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Britain’s power regulator has warned suppliers to not pay dividends until they’re financially secure, because it seeks to keep away from a repeat of final 12 months’s power 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 power markets.
The intervention got here after Jeremy Hunt, the chancellor, urged regulators final week to verify companies have been passing value cuts on to shoppers, in an effort to deal with the mounting value of residing disaster.
In an open letter to power provider bosses on Tuesday, Brearley instructed them that they need to “reciprocate” the assist given to the sector by taxpayers over the previous 12 months.
The federal government stepped in final October to subsidise rising power payments after wholesale costs surged within the months earlier than and after Russia’s invasion of Ukraine in February, costing an estimated £27bn.
The power disaster led to the collapse of 30 suppliers, with households having to select up the price of transferring affected clients to different firms, which added an additional £94 to home power payments final 12 months.
As suppliers failed Ofgem was broadly criticised for failing to watch the sector successfully, having allowed dozens of poorly capitalised suppliers to enter the market to spice up competitors.
It has since taken a harder strategy to monetary resilience, together with new capital necessities, although critics consider it ought to go additional.
The regulator’s warning got here as power costs are falling. From the beginning of July, the power value cap, which usually governs the quantity paid for gasoline and electrical energy payments for typical utilization, fell to £2,074 per 12 months, its lowest degree since April 2022.
Nonetheless, the decrease degree nonetheless stays properly above the pre-crisis common of virtually £1,150 which means many households will nonetheless battle to pay their payments.
The most recent value cap degree contains allowances for a barely increased revenue margin for retailers, from 1.9 per cent to 2.4 per cent. The rise, which Ofgem argued was wanted to spice up monetary resilience, is predicted so as to add about £10 to common annual payments from October.
Within the letter, Brearley acknowledged it was essential to have an “power sector the place firms could make an inexpensive revenue” to make sure a sustainable, aggressive market.
However he warned that “a return to the practices we noticed earlier than the power disaster isn’t on the desk — suppliers should reciprocate the assist the sector was given by shoppers and taxpayers when wholesale costs elevated by behaving responsibly as costs fall and earnings return”, including: “I anticipate no return to paying out dividends earlier than a provider has met these important capital necessities.”
The letter didn’t point out particular person suppliers by title. Following final 12 months’s market rout, the market is concentrated within the fingers of enormous suppliers, reminiscent of British Gasoline, owned by Centrica, in addition to EDF, Octopus Power and Ovo.
The letter echoed an identical one from Ofgem in Could that warned suppliers that any dividend funds needed to be “inside an appropriately accountable framework”.
Power UK, the business commerce group, mentioned: “It’s proper that the regulator ensures the monetary resilience of firms working within the retail market. It must be famous that in withstanding the power disaster and an prolonged interval of unprecedented volatility, these suppliers nonetheless working have already demonstrated resilience and monetary accountability.
“The power business will proceed to work carefully with Ofgem and the federal government to make sure a sustainable retail sector over the long run.”
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