Ofgem has confirmed it will extend both the Market Stabilisation Charge (MSC) and its ban on acquisition-only tariffs (BAT) by a year to 31 March 2024.
In a decision document the regulator also confirmed that going forward it will have the power to renew both measures on an annual basis and that it is considering suggestions made my some industry stakeholders to make the BAT a permanent feature.
The temporary measures were introduced in April last year in response to soaring gas and electricity prices as a result of the energy crisis.
They are intended to ensure that prudently hedged suppliers are not penalised by being undercut by rivals if wholesale prices fall sharply.
Suppliers are required to pay the MSC to the losing company when they acquire a new customer, but only if wholesale prices fall significantly below the level assumed in the price cap. The ban on acquisition-only tariffs bars suppliers from luring in new customers by offering them exclusive cheaper tariffs that are not available to their existing customer base.
Ofgem said: “Our view is that retaining both measures beyond March 2023 will maintain the resilience of the GB energy sector and is in the interests of consumers.
“While we welcome the recent fall in wholesale prices, we remain mindful that there is a reasonable risk of further, sustained price shocks and resulting consumer detriment.
“The MSC remains a valuable tool to have available to increase market stability and consumer protection in such circumstances.”
Ofgem stressed that any subsequent renewals of the MSC post 31 March 2024 would only be decided following a “thorough review which would include a consultation inviting stakeholder engagement”.
The regulator says it intends to remove or replace the MSC when market conditions “reach a level of sufficient stability”, taking into account the balance of consumer interests in enabling more competition, or if it considers that the risks could be managed via an alternative method.
It added that it is “actively considering options for this” and that it retains the ability to either remove the MSC entirely before April next year, or to change its parameters to lessen its impact, if conditions allow.
Ofgem said while it believes that the ban on acquisition only tariffs has complemented the MSC, helping to achieve market stability, it would be insufficient to do so on its own.
“We are mindful of the suggestion, made by some consultation respondents, that the BAT should be made a permanent feature. We will consider this issue in the coming months,” it added.
The MSC was triggered for the first time in November last year at £3.56/MWh for gas.
It has been triggered 10 times overall and is currently in effect at the time of writing at £64.48/MWh for electricity and £18.09 for gas.