Bills could rise by £60 a year to pay for a failed Bulb as the government covers the cost of £1.7 billion

Home bills could rise by £60 a year to pay for power supplier failure as the government covers the £1.7 billion cost to keep the lights on for its customers

  • Family bills could go up £60 a year to pay the fallout from energy supplier Bulb
  • The company is the first to use a special management system to help 1.6 million customers
  • Under the scheme, the government will spend £1.7 billion to supply Bulb customers in the winter
  • The government will try to recover costs from suppliers, which means household bills may go up

House bills could rise by as much as £60 to pay off the fallout from energy supplier Bulb as UK gas prices continue to rise through the winter.

The company was put into management yesterday and the government pledged £1.7 billion to keep Bulb’s 1.6 million customers warm through the winter.

Bulb will be the first company to use the proprietary management scheme – a compromise system designed to temporarily support energy suppliers deemed too big to fail.

Under the scheme’s rules, Bulb will receive government funds to continue providing its customers with gas and electricity during the management period.

The system was designed in 2013, with the goal that the government would later return costs to energy suppliers.

This, in turn, means that the price will pass to households through their energy bills.

The struggling power supplier Bulb (pictured) has been put into special management, it was announced today.

The company (pictured: Bulb logo from the website), which was launched in 2015 and had 1.7 million customers, faced collapse within days after talks between the government and the company's largest secured creditor collapsed.

The company (pictured: Bulb logo from the website), which launched in 2015 and had 1.7 million customers, faced collapse within days after talks between the government and the company’s largest secured creditor collapsed.

The intent is to recover government funding from the insolvent company if it is bailed out or from the proceeds of its sale if it is sold. If all or part of the funding cannot be recovered from the company or its successors(s), the intention is to recover it through network fees, an official newspaper said.

One industry source said the government would be able to recover some of the money from Bulb or from selling parts of the company.

But those in the industry believe the government will either have to absorb around £1 billion or charge consumers for it.

Bulb’s future was deemed unviable after it began selling gas and electricity for less than its purchase cost. This is because the government’s maximum price limits what suppliers can charge under the current wholesale price for energy.

The company’s investors and lenders refused to continue to support these losses, forcing it to close. The cap offers some protection for homeowners when wholesale prices are rising, but it means that energy companies incur huge losses.

Ofgem, the industry regulator, usually appoints a rival energy company to take over Bulb’s 1.7 million customers under a system known as supplier of last resort. In this case, there is no chance of doing so, at least in the short term, because no other company is willing to bear the huge costs and losses involved.

Under the special management scheme, a team of administrators would manage the company and buy and sell energy until another company in the sector is ready to take over the clients.

Cabinet ministers will be able to decide when to pay bills to get their money back.

By waiting for gas prices to become less severe, they could distribute the immediate hit to households. Bills are already expected to rise by hundreds of pounds next year.

The 2013 paper also revealed that the government believes Bulb-sized suppliers are unlikely to collapse. Officials estimated that there is only a 0.12% chance of using the SMS in any given year.

Ofgem’s power regulator typically uses a different process, called another provider’s resort, which transfers customers of the failed supplier to one of its competitors.

This ensures consumers are protected, while allowing failed businesses to be shut down.

However, moving all of Bulb’s 1.7 million customers to a different supplier could put the new supplier at risk of collapse due to the high costs it would face.

“For a supplier that deals with customers of one of the six largest suppliers, it could mean doubling the size of its customer base. Transfer of this volume cannot be done in an orderly manner in a short period of time,” the 2013 newspaper said.

What is the Special Administration Scheme and what does it mean?

The management of a power supply company is essentially a contingency measure to deal with a highly impactful event in the UK energy market.

The company is allowed to continue trading normally, possibly with financial assistance from the government, if the company is unable to secure financing from commercial sources.

This continues until the company is rescued, sold or its customers are transferred to other suppliers.

Bulb is the first British company to be appointed to the management of a power supply company.

The power supply company’s management is intended to be a pillar of the last resort arrangement provider.

These arrangements allow Ofgem to revoke a supplier’s license if it becomes insolvent and to designate another supplier to take over its customer accounts.

The purpose of managing a power supply company is to protect the market from the sudden impact of debts to a failed supplier.

This is primarily to stem the domino effect, as the collapse of smaller energy companies escalates to put pressure on larger energy suppliers.

Unlike 22 previous British energy companies that have seen their customers turn into larger suppliers, Bulb is the biggest company in trouble so far.

With 1.7 million customers, Bulb is as big as all other bankruptcies combined.

And so it seems – like the banking crisis in 2008 that led to the government spending billions on bailing out failing banks – that Polp is too big to fail.


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