Ofgem has moved a step closer to letting small electricity suppliers choose which households they serve. On 8 October 2026 the regulator opened a statutory consultation on licence wording that would exempt suppliers with fewer than 50,000 domestic customers from the Universal Service Obligation, the rule that requires every supplier to offer a contract to any home that asks. Responses are due by 5 November.
The change would apply to electricity supply licences only. Once a supplier reached 50,000 domestic customers, the obligation would apply in full.
Why Ofgem wants the change
Ofgem says the obligation can stop new firms building specialist offers, for example tariffs aimed at households with electric vehicles, batteries or heat pumps, or at social housing and community energy schemes. Prospective entrants told the regulator that having to be ready to serve the whole domestic market from day one adds cost before they can test their idea. Ofgem links the plan to wider take-up of demand flexibility and low-carbon technology, citing a Centre for Net Zero trial that put roughly 40% of the benefit of home solar and batteries with wider society through lower system costs and emissions.
The earlier policy consultation, held in August 2026, drew 33 responses. Nineteen supported the idea, eight of them with suggested changes, and 14 opposed it. Support came mainly from small suppliers, would-be entrants, community energy groups and consumer organisations. Larger suppliers and industry bodies were the main opponents.
The cherry-picking worry
Opponents argued that exempt suppliers could take on cheaper-to-serve, technology-rich customers and leave higher-cost and vulnerable households with the big firms, creating a two-tier market and possibly pushing up costs for others. Ofgem accepts that exempt suppliers may target such customers but says the 50,000 cap limits the risk. Several respondents also said other barriers, including the price cap and smart meter roll-out, matter more.
In response to concerns about firms splitting themselves into several small licences, the new wording counts customers across the whole corporate group. All other consumer protections, financial resilience rules and the price cap for default tariffs would continue to apply to exempt suppliers.
What happens next
Ofgem plans to publish a decision soon after the consultation closes. Any change would take effect at least 56 days after that decision, and firms would have 20 working days to seek permission to appeal to the Competition and Markets Authority. If the exemption goes ahead, Ofgem would add readiness for the obligation to the checks it already runs when suppliers hit 50,000 customers, and review the policy two years after it starts.
What it means for households
Most homes would see no change: large suppliers would still have to offer anyone a contract. Households with EVs, heat pumps or batteries could see more niche tariffs over time. The open question is whether that choice comes at the expense of customers who are costlier to serve, which is what Ofgem’s planned review is meant to test.