1. About us
Consumer Scotland is the statutory body for consumers in Scotland. Established by the Consumer Scotland Act 2020, we are accountable to the Scottish Parliament. The Act defines consumers as individuals and small businesses that purchase, use or receive in Scotland goods or services supplied by a business, profession, not for profit enterprise, or public body.
Our purpose is to improve outcomes for current and future consumers, and our strategic objectives are:
- to enhance understanding and awareness of consumer issues by strengthening the evidence base
- to serve the needs and aspirations of current and future consumers by inspiring and influencing the public, private and third sectors
- to enable the active participation of consumers in a fairer economy by improving access to information and support
Consumer Scotland uses data, research and analysis to inform our work on the key issues facing consumers in Scotland. In conjunction with that evidence base we seek a consumer perspective through the application of the consumer principles of access, choice, safety, information, fairness, representation, sustainability and redress.
2. Our response
Risks of failure and models in the sector
1. Do you agree with our assessment of the risks to continuity of supply where operators face financial failure in the sector? Please explain your answer.
Consumer Scotland broadly agrees with Ofgem’s assessment of the risks to continuity of supply where operators face financial failure in the sector.
In our response[i] to the heat networks regulation: implementing consumer protections consultation (henceforth “the 2024 consultation”), we supported proposals for contractual step-in and a Last Resort Direction as part of a suite of regulations to support consumers in the event of financial failure, but suggested that further stakeholder and industry engagement would be required to determine when, and how, these arrangements should apply. We note that in the consultation analysis these measures were considered disproportionate in view of the burden they would place upon some heat networks, and that there were concerns around implementation challenges and cost. Given this decision, this now places greater importance on financial monitoring requirements and supply continuity plans as the primary tools to protect consumers in the event of heat network financial failure. These tools must be robust and designed to reflect the characteristics of the individual network, and include where consumer account information and balances are held by third-parties. Heat is an essential for life service and, consistent with our recommendation that disconnections in the sector should be banned, uninterrupted access to this service must be a priority.
Consumer Scotland welcomes the decision to proceed with implementing a Special Administration Regime (SAR), but we would emphasise that this must only be considered a back-stop to be used once all other appropriate continuity of supply alternatives have been exhausted.
2. Are there any other models which we have not explored which merit assessment of the risks to continuity of supply in case of financial failure? Please explain your answer.
No, we are not aware of any other models which would merit assessment here. We support the adoption of a scenario-based approach in the assessment, as this makes allowance for the varied operating and commercial models that exist in the sector.
Scope
3. Are there any other segments of the heat network sector which have clear continuity of customer supply arrangements in the event of a market exit which we have not considered? Please explain your answer.
No, we are content with the scope as outlined, including that the majority of Ofgem’s financial resilience provisions would not apply where the authorised party is a registered provider of social housing or a local authority. Our engagement with the social housing sector in Scotland indicates that sufficient protections already exist through the regulatory framework, including the requirement for registered social landlords, where they are the parent within a group structure, to control the activities and manage risks arising from subsidiaries. In response to the 2024 consultation, we gave the example of the Scottish Housing Regulator’s ability to act where a landlord is failing to provide services or manage its affairs to an appropriate standard. In the most extreme cases, this can result in the landlord being directed to transfer assets to another registered social landlord.
Despite supporting the scope in this instance, we would highlight that the interaction between housing legislation in Scotland and other aspects of developing heat network regulation needs to be better understood in order to achieve positive outcomes. Consumer Scotland welcomes a commitment from Ofgem to work together on this in the coming months, bringing together key insights from related sectors in Scotland.
4. Do you agree that our financial resilience provisions should apply where registered providers are using separate entities to carry out regulated heat network activity? This can include subsidiaries that are not regulated by a social housing regulator, like energy supply companies or special purpose vehicles.
Yes, Consumer Scotland agrees that financial resilience provisions need to apply in these instances. One of the initial themes identified through the heat networks advice service[ii] in Scotland since it launched in April 2025 has been confusion amongst consumers about the multi-layered operational structures of some networks, and the challenges this poses in getting issues resolved. There is a concern therefore that operators will seek to relinquish regulatory responsibility through the outsourcing of services, or by creating complex operational structures, and the therefore the design and application of regulation should aim to prevent this.
Consumer Scotland agrees with excluding registered providers of social housing and local authorities from the majority of financial resilience provisions because they are already subject to sufficient regulations. But where this is not the case, e.g. when energy service companies or special purpose vehicles are carrying out regulated heat network activity, then these provisions should apply.
5. Do you agree that self-supply and industrial networks should be out of scope of the financial resilience requirements? Please explain your answer.
Yes, we agree that industrial networks and self-supply should be out of scope of the financial resilience requirements. Continuity of supply is ultimately a consumer protection concern, which would therefore exclude a network supplying exclusively industrial customers. In self-supply, the operator of the network is also the customer, and we agree that it should therefore be their responsibility to manage any risks to continuity of supply.
Financial resilience
6. Do you agree with the policy intent and authorisation condition ‘Availability of Resources and Internal Capability’? Please explain your answer.
Yes, we agree with the policy intent and the authorisation condition as drafted. If effectively enforced, we are confident that the requirements on authorised parties – as outlined in the authorisation condition – will result in a greater level of protection for consumers from the risk of heat network financial failure.
However, compliance monitoring will be key here. Consumer Scotland welcomes Ofgem’s commitment to collect, on an annual basis, a range of financial monitoring data to identify any significant financial risk to the authorised parties. But we would highlight that, given the number of parties that will eventually be authorised, analysing data on this scale will be a significant ongoing undertaking for the regulator, and something that the policy’s success or failure – and therefore the protection of consumers on affected networks – relies upon. Also, whilst it is correct that Ofgem expects operators and suppliers to notify it directly if they are at risk of financial failure, there are limitations to this approach, as ultimately it is reliant on the entity acting in good faith. We would welcome further detail from Ofgem on its plans to fulfil this monitoring commitment.
7. Do you agree with the policy intent and authorisation condition ‘Material Assets’? Please explain your answer.
Yes, we agree with the policy intent and the authorisation condition as drafted. In order to ensure continuity of supply in the event of heat network financial failure, it is vital that material assets can be legally transferred to any successor to the authorised person in relation to the applicable regulated activity. The authorisation condition clearly sets out the requirements for this. In practice, requiring that a material assets register be part of – or signposted from – the supply continuity plan, is a reasonable requirement and one which should help deliver on the policy intent.
We note Ofgem’s recognition that their definition of Sufficient Control may require further development. However, we would highlight that, similar to many other aspects of developing heat network regulation, there needs to be a level of flexibility to account for the varied commercial structures that exist in the sector, and the definition as set out arguably already achieves this.
8. Do you agree with the approach to financial monitoring and the regular reporting requirements? Please explain your answer.
Yes, we agree with the approach to financial monitoring and the regular reporting requirements. In response[iii] to the heat networks regulation: fair pricing protections consultation, we recommended that Ofgem should set out its approach to monitoring input fuel costs in the sector as this has been a primary driver of bill shocks in the sector.[iv] The inclusion of the question on input fuel costs/hedging is therefore welcome, but we would urge that the use of this data is not used only in relation to supply continuity risk, but also to drive improvements on pricing.
We note that the financial reporting requirements are on the authorised entity only, and not the individual heat networks they operate. If there are heat networks within an authorised entity’s portfolio that have different levels of financial failure risk – for example due to operating at a lower standard of efficiency, or having greater exposure to other operational challenges – then Ofgem should consider whether there is merit in extending financial reporting requirements to individual networks.
9. Do you have feedback on the proposed guidance outlined in Appendix 2 that would improve its use for your organisation?
Not answered.
10. Do you have feedback on the proposed guidance outlined in Appendix 3 that would improve its use for your organisation?
Not answered.
Continuity arrangements
11. Do you agree with the policy intent and authorisation condition ‘Continuity Arrangements’?
Yes, we are content with the policy intent. Although contractual step-in is no longer being mandated, we welcome that this remains in the best practice procedures and recommend that Ofgem keeps this under review and, if problems emerge, reconsider whether this should be mandated. As outlined in response to question 1, the decision not to proceed with mandating contractual step-in and a Last Resort Direction places greater onus on the supply continuity plan, and this is an example of the options that operators and suppliers have at their disposal when compiling plans that will ensure protection for consumers, and meet the unique needs of individual networks.
We also broadly agree with the authorisation condition, but would recommend that this is amended, as required, to ensure that consumer information and account balances that are held by third-parties is included. As aforementioned, we understand that services are often delivered by, for example, metering and billing agents, and therefore such parties need to be within the scope of the authorisation condition if continuity arrangements are to protect consumers fully.
12. Do you agree with the proposal for operators to carry on the supply of heating, cooling or hot water if the supplier ceases to? Are you aware of any examples where this would be feasible?
Yes, we agree with this proposal as it is vital that supply continuity plans include these arrangements. The only issue that may arise is if the operator and supplier is the same entity, and we therefore welcome that requirements to be met will depend on whether the authorised person holds the role of supplier, operator, or both.
13. Do you agree with the proposed contents and breakdown of the plan? Please explain your answer.
Yes, we agree with the proposed contents and breakdown of the plan. The continuity plan should enable a seamless transition for consumers across of all aspects of their supply arrangements. In addition to the uninterrupted supply of heat and hot water – which is essential – consumers should reasonably expect that their billing arrangements, and any support in place such as debt repayment plans, registration for priority services, etc., also continue as before. Consumer Scotland is confident that the continuity plan key areas outlined at 7.54 includes the correct information to facilitate this, but highlights that Ofgem will need to work with the relevant parties in any such transfer to ensure this is put into practice.
14. Do you have feedback on the proposed guidance outlined in Appendix 4 that would improve its use for your organisation?
Not answered.