As a largely unregulated sector, heat networks have left customers exposed to poorly performing heating systems, penalising them in the form of high heat tariffs, unreliable heating and lack of protection. The Energy Security Bill now looms closely on the horizon.
With the introduction of Ofgem as the regulator, the heat network sector will be brought in-line with other utilities, with strict regulation around customer protection, transparency and policy. Heat network operators will transition from accidental energy suppliers’ to fully regulated energy suppliers with the risk of unlimited fines for non-compliance.
To help guide you on the journey – we’ve outlined key areas we expect future regulation will focus on to help get you regulation ready.
What should you focus on?
Cost-effectiveness assessments and meter installation
Existing regulation in the form of The Heat Network Metering and Billing regulations introduced ‘duty to install’ which required heat network operators to install meters or heat cost allocators (HCAs) into schemes classed as ‘viable’ or ‘open’, where it is cost-effective to do so.
The installation deadline was 1st September 2022.
If you did miss this deadline, it is critical that BEIS are aware. To help keep you on the compliance path, you must;
>Be ready with a plan to demonstrate your pathway to compliance.
>Be honest with how far you’ve already got.
>Be organised in the evidence you can provide.
Understanding your network
Do you know how well your heat networks are performing? How often do you review your heat network performance data to establish your system efficiency and potential improvements?
Understanding your system is critical to ongoing management and customer protection.
Tariffs – Keeping them fair, transparent and justifiable
A huge focus of upcoming regulation will be transparency for customers living on heat networks.
As we have seen lately, volatility of energy prices has impacted the sector, reflecting itself in inflated tariffs for customers, particularly for those living on poorly performing heat networks.
The introduction from the Government of energy support packages, currently in the form of the EBRS, are required to be passed through to your customers. Once you have received your revised energy costs, you need to review your heat tariff to ensure you are passing through these benefits to your heat customers.
A key part of transparency is keeping your heat tariffs fair, justifiable and well communicated:
When are your heat tariffs reviewed?
What is included?
How much notice do you give your customers?
How are customers informed?
Vulnerable customers – are they protected?
Heat customers in a vulnerable situation should be identified and provided with clear information about the support that is available to them, including protection they will be offered in the event of a supply failure. Expected requirements of full regulation will include a well-established vulnerable customer policy.
High and low heat consumption may indicate a customer with a vulnerability – who is responsible for flagging and managing these customers at your organisation? How are they registered? Do you have a Priority Services Register in place? Are details included in your Heat Agreement?
Where customer service is involved, there is always the chance that dissatisfaction and service failures may unfortunately occur, and heat networks are no exception to this.
It is in important that when customer dissatisfaction and/ or service failures lead to customer complaints, housing providers have a robust, clear complaints policy with transparent messaging. Complaints must be logged, investigated, and expectations must be discussed, providing timescales and a clear pathway to the end resolution.
If resolutions are not accepted by the customer, there needs to be an
escalation process in place, and housing providers must signpost external options such as the Energy Ombudsman, Housing Ombudsman etc.
Do you have a complaints policy in place? Are your teams aware of their involvement, where any thresholds lie in terms of internal authority and escalation?
Repairs and maintenance contracts – are your customers protected?
Managing repairs and maintenance in heat networks can be complex, especially when there are multiple contractors and internal teams responsible for different aspects of the system. The ownership of a repair can often be passed around different contractors and departments, and while this happens, it’s the customer who suffers.
The primary focus of upcoming regulation will be an increase in confidence and protection for customers living on heat networks. Ongoing, uninterrupted performance of heat networks relies on strict contractual Key Performance Indicators (KPI’s) and Service Level Agreements (SLA’s) between the housing provider and repairs and maintenance partner in the form of a repairs and maintenance (R&M) contract.
A robust repairs and maintenance contract should outline the following:
· Service expectations
· Planned outage notifications
· Failure to meet service expectation process
· Contingency plan
· Vulnerable customer protection
Have you reviewed yours? Who is in charge of managing and oversight of your R&M contract? Are all stakeholders aware of their responsibilities?
Income Recovery and Debt Policies
Heat network owners, operators and landlords face multiple challenges, balancing both operation and maintenance of the network, whilst managing customer service, ensuring all operational, financial and social functions and responsibilities are met.
Upcoming regulation will focus on customer protection and to do that, you will likely need to have a vulnerable customer policy in place with an accompanying debt policy that allows for transparency if/ when people go into debt and how that is managed.
When any debt should arise, a robust income and debt recovery policy ensures an equitable approach in the management of debt recovery which remains in-line with industry regulation and framework.
Have you reviewed your income recovery policy lately? How do you manage debt? How are your vulnerable customers protected?
Keep your debt policy in-line with industry best practice.
Heat Supply Agreements – bridging the gap between heat suppliers and heat customers.
Heat network owners and operators, regardless of whether they are social housing providers or private property developers and housing managers, have essentially become accidental energy providers. Much like energy providers, this newly adopted responsibility can come with great financial and reputational risks.
A Heat Supply Agreement acts as an agreement between the heat supplier and the heat customer, and will ensure that each party is aware of all reasonable circumstances, their implications and liabilities. It provides all parties with transparency and sets clear expectations.
The use of Heat Supply Agreements is currently recommended as best practice on heat networks but may become mandatory as part of the Heat Network Market Framework (HNMF) regulation changes that put customer protection as a core focus. The regulation changes are going to be implemented over the next two years as part of the Energy Security Bill.
Do you have a Heat Supply Agreement in place? Are you worried about current and upcoming regulation?
If upcoming regulation is keeping you awake at night – we can help you to navigate the journey. Reach out to us at firstname.lastname@example.org
Heat networks. Sorted.