National Grid starts talks over cutting energy supplies to head off blackouts

National Grid is preparing to start talks over which future energy supplies could be cut off to some businesses between 4pm and 8pm in an attempt to head off a power crunch and blackouts this coming winter.

The move was revealed as the group reported annual profits for last year of £2.6bn and triggered criticism for paying out a dividend of more than £1bn to shareholders.

The Grid, which operates the gas pipes and electricity pylons, signalled it would begin talks with about a dozen customers shortly in an attempt to encourage them to sign multi-year deals under which they would agree to have their energy supplies cut off this and following winters in return for significant discounts in the bills.

"We have new tools in place given to us by (regulator) Ofgem that allows us to do this. We will consider in the coming weeks whether we are going to exercise those rights," said Steve Holliday.

The Grid chief executive declined to say what the final decision would be but clearly signalled that it was highly likely he would press ahead to try this type of mutually-agreed demand reduction.

The Grid is considering plans which would take 850 megawatts off the system during week days with the cost of the scheme being passed on to customers. Ofgem has previously promised that it would cost household customers less than £1 per annum.

Many of the Grid customers are aggregators, companies such as Utilyx, which buy power on behalf of smaller energy users, and the Grid wants to tie up agreements well in advance of the winter.

The power network operator also wants the deals to cover subsequent winters as Britain is considered vulnerable to outages at least until 2018 when there is hope a new range of power stations will come on stream.

But Holliday insists that while surplus supply capacity is lower than it has been the likely decision to introduce new interruptible contracts is not a sign of panic or expectation of outages. "I am not uncomfortable but neither am I complacent. It is my job to worry about this," he adds.

The Grid will also hope to agree contracts with power stations to bring extra reserve energy on stream at periods of peak demand.

Meanwhile, the Grid trumpeted a "solid year of financial performance" that saw pre-tax profits rise by 2% year on year and earnings per share increase 5% to 54p.

The £1bn dividend payout was condemned by consumer energy campaigners who said excess cash should be ploughed back into the energy network to help reduce soaring energy bills.

"With the National Grid networks costs now accounting for nearly a fifth of the average energy bill hard-up households will surely be shaking their heads in despair at yet another huge payout for shareholders profiteering from their high energy bill misery," argued Clare Welton, Fuel Poverty Action

But Holliday said the business had performed well even during the storms of the winter and he insisted customers as well as shareholders stood to gain from an efficiency drive under new regulatory conditions.

"During the year we have invested over £3.4bn in essential infrastructure while delivering one of our best years ever in terms of network reliability and resilience. At the same time we delivered strong cost efficiencies, particularly in the UK (as opposed to the US) where around £70m of the savings will benefit customer bills starting in 2015/16."