How the charge would work

Ofgem's consultation would revive the market stabilisation charge, a mechanism forcing energy suppliers to pay a charge to rivals if they lure customers with cheaper deals. It would kick in when wholesale prices fall more than 10%, and suppliers winning customers on cheap deals would then compensate rivals 85% of the drop in wholesale rates.

The regulator's reasoning is that suppliers that have bought energy in advance for customers on default tariffs can face losses when wholesale prices fall sharply and many switch to cheaper fixed deals. The charge was last activated between April 2022 and March 2024, after Russia's invasion of Ukraine drove soaring wholesale prices that caused more than 30 energy companies to go bust.

Why now: a difficult winter

Ofgem interim director general of markets Neil Kenward said the regulator is preparing for a difficult winter and that the charge helps protect consumers from volatility. "We're preparing for what is likely to be a difficult winter for many households," he said. In volatile conditions, he added, suppliers can continue to secure the energy their customers need without taking unsustainable risks, and he argued the MSC supports responsible energy purchasing and helps reduce the risk of instability.

The backdrop is a rising energy price cap: households face the highest energy charges in three years this winter after rising wholesale prices pushed up the government's cap from this month. About 22m homes will pay the equivalent of £1,723 a year for typical usage between October and December, up from £1,663 for July to September, and Cornwall Insight forecasts a further £149 rise in January, taking the average annual bill to £1,872.

Consumer reaction

MoneySavingExpert founder Martin Lewis said the measure is not good for consumers and could make cheap fixes and switcher deals more expensive, "in order to protect energy firms' profits". He has form on the mechanism: when it was activated in 2022 he swore at Ofgem on a press call, said it sold consumers down the river, and later apologised on X for his emotional rant.

Ofgem said reactivating the charge would not automatically create charges or increase customer bills.

What happens next

The consultation seeks views on how the mechanism should operate, including:

• •trigger levels
• •notice periods
• •deactivation arrangements

Chancellor John Healey is meanwhile planning a major intervention to cut energy bills for poorer households in this month's budget.