Centrica, the owner of British Gas, has withdrawn from the auction of energy supplier Bulb, leaving the UK government struggling to get a competitive bidding process.
The light bulb collapsed last November after natural gas prices soared and it was unable to raise new money. The government stepped in to make sure its 1.6 million customers were still receiving energy and planned to sell the business by the end of July.
People close to the sale process said Centrica had withdrawn, leaving only two potential bidders confirmed: Octopus Energy, the fifth-largest supplier, and Masdar, an Abu Dhabi energy company. One option is for the two to team up, with Masdar providing the cash, and Octopus, which has never made a profit, taking on Bulb’s customers, one of the people said.
Ovo, the sixth-largest energy company, has not been ruled out of the tender, but the company announced thousands of layoffs earlier this year and has losses, so it should raise funding.
Closing bids are due this Thursday in a sale process being handled by Lazards.
Bulb’s insolvency is expected to cost the government at least £ 2.2bn, making it the largest state bailout since the Royal Bank of Scotland in 2008.
It is also raising costs for consumers, with a loss of £ 886 million in the six months since nationalization, according to reports from administrators released this week.
Many creditors, many of them small businesses, owe them £ 585 million and are unlikely to be paid. But Sequoia, an infrastructure fund, which is backed by Simple, Bulb’s parent company, is guaranteed to receive its original £ 55m investment and has earned a £ 10m dividend since November.
Interpath, the administrator of Simple, has been charging £ 3.7 million, or £ 800 an hour for 4,646 hours, since Bulb collapsed. £ 2.5 million has been partially paid in legal fees, mainly at the Freshfields firm, and Lazards, who is in charge of the sale, is expected to receive £ 1.5 million.
Teneo, which is running the administration process, is expected to receive tens of millions of pounds.
Centrica’s decision not to continue suggests that the Department of Business, Energy and Industrial Strategy expects the buyer to take on more of Bulb’s responsibilities than the energy group would have wanted. In addition, Centrica may have had an indication from the Competition and Markets Authority that, as the main supplier of domestic energy, it is unlikely that the regulator would want to increase market share.
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The National Audit Office has criticized the management of the crisis by energy regulator Ofgem, which saw the collapse of 30 suppliers, including Bulb, last year.
Customers from all suppliers will pay at least £ 96 a year, some of which has already been added to energy bills, to cover the cost of bankrupt companies. This excludes the cost of Bulb’s ransom, which is currently paid by taxpayers but will eventually be added to customers ’bills.
Hayden Wood, CEO and founder of Bulb Energy, still earns the same £ 250,000 salary he received before the company’s bailout, and the company has hired Simon Stacey, a former N-Power executive, as director financial on an interim basis.
Centrica, Octopus, Masdar, Lazard and Bulb declined to comment.