The most shocking number in the Chancellor’s Autumn Statement was not in the statement at all. It was in a single line in the report from the Office for Budget Responsibility, which informed forensic readers that the cost of rescuing Bulb was estimated at £6.5 billion. Even by the standards of today’s bloated numbers, that’s a serious sum. It’s about £200 per household, and it’s coming to you, another electric shock to your energy bills.
Bulb was one of those exciting new suppliers which were going to teach the existing providers how to do it. Having been goaded by the media into believing that the old six were effectively a rip-off cartel — evidence for this was thin, at best — Theresa May’s administration encouraged these disrupters, and dozens rushed in. It was an unmissable opportunity. The beauty of it was that they could offer slightly cheaper gas and electricity than the big boys, arguing that they had no big head offices to support and — this was key — then set up direct debits at a level designed to ensure than they always owed the customers money, rather than the other way around.
In other words, the customers provided their working capital. Some of the suppliers were little more than a laptop in a back bedroom, but business boomed as consumers were urged to shop around for the cheapest supplier. Many of the owners of these tinpot companies quickly got rich. Then suddenly wholesale gas prices left their previous narrow price band and headed for the moon. Many customers were on fixed-priced contracts, and the suppliers were quickly wiped out.
Under the rules, each failure had to be picked up by others in the industry. Many were small, but among the 28 was Bulb, by then Britain’s seventh-largest supplier, and none of the survivors was prepared to take on its 1.7 million customers. Last November it went into “special administration” with a government rescue, initially expected to cost £2.2 billion. If only. The deal to pass it to Octopus, the sixth-largest survivor, is now expected to cost £6.5 billion, and the Government is trying not to explain anything about it.
It seems that the then Business Secretary, the accident-prone Kwasi Kwarteng, had decided that allowing the failed Bulb to hedge by buying forward gas would count as speculation, almost akin to gambling with public money, and thus could not be allowed. Never mind that Ofgem, the industry regulator, encourages forward purchases to reduce risk. Then Russia invaded Ukraine, and the price took off afresh.
The suspicion now is that KK then panicked and allowed the forward purchases, at prices which now seem far too high, and Octopus wants the difference. Centrica, the owner of British Gas and a potential rescuer, is only one supplier grumbling about foul play with the deal.
Rather than offer an explanation, the Business Department flanneled to the FT that the OBR did not have visibility of the deal in reaching its £6.5 billion figure. It’s not the only one.
Octopus founder Greg Jackson says the takeover is “good value for taxpayers”, but it looks like an eye-watering price for what he describes as certainty. As for Hayden Wood, the co-founder of Bulb, he told MPs earlier this year that he is “very sorry for the way things turned out”. Oh, fine. That’s all right then. What’s another £200 per household nowadays?
Neil Collins and Jonathan Ford publish a Podcast, A Long Time In Finance, every Friday. Listen on Spotify, Apple or Acast.