Introduction
New act
Heat supply act
Heat supply agreements
Tariff regulation
Transitional provisions
Implementing regulations


Introduction

The Dutch Heat Act was published in the Bulletin of Act and Decrees on July 31 2013. Prompted by a member of Parliament-initiated bill dating back to 2003, the government-initiated repair bill has drastically revised the first act to regulate the Dutch heat market. The Parliament-initiated act and the act amending it have been published separately but simultaneously, resulting in a de facto consolidation of both acts.

The majority of the consolidated act's provisions are scheduled to enter into force on January 1 2014.

New act

The Heat Act applies to the supply of heat to consumers. A 'consumer' is defined as a person taking heat from a heat network and having a connection to that heat network with a capacity of no more than 100 kilowatts. This update uses the term 'consumer' with reference to its definition in the Heat Act.

The Netherlands Authority for Consumers and Markets (NACM) - which is the competition authority, as well as the national regulatory authority under the Electricity Act and the Gas Act - has been appointed as the regulatory authority to administer, supervise and enforce the Heat Act. Its enforcement powers include the power to impose incremental penalty payments and administrative fines.

Certain powers - notably regarding the issue and withdrawal of permits and the administration of the Heat Act's supplier of last resort provisions - rest with the minister of economic affairs. The use of these powers will effectively run through the NACM.

The overarching task imposed on suppliers of heat to consumers is to ensure the reliable supply of heat against reasonable conditions at a good service provision level. More specifically, they shall:

  • treat the consumers to which they supply heat in a non-discriminatory manner;
  • keep separate books on the supply of heat and, where applicable, the supply of cooling;(1) and
  • publish accountant-reviewed annual reports, providing reliable and transparent information on the prices charged to consumers as well as on integral costs and returns in connection with the supply of heat (to both consumers and customers who are not consumers, as defined in the Heat Act).

Heat supply permit

The right to supply heat to consumers is subject to a permit. Permits are issued and revoked by the minister of economic affairs. A permit can be transferred subject to ministerial consent. The permit requirement does not apply to a supplier which:

  • supplies heat to a maximum of 10 consumers at any one time;
  • supplies heat to an annual maximum of 10,000 gigajoules; or
  • is the landlord, as defined in the Heat Act, or owner of the building to which heat is being supplied.

A permit will be granted to an applicant which demonstrates that it meets the organisational, financial and technical requirements to carry out its task (according to the Heat Act) and which can reasonably be deemed capable of fulfilling the obligations set out in the act.

Heat supply agreements

Heat supply agreements must be in writing and shall be governed by Dutch law. They must provide for the payment of compensation in the event of a serious interruption of the heat supply, as determined by ministerial decree. Furthermore, they must provide for reimbursements should the heat supply service not conform to agreed quality parameters.

The supply agreement must give consumers the right to have disputes resolved in a speedy, transparent, simple and inexpensive manner by an independent dispute resolution committee, without prejudice to the jurisdiction of the civil courts.

Tariff regulation

The most critical and, during the preparatory stages, hotly debated provisions of the Heat Act concern the regulation of tariffs for the supply of heat to consumers. Tariff regulation is twofold:

  • At the basis of tariff regulation are provisions charging the NACM with the task of determining a maximum price for heat supply to consumers. Those provisions constitute what is usually referred to as the 'NMDA regulation'.(2) The acronym 'NMDA' refers to the principle that a consumer's integral costs of heat consumption may not exceed the costs that this consumer would incur for using natural gas as (in the Dutch context) the default energy source for heating and the production of hot water. The NMDA regulation is among the majority of the Heat Act provisions scheduled to enter into force on January 1 2014.
  • Pitched as optional is the 'return regulation'.(3) At its heart are provisions allowing the NACM to mark down tariffs of an individual supplier whose gains from the operation of the entirety of its heat networks (regardless of market segment) have been found to be excessive. These provisions will not enter into force until such time as the NACM finds that excessive profits occur in the sector.

NMDA regulation
Article 2(3) of the Heat Act provides that the supplier shall charge for the supply of heat no more than the sum total of:

  • the maximum price as determined by the NACM in accordance with Article 5;
  • the reasonable costs for a heat exchanger; and
  • the metering tariff.

Pursuant to Article 5(2), the maximum price:

  • is based on integral costs that a consumer would incur for the same amount of heat had that consumer used natural gas as the energy source instead. These costs are determined using the performance method (ie, the actual technical performance ratios of domestic heating installations whose use is avoided as a result of district heating); and
  • is composed of a variable part (in euros per gigajoule based on actual consumption and a fixed part (in euros) independent of consumption.

Article 5(3) provides that the maximum price becomes effective on a date determined by the NACM and continues to apply until December 31 of the same year. It will automatically roll over to the next year if and for as long as a new maximum price has not been determined for that year. As from the date that a new maximum price enters into force, tariffs exceeding that maximum will automatically be readjusted to the maximum price.

Return regulation
The return regulation is laid down in Article 7 of the Heat Act and is a two-tier regulation.

First, the NACM is to collect, analyse and process information and data with respect to developments of returns in the heat supply market (as a whole). Within two years of the entry into force of the Heat Act and following each two-year period thereafter, the NACM must issue a monitoring report. According to the explanatory note to the Heat Act, the monitoring encompasses the entire heat sector and will thus include the supply of heat to users with a connection capacity of more than 100 kilowatts. The lifespan (ie, not specific operation periods) of a heat project will be taken into account, as well as the entire portfolio of each supplier. However, as the explanatory note clarifies, the objective of the monitoring is not to obtain insight into returns realised by each individual supplier, but for the NACM to make an analysis at heat market sector and heat market segment level.

Second, the NACM is to assess whether the return of a supplier on the entirety of its networks exceeds a reasonable return as determined by the NACM. If the NACM finds this to be the case, it has the power to discount future tariffs of that supplier to recoup returns to the extent that these have been deemed excessive. Article 7(4) of the Heat Act requires the NACM to issue a policy rule laying down further regulations, comprising:

  • the elements and calculation method for determining a supplier's return; and
  • the determination of a reasonable return.

Articles 7(2) to (4) of the Heat Act, shoring the tariff corrections as just described, are not among the provisions envisaged to enter into force on January 1 2014. As clarified in the explanatory note and additional note to the Second Chamber of Parliament, these subsections will enter into force through a royal decree only if NACM monitoring indicates the occurrence of excessive profits. In this context, the explanatory note refers to an NACM investigation of May 6 2010 which demonstrated that at present, heat supply companies operate at lower returns than is deemed reasonable. This effectively means (as is reaffirmed in the additional note) that tariff correction provisions can in no event enter into force before January 1 2016. Furthermore, the additional note clarifies that tariff corrections cannot be based on NACM's finding excessive returns in the period preceding the entry into force of the tariff correction provisions.

Article 45 of the Heat Act explicitly accounts for the indefinite suspension of the tariff correction provisions laid down in Articles 7(2) to (4). The entry into force of these provisions requires the issuance of a separate royal decree. The Heat Act provides that a draft of such decree must be submitted to both chambers of Parliament and will not enter into force until four weeks have passed since its submission. During this four-week period, members of each chamber can start a debate on the draft decree.

Transitional provisions

As soon as possible following the entry into force of the Heat Act, incumbent heat supply companies must notify the NACM of their name and address and submit a description of heat networks they operate and the number of consumers, as well as the volume (in gigajoules) of heat supplied to consumers.

Incumbent consumer supply companies must apply for a heat supply permit within two years of the date of entry into force of the Heat Act. However, obligations which the Heat Act lays down for permit holders will apply to such applicants once the Heat Act enters into force.

Implementing regulations

Key provisions of the Heat Act, such as those regarding maximum tariff regulation, will be detailed in implementing regulations to be adopted in royal and ministerial decrees. These are scheduled to enter into force simultaneously with the entry into force of the majority of the Heat Act provisions (ie, on January 1 2014).

For further information on this topic please contact Elisabetta Aarts or Roland de Vlam at Loyens & Loeff NV by telephone (+31 20 578 5785), fax (+31 20 578 5800) or email (elisabetta.aarts@loyensloeff.comor roland.de.vlam@loyensloeff.com).

Endnotes

(1) The Heat Act does not regulate the supply of cooling for the rest.

(2) Articles 2(3) and 5 of the Heat Act.

(3) Article 7 of the Heat Act.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.