayer of £6.5bn. The administrators now forecast gross taxpayers’ cost of £3.02bn for the Bulb process prior to recovering this funding. This substantial reduction in the gross cost is mainly due to the reduction in wholesale energy prices.

DESNZ expects to recover taxpayer support from Octopus from 2024, but this may be delayed by a year in some circumstances. DESNZ is dependent on the continued commercial success of Octopus for the repayment of these funds, and must now manage the risks to successful recovery.

Gareth Davies, head of the NAO, said:

“The government has met its primary objectives: protecting Bulb’s customers by maintaining their supplies, and completing its sale.

“When Bulb was taken into special administration, government took a risk on changes in wholesale energy prices. The unexpected fall in wholesale energy prices has greatly reduced the expected cost to the taxpayer.

“However, it is too early to conclude whether DESNZ will achieve all of its remaining objectives for Bulb. Several risks remain to the recovery of taxpayer funding, and depending on how well these are managed, there may remain costs to be met by household energy customers.”