EXHIBIT
2(b).6.1
  
 National Grid USA
 (incorporated in the State of Delaware, United States of America)
 Euro 4,000,000,000
Euro Medium Term Note Programme
 Programme Prospectus Issuer Instruments
 U.K. Listing Authority FSMA Official
List London Stock Exchange Market listed
 Securities Act
 temporary Global
Instrument permanent Global
Instrument Global
Instruments NGN Common Safekeeper Euroclear société anonyme Clearstream,
Luxembourg Common Depositary Classic Global Notes CGNs
  Prospectus Directive 
  Programme Arranger and Dealer
 HSBC




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IMPORTANT NOTICES
 Base Prospectus Group
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Euro Japanese yen £ Sterling U.S. dollars U.S.$ Canadian dollars Australian dollars New
Zealand dollars Swedish krona Danish krone Hong
Kong dollars Swiss francs
 In
connection with the issue of any Tranche (as defined in Overview of the Programme - Method
of Issue), the Dealer or Dealers (if any) named as the stabilising manager(s) (the
Stabilising Manager(s)) in the applicable Final Terms (or any person acting on behalf of any
Stabilising Manager(s)) may over-allot Instruments or effect transactions with a view to
supporting the market price of the Instruments at a level higher than that which might
otherwise prevail. However, there is no assurance that the Stabilising Manager(s) (or any
person acting on behalf of any Stabilising Manager) will undertake stabilisation action. Any
stabilisation action may begin on or after the date on which adequate public disclosure of the
final terms of the offer of the relevant Tranche is made and, if begun, may be ended at any
time, but it must end no later than the earlier of 30 days after the issue date of the relevant
Tranche and 60 days after the date of the allotment of the relevant Tranche. Any stabilisation
action or over-allotment must be conducted by the relevant Stabilising Manager(s) or person(s)
acting on behalf of any Stabilising Manager(s) in accordance with all applicable laws and
rules.
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TABLE OF CONTENTS
 PageIMPORTANT NOTICES
    
    
    2SUPPLEMENTAL PROSPECTUS
    
    
    5OVERVIEW OF THE PROGRAMME
    
    
    6RISK FACTORS
    
    
    12TERMS AND CONDITIONS OF THE INSTRUMENTS
    
    
    23SUMMARY OF PROVISIONS RELATING TO THE INSTRUMENTS WHILE IN GLOBAL FORM
    
    
    45USE OF PROCEEDS
    
    
    50DESCRIPTION OF NATIONAL GRID USA
    
    
    51TAXATION
    
    
    68PLAN OF DISTRIBUTION
    
    
    71FORM OF FINAL TERMS
    
    
    74GENERAL INFORMATION
    
    
    84INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F-1
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SUPPLEMENTAL PROSPECTUS
 Supplemental Prospectus
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OVERVIEW OF THE PROGRAMME
  Issuer
    
    National Grid USADescription
    
    Euro Medium Term Note ProgrammeSize
    
    Up to Euro 4,000,000,000 (or its
equivalent in other currencies at the
date of issue) aggregate nominal amount
of Instruments outstanding at any one
time.Arranger
    
    HSBC Bank plcDealer
    
    HSBC Bank plcThe Issuer may from time to time
terminate the appointment of any dealer
under the Programme or appoint additional
dealers either in respect of one or more
Tranches or in respect of the whole
Programme. References in this Prospectus
to the Permanent Dealers are to the
person listed above as Dealer and to such
additional persons that are appointed as
dealers in respect of the whole Programme
(and whose appointment has not been
terminated) and to Dealers are to all
Permanent Dealers and all persons
appointed as a dealer in respect of one
or more Tranches.Trustee
    
    The Law Debenture Trust Corporation p.l.c.Issuing and Paying Agent
    
    The Bank of New YorkOther Paying Agent
    
    Kredietbank S.A. LuxembourgeoiseMethod of Issue
    
    The Instruments will be issued on a
syndicated or non-syndicated basis. The
Instruments will be issued in series
(each a Series) having one or more
issue dates and on terms otherwise
identical (or identical other than in
respect of the first payment of
interest), the Instruments of each Series
being intended to be interchangeable with
all other Instruments of that Series.
Each Series may be issued in tranches
(each a Tranche) on the same or
different issue dates. The specific terms
of each Tranche (which will be completed,
where necessary, with supplemental terms
and conditions and, save in respect of
the issue date, issue price, first
payment of interest and nominal amount of
the Tranche, will be identical to the
terms of other Tranches of the same
Series) will be completed in the final
terms document (the Final Terms).Issue Price
    
    Instruments may be issued at their
nominal amount or at a discount or
premium to their nominal amount. Partly
Paid Instruments may be issued, the issue
price of which will be payable in two or
more instalments.Form of Instruments
    
    The Instruments may be issued in bearer
form only. Each Tranche of Instruments
will be represented on issue by a
temporary Global Instrument. The
Temporary Global Instrument may be
deposited on the relevant issue date with
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a common depositary for Euroclear and
Clearstream, Luxembourg and/or any other
agreed clearance system. Temporary Global
Instruments will be exchangeable, only in
the manner and upon compliance with the
procedures described herein, (i) for
permanent Global Instruments or (ii) for
Definitive Instruments, in each case not
earlier than 40 days after the issue
date, upon certification of non-U.S.
beneficial ownership. No interest will be
payable in respect of a temporary Global
Instrument except as described under
Summary of Provisions Relating to the
Instruments while in Global Form. Any
permanent Global Instrument shall only be
exchanged for Instruments in definitive
form in the limited circumstances set out
in the permanent Global Instrument.Clearing Systems
    
    Clearstream, Luxembourg, Euroclear and,
in relation to any Tranche, such other
clearing system as may be agreed between
the Issuer, the Issuing and Paying Agent,
the Trustee and the relevant Dealer.Initial Delivery of Instruments
    
    On or before the issue date for each
Tranche, if the relevant Global
Instrument is intended to be eligible
collateral for Eurosystem monetary policy
and intra-day credit operations, the
Global Instrument will be delivered to a
Common Safekeeper for Euroclear and
Clearstream, Luxembourg. On or before the
issue date for each Tranche, if the
relevant Global Instrument is not
intended to be eligible collateral for
Eurosystem monetary policy and intra-day
credit operations, the Global Instrument
representing the relevant Instruments may
be deposited with a common depositary for
Euroclear and Clearstream, Luxembourg.
Global Instruments may also be deposited
with any other clearing system or may be
delivered outside any clearing system
provided that the method of such delivery
has been agreed in advance by the Issuer,
the Issuing and Paying Agent, the Trustee
and the relevant Dealer.Currencies
    
    Subject to compliance with all relevant
laws, regulations and directives,
Instruments may be issued in Euro,
Japanese yen, Sterling, U.S. dollars,
Canadian dollars, Australian dollars, New
Zealand dollars, Swedish krona, Danish
krone, Hong Kong dollars or Swiss francs
or in other currencies if the Issuer and
the relevant Dealer(s) so agree.
Instruments may, subject to compliance as
above, be issued as Dual Currency
Instruments.Maturities
    
    Subject to compliance with all relevant
laws, regulations and directives, any
maturity from one month to perpetuity.Any Instruments having a maturity of less
than one year from their date of issue
must (a) have a minimum redemption value
of £100,000 (or its equivalent in other
currencies) and be issued only to persons
whose ordinary activities involve them in
acquiring, holding, managing or disposing
of investments (as principal or agent)
for the purposes of their
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businesses or
who it is reasonable to expect will
acquire, hold, manage or dispose of
investments (as principal or agent) for
the purposes of their businesses or (b)
be issued in other circumstances which do
not constitute a contravention of Section
19 of FSMA by the Issuer.Denominations
    
    Definitive Instruments will be in such
denominations as may be specified in the
relevant Final Terms, save that (i) in
the case of any Instruments which are to
be admitted to trading on a regulated
market within the European Economic Area
or offered to the public in a Member
State of the European Economic Area in
circumstances which require the
publication of a prospectus under the
Prospectus Directive, the minimum
denomination shall be 50,000 (or its
equivalent in any other currency as at
the date of issue of the Instruments);
and (ii) unless otherwise permitted by
then current laws and regulations,
Instruments which have a maturity of less
than one year will have a minimum
denomination of £100,000 (or its
equivalent in other currencies).Fixed Rate Instruments
    
    Fixed interest will be payable in arrear
on the date or dates in each year
specified in the relevant Final Terms and
at maturity.Floating Rate Instruments
    
    Floating Rate Instruments will bear
interest set separately for each Series
as follows:(a)   on the same basis as the floating
rate under a notional interest rate swap
transaction in the relevant Specified
Currency governed by an agreement
incorporating the 2006 ISDA Definitions
published by the International Swaps and
Derivatives Association, Inc. or(b)  by reference to LIBOR, LIBID, LIMEAN
or EURIBOR (or such other benchmark as
may be specified in the relevant Final
Terms) as adjusted for any applicable
margin. Interest periods will be selected
by the Issuer prior to issue and
specified in the relevant Final Terms.
Floating Rate Instruments may also have a
maximum interest rate, a minimum interest
rate, or both.Zero Coupon Instruments
    
    Zero Coupon Instruments may be issued at
their nominal amount or at a discount to
it and will not bear interest.Dual Currency Instruments
    
    Payments (whether in respect of principal
or interest and whether at maturity or
otherwise) in respect of Dual Currency
Instruments will be made in such
currencies, and based on such rates of
exchange as may be specified in the
relevant Final Terms.Interest Periods and Rates of Interest
    
    The length of the interest periods for
the Instruments and the applicable
interest rate or its method of
calculation may differ from time to time
or be constant for any Series.
Instruments may have a maximum interest
rate, a minimum interest rate, or both.
The use of interest accrual periods
permits the
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Instruments to bear interest
at different rates in the same interest
period. All such information will be set
out in the relevant Final Terms.Redemption
    
    The relevant Final Terms will specify the
basis for calculating the redemption
amounts payable, which may be by
reference to a formula or as otherwise
provided in the relevant Final Terms.Unless permitted by then current laws and
regulations, Instruments which have a
maturity of less than one year must have
a minimum redemption amount of £100,000
(or its equivalent in other currencies).Redemption by Instalments
    
    The Final Terms issued in respect of each
issue of Instruments that are redeemable
in two or more instalments will set out
the dates on which, and the amounts in
which, such Instruments may be redeemed.Other Instruments
    
    Terms applicable to high interest
Instruments, low interest Instruments,
step-up Instruments, step-down
Instruments, Dual Currency Instruments,
reverse Dual Currency Instruments,
optional Dual Currency Instruments,
Partly-Paid Instruments and any other
type of Instrument that the Issuer, the
Trustee and any Dealer(s) may agree to
issue under the Programme, subject to
compliance with all relevant laws,
regulations and directives, will be set
out in the relevant Final Terms and (if
applicable) the relevant Supplemental
Prospectus.Optional Redemption
    
    The Final Terms issued in respect of each
issue of Instruments will state whether
such Instruments may be redeemed prior to
their stated maturity at the option of
the Issuer (either in whole or in part)
and/or the Instrumentholders, and if so
the terms applicable to such redemption.The Issuer may elect to redeem all, but
not some only, of the Instruments of any
Series at their Residual Holding
Redemption Amount at any time if the
Residual Holding Percentage or more of
the aggregate nominal amount of such
Instruments originally issued shall have
been redeemed or purchased and cancelled.Status of Instruments
    
    The Instruments will constitute
unsubordinated and unsecured obligations
of the Issuer, all as described in Terms
and Conditions of the Instruments 
Status.Negative Pledge
    
    The Instruments will have the benefit of
a negative pledge as described in Terms
and Conditions of the Instruments 
Status and Negative Pledge.Cross Acceleration
    
    The Instruments will have the benefit of
a cross acceleration provision as
described in Terms and Conditions of the
Instruments  Events of Default.Other Events of Default
    
    The other events of default under the
Instruments are as specified below under
Terms and Conditions of the
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Instruments
 Events of Default.Early Redemption
    
    Except as provided in Optional
Redemption and Redemption above,
Instruments will be redeemable at the
option of the Issuer prior to maturity
only for tax reasons. See Terms and
Conditions of the Instruments 
Redemption, Purchase and Options.Withholding Tax
    
    All payments of principal and interest in
respect of the Instruments, Receipts and
Coupons will be made free and clear of
withholding taxes of the United States of
America or any political sub-division of
the United States of America or any
authority in or of the United States of
America having power to tax, unless
compelled by law. In that event, the
Issuer will, subject to customary
exceptions (including the standard EU
exceptions), pay such additional amounts
as will result in the payment to the
Instrumentholders, Receiptholders or
Couponholders of the amounts which would
otherwise have been received in respect
of the Instruments, Receipts and Coupons
had no withholding or deduction been
made, all as described in Terms and
Conditions of the Instruments 
Taxation.Governing Law
    
    EnglishListing
    
    Each Series may be admitted to the
Official List and admitted to trading on
the Market and/or admitted to listing,
trading and/or quotation by any other
listing authority, stock exchange and/or
quotation system as may be agreed between
the Issuer and the relevant Dealer(s) and
specified in the relevant Final Terms or
may be unlisted.Ratings
    
    Tranches of Instruments (as defined in
Overview of the Programme) may be rated
or unrated. Where a Tranche of
Instruments is rated, such rating will be
specified in the relevant Final Terms. A
rating is not a recommendation to buy,
sell or hold securities and may be
subject to suspension, reduction or
withdrawal at any time by the assigning
rating agency.Selling Restrictions
    
    United States, United Kingdom, European
Economic Area (in the case of unlisted
Instruments) and Japan. See Plan of
Distribution.Category 3 selling restrictions will
apply to the Instruments for the purposes
of Regulation S under the Securities Act.The Instruments will be issued in
compliance with U.S. Treas. Reg.
§1.163-5(c)(2)(i)(D) (the D Rules)
unless the Instruments are issued other
than in compliance with the D Rules but
in circumstances in which the Instruments
will not constitute registration
required obligations under the United
States Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA),
which circumstances will be referred to
in the relevant Final Terms as a
transaction to which TEFRA is not
applicable.
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Terms and Conditions
    
    The Terms and Conditions applicable to
each Series will be as agreed between the
Issuer, the Trustee and the relevant
Dealer(s) or other subscriber at or prior
to the time of issuance of such Series
and will be specified in the relevant
Final Terms. The Terms and Conditions
applicable to each Series will therefore
be those as set out in Terms and
Conditions of the Instruments below as
supplemented, modified or replaced by the
relevant Final Terms.
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RISK FACTORS
 The Issuer believes that the following factors may affect its ability to fulfil its obligations
under Instruments issued under the Programme. All of these factors are contingencies which may
or may not occur and the Issuer is not in a position to express a view on the likelihood of any
such contingency occurring.
 Factors which the Issuer believes may be material for the purpose of assessing the market risks
associated with Instruments issued under the Programme are also described below.
 The Issuer believes that the factors described below represent the principal risks inherent in
investing in Instruments issued under the Programme, but the Issuer may be unable to pay
interest, principal or other amounts on or in connection with any Instruments for other
reasons. If this occurs, prospective investors may lose the value of their entire investment or
part of it. Prospective investors should read the detailed information set out elsewhere in
this Prospectus and reach their own views prior to making any investment decision.
 Factors that may affect the Issuers ability to fulfil its obligations under Instruments issued
under the Programme
 Risks relating to the Issuer and its businesses
 Holding company status and changes in law or regulation in the geographies in which the Group
operates could have an adverse effect on its results of operations.
  Breaches of, or changes in, environmental or health and safety laws or regulations could expose
the Group to claims for financial compensation and adverse regulatory consequences, as well as
damaging the reputation of the Group.
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MGP
 Network failure or the inability to carry out critical non-network operations may have
significant adverse impacts on both the Groups financial position and its reputation.
  The Groups results of operations depend on a number of factors relating to business
performance including performance against regulatory targets, recovery of incurred expenditure
and the delivery of anticipated cost and efficiency savings.
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KeySpan
 Business development activity risks.
  The Groups risk mitigation techniques such as hedging and current regulatory arrangements may
not adequately provide protection.
  The Groups reputation and long-term financial condition may be harmed if consumers of energy
suffer a disruption to their supply even if this disruption is outside the Groups control.
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The Groups financial position may be adversely affected by a number of factors including
restrictions in borrowing and debt arrangements, changes to credit ratings or outlook and
effective tax rates.
  Future funding requirements of Issuers pension plans could adversely affect the results of
operations of the Issuer.
  New or revised accounting standards, rules and interpretations.
  The Groups operating results may fluctuate on a seasonal and quarterly basis.
  Customers and counterparties to the Groups transactions may fail to perform their obligations,
which could harm the Groups results of operations.
 LIPA NYISO
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A substantial portion of revenues are derived from agreements with LIPA and no assurances can
be made that these arrangements will not be discontinued at some point in the future.
 2006 MSA
 CID DOJ
 Ravenswood Generating Station.
 NYPSC NYPSC Order
 (i)
    
    as a condition of the NYPSC Order, by 1 January 2008, 100 per cent. of the energy
from the Ravenswood Generating Station must be sold via a short term energy agreement;(ii)
    
    as a condition of the NYPSC Order, the capacity of the Ravenswood Generating Station
must initially be bid at zero, commencing with the spot auction the NYISO holds for March
2008 capacity;(iii)
    
    revisions to the NYISO market rules and Services Tariff;(iv)
    
    the financial performance of the Ravenswood Generating Station is subject to
competition and general economic conditions having an impact on supply and demand as well
as other related risks;(v)
    
    risks related to available sources and cost of fuel; and
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(vi)
    
    risks related to certain Federal Energy Regulatory Commission (FERC) proceedings
concerning New York Citys In-City capacity market as explained below.
  Additional risks include, but are not limited to, the following:
 
    
    inflationary trends and increases in prevailing interest rates on the Groups
borrowings as well as general economic conditions, especially in the northeast United
States;
    
    creditworthiness of counterparties to derivative instruments and commodity contracts;
    
    retention of key personnel and the Groups ability to successfully negotiate extensions
to collective bargaining agreements;
    
    potential write-down of the Groups investment in gas properties when gas prices are
depressed or if the Group has significant downward revisions in its estimated proved gas
reserves;
    
    the degree to which the Group develops unregulated business ventures as well as federal
and state regulatory policies affecting the ability of the Group to retain and operate
such business ventures profitably;
    
    a change in the fair market value of the Groups investments that could cause a
significant change in the carrying value of such investments or the carrying value of
related goodwill;
    
    the Groups insurance not adequately providing coverage for certain hazards, such as
unexpected outages at critical facilities, damage to pipelines, equipment, properties and
people;
    
    material losses resulting from In-City Unforced Capacity prices being on average less
than U.S.$7.57/kW-month in connection with the financial swap agreement for In-City
Unforced Capacity;
    
    competition facing the Groups unregulated energy services businesses as well as the
Groups gas distribution business; and
    
    other risks detailed from time to time in other reports and other documents filed by
the Group or its affiliates with the SEC.
 Description of
National Grid USA
 Factors which are material for the purpose of assessing the market risks associated with
Instruments issued under the Programme
 Instruments may not be a suitable investment for all investors
  (i)
    
    have sufficient knowledge and experience to make a meaningful evaluation of the
relevant Instruments, the merits and risks of investing in the relevant Instruments and
the information contained or incorporated by reference in this Prospectus or any
applicable supplement;
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(ii)
    
    have access to, and knowledge of, appropriate analytical tools to evaluate, in the
context of its particular financial situation, an investment in the relevant Instruments
and the impact such investment will have on its overall investment portfolio;(iii)
    
    have sufficient financial resources and liquidity to bear all of the risks of an
investment in the relevant Instruments, including where principal or interest is payable
in one or more currencies, or where the currency for principal or interest payments is
different from the potential investors currency;(iv)
    
    understand thoroughly the terms of the relevant Instruments and be familiar with the
behaviour of any relevant indices and financial markets; and(v)
    
    be able to evaluate (either alone or with the help of a financial adviser) possible
scenarios for economic, interest rate and other factors that may affect its investment and
its ability to bear the applicable risks.
  Risks related to the structure of a particular issue of Instruments
  Instruments subject to optional redemption by the Issuer
   Dual Currency Instruments
  (i)
    
    the market price of such Instruments may be volatile;(ii)
    
    they may receive no interest;(iii)
    
    payment of principal or interest may occur at a different time or in a different
currency than expected; and(iv)
    
    the amount of principal payable at redemption may be less than the nominal amount of
such Instruments or even zero;
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Partly-paid Instruments
  Variable rate Instruments with a multiplier or other leverage factor
  Fixed/Floating Rate Instruments
  Instruments issued at a substantial discount or premium
  Risks related to Instruments generally
  Modification, waiver and substitution
   European Monetary Union
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EU Savings Directive
    Change of law
  Risks related to the market generally
  The secondary market generally
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The Clearing Systems
     Exchange rate risks and exchange controls
 Investors Currency
  Interest rate risks
  Credit ratings may not reflect all risks
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Legal investment considerations may restrict certain investments
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TERMS AND CONDITIONS OF THE INSTRUMENTS
 The following is the text of the terms and conditions which, save for the text in italics and
subject to completion and amendment and as supplemented or varied in accordance with the
provisions of Part A of the relevant Final Terms, will be endorsed on the Instruments in
definitive form (if any) issued in exchange for the Global Instrument(s) representing each
Series. Either (a) the full text of these terms and conditions together with the relevant
provisions of Part A of the Final Terms or (b) these terms and conditions as so completed,
amended, supplemented or varied (and subject to simplification by the deletion of
non-applicable provisions), shall be endorsed on such Instruments. All capitalised terms which
are not defined in these Conditions will have the meanings given to them in the Trust Deed or
Part A of the relevant Final Terms. Those definitions will be endorsed on the Definitive
Instruments.
 Instruments
 Issuer Programme Instruments Trust Deed Trustee Agency Agreement Issuing and Paying Agent Paying Agents Calculation Agent(s)
 Coupons Talons Couponholders Receipts
 1
    
    Form, Denomination and TitleThe Instruments are issued in bearer form in the Specified Denomination(s) specified in the
relevant Final Terms and are serially numbered. Instruments of one Specified Denomination are
not exchangeable for Instruments of another Specified Denomination provided that in the case of
any Instruments which are to be admitted to trading on a regulated market within the European
Economic Area or offered to the public in a Member State of the European Economic Area in
circumstances which require the publication of a prospectus under the Prospectus Directive, the
minimum Specified Denomination shall be 50,000 (or its equivalent in any other currency as at
the date of issue of the relevant Instruments).
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Instrumentholder holder
 2
    
    Status and Negative Pledge
 2.1
    
    StatusThe Instruments and the Receipts and Coupons relating to them constitute direct,
unconditional and unsecured obligations of the Issuer and rank pari passuwithout any
preference or priority among themselves. The payment obligations of the Issuer under the
Instruments, Receipts and Coupons shall, subject to such exceptions as are from time to
time applicable under the laws of England, rank equally with all other present and future
unsecured obligations (other than subordinated obligations, if any) of the Issuer.2.2
    
    Negative PledgeSo long as any Instrument, Receipt or Coupon remains outstanding (as defined in the Trust
Deed) the Issuer will not create or permit to subsist any mortgage, charge, pledge, lien
or other form of encumbrance or security interest (Security) upon the whole or any part
of its undertaking, assets or revenues present or future to secure any Relevant
Indebtedness, or any guarantee of or indemnity in respect of any Relevant Indebtedness
unless, at the same time or prior thereto, the Issuers obligations under the
Instruments, the Receipts, the Coupons and the Trust Deed (a) are secured equally and
rateably therewith or benefit from a guarantee or indemnity in substantially identical
terms thereto, as the case may be, in each case to the satisfaction of the Trustee, or
(b) have the benefit of such other security, guarantee, indemnity or other arrangement as
the Trustee in its absolute discretion shall deem to be not materially less beneficial to
the Instrumentholders or as shall be approved by an Extraordinary Resolution (as defined
in the Trust Deed) of the Instrumentholders.For the purposes of these Conditions, Relevant Indebtedness means any present or future
indebtedness in the form of, or represented by, bonds, notes, debentures, loan stock or
other securities which are for the time being, or are intended, with the agreement of the
Issuer, to be quoted, listed or ordinarily dealt in on any stock exchange.
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3
    
    Interest
 3.1
    
    Interest on Fixed Rate InstrumentsEach Fixed Rate Instrument bears interest on its outstanding nominal amount from the
Interest Commencement Date at the rate per annum (expressed as a percentage) equal to the
Rate of Interest, payable in arrear on each Interest Payment Date. The amount of Interest payable
shall be determined in accordance with Condition 3.8.If a Fixed Coupon Amount or a Broken Amount is specified in the relevant Final Terms, the
amount of interest payable on each Interest Payment Date will amount to the Fixed Coupon
Amount, or, if applicable, the Broken Amount so specified and in the case of a Broken
Amount will be payable on the particular Interest Payment Date(s) specified in the
relevant Final Terms.
 3.2
    
    Interest on Floating Rate Instruments
 3.2.1
    
    Interest Payment DatesEach Floating Rate Instrument bears interest on its outstanding nominal amount from
the Interest Commencement Date at the rate per annum (expressed as a percentage)
equal to the Rate of Interest, such interest being payable in arrear on each
Interest Payment Date. The amount of Interest payable shall be determined in
accordance with Condition 3.8. Such Interest Payment Date(s) is/are either
specified in the relevant Final Terms as Specified Interest Payment Dates or, if no
Specified Interest Payment Date(s) is/are specified in the relevant Final Terms,
Interest Payment Date shall mean each date which falls the number of months or
other period shown on this Instrument as the Interest Period after the preceding
Interest Payment Date or, in the case of the first Interest Payment Date, after the
Interest Commencement Date.3.2.2
    
    Business Day ConventionIf any date which is specified to be subject to adjustment in accordance with a
Business Day Convention would otherwise fall on a day which is not a Business Day,
then, if the Business Day Convention specified is (a) the Floating Rate Convention,
such date shall be postponed to the next day which is a Business Day unless it
would then fall into the next calendar month, in which event (x) such date shall be
brought forward to the immediately preceding Business Day and (y) each subsequent
such date shall be the last Business Day of the month in which such date would have
fallen had it not been subject to adjustment, (b) the Following Business Day
Convention, such date shall be postponed to the next day which is a Business Day,
(c) the Modified Following Business Day Convention, such date shall be postponed to
the next day which is a Business Day unless it would then fall into the next
calendar month, in that event such date shall be brought forward to the immediately
preceding Business Day or (d) the Preceding Business Day Convention, such date
shall be brought forward to the immediately preceding Business Day.3.2.3
    
    Rate of Interest for Floating Rate InstrumentsThe Rate of Interest in respect of Floating Rate Instruments for each Interest
Accrual Period shall be determined in the manner specified in the relevant Final
Terms and the provisions below relating to either ISDA Determination or Screen Rate
Determination shall apply, depending upon which is specified on this Instrument.
 (a)
    
    ISDA Determination for Floating Rate Instruments: Where ISDA
Determination is specified in the relevant Final Terms as the manner in which
the Rate of Interest is to be determined, the Rate of Interest for each
Interest Accrual Period shall be determined by the Calculation Agent as a rate
equal to the relevant ISDA Rate. For
 25




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the purposes of this sub-paragraph (a), ISDA Rate for an Interest Accrual Period means a rate equal to the Floating
Rate which would be determined by the Calculation Agent under a Swap
Transaction under the terms of an agreement incorporating the ISDA Definitions
and under which:
 (i)
    
    the Floating Rate Option is as specified in the
relevant Final Terms;(ii)
    
    the Designated Maturity is a period specified in
the relevant Final Terms; and(iii)
    
    the relevant Reset Date is the first day of that
Interest Accrual Period unless otherwise specified in the relevant Final
Terms.
 Floating Rate Calculation
Agent Floating Rate Option Designated Maturity Reset Date Swap
Transaction
 (b)
    
    Screen Rate Determination for Floating Rate Instruments:
 (i)
    
    Where Screen Rate Determination is specified in
the relevant Final Terms as the manner in which the Rate of Interest is
to be determined, the Rate of Interest for each Interest Accrual Period
will, subject as provided below, be either:
 (x)
    
    the offered quotation; or(y)
    
    the arithmetic mean of the offered
quotations,
   (ii)
    
    if the Relevant Screen Page is not available or
if, sub-paragraph (i)(x) applies and no such offered quotation appears
on the Relevant Screen Page or if sub-paragraph (i)(y) above applies and
fewer than three such offered quotations appear on the Relevant Screen
Page in each case as at the time specified above, subject as provided
below, the Calculation Agent shall request, if the Reference Rate is
LIBOR, the principal London office of each of the Reference Banks or, if
the Reference Rate is EURIBOR, the principal Euro-zone office of each of
the Reference Banks, to provide the Calculation Agent with its offered
quotation (expressed as a percentage rate per annum) for the Reference
Rate if the Reference Rate is LIBOR, at approximately 11.00 a.m. (London
time), or if the Reference Rate is EURIBOR, at approximately 11.00 a.m.
(Brussels time) on the Interest Determination Date in question. If two
or more of the Reference Banks provide the Calculation
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Agent with such offered quotations, the Rate of Interest for such Interest Period shall
be the arithmetic mean of such offered quotations as determined by the
Calculation Agent; and
 (iii)
    
    if paragraph (ii) above applies and the
Calculation Agent determines that fewer than two Reference Banks are
providing offered quotations, subject as provided below, the Rate of
Interest shall be the arithmetic mean of the rates per annum (expressed as a percentage) as communicated to (and at the
request of) the Calculation Agent by the Reference Banks or any two or
more of them, at which such banks were offered, if the Reference Rate
is LIBOR, at approximately 11.00 a.m. (London time) or, if the
Reference Rate is EURIBOR, at approximately 11.00 a.m. (Brussels time)
on the relevant Interest Determination Date, deposits in the Specified
Currency for a period equal to that which would have been used for the
Reference Rate by leading banks in, if the Reference Rate is LIBOR,
the London inter-bank market or, if the Reference Rate is EURIBOR, the
Euro-zone inter-bank market, as the case may be, or, if fewer than two
of the Reference Banks provide the Calculation Agent with such offered
rates, the offered rate for deposits in the Specified Currency for a
period equal to that which would have been used for the Reference
Rate, or the arithmetic mean of the offered rates for deposits in the
Specified Currency for a period equal to that which would have been
used for the Reference Rate, at which, if the Reference Rate is LIBOR,
at approximately 11.00 a.m. (London time) or, if the Reference Rate is
EURIBOR, at approximately 11.00 a.m. (Brussels time), on the relevant
Interest Determination Date, any one or more banks (which bank or
banks is or are in the opinion of the Trustee and the Issuer suitable
for such purpose) informs the Calculation Agent it is quoting to
leading banks in, if the Reference Rate is LIBOR, the London
inter-bank market or, if the Reference Rate is EURIBOR, the Euro-zone
inter-bank market, as the case may be, provided that, if the Rate of
Interest cannot be determined in accordance with the foregoing
provisions of this paragraph, the Rate of Interest shall be determined
as at the last preceding Interest Determination Date (though
substituting, where a different Margin or Maximum or Minimum Rate of
Interest is to be applied to the relevant Interest Accrual Period from
that which applied to the last preceding Interest Accrual Period, the
Margin or Maximum or Minimum Rate of Interest relating to the relevant
Interest Accrual Period, in place of the Margin or Maximum or Minimum
Rate of Interest relating to that last preceding Interest Accrual
Period).
 3.3
    
    Zero Coupon InstrumentsWhere an Instrument, the Interest Basis of which is specified to be Zero Coupon, is
repayable prior to the Maturity Date and is not paid when due, the amount due and payable
prior to the Maturity Date shall be the Early Redemption Amount of such Instrument. As
from the Maturity Date, the Rate of Interest for any overdue principal of such an
Instrument shall be a rate per annum (expressed as a percentage) equal to the
Amortisation Yield (as defined in Condition 4.4.1(b)).3.4
    
    Dual Currency InstrumentsIn the case of Dual Currency Instruments, if the rate or amount of interest falls to be
determined by reference to a Rate of Exchange or a method of calculating a Rate of
Exchange, the rate or amount of interest payable shall be determined in the manner
specified in the relevant Final Terms.
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3.5
    
    Partly Paid InstrumentsIn the case of Partly Paid Instruments (other than Partly Paid Instruments which are Zero
Coupon Instruments), interest will accrue as previously stated on the paid-up nominal
amount of such Instruments and otherwise as specified in the relevant Final Terms.3.6
    
    Accrual of InterestInterest shall cease to accrue on each Instrument on the due date for redemption unless,
upon due presentation, payment is improperly withheld or refused, in which event interest
shall continue to accrue (as well after as before judgment) at the Rate of Interest in
the manner provided in this Condition 3 to the Relevant Date (as defined in Condition 6).3.7
    
    Margin, Maximum/Minimum Rates of Interest, Instalment Amounts and Redemption Amounts
and Rounding
 (i)
    
    If any Margin is specified in the relevant Final Terms (either (x)
generally, or (y) in relation to one or more Interest Accrual Periods), an
adjustment shall be made to all Rates of Interest, in the case of (x), or the Rates
of Interest for the specified Interest Accrual Periods, in the case of (y),
calculated in accordance with Condition 3.2.3(b) above, by adding (if a positive
number) or subtracting (if a negative number) the absolute value of such Margin,
subject always to the next paragraph.(ii)
    
    If any Maximum or Minimum Rate of Interest, Instalment Amount or
Redemption Amount is specified in the relevant Final Terms, then any Rate of
Interest, Instalment Amount or Redemption Amount shall be subject to such maximum or
minimum, as the case may be.(iii)
    
    For the purposes of any calculations required pursuant to these
Conditions (unless otherwise specified), (x) all percentages resulting from such
calculations shall be rounded, if necessary, to the nearest one hundred thousandth
of a percentage point (with halves being rounded up), (y) all figures shall be
rounded to seven significant figures (with halves being rounded up) and (z) all
currency amounts that fall due and payable shall be rounded to the nearest unit of
such currency (with halves being rounded up), save in the case of yen, which shall
be rounded down to the nearest yen. For these purposes unit means the lowest
amount of such currency which is available as legal tender in the country of such
currency.
 3.8
    
    CalculationsThe amount of interest payable per Calculation Amount in respect of any Instrument for
any Interest Accrual Period shall be equal to the product of the Rate of Interest, the
Calculation Amount as specified in the relevant Final Terms, and the Day Count Fraction
for such Interest Accrual Period, unless an Interest Amount (or a formula for its
calculation) is applicable to such Interest Accrual Period, in which case the amount of
interest payable per Calculation Amount in respect of such Instrument for such Interest
Accrual Period shall equal such Interest Amount (or be calculated in accordance with such
formula). Where any Interest Period comprises two or more Interest Accrual Periods, the
amount of interest payable per Calculation Amount in respect of such Interest Period
shall be the sum of the Interest Amounts payable in respect of each of those Interest
Accrual Periods. In respect of any other period for which interest is required to be
calculated, the provisions above shall apply save that the Day Count Fraction shall be
for the period for which interest is required to be calculated.
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3.9
    
    Determination and Publication of Rates of Interest, Interest Amounts, Final
Redemption Amounts, Early Redemption Amounts, Optional Redemption Amounts and Instalment
AmountsThe Calculation Agent shall as soon as practicable on each Interest Determination Date or
such other time on such date as the Calculation Agent may be required to calculate any
rate or amount, obtain any quotation or make any determination or calculation, determine
such rate and calculate the Interest Amounts for the relevant Interest Accrual Period,
calculate the Redemption Amount or Instalment Amount, obtain such quote or make such
determination or calculation, as the case may be, and cause the Rate of Interest and the
Interest Amounts for each Interest Accrual Period and the relevant Interest Payment Date and, if required to be calculated, the Final
Redemption Amount, Early Redemption Amount, Optional Redemption Amount or any Instalment
Amount to be notified to the Trustee, the Issuer, each of the Paying Agents, the
Instrumentholders, any other Calculation Agent appointed in respect of the Instruments
that is to make a further calculation upon receipt of such information and, if the
Instruments are listed on a stock exchange and the rules of such exchange so require,
such exchange as soon as possible after their determination but in no event later than
(i) the commencement of the relevant Interest Period, if determined prior to such time,
in the case of notification to such exchange of a Rate of Interest and Interest Amount,
or (ii) in all other cases, the fourth Business Day after such determination. Where any
Interest Payment Date or Interest Period Date is subject to adjustment pursuant to
Condition 3.2.3(b)(ii), the Interest Amounts and the Interest Payment Date so published
may subsequently be amended (or appropriate alternative arrangements made with the
consent of the Trustee by way of adjustment) without notice in the event of an extension
or shortening of the Interest Period. If the Instruments become due and payable under
Condition 8, the accrued interest and the Rate of Interest payable in respect of the
Instruments shall nevertheless continue to be calculated as previously in accordance with
this Condition but no publication of the Rate of Interest or the Interest Amount so
calculated need be made unless the Trustee otherwise requires. The determination of any
rate or amount, the obtaining of each quotation and the making of each determination or
calculation by the Calculation Agent(s) shall (in the absence of manifest error) be final
and binding upon all parties.
 3.10
    
    Determination or Calculation by TrusteeIf the Calculation Agent does not at any time for any reason determine or calculate the
Rate of Interest for an Interest Accrual Period or any Interest Amount, Instalment
Amount, Final Redemption Amount, Early Redemption Amount or Optional Redemption Amount
the Trustee shall do so (or shall appoint an agent on its behalf to do so) and such
determination or calculation shall be deemed to have been made by the Calculation Agent.
In doing so, the Trustee shall apply the preceding provisions of this Condition, with any
necessary consequential amendments, to the extent that, in its opinion, it can do so,
and, in all other respects it shall do so in such manner as it shall deem fair and
reasonable in all the circumstances.3.11
    
    DefinitionsIn these Conditions, unless the context otherwise requires, the following defined terms
shall have the meanings set out below:Business Day means:
 (a)
    
    in the case of a currency other than Euro, a day (other than a Saturday
or Sunday) on which commercial banks and foreign exchange markets settle payments in
the principal financial centre for such currency; and/or(b)
    
    in the case of Euro, a day on which the TARGET System is operating (a
TARGET Business Day); and/or
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(c)
    
    in the case of a currency and/or one or more Business Centres as
specified in the relevant Final Terms, a day (other than a Saturday or a Sunday) on
which commercial banks and foreign exchange markets settle payments in such currency
or, if no currency is indicated, generally in each of the Business Centres.
 Day Count Fraction Calculation Period
 (a)
    
    if Actual/Actual or Actual/Actual-ISDA is specified in the relevant
Final Terms, the actual number of days in the Calculation Period divided by 365 (or,
if any portion of that Calculation Period falls in a leap year, the sum of (i) the
actual number of days in that portion of the Calculation Period falling in a leap
year divided by 366 and (ii) the actual number of days in that portion of the
Calculation Period falling in a non-leap year divided by 365);(b)
    
    if Actual/365 (Fixed) is specified in the relevant Final Terms, the
actual number of days in the Calculation Period divided by 365;(c)
    
    if Actual/360 is specified in the relevant Final Terms, the actual
number of days in the Calculation Period divided by 360;(d)
    
    if 30/360, 360/360 or Bond Basis is specified in the relevant Final
Terms, the number of days in the Calculation Period divided by 360 calculated on a
formula basis as follows:
 Day Count Fraction
    
    =
    
    [360 x (Y2 -Y1)] + [30 x (M2 -M1)]+ (D2 -D1)360
      1 1
 2 1 2
 (e)
    
    if 30E/360 or Eurobond Basis is specified in the relevant Final
Terms, the number of days in the Calculation Period divided by 360 calculated on a
formula basis as follows:
 Day Count Fraction
    
    =
    
    [360 x (Y2 -Y1)] + [30 x (M2 -M1)]+ (D2 -D1)360
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(f)
    
    if 30E/360 (ISDA) is specified in the relevant Final Terms, the number
of days in the Calculation Period divided by 360, calculated on a formula basis as
follows:
 Day Count Fraction
    
    =
    
    [360 x (Y2 -Y1)] + [30 x (M2 -M1)]+ (D2 -D1)360
       2
 (g)
    
    if Actual/Actual-ICMA is specified in the relevant Final Terms:
 (i)
    
    if the Calculation Period is equal to or shorter than the
Determination Period during which it falls, the actual number of days in the
Calculation Period divided by the product of (x) the actual number of days in
such Determination Period and (y) the number of Determination Periods in any
year; and(ii)
    
    if the Calculation Period is longer than one Determination
Period, the sum of:
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(A)
    
    the actual number of days in such Calculation
Period falling in the Determination Period in which it begins divided by
the product of (a) the actual number of days in such Determination
Period and (b) the number of Determination Periods in any year; and(B)
    
    the actual number of days in such Calculation
Period falling in the next Determination Period divided by the product
of (a) the actual number of days in such Determination Period and (b)
the number of Determination Periods in any year,where:Determination Period means the period from and including a
Determination Date in any year to but excluding the next Determination
Date; andDetermination Date means the date specified as such in the relevant
Final Terms or, if none is so specified, the Interest Payment Date.
 Euro-zone
 Interest Accrual Period
 Interest Amount
 (a)
    
    in respect of an Interest Accrual Period, the amount of interest payable
per Calculation Amount for that Interest Accrual Period and which, in the case of
Fixed Rate Instruments, and unless otherwise specified in the relevant Final Terms,
shall mean the Fixed Coupon Amount or Broken Amount specified in the relevant Final
Terms as being payable on the Interest Payment Date ending the Interest Period of
which such Interest Accrual Period forms part; and(b)
    
    in respect of any other period, the amount of interest payable per
Calculation Amount for that period.
 Interest Commencement Date
 Interest Determination Date
 Interest Payment Date
 Interest Period
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Interest Period Date
 ISDA Definitions
 Rate of Interest
 Redemption Amount
 Reference Banks
 Reference Rate
 Relevant Screen Page
 Specified Currency
 TARGET System
 3.12
    
    Calculation AgentThe Issuer shall procure that there shall at all times be one or more Calculation Agents
if provision is made for them in the relevant Final Terms and for so long as any
Instrument is outstanding. Where more than one Calculation Agent is appointed in respect
of the Instruments, references in these Conditions to the Calculation Agent shall be
construed as each Calculation Agent performing its respective duties under these
Conditions. If the Calculation Agent is unable or unwilling to act as such or if the
Calculation Agent fails duly to establish the Rate of Interest for an Interest Period or
Interest Accrual Period or to calculate any Interest Amount, Instalment Amount, Final
Redemption Amount, Early Redemption Amount or Optional Redemption Amount, as the case may
be, or to comply with any other requirement, the Issuer shall (with the prior approval of
the Trustee) appoint a leading bank or investment banking firm engaged in the interbank
market (or, if appropriate, money, swap or over-the-counter index options market) which
is most closely connected with the calculation or determination to be made by the
Calculation Agent (acting through its principal London office or any other office
actively involved in such market) to act as such in its place. The Calculation Agent may
not resign its duties without a successor having been appointed as specified in this
paragraph.
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4
    
    Redemption, Purchase and Options
 4.1
    
    Final RedemptionUnless previously redeemed, purchased and cancelled as provided below, this Instrument
will be redeemed at its Final Redemption Amount (which, unless otherwise provided, is its
nominal amount) on the Maturity Date specified in the relevant Final Terms provided,
however, that if this Instrument is a Perpetual Instrument it will only be redeemable and
repayable in accordance with the following provisions of this Condition 4.4.2
    
    Redemption for Taxation ReasonsIf, on the occasion of the next payment in respect of the Instruments the Issuer
satisfies the Trustee immediately before the giving of the notice referred to below that
it would be unable to make such payment without having to pay additional amounts as
described in Condition 6, and such requirement to pay such additional amounts arises by
reason of a change in the laws of the United States of America or any political
sub-division of the United States of America or any authority in or of the United States
of America having power to tax or in the interpretation or application of the laws of the United States of America or any political sub-division of
the United States of America or any authority in or of the United States of America
having power to tax or in any applicable double taxation treaty or convention, which
change becomes effective on or after the date on which agreement is reached to issue the
first Tranche of the Instruments, and such requirement cannot be avoided by the Issuer
taking reasonable measures (such measures not involving any material additional payments
by, or expense for, the Issuer), the Issuer may, at its option, at any time, having given
not less than 30 nor more than 45 days notice to the Instrumentholders in accordance
with Condition 13, redeem all, but not some only, of the Instruments at their Early
Redemption Amount together with interest accrued to the date of redemption provided that
the date fixed for redemption shall not be earlier than 90 days prior to the earliest
date on which the Issuer would be obliged to pay such additional amounts or make such
withholding or deduction, as the case may be, were a payment in respect of the
Instruments then due. Prior to the publication of any notice of redemption pursuant to
this Condition 4.2, the Issuer shall deliver to the Trustee a certificate signed by two
directors of the Issuer stating that the requirement referred to above cannot be avoided
by the Issuer taking reasonable measures available to it and the Trustee shall be
entitled to accept such certificate as sufficient evidence of the satisfaction of the
condition precedent set out above in which event it shall be conclusive and binding on
Instrumentholders and Couponholders.4.3
    
    PurchasesThe Issuer and any of its Subsidiaries may at any time purchase Instruments (provided
that all unmatured Receipts and Coupons and unexchanged Talons appertaining to them are
attached or surrendered with them) in the open market or otherwise at any price.Subsidiary means any corporation a majority of the outstanding voting stock of which is
owned, directly or indirectly, by the Issuer.
 4.4
    
    Early Redemption
 4.4.1
    
    Zero Coupon Instruments
 (a)
    
    The Early Redemption Amount payable in respect of any Zero
Coupon Instrument, the Early Redemption Amount of which is not linked to a
formula, upon redemption of such Instrument pursuant to Condition 4.2 or upon
it becoming due and payable as provided in Condition 8 shall be the Amortised
Face Amount (calculated as provided below) of such Instrument unless otherwise
specified in the relevant Final Terms.
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(b)
    
    Subject to the provisions of sub-paragraph (c) below, the
Amortised Face Amount of any such Instrument shall be the scheduled Final
Redemption Amount of such Instrument on the Maturity Date discounted at a rate
per annum (expressed as a percentage) equal to the Amortisation Yield (which,
if none is specified in the relevant Final Terms, shall be such rate as would
produce an Amortised Face Amount equal to the issue price of the Instruments
if they were discounted back to their issue price on the Issue Date)
compounded annually.(c)
    
    If the Early Redemption Amount payable in respect of any such
Instrument upon its redemption pursuant to Condition 4.2 or, if applicable,
Condition 4.5 or upon it becoming due and payable as provided in Condition 8,
is not paid when due, the Early Redemption Amount due and payable in respect
of such Instrument shall be the Amortised Face Amount of such Instrument as
defined in sub-paragraph (b) above, except that such sub-paragraph shall have
effect as though the reference in that sub-paragraph to the date on which the
Instrument becomes due and payable was replaced by a reference to the Relevant
Date as defined in Condition 6. The calculation of the Amortised Face Amount
in accordance with this sub-paragraph shall continue to be made (as well after as before judgment) until the
Relevant Date, unless the Relevant Date falls on or after the Maturity Date,
in which case the amount due and payable shall be the scheduled Final
Redemption Amount of such Instrument on the Maturity Date together with any
interest that may accrue in accordance with Condition 3.2.
  4.4.2
    
    Other InstrumentsThe Early Redemption Amount payable in respect of any Instrument (other than
Instruments described in Condition 4.4.1), upon redemption of such Instrument
pursuant to this Condition 4.4 or upon it becoming due and payable as provided in
Condition 8, shall be the Final Redemption Amount unless otherwise specified in the
relevant Final Terms.
 4.5
    
    Redemption at the Option of the Issuer and Exercise of Issuers Options
 4.5.1
    
    If (i) Residual Holding Call Option is specified in the relevant Final
Terms, and (ii) if at any time the Residual Holding Percentage or more of the
aggregate nominal amount of Instruments originally issued shall have been redeemed
or purchased and cancelled, the Issuer shall have the option to redeem such
outstanding Instruments in whole, but not in part, at their Residual Holding
Redemption Amount. Unless otherwise specified in the relevant Final Terms, the
Residual Holding Redemption Amount will be calculated by the Calculation Agent by
discounting the outstanding nominal amount of the Instruments and the remaining
interest payments (if applicable) to the Maturity Date by a rate per annum
(expressed as a percentage to the nearest one hundred thousandth of a percentage
point (with halves being rounded up)) equal to the Benchmark Yield, being the yield
on the Benchmark Security at the close of business on the third Business Day prior
to the date fixed for such redemption, plus the Benchmark Spread. Where the
specified calculation is to be made for a period of less than one year, it shall be
calculated using the Benchmark Day Count Fraction. The Issuer will give not less
than 15 nor more than 30 days irrevocable notice to the Instrumentholders and the
Trustee of any such redemption pursuant to this Condition 4.5.1.4.5.2
    
    If Call Option is specified in the relevant Final Terms, the Issuer may,
on giving not less than 15 nor more than 30 days irrevocable notice to the
Instrumentholders (or such other notice period as may be specified in the relevant
Final Terms), redeem, or exercise any
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Issuers option in relation to, all or, if so provided, some of such Instruments on any Optional Redemption Date or Option
Exercise Date, as the case may be. Any such redemption of Instruments shall be at
their Optional Redemption Amount together with interest accrued to the date fixed
for redemption. Any such redemption or exercise must relate to Instruments of a
nominal amount at least equal to the minimum nominal amount (if any) permitted to be
redeemed specified hereon and no greater than the maximum nominal amount (if any)
permitted to be redeemed specified on this Instrument.
   4.6
    
    Redemption at the Option of InstrumentholdersIf Put Option is specified in the relevant Final Terms, the Issuer shall, at the option
of any Instrumentholder, upon such Instrumentholder giving not less than 15 nor more than
30 days notice to the Issuer (or such other notice period as may be specified on this
Instrument) redeem such Instrument on the Optional Redemption Date(s) (as specified in
the Final Terms) at its Optional Redemption Amount (as specified in the Final Terms)
together with interest accrued to the date fixed for redemption.To exercise such option (which must be exercised on an Option Exercise Date) the holder
must deposit such Instrument with any Paying Agent at its specified office, together with
a duly completed option exercise notice (Exercise Notice) in the form obtainable from
any Paying Agent within the Instrumentholders Option Period (as specified in the Final
Terms). No Instrument so deposited and option exercised may be withdrawn (except as
provided in the Agency Agreement) without the prior consent of the Issuer.4.7
    
    Partly Paid InstrumentsPartly Paid Instruments will be redeemed, whether at maturity, early redemption or
otherwise, in accordance with the provisions of this Condition and the provisions
specified in the relevant Final Terms.4.8
    
    Redemption by InstalmentsUnless previously redeemed, purchased and cancelled as provided in this Condition 4, each
Instrument which provides for Instalment Dates and Instalment Amounts will be partially
redeemed on each Instalment Date at the Instalment Amount specified in the relevant Final
Terms. The outstanding nominal amount of each such Instrument shall be reduced by the
Instalment Amount (or, if such Instalment Amount is calculated by reference to a
proportion of the nominal amount of such Instrument, such proportion) for all purposes
with effect from the related Instalment Date, unless payment of the Instalment Amount is
improperly withheld or refused on presentation of the related Receipt, in which case,
such amount shall remain outstanding until the Relevant Date relating to such Instalment
Amount.4.9
    
    CancellationAll Instruments redeemed pursuant to any of the foregoing provisions will be cancelled
forthwith together with all unmatured Receipts and Coupons and unexchanged Talons
attached thereto. All Instruments purchased by or on behalf of the Issuer or any of its
Subsidiaries may, at the option of the Issuer be held by or may be surrendered together
with all unmatured Receipts and Coupons
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and all unexchanged Talons attached to them to a Paying Agent for cancellation, but may not be resold and when held by the Issuer or any
of its Subsidiaries shall not entitle the holder to vote at any meeting of
Instrumentholders and shall not be deemed to be outstanding for the purposes of
calculating quorums at meetings of Instrumentholders or for the purposes of Condition 10.
 5
    
    Payments and Talons
 5.1
    
    PaymentsPayments of principal and interest in respect of Instruments will, subject as mentioned
below, be made against presentation and surrender of the relevant Receipts (in the case
of payments of Instalment Amounts other than on the due date for redemption and provided
that the Receipt is presented for payment together with its relative Instrument),
Instruments (in the case of all other payments of principal and, in the case of interest,
as specified in Condition 5.5.6) or Coupons (in the case of interest, save as specified
in Condition 5.5.6), as the case may be, at the specified office of any Paying Agent
outside the United States by a cheque payable in the currency in which such payment is
due drawn on, or, at the option of the holder, by transfer to an
account denominated in that currency with, a bank in the principal financial centre for that
currency; provided that in the case of Euro, the transfer shall be in a city in which
banks have access to the TARGET System.5.2
    
    Payments in the United StatesNotwithstanding the above, if any Instruments are denominated in U.S. dollars, payments
in respect of them may be made at the specified office of any Paying Agent in New York
City in the same manner as specified above if (a) the Issuer shall have appointed Paying
Agents with specified offices outside the United States with the reasonable expectation
that such Paying Agents would be able to make payment of the amounts on the Instruments
in the manner provided above when due, (b) payment in full of such amounts at all such
offices is illegal or effectively precluded by exchange controls or other similar
restrictions on payment or receipt of such amounts and (c) such payment is then permitted
by United States law, without involving, in the opinion of the Issuer, any adverse tax
consequence to the Issuer.5.3
    
    Payments subject to Fiscal Laws etc.All payments are subject in all cases to any applicable fiscal or other laws, regulations
and directives, but without prejudice to the provisions of Condition 6. No commission or
expenses shall be charged to the Instrumentholders or Couponholders in respect of such
payments.5.4
    
    Appointment of AgentsThe Issuing and Paying Agent, the Paying Agents and the Calculation Agent initially
appointed by the Issuer and their respective specified offices are listed below. The
Issuing and Paying Agent, the Paying Agents and the Calculation Agent act solely as
agents of the Issuer and do not assume any obligation or relationship of agency or trust
for or with any holder. The Issuer reserves the right at any time with the approval of
the Trustee to vary or terminate the appointment of the Issuing and Paying Agent, any
other Paying Agent or the Calculation Agent and to appoint additional or other Paying
Agents, provided that the Issuer shall at all times maintain (a) an Issuing and Paying
Agent, (b) a Paying Agent having its specified office in a major European city, which
shall be London so long as the Instruments are admitted to the Official List of the
Financial Services Authority in its capacity as competent authority under the Financial
Services and Markets Act 2000 and admitted to trading on the London Stock Exchanges
Gilt-Edged and Fixed Interest Market, (c) a Calculation Agent where the Conditions so
require one, (d) so long as the Instruments are listed on any stock exchange or admitted
to listing by any other relevant authority, a Paying Agent having a specified office in
such place as may be required by the rules and regulations of any other relevant stock
exchange or other relevant authority and (e) to the extent
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that the Issuer is able to do so and not provided for by the foregoing provisions of this Condition 5.4, a Paying Agent
with a specified office in a European Union member state that will not be obliged to
withhold or deduct tax pursuant to any law implementing European Council Directive
2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council
meeting of 26-27 November 2000. As used in these Conditions, the terms Issuing and
Paying Agent, Calculation Agent, and Paying Agent include any additional or
replacement Issuing and Paying Agent, Calculation Agent or Paying Agent appointed under
this Condition.
   5.5
    
    Unmatured Coupons and Receipts and unexchanged Talons
 5.5.1
    
    Unless the Instrument provides that the relevant Coupons are to become
void upon the due date for redemption of those Instruments, Instruments should be
surrendered for payment together with all unmatured Coupons (if any) appertaining to them, failing which an
amount equal to the face value of each missing unmatured Coupon (or, in the case of
payment not being made in full, that proportion of the amount of such missing
unmatured Coupon that the sum of principal so paid bears to the total principal
due) will be deducted from the Final Redemption Amount, Early Redemption Amount or
Optional Redemption Amount, as the case may be, due for payment. Any amount so
deducted shall be paid in the manner mentioned above against surrender of such
missing Coupon within a period of 10 years from the Relevant Date for the payment
of such principal (whether or not such Coupon has become void pursuant to Condition
7).5.5.2
    
    If the relevant Instrument so provides, upon the due date for redemption
of any Instrument, unmatured Coupons relating to such Instrument (whether or not
attached) shall become void and no payment shall be made in respect of them.5.5.3
    
    If the relevant Instrument so provides, upon the due date for redemption
of any Instrument, any unexchanged Talon relating to such Instrument (whether or not
attached) shall become void and no Coupon shall be delivered in respect of such
Talon.5.5.4
    
    Upon the due date for redemption of any Instrument which is redeemable
in instalments, all Receipts relating to such Instrument having an Instalment Date
falling on or after such due date (whether or not attached) shall become void and no
payment shall be made in respect of them.5.5.5
    
    Where any Instrument which provides that the relevant Coupons are to
become void upon the due date for redemption of those Instruments is presented for
redemption without all unmatured Coupons and any unexchanged Talon relating to it,
and where any Instrument is presented for redemption without any unexchanged Talon
relating to it, redemption shall be made only against the provision of such
indemnity as the Issuer may require.5.5.6
    
    If the due date for redemption of any Instrument is not a due date for
payment of interest, interest accrued from the preceding due date for payment of
interest or the Interest Commencement Date, as the case may be, shall only be
payable against presentation (and surrender if appropriate) of the relevant
Instrument. Interest accrued on an Instrument that only bears interest after its
Maturity Date shall be payable on redemption of that Instrument against presentation
of that Instrument.
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5.6
    
    Non-business daysIf any date for payment in respect of any Instrument, Receipt or Coupon is not a business
day, the holder shall not be entitled to payment until the next following business day
nor to any interest or other sum in respect of such postponed payment. In this paragraph,
business day means a day (other than a Saturday or a Sunday) on which banks and foreign
exchange markets are open for business in the relevant place of presentation, in such
jurisdictions as shall be specified as Financial Centres in the relevant Final Terms
and:
 5.6.1
    
    (in the case of a payment in a currency other than Euro) where payment
is to be made by transfer to an account maintained with a bank in the relevant
currency, on which foreign exchange transactions may be carried on in the relevant
currency in the principal financial centre of the country of such currency; or5.6.2
    
    (in the case of a payment in Euro) which is a TARGET Business Day.
 5.7
    
    TalonsOn or after the Interest Payment Date for the final Coupon forming part of a Coupon sheet
issued in respect of any Instrument, the Talon forming part of such Coupon sheet may be
surrendered at the specified office of the Issuing and Paying Agent in exchange for a further Coupon
sheet (but excluding any Coupons which may have become void pursuant to Condition 7).
 6
    
    TaxationAll payments of principal and interest by or on behalf of the Issuer in respect of the
Instruments, the Receipts and the Coupons will be made without withholding or deduction for or
on account of, any present or future taxes or duties of whatever nature imposed or levied by or
on behalf of the United States of America or any political sub-division of the United States of
America or any authority in or of the United States of America having power to tax, unless such
withholding or deduction is compelled by law. In that event, the Issuer will pay such
additional amounts of principal and interest as will result in the payment to the
Instrumentholders, Receiptholders or, as the case may be, the Couponholders of the amounts
which would otherwise have been receivable in respect of the Instruments, Receipts or Coupons
had no withholding or deduction been made, except that no such additional amounts shall be
payable in respect of any Instrument, Receipt or Coupon presented for payment:
 (a)
    
    by or on behalf of, a person who is liable to such taxes or duties in respect of such
Instrument, Receipt or Coupon by reason of his having some connection with the United
States of America other than the mere holding of such Instrument, Receipt or Coupon; or(b)
    
    by or on behalf of a person who would not be liable or subject to such deduction or
withholding by making a declaration of non-residence or other claim for exemption to a tax
authority; or(c)
    
    more than 30 days after the Relevant Date except to the extent that the holder would
have been entitled to such additional amounts on presenting the same for payment on such
30th day; or(d)
    
    where such withholding or deduction is imposed on a payment to an individual and is
required to be made pursuant to any law implementing European Council Directive 2003/48/EC
or any other Directive implementing the conclusions of the ECOFIN Council meeting of 26-27
November 2000; or(e)
    
    by a holder which is or was a controlled foreign corporation, personal holding
company or passive foreign investment company with respect to the United States or a
corporation that accumulates earnings to avoid United States federal income tax; or(f)
    
    if such tax is an estate, inheritance, gift, sales, transfer or personal property tax
or any similar tax, assessment, or governance charge; or
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(g)
    
    by a holder which is or has been a 10 per cent. shareholder of the obligor of the
Instruments as defined in Section 871(h)(3) of the United States Internal Revenue Code or
any successor provisions; or(h)
    
    by or on behalf of a holder who would have been able to avoid such withholding or
deduction (i) by presenting the relevant Instrument, Receipt or Coupon to another Paying
Agent in a Member State of the European Union; or (ii) by satisfying any statutory or
procedural requirements (including, without limitation, the provision of information); or(i)
    
    in the case of any combination of items (a) to (h) above.
 Relevant Date principal interest principal interest
 7
    
    PrescriptionInstruments, Receipts and Coupons (which, for this purpose, shall not include Talons) shall be
prescribed and become void unless presented for payment within 10 years (in the case of
principal) or five years (in the case of interest) from the appropriate Relevant Date in
respect of them.
 8
    
    Events of DefaultIf any of the following events (each an Event of Default) occurs and is continuing, the
Trustee at its discretion may, and if so requested by the holders of at least one-quarter in
nominal amount of the Instruments then outstanding or if so directed by an Extraordinary
Resolution shall, give notice to the Issuer at its registered office that the Instruments are,
and they shall accordingly immediately become due and repayable at their Redemption Amount
together with accrued interest (if any) to the date of payment:
 (a)
    
    Non-Payment:there is default for more than 30 days in the payment of any principal
or interest due in respect of the Instruments; or(b)
    
    Breach of Other Obligations:there is default in the performance or observance by the
Issuer of any other obligation or provision under the Trust Deed or the Instruments (other
than any obligation for the payment of any principal or interest in respect of the
Instruments) which default is incapable of remedy or, if in the opinion of the Trustee
capable of remedy, is not remedied within 90 days after notice of such default shall have
been given to the Issuer by the Trustee; or(c)
    
    Cross-Acceleration:if (i) any other present or future Relevant Indebtedness of the
Issuer or a Principal Subsidiary becomes due and payable prior to its stated maturity by
reason of any actual event of default or (ii) any amount in respect of such Relevant
Indebtedness is not paid when due or, as the case may be, within any applicable grace
period, provided that the aggregate amount of the Relevant Indebtedness in respect of
which one or more of the events mentioned above in this
 40




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paragraph (c) have occurred equals or exceeds U.S.$100,000,000 for the period up to and including 31 March 2017, and
thereafter U.S.$200,000,000 or
 (d)
    
    Winding-up:a resolution is passed, or a final order of a court in the United States
of America is made and, where possible, not discharged or stayed within a period of 90
days, that the Issuer be wound up or dissolved; or(e)
    
    Enforcement Proceedings:attachment is made of the whole or substantially the whole
of the assets or undertakings of the Issuer and such attachment is not released or
cancelled within 90 days or an encumbrancer takes possession or an administrative or other
receiver or similar officer is appointed of the whole or substantially the whole of the
assets or undertaking of the Issuer or an administration or similar order is made in
relation to the Issuer and such taking of possession, appointment or order is not
released, discharged or cancelled within 90 days; or(f)
    
    Insolvency:the Issuer ceases to carry on all or substantially all of its business or
is unable to pay its debts; or(g)
    
    Bankruptcy:the Issuer is adjudged bankrupt or insolvent by a court of competent
jurisdiction in the United States of America,
  Principal Subsidiary Group
 9
    
    EnforcementThe Trustee may, at its discretion and without further notice, institute such proceedings
against the Issuer as it may think fit to enforce any obligation, condition or provision
binding on the Issuer under the Instruments or under the Trust Deed, but shall not be bound to
do so unless:
 (a)
    
    it has been so directed by an Extraordinary Resolution or in writing by the holders
of at least one-quarter of the principal amount of the Instruments outstanding; and(b)
    
    it has been indemnified to its satisfaction.
  10
    
    Meetings of Instrumentholders, Modifications and Substitution
 10.1
    
    Meetings of InstrumentholdersThe Trust Deed contains provisions for convening meetings of Instrumentholders to
consider any matter affecting their interests, including the sanctioning by Extraordinary
Resolution (as defined in the Trust Deed) of a modification of any of these Conditions or
any provisions of the Trust Deed. An Extraordinary Resolution duly passed at any such
meeting shall be binding on Instrumentholders (whether or not they were present at the
meeting at which such resolution was passed) and on all Couponholders, except that any
Extraordinary Resolution proposed, inter alia,
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(a) to amend the dates of maturity or redemption of the Instruments, any Instalment Date or any date for payment of interest on
the Instruments, (b) to reduce or cancel the nominal amount of, or any Instalment Amount
of, or any premium payable on redemption of, the Instruments, (c) to reduce the rate or
rates of interest in respect of the Instruments or to vary the method or basis of
calculating the rate or rates or amount of interest or the basis for calculating any
Interest Amount in respect of the Instruments, (d) if a Minimum and/or a Maximum Rate of
Interest is shown on the face of the Instrument, to reduce any such Minimum and/or
Maximum Rate of Interest, (e) to vary any method of calculating the Final Redemption
Amount, the Early Redemption Amount or the Optional Redemption Amount, (f) to take any
steps that as specified in this Instrument may only be taken following approval by an
Extraordinary Resolution to which the special quorum provisions apply, and (g) to modify
the provisions concerning the quorum required at any meeting of Instrumentholders or the
majority required to pass the Extraordinary Resolution will only be binding if passed at
a meeting of the Instrumentholders (or at any adjournment of that meeting) at which a
special quorum (as defined in the Trust Deed) is present. A resolution in writing signed
by the holders of not less than 95 per cent. in nominal amount of the Instruments will be
binding on all Instrumentholders and Couponholders. The Issuer may convene a meeting of
Instrumentholders jointly with the holders of all other instruments issued pursuant to
the Agency Agreement and not forming a single series with the Instruments to which
meeting the provisions referred to above apply as if all such instruments formed part of
the same series, provided that the proposals to be considered at such meeting affect the rights of the holders of the
instruments of each series attending the meeting in identical respects (save insofar as
the Conditions applicable to each such series are not identical).
 10.2
    
    Modification of the Trust DeedThe Trustee may agree, without the consent of the Instrumentholders or Couponholders, to
(a) any modification of any of the provisions of the Trust Deed that is of a formal,
minor or technical nature or is made to correct a manifest error, and (b) any other
modification (except as mentioned in the Trust Deed), and any waiver or authorisation of
any breach or proposed breach, of any of the provisions of the Trust Deed that is in the
opinion of the Trustee not materially prejudicial to the interests of the
Instrumentholders. Any such modification, authorisation or waiver shall be binding on the
Instrumentholders and the Couponholders and, if the Trustee so requires, such
modification shall be notified to the Instrumentholders as soon as practicable.10.3
    
    SubstitutionThe Trust Deed contains provisions permitting the Trustee to agree, subject to such
amendment of the Trust Deed and such other conditions as the Trustee may require, but
without the consent of the Instrumentholders or the Couponholders, to the substitution of
any other company in place of the Issuer or of any previous substituted company, as
principal debtor under the Trust Deed and the Instruments. In the case of such a
substitution the Trustee may agree, without the consent of the Instrumentholders or the
Couponholders, to a change of the law governing the Instruments, the Receipts, the
Coupons, the Talons and/or the Trust Deed provided that such change would not in the
opinion of the Trustee be materially prejudicial to the interests of the
Instrumentholders.10.4
    
    Entitlement of the TrusteeIn connection with the exercise of its functions (including but not limited to those
referred to in this Condition) the Trustee shall have regard to the interests of the
Instrumentholders as a class and shall not have regard to the consequences of such
exercise for individual Instrumentholders or Couponholders and the Trustee shall not be
entitled to require, nor shall any Instrumentholder or Couponholder be entitled to claim,
from the Issuer any indemnification or payment in respect of any tax consequence of any
such exercise upon individual Instrumentholders or Couponholders.
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11
    
    Replacement of Instruments, Receipts, Coupons and TalonsIf an Instrument, Receipt, Coupon or Talon is lost, stolen, mutilated, defaced or destroyed, it
may be replaced, subject to applicable laws, listing authority and stock exchange regulations,
at the specified office of such other Paying Agent as may from time to time be designated by
the Issuer for the purpose and notice of whose designation is given to Instrumentholders in
accordance with Condition 13 on payment by the claimant of the fees and costs incurred in
connection with that replacement and on such terms as to evidence, security and indemnity
(which may provide, inter alia, that if the allegedly lost, stolen or destroyed Instrument,
Receipt, Coupon or Talon is subsequently presented for payment or, as the case may be, for
exchange for further Coupons, there shall be paid to the Issuer on demand the amount payable by
the Issuer in respect of such Instruments, Receipts, Coupons or further Coupons) and otherwise
as the Issuer may require. Mutilated or defaced Instruments, Receipts, Coupons or Talons must
be surrendered before replacements will be issued.12
    
    Further IssuesThe Issuer may from time to time without the consent of the Instrumentholders or Couponholders
create and issue further instruments having the same terms and conditions as the Instruments
and so that such further issue shall be consolidated and form a single series with such
Instruments.References in these Conditions to the Instruments include (unless the context requires
otherwise) any other instruments issued pursuant to this Condition and forming a single series
with the Instruments. Any such further instruments forming a single series with Instruments constituted by the Trust Deed
or any deed supplemental to it shall, and any other instruments may (with the consent of the
Trustee), be constituted by the Trust Deed.The Trust Deed contains provisions for convening a single meeting of the Instrumentholders and
the holders of instruments of other series if the Trustee so decides.13
    
    NoticesAll notices to the Instrumentholders will be valid if published in a daily English language
newspaper of general circulation in the United Kingdom (which is expected to be the Financial
Times). If in the opinion of the Trustee any such publication is not practicable, notice shall
be validly given if published in another leading daily English language newspaper with general
circulation in Europe. Any such notice shall be deemed to have been given on the date of such
publication or, if published more than once or on different dates, on the first date on which
publication is made, as provided above.Couponholders shall be deemed for all purposes to have notice of the contents of any notice
given to the holders of Instruments in accordance with this Condition.14
    
    Indemnification of TrusteeThe Trust Deed contains provisions for the indemnification of the Trustee and for its relief
from responsibility, including but not limited to provisions relieving it from any obligation
to (a) appoint an independent financial adviser and (b) take proceedings to enforce repayment
unless indemnified to its satisfaction. The Trustee is entitled to enter into business
transactions with the Issuer or any of its subsidiary undertakings, parent undertakings, joint
ventures or associated undertakings without accounting for any profit resulting from these
transactions and to act as trustee for the holders of any other securities issued by the Issuer
or any of its subsidiary undertakings, parent undertakings, joint ventures or associated
undertakings.15
    
    Contracts (Rights of Third Parties) Act 1999No person shall have any right to enforce any term or condition of the Instruments under the
Contracts (Rights of Third Parties) Act 1999.
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16
    
    Governing Law and Jurisdiction
 16.1
    
    Governing LawThe Instruments and all matters arising from or connected with the Instruments are
governed by, and shall be construed in accordance with, English law.16.2
    
    JurisdictionThe courts of England have exclusive jurisdiction to settle any dispute (a Dispute),
arising from or connected with the Instruments. The Issuer agrees that the courts of
England are the most appropriate and convenient courts to settle any Dispute and,
accordingly, that it will not argue to the contrary. Nothing in this Condition 16
prevents the Trustee or any Instrumentholder from taking proceedings relating to a
Dispute (Proceedings) in any other courts with jurisdiction. To the extent allowed by
law, the Trustee or Instrumentholders may take concurrent Proceedings in any number of
jurisdictions.16.3
    
    Process AgentThe Issuer has irrevocably appointed National Grid plc at its registered office for the
time being, currently at 1-3 Strand, London WC2N 5EH as its agent in England to receive,
for it and on its behalf, service of process in any Proceedings in England. Nothing
herein or in the Trust Deed shall affect the right to serve process in any other manner
permitted by law.
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SUMMARY OF PROVISIONS RELATING TO THE INSTRUMENTS
WHILE IN GLOBAL FORM
 Initial Issue of Instruments
 Common Depositary
     Relationship of Accountholders with Clearing Systems
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Exchange
 1
    
    Temporary Global InstrumentsEach temporary Global Instrument will be exchangeable, free of charge to the holder, on or
after its Exchange Date:
 1.1
    
    if the relevant Final Terms indicates that such Global Instrument is issued in
compliance with the C Rules or in a transaction to which TEFRA is not applicable (as to
which, see Summary of the Programme  Selling Restrictions), in whole, but not in part,
for the Definitive Instruments defined and described below; and1.2
    
    otherwise, in whole or in part upon certification as to non-U.S. beneficial ownership
in the form set out in the Agency Agreement for interests in a permanent Global Instrument
or, if so provided in the relevant Final Terms, for Definitive Instruments.
 2
    
    Permanent Global InstrumentsEach permanent Global Instrument will be exchangeable, free of charge to the holder, on or
after its Exchange Date in whole but not, except as provided under Partial Exchange of
Permanent Global Instruments, in part for Definitive Instruments (i) if the holder of an
Instrument gives notice to the Issuing and Paying Agent of its election for such exchange and
(ii) otherwise, if the permanent Global Instrument is held on behalf of Euroclear or
Clearstream, Luxembourg or any other clearing system (an Alternative Clearing System) and any
such clearing system is closed for business for a continuous period of 14 days (other than by
reason of holidays, statutory or otherwise) or announces an intention permanently to cease
business or in fact does so.3
    
    Partial Exchange of Permanent Global InstrumentsFor so long as a permanent Global Instrument is held on behalf of a clearing system and the
rules of that clearing system permit, such permanent Global Instrument will be exchangeable in
part on one or more occasions for Definitive Instruments (a) if principal in respect of any
Instruments is not paid when due or (b) if so provided in, and in accordance with, the
Conditions (which will be set out in the relevant Final Terms) relating to Partly Paid
Instruments.4
    
    Delivery of InstrumentsIf the Global Instrument is a CGN, on or after any due date for exchange the holder of a Global
Instrument may surrender such Global Instrument or, in the case of a partial exchange, present
it for endorsement to or to the order of the Issuing and Paying Agent. In exchange for any
Global Instrument, or the part of that Global Instrument to be exchanged, the Issuer will (a)
in the case of a temporary Global Instrument exchangeable for a permanent Global Instrument,
deliver, or procure the delivery of, a permanent Global Instrument in an aggregate nominal
amount equal to that of the whole or that part of a temporary Global Instrument that is being
exchanged or, in the case of a subsequent exchange, endorse, or procure the endorsement of, a
permanent Global Instrument to reflect such exchange or (b) in the case of a Global Instrument
exchangeable for Definitive Instruments, deliver, or procure the delivery of, an equal
aggregate nominal amount of duly executed and authenticated Definitive
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Instruments or if the Global Instrument is a NGN, the Issuer will procure that details of such
exchange be entered pro ratain the records of the relevant clearing system. In this
Prospectus, Definitive Instruments means, in relation to any Global Instrument, the
Definitive Instruments for which such Global Instrument may be exchanged (if appropriate,
having attached to them all Coupons and Receipts in respect of interest or Instalment Amounts
that have not already been paid on the Global Instrument and a Talon). Definitive Instruments
will be security printed in accordance with any applicable legal and stock exchange
requirements in or substantially in the form set out in the Schedules to the Trust Deed. On
exchange in full of each permanent Global Instrument, the Issuer will, if the holder so
requests, procure that it is cancelled and returned to the holder together with the relevant
Definitive Instruments.5
    
    Exchange DateExchange Date means, in relation to a temporary Global Instrument, the day falling after the
expiry of 40 days after its issue date and, in relation to a permanent Global Instrument, a day
falling not less than 60 days, or in the case of failure to pay principal in respect of any
Instruments when due 30 days, after that on which the notice requiring exchange is given and on
which banks are open for business in the city in which the specified office of the Issuing and
Paying Agent is located and in the city in which the relevant clearing system is located.6
    
    Amendment to ConditionsThe temporary Global Instruments and permanent Global Instruments contain provisions that apply
to the Instruments which they represent, some of which modify the effect of the terms and
conditions of the Instruments set out in this Prospectus. The following is a summary of certain
of those provisions:7
    
    PaymentsNo payment falling due after the Exchange Date will be made on any Global Instrument unless
exchange for an interest in a permanent Global Instrument or for Definitive Instruments is
improperly withheld or refused. Payments on any temporary Global Instrument issued in
compliance with the D Rules before the Exchange Date will only be made against presentation of
certification as to non-U.S. beneficial ownership in the form set out in the Agency Agreement.
All payments in respect of Instruments represented by a Global Instrument will be made against
presentation for endorsement and, if no further payment falls to be made in respect of the
Instruments, surrender of that Global Instrument to or to the order of the Issuing and Paying
Agent or such other Paying Agent as shall have been notified to the Instrumentholders for such
purpose. If the Global Instrument is a CGN, a record of each payment so made will be endorsed
on each Global Instrument, which endorsement will be prima facieevidence that such payment has
been made in respect of the Instruments. If the Global Instrument is a NGN, the Issuer shall
procure that details of each such payment shall be entered pro ratain the records of the
relevant clearing system and in the case of payments of principal, the nominal amount of the
Instruments recorded in the records of the relevant clearing system and represented by the
Global Instrument will be reduced accordingly. Payments under the NGN will be made to its
holder. Each payment so made will discharge the Issuers obligations in respect thereof. Any
failure to make the entries in the records of the relevant clearing system shall not affect
such discharge.8
    
    PrescriptionClaims against the Issuer in respect of Instruments which are represented by a permanent Global
Instrument will become void unless it is presented for payment within a period of 10 years (in
the case of principal) and five years (in the case of interest) from the appropriate Relevant
Date (as defined in Condition 6).
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9
    
    MeetingsThe holder of a permanent Global Instrument shall (unless such permanent Global Instrument
represents only one Instrument) be treated as being two persons for the purposes of any quorum
requirements of a meeting of Instrumentholders and, at any such meeting, as having one vote in
respect of each integral currency unit of the Specified Currency of the Instruments for which
it may be exchanged in accordance with its terms.10
    
    CancellationCancellation of any Instrument represented by a permanent Global Instrument which is required
by the Conditions to be cancelled (other than upon its redemption) will be effected by
reduction in the nominal amount of the relevant permanent Global Instrument.11
    
    PurchaseInstruments represented by a permanent Global Instrument may only be purchased by the Issuer or
any of its subsidiary undertakings if they are purchased together with the right to receive all
future payments of interest and Instalment Amounts (if any) on those Instruments.12
    
    Issuers OptionAny option of the Issuer provided for in the Conditions of any Instruments while such
Instruments are represented by a permanent Global Instrument shall be exercised by the Issuer
giving notice to the Instrumentholders within the time limits set out in and containing the
information required by the Conditions, except that the notice shall not be required to contain
the serial numbers of Instruments drawn in the case of a partial exercise of an option and
accordingly no drawing of Instruments shall be required. In the event that any option of the
Issuer is exercised in respect of some but not all of the Instruments of any Series, the rights
of accountholders with a clearing system or Approved Intermediary in respect of the Instruments
will be governed by the standard procedures of Euroclear and/or Clearstream, Luxembourg (to be
reflected in the records of Euroclear and Clearstream, Luxembourg as either a pool factor or a
reduction in nominal amount, at their discretion) or any other Alternative Clearing System (as
the case may be).13
    
    Instrumentholders OptionsAny option of the Instrumentholders provided for in the Conditions of any Instruments while
such Instruments are represented by a permanent Global Instrument may be exercised by the
holder of the permanent Global Instrument giving notice to the Issuing and Paying Agent within
the time limits relating to the deposit of Instruments with a Paying Agent set out in the
Conditions substantially in the form of the notice available from any Paying Agent stating the
nominal amount of Instruments in respect of which the option is exercised and at the same time,
where the permanent Global Instrument is a CGN, presenting the permanent Global Instrument for
notation. Where the Global Instrument is an NGN, the Issuer shall procure that details of such
exercise shall be entered pro ratain the records of the relevant clearing system and the
nominal amount of the Instruments recorded in those records will be reduced accordingly.14
    
    NGN nominal amountWhere the Global Note is a NGN, the Issuer shall procure that any exchange, payment,
cancellation, exercise of any option or any right under the Instruments, as the case may be, in
addition to the circumstances set out above shall be entered in the records of the relevant
clearing systems and upon any such entry being made, in respect of payments of principal, the
nominal amount of the Instruments represented by such Global Instrument shall be adjusted
accordingly.
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15
    
    Trustees PowersIn considering the interests of Instrumentholders while any Global Instrument is held on behalf
of a clearing system, the Trustee may have regard to any information provided to it by such
clearing system or its operator as to the identity (either individually or by category) of its
accountholders with entitlements to such Global Instrument and may consider such interests as
if such accountholders were the holders of the Instruments represented by such Global
Instrument.16
    
    Events of DefaultEach Global Instrument provides that the Trustee, at its discretion, may, and if so requested
by holders of at least one-quarter in nominal amount of the Instruments then outstanding or if
so directed by an Extraordinary Resolution, shall cause such Global Instrument to become due
and repayable in the circumstances described in Condition 8 by stating in the notice to the
Issuer the principal amount of such Global Instrument which is becoming due and repayable. If
principal in respect of any Instrument is not paid when due, only the Trustee may enforce the
rights of the Instrumentholders against such Issuer under the terms of the Trust Deed unless
the Trustee, having become bound to proceed, fails to do so within a reasonable time and such
failure is continuing.17
    
    NoticesSo long as any Instruments are represented by a Global Instrument and such Global Instrument is
held on behalf of a clearing system, notices to the holders of Instruments of that Series may
be given by delivery of the relevant notice to that clearing system for communication by it to
entitled accountholders in substitution for publication as required by the Conditions or by
delivery of the relevant notice to the holder of the Global Instrument.18
    
    Partly Paid InstrumentsThe provisions relating to Partly Paid Instruments are not set out in this Prospectus, but will
be contained in the relevant Final Terms and so in the Global Instruments. While any
instalments of the subscription moneys due from the holder of Partly Paid Instruments are
overdue, no interest in a Global Instrument representing such Instruments may be exchanged for
an interest in a permanent Global Instrument or for Definitive Instruments (as the case may
be). If any Instrumentholder fails to pay any instalment due on any Partly Paid Instruments
within the time specified, the Issuer may forfeit such Instruments and shall have no further
obligation to their holder in respect of them.
 49




---



##### 



USE OF PROCEEDS
  50




---



##### 



DESCRIPTION OF NATIONAL GRID USA
 Overview
   Introduction
  Business overview
   
    
    Electricity Transmission;
    
    Gas distribution;
    
    Electricity distribution; and
    
    Non-regulated businesses.
  
    
    Electricity Transmission
 U.S.;
    
    Gas Distribution  U.S.;
    
    Electricity Distribution
 U.S.; and
    
    U.S. stranded cost recoveries.
  51




---



##### 




    
    KeySpan Corporation (collectively KeySpan) directly and indirectly owned public
utilities consisting of:
 
    
    The Brooklyn Union Gas d/b/a/ KeySpan Energy Delivery New York (KEDNY)  New
York;
    
    KeySpan Gas East Corporation d/b/a KeySpan Energy Delivery Long Island (KEDLI)
  New York;
    
    Colonial Gas Company  New England;
    
    Boston Gas Company  New England;
    
    Essex Gas Company  New England; and
    
    EnergyNorth Natural Gas, Inc.  New England;
 
    
    Niagara Mohawk Power Corporation (NMPC)  New York;
    
    New England Power Company (NEP)  New England;
    
    Massachusetts Electric Company (MECO)  Massachusetts;
    
    The Narragansett Electric Company (Narragansett)  Rhode Island
    
    Granite State Electric Company (Granite State)  New Hampshire
    
    Nantucket Electric Company (NEC)  Massachusetts
    
    New England Electric Transmission Corporation (NEET)  Massachusetts and New
Hampshire;
    
    New England Hydro-Transmission Corporation (N.H. Hydro)  New Hampshire; and
    
    New England Hydro-Transmission Electric Company, Inc. (Mass. Hydro)  Massachusetts.
 LIPA NYPSC
 52




---



##### 



Electricity Transmission
  ISOs
  Gas Distribution
 LNG
  53




---



##### 



New York
     54




---



##### 



Massachusetts and New Hampshire
 MDPU NHPUC
  Rhode Island
   Electricity Distribution
  
    
    Electricity Distribution
    
    United States and United States stranded cost recoveries.
  55




---



##### 



Long Island Power Authority
 LILCOs T&D 1998 MSA 1998 PSA 1998 EMA 1998 LIPA Agreements
  2006 Option Agreement GPRA
 56




---



##### 



2006
Settlement Agreement
 T&D System MW
 U.S. Stranded Cost Recoveries
   Other activities
 Interconnection
 Non Regulated Activity
   57




---



##### 



DTH
   Ravenswood Generating Station
 Ravenswood Facility Ravenswood Expansion Ravenswood Generating Station
  58




---



##### 



Regulatory Environment
 SEC
 U.S. electricity transmission
  NERC
 U.S. Gas Distribution
   U.S. Electricity Distribution
    59




---



##### 



Overview of Rate Plans
      New York
 U.S. GAAP
 60




---



##### 



Capacity Swap Agreement Morgan Stanley Inc. Notional Quantity Fixed Price Floating Price
 61




---



##### 



LSEs
 Massachusetts
  MDTE Plan
 62




---



##### 



Rhode Island
   New Hampshire
    Market and Regulatory developments
  U.S. electricity transmission
  ISO  New York
 63




---



##### 



Other Market Developments
 Energy Markets
  Recent Developments
 Merger
  Segment
    
    2006
    
    
    2005
    
    
    2004(Millions of Dollars)Gas
    
    U.S.$
    1,665.6
    
    
    U.S.$
    1,717.3
    
    
    U.S.$
    1,669.3Electric*
    
    U.S.$
    1,332.3
    
    
    U.S.$
    1,295.9
    
    
    U.S.$
    1,199.1Energy Services*
    
    U.S.$
    213.0
    
    
    U.S.$
    202.0
    
    
    U.S.$
    193.9Energy Investments
    
    U.S.$
    40.3
    
    
    U.S.$
    43.0
    
    
    U.S.$
    58.9
     64




---



##### 



KEDNE
      Legal Proceedings
  65




---



##### 



Executive Officers
  Name
    

TitleColin Buck
    

Chief
Financial Officer and Senior Vice-PresidentRobert Catell
    

Executive
ChairmanJohn Cochrane
    

Executive
Vice-President and TreasurerMalcolm Cooper
    

Assistant
TreasurerTom King
    

PresidentCheryl LaFleur
    

Executive
Vice-PresidentKwong Nuey
    

Senior
Vice-PresidentRichard Pettifer
    

Assistant
TreasurerLarry Reilly
    

Executive
Vice-President and SecretaryChristopher Root
    

Chief
Operating Officer and Senior Vice-PresidentMasheed Saidi
    

Senior
Vice-PresidentBob Seega
    

Assistant
Treasurer
 Board of Directors
  Principal
activities outsideNational
Grid USA and the NationalName
    

Grid
Group*
    

Business
AddressRobert Catell
    

None
    
    One MetroTech Center
Brooklyn NY 11201
United StatesJohn Cochrane
    
    Director of Blue-ng Limited,
Blue-ng (Holdings) Limited and
Britned Development Limited
    
    25 Research Drive
Westborough MA 01582
United StatesWilliam Edwards
    
    Director of the New York State
Energy Research & Development
Authority
    
    Niagara Mohawk Power
Corporation
300 Erie Boulevard West
Syracuse NY 13202
USASteve Holliday
    
    Non-Executive Director of Marks
and
    
    1-3 Strand
 66




---



##### 



Principal
activities outsideNational
Grid USA and the NationalName
    

Grid
Group*
    

Business
AddressSpencers
Group plc
    
    London
WC2N 5EH
United KingdomTom King
    

None
    
    25 Research Drive
Westborough MA 01582
United StatesCheryl LaFleur
    

None
    
    25 Research Drive
Westborough MA 01582
United StatesSteve Lucas
    
    Non-Executive Director of Compass
Group PLC and Director of American
European Business Association Ltd.
    
    1-3 Strand
London
WC2N 5EH
United KingdomLarry Reilly
    

None
    
    25 Research Drive
Westborough MA 01582
United StatesMasheed Saidi
    

None
    
    25 Research Drive
Westborough MA 01582
United StatesNick Winser
    

None
    
    1-3 Strand
London
WC2N 5EH
United Kingdom
 
 *
    
    The National Grid Group means National Grid plc and each of its subsidiary undertakings.
  67




---



##### 



TAXATION
 United States Taxation
 CIRCULAR 230
   (a)
    
    Payments of principal, original issue discount (OID), and interest by the Issuer or
any paying agent to any holder of an Instrument who is a United States Alien (as defined
below) will not be subject to U.S. federal withholding tax, provided that, in the case of
amounts treated as interest or OID with respect to Instruments with a maturity of more
than 183 days, (i) the amount of the payment is not determined by reference to any
receipts, sales or other cash flow, income or profits, change in value of any property of,
or dividend or similar payment made by, the Issuer or a person related to the Issuer (a
Contingent Payment), (ii) the holder does not actually or constructively own 10 per
cent. or more of the total combined voting power of all classes of stock of the Issuer
entitled to vote, (iii) the holder is not for U.S. federal income tax purposes a
controlled foreign corporation related to the Issuer through stock ownership, and (iv) the
holder is not a bank receiving interest described in Section 881(c)(3)(A) of the Internal
Revenue Code of 1986, as amended (the Code).(b)
    
    A United States Alien holder of an Instrument or coupon will not be subject to U.S.
federal income tax on any gain or income realised upon the sale, exchange, retirement or
other disposition of an Instrument or coupon, provided that (i) in the case of Instruments
with a maturity of more than 183 days, the Instruments do not provide for any Contingent
Payments, and (ii) neither the holder, nor a partner, fiduciary, settler or beneficiary of
the holder if the holder is a partnership or an estate or trust, or a person holding a
power over an estate or trust administered by a fiduciary holder, is considered as:
 (i)
    
    being or having been present or engaged in a trade or business in the
United States or having or having had a permanent establishment therein;(ii)
    
    having a current or former relationship with the United States, including
a relationship as a citizen or resident thereof;(iii)
    
    being or having been for U.S. federal income tax purposes a personal
holding company, a passive foreign investment company, a controlled foreign
corporation or a corporation that has accumulated earnings to avoid U.S. federal
income tax; or
 68




---



##### 



(iv)
    
    in the case of Instruments with a maturity of more than 183 days, (a)
actually or constructively owning or having owned 10 per cent. or more of the total
combined voting
power of all classes of stock of the Issuer entitled to vote or (b) being a
controlled foreign corporation related to the Issuer through stock ownership.
 (c)
    
    An Instrument or coupon held by an individual who is a United States Alien at the
time of death will not be subject to U.S. federal estate tax as a result of the
individuals death if (i) at the time of the individuals death payments with respect to
the Instrument would not have been effectively connected with a U.S. trade or business of
the individual, and (ii) with respect to Instruments with a maturity of more than 183
days, (A) the holder does not own, actually or constructively, 10 per cent. or more of the
total combined voting power of all classes of stock of the Issuer entitled to vote, and
(B) the Instrument does not provide for any Contingent Payments.(d)
    
    A beneficial owner of an Instrument or coupon that is a United States Alien will not
be required to disclose its nationality, residence, or identity to the Issuer, a paying
agent, or any U.S. governmental authority in order to receive payment on the Instrument or
coupon from the Issuer or a paying agent outside the United States (although the
beneficial owner of an interest in the temporary Global Instrument will be required to
provide a Certificate of Non-U.S. Beneficial Ownership to Euroclear or Clearstream,
Luxembourg in order to receive a beneficial interest in a Permanent Global Instrument or
Definitive Instruments and coupons and interest thereon, as described in Summary of
Provisions Relating to the Instruments while in Global Form  Exchange).
 United States Alien
 Backup Withholding and Information Reporting
    U.S. Controlled Person
 69




---



##### 



EU Savings Directive
   70




---



##### 



PLAN OF DISTRIBUTION
 Summary of Agreement
 Dealer Agreement
 Selling Restrictions
 United States
      Public Offer Selling Restriction under the Prospectus Directive
 Relevant Member State Relevant Implementation
Date
 71




---



##### 



(a)
    
    if the Final Terms in relation to the Instruments specify that an offer of those
Instruments may be made other than pursuant to Article 3(2) of the Prospectus Directive in
that Relevant Member State (a Non-Exempt Offer), following the date of publication of a
prospectus in relation to those Instruments which has been approved by the competent
authority in that Relevant Member State or, where appropriate, approved in another
Relevant Member State and notified to the competent authority in that Relevant Member
State, provided that any such prospectus has subsequently been completed by the Final
Terms contemplating such Non-Exempt Offer, in accordance with the Prospectus Directive, in
the period beginning and ending on the dates specified in such prospectus or Final Terms,
as applicable;(b)
    
    at any time to legal entities which are authorised or regulated to operate in the
financial markets or, if not so authorised or regulated, whose corporate purpose is solely
to invest in securities;(c)
    
    at any time to any legal entity which has two or more of (1) an average of at least
250 employees during the last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last
annual or consolidated accounts;(d)
    
    at any time to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to obtaining the prior consent
of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or(e)
    
    at any time in any other circumstances falling within Article 3(2) of the Prospectus
Directive,
  offer of Instruments to the public
 United Kingdom
  (a)
    
    in relation to any Instruments which have a maturity of less than one year, (i) it is
a person whose ordinary activities involve it in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of its business and (ii) it has
not offered or sold and will not offer or sell any Instruments other than to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or as agent) for the purposes of their businesses or who it is
reasonable to expect will acquire, hold, manage or dispose of investments (as principal or
agent) for the purposes of their businesses where the issue of the Instruments would
otherwise constitute a contravention of Section 19 of the FSMA by the Issuer;(b)
    
    it has only communicated or caused to be communicated and will only communicate or
cause to be communicated an invitation or inducement to engage in investment activity
(within the meaning
 72




---



##### 



of Section 21 of the FSMA) received by it in connection with the issue
or sale of any Instruments in circumstances in which Section 21(1) of the FSMA does not
apply to the Issuer; and(c)
    
    it has complied and will comply with all applicable provisions of the FSMA with
respect to anything done by it in relation to any Instruments in, from or otherwise
involving the United Kingdom.
 Japan
 Financial Instruments and Exchange Law resident of Japan
 General
    73




---



##### 



FORM OF FINAL TERMS
 The Final Terms in respect of each Tranche of Instruments will be substantially in the
following form, duly supplemented (if necessary), amended (if necessary) and completed to
reflect the particular terms of the relevant Instruments and their issue. Text in this section
appearing in italics does not form part of the form of the Final Terms but denotes directions
for completing the Final Terms.
 Final Terms dated []
 NATIONAL GRID USA
 PART A  CONTRACTUAL TERMS
  Prospectus Directive
 [Include whichever of the following apply or specify as Not Applicable (N/A). Note that the
numbering should remain as set out below, even if Not Applicable is indicated for individual
paragraphs or sub-paragraphs. Italics denote guidance for completing the Final Terms.]
 [When completing final terms or adding any other final terms or information consideration
should be given as to whether such terms or information constitute significant new factors
and consequently trigger the need for a supplement to the Prospectus under Article 16 of the
Prospectus Directive.]
 1.
    
    Issuer:
    
    
    
    National Grid USA2.
    
    (i)
    
    Series Number:
    
    [     ](ii)
    
    Tranche Number:
    
    [     ](If fungible with an existing
Series, details of that Series,
including the date on which the
Instruments become fungible).]3.
    
    Specified Currency or Currencies:
    
    [     ]4.
    
    Aggregate Nominal Amount:
    
    [     ][(i)]
    
    Series:
    
    [     ][(ii)]
    
    Tranche:
    
    [     ]5.
    
    Issue Price:
    
    [  ] per cent of the
Aggregate Nominal
Amount [plus accrued
interest from [insert
date] ( if applicable)]6.
    
    (i)
    
    Specified Denominations:
    
    [     ]*
   
 *
    
    Instruments which have a maturity of less than one year
must have a minimum denomination of £100,000 (or it equivalent in other
currencies) 74




---



##### 



(ii)
    
    Calculation Amount:
    
    [If only one Specified
Denomination, insert
the Specified
Denomination. If more
than one Specified
Denomination, insert
the highest common
factor] [Note: There
must be a common factor
in the case of two or
more Specified
Denominations]7.
    
    [(i)]
    
    Issue Date:
    
    [     ]][(ii)]
    
    Interest Commencement Date:
    
    [Specify/Issue Date/Not Applicable]
A13.4.8.
    
    Maturity Date:
    
    [specify date or (for Floating
Rate Instruments) Interest Payment
Date falling in or nearest to the
relevant month and year]9.
    
    Interest Basis:
    
    [[] per cent. Fixed Rate]
[[specify reference rate] +/- [] per cent. Floating Rate]
[Zero Coupon]
[Other (specify)]
(further particulars specified below)
A13.4.10.
    
    Redemption/Payment Basis:
    
    [Redemption at par]
[Dual Currency]
[Partly Paid]
[Instalment]
[Other (specify)]
A13.4.[N.B. If the Final Redemption Amount is
less than 100 per cent. of the nominal
value, the Instruments will constitute
derivative securities for the purposes of
the Prospectus Directive and the
requirements of Annex XII to the Prospectus
Directive Regulation No. 809/2004 will
apply and the Issuer will prepare and
publish a supplement to the Prospectus.]11.
    
    Change of Interest or
Redemption/Payment Basis:
    
    [Specify details of any provision for
convertibility of Instruments into another
interest or redemption/ payment basis]12.
    
    Put/Call Options:
    
    [Investor Put]
[Issuer Call]
[(further particulars specified below)]13.
    
    (i)
    
    Status of the Instruments:
    
    Senior(ii)
    
    Date [Board] approval for
issuance of Instruments
obtained:
    
    [     ] [and [     ], respectively]](N.B Only relevant where Board (or similar)
authorisation is required for the
particular tranche of Instruments)]14.
    
    Method of distribution:
    
    [Syndicated/Non-syndicated]PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE15.
    
    Fixed Rate Instrument Provisions
    
    [Applicable/Not Applicable](If not applicable, delete the remaining
sub-paragraphs of this paragraph)(i)
    
    Rate[(s)] of Interest:
    
    [     ] per cent. per annum [payable
[annually/semi-annually/quarterly/monthly]
in arrear]
   75




---



##### 



(ii)
    
    Interest Payment Date(s):
    
    [     ] in each year(iii)
    
    Fixed Coupon Amount[(s)]:
    
    [] per Calculation Amount(iv)
    
    Broken Amount(s):
    
    [] per Calculation Amount, payable on the
Interest Payment Date falling [in/on] [](v)
    
    Day Count Fraction (Condition
3.11):
    
    [30/360 / Actual/Actual ([ICMA]/ISDA)/other](vi)
    
    Determination Dates (Condition
3.11):
    
    [     ] in each year (insert regular interest
payment dates, ignoring issue date or
maturity date in the case of a long or
short first or last coupon. N.B. only
relevant where Day Count Fraction is
Actual/Actual ([ICMA]))(vii)
    
    Other terms relating to the
method of calculating interest
for Fixed Rate Instruments:
    
    [Not Applicable/give details]16.
    
    Floating Rate Instrument Provisions
    
    [Applicable/Not Applicable]
(If not applicable, delete the remaining
sub-paragraphs of this paragraph)(i)
    
    Interest Period(s):
    
    [     ](ii)
    
    Specified Interest Payment Dates:
    
    [     ](iii)
    
    Business Day Convention:
    
    [Floating Rate Convention/ Following
Business Day Convention/ Modified Following
Business Day Convention/ Preceding Business
Day Convention/ other (give details)](iv)
    
    First Interest Payment Date:
    
    [     ](v)
    
    Business Centre(s) (Condition 3.11):
    
    [     ](vi)
    
    Manner in which the Rate(s) of
Interest is/are to be determined:
    
    [Screen Rate
Determination/ISDA
Determination/other (give details)](vii)
    
    Interest Period Date(s):
    
    (Not Applicable unless different from
Interest Payment Date)(viii)
    
    Party responsible for calculating
the Rate(s) of Interest and Interest
Amount(s) (if not the Calculation
Agent):
    
    [     ](ix)
    
    Screen Rate Determination (Condition
3.2.3(b)):     Reference Rate:
    
    [     ]     Interest Determination
Date(s):
    
    [[     ][TARGET] Business Days in
[specify city] for [specify currency] prior
to [the first day in each Interest Accrual
Period/each Interest Payment Date]]     Relevant Screen Page:
    
    [     ]     Reference Banks (if
Primary       Source
is
Reference Banks):
    
    [Specify five](x)
    
    ISDA Determination (Condition
3.2.3(a)):
   76




---



##### 



      Floating Rate Option:
    
    [     ]      Designated Maturity:
    
    [     ]      Reset Date:
    
    [     ]      [ISDA Definitions:
(if different        from
those set
out in the        Conditions)
    
    [2000/2006]](xi)
    
    Margin(s):
    
    [+/-][  ] per cent. per annum(xii)
    
    Minimum Rate of Interest:
    
    [    ] per cent. per annum(xiii)
    
    Maximum Rate of Interest:
    
    [    ] per cent. per annum(xiv)
    
    Day Count Fraction (Condition 3.11):
    
    [     ](xv)
    
    Fall back provisions, rounding
provisions, denominator and any other
terms relating to the method of
calculating interest on Floating Rate
Instruments, if different from those set
out in the Conditions:
    
    [     ]17.
    
    Zero Coupon Instrument Provisions
    
    [Applicable/Not Applicable]
(If not applicable, delete the remaining
sub-paragraphs of this paragraph)(i)
    
    Amortisation Yield (Condition 4.4):
    
    [     ] per cent. per annum(ii)
    
    Day Count Fraction (Condition 3.11):
    
    [     ](iii)
    
    Any other formula/basis of
determining amount payable:
    
    [     ]18.
    
    Dual Currency Instrument Provisions
    
    [Applicable/Not Applicable](If not applicable, delete the remaining
sub-paragraphs of this paragraph)(i)
    
    Rate of Exchange/method of calculating
Rate of Exchange:
    
    [give details](ii)
    
    Calculation
Agent, if any, responsible for calculating the principal and/or interest due:
    
    [     ](iii)
    
    Provisions applicable where
calculation by reference to Rate of
Exchange impossible or impracticable:
    
    [     ](iv)
    
    Person at
whose option Specified Currency(ies) is/are payable:
    
    [     ](v)
    
    Day Count Fraction (Condition 3.11):
    
    [          ]PROVISIONS RELATING TO REDEMPTION19.
    
    Residual Holding Call Option
    
    [Applicable/Not Applicable](If not applicable, delete the remaining
sub-paragraphs of this paragraph)(i)
    
    Residual Holding Percentage:
    
    [  ] per cent.(ii)
    
    Party responsible for calculating the
    
    [         ]
   77




---



##### 



Residual Holding Redemption Amount (if not
the Calculation Agent):(iii)
    
    Benchmark Security:
    
    [Specify Government Security/swap benchmark](iv)
    
    Benchmark Spread:
    
    [          ] per cent. per annum(v)
    
    Benchmark Day Count Fraction:
    
    [          ](vi)
    
    [Other relevant provisions:
    
    [          ]]20.
    
    Call Option
    
    [Applicable/Not Applicable](If not applicable, delete the remaining
sub-paragraphs of this paragraph)(i)
    
    Optional Redemption Date(s):
    
    [     ](ii)
    
    Optional Redemption Amount(s) of each
Instrument and method, if any, of
calculation of such amount(s):
    
    [     ] per Calculation Amount(iii)
    
    If redeemable in part:(a)   Minimum nominal amount
to be redeemed:
    
    [     ] per Calculation Amount(b)   Maximum nominal amount
to be redeemed:
    
    [     ] per Calculation Amount(iv)
    
    Option Exercise Date(s):
    
    [          ](v)
    
    Notice period (if other than as set
out in the Conditions)
    
    [     ]21.
    
    Put Option
    
    [Applicable/Not Applicable]
(If not applicable, delete the remaining
sub-paragraphs of this paragraph)(i)
    
    Optional Redemption Date(s):
    
    [     ](ii)
    
    Optional Redemption Amount(s) of each
Instrument and method, if any, of
calculation of such amount(s):
    
    [     ] per Calculation Amount(iii)
    
    Option Exercise Date(s):
    
    [          ](iv)
    
    Notice period (if other than as set
out in the Conditions)
    
    [     ]22.
    
    Final Redemption Amount of each Instrument:
    
    [     ] per Calculation Amount(i)
    
    Formula:
    
    [give or annex details](ii)
    
    Calculation Agent responsible for
calculating the Final Redemption Amount:
    
    [     ](iii)
    
    Provisions for determining Final
Redemption Amount where calculated by
reference to Formula and/or other
variable:
    
    [give or annex details]
   
 
    
    This does not include the tax call in Condition 4.2 or
the call option contained in Condition 4.5.1 78




---



##### 



(iv)
    
    Determination Date(s):
    
    [     ](v)
    
    Provisions for determining Final
Redemption Amount where calculation by
reference to Index and/or Formula and/or
other variable is impossible or
impracticable or otherwise disrupted:
    
    [     ](vi)
    
    Payment Date:(vii)
    
    Minimum Final
Redemption Amount:
    
    [     ] per Calculation Amount(viii)
    
    Maximum Final
Redemption Amount:
    
    [     ] per Calculation Amount23.
    
    Early Redemption Amount(i)
    
    Early Redemption Amount(s) of each
Instrument payable on redemption for
taxation reasons (Condition 4.2) or on
Event of Default (Condition 8) or other
early redemption and/or the method of
calculating the same (if required or if
different from that set out in the
Conditions):
    
    [     ](ii)
    
    Redemption for taxation reasons
permitted on days other than Interest
Payment Dates (Condition 4.2)
    
    [Yes/No](iii)
    
    Unmatured Coupons to become void
upon early redemption (Condition 5.5)
    
    [Yes/No/Not Applicable]GENERAL PROVISIONS APPLICABLE TO THE INSTRUMENTS24.
    
    Form of Instruments:
    
    Bearer Instruments:[temporary Global Instrument exchangeable
for a permanent Global Instrument which is
exchangeable for Definitive Instruments in
the limited circumstances specified in the
permanent Global Instrument][temporary Global Instrument exchangeable
for Definitive Instruments in the limited
circumstances specified in the temporary
Global Instrument][permanent Global Instrument exchangeable
for Definitive Instruments in the limited
circumstances specified in the permanent
Global Instrument]25.
    
    New Global Note
    
    [Yes] [No]26.
    
    Financial Centre(s) or other special
provisions relating to Payment Dates
(Condition 5.6):
    
    [Not Applicable/give details. Note that
this item relates to the date and place of
payment, and not interest period end dates,
to which item 16(iv) relates]27.
    
    Applicable TEFRA exemption:
    
    [D Rules/Not Applicable]28.
    
    Talons for future Coupons or Receipts to
be attached to Definitive Instruments (and
    
    [Yes/No. If yes, give details]
   79




---



##### 



dates on which such Talons mature):29.
    
    Details relating to Partly Paid
Instruments: amount of each payment
comprising the Issue Price and date on
which each payment is to be made and
consequences (if any) of failure to pay,
including any right of the Issuer to
forfeit the Instruments and interest due
on late payment:
    
    [Not Applicable/give details]30.
    
    Details relating to Instalment Instruments:
    
    [Not Applicable/give details]
    
    Amount of each instalment:
    
    [          ]
    
    Date on which each payment is to be
made:
    
    [          ]
    
    Maximum Instalment Amount:
    
    Minimum Instalment Amount:
    
    [          ]31.
    
    Redenomination, renominalisation and
reconventioning provisions:
    
    [Not Applicable/ give details]32.
    
    Consolidation provisions:
    
    [Not Applicable/ give details]33.
    
    Other final terms:
    
    [Not Applicable/give details](When adding any other final terms
consideration should be given as to whether
such terms constitute a significant new
factor and consequently trigger the need
for a supplement to the Prospectus under
Article 16 of the Prospectus Directive.)DISTRIBUTION34.
    
    (i)
    
    If syndicated, names of Managers:
    
    [Not Applicable/give names](ii)
    
    Stabilising Manager(s) (if any):
    
    [Not Applicable/give name]35.
    
    If non-syndicated, name of Dealer:
    
    [Not Applicable/give name]36.
    
    Additional selling restrictions:
    
    [Not Applicable/give details]
 [PURPOSE OF FINAL TERMS
  RESPONSIBILITY
   
   80




---



##### 



PART B  OTHER INFORMATION *
 1
    
    Listing(i)
    
    Listing:
    
    [London/other (specify)/None](ii)
    
    Admission to trading:
    
    [Application has been made for the
Instruments to be admitted to trading on
the London Stock Exchange plcs
Gilt-Edged and Fixed Interest Market with
effect from [     ].]
[Not Applicable.](iii)
    
    Estimate of total
expenses related to admission
o trading:
    
    [     ]2
    
    RatingsRatings:
    
    The Instruments to be issued have been rated:
[S & P: [     ]]
[Moodys: [     ]]
[[Other]: [     ]]
(The above disclosure should reflect the rating allocated to
Instruments of the type being issued under the Programme
generally or, where the issue has been specifically rated, that
rating.)3
    
    [NotificationThe Financial Services Authority [has been requested to provide/has provided  include first
alternative for an issue which is contemporaneous with the update of the Programme and the
second alternative for subsequent issues] the [include names of competent authorities of host
Member States] with a certificate of approval attesting that the Prospectus has been drawn up
in accordance with the Prospectus Directive.]**4
    
    [Interests of Natural and legal Persons involved in the IssueNeed to include a description of any interest, including conflicting ones, that is material to
the issue/offer, detailing the persons involved and the nature of the interest. May be
satisfied by the inclusion of the following statement:So far as the Issuer is aware, no person involved in the offer of the Instruments has an
interest material to the offer.][(When adding any other description, consideration should be given as to whether such matters
described constitute significant new factors and consequently trigger the need for a
supplement to the Prospectus under Article 16 of the Prospectus
Directive.)]
 
 *
    
    If an issue of Instruments is (i) NOT admitted to
trading on a regulated market within the European Economic Area and (ii)
only offered in the European Economic Area in circumstances where a
prospectus is not required to be published under the Prospectus Directive
the Issuer may elect to amend and/or delete certain of the above
paragraphs of Part B.**
    
    Required for derivative securities to which Annex XII to the
Prospectus Directive Regulation applies.
   81




---



##### 



5
    
    [Reasons for the Offer, Estimated Net Proceeds and Total Expenses(i)
    
    [Reasons for the offer
    
    [     ](See [Use of
Proceeds] wording in
Prospectus  if reasons for offer
different fromgeneral corporate purposes
will need to include those reasons here.)](ii)
    
    [Estimated net proceeds:
    
    [          ](If proceeds are intended for more than
one use will need to split out and present
in order of priority. If proceeds
insufficient to fund all proposed uses
state amount and sources of other
funding.)(iii)
    
    [Estimated total
expenses:
    
    [          ] [Include breakdown of expenses.]([If the Instruments are derivative
securities for which Annex XII of the
Prospectus Directive Regulation applies it
is] only necessary to include disclosure
of net proceeds and total expenses at (ii)
and (iii) above where disclosure is
included at (i) above.)]*6
    
    [Fixed Rate Instruments only  YIELDIndication of yield:
    
    [          ]The yield is calculated at the Issue Date on the
basis of the Issue Price. It is not an indication of
future yield.]7
    
    [Dual Currency Instruments only  PERFORMANCE OF RATE[S] OF EXCHANGENeed to include details of where past and future performance and volatility of the relevant
rate[s] can be obtained.]*[(When completing this paragraph, consideration should be given as to whether such matters
described constitute significant new factors and consequently trigger the need for a
supplement to the Prospectus under Article 16 of the Prospectus Directive.)]8
    
    OPERATIONAL INFORMATIONISIN Code:
    
    [     ]Common Code:
    
    [     ]Any clearing
system(s) other
than Euroclear Bank
S.A./N.V. and
Clearstream Banking
société anonyme
and the relevant
identification
number(s):
    
    [Not Applicable/give name(s) and number(s) [and address(es)]]Delivery:
    
    Delivery [against/free of] paymentNames and addresses
of additional
Paying Agent(s) (if
any):
    
    [     ]Intended to be held
in a manner which
would allow
Eurosystem
    
    [Yes][No] [Note that the designation Yes simply means that
the Instruments are intended upon issue to be deposited with
Euroclear or Clearstream, Luxembourg as Common Safekeeper
and does not
   
 *
    
    Required for derivative securities to which Annex XII
to the Prospectus Directive Regulation applies. 82




---



##### 



eligibility:
    
    
    
    necessarily mean that the Instruments will be recognised as
eligible collateral for Eurosystem monetary
policy and intra-day credit operations by the Eurosystem
either upon issue or at any or all times during their life.
Such recognition will depend upon satisfaction of the
Eurosystem eligibility criteria.][Include this text if Yes
selected in which case the Instruments must be issued in NGN
form]9
    
    GeneralThe aggregate principal amount of
Instruments issued has been translated into
Euro at the rate of [], producing a sum of
(for Instruments not denominated in Euro):
    
    [Not Applicable/[[Euro]][]]Additional steps that may only be taken
following approval by an Extraordinary
Resolution in accordance with Condition
10.1:
    
    [Not Applicable/give details]
   83




---



##### 



GENERAL INFORMATION
 1.
    
    The admission of the Programme to listing on the Official List of the U.K. Listing
Authority and to trading on the Market is expected to take effect on or about 6 December
2007. The listing of the Instruments on the Official List will be expressed as a
percentage of their nominal amount (exclusive of accrued interest). Any Tranche of
Instruments intended to be admitted to listing on the Official List of the U.K. Listing
Authority and admitted to trading on the Market will be so admitted to listing and trading
upon submission to the U.K. Listing Authority and the Market (in accordance with their
rules and procedures) of the relevant Final Terms and any other information required by
the U.K. Listing Authority and the Market, subject in each case to the issue of the
relevant Instruments. Prior to official listing, dealings will be permitted by the Market
in accordance with its rules. Transactions will normally be effected for delivery on the
third working day in London after the day of the transaction.However, Instruments may be issued pursuant to the Programme which will not be admitted
to listing and/or trading by the U.K. Listing Authority or the Market or any other
listing authority, stock exchange and/or quotation system or which will be admitted to
listing, trading and/or quotation by such listing authority, stock exchange and/or
quotation system as the Issuer and the relevant Dealer(s) may agree.2.
    
    The Issuer has obtained all necessary consents, approvals and authorisations in the
United States of America in connection with the issue and performance of the Instruments.3.
    
    The establishment of the Programme was authorised by a resolution of the Executive
Committee of the Board of Directors of the Issuer passed on 14 November 2007.4.
    
    The Instruments have been accepted for clearance through the Euroclear and
Clearstream, Luxembourg. The appropriate common code and the International Securities
Identification Number in relation to the Instruments of each Series will be specified in
the Final Terms relating thereto. The relevant Final Terms shall specify any other
clearing system(s) as shall have accepted the relevant Instruments for clearance together
with any further appropriate information.5.
    
    Neither the Issuer nor any of it subsidiaries is or has been involved in any
governmental, legal or arbitration proceedings (including any such proceedings which are
pending or threatened of which the Issuer is aware) during the 12 months preceding the
date of this Prospectus which may have, or have in such period had, significant effects on
the financial position or profitability of the Issuer or of the Group.6.
    
    Save as disclosed in Description of National Grid USA  Recent Developments, there
has been no significant change in the financial or trading position of the Issuer or the
Group since 31 March 2007 and no material adverse change in the prospects of the Issuer
since 31 March 2007.7.
    
    PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm of 125 High
Street, Boston, MA 02110 (members of the American Institute of Certified Public
Accountants), have audited, and rendered unqualified audit reports on, the consolidated
financial statements prepared under U.S. GAAP of the Issuer for the years ended 31 March
2007 and 31 March 2006.8.
    
    Each Instrument having a maturity of more than one year, Receipt, Coupon and Talon
will bear the following legend: Any United States person who holds this obligation will
be subject to limitations under the United States income tax laws, including the
limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code.9.
    
    For so long as the Programme remains in effect or any Instruments are outstanding,
copies of the following documents may be inspected during usual business hours on any
weekday (Saturdays,
 84




---



##### 



Sundays and public holidays excepted), at the registered offices of the Issuer and the
specified office in London of the Issuing and Paying Agent:
 (a)
    
    a copy of this Prospectus together with any supplement to this Prospectus
or further Prospectus;(b)
    
    the constitutional documents of the Issuer; and(c)
    
    the audited consolidated accounts of the Issuer for the financial years
ended 31 March 2006 and 31 March 2007, respectively, and any consolidated interim
accounts of the Issuer published subsequently to such accounts.
 In addition, this Prospectus is and, in the case of Instruments to be admitted to the
Official List and admitted to trading on the Market, the relevant Final Terms will be,
available on the website of the Regulatory News Service operated by the London Stock
Exchange at www.londonstockexchange.com/en-gb/pricesnews/marketnews.
 85




---



##### 



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 CONSOLIDATED FINANCIAL STATEMENTS OF NATIONAL GRID USA FOR THE TWO
YEARS ENDED 31 MARCH 2007 AND 31 MARCH 2006
 2007
 1
    
    Report of Independent Registered Public Accounting Firm
    
    F-22
    
    Consolidated Statements of Income for the years ended 31 March 2007 and 2006
    
    F-33
    
    Consolidated Statements of Comprehensive Income for the years ended 31
March 2007 and 2006
    
    F-44
    
    Consolidated Statements of Retained Earnings for the years ended 31 March
2007 and 2006
    
    F-45
    
    Consolidated Balance Sheets as at 31 March 2007 and 2006
    
    F-56
    
    Consolidated Statements of Cash Flow for the years ended 31 March 2007 and
2006
    
    F-87
    
    Notes to the Consolidated Financial Statements
    
    F-10
 The following pages have been extracted from the audited annual report for 2007 for National
Grid USA, which have been prepared in accordance with auditing principles generally accepted in
the United States of America.
 F-1




---



##### 



Report of Independent Registered Public Accounting Firm
      F-2




---



##### 



NATIONAL GRID USA AND SUBSIDIARY COMPANIES
Consolidated Statements of Income
(In thousands of dollars)
 For the years endedMarch 31,2007
    
    
    2006Operating revenues:Electric
    
    $
    6,944,416
    
    
    $
    7,141,941Gas
    
    
    1,217,947
    
    
    
    1,037,081Total operating revenues
    
    
    8,162,363
    
    
    
    8,179,022Operating expenses:Purchased energy:Electricity purchased
    
    
    3,483,915
    
    
    
    3,544,029Gas purchased
    
    
    814,868
    
    
    
    741,419Contract termination charges and nuclear unit shutdown charges
    
    
    63,845
    
    
    
    73,364Other operation and maintenance
    
    
    1,691,596
    
    
    
    1,440,325Depreciation and amortization
    
    
    410,997
    
    
    
    387,673Amortization of stranded costs and rate plan deferrals
    
    
    455,632
    
    
    
    532,987Other taxes
    
    
    342,668
    
    
    
    323,974Income taxes
    
    
    187,966
    
    
    
    319,232Total operating expenses
    
    
    7,451,487
    
    
    
    7,363,003Operating income
    
    
    710,876
    
    
    
    816,019Other deductions, net
    
    
    (3,891
    )
    
    
    (13,542
    )Operating and other deductions
    
    
    706,985
    
    
    
    802,477Interest (income) expense:Interest on long-term debt
    
    
    138,573
    
    
    
    172,629Interest income
    
    
    (32,254
    )
    
    
    (14,476
    )Interest on debt to associated companies
    
    
    96,479
    
    
    
    58,676Other interest
    
    
    42,310
    
    
    
    25,959Total interest expense, net
    
    
    245,108
    
    
    
    242,788Net income from continuing operations
    
    
    461,877
    
    
    
    559,689Discontinued operations:Income from discontinued operations, net of tax of $10,641 and $2,668
    
    
    11,717
    
    
    
    2,376Goodwill impairment
    
    
    (120,204
    )
    
    
    Net income (loss) from discontinued operations
    
    
    (108,487
    )
    
    
    2,376Net income
    
    $
    353,390
    
    
    $
    562,065
 The accompanying notes are an integral part of these consolidated financial statements.
 F-3




---



##### 



NATIONAL GRID USA AND SUBSIDIARY COMPANIES
Consolidated Statements of Comprehensive Income
(In thousands of dollars)
 For the years endedMarch 31,2007
    
    
    2006Net income
    
    $
    353,390
    
    
    $
    562,065Other comprehensive income (loss):Unrealized gains on securities, net of taxes
    
    
    6,003
    
    
    
    6,217Hedging activity, net of taxes
    
    
    (17,526
    )
    
    
    4,009Change in additional minimum pension liability
    
    
    (6,278
    )
    
    
    182,489Reclassification adjustment for gains (losses)
included in net income, net of taxes
    
    
    18,464
    
    
    
    (24,810
    )Total other comprehensive income
    
    
    663
    
    
    
    167,905Comprehensive income
    
    $
    354,053
    
    
    $
    729,970Adjustment to initially apply SFAS No. 158
    
    
    (398,145
    )
    
    
    Change in accumulated other comprehensive income (loss)
    
    $
    (397,482
    )
    
    $
    167,905
 Consolidated Statements of Retained Earnings
(In thousands of dollars)
 For the years endedMarch 31,2007
    
    
    2006Retained earnings at beginning of period
    
    $
    1,484,597
    
    
    $
    980,101Net income
    
    
    353,390
    
    
    
    562,065Dividends on preferred stock
    
    
    (2,096
    )
    
    
    (2,210
    )Dividends on common stock
    
    
    (286,052
    )
    
    
    (55,000
    )Other
    
    
    139
    
    
    
    (359
    )Retained earnings at end of period
    
    $
    1,549,978
    
    
    $
    1,484,597
 The accompanying notes are an integral part of these consolidated financial statements.
 F-4




---



##### 



NATIONAL GRID USA AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(In thousands of dollars)
 March 31,2007
    
    
    2006ASSETSUtility plant, at original cost:Electric plant
    
    $
    11,518,971
    
    
    $
    10,921,706Gas plant
    
    
    2,145,412
    
    
    
    1,568,845Common plant
    
    
    358,124
    
    
    
    382,167Construction work-in-process
    
    
    259,825
    
    
    
    339,644Total utility plant
    
    
    14,282,332
    
    
    
    13,212,362Less: accumulated depreciation and amortization
    
    
    (4,593,150
    )
    
    
    (4,238,319
    )Net utility plant
    
    
    9,689,182
    
    
    
    8,974,043Goodwill
    
    
    3,338,791
    
    
    
    3,076,752Pension intangible
    
    
    
    
    
    
    36,885Other property and investments
    
    
    316,252
    
    
    
    321,273Current assets:Cash and cash equivalents
    
    
    281,895
    
    
    
    213,954Restricted cash
    
    
    63,051
    
    
    
    80,265Accounts receivable (less reserves of $165,242 and
$149,492, respectively, including $10,388 and
$11,571 from affiliates, respectively)
    
    
    1,417,657
    
    
    
    1,325,945Materials and supplies, at average cost:Gas storage
    
    
    20,906
    
    
    
    23,576Other
    
    
    59,686
    
    
    
    48,363Current portion of accumulated deferred income taxes
    
    
    176,208
    
    
    
    195,476Current portion of regulatory assets
    
    
    303,973
    
    
    
    393,213Assets of discontinued operations
    
    
    305,120
    
    
    
    252,964Other
    
    
    169,701
    
    
    
    108,802Total current assets
    
    
    2,798,197
    
    
    
    2,642,558Other non-current assets:Regulatory assets
    
    
    5,101,370
    
    
    
    5,264,789Prepaid employee pension benefits
    
    
    
    
    
    
    360,183Other
    
    
    67,764
    
    
    
    49,967Total non-current assets
    
    
    5,169,134
    
    
    
    5,674,939Total assets
    
    $
    21,311,556
    
    
    $
    20,726,450
 The accompanying notes are an integral part of these consolidated financial statements.
 F-5




---



##### 



NATIONAL GRID USA AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(In thousands of dollars)
 March 31,2007
    
    
    2006CAPITALIZATION AND LIABILITIESCapitalization:Common stockholders equity:Common stock ($.10 par value)
    
    $
    
    
    
    $
    Authorized - 3,000 sharesIssued and outstanding - 1,000 sharesAdditional paid-in capital
    
    
    7,599,045
    
    
    
    7,099,046Retained earnings
    
    
    1,549,978
    
    
    
    1,484,597Accumulated other comprehensive loss
    
    
    (401,738
    )
    
    
    (4,256
    )Total common stockholders equity
    
    
    8,747,285
    
    
    
    8,579,387Minority interest in subsidiaries
    
    
    16,397
    
    
    
    17,712Cumulative preferred stock
    
    
    52,317
    
    
    
    52,317Long-term debt
    
    
    1,968,528
    
    
    
    2,125,241Long-term debt to affiliates
    
    
    1,200,000
    
    
    
    1,200,000Total capitalization
    
    
    11,984,527
    
    
    
    11,974,657Current liabilities:Accounts payable
    
    
    698,433
    
    
    
    614,725Customers deposits
    
    
    51,294
    
    
    
    40,770Accrued interest
    
    
    75,136
    
    
    
    50,506Accrued taxes
    
    
    33,197
    
    
    
    169,998Short-term debt due to affiliates
    
    
    1,028,866
    
    
    
    644,168Current portion of long-term debt
    
    
    218,873
    
    
    
    302,320Current portion of accrued Yankee nuclear plant costs
    
    
    28,527
    
    
    
    54,796Current portion of derivatives and swap contracts
    
    
    264,497
    
    
    
    324,858Current portion of purchased power obligations
    
    
    10,949
    
    
    
    13,559Liabilities of discontinued operations
    
    
    34,887
    
    
    
    29,590Current regulatory liabilities
    
    
    129,286
    
    
    
    67,921Accrued wages and benefits
    
    
    96,819
    
    
    
    97,322Other
    
    
    86,513
    
    
    
    55,954Total current liabilities
    
    
    2,757,277
    
    
    
    2,466,487Other non-current liabilities:Accumulated deferred income taxes
    
    
    1,988,880
    
    
    
    2,223,355Unamortized investment tax credits
    
    
    61,347
    
    
    
    67,593Accrued Yankee nuclear plant costs
    
    
    117,416
    
    
    
    140,832
 F-6




---



##### 



March 31,2007
    
    
    2006Purchased power obligations
    
    
    14,587
    
    
    
    23,688Derivatives and swap contracts
    
    
    254,663
    
    
    
    538,882Accrued employee pension and other benefits
    
    
    1,570,696
    
    
    
    719,524Additional minimum pension liability
    
    
    
    
    
    
    127,351Environmental remediation costs
    
    
    582,787
    
    
    
    569,319Nuclear fuel disposal costs
    
    
    158,195
    
    
    
    150,642Regulatory liabilities
    
    
    1,491,118
    
    
    
    1,355,595Other
    
    
    330,063
    
    
    
    368,525Total other non-current liabilities
    
    
    6,569,752
    
    
    
    6,285,306Total capitalization and liabilities
    
    $
    21,311,556
    
    
    $
    20,726,450
 The accompanying notes are an integral part of these consolidated financial statements
 F-7




---



##### 



NATIONAL GRID USA AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flow
(In thousands of dollars)
 For the years endedMarch 31,2007
    
    
    2006Operating activities:Net income
    
    $
    353,390
    
    
    $
    562,065Adjustments to reconcile net income to net cash provided by
operating activities:
    
    
    
    
    
    
    Impairment of goodwill of discontinued operations
    
    
    120,204Net income from discontinued operations
    
    
    (11,717
    )
    
    
    (2,376
    )Depreciation and amortization
    
    
    410,997
    
    
    
    387,673Amortization of stranded costs and rate plan deferrals
    
    
    455,632
    
    
    
    532,987Provision for deferred federal and state income taxes and
investment tax credits, net
    
    
    108,579
    
    
    
    34,880Net operating activities from discontinued operations
    
    
    18,166
    
    
    
    13,779Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (19,051
    )
    
    
    (213,686
    )Materials and supplies
    
    
    27,446
    
    
    
    (25,989
    )Prepaids and other current assets
    
    
    (59,129
    )
    
    
    (12,175
    )Accounts payable and accrued expenses
    
    
    105,015
    
    
    
    187,653Accrued interest and taxes
    
    
    (115,646
    )
    
    
    (18,003
    )Pension and postretirement regulatory assets
    
    
    (117,671
    )
    
    
    (18,813
    )Purchased power obligations
    
    
    (158
    )
    
    
    (9,697
    )Keypsan acquisition costs
    
    
    (28,266
    )
    
    
    (942
    )Other, net
    
    
    (78,420
    )
    
    
    (65,314
    )Net cash provided by operating activities
    
    
    1,169,371
    
    
    
    1,352,042Investing activities:Plant expenditures
    
    
    (787,174
    )
    
    
    (679,785
    )Acquisition of gas assets
    
    
    (496,720
    )
    
    
    Sale of assets
    
    
    1,888
    
    
    
    2,268Change in restricted cash
    
    
    17,214
    
    
    
    (64,977
    )Other, net
    
    
    64,812
    
    
    
    (32,493
    )Net investing activities for discontinued operations
    
    
    (176,916
    )
    
    
    (7,236
    )Net cash used in investing activities
    
    
    (1,376,896
    )
    
    
    (782,223
    )Financing activities:Dividends paid on preferred stock
    
    
    (2,096
    )
    
    
    (2,210
    )Dividends paid on common stock
    
    
    (286,052
    )
    
    
    (55,000
    )Dividends paid on common stock of minority interests
    
    
    (2,202
    )
    
    
    (3,822
    )
 F-8




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##### 



For the years endedMarch 31,2007
    
    
    2006Capital contribution from parent for Rhode Island gas acquisition
    
    
    500,000
    
    
    
    Payment of long-term debt
    
    
    (317,157
    )
    
    
    (632,725
    )Proceeds from long-term debt
    
    
    
    
    
    
    28,000Buyback of minority interest common stock
    
    
    (1,670
    )
    
    
    (1,158
    )Net change in short-term debt to affiliates
    
    
    384,698
    
    
    
    (43,000
    )Capital contribution to discontinued operations
    
    
    (158,750
    )
    
    
    Net financing activities for discontinued operations
    
    
    158,750
    
    
    
    Other, net
    
    
    (55
    )
    
    
    (528
    )Net cash (used in) provided by financing activities
    
    
    275,466
    
    
    
    (710,443
    )Net increase (decrease) in cash and cash equivalents
    
    
    67,941
    
    
    
    (140,624
    )Cash and cash equivalents, beginning of period
    
    
    213,954
    
    
    
    354,578Cash and cash equivalents, at end of period
    
    
    281,895
    
    
    
    213,954Supplemental disclosures of cash flow information:Interest paid
    
    $
    255,172
    
    
    $
    279,224Taxes paid
    
    
    252,831
    
    
    
    157,250
 The
accompanying notes are an integral part of these consolidated
financial statements
 F-9




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##### 



NOTE A  SIGNIFICANT ACCOUNTING POLICIES1
    
    Nature of OperationsNational Grid USA (the Company) is a public utility holding company with regulated subsidiaries
engaged in the transmission, distribution, and sale of electricity and natural gas. The Company
is a wholly owned subsidiary of National Grid plc. The Companys electricity and gas
distribution subsidiaries serve approximately 4.1 million customers in New York State,
Massachusetts, Rhode Island and New Hampshire. The Companys transmission subsidiaries provide
electricity transmission in New York through Niagara Mohawk Power Corporation (Niagara Mohawk)
and in New England principally through New England Power Company (NEP) and The Narragansett
Electric Company (Narragansett). In August 2006, the Company acquired the Rhode Island gas
assets of New England Gas Company (see Note L  Acquisitions). For unregulated subsidiaries
engaged in construction and leasing of telecommunications infrastructures see Note M 
Discontinued Operations.2
    
    Basis of PresentationThe Companys accounting policies conform to generally accepted accounting principles in the
United States of America (US GAAP), including accounting principles for rate-regulated entities
with respect to the Companys transmission, distribution and gas operations (regulated
subsidiaries), and are in accordance with the accounting requirements and ratemaking practices
of the regulatory authorities having jurisdiction (see below).The consolidated financial statements include the accounts of the Company and all of its
wholly-owned subsidiaries and minority interests. All intercompany transactions and balances
between consolidated subsidiaries have been eliminated.The Company owns approximately 53.7 percent of the outstanding common stock of both New England
Hydro-Transmission Electric Company, Inc. and New England Hydro-Transmission Corporation
(together, the Hydro-Transmission companies). The Hydro-Transmission companies own and operate
an international transmission interconnection between Hydro-Quebec (a generation facility in
Quebec, Canada) and New England. The consolidated financial statements include 100 percent of
the assets, liabilities, and earnings of the Hydro-Transmission companies. Minority interests
in the Hydro-Transmission companies, which represent the minority stockholders proportionate
share of the equity, is separately disclosed on the Companys consolidated balance sheet and
the proportionate share of income is included in Other deductions, net on the Companys
consolidated statements of income.NEP has a minority ownership interest in each of three regional nuclear generating companies
which own generating facilities that are permanently shut down. NEP accounts for these
ownership interests under the equity method.3
    
    Use of EstimatesThe preparation of financial statements in conformity with US GAAP requires management to make
estimates that affect the reported amounts of assets and liabilities and the disclosures of
contingent assets and liabilities as of the date of the balance sheets, and revenues and
expenses for the period. These estimates may differ from actual amounts if future circumstances
cause a change in the assumptions used to calculate these estimates.4
    
    RegulationThe Companys regulated subsidiaries must comply with the rules prescribed by the Federal
Energy Regulatory Commission (FERC) and the applicable state utility commissions of New York,
Massachusetts, Rhode Island and New Hampshire. See Note B  Rates and Regulatory. Niagara
 F-10




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##### 



Mohawk files reports with the Securities and Exchange Commission (SEC) under the Securities
Exchange Act of 1934, as amended.
 5
    
    GoodwillNational Grid plcs acquisitions of the Companys subsidiaries including the acquisitions by
the Company of Eastern Utilities Associates (EUA), Niagara Mohawk, and the Rhode Island gas
assets of New England Gas Company (see Note L  Acquisitions), were accounted for by the
purchase method, the application of which includes the recognition of goodwill. Goodwill was
approximately $3.3 billion and $3.1 billion at March 31, 2007 and 2006, respectively. In
accordance with the Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, the Company
reviews its goodwill annually for impairment and when events or circumstances indicate that the
asset may be impaired. The Company utilized a discounted cash flow approach incorporating its
most recent business plan forecasts in the performance of the annual goodwill impairment test.
During fiscal year 2007, goodwill increased by approximately $262 million. This amount
primarily related to (i) an increase to Narragansett goodwill of $236 million due to the
acquisition of the Rhode Island gas assets from Southern Union Company and (ii) an increase to
Niagara Mohawk of $26 million due to an adjustment related to a tax contingency. Included in
Assets of discontinued operations is a decrease of $94 million of goodwill composed of a $26
million increase related to acquisitions offset by a $120 million write-down due to impairment
of goodwill.6
    
    Electric and Gas Utility RevenueThe Companys regulated subsidiaries charge customers for electric and gas service in
accordance with rates approved by the FERC and the applicable state regulatory commissions.All of the Companys distribution subsidiaries, except for Granite State Electric, follow the
policy of accruing the estimated amount of base rate revenues for electricity delivered but not
yet billed (unbilled revenues), to match costs and revenues. The unbilled revenue included in
accounts receivable at March 31, 2007 and 2006 was approximately $351 million and $291 million,
respectively. The distribution subsidiaries record revenues in amounts management believes to
be recoverable pursuant to provisions of approved settlement agreements and state legislation.
The distribution subsidiaries normalize the difference between revenue and expenses from energy
conservation programs, commodity purchases, transmission service and contract termination
charges (CTCs).The Company recognizes changes in unbilled revenues in its results of operations with the
exception of Niagara Mohawks unbilled gas revenue. Pursuant to Niagara Mohawks 2000
multi-year gas settlement (which ended December 2004, and remains effective until Niagara
Mohawk requests a change in rates), changes in accrued unbilled gas revenues are deferred. At
March 31, 2007 and 2006, approximately $18 million and $6 million, respectively, of unbilled
gas revenues remain unrecognized in results of operations. Management cannot predict when
unbilled gas revenues will be allowed to be recognized in results of operations.7
    
    Utility PlantThe cost of additions to utility plant and replacements of retired units of property are
capitalized. Costs include direct material, labor, overhead and allowance for funds used during
construction (AFUDC) (see below). Replacement of minor items of utility plant and the cost of
current repairs and maintenance are charged to expense. Whenever utility plant is retired, its
original cost, together with the cost of removal, less salvage, is charged to accumulated
depreciation.
 8
    
    AFUDCThe Company capitalizes AFUDC as part of construction costs in amounts equivalent to the cost
of funds devoted to plant under construction for its regulated businesses. AFUDC represents the
composite
 F-11




---



##### 



interest and equity costs of capital funds used to finance that portion of
construction costs not yet eligible
for inclusion in rate base. AFUDC is capitalized in Utility plant with offsetting cash
credits to Other interest and non-cash credits to Other income (deductions), net. This
method is in accordance with an established rate-making practice under which a utility is
permitted to earn a return on, and the recovery of, prudently incurred capital costs through
their ultimate inclusion in rate base and in the provision for depreciation. The composite
AFUDC rates were approximately 3.2% and 2.4% for the years ended March 31, 2007 and 2006,
respectively.
 9
    
    Depreciation and AmortizationDepreciation expense is determined using the straight-line method. The depreciation rates for
the regulated subsidiaries are based on periodic studies of the estimated useful lives of the
assets and the estimated cost to remove them net of salvage value. The regulated subsidiaries
use composite depreciation rates that are approved by the respective federal and state utility
commissions. The provision for depreciation as a percentage of weighted average depreciable
property (excluding construction work-in-progress) was 3.03% and 3.04% for the fiscal years
ended March 31, 2007 and 2006, respectively.Regulatory assets, including those covered by CTCs, are amortized in accordance with the
provisions of the regulated subsidiaries rate settlement agreements and, therefore, are not
necessarily amortized on a straight-line basis. NEP and Niagara Mohawk had deferred certain
costs related to deregulation, including purchased power contract buyouts, and losses on the
sale of generation assets as a regulatory asset (See Note B  Rates and Regulatory). Niagara
Mohawks costs are being amortized unevenly over ten years with larger amounts being amortized
in the latter years, consistent with projected recovery through rates.10
    
    Cash EquivalentsThe Company classifies short-term investments with an original maturity of three months or less
as cash equivalents.11
    
    Restricted CashRestricted cash consists of margin accounts for commodity and interest rate hedging activity,
health care claims deposits, New York State Department of Conservation securitization for
certain site cleanup, and workers compensation premium deposits.Under the Loan and Trust Agreement for the Massachusetts Development Finance Agency Tax Exempt
Electric Utility Revenue Bonds (Nantucket Electric Company Issue), Series 2004A (the Bonds),
the Company established a Construction Fund with the Trustee in which the proceeds from the
Bonds were deposited. In total, $38 million was deposited to fund the Second Nantucket Cable
Project costs. Disbursements from the Construction Fund may be made by the Trustee to pay
directly or to reimburse the Company for eligible project costs as directed by requisitions
signed by the Company. This requisition process is the only manner in which project costs may
be paid from Bond proceeds. As of March 31, 2007, the Company used the entire $38 million of
the funds deposited. The project was completed at the beginning of the 2007 fiscal year.
 12
    
    Federal and State Income TaxesFederal and state income taxes are recorded under the provisions of SFAS No. 109 Accounting
for Income Taxes. Income taxes have been computed utilizing the asset and liability approach,
which requires the recognition of deferred tax assets and liabilities for the tax consequences
of temporary differences. It does this by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and the tax basis
of existing assets and liabilities.
 F-12




---



##### 



Deferred investment tax credits are amortized over the
useful life of the underlying property (see Note G  Income Taxes).13
    
    DerivativesThe Company accounts for derivative financial instruments under SFAS No. 133, Accounting for
Derivatives and Hedging Activities, and SFAS No. 149, Amendment of SFAS No. 133 on Derivative
Instruments and Hedging Activities, as amended. All derivatives except those qualifying for
the normal purchase/normal sale exception are recognized on the balance sheet at their fair
value. Fair value is generally determined using current quoted market prices. If a contract is
designated as a cash flow hedge, the change in its market value is generally deferred as a
component of other comprehensive income until the transaction it is hedging is completed.
Conversely, the change in the market value of a derivative not designated as a cash flow hedge
is deferred as a regulatory asset or liability. A cash flow hedge is a hedge of a forecasted
transaction or the variability of cash flows to be received or paid related to a recognized
asset or liability. To qualify as a cash flow hedge, the fair value changes in the derivative
must be expected to offset 80% to 125% of the changes in fair value or cash flows of the hedged
item. The Company also has purchase power agreements with non-affiliates for the purchase of
power and capacity for resale to its retail customers. These agreements generally have no
notional amounts and do not meet the definition of a derivative under SFAS No. 133.14
    
    Comprehensive Income (Loss)Comprehensive income (loss) is the change in the equity of a company, not including those
changes that result from shareholder transactions. While the primary component of comprehensive
income (loss) is net income, the other components relate to additional minimum pension
liability recognition, deferred gains and losses associated with hedging activity, and
unrealized gains and losses associated with certain investments held as available for sale (see
Note D  Accumulated Other Comprehensive Income (Loss)).15
    
    New Accounting StandardsSFAS No. 123R
In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R addresses
the accounting for transactions in which a company receives employee services in exchange for
(a) equity instruments of the company or (b) liabilities that are based on the fair value of
the companys equity instruments or that may be settled by the issuance of such equity
instruments. SFAS No. 123R also eliminates the ability to account for share-based compensation
transactions using Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and requires that such transactions be accounted for using a
fair-value-based method. The adoption of SFAS No. 123R on April 1, 2006 did not have a material
impact on the Companys results of operations or its financial position.SFAS No. 154
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20 and FASB Statement No. 3. Previously, APB No. 20,
Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements, defined the requirements for the accounting for and the reporting of a change in
accounting principle. SFAS No. 154 requires retrospective application to prior periods
financial statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the change. When it is
impracticable to determine the period-specific effects of an accounting change on one or more
individual prior periods presented, SFAS No. 154 requires that the new accounting principle be
applied to the balances of assets and liabilities as of the beginning of the earliest period
for which retrospective application is practicable and that a corresponding adjustment be made
to the opening balance of retained earnings for that period rather than being reported in an
income statement.
 F-13




---



##### 



SFAS No. 154 becomes effective for fiscal years ending after December 15,
2005. The Company adopted it as of its March 31, 2006 fiscal year and the adoption did not have
a material impact on the Companys results of operations or its financial position.FASB Interpretation No. 48
In July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting
and reporting for uncertainties in income tax law. FIN 48 prescribes a comprehensive model for
the financial statement recognition, measurement, presentation and disclosure of uncertain tax
positions taken or expected to be taken in income tax returns. The cumulative effect of
applying the provision of this interpretation is required to be reported separately as an
adjustment to the opening balance of retained earnings in the year of adoption. FIN 48 is
effective for fiscal years beginning after December 15, 2006 and will be effective for the
Company in its 2008 fiscal year. The Company is currently evaluating the impact the adoption of
FIN 48 will have on its financial statements and is not yet in a position to determine such
effects.SFAS No. 157
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which provides
enhanced guidance for using fair value measurements in financial reporting. While the standard
does not expand the use of fair value in any new circumstance, it has applicability to several
current accounting standards that require or permit entities to measure assets and liabilities
at fair value. This standard defines fair value, establishes a framework for measuring fair
value in GAAP and expands disclosures about fair value measurements. The Company is currently
evaluating SFAS No. 157 and at this time cannot determine impact, if any, that the potential
requirements may have on its financial statements.SFAS No. 158
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans. This standard amends SFAS Nos. 87, 88, 106 and 132(R).
SFAS No. 158 requires an employer with a defined benefit pension plan or postretirement benefit
plan other than pensions to recognize an asset or liability on its balance sheet for the over
funded or under funded status of the plan as defined by SFAS No. 158. The Company adopted SFAS
No. 158 on March 31, 2007. The pension asset or liability is the difference between the fair
value of the pension plans assets and the projected benefit obligation as of the year end. For
postretirement benefit plans other than pensions (PBOPs), the asset or liability is the
difference between the fair value of the plans assets and the accumulated postretirement
benefit obligation as of year end. At March 31, 2007, the Company recorded a combined liability
of $1.2 billion in connection with the adoption of SFAS No. 158. While the offset to this entry
would normally be a charge to accumulated other comprehensive income (OCI), certain Company
subsidiaries have recorded regulatory assets because they will fully recover their costs. See
Note F  Employee Benefits for the impact of the adoption of the new standard on the
Companys consolidated financial statements.Staff Accounting Bulletin No. 108
In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements. SAB No. 108 requires companies to quantify the impact of correcting misstatements
using both an income statement (rollover) approach and a balance sheet (iron curtain) approach.
If the misstatement of prior year expense is material to the current year, after all of the
relevant quantitative and qualitative factors are considered, the prior year financial
statements should be corrected. Correcting prior year financial statements for immaterial
errors would not require previously filed reports to be amended. The new standard had no impact
on the Companys consolidated financial statements.
 F-14




---



##### 



16
    
    ReclassificationsCertain amounts from prior years have been reclassified on the accompanying consolidated
financial statements to conform to the fiscal 2007 presentation.NOTE B  RATES AND REGULATORYThe Companys regulated subsidiaries generally use the same accounting policies and practices
for financial reporting purposes as non-regulated companies under US GAAP. However, actions by
the FERC and the state utility commissions can result in accounting treatment that is different
from that used by non-regulated companies. The Company applies the provisions of the SFAS No.
71, Accounting for Certain Types of Regulation. In accordance with SFAS No. 71, the Companys
regulated subsidiaries record regulatory assets (expenses deferred for future recovery from
customers) and regulatory liabilities (amounts provided in current rates to cover costs to be
incurred in the future) on their balance sheets. This permits the regulated subsidiaries to
defer certain costs (because they are expected to be recovered through customer billings) and
revenues (because they are expected to be refunded to customers), which would otherwise be
charged to expense or revenue, when authorized to do so by the regulator. The Company is
earning a return on most of its regulatory assets under its rate plans.The following table details the various categories of regulatory assets and liabilities:
 At March 312007
    
    
    2006(In thousands)Regulatory assets included in accounts receivable:Rate adjustment mechanisms
    
    $
    12,665
    
    
    $
    53,777Regulatory liabilities included in other accrued expenses:Rate adjustment mechanisms
    
    
    (129,286
    )
    
    
    (67,921
    )Current portion of regulatory assets:Derivative and swap contracts (Note E)
    
    
    264,497
    
    
    
    324,858Purchase power obligations
    
    
    10,949
    
    
    
    13,559Yankee nuclear decommissioning costs (Note C)
    
    
    28,527
    
    
    
    54,796Total net regulatory assets current
    
    
    187,352
    
    
    
    379,069Regulatory assets:Stranded costs
    
    
    2,273,238
    
    
    
    2,478,018Purchase power obligations
    
    
    119,944
    
    
    
    114,829Derivative and swap contracts (Note E)
    
    
    254,663
    
    
    
    506,328Regulatory tax asset
    
    
    139,792
    
    
    
    148,678Deferred environmental restoration costs (Note C)
    
    
    633,630
    
    
    
    563,871Pension and post-retirement benefit plans other than pension costs
(Note F)
    
    
    1,248,708
    
    
    
    550,179Additional minimum pension liability
    
    
    
    
    
    
    79,923Yankee nuclear decommissioning costs (Note C)
    
    
    117,416
    
    
    
    140,832Loss on reacquired debt
    
    
    69,223
    
    
    
    78,966Long-term portion of standard offer under-recovery
    
    
    49,864
    
    
    
    46,803Other
    
    
    194,892
    
    
    
    556,362
 F-15




---



##### 



At March 312007
    
    
    2006(In thousands)Regulatory liabilities:Cost of removal reserve
    
    
    (642,198
    )
    
    
    (537,526
    )Stranded costs and CTC related
    
    
    (125,113
    )
    
    
    (123,105
    )Pension and post-retirement plans fair value deferred gain (Note F)
    
    
    (266,485
    )
    
    
    (234,754
    )Interest savings deferral
    
    
    (92,534
    )
    
    
    (92,534
    )Environmental response fund and insurance recoveries (Note C)
    
    
    (91,287
    )
    
    
    (81,673
    )Storm costs reserve
    
    
    (45,551
    )
    
    
    (39,391
    )Other
    
    
    (227,950
    )
    
    
    (246,612
    )Total net regulatory assets non-current
    
    
    3,610,252
    
    
    
    3,909,194Net regulatory assets
    
    $
    3,797,604
    
    
    $
    4,288,263
 Stranded costsCertain regulatory assets, referred to as stranded costs, resulted from major fundamental
changes occurring in the public utility industry, most notably the divestiture of generation
assets pursuant to deregulation. Under deregulation, the generation segment of the utility
business was opened to competition in that consumers could choose their generation supplier.
Public utilities continued to control the transmission and distribution of electricity and were
encouraged to dispose of generation assets such as power plants. The net unrecovered costs from
the sale of these generation assets, along with the costs to terminate, restate or amend
existing purchase power contracts were deferred for recovery in rates over future periods. A
large portion of these stranded costs are being recovered through a special rate being charged
to customers. Similarly, the recovery of costs outside of customer rate recovery, but that
nevertheless relate to the former generation business, are credited back to customers as well
to offset stranded costs. For the New England regulated subsidiaries, this mechanism is called
the Contract Termination Charge and for Niagara Mohawk in New York, it is called the
Competitive Transition Charge (in both cases, these charges are called the CTC).Management believes that future cash flows from charges for electric service under existing
rate plans, including the CTC, will be sufficient to recover the Companys regulatory assets
over the planned amortization period. This assumes that there will be no unforeseen reduction
in demand and no bypass of the CTC or exit fees. In the event of revenues that are lower than
expected and (or) costs that are higher than expected, if the Company determines that its net
regulatory assets are not probable of recovery, it can no longer apply the principles of SFAS
No. 71 and would be required to record an after-tax, non-cash charge against income for any
remaining unamortized regulatory assets and liabilities. If the Companys subsidiaries could no
longer apply SFAS No. 71, the resulting charge would be material to the Companys reported
financial condition and results of operations.Rate AgreementsNEPNew England Regional Transmission Organization (RTO) and Rate Filing:NEP is a participating
transmission owner (PTO) in New Englands RTO which commenced operations effective February 1,
2005. ISO New England, Inc. has been authorized by FERC to exercise the operations and system
planning functions required of RTOs and will be the independent regional transmission provider
under the ISO Open Access Transmission Tariff (ISO-OATT). The ISOOATT is designed to provide
non-discriminatory open access transmission services over the transmission facilities of the
PTOs and
 F-16




---



##### 



recover their revenue requirements. FERC issued two orders in 2004 and two in 2005
that approved the establishment of the RTO and resolved certain issues concerning the proposed
return on common equity (ROE) for New England PTOs. Other return issues were set for hearing. A
number of parties, including NEP, have filed appeals from one or more of those orders with the
U.S. Court of Appeals for the District of Columbia Circuit.Effective on the RTO operations date of February 1, 2005, NEPs transmission rates began to
reflect a proposed base ROE of 12.8 percent, subject to refund, plus an additional 0.5 percent
incentive return on regional network service (RNS) rates that FERC approved in March 2004.
Approximately 70 per cent. of the Companys transmission costs are recovered through RNS rates.
An additional 1.0 per cent. incentive adder was also applicable to new RNS transmission
investment, subject to refund.NEP and the other New England Transmission Owners (NETOs) participated in FERC proceedings to
determine outstanding ROE issues, including base return on ROE and the proposed 1 percent ROE
incentive for new transmission investment. On May 27, 2005, a FERC administrative law judge
(ALJ) issued an initial decision which concluded that the base ROE should be 10.72 percent and
that NEP and other NETOs are not entitled to the proposed 1 per cent. ROE incentive.On October 31, 2006, FERC issued an order establishing the ROE for the NETOs, including NEP.
Over the dissent of two Commissioners and overturning the initial decision by the ALJ, FERC
approved, as an incentive to build new transmission infrastructure, the proposed 1 percent ROE
adder for all new transmission investment approved through the regional system planning
process. Although FERC lowered the base ROE recommended by the ALJ by 0.5 percent, it also
increased the ROE by 0.7 per cent. on a going-forward basis to reflect changing markets since
the time that hearings were held in 2005. Thus, the ROE approved by the order differs for the
locked-in period (February 2005 to October 2006) and for the prospective period (November 2006
going forward). The ROE also varies depending on whether costs are recovered through RNS rates
or local network service (LNS) rates, and whether the costs are for existing or new facilities.
For the locked-in period, the resulting ROEs are 10.7 percent (including a 0.5 percent RTO
participation adder) for recovery of existing transmission through RNS rates; 11.7 percent
(including 0.5 percent and 1 percent adders) for new transmission costs recovered through RNS;
and 10.2 percent (base ROE only) for LNS. For the prospective period beginning November 1,
2006, those ROEs increased to 11.4 percent, 12.4 percent and 10.9 percent respectively.
Overall, the ROEs approved by FERC represent an increase from NEPs last authorized ROE of
10.25 percent.The NETOs and opposing parties to the NETOs have requested rehearing of various aspects of the
Commissions order. The NETOs have argued that FERC made an error in its analysis, the
correction of which would increase transmission owners base return on equity by 0.3 percent.
The opposing parties have challenged the Commissions approval of the 0.7 percent increase on a
going forward basis and the additional 1 percent return incentive premium that was approved for
new investment.Niagara Mohawk
Under its Merger Rate Plan (MRP) for electric rates, the Company is authorized to recover
actual amounts deferred under the plan for each two-year period, as well as deferrals projected
to accrue over the subsequent two-year period that are in excess of a $100 million threshold.
The deferrals are subject to regulatory review and approval. On July 29, 2005, the Company made
its biannual deferral account recovery filing for balances in the deferral account as of June
30, 2005 plus projected deferrals. On December 27, 2005, the New York State Public Service
Commission (PSC) approved recovery of deferral account amounts of $100 million in calendar year
2006 and $200 million in calendar year 2007, and established a timeline for the Department of
Public Service Staff (Staff) to perform its audit of the deferral account. For 2006, the
deferral surcharge was included in rates beginning in April and the $100 million was collected
over the last nine months of the 2006 calendar year. The Staff filed testimony on August 2,
2006, proposing in excess of $200 million of initial adjustments to the deferral balance and
projected deferrals. After replies from the Staff and the Company, an evidentiary hearing was
held on October 5, 2006. Upon the conclusion of the evidentiary hearings, the Company and the
Staff agreed to
 F-17




---



##### 



-
    
    The Company will cease seeking to recover most disputed station service lost
revenues. This resulted in a reduction to the deferral account and pre-tax earnings as of
February 28, 2007 of $68 million. The impact of the settlement on future revenues depends
on the usage by generators and prospective adjustments to delivery rates that are
dependent in part on commodity prices. The Company estimates a reduction in revenues of
about $9 million to $12 million per year through December 31, 2011 which is the end of the
MRP.-
    
    The Parties agreed to the method of determining incremental major storm costs related
primarily to the treatment of third party contractor costs and costs incurred by
affiliates during storm restoration efforts. The definition of a major storm was also
clarified under the Stipulation. Storm related adjustments resulted in a reduction of $10
million to the deferral account and pre-tax earnings.-
    
    The Parties agreed to the method of determining deferrable incremental costs
associated with the Companys ongoing stray voltage inspection and testing program
resulting in a reduction to the deferral account and pre-tax earnings of $4 million.-
    
    The Parties agreed to the method for capitalizing fringe benefit overhead costs
associated with the Companys fixed asset construction activities. This resulted in a
decrease to utility plant of $17 million, an increase to the deferral account of $11
million, and a reduction in pre-tax earnings of $6 million.-
    
    The Company is allowed to reflect 50 percent of pension settlement losses that it
incurred in fiscal years 2007 and 2004. This resulted in an increase to the deferral
account and pretax earnings of $23 million related to fiscal 2007 and 2004 pension
settlement losses, respectively.-
    
    Although it has no impact on past or future rates, the Company will exclude goodwill
from any future earnings sharing filings and other filings made with the PSC.
  Massachusetts Electric Company and Nantucket Electric Company
 F-18




---



##### 



The Narragansett Electric Company  Electric segment:
  Gas segment:
 F-19




---



##### 



Granite State Electric Company
 NOTE C  COMMITMENTS AND CONTINGENCIES
 Environmental issues
   F-20




---



##### 



Decommissioning Nuclear Units
 FutureEstimatedNEPs Equity Investment as of
    
    
    
    
    Billings toNuclear Unit
    
    March 31, 2007
    
    
    Date Retired
    
    NEP% Ownership
    
    
    $ (millions)
    
    
    
    
    $ (millions)Yankee Atomic
    
    
    34.5
    
    
    
    0.4
    
    
    February 1992
    
    
    32Connecticut Yankee
    
    
    19.5
    
    
    
    2.7
    
    
    December 1996
    
    
    77Maine Yankee
    
    
    24.0
    
    
    
    2.9
    
    
    August 1997
    
    
    37
    F-21




---



##### 



Connecticut Yankee rate filing, prudence challenge and other proceedings
     Nuclear Contingencies
 F-22




---



##### 



Long-Term Contracts for the Purchase of Electric Power
 Fiscal Year Ended March 31,
    
    Amount(In millions of dollars)2008
    
    $
    2,0612009
    
    
    1,2742010
    
    
    9662011
    
    
    3972012
    
    
    359Thereafter
    
    
    2,361Total
    
    $
    7,418
  Gas Supply, Storage and Pipeline Commitments
  Fiscal Year Ended March 31,
    
    Amount(In millions of dollars)2008
    
    $
    5132009
    
    
    1362010
    
    
    852011
    
    
    802012
    
    
    29Thereafter
    
    
    45Total
    
    $
    888
 F-23




---



##### 



Plant Expenditures
  Legal Matters by Entity
 Niagara Mohawk  Station Service Cases:
  New England Power  Town of Norwood Dispute:
 FERC 206 Proceeding:
 F-24




---



##### 



State Collection Action:
 F-25




---



##### 



NOTE
D  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
  Unrealized
    
    
    
    
    
    
    
    
    
    
    TotalGains and
    
    
    
    
    
    
    
    
    
    
    Accumulated(Losses) on
    
    
    Pension
    
    
    
    
    
    
    OtherAvailable-for-
    
    
    Liability
    
    
    Cash Flow
    
    
    ComprehensiveSale Securities
    
    
    Adjustment
    
    
    Hedges
    
    
    Income (Loss)(In thousands)March 31, 2005
    
    $
    3,868
    
    
    $
    (188,841
    )
    
    $
    12,812
    
    
    $
    (172,161
    )Other comprehensive income (loss), net of
taxes Unrealized gains on securities
    
    
    6,217
    
    
    
    
    
    
    
    
    
    
    
    6,217Change in additional minimum pension liability
    
    
    
    
    
    
    182,489
    
    
    
    
    
    
    
    182,489Hedging activity
    
    
    
    
    
    
    
    
    
    
    4,009
    
    
    
    4,009Reclassification adjustment for loss included
in net income
    
    
    (3,236
    )
    
    
    
    
    
    
    (21,574
    )
    
    
    (24,810
    )March 31, 2006
    
    $
    6,849
    
    
    $
    (6,352
    )
    
    $
    (4,753
    )
    
    $
    (4,256
    )Other comprehensive income (loss), net of
taxes Unrealized gains on securities
    
    
    6,003
    
    
    
    
    
    
    
    
    
    
    
    6,003Change in additional minimum pension liability
    
    
    
    
    
    
    (6,278
    )
    
    
    
    
    
    
    (6,278
    )Adjustment for the adoption of SFAS No. 158
    
    
    
    
    
    
    (398,145
    )
    
    
    
    
    
    
    (398,145
    )Hedging activity
    
    
    
    
    
    
    
    
    
    
    (17,526
    )
    
    
    (17,526
    )Reclassification adjustment for gain (loss)
included in net income
    
    
    (3,570
    )
    
    
    
    
    
    
    22,034
    
    
    
    18,464March 31, 2007
    
    $
    9,282
    
    
    $
    (410,775
    )
    
    $
    (245
    )
    
    $
    (401,738
    )
 NOTE
E  DERIVATIVE CONTRACTS AND HEDGING ACTIVITIES
 Niagara Mohawk
   F-26




---



##### 



ProjectedYear Ended March 31,
    
    Payment(In thousandsof dollars)2008
    
    $
    221,5402009
    
    
    46,500Thereafter
    
    
    $
    268,040
   Balances as of March 31, 2006Accumulated
    
    
    Gain ReclassAccumulated
    
    
    Deferred
    
    
    toRegulatory
    
    

OCI**, net of
    
    
    Income Tax
    
    
    CommodityDerivative Instrument
    
    Asset*
    
    
    Deferral
    
    
    tax
    
    
    on OCI**
    
    
    Costs(In thousands of dollars)Qualified for Hedge AccountingNYMEX futures - gas supply
    
    $
    (5,358.8
    )
    
    $
    
    
    
    $
    4,943.0
    
    
    $
    (3,296.0
    )
    
    $
    35,956.6NYMEX electric
swaps - electric supply
    
    $
    317.5
    
    
    $
    
    
    
    $
    (190.5
    )
    
    $
    127.0
    
    
    $
    3,260.2Non-qualified for Hedge AccountingNYMEX futures - IPP swaps/non-MRA IPP
    
    $
    (27,195.9
    )
    
    $
    31,718.1
    
    
    $
    
    
    
    $
    
    
    
    $
    59,464.9
 
 Notes:*
    
    Differences between asset and regulatory or other comprehensive income
deferral represent contracts settled for the following month.**
    
    Other comprehensive income (OCI)
 Balances as of March 31, 2007Accumulated
    
    
    Loss ReclassAccumulated
    
    
    Deferred
    
    
    toRegulatory
    
    
    OCI**, net of
    
    
    Income Tax
    
    
    CommodityDerivative Instrument
    
    Asset*
    
    
    Deferral
    
    
    tax
    
    
    on OCI**
    
    
    Costs(In thousands of dollars)Qualified for Hedge AccountingNYMEX futures - gas supply
    
    $
    2,533.7
    
    
    $
    
    
    
    $
    214.9
    
    
    $
    (143.3
    )
    
    $
    (36,722.9
    )NYMEX electric
swaps - electric supply
    
    $
    783.9
    
    
    $
    
    
    
    $
    30.1
    
    
    $
    (20.1
    )
    
    $
    (4,644.7
    )
 F-27




---



##### 



Balances as of March 31, 2007Accumulated
    
    
    Loss ReclassAccumulated
    
    
    Deferred
    
    
    toRegulatory
    
    
    OCI**, net of
    
    
    Income Tax
    
    
    CommodityDerivative Instrument
    
    Asset*
    
    
    Deferral
    
    
    tax
    
    
    on OCI**
    
    
    Costs(In thousands of dollars)Non-qualified for Hedge AccountingNYMEX futures
 IPP swaps/non-MRA IPP
    
    $
    4,627.0
    
    
    $
    2,272.1
    
    
    $
    
    
    
    $
    
    
    
    $
    (101,132.4
    )
 
 Notes:*
    
    Differences between asset and regulatory or other comprehensive income
deferral represent contracts settled for the following month.**
    
    Other comprehensive income (OCI)
    NEP
  NOTE
F  EMPLOYEE BENEFITS
 Summary
  F-28




---



##### 



Funding Policy
 Plan Assets
 Pension Benefits
    
    
    Non-Union PROP
    
    
    Union PROP2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006U.S. equities
    
    
    43
    %
    
    
    42
    %
    
    
    33
    %
    
    
    33
    %
    
    
    50
    %
    
    
    51
    %Global equities (including U.S.)
    
    
    6
    %
    
    
    6
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Non-U.S. equities
    
    
    12
    %
    
    
    12
    %
    
    
    17
    %
    
    
    17
    %
    
    
    23
    %
    
    
    23
    %Fixed income
    
    
    36
    %
    
    
    35
    %
    
    
    50
    %
    
    
    50
    %
    
    
    27
    %
    
    
    26
    %Private equity and other
    
    
    3
    %
    
    
    5
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Pension Benefits
    
    
    Non-Union PROP
    
    
    Union PROP2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006U.S. equities
    
    
    45
    %
    
    
    45
    %
    
    
    34
    %
    
    
    33
    %
    
    
    50
    %
    
    
    51
    %Global equities (including U.S.)
    
    
    6
    %
    
    
    8
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Non-U.S. equities
    
    
    12
    %
    
    
    13
    %
    
    
    18
    %
    
    
    18
    %
    
    
    24
    %
    
    
    24
    %Fixed income
    
    
    34
    %
    
    
    32
    %
    
    
    48
    %
    
    
    49
    %
    
    
    26
    %
    
    
    25
    %Private equity and other
    
    
    3
    %
    
    
    2
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  F-29




---



##### 



Assumptions Used for Benefits Accounting
 Pension BenefitsBenefit obligation
    
    
    Net periodic benefit2007
    
    
    2006
    
    
    2007
    
    
    2006Discount rate
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    5.75
    %Rate of compensation increase- New England
    
    
    4.30
    %
    
    
    4.30
    %
    
    
    4.30
    %
    
    
    4.30
    %- New York
    
    
    3.90
    %
    
    
    3.90
    %
    
    
    3.90
    %
    
    
    3.90
    %Expected long-term rate of
return on assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.25
    %
 PBOPBenefit obligation
    
    
    Net periodic benefit2007
    
    
    2006
    
    
    2007
    
    
    2006Discount rate
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    5.75
    %Expected long-term rate of
return on assets
    
    
    7.80
    %
    
    
    7.80
    %
    
    
    7.80
    %
    
    
    8.05
    %Health care cost trend rate
Initial
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    10.00
    %Pre 65*
    
    
    9.50
    %
    
    
    10.00
    %
    
    
    10.00
    %
    
    
    n/aPost 65*
    
    
    10.50
    %
    
    
    11.00
    %
    
    
    11.00
    %
    
    
    n/aUltimate
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %Year ultimate rate reached
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    2010Pre 65*
    
    
    2012
    
    
    
    2011
    
    
    
    2011
    
    
    
    n/a
 F-30




---



##### 



PBOPBenefit obligation
    
    
    Net periodic benefit2007
    
    
    2006
    
    
    2007
    
    
    2006Post 65*
    
    
    2013
    
    
    
    2012
    
    
    
    2012
    
    
    
    n/a
 
 Note:*
    
    At March 31, 2006, the healthcare cost trend assumption was updated to
include rates for the pre 65 and post 65 groups.
  Adoption of SFAS No. 158
 Before
    
    
    
    
    
    
    Afterapplication of
    
    
    
    
    
    
    application ofMarch 31, 2007
    
    SFAS No. 158
    
    
    Adjustment
    
    
    SFAS No. 158(In thousands)Intangible asset
    
    $
    33,431
    
    
    $
    (33,431
    )
    
    $
    Regulatory asset
    
    
    39,430
    
    
    
    460,848
    
    
    
    500,278Deferred tax asset
    
    
    166,126
    
    
    
    340,325
    
    
    
    506,451Current liability
    
    
    
    
    
    
    (9,047
    )
    
    
    (9,047
    )Non-current liability
    
    
    (407,842
    )
    
    
    (1,156,840
    )
    
    
    (1,564,682
    )AOCI, net of tax
    
    
    12,630
    
    
    
    398,145
    
    
    
    410,775AOCI, pre tax
    
    
    19,627
    
    
    
    660,292
    
    
    
    679,919
 Pension Benefits
 2007
    
    
    2006(In thousands)Service cost
    
    $
    55,351
    
    
    $
    55,412Interest cost
    
    
    163,067
    
    
    
    155,779Expected return on plan assets
    
    
    (174,537
    )
    
    
    (161,944
    )Amortization of unrecognized prior service cost
    
    
    4,913
    
    
    
    4,913
 F-31




---



##### 



2007
    
    
    2006(In thousands)Amortization of unrecognized loss
    
    
    58,341
    
    
    
    64,067Net periodic benefit costs before settlements and curtailments
    
    
    107,135
    
    
    
    118,227Settlement and curtailment loss
    
    
    25,555
    
    
    
    Net periodic benefit cost
    
    $
    132,690
    
    
    $
    118,227
  2007
    
    
    2006(In thousands)Accumulated benefit obligation
    
    $
    (2,603,473
    )
    
    $
    (2,470,161
    )Reconciliation of benefit obligation:Benefit obligation at beginning of period
    
    $
    (2,748,465
    )
    
    $
    (2,808,396
    )Service cost
    
    
    (55,351
    )
    
    
    (55,412
    )Interest cost
    
    
    (163,067
    )
    
    
    (155,779
    )Actuarial gain (loss)
    
    
    (87,045
    )
    
    
    66,137Benefits paid
    
    
    156,703
    
    
    
    204,985Settlements
    
    
    165,928
    
    
    
    Acquisition of Rhode Island gas pension obligation*
    
    
    (165,906
    )
    
    
    Benefit obligation at end of period
    
    
    (2,897,203
    )
    
    
    (2,748,465
    )Fair value of plan assets at beginning of period
    
    
    2,147,611
    
    
    
    1,960,624Actual return on plan assets
    
    
    220,848
    
    
    
    257,056Company contributions
    
    
    295,354
    
    
    
    134,916Benefits paid
    
    
    (156,703
    )
    
    
    (204,985
    )Settlements
    
    
    (165,928
    )
    
    
    Acquisition of Rhode Island gas pension assets*
    
    
    153,603
    
    
    
    Fair value of plan assets at end of period
    
    
    2,494,785
    
    
    
    2,147,611Funded status
    
    
    (402,418
    )
    
    
    (600,854
    )Unrecognized actuarial loss
    
    
    
    
    
    
    629,266Unrecognized prior service cost
    
    
    
    
    
    
    48,847Net amount (accrued) prepaid cost
    
    $
    (402,418
    )
    
    $
    77,259
 
 Note:*
    
    On August 24, 2006, the Company acquired the Rhode Island gas distribution
assets of New England Gas Company from Southern Union Company. In connection
with this acquisition, four small pension plans merged with the existing
pension plan, resulting in an increase in the assets and benefit obligation of
the plan in the amounts of $154 million and $166 million, respectively.
 F-32




---



##### 



2007
    
    
    2006(In thousands)Amounts recognized on the balance sheet consist of:Intangible asset
    
    $
    
    
    
    $
    36,885Prepaid benefit cost
    
    
    
    
    
    
    360,183Regulatory assets
    
    
    214,788
    
    
    
    79,923Current pension liability
    
    
    (9,047
    )
    
    
    Non-current pension liability
    
    
    (393,371
    )
    
    
    (410,275
    )Accumulated other comprehensive income, before taxes
    
    
    415,250
    
    
    
    10,543Net amount recognized
    
    $
    227,620
    
    
    $
    77,259
 2007(Inthousands)Amounts recognized in regulatory assets and AOCI consist of:Net actuarial loss
    
    $
    586,105Prior service cost
    
    
    43,933Net amount recognized
    
    $
    630,038
   PensionBenefits(Inthousands)2008
    
    $
    203,0472009
    
    $
    202,6152010
    
    $
    205,6452011
    
    $
    208,9472012
    
    $
    214,0862013-2017
    
    $
    1,052,184
 Additional Minimum Liability (AML)
 F-33




---



##### 



Defined Contribution Plan
  Settlement Losses
  Postretirement Benefits Other than Pensions
  2007
    
    
    2006(In thousands)Service cost
    
    $
    28,178
    
    
    $
    28,293Interest cost
    
    
    121,538
    
    
    
    112,407Expected return on plan assets
    
    
    (76,743
    )
    
    
    (73,782
    )Amortization of prior service cost
    
    
    13,331
    
    
    
    13,330Amortization of net loss
    
    
    43,896
    
    
    
    45,648Net periodic benefit cost
    
    $
    130,200
    
    
    $
    125,896
  2007
    
    
    2006(In thousands)Benefit obligation at beginning of period
    
    $
    (2,124,767
    )
    
    $
    (2,019,009
    )Service cost
    
    
    (28,178
    )
    
    
    (28,293
    )Interest cost
    
    
    (121,538
    )
    
    
    (112,407
    )Actuarial loss
    
    
    (6,852
    )
    
    
    (71,103
    )Benefits paid
    
    
    118,341
    
    
    
    106,045Medicare subsidy
    
    
    (5,392
    )
    
    
    Acquisition of Rhode Island gas PBOP obligation*
    
    
    (47,640
    )
    
    
    Benefit obligation at end of period
    
    
    (2,216,026
    )
    
    
    (2,124,767
    )Fair value of plan assets at beginning of period
    
    
    988,189
    
    
    
    922,173
 F-34




---



##### 



2007
    
    
    2006(In thousands)Actual return on plan assets
    
    
    100,881
    
    
    
    113,920Company contributions
    
    
    53,230
    
    
    
    53,700Benefits paid
    
    
    (110,606
    )
    
    
    (101,604
    )Acquisition of Rhode Island gas PBOP assets*
    
    
    13,021
    
    
    
    Fair value of plan assets at end of period
    
    
    1,044,715
    
    
    
    988,189Funded status
    
    
    (1,171,311
    )
    
    
    (1,136,578
    )Unrecognized actuarial loss
    
    
    
    
    
    
    583,073Unrecognized prior service cost
    
    
    
    
    
    
    119,775Net amount accrued cost
    
    $
    (1,171,311
    )
    
    $
    (433,730
    )
 
 Note:*
    
    On August 24, 2006, the Company acquired the Rhode Island gas distribution
assets of New England Gas Company from Southern Union Company. In connection
with this acquisition, the Companys assets and benefit obligation of the PBOP
plan increased by $13 million and $48 million, respectively.
 2007(In thousands)Amounts recognized on the balance sheet consist of:Regulatory asset
    
    $
    285,490PBOP liability
    
    
    (1,171,311
    )Accumulated other comprehensive income, before taxes
    
    
    264,669Net amount recognized
    
    $
    (621,152
    )Amounts recognized in regulatory assets and AOCI consist of:Net actuarial loss
    
    $
    521,892Prior service cost
    
    
    106,445Net amount recognized
    
    $
    628,337
    Payments
    
    
    Subsidies(In thousands)2008
    
    $
    117,654
    
    
    $
    7,063
 F-35




---



##### 



Payments
    
    
    Subsidies(In thousands)2009
    
    $
    127,008
    
    
    $
    7,6762010
    
    $
    132,042
    
    
    $
    8,2682011
    
    $
    137,022
    
    
    $
    8,7082012
    
    $
    140,849
    
    
    $
    9,0152013-2017
    
    $
    742,438
    
    
    $
    48,356
  2007Increase 1%Total of service cost plus interest cost
    
    $
    28,270Postretirement benefit obligation
    
    $
    333,616Decrease 1%Total of service cost plus interest cost
    
    $
    (23,241
    )Postretirement benefit obligation
    
    $
    (289,647
    )
 NOTE
G  INCOME TAXES
   For the Year EndedMarch 31,2007
    
    
    2006(In thousands)Income taxes charged to operations
    
    $
    187,966
    
    
    $
    319,232Income taxes credited to Other deductions
    
    
    (3,924
    )
    
    
    (2,032
    )Total income taxes
    
    $
    184,042
    
    
    $
    317,200
  For the Year EndedMarch 31,2007
    
    
    2006(In thousands)Current income taxes
    
    $
    75,463
    
    
    $
    282,320
 F-36




---



##### 



For the Year EndedMarch 31,2007
    
    
    2006(In thousands)Deferred income taxes
    
    
    114,825
    
    
    
    41,619Investment tax credits, net
    
    
    (6,246
    )
    
    
    (6,739
    )Total income taxes
    
    $
    184,042
    
    
    $
    317,200
   For the Year EndedMarch 31,2007
    
    
    2006(In thousands)Federal income taxes
    
    $
    152,189
    
    
    $
    272,705State income taxes
    
    
    31,853
    
    
    
    44,495Total income taxes
    
    $
    184,042
    
    
    $
    317,200
   For the Year endedMarch 31,2007
    
    
    2006(In thousands)Computed tax at statutory rate
    
    $
    226,133
    
    
    $
    307,322Increases (reductions) in tax resulting from:Amortization of ITC, net
    
    
    (6,246
    )
    
    
    (6,739
    )State income tax, net of federal income tax benefit
    
    
    19,334
    
    
    
    28,336Tax return true-ups
    
    
    (52,888
    )
    
    
    (16,563
    )Rate recovery of deficiency in deferred tax reserves
    
    
    764
    
    
    
    11,159Book/tax depreciation not normalized
    
    
    13,536
    
    
    
    10,156Unamortized debt discount not normalized
    
    
    (33
    )
    
    
    3,298Cost of removal
    
    
    (6,861
    )
    
    
    (7,298
    )Medicare act
    
    
    (12,713
    )
    
    
    (11,385
    )All other differences
    
    
    3,016
    
    
    
    (1,086
    )
 F-37




---



##### 



For the Year endedMarch 31,2007
    
    
    2006(In thousands)Total income taxes
    
    $
    184,042
    
    
    $
    317,200
   At March 31,2007
    
    
    2006(In thousands)Deferred tax assets:Plant related
    
    $
    53,193
    
    
    $
    112,757Alternative minimum tax
    
    
    381
    
    
    
    119,294Unbilled revenues
    
    
    21,987
    
    
    
    17,070Liability for environmental costs
    
    
    224,069
    
    
    
    191,307Voluntary early retirement program
    
    
    0
    
    
    
    42,089Bad debts
    
    
    65,687
    
    
    
    62,210Pension and other post-retirement benefits
    
    
    762,038
    
    
    
    248,446Investment tax credit
    
    
    9,255
    
    
    
    10,560Other
    
    
    560,914
    
    
    
    414,343Total deferred tax assets
    
    
    1,697,524
    
    
    
    1,218,076Deferred tax liabilities:Plant related
    
    
    (1,481,242
    )
    
    
    (1,429,641
    )Equity AFUDC
    
    
    (65,337
    )
    
    
    (63,668
    )Deferred environmental restoration costs
    
    
    (185,897
    )
    
    
    (186,842
    )Merger rate plan stranded costs
    
    
    (758,235
    )
    
    
    (795,184
    )Merger fair value pension and OPEB adjustment
    
    
    (90,768
    )
    
    
    (109,478
    )Bond redemption and debt discount
    
    
    (25,215
    )
    
    
    (30,009
    )Pension and other post-retirement benefits
    
    
    (266,144
    )
    
    
    (61,784
    )Other
    
    
    (637,358
    )
    
    
    (569,349
    )Total deferred tax liabilities
    
    
    (3,510,196
    )
    
    
    (3,245,955
    )Net accumulated deferred income tax liability
    
    
    (1,812,672
    )
    
    
    (2,027,879
    )Current portion (net deferred tax asset)
    
    
    176,208
    
    
    
    195,476Net accumulated deferred income tax liability (non-current)
    
    $
    (1,988,880
    )
    
    $
    (2,223,355
    )
 F-38




---



##### 



NOTE
H  LONG-TERM DEBT
  Narragansett Electric
 At March 31Series
    
    Rate %
    
    Maturity
    
    2007
    
    
    2006(In thousands)First Mortgage Bonds:U(93-3)
    
    6.650
    
    June 30, 2008
    
    $
    5,000
    
    
    $
    5,000M (Formerly Providence Gas)
    
    10.250
    
    July 31, 2008
    
    
    544
    
    
    
    S (Formerly Providence Gas)
    
    6.820
    
    April 1, 2018
    
    
    14,464
    
    
    
    N (Formerly Providence Gas)
    
    9.630
    
    May 30, 2020
    
    
    10,000
    
    
    
    O (Formerly Providence Gas)
    
    8.460
    
    September 30, 2022
    
    
    12,500
    
    
    
    P (Formerly Providence Gas)
    
    8.090
    
    September 30, 2022
    
    
    10,000
    
    
    
    R (Formerly Providence Gas)
    
    7.500
    
    December 15, 2025
    
    
    14,250
    
    
    
    W(97-l)
    
    7.390
    
    September 30, 2027
    
    
    3,000
    
    
    
    3,000W(97-2)
    
    7.390
    
    October 1, 2027
    
    
    7,000
    
    
    
    7,000Unamortized discounts
    
    
    
    
    
    
    (212
    )
    
    
    (237
    )Total long-term debt
    
    
    
    
    
    $
    76,546
    
    
    $
    14,763Long-term debt due within one year
    
    
    
    
    
    
    11,648
    
    
    
    Total long-term debt, excluding
current portion
    
    
    
    
    
    $
    64,898
    
    
    $
    14,763
   F-39




---



##### 



Massachusetts Electric
 At March 31Series
    
    Rate %
    
    Maturity
    
    2007
    
    
    2006(In thousands)First Mortgage Bonds:V(96-l)
    
    6.780
    
    November 20, 2006
    
    $
    
    
    
    $
    20,000T(93-7)
    
    6.660
    
    June 23, 2008
    
    
    5,000
    
    
    
    5,000T(93-8)
    
    6.660
    
    June 30, 2008
    
    
    5,000
    
    
    
    5,000T(93-10)
    
    6.110
    
    September 8, 2008
    
    
    10,000
    
    
    
    10,000T(93-ll)
    
    6.375
    
    November 17, 2008
    
    
    10,000
    
    
    
    10,000V(98-3)
    
    5.720
    
    November 24, 2008
    
    
    25,000
    
    
    
    25,000V(97-l)
    
    7.390
    
    October 1, 2027
    
    
    15,000
    
    
    
    15,000V(98-l)
    
    6.910
    
    January 12, 2028
    
    
    20,000
    
    
    
    20,000V(98-2)
    
    6.940
    
    January 12, 2028
    
    
    5,000
    
    
    
    5,000Pollution Control Revenue Bonds:2004
    
    Variable
    
    August 1, 2008
    
    
    20,000
    
    
    
    20,0002004
    
    Variable
    
    August 1, 2014
    
    
    20,000
    
    
    
    20,000Unamortized discounts
    
    
    
    
    
    
    (485
    )
    
    
    (587
    )Total long-term debt
    
    
    
    
    
    
    134,515
    
    
    
    154,413Long-term debt due within one year
    
    
    
    
    
    
    
    
    
    
    20,000Total long-term debt, excluding
current portion
    
    
    
    
    
    $
    134,515
    
    
    $
    134,413
  Granite State Electric
 At March 31Series
    
    Rate %
    
    Maturity
    
    2007
    
    
    2006(In thousands)Note
    
    7.370
    
    November 1, 2023
    
    $
    5,000
    
    
    $
    5,000Note
    
    7.940
    
    July 1, 2025
    
    
    5,000
    
    
    
    5,000Note
    
    7.300
    
    June 15, 2028
    
    
    5,000
    
    
    
    5,000Total long-term debt
    
    
    
    
    
    $
    15,000
    
    
    $
    15,000
  F-40




---



##### 



Niagara Mohawk
 At March 31Series
    
    Rate %
    
    Maturity
    
    2007
    
    
    2006(In thousands)First Mortgage Bonds:7 3/4%
    
    7.750
    
    May 15, 2006
    
    $
    
    
    
    $
    275,000Senior Notes:(1)8 7/8%
    
    8.875
    
    May 15, 2007
    
    
    200,000
    
    
    
    200,0007 3/4%
    
    7.750
    
    October 1, 2008
    
    
    600,000
    
    
    
    600,000Tax Exempt:2013
    
    Variable
    
    October 1, 2013
    
    
    45,600
    
    
    
    45,6002015
    
    Variable
    
    July 1, 2015
    
    
    100,000
    
    
    
    100,0002023
    
    Variable
    
    December 1, 2023
    
    
    69,800
    
    
    
    69,8005.15%(2)
    
    5.150
    
    November 1, 2025
    
    
    75,000
    
    
    
    75,0002025
    
    Variable
    
    December 1, 2025
    
    
    75,000
    
    
    
    75,0002026
    
    Variable
    
    December 1, 2026
    
    
    50,000
    
    
    
    50,0002027
    
    Variable
    
    March 1, 2027
    
    
    25,760
    
    
    
    25,7602027
    
    Variable
    
    July 1, 2027
    
    
    93,200
    
    
    
    93,2002029
    
    Variable
    
    July 1, 2029
    
    
    115,705
    
    
    
    115,705Notes Payable:(1)NM Holdings Note
    
    3.720
    
    July 31, 2009
    
    
    350,000
    
    
    
    350,000NM Holdings Note
    
    3.830
    
    June 30, 2010
    
    
    350,000
    
    
    
    350,000NM Holdings Note
    
    5.800
    
    November 1, 2012
    
    
    500,000
    
    
    
    500,000Unamortized discounts
    
    
    
    
    
    
    (871
    )
    
    
    (1,133
    )Total long-term debt
    
    
    
    
    
    
    2,649,194
    
    
    
    2,923,932Long-term debt due within one year
    
    
    
    
    
    
    200,000
    
    
    
    275,000Total long-term debt, excluding
current portion
    
    
    
    
    
    $
    2,449,194
    
    
    $
    2,648,932
 
 Notes:(1)
    
    Currently callable with make-whole provisions.(2)
    
    Fixed rate pollution control revenue bonds first callable November 1, 2008 at
102%.
  F-41




---



##### 



New England Hydro Finance
 At March 31Series
    
    Rate %
    
    Maturity
    
    2007
    
    
    2006(In thousands)Series B
    
    9.260
    
    April 17, 2007
    
    $
    590
    
    
    $
    6,350Series C
    
    9.410
    
    October 17, 2015
    
    
    46,270
    
    
    
    46,270Total long-term debt
    
    
    
    
    
    
    46,860
    
    
    
    52,620Long-term debt due within one year
    
    
    
    
    
    
    5,650
    
    
    
    5,760Total long-term debt, excluding
current portion
    
    
    
    
    
    $
    41,210
    
    
    $
    46,860
  New England Power
 At March 31Series
    
    Rate %
    
    Maturity
    
    2007
    
    
    2006(In thousands)Pollution Control
Revenue
Bonds:(1)CDA(2)
    
    Variable
    
    October 15, 2015
    
    $
    38,500
    
    
    $
    38,500MIFA 1(3)
    
    Variable
    
    March 1, 2018
    
    
    79,250
    
    
    
    79,250BFA 1(4)
    
    Variable
    
    November 1, 2020
    
    
    135,850
    
    
    
    135,850BFA 2(4)
    
    Variable
    
    November 1, 2020
    
    
    50,600
    
    
    
    50,600MIFA 2(3)
    
    Variable
    
    October 1, 2022
    
    
    106,150
    
    
    
    106,150Unamortized discounts
    
    
    
    
    
    
    (34
    )
    
    
    (40
    )Total long-term debt
    
    
    
    
    
    $
    410,316
    
    
    $
    410,310
 
 Notes:(1)
    
    At March 31, 2007, interest rates on NEPs variable rate bonds ranged from 3.64 percent to 3.68
percent.(2)
    
    CDA  Connecticut Development Authority(3)
    
    MIFA  Massachusetts Industrial Finance Authority (now known as Massachusetts Development Finance
Agency)(4)
    
    BFA  Business Finance Authority of the State of New Hampshire
 F-42




---



##### 



Nantucket Electric
 At March 31Series
    
    Rate %
    
    Maturity
    
    2007
    
    
    2006(In thousands)2006 Series 1996 MIFA Tax Exempt
    
    5.600
    
    July 1, 2006
    
    $
    
    
    
    $
    1,4002007 Series 1996 MIFA Tax Exempt
    
    5.600
    
    July 1, 2007
    
    
    1,400
    
    
    
    1,4002008 Series 1996 MIFA Tax Exempt
    
    5.750
    
    July 1, 2008
    
    
    1,400
    
    
    
    1,4002009 Series 1996 MIFA Tax Exempt
    
    5.750
    
    July 1, 2009
    
    
    1,400
    
    
    
    1,4002017 Series 1996 MIFA Tax Exempt
    
    5.875
    
    July 1, 2017
    
    
    10,500
    
    
    
    10,5002004 $3.5 Million MIFA Tax-Exempt.
    
    Variable
    
    March 16, 2016
    
    
    2,335
    
    
    
    2,4952004 $10 million MIFA Tax-Exempt
    
    Variable
    
    March 1, 2039
    
    
    10,000
    
    
    
    10,0002005 $28 million MIFA Tax-Exempt
    
    Variable
    
    December 1, 2040
    
    
    28,000
    
    
    
    28,000Unamortized discounts
    
    
    
    
    
    
    (66
    )
    
    
    (72
    )Total long-term debt
    
    
    
    
    
    
    54,969
    
    
    
    56,523Long-term debt due within one year
    
    
    
    
    
    
    1,575
    
    
    
    1,560Total long-term debt, excluding
current portion
    
    
    
    
    
    $
    53,394
    
    
    $
    54,963
  Totals  National Grid USA
 At March 312007
    
    
    2006(In thousands)Total long-term debt
    
    $
    3,389,068
    
    
    $
    3,629,630Unamortized Discount on Debt
    
    
    (1,667
    )
    
    
    (2,069
    )Long-term debt due within one year
    
    
    218,873
    
    
    
    302,320Total long-term debt, excluding current portion
    
    $
    3,168,528
    
    
    $
    3,325,241
  Fiscal Year
    
    Amount2008
    
    $
    218,8732009
    
    
    688,7612010
    
    
    358,5052011
    
    
    358,5252012
    
    
    508,545Thereafter
    
    
    1,255,859
 F-43




---



##### 



Fiscal Year
    
    Amount$
    3,389,068
  NOTE
I  SHORT-TERM DEBT
 NEP
  Inter-company money pool
  NOTE J  CUMULATIVE PREFERRED STOCK
  March 31,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Shares
    
    
    Amount
    
    
    CallCompany
    
    Outstanding
    
    
    (in 000s)
    
    
    Price$100 par value -
3.40% Series
    
    Niagara Mohawk
    
    
    57,536
    
    
    
    57,536
    
    
    $
    5,754
    
    
    $
    5,754
    
    
    $
    103.5003.60% Series
    
    Niagara Mohawk
    
    
    137,139
    
    
    
    137,139
    
    
    
    13,714
    
    
    
    13,714
    
    
    
    104.8503.90% Series
    
    Niagara Mohawk
    
    
    94,967
    
    
    
    94,967
    
    
    
    9,496
    
    
    
    9,496
    
    
    
    106.0004.10% Series
    
    Niagara Mohawk
    
    
    52,830
    
    
    
    52,830
    
    
    
    5,283
    
    
    
    5,283
    
    
    
    102.0004.44% Series
    
    Mass Electric
    
    
    22,585
    
    
    
    22,585
    
    
    
    2,259
    
    
    
    2,259
    
    
    
    104.0684.76% Series
    
    Mass Electric
    
    
    24,680
    
    
    
    24,680
    
    
    
    2,468
    
    
    
    2,468
    
    
    
    103.7304.85% Series
    
    Niagara Mohawk
    
    
    35,128
    
    
    
    35,128
    
    
    
    3,513
    
    
    
    3,513
    
    
    
    102.0005.25% Series
    
    Niagara Mohawk
    
    
    34,115
    
    
    
    34,115
    
    
    
    3,410
    
    
    
    3,410
    
    
    
    102.0006.00% Series
    
    New England Power
    
    
    11,117
    
    
    
    11,117
    
    
    
    1,112
    
    
    
    1,112
    
    
    
    (a
    )$50 par value -
4.50% Series
    
    Narragansett
    
    
    49,089
    
    
    
    49,089
    
    
    
    2,454
    
    
    
    2,454
    
    
    
    55.000
 F-44




---



##### 



March 31,
    
    
    March 31,
    
    
    March 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Shares
    
    
    Amount
    
    
    CallCompany
    
    Outstanding
    
    
    (in 000s)
    
    
    Price4.64% Series
    
    Narragansett
    
    
    57,057
    
    
    
    57,057
    
    
    
    2,854
    
    
    
    2,854
    
    
    
    52.125Total
    
    
    
    
    576,243
    
    
    
    576,243
    
    
    $
    52,317
    
    
    $
    52,317(a) Noncallable
 NOTE
K  COST OF REMOVAL AND ASSET RETIREMENT OBLIGATION
   NOTE
L  ACQUISITIONS
 Pending Acquisition of Keyspan Corporation (Keyspan)
  Acquisition of Rhode Island Gas Assets
  F-45




---



##### 



At August 24, 2006(in thousands)Net utility plant
    
    $
    357,667Goodwill
    
    
    235,800Other property and investments
    
    
    4,536Cash and cash equivalents
    
    
    16Accounts receivable
    
    
    72,453Materials and supplies
    
    
    36,099Prepaid and other current assets
    
    
    423Regulatory assets
    
    
    92,745Deferred charges and other assets
    
    
    422Total assets acquired
    
    
    800,161Long-term debt
    
    
    76,051Long-term debt due in one year
    
    
    544Accounts payable
    
    
    29,392Other accrued expenses
    
    
    39,491Customer deposits
    
    
    3,270Accrued pension and other post-retirement benefits
    
    
    46,922Other reserves and deferred credits
    
    
    107,753Total liabilities assumed
    
    
    303,423Net assets acquired
    
    $
    496,738
 F-46




---



##### 



NOTE
M  DISCONTINUED OPERATIONS
    Income Statement Data
 For the year endedMarch 312007
    
    
    2006Total operating revenues
    
    $
    74,008
    
    
    $
    51,358Total operating expenses
    
    
    62,074
    
    
    
    46,217Operating income
    
    
    11,934
    
    
    
    5,141Total other expense
    
    
    (109,780
    )
    
    
    (97
    )Income before income taxes
    
    
    (97,846
    )
    
    
    5,044Income tax provision
    
    
    10,641
    
    
    
    2,668Net Income
    
    $
    (108,487
    )
    
    $
    2,376
 Balance Sheet Data
 For the years endedMarch 31,2007
    
    
    2006ASSETSTotal current assets
    
    $
    23,090
    
    
    $
    17,297Total assets
    
    
    309,205
    
    
    
    253,451LIABILITIES AND STOCKHOLDERS EQUITYTotal current liabilities
    
    
    288,323
    
    
    
    119,286Total liabilities
    
    
    305,650
    
    
    
    136,451Total stockholders equity
    
    
    3,555
    
    
    
    117,000Total liabilities and stockholders equity
    
    
    309,205
    
    
    
    253,451
 F-47




---



##### 



NOTE N  SUBSEQUENT EVENTS
  F-48




---



##### 



REGISTERED OFFICE OF THE ISSUER
 National Grid USA
 THE ARRANGER AND DEALER
 HSBC Bank plc
 LEGAL ADVISERS
 To the Dealers as to English law and United States law and to the Trustee as to English law
 Clifford Chance LLP
 To the Issuer as to English and United States law
 Linklaters LLP
 THE TRUSTEE
 The Law Debenture Trust Corporation p.l.c.
 ISSUING AND PAYING AGENT
 The Bank of New York
 PAYING AGENT
 Kredietbank S.A. Luxembourgeoise
 REGISTERED AUDITORS TO THE ISSUER
 PricewaterhouseCoopers LLP