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The British government is undermining the competitiveness of the UK energy market by providing billions of pounds in interest-free loans to Octopus Energy for taking on collapsed power supplier Bulb, a court hearing was told this week.
In a high-profile judicial review at the High Court, London, three of Britain’s biggest energy suppliers — Centrica, Eon and Iberdrola’s Scottish Power — are challenging the decision to sell the temporarily nationalised power company Bulb to Octopus.
They are asking for the deal to be overturned because they were not offered the same level of government support during the sales process, the claimants say. The Department of Business, Energy and Industrial Strategy is defending the claim and says the allegations are “without merit”.
Agreed last October, the deal included up to £4.5bn of taxpayer support to help Octopus buy energy for Bulb’s customers between December 2022 and April 1 this year. Octopus is also allowed to defer repayment if there are any regulatory changes affecting Bulb, it has emerged.
Centrica argues that the loan will distort competition as Bulb will enjoy the benefit of a large interest-free loan while other companies may have to recover costs by charging customers more. The financial burden of meeting regulatory changes is also significant in the energy market, and “no other market participant receives such protection”, the court was told.
The loans, which do not have to be repaid until 2025, were intended to shield Octopus from the risk of potentially heavy losses from its taking on Bulb’s customers, as the government had not bought energy supplies for them in advance to cover the winter months.
But Centrica argues that the government is risking taxpayers’ money by granting the loan to Octopus, which has never made a profit. Last month it reported a pre-tax loss of £166mn for the year to April 2022.
“The secretary of state failed to properly consult [Centrica arm] British Gas Trading or to consider the impact that the decisions have on the competitiveness of Great Britain’s energy market and other suppliers,” said Paul Harris KC, acting for Centrica.
Scottish Power also argued that the government had failed to analyse “the significant and distortionary impact on trade”, or the effect the way the government carried out the sale would have on “third parties” and on “the public interest”.
The salvos are the latest in a battle that pits Britain’s established energy suppliers against the upstart Octopus, which has been reshaping the market since its launch under chief executive Greg Jackson in 2015.
The Bulb purchase has catapulted Octopus into being Britain’s second-biggest retail supplier with 4.9mn customers, against Centrica’s 7.5mn.
Octopus argues that the deal is now expected to be “extremely beneficial” for the government. The company’s court documents maintain that government support is expected to amount to £1.76bn, but because of the structure of the deal and falling wholesale gas prices, Octopus will pay back £2.95bn, giving the government a £1.19bn profit.
Centrica told the hearing that disclosure about the opaque transaction had only started to come through as a result of the legal proceedings. The court case draws to a close on Thursday, with a ruling expected to be reserved by the judges to a later date.
Octopus acquired Bulb following a long-running sales process managed for the government by investment bank Lazard. Bulb, which had 1.4mn customers, was temporarily nationalised after it became the largest energy supplier to collapse in November 2021 when wholesale prices spiked above the regulator’s price cap, forcing it to sell energy at a loss.
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