Heat networks pass-through requirements: New regulations

Heat networks: Commercial context

Heat suppliers are responsible for supplying and charging for the supply of heating and/or hot water to premises through a heat network. Heat networks usually purchase energy to supply heat to buildings and their occupants through commercial contracts, and, as non-domestic consumers, will receive support from the Energy Bill Relief Scheme (“EBRS”).

The EBRS aims to ensure that non-domestic energy customers receive support on their consumption of energy. Under the EBRS, licenced energy suppliers are required to offer a discount per kilowatt hour on the wholesale gas and electricity element of prices to all non-domestic customers in the UK.

A key component of the EBRS is the requirement that intermediaries (within which heat suppliers are included) pass-through the benefit of subsidised energy prices to end users. Intermediaries are entities (whether individuals or organisations) that possess an electricity and/or gas contract, and pass on these costs to an end user. Examples include electric vehicle charge point operators, combined heat and power operators, landlords, and local authorities, to name a few.

Heat networks pass-through requirements

The UK Government brought into force regulations in Great Britain on 1 November 2022, regulations in Northern Ireland on 5 November 2022, and further regulations on 7 December 2022 (“the Regulations”), introducing the following requirements on heat suppliers:

1. Heat suppliers need to provide full contact information to the Secretary of State for the heat networks they operate via the EBRS pass-through notification form. This applies to all heat suppliers, even those not in receipt of EBRS. Existing heat suppliers should submit this notification by 6 January 2023, and those operating a network on or after 7 December must notify within 30 days of becoming operational. As it stands, this requirement will cover all networks until 31 March 2023. Any networks beginning their operations after this date will not need to submit information via the EBRS pass-through notification form, although this may be subject to change with the introduction of additional guidance. In such circumstances, requirements under the Heat Network (Metering and Billing) Regulations 2014 will still apply.
2. Heat suppliers in receipt of EBRS are obliged to pass on the benefit to end consumers, both domestic and non-domestic. This must be carried out in a just and reasonable way, with heat suppliers ensuring the benefit is passed on as soon as is reasonably practicable. It may be demonstrated by the reduction in a consumer’s bill. Long stop dates of no later than the date of the next issued bill apply.

A test of reasonableness is also applied to the pass-through amount, so that if the heat supplier decides not to extend the full benefit it receives from the EBRS to end users, they are at least obligated to pass through a just and reasonable amount as calculated in accordance with the Regulations [1].

A non-domestic customer may, itself, be an intermediary (e.g. a landlord who receives and pays for a heat supply on behalf of its tenants). If so, the non-domestic customer would need to pass on the benefit it receives from the heat supplier to the ultimate end users.

3. Heat suppliers should also provide consumers with information on how the pass-through will be effected. The information must be provided to each consumer in writing within 30 days of the EBRS benefit being provided to the heat supplier, beginning on the day the heat supplier is notified by its energy provider of the EBRS reduction. In practical terms, the heat supplier may receive a billing update from their energy provider which sets out the reduced tariff to be paid, and in turn signals the onset of the EBRS benefit.

The notice must include:

• the amount of EBRS benefit provided to the heat supplier;

• the period of time to which the benefit relates;

• a summary of the requirements to pass on the benefit of the EBRS to consumers;

• when and how the amount will be provided to the heat network consumer;

• details of how the consumer may resolve any dispute it has with the heat supplier about how it has complied with the requirement to pass on the EBRS benefit, which may involve the heat supplier sharing its complaints handling procedure;

• that a consumer can make a complaint to the Energy Ombudsman (in GB) or the General Consumer Council for Northern Ireland (in NI); and

• that a consumer can recover the pass-through amount as a civil debt if the heat supplier does not provide the consumer with that amount.

4. Heat suppliers in Great Britain (including those not in receipt of EBRS) now need to register for the redress scheme as administered by the Energy Ombudsman. This will allow domestic and microbusiness consumers on heat networks to raise complaints in the eventuality they do not receive the benefit of EBRS. Heat suppliers subject to consumer complaints will also need to pay the Ombudsman a case fee to cover the costs of investigating a complaint. If a consumer raises a complaint against a heat supplier that has not joined the redress scheme, the Energy Ombudsman will contact that supplier requiring them to become a member. A refusal to join the scheme at this point could lead to enforcement action by the OPSS and may result in a penalty notice of up to £5,000.
5. Many heat suppliers will need to update their contracts to allow for the receipt of the EBRS benefit. These updates should be made as soon as possible and, in any event, before the next time the heat supplier is due to update its bills to end users.

Heat networks: How we can help

The various new heat networks pass-through Regulations and BEIS’ updated guidance are complex and wide-ranging. They require heat suppliers and intermediaries to take imminent legal, practical and procedural steps to ensure compliance. Walker Morris’ specialist, dedicated Infrastructure & Energy lawyers can help businesses to successfully navigate every step of the process. We can help in an advisory capacity, keeping you fully informed as to legal/regulatory requirements and undertaking contract- and policy/procedure- reviews to highlight where changes are needed. Where necessary, we can help with contractual negotiations and with drafting new contractual arrangements or variations as required. If/when complaints or queries do arise, we can provide strategic and dispute resolution advice and we can guide businesses through any investigations or complaints-handling processes.

Please contact Ben Sheppard for further information.

[1] For more information on how a heat supplier can ensure that a pass-through amount is reasonable, please visit the Government website.