Heat networks consumer protection consultation

New regulations have been promised by the Government in the next year and are expected to cover consumer protections for homes served by heat networks to provide fairer pricing, clearer billing and boost compensation where customers lose access to heat.

The new rules will be regulated by Ofgem, which will be authorised to step in when needed when homes and business have problems with disproportionate pricing, poor customer service and poor reliability.

The Energy Ombudsman meanwhile will support consumers with handling of complaints that consumers may have with their heat network operators.

Key Regulatory Changes:

Fair Pricing:

The Government has proposed an initial transitional period, not exceeding one year, during which regulation will be phased in. Following this period, Ofgem will commence investigations into fair pricing practices. To ensure adherence to fair pricing objectives, the government plans to launch a broader consultation in Autumn 2024. This consultation will focus on addressing disproportionate pricing, defining reasonable rates of return, and curbing excessive profits among heat network operators and suppliers.

Price Regulation:

The Government has reaffirmed its stance against introducing a price cap or profit regulation for heat networks in the immediate future. Instead, it emphasizes ongoing monitoring and readiness to intervene if widespread consumer harm is detected. Ofgem, the regulatory body, will be poised to take action if evidence of disproportionate pricing emerges, ensuring that consumer interests are safeguarded.

Comparison Methodology and Benchmarking:

Most consultation respondents supported the government’s proposed benchmarking methods to identify disproportionate pricing. Moving forward, the government will refine and consult on a narrower set of benchmarking approaches, which may include external benchmarks, comparator price-based benchmarks, and self-comparison mechanisms. This step aims to establish a robust framework for fair pricing across the sector.

Complaints:

The Government received positive feedback on its proposals for handling complaints within the heat network sector. Consequently, it will advance these proposals, with the Energy Ombudsman playing a critical role. The Ombudsman will support consumers with complaints and serve as an Alternative Dispute Resolution service, enhancing the consumer protection framework.

Guaranteed Standards of Performance:

The consultation document outlines key elements of the Guaranteed Standards of Performance, including maintaining interruption registers and providing compensation for planned service interruptions. The Government will further refine these proposals, considering factors like the network’s size, age, and ownership model. Future consultations will address how these standards can be uniformly applied across different market segments and determine appropriate compensation levels.

Step-in Arrangements:

Respondents largely supported the government’s proposed step-in arrangements to protect consumers from network failures. The government will continue to develop and consult on authorisation conditions, customer supply continuity plans, and contractual step-in mechanisms. This process will include assessing the prevalence of such arrangements in existing networks to ensure comprehensive consumer protection.

Definitions of Regulated Activities

To clarify market obligations and responsibilities, the government acknowledges the need to refine definitions within the regulatory framework. This includes providing clear guidance on the roles of ‘operator’ and ‘supplier.’ Revised proposals on the scope and definitions of regulated activities will be part of an upcoming consultation on authorisation conditions.

Protections for Vulnerable Consumers

The government will implement its proposal requiring heat suppliers to maintain a Priority Services Register, ensuring specific services for vulnerable consumers. Additionally, it will further develop a comprehensive definition of vulnerable consumers, incorporating financial vulnerability as a key consideration. This initiative aims to ensure that all consumers, particularly those most in need, receive adequate protection and support within the heat network sector.

The upcoming regulations mark a significant shift for the heat network sector. Whilst the transition will pose challenges for operators, it also offers a path to more transparent, reliable and sustainable heating systems. As the 2025 implementation date approaches, proactive compliance and engagement will be essential for a smooth transition.

For more detailed information, you can refer to the government’s official announcement and consultation documents (Heat networks regulation: consumer protection – government response (publishing.service.gov.uk).

Contact us today at enquiries@sharpepritchard.co.uk for expert advice and support on how these changes might impact you and your business.

Steve Gummer is a Partner and Kamran Zaheer is a Junior Associate at Sharpe Pritchard LLP.

This video is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email enquiries@sharpepritchard.co.uk