Ofgem letter

Energy customers ‘should be priority’ over dividends

Gas bill
Ofgem has issued a warning to energy firms (pic: Terry Murden)

Energy regulator Jonathan Brearley, has today warned suppliers that they must “act responsibly” towards their customers as prices come down.

The CEO of Ofgem has written to all domestic energy suppliers to remind them that they must learn the lessons from the crisis as their customer-facing businesses return to profit after five years of losses.  

In the letter, he tells the sector’s CEOs that Ofgem is ready to act against suppliers that use profits for paying dividends above retaining funds in the business.  

After a period where suppliers have largely made losses due to difficult trading conditions, the price cap has now dropped, and the price of wholesale energy, while still well above pre-crisis levels, is much lower than over the last two years. This means the sector is likely to return to profit this year and suppliers can recoup some of the losses from recent years. 

But while Ofgem has always been clear that reasonable profits are essential for a sustainable and well-functioning sector, the letter makes clear that financial resilience must be prioritised.  

As prices come down and profits return, Ofgem said it expects suppliers to act responsibly and in the interests of their customers and will act to amend the price cap rate and methodology to ensure that it continues to fairly reflect costs as market conditions change. 

The letter also details how Ofgem’s reforms have shored up the sector to ensure it is more resilient, supportive and responsive than before the energy crisis and that there will be no return to the risky behaviours of the past. 

Mr Brearley says “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. 

“The energy market has changed. 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.”  

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