The Retail Energy Code Company (RECCo) has announced an updated methodology for the Payment Method Levelisation scheme, the mechanism that now equalises standing charges between prepayment meter users and direct debit customers under the price cap1.
The Energy Price Guarantee was introduced by the Chancellor in March 2023 to address the long-standing gap between what prepayment meter users and direct debit customers paid1. RECCo states that the policy initially equalised costs by giving prepayment meter users a discount on their unit rates, but that from 1 April 2024 this approach was replaced by the non-volumetric payment levelisation scheme1. Under that scheme, suppliers are required to increase direct debit customers' charges while reducing prepayment meter users' rates, with a reconciliation mechanism to account for differences in payment method distribution across suppliers' portfolios1. Suppliers with a higher than average proportion of prepayment meter customers receive credits, while those with fewer are debited accordingly1.
"Following the successful implementation of the Levelisation scheme in April 2024, we're proud to now roll out an updated methodology."
The update introduces a distinction between single-register and multi-register metering assets, which RECCo says refines the scheme's impact by addressing variances in energy usage patterns and aligning cost calculations more accurately1. The revised methodology applies to all reconciliations from January 2025 onwards and will retrospectively cover Payment Method Levelisation reconciliations dating back to April 20241.
| Element | Detail |
|---|---|
| Energy Price Guarantee introduced | March 2023, prepayment unit rate discount1 |
| Levelisation scheme start | 1 April 20241 |
| Updated methodology applies from | January 20251 |
| Retrospective coverage | Reconciliations back to April 20241 |
RECCo describes itself as the organisation entrusted with delivering the Payment Method Levelisation scheme on behalf of the industry, and says it remains focused on making a tangible difference for some of society's most vulnerable consumers1. It attributes the scheme's rollout to industry parties meeting data submission deadlines, finance teams enabling prompt invoice payments, the code manager's deployment work, and Ofgem's support in securing revised data submissions1.
Why it matters for households
The practical effect of levelisation is that the standing charge gap between prepayment and direct debit under the price cap is closed by moving both sets of charges, rather than by discounting prepayment unit rates as the Energy Price Guarantee did1. For a household on a prepayment meter, the cost of energy no longer depends on the payment method in the way it traditionally did, when prepayment users encountered higher costs than direct debit customers1. For a household on direct debit, the equalisation is funded in part by higher charges on that payment method1.
The updated methodology's distinction between single and multi-register meters matters for homes with multi-rate or complex tariffs, which RECCo says are among those intended to benefit from more accurate cost calculations1. The retrospective element means reconciliations back to April 2024 are recalculated, though RECCo does not state in this announcement what individual households will see as a result, and no per-household figures have been reported1. The scheme sits alongside the wider policy costs and levies that make up a domestic bill, and its stated aim is to reduce the financial stress on prepayment meter users in particular1.
What happens next
The updated methodology applies to all reconciliations from January 2025 onwards, with retrospective coverage of reconciliations dating back to April 20241. RECCo has not reported any further scheduled changes to the scheme beyond that.