David* was shocked to get a letter from his energy supplier saying that not only were his heating costs increasing fivefold this winter, but he was being rebilled on the new tariff for the previous six months – which means he could owe more than £1,000.
“They can do this because it’s a private heat network,” explains David, who pays nearly £3,000 a month rent for a two-bedroom flat in Draper’s Yard, part of the upmarket Ram Quarter development on the site of the former Young’s brewery in Wandsworth, south-west London.
Heat networks are a way of heating blocks of flats, or groups of homes. They offer significant carbon savings compared with conventional systems, with the government eager to increase the number of homes on them from 3% today to 20% by 2050.
The supplier is usually the landlord or freeholder, which buys energy on the commercial market for residents.
As a result, the estimated million customers are not protected by the Ofgem price cap, which limits how much a supplier can charge a domestic customer for each unit of energy, as well as the maximum daily standing charge.
Stephen Knight, director of Heat Trust, the consumer champion for people on the networks in Great Britain, says that before the energy crisis, operators had been able to buy gas at a fraction of the price that domestic consumers could.
The current problems were exacerbated by the inefficiency of some networks, which use more gas to deliver the same amount of useful heat.
“We’ve seen cases where building owners took out contracts last winter, and are still paying these prices because, typically, they are 12-month fixed-term contracts,” says Knight, who adds that vulnerable council housing tenants, as well as private renters, are among those affected.
Last autumn, David’s heating charge increased by 400%, from 7p a kilowatt hour to 35p, while the daily standing charge rose by 19p to 101p.
Running the flat’s cooling system also soared – from 9p a kWh to 21p – while the standing charge was upped from 62p a day to 212p.
The standing charges alone now add up to nearly £100 a month.
In a letter from the management company, Rendall & Rittner, residents were told that the tariff increase was the first for more than three years, and that for the previous 18 to 24 months, the old rates had been “at a level far below the market value”.
“We are fully aware the new tariff has shown a sharp increase … this is sadly unavoidable,” it says, adding that the rates had been set by an independent consultant. “A backdated charge covering six months is being calculated based on individual usage.”
David is still waiting for the bill outlining exactly how much he owes, but believes it will be more than £1,000. “What’s outrageous is the extent of the increase, and that they are backdating it,” he says. “Our bill was about £300 between June and September, and will now be £800. That was mainly using the cooling and hot water. And in winter I haven’t found the heating to be that efficient – it takes ages to warm up.”
Other heat network customers have contacted the Observer after also being told that bills going back several months were being recalculated when a new tariff kicked in.
Thomas*, who rents a flat in Woodberry Down, a new development in Finsbury Park, north London, was told last year that the heat supplier, Berkeley Homes, intended to claw back cash through his prepayment meter after a delay in passing on higher gas costs.
The letter from billing agent, Insite Energy, says the network’s gas procurement costs had increased four times between October 2021 and April 2023. However, there were delays, sometimes of up to four months, before the tariff moved, and Berkeley Homes wanted to recoup this “undercharge”.
“They’ve said that, during all the price fluctuations, they weren’t able to put up prices fast enough and made a loss,” says Thomas. “Instead of doing what any normal business would do, and putting up prices for future use, they’ve just changed the historic prices and said you owe us money.”
Thomas and other residents (although not all have prepayment meters) have been sent “reconciliation” letters stating “what you were charged versus what you should have been charged” for their heating. He was told: “Your account will be set to take 25% of each top-up and contribute these funds to the under-recovered charges.”
(In August, his heat tariff increased from 18p a kWh to 25p, while the standing charge rose 15p to 50p).
The idea behind heat networks “makes sense”, he adds, but “when you’ve got some company deciding what prices will be, and everyone’s basically at their mercy, I don’t think that’s a very competitive setup”.
Insite told residents the new rates were “solely determined to recover all the costs incurred through operating a heat network, and your supplier (Berkeley Homes) does not profit from the network”.
“They are saying they haven’t covered their costs and operate in a not-for-profit way,” continues Thomas. “I think they need to factor those costs into future prices so people can decide, do I want to use power at these prices?”
Thomas, who pays £2,000 a month rent for a one-bedroom flat, has been told he owes several hundred pounds, but says neighbours on a WhatsApp group say they’ve faced much larger bills. “We don’t use the heating, so all our charges relate to hot water use. The amount of debt being collected from others is often higher.”
Berkeley Homes says it had “protected residents from rapid increases in bills by delaying passing on cost increases and stretching out repayments over time”.
Last year the government introduce the energy bills discount scheme (EBDS), which included some protection for heat network customers, effectively capping the price network operators pay for energy (8p a kWh for gas), with the supplier able to claim the money back from the government.
Rendall & Rittner says: “The residential supply agreement for heating and cooling –a requirement under the leases – allows for increases of the unit rate. Our client chose not to uplift prices at the time when there were substantial increases to utility costs, and is now amending the charges accordingly. Leaseholders have paid a lower rate to date, and these charges represent the required adjustment.”
It adds that it had applied for the government help schemes, with savings already passed on to leaseholders. “We are continuing to look at ways in which we can assist with the impact these price changes will have on leaseholders.”
At launch the government estimated the scheme would be worth up to £380m in total, or £860 for the average heat network consumer. The most recent data shows £137m has been paid out so far.
If customers think their supplier has not passed on the discount, they should complain to the Energy Ombudsman, he advises.
Knight suggests this equates to a retrospective tariff increase. “Back-billing” equates to a retrospective tariff increase. “That is normally where you haven’t been billed for energy. This is very different – this is where a customer has already paid at price X, and the heat supplier is then saying, hold on, price X wasn’t high enough, and we’re going to rebill you for the units you’ve used at a higher cost.”
“My understanding is that is unlawful under the Consumer Rights Act 2015, and we’ve been advising people not to accept it. If you look at what the act says about unfair contracts, terms which allow the supplier to retrospectively fix the price really are a no-no. Some customers have told us that when they’ve quoted the act, their supplier backed down.”
“To my knowledge no one has yet tested their consumer rights in such a case in the courts,” adds Knight. “We have asked government, the Competition and Markets Authority and some local council trading standards services to take an interest and provide clarity, but so far none have done so.”
However, network operators counter that the legislation is not relevant to the recharging, at cost, of utility charges from a freeholder to a leaseholder, or landlord to tenant.
But the Department for Energy Security and Net Zero tells us that “suppliers should not be unfairly back-dating bills on to heat network customers, and we are working to introduce new rules to prevent this from happening”.
Ofgem will start regulating heat networks next year but, with the EBDS due to finish at the end of March, Knight is concerned that if there are further spikes in fuel costs, there will be nothing in place to protect customers. “In our view, there needs to be some kind of enduring equivalent to the price cap put in place.”
*Not their real names
