New Supplier of Last Resort Ofgem rules mean failed energy firms must pay customer transfer costs – what is it

• New Ofgem rules will shift collapse costs from customers to failed energy suppliers
• Households will no longer fund supplier failures through higher bills
• Costs will be recovered from the assets of collapsed firms via insolvency
• The change follows energy market chaos after the 2021–22 price surge
• It aims to build a more financially resilient and fairer energy market

UK energy customers could soon be better protected from the financial fallout when their supplier goes bust, thanks to new rules that aim to shield households from picking up the tab.

Energy regulator Ofgem has unveiled reforms that will make collapsed suppliers pay the costs of moving their customers to a new company — a shift that could save households money and bring greater stability to the market.

What’s changing?

Until now, when a supplier failed, surviving energy companies would be reimbursed through a special levy, often passing the cost onto billpayers. But under the new rule, that financial burden will fall on the failed supplier’s remaining assets instead.

The changes come in response to the chaos of 2021 and 2022, when dozens of UK energy firms folded during the global energy price spike triggered by Russia’s invasion of Ukraine.

Millions of customers were left in limbo, and the cost of propping up the market ran into the billions — much of which was ultimately covered by consumers through higher bills.

How the new rules work

From now on, under the new Supplier of Last Resort (SoLR) Levy Offset rule, energy companies that take over customers from a failed firm will no longer automatically claim those costs from the public pot.

Instead, they’ll be reimbursed via the failed company’s estate — clawing back cash from any remaining assets through the insolvency process.

Tim Jarvis, Ofgem’s director general for markets, said: “Protecting consumers remains our number one priority... When [energy companies] do fail, 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.”

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What it means for you

It’s the latest in a series of moves by the regulator to tighten up financial oversight of energy firms.

Earlier this year, Ofgem introduced new rules requiring suppliers to maintain financial buffers, essentially forcing firms to hold a certain amount of cash to cope with market shocks or price spikes.

The reforms aim to prevent the kind of domino-effect collapses seen in recent years, and to ensure that when firms do fold, the cost doesn’t land on customers’ bills.

Ofgem says the changes will help build a more resilient energy market, one where competition can still thrive, but where consumers are protected from the consequences when things go wrong behind the scenes.

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