British taxpayers will be left exposed to any future rises in wholesale gas prices, potentially adding hundreds of millions of pounds to the £1.7bn already committed to propping up Bulb Energy by the government.
The once-feted group this week became by far the largest company to succumb to the wholesale gas price crisis engulfing British energy suppliers — and the subject of one of Britain’s biggest bailouts since the financial crisis more than a decade ago.
After Bulb on Monday revealed it would enter “special administration”, the government confirmed the exchequer is providing £1.7bn in working capital to support the company until next April so it can continue providing electricity and gas to its 1.6m customers.
The state would “seek to recover some of that money”, said one government official. “It is a loan. It will not be paid in one go, it’s an envelope that can be drawn down as and when it is needed.”
The official said that if wholesale energy prices went up, “then yes it would be fair to say the cost would rise even further”. While the government considers this unlikely, it acknowledges the extra expenditure in this scenario would run into the hundreds of millions of pounds.
Ministers are hoping gas prices will fall, meaning the taxpayer outlay would undershoot the £1.7bn set aside for Bulb. In theory the company could also be bought out of administration by a rival, while customers could migrate in large numbers to other suppliers, lessening the cost for taxpayers.
The Bulb intervention is among the largest bailouts since taxpayers stepped in to prop up RBS and HBOS more than a decade ago, although the entire rail industry was temporarily nationalised at the height of the rail crisis last year.
More than 20 energy suppliers have failed since August, with the latest, Orbit Energy with 65,000 domestic customers and Entice Energy with 6,500, collapsing on Thursday. All customers from other failed groups, except Bulb, have been transferred to other suppliers.
The terms of Bulb’s special administration face opposition from a creditor, according to court documents filed on behalf of Bulb’s parent company, which is also in administration but through a regular corporate process.
The documents show Simple Energy, which employs Bulb’s workers and provides it with IP and software access, was expecting to continue doing so to lend “stability” and “preserve the value of its business and assets” while the administrators sought to find a buyer for the supplier or its assets.
However, Sequoia Economic Infrastructure Income Fund, which has lent about £55m to Bulb under a loan guaranteed by Simple, could “disrupt the process”, the documents say.
The fund is “not content” with the proposed terms on which Simple Energy “will supply services to Bulb once the companies are in administration and special administration respectively”, according to the filings.
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After a disagreement over whether the energy group should prioritise other liabilities ahead of loan repayments to the fund, Sequoia has secured the appointment of its preferred administrator for Simple, which had been lining up its own restructuring advisers for the role.
The fund considers that Simple Energy “should be insisting on terms which would extract greater value for Sequoia, whether or not those terms are commercially reasonable or would be accepted by the special administrators of Bulb”, the documents add.
Sequoia’s strategy was “exceptionally aggressive” and risked “derailing the whole process”, said one person familiar with the matter, adding that the fund’s approach risked a significant dispute with the government.
Sequoia declined to comment. On Monday it said in a statement it had been working “openly and constructively” with “all stakeholders . . . to ensure the best interests of customers and employees”, although it added it was also seeking to ensure a “fair outcome for all parties”, including its own shareholders.
A separate court document filed by lawyers for the special administrators at Teneo described how the terms of the £1.7bn government funding provided to Bulb would prioritise the payment of some liabilities before Sequoia could recover money owed to it.
The liabilities prioritised would include credit balances built up by Bulb customers who had paid for more energy than they had used via direct debit.
Source: Financial Times