By Ben Lucas
Energy suppliers that are not financially resilient but continue to pay out dividends could be penalised by the UK’s energy regulator.
Jonathan Brearley, the head of Ofgem, wrote to suppliers last week asking them to ensure that falling energy prices are passed onto consumers and that they step up their customer service levels.
But he also warned that firms must make sure they have got their finances in order before paying out to shareholders.
“Those companies that are not yet sufficiently financially resilient should not pay dividends until they have the financial resources in place to deal with future price shocks,” Brearley said writing in the Sunday Times.
“All companies need to work hard to avoid the costs that hit all energy customers in the event they go bust,” he said. “Customers deserve a stable and financially resilient energy market, and we will take action against any company that pays out to their shareholders while taking unnecessary financial risks.”
Brearley also said the regulator was keeping a close eye on how the price cap is functioning, acknowledging that it “has costs as well as benefits for consumers”.
“It is a blunt instrument that struggles to respond to an energy market where prices are volatile,” he said.
“It may not be well matched to the more flexible market we need where prices vary over the time of day to help match demand to supply, as we transition to renewable sources like solar and wind,” he said.
“Ultimately, the future of price control is a matter for government, and we are working closely with them to explore reforms or alternatives that could retain price protection but with greater flexibility and resilience for consumers,” he added.
Brearley acknowledged that even though prices were coming down “they remain far higher then they were historically”, and that while the regulator was doing all it can to make sure prices falls are passed onto customers and services improve, further targeted support might be needed to help poorer households in the future.
“In the long term, as we look to a world where energy markets are likely to continue to be volatile, we will need to find new solutions both keep the lights on and ensure consumers get a reasonable deal,” he said. “In my view, the best way to do this is to accelerate the transition away from high dependency on natural gas, by developing affordable, clean, home-grown power as we make the transition to net zero.”
