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The fall of light bulbs signals the urgent need for reforms in the energy market | Nils Pratley

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orthree hours after Bulb informed the world, including her 1.7 million family clients, that it had failed, Ofgem confirmed the fact. Slow reactions, unfortunately, have characterized regulators struggling to keep pace with events in the energy crisis. Even now, after the company’s biggest failure, only a summary of a retail market reform plan can be discerned to make sure it can withstand future storms.

However, special administration, or nationalization, was the only practical short-term solution for Bulb. It would have been impossible to force another supplier to swallow so many customers in one sip. The financial pain of loss-making supply contracts would simply have shifted along the line.

The special management regime is unproven in the energy market, but similar deals have worked for more complex businesses in the past Railtrack in 2001, for example. The critical component needed is capital to sign energy purchase and protection contracts. This comes from the Treasury courtesy, which will be waiting for the Bulbs losses until a permanent solution is found.

So, in fact, the financial blow is being taken through the public portfolio instead of being distributed to everyone’s energy bills through the industry-wide tax system. Given how much the bills will increase anyway next April, when Ofgem will then adjust the price limit of 500, perhaps, if the methodology is strictly applied, Bulb’s burial among general government spending probably represents a good short-term policy .

The long term, however, is little to worry about. The business department and Ofgem have stood by their mantra that customer protection is their priority and companies must bear the consequences of inappropriate protection policies. These broad principles are correct, but they were now at a point where the retail market risks shrinking to an old oligopoly, which is also a bleak prospect for consumers.

A reformed regulatory structure will inevitably include changing the price limit more often than every six months and ensuring companies have the financial muscle to survive shocks. As for the end result, Ofgem was extremely naive allowing so many start-ups not capitalized to try their luck considering the wholesale prices. Life will be different in the future, the regulator now says a border consultation began last week. Really, though, it’s time for some action.

As it is, the costs of cleaning up pre-lamp failures will probably be felt on bills in 2023. A stable market is essential before that. Survivors, remember, are the companies the government is relying on to install heat pumps and the rest of the green retail agenda. Firms need to know the new rules of the retail energy game; and consumers need to be confident that there will still be competition. Keep up the reforms.

Mutual interest in LV =

The fact that the besieged (but well-paid) board of Liverpool Victoria, or LV =, has made a mess of communicating the supposed benefits of a € 530 million acquisition by private equity firm Bain Capital, is indisputable. A competent approach would not require increasingly desperate prayers for members before the vote in the coming months.

However, the Monday message from the bunker contained a fair point: for members with profits, as opposed to those who simply carry life insurance policies and the like, payment under the Bain agreement would be better than the base one, and essentially overwhelming, 100 a head.

There would be a total of 616 million to be allocated to members after including the remaining 404 million from past sales of LVs of its general insurance activities. If 80 million is required to fund 100 payments for 800,000 out-of-fund members with profits, then the 271,000 in-fund pie will still contain gravy. An average distribution for profitable members would be close to 2,000, with actual amounts dictated by the value of the investment.

The figures, however, would have been roughly similar (only slightly less) if LV = had decided to sell itself to the joint venture Royal London and not Bain a year earlier. So the final presentation will probably not win over those members who do not want to receive private equity shillings and would prefer a mutual solution. According to a proposal that requires 75% support from members of all groups, the possibility of rejection is real.

Herein lies the conundrum for the LV board. If you lose the vote it is an even bigger mess. Even at this late stage, it may be wise to invite Royal London to make a politically pleasing counter-offer. At the very least, the potential white knight would be forced to clarify his intentions. Despite the many whispers in the wings, it is difficult to say what alternative you are proposing.

Sources

1/ https://Google.com/

2/ https://www.theguardian.com/business/2021/nov/22/bulb-collapse-signal-urgent-need-energy-market-reform-risk-return-oligopoly

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