The Zhitong Finance App learned that the British energy regulator Ofgem warned suppliers not to use soaring profits to pay huge dividends to shareholders. Ofgem said gas prices have dropped 70% from a year ago, and the industry is expected to return to profit after five years of losses.
Last week, Ofgem and other regulators were called to meet with UK Chancellor of the Exchequer Jeremy Hunt to discuss how to ensure that the decline in wholesale energy costs is passed on to consumers.
The Russia-Ukraine conflict has caused energy costs to soar, forcing about 30 British companies to go out of business, and the costs will eventually be paid by consumers through bills. Regulators have been criticized for allowing mismanaged companies to operate and not doing enough to protect consumers.
Now that the energy sector is emerging from the crisis, regulators need to show that it is doing a better job of balancing the needs of consumers and taxpayers and investors.
The issue has become more politically sensitive because of news last week that the British government is considering nationalizing Thames Water (Thames Water). The privately held utility company is over £13 billion in debt while paying dividends, increasing bills, and failing to invest enough in infrastructure.
In a letter to suppliers, Ofgem CEO Jonathan Brearley said: “We need suppliers to learn from the energy crisis and do their part to ensure that they are financially sound, able to absorb potential losses, and meet our new capital requirements.” “I expect there will be no return on paying dividends until the supplier has met these basic capital requirements.”
In response to the crisis, Ofgem increased capital requirements for businesses, making them more resilient and less likely to require government intervention.
But regulators have also relaxed other rules, allowing companies to claim part of the losses they suffered during the pandemic due to consumers' failure to pay their bills. This could mean that more profit could go to shareholders.
The UK's largest supplier, Centrica Plc, said last month that the earnings of its home business are expected to “increase significantly” after Ofgem makes these regulatory reforms. Scottish Electricity, a subsidiary of Spanish utility giant Iberdrola, also said it expects a large part of the losses in 2022 to be covered this year.