Ofgem has warned energy suppliers not to pay out dividends as the market improves in a bid to prevent firms from collapsing.
Jonathan Brearley, the chief executive officer of Ofgem, said in a letter that fines could be issued to those paying out dividends despite being in a poor financial state, after some 30 firms have collapsed in recent years.
“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,” Brearley wrote.
The energy regulator anticipates that the sector will return to profitability thanks to falling wholesale gas prices after a five-year streak of losses.
However, Brearley suggested profits should be used for financial resilience rather than rewarding shareholders, with previous failures having led to higher bills for consumers.
“Suppliers running at a loss for long periods of time leads to poor customer service, lack of consumer choice and, ultimately, supplier exits which leads to extra costs and disruption,” he continued.
Bulb Energy’s collapse in 2021 was the highest-stakes failure in the market, with the company effectively being nationalised before its 1.5mln customers were sold to Octopus late last year.
Ofgem has introduced tougher capital requirements in a bid to prevent further collapses and reduce the need for future intervention as a result.
“I expect no return to paying out dividends before a supplier has met those essential capital requirements,” Brearley added.