What is the Market Stabilisation Charge?

The Market Stabilisation Charge (MSC) requires all domestic suppliers acquiring a customer to make a payment to the supplier that is losing the customer. The charge applies to all switches, so suppliers are not obliged to inform competitors which tariff the consumer switched to or from. It is comprised of two sub-charges; one for gas and one for electricity, with the amount paid being a reflection of a proportion of the economic loss to the losing supplier applied when the switch occurs and based on a customer’s estimated annual consumption.

The MSC has not yet been triggered, and currently, suppliers would only be required to make a payment to the losing supplier if wholesale prices fall by more than 30% compared to those used to set the price cap. Ofgem has now decided that from 25 May, the threshold at which the MSC will be triggered will reduce from 30% below the wholesale prices used to set the cap level to 10%. Ofgem is also proposing to extend the MSC so that it remains in place until March 2023.

If suppliers are required to pay the MSC when taking on customers they will likely factor this into the tariff offerings they are bringing to the market. Ofgem has said that 85% of suppliers’ costs incurred by purchasing energy in advance will be covered by the MSC, meaning that if the charge is activated, and wholesale prices have dropped significantly, suppliers are not likely to be able to immediately pass the savings on to customers through tariffs that substantially undercut the level of the price cap. However, the arrangements protect suppliers that have hedged in line with the price cap from incurring major losses, helping to limit market exits which will ultimately benefit consumers in the long run.

The Retail Energy Code Company manages the MSC, and if the charge is triggered, it will calculate net credit and debts based on all switches across the market and the level of the charge. Ofgem considers this a more efficient system than settling debts on a bi-lateral basis. The total charge credit or debt for each supplier is calculated by multiplying the switching customers’ aggregated estimated annual consumption by the MSC. A supplier will receive MSC payments where their total credits are greater than their total liability and will be required to make MSC payments where their liability outweighs their credits. Suppliers will be invoiced for debts or receive credit notes on a four-weekly basis and where the MSC has been zero for all four weeks, no invoices or credit notes will be produced.

The level of the charge is calculated and published on a weekly basis, every Monday at 5pm. Ofgem believes that weekly publication of the charge allows suppliers to understand their costs within a reasonable timeframe, while limiting the burden and volatility that a more frequent update would incur. As of writing, the MSC has not yet been triggered.

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