Britain’s energy regulator today warns under-capitalised suppliers that government could intervene to prevent a repeat of 2021’s collapse of 28 suppliers.
With energy retailers forecast now to return to profit after five years of losses, Ofgem boss Jonathan Brearley wrote today to domestic suppliers, promising the agency is ready to take action against firms who prioritise paying dividends to shareholders, over building stronger capital reserves.
Wholesale energy prices, while still well above pre-crisis levels, are much lower than over the last two years, Brearley points out. The regulator’s price cap has also dropped, giving retailers leeway to recoup recent losses and steer their finances back toward profitability.
But financial resilience & continuity must remain watchwords for operators, the regulator insists.
In April the agency ran a consultation, seeking public guidance on where to set the floor for energy companies’ capital reserves. Ofgem is now mulling over replies, and will announce its decision in September.
“A return to the practices we saw before the energy crisis isn’t on the table”, Jonathan Brearley tells companies.
“Suppliers must reciprocate the support the sector was given by consumers and by taxpayers when wholesale prices increased by behaving responsibly as prices fall and profits return.
“Ofgem has introduced major changes to the market, and we need suppliers to learn the lessons of the energy crisis and play their part by making sure they’re financially robust, can absorb potential losses and are meeting our new capital requirements.
“I expect no return to paying out dividends before a supplier has met those essential capital requirements”.
Last week, Ofgem was among utility regulators who met chancellor Jeremy Hunt. The energy overseer declared afterwards that :
- It will ensure suppliers pass falling prices onto consumers. The new lower cap effective from 1 July will reduce a typical annual household energy bill by £426, it calculates. Ofgem continue to the price cap, ensuring that it mirrors wholesale & other costs facing suppliers.
- Ofgem will strengthen protections and support for vulnerable households, by mandating the Code of Practice on prepayment meters.
- Ofgem will act against suppliers that have over-charged business customers. Conclusions of its review of the UK’s non-domestic market are expected this summer.
Read Brearley’s open letter here.