Ovo Energy CEO Casts Doubt Over U.K.’s Costly Bailout of Bulb

(Bloomberg) -- The head of Ovo Energy Ltd., the U.K.’s second-largest power provider, cast doubt over the government’s decision to temporarily nationalize a competitor, adding to criticism of its handling of the country’s energy crisis. 

The government last month appointed a special administrator for Bulb Energy Ltd., rescuing it from collapse at a cost of 1.7 billion pounds ($2.2 billion) to taxpayers. Industry officials have since questioned the move, saying cheaper options were available.

“It’s a bit of a mystery” Ovo Group Chief Executive Officer Stephen Fitzpatrick said in an interview. “There were very workable solutions on the table.”

In recent months, soaring natural gas and power costs have led to the collapse of 24 U.K. energy suppliers. U.K. natural gas futures traded near 260 pence per therm early Friday, almost five times the price at the start of the year. Some suppliers have criticized the inflexibility of energy regulator Ofgem’s price cap, which limits how much wholesale cost can be passed on to household customers.

Pressure is now growing for Ofgem to account for its role, with taxpayers on the hook for billions of pounds, a parliamentary inquiry under way, and the possibility of additional utility failures still looming.

“Ofgem failed to act against unfit energy suppliers for nearly a decade, leaving the market vulnerable to this year’s spike in wholesale prices,” Citizens Advice, an independent advisory group, said in a report on Thursday. The crisis has left consumers with a bill of 2.6 billion pounds, not including the 1.7 billion set aside for Bulb, or about 94 pounds per household, it added. 

“We accept that the energy market needs reform and quickly -- the current system was not designed for this sort of extreme market event,” Ofgem said in a statement in response to the Citizens Advice report. The regulator’s “top priority is to protect energy consumers,” it stated, noting that it has moved more than 4 million customers to new suppliers.

Bulb’s Future

Bulb, the nation’s seventh-largest energy provider, will now be run until at least April by special administrator, Teneo Inc. The U.K. Treasury will temporarily put up working capital to take on costs before claiming it back from consumer bills. 

After that, the government may decide to move Bulb’s customers to one or more new suppliers, a role Fitzpatrick said Ovo would be interested in pursuing. “Stability will be the new goal, and on the basis that we have a more realistic or more practical regulatory framework, I think that’s a market in which we will all see opportunity,” he said.

An alternative option, to transfer the customers to another supplier, would have been about 25% cheaper, court documents released last week show. At least two companies made offers to take on Bulb’s customers, according to a person familiar with the matter.

Ofgem said only a “very large” supplier with a high existing market share could absorb its customers, which may have been one reason for the government to take the special administrator route, according to the court documents. 

On Wednesday, Parliament’s Business, Energy and Industrial Strategy Committee opened an investigation into the country’s soaring power prices and energy market. It plans to examine the role in which policy and the regulatory environment contributed to the current situation, according to a statement from the panel. 

(Updates chart, adds natural gas prices and Ofgem’s price cap in fourth paragraph.)

More stories like this are available on bloomberg.com

©2021 Bloomberg L.P.