Energy companies cautioned against dividend payments

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In order to ensure that businesses can withstand future price shocks, energy suppliers have been advised to keep profits rather than distribute them to shareholders.

Firms "must learn the lessons of the energy crisis," the regulator Ofgem said, adding that "a return to the practices we saw before isn't on the table.".

Since the beginning of the rise in energy prices in 2021, about 30 suppliers have failed.

Price agreements with customers could no longer be fulfilled due to higher wholesale gas prices brought on by Russia's invasion of Ukraine.

With 1.6 million customers, Bulb was the largest supplier to fail. It received a roughly £3.8 billion taxpayer bailout before being acquired by Octopus Energy.

Gas and electricity costs for households have increased, but they are starting to decline. The average annual bill for a typical amount of energy use is £2,074.

Despite a £426 annual decrease, bills are still significantly higher than they were prior to the Covid pandemic.

After five years of losses, domestic suppliers are anticipated to turn a profit as a result of the drop in wholesale gas prices.

While companies like Shell and BP have recently realized record profits from the extraction of oil and gas, the two companies, along with other smaller domestic energy suppliers, have been making significantly less money, frequently even losing money, from selling that energy to households.

Ofgem CEO Jonathan Brearley issued a warning to businesses, saying that until suppliers met the regulator's financial stability standards—which are intended to prevent another round of widespread corporate failures—he expected "no return to paying out dividends.".

In an open letter to energy supplier executives, Mr. Brearley argued that in order to "create a sustainable and competitive market for consumers," it is critical for the energy sector to allow companies to make "a reasonable profit.".

But going back to the ways things were before the energy crisis is not an option, he continued. "Suppliers must repay the support given to the industry by consumers and taxpayers when wholesale prices rose by acting responsibly as prices fall and profits return," he said.

A large group of customers will likely struggle to pay their bills this winter, the Ofgem boss added, so the industry will need to be fully focused on how to support those who are in financial difficulty. If prices remain as predicted, he added.

A price cap on energy bills, which is the highest price suppliers may charge customers per unit of gas and electricity, has been in place since 2019 thanks to a rule set by Ofgem. It applies to households in England, Wales, and Scotland with variable or default tariffs.

The Energy Price Guarantee, which the government implemented after the price cap skyrocketed and limited annual bills to £2,500, has since expired, and the cap is now $2,074.

In a meeting with several regulators last week, including Ofgem, Chancellor Jeremy Hunt instructed them to "work at pace" to make sure businesses reflected any declining costs in the prices they charged customers.

Firms must "play their part by ensuring they are financially sound," according to Mr. Brearley, in order to "absorb potential losses.".

While "observing some good practice," he claimed that the regulator was also uncovering proof that some suppliers may have "breached" pricing regulations. If abuse is discovered, Mr. Brearley vowed to take action and said, "We are looking into it further.

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