|As filed with
          the Securities and Exchange Commission on June 18, 2001SECURITIES AND
          EXCHANGE COMMISSION Washington, D.C.
          20549FORM
          20-F
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|   |  | REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR (g)
      OF THE SECURITIES EXCHANGE ACT OF 1934
|-- |  | ----------------------------------------------------------------------------------------------------------
|or
|   |  | ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934          
|   |  | For the Fiscal Year Ended March 31, 2001                                                                  
|or
|   |  | TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934      
|   |  | For the Transition Period from                    to                                                      

|1-4315
        (Commission file number)
      NATIONAL
        GRID GROUP plc (Exact name of registrant
        as specified in its charter)
      England
        and Wales (Jurisdiction of incorporation
        or organization)
      15
        Marylebone Road
        London NW1 5JD England(Address of principal
        executive offices)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Securities registered
      or to be registered pursuant to Section 12(b) of the Act:                                                                                                                                                                                                                                                               

|Title
        of each class            |  | Name
        of each exchangeon which registered
|-------------------------------------- |  | ------------------------------------------------
|                                       |  |                                                 
|American
      Depositary Shares       |  | The New
      York Stock Exchange               
|Ordinary
      Shares of 1113/17p each |  | The New
      York Stock Exchange*              
|                                       |  |                                                 

|*                                                                                                               | Not for
      trading, but only in connection with the registration of American Depositary
      Shares representing Ordinary Shares pursuant to the requirements of the
      Securities and Exchange Commission.
|--------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Securities
      registered or to be registered pursuant to Section 12(g) of the Act:                          
|None                                                                                                           
|Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act:         
|None                                                                                                           
|Outstanding
      shares of each of the issuers classes of capital or common stock as
      of March 31, 2001:

|Ordinary
      Shares of 1113/17p each                  | 1,485,034,204
|------------------------------------------------------- | -------------
|Special
      Rights Redeemable Preference Shares of £1 | 1            

|Indicate by check
      mark whether the registrant (1) has filed all reports required to be filed
      by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
      preceding 12 months (or for such shorter period that the registrant was
      required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days. Yes     No
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Indicate by check
      mark which financial statement item the registrant has elected to follow.                                                                                                                                                                                                                                                                                                
|Item 17     Item
      18                                                                                                                                                                                                                                                                                                                                                                        

---







|National Grid Group
      plc 15 Marylebone Road London NW1 5JD |  | Annual Report and Form-20F 2000/01
|--------------------------------------------------------------- |  | ----------------------------------



---



|Chairmans
      statement                      | 1 
|----------------------------------------------- | --
|Group
      Chief Executives review            | 4 
|Operating
      and financial review            | 10
|Electricity
      networks                     |   
|England
      and Wales                         | 11
|United
      States                             | 16
|Other
      electricity businesses and projects | 24

|Telecommunications
      networks                               | 25 
|--------------------------------------------------------------- | ---
|Environment,
      occupational health and safety and community | 27 
|Five-year
      financial summary                               | 30 
|Financial
      review                                          | 32 
|The
      Board of Directors                                    | 40 
|Corporate
      governance                                      | 41 
|Directors
      remuneration                                   | 44 
|Directors
      report                                         | 48 
|Directors
      responsibilities                               | 50 
|Independent
      auditors report                              | 50 
|The
      accounts                                              | 52 
|Glossary
      of terms                                         | 91 
|Risk
      factors                                              | 92 
|Investor
      information                                      | 93 
|Cross
      reference to Form 20-F                              | 98 
|Shareholder
      services                                      | 100



Forward-looking
  statementsIn order to utilise the safe
  harbor provisions of the US Private Securities Litigation Reform Act of
  1995, National Grid is providing the following cautionary statement.

This Annual
  Report contains certain forward-looking statements with respect to the financial
  condition, results of operations and business of National Grid and certain of
  the plans and objectives of National Grid with respect to these items. These
  include statements made in the operating and financial review on pages 10 to
  39 with regard to management aims and objectives; planned expansion; investment
  or other projects; the date on which an investment or acquisition is scheduled
  or expected to be completed; and the time at which and extent to which a project
  or series of projects is expected to contribute to National Grids earnings.
  By their nature, forward-looking statements involve risk and uncertainty because
  they relate to events and depend on circumstances that will occur in the future.
  Actual results and developments could differ materially from those expressed
  or implied by these forward-looking statements. This could happen because of,
  among other things:

- changes
    in economic conditions in the UK, the US and internationally;
- regulatory
    policies adopted by authorities in the UK, the US, the European Union or other
    jurisdictions;
- movements
    in the share price of Energis plc; and
- expected
    synergies from the acquisition of Niagara Mohawk failing to materialise.

See also
  Risk factors on page 92.

Definitions
  
  References to National Grid, NGG or the Group
  in this Annual Report are to National Grid Group plc and its subsidiaries, or
  to any of them, as the context may require.

The terms
  shares and ordinary shares refer to National Grid ordinary
  shares of 1113/17pence each. References to ADRs
  are to American Depositary Receipts and references to ADSs are to
  American Depositary Shares, each of which represents the right to receive five
  ordinary shares and which are evidenced by American Depositary Receipts.

References
  to pound(s) sterling or £, pence or p
  are to United Kingdom (UK) currency. References to US$, $, US
  dollars or dollars are to United States (US) dollars. References
  to financial years refer to National Grids financial years
  ending on 31 March of the year indicated.

National
  Grid publishes its accounts in pounds sterling. Unless otherwise specified,
  pound sterling amounts in this Annual Report have been translated into US dollars
  at the rate of £1.00 = $1.42 (the 4.00 pm London closing rate on 30 March
  2001, the last day of trading in the 2000/01 financial year, as quoted in the
  Financial Timeson 31 March 2001). These translations do not mean that
  the pound sterling amounts have been, could have been or could be converted
  into US dollars at the rates indicated or at any other rate.



---



|Chairmans
      statement | 1
|-------------------------- | -



|Total
      operating profit*                                                  | 
|------------------------------------------------------------------------------ | 
|                                                                              
|00/01
      £731.9m $1,039.3m                                                 
|                                                                              
|99/00
      £546.5m                                                           
|98/99
      £579.9m                                                           
|97/98
      £535.8m                                                           
|96/97
      £656.4m                                                           
|                                                                              
|* Before
      exceptional integration costs
        and goodwill amortisation



|Profit
      for the year (after tax and minority interests)*     
|------------------------------------------------------------------
|                                                                  
|00/01
      £390.4m $554.4m                                       
|                                                                  
|99/00 £358.5m                                                     
|98/99 £341.1m                                                     
|97/98 £340.6m                                                     
|96/97 £421.1m                                                     
|                                                                  
|* Before exceptional
      items
        and goodwill amortisation

National
  Grid has once more completed a year characterised by solid performance of our
  existing businesses and steady growth, driven by further expansion in the US.

Financial highlights

Total operating
  profit for 2000/01, before exceptional integration costs and goodwill amortisation,
  increased 34 per cent to £731.9 million. Profit after tax and minority
  interests, excluding exceptional items and goodwill amortisation, was up 8.9
  per cent to £390.4 million.

Basic earnings
  per share, excluding exceptional items and goodwill amortisation, increased
  2.2 pence to 26.5 pence. If telecoms start-up losses are also excluded, earnings
  per share were up 7.6 pence to 35.9 pence, an increase of 27 per cent. This
  figure gives the best indication of the performance of our core electricity
  businesses for the year.

The Directors
  are recommending a final ordinary dividend of 9.03 pence per share, which brings
  the total ordinary dividend for the year to 15.08 pence per ordinary share,
  an increase of 8.2 per cent (5 per cent in real terms). If approved, the final
  dividend will be paid on 15 August 2001 to shareholders on the share register
  on 1 June 2001.

Our confidence
  in our ability to continue delivering value to you, our shareholders, led us
  to announce our aim to increase dividends per share by 5 per cent real in each
  of the next five years. This attractive dividend policy, coupled with our strategy
  for growth, compares well with utilities in both the UK and the US.



---



|2 | Chairman's statement
      continued
|- | ------------------------------------



|Basic earnings per
      share*                                   | 
|----------------------------------------------------------------- | 
|                                                                 
|00/01 
      26.5p  37.6¢                                        
|                                                                 
|99/00 24.3p                                                      
|98/99 23.3p                                                      
|97/98 20.2p                                                      
|96/97 24.7p                                                      
|                                                                 
|* Excluding exceptional
       items   and goodwill  amortisation



|Ordinary dividends
      per share | 
|---------------------------------- | 
|                                  
|00/01 
      15.08p  21.4¢        
|                                  
|99/00 13.94p                      
|98/99 13.07p                      
|97/98 12.07p                      
|96/97 11.13p                      
|                                  

Share price
  performance and Total Shareholder Return (TSR) were affected by general market
  conditions and our exposure to the telecoms sector. While our TSR was negative
  at minus 2.6 per cent, our returns still outperformed those of the FTSE 100
  and FTSE All-Share Indices, both of which fell in value by more than 10 per
  cent during the year. Since flotation in 1995, we have delivered Total Shareholder
  Return of more than 200 per cent.

Exceptional
  net profits of £453.1 million have increased our equity, which gives us
  the flexibility to increase the cash component of the offer for Niagara Mohawk
  from the one-third initially proposed to about 50 per cent. This means we may
  be able to issue fewer new shares upon completion of the merger.

Performance highlights

The years
  highlights include a strong performance from our US electricity business in
  its first full year and continued delivery on our US strategy through the proposed
  acquisition of Niagara Mohawk. In the UK, the completion of a satisfactory regulatory
  review gives us a stable framework for our transmission business over the next
  five years. Despite larger than expected losses, Inteligs performance
  is improving and our other telecommunications ventures are progressing satisfactorily.

Strategy and growth highlights

Our strategy
  remains to design, build, operate and own reliable and efficient electricity
  and telecoms networks and to grow by transferring our electricity network skills
  to new electricity markets and to the telecoms sector.

In electricity,
  we continue to expand our transmission and distribution businesses, with the
  focus on the US where we can earn higher returns than in the UK. The proposed
  £2 billion ($3 billion) acquisition of Niagara Mohawk  our third
  and largest US acquisition based on service area and number of customers 
  will make National Grid the leading US electricity business focused exclusively
  on transmission and distribution. The stable and cash-generative nature of our
  US, UK and other electricity businesses supports earnings and dividend growth.

In telecoms,
  we have concentrated this past year on our start-up joint ventures, focusing
  on the wholesale and rapidly growing corporate markets. These ventures require
  the network construction and management skills on which National Grid has built
  its reputation and which we first transferred to the telecoms sector with Energis.
  They are important because, although loss-making and cash-absorbing in the early
  years, they offer the prospect of capital appreciation in the longer term.

Board changes

Roger Urwin,
  who has run the UK and European business for the last five years, took over
  as Group Chief Executive on 1 April 2001. As a Group Director, Roger has been
  actively involved in our diversification and development since flotation, including
  the move into the US. Our strategy under Roger is unchanged and, while he is
  providing continuity, he is also in a position to inject his own vigour and
  energy into the role of Chief Executive.

Roger succeeded
  David Jones, who retired at the end of March. In his seven years at the helm
  of the Company, David led our transformation from an electricity utility totally
  dependent upon UK regulation into a leading international electricity and telecoms
  networks company. David is highly respected for his vision, determination and
  integrity. We wish him the very best in his retirement.

We are extremely
  pleased that Steven Holliday has joined the Board, replacing Roger as Group
  Director, Europe and Chief Executive of the UK business. His career includes
  serving as an Executive Director of British Borneo Oil and Gas and nearly 20
  years at Exxon. He brings to the Company the right combination of operational
  experience and international business development acumen.



---



| | 3
| | -



|Group
      turnover from continuing operations
|-----------------------------------------------
|                                               
|00/01
      £3,799.7m $5,395.6m                
|                                               
|99/00 £1,614.7m                                
|98/99 £1,514.2m                                
|97/98 £1,519.3m                                
|96/97 £1,369.5m                                
|                                               
|                                               



|Interest
      cover*                                            
|-----------------------------------------------------------------
|                                                                 
|00/01
      2.9 times                                            
|                                                                 
|99/00 8.4
      times                                            
|98/99 4.9
      times                                            
|97/98 8.7
      times                                            
|96/97 11.1
      times                                           
|                                                                 
|* Excluding exceptional
        items and goodwill   amortisation



Along with
  Stephen Box, Group Finance Director, and Rick Sergel, Group Director in charge
  of our North and South American electricity businesses, we have a superb executive
  team.

Sadly, Wob
  Gerretsen, an Executive Director since 1995, died in October 2000. Wob is missed
  as a colleague and friend.

Looking forward

National
  Grids outlook for continued success and growth is positive. By continuing
  to exploit our assets and asset management strengths in our existing markets
  and by carefully choosing new markets in which we can apply our core network
  skills, we are confident we can continue to deliver solid performance, controlled
  growth and attractive shareholder returns.





---



|4 | Group
      Chief Executive's review
|- | ------------------------------------



UK
  Transmission

---

Owns and operates the electricity
  transmission network in England and Wales

- created
    at privatisation in 1990, floated as independent company in 1995
- 4,500
    miles of overhead transmission line
- 400 miles
    of underground cable
- controllable
    costs cut by 57% in real terms since 1991/92
- 25 GW
    of new generation connected to network since 1990



When National
  Grid was created in 1990, your Company was at the heart of the newly-restructured
  UK electricity industry. In the 11 years since, our fundamental objective has
  always remained to ensure secure and reliable electricity supplies wherever
  we operate.

With our
  expansion of the past few years, our operational objective has broadened to
  include the provision of electricity distribution and telecommunications networks,
  in addition to electricity transmission networks.

Electricity

Virtually
  all of the years £731.9 million operating profit before exceptional
  integration costs and goodwill amortisation came from the UK and US electricity
  businesses. UK Transmission operating profit was £486.3 million, while
  that of our US business was £293.6 million before exceptional integration
  costs and goodwill amortisation. Performance in the US was boosted by a growth
  in electricity deliveries of 2.4 per cent over the same period last year, reflecting
  a strong New England economy.

We sold
  our market services companies, ESIS, EPFAL, Datum Solutions and Teldata this
  year, because the services they provide no longer fit with our emphasis on network
  infrastructure. We also sold non-core businesses AllEnergy, EUA Ocean
  State Corporation and EUACogenex
  in the US.

UK TransmissionUK
  Transmission remains an important source of profits and expertise. Benchmarking
  shows that our employees continue to perform amongst the worlds best when
  it comes to operating a transmission system of this size and complexity. Winter
  peak system availability was 98.8 per cent and a record demand of 51,012 megawatts
  was met on 16 January 2001.

On 1 April
  2001, we began a new price control, giving our UK operations relative stability
  for the next five years. The resulting regulatory framework combines continued
  opportunity for profit with demanding cost reduction and efficiency targets,
  which we intend to meet through organisational streamlining, rationalising our
  property holdings and using new technology to help us to do business in a more
  cost-effective way.

New electricity
  trading arrangements came into effect on 27 March 2001, fundamentally changing
  the way power is traded in England and Wales (see page 13).

NEES and EUA acquisitionsIn March
  2000, we completed the acquisition of NEES for £2 billion and in April
  2000 the acquisition of EUA for £0.4 billion. Subsequently, computer systems
  containing data on more than a million customers and thousands of employees
  were merged, and operational processes integrated, in just 12 days thanks to
  extensive pre-planning, real top-to-bottom co-operation and professionalism
  on all sides.



---



| | 5
| | -

National
  Grid USA

---

- NEES
    acquired March 2000, EUA acquired April 2000
- companies
    integrated on 1 May 2000
- 5,100
    square mile service area
- 3,000
    miles of transmission network
- 31,000
    miles of distribution network
- 1.7 million
    customers





Niagara
  Mohawk

---

- acquisition
    approved by National Grid and Niagara Mohawk shareholders in January 2001
- 24,000
    square mile service area
- 128,000
    square miles of electricity network serving 1.5 million customers
- 9,000
    miles of gas network serving 0.5 million customers



---

We have
  since reduced annual controllable costs by 10 per cent or $40 million. Further
  efficiency savings of 20 per cent are expected by 2004.

US return
  on investment is up from 8.3 per cent when we announced the NEES acquisition
  to 9.3 per cent this year, on track to achieve our 10.5 per cent target by March
  2004. The US acquisitions were earnings-enhancing after goodwill amortisation
  in 2000/01  a year earlier than projected when the acquisitions were announced.

Niagara Mohawk acquisitionThe
  proposed acquisition of Niagara Mohawk represents another major step in delivery
  of our US strategy and will double the size of our US operations.

We have
  filed a rate plan proposal with New York regulators which provides initial rate
  reductions for customers, followed by a rate freeze. The plan includes incentives
  for strong customer service and reliable performance that will benefit customers
  and shareholders.

Sale of
  Niagara Mohawks interests in nuclear power stations, which was always
  desired before completion of the acquisition, is expected to close in 2001.

We are on
  track to complete the merger by the end of 2001, delivering value to shareholders
  and improved service to customers. The sheer geographical breadth of Niagara
  Mohawk represents an altogether largerchallenge
  than the integration of NEES and EUA. Nonetheless, we are planning for another
  smooth integration process that is seamless for customers and delivers early
  cost savings.

US distributionNational
  Grids distribution companies in New England continue to provide reliable
  electricity supplies at comparatively low cost and with high customer satisfaction.

Under long-term
  arrangements approved by regulators in Massachusetts and Rhode Island, we now
  have a greater ability to profit from performance improvements. Our performance
  in terms of reliability and customer satisfaction in 2000 allowed Massachusetts
  Electric to accrue $3.7 million in service quality incentives, to be earned
  and collected if and when accrued net incentives reach $20 million.

Our distribution
  companies are producing new efficiencies. For example, in the US, customer meters
  are required to be read monthly, resulting in significant costs. The introduction
  of automated meter-reading technology is enabling meters to be read much more
  cheaply by specially-equipped vehicles.

US transmissionWe are engaged
  in the national debate on how to reform the transmission sector, drawing on
  our UK experience with congestion management and incentive-based rates. New
  England congestion costs  exacerbated in part



---



|6 | Group Chief Executives
      review continued
|- | ----------------------------------------------

Interconnectors

---

- 4 interconnectors
    in operation: England-Scotland, England-France, England-Isle of Man
    and New England-Canada
- 1 interconnector
    project under development: Basslink in Australia
- 3 projects
    under study: England-Norway, England-Netherlands, England-Ireland

Transener

---



- Initial
    investment was in 1993
- we have
    42.5% stake in Transener's holding company Citelec
- 8,800
    miles of transmission line, including 800-mile 4th line commissioned
    in 1999
- operations
    in 2000/01 hit by worst tornado season in Transener's history



Copperbelt
  Energy Corporation

---



- National
    Grid invested in 1997
- we have
    38.6% stake
- privatization
    of copper mines competed in March 2000  has led to 10% increase
    in electricity
    demand and new connection to transmission system

---

by lack
  of transmission investment and incentives for operators  have risen about
  90 per cent in the past year, so the opportunity to reduce costs is substantial.

In January
  2001, with five other New England transmission owners and the Independent System
  Operator, we filed at the Federal Energy Regulatory Commission a proposal to
  create a Regional Transmission Organisation (RTO), comprising an Independent
  System Operator and an Independent Transmission Company. The filing is an important
  step towards improved transmission management in the region. We have also expressed
  interest in becoming the independent managing member of the proposed Alliance
  RTO, which will manage the transmission systems of ten companies in 11 states
  outside the north east.

When our
  proposed acquisition of Niagara Mohawk is complete, we will be by far the largest
  transmission operator in the northeastern region, enhancing our capability
  to pursue opportunities to apply our transmission asset management expertise
  in markets outside the north east. Our New York rate proposal for the Niagara
  Mohawk acquisition aims to incentivise improved management of transmission to
  help drive cost reductions.

CaliforniaCalifornias
  deregulated electricity industry made international headlines this year. New
  England is protected from many of the ills plaguing California, in part due
  to the industry restructuring and settlements we negotiated with Massachusetts
  and Rhode Island regulators. Not only are new power stations being built to
  meet demand growth in New England, but under our agreements we can negotiate
  long-term power purchase contracts and pass through wholesale fuel costs to
  retail customers. Niagara Mohawk has similar agreements with its regulators,
  which come into effect on 1 September 2001.

Other electricityOur transmission
  interconnectors from England to France and Scotland delivered operating profit
  of £42.8 million in 2000/01. The Basslink project in Australia is progressing
  through its development phase and potential interconnectors from England to
  Norway, the Netherlands and Ireland are being developed or studied. Our aim
  is to become a world leader in independent high-voltage direct current (HVDC)
  interconnectors.

Our electricity
  joint ventures, Transener in Argentina and Copperbelt Energy Corporation in
  Zambia, continue to make solid returns on our investment. This year they produced
  £18.6 million in operating profit for shareholders.

Sale of nuclear power
  stationsThe process
  of divesting our interests in nuclear generating units in the US has continued
  during the year. Millstone 3, of which we were a 16.2 per cent owner, was sold
  on 31 March 2001 to Dominion Resources Inc., providing us with $27.9 million
  and



---



| | 7
| | -

Intelig

---



- company
    created by National Grid and its partners in January 1999
- we have
    50% stake
- Brazil
    is 8th largest economy in world and largest in South America
- Brazil
    represents 45% of South American telecoms market  and growing
- 5,300
    miles of network built or leased, with 4,000 more miles being built in 2001



Manquehue
  net

---



- National
    Grid invested in May 2000
- our partners
    include the US telecoms company Williams Communications and MetroGas, a
    gas company operating in Santiago
- over
    81,000 lines in service
- more
    than 10,000 active internet subscribers

---

release
  from related obligations. Plans to divest Vermont Yankee and Seabrook 1 continue.

Telecoms

We continue
  to capitalise on our track record of transferring our electricity network skills
  to telecoms ventures that offer the opportunity for value creation in the longer
  term. Our share of the operating losses of our telecoms joint ventures was £121.4
  million before goodwill amortisation, of which £118.0 million was attributable
  to Intelig.

UK and European telecomsEnergis,
  the business telecommunications and internet services company we created in
  1993, continues to build its presence on the continent of Europe. In January,
  Energis acquired a majority interest in Ision, a leading German web-hosting
  company.

We still
  intend to sell our stake in Energis in the short to medium term, to realise
  a return on our investment and because we no longer add strategic value now
  that Energis is a fully established company in its own right and its UK network
  is complete.

In joint
  venture with Energis and following the Energis model of high-margin, high value-added
  services for the corporate market, we have created Energis Polska, which is
  building its network in order to offer services to business customers in Poland.

Under the
  name GridCom, we have formalised our business of installing and maintaining
  telecoms equipment on our UK transmission network. GridCom will use its project
  management skills to capitalise on the potential demand for mobile phone service,
  the need of 3G operators to install infrastructure and the sensitivity of the
  public to new masts. The combination of these factors should make our transmission
  network valuable to mobile telephone providers.

South American telecomsIntelig,
  our Brazilian joint venture with Sprint and France Telecom, experienced larger
  than expected losses. Our share of operating losses in the first half of the
  financial year was £69.7 million, but the situation is improving: our
  share of losses was reduced to £48.3 million in the second half, as tariffs
  were refined and co-billing arrangements were finalised with two local telecoms
  companies.

Following
  the cancellation of Sprints proposed merger with MCI Worldcom, the Brazilian
  regulator is again allowing Sprints participation and all three partners
  have renewed their commitment to Intelig. As a result of all these actions and
  increased focus on the higher-margin corporate data market, we expect to reduce
  significantly Inteligs operating losses in 2001/02 compared with 2000/01.

Silica Networks
  (formerly Southern Cone Communications) continues to build its extensive network.
  The northern arc of its network, linking the Argentine cities of Buenos Aires



---



|8 | Group Chief Executives
      review continued
|- | ----------------------------------------------

Silica
  Networks

---



- company
    created by National Grid and its partners in May 2000
- we have
    50% stake
- our partners
    are US telecoms company Williams Communications and Manquehue net
- northern
    arc of network fully operational in May 2001





NEESCom

---



- installs
    and leases dark fibre to telecoms operators
- current
    network primarily in Massachusetts and Rhode Island
- link
    to Albany, New York State, under construction  NEESCom's first
    connection outside
    New England

---

and Cordoba,
  went into full commercial operation on 17 May 2001, just a year after the creation
  of the business.

Manquehue
  net in Santiago, Chile, continues its expansion with a broader focus on the
  business market. The company has achieved its own bond issue of $100 million
  and has received an A- investment rating.

US telecomsNEESCom,
  our telecoms infrastructure provider in the US, is performing well and growing.
  Operating profit before goodwill amortisation was £2.9 million. NEESCom
  is extending its network, including a link to Albany, New York  its first
  connection outside New England.

Serving
  people, communities and the environment

By providing
  safe, cost-effective and reliable networks, and by recognising the issues that
  inevitably arise when you run large infrastructure-intensive businesses, we
  strive to address the needs of our many constituents, including our own people.

Tragically,
  the importance of the need to be attentive was brought starkly home to us when
  Massachusetts Electric substation worker Robert Lydon was killed, and two other
  employees were critically injured, in an explosion in January 2001. We made
  immediate changes to our safety awareness and operations programmes as a result.
  We can never be too vigilant where safety is concerned, and we will be taking
  further initiatives this year.

On the positive
  side, we worked hard to earn Investors in People status in the UK, which signifies
  that we demonstrate superior practice in all areas of staff training and development.

In our everyday
  activities, we strive to be alert to local concerns, and we conduct tailored
  programmes designed to give something extra back. Increasingly, our efforts
  to be a good corporate citizen are based on a three-pronged sustainable development
  concept, which gives equal importance to the environmental, social and economic
  impacts of the business.

We are very
  pleased that our ranking in Business in the Environments Index of Corporate
  Environmental Engagement for the FTSE 100 jumped from 44th to 24th this year.
  Our US business implemented an ISO 14001-compatible Environmental Management
  System this year, following the UK businesss accreditation to this international
  standard last year.

The past
  year saw the publication of several important studies on electric and magnetic
  fields (EMFs). None of these established a causal link between electricity lines
  and cancer, but we continue to support research on this important subject and
  to keep the issue under close review.



---



| | 9
| | -

Energis
  Polska

---



- company
    created by National Grid and its partners in January 2000
- we currently
    have 23.75% stake
- our partners
    are Energis, PKP (the Polish national railway company) and Centrala
    (a local telecoms operator)
- 3,100
    miles of network leased, 1,700 miles under construction
- Poland
    is largest market in Central Europe



Energis

---



- created
    by National Grid in 1993
- floated
    on London Stock Exchange and NASDAQ in 1997
- our original
    investment was £0.5 billion
- since
    1997, we have extracted cash of over £2.2 billion
- expanding
    to build significant position in Continental Europe

GridCom

---



- provides
    infrastructure, project management and maintenance skills to mobile phone
    service operators
- offer
    of services began in 1997
- launched
    under GridCom name in May 2001
- 260 masts
    installed on transmission network to date

---

Outlook

We expect
  2001/02 to be another year of strong performance from our wholly-owned and joint
  venture electricity businesses, with continued progress in our start-up telecoms
  joint ventures.

Objectives
  looking forward are as follows:

- US electricity:Secure the frontier position amongst electricity delivery companies in the north-eastern
  US in terms of cost and service; integrate Niagara Mohawk into the US company;
  continue to drive industry consolidation for the benefit of customers and shareholders;
  and create transmission business opportunities.
- UK electricity:Meet, and strive to exceed, the efficiency demands of the new price control
  while maintaining reliable electricity supply; and capitalise on our asset management
  expertise to develop new areas of growth in the UK and elsewhere.
- Telecoms:Continue developing our start-up ventures; and monitor liberalising markets
  to identify opportunities where our network skills can be applied to create
  value.
- Accomplish
  these objectives while maintaining secure and reliable networks, developing
  innovative solutions to facilitate competition and contributing to the communities
  we serve and to a sustainable economy.

In short,
  we will utilise our network and asset management skills to drive the Company
  forward and continue on a path of controlled growth to create shareholder value.

This commitment
  to creating value runs throughout the Company, for your investment is also ours
   over 90 per cent of National Grids staff are shareholders. It is
  the collective commitment of all our people  from line workers and engineers
  to customer service representatives and accounting staff  that allows
  us to increase shareholder value.





---



|10 | Operating
      and financial reviewBusiness review
|-- | ---------------------------------------------------

About National Grid

National
  Grid is an international provider of electricity and telecommunications networks.

Our principal
  UK activity is the ownership and operation of the high-voltage transmission
  network in England and Wales. Following the acquisition of the businesses now
  forming National Grid USA in 2000, we are involved in the transmission and distribution
  of electricity in the north-eastern US. We are developing a major interconnector
  in Australia and, with joint venture partners, operate transmission networks
  in Argentina and Zambia.

Our involvement
  in telecommunications network activities began in 1993 with the establishment
  of Energis, in which we currently retain an economic interest of 32.7 per cent.
  Building on the skills we acquired in the development of Energis, we are involved
  with joint venture partners in telecommunications projects in Poland, Brazil,
  Argentina and Chile.

Business strategyAt its creation
  in 1990, National Grid derived the vast majority of its turnover and operating
  profit from regulated charges for the services provided by the UK Transmission
  business. Our strategy has been, and continues to be, to create value by developing
  new businesses, alone or with partners, which build on our existing assets,
  skills and resources.

Our core
  skills are in designing and constructing complex networks and operating them
  efficiently in real time. The application of our expertise to electricity and
  telecommunications network activities offers complementary benefits:

- electricity
    network businesses are typically regulated and stable: the application of
    our skills to produce efficiency improvements and cost savings generates cash
    for investment and the earnings to support our progressive dividend policy.
- telecommunications
    infrastructure ventures harness our technical skills and resources: while
    they absorb cash in their development phase, they offer the prospect of significant
    capital growth in the longer term.

As a result
  of this strategy, National Grid has grown from a regulated electricity utility
  operating within the UK into an expanding international business. Entry into
  the US, the worlds largest economy, was achieved in March 2000 when we
  acquired NEES, now National Grid USA. The acquisition of EUA followed on 19
  April 2000 and the companies were successfully integrated on 1 May 2000.

Acquisition of Niagara
  MohawkOur activities
  in the US will be enlarged through the acquisition of Niagara Mohawk Holdings,
  Inc. (Niagara Mohawk). Subject to regulatory approvals, completion is expected
  towards the end of 2001.

Niagara
  Mohawk is the second largest combined electricity and gas utility in New York
  State, serving over 1.5 million electricity customers and 0.5 million gas customers.
  It represents a very good fit with our existing US electricity businesses, consolidates
  our position in the north-eastern US and offers us substantial opportunities
  for improved financial performance.

Following
  completion of this acquisition, we expect that over half the electricity operating
  profits of the enlarged Group, before exceptional items and amortisation of
  goodwill, will originate outside the UK, compared with about 36 per cent in
  2000/01.



---



| | 11
| | --



|                                               
|-----------------------------------------------
|Analysis
      of UK Transmission turnover (£m)
|                                               
|                                               
|                                               
|Source                                         
|                                               
|                                               
|                                               
|Revenue-controlled
      charges               
|                                               
|Transmission
      Services Scheme (TSS)1      
|                                               
|Ancillary
      services                       
|                                               
|Post-1990
      connection charges             
|                                               
|Balancing
      services use of system charges2
|                                               
|Other                                          
|                                               
|                                               
|                                               
|Total turnover                                 
|                                               
|                                               
|                                               
|UK
      Transmission operating profit         
|                                               

Electricity
  networks
  England and Wales

Our role in the changing
  electricity marketNational
  Grid owns and operates the electricity transmission network in England and Wales,
  consisting of approximately 4,500 miles of overhead line, approximately 400
  miles of underground cable and some 300 substations. Control of the transmission
  network is undertaken from the National Grid control centre in Berkshire.

From 1990
  until March 2001, we provided a range of services to the Pool, the trading mechanism
  through which the great majority of electricity was sold and purchased in England
  and Wales. Following reviews undertaken by the Department of Trade and Industry
  (DTI) and the Office of Gas and Electricity Markets (Ofgem), the Pool was replaced
  on 27 March 2001 by new electricity trading arrangements, known as NETA.

We have
  played a major role in the development, implementation and operation of the
  new arrangements, which are largely based on bilateral contracts between market
  participants and represent a decisive shift towards commodity trading in electricity.
  We are still responsible for the essential task of balancing generation and
  demand for electricity in real time, but our commercial incentives and contractual
  relationships have changed significantly.

2000/01
  was the last year of Pool trading and also of the Transmission Services Scheme
  (TSS) through which we managed those elements of Pool prices which arose directly
  from the transportation of electricity. Since its introduction in 1994, the
  TSS and its forerunners have produced total savings for Pool purchasers of nearly
  £500 million and have contributed a total of some £121 million to
  National Grids profits.

The implementation
  of NETA coincided with the introduction of new five-year regulatory controls
  on revenues from our Transmission Owner and System Operator
  activities. Further information on the new market arrangements, including our
  revised commercial and regulatory incentives and operational responsibilities,
  is given on page 13.

UK TransmissionFinancial
  performanceUK Transmission turnover
  was £1,315.6 million, compared with £1,319.7 million in 1999/2000
  and £1,310.1 million in 1998/99.

UK Transmission
  operating profit was £486.3 million, compared with £523.1 million
  in 1999/2000 and £508.1 million in 1998/99.

The £36.8
  million reduction in operating profit in 2000/01 was mainly as a result of the
  operation of the revenue restriction and a lower profit contribution from the
  TSS. These adverse factors were partially offset by a 3 per cent real reduction
  in transmission controllable costs. With the real reductions of 3 per cent,
  4 per cent and 14 per cent achieved in 1999/2000, 1998/99 and 1997/98 respectively,
  we have met our target of achieving an average real reduction in controllable
  costs of 6 per cent a year over the four-year period of the revenue restriction.

The £15.0
  million increase in operating profit in 1999/2000 resulted from an increase
  in controlled revenue, a higher contribution from the TSS and the 3 per cent
  real reduction in transmission controllable costs referred to above.

Revenue-controlled
  charges:In any year, our maximum allowed revenue from controlled charges
  is derived from the charge restriction formula set out in the transmission licence
  and includes any amounts under- or over-recovered in previous years. In advance
  of each financial year, we estimate our maximum allowed revenue for the year
  ahead and set our charges to recover that amount. The actual revenue recovered
  may differ from our target, for example if customers use of the transmission
  network is higher or lower than our estimate at the time of setting charges.



---



|12 | Operating and financial
      reviewBusiness review
      continued
|-- | -------------------------------------------------------------------



|Real
      reductions in controllable transmission costs* (£m)
|--------------------------------------------------------------
|                                                              

In 1999/2000,
  actual revenue from controlled charges was £873.6 million and included
  £26.5 million (including interest) of revenue under-recovered in previous
  years. However, this total amount fell short, by £3.9 million, of our
  maximum allowed revenue.

In 2000/01,
  the actual revenue recovered of £849.3 million was £17.0 million
  higher than our maximum allowed revenue. This over-recovery will be returned
  to customers, with interest, through reductions in controlled charges in future
  years.

In accordance
  with UK Generally Accepted Accounting Principles (UK GAAP), the total actual
  revenue from controlled charges is recognised in the accounts, irrespective
  of whether the revenue actually received represents an under- or over-recovery
  against our maximum allowed revenue.

Transmission
  Services Scheme:The TSS profit margin was £16.8 million in 2000/01
  compared with £27.3 million in 1999/2000 and £11.0 million in 1998/99.
  The TSS profit margin in 1999/2000 was particularly high, predominantly as a
  result of favourable generator bidding behaviour.

The TSS
  ended with the implementation of NETA on 27 March 2001 and has been replaced
  by the new balancing services incentive arrangements described on page 13.

Operating performance16 January
  2001 saw the highest demand for electricity ever recorded on the transmission
  network in England and Wales: at 51,012 MW, this compared with the previous
  record peak demand of 50,587 MW on 18 December 1999. Winter peak availability
  was 98.8 per cent, compared with 99.2 per cent in 1999/2000 and 99.3 per cent
  in 1998/99. The lower level of availability during the winter of 2000/01 was
  largely attributable to long-term repairs to major cable circuits running through
  the Dartford road tunnel.

Investment in the transmission
  networkCapital expenditure
  on the renewal, reinforcement andextension
  of the transmission network in 2000/01 was £361.2 million including interest
  capitalised, compared with £286.5 million in 1999/2000 and £314.0
  million in 1998/99. Major projects progressed during the year include new customer
  connections at Northfleet East in Kent, a new underground cable route into Central
  London and the refurbishment of overhead transmission lines.

In July
  2000, we received approval from the UK Government to start work on a new transmission
  line in North Yorkshire. Preparatory works, including delivery of the cable
  required for underground sections, progressed well during the remainder of 2000,
  with main construction scheduled to start in Spring 2001. However, work on the
  project, and on other routine maintenance and construction, was suspended because
  of the outbreak of foot and mouth disease.

New connections
  were commissioned during the year for a 400 MW combined cycle gas turbine (CCGT)
  generating station at Cottam Development Centre in Lincolnshire and a 410 MW
  CCGT at Seabank near Bristol. These projects bring to 25 GW the total new generating
  capacity connected to the network since March 1990. In the same period, some
  22 GW of generation has closed.

In November
  2000, the UK Government announced that it was relaxing, with immediate effect,
  its restriction on the construction of new gas-fired generating stations and
  has subsequently given consent for seven power stations with a combined capacity
  of 5.3 GW. We have signed 24 connection agreements during the year for nearly
  10 GW of potential new generating capacity and 800 MVA of potential new demand,
  although our past experience indicates that not all of these projects will proceed.



---



| | 13
| | --



|Transmission
      congestion management
|----------------------------------------
|                                        



|UK Transmission
      capital expenditure 2000/01
|-------------------------------------------------
|                                                 
|(A)                                              
|(B)                                              
|(C)                                              
|(D)                                              
|                                                 
|Total
      spend                                
|                                                 
|1
      Including interest capitalised           

The new framework for
  UK TransmissionNew electricity
  trading arrangementsThe new electricity trading
  arrangements introduced on 27 March 2001 represent a fundamental change in the
  way that electricity is bought and sold in England and Wales. Generators and
  suppliers now contract directly with each other, rather than selling their output
  or purchasing their requirements through the Pool.

Our role
  has also changed fundamentally. We no longer rank generation in order of bid
  price or issue instructions for its operation. Instead, we fulfil our responsibility
  for matching generation and demand through a new balancing services activity.
  We accept from generators and suppliers bids (proposed trades to
  decrease generation or increase demand) or offers (proposed trades
  to increase generation or decrease demand) as necessary to enable us to maintain
  the balance between generation and demand in real time throughout the day.

The new
  arrangements have involved significant changes for our control centre. These
  include the requirement for generators to notify us of their proposed pattern
  of operation31⁄2 hours
  ahead of real time and to self-despatch  that is, to operate
  their plant in accordance with their declared intentions without instructions
  from National Grid. The secure and economical operation of the power system
  relies on compliance by generators with their declared intentions, and we therefore
  monitor their output closely.

Since implementation,
  it is generally the case that more generation has declared an intention to operate
  than is required to meet system demand. As a result, approximately 70 per cent
  of the bids and offers accepted by National Grid in the balancing market have
  been for reductions in generation or increases in demand. On average, about
  75 balancing actions currently take place every hour of the day.

New transmission revenue
  restrictionTo reflect
  our new responsibilities under NETA, our transmission activities have been separated
  for regulatory purposes into the two distinct roles of transmission asset owner
  and system operator:

- As transmission
    asset owner(TO), we are responsible for the development, operation and
    maintenance of the transmission network, recovering our costs from charges
    to generators, suppliers and distributors.Our revenue from these
    charges, including a return on capital employed, is regulated by means of
    a new revenue restriction introduced on 1 April 2001. This permits our total
    revenue from controlled charges to increase each year in line with the UK
    Retail Price Index (RPI), minus an efficiency factor, X, which has been set
    by the regulator at 1.5 from 1 April 2002.The
    new revenue restriction provides us with a stable framework for five years,
    a year longer than the previous regulatory control. We are confident that
    we can reduce TO controllable costs by 20 per cent over the five years to
    March 2006, exceeding Ofgems targets, through measures including organisational
    streamlining, the rationalisation of property holdings and the use of new
    technology to help us to do business in a more cost-effective way.
- As system
    operator(SO), we are responsible for the control of the transmission
    system, including the balancing services activity and the procurement of the
    ancillary services required to ensure network security and stability.
    Our revenue from charges to system users for provision of the balancing services
    activity is regulated by means of a new Balancing Services Incentive Scheme
    (BSIS) which replaced the TSS on 27 March 2001. The BSIS sets a target for
    the costs we incur in balancing the network in the period up to 31 March 2002.
    If we manage costs below £471 million, we will retain 40 per cent of
    the savings, up to a maximum potential income of £45 million. However,
    if costs are more than £500 million, we will bear 12 per cent of the
    excess, up to a maximum potential liability of £15 million.



---



|14 | Operating and financial
      reviewBusiness review
      continued
|-- | -------------------------------------------------------------------

UK InterconnectorsUK Interconnectors
  operating profit was £42.8 million in 2000/01 compared with £46.6
  million in 1999/2000 and £39.5 million in 1998/99. The level of profit
  in 1999/2000 reflected exceptionally high levels of Pool capacity payments under
  the terms of our contracts with Electricité de France and high levels
  of transfers from France in the first half of that financial year.

FranceAvailability of the National
  Grid assets making up the French interconnector was 96.6 per cent in 2000/01,
  compared with 95.5 per cent in 1999/2000 and 97.3 per cent in 1998/99. In energy
  terms, a total of 14.1 TWh of electricity were transferred over the interconnector,
  compared with 14.2 TWh in 1999/2000 and 12.3 TWh in 1998/99.

New contractual
  arrangements for the use of the French interconnector came into effect on 1
  April 2001. The new arrangements provide for the auctioning of blocks of interconnector
  capacity, on timescales ranging from three years to one day.

Auctions
  for three-year and annual blocks representing about 50 per cent of the capacity
  of the interconnector have been completed and will produce income of some £16.5
  million in the financial year beginning 1 April 2001. The remaining capacity
  will be offered in daily auctions throughout the year. The prices realised at
  auction for this capacity will inevitably reflect the prices available to prospective
  users in the electricity market and we anticipate that income in 2000/01 may
  be lower than in previous years.

ScotlandNational Grids transmission
  network is interconnected with that of ScottishPower UK plc, which in turn is
  interconnected with that of Scottish and Southern Energy plc. The interconnector
  has a nominal transfer capability of 1,600 MW, but this can be limited by system
  conditions to lower levels. Work is in progress to increase the capability of
  the interconnector to 2,200 MW, but fullavailability
  of this increased capability depends on the completion of the new transmission
  line in North Yorkshire described above.

Availability
  of the National Grid assets making up the Scottish interconnector was 99.8 per
  cent in 2000/01, compared with 99.9 per cent in both 1999/2000 and 1998/99.
  In energy terms, a total of 8.8 TWh of electricity were transferred over the
  interconnector, compared with 11.8 TWh in 1999/2000 and 10.8 TWh in 1998/99.

Isle
  of ManA new 40 MW interconnector
  linking the Isle of Man electricity system with Norwebs distribution network
  was commissioned in October 2000 and often carries most of the islands
  electricity supply. National Grid owns 50 per cent of this joint venture with
  the Manx Electricity Authority (MEA). The total capacity of the interconnector
  has been leased to the MEA and our income will be related to its availability.

Interconnectors
  business developmentWhere there is potential
  for trading between electricity markets, we have an opportunity to extract value
  from our interconnector skills by designing, building and operating new interconnectors.
  Possible new interconnectors under investigation include a proposed submarine
  cable between the north-east coast of England and the south-west coast of Norway.
  We signed a joint development agreement with the Norwegian grid operator Statnett
  in February 2000 and are discussing with planning authorities in England possible
  points of connection to our transmission network. Construction of the interconnector,
  which will have a capacity of about 1,000 MW, could start in 2002 at an estimated
  cost to National Grid of some £200 million.

Our involvement
  in the Basslink interconnector project in Australia is described on page 24.

Other activitiesTotal operating
  profit from other activities in 2000/01 was £0.8 million, compared with
  £2.0 million in 1999/2000 and



---



| | 15
| | --

£29.3
  million in 1998/99. Operating profit from other activities in 1999/2000, at
  £2.0 million, was £27.3 million lower than in 1998/99. This reduction
  reflects the release to the profit and loss account of £15.2 million of
  provisions as a consequence of the implementation of Financial Reporting Standard
  12: Provisions, Contingent Liabilities and Contingent Assets (FRS 12) and increased
  losses in our UK and US metering businesses.

Market servicesDuring the
  year, we concluded that certain of our market services activities were no longer
  core to our business.

Accordingly,
  we disposed of Energy Settlement and Information Systems Limited (ESIS), Energy
  Pool Funds Administration Limited (EPFAL) and of our two energy metering subsidiaries,
  Datum Solutions in the UK and Teldata in the US. Sales of these businesses gave
  rise to a net exceptional profit of £20.1 million.

We retain
  a 75.0 per cent interest in EnMO, which provides the On-the-day Commodity Market
  (OCM) for gas trading in Great Britain.

Fixed assets in the UKAgreements
  with landowners or occupiers are required for the overhead lines and underground
  cables which make up our network in England and Wales. Approximately
  80 per cent of agreements are in the form of terminable wayleaves. The remaining
  20 per cent are in the form of perpetual easements under which rights have been
  granted in perpetuity in return for a lump sum payment.

Of the 220
  sites at which we have substations, 160 are freehold and approximately 60 are
  leasehold: of leasehold sites, the large majority are substations located on
  the premises of generators and are held on very long-term leases for nominal
  rental payments. Of the remaining sites, the majority are held as ground rents
  (market price payable for land only) from the respective landlords, who include
  electricity distribution companies.

We own the
  freehold of the National Grid control centre in Berkshire, the engineering research
  establishment at Leatherhead in Surrey, the national stores building at Didcot
  in Oxfordshire and the learning and development centre at Eakring in Nottinghamshire.
  We have major office buildings in Coventry (125-year ground lease from 1990),
  London (freehold and 13-year lease from 2000), Leeds (freehold) and Birmingham
  (freehold).



---



|16 | Operating and financial
      reviewBusiness review
      continued
|-- | -------------------------------------------------------------------

Electricity
  networks 
  United States

In the
  following section, operating profit is defined as operating profit
  before exceptional integration costs and amortisation of goodwill unless otherwise
  stated.

The total
  operating profit of National Grid USA in 2000/01 was £293.6 million. This
  included:

- £154.8
    million profit from Distribution;
- £49.6
    million from Transmission;
- £61.7
    million from stranded cost recovery and generation and £7.9 million
    from nuclear generation joint ventures;
- £22.3
    million from the US-Canada interconnector; and
- £2.9
    million from Telecoms.

On 22 March
  2000, National Grid acquired NEES, now renamed National Grid USA, at a cost
  of approximately £2 billion. On 19 April 2000, National Grid USA acquired
  EUA at a cost of approximately £0.4 billion. The companies were integrated
  on 1 May 2000. The acquisitions were earnings-enhancing after goodwill amortisation
  in 2000/01, a year earlier than we expected.

National
  Grid USA operates a network of approximately 3,000 miles of transmission lines
  and 31,000 miles of distribution network. Our subsidiary company New England
  Power (NEP), which incorporates a former EUA company, Montaup Electric, is responsible
  for the operation of the transmission network and delivery of electricity in
  bulk to our four distribution companies:

- Massachusetts
    Electric, which incorporates a former EUA distribution company, Eastern Edison,
    and serves approximately 1.2 million customers in Massachusetts;
- Narragansett
    Electric, which incorporates two former EUA distribution companies, Blackstone
    Valley Electric and Newport Electric, and serves approximately 470,000 customers
    in Rhode Island;
- Granite
    State Electric, which serves approximately 39,000 customers in New Hampshire;
    and
- Nantucket
    Electric, which serves approximately 11,000 customers on Nantucket Island,
    off the coast of Massachusetts.

We have
  minority interests in two operating nuclear generating units, which we are seeking
  to divest. We also have a telecommunications company, NEESCom, which installs
  and leases dark fibre on National Grid USAs infrastructure. For more information
  about NEESCom, please see page 26.

Operating environmentElectricity
  industry restructuringUntil 1998, NEP met all the
  electricity requirements of the distribution companies, operating its own generating
  capacity and purchasing electricity under long-term contracts for this purpose.
  The distribution companies in turn supplied electricity to all retail customers
  within their respective service territories.

From 1998
  onwards, the electricity industry inMassachusetts,
  Rhode Island and New Hampshire was restructured. The retail electricity supply
  market was opened to competition, giving all electricity delivery customers
  a choice of supplier. At the same time, National Grid USA was required by the
  regulatory authorities in these states to divest its generating capacity.

The regulatory
  settlements permit National Grid USA to recover 100 per cent of NEPs investment
  in generation-related assets, fossil and nuclear, along with any generation-related
  regulatory assets. The unrecovered amount  known as stranded costs 
  is made up of the unamortised generation investments, net of proceeds and related
  contractual commitments. These stranded costs



---



| | 17
| | --

are passed
  on to wholesale customers, including the distribution companies, through a contract
  termination charge (CTC). The distribution companies in turn are allowed to
  recover these costs through delivery charges to all retail customers.

Standard
  offer and default obligationsUnder the restructuring arrangements,
  we are obliged to sell electricity through a standard offer service to retail
  customers who have chosen not to select an alternative supplier. In 2000/01,
  80 per cent of electricity supplied by the distribution companies was on standard
  offer terms. In addition, we are required to provide a default service to customers
  who have not selected a power supplier and are not eligible for standard offer
  service, including customers who initially selected an alternative supplier
  but now wish to be supplied by their local distribution company and, in Massachusetts,
  new customers.

Almost all
  of the electricity required to supply standard offer customers is purchased
  under long-term contracts. Electricity to meet the requirements of default service
  customers is purchased on the wholesale market. During 2000/01, the costs of
  purchasing electricity to meet the requirements of standard offer and default
  customers rose significantly as a result of increases in oil and gas prices.

Under regulatory
  orders, electricity purchase costs for the default service are passed on to
  customers. The standard offer terms provide for adjustment in response to fuel
  prices, subject to regulatory approval. After regulatory hearings in each state,
  the distribution companies have been permitted to increase their standard offer
  rates to align revenues with the cost of purchasing electricity.

NEP has
  a continuing obligation until 2009 to provide a transitional electricity supply
  to new customers (since January 1998) in Rhode Island in return for a formula-based
  rate. It is uncertain whether the revenues collected through the formula rate
  will cover the costs of meeting this obligation. Due to current high marketprices for
  electricity, NEP incurred losses of approximately $4.7 million in 2000/01 in
  providing these transitional supplies.

The California
  energy crisisThe increases in oil and
  gas prices, as well as the inability of generating companies to meet customer
  demand, have contributed to the energy crisis in California. There have been
  widespread power shortages and a subsidiary of Pacific Gas and Electric (PG&E),
  a major utility in the state, has filed for bankruptcy protection.

Other factors
  contributing to the crisis are that:

- no significant
    new generating capacity has been completed in California in the past 10 years,
    despite an expanding state economy;
- California
    has high reliance on imports of electricity from other Western states, but
    imports have been restricted because of low rain/snowfall in hydro areas and
    increased demand within the Western states;
- distribution
    companies have faced dramatic increases in wholesale electricity prices and
    have, until recently, been unable to adjust their charges to retail customers
    because of Californias restructuring laws; and
- until
    recently, utilities in California have been obliged to buy all of their supply
    on a daily or spot market basis.

The problems
  encountered in California have not been experienced in the north-eastern US
  where the regulatory arrangements for the electricity industry are fundamentally
  different. In addition:

- the construction
    of new generating capacity in the north east has continued, reducing the regions
    dependence on electricity imports;
- the value
    of establishing long-term electricity purchase contracts is recognised by
    our regulators and we therefore have long-term contracts to meet most of our
    supply obligations to customers; and



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- the terms
    of our rate plans, as approved by the New England regulators, allow us to
    recover the costs of wholesale power from customers.

For these
  reasons, we do not believe that the north east is at risk to the severe difficulties
  being encountered in California.

System developmentWe continue
  to experience strong load growth, especially in the commercial sectors, but
  growth could be adversely affected by a general slowdown in the US economy.

During 2000,
  we completed a new 115 kV underground cable and extensions to an existing substation
  to ensure a reliable electricity supply to the city of Quincy in Massachusetts.
  To meet customer demand, we have identified a need for 12 new substations over
  the next few years, of which six are already under construction.

An automated
  meter-reading project to enable us to retrieve monthly usage information electronically
  is currently in progress. Approximately 300,000 residential customer meters
  are being converted in Rhode Island. The project in Rhode Island is scheduled
  for completion by the end of 2001. Currently, most of the units that have been
  installed are being read by specially-equipped vehicles. Work has recently begun
  in Massachusetts to convert 800,000 meters by 2003.

OperationsIn May 2000,
  we began service quality monitoring programmes with state regulators in Massachusetts
  and Rhode Island which compare actual performance to historical results and
  encourage continued improvements in the areas of reliability, customer service,
  safety and line losses. Overall performance during 2000 was strong, especially
  in the areas of customer satisfaction and reliability. The programme is measured
  on a calendar year basis and overall results of the programme between 1 May
  and 31 December 2000 can be found under Massachusetts Electric and
  Narrangansett Electric below.

DistributionFinancial
  performanceDistribution operating profit
  for 2000/01 amounted to £154.8 million. This performance reflects volume
  growth of 2.4 per cent over the same period last year.

Regulation
  of distribution ratesNew distribution rate plans
  came into force on 1 May 2000 for Massachusetts Electric and Narragansett Electric
  to reflect their integration with former EUA subsidiaries.

Massachusetts
  ElectricUnder the Massachusetts Electric
  distribution rate plan approved by the Massachusetts Department of Telecommunications
  and Energy (MDTE), distribution rates were reduced by $10 million on 1 May 2000
  and will remain frozen until the end of February 2005. From March 2005 to the
  end of December 2009, changes in distribution rates will be linked to changes
  in the regional average of distribution rates of similarly unbundled investor-owned
  utilities in New England, New York, New Jersey and Pennsylvania. Based on a
  pre-determined formula, annual merger-related savings achieved up to the end
  of 2009 will be calculated and shared between customers and Massachusetts Electric
  in 2010 to 2019.

The rate
  plan also includes annual service quality incentives and penalties based on
  performance in areas including reliability and customer satisfaction. Results
  from operating performance between 1 May and 31 December 2000 allowed Massachusetts
  Electric to accrue $3.7 million in service quality incentives, which are eligible
  to be collected from customers and reflected in earnings if and when the company
  accrues an aggregate of $20 million of such incentives, net of any penalties.

Narrangansett
  ElectricUnder the rate plan for Narragansett
  Electric approved by the Rhode Island Public Utilities Commission (RIPUC), distribution
  rates were reduced by approximately $13 million on 1 May 2000 and will remain
  frozen until 2004. During the rate freeze, Narragansett is permitted



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| | 19
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to retain
  earnings up to 12 per cent return on equity. Any earnings between 12 per cent
  and 13 per cent will be shared equally with customers. If earnings exceed 13
  per cent, the excess will be divided between customers and the company, with
  customers receiving 75 per cent.

After 2004,
  distribution rates will be set by the RIPUC in accordance with Narragansetts
  cost of service, but the company will be able to include in its cost of service
  its share of the efficiency savings produced by the merger of Blackstone Valley
  and Newport Electric into Narragansett. The merger savings will be determined
  in a proceeding before the RIPUC in either 2002 or 2003. Narragansett will be
  permitted to include 50 per cent of the savings as an expense in its cost of
  service from 2004 until 2019, subject to verification in 2007.

The Narragansett
  rate plan also contains service quality provisions based on penalties for poor
  performance in areas including reliability and customer satisfaction. Good performance
  in one category can generally be used to offset penalties in other categories.
  Operating performance between 1 May and 31 December 2000 resulted in a net offset
  of $0.1 million, and accordingly there was no cumulative penalty as of 31 December
  2000.

Granite
  State Electric and Nantucket ElectricThe current rates for Granite
  State Electric became effective in July 1998. Nantucket Electrics distribution
  rates are linked to Massachusetts Electrics rates and became effective
  on 1 May 2000.

TransmissionFinancial performanceUS Transmission contributed
  £49.6 million to total operating profit in 2000/01.

Transmission
  ratesNEPs rates are subject
  to regulation by the Federal Energy Regulatory Commission (FERC). For the most
  part, NEPs current unbundled rates consist of CTCs and transmission charges.
  NEPs transmission charge ofapproximately
  0.5 cents per kWh is determined by a formula designed to enable NEP to recover
  its actual costs, plus a return on actual capital employed.

Transmission
  business developmentNational Grid USA participates
  in the New England Power Pool (NEPOOL). NEPOOL co-ordinates the operation of
  its members generation and transmission facilities. The despatch of generation
  across New England is carried out by an independent system operator, ISO New
  England.

We presented
  to the FERC in January 2001 a joint proposal, with ISO New England and other
  utilities in New England, for a Regional Transmission Organisation (RTO) in
  the north-eastern US. The RTO would consist of an Independent System Operator
  with responsibility for administering a competitive wholesale market in electricity
  and an Independent Transmission Company (ITC) offering transmission services
  and undertaking transmission network development and the provision of connections
  for new generation. The proposal responds to the FERCs objective, set
  out in its Order 2000", of separating transmission operations from market
  participation and would give the ITC, of which National Grid USA would be a
  member, financial incentives to deliver greater value for customers and shareholders.

Separately,
  National Grid USA is interested in becoming the independent managing member
  of the proposed Alliance RTO, which will manage the transmission systems of
  ten companies in 11 states outside the north east. In order to fulfil this role,
  National Grid USA must establish that it is not an electricity market participant
  in the region to be served by the Alliance RTO and has applied to the FERC for
  a declaratory order to that effect. The FERC is expected to issue its decision
  by the end of July 2001.

InterconnectorsFinancial
  performanceUS Interconnectors have contributed
  £22.3 million to total operating profit in 2000/01.



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Hydro
  Quebec interconnectorThe electricity networks
  in New England are interconnected with that of Hydro Quebec in Canada by means
  of a 450 kV DC interconnection. The nominal transfer capability is currently
  1,800 MW, but operational capacity can be restricted by operating limitations
  in neighbouring power pools.

Part of
  this interconnector, located in New Hampshire, is owned and operated by a wholly-owned
  subsidiary of National Grid USA. Through two other subsidiary companies, we
  have an ownership interest of some 54 per cent in the expanded second phase
  of the interconnector, consisting of approximately 133 miles of high-voltage
  DC transmission line, an alternating current terminal and related facilities
  in New Hampshire and Massachusetts.

With other
  NEPOOL participants, NEP has entered into support agreements which guarantee
  its share of debt financing for the second phase of the interconnector. At 31
  March 2001, NEP had guaranteed approximately $18 million of project debt with
  terms until 2015. NEPs rights and obligations under its support agreements
  were transferred to the purchaser of its non-nuclear generation. In addition,
  as a result of the National Grid USA acquisition of EUA, at 31 March 2001 NEP
  had guaranteed an additional $4 million originally guaranteed by Montaup Electric.
  NEP remains a guarantor under the support agreement until 2020.

Stranded cost recovery
  and generationUnder settlement
  agreements reached with its regulators as part of industry restructuring, National
  Grid USA is allowed to recover its costs (net of sales proceeds) and, where
  applicable, a return on those costs, associated with its efforts to exit the
  generation business. The return on our stranded cost recovery and generation
  segment contributed £61.7 million to Group operating profits in 2000/01.

Generation
  investmentsSale of nuclear generating
  units still in operationIn November 1999, NEP entered
  into an agreement withNortheast
  Utilities (NU) to settle claims made by NEP in relation to the operation of
  Millstone 3. As part of this agreement, NU undertook to sell by auction 92.7
  per cent of Millstone 3, including NEPs 16.2 per cent share. National
  Grid USA would receive a guaranteed price, irrespective of the price actually
  received at auction. Millstone 3 was subsequently sold to Dominion Resources,
  Inc. for a total of approximately $855 million (£602 million) and, in
  accordance with the agreement, National Grid USA received proceeds of $27.9
  million (£19.6 million).

Regulators
  in Rhode Island filed a protest at the FERC contending that National Grid USAs
  share of the proceeds was insufficient. The FERC determined that the protest
  was outside the scope of the sale approval process and approved the sale, which
  was completed on 31 March 2001. While the Rhode Island regulators may reassert
  their protest, we are now free of obligations relating to the unit, including
  future decommissioning liabilities. We had already recovered the stranded costs
  associated with our investments in nuclear generation and net proceeds from
  the sale will therefore reduce the level of future CTC charges to our customers.

The transaction
  represents an important step forward and gives grounds for optimism that purchasers
  will be forthcoming for Vermont Yankee (of which we own 22.5 per cent) and Seabrook
  1 (of which we own 10.0 per cent). Until the sales of these units are complete,
  we will share with customers, through CTCs, 80 per cent of the revenues and
  operating costs relating to our interests in these units, with the remaining
  20 per cent going to our operating profit or loss.

Nuclear
  units permanently shut downWe own minority interests
  in three nuclear generating units which are permanently shut down. These are
  Yankee Atomic (of which we own 34.5 per cent); Maine Yankee (of which we own
  24.0 per cent); and Connecticut Yankee (of which we own 19.5 per cent). In each
  case, we pay an amount equal to our ownership share of the costs of the plant,
  including unfunded decommissioning



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| | 21
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costs, and
  a return on equity. We are permitted under regulatory agreements entered into
  at the time of electricity industry restructuring to recover all of these costs
  from wholesale customers.

Nuclear
  decommissioningWe are liable for our share
  of the decommissioning costs of all the nuclear generating units in which we
  retain an interest. These include the estimated costs of decontaminating the
  units and dismantling the uncontaminated portions. Our share of the projected
  decommissioning costs for Seabrook 1 is recovered through depreciation expense.
  We are also paying our share of the projected decommissioning costs of Vermont
  Yankee, Yankee Atomic, Maine Yankee and Connecticut Yankee through our power
  purchase agreements with the operators.

For each
  remaining nuclear unit in which we have an ownership interest, a trust fund
  has been established into which payments are being made to meet the estimated
  costs of decommissioning. However, actual decommissioning costs may exceed the
  estimated amounts. We will recover decommissioning costs through CTCs and, as
  we dispose of our remaining interests in operating nuclear units, will seek
  to transfer to the purchaser liability for decommissioning, together with our
  share of the decommissioning trust fund.

Disposal
  of spent nuclear fuelThe US Department of Energy
  is responsible for the disposal of spent nuclear fuel. We pay fees to the Federal
  Government based on our share of the net generation of Seabrook 1 and Vermont
  Yankee, recovering substantially all of these costs from customers through CTCs.However,
  the Department of Energy is not expected to have a temporary or permanent repository
  for spent nuclear fuel before 2010 at the earliest. Many utilities, including
  Yankee Atomic, Connecticut Yankee and Maine Yankee, are plaintiffs in ongoing
  litigation related to the Department of Energys failure to accept spent
  nuclear fuel and any recovery from the proceedings, after litigation expenses
  and taxes, will be returned to customers.

Businesses held for resaleIn October
  2000, National Grid USA completed the sale of EUA Ocean State Corporation, a
  wholly-owned subsidiary holding a 29.9 per cent interest in two gas-fired generating
  units in northern Rhode Island.

In January
  2001, National Grid USA completed the sale of the assets from two unregulated
  subsidiaries, AllEnergy, a wholly-owned marketing subsidiary, and EUA
  Cogenex, a wholly-owned energy management subsidiary.

Fixed assets in the USSubstantially
  all of the properties and franchises of Massachusetts Electric and Narragansett
  Electric are subject to the liens of indentures under which mortgage bonds have
  been issued. The majority of transmission lines are located upon rights of way
  that the National Grid USA companies maintain under perpetual easements or fee
  ownership (freehold). Substations are principally located on properties owned
  in fee. Subsidiaries of National Grid USA own in fee the offices located in
  Westborough and Northborough, Massachusetts.

Acquisition of Niagara
  Mohawk

On 5 September
  2000, we announced that we had entered into an agreement to acquire Niagara
  Mohawk. The acquisition was approved by Niagara Mohawk shareholders on 19 January
  2001 and by National Grids shareholders on 29 January 2001. The expected
  acquisition cost at the time of announcement was approximately $3 billion (approximately
  £2 billion).

Our strategyThe acquisition
  of Niagara Mohawk provides us with a major opportunity to create further value
  for shareholders. It represents a very good fit with our existing US electricity
  businesses, consolidates our position in the north-eastern US and offers us
  substantial opportunities for improved financial performance.



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Niagara
  Mohawks operations and administration will be integrated into National
  Grid USA. As a result, we expect to achieve integration cost savings of approximately
  $90 million (£63 million) a year, of which we estimate that about half
  will be achieved in the first full financial year after completion. The total
  level of annual integration cost savings represents some 10 per cent of the
  combined controllable cost bases of National Grid USA and Niagara Mohawk. We
  expect to achieve the full amount of these cost savings within four years of
  completion.

Niagara
  Mohawk currently has a relatively high cost structure, offering us the opportunity
  to enhance performance in the core electricity transmission and distribution
  businesses. We will work with the New York Public Service Commission (NYPSC)
  to structure long-term rate plans that benefit customers and shareholders and
  include incentives for cost control and good customer service.

The acquisition
  will more than double the size of our US operations, making us the largest US
  electricity business focused exclusively on transmission and distribution. Following
  the acquisition, more than half our total operating profits will be derived
  from the US, where we are able to achieve higher returns on investment than
  in the UK.

The acquisition
  will also give us opportunities to develop our transmission activities, with
  further potential upsides arising from the opportunity to extend NEESComs
  business into New York State.

About Niagara MohawkNiagara Mohawk
  is an electricity and natural gas utility in central, northern and western New
  York State. In terms of customer numbers, it is similar in size to National
  Grid USA, serving more than 1.5 million electricity customers. It also has over
  0.5 million retail gas customers in the residential and business sectors and
  a growing number of wholesale customers for whom it transports gas purchased
  direct from suppliers.

Niagara
  Mohawks electricity system, which is interconnected with that of National
  Grid USA, consists of over 9,000 miles of transmission lines and 118,000 miles
  of distribution network. Niagara Mohawk has investments in telecommunications
  through its shareholding in Telergy, and in energy-related and services businesses.
  In addition, it has a 50 per cent ownership interest in Canadian Niagara Power,
  an Ontario-based utility.

In the year
  ended 31 December 2000, Niagara Mohawk reported earnings before interest, tax,
  depreciation and amortisation (EBITDA) of $1.1 billion (£0.8 billion)
  on revenues of $4.5 billion (£3.2 billion) and had net assets of $3.2
  billion (£2.3 billion) at that date.

Niagara Mohawks
  regulatory frameworkNiagara Mohawk
  has opened its market to retail competition under agreements with its regulator,
  the NYPSC, which provide for reductions in residential, commercial and industrial
  rates. From September 2000, Niagara Mohawk has been allowed to recover the vast
  majority of its stranded costs. From September 2001, it will be able to pass
  through to customers the commodity cost of power. Niagara Mohawk also has a
  three-year gas rate agreement with NYPSC which provides for certainty of rates,
  the pass-through of commodity and transportation costs to customers and the
  possibility of improved returns on investment.

We are discussing
  with the NYPSC a ten-year rate plan, to come into effect on completion of the
  acquisition, which will include provisions for the recovery of wholesale power
  costs similar to those in the existing rate agreements.

Disposal of nuclear generating
  unitsNiagara Mohawk
  currently owns 100 per cent of Nine Mile Point Nuclear Power Station No. 1 and
  41 per cent of Nine Mile Point Nuclear Power Station No. 2.In
  December 2000, it agreed to sell these assets to Constellation Nuclear, a wholly-owned
  subsidiary of Constellation Energy Group Inc., for a total of $610 million.



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| | 23
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This
  is made up of a purchase price of $524 million and interest payments of $86
  million. Of the purchase price, $262 million will be paid in cash at closing
  and a further $262 million in principal and $86 million in interest will be
  paid in five annual instalments thereafter. All payments are subject to purchase
  price adjustments at closing under the terms of the sale agreement. On completion
  of the sale, Niagara Mohawk will transfer to Constellation Nuclear its existing
  decommissioning funds.

Constellation
  Nuclear will take responsibility for all future decommissioning costs and Niagara
  Mohawk will have no further obligation to pay decommissioning costs. As part
  of the transaction, Constellation Nuclear will provide electricity to Niagara
  Mohawk for approximately 10 years.

The sale
  is the result of a competitive auction process in accordance with the wishes
  of the NYPSC and is subject to various regulatory approvals. The sale is expected
  to complete during 2001.

Next stepsOur acquisition
  of Niagara Mohawk cannot be completed until a number of conditions have been
  satisfied. These include the grant of regulatory and other consents and approvals
  from regulatory bodies in the US, including the FERC, NYPSC and the Securities
  and Exchange Commission under the Public Utility Holding Company Act of 1935.
  Discussions are in progress with the regulatory bodies concerned.

Prior to
  completion, National Grid will carry out a corporate restructuring by means
  of a Scheme of Arrangement under the terms of the UK Companies Act 1985. On
  the implementation of the Scheme of Arrangement, National Grid shareholders
  will receive, in exchange for their existing ordinary shares, the same number
  of ordinary shares in a new holding company (currently known as New National
  Grid). The Scheme of Arrangement requires the approval of National Grids
  shareholders and Court sanction in the UK and is expected to become effective
  later in 2001.



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Other
  electricity businesses and projects

Transener and TransbaOur transmission
  joint venture in Argentina has again performed well. Our share of its operating
  profit was £14.3 million, compared with £10.4 million in 1999/2000
  and £8.5 million in 1998/99.

As the registered
  operator of the principal electricity transmission system in Argentina, Transener
  has regulatory incentives to improve the reliability of its transmission network
  against a background of rising demand for electricity. Service quality within
  Transeners control was good during 2000, but tornadoes caused severe damage
  to the system, including the collapse of more than 60 transmission towers. As
  a result, Transener incurred increased costs and regulatory penalties.

Transener
  owns Transba, the transmission system for the province of Buenos Aires, which
  experienced similar weather-related problems during the year. Transener and
  Transba are seeking modifications to their regulatory incentives to provide
  exemption from penalties arising from future tornado damage.

Our stake
  in Transener is held through our 42.5 per cent interest in its holding company
  Citelec, which has a 65 per cent interest in Transener. The other shareholders
  in Citelec are Perez Companc with 42.5 per cent; Taico with 7.5 per cent; and
  Inter Rio Holdings with 7.5 per cent.

Copperbelt Energy CorporationOur joint
  venture company Copperbelt Energy Corporation (CEC) has performed well. Our
  share of operating profit was £4.3 million, compared with £4.0 million
  in 1999/2000 and £4.1 million in 1998/99. Profits in 1999/2000 were affected
  by restructuring expenses.

CEC owns
  and operates a network of some 500 miles supplying electricity to the mines
  of the Zambian Copperbelt. The privatisation of the copper mines was completed
  in March 2000 and, as we expected, CEC has benefited from increased mining activity
  and hence demand for electricity. CEC has already provided connection for a
  new cobalt plant and another new connection is expected as the Copperbelt mining
  industry is redeveloped.

We have
  a 38.6 per cent interest in CEC, with the remaining interests being split between
  Cinergy (38.6 per cent), the Zambian government (20 per cent) and directors
  of CEC (2.8 per cent).

BasslinkIn February
  2000, we were selected by the Basslink Development Board to design, construct,
  operate and maintain the Basslink, a 600 MW interconnector linking the electricity
  network on the island of Tasmania to the transmission network in the state of
  Victoria on the Australian mainland. Work has progressed during the year on
  the selection and environmental assessment of routes for the land-based sections
  of the interconnector in consultation with local communities and government
  representatives. Construction is expected to begin at the end of 2001 for completion
  by the end of 2003. National Grids total investment in the project is
  estimated to be £200 million.



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|Energis
      ownership |       | Energis
      Polska ownership |                   | Intelig
      ownership
|----------------------- | ----- | ------------------------------ | ----------------- | -----------------------
|                        |       |                                |                   |                        
|(A) National Grid       | 32.7% |                                | (A) National Grid | 23.75%                 
|(B) Others              | 67.3% |                                | (B) Energis       | 23.75%                 
|                        |       |                                | (C) PKP           | 42.50%                 
|                        |       |                                | (D) Centrala      | 10.00%                 
|                        |       |                                |                   |                        

Telecommunications
  networks

StrategyOur skills
  are in designing, constructing and maintaining telecommunications networks.
  We work with experienced partners with complementary skills in providing, developing
  and marketing products, focusing on high-margin data services for business customers.
  We look for markets where competition is being introduced into the telecommunications
  sector and where forecast growth in demand for telecommunications and data services
  is under-provided by the existing network.

Telecommunications
  investments are capital intensive and loss-making in their start-up stages,
  but offer the opportunity to create value in the longer term through capital
  appreciation.

EnergisEnergis has
  reported another strong performance. Turnover in 2000/01 was £840.4 million,
  compared with £494.0 million in 1999/2000 and £285.6 million in
  1998/99. Earnings before interest, taxation, depreciation and amortisation (EBITDA)
  were £141.7 million, compared with £92.6 million in 1999/2000 and
  £49.7 million in 1998/99. Our share of its operating profit/(loss) before
  amortisation of goodwill was £5.1 million, compared with £1.3 million
  in 1999/2000 and £(9.6) million in 1998/99.

Energis
  offers a wide range of national and international communications services, including
  basic and advanced telephony and data services, primarily to the business market.
  Energis has expanded by using its technological and cost advantages, allied
  to high-quality products and services, and is now building a position as a significant
  communications provider to the business and internet markets in Continental
  Europe.

Our investment
  in Energis has created significant value for shareholders. Our net cash investment
  was £0.5 billion up to its flotation in December 1997 and we have since
  extracted cash of £2.2 billion.

We made
  an essential contribution to Energis in the early years of its development,
  creating its backbone network and providing it with the right management to
  take the business forward. Our strategic role in its development is now complete
  and we intend to dispose of our remaining interests as suitable opportunities
  arise.

Energis PolskaEnergis Polska,
  our Polish joint venture with Energis and local partners, will develop and provide
  a range of telecommunications services primarily focused on business customers.

Energis
  Polska has now received its data and voice licences and is developing a state-of-the-art
  broadband telecommunications network. This will be based largely on existing
  optical fibre leased from the Polish national railway company Polskie Koleje
  Panstwowe (PKP), another of the joint venture partners, and will connect major
  cities across Poland and interconnect with Energis European network. An
  internet datacentre is being constructed in Warsaw and will be launched with
  Energis pan-European internet and voice backbone network. The launch of
  services is now planned for June 2001.

At 31 March
  2001, the carrying value of our investment in Energis Polska was £27.9
  million. We currently hold a 23.75 per cent stake but, following ratification
  by PKP and the approval of the Polish courts, this is expected to increase to
  approximately 48.75 per cent to reflect the conversion of part of the debt owed
  by Energis Polska into additional shares.

InteligIntelig is
  our Brazilian telecommunications joint venture with Sprint and France Telecom.
  Following the cancellation of its proposed merger with MCI, Sprint is again
  participating actively in Intelig after a nine-month absence enforced by the
  Brazilian regulator. All three shareholders have reaffirmed their commitment
  to the business and strengthened their management contribution.



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|Manquehue
      net ownership     |       |  | Silica
      Networks ownership   |      
|--------------------------------- | ----- |  | --------------------------------- | -----
|                                  |       |  |                                   |      
|(A) National
      Grid           | 30.0% |  | (A) National
      Grid           | 50.0%
|(B) Williams
      Communications | 16.5% |  | (B) Williams
      Communications | 30.1%
|(C) MetroGas                      | 25.5% |  | (C) Manquehue
      net           | 19.9%
|(D) Rabat
      Family            | 21.2% |  |                                   |      
|(E) Xycon                         | 6.8%  |  |                                   |      
|                                  |       | 

We announced
  in November 2000 that operating losses for the first half of the year, at £69.7
  million, were higher than expected. Several factors contributed to this position,
  including a higher than expected proportion of low-margin, off-peak voice traffic
  and difficulties with billing and revenue recovery.

Operating
  losses for the second half of 2000/01 were reduced to £48.3 million, bringing
  to £118.0 million our share of Inteligs operating losses in 2000/01,
  compared with £44.1 million in 1999/2000. The reduction in losses was
  achieved through a combination of actions by Intelig, including the introduction
  of revised tariffs, the establishment of co-billing arrangements with other
  telecoms companies and reduced expenditure on advertising. We expect 2000/01
  to be the peak year of operating losses.

Development
  of Inteligs network has continued during the year. The completion of the
  quadrangle linking Rio de Janeiro, São Paulo, Brasília
  and Belo Horizonte and of fibre routes in the north of the country will help
  to reduce Inteligs dependence on interconnects and leased lines.

At 31 March
  2001, the carrying value of our investment in Intelig was £164.8 million,
  excluding short-term loans.

Manquehue netManquehue
  net (formerly Telefonica Manquehue) is our joint venture providing local and
  long-distance telecommunications and internet services in Chile. Our share of
  operating losses before amortisation of goodwill in 2000/01 was £0.7 million.

The company
  has launched new products and services during the year. By 31 March 2001, Manquehue
  net had over 81,000 lines in service and more than 10,000 active internet subscribers,
  principally in Santiago.

At 31 March
  2001, the carrying value of our investment in Manquehue net was £49.2
  million.

Silica NetworksSilica Networks
  (formerly Southern Cone Communications), our joint venture with Manquehue net
  and Williams Communications, offers wholesale voice and data transmission services
  to existing and new carriers and to other corporations. Our share of operating
  losses in 2000/01 was £1.6 million.

Silica Networks
  is developing a broadband communications loop to link Buenos Aires in Argentina
  to Santiago in Chile and connect the major cities in Argentina along the route.
  The northern arc of the network became fully operational in May 2001, with a
  full Buenos Aires to Santiago link scheduled to become operational in July 2001.

At 31 March
  2001, the carrying value of our investment in Silica Networks was £33.1
  million.

NEESComNational
  Grid USAs subsidiary company NEESCom is a telecommunications infrastructure
  provider. Its operating profit before goodwill amortisation in 2000/01 was £2.9
  million. Its current network is primarily in Massachusetts and Rhode Island,
  but NEESCom is building to Albany, New York, and expects to complete this build
  by the end of 2001.



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Environment

As a responsible
  company, we recognise that minimising our impact on the environment is an essential
  part of our business. By balancing this with the social and economic benefits
  provided by our services, we are seeking to contribute to a more sustainable
  future.

Reducing our impactsWhere appropriate,
  we implement Environmental Management Systems (EMS) certified to ISO 14001 standard
  to help us eliminate unnecessary environmental impacts. The EMS covering our
  UK operations was certified in May 2000 and the first surveillance audit took
  place in December 2000.

During 2000/01,
  our US operations have implemented an EMS across the transmission and distribution
  operations. Certification is expected in June 2001 for the transmission functions,
  while a decision on the timing of certification for the distribution functions
  is expected during 2001.

Our joint
  venture Transener is currently working on an EMS. We will implement an EMS for
  Basslink if the project receives the appropriate approvals.

Checking our performanceAlongside
  the EMS programme, we have a Groupwide environmental audit programme to check
  that our policies, procedures, operating practices and assets are sound. The
  results of these audits are reported to the Audit Committee.

Reporting on progressWe are committed
  to reporting on our environmental performance. In December 2000, we published
  our annual Environmental Performance Report for our UK operations. In 2001/02,
  we will publish reports for our UK and US operations covering both environmental
  and social matters.

How we address environmental
  issuesPreventing
  water pollutionTransformers and underground
  cables contain oil which may, in exceptional circumstances, pose a risk to the
  environment and in particular to adjacent surface waters or groundwaters. In
  the UK, we are upgrading containment systems and installing new oil/water separators
  at our substations and refurbishing cable joint bays in sensitive areas to reduce
  the risk of leakage. In the US, we have completed a programme of spill containment,
  control and countermeasures at over 300 substations and put in place oil release
  contingency plans for cables.

Our proactive
  approach also extends to our joint ventures such as CEC in Zambia, where we
  are installing new containment systems at substations.

We will
  be auditing our ability to respond to oil spills to highlight areas of best
  practice that can be transferred across the Group.

Site assessment and remediationIn the US,
  we are actively addressing pollution, principally at manufactured gas sites
  associated with past activities of predecessor companies of National Grid USA,
  which until the early 1970s was a combined electricity and gas utility. We are
  aware of approximately 51 such sites, mainly in Massachusetts. We have reported
  the existence of all manufactured gas sites of which we are aware to state environmental
  regulatory agencies and we are engaged in various stages of investigation and
  remediation at approximately 22 sites. We are aware of other possible hazardous
  waste sites and may in the future become aware of further sites which we may
  be held responsible for remediating.

Our success
  in remediating these sites has been recognised by the state environmental regulatory
  agencies, particularly as we have aimed to remediate land to return it to economically
  viable use.



---



|28 | Operating and financial
      reviewBusiness review
      continued
|-- | -------------------------------------------------------------------



|UK: accident frequency
      rate/lost time accidents
|-----------------------------------------------------
|                                                     

In Massachusetts,
  a regulatory agreement provides for recovery from customers of the remediation
  costs of former manufactured gas sites and certain other hazardous waste sites.
  Qualified costs relating to these sites are paid out of a special fund to which
  rate-recoverable contributions are added annually, together with interest, lease
  payments and any recoveries from insurers and other third parties. During 2000/01,
  rate-recoverable contributions added to the fund amounted to $3.3 million, bringing
  to $51.7 million (£34.9 million) the balance of the fund at 31 March 2001.

In Rhode
  Island, a regulatory agreement provides for the recovery from customers of the
  remediation costs of former manufactured gas plants. Qualified costs are paid
  out of a special fund to which rate-recoverable contributions are added annually,
  together with interest and other recoveries. During 2000/01, rate-recoverable
  contributions added to the fund amounted to $0.8 million, bringing to $0.5 million
  (£0.3 million) the balance of the fund at 31 March 2001.

It is difficult
  to predict the cost of investigating and remediating hazardous waste sites or
  the proportion, if any, of the investigation and remediation costs of any particular
  hazardous waste site that may ultimately be borne by National Grid USA. We do
  not believe that liabilities for hazardous waste sites of which we are aware
  but which are not covered by a rate agreement are material to our financial
  position.

In the UK,
  we have completed land contamination surveys at 90 of those substations considered
  to have a high risk of contamination with oil from past activities. At 20 of
  these sites, potential risks to the environment have been identified and a programme
  to establish the full extent of remediation work required started in April 2001.

Public
  concerns about EMFWe recognise that the public
  has concerns about the possible health effects of the electric and magnetic
  fields (EMF) that arise from, amongst other sources, the transmission,distribution
  and use of electricity. Research into this issue has been in progress across
  the world for many years.

The European
  Union Council of Ministers has adopted a Recommendation on the limitation of
  exposure of the general public to EMFs, based on guidelines issued in 1998 by
  the International Commission on Non-Ionising Radiation Protection (ICNIRP).
  The Recommendation, which contains certain qualifications, is addressed to the
  governments of EU member states rather than to individual companies. The UK
  Government is considering how the qualifications should be interpreted and how,
  if at all, the recommendations should be implemented in the UK.

We carry
  out our operations in the UK in line with guidance issued by the National Radiological
  Protection Board (NRPB), an independent statutory body, which has stated that
  it is considering the implications for its guidance of the Recommendation.

In Argentina,
  Transener complies with the requirements of a Government resolution on EMF.

Looking
  beyond our own operations, we evaluate the findings of all external studies
  on EMF, making information available throughout the Group. We also provide financial
  support for independent research, through a research trust in the UK, through
  the Electric Power Research Institute in the US and through various epidemiological
  research projects.

Preservation
  of amenityNational Grid is required
  by the UK Electricity Act 1989 to publish a statement, known as its Schedule
  9 Statement, setting out the manner in which it intends to fulfil its obligation
  to preserve amenity when considering proposals for the development of the transmission
  network. Following discussion at the Annual General Meeting in July 2000, we
  have consulted shareholders and other stakeholders on the revision of our current
  Schedule 9 Statement, originally published in 1991, and will publish a new Statement
  in the Summer of 2001.



---



| | 29
| | --



|US1:
      accident frequency rate/lost time accidents |                                                                                                                                                                                                    |                                                                
|------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------
|                                                       | 1                                                                                                                                                                                                  | Excludes generation-related
        accidents from 1992 to 1998
|2                                                      | On
      1 May 2000, the operating companies of EUA were merged into the operating
      companies of National Grid USA, which resulted in a 15 per cent increase
      in the number of employees

Occupational health and
  safety

We recognise
  the importance of occupational health and safety management and believe that
  work-related injuries and illnesses are preventable. We are determined to manage
  risk effectively in all our operations and to ensure that our activities, services
  and products do not harm employees, contractors, customers or members of the
  public.

To assist
  in the achievement of these objectives across our businesses internationally,
  we established a Group-wide health and safety forum during the year. This met
  for the first time in November 2000 and was attended by representatives from
  the UK, the US, Argentina, Brazil and Zambia. Arising out of this forum, we
  are establishing a Group-wide health and safety audit programme to ensure that
  the requirements of our occupational health and safety policy are being followed.
  These audits are additional to internal health and safety audits carried out
  within individual operating companies.

In the UK,
  we are committed to implementing the requirements of the British Standard Specification
  OHSAS 18001 on Occupational Health and Safety Management Systems as a way of
  further improving our health and safety performance. In the US, we are obtaining
  a full outside assessment of our safety programme to strengthen our safety system
  and are also exploring ISO 18001 conformance.

National Grid in the
  community

We are mindful
  that the presence of our physical installations and operating activities can
  have a significant impact on local communities. For this reason, we undertake
  a wide range of activities designed to increase understanding of our role, while
  allowing us to maintain and develop our relationships with our stakeholders.
  We seek to be a good corporate citizen focusing on our three-fold responsibility
  for our environmental, social and economic impacts.

In the UK,
  we have 12 environmental education centres which operate in partnership with
  local education authorities and other community and environmental groups. Other
  UK activities include the National Grid Tree Warden Scheme, the Community 21
  Programme, which provides annual grants to local councils and residents to fund
  sustainable development projects, and a variety of educational and training
  initiatives.

Our US programme
  of corporate giving and community involvement supports initiatives ranging from
  school education programmes to the recent donation of Rome Point, a 230-acre
  parcel of waterfront land to the State of Rhode Island for the creation of a
  nature preserve.



---



|30 | Operating
      and financial review | 
|-- | ------------------------------------ | 
|   | Five-year financial
      summary    | 

The financial summary set
  out below has been derived from the audited consolidated accounts of NGG for
  the five financial years ended 31 March 2001. It should be read in conjunction
  with the Group accounts and related notes, together with the Operating and Financial
  Review.

|                                                                       |  | Year
        ended 31 March |  
|---------------------------------------------------------------------- |  | --------------------------- | -
|                                                                       |  |                             |  
|                                                                       |  | 2001
        £m             |  
|                                                                       | 
|Summary
      Group profit and loss account                            |  |                             |  
|Amounts
      in accordance with UK GAAP                               |  |                             |  
|                                                                       |  |                             |  
|Group
      turnover
      Continuing operations                      |  | 3,799.7                     |  
|
      Discontinued operations                                        |  |                            |  
|                                                                       |  |                             |  
|                                                                       |  | 3,799.7                     |  
|Operating
      costs                                                  |  | (3,084.1                    | )
|                                                                       | 
|                                                                       |  |                             |  
|Operating
      profit/(loss) Continuing operations                   |  | 715.6                       |  
|
      Discontinued operations                                        |  |                            |  
|                                                                       |  |                             |  
|Operating
      profit of Group undertakings                           |  | 715.6                       |  
|Share
      of joint ventures and associates operating (loss)/profit |  | (103.5                      | )
|                                                                       | 
|Operating
      profit                                                 |  |                             |  
|                                                                       |  |                             |  
|
      Before exceptional integration costs and goodwill amortisation |  | 731.9                       |  
|
      Exceptional integration costs                                  |  | (45.3                       | )
|
      Goodwill amortisation                                          |  | (74.5                       | )
|                                                                       |  |                             |  
|Total
      operating profit                                           |  | 612.1                       |  
|Other
      exceptional items                                          |  | 263.0                       |  
|Net
      interest                                                     |  | (250.6                      | )
|                                                                       | 
|Profit
      before taxation                                           |  | 624.5                       |  
|                                                                       |  |                             |  
|Taxation Excluding
      exceptional items                            |  | (85.8                       | )
| Exceptional
      items                                              |  | 235.4                       |  
|                                                                       |  |                             |  
|                                                                       |  | 149.6                       |  
|                                                                       | 
|Profit
      after taxation                                            |  | 774.1                       |  
|Minority
      interests                                               |  | (5.1                        | )
|                                                                       | 
|Profit
      for the year                                              |  | 769.0                       |  
|                                                                       |  |                             |  
|Dividends Ordinary                                                    |  | (223.0                      | )
| Other                                                                |  |                            |  
|                                                                       |  |                             |  
|                                                                       |  | (223.0                      | )
|                                                                       | 
|Retained
      profit/(loss)                                           |  | 546.0                       |  
|                                                                       |  |                            
|                                                                      
|Earnings
      per ordinary share                                      |  |                             |  
|
      Basic, including exceptional items and goodwill amortisation   |  | 52.1p                       |  
|
      Basic, excluding exceptional items and goodwill amortisation   |  | 26.5p                       |  
|
      Diluted, including exceptional items and goodwill amortisation |  | 49.5p                       |  
|
      Diluted, excluding exceptional items and goodwill amortisation |  | 25.8p                       |  
|                                                                       |  |                             |  
|Ordinary
      dividends per share                                     |  | 15.08p                      |  
|                                                                       |  |                             |  
|Interest
      cover (times)*                                          |  | 2.9                         |  
|Dividend
      cover  ordinary dividends (times)*                     |  | 1.8                         |  
|                                                                       | 
|*Excluding
      exceptional items and goodwill amortisation           | 



---



| | 31
| | --



|                                                                                     |  | Year
        ended 31 March |  
|------------------------------------------------------------------------------------ |  | --------------------------- | -
|                                                                                     |  |                            
|                                                                                     |  | 2001
        £m             |  
|                                                                                    
|Summary Group
      balance sheet                                                    |  |                             |  
|Amounts in
      accordance with UK GAAP                                             |  |                             |  
|Fixed assets                                                                         |  | 7,763.8                     |  
|Current assets                                                                       |  | 2,218.8                     |  
|                                                                                     | 
|Total assets                                                                         |  | 9,982.6                     |  
|Creditors and
      provisions                                                       |  | (6,465.0                    | )
|                                                                                     | 
|Net assets employed/total
      shareholders funds                                  |  | 3,517.6                     |  
|                                                                                     | 
|Equity shareholders
      funds                                                     |  | 3,475.8                     |  
|Net debt                                                                             |  | 3,918.2                     |  
|Gearing*                                                                             |  | 111%                        |  
|Allotted, called
      up and fully paid ordinary shares
      number               |  | 1,484.6                     | m
|
      nominal value                                                                |  | 174.7                       |  
|                                                                                    
|*Gearing is
      calculated as net debt divided by total shareholders funds        |  |                             |  
|**as adjusted
      for a 17 for 20 share consolidation carried out in February 1998 |  |                             |  
|                                                                                     |  |                             |  
|                                                                                     |  |                             |  
|Summary Group
      cash flow statement                                              |  |                             |  
|Net cash inflow
      from operating activities                                      |  | 810.6                       |  
|Dividends from
      joint ventures                                                  |  | 20.3                        |  
|Net cash outflow
      for returns on investments and servicing of finance           |  | (306.9                      | )
|Taxation                                                                             |  | (137.2                      | )
|Net cash outflow
      for capital expenditure                                       |  | (457.6                      | )
|Net cash (outflow)/inflow
      for acquisitions and disposals                       |  | (582.2                      | )
|Equity dividends
      paid                                                          |  | (212.5                      | )
|                                                                                    
|Net cash (outflow)/inflow
      before management of liquid resources                |  | (865.5                      | )
|Net cash inflow/(outflow)
      from the management of liquid resources              |  | 775.2                       |  
|Net cash inflow/(outflow)
      from financing                                       |  | 88.4                        |  
|                                                                                    
|Movement in
      cash and overdrafts                                                |  | (1.9                        | )
|                                                                                     | 
|Amounts in
      accordance with US GAAP                                             |  |                             |  
|Group turnover                                                                       |  | 3,782.7                     |  
|Net income                                                                           |  | 810.3                       |  
|Earnings per
      ADS(i)                                                            |  |                             |  
| Basic                                                                              |  | 274.5p                      |  
| Diluted                                                                            |  | 260.5p                      |  
|                                                                                     |  |                             |  
|Total assets                                                                         |  | 10,391.6                    |  
|Net assets employed/total
      shareholders funds                                  |  | 2,961.8                     |  
|Equity shareholders
      funds                                                     |  | 2,920.0                     |  
|                                                                                    
|(i)Each
      ADS represents five ordinary shares                                    |  |                             |  



---



|32 | Operating
      and financial review | 
|-- | ------------------------------------ | 
|   | Financial review                     | 

Unless otherwise indicated,
  operating profit is stated before exceptional items and goodwill amortisation.

Financial
  year ended 31 March 2001 (2000/01) compared with financial year ended 31 March
  2000 (1999/2000)

Acquisition of Eastern
  Utilities Associates (EUA)The acquisition
  of EUA was completed on 19 April 2000 at a cost of £414.0 million. The
  net assets acquired had a fair value of £200.5 million, resulting in goodwill
  of £213.5 million which has been capitalised and is being amortised over
  20 years. The transmission and distribution operations of NEES (acquired 22
  March 2000) and EUA were integrated on 1 May 2000. It is therefore not possible
  to provide an indication of EUAs contribution to Group results for the
  year ended 31 March 2001.

Group turnoverGroup turnover
  from continuing operations increased from £1,614.7 million in 1999/2000
  to £3,799.7 million in 2000/01, substantially reflecting the first full-year
  contribution from National Grid USA.

Group total operating
  profitTotal operating
  profit rose by £185.4 million to £731.9 million, reflecting higher
  contributions from:

- National
      Grid USA (£293.6 million, compared with £4.0 million in 1999/2000,
      which related to the period
      22 March to 31 March 2000);
- Energis
      (£5.1 million, compared with £1.3 million in 1999/2000); and
- electricity
      transmission joint ventures (£19.2 million, compared with £14.4
      million in 1999/2000).

These increased
  contributions were partially offset by lower contributions from:

- Intelig
      (losses of £118.0 million, compared with losses of £44.1 million
      in 1999/2000);
- UK Transmission
      (£486.3 million, compared with £523.1 million in 1999/2000);
- UK Interconnectors
      (£42.8 million, compared with £46.6 million in 1999/2000); and
- other
      telecommunications joint ventures (losses of £3.4 million, compared
      with losses of £nil in 1999/2000)

Note 1 to
  the accounts contains a segmental analysis of the Groups results. A review
  of the businesses is set out on pages 10 to 29.

Goodwill amortisationGoodwill amortisation for 2000/01 rose from £7.9
  million to £74.5 million. This increase reflects a full years amortisation
  of goodwill relating to the acquisition of NEES and the amortisation of goodwill
  arising from the acquisition of EUA on 19 April 2000.

Exceptional itemsThe results
  for 2000/01 include exceptional pre-tax profits of £217.7 million (£453.1
  million post-tax), comprising:

- profits
      of £242.9 million, before and after tax, arising from reductions in
      the Groups interest in Energis, primarily as a result of a placing
      of shares by Energis in September 2000 and the acquisition by Energis of
      a majority stake in Ision in January 2001;
- net
      profits of £20.1 million, before and after tax, on the disposal of
      market services businesses as discussed on page 15;
- US integration
      costs of £45.3 million (£39.4 million post-tax); and
- a tax
      credit of £229.5 million arising from the realisation of capital losses
      for tax purposes as a result of Group restructurings.

InterestNet interest
  rose from £64.9 million to £250.6 million for 2000/01. This increase
  is largely attributable to the acquisitions of NEES and EUA, which were paid
  for out of cash balances and new borrowings.

The net
  interest charge for 2000/01 also includes:

- a £17.4
      million gain on closing out sterling fixed-interest rate swaps originally
      entered into as hedges for sterling borrowings; and
- £21.0
      million of losses arising from the valuation at maturity of dollar interest
      rate swaptions which provided an economic hedge of dollar borrowings but
      do not qualify as hedges for accounting purposes.

TaxationThe net tax
  credit of £149.6 million for 2000/01 includes a net credit of £235.4
  million relating to exceptional items. If these exceptional items are excluded,
  the tax charge for 2000/01 is £85.8 million, including a £20.0 million
  tax credit arising from an adjustment to prior years tax. After adjusting
  for the exceptional items and the tax credit adjustment relating to prior years,
  the effective tax rate for 2000/01 is 26.0 per cent. The effective tax rate
  for 1999/2000, excluding the impact of exceptional items, was 26.0 per cent.



---



| | 33
| | --

During the
  year ending 31 March 2002, National Grid will implement a new accounting standard,
  Financial Reporting Standard 19: Deferred taxation (FRS 19), which requires
  full provision to be made for deferred taxation. Prior to the implementation
  of this new accounting standard, National Grids accounting policy was
  to provide for deferred taxation to the extent that a tax liability was expected
  to become payable in the foreseeable future. The implementation of this new
  accounting standard is expected to increase the deferred tax provision at 31
  March 2001 by £1 billion, but it is estimated that the effective tax rate
  of 26.0 per cent, including deferred taxation, will be maintained for 2001/02.
  This change in accounting policy has no effect on the net debt position of National
  Grid.

Exchange ratesExchange
  rate movements during the year have had a beneficial effect on the operating
  profit contribution from National Grid USA. Sterling has weakened during the
  year such that National Grid USAs operating profit has been translated
  into a higher sterling operating profit than would otherwise have been expected.
  The results for 2000/01 have been translated at a weighted average rate for
  the year of £1.00 = $1.483 as compared with the rate of £1.00 =
  $1.60 which applied at 31 March 2000. If the 31 March 2000 rate had been used,
  operating profit would have been lower by approximately £20 million.

The increased
  operating profit is largely offset by the increased sterling interest cost of
  US dollar debt takenon
  to finance the cost of the investment in National Grid USA and the increased
  sterling cost of US taxes. As a result, the impact of the stronger US dollar
  has not had a significant effect on earnings per share.

Exchange
  rate movements during the year have adversely affected National Grids
  share of operating losses in Intelig, the Brazilian telecommunications operator,
  as sterling has weakened against the Brazilian currency during 2000/01. We estimate
  that, as compared with the average exchange rate for 1999/2000, this increased
  our share of operating loss by approximately £5 million.

Earnings per shareBasic earnings
  per share fell 25.9 pence to 52.1 pence, reflecting the very significant level
  of exceptional profits in 1999/2000. Excluding exceptional items and goodwill
  amortisation, basic earnings per share increased 2.2 pence to 26.5 pence. If
  telecoms start-up losses are also excluded, basic earnings per share rose by
  7.6 pence to 35.9 pence, an increase of 27 per cent.

Ordinary dividendsThe total
  ordinary dividend for 2000/01 amounts to 15.08 pence per ordinary share, an
  increase of 8.2 per cent over the previous year. The total dividend is covered
  1.8 times (1999/2000: 1.7 times) by earnings per ordinary share, excluding exceptional
  items and goodwill amortisation, and amounts to £223.0 million.

Dividends The table below shows the amounts of cash dividends in
  respect of each of the five most recent financial years. These dividends do
  not include any associated UK tax credit in respect of all such dividends.

|                               |  | 2000/01
      p |  | 1999/2000
      p |  | 1998/99
      p |  | 1997/98
      p |  | 1996/97
      p
|------------------------------ |  | --------------- |  | ----------------- |  | --------------- |  | --------------- |  | ---------------
|                              
|Interim                        |  | 6.05            |  | 5.59              |  | 5.25            |  | 4.83            |  | 4.45           
|Final                          |  | 9.03            |  | 8.35              |  | 7.82            |  | 7.24            |  | 6.68           
|                              
|Total ordinary
      dividends |  | 15.08           |  | 13.94             |  | 13.07           |  | 12.07           |  | 11.13          
|Special
      dividend         |  |                |  |                  |  |                |  | 44.70           |  |               
|                              
|Total dividends                |  | 15.08           |  | 13.94             |  | 13.07           |  | 56.77           |  | 11.13          
|                               | 
|US dollar
      per ADS(i)     |  | $               |  | $                 |  | $               |  | $               |  | $              
|Interim                        |  | 0.44            |  | 0.46              |  | 0.43            |  | 0.39            |  | 0.36           
|Final                          |  | 0.64            |  | 0.63              |  | 0.63            |  | 0.62            |  | 0.54           
|                              
|Total ordinary
      dividends |  | 1.08            |  | 1.09              |  | 1.06            |  | 1.01            |  | 0.90           
|Special
      dividend         |  |                |  |                  |  |                |  | 3.64            |  |               
|                              
|Total dividends                |  | 1.08            |  | 1.09              |  | 1.06            |  | 4.65            |  | 0.90           
|                               | 

(i) Translated into US dollars
  per ADS (each ADS representing five ordinary shares) at the Noon Buying Rate
  nearest to the dates the dividends were paid, or at £1.00 = $1.42 in respect
  of the 2000/01 final dividend, which has not yet been paid.

As dividends
  paid by National Grid are in pounds sterling, exchange rate fluctuations will
  affect the US dollar amounts received by holders of ADSs on conversion by The
  Bank of New York, the Depositary, of such cash dividends.



---



|34 | Operating and financial
      review | 
|-- | ------------------------------------ | 
|   | Financial review continued           | 

Dividend policyNational
  Grid is committed to delivering sustained real dividend growth. Confidence in
  the Groups future financial strength and in the prospects for growth and
  greater diversity of earnings has increased. Consequently, the Board announced
  on 21 November 2000 its aim to increase dividends per share by 5 per cent real
  in each of the next five years.

Financial year ended
  31 March 2000 (1999/2000) compared with financial year ended 31 March 1999 (1998/99)

Acquisition of NEESThe acquisition
  of NEES was completed on 22 March 2000. The acquisition cost £2,070.8
  million and the net assets acquired had a fair value of £1,155.0 million,
  resulting in goodwill of £915.8 million which has been capitalised and
  is being amortised through the profit and loss account over 20 years. As a result
  of the short period of ownership, the contribution of National Grid USA, the
  successor to NEES, to the Groups results for the year ended 31 March 2000
  was not material.

TurnoverGroup turnover
  from continuing operations increased from £1,514.2 million in 1998/99
  to £1,614.7 million in 1999/2000 as a result of the contribution from
  National Grid USA, higher UK Transmission turnover and higher other activities
  turnover reflecting the launch of the OCM through EnMO.

Operating profitTotal operating
  profit decreased by £33.4 million to £546.5 million in 1999/2000
  as a result of the operating losses incurred by Intelig, the Groups telecommunications
  joint venture in Brazil. The operating losses incurred by Intelig, of which
  the Groups share was £44.1 million, were in line with expectations
  for a start-up operation of this size. The movement in total operating profit
  also reflects higher profit contributions from UK Transmission (£15.0
  million), UK Interconnectors (£7.1 million), Energis (£10.9 million)
  and a lower profit contribution (£27.3 million) from other activities.

Note 1 to
  the accounts contains a segmental analysis of the Groups results. A review
  of the businesses is set out on pages 10 to 29.

Exceptional itemsThe results
  for 1999/2000 include an exceptional profit of £1,027.3 million relating
  to the partial disposal of the Groups shareholding in Energis, an associated
  undertaking. This comprised a pre-tax profit of £895.2 million (£665.7
  million after tax) on the sale of shares in Energis and a pre- and post-tax
  profit of £132.1 million resulting from reductions in the Groups
  interest in Energis, primarily as a consequence of the placing of shares by
  Energis.

InterestThe net interest
  charge in 1999/2000 decreased from £118.5 million to £64.9 million.
  This reduction reflects a lower average level of net debt, which resulted from
  the sale of shares in Energis in both 1999/2000 and 1998/99.

TaxationThe tax charge
  in 1999/2000 totalled £352.6 million and included £229.5 million
  relating to exceptional profits. The effective tax rate for the year, excluding
  the impact of exceptional items, was 26.0 per cent, compared with 26.2 per cent
  in 1998/99.

Earnings per shareBasic earnings
  per share, excluding exceptional items and goodwill amortisation, rose from
  23.3 pence in 1998/99 to 24.3 pence in 1999/2000, an increase of 4.3 per cent.
  If telecoms start-up losses are also excluded, basic earnings per share increased
  by 15.0 per cent from 24.6 pence to 28.3 pence.

Ordinary dividendsThe total
  ordinary dividend for 1999/2000 amounted to 13.94 pence per ordinary share.
  This represents an increase of 6.7 per cent over the previous year. The total
  dividend was covered 1.7 times (1998/99: 1.8 times) by earnings per ordinary
  share, excluding exceptional items and goodwill amortisation, and cost £205.5
  million.

Liquidity
  and capital resources

Cash flowNet cash
  inflow from operations was £810.6 million in 2000/01 compared with £682.0
  million in 1999/2000 and £605.9 million in 1998/99. The 2000/01 increase
  in net cash inflow from operations has arisen from the impact of National Grid
  USAs contribution to cash inflow. Details of the components of net cash
  inflow from operations are set out in note 25(a) to the accounts.

In 1999/2000,
  the sale of ordinary shares in Energis contributed £952.9 million to the
  inflow of cash.

Cash flow
  in 1998/99 benefited significantly from the following two transactions carried
  out in February 1999, both relating to National Grids shareholding in
  Energis:

- the
      sale of ordinary shares in Energis, which produced net proceeds of £959.3
      million; and
- the
      issue of Equity Plus Income Convertible securities (EPICs) in the principal
      amount of $401.2 million, the net proceeds of which were £242.6 million.



---



| | 35
| | --



Details
  of the EPICs, which are mandatorily exchangeable into Energis ordinary shares,
  are contained in note 18 to the accounts. The profit from the disposal of Energis
  shares arising from this transaction will not be recognised in the accounts
  until the EPICs have been exchanged into Energis ordinary shares.

Cash outflow
  in 2000/01 relating to the acquisition of Group undertakings and other investments
  amounted to £778.1 million, which substantially relates to the acquisition
  of EUA and an additional investment in Intelig. Cash outflow relating to the
  acquisition of Group undertakings and other investments in 1999/2000 was £2,189.6
  million (of which £2,045.1 million related to the acquisition of NEES)
  and in 1998/99 was £25.2 million.

Payments
  to the providers of finance, in the form of dividends and interest, totalled
  £519.4 million (net) in 2000/01, compared with £262.3 million in
  1999/2000 and £302.8 million in 1998/99. Net interest cash outflows increased
  from £119.7 million and £64.7 million in 1998/99 and 1999/2000 respectively
  to £303.4 million in 2000/01. This increase primarily reflects the acquisitions
  of NEES and EUA.

Corporate
  tax payments amounted to £137.2 million in 2000/01 compared with £274.3
  million in 1999/2000 and £154.9 million in 1998/99. Notwithstanding additional
  corporate tax payments in respect of National Grid USA, corporate tax payments
  in 2000/01 were lower than in 1999/2000, for two main reasons:

- UK corporate
    tax payments on account were lower in 2000/01, primarily as a result of tax
    relief on exchange adjustments; and
- corporate
    tax payments in respect of partial disposals of Energis in 1998/99 and 1999/2000
    were lower as a result of the realisation for tax purposes of capital losses
    arising from Group restructurings.

Tax payments
  in 1999/2000 were higher than in 1998/99, reflecting the introduction during
  that year of quarterly payments on account for UK corporation tax and corporate
  tax payments on the partial disposal of Energis in 1998/99.

Net purchases
  of tangible fixed assets absorbed cash of £457.6 million in 2000/01, compared
  with £279.2 million in 1999/2000 and £312.5 million in 1998/99.
  Net purchases of tangible fixed assets in 2000/01 include amounts in respect
  of National Grid USA amounting to £153.5 million, compared with £4.3
  million for 1999/2000 (which relates to the period 22 March to 31 March 2000).

In January
  1999, in addition to the debt of £242.6 million raised through the issue
  of the EPICs, National Grid issued a 5.875 per cent 25-year bond in the principal
  amount of £450 million, the net proceeds of which were £443.0 million.

Equity shareholders
  fundsEquity
  shareholders funds increased from £2,909.0 million at 31 March 2000
  to £3,475.8 million at 31 March 2001, primarily as a result of the retained
  profit for the year of £546.0 million, which reflected the favourable
  impact of exceptional net profits of £453.1 million.

Net debtNet
  debt increased from £2,663.6 million at 31 March 2000 to £3,918.2
  million at 31 March 2001, primarily as a result of the acquisition of EUA, additional
  investment in telecommunications joint ventures and exchange rate movements.
  Gearing at 31 March 2001 was 111 per cent, up from 90 per cent at the start
  of the year. Interest cover (the number of times the net interest charge is
  covered by total operating profit excluding goodwill amortisation and exceptional
  items), which is considered more relevant than gearing as an indicator of the
  Groups borrowing capacity, was 2.9 times (compared with 8.4 times in 1999/2000
  and 4.9 times in 1998/99).

When the
  impact of exchangeable bonds is also excluded, interest cover excluding exceptional
  items and goodwill amortisation was 3.6 times (1999/2000: 26.8 times; 1998/99:
  7.6 times).

Capital expenditureCapital
  expenditure, including interest capitalised, in 2000/01 was £535.8 million,
  compared with £316.1 million in 1999/2000. The higher level of capital
  expenditure reflects capital expenditure relating to National Grid USA of £154.2
  million compared with £4.3 million for 1999/2000 (which relates to the
  period 22 March to 31 March 2000) and an increase of £74.7 million in
  UK Transmission capital expenditure to £361.2 million.

At 31 March
  2001, future capital expenditure contracted for but not provided in the accounts
  amounted to £396.8 million. It is expected that this capital expenditure
  commitment will be financed from the Groups operational cash flow.

Capital
  expenditure fell from £329.0 million in 1998/99 to £316.1 million
  in 1999/2000. This fall in capital expenditure reflects a decrease of £27.5
  million in UK Transmission capital expenditure to £286.5 million.

Credit facilitiesThe
  credit facility established in March 1999 in connection with the acquisition
  of NEES remains in place as a prime source of liquidity, although its size has
  been reduced to $1,190 million for National Grid Group plc (NGG) and £250
  million for The National Grid Company plc (NGC), the Groups principal
  UK operating company. This facility



---



|36 | Operating
        and financial review
|-- | --------------------------------------
|   | Financial review continued            



runs to
  March 2004. NGC has further committed facilities of £100 million maturing
  in less than one year. A short-term bridging facility has been set up for NGG
  for $1,000 million to run to September 2001. These changes form part of an overall
  plan to ensure that new and additional financings are in place prior to completion
  of the acquisition of Niagara Mohawk.

Companies
  within the National Grid USA group have committed facilities totalling $578
  million (£407 million) which mature in less than one year and $300 million
  (£211 million) maturing in one to two years. At 31 March 2001, all these
  facilities were unused and were available to provide back-up in respect of borrowings
  under commercial paper and note issuance programmes.

Treasury policyThe
  funding and treasury risk management of the Group is carried out by a central
  department operating under policies and guidelines approved by the Directors.
  Acting within these policies, certain treasury management activities are delegated
  to regional treasury centres. The Treasury Policy Committee, a committee of
  the Group Board, is responsible for regular review and monitoring of treasury
  activity and for approval of specific transactions. Treasury-related risks faced
  by the Group include interest rate risk, currency risk, credit risk and liquidity
  and funding risk, and the policies applicable are described below.

The treasury
  department is not operated as a profit centre. Debt and treasury positions are
  managed in a non-speculative manner, such that all transactions in financial
  instruments or products are matched to an underlying current or anticipated
  business requirement. Derivative financial instruments (derivatives),
  including swaps and options, are used principally for reducing interest rate
  and currency risk. Derivatives are not held for trading purposes.

Interest rate riskTo
  provide protection against adverse interest rate movements, the interest rate
  on the debt portfolio is managed through the use of fixed-rate debt, combined
  with the use of interest rate swaps, options and option-related instruments
  with a view to maintaining a significant proportion of the debt portfolio at
  fixed rates over the medium term. The proportion at fixed rates is varied over
  time with an objective of achieving 50 per cent to 85 per cent of debt at fixed
  rates depending on debt projections and market levels of interest rates.

The interest
  rate composition of the Groups financial liabilities at 31 March 2001
  is shown in note 19 to the accounts. Based on the level and composition of net
  borrowings at 31 March 2001, an increase in average interest rates of 1 per
  cent per annum would result in a decrease in profit before taxation of £4.8
  million.

The acquisition
  of NEES in March 2000 was partly funded from sterling cash balances held at
  that time, combined with currency swaps to create an effective US dollar liability.
  The swap generates a sterling floating rate interest receivable and a US dollar
  floating rate interest payable. After allowing for all derivative instruments,
  88.5 per cent of total borrowings at 31 March 2001 were at fixed rates.

The table
  opposite provides information about the Groups financial instruments that
  are sensitive to changes in interest rates, including borrowings, interest rate
  swaps, cross currency swaps and other derivative instruments. For borrowings,
  the table presents principal cash flows and related weighted average interest
  rates by expected maturity dates. The analysis opposite is before taking into
  account interest rate and currency swaps and does not include unamortised issue
  costs: as a result, it differs from the analysis of borrowings contained in
  note 18 to the accounts.

For interest
  rate swaps, cross currency swaps and swap options, the table presents notional
  amounts and weighted average interest rates by expected (contractual) maturity
  dates. For foreign exchange deals, the table presents the value of currency
  in the relevant contracts. The information is presented in sterling equivalents
  which is the Groups reporting currency.

Substantially
  all of the variable rate borrowings and the floating legs of swaps are subject
  to interest rates which fluctuate with the London Inter-Bank Offered Rate (LIBOR)
  for the appropriate currency at differing premiums or, in the case of certain
  US-based companies, are based on the market rates for tax-exempt commercial
  paper. Cash and deposits earn interest at local prevailing rates for the appropriate
  currency and comprise £136.9 million of sterling deposits, £131.6
  million of US dollar deposits and £2.7 million of other currencies.

In determining
  maturity dates, swaps that are cancellable at the option of the swap provider
  are taken to have a maturity based on the earliest date at which they can be
  cancelled. Debt which is callable by the issuer is taken to have a maturity
  based on the earliest date on which the issuer is obliged to make repayment.

During
  the year, the Group sought to increase the amount, and extend the maturity,
  of its fixed US dollar component and to that end was able to reduce the contracted
  rate to well below the market rates at that time through a strategy involving
  the sale of options. Although this strategy has allowed out-performance against
  internal targets, at the time of exercise of the option, there was an accounting
  mark to market cost of £21.0 million which has been recognised in the
  results for the year and which will be amortised through net interest in the
  profit and loss account over the next ten years.



---



| | 37
| | --



|                                                         |  | At
      31
        March
      2001
      £m |  | Expected
        maturity  financial year ending |   | Fair
        value
      £m          |  
|-------------------------------------------------------- |  | --------------------------------------------- |  | ------------------------------------------------- | - | ------------------------------------ | -
|                                                        
|31
        March
      2002
      £m                     |  | 31
        March
      2003
      £m          |  | 31
        March
      2004
      £m              |   | 31
        March
      2005
      £m |  
|                                                        
|Variable rate
      borrowings (cash flows)              |  |                                               |  |                                                   |   |                                      |  
|Sterling
      borrowings                                |  | 394.6                                         |  | 228.6                                             |   |                                     |  
|US
      dollar borrowings                               |  | 1,654.4                                       |  | 511.2                                             |   | 2.6                                  |  
|Swiss
      franc borrowings                             |  | 186.9                                         |  |                                                  |   |                                     |  
|Australian
      dollar borrowings                       |  | 2.5                                           |  | 2.5                                               |   |                                     |  
|                                                        
|                                                         |  | 2,238.4                                       |  | 742.3                                             |   | 2.6                                  |  
|                                                        
|Fixed rate borrowings
      (cash flows)                 |  |                                               |  |                                                   |   |                                      |  
|Sterling
      borrowings                                |  | 1,431.9                                       |  | 242.6                                             |   | 39.3                                 |  
|weighted
      average interest rate                     |  |                                               |  | 6.0                                               | % | 6.6                                  | %
|US
      dollar borrowings                               |  | 475.5                                         |  | 24.5                                              |   | 57.4                                 |  
|weighted
      average interest rate                     |  |                                               |  | 8.9                                               | % | 7.7                                  | %
|                                                        
|                                                         |  | 1,907.4                                       |  | 267.1                                             |   | 96.7                                 |  
|                                                        
|Total borrowings                                         |  | 4,145.8                                       |  | 1,009.4                                           |   | 99.3                                 |  
|                                                         | 
|Cash and deposits                                        |  | 271.2                                         |  | 271.2                                             |   |                                     |  
|                                                        
|Interest rate
      swaps (sterling  notional amounts)  |  |                                               |  |                                                   |   |                                      |  
|Receive
      fixed rate                                 |  | 476.2                                         |  |                                                  |   | 26.2                                 |  
|average
      fixed rate element                         |  |                                               |  |                                                   |   | 6.6                                  | %
|Pay
      fixed rate                                     |  | 100.0                                         |  |                                                  |   |                                     |  
|average
      fixed rate element                         |  |                                               |  |                                                   |   |                                      |  
|Interest rate
      swaps (US dollar  notional amounts) |  |                                               |  |                                                   |   |                                      |  
|Pay
      fixed rate                                     |  | 2,313.4                                       |  | 1,056.3                                           |   |                                     |  
|average
      fixed rate element                         |  |                                               |  | 6.8                                               | % |                                      |  
|                                                        
|                                                         |  | 2,889.6                                       |  | 1,056.3                                           |   | 26.2                                 |  
|                                                        
|Cross currency
      swaps (notional amounts)            |  |                                               |  |                                                   |   |                                      |  
|Receive
      Swiss francs floating/pay sterling fixed   |  | 257.7                                         |  |                                                  |   |                                     |  
|average
      fixed rate element                         |  |                                               |  |                                                   |   |                                      |  
|Receive
      sterling floating/pay US dollars floating  |  | 1,690.1                                       |  | 1,253.5                                           |   | 436.6                                |  
|                                                        
|                                                         |  | 1,947.8                                       |  | 1,253.5                                           |   | 436.6                                |  
|                                                        
|Other financial
      instruments (notional amounts)     |  |                                               |  |                                                   |   |                                      |  
|Interest
      rate swaps to pay fixed rate              |  | 300.0                                         |  |                                                  |   |                                     |  
|weighted
      average interest rate                     |  |                                               |  |                                                   |   |                                      |  
|Interest
      rate swaps to receive fixed rate          |  | 300.0                                         |  |                                                  |   |                                     |  
|weighted
      average interest rate                     |  |                                               |  |                                                   |   |                                      |  
|Foreign
      exchange deals (sterling/US dollar)        |  | 170.2                                         |  | 170.2                                             |   |                                     |  
|                                                        



---



|38 | Operating
        and financial review
|-- | --------------------------------------
|   | Financial reviewcontinued             



Currency
  riskAlthough
  foreign currency transaction exposures relating to cross-border trading activity
  remain very limited, the policy of the Group is to hedge all exposures exceeding
  $500,000 through the use of forward foreign exchange contracts. The principal
  currency risk to which the Group is exposed arises from the translation of assets
  and liabilities not denominated in sterling. In general, the policy has been
  to hedge the balance sheet exposure through currency borrowings, currency swaps
  or forward foreign exchange deals to the extent of the original cost of the
  investment, where this is material and where it is practical to do so in the
  light of costs and availability of suitable financial instruments for the currency
  concerned. The currency risk on the original cost of acquiring NEES and EUA
  is fully hedged by both US dollar borrowings and the use of currency swaps,
  while the investment in Intelig in Brazil remains unhedged.

The acquisition
  of Niagara Mohawk will further increase the balance sheet exposure to US dollars.
  In view of the increased materiality of the US dollar to the Group the policy
  has been reviewed, and the objective will be to match the US dollar proportion
  of the Groups financial liabilities to the proportion of its cash flow
  that arises in dollars and is available to service those liabilities.

Currency
  fluctuations will affect the translated value of overseas earnings. This translation
  has no impact on the cash flow of the Group, and accordingly is not hedged other
  than indirectly through the natural hedge of having foreign currency interest
  expense arising on currency denominated liabilities. Dividend flows may be hedged
  through matching with interest flows or by forward foreign exchange deals and
  options.

The currency
  composition of the Groups financial assets and liabilities is shown in
  note 19 to the accounts.

Liquidity riskNational
  Grid seeks to ensure that all of its forecast funding needs for a period of
  at least 12 months ahead are fully covered by term loans drawn or committed
  bank facilities. Beyond this time, a prudent level of committed availability
  is maintained. Longer-term refinancing risk is controlled by ensuring that the
  amount of loans maturing in any year is not excessive, compared with the Groups
  borrowing capacity.

Financing
  arrangements for the acquisition of Niagara Mohawk have not yet been put in
  place because of the extended period to completion of the acquisition and the
  Groups desire not to incur commitment fees on finance arrangements unnecessarily.
  It is National Grids opinion that, nearer the time of completion, it will
  have sufficient new finance available to complete the acquisition and to meet
  its working capital requirements.

Following
  announcement of the intended acquisition of Niagara Mohawk, the credit ratings
  of National Grid Group plc were placed on review for a possible downgrade. The
  long-term ratings stand at A from Standard & Poors and at A1 from
  Moodys, both on creditwatch. Certain other entities within the US and
  UK parts of the Group are also rated. These ratings mean that the principal
  borrowing entities in the Group should have ready access to the capital and
  bank markets for future funding when necessary.

National
  Grid Group plc is a registered holding company under the Public Utility Holding
  Act of 1935 in the US. Arising from this and other regulatory limits applicable
  to certain Group companies, the freedom of companies to provide financing between
  themselves is restricted. Notwithstanding this, external financings or other
  arrangements are in place to ensure that Group companies have adequate access
  to short-term liquidity.

Credit riskAt
  31 March 2001, National Grid had £271.2 million of cash and deposits.
  The Group is exposed to the credit risk of counterparties to these investments
  and to counterparties credit risk in respect of off-balance sheet derivative
  financial instruments. The Groups policy is to select only counterparties
  with high-quality credit ratings (namely long-term ratings of at least A-/A3
  or short-term ratings of A1/P1 from Standard & Poors or Moodys
  respectively) and to avoid excessive concentration of risk. It does not expect
  any counterparties to fail to meet their obligations.

Changes
  and developments

The acquisition
  of Niagara Mohawk will give rise to a major change in overall Group debt and
  in the currency mix of the Groups businesses. During the year, financing
  plans have been developed to cover any additional and refinancing needs. The
  current plan is to cover this financing need at a suitable time prior to completion
  of the Niagara Mohawk acquisition by issuing or putting in place approximately
  $2.0 billion of additional bonds or committed medium-term bank facilities, $1.6
  billion of shorter-term bank facilities and $1.0 billion of forward underwriting
  commitments. As a precursor to this, and in the interests of reducing costs,
  National Grid cancelled $1.4 billion of medium-term bank facilities and replaced
  them with $1.0 billion of short-term facilities.

Going concern

Having
  made enquiries, the Directors consider that the Company and the Group have adequate
  resources to continue in business for the foreseeable future and that it is
  therefore appropriate to adopt the going concern basis in preparing the accounts.



---



| | 39
| | --



US GAAP

The accounts
  have been prepared in accordance with UK GAAP, which differ in certain significant
  respects from US GAAP. The US accounting information in note 30 to the accounts
  gives a summary of the principal differences between the amounts determined
  in accordance with National Grids accounting policies (based on UK GAAP)
  and determined in accordance with US GAAP together with reconciliations of net
  income and equity shareholders funds from a UK GAAP basis to a US GAAP
  basis.

Net income
  under US GAAP was £810.3 million (1999/2000: £1,009.8 million; 1998/99:
  £1,002.8 million), compared with £769.0 million (1999/2000: £1,148.4
  million; 1998/99: £1,015.0 million) under UK GAAP. Equity shareholders
  funds at 31 March 2001 under US GAAP were £2,920.0 million (31 March 2000:
  £2,345.7 million) compared with £3,475.8 million (31 March 2000:
  £2,909.0 million) under UK GAAP. The differences primarily result from
  the differing accounting treatment in respect of pensions, deferred taxation,
  recognition of UK Transmission income, financial instruments and the carrying
  value of the EPICs liability.

US Statement
  of Financial Accounting Standard 133: Accounting for Derivative Instruments
  and Hedging Activities (SFAS 133), was issued in June 1998 and is effective
  from 1 April 2001 for National Grid. SFAS 133 establishes accounting and reporting
  standards for derivative instruments, including certain derivatives embedded
  in other contracts (collectively referred to as derivatives), and for hedging
  activities. The indicative effect of adopting SFAS 133 is expected to decrease
  US GAAP equity shareholders funds by approximately £14 million (net
  of tax) at 1 April 2001.

Inflation

In the
  UK, National Grids operating costs may be affected by inflation both in
  terms of potential cost increases and in terms of the regulatory revenue control,
  which is influenced by, amongst other things, movements in the UK Retail Price
  Index. While higher inflation would tend to increase National Grids cost
  base, this impact would be more than offset by increased revenue allowed under
  the regulatory revenue control.

Higher
  inflation would increase National Grid USAs cost base. However, if the
  rate of inflation, as measured by the change in the Gross Domestic Product Implicit
  Price Deflator, exceeds 4 per cent, the regulatory settlements in Massachusetts
  and Rhode Island allow for additional distribution revenue to be recovered from
  customers. In recent years, inflation in the UK and US has been relatively stable
  and has not significantly affected the period under review.

Seasonality

Although
  demand for electricity can vary on a seasonal basis, National Grids UK
  turnover and earnings are not, generally speaking, subject to substantial seasonal
  variations, as the largest elements of UK turnover relate to customers
  use of the transmission system. Customers are charged for these services on
  the basis of a regulatory formula which provides for a relatively constant revenue
  stream over the course of a financial year.

In respect
  of National Grid USA, some 60 per cent of the annual revenues of the transmission
  and distribution businesses of National Grid USA arise in the periods January-March
  and June-August inclusive, reflecting seasonal peaks in demand for electricity.

Euro

The single
  European currency (the euro) came into existence on 1 January 1999.
  The impact on National Grid to date has been minimal, but facilities have been
  established to enable euro dealings where necessary. Internally, an analysis
  of the impact on National Grid of adopting the euro as a replacement for sterling
  has been undertaken.



---



|40 | The
        Board of Directors
|-- | ------------------------------





From left
  to right

James RossChairman
  and a member of the Nominations Committee.Appointed as
  a Director of National Grid on 1 March 1999, James Ross became Chairman in July
  1999. He is also Chairman of Littlewoods plc, having been Chief Executive of
  Cable and Wireless plc from 1992 to 1995. Before that, he was a Managing Director
  of the British Petroleum Company plc and Chairman and Chief Executive Officer
  of BP America. He is a Non-executive Director of McGraw Hill and of Datacard,
  both based in the US, and of Schneider Electric based in France. James Ross
  is a trustee of the Cleveland Orchestra and a Board member of the Regional Development
  Agency for the North West. Aged 62.

Roger UrwinGroup
  Chief Executive. Appointed as a Director of National Grid
  and of The National Grid Company plc in 1995, Roger Urwin was previously Chief
  Executive of London Electricity plc. Prior to this, he held a number of appointments
  within the Central Electricity Generating Board before joining Midlands Electricity
  Board as Director of Engineering. He is a Non-executive Director of Energis,
  The Special Utilities Investment Trust PLC and TotalFinaElf Exploration UK plc
  and is a Fellow of the Royal Academy of Engineering. Aged 55.

John GrantNon-executive
  Director, Chairman of the Audit Committee and a member of the Nominations and
  Remuneration Committees. Appointed as a Director of National
  Grid in 1995, John Grant is Executive Chairman of Hasgo Group Limited and of
  Peter Stubs Limited. He was Chief Executive of Ascot Plc from 1997 to June 2000,
  Finance Director of Lucas Industries plc (subsequently LucasVarity plc) from
  1992 to 1996 and held a number of senior executive positions during 25 years
  with Ford Motor Company, including Vice President, Ford of Europe, Director
  of Corporate Strategy, Ford US and Executive Deputy Chairman of Jaguar. He is
  also a Non-executive Director of Torotrak plc, Corac Group Plc and Cordex plc.
  Aged 55.

Richard ReynoldsNon-executive
  Director and a member of the Audit and Remuneration Committees. Appointed
  as a Director of National Grid in 1998, Richard Reynolds was a Director of GEC
  from 1986 to 1995. He was Managing Director of GEC Telecommunications and became
  Managing Director of GPT on the merger of the GEC and Plessey telecommunications
  companies. He was also Chairman of GPT and is currently Chairman of Photobition
  Group plc and of Wavionix Software Limited. He is also a Non-executive Director
  of Telme.com plc. Aged 62.

Rick SergelGroup
  Director, North America. Appointed as a Director of National
  Grid in 2000, Rick Sergel is President, Chief Executive Officer and Director
  of National Grid USA. From February 1998 until the merger, he served as its
  President and Chief Executive Officer. His previous positions with NEES include
  Senior Vice President in charge of retail operations and unregulated ventures,
  Vice President and Treasurer. He serves as Chairman of the board of the distribution
  companies and is also a Director of State Street Bank & Trust. Aged 51.

Bob FairclothNon-executive
  Director, Chairman of the Remuneration Committee and a member of the Audit and Nominations Committees. Appointed
  as a Director of National Grid in 1995, Bob Faircloth was Chief Operating Officer
  and an Executive Director of BTR until 1995 and a Non-executive Director until
  May 1998. Before joining BTR in 1990, Bob Faircloth held technical and management
  posts, mainly in the petrochemicals and paper industries in Canada and Europe.
  He is engaged in international management consulting with involvement with international
  banks, industrial companies and government agencies. Aged 64.

Paul JoskowNon-executive
  Director and a member of the Audit Committee. Appointed
  as a Director of National Grid in 2000, Paul Joskow is a Professor of Economics
  and Management at the Massachusetts Institute of Technology (MIT) and is Director
  of the MIT Center for Energy and Environmental Policy Research. He is a research
  associate of the US National Bureau of Economic Research and a Fellow of the
  Econometric Society and of the American Academy of Arts and Sciences. Paul Joskow
  served as a Director of NEES from 1987 until the merger. He is a trustee of
  the Putnam Mutual Funds, a Director of State Farm Indemnity Company and a Director
  of the Whitehead Institute for Biomedical Research. Aged 53.

Steven HollidayGroup
  Director, Europe. Appointed as a Director of National
  Grid and Chief Executive of The National Grid Company plc on 30 March 2001,
  Steven Holliday was an Executive Director of British Borneo Oil and Gas from
  1997. Prior to this, he spent 19 years with the Exxon Group, where he held senior
  positions in the operations and business development areas. Aged 44.

Stephen BoxGroup
  Finance Director.Appointed as a Director of National
  Grid and of The National Grid Company plc in August 1997. Formerly with Coopers
  & Lybrand, where he was a partner specialising in corporate finance, he
  is a Non-executive Director of Energis and of Michael Page International PLC
  and a member of the Financial Reporting Review Panel. Aged 50.

National
  Grids General Counsel and Company Secretary is Fiona Smith.



---



|Corporate
      governance | 41
|-------------------------- | --



Corporate
  governance is the system by which companies are directed and controlled, focusing
  on the responsibilities of directors and the structure and conduct of the board.

The Combined
  Code of Corporate Governance, which is appended to the Listing Rules of the
  United Kingdom Listing Authority, sets out Principles of Good Governance and
  specific provisions relating to governance with which listed companies are required
  to comply, or to explain the reasons for any areas of non-compliance. The Combined
  Code is based on the report of the Hampel Committee on Corporate Governance,
  which itself draws on the earlier Cadbury and Greenbury reports.

The following
  statement sets out National Grids application of the Principles of Good
  Governance and its compliance with the provisions set out in the Combined Code.

Corporate governance
  within National GridWe are committed
  to high standards of corporate governance and recognise that sound governance
  is key, not only to compliance with external requirements but also to the establishment
  of good business practice throughout the Group.

We therefore
  maintain our own code of corporate governance, the National Grid Code of Business
  Practice. The Code of Business Practice was introduced in March 2000 and is
  closely modelled on the Combined Code. We have operated throughout the year
  in accordance with the Code of Business Practice and have thus complied with
  the provisions of the Combined Code, other than with respect to the nomination
  of a senior non-executive director. We believe that the independent Non-executive
  Chairman is the appropriate point of contact for shareholders with concerns
  relating to the executive management of the Group and for this reason do not
  propose to nominate a senior non-executive director.

DirectorsThe Board: National
  Grid is led by the Group Board, which currently consists of nine Directors.
  The Board meets at least eight times a year, with additional meetings as necessary.
  To ensure that the direction and control of the Group are firmly in its own
  hands, the Board reserves certain matters for its collective decision and/or
  monitoring. Matters for which Board approval is required include the start-up
  or acquisition of new businesses and the establishment of any activity in a
  new territory. Also reserved to the Board are matters relating to health and
  safety, the environment and policy issues affecting the reputation and standing
  of the Group.

Chairman and
  Group Chief Executive: There is a clear division of responsibility
  between the Non-executive Chairman and the Group Chief Executive, whose posts
  are, and will remain, separate.

Board balance: The
  Board is currently made up of nine Directors, four executive and five non-executive
  (including the Chairman).

Independence: National
  Grid considers non-executive directors to be independent if they are independent
  of the Groups management and free from any business or other relationship
  which could materially interfere with the exercise of their independent judgement.
  The Board considers that all of the serving Non-executive Directors are independent.

Supply of information:
  Regular and ad hoc reports are made throughout the year
  to ensure that the Board is supplied in a timely manner with information of
  the quality and detail it requires. All Directors have the right and duty to
  make further enquiries where they consider this necessary.

All Directors
  have access to the advice and services of the Group General Counsel and Company
  Secretary and may take independent advice, at the Groups expense, in the
  furtherance of their duties.

Appointments to the Board:
  The Board has delegated to the Nominations Committee responsibility
  for considering and recommending the reappointment of existing Directors, for
  identifying and selecting potential new Directors and for proposing to the Board
  the appointment of new Directors. The Nominations Committee, the members of
  which are identified on page 40, meets at least once a year and additionally
  as necessary.

Reappointment:Every Director is required by the Groups Articles of Association to retire
  and seek reappointment by the shareholders at the Annual General Meeting (AGM)
  at least once every three years. Additionally, any new Director who has been
  appointed by the Board is required by the Articles to retire at the next AGM
  and to seek reappointment by the shareholders.

Directors remuneration:
  The Board has charged the Remuneration Committee with
  the design of remuneration packages to attract, retain and motivate high-calibre
  Directors. The Remuneration Committee, the members of which are shown on page
  40, recognises the importance of linking rewards to performance and uses a range
  of incentives. The report on pages 44 to 47 sets out the Groups policy
  on remuneration and gives details of the remuneration of each Director.



---



|42 | Corporate
        governancecontinued
|-- | -------------------------------------



Relations with shareholders
  Dialogue with institutional investors: Regular dialogue
  is maintained with institutional investors, fund managers and financial analysts
  with the aim of fostering a mutual understanding of objectives.

The Annual General Meeting:
  At each AGM, the Chairman makes a presentation on the
  years financial results and business activities and open discussion between
  Directors and shareholders is encouraged. Shareholders are invited to vote separately
  on each substantive issue.

Networking: National
  Grid is very proud of its Networking programme, which gives individual shareholders
  the opportunity to meet Directors and staff and to experience our operations
  at first hand.

Accountability and audit
  Financial reporting: The Directors are responsible for
  ensuring that the annual report and the accounts provide a balanced and understandable
  presentation of the Groups position and prospects.

Audit Committee and auditors:
  The Board has delegated to the Audit Committee responsibility
  for maintaining an appropriate relationship with the Groups external auditors.
  The Audit Committee also reviews the scope and extent of internal audit and
  has particular responsibility for reporting annually to the Board on the scope
  of work, authority and resources of the internal audit function. The Audit Committee
  meets four times a year, and has at least one private meeting with the external
  auditors. The membership of the Audit Committee is shown on page 40.

The Audit
  Committee has the specific task of keeping under review the nature and extent
  of non-audit services provided by the external auditors in order to ensure that
  a proper balance is maintained between objectivity and value for money. The
  Audit Committee has reviewed the auditors remuneration set out in note
  2 to the accounts and is satisfied that it is proper and reasonable, having
  regard to the following considerations:

- substantial
    non-audit expenditure is associated with work incremental to the statutory
    audit or with accounting, taxation and regulatory issues which are so closely
    allied to the mainstream audit that, in the Audit Committees view, it
    would be contrary to National Grids strategic and financial interests
    to seek advice from sources other than the external auditors;
- other
    consultancy work is awarded on the basis of the skills and value for money
    offered by advisers, including the external auditors, and all costs are subject
    to close scrutiny; and
- the objectivity
    and independence of the external auditors is ensured by their compliance with
    their own professional codes of conduct and by their internal procedures,
    including Chinese Wall arrangements and the regular rotation of
    key audit staff.

Internal control: The
  Groups system of internal control helps to safeguard shareholders
  investment and the Companys assets and is designed to manage, rather than
  to eliminate, material risks to the achievement of business objectives. The
  Board is responsible for the Groups system of internal control and for
  reviewing its effectiveness, recognising that any such system can provide only
  reasonable, and not absolute, assurance against material misstatement or loss.

We have
  an ongoing process for the identification, evaluation and management of the
  significant risks faced by the Group. This process, which accords with the Turnbull
  working party guidance published in September 1999, has been in place throughout
  the year and continues in operation to date. During the year, we have taken
  steps to introduce and embed the process throughout the Group through the business
  planning process. All parts of the Group, including joint ventures, have:

- captured
    and reported, in a standard risk register format, their key business risks;
- categorised
    all risks to highlight the source of the risk;
- subjectively
    scored all risks to reflect both the financial and reputational impact of
    the risk and the likelihood of its occurrence; and
- validated
    and approved, through local management, the risk register.

Energis,
  being a separately listed company, is independent from National Grid and must
  comply with reporting requirements in its own right.

All parts
  of the Group are required to keep their risk registers up to date and relevant
  to their businesses. All operating companies, including joint ventures, report
  any material changes in risks and associated actions through the periodic reporting
  process. A network of risk co-ordinators has been established throughout the
  Group to facilitate this.

In parallel
  with business planning and consistent with the risks identified in the bottom-up
  risk assessment process, a schedule of Board-level risks has been considered
  and endorsed by the Audit Committee. Any material changes in these risks and
  associated actions will be reported through the periodic reporting process.

We continue
  to embed good risk management principles throughout the expanding Group as part
  of a process of



---



| | 43
| | --



continuous
  improvement. Progress is monitored by a risk steering group chaired by the Group
  General Counsel and Company Secretary, the objectives of which are to give direction
  and impetus to the implementation of risk management at all levels of the Group,
  act as a catalyst for change and provide senior and visible executive support
  to the process.

In March
  2000, the Board set out its procedure for the review of effectiveness of internal
  control, emphasising that risk management should be aligned as closely as possible
  to existing business processes and structures. In accordance with this procedure
  the Board, through the Group Executive and Audit Committees, regularly reviews
  the effectiveness of internal control (including the process for identifying,
  evaluating and managing significant risks) through the assurance mechanisms
  shown below. Any material matters arising are reported to the Board.

---

Throughout
  the year:

Executive Committee
  considers:

- periodic
    business reports from all operating companies
- the top-down
    strategic plan for the Group and the bottom-up business plans of the operating
    companies
- all proposals
    for material capital and revenue spend, including new business development
- reports
    from management on key risk areas including, where appropriate, any material
    control weaknesses and failings and actions taken to address them

Audit Committee considers:

- external
    and internal audit work plans
- audit
    work plans for health and safety and environmental management
- summary
    reports from external and internal assurance providers on significant matters
    arising
- specific
    reports from management on the actions taken to manage key risk areas and,
    if applicable, to address material control weaknesses and failings

At the
  end of each financial year:

Executive Committee
  considers:

Annual
  statements on risk management and internal control provided by all operating
  companies that highlight:

- how risk
    management has been made more visible in the business
- how management
    has addressed key risks and any significant control issues in the course of
    the year
- the key
    changes in risk profile since the start of the year

Audit Committee considers:

Specific
  reports on:

- significant
    corporate governance and legal matters
- risk
    management
- health
    and safety and environmental management
- internal
    audit issues and the effectiveness of the risk management process
- external
    audit issues

---



---



|44 | Directors
        remuneration
|-- | -------------------------------



Composition
  and role of the Remuneration CommitteeThe
  Remuneration Committee consists exclusively of independent Non-executive Directors.
  It is chaired by Bob Faircloth, its other members being John Grant and Richard
  Reynolds. The Remuneration Committee is responsible for determining all aspects
  of Executive Directors compensation, drawing on advice from external independent
  remuneration consultants and internal advisers.

Remuneration policyThe
  Remuneration Committee designs remuneration packages with the aim of attracting,
  motivating and retaining high-calibre Directors who will deliver success for
  shareholders and high levels of customer service, safety and environmental standards
  while having due regard to the markets in which the Group operates.

Executive Directors
  remunerationRemuneration
  packages for Executive Directors consist of the following elements:

- base salary:base salaries are reviewed annually taking account of the median market position
    (against businesses of a similar size and complexity) and business and personal
    performance. Account is also taken of salary increases and employment conditions
    across the Group. The Committee will continue to review the competitiveness
    of salaries, taking account of the increasing size, diversity and international
    focus of the business.
- incentives: the
    Remuneration Committee recognises the importance of linking rewards to business
    and personal performance and considers that the following incentive arrangements
    provide a balance between short- and long-term incentives:annual
    bonus:a non-pensionable annual cash bonus of up
    to a maximum of 50 per cent of base salary can be paid for the achievement
    of demanding financial, personal and quality of service targets. Rick Sergel
    also participates in the National Grid USA Goals Program, an all-employee
    bonus plan that can pay up to 4.5 per cent of base salary on the achievement
    of certain earnings and performance targets. In line with US market practice,
    Rick Sergels cash bonus is pensionable.Share
    Match scheme:UK Directors are required to invest
    25 per cent of any annual cash bonus in National Grid shares, which are placed
    in trust. At the end of three years (provided the Director is still employed)
    additional shares equal to the pre-tax value of the invested shares will be
    awarded and all shares released to the individual. Rick Sergel participates
    in an incentive plan whereby National Grid shares equivalent to 60 per cent
    of the annual cash bonus are awarded, subject to a three-year vesting requirement.executive share options:the National Grid Executive Share Option
    Plan 2000 permits executive share options to be granted at market price up
    to a maximum value of 150 per cent of base salary per annum. Grants of a greater
    value may be made in exceptional circumstances, for example to a new Executive
    Director at first appointment. The exercise of executive share options granted
    during the year is subject to National Grids Total Shareholder Return
    (TSR), relative to that of a group of UK and US companies, over a three-year
    period. Options up to the value of an individuals base salary become
    exercisable in full if National Grids TSR is at least median. Options
    in excess of base salary are exercisable on a sliding scale and are only exercisable
    in full if National Grids TSR is in the upper quartile of the comparator
    group. Executive share options granted between September 1997 and March 2000
    are exercisable in full if National Grids growth in earnings per share
    (EPS) exceeds RPI by 3 per cent per annum over a three-year period.Sharesave:Executive
    Directors resident in the UK are eligible to participate in the all-employee
    Sharesave scheme (subject to eligibility based on service).US Incentive Thrift Plan:Rick Sergel participates
    in a tax-advantaged savings plan (known as a 401(k) plan) provided for employees
    by National Grid USA, to which he chooses to contribute 6 per cent of base
    salary up to the Federal limit of $10,500. National Grid USA provides a further
    5 per cent of base salary which is invested on Rick Sergels behalf in
    National Grid American Depositary Receipts (ADRs). Under the terms of this
    Plan, 199.191 ADRs (1999/2000: 52.344) were purchased on behalf of Rick Sergel.
- pensions: pension
    benefits earned by individual Executive Directors in 2000/01 are as follows:

|                 | Age
        at
        31 March
        2001 |          | Directors
      contributions
      during
        year
      £000 |  | Increase
        to
      accrued
      pension
      during
        year
      (net
        of
      inflation)
      £000 |  | Accrued
      pension
      as
        at
      31
        March | 
|---------------- | -------------------------------------------- | -------- | ------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------- | 
|                
|2001£000         | 1                                            | 2000£000
|                
|David Jones2     | 58                                           |          | 13                                                                  |  | 57                                                                                                                          |  | 284                                                              | 
|Roger Urwin      | 55                                           |          | 8                                                                   |  | 26                                                                                                                          |  | 160                                                              | 
|Stephen Box      | 50                                           |          | 9                                                                   |  | 14                                                                                                                          |  | 36                                                               | 
|Wob Gerretsen3   |                                             |          | 4                                                                   |  |                                                                                                                            |  |                                                                 | 
|Steven Holliday4 | 44                                           |          | 0                                                                   |  |                                                                                                                            |  | 0                                                                | 
|Rick Sergel      | 51                                           |          | 0                                                                   |  | 21                                                                                                                          |  | 229                                                              | 
|                

1 Accrued pension represents
  the pension which would be paid annually at age 60 if the Director resigned
  on 31 March 2001.
  2 David Jones, the highest-paid Director, retired on 31 March 2001 with an unreduced
  pension.
  3 Wob Gerretsen died on 19 October 2000. His beneficiaries received payments
  of £988,613 and are receiving a pension of £100,256 per annum.
  4 Steven Holliday was appointed to the Board on 30 March 2001.



---



| | 45
| | --



UK-based
  Executive Directors are members of the National Grid section of the Electricity
  Supply Pension Scheme (ESPS), to which they currently contribute 3 per cent
  of base salary per annum up to the Inland Revenue earnings cap. The normal employee
  contribution is 6 per cent but there is currently a pensions holiday on employee
  contributions which affects all staff. The pension schemes main features
  in respect of Executive Directors are: normal retirement at age 60; pension
  at normal retirement age of two-thirds final salary subject to completion of
  20 years service (although Directors may retire early from age 55 with
  a reduction in pension); death-in-service payment of four times pensionable
  salary; spouses pension of two-thirds Directors pension on death;
  discretionary payment of dependants pension if there is no surviving spouse;
  pension increased by inflation by up to 5 per cent per annum; and, for Directors
  affected by the earnings cap, the Company may provide a pension on salary above
  the cap on a partially-funded basis.

Rick Sergel
  participates in a qualified pension plan and an executive supplemental retirement
  plan provided through National Grid USA. These plans are non-contributory defined
  benefit arrangements.

Benefits
  are calculated using formulae based on years of service and highest average
  compensation over five consecutive years. In line with many US plans, compensation
  covered includes salary, bonuses and incentive share awards. Normal retirement
  age is 65. Pursuant to the executive supplemental plan, however, unreduced benefits
  may be payable at age 55. The plans also provide for a spouses pension,
  the actual value of which is based on the participants age at death. Benefits
  from both plans are fixed and do not increase after retirement.

- non-cash benefits: the
    Company provides competitive benefits such as a fully expensed car and private
    medical insurance to the Executive Directors.
- service contracts: service
    contracts for Executive Directors are set at one years notice. The application
    of longer contract periods at appointment, reducing after an initial period,
    is considered appropriate by the Board to recruit and retain key executives.
    In this regard, the initial period of Rick Sergels contract is for a
    fixed period of three years, reducing to one year after 2002. Steven Hollidays
    contract is for a fixed period of two years, reducing to one year after one
    year of service.

Directors remunerationThe
  remuneration of individual Directors for the year ended 31 March 2001 is set
  out below:

|                                          | Base
      salary
      and fees
      £000 |                      | Annual
      bonus1
      £000 |  | Benefits
      £000 |  | Total
        emoluments
        (excluding pension)
|----------------------------------------- | ------------------------------------------- | -------------------- | ------------------------------ |  | ------------------- |  | ----------------------------------------------------
|                                         
|2000/01
      £000                        |                                             | 1999/2000
      £000
|                                         
|Chairman                                  |                                             |                      |                                |  |                     |  |                                                     
|James
      Ross2(Non-executive Director) | 120                                         |                      |                               |  |                    |  | 120                                                 
|                                          |                                             |                      |                                |  |                     |  |                                                     
|Executive
      Directors                 |                                             |                      |                                |  |                     |  |                                                     
|David
      Jones                         | 440                                         |                      | 212                            |  | 13                  |  | 665                                                 
|Roger
      Urwin                         | 275                                         |                      | 150                            |  | 11                  |  | 436                                                 
|Stephen
      Box                         | 300                                         |                      | 142                            |  | 13                  |  | 455                                                 
|Wob
      Gerretsen3                      | 177                                         |                      | 34                             |  | 48                  |  | 259                                                 
|Steven
      Holliday4                    | 1                                           |                      |                               |  |                    |  | 1                                                   
|Rick
      Sergel5                        | 408                                         |                      | 197                            |  | 15                  |  | 620                                                 
|                                          |                                             |                      |                                |  |                     |  |                                                     
|Non-executive
      Directors             |                                             |                      |                                |  |                     |  |                                                     
|David
      Jefferies6(former Chairman)   |                                            |                      |                               |  |                    |  |                                                    
|Bob
      Faircloth                       | 30                                          |                      |                               |  |                    |  | 30                                                  
|John
      Grant                          | 30                                          |                      |                               |  |                    |  | 30                                                  
|Paul
      Joskow5                        | 45                                          |                      |                               |  |                    |  | 45                                                  
|Richard
      Reynolds                    | 50                                          |                      |                               |  |                    |  | 50                                                  
|Malcolm
      Williamson6                 |                                            |                      |                               |  |                    |  |                                                    
|                                         
|                                          | 1,876                                       |                      | 735                            |  | 100                 |  | 2,711                                               
|                                         

1 Total cash bonus paid
  includes amount invested by Director in Share Match scheme and, in the case
  of Roger Urwin, an ex-gratia payment of £19,000 in respect of dividends
  on Matching Shares.
  2 Appointed to the Board on 1 March
  1999. Appointed Chairman on 22 July 1999.
  3 Died on 19 October 2000: £36,427
  of his benefits is in respect of repatriation of personal property. 
  4 Appointed to the Board on 30 March 2001.
  5 Appointed to the Board on 27 March
  2000.
  6 Resigned from the Board on 22 July 1999.
  The total remuneration of
  David Jones, the highest-paid Director during the year, was £665,440 (1999/2000:
  £488,577).



---



|46 | Directors
        remunerationcontinued
|-- | ----------------------------------------



Directors interests
  in share optionsDirectors
  interests in share options over the ordinary shares of National Grid are as
  follows1:

|                 |  | Options
        held at
        1 April
        2000 |  | Options
        exercised
        during
        the year |  | Options
        granted
        during
        the year |  | Options
        held at
        31 March
        2001 |  | Exercise
        price p |  | Date
        from which
        exercisable |  | Expiry
        date
|---------------- |  | ---------------------------------------------------- |  | --------------------------------------------------------- |  | ------------------------------------------------------- |  | ----------------------------------------------------- |  | ------------------------ |  | ------------------------------------------- |  | -------------------
|                
|David Jones      |  |                                                      |  |                                                           |  |                                                         |  |                                                       |  |                          |  |                                             |  |                    
|Executive        |  | 230,837                                              |  |                                                          |  |                                                        |  | 230,837                                               |  | 280.50                   |  | Sep
        2000                            |  | Sep
        2007   
|                 |  | 146,906                                              |  |                                                          |  |                                                        |  | 146,906                                               |  | 375.75                   |  | Jun
        2001                            |  | Jun
        2008   
|                 |  | 44,045                                               |  |                                                          |  |                                                        |  | 44,045                                                |  | 455.25                   |  | Jun
        2002                            |  | Jun
        2009   
|                 |  |                                                     |  |                                                          |  | 67,730                                                  |  | 67,730                                                |  | 531.50                   |  | Jun
        2003                            |  | Jun
        2010   
|Share Match2     |  | 22,304                                               |  |                                                          |  |                                                        |  | 22,304                                                |  | 100.0
        in total   |  | Sep
        2000                            |  | Sep
        2004   
|                 |  | 5,862                                                |  |                                                          |  |                                                        |  | 5,862                                                 |  | 100.0
        in total   |  | Jun
        2001                            |  | Jun
        2005   
|                 |  | 5,930                                                |  |                                                          |  |                                                        |  | 5,930                                                 |  | 100.0
        in total   |  | Jun
        2002                            |  | Jun
        2006   
|                 |  |                                                     |  |                                                          |  | 5,989                                                   |  | 5,989                                                 |  | 100.0
        in total   |  | Jun
        2003                            |  | Jun
        2007   
|                
|Total            |  | 455,884                                              |  | Nil                                                       |  | 73,719                                                  |  | 529,603                                               |  |                          |  |                                             |  |                    
|                
|Roger Urwin      |  |                                                      |  |                                                           |  |                                                         |  |                                                       |  |                          |  |                                             |  |                    
|Executive        |  | 169,340                                              |  |                                                          |  |                                                        |  | 169,340                                               |  | 280.50                   |  | Sep
        2000                            |  | Sep
        2007   
|                 |  | 91,656                                               |  |                                                          |  |                                                        |  | 91,656                                                |  | 375.75                   |  | Jun
        2001                            |  | Jun
        2008   
|                 |  | 22,098                                               |  |                                                          |  |                                                        |  | 22,098                                                |  | 455.25                   |  | Jun
        2002                            |  | Jun
        2009   
|                 |  |                                                     |  |                                                          |  | 33,867                                                  |  | 33,867                                                |  | 531.50                   |  | Jun
        2003                            |  | Jun
        2010   
|Share Match2     |  | 16,059                                               |  | 16,0593                                                   |  |                                                        |  |                                                      |  | 100.0
        in total   |  | Sep
        2000                            |  | Sep
        2004   
|                 |  | 4,047                                                |  |                                                          |  |                                                        |  | 4,047                                                 |  | 100.0
        in total   |  | Jun
        2001                            |  | Jun
        2005   
|                 |  | 3,884                                                |  |                                                          |  |                                                        |  | 3,884                                                 |  | 100.0
        in total   |  | Jun
        2002                            |  | Jun
        2006   
|                 |  |                                                     |  |                                                          |  | 3,859                                                   |  | 3,859                                                 |  | 100.0
        in total   |  | Jun
        2003                            |  | Jun
        2007   
|Sharesave        |  | 10,648                                               |  | 10,6484                                                   |  |                                                        |  |                                                      |  | 162.00                   |  | Feb
        2001                            |  | Aug
        2001   
|                
|Total            |  | 317,732                                              |  | 26,707                                                    |  | 37,726                                                  |  | 328,751                                               |  |                          |  |                                             |  |                    
|                
|Stephen Box      |  |                                                      |  |                                                           |  |                                                         |  |                                                       |  |                          |  |                                             |  |                    
|Executive        |  | 160,427                                              |  |                                                          |  |                                                        |  | 160,427                                               |  | 280.50                   |  | Sep
        2000                            |  | Sep
        2007   
|                 |  | 93,147                                               |  |                                                          |  |                                                        |  | 93,147                                                |  | 375.75                   |  | Jun
        2001                            |  | Jun
        2008   
|                 |  | 43,931                                               |  |                                                          |  |                                                        |  | 43,931                                                |  | 455.25                   |  | Jun
        2002                            |  | Jun
        2009   
|                 |  |                                                     |  |                                                          |  | 37,630                                                  |  | 37,630                                                |  | 531.50                   |  | Jun
        2003                            |  | Jun
        2010   
|Share Match2     |  | 2,955                                                |  |                                                          |  |                                                        |  | 2,955                                                 |  | 100.0
        in total   |  | Jun
        2001                            |  | Jun
        2005   
|                 |  | 3,844                                                |  |                                                          |  |                                                        |  | 3,844                                                 |  | 100.0
        in total   |  | Jun
        2002                            |  | Jun
        2006   
|                 |  |                                                     |  |                                                          |  | 4,122                                                   |  | 4,122                                                 |  | 100.0
        in total   |  | Jun
        2003                            |  | Jun
        2007   
|Sharesave        |  | 3,125                                                |  |                                                          |  |                                                        |  | 3,125                                                 |  | 312.00                   |  | Sep
        2001                            |  | Feb
        2002   
|                
|Total            |  | 307,429                                              |  | Nil                                                       |  | 41,752                                                  |  | 349,181                                               |  |                          |  |                                             |  |                    
|                
|Steven Holliday5 |  |                                                      |  |                                                           |  |                                                         |  |                                                       |  |                          |  |                                             |  |                    
|Executive        |  |                                                     |  |                                                          |  | 150,000                                                 |  | 150,000                                               |  | 540.00                   |  | Mar
        2004                            |  | Mar
        2011   
|                
|Total            |  | Nil                                                  |  | Nil                                                       |  | 150,000                                                 |  | 150,000                                               |  |                          |  |                                             |  |                    
|                
|Rick Sergel      |  |                                                      |  |                                                           |  |                                                         |  |                                                       |  |                          |  |                                             |  |                    
|Executive        |  | 201,845                                              |  |                                                          |  |                                                        |  | 201,845                                               |  | 566.50                   |  | Mar
        2003                            |  | Mar
        2010   
|                
|Total            |  | 201,845                                              |  | Nil                                                       |  | Nil                                                     |  | 201,845                                               |  |                          |  |                                             |  |                    
|                

1 Wob Gerretsen died on
  19 October 2000. 
  2 Share Match options granted during the year relate to the annual bonus paid
  for the financial year ended 31 March 2000. 
  3 The closing mid-market price of an ordinary share in National Grid on 29 March
  2001, the date at which Roger Urwin exercised his Share Match grant, was 540.0
  pence. Roger Urwin retained his shares. 
  4 The closing mid-market price of an ordinary share in National Grid on 28 March
  2001, the date at which Roger Urwin exercised his Sharesave options, was 539.0
  pence. Roger Urwin retained his shares. 
  5 Steven Holliday was appointed to the Board on 30 March 2001. 
  The closing mid-market price of a National Grid ordinary share on Friday 30
  March 2001, the last day of trading in the 2000/01 financial year, was 544.0
  pence. 
  The range during the period 1 April 2000 to 31 March 2001 was 646.0 pence (high)
  and 479.5 pence (low).



---



| | 47
| | --



Directors beneficial
  interestsThe
  Directors beneficial interests (which include those of their families)
  in the ordinary shares of National Grid are shown below:

|                 |  | Ordinary
        shares at
        31 March
        2001 |  | Ordinary
        shares at
        1 April
        2000 |  | Options
        over ordinary
        shares at
        31 March
        2001 |  | Options
        over ordinary
        shares at
        1 April
        2000
|---------------- |  | -------------------------------------------------------- |  | ------------------------------------------------------- |  | ----------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------
|                
|James Ross       |  | 19,000                                                   |  | 2,000                                                   |  |                                                                              |  |                                                                            
|David Jones      |  | 110,050                                                  |  | 106,457                                                 |  | 529,603                                                                       |  | 455,884                                                                     
|Roger Urwin      |  | 144,539                                                  |  | 115,517                                                 |  | 328,751                                                                       |  | 317,732                                                                     
|Stephen Box      |  | 6,552                                                    |  | 4,079                                                   |  | 349,181                                                                       |  | 307,429                                                                     
|Steven Holliday  |  |                                                         |  |                                                        |  | 150,000                                                                       |  |                                                                            
|Rick Sergel      |  | 1,257                                                    |  | 261                                                     |  | 201,845                                                                       |  | 201,845                                                                     
|Bob Faircloth    |  |                                                         |  |                                                        |  |                                                                              |  |                                                                            
|John Grant       |  | 10,000                                                   |  | 10,000                                                  |  |                                                                              |  |                                                                            
|Paul Joskow      |  | 5,000                                                    |  |                                                        |  |                                                                              |  |                                                                            
|Richard Reynolds |  | 10,000                                                   |  | 10,000                                                  |  |                                                                              |  |                                                                            
|                

After the
  end of the financial year, Rick Sergel became aware that, as a result of investments
  by National Grid USA in National Grid ADRs under its 401(k) programme, he had
  acquired an interest in 24.355 ADRs on 24 April 2001.

There has
  been no other change in the beneficial interests of the Directors in the ordinary
  shares of National Grid between 1 April 2001 and 31 May 2001.

None of
  the Directors held any non-beneficial interests in the ordinary shares of National
  Grid.

Each of
  the Executive Directors (David Jones, Roger Urwin, Stephen Box, Steven Holliday
  and Rick Sergel) was, for Companies Act purposes, deemed to be a potential beneficiary
  under the NGG Qualifying Employee Share Ownership Trust (QUEST) and the NGG
  1996 Employee Benefit Trust and thereby to have an interest in the 5,204,219
  National Grid ordinary shares held by the QUEST and the 655,245 National Grid
  ordinary shares held by the 1996 Employee Benefit Trust as at 31 March 2001.

Non-executive DirectorsNon-executive
  Directors receive an annual fee of £25,000 with an additional £5,000
  payable for committee chairmanship. Richard Reynolds receives a fee of £25,000
  in respect of duties as a member of the Supervisory Board of Intelig. Paul Joskow
  receives a fee of $30,000 in respect of duties with National Grid USA. The Non-executive
  Chairman receives a fee of £120,000.

Non-executive
  fees are determined by the Board subject to the limits applied by National Grids
  Articles of Association.

Non-executive
  Directors do not have service contracts but have letters of engagement for periods
  of up to three years. No benefits are payable on termination.



---



|48 | Directors
        report
|-- | -------------------------



The Directors
  of National Grid Group plc present their report and accounts for the financial
  year ended 31 March 2001.

Incorporation of the
  CompanyThe
  Company was originally incorporated under the name The National Grid Holding
  plc (NGH) in April 1990 and registered in England and Wales as a public limited
  company under the terms of the Companies Act 1985. It was re-named The National
  Grid Group plc in 1995 and in July 2000 was renamed National Grid Group plc.

The Companys
  agent in the US is Lawrence J. Reilly, National Grid USA, 25 Research Drive,
  Westborough, MA 01582.

History and development
  of the businessOn
  the restructuring of the electricity industry in England and Wales in 1990,
  The National Grid Company plc (NGC) assumed from the Central Electricity Generating
  Board ownership and control of the transmission network and the interconnectors
  with Scotland and France. NGC became the wholly-owned subsidiary of NGH, the
  predominant shareholders in which were the 12 Regional Electricity Companies
  (RECs) which owned and operated the local distribution systems. Each REC disposed
  of substantially all of its holding in NGH in 1995 or 1996.

NGGs
  ordinary shares were admitted to the Official List of the London Stock Exchange
  in December 1995. The Secretary of State for Trade and Industry holds a Special
  Share in NGG, further details of which are given in note 21 to the accounts.

National
  Grid established the telecommunications operator Energis plc in 1993 and has
  interests in telecommunications joint ventures in Poland, Argentina, Brazil
  and Chile. It entered the US electricity market in 2000 with its acquisitions
  of New England Electric System (NEES) and Eastern Utilities Associates (EUA),
  now merged and operating as National Grid USA.

National
  Grids American Depositary Shares (ADSs) were listed on the New York Stock
  Exchange on 7 October 1999. NGG is a registered holding company under the United
  States Public Utility Holding Company Act of 1935.

Principal activities
  and future developmentsThe
  principal UK activities of the Group are the operation of the electricity transmission
  system in England and Wales and the operation of the interconnectors with Scotland
  and France.

The Groups
  principal US activities are the operation of the electricity transmission and
  distribution systems serving approximately 1.7 million customers in Massachusetts,
  New Hampshire and Rhode Island. On 29 January 2001, National Grid received shareholder
  approval for the acquisition of Niagara Mohawk, Inc., an electricity and gas
  utility in New York State.

Other interests
  include joint ventures in Argentina, Brazil, Chile, Poland and Zambia.

A review
  of National Grids activities during 2000/01 is given on pages 10 to 29
  of this document.

Financial resultsThe
  financial results of the Group are discussed on pages 32 to 39 of this document.

DividendsAn
  interim dividend of 6.05 pence net per ordinary share was paid on 15 January
  2001 to shareholders who were on the share register on 1 December 2000. The
  Directors are recommending a final dividend for 2000/01 of 9.03 pence net per
  ordinary share. Subject to approval by shareholders at the Annual General Meeting,
  the final dividend will be paid on 15 August 2001 to shareholders on the share
  register on 1 June 2001 and will bring the total ordinary dividend for the year
  to 15.08 pence net per ordinary share.

Share capitalChanges
  in National Grids share capital during the year are set out in note 21
  to the accounts.

Substantial shareholdingsAs
  at 31 May 2001, National Grid had been notified of the following interests in
  3 per cent or more of its issued share capital:

|Prudential
      Corporation plc                         |  | 4.70%
|-------------------------------------------------------- |  | -----
|                                                        
|Deutsche
      Bank AG London*                           |  | 3.00%
|                                                        
|HSBC
      Investment Bank plc*                          |  | 3.72%
|                                                        
|Credit
      Suisse First Boston
      Equities Limited* |  | 3.37%

*On 13 July
  2000, National Grid was notified that HSBC Investment Bank plc (in respect of
  3.7 per cent), Deutsche Bank AG London (in respect of 3.8 per cent) and Credit
  Suisse First Boston Equities Limited (in respect of its total holding) have
  each hedged their economic exposure to National Grid shares pursuant to a structured
  derivatives transaction entered into with the Olayan Group. As a result of these
  transactions, the Olayan Group has an exposure to 10.88 per cent of issued National
  Grid shares.

No further
  notifications have been received.

DirectorsThe
  names of the Directors of National Grid, with brief biographical details, are
  given on page 40.

At no time
  during the year has any Director had any material interest in a contract within
  the Group, being a contract of any significance in relation to the Groups
  business. Details of the Directors remuneration, terms and conditions
  of service and interests in National Grid



---



| | 49
| | --



shares are
  given in Directors remuneration on pages 44 to 47 of this
  document.

Employment policiesNational
  Grid has well-established arrangements, through team briefing, electronic mail
  and in-house newspapers, for communicating effectively with staff on matters
  of concern to them as employees. Regular consultation with UK staff and their
  trades union representatives takes place through the Company Council and local
  workplace councils.

All operating
  companies within the Group are required to build and maintain good standards
  of employment practice appropriate to the culture and legislative requirements
  in each country of operation. Applications for employment from disabled people
  are welcomed and given full and fair consideration. If any employee becomes
  disabled, every effort is made to continue their employment, including retraining.

Investors
  in People accreditation for the Groups UK operations was received in November
  2000.

National
  Grid operates equity participation arrangements for employees, including Sharesave
  in the UK.

Pensions litigationOn
  4 April 2001, the House of Lords delivered its decision on an appeal brought
  by National Grid concerning the use of the surplus in its section of the Electricity
  Supply Pension Scheme (ESPS). The House of Lords found in favour of National
  Grid and confirmed that its use of the surplus was entirely lawful and proper.
  The House of Lords decision resolves this extended litigation, which arose from
  complaints made by two pensioners in 1995 about National Grids actions
  in relation to the 1992 surplus. International Power (formerly National Power)
  was also successful in a parallel case.

Research and developmentExpenditure
  on research and development in 2000/01 was £8.1 million, compared with
  £7.8 million in 1999/2000 and £8.4 million in 1998/99.

Payments to suppliersNational
  Grid is a signatory to the CBI Code of Prompt Payment and has implemented procedures
  to ensure the payment of bills in accordance with contract terms. Copies of
  the CBI Code of Prompt Payment may be obtained from the CBI, Centre Point, 183
  New Oxford Street, London WC1A 1DU.

The
  average creditor payment period at 31 March 2001 for The National Grid Company
  plc, the principal UK operating company within the Group, was 28 days (at 31
  March 2000: 30 days).

DonationsIn
  the UK, charitable donations of £225,388 were made in 2000/01 and no donations
  were made for political purposes.

AuditorsThe
  auditors of National Grid, PricewaterhouseCoopers, have expressed their willingness
  to remain in office. A resolution for their reappointment will be proposed at
  the Annual General Meeting.

Annual General MeetingNational
  Grids Annual General Meeting will be held on Tuesday 17 July 2001. Details
  are set out in the Notice of Annual General Meeting accompanying this document.

On behalf
  of the Board

Fiona B SmithGroup
  General Counsel and Company Secretary 31 May 2001

Registered
  Office: 15 Marylebone Road, 
  London NW1 5JD Registered in England and
  Wales: No. 2367004



---



|50 | Directors
        responsibilities
|-- | -----------------------------------



Directors responsibilities
  in respect of the preparation of the accounts

The Directors
  are required by the Companies Act 1985 to prepare accounts for each financial
  year which give a true and fair view of the state of affairs of the Company
  and of the Group as at the end of the financial year and of the profit or loss
  of the Group for the financial year.

The Directors
  are responsible for ensuring that the Company keeps accounting records which
  disclose with reasonable accuracy the financial position of the Company and
  which enable them to ensure that the accounts comply with the Companies Act
  1985. They also have general responsibility for taking reasonable steps to safeguard
  the assets of the Group and for taking reasonable steps to prevent and detect
  fraud and other irregularities.

The Directors
  consider that, in preparing the accounts, suitable accounting policies, consistently
  applied and supported by reasonable and prudent judgements and estimates, have
  been used and that applicable accounting and financial reporting standards have
  been followed.

A copy
  of this Annual Report and Form 20-F is placed on the National Grid website.
  The maintenance and integrity of the National Grid website is the responsibility
  of the Directors.

Legislation
  in the UK governing the preparation and dissemination of accounts may differ
  from legislation in other jurisdictions.

Independent
  auditors report

Independent auditors
  report to the members of National Grid Group plc

We have
  audited the accounts which comprise the profit and loss account, the balance
  sheet, the cash flow statement, the statement of total recognised gains and
  losses, the related notes on pages 52 to 90 and the Directors remuneration
  disclosures on pages 44 to 47.

Respective responsibilities
  of Directors and auditorsThe
  Directors responsibilities for preparing the Annual Report, the Report
  on Form 20-F and the accounts in accordance with applicable United Kingdom and
  United States laws and Accounting Standards are set out in the statement of
  Directors responsibilities.

Our responsibility
  is to audit the accounts in accordance with relevant legal and regulatory requirements,
  United Kingdom Auditing Standards issued by the Auditing Practices Board (APB)
  and the Listing Rules of the United Kingdom Financial Services Authority.

We report
  to you our opinion as to whether the accounts give a true and fair view and
  are properly prepared in accordance with the United Kingdom Companies Act 1985.
  We also report to you if, in our opinion, the Directors report is not
  consistent with the accounts, if the Company has not kept proper accounting
  records, if we have not received all the information and explanations we require
  for our audit, or if information specified by law or the Listing Rules regarding
  Directors remuneration and transactions is not disclosed.

We read
  the other information contained in the Annual Report and consider the implications
  for our report if we become aware of any apparent misstatements or material
  inconsistencies with the accounts. The other information comprises only the
  Directors report, the Chairmans statement, the Group Chief Executives
  review, the Operating and financial review and the Corporate governance statement.

We review
  whether the Corporate governance statement reflects the Companys compliance
  with the seven provisions of the Combined Code specified for our review by the
  Listing Rules, and we report if it does not. We are not required to consider
  whether the Boards statements on internal control cover all risks and
  controls, or to form an opinion on the effectiveness of the Groups corporate
  governance procedures or its risk and control procedures.



---



| | 51
| | --



Basis of audit opinionWe
  conducted our audit in accordance with Auditing Standards issued by the United
  Kingdom Auditing Practices Board and with Auditing Standards generally accepted
  in the United States. An audit includes examination, on a test basis, of evidence
  relevant to the amounts and disclosures in the accounts. It also includes an
  assessment of the significant estimates and judgements made by the Directors
  in the preparation of the accounts and of whether the accounting policies are
  appropriate to the Companys circumstances, consistently applied and adequately
  disclosed.

We planned
  and performed our audit so as to obtain all the information and explanations
  which we considered necessary in order to provide us with sufficient evidence
  to give reasonable assurance that the accounts are free from material misstatement,
  whether caused by fraud or other irregularity or error. In forming our opinion
  we also evaluated the overall adequacy of the presentation of information in
  the accounts.

United Kingdom opinionIn
  our opinion, the accounts give a true and fair view of the state of affairs
  of the Company and of the Group at 31 March 2001 and of the profit and cash
  flows of the Group for the year then ended and have been properly prepared in
  accordance with the Companies Act 1985.

United States opinionIn
  our opinion, the accounts present fairly, in all material respects, the consolidated
  financial position of the Group at 31 March 2001 and 31 March 2000 and the results
  of its operations and its cash flows for the years ended 31 March 2001, 31 March
  2000 and 31 March 1999, all expressed in pounds sterling in conformity with
  accounting principles generally accepted in the United Kingdom.

These principles
  differ in certain significant respects from accounting principles generally
  accepted in the United States. The application of the latter would have affected
  the determination of the net income for the years ended 31 March 2001, 31 March
  2000 and 31 March 1999, and consolidated shareholders equity at 31 March
  2001 and 31 March 2000, all expressed in pounds sterling, as shown in the summary
  of differences between United Kingdom and United States generally accepted accounting
  principles set out in note 30 to the accounts.

PricewaterhouseCoopersChartered
  Accountants and Registered Auditors 
  London 
  31 May 2001



---



|52 | Accounting
        policies
|-- | ---------------------------



|a |  | Basis of preparation
        of accountsThe
        accounts are prepared under the historical cost convention as modified
        by the valuation of National Grid Group plcs (the Company)
        investment in National Grid Holdings Limited (note 13), and in accordance
        with applicable UK accounting and financial reporting standards.
      The
        accounts have been prepared in accordance with UK GAAP, which differ in
        certain respects to US GAAP. A summary of the main differences between
        UK and US GAAP is set out in note 30.
      The
        preparation of accounts in conformity with generally accepted accounting
        principles requires management to make estimates and assumptions that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the accounts and the
        reported amounts of revenue and expenses during the reporting period.
        Actual results could differ from these estimates.                                                                                                                                      
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|b |  | Basis of consolidationThe
        Group accounts include the accounts of the Company and all its subsidiary
        undertakings (Group undertakings), together with the Groups
        share of the results and net assets of its associate and joint ventures
        (associated undertakings). An associated undertaking is an
        entity in which the Group has a participating interest and over which
        it exercises a significant influence.
      The
        accounts of Group and associated undertakings used for consolidation are
        generally made up to 31 March. However, where this has not been practical,
        the results of one Group undertaking and certain joint ventures have been
        based on their accounts to 31 December.
      The
        results of newly acquired Group and associated undertakings are included
        in the Group accounts from the date the Group acquires control or, in
        respect of associated undertakings, an equity interest which enables it
        to exercise a significant influence. The results of Group businesses disposed
        of are included up to the date that control is relinquished.
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|c |  | GoodwillGoodwill,
      representing the excess of the fair value of the consideration given over
      the fair value of the identifiable net assets acquired, is capitalised and
      amortised through the profit and loss account over its estimated useful
      economic life  up to 20 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|d |  | Foreign currenciesThe
        results of the Groups overseas operations are translated into sterling
        at average rates of exchange. Assets and liabilities in foreign currencies
        are translated at the rates of exchange ruling at the balance sheet date
        or, if hedged forward, at the rates of exchange under the related currency
        contract.
      Exchange
        differences arising on the translation of the opening net assets of overseas
        operations, the re-translation of the retained earnings of overseas operations
        from average to closing rates of exchange and the translation of foreign
        currency borrowings taken to hedge overseas assets are taken directly
        to reserves. All other exchange differences are taken to the profit and
        loss account.                                                                                                                                                                                                                                                                                                                                                         
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|e |  | Tangible fixed
        assets and depreciationTangible
        fixed assets are included in the balance sheet at their cost less accumulated
        depreciation and after the deduction of related capital contributions.
        Cost includes payroll and finance costs incurred which are directly attributable
        to the construction of tangible fixed assets.
      No
        depreciation is provided on freehold land and assets in the course of
        construction. Other tangible fixed assets are depreciated, principally
        on a straight line basis, at rates estimated to write off their book values
        over their estimated useful economic lives. In assessing estimated useful
        economic lives, which are reviewed on a regular basis, consideration is
        given to any contractual arrangements and operational requirements relating
        to particular assets. Unless otherwise determined by operational requirements,
        the depreciation periods for the principal categories of tangible fixed
        assets are, in general, as follows:                                                                                          
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |  | Plant and
      machinery                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |  | Transmission
      plant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  |  | Distribution
      plant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  |  | Interconnector
      plant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  |  | Freehold
      and leasehold properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |  | Motor vehicles
      and office equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        



---



| | 53
| | --



|f |  | Deferred
      taxationDeferred taxation, on accelerated capital allowances
      and other timing differences, is calculated on the liability methodand is provided to the extent that a tax liability is expected to become
      payable in the foreseeable future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|g |  | StocksStocks,
      which primarily comprise consumable stores, are stated at the lower of cost
      and net realisable value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|h |  | Regulatory
      assetsRegulatory assets established in accordance with US
      Statement of Financial Accounting Standards 71 Accounting for the
      Effects of Certain Types of Regulation (SFAS 71) are recorded as debtors,
      if they comprise rights or other access to future economic benefits which
      arise as a result of past transactions or events which have created an obligation
      to a third party (note 14).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|i |  | DecommissioningDecommissioning liabilities, based on discounted future
      estimated expenditures expected to be incurred, are provided for in
      full and a corresponding tangible fixed asset or regulatory asset is also
      recognised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|j |  | TurnoverTurnover primarily represents the amounts derived
      from the transmission, distribution and generation of electricity and the
      provision of related services, including the recovery of stranded costs (note 1).
      It excludes inter-business and inter-company transactions, and is stated
      net of value added tax and similar sales-based taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|k |  | Pensions
      and post-retirement benefitsThe cost of providing pensions and post-retirement
      benefits is charged to the profit and loss account on a systematic basisover
      the service lives of the employees in the schemes. Variations from the regular
      pension cost are allocated over the estimated average remaining service
      lives of current employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|l |  | Research
      and developmentResearch
      and development expenditure is charged to the profit and loss account in
      the period in which it is incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|m |  | LeasesFinance lease income is allocated to accounting
        periods so as to give a constant rate of return on the net investment
        in thelease.
        The net investment in a finance lease is included in debtors and represents
        the total rentals receivable, net of finance charges, relating to future
        periods.
      Operating
        lease payments are charged to the profit and loss account on a straight
        line basis over the term of the lease.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|n |  | Financial instrumentsDerivative financial instruments (derivatives) are used by
        the Group mainly for the management of its interest rate and foreign currency
        exposures. Derivatives include interest rate swaps, currency swaps, options
        and forward rate agreements. All transactions are undertaken or maintained
        to provide a commercial hedge of the interest and currency risk associated
        with the Groups underlying business activities and the financing
        of those activities.
      Amounts
        payable or receivable in respect of interest rate swaps or interest rate
        swap options are recognised in the profit and loss account over the economic
        lives of the agreements or underlying position being hedged, either within
        net interest or disclosed separately where deemed exceptional. Gains or
        losses arising on hedging instruments which do not qualify as hedges for
        accounting purposes are taken to the profit and loss account as they arise.



---



|54 | Group profit and loss
      account
|-- | -----------------------------------
|   | for the years ended
      31 March 



|                                                                           | Notes |  | 2001
      £m |   | 2000
      £m |   | 1999
      £m |  
|-------------------------------------------------------------------------- | ----- |  | ------------- | - | ------------- | - | ------------- | -
|                                                                          
|                                                                           |       |  |               |   |               |   |               |  
|Turnover, including
      share of joint ventures                          |       |  | 4,004.1       |   | 1,677.5       |   | 1,568.3       |  
|Less: share
      of joint ventures turnover (continuing operations)      |       |  | (204.4        | ) | (62.8         | ) | (54.1         | )
|                                                                          
|                                                                           |       |  |               |   |               |   |               |  
|Group turnover continuing operations                                      | 1(a)  |  | 3,799.7       |   | 1,614.7       |   | 1,514.2       |  
|Operating costs                                                            | 2     |  | (3,084.1      | ) | (1,042.6      | ) | (937.5        | )
|                                                                          
|                                                                           |       |  |               |   |               |   |               |  
|Operating
      profit of Group undertakings                               | 1(b)  |  | 715.6         |   | 572.1         |   | 576.7         |  
|Share of joint
      ventures and associates operating (loss)/profit     | 1(b)  |  | (103.5        | ) | (33.5         | ) | 0.7           |  
|                                                                          
|                                                                           |       |  |               |   |               |   |               |  
|Operating
      profit                                                     |       |  |               |   |               |   |               |  
|                                                                           |       |  |               |  
| Before
      exceptional integration costs and goodwill amortisation     | 1(b)  |  | 731.9         |   | 546.5         |   | 579.9         |  
| Exceptional
      integration costs                                      | 3(a)  |  | (45.3         | ) |              |   |              |  
| Goodwill
      amortisation                                              |       |  | (74.5         | ) | (7.9          | ) | (2.5          | )
|                                                                           |       |  |               |  
|Total operating
      profit continuing operations                        | 1(b)  |  | 612.1         |   | 538.6         |   | 577.4         |  
|Exceptional
      profit relating to partial disposal of Energis           | 3(b)  |  | 242.9         |   | 1,027.3       |   | 891.8         |  
|Profit on disposal
      of businesses                                     | 3(c)  |  | 20.1          |   |              |   |              |  
|Net interest                                                               | 7     |  | (250.6        | ) | (64.9         | ) | (118.5        | )
|Exceptional
      cost of closing out interest rate swaps                  | 3(d)  |  |              |   |              |   | (52.6         | )
|                                                                          
|                                                                           |       |  |               |   |               |   |               |  
|Profit on
      ordinary activities before taxation continuing operations |       |  | 624.5         |   | 1,501.0       |   | 1,298.1       |  
|Taxation                                                                   |       |  |               |   |               |   |               |  
|                                                                           |       |  |               |  
| Excluding
      exceptional items                                        | 8     |  | (85.8         | ) | (123.1        | ) | (120.3        | )
| Exceptional
      items                                                  | 8     |  | 235.4         |   | (229.5        | ) | (162.8        | )
|                                                                           |       |  |               |  
|                                                                           | 8     |  | 149.6         |   | (352.6        | ) | (283.1        | )
|                                                                          
|                                                                           |       |  |               |   |               |   |               |  
|Profit on
      ordinary activities after taxation                         |       |  | 774.1         |   | 1,148.4       |   | 1,015.0       |  
|Minority interests                                                         |       |  |               |   |               |   |               |  
|                                                                           |       |  |               |  
|Equity                                                                     |       |  | (3.3          | ) |              |   |              |  
|Non-equity                                                                 |       |  | (1.8          | ) |              |   |              |  
|                                                                           |       |  |               |  
|                                                                           |       |  | (5.1          | ) |              |   |              |  
|                                                                          
|                                                                           |       |  |               |   |               |   |               |  
|Profit for
      the year                                                  |       |  | 769.0         |   | 1,148.4       |   | 1,015.0       |  
|Dividends                                                                  | 9     |  | (223.0        | ) | (205.5        | ) | (192.0        | )
|                                                                          
|                                                                           |       |  |               |   |               |   |               |  
|Retained
      profit                                                      | 22    |  | 546.0         |   | 942.9         |   | 823.0         |  
|                                                                           |      
|                                                                           |       |  |               |   |               |   |               |  
|Earnings
      per ordinary share                                          |       |  |               |   |               |   |               |  
| Basic,
      including exceptional items and goodwill amortisation       | 10    |  | 52.1p         |   | 78.0p         |   | 69.2p         |  
| Basic,
      excluding exceptional items and goodwill amortisation       | 10    |  | 26.5p         |   | 24.3p         |   | 23.3p         |  
| Diluted,
      including exceptional items and goodwill amortisation     | 10    |  | 49.5p         |   | 73.4p         |   | 65.2p         |  
| Diluted,
      excluding exceptional items and goodwill amortisation     | 10    |  | 25.8p         |   | 23.8p         |   | 22.7p         |  
|                                                                           |       |  |               |   |               |   |               |  
|Dividends
      per ordinary share                                         | 9     |  | 15.08p        |   | 13.94p        |   | 13.07p        |  
|                                                                          



Group statement of total
  recognised gains and lossesfor the years ended 31 March

|                                                             | 2001
      £m |   | 2000
      £m |  | 1999
      £m |  
|------------------------------------------------------------ | ------------- | - | ------------- |  | ------------- | -
|                                                            
|Profit for
      the year                                    | 769.0         |   | 1,148.4       |  | 1,015.0       |  
|Exchange adjustments                                         | (12.0         | ) | 3.1           |  | (0.8          | )
|Tax on exchange
      adjustments                            | 31.9          |   |              |  |              |  
|                                                            
|Total recognised
      gains and losses relating to the year | 788.9         |   | 1,151.5       |  | 1,014.2       |  
|                                                             |              



---



|Balance sheets | 55
|-------------- | --
|at 31 March    |   



|                                                               |  | Notes |  | Group
      2001
      £m |   | Group
      2000
      £m |   | Company
      2001
      £m |   | Company
      2000
      £m |  
|-------------------------------------------------------------- |  | ----- |  | ------------------------- | - | ------------------------- | - | --------------------------- | - | --------------------------- | -
|                                                              
|Fixed
      assets                                             |  |       |  |                           |   |                           |   |                             |   |                             |  
|Intangible
      assets  goodwill                             |  | 11    |  | 1,186.2                   |   | 844.7                     |   |                            |   |                            |  
|Tangible
      assets                                          |  | 12    |  | 5,617.3                   |   | 4,938.3                   |   |                            |   |                            |  
|                                                               |  |       |  |                           |  
|Investments
      in joint ventures                            |  |       |  |                           |   |                           |   |                             |   |                             |  
|
      Share of gross assets                                  |  |       |  | 1,133.6                   |   | 828.6                     |   |                            |   |                            |  
|
      Share of gross liabilities                             |  |       |  | (798.2                    | ) | (622.7                    | ) |                            |   |                            |  
|                                                               |  |       |  |                           |  
|
      Share of net assets                                    |  |       |  | 335.4                     |   | 205.9                     |   |                            |   |                            |  
|
      Loans to joint ventures                                |  |       |  | 64.9                      |   |                          |   |                            |   |                            |  
|Investment
      in associate                                  |  |       |  | 414.9                     |   | 205.8                     |   |                            |   |                            |  
|Other
      investments                                        |  |       |  | 145.1                     |   | 107.3                     |   | 1,996.5                     |   | 1,995.7                     |  
|                                                               |  |       |  |                           |  
|Total
      investments                                        |  | 13    |  | 960.3                     |   | 519.0                     |   | 1,996.5                     |   | 1,995.7                     |  
|                                                              
|                                                               |  |       |  | 7,763.8                   |   | 6,302.0                   |   | 1,996.5                     |   | 1,995.7                     |  
|                                                              
|Current
      assets                                           |  |       |  |                           |   |                           |   |                             |   |                             |  
|Stocks                                                         |  |       |  | 34.1                      |   | 29.3                      |   |                            |   |                            |  
|Debtors
      (amounts falling due within one year)            |  | 14    |  | 880.4                     |   | 490.1                     |   | 4,066.3                     |   | 3,474.7                     |  
|Debtors
      (amounts falling due after one year)             |  | 14    |  | 1,016.5                   |   | 798.3                     |   | 18.1                        |   | 16.9                        |  
|Assets
      held for exchange                                 |  | 15    |  | 16.6                      |   | 16.6                      |   |                            |   |                            |  
|Business
      held for resale                                 |  |       |  |                          |   | 118.9                     |   |                            |   |                            |  
|Cash
      and deposits                                        |  |       |  | 271.2                     |   | 1,011.6                   |   | 1.6                         |   | 383.2                       |  
|                                                              
|                                                               |  |       |  | 2,218.8                   |   | 2,464.8                   |   | 4,086.0                     |   | 3,874.8                     |  
|Creditors
      (amounts falling due within one year)          |  |       |  |                           |   |                           |   |                             |   |                             |  
|                                                               |  |       |  |                          
|Borrowings                                                     |  |       |  | (1,008.7                  | ) | (669.0                    | ) | (760.9                      | ) | (248.5                      | )
|Other
      creditors                                          |  |       |  | (1,205.0                  | ) | (1,192.1                  | ) | (2,212.4                    | ) | (2,151.8                    | )
|                                                               |  |       |  |                          
|                                                               |  | 16    |  | (2,213.7                  | ) | (1,861.1                  | ) | (2,973.3                    | ) | (2,400.3                    | )
|                                                              
|Net
      current assets                                       |  |       |  | 5.1                       |   | 603.7                     |   | 1,112.7                     |   | 1,474.5                     |  
|                                                              
|Total
      assets less current liabilities                    |  |       |  | 7,768.9                   |   | 6,905.7                   |   | 3,109.2                     |   | 3,470.2                     |  
|Creditors
      (amounts falling due after more than one year) |  |       |  |                           |   |                           |   |                             |   |                             |  
|                                                               |  |       |  |                          
|Convertible
      bonds                                        |  |       |  | (480.3                    | ) | (469.0                    | ) |                            |   |                            |  
|Other
      borrowings                                         |  |       |  | (2,700.4                  | ) | (2,537.2                  | ) | (834.1                      | ) | (1,000.0                    | )
|Other
      creditors                                          |  |       |  | (574.8                    | ) | (494.0                    | ) |                            |   |                            |  
|                                                               |  |       |  |                           |  
|                                                               |  | 17    |  | (3,755.5                  | ) | (3,500.2                  | ) | (834.1                      | ) | (1,000.0                    | )
|Provisions
      for liabilities and charges                   |  | 20    |  | (495.8                    | ) | (461.4                    | ) |                            |   |                            |  
|                                                              
|Net
      assets employed                                      |  |       |  | 3,517.6                   |   | 2,944.1                   |   | 2,275.1                     |   | 2,470.2                     |  
|                                                               | 
|                                                               |  |       |  |                           |   |                           |   |                             |   |                             |  
|Capital
      and reserves                                     |  |       |  |                           |   |                           |   |                             |   |                             |  
|Called
      up share capital                                  |  | 21    |  | 174.7                     |   | 174.7                     |   | 174.7                       |   | 174.7                       |  
|Share
      premium account                                    |  | 22    |  | 276.9                     |   | 274.7                     |   | 276.9                       |   | 274.7                       |  
|Revaluation
      reserve                                      |  | 22    |  |                          |   |                          |   | 624.4                       |   | 624.4                       |  
|Other
      reserve                                            |  | 22    |  |                          |   |                          |   | 39.1                        |   | 59.1                        |  
|Profit
      and loss account                                  |  | 22    |  | 3,024.2                   |   | 2,459.6                   |   | 1,160.0                     |   | 1,337.3                     |  
|                                                              
|Equity
      shareholders funds                               |  |       |  | 3,475.8                   |   | 2,909.0                   |   | 2,275.1                     |   | 2,470.2                     |  
|Minority
      interests                                       |  |       |  |                           |   |                           |   |                             |   |                             |  
|                                                               |  |       |  |                          
|Equity                                                         |  |       |  | 21.8                      |   | 22.9                      |   |                            |   |                            |  
|Non-equity                                                     |  | 23    |  | 20.0                      |   | 12.2                      |   |                            |   |                            |  
|                                                               |  |       |  |                          
|                                                               |  |       |  | 41.8                      |   | 35.1                      |   |                            |   |                            |  
|                                                              
|                                                               |  |       |  | 3,517.6                   |   | 2,944.1                   |   | 2,275.1                     |   | 2,470.2                     |  
|                                                               | 

The accounts on pages 52
  to 90 inclusive were approved by the Board of Directors on 31 May 2001 and were
  signed on its behalf by:

R J Urwin Group Chief
  Executive

S J BoxGroup Finance
  Director



---



|56 | Group cash flow statement         
|-- | ----------------------------------
|   | for the years ended
      31 March



|                                                                                    | Notes     |  | 2001
        £m |   | 2000
        £m |   | 1999
        £m |  
|----------------------------------------------------------------------------------- | --------- |  | --------------- | - | --------------- | - | --------------- | -
|                                                                                   
|Net cash inflow
      from operating activities                                     | 25(a)     |  | 810.6           |   | 682.0           |   | 605.9           |  
|                                                                                    |           |  |                 |   |                 |   |                 |  
|Dividends from joint
      ventures                                                 |           |  | 20.3            |   | 4.5             |   | 3.1             |  
|                                                                                    |           |  |                 |   |                 |   |                 |  
|Returns on investments
      and servicing of finance                               |           |  |                 |   |                 |   |                 |  
|                                                                                    |           |  |                
|Interest received                                                                   |           |  | 94.8            |   | 92.0            |   | 18.2            |  
|Interest paid                                                                       |           |  | (398.2          | ) | (156.7          | ) | (137.9          | )
|Dividends paid to minority
      interests                                          |           |  | (3.5            | ) |                |   |                |  
|                                                                                    |           |  |                
|                                                                                   
|Net cash outflow
      for returns on investments and servicing of finance          |           |  | (306.9          | ) | (64.7           | ) | (119.7          | )
|                                                                                    |           |  |                 |   |                 |   |                 |  
|Taxation                                                                            |           |  |                 |   |                 |   |                 |  
|Corporate tax paid                                                                  |           |  | (137.2          | ) | (274.3          | ) | (154.9          | )
|                                                                                    |           |  |                 |   |                 |   |                 |  
|Capital expenditure                                                                 |           |  |                 |   |                 |   |                 |  
|                                                                                    |           |  |                
|Payments to acquire
      tangible fixed assets                                     |           |  | (471.6          | ) | (292.2          | ) | (329.7          | )
|Receipts of capital
      contributions                                             |           |  | 2.2             |   | 7.6             |   | 11.9            |  
|Receipts from disposals
      of tangible fixed assets                              |           |  | 11.8            |   | 5.4             |   | 5.3             |  
|                                                                                    |           |  |                
|                                                                                   
|Net cash outflow
      for capital expenditure                                      |           |  | (457.6          | ) | (279.2          | ) | (312.5          | )
|                                                                                    |           |  |                 |   |                 |   |                 |  
|Acquisitions and
      disposals                                                    |           |  |                 |   |                 |   |                 |  
|                                                                                    |           |  |                
|Payments to acquire
      investments                                               |           |  | (337.2          | ) | (144.5          | ) | (13.1           | )
|Acquisition of Group
      undertakings                                             | 25(b)     |  | (440.9          | ) | (2,045.1        | ) | (12.1           | )
|Receipts from sales
      of Energis shares                                         |           |  |                |   | 952.9           |   | 959.3           |  
|Disposal of businesses                                                              | 25(c)     |  | 195.9           |   |                |   |                |  
|                                                                                    |           |  |                
|                                                                                   
|Net cash (outflow)/inflow
      for acquisitions and disposals                      |           |  | (582.2          | ) | (1,236.7        | ) | 934.1           |  
|                                                                                    |           |  |                 |   |                 |   |                 |  
|Equity dividends
      paid                                                         |           |  | (212.5          | ) | (197.6          | ) | (183.1          | )
|                                                                                   
|Net cash
      (outflow)/inflow before management of liquid resources and financing |           |  | (865.5          | ) | (1,366.0        | ) | 772.9           |  
|                                                                                    |           |  |                 |   |                 |   |                 |  
|Management of liquid
      resources                                                |           |  |                 |   |                 |   |                 |  
|                                                                                    |           |  |                
|Decrease/(increase)
      in short term deposits                                    |           |  | 775.2           |   | 618.8           |   | (1,482.3        | )
|                                                                                    |           |  |                
|                                                                                   
|Net cash inflow/(outflow)
      from the management of liquid resources             | 25(d),(e) |  | 775.2           |   | 618.8           |   | (1,482.3        | )
|                                                                                    |           |  |                 |   |                 |   |                 |  
|Financing                                                                           |           |  |                 |   |                 |   |                 |  
|                                                                                    |           |  |                
|Issue of ordinary shares                                                            |           |  | 7.0             |   | 5.5             |   | 5.4             |  
|Payments to repurchase
      ordinary shares                                        |           |  |                |   | (1.1            | ) |                |  
|                                                                                    |           |  |                
|New borrowings                                                                      |           |  | 1,015.4         |   | 1,029.3         |   | 717.7           |  
|Borrowings repaid                                                                   |           |  | (934.0          | ) | (260.1          | ) | (35.5           | )
|                                                                                    |           |  |                
|Increase in borrowings                                                              | 25(d),(e) |  | 81.4            |   | 769.2           |   | 682.2           |  
|                                                                                    |           |  |                
|                                                                                   
|Net cash inflow
      from financing                                                |           |  | 88.4            |   | 773.6           |   | 687.6           |  
|                                                                                   
|Movement in cash
      and overdrafts                                               | 25(d),(e) |  | (1.9            | ) | 26.4            |   | (21.8           | )
|                                                                                    |          



---



|Notes to the
      accounts | 57
|--------------------------- | --

|1 | Segmental analysis                                                                                                                                                                                                                                                                                                                                                                                           
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                              
|  | Eastern Utilities Associates
      (EUA) was acquired on 19 April 2000 (note 26(a)). The operations of EUA
      and New England Electric System (NEES)  acquired 22 March 2000 
      were successfully integrated on 1 May 2000 and now operate as National Grid
      USA. As a consequence it is not possible to provide an indication of EUAs
      contribution to the Groups results for the year.
|  |                                                                                                                                                                                                                                                                                                                                                                                                              
|  | Transmission 
      UK includes Ancillary services, previously reported as a separate segment.
      The activities of NEES, previously reported as a single segment, are now
      reported over the integrated National Grid USA business segments. The comparative
      figures have been adjusted to reflect these revised presentations.                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                              
|a | Turnover                                                                                                                                                                                                                                                                                                                                                                                                     

|  | Turnover                       
|- | -------------------------------
|  |                                
|  |                                
| 
| 
| 
|)
| 
|  |                                
|  | Turnover, including
      share
|  | of
      joint ventures        
|  | Less: share
      of joint     
|  | ventures
      turnover       
|  |                                
|  | Group turnover                 
|  |                                
|  | Transmission
       UK        
|  |  USA                          
|  | Distribution
       USA       
|  | Stranded costs
      recovery  
|  | and
      generation  USA     
|  | Interconnectors
       UK     
|  |  USA                          
|  | Telecommunications
       USA 
|  | Other activities               
|  |                                
|  | Group turnover                 
|  |                                
|  | Europe                         
|  | North America                  
|  |                                
|  |                                
|  |                                

| | The analysis of turnover
      by geographical area is on the basis of origin. Turnover on a destination
      basis would not be materially different.                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                              
| | Other activities turnover
      primarily comprises market services, including EnMO, which provides the
      On-the-day Commodity Market for gas trading in Great Britain, and contracting
      activities.





---



|58 | Notes to the accounts
      continued
|-- | -------------------------------------



|1 | Segmental analysiscontinued
|- | ---------------------------
|  |                            
|b | Operating profit           

| |                                                    |  | Operating
        profit                                                       |  
| | -------------------------------------------------- |  | ------------------------------------------------------------------------------ | -
| |                                                    |  |                                                                                |  
| |                                                    |  | Before
        exceptional integration costs
        and goodwill amortisation |  
| |                                                    |  |                                                                                |  
| |                                                    |  | 2001
        £m                                                                |  
| |                                                    | 
| | Transmission 
      UK                            |  | 486.3                                                                          |  
| |  USA                                              |  | 49.6                                                                           |  
| | Distribution 
      USA                           |  | 154.8                                                                          |  
| | Stranded costs recovery
      and generation  USA |  | 61.7                                                                           |  
| | Interconnectors 
      UK                         |  | 42.8                                                                           |  
| |  USA                                              |  | 22.3                                                                           |  
| |  Other                                            |  | (0.1                                                                           | )
| | Telecommunications
       USA                     |  | 2.9                                                                            |  
| | Other activities                                   |  | 0.8                                                                            |  
| | Exceptional integration
      costs  USA          |  |                                                                               |  
| |                                                    | 
| | Group undertakings                                 |  | 821.1                                                                          |  
| |                                                    | 
| | Telecommunications
       Energis                 |  | 5.1                                                                            |  
| |  Intelig                                          |  | (118.0                                                                         | )
| |  Other                                            |  | (3.4                                                                           | )
| | Generation  USA                                   |  | 7.9                                                                            |  
| | Other electricity activities                       |  | 19.2                                                                           |  
| |                                                    | 
| | Joint ventures and
      associate                 |  | (89.2                                                                          | )
| |                                                    | 
| | Total operating profit                             |  | 731.9                                                                          |  
| |                                                    |  |                                                                               
| | Europe                                             |  | 545.7                                                                          |  
| | North America                                      |  | 288.0                                                                          |  
| | Latin America                                      |  | (106.0                                                                         | )
| | Rest of the World                                  |  | 4.2                                                                            |  
| |                                                    | 
| |                                                    |  | 731.9                                                                          |  
| |                                                    |  |                                                                               
| | Electricity                                        |  | 851.3                                                                          |  
| | Telecommunications                                 |  | (119.4                                                                         | )
| |                                                    | 
| |                                                    |  | 731.9                                                                          |  
| |                                                    |  |                                                                               

| | *Includes £15.2m
      relating to a revision of accounting estimates of provisions resulting from
      the implementation of FRS 12.                                                         
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                
| | It is not practical
      to allocate the exceptional integration costs (note 3(a)) over the above
      segments, as a consequence of the integration of the operations of NEES
      and EUA.



---



| | 59
| | --



|1 | Segmental analysiscontinued
|- | ---------------------------
|  |                            
|c | Total and net assets       

| |                                                    |  | Total
        assets |  | Net
        assets             | 
| | -------------------------------------------------- |  | -------------------- |  | ------------------------------ | 
| |                                                    |  |                      |  |                                | 
| |                                                    |  | 2001
        £m      |  | 2000
      (restated)
      £m | 
| |                                                    | 
| | Transmission 
      UK                            |  | 3,426.2              |  | 3,104.5                        | 
| |  USA                                              |  | 744.4                |  | 600.0                          | 
| | Distribution 
      USA                           |  | 2,686.8              |  | 1,884.4                        | 
| | Stranded costs recovery
      and generation  USA |  | 1,105.6              |  | 777.7                          | 
| | Interconnectors 
      UK                         |  | 154.9                |  | 166.4                          | 
| | USA                                               |  | 191.2                |  | 184.1                          | 
| | Other                                             |  | 11.0                 |  | 5.7                            | 
| | Telecommunications
       USA                     |  | 148.4                |  | 108.3                          | 
| | Other activities                                   |  | 392.1                |  | 479.5                          | 
| |                                                    | 
| | Group undertakings                                 |  | 8,860.6              |  | 7,310.6                        | 
| |                                                    | 
| | Telecommunications
       Energis                 |  | 414.9                |  | 205.8                          | 
| | Intelig                                           |  | 164.8                |  | 92.6                           | 
| | Other                                             |  | 110.5                |  | 0.7                            | 
| | Generation  USA                                   |  | 32.8                 |  | 28.7                           | 
| | Other electricity activities                       |  | 92.2                 |  | 83.9                           | 
| |                                                    | 
| | Joint ventures and
      associate                 |  | 815.2                |  | 411.7                          | 
| |                                                    | 
| | Unallocated                                        |  | 306.8                |  | 1,044.5                        | 
| |                                                    | 
| |                                                    |  | 9,982.6              |  | 8,766.8                        | 
| |                                                    |  |                     
| | Europe                                             |  | 4,270.0              |  | 3,695.3                        | 
| | North America                                      |  | 5,060.2              |  | 3,849.3                        | 
| | Latin America                                      |  | 319.2                |  | 156.6                          | 
| | Rest of the World                                  |  | 26.4                 |  | 21.1                           | 
| | Unallocated                                        |  | 306.8                |  | 1,044.5                        | 
| |                                                    | 
| |                                                    |  | 9,982.6              |  | 8,766.8                        | 
| |                                                    |  |                     

| | The analysis of total
      assets and net assets by business segment includes all attributable goodwill
      and excludes inter-business balances. Unallocated total assets include investment
      in own shares, assets held for exchange and cash and deposits. Unallocated
      net liabilities include net borrowings, taxation, interest, dividends, certain
      provisions, investment in own shares and assets held for exchange.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|60 | Notes to the accounts
      continued
|-- | -------------------------------------



|1 | Segmental analysiscontinued      
|- | ---------------------------------
|  |                                  
|d | Other segmental
      information

| |                                                    |  | Capital
        expenditure |  | Depreciation
        and amortisation
| | -------------------------------------------------- |  | --------------------------- |  | -------------------------------------
| |                                                    |  |                             |  |                                      
| |                                                    |  | 2001
        £m             |  | 2000 
        (restated)
        £m  
| |                                                   
| | Transmission 
      UK                            |  | 361.2                       |  | 286.5                                
| | USA                                               |  | 29.4                        |  | 0.8                                  
| | Distribution 
      USA                           |  | 84.3                        |  | 2.6                                  
| | Stranded costs recovery
      and generation  USA |  | 9.9                         |  |                                     
| | Interconnectors 
      UK                         |  | 0.9                         |  |                                     
| | USA                                               |  |                            |  | 0.9                                  
| | Other                                             |  | 2.9                         |  |                                     
| | Telecommunications
       USA                     |  | 30.0                        |  |                                     
| | Other activities                                   |  | 17.2                        |  | 25.3                                 
| |                                                   
| | Group undertakings                                 |  | 535.8                       |  | 316.1                                
| |                                                   
| | Europe                                             |  | 378.5                       |  | 311.7                                
| | North America                                      |  | 154.4                       |  | 4.4                                  
| | Rest of the World                                  |  | 2.9                         |  |                                     
| |                                                   
| |                                                    |  | 535.8                       |  | 316.1                                
| |                                                    | 

| | Stranded costs recovery
      Under settlement agreements
      reached as part of industry restructuring, National Grid USA is allowed
      to recover its costs (net of sales proceeds) and, where applicable, a return
      on those costs, associated with its ongoing efforts to exit the generation
      business.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



| | 61
| | --



|2 | Operating costs                                                                                               | 2001
      £m |  | 2000
      £m |  | 1999
      £m
|- | ------------------------------------------------------------------------------------------------------------- | ------------- |  | ------------- |  | -------------
|  |                                                                                                              
|  | Depreciation                                                                                                  | 276.5         |  | 154.9         |  | 133.8        
|  | Payroll costs (note
      4(a))                                                                               | 302.7         |  | 127.5         |  | 114.7        
|  | Purchases of electricity                                                                                      | 1,247.9       |  | 124.8         |  | 112.5        
|  | Rates                                                                                                         | 176.5         |  | 103.7         |  | 99.4         
|  | Transmission services
      scheme direct costs                                                               | 219.6         |  | 212.6         |  | 254.0        
|  | EnMO direct costs                                                                                             | 201.2         |  | 70.7          |  |             
|  | Other operating charges                                                                                       | 659.7         |  | 248.4         |  | 223.1        
|  |                                                                                                              
|  |                                                                                                               | 3,084.1       |  | 1,042.6       |  | 937.5        
|  |                                                                                                               |              
|  | Operating costs include:                                                                                      |               |  |               |  |              
|  | Research and development
      costs                                                                          | 8.1           |  | 7.8           |  | 8.4          
|  | Operating lease rentals                                                                                       |               |  |               |  |              
|  |  Plant and machinery                                                                                         | 4.2           |  | 0.1           |  |             
|  |  Other                                                                                                       | 15.1          |  | 3.3           |  | 3.0          
|  | Amortisation of goodwill*                                                                                     | 60.2          |  | 2.6           |  | 0.2          
|  | Amortisation of regulatory
      assets                                                                       | 33.2          |  | 0.8           |  |             
|  | Auditors remuneration                                                                                        |               |  |               |  |              
|  |  Statutory audit
      fees (Company £7,500 (2000: £7,000; 1999: £6,500))                                    | 1.0           |  | 0.5           |  | 0.4          
|  |                                                                                                               |              
|  |  Taxation advice
      and acquisition activity, including due diligence                                     | 3.6           |  | 1.4           |  | 0.7          
|  |  Stock exchange
      related                                                                                | 0.1           |  | 0.4           |  | 0.9          
|  |  Regulatory related
      services                                                                           | 0.8           |  | 0.9           |  | 0.9          
|  |  Other                                                                                                       | 0.6           |  | 0.3           |  | 0.1          
|  |                                                                                                               |              
|  |                                                                                                               | 5.1           |  | 3.0           |  | 2.6          
|  |                                                                                                              
|  |                                                                                                               | 6.1           |  | 3.5           |  | 3.0          
|  |                                                                                                               |              
|  | *Excludes
      goodwill of £14.3m (2000: £5.3m; 1999: £2.3m) relating
      to joint ventures and associate.

|  | In addition to the
        non-audit fees of £5.1m (2000: £3.0m; 1999: £2.6m),
        fees of: a) £1.5m (2000: £1.2m; 1999: £1.6m), incurred
        in respect of acquisitions have been capitalised and; b) £0.5m (2000
        and 1999: £nil), incurred in respect of disposals have been charged
        in arriving at the profit on disposal of businesses. Fees of £4.3m
        (2000: £nil; 1999: £nil) relating to the development and implementation
        of the new electricity trading arrangements, which are fully recoverable,
        have also been paid to PricewaterhouseCoopers.
      Auditors remuneration
        in respect of non-statutory audit fees includes £nil (2000: £nil;
        1999: £0.4m) in respect of services provided by Coopers & Lybrand
        prior to the appointment of PricewaterhouseCoopers.                                                                                                                                                                                       
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|3 | Exceptional items                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| 
|a | Exceptional integration
      costs
      The 2001 exceptional integration costs of £45.3m (£39.4m after
      tax) principally comprise early retirement costs arising on the integration
      of the operations of NEES and EUA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| 
|b | Exceptional profit
        relating to partial disposal of Energis
        The 2001 exceptional profit of £242.9m (£242.9m after tax)
        arises from reductions in the Groups interest in Energis plc (Energis),
        an associated undertaking, primarily as a consequence of the placing of
        shares by Energis in September 2000 and the acquisition by Energis of
        a majority stake in Ision in January 2001.
      The 2000 exceptional
        profit of £1,027.3m relating to the partial disposal of the Groups
        shareholding in Energis comprises a profit of £895.2m (£665.7m
        after tax) resulting from the sale of 28.9m shares in Energis and a profit
        of £132.1m (£132.1m after tax) resulting from reductions in
        the Groups interest in Energis, primarily as a consequence of the
        placing by Energis of 14.8m of its shares.
      The 1999 exceptional
        profit of £891.8m (£712.7m after tax) resulted from the sale
        of 60m shares in Energis.
| 
|c | Profit on disposal
        of businesses
        The 2001 exceptional profit of £20.1m (£20.1m after tax) relates
        to the net gain on the disposal of market services businesses. The operating
        results of these businesses up to the date of disposal are included within
        other activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| 
|d | Exceptional cost
        of closing out interest rate swaps
        The 1999 exceptional charge of £52.6m (£36.3m after tax) relates
        to the cost of closing out £415.0m of interest rate swaps.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| 
|e | Exceptional tax
        credit
        The 2001 exceptional tax credit of £229.5m represents a reversal
        of the 2000 exceptional tax charge relating to the exceptional profit
        on the partial disposal of Energis, arising from the realisation of capital
        losses for tax purposes as a result of Group restructurings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



---



|62 | Notes to the accounts
      continued
|-- | -------------------------------------



|4 | Payroll
      costs and employees | 2001
      £m     |   | 2000
      £m     |   | 1999
      £m     |  
|- | --------------------------------- | ----------------- | - | ----------------- | - | ----------------- | -
|  |                                   |                  
|a | Payroll
      costs               |                   |   |                   |   |                   |  
|  | Wages
      and salaries          | 326.0             |   | 129.4             |   | 116.5             |  
|  | Social
      security costs       | 26.3              |   | 11.5              |   | 10.2              |  
|  | Other
      pension costs         | 18.9              |   | 10.4              |   | 10.3              |  
|  |                                   |                  
|  |                                   | 371.2             |   | 151.3             |   | 137.0             |  
|  | Less:
      amounts capitalised   | (68.5             | ) | (23.8             | ) | (22.3             | )
|  |                                   |                  
|  |                                   | 302.7             |   | 127.5             |   | 114.7             |  
|  |                                   |                   |  
| 
|  |                                   | 2001
      Number |   | 2000
      Number |   | 1999
      Number |  
|  |                                   |                  
|b | Average
      number of employees |                   |   |                   |   |                   |  
|  | Europe                            | 3,662             |   | 3,651             |   | 3,606             |  
|  | North
      America               | 3,836             |   | 140               |   | 6                 |  
|  | Latin
      America               | 17                |   | 13                |   | 10                |  
|  | Rest
      of the World           | 8                 |   | 6                 |   | 6                 |  
|  |                                   |                  
|  |                                   | 7,523             |   | 3,810             |   | 3,628             |  
|  |                                   |                   |  

|  | The vast majority
        of employees in:
         Europe are either directly or indirectly employed in the transmission
        of electricity in the UK.
         North America are either directly or indirectly employed in the
        transmission, distribution and generation of electricity in the USA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|5 | Directors
        emoluments and interests in shares
        Details of Directors emoluments and interests in shares are contained
        on pages 44 to 47.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| 
|6 | Pensions and post-retirement
        benefits
        Substantially all of the Groups UK employees are members of the
        Electricity Supply Pension Scheme (the Scheme), a defined
        benefit funded scheme. The assets of the Scheme are held in a separate
        trustee administered fund. The Scheme is divided into sections, one of
        which is the Groups section. The latest full actuarial valuation
        of the Groups section of the Scheme was carried out by Bacon &
        Woodrow, Consulting Actuaries, as at 31 March 1998. The results of this
        latest valuation have been used as the basis for assessing pension cost.
        The attained age method was used for the latest valuation and the principal
        actuarial assumptions adopted were that the real annual rate of return
        on investments would average 4.0%; that the real annual rate of increase
        in dividends would average 0.25%; that real annual increases in salary
        would average 1.0%; and that pensions would increase in line with inflation
        at 4.5% per annum. The total market value of the assets relating to the
        Groups section of the Scheme at 31 March 1998 was £1,298.2m
        and the actuarial value of the assets represented approximately 111% of
        the actuarial value of the benefits that had accrued to members, after
        allowing for future salary increases.
      Substantially all
        of the Groups US employees are members of defined benefit plans.
        The assets of the plans are held in separate trustee administered funds.
        The latest full actuarial valuations were carried out as at 1 April 2000
        for the NEES plans and at 19 April 2000 for the EUA plans (for the purpose
        of determining the fair value of the net assets acquired on the acquisition
        of EUA (note 26(a)). The projected unit credit method was used for the
        latest valuations and the principal actuarial assumptions adopted were
        that the real annual rate of return on investments would average 4.6%;
        that real annual increases in salary would average 1.2%; that inflation
        would average 4.0%; and that increases in pensions would be nil. The market
        value of the assets relating to the Groups US defined benefit plans
        at 1 April 2000 (NEES) and 19 April 2000 (EUA) total US dollar 1,223.2m
        and the actuarial value of the assets represented 124% of the actuarial
        value of the benefits that had accrued to members, after allowing for
        future salary increases.
      The pension cost
        for the year ended 31 March 2001 charged to operating profit of £18.9m
        (2000: £10.4m; 1999: £10.3m) represents the regular pension
        cost of £21.2m (2000: £13.0m; 1999: £12.4m) less a variation
        from the regular pension cost totalling £2.3m (2000: £2.6m;
        1999: £2.1m), of which £1.5m (2000: £1.5m; 1999: £1.5m)
        relates to the partial release of a pension provision. In addition, net
        interest includes a credit of £15.7m (2000: £3.5m; 1999: £3.7m)
        in respect of the notional interest element of the variation from the
        regular pension cost.
      Included in debtors
        is a pension prepayment of £28.2m (2000: £28.0m).
      In the US, the Group
        provides health care and life insurance to eligible retired US employees.
        Eligibility is based on certain age and length of service requirements
        and in some cases retirees must contribute to the cost of their coverage.
        The latest actuarial valuations were carried out as at 1 April 2000 for
        the NEES plans and at 19 April 2000 for the EUA plans (for the purpose
        of determining the fair value of net assets acquired on the acquisition
        of EUA (note 26(a))). The principal assumptions adopted were a discount
        rate of 7.75% and that medical costs would increase by 8.25% per annum,
        decreasing to 5.25% in 2002 and remaining at 5.25% thereafter.
      The cost of providing
        health care and life insurance to retired US employees for the year ended
        31 March 2001 amounted to £7.3m (2000, for the period 22 March 2000
        to 31 March 2000: £0.2m; 1999: £nil).



---



| | 63
| | --



|7 | Net
      interest                                                                        |  | 2001
      £m |   | 2000
      £m |   | 1999
      £m |  
|- | ----------------------------------------------------------------------------------------- |  | ------------- | - | ------------- | - | ------------- | -
|  |                                                                                          
|  | Bank loans
      and overdrafts                                                           |  | 118.0         |   | 12.4          |   | 20.3          |  
|  | Other                                                                                     |  | 232.1         |   | 146.0         |   | 128.1         |  
|  |                                                                                          
|  | Interest
      payable and similar charges                                                |  | 350.1         |   | 158.4         |   | 148.4         |  
|  | Interest
      capitalised                                                                |  | (20.7         | ) | (20.4         | ) | (19.4         | )
|  |                                                                                          
|  | Interest
      payable and similar charges net of interest capitalised                    |  | 329.4         |   | 138.0         |   | 129.0         |  
|  | Interest
      receivable and similar income                                              |  | (112.9        | ) | (95.0         | ) | (28.1         | )
|  |                                                                                          
|  |                                                                                           |  | 216.5         |   | 43.0          |   | 100.9         |  
|  | Joint
      ventures (net of interest capitalised £18.5m (2000: £2.1m; 1999:
      £nil)) |  | 8.3           |   | 6.3           |   | 7.0           |  
|  | Associate                                                                                 |  | 25.8          |   | 15.6          |   | 10.6          |  
|  |                                                                                          
|  |                                                                                           |  | 250.6         |   | 64.9          |   | 118.5         |  
|  |                                                                                           | 

| | Interest
        on the funding attributable to assets in the course of construction was
        capitalised during the year at a rate of 6.7% (2000: 6.7%; 1999: 7.4%).
      Interest payable
        and similar charges for 2001 includes £21.0m of losses arising from
        the valuation at maturity of US dollar interest rate swaptions that provides
        an economic hedge against US dollar borrowings, but which do not qualify
        as hedges for accounting purposes. Interest receivable and similar income
        for 2001 includes a £17.4m gain on closing out sterling fixed interest
        rate swaps that were originally entered into as hedges for sterling borrowings.
        These hedges are no longer needed as a result of the reduction in the
        Groups sterling borrowings.
      Interest payable
        and similar charges for 1999 includes bank facility fees and interest
        rate option costs totalling £14.1m relating to the acquisition of
        NEES and costs of £7.6m relating to the issue of the 6% mandatorily
        exchangeable bonds 2003.
      Details relating
        to the 1999 exceptional cost (£52.6m) of closing out interest rate
        swaps are contained in note 3(d).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8 | Taxation                                              | 2001
        £m |   | 2000
        £m |  | 1999
        £m |  
|- | ----------------------------------------------------- | --------------- | - | --------------- |  | --------------- | -
|  |                                                      
|  | United Kingdom                                        |                 |   |                 |  |                 |  
|  | 
      Corporation tax at 30% (2000: 30%; 1999: 31%) | (153.2          | ) | 347.4           |  | 280.1           |  
|  |  Adjustment in
      respect of prior years          | (20.0           | ) |                |  |                |  
|  |                                                      
|  |                                                       | (173.2          | ) | 347.4           |  | 280.1           |  
|  |                                                      
|  | Overseas                                              |                 |   |                 |  |                 |  
|  |  Corporate tax                                       | 26.7            |   | 2.1             |  | 1.0             |  
|  |  Deferred tax                                        | (6.0            | ) |                |  |                |  
|  |                                                      
|  |                                                       | 20.7            |   | 2.1             |  | 1.0             |  
|  |                                                      
|  |                                                       | (152.5          | ) | 349.5           |  | 281.1           |  
|  | Joint ventures                                        | 3.1             |   | 3.1             |  | 2.4             |  
|  | Associate                                             | (0.2            | ) |                |  | (0.4            | )
|  |                                                      
|  |                                                       | (149.6          | ) | 352.6           |  | 283.1           |  
|  |                                                       |                
|  | Comprising:                                           |                 |   |                 |  |                 |  
|  | Taxation  excluding
      exceptional items          | 85.8            |   | 123.1           |  | 120.3           |  
|  |                                                      
|  | Taxation  exceptional
      tax credit (note 3(e))   | (229.5          | ) |                |  |                |  
|  | Taxation  exceptional
      items                    | (5.9            | ) | 229.5           |  | 162.8           |  
|  |                                                      
|  |                                                       | (235.4          | ) | 229.5           |  | 162.8           |  
|  |                                                      
|  |                                                       | (149.6          | ) | 352.6           |  | 283.1           |  
|  |                                                       |                

| | The tax credit for
        the year has been increased by £54.2m (tax charge for 2000 and 1999
        reduced by £18.4m and £32.7m respectively) in respect of accelerated
        capital allowances and other timing differences on which, in accordance
        with the Groups accounting policy, no deferred taxation has been
        provided.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|64 | Notes to the accounts
      continued
|-- | -------------------------------------



|8 | Taxationcontinued                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------
| 
|  | A reconciliation of
      the UK corporation tax rate to the effective tax rate of the Group is as
      follows:

| |                                                                                                  | 2001                                  |   | 2000 |   | 1999 |  
| | ------------------------------------------------------------------------------------------------ | ------------------------------------- | - | ---- | - | ---- | -
| |                                                                                                  | (%
        of profit before taxation) |  
| |                                                                                                  |                                      
| | UK corporation tax
      rate                                                                    | 30.0                                  |   | 30.0 |   | 31.0 |  
| | Increase/(decrease)
      resulting from:                                                        |                                       |   |      |   |      |  
| | Tax depreciation in
      excess of book depreciation                                            | (13.6                                 | ) | (3.0 | ) | (2.0 | )
| | Goodwill amortisation
      and other permanent differences                                      | 8.7                                   |   | 0.1  |   | 2.8  |  
| | Unrelieved tax losses
      (including overseas)                                                 | 11.4                                  |   |     |   |     |  
| | Provisions for liabilities
      and charges                                                     | (1.3                                  | ) | (0.9 | ) | (2.9 | )
| | Overseas income taxed
      at other than UK statutory rate                                      | (11.4                                 | ) |     |   |     |  
| | Other                                                                                            | 2.2                                   |   | (0.2 | ) | (2.7 | )
| |                                                                                                  |                                      
| | Effective tax rate
      before adjustment in respect of prior years and exceptional items       | 26.0                                  |   | 26.0 |   | 26.2 |  
| | Adjustment in respect
      of prior years                                                       | (4.9                                  | ) |     |   |     |  
| |                                                                                                  |                                      
| | Effective tax rate
      after adjustment in respect of prior years and before exceptional items | 21.1                                  |   | 26.0 |   | 26.2 |  
| | Exceptional items                                                                                | (45.1                                 | ) | (2.5 | ) | (4.4 | )
| |                                                                                                  |                                      
| | Effective tax rate
      after exceptional items                                                 | (24.0                                 | ) | 23.5 |   | 21.8 |  
| |                                                                                                  |                                       |  

|  |                          | 2001
        pence   |  | 2000
        pence |  | 1999
        pence |  | 2001
        £m |  | 2000
        £m |  | 1999
        £m
|- | ------------------------ | -------------------- |  | ------------------ |  | ------------------ |  | --------------- |  | --------------- |  | ---------------
|9 | Dividends                | (per ordinary share) |  |                    |  |                    |  |                
|  |                         
|  | Ordinary
      dividends |                      |  |                    |  |                    |  |                 |  |                 |  |                
|  |  Interim                | 6.05                 |  | 5.59               |  | 5.25               |  | 89.5            |  | 82.5            |  | 76.9           
|  |  Proposed final         | 9.03                 |  | 8.35               |  | 7.82               |  | 133.5           |  | 123.0           |  | 115.1          
|  |                         
|  |                          | 15.08                |  | 13.94              |  | 13.07              |  | 223.0           |  | 205.5           |  | 192.0          
|  |                          |                     



---



| | 65
| | --



|10 | Earnings
      per share                        |  | Earnings
        per
        share
        2001
        pence |   | Profit
        for
        the year
        2001
        £m |   | Weighted
        average
        number
        of shares
        2001
        million |  | Earnings
        per
        share
        2000
        pence |   | Profit
        for
        the year
        2000
        £m |   | Weighted
        average
        number
        of shares
        2000
        million |  | Earnings
        per
        share
        1999
        pence |   | Profit
        for
        the year
        1999
        £m |   | Weighted
        average
        number
        of shares
        1999
        million
|-- | ----------------------------------------------- |  | ------------------------------------------------------------- | - | ----------------------------------------------------------- | - | -------------------------------------------------------------------------------------- |  | ------------------------------------------------------------- | - | ----------------------------------------------------------- | - | -------------------------------------------------------------------------------------- |  | ------------------------------------------------------------- | - | ----------------------------------------------------------- | - | --------------------------------------------------------------------------------------
|   |                                                
|   | Basic, including
      exceptional items        |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                       
|   | and
      goodwill amortisation                 |  | 52.1                                                          |   | 769.0                                                       |   | 1,475.8                                                                                |  | 78.0                                                          |   | 1,148.4                                                     |   | 1,472.9                                                                                |  | 69.2                                                          |   | 1,015.0                                                     |   | 1,466.6                                                                               
|   | Profit relating
      to partial disposal       |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                       
|   | of
      Energis (note 3(b))                    |  | (16.5                                                         | ) | (242.9                                                      | ) |                                                                                       |  | (54.2                                                         | ) | (797.8                                                      | ) |                                                                                       |  | (48.6                                                         | ) | (712.7                                                      | ) |                                                                                      
|   | Profit on disposal
      of                     |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                       
|   | businesses
      (note 3(c))                    |  | (1.3                                                          | ) | (20.1                                                       | ) |                                                                                       |  |                                                              |   |                                                            |   |                                                                                       |  |                                                              |   |                                                            |   |                                                                                      
|   | Goodwill amortisation                           |  | 5.0                                                           |   | 74.5                                                        |   |                                                                                       |  | 0.5                                                           |   | 7.9                                                         |   |                                                                                       |  | 0.2                                                           |   | 2.5                                                         |   |                                                                                      
|   | Exceptional
      integration costs (note 3(a)) |  | 2.8                                                           |   | 39.4                                                        |   |                                                                                       |  |                                                              |   |                                                            |   |                                                                                       |  |                                                              |   |                                                            |   |                                                                                      
|   | Exceptional
      tax credit (note 3(e))        |  | (15.6                                                         | ) | (229.5                                                      | ) |                                                                                       |  |                                                              |   |                                                            |   |                                                                                       |  |                                                              |   |                                                            |   |                                                                                      
|   | Cost of closing
      out interest rate         |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                       
|   | swaps
      (note 3(d))                         |  |                                                              |   |                                                            |   |                                                                                       |  |                                                              |   |                                                            |   |                                                                                       |  | 2.5                                                           |   | 36.3                                                        |   |                                                                                      
|   |                                                
|   | Basic, excluding
      exceptional items        |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                       
|   | and
      goodwill amortisation                 |  | 26.5                                                          |   | 390.4                                                       |   | 1,475.8                                                                                |  | 24.3                                                          |   | 358.5                                                       |   | 1,472.9                                                                                |  | 23.3                                                          |   | 341.1                                                       |   | 1,466.6                                                                               
|   | Dilutive impact
      of employee share options |  | (0.2                                                          | ) |                                                            |   | 9.9                                                                                    |  | (0.2                                                          | ) |                                                            |   | 10.1                                                                                   |  | (0.2                                                          | ) |                                                            |   | 11.3                                                                                  
|   | Dilutive impact
      of 4.25% exchangeable     |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                       
|   | bonds
      2008                                |  | (0.5                                                          | ) | 21.2                                                        |   | 110.3                                                                                  |  | (0.3                                                          | ) | 20.9                                                        |   | 110.3                                                                                  |  | (0.4                                                          | ) | 20.2                                                        |   | 110.3                                                                                 
|   |                                                
|   | Diluted,
      excluding exceptional items      |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                       
|   | and
      goodwill amortisation                 |  | 25.8                                                          |   | 411.6                                                       |   | 1,596.0                                                                                |  | 23.8                                                          |   | 379.4                                                       |   | 1,593.3                                                                                |  | 22.7                                                          |   | 361.3                                                       |   | 1,588.2                                                                               
|   | Profit relating
      to partial disposal of    |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                       
|   | Energis
      (note 3(b))                       |  | 15.2                                                          |   | 242.9                                                       |   |                                                                                       |  | 50.1                                                          |   | 797.8                                                       |   |                                                                                       |  | 44.9                                                          |   | 712.7                                                       |   |                                                                                      
|   | Profit on disposal
      of                     |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                       
|   | businesses
      (note 3(c))                    |  | 1.3                                                           |   | 20.1                                                        |   |                                                                                       |  |                                                              |   |                                                            |   |                                                                                       |  |                                                              |   |                                                            |   |                                                                                      
|   | Goodwill amortisation                           |  | (4.7                                                          | ) | (74.5                                                       | ) |                                                                                       |  | (0.5                                                          | ) | (7.9                                                        | ) |                                                                                       |  | (0.1                                                          | ) | (2.5                                                        | ) |                                                                                      
|   | Exceptional
      integration costs (note 3(a)) |  | (2.5                                                          | ) | (39.4                                                       | ) |                                                                                       |  |                                                              |   |                                                            |   |                                                                                       |  |                                                              |   |                                                            |   |                                                                                      
|   | Exceptional
      tax credit (note 3(e))        |  | 14.4                                                          |   | 229.5                                                       |   |                                                                                       |  |                                                              |   |                                                            |   |                                                                                       |  |                                                              |   |                                                            |   |                                                                                      
|   | Cost of closing
      out interest rate         |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                       
|   | swaps
      (note 3(d))                         |  |                                                              |   |                                                            |   |                                                                                       |  |                                                              |   |                                                            |   |                                                                                       |  | (2.3                                                          | ) | (36.3                                                       | ) |                                                                                      
|   |                                                
|   | Diluted,
      including exceptional items      |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                        |  |                                                               |   |                                                             |   |                                                                                       
|   | and
      goodwill amortisation                 |  | 49.5                                                          |   | 790.2                                                       |   | 1,596.0                                                                                |  | 73.4                                                          |   | 1,169.3                                                     |   | 1,593.3                                                                                |  | 65.2                                                          |   | 1,035.2                                                     |   | 1,588.2                                                                               
|   |                                                 | 

| | The weighted average
        number of shares in issue excludes the shares held by employee share trusts.
      Earnings per ordinary
        share, excluding exceptional items and goodwill amortisation, are provided
        in order to reflect the underlying performance of the Group.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|66 | Notes to the accounts
      continued
|-- | -------------------------------------



|11 | Intangible
      fixed assets  goodwill                              | Cost
      £m |   | Amortisation
      £m |   | Net
      book value
      £m |  
|-- | --------------------------------------------------------------------- | ------------- | - | --------------------- | - | ----------------------------- | -
|   |                                                                      
|   | At 1 April 2000                                                       | 847.5         |   | (2.8                  | ) | 844.7                         |  
|   | Exchange adjustments                                                  | 136.0         |   | (2.2                  | ) | 133.8                         |  
|   | Addition (note 26(a))                                                 | 213.5         |   |                      |   | 213.5                         |  
|   | Adjustments to acquisition
      provisional fair values (note 26(b)) | 68.2          |   |                      |   | 68.2                          |  
|   | Disposal                                                              | (16.6         | ) | 2.8                   |   | (13.8                         | )
|   | Charge for the year                                                   |              |   | (60.2                 | ) | (60.2                         | )
|   |                                                                      
|   | At 31 March 2001                                                      | 1,248.6       |   | (62.4                 | ) | 1,186.2                       |  
|   |                                                                       |              

|12 | Tangible fixed assets                  |                                         |   |                                          |   |                                                                 |   |                                                                |   |                |  
|-- | -------------------------------------- | --------------------------------------- | - | ---------------------------------------- | - | --------------------------------------------------------------- | - | -------------------------------------------------------------- | - | -------------- | -
|   |                                        | Land
      and
      buildings
      £m |   | Plant
      and
      machinery
      £m |   | Assets
      in the
      course of
      construction
      £m |   | Motor
      vehicles
      and office
      equipment
      £m |   | Total
      £m |  
|   |                                       
|   | Cost at
      1 April 2000             | 491.6                                   |   | 7,100.2                                  |   | 310.5                                                           |   | 170.7                                                          |   | 8,073.0        |  
|   | Exchange adjustments                   | 49.4                                    |   | 384.5                                    |   | 6.4                                                             |   | 2.3                                                            |   | 442.6          |  
|   | Acquisition of Group
      undertaking | 57.8                                    |   | 415.1                                    |   | 7.2                                                             |   |                                                               |   | 480.1          |  
|   | Capital expenditure                    | 8.3                                     |   | 4.2                                      |   | 507.8                                                           |   | 15.5                                                           |   | 535.8          |  
|   | Disposal of businesses                 | (139.1                                  | ) | (408.6                                   | ) | (2.8                                                            | ) | (20.5                                                          | ) | (571.0         | )
|   | Other disposals                        | (6.0                                    | ) | (50.5                                    | ) |                                                                |   | (11.7                                                          | ) | (68.2          | )
|   | Reclassifications                      | (15.4                                   | ) | 444.7                                    |   | (419.4                                                          | ) | (9.9                                                           | ) |               |  
|   |                                       
|   | Cost at 31 March 2001                  | 446.6                                   |   | 7,889.6                                  |   | 409.7                                                           |   | 146.4                                                          |   | 8,892.3        |  
|   |                                       
|   | Depreciation at 1 April
      2000     | 216.7                                   |   | 2,812.6                                  |   |                                                                |   | 105.4                                                          |   | 3,134.7        |  
|   | Exchange adjustments                   | 26.6                                    |   | 168.9                                    |   |                                                                |   | 1.2                                                            |   | 196.7          |  
|   | Acquisition of Group
      undertaking | 15.1                                    |   | 173.5                                    |   |                                                                |   |                                                               |   | 188.6          |  
|   | Charge for the year                    | 6.5                                     |   | 251.6                                    |   |                                                                |   | 18.4                                                           |   | 276.5          |  
|   | Disposal of businesses                 | (114.6                                  | ) | (326.9                                   | ) |                                                                |   | (17.0                                                          | ) | (458.5         | )
|   | Other disposals                        | (1.6                                    | ) | (49.7                                    | ) |                                                                |   | (11.7                                                          | ) | (63.0          | )
|   | Reclassifications                      | (0.7                                    | ) | 14.0                                     |   |                                                                |   | (13.3                                                          | ) |               |  
|   |                                       
|   | Depreciation at 31
      March 2001    | 148.0                                   |   | 3,044.0                                  |   |                                                                |   | 83.0                                                           |   | 3,275.0        |  
|   |                                       
|   | Net book value at
      31 March 2001  | 298.6                                   |   | 4,845.6                                  |   | 409.7                                                           |   | 63.4                                                           |   | 5,617.3        |  
|   |                                        |                                        
|   | Net book value at 31
      March 2000  | 274.9                                   |   | 4,287.6                                  |   | 310.5                                                           |   | 65.3                                                           |   | 4,938.3        |  
|   |                                       

| | The net book value
        of tangible fixed assets at 31 March 2001 is stated after deducting capital
        contributions of £84.8m (2000: £95.9m).
      The cost of tangible
        fixed assets at 31 March 2001 includes £280.5m (2000: £259.8m)
        relating to interest capitalised.
      The net book value
        of land and buildings comprises:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                        | 2001
      £m |  | 2000
      £m
| | -------------------------------------- | ------------- |  | -------------
| |                                       
| | Freehold                               | 262.5         |  | 240.1        
| | Long leasehold
      (over 50 years)   | 30.0          |  | 30.3         
| | Short leasehold
      (under 50 years) | 6.1           |  | 4.5          
| |                                       
| |                                        |               |  |              
| |                                        | 298.6         |  | 274.9        
| |                                        |              



---



| | 67
| | --



|13 | Fixed
        asset investments        |  | Group                                          |   | Company                 
|-- | -------------------------------------- |  | ---------------------------------------------- | - | ------------------------
|   |                                        |  |                                                |   |                         
|   |                                        |  | Unlisted
        joint ventures                |   | Listed
        associate
|   |                                        |  |                                                |   |                         
|   |                                        |  | Share
        of
        net assets
        £m |   | Loans
        £m        
|   |                                       
|   | At 1 April 2000                        |  | 205.9                                          |   |                        
|   | Exchange adjustments                   |  | (4.0                                           | ) | 3.5                     
|   | Acquisition of Group
      undertaking |  | 6.3                                            |   |                        
|   | Additions                              |  | 250.8                                          |   | 61.4                    
|   | Disposal of business                   |  |                                               |   |                        
|   | Other disposals                        |  |                                               |   |                        
|   | Share of retained loss                 |  | (122.9                                         | ) |                        
|   | Other movements                        |  | (0.7                                           | ) |                        
|   |                                       
|   | At 31 March 2001                       |  | 335.4                                          |   | 64.9                    
|   |                                        | 

| | The market value of
        the investment in the listed associate at 31 March 2001 was £1,579.4m
        (2000: £3,309.3m).
      Own shares at 31 March
        2001 relate to 5.9m (2000: 10.4m) 1113/17p ordinary shares in National
        Grid Group plc, held by employee share trusts for the purpose of satisfying
        certain obligations under the various share option schemes operated by
        the Group. The carrying value of £10.2m (market value £31.9m
        (2000: £59.6m)) represents the exercise amounts receivable in respect
        of those shares which were issued at market value by the Company and cost
        in respect of those shares purchased in the open market. Funding is provided
        to the trusts by Group undertakings. The trusts have waived their rights
        to dividends on these shares.
      Group undertakingsDuring the year
        ended 31 March 1999, the Company acquired all of the ordinary shares in
        National Grid Holdings Limited in exchange for all the shares then held
        by the Company in Group undertakings which included The National Grid
        Company plc. The carrying value of the investment in National Grid Holdings
        Limited represents the value attributed to the initial investment in The
        National Grid Company plc, which was acquired for no consideration and
        was based on a pro forma net asset value at the date of acquisition, plus
        all additional investments at cost.
      The names of the
        principal Group and associated undertakings are included in note 29.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|68 | Notes to the accounts
      continued
|-- | -------------------------------------



|14 | Debtors                                             | Group
        2001
        £m |  | Group
        2000
        £m |  | Company
        2001
        £m |  | Company
        2000
        £m
|-- | --------------------------------------------------- | ----------------------------- |  | ----------------------------- |  | ------------------------------- |  | -------------------------------
|   |                                                    
|   | Amounts
      falling due within one year:          |                               |  |                               |  |                                 |  |                                
|   | Trade debtors                                       | 379.9                         |  | 246.9                         |  |                                |  |                               
|   | Amounts
      owed by Group undertakings            |                              |  |                              |  | 4,063.0                         |  | 3,449.2                        
|   | Amounts
      owed by an associate                  | 10.5                          |  | 14.8                          |  |                                |  |                               
|   | Amounts
      owed by joint ventures                | 23.3                          |  | 1.0                           |  |                                |  |                               
|   | Regulatory
      assets                             | 255.1                         |  | 108.6                         |  |                                |  |                               
|   | Prepayments
      and accrued income                | 115.8                         |  | 101.9                         |  | 3.3                             |  | 21.3                           
|   | Other debtors                                       | 95.8                          |  | 16.9                          |  |                                |  | 4.2                            
|   |                                                    
|   |                                                     | 880.4                         |  | 490.1                         |  | 4,066.3                         |  | 3,474.7                        
|   |                                                    
|   | Amounts
      falling due after more than one year: |                               |  |                               |  |                                 |  |                                
|   | Amounts
      owed by an associate                  | 45.1                          |  | 48.0                          |  |                                |  |                               
|   | Amounts
      owed by Group undertakings            |                              |  |                              |  | 18.1                            |  | 16.9                           
|   | Regulatory
      assets                             | 941.4                         |  | 727.4                         |  |                                |  |                               
|   | Other debtors                                       | 30.0                          |  | 22.9                          |  |                                |  |                               
|   |                                                    
|   |                                                     | 1,016.5                       |  | 798.3                         |  | 18.1                            |  | 16.9                           
|   |                                                    
|   |                                                     | 1,896.9                       |  | 1,288.4                       |  | 4,084.4                         |  | 3,491.6                        
|   |                                                     |                              

|   | Trade debtors are
        stated net of provisions for doubtful debts of £15.4m (2000: £10.6m).
      The amounts owed
        by an associate include a net investment in a finance lease amounting
        to £48.9m (2000: £52.3m) comprising total rentals receivable
        of £74.2m (2000: £85.5m) less unearned income of £25.3m
        (2000: £33.2m), of which £3.8m (2000: £4.3m) falls due
        within one year and £45.1m (2000: £48.0m) falls due after
        more than one year. Rentals received and receivable in the year amounted
        to £11.3m (2000: £6.7m). At 31 March 2001, the minimum lease
        payments for each of the five years ending 31 March 2006 are £9.0m.
      Regulatory assets
        SFAS 71 establishes
        US GAAP for utilities whose regulators have the power to approve and/or
        regulate rates that may be charged to customers. Provided that through
        the regulatory process, the utility is substantially assured of recovering
        its allowable costs by the collection of revenue from its customers, such
        costs not yet recovered are deferred as regulatory assets. Due to the
        different regulatory environment, no equivalent accounting standard applies
        in the UK.
      Under UK GAAP, regulatory
        assets established in accordance with SFAS 71 are recognised where they
        comprise rights or other access to future economic benefits which arise
        as a result of past transactions or events which have created an obligation
        to transfer economic benefit to a third party. Measurement of the past
        transaction or event and hence of the regulatory asset is determined in
        accordance with UK GAAP.
      Regulatory assets
        primarily relate to the right to recover from customers the liabilities
        recognised in respect of purchased power obligations (note 17), the decommissioning
        provision (note 20) and the under-recovery of power costs incurred.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|15 | Assets held for
        exchangeThe assets held for
        exchange of £16.6m (2000: £16.6m) represent the carrying value
        of 73.5m (2000: 73.5m, restated to reflect a 5:1 share split) shares in
        Energis plc which are held to satisfy obligations under the 6% mandatorily
        exchangeable bonds 2003, as explained in note 18. The voting rights in
        respect of 61.0m (2000: 61.0m, restated to reflect a 5:1 share split)
        of these shares are vested in the bondholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



---



| | 69
| | --



|16 | Creditors
      (amounts falling due within one year)                 | Group
      2001
      £m |         |  | Group
      2000
      £m |         |  | Company
      2001
      £m |         |  | Company
      2000
      £m |        
|-- | --------------------------------------------------------------------- | ------------------------- | ------- |  | ------------------------- | ------- |  | --------------------------- | ------- |  | --------------------------- | -------
|   |                                                                      
|   | Borrowings
      (note 18)                                            |                           | 1,008.7 |  |                           | 669.0   |  |                             | 760.9   |  |                             | 248.5  
|   | Trade
      creditors and accruals                                    |                           | 648.9   |  |                           | 529.5   |  |                             | 1.3     |  |                             | 0.3    
|   | Amounts
      owed to Group undertakings                              |                           |        |  |                           |        |  |                             | 1,871.1 |  |                             | 1,997.1
|   | Amounts
      owed to an associate                                    |                           | 10.6    |  |                           | 5.3     |  |                             |        |  |                             |       
|   | Amounts
      owed to a joint venture                                 |                           | 2.1     |  |                           | 0.2     |  |                             |        |  |                             |       
|   | Purchased
      power obligations                                     |                           | 105.0   |  |                           | 46.9    |  |                             |        |  |                             |       
|   | Corporate
      tax                                                   |                           | 16.2    |  |                           | 378.4   |  |                             |        |  |                             |       
|   | Social
      security and other taxes                                 |                           | 14.1    |  |                           | 25.3    |  |                             | 0.1     |  |                             |       
|   | Proposed
      dividend                                               |                           | 133.5   |  |                           | 123.0   |  |                             | 133.5   |  |                             | 123.0  
|   | Other
      creditors                                                 |                           | 274.6   |  |                           | 83.5    |  |                             | 206.4   |  |                             | 31.4   
|   |                                                                      
|   |                                                                       |                           | 2,213.7 |  |                           | 1,861.1 |  |                             | 2,973.3 |  |                             | 2,400.3
|   |                                                                       |                          
|   |                                                                       |                           |         |  |                          
|17 | Creditors
      (amounts falling due after more than 
      one year) | Group
      2001
      £m |         |  | Group
      2000
      £m |         |  | Company
      2001
      £m |         |  | Company
      2000
      £m |        
|   |                                                                      
|   | Borrowings
      (note 18)                                            |                           | 3,180.7 |  |                           | 3,006.2 |  |                             | 834.1   |  |                             | 1,000.0
|   | Purchased
      power obligations                                     |                           | 448.5   |  |                           | 382.3   |  |                             |        |  |                             |       
|   | Other
      creditors                                                 |                           | 126.3   |  |                           | 111.7   |  |                             |        |  |                             |       
|   |                                                                       |                          
|   |                                                                       |                           | 3,755.5 |  |                           | 3,500.2 |  |                             | 834.1   |  |                             | 1,000.0
|   |                                                                       |                          

| | Purchased power obligations
        As part of the sale of substantially all of its non-nuclear generating
        business, National Grid USA entered into purchased power transfer agreements
        with the purchasers whereby the purchasers took over a number of long-term
        contracts between National Grid USA and owners of various generating units.
        In exchange, National Grid USA committed to make fixed monthly payments
        to the purchasers towards the above-market cost of the contracts. The
        creditor relating to purchased power obligations, which is also reflected
        in regulatory assets (note 14), represents the net present value of these
        monthly payments discounted at 5.12%. At 31 March 2001, amounts falling
        due after five years totalled £131.6m (2000: £173.1m).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|70 | Notes to the accounts
      continued
|-- | -------------------------------------



|18 | Borrowings                                                   |  | Group
      2001
      £m |  | Group
      2000
      £m |  | Company
      2001
      £m |  | Company
      2000
      £m | 
|-- | ------------------------------------------------------------ |  | ------------------------- |  | ------------------------- |  | --------------------------- |  | --------------------------- | 
|   |                                                             
|   | Amounts falling
      due within one year:                   |  |                           |  |                           | 
|   | Bank loans and
      overdrafts                              |  | 627.5                     |  | 144.5                     |  | 394.4                       |  | 5.9                         | 
|   | Commercial paper                                             |  | 107.3                     |  | 52.5                      |  |                            |  |                            | 
|   | 6% mandatorily
      exchangeable bonds 2003                 |  | 242.6                     |  | 242.6                     |  | 242.6                       |  | 242.6                       | 
|   | 5.5% US dollar
      bonds 2001                              |  |                          |  | 197.6                     |  |                            |  |                            | 
|   | US medium term
      notes 2001                              |  | 13.8                      |  | 18.7                      |  |                            |  |                            | 
|   | Other loans                                                  |  | 17.5                      |  | 13.1                      |  | 123.9                       |  |                            | 
|   |                                                              | 
|   |                                                              |  | 1,008.7                   |  | 669.0                     |  | 760.9                       |  | 248.5                       | 
|   |                                                              | 
|   | Amounts falling
      due after more than one year:          |  |                           |  |                           |  |                             |  |                             | 
|   | Bank borrowings
      2002-2004                              |  | 995.5                     |  | 1,000.0                   |  | 834.1                       |  | 1,000.0                     | 
|   | Pollution control
      revenue bonds 2018-2022              |  | 315.0                     |  | 232.4                     |  |                            |  |                            | 
|   | 4.25% exchangeable
      bonds 2008                          |  | 480.3                     |  | 469.0                     |  |                            |  |                            | 
|   | 5.875% bonds
      2024                                      |  | 443.6                     |  | 443.3                     |  |                            |  |                            | 
|   | US medium term
      notes 2002-2028                         |  | 327.8                     |  | 299.7                     |  |                            |  |                            | 
|   | 8.0% bonds 2006                                              |  | 239.1                     |  | 238.9                     |  |                            |  |                            | 
|   | European Investment
      Bank Swiss franc loan 2004         |  | 237.0                     |  | 173.2                     |  |                            |  |                            | 
|   | US private placement
      notes 2002-2015                   |  | 74.8                      |  | 78.4                      |  |                            |  |                            | 
|   | Zero coupon
      bonds 2002                                 |  | 26.2                      |  | 26.2                      |  |                            |  |                            | 
|   | US tax exempt
      bonds 2002-2017                          |  | 16.7                      |  | 16.4                      |  |                            |  |                            | 
|   | Other loans                                                  |  | 24.7                      |  | 28.7                      |  |                            |  |                            | 
|   |                                                              | 
|   |                                                              |  | 3,180.7                   |  | 3,006.2                   |  | 834.1                       |  | 1,000.0                     | 
|   |                                                             
|   | Total borrowings                                             |  | 4,189.4                   |  | 3,675.2                   |  | 1,595.0                     |  | 1,248.5                     | 
|   |                                                              | 
|   | Total borrowings
      are repayable as follows:             |  |                           |  |                           |  |                             |  |                             | 
|   | In one year
      or less                                    |  | 1,008.7                   |  | 669.0                     |  | 760.9                       |  | 248.5                       | 
|   | In more than
      one year, but not more than two years     |  | 85.8                      |  | 707.1                     |  | 262.4                       |  |                            | 
|   | In more than
      two years, but not more than three years  |  | 1,262.0                   |  | 79.9                      |  | 450.7                       |  |                            | 
|   | In more than
      three years, but not more than four years |  | 47.1                      |  | 512.3                     |  | 121.0                       |  |                            | 
|   | In more than
      four years, but not more than five years  |  | 252.6                     |  | 42.3                      |  |                            |  |                            | 
|   | In more than
      five years  by instalments               |  | 61.7                      |  | 58.7                      |  |                            |  |                            | 
|   |  other than by instalments                                  |  | 1,471.5                   |  | 1,605.9                   |  |                            |  | 1,000.0                     | 
|   |                                                              | 
|   |                                                              |  | 4,189.4                   |  | 3,675.2                   |  | 1,595.0                     |  | 1,248.5                     | 
|   |                                                              | 

| | At 31 March 2001,
        borrowings totalling £348.6m (2000: £330.7m) were secured
        by charges over property, plant and other assets of the Group.
      The interest rates
        shown above are those contracted on the underlying borrowing before taking
        into account interest rate and currency swaps.
      In February 1999,
        the Company issued 73.5m (restated to reflect a 5:1 share split by Energis)
        Equity Plus Income Convertible Securities (EPICs) in the form of 6%
        mandatorily exchangeable bonds 2003 (exchangeable bonds) in the aggregate
        principal amount of US dollar 401.2m. The EPICs are exchangeable, subject
        to certain exceptions, on or prior to 26 April 2003 at the option of the
        holder of the bonds (bondholders) into ordinary shares of Energis plc,
        an associated undertaking (note 15). If the EPICs are redeemed at the
        option of the bondholders prior to 3 May 2003, the Group will deliver
        0.8333 Energis plc shares per EPICs. On 3 May 2003, the number of Energis
        plc shares to be delivered by the Group in respect of each EPICs is dependent
        upon the Energis plc share price at that date and ranges from a maximum
        of one, if the share price is £3.30 or less, to a minimum of 0.8333
        if the share price is £3.96 or more.
      The 4.25% exchangeable
        bonds 2008 (the Bonds) are exchangeable on or prior to 8 February 2008
        at the option of the holder, into ordinary shares of the Company at the
        exchange price of 417p per ordinary share. After 17 February 2003, the
        Group has the right to redeem the Bonds at any time in whole (but not
        in part) at the principal amount outstanding, including any redemption
        premium. Unless earlier redeemed, exchanged or purchased, the Bonds will
        be redeemed on 17 February 2008 at their principal amount plus a premium
        (together the Redemption Price, being £1,209.31 per £1,000
        principal amount of Bonds). When a bondholder elects to exchange bonds
        for ordinary shares, the Group has the option to pay an amount equal to
        the cash value of the ordinary shares that would otherwise have been issued
        by the Company. For the purposes of the maturity analysis of borrowings
        shown above, early exchange of the Bonds has not been anticipated and
        the Bonds have been classified as repayable in more than five years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



| | 71
| | --



|19 | Financial instruments
      The Groups treasury
        policy, including details of the nature, terms and credit risk associated
        with financial instruments with off-balance sheet risk is described on
        pages 36 to 38. Short term debtors and creditors, where permitted by the
        financial reporting standard on derivatives and other financial instruments
        (FRS13), have been excluded from the following disclosures, which are
        after taking account of interest rate and currency swaps where applicable.
        It is assumed that because of short maturities, the fair value of short
        term debtors and creditors approximates to their book values.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Currency
      and interest rate composition of financial liabilities                                    |  |                |  |                              |   |                           |  |                                                          |  |                                                                                           |  
| | -------------------------------------------------------------------------------------------------------- |  | -------------- |  | ---------------------------- | - | ------------------------- |  | -------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | -
| |                                                                                                          |  |                |  |                              |   |                           |  | Fixed
        rate liabilities                          
| |                                                                                                          |  |               
| | At 31 March 2001                                                                                         |  | Total
      £m |  | Variable
      rate
      £m |   | Fixed
      rate
      £m |  | Weighted
      average
      interest
      rate
      % |  | Weighted
      average
      period
      for which
      rate is
      fixed
      Years |  
| |                                                                                                         
| | Sterling                                                                                                 |  | 539.6          |  | (759.4                       | ) | 1,299.0                   |  | 6.92                                                     |  | 4.6                                                                                       |  
| | US dollars                                                                                               |  | 3,647.3        |  | 1,239.5                      |   | 2,407.8                   |  | 6.86                                                     |  | 3.4                                                                                       |  
| | Others                                                                                                   |  | 2.5            |  | 2.5                          |   |                          |  |                                                         |  |                                                                                          |  
| |                                                                                                         
| | Borrowings                                                                                               |  | 4,189.4        |  | 482.6                        |   | 3,706.8                   |  | 6.88                                                     |  | 3.8                                                                                       |  
| | Other financial
      liabilities (sterling)                                                             |  | 30.4           |  |                             |   | 30.4                      |  | 5.34                                                     |  | 4.6                                                                                       |  
| | Other financial
      liabilities (US dollars)                                                           |  | 662.2          |  | 621.2                        |   | 41.0                      |  | 6.22                                                     |  | 10.0                                                                                      | *
| |                                                                                                         
| |                                                                                                          |  | 4,882.0        |  | 1,103.8                      |   | 3,778.2                   |  | 6.86                                                     |  | 3.8                                                                                       |  
| |                                                                                                          | 
| | At 31 March
      2000                                                                                   |  |                |  |                              |   |                           |  |                                                          |  |                                                                                           |  
| |                                                                                                         
| | Sterling                                                                                                 |  | 776.2          |  | (447.5                       | ) | 1,223.7                   |  | 6.90                                                     |  | 5.6                                                                                       |  
| | US dollars                                                                                               |  | 2,899.0        |  | 756.2                        |   | 2,142.8                   |  | 6.96                                                     |  | 4.4                                                                                       |  
| |                                                                                                         
| | Borrowings                                                                                               |  | 3,675.2        |  | 308.7                        |   | 3,366.5                   |  | 6.94                                                     |  | 4.8                                                                                       |  
| | Other financial
      liabilities (sterling)                                                             |  | 33.5           |  | 0.1                          |   | 33.4                      |  | 5.34                                                     |  | 3.2                                                                                       |  
| | Other financial
      liabilities (US dollars)                                                           |  | 408.2          |  | 396.0                        |   | 12.2                      |  | 5.92                                                     |  |                                                                                          | *
| |                                                                                                         
| |                                                                                                          |  | 4,116.9        |  | 704.8                        |   | 3,412.1                   |  | 6.92                                                     |  | 4.8                                                                                       |  
| |                                                                                                          | 
| | *Excludes
      non-equity minority interests of £20.0m (2000: £12.2m) with
      no fixed payment date.

| | At 31 March 2001, the weighted average interest rate on short term borrowings
      of £1,008.7m (2000: £669.0m) was 5.9% (2000: 6.1%).
      Other US dollar financial
        liabilities at 31 March 2001 and at 31 March 2000 predominantly relate
        to purchased power obligations due after more than one year of £448.5m
        (2000: £382.3m) and the exchange revaluation of a cross currency
        swap of £166.4m (2000: £nil).
      Substantially all
        of the variable rate borrowings are subject to interest rates which fluctuate
        with LIBOR for the appropriate currency at differing premiums or in the
        case of certain USA based companies, are based on the market rate for
        tax exempt commercial paper.
      In calculating the
        weighted average number of years for which interest rates are fixed, swaps
        which are cancellable at the option of the swap provider are taken to
        have a life based on the earliest date at which they can be cancelled.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|72 | Notes to the accounts
      continued
|-- | -------------------------------------



|19 | Financial
      instruments continued                            |  |  |  | 
|-- | ---------------------------------------------------------------- |  |  |  | 
|   | Currency
      and interest rate composition of financial assets |  |  |  | 

| |                                           |  |                |  |                                     |  |                              |  |                           |  | Fixed
      rate assets                           
| | ----------------------------------------- |  | -------------- |  | ----------------------------------- |  | ---------------------------- |  | ------------------------- |  | --------------------------------------------------
| |                                           |  |               
| | At 31 March
      2001                    |  | Total
      £m |  | Non-interest
      bearing
      £m |  | Variable
      rate
      £m |  | Fixed
      rate
      £m |  | Weighted
      average
      interest rate
      %
| |                                          
| | Sterling                                  |  | 136.9          |  |                                    |  | 136.9                        |  |                          |  |                                                  
| | US dollars                                |  | 131.6          |  |                                    |  | 131.6                        |  |                          |  |                                                  
| | Other currencies                          |  | 2.7            |  |                                    |  | 2.7                          |  |                          |  |                                                  
| |                                          
| | Cash and deposits                         |  | 271.2          |  |                                    |  | 271.2                        |  |                          |  |                                                  
| | Other financial
      assets (sterling)   |  | 65.5           |  | 16.6                                |  |                             |  | 48.9                      |  | 11.50                                             
| | Other financial
      assets (US dollars) |  | 38.6           |  |                                    |  | 11.9                         |  | 26.7                      |  | 5.37                                              
| | Other financial
      assets (other)      |  | 4.9            |  |                                    |  | 4.9                          |  |                          |  |                                                  
| |                                          
| |                                           |  | 380.2          |  | 16.6                                |  | 288.0                        |  | 75.6                      |  | 9.34                                              
| |                                           | 
| | At 31 March
      2000                    |  |                |  |                                     |  |                              |  |                           |  |                                                   
| |                                          
| | Sterling                                  |  | 808.5          |  |                                    |  | 808.5                        |  |                          |  |                                                  
| | US dollars                                |  | 202.2          |  |                                    |  | 202.2                        |  |                          |  |                                                  
| | Other currencies                          |  | 0.9            |  |                                    |  | 0.9                          |  |                          |  |                                                  
| |                                          
| | Cash and deposits                         |  | 1,011.6        |  |                                    |  | 1,011.6                      |  |                          |  |                                                  
| | Other financial
      assets (sterling)   |  | 90.1           |  | 16.6                                |  | 21.2                         |  | 52.3                      |  | 11.50                                             
| | Other financial
      assets (US dollars) |  | 149.7          |  | 118.9                               |  |                             |  | 30.8                      |  | 9.43                                              
| |                                          
| |                                           |  | 1,251.4        |  | 135.5                               |  | 1,032.8                      |  | 83.1                      |  | 9.84                                              
| |                                           | 

| | Other financial assets
        at 31 March 2001 predominantly relate to assets held for exchange of £16.6m
        (2000: £16.6m), a net investment in a finance lease of £48.9m
        (2000: £52.3m), the exchange revaluation of a cross currency swap
        of £nil (2000: £21.2m), fixed asset investment of £38.6m
        (2000: £30.8m), and business held for resale of £nil (2000:
        £118.9m). Cash and deposits earn interest at local prevailing rates
        for maturity periods generally not exceeding 12 months. The non-interest
        bearing assets held for exchange are expected to be realised on redemption
        of the 6% mandatorily exchangeable bonds 2003, as described in note 18.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Maturity
      of financial liabilities at 31 March          |  | 2001
      £m |  | 2000
      £m | 
| | ------------------------------------------------------------ |  | ------------- |  | ------------- | 
| |                                                             
| | In
      one year or less                                    |  | 1,181.4       |  | 682.7         | 
| | In
      more than one year, but not more than two years     |  | 191.6         |  | 765.0         | 
| | In
      more than two years, but not more than three years  |  | 1,348.9       |  | 141.4         | 
| | In
      more than three years, but not more than four years |  | 130.4         |  | 569.8         | 
| | In
      more than four years, but not more than five years  |  | 333.3         |  | 102.1         | 
| | In
      more than five years                                |  | 1,696.4       |  | 1,855.9       | 
| |                                                             
| |                                                              |  | 4,882.0       |  | 4,116.9       | 
| |                                                              | 
| |                                                              |  |               |  |               | 
| |                                                              |  |               |  |               | 
| | Maturity
      of financial assets at 31 March               |  | 2001
      £m |  | 2000
      £m | 
| |                                                             
| | In
      one year or less                                    |  | 316.2         |  | 1,166.9       | 
| | In
      more than one year, but not more than two years     |  | 6.2           |  | 27.5          | 
| | In
      more than two years, but not more than three years  |  | 6.5           |  | 4.7           | 
| | In
      more than three years, but not more than four years |  | 6.2           |  | 5.0           | 
| | In
      more than four years, but not more than five years  |  | 7.0           |  | 6.0           | 
| | In
      more than five years                                |  | 38.1          |  | 41.3          | 
| |                                                             
| |                                                              |  | 380.2         |  | 1,251.4       | 
| |                                                              | 



---



| | 73
| | --



|19 | Financial
      instruments continued                                                   |  |                     |   |                    
|-- | --------------------------------------------------------------------------------------- |  | ------------------- | - | -------------------
|  
|   | Fair values
      of financial instruments at 31 March                                  |  |                     |   |                    
|   |                                                                                         |  | 2001                |   | 2000               
|   |                                                                                         |  |                     |   |                    
|   |                                                                                         |  | Book
      value £m |   | Fair
      value £m
|   |                                                                                        
|   | 6% mandatorily
      exchangeable bonds 2003                                            |  | (242.6              | ) | (196.7             
|   | Other short
      term debt                                                             |  | (766.1              | ) | (768.7             
|   | Exchangeable
      bonds 2008                                                           |  | (480.3              | ) | (627.7             
|   | Other long term
      debt                                                              |  | (2,700.4            | ) | (2,704.8           
|   |                                                                                        
|   | Total borrowings                                                                        |  | (4,189.4            | ) | (4,297.9           
|   | Cash and deposits                                                                       |  | 271.2               |   | 271.2              
|   |                                                                                        
|   | Net borrowings                                                                          |  | (3,918.2            | ) | (4,026.7           
|   | Other financial
      liabilities (i)                                                   |  | (519.9              | ) | (516.3             
|   | Net investment
      in finance lease                                                   |  | 48.9                |   | 56.0               
|   | Assets held
      for exchange                                                          |  | 16.6                |   | 205.1              
|   | Other financial
      assets (ii)                                                       |  | 43.5                |   | 44.8               
|   |                                                                                        
|   | Net financial
      liabilities (i), (ii)                                               |  | (4,329.1            | ) | (4,237.1           
|   | Financial instruments
      held to manage interest rate and currency
         profile: |  |                     |   |                    
|   | Interest rate
      swaps                                                               |  | (2.9                | ) | (40.4              
|   | Forward foreign
      currency contracts and cross currency swaps                       |  | (169.8              | ) | (250.1             
|   | Cross currency
      option                                                             |  |                    |   |                   
|   |                                                                                        

| | (i) Excluding interest
        rate swaps £2.9m (2000: £2.4m), forward currency contracts
        £3.4m (2000: £0.2m), cross currency swaps £166.4m (2000:
        £nil) and cross currency option £nil (2000: £11.1m).
      (ii) Excluding cross
        currency swaps £nil (2000: £21.2m).
      Market values, where
        available, have been used to determine fair values. Where market values
        are not available, fair values have been calculated by discounting cash
        flows at prevailing interest rates.
      The notional principal
        amounts relating to financial instruments held to manage interest rate
        and currency profile for interest rate swaps, foreign currency contracts
        and cross currency swaps, and a cross currency option amounted to £2,889.6m
        (2000: £2,534.9m); £2,118.0m (2000: £1,633.5m); and
        £nil (2000: £1,061.9m) respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Gains and losses
      on hedges                                         | Gains
      £m |   | Losses
      £m |   | Net
      gain/(loss)
      £m |  
| | ------------------------------------------------------------------------ | -------------- | - | --------------- | - | ------------------------------ | -
| |                                                                         
| | Unrecognised gains
        and (losses) on hedges at 1 April 2000        | 40.0           |   | (52.7           | ) | (12.7                          | )
| | Gains/(losses) arising
        in the current year                       | 5.5            |   | (295.3          | ) | (289.8                         | )
| |                                                                         
| |                                                                          | 45.5           |   | (348.0          | ) | (302.5                         | )
| | (Gains)/losses recognised
        during the year                        | (34.8          | ) | 219.5           |   | 184.7                          |  
| |                                                                         
| | Unrecognised gains
        and (losses) on hedges at 31 March 2001       | 10.7           |   | (128.5          | ) | (117.8                         | )
| |                                                                          |               
| | Of which:                                                                |                |   |                 |   |                                |  
| | Gains and (losses)
        expected to be recognised in the next year    |               |   | (27.9           | ) | (27.9                          | )
| | Gains and (losses)
        expected to be recognised in subsequent years | 10.7           |   | (100.6          | ) | (89.9                          | )
| |                                                                         



| | At 31 March 2001,
        within the £128.5m unrecognised loss there is an unrecognised loss
        of £61.2m for which there are offsetting gains of £53.2m on
        the related borrowings.
      Borrowing facilitiesAt 31 March 2001, the Group had committed credit facilities from syndicates
        of banks of £2,510.5m (2000: £2,493.7m) of which £1,120.7m
        (2000: £1,493.7m) was undrawn and of which £816.9m expires
        within one year, £211.2m expires after more than one year but less
        than two years, and £92.6m expires after more than two years. The
        unused facilities are available to support further acquisitions and other
        general corporate purposes.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|74 | Notes to the accounts continued
|-- | -------------------------------



|20 | Provisions
      for liabilities and charges             |  | Decommissioning £m |   | Post-retirement benefits £m |   | Environmental £m |   | Deferred taxation £m |   | Other £m |   | Total provisions £m |  
|-- | -------------------------------------------------------- |  | ------------------ | - | --------------------------- | - | ---------------- | - | -------------------- | - | -------- | - | ------------------- | -
|   |                                                         
|   | At 1 April 2000                                          |  | 231.3              |   | 114.6                       |   | 41.2             |   | 72.1                 |   | 2.2      |   | 461.4               |  
|   | Exchange adjustments                                     |  | 29.3               |   | 14.7                        |   | 3.8              |   | 18.1                 |   |         |   | 65.9                |  
|   | Adjustments
      to acquisition provisional fair values |  |                   |   | (11.8                       | ) |                 |   | 0.2                  |   |         |   | (11.6               | )
|   | Acquisition
      of Group undertaking                   |  | 34.5               |   | 27.3                        |   | 12.0             |   | 62.9                 |   |         |   | 136.7               |  
|   | Additions                                                |  | 16.3               |   | 18.7                        |   | 10.5             |   |                     |   |         |   | 45.5                |  
|   | Unused amounts
      reversed                            |  | (80.5              | ) |                            |   | (10.0            | ) | (6.0                 | ) | (1.8     | ) | (98.3               | )
|   | Utilised                                                 |  | (18.9              | ) | (13.8                       | ) | (5.1             | ) |                     |   | (0.1     | ) | (37.9               | )
|   | Disposal of
      business                               |  | (65.9              | ) |                            |   |                 |   |                     |   |         |   | (65.9               | )
|   |                                                         
|   | At 31 March
      2001                                   |  | 146.1              |   | 149.7                       |   | 52.4             |   | 147.3                |   | 0.3      |   | 495.8               |  
|   |                                                          | 

| | The decommissioning
        provision of £146.1m at 31 March 2001, represents the net present
        value of the estimated expenditures (discounted at rates up to 6.62%)
        expected to be incurred in respect of the decommissioning of certain nuclear
        generating units and other related provisions. A related regulatory asset
        is also recognised (note 14). Expenditure is expected to be incurred between
        2001 and 2042. Additions in the year include £10.8m and £2.3m
        in respect of changes in the discounted amount arising from the passage
        of time and the effect of the change in the discount rate respectively.
      The post-retirement
        benefits provision is in respect of pensions £76.1m (2000: £57.3m)
        and other post-retirement benefits (health care and life insurance) £73.6m
        (2000: £57.3m).
      The environmental
        provision represents the estimated environmental restoration and remediation
        costs relating to a number of sites. At 31 March 2001, £37.8m of
        this provision represents the net present value of the estimated expenditure
        (discounted at 7.75%) expected to be incurred between 2001 and 2045. Substantially
        all of the remainder of this provision is expected to be utilised within
        the next five years. Additions in the year include £0.2m in respect
        of a change in the discounted amount arising from the passage of time.
      Deferred taxation
        provided in the accounts and the potential liability not provided comprise:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                      |  | Provided      |  | Not
      provided
| | ------------------------------------ |  | ------------- |  | ------------------
| |                                      |  |               |  |                   
| |                                      |  | 2001
      £m |  | 2000
      £m     
| |                                     
| | Accelerated
      capital allowances |  |              |  |                  
| | Other timing
      differences       |  | 147.3         |  | 72.1              
| |                                     
| |                                      |  | 147.3         |  | 72.1              
| |                                      |  |              

|21 | Share
      capital                                                                                                |  | Authorised |  | Allotted,
      called up and fully paid
|-- | ------------------------------------------------------------------------------------------------------------------ |  | ---------- |  | ----------------------------------------
|   |                                                                                                                    |  |            |  |                                         
|   | Ordinary
      shares of 1113/17p each                                                                             |  | millions   |  | £m                                      
|   |                                                                                                                   
|   | At
      31 March 1998                                                                                             |  | 2,125.0    |  | 250.0                                   
|   | Issued
      during the year                                                                                       |  |           |  |                                        
|   |                                                                                                                   
|   | At
      31 March 1999                                                                                             |  | 2,125.0    |  | 250.0                                   
|   | Issued
      during the year                                                                                       |  |           |  |                                        
|   | Repurchased
      and cancelled during the year                                                                    |  |           |  |                                        
|   |                                                                                                                   
|   | At
      31 March 2000                                                                                             |  | 2,125.0    |  | 250.0                                   
|   |                                                                                                                   
|   | At
      31 March 2001                                                                                             |  | 2,125.0    |  | 250.0                                   
|   |                                                                                                                    | 
|   | One
      £1 special rights redeemable preference share (at 31 March 2001, 31
      March 2000 and 31 March 1999).
|   |                                                                                                                   

| | The total consideration
      received by the Company in respect of shares issued during the year ended
      31 March 2001 was £2.2m, all of which was received from employee share
      trusts, which represented contributions from Group undertakings.
      The special rights
        redeemable preference share (the Special Share), held on behalf
        of the Crown, was vested in the Secretary of State for Trade and Industry
        with effect from 5 July 1992. It is redeemable at any time at par at the
        option of the holder, after consulting the Company. The Special Share
        does not carry any rights to vote at general meetings but entitles the
        holder to receive notice of and to attend and speak at such meetings.
        Certain matters, in particular the alteration of the Articles of Association
        of the Company, require the prior written consent of the holder of the
        Special Share. The Special Share confers no right to participate in the
        capital or profits of the Company, except that on a winding-up the Special
        Shareholder is entitled to repayment of £1 in priority to other
        shareholders.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



| | 75
| | --



|21 | Share capitalcontinued
      Share option schemes
        The Group operates two principal forms of share option schemes. They are
        a Sharesave scheme and an Executive share option scheme (the Executive
        scheme).
      The Sharesave scheme
        is savings related where, under normal circumstances, share options are
        exercisable on completion of a three or a five year save-as-you-earn contract.
        The exercise price of options granted represents 80% of the market price
        at the date the option was granted.
      The Executive scheme
        applies to senior executives, including Executive Directors. Options granted
        for the 1998/99 and 1999/00 financial years are subject to the achievement
        of performance targets related to earnings per share growth over a three
        year period. Options granted for the 2000/01 financial year are subject
        to the achievement of performance targets related to total shareholder
        returns over a three year period. The share options are generally exercisable
        between the third and tenth anniversaries of the date of grant.
      In any ten year period,
        the maximum number of shares that may be issued or issuable pursuant to
        the exercise of options under all of the Groups share option schemes
        may not exceed the number of shares representing 10% of the Companys
        issued ordinary share capital from time to time.
      Movement in options
        to subscribe for ordinary shares of 1113/17p under
        the Groups various options schemes for the three years ended 31
        March 2001 are shown below and include those options related to shares
        issued to employee benefit trusts.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                             |  | Sharesave
      scheme
      millions |   | Executive
      share scheme
      millions |   | Total
      millions |  
| | ------------------------------------------- |  | ------------------------------------- | - | ------------------------------------------- | - | -------------------- | -
| |                                            
| | At 31 March
      1998                      |  | 20.2                                  |   | 3.4                                         |   | 23.6                 |  
| | Granted                                     |  | 2.3                                   |   | 1.5                                         |   | 3.8                  |  
| | Lapsed                                      |  | (1.1                                  | ) | (0.1                                        | ) | (1.2                 | )
| | Exercised                                   |  | (5.1                                  | ) | (0.1                                        | ) | (5.2                 | )
| |                                            
| | At 31 March 1999                            |  | 16.3                                  |   | 4.7                                         |   | 21.0                 |  
| | Granted                                     |  | 3.5                                   |   | 2.3                                         |   | 5.8                  |  
| | Lapsed                                      |  | (0.5                                  | ) | (0.2                                        | ) | (0.7                 | )
| | Exercised                                   |  | (3.1                                  | ) | (0.8                                        | ) | (3.9                 | )
| |                                            
| | At 31 March 2000                            |  | 16.2                                  |   | 6.0                                         |   | 22.2                 |  
| | Granted                                     |  | 1.4                                   |   | 1.6                                         |   | 3.0                  |  
| | Lapsed                                      |  | (0.4                                  | ) |                                            |   | (0.4                 | )
| | Exercised                                   |  | (4.1                                  | ) | (0.7                                        | ) | (4.8                 | )
| |                                            
| | At 31 March 2001                            |  | 13.1                                  |   | 6.9                                         |   | 20.0                 |  
| |                                             | 
|
| | Exercisable between
      1 April 2001 and: |  | 28
      Feb 2006                     |   | 30
      Mar 2011                           |   |                      |  
| |                                            
| | Option price per ordinary
      share       |  | 146.0p
      to                       |   | 64.6p
      to                              |   |                      |  
| |                                             |  | 416.0p                                |   | 623.0p                                      |   |                      |  
| |                                            



---



|76 | Notes to the accounts
        continued
|-- | ---------------------------------------



|21 | Share capitalcontinued
      Share option schemescontinuedOptions outstanding
        at 31 March 2001 and 31 March 2000, together with their exercise prices
        and dates were as follows:
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                  |  | 2001
      millions |  | 2000
      millions |  | Exercise
      price
      per share
      pence |  | Normal
      dates
      of exercise
      years | 
| | ---------------- |  | ------------------- |  | ------------------- |  | ------------------------------------------------ |  | ------------------------------------------------ | 
| |                 
| | Sharesave scheme |  |                    |  | 1.1                 |  | 171.0                                            |  | 2001                                             | 
| |                  |  | 0.2                 |  | 3.1                 |  | 162.0                                            |  | 2001                                             | 
| |                  |  | 3.9                 |  | 4.1                 |  | 146.0                                            |  | 2001                                             | 
| |                  |  | 0.6                 |  | 0.6                 |  | 312.0                                            |  | 2001                                             | 
| |                  |  | 2.4                 |  | 2.4                 |  | 171.0                                            |  | 2002                                             | 
| |                  |  | 1.1                 |  | 1.2                 |  | 337.0                                            |  | 2002                                             | 
| |                  |  | 1.4                 |  | 1.5                 |  | 312.0                                            |  | 2003                                             | 
| |                  |  | 0.6                 |  |                    |  | 416.0                                            |  | 2003                                             | 
| |                  |  | 2.1                 |  | 2.2                 |  | 337.0                                            |  | 2004                                             | 
| |                  |  | 0.8                 |  |                    |  | 416.0                                            |  | 2005                                             | 
| |                  | 
| |                  |  | 13.1                |  | 16.2                |  |                                                  |  |                                                  | 
| |                  |  |                    
| | Executive scheme |  | 0.1                 |  | 0.2                 |  | 64.6                                             |  | 1994
       2001                                | 
| |                  |  |                    |  | 0.1                 |  | 90.2                                             |  | 1995
       2002                                | 
| |                  |  |                    |  | 0.1                 |  | 118.9                                            |  | 1996
       2003                                | 
| |                  |  | 0.3                 |  | 0.5                 |  | 205.5                                            |  | 2001
       2007                                | 
| |                  |  | 0.2                 |  | 0.4                 |  | 258.0                                            |  | 2001
       2007                                | 
| |                  |  | 0.9                 |  | 1.0                 |  | 280.5                                            |  | 2001
       2007                                | 
| |                  |  | 1.3                 |  | 1.4                 |  | 375.8                                            |  | 2001
       2008                                | 
| |                  |  | 0.3                 |  | 0.3                 |  | 455.3                                            |  | 2002
       2009                                | 
| |                  |  | 0.4                 |  | 0.4                 |  | 435.8                                            |  | 2002
       2009                                | 
| |                  |  | 0.1                 |  | 0.1                 |  | 424.0                                            |  | 2002
       2009                                | 
| |                  |  | 1.5                 |  | 1.5                 |  | 566.5                                            |  | 2003
       2010                                | 
| |                  |  | 0.5                 |  |                    |  | 531.5                                            |  | 2003
       2010                                | 
| |                  |  | 1.0                 |  |                    |  | 526.5                                            |  | 2003
       2010                                | 
| |                  |  | 0.1                 |  |                    |  | 535.0                                            |  | 2003
       2010                                | 
| |                  |  | 0.1                 |  |                    |  | 623.0                                            |  | 2004
       2011                                | 
| |                  |  | 0.1                 |  |                    |  | 540.0                                            |  | 2004
       2011                                | 
| |                  | 
| |                  |  | 6.9                 |  | 6.0                 |  |                                                  |  |                                                  | 
| |                  |  |                    



---



| | 77
| | --





|22 | Reserves                                                                                                                                                                                                                                           |  | Group                                      |  | Company                                      |  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------ |  | -------------------------------------------- | -
|   |                                                                                                                                                                                                                                                    |  |                                            |  |                                              |  
|   |                                                                                                                                                                                                                                                    |  | Share
      premium
      account
      £m |  | Profit
      and loss
      account
      £m |  
|   |                                                                                                                                                                                                                                                   
|   | At 1 April 1998                                                                                                                                                                                                                                    |  | 232.7                                      |  | 718.2                                        |  
|   | Exchange adjustments                                                                                                                                                                                                                               |  |                                           |  | (0.8                                         | )
|   | Unrealised profit
      arising on intra-group sale of a Group undertaking                                                                                                                                                                         |  |                                           |  |                                             |  
|   | Ordinary shares
      issued during the year                                                                                                                                                                                                       |  | 5.5                                        |  |                                             |  
|   | Transfer on
      issue of certain shares under  the Sharesave scheme                                                                                                                                                                              |  | 8.3                                        |  | (8.3                                         | )
|   | Retained profit
      for the year                                                                                                                                                                                                                 |  |                                           |  | 823.0                                        |  
|   |                                                                                                                                                                                                                                                   
|   | At 31 March
      1999                                                                                                                                                                                                                             |  | 246.5                                      |  | 1,532.1                                      |  
|   | Exchange adjustments                                                                                                                                                                                                                               |  |                                           |  | 3.1                                          |  
|   | Ordinary shares
      issued during the year                                                                                                                                                                                                       |  | 10.8                                       |  |                                             |  
|   | Repurchase and
      cancellation of ordinary shares                                                                                                                                                                                               |  |                                           |  | (1.1                                         | )
|   | Transfer on
      issue of certain shares under the Sharesave scheme                                                                                                                                                                               |  | 17.4                                       |  | (17.4                                        | )
|   | Unrealised gain
      on sale of investment in a Group undertaking                                                                                                                                                                                 |  |                                           |  |                                             |  
|   | Retained profit
      for the year                                                                                                                                                                                                                 |  |                                           |  | 942.9                                        |  
|   |                                                                                                                                                                                                                                                   
|   | At 31 March
      2000                                                                                                                                                                                                                             |  | 274.7                                      |  | 2,459.6                                      |  
|   | Exchange adjustments                                                                                                                                                                                                                               |  |                                           |  | (12.0                                        | )
|   | Ordinary shares
      issued during the year                                                                                                                                                                                                       |  | 0.9                                        |  |                                             |  
|   | Tax on exchange
      adjustments                                                                                                                                                                                                                  |  |                                           |  | 31.9                                         |  
|   | Transfer on
      issue of certain shares under share option schemes                                                                                                                                                                               |  | 1.3                                        |  | (1.3                                         | )
|   | Partial realisation
      of gain on sale of investment in a Group undertaking                                                                                                                                                                     |  |                                           |  |                                             |  
|   | Retained profit/(loss)
      for the year                                                                                                                                                                                                          |  |                                           |  | 546.0                                        |  
|   |                                                                                                                                                                                                                                                   
|   | At 31 March
      2001                                                                                                                                                                                                                             |  | 276.9                                      |  | 3,024.2                                      |  
|   |                                                                                                                                                                                                                                                    | 
|   | The Company
      has not presented its own profit and loss account as permitted by Section
      230 of the Companies Act 1985. Of the Group profit after taxation, £25.7m
      (2000: £1,037.2m; 1999: £276.5m) is attributable to the Company.

|23 | Minority
      interests: non-equityThe non-equity minority interests of £20.0m (2000: £12.2m)
      comprise cumulative preference stock issued by Group undertakings.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|24 | Reconciliation
      of movement in equity shareholders funds |  | 2001
        £m |   |  | 2000
        £m |   | 1999
        £m |  
|-- | -------------------------------------------------------------- |  | --------------- | - |  | --------------- | - | --------------- | -
|   |                                                               
|   | Profit
      for the year                                      |  | 769.0           |   |  | 1,148.4         |   | 1,015.0         |  
|   | Dividends                                                      |  | (223.0          | ) |  | (205.5          | ) | (192.0          | )
|   |                                                               
|   |                                                                |  | 546.0           |   |  | 942.9           |   | 823.0           |  
|   | Issue
      of ordinary shares                                 |  | 0.9             |   |  | 11.6            |   | 5.9             |  
|   | Repurchase
      of ordinary shares                            |  |                |   |  | (1.1            | ) |                |  
|   | Exchange
      adjustments                                     |  | (12.0           | ) |  | 3.1             |   | (0.8            | )
|   | Tax on
      exchange adjustments                              |  | 31.9            |   |  |                |   |                |  
|   |                                                               
|   | Net increase
      in equity shareholders funds               |  | 566.8           |   |  | 956.5           |   | 828.1           |  
|   | Equity
      shareholders funds at start of year              |  | 2,909.0         |   |  | 1,952.5         |   | 1,124.4         |  
|   |                                                               
|   | Equity
      shareholders funds at end of year                |  | 3,475.8         |   |  | 2,909.0         |   | 1,952.5         |  
|   |                                                                | 



---



|78 | Notes to the accounts
      continued
|-- | -------------------------------------



|25 | Group cash
      flow statement                                                       |  |  |               |   |               |   |               |  
|-- | ------------------------------------------------------------------------------------- |  |  | ------------- | - | ------------- | - | ------------- | -
|a  | Reconciliation
      of operating profit to net cash inflow from operating activities |  |  | 2001
      £m |   | 2000
      £m |   | 1999
      £m |  
|   |                                                                                      
|   | Operating profit
      of Group undertakings                                          |  |  | 715.6         |   | 572.1         |   | 576.7         |  
|   | Depreciation
      and amortisation                                                   |  |  | 369.9         |   | 158.3         |   | 134.0         |  
|   | Profit on disposal
      of tangible fixed assets                                     |  |  | (6.6          | ) | (4.3          | ) | (2.5          | )
|   | (Increase)/decrease
      in stocks                                                   |  |  | (7.9          | ) | (0.4          | ) | 0.2           |  
|   | Increase in
      debtors                                                             |  |  | (189.8        | ) | (22.7         | ) | (13.0         | )
|   | Decrease in
      creditors                                                           |  |  | (55.3         | ) | (11.5         | ) | (60.6         | )
|   | Decrease in
      provisions                                                          |  |  | (11.7         | ) | (6.8          | ) | (29.6         | )
|   | Other                                                                                 |  |  | (3.6          | ) | (2.7          | ) | 0.7           |  
|   |                                                                                      
|   | Net cash inflow
      from operating activities                                       |  |  | 810.6         |   | 682.0         |   | 605.9         |  
|   |                                                                                       | 
|   |                                                                                       |  |  |               |   |               |   |               |  
|b  | Acquisition
      of Group undertakings                                               |  |  | 2001
      £m |   | 2000
      £m |   | 1999
      £m |  
|   |                                                                                      
|   | Payments to
      acquire Group undertakings                                          |  |  | (442.5        | ) | (2,049.2      | ) | (12.6         | )
|   | Cash balances
      of Group undertakings acquired                                    |  |  | 1.6           |   | 4.1           |   | 0.5           |  
|   |                                                                                      
|   |                                                                                       |  |  | (440.9        | ) | (2,045.1      | ) | (12.1         | )
|   |                                                                                       | 
|   |                                                                                      

| | Because
      the operations of NEES and EUA were successfully integrated on 1 May 2000,
      it is not possible to provide an indication of EUAs contribution to
      the cash flow for the year ended 31 March 2001.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|c | Disposal
      of businesses               | 2001
      £m |   | 2000
      £m |  | 1999
      £m
|- | ------------------------------------------ | ------------- | - | ------------- |  | -------------
|  |                                           
|  | Consideration received                     | 204.7         |   |              |  |             
|  | Cash balances of businesses
      disposed | (8.8          | ) |              |  |             
|  |                                           
|  |                                            | 195.9         |   |              |  |             
|  |                                            |              

|d | Reconciliation
      of net cash flow to movement in net debt                                                              |  | 2001
      £m |   | 2000
      £m |   | 1999
      £m |   
|- | -------------------------------------------------------------------------------------------------------------------------- |  | ------------- | - | ------------- | - | ------------- | --
|  |                                                                                                                            | 
|  | Movement in cash and
      overdrafts                                                                                      |  | (1.9          | ) | 26.4          |   | (21.8         | ) 
|  | Net cash (inflow)/outflow
      from the management of liquid resources                                                    |  | (775.2        | ) | (618.8        | ) | 1,482.3       |   
|  | Increase in borrowings                                                                                                     |  | (81.4         | ) | (769.2        | ) | (675.2        | )*
|  |                                                                                                                            | 
|  | Change in net debt
      resulting from cash flows                                                                         |  | (858.5        | ) | (1,361.6      | ) | 785.3         |   
|  | Acquisition of Group
      undertakings                                                                                    |  | (162.2        | ) | (611.7        | ) | (4.2          | ) 
|  | Certificates of tax
      deposit surrendered                                                                              |  | (3.6          | ) | (5.9          | ) | (8.7          | ) 
|  | Exchange adjustments                                                                                                       |  | (218.0        | ) | 29.9          |   | (0.3          | ) 
|  | Other non-cash movements                                                                                                   |  | (12.3         | ) | (10.9         | ) | (10.2         | ) 
|  |                                                                                                                            | 
|  | Movement in net debt
      in the year                                                                                     |  | (1,254.6      | ) | (1,960.2      | ) | 761.9         |   
|  | Net debt at start of
      year                                                                                            |  | (2,663.6      | ) | (703.4        | ) | (1,465.3      | ) 
|  |                                                                                                                            | 
|  | Net debt at end of
      year                                                                                              |  | (3,918.2      | ) | (2,663.6      | ) | (703.4        | ) 
|  |                                                                                                                            |  |              
|  | *In 1999,
      cash flow from increase in borrowings is net of £7.0m costs relating
      to the issue of long term debt.

| | Liquid
      resources comprise short term deposits.
| | ----------------------------------------------------



---



| | 79
| | --



|25 | Group
      cash flow statementcontinued                                                                                                                                                                                                                               
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|e  | Analysis
      of changes in net debt                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   | Cash
      at bank and in hand**                                                                                                                                                                                                                                       
|   | Bank
      overdrafts                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   | Deposits**                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                        
|   | Borrowings
      due after one year                                                                                                                                                                                                                                    
|   | Borrowings
      due within one year                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|  
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   | Cash
      at bank and in hand**                                                                                                                                                                                                                                       
|   | Bank
      overdrafts                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   | Deposits**                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                        
|   | Borrowings
      due after one year                                                                                                                                                                                                                                    
|   | Borrowings
      due within one year                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|  
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   | Cash
      at bank and in hand**                                                                                                                                                                                                                                       
|   | Bank
      overdrafts                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   | Deposits**                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                        
|   | Borrowings
      due after one year                                                                                                                                                                                                                                    
|   | Borrowings
      due within one year                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                        
|   | *Excluding cash and
        bank overdrafts.**Cash and deposits
        per the balance sheet £271.2m (2000: £1,011.6m; 1999: £1,524.5m).+In 1999, cash flow
        from increase in borrowings is net of £7.0m costs relating to the
        issue of long term debt.



---



|80 | Notes to the accounts
      continued
|-- | -------------------------------------

|26a | AcquisitionOn 19 April 2000, the Group acquired the entire issued share capital
      of Eastern Utilities Associates (EUA) for a cash consideration of £414.0m,
      including acquisition costs of £4.5m. The acquisition has been accounted
      for by using the acquisition method of accounting. Goodwill arising on acquisition
      is being amortised over 20 years, being its estimated useful economic life.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                          |                                                |   | Fair
        value adjustments |                       |                                            |                         
| | -------------------------------------------------------- | ---------------------------------------------- | - | ------------------------------ | --------------------- | ------------------------------------------ | ------------------------
| |                                                          |                                                |   |                                |                      
| |                                                          | Book
      value
      at acquisition
      £m |   | Revaluations
      £m          |                       | Accounting
      policy
      alignment £m |                         
| |                                                         
| | Tangible
      fixed assets                              | 274.4                                          |   | 34.9                           | (iv),
        (v)     | (17.8                                      | )(ii),
        (iv), (v)
| | Fixed
      asset investments                            | 42.7                                           |   | (3.4                           | )                     | (4.3                                       | )(ii)                   
| | Stocks                                                   | 1.7                                            |   |                               |                       |                                           |                         
| | Debtors                                                  | 457.4                                          |   | (0.5                           | )                     | (143.8                                     | )(iii),
        (vi)    
| | Business
      held for resale                           | 50.2                                           |   | 5.2                            | (vii)                 |                                           |                         
| | Cash
      and deposits                                  | 1.6                                            |   |                               |                       |                                           |                         
| | Creditors
      excluding borrowings                     | (274.8                                         | ) | (15.3                          | )(viii),
        (ix) | 110.3                                      | (iii)                   
| | Borrowings                                               | (162.6                                         | ) |                               |                       | 0.4                                        |                         
| | Provisions
      for liabilities and charges             | (157.7                                         | ) | (10.8                          | )(viii)               | 31.8                                       | (i),
        (ii), (iii)
| | Minority
      interests                                 | (18.1                                          | ) | (1.0                           | )                     |                                           |                         
| |                                                          |                                                |   |                                |                      
| |                                                          | 214.8                                          |   | 9.1                            |                       | (23.4                                      | )                       
| |                                                          |                                                |  
| | Net
      assets acquired                                |                                                |   |                                |                       |                                            |                         
| | Goodwill
      arising on acquisition                    |                                                |   |                                |                       |                                            |                         
| |                                                         
| | Cash
      consideration, including costs of acquisition |                                                |   |                                |                       |                                            |                         
| |                                                          |                                               

| | Business held for
        resale of £55.4m relates to a subsidiary undertaking of EUA which
        was held exclusively with a view to resale. The fair value of this business
        represents the net sale proceeds.
      Fair value adjustments
        primarily comprise:
      Accounting policy
        alignment relating to:
        (i) recognition of deferred tax on a partial provisioning basis (£30.5m);
        (ii) recognition of decommissioning liabilities and other provisions in
        accordance with FRS12 (£15.8m);
        (iii) non-recognition of certain liabilities, and related assets, which
        do not comply with FRS12 (£123.1m);
        (iv) accounting for allowance for equity funds used during construction
        (£13.7m);
        (v) accounting for costs incurred on the disposal of tangible fixed assets
        (£21.2m);
        (vi) non-recognition of certain regulatory assets to accord with UK GAAP
        (£19.0m). 
        Adjustments (iv) and (v) have also resulted in corresponding revaluation
        adjustments.
      Other revaluation
        adjustments relating to:(vii) revaluation of
        business held for resale to reflect net proceeds from sale (£5.2m);
        (viii) recognition of liabilities in respect of certain integration costs
        (£13.9m);(ix) recognition of
        additional liabilities in respect of taxation and certain other items
        (£14.4m).
      The loss after taxation
        and minority interest of EUA for the period 1 January 2000 to 18 April
        2000, based on its accounting policies prior to acquisition, was £0.4m.
        The comparative figure for the year ended 31 December 1999 was a profit
        after taxation and minority interest of £10.5m.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



| | 81
| | --



|26b | Acquisition
      continuedThe acquisition of NEES was completed on 22 March 2000 at a total cost
      of £2,070.8m. The net assets acquired were ascribed a provisional
      fair value of £1,223.2m resulting in goodwill of £847.6m. During
      the year ended 31 March 2001, the provisional fair values applied were reviewed
      and a number of adjustments were made to those provisional values, as shown
      below.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                              | Fair
      value adjustments          |  
| | -------------------------------------------- | ------------------------------------- | -
| |                                              |                                       |  
| |                                              | Provisional
      fair value
      £m |  
| |                                             
| | Tangible
      fixed assets                  | 1,710.9                               |  
| | Fixed
      asset investments                | 121.8                                 |  
| | Stocks                                       | 16.5                                  |  
| | Debtors                                      | 1,084.9                               |  
| | Business
      held for resale               | 121.2                                 |  
| | Cash
      and deposits                      | 111.8                                 |  
| | Creditors
      excluding borrowings         | (758.8                                | )
| | Borrowings                                   | (719.4                                | )
| | Provisions
      for liabilities and charges | (430.5                                | )
| | Minority
      interests                     | (35.2                                 | )
| |                                             
| | Net
      assets acquired                    | 1,223.2                               |  
| |                                              |                                      

| | Fair value adjustments
        primarily comprise:
      (i) non-recognition
        of certain regulatory assets and related provisions to accord with UK
        GAAP (£35.5m);
        (ii) revaluation of business held for resale to reflect net proceeds from
        sale (£33.6m).
      The following unaudited
        pro forma summary gives effect to the acquisition of NEES, as if the acquisition
        had taken place on 1 April 1998 and on 1 April 1999. The pro forma summary
        combines the consolidated results of the Group (excluding NEES) and NEES
        after giving effect to certain adjustments. These adjustments include
        estimates of the effect of adopting the final fair value adjustments and
        the increased net interest expense, together with the associated tax effects,
        as a result of financing the acquisition. The pro forma does not necessarily
        reflect the results of operations as they would have been if the Group
        (excluding NEES) and NEES had constituted a single entity during the periods
        presented.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                   |  | Year
        ended 31 March
| | --------------------------------------------------------------------------------- |  | ---------------------------
| |                                                                                   |  |                            
| |                                                                                   |  | 2000
      £m              
|
| |                                                                                  
| | Turnover                                                                          |  | 3,272.0                    
| | Profit
      for the year  including exceptional items and goodwill amortisation |  | 1,095.7                    
| | Profit
      for the year  excluding exceptional items and goodwill amortisation |  | 350.5                      
| |                                                                                  
| | Earnings
      per ordinary share                                                 |  |                            
| | Basic,
      including exceptional items and goodwill amortisation                |  | 74.4p                      
| | Basic,
      excluding exceptional items and goodwill amortisation                |  | 23.8p                      
| |                                                                                  



---



|82 | Notes to the accounts
      continued
|-- | -------------------------------------



|27 | Related party transactions                                                                                                  
|-- | ----------------------------------------------------------------------------------------------------------------------------
|   | Transactions
      with an associate and joint ventures, which were in the normal course of
      business, were as follows:

| |                             |  | 2001
      £m |  | 2000
      £m |  | 1999
      £m | 
| | --------------------------- |  | ------------- |  | ------------- |  | ------------- | 
| |                            
| | Sales:                      |  |               |  |               |  |               | 
| | Services
      supplied     |  | 46.5          |  | 35.0          |  | 31.3          | 
| | Finance
      lease rentals |  | 11.3          |  | 6.7           |  | 9.0           | 
| | Purchases:                  |  |               |  |               |  |               | 
| | Services
      received     |  | 26.3          |  | 16.7          |  | 15.3          | 
| | Tangible
      fixed assets |  |              |  | 5.6           |  | 21.9          | 
| |                            

| | Amounts
      owed by and owed to an associate and joint ventures are shown in notes 14
      and 16 respectively.
| | ------------------------------------------------------------------------------------------------------------------

|28 | Commitments
      and contingencies   |  |  |                 |  |                                      |  |                 |  |                 | 
|-- | ------------------------------------- |  |  | --------------- |  | ------------------------------------ |  | --------------- |  | --------------- | 
|a  | Future
      capital expenditure      |  |  | Group           |  | Associate
        and joint ventures
|   |                                       |  |  |                 | 
|   |                                       |  |  | 2001
        £m |  | 2000
        £m                      |  | 2001
        £m |  | 2000
        £m | 
|   |                                      
|   | Contracted
      for but not provided |  |  | 396.8           |  | 237.8                                |  | 90.1            |  | 132.4           | 
|   |                                       | 

|b | Proposed
      acquisitionNational Grid
      has entered into an agreement to purchase the entire share capital of Niagara
      Mohawk. This agreement has received approval from the shareholders of both
      National Grid and Niagara Mohawk, but is subject to the grant of various
      regulatory approvals which are expected to be received towards the end of
      the 2001 calendar year. The cost of the acquisition is estimated at approximately
      US dollar 3bn.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| 
|c | Lease commitmentsAt 31 March 2001, the Groups operating lease commitments for the
      financial year ending 31 March 2002 amounted to £11.9m (2000: £11.0m)
      and are analysed by lease expiry date as follows:                                                                                                                                                                                                                                                                  

| |                                  |  | Land
        and buildings |  | Other         |  | Total         | 
| | -------------------------------- |  | -------------------------- |  | ------------- |  | ------------- | 
| |                                  |  |                            |  |               |  |               | 
| |                                  |  | 2001
      £m              |  | 2000
      £m |  | 2001
      £m | 
| |                                 
| | Within one year                  |  | 0.1                        |  | 0.2           |  | 1.1           | 
| | Between
      two and five years |  | 1.3                        |  | 1.4           |  | 4.5           | 
| | After five years                 |  | 2.6                        |  | 2.5           |  | 2.3           | 
| |                                 
| |                                  |  | 4.0                        |  | 4.1           |  | 7.9           | 
| |                                  | 

| | Total commitments under
      non-cancellable operating leases were as follows:
| | -------------------------------------------------------------------------------

| |                                                              | 2001
        £m |  | 2000
        £m | 
| | ------------------------------------------------------------ | --------------- |  | --------------- | 
| |                                                             
| |                                                              |                 |  |                 | 
| | In one year
      or less                                    | 11.9            |  | 11.0            | 
| | In
      more than one year, but not more than two years     | 10.7            |  | 7.4             | 
| | In more than
      two years, but not more than three years  | 8.4             |  | 5.8             | 
| | In more than
      three years, but not more than four years | 6.4             |  | 4.1             | 
| | In more than
      four years, but not more than five years  | 5.5             |  | 3.5             | 
| | In more than
      five years                                | 34.6            |  | 31.3            | 
| |                                                             
| |                                                              | 77.5            |  | 63.1            | 
| |                                                              |                



---



| | 83
| | --



|28
        d | Commitments and
        contingenciescontinued
      Guarantees and
        performance bonds A Group undertaking has issued performance bonds in the ordinary course
        of business amounting to £88.1m (2000: £108.9m), of which
        £58.3m (2000: £83.8m) is in respect of a joint venture, and
        has issued guarantees in respect of an associate up to £14.1m (2000:
        £17.1m).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|e            | Sale of Millstone
        3 
        In November 1999, New England Power Company (NEP), a National Grid subsidiary,
        entered into an agreement with Northeast Utilities (NU) to settle claims
        made by NEP relating to the operation of the Millstone 3 nuclear unit.
        NU agreed to include NEPs share of Millstone 3 in an auction of
        NUs share in that unit, at a guaranteed price. On 31 March 2001,
        the Millstone 3 sale was completed and proceeds of US dollar 27.9m (£19.6m)
        were received by National Grid.
      Subsequent to the
        November 1999 agreement and prior to completion of the sale, NU agreed
        to sell 92.7% (including National Grids 16.2% share) of Millstone
        3 to a third party for approximately US dollar 855m (£602m). Thereafter,
        the Rhode Island Attorney General and the Rhode Island Division of Public
        Utilities and Carriers filed a protest at the Federal Energy Regulatory
        Commission (FERC) contending that National Grids share of the proceeds
        as agreed to in the settlement was insufficient. Whilst the FERC found
        the protest to be outside the scope of the sale approval process, National
        Grid cannot predict: a) whether the Rhode Island authorities will reassert
        their contention; or b) the financial consequences if they do.
|             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|29           | Group undertakings,
        joint ventures and associate
      Principal Group
        undertakings 
        The principal Group undertakings included in the Group accounts at 31
        March 2001 are listed below. These undertakings are wholly-owned and,
        unless otherwise indicated, are incorporated in Great Britain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| |                                                                  |  | Principal
      activity                              
| | ---------------------------------------------------------------- |  | ------------------------------------------------------
| |                                                                  |  |                                                       
| | National
      Grid Holdings Limited(a)                          |  | Holding
      company                                 
| | The
      National Grid Company plc(b)                           |  | Transmission
      of electricity in England and Wales
| | National
      Grid USA (Incorporated in USA)(b)                 |  | Holding
      company                                 
| | NGG
      Telecoms Limited(b)                                    |  | Holding
      company                                 
| | NG
      Investments Limited (Incorporated in Jersey)(b)         |  | Investment
      company                              
| | Massachusetts
      Electric Company (Incorporated in USA)(b)    |  | Distribution
      of electricity                     
| | The
      Narragansett Electric Company (Incorporated in USA)(b) |  | Distribution
      and transmission of electricity    
| | Granite
      State Electric Company (Incorporated in USA)(b)    |  | Distribution
      of electricity                     
| | New
      England Power Company (Incorporated in USA)(b)         |  | Transmission
      and generation of electricity      
| |                                                                 

| | (a)
      Issued ordinary share capital held by National Grid Group plc.
| | ------------------------------------------------------------------------
| | (b)
      Issued ordinary share capital held by Group undertakings.     

| | Principal
      joint ventures and associate(at 31 March 2001)
| | --------------------------------------------------------------
| |                                                               
| |                                                               
| | Compañia Inversora
      En Transmicion                       
| | Electrica
      CITELEC S.A. (c)                              
| | Copperbelt Energy Corporation
      Plc (c)                   
| | JVCO Participações
      Ltda* (c)                            
| | Manquehue net S.A.
      (c)                                  
| | Silica Networks S.A.
      (c)                                
| | Energis Polska Sp.
      z.o.o. (c)                           
| | Energis plc (d)                                               
| |                                                               

| | *JVCO Participações
      Ltda is Inteligs ultimate parent undertaking.
| | ------------------------------------------------------------------------

| | The investments in
        the joint ventures (c) and associate (d) are held by Group undertakings.
      The Group holding
        of shares in Energis recorded in the table above represents the Energis
        shares held within fixed asset investments (note 13), but not those included
        within assets held for exchange (note 15). At 31 March 2001, 29.9m (2000:
        29.9m (restated to reflect a 5:1 share split)) Energis shares (book value:
        £21.9m; market value £83.5m), (2000: book value: £10.9m;
        market value: £174.9m) included within fixed asset investments,
        had been loaned to a financial institution under the terms of a stock
        lending agreement. This agreement provides for a fee to be paid to the
        Group and the loan of shares is secured by an equivalent value of readily
        marketable securities.
      A full list of all
        Group and associated undertakings will be attached to the Companys
        Annual Return to be filed with the Registrar of Companies.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|84 | Notes to the accounts
      continued
|-- | -------------------------------------



|30 | Differences between
        UK and US accounting principles
      The Group prepares
        its consolidated accounts in accordance with United Kingdom Generally
        Accepted Accounting Principles (UK GAAP), which differ in certain respects
        from United States Generally Accepted Accounting Principles (US GAAP).
        The significant differences between UK GAAP and US GAAP are set out below.
      Deferred taxation
        Under UK GAAP, provision is made for deferred taxation to the extent that
        a liability or an asset will crystallise in the foreseeable future. US
        GAAP requires full provisioning for deferred taxation liabilities and
        permits deferred taxation assets to be recognised if their realisation
        is considered more likely than not.
      The deferred taxation
        adjustment arising on the UK GAAP results for 1999 includes a credit of
        £23.5m relating to a reduction from 31% to 30% in the statutory
        rate of UK corporation tax.
      The deferred tax liability
        under US GAAP is analysed as follows:
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                | 2001    |   | 2000    |  
| | -------------------------------------------------------------- | ------- | - | ------- | -
| |                                                                | £m      |   | £m      |  
| |                                                               
| | Deferred
      taxation liabilities:                           |         |   |         |  
| | Excess
      of book value over taxation value of fixed assets | 1,124.4 |   | 998.9   |  
| | Other
      temporary differences                              | 222.7   |   | 124.9   |  
| |                                                               
| |                                                                | 1,347.1 |   | 1,123.8 |  
| | Deferred
      taxation assets:                                |         |   |         |  
| | Other
      temporary differences                              | (126.5  | ) | (135.0  | )
| |                                                               
| |                                                                | 1,220.6 |   | 988.8   |  
| |                                                                |        
| | Analysed
      as follows:                                     |         |   |         |  
| | Current                                                        | 11.3    |   | (3.2    | )
| | Non-current                                                    | 1,209.3 |   | 992.0   |  
| |                                                               
| |                                                                | 1,220.6 |   | 988.8   |  
| |                                                                |        

| | PensionsUnder UK GAAP, pension
        costs are accounted for and disclosures are provided in accordance with
        UK Statement of Standard Accounting Practice 24.
      Under US GAAP, pension
        costs are determined in accordance with the requirements of US Statements
        of Financial Accounting Standards (SFAS) 87 and 88 and pension disclosures
        are presented in accordance with SFAS 132. Differences between UK GAAP
        and US GAAP figures arise from the requirement to use different actuarial
        methods and assumptions and a different method of amortising certain surpluses
        and deficits. Under US GAAP, the Company has estimated the effect on net
        income and shareholders equity assuming the adoption and application
        of SFAS 87 Employers Accounting for Pensions as of 1
        April 1996, as the adoption of SFAS 87 on the actual effective date of
        1 April 1989 was not feasible. The unrecognised transition asset at 1
        April 1989, using the financial assumptions at 1 April 1996, amounted
        to £171.5m and is being amortised over 15 years commencing 1 April
        1989.
      Under UK GAAP, as
        explained in note 6, net interest includes a credit of £15.7m (2000:
        £3.5m; 1999: £3.7m) in respect of the notional interest element
        of the variation from the regular pension cost. Under US GAAP, this credit
        is not recognised.
      The net periodic
        (credit)/cost for pensions and other post-retirement benefits are as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                      |  | Pensions      |   | Other
      post-
      retirement
      benefits |  
| | ---------------------------------------------------- |  | ------------- | - | ------------------------------------------------- | -
| |                                                      |  |               |   |                                                  
| |                                                      |  | 2001
      £m |   | 2000
      £m                                     |  
| |                                                     
| | Service
      cost                                   |  | 25.1          |   | 19.7                                              |  
| | Interest cost                                        |  | 110.7         |   | 63.7                                              |  
| | Expected return on
      assets                      |  | (141.7        | ) | (72.9                                             | )
| | Amortisation of prior
      service cost             |  | 2.6           |   | 2.6                                               |  
| | Amortisation of previously
      unrecognised losses |  |              |   | 0.9                                               |  
| | Amortisation of transitional
      asset             |  | (11.4         | ) | (11.4                                             | )
| |                                                     
| |                                                      |  | (14.7         | ) | 2.6                                               |  
| | Release of pension
      provision                   |  | (1.5          | ) | (1.5                                              | )
| |                                                     
| |                                                      |  | (16.2         | ) | 1.1                                               |  
| |                                                      | 

| | The cost of providing
        other post-retirement benefits for the year ended 31 March 2000, which
        related to the period 22 March 2000 to 31 March 2000, amounted to £0.2m
        (1999: £nil).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



| | 85
| | --



|30 | Differences between
        UK and US accounting principles continued
      PensionscontinuedThe additional cost
        incurred in respect of severance cases computed in accordance with SFAS
        88 Employers Accounting for Settlements and Curtailments of
        Defined Benefit Pension Plans and for Termination Benefits is as
        follows:
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                    | 2001
      £m |  | 2000
      £m |  | 1999
      £m | 
| | ---------------------------------- | ------------- |  | ------------- |  | ------------- | 
| |                                   
| | Cost of
      termination benefits | 4.1           |  | 10.3          |  | 10.3          | 
| |                                    |              

| | The principal financial
      assumptions used for the SFAS 87 calculations in respect of the UK and USA
      defined benefit schemes are shown below. Information in respect of the USA
      schemes is only provided in respect of the two years ended 31 March 2001,
      as the USA schemes relate to NEES and EUA that were acquired during this
      period.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                          |  | USA          |  | UK          
| | ------------------------ |  | ------------ |  | ------------
| |                          |  |              |  |             
| |                          |  | 2001
      % |  | 2000
      %
| |                         
| | Discount
      rate      |  | 7.3          |  | 7.8         
| | Return on assets         |  | 8.8          |  | 8.5         
| | General salary increases |  | 4.0          |  | 5.1         
| | Pension increases        |  | nil          |  | nil         
| |                         

| | The assumptions used
        for other post-retirement costs relate solely to USA schemes as a result
        of the acquisitions of NEES and EUA in the two years ended 31 March 2001.
        These assumptions were that the discount rate used would be 7.75% and
        that medical costs would increase by 8.25%, decreasing to 5.25% in 2002
        and remain at 5.25% thereafter.
      A reconciliation
        of the funded status of the Group pension and other post-retirement schemes
        to the prepaid/(accrued) cost that would appear in the Group's balance
        sheet if prepared under US GAAP is as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                    |  | Pensions      |   | Other
      post-
      retirement benefits |  
| | ------------------------------------------------------------------ |  | ------------- | - | ------------------------------------------- | -
| |                                                                    |  |               |   |                                            
| |                                                                    |  | 2001
      £m |   | 2000
      £m                               |  
| |                                                                   
| | Projected
      benefit obligation                                 |  | (1,906.5      | ) | (1,655.5                                    | )
| | Fair
      value of plan assets                                    |  | 2,095.8       |   | 2,110.7                                     |  
| |                                                                   
| | Excess
      of plan assets over projected benefit obligation      |  | 189.3         |   | 455.2                                       |  
| | Unrecognised
      transition asset                                |  | (34.5         | ) | (45.9                                       | )
| | Unrecognised
      net loss/(gain)                                 |  | 157.5         |   | (152.4                                      | )
| | Unrecognised
      prior service cost                              |  | 44.9          |   | 33.6                                        |  
| |                                                                   
| | Prepaid/(accrued)
      cost under US GAAP                         |  | 357.2         |   | 290.5                                       |  
| |                                                                    | 
| | Changes
      in the projected benefit obligation are shown below: |  |               |   |                                             |  
| | Projected
      benefit obligation at start of year                |  | 1,655.5       |   | 1,190.4                                     |  
| | Adjustments
      to provisional fair values                       |  | 5.3           |   |                                            |  
| | Service
      cost                                                 |  | 25.1          |   | 19.7                                        |  
| | Interest
      cost                                                |  | 110.7         |   | 63.7                                        |  
| | Plan
      participants contributions                             |  | 4.5           |   | 4.2                                         |  
| | Plan
      amendmentprior service cost                            |  | 13.3          |   |                                            |  
| | Terminations                                                       |  | 4.1           |   | 12.6                                        |  
| | Curtailments                                                       |  |              |   | (2.3                                        | )
| | Actuarial
      loss/(gain)                                        |  | 12.2          |   | (67.0                                       | )
| | Benefits
      paid                                                |  | (121.8        | ) | (60.4                                       | )
| | Acquisition
      of Group undertakings                            |  | 119.7         |   | 504.1                                       |  
| | Exchange
      adjustments                                         |  | 77.9          |   | (9.5                                        | )
| |                                                                   
| | Projected
      benefit obligation at end of year                  |  | 1,906.5       |   | 1,655.5                                     |  
| |                                                                    | 
| | Changes
      in plan assets are shown below:                      |  |               |   |                                             |  
| | Fair
      value of plan assets at start of year                   |  | 2,110.7       |   | 1,356.8                                     |  
| | Actual
      return on assets                                      |  | (150.0        | ) | 179.4                                       |  
| | Employer
      contributions                                       |  | 14.7          |   | 11.2                                        |  
| | Plan
      participants contributions                             |  | 4.5           |   | 4.2                                         |  
| | Benefits
      paid                                                |  | (121.8        | ) | (60.4                                       | )
| | Acquisition
      of Group undertakings                            |  | 147.8         |   | 631.3                                       |  
| | Exchange
      adjustments                                         |  | 89.9          |   | (11.8                                       | )
| |                                                                   
| | Fair
      value of plan assets at end of year                     |  | 2,095.8       |   | 2,110.7                                     |  
| |                                                                    | 

| | It is estimated that
        a 1% change in the assumed health care cost trends would increase or decrease
        the accumulated post-retirement benefit obligation as at 31 March 2001
        by £53.9m (2000: £27.3m) and £48.2m (2000: £24.4m)
        respectively. There would be an immaterial effect on the net periodic
        cost for the year ended 31 March 2001.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|86 | Notes to the accounts
      continued
|-- | -------------------------------------



|30 | Differences between
        UK and US accounting principlescontinued
      Shares held by
        employee share trustsUnder UK GAAP, shares
        in the Company held by employee share trusts are recorded as fixed asset
        investments at cost less amounts written off. Under US GAAP, those shares
        not fully vested are regarded as treasury stock and recorded as a deduction
        from shareholders equity.
      Share option schemesAs permitted under
        UK GAAP, no cost is accrued for share options awarded under the Sharesave
        scheme where the exercise price of the options is below the market value
        at the date of grant. In respect of the grant of options under the Executive
        scheme, no cost is accrued under UK GAAP as the exercise price is equivalent
        to the market value at the date of grant. As permitted by SFAS 123, Accounting
        for Stock-Based Compensation, the Group has accounted for compensatory
        share option schemes under Accounting Principles Board statement (APB)
        25 Accounting for Stock Issued to Employees. Under the requirements
        of APB 25, the compensation costs relating to the Sharesave and Executive
        schemes are amortised over the period from the date of grant of options
        to the date those options are first exercisable. SFAS 123 prescribes a
        fair value method of recognising share option compensation costs, the
        application of which would have no material effect on the Groups
        reported net income or earnings per ordinary share.
      The average fair value
        of the options granted during each of the three financial years ended
        31 March 2001 are estimated as follows:
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                      | 2001  |   | 2000  |   | 1999  |  
| | ------------------------------------------------------------------------------------ | ----- | - | ----- | - | ----- | -
| |                                                                                     
| | Where the exercise
      price is less than the market price at the date of grant    | 155.0 | p | 134.2 | p | 117.8 | p
| | Where the exercise
      price is equal to the market price at the date of grant     | 68.0  | p | 129.0 | p | 89.0  | p
| | Where the exercise
      price is greater than the market price at the date of grant | 65.0  | p |      |   |      |  
| |                                                                                     

| | The fair value of the
      options granted are estimated using the Black-Scholes European option pricing
      model using the following principal assumptions:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                 | 2001 |   | 2000 |   | 1999 |  
| | ------------------------------- | ---- | - | ---- | - | ---- | -
| |                                
| | Dividend
      yield            | 2.7  | % | 4.1  | % | 4.1  | %
| | Volatility                      | 30.0 | % | 33.0 | % | 33.0 | %
| | Risk-free investment
      rate | 5.9  | % | 5.8  | % | 5.3  | %
| | Average life (years)            | 4.0  |   | 4.2  |   | 3.8  |  
| |                                

| | Ordinary dividendsUnder UK
        GAAP, final ordinary dividends are provided for in the year in respect
        of which they are proposed by the Board of Directors for approval by the
        shareholders.
      Under US GAAP, dividends
        are not provided until declared.
      Tangible fixed
        assetsDuring the financial
        year ended 31 March 1990, an impairment provision was recorded in respect
        of certain tangible fixed assets. Part of this impairment provision was
        subsequently released and shareholders equity credited. Under US
        GAAP this partial release would not be permitted.
      Financial instrumentsUnder UK GAAP, interest
        rate and currency swaps used to hedge a portfolio of borrowings are hedge
        accounted for and are not recorded at market value. Any related foreign
        currency borrowings are translated at the hedged rate. Under US GAAP,
        interest rate and currency swaps which are not related to specific borrowings
        or to a specific group of similar borrowings are generally not eligible
        for hedge accounting. Furthermore, under UK GAAP, it is permissible to
        hedge account for the net assets of overseas operations with hedging instruments
        denominated in currencies other than the functional currency of the overseas
        operation. Under US GAAP, this treatment is not permitted. In addition,
        interest rate swaps that convert fixed rate liabilities into variable
        rate liabilities generally do not qualify for hedge accounting under US
        GAAP. As a result, interest rate and currency swaps that do not meet the
        US GAAP criteria for hedging are required to be recorded at market value
        with the resultant unrealised gains and losses recognised in income together
        with any exchange differences arising on the translation of any related
        foreign currency borrowings at the exchange rate ruling on the balance
        sheet date.
      Equity Plus Income
        Convertible Securities (EPICs)Under UK GAAP, EPICs
        are carried in the balance sheet at the gross proceeds of the issue and
        the related issue costs were written off in the year of issue. Under US
        GAAP, the issue costs are deferred and written off over the period to
        the expected date of redemption of the EPICs on 3 May 2003.
      US GAAP requires the
        carrying value of the EPICs to be adjusted to the settlement amount of
        the debt, which is linked to the Energis plc share price as described
        in note 18.
      Regulatory assetsSFAS 71 Accounting
        for Certain Types of Regulation establishes US GAAP for utilities
        whose regulators have the power to approve and/or regulate rates that
        may be charged to customers. Provided that through the regulatory process,
        the utility is substantially assured of recovering its allowable costs
        by the collection of revenue from its customers, such costs not yet recovered
        are deferred as regulatory assets. Due to the different regulatory environment,
        no equivalent accounting standard applies in the United Kingdom.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



| | 87
| | --



|30 | Differences between
        UK and US accounting principlescontinued
      Regulatory assetscontinued Under UK GAAP, regulatory
        assets established in accordance with SFAS 71 are recognised where they
        comprise rights or other access to future economic benefits which arise
        as a result of past transactions or events which have created an obligation
        to transfer economic benefit to a third party. Measurement of the past
        transaction or event and hence of the regulatory asset is determined in
        accordance with UK GAAP. Where the application of UK GAAP results in the
        non or partial recognition of an obligation compared with US GAAP, any
        related regulatory asset is either not or partially recognised. In certain
        circumstances, regulatory assets may be reported net of related regulatory
        liabilities.
      Recognition of
        UK transmission incomeThe main source of
        UK revenue is derived from the use of the UK transmission system, and
        under US GAAP is recognised in the period in which the service is provided
        up to the maximum revenue allowed under the transmission licence. Under
        UK GAAP, any income received or receivable in excess of the maximum revenue
        allowed for the period is recognised as income.
      Severance and
        integration costsUnder UK GAAP, severance
        costs are provided for in the accounts if it is determined that a constructive
        or legal obligation has arisen from a restructuring programme where it
        is probable that it will result in the outflow of economic benefits and
        the costs involved can be estimated with reasonable accuracy. Under US
        GAAP, severance costs are recognised when the employees accept the severance
        offer. In addition, where the number of employees leaving results in a
        significant reduction in the accrual of pension benefits for employees
        future service (a curtailment under US GAAP), the effects are reflected
        as part of the cost of such termination benefits. Accordingly, timing
        differences between UK GAAP and US GAAP arise on the recognition of such
        costs.
      Under US GAAP, certain
        reorganisation costs relating to an acquired entity are included in liabilities
        in determining the fair value of net assets acquired. Under UK GAAP such
        costs are not recognised as liabilities of the acquired entity at the
        date of acquisition and are treated as post acquisition costs.
      Goodwill 
        effect of US GAAP adjustmentsUnder US GAAP, the
        fair value of net assets acquired is calculated in accordance with US
        GAAP principles which differ in certain respects from UK GAAP principles.
        As a result, the US GAAP net assets of the Group undertaking acquired
        are less than the net assets as determined under UK GAAP principles. These
        adjustments reflect the higher level of goodwill as calculated under US
        GAAP and the related increase in goodwill amortisation.
      Share of associates
        adjustments to conform with US GAAPThe Groups share
        of the associates results and net assets, which also impact on the
        exceptional profit relating to Energis and assets held for exchange, have
        been adjusted to conform with US GAAP.
      Reconciliation
        of net income to US GAAPThe following is a
        summary of the material adjustments to net income which would have been
        required if US GAAP had been applied instead of UK GAAP.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                                               | 2001
      £m |   | 2000
      £m |   | 1999
      £m |  
| | ------------------------------------------------------------------------------------------------------------- | ------------- | - | ------------- | - | ------------- | -
| |                                                                                                              
| | Profit for the year,
      excluding exceptional items                                                        | 315.9         |   | 350.6         |   | 338.6         |  
| | Exceptional items after
      taxation                                                                        | 453.1         |   | 797.8         |   | 676.4         |  
| |                                                                                                              
| | Net income under UK
      GAAP                                                                                | 769.0         |   | 1,148.4       |   | 1,015.0       |  
| |                                                                                                              
| | Adjustments to conform
      with US GAAP                                                                     |               |   |               |   |               |  
| | Deferred
      taxation                                                                                       | (113.9        | ) | (1.4          | ) | (40.5         | )
| | Pensions                                                                                                      | 18.9          |   | 5.7           |   | 14.9          |  
| | Share
      option schemes                                                                                    | (5.3          | ) | (5.4          | ) | (4.5          | )
| | Tangible
      fixed assets  depreciation on reversal of partial release of impairment
            provision | 3.4           |   | 3.4           |   | 3.4           |  
| | Financial
      instruments                                                                                   | (55.4         | ) | 27.9          |   | 25.5          |  
| | Issue
      costs associated with EPICs                                                                       | (1.8          | ) | (1.8          | ) | 7.3           |  
| | Carrying
      value of EPICs liability                                                                       | 152.5         |   | (115.0        | ) |              |  
| | Severance
      and integration costs                                                                         | 23.6          |   | (11.3         | ) | (12.2         | )
| | Recognition
      of UK transmission income                                                                   | (17.0         | ) |              |   |              |  
| | Goodwill
       effect of US GAAP adjustments                                                                | (11.7         | ) | (0.2          | ) |              |  
| | Share
      of associates adjustments to conform with US GAAP                                                | 48.0          |   | (40.5         | ) | (6.1          | )
| |                                                                                                              
| | Total US GAAP adjustments                                                                                     | 41.3          |   | (138.6        | ) | (12.2         | )
| |                                                                                                              
| | Net income under US
      GAAP                                                                                | 810.3         |   | 1,009.8       |   | 1,002.8       |  
| |                                                                                                               |              

| | Net income under US
      GAAP includes £527.9m (2000: £795.7m; 1999: £718.6m) relating
      to exceptional net gains which are treated as exceptional items under UK
      GAAP.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|88 | Notes to the accounts
      continued
|-- | -------------------------------------



|30 | Differences between
      UK and US accounting principlescontinuedEarnings per share (EPS) | 2001
      £m        |   | 2000
      £m        |   | 1999
      £m        |  
|-- | ------------------------------------------------------------------------------------------ | -------------------- | - | -------------------- | - | -------------------- | -
|   |                                                                                           
|   | Net income under US
      GAAP                                                             | 810.3                |   | 1,009.8              |   | 1,002.8              |  
|   | Dilutive impact of
      4.25% exchangeable bonds 2008                                     | 21.2                 |   | 20.9                 |   | 20.2                 |  
|   |                                                                                           
|   | Net income after dilution                                                                  | 831.5                |   | 1,030.7              |   | 1,023.0              |  
|   |                                                                                            |                     
|  
|   |                                                                                            | Number
      million |   | Number
      million |   | Number
      million |  
|   |                                                                                           
|   | Weighted average shares
      in issue  for basic EPS (note 10)                           | 1,475.8              |   | 1,472.9              |   | 1,466.6              |  
|   | Weighted average shares
      in issue  for diluted EPS (note 10)                         | 1,596.0              |   | 1,593.3              |   | 1,588.2              |  
|  
|   | Basic earnings per
      share                                                             | 54.9                 | p | 68.6                 | p | 68.4                 | p
|   | Diluted earnings per
      share                                                           | 52.1                 | p | 64.7                 | p | 64.4                 | p
|   |                                                                                           

| | Reconciliation of
      equity shareholders funds to US GAAPThe following is a summary of the material adjustments to equity shareholders
      funds which would have been required ifUS GAAP had been applied
      instead of UK GAAP.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                   | 2001
      £m |   | 2000
      £m |  
| | --------------------------------------------------------------------------------- | ------------- | - | ------------- | -
| |                                                                                  
| | Equity shareholders
      funds under UK GAAP                                    | 3,475.8       |   | 2,909.0       |  
| |                                                                                  
| | Adjustments to conform
      with US GAAP                                         |               |   |               |  
| | Deferred
      taxation                                                           | (1,072.4      | ) | (916.7        | )
| | Pensions                                                                          | 178.7         |   | 162.8         |  
| | Shares
      held by employee share trusts                                        | (10.2         | ) | (16.3         | )
| | Ordinary
      dividends                                                          | 133.5         |   | 123.0         |  
| | Tangible
      fixed assets  reversal of partial release of impairment provision | (41.6         | ) | (45.0         | )
| | Financial
      instruments                                                       | (45.5         | ) | 1.0           |  
| | Issue
      costs associated with EPICs                                           | 3.7           |   | 5.5           |  
| | Carrying
      value of EPICs liability                                           | 37.5          |   | (115.0        | )
| | Severance
      liabilities                                                       |              |   | 5.5           |  
| | Recognition
      of UK transmission income                                       | (17.0         | ) |              |  
| | Regulatory
      assets                                                           | 37.5          |   |              |  
| | Goodwill
       effect of US GAAP adjustments                                    | 234.1         |   | 210.6         |  
| | Share
      of associates adjustments to conform with US GAAP                    | 6.8           |   | 21.3          |  
| | Other                                                                             | (0.9          | ) |              |  
| |                                                                                  
| | Total US GAAP adjustments                                                         | (555.8        | ) | (563.3        | )
| |                                                                                  
| | Equity shareholders
      funds under US GAAP                                    | 2,920.0       |   | 2,345.7       |  
| |                                                                                   |              

| | Group cash flow
        statement
        The Group accounts include a cash flow statement prepared in accordance
        with UK Financial Reporting Standard 1(Revised
        1996) Cash Flow Statements (FRS1 (revised)), the
        objectives and principles of which are substantially the same as US Statement
        of Financial Accounting Standards 95 Statement of Cash Flows
        (SFAS 95) under US GAAP. The principal differences between
        FRS1 (revised) and SFAS 95 relate to the classification of items within
        the cash flow statement and the definition of cash and cash equivalents.
        Under UK GAAP cash flows are classified under eight standard headings
        whereas US GAAP only requires presentation of cash flows from three activities,
        being operating activities, investing activities and financing activities.
      Under US GAAP, in
        contrast to UK GAAP, cash and cash equivalents do not include bank overdrafts
        but do include deposits and investments with original maturities of three
        months or less.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



| | 89
| | --



|30 | Differences between
        UK and US accounting principlescontinued
      Group cash flow
        statementcontinued
        Set out below is a summary of the Group cash flow statement under US GAAP:
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                         
|   |                                                                                                                                                                                                         
|   |                                                                                                                                                                                                         
|   | Net cash provided by
      operating activities                                                                                                                                                         
|   | Net cash used in investing
      activities                                                                                                                                                             
|   | Net cash (used in)/provided
      by financing activities                                                                                                                                               
|   |                                                                                                                                                                                                         
|   | Net (decrease)/increase
      in cash and cash equivalents                                                                                                                                              
|   | Cash and cash equivalents
      at beginning of year                                                                                                                                                    
|   | Exchange adjustments                                                                                                                                                                                    
|   |                                                                                                                                                                                                         
|   | Cash and cash equivalents
      at end of year                                                                                                                                                          
|   |                                                                                                                                                                                                         
|   | Cash and deposits per
      balance sheet                                                                                                                                                               
|   | Less: deposits with
      original maturities of more than three months                                                                                                                                 
|   |                                                                                                                                                                                                         
|   | Cash and cash equivalents                                                                                                                                                                               
|   |                                                                                                                                                                                                         

| | Reconciliation of
        US GAAP to UK GAAP cash flow headings(i) Net cash
        provided by operating activities principally relates to net cash inflow
        from operating activities, dividends from joint ventures, returns on investments
        and servicing of finance, excluding costs relating to the issue of debt,
        and taxation.
      (ii) Net cash used
        in investing activities principally relates to capital expenditure, acquisitions
        and disposals and the component of management of liquid resources which
        comprises deposits with an original maturity of more than three months.
      (iii) Net cash (used
        in)/provided by financing activities comprises equity dividends paid,
        financing, including costs relating to the issue of debt, and movements
        in bank overdrafts.
      Comprehensive income
        Comprehensive income under US GAAP is as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                       | 2001
      £m |   | 2000
      £m |   | 1999
      £m |  
| | ----------------------------------------------------- | ------------- | - | ------------- | - | ------------- | -
| |                                                      
| | Net income in accordance
      with US GAAP           | 810.3         |   | 1,009.8       |   | 1,002.8       |  
| | Other comprehensive
      income                      |               |   |               |   |               |  
| | Share
      of associates other comprehensive income | (47.5         | ) | 57.5          |   |              |  
| | Exchange
      adjustments                            | (3.1          | ) | (18.1         | ) | (0.8          | )
| | Tax
      on exchange adjustments                     | 31.9          |   |              |   |              |  
| | Additional
      minimum pension liability            | 2.1           |   |              |   |              |  
| | Other                                                 | 0.7           |   |              |   |              |  
| |                                                      
| | Comprehensive income
      under US GAAP              | 794.4         |   | 1,049.2       |   | 1,002.0       |  
| |                                                       |              

| | Cumulative foreign
        exchange losses recognised in other comprehensive income at 31 March 2001
        under US GAAP were £22.0m (2000: £18.9m; 1999: £0.8m).
      Other differences
        between UK and US GAAP
        Under US GAAP, turnover attributable to the country of domicile is required
        to be identified. With minor exceptions, the vast majority of turnover
        attributable to Europe identified in note 1(a) is in respect
        of sales made in the United Kingdom.
      UK GAAP requires
        the investors share of operating profit or loss, interest and taxation
        relating to associates and joint ventures to be accounted for and disclosed
        separately from those of Group undertakings. Under US GAAP, the investors
        share of the after tax profits and losses of joint ventures and associates
        is included within the income statement as a single line item. UK GAAP
        requires the investors share of gross assets and gross liabilities
        of joint ventures to be shown on the face of the balance sheet. Under
        US GAAP, the net investment in joint ventures is shown as a single line
        item.
      The Group reviews
        all long-lived assets for potential impairment whenever events or changes
        in circumstances indicate that the carrying amount of an asset may not
        be recoverable. Under UK GAAP, recognition and measurement of impairment
        is determined on the basis of discounted cash flows attributable to income
        generating units. Under US GAAP, impairments on long-lived assets are
        determined in accordance with SFAS 121 Accounting for the Impairment
        of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
        and are recognised on the basis of undiscounted future cash flows and
        measured on the basis of discounted future cash flows. This difference
        has no effect on the Group accounts for the three years ended 31 March
        2001.
      Under UK GAAP, assets
        in the balance sheet are presented in ascending order of liquidity and
        the balance sheet is analysed between net assets and shareholders
        funds. Under US GAAP, assets are presented in descending order of liquidity
        and the balance sheet is analysed between total assets and liabilities
        and shareholders funds.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|90 | Notes to the accounts
      continued
|-- | -------------------------------------



|30 | Differences between
        UK and US accounting principlescontinued
      Other differences
        between UK and US GAAPcontinued Under US GAAP, debtors
        falling due after more than one year of £1,016.5m (2000: £798.3m)
        and provisions for liabilities and charges of £495.8m (2000: £461.4m)
        would be classified as non-current assets and non-current liabilities
        respectively.
      Under UK GAAP, the
        assets held for exchange are included in current assets. Under US GAAP,
        the assets held for exchange are classified as part of the investment
        in an associate and are equity accounted.
      New US Accounting
        Standards and pronouncements not yet effectiveSFAS 133, Accounting
        for Derivative Instruments and Hedging Activities, as amended by
        SFAS 137 and 138, establishes accounting and reporting standards for derivative
        instruments and hedging activities. This standard, as amended, which is
        effective for National Grid from 1 April 2001, requires all derivatives
        to be recognised in the balance sheet as either assets or liabilities
        and measured at fair value.
      Certain derivatives
        which qualify for hedge accounting under UK GAAP do not meet the requirements
        of SFAS 133, and any change in the fair value of these instruments will
        be included in net income under US GAAP. The indicative effect of adopting
        SFAS 133, as amended, is expected to decrease equity shareholders
        funds by approximately £14m (net of tax) at 1 April 2001.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|Glossary
      of terms | 91
|----------------------- | --



|Term
      used in annual report and accounts                  | US equivalent
      or brief description                                                                                                                                                      
|-------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                              
|Accounting
      terms                                         |                                                                                                                                                                                               
|                                                              
|Accounts                                                       | Financial
      statements                                                                                                                                                                    
|                                                              
|Acquisition
      accounting                                   | Purchase
      accounting                                                                                                                                                                     
|                                                              
|Allotted                                                       | Issued                                                                                                                                                                                        
|                                                              
|Associate                                                      | Equity
      investment                                                                                                                                                                       
|                                                              
|Called
      up share capital                                  | Common
      stock issued and fully paid                                                                                                                                                      
|                                                              
|Capital
      allowances                                       | Tax term
      equivalent to US tax depreciation allowances                                                                                                                                   
|                                                              
|Creditors                                                      | Accounts
      payable (or payables)                                                                                                                                                          
|                                                              
|Debtors                                                        | Accounts
      receivable (or receivables)                                                                                                                                                    
|                                                              
|Equity
      shareholders funds                               | Shareholders
      equity                                                                                                                                                                    
|                                                              
|Finance
      lease                                            | Capital
      lease                                                                                                                                                                           
|                                                              
|Financial
      year                                           | Fiscal
      year                                                                                                                                                                             
|                                                              
|Fixed asset
      investments                                  | Non-current
      investments                                                                                                                                                                 
|                                                              
|Freehold                                                       | Ownership
      with absolute rights in perpetuity                                                                                                                                            
|                                                              
|Group accounts                                                 | Consolidated
      financial statements                                                                                                                                                       
|                                                              
|Interest
      receivable                                      | Interest
      income                                                                                                                                                                         
|                                                              
|Interest
      payable                                         | Interest
      expense                                                                                                                                                                        
|                                                              
|Joint venture                                                  | Equity
      investment                                                                                                                                                                       
|                                                              
|Net book
      value                                           | Book value                                                                                                                                                                                    
|                                                              
|Operating
      profit                                         | Net operating
      income                                                                                                                                                                    
|                                                              
|Own shares                                                     | Treasury
      stock                                                                                                                                                                          
|                                                              
|Pension
      scheme                                           | Pension
      plan                                                                                                                                                                            
|                                                              
|Profit                                                         | Income
      (or earnings)                                                                                                                                                                    
|                                                              
|Profit
      and loss account (reserve)                        | Retained
      earnings                                                                                                                                                                       
|                                                              
|Profit
      and loss account                                  | Income
      statement                                                                                                                                                                        
|                                                              
|Profit
      for the year                                      | Net income                                                                                                                                                                                    
|                                                              
|Provision
      for doubtful debts                             | Allowance
      for bad and doubtful accounts receivable                                                                                                                                      
|                                                              
|Provisions                                                     | Long-term
      liabilities other than debt and specific accounts payable                                                                                                                     
|                                                              
|Reconciliation
      of movement in equity shareholders funds | Statement
      of changes in stockholders equity                                                                                                                                            
|                                                              
|Reserves                                                       | Stockholders
      equity other than common stock                                                                                                                                            
|                                                              
|Share capital                                                  | Ordinary
      shares, capital stock or common stock issued and fully paid                                                                                                                    
|                                                              
|Share premium
      account                                    | Additional
      paid-in capital relating to proceeds of sale of stock in excess of par value
      or paid-in surplus (not distributable)                                                    
|                                                              
|Stocks                                                         | Inventories                                                                                                                                                                                   
|                                                              
|Tangible
      fixed assets                                    | Property,
      plant and equipment                                                                                                                                                           
|                                                              
|Turnover                                                       | Revenues
      (or sales)                                                                                                                                                                     
|                                                              
|Technical
      terms                                          | Brief
      description                                                                                                                                                                       
|                                                              
|kV (kilovolt)                                                  | one thousand
      volts                                                                                                                                                                      
|                                                              
|MW (megawatt)                                                  | one million
      watts                                                                                                                                                                       
|                                                              
|MWh (megawatt
      hour)                                      | one hours
      electricity production or consumption at a constant rate of 1 MW                                                                                                             
|                                                              
|GW (gigawatt)                                                  | one thousand
      megawatts                                                                                                                                                                  
|                                                              
|GWh (gigawatt
      hour)                                      | one hours
      electricity production or consumption at a constant rate of 1 GW                                                                                                             
|                                                              
|TW (terawatt)                                                  | one million
      megawatts                                                                                                                                                                   
|                                                              
|TWh (terawatt
      hour)                                      | one hours
      electricity production or consumption at a constant rate of 1 TW                                                                                                             
|                                                              
|peak demand                                                    | the highest
      simultaneous level of actual demand experienced in a single half hour during
      the year                                                                                 
|                                                              
|availability                                                   | the percentage
      of time for which an item of plant or equipment is actually available in
      a specified period (that is, not out of service because of maintenance or
      breakdown)
|                                                              
|winter
      peak system availability                          | the total
      availability of the transmission lines and transformers making up the transmission
      system at the time of peak demand in the winter months                               



---



|92 | Risk factors
|-- | ------------



| | RegulationMost of National Grids businesses are utilities
        which are subject to regulation by authorities of the UK, the US, the
        EU or other jurisdictions. Decisions by regulators concerning permitted
        revenues and rates of return, market trading arrangements, the facilitation
        of competition in markets in which National Grid operates and proposed
        acquisitions or mergers could have an adverse impact on National Grids
        business, including its results of operations, cash flow, financial condition
        and ability to develop its business in the future. For a description of
        current UK revenue restrictions, see New transmission revenue restriction
        on page 13. For a description of current US rate agreements, see Regulation
        of distribution rates on page 18 and Transmission rates on
        page 19. For a description of the regulatory clearances required for the
        proposed acquisition of Niagara Mohawk, see Next steps on
        page 23.
      Environmental
        and safety risksThe Group is subject to applicable laws and
        regulations, in all territories in which it operates, relating to pollution,
        the protection of the environment, the generation, storage, handling,
        transportation, treatment, disposal and remediation of hazardous substances
        and waste materials and the health and safety of employees and the general
        public.
      National
        Grid requires all operating companies to comply fully with all relevant
        laws and regulations. For a description of National Grids approach
        to the environment and to health and safety, see pages 27 to 29.
      Energis share
        priceNational Grid has an economic interest of 32.7
        per cent in the telecommunications operator Energis. Trading conditions
        in the telecommunications market are volatile and movements in Energis
        share price may adversely affect the share price of National Grid. National
        Grid expects to dispose of its remaining economic interest in Energis
        as suitable opportunities arise.
      International
        operations and fluctuations in currency exchange ratesNational Grid has significant international
        operations and conducts business in many currencies. These operations
        are subject to the risks normally associated with international operations,
        including the need to translate foreign currency denominated assets and
        profits into National Grids reporting currency.
      A
        proportion of National Grids borrowings is subject to interest rates
        that may fluctuate with certain prevailing interest rates. Increases in
        these prevailing interest rates would result in increased costs for the
        Group. For further information, see Interest rate risk on
        page 36.
      Other
        risks of international operations include trade barriers, tariffs, exchange
        controls, national and regional labour strikes, social and political risks,
        general economic risks, required compliance with a variety of foreign
        laws, including tax laws, and the need to enforce agreements and collect
        receivables through foreign legal systems. For further information, see
        Currency risk on page 38.
      Acquisition financingFinancing
        arrangements for the acquisition of Niagara Mohawk have not yet been put
        in place. It is National Grids opinion that, nearer the time of
        completion, it will have sufficient new finance available to complete
        the acquisition and to meet its working capital requirements. For further
        information, see Changes and developments on page 38.
      Electricity price
        volatilityThe
        costs incurred by National Grid in purchasing electricity are subject
        to movements in underlying commodity prices, particularly of oil and gas.
        Regulatory arrangements in the UK and the US provide some ability to pass
        through higher prices. For more information, see New electricity
        trading arrangements on page 13, The California energy crisis
        on page 17 and Niagara Mohawks regulatory framework
        on page 22.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|Investor information | 93
|-------------------- | --



| | Exchange ratesThe
        following table sets out, for the financial years and dates indicated,
        certain information concerning the noon buying rate in New York City for
        cable transfers in pounds sterling, as certified for customs purposes
        by the Federal Reserve Bank of New York (the Noon Buying Rate)
        expressed in US dollars per £1.00.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Financial
      year                                                                                                 |  | Period
      end |  | Average | * | High |  | Low  | 
| | -------------------------------------------------------------------------------------------------------------------- |  | ---------------- |  | ------- | - | ---- |  | ---- | 
| |                                                                                                                     
| | 1996/97                                                                                                              |  | 1.64             |  | 1.60    |   | 1.71 |  | 1.49 | 
| | 1997/98                                                                                                              |  | 1.68             |  | 1.65    |   | 1.70 |  | 1.58 | 
| | 1998/99                                                                                                              |  | 1.61             |  | 1.65    |   | 1.72 |  | 1.60 | 
| | 1999/2000                                                                                                            |  | 1.59             |  | 1.61    |   | 1.68 |  | 1.55 | 
| | 2000/01                                                                                                              |  | 1.42             |  | 1.47    |   | 1.60 |  | 1.40 | 
| |                                                                                                                     
| | *The average
      of the Noon Buying Rates on the last business day of each month during the
      relevant period.

| | Market pricesThe
        following tables set out for the periods indicated the highest and lowest
        closing middle-market quotations for ordinary shares, as derived from
        the Official List, and the ADS equivalent of such prices, or where available
        the actual ADS price. Prices for periods up to 9 February 1998 are adjusted
        to take account of the share consolidation and special dividend.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                      |  | Ordinary
      shares | ADS
      equivalent |              | Actual
      ADS      |              
| | -------------------- |  | --------------------- | -------------------- | ------------ | --------------------- | -------------
| | Financial
      year |  | High
      (p         | )                    | Low
      (p | )                     | High
      ($
| |                     
| | 1996/97              |  | 219.0                 |                      | 166.5        |                       | 17.53        
| | 1997/98              |  | 355.0                 |                      | 208.5        |                       |             
| | 1998/99              |  | 552.5                 |                      | 353.0        |                       |             
| | 1999/2000            |  | 597.0                 |                      | 388.5        |                       |             
| | 2000/01              |  | 646.0                 |                      | 479.5        |                       |             
| |                     
|
| |                      |  |                       |                      |              | Ordinary
      shares |              
| | Financial
      year |  |                       |                      |              |                       | High
      (p
| |                     
| | 1999/2000            |  |                       |                      |              |                       |              
| | Quarter
      1      |  |                       |                      |              |                       | 468.0        
| | Quarter
      2      |  |                       |                      |              |                       | 451.0        
| | Quarter
      3      |  |                       |                      |              |                       | 514.5        
| | Quarter
      4      |  |                       |                      |              |                       | 547.0        
| |                      |  |                       |                      |              |                       |              
| | 2000/01              |  |                       |                      |              |                       |              
| | Quarter
      1      |  |                       |                      |              |                       | 573.0        
| | Quarter
      2      |  |                       |                      |              |                       | 597.0        
| | Quarter
      3      |  |                       |                      |              |                       | 646.0        
| | Quarter
      4      |  |                       |                      |              |                       | 638.0        
| |                     



---



|94 | Investor information
      continued
|-- | ------------------------------------



| |               |  | Ordinary
      shares |   | Actual
      ADS |  
| | ------------- |  | --------------------- | - | ---------------- | -
| |               |  | High
      (p         | ) | Low
      (p     | )
| |              
| | December 2000 |  | 616.5                 |   | 592.5            |  
| | January 2001  |  | 625.0                 |   | 603.0            |  
| | February 2001 |  | 638.0                 |   | 580.5            |  
| | March 2001    |  | 590.0                 |   | 518.0            |  
| | April 2001    |  | 569.0                 |   | 520.0            |  
| | May 2001      |  | 581.0                 |   | 531.0            |  
| |              

| | Trading markets
        for ordinary sharesNational
        Grids ordinary shares have been listed on the London Stock Exchange
        since 11 December 1995. National Grids ADSs have had a full listing
        on the New York Stock Exchange since 7 October 1999.
      Defaults, dividend
        arrearages and delinquenciesThere
        has been no material default in the payment of principal, interest, a
        sinking or purchase fund instalment or any other material default with
        respect to any indebtedness for or in respect of monies borrowed or raised
        by whatever means of the Company or any of its significant subsidiaries.
        There have been no arrears in the payment of dividends on, and no material
        delinquency with respect to, any class of preferred stock of any significant
        subsidiary of the Company.
      Exchange controlsThere
        are currently no UK laws, decrees or regulations that restrict the export
        or import of capital, including, but not limited to, foreign exchange
        control restrictions, or that affect the remittance of dividends or other
        payments to non-UK resident holders of ordinary shares except as otherwise
        set out in Taxation below and except in respect of the governments
        of and/or certain citizens, residents or bodies of Iraq, the Federal Republic
        of Yugoslavia, Serbia, Burma and Afghanistan (in each case as more particularly
        described in applicable Bank of England Notices or European Union Council
        Regulations in force as at the date of this document).
      TaxationThe
        following summary describes the principal US Federal income and UK tax
        consequences to beneficial owners of ADSs or ordinary shares who are residents
        of the United States. The summary is not a complete analysis or listing
        of all of the possible tax consequences of ownership and does not discuss
        special tax rules that may be applicable to certain classes of investors,
        including banks, insurance companies, securities dealers, investors with
        a functional currency other than the US dollar and any corporation
        which, alone or together with one or more corporations which are treated
        as associated for the purposes of the US/UK taxation convention relating
        to income and capital gains (the Income Tax Convention), directly
        or indirectly controls 10 per cent or more of the voting share capital
        of National Grid.
      The
        statements regarding US Federal tax laws set out below are based (i) on
        the US Internal Revenue Code of 1986, as amended (the Code)
        and regulations issued thereunder, all of which are subject to change,
        possibly with retroactive effect and (ii) in part on representations of
        The Bank of New York as depositary (the Depositary) and assume
        that each obligation provided for in or otherwise contemplated by the
        deposit agreement entered into by and among National Grid, the Depositary
        and the registered holders of ADRs pursuant to which ADRs have been issued
        dated as of 21 November 1995 and amended and restated as of 6 October
        1999 (the Deposit Agreement) and any related agreement will
        be performed in accordance with its terms. The statements regarding UK
        tax set out below are based on UK domestic law and the Income Tax Convention
        as in force on the date of this document and on the practice of the UK
        Inland Revenue as at such date and are subject to any change therein (including
        any change having retroactive effect).
      Beneficial
        owners of the ADSs who are residents or citizens of the United States
        will be treated as the owners of the underlying ordinary shares for the
        purposes of the Income Tax Convention and the Code.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



| | 95
| | --



| | For
        the purposes of this discussion, the term US Holder refers
        to a beneficial owner of ADSs or ordinary shares who is a resident of
        the United States for US Federal income tax purposes and, as to the description
        under Taxation of dividends and Taxation of capital
        gains below, is also a resident of the United States for the purposes
        of the Income Tax Convention.
      Taxation of dividendsThe
        tax credit to which UK resident individual shareholders are generally
        entitled in respect of any dividend on their ordinary shares and which
        they can set against their total income tax liability is equal to one-ninth
        of the cash dividend (10 per cent of the aggregate of the tax credit and
        the cash dividend). Under the terms of the Income Tax Convention, US residents
        and corporations controlling less than 10 per cent of the voting share
        capital of National Grid are technically entitled to a refund (the Tax
        Treaty Payment) in respect of dividends paid by National Grid calculated
        by reference to the amount of the tax credit available to a UK individual,
        less a withholding. However, the combination of the reduction in the value
        of the tax credit on dividends paid to UK individuals to one-ninth of
        the cash dividend and the withholding means that no Tax Treaty Payments
        will be made to those US Holders holding less than 10 per cent of the
        voting share capital of National Grid.
      Taxation of capital
        gainsA US
        Holder who is not resident or ordinarily resident for UK tax purposes
        in the UK will not be liable for UK taxation on capital gains realised
        or accrued on the sale or other disposal of ADSs or ordinary shares unless
        the US Holder carries on a trade, profession or vocation in the UK through
        a branch or agency and such ADSs or ordinary shares are or have been used,
        held or acquired for the purposes of such trade, profession or vocation
        or such branch or agency. A US Holder will be liable for US Federal income
        tax on gains on the sale of ADSs or ordinary shares to the same extent
        as on any other gains from sales of stock. Gain, if any, will generally
        be US source.
      A
        US citizen who is resident or ordinarily resident in the UK, a US corporation
        which is resident in the UK by reason of its business being managed and
        controlled in the UK or a US citizen who, or US corporation which, is
        trading or carrying on a profession or vocation in the UK through a branch
        or agency and has used, held or acquired ADSs or ordinary shares for the
        purpose of such trade, profession or vocation or such branch or agency,
        may be liable for both UK and US tax on a capital gain recognised on the
        disposal of ADSs or ordinary shares. Such holder, however, will generally
        be entitled to foreign tax credit, subject to certain limitations, against
        any US Federal tax liability for the amount of any UK tax (namely capital
        gains tax in the case of an individual and corporation tax on chargeable
        gains in the case of a corporation) which is paid in respect of such gain
        in respect of gains realised during each period of non-residence.
      A
        US Holder who becomes resident in the UK after a period of temporary
        non-residence (of up to five years) following an earlier period of residence
        in the UK may also be liable to capital gains tax.
      UK stamp duty
        and stamp duty reserve tax (SDRT)Transfers
        of ordinary sharesSDRT
        is payable where an unconditional agreement, or a conditional agreement
        becoming unconditional, to transfer ordinary shares is not completed by
        a duly stamped transfer to the transferee, at the rate of 0.5 per cent
        of the amount or value of the consideration paid. Where an instrument
        of transfer is executed and duly stamped before the expiry of the period
        of six years beginning with such date, the SDRT liability will be cancelled,
        and any SDRT which has been paid will be refunded. SDRT is due whether
        or not the agreement or transfer of such chargeable securities is made
        or carried out in the UK and whether or not any party to that agreement
        or transfer is a UK resident.
      Purchases
        of ordinary shares completed by execution of a stock transfer form will
        generally give rise to a liability to UK stamp duty at the rate of 0.5
        per cent (rounded up to the nearest £5) of the actual consideration
        paid.
      Paperless
        transfers under the CREST paperless settlement system will generally be
        liable to SDRT at the rate of 0.5 per cent, and not stamp duty.
      The
        transfer of ordinary shares where there is no change of beneficial ownership
        will generally attract fixed rate stamp duty of £5 per transfer.
      SDRT
        is generally the liability of the purchaser and UK stamp duty is usually
        paid by the purchaser or transferee.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



|96 | Investor information
      continued
|-- | ------------------------------------



| | Transfer
        of ADSsNo
        UK stamp duty will be payable on the acquisition or transfer of ADSs or
        beneficial ownership of ADSs, provided that any instrument of transfer
        or written agreement to transfer is executed outside the UK and remains
        at all times outside the UK. An agreement for the transfer of ADSs in
        the form of ADRs will not give rise to a liability for SDRT. On a transfer
        of ordinary shares from the London, England office of The Bank of New
        York as agent of the Depositary (the Custodian) to a holder
        of ADSs upon cancellation of the ADSs, only a fixed stamp duty fee of
        £5 per instrument of transfer will be payable. Any transfer for
        value of the underlying ordinary shares represented by ADSs may give rise
        to a liability on the transferee to UK stamp duty or SDRT.
      A
        charge to stamp duty or SDRT may arise on the issue or transfer of ordinary
        shares to the Depositary or theCustodian.
        The rate of stamp duty or SDRT will generally be 1.5 per cent of either
        (i) in the case of an issue of ordinary shares, the issue price of the
        ordinary shares concerned, or (ii) in the case of a transfer of ordinary
        shares, the value of the consideration or, in some circumstances, the
        value of the ordinary shares concerned. The Depositary will generally
        be liable for the stamp duty or SDRT. In accordance with the terms of
        the Depositary Agreement, the Depositary will charge any tax payable by
        the Depositary or the Custodian (or their nominees) on the deposit of
        ordinary shares to the party to whom the ADSs are delivered against such
        deposits.
      If
        the stamp duty is not already a multiple of £5, the duty will be
        rounded up to the nearest multiple of £5.
      US information
        reporting and backup withholdingA US
        resident Holder who holds ADSs may in certain circumstances be subject
        to information reporting to the IRS and possible US backup withholding
        at a rate of 31 per cent with respect to dividends on ADSs and proceeds
        from the sale or other disposition of ADSs unless such holder furnishes
        a correct taxpayer identification number or is otherwise exempt.
      UK inheritance
        taxAn
        individual who is domiciled in the US for the purposes of the convention
        between the US and the UK for the avoidance of double taxation with respect
        to estate and gift taxes (the Estate Tax Convention) and who
        is not a national of the UK for the purposes of the Estate Tax Convention
        will generally not be subject to UK inheritance tax in respect of the
        ADSs on the individuals death or on a gift of the ADSs during the
        individuals lifetime, unless the ADSs are part of the business property
        of a permanent establishment of the individual in the UK or pertain to
        a fixed base in the UK of an individual who performs independent personal
        services. Special rules apply to ADSs held in trust. In the exceptional
        case where the shares are subject both to UK inheritance tax and to US
        Federal gift or estate tax, the Estate Tax Convention generally provides
        for the tax paid in the UK to be credited against tax paid in the US.
      Memorandum and
        Articles of AssociationSee
        Exhibits below.
      Material contractsSee
        Exhibits below.
      SubsidiariesNote
        29 to the accounts (Group undertakings, joint ventures and associate)
        sets out in respect of National Grids principal subsidiaries, its
        principal joint ventures and the associate company Energis details including
        jurisdiction of incorporation or formation and National Grids ownership
        interest.
      Documents on displayNational
        Grid is subject to the filing requirements of the US Securities Exchange
        Act of 1934. In accordance with these requirements, National Grid files
        reports and other information with the US Securities and Exchange Commission
        (SEC). These materials, including this document, may be inspected during
        normal business hours at National Grids registered office at 15
        Marylebone Road, London NW1 5JD or at the SECs Public Reference
        Room at 450 Fifth Street, NW, Washington, DC 20549. For further information
        about the Public Reference Room, please call the SEC on 1-800-SEC-0330.
        Some of National Grids filings are also available on the SECs
        website at www.sec.gov
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---



| | 97
| | --



ExhibitsThe following have been filed
  with the Securities and Exchange Commission or will be so filed with the 2000/01
  Report on Form 20-F:

|1    |       | Memorandum
      and Articles of Association of National Grid Group plc (Exhibit 1 to Form
      20-F dated October 1999)                                                                                                                                                                                                                                                                                                                                                                                         
|---- | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|2(a) |       | Amended and Restated
      Deposit Agreement dated 6 October 1999 among The National Grid Group plc,
      The Bank of New York (as Depositary) and holders from time to time of American
      Depositary Receipts (Exhibit 2(i) to Form 20-F dated October 1999)                                                                                                                                                                                                                                                
|     |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|2(b) |       | Multi-Currency Revolving
      Credit Facility and Term Loan Facility Agreement dated 5 March 1999 among
      The National Grid Group plc (as guarantor and borrower), The National Grid
      Company plc (as borrower), ABN Amro Bank NV, Barclays Capital, Chase Manhattan
      PLC, Deutsche Bank AG London, Dresdner Kleinwort Benson and HSBC Investment Bank (as lead
      arranger) and the other banks and financial institutions listed therein
      (Exhibit 2(ii) to Form 20-F dated October 1999)
|     |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3(a) |       | Agreement and Plan
      of Merger and Scheme of Arrangement dated 4 September 2000 by and among
      National Grid Group plc, Niagara Mohawk Holdings, Inc., New National Grid
      Limited and Grid Delaware, Inc. (Exhibits 2(a) and 2(b) to Form F-4 dated
      December 2000)                                                                                                                                                                                                                             
|     |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3(b) | (i)   | Service Agreement 
      Stephen Box (Exhibit 3(ii)(a) to Form 20-F dated October 1999)                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | (ii)  | Service Agreement 
      Roger Urwin (Exhibit 3(ii)(d) to Form 20-F dated October 1999)                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | (iii) | Employment Agreement
         Richard P Sergel (Exhibit 2 to Form 20-F dated June 2000)                                                                                                                                                                                                                                                                                                                                                                                                                          
|     | (iv)  | Service Agreement 
      Steven Holliday dated 6 March 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                      



---



|98 | Cross reference to
      Form 20-F
|-- | ----------------------------------



|Item   |                                                             |                                                                                 |                                                 | page
|------ | ----------------------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------------------- | ----
|       |                                                             |                                                                                 |                                                 |     
|PART 1 |                                                            
|       |                                                             |                                                                                 |                                                 |     
|1.     | Identity
      of Directors, senior management and advisers | n/a                                                                            
|       |                                                             |                                                                                 |                                                 |     
|2.     | Offer
      statistics and expected timetable               | n/a                                                                            
|       |                                                             |                                                                                 |                                                 |     
|3.     | Key
      information                                       |                                                                                
|       | A                                                           | Selected
      financial data                                                   |                                                
|       |                                                             | Five-year
      financial summary                                               | 30                                             
|       |                                                             | Exchange
      rates                                                            | 93                                             
|       | B                                                           | Capitalisation
      and indebtedness                                           | n/a                                            
|       | C                                                           | Reasons
      for the offer and use of proceeds                                 | n/a                                            
|       | D                                                           | Risk
      factors                                                              |                                                
|       |                                                             | Risk
      factors                                                              | 92                                             
|       |                                                             |                                                                                 |                                                 |     
|4.     | Information
      on the Company                            |                                                                                
|       | A                                                           | History
      and development of the Company                                    |                                                
|       |                                                             | About
      National Grid                                                       | 10                                             
|       |                                                             | Incorporation
      of the Company                                              | 48                                             
|       |                                                             | History
      and development of the business                                   | 48                                             
|       | B                                                           | Business
      overview                                                         |                                                
|       |                                                             | Electricity
      networks:                                                     |                                                
|       |                                                             |                                                                                 | England
      and Wales                         | 11  
|       |                                                             |                                                                                 | United
      States                             | 16  
|       |                                                             |                                                                                 | Other
      electricity businesses and projects | 24  
|       |                                                             | Telecommunications
      networks                                               | 25                                             
|       |                                                             | Inflation                                                                       | 39                                             
|       |                                                             | Seasonality                                                                     | 39                                             
|       | C                                                           | Organisational
      structure                                                  |                                                
|       |                                                             | Note
      29 to the accounts: Group undertakings, joint ventures and associate | 83                                             
|       | D                                                           | Property,
      plants and equipment                                            |                                                
|       |                                                             | Fixed
      assets in the UK                                                    | 15                                             
|       |                                                             | Fixed
      assets in the US                                                    | 21                                             
|       |                                                             |                                                                                 |                                                
|5.     | Operating
        and financial review and prospects       
|       | A                                                           | Operating
      results                                                         |                                                
|       |                                                             | Operating
      and financial review:                                           |                                                
|       |                                                             |                                                                                 | Business
      review                           | 10  
|       |                                                             |                                                                                 | Five-year
      financial summary               | 30  
|       |                                                             |                                                                                 | Financial
      review                          | 32  
|       | B                                                           | Liquidity
      and capital resources                                           |                                                
|       |                                                             | Liquidity
      and capital resources                                           | 34                                             
|       | C                                                           | Research
      and developments, patents and licences etc                       |                                                
|       |                                                             | Research
      and development                                                  | 49                                             
|       | D                                                           | Trend
      information                                                         |                                                
|       |                                                             | Electricity
      networks  England and Wales:                                 |                                                
|       |                                                             |                                                                                 | The
      new framework for UK Transmission     | 13  
|       |                                                             | Electricity
      networks  United States:                                     |                                                
|       |                                                             |                                                                                 | Operating
      environment                     | 16  
|       |                                                             |                                                                                 | Regulation
      of distribution rates          | 18  
|       |                                                             |                                                                                 | Transmission
      rates                        | 19  
|       |                                                             |                                                                                 | Niagara
      Mohawks regulatory framework     | 22  
|       |                                                             | Changes
      and developments                                                  | 38                                             

|   |                                                  |                                       |    |  | 
|-- | ------------------------------------------------ | ------------------------------------- | -- |  | 
|6. | Directors,
      senior management and employees |                                      
|   | A                                                | Directors
      and senior management |   
|   |                                                  | The
      Board of Directors          | 40

| | B | Compensation | 
| | - | ------------ | 

| |  | Directors
      remuneration | 44
| |  | ----------------------------- | --

| | C | Board
      practices | 
| | - | --------------------- | 

| |  | Corporate
      governance | 41
| |  | -------------------------- | --

| | D | Employees | 
| | - | --------- | 

| |  | Employment
      policies | 49
| |  | ------------------------- | --

| |  | Note
      4 to the accounts: Payroll costs and employees | 62
| |  | --------------------------------------------------------- | --

| | E | Share
      ownership | 
| | - | --------------------- | 

| |  | Directors
      interests in share options | 46
| |  | ------------------------------------------- | --

| |  | Directors
      beneficial interests | 47
| |  | ------------------------------------- | --

| |  | Employment
      policies | 49
| |  | ------------------------- | --

| |  | Note
      21 to the accounts: Share capital | 74
| |  | -------------------------------------------- | --

| |  |  |  |  | 
| |  |  |  |  | 

|7. | Major shareholders
      and related party transactions | 
|-- | ------------------------------------------------------- | 

| | A | Major
      shareholders | 
| | - | ------------------------ | 

| |  | Substantial
      shareholdings | 48
| |  | ------------------------------- | --

| | B | Related
      party transactions | 
| | - | -------------------------------- | 

| |  | Note
      27 to the accounts: Related party transactions | 82
| |  | --------------------------------------------------------- | --

| | C | Interest of experts
      and counsel | n/a
| | - | ------------------------------------- | ---

| |  |  |  |  | 
| |  |  |  |  | 

|8. | Financial information | 
|-- | --------------------- | 

| | A | Consolidated statements
      and other financial information | 
| | - | ------------------------------------------------------------- | 

| |   | 1-4                       | Consolidated
      financial statements,comparative financial data, audit reportand period of financial statements |    
| | - | ------------------------- | ------------------------------------------------------------------------------------------------------------------ | ---
| |   |                           | See
      Item 18 below for a full list of thefinancial
      statements                                           |    
| |   | 5.                        | Interim
      financial statements                                                                                 | n/a
| |   | 6.                        | Export
      sales disclosure                                                                                      |    
| |   |                           | Note
      1 to the accounts: Segmental analysis                                                                   | 57 
| |   | 7.                        | Legal
      proceedings, including governmental proceedings                                                       
| |   |                           | Pensions
      litigation                                                                                          | 49 
| |   | 8.                        | Companys
      policy on dividend distribution                                                                    |    
| |   |                           | Ordinary
      dividends                                                                                           | 33 
| |   |                           | Dividend
      policy                                                                                              | 34 
| | B | Significant
      changes | n/a                                                                                                               



---



| | 99
| | --



|Item         | page                                                                              
|------------ | ----------------------------------------------------------------------------------
|             |                                                                                   
|9.           | The
      offer and listing                                                       
|             | A                                                                                 
|             |                                                                                   
|             |                                                                                   
|             |                                                                                   
|             |                                                                                   
|             | B                                                                                 
|             | C                                                                                 
|             |                                                                                   
|             | D                                                                                 
|             | E                                                                                 
|             | F                                                                                 
|             |                                                                                   
|10.          | Additional
      information                                                      
|             | A                                                                                 
|             |                                                                                   
|             | B                                                                                 
|             |                                                                                   
|             | C                                                                                 
|             |                                                                                   
|             | D                                                                                 
|             |                                                                                   
|             | E                                                                                 
|             |                                                                                   
|             | F                                                                                 
|             | G                                                                                 
|             | H                                                                                 
|             |                                                                                   
|             | I                                                                                 
|             |                                                                                   
|             |                                                                                   
|11.          | Quantitative
      and qualitative disclosure about
      market risk             
|             | Interest
      rate risk                                                          
|             | Currency
      risk                                                               
|             | Liquidity
      risk                                                              
|             | Credit
      risk                                                                 
|             |                                                                                   
|12.          | Description
      of securities other than equity securities                      
|             |                                                                                   
|PART
      2 |                                                                                   
|             |                                                                                   
|13.          | Defaults,
      dividend arrearages and delinquencies                             
|             | Defaults,
      dividend arrearages and delinquencies                             
|             |                                                                                   
|14.          | Material
      modifications to the rights of security holders and use of proceeds
|             |                                                                                   
|15.          | [Reserved]                                                                        
|             |                                                                                   
|16.          | [Reserved]                                                                        
|             |                                                                                   
|17.          | [Reserved]                                                                        
|             |                                                                                   
|18.          | Financial
      statements                                                        
|             | Independent
      auditors report                                                
|             | Accounting
      policies                                                         
|             | Group
      profit and loss account                                               
|             | Group
      statement of total recognised gains and losses                        
|             | Balance
      sheets                                                              
|             | Group
      cash flow statement                                                   
|             | Notes
      to the accounts                                                       
|             |                                                                                   
|19.          | Exhibits                                                                          
|             | Exhibits                                                                          



---



|100 | Shareholder Services
|--- | --------------------

Analyses
  of shareholdings as at 31 May 2001

Distribution of shares
  by type of shareholder

|                                         | Number
        of
        shareholders |  | Shares        |  | %
        of issued
        share capital
|---------------------------------------- | -------------------------------------- |  | ------------- |  | -----------------------------------------
|                                        
|                                         |                                        |  |               |  |                                          
|Banks                                    | 99                                     |  | 461,395       |  | 0.03                                     
|Nominee companies1                       | 14,256                                 |  | 1,158,219,599 |  | 77.99                                    
|Insurance companies                      | 13                                     |  | 22,341,143    |  | 1.50                                     
|Pension funds                            | 30                                     |  | 97,297        |  | 0.01                                     
|Other corporate bodies                   | 411                                    |  | 110,251,311   |  | 7.42                                     
|Electricity companies2                   | 8                                      |  | 976,892       |  | 0.07                                     
|Other limited and public
      companies | 1,462                                  |  | 34,876,579    |  | 2.35                                     
|Individuals                              | 650,294                                |  | 157,809,988   |  | 10.63                                    
|                                        
|                                         |                                        |  |               |  |                                          
|Total                                    | 666,573                                |  | 1,485,034,204 |  | 100.00                                   
|                                        

Distribution of shares
  by size of holding

|                            |     |               |       | Number
      of
      shareholders | Shares        | %
      of issued
      share capital
|--------------------------- | --- | ------------- | ----- | ---------------------------------- | ------------- | -------------------------------------
|                           
|1                           |    | 99            |       | 392,493                            | 27,438,734    | 1.85                                 
|100                         |    | 499           |       | 204,514                            | 43,022,834    | 2.90                                 
|500                         |    | 999           |       | 37,572                             | 25,620,731    | 1.72                                 
|1,000                       |    | 4,999         |       | 27,257                             | 53,275,482    | 3.59                                 
|5,000                       |    | 9,999         |       | 2,128                              | 14,311,171    | 0.96                                 
|10,000                      |    | 49,999        |       | 1,403                              | 28,141,635    | 1.89                                 
|50,000                      |    | 99,999        |       | 319                                | 23,203,330    | 1.56                                 
|100,000                     |    | 499,999       |       | 537                                | 120,543,606   | 8.12                                 
|500,000                     |    | 999,999       |       | 128                                | 90,970,752    | 6.13                                 
|1,000,000
        and above | 222 | 1,058,505,929 | 71.28
|                           
|Total                       |     |               |       | 666,573                            | 1,485,034,204 | 100.00                               
|                           

|1                                                                                                                                                                                                           | Nominee companies typically hold shares on behalf of banks, insurance companies,
      investment trusts, pension funds and PEP and ISA investors.                                                                                                             
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2                                                                                                                                                                                                           | In accordance with
      National Grids Articles of Association, no holder of a licence under
      the Electricity Act 1989 and no affiliate of such licence holder has an
      interest of 1 per cent or more in the voting share capital of National Grid.
|In addition
      to the number of registered shareholders shown, there are approximately
      2,500 holders of ADRs. The ADRs, each of which evidences one ADS, are issued
      by The Bank of New York.

Financial
  calendar

|22 May
      2001      | 2000/01
      preliminary results and recommended final dividend announced
|---------------------- | --------------------------------------------------------------------------
|                      
|30 May
      2001      | National
      Grid shares went ex-dividend                               
|                      
|1 June
      2001      | Record
      date for 2000/01 final dividend                              
|                      
|17 July
      2001     | Annual
      General Meeting                                              
|                      
|15 August
      2001   | 2000/01
      final dividend paid to qualifying shareholders              
|                      
|20 November
      2001 | 2001/02
      interim results and interim dividend announced              
|                      
|28 November
      2001 | National
      Grid shares go ex-dividend                                 
|                      
|30 November
      2001 | Record
      date for 2001/02 interim dividend                            
|                      
|15 January
      2002  | 2001/02
      interim dividend paid to qualifying shareholders            
|                      



---



Shareholder services

Individual Savings Accounts
  (ISAs)Individual Savings Accounts
  (ISAs) for National Grid shares are available. Further information may be obtained
  from the Account Manager, Stocktrade, PO Box 1076, 10 George Street, Edinburgh
  EH2 2PZ (telephone Grid Line, 0131 240 0443).

Regulatory accountsNational Grids principal
  UK subsidiary, The National Grid Company plc (NGC) is the holder of the electricity
  transmission licence for England and Wales. NGC is required by the transmission
  licence to provide to the regulator accounting statements in respect of each
  of its licensed businesses. Copies of these statements for the year ended 31
  March 2001 may be obtained, free of charge, from the Shareholder Enquiry Unit
  (see UK shareholder enquiries below).

Audio tape version of
  Annual ReviewFor the assistance of visually-impaired
  shareholders, an audio tape version of the Annual Review has been prepared and
  may be obtained, free of charge, from the Shareholder Enquiry Unit (see UK
  shareholder enquiries below).

Environmental Performance
  ReportThe Environmental Performance
  Report 2000 is available, free of charge, from the Shareholder Enquiry Unit
  (see UK shareholder enquiries below).

Summary of business
  of Annual General MeetingThe Annual General Meeting
  will be held on Tuesday 17 July 2001 at the International Convention Centre
  in Birmingham. If you would like to receive a summary of the business transacted
  at the AGM, please contact the Shareholder Enquiry Unit (see UK shareholder
  enquiries below).

WebsiteInformation about National
  Grid is available via the internet on www.nationalgrid.com

Unsolicited mailWe are obliged by law to
  make our share register available to other organisations and some shareholders
  may therefore receive unsolicited mail. Any shareholder who wishes to limit
  receipt of such mail should contact The Mailing Preference Service, Freepost
  22, London W1E 7EZ. The Mailing Preference Service is free to the public and
  will notify those organisations which support its aims that unsolicited mail
  should not be sent to individuals who have registered a preference not to receive
  it.

UK shareholder enquiriesEnquiries about individual
  shareholder matters (including changes of address, lost share certificates etc.)
  should be addressed to the registrar, Lloyds TSB Registrars, The Causeway, Worthing,
  West Sussex BN99 6DA (telephone 0870 600 3969, fax 0870 600 3980, on-line www.shareview.co.uk).

Enquiries about National
  Grids activities should be addressed to the Shareholder Enquiry Unit,
  National Grid House, Kirby Corner Road, Coventry CV4 8JY (telephone 024 7642
  3940, fax 024 7642 3651, e-mail shareholder.enquiries@uk.ngrid.com).

US investor enquiriesEnquiries from holders of
  ADRs should be addressed to the Depositary, The Bank of New York, Investor Relations,
  PO Box 11258, Church Street Station, New York NY 10286-1258 (telephone 1-888-BNY-ADRs
  toll-free for calls inside the US; +1-908-769-9835 or +1-908-769-9711 for international
  calls; e-mail
  shareowner-svcs@bankofny.com; websites www.adrbny.com and http://stock.bankofny.com).

Electronic communication
  serviceUK shareholders may elect to
  receive shareholder communications, such as the Annual Report and the Notice
  of AGM, by electronic means.

Shareholders who wish to
  take advantage of this service may register their request on Lloyds TSB Registrars
  website at www.shareview.co.uk. Registration is free. Once registered, shareholders
  will receive notification by e-mail at their registered e-mail address, informing
  them that documentation is available and how to view it. There are no particular
  software requirements to view the documents, other than those described and
  available on our website www.nationalgrid.com

Shareholders who register
  to receive electronic notification but decide at any time in the future that
  they would prefer to receive paper copies may register their preference by contacting
  Lloyds TSB Registrars at the address above or via the www.shareview.co.uk website.

Shareholders who wish to
  continue to receive all communications in paper form need take no action.

Designed and produced by
  Timothy Guy Design. Photography by Laurence Davis and Lab Photographers, London.
  Typeset by New Leaf. Printed in England by Westerham Press.The paper used in
  this report is produced from sustainably managed forests and is elemental chlorine
  free (ECF).