Major powercuts could cost the National Grid Company (NGC) up to a maximum of £12 million a year under a new incentive scheme announced today (Monday) by energy regulator Ofgem.

As well as penalties for powercuts, the incentive scheme allows NGC to earn up to a maximum of £8 million a year for improving performance on the National Grid.

Ofgem announced its decision to introduce an incentive scheme for NGC last year, after its investigation into power cuts in London and Birmingham in 2003. This will provide NGC with incentives to improve on its already high standards of overall network reliability.

Ofgem Chief Executive, Alistair Buchanan, said: “It was clear from our investigation into the London and Birmingham powercuts that strengthening the incentives on NGC to maintain and improve the performance of the National Grid would help to better protect customers’ interests. Under the new incentive scheme NGC could face penalties of over £10 million if we were ever to see a repeat of the blackouts in London and Birmingham in 2003."

“Ofgem’s objective in designing this new incentive scheme is to strengthen the incentives on NGC to minimise interruptions to customers’ electricity supply. The scheme offers NGC an incentive to improve on the grid’s high standards of performance and complements its existing duties to operate the high voltage network in an efficient, co-ordinated and economical manner."

The London powercut lasted 37 minutes and occurred on the evening of 28 August 2003 causing widespread disruption to commuters travelling home in the evening rush hour. It resulted in a powercut for 476,000 customers. The Birmingham powercut occurred on 5 September and lasted 42 minutes and saw 200,000 people lose their electricity supply.

Ofgem investigated the both powercuts and found that they were caused by a series of unrelated events, some of which were the result of mistakes by NGC. However, the mistakes made by NGC were not material enough for Ofgem’s governing Authority to find NGT in breach of its legal obligations.