Ofgem has warned it could strip the licences of nine energy suppliers if they do not join a common system that allows households to take full advantage of their smart meters.
The small suppliers have all failed to become so-called Data Communications Company (DCC) users after a November 2017 deadline.
The system allows smart meters to keep their smart functionality - such as sending meter readings to energy suppliers automatically - even when customers start buying their gas or electricity from a new company.
All suppliers have to sign up to the DCC system so customers can be sure their switch is as seamless as possible.
The roll-out of energy smart meters has been mired in controversy, which has contributed to delays.
Many customers with first generation Smets 1 meters lost function when they switched to a new supplier. This meant their meters became analogue and households were forced to submit meter readings manually.
"This causes consumer detriment and could undermine consumer confidence in the smart meter programme and the switching process," Ofgem said.
Energy experts say Smets 1 meters will regain their smart functions in a year or two when the DCC system is extended to include the first generation technology. However, it may be too late to salvage a bruised reputation.
Ofgem said on Friday it is consulting on whether to issue final notices to the nine suppliers, compelling them to get in line with the DCC system. If they do not comply, the regulator might start revoking licences.
The nine suppliers are Ampoweruk Ltd, Better Energy Supply Limited, Daligas Limited, Enstroga Ltd, Entice Energy Supply Limited, Euston Energy Ltd (trading as Northumbria), Green Energy Supply Limited, Symbio Energy Limited and UK National Gas Ltd.
Some of the companies have held a supply licence for nearly 10 years.
