Notice

Bulb SAR: post transfer facility

Published 21 December 2022

Energy supplier Bulb was taken into special administration by an order of the court on 24 November 2021, with the business continuing to supply energy to its customers and operate as normal under a special administration regime, with financial support provided to Bulb in special administration by government via a funding facility. The special administrators are required to pursue their statutory objectives to secure that energy supplies are continued at the lowest cost which it is reasonably practicable to incur until such times as it becomes unnecessary for the special administration to remain in force for that purpose. They must perform their functions as quickly and efficiently as is reasonably practicable.

Bulb’s special administrators have run an open and competitive sale process which has identified a buyer for the business, Octopus Energy.  The final agreement will see Bulb’s 1.5 million customers transferred to Octopus Energy.

In order to realise the sale of Bulb’s business and to protect consumers, government will assist Bulb in providing support to a new and separate entity, owned by Octopus Energy, which will serve Bulb customers until the transfer process has completed and those customers have been fully transferred to Octopus.

Bulb (in special administration) will retain access to its existing funding facility, which will be capped at a new, post-transfer figure for the purpose of settling outstanding pre-appointment costs and liabilities, administration and operating expenses of the special administration and to discharge any wind down costs of winding down the special administration.

A new funding facility will also be made available to Bulb post-transfer, which will be made available to discharge Bulb’s obligations in relation to:

(i) a cash injection of an amount to ensure the consideration paid by Octopus at completion is positive ;

(ii) payments (if needed) to adjust the initial consideration to reflect the actual as opposed to the estimated value of certain assets after transfer to the new entity;

(iii) the energy cost funding agreement between Bulb and the new entity put in place to meet the cost of purchasing wholesale energy for the transferring Bulb customers for a limited period until 31 March 2023;

(iv) certain energy purchase hedging costs related to the delayed date on which completion occurred;

(v) a payment (if needed) to adjust for actual as opposed to estimated energy consumption by the transferring Bulb customers; and

(vi) should it be necessary, to indemnify the new entity for any regulatory liability that it might incur as a result of Bulb’s actions prior to the transfer.

Government has been advised by the special administrators that they estimate the new post-completion funding facility, limited in the manner described in the paragraph above, has an upper value of £4.5 billion. Repayments of element (iii) above, which is a significant part of the support that government will be providing for the transfer, will be made by reference to actual consumption of the transferring customers, calculated using the relevant wholesale cost element of the price capped energy unit price.

The objective of government providing this support is

(i) to address the social hardship that would be caused to Bulb’s customers if Bulb were to be forced into a ‘hard close insolvency’ resulting in Bulb being unable to continue supplies of electricity to its customers and

(ii) to remedy the failure of the loan market in terms of its willingness to provide affordable finance to energy companies in the current economic climate, by enabling the business which is being transferred to become fully hedged in respect of its wholesale energy purchases from April 2023 onwards.

The £4.5 billion figure represents an estimated upper limit of the support based on forecasted energy costs during the period until 31 March 2023, which reflects the current volatility in global energy prices. The extent of government support could be lower than £4.5 billion, depending on energy prices this winter.

There are 3 key time limits attached to this support:

1. actual costs of wholesale energy incurred by the new entity during the ‘Initial Period’ until the end of March 2023;
2. base proposal: 100% of repayable funding to be repaid not later than September 2024; and
3. repayment can be deferred to not later than September 2025 should objective criteria be met (it is this timeline which has been declared on the Subsidy Transparency database).

The government has worked closely with Ofgem and Bulb’s special administrators to ensure the exit from special administration and transfer of customers to Octopus achieves the best outcome practicable for Bulb customers, the industry, and taxpayers.