On 5 July 2011, the Minister of Economic Affairs, Agriculture and Innovation submitted a bill to the lower chamber of the Dutch Parliament containing amendments to the Heat Act (Warmtewet). This Act was passed by both chambers of Parliament during the period July 2008- February 2009, but did not enter into force. The background to the bill's submission was as follows: at a parliamentary consultation held on 30 June 2010 following a survey by the Netherlands Competition Authority ("NMa") on the impact of the Heat Decree (Warmtebesluit) on the profits of suppliers (the "Impact Survey"), it was agreed that the Minister would submit a proposal for amendments to the Heat Act aimed at decreasing its complexity and improving its workability, keeping in mind the original basic principles of the Act. In connection with the bill, amendments will also be made to the Heat Decree and the Heat Regulation (Warmteregeling).

According to the explanatory memorandum to the bill, the main aim of the Heat Act is – and continues to be – consumer protection. The Act seeks to meet this aim through provisions directed at the protection of rates and security of supply for consumers, and through the designation of an independent supervisory authority. The amendments under the bill are not intended to change the aim or basic principles of the Act.

Amendments in detail

New consumer limit

Under the Act, the maximum price for the supply of heat is to be determined on the basis of a principle whereby the price of heat is related to the situation in which gas is used as an energy source by a household (het Niet Meer Dan Anders (NMDA) principe, the "NMDA principle"). Under this principle, consumers connected to the heat network should not pay more than consumers connected to the gas network. In order to protect consumers and to prevent the system from becoming unnecessarily complicated, the consumer limit, which the Act currently sets at 1,000 kW, will be amended and brought in line with the household limit applicable for gas users. Where gas is used, the household limit is determined using the G6 connection in the codes. The new consumer limit has therefore been set by converting the gas capacity of a G6 connection to a heat capacity, resulting in a capacity limit of 88 kW, which the bill rounds up to 100 kW. This means that under the new system a heat supplier must, in principle, have a licence to supply heat to consumers with a connection with a maximum capacity of 100 kW (instead of a maximum capacity of 1,000 kW).

Amendment of the rate system

The Act currently provides that the applicable rate is to be determined based on two prices: the maximum price and the reasonable price. This combination of two possible prices is unclear to consumers and very complicated both for heat suppliers and for the supervisory authorities. In order to address this problem, the bill proposes the abolition of the two-price system and the setting of a maximum price based on the NMDA principle and applicable to all suppliers.

Monitoring of profits

To prevent heat suppliers from making excessive profits, the bill introduces a system for the monitoring of the profit levels in the heat supply market. If there is cause to do so based on the general impression given by the figures, the profits made by a particular supplier across its entire portfolio can, if necessary, be assessed using the "profit test". This can lead to a reduction of the profits deemed to be in excess of what is reasonable, through the application of a correction factor to the relevant supplier's rates. The provisions regarding the profit test will be included in the Heat Act as amended, but will not immediately enter into effect. This is because there is no reason at present to take measures against excessive profits by applying a correction factor as described above, as the Impact Survey showed that the profits currently being made by the heat suppliers covered by the survey are lower than what is deemed reasonable.

Emergency procedures

The Minister of Economic Affairs, Agriculture and Innovation will be given the power to apply emergency procedures to guarantee the supply of heat in the event that a heat supplier or producer is unable to meet its legal obligations. The following steps can be taken, in the sequence shown:

  1. If a supplier cannot itself guarantee the continuity of the heat supply, the Minister can appoint a person to protect the relevant interests affected. The supplier must follow this person's orders. In the event that directors of the supplier do not cooperate with that person, they can be held personally liable for any damage arising from such non-cooperation.
  2. If a supplier is no longer able to act as such, the Minister can appoint another supplier as emergency supplier and set a reasonable fee to be paid to the latter.
  3. The Minister can order a producer to produce and supply heat to the emergency supplier, and set a reasonable fee to be paid to that producer.
  4. If the operation of a heat network is or becomes unprofitable, the Minister can order the operator of the gas network in that region to construct a gas network to replace the heat network. Consumers will not bear the costs of connection to this network, or will do so only to a limited extent, because they will in principle be entitled to rely on the supply of energy through the heat network.

Heat meters and heat exchangers

The requirements for heat meters, which are currently laid down in the European Energy-Efficiency Directives (Implementation) Act (Wet implementatie EG-richtlijnen energie efficiëntie), will be included in the Heat Act. For privacy reasons, a consumer will be entitled to refuse the placement of a heat meter with a remote reading system or to request that a meter not be read remotely.

A supplier will be required to ensure that a heat exchanger is made available to consumers within a reasonable period, at a reasonable rate and under reasonable terms. Rates will be considered reasonable if they are based on the costs reasonably incurred by an efficiently managed business enterprise. The NMa may examine the reasonableness of the rates.

The NMDA principle will be applicable to the meter rate, which (as is the case for gas) also covers meter-related activities. Unlike under the Gas Act (Gaswet) and the Electricity Act (Elektriciteitswet), the supplier will not have the exclusive right to place the heat exchangers and heat meters. With regard to cold meters, supplementary provisions will be added to the European Energy-Efficiency Directives (Implementation) Act.

Other amendments

  • Not only owners of buildings to which heat is supplied, but also lessors of such buildings, will be considered as suppliers that are exempt from the obligation to hold a licence. A definition of the term "lessor" will be laid down in the Heat Act.
  • Chapter 2 of the Act (on the supply of heat) will be recast, and the order of the current articles – including a few amendments thereto – will be changed. Some provisions that currently apply only to licence holders will become applicable to all suppliers.
  • The provisions on the preliminary scrutiny procedure for issues to be detailed in the Heat Decree will be made uniform.
  • The Act will no longer have retroactive effect.
  • The collection of administrative fees, penalties, etc. will be brought into line with the General Administrative Law Act (Algemene Wet Bestuursrecht). Claims for debts from consumers will be subject to the relevant provisions in the Dutch Civil Code.
  • The system of enforcement through the Economic Offences Act (Wet op de Economische Delicten) will be replaced by a system of enforcement through administrative penalties. Enforcement of the entire Heat Act, including the underlying rules and regulations, will be effected by means of the imposition of orders backed by a penalty. Representative organisations will always be deemed to be an interested party in appeal cases concerning the Act. The provision on the designation of representative organisations by ministerial order will therefore be repealed (similar provisions in the Gas Act and the Electricity Act will also be repealed).
  • The regulated connection fee based on the NMDA principle will only apply in situations where a connection is made to an existing heat network. This is because, in such situations, the consumer is tied to the relevant supplier and the supplier is in a monopoly position.
  • Suppliers will be required to keep records of supply interruptions and to include rules in the supply agreement on compensation in the event of a serious interruption or a deviation from the agreed quality levels.

Role of the NMa

Because the maximum price will be set applying the NMDA principle, the NMa will need data from the gas market in order to determine this price. To this end, the bill includes a provision enabling the NMa to request gas companies to provide the necessary data and information.

The NMa will no longer have the authority to hear disputes. Disputes arising from an agreement between a consumer and a heat supplier can be submitted to an independent disputes committee. Where the committee is not competent, the relevant matter can be taken before a civil court.

The Heat Act currently provides that parties who have already supplied heat to consumers are considered licence holders by operation of law. This provision will be repealed because it must be clear for regulatory purposes who the suppliers are. Instead, a three-year transitional period will be introduced to allow suppliers (i) to prove that they meet the requirements for obtaining a licence and (ii) to apply for a licence. In addition, suppliers will be required to report to the NMa as soon as possible once the amendments to the Act enter into effect.

Heat Decree

A draft for a new Heat Decree was published at the same time as the bill. The draft decree contains (i) further rules on the elements of, and calculation method for, the maximum price for the supply of heat based on the NMDA principle, (ii) provisions on the connection fee for consumers, to which the NMDA principle also applies, (iii) further rules on the financial accounts of licence holders and (iv) further rules on the criteria for the granting of a licence, the content of a licence and the application procedure, as well as on the criteria and procedure for withdrawing a licence.

Once a year, the NMa will set the maximum price using the price formula from the Heat Decree. This price will then be used by the NMa in order to test compliance on the part of suppliers. The maximum price will be based on the full costs that a consumer would incur to obtain the same quantity of heat using gas as an energy source. These costs consist of a non-use dependent component (fixed costs) and a use-dependent component (variable costs). The variable costs will be calculated on the basis of the fuel efficiency of the heat production process.

Heat Regulation

The Heat Regulation will elaborate on articles 3 and 4 of the Heat Decree, which describe the elements of, and calculation method for, the maximum price.

Conclusion

The bill is in line with all of the Minister's promises to the lower chamber of Parliament regarding the amendment of the Heat Act. In addition, it incorporates all of the recommendations made by the NMa based on the Impact Survey, except on the issue of the monopoly position of heat producers.

In his letter to Parliament accompanying the bill, the Minister states that he commissioned an investigation into whether a strategic allocation of purchase costs between the heat producer and the heat supplier took place in integrated heat companies, and into options for the regulation of heat producers. It was concluded that there were no indications of such strategic behaviour by integrated heat companies, and that each of the various regulatory options has certain drawbacks. For this reason, the Minister does not find it necessary to further regulate the production of heat at this time. In view of the strategic position of heat producers, however, he has included a provision in the bill that allows the NMa to request heat producers to provide it with data that are needed for the enforcement of the Heat Act. This allows for timely adjustments to be made, if necessary.