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Friday, Mar 24, 2023

Taxpayers face £3bn Bulb bill as Russian invasion sends gas prices soaring

Taxpayers face £3bn Bulb bill as Russian invasion sends gas prices soaring

The soaring cost of gas on wholesale markets is expected to send the cost to taxpayers of rescuing Bulb spiralling to as much as £3bn or more, Sky News learns.

British taxpayers are facing a bill for the rescue of Bulb, the collapsed energy company, that could hit £3bn or more after Russia's war with Ukraine sent wholesale gas prices surging to unprecedented highs.

Sky News has learnt that industry executives and government officials now expect Bulb's special administrator to request hundreds of millions of pounds of additional funding within days to keep buying gas to meet customers' needs.

Bulb's insolvency in November involved the Treasury agreeing to provide £1.7bn to enable the company to keep operating on behalf of its customer base of nearly 1.7 million.

While the number of customers using Bulb has fallen slightly since then, the company is still thought to have around 1.5 million users.

Wholesale energy prices have spiked to record levels, with the cost of natural gas for next-day delivery in the UK trading 10% higher today at 515p per therm - more than ten times the level of a year ago.

One executive at a rival supplier said the cost to taxpayers of the Bulb bailout would "easily" hit £2.5bn, was likely to reach £3bn and could rise even beyond that level.

The potential cost of the Bulb process, which is being run by Teneo Restructuring, is soaring so fast because the government had decided that administrators could not hedge purchases of wholesale gas.

A spokesperson for the Department for Business, Energy and Industrial Strategy said on Monday: "The Special Administrator of Bulb is obligated to keep costs of the administration process as low as possible, and we continue to engage closely with them throughout to ensure maximum value for money for taxpayers."

Sky News revealed soon after Bulb crashed into insolvency that Lazard, the investment bank, was being lined up to find a buyer for Bulb.

Consumers were facing higher bills even before the invasion of Ukraine

That process is itself likely to be made significantly more difficult by the wholesale gas price rise.

Bulb, like other suppliers, has been forced to raise prices for consumers, with the industry price cap set by the regulator, Ofgem, rising 50% from April.

Analysts have forecast that it could reach £3000 for a typical household by the autumn.

The surge threatens to present Boris Johnson's government with a seemingly intractable cost-of-living challenge, given the volume of other inflationary pressures affecting consumers in supermarkets and at the petrol pump.

Bulb is the UK's seventh biggest supplier and by far the largest of the nearly 30 to have collapsed since the start of August.

The company was adjudged to have been too large to go through Ofgem's Supplier of Last Resort (SOLR) process - the method by which all of the UK's other collapsed energy companies have been resolved.

In the SOLR process, a company's operating licence is removed and bids are sought from other industry players for its customer base, with losses incurred by the acquirers of those customers then recouped through an industry levy.

Under the special administration regime, the administrator has a legal duty to consider the interest of customers, unlike a conventional insolvency process where the primary duty is to creditors.

Ofgem has admitted that it made mistakes in permitting too many new suppliers to enter the UK market without being certain of their financial resilience.

Observers expect the watchdog to face a radical overhaul once the current crisis has subsided.

Bulb declined to comment.


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