A brief nationalisation of Bulb Energy is easy but an exit could be harder | Nils Pratley
By SEAMLESS DAILY
26 November 2021
Under the rules of of the scheme, Bulb will receive Government money to continue supplying gas and electricity to its customers during the administration period.
A key point about the "special administration" process, he says, is that Ofgem has surrendered an element of control.
Chief executive Jonathan Brearley ’ s letter to Kwarteng requesting an administration for Bulb offered three arguments in favour.
First, there was the fact that "industry systems are already under considerable strain" from managing the transfer of customers of smaller companies that have gone bust.
Industry regulator Ofgem would normally appoint a rival energy firm to take on Bulb's 1.7million customers under a regime known as the Supplier of Last Resort.
His third point was that use of SoLR "would be likely to give rise to a claim on the industry levy which would be passed on to the market in the next regulatory year".
In a normal year the company expects an overall inflationary increase in its cost base of 3.5 %.
Bulb will be the first company to use the Special Administration Scheme- a contigency system that was designed to temporarily support energy suppliers deemed too big to fail.
One industry source said that the Government will be able to recoup some of the money from Bulb or from selling parts of the business.
This is because the Government's price cap limits what suppliers can charge to under the current wholesale price of energy.
In this case, there is no chance of doing so, at least in the short term, because no other firm is prepared to take on the costs and huge losses involved.
By waiting until gas prices are less severe, they could spread out the immediate hit to households.
The 2013 paper also revealed that the Government believed suppliers as big as Bulb were highly unlikely to collapse.
This ensures that consumers are protected, while allowing the failed business to close down.
However transferring all of Bulb's 1.7 million customers to a different supplier could risk putting the new supplier at risk of collapse because of the high costs it would face.
'For a supplier to take on the customers of one of the six largest supply companies may mean doubling the size of their customer base.
Like the other 22 energy suppliers that have collapsed since August, Bulb has been squeezed between rising wholesale gas prices and the cap set by Ofgem – the energy regulator – on the amount it can charge consumers.
the two firms are the latest companies can charge their customers, some businesses have been forced to sell energy for less than they bought it for, due to rising wholesale gas prices.
Orbit said energy supplies to its customers were "secure" and said any credit balances would be honoured.
the regulator has previously advised to wait until a new supplier is appointed before looking to switch to another energy firm.
Supplying about 1.7 million households and businesses, it is the seventh largest gas supplier in the UK.
But Bulb's directors and investors have their own case to face.
Founded in 2015, the startup posed as less of an energy company and more of a tech firm – the Deliveroo or Uber of the fuel market that would challenge the old logic of the sector.
If a taxi app collapses, it ultimately does not matter as much as the failure of a supplier of finance or fuel.
In the short term, one obvious solution is for the watchdog Ofgem to pay far more attention to the financial viability of businesses in its sector.
News earlier this week that Bulb Energy is to go into special administration is the latest episode in a period of unprecedented financial strain in the UK's energy sector.
By early 2022, energy bills are expected to continue to increase by more than 30 %.
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