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Hard-pressed energy consumers face the likelihood of paying higher bills next year because of the aftermath of the collapse of so many companies when fuel costs soared during the cost of living crisis, MPs say in a report published today.
Taxpayers have been left with a £2.7 billion bill as 28 energy providers ceased trading after fuel prices soared two years ago. The cash looks set to be recovered from bills as all 28 companies were run by the Government as the ‘supplier of last resort’ until they were transferred to other energy companies.
The biggest collapse was Bulb Energy, the 29th firm to go bust. It collapsed leaving 1.5 million customers having to rely on government support until it could be rescued by Octopus Energy under a different deal called the ‘special administration regime’. This has cost more than £3 billion.
This arrangement saw the Government put £2.96 billion into a ring-fenced bank account which Octopus has to pay back either in September next year or the following year if energy prices soar again. It also entered into a profit-sharing arrangement over fuel prices which, because of recent falls in energy prices, has given the Treasury an extra £1.2 billion in revenue from the company.
MPs point out that, despite this, it still leaves a £246 million shortfall – plus another £60 million to pay other private companies to supervise the special administrative regime which will have to be recovered from customers.
Labour’s Dame Meg Hillier MP, chair of the House of Commons’ Public Accounts Committee, said that the report “is a sobering reminder that we are still living with the fall-out of the failure of so many energy suppliers in 2021-22”.
“While the Government and regulators did the right thing in moving swiftly to protect consumers, the uncomfortable truth remains that the recovery of that investment hangs on the commercial success of one company. The public can ill afford such uncertainty, particularly in challenging economic times.”
The MPs’ report lays the blame for this crisis on the regulator, Ofgem. From 2010, when the Conservatives came to power, to 2022 some 73 new suppliers were approved by the regulator. But 65 have left the business, including the 29 that went bust.
According to the committee’s report, Ofgem set a “low bar” for new suppliers which showed up when energy prices soared.
“The ‘low bar’ approach to licensing new suppliers in the hope that competition and innovation would follow resulted in a market built on sand,” Hillier added. “This underlying fragility must now be firmly consigned to the past to ensure consumers are protected in the future.”
The report also reveals that the Government did not have the expertise to run a special administrative regime and had to call in outside experts to handle it and to monitor the private administrators, Teneo, to see if they were doing their job.
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The committee discovered that a quarter of the vouchers sent to the poorest people to pay their bills have not been used.
The magazine Sifted, which monitors new business start-ups, says a number of top staff known as ‘Bulberinos’ quit Bulb either just before or after its collapse to set up new businesses.
The company’s co-founders, Hayden Wood and Amit Gudka, have started new firms. Gudka — a former Barclays energy trader and DJ — left Bulb nine months before it collapsed to start Field, an energy storage company. Other top staff have set up new firms in Madrid and Los Angeles, raising start-up finance.
Octopus Energy refused to comment publicly on the report.
An Ofgem spokesperson said: “We worked tirelessly with government to put measures in place to shield customers from the impact of Bulb going out of business. Since then, we have taken a range of firm steps to strengthen the resilience of the sector to reduce the risk of future supplier failures and to limit the impact on consumers if they do fail.
“We have raised the bar for all energy companies with measures that include financial ‘stress testing’, tightening rules around the protection of credit balances and renewables levies and strengthened ‘fit and proper’ controls for senior managers. We can and do decline license applications by new energy companies where we are not convinced the organisation is resilient enough to weather the volatility of the current energy market. We also require organisations to assess their management control frameworks and provide assurance to Ofgem.”