Good Energy will not be taking on any new customers from firms who have gone into administration.
According to Ofgem, if a gas and electricity provider collapses, the regulator will move customers onto a new company within a week, reports the Mirror.
However, the switchover costs the replacement supplier around £600 per household.
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Good Energy chief executive Nigel Pocklington told the BBC that new customers are a "loss-making proposition".
In the past week six firms have entered insolvency, affecting nearly 1.5million people.
Ofgem has said 255,000 Green customers will switch over to Shell Energy and Arvo Energy’s customers will be switched across to Octopus.
Octopus said it would be contacting all Avro customers over the next 48 hours. It stressed that all customers' energy will be maintained and that their money is safe.
All 66,000 homes that were formerly with PFP Energy, which went into administration on September 11, will be transferred over to British Gas.
Customers of failed suppliers will be moved onto variable tariffs.
While these are usually the most expensive in the market, they could actually be the most economical right now as they are protected by the energy price cap which limits how much firms can charge per unit of gas.
All other fixed tariffs haven risen four fold to reflect soaring wholesale gas prices.
Mr Pocklington told the BBC that while Good Energy was "sympathetic" to customers feeling uncertainty, larger companies may be better placed to take them on.
"At the moment, [Ofgem] will have been looking around for who was willing to take customers on. Octopus are a very well-reserved and well-run business will feel that while they may be looking at a short-term loss for these customers, the long-term gain will be strong,” he said.
"The regulatory requirements to set up an energy firm probably need some examination.
"It has been very easy to set up in the last few years, you needed about £10,000 to buy an energy company in a box in some ways. Doing that will mean some people will be under-funded and under-resourced and will not be able to afford hedging."
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