Cost Allocation
Every authorised person. Section A applies to everyone holding a heat network authorisation, whether they operate the network, supply heat over it, or both.
What this condition requires
Charges must be structured, and attributable to costs, in a way consistent with the outcome of charges being fair and not disproportionate, having regard to Ofgem's cost allocation guidance (7.1). Specific prohibition: charges attributable to a relevant payment are presumed by Ofgem to be unfair and disproportionate, except in exceptional circumstances set out in guidance (7.2). A relevant payment means a penalty imposed under regulation 31, an amount payable to a consumer under a consumer redress order, and any specified compensation payable for failing to meet service standards or service levels — so regulatory penalties, redress and service-failure compensation must not be passed through to consumers. Scope: disapplied for Industrial Heat Networks and Self-Supply Networks (7.6-7.7).
The condition in full
Reproduced from Ofgem’s Heat Network Authorisation Conditions decision, January 2026, Appendix 2.
7.1 The authorised person must ensure that the charges imposed on Applicable Consumers are structured, and are attributable to costs, in a way that is consistent with the outcome of charges being fair and not disproportionate, having regard to the guidance published by the Authority on cost allocation for the purposes of this condition.
7.2 Charges that are attributable to all or any part of a relevant payment shall be presumed to be unfair and disproportionate by the Authority, except in exceptional circumstances set out in the guidance (if any). For the purposes of this condition a "relevant payment" means:
7.2.1 any penalty imposed under regulation 31;
7.2.2 any amount payable to a heat network consumer pursuant to a consumer redress order; and/or
7.2.3 any specified amount payable by an authorised person (whether pursuant to contract or regulation) as compensation for a failure to meet specified service standards or service levels, including any amount payable pursuant to any regulations made (including after the launch date) under paragraph 58 of Schedule 18 to the Energy Act 2023.
7.3 Before this authorisation condition comes into effect, the Authority shall publish the guidance referred to in paragraph 7.1.
7.4 Before the Authority publishes the guidance referred to in this condition, the Authority shall consult with such persons or bodies as it considers appropriate to consult.
7.5 The Authority may from time to time revise the guidance referred to in paragraph 7.1 and before issuing any such revised guidance the Authority shall consult such persons or bodies as it considers appropriate to consult, setting out the text of, and the reasons for, the proposed revisions.
Application of authorisation condition
7.6 Where the authorised person carries on regulated activities only in relation to relevant heat networks that are either Industrial Heat Networks or Self-Supply Networks, this authorisation condition shall not apply.
7.7 Where the authorised person carries on one or more regulated activities in relation to Industrial Heat Networks or Self-Supply Networks in addition to carrying on one or more regulated activities in relation to any other relevant heat network, this authorisation condition shall be construed as if it does not apply to the authorised person's activities in relation to Industrial Heat Networks or Self-Supply Networks.
66 Decision Heat networks regulation: authorisation conditions
Does this apply to you?
Section A applies to every authorised person, so this condition applies to you regardless of whether you operate the network, supply heat over it, or both. The registration checker works out your full set in a few questions. Registration closes on 26 January 2027.