New Ofgem rules could protect customers from financial hit when energy firms fall

Ofgem has announced it is considering new rules to add another layer of protection for customers.

In a new policy consultation published today (February 9), the watchdog said it is looking into proposals that could help reduce the costs seen by customers when an energy firm collapses. It highlighted that the proposal would look at recovering some costs from a failed supplier.

Ofgem already has a Supplier of Last Resort (SoLR) which ensure customers do not see any disruption to their supply of gas and electricity as the watchdog will switch their account to a new supplier for them. When suppliers go out of business, other suppliers use the SoLR to claim for any costs incurred with the switching process, which is ultimately paid for by consumers through their bills.

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Tim Jarvis, Director General for Markets at Ofgem, said: “Protecting customers is our top priority and we want to ensure that when companies go bust they are first in line to pay for their failure, not consumers. We’ve already brought in tough new rules to make suppliers more financially stable, which includes requiring suppliers to have their own capital at risk so that they can better withstand shocks."

Ofgem noted that new rules has helped ensure a more resilient market, but this doesn't completely reduce the odds of companies going out of business. A new SoLR Levy Offset being proposed would see the failed supplier liable for costs.

It suggests that the liability could be recovered through a process in which the failed supplier has residual value which would be paid to creditors. Consultations on this issue will