DESNZ consults on implementing consumer protections for heat networks

On 7 November 2024, the government published its second joint consultation with Ofgem on the consumer protection requirements for heat networks. The consultation was launched alongside an Ofgem consultation on authorisation and regulatory oversight of heat networks, and therefore the two consultations should be read together. Please see our article on the authorisation and regulatory oversight consultation here.  

Both consultations build on the government’s Spring 2024 consultation response on consumer protection requirements. This article outlines the key aspects proposed in this second consultation and the next steps for heat networks regulation.

Regulation Scope

• Regulated Activities: The government reiterates that two activities will be regulated (1) operating a heat network and (2) supplying heating cooling or hot water to heat network consumers by way of a heat network. The consultation confirms that Shared Grounds Loops will be in scope albeit given the differences to a traditional heat network, consumer protection regulations will be applied where relevant and practical.
• Consumer Protection Levels: The government proposes consumer protections to apply based on the type of end consumer, being either: domestic, microbusiness, SME, small business, non-domestic, industrial or self-supply consumer. Consumers on bulk supplied networks will have the same protections as heat network consumers who are supplied directly.
• Non-Domestic/SME Obligations: The proposals include the alignment of non-domestic obligations with those currently in place for gas and electricity consumers to ensure protection levels are comparable for businesses. 

Connection and Customers

• Consumer Standards: A standard of conduct will be set to ensure consistency and fair treatment to all. The government’s proposed standard of conduct includes:
  • Suppliers to maintain positive customer engagement and good customer service levels which proactively identify vulnerable customers.
  • Information to be supplied to consumers in a clear, accessible and accurate format.
  • Priority services registers to be kept and maintained.
  • Suppliers to engage and utilise consumer feedback.
• Fair Pricing: The authorisation conditions for heat networks will include a general obligation to provide fair and not disproportionate prices that would ultimately be paid by the end-consumer. A future Ofgem-led consultation will set out price protection proposals in more detail. 

Vulnerability 

• Defining Vulnerable Domestic Consumers: Given heat networks are commonly used in social housing, the definition of vulnerability for the purpose of the consumer protection will be kept broad, to ensure all those deemed vulnerable have an adequate level of protection and support.
• Protection for Vulnerable Consumers: The government is proposing a wide range of safeguards and protections for vulnerable consumers, including:
  • Setting safeguards for debt recovery, to include a ban on requesting payments for arrears under £200.  The government recognises that heat networks are potentially at a higher debt risk than electricity and gas suppliers, and  is considering reducing the burden on smaller networks or networks with higher numbers of vulnerable consumers by spreading debt across the heat network market.
  • The right to enter to be set as a last resort for providers with safeguards in place to manage the privacy and dignity of consumers.  Remote signal metering should also be used where appropriate to further reduce the need to enter a consumer’s home.
  • A ban on disconnection for vulnerable groups, with the government proposing  a future consultation to follow to develop the guidance on disconnection obligations for providers.
  • Authorisation conditions for pre-payment meters and self-disconnection/rationing obligations to generally replicate the equivalent conditions and guidance for gas and electricity.

Quality of service 

• Complaints Procedure: The approach to complaints is to mirror the approach from the Electricity (Consumer Complaints Handling Standards) regulation 2008. All complaints processes dealing with domestic consumers should:
  • Allow complaints to be made in any reasonable means with a clear process for identifying complaints.
  • Include a clear complaints procedure with adequate resources allocated.
  • Deal with complaints promptly and fairly, informing consumers of third-party support available.

These provisions are set to also apply to small business consumers.

• Guaranteed Performance Standards: The government will set performance standards to reduce interruptions and ensure adequate notice and support is set in place when interruptions are necessary. The proposal includes a compensation payment scale for breaches of the standards which are comparable to Heat Trust compensation levels and are intended to align broadly with the existing practice in the sector. The standards are to apply to the supply of both domestic and non-domestic consumers, where applicable.
• Not for Profit Heat Networks: Not for profit heat networks will have their own bespoke regime of overall performance standards. Failure to comply with the standards will lead to improvement plans being set, without the need for automatic compensation. It is proposed that stronger compliance action will then be taken if improvement plans are not implemented. 

Billing and Transparency 

• Billing: The obligation on providers to bill consumers fairly shall apply to all domestic and non-domestic customers.
• Transparency of Bills: Transparency obligations will be set that apply to domestic and SME consumers. The obligations include:
  • Bills to be clear on what is being charged to the consumer and how the bill is calculated.
  • Information to be provided on the role of heat networks in net zero, operational models and information on energy savings based on billing models.
  • Bills should include details of advice and support available from the Energy & Housing Ombudsmen.
• Unpaid Bills: The government’s aim is to extend the protection already provided to prevent eviction and forfeiture proceedings for individual flats heat debts. To achieve their aim, the government is seeking views to align with and potentially amend housing legislation. 

Step in

• Intervention Procedure: The government is proposing a hierarchy of intervention measures to be set for all and to flow as follows:
  • The first step is for operators to find market led solutions to insolvency or market exit.
  • Where not available, a last resort direction programme will be set in place giving Ofgem the power to nominate a third party to take over the heat network.
  • Finally, if all of the above fail, the government will implement a special administration scheme to ensure the continuation of the authorised activities.
    
    Funding for the last two provisions is to be put in place by the operators through insurance, ring fencing or another agreed source.
• Prevention Procedures: Operators will be required to meet financial responsibility obligations, complete periodic financial health declarations, create continuity plans and enter agreements with an authorised party to take over their activities in the event they need to exit the market.

Next Steps

The consultation remains open until 31 January 2025, with the government’s response to follow shortly after. A further consultation is also set to take place on heat network technical standards alongside decarbonisation and metering principles. Additionally, the government should shortly be issuing its response to the 2023 heat networks zoning consultation.