Bulb’s collapse signals the urgent need for energy market reforms |

About three hours after Bulb announced to the world, including its 1.7 million household customers, that it had gone bust, Ofgem confirmed the fact. Slow reactions, sadly, have typified the regulator’s struggle to keep pace with events in the energy crisis. Even now, after the biggest company failure, one can discern only an outline of a plan for reforming the retail market to ensure it can withstand future storms.

Still, “special administration”, or nationalisation, was the only practical short-term solution for Bulb. It would have been impossible to oblige another supplier to swallow so many customers in one gulp. The financial pain of loss-making supply contracts would merely have been shifted along the line.

The special administration regime is untested in the energy market, but similar arrangements have worked for more complex businesses in the past – Railtrack in 2001, for example. The critical necessary ingredient is capital to underwrite energy-purchase and hedging contracts. That comes courtesy of the Treasury, which will be on the hook for Bulb’s losses until a permanent solution is found.

So, in effect, the financial hit is being taken via the public purse rather than spread among everybody’s energy bills via the industry-wide levy system. Given how far bills will rise anyway next April when Ofgem next adjusts the price cap – £500, possibly, if the methodology is applied strictly – burying Bulb among general government expenditure probably represents good short-term politics.

The longer-term, though, is the bit to worry about. The business department and Ofgem have stuck to their mantra that “protecting customers” is their priority and companies should bear the consequences of inadequate hedging policies. Those broad principles are correct, but we’re now at a point where the retail market is in danger of shrinking to an oligopoly of old, which is also a grim prospect for consumers.