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Bulb sale to Octopus risks breaching EU state aid rules, Centrica warns

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The government’s sale of nationalised energy supplier Bulb may be in breach of EU state aid rules in Northern Ireland, Centrica has said, risking one of the UK’s first significant showdowns with the bloc since Brexit.

Companies challenging the sale to Octopus Energy have focused on the government’s alleged provision of state funds to smooth the sales process, which they warned may lead to a test of the so-called Northern Ireland protocol, given Bulb’s operations in the region.

The sale of Bulb, which received the biggest state bailout since the financial crisis, has become increasingly contentious as rival energy suppliers led by British Gas owner Centrica have moved to block the sale in court.

The companies claim the deal, which would create one of the largest retail energy suppliers in the UK, could distort competition in the UK energy market and cost taxpayers and households more than if a transparent sales process had been followed.

In court documents filed last week Centrica cited “serious public interest issues” regarding the deal including “the UK’s compliance with its international obligations under the UK/EU Trade and Cooperation Agreement” and the “Ireland/Northern Ireland protocol”.

“This is one of the most politically sensitive subsidy cases to have emerged since Brexit and the Northern Ireland aspect of the claim compounds that,” said Ben Rayment, competition expert at Monckton Chambers. “It’s interesting to see the Northern Ireland/EU dimension being used tactically to exert more pressure.”

The question of whether an unlawful subsidy has been granted under post-Brexit UK legislation will be decided in the domestic courts but if EU state aid rules also applied, the bloc’s approval would be needed, said Rayment.

While the EU has not intervened in the case, legal experts and academics said the chance of the European Commission doing so was growing. 

“In a time where national measures to support energy companies are causing so many concerns in the EU, this is going to be a case closely monitored in Brussels as well,” said Andrea Biondi, director of the Centre of European Law at King’s College London.

In its post-Brexit deal with the EU, the UK agreed to introduce domestic rules that regulate subsidies that have, or could have, an effect on trade with the EU.

Under the separate Northern Ireland protocol to the Withdrawal Agreement, EU state aid rules could also continue to apply if a UK subsidy affects trade in goods or wholesale electricity between Northern Ireland and the continental bloc. 

Centrica has alleged in court documents that the EU regime applies in addition to the domestic rules as Octopus owns a company that manufactures heat pumps in Northern Ireland, and the subsidy to Octopus could affect rival suppliers that trade with the EU. 

State aid — or government financial help for a business — is normally prohibited if it threatens to distort competition between companies unless there is a public interest justification.

The government has not revealed the terms of the deal but the three companies challenging the sale believe Octopus may be receiving about £1bn from taxpayers to cover the cost of buying power for Bulb’s 1.5mn customers. The transfer of Bulb’s customers is due on December 20, but a hearing to review the process is expected in February.

The Office for Budget Responsibility has estimated that the cost to consumers of the Bulb bailout could rise to £6.5bn or roughly £200 per household. Although the expense is currently being paid for by taxpayers, the Treasury is intending to pass the costs on to households via their energy bills next year.

Centrica and Octopus declined to comment.

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