CIH response to Ofgem and DESNZ consultation on implementing heat network consumer protections

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

We agree.

5. With reference to the draft authorisation condition on definitions, do you agree or disagree with the definition for bulk 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 agree.

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

We agree.

11. Do you currently engage with your consumers on a regular basis?

The social housing sector is regulated by the Regulator of Social Housing, which introduced new consumer standards in April 2024. We welcome the recognition in the consultation that heat network consumer engagement standards should reflect these consumer standards, which will avoid duplication and encourage good practice in customer engagement.

We would encourage any final decisions on customer engagement to be outcome-focused and mirror the Transparency, Influence and Accountability Standard as closely as possible, which compels social landlords to take the views of their residents into account in their decision-making about how their services are delivered. TPAS’s tenant engagement standards represent good practice in resident and consumer engagement, and TPAS’s principles and framework are used by many social landlords.

12. If yes, could you provide examples of how you currently engage your consumers, both on the maintenance of the network and more broadly?

Housing sector bodies have published several examples of how social landlords currently engage with their residents and consumers, and how in doing so they meet the Regulator of Social Housing’s consumer standards.

• CIH’s case studies of how social housing providers engage with residents on the design and delivery of repairs and maintenance services
• The Northern Housing Consortium has developed a toolkit to support housing providers in engaging with residents on heating and energy efficiency
• The Local Government Association has also published evidence on how local authorities engage with social housing residents.

While many of these examples do not specifically involve heat networks, they indicate the kind of engagement activities that social landlords use to engage with their residents on all aspects of their service delivery.

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

Yes, we agree.

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?

The fair pricing framework is crucial for ensuring that heat networks can remain viable while providing affordable energy costs to customers. We agree with the principles as they are set out in Annex 3, but it is difficult to provide further information without more detail. We welcome Ofgem and DESNZ’s intention to consult on fair pricing at a later date.

We have some reservations about the link between the principles and the desired customer outcomes. We agree with ‘affordability’ as a key plank of the framework, but this does not correspond to the outcome that customers 'pay reasonable and fair price’. A price that is fair and reasonable is not necessarily affordable for households in or at-risk of fuel poverty, or who have additional health-related needs for heat, such as households with terminal illnesses or young children in the home. Even a price that is the lowest possible a heat network can offer while remaining viable may be unaffordable for some consumers, especially once the full costs of regulation have been passed through to consumers. This is a particular risk for social housing residents, who tend to have a much lower-income than other tenures due to the way that social housing is allocated according to need. In the absence of a price cap for heat network customers, we continue to feel that DESNZ and Ofgem need to give more consideration to how existing fuel poverty support schemes can better support heat network customers now and in the future.

We have also received feedback on concerns in the following areas:

• How ‘disproportionate’ will be consistently, transparently, and fairly defined, given the wide differences in efficiencies, changing numbers of homes being unoccupied for different periods of time, and ambient outdoor temperatures, which will be very different in London to the Highlands and Islands of Scotland
• Whether, and if so how, standing charges and unit costs will be defined in regulation, and if this will differ between prepay and credit meters like in the retail market
• The interactions between Ofgem’s fair pricing framework and heat prices agreed and set through forthcoming heat network zoning procurement.

Generally, whatever the eventual fair pricing framework, close monitoring and oversight will be required by Ofgem to ensure that it is being adhered to.

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.

We are aware that Ofgem is currently consulting on a new approach to debt in the energy retail market, and would welcome consideration of how the outcomes of that process could be applied to the heat network sector.

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 disagree with these proposals.

Under the proposals, an authorised person would be able to disconnect households with newborn babies, or a terminally ill or chronically sick occupant, in colder months outside of winter, which is a particular concern in colder areas of Great Britain such as the Highlands and Islands of Scotland. Research from Marie Curie has repeatedly shown that terminally ill people require heat all-year round to live a comfortable and dignified life. Their latest research also highlights that people with terminal cancer diagnoses are more likely to experience serious harm from being unable to heat their home adequately throughout the year. In addition, research from National Energy Action and the Food Foundation highlights that babies unable to access heat require more calories for growth and, without this additional nourishment, are more likely to have lower than average weight gain and dietary deficiency as young children. As a consequence, under these proposals some of the most vulnerable groups will be unprotected from disconnection outside of the winter months despite having clear, health-related needs for heat and hot water all year round.

As the consultation recognises, medical and health-related requirements for heating and hot water may be more prevalent in the heat network sector. One in 12 heat network customers are social housing tenants, compared to one in 25 of the general population. As well as evidence from HNCOS, government statistics consistently show that over half of all social housing tenants have a long-term illness or disability and are more likely to experience energy affordability issues due to low-income. For these reasons, we are aware that many social housing providers will not disconnect residents from supply under any circumstances, and some providers have expressed concern to us that some of their most vulnerable tenants might be connected to for-profit heat networks that will disconnect them from supply for non-payment. More widely, CIH has previously provided detailed evidence to Ofgem on the harms that arise from disconnection and self-disconnection for these groups, and we do not feel that these proposals strike the appropriate balance between ensuring heat network viability and protecting the most vulnerable consumers from significant harm.

For these reasons, we do not support the principle of allowing heat networks to disconnect customers. If it is not possible to ban disconnections fully, we recommend that the vulnerable groups currently deemed ‘disconnectable’ outside of winter – namely, a person who is under the age of two or is over the age of 75, disabled, terminally ill or chronically sick – are moved into the group that is not able to be disconnected from supply ‘at any time’. Ofgem must also work with charities and consumer groups to closely monitor how disconnection is being practiced in the heat network sector and how it is impacting consumers, and be prepared to intervene if poor practice and/or significant harms to consumers are evidenced.

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

We think, at minimum, the rules around PPM protection should align with gas and electricity PPM protection rules. We have provided some detail in our response to question 19 on adjustments that should be made due to the nature of the heat network market.

We would add that in the social housing sector, PPMs are typically not used in the same way as the energy retail market. Social housing providers increasingly install PPMs in all homes at the start of supply alongside close monitoring arrangements to identify financial difficulties early. They also have bespoke money advice teams to support residents with energy affordability issues (and wider financial issues). This includes the provision of fuel vouchers and debt write-off. We are aware, for example, of HACT’s Fuel Fund and the Scottish Federation of Housing Association’s Fuel Support Fund, which have provided thousands of pounds of debt relief and energy-related support for social housing residents. Housing associations in particular have developed sophisticated approaches to supporting vulnerable residents with energy-related issues, for example through the development of trauma-informed approaches to rent arrears.

While we therefore have specific concerns around involuntary installation, noted in our response to question 19, PPMs in the social housing sector are accompanied by various forms of tailored support – most of which go beyond the kinds of support mandated in the retail market through SLCs - that energy retail suppliers generally do not provide. It is therefore important that PPM policy for heat networks is developed in the context of how they are used in the not-for-profit sector.

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.

Ofgem has undertaken rigorous engagement with energy retail suppliers to ensure they have appropriate procedures and policies in place to accurately follow the rules around involuntary PPM installation. This has led to most, but not all, suppliers being given authorisation to restart the involuntary installation of prepayment meters.

As the consultation document notes, concerns have been raised about the ability of some networks to carry out vulnerability assessments of the kind required in the energy supplier SLCs and Ofgem’s code of conduct for involuntary installation. Despite this, the proposal is that a PPM can be involuntarily installed in the home of some groups if a vulnerability assessment is carried out. If Ofgem and DESNZ have evidence that vulnerability assessments may be challenging for some heat networks to carry out, it is not clear to us how they can simultaneously have confidence or assurance that the rigorous process is being followed accurately and consistently in the heat network sector prior to involuntary installation. If vulnerability assessments are not carried out properly, this could lead to a repeat of the involuntary prepayment meter scandal in the heat network sector. Given the importance of heat networks for our net zero targets, this is a scenario that we cannot afford. 

We think Ofgem should therefore take a risk-averse approach and move children aged five or under, people with a serious health or medical condition outside of the Do Not Install category, people with a serious mental or developmental health condition, and people with a temporary vulnerability such as pregnancy into the Do Not Install category in the heat network sector. If these groups cannot be permanently kept in the Do Not Install category, which would be our recommendation, they should remain in the category until Ofgem and DESNZ have the necessary assurance that vulnerability assessments can be carried out rigorously and properly by the heat network sector.

More generally, as in our response to question 17, Ofgem must also work with charities and consumer groups to closely monitor how involuntary installation is being practiced in the heat network sector and how it is impacting consumers, and be prepared to intervene if poor practice and/or significant harms to consumers are evidenced.

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 agree that this should be explored.

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

We agree. As noted in our response to question 19, many of the forms of support that are proposed are already offered – and exceeded – by social housing providers.

We would reiterate the point made in response to question 14 that even if all steps are taken by a heat network provider to support a consumer, the high wholesale costs of heat and the lack of a price cap for the heat network market could see these efforts being insufficient to avoid self-rationing and self-disconnection. The prevalence of self-disconnection and self-rationing are dependent on wider factors, especially payment type, the energy efficiency of the home, the household income, and heat price provided by the heat network (which itself is dependent on efficiencies and other factors). We therefore need to see more consideration given to how low-income and vulnerable heat network consumers will be supported through fuel poverty and energy efficiency policy, such as the Warm Home Discount or an energy social tariff applied to the heat network sector. We would also welcome the development of a type of Energy Bills Discount Scheme, potentially targeted at low-income households on older networks with poorer efficiencies, to support them with higher heating and hot water costs.

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

We agree with and welcome the additional protection measures. Our points on the importance of Ofgem being assured that these measures are being properly undertaken, set out in response to question 19, also apply here.

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

Overall, we agree, and welcome Ofgem and DESNZ’s intention to engage closely with social housing providers and the Regulator of Social Housing on areas of overlap with existing complaints handling processes in the social housing sector. The Housing Ombudsman’s statutory complaints handling code must be followed by law by social landlords, and it includes the specific responsibilities and processes landlords must follow when dealing with complaints. This process is rigorous, and it would be unnecessary for it to be duplicated in heat network policy.

We also note and agree with evidence gathered by The Heat Network group of social landlords, that:

• Complaints in social housing are often complex: heat network complaints would need distinguishing from other complaints relating to housing, which will require clear guidance and training of frontline staff.
• Similarly, the digital systems of most social landlords would require upgrading to enable heat network customers and their routes to redress to be flagged.
• There is a mismatch between the escalation timescales between the Energy Ombudsman (eight weeks) and the Housing Ombudsman (12 weeks) which could lead to a twin-track approach. We note the recent Memorandum of Understanding signed by the Housing Ombudsman and the Local Government and Social Care Ombudsman, and suggest that a good first step would be the establishment of a similar understanding between the Energy Ombudsman and Housing Ombudsman on how they will work together in the heat network market.
• Heat network customers may also not be clear on who to complain to, and it would be a poor outcome for consumers if complaints were passed between each Ombudsman and this caused delays to redress.
• Social housing residents follow the Housing Ombudsman’s two-stage complaints process, and can complain to the Housing Ombudsman if this process does not lead to a satisfactory resolution. Clarification would be welcome on whether this process will need to be followed and exhausted before a complaint is made to the Energy Ombudsman.

We welcome the intention to publish further information and guidance on this in due course.

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 have received mixed feedback from members and stakeholders on this proposal, and ultimately cannot offer a firm view either way.

If this approach was to be introduced, we agree that it would reduce the risk of consumers on not-for-profit heat networks paying for their own compensation through increased bills. We also note that some social landlords already have policies in place to offer residents on heat networks compensation if their supply of heating or hot water is disrupted, and some are preparing to write compensation policies for heat networks in light of the forthcoming regulations. However, it is important for all consumers to have a route to redress for poor performance, and we acknowledge the views of other stakeholders who worry that consumers could experience considerable detriment if the disincentive of needing to provide compensation was not in place for not-for-profit networks.

We also note from the consultation document that regulated entities should accept and attend to group complaints due to evidence from HNCOS that taking coordinated and collective action helped in formulating and resolving complaints. We agree that this should be allowed. However, clarification would be welcome on how compensation will operate on not-for-profit networks if maladministration is ultimately found by the Energy Ombudsman for a group complaint, and whether improvement orders will be made instead of or as well as compensation orders.

If this approach is introduced, it is critical that Ofgem closely monitors and enforces the actions taken to improve performance through the improvement plan. If it is introduced, we would also encourage Ofgem and DESNZ to consider whether local authorities should be included within scope of not-for-profit, and exempted from compensation obligations.

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 that information on energy saving, contact information for consumer advocates (e.g. Citizens Advice), and information on support mechanisms offered by suppliers, charities, and the two Ombudsman should be included. This could be introduced within a 12 month period.

Some of the other information proposed may be more appropriate to include on reformed Energy Performance Certificates (EPCs), especially carbon emissions and efficiency ratings. We would also expect that signposting to trusted sources of information, such as that provided by the Energy Saving Trust, Heat Trust, and/or Citizens Advice, would be sufficient to inform consumers how heat networks contribute to net zero targets and how they operate.

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?

This is a complex area that would require close consultation with housing providers. We agree with the stated desire to achieve better transparency and therefore that this proposal should be explored further. We would along with other housing sector bodies welcome the opportunity to support Ofgem and DESNZ with this.

We have received feedback from social housing providers that several issues would need careful consideration as part of this exploration, including:

• The possible requirement for a full lease review, including potential consultation with all leaseholders under Section 20 of the Landlord and Tenant Act 1985. We have received feedback that in many cases, lease arrangements prevent the operator from being able to introduce meters and bill separately for heat. In addition, this may cause challenges if leaseholders refuse the changes to the lease.
• Whether unbundling could have any implications for social security payments, especially housing benefit that covers rent. We agree with the detailed explanation and reasoning set out by the National Housing Federation in their response to the consultation on this point.
• Whether it would be helpful to develop guidance for the courts on eviction or forfeiture of lease for non-payment linked to heat and hot water charges, essentially on prohibiting eviction in these cases.

32. Do you have any views on options one, two and three?

We do not have any views on options one, two and threee, but we support The Heat Network group of social housing providers’ general points on the challenges associated with this proposal.

38. Do you agree or disagree that the risks associated with failure in social housing and local authority operated heat networks can be managed within existing regulatory arrangements? If you disagree, please explain why.

We agree. Social housing providers are already tightly regulated to ensure they have robust financial and governance arrangements, and we therefore consider risks can be managed within this framework.

48. Do you agree or disagree with the proposal to introduce a Special Administration Regime, modelled on existing SARs and using bespoke provisions, where appropriate, to ensure it functions in the heat network sector?

We agree.

We have received feedback that not-for-profit networks in social housing should be exempt from contributing to the SAR funding regime, because they are exempt from step-in arrangements. In addition, we would welcome clarification on whether there will be an expedited authorisation process for situations where a social housing provider or local authority without prior authorisation needs to step-in due to a failed ESCO.

53. Do you agree or disagree with the proposed approach to Market Segmentation, including the characteristics we have identified to inform our proposals?

We agree, and would welcome further clarity on the proposed definitions of small and large. In the social housing sector, providers with less than 1,000 homes are generally classified as small, and are subject to different regulatory arrangements that are more proportionate to their size. They are also exempt from some audit requirements, and one provider we have engaged with has suggested this approach should be mirrored in the heat network sector.

We would also encourage Ofgem to monitor any patterns in regional prices, and how the introduction of heat network regulation may be affected by reforms introduced through the Review of Electricity Market Arrangements (REMA).

54. Do you agree or disagree with the proposal to develop and implement a minimum standard for regulated providers across some services over time?

We agree.

55. Which services would you find appropriate to be regulated by a minimum standard?

Minimum standards are particularly important in areas of regulation related to consumer vulnerability and fuel poverty, where we feel a more prescriptive approach is important to ensure consumers are adequately protected.

Visit Ofgem's website for more information on the consultation.

For more information about our response please contact Matthew Scott, senior policy officer, matthew.scott@cih.org.