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Government swerves calls against putting Bulb Energy costs on consumers’ bills

13 October 2022

The Government has swerved recommendations to improve how it deals with large energy firms after they go bust, made by the Business, Energy and Industrial Strategy Committee in its report, Energy and Pricing and the Future of the Energy Market.

The report called on government to ensure that costs associated with the Special Administration Regime of Bulb Energy, which went bust in November 2021, should be paid for through general taxation, rather than being added to all consumers’ energy bills.

Sky News reported on 8th October that if Bulb is soon purchased by Octopus Energy this would see a total liability of up to £4bn. These costs have been pushed up unnecessarily by the Government’s failure to let Bulb’s administrator hedge gas and electricity for its 1.6 million customers. 

In its response, the Government says these costs will be levied on energy companies using the “shortfall mechanism”. The Committee expects that this will lead to a further hike of consumers’ energy bills. The Committee argues that adding these costs to consumers’ bills, rather than paying for it out of general taxation, is regressive. But the Government fails to address this point. If the £4bn figure were to be added to consumers’ bills in this way, it could equal a charge of up to £150 per household.

The report recommended that the BEIS Department and Treasury should reform guidance which prevents energy firms in Special Administration from hedging when they buy energy, and instead forces them to buy more expensively at the price on the day. 

The report also called on government to invest in a long-term scheme of energy efficiency improvements in homes that would replace the Green Homes Grant, and provide confidence to energy efficiency supply chains. Ministers responded by listing a set of smaller, existing schemes and would not commit to further measures or investment, despite saying their commitment to decarbonising buildings is “unwavering”. The Committee consistently heard from experts that improving home insulation would permanently reduce demand for energy, cut bills and cut carbon emissions.

In response to the Committee’s recommendation that BEIS should consider introducing a social tariff for the most vulnerable energy customers, the response said officials “will consider how price protection needs to evolve”. It adds that the Government “will set out next steps on the future of the retail market in due course.” 

Chair's comments

BEIS Committee Chair Darren Jones MP said:  

"The Committee welcomes the support that has been announced for households over the next two years, and for businesses over the next six months.

However, it is bewildering that, at a time when average household energy prices are still double what they were a year ago, ministers intend to increase bills further. This is all the worse given that the Government has added unnecessary costs to the administration of Bulb by preventing it from buying gas ahead of time – ironically in the name of ‘value for money’ guidelines.

It’s also staggering that ministers continue to refuse to come forward with a national plan for insulating homes – when everyone agrees this is a permanent solution to reducing energy bills and demand for gas.

When giving evidence to the Committee, the then Business Secretary Kwasi Kwarteng openly disagreed with the Permanent Secretary that the cost of Bulb’s bankruptcy would be added to customer bills. The Government’s response says these costs will be levied on energy suppliers. But when most of these firms are failing to make a profit, it’s clear these additional costs will ultimately be passed down to bill payers. So now that Mr Kwarteng is the Chancellor, I call on him to follow through and prevent a further rise in energy bills.

We thank Ofgem for the constructive way in which it has responded to our report and agreed to our requests to share more information with us, and for closer working going forward.”

The Committee welcomes the Government’s agreement with its recommendation that a cross-departmental taskforce should be established to respond to the energy pricing crisis. The response said a “new Energy Supply Taskforce” will be created to “negotiate with domestic and international suppliers on long term contracts”. The Committee will scrutinise the actions of this Taskforce. 

In Ofgem’s response it accepts there have been serious problems in the energy market and says it supports “the majority of the report’s conclusions and recommendations”. 

Ofgem pledged to provide annual reports to the Committee detailing actions around enforcement and compliance among energy providers. 

The regulator also said its annual reports will include greater information on its own performance, including: 

  • Measures in place to ensure effective accountability and transparency; 
  • Key decisions, performance issues, and relevant policy concerns; 
  • A breakdown of the allocation of Ofgem resources; 
  • A summary of the compliance and enforcement action taken in response to rule breaking by energy suppliers.

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