Heat networks regulation: fair pricing protection guidance

Closes 27 Oct 2025

Cost allocation

Summary

In the draft cost allocation guidance section, we outline guidance on the cost allocation authorisation condition.

Details

Cost allocation refers to how heat network suppliers allocate costs to the various charges they levy on consumers, and how prices are structured more generally.  Based on the responses from stakeholders in the 2025 consultation, we will be going ahead with providing high-level guidance for cost allocation.

This guidance aims to provide some best practices around broad cost allocation approaches that occur in the market. The proposed best practices are linked to the fair pricing principles that are outlined in Chapter 1 ‘fair pricing principles’ of the ​​Heat networks fair pricing and cost allocation draft guidance​. 

In addition to the guidance, we will be imposing only one prescriptive rule initially which is that Guaranteed Standards of Performance (GSOP) payments, compensations, fines, penalties and costs of redress provided to consumers should not be passed through to customers.

Before you give us your views

You'll need to read the full details in:

19. Do you agree, partially agree, or disagree with our approach to cost allocation related to general cost pass-throughs?
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20. Do you have suggestions to improve guidance for cost allocation related to general cost pass-throughs?
21. Do you agree, partially agree, or disagree with our approach to cost allocation related to tariff structure?
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22. Do you have any suggestions to improve guidance for cost allocation related to tariff structure?
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23. Do you agree, partially agree, or disagree with our approach to cost allocation related to depreciation/capital cost recovery?
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24. Do you have suggestions to improve guidance for cost allocation related to depreciation/capital cost recovery?
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25. Do you agree, partially agree, or disagree with our approach to cost allocation related to bad debt?
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26. Do you have suggestions to improve guidance for cost allocation related to bad debt?
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27. Do you agree, partially agree, or disagree with our approach to cost allocation related to corporate risk?
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28. Do you have suggestions to improve guidance for cost allocation related to corporate risk?
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29. Do you agree, partially agree, or disagree with our approach to cost allocation related to fuel procurement?
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30. Do you have suggestions to improve guidance for cost allocation related to fuel procurement?
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31. Do you agree, partially agree, or disagree with our approach to cost allocation related to fair and reasonable returns?
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32. Do you have suggestions to improve guidance for cost allocation related to fair and reasonable returns?
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33. Do you have suggestions to improve guidance for cost allocation related to penalties and redress?
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34. Do you agree, partially agree, or disagree with our approach to cost allocation related to legacy arrangements?
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35. Do you have suggestions to improve guidance for cost allocation related to legacy arrangements?
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36. Do you agree, partially agree, or disagree with our approach to cost allocation related to connection charges?
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37. Do you have suggestions to improve guidance for cost allocation related to connection charges?
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