Gas distribution is the process whereby gas is taken from the high pressure transmission system and distributed through low pressure networks of pipes to industrial complexes, offices and homes.
There are eight gas distribution networks (GDNs), which each cover a separate geographical region of Britain. In addition there are a number of smaller networks owned and operated by Independent Gas Transporters (IGTs) - most but not all of these networks have been built to serve new housing.
Existing gas distribution networks are monopolies. GDNs and IGTs are regulated by Ofgem to protect consumers from potential abuse of monopoly power.
In order to be able to distribute gas on the distribution systems, a GDN and IGT must hold a licence. The licences contain conditions which among other things limit the amount of revenue which these companies can recover from their customers.
The gas distribution sector has recently undergone a major change. On 1 June 2005 National Grid Gas plc sold four of the eight GDNs to Scotia Gas Networks (which owns Southern Gas Network and Scotland Gas Network), Northern Gas Networks and Wales & West Utilities.
Ofgem intends to use the information which it can now collect from these independently owned and managed companies to regulate the sector more effectively.