Heat Networks and Communal Heating – Appendix 2

Where the Association supplies heat or hot water to tenants through a communal or district heating system, this constitutes a heat network.

The Association recognises that, where applicable, it acts as a:

• Heat Supplier, and/or
• Heat Network Operator,

and that heat networks are subject to a distinct and evolving regulatory framework, including consumer protection, transparency and cost-reflectivity requirements overseen by Ofgem.

Heat supplied via a heat network is treated as a separate regulated service, distinct from general communal services.

Heat charges recovered through the service charge will:

• Be cost-reflective, based on the actual costs incurred in supplying heat;
• Be set on a variable service charge basis, with estimates issued in advance and reconciliation to actual costs carried out after the year end;
• Not be used to generate profit.

Heat charges may comprise:

• Fixed costs, including plant maintenance, standing charges, lifecycle or replacement provisions, and management costs; and
• Variable costs, including fuel and energy consumption and identifiable network losses.

These components will be clearly distinguished in service charge budgets and statements.

Heat charges will be apportioned using a methodology that is fair, reasonable and appropriate to the nature of the heat network.

Depending on the configuration of the court, this may include:

• Consumption-based charging where individual metering is available and practical;
• A hybrid approach combining fixed and variable elements; or
• An alternative methodology where metering is not feasible.

The Association will avoid inappropriate cross-subsidy between dwellings and will document the rationale for the chosen methodology at scheme level.

The Association is committed to proactive transparency in relation to heat charges.

Tenants connected to a heat network will be provided with clear information, including:

• Confirmation that their home is connected to a heat network;
• How heat charges are calculated;
• The distinction between fixed and variable heat costs;
• Factors that may cause charges to vary, such as fuel prices or weather conditions.

This information will be provided without the tenant needing to request it.

Heat charges will be reconciled annually by comparing estimated charges with actual costs incurred.

Any over- or under-recovery will:

• Be clearly identified;
• Be explained to tenants; and
• Be dealt with transparently through refund, credit, or adjustment to future charges, in accordance with the tenancy agreement and applicable regulation.

The Association will not retain undisclosed surpluses arising from heat charges.

The Association will maintain appropriate records and systems to support heat network compliance, including:

• A register of heat networks operated by the Association;
• Clear separation of heat costs within the finance ledger;
• Court-level tracking of budgets, actual costs, and variances.

These records will support internal assurance, audit, and regulatory scrutiny.

The Board is responsible for oversight of heat network compliance and will receive appropriate assurance that:

• Heat charging arrangements are fair, transparent and cost-reflective;
• Consumer protection requirements are being met; and
• Material risks relating to heat affordability, regulation and reputation are being managed.