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ACM warns heat suppliers not to increase tariffs unnecessarily

Dutch heat suppliers cannot use the increase in the statutory maximum tariffs for heat for boosting their profits. The Netherlands Authority for Consumers and Markets (ACM) has issued this warning to heat suppliers in conjunction with the publication of the maximum heat tariffs for 2022. The Dutch Heat Act stipulates that, each year, ACM must set the maximum supply tariffs for heat on the basis of the natural-gas prices using a statutorily prescribed method. As the natural-gas prices are currently at an all-time high, the maximum heat tariffs consequently go up as well.

The tariffs that ACM sets are maximum tariffs. This means that heat suppliers have to stay below this price cap set by ACM. Having contacted various suppliers, ACM has found that several suppliers are planning to increase their 2022 tariffs considerably less than the maximum of 67% for an average household.

This year, ACM has also urged suppliers to exercise some restraint in increasing their tariffs if such is not necessary for covering the increased costs. Should the high natural-gas prices substantially affect the costs of heat suppliers, it may indeed be necessary to increase the tariffs to their maximum. ACM finds it important that heat suppliers are transparent towards their customers about such price increases. ACM will request additional information from heat suppliers regarding the methods they use for setting their tariffs for 2022. On the basis of that information, ACM will decide whether or not there is any reason for further assessing whether heat suppliers unnecessarily increased their tariffs, and whether they charged unreasonably high tariffs or even abused their dominant positions.

High energy prices

Energy prices are currently at an all-time high. That is why, over the past few months, many consumers already had to pay much more for natural gas and electricity, or they will do so starting January 1, 2022, as the prices of many variable energy contracts will go up at that point. Consumers that are connected to heat networks cannot choose the heat supplier they wish to consume heat from. That is why, each year, ACM sets the maximum tariffs for heat suppliers in accordance with the principle laid down in the Dutch Heat Act, which stipulates that the heat tariffs are linked to the natural-gas tariffs. If heat suppliers increase their tariffs to the statutory maximum, an average household with a single heat connection may have to pay, on average, 2,542 euros (including VAT), compared with a maximum of 1,523 euros in 2021. That is an increase of 67%. The actual increase depends on the level of the tariffs that heat suppliers will set. Moreover, these estimates do not take into account the measures the Dutch government has taken to compensate for the high energy prices. All consumers (which also means all heat consumers) will be compensated through their electricity bills. In addition, the Dutch cabinet in December announced that people with low incomes would receive additional compensation through a specific type of financial support, called special assistance (in Dutch: bijzondere bijstand). 

‘No-more-than-otherwise’ principle

The statutory link between the maximum variable tariff for heat and the natural-gas price follows from the ‘no-more-than-otherwise’ principle (in Dutch: niet meer dan anders). When it introduced that principle, the Dutch legislature sought to protect consumers that use district heating or individual-building heating for water heating or space heating against too high heat tariffs by ensuring that they did not have to pay more for their heat than people that use natural gas for water heating or space heating. That is why the Dutch Heat Act stipulates that ACM must set the maximum supply tariffs on the basis of the average tariff for natural gas of the ten largest natural-gas suppliers as of 1 January 2022. As a result of this principle, the maximum heat tariffs go up considerably this year.

A substantial share of the heat suppliers has to buy natural gas or electricity in order to produce heat. These suppliers thus incur higher costs because of the high energy prices. In addition, heat suppliers cover their risks by linking purchase contracts to the natural-gas prices (also called ‘hedging’), as a result of which any increase (or decrease) in the natural-gas prices will also have an effect on the costs. Other heat suppliers use geothermal energy or other sustainable technologies for water heating. They, too, may experience financial consequences as a result of the high energy prices, because, for example, subsidies consequently turn out to be lower . That is why ACM had already previously indicated to be a proponent of setting the maximum heat supply tariffs on the basis of the costs (efficient costs) of heat suppliers. Such a change requires a statutory amendment. The Dutch Ministry of Economic Affairs and Climate Policy (EZK) has already included this so-called cost-based tariff regulation in the bill for the new Heat Act (Act on Collective Supply of Heat; in Dutch: wetsvoorstel Wet Collectieve Warmtevoorziening).

Monitoring the heat suppliers’ returns

ACM monitors the average returns of heat suppliers, and, once every two years, publishes the Financial-returns Monitor. The Financial-returns Monitor over 2019 and 2020 showed that the average returns of heat suppliers decreased over the past few years, and that many heat suppliers made additional investments into the creation and expansion of heat networks. ACM additionally found that heat suppliers incur costs for making their operations and networks more sustainable as part of the energy transition. On 8 October 2021, ACM was granted the power to take action if a company’s returns are too high. That is why, ACM in 2021 started developing a method to set reasonable returns of heat suppliers. In that context, ACM also involved the heat sector and representatives of heat users. Under the Dutch Competition Act, ACM is also able to carry out further investigations into possible abuses of dominant positions, and into the question of whether or not the heat tariffs used by heat suppliers are excessive.

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