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Ofgem Tells Energy Suppliers to Prioritize Financial Stability Over Dividends

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Britain’s energy regulator has warned suppliers not to pay dividends unless they are financially stable to avoid a repeat of last year’s energy crisis.

Ofgem CEO Jonathan Brearley has sent a letter to corporate bosses warning them to “behave responsibly” as price pressures ease in the wholesale energy market.

The intervention came after Prime Minister Jeremy Hunt. Request to regulators Last week, we saw that companies are passing along cost savings to consumers to combat the growing cost-of-living crisis.

Brearley said Tuesday in an open letter to energy supplier executives that taxpayers should “reward” the support they have given the sector over the past year.

Last October, the government subsidized soaring energy prices after soaring wholesale prices in the months before and after Russia’s invasion of Ukraine in February, costing an estimated £27 billion.

The energy crisis forced 30 suppliers to go bankrupt, forcing households to bear the cost of transferring affected customers to others, adding another £94 to domestic utility bills last year.

Following the bankruptcy of a supplier, Ofgem was widely criticized for its failure to effectively oversee the sector, allowing dozens of poorly capitalized suppliers to enter the market to encourage competition.

Since then, it has taken a tougher approach to financial resilience, including new capital requirements, but critics think it should go further.

The regulatory alert was issued following the drop in energy prices. From early July The energy price cap, which normally governs how much you pay for gas and electricity during normal use, has dropped to £2,074 a year, the lowest level since April 2022.

However, there are still low levels left well above the pre-crisis average That means many families will still struggle to pay their bills.

The latest price cap levels include 1.9% to 2.4% to slightly boost margins for retailers. The increase, which Ofgem said was necessary to boost its financial resilience, is expected to increase average annual billings by around £10 from October.

In his letter, Brearley acknowledged the importance of “an energy sector in which companies can make a reasonable profit” to ensure a sustainable and competitive market.

However, he said, “A return to practices seen before the energy crisis is not on the table. Suppliers are paying more for the support that consumers and taxpayers gave the sector when wholesale prices rose. “As prices fall and profits return, we must act responsibly and reciprocate.” He added, “We believe there is no return on paying dividends unless suppliers meet these mandatory capital requirements.”

The letter did not mention the names of individual suppliers. Following last year’s market crash, the market is concentrated in the hands of big suppliers such as Centrica-owned British Gas, EDF, Octopus Energy and OVO.

The letter followed a similar letter from Ofgem in May that warned suppliers that dividend payments should be made “within a proper and responsible framework”.

Industry body Energy UK said: “Regulators are right to ensure the financial resilience of companies operating in the retail market. They have withstood the energy crisis and long-term unprecedented volatility and are still in business today. It should be noted that existing suppliers have already demonstrated resilience and financial responsibility.

“The energy industry will continue to work closely with Ofgem and governments to ensure a long-term sustainable retail sector.”

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Britain’s energy regulator has warned suppliers not to pay dividends unless they are financially stable to avoid a repeat of last year’s energy crisis.Ofgem CEO Jonathan Brearley has sent a letter to corporate bosses warning them to “behave responsibly” as price pressures ease in the wholesale energy market.The intervention came after Prime Minister Jeremy Hunt. Request to regulators Last week, we saw that companies are passing along cost savings to consumers to combat the growing cost-of-living crisis.Brearley said Tuesday in an open letter to energy supplier executives that taxpayers should “reward” the support they have given the sector over the past year.Last October, the government subsidized soaring energy prices after soaring wholesale prices in the months before and after Russia’s invasion of Ukraine in February, costing an estimated £27 billion. The energy crisis forced 30 suppliers to go bankrupt, forcing households to bear the cost of transferring affected customers to others, adding another £94 to domestic utility bills last year. Following the bankruptcy of a supplier, Ofgem was widely criticized for its failure to effectively oversee the sector, allowing dozens of poorly capitalized suppliers to enter the market to encourage competition.Since then, it has taken a tougher approach to financial resilience, including new capital requirements, but critics think it should go further.The regulatory alert was issued following the drop in energy prices. From early July The energy price cap, which normally governs how much you pay for gas and electricity during normal use, has dropped to £2,074 a year, the lowest level since April 2022.However, there are still low levels left well above the pre-crisis average That means many families will still struggle to pay their bills. The latest price cap levels include 1.9% to 2.4% to slightly boost margins for retailers. The increase, which Ofgem said was necessary to boost its financial resilience, is expected to increase average annual billings by around £10 from October.In his letter, Brearley acknowledged the importance of “an energy sector in which companies can make a reasonable profit” to ensure a sustainable and competitive market.

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However, he said, “A return to practices seen before the energy crisis is not on the table. Suppliers are paying more for the support that consumers and taxpayers gave the sector when wholesale prices rose. “As prices fall and profits return, we must act responsibly and reciprocate.” He added, “We believe there is no return on paying dividends unless suppliers meet these mandatory capital requirements.”The letter did not mention the names of individual suppliers. Following last year’s market crash, the market is concentrated in the hands of big suppliers such as Centrica-owned British Gas, EDF, Octopus Energy and OVO.The letter followed a similar letter from Ofgem in May that warned suppliers that dividend payments should be made “within a proper and responsible framework”.Industry body Energy UK said: “Regulators are right to ensure the financial resilience of companies operating in the retail market. They have withstood the energy crisis and long-term unprecedented volatility and are still in business today. It should be noted that existing suppliers have already demonstrated resilience and financial responsibility. “The energy industry will continue to work closely with Ofgem and governments to ensure a long-term sustainable retail sector.”
https://www.ft.com/content/b374063d-5775-4f9c-9781-54adde29100a Ofgem Tells Energy Suppliers to Prioritize Financial Stability Over Dividends

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