The complaint is centred on smart gas meters

Ofgem said the company had committed "a serious breach of competition law".

It said National Grid's actions had prevented gas suppliers from contracting with other firms for cheaper metering deals.

National Grid, which operates the UK's main gas pipeline system, has said it will appeal against the decision.

The company is also responsible for the UK's long distance electricity transmission network.

Smart meters

GAS METERING 18 million gas meters 1.2 million replaced annually National Grid: 40% of market National Grid claims deal saved customers �120m over 4 years Source: National Grid

Underlying the complaint is the issue of smart meters, which tell customers exactly how much energy they are consuming at any one time.

Ofgem has been a strong advocate of smart metering which they believe can help households reduce their energy consumption.

Liberal Democrat Environment spokesman Steve Webb said that "the government must now take urgent action to ensure a smart meter is installed in every home as quickly as possible."

"Smart meters are good for your pocket and good for the planet. It is vital that all households get access to these meters as soon as possible."

'Voluntary agreements'

Ofgem's decision relates to a number of metering contracts National Grid entered into with gas suppliers in 2004.

National Grid has abused its dominance in the domestic gas metering market, restricting competition and harming consumers Ofgem chairman Sir John Mogg

"These contracts were negotiated over a two-year period, were voluntarily entered into by gas suppliers and delivered immediate and substantial reductions in charges for meter services, saving customers around �120m over the four years of their operation," said National Grid.

"Ofgem was consulted throughout this process of contract development and negotiation and has acknowledged that National Grid had no intention to breach the Competition Act."

However, an Ofgem spokesperson said National Grid's assertion was untrue: "Ofgem was not consulted throughout the process of contract development negotiation. National Grid could have asked us for guidance but didn't."

Ofgem also counters that under the terms of National Grid's contracts, suppliers wrongly faced penalties if they replaced more than a certain number of gas meters.

"National Grid has abused its dominance in the domestic gas metering market, restricting competition and harming consumers," said Ofgem chairman Sir John Mogg.

The UK's gas distribution system was formerly run by Transco.

In 2002 its parent company, Lattice Group, merged with National Grid.

The new company was first called National Grid Transco, before being shortened to National Grid in 2005.