Ofgem have opened a consultation about switching on the Market Stabilisation Charge (MSC) as the regulator describes energy prices and “high” and “volatile”.
The MSC has previously been brought in as a mitigation during the previous gas crisis and means if wholesale prices drop more than 10% below the level built into the Price Cap and someone switches supplier from that or any tariff, the new firm must pay the old one 85% of the drop in wholesale rates beyond that 10%.
Ofgem said: “In a period of high and volatile prices, a sharp fall in wholesale prices can pose a risk to market stability. Responsible suppliers must buy energy ahead on behalf of their price cap customers.
“If prices fall suddenly and customers leave the price cap in large numbers, this can result in unavoidable losses.”
However, the consultation has caused concern for some, including Martin Lewis, founder of MoneySavingExpert.com. Mr Lewis warned that even though it doesn’t sound like a “big deal” it still could be.
He said: “I don’t like it. This is a ‘Market Stabilisation Charge’ but 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 twenties.
“A good few energy firms have made large profits since then, and protecting them over winter by effectively dampening competition because it’s ‘not their fault’ feels raw.”
Others have looked at what this consultation means for the wider energy market and prices. Gillian Cooper, Director of Energy at Citizens Advice claims the MSC could protect people from the cost of an unstable energy market.
Ms Cooper said: “Bringing back the Market Stabilisation Charge is a warning sign that energy prices are back in dangerous territory, and Ofgem is right to be vigilant.
“The government must recognise this for what it is: a warning that prices are rocketing and urgent winter crisis support is essential. At the Budget, we need a clear plan to deliver targeted bill support to those most at risk before they are pushed over the brink.”
The consultation is open until the 29th October and Ofgem is encouraging domestic suppliers, consumer groups and charities and third party intermediaries to respond.
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