Despite Brexit: Octopus’ Bulb deal could trigger EU involvement, says lawyers

Octopus’ takeover of Bulb could breach EU state aid rules, raising the prospect of Brussels intervening in the British energy sector for the first time since Brexit, according to senior competition lawyers.

Dr Leigh Hancher, senior adviser at US law firm Baker Botts, told City PM that the European Union (EU) could still “throw a spanner in the works” as the sums involved in the takeover were vast and likely to eventually attract Europe’s attention.

She said: “The argument that the Northern Ireland protocol could be applicable to the deal is one to make – especially with the Government sums involved. The standpoint that it would not fall under state aid rules as it affects domestic retail customers is not convincing, as it owns a heat pump business in Northern Ireland.”

However, she ultimately expected the issue of EU state aid to be settled in domestic courts, as it chiefly affected British customers.

She said; “The EU Commission could throw a spanner in the works but I expect questions around state aid – and the failure of the Government to secure EU clearance – to be handled in UK courts.”

Under the terms of the Northern Ireland protocol, buyouts of companies are not supposed to include Government aid – unless cleared by the European Commission – that affects trade in goods between Northern Ireland and Europe.

Octopus’ takeover of Bulb includes hedging support, reportedly worth over £1bn, which would then be repaid to the Government over time, along with a profit sharing deal for Bulb’s 1.6m customers.

British Gas owner Centrica is challenging Octopus’ buyout of Bulb in the courts and has highlighted that Octopus owns Red, a Northern Irish heat pump manufacturer.

The manufacturer sells products to the EU, meaning Centrica argue the takeover is eligible for scrutiny over the bloc’s state aid rules.

This is one of multiple concerns Centrica has with the deal, with the supplier raising concerns over a perceived lack of transparency with the deal and the use of Government funds to distort the domestic market.

Centrica is currently pushing for a judicial review of the takeover, alongside EON and Scottish Power.

‘A bit tactical’: Centrica’s claim is not clear-cut, as Octopus closes in on customer handover

Ben Rayment, barrister and competition expert at Monckton Chambers, believed it was “certainly possible” EU state aid rules could apply to the takeover.

He explained: “The fact is that, even though we left the EU, under the special arrangements that apply to Northern Ireland, we did retain the EU state aid rules for trade between Northern Ireland and the Republic.”

However, Rayment also acknowledged the situation is more “more remote” than conventional state aid cases, in that payments to Octopus were designed to support Bulb’s consumers and an orderly transition to a new supplier.

He said: “It is not a payment directly relating to Octopus heat pumps in Northern Ireland – if it is a subsidy, it’s indirect.”

The legal expert described Centrica’s approach as “a bit opportunistic” and a “bit tactical,” and that there remained a “real lack of clarity” around the law.

Rayment explained: “tHE subsidy is not directly related to the heat pump. It’s certainly not expressly related to Octopus’ heat pump business. It’s about support to Bulb.”

Octopus’ takeover of Bulb is expected to be confirmed tomorrow, after the courts set 20 December as the date for Bulb’s 1.6m customers to be shifted onto the supplier’s books.

This would close the curtain on a year-long saga, which has seen Bulb exist under de-facto nationalisation, propped up by taxpayer funds.

The Office for Budget Responsibility has estimated the cost of Bulb’s stint in special administration has cost £6.5bn – the biggest state bailout since RBS in 2008.

It is one of over thirty firms to collapse in the past 18 months amid a protected energy crisis, which has seen suppliers struggle with insufficient hedging strategies amid soaring wholesale costs and rebounding post–pandemic demand.

The deal is still also vulnerable to a judicial review, which is expected to take place in late February.

Octopus and Centrica have both been approached for comment.