Market Stabilisation Charge (MSC)

History Print

All domestic Suppliers acquiring a domestic supply point are required to pay a charge to the losing Supplier, when wholesale prices fall considerably below a wholesale price cap index. This charge is called the Market Stabilisation Charge (MSC).

It is a volumetric charge published weekly by Ofgem, split into two sub-charges; one for gas and one for electricity. Ofgem notifies whether the MSC payments have been triggered (view).

The governance for the MSC arrangements is set out within the Retail Energy Code.

Contents

Background
Administration of the MSC
Governance of the MSC
The MSC Calculations
Further Reading

Background

From December 2021, Ofgem consulted (view) on a range of potential short-term interventions designed to address increased risk to consumers as a result of wholesale market price volatility. Increased volatility could lead to higher costs for consumers in the event of significant Supplier exits from the market.

On 16 February 2022, Ofgem published its decision (view) requiring Suppliers to pay the MSC when acquiring new customers if wholesale prices were to fall below a set threshold. When consumers switch, the new Supplier would have to pay this fee to the old provider if wholesale energy prices were to fall significantly. Ofgem stated that the MSC would "make sure that energy companies do not take disproportionate financial risks and Suppliers who have done the right thing by purchasing energy in advance for their customers aren’t penalised, whilst protecting the ability of switching consumers to benefit from cheaper tariffs when prices fall".

The Supplier Licence Conditions are updated to include new Licence Condition 24A, which came into effect on 14 April 2022. The measure would remain in force until 31 March 2023, unless the Gas & Electricity Markets Authority (GEMA) decided to extend the measure.

On 12 April 2022, Ofgem began publishing the weekly data onto its MSC Dashboard (view), and continues to publish updated information every Monday.

Administration of the MSC

In its decision letter, Ofgem confirmed that the mechanism for giving effect to the MSC would sit within the REC.

Additionally, RECCo was made responsible for developing an invoicing and billing mechanism to ensure accurate transfer of any payments due. This would include procuring the data to accurately calculate the amounts to be invoiced, procuring a service provider to deliver the system, liaison with stakeholders to ensure effective engagement and compliance, and administration of the scheme in response to published Ofgem data.

RECCo created four workstreams to determine the design and principles of its framework to deliver the MSC.

Workstream One: Regulatory and Legal

The objective of this workstream was to define the Change Proposals required to be implemented into the REC (see Governance of the MSC).

Workstream Two: Data

The objective of this workstream was to explore how best to obtain the required data to manage the arrangements. The key output from this workstream was the agreement to receive data from Xoserve (to support calculations for gas supply points), and the Electricity Enquiry Service and ElectraLink (to support calculations for electricity supply points).

Workstream Three: Process

The objective of this workstream was to define the business processes and IT systems to efficiently support the end-to-end process. The systems to facilitate the charging arrangements went live in July 2022.

Workstream Four: Stakeholder Engagement

The objective of this workstream was to determine how best to engage with stakeholders impacted by the scheme. One output of this workstream was the walkthrough event hosted jointly by the Code Manager and RECCo on 22 April 2022. The recording of that session has been published by the Code Manager (view). A further upate webinar was hosted on 23 May 2022 and the recording can be found here.

Governance of the MSC

Two REC Change Proposals were raised to introduce the arrangements facilitating the MSC.

R0034 - Market Stabilisation Charge (view) was raised by Ofgem in February 2022. It introduced the MSC requirements into the REC, ensuring that RECCo could effective discharge its obligations to administer the framework once the systems were in place. R0034 was approved for implementation by the Authority, and released into the REC in an extraordinary release on 14 April 2022 (in line with amendments to the Supplier Licence Conditions).

R0035 - Market Stabilisation Charge Administration (view) was raised by RECCo in February 2022. This Change Proposal is the vehicle to introduce the detail around how the MSC scheme will be administered. It sets out the RECCo obligations, governance and charging mechanisms. The Impact Assessment period for R0035 was held between 08 April 2022 and 29 April 2022. A Consultation period took place between 13 May 2022 and 01 June 2022. The Implementation of R0035 was 30 June 2022.

The MSC Calculations

What happens when the MSC is triggered?

The MSC is run in four week cycles, with the first cycle starting on 14 April 2022. Once the Ofgem MSC Dashboard publishes that the MSC has been triggered, the Gaining supplier will receive a statement from RECCo within 10 Working Days after the end of the current MSC-4-Week Cycle. The Gaining Supplier is obliged under its Energy License to pay Market Stabilisation Charges in respect of a switch to RECCo within 10 Working days upon receiving the statement. Once a receipt has been issued by RECCo to confirm that the Gaining supplier has paid, it will then be redistributed to the Losing supplier.

For MSC Guidance and calculation please refer to further reading at the end of the page.