Payment Method Levelisation

What is Payment Method Levelisation?

Historically, British customers on prepayment meters (PPM) have paid more for their energy compared to those on direct debit (DD). On 15 March 2023, the Chancellor announced that the Energy Price Guarantee (EPG) would be used to align costs for PPM and DD customers. Initially, this was achieved by providing PPM customers with a unit rate discount. In October 2023, Ofgem appointed RECCo to develop the necessary industry processes and to act as the reconciliation operator for the non-volumetric payment levelisation program.

Why is reconciliation needed?

This program aims to equalise tariffs by requiring Energy Suppliers to change DD customers more whilst discounting PPM tariffs. However, a reconciliation method must be introduced as the payment method split is not the same for each Supplier’s portfolio. This reconciliation ensures that Suppliers with a higher-than-average number of PPM customers receive credits, while those with fewer-than-average PPM customers are debited.

What is RECCo’s role?

REECo were tasked with developing industry processes under the Retail Energy Code (REC) and designing, building, testing, and delivering a functional system that will facilitate supplier payments to allow for non-volumetric levelisation. The system went live on 01 April 2024. The change to the REC was given effecteffect through Change Proposal R0147 which implemented a new REC Schedule for Payment Method Levelisation (PML) Reconciliation, Schedule 31.

What do Suppliers need to do?

All domestic Suppliers are required to take a snapshot of their data on the 1st day of each calendar month and send it to RECCo by the 15th Calendar day of the month. RECCo will calculate positions and send an invoice 15 Working Days (WD) after the data submission date. Suppliers are expected to pay invoices within 10 WDs of receipt of acceptance. All funds are distributed equitably, and Payments to Suppliers will be sent within 10WDs of payment deadline.

An Invoice Schedule is detailed below, containing key dates for upcoming file submission and invoicing.

Templates for Supplier data submission are also provided below. Please note, the file formatting is important for file validation, as such, please ensure the following:

Each region must be populated, even if there is no data i.e. populate with zeros and with relevant date format
file name format for electricity: MPID_YYYYMM.csv
file name format for gas: SSC_YYYYMM.csv
files using column headers or regions different to the template will not be accepted

Future Updates to PML Reconciliation

Single-rate and multi-register metering arrangements differentiation

In March 2024, Ofgem communicated in their Open Letter to Suppliers intentions to introduce differentiation between single rate and multi-register metering arrangements in the PML Reconciliation calculations. The next steps towards this differentiation included the Code Manager working with Ofgem and RECCo to confirm the detailed requirements and legal text. REC Change Proposal R0182 has been raised in June 2024 to deliver the new requirements. A Party Impact Assessment will be released in late July/August 2024, followed by a Consultation in September 2024. The implementation for the updated Schedule 31 is to be effective from January 2025.

Once the single rate and multi-register differentiated system is ready, RECCo will undertake a retrospective true-up process based on individual levelisation rates for single-rate and multi-register consumers and backdated to 01 April 2024 to settle any differences in the reconcilitation payments made to/from Suppliers under the interim solution.

To do this, additional date will be requested from suppliers through an Ofgem RFI regarding the number of customers on single-rate and multi-register tariffs for each payment type and each region on the 1st of each month, backdated to 01 April 2024. Suppliers are requested to preserve this data so it is available for the RFI.

Further policy development for unit-rate levelisation

In Ofgem's Decision on adjusting standing charges for prepayment customers, they indicated the intention to consult on the levelisation of Standard credit and DD debt-related costs, following the industry design and build of the volumetric reconciliation mechanism and the Operating Costs Review. Dates for policy development and industry consultation are not currently available.

Useful Links

Ofgem - Levelisation – Selection of Reconciliation Operator

Decision on REC Modification Proposal R0147 | Ofgem

Decision on adjusting standing charges for prepayment customers | Ofgem
Webinar: How will RECCo implement the PPM process?
Webinar: Our PPM progress so far

Webinar: R0147 Prepayment Levelisation Pre-Release

Prepayment Levelisation