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Octopus Energy is set to hand the next UK government an early £3bn windfall after the company pledged it would repay all the state support it received to take over collapsed energy supplier Bulb.
Octopus confirmed to the Financial Times that it would reimburse the Treasury by September, meaning that the government will recover almost all the cost of temporarily nationalising Bulb in 2021. The bailout was at one time estimated to be the UK’s most expensive since the financial crisis, at as much as £6bn. Falling energy prices have slashed the final bill.
“The deal the government agreed with Octopus was fair for everyone and struck good value for taxpayers,” said Octopus, which became the largest electricity supplier in the UK, with 6.9mn customers, as a result of its state-backed takeover of Bulb. “We have already started to repay the government and it should all be complete by September,” it added.
Octopus’s pledge is a fillip not only to the incoming government but also to the UK’s special administration regime (SAR) process, of which Bulb was considered a test case. The government has drawn up contingency plans to place debt-laden Thames Water into a SAR.
However, the utility is of a different scale and importance, with billions of pounds worth of assets, unlike Bulb, which simply sold energy to customers.
Although the SAR is different for energy than water, Adam Bell, director of policy at Stonehaven, a consultancy, said that it “does show you can have that sort of structure without putting customers at risk”.
Bulb, one of the UK’s biggest energy suppliers, collapsed when energy prices soared ahead of Russia’s invasion of Ukraine. The company was placed into the SAR in November 2021 to prevent its 1.5mn customers having their power cut off before Christmas.
Nearly a year later, the government agreed to sell Bulb to Octopus in a deal that involved a package of temporary taxpayer-funded measures to buy the energy for Bulb’s customers, and was challenged by rivals in the High Court. That deal was due to end this year or be extended until 2025.
The Office for Budget Responsibility estimated the cost of the SAR to be £6.5bn in November 2022 but plummeting energy prices since then have slashed the estimate to £3.02bn, as forecast by Bulb’s administrators Teneo 18 months ago.
Even if Octopus repays £3bn, there is an outstanding £6.1mn of other costs related to the SAR, down from £19.6mn forecast in February, according to a letter to the Public Accounts parliamentary committee seen by the FT.
The figure “represents an approximately 99 per cent plus recovery of amounts owed to HMG,” read the May 9 letter to the PAC, from Jeremy Pocklington, the permanent secretary for energy security and net zero. “It is envisaged these payments will now be completed by end of September 2024,” it added.
The cross-party committee had been concerned that consumers may be faced with paying billions of pounds for the cost of the bailout, as the government had said it would pass on the costs to energy bills.
However, the deal was structured to ensure the government benefited if prices fell, in return for it being on the hook should energy prices have kept rising.
This meant that although the government made a loss during the period that Bulb was nationalised, the strategy eventually played to its favour when prices plummeted after peaking in the middle of 2022.
As a result although the energy for Bulb customers cost the Treasury £1.63bn, the government is expecting to recover that amount and make a profit of almost £1.3bn through the deal with Octopus, which it can use to recover all but £6mn of the cost of the SAR. The regime will be wound down over the next year and completed by the end of 2025.
“It was luck as much as planning,” said one person close to the deal.
The Department for Energy Security and Net Zero, and Teneo declined to comment.