At least two energy suppliers pitched plans that would have allowed the customers of the collapsed group Bulb to be transferred to alternative providers at less cost to consumers and taxpayers, according to people familiar with the plans.
Bulb has been bailed out by UK taxpayers to the tune of £1.7bn after Britain’s seventh biggest energy supplier admitted on Monday that it would no longer be able to withstand the high wholesale gas and electricity prices that have triggered the worst crisis in the sector for 20 years.
The failed energy supplier, which was founded by former Bain management consultant Hayden Wood and ex-Barclays trader Amit Gudka in 2015, represents the biggest taxpayer bailout since the rescue of Royal Bank of Scotland HBOS in 2008.
Senior industry executives told the Financial Times that several suppliers had approached the regulator Ofgem with plans that would have allowed Bulb’s customers to be dealt with via the usual safety net for failed energy companies rather than a “special administration”.
Bulb was placed into special administration on Wednesday, marking the first time the mechanism, effectively a quasi-nationalisation, has been used for an energy company.
Under Ofgem’s normal safety net, known as the “supplier of last resort”, customers are quickly transferred to an alternative provider so as to ensure the least disruption. It is being used for the 24 other energy suppliers that have collapsed since the beginning of August as high wholesale prices have exposed deep vulnerabilities in many suppliers’ business models and hedging strategies.
Processing Bulb’s 1.6m customers via this route would have cost considerably less than a special administration, according to several people familiar with the process.
One senior industry executive told the FT it was a “fundamental lie” that it was “impossible” for any other supplier to take on Bulb’s customers.
UK business secretary Kwasi Kwarteng told the House of Commons on Wednesday that Ofgem had advised him that using the supplier of last resort mechanism was “not viable . . . because of the size of its customer book”.
Ofgem declined to comment directly on the rival plans, insisting that “protecting the consumer is always our first priority and we have robust systems in place to make sure every feasible avenue is explored”.
“As the taxpayer would expect, this was a thorough process and the ‘supplier of last resort’ option was considered but was not feasible,” the energy regulator added.
In a letter to Kwarteng justifying the decision to pursue a special administration for Bulb, published on Wednesday, Ofgem’s chief executive Jonathan Brearley said the supplier of last resort mechanism was already “under considerable” strain from managing the failure of 20-plus other energy companies in recent months.
Brearley also warned that some customers who pay for their electricity via prepayment meters, who are often from low income households, risked losing the “ability to top up” their meter via a supplier of last resort process.
However, Brearley also admitted that Ofgem was trying to avoid further costs being heaped on consumer energy bills next year.
Energy suppliers that rescue customers via the supplier of last resort can recoup their costs through an industry levy that is funded by bills.
Martin Young, analyst at Investec, has estimated the cost of rescuing the two million-plus customers who have gone through the mechanism since the start of August would add at least £75 to each dual fuel household energy bill.
In a special administration, the recovery of costs “could be spread across multiple years”, Brearley said in the letter.
Additional reporting by Michael O’Dwyer in London