Out of power: Energy supplier Bulb goes into administration
December 7, 2021
3 min read
What's going on here?
Bulb, the UK’s 7th largest energy supplier, with 1.7m customers, has gone into administration. The move has raised concerns about rising gas prices and poor policy-making.
What does this mean?
Being the largest UK energy company to face financial difficulties, Bulb is the first firm to be dealt with under the Ofgem (UK energy regulator) “Special Administration Regime” (SAR). Ordinarily, struggling companies are dealt with under the “Supplier of Last Resort” (SoLR) procedure, whereby Ofgem lets the firm fail and all customers are automatically transferred to another designated energy supplier, most commonly a “Big Six” supplier. SAR is instead utilised where the failing company is too big to have its customers simply transferred. The Regime means the company can continue trading for the time being, meaning customers will experience no disruption or alteration to their energy supply. Additionally, SAR means the government can make grants and loans to Bulb so it can continue trading whilst its future is sorted out; the government has granted Bulb £1.7bn.
What's the big picture effect?
Recently, multiple energy firms have undergone a similar struggle to Bulb, but Bulb’s specific failure represents a tipping point in the energy crisis, especially given its size and how it necessitated the first ever use of the SAR procedure. This tipping point has sparked disputes over where blame lies – whether with imperfect government policies, risky business practices or poor Ofgem regulation – whilst additionally fuelling broader debates over the merits of a privatised energy industry.
Bulb blames its demise on imperfect government policies, namely the energy price cap. As this cap places limits on what firms can charge for standard/default tariffs, some businesses have been forced to sell energy for less than they bought it for. The wholesale price (the price suppliers pay when buying energy to sell to customers) has been dramatically rising, outstripping the retail price (the rate customers are charged). Bulb claims that the rising gas price crisis meant it was unable to raise financing needed from investors. Others reject this price-cap explanation, instead noting Bulb’s reckless business practices. Helen Thomas (The Times) remarks how Bulb would buy energy closer to present wholesale prices, enabling it to undercut the price cap when prices fell but detrimentally exposing it as prices rose. Dermot Nolan- former Ofgem boss and price cap initiator- recognises the cap’s imperfections, however points out it was nonetheless predictable and clear for all. Bulb’s unprofitability hence resulted from its own conscious, misguided practices.
Although it may therefore be easy to place blame on Bulb for its own mismanagement, one question cannot be avoided: if Bulb’s strategy was so risky and reckless, how was it allowed to become so large and uncontrolled? In other words, as Keith Anderson (chief executive of Scottish Power) puts it, Bulb’s fall into administration should “focus minds on how the market operates” and why so many companies “have been allowed to operate so recklessly for so long”. Particular concerns arise when considering the sheer number of smaller energy companies that have gone bust recently (over 20 failures since August). Ed Miliband is one of the many who are concerned about this number, saying that it points to a “systemic failure of regulation” that must undergo “proper external review”. There needs to be better monitoring of smaller companies entering the market since such companies often price in unsustainable ways and are inadequately hedged.
Incessant failures of small companies raise concerns about the “Big Six” strengthening their oligopoly on energy, aptly evidenced by the SoLR procedure. This oligopoly is feasibly the product of a decade-old obsession with competition under privatisation. The Bulb crisis had led Richard Burgon MP to call for public ownership of energy so that it serves “people not profit”. Given the government’s £1.7bn “bailout”, Bulb’s private losses will be borne by the taxpayer. It will arguably be difficult for proponents of privatisation to justify the UK’s current position: profits are privatised, losses are nationalised.
Report written by Lauren Ainscough
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