What is the Levelisation Scheme?
In February 2024, Ofgem confirmed that measures would be introduced to ensure that prepayment (PPM) and direct debit customers under the price cap would pay the same standing charge, known as ‘levelisation.’
Traditionally, consumers using prepayment meters have encountered higher energy costs than those paying via direct debit. In March 2023, the Chancellor introduced the Energy Price Guarantee (EPG) to address this disparity. Initially, the policy equalised costs by providing prepayment meter users with a discount on their unit rates. However, from 1st April 2024, this approach has been replaced by the non-volumetric payment levelisation scheme.
This scheme equalises tariffs by requiring energy suppliers to increase direct debit customers’ charges while reducing prepayment meter users’ rates. A reconciliation mechanism is necessary to account for differences in payment method distribution across suppliers’ portfolios. This ensures that suppliers with a higher proportion of prepayment meter customers receive credits, while those with fewer-than-average less than average are debited accordingly.
The levelisation process ensures fair cost-sharing among electricity suppliers, driven by Ofgem’s and RECCo’s vision to support the Levelisation Scheme.
Update to the Levelisation Scheme Methodology
Following the successful implementation of the Levelisation scheme in April 2024, we’re proud to now roll out an updated methodology. This enhancement introduces a distinction between single and multi-register Metering Assets, further refining the scheme’s impact. The updated methodology will be applied to all reconciliations from January 2025 onwards and will retrospectively cover PML Reconciliations dating back to April 2024.
Driving Fairness Through Innovation
From January 2025, the updated methodology introduces distinctions between single-register and multi-register Metering Assets. By addressing variances in energy usage patterns and aligning cost calculations more accurately, this refinement ensures a fairer distribution of energy costs, benefiting a broader range of customers, including those on complex tariffs or multi-rate meters.
Supporting Vulnerable Consumers
This enhancement reinforces our commitment to tackling fuel poverty and fostering equity in energy pricing. Vulnerable customers, particularly those using prepayment meters, often face higher energy costs. The improved Levelisation scheme aims to alleviate this burden by more precisely balancing costs across payment methods, helping to shield households from financial stress and contributing to a more sustainable energy market.
Retrospective Impact
To maximise its reach, the enhanced methodology will be applied retroactively to PML reconciliations starting in April 2024. This ensures that the benefits extend to as many consumers as possible, reflecting our dedication to making a meaningful and immediate impact.
RECCo’s Commitment to the Levelisation Scheme
This milestone underscores RECCo’s commitment to driving meaningful industry change while fostering collaboration across the sector. We are deeply grateful to the partners and stakeholders who contributed to this achievement.
Industry Parties, your commitment to meeting data submission deadlines and maintaining exceptional data quality was critical to the scheme’s success. In particular, thanks to your Finance Teams for your outstanding work in creating efficient systems that enable prompt invoice payments, which are essential to the initiative’s continued success.
Code Manager, we deeply appreciate your expertise in deploying the service into production and providing robust early-life and hyper-care support, which ensured a seamless rollout. Your dedication to embedding the scheme within the REC and fostering early and effective stakeholder engagement was key to its immediate adoption and success.
Ofgem, we are grateful for your support in securing revised data submissions, which upheld the accuracy and reliability of the process from start to finish.
As the organisation entrusted with delivering the Payment Method Levelisation scheme on behalf of the industry, RECCo remains focused on making a tangible difference for some of society’s most vulnerable consumers. This initiative exemplifies our shared commitment to combating fuel poverty and fostering equity in energy costs.
