31 March 2023

Judges reject energy firms’ challenge over sale of collapsed provider Bulb

31 March 2023

Scottish Power, British Gas and Eon have lost a High Court challenge over the sale of collapsed energy firm Bulb to a rival provider.

The three major suppliers claimed the Government’s handling of an “unfair sale process” led to decisions “to commit billions of pounds of taxpayer money to facilitate the acquisition of a failed business” by Octopus Energy.

The three businesses brought legal action against ministers, alleging the decision-making process was “flawed and unlawful”.

But in a ruling on Friday, Lord Justice Singh and Mr Justice Foxton dismissed their case as “not … reasonably arguable”.

The judges said the Government could lawfully conclude that the Bulb bidding process was “open, non-discriminatory and competitive” and that it could “treat the only bid which had emerged from the process as a fair reflection of the value which the market placed on Bulb’s business in the prevailing circumstances”.

They also said it was open to ministers to find that “other options were inferior to proceeding with the Octopus bid, involving significant execution risks and higher forecast costs”.

Centrica said the ruling was “disappointing”, with the British Gas owner and Eon saying they would consider next steps.

It is understood that Scottish Power will not seek to appeal the ruling.

A Department for Energy Security spokesperson welcomed the judgment, adding: “The court has confirmed the robustness and legality of the Secretary of State’s actions in respect of the sale and administration of Bulb.

“In doing so, he has protected Bulb’s 1.5 million customers, while delivering value for the British taxpayer.”

A Centrica spokesperson said: “We think state bailouts for energy companies puts a burden on the UK taxpayer and is avoidable.

“We felt the original bailout of Bulb was unnecessary and the National Audit Office report this week concluded there were risks and uncertainties in recovering these funds from Octopus.”

They added: “We believe that the way the deal was structured creates serious risk for taxpayers and energy consumers and will distort the energy market.”

Michael Lewis, chief executive of Eon UK, said it remained “concerned about the amount of taxpayers’ money that has been used to subsidise the deal”.

“Only an open, fair and transparent process would have ensured this truly represented value for money for the public and we still cannot see how this was the case with only one bidder in the key stage of the negotiations,” he said.

We urgently need to establish rules that mean customers’ money cannot be used to fund a business when suppliers have no equity on their balance sheet

Mr Lewis criticised a “lack of proper financial controls” on new energy market entrants, adding: “These failings allowed companies like Bulb – and nearly 30 others – to effectively use and lose customers’ money, leaving a trail of destruction when they failed, with the British public picking up the tab.

“We urgently need to establish rules that mean customers’ money cannot be used to fund a business when suppliers have no equity on their balance sheet.”

Octopus Energy said it had “paid a fair price for Bulb in an open and competitive process”.

A spokesperson said: “It’s clear that the case was a desperate attempt by those organisations to defend their waning market positions against a more efficient and customer-focused rival.

“Our focus is now on delivering the best service possible to our new and existing customers.”

Octopus founder and CEO Greg Jackson said there were “no improper subsidies” and the legal action “smacked of desperation”.

“Fair play won. After more than a year of uncertainty, it’s a huge relief for Bulb’s employees and customers and good news for taxpayers,” he said.

Judges found that in its decision-making the Government had been “entitled to conclude that a ‘hard close insolvency’ of Bulb would give rise to social hardship to Bulb’s customers”.

They said it was “reasonably open” to the Government to conclude that providing funding to support the Bulb sale “sought to reach its objective while minimising negative effects on competition”.

They also said it was open to ministers to find that subsidies provided were a “targeted, proportionate and effective” response to the “severe economic disruption and volatility” caused by the Russian invasion of Ukraine.

At a hearing in London last month, the judges were told that the handling of the sale allegedly prevented British Gas making a “better” offer that could have saved money for taxpayers.

British Gas’s legal team also claimed “the process by which the subsidy was granted was seriously lacking in transparency, openness, fairness and equal treatment”.

The energy companies challenged two decisions taken by the then Department for Business, Energy and Industrial Strategy (BEIS) in October and November: to approve the takeover, and to provide “very substantial central Government funding” to help with the transfer.

The department’s lawyers said the claims against it were “without merit”, arguing that companies were aware they could seek Government support.

Unwinding the sale now would be “liable to cause chaos”, the Government’s lawyers warned.

Octopus argued its purchase of Bulb would be “extremely beneficial” for the Government and taxpayers.

In October, Octopus announced a deal to buy its rival and take on Bulb’s approximately 1.6 million customers after the 650-employee firm was placed into special administration in November 2021.

It was later revealed in December that ministers were prepared to pay up to £4.5 billion to help fund the takeover of Bulb, but Octopus has claimed the Government stands to make a £1.19 billion profit from the transaction.

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