Recommendations & Conclusions
16 items
2
Conclusion
Seventy-Fourth Report - Bulb Energy
Accepted
Ofgem’s failure to ensure that energy suppliers were financially resilient resulted in costs to energy consumers and taxpayers when these energy companies failed. To encourage new suppliers into the market and encourage price competition and innovation, Ofgem took a ‘low bar’ approach to licencing new retail energy suppliers. Between 2010 …
Government response. The government states that Ofgem has implemented a package of measures since 2021 to strengthen supplier financial resilience, including customer credit balance ringfencing and capital adequacy requirements taking effect by Q1 2025. Ofgem is also undertaking a Non-Domestic Market Review …
HM Treasury
3
Conclusion
Seventy-Fourth Report - Bulb Energy
Accepted
We are concerned that substantive risks and uncertainties remain to the recovery of the £3.02 billion of taxpayer funds currently committed to the funding of Bulb Energy. The government provided a package of temporary taxpayer funding to enable Octopus to complete the acquisition of Bulb via the Energy Transfer Scheme. …
Government response. The government agrees and clarifies that the Bulb Special Administration Regime (SAR) will conclude in autumn 2025 or 2026, when final costs and repayment details will be known. The department commits to providing a written update on estimated outturns and …
HM Treasury
4
Conclusion
Seventy-Fourth Report - Bulb Energy
Accepted
HM Treasury, the Department and Ofgem’s preparedness for the failure of a major energy supplier like Bulb, did not include the full range of activities needed to oversee a Special Administration Regime (SAR). Between 2018 and 2021, HM Treasury, Ofgem and the Department tested various scenarios to understand how a …
Government response. The government states that DESNZ, Ofgem, and stakeholders have developed and tested comprehensive governance arrangements and planning materials for managing large energy supplier failures, including a joint SAR handbook, an MoU, and regular wargaming exercises. This planning covers the entire …
HM Treasury
6
Recommendation
Seventy-Fourth Report - Bulb Energy
Accepted
Government’s approach to managing financial risks posed by fluctuations in energy prices does not adequately take into account recommended practice for privately financed energy suppliers operating in the sector. Ofgem requires energy suppliers to adopt an energy forward purchasing strategy, meaning they are required to have an energy price hedge …
Government response. The government agrees with the recommendation, stating that entities classified to central government are bound by existing guidance in 'Managing Public Money', and for public corporations, hedging is considered on a case-by-case basis, with guidance continuing to discourage hedging due …
HM Treasury
1
Conclusion
Seventy-Fourth Report - Bulb Energy
Accepted
On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Energy Security and Net Zero (the Department) and HM Treasury on Bulb Energy.1 We also took evidence from Octopus Energy Group Limited (Octopus), Ofgem and one of the three appointed special …
Government response. The government, misinterpreting the introductory conclusion as a recommendation, states that the 'recommendation is implemented' and describes various existing and ongoing government schemes like the Energy Price Guarantee, cost-of-living payments, and the Warm Home Discount, to support households with energy …
HM Treasury
9
Conclusion
Seventy-Fourth Report - Bulb Energy
Accepted
In October 2022, Ofgem reviewed the proposed sale deal to assess whether Octopus had suitable financial and operational capabilities to ensure consumers’ interests were protected. As part of its review, Ofgem concluded that there was a risk that Octopus’s systems and processes were not robust enough to handle the scale …
Government response. The government agrees with the committee's observation and confirms that Ofgem has implemented a package of measures since 2021 to strengthen supplier financial resilience and improve the retail energy market, including capital adequacy requirements from Q1 2025, and that Ofgem …
HM Treasury
12
Conclusion
Seventy-Fourth Report - Bulb Energy
Accepted
Between 2018 and 2021, the Department, HM treasury and Ofgem tested various scenarios for the failure of a large energy supplier to identify how a SAR might work in practice. We therefore asked what lessons they had learned from this experience.18 The Department told us that it reviewed annually its …
Government response. The government agrees with the committee's observation and confirms that comprehensive governance arrangements and planning materials, including a SAR handbook, MoU, call-off panel, appointed administrators, and regular wargaming exercises, are already in place and regularly tested to ensure preparedness for …
HM Treasury
13
Conclusion
Seventy-Fourth Report - Bulb Energy
Accepted
We asked Teneo to explain what lessons could be learned from the SAR process. Teneo told us there were two main lessons, the first of which was around the importance of planning at an early stage. It explained that this included planning even before the appointment of the special administrators …
Government response. The government agrees with the committee's observation on lessons learned from the SAR process, noting that 'lesson learned' activities were undertaken in 2022 and 2023 to shape ongoing preparations, and that lessons will continue to be consolidated into contingency planning, …
HM Treasury
14
Conclusion
Seventy-Fourth Report - Bulb Energy
Accepted
The government has an obligation to ensure continuity of energy supply to customers in the event of an energy supplier failure. We asked Ofgem what it had learned from recent supplier failures and whether it had reviewed the mechanisms in place for protecting energy customers. Ofgem told us that it …
Government response. The government agrees with the committee's observation, stating that Ofgem has already implemented a package of measures since 2021 to strengthen supplier financial resilience and improve the retail energy market, including SoLR payment adjustments and new capital adequacy requirements from …
HM Treasury
15
Conclusion
Seventy-Fourth Report - Bulb Energy
Accepted
Hedging is an energy purchasing strategy where energy suppliers contractually agree with a wholesale supplier or financial institution to purchase gas or electricity from the wholesale energy market for a specified price on a fixed future date. Suppliers buy energy in advance to match the expected demand of their customers.27 …
Government response. The government agrees with the committee's observation and clarifies that, for future reclassified public sector companies, existing Managing Public Money guidance on hedging will apply. For public corporations, hedging will be considered case-by-case, but the guidance will continue to suggest …
HM Treasury
16
Conclusion
Seventy-Fourth Report - Bulb Energy
Accepted
The government directed Teneo to make minimal use of hedging when purchasing energy for Bulb’s customers, except when operational and market conditions required it. During the SAR, Teneo purchased its energy using a combination of day-ahead and week- ahead purchases. We asked HM Treasury if it would use the same …
Government response. The government agrees with the committee's observation and states that, for future reclassified public sector companies, existing Managing Public Money guidance on hedging will apply. For public corporations, hedging will be considered case-by-case, but the guidance will continue to suggest …
HM Treasury
17
Conclusion
Seventy-Fourth Report - Bulb Energy
Accepted
Octopus was the only bidder for Bulb energy during the sale process. Ofgem told us that this was in part due the unhedged position of Bulb, meaning it did not have any contractual arrangements with a wholesale energy supplier to purchase energy in advance. It explained that the lack of …
Government response. The government agrees with the committee's observation, highlighting that Ofgem has implemented measures since 2021 to strengthen supplier financial resilience and improve the retail energy market, including capital adequacy requirements from Q1 2025. Additionally, it states that future public sector …
HM Treasury
18
Conclusion
Seventy-Fourth Report - Bulb Energy
Accepted
This was the first time a SAR had been used and so we asked the Department and HM Treasury whether they had the skills and experience necessary to successfully deliver the SAR at the outset of the process. The Department told us that despite the exercises and war-gaming to prepare …
Government response. The government agrees with the committee's observations, stating that UKGI and HM Treasury will review the Government Corporate Finance Profession's forward plan by Autumn 2024 to raise awareness of specialist skills across government for supplier failure scenarios, alongside the Profession's …
HM Treasury
19
Recommendation
Seventy-Fourth Report - Bulb Energy
Accepted
The Department told us that it was continuously developing its in-house skills in areas such as insolvency and restructuring. HM Treasury told us that every department needed to have corporate finance and insolvency expertise and that it had seen an increase in the levels of corporate finance work being undertaken …
Government response. The government accepted the recommendation, stating that UKGI and HM Treasury will review the Government Corporate Finance Profession’s forward plan by Autumn 2024 to raise awareness of specialist skills and continue to update knowledge-sharing tools.
HM Treasury
20
Recommendation
Seventy-Fourth Report - Bulb Energy
Accepted
Between July 2021 and May 2022, 29 energy suppliers, including Bulb energy, failed in large part due to lack of financial resilience during periods of market volatility. We asked Ofgem whether the failure of Bulb meant that the energy market was not working as intended, and what could have been …
Government response. The government accepted the recommendation, stating it is already implementing a package of measures, including new capital adequacy requirements from Q1 2025, to strengthen the energy retail market's financial resilience and protect consumers.
HM Treasury
21
Conclusion
Seventy-Fourth Report - Bulb Energy
Accepted
To follow on from Ofgem’s new monitoring of financial resilience of energy suppliers, we asked if it was looking to provide other new regulations, such as ringfencing customer credit balances. Ofgem told us that it had decided not to require energy companies to ringfence customer credit balances, but that it …
Government response. The government agrees with the committee's observation and states that Ofgem has already implemented a package of measures since 2021 to strengthen supplier financial resilience. These include SoLR payment adjustments, credit balance ringfencing in certain circumstances, and capital adequacy requirements …
HM Treasury