What just happened
- Russian missiles hit a maternity ward in southern Ukraine.
- The UK’s Supreme Court ruled that Scotland could not hold an independence referendum without Westminster’s permission.
- The New York Philharmonic said it had more women than men for the first time in its 180-year history.
Grid reference of the day: 46.5667° N, 31.5167° E – the Kinburn Peninsula, the new Ukrainian front line on the left bank of the Dnipro River.
A government bailout of the UK’s seventh largest energy company could cost £6.5 billion, or £200 per household, and no one will say exactly why.
The company is Bulb Energy. Last November it was deemed too big to fail. As smaller firms went bust failing to bridge the gap between soaring wholesale prices and the energy price cap, Bulb was taken over by the government. Its founders left with £4 million apiece while taxpayers were left to pick up the tab.
So what? There are at least five reasons why the Bulb fiasco should be a lesson to ministers and voters.
1 – £6.5 billion is a lot of money. It’s nearly three times the last cost estimate for the Bulb bailout offered by the Office for Budget Responsibility (OBR) in March, and more than half the capital spending cuts announced in last week’s Autumn Statement. If Bulb’s own customers had to foot this bill it would cost them £4,300 each.
2 – Botched regulation. The Bulb story is a case study in the unintended consequences of years of blinkered faith in markets’ ability to bring down prices and conjure wealth from nothing. A micro-timeline:
1986 – Thatcher privatises British Gas, launching a three-decade experiment in energy deregulation.
2015 – The Deregulation Act 2015 levels the playing field for challenger energy companies to start peeling customers away from the Big Six with promises of lower prices and / or greener power.
2019 – The May government introduces a default energy price cap.
2021 – The world creeps out of lockdown, wholesale energy prices soar and more than 30 small UK energy firms go to the wall.
November 2021 – The then energy secretary Kwasi Kwarteng orders the Bulb bailout. Teneo, the outsourcing giant, takes over but doesn’t hedge future supply, spending £329 million on spot energy markets instead.
May 2022 – Kwarteng tells parliament hedging would have been “very risky” and an unwise use of taxpayers’ money. Not true. Hedging – buying ahead – is standard practice for all energy suppliers.
3 – Zero accountability. No executive or minister has resigned. Bulb’s founders, Hayden Wood and Amit Gudka, have moved on to a venture capital firm and a new energy start-up respectively. Kwarteng was briefly promoted to chancellor.
4 – Government secrecy. Why was Teneo advised not to hedge? Why has the cost of the bailout ballooned so far? Why was the £6.5 billion figure buried in a footnote on page 9 of the OBR assessment of the Autumn Statement? What are the terms of the takeover of Bulb’s 1.5 million customers by Octopus Energy last month? There are theories but no answers. One theory about the £6.5 billion number is that the government reversed itself on hedging to prepare Bulb for sale and committed it to hedges over the summer that turned out to be ruinous because of the energy futures price spike caused by the war in Ukraine.
5 – Unfairness. Hundreds of thousands of UK households are being forced into debt by energy bills as the entrepreneurs who wooed them as customers move on to new pastures and the government fails to fix the underlying causes of the energy crisis – Europe’s draughtiest housing and over-reliance on fossil fuels.
There are echoes in this mess of the last big UK government bailout, of the Royal Bank of Scotland in 2008; but also of the Cameron government’s humiliating dance with Greensill, the supply chain finance firm.
How many ministers does it take to fix a Bulb? Good question.
