Source · Select Committees · Public Accounts Committee
Recommendation 4
4
Accepted
Update Department and Ofgem procedures for supplier failure to cover entire SAR process.
Conclusion
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 SAR might work in practice if a major supplier failed. However, this scenario testing and the subsequent guidance and templates focused on starting a SAR and the immediate steps needed to appoint a special administrator. They did not extend to some of the later stages of running a SAR, such as the energy purchasing strategy or how to structure and run the sale process. The Department did not anticipate that volatile energy prices, or uncertainty arising from new regulations being proposed by the Department and Ofgem in response to supplier failures, would result in low interest from potential buyers. This led to the sale process taking 10 Bulb Energy 7 months to complete, longer than originally intended. The SAR achieved its primary objective of ensuring the continuity of energy supply to Bulb’s customers. However, as only the initial stages of the SAR were rehearsed, some of the risks and issues encountered during the SAR were unforeseen. The government and administrator recognise the importance of detailed planning in the event of a future SAR to enable all those involved to better understand the potential risks and how to mitigate them and allow decisions to be taken quickly. Recommendation 4: By the end of 2023, the Department and Ofgem should update their procedures for handling a supplier failure to ensure that they cover the entirety of the SAR process. This should clearly outline the key decision points during the SAR, the energy purchasing strategy, the sale process and exiting the SAR.
Government Response Summary
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 SAR lifecycle, including exit.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. Recommendation implemented DESNZ, Ofgem and other stakeholders have worked closely to develop comprehensive governance arrangements and planning materials to ensure the government remains well-prepared to manage the failure of a large energy supplier. These have been thoroughly tested, including through their successful use in the Bulb Special Administration Regime (SAR). They include: • A contingency plan and a joint DESNZ-Ofgem ESC SAR handbook, including key roles and organisational accountabilities. • A Memorandum of Understanding establishing a coordination framework between DESNZ, HM Treasury and Ofgem. • A call-off panel to provide independent scrutiny of any requests for financial support by the Energy Administrator. • Ofgem’s appointment of a preferred Energy Administrator including two reserves. • Contract in place until the end of 2024 to provide external legal support. • A ‘break glass pack’ covering actions to be taken in the first 96 hours of managing a large supplier failure; and • Regular wargaming exercises, the most recent in September 2023. This planning takes account of the entire lifecycle of a SAR, the ultimate exit of the failed supplier from administration. While we have sought to prepare as thoroughly as possible, however, how the exit from a SAR is managed in practice will depend in large part on factors outside the control of government, including legal proceedings, prevailing market conditions and the appetite of potential buyers. In the event of any future SAR, the government will work with the administrator to ensure the best possible outcome for customers. If the supplier cannot be rescued or sold, customers will be moved to another supplier in a managed, gradual process.