In March 2023 the Chancellor announced that the Energy Price Guarantee (EPG) would be introduced to help rectify the higher costs faced by prepayment meter customers compared with those paying by direct debit1. The Retail Energy Code Company (RECCo), which later became the scheme's reconciliation operator, states that the EPG was brought in for this purpose1.
Historically, prepayment meter consumers have faced higher energy costs than direct debit customers1. Initially, the costs were aligned by offering prepayment customers a unit rate discount under the EPG1. In February 2024, Ofgem confirmed that measures would be introduced to ensure that prepayment and direct debit customers under the price cap would pay the same standing charge, known as levelisation1. As of 1 April 2024, the unit rate discount policy was replaced by the non-volumetric payment levelisation scheme1.
The scheme works by requiring energy suppliers to charge direct debit customers more while discounting prepayment meter tariffs1. Because the payment method split differs across each supplier's portfolio, a reconciliation method is needed so that suppliers with higher-than-average prepayment customers can be credited, while those with fewer than average can be debited1. Ofgem appointed RECCo as reconciliation operators in October 2023, and RECCo was confirmed in that role in February 20241. The scheme launched on 1 April 20241.
"This programme levelises tariffs by requiring energy suppliers to charge direct debit customers more whilst discounting prepayment meter tariffs"
Under the operational process, all domestic suppliers must take a snapshot of their data at midday on the first day of each calendar month and send it to the REC Code Manager by the fifteenth calendar day of the month1. RECCo calculates positions and sends an invoice 15 working days after the data submission date, with suppliers expected to pay within 10 working days of receipt of acceptance, and payments to suppliers sent within 10 working days of the payment deadline1.
Melissa Giordano, Deputy Director for Retail Systems and Processes at Ofgem, said the introduction of the non-volumetric prepayment levelisation scheme would ensure the stability of current and future suppliers, market diversity and competition while supporting prepayment customers, a group she described as having historically paid a premium and been at the greatest risk of self-disconnection1.
Why it matters for households
The change affects how the standing charge is set for two payment methods. Under the price cap, prepayment and direct debit customers are now intended to pay the same standing charge, rather than prepayment customers carrying a higher fixed daily cost1. The mechanism does not remove the standing charge; it shifts how it is recovered across the two groups, with direct debit customers charged more and prepayment tariffs discounted1.
For a household on a prepayment meter, this bears on the fixed daily cost that applies regardless of how much energy is used, which is separate from the unit rate paid per kilowatt hour. The Energy Price Guarantee was the earlier scheme that first addressed the prepayment premium through a unit rate discount, before the levelisation scheme replaced it1. How the two payment methods compare under the cap is set out in prepayment versus direct debit, and the rates that apply to each are listed in price cap rates by payment method. For households managing a prepayment meter, the practical detail of prepayment and pay as you go tariffs covers how these tariffs operate.
What happens next
The scheme is live, with monthly data snapshots and invoicing running on the timetable set out above1. RECCo has not reported any further changes to the process beyond the 1 April 2024 launch and the monthly cycle1.
Sources1 cited
- Your guide to Prepayment Levelisation - The Retail Energy Code Company, retailenergycode.co.uk