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Britain’s energy regulator has warned suppliers not to pay dividends except they’re financially steady, because it seeks to keep away from a repeat of final yr’s energy disaster.
Jonathan Brearley, the chief govt of Ofgem, has written to firm bosses warning them to “behave responsibly” as the value pressures ease within the wholesale energy markets.
The intervention got here after Jeremy Hunt, the chancellor, urged regulators final week to be certain companies had been passing value cuts on to customers, in an effort to handle the mounting value of residing disaster.
In an open letter to energy provider bosses on Tuesday, Brearley advised them that they need to “reciprocate” the help given to the sector by taxpayers over the previous yr.
The authorities stepped in final October to subsidise rising energy payments after wholesale costs surged within the months before and after Russia’s invasion of Ukraine in February, costing an estimated £27bn.
The energy disaster led to the collapse of 30 suppliers, with households having to choose up the price of transferring affected clients to different firms, which added an additional £94 to home energy payments final yr.
As suppliers failed Ofgem was broadly criticised for failing to monitor the sector successfully, having allowed dozens of poorly capitalised suppliers to enter the market to enhance competitors.
It has since taken a harder method to financial resilience, together with new capital necessities, although critics imagine it ought to go additional.
The regulator’s warning got here as energy costs are falling. From the start of July, the energy worth cap, which usually governs the quantity paid for gasoline and electrical energy payments for typical utilization, fell to £2,074 per yr, its lowest degree since April 2022.
However, the decrease degree nonetheless stays well above the pre-crisis average of just about £1,150 that means many households will nonetheless battle to pay their payments.
The newest worth cap degree consists of allowances for a barely larger revenue margin for retailers, from 1.9 per cent to 2.4 per cent. The enhance, which Ofgem argued was wanted to enhance financial resilience, is anticipated to add about £10 to common annual payments from October.
In the letter, Brearley acknowledged it was necessary to have an “energy sector where companies can make a reasonable profit” to guarantee a sustainable, aggressive market.
But he warned that “a return to the practices we saw before the energy crisis isn’t on the table — suppliers must reciprocate the support the sector was given by consumers and taxpayers when wholesale prices increased by behaving responsibly as prices fall and profits return”, including: “I expect no return to paying out dividends before a supplier has met those essential capital requirements.”
The letter didn’t point out particular person suppliers by identify. Following final yr’s market rout, the market is concentrated within the palms of enormous suppliers, corresponding to British Gas, owned by Centrica, in addition to EDF, Octopus Energy and Ovo.
The letter echoed an analogous one from Ofgem in May that warned suppliers that any dividend funds had to be “within an appropriately responsible framework”.
Energy UK, the trade commerce group, mentioned: “It’s right that the regulator ensures the financial resilience of companies operating in the retail market. It should be noted that in withstanding the energy crisis and an extended period of unprecedented volatility, those suppliers still operating have already demonstrated resilience and financial responsibility.
“The energy industry will continue to work closely with Ofgem and the government to ensure a sustainable retail sector over the long term.”