Financial Resilience and Business Continuity for Heat Networks

Why Financial Resilience Matters

Heat network consumers cannot switch supplier. Unlike gas or electricity customers who can choose an alternative provider, heat network consumers are physically connected to a single network. If the operator fails financially, consumers face the prospect of losing their heat supply entirely. This is why Ofgem's Authorisation Conditions place significant emphasis on financial resilience.

What the Authorisation Conditions Require — and Who They Apply To

Ofgem's financial resilience requirements sit across three Authorisation Conditions:

• AC A12 (Operational Arrangements and Material Assets) — the operator must act in a responsible manner calculated to safeguard the continuity of its regulated activities (the "continuity objective"), maintain appropriate legally enforceable rights over the assets needed to run the network, keep a register of those Material Assets, and avoid disposals or security interests that would create an undue risk to continuity.
• AC A13 (Availability of Resources and Financial Responsibility Principle) — the operator must act so that it has the resources needed to carry on its activities, can meet its liabilities as they fall due, manages its risks, and ring-fences money collected from consumers for maintenance.
• AC A14 (Continuity Arrangements) — the operator must maintain a continuity plan and, where supply and operation sit with separate parties, ensure heat supply can continue if the supplier fails.

Important: these conditions do not apply to every operator. AC A12 and AC A13 do not apply where the operator is a Local Authority or an Excepted Company — and "Excepted Company" is defined to include registered providers of social housing, registered social landlords, and bodies on the Scottish social landlord register. The same exemption covers industrial and self-supply networks. So a council or a registered housing association operating a heat network is largely outside the A12 and A13 financial-resilience duties. But one duty still applies even to them — see "Continuity of Supply" below.

The Financial Responsibility Principle (AC A13)

For operators in scope, AC A13 requires more than a vague expectation of solvency. The operator must act in a responsible manner calculated to secure that it:

• has available the resources — including financial resources — needed to carry on each regulated activity properly and efficiently;
• is able to meet reasonably anticipated liabilities as they fall due, including in times of severe but plausible stress;
• takes appropriate measures to identify and manage risks; and
• ensures that amounts collected from consumers for maintaining, repairing or replacing any part of the network remain available for the purpose for which they were collected.

That last point is a concrete ring-fence: where an operator collects money from consumers towards maintenance or asset replacement, that money cannot be diverted to other uses. AC A13 also requires directors to notify Ofgem immediately if they no longer have a reasonable expectation that the operator will have the resources, or be able to meet liabilities, that the condition requires.

Operational Arrangements and Material Assets (AC A12)

AC A12 is drafted around a principle — the "continuity objective" — rather than a rigid list of rules. The operator must maintain appropriate legally enforceable rights over the assets, contracts and arrangements needed to run the network, and must keep a register of those Material Assets recording, for physical assets, their condition and function. The condition restricts disposing of, or creating security interests over, those assets where doing so would create an undue risk of the continuity objective not being met — a principles-based test, not a blanket prohibition. Standard financing (mortgages, loans) is not automatically caught; what matters is whether the arrangement puts continuity of supply at undue risk.

Continuity of Supply — the Duty That Survives the Carve-Out (AC A14)

AC A14 requires in-scope operators to prepare and maintain a continuity plan setting out how each regulated activity would continue if the operator ceased to carry it on, covering key service providers and staff, consumers, metering and billing information, management structures and Material Assets.

Crucially, where the supply and operation of a network are carried on by separate parties, AC A14 places a duty on the operator to ensure arrangements are in place so that heat supply can continue if the supplier fails — and, if the supplier does cease supplying, to carry on that supply itself or ensure a third party does. This step-in-to-supply duty is the one financial-resilience obligation that continues to apply even to Local Authorities and Excepted Companies: the carve-out disapplies the broader A14 duties for those operators, but not this one. So a council or housing association that operates a network served by a separate supplier still needs to be able to step into the supply role if that supplier fails.

Business Continuity Planning

A continuity plan should address fuel supply interruption, major equipment failure, loss of key personnel, financial distress, and force majeure events. For each scenario, the plan should identify the risk, the mitigation measures in place, the response procedures, the responsible individuals, and the communication plan for informing consumers.

Documentation

Operators in scope need a financial resilience approach evidencing the A13 resource and liability tests, a continuity plan meeting the A14 content requirements, and — where a separate supplier is involved — documented step-in arrangements addressing the operator's continuity-of-supply duty. Local Authorities and Excepted Companies should focus on that step-in duty, since the broader A12/A13/A14 requirements do not apply to them. Our platform generates this documentation, mapped to the relevant Authorisation Conditions.

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