Ofgem consults on charge for suppliers that win customers with cheap deals

Ofgem has opened a consultation on bringing back a market stabilisation charge (MSC) that would make energy suppliers in Great Britain pay compensation to rivals if they win customers with cheaper deals. The regulator said the proposal is aimed at preventing suppliers from going bust this winter, as it monitors sharp swings in energy prices linked to the conflict in the Middle East.

The charge was last used between April 2022 and March 2024, when Russia's invasion of Ukraine sent wholesale prices soaring and more than 30 energy companies collapsed.

How the charge would work

Under the proposed mechanism, the MSC would be triggered if wholesale prices fall by more than 10%. At that point, suppliers that gain customers by offering cheap deals would have to pay rivals 85% of the fall in wholesale rates. Ofgem explained that when wholesale prices drop sharply, suppliers that have bought energy in advance for customers on default tariffs can lose money if many customers switch to cheaper fixed deals.

Neil Kenward, Ofgem's interim director general of markets, said: "We're preparing for what is likely to be a difficult winter for many households." He added that while the market is stronger than during the energy crisis, volatility remains and the charge helps protect consumers from it. Kenward also said the MSC supports responsible purchasing and reduces the risk of instability during significant price volatility.

Consumer criticism

Martin Lewis, founder of MoneySavingExpert, criticised the proposal. He said it acts as a "switching penalty" and means consumers will not get as good deals if wholesale prices fall. "The new supplier can't pass a chunk of the saving from lower wholesale rates on to you, because it has to hand much of it to your old supplier," he said. "The cheap fixes and switcher deals offered will be a lot more expensive, in order to protect energy firms' profits. It ain't good for consumers."

Lewis, who in 2022 swore at Ofgem on a press call over the mechanism and later apologised for his "emotional rant", questioned whether it is needed now. He pointed to significant profits made by many energy companies since the charge was last triggered. "The supplier market is pretty stable, and I doubt we are at the domino risk of suppliers going bust in the way they did in the early 20s," he said. "Protecting them over winter by effectively dampening competition ... feels raw. I don't like it."

Ofgem said reactivating the MSC would not "automatically create charges or increase customer bills". The consultation is seeking views on trigger levels, notice periods and how the mechanism should be deactivated.

Rising bills

The proposal comes as households face the highest energy charges in three years this winter. About 22 million homes are paying the equivalent of £1,723 a year for typical gas and electricity use between October and December, up from £1,663 in the July to September period. Ofgem's quarterly price cap is forecast to rise by a further £149 a year in January, according to energy consultants at Cornwall Insight, which would put the average annual bill at £1,872. The chancellor, John Healey, is planning a major intervention to cut energy bills for poorer households in this month's budget.

Source: The Guardian Business.