Gentoo Group Limited (202100778)

REPORT

COMPLAINT 202100778

Gentoo Group Limited

12 July 2022

Our approach

The Housing Ombudsman’s approach to investigating and determining complaints is to decide what is fair in all the circumstances of the case. This is set out in the Housing Act 1996 and the Housing Ombudsman Scheme (the Scheme). The Ombudsman considers the evidence and looks to see if there has been any ‘maladministration’, for example whether the landlord has failed to keep to the law, followed proper procedure, followed good practice or behaved in a reasonable and competent manner.

Both the resident and the landlord have submitted information to the Ombudsman, and this has been carefully considered. Their accounts of what has happened are summarised below. This report is not an exhaustive description of all the events that have occurred in relation to this case, but an outline of the key issues as a background to the investigation’s findings.

The complaint

1. This complaint is about the landlord’s handling of the resident’s concerns about his district heating charge.

Background and summary of events

Background

2. The resident is an assured tenant whose tenancy commenced on 10 February 2020. The property is a terraced house and the landlord has advised that it has three bedrooms. The property is supplied with heating and hot water through a district heating network.
3. The tenancy agreement shows that the landlord is responsible for repairs to the structure and exterior of the property and the main services within it.
4. The landlord has advised this Service that it has owned the district heating system since it inherited the property as part of a stock transfer from the local authority in 2001. The landlord’s website has a section on district heating that shows that:
   1. the system is managed by a private provider of end-to-end solutions for heat networks (who will be referred to as ‘the operator’ in this report)
   2. the operator is responsible for radiators, pipework and hot water tank repairs, credit meter breakdowns, credit and billing enquiries and resolving system breakdowns
   3. tenants on district heating cannot change utility provider and it makes sure residents are on the best tariff
   4. each household connected to the system only pays for the energy it uses and the tariff is kept as low as possible, having not been increased since 2013
   5. the tariff unit price includes energy unit cost, maintenance of boilers, pipework and metering and government-required charges.
5. The operator’s website sets out that it aims to make heating networks a success by optimising energy efficiency and minimising costs to the resident.
6. The landlord has a complaints policy that sets out a two-stage complaint procedure where it is required to agree a mutual resolution date if it is unable to respond within 10 working days (at stage one) and 20 working days (at stage two) respectively.

Summary of Events

7. The resident submitted a complaint to the landlord dated 8 February 2021. He raised concerns that:
   1. he believed he was being significantly overcharged for heating his property but was unable to change supplier
   2. his consumption was up to 8,490 kWh from February and his cost was up to £800 – he used British Gas figures to indicate that this was relatively low consumption but high cost
   3. he would like an explanation of how his 9.1p/kWh tariff had been set and advice on how it intended to reduce this and support him with the heating costs
   4. he compared the charge to a previous property in which he said he had paid £462 in 2019 yet he claimed he paid more in his current property despite not using the heating as much.
8. The resident chased a response from the landlord on 24 February 2021. He acknowledged that it had previously told him that it would take longer than the usual two weeks to respond.
9. The landlord replied to the resident on 25 February 2021 – it advised that it had appointed an independent consultant with whom it was meeting that day and it would respond as soon as possible. It added the next day that this was part of a wider communication to residents about the heating system but that it would also address the resident’s complaint.
10. The resident wrote to the landlord on 4 March 2021, querying why it was unable to offer data from 2013 when he understood the system was reviewed and the tariff was set. He requested a conclusion to the landlord’s investigations by the end of the week.
11. The landlord replied to the resident on 4 March 2021 – it advised that Covid-19 and organisational change had affected it and it was working with the consultant who previously appraised the system. It added that it would be unable to respond by the end of the week due to the complexity of the issue, but it would share its findings as soon as its review was complete.
12. The resident chased a response again on 26 March 2021 and the landlord advised him on that date that it expected to have a completed consultant report by the end of the month.
13. Following contact from the resident, this Service wrote to the landlord on 12 April 2021, asking it to progress the resident’s complaint about ‘how much the heating costs from the provider, how much the tariff is in relation to the provider’s charge and how much profit the landlord is making from this arrangement’. The resident had informed this Service that he was paying three times more than he should for energy use.
14. The landlord apologised to the resident on 12 April 2021 for its delay. The resident continued to raise concern that the landlord did not have information readily available given a tariff review had been done in 2013; he also queried a consultant being involved who had already reviewed the system in the past.
15. The landlord told this Service on 19 April 2021 that ‘due to the complexity of the enquiry we have had to employ an external consultant to gather the data required to provide a full and accurate response to the complaint’.
16. The landlord issued a stage one complaint response on 22 April 2021 that concluded that:
    1. it had not been able to obtain the consultant report yet but had obtained data from 2016 when the tariff was reviewed
    2. the 9.1p/kWh tariff included contributions to electricity used in operating boiler plant, paypoint machines and operator costs plus ongoing repairs and maintenance to the system
    3. due to the system inefficiency, residents were only metered and charged for a third of the heat generated and to cover the full operating costs for the system, the tariff would need to be increased to 20.3p/kWh
    4. the current charge of 9.1p/kWh was applied in order to prevent a separate service charge being incurred by tenants
    5. the planned installation of individual boilers would allow him to ‘negotiate a suitable energy deal with an energy supplier’ and ensure value for money for all parties.
17. The resident submitted a complaint escalation on 26 April 2021 that expressed continued dissatisfaction as:
    1. he wanted a detailed explanation of how the 9.1p/kWh tariff was arrived at
    2. he was expected to pay for energy wasted by the system so wanted to see how the landlord had attempted to reduce this
    3. he compared the landlord charges to those available through utility providers through their maintenance schemes and he reiterated that he felt he was being overcharged.
18. The landlord issued a final complaint response dated 22 May 2021. It set out that:
    1. it had been unable to explain how the 9.1p/kWh figure had been reached and that ‘during all our financial analysis on this tariff, we simply cannot make the accurate costs of maintaining the system link back to a 9.1p/kWh tariff for tenants’
    2. the charge would need to be increased to 20p/kWh if it were to cover all associated costs of running the system but this would be unaffordable for tenants so it had subsidised the system itself albeit this would be higher than the amount charged by a domestic energy supplier (given this would not involve costs for maintaining an old system)
    3. the only heat the resident was paying for was for that used in his property as it was subsidising the heat loss between the boiler house and individual properties
    4. it decided to have an ‘all-encompassing kWh gas rate inclusive of all associated costs rather than an itemised service charge’ as it believed this would be a more affordable option for tenants and the rate included costs of the ongoing servicing, repair, and maintenance of the boiler houses, repairing the infrastructure and network of the system and domestic pipework and radiators, managing the operator’s systems (including the metering and paypoint machines) and funding any required capital expenditure required to improve the boiler houses
    5. it had been planning to replace the district heating system for several years but this took a long time to plan correctly and the pandemic had impacted this as had arranging gas meters for the scheme
    6. it intended to conduct a full replacement of the system from October 2021, from which time tenants would be able to find their own deals
    7. the utility suppliers’ maintenance arrangements that the resident had referred to would not be capable of maintaining this kind of heating system
    8. it was not overcharging him for his heating use and made all its provisions by using its procurement team to ensure optimum value for money.
19. The resident replied to the landlord on 24 May 2021. He explained that he remained dissatisfied on the grounds that he had not been provided with figures to explain the 20p/kWh estimate, he doubted the cost of the operator’s systems given how few paypoints there were, he did not understand why the landlord would have wasted millions over 20 years of having the system and he was looking for more detailed information about what he paid for.
20. The landlord obtained a ‘system costs update’ report for the district heating system in September 2021. It was completed by an energy consultancy company who set out that they were asked to comment on the ‘end user’ charges and provide an update on the costs to the landlord. It provided context that the operator had been responsible for running and maintaining the system from 2006 to 2017/18 (with another partner taking over maintenance since then) and concluded that:
    1. the systems were approaching the end of their life and were running at 33% efficiency with an annual deficit of £500,000
    2. the tariff of 9.1p/kWh was set in 2013 and when it reviewed the system in 2017, it was told by the landlord that this had been based on the customers’ ability to pay rather than actual costs
    3. the data reviewed between 2016 and 2020/21 showed the system had been running at a loss and that the tariff would have needed to be 27.6p/kWh for costs to be recouped in 2020/21
    4. heat use for individual properties varied across the system but ‘the average used is below the expected demand of buildings of this type’
    5. the proposed option to install individual boilers would allow residents to have full control of their heating.
21. The landlord advised this Service in June 2022 that it had commenced replacement of the district heating network with 141 completed installations out of 1020 properties at that point and an estimated completion date of August 2023.
22. The resident advised this Service in June 2022 that he was still waiting on installation of his gas pipework, he did not believe the landlord had been transparent in its communications on the independent review and he still did not know what part of the 9.1p/kWh was for his heating

Assessment and findings

23. The resident raised concerns with the landlord regarding the level of payment he had to make for his heating and sought information about how his kWh tariff had been calculated when he made a complaint to it in February 2021. It is not for this Service to decide on the reasonableness of the charge itself, but it is within our jurisdiction to consider how the landlord responded to the resident’s enquiries.
24. There is no evidence that the resident requested an explanation of his heating charges prior to the complaint in February 2021 nor any indication that the landlord failed to notify him of the district heating arrangements at the beginning of his tenancy. This investigation therefore focused on how the landlord responded to the resident after he submitted his complaint in February 2021.
25. On receipt of the complaint, the landlord connected it to an exercise it had apparently already commenced to review the costs of the district heating system to it and its residents. This was a reasonable approach given the resident implied that the landlord was profiting from the system and that he was seeking details about what his charges were made up of. As the landlord had appointed a consultant to review these issues, it was appropriate that it told the resident that the report was likely to answer the questions raised in his complaint.
26. The landlord delayed by almost two months in responding to the resident’s original complaint and did not settle on a mutually agreed resolution date with the resident as its complaints policy required. However, it did maintain communications with the resident during the period of delay and it was reasonable that it endeavoured to obtain the outcome to the consultant report before answering the complaint but then decided to offer a complaint response when it became apparent that the report would not be completed in the short term.
27. The central concern for the resident was how the landlord had reached the decision to charge him a 9.1p/kWh tariff and it was unable to answer this question through the complaints process. As a heat network consumer, the resident was unable to switch providers and it was therefore unreasonable that the landlord could not provide clear and transparent information about pricing, particularly given the tariff had been set several years earlier. This demonstrates that there was a failure in the landlord’s response as it did not give the resident a coherent explanation as to why it decided to put tenants on a 9.1p/kWh tariff.
28. However, the consultant report that was subsequently completed in September 2021 showed that this tariff was agreed in 2013 and that the figure was based on tenants’ ability to pay rather than being linked to the cost of the service. This at least offered some explanation as to why the landlord had been unable to account for the 9.1p/kWh figure.
29. The landlord also provided a breakdown of annual figures for the component costs of running the district heating system over recent years and the income it received towards this. This demonstrated that the landlord was not profiting from the district heating system and that the tariff that would be needed to cover the full costs of the system was well in excess of what the resident was paying. Although it was not ideal that the landlord had no detailed explanation for the 9.1p/kWh figure, it did at least attempt to provide more transparency on the costs incurred by it and its tenants and offered reassurance to the resident that he was not paying for the full costs of running the system (and that the landlord was in fact heavily subsidising it).
30. Further, the responses issued by the landlord through its complaints process showed the resident what services his kWh tariff included, advised it was planning to replace the district heating system (from October 2021) and explained why it did not agree that a utility provider maintenance plan was a useful comparison (as it did not believe they would be capable of maintaining a district heating system of this type). These answers demonstrated that the landlord had considered the resident’s points of concern and attempted to explain how it was of the view that value for money was being delivered.
31. Although it is acknowledged that the landlord is shortly due to replace the district heating system, it is unclear whether the resident has been informed when he is likely to be switched to an individual system – a recommendation is therefore made below in this regard.
32. In summary, the landlord took reasonable steps to answer the resident’s concerns about heating charges while it was awaiting the outcome of a consultant report. The consultant report showed that the resident’s tariff was not linked to the costs of the system and provided reassurance that the landlord was not profiting from the district heating charges.

Determination

33. In accordance with paragraph 54 of the Housing Ombudsman Scheme, there was no maladministration by the landlord in its handling of the resident’s concerns about his district heating charge.

Reasons

34. The landlord offered as much clarity as it could to the resident as to how it had calculated his district heating tariff and demonstrated that it was not profiting from the arrangement.

Recommendations

35. The landlord to write to the resident to advise him of the likely timescale for installation of his individual boiler.

The landlord should confirm its intentions regarding this recommendation to this Service within four weeks of the date of this report.