Recommendations & Conclusions
5 items
5
Conclusion
Seventy-Fourth Report - Bulb Energy
Acknowledged
The complex nature of the Special Administration Regime and sale process has required specialist skills and advice that are in limited supply within government. During the SAR and sale process for Bulb, government sought and appointed various advisers to support the Bulb process and also to advise on matters such …
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The complex nature of the Special Administration Regime and sale process has required specialist skills and advice that are in limited supply within government. During the SAR and sale process for Bulb, government sought and appointed various advisers to support the Bulb process and also to advise on matters such as creditor disputes and structuring the sale deal to protect taxpayers’ money. By the end of January 2023, the Department had spent £53 million on advisers. Of this, the Department spent £2.8 million on financial and legal advice on the oversight of the SAR and sale of Bulb and £49.9 million on Teneo as of 31 January 2023. The need for commercial and corporate finance skills across government has increased. It is important that all departments have access to these skills and expertise in order to make appropriate judgements concerning complex activities that link the public and private sectors. The Department has indicated that in addition to the cost of external advisers, it also sought advice during the SAR process from UKGI, the government’s centre of expertise for corporate finance. While the Department was responsible for scrutinising, the fees charged by Teneo, the Department delegated some of the responsibilities for scrutinising these fees to professional advisers. Teneo estimates its total fee, including future work necessary until the conclusion of the SAR, will be in the region of £60 million, which will be paid by energy consumers. Recommendation 5: Within 12 months, HM Treasury, working with UKGI, should update the Government Corporate Finance Profession’s vision and strategy to ensure that departments have access to the right skills and experience from within the civil service to handle future supplier failures and similar transactions related to corporate finance.
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Government response AI summary
The government agrees with the recommendation, outlining that the GCFP continuously evaluates its purpose and will include raising awareness of specialist skills in its forward plan, as well as continuing to monitor and update knowledge-sharing tools and arranging seminars.
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HM Treasury
7
Conclusion
Seventy-Fourth Report - Bulb Energy
Acknowledged
The SAR will continue until Octopus has repaid the taxpayer funding and Bulb’s outstanding costs and liabilities have been settled. We asked the Department how it was managing the recovery of the temporary taxpayer funding provided to Octopus. The Department and HM Treasury told us that the deal constructed with …
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The SAR will continue until Octopus has repaid the taxpayer funding and Bulb’s outstanding costs and liabilities have been settled. We asked the Department how it was managing the recovery of the temporary taxpayer funding provided to Octopus. The Department and HM Treasury told us that the deal constructed with Octopus would protect taxpayers’ money by preventing profits being moved out of the ringfenced Bulb to the wider Octopus Energy Group.8 The Department told us it was closely monitoring the cash balances and arrangements in place with Teneo and that the ringfenced entity will remain in SAR until taxpayer funding is fully recovered. The Department also told us that it was meeting regularly with Teneo, Octopus and Ofgem who provided updates to the Department on the financial resilience of the ringfenced entity.9 6 Qq 23, 29, 31; C&AG’s Report, paras 4–5, 3.17, Figure 8 7 Qq 92, 108; C&AG’s Report, paras 6, 13, 15, 1.10–12, 1.16 8 Qq 97, 105 9 Qq 107–108 Bulb Energy 11
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Government response AI summary
The government agrees with the implied need for ongoing management and monitoring of the Bulb SAR. It states that lessons learned activities are ongoing and will continue throughout the SAR lifecycle, and the department will conduct a benefits analysis towards the SAR's conclusion.
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HM Treasury
8
Conclusion
Seventy-Fourth Report - Bulb Energy
Acknowledged
The NAO reported that the estimated amount Octopus was expected to pay back was £2.96 billion, based on the wholesale cost allowance in Ofgem’s price cap methodology. This included the one-off payment of £1.06 billion made by BEIS on 20 December, and the £0.71 billion estimated wholesale costs of energy …
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The NAO reported that the estimated amount Octopus was expected to pay back was £2.96 billion, based on the wholesale cost allowance in Ofgem’s price cap methodology. This included the one-off payment of £1.06 billion made by BEIS on 20 December, and the £0.71 billion estimated wholesale costs of energy for Bulb customers bought by BEIS and the Department between December 2022 and March 2023.10 However, Teneo told us that its latest estimate, as of 25 May 2023, was that the amount to be repaid by Octopus was closer to £2.8 billion due to the fall in the cost of wholesale energy prices. Octopus is expected to repay this money in September 2024. There are deferral triggers if the market conditions worsen, which may result in the repayment being deferred by twelve months to September 2025.11 Ofgem explained that it was difficult to predict where the gas market will be with any certainty as every projection so far had proved to be incorrect. Ofgem told us that while prices had been coming down for some time now, prices were still susceptible to drastic change in the event of increased demand or another energy crisis.12
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Government response AI summary
The government acknowledges the estimated repayment of £2.8 billion by Octopus, expected by September 2024 with a potential deferral to September 2025. It further states that it does not expect full recovery and intends to recover any shortfall from energy consumers, with the final cost …
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HM Treasury
10
Conclusion
Seventy-Fourth Report - Bulb Energy
Acknowledged
The total cost of the taxpayer funding committed to the sale and supporting Bulb was made up of a number of areas of spend. These included: £0.16 billion to offset Bulb’s remaining liabilities; a one-off loan of £1.06 billion to assist with building the collateral needed to provide the letter …
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The total cost of the taxpayer funding committed to the sale and supporting Bulb was made up of a number of areas of spend. These included: £0.16 billion to offset Bulb’s remaining liabilities; a one-off loan of £1.06 billion to assist with building the collateral needed to provide the letter of credit required by Shell for the provision of wholesale energy for Bulb’s customers; and £0.71 billion for the wholesale energy required by Bulb between 21 December 2022 to 31 March 2023. The final cost of operating the SAR to 2025 10 C&AG’s Report, para 16, 17 11 Qq 44, 46 12 Q 3 13 Q 39; C&AG’s Report, para 3.15 14 Qq 33, 35, 36–38 12 Bulb Energy as of January 2023 was estimated to be £1.09 billion – bringing the estimated total cost of taxpayer funding to £3.02 billion. However, the actual cost of the SAR will only be known once the SAR ends, with Octopus repaying the temporary taxpayer funding it owes. The funding provided to Octopus attracts an interest charge to ensure compliance with HM Treasury guidance and subsidy control rules.15
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Government response AI summary
The government agrees with the conclusion, confirming that the actual cost of the SAR will be known only after its conclusion, expected in autumn 2025 or 2026. It commits to informing the Committee of final confirmed amounts and providing a written update on estimated outturns …
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HM Treasury
11
Conclusion
Seventy-Fourth Report - Bulb Energy
Acknowledged
When we examined the regulation of energy suppliers in November 2022, we found that the SoLR intervention was expected to cost £2.7 billion. This cost was expected to be passed onto energy consumers and resulted in an increase in average bills by £94 per household.16 We therefore asked the Department …
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When we examined the regulation of energy suppliers in November 2022, we found that the SoLR intervention was expected to cost £2.7 billion. This cost was expected to be passed onto energy consumers and resulted in an increase in average bills by £94 per household.16 We therefore asked the Department how it would determine whether there was a shortfall at the end of SAR and how much of this would also be passed onto customers. The Department told us that it expected to recover the majority of the £3.02 billion taxpayer funding, but that it expected that there would be a shortfall. At the time of the NAO report, Octopus was expected to repay £2.96 billion to meet the cost of the collateral and the wholesale energy costs for Bulb. This would leave a shortfall of £246 million that will also need to be recovered (including accrued interest, which was applied to the taxpayer funding at a market rate of interest set at a level that was not a form of subsidy). At the time of our evidence session, Teneo reported that the estimated amount Octopus would be due to repay to government was £2.8 billion. HM Treasury explained that recovery of the shortfall through energy consumer bills formed part of the system set in place by the legislation included in the Energy Act 2011. It explained that this was originally set up to ensure continuity of energy supply to consumers, but that the cost of such processes go back to energy consumers. The Department explained that it had not yet been decided whether the shortfall will be recovered through energy consumers or taxpayers, but that it had already set out to Parliament its intention to recover the cost from energy consumers. The Department and Teneo told us that should this be the case, this would cost an estimated 75p per month or £8 to the average household for a year, or £4 per year over two years.17 15 Q 105; C&AG’s Report, paras 13–15, 2.7, Figure 5 16 House of Commons Committee of Public Accounts, Regulation of energy suppliers,
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Government response AI summary
The government agrees with the conclusion, confirming the SAR's expected conclusion in autumn 2025 or 2026 when final costs will be known, including any shortfall. It commits to providing the Committee with a written update on final confirmed amounts and timelines for recovery by December …
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HM Treasury