They did take on customers of failed companies on their existing fixed price deals - I was one of them. When it expired I was left in the same position as everyone else - the price cap was the best (least worst) deal in town.
I agree it was a regulation failure - they assumed that supplier failures would be infrequent in a fairly stable market. The principle that individual affected customers should not pay the price of corporate failure seemed reasonable.
Allowing suppliers to trade using fixed prices with variable input costs (energy generation) was always a risk. Had the regulator had insisted they cover their risk with forward energy contracts, the risk would simply go back up the chain to the electricity and gas suppliers.
Given that many/most customers were on fixed price deals for up to 3 years ahead, as energy costs rose a loss would crystallise somewhere in the supply chain from oil/gas well through to end users.
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