LGA submission to the Government’s consultation on heat networks regulation to implement consumer protection

The Local Government Association (LGA) is the national voice of local government. We are a politically led, cross party membership organisation, representing councils from England and Wales. 

Our role is to support, promote and improve local government, and raise national awareness of the work of councils. Our ultimate ambition is to support councils to deliver local solutions to national problems.

As housing providers with social objectives, councils strongly welcome and support the principles of consumer protection.  However, this must be balanced against the fact that councils are not for profit and costs for regulation ultimately fall upon customers. Investment must be carefully considered and balanced against multiple regulatory demands building safety and damp/mould/condensation. The introduction of heat network regulation must be realistic for us for it to be successful and deliver what is needed – affordable, reliable and low-cost heating and hot water.

Social housing is already regulated by the Regulator for Social Housing.  It is critical that the heat network regulations compliment the ways in which we are already evidencing consumer protection and not create unnecessary administrative costs.  Existing social housing compliance must be leveraged as where possible: duplicated requirements will result in poor outcomes for the sector and for customers. Ofgem’s approach must be proportionate.

The social housing sector (housing associations and local authorities) manages around two-thirds of all heat networks in the UK.  The sector is having to manage schemes that have been poorly designed, developed and commissioned, and that deliver poor efficiency and reliability.  It is critical that the reality of heat networks is taken fully into account as regulation is developed to make sure it works for the end consumer and does not lead to higher costs. 

Many leaseholders experience high costs without a corresponding improvement in service or efficiency. It is essential that any new regulatory framework explicitly considers leaseholder concerns and ensures fair cost distribution and transparency in billing structures.

In addition to controlling per-unit costs, it is critical that residents - both tenants and leaseholders - are billed accurately for their actual usage. Issues with metering, including incorrect readings and opaque billing practices, have been longstanding concerns and have eroded trust in heat network schemes. While the proposed regulations reference metering requirements, they should go further to ensure robust standards are in place to guarantee accurate and transparent billing. This would provide residents with confidence in the system and prevent unfair cost discrepancies.

We welcome the discussion on how to mitigate unrecoverable debt, especially for small and not-for-profit heat network operators, and where customers in vulnerable circumstances make up a larger proportion of the customer base.  However, care should be taken on how these costs are socialised, given that the entire heat network market is still relatively small.  Heat networks with low debts – or with good debt management processes – would end up subsidising others

The cumulative impact of historic and proposed government policies and wider economic factors are leaving the future of council housing finances hanging in the balance with rising costs and increasing pressures pushing budgets to the brink. 

The Local Government Association advocates for dedicated, ringfenced funding to support councils in implementing these changes effectively. Many councils face the impossible choice between Housing Revenue Accounts (HRAs) going into deficit or failure to meet statutory repair obligations, including the newly proposed Awaab’s Law which will require landlords to fix reported hazards, such as mould and damp, within specified timescales. As a result, councils will also be unable to finance the building of new affordable homes to help government achieve its ambition to build 1.5 million new homes over the next five years.

To strengthen and provide stability to HRAs councils need a CPI+1 per cent rent settlement for 10 years as an absolute minimum, alongside reintroduction of rent convergence to formula rents. However, there will need to be additional funding resources other than additional rent in the medium-term, to cover all necessary expenditure requirements – including minimum energy efficiency standards, building and fire safety works, Awaab’s Law and an updated Decent Homes Standard.

Awareness of the regulations is still low in the housing sector but those who are engaged are now developing their plans for regulation. We would strongly support the development of compliance plans for each housing provider.  These would give Ofgem the assurance that regulation would be met while reflecting the individual circumstances of each housing provider in terms of their legacy stock, customers and available resources. 

More needs to be done to reach the ‘hard to reach’ heat network operators and suppliers in a structured, strategic and meaningful way.  We welcome the guidance that Ofgem will be publishing over the next year to support the regulatory transition. Whilst most housing providers are both willing and able to deliver consumer protection there are significant concerns about the lack of transparency and development of the Heat Network Technical Assurance Scheme (HNTAS). What little is known about HNTAS indicates that it will add significant costs, is hugely complex and make heat networks more expensive for customers. This will also undermine the long-term aim of making heat networks a key tool for the delivery of net zero by 2050.