UK energy regulator Ofgem has published its final proposals for the incentive arrangements it places on National Grid to encourage the efficient running of the high-voltage electricity transmission network.

Ofgem believes that it is in the interests of customers who pay for the cost of the operation of the electricity system that National Grid is incentivized to operate the system as efficiently as possible.

The regulator is proposing that National Grid’s System Operator costs should be between GBP430 million to GBP445 million from April 2007 to March 2008. The incentive scheme will reward National Grid for keeping costs below GBP430 million, but it will have to face its share of the costs if they rise above GBP445 million.

Under these incentives National Grid’s rewards and its share of any increased costs above GBP445 million are capped at GBP10 million.

Last year, Ofgem regulated National Grid’s running costs directly after the firm refused to sign up to the incentive scheme it proposed. If National Grid does not sign up this new incentive scheme, Ofgem could again regulate the firm’s costs directly or refer the issue to the Competition Commission.