Agenda item

Report to follow as soon as possible.

Due to the Christmas and New Year bank holidays impacting on statutory timelines for publication the finalised report will be circulated as a second despatch as soon as it is available.

The Director of Housing submitted a report providing an update in relation to proposals to increase district heating charges and the reasons for that.

Assistant City Mayor Councillor Cutkelvin introduced the report and summarised the current arrangements for district heating which dated back to 2011, this included a look back at the system and arrangements in place over time as well as background information about previous consideration given to installing metering, outcomes of metering testing in 2014 and the previous decision not to proceed with installation of metering as it was cost prohibitive at that time, and the cost analysis was not as compelling as now.

It was reported that unprecedented conditions had triggered massive increases in gas and fuel costs and there was ongoing uncertainty around such costs coming down in future. Residents on district heating had been protected from increases initially as the council purchased its gas in bulk and costs had been below market levels, however with subsequent wholesale gas price increases it was necessary to consider whether to absorb or pass on the increased cost.

Members were reminded of the report presented at the last meeting noting that included a proposal that was “right” at that time. It was also noted that the government had given everyone at least £400, and in some cases more, towards mitigating increased fuel and cost of living impacts. Those on the district heating scheme had also received that additional support but without facing increased gas costs and it was felt that residents with the district heating arrangement  had no financial incentive to reduce their heating and there was a tendency for those with district heating to use much more than an average user.

Members noted there remained legitimate concerns about the district heating system, this had led to further extensive work by officers to identify a way forward and evaluate the impact of increased gas/fuel prices; that work also explored key issues around contracts, revisited metering as an option, and considered potential alternative solutions such as electrification.

The Strategic Director of City Development & Neighbourhoods gave a presentation of the work that had been carried out since the last meeting which included the following points:

·         if steps were not taken to address the issue of the increasing price of gas not being matched by increases in charges to district heating customers, then the Council would have to sustain £4.5 million costs from the general fund and £10.2 million costs borne by the HRA (proportionally split between homeowners and Council tenancies).

·         An overview of how district heating charges looked in November/December 2022 with a new modelled set of charges that included incremental changes on a proposed 70% increase and a 300% increase together with comparison annual charge forecast 23/24 and estimated capital costs for other forms of heating.

·         There had been some reduction in the cost modelling forecast, and a number of assumptions had been removed because the latest bulk gas purchase had come in at a little lower price.

·         Metering had been further explored, taking account of previous pilots and findings and revisiting what might be delivered in real terms. The cost of installing meters was estimated to be circa £3m and taking account of a timeline for procurement the work could potentially be completed in 40 weeks.

·         A metering programme to deliver across all properties other than within the Aikman Avenue area, which was more problematic could be completed by October 2023, benchmarked upon taking a decision at Full Council in February 2023.

·         Viability testing had already been done along with how the metering and billing system would work, with an assessment of impacts and resources needed to manage the new system.

·         It was estimated that the average tenant could save around 30% with a meter installed on their district heating charge.

·         The provision of localised controls to enable tenants to reduce their heating or turn it off in warmer months had also been explored along with alternative heating options.

Members thanked officers for the additional work done on this issue and discussed the contents of the report.

There remained some uncertainty about introducing a level increase and the point was made that although tenants hadn’t had increased costs to their district heating charge, they were never the less having to pay for increased costs on other utilities connected to their properties.

There was concern also that tenants were not able to look elsewhere for their heating provision and that a full consultation should take place so that residents were aware of what the increases could be. It was also felt that residents should be consulted before any move to install meters was taken.

There was a general consensus that the council should not be subsidising the increased cost and it was recognised that the cost of living issues were likely to remain longer term.

The City Mayor stressed that this was still work in progress and officers continued to explore all options to try to minimise any detrimental effect of passing on an increase in charges and there would be opportunity to come back. The City Mayor advised that it was necessary to minimise the gap between costs and drew a comparison to the economic climate of when the metering trial was carried out in 2014 to the current economic climate noting that much had changed and a 30% saving now would make a considerable difference.

In response to call for further consultation, it was noted that consultation had taken place as far as any consideration to a decision being made to increase up to 70%, however further consultation had not yet been undertaken as final costs were still being evaluated.  Any further consultation would be embedded within HRA budget proposals and would go to the tenants forums and resident meetings with opportunity to feedback on the proposals, there would also be opportunity to bring that feedback to the next scrutiny meeting and subject to agreement at the next full council all tenants would then be written to, at least 28 days in advance of any proposed charge increases.

A member of the committee referred to several questions submitted by residents in her area. As those questions were not submitted to the meeting in accordance with the Scrutiny Procedure Rules set out in the Council’s Constitution officers were not required to provide a response at the meeting.

(Post meeting note: the questions were forwarded to officers for a written response outside the meeting.)

Members noted that there were 17000 tenants who were not on district heating and that the HRA could not absorb the costs as that would impact on other housing services. There was general satisfaction that officers had found an alternative through other interventions such as metering, and it was felt that as much as possible should be done to limit the effect on those contributing to HRA.

Members suggested that if the wholesale prices of gas were now closer to what they were 12-18 months ago then this exercise to increase district heating costs was no longer relevant as the cost had come down.

The Director of Housing clarified that the modelled cost in relation to 300% increase to the district heating charge was a forecast anticipated for the coming financial year, however details of gas prices were firmer to a mean average after metering so the proposed cost would now equate to an increase overall of 247% from April 2023.

The Director then provided responses to a number of points raised prior to the meeting which included the following comments:

·         Boilers used in the district heating were powered by gas fires, there was also a bio mass boiler which was not on the network.

·         There had been savings on projected carbon emissions.

·         The government had announced a heat network efficiency scheme and it was intended to apply to that scheme to enable more efficiency works to be undertaken.

·         Leicester was not the only council with a district heating system. Officers had consulted nationally to explore the solutions other cities had made in relation to their heating and power systems, there had also been discussion with heating experts about the different district heating systems across the UK.

·         There were no formal assisted living buildings on the district heating system, although there was some sheltered living accommodation linked to the scheme. At the current time no other formal actions had been considered in relation to providing additional support to more vulnerable or disabled residents other than the matters presented tonight. Council stock conditions were a factor and there was already ongoing work to make sure stock was efficient and that EPC ratings were improving. Vulnerable and disabled residents would be prioritised in that piece of work too.

The Chair drew the discussion to a close, concluding that leaseholders on the district heating scheme needed to have some form of control to allow them to turn off or reduce the heating in their homes themselves. The Chair also commented that the suggestion that the HRA be used to subsidise the district heating system would mean that, the HRA investment programme would be cut and council tenants would be subsidising residents who had bought their homes from the council which would not be fair.

It was proposed and seconded that 1. the move to Tenant and Leaseholder control of heating be supported; 2. that regular reports on the negotiations with the provider, including the grounds for increasing service charges in line with gas prices be provided to the commission; 3. that a report be brought to a future meeting on how the service charges have changed to reflect the reduction in gas prices over the last six months; and upon being put to the vote each recommendation was unanimously supported.

The Chair thanked members who had attended the meeting who were not part of this commission for their contribution to discussion.

RESOLVED:

1.    That the contents of the report be noted;

2.    That the move to Tenant and Leaseholder control of heating be supported;

3.    That regular reports on the negotiations with the provider, including the grounds for increasing service charges in line with gas prices be provided to the commission;

4.      That a report be brought to a future meeting on how the service charges have changed to reflect the reduction in gas prices over the last six months.