This briefing note considers the Heat Network (Metering and Billing) Regulations 2014 (“the Regulations”), which affect buildings connected to a District Heat Network (“DHN”) or buildings in multiple occupation heated or cooled by a central boiler or chiller (known as Communal Heating (“CH”)). The Regulations impose various time sensitive obligations.
The net is very wide. All buildings that are either connected to a DHN or have more than one occupier served by a central boiler (or chiller) are potentially affected by the Regulations. This includes, among others, the following types of building:-
- Residential/commercial and mixed use developments
- Existing blocks of flats
- Flat conversions and Bedsits (with a central boiler)
- Leisure Centres (with concession holders)
- Supermarkets (with concession holders)
- Shopping Centres
- Office buildings with more than one tenant
- Some University campuses
Much depends on the contractual arrangements for charging the cost of heat or cooling to occupiers.
What Action Should You Take?
Please refer to the Action Points at the end of this Briefing Note.
Who Must Comply?
All “Heat Suppliers” will be required to comply with these Regulations. The Heat Supplier is an entity which sells heating, cooling or hot water to a “Final Customer” which is an entity purchasing those utilities for their own consumption (e.g. a flat occupier, commercial tenant or concession holder).
If the heat is supplied by an Energy Services Company (“ESCO”) providing a full service, it is likely that the Heat Supplier will be the ESCO.
If developers have adopted an Operation & Maintenance (“O&M”) model, it is likely the duties will be imposed on the Developer or Management Company.
In some cases (such as flat conversions, office buildings and some retail buildings) the Heat Supplier maybe the Landlord.
If a property for which you are responsible has a DHN or CH, it is essential that contracts are reviewed to establish who is selling the heat and to ensure that provisions are made for the duties to be met.
What Duties are Imposed?
1) Duty to Notify
By 31 December 2015 Heat Suppliers of existing buildings must provide the Secretary of State with information (as specified in the Regulations)1 relating to each DHN/CH operated by them. In the case of new buildings, the information must be provided by the time the DHN or CH is first operated.
2) Duty to Install Meters
All new buildings connected to a DHN or incorporating CH must provide a heat meter for each Final Customer (The heat meter must comply with certain criteria).
The Heat Supplier must either:-
- Install heat meters for each Final Customer; or
- Install heat cost allocators if heat meters (which are regarded as better) are not viable; or
- Demonstrate that neither heat meters nor heat cost allocators are viable (see hearing “Viability” below)
Points to Note:
- Meters (or heat cost allocators) must be installed, where viable, by 31 December 2016.
- Meters must be capable of accurately measuring, memorising and displaying the consumption.
- The viability concession (see below) only applies to existing buildings not new ones.
Additional Duties for Buildings Connected to a DHN
Most buildings connected to a DHN must now have a bulk heat meter to measure the consumption of heat at the point of entry to the building. This will be in addition to the Final Customers’ meters. Existing buildings without a meter at the point of heat entry to the building must now fit one. There is no period of grace but the NMRO (National Measurement and Regulation Office) will take a light touch to enforcement if a plan is in place to install one.
During renovation of a building connected to the DHN, the Heat Supplier must consider the installation of Final Customer heat meters; and in many cases will be required to install them.
3) Duty to Maintain
Heat suppliers have a duty to ensure that the meters are continuously operating, properly maintained and periodically checked for errors. This will require maintenance and a demonstrable plan for periodic checks.
4) Billing Compliance
Heat Suppliers are required to ensure that the meters are used so that the billing arrangements comply with a number of detailed requirements. In summary:-
- Bills must achieve specified standards of accuracy
- Bills must be sent at specified intervals
- Bills must be accompanied by certain specified information (known as “Billing Information”)
- Heat Suppliers must provide information on how a consumer can contact a person who supplies Energy Efficiency Services
- There are restrictions on the amount the Heat Supplier can charge the Final Customer for preparing the bill
How to Notify
The information which is required can be submitted to the NMRO Enforcement Authority (acting on behalf of the Secretary of State) using one of the following forms:-
- Notification Template (for a single notification)
- Template for Multiple Network Notifications (for multiple notifications)
NMRO Enforcement Authority
Heat Suppliers who wish to demonstrate that they are not obliged to install Final Customer meters (or heat cost allocators) may do so by demonstrating that they are either:-
- Not cost effective. This depends on a comparison between the projected energy savings (enjoyed by all the Final Customers in the building) over a 10 year period with the estimated reasonable costs of installation. The projected energy savings are established by reference to a published document: “Assessing the Cost Effectiveness of Individual Metering: Energy Demand Benchmarks” (this can be found on the DECC website); or
- Not technically feasible. The Regulations divide buildings into those “consisting mainly of private dwellings” and/or other buildings. Different tests apply to each category. In summary, the tests concern the design and method of heat distribution within the building concerned. This may relieve a number of listed buildings from installing meters but it will not alter the obligation to notify.
The rules relating to viability are complex and, therefore, we recommend specialist advice is sought.
If a Heat Supplier wishes to avoid installing meters by demonstrating a lack of viability, they must review the question of viability every 4 years.
The Landlord and Tenant Act 1985
Consideration will need to be given as to whether it is possible to recover the costs incurred in complying with the Regulations.
Heat Suppliers should check whether the residential lease or Heat Supply Agreement contains the necessary rights for the Heat Supplier to pass on the costs of compliance; and moreover, the necessary access for compliance.
The Regulations do not alter the way in which landlords and managing agents must consult tenants who pay for energy as a variable service charge, nor the existing requirements that they are of a reasonable amount and reasonably incurred. Consideration will also need to be given to whether the additional costs of a Heat Supplier in complying with the regulations are subject to the reasonableness and consultation requirements of the Landlord and Tenant Act 1985. Logic should dictate that costs imposed by a statute will be reasonably incurred; and similarly that the amount of those costs ought to be reasonable if they stay within the limit imposed by the Regulations, such as the costs of complying with the billing obligations, but it is not possible to be sure.
Enforcement will escalate from a proposal to issue a Compliance Notice (which can be challenged); to the Compliance Notice itself (which can be appealed); to the imposition of a civil penalty. If there is a failure to comply with the civil penalty, criminal proceedings can be brought.
Offenders may also be required to compensate those affected by a breach. DECC is also empowered to name and shame offenders.
What Action Should You Take
If you are developing or managing a building which is either part of a District
Heat Network or is a building in which heat or cooling is distributed from a central boiler (or chiller) to more than one consumer there is a likelihood that you will be affected by the Regulations. You should:-
- Decide if you are the Heat Supplier. This will involve a review of the contractual arrangement for selling heat to the consumers.
- The Heat Supplier may be a developer, management company, landlord or ESCO. If you are the Heat Supplier you should:-
- Gather the specified information for reporting by 31 December 2015.
- Install a bulk heat meter at the point of entry (if the building is connected to a DHN). There is no viability test or period of grace for this.
- Review the contracts under which the building receives heat (or generates its own heat) to ensure that either you or your contractor is able to perform the duties of reporting, billing and maintaining meters.
- If you are developing a new building, review the construction documents to ensure that the specifications include for the correct entry point meters and Final Customer meters; and to ensure that the Heat contracts allow for the Notification and Billing duties.
- Review existing leases and Heat Supply Agreements to establish whether they provide the necessary rights of access for compliance, and the right to recover the costs of compliance.