SSE reportedly contacted almost 13,000 customers and urged them to switch to a supplier which is believed to be struggling to pay its debts.
As part of its switching initiative, Ofgem is trialing the best way to help disengaged customers and is encouraging the big six companies to list cheaper alternatives for customers on the poorest value default tariffs.
The regulator has since revealed that SSE wrote to customers and listed Electraphase, a company unable to pay its debts, as one of the alternatives.
It has been reported that SSE sent more than 176,000 letters to customers, with almost 13,000 of these suggesting a switch to Electraphase.
In a statement, Ofgem said some trials have resulted in three times as many poor value default tariff customers switching compared to existing switching levels and customers who switched saved on average £300 per year.
The regulator added: “In one of our trials, SSE wrote to their customers on poor value deals listing three alternative cheaper tariffs available on the open market they could switch to and how much they could save based on their existing tariff and energy consumption.
“In a small proportion of these letters and emails from SSE, one of the alternative tariffs shown was from Electraphase.
“All letters and emails in these trials make clear that customers thinking about switching tariff may wish to consider other factors including customer service and also point to the Citizens Advice website for other tariff information before making a decision to switch to a new supplier.”
Ofgem admitted it is “closely monitoring” the situation with Electraphase.
“The supplier continues to trade but if necessary Ofgem is ready to activate its safety net to protect any customers who remain with the supplier,” the regulator said.
Gillian Guy, chief executive at Citizens Advice, said the “central problem” behind the issue is that there are companies operating that are “not up to scratch”.
She said: “Clearly lessons from this trial need to be learned, people shouldn’t be prompted to switch to suppliers that are in trouble. However, the central problem behind this is that there are energy companies operating that are not up to scratch.
“Ofgem needs to take action to protect customers from these poorly prepared suppliers. It should use its upcoming review of energy supplier licensing to require companies to show they are able to cope with the demands of the energy market. It’s reasonable to insist that companies demonstrate they have sufficient funds and a robust business plan in place before they start to serve customers.”
Struggling energy supplier Iresa shut up shop last month and its customers have been transferred to Octopus Energy. It followed non-domestic provider National Gas and Power having its supply licence revoked by Ofgem as it was unable to pay debts of more than £200,000.
Small supplier Gen4U also appears to be in financial difficulty, according to a default circular issued by Elexon
SSE was approached for comment.