The price of district heating

• Conclusions
• Recommendations
• Response of the Minister of EZ and EnergieNed

The Court of Audit has investigated the prices that users of district heating services are charged by energy producers. EnergieNed, the national organisation of energy companies, calculates the price of heating on the principle that consumers must not pay more to meet their energy needs than what they would pay if they had their own gas connection. We investigated whether the district heating consumers' right to this 'no more than otherwise' price was adequately protected by the government.

Conclusions

The prices charged for district heating are not calculated transparently and reliably and it is not clear how non-recurrent charges are calculated. Furthermore, consumers cannot verify the calculation of the price of heat itself because the data used by EnergieNed are confidential. There is no independent body to regulate the calculation of prices. Some district heating consumers might therefore be paying more than if they had their own gas connection. This would be contrary to the principle of 'no more than otherwise' adopted by the energy companies themselves. We found that in some cases residents of new dwellings probably paid too much for district heating. This is because EnergieNed calculates the price of heat using the average volume of energy consumed by residents of gas-heated dwellings. These 'reference dwellings' are usually less well insulated than new dwellings connected to a district heating system. The calculation of the price of heat takes insufficient account of this and residents of new dwellings probably pay too much for their heat. The District Heating Bill currently before the House of Representatives will solve many of the problems but not all of them. The Bill does not require, for example district heating suppliers to include reliable financial statements in their annual reports. Nor will the Bill improve the poor insight into the non-recurring connection charge paid by district heating customers.

Recommendations

The data currently used to calculate prices and the calculations made using those data should be verified by an independent regulator. District heating policy should be evaluated to determine whether specific groups are disadvantaged by the methods used. Particular attention should be paid to differences in energy consumption in new and old dwellings. Owing to the lack of choice (district heating consumers cannot switch to another energy supplier), the consumers' interests should be protected by legislation and independent regulation. The Consumer Authority established in 2007 could play a key role in this respect. The financial statements of district heating suppliers should include an auditor's report stating that the prices were calculated and charged to consumers correctly. The method used to calculate the price of heat and the transparency standards regarding the profitability of district heating projects should be elaborated upon in policy rules and an order in council.

Response of the Minister of EZ and EnergieNed

The Minister of Economic Affairs thinks our main conclusion needs to be qualified. The Minister claims that the method by which the price is calculated is technically complex and that certain assumptions inevitably have to be made in order to avoid wide differences in prices. The Minister accepts our recommendations, however, and agrees that it is in the public interest to make certain statutory provisions to guarantee the security of heat supplies and the independent supervision of pricing practices.

EnergieNed agrees with us that a great deal of argument can be prevented by ensuring that heat prices are verified and set by an independent body. However, it has serious objections to the way in which we arrived at a number of our findings and does not agree with the critical tone of our comments on its price calculations.