Ofgem’s first duty is to consumers. The law also tells it to protect the financial viability of regulated energy activities. With billions in household debt and estimated network windfalls, how well does that balance work in practice?

THIS WEEK IN SMOKE | 6 November 2026

British households owed energy suppliers £5.02 billion in debt and arrears by June 2026. In July, Citizens Advice published another striking figure: regulated energy network companies had benefited from around £5 billion in excess financial returns up to 2025.

The two figures measure different things. One is unpaid household bills at a point in time; the other is estimated financial outperformance accumulated by businesses over several years. There is no direct transfer from one pot to the other. Their proximity nevertheless exposes the question at the centre of Britain’s energy regulation: who gets financial protection when the system stops working for customers?

Ofgem’s principal legal objective is to protect consumers. But its financial concern for energy companies is not merely a preference or an unintended effect of its decisions. Gas Act 1986 section 4AA and Electricity Act 1989 section 3A require the regulator to consider whether licence holders can finance the activities required by their regulated obligations. This does not guarantee profits or prevent any supplier from failing. It does give companies’ ability to finance their work a specific place in the statutory framework. The same Acts also require the regulator to have regard to the interests of consumers who are disabled, chronically ill, of pensionable age, on low incomes or living in rural areas. That is a legal duty to consider those interests, not a guarantee that their bills will be affordable. The evidence of how Ofgem weighs these responsibilities in practice deserves scrutiny.

Financial protection is written into the system

For regulated network companies, Ofgem sets allowed revenues that cover efficiently incurred operating and financing costs and allow returns on investment, subject to performance incentives and penalties. The framework is intended to maintain pipes, cables and investment in essential services. But it also means the regulator builds financial allowances for monopoly businesses into charges ultimately paid by customers.

That is a form of legal and regulatory financial protection, not an unconditional guarantee of shareholder profit. The question is whether Ofgem has constrained these allowances firmly enough when households are struggling to pay.

Sources: Gas Act 1986, section 4AA; Electricity Act 1989, section 3A; Ofgem network price controls.

The network windfall

The network companies operate the regional electricity and gas infrastructure that customers cannot choose to leave. Ofgem regulates what they can earn through its price controls. Suppliers then recover those network charges through household bills.

In July 2026, Citizens Advice said network companies had outperformed the shareholder returns Ofgem had judged appropriate. Most of the estimated £5 billion excess resulted, it said, from inflation outstripping forecasts. The allowances intended to cover companies’ borrowing costs no longer matched their actual costs.

This is an estimate by the statutory consumer advocate, rather than a finding of unlawful profit. The Energy Networks Association has disputed the interpretation of excess returns, arguing that performance should be assessed over longer periods. Reporting on a related projection of nearly £6 billion by 2026, Utility Week said Ofgem supported network companies in challenging Citizens Advice’s figures. That disagreement requires scrutiny of the underlying calculations and time periods; it cannot be settled by comparing headline numbers. Parliament’s Energy Security and Net Zero Committee nevertheless concluded in October that network businesses had achieved higher-than-expected profits and said the government should seek a contribution from them towards reducing household energy debt.

That recommendation matters because network companies are regulated monopolies. Households cannot shop around for an alternative local electricity grid. When the regulator’s calculations yield unusually generous returns, competition offers consumers no escape.

Sources: Citizens Advice, 6 July 2026; Utility Week, 6 July 2026; House of Commons Energy Security and Net Zero Committee, 21 October 2026.

The cost of letting suppliers fail

Ofgem’s record in the retail market is not reassuring either. Twenty-nine suppliers collapsed between July 2021 and May 2022. Many businesses were exposed to wholesale-price shocks, and some investors lost money. But customers also paid for the failures.

The National Audit Office estimated in 2022 that transferring customers and covering associated costs from 28 failed suppliers would cost £2.7 billion, to be recovered across energy bills. That was a forecast at the time, not an audited final total. Bulb’s special administration was separately accounted for.

The NAO identified a regulatory contribution to the damage. Ofgem had allowed suppliers to enter the market without adequate scrutiny of their financial resilience and was slow to strengthen oversight of existing firms. Its arrangements protected continuity of supply when companies failed; they had not prevented so many fragile companies from trading in the first place.

There is a clear public-interest reason to keep the lights on when a supplier collapses. There is an equally clear reason to ask why the risk of badly supervised business models was spread across households that had not chosen those models.

Since October 2025, Ofgem’s Supplier of Last Resort Levy Offset rule has required failed suppliers to bear eligible transfer costs where the insolvency process can recover money from their remaining assets. This is an important corrective measure, but it cannot recover money that the failed business no longer has. It does not change the historical fact that consumers funded substantial rescue costs.

Sources: National Audit Office, The energy supplier market, 2022; Ofgem SoLR Levy Offset decision, August 2025.

Household debt becomes a cost on every bill

Energy debt is now more than a private problem between a supplier and an indebted customer. Ofgem recorded £5.02 billion in domestic debt and arrears lasting more than 91 days at the end of the second quarter of 2026, up 13% on the same period a year earlier.

The price cap includes allowances for suppliers’ reasonable costs, including debt-related expenses and an earnings allowance. In October, MPs concluded that increasing debt allowances burdened all billpayers, including people already in fuel poverty. The committee said Ofgem’s proposed solutions were insufficient.

Ofgem told the committee it was reluctant to remove debt allowances because that could undermine supplier economics and lead to insolvency. That is a practical risk, as the supplier failures showed. It also reveals the policy trade-off: the viability of companies is directly built into the regulated price, while households that cannot afford essential energy face debt collection, repayment arrangements and continued pressure on their budgets.

The government and Ofgem have announced a debt strategy that aims to introduce relief in spring 2027, subject to consultation and a further decision. It remains a planned intervention, not money already removed from the debt burden.

Sources: Ofgem, debt and arrears indicators; House of Commons committee, October 2026; government–Ofgem debt strategy, 28 October 2026.

Even the exit can have a price

Customers who fix their energy tariffs may face exit fees if they switch before the final 49 days of their contract. Ofgem’s own research, published in 2025, found that exit fees significantly affected consumers’ choices in a simulated switching exercise. The largest fall in willingness to choose a deal occurred between a zero fee and a £50 fee.

Fixed tariffs can also give customers valuable protection from rising prices, and suppliers take risks when they price those contracts. Exit fees do not prove companies expect prices to fall. They do, however, reduce the flexibility of a household wanting to leave a deal that no longer represents good value. Whether current fee levels are proportionate deserves direct examination, rather than an assumption that disclosure alone makes them fair.

Source: Ofgem, consumer tariff choices research, July 2025.

Enforcement after harm

Ofgem’s May 2026 investigation concluded that British Gas breached licence rules protecting vulnerable people during involuntary prepayment-meter installations. British Gas agreed to pay £20 million into the regulator’s redress fund and write off up to £70 million of qualifying energy debt, alongside other measures.

On 26 October 2026, British Gas was allowed to restart involuntary installations under stricter safeguards. The permission does not mean installations can be made without checks, and the settlement represents real enforcement action. It also came years after the practices under investigation.

The government’s April review of Ofgem acknowledged a wider problem: too much intervention had happened after consumer harm, with responsibilities and accountability insufficiently clear.

Sources: Ofgem settlement, May 2026; Ofgem permission register, November 2026; government Ofgem review, April 2026.

A regulator should be judged by its results

Ofgem has useful powers, and some of its actions have protected consumers from greater harm. Wholesale energy prices, generation profits and government energy policy also sit partly or wholly outside its control. Criticism should stay focused on decisions for which it is accountable.

Those decisions include the financial assumptions behind network charges, the supervision of suppliers, the way debt costs enter bills, the terms on which people can switch, and how quickly protections are enforced.

In October, Citizens Advice said it remained unclear what level of network-company returns Ofgem itself would consider a successful price control. The same month, MPs called for greater transparency about where profits arise across the energy system and for excess profits to help reduce bills.

That is the test now. Publish an intelligible account of the money. Show where excess returns have gone. Demonstrate that the costs of business failure and consumer debt are being reduced rather than quietly redistributed. Establish which consumer outcomes would count as success, and measure them.

The law requires Ofgem to consider both the financial viability of regulated energy activities and the interests of consumers with low incomes and other vulnerabilities. The question is how far the regulator’s decisions protect each group in practice — and who ultimately carries the financial risk.

Source: Citizens Advice, 21 October 2026.