How have UK operations impacted US customers

Hi Team,

I’m trying to figure out how the operations in the US have been impacted by the UK business. As I understand it and please correct any misconceptions here the operation of the UK business is somewhat encumbered because it’s not possible to hedge or prepurchase power with the government involved. Are those restrictions on the utilization of futures contracts also impacting the US business?

Cheers,
Alex

Yes and no. Bulb UK is encumbered because it failed to hedge, or to hedge sufficiently, whilst it was still operating prior to being taken into administration. For 2021 the UK Office for National Statistics (ONS) estimates that there were 28.1 million households in the UK, and Bulb had 1.6 million customers, so it was a significant supplier (assuming each household will generally have a single supplier). Which is the reason that Bulb has had to be taken into administration rather than be taken over by a supplier of last resort in the usual way. (“Usual” as the last number of 2021 failed suppliers that I have seen totalled 31.) So no, or perhaps not exactly.

However you are correct in saying that Bulb is no longer able to hedge since it entered administration. As I understand it the reason is that the government is paying for the administration costs and have to use taxpayer money to do so. Therefore the administrators/governmen cannot use taxpayer money “unnecessarily”. By which I mean that administration isn’t like running a business. Costs have to be kept to a minimum even though this might mean a greater spend in the long term. They cannot use taxpayer money as a sort of unofficial business loan in order to maximise future profits etc., they can only keep the supplier ticking over on an immediate cost basis whilst they try to find a suitable company to take Bub over and it is this company which will then run Bulb’s customers according to normal business models. This is why they are trying to find a new owner as soon as possible.

Last I heard, Octopus is seeking a £1 billion loan from the government to support their taking over Bulb’s customers. This would enable Octopus to start to hedge supplies for the Bulb customers or to pay high initial prices in order to keep the Bulb customers supplied. This would be a proper, official, loan from the government to Octopus, and at least a significant part of it would be repaid to the Government/taxpayer over the next ten years.

To return to your original question regarding potential effects on US Bulb, There ought not to be any more effects than have already occurred. The UK and US businesses have always been separate and the US business should not be affected by what is happening in the UK. They will have had different managements and will have operated according to the rules in each country, which will be different. Certainly the problems of Bulb UK will not affect, in any way that I can see, the ability of Bulb US to continue to hedge as is usual practice for these supplier companies. (It’s just a pity Bulb UK failed to do the same when it had the chance.)

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Bulb UK had been hedging its energy requirements, but when the wholesale markets took off, found it didn’t have the financial strength to continue doing so. When they weren’t able to raise additional capital, they were forced into administration to avoid trading insolvently.