Source · Select Committees · Public Accounts Committee
Recommendation 12
12
Accepted
SAR preparedness did not fully match reality, revealing unforeseen challenges.
Conclusion
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 plans in the event of a SAR, and that questions surrounding resourcing and preparedness were part of these reviews.19 The Department explained that the last rehearsal took place in the summer of 2021, and was undertaken jointly with HM Treasury and Ofgem, and that this covered the point of supplier failure, the decisions around what to do, and all the approvals and funding arrangements that would need to be put in place to enable a SAR to actually be initiated successfully.20 The NAO found, however, that 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.21 HM Treasury told us that while there was a lot of positive work undertaken to prepare for the SAR, “a plan never matches with the reality”. It explained that there were a few things that were different to what it had expected or planned for, including the large number of small supplier failures in the summer before Bulb collapsed, which affected the capacity of the market to absorb the customers coming through the SoLR process. It also told us that there were particular problems around hedging and residual assets which it had not foreseen.22
Government Response Summary
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 a large energy supplier failure.
Government Response
Accepted
HM Government
Accepted
4.1 The government agrees with the Committee’s recommendation. Recommendation implemented 4.2 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. 4.3 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.