Households to be shielded more from failed energy supplier costs, says watchdog

UK households are set to receive stronger financial protections if their energy supplier goes bust thanks to new reforms, the energy regulator has said.

Ofgem said it is launching a new rule which will make failed suppliers liable for the costs of transferring their customers to new firms.

Tim Jarvis, director general for markets at Ofgem, said the reforms should “make sure shareholders do not benefit” when a supplier collapses, before the firm’s own customers.

Financial resilience

The new rules are part of efforts by the regulator to improve financial resilience across the sector after dozens of firms collapsed when energy prices spiked following the Russian invasion of Ukraine in 2022.

On Tuesday, the regulator launched the new Supplier of Last Resort (SoLR) Levy Offset rule.

It will mean that the costs claimed by energy companies under the SoLR levy, for taking on customers from firms that go out of business, will be the liability of the failed supplier.

Funds will then be recovered through the insolvency process where the collapsed firm has assets which can be used to pay creditors.

Energy crisis

Mr Jarvis said: “Protecting consumers remains our number one priority and the reforms we have implemented since the energy crisis to stabilise the market mean suppliers are better placed to weather any shocks.

“However, like in any healthy and competitive market, energy companies will still fail from time to time and when they do it’s right that they cover the costs first, not consumers.

“This new rule will make sure shareholders do not benefit from an insolvency process until the costs of keeping their customers on supply have been covered.”

Earlier this year, Ofgem introduced new rules to make gas and electricity suppliers more financially secure.

Ofgem set a financial buffer to require energy firms hold a certain level of cash to help them withstand disruption in the market and sharp changes in prices.