An energy supplier winning customers from a rival by offering a cheaper deal could have to compensate their previous supplier. According to The Guardian, Ofgem is consulting on bringing back such a mechanism. It would involve payments between companies, not a separate charge levied on households for switching supplier. Martin Lewis has criticised the proposal, warning that it could weaken competition.
Ofgem, the energy regulator for England, Scotland and Wales, is considering reintroducing the market stabilisation charge (MSC). As described by The Guardian, the mechanism would apply when falling wholesale prices allow one supplier to offer cheaper energy and attract another company’s customers.
Why does the regulator want to protect suppliers?
Ofgem’s reasoning concerns how suppliers buy energy. Companies purchase it in advance for customers on default tariffs. If wholesale prices subsequently fall, a competitor can put together a more attractive fixed-price deal. The supplier losing the customer is then left with energy bought earlier at a higher price and the risk of a loss.
Under the version described by the newspaper, the mechanism would be triggered by a fall in wholesale prices of more than 10%, with compensation equivalent to 85% of the drop in wholesale rates. These are proposed parameters under consultation, not final rules. The consultation also covers notice periods and the conditions for switching the mechanism off.
According to Ofgem, as quoted by The Guardian, the aim is to reduce the risk of market instability, along with the costs and disruption associated with supplier failures. The regulator also says that reactivating the MSC would not automatically trigger payments or increase customers’ bills.
A dispute over the benefits of cheaper energy
Martin Lewis takes a different view. He argues that requiring suppliers to pay competitors for customers they attract could restrict competition and reduce the benefits households receive when wholesale prices fall. That is his assessment of the risk, rather than an established consequence of the mechanism.
For customers, the key distinction is between a direct charge for switching supplier and the potential effect of payments between companies on the deals available. The proposal concerns the latter: the regulator emphasises market stability, while Lewis points to the risk of weaker competition for customers.
The mechanism remains under consultation. Its final terms have not been settled, and news of the proposal does not mean that a new charge is already in force or that customers must pay simply to move to another supplier.
