Octopus Energy’s chief defends missing Ofgem’s new capital target — and says the rulebook ignores real-world risk

LONDON — In a week that laid bare the fault lines in Britain’s retail energy market, the boss of Octopus Energy has defended the company’s failure to meet the industry regulator Ofgem’s new capital buffer targets, arguing the regime was drawn too quickly and fails to capture how suppliers actually hedge risk.

Greg Jackson, chief executive of the UK’s largest household supplier with more than seven million accounts, said the rules risk conflating accounting neatness with financial resilience. In interviews and public comments, he has framed Octopus as prudently run but penalised by a one‑size‑fits‑all capital formula that, he says, doesn’t reflect contractual protections the company has in place with trading counterparties and wholesale partners.

At the centre of the dispute is Ofgem’s Capital Target regime, introduced in the wake of the 2021–22 market crisis that felled dozens of small suppliers and left bill-payers on the hook for supplier failures. From March 31, 2025, domestic suppliers have been required to hold adjusted net assets equivalent to roughly £115 per dual‑fuel customer, with a floor of zero. Ofgem says the aim is simple: ensure companies keep enough real loss‑absorbing capital to withstand price spikes and cash collateral calls, so the market never again teeters on the brink.

Octopus, which has overtaken British Gas by customer numbers, has disclosed it is not yet compliant. So too, in recent days, has Ovo — underscoring that the challenge is not confined to a single balance sheet. Jackson’s case is that capital adequacy should look through transient accounting items and recognise risk‑sharing deals that reduce the chance a supplier ever needs to deploy that capital. In particular, he has pointed to supply and hedging arrangements — including legacy contracts inherited during its rapid expansion — that he says materially reduce exposure to cash calls.

Competitors are unconvinced. Centrica, the owner of British Gas, has urged Ofgem to bar non‑compliant rivals from taking on new customers, arguing that uneven enforcement hands them an unfair growth advantage and recreates incentives that preceded the crisis. Industry executives also note that Ofgem has tightened the way it calculates ‘adjusted’ capital, stripping out certain intangible assets. That change, they say, pushed some suppliers that believed they were on track into technical non‑compliance overnight.

Ofgem insists the sector is sturdier than at any time since the crisis. In a spring transparency report the regulator said overall adjusted net assets had grown markedly across the industry, and it has required improvement plans from any company falling short. Officials also stress that capital targets sit alongside other protections introduced over the last two years — tougher controls on customer credit balances, ring‑fencing rules, and more conservative hedging expectations — to create multiple lines of defence.

Behind the capital debate lies a broader question: how should a retail supplier be financed in a market that remains government‑shaped? The default tariff cap, still the reference point for most variable deals, moves quarterly and now sits at £1,755 for a typical dual‑fuel household from October to December. Wholesale volatility has cooled, but not vanished; geopolitical shocks, weather‑driven demand, and network constraints continue to jar prices. That leaves suppliers juggling working‑capital needs that can swing with wholesale collateral calls — precisely the moment regulators want capital buffers to bite.

Jackson contends that Octopus’s operating model — a mix of in‑house technology, fast‑cycling customer operations and expansive hedging access — provides resilience that the rulebook doesn’t count. He argues that a narrow snapshot of ‘adjusted net assets’ is a poor proxy for the future‑proofing value embedded in long‑term arrangements with counterparties, and that the regime risks favouring incumbents with legacy asset bases over challengers whose value is tied up in software and customer platforms.

There is some sympathy in the market for the point on measurement — and irritation about timing. Suppliers were told well in advance that minimum capital rules were coming, but many only saw the final shape crystallise this year. The removal of some intangibles from the capital calculation, while consistent with prudence, surprised executives who had built plans around earlier drafts. For a handful of companies growing fast or integrating acquisitions, the delta between the old and new definitions was meaningful.

Consumer advocates, meanwhile, are watching for any sign the debate diverts attention from service and pricing. Ofgem this week pursued a separate set of changes targeted at standing charges — the fixed daily fees on bills — signalling that suppliers will, by early 2026, need to offer tariffs with lower or no standing charges alongside higher unit rates. That won’t cut the average bill on its own, but it could give lower‑consumption households more choice. For now, fixed‑term deals have re‑emerged as cheaper than the cap for many customers, as wholesale conditions have stabilised.

The politics of fairness still hover. British Gas’s campaigning has put pressure on Ofgem not just to set rules but to enforce them visibly. Allowing non‑compliant suppliers to continue onboarding customers, critics say, risks re‑running a high‑growth, thin‑capital playbook. Supporters of Octopus counter that the firm has weathered the crisis, absorbed millions of customers from failed rivals and acquisitions, and invested heavily in technology and service — a record inconsistent, they say, with the caricature of a fragile balance sheet.

For its part, Ofgem has tried to strike a balance: require remediation plans, publish fuller data on the sector’s capital position, and keep the threat of escalation — including restrictions on growth — on the table. Privately, officials say they want compliance to rise through retained earnings, not emergency equity calls, to avoid jolting already jittery investors. Publicly, the message is firmer: the rules are here to stay, and they will be enforced.

What happens next will hinge on two moving targets. First, the sector’s profitability through the winter: if suppliers bank a healthier margin on hedged books while call volumes and debt remain manageable, retained profits can close capital gaps faster. Second, clarity on how Ofgem will treat specific balance‑sheet items in 2026 and beyond: if the definition of ‘adjusted’ capital stops shifting, finance chiefs can plan with confidence. Companies say they can hit the target; the question is how quickly and at what cost to growth.

Jackson’s wider bet is that Octopus’s value increasingly lies outside commodity retailing. The company has been pushing its Kraken software platform, spun into a separate business to sell to utilities worldwide, and expanding into flexibility, smart tariffs and heat pumps. Those arms are capital‑light but cash‑generative when scaled — and could, over time, provide the very retained earnings the capital regime demands. The paradox, as rivals point out, is that the more Octopus leans on software and intellectual property, the less of that value counts toward the capital buffer under Ofgem’s current rules.

For households, the capital algebra is invisible — until it isn’t. The failure of 27 suppliers during the crisis left a multibillion‑pound tab that consumers are still paying back through bills. That memory explains why Ofgem has little patience for arguments that look like special pleading. For boards, though, the question is precise: how much equity should a retailer tie up in a low‑margin, regulated business, and how should regulators score the safety net? That debate is now in the open. Octopus’s defence sets up a consequential winter for energy retail — one in which balance sheets, as much as boilers, will be stress‑tested.

Correction & context: Ofgem’s capital regime took effect at the end of March 2025, with a target level equivalent to about £115 per dual‑fuel customer. Octopus and Ovo have acknowledged they are not yet compliant and have submitted improvement plans. Ofgem says sector‑wide adjusted net assets have strengthened. Centrica has urged the regulator to stop non‑compliant firms onboarding new customers until they meet the target. The energy price cap for a typical household is set at £1,755 for October to December 2025.