Highlights

• Ofgem opened a consultation proposing to disallow up to £24m of Smart DCC costs for 2025/26.

• Capita said Smart DCC will engage constructively with Ofgem to seek a reduction before the final determination.

• Smart DCC is wholly owned by Capita but sits outside the consolidated group financial statements.

• Last year Ofgem cut its proposed 2024/25 disallowance from £30.841m to £11.245m in the final decision.

Capita (LSE:CPI) has responded to a regulatory draft that questions some of the costs at its smart meter subsidiary. On Tuesday, 10 November 2026, Ofgem published a draft determination proposing to disallow up to £24m of costs at the Data Communications Company for Regulatory Year 2025/26, and Capita responded the same day. Smart DCC, the Capita Subsidiary that ran Britain's smart meter network, now faces another round of argument over which costs were economic and efficient.

What Ofgem has proposed

Ofgem's consultation reviews costs reported under the predecessor DCC licence. Its document proposes treating £20.241m of incurred costs, including shared service charges, as unacceptable, with external costs of £16.629m and internal costs of £3.612m. That total excludes redacted items.

The largest named item, the SMETS1 ANSO contract, is expressed as a range of £5.448m to £9.873m. Ofgem also proposes £22.049m of adjustments to forecast costs for 2026/27.

Ofgem said: "Our assessment to date indicates that most of the reported costs may be justified." DCC reported total 2025/26 costs of £747.9m, which the regulator said was 11.6% below the inflation-adjusted forecast of £846.1m, largely because of the timing of 4G Communications Hubs financing rather than an underlying saving.

How Capita has responded

Capita noted that Ofgem is "provisionally proposing to disallow costs of up to £24m", compared with a draft figure of £31m for the prior year. It described the draft as part of the usual regulatory framework for the contract.

Smart DCC Limited intends to work with the regulator during the consultation to seek a lower disallowance ahead of a final price determination expected in the first quarter of 2027. Capita flagged the statement as inside information.

Why the subsidiary structure matters

Smart DCC is a Wholly Owned Subsidiary of Capita (LSE:CPI) that is not consolidated into the group's financial statements. Capita said the network it built connects more than 39.2m smart meters across 23m homes and small businesses.

The licensed Business has recently moved to a not-for-profit provider. Ofgem noted that the authorised business transferred to the successor licensee on 2 November 2026, and said an undertaking in place of a disallowance was therefore unlikely to satisfy the licence.

Lessons from the previous round

Precedent offers a guide to how these disputes can move. In November 2025, Ofgem proposed disallowing £30.841m for 2024/25. Its final decision in March 2026 set the figure at £11.245m after new evidence from DCC and stakeholder feedback.

Ofgem also proposes trimming £1.260m from £14.005m of Margin at risk under performance incentives, although DCC met all incentivised system performance measures.

Key dates for Capita shareholders

Responses to the consultation are due by 8 January 2027, and Ofgem expects to issue its final decision in February 2027. The gap between the draft figure and the outcome will be the number to watch for Capita (LSE:CPI), the London Stock Exchange-listed outsourcing group.