Why modernizing gas operations in the U.K. can't wait

The regulatory landscape for the U.K. gas industry has shifted. RIIO-3 is turning the screws on distributors, imposing higher efficiency targets, stricter CSAT requirements, and tougher penalties.

Meeting these targets takes more than traditional paper-based processes and legacy systems. To tackle demanding jobs and evolving net-zero policies, gas distributors (GDs) need technology that closes data gaps, improves resource planning, and turns field work into insights.

In this environment, digital transformation is no longer optional — it's the only path through a complex regulatory landscape and an aging asset base. Delays compound operational inefficiencies and leave room for competitors to secure better funding.

The most effective way to avoid them is by using AI.

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Meeting RIIO‑3 standards is a top priority for gas distributors

With only a few months until RIIO-3 takes effect in April 2026, U.K. gas distributors are racing to prove their performance against Ofgem's targets. The results will shape their business through 2031, determining funding, returns, and capital access for the entire period.

Unlike previous cycles, RIIO-3 puts unprecedented weight on efficiency, customer value, and proactive risk management. The performance bar is high, and the stakes are even higher. Missing these targets creates substantial operational and financial challenges:

• Strict Output Delivery Incentives (ODIs): Missed outcomes, like 7-day repair completion and customer satisfaction scores, trigger costly penalties that cut directly into your Return on Regulatory Equity (RoRE). Because these hits are highly visible to investors and shareholders, they create immediate pressure on internal performance. And because distributors can’t set their own targets to match their context, the chance of penalties increases.

• Costly breaches in License Obligations (LOs): If distributors break a performance obligation (an LO), Ofgem may penalize them up to 10% of their annual revenue. Beyond the immediate financial impact, these breaches also trigger enforcement actions that stall daily operations. When teams are knee-deep in compliance reviews and remediation plans, they postpone other critical infrastructure projects, jeopardizing future funding and RIIO-3 success.

• Fewer funding opportunities: Performance shortfalls undermine reputation and shareholder trust. Investors are hesitant to provide capital, so the price of financing rises. For example, if financing costs increased by just 0.5%, a £5B portion of a five-year program would come with £25M extra in annual costs.

• Compounding inefficiencies: Problems left unresolved today become harder to solve tomorrow. As issues persist — like small leaks growing into major repairs and corroded pipes spreading damage — assets require complex, expensive repairs. Meanwhile, the backlog of work keeps growing, leaving fewer resources for new regulatory requirements or performance improvements.

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Why RIIO-3 success is slipping today

To stay competitive and consistently meet rising performance standards, distributors must strike a balance: keep costs low and networks resilient. Yet, they're blocked by several challenges:

Complex and costly maintenance

The nature of infrastructure work has changed. RIIO-1 and RIIO-2 prioritized high-return repairs with efficient cost-per-meter, like replacing small-diameter, high-risk iron mains that were easy to access. At the time of RIIO-3, remaining jobs will involve busy junctions, complex roads, and crowded utility areas, all of which are much more expensive to complete.

To work on busy roads, distributors need to pay lane rental fees that often cost thousands of pounds per day. Legacy structures like rail beds and abandoned ducts complicate excavation and demand tighter safety controls. Meanwhile, teams still rely on paper processes and manual checks, leaving up to 30% of technical records incomplete or inaccurate. Without this critical data, field crews need duplicate site visits, longer road closures, and stronger risk measures — all of which inflate project costs and undermine efficiency.

Operational blind spots

Distributors have a wealth of operational data across surveys, leak history, street-works records, and third-party asset maps. Instead of consolidating data into actionable insights, their IT infrastructure fragments it across a patchwork of platforms. The result is limited data visibility and operational responsiveness.

Without an overview of their network, teams can't spot critical issues, like which specific pipelines are leaking or whether a valve is under high pressure. These blind spots don't just impact customer service and preventative maintenance — they also lead to serious safety hazards. For example, a corroded gas pipe triggered an explosion in Scotland in recent years, injuring four people.

Workforce constraints

The U.K.'s net-zero efforts create competing workforce priorities for gas distributors. On one hand, distributors must provide well-timed training to prepare employees for hydrogen deployment. On the other hand, they must keep enough skilled staff for sporadic methane leaks. Success hinges on building a flexible workforce with strong coordination. But that's easier said than done.

Without precise planning and careful budgeting, teams face cascading operational challenges. Understaffing leads to late responses, safety risks, and Ofgem penalties. Overstaffing drives up costs and undermines performance. Data-driven planning is essential, but the data remains buried across systems.

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Modernizing operational workflows is the only way to hit RIIO-3's targets

RIIO-3 demands operational performance that traditional methods can't deliver. To hit the mark, distributors need modernization. This strategy centers on implementing cutting-edge technology that unlocks data-driven planning, actionable insights, and smarter workflows.

With modern digital solutions, distributors can adapt to changing regulations, handle complex jobs without costly revisits, and optimize staffing. This transformation depends on:

• Creating a single source of data truth: Advanced tools pull decades of scattered leak history, asset records, and 3D main scans into actionable insights. For instance, field crews can pinpoint exact leak locations and shift from reactive repairs to proactive maintenance. This unified system also integrates permit status, lane‑rental windows, and local authority restrictions, enabling teams to schedule repairs within allowed timeframes and avoid costly fees.

• Minimizing paper-based processes: Digital workflows flip manual documentation into a reliable by-product of fieldwork. Images are geotagged and automatically linked to the correct assets, while AI captures details like pipe size and material. This approach increases safety compliance, improves response times, and frees teams to focus on customer service initiatives.

• Enabling a smooth, cost-efficient hydrogen transition: Advanced analytics systems flag potential hydrogen challenges and optimize workforce coordination. For example, by assessing installation and renewal records, these systems uncover hidden metallic tails that could complicate deployment. Such tools also keep a roster of technician skills and certifications, matching crews to specialized jobs in seconds and keeping distributors emergency-ready.

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Effective modernization starts with AI

The earlier distributors modernize their processes, the faster they can protect their allowance, tackle challenging infrastructure, and optimize resources for a net-zero future. This operational readiness signals low risk to potential investors, helping secure capital ahead of less-prepared competitors. And building this edge starts with AI.

AI technology quickly and efficiently delivers the modern digital tools distributors need:

• Purpose-built applications: Off-the-shelf solutions include rigid frameworks that can't handle the complexity of gas operations. AI systems build custom-fit software to handle every industry nuance, from mixed legacy assets to RIIO-3 deliverables. This targeted method eliminates SaaS sprawl, ensuring tight compliance, fast frontline work, and high data integrity.
• Seamless integration: Applications are engineered for real-world workflows and integrate into existing systems with minimal disruption. As a result, distributors can enhance their performance without worrying about potential system outages or adoption delays.
• Rapid development and iteration: AI-powered engines cut straight from concept to deployment. Unlike consultancies, which take months to propose a solution, these tools create production-ready applications in weeks. Distributors can test, adapt, and scale solutions earlier, unlocking maximum value faster.

Industry leaders like Cadent Gas have seen the impact of AI software firsthand. With Cogna's AI-powered platform, Cadent has built multiple custom solutions to transform their operations.

For instance, one application combined all their procurement data in one place, unlocking variance comparison across different projects and same-day supplier decisions. In parallel, their gas management tool unified over 50 years of data on gas leaks, as well as critical details on assets, equipment, and vehicles across different systems. This centralized view gives engineers a complete picture of equipment history and productivity, driving faster decisions during time-sensitive operations.

With these applications, Cadent now optimizes workflows across asset management, operations, commercial, and finance — saving £11M in annual costs in the process.

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Cogna transforms gas industry operations with custom AI-powered solutions

Cogna provides reliable, cost-effective modern gas sector solutions that help distributors exceed RIIO-3 targets and secure the funding they need for growth. Every tool is purpose-built for the industry's operational and regulatory complexities. Centralized platforms can combine decades of historical data for faster, more informed decision-making. At the same time, custom workflows can accommodate specific reporting and transparency requirements.

With advanced AI, deployment is quick and efficient. Each solution integrates seamlessly with existing platforms and databases, maximizing past investments and extending their capabilities. As a result, operational improvements, compliance upgrades, and safety enhancements happen in weeks — not months or years.

Because regulatory and security compliance is built into every tool, distributors also benefit from comprehensive protection. Controls for gas sector regulations, cyber-physical security standards, and reliability safeguards are automatically integrated. Plus, automated workflows come with detailed audit trails, keeping teams focused on performance improvements rather than compliance management.

Ready to turn RIIO-3 compliance into a competitive advantage? Start modernizing today.