Centrica says Bulb sale risks ‘future stability’ of UK energy market

British Gas-owner Centrica has accused the government of endangering the “future stability” of the UK energy market if it pushes ahead with a plan to sell semi-nationalised retailer Bulb to rival Octopus Energy.

In a High Court challenge to the sale, which has faced criticism for its lack of transparency, Centrica revealed in filings that it had written to the Treasury and regulator Ofgem warning about Octopus’s financial position and questioning its suitability to take on Bulb’s 1.5mn customers.

Centrica is among a group of companies, including Scottish Power and Eon, challenging a sale that was agreed last month but about which the government has so far not released the details. Taxpayers or bill payers are potentially on the hook for billions of pounds in costs.

Centrica said in a filing to the court that it was concerned about Octopus’s alleged practice of using customer balances to help finance its operations, based on Octopus’s public opposition to the regulator considering requiring suppliers to ringfence customer funds.

“[There exists] a clear risk to the future of the stability of the energy supply market in light of Octopus’s financial position,” Centrica wrote, adding that if Octopus was to fail in the future other bill payers could ultimately need to meet the cost of making customer balances whole.

Customers who pay by direct debit often build up balances with their suppliers during the low-demand summer months that help smooth out bills over the year.

Centrica chief executive Chris O’Shea has been a vocal opponent of the practice of allowing energy retailers to tap into customer balances, accusing rivals of using them “like an interest free credit card”.

On Tuesday, O’Shea warned that he expects more energy retailers to collapse this winter with some already “struggling for cash” and likely to be trading while technically insolvent, following the failure of more than 30 suppliers since January 2021.

Bulb was by far the largest supplier to collapse and is already projected to cost as much as £6.5bn, according to the government’s Office for Budget Responsibility, equivalent to more than £200 for each UK household, which are likely to have to absorb the cost through future energy bills.

Octopus was approached for comment on the Centrica allegations.

Sources close to the deal said that if there was a successful judicial review delaying the sale then Bulb’s customers would remain with the government at considerable risk to taxpayers.

Rival suppliers say the agreed sale includes a government subsidy that would help Octopus buy the energy for Bulb’s customers.

The process to sell Bulb was “defective” and rival energy suppliers were not informed that “any large-scale government support would be available to the successful bidder”, ScottishPower told the High Court on Tuesday.

Stephen Robins KC, barrister for ScottishPower, said the deal would in effect provide a “dowry” to Octopus as an “incentive to enter into the transaction” and that there had been “no reference in the sales documents to the possibility of the UK government (or any other UK public sector body) providing financial assistance to potential bidders”.

Teneo, the consultancy appointed by regulator Ofgem to handle Bulb’s administration, rejected ScottishPower’s allegations and said there had been a full sales process.

The government had planned to sell the business by the end of July but the process, run by investment bank Lazard, drew only Octopus’s bid.

Ovo Energy then made a late play for the company last month but was rejected. If the deal goes ahead it would make Octopus the third-largest UK energy supplier, behind British Gas and Eon, with 4.9mn customers.

One senior industry figure criticised the government’s lack of transparency saying “if it is such a good deal for the taxpayer why not be open and upfront on the agreed support?”

Octopus said on Tuesday it was “clear” that other companies could have asked for “hedging support” from the government.

“Instead of doing so, they waited until a deal was announced and then launched expensive legal action which could cost taxpayers millions, even billions.”

Bulb, which was founded in 2015 by former management consultant Hayden Wood and former energy trader Amit Gudka, grew rapidly to become one of the biggest energy suppliers by the time of its collapse.

The company faced criticism for enticing customers with low-cost deals but was caught out when energy prices started to soar last year, exposing its failure to successfully hedge the energy it had promised.