Supplier Licensing, Supplier Failure and Supplier of Last Resort

If an energy supplier goes out of business, the household supply continues. Ofgem states that where a supplier fails because of financial problems, electricity and gas are still supplied to the home or business and the supply is not cut off¹. The regulator appoints another licensed supplier to take on the customers, a process known as supplier of last resort, and the transfer happens automatically: the customer does not have to arrange anything, find a new tariff, or contact the failed company².

The customer is then placed on a deemed contract with the new supplier for six months¹. A deemed contract is the supply arrangement that exists where a customer is consuming gas or electricity without having agreed a contract with that supplier³. Its rate is normally the new supplier's default or standard variable tariff, which is usually the most expensive tariff a supplier offers⁴. The protections that come with it are significant: domestic credit balances are protected by Ofgem's rules, the energy price cap still applies, there is no fixed term, and there is no exit fee if the customer wants to move on¹.

The dependence this exposes is plain. A household buying gas and electricity from the retail market is dependent on a private company's solvency, and on a regulator's safety net when that solvency fails. The safety net keeps the lights on and protects the money, but it does not keep the price the household had agreed: a fixed tariff dies with the supplier, and the replacement rate is set by the cap rather than by any deal the customer negotiated.

What happens when an energy supplier goes out of business

A supplier failure is a company event, not a supply event. Gas and electricity reach the property through the networks, and the supplier is the billing and contracting party. So when a supplier ceases trading, Ofgem appoints another supplier to provide the energy supply in order to prevent a drop in service to customers². Independent guidance describes the same mechanism from the customer's side: the supply continues uninterrupted, any credit balance is protected, and the regulator appoints a new supplier and switches the customer to it automatically⁷. The National Energy Action checklist puts the timescale at "within a few weeks" for the automatic move⁵.

A second route exists where a larger supplier fails: an Energy Supply Administration Order, under which an administrator is chosen to run the company of the energy supplier that has gone out of business¹. Under that route too, credit balances are protected unless the customer is a business, and the customer can switch to another supplier without any exit fees¹.

One gap in the safety net has been raised by the Energy Ombudsman. Where suppliers leave the market through the supplier of last resort process, consumers with outstanding disputes lose out, because there is no obligation on the new supplier to fulfil the obligations⁸. A complaint that was live against the failed company, including a compensation award, does not automatically transfer with the account. Where a case is already open, the Energy Ombudsman contacts the customer to discuss next steps¹.

The deemed contract: the supply you are moved onto automatically

A deemed contract is the default legal relationship created when energy is consumed without an agreed contract. Ofgem's guidance describes it as normally in place when a customer moves to new premises and starts to consume gas or electricity, or both, without agreeing a contract with a supplier³. The same idea applies in the heat networks rules, where a deemed contract arises when there is no supply contract in place, for example where a consumer has moved into a heat network property and consumes heating, hot water or cooling with no supply contract⁹.

Supplier failure is the other common trigger. The customer never chose the new supplier and never agreed its terms, so a deemed contract fills the gap until a contract is agreed or the customer switches. The parallel case is house moving: whoever supplied energy to the previous occupants automatically becomes the new occupant's supplier, on that supplier's default or standard variable tariff¹⁰.

Deemed contract terms are constrained by the rules. Ofgem's heat network consumer protection guidance is explicit that a deemed contract must not provide for any fixed term period or any termination fee to be payable by the consumer, that it continues until the authorised person begins supply under a supply contract, and that no form of notice is required before entering a supply contract in place of it⁹. The practical effect in the gas and electricity market is the same shape of arrangement: a rolling default supply the customer can leave at any time.

Deemed contract rates sit at or close to the standard variable tariff

A deemed tariff is usually the same as the supplier's standard variable tariff, and often the most expensive¹⁰. Independent guidance on supplier failure is blunter: the customer is put on a deemed tariff which could be more expensive than the tariff they were on⁷. Standard variable tariffs are usually the most expensive tariffs offered by energy companies⁴, and a standard variable rate is one where the rate fluctuates depending on the price of energy¹².

Where the household was on a fixed deal, that deal does not survive. The fixed rate contract ends at the time the customer is moved onto the supplier of last resort, and the customer is placed on a standard variable tariff with no early exit fee¹³. Fixed deals typically run for 12 to 24 months¹⁴, so a failure part-way through can mean losing a rate agreed many months earlier.

The size of the gap between a deemed rate and a negotiated one can be large in unregulated parts of the market. In a case examined by the Energy Ombudsman, the standing charge on the deemed contract was nearly 14 times higher than the consumer could have achieved on contract³. That figure comes from the deemed contract casework rather than from the domestic gas and electricity market, where the price cap limits what a deemed rate can be.

Price cap protection still applies on a deemed contract

The energy price cap is the single most important protection on a deemed contract. Ofgem states that a customer put on a deemed contract is still covered by the energy price cap¹. Independent guidance describing the Ofgem safety net makes the same point about the new supplier's rates: it cannot charge more than the current energy price cap for gas¹⁸.

The cap, formally the default tariff cap, was introduced on 1 January 2019 and protects 22 million default tariff and standard variable tariff customers¹⁹. It applies where a customer has not signed up for a fixed-term contract with their supplier²⁰, which is precisely the position of a household on a deemed contract. Under the Act, Ofgem cannot set different cap levels for different suppliers and must protect default tariff customers¹⁹, so the appointed supplier is not free to price a rescued customer book differently. The Welsh Government's guidance describes the cap's purpose as protecting people from a loyalty penalty²¹. Ofgem has said it will be closely monitoring supplier compliance and will continue to take firm action against suppliers who fall short of their requirements²².

What the cap does not cover matters just as much for a self-sufficiency-minded household:

• Fixed tariffs agreed with a supplier are outside the cap²³.
• Business energy customers are not protected by the energy price cap²⁵.
• Heat networks are not covered by the cap, being classed as commercial supplies²⁶.
• Heating oil is outside the cap²³, which leaves off-grid homes in Northern Ireland and rural Great Britain without this protection.

The cap is also a moving figure rather than a fixed ceiling: the default variable rate is determined by the energy price cap and changes every three months¹⁷. In a March 2026 Commons debate, ministers described bills falling in April and that level being protected to the end of June²⁷. For context on past intervention, the Energy Price Guarantee limited the October 2022 increase to 26%, with the government paying suppliers the difference²⁰.

More detail on how the cap is calculated sits on the energy price cap page, and the regulator's wider remit on the Ofgem page.

No fixed term and no exit fees: why a household is free to move

The deemed contract carries no lock-in. Ofgem states that a customer can ask the new supplier to put them on its cheapest tariff or switch to another supplier instead of a deemed contract, and that the supplier cannot charge an exit fee¹. Under an Energy Supply Administration Order, the customer can switch to another supplier without any exit fees¹. Independent sources agree: a customer can switch without incurring any exit fees even if they were previously on a fixed deal¹⁸, and can switch without paying an exit fee if not happy with the new supplier or tariff⁵. A standard variable rate tariff involves no contractual tie and no exit fees on changing supplier¹².

This is a sharp contrast with the normal market. On a fixed tariff, a customer who chooses to leave before the term ends may have to pay the previous supplier an exit fee⁶, and most fixed tariffs include exit fees for each fuel payable on early switching²⁸. Which? puts a common level at £100 per fuel¹⁷; one published bill showed £50 per fuel, £100 in total, for switching before the final 49 days of the contract²⁹. Exit fees cannot be charged in the last 49 days of a fixed tariff, and within that window the customer has the right to switch freely without being charged¹⁷.

Two conditions still apply to switching generally. A switch cannot go ahead where the customer has been in debt to the supplier for more than 28 days⁶. Where the debt is less than 28 days old, the money owed is added to the final bill⁶, which independent guidance says should arrive within six weeks¹⁵. Suppliers must complete a switch within five working days⁶, and the gas and electricity supply itself is unaffected by a switch¹⁵.

The six-month rule and what happens after it

Ofgem sets the deemed contract at six months and states that after six months the deemed contract must go back to its normal rate¹. This is the one time-limited element in an otherwise open-ended arrangement. It exists because a supplier of last resort takes on a customer book at short notice and may be permitted a different rate treatment during the transition period; once that window closes, the account reverts to the supplier's normal deemed terms.

The six months is not a contract term the customer is bound by. Because a deemed contract has no fixed term period and no termination fee, and no notice is required before entering a supply contract in its place⁹, a household can agree a tariff with the new supplier or leave for another supplier on any day within those six months. The practical reason many people wait is administrative: the failed supplier's closing balance, refund and final bill have to be resolved, and account details may not be visible online once the company stops trading¹.

Billing errors that surface during a transfer are subject to the back-billing rules. Energy firms are banned from back-billing for energy used more than 12 months before the error was detected where the supplier is at fault³⁰. Ofgem notes the exception: a customer will have to pay for energy used more than 12 months ago if they have acted unreasonably, for example by stopping the supplier from billing accurately, including by blocking access to the meter³¹.

Credit balances, debts and what the new supplier owes you

Ofgem states plainly that if a supplier goes out of business the credit balance is still protected by the rules it sets, and that the new supplier will contact the customer about a refund¹. Under an Energy Supply Administration Order, the credit balance is protected unless the customer is a business¹. That business exclusion is worth noting for anyone on a commercial or landlord-held account.

In an ordinary switch, the old supplier refunds any credit in the final bill, and compensation may be due if it does not³². After a failure that refund route runs through the appointed supplier instead, which is why the automatic transfer matters so much: it gives the balance somewhere to land.

Debt travels differently from credit. Where a customer owes money and has been in debt for less than 28 days, the amount owed is added to the final bill⁶. Households worried about payments can ask a supplier to agree a payment plan, payment break or reduction, to review current payments and debt repayments, and for access to hardship funds³³. Suppliers follow a code of practice under which they will not cut off supply where a payment plan is agreed and kept to³⁴. Where a consumer disconnected for non-payment has paid the debt or agreed a repayment plan, the guaranteed standards give 24 hours to restore supply³⁵. Separately, the guaranteed standards provide an extra £100 where power has gone off more than four times between 1 April and 31 March the following year, for cuts of at least three hours, on a claim³⁶; that payment relates to network power cuts rather than to supplier failure.

Ofgem, the Gas and Electricity Markets Authority and who sets the rules

The regulator behind all of this is the Gas and Electricity Markets Authority, referred to for ease as Ofgem³⁷. It is Ofgem that sets the compensation rules suppliers must meet, and Ofgem notes that different rules apply where a supplier goes out of business¹⁷. It is Ofgem that appoints a supplier of last resort when a supplier ceases trading², and Ofgem that sets and enforces the price cap under statute, without the power to set different cap levels for different suppliers¹⁹.

Ofgem's remit runs across Great Britain. Northern Ireland's gas and electricity market is regulated separately by the Utility Regulator, and readers in Northern Ireland should not assume the price cap figures or supplier of last resort arrangements described here apply in the same form. Broader devolved differences are set out in the Scotland and Wales pages, and the licensing and enforcement picture sits within the wider regulation and policy lane.

Heat networks are a distinct case. They are regulated separately under Ofgem's heat network consumer protection rules, which is where much of the published deemed contract drafting comes from⁹, but they are not covered by the price cap²⁶. The heat network regulation page covers that regime.

Getting a copy of the deemed contract and your consumption data

A household on a deemed contract is entitled to see its terms. Ofgem's guidance requires that a copy of a deemed contract be provided free of charge within a reasonable period of time after receiving the request⁹. That copy is what establishes the unit rate, the standing charge and the fact that there is no termination fee.

Consumption history is the other document worth requesting, because it is the basis for checking the closing balance from the failed supplier. An online statement will display energy consumption for the last 12 months and an estimated cost of supply for the next 12 months for customers of 12 months or more³⁸. Where the online account has gone with the failed company, that data has to be requested from the appointed supplier.

If something has gone wrong, the route is set out by the regulator and the Ombudsman:

1. Contact the supplier about late, incorrect or missing bills, back billing, being overcharged, a faulty meter, poor customer service, or a refusal to refund credit from the account³⁹.
2. Log a dispute with the supplier through its formal dispute process, a copy of which can be requested and is often on its website⁴⁰.
3. Escalate to the Energy Ombudsman on receipt of a final decision or deadlock letter, or once eight weeks have passed without resolution⁴¹.

The Energy Ombudsman is an independent service, separate to Ofgem, covering problems with an energy supplier, an energy broker, a network operator, green deal or a heat network supplier³⁹. It can tell suppliers to take practical action such as crediting or cancelling an account or changing a tariff, to make an apology, or to offer a financial award, or a combination, and it may make recommendations to prevent issues recurring⁴³. Where a transfer has been made in error, compensation may be available under the Erroneous Transfer Customer Charter, which all energy suppliers must follow⁴⁴. Further detail is on the energy complaints and redress page.

What supplier failure means for household energy independence

The safety net works on the two things that matter most in the moment: the supply keeps flowing and the money is protected¹. What it does not do is restore the household's commercial position. A fixed price agreed before a market movement is gone¹³, and the replacement is a default rate sitting at the top end of what suppliers charge⁴, bounded only by a cap that changes every three months¹⁷. A live complaint may have to be started again, because the new supplier has no obligation to take on the old one's⁸.

That is the shape of the dependency. Every household buying from the retail market carries counterparty risk on a private company, mitigated by a regulator rather than removed. Reducing exposure means reducing the volume bought through that relationship: on-site generation, storage and fabric efficiency shrink the bill that any tariff, deemed or negotiated, is applied to. The grid connection, the network charges and the standing charge remain regardless. The practical consequences for self-sufficiency are drawn out on the regulation and energy independence page.