Is the district heat billing hiatus a "get out of jail free card"?

15/11/2017

person photo

Maxim Laithwaite

Solicitor

Are you waiting for the Department for Business, Energy and Industrial Strategy (BEIS) to issue an update relating to the installation of final customer meters for district heat networks? Here is a quick reminder of the current position regarding the regulations and in particular the cost effectiveness and technical feasibility tool.

Introduction

The Heat Network (Metering and Billing) Regulations 2014 aim to inform final customers of their heat consumption in order to empower and enable them to manage, and ultimately reduce, consumption.

The regulations place three key obligations on heat suppliers - the duties to:

  1. notify;
  2. install meters; and
  3. bill.

Failure to meet these obligations could result in a fine or, in some circumstances, a criminal penalty.

Scope

The regulations apply to all heat suppliers who supply and charge for heat, cooling or hot water from either district heat networks or communal heating systems. This includes a range of organisations not typically considered to be heat suppliers, for example, Registered Providers, Local Authorities and Developers (as Landlords) and/or their management companies.

Duty to notify

Those installing new district heat networks or communal heating systems, must notify the Secretary of State on or before the first day of operation.

Heat suppliers can use the template published online here. The key information required includes:

  • location of network;
  • estimated total capacity, generation and supply;
  • profile of the number of final customers, buildings and meters required;
  • supplier name and address;
  • any cost effectiveness analysis;
  • expected billing frequency and content; and
  • any other information reasonably required.

Duty to install meters

Heat suppliers must:

  • install a building level meter in multi-occupancy building at the heat exchanger or entry point;
  • install final customer meters for new buildings or major renovations;
  • ensure all meters accurately measure, record and display heat consumption; and
  • where meters have been installed, install temperature control devices.

Duty to install meters in existing buildings

In addition to the above obligations, the regulations place an obligation on heat supplier to install meters in existing buildings, subject to a cost effectiveness and technical feasibility test (see below).

Alternative to meters

The regulations permit the use of heat cost allocators, thermostatic radiator valves and hot water meters where the installation of meters has been deemed not cost effective or technically feasible. However, this alternative is also subject to a cost effectiveness or technically feasible test.

Cost Effectiveness

If the net present value of the energy savings to all customers over ten years is more that the net present value of the estimated reasonable cost of installing the meters, then it is deemed cost effective to install meters in existing buildings.

The issue is that BEIS (DECC at the time) originally published a feasibility tool to assist with the calculations. That tool was found to be inaccurate and as such has been withdrawn. Essentially, it would be challenging for the relevant regulator to enforce the requirement.

Technical Feasibility

Installation is technically feasible unless a multi-occupancy building has more than one pipework entry point or the water being distributed is above 90 degrees Celsius.

Consultation

BEIS is currently running a consultation on the regulations, including a review of the cost effectiveness tool. Pending a formal announcement of the results, BEIS advise that no further assessments are undertaken.

Some consider this hiatus a "get out of jail free card", however that position is unlikely to remain as such. The likelihood is that the gap will be closed to ensure the intention of the regulations is met.

For those installing the network plant, it would make financial sense to do the meter installation at the same time so as it is likely to be more cost effective to get the installation done at the same time rather than re-visiting later.

Arguably, there is a chance that the growth of smart meters will lead to a drop in meter pricing, however any realistic drop in cost is unlikely to be offset against duplication of site visit costs.

Duty to bill

In addition to the duty to notify and install meters, heat suppliers must:

  • provide billing information at least twice per year. If a final customer requests e-billing, which must be available, billing information must be at least quarterly;
  • ensure bills and billing information are accurate and based on actual consumption; and
  • not profit from billing.

Billing information must include:

  • current energy prices;
  • consumption figures including year on year figures with graphs is possible;
  • contact information for organisations which provide energy efficiency improvement measures (this must also be provided with new or amended energy supply contracts).

Other district heat considerations

A number of additional legal requirements will apply to any organisation involved in the procurement, installation, operation, or maintenance of a district heating network, including:

  • procurement regulations;
  • state aid compliance for public bodies;
  • landlord consultation requirements;
  • planning;
  • third party consents;
  • licences/permits for installation and maintenance, wayleaves and easements;
  • intellectual property rights;
  • GDPR;
  • issues related to the long-term nature of district heat networks:
    • Brexit;
    • term of concession;
    • change in law; and
    • increase in taxes or rates.

Measures seeking to "future proof" a district heating scheme are important. They will consist of a combination of technical, financial and legal techniques including, for example:

  • Ensuring a robust, efficient and flexible design at the outset.
  • Making provision for sinking funds to deal with lifecycle, changes in technology and upgrade of energy generating equipment.
  • Implementing consumer protection measures similar to other utility supplies.
  • A fair and responsible apportionment of risks and identifying a supplier of last resort.

 

Robert Currall, Associate at Bevan Brittan LLP will be presenting on the Metering and Billing Regulations at Secure Meters' District Heat seminar on Thursday 30 November 2017 at The Studio in Leeds.

To hear more on this subject, register online for your complimentary delegate pass.

For more information about how Bevan Brittan can help on district energy networks in general, contact nathan.bradberry@bevanbrittan.com

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