Ofgem opened a statutory consultation setting out its latest proposals for levelisation, the Retail Energy Code Company (RECCo) has said. The consultation is open until the 2nd of January 20241.
The proposals cover two stages. A first phase would levelise prepayment meter (PPM) and direct debit (DD) standing charges from April 2024. A second phase would levelise debt-related costs between standard credit (SC) and direct debit customers, and would be implemented no earlier than October 20241.
| Phase | What is levelised | Proposed start |
|---|---|---|
| First | Prepayment meter and direct debit standing charges | April 2024 |
| Second | Debt-related costs between standard credit and direct debit customers | No earlier than October 2024 |
Both stages would be supported by a reconciliation mechanism. RECCo said it is on track to deliver the proposed reconciliation mechanism from April 2024 and has raised the accompanying REC Change Proposal1.
"Following selection by Ofgem, we are developing systems and processes to levelise energy bills between prepayment meter and direct debit customers."
RECCo said it is hosting a progress webinar on the 30th of November to confirm when the new levelisation system will be implemented, how the scheme will operate, the changes being made to REC legal text, the latest data reporting requirements, and to answer key questions from stakeholders. Jonathan Windeatt, Industry, Operations and Commercial Expert (Retail Energy Policy) from Ofgem, was due to join subject matter experts and key project delivery personnel from RECCo1.
RECCo states that energy consumers in the UK who use prepayment meters have historically been charged more for their energy than those who pay via direct debit1. The consultation follows a policy consultation in August and an initial RECCo webinar in October1.
Why it matters for households
The price cap sets different rates according to how a household pays, which is why the gap between standard credit and direct debit and between prepayment and direct debit matters to a household budget. The published price cap rates by payment method show how those differences are expressed in standing charges and unit rates.
Levelisation shifts debt-related costs across payment methods rather than removing them. Debt costs arise when customers fall behind, and the arrangements for repaying them sit alongside the energy debt and repayment plans that suppliers operate. For a household, the practical effect of the second phase is that some of the cost currently recovered through one payment method would be recovered through another, changing the standing charge a household sees rather than the total cost of the debt itself.
The first phase concerns standing charges for prepayment customers, who have historically paid more than direct debit customers1. The second phase extends the same principle to debt-related costs between standard credit and direct debit. Neither phase changes how much energy a home uses, so the effect on a household's exposure to wholesale prices is unchanged. What changes is the share of fixed costs attached to a particular way of paying.
What happens next
The statutory consultation is open until the 2nd of January 20241. RECCo's progress webinar was scheduled for the 30th of November1. The first phase of levelisation is proposed from April 2024, with the reconciliation mechanism delivered from the same date, and the second phase no earlier than October 20241. No further dates have been reported.