Energy regulator Ofgem has been criticised for deterring companies from cutting their prices when they drop. The government body has today (Monday, May 16) announced a change to the market stabilisation charge (MSC) so that suppliers who win customers with cheaper deals will have to pay the old supplier 85% of the difference in tariffs.
The MSC became effective on April 14, but it is yet to be activated. Currently, it would be activated if energy prices fall 30% below the level of the wholesale energy price assumed by the current level of the price cap. However, today’s decision reduces this trigger point to a 10% fall.
Currently, if activated, the losing supplier is reimbursed by 75% of the cost of the energy above the trigger point they had bought in advance for the customer they have lost, assuming they had bought energy as set out in the price cap methodology. However, today's decision has increased this to an 85% reimbursement. You can get more financial news and other story updates by subscribing to our newsletters here.
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The regulator argued the change would make the MSC more robust, but financial journalist and expert Martin Lewis said it would deter competition, making it less desirable for companies to offer cheap deals to customers.
The announcement has come after a period of anxiety after gas prices were hiked across the world. The unprecedented rise was prompted by a worldwide squeeze on gas and energy supplies over the past year. The many factors include supply and demand following a particularly cold winter in Europe in 2021 meaning gas storage levels are lower than usual. The invasion of Ukraine by Russia, Europe’s biggest gas supplier, has also impacted prices.
In response, in April average prices in Britain rose by a record 54% to £1,971. A further increase is expected to as much as £2,600 in October. The scale of the price rise as well as the collapse of 29 British energy suppliers since September has prompted scrutiny of Ofgem’s role, and the ways it could further help customers.
On Monday, May 16, Martin apologised for calling the regulator a "f****g disgrace that sells consumers down the river." He wrote on Twitter: "I'd like to formally apologise to the [Ofgem] staff for losing my rag in a background briefing just now and saying its changes are a 'f*****g disgrace that sells consumers down the river'. I should've behaved better. My ire's institutional not individual, it was inappropriate..."
A spokesman for Ofgem said: "Ofgem has announced a series of reforms to make the retail market more resilient and protect customers. This includes changes to the Market Stabilisation Charge (MSC). Under the MSC a supplier who loses a customer to another supplier is reimbursed for part of the wholesale energy losses this causes. It became effective on April 14. It has yet to be activated.
"Currently, it would be activated if energy prices fall 30% below the level of the wholesale energy price assumed by the current level of the price cap. Today’s decision reduces this trigger point to a 10% fall. Currently, if activated, the losing supplier is reimbursed by 75% of the cost of the energy above the trigger point they had bought in advance for the customer they have lost, assuming they had bought energy as set out in the price cap methodology. Today’s decision increases this to 85% reimbursement.
"We are making these changes to make the MSC more robust given the increased volatility in the wholesale gas market since Russia’s invasion of Ukraine. This will reduce the risk of additional costs to consumers from supplier failures. It ensures that suppliers can buy electricity and gas needed to supply their customers confident that they will be reimbursed if they are undercut by other suppliers if wholesale prices fall.
"This will make sure competition is sustainable, make the market more resilient, and reduce the risk of supplier failure, which all customers pay for." You can get more money stories by signing up to our WalesOnline newsletter here.
