Why are we regulated?
In the UK, the gas network is a natural monopoly. Consumers can't choose which network they want to use to transport gas from the transmission system to their homes and businesses. They can only choose which supplier they buy their gas from.
To make sure that we and other gas distribution networks (GDNs) don't exploit this and charge customers unfairly, we are regulated by Ofgem through via a price control.
What is a price control?
A price control sets the maximum revenues we are allowed to collect over a certain period of time, at a level that allows us to
- deliver value for our customers
- be an efficient business
- achieve our Ofgem targets
- earn a reasonable return
Price controls are checked via a price control review – the current review period began in April 2013 and
runs until March 2021.
What is RIIO
This allows for better planning of total network expenditure (totex) and gives the GDNs more flexibility to deliver the targets that Ofgem set.
We are regulated under a price control framework called RIIO, which came into effect in April 2013 and lasts for eight years.
RIIO stands for: Revenue = Incentives + Innovation + Outputs
RIIO encourages GDNs to invest across both capital expenditure (capex) and operating expenditure (opex), rather than just focusing on reducing opex costs. This allows for better planning of total network expenditure (totex) and gives the GDNs more flexibility to deliver the targets that Ofgem sets.
The RIIO model encourages us to focus on innovation, makes wide use of incentives and clearly defines the outputs that GDNs are accountable for delivering.
RIIO-GD1 is the first price control to use the RIIO model and it applies to the eight GDNs operating in the UK for the period 2013 to 2021.
How is our performance monitored?
Each year, by the end of July, we are required to submit an annual report to Ofgem for each of our networks, setting out how we are performing against the RIIO-GD1 price control. To find out more about our performance, please refer to the "historical performance information" above.