title: "Electricity Distribution Licence" type: wiki created: 2026-04-13 updated: 2026-04-13 primary_source: "~/knowledge/sources/ofgem/licences/electricity-distribution-slc.md" tags: [distribution, licence, DUoS, RIIO-ED2, CDCM, EDCM, DSO, connections, ring-fencing, losses, DNO, IDNO] related: - generation-licence.md - transmission-licence.md - supply-licence.md - neso-licence.md - duos-charging-methodology.md - dcusa.md - dcode.md - cusc.md - riio-ed3.md

Electricity Distribution Licence

What It Is

The Electricity Distribution Licence is the legal authorisation required to distribute electricity in Great Britain. It is granted under section 6(1)(c) of the Electricity Act 1989 by the Gas and Electricity Markets Authority (Ofgem). Every organisation that owns and operates a distribution network - the cables and substations that carry electricity from the national transmission grid to homes, businesses, and generators - must hold one.

The licence is built around Standard Licence Conditions (SLCs): a set of obligations common to all distribution licence holders. The consolidated text dates to 10 June 2025 and runs to 301 pages.

Who Holds One

Two categories of licence holder exist with different obligations:

Distribution Services Providers (DSPs) - the 14 regional network companies that inherited the historic distribution network from the post-privatisation Regional Electricity Companies. They are the companies most people mean when they say "DNO" (Distribution Network Operator). The 14 DSPs are:

DSPs are bound by both Section A (universal conditions) and Section B (additional conditions for DSPs). The Section B conditions are the heavier ones: they implement the RIIO-ED2 price control, ring-fencing of the regulated business, independence from affiliated supply companies, and competition in connections.

Independent Distribution Network Operators (IDNOs) - smaller companies that build and operate embedded distribution networks within DSP areas (e.g. new housing developments or commercial estates). IDNOs are bound by Section A only. They do not hold a Distribution Services Direction and are not subject to the RIIO price control in the same way.

Structure of the Licence

The standard conditions are divided into 12 chapters covering roughly five functional areas:

1. Interpretation and general obligations (Chapters 1-2, Conditions 1-7A)
2. Public service requirements - PSR, customer fairness, smart metering data (Chapter 3, Conditions 8-11)
3. Network access: connections and use of system (Chapter 4-5, Conditions 12-22A)
4. Network integrity, planning, and development (Chapter 6, Conditions 24-28)
5. Financial ring-fencing, DSO obligations, and independence (Chapters 7-11, Conditions 29-43B)
6. Regulatory information and price control administration (Chapter 12, Conditions 44-52)

Section B (Conditions 32-52) layers additional obligations onto DSPs on top of this.

The RIIO-ED2 Price Control

The distribution licence is the vehicle through which Ofgem's RIIO price control framework operates. The current period is RIIO-ED2: 1 April 2023 to 31 March 2028. The Final Determinations were published 30 November 2022.

The actual price control numbers - what each DSP is allowed to earn and how that adjusts for outputs, incentives, and uncertainty - sit in the Special Conditions of each individual DSP's licence, not in the Standard Conditions. The key one is Special Condition 2.1 (Revenue Restriction), which sets the formula for Allowed Revenue.

The Standard Conditions connect to the price control through: - Condition 44 (Regulatory Accounts): the financial reporting that underpins price control monitoring - Condition 46 (RIGs - Regulatory Instructions and Guidance): the detailed data requirements Ofgem issues to administer the price control - Condition 48 (Innovation Strategy): the process for deploying the Network Innovation Allowance (Special Condition 5.2) - Condition 50 (Business Plan Commitment Reporting): the accountability mechanism requiring DSPs to report annually on whether they are delivering on their RIIO business plan commitments

The RIGs (condition 46) are the backbone of RIIO administration. They specify hundreds of data items that DSPs must report each year - revenue, costs, asset values, outputs, performance metrics. They are not published in the licence itself but are issued by Ofgem as a separate document.

DUoS Charging

Distribution Use of System (DUoS) charges are the network access charges that suppliers and generators pay to use distribution networks. They are a significant component of electricity bills.

Two charging methodologies exist, both embedded in the DCUSA (Distribution Connection and Use of System Agreement) and governed by Condition 22A:

CDCM (Common Distribution Charging Methodology, Condition 13A) - applies to premises and distribution systems connected below 22 kilovolts. This covers the vast majority of customers, from domestic through to medium commercial. The CDCM was introduced 1 April 2010 and sets DUoS unit rates and standing charges for this group. Modifications to the CDCM go through the DCUSA modification process and require Ofgem approval.

EDCM (EHV Distribution Charging Methodology, Condition 13B) - applies to premises and distribution systems connected at 22 kilovolts or more. This covers large industrial users, data centres, major generation projects, and other large grid-connected users. The EDCM was introduced 1 April 2012 and was developed jointly by all DSPs. Changes to the EDCM are material for very large energy users.

Both methodologies must achieve the Relevant Objectives (Condition 13): cost-reflectivity, competition facilitation, and compliance with retained EU law. Both are subject to annual review. The Use of System Charging Statement and Connection Charging Statement (Condition 14) are the published tariff schedules derived from the approved methodologies.

DUoS charge amendments require at least three months' prior notice to Ofgem and to all parties with Use of System agreements, and must take effect on 1 April of the relevant Regulatory Year.

Connections

The distribution licence regulates how networks handle requests for connection - from new homes needing to connect to the grid, to wind farms seeking access to the distribution network.

Obligation to offer terms (Condition 12): On receiving a request, the licensee must offer Use of System terms within 28 Working Days and connection terms within 65 Working Days.

Gate 2 reform (Conditions 12, 12A): From 2024-2025, the connection queue for large new connections was reformed through changes to the CUSC (Connection and Use of System Code). New applicants for large connections must now demonstrate "Gate 2" viability before getting a firm connection date. The ISOP (NESO) manages the queue. Conditions 12 and 12A give effect to this in the distribution licence. The carve-outs in conditions 4.1A and 19.1A clarify that complying with the Connections Process or ISOP decisions does not breach the non-discrimination obligations.

Standards for non-contestable services (Condition 15): Guaranteed time limits apply for quotations (15-65 Working Days depending on voltage level). Compensation is payable if the licensee misses them, under the Electricity (Connection Standards of Performance) Regulations 2015.

Competition in connections (Condition 52): DSPs must maintain a Competition in Connections Code of Practice enabling Independent Connection Providers (ICPs) to undertake contestable connection works. The DSP must provide Input Services (the essential inputs ICPs need) on an equivalent basis to all Connection Parties.

Distributed generation transparency (Condition 25A): The licensee must publish a DG Connections Guide explaining how to connect generation to the network, with indicative timescales and technical requirements.

DSO Transition and Flexibility Procurement

The Distribution System Operator (DSO) transition is the shift from DNOs as passive network operators to active managers of energy flows, procuring flexibility services from third parties instead of building new network capacity.

The main conditions implementing this transition:

Condition 31E (Procurement and Use of Distribution Flexibility Services) - the core DSO obligation. DSPs must: procure flexibility services using market-based, non-discriminatory procedures; publish technical participation requirements; submit an annual Distribution Flexibility Services Procurement Statement to Ofgem by 1 April each year; publish an annual Procurement Report within one month; and publish outcomes of concluded contracts within one month (counterparty, technology, capacity, duration, price). Records must be kept for 6 years. Derogations from market-based procedures are available where market-based procurement would be economically inefficient or cause severe market distortions.

Distribution Flexibility Services covers two categories: Distribution Non-Frequency Ancillary Services (voltage control, reactive current, inertia, short-circuit current, system restoration, island operation) and Distribution Constraint management (managing thermal, voltage, or stability constraints on the network).

Condition 7A (Whole Electricity System Obligations) - requires DSPs to coordinate with the ISOP, transmission licensees, and each other to identify and implement actions that serve the Total System (the national transmission system plus all distribution systems). An annual Coordination Register must be published by 27 May each year.

Condition 25B (Network Development Plan) - DSPs must publish an annual Network Development Plan covering investment plans, reinforcement strategies, capacity forecasts, constraint areas, and plans for facilitating distributed generation, demand flexibility, and electric vehicles.

Condition 31D (Prohibition on Generating) - DSPs cannot own or operate generation assets, except narrow carve-outs for island networks (Category A), on-site continuity assets not used in markets (Category B), and Ofgem-directed exceptions where no market solution is available (Category C). Category C exceptions require review within 5 years. The logic is that a DSO facilitating third-party generation connections on non-discriminatory terms cannot also own competing generation.

Condition 31F (EV Recharging Points) - DSPs cannot own, develop, manage, or operate publicly accessible electric vehicle charging points, for the same competition rationale.

Ring-Fencing

The ring-fencing framework is designed to isolate the regulated distribution business from financial or commercial risks imposed by its parent group, and to protect distribution assets from being stripped out through financial engineering.

It spans multiple conditions:

The Intervention Plan (Condition 30) is particularly significant: it is a document maintained at all times that contains sufficient information to allow an energy administrator to take over the Distribution Business under the special administration regime in the Energy Act 2004 if the licensee faces insolvency.

The 2.5% de minimis threshold in Condition 29 permits DSPs to conduct limited amounts of non-distribution activity (up to 2.5% of Distribution Business turnover) without breaching the activity restriction.

Losses Management

Losses are electricity that enters the distribution network but does not reach consumers - lost as heat in cables and transformers (technical losses) or taken without authorisation (theft).

Condition 49 is the primary obligation: design, build, and operate the network to keep losses as low as reasonably practicable. Each DSP must maintain a Distribution Losses Strategy based on cost-benefit analysis, covering: characteristics of new assets, asset replacement timing, normal operating conditions, and relevant legislation. On electricity theft, the DSP must take all reasonable cost-effective steps to resolve cases and must seek recovery from the person who took the electricity where recovery is economically justified.

Condition 27 requires the licensee to take all reasonable steps to prevent and detect damage to assets and interference with metering equipment.

Settlement of distribution losses in the wholesale market is governed by the BSC (Balancing and Settlement Code) reconciliation processes. The RIIO-ED2 Special Conditions include a losses incentive mechanism that financially rewards or penalises DSPs relative to a target level of losses.

Industry Code Obligations

Distribution licensees are obliged to be parties to and comply with a set of Core Industry Documents (Condition 20). These are the codes and agreements that govern how the electricity market operates:

The Distribution Code (Condition 21) is maintained by the licensee itself. It must cover the Distribution Planning and Connection Code (technical standards for connecting to the network) and the Distribution Operating Code (operating standards under normal and abnormal conditions). Ofgem must approve modifications.

Public Service Requirements

Three conditions deal with how DSPs interact with domestic customers:

Condition 8 (Safety and Security of Supplies Enquiry Service) - free, always-available service for reports about network issues or danger. Must be accessible in multiple formats.

Condition 10 (Priority Services Register) - the PSR is a register of vulnerable domestic customers (elderly, disabled, chronically sick, households with young children, or others in a vulnerable situation who have registered). DSPs must identify, register, and proactively support PSR customers before and during supply interruptions. PSR details are shared with suppliers and gas transporters.

Condition 10AA (Treating Domestic Customers Fairly) - added for RIIO-ED2. Requires the licensee and its representatives to behave honestly, transparently, and professionally towards all domestic customers. Particular focus on customers in a Vulnerable Situation. The RIIO-ED2 Fair Treatment Guidance issued by Ofgem sets out how this applies in practice.

How It Relates to Other Licences

The distribution licence sits in the middle of the GB electricity system, between the transmission and supply layers:

Generation licence - generators connect to the distribution network through conditions 12, 12A, and 15A of the distribution licence. The generation licence does not itself include obligations about connecting to distribution networks; those are on the distribution licensee. The prohibition on generating (Condition 31D) prevents DSPs from owning generation.

Transmission licence - the national transmission system operated by National Grid ET sits above the distribution layer. Distribution networks connect to the transmission system at Grid Supply Points. Condition 7A requires coordination between distribution and transmission. The STC governs the commercial relationship between the ISOP and transmission owners.

Supply licence - suppliers connect to the distribution network commercially through the DCUSA and operationally through the MPAS (Conditions 17-18). Condition 42 prevents DSPs from passing Confidential Information to affiliated supply businesses. The Retail Energy Code (condition 21A cross-reference and conditions 18, 34-37) governs the data flows between distribution networks and suppliers.

NESO/ISOP licence - NESO (the National Energy System Operator, formerly National Grid ESO) holds the Electricity System Operator Licence. From 2024, NESO is also the ISOP - the Independent System Operator and Planner under the Energy Act 2023. Distribution licensees have direct obligations to coordinate with the ISOP under conditions 7A, 12, 12A, and 31E. The ISOP now manages the connections queue through Gate 2 Criteria.

OFTO licence - Offshore Transmission Owner licences are a separate category. Offshore distribution assets (below transmission voltage) connecting offshore wind farms to the grid are covered by distribution licences, not OFTO licences.

Key Recent Amendments (to 10 June 2025)

The licence has been significantly amended since original grant. The most important changes visible in the consolidated text:

• Gate 2 connections reform (2024-2025): Conditions 12 and 12A updated to incorporate the new connections queue management process with ISOP as gatekeeper. This addresses the decade-long backlog of connection applications.

• DSO conditions (RIIO-ED2, 2023): Conditions 31D, 31E, and 31F introduced or strengthened as DSPs formally became DSOs. Condition 7A (whole electricity system coordination) added.

• Customer conditions (RIIO-ED2, 2023): Condition 10AA (Treating Domestic Customers Fairly) added with Standards of Conduct and Fair Treatment Guidance.

• ISOP designation (Energy Act 2023): Multiple conditions updated to replace "National Grid ESO" or "System Operator" references with "ISOP" following the formal creation of NESO.

• Network Development Plan (Condition 25B): Added as part of the DSO transition, requiring forward-looking planning for flexibility and smart grid investment.

• Reinforcement cost recovery (Condition 13C): Added to address how reinforcement costs are recovered from very large customers - relevant to data centres and major new loads.

Notes

• The consolidated Standard Conditions are not a formal Public Register document. For formal or legal purposes, the Public Register versions of individual licences must be consulted.
• Each DSP also has its own Special Conditions implementing the RIIO-ED2 price control (most importantly Special Condition 2.1, Revenue Restriction). These are licensee-specific and not covered in the Standard Conditions.
• The licence has 52 numbered conditions, but conditions 23, 33, 47, and 51 are vacated (not used).
• The next price control period is RIIO-ED3 (expected to begin 1 April 2028). Ofgem is currently conducting the RIIO-ED3 methodology consultation. See riio-ed3.md.