26/06/2026
In a previous article we have looked at some of the actions anyone who is a heat network operator or supplier should be taking in advance of the deadline for registration with Ofgem (which is 26 January 2027).
In this article we are going to look in more depth at two key areas that are proving challenging for many of those who are preparing to register:
- continuity arrangements, and
- Material Assets.
Key Conditions
Section A of the Authorisation Conditions applies to both operators and suppliers. Condition A12 relates to operational arrangements and Material Assets and A14 to continuity arrangements.
A12 and A14 do not apply to Local Authorities or “Excepted Companies” (i.e. registered providers of social housing – who are covered by the Regulator of Social Housing).
The requirements in respect of Material Assets and continuity arrangements relate to circumstances where an operator’s or supplier’s authorisation is revoked (or the operator / supplier ceases to operate for any other reason).
Condition A16 provides Ofgem can revoke the authorisation in whole or in part for various reasons including by mutual agreement, non-payment to Ofgem of amounts due, failure to comply with orders or penalties under the Regulations, insolvency, and not operating the network that has been authorised.
So that there can be an orderly transition if an operator or supplier ceases to operate or has their authorisation revoked, continuity arrangements and Material Assets obligations are key components of initial and ongoing reporting requirements for Ofgem.
Understanding the continuity objective
However, because the Conditions are intended to apply to the many, varied types of network arrangements that exist, these Conditions are broad and may require interpretation in order to apply to specific fact patterns.
“continuity objective”: the operator / supplier must act in a responsible manner that is calculated to secure that its operational arrangements (including in relation to the Material Assets), safeguard the continuity (in an efficient and effective manner that minimises the risk of Consumer detriment) of each regulated activity including in the event that it ceases to carry on any such activity or it is affected by Condition A15 (Revocation); [emphasis added]
The principal tools for evidencing compliance with this objective are the register of Material Assets and the continuity plan.
Identifying and documenting Material Assets
Taking Material Assets first, Condition A12 (and the associated definitions) requires that both operators and suppliers ensure that they have legally enforceable rights over their Material Assets. It appears that Material Assets may not only comprise equipment, and land rights for energy centres and pipelines but could potentially also include contracts the nature of which is fundamental to the ongoing ability to deliver for Consumers.
Whether something is a Material Asset therefore needs to be considered on a case by case basis and also holistically in the context of the overall activity that you are undertaking, both on individual sites and across your wider activities.
Logically, it will also be important to consider how interrelationships between the operator(s) and suppliers on a particular network function so as to understand how continuity could be maintained if one link in the chain falls away.
To ensure this is all thought about and documented in a way that can deliver continuity, Condition A12.7 requires each operator and each supplier to establish and maintain a register of Material Assets which is to be made available to Ofgem. This register needs to include appropriate, accurate and readily accessible information about the Material Assets including, for physical assets, their condition and function.
In addition, consideration of Material Asset needs to include thinking about whether there are any security interests over any of them and ensuring that these security interests are “permitted”. A starting point for this may be listing out any encumbrances and considering which Material Assets they may relate to. From there, if the conclusion is that the relevant encumbrance is “permitted”, it will be important to have evidenced the thought process that led to that conclusion.
Keeping the focus on Consumers
In deciding what needs to be thought about and documented, it is helpful to keep the ultimate purpose of the continuity objective in mind:
- Firstly, it is to ensure continuity of supply to Consumers in such a way as to minimise detriment to them – Consumers, and particularly “Relevant Consumers” are at the heart of the policy driving the Authorisation Conditions.
- Secondly, in the event that things go wrong, it is to ensure as seamless as possible transfer of the operation and / or supply to a Successor, so that Consumers suffer the least possible detriment in this transfer.
When thinking about Consumer detriment, the most obvious is supply interruption, but cost is also a factor (for example avoiding a situation where a Successor takes over a network under materially different terms and therefore has to pass additional costs on to Consumers).
There are certain exemptions (Conditions 12.4 and 12.5) from the transferability requirements for Material Assets but it seems likely that anyone wanting to rely on those exemptions would need to evidence how they have concluded that the relevant exemption applies.
What constitutes a Material Asset?
It may be that in the mind of the Regulator, a “Successor” is an established company which already has its own back-office functions and staff but does not have the necessary rights over the particular network it is succeeding to, so arguably arrangements like key staff contracts may not be Material Assets. However, this is not clearly the case and is something that would need to be tested with the Regulator. What constitutes a Material Asset will also vary on a case-by-case basis. For example, suppliers are likely to want to ensure that their contracts with an operator are capable of transfer.
As we have mentioned, there are a number of assumptions that need to be made throughout the process of considering how to comply with the continuity objective, and, while the drafting of some of the Conditions seems to argue in favour of making such assumptions, it will ultimately be for each operator and each supplier to be able to show what assumptions they have made, and that these are reasonable in the context of their activity on each relevant network.
For many entities it is also going to be important to think about their activities as a whole, and about what would happen if authorisation of part, was revoked, or if one of the links in the operator and supplier chains that build up their activities, falls away.
A certain amount of scenario planning might be needed and this can be a useful tool when developing continuity arrangements.
What must be included in a continuity plan?
Condition A14 is about continuity arrangements and the content of the continuity plan that each operator and each supplier is required to have (and to keep updated and provide to Ofgem on request).
Continuity plans must contain the following (or point to locations where that information can readily be located):
- all information that a Successor would reasonably require e.g. key service providers and staff; Consumers; maintenance, updating of, and access to, all relevant metering and billing information; management structures; and Material Assets;
- the process by which a Successor would take over, including details of any arrangements in place for contractual step-in or where the operator steps in for a supplier; and
- details of how Condition A12 (Operational Arrangements and Material Assets) has been complied with.
Condition 14.8 suggests that obligations continue after transfer, revocation or ceasing to trade, which raises a number of questions. This obligation could perhaps arguably be discharged by ensuring that Conditions A12 and A14 are fully complied with (but this would need to be tested with the Regulator).
In addition, Condition 14.9 appears to place an onus on operators to step in (or put in place a replacement), in circumstances where a supplier falls away, which is likely to be of concern, especially where, for example a supplier has fallen away for financial reasons or reasons related to the performance of a secondary network.
Conclusion
In this article we have provided a high-level summary of Conditions A12 and A14 and some thoughts about how you might go about interpreting and complying with them. However, each situation is different, and it will be important not only to have a Material Asset register and a continuity plan, but also to show how these apply the relevant Conditions to the specific fact pattern of the network to which they relate.
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