Under the plan, the market stabilisation charge (MSC) would be triggered if wholesale prices fall more than 10%. At that point, suppliers that win customers by offering cheaper fixed deals would have to compensate rivals 85% of the drop in wholesale rates.
"When wholesale prices fall sharply, suppliers that have bought energy in advance for customers on default tariffs can face losses if large numbers of customers switch to cheaper fixed deals," Ofgem said.
The charge was last activated between April 2022 and March 2024, when Russia's invasion of Ukraine sparked soaring wholesale prices that caused more than 30 energy companies to go bust.
"We're preparing for what is likely to be a difficult winter for many households," said Neil Kenward, Ofgem's interim director general of markets. "While the energy market is stronger than it was during the energy crisis, volatility remains and the market stabilisation charge helps to protect consumers from that volatility."
"In volatile market conditions, it's important that suppliers can continue to secure the energy their customers need without taking unsustainable risks."
Martin Lewis, founder of MoneySavingExpert, who reacted angrily to the mechanism when it was last activated in 2022, called the proposal a "switching penalty" that would leave consumers with worse deals if wholesale prices fall.
"The new supplier can't pass a chunk of the saving from lower wholesale rates on to you, because it has to hand much of it to your old supplier," he said. "The cheap fixes and switcher deals offered will be a lot more expensive, in order to protect energy firms' profits. It ain't good for consumers."
Lewis questioned the need to reintroduce the mechanism, noting that many energy companies have made significant profits since it was last triggered. "The supplier market is pretty stable, and I doubt we are at the domino risk of suppliers going bust in the way they did in the early 20s," he said. "Protecting them over winter by effectively dampening competition... feels raw. I don't like it."