Electricity distribution networks carry electricity from the transmission systems and some generators that are connected to the distribution networks to industrial, commercial and domestic users.
There are 14 licensed distribution network operators (DNOs) each responsible for a distribution services area. The 14 DNOs are owned by seven different groups. There are also four independent network operators who own and run smaller networks embedded in the DNO networks.
Domestic and most commercial consumers buy their electricity from suppliers who pay the DNOs for transporting their customers' electricity along their networks. Suppliers pass on these costs to consumers. Distribution costs account for about 20 per cent of electricity bills.
Electricity distribution networks are monopolies because there is only one owner/operator for each area. Ofgem administers a price control regime that ensures that efficient distributors can earn a fair return after capital and operating costs whilst limiting the amounts that customers can be charged. Price controls are generally set for five year periods and the current price control runs from 1 April 2005 to 31 March 2010.
One of the key challenges facing the electricity distribution industry is the connection of renewable and other generation plant to networks which have traditionally carried electricity from large power stations in one direction only.