The High Court has unequivocally found that the Government received a fair price for the acquisition of Bulb by the Octopus Energy Group, throwing out the judicial review brought by Centrica, Scottish Power and E.On.
In December 2022, it was announced the Octopus’ bid had won out in the acquisition of Bulb, which had been put into Special Administration in November 2021, amid a swathe of supplier collapses as wholesale power prices surged.
However, in November the other energy utilities launched the review, arguing that the sale was secretive, discriminatory, and uncompetitive. The High Court examined their claims over three days at the end of February, releasing their conclusion today (31 March).
The judge rejected the above claims, noting that there had been “very substantial” and “much more” disclosure by the Government, administrators and Octopus than normally expected in this kind of hearing.
It found that the cost paid for Bulb by Octopus was “a fair reflection of the value which the market placed on Bulb’s business in the prevailing circumstances” (253).
Octopus pointed to a number of key points within the judgement, which contained “many damning findings about the claimants’ claims” it noted.
- Disingenuousness: “Each of the Claimants issued an application for urgent consideration by the High Court stating that it was first appreciated that an urgent application might be necessary only on 24 November 2022. We regard that as disingenuous.” (139)
- Case found to be without merit: In response to the allegation that the M&A Process was unlawful because it did not comply with Article 303 of the TCA, the Judge concluded, “we are satisfied that the allegation is without merit.” (265)
- Inappropriate criticism: “[…] For example, it was submitted that the SoS [Secretary of State] failed to have regard to the options of splitting the customer book across multiple energy suppliers. This is wrong as a matter of fact but, in any event, it is the kind of criticism which it is simply not appropriate to make in the context of a judicial review of this kind.” (203)
- Other comments made by the Judge include: “inappropriate” (120.cxxi, 195); “wrong as a matter of fact” (203); “we do not accept that submission” (244); “BGT’s submission that the JEAs have no particular experience in transparency and fairness rather misses the point” (247); “we reject the Claimants’ contention […]” (253.ii); “we reject BGT’s contention that there was unfairness” (253.iii); “there is nothing in this point” (256); “we are satisfied that this argument is without merit” (265).
Ultimately the High Court reached the conclusion that “none of the public law grounds of challenge advanced on behalf of the Claimants has any arguable prospect of success.”
“For that reason, quite apart from the issue of undue delay, we would refuse permission to bring this claim for judicial review on those public law grounds (205),” it noted.
The decision has been welcomed by Octopus Energy Group CEO and founder Greg Jackson, who said “the judgement couldn’t be clearer.”
“Octopus paid fair value for Bulb through a transparent and competitive process, giving the best available deal to taxpayers. There were no improper subsidies and the case brought by British Gas and their stablemates was entirely without merit,” he continued.
“This belated and expensive Court action has always smacked of desperation – and today’s finding confirms that. Octopus worked hard to find a solution, while others chose not to bid.
“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.
“We’ll continue to relentlessly innovate to create a cheaper, cleaner energy system and better service for customers.
“Looking at the records of some of these companies, it’s clear they’d be better businesses if they focused on putting their own houses in order.”
Jackson’s final comment follows Centrica’s British Gas and ScottishPower, together with OVO Energy, were together found to be responsible for over 70% of forced prepayment meter installations in 2022.
British Gas is currently subject to investigation following an investigation by the Times found that it had been forcibly installing prepayment meters, leading to national outrage.
Suppliers lament ‘disappointing judgement’
Both E.ON and Centrica expressed their disappointment with the decision by the High Court, highlighting continued concern.
“A huge amount of public money has been used to subsidise this transaction and it’s absolutely correct that any use of public money to help a private company grow in this way should be thoroughly scrutinised,” said Michael Lewis, E.ON UK CEO.
“We will analyse the detail of today’s ruling and consider our next steps but we remain 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.
“A recent NAO investigation found almost £3bn of taxpayer money would need to be repaid by Octopus for energy costs through winter 22/23 but the repayment won’t begin until 2024 or 2025. No other supplier gets to use taxpayers like a bank in this way, nor should they.”
The head of the NAO this week stated: “it is too early to conclude whether DESNZ will achieve all of its remaining objectives for Bulb. Several risks remain to the recovery of taxpayer funding, and depending on how well these are managed, there may remain costs to be met by household energy customers.”
Meanwhile, a spokesperson for Centrica also pointed to the NAO’s investigation, and its conclusion that the deal was not without risks to taxpayers.
“We think state bailouts for energy companies puts a burden on the UK taxpayer and is avoidable. We felt the original bail out of Bulb was unnecessary and the National Audit Office report this week concluded there were risks and uncertainties in recovering these funds from Octopus,” continued the Centrica spokesperson.
“It’s regrettable that Centrica, Scottish Power and Eon had to bring this case to court in the first place and it’s a disappointing judgement. The decision to bring this case was made after failed attempts to obtain transparency on the terms of the transaction and the level of state bail out being offered to Octopus/Bulb. We believe that the way the deal was structured creates serious risk for taxpayers and energy consumers and will distort the energy market. We will review the judgement carefully and consider our options.”
Additionally, the company noted that the process was delayed, with Centrica stating that the Court refused permission for judicial review on the basis the claim was not commenced quickly enough in a move that was “very surprising”.
It also noted that the Court decided it only needed to apply a “light touch” review of the government’s compliance with the subsidy control regime, a move that was wrong according to the company.
Finally, it stated that in Centrica’s view Octopus received preferential treatment, and stated that it disagreed with how the Court had characterized British Gas’s level of engagement with the sales process.
Meanwhile, E.ON’s Michael Lewis added: “The background to this whole issue is a lack of proper financial controls on new entrants to this market and that their risk-taking behaviour was never properly managed. 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 to ring-fence customer credit balances and more frequent collections of industry costs to ensure customers’ money cannot be used to fund a business when they have no equity on their balance sheet.”
Cost of acquisition falls with power prices
Falling power prices have reportedly helped lower the cost of Octopus’ acquisition of Bulb, according to the Office for Budget Responsibility’s (OBR) March Outlook. It found that the Government is expected to make £1.2 billion in profit from Octopus’s acquisition of Bulb.
Following its collapse, the Government provided Bulb’s Special Administration Regime administrators with access to a financing facility to cover the operating losses of the company.
After the confirmation of the acquisition of the supplier by Octopus Energy, a second financing facility was put in place to cover Bulb’s obligations under the sale process. This is mainly the costs of purchasing energy on the wholesale market for the additional customers Octopus now supplies, and was set to run till the end of March 2023.
The OBR’s November forecast suggested these facilities would cost a total of £6.5 billion in capital transfers from the government: £2 billion for the first facility and £4.5 billion for the second.
However, both have now been revised down, with the first falling to £1.1 billion up to March 2023.
Due predominantly to drops in the wholesale power price, the Government has reduced the allotted sum for the purchase of power under the second facility from £4.5 billion to £2.9 billion.
This represents the upper limit of these payments, leading the OBR to assume an underspend of £1 billion. This will mean payments under this facility would total £1.9 billion, and gross payments to the Special Administrator would sit at £3 billion.