On 5 February 2013 the lower house of the Dutch Parliament adopted amendments to the Heating Supply Act (Warmtewet). The Heating Supply Act was passed by both houses of Parliament during the period July 2008 - February 2009, but never entered into force because the Minister of Economic Affairs, Agriculture and Innovation (the "Minister"), in consultation with the lower house, decided that amendments were necessary. This decision was based on a study conducted by the Netherlands Competition Authority (now part of the Authority for Consumers and Markets, the "ACM") on the impact of the new law, particularly on suppliers' profits. The bill submitted by the Minister to amend the Heating Supply Act was aimed at simplifying the Act and improving its workability, keeping in mind its basic principles.

On 11 June 2013, the upper house of Parliament will discuss and vote on the amending bill. The bill is expected to pass, since only one party (the PVV) will participate in the debate. The Minister has announced that the Heating Supply Act, as amended, will enter into force on 1 January 2014.

Aim and scope

The main aim of the Heating Supply Act is consumer protection. The Act seeks to meet this aim through provisions directed at the protection of rates and the security of supply for consumers, and through the designation of an independent supervisory authority. The scope of the Act is limited to consumers of heat with a connection of up to 100 kW. This requirement brings the household limit under the Heating Supply Act in line with that under the Gas Act in relation to gas users. Nearly all households have a connection with a maximum capacity of 35 kW.

Obligations of suppliers

Pursuant to the Heating Supply Act every party who supplies heat to consumers with a connection with a maximum capacity of 100 kW is a supplier. The general obligations of suppliers are set out in section 2 of the Act. The single most important of these is to provide a reliable supply of heat on rea-sonable terms and with good-quality service. Other general obligations include: to comply with the rules on maximum charges (see below), to refrain from unfairly discriminating between consumers, to adequately inform consumers of price changes, to maintain proper accounts with regard to the supply of heat and the establishing of connections, and to keep a record of all supply interruptions.

Section 3 of the Heating Supply Act obliges suppliers to enter into an agreement for the supply of heat in writing. This agreement must contain specific data such as the agreed quality levels, the conditions on which the goods and services are supplied and the applicable prices. It is also required that con-sumers be able to submit any dispute to an independent disputes committee.

Licence

Suppliers are prohibited from supplying heat to consumers (with a connection of up to 100 kW) without a licence. In order to obtain a licence, the supplier must file an application with the Minister. A licence will be granted if the supplier demonstrates that (i) it has the necessary organisational, financial and technical qualities for the proper performance of its duties and (ii) it can reasonably be considered capable of complying with the obligations set out in the Heating Supply Act. Further rules on the aforementioned requirements and the application procedure will be laid down in the Heating Supply Decree (Warmtebesluit), to be issued by the Minister.

The Heating Supply Act grants an exemption from the licence obligation for suppliers that (i) supply heat to a maximum of 10 consumers, or (ii) supply no more than 10,000 gigajoules of heat per year or (iii) are the landlord or owner of the building to which the heat is supplied. The Act defines a landlord as an approved institution as referred to in section 70(1) of the Housing Act (i.e. a housing association) or an owner of at least 25 rental housing units (or a person who has a power of attorney from such an owner). The exemption therefore applies to housing associations and smaller heat suppliers.

Suppliers that are exempted from the licence obligation must nevertheless comply with the general requirements for suppliers set out in the Heating Supply Act. A licence holder must comply with addi-tional requirements, such as being accessible (e.g. responding promptly to communications from con-sumers) and offering consumers a variety of payment methods. In addition, licence holders must maintain separate accounts relating to the supply of heating and – if applicable – the supply of cooling, and must publish an annual report and annual financial statement.

Prices

Under the Heating Supply Act, a heat supplier may charge no more than (i) the maximum price set for this purpose by the ACM, (ii) the reasonable costs for providing a heat exchanger (warmtewisselaar) and (iii) the fee for measuring usage. A once-only connection fee may be charged for a connection to an existing heating network where the connection was not foreseen in the original plan to construct the network..

The maximum price consists of a non-use dependent component (fixed costs) and a use-dependent component (variable costs). The ACM determines the maximum price every year. Consequently, each supplier is allowed to set its own price provided that the maximum is not exceeded. Additional rules regarding the calculation of the maximum price will be laid down in the Heating Supply Decree and the Heating Supply Regulation (Warmteregeling). If prices charged for the delivery of heat are higher than the maximum price, those prices will be automatically lowered to the maximum price.

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 princi-ple, consumers connected to the heat network should not pay more than consumers connected to the gas network. Consequently, 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. The NMDA principle also applies to the once-only connection fee.

When there are no individual heat meters, the supplier must determine the amounts charged to con-sumers based on individual heat cost allocators, which measure the heat output of every radiator, un-less the installation of such devices is not cost-efficient. In that case, the supplier must determine the amounts charged using a cost allocation system that is clear for all consumers. At the request of a consumer, the supplier must commission an independent investigation into whether the cost allocation system is in accordance with the Heating Supply Act.

Monitoring of profits

To prevent heat suppliers from making excessive profits, the Heating Supply Act introduces a system for the structural monitoring by the ACM of the profit levels in the heating supply market. The aim of the monitoring is to generate a clear picture of the profit levels. Every two years the ACM must sub-mit a report to the Minister giving an overview of the general profit levels in the heating supply market.

If justified by the outcome of the general monitoring results, the ACM will be able to investigate the profits made by an individual supplier. The test is whether those profits are reasonable. If the profits of a specific supplier are considered excessive, the ACM can require the supplier to reduce its future rates through the application of a correction factor. The ACM has the authority to set policy rules regarding (i) the amount of profit to be considered reasonable and (ii) the method for calculating the amount of profit.

Heat exchangers and heat meters

In certain circumstances a supplier will be required to provide a consumer, on a rental basis, with a heat exchanger within a reasonable period, at a reasonable rate and on reasonable terms. Rates will be considered reasonable if they are based on the costs incurred by an efficiently managed business en-terprise. The ACM may examine the reasonableness of the rates.

In addition, a supplier will in certain circumstances be required to provide a consumer, on a rental basis, with an individual heat meter with a remote reading system (a "smart meter"). For privacy rea-sons, a consumer will be entitled to refuse the placement of such a meter or to request that it not be read remotely. The NMDA principle will be applicable to the meter rate.

Emergency procedure

The Minister will have 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. The Minister can order the supplier to take the measures necessary to ensure the delivery of heat and can attach an administrative penalty to any failure to comply.
  2. If a supplier cannot itself guarantee the continuity of the heating supply, the Minister can ap-point a person to protect the relevant interests affected. The supplier must follow that 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.
  3. 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.
  4. 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.
  5. The Minister can order a network manager to construct a gas transport network provided that he has first investigated the possibility of providing an equivalent alternative for the heating network other than through the construction of a gas transport network. If any such equivalent alternative is preferable from the point of view of durability, cost or another public interest, the Minister must promote the implementation of that alternative.

Role of the ACM

The ACM will be responsible for the implementation and enforcement of the Heating Supply Act. To that end, it will be allowed to perform (itself or through an agent) measurements at each heat producer, supplier or consumer. The ACM will also be entitled to give binding instructions and, in the event of a breach of the Act, to impose penalty payments. In addition, the ACM has the power to establish an enforcement plan to protect consumer interests. Before the enforcement plan enters into force it needs to be approved by the Minister and published in the Government Gazette.