Ofgem could force energy suppliers to pay rivals for luring customers with cheaper deals
Great Britain's energy regulator Ofgem proposes reintroducing a market stabilisation charge to prevent supplier failures this winter amid price volatility. Consumer advice founder Martin Lewis has criticised the mechanism.
Ofgem, the energy market regulator for Great Britain, has published a consultation on reintroducing the market stabilisation charge (MSC). Suppliers that attract customers with cheaper deals could be required to compensate their rivals. The regulator wants to prevent supplier failures this winter, as the conflict in the Middle East drives sharp swings in energy prices.
How the mechanism would work
The MSC would be triggered if wholesale prices fell by more than 10%. Suppliers winning customers by offering cheap deals would then have to pay rivals 85% of the drop in wholesale rates. Ofgem explains that suppliers who bought energy in advance may face losses if many customers switch to cheaper fixed deals.
The charge was last in force from April 2022 to March 2024, when Russia's invasion of Ukraine pushed up wholesale prices and more than 30 energy companies went bust. The consultation seeks views on how the mechanism should operate, including trigger levels, notice periods and deactivation arrangements.
Neil Kenward, Ofgem's interim director general of markets, said the market is stronger than during the energy crisis but volatility remains. Ofgem also says reactivating the MSC would not automatically create charges or raise customer bills.
Criticism
Martin Lewis, founder of the consumer advice site MoneySavingExpert, said the measure is not good for consumers. In his view, if wholesale prices dropped sharply, cheap fixed and switcher deals would become more expensive in order to protect energy firms' profits. He also criticised the mechanism in 2022, later apologising for his emotional outburst.
Bill context
The government's price cap rose this month: about 22 million homes are paying the equivalent of £1,723 a year for typical gas and electricity use, up from £1,663 in July to September. Consultants Cornwall Insight forecast a further rise of £149 a year in January, to £1,872. Chancellor John Healey plans a major intervention in this month's budget to cut bills for poorer households.
