Heat Networks regulation: implementing consumer protections consultation

Thank you for the opportunity to comment on the joint consultation from the Department and Ofgem on implementing consumer protections as part of heat network regulation. We have worked closely with the Department, Ofgem, Citizens Advice, Consumer Scotland, heat network suppliers and other stakeholders in the development of regulation and consumer protections in the heat network sector. We have included an executive summary of our key points and responses to relevant questions below.

About Energy Ombudsman

Energy Ombudsman, part of Trust Alliance Group, was formed in 2008 and was designed to provide a critical independent service between suppliers, consumers, and regulators. Since 2008 we are proud to have delivered tangible value to our multiple stakeholders. In 2023 alone, we helped 123,000 consumers to resolve a dispute with their energy supplier. Our scheme handles complaints from consumers who are on heat networks which are part of Heat Trust. We also receive complaints from heat network consumers via the Energy Bill Relief Scheme and the Energy Bill Discount Scheme.

Executive Summary

Regulating heat networks

Heat networks will play a crucial role in decarbonising heat in buildings to meet the ambitious net zero targets by 2050. It is important to ensure that the market is underpinned by the pillars of regulation, advocacy and redress to build consumer trust and confidence.

We think that no consumer should be disadvantaged or lack protections because they receive their heat through a heat network rather than being the customer of a gas or electricity supplier. The heat supply market is very different to gas and electricity supply, however, and the regulatory framework needs to recognise these differences.

We think a sensible starting place is to take the existing regulatory frameworks in gas and electricity, to determine what protections are required and to ensure that consumers on heat networks have a comparable experience. We therefore welcome the proposed framework which incorporates many of the features of the current regulatory regime for energy supply.

However, along with other stakeholders, we know that the heat networks market is made up of a large number of heat networks, many of which are small operators and that for the bulk of the sector regulation will be new and potentially a challenge. We agree that regulation needs to be flexible enough to cater for the differences specific to the heat network sector but also ensure there are adequate protections in place for consumers.

Taking all this into consideration, we think there are opportunities to explore how regulation, advocacy and redress can more flexibly respond to the differences in how heat networks operate. The current call for evidence by the Department reviewing Ofgem provides an opportunity to look at how Ofgem and the Energy Ombudsman can work together and do things differently to ensure they remain fit for the future and help to strengthen the market and build consumer trust and confidence. For example:

• Better sharing and use of data and insights between organisations like Ofgem and the Energy Ombudsman will be even more important considering the large number of heat network suppliers, to target regulatory resource to the most serious regulatory concerns. Data should be used to identify issues quickly and help organisations like Ofgem and the Energy Ombudsman to act in a preventative way. This will help assure that the detriment that heat network consumers experience is minimised.
• The Energy Ombudsman will, in the course of its work, uncover evidence of regulatory breaches and systemic issues causing detriment to consumers. We think there are opportunities for the regulatory enforcement regime to use this insight to drive compliance investigations and ensure that poor practice is addressed. We think this is particularly important at this point, where heat suppliers and operators will be adjusting the new regulatory regime. This could include reviewing opportunities for the Energy Ombudsman to take a more active role in enforcement.

• Looking at consumer complaint journeys. For example, are there opportunities to use technology and integrated systems to improve the consumer journey? This is being looked at in the gas and electricity sector, including potentially shortening the length of time it takes to consider and resolve complaints from consumers. By minimising consumer effort and resolving issues before a consumer needs to complain is likely to build trust and confidence that the industry has their best interests at heart. We would welcome the opportunity to explore this further with the Department and Ofgem.

Phasing the implementation of the regulation seems pragmatic, affording heat networks sufficient time to review their process, implement the regulation, and develop appropriate compliance assurance activities. However, that might mean that, in the interim, some heat network consumers continue to receive sub-optimal outcomes. As the Energy Ombudsman is due to start work from April 2025, we are ideally placed to identify problems occurring during the rollout of the regulatory framework and that we can provide insight to inform Ofgem’s oversight.

Single Ombudsman model

We welcome that the Department has appointed the Energy Ombudsman to resolve disputes between heat networks and their consumers. Having a single ombudsman across energy supply is simple for consumers and will benefit the whole market. The Energy Ombudsman, as the single ombudsman covering the whole of the heat network sector will have a holistic view of the market, can identify emerging trends and issues, and work with heat network suppliers and Ofgem to tackle problems early. This whole market view, which feeds data and insights back into the sector, is critical for building consumer trust and confidence.

Questions

1. With reference to the draft authorisation condition on definitions, do you agree or disagree with the definitions for network types (domestic and microbusiness, non-domestic, industrial, self-supply)?

We agree.

6. Do you agree or disagree with our proposals to apply some consumer protection measures to bulk supply activity? Please provide evidence and reasons for your response.

We think it is important that consumers receive adequate protections regardless of how the heat supply system is set up. In particular, it would result in poor outcomes for consumers if we were unable to adequately resolve complaints because a bulk supplier who was involved in a dispute was not co-operating with the heat supplier.

Similarly, it would be unfair for a heat supplier to be unable to recover the cost of Guaranteed Standards payments from a bulk supplier where the bulk supplier is responsible for a delay. This may disincentivise a heat supplier from making such payments to consumers, leading to disputes.

For these reasons, we support the proposal to apply some consumer protections to bulk supply.

7. Do you agree or disagree with the proposed protections for non-domestic heat network customers? Please provide evidence to support your views, or evidence of the potential impacts.

We support the non-domestic consumer protections which mean that the Standards of Conduct, fair and transparent pricing, guaranteed standards of performance and the step-in framework apply to all non-domestic consumers.

We also support the complaint handling proposals covering small businesses as well as microbusinesses. The Energy Ombudsman’s remit was widened in December 2024 to allow small businesses to use our service, and we consider that heat supply small business consumers should have the same protections.

8. Do you agree or disagree with the proposed definition of an SME for the purposes of heat network regulation?

We agree with the proposed definition. This aligns with definition being proposed for small businesses in the rest of the sector.

10.Do you agree or disagree with our proposed approach to the Standards of Conduct?

We agree. A principles-based approached to regulation reduces the risk that regulated entities treat compliance as a tick box exercise. We consider that having an overarching expectation that heat suppliers will treat their consumers fairly and that fairness is built into every aspect of the way they operate is important. The Standards of Conduct will also allow Ofgem to act where it is clear that a heat supplier or operator is acting unfairly, where a specific licence condition has not been breached. This will be particularly important in the early stages of regulation, before the framework has been allowed to evolve to meet all the challenges that consumers might face.

13.Do you agree or disagree with our approach to a principle on the security of supply?

It is essential that heat consumers have a reliable heat supply. A warm home is essential for health and well-being and consumers have a right to expect their heat supply to work when they need it. It’s also important that consumers have confidence in moving to developments that have a heat supply to support net zero efforts.

A major difference between disputes we receive from heat supply consumers compared to gas and electricity consumers is that it is much more common for a heat consumer to complain about an outage. We have received some concerning complaints from consumers who have regularly not been able to heat their homes during winter periods. It seems clear to us that some heat network sites have had problems that have taken a prolonged period of time to resolve.

For those reasons, we consider that there should be a focus on how this area of regulation needs to work.

We think the proposed principles set clear expectations on heat networks to ensure a continuity of supply. We welcome the requirements for there to be adequate maintenance and monitoring.

We think it is likely that, in addition to the principles set out, heat networks would benefit from further guidance setting out good practice in this area, particularly in view of the fact that it is a sector that has not been regulated up to this point and that there are so many small operators who are unlikely to take a consistent approach to problems.

14. Do you have any views on the high-level fair pricing framework discussed in the Fair Pricing section and in Annex 3 of this document?

Fair pricing is clearly a key consideration in this market, where consumers cannot switch supplier. Even in energy supply, which is a competitive market, a price cap has been introduced to protect customers from excessively high charges.

16.Do you agree or disagree with our proposed overall approach to vulnerability, adopting the existing Ofgem definition for gas and electricity consumers but combining this with targeted protections for heat network consumers, where needed, through the authorisation conditions?

We agree with the proposed overall approach as it aligns with the gas and electricity supply conditions with the targeted protections. We consider that the definition of vulnerability used in energy supply has been effective in encouraging a consideration of vulnerability in all its forms, and it makes sense to use the definition for heat networks.

We welcome the requirement for heat networks to operate Priority Service Registers (PSRs). However, we are aware that some consumers are reluctant to disclose conditions that might make them eligible for the PSR, or who do not understand the benefits of being on a PSR. Therefore, we think heat networks will need to promote the PSRs. Having conversations about vulnerabilities also sometimes takes expertise and skill, and heat networks may need to think about how they equip front line staff to be able to handle such issues in the right way.

The proposals to support customers in financial difficulty are similar to the protections that exist in energy supply. In our experience, consumers are not always aware of the protections available to them, and in some cases, suppliers do not always offer the required support. This may be an area that Ofgem should focus on in terms of monitoring, to ensure consumers are receiving the support they are entitled to receive.

17.Do you agree or disagree with our proposed protections from disconnection? Please give reasons or supporting evidence for your answer, and clearly outline any alternative proposal.

We are aware from both our own complaint data and that from Heat Trust, that disconnection or threats of disconnection are more prevalent in heat networks compared to standard gas and electricity supply.

Because of the potential consequences of disconnecting a heat supply, heat suppliers should consider disconnection as a very last resort. As the consultation says, in energy supply there are now only a very small number of disconnections each year, and the energy sector is using other ways of supporting and managing customers who are struggling to pay their bills. The lessons learned in gas and electricity supply should be used in heat networks to avoid impacts on customers’ health and wellbeing.

We therefore consider it crucial that heat networks see disconnection as a last resort and that they have exhausted all other options – exploring repayment plans, prepayment meters and addressing any problems in getting in touch with a consumer – before disconnection is considered.

We understand, however, that there may be a larger impact of a customer not paying their bills on an individual heat network compared to a large energy supplier, and we accept that consideration should be made to ensure the financial viability of networks.

18.Do you agree or disagree with our proposal to align with gas and electricity PPM protection rules?

We agree with the proposal to align with gas and electricity PPM protection rules. This will ensure that there is a consistent journey for consumers across supply and heat networks. The rules in energy supply have recently been tightened after poor practice was discovered, and it seems to make sense to apply the strengthen rules for heat networks.

19.Do you think it is appropriate to go further than gas and electricity PPM protections? If you have an alternative approach, please set this out, including how this would impact on debt management and the recovery of costs.

We think that this is something that should be kept under review and we will provide any data and insight that may be helpful when looking at this area.

20.Do you agree or disagree with our proposal to explore options to mitigate the impact of unrecoverable debt arising from prohibitions on disconnecting consumers, or installing pre-payment meters, for protected consumers? If yes, please provide any views you may have on approaches for doing so.

We think this should be explored as the impacts could be detrimental to smaller or not-for-profit heat network suppliers and their consumers. However, we think it is important to balance these measures ensuring that heat network suppliers are managed in a financially responsible manner to minimise burdens on the rest of the sector

21.Do you agree or disagree with our self-disconnection proposals?

We think this is an important consideration. The consultation has identified limitations some heat networks will have in identifying self-disconnection and because of that, there may be a greater risk of self-disconnection among heat networks customers. The approach of asking customers who are rationing the use of heat to notify their heat networks has obvious drawbacks – we think it is likely that many consumers will be reluctant to reveal that they are struggling financially. Therefore, we consider this issue needs to be kept under review and supports an argument that all heat network supplies should be metered in the future.

23.Do you agree or disagree with the proposed protections that will be included in the Statutory Instrument that provides for Powers of Entry?

These seem sensible.

25.Do you agree or disagree with our proposed approach to complaint handling?

We welcome the approach to complaint handling, which to a large extent mirrors the requirements in gas and electricity supply. We think it is sensible to have a complaint handling journey within heat networks comparable to that of energy supply to ensure that best practice can be implemented and that consumers have a consistent experience wherever they live.

The consultation acknowledges that some consumers will be unaware of their right to complain. We think the proposals to require heat networks to regularly provide their complaint handling procedure are good. However, complaint handling procedures themselves can sometimes be off putting for a consumer, particularly in they are long, detailed documents. It might be useful for all heat network customers to receive a communication when regulation is introduced, or when they move into their property, which sets out their rights, including their right to complain if things go wrong.

We recognise the concern that some consumers may be reluctant to raise concerns because of the risk of eviction because their landlord is unhappy with an issue being raised. To combat this, it might be useful to make it clear to heat networks that consumers should not be caused additional detriment as a result of making a complaint.

We think the inclusion of a requirement to allow consumers to make group complaints is useful. It is likely that there will be occasions where consumers in a building will experience the same or similar problems with their heat supply. It therefore makes sense in principle to allow groups of consumers to make a single complaint, to save both themselves and the heat supplier time. However, we think it is important that the outcome of a group complaint is broadly equivalent to the outcomes that would have been achieved if the consumers had complained individually. We are currently working with DESNZ and Ofgem to determine how group complaints can be handled effectively.

We consider that it is right for heat networks to be required to signpost consumers with unresolved disputes to our service. We also think Ofgem could consider including requirements to comply with the requirements of our scheme, including providing evidence, implementing remedies and paying costs. Some of these requirements are enshrined within some of the supporting legislation. Nevertheless, we think it would be useful to include it in the general conditions, so that all expectations on complaint handling are in one place.

26.Do you agree or disagree with our proposed compensation levels that broadly align with existing practice in the sector (Heat Trust levels)?

We think that the level of Guaranteed Standards payments set out should be reviewed. The amounts are equivalent to some of the energy supply Guaranteed Standards or those set out in the Heat Trust scheme rules. However, some of those payment levels were set some time ago. In recent times, we have seen inflation increase significantly, eroding the value of such awards. We think there is a good argument for take a fresh view on whether the amounts proposed are still meaningful to recognise the impact of service failures.

29.Do you agree or disagree with our proposed approach to apply Overall Standards of Performance to heat networks operating on a not-for-profit business model?

We agree that it doesn’t make sense for consumers who receive heat from a not-for-profit heat network to receive compensatory payments, as the people living in such developments will effectively be paying the compensation themselves. However, the lack of compensation removes an important incentive for those heat networks to provide a good level of service to consumers. In such an arrangement, we consider that consumers should have more say in how the heat network operates.

30.Do you agree or disagree with the proposals for including additional information on consumer bills? If you agree, what timescales could you reasonably implement these changes?

We agree, though it is important that the information is listed/designed in a way that is easy to read and understand by all consumers.

31.Do you agree or disagree that we should further explore the proposal on unbundling heat from other service charges, noting this may require legislative change to be implemented?

We think that unbundling charges will be helpful for consumers to understand their bills and the actual amounts they will be spending on heat. We can see no reason why this could not be done, although we understand it might take time for landlords to amend their invoicing.

33.If we were able to unbundle the heat charge for individual properties, do you agree or disagree with our proposals on limiting back-billing to 12 months?

Limiting back-billing to 12 months has been long established in energy supply. We think it strikes the right balance between consumers being asked to pay for what they have consumed but being protected from receiving unexpectedly large bills because their supplier has previously underbilled them. We consider that allowing heat networks to back-bill for 18 months does not sufficiently incentivise them to take all reasonable steps to ensure billing is accurate.

Draft Authorisation Conditions Appendix questions A1 – A23

We think that the authorisation conditions A1 – A23 all reflect the policy intentions