##### Table of Contents



As filed with the Securities and
Exchange Commission on June 21, 2002



---

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 20-F

|     |  |                                                                                                                                      
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------
|[  ] |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934                                       
|     |  |                                                                                                                                      
|     |  | or                                                                                                                                   
|     |  |                                                                                                                                      
|[X]  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 2002        
|     |  |                                                                                                                                      
|     |  | or                                                                                                                                   
|     |  |                                                                                                                                      
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from            to

1-4315
(Commission file number)

NATIONAL GRID GROUP plc(Exact name of registrant as specified in its charter)

England and Wales
(Jurisdiction of incorporation or organization)

15 Marylebone Road
London NW1 5JD
England
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

|                             |  |                             
|---------------------------- |  | ----------------------------
|                             |  | Name of each exchange       
|Title of each class          |  | on which registered         
|                             |  |                             
|American Depositary Shares   |  | The New York Stock Exchange 
|Ordinary Shares of 10 p each |  | The New York Stock Exchange*



---

|* |  | Not for trading, but only in connection with the registration of American Depositary Shares
representing Ordinary Shares pursuant to the requirements of the Securities and Exchange
Commission.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Outstanding shares of each of the issuers classes of capital or common stock as of March 31, 2002:

|                                                  |  |  |               | 
|------------------------------------------------- |  |  | ------------- | 
|Ordinary Shares of 10p each                       |  |  | 1,776,932,870 | 
|Special Rights Redeemable Preference Shares of £1 |  |  | 1             | 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  [X] No  [  ]

Indicate by check mark which financial statement item the registrant has elected to follow.

|             |  |             
|------------ |  | ------------
|Item 17 [  ] |  | Item 18  [X]





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##### Table of Contents







---

TABLE OF CONTENTS



|                                                 |                                           |  |  |  |  |  |  | 
|------------------------------------------------ | ----------------------------------------- |  |  |  |  |  |  | 
|Highlights of the year                          
|Chairman's statement                            
|Group Chief Executive's review                  
|Operating and financial review                  
|                                                 | Business review                          
|                                                 | Overview of National Grid                
|                                                 | Electricity networks - England and Wales 
|                                                 | Electricity and gas networks - US        
|                                                 | Other electricity businesses and projects
|                                                 | Telecoms                                 
|                                                 | Our framework for a responsible business 
|                                                 | Financial review                         
|Board of Directors                              
|Directors' report                               
|                                                 | Corporate governance                     
|                                                 | Remuneration                             
|Directors' responsibilities                     
|Independent auditors' report                    
|The accounts                                    
|Glossary of terms                               
|Investor information                            
|Cross reference to Form 20-F                    
|Shareholder information                         
|Memorandum & Articles of Assc.                  
|Amended and Restated Deposit Agreement 31 Jan 02
|Offering Circular 20 Aug 2001                   
|Offering Circular Dated 23 July 2001            
|Credit Agreement 22 Nov 2001                    
|Supplemental Trust Deed                         
|Letter Agreement 20 Nov 2001                    
|Service Agreement                               
|Employ  Agreement                               
|Share Option Plan 2002                          
|List of Subsidiaries                            
|Details of Proposed Merger                      
|Summaries of Material Contract                  



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Contents






|                               |                                             |  |    |    | 
|------------------------------ | ------------------------------------------- |  | -- | -- | 
|Highlights of the year         |                                             |  | 1  |   
|Chairmans statement           |                                             |  | 2  |   
|Group Chief Executives review |                                             |  | 3  |   
|Operating and financial review |                                             |  | 5  |   
|                               | Business review                             |  |    | 5  | 
|                               |  Overview of National Grid                 |  |    | 5  | 
|                               |  Electricity networks  England and Wales  |  |    | 6  | 
|                               |  Electricity and gas networks  US         |  |    | 8  | 
|                               |  Other electricity businesses and projects |  |    | 12 | 
|                               |  Telecoms                                  |  |    | 13 | 
|                               |  Our framework for a responsible business  |  |    | 14 | 
|                               | Financial review                            |  |    | 17 | 
|Board of Directors             |                                             |  | 28 |   
|Directors report              |                                             |  | 30 |   
|                               | Corporate governance                        |  |    | 32 | 
|                               | Remuneration                                |  |    | 34 | 
|Directors responsibilities    |                                             |  | 40 |   
|Independent auditors report   |                                             |  | 41 |   
|The accounts                   |                                             |  | 44 |   
|Glossary of terms              |                                             |  | 83 |   
|Investor information           |                                             |  | 86 |   
|Cross reference to Form 20-F   |                                             |  | 94 |   
|Shareholder information        |                                             |  | 96 |   

National Grid Group plc is an international networks business.

Our principal activities are in the regulated electricity industry, where we
own and operate the transmission network in England and Wales, and transmission
and distribution networks in the north-eastern US. We are one of the top ten
electricity companies in the US and have the largest transmission and
distribution network in the New England/ New York market, serving 3.2 million
customers in Massachusetts, Rhode Island, New Hampshire and upstate New York.
Other electricity interests include operating and developing transmission
interconnectors in the UK and US, Europe and Australia and joint venture
transmission networks in Argentina and Zambia. We also operate a gas
distribution network, serving over 500,000 New York customers.

We have transferred our network skills to the telecoms market with interests
including wholly-owned infrastructure businesses in the UK and US.

Forward-looking statements
This document contains certain statements that are neither reported financial
results nor other historic information. These statements are forward-looking
statements within the meaning of section 27A of the US Securities Act of 1933,
as amended, and section 21E of the US Securities Exchange Act of 1934, as
amended. These forward-looking statements rely on a number of assumptions
concerning future events and are subject to a number of risks and
uncertainties, many of which are outside of the control of National Grid, that
could cause actual results to differ materially from those expressed in or
implied by such statements. For a more detailed description of these
assumptions, risks and uncertainties, please see the Risk factors and
Operating and financial review sections of this document and the other
filings by National Grid with the United States Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this document.
National Grid has no intention and undertakes no obligation to update or revise
any forward-looking statements in light of new information, future events or
circumstances after the date of this document.

Definitions
References to National Grid, the Group or the Company in this Annual
Report are to National Grid Group plc and its subsidiaries, or to any of them
as the context may require.
The terms shares and ordinary shares refer to National Grid ordinary shares
of 10 pence each. References to ADSs are to American Depositary Shares, each
of which represents the right to receive five ordinary shares.
References to pound(s) sterling, £, pence or p are to United Kingdom
(UK) currency. References to US$, $, US dollars or dollars are to
United States (US) dollars. References to financial years refer to National
Grids financial years ending on 31 March of the year
indicated.
National Grid publishes its accounts in pounds sterling. Unless otherwise
specified, pound sterling amounts in this Annual Report have been translated
into US dollars at: for balance sheet items, the closing rate of £1.00 = $1.42,
and for profit and loss account items, the average rate of £1.00 = $1.44. These
translations do not mean that the pound sterling amounts have been, could have
been or could be converted into US dollars at the rates indicated or at any
other rate.



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##### Table of Contents



National Grid Annual Report and Form 20-F
2001/02




Highlights of the year

1




National Grids core businesses, its regulated energy delivery companies in the
UK and the US, performed extremely well during the year. Our growth continued
with the acquisition of Niagara Mohawk and will be further enhanced by our
proposed merger with Lattice.



|(1) |  | Before exceptional items and goodwill amortisation.                                                
|--- |  | ---------------------------------------------------------------------------------------------------
|   
|(2) |  | Restated to reflect the adoption of FRS 19 Deferred Tax from a partial to a full provision basis.
|   
|(3) |  | Restated to reflect a revised presentation of minority interests share of associated undertakings.

|                         |  |           |  |          
|------------------------ |  | --------- |  | ---------
|                        
|Group turnover           |  | £4,401.0m |  | $6,337.4m
|Operating profit         |  | £874.7m   |  | $1,259.6m
|Basic earnings per share |  | 32.1p     |  | 46.22¢   
|Ordinary dividends       |  | 16.04p    |  | 23.10¢   
|                        

Niagara Mohawk
January 2002

The Niagara Mohawk acquisition completed in January, more than doubling the
size of our US business. It was immediately earnings enhancing with a
contribution of £83.1 million to Group operating profit, before exceptional
items and goodwill amortisation, from the end of January to the end of March.

Earnings per share
2001/02

Basic earnings per share, excluding exceptional items and goodwill
amortisation, increased 12.1 pence to 32.1 pence. As a result of exceptional
items, basic earnings per share fell 77.3 pence to a loss of 32.3 pence.

Dividends

As announced on 22 April 2002, the Board is recommending a final dividend of
9.58 pence per ordinary share to be paid on 15 August 2002 to shareholders on
the register on 7 June 2002. This brings the total dividend for the year to
16.04 pence per ordinary share, a 6.4 per cent increase compared with last
year, in line with our target to increase dividends per share (as expressed in
pounds sterling) by 5 per cent real in each of the years to March 2006. This
dividend per share is covered 2.0 times (2001: 1.3 times) by earnings per share
excluding exceptional items and goodwill amortisation.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02




Chairmans statement

2




It has been a year of great change, growth and promise for National Grid. I
would like at the outset to thank all National Grid employees for their
contribution, hard work and willingness to embrace change.

The high point of the year was the completion of our $3.1 billion (£2.2
billion) acquisition of Niagara Mohawk on 31 January 2002. It confirms National
Grid as a major player in the US, the worlds largest electricity market. Our
US presence has more than doubled, creating the largest transmission and
distribution network business in the northeastern US and the ninth largest
electricity utility in the US.

This has been another year of strong operating performance. Operating profit
has increased by 18 per cent and earnings per share, before exceptional items
and goodwill amortisation, increased by 61 per cent. The total dividend, of
16.04 pence per share, represents an increase of 6.4 per cent compared with
last year. This is in line with our target to increase dividends per share (as
expressed in pounds sterling) by 5 per cent real in each of the years to March
2006.

We have continued to improve both the electricity transmission and distribution
operations in the US. The addition of Niagara Mohawk, the New York business,
for the last two months of the year included contributions to operating profit,
before exceptional costs and goodwill amortisation, of £66.8 million for
electricity transmission and distribution and £17.0 million for gas
distribution. We look forward to a full years contribution in 2002/03, when
operating profit, before exceptional items and goodwill amortisation, from the
US is expected to represent some 60 per cent of our profits from the
transmission and distribution of electricity.

The UK business demonstrated continued strength this year. We recently
announced that we would increase our target for reduction in controllable costs
from 20 per cent to 30 per cent, representing further cost savings of £80.0
million during the remainder of the period until March 2006.

We have re-evaluated our telecoms investments and have written-down our Latin
American telecoms ventures and more recently the carrying value of our stake in
Energis and our investment and associated liabilities in Energis Polska. We are
pursuing the sale of Intelig, Silica Networks and Manquehue net and are
exploring options for Energis Polska. Despite this our overall investment in
this sector has generated over £1 billion of net value for our shareholders.

On the other hand, we continue to develop GridCom, our wholly-owned
infrastructure services business. GridCom provides services, principally the
siting of aerials for mobile phone operators on National Grid towers. During
the year, GridCom signed a significant contract with Hutchison 3G for services
in the UK. We also intend to establish a similar business in the US. Our focus
on GridCom should reap positive returns at low risk as this business is closely
related to our core infrastructure assets and capabilities.

During the year, energy policy has featured high on the agenda in the UK,
Europe and in the US. Security and diversity of supply, together with
protection of the environment, continue to be major policy issues. Going
forward, the central role of independent transmission as an enabler of
competition, diversity of supply and security, remains key.

On 22 April 2002, we announced a recommended merger of equals with Lattice
Group plc to create a leading international energy delivery company. Following
completion of the proposed merger, National Grid Group plc, which will be the
holding company of the merged group, will be re-named National Grid Transco
plc. The combined management team has a proven track record of successfully
improving the operational efficiency of UK regulated energy delivery
businesses. The proposed merger is subject to regulatory and shareholder
approvals and is expected to complete in autumn 2002.

National Grid Transco will be the UKs largest utility and will provide a
strong platform for future growth in gas and electricity delivery.

As the Group has changed so has the Board. During this year we have welcomed
three new directors, firstly Edward Astle as Group Director,
Telecommunications, and, following the acquisition of Niagara Mohawk, William
Davis and Bonnie Hill joined as Executive and Non-executive Directors
respectively. Stephen Box has recently announced his intention to retire as
Finance Director of National Grid through reasons of ill health. He will remain
on the Board until the completion of the proposed merger between National Grid
and Lattice. I would like to thank Stephen on behalf of everyone at National
Grid for his outstanding contribution to the Groups success and we wish him
and his family all good fortune on his retirement.

So one era is drawing to a close, that of the extraordinarily successful
privatisation of the electricity industry in the UK including the creation of
National Grid as a separate entity. And another era is beginning, that of the
evolution of the energy markets internationally, in which National Grid Transco
intends to play a pivotal role in the UK and overseas.



James Ross
Chairman



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02




Group Chief Executives review

3




Strategy

Our core skills lie in the design, construction, system operation, regulatory
management and customer service activities associated with operating complex
networks.

We create value for shareholders and benefits for customers by exploiting our
assets and skills through achieving performance improvements and cost savings
within a framework of incentive-based regulatory environments and competitive
markets.

Our primary focus on regulated electricity networks provides a stable base,
capable of generating cash for investments and earnings to support our
progressive dividend policy. This year, the addition of gas distribution,
through the acquisition of Niagara Mohawk, has expanded our breadth within the
regulated environment. Having reviewed our telecoms strategy during the year,
going forward we will concentrate on opportunities which leverage our
infrastructure skills and assets.

Following our proposed merger with Lattice, National Grid Transco will take
advantage of the enlarged groups combined expertise to improve returns and
exploit growth opportunities.

Electricity and gas networks  US

National Grid USA, including Niagara Mohawk, operates a network of
approximately 12,000 miles of transmission lines and 72,000 miles of
distribution lines, within a distribution service territory of almost 30,000
square miles. National Grid is now the ninth largest US utility with over 3.2
million electricity distribution customers. We also serve over 500,000 gas
customers in upstate New York.

On completion of the Niagara Mohawk acquisition, we implemented a
ground-breaking rate plan agreed with the New York Public Service Commission.
Electricity customers received an immediate rate decrease of 8 per cent with
delivery rates then effectively frozen for the full ten years of the plan. Gas
delivery rates will remain frozen until the end of 2004. The rate plan also
allows returns for shareholders to increase as we improve efficiency.

The debate around the creation of Regional Transmission Organisations continues
to evolve, led by the Federal Energy Regulatory Commission. We continue to
evaluate how best to participate in the development of the transmission sector
in the US.

The total operating profit, before exceptional costs and goodwill amortisation,
of National Grid USA in 2001/02 was £378.3 million, representing very strong
performance. Continued attention to cost-cutting efforts and out-performance of
regulatory targets places us well on track to deliver 10.5 per cent pre-tax
nominal return on our investment by March 2005.

Electricity networks  UK

Our performance this year since the implementation of New Electricity Trading
Arrangements in March 2001 underlines our ability to operate and manage complex
transmission networks within an incentive based regulatory environment.

In our Transmission Asset Owner business, we have launched further initiatives
to deliver efficiency levels over and above the 20 per cent we announced last
year. In January 2002, we introduced a strategy entitled Staying Ahead, to
ensure our business achieves ever higher standards in a move that will bring
long-term growth and ensure security for all stakeholder groups. The aim is for
National Grid to maintain its position as a world-class company with processes
and techniques that are in demand worldwide. In April of this year, we
announced that we had identified an additional 10 per cent (amounting to £80
million) of savings for the remainder of the price control period to March
2006.

In this, the first year of the Balancing Services Incentive Scheme, we excelled
in controlling costs and achieving savings for customers enabling us to reach
the maximum return allowable.

As a result of regulatory requirements, new contractual arrangements for the
French interconnector came into effect on 1 April 2001. These new arrangements
provide for the auctioning of blocks of interconnector capacity on timescales
ranging from three years to one day. With low UK wholesale electricity prices
these auctions have led to reduced profit.

Total operating profit for transmission and interconnectors, before exceptional
costs, in the UK during 2001/02 was £544.5 million.

Telecoms  infrastructure services

GridComGridCom was launched in spring 2001 to install and maintain telecoms
equipment on National Grids electricity transmission network and provide a
range of managed infrastructure services targeted particularly at the mobile
telecoms industry. Gridcom is using National Grids project management skills
and electricity infrastructure to capitalise on demand for new base station
sites by mobile phone operators. This demand is principally driven by the need
of these operators to install new infrastructure and the sensitivity of the
public to new masts. During the year, we have contracted with Hutchison 3G to
provide up to 1,000 sites and we are actively looking for opportunities to
build on this success. The business operating start-up losses were £4.6
million this year.

NEESComNEESCom, our wholly-owned telecoms business in the north-eastern US,
has recently extended its network to Albany in upstate New York. NEESCom
intends to capitalise on its success by seeking new opportunities in the US
telecoms market. The operating profit before goodwill amortisation was £3.0
million during 2001/02.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Group Chief Executives review continued

4




Telecoms  networks

EnergisEnergis, along with other major telecoms companies, is facing a
challenging period as a result of the decline in the global telecoms market. It
is in discussion with its lenders and bond holders with the aim of
restructuring its businesses and debt obligations. This could result in
significant dilution of National Grids shareholding in Energis. In light of
this we have taken the decision to write-down all of the £392.1 million
carrying value of our stake in Energis.

Energis PolskaThe difficulties faced by Energis have impacted on our
investment in Energis Polska and we have provided for the investment and
associated liabilities of £109.8 million.

Latin AmericaIn November 2001, we announced our intention to withdraw from our
telecoms investments in Latin America, principally due to the global decline in
the telecoms market and regional economic difficulties. Through the exceptional
charge reported in November 2001 of £290.4 million, we have fully written-down
the carrying value of our Latin American telecoms investments and provided for
certain associated liabilities. Our share of operating losses this year from
Intelig in Brazil is significantly reduced to £35.5 million from £118.0 million
last year.

Other

National Grid also has interests in electricity transmission joint ventures in
Argentina and Zambia. These contributed £24.8 million and £4.4 million,
respectively, to Group operating profit this year. Over the past year both have
performed well. However, they both face local challenges which are particularly
severe for our Argentine operation.

Framework for a responsible business

An important aim for us is to be a long-term and successful business. This will
ensure we are able to reward our shareholders by ever-increasing the value of
their investment. To achieve this aim, we will ensure that, whatever commercial
path is taken in the future, our business is sustainable and managed in a
responsible manner.

We have put in place a framework for our activities in the future. By focusing
our efforts on delivering sustainable growth, and profits with responsibility,
while investing for the future, we believe we will continue to be a long-term
and successful business.

Our standards of business conduct encompass open and constructive dialogue with
all of our stakeholders and the maintenance of high standards of integrity and
professionalism.

To protect the future of our business we take a proactive approach to the
management of both existing and future environmental risks. We aim to clean-up
contaminated land to enable it to be put back into productive use. We seek to
be efficient in our use of natural resources and to keep our waste to a
minimum, thus increasing our productivity as well as benefiting the
environment. Wherever practicable, we also take steps to reduce emissions of
greenhouse gases, again making us more productive whilst also playing an
important part in helping to minimise climate change.

A healthy and injury-free workplace is an important feature in a responsible
business, and makes an important contribution to maximising productivity. Our
objective is to safeguard each other and those who work with us and to achieve
our goals of no work-related injuries, no occupationalillness and no harm to
others in the community.

Our long-term success will depend on having a talented and diverse workforce
with the right skills for the work we do. Accordingly, we seek to recognise and
reward our employees for the contribution they make to the success of the
business and to develop them so that they can add value to the company,
themselves and society.

We believe we make a significant contribution to the economic wellbeing of
communities and society by offering high quality, reliable services at
reasonable cost. We therefore aim to improve the efficiency of the business
without compromising quality and reliability.

Our business relies on working in partnership with others. Through our own
financial contributions and the activities of our staff, we support projects
that help improve the quality of life for many communities.

Outlook

Our tasks for 2002/03 include:



| |  | continuing the integration process in the US;                                           
|- |  | ----------------------------------------------------------------------------------------
| 
| |  | continuing the UK efficiency drive;                                                     
| 
| |  | completing the proposed merger with Lattice and successfully integrating the businesses;
| 
| |  | developing our infrastructure services business; and                                    
| 
| |  | developing further growth opportunities.                                                

These proposals emphasise our commitment to creating shareholder value and
providing benefits to customers.



Roger Urwin
Group Chief Executive



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02







Operating and financial review  Business review

5







Overview of National Grid

National Grid Group plc is an international networks business.

Its principal activities are the ownership, operation and development of the
high-voltage electricity transmission network in England and Wales and
electricity transmission and distribution networks and gas distribution
networks which serve approximately 3.2 million and 500,000 customers
respectively in the north-eastern US. It also operates electricity
interconnectors between England and Wales and each of France and Scotland and
between the US and Canada. National Grid is also developing an electricity
interconnector in Australia and has interests in electricity transmission
networks in Argentina and Zambia with joint venture partners.

National Grid has transferred its networks skills to the telecoms market. Its
interests include wholly-owned infrastructure businesses in the UK and US.

Business strategy

The Groups core skills lie in the design, construction, system operation,
regulatory management and customer service activities associated with operating
complex networks. Its strategy is to exploit its assets and skills to create
value for shareholders and benefits for customers by achieving performance
improvements and cost savings within a framework of incentive-based regulatory
environments and competitive markets.

The Group has historically focused on regulated electricity networks which are
stable businesses, generating cash and earnings to support the Groups
investment strategy and progressive dividend policy. The Directors believe that
they can continue to create shareholder value from investment in electricity
transmission and distribution through progressive efficiency improvements. The
Directors also believe that the Group can create additional value in
distribution by offering high-quality customer service and in transmission by
facilitating the development of competitive energy markets while preserving
system security and reducing user costs.

Gas distribution businesses generally have similar characteristics to those of
electricity network businesses and, in the US particularly, are often combined
under common ownership.

Following National Grids proposed merger with Lattice, the combined group will
take advantage of its electricity and gas networks expertise and financial
capacity to:



| |  | create the opportunity to share a complementary set of core skills and to integrate certain activities of the
electricity and gas transmission businesses;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | generate annual savings of at least £100 million by the end of the first full financial year;                                                             
| 
| |  | create a combined group with significant balance sheet strength and strong operational cash flows; and                                                    
| 
| |  | allow National Grid Transco to extend National Grids successful US strategy and take advantage of liberalising
energy markets abroad.                    

National Grid is in the process of withdrawing from its investments in
alternative telecoms networks. However, the Directors believe that there are
attractive opportunities to leverage the Groups infrastructure skills and
assets in the UK and US to provide sites and related infrastructure services to
the wireless communications industry.

This strategy is shared with Lattice. The merged group will be the third
largest independent infrastructure services provider to mobile telecoms
operators in the UK.

History and development of the business

On the restructuring of the electricity industry in England and Wales in 1990,
The National Grid Company plc assumed ownership and control of the transmission
network and certain parts of the interconnectors with Scotland and France from
the Central Electricity Generating Board. National Grid Company became a
wholly-owned subsidiary of National Grid Holding plc, the predominant
shareholders in which were the 12 Regional Electricity Companies (RECs) which
owned and operated the local distribution systems. Each REC disposed of
substantially all of its holding in National Grid Holding plc in 1995 or 1996.
National Grid Holding plc was re-named The National Grid Group plc in 1995 and
in July 2000 was re-named National Grid Group plc. In January 2002, a new
holding company for the Group was introduced via a scheme of arrangement.
Immediately after the scheme became effective, the new holding company, New
National Grid plc, was re-named National Grid Group plc.

National Grids initial investments in electricity activities outside the UK
were in Argentina and Zambia in 1994 and 1997 respectively.

National Grid entered the US electricity market in 2000 with its acquisitions
of New England Electric System (NEES) and Eastern Utilities Associates (EUA).
National Grid further expanded its operations in the US with the completion of
its acquisition of Niagara Mohawk in January 2002. All of these companies now
form part of National Grid USA.

National Grids involvement in telecoms activities began in 1993 with the
establishment of Energis. Subsequently, on the basis of this experience, the
Group expanded its telecoms activities to include joint ventures in Poland and
Latin America. In addition, the Group has wholly-owned infrastructure services
businesses in the UK and the US, GridCom and NEESCom respectively.

On 30 May 2002, National Grid announced its decision to withdraw from its
existing investments in alternative telecoms network operators. National Grid
has fully written-down the carrying value of telecoms investments and has
provided for all expected related liabilities.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Operating and financial review  Business review continued

6







Electricity networks  England and Wales

Total operating profit, before exceptional reorganisation costs, for
transmission and interconnectors in the UK during 2001/02 was £544.5 million.
This comprised:



| |  | £524.7 million from Transmission; and
|- |  | -------------------------------------
| 
| |  | £19.8 million from Interconnectors.  

National Grid owns and operates the electricity transmission network in England
and Wales, consisting of approximately 4,500 miles of overhead line,
approximately 400 miles of underground cable and some 340 substations at around
230 separate sites.

Day-to-day operation of the transmission system involves the continuous
matching of generation output with demand for electricity, ensuring the
stability and security of the power system and the maintenance of satisfactory
voltage and frequency. These activities are undertaken from the National Grid
control centre in Berkshire, with safety management of the transmission system
co-ordinated from the network operations centre in the Midlands.

Operating environment

The introduction of the New Electricity Trading
Arrangements (NETA) on 27 March 2001 fundamentally changed the way in which
electricity is traded in England and Wales. The new arrangements are largely
based on bilateral contracts between market participants and represent a
decisive shift towards commodity trading in electricity. National Grid retains
responsibility for the essential task of balancing generation and demand for
electricity in real time, but our commercial incentives and contractual
relationships have changed significantly.

As National Grid both owns the high-voltage electricity transmission grid in
England and Wales and operates it to ensure that, subject to generation being
available, all reasonable demands for electricity are met, it performs the
roles of both Transmission Asset Owner (TO) and System Operator (SO). The TO
function relates to the management of transmission assets, in particular, the
maintenance and longer-term development of our investment in the transmission
system, while the SO function covers all the short-term operational activities
required to keep the system balanced and operating within safe limits.

From 1 April 2001 National Grid Internal TO and SO costs became separately
regulated. TO costs continue to be covered by an RPI-X price control (described
later) and new incentive scheme targets were defined for the SO. Despite the
separate regulatory treatment of the TO and SO activities, consumers continue
to benefit from National Grid retaining responsibility for both activities,
particularly in the areas of efficient operation and asset investment
decisions.

External SO costs associated with the post-NETA Balancing Services Incentive
Scheme (BSIS) are dealt with in a bundled scheme aimed at incentivising us to
minimise overall balancing costs. These costs include the cost of all purchases
we make in the balancing mechanism, the costs of our forward energy trades,
ancillary services costs and an allowance for transmission losses. The scheme
target for Incentivised Balancing Costs (IBC) for 2001/02 was £484.6 million.
Where costs are managed below this target 40 per cent of the savings may be
retained, up to a cap of £46.3 million.

National Grid has agreed a roll-over of the 2001/02 incentive scheme with Ofgem
for 2002/03. The target has been reduced to £460 million representing a
challenging target in the light of market developments. The new scheme enables
60 per cent of the profit up to a maximum of £60 million to be shared. However,
if IBC are above £460 million National Grid must bear 50 per cent of the loss,
up to a maximum of £45 million.

Ofgem has conducted a review of the current arrangements for access to and
pricing of our high-voltage electricity transmission system. They have set out
their preferences for new access arrangements to facilitate discussion with the
industry. It is not intended that implementation of the current proposals will
have a significant impact on revenues.

Transmission

Financial performanceUK transmission turnover was £1,241.8 million, compared
with £1,315.6 million in 2000/01 and £1,319.7 million in 1999/2000.

UK transmission operating profit, before exceptional reorganisation costs was
£524.7 million, compared with £486.3 million in 2000/01 and £523.1 million in
1999/2000.

The £38.4 million increase in operating profit in 2001/02 was mainly as a
result of the following:

BSIS profit:National Grid delivered excellent performance under the BSIS
scheme covering the first year of NETA operation through to the end of March
2002. Costs were £118.8 million below the regulatory target, delivering £46.3
million profit for the Group.

Reduction in TO controllable costs:Following a fundamental review of the way
our UK functions are managed, we have started a series of initiatives to
deliver significant savings across the UK transmission operations. In 2001/02
these initiatives resulted in a real reduction in TO controllable costs of 8
per cent.

Operating performance3 January 2002, saw the highest demand for electricity
ever recorded on the transmission network in England and Wales: at 51,548 MW,
this compared with the previous peak recorded on 16 January 2001 of 51,012 MW.

System availability at winter peak demand was 98.3 per cent, compared with 98.8
per cent in 2000/01.

RegulationNational Grid is the sole holder of an electricity transmission
licence for England and Wales and is the owner and operator of the transmission
system. We are required, under the terms of the transmission licence, to
develop and maintain an efficient, co-ordinated and economical system of
electricity transmission and to facilitate competition in the supply and
generation of electricity. National Grid recovers costs, including a return on
capital employed, through charges to generators, distributors, suppliers and
directly-connected customers for use of and connection to the transmission
system for TO activities and through charges for the provision of balancing
services for the SO.

TO:Revenue from transmission network use of system charges and charges for
connections made before March 1990 is controlled by a revenue restriction
condition set out in the transmission licence. The current regulatory price
control was introduced on 1 April 2001 and is expected to remain in force until
31 March 2006. National Grid is permitted to set



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National Grid Annual Report and Form 20-F 2001/02

7




charges for connections to the transmission system made since March 1990 to
recover the costs directly or indirectly incurred in providing connections,
together with a reasonable rate of return on such costs.

SO:As system operator, National Grid is responsible for the operation of the
transmission system including the procurement and use of balancing services.
Revenue from charges for provision of balancing services is regulated by BSIS.

Investment in the transmission networkCapital expenditure on the renewal,
reinforcement and extension of the transmission network in 2001/02 was £370.6
million including interest capitalised, compared with £361.2 million in
2000/01.

New connections were commissioned during the year for a 215 MW combined heat
and power plant cycle gas turbine (CHPCGT) at Shotton near Deeside. This
project brings the total of new generating capacity connected to the network
since March 1990 to 25.3 GW. In the same period, some 17.3 GW of generation has
closed.

Interconnectors

UK interconnectors operating profit was £19.8 million in 2001/02, compared with
£42.8 million in 2000/01 and £46.6 million in 1999/2000.

FranceNew contractual arrangements for the use of the French interconnector
came into effect on 1 April 2001. Prior to this the French interconnector was
exclusively contracted to Electricité de France (EDF). Income was largely based
on MWh charges with additional income being derived from 50 per cent of the
capacity payments received by EDF being rebated to National Grid.

The new arrangements coincided with the introduction of NETA and provide for
the auctioning (jointly with RTE the transmission division of EDF) of blocks of
interconnector capacity, on timescales ranging from three years to one day.
These new arrangements have been well received by the EU, Regulators and the
market. The reduction in operating profit for interconnectors is directly
attributable to the fall in wholesale electricity prices in England and Wales,
limiting the value of capacity to users.

Availability of the French interconnector was 97.9 per cent, compared with 96.6
per cent in 2000/01 and 95.5 per cent in 1999/2000.

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

Availability of the Scottish interconnector was 97.2 per cent in 2001/02,
compared with 99.8 per cent in 2000/01 and 99.9 per cent in 1999/2000. This
reduction in availability was due to planned outages in connection with certain
advanced works associated with the upgrade.

Isle of ManNational Grids interest in the Isle of Man interconnector was sold
for a profit of £10.6 million in December 2001. This was the first project
financed interconnector in the world, and provided the learning base upon which
all our current schemes are now being developed.

Interconnector business developmentWhere there is potential for trading
between electricity markets, National Grid has an opportunity to extract value
from its interconnector skills by designing, building and operating new
interconnectors.

National Grids involvement in the Basslink interconnector project in Australia
is described on page 12.

Fixed assets in the UK

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

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

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

During the year, National Grid sold the freehold of its other office in London.



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National Grid Annual Report and Form 20-F 2001/02

Operating and financial review  Business review continued

8







Electricity and gas networks  US

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

The total operating profit, before exceptional costs and goodwill amortisation,
of National Grid USA in 2001/02 was £378.3 million.

The New England business included:



| |  | £165.6 million profit from Distribution;                     
|- |  | -------------------------------------------------------------
| 
| |  | £60.3 million from Transmission;                             
| 
| |  | £17.3 million from the US-Canada interconnector;             
| 
| |  | £44.3 million from stranded cost recovery and generation; and
| 
| |  | £5.1 million from nuclear generation joint ventures.         

The New York business included (for two months):



| |  | £66.8 million profit from Electricity; and
|- |  | ------------------------------------------
| 
| |  | £17.0 million from Gas.                   

On 31 January 2002, National Grid acquired Niagara Mohawk, at a cost of £2.2
billion. The acquisition was earnings enhancing, after goodwill amortisation
but before exceptional items in 2001/02.

National Grid USA, including Niagara Mohawk, operates a network of
approximately 12,000 miles of transmission lines and 72,000 miles of
distribution lines, within a distribution service territory of almost 30,000
square miles. The merger with Niagara Mohawk results in National Grid having
the largest transmission and distribution network in the northeastern US, and
the ninth largest utility in the US, with over 3.2 million electricity
distribution customers.

New England Power Company (NEP) operates National Grids transmission network
in New England and delivers power in bulk to our four New England distribution
companies:



| |  | Massachusetts Electric Company serves approximately 1.2 million customers in Massachusetts;                          
|- |  | ---------------------------------------------------------------------------------------------------------------------
| 
| |  | Narragansett Electric Company serves approximately 470,000 customers in Rhode Island;                                
| 
| |  | Granite State Electric Company serves approximately 39,000 customers in New Hampshire; and                           
| 
| |  | Nantucket Electric Company serves approximately 11,000 customers on Nantucket Island, off the coast of
Massachusetts.

Niagara Mohawk Power Corporation provides distribution and transmission
services for about 1.5 million electricity customers, as well as over 500,000
gas customers in upstate New York. The natural gas delivery system is comprised
of over 8,000 miles of pipelines and mains.

National Grid USA has minority interests in two operating nuclear generating
units, which it is in the process of divesting.

Operating environment

Beginning in about 1998, the electricity industry in
Massachusetts, Rhode Island, New York and New Hampshire was restructured which
resulted in comprehensive regulatory settlements in each state. The retail electricity supply market was opened to
competition, giving all electricity delivery customers a choice of supplier. At
the same time, National Grid USA was required by the regulatory authorities in
these states to divest its generating capacity.

These New England regulatory settlements permit the recovery from customers of
100 per cent of NEPs investment in generation-related assets, fossil and
nuclear, along with any generation-related regulatory assets. These amounts 
known as stranded costs  are made up of the unamortised generation
investments, net of proceeds and related contractual commitments. These
stranded costs are passed on to wholesale customers, including the New England
distribution companies, through a contract termination charge (CTC). The New
England distribution companies in turn are allowed to recover these costs
through delivery charges to all retail customers.

In 1998, Niagara Mohawk entered into a Master Restructuring Agreement (MRA) and
a Power Choice Rate Agreement. The combination of the two rate agreements
improved Niagara Mohawks financial condition and prepared it to operate in a
restructured environment. The objective of the MRA was to convert a large and
growing off-balance sheet obligation for above market power purchase agreements
into a manageable capital obligation. The Power Choice Agreement made retail
access available to all customers in 1999 and allowed for the recovery of
stranded costs including costs incurred under the MRA. The Power Choice
Agreement has been superceded by the merger rate filing approved by the New
York Public Service Commission and also reaffirmed the recovery of the stranded
costs.

System development

We continue to experience load growth, especially in the commercial sectors,
but growth has been adversely affected by a general slowdown in the US economy
and unseasonable weather in the region.

New England Distribution

Financial performanceNew England distribution operating profit for 2001/02
amounted to £165.6 million.

Operating performanceSales increased by 0.7 per cent actual and 0.3 per cent
adjusted for weather in 2001/02.

Massachusetts Electric and Rhode Island Electric are subject to service quality
monitoring programmes with state regulators which compare actual performance to
historical results and encourage continued improvements in the areas of
reliability, customer service, safety and line losses. Performance in these
areas during 2001/02 was less than satisfactory and resulted in penalties of
£4.6 million. Facilities and procedures have been and are continuing to be
reviewed with the objective of significant improvements in the area of safety
and operations.

Regulation of distribution ratesThere are long-term incentive rate programmes
in place in each of the states which have brought significant savings for
customers and provides us the opportunity to earn fair returns, based on
efficiencies and performance for customers.

Massachusetts Electric:Under the Massachusetts Electric distribution rate plan
approved by the Massachusetts Department of Telecommunications and Energy
(MDTE), distribution rates were reduced by $10 million in May 2000



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National Grid Annual Report and Form 20-F 2001/02

9




and will remain frozen until the end of February 2005. From March 2005 to the
end of December 2009, changes in distribution rates will be linked to changes
in the regional average of distribution rates of similarly unbundled
investor-owned utilities in New England, New York, New Jersey and Pennsylvania.
Based on a pre-determined formula, annual merger-related savings achieved up to
the end of 2009 will be calculated and shared between customers and
Massachusetts Electric in 2010 to 2019. The rate plan also includes annual
service quality incentives or penalties of up to 2 per cent of annual
distribution and transmission revenues, which is approximately $13 million,
based on performance in areas including reliability and customer satisfaction.

Narragansett Electric:Under the rate plan for Narragansett Electric approved
by the Rhode Island Public Utilities Commission (RIPUC), distribution rates
were reduced by approximately $13 million in May 2000 and will remain frozen
until 2004. During the rate freeze, Narragansett is permitted to retain
earnings up to 12 per cent return on equity. Any earnings between 12 per cent
and 13 per cent will be shared equally with customers. If earnings exceed 13
per cent, the excess will be divided between customers and the company, with
customers receiving 75 per cent. After 2004, distribution rates will be set by
the RIPUC in accordance with Narragansetts cost of service. The company will
be able to include its share of the efficiency savings produced by the merger
of Blackstone Valley and Newport Electric into Narragansett in its cost of
service. The savings will be determined in a proceeding before the RIPUC in
either 2002 or 2003. Narragansett will be permitted to include 50 per cent of
the savings as an expense in its cost of service from 2004 until 2019, subject
to verification in 2007.

The Narragansett rate plan also contains service quality provisions based on
penalties for poor performance in areas including reliability and customer
satisfaction. Good performance in one category can generally be used to offset
penalties in other categories. The service quality provisions include penalties
of up to $2.4 million in any year for poor performance.

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

Standard offer and default service obligationsUnder the New England
restructuring arrangements, the distribution companies are obliged to sell
electricity through a standard offer service to retail customers who have
chosen not to select an alternative supplier. In 2001/02, two-thirds of
electricity supplied by the distribution companies was on standard offer terms.
In addition, the distribution companies are required to provide a default
service to customers who have not selected a power supplier and are not
eligible for standard offer service, including customers who initially selected
an alternative supplier but now wish to be supplied by their local distribution
company and, in Massachusetts, new customers.

In New England almost all of the electricity required to supply standard offer
customers is purchased under long-term contracts. Electricity to meet the
requirements of default service customers is purchased in the short-term
wholesale market. Under regulatory orders, electricity purchase costs for the
default service are passed on to customers. The standard offer terms provide
for adjustment in response to fuel prices, subject to regulatory approval.
NEPs obligation to provide a transitional electricity supply to new customers
in Rhode Island ended in December 2001.

Investment in distribution networkCapital expenditure on the distribution
system was £120.0 million during 2001/02.

To meet customer demand, a need for 12 new substations over the next few years
was identified, of which six are already in service and two are under
construction.

An automated meter-reading project to enable the retrieval of monthly usage
information electronically is currently in progress. Approximately 1,100,000
residential customer meters have been converted in Rhode Island and
Massachusetts. The remaining 500,000 meters are expected to be converted by the
end of 2002/03.

Stranded cost recovery

Under settlement agreements reached with its regulators as part of industry
restructuring, NEP is allowed to recover its costs (net of sales proceeds) and,
where applicable, a return on those costs, associated with its efforts to exit
the generation business. The return on our stranded cost recovery and
generation segment contributed £44.3 million to Group operating profits in
2001/02. As stranded costs are collected, the future contribution of this
segment to Group operating profits will decrease.

New England Transmission

Financial performanceNew England Transmission contributed £60.3 million to
total operating profit in 2001/02.

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

Investment in transmission networkCapital expenditure on the transmission
system was £35.7 million during 2001/02.

Transmission business developmentThe despatch of generation and transmission
across New England is performed under the authority of an independent system
operator, ISO New England.

FERC has indicated that it wants Regional Transmission Organisations (RTOs) to
have substantial geographic scope within the US. It has not yet been determined
which RTO will cover the New England and New York region.

National Grid continues to evaluate how best to participate in the development
of the transmission sector in the US which is undergoing fundamental structural
change. Within New England and New York, National Grid is discussing with a
number of other transmission owners the possible formation of an independent
transmission company (ITC) within an RTO. In other regions of the US, National
Grids participation may involve the acquisition and operation of transmission
assets of participants in RTOs.

In November 2001, National Grid USA announced that it had entered into an
agreement with the proposed Alliance RTO. Since the original agreement, the
Alliance concept has undergone change in response to orders issued by FERC.
Under December 2001 and April 2002 orders, the Alliance



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National Grid Annual Report and Form 20-F 2001/02

Operating and financial review  Business review continued

10




would be allowed to function as an ITC under the umbrella of another
organisation acting as RTO. In May 2002, discussions began among Alliance
members, National Grid USA, and two RTOs as to whether Alliance should be split
and operate under two RTOs. The ultimate shape and operation of the Alliance
are both uncertain and would be subject to further agreements among these
parties. Any such agreements would also be subject to further FERC approval.

Interconnectors

Financial performanceUS Interconnectors contributed £17.3 million to total
operating profit in 2001/02.

Hydro Quebec interconnectorThe electricity networks in New England are
interconnected with that of Hydro Quebec in Canada by means of a 450 kV DC
interconnection. The nominal transfer capability is currently 2,000 MW, but
operational capacity can be restricted by operating limitations in neighbouring
power pools. Part of this interconnector, located in New Hampshire, is owned
and operated by a wholly-owned subsidiary of National Grid USA. Through two
other subsidiary companies, we have an ownership interest of some 54 per cent
in the expanded second phase of the interconnector, consisting of approximately
133 miles of high-voltage DC transmission line, an alternating current terminal
and related facilities in New Hampshire and Massachusetts.

With other NEPOOL participants, NEP has entered into support agreements which
guarantee its share of debt financing for the second phase of the
interconnector. At 31 March 2002 NEP had guaranteed approximately $20.0 million
of project debt with terms until 2015. NEPs rights and obligations under its
support agreements were transferred to the purchaser of its non-nuclear
generation. NEP remains a guarantor under the support agreement until 2020.

New York Electricity

Financial performanceNew York electricity distribution and transmission
operating profit for two months of 2001/02 amounted to £66.8 million.

Regulation of ratesUnder the rate plan approved by the New York Public Service
Commission (NYPSC), Niagara Mohawk reduced rates by approximately $152 million
on 31 January 2002. During the ten year rate plan, delivery charges are frozen,
except for exogenous events, and there is a sharing mechanism for earnings in
excess of 11.75  12 per cent between customers and investors. The merger rate
plan also contains service quality provisions based on penalties of up to $24
million annually if defined customer service goals are not achieved.

Transmission businessThe transmission regulatory structures which relate to
transmission are in a period of change and uncertainty. The despatch of
generation and transmission across New York is performed under the authority of
an independent system operator, New York ISO. For a description of the
development of RTOs, see New England Transmission  Transmission business.

Standard offer and default service obligationsNiagara Mohawk is the provider
of last resort for its customers who do not exercise their right to choose a
new supplier. As of 31 March 2002, Niagara Mohawk provides electricity supply
to 85 per cent of its customer load. Niagara Mohawk no longer owns any electric
generation facilities and meets its electric supply requirements through
purchased power agreements and open market purchases. These costs are passed on
to customers.

Stranded cost recoveryAs part of the rate plan, the company agreed to forgo
the collection of approximately $850 million in nuclear-related costs. Under
the Niagara Mohawk rate plan Niagara Mohawk will recover, a return on equity of
10.6 per cent on the remaining regulatory assets of $3.3 billion associated
with Niagara Mohawks stranded generation costs. These costs will be fully
recovered during the rate plan. In addition, any variable stranded costs
associated with above market purchased power contracts will also be fully
recovered, whether they occur during or after the rate plan period.

New York Gas

Financial performanceUS gas distribution operating profit for two months of
2001/02 amounted to £17.0 million.

Regulation of ratesUnder the rate plan, gas delivery rates are frozen through
December 2004. Commodity costs are passed through to customers. There is a rate
of return on common equity cap of 10 per cent with a 50/50 sharing with
customers of earnings above the cap.

US Generation

Generation investmentsSales are pending of the two operating nuclear
generating units in which NEP has an interest. Net proceeds from the sales will
be credited to customers through the CTC. Approvals for the transactions are
needed from federal and state regulatory agencies, including public utility
commissions in the sellers states as well as the Nuclear Regulatory
Commission, the New Hampshire Nuclear Decommissioning Financing Committee, the
Federal Energy Regulatory Commission, and the Department of Justice or the
Federal Trade Commission.

On 15 August 2001, Vermont Yankee announced that it had reached an agreement to
sell the Vermont Yankee nuclear power plant to Entergy Corporation (Entergy)
for $180 million. NEP has a 24 per cent ownership interest in Vermont Yankee.
NEPs portion of the sale price would be $40.5 million ($32.6 million for the
plant and related assets and $7.9 million for nuclear fuel). The plants
decommissioning trust fund would be transferred to Entergy, and Entergy would
assume decommissioning liability for the plant. As part of the transaction,
Vermont Yankee owners, including NEP, would purchase power from the plant
through 2012. To date, the FERC has approved the sale and the Vermont
Department of Public Service, an intervener in the Vermont Public Service Board
proceeding, signed a settlement agreement in March 2002 with Entergy and
Vermont Yankee.

On 15 April 2002, eight of the 11 joint owners of the Seabrook Nuclear Power
Station (Seabrook) announced that they had reached an agreement to sell an 88.2
per cent interest in Seabrook to FPL Group for $836.6 million. NEP has a 10 per
cent ownership interest in Seabrook. NEPs portion of the gross sales proceeds
would be approximately $94.1 million. FPL Group will assume responsibility for
ultimate decommissioning of Seabrook and will receive the Seabrook
decommissioning funds, including a top-off payment by NEP and other sellers.
Pursuant to pre-existing agreements with the non-selling owners of Seabrook
(Massachusetts Municipal Wholesale Electric Company, the Taunton Municipal
Lighting Plant, and the Hudson Light and Power



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National Grid Annual Report and Form 20-F 2001/02

11




Department (together the Municipals)), NEP will first offer its interest in
Seabrook to the Municipals on equivalent terms offered by FPL Group. The
Municipals will then have two months to notify NEP if they will purchase NEPs
interest in Seabrook. The sale is expected to be completed by the end of 2002.

In November 2001, Niagara Mohawk sold its ownership interest in the two nuclear
units located at Nine Mile Point to Constellation Nuclear. The agreement
provided for a partial payment at closing and then five annual principal and
interest payments. Constellation Nuclear elected to prepay the annual payments
in April 2002 of $261.5 million, which included interest of $11.7 million.
Niagara Mohawk received $167 million at closing for its 41 per cent ownership
of Nine Mile 2 and $104 million at closing for its 100 per cent ownership of
Nine Mile 1. The transaction includes two purchase power agreements under which
Constellation Nuclear will provide electricity to Niagara Mohawk at what are
currently believed to be competitive prices for approximately eight years (Unit
1) and ten years (Unit 2). After the completion of the Unit 2 purchase power
agreement, a revenue sharing agreement begins, which will provide a hedge
against electricity price increases and could provide Niagara Mohawk additional
future revenue through to 2021.

Until the sales of the Vermont Yankee and Seabrook units are completed, we will
share with customers, through CTCs, 80 per cent of the revenue and operating
cost relating to our interest in these units, with the remaining 20 per cent
going to our operating profit or loss.

Nuclear units permanently shut downNational Grid USA owns minority interests
in three nuclear generating units which are permanently shut down. These are
Yankee Atomic (of which we own 34.5 per cent); Maine Yankee (of which we own
24.0 per cent); and Connecticut Yankee (of which we own 19.5 per cent). In each
case, National Grid USA pays an amount equal to its ownership share of the
costs of the plant, including unfunded decommissioning costs, and a return on
equity. National Grid USA is permitted under regulatory agreements entered into
at the time of electricity industry restructuring to recover all of these costs
from wholesale customers.

Nuclear decommissioningNational Grid USA is liable for its share of the
decommissioning costs of all the nuclear generating units in which it retains
an interest. These include the estimated costs of decontaminating the units and
dismantling the uncontaminated portions. National Grid USAs share of the
projected decommissioning costs for Seabrook 1 is recovered through
depreciation expense. National Grid USA is also paying its share of the
projected decommissioning costs of Vermont Yankee, Maine Yankee and Connecticut
Yankee through power purchase agreements with the operators.

For each remaining nuclear unit in which National Grid USA has an ownership
interest, a decommissioning trust fund has been established into which payments
are being made to meet the estimated costs of decommissioning. However, actual
decommissioning costs may exceed the estimated amounts. Decommissioning costs
will be recovered through CTCs and, as National Grid USA disposes of its
remaining interests in operating nuclear units, it will seek to transfer to the
purchaser liability for decommissioning, together with the relevant share of
the decommissioning trust fund.

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

Sale of Canadian Niagara interestNiagara Mohawk has a 50 per cent interest in
Canadian Niagara Power Company Limited. In March 2002, an agreement was
announced to sell the interest to the remaining owner, Fortis Inc., for $49
million (Canadian), including $35 million cash and $14 million of assumed debt.
The sale is subject to Canadian regulatory approval.

Fixed assets in the US

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



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National Grid Annual Report and Form 20-F 2001/02

Operating and financial review  Business review continued

12







Other electricity businesses and projects

Transener

National Grids share of Transeners operating profit was £24.8 million,
compared with £14.3 million in 2000/01 and £10.4 million in 1999/2000.

Despite Transener performing well in local terms, it has experienced a
significant reduction in revenues in US dollar terms as a result of the
devaluation of the Argentine peso coupled with the introduction of new
legislation which invalidated the clauses of Transeners licence which
effectively fixed tariffs in US dollar terms. As a result, on 22 April 2002,
Transener announced that it had suspended principal and interest payments on
its financial indebtedness of $466 million, which is wholly denominated in US
dollars. Transener has retained a financial adviser to assist in the
restructuring of all of its financial indebtedness and is renegotiating its
concession contract with the Argentine Government, in parallel with other
privatised utilities. National Grid has accounted for its share of Transeners
non-cash exceptional foreign exchange losses of £92.5 million in its results
for the year ended 31 March 2002.

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

Copperbelt Energy Corporation

National Grids joint venture company Copperbelt Energy Corporation (CEC) has
performed well. National Grids share of operating profit was £4.4 million,
compared with £4.3 million in 2000/01 and £4.0 million in 1999/2000.

CEC owns and operates an electricity transmission network of some 500 miles
supplying electricity to the mines of the Zambian Copperbelt. The privatisation
of the copper mines was completed in March 2000 allowing CEC to benefit from
increased mining activity and hence demand for electricity.

National Grid has a 38.5 per cent interest in CEC, with the remaining interests
being split between Cinergy (38.5 per cent), the Zambian government (20 per
cent) and the directors of CEC (3.0 per cent).

Anglo American has recently announced that it intends to withdraw from its
investment in Konkola Copper Mines, a major customer of CEC. A working party
involving Anglo American, the Zambian Government and the World Bank is
examining options for keeping the Konkola Mines operational.

Basslink

In February 2000, National Grid was selected by the Basslink Development Board
to design, construct, operate and maintain the Basslink  a 600 MW
interconnector linking the electricity network on the island of Tasmania to the
transmission network in the state of Victoria on the Australian mainland.

The Joint Advisory Panel, on behalf of the federal government of Australia and
the state governments of Victoria and Tasmania, has been considering the
social, environmental and economic impacts of the Basslink interconnector
project. Their draft report recommending approval of the project, subject to a
number of anticipated conditions, was received on 12 March 2002. A final
advisory panel report is expected by the end of June 2002. A political decision
will then follow. It is anticipated that notice to proceed on the project will
be granted in September 2002.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

13







Telecoms

Overview

National Grid intends to concentrate on telecoms opportunities that leverage
the Groups existing electricity infrastructure assets and skills in the longer
term. The risk profile of such opportunities is more closely aligned with the
Groups core businesses. Today the Groups interests comprise wholly-owned
infrastructure businesses in the UK and in the US, its 32.5 per cent economic
interest in Energis and joint ventures in Poland and Latin America. National
Grids share of the annual operating losses of our telecoms joint ventures and
associate was £54.5 million before goodwill amortisation, of which £35.5
million was attributable to Intelig.

In November 2001, the Group announced its intention to substantially withdraw
from its telecoms investments in Latin America, principally due to the global
decline in the telecoms market in the region. In the meantime, the Group has
taken a conservative view and has fully written-down the carrying value of the
Latin American telecoms investment totalling £290.4 million.

With the difficulties faced by Energis, which have also impacted on National
Gridsinvestment in Energis Polska, the decision has been taken to write-down
our investment in Energis and fully provide for our investment and associated
liabilities in Poland.

Ongoing growth with infrastructure services businesses

GridComGridCom was launched in spring 2001, to provide communications
infrastructure solutions to fibre and wireless network operators.

GridCom is using National Grids project management skills and electricity
infrastructure (National Grid has a network of 22,000 transmission towers
across England and Wales) to capitalise on demand for new base station sites by
mobile phone operators. This demand is principally driven by the need of 2G and
3G operators to install new infrastructure and the sensitivity of the public to
new masts. The combination of these factors makes National Grids transmission
network valuable for mobile phone operators, such as Hutchison 3G, with whom we
have a contract to provide up to 1,000 sites. The Group is actively looking at
further opportunities to build on this success. GridComs annual operating
losses were £4.6 million.

GridCom USAIn the US, National Grid is developing the capability to offer
similar services to those offered by GridCom in the UK. GridCom USA will
leverage National Grid USAs infrastructure assetsto provide services to mobile
phone operators.

NEES CommunicationsNEES Communications (NEESCom), is a wholly-owned telecoms
infrastructure business in the north-eastern US which provides dark fibre optic
strands as well as building space to its customers. NEESComs network is
principally located in New England, but extends to Albany in New York State.
The downturn in the United States telecoms industry has had a negative impact
on NEESComs customers which in turn has impacted NEESCom. NEESCom will
continue to conservatively grow its network as well as reviewing new
opportunities in the market place. The annual operating profit before goodwill
amortisation was £3.0 million.

Telecoms investments being divested or restructured

EnergisEnergis, the
business telecoms and internet services company created by National Grid in
1993 is, along with other major telecoms companies, facing a challenging period
as a result of the decline in the global telecoms market. Energis is in
discussion with both its lenders and bond holders with the aim of restructuring
its obligations to those parties. Such a restructuring could result in
significant dilution to National Grids shareholding in Energis. The Group has
therefore taken the decision to write-down £392.1 million relating to its 32.5
per cent stake in Energis. As at the date of the accounts, there is no publicly
available information relating to Energis for the year to 31 March 2002 and,
accordingly, the accounts incorporate the Groups share of Energis results as
disclosed in its interim announcement. The Groups share of Energis operating
losses for the six months to 30 September 2001 was £3.7 million, before
exceptional items and goodwill amortisation.

Energis PolskaFollowing the Energis UK model of high-margin, high-value added
services for the corporate market, Energis Polska was launched in July 2001.
Energis Polskas network offers services to business and carrier customers in
Poland. The Group is providing active support to Energis Polska, which has made
an encouraging start. Energis, as part of its announced strategy to exit its
European operations, is seeking a buyer for its stake in the joint venture.
National Grid is also evaluating its options regarding the company. The Groups
share of the annual operating loss of Energis Polska was £6.6 million.

Latin AmericaIn November 2001, the Group completed its review of the Latin
American telecoms businesses. In Brazil, despite Intelig making good
operational progress, this investment does not fit with our revised strategy
for telecoms. The general economic conditions in the region are also not
helpful, particularly for Silica Networks in Argentina.

In view of this, the Group is now seeking new strategic investors for Intelig
and are pursuing a sale of Silica and Manquehue net. In the meantime, the Group
has taken the conservative view and has fully written-down the carrying value
of its Latin American telecoms investments totalling £290.4 million including
provision for related liabilities.

InteligIntelig is National Grids joint venture with Sprint and France
Telecom. We are pursuing the sale of Intelig. The Groups share of Inteligs
annual operating losses for the year was £35.5 million, compared with £118.0
million last year.

Silica NetworksSilica Networks has been considerably affected by the general
telecoms market downturn and the severe economic difficulties in Argentina. Its
shareholders, including National Grid,have cut costs, suspended any further
investment and are seeking a purchaser for the business. The Groups share of
the annual operating losses for the year was £5.1 million.

Manquehue netManquehue net based in Santiago, Chile, is a local fixed line
operator providing services to the business and residential sectors. Ithas also
been affectedby the local economic climate and strong management actions have
now been taken to reduce costs and to seek a purchaser for the business. The
Groups share of Manquehue nets annual operating losses was £3.6 million.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Operating and financial review  Business review continued

14







Our framework for a responsible business

Our objective

National Grids objective is to be a long-term business which can continue to
reward its shareholders by increasing the value of their investment. To achieve
this aim, we need to ensure that  whatever commercial direction is taken in
the future  our business is sustainable and we act in a responsible manner.

Our strategic framework

In April 2002, we adopted a broad-based framework designed to help us to
achieve the right balance between economic, environmental, employee and social
factors, and thus to give us the best possible chance of remaining a successful
business for the long term. The framework is focused on what we believe to be
relevant and right for our business. Its aim is to ensure that we can maximise
shareholder value as our business develops, by operating successfully in
different countries and societies across the world, by protecting our business
from known and future risks and by building a wide range of issues into our
decision-making processes.

The framework is not a new policy initiative which is divorced from our
day-to-day activities. Instead, it seeks to build on existing good practice in
order to provide a context for our work, by helping us to ensure that future
developments are sound and that economic, environmental, employee and social
issues are integrated into our business objectives.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | The integration of economic, environmental,
employee and social considerations into the way
we do business is already helping us to achieve
our goals. Our clear commitment to economic
development, the environment, protecting the
interests of current and retired employees and
providing low-cost and reliable services for
customers won us the support of a wide range of
stakeholders in New York State, from unions to
regulators, and helped us to gain approval for our
merger with Niagara Mohawk | 

Our framework is based on three goals, each of which is clearly aligned to the
achievement of business objectives:



| |  | sustainable growth:as we seek to expand and grow our
business by transferring our skills to new markets, we
recognise that for our growth to bring long-term value
to our shareholders and others, it must be achieved in
a responsible manner.                                                                                                                                                                                                                                             
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | profits with responsibility:for our business to be sustainable,
it must be profitable, but increasing our profitability at any
cost will be neither sustainable nor acceptable to society.
We must therefore be responsible in the way we generate
our profits.                                                                                                                                                                                                                             
| 
| |  | investing in the future:the physical presence of our lines,
poles and pipes means that we are closely linked with
the communities we serve and in which we operate.
We therefore play a wider role in society than just the
provision of our services. Commercial success will enable
us to continue to invest in the future in ways that benefit
our shareholders, the environment, our employees and
society, and our willingness to do so reflects our desire
to be a long-term business.

The integration of these goals into our activities is intended to give us a
framework for assessing the appropriateness of future opportunities for
expansion and growth, as well as a set of core values for the way we conduct
our business. Beyond our wholly-owned businesses, we will be seeking to
encourage our joint venture partners to work with us in implementing the
framework in our joint operations. We will also work with our suppliers to
ensure that all of our activities are responsible and sustainable, even where
we have contracted the supply of products and services to third parties.

Implementing the framework

To be fully effective, our framework must be embedded in the day-to-day
activities of everyone within the organisation and influence virtually
everything we do. This section looks at our approach to our business conduct,
our impact on the environment, our responsibilities to employees and our
relationship with the wider community and gives practical examples of how we
are implementing our framework.

Business conductOur standards of business conduct encompass open and
constructive dialogue with all of our stakeholders and the maintenance of high
standards of integrity and professionalism. We are also sensitive to local
customs and traditions as we operate around the world.

| |                                                                                                                                                                                                                                  | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | The development of our
framework exemplifies our
commitment to open and
constructive dialogue with all
of our stakeholders. The
strategy was developed and
refined with the help of many
people in the UK and the US,
including: | 
|
| |   over 2,000 employees, who provided their views
on issues ranging from the reliability of our
services, through human rights, to the use of
renewable energy.                                                                  | 
|
| |   more than 1,800 retail customers in the US who
participated in a wider survey of customer
opinion.                                                                                                                            | 
|
| |   over 70 external stakeholders, including
institutional investors, private shareholders,
media and government representatives, pressure
groups, recruitment agencies and grantors.                                             | 
|
| | These parties helped to
confirm that the issues we
wanted to address were indeed
important, and that a
statement of our strategy and
intentions would be widely
welcomed.                                                        | 



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National Grid Annual Report and Form 20-F 2001/02

15




The environmentTo protect the future of our business, we take a proactive
approach to the management of both existing and future environmental risks.

The cornerstone of our programme is the implementation of environmental
management systems (EMSs) compliant with the international standard ISO 14001
to help us eliminate unnecessary environmental impacts. EMSs are now in place
in our businesses in the UK, the US and Argentina, and an EMS will be
implemented in Australia once the Basslink project receives the appropriate
approvals.

We seek to be efficient in our use of natural resources and to keep our waste
to a minimum, thus increasing our productivity as well as benefiting the
environment. Wherever possible, we also take steps to reduce emissions of
greenhouse gases, an important part of helping to minimise climate change.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | Helping our customers reduce CO2 emissions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 
|
| | In the US, our electricity and
gas distribution businesses
help their industrial,
commercial and residential
customers to use energy more efficiently, saving them money
and producing environmental
benefits through reduced fuel
consumption and lower emissions
of greenhouse gases and acid
rain precursors. Demand-side
management initiatives include
energy use analysis and audit
services, technical assistance
and financial incentives to
encourage the use of
energy-efficient design
features and equipment in new
buildings and refurbishment
projects and help for domestic
customers in replacing existing
appliances with
energy-efficient alternatives.
In 2000, participating
customers cut their electricity
consumption by more than
180,000 MWh, reducing
associated CO2 emissions by an estimated
140,000 tonnes. | 

EmployeesOur long-term success will depend on having a talented and diverse
workforce with the right skills for the work we do. Accordingly, we seek to
recognise and reward our employees for the contribution they make to the
success of the business and to develop them so that they can add value to the
company, themselves and society.

A healthy and injury-free workplace is an important feature of a responsible
business, and makes an important contribution to maximising productivity. Our
objective is to safeguard each other and those who work with us and to achieve
our goals of no work-related injuries, no occupational illnesses and no harm to
others in the community.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | A safe working environment for our employees:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|
| | National Grid has always placed emphasis on safety, with the result that
incidents that lead to staff taking time off work have typically been few
in number. We recognised, however, that without decisive action to improve
our performance, our goals of eliminating injuries and occupational
illnesses would continue to elude us.                                                                                                                                                                                                                                                                                                                                                 | 
|
| | National Grid takes safety very seriously.
We have a responsibility to all the people who are engaged in our business
to continually improve our safety performance. We have recently been given
a four-star safety rating among FTSE 100 companies by an independent study.                                                                                                                                                                                                                                                                                                                                                                                                            | 
|
| | The Board accepted all of the recommendations made by an external
consultant and we have been working to increase visibility of management
commitment to safety as a business priority. Safety, Health and Environment
Committees, chaired by Executive Directors and supported by specialist
implementation teams, have been established within our UK and US
businesses. These are driving forward a programme of improvements
encompassing training, reporting, information sharing and performance
management, based on the belief that all work-related incidents and
illnesses are preventable and that we are all responsible for our own
safety and that of our fellow workers. | 

The communityBy providing high-quality, dependable services at reasonable
cost we make a significant contribution to the economic growth of the countries
in which we operate. We therefore aim to manage our assets so as to maximise
the availability of our system, to improve the efficiency of the business
without compromising quality and reliability. Through our own financial
contributions, and by encouraging the involvement of our employees, we support
community investment programmes which focus on our key stakeholders and
customers, with emphasis on building long-term partnerships.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Operating and financial review  Business review continued

16




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | Environmental education in the UK:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|
| | In the UK, our twelve environmental education centres based on substation sites
are centres of excellence for environmental education. Each centre is run in
partnership with a public or charitable organisation, including local education
authorities, Wildlife Trusts, Groundwork, the British Trust for Conservation
Volunteers and the Field Studies Council. The centres receive over 90,000
visitors a year, many of them schoolchildren who use the centres to learn about
their local environment and wider sustainability issues. Thousands more people
benefit from a variety of outreach programmes in schools and local community
groups.             | 
|
| | Closely linked to the environmental education centres is National Grids
environmental placement programme, which supports twelve graduates and
undergraduates each year. Since 1996, more than 70 young people have gained
valuable experience through the programme, going on to careers in local
authorities, English Nature, the Forestry Authority, environmental consultancy,
environmental charities and teaching.                                                                                                                                                                                                                                           | 
|
| | Working in partnership to roll-back malaria:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 
|
| | Malaria is the worlds number one killer disease. In Africa, the WHO has
reported that 700,000 of the 960,000 malaria-related deaths each year are
children. This disease has a devastating effect on families, and is also a
brake on economic development within the region.                                                                                                                                                                                                                                                                                                                                                                                      | 
|
| | In Zambia, we are playing an important role in the Rolling Back Malaria
campaign which is supported by Governments, non-governmental organisations
(NGOs), and other commercial companies. We are spraying our employees housing,
our offices and operations sites with Fendona. We are also managing the
drainage areas around our sites to reduce swampy areas in which mosquitoes can
breed. In addition to improving the quality of life for our employees and their
families, it also ensures that our staff can play a full role in our company.
Malaria eradication will provide a better economic climate in which National
Grid and Zambia can prosper. | 

Accounting for our performance

The safety, health and environmental performance of our businesses is already
the subject of a Group-wide audit programme, the results of which are reported
to the Audit Committee as an integral part of the internal control and risk
management arrangements described on page 33. In addition, safety, health and
environmental matters are reported to the Group Board every month, discussed at
every meeting of the Group Executive Committee and Safety, Health and
Environment committees have been established within our UK and US businesses.

We collect significant information on all aspects of our performance to enable
us to manage our activities properly: in many cases, this same information can
also help us to assess the sustainability of the business. Where additional
performance indicators can enhance our ability to measure the sustainability
and success of the business, we will develop such indicators and where
appropriate integrate them with financial indicators such as turnover and
profit. This approach reflects our desire to integrate sustainable development
principles into our business. Our Group-wide report is supported by more
detailed information from our main businesses in the UK and the US which
already report externally on their social and environmental performance.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02




Operating and financial review  Financial review

17




Five year financial summary

The financial summary set out below has been derived from the audited
consolidated accounts of National Grid for the five financial years ended 31
March 2002. It should be read in conjunction with the Group accounts and
related notes, together with the Operating and Financial Review.

|                                                                 |                                                                |    |          |         |    |      |            |         |      |            |          |         |            |     |         |            |     |  |          |         |  
|---------------------------------------------------------------- | -------------------------------------------------------------- | -- | -------- | ------- | -- | ---- | ---------- | ------- | ---- | ---------- | -------- | ------- | ---------- | --- | ------- | ---------- | --- |  | -------- | ------- | -
|                                                                 |                                                                |    | 2002     |         |    | 2001 |            |         | 2000 |            |          | 1999    |            |     | 1998    |           
|                                                                 |                                                                |    |          |         |    |      | (restated) | (i)(ii) |      | (restated) | (i)(ii)  |         | (restated) | (i) |         | (restated) | (i)
|Summary Group profit and loss account                            |                                                                | £m |          |         | £m |      |            | £m      |      |            | £m       |         |            | £m  |        
|                                                                
|Group turnover                                                   |                                                                |    |          |         |    |      |            |         |      |            |          |         |            |     |         |            |     |  |          |        
|                                                                 |                                                                |    |          |        
|                                                                 | Continuing operations                                          |    |          | 3,921.9 |    |      |            | 3,799.7 |      |            |          | 1,614.7 |            |     |         | 1,514.2    |     |  |          | 1,519.3 |  
|                                                                 | Acquisition                                                    |    |          | 479.1   |    |      |            |        |      |            |          |        |            |     |         |           |     |  |          |        |  
|                                                                 | Discontinued operations                                        |    |          |        |    |      |            |        |      |            |          |        |            |     |         |           |     |  |          | 90.1    |  
|                                                                 |                                                                |    |          |        
|                                                                 |                                                                |    | 4,401.0  |         |    |      | 3,799.7    |         |      |            | 1,614.7  |         |            |     | 1,514.2 |            |     |  | 1,609.4  |        
|Operating costs                                                  |                                                                |    | (3,893.6 | )       |    |      | (3,094.2   | )       |      |            | (1,042.9 | )       |            |     | (937.5  | )          |     |  | (1,074.9 | )      
|                                                                
|Operating profit/(loss) of Group undertakings                    |                                                                |    |          |         |    |      |            |         |      |            |          |         |            |     |         |            |     |  |          |        
|                                                                 |                                                                |    |          |        
|                                                                 | Continuing operations                                          |    |          | 505.7   |    |      |            | 705.5   |      |            |          | 571.8   |            |     |         | 576.7      |     |  |          | 562.9   |  
|                                                                 | Acquisition                                                    |    |          | 1.7     |    |      |            |        |      |            |          |        |            |     |         |           |     |  |          |        |  
|                                                                 | Discontinued operations                                        |    |          |        |    |      |            |        |      |            |          |        |            |     |         |           |     |  |          | (28.4   | )
|                                                                 |                                                                |    |          |        
|                                                                 |                                                                |    | 507.4    |         |    |      | 705.5      |         |      |            | 571.8    |         |            |     | 576.7   |            |     |  | 534.5    |        
|Share of joint ventures and associates operating (loss)/profit |                                                                |    | (636.8   | )       |    |      | (96.0      | )       |      |            | (26.0    | )       |            |     | 0.7     |            |     |  | 1.3      |        
|                                                                
|Operating (loss)/profit                                          |                                                                |    |          |         |    |      |            |         |      |            |          |         |            |     |         |            |     |  |          |        
|                                                                 |                                                                |    |          |        
|                                                                 | Before exceptional items and goodwill amortisation             |    |          | 874.7   |    |      |            | 739.4   |      |            |          | 554.0   |            |     |         | 579.9      |     |  |          | 535.8   |  
|                                                                 | Exceptional costs                                              |    |          | (121.4  | )  |      |            | (45.3   | )    |            |          |        |            |     |         |           |     |  |          |        |  
|                                                                 | Impairment of investments in joint ventures and associate      |    |          | (792.3  | )  |      |            |        |      |            |          |        |            |     |         |           |     |  |          |        |  
|                                                                 | Goodwill amortisation                                          |    |          | (90.4   | )  |      |            | (84.6   | )    |            |          | (8.2    | )          |     |         | (2.5       | )   |  |          |        |  
|                                                                 |                                                                |    |          |        
|Total operating (loss)/profit                                    |                                                                |    | (129.4   | )       |    |      | 609.5      |         |      |            | 545.8    |         |            |     | 577.4   |            |     |  | 535.8    |        
|Exceptional profit relating to partial disposal of Energis       |                                                                |    | 20.1     |         |    |      | 243.3      |         |      |            | 1,029.6  |         |            |     | 899.1   |            |     |  | 115.3    |        
|Profit on disposal of investments                                |                                                                |    | 10.6     |         |    |      | 20.1       |         |      |            |         |         |            |     |        |            |     |  |         |        
|Profit on disposal of tangible fixed assets                      |                                                                |    | 22.0     |         |    |      |           |         |      |            |         |         |            |     |        |            |     |  |         |        
|Net interest                                                     |                                                                |    |          |         |    |      |            |         |      |            |          |         |            |     |         |            |     |  |          |        
|                                                                 |                                                                |    |          |        
|                                                                 | Excluding exceptional items                                    |    |          | (292.5  | )  |      |            | (255.1  | )    |            |          | (67.5   | )          |     |         | (118.5     | )   |  |          | (61.7   | )
|                                                                 | Exceptional items                                              |    |          | (92.5   | )  |      |            |        |      |            |          |        |            |     |         | (52.6      | )   |  |          |        |  
|                                                                 |                                                                |    |          |        
|                                                                 |                                                                |    | (385.0   | )       |    |      | (255.1     | )       |      |            | (67.5    | )       |            |     | (171.1  | )          |     |  | (61.7    | )      
|                                                                
|(Loss)/profit on ordinary activities before taxation             |                                                                |    | (461.7   | )       |    |      | 617.8      |         |      |            | 1,507.9  |         |            |     | 1,305.4 |            |     |  | 589.4    |        
|Taxation                                                         |                                                                |    |          |         |    |      |            |         |      |            |          |         |            |     |         |            |     |  |          |        
|                                                                 |                                                                |    |          |        
|                                                                 | Excluding exceptional items                                    |    |          | (85.4   | )  |      |            | (182.1  | )    |            |          | (152.8  | )          |     |         | (157.2     | )   |  |          | (121.1  | )
|                                                                 | Exceptional items                                              |    |          | 60.1    |    |      |            | 235.4   |      |            |          | (229.5  | )          |     |         | (162.8     | )   |  |          |        |  
|                                                                 |                                                                |    |          |        
|                                                                 |                                                                |    | (25.3    | )       |    |      | 53.3       |         |      |            | (382.3   | )       |            |     | (320.0  | )          |     |  | (121.1   | )      
|                                                                
|(Loss)/profit on ordinary activities after taxation              |                                                                |    | (487.0   | )       |    |      | 671.1      |         |      |            | 1,125.6  |         |            |     | 985.4   |            |     |  | 468.3    |        
|Minority interests                                               |                                                                |    | (6.3     | )       |    |      | (6.9       | )       |      |            | (3.6     | )       |            |     |        |            |     |  |         |        
|                                                                
|(Loss)/profit for the year                                       |                                                                |    | (493.3   | )       |    |      | 664.2      |         |      |            | 1,122.0  |         |            |     | 985.4   |            |     |  | 468.3    |        
|Dividends                                                        |                                                                |    |          |         |    |      |            |         |      |            |          |         |            |     |         |            |     |  |          |        
|                                                                 |                                                                |    |          |        
|                                                                 | Ordinary                                                       |    |          | (264.6  | )  |      |            | (223.0  | )    |            |          | (205.5  | )          |     |         | (192.0     | )   |  |          | (189.2  | )
|                                                                 | Other                                                          |    |          |        |    |      |            |        |      |            |          |        |            |     |         |           |     |  |          | (768.6  | )
|                                                                 |                                                                |    |          |        
|                                                                 |                                                                |    | (264.6   | )       |    |      | (223.0     | )       |      |            | (205.5   | )       |            |     | (192.0  | )          |     |  | (957.8   | )      
|                                                                
|Retained (loss)/profit                                           |                                                                |    | (757.9   | )       |    |      | 441.2      |         |      |            | 916.5    |         |            |     | 793.4   |            |     |  | (489.5   | )      
|                                                                
|(Loss)/earnings per ordinary share                               |                                                                |    |          |         |    |      |            |         |      |            |          |         |            |     |         |            |     |  |          |        
|                                                                 | Basic, including exceptional items and goodwill amortisation   |    |          | (32.3   | )p |      |            | 45.0    | p    |            |          | 76.2    | p          |     |         | 67.2       | p   |  |          | 27.7    | p
|                                                                 | Basic, excluding exceptional items and goodwill amortisation   |    |          | 32.1    | p  |      |            | 20.0    | p    |            |          | 22.5    | p          |     |         | 20.7       | p   |  |          | 20.9    | p
|                                                                 | Diluted, including exceptional items and goodwill amortisation |    |          | (32.3   | )p |      |            | 43.0    | p    |            |          | 71.7    | p          |     |         | 63.3       | p   |  |          | 27.5    | p
|                                                                 | Diluted, excluding exceptional items and goodwill amortisation |    |          | 32.1    | p  |      |            | 19.8    | p    |            |          | 22.0    | p          |     |         | 20.4       | p   |  |          | 20.8    | p
|Dividends per ordinary share                                     |                                                                |    | 16.04    | p       |    |      | 15.08      | p       |      |            | 13.94    | p       |            |     | 13.07   | p          |     |  | 12.07    | p      
|Interest cover (times) (iii)                                     |                                                                |    | 3.0      |         |    |      | 2.9        |         |      |            | 8.2      |         |            |     | 4.9     |            |     |  | 8.7      |        
|Dividend cover (net)  Ordinary dividends (times) (iii)          |                                                                |    | 2.0      |         |    |      | 1.3        |         |      |            | 1.6      |         |            |     | 1.6     |            |     |  | 1.7      |        
|                                                                

(i)
        
        Restated for the impact of the adoption of Financial Reporting Standard 19 Deferred Tax.(ii)
        
        Restated for a revised presentation of the minority interests share of the results of associated undertakings.(iii)
        
        Excluding exceptional items and goodwill amortisation.




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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Operating and financial review  Financial review continued

18




Five year financial summary continued

|                                                                                                |                 |    |                     |       |    |      |            |       |      |            |          |       |            |     |          |            |     |  |          |       |  
|----------------------------------------------------------------------------------------------- | --------------- | -- | ------------------- | ----- | -- | ---- | ---------- | ----- | ---- | ---------- | -------- | ----- | ---------- | --- | -------- | ---------- | --- |  | -------- | ----- | -
|                                                                                                |                 |    | Year ended 31 March
|                                                                                               
|                                                                                                |                 |    | 2002                |       |    | 2001 |            |       | 2000 |            |          | 1999  |            |     | 1998     |           
|                                                                                                |                 |    |                     |       |    |      | (restated) | (i)   |      | (restated) | (i)      |       | (restated) | (i) |          | (restated) | (i)
|                                                                                                |                 | £m |                     |       | £m |      |            | £m    |      |            | £m       |       |            | £m  |         
|                                                                                               
|Summary Group balance sheet(Amounts in accordance with UK GAAP)                                 |                 |    |                     |       |    |      |            |       |      |            |          |       |            |     |          |            |     |  |          |      
|                                                                                               
|Fixed assets                                                                                    |                 |    | 11,533.0            |       |    |      | 7,949.3    |       |      |            | 6,506.0  |       |            |     | 3,331.0  |            |     |  | 3,205.4  |      
|Current assets                                                                                  |                 |    | 5,883.0             |       |    |      | 2,256.2    |       |      |            | 2,464.8  |       |            |     | 1,746.3  |            |     |  | 384.0    |      
|                                                                                               
|Total assets                                                                                    |                 |    | 17,416.0            |       |    |      | 10,205.5   |       |      |            | 8,970.8  |       |            |     | 5,077.3  |            |     |  | 3,589.4  |      
|Creditors and provisions                                                                        |                 |    | (14,121.6           | )     |    |      | (7,490.2   | )     |      |            | (6,721.5 | )     |            |     | (3,793.2 | )          |     |  | (3,103.8 | )    
|                                                                                               
|Net assets employed/total shareholders funds                                                   |                 |    | 3,294.4             |       |    |      | 2,715.3    |       |      |            | 2,249.3  |       |            |     | 1,284.1  |            |     |  | 485.6    |      
|                                                                                               
|Net debt                                                                                        |                 |    | 8,240.7             |       |    |      | 3,918.2    |       |      |            | 2,663.6  |       |            |     | 703.4    |            |     |  | 1,465.3  |      
|Gearing(ii)                                                                                     |                 |    | 250                 | %     |    |      | 144        | %     |      |            | 118      | %     |            |     | 55       | %          |     |  | 302      | %    
|Allotted, called up and fully paid ordinary shares  number                                     |                 |    | 1,776.9             | m     |    |      | 1,484.6    | m     |      |            | 1,484.6  | m     |            |     | 1,477.9  | m          |     |  | 1,474.4  | m    
|                                                                                                |  nominal value |    |                     | 177.7 |    |      |            | 148.5 |      |            |          | 148.5 |            |     |          | 147.8      |     |  |          | 147.5 |  
|                                                                                               
|(i)  Restated for the impact of the adoption of Financial Reporting Standard 19 Deferred Tax.
|(ii)  Gearing is calculated as net debt divided by total shareholders funds.                  
|                                                                                               
|                                                                                               
|Summary Group cash flow statement                                                               |                 |    |                     |       |    |      |            |       |      |            |          |       |            |     |          |            |     |  |          |      
|                                                                                               
|Net cash inflow from operating activities                                                       |                 |    | 1,255.4             |       |    |      | 810.6      |       |      |            | 682.0    |       |            |     | 605.9    |            |     |  | 627.2    |      
|Dividends from joint ventures                                                                   |                 |    | 12.8                |       |    |      | 20.3       |       |      |            | 4.5      |       |            |     | 3.1      |            |     |  | 0.4      |      
|Net cash outflow for returns on investments and servicing of finance                            |                 |    | (357.5              | )     |    |      | (306.9     | )     |      |            | (64.7    | )     |            |     | (119.7   | )          |     |  | (31.7    | )    
|Taxation                                                                                        |                 |    | (7.3                | )     |    |      | (137.2     | )     |      |            | (274.3   | )     |            |     | (154.9   | )          |     |  | (138.2   | )    
|Net cash outflow for capital expenditure                                                        |                 |    | (464.4              | )     |    |      | (457.6     | )     |      |            | (279.2   | )     |            |     | (312.5   | )          |     |  | (286.4   | )    
|Net cash (outflow)/inflow for acquisitions and disposals                                        |                 |    | (946.7              | )     |    |      | (582.2     | )     |      |            | (1,236.7 | )     |            |     | 934.1    |            |     |  | 157.8    |      
|Equity dividends paid                                                                           |                 |    | (229.5              | )     |    |      | (212.5     | )     |      |            | (197.6   | )     |            |     | (183.1   | )          |     |  | (966.3   | )    
|                                                                                               
|Net cash (outflow)/inflow before the management of liquid resources                             |                 |    | (737.2              | )     |    |      | (865.5     | )     |      |            | (1,366.0 | )     |            |     | 772.9    |            |     |  | (637.2   | )    
|Net cash inflow/(outflow) from the management of liquid resources                               |                 |    | 336.2               |       |    |      | 775.2      |       |      |            | 618.8    |       |            |     | (1,482.3 | )          |     |  | 217.0    |      
|Net cash inflow from financing                                                                  |                 |    | 454.6               |       |    |      | 88.4       |       |      |            | 773.6    |       |            |     | 687.6    |            |     |  | 503.9    |      
|                                                                                               
|Movement in cash and overdrafts                                                                 |                 |    | 53.6                |       |    |      | (1.9       | )     |      |            | 26.4     |       |            |     | (21.8    | )          |     |  | 83.7     |      
|                                                                                               
|                                                                                               
|                                                                                               
|Amounts in accordance with US GAAP                                                              |                 |    |                     |       |    |      |            |       |      |            |          |       |            |     |          |            |     |  |          |      
|                                                                                               
|Group turnover                                                                                  |                 |    | 4,396.3             |       |    |      | 3,782.7    |       |      |            | 1,614.7  |       |            |     | 1,514.2  |            |     |  | 1,609.4  |      
|Net (loss)/income                                                                               |                 |    | (163.1              | )     |    |      | 810.3      |       |      |            | 1,009.8  |       |            |     | 1,002.8  |            |     |  | 458.9    |      
|(Loss)/earnings per ADS(iii)                                                                    |                 |    |                     |       |    |      |            |       |      |            |          |       |            |     |          |            |     |  |          |      
|                                                                                                | Basic           |    |                     | (53.4 | )p |      |            | 274.5 | p    |            |          | 342.8 | p          |     |          | 341.9      | p   |  |          | 157.1 | p
|                                                                                                | Diluted         |    |                     | (53.4 | )p |      |            | 260.5 | p    |            |          | 323.4 | p          |     |          | 322.1      | p   |  |          | 155.5 | p
|Total assets                                                                                    |                 |    | 17,545.3            |       |    |      | 10,391.6   |       |      |            | 9,105.7  |       |            |     | 5,189.7  |            |     |  | 3,677.5  |      
|Net assets employed/total shareholders funds                                                   |                 |    | 3,856.8             |       |    |      | 2,961.8    |       |      |            | 2,380.8  |       |            |     | 1,464.1  |            |     |  | 619.5    |      
|Equity shareholders funds                                                                      |                 |    | 3,759.0             |       |    |      | 2,920.0    |       |      |            | 2,345.7  |       |            |     | 1,464.1  |            |     |  | 619.5    |      
|                                                                                               

(iii)
        
        Each ADS represents five ordinary shares.




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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

19




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

As a result of the adoption of Financial Reporting Standard 19 Deferred Tax
and the revised presentation of the minority interests share of the results of
associated undertakings, prior year comparatives for 2000/01 and 1999/2000 have
been restated in the following commentary, except where indicated otherwise.
The effect of this restatement is explained in note 1 to the accounts.

Financial year ended 31 March 2002 (2001/02) compared with financial year
ended 31 March 2001 (2000/01)

Acquisition of Niagara Mohawk Holdings, Inc.

On 31 January 2002, National Grid successfully completed the acquisition of
Niagara Mohawk, for consideration of £2,186.5 million satisfied by the issue of
shares amounting to £1,269.9 million and cash of £916.6 million, including
£44.9 million relating to the costs of acquisition. The net assets acquired had
a provisional fair value of £1,376.4 million, resulting in goodwill of £810.1
million being recognised, that is being amortised over 20 years. Details of the
acquisition are contained in note 27 to the accounts on page 71.

Niagara Mohawk has contributed £83.1 million to operating profit for the period
from the date of acquisition to 31 March 2002.

Group turnover

Group turnover increased from £3,799.7 million in 2000/01 to £4,401.0 million
in 2001/02, substantially reflecting the acquisition of Niagara Mohawk, which
accounted for 80 per cent of the increase. The remaining increases reflect
higher distribution turnover for National Grid USA as a result of higher energy
prices, which are substantially passed through to customers, higher turnover
for EnMO, partially offset by reduced turnover from UK transmission and
stranded costs and generation.

Group total operating profit

Total operating profit rose by £135.3 million to £874.7 million reflecting
higher contributions from:



| |  | Niagara Mohawk amounting to £83.1 million following
the acquisition of this business on 31 January;             
|- |  | ----------------------------------------------------------------------------------------------------------------
| 
| |  | UK transmission, which increased its contribution
to £524.7 million from £486.3 million in 2000/01;             
| 
| |  | Intelig reflecting an operating loss of £35.5 million
as compared with losses of £118.0 million for 2000/01; and
| 
| |  | US distribution and transmission totalling £225.9 million
compared with £204.4 million for 2000/01.             

These increased contributions were partially offset by lower contributions
from:



| |  | UK Interconnectors amounting to £19.8 million compared
with £42.8 million for 2000/01;                                                                                                                                            
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Stranded costs recovery and generation amounting to
£44.3 million compared with £61.7 million for 2000/01;                                                                                                                        
| 
| |  | Telecoms activities, with losses of £17.2 million compared
with £3.0 million for 2000/01;                                                                                                                                         
| 
| |  | Energis, with losses of £3.7 million compared with an
operating profit of £4.4 million for 2000/01;                                                                                                                               
| 
| |  | Other telecoms joint ventures that generated losses of
£15.3million compared with losses of £3.4 million for
2000/01; and                                                                                                         
| 
| |  | Other activities that absorbed £4.8 million compared with
an operating profit of £6.7 million in 2000/01, primarily
as a result of profits on the disposal of fixed assets in
2001/02 being recorded as part of exceptional items.

Note 2 to the accounts contains a segmental analysis of the Groups results. A
review of the businesses is set out on pages 5 to 16.

Goodwill amortisation

Goodwill amortisation for 2001/02 rose from £84.6 million to £90.4 million.
This increase reflects the amortisation of goodwill relating to the acquisition
of Niagara Mohawk since
31 January 2002, and a full years amortisation of goodwill relating to the
acquisition of EUA.

Exceptional items

The results for 2001/02 include net exceptional pre-tax losses of £953.5
million (£893.4 million post-tax), reflecting losses arising from:



| |  | an impairment of the Groups Latin American telecoms
investments amounting to £290.4 million pre-tax
(£272.7 million post-tax);                                                        
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | an impairment of the Groups investment in Energis
amounting to £392.1 million (£392.1 million post-tax);                                                                              
| 
| |  | an impairment of the Groups investment in Energis
Polska, a telecoms joint venture in Poland, amounting
to £109.8 million (£109.8 million post-tax);                                  
| 
| |  | restructuring and integration costs associated with a
reorganisation within the UK and the integration of
Niagara Mohawk, amounting to £115.3 million pre-tax
(£72.9 million post-tax);
| 
| |  | the Groups share of a joint ventures foreign exchange
financing charge amounting to £92.5 million
(£92.5 million post-tax) relating to the devaluation
of the Argentine peso; and    
| 
| |  | other exceptional costs amounting to £6.1 million
(£6.1 million post-tax).                                                                                                             

These exceptional losses were partially offset by:



| |  | pre-tax profits amounting to £22.0 million (£22.0 million
post-tax) relating to the sale of tangible fixed assets;  
|- |  | --------------------------------------------------------------------------------------------------------------------
| 
| |  | an exceptional pre and post-tax profit relating to the gain
on a disposal of a joint venture of £10.6 million; and  
| 
| |  | profits of £20.1 million pre and post-tax arising from
reductions in the Groups interest in Energis during 2001/02.

Interest

Net interest, excluding exceptional items, rose from £255.1 million to £292.5
million for 2001/02. This increase is explained by the acquisition of Niagara
Mohawk and an increase in the Groups share of associated undertakings net
interest charge, partially offset by interest rate reductions, principally on
US dollar borrowings.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Operating and financial review  Financial review continued

20




Taxation

The net tax charge of £25.3 million for 2001/02, includes a net credit relating
to exceptional items amounting to £60.1 million. If these exceptional items are
excluded, then the tax charge for 2001/02 is £85.4 million, including a £73.0
million tax credit arising from adjustments to prior years tax. The effective
tax rate for 2001/02 excluding the impact of exceptional items is 17.4 per
cent. The effective tax rate for 2000/01, excluding the impact of exceptional
items, was 45.6 per cent. A reconciliation of the effective tax rate from the
UK Corporation tax rate is shown in note 9 to the accounts on page 55.

Exchange rates

Exchange rate movements have had a beneficial effect on the translation of US
dollar operating profits for 2001/02 as compared with 2000/01. US dollar
operating profits were translated at a weighted average rate of £1.00 = $1.44
during 2001/02 as compared with £1.00 = $1.483 for 2000/01. If the rate that
applied during 2000/01 had been used, then sterling operating profits for
2001/02 would have been lower by approximately £9 million.

The increased operating profit is largely offset by the increased sterling cost
of US dollar debt taken out to finance US dollar denominated investments and
the increased sterling cost of US taxes. As a result, the impact of the lower
US dollar rate on National Grid USAs profits has not had a significant effect
on earnings per share.

Exchange rate movements have favourably impacted on National Grids share of
operating losses in Intelig, the Brazilian telecoms operator, as sterling has
strengthened against the Brazilian currency during 2001/02. We estimate that,
as compared with the average exchange rate for 2000/01, this has reduced our
share of operating losses by approximately £10 million.

The effect of the devaluation of the Argentine peso has resulted in the Group
reflecting its share of an exceptional foreign exchange financing charge
relating to a joint venture amounting to £92.5 million, as referred to on page
19.

Change in UK GAAP accounting policies

As described in the Accounting policies  basis of preparation of accounts on
page 42, National Grid has adopted Financial Reporting Standard (FRS) 18
Accounting Policies and FRS 19 Deferred Tax during the year and has
provided the disclosures required relating to the transitional arrangements of
FRS 17 Retirement Benefits.

The adoption of FRS 18 has had no material impact on the Group, whilst the
adoption of FRS 19, full details of which are contained in note 1 to the
accounts on page 47, has resulted in a reduction in shareholders funds at 1
April 2001 of £802.3 million. It has been impractical to determine the impact
on the current years results of the adoption of FRS 19 because of the
acquisition of Niagara Mohawk. The impact of the adoption of FRS 19 on the
results for 2000/01 and 1999/2000 was to reduce profit after taxation by £104.8
million and £26.4 million respectively.

(Loss)/earnings per share

The basic loss per share for 2001/02 was 32.3 pence compared with basic
earnings per share of 45.0 pence in 2000/01, reflecting the very significant
level of net exceptional losses in 2001/02. Excluding exceptional items and
goodwill amortisation, basic earnings per share increased by 12.1 pence to 32.1
pence. A reconciliation of the movement from basic earnings per share to basic
earnings per share excluding exceptional items and goodwill amortisation is
shown in note 11 to the accounts on page 56.

Ordinary dividends

The total ordinary dividend for 2001/02 amounted to 16.04 pence per ordinary
share. This represents an increase of 6.4 per cent over the previous year. The
total dividend is covered 2.0 times (2000/01: 1.3 times) by earnings per
ordinary share, excluding exceptional items and goodwill amortisation, and
amounted to £264.6 million.

Dividends

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

|                         |  |      |       |  |      |  |       |       |  |  |       |  |  |      |       |  |  |  |       | 
|------------------------ |  | ---- | ----- |  | ---- |  | ----- | ----- |  |  | ----- |  |  | ---- | ----- |  |  |  | ----- | 
|                         |  | 2001 |       |  | 2000 |  |       | 1999  |  |  | 1998  |  |  | 1997 |      
|                         |  | /02  |       |  | /01  |  |       | /2000 |  |  | /99   |  |  | /98  |      
|                         |  | p    |       |  | p    |  |       | p     |  |  | p     |  |  | p    |      
|                        
|Interim                  |  |      | 6.46  |  |      |  | 6.05  |       |  |  | 5.59  |  |  |      | 5.25  |  |  |  | 4.83  | 
|Final                    |  |      | 9.58  |  |      |  | 9.03  |       |  |  | 8.35  |  |  |      | 7.82  |  |  |  | 7.24  | 
|                        
|Total ordinary dividends |  |      | 16.04 |  |      |  | 15.08 |       |  |  | 13.94 |  |  |      | 13.07 |  |  |  | 12.07 | 
|Special dividend         |  |      |      |  |      |  |      |       |  |  |      |  |  |      |      |  |  |  | 44.70 | 
|                        
|Total dividends          |  |      | 16.04 |  |      |  | 15.08 |       |  |  | 13.94 |  |  |      | 13.07 |  |  |  | 56.77 | 
|                        

|                         |  |      |      |  |      |  |      |       |  |  |      |  |  |      |      |  |  |  |      | 
|------------------------ |  | ---- | ---- |  | ---- |  | ---- | ----- |  |  | ---- |  |  | ---- | ---- |  |  |  | ---- | 
|                         |  | 2001 |      |  | 2000 |  |      | 1999  |  |  | 1998 |  |  | 1997 |     
|                         |  | /02  |      |  | /01  |  |      | /2000 |  |  | /99  |  |  | /98  |     
|                         |  | $    |      |  | $    |  |      | $     |  |  | $    |  |  | $    |     
|                        
|US dollar per ADS(1)     |  |      |      |  |      |  |      |       |  |  |      |  |  |      |      |  |  |  |      | 
|Interim                  |  |      | 0.46 |  |      |  | 0.44 |       |  |  | 0.46 |  |  |      | 0.43 |  |  |  | 0.41 | 
|Final                    |  |      | 0.69 |  |      |  | 0.64 |       |  |  | 0.63 |  |  |      | 0.61 |  |  |  | 0.63 | 
|                        
|Total ordinary dividends |  |      | 1.15 |  |      |  | 1.08 |       |  |  | 1.09 |  |  |      | 1.04 |  |  |  | 1.04 | 
|Special dividend         |  |      |     |  |      |  |     |       |  |  |     |  |  |      |     |  |  |  | 3.87 | 
|                        
|Total dividends          |  |      | 1.15 |  |      |  | 1.08 |       |  |  | 1.09 |  |  |      | 1.04 |  |  |  | 4.91 | 
|                        

(1)Translated into US dollars per ADS (each ADS representing the right to
five ordinary shares) at a spot rate at time of payment, excepting the 2001/02
final dividend which is translated at the year end rate of £1.00 = $1.44 as the
dividend has not yet been paid.


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

Dividend policy

National Grid is committed to delivering sustained real dividend growth.
Confidence in the Groups future financial strength and in the prospects for
growth and greater diversity of earnings has increased. Consequently, the Board
announced on 21 November 2000 its aim to increase dividends per share (as
expressed in pounds sterling) by 5 per cent real in each of the five years to
March 2006.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

21




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

Acquisition of Eastern Utilities Associates (EUA)

The acquisition of EUA was completed on 19 April 2000 at a cost of £414.0
million. The net assets acquired had a fair value of £189.0 million, resulting
in goodwill of £225.0 million which has been capitalised and is being amortised
over 20 years. The transmission and distribution operations of NEES (acquired
22 March 2000) and EUA were integrated on 1 May 2000. It is therefore not
possible to provide an indication of EUAs contribution to Group results for
the year ended 31 March 2001.

Group turnover

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

Group total operating profit

Total operating profit rose by £185.4 million to £739.4 million, reflecting
higher contributions from:



| |  | National Grid USA (£293.6 million, compared with
£3.7million in 1999/2000, which related to the period
22 March to 31 March 2000);
|- |  | ----------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Energis (£4.4 million, compared with £1.9 million in
1999/2000); and                                                              
| 
| |  | electricity transmission joint ventures (£35.3 million,
compared with £21.5 million in 1999/2000).                                

These increased contributions were partially offset by lower contributions
from:



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

Note 2 to the accounts contains a segmental analysis of the Groups results. A
review of the businesses is set out on pages 5 to 16.

Goodwill amortisation

Goodwill amortisation for 2000/01 rose from £8.2 million to £84.6 million. This
increase reflects a full years amortisation of goodwill relating to the
acquisition of NEES and the amortisation of goodwill arising from the
acquisition of EUA on 19 April 2000.

Exceptional items

The results for 2000/01 include exceptional pre-tax profits of £218.1 million
(£453.5 million post-tax), comprising:



| |  | profits of £243.3 million, before and after tax, arising from
reductions in the Groups interest in Energis, primarily as
a result of a placing of shares by Energis in September 2000
and the acquisition by Energis of a majority stake in Ision
in January 2001;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | net profits of £20.1 million, before and after tax, on the
disposal of market services businesses;                                                                                                                                                                 
| 
| |  | US integration costs of £45.3 million (£39.4 million post-
tax); and                                                                                                                                                                                               
| 
| |  | a tax credit of £229.5 million arising from the realisation
of capital losses for tax purposes as a result of Group
restructurings.                                                                                                                                

Interest

Net interest rose from £67.5 million to £255.1 million for 2000/01. This
increase is largely attributable to the acquisitions of NEES and EUA, which
were paid for out of cash balances and new borrowings. The net interest charge
for 2000/01 also includes:



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

Taxation

The net tax charge of £53.3 million for 2000/01 includes a net credit of £235.4
million relating to exceptional items. If these exceptional items are excluded,
the tax charge for 2000/01 is £182.1 million, including a £2.0 million tax
credit arising from an adjustment to prior years tax. After adjusting for
exceptional items, the effective tax rate for 2000/01 was 45.6 per cent. The
effective tax rate for 1999/2000, excluding the impact of exceptional items,
was 31.9 per cent.

A reconciliation of the effective tax rate from the UK Corporation tax rate is
shown in note 9 to the accounts on page 55.

Exchange rates

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

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

Exchange rate movements during the year have adversely affected National Grids
share of operating losses in Intelig, the Brazilian telecoms operator, as
sterling has weakened against the Brazilian currency during 2000/01. We
estimate that, as compared with the average exchange rate for 1999/2000, this
increased our share of operating loss by approximately £5.0 million.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Operating and financial review  Financial review continued

22




Earnings per share

Basic earnings per share fell by 31.2 pence to 45.0 pence, reflecting the very
significant level of exceptional profits in 1999/2000. Excluding exceptional
items and goodwill amortisation, basic earnings per share fell 2.5 pence to
20.0 pence. A reconciliation of the movement from basic earnings per share to
basic earnings per share excluding exceptional items and goodwill amortisation
is shown in note 11 to the accounts on page 56.

Ordinary dividends

The total ordinary dividend for 2000/01 amounted to 15.08 pence per ordinary
share, an increase of 8.2 per cent over the previous year. The total dividend
was covered 1.3 times (1999/2000: 1.6 times) by earnings per ordinary share,
excluding exceptional items and goodwill amortisation, and amounted to £223.0
million.

Liquidity and capital resources

Cash flow

Net cash inflow from operations was £1,255.4 million in 2001/02 compared with
£810.6 million in 2000/01 and £682.0 million in 1999/2000. The 2001/02 increase
in net cash flow from operations primarily reflects the collection of under
recovered power costs relating to 2000/01 in the US, the recovery of costs
incurred in 2000/01 in respect of the development of NETA in the UK and the
first contribution from Niagara Mohawk, partially offset by cash outflows in
respect of exceptional items. The increase in net cash inflow from operations
in 2000/01 as compared with 1999/2000 has arisen from the impact of National
Grid USAs contribution to cash inflow.

Details of the components of net cash inflow from operations are set out in
note 26 to the accounts on page 69.

Payments to the providers of finance, in the form of dividends and interest,
totalled £587.0 million (net) in 2001/02, compared with £519.4 million in
2000/01 and £262.3 million in 1999/2000. Net interest cash outflows increased
from £64.7 million and £303.4 million in 1999/2000 and 2000/01 respectively to
£349.0 million in 2001/02. The increase between 1999/2000 and 2000/01 primarily
reflects the additional net interest expense incurred following the acquisition
of NEES and EUA, and the increase to 2001/02 reflects the additional net
interest expense associated with the acquisition of Niagara Mohawk.

Net corporate tax payments amounted to £7.3 million in 2001/02 compared with
£137.2 million in 2000/01 and £274.3 million in 1999/2000. Net corporate tax
payments in 2001/02 were lower than in 2000/01, for two main reasons:



| |  | as a result of the realisation for tax purposes of capital
losses arising from Group restructurings, UK corporation
tax repayments of approximately £65.0 million were
received in respect of payments previously made in
1999/2000 on the partial disposal of Energis in that year;
and
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | UK corporation tax payments in 2000/01 included amounts
relating to the previous year of £61 million. No UK tax
payments relating to 2000/01 have been made in 2001/02.                                                                                                                 

Notwithstanding additional corporate tax payments in respect of National Grid
USA, corporate tax payments in 2000/01 were lower than 1999/2000 for two main
reasons:



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

Net purchases of tangible fixed assets absorbed cash of £464.4 million in
2001/02, compared with £457.6 million in 2000/01 and £279.2 million in
1999/2000. Net purchases of tangible fixed assets in 2001/02 include amounts
paid in respect of National Grid USA and Niagara Mohawk amounting to £199.3
million, compared with £154.2 million for 2000/01 and £4.3 million for
1999/2000.

Cash outflow in 2001/02 relating to the acquisition of Group undertakings and
other investments amounted to £983.2 million, of which £931.9 million
(including overdrafts acquired) related to the acquisition of Niagara Mohawk.
This compares with cash outflows relating to the acquisition of Group
undertakings and other investments amounting to £778.1 million in 2000/01 and
£2,189.6 million in 1999/2000. The 2000/01 cash outflows substantially related
to the acquisition of EUA and an additional investment in Intelig, whilst of
the 1999/2000 cash outflow of £2,189.6 million, £2,045.1 million related to the
acquisition of NEES.

In 1999/2000, the sale of 28.9 million ordinary shares in Energis contributed
£952.9 million to the inflow of cash.

During 2001/02, National Grid raised finance through Eurobonds, other bond
issues and the use of a multi currency revolving credit facility for the
purpose of financing the acquisition of Niagara Mohawk and repaying other forms
of borrowings.

Equity shareholders funds

Equity shareholders funds increased from £2,673.5 million at 31 March 2001 to
£3,196.6 million at 31 March 2002. This increase is primarily explained by the
issue of shares in connection with the acquisition of Niagara Mohawk amounting
to £1,269.9 million, partially offset by the retained loss for the year of
£757.9 million.

Net debt

Net debt increased from £3,918.2 million at 31 March 2001 to £8,240.7 million
at 31 March 2002, primarily as a result of the acquisition of Niagara Mohawk.
Gearing at 31 March 2002 was 250 per cent, up from 144 per cent at the start of
the year. Interest cover (the number of times the net interest charge is
covered by total operating profit excluding goodwill amortisation and
exceptional items), which is considered a more relevant indicator of the
Groups borrowing capacity, was 3.0 times (compared with 2.9 times in 2000/01
and 8.2 times in 1999/2000).

Following the acquisition of Niagara Mohawk, the composition as well as the
amount of group debt has changed significantly. Other specific refinancings
have been the issue by The National Grid Company plc of a £600 million bond
with an RPI indexed tranche, a fixed rate tranche and a limited



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

23




indexed tranche maturing in 2020, 2028, 2030 respectively; and a 2 billion
bond guaranteed by the Group, maturing
1.25 billion in 2006 and 0.75 billion in 2011. These euro amounts borrowed
have been swapped into US dollars and into sterling. A full analysis of debt is
provided in note 19 to the accounts, and a reconciliation of the movement in
net debt from 1 April 2001 to 31 March 2002 is provided in note 26 to the
accounts.

Capital expenditure

Capital expenditure, including interest capitalised, was £593.3 million in
2001/02, compared with £535.8 million in 2000/01 and £316.1 million in
1999/2000. The higher level of capital expenditure for 2000/01 as compared with
1999/2000 reflects a higher level of capital expenditure relating to National
Grid USA and UK transmission. In 2000/01, National Grid USA capital expenditure
was £154.2 million as compared with £4.3 million for 1999/2000 (which related
to the period 22 March to 31 March 2001) and UK transmission capital
expenditure rose £74.7 million to £361.2 million.

Credit facilities

The remaining portion of the credit facility provided to National Grid by a
syndicate of banks, primarily in connection with the acquisition of NEES in
2001, was repaid and cancelled and replaced by a new committed credit facility
of $2.3 billion which was used to finance the cash element of the Niagara
Mohawk acquisition price and to provide general funding and liquidity. The
facility is capable of running with $1.7 billion maturing in November 2004 and
$0.6 billion in November 2006. At March 2002, the full $2.3 billion was undrawn
but was being used to provide back-up support to a $2 billion US dollar
commercial paper programme which was launched in March 2002. At 31 March 2002
commercial paper outstandings were £634.3 million.

Companies within the original National Grid USA group have committed facilities
of $527 million (£371 million), all of which were undrawn at 31 March 2002.
Companies within the Niagara Mohawk sub-group have committed bank facilities of
$848 million (£597 million) which were also all undrawn at the year-end. Of
these undrawn amounts, £439 million was providing back-up support to commercial
paper and note issuance programmes within the enlarged US group.

A full analysis of the Groups committed credit facilities at
31 March 2002 is provided at note 20 to the accounts on page 64.

Treasury policy

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

The treasury department is not operated as a profit centre. Debt and treasury
positions are managed in a non-speculative manner, such that all transactions
in financial instruments or products are matched to an underlying current or
anticipated business requirement. Derivative financial instruments
(derivatives), including swaps and options, are used principally for reducing
interest rate and currency risk. Derivatives are not held for trading purposes.
Derivatives entered into in respect of gas and electricity commodities are used
in support of the business operational requirements and the policy regarding
their use is explained below.

As a registered holding company, under the US Public Utility Company Holding
Act of 1935, National Grid has to operate under certain regulatory restrictions
applied by the US Securities and Exchange Commission. As a result, the scope of
the financing activity of National Grid is limited to specific areas which are
authorised from time to time, such authorisation being set sufficient to cover
all normal requirements. In addition National Grid is required to maintain its
common stock equity as a percentage of it total capitalisation (defined as
common stock equity plus preferred stock plus gross debt) measured on a book
value US GAAP basis at 30 per cent or above.

Interest rate risk

To provide protection against adverse interest rate movements, the interest
rate on the debt portfolio is managed through the use of fixed-rate debt,
combined with the use of interest rate swaps, options and option-related
instruments with a view to maintaining a significant proportion of the debt
portfolio at fixed rates over the medium term. To date, the policy objective
has been to achieve 50 per cent to 85 per cent of debt at fixed rates depending
on debt projections and market levels of interest rates. Following a recent
reappraisal of the interest rate risk exposures of the wider group, the
guidelines have been adjusted so that the target percentage of debt that is at
a fixed rate is near the lower end of the previous range, with an additional
objective that for sterling debt there should be up to 30 per cent in index
linked form, namely linked to the UK Retail Price Index.

The interest rate composition of the Groups financial liabilities at 31 March
2002 is shown in note 20 to the accounts. Based on the level and composition of
net borrowings at 31 March 2002, an increase in average interest rates of 1 per
cent per annum would result in a decrease in profit before taxation of £24.7
million.

The table on page 24 provides information about the Groups financial
instruments including borrowings, interest rate swaps, cross currency swaps and
other derivative instruments. For borrowings, the table presents principal cash
flows and related weighted average interest rates by expected maturity dates.
The analysis is before taking into account interest rate and currency swaps and
does not include unamortised issue costs. As a result, it differs from the
analysis of borrowings contained in note 19 to the accounts.

For interest rate swaps and cross currency swaps, the table presents notional
amounts and weighted average interest rates by expected (contractual) maturity
dates. For foreign exchange deals, the table presents the value of currency in
the relevant contracts. The information is presented in sterling equivalents
which is the Groups reporting currency. Substantially all of the variable rate
borrowings and the floating legs of swaps are subject to interest rates which
fluctuate with the London Inter-Bank Offered Rate (LIBOR) for the appropriate
currency at differing premiums or, in the case of certain US-based companies,
are based on the market rates for tax-exempt commercial paper. Cash and
deposits earn interest at local



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Operating and financial review  Financial review continued

24




|                                               |                                                   |  |         |         |  |        |         |       |        |                       |                   |        |   |  |        |       |   |        |       |       |            |  |         |       |       |  |         |         |   |  |         |         |  
|---------------------------------------------- | ------------------------------------------------- |  | ------- | ------- |  | ------ | ------- | ----- | ------ | --------------------- | ----------------- | ------ | - |  | ------ | ----- | - | ------ | ----- | ----- | ---------- |  | ------- | ----- | ----- |  | ------- | ------- | - |  | ------- | ------- | -
|                                               |                                                   |  |         |         |  |        |         |       |        |                       | Expected maturity |        |   |  |        |       |   |        |       |       |            |  |        
|                                               |                                                   |  | At      |         |  |        |         |       |        | financial year ending |                   |        |   |  |        |       |   |        |       |       |            | 
|                                               |                                                   |  | 31 Mar  |         |  | 31 Mar |         |       | 31 Mar |                       |                   | 31 Mar |   |  | 31 Mar |       |   | 31 Mar |       |       | Thereafter |  |         | Fair  |      
|                                               |                                                   |  | 2002    |         |  | 2003   |         |       | 2004   |                       |                   | 2005   |   |  | 2006   |       |   | 2007   |       |       |            |  |         |       | value | 
|                                               |                                                   |  | £m      |         |  | £m     |         |       | £m     |                       |                   | £m     |   |  | £m     |       |   | £m     |       |       | £m         |  |         | £m    |      
|                                              
|Variable rate borrowings (cash flows)          |                                                   |  |         |         |  |        |         |       |        |                       |                   |        |   |  |        |       |   |        |       |       |            |  |         |       |       |  |         |         |   |  |         |        
|                                               | Sterling borrowings                               |  |         | 819.5   |  |        |         | 129.5 |        |                       |                   |       |   |  |        |      |   |        |       |      |            |  |         |      |       |  |         | 690.0   |   |  |         | 819.5   |  
|                                               | US dollar borrowings                              |  |         | 1,220.6 |  |        |         | 615.0 |        |                       |                   | 3.9    |   |  |        | 3.2   |   |        |       | 2.2   |            |  |         |      |       |  |         | 595.1   |   |  |         | 1,220.6 |  
|                                               | Swiss franc borrowings                            |  |         | 192.0   |  |        |         |      |        |                       |                   | 192.0  |   |  |        |      |   |        |       |      |            |  |         |      |       |  |         |        |   |  |         | 192.0   |  
|                                              
|                                               |                                                   |  | 2,232.1 |         |  |        | 744.5   |       |        |                       | 195.9             |        |   |  | 3.2    |       |   |        | 2.2   |       |            |  | 1.2     |       |       |  | 1,285.1 |         |   |  | 2,232.1 |        
|                                              
|Fixed rate borrowings (cash flows)             |                                                   |  |         |         |  |        |         |       |        |                       |                   |        |   |  |        |       |   |        |       |       |            |  |         |       |       |  |         |         |   |  |         |        
|                                               | Sterling borrowings                               |  |         | 1,328.6 |  |        |         | 268.8 |        |                       |                   |       |   |  |        |      |   |        |       | 240.0 |            |  |         |      |       |  |         | 819.8   |   |  |         | 1,237.4 |  
|                                               | weighted average interest rate                    |  |         |         |  |        |         | 6.1   | %      |                       |                   |        |   |  |        |       |   |        |       | 8.0   | %          |  |         |       |       |  |         | 6.5     | % |  |         |         |  
|                                               | US dollar borrowings                              |  |         | 3,453.2 |  |        |         | 441.3 |        |                       |                   | 462.4  |   |  |        | 415.1 |   |        |       | 408.9 |            |  |         | 212.9 |       |  |         | 1,512.6 |   |  |         | 3,616.5 |  
|                                               | weighted average interest rate                    |  |         |         |  |        |         | 6.7   | %      |                       |                   | 7.3    | % |  |        | 6.7   | % |        |       | 7.9   | %          |  |         | 7.7   | %     |  |         | 7.9     | % |  |         |         |  
|                                               | Euro borrowings                                   |  |         | 1,225.3 |  |        |         |      |        |                       |                   |       |   |  |        |      |   |        |       |      |            |  |         | 765.8 |       |  |         | 459.5   |   |  |         | 1,212.9 |  
|                                               | weighted average interest rate                    |  |         |         |  |        |         |       |        |                       |                   |        |   |  |        |       |   |        |       |       |            |  |         | 5.3   | %     |  |         | 6.1     | % |  |         |         |  
|                                              
|                                               |                                                   |  | 6,007.1 |         |  |        | 710.1   |       |        |                       | 462.4             |        |   |  | 415.1  |       |   |        | 648.9 |       |            |  | 978.7   |       |       |  | 2,791.9 |         |   |  | 6,066.8 |        
|                                              
|Total borrowings                               |                                                   |  | 8,239.2 |         |  |        | 1,454.6 |       |        |                       | 658.3             |        |   |  | 418.3  |       |   |        | 651.1 |       |            |  | 979.9   |       |       |  | 4,077.0 |         |   |  | 8,298.7 |        
|                                              
|Cash and deposits                              |                                                   |  | 212.6   |         |  |        | 212.6   |       |        |                       |                  |        |   |  |       |       |   |        |      |       |            |  |        |       |       |  |        |         |   |  | 212.6   |        
|                                              
|Interest rate swaps                            |                                                   |  |         |         |  |        |         |       |        |                       |                   |        |   |  |        |       |   |        |       |       |            |  |         |       |       |  |         |         |   |  |         |        
|(sterling  notional amounts)                  |                                                   |  |         |         |  |        |         |       |        |                       |                   |        |   |  |        |       |   |        |       |       |            |  |         |       |       |  |         |         |   |  |         |        
|                                               | Receive fixed rate                                |  |         | 476.2   |  |        |         |      |        |                       |                   | 26.2   |   |  |        | 450.0 |   |        |       |      |            |  |         |      |       |  |         |        |   |  |         | 10.9    |  
|                                               | average fixed rate element                        |  |         |         |  |        |         |       |        |                       |                   | 6.6    | % |  |        | 5.9   | % |        |       |       |            |  |         |       |       |  |         |         |   |  |         |         |  
|                                               | Pay fixed rate                                    |  |         | 390.0   |  |        |         |      |        |                       |                   | 100.0  |   |  |        |      |   |        |       |      |            |  |         |      |       |  |         | 290.0   |   |  |         | (5.1    | )
|                                               | average fixed rate element                        |  |         |         |  |        |         |       |        |                       |                   | 5.7    | % |  |        |       |   |        |       |       |            |  |         |       |       |  |         | 5.3     | % |  |         |         |  
|(Euro  notional amounts)                      |                                                   |  |         |         |  |        |         |       |        |                       |                   |        |   |  |        |       |   |        |       |       |            |  |         |       |       |  |         |         |   |  |         |        
|                                               | Receive fixed rate                                |  |         | 1,225.3 |  |        |         |      |        |                       |                   |       |   |  |        |      |   |        |       |      |            |  |         | 765.8 |       |  |         | 459.5   |   |  |         | (24.0   | )
|                                               | average fixed rate element                        |  |         |         |  |        |         |       |        |                       |                   |        |   |  |        |       |   |        |       |       |            |  |         | 5.3   | %     |  |         | 6.1     | % |  |         |         |  
|(US dollar  notional amounts)                 |                                                   |  |         |         |  |        |         |       |        |                       |                   |        |   |  |        |       |   |        |       |       |            |  |         |       |       |  |         |         |   |  |         |        
|                                               | Pay fixed rate                                    |  |         | 1,257.1 |  |        |         |      |        |                       |                   | 528.2  |   |  |        |      |   |        |       | 352.1 |            |  |         |      |       |  |         | 376.8   |   |  |         | (51.2   | )
|                                               | average fixed rate element                        |  |         |         |  |        |         |       |        |                       |                   | 6.6    | % |  |        |       |   |        |       | 6.7   | %          |  |         |       |       |  |         | 6.5     | % |  |         |         |  
|                                              
|                                               |                                                   |  | 3,348.6 |         |  |        |        |       |        |                       | 654.4             |        |   |  | 450.0  |       |   |        | 352.1 |       |            |  | 765.8   |       |       |  | 1,126.3 |         |   |  | (69.4   | )      
|                                              
|Cross currency swaps (notional amounts)        |                                                   |  |         |         |  |        |         |       |        |                       |                   |        |   |  |        |       |   |        |       |       |            |  |         |       |       |  |         |         |   |  |         |        
|                                               | Receive Swiss francs floating/pay
sterling fixed  |  |         | 257.7   |  |        |         |      |        |                       |                   | 257.7  |   |  |        |      |   |        |       |      |            |  |         |      |       |  |         |        |   |  |         | (66.8   | )
|                                               | average fixed rate element                        |  |         |         |  |        |         |       |        |                       |                   | 7.9    | % |  |        |       |   |        |       |       |            |  |         |       |       |  |         |         |   |  |         |         |  
|                                               | Receive Euro floating/pay
sterling floating       |  |         | 1,225.3 |  |        |         |      |        |                       |                   |       |   |  |        |      |   |        |       |      |            |  |         | 658.6 |       |  |         | 566.7   |   |  |         | (21.8   | )
|                                               | Receive sterling floating/pay US
dollars floating |  |         | 1,564.5 |  |        |         | 436.6 |        |                       |                   |       |   |  |        |      |   |        |       |      |            |  |         | 664.6 |       |  |         | 463.3   |   |  |         | (37.4   | )
|                                              
|                                               |                                                   |  | 3,047.5 |         |  |        | 436.6   |       |        |                       | 257.7             |        |   |  |       |       |   |        |      |       |            |  | 1,323.2 |       |       |  | 1,030.0 |         |   |  | (126.0  | )      
|                                              
|Other financial instruments (notional amounts) |                                                   |  |         |         |  |        |         |       |        |                       |                   |        |   |  |        |       |   |        |       |       |            |  |         |       |       |  |         |         |   |  |         |        
|                                               | Interest rate swaps to pay fixed rate             |  |         | 300.0   |  |        |         |      |        |                       |                   |       |   |  |        |      |   |        |       | 300.0 |            |  |         |      |       |  |         |        |   |  |         | (18.7   | )
|                                               | weighted average interest rate                    |  |         |         |  |        |         |       |        |                       |                   |        |   |  |        |       |   |        |       | 8.3   | %          |  |         |       |       |  |         |         |   |  |         |         |  
|                                               | Interest rate swaps to receive fixed rate         |  |         | 300.0   |  |        |         |      |        |                       |                   |       |   |  |        |      |   |        |       | 300.0 |            |  |         |      |       |  |         |        |   |  |         | (2.1    | )
|                                               | weighted average interest rate                    |  |         |         |  |        |         |       |        |                       |                   |        |   |  |        |       |   |        |       | 5.5   | %          |  |         |       |       |  |         |         |   |  |         |         |  
|                                               | Foreign exchange deals (sterling/US dollar)       |  |         | 436.6   |  |        |         | 436.6 |        |                       |                   |       |   |  |        |      |   |        |       |      |            |  |         |      |       |  |         |        |   |  |         | (4.7    | )
|                                               | Foreign exchange deals (sterling/AUS dollar)      |  |         | 10.4    |  |        |         | 10.4  |        |                       |                   |       |   |  |        |      |   |        |       |      |            |  |         |      |       |  |         |        |   |  |         | (0.3    | )
|                                               | Commodity swap contracts                          |  |         | 407.9   |  |        |         |      |        |                       |                   | 79.6   |   |  |        | 78.0  |   |        |       | 78.0  |            |  |         | 77.2  |       |  |         | 95.1    |   |  |         | 407.9   |  
|                                              



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

25




prevailing rates for the appropriate currency and comprise £89.8 million of
sterling deposits, £120.3 million, of US dollar deposits and £2.5 million of
other currencies.

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

Currency risk

Although foreign currency transaction exposures relating to cross-border
trading activity remain very limited, the policy of the Group is to hedge all
exposures exceeding $500,000 through the use of forward foreign exchange
contracts. The principal currency risk to which the Group is exposed arises
from the translation of assets and liabilities not denominated in sterling. In
general, the policy has been to hedge the balance sheet exposure through
currency borrowings, currency swaps or forward foreign exchange deals to the
extent of the original cost of the investment, or carrying value if lower,
where this is material and where it is practical to do so in the light of costs
and availability of suitable financial instruments for the currency concerned.

The acquisition of Niagara Mohawk has increased the balance sheet exposure to
US dollar denominated assets. In view of the increased materiality of the US
dollar to the Group the policy has been reviewed and the objective since the
acquisition is to match the US dollar proportion of the Groups financial
liabilities to the proportion of its cash flow that arises in dollars and is
available to service those liabilities. This rebalancing was completed at the
time of the acquisition by closing existing cross-currency swaps and through
financing the cash portion of the acquisition price with a mixture of dollar
and sterling borrowings.

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

The currency composition of the Groups financial assets and liabilities is
shown in note 20 to the accounts.

Liquidity risk

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

In recent months, participants within the financial markets generally have
taken a keen interest in the risk of a sudden change in circumstances for
companies that could trigger a withdrawal of liquidity and access to funding.
The Group has reviewed all its borrowing and critical commercial contracts and
concluded that there is no risk of unintended trigger events. The Groups bank
facilities contain financial covenants appropriate to the size and nature of
the business and within which it will be able to operate. National Grids
capital markets bond issues contain no financial covenants and minimal
conditions that could trigger an early repayment.

Following the acquisition of Niagara Mohawk, the long term credit ratings of
National Grid were adjusted down one notch to stand at A from Standard &
Poors and A2 from Moodys. Its short term ratings are A1/P1. After the
announcement of the proposed merger with Lattice, Moodys have placed the
ratings on review for a possible downgrade. Standard & Poors have confirmed
their ratings. Certain other entities within the US and UK parts of the Group
are also rated. These ratings mean that the principal borrowing entities in the
Group should have ready access to the capital and bank markets for future
funding when necessary.

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

Credit risk

At 31 March 2002, National Grid had £212.6 million of cash and deposits. The
Group is exposed to the credit risk of counterparties to these investments and
to counterparties credit risk in respect of off-balance sheet derivative
financial instruments. The Groups policy is to select only counterparties with
high-quality credit ratings (namely long-term ratings of at least A/A3 or
short-term ratings of A1/P1 from Standard & Poors or Moodys respectively) and
to avoid excessive concentration of risk. It does not expect any counterparties
to fail to meet their obligations.

Commodity hedging

In the normal course of business, National Grid is party to derivatives
including indexed swap contracts, gas futures, electricity swaps, options and
oil commodity swaps that are principally used to manage commodity prices
associated with its natural gas and electricity delivery operations. These
financial exposures are monitored and managed as an integral part of National
Grids financial risk-management policy. At the core of this policy is a
condition that National Grid will engage in activities at risk only to the
extent that those activities fall within commodities and financial markets to
which it has a physical market exposure in terms and volumes consistent with
its core business. National Grid does not issue or intend to hold derivative
instruments for trading purposes.

As a result of the restructuring of the electricity industry in New York State
during 1999, Niagara Mohawk, which was acquired by National Grid on 31 January
2002, entered into indexed swap contracts that expire in June 2008, and a
further three swap contracts that expire in June and September 2003. These
contracts replaced the existing power purchase arrangements on terms and
conditions that were more favourable to Niagara Mohawk than that allowed under
the existing arrangements. These derivatives are not designated as hedging
instruments but are the subject of regulatory rulings that allow the gains and
losses to be passed on to customers.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Operating and financial review  Financial review continued

26




At 31 March 2002 National Grid has recorded liabilities of £407.9 million in
respect of these contracts and has recorded a corresponding regulatory asset.
The asset and liability will be amortised over the remaining term of the swaps
as nominal energy quantities are settled and will be adjusted as periodic
reassessments are made of energy prices. The expected maturity of these swap
contracts is shown in the table on page 24.

National Grid, through its acquisition of Niagara Mohawk, acquired New York
Mercantile Exchange (NYMEX) gas futures and fixed for floating electric swaps
that were considered hedges for accounting purposes. The level of activity in
these derivatives has been immaterial, and all of these contracts expired by 31
March 2002. However, National Grid may enter into such contracts, as necessary,
in the future.

National Grid, through its UK transmission operation, has entered into
electricity put options during 2001/02, pursuant to its requirement to
stabilise the electricity market in England and Wales through the operation of
NETA. The options are for varying terms but generally can be exercised
throughout the summer of 2002. National Grid has entered into these options so
that it has the ability to physically deliver electricity as required to meet
its obligations under the Transmission Licence. National Grid has not and does
not expect to enter into any significant derivatives in connection with its
NETA role.

Commitments and contingencies

National Grids commitments and contingencies outstanding at 31 March are
summarised in the table below:

|                                                           |  |      |         |  |      |  |         | 
|---------------------------------------------------------- |  | ---- | ------- |  | ---- |  | ------- | 
|                                                           |  | 2002 |         |  | 2001 | 
|                                                           |  | £m   |         |  | £m   | 
|                                                          
|Commitments                                                |  |      |         |  |      |  |         | 
|Future capital expenditure contracted
for but not provided |  |      | 360.8   |  |      |  | 396.8   | 
|Total operating lease commitments                          |  |      | 289.3   |  |      |  | 77.5    | 
|Power commitments                                          |  |      | 7,312.0 |  |      |  | 4,414.2 | 
|                                                          
|                                                           |  |      | 7,962.1 |  |      |  | 4,888.5 | 
|                                                          
|Contingencies                                              |  |      |         |  |      |  |         | 
|Guarantees and performance bonds                           |  |      | 54.7    |  |      |  | 102.2   | 
|                                                          

It is expected that National Grids commitments will be met from the Groups
operating cash flows and from existing credit facilities as necessary. Details
of the nature of the commitments and contingencies, including an analysis of
the ageing of commitments, is shown in note 29 to the accounts on page 73. Note
29 to the accounts also gives additional information regarding the Groups
share of the future capital expenditure contracted for but not provided of an
associate and joint ventures.

In addition to the above, regulatory authorities from Rhode Island, New
Hampshire and Massachusetts have expressed an intent to challenge the
reasonableness of a transaction entered into by National Grid, in connection
with the sale of its interest in the Millstone 3 nuclear unit. Further details
of the nature of this intent are contained in note 29 to the accounts on page
73.

The Group has also received notification of an air pollution violation
regarding the operation of two coal-fired generation plants, formerly owned by
Niagara Mohawk. As a consequence, the Group has been notified that regulatory
authorities are seeking substantial fines against the Group and the current
owners of these generation plants. It is the Groups position that pollution
control equipment costs should be borne by the current operator of these
plants. Further details of this litigation are contained within note 29 to the
accounts on page 74.

Critical accounting policies

The Group accounts are prepared in accordance with UK GAAP, which are described
on pages 42 and 43 to the accounts. Management are required to make estimates
and assumptions that may affect the reported amounts of assets, liabilities,
revenue, expenses and the disclosure of contingent assets and liabilities in
the accounts. The following matters are considered to have a critical impact on
the accounting policies adopted by the Group.

Estimated asset economic livesThe adoption of particular asset economic lives
in respect of goodwill and tangible fixed assets can materially affect the
reported amounts for goodwill amortisation and depreciation of tangible fixed
assets.

Impairment of fixed assetsGoodwill, fixed asset investments and tangible fixed
assets are reviewed for impairment in accordance with UK GAAP. Future events
could cause these assets to be impaired, resulting in an adverse affect on the
future results of the Group.

Regulatory assetsRegulatory assets are recorded in the accounts in accordance
with the principles of SFAS 71 Accounting for the Effects of Certain Types of
Regulation. If the principles of SFAS 71 were not applicable, this would
result in the non-recognition of these assets, and thereby materially alter the
view given by the accounts.

TurnoverTurnover includes an assessment of energy supplied to customers
between the date of the last meter reading and the year-end. Changes to the
estimate of the energy supplied during this period would have an impact on the
reported results of the Group.

Pensions and other post-retirement benefitsThe cost of providing pensions and
other post-retirement benefits is charged to the profit and loss account on a
systematic basis over the service lives of the employees in the scheme in
accordance with current UK GAAP.As explained in note 7 to the accounts on page
53, a new UK accounting standard will replace existing GAAP and significantly
change the measurement and disclosure of pension and other post retirement
costs in the Group accounts.

Related party transactions

National Grid provides services to and receives services from its associate and
joint ventures. In the year ended 31 March 2002, National Grid charged £41.6
million and received charges of £57.8 million from its associate and joint
ventures. Amounts charged to and by the associate, Energis, amounted to £38.1
million and £17.8 million respectively. Amounts charged to Energis were
primarily in respect of enhancements to and maintenance of the Energis telecoms
infrastructure, whilst amounts charged by Energis relate to telecoms services
provided. Amounts charged to Energis also include £9.0 million in respect of a
finance lease.

At 31 March 2002, investments in the associate and certain joint ventures were
impaired. As a result, the investments in



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National Grid Annual Report and Form 20-F 2001/02

27




Energis plc, Energis Polska Sp. z.o.o., JVCO Participacoes Ltda (the holding
company for Intelig), Manquehue net S.A. and Silica Networks S.A. now have a
carrying value of £nil. In addition, the Group has recognised obligations
related to the impairment of these investments amounting to £186.0 million.
Details of the exceptional charges arising from these impairments is shown in
note 4 to the accounts on page 51.

Amounts due to and from the associate and joint ventures are shown in notes 15
and 17 to the accounts on pages 59 and 60 respectively.

Changes and developments

The acquisition of Niagara Mohawk has given rise to a major change in overall
Group debt and in the currency mix of the Groups businesses. During the year
there has been a significant lengthening of the maturity profile of the Groups
borrowing portfolio, in part due to the inclusion of Niagara Mohawks existing
debt. In addition, short term bank borrowings were replaced by longer-term
funding from the bond markets with a £600 million issue by The National Grid
Company plc, 2,000 million issue by NGG Finance plc, guaranteed by National
Grid, and a $300 million issue by Niagara Mohawk Power Corporation prior to it
joining the Group. A new $2,300 million syndicated bank facility was
established for National Grid, maturing in 2004 and 2006, and a $2,000 million
US dollar commercial paper was launched. Immediately prior to the year end,
Niagara Mohawk effected early redemption of $393 million of its preferred stock
and $119 million of its first mortgage bonds using the strong cash position of
National Grid USA to finance this.

Any significant changes and developments that have occurred since 31 March
2002, have been noted within this Annual Report and Form 20-F 2001/02.
Otherwise there have been no significant changes or developments since 31 March
2002.

Going concern

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

US GAAP

The accounts have been prepared in accordance with UK GAAP which differ in
certain significant respects to US GAAP. The US accounting information in note
32 on page 75 gives a summary of the principal differences between the amounts
determined in accordance with National Grids accounting policies (based on UK
GAAP) and those determined in accordance with US GAAP together with
reconciliations of net income and equity shareholders funds from a UK GAAP
basis to a US GAAP basis.

Net loss for 2001/02 under US GAAP was £163.1 million (2000/01: £810.3 million
(net profit); 1999/2000 £1,009.8 million (net profit)) compared with a net loss
of £493.3 million (2000/01: £664.2 million (net profit); 1999/2000: £1,122.0
million (net profit)) under UK GAAP. Equity shareholders funds under US GAAP
at 31 March 2002 were £3,759.0 million (31 March 2001: £2,920.0 million)
compared with £3,196.6 million (31 March 2001: £2,673.5 million) under UK GAAP.
The differences primarily result from the differing accounting treatments in
respect of goodwill, severance and integration costs, pensions, recognition of
income, financial instruments and the carrying value of the EPICs liability.

During 2001/02 National Grid adopted the following US GAAP accounting
standards:



| |  | SFAS 133 Accounting for Derivative Instruments and
Hedging Activities;
|- |  | ------------------------------------------------------------------------
| 
| |  | SFAS 141 Business Combinations; and                                   
| 
| |  | SFAS 142 Accounting for Goodwill and Other Intangible
Assets.         

Details of the effect of adopting these accounting standards can be seen in
note 32 to the accounts on page 82.

Inflation

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

Higher inflation would increase National Grid USAs cost base. However, if the
rate of inflation, as measured by the change in the Gross Domestic Product
Implicit Price Deflator, exceeds 4 per cent, the regulatory settlements in
Massachusetts and Rhode Island allow for additional distribution revenue to be
recovered from customers.

In recent years, inflation in the UK and US has been relatively stable and has
not significantly affected the period under review.

Seasonality

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

In respect of National Grid USA, some 53 per cent of the annual revenues of the
transmission and distribution businesses arise in the periods July-September
and December-February inclusive, reflecting seasonal peaks in demand for
electricity.

Euro

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



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02




Board of Directors

28




James Ross
Chairman and a member of the Nominations Committee
Appointed as a Director and Chairman of National Grid in 1999. He was chairman
of Littlewoods plc from 1996 until April 2002 and chief executive of Cable &
Wireless plc from 1992 to 1995. Prior to this he was a managing director of the
British Petroleum Company plc and chairman and chief executive officer of BP
America. He is a non-executive director of McGraw Hill and of Datacard; both
based in the United States, and of Schneider Electric based in France. Age 63.

Roger Urwin
Group Chief ExecutiveAppointed as a Director of National Grid and of National
Grid Company in 1995. Roger Urwin later became Chief Executive of National Grid
Company and was then appointed Group Chief Executive in 2001. Prior to this he
was chief executive of London Electricity plc, director of Engineering for
Midlands Electricity Board and also held a number of appointments within the
Central Electricity Generating Board. He is a non-executive director of The
Special Utilities Investment Trust PLC and TotalFinaElf Exploration UK plc and
is a fellow of the Royal Academy of Engineering. Age 56.

Stephen Box
Group Finance DirectorAppointed as a Director of National Grid and of National
Grid Company in August 1997. He was formerly with Coopers & Lybrand, where he
was a partner specialising in corporate finance. He is a non-executive director
of Energis plc and of Michael Page International PLC and a member of the
Financial Reporting Review Panel. Age 51.

Rick Sergel
Group Director, North AmericaAppointed as a Director of National Grid in 2000,
Rick Sergel is President, Chief Executive Officer and a Director of National
Grid USA. Prior to this he was president and chief executive officer of New
England Electric System (NEES) from 1998 until its acquisition by National
Grid. His previous positions with NEES include senior vice president in charge
of retail operations and unregulated ventures, vice president and treasurer. He
serves as chairman of the board of the distribution companies owned by National
Grid USA and is also a non-executive director of State Street Corporation. Age
52.

William Davis
Group Director and Chairman, National Grid USAAppointed as a Director of
National Grid and Chairman of National Grid USA in 2002. Prior to this, he was
chairman and chief executive of Niagara Mohawk from 1999 until its acquisition
by National Grid. William Davis joined Niagara Mohawk in 1990 and became
chairman and chief executive of Niagara Power Corporation in 1993. He was
previously an executive deputy commissioner with the New York State Energy
Office. He is a member of a number of boards and committees including The
Business Council of New York State, Inc., Edison Electric Institute, Energy
Association of New York, Utilities Mutual Insurance, Inc. and Syracuse
University. Age 60.

Steven Holliday
Group Director, UK and EuropeAppointed as a Director of National Grid and
Chief Executive of National Grid Company in 2001. Steven Holliday was formerly
an executive director of British Borneo Oil and Gas. Prior to this he spent 19
years with the Exxon Group, where he held senior positions in the operations
and business development areas. Age 45.

Edward Astle
Group Director, TelecommunicationsAppointed as a Director of National Grid in
2001. Edward Astle was managing director of BICC Communications from 1997 to
1999. Prior to this he spent eight years with Cable & Wireless, the last two on
the main board responsible for their international businesses. He is
non-executive chairman of 3G Lab Ltd and a nonexecutive director of Energis plc
andIntec TelecomSystems plc. Age 48.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

29




Bob Faircloth
Non-executive Director, Chairman of the Remuneration Committee and a member of
the Audit and Nominations Committees
Appointed as a Director of National Grid in 1995, Bob Faircloth was chief
operating officer and an executive director of BTR until 1995 and a
non-executive director until May 1998. Before joining BTR in 1980, Bob
Faircloth held technical and management posts, mainly in petrochemicals and
paper industries in Canada and Europe. He is engaged in international
management consulting with involvement with international banks, industrial
companies and government agencies. Age 65.

John Grant
Non-executive Director, Chairman of the Audit Committee and a member of the
Nominations and Remuneration Committees
Appointed as a Director of National Grid in 1995, John Grant is executive
chairman of Hasgo Group Limited and of Peter Stubs Limited. He was chief
executive of Ascot Plc from 1997 to June 2000, finance director of Lucas
Industries plc (subsequently Lucas Varity plc) from 1992 to 1996 and held a
number of senior executive positions during 25 years with Ford Motor Company,
including vice president, Ford of Europe, director of corporate strategy, Ford
USA and executive deputy chairman of Jaguar. He is also non-executive chairman
of Cordex Plc and a non-executive director of Torotrak plc and Corac Group Plc.
Age 56.

Bonnie Hill
Non-executive DirectorAppointed as a Director of National Grid in 2002. Prior
to this, she was a non-executive director of Niagara Mohawk from 1991 until its
acquisition by National Grid. Bonnie Hill is chair of the committee of
corporate public policy and environmental affairs and a member of both the
executive and compensation & succession committees. Prior to 2001, she was
president and chief executive officer of The Times Mirror Foundation and was
also senior vice president of the Los Angeles Times newspaper. She is involved
in a variety of civic, educational and community bodies and serves on the
boards of AK Steel Corporation, Hershey Foods Corporation and The Home Depot,
Inc. She is president of B.Hill Enterprises, LLC, a consulting firm, and chief
operating officer of Icon Blue, a brand marketing company. Age 60.

Fiona Smith
Company Secretary and General CounselAppointed in 1996, Fiona Smith has been
with National Grid since 1990 holding a number of positions within the legal
team. Prior to this, she was a solicitor working both in private practice and
then for South of Scotland Electricity Board. Age 43.

Paul Joskow
Non-executive Director and a member of the Audit Committee
Appointed as a Director of National Grid in 2000, Paul Joskow was a director of
New England Electric System (NEES) from 1987 until its acquisition by National
Grid. He is a Professor of Economics and Management at the Massachusetts
Institute of Technology (MIT), director of the MIT Centre for Energy and
Environmental Policy Research, research associate of the US National Bureau of
Economic Research and a fellow of the Econometric Society and of the American
Academy of Arts and Sciences. He is also a trustee of the Putman Mutual Funds
and a director of the Whitehead Institute of Biomedical Research. Age 54.

Richard Reynolds
Non-executive Director and a member of the Audit and Remuneration Committees
Appointed as a Director of National Grid in 1998, Richard Reynolds was a
director of GEC from 1986 to 1995, responsible for their telecommunications
interests. He is currently chairman of Wavionix Software Limited and is also a
non-executive director of G.B. Group plc. Age 63.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02




Directors report

30




The Directors of National Grid Group plc present their report and accounts for
the financial year ended 31 March 2002.

Incorporation of the Company

|                                                                                                                                   |  |                                                                                                                                               
|---------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|Original holding                                                                                                                   |  | New holding                                                                                                                                   
|company                                                                                                                            |  | company                                                                                                                                       
|                                                                                                                                  
|April 1990
originally incorporated under
the name The National Grid
Holding plc                                                    |  |                                                                                                                                               
|                                                                                                                                  
|November 1995
re-named The National Grid
Group plc                                                                                 |  |                                                                                                                                               
|                                                                                                                                  
|                                                                                                                                   |  | 11 July 2000
company incorporated as
Intercede 1610 Limited                                                                                   
|                                                                                                                                  
|27 July 2000
re-named National
Grid Group plc                                                                                      |  |                                                                                                                                               
|                                                                                                                                  
|                                                                                                                                   |  | 30 August 2000
changed its name
to New National
Grid Limited                                                                                  
|                                                                                                                                  
|                                                                                                                                   |  | 29 November 2000
became New National
Grid plc                                                                                                 
|                                                                                                                                  
|31 January 2002
following a Scheme of
Arrangement became a
subsidiary within the Group
and re-named National
Grid Holdings One plc |  | 31 January 2002
following a Scheme of
Arrangement became the new
holding company for the
Group and changed its name
to National Grid Group plc
|                                                                                                                                  

Ordinary shares in the original holding company were admitted to the Official
List of the London Stock Exchange in December 1995. Ordinary shares in the new
holding company were admitted to trading on 1 February 2002. The Secretary of
State for Trade and Industry holds a Special Share in National Grid, further
details of which are given in note 22 to the accounts.

National Grids American Depositary Shares were listed on the New York Stock
Exchange on 7 October 1999. In March 2000, National Grid was registered as a
holding company under the US Public Utility Holding Company Act of 1935.

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

Financial results

The financial results of the Group are set out on pages 17 to 27 of this
document.

Dividends

An interim dividend of 6.46 pence net per ordinary share was paid on 15 January
2002 to shareholders who were on the share register on 30 November 2001. The
Directors are recommending a final dividend for 2001/02 of 9.58 pence net per
ordinary share. Subject to approval by shareholders at the Annual General
Meeting, the final dividend will be paid on 15 August 2002 to shareholders on
the share register on 7 June 2002 and will bring the total ordinary dividend
for the year to 16.04 pence net per ordinary share.

Share capital

Changes in National Grids share capital during the year are set out in note 22
to the accounts.

Substantial shareholdings

As at 29 May 2002, National Grid had been notified of the following interests
in 3 per cent or more of its issued share capital:

|                                  |  |  |      | 
|--------------------------------- |  |  | ---- | 
|                                 
|The Capital Group Companies, Inc. |  |  | 8.10 | 
|HSBC Investment Bank plc*         |  |  | 3.17 | 
|Deutsche Bank AG London*          |  |  | 3.15 | 
|Prudential plc                    |  |  | 3.10 | 
|                                 

*National Grid has been notified that HSBC Investment Bank plc, Deutsche Bank
AG London and Credit Suisse First Boston Equities Limited have each hedged
their economic risk to National Grid shares pursuant to structured derivative
transactions entered into with the Olayan Group. As a result of these
transactions, the Olayan Group has an economic exposure to some 9.09 per cent
of National Grids issued shares.


No further notifications have been received.

Directors

The names of the Directors of National Grid, with brief biographical details,
are given on pages 28 and 29. At no time during the year has any Director had
any material interest in a contract within the Group, being a contract of any
significance in relation to the Groups business. Details of the Directors
remuneration, terms and conditions of service and interests in National Grid
shares are given on pages 34 to 38 of this document.

Employment policies

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

All operating companies within the Group are required to build and maintain
good standards of employment practice appropriate to the culture and
legislative requirements in each country of operation.

In the UK, applications for employment from disabled people are welcomed and
given full and fair consideration. If any employee becomes disabled, every
effort is made to continue their employment, including retraining.

In the US, National Grid is committed to making reasonable accommodation for
known physical or mental limitations of qualified individuals with
disabilities. Reasonable accommodation is based on various factors including,
but not limited to, the nature and cost of the accommodation and the impact of
the accommodation on the operation of the facility, including its impact on the
ability to conduct business.

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

National Grid operates equity participation arrangements for employees,
including Sharesave in the UK. Almost all US employees are investors in
National Grid through the employee incentive thrift plans.



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National Grid Annual Report and Form 20-F 2001/02

31




Pensions litigation

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

Research and development

Expenditure on research and development in 2001/02 was £6.2 million compared
with £8.1 million 2000/01 and £7.8 million in 1999/2000.

Payments to suppliers

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

The average creditor payment period at 31 March 2002 for The National Grid
Company plc, the principal UK operating company within the Group, was 35 days
(at 31 March 2001: 28 days).

Donations

In the UK, charitable donations of £179,300 were made in 2001/02. In addition
to this contribution to charitable organisations via the Charities Aid
Foundation, National Grid provides financial and in-kind support to many other
organisations through its community involvement programme.

In the US, charitable donations of $3,153,505 were made in 2001/02.

No donations were made in the UK and EU for the purposes of the Political
Parties, Elections and Referendums Act 2000.

Auditors

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

Annual General Meeting

National Grids Annual General Meeting will be held on Tuesday 23 July 2002.
Details are set out in a separate Notice of Annual General Meeting.

On behalf of the Board

Fiona B Smith
Group General Counsel and Company Secretary
29 May 2002

Registered Office: 15 Marylebone Road, London NW1 5JD
Registered in England and Wales No. 4031152



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02




Directors report  Corporate governance

32




Corporate governance is the system by which companies are directed and
controlled.

UK listed companies are required to include a statement on corporate governance
in their annual reports. This statement must include a narrative statement on
how the principles of the Combined Code have been applied and whether or not
the company has complied throughout the year with all of the provisions set out
in the Combined Code. The Combined Code is appended to the Listing Rules of the
UK Listing Authority.

The following statement sets out how National Grid approaches the issue of
corporate governance.

Code of Business Practice

To ensure effective corporate governance within National Grid a Code of
Business Practice was established. This Code was constructed around the
Principles of Good Governance contained in the Combined Code. To help ensure
consistent practice Group Wide Policy Statements were also introduced. These
provide guidance for management and staff throughout the Group on the
principles, controls and codes of conduct that have been established.

Compliance with the Principles

UK listed companies are also required to state in their annual report if they
have complied throughout the year with all of the detailed provisions of the
Combined Code. If they have not they must explain why.

National Grid has complied with all of the provisions of the Combined Code
throughout the year except for that requiring the appointment of a senior
non-executive director. National Grid considers that the independent
Non-executive Chairman is the appropriate point of contact for shareholders
with concerns about the management of the Group, and for this reason does not
think it necessary to appoint a separate senior non-executive director.

Directors

National Grid has a separate independent Non-executive Chairman. The Group
Board consists of the Chairman, the Group Chief Executive and also includes
five other Executive Directors and five independent Non-executive Directors.
The Board meets at least eight times a year, holding additional meetings when
necessary. The Board must approve certain decisions such as the start-uporthe
acquisition of a new company or any activity in a new territory. The Board also
monitors environmental and safety matters throughout the Group.

Board members each receive regular and ad hoc reports about Group activities
and have the right and duty to make further enquiries if they think it
necessary.

The Board has established a Nominations Committee which recommends the
reappointment of existing directors and selects and proposes the appointment of
new directors to the Board.

Any new Director to the Board must retire at the first AGM following their
appointment and seek reappointment by the shareholders. National Grids
Articles of Association also require that each Director must retire and seek
reappointment by shareholders at least once every three years.

Directors remuneration

National Grid has a Remuneration Committee comprising three independent
Non-executive Directors. Their aim is to design packages to attract, retain and
motivate high calibre directors. The Committee understands it is important both
to link reward to performance and to use a range of incentives. The Directors
report on Remuneration on pages 34 to 38 includes National Grids policy on
remuneration and the details of the remuneration of each Director.

Relations with shareholders

National Grid has regular meetings with institutional investors, fund managers
and financial analysts to ensure that its aims are understood. National Grid is
also seeking discussions with its investors on topics such as corporate
governance and sustainability.

National Grids AGM each year includes a presentation of the years financial
results and allows time for questions from shareholders. Directors also discuss
relevant matters with shareholders both before and after the meeting.

Accountability and audit

The Directors are responsible for making sure that the annual report and the
accounts give a balanced and understandable presentation of the Groups
position and prospects.

The Audit Committee considers the scope and extent of internal audit and
reports annually to the Board on this function. The Audit Committee meets at
least four times a year and the Group Chief Executive and Group Finance
Director are invited to attend. The Committee has at least one private meeting
with the external auditors with management excluded. The Committee also
considers the re-appointment of the auditors each year.

The Audit Committee has the specific task of keeping under review the nature
and extent of non-audit services provided by the external auditors in order to
ensure that a proper balance is maintained between objectivity and value for
money. The Audit Committee has reviewed the auditors remuneration set out in
note 3 to the accounts on page 51 and is satisfied that it is proper and
reasonable, having regard to the following considerations:



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



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National Grid Annual Report and Form 20-F 2001/02

33




Internal control

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

The Board confirms that there is an ongoing process for identifying, evaluating
and managing the significant risks faced by the Group and that it has been in
place throughout the year and continues in operation to date. This process
accords with the Turnbull working party guidance (published September 1999) and
with the ABI Disclosure Guidelines on Socially Responsible Investment
(published October 2001) which focus on Social, Ethical and Environmental
risks.

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

The ongoing process for identifying, evaluating and managing significant risks
promotes, where practicable, both a top-down and bottom-up assessment of risk.



| |  | The top-down assessment has involved the Executive
Directors and has resulted in a balanced and robust
identification and consideration of cross-organisation
risk themes.                 
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The bottom-up assessment has been undertaken as part
of the business planning cycle and has resulted in a
detailed analysis of specific risk areas captured in the
form of a risk register.

Subsequently, both elements have been pulled together through the production of
a Schedule of Board-level risks. This Schedule has been considered and endorsed
by the Audit Committee.

Any material changes to the risks and associated actions contained in the
Schedule of Board-level risks and business risk registers are reported through
the periodic reporting process. In addition, quarterly meetings are held with
Executive Directors specifically to review and discuss key changes in risk
profiles.

Recognising that the implementation of risk management is an iterative process
and subject to continuing improvement, we continue to raise risk and control
awareness and embed good risk management principles throughout the expanding
Group. In December 2001, a dedicated risk management intranet site was rolled
out within the UK. This site will soon be housed on a Group extranet, thereby
making it accessible to the rest of the organisation. Throughout the year,
contact was made with a number of UK listed companies in order to share best
practices and challenge our understanding of concepts such as risk bearing
capacity and tolerance. Progress has continued to be monitored by a risk
steering group chaired by the Group General Counsel and Company Secretary.

Our plans for the year ahead are being formed. Two key actions are noted below.



| |  | We will integrate the process for identifying, evaluating
and managing risk within the US business we acquired
in January 2002 (Niagara Mohawk in New York).                                                              
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | We are taking steps to raise the visibility around our
existing compliance activities and to report material
compliance obligations and associated management
controls to the Executive Directors and the Audit
Committee.

The Board, through the Group Executive Committee and Audit Committee, regularly
reviews the effectiveness of internal control, including the process for
identifying, evaluating and managing significant risks, through the assurance
mechanisms shown below. Any material matters arising are reported to the Board.

Throughout the year

Group Executive Committee considers:



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

Audit Committee considers:



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

At the end of each financial year

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



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

Audit Committee considers:
Specific reports on:



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



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National Grid Annual Report and Form 20-F 2001/02




Directors report  Remuneration

34




Composition and role of the Remuneration Committee

The Remuneration Committee consists exclusively of independent Non-executive
Directors. It is chaired by Bob Faircloth, and its other members are John Grant
and Richard Reynolds.

The Remuneration Committee is responsible for determining all aspects of
Executive Directors compensation, drawing on advice from both external
independent remuneration consultants (New Bridge Street Consultants and Towers
Perrin) and internal expertise. The Non-executive Chairman and the Group Chief
Executive are invited to attend meetings to provide strategic advice on the
impact of remuneration policies, but neither participate in any discussion on
their own remuneration.

The Board has accepted all of the Remuneration Committees recommendations made
throughout the year.

The Remuneration Committee has decided, with the approval of the Board, to put
the Remuneration Committee Statement to a shareholder vote at the Annual
General Meeting.

At the Extraordinary General Meeting on 23 July 2002 shareholders will be asked
to approve a new Performance Share Plan which may form part of National Grid
Transcos senior level remuneration strategy going forwards. The new Plan,
combined with National Grids existing incentive plans, will provide the new
Remuneration Committee with the flexibility to incentivise Executive Directors
and other senior executives to deliver exceptional company results through a
range of stretching performance-related plans. Further details of the proposed
National Grid Lattice Performance Share Plan 2002 are included in the Notice of
Extraordinary General Meeting.

Remuneration policy

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

Executive Directors remuneration

Remuneration packages for Executive Directors consist of the following
elements:

Base salaryBase salaries are reviewed annually taking account of the median
market position (against businesses of a similar size and complexity) and
business and personal performance. Account is also taken of salary increases
and employment conditions across the Group.

IncentivesThe Remuneration Committee recognises the importance of linking
rewards to business and personal performance and considers that the following
incentive arrangements provide a balance between short and long term incentives
for National Grid:



| |  | annual bonus:a non-pensionable annual cash bonus of
up to a maximum of 60 per cent of base salary can be paid
to UK-based Executive Directors for the achievement
of demanding financial, personal and quality of service
targets. Rick Sergel and William Davis have a lower
annual cash bonus maximum payment of 50 per cent of
salary. Rick Sergel also participates in the National Grid
USA Goals Program, an all-employee bonus plan that can
pay up to 4.5 per cent of base salary on the achievement of
certain earnings and performance targets. In line with US
market practice, Rick Sergels and William Davis cash
bonuses are pensionable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | share matching plan:UK-based Executive Directors can
invest a pre-determined part of any bonus in National Grid
shares in return for receiving a matching award under this
plan. Currently, UK-based Executive Directors are required
to invest one-third of any annual cash bonus into this plan.
At the end of three years (provided the Director is still
employed and has retained the shares purchased from
bonus) additional shares equal in number to the pre-tax
value of the invested shares will be released to the
individual. The participant will also receive a cash
payment equal to the dividends that have been paid on the
shares over the three year holding period. US executives,
including Rick Sergel and William Davis, participate in
this plan on a slightly different basis, in that an award
calculated as a proportion of their cash annual bonus
(60 per cent in the case of Rick Sergel and William Davis)
is paid under this plan in National Grid shares or
American Depositary Shares (ADSs) subject to a minimum
three-year vesting period. For both UK and US based
Directors, the combination of annual cash bonus payments
and deferred Share Match awards is an effective annual
bonus maximum payment of 80 per cent of base salary.        
| 
| |  | executive share options:the National Grid Executive Share
Option Plan 2002 permits market value executive share
options to be granted to a maximum value of 3 times base
salary per annum. Grants of a greater value may be made in
exceptional circumstances such as the appointment of a
new Executive Director. At this time, the Remuneration
Committee considers that the maximum market value of
shares which will normally be placed under option to any
UK-based individual in any 12 month period will be 1.5
times the individuals base salary. The exercise of executive
share options granted during the year is subject to National
Grids total shareholder return (TSR) relative to that of a
group of approximately 20 UK and US utility companies,
over a period of at least three years. Options up to the
value of an individuals base salary become exercisable in
full if National Grids TSR is at least median. Options in
excess of one times base salary are exercisable on a sliding
scale and are only exercisable in full if National Grids
TSR is in the upper quartile of the comparator group.
If not fully satisfied on the third anniversary, the condition
may be retested, from the same base, on the fourth and
fifth anniversaries of grant.
| 
| 
| |  | Sharesave:Executive Directors resident in the UK are
eligible to participate in all-employee Sharesave schemes
(subject to eligibility based on service).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| 
| |  | US Incentive Thrift Plan:Rick Sergel and William Davis
participate in a tax-advantaged savings plan (commonly
referred to as a 401(k) plan) provided for employees of
National Grid USA. Employees who contribute 6 per cent
or more of their base salary are provided with an employer
matching contribution based upon fixed formulae. The
formulae vary between certain employee groups. Rick
Sergel is eligible to receive an employer match of 5 per
cent of his base salary and William Davis is eligible to                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



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National Grid Annual Report and Form 20-F 2001/02

35






| |  | receive an employer match of 3 per cent of his base salary under the plan.
There are Federal limits on the amount of pre-tax contributions an employee
can make into the plan as well as the amount of compensation that can be used
to calculate benefits under the plan.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Rick Sergel and William Davis participate in a qualified pension plan and an
executive supplemental retirement plan provided through National Grid USA.
These plans are non-contributory defined benefit arrangements. Rick Sergels
benefit is calculated using formulae based upon years of service and highest
average compensation over five consecutive years. William Daviss benefit is
under a cash balance arrangement that credits employer contributions during
each year of employment in an amount based upon service time and compensation.
In addition, cash balances receive annual earnings credits. William Davis is
entitled to a minimum benefit which is calculated using a formula based upon
years of service and highest average compensation over five consecutive years.
In line with many US plans, the calculation of benefits under the arrangements
applicable to Rick Sergel and William Davis generally take into account salary,
bonuses and incentive share awards, but not share options. Normal retirement
age is 65. Pursuant to the executive supplemental plan, however, unreduced
benefits may be payable at age 55. The plans also provide for a spouses
pension, the value of which is based upon the participants benefit at death.
Benefits under these arrangements do not increase after commencement upon
retirement.

Directors remuneration

The remuneration of individual Directors for the year ended 31 March 2002 is
set out below:

|                         |  |          |       |  |        |   |     |          |  |  |         |                     |                  |         |       |  |  |  |       | 
|------------------------ |  | -------- | ----- |  | ------ | - | --- | -------- |  |  | ------- | ------------------- | ---------------- | ------- | ----- |  |  |  | ----- | 
|                         |  | Base     |       |  |        |   |     |          |  |  |         |                     | Total emoluments |        
|                         |  | salary   |       |  | Annual |   |     |          |  |  |         | (excluding pension) |                 
|                         |  | and fees |       |  | bonus  | 1 |     | Benefits |  |  | 2001/02 |                     |                  | 2000/01 |      
|                         |  | £000     |       |  | £000   |   |     | £000     |  |  | £000    |                     |                  | £000    |      
|                        
|Chairman                 |  |          |       |  |        |   |     |          |  |  |         |                     |                  |         |       |  |  |  |       | 
|James Ross               |  |          | 143   |  |        |   |    |          |  |  | 22      |                     |                  |         | 165   |  |  |  | 120   | 
|(Non-executive Director) |  |          |       |  |        |   |     |          |  |  |         |                     |                  |         |       |  |  |  |       | 
|                        
|Executive Directors      |  |          |       |  |        |   |     |          |  |  |         |                     |                  |         |       |  |  |  |       | 
|Roger Urwin              |  |          | 500   |  |        |   | 267 |          |  |  | 27      |                     |                  |         | 794   |  |  |  | 436   | 
|Edward Astle2            |  |          | 181   |  |        |   | 94  |          |  |  | 9       |                     |                  |         | 284   |  |  |  |      | 
|Stephen Box              |  |          | 350   |  |        |   | 155 |          |  |  | 27      |                     |                  |         | 532   |  |  |  | 455   | 
|William Davis3           |  |          | 83    |  |        |   | 54  |          |  |  | 2       |                     |                  |         | 139   |  |  |  |      | 
|Wob Gerretsen4           |  |          |      |  |        |   |    |          |  |  |        |                     |                  |         |      |  |  |  | 259   | 
|Steven Holliday5         |  |          | 270   |  |        |   | 146 |          |  |  | 28      |                     |                  |         | 444   |  |  |  | 1     | 
|David Jones6             |  |          |      |  |        |   | 35  |          |  |  |        |                     |                  |         | 35    |  |  |  | 665   | 
|Rick Sergel              |  |          | 486   |  |        |   | 224 |          |  |  | 18      |                     |                  |         | 728   |  |  |  | 620   | 
|                        
|Non-executive Directors  |  |          |       |  |        |   |     |          |  |  |         |                     |                  |         |       |  |  |  |       | 
|Bob Faircloth            |  |          | 42    |  |        |   |    |          |  |  |        |                     |                  |         | 42    |  |  |  | 30    | 
|John Grant               |  |          | 35    |  |        |   |    |          |  |  |        |                     |                  |         | 35    |  |  |  | 30    | 
|Bonnie Hill3             |  |          | 4     |  |        |   |    |          |  |  |        |                     |                  |         | 4     |  |  |  |      | 
|Paul Joskow              |  |          | 57    |  |        |   |    |          |  |  |        |                     |                  |         | 57    |  |  |  | 45    | 
|Richard Reynolds         |  |          | 55    |  |        |   |    |          |  |  |        |                     |                  |         | 55    |  |  |  | 50    | 
|                        
|Total                    |  |          | 2,206 |  |        |   | 975 |          |  |  | 133     |                     |                  |         | 3,314 |  |  |  | 2,711 | 
|                        

|1 |  | Total cash bonus paid includes amounts invested by Directors in the Share Match Scheme and in the case of Stephen Box,
an ex-gratia payment of £1,107 in respect of dividends on Matching Shares. For US Directors, the total cash paid does not include deferred share awards.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2 |  | Appointed to the Board on 1 September 2001.                                                                                                                                                                                                                                    
|3 |  | Appointed to the Board on 11 February 2002.                                                                                                                                                                                                                                    
|4 |  | Died on 19 October 2000.                                                                                                                                                                                                                                                       
|5 |  | Appointed to the Board on 30 March 2001.                                                                                                                                                                                                                                       
|6 |  | Resigned from the Board on 31 March 2001. During the year David Jones received ex-gratia payments of £35,353 in respect of dividends on
Matching Shares exercised.                                                                                                             

The total remuneration of Roger Urwin, the highest-paid Director during the
year, was £794,195 (2001: David Jones, £665,440).



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Directors report  Remuneration continued

36




Pension benefits earned by individual Executive Directors in 2001/02 were as
follows:

|                |  |          |    |  |               |      |    |             |      |            |                 |      |  |      |      |  |  |  |     | 
|--------------- |  | -------- | -- |  | ------------- | ---- | -- | ----------- | ---- | ---------- | --------------- | ---- |  | ---- | ---- |  |  |  | --- | 
|                |  |          |    |  |               |      |    |             |      | Increase   |                 |      |  |      |      |  |  | 
|                |  |          |    |  |               |      |    |             |      | to accrued |                 |      |  |      |      |  |  | 
|                |  |          |    |  |               |      |    |             |      | pension    |                 |      |  |      |      |  |  | 
|                |  | Age at   |    |  | Directors'    |      |    | during year |      |            | Accrued pension
|                |  | 31 March |    |  | contributions |      |    | (net of     |      |            | as at 31 March 
|                |  | 2002     |    |  | during year   |      |    | inflation)  |      |            | 2002            | 1    |  | 2001 |     
|                |  |          |    |  |               | £000 |    |             | £000 |            |                 | £000 |  |      | £000 | 
|               
|Roger Urwin     |  |          | 56 |  |               |      | 15 |             |      |            | 137             |      |  |      | 300  |  |  |  | 160 | 
|Edward Astle2   |  |          | 48 |  |               |      | 5  |             |      |            | 6               |      |  |      | 6    |  |  |  |    | 
|Stephen Box     |  |          | 51 |  |               |      | 11 |             |      |            | 17              |      |  |      | 54   |  |  |  | 36  | 
|William Davis3  |  |          | 60 |  |               |      |   |             |      |            |                |      |  |      | 458  |  |  |  |    | 
|Steven Holliday |  |          | 45 |  |               |      | 8  |             |      |            | 9               |      |  |      | 9    |  |  |  |    | 
|Rick Sergel     |  |          | 52 |  |               |      |   |             |      |            | 77              |      |  |      | 347  |  |  |  | 270 | 
|               

|1 |  | Accrued pension represents the pension that would be paid annually at age
60 if the Director resigned on 31 March 2002.                                                                                                                                                                                                      
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2 |  | Edward Astle was appointed to the Board in September 2001.                                                                                                                                                                                                                                                                   
|3 |  | William Davis was appointed to the Board in February 2002. As part of the
Niagara Mohawk acquisition, a lump sum of £6,265,202 was paid into the
Niagara Mohawks Supplemental Executive Retirement Plan, any future
pension benefits payable by National Grid shall be offset by the annuity
value of this lump sum payment.
|4 |  | Rick Sergels entitlement to accrued pension as at 31 March 2001 was
previously understated as £229,234. This error was due to not correctly
factoring in pensionable bonus payments.                                                                                                                                        

Non-cash benefitsThe Company provides competitive benefits such as a fully
expensed car or cash alternative in lieu of car, chauffeur, private medical
insurance, life assurance and long term ill-health insurance to the Executive
Directors.

US Executive Directors also receive financial counselling. Taxable benefits,
such as hotel expenses, have also been incurred by certain Executive
Directors
directly in relation to the relocation of the Groups head office.

Service contractsService contracts for Executive Directors are set at one
years notice. The application of longer contract periods at appointment,
reducing after an initial period, is considered appropriate by the Board to
recruit and retain key executives. In this regard, the initial periods of Rick
Sergels, Steven Hollidays and Edward Astles contracts were for fixed periods
of three, two and two years respectively. These terms reduce to one year
rolling from March 2002 for Rick Sergel and Steven Holliday, and from September
2002 for Edward Astle. William Davis contract is for a fixed period of two
years.

Share ownership guidelinesExecutive Directors are encouraged to build up and
retain a shareholding of one times annual base salary and that, as a minimum,
this should be achieved by retaining 50 per cent of the after tax gain on any
options exercised through the executive share plans.

Non-executive Directors remuneration

Non-executive Directors receive an annual fee of £30,000 with an additional
£5,000 payable for committee chairmanship. Richard Reynolds receives a fee of
£25,000 in respect of additional duties as a member of the Supervisory Board of
Intelig and Paul Joskow receives a fee of $30,000 in respect of strategic
advice he provides on regulatory issues to National Grid USA. A fee of £1,000
is paid for each Board meeting that Non-executive Directors attend outside of
their country of residence.

The Non-executive Chairman receives an annual fee of £175,000.

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



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

37




Directors interests in share options

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

|                |  |         |           |  |           |       |       |          |  |   |          |  |  |           |           |  |                        |           |        |           |           |           |           |           |  |  |  | 
|--------------- |  | ------- | --------- |  | --------- | ----- | ----- | -------- |  | - | -------- |  |  | --------- | --------- |  | ---------------------- | --------- | ------ | --------- | --------- | --------- | --------- | --------- |  |  |  | 
|                |  | Options |           |  | Options   |       |       | Options  |  |   | Options  |  |  | Exercise  |           |  |                        |           |        |           |           |           |          
|                |  | held at |           |  | exercised |       |       | granted  |  |   | held at  |  |  | price per |           |  |                        |           |        |           |           |           |          
|                |  | 1 April |           |  | during    |       |       | during   |  |   | 31 March |  |  | share     |           |  |                        |           |        |           |           |           |          
|                |  | 2001    |           |  | the year  |       |       | the year |  |   | 2002     |  |  | (pence)   |           |  | Normal Exercise period
|               
|Roger Urwin     |  |         |           |  |           |       |       |          |  |   |          |  |  |           |           |  |                        |           |        |           |           |           |           |           |  |  |  | 
|Executive       |  |         | 169,340   |  |           |       |      |          |  |   |         |  |  |           | 169,340   |  |                        |           | 280.50 |           |           | Sep 2000  |           | Sep 2007 
|                |  |         | 91,656    |  |           |       |      |          |  |   |         |  |  |           | 91,656    |  |                        |           | 375.75 |           |           | June 2001 |           | June 2008
|                |  |         | 22,098    |  |           |       |      |          |  |   |         |  |  |           | 22,098    |  |                        |           | 455.25 |           |           | June 2002 |           | June 2009
|                |  |         | 33,867    |  |           |       |      |          |  |   |         |  |  |           | 33,867    |  |                        |           | 531.50 |           |           | June 2003 |           | June 2010
|                |  |         |          |  |           |       |      |          |  |   | 133,214  |  |  |           | 133,214   |  |                        |           | 563.00 |           |           | June 2004 |           | June 2011
|               
|Share Match1    |  |         | 4,047     |  |           |       |      |          |  |   |         |  |  |           | 4,047     |  |                        | All-100.0 |        |           | June 2001 |           | June 2005
|                |  |         | 3,884     |  |           |       |      |          |  |   |         |  |  |           | 3,884     |  |                        | in total  |        |           | Jan 2002  |           | June 2006
|                |  |         | 3,859     |  |           |       |      |          |  |   |         |  |  |           | 3,859     |  |                        |           |        |           |           | Jan 2002  |           | June 2007
|                |  |         |          |  |           |       |      |          |  |   | 5,635    |  |  |           | 5,635     |  |                        |           |        |           |           | June 2004 |           | June 2008
|               
|Sharesave       |  |         |          |  |           |       |      |          |  |   | 3,692    |  |  |           | 3,692     |  |                        |           | 457.00 |           |           | Sep 2006  |           | Feb 2007 
|               
|Total           |  |         | 328,751   |  |           |       |      |          |  |   | 142,541  |  |  |           | 471,292   |  |                        |           |        |           |           |           |           |           |  |  |  | 
|               
|Edward Astle    |  |         |           |  |           |       |       |          |  |   |          |  |  |           |           |  |                        |           |        |           |           |           |           |           |  |  |  | 
|Executive       |  |         |          |  |           |       |      |          |  |   | 193,952  |  |  |           | 193,952   |  |                        |           | 479.50 |           |           | Sep 2004  |           | Sep 2011 
|               
|Total           |  |         |          |  |           |       |      |          |  |   | 193,952  |  |  |           | 193,952   |  |                        |           |        |           |           |           |           |           |  |  |  | 
|               
|Stephen Box     |  |         |           |  |           |       |       |          |  |   |          |  |  |           |           |  |                        |           |        |           |           |           |           |           |  |  |  | 
|Executive       |  |         | 160,427   |  |           |       |      |          |  |   |         |  |  |           | 160,427   |  |                        |           | 280.50 |           |           | Sep 2000  |           | Sep 2007 
|                |  |         | 93,147    |  |           |       |      |          |  |   |         |  |  |           | 93,147    |  |                        |           | 375.75 |           |           | June 2001 |           | June 2008
|                |  |         | 43,931    |  |           |       |      |          |  |   |         |  |  |           | 43,931    |  |                        |           | 455.25 |           |           | June 2002 |           | June 2009
|                |  |         | 37,630    |  |           |       |      |          |  |   |         |  |  |           | 37,630    |  |                        |           | 531.50 |           |           | June 2003 |           | June 2010
|                |  |         |          |  |           |       |      |          |  |   | 93,250   |  |  |           | 93,250    |  |                        |           | 563.00 |           |           | June 2004 |           | June 2011
|               
|Share Match1    |  |         | 2,955     |  |           | 2,955 | 2     |          |  |  |          |  |  |          |           |  | All-100.0              |           |        | June 2001 |           | June 2005
|                |  |         | 3,844     |  |           |       |      |          |  |   |         |  |  |           | 3,844     |  |                        | in total  |        |           | Jan 2002  |           | June 2006
|                |  |         | 4,122     |  |           |       |      |          |  |   |         |  |  |           | 4,122     |  |                        |           |        |           |           | Jan 2002  |           | June 2007
|                |  |         |          |  |           |       |      |          |  |   | 6,134    |  |  |           | 6,134     |  |                        |           |        |           |           | June 2004 |           | June 2008
|               
|Sharesave       |  |         | 3,125     |  |           | 3,125 | 3     |          |  |  |          |  |  |          |           |  |                        | 312.00    |        |           | Sep 2001  |           | Feb 2002 
|               
|Total           |  |         | 349,181   |  |           |       | 6,080 |          |  |   | 99,384   |  |  |           | 442,485   |  |                        |           |        |           |           |           |           |           |  |  |  | 
|               
|Steven Holliday |  |         |           |  |           |       |       |          |  |   |          |  |  |           |           |  |                        |           |        |           |           |           |           |           |  |  |  | 
|Executive       |  |         | 150,000   |  |           |       |      |          |  |   |         |  |  |           | 150,000   |  |                        |           | 540.00 |           |           | Mar 2004  |           | Mar 2011 
|                |  |         |          |  |           |       |      |          |  |   | 71,936   |  |  |           | 71,936    |  |                        |           | 563.00 |           |           | June 2004 |           | June 2011
|               
|Share Match1    |  |         |          |  |           |       |      |          |  |   |         |  |  |           |          |  |                        |           |        |           |           |           |           |           |  |  |  | 
|               
|Sharesave       |  |         |          |  |           |       |      |          |  |   | 3,692    |  |  |           | 3,692     |  |                        |           | 457.00 |           |           | Sep 2006  |           | Feb 2007 
|               
|Total           |  |         | 150,000   |  |           |       |      |          |  |   | 75,628   |  |  |           | 225,628   |  |                        |           |        |           |           |           |           |           |  |  |  | 
|               
|Rick Sergel     |  |         |           |  |           |       |       |          |  |   |          |  |  |           |           |  |                        |           |        |           |           |           |           |           |  |  |  | 
|Executive       |  |         | 201,845   |  |           |       |      |          |  |   |         |  |  |           | 201,845   |  |                        |           | 566,50 |           |           | Mar 2003  |           | Mar 2010 
|                |  |         |          |  |           |       |      |          |  |   | 134,321  |  |  |           | 134,321   |  |                        |           | 563.00 |           |           | June 2004 |           | June 2011
|               
|Share Match1    |  |         |          |  |           |       |      |          |  |   |         |  |  |           |          |  |                        |           |        |           |           |           |           |           |  |  |  | 
|               
|Thrift Plans    |  |         |          |  |           |       |      |          |  |   |         |  |  |           |          |  |                        |           |        |           |           |           |           |           |  |  |  | 
|               
|Total           |  |         | 201,845   |  |           |       |      |          |  |   | 134,321  |  |  |           | 336,166   |  |                        |           |        |           |           |           |           |           |  |  |  | 
|               
|               
|Total           |  |         | 1,029,777 |  |           |       | 6,080 |          |  |   | 645,826  |  |  |           | 1,669,523 |  |                        |           |        |           |           |           |           |           |  |  |  | 
|               

|1 |  | Share Match options granted during the year relate to the annual bonus paid for the financial year ended 31 March 2001. As a result of the Scheme of
Arrangement, Share Match Options awarded in 1999 and 2000 became exercisable on 31 January 2002.               
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2 |  | The closing mid-market price of an ordinary share in National Grid on 30 July 2001, the date on which Stephen Box exercised his Share Match grant,
was 464.0 pence. Stephen Box retained his residue of the shares after payment of tax.                            
|3 |  | The closing mid-market price of an ordinary share in National Grid on 3 September 2001, the date on which Stephen Box exercised his Sharesave options,
was 475.5 pence. Stephen Box retained the shares.                                                            
|4 |  | The aggregate gain on the exercise of share options by Directors during the year was £19,162.                                                                                                                                                                       
|5 |  | The closing mid-market price of an ordinary share in National Grid on 28 March 2002, the last day of trading in the 2001/02 financial year, was 463.3 pence. The
range during the period 1 April 2001 to 31 March 2002 was 581.0 pence (high) and 417.3 pence (low).



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Directors report  Remuneration continued

38




At the completion of the Niagara Mohawk acquisition William Davis held Stock
Appreciation Rights (SARs) over Niagara Mohawk shares which he chose to
roll-over into SARs over National Grid American Depositary Shares (ADSs). Each
SAR ADS constitutes a notional right over 5 National Grid shares. At exercise a
cash payment equivalent to the growth in value of the SAR over the exercise
price will be paid.

|              |  |         |   |  |           |  |   |          |  |  |          |  |  |           |         |  |                        |  |       |  |  |          |  |          |  |  |  | 
|------------- |  | ------- | - |  | --------- |  | - | -------- |  |  | -------- |  |  | --------- | ------- |  | ---------------------- |  | ----- |  |  | -------- |  | -------- |  |  |  | 
|              |  | Options |   |  | Options   |  |   | Options  |  |  | Options  |  |  |           |         |  |                        |  |       |  |  |          |  |         
|              |  | held at |   |  | exercised |  |   | granted  |  |  | held at  |  |  | Exercise  |         |  |                        |  |       |  |  |          | 
|              |  | 1 April |   |  | during    |  |   | during   |  |  | 31 March |  |  | price per |         |  |                        |  |       |  |  |          | 
|              |  | 2001    |   |  | the year  |  |   | the year |  |  | 2002     |  |  | SAR$      |         |  | Normal Exercise period
|             
|William Davis |  |         |   |  |           |  |   |          |  |  |          |  |  |           |         |  |                        |  |       |  |  |          |  |          |  |  |  | 
|SARs          |  |         |  |  |           |  |  |          |  |  | 58,629   |  |  |           | 58,629  |  |                        |  | 26.20 |  |  | Aug 1998 |  | Dec 2008
|              |  |         |   |  |           |  |   |          |  |  | 58,629   |  |  |           | 58,629  |  |                        |  | 26.20 |  |  | Aug 1998 |  | Dec 2008
|              |  |         |   |  |           |  |   |          |  |  | 52,766   |  |  |           | 52,766  |  |                        |  | 23.04 |  |  | Jan 2000 |  | Dec 2010
|             
|Total         |  |         |   |  |           |  |   |          |  |  | 170,024  |  |  |           | 170,024 |  |                        |  |       |  |  |          |  |          |  |  |  | 
|             

Directors beneficial interests

The Directors beneficial interests (which include those of their families) in
the ordinary shares of National Grid are shown below: (All interests at 1 April
2001 were in National Grid Group plc ordinary shares of
1113/17 pence each. Following the Scheme of Arrangement on 31 January 2002 all interests are in
National Grid Group plc ordinary shares of 10 pence each.)

|                 |  |                    |         |  |                    |  |         |                    |  |              |                    |  |              |  |         | 
|---------------- |  | ------------------ | ------- |  | ------------------ |  | ------- | ------------------ |  | ------------ | ------------------ |  | ------------ |  | ------- | 
|                 |  |                    |         |  |                    |  |         |                    |  | Options over |                    |  | Options over | 
|                 |  | Ordinary shares at |         |  | Ordinary shares at |  |         | ordinary shares at |  |              | ordinary shares at | 
|                 |  | 31 March 2002      |         |  | 1 April 2001       |  |         | 31 March 2002      |  |              | at 1 April 2001    | 
|                
|James Ross       |  |                    | 19,000  |  |                    |  | 19,000  |                    |  |              |                   |  |              |  |        | 
|Roger Urwin      |  |                    | 147,920 |  |                    |  | 144,539 |                    |  |              | 471,292            |  |              |  | 328,751 | 
|Edward Astle     |  |                    |        |  |                    |  |        |                    |  |              | 193,952            |  |              |  |        | 
|Stephen Box      |  |                    | 18,459  |  |                    |  | 6,552   |                    |  |              | 442,485            |  |              |  | 349,181 | 
|William Davis    |  |                    | 11,520  |  |                    |  |        |                    |  |              |                   |  |              |  |        | 
|Bob Faircloth    |  |                    |        |  |                    |  |        |                    |  |              |                   |  |              |  |        | 
|John Grant       |  |                    | 10,000  |  |                    |  | 10,000  |                    |  |              |                   |  |              |  |        | 
|Steven Holliday  |  |                    |        |  |                    |  |        |                    |  |              | 225,628            |  |              |  | 150,000 | 
|Paul Joskow      |  |                    | 5,000   |  |                    |  | 5,000   |                    |  |              |                   |  |              |  |        | 
|Richard Reynolds |  |                    | 10,000  |  |                    |  | 10,000  |                    |  |              |                   |  |              |  |        | 
|Rick Sergel      |  |                    | 2,763   |  |                    |  | 1,257   |                    |  |              | 336,166            |  |              |  | 201,845 | 
|                

On 23 April 2002, the Trustee of the National Grid USA Incentive Thrift Plan,
purchased additional ADSs increasing Rick Sergels total interest to the
equivalent of 2,937 ordinary shares.
There has been no other change in the beneficial interests of the Directors in
the ordinary shares of National Grid between 1 April 2002 and 29 May 2002. Each
of the Executive Directors (Roger Urwin, Edward Astle, Stephen Box, Steven
Holliday, and Rick Sergel), excepting William Davis, was, for Companies Act
1985 purposes, deemed to be a potential beneficiary under the National Grid
Qualifying Employee Share Ownership Trust (QUEST) and the National Grid 1996
Employee Benefit Trust and thereby to have an interest in the 12,484,040
National Grid ordinary shares held by the QUEST and the 745,327 National Grid
ordinary shares held by the 1996 Employee Benefit Trust as at 31 March 2002.




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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

39




|                             |                               |  |    |    | 
|---------------------------- | ----------------------------- |  | -- | -- | 
|Directors responsibilities  |                               |  | 40 |   
|Independent auditors report |                               |  | 41 |   
|Accounting policies          |                               |  | 42 |   
|The accounts                 |                               |  |    |   
|                             | Group profit and loss account |  |    | 44 | 
|                             | Balance sheets                |  |    | 45 | 
|                             | Group cash flow statement     |  |    | 46 | 
|Notes to the accounts        |                               |  | 47 |   
|Glossary of terms            |                               |  | 83 |   



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02




Directors responsibilities

40




Directors responsibilities for the preparation of the Group accounts

The Directors are required to prepare Group accounts for each fiscal year,
which present fairly, in all material respects, the consolidated financial
position of the Group at the fiscal year end and the consolidated results of
operations and cash flows of the Group for that period.

The Directors are also required to consider whether, in preparing the Group
accounts for the fiscal years shown on pages 42 to 82 the Company has used
appropriate accounting policies, consistently applied and supported by
reasonable and prudent judgements and estimates. They also consider whether all
accounting principles which they consider to be applicable have been followed
and ascertain whether it is appropriate for the Group accounts to be prepared
on the going concern basis.

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



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02




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

41




Independent auditors report to the members of National Grid Group plc
We have audited the accounts which comprise the profit and loss account, the
balance sheet, the cash flow statement, the statement of total recognised gains
and losses, the related notes on pages 42 to 82, and the Directors
remuneration disclosures on pages 34 to 38.

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

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

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

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

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

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

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

United Kingdom Opinion
In our opinion the accounts give a true and fair view of the state of affairs
of the Company and the Group at 31 March 2002 and the loss and cash flows of
the Group for the year then ended and have been properly prepared in accordance
with the Companies Act 1985.

United States Opinion
In our opinion the accounts present fairly, in all material respects, the
consolidated financial position of the Group at 31 March 2002 and 2001 and the
results of its operations and its cash flows for the years ended 31 March 2002,
31 March 2001 and 31 March 2000 all expressed in pounds sterling in conformity
with accounting principles generally accepted in the United Kingdom.

As discussed in note 1 to the accounts, during the year ended 31 March 2002 the
Group adopted Financial Reporting Standard 19 Deferred tax and has also
adopted a revised presentation of the minority interests share of the results
of associated undertakings. Prior year numbers have been restated.

Accounting principles generally accepted in the United Kingdom differ in
certain significant respects from accounting principles generally accepted in
the United States. The application of the latter would have affected the
determination of the net income for the years ended 31 March 2002, 31 March
2001 and 31 March 2000, and consolidated shareholders equity at 31 March 2002
and 2001, all expressed in pounds sterling, as shown in the summary of
differences between United Kingdom and United States generally accepted
accounting principles set out in note 32 to the accounts.

PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
London
29 May 2002



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Accounting policies

42




a     Basis of preparation of accounts
The accounts are prepared under the historical cost convention and in
accordance with applicable UK accounting and financial reporting standards.

The accounts have been prepared in accordance with UK GAAP, which differs in
certain significant respects to US GAAP. A summary of the main differences
between UK and US GAAP is set out in note 32.

The preparation of accounts in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the accounts and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from these estimates.

During the year, the Group has adopted FRS 18 Accounting Policies and FRS 19
Deferred Tax. There has been no material impact to the Group of adopting FRS
18. The impact of adopting FRS 19 is shown in note 1.

The Group is following the transitional arrangements of FRS 17 Retirement
Benefits. The required disclosures are shown in note 7. Full adoption of the
standard is required by the year ended 31 March 2004.

b     Basis of consolidation
The Group accounts include the accounts of the Company and all its subsidiary
undertakings, (Group undertakings), together with the Groups share of the
results and net assets or liabilities of its associate and joint ventures
(associated undertakings), less any provision for impairment. An associated
undertaking is an entity in which the Group has a participating interest and
over which it exercises a significant influence.

The accounts of Group and associated undertakings used for consolidation are
generally made up to 31 March. However, where this has not been practical, the
results of certain Group undertakings and joint ventures have been based on
their accounts to 31 December.

The results of newly acquired Group and associated undertakings are included in
the Group accounts from the date the Group acquires control or, in respect of
associated undertakings, an equity interest which enables it to exercise a
significant influence. The results of Group businesses and associated
undertakings are included in the Group accounts up to the date that control or
the exercise of significant influence, as appropriate, is relinquished.

In respect of the results included in the Group accounts for the year ended 31
March 2002 for the associate (Energis), the Group accounts only include the
Groups share of the unaudited results for the six month period ended 30
September 2001. The results of Energis for the year ended 31 March 2002 were
not available at the date the Group accounts were signed.

During the year National Grid Group plc (formerly New National Grid plc) was
introduced as the new holding company of the National Grid Group by way of a
Scheme of Arrangement under section 425 of the Companies Act 1985. This has
been accounted for as a group reconstruction and merger accounting principles
have been applied, as if the company had always been the holding company of the
Group.

c     Goodwill
Goodwill, representing the excess of the fair value of the consideration given
over the fair value of the identifiable net assets acquired, is capitalised and
amortised through the profit and loss account over its estimated useful
economic life  up to 20 years.

d     Foreign currencies
The results of the Groups overseas operations are translated into sterling at
weighted average rates of exchange. Assets and liabilities in foreign
currencies are generally translated at the rates of exchange ruling at the
balance sheet date. In respect of certain assets or liabilities that are
matched by an exact and directly related forward exchange derivative, the
relevant asset or liability is translated at the rate of exchange under the
related derivative.

Exchange differences arising on the translation of the opening net assets of
overseas operations, the re-translation of the retained earnings of overseas
operations from average to closing rates of exchange and the translation of
foreign currency borrowings or derivatives taken to hedge overseas assets are
taken directly to reserves. Tax charges or credits arising on such items are
also taken to reserves.

All other exchange differences and related tax charges or credits are taken to
the profit and loss account and disclosed separately where deemed exceptional.

e     Deferred taxation
Deferred taxation is provided in full on all material timing differences, with
certain exceptions. No provision for deferred taxation is made for any timing
differences on non-monetary assets arising from fair value adjustments, except
where there is a binding agreement to sell the assets concerned. However, no
provision is made where it is more likely than not that any taxable gain will
be rolled over into replacement assets.

Deferred tax assets are only recognised to the extent that their recovery is
considered more likely than not.

Deferred tax balances have not been discounted.



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National Grid Annual Report and Form 20-F 2001/02

43




f     Tangible fixed assets and depreciation
Tangible fixed assets are included in the balance sheet at their cost less
accumulated depreciation. Costs include payroll and finance costs incurred
which are directly attributable to the construction of tangible fixed assets.

No depreciation is provided on freehold land and assets in the course of
construction. Other tangible fixed assets are depreciated, principally on a
straight line basis, at rates estimated to write off their book values over
their estimated useful economic lives. In assessing estimated useful economic
lives, which are reviewed on an annual basis, consideration is given to any
contractual arrangements and operational requirements relating to particular
assets. Unless otherwise determined by operational requirements, the
depreciation periods for the principal categories of tangible fixed assets are,
in general, as follows:

|                                    |                                                          |          |          |  | 
|----------------------------------- | -------------------------------------------------------- | -------- | -------- |  | 
|                                    |                                                          |          | Years   
|                                   
|Plant and machinery                 |                                                          |          |          | 
|                                    | Electricity transmission plant                           |          | 15 to 60
|                                    | Electricity distribution plant                           |          | 15 to 60
|                                    | Electricity interconnector plant                         |          | 15 to 25
|                                    | Gas plant  mains and services                           |          | 45 to 65
|                                    | Gas plant  metering, measuring and regulating equipment |          | 33 to 40
|Freehold and leasehold properties   |                                                          | up to 65
|Motor vehicles and office equipment |                                                          | 3 to 5  
|                                   

g     Stocks
Stocks which primarily comprise of consumable stores are valued at cost less
provision for obsolescence.

h     Regulatory assets
Regulatory assets established in accordance with the principles of SFAS 71
Accounting for the Effects of Certain Types of Regulation are recorded as
debtors, if they comprise rights or other access to future economic benefits
which arise as a result of past transactions or events which have created an
obligation to a third party (note 15).

i     Decommissioning
Decommissioning liabilities, based on discounted future estimated expenditures
expected to be incurred, are provided for in full and a corresponding tangible
fixed asset or regulatory asset is also recognised.

j     Turnover
Turnover primarily represents the amounts derived from the supply and
generation of energy and the provision of related services, including the
recovery of stranded costs (note 2). Turnover includes an assessment of energy
supplied to customers between the date of the last meter reading and the year
end, excludes inter-business and inter-company transactions, and is stated net
of value added tax and similar sales-based taxes.

k     Pensions and other post-retirement benefits
The cost of providing pensions and other post-retirement benefits is charged to
the profit and loss account on a systematic basis over the service lives of the
employees in the schemes. Variations from the regular cost are allocated over
the estimated average remaining service lives of current employees.

l     Leases
Finance lease income is allocated to accounting periods so as to give a
constant rate of return on the net investment in the lease. The net investment
in a finance lease is included in debtors and represents the total rentals
receivable, net of finance charges, relating to future periods.

Operating lease payments are charged to the profit and loss account on a
straight line basis over the term of the lease.

m     Financial instruments
Derivative financial instruments (derivatives) are used by the Group mainly
for the management of its interest rate and foreign currency exposures and
commodity price risks in respect of expected energy usage. The principal
derivatives used include interest rate swaps, currency swaps, forward foreign
currency agreements and indexed swap contracts relating to the purchase of
energy.

All transactions are undertaken or maintained to provide a commercial hedge of
the interest, currency or commodity price risks associated with the Groups
underlying business activities and the financing of those activities. Amounts
payable or receivable in respect of interest rate swaps are recognised in the
profit and loss account over the economic lives of the agreements or underlying
position being hedged, either within net interest or disclosed separately where
deemed exceptional.

Currency swaps and forward currency agreements are translated at the rate of
exchange prevailing at the balance sheet date with the corresponding exchange
adjustment being dealt with in reserves or the profit and loss account as
appropriate.

Those derivatives, relating both to interest rates and/or currency exchange,
that are directly associated with a specific transaction and exactly match the
underlying cash flows relating to the transaction are accounted for on the
basis of the combined economic result of the transaction including the related
derivative.

Indexed linked swap contracts relating to the purchase of energy are marked to
market and a corresponding movement in the value of a related regulatory asset
is also recognised.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02




The accounts

44




|                                                                                |  |       |    |  |    |      |          |    |      |            |          |      |            |  |          |  
|------------------------------------------------------------------------------- |  | ----- | -- |  | -- | ---- | -------- | -- | ---- | ---------- | -------- | ---- | ---------- |  | -------- | -
|Group profit and loss account                                                   |  |       |    |  |    | 2002 |          |    | 2001 |            |          | 2000 |           
|for the years ended 31 March                                                    |  |       |    |  |    |      |          |    |      | (restated) |          |      | (restated) | 
|                                                                                |  | notes |    |  | £m |      |          | £m |      |            | £m       |     
|                                                                               
|Turnover, including share of joint ventures                                     |  |       |    |  |    |      | 4,660.3  |    |      |            | 4,004.1  |      |            |  | 1,677.5  |  
|Less: share of joint ventures turnover (continuing operations)                 |  |       |    |  |    |      | (259.3   | )  |      |            | (204.4   | )    |            |  | (62.8    | )
|                                                                               
|Group turnover                                                                  |  |       |    |  |    |      |          |    |      |            |          |      |            |  |          |  
|                                                                                |  |       |    |  |    |     
| continuing operations                                                         |  |       |    |  |    |      | 3,921.9  |    |      |            | 3,799.7  |      |            |  | 1,614.7  |  
| acquisition                                                                   |  |       |    |  |    |      | 479.1    |    |      |            |         |      |            |  |         |  
|                                                                                |  |       |    |  |    |     
|                                                                                |  |       | 2a |  |    |      | 4,401.0  |    |      |            | 3,799.7  |      |            |  | 1,614.7  |  
|Operating costs                                                                 |  |       | 3  |  |    |      | (3,893.6 | )  |      |            | (3,094.2 | )    |            |  | (1,042.9 | )
|                                                                               
|Operating profit of Group undertakings                                          |  |       |    |  |    |      |          |    |      |            |          |      |            |  |          |  
|                                                                                |  |       |    |  |    |     
|- continuing operations                                                         |  |       |    |  |    |      | 505.7    |    |      |            | 705.5    |      |            |  | 571.8    |  
| acquisition                                                                   |  |       |    |  |    |      | 1.7      |    |      |            |         |      |            |  |         |  
|                                                                                |  |       |    |  |    |     
|                                                                                |  |       | 2b |  |    |      | 507.4    |    |      |            | 705.5    |      |            |  | 571.8    |  
|Share of joint ventures and associates operating loss (continuing operations) |  |       | 2b |  |    |      | (636.8   | )  |      |            | (96.0    | )    |            |  | (26.0    | )
|                                                                               
|Operating (loss)/profit                                                         |  |       |    |  |    |      |          |    |      |            |          |      |            |  |          |  
|                                                                                |  |       |    |  |    |     
| Before exceptional items and goodwill amortisation                            |  |       | 2b |  |    |      | 874.7    |    |      |            | 739.4    |      |            |  | 554.0    |  
| Exceptional costs                                                             |  |       | 4a |  |    |      | (121.4   | )  |      |            | (45.3    | )    |            |  |         |  
| Impairment of investments in joint ventures and associate                     |  |       | 4b |  |    |      | (792.3   | )  |      |            |         |      |            |  |         |  
| Goodwill amortisation                                                         |  |       |    |  |    |      | (90.4    | )  |      |            | (84.6    | )    |            |  | (8.2     | )
|                                                                                |  |       |    |  |    |     
|Total operating (loss)/profit(continuing operations, including acquisition)     |  |       | 2b |  |    |      | (129.4   | )  |      |            | 609.5    |      |            |  | 545.8    |  
|Exceptional profit relating to partial disposal of Energis                      |  |       | 4c |  |    |      | 20.1     |    |      |            | 243.3    |      |            |  | 1,029.6  |  
|Profit on disposal of investments                                               |  |       | 4d |  |    |      | 10.6     |    |      |            | 20.1     |      |            |  |         |  
|Profit on disposal of tangible fixed assets                                     |  |       |    |  |    |      | 22.0     |    |      |            |         |      |            |  |         |  
|Net interest                                                                    |  |       |    |  |    |      |          |    |      |            |          |      |            |  |          |  
|                                                                                |  |       |    |  |    |     
| Excluding exceptional item                                                    |  |       | 8  |  |    |      | (292.5   | )  |      |            | (255.1   | )    |            |  | (67.5    | )
| Exceptional item                                                              |  |       | 8  |  |    |      | (92.5    | )  |      |            |         |      |            |  |         |  
|                                                                                |  |       |    |  |    |     
|                                                                                |  |       | 8  |  |    |      | (385.0   | )  |      |            | (255.1   | )    |            |  | (67.5    | )
|                                                                               
|(Loss)/profit on ordinary activities before taxation                            |  |       |    |  |    |      | (461.7   | )  |      |            | 617.8    |      |            |  | 1,507.9  |  
|Taxation                                                                        |  |       |    |  |    |      |          |    |      |            |          |      |            |  |          |  
|                                                                                |  |       |    |  |    |     
| Excluding exceptional items                                                   |  |       | 9  |  |    |      | (85.4    | )  |      |            | (182.1   | )    |            |  | (152.8   | )
| Exceptional items                                                             |  |       | 9  |  |    |      | 60.1     |    |      |            | 235.4    |      |            |  | (229.5   | )
|                                                                                |  |       |    |  |    |     
|                                                                                |  |       | 9  |  |    |      | (25.3    | )  |      |            | 53.3     |      |            |  | (382.3   | )
|                                                                               
|(Loss)/profit on ordinary activities after taxation                             |  |       |    |  |    |      | (487.0   | )  |      |            | 671.1    |      |            |  | 1,125.6  |  
|Minority interests                                                              |  |       |    |  |    |      |          |    |      |            |          |      |            |  |          |  
|                                                                                |  |       |    |  |    |     
| Equity                                                                        |  |       |    |  |    |      | (5.2     | )  |      |            | (5.1     | )    |            |  | (3.6     | )
| Non-equity                                                                    |  |       |    |  |    |      | (1.1     | )  |      |            | (1.8     | )    |            |  |         |  
|                                                                                |  |       |    |  |    |     
|                                                                                |  |       |    |  |    |      | (6.3     | )  |      |            | (6.9     | )    |            |  | (3.6     | )
|                                                                               
|(Loss)/profit for the year                                                      |  |       |    |  |    |      | (493.3   | )  |      |            | 664.2    |      |            |  | 1,122.0  |  
|Dividends                                                                       |  |       | 10 |  |    |      | (264.6   | )  |      |            | (223.0   | )    |            |  | (205.5   | )
|                                                                               
|Retained (loss)/profit                                                          |  |       | 23 |  |    |      | (757.9   | )  |      |            | 441.2    |      |            |  | 916.5    |  
|                                                                               
|(Loss)/earnings per ordinary share                                              |  |       |    |  |    |      |          |    |      |            |          |      |            |  |          |  
| Basic, including exceptional items and goodwill amortisation                  |  |       | 11 |  |    |      | (32.3    | )p |      |            | 45.0     | p    |            |  | 76.2     | p
| Basic, excluding exceptional items and goodwill amortisation                  |  |       | 11 |  |    |      | 32.1     | p  |      |            | 20.0     | p    |            |  | 22.5     | p
| Diluted, including exceptional items and goodwill amortisation                |  |       | 11 |  |    |      | (32.3    | )p |      |            | 43.0     | p    |            |  | 71.7     | p
| Diluted, excluding exceptional items and goodwill amortisation                |  |       | 11 |  |    |      | 32.1     | p  |      |            | 19.8     | p    |            |  | 22.0     | p
|                                                                               
|Dividends per ordinary share                                                    |  |       | 10 |  |    |      | 16.04    | p  |      |            | 15.08    | p    |            |  | 13.94    | p
|                                                                               

|                                                           |  |      |   |  |    |      |          |    |      |            |       |      |            |  |         | 
|---------------------------------------------------------- |  | ---- | - |  | -- | ---- | -------- | -- | ---- | ---------- | ----- | ---- | ---------- |  | ------- | 
|Group statement of total recognised gains and losses       |  |      |   |  |    | 2002 |          |    | 2001 |            |       | 2000 |           
|for the years ended 31 March                               |  |      |   |  |    |      |          |    |      | (restated) |       |      | (restated) | 
|                                                           |  | note |   |  | £m |      |          | £m |      |            | £m    |     
|                                                          
|(Loss)/profit for the year                                 |  |      |   |  |    |      | (493.3   | )  |      |            | 664.2 |      |            |  | 1,122.0 | 
|Exchange adjustments                                       |  |      |   |  |    |      | (58.3    | )  |      |            | (14.7 | )    |            |  | 3.1     | 
|Tax on exchange adjustments                                |  |      |   |  |    |      | 21.6     |    |      |            | 31.9  |      |            |  |        | 
|                                                          
|Total recognised gains and losses relating to the year     |  |      |   |  |    |      | (530.0   | )  |      |            | 681.4 |      |            |  | 1,125.1 | 
|                                                           |  |      |   |  |    |      |          |    |      |           
|Prior year adjustment                                      |  |      | 1 |  |    |      | (802.3   | )  |      |            |       |      |            |  |         | 
|                                                           |  |      |   |  |    |      |          |   
|Total gains and losses recognised since last annual report |  |      |   |  |    |      | (1,332.3 | )  |      |            |       |      |            |  |         | 
|                                                           |  |      |   |  |    |      |          |   



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

45




|                                                         |  |       |    |  |    |       |          |    |       |            |          |         |  |  |          |  
|-------------------------------------------------------- |  | ----- | -- |  | -- | ----- | -------- | -- | ----- | ---------- | -------- | ------- |  |  | -------- | -
|Balance sheets                                           |  |       |    |  |    | Group |          |    | Group |            |          | Company | 
|at 31 March                                              |  |       |    |  |    | 2002  |          |    | 2001  |            |          | 2002    | 
|                                                         |  |       |    |  |    |       |          |    |       | (restated) |          |         |  | 
|                                                         |  | notes |    |  | £m |       |          | £m |       |            | £m       |        
|                                                        
|Fixed assets                                             |  |       |    |  |    |       |          |    |       |            |          |         |  |  |          |  
|Intangible assets  goodwill                             |  |       | 12 |  |    |       | 2,113.0  |    |       |            | 1,386.2  |         |  |  |         |  
|Tangible assets                                          |  |       | 13 |  |    |       | 9,121.7  |    |       |            | 5,617.3  |         |  |  |         |  
|                                                         |  |       |    |  |    |      
|Investments in joint ventures                            |  |       |    |  |    |       |          |    |       |            |          |         |  |  |          |  
| Share of gross assets                                  |  |       |    |  |    |       | 876.1    |    |       |            | 1,133.6  |         |  |  |         |  
| Share of gross liabilities                             |  |       |    |  |    |       | (675.9   | )  |       |            | (799.7   | )       |  |  |         |  
|                                                         |  |       |    |  |    |      
| Share of net assets                                    |  |       |    |  |    |       | 200.2    |    |       |            | 333.9    |         |  |  |         |  
| Loans to joint ventures                                |  |       |    |  |    |       | 86.8     |    |       |            | 64.9     |         |  |  |         |  
| Impairment of investments in joint ventures            |  |       |    |  |    |       | (230.0   | )  |       |            |         |         |  |  |         |  
|                                                         |  |       |    |  |    |      
|Investments in joint ventures (net of impairment)        |  |       |    |  |    |       | 57.0     |    |       |            | 398.8    |         |  |  |         |  
|Investment in associate (net of impairment)              |  |       |    |  |    |       |         |    |       |            | 401.9    |         |  |  |         |  
|Other investments                                        |  |       |    |  |    |       | 241.3    |    |       |            | 145.1    |         |  |  | 2,080.0  |  
|                                                         |  |       |    |  |    |      
|Total investments                                        |  |       | 14 |  |    |       | 298.3    |    |       |            | 945.8    |         |  |  | 2,080.0  |  
|                                                        
|                                                         |  |       |    |  |    |       | 11,533.0 |    |       |            | 7,949.3  |         |  |  | 2,080.0  |  
|                                                        
|Current assets                                           |  |       |    |  |    |       |          |    |       |            |          |         |  |  |          |  
|Stocks                                                   |  |       |    |  |    |       | 56.1     |    |       |            | 34.1     |         |  |  |         |  
|Debtors (amounts falling due within one year)            |  |       | 15 |  |    |       | 1,527.9  |    |       |            | 880.4    |         |  |  | 2,029.1  |  
|Debtors (amounts falling due after one year)             |  |       | 15 |  |    |       | 4,054.4  |    |       |            | 1,053.9  |         |  |  |         |  
|Assets held for exchange                                 |  |       | 16 |  |    |       | 16.6     |    |       |            | 16.6     |         |  |  |         |  
|Investment held for resale                               |  |       | 27 |  |    |       | 15.4     |    |       |            |         |         |  |  |         |  
|Cash and deposits                                        |  |       |    |  |    |       | 212.6    |    |       |            | 271.2    |         |  |  | 3.7      |  
|                                                        
|                                                         |  |       |    |  |    |       | 5,883.0  |    |       |            | 2,256.2  |         |  |  | 2,032.8  |  
|Creditors (amounts falling due within one year)          |  |       |    |  |    |       |          |    |       |            |          |         |  |  |          |  
|                                                         |  |       |    |  |    |      
|Borrowings                                               |  |       |    |  |    |       | (1,451.9 | )  |       |            | (1,008.7 | )       |  |  | (604.4   | )
|Other creditors                                          |  |       |    |  |    |       | (1,517.4 | )  |       |            | (1,205.0 | )       |  |  | (1,513.2 | )
|                                                         |  |       |    |  |    |      
|                                                         |  |       | 17 |  |    |       | (2,969.3 | )  |       |            | (2,213.7 | )       |  |  | (2,117.6 | )
|                                                        
|Net current assets/(liabilities)                         |  |       |    |  |    |       | 2,913.7  |    |       |            | 42.5     |         |  |  | (84.8    | )
|                                                        
|Total assets less current liabilities                    |  |       |    |  |    |       | 14,446.7 |    |       |            | 7,991.8  |         |  |  | 1,995.2  |  
|Creditors (amounts falling due after more than one year) |  |       |    |  |    |       |          |    |       |            |          |         |  |  |          |  
|                                                         |  |       |    |  |    |      
|Convertible bonds                                        |  |       |    |  |    |       | (491.3   | )  |       |            | (480.3   | )       |  |  |         |  
|Other borrowings                                         |  |       |    |  |    |       | (6,510.1 | )  |       |            | (2,700.4 | )       |  |  |         |  
|Other creditors                                          |  |       |    |  |    |       | (1,116.6 | )  |       |            | (574.8   | )       |  |  |         |  
|                                                         |  |       |    |  |    |      
|                                                         |  |       | 18 |  |    |       | (8,118.0 | )  |       |            | (3,755.5 | )       |  |  |         |  
|Provisions for liabilities and charges                   |  |       |    |  |    |       |          |    |       |            |          |         |  |  |          |  
|                                                         |  |       |    |  |    |      
|Joint ventures                                           |  |       |    |  |    |       |          |    |       |            |          |         |  |  |          |  
| Share of gross assets                                  |  |       |    |  |    |       | 296.3    |    |       |            |         |         |  |  |         |  
| Share of gross liabilities                             |  |       |    |  |    |       | (333.6   | )  |       |            |         |         |  |  |         |  
|                                                         |  |       |    |  |    |      
| Share of net liabilities                               |  |       |    |  |    |       | (37.3    | )  |       |            |         |         |  |  |         |  
|Other provisions                                         |  |       |    |  |    |       | (2,997.0 | )  |       |            | (1,521.0 | )       |  |  | (76.6    | )
|                                                         |  |       |    |  |    |      
|                                                         |  |       | 21 |  |    |       | (3,034.3 | )  |       |            | (1,521.0 | )       |  |  | (76.6    | )
|                                                        
|Net assets employed                                      |  |       |    |  |    |       | 3,294.4  |    |       |            | 2,715.3  |         |  |  | 1,918.6  |  
|                                                        
|Capital and reserves                                     |  |       |    |  |    |       |          |    |       |            |          |         |  |  |          |  
|Called up share capital                                  |  |       | 22 |  |    |       | 177.7    |    |       |            | 148.5    |         |  |  | 177.7    |  
|Share premium account                                    |  |       | 23 |  |    |       | 1,243.4  |    |       |            |         |         |  |  | 1,243.4  |  
|Merger reserve                                           |  |       | 23 |  |    |       | 359.5    |    |       |            | 303.1    |         |  |  |         |  
|Profit and loss account                                  |  |       | 23 |  |    |       | 1,416.0  |    |       |            | 2,221.9  |         |  |  | 497.5    |  
|                                                        
|Equity shareholders funds                               |  |       |    |  |    |       | 3,196.6  |    |       |            | 2,673.5  |         |  |  | 1,918.6  |  
|Minority interests                                       |  |       |    |  |    |       |          |    |       |            |          |         |  |  |          |  
|                                                         |  |       |    |  |    |      
|Equity                                                   |  |       |    |  |    |       | 19.1     |    |       |            | 21.8     |         |  |  |         |  
|Non-equity                                               |  |       | 24 |  |    |       | 78.7     |    |       |            | 20.0     |         |  |  |         |  
|                                                         |  |       |    |  |    |      
|                                                         |  |       |    |  |    |       | 97.8     |    |       |            | 41.8     |         |  |  |         |  
|                                                        
|                                                         |  |       |    |  |    |       | 3,294.4  |    |       |            | 2,715.3  |         |  |  | 1,918.6  |  
|                                                        

There are no comparatives shown for the 2001 Company balance sheet. The Company
was in existence at 31 March 2001 but all balances were less than £0.1m.

The accounts on pages 42 to 82 inclusive were approved by the Board of
Directors on 29 May 2002 and were signed on its behalf by:

J H RossChairmanS J BoxFinance Director



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

The accounts

46




|                                                                         |  |       |       |  |    |      |          |    |      |  |         |      |  |  |          |  
|------------------------------------------------------------------------ |  | ----- | ----- |  | -- | ---- | -------- | -- | ---- |  | ------- | ---- |  |  | -------- | -
|Group cash flow statement                                                |  |       |       |  |    | 2002 |          |    | 2001 |  |         | 2000 | 
|for the years ended 31 March                                             |  | notes |       |  | £m |      |          | £m |      |  | £m      |     
|                                                                        
|Net cash inflow from operating activities                                |  |       | 26a   |  |    |      | 1,255.4  |    |      |  | 810.6   |      |  |  | 682.0    |  
|                                                                        
|Dividends from joint ventures                                            |  |       |       |  |    |      | 12.8     |    |      |  | 20.3    |      |  |  | 4.5      |  
|                                                                        
|Returns on investments and servicing of finance                          |  |       |       |  |    |      |          |    |      |  |         |      |  |  |          |  
|                                                                         |  |       |       |  |    |     
|Interest received                                                        |  |       |       |  |    |      | 56.3     |    |      |  | 94.8    |      |  |  | 92.0     |  
|Interest paid and similar charges                                        |  |       |       |  |    |      | (405.3   | )  |      |  | (398.2  | )    |  |  | (156.7   | )
|Dividends paid to minority interests                                     |  |       |       |  |    |      | (8.5     | )  |      |  | (3.5    | )    |  |  |         |  
|                                                                         |  |       |       |  |    |     
|                                                                        
|Net cash outflow for returns on investments and servicing of finance     |  |       |       |  |    |      | (357.5   | )  |      |  | (306.9  | )    |  |  | (64.7    | )
|                                                                        
|Taxation                                                                 |  |       |       |  |    |      |          |    |      |  |         |      |  |  |          |  
|Corporate tax paid                                                       |  |       |       |  |    |      | (7.3     | )  |      |  | (137.2  | )    |  |  | (274.3   | )
|                                                                        
|Capital expenditure                                                      |  |       |       |  |    |      |          |    |      |  |         |      |  |  |          |  
|                                                                         |  |       |       |  |    |     
|Payments to acquire tangible fixed assets                                |  |       |       |  |    |      | (500.0   | )  |      |  | (471.6  | )    |  |  | (292.2   | )
|Receipts of capital contributions                                        |  |       |       |  |    |      | 7.8      |    |      |  | 2.2     |      |  |  | 7.6      |  
|Receipts from disposals of tangible fixed assets                         |  |       |       |  |    |      | 27.8     |    |      |  | 11.8    |      |  |  | 5.4      |  
|                                                                         |  |       |       |  |    |     
|                                                                        
|Net cash outflow for capital expenditure                                 |  |       |       |  |    |      | (464.4   | )  |      |  | (457.6  | )    |  |  | (279.2   | )
|                                                                        
|Acquisitions and disposals                                               |  |       |       |  |    |      |          |    |      |  |         |      |  |  |          |  
|                                                                         |  |       |       |  |    |     
|Payments to acquire investments                                          |  |       |       |  |    |      | (49.7    | )  |      |  | (337.2  | )    |  |  | (144.5   | )
|Receipts from disposal of investments                                    |  |       | 26b   |  |    |      | 36.5     |    |      |  | 195.9   |      |  |  |         |  
|Acquisition of Group undertakings                                        |  |       | 26c   |  |    |      | (933.5   | )  |      |  | (440.9  | )    |  |  | (2,045.1 | )
|Receipts from sales of Energis shares                                    |  |       |       |  |    |      |         |    |      |  |        |      |  |  | 952.9    |  
|                                                                         |  |       |       |  |    |     
|                                                                        
|Net cash outflow for acquisitions and disposals                          |  |       |       |  |    |      | (946.7   | )  |      |  | (582.2  | )    |  |  | (1,236.7 | )
|Equity dividends paid                                                    |  |       |       |  |    |      | (229.5   | )  |      |  | (212.5  | )    |  |  | (197.6   | )
|                                                                        
|Net cash outflow before the management of
liquid resources and financing |  |       |       |  |    |      | (737.2   | )  |      |  | (865.5  | )    |  |  | (1,366.0 | )
|                                                                        
|Management of liquid resources                                           |  |       |       |  |    |      |          |    |      |  |         |      |  |  |          |  
|                                                                         |  |       |       |  |    |     
|Decrease in short term deposits                                          |  |       |       |  |    |      | 336.2    |    |      |  | 775.2   |      |  |  | 618.8    |  
|                                                                         |  |       |       |  |    |     
|                                                                        
|Net cash inflow from the management of liquid resources                  |  |       | 26d,e |  |    |      | 336.2    |    |      |  | 775.2   |      |  |  | 618.8    |  
|                                                                        
|Financing                                                                |  |       |       |  |    |      |          |    |      |  |         |      |  |  |          |  
|                                                                         |  |       |       |  |    |     
|Issue of ordinary shares                                                 |  |       |       |  |    |      | 12.2     |    |      |  | 7.0     |      |  |  | 5.5      |  
|Payments to repurchase ordinary shares                                   |  |       |       |  |    |      |         |    |      |  |        |      |  |  | (1.1     | )
|                                                                         |  |       |       |  |    |     
|New borrowings                                                           |  |       |       |  |    |      | 3,414.4  |    |      |  | 1,015.4 |      |  |  | 1,029.3  |  
|Borrowings repaid                                                        |  |       |       |  |    |      | (2,972.0 | )  |      |  | (934.0  | )    |  |  | (260.1   | )
|                                                                         |  |       |       |  |    |     
|Increase in borrowings                                                   |  |       | 26d,e |  |    |      | 442.4    |    |      |  | 81.4    |      |  |  | 769.2    |  
|                                                                         |  |       |       |  |    |     
|                                                                        
|Net cash inflow from financing                                           |  |       |       |  |    |      | 454.6    |    |      |  | 88.4    |      |  |  | 773.6    |  
|                                                                        
|Movement in cash and overdrafts                                          |  |       | 26d,e |  |    |      | 53.6     |    |      |  | (1.9    | )    |  |  | 26.4     |  
|                                                                        



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts

47




1     Prior year adjustments

a     Deferred tax
The adoption of FRS 19 Deferred Tax has resulted in a change in the method of
accounting for deferred tax, from a partial to a full provision basis. This
change in accounting policy has been reflected in the accounts as a prior year
adjustment in accordance with FRS 3. The effect on the Group balance sheet at
31 March 2001 and 31 March 2000 is shown below.

|                                             |  |               |         |               |             |  |          |          |  |  |          |            |  |             |          |   |          |  |        |   |  |  |          |  
|-------------------------------------------- |  | ------------- | ------- | ------------- | ----------- |  | -------- | -------- |  |  | -------- | ---------- |  | ----------- | -------- | - | -------- |  | ------ | - |  |  | -------- | -
|                                             |  | 31 March 2001 |         | 31 March 2000
|                                             |  |               |         |              
|                                             |  | As            |         |               | Deferred    |  |          |          |  |  |          | As         |  |             | Deferred |   |          |  |        |  
|                                             |  | previously    |         |               | tax         |  |          |          |  |  |          | previously |  |             | tax      |   |          |  |        |  
|                                             |  | reported      |         |               | adjustments |  |          | Restated |  |  | reported |            |  | adjustments |          |   | Restated | 
|                                             |  | £m            |         |               | £m          |  |          | £m       |  |  | £m       |            |  | £m          |          |   | £m       | 
|                                            
|Intangible assets  goodwill                 |  |               | 1,186.2 |               |             |  | 200.0    |          |  |  | 1,386.2  |            |  |             | 844.7    |   |          |  | 210.5  |   |  |  | 1,055.2  |  
|Investments in joint ventures                |  |               | 400.3   |               |             |  | (1.5     | )        |  |  | 398.8    |            |  |             | 205.9    |   |          |  | (1.6   | ) |  |  | 204.3    |  
|Investment in associate                      |  |               | 414.9   |               |             |  | (13.0    | )        |  |  | 401.9    |            |  |             | 205.8    |   |          |  | (4.9   | ) |  |  | 200.9    |  
|Debtors (amounts falling due after one year) |  |               | 1,016.5 |               |             |  | 37.4     |          |  |  | 1,053.9  |            |  |             | 798.3    |   |          |  |       |   |  |  | 798.3    |  
|Provisions for liabilities and charges       |  |               | (495.8  | )             |             |  | (1,025.2 | )        |  |  | (1,521.0 | )          |  |             | (461.4   | ) |          |  | (898.8 | ) |  |  | (1,360.2 | )
|                                            
|Movement in equity shareholders funds       |  |               |         |               |             |  | (802.3   | )        |  |  |          |            |  |             |          |   |          |  | (694.8 | ) |  |  |          |  
|                                            

Profit after taxation for the year ended 31 March 2001 has been reduced by
£104.8m (2000: £26.4m).
It is impractical to determine the effect on the current year results of
adopting FRS 19, due to the acquisition of Niagara Mohawk Holdings Inc during
the year.

b     Minority interests
Prior year numbers have also been restated to reflect a revised presentation of
the minority interests share of the results of associated undertakings. The
minority interests, which were previously reported within operating profit, net
interest and taxation are now included within minority interests.

2     Segmental analysis

|                                             |  |       |         |   |            |       |      |          |       |  |         |   |  |            |         |       |          |          |       |       |  |  |            |   |  |          |         |   |       |  |      |  |  |  |         |  
|-------------------------------------------- |  | ----- | ------- | - | ---------- | ----- | ---- | -------- | ----- |  | ------- | - |  | ---------- | ------- | ----- | -------- | -------- | ----- | ----- |  |  | ---------- | - |  | -------- | ------- | - | ----- |  | ---- |  |  |  | ------- | -
|a     Turnover                               |  |       |         |   |            |       |      |          |       |  |         |   |  |            |         |       |          | Turnover |       |       |  |  |            |   |  |          |         |   |       |  |      |  |  | 
|                                             |  |      
|                                             |  |       |         |   |            | Sales |      |          | Sales |  |         |   |  |            |         | Sales |          |          | Sales |       |  |  |            |   |  | Sales    |         |   | Sales | 
|                                             |  | Total |         |   | between    |       |      | to third |       |  | Total   |   |  | between    |         |       | to third |          |       | Total |  |  | between    |   |  | to third |        
|                                             |  | sales |         |   | businesses |       |      | parties  |       |  | sales   |   |  | businesses |         |       | parties  |          |       | sales |  |  | businesses |   |  | parties  |        
|                                             |  | 2002  |         |   | 2002       |       |      | 2002     |       |  | 2001    |   |  | 2001       |         |       | 2001     |          |       | 2000  |  |  | 2000       |   |  | 2000     |        
|                                             |  | £m    |         |   | £m         |       |      | £m       |       |  | £m      |   |  | £m         |         |       | £m       |          |       | £m    |  |  | £m         |   |  | £m       |        
|                                            
|Turnover, including share
of joint ventures  |  |       | 4,715.0 |   |            |       | 54.7 |          |       |  | 4,660.3 |   |  |            | 4,049.3 |       |          |          | 45.2  |       |  |  | 4,004.1    |   |  |          | 1,715.3 |   |       |  | 37.8 |  |  |  | 1,677.5 |  
|Less: share of joint ventures
turnover      |  |       | (259.3  | ) |            |       |     |          |       |  | (259.3  | ) |  |            | (204.4  | )     |          |          |      |       |  |  | (204.4     | ) |  |          | (62.8   | ) |       |  |     |  |  |  | (62.8   | )
|                                            
|Group turnover                               |  |       | 4,455.7 |   |            |       | 54.7 |          |       |  | 4,401.0 |   |  |            | 3,844.9 |       |          |          | 45.2  |       |  |  | 3,799.7    |   |  |          | 1,652.5 |   |       |  | 37.8 |  |  |  | 1,614.7 |  
|                                            
|Continuing operations                        |  |       |         |   |            |       |      |          |       |  |         |   |  |            |         |       |          |          |       |       |  |  |            |   |  |          |         |   |       |  |      |  |  |  |         |  
|Transmission  UK                            |  |       | 1,241.8 |   |            |       | 22.7 |          |       |  | 1,219.1 |   |  |            | 1,315.6 |       |          |          | 16.8  |       |  |  | 1,298.8    |   |  |          | 1,319.7 |   |       |  | 16.9 |  |  |  | 1,302.8 |  
| USA                                        |  |       | 208.2   |   |            |       | 3.7  |          |       |  | 204.5   |   |  |            | 194.7   |       |          |          | 3.4   |       |  |  | 191.3      |   |  |          | 3.4     |   |       |  | 0.6  |  |  |  | 2.8     |  
|Distribution  USA                           |  |       | 1,678.5 |   |            |       | 0.9  |          |       |  | 1,677.6 |   |  |            | 1,519.0 |       |          |          | 0.6   |       |  |  | 1,518.4    |   |  |          | 25.8    |   |       |  |     |  |  |  | 25.8    |  
|Stranded costs recovery and
generation  USA |  |       | 251.5   |   |            |       | 0.1  |          |       |  | 251.4   |   |  |            | 334.9   |       |          |          | 0.1   |       |  |  | 334.8      |   |  |          | 6.1     |   |       |  |     |  |  |  | 6.1     |  
|Interconnectors  UK                         |  |       | 63.1    |   |            |       | 0.2  |          |       |  | 62.9    |   |  |            | 83.6    |       |          |          |      |       |  |  | 83.6       |   |  |          | 86.6    |   |       |  |     |  |  |  | 86.6    |  
| USA                                        |  |       | 45.5    |   |            |       | 0.9  |          |       |  | 44.6    |   |  |            | 47.9    |       |          |          |      |       |  |  | 47.9       |   |  |          | 1.3     |   |       |  |     |  |  |  | 1.3     |  
|Telecommunications                           |  |       | 30.3    |   |            |       | 2.1  |          |       |  | 28.2    |   |  |            | 43.3    |       |          |          |      |       |  |  | 43.3       |   |  |          | 27.6    |   |       |  |     |  |  |  | 27.6    |  
|Other activities                             |  |       | 457.7   |   |            |       | 24.1 |          |       |  | 433.6   |   |  |            | 305.9   |       |          |          | 24.3  |       |  |  | 281.6      |   |  |          | 182.0   |   |       |  | 20.3 |  |  |  | 161.7   |  
|                                            
|                                             |  |       | 3,976.6 |   |            |       | 54.7 |          |       |  | 3,921.9 |   |  |            | 3,844.9 |       |          |          | 45.2  |       |  |  | 3,799.7    |   |  |          | 1,652.5 |   |       |  | 37.8 |  |  |  | 1,614.7 |  
|Acquisition (Niagara Mohawk)                 |  |       |         |   |            |       |      |          |       |  |         |   |  |            |         |       |          |          |       |       |  |  |            |   |  |          |         |   |       |  |      |  |  |  |         |  
|Electricity  USA                            |  |       | 375.0   |   |            |       |     |          |       |  | 375.0   |   |  |            |        |       |          |          |      |       |  |  |           |   |  |          |        |   |       |  |     |  |  |  |        |  
|Gas  USA                                    |  |       | 104.1   |   |            |       |     |          |       |  | 104.1   |   |  |            |        |       |          |          |      |       |  |  |           |   |  |          |        |   |       |  |     |  |  |  |        |  
|                                            
|                                             |  |       | 479.1   |   |            |       |     |          |       |  | 479.1   |   |  |            |        |       |          |          |      |       |  |  |           |   |  |          |        |   |       |  |     |  |  |  |        |  
|Group turnover                               |  |       | 4,455.7 |   |            |       | 54.7 |          |       |  | 4,401.0 |   |  |            | 3,844.9 |       |          |          | 45.2  |       |  |  | 3,799.7    |   |  |          | 1,652.5 |   |       |  | 37.8 |  |  |  | 1,614.7 |  
|                                            
|Europe                                       |  |       |         |   |            |       |      |          |       |  | 1,729.3 |   |  |            |         |       |          |          |       |       |  |  | 1,696.6    |   |  |          |         |   |       |  |      |  |  |  | 1,576.1 |  
|North America                                |  |       |         |   |            |       |      |          |       |  | 2,671.7 |   |  |            |         |       |          |          |       |       |  |  | 2,103.1    |   |  |          |         |   |       |  |      |  |  |  | 38.6    |  
|                                            
|                                             |  |       |         |   |            |       |      |          |       |  | 4,401.0 |   |  |            |         |       |          |          |       |       |  |  | 3,799.7    |   |  |          |         |   |       |  |      |  |  |  | 1,614.7 |  
|                                            



---



##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02


Notes to the accountscontinued

48




2     Segmental analysiscontinued

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

|                                                          |  |                           |       |                           |      |            |        |      |            |  |       |   |  |      |        |            |      |  |            |   |  |  |       |  
|--------------------------------------------------------- |  | ------------------------- | ----- | ------------------------- | ---- | ---------- | ------ | ---- | ---------- |  | ----- | - |  | ---- | ------ | ---------- | ---- |  | ---------- | - |  |  | ----- | -
|b     Operating profit/(loss)                             |  | Operating profit/(loss)  
|                                                          |  |                          
|                                                          |  | Before exceptional items  |       | After exceptional items  
|                                                          |  | and goodwill amortisation |       | and goodwill amortisation
|                                                          |  |                           |       |                          
|                                                          |  | 2002                      |       |                           | 2001 |            |        | 2000 |            |  | 2002  |   |  | 2001 |        |            | 2000 | 
|                                                          |  |                           |       |                           |      | (restated) |        |      | (restated) |  |       |   |  |      |        | (restated) |      |  | (restated) |  
|                                                          |  | £m                        |       |                           | £m   |            |        | £m   |            |  | £m    |   |  | £m   |        |            | £m   | 
|                                                         
|Continuing operations                                     |  |                           |       |                           |      |            |        |      |            |  |       |   |  |      |        |            |      |  |            |   |  |  |       |  
|Transmission  UK                                         |  |                           | 524.7 |                           |      |            | 486.3  |      |            |  | 523.1 |   |  |      | 484.9  |            |      |  | 486.3      |   |  |  | 523.1 |  
| USA                                                     |  |                           | 60.3  |                           |      |            | 49.6   |      |            |  | 1.3   |   |  |      | 48.0   |            |      |  | 37.6       |   |  |  | 0.9   |  
|Distribution  USA                                        |  |                           | 165.6 |                           |      |            | 154.8  |      |            |  | 1.7   |   |  |      | 110.5  |            |      |  | 101.8      |   |  |  | 0.7   |  
|Stranded costs recovery and generation  USA              |  |                           | 44.3  |                           |      |            | 61.7   |      |            |  | 0.2   |   |  |      | 44.3   |            |      |  | 61.7       |   |  |  | 0.2   |  
|Interconnectors  UK                                      |  |                           | 19.8  |                           |      |            | 42.8   |      |            |  | 46.6  |   |  |      | 19.8   |            |      |  | 42.8       |   |  |  | 46.6  |  
| USA                                                     |  |                           | 17.3  |                           |      |            | 22.3   |      |            |  | 0.6   |   |  |      | 17.3   |            |      |  | 22.3       |   |  |  | 0.6   |  
| Other                                                   |  |                           |      |                           |      |            | (0.1   | )    |            |  | (0.9  | ) |  |      |       |            |      |  | (0.1       | ) |  |  | (0.9  | )
|Telecommunications                                        |  |                           | (17.2 | )                         |      |            | (3.0   | )    |            |  | (1.1  | ) |  |      | (21.6  | )          |      |  | (7.3       | ) |  |  | (1.3  | )
|Other activities                                          |  |                           | (4.8  | )                         |      |            | 6.7    |      |            |  | 3.2   |   |  |      | (11.5  | )          |      |  | 5.7        |   |  |  | 1.9   |  
|Impairment of investments in joint ventures and associate |  |                           |      |                           |      |            |       |      |            |  |      |   |  |      | (186.0 | )          |      |  |           |   |  |  |      |  
|Exceptional costs  USA                                   |  |                           |      |                           |      |            |       |      |            |  |      |   |  |      |       |            |      |  | (45.3      | ) |  |  |      |  
|                                                         
|                                                          |  |                           | 810.0 |                           |      |            | 821.1  |      |            |  | 574.7 |   |  |      | 505.7  |            |      |  | 705.5      |   |  |  | 571.8 |  
|Acquisition (Niagara Mohawk)                              |  |                           |       |                           |      |            |        |      |            |  |       |   |  |      |        |            |      |  |            |   |  |  |       |  
|Electricity  USA                                         |  |                           | 66.8  |                           |      |            |       |      |            |  |      |   |  |      | 61.4   |            |      |  |           |   |  |  |      |  
|Gas  USA                                                 |  |                           | 17.0  |                           |      |            |       |      |            |  |      |   |  |      | 15.8   |            |      |  |           |   |  |  |      |  
|Other  USA                                               |  |                           | (0.7  | )                         |      |            |       |      |            |  |      |   |  |      | (0.7   | )          |      |  |           |   |  |  |      |  
|Exceptional costs  USA                                   |  |                           |      |                           |      |            |       |      |            |  |      |   |  |      | (74.8  | )          |      |  |           |   |  |  |      |  
|                                                         
|                                                          |  |                           | 83.1  |                           |      |            |       |      |            |  |      |   |  |      | 1.7    |            |      |  |           |   |  |  |      |  
|                                                         
|Group undertakings                                        |  |                           | 893.1 |                           |      |            | 821.1  |      |            |  | 574.7 |   |  |      | 507.4  |            |      |  | 705.5      |   |  |  | 571.8 |  
|                                                         
|Telecommunications   Energis                             |  |                           | (3.7  | )                         |      |            | 4.4    |      |            |  | 1.9   |   |  |      | (407.5 | )          |      |  | (9.4       | ) |  |  | (3.4  | )
|  Intelig                                                |  |                           | (35.5 | )                         |      |            | (118.0 | )    |            |  | (44.1 | ) |  |      | (151.7 | )          |      |  | (118.0     | ) |  |  | (44.1 | )
|  Other                                                  |  |                           | (15.3 | )                         |      |            | (3.4   | )    |            |  |      |   |  |      | (113.7 | )          |      |  | (3.9       | ) |  |  |      |  
|Other electricity activities                              |  |                           | 36.1  |                           |      |            | 35.3   |      |            |  | 21.5  |   |  |      | 36.1   |            |      |  | 35.3       |   |  |  | 21.5  |  
|                                                         
|Joint ventures and associate                              |  |                           | (18.4 | )                         |      |            | (81.7  | )    |            |  | (20.7 | ) |  |      | (636.8 | )          |      |  | (96.0      | ) |  |  | (26.0 | )
|                                                         
|Total operating profit/(loss)                             |  |                           | 874.7 |                           |      |            | 739.4  |      |            |  | 554.0 |   |  |      | (129.4 | )          |      |  | 609.5      |   |  |  | 545.8 |  
|                                                         
|Europe                                                    |  |                           | 511.3 |                           |      |            | 545.0  |      |            |  | 577.6 |   |  |      | (48.8  | )          |      |  | 531.2      |   |  |  | 572.3 |  
|North America                                             |  |                           | 378.3 |                           |      |            | 288.0  |      |            |  | (1.4  | ) |  |      | 225.1  |            |      |  | 172.4      |   |  |  | (4.3  | )
|Latin America                                             |  |                           | (19.3 | )                         |      |            | (97.8  | )    |            |  | (26.2 | ) |  |      | (310.1 | )          |      |  | (98.3      | ) |  |  | (26.2 | )
|Rest of the World                                         |  |                           | 4.4   |                           |      |            | 4.2    |      |            |  | 4.0   |   |  |      | 4.4    |            |      |  | 4.2        |   |  |  | 4.0   |  
|                                                         
|                                                          |  |                           | 874.7 |                           |      |            | 739.4  |      |            |  | 554.0 |   |  |      | (129.4 | )          |      |  | 609.5      |   |  |  | 545.8 |  
|                                                         
|Electricity                                               |  |                           | 931.2 |                           |      |            | 860.4  |      |            |  | 598.1 |   |  |      | 811.9  |            |      |  | 749.1      |   |  |  | 595.4 |  
|Gas                                                       |  |                           | 15.2  |                           |      |            | (1.0   | )    |            |  | (0.8  | ) |  |      | 14.0   |            |      |  | (1.0       | ) |  |  | (0.8  | )
|Telecommunications                                        |  |                           | (71.7 | )                         |      |            | (120.0 | )    |            |  | (43.3 | ) |  |      | (880.5 | )          |      |  | (138.6     | ) |  |  | (48.8 | )
|Exceptional costs  USA                                   |  |                           |      |                           |      |            |       |      |            |  |      |   |  |      | (74.8  | )          |      |  |           |   |  |  |      |  
|                                                         
|                                                          |  |                           | 874.7 |                           |      |            | 739.4  |      |            |  | 554.0 |   |  |      | (129.4 | )          |      |  | 609.5      |   |  |  | 545.8 |  
|                                                         

In 2002, an exceptional charge relating to the impairment of investments in
joint ventures and associate of £792.3m, as explained in note 4b, has been
reflected in the segmental analysis of operating profit shown above. Included
within this amount is £186.0m that relates to the recognition of related
liabilities attributable to group undertakings.

It is not practical to allocate the 2002 exceptional costs of £74.8m (see note
4a) relating to the acquisition of Niagara Mohawk over the Niagara Mohawk
segments, as a consequence of the ongoing reorganisation of its activities with
those of National Grid USA.

It is not practical to allocate the 2001 exceptional costs (see note 4a) over
the above segments, as a consequence of the integration of the operations of
NEES and EUA.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

49




2     Segmental analysis continued

|                                             |            |  |              |       |            |      |            |       |      |  |           |       |  |            |          |       | 
|-------------------------------------------- | ---------- |  | ------------ | ----- | ---------- | ---- | ---------- | ----- | ---- |  | --------- | ----- |  | ---------- | -------- | ----- | 
|c     Total and net assets                   |            |  | Total assets |       | Net assets
|                                             |            |  |              |      
|                                             |            |  | 2002         |       |            | 2001 |            |       | 2002 |  |           | 2001  | 
|                                             |            |  |              |       |            |      | (restated) |       |      |  |           |       |  | (restated) |         
|                                             |            |  | £m           |       |            | £m   |            |       | £m   |  |           | £m    | 
|Continuing operations                        |            |  |              |       |            |      |            |       |      |  |           |       |  |            |          |      
|Transmission  UK                            |            |  | 3,537.7      |       |            |      | 3,426.2    |       |      |  | 3,141.9   |       |  |            | 3,055.9  |      
|                                             |   USA     |  |              | 748.1 |            |      |            | 796.1 |      |  |           | 733.6 |  |            |          | 753.4 | 
|Distribution   USA                          |            |  | 2,747.6      |       |            |      | 2,872.1    |       |      |  | 2,502.1   |       |  |            | 2,587.8  |      
|Stranded costs recovery and generation  USA |            |  | 945.1        |       |            |      | 1,078.6    |       |      |  | 319.8     |       |  |            | 344.6    |      
|Interconnectors  UK                         |            |  | 157.1        |       |            |      | 154.9      |       |      |  | 150.9     |       |  |            | 152.1    |      
|                                             |   USA     |  |              | 172.2 |            |      |            | 191.2 |      |  |           | 169.9 |  |            |          | 190.6 | 
|                                             |   Other   |  |              | 17.6  |            |      |            | 11.0  |      |  |           | 16.8  |  |            |          | 9.8   | 
|Telecommunications                           |            |  | 175.0        |       |            |      | 153.7      |       |      |  | (18.2     | )     |  |            | 148.5    |      
|Other activities                             |            |  | 372.2        |       |            |      | 377.1      |       |      |  | 83.4      |       |  |            | 184.9    |      
|                                            
|                                             |            |  | 8,872.6      |       |            |      | 9,060.9    |       |      |  | 7,100.2   |       |  |            | 7,427.6  |      
|Acquisition (Niagara Mohawk)                 |            |  |              |       |            |      |            |       |      |  |           |       |  |            |          |      
|Electricity  USA                            |            |  | 6,771.8      |       |            |      |           |       |      |  | 5,372.0   |       |  |            |         |      
|Gas  USA                                    |            |  | 972.5        |       |            |      |           |       |      |  | 844.5     |       |  |            |         |      
|Other  USA                                  |            |  | 331.6        |       |            |      |           |       |      |  | 328.0     |       |  |            |         |      
|                                            
|                                             |            |  | 8,075.9      |       |            |      |           |       |      |  | 6,544.5   |       |  |            |         |      
|                                            
|Group undertakings                           |            |  | 16,948.5     |       |            |      | 9,060.9    |       |      |  | 13,644.7  |       |  |            | 7,427.6  |      
|                                            
|Continuing operations                        |            |  |              |       |            |      |            |       |      |  |           |       |  |            |          |      
|Telecommunications   Energis                |            |  |             |       |            |      | 401.9      |       |      |  |          |       |  |            | 401.9    |      
|                                             |   Intelig |  |              |      |            |      |            | 164.8 |      |  |           |      |  |            |          | 164.8 | 
|                                             |   Other   |  |              | 0.2   |            |      |            | 110.5 |      |  |           | 0.2   |  |            |          | 110.5 | 
|Generation  USA                             |            |  | 28.4         |       |            |      | 32.8       |       |      |  | 28.4      |       |  |            | 32.8     |      
|Other electricity activities                 |            |  | 28.4         |       |            |      | 90.7       |       |      |  | (8.8      | )     |  |            | 90.7     |      
|                                            
|Joint ventures and associate                 |            |  | 57.0         |       |            |      | 800.7      |       |      |  | 19.8      |       |  |            | 800.7    |      
|                                            
|Unallocated                                  |            |  | 410.5        |       |            |      | 343.9      |       |      |  | (10,370.1 | )     |  |            | (5,513.0 | )    
|                                            
|                                             |            |  | 17,416.0     |       |            |      | 10,205.5   |       |      |  | 3,294.4   |       |  |            | 2,715.3  |      
|                                            
|Europe                                       |            |  | 3,942.3      |       |            |      | 4,247.3    |       |      |  | 3,205.3   |       |  |            | 3,821.9  |      
|North America                                |            |  | 13,031.0     |       |            |      | 5,270.2    |       |      |  | 10,465.1  |       |  |            | 4,063.5  |      
|Latin America                                |            |  |             |       |            |      | 317.7      |       |      |  | (37.3     | )     |  |            | 317.7    |      
|Rest of the World                            |            |  | 32.2         |       |            |      | 26.4       |       |      |  | 31.4      |       |  |            | 25.2     |      
|Unallocated                                  |            |  | 410.5        |       |            |      | 343.9      |       |      |  | (10,370.1 | )     |  |            | (5,513.0 | )    
|                                            
|                                             |            |  | 17,416.0     |       |            |      | 10,205.5   |       |      |  | 3,294.4   |       |  |            | 2,715.3  |      
|                                            

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



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts continued

50




2     Segmental analysis continued

|                                             |          |                     |       |                               |  |      |       |      |      |  |       |      |  |  |       |      |  |      |            |      |  |            |       |     | 
|-------------------------------------------- | -------- | ------------------- | ----- | ----------------------------- |  | ---- | ----- | ---- | ---- |  | ----- | ---- |  |  | ----- | ---- |  | ---- | ---------- | ---- |  | ---------- | ----- | --- | 
|d     Other segmental information            |          | Capital expenditure |       | Depreciation and amortisation
|                                             |          |                     |       |                              
|                                             |          |                     | 2002  |                               |  | 2001 |       |      | 2000 |  |       | 2002 |  |  | 2001  |      |  | 2000 |           
|                                             |          |                     |       |                               |  |      |       |      |      |  |       |      |  |  |       |      |  |      | (restated) |      |  | (restated) |      
|                                             |          |                     | £m    |                               |  | £m   |       |      | £m   |  |       | £m   |  |  | £m    |      |  | £m   |           
|                                            
|Continuing operations                        |          |                     |       |                               |  |      |       |      |      |  |       |      |  |  |       |      |  |      |            |      |  |            |       |    
|Transmission   UK                           |          |                     | 370.6 |                               |  |      | 361.2 |      |      |  | 286.5 |      |  |  | 170.2 |      |  |      | 147.7      |      |  |            | 133.7 |    
|                                             |   USA   |                     |       | 35.7                          |  |      |       | 29.4 |      |  |       | 0.8  |  |  |       | 26.2 |  |      |            | 25.3 |  |            |       | 0.5 | 
|Distribution  USA                           |          |                     | 120.0 |                               |  |      | 84.3  |      |      |  | 2.6   |      |  |  | 141.7 |      |  |      | 129.0      |      |  |            | 2.6   |    
|Stranded costs recovery and generation  USA |          |                     | 3.2   |                               |  |      | 9.9   |      |      |  |      |      |  |  | 10.3  |      |  |      | 40.6       |      |  |            | 0.9   |    
|Interconnectors  UK                         |          |                     | 1.5   |                               |  |      | 0.9   |      |      |  |      |      |  |  | 13.4  |      |  |      | 13.3       |      |  |            | 13.2  |    
|                                             |   USA   |                     |       |                              |  |      |       |     |      |  |       | 0.9  |  |  |       | 14.3 |  |      |            | 13.9 |  |            |       | 0.3 | 
|                                             |   Other |                     |       | 6.2                           |  |      |       | 2.9  |      |  |       |     |  |  |       |     |  |      |            |     |  |            |       |    | 
|Telecommunications                           |          |                     | 20.0  |                               |  |      | 30.0  |      |      |  |      |      |  |  | 7.1   |      |  |      | 5.8        |      |  |            | 0.1   |    
|Other activities                             |          |                     | 18.1  |                               |  |      | 17.2  |      |      |  | 25.3  |      |  |  | 2.1   |      |  |      | 4.4        |      |  |            | 7.3   |    
|                                            
|                                             |          |                     | 575.3 |                               |  |      | 535.8 |      |      |  | 316.1 |      |  |  | 385.3 |      |  |      | 380.0      |      |  |            | 158.6 |    
|Acquisition (Niagara Mohawk)                 |          |                     |       |                               |  |      |       |      |      |  |       |      |  |  |       |      |  |      |            |      |  |            |       |    
|Electricity  USA                            |          |                     | 15.1  |                               |  |      |      |      |      |  |      |      |  |  | 45.8  |      |  |      |           |      |  |            |      |    
|Gas  USA                                    |          |                     | 2.9   |                               |  |      |      |      |      |  |      |      |  |  | 5.8   |      |  |      |           |      |  |            |      |    
|                                            
|                                             |          |                     | 18.0  |                               |  |      |      |      |      |  |      |      |  |  | 51.6  |      |  |      |           |      |  |            |      |    
|                                            
|Group undertakings                           |          |                     | 593.3 |                               |  |      | 535.8 |      |      |  | 316.1 |      |  |  | 436.9 |      |  |      | 380.0      |      |  |            | 158.6 |    
|                                            
|Europe                                       |          |                     | 384.6 |                               |  |      | 378.5 |      |      |  | 311.7 |      |  |  | 183.5 |      |  |      | 162.8      |      |  |            | 152.5 |    
|North America                                |          |                     | 202.5 |                               |  |      | 154.4 |      |      |  | 4.4   |      |  |  | 253.4 |      |  |      | 217.2      |      |  |            | 6.1   |    
|Rest of the World                            |          |                     | 6.2   |                               |  |      | 2.9   |      |      |  |      |      |  |  |      |      |  |      |           |      |  |            |      |    
|                                            
|                                             |          |                     | 593.3 |                               |  |      | 535.8 |      |      |  | 316.1 |      |  |  | 436.9 |      |  |      | 380.0      |      |  |            | 158.6 |    
|                                            

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



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

51




3     Operating costs

|                                                                                       |  |            |         |  |             |  |       |       |  |  |         |  |  |            |         |  |            |  |         | 
|-------------------------------------------------------------------------------------- |  | ---------- | ------- |  | ----------- |  | ----- | ----- |  |  | ------- |  |  | ---------- | ------- |  | ---------- |  | ------- | 
|                                                                                       |  | Continuing |         |  |             |  |       |       |  |  |         |  |  |            |         |  |            |  |        
|                                                                                       |  | operations |         |  | Acquisition |  |       | Total |  |  |         |  |  |            |         |  |           
|                                                                                       |  |            |         |  |             |  |       |      
|                                                                                       |  | 2002       |         |  | 2002        |  |       | 2002  |  |  | 2001    |  |  | 2000       |        
|                                                                                       |  |            |         |  |             |  |       |       |  |  |         |  |  | (restated) |         |  | (restated) | 
|                                                                                       |  | £m         |         |  | £m          |  |       | £m    |  |  | £m      |  |  | £m         |        
|                                                                                      
|Depreciation                                                                           |  |            | 296.2   |  |             |  | 23.0  |       |  |  | 319.2   |  |  |            | 276.5   |  |            |  | 154.9   | 
|Payroll costs (note 5a)                                                                |  |            | 304.5   |  |             |  | 60.8  |       |  |  | 365.3   |  |  |            | 302.7   |  |            |  | 127.5   | 
|Purchases of electricity                                                               |  |            | 1,249.3 |  |             |  | 160.9 |       |  |  | 1,410.2 |  |  |            | 1,247.9 |  |            |  | 124.8   | 
|Purchases of gas                                                                       |  |            |        |  |             |  | 58.0  |       |  |  | 58.0    |  |  |            |        |  |            |  |        | 
|Rates and property taxes                                                               |  |            | 171.1   |  |             |  | 25.5  |       |  |  | 196.6   |  |  |            | 176.5   |  |            |  | 103.7   | 
|Balancing services incentive scheme direct costs(i)                                    |  |            | 203.8   |  |             |  |      |       |  |  | 203.8   |  |  |            | 219.6   |  |            |  | 212.6   | 
|EnMO direct costs                                                                      |  |            | 394.9   |  |             |  |      |       |  |  | 394.9   |  |  |            | 201.2   |  |            |  | 70.7    | 
|Other operating charges                                                                |  |            | 796.4   |  |             |  | 149.2 |       |  |  | 945.6   |  |  |            | 669.8   |  |            |  | 248.7   | 
|                                                                                      
|                                                                                       |  |            | 3,416.2 |  |             |  | 477.4 |       |  |  | 3,893.6 |  |  |            | 3,094.2 |  |            |  | 1,042.9 | 
|                                                                                      
|Operating costs include:                                                               |  |            |         |  |             |  |       |       |  |  |         |  |  |            |         |  |            |  |         | 
|Research and development costs                                                         |  |            |         |  |             |  |       |       |  |  | 6.2     |  |  |            | 8.1     |  |            |  | 7.8     | 
|Operating lease rentals                                                                |  |            |         |  |             |  |       |       |  |  |         |  |  |            |         |  |            |  |         | 
| Plant and machinery                                                                  |  |            |         |  |             |  |       |       |  |  | 7.6     |  |  |            | 4.2     |  |            |  | 0.1     | 
| Other                                                                                |  |            |         |  |             |  |       |       |  |  | 19.3    |  |  |            | 15.1    |  |            |  | 3.3     | 
|Amortisation of goodwill(ii)                                                           |  |            |         |  |             |  |       |       |  |  | 78.4    |  |  |            | 70.3    |  |            |  | 2.9     | 
|Amortisation of regulatory assets                                                      |  |            |         |  |             |  |       |       |  |  | 34.9    |  |  |            | 33.2    |  |            |  | 0.8     | 
|Other amortisation                                                                     |  |            |         |  |             |  |       |       |  |  | 4.4     |  |  |            |        |  |            |  |        | 
|Auditors remuneration                                                                 |  |            |         |  |             |  |       |       |  |  |         |  |  |            |         |  |            |  |         | 
| Statutory audit fees (Company £8,000 (2001: £nil))                                   |  |            |         |  |             |  |       |       |  |  | 1.9     |  |  |            | 1.0     |  |            |  | 0.5     | 
|                                                                                       | 
| Taxation, acquisition activity (including due diligence),
and other strategic advice |  |            |         |  |             |  |       |       |  |  | 4.0     |  |  |            | 3.6     |  |            |  | 1.4     | 
| Stock exchange related                                                               |  |            |         |  |             |  |       |       |  |  | 0.3     |  |  |            | 0.1     |  |            |  | 0.4     | 
| Regulatory related services                                                          |  |            |         |  |             |  |       |       |  |  | 0.2     |  |  |            | 0.8     |  |            |  | 0.9     | 
| Other                                                                                |  |            |         |  |             |  |       |       |  |  | 0.1     |  |  |            | 0.6     |  |            |  | 0.3     | 
|                                                                                       | 
|                                                                                       |  |            |         |  |             |  |       |       |  |  | 4.6     |  |  |            | 5.1     |  |            |  | 3.0     | 
|                                                                                      
|                                                                                       |  |            |         |  |             |  |       |       |  |  | 6.5     |  |  |            | 6.1     |  |            |  | 3.5     | 
|                                                                                      

(i)Comparative period figures relate to a predecessor scheme.(ii)Excludes goodwill of £12.0m (2001: £14.3m; 2000: £5.3m) relating to
joint ventures and associate.


In addition to the non-audit fees of £4.6m (2001: £5.1m; 2000: £3.0m), fees of:
a) £1.8m (2001: £1.5m; 2000: £1.2m), incurred in respect of acquisitions, have
been capitalised and; b) £nil (2001: £0.5m; 2000: £nil), incurred in respect of
disposals, have been charged in arriving at the profit on disposal of
investments. Fees of £nil (2001: £4.3m; 2000: £nil) relating to the development
and implementation of the new electricity trading arrangements, which are fully
recoverable, have also been paid to PricewaterhouseCoopers.

Amounts charged in respect of other major accounting firms during 2002 amounted to £1.1m (2001: £1.7m; 2000: £0.7m).

4     Exceptional items

a     Exceptional costs
The 2002 exceptional costs of £121.4m (£79.0m after tax) comprise restructuring
costs incurred as a result of the acquisition of Niagara Mohawk amounting to
£74.8m (£44.5m after tax), a business reorganisation within the UK amounting to
£40.5m (£28.4m after tax) and other exceptional costs of £6.1m (£6.1m after
tax).

The 2001 exceptional integration costs of £45.3m (£39.4m after tax) principally
comprise early retirement costs arising on the integration of the operations of
NEES and EUA.

b     Impairment of investments in joint ventures and associate
The exceptional charge of £792.3m (£774.6m after tax) relates to the write-down
of the Groups investment in its joint ventures and associate. The exceptional
charge comprises a write-down of the carrying value of these investments of
£606.3m (£588.6m after tax) to their estimated recoverable amounts, and the
recognition of related liabilities of £186.0m (£186.0m after tax).

c     Exceptional profit relating to partial disposal of Energis
The 2002 exceptional profit of £20.1m (£20.1m after tax) relates to the partial
disposal of Energis arising from a reduction in the Groups interest in Energis
plc, an associated undertaking, as a result of the issue of shares by Energis
relating to the acquisition by Energis of further shares in Ision.

The 2001 exceptional profit of £243.3m (restated) (£243.3m (restated) after
tax) arises from reductions in the Groups interest in Energis primarily as a
consequence of the placing of shares by Energis in September 2000 and the
acquisition by Energis of a majority stake in Ision in January 2001.

The 2000 exceptional profit of £1,029.6m (restated) relating to the partial
disposal of the Groups shareholding in Energis comprises a profit of £896.9m
(restated) (£667.4m (restated) after tax) resulting from the sale of 28.9m
shares in Energis; and a profit of £132.7m (restated) (£132.7m (restated) after
tax) resulting from reductions in the Groups interest in Energis, primarily as
a consequence of the placing by Energis of 14.8m of its shares.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts continued

52




4     Exceptional items continued

d     Profit on disposal of investments
The 2002 exceptional profit of £10.6m (£10.6m after tax) relates to the net
gain on the disposal of a joint venture. The results of the joint venture up to
the date of disposal are included within the Groups share of joint ventures
results.

The 2001 exceptional profit of £20.1m (£20.1m after tax) relates to the net
gain on the disposal of market services businesses. The operating results of
these businesses up to the date of disposal are included within other
activities.

e     Financing
The 2002 exceptional net interest charge of £92.5m (£92.5m after tax) relates
to the Groups share of a joint ventures exceptional net interest charge. The
exceptional charge arises as a result of the devaluation of the Argentine peso,
resulting in the joint venture reflecting an exceptional foreign exchange
financing related devaluation charge in its profit and loss account.

f     Exceptional tax credit
The 2001 exceptional tax credit of £229.5m represents a reversal of the 2000
exceptional tax charge relating to the exceptional profit on the partial
disposal of Energis, arising from the realisation of capital losses for tax
purposes as a result of Group restructurings.

5     Payroll costs and employees

|                          |  |      |       |   |      |  |       |      |  |  |       |  
|------------------------- |  | ---- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                          |  | 2002 |       |   | 2001 |  |       | 2000 | 
|                          |  | £m   |       |   | £m   |  |       | £m   | 
|                         
|a     Payroll costs       |  |      |       |   |      |  |       |      |  |  |       |  
|Wages and salaries        |  |      | 398.2 |   |      |  | 326.0 |      |  |  | 129.4 |  
|Social security costs     |  |      | 28.4  |   |      |  | 26.3  |      |  |  | 11.5  |  
|Other pension costs       |  |      | 21.6  |   |      |  | 18.9  |      |  |  | 10.4  |  
|                         
|                          |  |      | 448.2 |   |      |  | 371.2 |      |  |  | 151.3 |  
|Less: amounts capitalised |  |      | (82.9 | ) |      |  | (68.5 | )    |  |  | (23.8 | )
|                         
|                          |  |      | 365.3 |   |      |  | 302.7 |      |  |  | 127.5 |  
|                         

|                                             |  |          |        |  |         |  |       |         |  |  |         |  |  |  |       | 
|-------------------------------------------- |  | -------- | ------ |  | ------- |  | ----- | ------- |  |  | ------- |  |  |  | ----- | 
|                                             |  | 31 March |        |  | Average |  |       | Average |  |  | Average | 
|                                             |  | 2002     |        |  | 2002    |  |       | 2001    |  |  | 2000    | 
|                                             |  | Number   |        |  | Number  |  |       | Number  |  |  | Number  | 
|                                            
|b     Number of employees                    |  |          |        |  |         |  |       |         |  |  |         |  |  |  |       | 
|Europe                                       |  |          | 3,082  |  |         |  | 3,296 |         |  |  | 3,662   |  |  |  | 3,651 | 
|North America (excluding Niagara Mohawk)     |  |          | 3,846  |  |         |  | 3,874 |         |  |  | 3,836   |  |  |  | 140   | 
|Latin America                                |  |          | 14     |  |         |  | 17    |         |  |  | 17      |  |  |  | 13    | 
|Rest of the World                            |  |          | 7      |  |         |  | 8     |         |  |  | 8       |  |  |  | 6     | 
|                                            
|Continuing operations                        |  |          | 6,949  |  |         |  | 7,195 |         |  |  | 7,523   |  |  |  | 3,810 | 
|Acquisition  North America (Niagara Mohawk) |  |          | 6,287  |  |         |  | 1,048 |         |  |  |        |  |  |  |      | 
|                                            
|                                             |  |          | 13,236 |  |         |  | 8,243 |         |  |  | 7,523   |  |  |  | 3,810 | 
|                                            

The vast majority of employees in:

     Europe are either directly or indirectly employed in the transmission of
electricity in the UK.

     North America (excluding Niagara Mohawk) are either directly or indirectly
employed in the transmission, distribution and generation of electricity in the
USA.

     North America (Niagara Mohawk) are either directly or indirectly employed in
the transmission and distribution of electricity and gas supply in the USA.

6     Directors emoluments and interests in shares

Details of Directors emoluments and interests in shares are contained on pages
34 to 38.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

53




7     Pension and post-retirement benefits

Substantially all of the Groups UK employees are members of the Electricity
Supply Pension Scheme (the Scheme), a defined benefit funded scheme. The
assets of the Scheme are held in a separate trustee administered fund. The
Scheme is divided into sections, one of which is the Groups section. The
latest full actuarial valuation of the Groups section of the Scheme was
carried out by Bacon & Woodrow, Consulting Actuaries, as at 31 March 2001. The
results of this actuarial valuation have been used as the basis for assessing
pension cost.

The projected unit method was used for the last valuation and the principal
actuarial assumptions adopted were that the real rates of return would be 4.5%
on investments held in respect of members before they reach retirement and 3.5%
on investments held in respect of members after they reach retirement; that the
annual rate of inflation would average 2.3%; that the real annual increase in
salary would average 1.0%; and that pensions would increase at a real annual
rate of 0.2%. The total market value of the assets relating to the Groups
section of the Scheme at 31 March 2001 was £1,336.3m and the actuarial value of
the assets represented approximately 118.3% of the actuarial value of the
benefits that had accrued to members measured on a past service basis. The
agreed contribution rate for the forthcoming year is 6%.

Substantially all of the Groups USA employees are members of defined benefit
plans. The assets of the plans are held in separate trustee administered funds.
The latest full actuarial valuations were carried out as at 31 January 2002 for
the Niagara Mohawk plans (for the purpose of determining the fair value of the
net assets acquired on the acquisition of Niagara Mohawk (note 27)) and at 1
April 2001 for the remainder of the USA plans. The projected unit method was
used for the latest valuations and the principal actuarial assumptions adopted
were that the real annual rate of return on investments would average 5.7% for
Niagara Mohawk schemes and 4.7% for other USA schemes; that real annual
increases in salary would average 0.25% for Niagara Mohawk schemes and 0.5% for
other USA schemes; that inflation would average 3.0% for Niagara Mohawk schemes
and 4.0% for other USAschemes; and that nominal increases in pensions would be
nil. The market value of the assets relating to the Groups USA defined benefit
plans at 1 April 2001 and 31 January 2002 (Niagara Mohawk) total US dollar
2,126m and the actuarial value of the assets represented 91% of the actuarial
value of the benefits that had accrued to members, after allowing for future
salary increases. There is no formally agreed contribution rate for the USA
plans.

The pension cost for the year ended 31 March 2002 charged to operating profit
of £21.6m (2001: £18.9m; 2000: £10.4m) represents the regular pension cost of
£18.5m (2001: £21.2m; 2000: £13.0m) plus a variation from the regular pension
cost totalling £3.1m (2001: £2.3m (net credit); 2000: £2.6m (net credit)),
which includes a credit of £1.5m; (2001: £1.5m; 2000: £1.5m) relating to the
partial release of a pension provision. In addition, net interest includes a
credit of £8.1m (2001: £15.7m; 2000: £3.5m) in respect of the notional interest
element of the variation from the regular pension cost.

Included in debtors is a pension prepayment of £34.6m (2001: £28.2m).

In the USA, the Group provides health care and life insurance to eligible
retired USA employees. Eligibility is based on certain age and length of
service requirements and in some cases retirees must contribute to the cost of
their coverage. The latest actuarial valuations were carried out as at 31
January 2002 for the Niagara Mohawk plans (for the purpose of determining the
fair value of net assets acquired on the acquisition of Niagara Mohawk (note
27)) and at 1 April 2001 for the remainder of the USA plans. The principal
assumptions adopted were a discount rate of 7.50% and that medical costs would
increase by 10% per annum, decreasing to 5% by 2007 and remain at this rate
thereafter.

The cost of providing health care and life insurance to retired USA employees
for the year ended 31 March 2002 amounted to £9.4m (2001: £7.3m; 2000, for the
period 22 March 2000 to 31 March 2000: £0.2m).

FRS 17 Retirement benefits
On 20 November 2000, the Accounting Standards Board introduced a new accounting
standard, FRS 17 Retirement Benefits, replacing SSAP 24 Accounting for
Pension Costs. FRS 17 is fully effective for periods ending on or after 22
June 2003, though disclosures are required in the transitional period
commencing with the year ended 31 March 2002. Initial disclosures showing the
assets and liabilities of the major plans are set out below. In respect of the
USA pension and other post-retirement plans, information relating to these has
been aggregated. The disclosures have been calculated using the projected unit
method of valuation on the basis of the following assumptions:

|                                                              |  |          |     |   |          |  |     |             |  |  |      | 
|------------------------------------------------------------- |  | -------- | --- | - | -------- |  | --- | ----------- |  |  | ---- | 
|                                                              |  |          |     |   |          |  |     | USA         | 
|                                                              |  |          |     |   |          |  |     | Other post- | 
|                                                              |  | UK       |     |   | USA      |  |     | retirement  | 
|                                                              |  | Pensions |     |   | Pensions |  |     | benefits    | 
|                                                              |  | %        |     |   | %        |  |     | %           | 
|                                                             
|Rate of increase in salaries                                  |  |          | 3.8 | * |          |  | 4.0 |             |  |  |     | 
|Rate of increase in pensions in payment and deferred pensions |  |          | 2.9 |   |          |  |    |             |  |  |     | 
|Discount rate                                                 |  |          | 6.0 |   |          |  | 7.5 |             |  |  | 7.5  | 
|Rate of increase in RPI                                       |  |          | 2.8 |   |          |  | 3.5 |             |  |  |     | 
|Initial health care cost trend rate                           |  |          |    |   |          |  |    |             |  |  | 10.0 | 
|Ultimate health care cost trend rate                          |  |          |    |   |          |  |    |             |  |  | 5.0  | 
|                                                             

* A promotional age related salary scale has also been used.




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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts continued

54




7     Pensions and post-retirement benefits continued

FRS 17 Retirement benefits continued
An analysis of the assets held in the various pension and other post-retirement
benefit schemes and the expected rates of return at 31 March 2002 were as
follows:

|                                    |  |                |     |                |          |                          |          |             |                |  |          |  |  |             |          |                |          |             |      |  |  |  |        |  
|----------------------------------- |  | -------------- | --- | -------------- | -------- | ------------------------ | -------- | ----------- | -------------- |  | -------- |  |  | ----------- | -------- | -------------- | -------- | ----------- | ---- |  |  |  | ------ | -
|                                    |  |                |     |                |          |                          |          |             |                |  |          |  |  |             |          |                |          | USA - Other
|                                    |  | UK - Pensions  |     | USA - Pensions |          | post-retirement benefits
|                                    |  |                |     |                |          |                         
|                                    |  | Long term      |     |                |          |                          |          |             | Long term      |  |          |  |  |             |          | Long term      |          |             |      |  | 
|                                    |  | rate of return |     |                |          |                          |          |             | rate of return |  |          |  |  |             |          | rate of return |          |             |      |  | 
|                                    |  | expected at    |     |                | Value at |                          |          | expected at |                |  | Value at |  |  | expected at |          |                | Value at |            
|                                    |  | 31 March       |     |                | 31 March |                          |          | 31 March    |                |  | 31 March |  |  | 31 March    |          |                | 31 March |            
|                                    |  | 2002           |     |                | 2002     |                          |          | 2002        |                |  | 2002     |  |  | 2002        |          |                | 2002     |            
|                                    |  | %              |     |                | £m       |                          |          | %           |                |  | £m       |  |  | %           |          |                | £m       |            
|                                   
|Equities                            |  |                | 7.8 |                |          |                          | 848.9    |             |                |  | 10.2     |  |  |             | 902.2    |                |          |             | 10.3 |  |  |  | 236.4  |  
|Bonds                               |  |                | 5.3 |                |          |                          | 290.0    |             |                |  | 6.4      |  |  |             | 475.7    |                |          |             | 5.9  |  |  |  | 159.7  |  
|Property                            |  |                | 6.3 |                |          |                          | 82.9     |             |                |  | 8.0      |  |  |             | 11.2     |                |          |             |     |  |  |  |       |  
|Other                               |  |                | 3.8 |                |          |                          | 38.9     |             |                |  | 5.6      |  |  |             | 48.4     |                |          |             | 5.9  |  |  |  | 0.6    |  
|                                   
|Total market value of assets        |  |                |     |                |          |                          | 1,260.7  |             |                |  |          |  |  |             | 1,437.5  |                |          |             |      |  |  |  | 396.7  |  
|Present value of scheme liabilities |  |                |     |                |          |                          | (1,312.2 | )           |                |  |          |  |  |             | (1,623.1 | )              |          |             |      |  |  |  | (884.0 | )
|                                   
|Scheme deficits                     |  |                |     |                |          |                          | (51.5    | )           |                |  |          |  |  |             | (185.6   | )              |          |             |      |  |  |  | (487.3 | )
|Related deferred tax asset          |  |                |     |                |          |                          | 15.5     |             |                |  |          |  |  |             | 73.9     |                |          |             |      |  |  |  | 193.3  |  
|                                   
|Net liabilities                     |  |                |     |                |          |                          | (36.0    | )           |                |  |          |  |  |             | (111.7   | )              |          |             |      |  |  |  | (294.0 | )
|                                   

The net pension liability for USA-Pensions comprises net pension assets
relating to funded schemes in surplus of £30.7m, net pension liabilities
relating to funded schemes in deficit of £98.1m and net pension liabilities
relating to unfunded schemes of £44.3m.

If the above amounts had been recognised in the financial statements, the
Groups net assets employed at 31 March 2002 would be as follows:

|                                                                                           |  |    |         |  
|------------------------------------------------------------------------------------------ |  | -- | ------- | -
|                                                                                           |  | £m |        
|                                                                                          
|Net assets employed excluding net SSAP 24 liabilities                                      |  |    | 3,649.6 |  
|Net FRS17 liabilities                                                                      |  |    | (441.7  | )
|Impact on regulatory assets of recognising net FRS 17 liabilities and related deferred tax |  |    | (89.3   | )
|                                                                                          
|Net assets employed including net FRS 17 liabilities                                       |  |    | 3,118.6 |  
|                                                                                          

The impact of the implementation of FRS 17 on net assets employed, as shown
above, would be reflected within the profit and loss account reserve.

8     Net interest

|                                                                                                                                                       |  |      |       |            |      |  |            |      |  |  |       |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ----- | ---------- | ---- |  | ---------- | ---- |  |  | ----- | -
|                                                                                                                                                       |  | 2002 |       |            | 2001 |  |            | 2000 | 
|                                                                                                                                                       |  |      |       | (restated) |      |  | (restated) |     
|                                                                                                                                                       |  | £m   |       |            | £m   |  |            | £m   | 
|                                                                                                                                                      
|Bank loans and overdrafts                                                                                                                              |  |      | 120.5 |            |      |  | 118.0      |      |  |  | 12.4  |  
|Other                                                                                                                                                  |  |      | 225.9 |            |      |  | 232.1      |      |  |  | 146.0 |  
|                                                                                                                                                      
|Interest payable and similar charges                                                                                                                   |  |      | 346.4 |            |      |  | 350.1      |      |  |  | 158.4 |  
|Interest capitalised                                                                                                                                   |  |      | (25.7 | )          |      |  | (20.7      | )    |  |  | (20.4 | )
|                                                                                                                                                      
|Interest payable and similar charges net of interest capitalised                                                                                       |  |      | 320.7 |            |      |  | 329.4      |      |  |  | 138.0 |  
|Interest receivable and similar income                                                                                                                 |  |      | (72.6 | )          |      |  | (112.9     | )    |  |  | (95.0 | )
|                                                                                                                                                      
|                                                                                                                                                       |  |      | 248.1 |            |      |  | 216.5      |      |  |  | 43.0  |  
|Joint ventures (including exceptional net interest of £92.5m (2001: £nil; 2000: £nil),
net of interest capitalised £10.1m (2001: £18.5m; 2000: £2.1m)) |  |      | 120.5 |            |      |  | 12.8       |      |  |  | 8.9   |  
|Associate                                                                                                                                              |  |      | 16.4  |            |      |  | 25.8       |      |  |  | 15.6  |  
|                                                                                                                                                      
|                                                                                                                                                       |  |      | 385.0 |            |      |  | 255.1      |      |  |  | 67.5  |  
|                                                                                                                                                      
|Comprising:                                                                                                                                            |  |      |       |            |      |  |            |      |  |  |       |  
|Net interest, excluding exceptional net interest                                                                                                       |  |      | 292.5 |            |      |  | 255.1      |      |  |  | 67.5  |  
|Exceptional net interest (note 4e)                                                                                                                     |  |      | 92.5  |            |      |  |           |      |  |  |      |  
|                                                                                                                                                      
|Net interest, including exceptional net interest                                                                                                       |  |      | 385.0 |            |      |  | 255.1      |      |  |  | 67.5  |  
|                                                                                                                                                      

Interest on the funding attributable to assets in the course of construction
was capitalised during the year at a rate of 6.2% (2001: 6.7%; 2000: 6.7%).

Interest payable and similar charges for 2001 included £21.0m of losses arising
from the valuation at maturity of US dollar interest rate swaptions that
provided an economic hedge against dollar borrowings, but which did not qualify
as hedges for accounting purposes. Interest receivable and similar income for
2001 included a £17.4m gain on closing out sterling fixed interest rate swaps
that were originally entered into as hedges for sterling borrowings.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02



55




9     Taxation

|                                                          |  |      |       |            |      |  |            |      |  |  |       |  
|--------------------------------------------------------- |  | ---- | ----- | ---------- | ---- |  | ---------- | ---- |  |  | ----- | -
|                                                          |  | 2002 |       |            | 2001 |  |            | 2000 | 
|                                                          |  |      |       | (restated) |      |  | (restated) |     
|                                                          |  | £m   |       |            | £m   |  |            | £m   | 
|                                                         
|United Kingdom                                            |  |      |       |            |      |  |            |      |  |  |       |  
|- Corporation tax at 30%                                  |  |      | 39.5  |            |      |  | (153.2     | )    |  |  | 347.4 |  
|- Adjustment to corporation tax in respect of prior years |  |      | (78.1 | )          |      |  | (20.0      | )    |  |  |      |  
|- Deferred tax: timing differences                        |  |      | 27.9  |            |      |  | 18.6       |      |  |  | 18.5  |  
|- Adjustment to deferred tax in respect of prior years    |  |      | 3.7   |            |      |  | 18.0       |      |  |  | 17.0  |  
|                                                         
|                                                          |  |      | (7.0  | )          |      |  | (136.6     | )    |  |  | 382.9 |  
|Overseas                                                  |  |      |       |            |      |  |            |      |  |  |       |  
|- Corporate tax                                           |  |      | 73.3  |            |      |  | 26.7       |      |  |  | 2.8   |  
|- Adjustment to corporation tax in respect of prior years |  |      | 1.4   |            |      |  |           |      |  |  |      |  
|- Deferred tax: timing differences                        |  |      | (48.4 | )          |      |  | 44.1       |      |  |  |      |  
|                                                         
|                                                          |  |      | 26.3  |            |      |  | 70.8       |      |  |  | 2.8   |  
|                                                         
|                                                          |  |      | 19.3  |            |      |  | (65.8      | )    |  |  | 385.7 |  
|Joint ventures                                            |  |      | 6.2   |            |      |  | 4.2        |      |  |  | 2.9   |  
|Associate                                                 |  |      | (0.2  | )          |      |  | 8.3        |      |  |  | (6.3  | )
|                                                         
|                                                          |  |      | 25.3  |            |      |  | (53.3      | )    |  |  | 382.3 |  
|                                                         
|Comprising:                                               |  |      |       |            |      |  |            |      |  |  |       |  
|Taxation  excluding exceptional items                    |  |      | 85.4  |            |      |  | 182.1      |      |  |  | 152.8 |  
|                                                         
|Taxation  exceptional tax credit (note 4f)               |  |      |      |            |      |  | (229.5     | )    |  |  |      |  
|Taxation  exceptional items                              |  |      | (60.1 | )          |      |  | (5.9       | )    |  |  | 229.5 |  
|                                                         
|                                                          |  |      | (60.1 | )          |      |  | (235.4     | )    |  |  | 229.5 |  
|                                                         
|                                                          |  |      | 25.3  |            |      |  | (53.3      | )    |  |  | 382.3 |  
|                                                         

A reconciliation of the UK corporation tax rate to the effective tax rate of
the Group is as follows:

|                                                                                           |  |                               |       |            |      |  |            |      |  |  |      |  
|------------------------------------------------------------------------------------------ |  | ----------------------------- | ----- | ---------- | ---- |  | ---------- | ---- |  |  | ---- | -
|                                                                                           |  | 2002                          |       |            | 2001 |  |            | 2000 | 
|                                                                                           |  |                               |       | (restated) |      |  | (restated) |     
|                                                                                           |  | (% of profit before taxation)
|                                                                                          
|UK corporation tax rate                                                                    |  |                               | 30.0  |            |      |  | 30.0       |      |  |  | 30.0 |  
|Increase/(decrease) resulting from:                                                        |  |                               |       |            |      |  |            |      |  |  |      |  
|Goodwill amortisation and other permanent differences                                      |  |                               | 7.4   |            |      |  | 8.6        |      |  |  | 0.1  |  
|Unrelieved tax losses (including overseas)                                                 |  |                               | 5.9   |            |      |  | 11.9       |      |  |  |     |  
|Overseas income taxed at other than UK statutory rate                                      |  |                               | (10.7 | )          |      |  | (7.4       | )    |  |  |     |  
|Other                                                                                      |  |                               | (0.4  | )          |      |  | 3.0        |      |  |  | (1.5 | )
|                                                                                          
|Effective tax rate before adjustment in respect of prior years and exceptional items       |  |                               | 32.2  |            |      |  | 46.1       |      |  |  | 28.6 |  
|Adjustment in respect of prior years                                                       |  |                               | (14.8 | )          |      |  | (0.5       | )    |  |  | 3.3  |  
|                                                                                          
|Effective tax rate after adjustment in respect of prior years and before exceptional items |  |                               | 17.4  |            |      |  | 45.6       |      |  |  | 31.9 |  
|Exceptional items                                                                          |  |                               | (22.9 | )          |      |  | (54.2      | )    |  |  | (6.5 | )
|                                                                                          
|Effective tax rate after exceptional items                                                 |  |                               | (5.5  | )          |      |  | (8.6       | )    |  |  | 25.4 |  
|                                                                                          

10     Dividends

|                   |  |              |       |  |              |  |       |              |  |  |       |  |  |      |       |  |      |  |       |  |  |  |       | 
|------------------ |  | ------------ | ----- |  | ------------ |  | ----- | ------------ |  |  | ----- |  |  | ---- | ----- |  | ---- |  | ----- |  |  |  | ----- | 
|                   |  | 2002         |       |  | 2001         |  |       | 2000         |  |  |       |  |  |      |       |  |      |  |       |  | 
|                   |  | Per ordinary |       |  | Per ordinary |  |       | Per ordinary |  |  |       |  |  |      |       |  |      |  |       |  | 
|                   |  | share        |       |  | share        |  |       | share        |  |  | 2002  |  |  | 2001 |       |  | 2000 | 
|                   |  | pence        |       |  | pence        |  |       | pence        |  |  | £m    |  |  | £m   |       |  | £m   | 
|                  
|Ordinary dividends |  |              |       |  |              |  |       |              |  |  |       |  |  |      |       |  |      |  |       |  |  |  |       | 
|- Interim          |  |              | 6.46  |  |              |  | 6.05  |              |  |  | 5.59  |  |  |      | 95.6  |  |      |  | 89.5  |  |  |  | 82.5  | 
|- Proposed final   |  |              | 9.58  |  |              |  | 9.03  |              |  |  | 8.35  |  |  |      | 169.0 |  |      |  | 133.5 |  |  |  | 123.0 | 
|                  
|                   |  |              | 16.04 |  |              |  | 15.08 |              |  |  | 13.94 |  |  |      | 264.6 |  |      |  | 223.0 |  |  |  | 205.5 | 
|                  



---



##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts continued

56




11     Earnings per share

|                                                                    |  |          |       |   |         |         |        |           |          |  |          |  |  |            |       |   |            |  |        |          |  |  |         |            |  |           |            |   |  |  |          |   |  |  |         | 
|------------------------------------------------------------------- |  | -------- | ----- | - | ------- | ------- | ------ | --------- | -------- |  | -------- |  |  | ---------- | ----- | - | ---------- |  | ------ | -------- |  |  | ------- | ---------- |  | --------- | ---------- | - |  |  | -------- | - |  |  | ------- | 
|                                                                    |  |          |       |   |         | (Loss)/ |        |           | Weighted |  |          |  |  |            |       |   |            |  |        | Weighted |  |  |         |            |  |           |            |   |  |  | Weighted |  
|                                                                    |  | Earnings |       |   | profit  |         |        | average   |          |  | Earnings |  |  | Profit     |       |   | average    |  |        | Earnings |  |  | Profit  |            |  | average   |           
|                                                                    |  | per      |       |   | for the |         |        | number    |          |  | per      |  |  | for the    |       |   | number     |  |        | per      |  |  | for the |            |  | number    |           
|                                                                    |  | share    |       |   | year    |         |        | of shares |          |  | share    |  |  | year       |       |   | of shares  |  |        | share    |  |  | year    |            |  | of shares |           
|                                                                    |  | 2002     |       |   | 2002    |         |        | 2002      |          |  | 2001     |  |  | 2001       |       |   | 2001       |  |        | 2000     |  |  | 2000    |            |  | 2000      |           
|                                                                    |  |          |       |   |         |         |        |           |          |  |          |  |  | (restated) |       |   | (restated) |  |        |          |  |  |         | (restated) |  |           | (restated) |   |  |  |          |  
|                                                                    |  | pence    |       |   | £m      |         |        | million   |          |  | pence    |  |  | £m         |       |   | million    |  |        | pence    |  |  | £m      |            |  | million   |           
|                                                                   
|Basic, including exceptional items
and goodwill amortisation        |  |          | (32.3 | ) |         |         | (493.3 | )         |          |  | 1,526.8  |  |  |            | 45.0  |   |            |  | 664.2  |          |  |  | 1,475.8 |            |  |           | 76.2       |   |  |  | 1,122.0  |   |  |  | 1,472.9 | 
|Exceptional costs (note 4a)                                         |  |          | 5.2   |   |         |         | 79.0   |           |          |  |         |  |  |            | 2.7   |   |            |  | 39.4   |          |  |  |        |            |  |           |           |   |  |  |         |   |  |  |        | 
|Impairment of investments in
joint ventures and associate
(note 4b) |  |          | 50.6  |   |         |         | 774.6  |           |          |  |         |  |  |            |      |   |            |  |       |          |  |  |        |            |  |           |           |   |  |  |         |   |  |  |        | 
|Profit relating to partial disposal
of Energis(note 4c)             |  |          | (1.3  | ) |         |         | (20.1  | )         |          |  |         |  |  |            | (16.5 | ) |            |  | (243.3 | )        |  |  |        |            |  |           | (54.3      | ) |  |  | (800.1   | ) |  |  |        | 
|Profit on disposal of investments
(note 4d)                         |  |          | (0.7  | ) |         |         | (10.6  | )         |          |  |         |  |  |            | (1.3  | ) |            |  | (20.1  | )        |  |  |        |            |  |           |           |   |  |  |         |   |  |  |        | 
|Exceptional financing charge
(note 4e)                              |  |          | 6.1   |   |         |         | 92.5   |           |          |  |         |  |  |            |      |   |            |  |       |          |  |  |        |            |  |           |           |   |  |  |         |   |  |  |        | 
|Profit on disposal of tangible
fixed assets                         |  |          | (1.4  | ) |         |         | (22.0  | )         |          |  |         |  |  |            |      |   |            |  |       |          |  |  |        |            |  |           |           |   |  |  |         |   |  |  |        | 
|Exceptional tax credit (note 4f)                                    |  |          |      |   |         |         |       |           |          |  |         |  |  |            | (15.6 | ) |            |  | (229.5 | )        |  |  |        |            |  |           |           |   |  |  |         |   |  |  |        | 
|Goodwill amortisation                                               |  |          | 5.9   |   |         |         | 90.4   |           |          |  |         |  |  |            | 5.7   |   |            |  | 84.6   |          |  |  |        |            |  |           | 0.6        |   |  |  | 8.2      |   |  |  |        | 
|                                                                   
|Basic, excluding exceptional items
and goodwill amortisation        |  |          | 32.1  |   |         |         | 490.5  |           |          |  | 1,526.8  |  |  |            | 20.0  |   |            |  | 295.3  |          |  |  | 1,475.8 |            |  |           | 22.5       |   |  |  | 330.1    |   |  |  | 1,472.9 | 
|                                                                    |  |          |      
|Dilutive impact of employee
share options                           |  |          |       |   |         |         |        |           |          |  |          |  |  |            | (0.1  | ) |            |  |       |          |  |  | 9.9     |            |  |           | (0.2       | ) |  |  |         |   |  |  | 10.1    | 
|Dilutive impact of 4.25%
exchangeable bonds 2008                    |  |          |       |   |         |         |        |           |          |  |          |  |  |            | (0.1  | ) |            |  | 21.2   |          |  |  | 110.3   |            |  |           | (0.3       | ) |  |  | 20.9     |   |  |  | 110.3   | 
|                                                                   
|Diluted, excluding exceptional
items and goodwill amortisation      |  |          |       |   |         |         |        |           |          |  |          |  |  |            | 19.8  |   |            |  | 316.5  |          |  |  | 1,596.0 |            |  |           | 22.0       |   |  |  | 351.0    |   |  |  | 1,593.3 | 
|Exceptional costs (note 4a)                                         |  |          |       |   |         |         |        |           |          |  |          |  |  |            | (2.5  | ) |            |  | (39.4  | )        |  |  |        |            |  |           |           |   |  |  |         |   |  |  |        | 
|Profit relating to partial disposal
of Energis(note 4c)             |  |          |       |   |         |         |        |           |          |  |          |  |  |            | 15.2  |   |            |  | 243.3  |          |  |  |        |            |  |           | 50.2       |   |  |  | 800.1    |   |  |  |        | 
|Profit on disposal of investments
(note 4d)                         |  |          |       |   |         |         |        |           |          |  |          |  |  |            | 1.3   |   |            |  | 20.1   |          |  |  |        |            |  |           |           |   |  |  |         |   |  |  |        | 
|Exceptional tax credit (note 4f)                                    |  |          |       |   |         |         |        |           |          |  |          |  |  |            | 14.4  |   |            |  | 229.5  |          |  |  |        |            |  |           |           |   |  |  |         |   |  |  |        | 
|Goodwill amortisation                                               |  |          |       |   |         |         |        |           |          |  |          |  |  |            | (5.2  | ) |            |  | (84.6  | )        |  |  |        |            |  |           | (0.5       | ) |  |  | (8.2     | ) |  |  |        | 
|                                                                   
|Diluted, including exceptional items
and goodwill amortisation      |  |          |       |   |         |         |        |           |          |  |          |  |  |            | 43.0  |   |            |  | 685.4  |          |  |  | 1,596.0 |            |  |           | 71.7       |   |  |  | 1,142.9  |   |  |  | 1,593.3 | 
|                                                                   

The weighted average number of shares in issue excludes the shares held by
employee share trusts.

Earnings per ordinary share, excluding exceptional items and goodwill
amortisation, are provided in order to reflect the underlying performance of
the Group.

There is no difference between basic and diluted earnings per share for the
year ended 31 March 2002.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

57




12     Intangible fixed assets  goodwill

|                                      |  |      |         |   |              |  |        |       |  |          |         |  
|------------------------------------- |  | ---- | ------- | - | ------------ |  | ------ | ----- |  | -------- | ------- | -
|                                      |  |      |         |   |              |  |        |       |  | Net book |        
|                                      |  | Cost |         |   | Amortisation |  |        | value | 
|Group                                 |  | £m   |         |   | £m           |  |        | £m    | 
|                                     
|At 1 April 2001 (previously reported) |  |      | 1,248.6 |   |              |  | (62.4  | )     |  |          | 1,186.2 |  
|Prior year adjustment (note 1)        |  |      | 211.2   |   |              |  | (11.2  | )     |  |          | 200.0   |  
|                                     
|At 1 April 2001 (restated)            |  |      | 1,459.8 |   |              |  | (73.6  | )     |  |          | 1,386.2 |  
|Exchange adjustments                  |  |      | (3.8    | ) |              |  | (1.1   | )     |  |          | (4.9    | )
|Addition (note 27)                    |  |      | 810.1   |   |              |  |       |       |  |          | 810.1   |  
|Charge for the year                   |  |      |        |   |              |  | (78.4  | )     |  |          | (78.4   | )
|                                     
|At 31 March 2002                      |  |      | 2,266.1 |   |              |  | (153.1 | )     |  |          | 2,113.0 |  
|                                     

13     Tangible fixed assets

|                                                                         |  |           |       |   |           |       |          |              |        |        |            |          |       |       |       |   |  |  |          |  
|------------------------------------------------------------------------ |  | --------- | ----- | - | --------- | ----- | -------- | ------------ | ------ | ------ | ---------- | -------- | ----- | ----- | ----- | - |  |  | -------- | -
|                                                                         |  |           |       |   |           |       |          |              |        | Assets |            |          | Motor |       |       |   |  | 
|                                                                         |  |           |       |   |           | Plant |          |              | in the |        |            | vehicles |       |       |       |   | 
|                                                                         |  | Land and  |       |   | and       |       |          | course of    |        |        | and office |          |       |       |       |  
|                                                                         |  | buildings |       |   | machinery |       |          | construction |        |        | equipment  |          |       | Total |       |  
|Group                                                                    |  | £m        |       |   | £m        |       |          | £m           |        |        | £m         |          |       | £m    |      
|                                                                        
|Cost at 1 April 2001                                                     |  |           | 446.6 |   |           |       | 7,889.6  |              |        |        | 409.7      |          |       |       | 146.4 |   |  |  | 8,892.3  |  
|Exchange adjustments                                                     |  |           | (1.4  | ) |           |       | (17.2    | )            |        |        | (1.3       | )        |       |       | (0.4  | ) |  |  | (20.3    | )
|Acquisition of Group undertaking                                         |  |           | 331.9 |   |           |       | 4,282.3  |              |        |        | 140.0      |          |       |       | 73.8  |   |  |  | 4,828.0  |  
|Capital expenditure                                                      |  |           | 2.8   |   |           |       | 7.0      |              |        |        | 575.3      |          |       |       | 8.2   |   |  |  | 593.3    |  
|Disposals                                                                |  |           | (10.3 | ) |           |       | (72.3    | )            |        |        |           |          |       |       | (23.0 | ) |  |  | (105.6   | )
|Reclassifications                                                        |  |           | 17.4  |   |           |       | 489.7    |              |        |        | (489.6     | )        |       |       | (17.5 | ) |  |  |         |  
|                                                                        
|Cost at 31 March 2002                                                    |  |           | 787.0 |   |           |       | 12,579.1 |              |        |        | 634.1      |          |       |       | 187.5 |   |  |  | 14,187.7 |  
|                                                                        
|Depreciation at 1 April 2001                                             |  |           | 148.0 |   |           |       | 3,044.0  |              |        |        |           |          |       |       | 83.0  |   |  |  | 3,275.0  |  
|Exchange adjustments                                                     |  |           | (0.2  | ) |           |       | (5.4     | )            |        |        |           |          |       |       | (0.2  | ) |  |  | (5.8     | )
|Acquisition of Group undertaking                                         |  |           | 45.0  |   |           |       | 1,477.9  |              |        |        |           |          |       |       | 40.5  |   |  |  | 1,563.4  |  
|Charge for the year                                                      |  |           | 7.8   |   |           |       | 288.6    |              |        |        |           |          |       |       | 22.8  |   |  |  | 319.2    |  
|Disposals                                                                |  |           | (6.5  | ) |           |       | (64.1    | )            |        |        |           |          |       |       | (15.2 | ) |  |  | (85.8    | )
|Reclassifications                                                        |  |           | 0.3   |   |           |       | 5.5      |              |        |        |           |          |       |       | (5.8  | ) |  |  |         |  
|                                                                        
|Depreciation at 31 March 2002                                            |  |           | 194.4 |   |           |       | 4,746.5  |              |        |        |           |          |       |       | 125.1 |   |  |  | 5,066.0  |  
|                                                                        
|Net book value at 31 March 2002                                          |  |           | 592.6 |   |           |       | 7,832.6  |              |        |        | 634.1      |          |       |       | 62.4  |   |  |  | 9,121.7  |  
|                                                                        
|Net book value at 31 March 2001                                          |  |           | 298.6 |   |           |       | 4,845.6  |              |        |        | 409.7      |          |       |       | 63.4  |   |  |  | 5,617.3  |  
|                                                                        
|Weighted average remaining useful economic life at 31 March 2002 (years) |  |           | 21.6  |   |           |       | 26.0     |              |        |        |            |          |       |       | 2.5   |   |  |  |          |  
|                                                                        

The cost of tangible fixed assets at 31 March 2002 includes £306.2m (2001:
£280.5m) relating to interest capitalised.

The net book value of land and buildings comprises:

|                                 |  |      |       |  |      |  |       | 
|-------------------------------- |  | ---- | ----- |  | ---- |  | ----- | 
|                                 |  | 2002 |       |  | 2001 | 
|                                 |  | £m   |       |  | £m   | 
|                                
|Freehold                         |  |      | 557.8 |  |      |  | 262.5 | 
|Long leasehold (over 50 years)   |  |      | 28.9  |  |      |  | 30.0  | 
|Short leasehold (under 50 years) |  |      | 5.9   |  |      |  | 6.1   | 
|                                
|                                 |  |      | 592.6 |  |      |  | 298.6 | 
|                                





---



##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accountscontinued

58




14     Fixed asset investments

|                                           |  |                         |        |           |       |  |        |              |        |             |       |   |       |    |       |              |    |  |       |    |  |  |        |   |  |  |          |  
|------------------------------------------ |  | ----------------------- | ------ | --------- | ----- |  | ------ | ------------ | ------ | ----------- | ----- | - | ----- | -- | ----- | ------------ | -- |  | ----- | -- |  |  | ------ | - |  |  | -------- | -
|                                           |  | Group                   |        | Company   |      
|                                           |  |                         |        |           |       | 
|                                           |  |                         |        |           |       |  |        |              |        | Listed      |       |   | Own   |    |       | Other        |    |  |       |    |  |  | Group  |  
|                                           |  | Unlisted joint ventures |        | associate |       |  | shares |              |        | investments |       |   | Total |    |       | undertakings |   
|                                           |  |                         |        |           |       |  |        |              |        |             |       |   |       |    |       |              |    | 
|                                           |  | Share of net            |        |           | Loans |  |        | Share of net |        |             |       |   |       |    |       |              |    |  |       |    |  |  |        |   | 
|                                           |  | assets                  |        |           |       |  |        |              | assets |             |       |   |       |    |       |              |    |  |       |    |  |  |        |   |  | 
|                                           |  | £m                      |        |           | £m    |  |        | £m           |        |             | £m    |   |       | £m |       |              | £m |  |       | £m | 
|                                          
|At 1 April 2001 (previously reported)      |  |                         | 335.4  |           |       |  | 64.9   |              |        |             | 414.9 |   |       |    | 10.2  |              |    |  | 134.9 |    |  |  | 960.3  |   |  |  |         |  
|Prior year adjustment (note 1)             |  |                         | (1.5   | )         |       |  |       |              |        |             | (13.0 | ) |       |    |      |              |    |  |      |    |  |  | (14.5  | ) |  |  |         |  
|                                          
|At 1 April 2001 (restated)                 |  |                         | 333.9  |           |       |  | 64.9   |              |        |             | 401.9 |   |       |    | 10.2  |              |    |  | 134.9 |    |  |  | 945.8  |   |  |  |         |  
|Exchange adjustments                       |  |                         | (34.1  | )         |       |  |       |              |        |             |      |   |       |    |      |              |    |  | (0.1  | )  |  |  | (34.2  | ) |  |  |         |  
|Acquisition
of Group undertaking(note 27)  |  |                         | 13.2   |           |       |  |       |              |        |             |      |   |       |    |      |              |    |  | 50.9  |    |  |  | 64.1   |   |  |  |         |  
|Additions                                  |  |                         | 6.1    |           |       |  | 32.3   |              |        |             |      |   |       |    | 47.8  |              |    |  | 11.8  |    |  |  | 98.0   |   |  |  | 5,634.6  |  
|Transfers                                  |  |                         | 10.4   |           |       |  | (10.4  | )            |        |             |      |   |       |    |      |              |    |  |      |    |  |  |       |   |  |  |         |  
|Disposals                                  |  |                         | (8.3   | )         |       |  |       |              |        |             |      |   |       |    | (12.3 | )            |    |  | (1.9  | )  |  |  | (22.5  | ) |  |  | (3,554.6 | )
|Share of retained loss                     |  |                         | (158.3 | )         |       |  |       |              |        |             | (31.3 | ) |       |    |      |              |    |  |      |    |  |  | (189.6 | ) |  |  |         |  
|Transfer to provisions                     |  |                         | 37.3   |           |       |  |       |              |        |             |      |   |       |    |      |              |    |  |      |    |  |  | 37.3   |   |  |  |         |  
|Other movements                            |  |                         |       |           |       |  |       |              |        |             | 21.5  |   |       |    |      |              |    |  |      |    |  |  | 21.5   |   |  |  |         |  
|                                          
|At 31 March 2002                           |  |                         | 200.2  |           |       |  | 86.8   |              |        |             | 392.1 |   |       |    | 45.7  |              |    |  | 195.6 |    |  |  | 920.4  |   |  |  | 2,080.0  |  
|                                          
|Impairment at 1 April 2001                 |  |                         |       |           |       |  |       |              |        |             |      |   |       |    |      |              |    |  |      |    |  |  |       |   |  |  |         |  
|Charge for the year                        |  |                         | 129.3  |           |       |  | 84.9   |              |        |             | 392.1 |   |       |    |      |              |    |  |      |    |  |  | 606.3  |   |  |  |         |  
|Exchange adjustments                       |  |                         | 13.9   |           |       |  | 1.9    |              |        |             |      |   |       |    |      |              |    |  |      |    |  |  | 15.8   |   |  |  |         |  
|                                          
|Impairment at 31 March 2002                |  |                         | 143.2  |           |       |  | 86.8   |              |        |             | 392.1 |   |       |    |      |              |    |  |      |    |  |  | 622.1  |   |  |  |         |  
|                                          
|Net book value at 31 March 2002            |  |                         | 57.0   |           |       |  |       |              |        |             |      |   |       |    | 45.7  |              |    |  | 195.6 |    |  |  | 298.3  |   |  |  | 2,080.0  |  
|                                          
|Net book value at 31 March 2001 (restated) |  |                         | 333.9  |           |       |  | 64.9   |              |        |             | 401.9 |   |       |    | 10.2  |              |    |  | 134.9 |    |  |  | 945.8  |   |  |  |         |  
|                                          

The market value of the investment in the listed associate (Energis) at 31
March 2002 was £15.6m (2001: £1,579.4m).

The share of retained loss relating to joint ventures includes an exceptional
interest charge of £92.5m as described in note 4e.

During the year the Company acquired all of the ordinary shares in National
Grid Holdings One plc as part of the Scheme of Arrangement described in note
22. On 31 January 2002, the Company acquired the entire issued share capital of
Niagara Mohawk Holdings, Inc. and subsequently disposed of this investment to
another group undertaking.

Own shares at 31 March 2002 relate to 13.2m 10p ordinary shares in the Company,
held by employee share trusts for the purpose of satisfying certain obligations
under the various share option schemes operated by the Group. Own shares at 31
March 2001 relate to 5.9m 1113/17p ordinary shares in National Grid Holdings
One plc (formerly National Grid Group plc), held by employee share trusts for
similar purposes. The carrying value of £45.7m (market value £61.3m (2001:
£31.9m)) represents the exercise amounts receivable in respect of those shares
which were issued at market value by the Company and cost in respect of those
shares purchased in the open market. Funding is provided to the trusts by Group
undertakings.

The names of the principal Group and associated undertakings are included in
note 30.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

59




15     Debtors

|                                              |  |       |         |  |       |            |         |         |  |  |         | 
|--------------------------------------------- |  | ----- | ------- |  | ----- | ---------- | ------- | ------- |  |  | ------- | 
|                                              |  | Group |         |  | Group |            |         | Company | 
|                                              |  | 2002  |         |  | 2001  |            |         | 2002    | 
|                                              |  |       |         |  |       | (restated) |         |         |  |  |        
|                                              |  | £m    |         |  | £m    |            |         | £m      | 
|                                             
|Amounts falling due within one year:          |  |       |         |  |       |            |         |         |  |  |         | 
|Trade debtors                                 |  |       | 707.4   |  |       |            | 379.9   |         |  |  |        | 
|Amounts owed by Group undertakings            |  |       |        |  |       |            |        |         |  |  | 2,023.2 | 
|Amounts owed by an associate                  |  |       | 21.9    |  |       |            | 10.5    |         |  |  |        | 
|Amounts owed by joint ventures                |  |       | 0.1     |  |       |            | 23.3    |         |  |  |        | 
|Regulatory assets                             |  |       | 443.9   |  |       |            | 255.1   |         |  |  |        | 
|Prepayments and accrued income                |  |       | 136.9   |  |       |            | 115.8   |         |  |  |        | 
|Other debtors                                 |  |       | 217.7   |  |       |            | 95.8    |         |  |  | 5.9     | 
|                                             
|                                              |  |       | 1,527.9 |  |       |            | 880.4   |         |  |  | 2,029.1 | 
|                                             
|Amounts falling due after more than one year: |  |       |         |  |       |            |         |         |  |  |         | 
|Amounts owed by an associate                  |  |       | 40.3    |  |       |            | 45.1    |         |  |  |        | 
|Regulatory assets                             |  |       | 3,969.9 |  |       |            | 978.8   |         |  |  |        | 
|Other debtors                                 |  |       | 44.2    |  |       |            | 30.0    |         |  |  |        | 
|                                             
|                                              |  |       | 4,054.4 |  |       |            | 1,053.9 |         |  |  |        | 
|                                             
|                                              |  |       | 5,582.3 |  |       |            | 1,934.3 |         |  |  | 2,029.1 | 
|                                             

Trade debtors are stated net of provisions for doubtful debts of £63.2m (2001:
£15.4m), as shown by the following table.

|                                 |  |       |       |  
|-------------------------------- |  | ----- | ----- | -
|                                 |  | Group |      
|                                 |  | 2002  |      
|Provision for doubtful debts     |  | £m    |      
|                                
|At 1 April 2001                  |  |       | 15.4  |  
|Acquisition of Group undertaking |  |       | 42.0  |  
|Charge for the year              |  |       | 26.4  |  
|Deductions1                      |  |       | (20.6 | )
|                                
|At 31 March 2002                 |  |       | 63.2  |  
|                                

|1 | Uncollectable accounts written off net of recoveries
|- | ----------------------------------------------------

The amounts owed by an associate include a net investment in a finance lease
amounting to £44.6m (2001: £48.9m) comprising total rentals receivable of
£65.2m (2001: £74.2m) less unearned income of £20.6m (2001: £25.3m), of which
£4.3m (2001: £3.8m) falls due within one year and £40.3m (2001: £45.1m) falls
due after more than one year. Rentals received and receivable in the year
amounted to £9.0m (2001: £11.3m). At 31 March 2002, the minimum lease payments
for each of the five years ending 31 March 2007 are £9.0m.

Regulatory assets
SFAS 71 establishes US GAAP for utilities whose regulators have the power to
approve and/or regulate prices that may be charged to customers. Provided that
through the regulatory process, the utility is substantially assured of
recovering its allowable costs by the collection of revenue from its customers,
such costs not yet recovered are deferred as regulatory assets. Due to the
different regulatory environment, no equivalent accounting standard applies in
the UK.

Under UK GAAP, regulatory assets established in accordance with the principles
of SFAS 71 are recognised where they comprise rights or other access to future
economic benefits which arise as a result of past transactions or events which
have created an obligation to transfer economic benefit to a third party.
Measurement of the past transaction or event and hence of the regulatory asset
is determined in accordance with UK GAAP.

Regulatory assets primarily relate to the right to recover from customers the
liabilities recognised in respect of purchased power obligations (note 18), the
decommissioning provision (note 21) and the under-recovery of power costs
incurred. Regulatory assets outstanding at 31 March 2002 are expected to be
substantially recovered over a period through to 2010.

16     Assets held for exchange

The assets held for exchange of £16.6m (2001: £16.6m) represent the carrying
value of 73.5m (2001: 73.5m) shares in Energis plc which are held to satisfy
obligations under the 6% mandatorily exchangeable bonds 2003, as explained in
note 19. The voting rights in respect of 61.0m (2001: 61.0m) of these shares
are vested in the bondholders.





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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accountscontinued

60




17     Creditors (amounts falling due within one year)

|                                   |  |       |         |  |       |  |         |         |  |  |         | 
|---------------------------------- |  | ----- | ------- |  | ----- |  | ------- | ------- |  |  | ------- | 
|                                   |  | Group |         |  | Group |  |         | Company | 
|                                   |  | 2002  |         |  | 2001  |  |         | 2002    | 
|                                   |  | £m    |         |  | £m    |  |         | £m      | 
|                                  
|Borrowings (note 19)               |  |       | 1,451.9 |  |       |  | 1,008.7 |         |  |  | 604.4   | 
|Trade creditors and accruals       |  |       | 769.8   |  |       |  | 648.9   |         |  |  |        | 
|Amounts owed to Group undertakings |  |       |        |  |       |  |        |         |  |  | 1,340.4 | 
|Amounts owed to an associate       |  |       | 5.2     |  |       |  | 10.6    |         |  |  |        | 
|Amounts owed to a joint venture    |  |       |        |  |       |  | 2.1     |         |  |  |        | 
|Purchased power obligations        |  |       | 102.4   |  |       |  | 105.0   |         |  |  |        | 
|Corporate tax                      |  |       | 29.8    |  |       |  | 16.2    |         |  |  |        | 
|Social security and other taxes    |  |       | 25.8    |  |       |  | 14.1    |         |  |  |        | 
|Proposed dividend                  |  |       | 169.0   |  |       |  | 133.5   |         |  |  | 169.0   | 
|Other creditors                    |  |       | 415.4   |  |       |  | 274.6   |         |  |  | 3.8     | 
|                                  
|                                   |  |       | 2,969.3 |  |       |  | 2,213.7 |         |  |  | 2,117.6 | 
|                                  

18 Creditors (amounts falling due after more than one year)

|                             |  |       |         |  |       |  |         | 
|---------------------------- |  | ----- | ------- |  | ----- |  | ------- | 
|                             |  | Group |         |  | Group | 
|                             |  | 2002  |         |  | 2001  | 
|                             |  | £m    |         |  | £m    | 
|                            
|Borrowings (note 19)         |  |       | 7,001.4 |  |       |  | 3,180.7 | 
|Purchased power obligations  |  |       | 361.7   |  |       |  | 448.5   | 
|Liability for swap contracts |  |       | 407.9   |  |       |  |        | 
|Other creditors              |  |       | 347.0   |  |       |  | 126.3   | 
|                            
|                             |  |       | 8,118.0 |  |       |  | 3,755.5 | 
|                            

Purchased power obligations
As part of the sale of substantially all of its non-nuclear generating
business, National Grid USA entered into purchased power transfer agreements
with the purchasers whereby the purchasers took over a number of long term
contracts between National Grid USA and owners of various generating units. In
exchange, National Grid USA committed to make fixed monthly payments to the
purchasers towards the above-market cost of the contracts. The creditor
relating to purchased power obligations, which is also reflected in regulatory
assets (note 15), represents the net present value of these monthly payments
discounted at 5.41%. At 31 March 2002, amounts falling due after five years
totalled £65.4m (2001: £131.6m).

Liability for swap contracts
Niagara Mohawk has entered into indexed swap contracts that expire in 2008 and
a further three swap contracts that expire in June and September 2003. Niagara
Mohawk has recorded a liability in respect of these contractual obligations and
recorded a corresponding regulatory asset as losses on these instruments may be
recovered from customers. The amount of the liability and regulatory asset will
fluctuate over the remaining terms of the swaps as nominal energy quantities
are settled and will be adjusted as periodic assessments are made of energy
prices.





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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

61




19     Borrowings

|                                                       |                             |  |         |         |  |       |         |         |         |  |       |   | 
|------------------------------------------------------ | --------------------------- |  | ------- | ------- |  | ----- | ------- | ------- | ------- |  | ----- | - | 
|                                                       |                             |  | Group   |         |  | Group |         |         | Company | 
|                                                       |                             |  | 2002    |         |  | 2001  |         |         | 2002    | 
|                                                       |                             |  | £m      |         |  | £m    |         |         | £m      | 
|                                                      
|Amounts falling due within one year:                   |                             |  |         |         |  |       |         |         |         |  |       |  
|Bank loans and overdrafts                              |                             |  | 36.6    |         |  |       | 627.5   |         |         |  |      |  
|Zero coupon bonds 2002                                 |                             |  | 26.2    |         |  |       |        |         |         |  |      |  
|6% mandatorily exchangeable bonds 2003                 |                             |  | 242.6   |         |  |       | 242.6   |         |         |  |      |  
|Commercial paper                                       |                             |  | 634.3   |         |  |       | 107.3   |         |         |  | 604.4 |  
|US senior notes                                        |                             |  | 259.5   |         |  |       | 13.8    |         |         |  |      |  
|First Mortgage Bond                                    |                             |  | 160.4   |         |  |       |        |         |         |  |      |  
|Other loans                                            |                             |  | 92.3    |         |  |       | 17.5    |         |         |  |      |  
|                                                      
|                                                       |                             |  | 1,451.9 |         |  |       | 1,008.7 |         |         |  | 604.4 |  
|                                                      
|Amounts falling due after more than one year:          |                             |  |         |         |  |       |         |         |         |  |       |  
|US private placement notes 2003-2015                   |                             |  | 65.5    |         |  |       | 74.8    |         |         |  |      |  
|European Investment Bank Swiss franc loan 2004         |                             |  | 245.8   |         |  |       | 237.0   |         |         |  |      |  
|1,250 million bonds 2006                              |                             |  | 772.4   |         |  |       |        |         |         |  |      |  
|8.0% bonds 2006                                        |                             |  | 239.3   |         |  |       | 239.1   |         |         |  |      |  
|4.25% exchangeable bonds 2008                          |                             |  | 491.3   |         |  |       | 480.3   |         |         |  |      |  
|750 million bonds 2011                                |                             |  | 463.3   |         |  |       |        |         |         |  |      |  
|Pollution control revenue bonds 2018-2022              |                             |  | 315.1   |         |  |       | 315.0   |         |         |  |      |  
|£200m 3.806% index linked bonds 2020                   |                             |  | 200.9   |         |  |       |        |         |         |  |      |  
|5.875% bonds 2024                                      |                             |  | 443.9   |         |  |       | 443.6   |         |         |  |      |  
|£360m 6.5% bonds 2028                                  |                             |  | 357.6   |         |  |       |        |         |         |  |      |  
|£40m 3.589% limited RPI linked bonds 2030              |                             |  | 40.2    |         |  |       |        |         |         |  |      |  
|US senior notes                                        |                             |  | 1,846.3 |         |  |       | 327.8   |         |         |  |      |  
|First Mortgage Bond                                    |                             |  | 1,185.0 |         |  |       |        |         |         |  |      |  
|Tax exempt bonds                                       |                             |  | 303.7   |         |  |       | 16.7    |         |         |  |      |  
|Other loans                                            |                             |  | 31.1    |         |  |       | 24.7    |         |         |  |      |  
|Bank borrowings 2002-2004                              |                             |  |        |         |  |       | 995.5   |         |         |  |      |  
|Zero coupon bonds 2002                                 |                             |  |        |         |  |       | 26.2    |         |         |  |      |  
|                                                      
|                                                       |                             |  | 7,001.4 |         |  |       | 3,180.7 |         |         |  |      |  
|                                                      
|Total borrowings                                       |                             |  | 8,453.3 |         |  |       | 4,189.4 |         |         |  | 604.4 |  
|                                                      
|Total borrowings are repayable as follows:             |                             |  |         |         |  |       |         |         |         |  |       |  
|In one year or less                                    |                             |  | 1,451.9 |         |  |       | 1,008.7 |         |         |  | 604.4 |  
|In more than one year, but not more than two years     |                             |  | 720.3   |         |  |       | 85.8    |         |         |  |      |  
|In more than two years, but not more than three years  |                             |  | 436.8   |         |  |       | 1,262.0 |         |         |  |      |  
|In more than three years, but not more than four years |                             |  | 674.2   |         |  |       | 47.1    |         |         |  |      |  
|In more than four years, but not more than five years  |                             |  | 1,005.1 |         |  |       | 252.6   |         |         |  |      |  
|In more than five years  by instalments               |                             |  | 56.1    |         |  |       | 61.7    |         |         |  |      |  
|                                                       | - other than by instalments |  |         | 4,108.9 |  |       |         | 1,471.5 |         |  |       |  | 
|                                                      
|                                                       |                             |  | 8,453.3 |         |  |       | 4,189.4 |         |         |  | 604.4 |  
|                                                      

At 31 March 2002, borrowings totalling £1,889.4m (2001: £348.6m) were secured
by charges over property, plant and other assets of the Group.

The interest rates shown above are those contracted on the underlying borrowing
before taking into account interest rate and currency swaps.

In February 1999, National Grid Holdings One plc (formerly National Grid Group
plc) issued 14.7m Equity Plus Income Convertible Securities (EPICs) in the
form of 6% mandatorily exchangeable bonds 2003 (exchangeable bonds) in the
aggregate principal amount of US dollar 401.2m. The EPICs are exchangeable,
subject to certain exceptions, on or prior to 26 April 2003 at the option of
the holder of the bonds (bondholders) into ordinary shares of Energis plc, an
associated undertaking (note 16). If the EPICs are redeemed at the option of
the bondholders prior to 3 May 2003, the Group will deliver 4.1665 Energis plc
shares per EPICs. On 3 May 2003, the number of Energis plc shares to be
delivered by the Group in respect of each EPICs is dependent upon the Energis
plc share price at that date and ranges from a maximum of five, if the share
price is £3.30 or less, to a minimum of 4.1665 if the share price is £3.96 or
more.

The 4.25% exchangeable bonds 2008 (the Bonds) are exchangeable on or prior to
8 February 2008 at the option of the holder, into ordinary shares of the
Company at the exchange price of 417p per ordinary share. After 17 February
2003, the Group has the right to redeem the Bonds at any time in whole (but not
in part) at the principal amount outstanding, including any redemption premium.
Unless earlier redeemed, exchanged or purchased, the Bonds will be redeemed on
17 February 2008 at their principal amount plus a premium (together the
Redemption Price, being £1,209.31 per £1,000 principal amount of Bonds). When a
bondholder elects to exchange bonds for ordinary shares, the Group has the
option to pay an amount equal to the cash value of the ordinary shares that
would otherwise have been issued by the Company. For the purposes of the
maturity analysis of borrowings shown above, early exchange of the Bonds has
not been anticipated and the Bonds have been classified as repayable in more
than five years.





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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accountscontinued

62




20     Financial instruments

The Groups treasury policy, including details of the nature, terms and credit
risk associated with financial instruments with off-balance sheet risk is
described on pages 23 to 25. Short term debtors and creditors, where permitted
by the financial reporting standard on derivatives and other financial
instruments (FRS 13), have been excluded from the following disclosures, which
are after taking account of interest rate and currency swaps where applicable.
It is assumed that because of short maturities, the fair value of short term
debtors and creditors approximates to their book values.

|                                                                |  |       |         |  |               |  |         |            |  |  |               |  |  |                        |      |  |           |          |      | 
|--------------------------------------------------------------- |  | ----- | ------- |  | ------------- |  | ------- | ---------- |  |  | ------------- |  |  | ---------------------- | ---- |  | --------- | -------- | ---- | 
|Currency and interest rate composition of financial liabilities |  |       |         |  |               |  |         |            |  |  |               |  |  | Fixed rate liabilities
|                                                                |  |       |        
|                                                                |  |       |         |  |               |  |         |            |  |  |               |  |  |                        |      |  |           | Weighted |     
|                                                                |  |       |         |  |               |  |         |            |  |  |               |  |  |                        |      |  |           | average  |     
|                                                                |  |       |         |  |               |  |         |            |  |  |               |  |  | Weighted               |      |  | period    |         
|                                                                |  |       |         |  |               |  |         |            |  |  |               |  |  | average                |      |  | for which |         
|                                                                |  | Total |         |  | Variable rate |  |         | Fixed rate |  |  | interest rate |  |  | rate is fixed          |     
|At 31 March 2002                                                |  | £m    |         |  | £m            |  |         | £m         |  |  | %             |  |  | Years                  |     
|                                                               
|Sterling                                                        |  |       | 2,530.0 |  |               |  | 563.4   |            |  |  | 1,966.6       |  |  |                        | 6.61 |  |           |          | 10.8 | 
|US dollars                                                      |  |       | 5,923.3 |  |               |  | 1,081.4 |            |  |  | 4,841.9       |  |  |                        | 7.33 |  |           |          | 6.1  | 
|                                                               
|Borrowings                                                      |  |       | 8,453.3 |  |               |  | 1,644.8 |            |  |  | 6,808.5       |  |  |                        | 7.12 |  |           |          | 7.5  | 
|Other financial liabilities (sterling)                          |  |       | 28.2    |  |               |  | 4.7     |            |  |  | 23.5          |  |  |                        | 5.34 |  |           |          | 3.6  | 
|Other financial liabilities (US dollars)                        |  |       | 893.6   |  |               |  | 814.9   |            |  |  | 78.7          |  |  |                        | 5.80 |  |           |         |     
|Other financial liabilities (other)                             |  |       | 0.3     |  |               |  | 0.3     |            |  |  |              |  |  |                        |     |  |           |          |     | 
|                                                               
|                                                                |  |       | 9,375.4 |  |               |  | 2,464.7 |            |  |  | 6,910.7       |  |  |                        | 7.10 |  |           |          | 7.4  | 
|                                                               
|At 31 March 2001                                                |  |       |         |  |               |  |         |            |  |  |               |  |  |                        |      |  |           |          |      | 
|                                                               
|Sterling                                                        |  |       | 539.6   |  |               |  | (759.4  | )          |  |  | 1,299.0       |  |  |                        | 6.92 |  |           |          | 4.6  | 
|US dollars                                                      |  |       | 3,647.3 |  |               |  | 1,239.5 |            |  |  | 2,407.8       |  |  |                        | 6.86 |  |           |          | 3.4  | 
|Other                                                           |  |       | 2.5     |  |               |  | 2.5     |            |  |  |              |  |  |                        |     |  |           |          |     | 
|                                                               
|Borrowings                                                      |  |       | 4,189.4 |  |               |  | 482.6   |            |  |  | 3,706.8       |  |  |                        | 6.94 |  |           |          | 4.8  | 
|Other financial liabilities (sterling)                          |  |       | 30.4    |  |               |  |        |            |  |  | 30.4          |  |  |                        | 5.34 |  |           |          | 4.6  | 
|Other financial liabilities (US dollars)                        |  |       | 662.2   |  |               |  | 621.2   |            |  |  | 41.0          |  |  |                        | 6.22 |  |           | 10.0     | *   
|                                                               
|                                                                |  |       | 4,882.0 |  |               |  | 1,103.8 |            |  |  | 3,778.2       |  |  |                        | 6.92 |  |           |          | 4.8  | 
|                                                               

*
        
        Excludes non-equity minority interests of £78.7m (2001: £20.0m) with no
final repayment date.


At 31 March 2002, the weighted average interest rate on short term borrowings
of £1,451.9m (2001: £1,008.7m) was 4.3% (2001: 5.9%).

Foreign exchange forward deals taken out in 2001/2002 to manage the currency
mix of the Groups borrowing portfolio comprising £190.4m forward sale of US
dollars and a £10.4m forward sale of Australian dollars have not been adjusted
in the table above.

Other US dollar financial liabilities predominantly relate to indexed linked
energy swap contracts of £407.9m (2001: £nil), purchased power obligations due
after more than one year of £361.7m (2001: £448.5m), exchange translation of
cross currency swaps of £45.3m (2001: £166.4m) and non-equity minority
interests of £78.7m (2001: £20.0m).

Substantially all of the variable rate borrowings are subject to interest rates
which fluctuate with LIBOR for the appropriate currency at differing premiums
or, in the case of certain USA based companies, are based on the market rate
for tax exempt commercial paper.

In calculating the weighted average number of years for which interest rates
are fixed, swaps which are cancellable at the option of the swap provider are
taken to have a life based on the earliest date at which they can be cancelled.

|                                                       |  |      |         |  |      |  |         | 
|------------------------------------------------------ |  | ---- | ------- |  | ---- |  | ------- | 
|                                                       |  | 2002 |         |  | 2001 | 
|Maturity of financial liabilities at 31 March          |  | £m   |         |  | £m   | 
|                                                      
|In one year or less                                    |  |      | 1,502.3 |  |      |  | 1,181.4 | 
|In more than one year, but not more than two years     |  |      | 887.1   |  |      |  | 191.6   | 
|In more than two years, but not more than three years  |  |      | 598.0   |  |      |  | 1,348.9 | 
|In more than three years, but not more than four years |  |      | 832.5   |  |      |  | 130.4   | 
|In more than four years, but not more than five years  |  |      | 1,151.4 |  |      |  | 333.3   | 
|In more than five years                                |  |      | 4,404.1 |  |      |  | 1,696.4 | 
|                                                      
|                                                       |  |      | 9,375.4 |  |      |  | 4,882.0 | 
|                                                      





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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

63




20     Financial
instruments continued

|                                                           |  |       |       |  |         |              |      |               |  |  |            |  |  |               |      |  |               |                   |       |           |        |          |     | 
|---------------------------------------------------------- |  | ----- | ----- |  | ------- | ------------ | ---- | ------------- |  |  | ---------- |  |  | ------------- | ---- |  | ------------- | ----------------- | ----- | --------- | ------ | -------- | --- | 
|Currency and interest rate composition of financial assets |  |       |       |  |         |              |      |               |  |  |            |  |  |               |      |  |               | Fixed rate assets |      
|                                                           |  |       |      
|                                                           |  |       |       |  |         |              |      |               |  |  |            |  |  |               |      |  |               |                   |       |           |        | Weighted |    
|                                                           |  |       |       |  |         |              |      |               |  |  |            |  |  |               |      |  |               |                   |       |           |        | average  |    
|                                                           |  |       |       |  |         |              |      |               |  |  |            |  |  |               |      |  |               | Weighted          |       |           | period |         
|                                                           |  |       |       |  |         | Non-interest |      |               |  |  |            |  |  |               |      |  | average       |                   |       | for which |       
|                                                           |  | Total |       |  | bearing |              |      | Variable rate |  |  | Fixed rate |  |  | interest rate |      |  | rate is fixed |                  
|At 31 March 2002                                           |  | £m    |       |  | £m      |              |      | £m            |  |  | £m         |  |  | %             |      |  | Years         |                  
|                                                          
|Sterling                                                   |  |       | 89.8  |  |         |              |     |               |  |  | 89.8       |  |  |               |     |  |               |                   |      |           |        |          |    | 
|US dollars                                                 |  |       | 120.3 |  |         |              |     |               |  |  | 120.3      |  |  |               |     |  |               |                   |      |           |        |          |    | 
|Other currencies                                           |  |       | 2.5   |  |         |              |     |               |  |  | 2.5        |  |  |               |     |  |               |                   |      |           |        |          |    | 
|                                                          
|Cash and deposits                                          |  |       | 212.6 |  |         |              |     |               |  |  | 212.6      |  |  |               |     |  |               |                   |      |           |        |          |    | 
|Other financial assets (sterling)                          |  |       | 61.2  |  |         |              | 16.6 |               |  |  |           |  |  |               | 44.6 |  |               |                   | 11.50 |           |        |          | 4.1 | 
|Other financial assets (US dollar)                         |  |       | 59.1  |  |         |              | 16.8 |               |  |  | 14.0       |  |  |               | 28.3 |  |               |                   | 4.72  |           |        |          | 9.2 | 
|                                                          
|                                                           |  |       | 332.9 |  |         |              | 33.4 |               |  |  | 226.6      |  |  |               | 72.9 |  |               |                   | 8.87  |           |        |          | 6.1 | 
|                                                          
|At
31 March 2001                                           |  |       |       |  |         |              |      |               |  |  |            |  |  |               |      |  |               |                   |       |           |        |          |     | 
|Sterling                                                   |  |       | 136.9 |  |         |              |     |               |  |  | 136.9      |  |  |               |     |  |               |                   |      |           |        |          |    | 
|US dollars                                                 |  |       | 131.6 |  |         |              |     |               |  |  | 131.6      |  |  |               |     |  |               |                   |      |           |        |          |    | 
|Other currencies                                           |  |       | 2.7   |  |         |              |     |               |  |  | 2.7        |  |  |               |     |  |               |                   |      |           |        |          |    | 
|                                                          
|Cash and deposits                                          |  |       | 271.2 |  |         |              |     |               |  |  | 271.2      |  |  |               |     |  |               |                   |      |           |        |          |    | 
|Other financial assets (sterling)                          |  |       | 65.5  |  |         |              | 16.6 |               |  |  |           |  |  |               | 48.9 |  |               |                   | 11.50 |           |        |          | 4.8 | 
|Other financial assets (US dollar)                         |  |       | 38.6  |  |         |              |     |               |  |  | 11.9       |  |  |               | 26.7 |  |               |                   | 5.37  |           |        |          | 9.8 | 
|Other financial assets (other)                             |  |       | 4.9   |  |         |              |     |               |  |  | 4.9        |  |  |               |     |  |               |                   |      |           |        |          |    | 
|                                                          
|                                                           |  |       | 380.2 |  |         |              | 16.6 |               |  |  | 288.0      |  |  |               | 75.6 |  |               |                   | 9.34  |           |        |          | 6.6 | 
|                                                          

Other financial assets at 31 March 2002 predominantly relate to assets held for
exchange of £16.6m (2001: £16.6m), a net investment in a finance lease of
£44.6m (2001: £48.9m), fixed asset investment of £40.3m (2001: £38.6m), and
investment held for resale of £15.4m (2001: £nil). Cash and deposits earn
interest at local prevailing rates for maturity periods generally not exceeding
12 months. The non-interest bearing assets held for exchange are expected to be
realised on redemption of the 6% mandatorily exchangeable bonds 2003, as
described in note 19.

|                                                       |  |      |       |  |      |  |       | 
|------------------------------------------------------ |  | ---- | ----- |  | ---- |  | ----- | 
|                                                       |  | 2002 |       |  | 2001 | 
|Maturity of financial assets at 31 March               |  | £m   |       |  | £m   | 
|                                                      
|In one year or less                                    |  |      | 259.1 |  |      |  | 316.2 | 
|In more than one year, but not more than two years     |  |      | 6.1   |  |      |  | 6.2   | 
|In more than two years, but not more than three years  |  |      | 22.0  |  |      |  | 6.5   | 
|In more than three years, but not more than four years |  |      | 6.6   |  |      |  | 6.2   | 
|In more than four years, but not more than five years  |  |      | 6.6   |  |      |  | 7.0   | 
|In more than five years                                |  |      | 32.5  |  |      |  | 38.1  | 
|                                                      
|                                                       |  |      | 332.9 |  |      |  | 380.2 | 
|                                                      





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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

64




20     Financial instruments continued

|                                                                         |  |            |          |   |            |  |          |            |  |  |            |   |  |  |          |  
|------------------------------------------------------------------------ |  | ---------- | -------- | - | ---------- |  | -------- | ---------- |  |  | ---------- | - |  |  | -------- | -
|Fair values of financial instruments at 31 March                         |  | 2002       |          |   | 2001       | 
|                                                                         |  |            |          |   |           
|                                                                         |  | Book value |          |   | Fair value |  |          | Book value |  |  | Fair value |  
|                                                                         |  | £m         |          |   | £m         |  |          | £m         |  |  | £m         |  
|                                                                        
|6% mandatorily exchangeable bonds 2003                                   |  |            | (242.6   | ) |            |  | (18.1    | )          |  |  | (242.6     | ) |  |  | (196.7   | )
|Other short term debt                                                    |  |            | (1,209.3 | ) |            |  | (1,231.9 | )          |  |  | (766.1     | ) |  |  | (768.7   | )
|Exchangeable bonds 2008                                                  |  |            | (491.3   | ) |            |  | (543.3   | )          |  |  | (480.3     | ) |  |  | (627.7   | )
|Other long term debt                                                     |  |            | (6,510.1 | ) |            |  | (6,505.4 | )          |  |  | (2,700.4   | ) |  |  | (2,704.8 | )
|                                                                        
|Total borrowings                                                         |  |            | (8,453.3 | ) |            |  | (8,298.7 | )          |  |  | (4,189.4   | ) |  |  | (4,297.9 | )
|Cash and deposits                                                        |  |            | 212.6    |   |            |  | 212.6    |            |  |  | 271.2      |   |  |  | 271.2    |  
|                                                                        
|Net borrowings                                                           |  |            | (8,240.7 | ) |            |  | (8,086.1 | )          |  |  | (3,918.2   | ) |  |  | (4,026.7 | )
|Other financial liabilities*                                             |  |            | (871.8   | ) |            |  | (867.6   | )          |  |  | (519.9     | ) |  |  | (516.3   | )
|Net investment in finance lease                                          |  |            | 44.6     |   |            |  | 46.2     |            |  |  | 48.9       |   |  |  | 56.0     |  
|Assets held for exchange                                                 |  |            | 16.6     |   |            |  | 16.6     |            |  |  | 16.6       |   |  |  | 205.1    |  
|Other financial assets                                                   |  |            | 59.1     |   |            |  | 57.2     |            |  |  | 43.5       |   |  |  | 44.8     |  
|                                                                        
|Net financial liabilities*                                               |  |            | (8,992.2 | ) |            |  | (8,833.7 | )          |  |  | (4,329.1   | ) |  |  | (4,237.1 | )
|Financial instruments held to manage interest rate and currency profile: |  |            |          |   |            |  |          |            |  |  |            |   |  |  |          |  
|Interest rate swaps                                                      |  |            |         |   |            |  | (69.4    | )          |  |  | (2.9       | ) |  |  | (40.4    | )
|Forward foreign currency contracts and cross currency swaps              |  |            | (50.3    | ) |            |  | (131.0   | )          |  |  | (169.8     | ) |  |  | (250.1   | )
|                                                                        

*
        
        Excluding interest rate swaps £nil (2001: £2.9m), forward currency
contracts £5.0m (2001: £3.4m), cross currency swaps £45.3m (2001:
£166.4m).


Market values, where available, have been used to determine fair values. Where
market values are not available, fair values have been calculated by
discounting cash flows at prevailing interest rates.

The notional principal amounts relating to financial instruments held to manage
interest rate and currency profile for interest rate swaps, foreign currency
contracts and cross currency swaps amounted to £3,348.4m (2001: £2,534.9m) and
£2,213.5m (2001: £2,118.0m) respectively.

Gains and losses on hedges

|                                                                    |  |       |      |  |        |  |        |             |  |     |        |  
|------------------------------------------------------------------- |  | ----- | ---- |  | ------ |  | ------ | ----------- |  | --- | ------ | -
|                                                                    |  |       |      |  |        |  |        |             |  | Net |       
|                                                                    |  | Gains |      |  | Losses |  |        | gain/(loss) | 
|                                                                    |  | £m    |      |  | £m     |  |        | £m          | 
|                                                                   
|Unrecognised gains and (losses) on hedges at 1 April 2001           |  |       | 10.7 |  |        |  | (128.5 | )           |  |     | (117.8 | )
|Losses arising in previous years recognised in the year             |  |       |     |  |        |  | 38.8   |             |  |     | 38.8   |  
|                                                                   
|Gains/(losses) arising in previous years not recognised in the year |  |       | 10.7 |  |        |  | (89.7  | )           |  |     | (79.0  | )
|Gains/(losses) arising in the year                                  |  |       | 4.9  |  |        |  | (76.0  | )           |  |     | (71.1  | )
|                                                                   
|Unrecognised gains and (losses) on hedges at 31 March 2002          |  |       | 15.6 |  |        |  | (165.7 | )           |  |     | (150.1 | )
|                                                                   
|Of which:                                                           |  |       |      |  |        |  |        |             |  |     |        |  
|Gains expected to be recognised within one year                     |  |       | 12.6 |  |        |  |       |             |  |     | 12.6   |  
|Gains and (losses) expected to be recognised after one year         |  |       | 3.0  |  |        |  | (165.7 | )           |  |     | (162.7 | )
|                                                                   

At 31 March 2002, within the £165.7m unrecognised loss there is an unrecognised
loss of £94.0m for which there are offsetting gains of £73.8m on the related
borrowings.

Borrowing facilities
At 31 March 2002, the Group had committed credit facilities from syndicates of
banks of £2,687.5m (2001: £2,510.5m) of which £2,687.5m (2001: £1,120.7m) was
undrawn and of which £698.5m expires within one year, £298.9m expires after
more than one year but less than two years, and £1,690.1m expires after more
than two years. Of the unused facilities £1,073.7m (2001: £255.2m) are being
held as backup to commercial paper and similar borrowings and the remainder are
available to support further acquisitions and other general corporate purposes.
At 31 March 2002 a further facility amounting to £211.3m (2001: £nil) existed
for the purpose of factoring trade debtors, this facility was undrawn and
expires within one year.





---



##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

65




21     Provisions for liabilities and charges

|                                      |  |           |       |         |            |       |       |          |  |  |          |   |  |              |         |   |       |  |       |            |       |  |             |         |  |  |         |   |  |  |      | 
|------------------------------------- |  | --------- | ----- | ------- | ---------- | ----- | ----- | -------- |  |  | -------- | - |  | ------------ | ------- | - | ----- |  | ----- | ---------- | ----- |  | ----------- | ------- |  |  | ------- | - |  |  | ---- | 
|                                      |  | Group     |       | Company
|                                      |  |           |       |        
|                                      |  |           |       |         |            | Post- |       |          |  |  |          |   |  |              |         |   |       |  |       |            |       |  |             |         |  |  |         |   |  | 
|                                      |  | Decommis- |       |         | retirement |       |       | Environ- |  |  | Deferred |   |  | Associated   |         |   |       |  |       |            | Total |  |             | Related
|                                      |  | sioning   |       |         | benefits   |       |       | mental   |  |  | taxation |   |  | undertakings |         |   | Other |  |       | provisions |       |  | undertaking
|                                      |  | £m        |       |         | £m         |       |       | £m       |  |  | £m       |   |  | £m           |         |   | £m    |  |       | £m         |       |  | £m         
|                                     
|At 1 April 2001 (previously reported) |  |           | 146.1 |         |            |       | 149.7 |          |  |  | 52.4     |   |  |              | 147.3   |   |       |  |      |            |       |  | 0.3         |         |  |  | 495.8   |   |  |  |     | 
|Prior year adjustment (note 1)        |  |           |      |         |            |       |      |          |  |  |         |   |  |              | 1,025.2 |   |       |  |      |            |       |  |            |         |  |  | 1,025.2 |   |  |  |     | 
|                                     
|At 1 April 2001 (restated)            |  |           | 146.1 |         |            |       | 149.7 |          |  |  | 52.4     |   |  |              | 1,172.5 |   |       |  |      |            |       |  | 0.3         |         |  |  | 1,521.0 |   |  |  |     | 
|Exchange adjustments                  |  |           | (0.3  | )       |            |       | (1.9  | )        |  |  | (1.0     | ) |  |              | (4.0    | ) |       |  |      |            |       |  |            |         |  |  | (7.2    | ) |  |  |     | 
|Acquisition of Group undertaking      |  |           |      |         |            |       | 477.5 |          |  |  | 166.3    |   |  |              | 673.9   |   |       |  |      |            |       |  |            |         |  |  | 1,317.7 |   |  |  |     | 
|Additions                             |  |           | 11.4  |         |            |       | 54.2  |          |  |  | 8.2      |   |  |              |        |   |       |  | 186.0 |            |       |  | 18.9        |         |  |  | 278.7   |   |  |  | 76.6 | 
|Unused amounts reversed               |  |           | (19.1 | )       |            |       |      |          |  |  | (13.2    | ) |  |              | (16.8   | ) |       |  |      |            |       |  | (0.4        | )       |  |  | (49.5   | ) |  |  |     | 
|Utilised                              |  |           | (16.7 | )       |            |       | (24.1 | )        |  |  | (8.8     | ) |  |              |        |   |       |  |      |            |       |  |            |         |  |  | (49.6   | ) |  |  |     | 
|Transfer from fixed asset investments |  |           |      |         |            |       |      |          |  |  |         |   |  |              |        |   |       |  | 37.3  |            |       |  |            |         |  |  | 37.3    |   |  |  |     | 
|Other movement                        |  |           |      |         |            |       |      |          |  |  |         |   |  |              | (14.1   | ) |       |  |      |            |       |  |            |         |  |  | (14.1   | ) |  |  |     | 
|                                     
|At 31 March 2002                      |  |           | 121.4 |         |            |       | 655.4 |          |  |  | 203.9    |   |  |              | 1,811.5 |   |       |  | 223.3 |            |       |  | 18.8        |         |  |  | 3,034.3 |   |  |  | 76.6 | 
|                                     

The decommissioning provision of £121.4m at 31 March 2002, represents the net
present value of the estimated expenditure (discounted at rates up to 7.75%)
expected to be incurred in respect of the decommissioning of certain nuclear
generating units and other related provisions. A related regulatory asset is
also recognised (note 15). Expenditure is expected to be incurred between 2002
and 2042. Additions in the year include £7.9m and £(2.6)m in respect of changes
in the discounted amount arising from the passage of time and the effect of a
change in the discount rate respectively.

The post-retirement benefits provision is in respect of pensions £259.0m (2001:
£76.1m) and other post-retirement benefits (health care and life insurance)
£396.4m (2001: £73.6m).

The environmental provision represents the estimated environmental restoration
and remediation costs relating to a number of sites. At 31 March 2002, £189.2m
of this provision represents the net present value of the estimated expenditure
(discounted at 7.5%) expected to be incurred between 2002 and 2045.
Substantially all of the remainder of this provision is expected to be utilised
within the next five years.

The associated undertakings provision of £223.3m (2001: £nil) represents the
recognition of obligations associated with the impairment of investments in
joint ventures and associate amounting to £186.0m (2001: £nil) and the
recognition of the net liabilities of a joint venture amounting to £37.3m
(2001: £nil).

The related undertaking provision of £76.6m (2001: £nil) represents the
recognition of obligations associated with the impairment of an investment in a
joint venture held by a Group undertaking.

|                               |  |      |         |  |      |            |         | 
|------------------------------ |  | ---- | ------- |  | ---- | ---------- | ------- | 
|                               |  | 2002 |         |  | 2001
|                               |  |      |         |  |      | (restated)
|Deferred taxation comprises:   |  |      | £m      |  |      |            | £m      | 
|                              
|Accelerated capital allowances |  |      | 1,682.7 |  |      |            | 1,124.4 | 
|Other timing differences       |  |      | 128.8   |  |      |            | 48.1    | 
|                              
|                               |  |      | 1,811.5 |  |      |            | 1,172.5 | 
|                              

A deferred tax asset in respect of substantial capital losses has not been
recognised because their future recovery is uncertain. The exact amount of
these losses not recognised at 31 March 2002 is not yet quantified pending
agreement of the amount with the relevant tax authorities.

22     Share capital

|                                                                                                        |  |                                    |         |   |    |  |       |  
|------------------------------------------------------------------------------------------------------- |  | ---------------------------------- | ------- | - | -- |  | ----- | -
|Group                                                                                                   |  | Allotted, called up and fully paid
|                                                                                                        |  |                                   
|                                                                                                        |  | millions                           |         |   | £m
|                                                                                                       
|At
31 March 1999  ordinary shares of 11 13/17 pence as previously reported                             |  |                                    | 1,477.9 |   |    |  | 173.9 |  
|Excess of par value of shares of merged company acquired over par value of shares issued on acquisition |  |                                    |        |   |    |  | (26.1 | )
|                                                                                                       
|At
31 March 1999  ordinary shares of 10 pence  restated(i)                                            |  |                                    | 1,477.9 |   |    |  | 147.8 |  
|Issued during the year                                                                                  |  |                                    | 6.9     |   |    |  | 0.7   |  
|Repurchased and cancelled during the year                                                               |  |                                    | (0.2    | ) |    |  |      |  
|                                                                                                       
|At 31 March 2000                                                                                        |  |                                    | 1,484.6 |   |    |  | 148.5 |  
|                                                                                                       
|At 31 March 2001                                                                                        |  |                                    | 1,484.6 |   |    |  | 148.5 |  
|Issued during the year                                                                                  |  |                                    | 292.3   |   |    |  | 29.2  |  
|                                                                                                       
|At 31 March 2002                                                                                        |  |                                    | 1,776.9 |   |    |  | 177.7 |  
|                                                                                                       

One £1 special rights redeemable preference share (at 31 March 2002, 31 March
2001 and 31 March 2000).

(i) In accordance with merger accounting principles, the shares issued in
connection with the Scheme of Arrangement (described on page 66) have been
treated as if these shares were in issue throughout the year and comparative
periods.



---



##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts continued

66




22     Share capital continued

Group continued
On 31 January 2002 under a Scheme of Arrangement between National Grid Group
plc (now renamed National Grid Holdings One plc), the former holding company of
the Group, and its shareholders under section 425 of the Companies Act 1985,
and sanctioned by the High Court on 25 January 2002, all of the issued shares
in that company, including the special share as defined below, were cancelled.
Following the cancellation, the share capital of National Grid Holdings One plc
was restored to its former nominal amount by applying the reserve arising as a
result of the cancellation to pay up in full new shares equal in nominal value
to the shares cancelled. One of the new National Grid Holdings One plc shares
was issued to National Grid Nominees Limited as nominees on behalf of National
Grid Group. The remaining shares were issued to New National Grid plc (now
renamed National Grid Group plc) which, as a result, became the new holding
company of the National Grid Group.

At 31 March 2001 and 31 March 2000 the authorised share capital of National
Grid Holdings One plc, the former holding company of the Group, was £250.0m,
comprising 2,125m shares of 1113/17 pence each.

The total consideration received by the Group in respect of shares issued
during the year ended 31 March 2002 was £1,329.0m, of which £59.1m was received
from employee share trusts, which represented contributions from Group
undertakings. The remainder of the shares were issued on acquisition of Niagara
Mohawk, for a total consideration of £1,269.9m as explained in note 27.

|                                                        |  |                     |               |                           |   |                          |             |        |  |  |          |      |  |          |         |   |    |  |         |  |  |  |       | 
|------------------------------------------------------- |  | ------------------- | ------------- | ------------------------- | - | ------------------------ | ----------- | ------ |  |  | -------- | ---- |  | -------- | ------- | - | -- |  | ------- |  |  |  | ----- | 
|Company                                                 |  | Allotted and issued |               | Called up and partly paid |   | Called up and fully paid
|                                                       
|                                                        |  | number              |               |                           | £ |                          |             | number |  |  | £        |      |  | millions |         |   | £m
|                                                       
|On
incorporation at 11 July 2000 ordinary shares of £1 |  |                     | 1             |                           |   |                          | 1           |        |  |  | 1        |      |  |          |        |   |    |  |        |  |  |  |      | 
|10:1 share split                                        |  |                     | 9             |                           |   |                          |            |        |  |  | 9        |      |  |          |        |   |    |  |        |  |  |  |      | 
|                                                       
|At 28 November 2000 
ordinary shares of 10 pence       |  |                     | 10            |                           |   |                          | 1           |        |  |  | 10       |      |  |          |        |   |    |  |        |  |  |  |      | 
|Issued during the year                                  |  |                     | 499,990       |                           |   |                          | 49,999      |        |  |  | 499,990  |      |  |          | 12,500  |   |    |  |        |  |  |  |      | 
|                                                       
|At 31 March 2001                                        |  |                     | 500,000       |                           |   |                          | 50,000      |        |  |  | 500,000  |      |  |          | 12,500  |   |    |  |        |  |  |  |      | 
|Cancelled during the year                               |  |                     | (500,000      | )                         |   |                          | (50,000     | )      |  |  | (500,000 | )    |  |          | (12,500 | ) |    |  |        |  |  |  |      | 
|Issued during the year                                  |  |                     | 1,776,932,805 |                           |   |                          | 177,693,281 |        |  |  | 23,365   | (ii) |  |          | 2,337   |   |    |  | 1,776.9 |  |  |  | 177.7 | 
|                                                       
|At 31 March 2002                                        |  |                     | 1,776,932,805 |                           |   |                          | 177,693,281 |        |  |  | 23,365   |      |  |          | 2,337   |   |    |  | 1,776.9 |  |  |  | 177.7 | 
|                                                       

One £1 special rights non-voting redeemable preference share (at 31 March 2001
and 31 March 2000: nil).

(ii) These shares are nil paid at 31 March 2002. They represent shares
issued to financial institutions in order to acquire Niagara Mohawk which were
not required to form part of the final consideration and will be sold on the
open market in the forthcoming period.

The Company was incorporated on 11 July 2000 with authorised share capital of
100 £1 ordinary shares. On 28 November 2000 the ordinary shares of £1 each were
subdivided into ordinary shares of 10 pence each in a 10:1 share split and the
authorised share capital was increased to 2,500m ordinary shares of 10 pence
each. At 31 March 2001, the authorised share capital of the Company was £250m
and the allotted and issued share capital of the Company was £50,000 (500,000
ordinary shares of 10 pence each), of which £12,500 had been called up and
paid.

At 31 March 2002, the authorised share capital of the Company is £250m (2,500m
ordinary shares of 10 pence each and one £1 special rights non-voting
redeemable preference share).

The total consideration received by the Company in respect of shares issued
during the year ended 31 March 2002 was £1,421.1m, of which £1.3m was received
from employee share trusts, which represented contributions from Group
undertakings. £149.9m of share capital was issued as part of the Scheme of
Arrangement described above. The remaining shares were issued on acquisition of
Niagara Mohawk, for a total consideration of £1,269.9m as explained in note 27.

The special rights non-voting redeemable preference share of £1 in National
Grid Group (the Special Share), held on behalf of the Crown, was issued to
the Secretary of State for Trade and Industry on 31 January 2002 as part of the
Scheme of Arrangement. It is redeemable at any time at par at the option of the
holder, after consulting the Company. The Special Share does not carry any
rights to vote at general meetings but entitles the holder to receive notice of
and to attend and speak at such meetings. Certain matters, in particular the
alteration of certain Articles of Association of the Company, require the prior
written consent of the holder of the Special Share. The Special Share confers
no right to participate in the capital or profits of the Company, except that
on a winding-up the Special Shareholder is entitled to repayment of £1 in
priority to other shareholders. Prior to 31 January 2002, the Secretary of
State for Trade and Industry held a Special Share with equivalent rights in
National Grid Holdings One plc (formerly National Grid Group plc).

Share option schemes

The Group operates two principal forms of share option plans. They are a
Sharesave Plan and an Executive Share Option Plan (the Executive Plan).

The Sharesave Plan is savings related where, under normal circumstances, share
options are exercisable on completion of a three or a five year
save-as-you-earn contract. The exercise price of options granted represents 80%
of the market price at the date the option was granted.

The Executive Plan applies to senior executives, including Executive Directors.
Options granted for the 1999/2000, 2000/01 and 2001/02 financial years are
subject to the achievement of performance targets related to total shareholder
returns over a three year period. The share options are generally exercisable
between the third and tenth anniversaries of the date of grant if the relevant
performance target is achieved.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

67




22     Share capital continued

Share option schemes continued
In any ten year period, the maximum number of shares that may be issued or
issuable pursuant to the exercise of options under all of the Groups share
option plans may not exceed the number of shares representing 10% of the issued
ordinary share capital from time to time.

Movement in options to subscribe for ordinary shares under the Groups various
options schemes for the three years ended 31 March 2002 are shown below and
include those options related to shares issued to employee benefit trusts.

|                 |  |           |      |   |              |  |      |          |  |  |      |  
|---------------- |  | --------- | ---- | - | ------------ |  | ---- | -------- |  |  | ---- | -
|                 |  | Sharesave |      |   | Executive    |  |      |          | 
|                 |  | scheme    |      |   | share scheme |  |      | Total   
|                 |  | millions  |      |   | millions     |  |      | millions
|                
|At 31 March 1999 |  |           | 16.3 |   |              |  | 4.7  |          |  |  | 21.0 |  
|Granted          |  |           | 3.5  |   |              |  | 2.3  |          |  |  | 5.8  |  
|Lapsed           |  |           | (0.5 | ) |              |  | (0.2 | )        |  |  | (0.7 | )
|Exercised        |  |           | (3.1 | ) |              |  | (0.8 | )        |  |  | (3.9 | )
|                
|At 31 March 2000 |  |           | 16.2 |   |              |  | 6.0  |          |  |  | 22.2 |  
|Granted          |  |           | 1.4  |   |              |  | 1.6  |          |  |  | 3.0  |  
|Lapsed           |  |           | (0.4 | ) |              |  |     |          |  |  | (0.4 | )
|Exercised        |  |           | (4.1 | ) |              |  | (0.7 | )        |  |  | (4.8 | )
|                
|At 31 March 2001 |  |           | 13.1 |   |              |  | 6.9  |          |  |  | 20.0 |  
|Granted          |  |           | 2.4  |   |              |  | 2.6  |          |  |  | 5.0  |  
|Lapsed           |  |           | (0.7 | ) |              |  | (0.1 | )        |  |  | (0.8 | )
|Exercised        |  |           | (5.0 | ) |              |  | (0.9 | )        |  |  | (5.9 | )
|                
|At 31 March 2002 |  |           | 9.8  |   |              |  | 8.5  |          |  |  | 18.3 |  
|                

Options outstanding in respect of the Sharesave scheme at 31 March 2002 and 31
March 2001, together with their exercise prices and dates were as follows:

|                 |  |          |     |  |          |  |      |           |  |                |             |  |              |  |      | 
|---------------- |  | -------- | --- |  | -------- |  | ---- | --------- |  | -------------- | ----------- |  | ------------ |  | ---- | 
|                 |  |          |     |  |          |  |      |           |  | Exercise price |             |  | Normal dates
|                 |  | 2002     |     |  | 2001     |  |      | per share |  |                | of exercise
|                 |  | millions |     |  | millions |  |      | pence     |  |                | years      
|                
|Sharesave scheme |  |          |    |  |          |  | 0.2  |           |  |                | 162.0       |  |              |  | 2001 | 
|                 |  |          |    |  |          |  | 3.9  |           |  |                | 146.0       |  |              |  | 2001 | 
|                 |  |          |    |  |          |  | 0.6  |           |  |                | 312.0       |  |              |  | 2001 | 
|                 |  |          | 2.2 |  |          |  | 2.4  |           |  |                | 171.0       |  |              |  | 2002 | 
|                 |  |          | 0.9 |  |          |  | 1.1  |           |  |                | 337.0       |  |              |  | 2002 | 
|                 |  |          | 1.3 |  |          |  | 1.4  |           |  |                | 312.0       |  |              |  | 2003 | 
|                 |  |          | 0.5 |  |          |  | 0.6  |           |  |                | 416.0       |  |              |  | 2003 | 
|                 |  |          | 1.9 |  |          |  | 2.1  |           |  |                | 337.0       |  |              |  | 2004 | 
|                 |  |          | 0.7 |  |          |  |     |           |  |                | 457.0       |  |              |  | 2004 | 
|                 |  |          | 0.7 |  |          |  | 0.8  |           |  |                | 416.0       |  |              |  | 2005 | 
|                 |  |          | 1.6 |  |          |  |     |           |  |                | 457.0       |  |              |  | 2006 | 
|                
|                 |  |          | 9.8 |  |          |  | 13.1 |           |  |                |             |  |              |  |      | 
|                

Options outstanding in respect of the Executive scheme at 31 March 2002 and 31
March 2001, together with their exercise prices and dates were as follows:

|                 |  |  |     |  |  |  |     |  |  |  |       |  |  |  |           | 
|---------------- |  |  | --- |  |  |  | --- |  |  |  | ----- |  |  |  | --------- | 
|Executive scheme |  |  |    |  |  |  | 0.1 |  |  |  | 64.6  |  |  |  | 1994-2001 | 
|                 |  |  | 0.2 |  |  |  | 0.3 |  |  |  | 205.5 |  |  |  | 2001-2007 | 
|                 |  |  | 0.2 |  |  |  | 0.2 |  |  |  | 258.0 |  |  |  | 2001-2007 | 
|                 |  |  | 0.7 |  |  |  | 0.9 |  |  |  | 280.5 |  |  |  | 2001-2007 | 
|                 |  |  | 1.0 |  |  |  | 1.3 |  |  |  | 375.8 |  |  |  | 2001-2008 | 
|                 |  |  | 0.3 |  |  |  | 0.3 |  |  |  | 455.3 |  |  |  | 2002-2009 | 
|                 |  |  | 0.3 |  |  |  | 0.4 |  |  |  | 435.8 |  |  |  | 2002-2009 | 
|                 |  |  | 0.1 |  |  |  | 0.1 |  |  |  | 424.0 |  |  |  | 2002-2009 | 
|                 |  |  | 1.5 |  |  |  | 1.5 |  |  |  | 566.5 |  |  |  | 2003-2010 | 
|                 |  |  | 0.4 |  |  |  | 0.5 |  |  |  | 531.5 |  |  |  | 2003-2010 | 
|                 |  |  | 0.9 |  |  |  | 1.0 |  |  |  | 526.5 |  |  |  | 2003-2010 | 
|                 |  |  | 0.1 |  |  |  | 0.1 |  |  |  | 535.0 |  |  |  | 2003-2010 | 
|                 |  |  | 0.1 |  |  |  | 0.1 |  |  |  | 623.0 |  |  |  | 2004-2011 | 
|                 |  |  | 0.1 |  |  |  | 0.1 |  |  |  | 540.0 |  |  |  | 2004-2011 | 
|                 |  |  | 1.9 |  |  |  |    |  |  |  | 563.0 |  |  |  | 2004-2011 | 
|                 |  |  | 0.5 |  |  |  |    |  |  |  | 527.0 |  |  |  | 2004-2011 | 
|                 |  |  | 0.2 |  |  |  |    |  |  |  | 479.5 |  |  |  | 2004-2011 | 
|                
|                 |  |  | 8.5 |  |  |  | 6.9 |  |  |  |       |  |  |  |           | 
|                



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts continued

68




23     Reserves

|                                                                                                         |                        |         |         |  |          |         |   |         |  |         |         |  |         |          |         |  |  |       |   | 
|-------------------------------------------------------------------------------------------------------- | ---------------------- | ------- | ------- |  | -------- | ------- | - | ------- |  | ------- | ------- |  | ------- | -------- | ------- |  |  | ----- | - | 
|                                                                                                         |                        |         | Group   |  | Company 
|                                                                                                         |                        |         |         | 
|                                                                                                         |                        | Share   |         |  | Profit   |         |   | Merger  |  |         | Share   |  |         | Profit  
|                                                                                                         |                        | premium |         |  | and loss |         |   | reserve |  |         | premium |  |         | and loss
|                                                                                                         |                        | account |         |  | account  |         |   |         |  | account |         |  | account
|                                                                                                         |                        | £m      |         |  | £m       |         |   | £m      |  |         | £m      |  |         | £m      
|                                                                                                        
|At 31 March 1999 (previously reported)                                                                   |                        | 246.5   |         |  |          | 1,532.1 |   |         |  |        |         |  |         |         |         |  |  |      |  
|Prior year adjustment                                                                                    |                        |        |         |  |          | (668.4  | ) |         |  |        |         |  |         |         |         |  |  |      |  
|                                                                                                        
|At 31 March 1999 (restated)                                                                              |                        | 246.5   |         |  |          | 863.7   |   |         |  |        |         |  |         |         |         |  |  |      |  
|Transfer*                                                                                                |                        | (246.5  | )       |  |          |        |   |         |  | 246.5   |         |  |         |         |         |  |  |      |  
|Excess of par value of shares of merged company acquired
over par value of shares issued on acquisition* |                        |        |         |  |          |        |   |         |  | 26.1    |         |  |         |         |         |  |  |      |  
|                                                                                                        
|As at 31 March 1999 (restated)                                                                           |                        |        |         |  |          | 863.7   |   |         |  | 272.6   |         |  |         |         |         |  |  |      |  
|Exchange adjustments                                                                                     |                        |        |         |  |          | 3.1     |   |         |  |        |         |  |         |         |         |  |  |      |  
|Ordinary shares issued during the year                                                                   |                        | 10.8    |         |  |          |        |   |         |  |        |         |  |         |         |         |  |  |      |  
|Repurchase and cancellation of ordinary shares                                                           |                        |        |         |  |          | (1.1    | ) |         |  |        |         |  |         |         |         |  |  |      |  
|Transfer on issue of certain shares under share option schemes                                           |                        | 17.4    |         |  |          | (17.4   | ) |         |  |        |         |  |         |         |         |  |  |      |  
|Retained profit for the year                                                                             |                        |        |         |  |          | 916.5   |   |         |  |        |         |  |         |         |         |  |  |      |  
|Excess of par value of shares of merged company acquired
over par value of shares issued on acquisition* |                        |        |         |  |          |        |   |         |  | 0.1     |         |  |         |         |         |  |  |      |  
|Transfer*                                                                                                |                        | (28.2   | )       |  |          |        |   |         |  | 28.2    |         |  |         |         |         |  |  |      |  
|                                                                                                        
|At 31 March 2000 (restated)                                                                              |                        |        |         |  |          | 1,764.8 |   |         |  | 300.9   |         |  |         |         |         |  |  |      |  
|Exchange adjustments                                                                                     |                        |        |         |  |          | (14.7   | ) |         |  |        |         |  |         |         |         |  |  |      |  
|Ordinary shares issued during the year                                                                   |                        | 0.9     |         |  |          |        |   |         |  |        |         |  |         |         |         |  |  |      |  
|Tax on exchange adjustments                                                                              |                        |        |         |  |          | 31.9    |   |         |  |        |         |  |         |         |         |  |  |      |  
|Transfer on issue of certain shares under share option schemes                                           |                        | 1.3     |         |  |          | (1.3    | ) |         |  |        |         |  |         |         |         |  |  |      |  
|Retained profit for the year                                                                             |                        |        |         |  |          | 441.2   |   |         |  |        |         |  |         |         |         |  |  |      |  
|Transfer*                                                                                                |                        | (2.2    | )       |  |          |        |   |         |  | 2.2     |         |  |         |         |         |  |  |      |  
|                                                                                                        
|At 31 March 2001 (restated)                                                                              |                        |        |         |  |          | 2,221.9 |   |         |  | 303.1   |         |  |         |         |         |  |  |      |  
|Exchange adjustments                                                                                     |                        |        |         |  |          | (58.3   | ) |         |  |        |         |  |         |         |         |  |  |      |  
|Ordinary shares issued during the year                                                                   |                        |         |         |  |          |         |   |         |  |         |         |  |         |          |         |  |  |       |  
|                                                                                                         |  Share option schemes |         | 46.2    |  |          |         |  |         |  |         |        |  |         |          | 1.3     |  |  |       |  | 
|                                                                                                         |  Acquisition          |         | 1,242.1 |  |          |         |  |         |  |         |        |  |         |          | 1,242.1 |  |  |       |  | 
|Tax on exchange adjustments                                                                              |                        |        |         |  |          | 21.6    |   |         |  |        |         |  |         |         |         |  |  |      |  
|Transfer on issue of certain shares under share option schemes                                           |                        | 11.3    |         |  |          | (11.3   | ) |         |  |        |         |  |         |         |         |  |  |      |  
|Retained (loss)/profit for the year                                                                      |                        |        |         |  |          | (757.9  | ) |         |  |        |         |  |         |         |         |  |  | 497.5 |  
|Excess of par value of shares of merged company acquired
over par value of shares issued on acquisition* |                        |        |         |  |          |        |   |         |  | 0.2     |         |  |         |         |         |  |  |      |  
|Transfer*                                                                                                |                        | (56.2   | )       |  |          |        |   |         |  | 56.2    |         |  |         |         |         |  |  |      |  
|                                                                                                        
|At 31 March 2002                                                                                         |                        | 1,243.4 |         |  |          | 1,416.0 |   |         |  | 359.5   |         |  |         | 1,243.4  |         |  |  | 497.5 |  
|                                                                                                        

The Company has not presented its own profit and loss account as permitted by
section 230 of the Companies Act 1985. Of the Groups loss after taxation, a
profit of £666.5m (2001: £nil) is attributable to the Company.

*In the year to 31 March 2002, the application of merger accounting
principles to the Group reconstruction which involved the creation of a new
holding company (see Accounting Policies  Basis of consolidation) gave rise to
a difference which falls to be accounted for as a merger difference and
included within merger reserve. In accordance with merger accounting
principles, the shares issued in connection with the Scheme of Arrangement to
acquire National Grid Holdings One plc, have been treated as if they were in
issue throughout the year and comparative period.

The balance on the merger reserve at 31 March 2002 represents the difference
between the called up share capital of the Company and the called up share
capital, share premium and capital redemption reserve of the former holding
company (now renamed National Grid Holdings One plc) at 31 January 2002, the
date of the capital reorganisation.

24     Minority interests: non-equity

The non-equity minority interests of £78.7m (2001: £20.0m) comprise cumulative
preference stock issued by Group undertakings.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

69




25     Reconciliation of movement in equity shareholders funds

|                                            |  |      |         |   |      |            |         |      |            |  |         |  
|------------------------------------------- |  | ---- | ------- | - | ---- | ---------- | ------- | ---- | ---------- |  | ------- | -
|                                            |  | 2002 |         |   | 2001 |            |         | 2000
|                                            |  |      |         |   |      | (restated) |         |      | (restated)
|                                            |  | £m   |         |   | £m   |            |         | £m  
|                                           
|(Loss)/profit for the year                  |  |      | (493.3  | ) |      |            | 664.2   |      |            |  | 1,122.0 |  
|Dividends                                   |  |      | (264.6  | ) |      |            | (223.0  | )    |            |  | (205.5  | )
|                                           
|                                            |  |      | (757.9  | ) |      |            | 441.2   |      |            |  | 916.5   |  
|Issue of ordinary shares                    |  |      | 1,317.7 |   |      |            | 0.9     |      |            |  | 11.6    |  
|Repurchase of own shares                    |  |      |        |   |      |            |        |      |            |  | (1.1    | )
|Exchange adjustments                        |  |      | (58.3   | ) |      |            | (14.7   | )    |            |  | 3.1     |  
|Tax on exchange adjustments                 |  |      | 21.6    |   |      |            | 31.9    |      |            |  |        |  
|                                           
|Net increase in equity shareholders funds  |  |      | 523.1   |   |      |            | 459.3   |      |            |  | 930.1   |  
|Equity shareholders funds at start of year |  |      | 2,673.5 | * |      |            | 2,214.2 | *    |            |  | 1,284.1 | *
|                                           
|Equity shareholders funds at end of year   |  |      | 3,196.6 |   |      |            | 2,673.5 |      |            |  | 2,214.2 |  
|                                           

*Originally £3,475.8m (2001: £2,909.0m, 2000: £1,952.5m) before deducting prior
year adjustment of £802.3m (2001: £694.8m, 2000: £668.4m).

26     Group cash flow statement

|                                                                                      |  |      |         |   |      |            |        |      |            |  |       |  
|------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | ---------- | ------ | ---- | ---------- |  | ----- | -
|a     Reconciliation of operating profit to net cash inflow from operating activities |  | 2002 |         |   | 2001 |            |        | 2000
|                                                                                      |  |      |         |   |      | (restated) |        |      | (restated)
|                                                                                      |  | £m   |         |   | £m   |            |        | £m  
|                                                                                     
|Operating profit of Group undertakings                                                |  |      | 507.4   |   |      |            | 705.5  |      |            |  | 571.8 |  
|Depreciation and amortisation                                                         |  |      | 436.9   |   |      |            | 380.0  |      |            |  | 158.6 |  
|Impairment of investments in joint ventures                                           |  |      | 186.0   |   |      |            |       |      |            |  |      |  
|Profit on disposal of tangible fixed assets                                           |  |      |        |   |      |            | (6.6   | )    |            |  | (4.3  | )
|Decrease/(increase) in stocks                                                         |  |      | 14.0    |   |      |            | (7.9   | )    |            |  | (0.4  | )
|Decrease/(increase) in debtors                                                        |  |      | 203.0   |   |      |            | (189.8 | )    |            |  | (22.7 | )
|Decrease in creditors                                                                 |  |      | (108.6  | ) |      |            | (55.3  | )    |            |  | (11.5 | )
|Increase/(decrease) in provisions                                                     |  |      | 10.5    |   |      |            | (11.7  | )    |            |  | (6.8  | )
|Other                                                                                 |  |      | 6.2     |   |      |            | (3.6   | )    |            |  | (2.7  | )
|                                                                                     
|Net cash inflow from operating activities                                             |  |      | 1,255.4 |   |      |            | 810.6  |      |            |  | 682.0 |  
|                                                                                     

The net cash inflow of Niagara Mohawk acquired during 2002 was approximately
£18.0m, after exceptional integration cash costs incurred of £21.0m.

|                                     |  |      |      |  |      |  |       |      |  |  |   | 
|------------------------------------ |  | ---- | ---- |  | ---- |  | ----- | ---- |  |  | - | 
|b     Disposal of investments        |  | 2002 |      |  | 2001 |  |       | 2000
|                                     |  | £m   |      |  | £m   |  |       | £m  
|                                    
|Cash consideration received          |  |      | 36.5 |  |      |  | 204.7 |      |  |  |  | 
|Cash balances of businesses disposed |  |      |     |  |      |  | (8.8  | )    |  |  |  | 
|                                    
|                                     |  |      | 36.5 |  |      |  | 195.9 |      |  |  |  | 
|                                    

|                                                          |  |      |        |   |      |  |        |      |  |  |          |  
|--------------------------------------------------------- |  | ---- | ------ | - | ---- |  | ------ | ---- |  |  | -------- | -
|c     Acquisition of Group undertakings                   |  | 2002 |        |   | 2001 |  |        | 2000
|                                                          |  | £m   |        |   | £m   |  |        | £m  
|                                                         
|Payments to acquire Group undertakings                    |  |      | (918.2 | ) |      |  | (442.5 | )    |  |  | (2,049.2 | )
|(Overdrafts)/cash balances of Group undertakings acquired |  |      | (15.3  | ) |      |  | 1.6    |      |  |  | 4.1      |  
|                                                         
|                                                          |  |      | (933.5 | ) |      |  | (440.9 | )    |  |  | (2,045.1 | )
|                                                         

|                                                              |  |      |          |   |      |  |          |      |  |  |          |  
|------------------------------------------------------------- |  | ---- | -------- | - | ---- |  | -------- | ---- |  |  | -------- | -
|d     Reconciliation of net cash flow to movement in net debt |  | 2002 |          |   | 2001 |  |          | 2000
|                                                              |  | £m   |          |   | £m   |  |          | £m  
|                                                             
|Movement in cash and overdrafts                               |  |      | 53.6     |   |      |  | (1.9     | )    |  |  | 26.4     |  
|Net cash inflow from the management of liquid resources       |  |      | (336.2   | ) |      |  | (775.2   | )    |  |  | (618.8   | )
|Increase in borrowings                                        |  |      | (442.4   | ) |      |  | (81.4    | )    |  |  | (769.2   | )
|                                                             
|Change in net debt resulting from cash flows                  |  |      | (725.0   | ) |      |  | (858.5   | )    |  |  | (1,361.6 | )
|Acquisition of Group undertakings                             |  |      | (3,621.3 | ) |      |  | (162.2   | )    |  |  | (611.7   | )
|Certificates of tax deposit surrendered                       |  |      |         |   |      |  | (3.6     | )    |  |  | (5.9     | )
|Exchange adjustments                                          |  |      | 19.9     |   |      |  | (218.0   | )    |  |  | 29.9     |  
|Other non-cash movements                                      |  |      | 3.9      |   |      |  | (12.3    | )    |  |  | (10.9    | )
|                                                             
|Movement in net debt in the year                              |  |      | (4,322.5 | ) |      |  | (1,254.6 | )    |  |  | (1,960.2 | )
|Net debt at start of year                                     |  |      | (3,918.2 | ) |      |  | (2,663.6 | )    |  |  | (703.4   | )
|                                                             
|Net debt at end of year                                       |  |      | (8,240.7 | ) |      |  | (3,918.2 | )    |  |  | (2,663.6 | )
|                                                             

Liquid resources comprise short term deposits.



---



##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts continued

70




26     Group cash flow statement continued

|                                      |  |            |          |   |      |  |          |             |   |             |           |   |  |             |        |   |           |  |      |             |  |  |       |   |  |  |          |  
|------------------------------------- |  | ---------- | -------- | - | ---- |  | -------- | ----------- | - | ----------- | --------- | - |  | ----------- | ------ | - | --------- |  | ---- | ----------- |  |  | ----- | - |  |  | -------- | -
|e     Analysis of changes in net debt |  |            |          |   |      |  |          |             |   | Acquisition |           |   |  |             |        |   |           |  |      |             |  |  |       |   |  | 
|                                      |  | At 1 April |          |   | Cash |  |          | of Group    |   |             | Non-cash  |   |  | Exchange    |        |   | Other     |  |      | At 31 March
|                                      |  | 1999       |          |   | flow |  |          | undertaking | * |             | movements |   |  | adjustments |        |   | movements |  |      | 2000       
|                                      |  | £m         |          |   | £m   |  |          | £m          |   |             | £m        |   |  | £m          |        |   | £m        |  |      | £m         
|                                     
|Cash at bank and in hand**            |  |            | 1.6      |   |      |  | 6.2      |             |   |             |          |   |  |             |       |   |           |  |     |             |  |  |      |   |  |  | 7.8      |  
|                                      |  |            |          |   |      |  |         
|Bank overdrafts                       |  |            | (24.2    | ) |      |  | 20.2     |             |   |             |          |   |  |             |       |   |           |  |     |             |  |  |      |   |  |  | (4.0     | )
|                                      |  |            |          |   |      |  |         
|                                      |  |            |          |   |      |  | 26.4     |             |   |             |           |   |  |             |        |   |           |  |      |             |  |  |       |   |  |  |          |  
|Deposits**                            |  |            | 1,522.9  |   |      |  | (618.8   | )           |   |             | 107.7     |   |  |             |       |   |           |  | (2.1 | )           |  |  | (5.9  | ) |  |  | 1,003.8  |  
|                                      |  |            |          |   |      |  |         
|Borrowings due after one year         |  |            | (1,637.3 | ) |      |  | (924.0   | )           |   |             | (663.3    | ) |  |             | 197.6  |   |           |  | 31.7 |             |  |  | (10.9 | ) |  |  | (3,006.2 | )
|Borrowings due within one year        |  |            | (566.4   | ) |      |  | 154.8    |             |   |             | (56.1     | ) |  |             | (197.6 | ) |           |  | 0.3  |             |  |  |      |   |  |  | (665.0   | )
|                                      |  |            |          |   |      |  |         
|                                      |  |            |          |   |      |  | (769.2   | )           |   |             |           |   |  |             |        |   |           |  |      |             |  |  |       |   |  |  |          |  
|                                     
|                                      |  |            | (703.4   | ) |      |  | (1,361.6 | )           |   |             | (611.7    | ) |  |             |       |   |           |  | 29.9 |             |  |  | (16.8 | ) |  |  | (2,663.6 | )
|                                     

|                               |  |            |          |   |      |  |        |             |   |             |           |   |  |             |       |   |           |  |        |             |  |  |       |   |  |  |          |  
|------------------------------ |  | ---------- | -------- | - | ---- |  | ------ | ----------- | - | ----------- | --------- | - |  | ----------- | ----- | - | --------- |  | ------ | ----------- |  |  | ----- | - |  |  | -------- | -
|                               |  |            |          |   |      |  |        |             |   | Acquisition |           |   |  |             |       |   |           |  |        |             |  |  |       |   |  | 
|                               |  | At 1 April |          |   | Cash |  |        | of Group    |   |             | Non-cash  |   |  | Exchange    |       |   | Other     |  |        | At 31 March
|                               |  | 2000       |          |   | flow |  |        | undertaking | * |             | movements |   |  | adjustments |       |   | movements |  |        | 2001       
|                               |  | £m         |          |   | £m   |  |        | £m          |   |             | £m        |   |  | £m          |       |   | £m        |  |        | £m         
|                              
|                               |  |            |          |   |      |  |       
|Cash at bank and in hand**     |  |            | 7.8      |   |      |  | 17.4   |             |   |             |          |   |  |             |      |   |           |  | 0.1    |             |  |  |      |   |  |  | 25.3     |  
|Bank overdrafts                |  |            | (4.0     | ) |      |  | (19.3  | )           |   |             |          |   |  |             |      |   |           |  |       |             |  |  |      |   |  |  | (23.3    | )
|                               |  |            |          |   |      |  |       
|                               |  |            |          |   |      |  | (1.9   | )           |   |             |           |   |  |             |       |   |           |  |        |             |  |  |       |   |  |  |          |  
|Deposits**                     |  |            | 1,003.8  |   |      |  | (775.2 | )           |   |             |          |   |  |             |      |   |           |  | 20.9   |             |  |  | (3.6  | ) |  |  | 245.9    |  
|                               |  |            |          |   |      |  |       
|Borrowings due after one year  |  |            | (3,006.2 | ) |      |  | 60.6   |             |   |             | (50.0     | ) |  |             | 32.1  |   |           |  | (204.9 | )           |  |  | (12.3 | ) |  |  | (3,180.7 | )
|Borrowings due within one year |  |            | (665.0   | ) |      |  | (142.0 | )           |   |             | (112.2    | ) |  |             | (32.1 | ) |           |  | (34.1  | )           |  |  |      |   |  |  | (985.4   | )
|                               |  |            |          |   |      |  |       
|                               |  |            |          |   |      |  | (81.4  | )           |   |             |           |   |  |             |       |   |           |  |        |             |  |  |       |   |  |  |          |  
|                              
|                               |  |            | (2,663.6 | ) |      |  | (858.5 | )           |   |             | (162.2    | ) |  |             |      |   |           |  | (218.0 | )           |  |  | (15.9 | ) |  |  | (3,918.2 | )
|                              

|                               |  |            |          |   |      |  |        |             |   |             |           |   |  |             |        |   |           |  |      |             |  |  |     |  |  |  |          |  
|------------------------------ |  | ---------- | -------- | - | ---- |  | ------ | ----------- | - | ----------- | --------- | - |  | ----------- | ------ | - | --------- |  | ---- | ----------- |  |  | --- |  |  |  | -------- | -
|                               |  |            |          |   |      |  |        |             |   | Acquisition |           |   |  |             |        |   |           |  |      |             |  |  |     |  |  | 
|                               |  | At 1 April |          |   | Cash |  |        | of Group    |   |             | Non-cash  |   |  | Exchange    |        |   | Other     |  |      | At 31 March
|                               |  | 2001       |          |   | flow |  |        | undertaking | * |             | movements |   |  | adjustments |        |   | movements |  |      | 2002       
|                               |  | £m         |          |   | £m   |  |        | £m          |   |             | £m        |   |  | £m          |        |   | £m        |  |      | £m         
|                              
|                               |  |            |          |   |      |  |       
|Cash at bank and in hand**     |  |            | 25.3     |   |      |  | 66.9   |             |   |             |          |   |  |             |       |   |           |  |     |             |  |  |    |  |  |  | 92.2     |  
|Bank overdrafts                |  |            | (23.3    | ) |      |  | (13.3  | )           |   |             |          |   |  |             |       |   |           |  |     |             |  |  |    |  |  |  | (36.6    | )
|                               |  |            |          |   |      |  |       
|                               |  |            |          |   |      |  | 53.6   |             |   |             |           |   |  |             |        |   |           |  |      |             |  |  |     |  |  |  |          |  
|Deposits**                     |  |            | 245.9    |   |      |  | (336.2 | )           |   |             | 215.1     |   |  |             |       |   |           |  | (4.6 | )           |  |  | 0.2 |  |  |  | 120.4    |  
|                               |  |            |          |   |      |  |       
|Borrowings due after one year  |  |            | (3,180.7 | ) |      |  | (752.3 | )           |   |             | (3,188.5  | ) |  |             | 107.1  |   |           |  | 10.7 |             |  |  | 2.3 |  |  |  | (7,001.4 | )
|Borrowings due within one year |  |            | (985.4   | ) |      |  | 309.9  |             |   |             | (647.9    | ) |  |             | (107.1 | ) |           |  | 13.8 |             |  |  | 1.4 |  |  |  | (1,415.3 | )
|                               |  |            |          |   |      |  |       
|                               |  |            |          |   |      |  | (442.4 | )           |   |             |           |   |  |             |        |   |           |  |      |             |  |  |     |  |  |  |          |  
|                              
|                               |  |            | (3,918.2 | ) |      |  | (725.0 | )           |   |             | (3,621.3  | ) |  |             |       |   |           |  | 19.9 |             |  |  | 3.9 |  |  |  | (8,240.7 | )
|                              

* Excluding cash and bank overdrafts.** Cash and deposits per the balance sheet £212.6m (2001: £271.2m; 2000: £1,011.6m).



---



##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

71




27     Acquisition

On 31 January 2002, the Group acquired the entire issued share capital of
Niagara Mohawk Holdings Inc., for a total consideration of £2,186.5m including
acquisition costs of £44.9m. The acquisition has been accounted for by using
the acquisition method of accounting. Because the acquisition occurred late in
the financial year, fair values and goodwill arising on the acquisition are
provisional and may be subject to revision during the current financial year.
Goodwill arising on acquisition is being amortised over 20 years, being its
estimated useful economic life.

|                                                   |  |                |          |   |              |                        |                  |                 |  |            |             |                 |  |  |          |  
|-------------------------------------------------- |  | -------------- | -------- | - | ------------ | ---------------------- | ---------------- | --------------- |  | ---------- | ----------- | --------------- |  |  | -------- | -
|                                                   |  |                |          |   |              | Fair value adjustments |                  |                 |  |           
|                                                   |  |                |          |   |              |                       
|                                                   |  | Book value     |          |   | Revaluations |                        |                  | Accounting      |  |            | Provisional
|                                                   |  | at acquisition |          |   |              |                        | policy alignment |                 |  | fair value
|                                                   |  | £m             |          |   | £m           |                        |                  | £m              |  |            | £m         
|                                                  
|Tangible fixed assets                              |  |                | 3,264.6  |   |              |                        | 266.8            | (ix)(x)         |  |            | (266.8      | )(ix)(x)        |  |  | 3,264.6  |  
|Fixed asset investments                            |  |                | 96.5     |   |              |                        | (32.4            | )(i)            |  |            |            |                 |  |  | 64.1     |  
|Stocks                                             |  |                | 37.8     |   |              |                        |                 |                 |  |            | (1.6        | )               |  |  | 36.2     |  
|Debtors                                            |  |                | 4,295.3  |   |              |                        | (193.4           | )(ii)(iii)(vii) |  |            | (146.8      | )(xi)(xii)(xiv) |  |  | 3,955.1  |  
|Investment held for resale                         |  |                |         |   |              |                        | 15.4             | (v)             |  |            |            |                 |  |  | 15.4     |  
|Cash and deposits                                  |  |                | 237.0    |   |              |                        |                 |                 |  |            | (21.9       | )(xiii)         |  |  | 215.1    |  
|Creditors excluding borrowings                     |  |                | (950.8   | ) |              |                        | (27.1            | )(vi)           |  |            | 38.9        | (xiii)          |  |  | (939.0   | )
|Borrowings                                         |  |                | (3,382.6 | ) |              |                        | (453.8           | )(iv)(vii)      |  |            | (15.3       | )(xiii)         |  |  | (3,851.7 | )
|Provisions for liabilities and charges             |  |                | (1,437.1 | ) |              |                        | (32.6            | )(iii)(viii)    |  |            | 152.0       | (xi)(xii)(xiv)  |  |  | (1,317.7 | )
|Minority interests                                 |  |                | (347.2   | ) |              |                        | 281.5            | (iv)            |  |            |            |                 |  |  | (65.7    | )
|                                                  
|                                                   |  |                | 1,813.5  |   |              |                        | (175.6           | )               |  |            | (261.5      | )               |  |  |          |  
|                                                   |  |                |          |  
|Net assets acquired                                |  |                |          |   |              |                        |                  |                 |  |            |             |                 |  |  | 1,376.4  |  
|Goodwill arising on acquisition                    |  |                |          |   |              |                        |                  |                 |  |            |             |                 |  |  | 810.1    |  
|                                                  
|                                                   |  |                |          |   |              |                        |                  |                 |  |            |             |                 |  |  | 2,186.5  |  
|                                                  
|Share consideration                                |  |                |          |   |              |                        |                  |                 |  |            |             |                 |  |  | 1,269.9  |  
|Cash consideration, including costs of acquisition |  |                |          |   |              |                        |                  |                 |  |            |             |                 |  |  | 916.6    |  
|                                                  
|                                                   |  |                |          |   |              |                        |                  |                 |  |            |             |                 |  |  | 2,186.5  |  
|                                                  

Investment held for resale of £15.4m relates to an associated undertaking of
Niagara Mohawk Holdings Inc. which is held exclusively with a view to resale.
The book and fair value of this business represents the anticipated net sale
proceeds.

Fair value adjustments primarily comprise:

Revaluation adjustments relating to:



|(i)    |  | Revaluation of investments to market value (£32.4m);                                                                        
|------ |  | ----------------------------------------------------------------------------------------------------------------------------
|      
|(ii)   |  | Write-down of regulatory assets related to nuclear activities (£669.4m);                                                    
|      
|(iii)  |  | Recognition of pension fund liabilities, assets and other related regulatory assets (£290.6m);                              
|      
|(iv)   |  | Revaluation and reclassification of preferred stock of a subsidiary undertaking (minority interest) to borrowings (£281.5m);
|      
|(v)    |  | Revaluation and reclassification of investment held for resale (£15.4m);                                                    
|      
|(vi)   |  | Recognition of current tax and other liabilities (£22.7m);                                                                  
|      
|(vii)  |  | Revaluation of long-term debt and recognition of related regulatory assets (£184.7m);                                       
|      
|(viii) |  | Deferred tax on certain fair value adjustments (£258.0m).                                                                   

Accounting policy alignment relating to:



|(ix)   |  | Accounting for allowance for equity funds used during construction (£75.6m);              
|------ |  | ------------------------------------------------------------------------------------------
|      
|(x)    |  | Accounting for costs incurred on the disposal of tangible fixed assets (£191.2m);         
|      
|(xi)   |  | Discounting of provisions and recognition of effect on related regulatory assets (£57.3m);
|      
|(xii)  |  | Non-recognition of certain regulatory assets under UK GAAP (£46.9m);                      
|      
|(xiii) |  | Reclassification of unpresented cheques (£37.2m);                                         
|      
|(xiv)  |  | Non-recognition of pension provision and related regulatory assets under UK GAAP (£45.7m).

Adjustments (ix) and (x) have also resulted in corresponding revaluation
adjustments.



---



##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts continued

72




27     Acquisition continued

The results of Niagara Mohawk Holdings Inc., prepared on the basis of its
pre-acquisition accounting policies under US GAAP, for the period 1 January
2002 to 31 January 2002 and for its preceding financial year ended 31 December
2001 are set out below:

|                                          |                            |  |                  |     |  |             |          |        |  
|----------------------------------------- | -------------------------- |  | ---------------- | --- |  | ----------- | -------- | ------ | -
|                                          |                            |  | Period 1 January |     |  | Year
ended 
|                                          |                            |  | to 31 January    |     |  | 31 December
|                                          |                            |  | 2002             |     |  | 2001       
|                                          |                            |  | £m               |     |  | £m         
|                                         
|Turnover                                  |                            |  | 255.4            |     |  |             | 3,269.2  |       
|Operating costs                           |                            |  | (251.1           | )   |  |             | (3,078.0 | )     
|                                         
|Operating profit of group undertakings    |                            |  |                  |     |  |             |          |       
|                                          |                            |  |                 
|                                          |  Before exceptional items |  |                  | 4.3 |  |             |          | 308.8  |  
|                                          |  Exceptional items        |  |                  |    |  |             |          | (117.6 | )
|                                          |                            |  |                 
|                                          |                            |  | 4.3              |     |  |             | 191.2    |       
|Share of joint ventures operating profit |                            |  | 0.2              |     |  |             | 2.5      |       
|Net interest                              |                            |  | (18.7            | )   |  |             | (264.0   | )     
|                                         
|Loss before taxation                      |                            |  | (14.2            | )   |  |             | (70.3    | )     
|Taxation                                  |                            |  | (0.6             | )   |  |             | 57.9     |       
|Minority interests                        |                            |  | (5.4             | )   |  |             | (21.7    | )     
|                                         
|Loss for the period                       |                            |  | (20.2            | )   |  |             | (34.1    | )     
|                                         

The following unaudited proforma summary gives effect to the acquisition of
Niagara Mohawk Holdings, Inc., as if the acquisition had taken place on 1 April
1999, on 1 April 2000 and on 1 April 2001. In addition, in respect of the year
ended 31 March 2000 only, the proforma summary gives effect to the acquisition
of New England Electric System (NEES), as if the acquisition of NEES had taken
place on 1 April 1999. The proforma summary combines the actual consolidated
results of the Group (excluding the effect of the acquisition in the actual
period that it took place) and the results of Niagara Mohawk Holdings Inc. and
NEES after giving effect to certain adjustments. These adjustments include
estimates of the effect of adopting the provisional or final fair value
adjustments as appropriate, and the increased net interest expense, together
with the associated tax effects, as a result of financing the acquisitions. In
addition, the earnings per share calculation has been adjusted as if the shares
issued to acquire Niagara Mohawk Inc. were issued on the assumed date of
acquisition for the purposes of preparing the proforma summary. The proforma
summary does not necessarily reflect the results of operations as they would
have been if the Group (excluding the acquisitions) and the acquisitions had
constituted a single entity during the periods presented.

|                                                                                                |  |                     |         |    |      |  |         |      |  |  |         |  
|----------------------------------------------------------------------------------------------- |  | ------------------- | ------- | -- | ---- |  | ------- | ---- |  |  | ------- | -
|                                                                                                |  | Year ended 31 March
|                                                                                                |  |                    
|                                                                                                |  | 2002                |         |    | 2001 |  |         | 2000
|                                                                                                |  | £m                  |         |    | £m   |  |         | £m  
|                                                                                               
|Turnover                                                                                        |  |                     | 6,973.1 |    |      |  | 7,117.9 |      |  |  | 6,197.7 |  
|(Loss)/profit for the year  including exceptional items and goodwill amortisation              |  |                     | (519.6  | )  |      |  | 588.6   |      |  |  | 930.1   |  
|Profit for the year  excluding exceptional items and goodwill amortisation                     |  |                     | 464.1   |    |      |  | 259.8   |      |  |  | 190.1   |  
|                                                                                               
|(Loss)/earnings per ordinary share
Basic, including exceptional items and goodwill amortisation |  |                     | (29.5   | )p |      |  | 33.5    | p    |  |  | 53.0    | p
|Basic, excluding exceptional items and goodwill amortisation                                    |  |                     | 26.4    | p  |      |  | 14.8    | p    |  |  | 10.8    | p
|                                                                                               

28     Related party transactions

Transactions with an associate and joint ventures, which were in the normal
course of business, were as follows:

|                      |  |      |      |  |      |  |      |      |  |  |      | 
|--------------------- |  | ---- | ---- |  | ---- |  | ---- | ---- |  |  | ---- | 
|                      |  | 2002 |      |  | 2001 |  |      | 2000
|                      |  | £m   |      |  | £m   |  |      | £m  
|                     
|Sales:                |  |      |      |  |      |  |      |      |  |  |      | 
|Services supplied     |  |      | 32.6 |  |      |  | 46.5 |      |  |  | 35.0 | 
|Finance lease rentals |  |      | 9.0  |  |      |  | 11.3 |      |  |  | 6.7  | 
|Purchases:            |  |      |      |  |      |  |      |      |  |  |      | 
|Services received     |  |      | 55.1 |  |      |  | 26.3 |      |  |  | 16.7 | 
|Tangible fixed assets |  |      | 2.7  |  |      |  |     |      |  |  | 5.6  | 
|                     

Amounts owed by and owed to an associate and joint ventures are given in notes
15 and 17 respectively.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

73




29     Commitments and contingencies

|                                 |  |       |       |                |      |  |       |      |               |  |      |  |  |  |      | 
|-------------------------------- |  | ----- | ----- | -------------- | ---- |  | ----- | ---- | ------------- |  | ---- |  |  |  | ---- | 
|a     Future capital expenditure |  |       |       |                |      |  |       |      | Associate and
|                                 |  | Group |       | joint ventures
|                                 |  |       |       |               
|                                 |  | 2002  |       |                | 2001 |  |       | 2002 |               |  | 2001
|                                 |  | £m    |       |                | £m   |  |       | £m   |               |  | £m  
|                                
|Contracted for but not provided  |  |       | 360.8 |                |      |  | 396.8 |      |               |  | 26.2 |  |  |  | 90.1 | 
|                                

Information in respect of the associates future capital expenditure
contracted for but not provided was not available at 31 March 2002. As a
consequence, in respect of the position at 31 March 2002 only, the information
provided above in respect of the share of associate and joint ventures future
capital expenditure contracted for but not provided solely relates to joint
ventures.

b     Lease commitments
At 31 March 2002, the Groups operating lease commitments for the financial
year ending 31 March 2003 amounted to £33.2m (2001: £11.9m) and are analysed by
lease expiry date as follows:

|                           |  |                    |      |       |      |       |     |      |  |  |      |  |  |      |     |  |      |  |      |  |  |  |      | 
|-------------------------- |  | ------------------ | ---- | ----- | ---- | ----- | --- | ---- |  |  | ---- |  |  | ---- | --- |  | ---- |  | ---- |  |  |  | ---- | 
|                           |  | Land and buildings |      | Other |      | Total
|                           |  |                    |      |       |      |      
|                           |  | 2002               |      |       | 2001 |       |     | 2002 |  |  | 2001 |  |  | 2002 |     |  | 2001
|                           |  | £m                 |      |       | £m   |       |     | £m   |  |  | £m   |  |  | £m   |     |  | £m  
|                          
|Within one year            |  |                    | 0.8  |       |      |       | 0.1 |      |  |  | 2.2  |  |  |      | 1.1 |  |      |  | 3.0  |  |  |  | 1.2  | 
|Between two and five years |  |                    | 1.9  |       |      |       | 1.3 |      |  |  | 11.7 |  |  |      | 4.5 |  |      |  | 13.6 |  |  |  | 5.8  | 
|After five years           |  |                    | 7.3  |       |      |       | 2.6 |      |  |  | 9.3  |  |  |      | 2.3 |  |      |  | 16.6 |  |  |  | 4.9  | 
|                          
|                           |  |                    | 10.0 |       |      |       | 4.0 |      |  |  | 23.2 |  |  |      | 7.9 |  |      |  | 33.2 |  |  |  | 11.9 | 
|                          

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

|                                                       |  |      |       |  |      |  |      | 
|------------------------------------------------------ |  | ---- | ----- |  | ---- |  | ---- | 
|                                                       |  | 2002 |       |  | 2001
|                                                       |  | £m   |       |  | £m  
|                                                      
|In one year or less                                    |  |      | 33.2  |  |      |  | 11.9 | 
|In more than one year, but not more than two years     |  |      | 28.7  |  |      |  | 10.7 | 
|In more than two years, but not more than three years  |  |      | 25.9  |  |      |  | 8.4  | 
|In more than three years, but not more than four years |  |      | 23.9  |  |      |  | 6.4  | 
|In more than four years, but not more than five years  |  |      | 18.6  |  |      |  | 5.5  | 
|In more than five years                                |  |      | 159.0 |  |      |  | 34.6 | 
|                                                      
|                                                       |  |      | 289.3 |  |      |  | 77.5 | 
|                                                      

c     Power commitments
At 31 March, the Group had obligations to purchase energy under long term
contracts. The following table analyses that commitment, excluding those
purchased power obligations, the net present value of which is already
reflected in creditors (note 18).

|                                                       |  |      |         |  |      |  |         | 
|------------------------------------------------------ |  | ---- | ------- |  | ---- |  | ------- | 
|                                                       |  | 2002 |         |  | 2001
|                                                       |  | £m   |         |  | £m  
|                                                      
|In one year or less                                    |  |      | 1,340.1 |  |      |  | 1,037.3 | 
|In more than one year, but not more than two years     |  |      | 1,188.9 |  |      |  | 670.8   | 
|In more than two years, but not more than three years  |  |      | 1,057.1 |  |      |  | 644.9   | 
|In more than three years, but not more than four years |  |      | 684.3   |  |      |  | 545.2   | 
|In more than four years, but not more than five years  |  |      | 691.5   |  |      |  | 277.4   | 
|In more than five years                                |  |      | 2,350.1 |  |      |  | 1,238.6 | 
|                                                      
|                                                       |  |      | 7,312.0 |  |      |  | 4,414.2 | 
|                                                      

d     Guarantees and performance bonds
A Group undertaking has issued performance bonds in the ordinary course of
business amounting to £40.6m (2001: £88.1m), of which £10.6m (2001: £58.3m) is
in respect of a joint venture, and has issued guarantees in respect of an
associate up to £14.1m (2001: £14.1m).

e     Sale of Millstone 3
In November 1999, New England Power (NEP), a National Grid subsidiary, entered
into an agreement with Northeast Utilities (NU) to settle claims made by NEP in
relation to the operation of the Millstone 3 nuclear unit. As part of this
agreement, NU agreed to include NEPs 16.2 per cent share in an auction of NUs
share in that unit, at a guaranteed price, irrespective of the price actually
received at auction. On 31 March 2001 the Millstone 3 sale was completed and
proceeds of US dollar 27.9m (£19.6m) were received by NEP. Millstone 3 was
subsequently sold to Dominion Resources Inc. for a total of approximately US
dollar 855.0m (£602.0m).

Regulatory authorities from Rhode Island, New Hampshire and Massachusetts have
expressed an intent to challenge the reasonableness of the settlement agreement
as NEP would have received approximately US dollar 140.0 million (£100.0m) of
sale proceeds without the agreement. The dispute will be resolved by the
Federal Energy Regulatory Commission (FERC). National Grid believes it has a
strong argument that it acted prudently since the amount received under the
settlement agreement was the highest sale price for a nuclear unit at the time
the agreement was reached.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts continued

74




f     Environmental related litigation
On 25 May 2000, the New York State Department of Environmental Conservation
(DEC) issued an air pollution notice of violation to Niagara Mohawk regarding
the operation of its two formerly owned coal-fired generation plants (Huntley
and Dunkirk). The notice of violation was also issued to NRG Energy, Inc.
(NRG), the current owner and operator of both plants. While no specific relief
was sought in the notice of violation, the DEC and the New York State Attorney
General have indicated in meetings with Niagara Mohawk and NRG that they will
be seeking substantial fines against Niagara Mohawk and NRG as well as the
imposition of pollution controls. It is Niagara Mohawks position that the cost
of pollution controls should be borne by NRG.

In May 2001, the New York State Attorney General advised Niagara Mohawk and NRG
of its intent to file suit alleging that the plants are in violation of the
federal Clean Air Act. On 13 July 2001, Niagara Mohawk filed a declaratory
judgement action against NRG in New York State Supreme Court. Niagara Mohawk is
seeking a declaratory judgement that NRG is responsible for any control
upgrades and mitigation resulting from the above-referenced enforcement action.
This litigation is in the discovery phase. On 10 January 2002, New York State
filed suit against Niagara Mohawk and NRG in US District Court for alleged
violations of the Clean Air Act. Niagara Mohawk has filed a motion to dismiss.

30     Group undertakings, joint ventures and associate

Principal Group undertakings
The principal Group undertakings included in the Group accounts at 31 March
2002 are listed below. These undertakings are wholly-owned and, unless
otherwise indicated, are incorporated in Great Britain.

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

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

Principal joint ventures and associate
at 31 March 2002

|                                      |  |                        |  |               |  |                                                      |  |  |  |  |  | 
|------------------------------------- |  | ---------------------- |  | ------------- |  | ---------------------------------------------------- |  |  |  |  |  | 
|                                      |  |                        |  |               |  | Country of                                           |  |  |  | 
|                                      |  |                        |  |               |  | incorporation                                        |  |  |  | 
|                                      |  | Group holding          |  | and operation |  | Principal activity                                  
|                                      |  |                        |  |               |  |                                                     
|Compania Inversora En Transmicion     |  |                        |  |               |  |                                                      |  |  |  |  |  | 
|Electrica CITELEC S.A. (c)            |  | 42.5% ordinary shares  |  | Argentina     |  | Transmission of electricity                         
|Copperbelt Energy Corporation Plc (c) |  | 38.5% ordinary shares  |  | Zambia        |  | Transmission, distribution and supply of electricity
|JVCO Participacoes Ltda*(c)           |  | 50.0% ordinary shares  |  | Brazil        |  | Telecommunications                                  
|Manquehue net S.A. (c)                |  | 30.0% ordinary shares  |  | Chile         |  | Telecommunications                                  
|Silica Networks S.A. (c)              |  | 50.0% ordinary shares  |  | Chile         |  | Telecommunications                                  
|Energis Polska Sp. z.o.o. (c)         |  | 48.75% ordinary shares |  | Poland        |  | Telecommunications                                  
|Energis plc (d)                       |  | 32.5% ordinary shares  |  | Great Britain |  | Telecommunications                                  
|                                     

*JVCO Participacoes Ltda is Inteligs ultimate parent undertaking.

The investments in the joint ventures (c) and associate (d) are held by Group
undertakings.

The Group holding of shares in Energis recorded in the table above represents
the Energis shares held within fixed asset investments (note 14), but not those
included within assets held for exchange (note 16). At 31 March 2002, 29.9m
(2001: 29.9m) Energis shares (book value: £nil; market value £0.8m), (2001:
book value: £21.9m; market value: £83.5m) included within fixed asset
investments, had been loaned to a financial institution under the terms of a
stock lending agreement. This agreement provides for a fee to be paid to the
Group and the loan of shares is secured by an equivalent value of readily
marketable securities.

A full list of all Group and associated undertakings is attached to the
Companys Annual Return filed with the Registrar of Companies.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

75




31     Post balance sheet event

On 22 April 2002 the Boards of National Grid Group plc and Lattice Group plc
(Lattice) unanimously agreed and announced the terms of a recommended merger.
Under the terms of the merger, National Grid shareholders will retain their
shares in National Grid (to be renamed National Grid Transco) and Lattice
shareholders will receive 0.375 National Grid Transco shares for each Lattice
share. Upon completion of the merger, National Grid shareholders will hold
approximately 57.3 per cent and Lattice shareholders will hold approximately
42.7 per cent of the issued share capital of National Grid Transco, based on
the issued share capital of the two companies at the date of the announcement.

It is intended to account for the merger in accordance with merger accounting principles.

32     Differences between UK and US accounting principles

The Group prepares its consolidated accounts in accordance with UK GAAP, which
differ in certain significant respects from US GAAP. The significant
differences between UK GAAP and US GAAP are set out below.

Deferred taxation
Under UK GAAP, deferred taxation is provided in full on all material timing
differences with certain exceptions, as outlined in the Accounting
policies  Deferred taxation. Under US GAAP, deferred tax is provided in full, using the
liability method, and requires the recognition of deferred taxation on all
timing differences except for non tax deductible goodwill.

The deferred tax liability under US GAAP is analysed as follows:

|                                                         |  |      |          |   |      |  |         |  
|-------------------------------------------------------- |  | ---- | -------- | - | ---- |  | ------- | -
|                                                         |  | 2002 |          |   | 2001
|                                                         |  | £m   |          |   | £m  
|                                                        
|Deferred taxation liabilities:                           |  |      |          |   |      |  |         |  
|Excess of book value over taxation value of fixed assets |  |      | 1,713.9  |   |      |  | 1,124.4 |  
|Other temporary differences                              |  |      | 1,376.4  |   |      |  | 222.7   |  
|                                                        
|                                                         |  |      | 3,090.3  |   |      |  | 1,347.1 |  
|Deferred taxation assets:                                |  |      |          |   |      |  |         |  
|Other temporary differences                              |  |      | (1,161.5 | ) |      |  | (126.5  | )
|                                                        
|                                                         |  |      | 1,928.8  |   |      |  | 1,220.6 |  
|                                                        
|Analysed as follows:                                     |  |      |          |   |      |  |         |  
|Current                                                  |  |      | 12.2     |   |      |  | 11.3    |  
|Non-current                                              |  |      | 1,916.6  |   |      |  | 1,209.3 |  
|                                                        
|                                                         |  |      | 1,928.8  |   |      |  | 1,220.6 |  
|                                                        

PensionsUnder UK GAAP, pension costs have been accounted for in accordance with SSAP 24
and disclosures have been provided in accordance with SSAP 24 and FRS 17.

Under US GAAP, pension costs are determined in accordance with the requirements
of SFAS 87 and 88 and pension disclosures are presented in accordance with SFAS
132. Differences between UK GAAP and US GAAP figures arise from the requirement
to use different actuarial methods and assumptions and a different method of
amortising certain surpluses and deficits. Under US GAAP, the Company has
estimated the effect on net income and shareholders equity assuming the
adoption and application of SFAS 87 Employers Accounting for Pensions as of
1 April 1996, as the adoption of SFAS 87 on the actual effective date of 1
April 1989 was not feasible. The unrecognised transition asset at 1 April 1989,
using the financial assumptions at 1 April 1996, amounted to £171.5m and is
being amortised over 15 years commencing 1 April 1989.

Under UK GAAP, as explained in note 7, net interest includes a credit of £8.1m
(2001: £15.7m; 2000: £3.5m) in respect of the notional interest element of the
variation from the regular pension cost. Under US GAAP, this credit is not
recognised.

The net periodic (credit)/cost for pensions and other post-retirement benefits
are as follows:

|                                               |  |          |        |          |      |  |        |      |  |  |       |   |  |                       |       |   |  |  |       |  
|---------------------------------------------- |  | -------- | ------ | -------- | ---- |  | ------ | ---- |  |  | ----- | - |  | --------------------- | ----- | - |  |  | ----- | -
|                                               |  |          |        |          |      |  |        |      |  |  |       |   |  | Other post-retirement
|                                               |  | Pensions |        | benefits
|                                               |  |          |        |         
|                                               |  | 2002     |        |          | 2001 |  |        | 2000 |  |  | 2002  |   |  | 2001                 
|                                               |  | £m       |        |          | £m   |  |        | £m   |  |  | £m    |   |  | £m                   
|                                              
|Service cost                                   |  |          | 29.6   |          |      |  | 25.1   |      |  |  | 19.7  |   |  |                       | 5.1   |   |  |  | 3.6   |  
|Interest cost                                  |  |          | 125.0  |          |      |  | 110.7  |      |  |  | 63.7  |   |  |                       | 28.8  |   |  |  | 20.7  |  
|Settlements                                    |  |          | (11.6  | )        |      |  |       |      |  |  |      |   |  |                       |      |   |  |  |      |  
|Expected return on assets                      |  |          | (159.5 | )        |      |  | (141.7 | )    |  |  | (72.9 | ) |  |                       | (20.8 | ) |  |  | (17.2 | )
|Amortisation of prior service cost             |  |          | 3.7    |          |      |  | 2.6    |      |  |  | 2.6   |   |  |                       |      |   |  |  |      |  
|Amortisation of previously unrecognised losses |  |          |       |          |      |  |       |      |  |  | 0.9   |   |  |                       | 0.3   |   |  |  | 0.2   |  
|Amortisation of transitional asset             |  |          | (11.4  | )        |      |  | (11.4  | )    |  |  | (11.4 | ) |  |                       |      |   |  |  |      |  
|                                              
|                                               |  |          | (24.2  | )        |      |  | (14.7  | )    |  |  | 2.6   |   |  |                       | 13.4  |   |  |  | 7.3   |  
|Release of pension provision                   |  |          | (1.5   | )        |      |  | (1.5   | )    |  |  | (1.5  | ) |  |                       |      |   |  |  |      |  
|                                              
|                                               |  |          | (25.7  | )        |      |  | (16.2  | )    |  |  | 1.1   |   |  |                       | 13.4  |   |  |  | 7.3   |  
|                                              



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts continued

76




32     Differences between UK and US accounting principles continued

Pensions continued
The cost of providing other post-retirement benefits for the year ended 31
March 2000, which related to the period 22 March 2000 to 31 March 2000,
amounted to £0.2m.

The additional cost incurred in respect of severance cases computed in
accordance with SFAS 88 Employers Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits is as follows:

|                             |  |      |      |  |      |  |     |      |  |  |      | 
|---------------------------- |  | ---- | ---- |  | ---- |  | --- | ---- |  |  | ---- | 
|                             |  | 2002 |      |  | 2001 |  |     | 2000
|                             |  | £m   |      |  | £m   |  |     | £m  
|                            
|Cost of termination benefits |  |      | 46.3 |  |      |  | 4.1 |      |  |  | 10.3 | 
|                            

The principal financial assumptions used for the SFAS 87 calculations in
respect of the UK and USA defined benefit schemes are shown below.

|                         |  |      |            |    |      |  |     |      |  |  |      |     |  |      |     |     |      |  |     |     |  |  |     | 
|------------------------ |  | ---- | ---------- | -- | ---- |  | --- | ---- |  |  | ---- | --- |  | ---- | --- | --- | ---- |  | --- | --- |  |  | --- | 
|                         |  | USA  |            | UK
|                         |  |      |            |   
|                         |  | 2002 |            |    | 2001 |  |     | 2000 |  |  | 2002 |     |  | 2001 |     |     | 2000
|                         |  | %    |            |    | %    |  |     | %    |  |  | %    |     |  | %    |     |     | %   
|                        
|Discount rate            |  |      | 7.5        |    |      |  | 7.3 |      |  |  | 7.8  |     |  |      | 6.0 |     |      |  | 5.5 |     |  |  | 5.5 | 
|Return on assets         |  |      | 7.5  9.0  |    |      |  | 8.8 |      |  |  | 8.5  |     |  |      | 7.0 |     |      |  | 5.8 |     |  |  | 6.0 | 
|General salary increases |  |      | 3.25  4.5 |    |      |  | 4.0 |      |  |  | 5.1  |     |  |      | 3.8 |     |      |  | 3.3 |     |  |  | 4.0 | 
|Pension increases        |  | nil  |            |    | nil  |  |     | nil  |  |  |      | 2.9 |  |      |     | 2.5 |      |  |     | 3.0 | 
|                        

The assumptions used for other post-retirement costs relate solely to USA
schemes. These assumptions were that the discount rate used would be 7.5% and
that medical costs would increase by 10.0%, decreasing to 5.0% in 2007 and
remain at 5.0% thereafter.

A reconciliation of the funded status of the Group pension and other
post-retirement schemes to the prepaid/(accrued) cost that would appear in the
Groups balance sheet if prepared under US GAAP is as follows:

|                                     |  |          |          |                          |      |  |          |      |  |       |        |   |  |  |        |  
|------------------------------------ |  | -------- | -------- | ------------------------ | ---- |  | -------- | ---- |  | ----- | ------ | - |  |  | ------ | -
|                                     |  |          |          |                          |      |  |          |      |  | Other
|                                     |  | Pensions |          | post-retirement benefits
|                                     |  |          |          |                         
|                                     |  | 2002     |          |                          | 2001 |  |          | 2002 |  |       | 2001  
|                                     |  | £m       |          |                          | £m   |  |          | £m   |  |       | £m    
|                                    
|Projected benefit obligation         |  |          | (2,953.5 | )                        |      |  | (1,906.5 | )    |  |       | (884.0 | ) |  |  | (316.2 | )
|Fair value of plan assets            |  |          | 2,698.2  |                          |      |  | 2,095.8  |      |  |       | 396.8  |   |  |  | 202.3  |  
|                                    
|                                     |  |          | (255.3   | )                        |      |  | 189.3    |      |  |       | (487.2 | ) |  |  | (113.9 | )
|                                    
|Unrecognised transition asset        |  |          | (23.1    | )                        |      |  | (34.5    | )    |  |       |       |   |  |  |       |  
|Unrecognised net loss                |  |          | 417.2    |                          |      |  | 157.5    |      |  |       | 83.0   |   |  |  | 47.6   |  
|Unrecognised prior service cost      |  |          | 65.2     |                          |      |  | 44.9     |      |  |       | (1.6   | ) |  |  |       |  
|                                    
|Prepaid/(accrued) cost under US GAAP |  |          | 204.0    |                          |      |  | 357.2    |      |  |       | (405.8 | ) |  |  | (66.3  | )
|                                    

|                                                             |  |          |         |                          |      |  |         |      |  |       |       |   |  |  |       |  
|------------------------------------------------------------ |  | -------- | ------- | ------------------------ | ---- |  | ------- | ---- |  | ----- | ----- | - |  |  | ----- | -
|                                                             |  |          |         |                          |      |  |         |      |  | Other
|                                                             |  | Pensions |         | post-retirement benefits
|                                                             |  |          |         |                         
|                                                             |  | 2002     |         |                          | 2001 |  |         | 2002 |  |       | 2001 
|Changes in the projected benefit obligation are shown below: |  | £m       |         |                          | £m   |  |         | £m   |  |       | £m   
|                                                            
|Projected benefit obligation at start of year                |  |          | 1,906.5 |                          |      |  | 1,655.5 |      |  |       | 316.2 |   |  |  | 228.8 |  
|Adjustments to provisional fair values                       |  |          |        |                          |      |  | 5.3     |      |  |       |      |   |  |  | (16.4 | )
|Service cost                                                 |  |          | 29.6    |                          |      |  | 25.1    |      |  |       | 5.1   |   |  |  | 3.9   |  
|Interest cost                                                |  |          | 125.0   |                          |      |  | 110.7   |      |  |       | 28.8  |   |  |  | 20.7  |  
|Plan participants contributions                             |  |          | 4.7     |                          |      |  | 4.5     |      |  |       |      |   |  |  |      |  
|Plan
amendment  prior service cost                          |  |          | 23.4    |                          |      |  | 13.3    |      |  |       | (1.6  | ) |  |  |      |  
|Terminations                                                 |  |          | 39.7    |                          |      |  | 4.1     |      |  |       | 6.6   |   |  |  | 0.2   |  
|Actuarial loss                                               |  |          | 118.0   |                          |      |  | 12.2    |      |  |       | 24.7  |   |  |  | 15.2  |  
|Benefits paid                                                |  |          | (140.1  | )                        |      |  | (121.8  | )    |  |       | (26.3 | ) |  |  | (17.5 | )
|Acquisition of Group undertakings                            |  |          | 900.6   |                          |      |  | 119.7   |      |  |       | 532.5 |   |  |  | 51.2  |  
|Transfers out                                                |  |          | (51.0   | )                        |      |  |        |      |  |       |      |   |  |  |      |  
|Transfers in                                                 |  |          | 1.5     |                          |      |  |        |      |  |       |      |   |  |  |      |  
|Exchange adjustments                                         |  |          | (4.4    | )                        |      |  | 77.9    |      |  |       | (2.0  | ) |  |  | 30.1  |  
|                                                            
|Projected benefit obligation at end of year                  |  |          | 2,953.5 |                          |      |  | 1,906.5 |      |  |       | 884.0 |   |  |  | 316.2 |  
|                                                            



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

77




32     Differences between UK and US accounting principles continued

Pensions continued

|                                           |  |          |         |                          |      |  |         |      |  |       |       |   |  |  |       |  
|------------------------------------------ |  | -------- | ------- | ------------------------ | ---- |  | ------- | ---- |  | ----- | ----- | - |  |  | ----- | -
|                                           |  |          |         |                          |      |  |         |      |  | Other
|                                           |  | Pensions |         | post-retirement benefits
|                                           |  |          |         |                         
|                                           |  | 2002     |         |                          | 2001 |  |         | 2002 |  |       | 2001 
|Changes in plan assets are shown below:    |  |          | £m      |                          |      |  | £m      |      |  |       | £m    |   |  |  | £m    |  
|                                          
|Fair value of plan assets at start of year |  |          | 2,095.8 |                          |      |  | 2,110.7 |      |  |       | 202.3 |   |  |  | 178.9 |  
|Actual return on assets                    |  |          | 18.8    |                          |      |  | (150.0  | )    |  |       | 10.3  |   |  |  | (13.2 | )
|Employer contributions                     |  |          | 23.6    |                          |      |  | 14.7    |      |  |       | 16.1  |   |  |  | 6.0   |  
|Plan participants contributions           |  |          | 4.7     |                          |      |  | 4.5     |      |  |       |      |   |  |  |      |  
|Benefits paid                              |  |          | (140.1  | )                        |      |  | (121.8  | )    |  |       | (20.2 | ) |  |  | (16.7 | )
|Acquisition of Group undertakings          |  |          | 738.6   |                          |      |  | 147.8   |      |  |       | 189.0 |   |  |  | 23.3  |  
|Transfers out                              |  |          | (40.6   | )                        |      |  |        |      |  |       |      |   |  |  |      |  
|Transfers in                               |  |          | 1.5     |                          |      |  |        |      |  |       |      |   |  |  |      |  
|Exchange adjustments                       |  |          | (4.1    | )                        |      |  | 89.9    |      |  |       | (0.7  | ) |  |  | 24.0  |  
|                                          
|Fair value of plan assets at end of year   |  |          | 2,698.2 |                          |      |  | 2,095.8 |      |  |       | 396.8 |   |  |  | 202.3 |  
|                                          

It is estimated that a one per cent change in the assumed health care cost
trends would increase or decrease the accumulated post-retirement benefit
obligation as at 31 March 2002 by £90.9m (2001: £53.9m) and £82.3m (2001:
£48.2m) respectively. There would be an immaterial effect on the net periodic
cost for the year ended 31 March 2002.

Shares held by employee share trusts
Under UK GAAP, shares in the Company held by employee share trusts are recorded
as fixed asset investments at cost less amounts written off. Under US GAAP,
those shares not fully vested are regarded as treasury stock and recorded as a
deduction from shareholders equity.

Share option schemes
As permitted under UK GAAP, no cost is accrued for share options awarded under
the Sharesave scheme where the exercise price of the options is below the
market value at the date of grant. In respect of the grant of options under the
Executive scheme, no cost is accrued under UK GAAP as the exercise price is
equivalent to the market value at the date of grant. As permitted by SFAS 123,
Accounting for Stock-Based Compensation, the Group has accounted for
compensatory share option schemes under APB 25 Accounting for Stock Issued to
Employees. Under the requirements of APB 25, the compensation costs relating
to the Sharesave and Executive schemes are amortised over the period from the
date of grant of options to the date those options are first exercisable. SFAS
123 prescribes a fair value method of recognising share option compensation
costs, the application of which would have no material effect on the Groups
reported net income or earnings per ordinary share.

The average fair value of the options granted during each of the three
financial years ended 31 March 2002 are estimated as follows:

|                                                                               |  |      |       |   |      |  |       |      |  |  |       |  
|------------------------------------------------------------------------------ |  | ---- | ----- | - | ---- |  | ----- | ---- |  |  | ----- | -
|                                                                               |  | 2002 |       |   | 2001 |  |       | 2000
|                                                                              
|Where the exercise price is less than the market price at the date of grant    |  |      | 158.0 | p |      |  | 155.0 | p    |  |  | 134.2 | p
|Where the exercise price is equal to the market price at the date of grant     |  |      | 62.0  | p |      |  | 68.0  | p    |  |  | 129.0 | p
|Where the exercise price is greater than the market price at the date of grant |  |      |      |   |      |  | 65.0  | p    |  |  |      |  
|                                                                              

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

|                          |  |      |      |  |      |  |      |      |  |  |      | 
|------------------------- |  | ---- | ---- |  | ---- |  | ---- | ---- |  |  | ---- | 
|                          |  | 2002 |      |  | 2001 |  |      | 2000
|                         
|Dividend yield            |  |      | 3.5  |  |      |  | 2.7  |      |  |  | 4.1  | 
|Volatility                |  |      | 30.0 |  |      |  | 30.0 |      |  |  | 33.0 | 
|Risk-free investment rate |  |      | 5.4  |  |      |  | 5.9  |      |  |  | 5.8  | 
|Average life (years)      |  |      | 4.2  |  |      |  | 4.0  |      |  |  | 4.2  | 
|                         



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts continued

78




32     Differences between UK and US accounting principles continued

Ordinary dividends
Under UK GAAP, final ordinary dividends are provided for in the year in respect
of which they are proposed by the Board of Directors for approval by the
shareholders. Under US GAAP, dividends are not provided until declared.

Tangible fixed assets
During the financial year ended 31 March 1990, an impairment provision was
recorded in respect of certain tangible fixed assets. Part of this impairment
provision was subsequently released and shareholders equity credited. Under US
GAAP this partial release would not be permitted.

Financial instruments
Under UK GAAP, derivative financial instruments that qualify for hedge
accounting are recorded at their historical cost, if any, and are not
re-measured. Any related monetary assets or liabilities, including foreign
currency borrowings are translated at the hedged rate. In addition, under UK
GAAP, it is permissible to hedge account for the net assets of overseas
operations with hedging instruments denominated in currencies other than the
functional currencies of the overseas operations.

Under US GAAP, as required by SFAS 133 Accounting for Derivative Instruments
and Hedging Activities, all derivative financial instruments including
derivatives embedded within other contracts, are required to be recognised in
the balance sheet as either assets or liabilities and measured at fair value.
SFAS 133 only permits hedge accounting in specific circumstances, where the
hedge is identified as one of three types: fair value; cash flow or foreign
currency exposures of net investments in foreign operations. Provided that it
can be demonstrated that the hedge is highly effective and the relevant hedging
criteria have been met, then in respect of fair value hedges, both the change
in fair value of the derivative and hedged item are reflected in net income in
the period of the change; for cash flow hedges and hedges of foreign currency
exposures of net investments in foreign operations, changes in fair value are
reflected through other comprehensive income. In the event that the conditions
for hedge accounting are not met, then changes in the fair value of a
derivative is reflected in net income.

The primary differences that arise between UK GAAP and US GAAP result from the
different criteria that are applied under UK GAAP and US GAAP to permit the use
of hedge accounting, and the application of different measurement criteria.

Equity Plus Income Convertible Securities (EPICs)
Under UK GAAP, EPICs are carried in the balance sheet at the gross proceeds of
the issue and the related issue costs were written-off in the year of issue.
Under US GAAP, the issue costs are deferred and written-off over the period to
the expected date of redemption of the EPICs on 3 May 2003.

US GAAP requires the carrying value of the EPICs to be adjusted to the
settlement amount of the debt, which is linked to the Energis plc share price
as described in note 19.

Regulatory assets
SFAS 71 Accounting for Certain Types of Regulation establishes US GAAP for
utilities whose regulators have the power to approve and/or regulate rates that
may be charged to customers. Provided that through the regulatory process, the
utility is substantially assured of recovering its allowable costs by the
collection of revenue from its customers, such costs not yet recovered are
deferred as regulatory assets. Due to the different regulatory environment, no
equivalent accounting standard applies in the United Kingdom.

Under UK GAAP, regulatory assets established in accordance with the principles
of SFAS 71 are recognised where they comprise rights or other access to future
economic benefits which arise as a result of past transactions or events which
have created an obligation to transfer economic benefit to a third party.
Measurement of the past transaction or event and hence of the regulatory asset
is determined in accordance with UK GAAP. Where the application of UK GAAP
results in the non or partial recognition of an obligation compared with US
GAAP, any related regulatory asset is either not or partially recognised. In
certain circumstances, regulatory assets may be reported net of related
regulatory liabilities.

Recognition of income
Under US GAAP, income is recognised in the period that the service is provided
up to the maximum revenue allowed under the terms of the relevant regulatory
regime. Under UK GAAP, any income received or receivable in excess of the
maximum revenue allowed for the period, under the terms of the relevant
regulatory regime, is recognised as income.

Severance and integration costs
Under UK GAAP, severance costs are provided for in the accounts if it is
determined that a constructive or legal obligation has arisen from a
restructuring programme where it is probable that it will result in the outflow
of economic benefits and the costs involved can be estimated with reasonable
accuracy. Under US GAAP, severance costs are recognised when the employees
accept the severance offer. In addition, where the number of employees leaving
results in a significant reduction in the accrual of pension benefits for
employees future service (a curtailment under US GAAP), the effects are
reflected as part of the cost of such termination benefits. Accordingly, timing
differences between UK GAAP and US GAAP arise on the recognition of such costs.

Under US GAAP, certain reorganisation costs relating to an acquired entity are
included in liabilities in determining the fair value of net assets acquired.
Under UK GAAP such costs are not recognised as liabilities of the acquired
entity at the date of acquisition and are treated as post acquisition costs.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

79




32     Differences between UK and US accounting principles continued

Goodwill
Under US GAAP, the fair value of net assets acquired is calculated in
accordance with US GAAP principles which differ in certain respects from UK
GAAP principles. As a result, the US GAAP fair value of net assets of Group
undertakings acquired differ from the fair value of net assets as determined
under UK GAAP principles.

Under UK GAAP, goodwill is amortised over its expected useful economic life of
up to 20 years. Under US GAAP, National Grid, with the exception of its
associated undertaking, has adopted SFAS 142 Accounting for Goodwill and Other
Intangible Assets with effect from 1 April 2001. SFAS 142 requires that
amortisation of goodwill should be replaced by periodic reviews for impairment.

Share of joint ventures and associates adjustments to conform with US GAAP
The Groups share of the associated undertakings results and net assets, which
also impact on the exceptional profit relating to Energis and assets held for
exchange, have been adjusted to conform with US GAAP.

Reconciliation of net (loss)/income to US GAAP
The following is a summary of the material adjustments to net (loss)/income
which would have been required if US GAAP had been applied instead of UK GAAP.

|                                                      |                                                                              |  |        |       |            |      |       |            |      |  |         |        |  
|----------------------------------------------------- | ---------------------------------------------------------------------------- |  | ------ | ----- | ---------- | ---- | ----- | ---------- | ---- |  | ------- | ------ | -
|                                                      |                                                                              |  | 2002   |       |            | 2001 |       |            | 2000
|                                                      |                                                                              |  |        |       | (restated) |      |       | (restated)
|                                                      |                                                                              |  | £m     |       |            | £m   |       |            | £m  
|                                                     
|Profit for the year, excluding exceptional items      |                                                                              |  | 400.1  |       |            |      | 210.7 |            |      |  | 321.9   |       
|Exceptional items after taxation                      |                                                                              |  | (893.4 | )     |            |      | 453.5 |            |      |  | 800.1   |       
|                                                     
|Net (loss)/income under UK GAAP                       |                                                                              |  | (493.3 | )     |            |      | 664.2 |            |      |  | 1,122.0 |       
|                                                     
|Adjustments to conform with US GAAP
Deferred taxation |                                                                              |  | 6.7    |       |            |      | (27.2 | )          |      |  | 34.8    |       
|                                                      | Pensions                                                                     |  |        | 29.4  |            |      |       | 18.9       |      |  |         | 5.7    |  
|                                                      | Share option schemes                                                         |  |        | (1.6  | )          |      |       | (5.3       | )    |  |         | (5.4   | )
|                                                      | Tangible fixed assets                                                        |  |        | 3.4   |            |      |       | 3.4        |      |  |         | 3.4    |  
|                                                      | Financial instruments                                                        |  |        | (82.8 | )          |      |       | (55.4      | )    |  |         | 27.9   |  
|                                                      | Issue costs associated with EPICs                                            |  |        | (1.8  | )          |      |       | (1.8       | )    |  |         | (1.8   | )
|                                                      | Carrying value of EPICs liability                                            |  |        | 203.1 |            |      |       | 152.5      |      |  |         | (115.0 | )
|                                                      | Severance and integration costs                                              |  |        | 67.4  |            |      |       | 23.6       |      |  |         | (11.3  | )
|                                                      | Recognition of income                                                        |  |        | (4.7  | )          |      |       | (17.0      | )    |  |         |       |  
|                                                      | Goodwill                                                                     |  |        | 78.4  |            |      |       | (1.6       | )    |  |         | 0.1    |  
|                                                      | Share of joint ventures and associates adjustments to conform with US GAAP |  |        | 37.0  |            |      |       | 56.0       |      |  |         | (50.6  | )
|                                                      | Other                                                                        |  |        | (4.3  | )          |      |       |           |      |  |         |       |  
|                                                     
|Total US GAAP adjustments                             |                                                                              |  | 330.2  |       |            |      | 146.1 |            |      |  | (112.2  | )     
|                                                     
|Net (loss)/income under US GAAP                       |                                                                              |  | (163.1 | )     |            |      | 810.3 |            |      |  | 1,009.8 |       
|                                                     

Net (loss)/income under US GAAP includes net losses of £892.9m (2001: net gains
£527.9m; 2000: net gains £795.7m) which are treated as exceptional items under
UK GAAP.

|                                                  |  |      |        |   |      |  |       |      |  |  |         | 
|------------------------------------------------- |  | ---- | ------ | - | ---- |  | ----- | ---- |  |  | ------- | 
|                                                  |  | 2002 |        |   | 2001 |  |       | 2000
|Earnings per share (EPS)                          |  |      | £m     |   |      |  | £m    |      |  |  | £m      | 
|                                                 
|Net (loss)/income under US GAAP                   |  |      | (163.1 | ) |      |  | 810.3 |      |  |  | 1,009.8 | 
|Dilutive impact of 4.25% exchangeable bonds 2008* |  |      |       |   |      |  | 21.2  |      |  |  | 20.9    | 
|                                                 
|Net (loss)/income after dilution                  |  |      | (163.1 | ) |      |  | 831.5 |      |  |  | 1,030.7 | 
|                                                 

*There is no dilutive impact of the 4.25% exchangeable bonds 2008 in 2002.


|                                                             |  |         |         |    |         |  |         |         |  |  |         |  
|------------------------------------------------------------ |  | ------- | ------- | -- | ------- |  | ------- | ------- |  |  | ------- | -
|                                                             |  | Number  |         |    | Number  |  |         | Number 
|                                                             |  | million |         |    | million |  |         | million
|                                                            
|Weighted average shares in issue  for basic EPS (note 11)   |  |         | 1,526.8 |    |         |  | 1,475.8 |         |  |  | 1,472.9 |  
|                                                            
|Weighted average shares in issue  for diluted EPS (note 11) |  |         | 1,526.8 |    |         |  | 1,596.0 |         |  |  | 1,593.3 |  
|                                                            
|Basic (loss)/earnings per share                              |  |         | (10.7   | )p |         |  | 54.9    | p       |  |  | 68.6    | p
|                                                            
|Diluted (loss)/earnings per share                            |  |         | (10.7   | )p |         |  | 52.1    | p       |  |  | 64.7    | p
|                                                            



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts continued

80




32     Differences between UK and US accounting principles continued

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

|                                                      |                                                                              |  |         |       |            |      |         |       |  
|----------------------------------------------------- | ---------------------------------------------------------------------------- |  | ------- | ----- | ---------- | ---- | ------- | ----- | -
|                                                      |                                                                              |  | 2002    |       |            | 2001
|                                                      |                                                                              |  |         |       | (restated)
|                                                      |                                                                              |  | £m      |       |            | £m  
|                                                     
|Equity shareholders funds under UK GAAP              |                                                                              |  | 3,196.6 |       |            |      | 2,673.5 |      
|                                                     
|Adjustments to conform with US GAAP
Deferred taxation |                                                                              |  | (51.7   | )     |            |      | (47.2   | )    
|                                                      | Pensions                                                                     |  |         | 216.5 |            |      |         | 178.7 |  
|                                                      | Shares held by employee share trusts                                         |  |         | (45.7 | )          |      |         | (10.2 | )
|                                                      | Ordinary dividends                                                           |  |         | 169.0 |            |      |         | 133.5 |  
|                                                      | Tangible fixed assets                                                        |  |         | (38.2 | )          |      |         | (41.6 | )
|                                                      | Financial instruments                                                        |  |         | (81.5 | )          |      |         | (45.5 | )
|                                                      | Issue costs associated with EPICs                                            |  |         | 1.9   |            |      |         | 3.7   |  
|                                                      | Carrying value of EPICs liability                                            |  |         | 240.6 |            |      |         | 37.5  |  
|                                                      | Severance liabilities                                                        |  |         | 14.8  |            |      |         |      |  
|                                                      | Recognition of income                                                        |  |         | (21.7 | )          |      |         | (17.0 | )
|                                                      | Regulatory assets                                                            |  |         | 34.4  |            |      |         |      |  
|                                                      | Goodwill                                                                     |  |         | 105.1 |            |      |         | 34.1  |  
|                                                      | Share of joint ventures and associates adjustments to conform with US GAAP |  |         | 20.7  |            |      |         | 21.3  |  
|                                                      | Other                                                                        |  |         | (1.8  | )          |      |         | (0.8  | )
|                                                     
|Total US GAAP adjustments                             |                                                                              |  | 562.4   |       |            |      | 246.5   |      
|                                                     
|Equity shareholders funds under US GAAP              |                                                                              |  | 3,759.0 |       |            |      | 2,920.0 |      
|                                                     

Reconciliation of US GAAP to UK GAAP cash flow headings
The Group accounts include a cash flow statement prepared in accordance with
FRS 1 (Revised 1996) Cash Flow Statements (FRS 1 (revised)), the objectives
and principles of which are substantially the same as SFAS 95 Statement of
Cash Flows under US GAAP. The principal differences between FRS 1 (revised)
and SFAS 95 relate to the classification of items within the cash flow
statement and the definition of cash and cash equivalents. Under UK GAAP cash
flows are classified under eight standard headings whereas US GAAP only
requires presentation of cash flows from three activities, being operating
activities, investing activities and financing activities.

Under US GAAP, in contrast to UK GAAP, cash and cash equivalents do not include
bank overdrafts but do include deposits and investments with original
maturities of three months or less.

Set out below is a summary of the Group cash flow statement under US GAAP:

|                                                                  |  |      |          |   |      |  |          |      |  |  |         |  
|----------------------------------------------------------------- |  | ---- | -------- | - | ---- |  | -------- | ---- |  |  | ------- | -
|                                                                  |  | 2002 |          |   | 2001 |  |          | 2000
|                                                                  |  | £m   |          |   | £m   |  |          | £m  
|                                                                 
|Net cash provided by operating activities(i)                      |  |      | 902.1    |   |      |  | 425.5    |      |  |  | 347.5   |  
|Net cash used in investing activities(ii)                         |  |      | (1,199.7 | ) |      |  | (1,059.8 | )    |  |  | (736.2  | )
|Net cash provided by/(used in) financing activities(iii)          |  |      | 221.5    |   |      |  | (104.7   | )    |  |  | 596.2   |  
|                                                                 
|Net (decrease)/increase in cash and cash equivalents              |  |      | (76.1    | ) |      |  | (739.0   | )    |  |  | 207.5   |  
|Cash and cash equivalents at beginning of year                    |  |      | 259.0    |   |      |  | 977.3    |      |  |  | 769.8   |  
|Exchange adjustments                                              |  |      | (4.6     | ) |      |  | 20.7     |      |  |  |        |  
|                                                                 
|Cash and cash equivalents at end of year                          |  |      | 178.3    |   |      |  | 259.0    |      |  |  | 977.3   |  
|                                                                 
|Cash and deposits per balance sheet                               |  |      | 212.6    |   |      |  | 271.2    |      |  |  | 1,011.6 |  
|Less: deposits with original maturities of more than three months |  |      | (34.3    | ) |      |  | (12.2    | )    |  |  | (34.3   | )
|                                                                 
|Cash and cash equivalents                                         |  |      | 178.3    |   |      |  | 259.0    |      |  |  | 977.3   |  
|                                                                 

(i)  Net cash provided by operating activities comprises net cash inflow from
operating activities, dividends from joint ventures, returns on investments and
servicing of finance, excluding costs relating to the issue of debt and
taxation.

(ii)  Net cash used in investing activities comprises capital expenditure,
acquisitions and disposals and the component of management of liquid resources
which comprises deposits with an original maturity of more than three months.

(iii)  Net cash provided by/(used in) financing activities comprises equity
dividends paid, financing, including costs relating to the issue of debt, and
movements in bank overdrafts.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

81




32     Differences between UK and US accounting principles continued

Comprehensive (loss)/income
Comprehensive (loss)/income under US GAAP is as follows:

|                                          |                                                        |  |        |      |   |      |       |       |      |  |         |       |  
|----------------------------------------- | ------------------------------------------------------ |  | ------ | ---- | - | ---- | ----- | ----- | ---- |  | ------- | ----- | -
|                                          |                                                        |  | 2002   |      |   | 2001 |       |       | 2000
|                                          |                                                        |  | £m     |      |   | £m   |       |       | £m  
|                                         
|Net (loss)/income under US GAAP           |                                                        |  | (163.1 | )    |   |      | 810.3 |       |      |  | 1,009.8 |      
|Other comprehensive income                |                                                        |  |        |      |   |      |       |       |      |  |         |      
|                                          | Share of associates other comprehensive (loss)/income |  |        | (5.0 | ) |      |       | (47.5 | )    |  |         | 57.5  |  
|                                          | Exchange adjustments                                   |  |        | (8.9 | ) |      |       | (3.1  | )    |  |         | (18.1 | )
|                                          | Tax on exchange adjustments                            |  |        | 7.6  |   |      |       | 31.9  |      |  |         |      |  
|                                          | Other                                                  |  |        | (4.7 | ) |      |       | 2.8   |      |  |         |      |  
|                                         
|Comprehensive (loss)/income under US GAAP |                                                        |  | (174.1 | )    |   |      | 794.4 |       |      |  | 1,049.2 |      
|                                         

Cumulative foreign exchange losses recognised in other comprehensive income at
31 March 2002 under US GAAP were £30.9m (2001: £22.0m; 2000: £18.9m).

Other differences between UK and US GAAP
Under US GAAP, turnover attributable to the country of domicile is required to
be identified. With minor exceptions, the vast majority of turnover
attributable to Europe identified in note 2a is in respect of sales made in
the United Kingdom.

UK GAAP requires the investors share of operating profit or loss, interest and
taxation relating to associates and joint ventures to be accounted for and
disclosed separately from those of Group undertakings. Under US GAAP, the
investors share of the after tax profits and losses of joint ventures and
associates is included within the income statement as a single line item. UK
GAAP requires the investors share of gross assets and gross liabilities of
joint ventures to be shown on the face of the balance sheet. Under US GAAP, the
net investment in joint ventures is shown as a single line item.

The Group reviews all long-lived assets for potential impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Under UK GAAP, recognition and measurement of
impairment is determined on the basis of discounted cash flows attributable to
income generating units. Under US GAAP, impairments on long-lived assets are
determined in accordance with SFAS 121 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and are
recognised on the basis of undiscounted future cash flows and measured on the
basis of discounted future cash flows. This difference has no effect on the
Group accounts for the three years ended 31 March 2002.

Under UK GAAP, assets in the balance sheet are presented in ascending order of
liquidity and the balance sheet is analysed between net assets and
shareholders funds. Under US GAAP, assets are presented in descending order of
liquidity and the balance sheet is analysed between total assets and
liabilities and shareholders funds.

Under US GAAP, debtors falling due after more than one year of £4,054.4m (2001:
£1,053.9m (restated)) and provisions for liabilities and charges of £3,034.3m
(2001: £1,521.0m (restated)) as measured under UK GAAP would be classified as
non-current assets and non-current liabilities respectively.

Under UK GAAP, the assets held for exchange are included in current assets.
Under US GAAP, the assets held for exchange are classified as part of the
investment in an associate and are equity accounted.

Under UK GAAP, fixed rate long-term debt acquired as part of the acquisition of
Niagara Mohawk has been included in the balance sheet at 31 March 2002 at the
fair value of that debt at the date of acquisition, with a corresponding
regulatory asset for the difference between the book value and fair value being
recognised, amounting to £165.4m. Both the fair value adjustment to long-term
debt and regulatory asset are being amortised over the remaining term of the
debt. Under US GAAP, this fixed rate debt is carried at book value, as the book
value of debt reflects the regulatory value of the debt, and the Group will be
recovering financing costs from customers based on this book value.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Notes to the accounts continued

82




32     Differences between UK and US accounting principles continued

New US Accounting Standards adopted during 2001/2002
National Grid has adopted SFAS 133 Accounting for Derivative Instruments and
Hedging Activities, SFAS 141 Business Combinations and SFAS 142 Accounting
for Goodwill and Other Intangible Assets with effect from 1 April 2001.
However, the associate has not applied SFAS 142 with effect from this date and
consequently the US GAAP results reflect National Grids share of the
associates goodwill amortisation.

SFAS 133, as amended by SFAS 137 and SFAS 138, establishes accounting and
reporting standards for derivative financial instruments and hedging
activities. The effect of adopting SFAS 133 at 1 April 2001 has been to reduce
US GAAP net income and equity shareholders funds by £13.9m (net of tax).

SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after 30 June 2001. The requirements of SFAS
141 have been applied in accounting for the acquisition of Niagara Mohawk.

SFAS 142 requires that goodwill should no longer be amortised and that it must
be reviewed for impairment (transitional goodwill impairment test) within six
months of adoption, and annually thereafter. The transitional goodwill
impairment test, conducted at 1 April 2001 and the annual impairment test
carried out at 31 March 2002, revealed that National Grid had no impairment to
recognise. If SFAS 142 had been in effect for the years ending 31 March 2001
and 31 March 2000, reported income under US GAAP would have been higher by
£70.9m and £1.3m respectively.

New US Accounting Standards and pronouncements not yet effective
In June 2001, FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. This standard requires entities to record the fair value of an
asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the disposal of tangible fixed assets. This
standard is mandatorily effective for National Grid with effect from 1 April
2003. National Grid has not yet evaluated the likely impact of SFAS 143 on its
accounts. Upon initial recognition of such a liability entities should
capitalise the cost by recognising an increase in the carrying value of the
related tangible fixed asset.

In August 2001, FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets which supersedes SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Whilst SFAS 141 retains many of the recognition and measurement provisions of
SFAS 121, it excludes goodwill not being amortised from its impairment
provisions and significantly changes the criteria that have to be met in order
to classify long-lived assets as held-for-sale. SFAS 144 also supersedes
the provisions of APB 30 Reporting the Results of Operations  Reporting the
Effects of Disposal of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. SFAS 144 requires that expected future
operating losses from discontinued operations be reported in the periods the
losses are incurred rather than as of the measurement date. The provisions of
SFAS 144 are effective for National Grid with effect from 1 April 2003. As the
provisions of SFAS 144 are to be applied prospectively, the impact on National
Grid, if any, will depend upon the circumstances existing at that time.



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National Grid Annual Report and Form 20-F 2001/02




Glossary of terms

83




|                                                          |  |                                                                                                                                |  | 
|--------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  | 
|Term used in annual report                                |  | US equivalent or brief description                                                                                            
|Accounts                                                  |  | Financial statements                                                                                                          
|Acquisition accounting                                    |  | Purchase accounting                                                                                                           
|Allotted                                                  |  | Issued                                                                                                                        
|APB                                                       |  | Accounting Principles Board (US)                                                                                              
|Associate                                                 |  | Equity investment                                                                                                             
|Called up share capital                                   |  | Common stock issued and fully paid                                                                                            
|Capital allowances                                        |  | Tax term equivalent to US tax depreciation allowances                                                                         
|Creditors                                                 |  | Accounts payable (or payables)                                                                                                
|Debtors                                                   |  | Accounts receivable (or receivables)                                                                                          
|Equity shareholders funds                                |  | Shareholders' equity                                                                                                          
|FASB                                                      |  | Financial Accounting Standards Board (US)                                                                                     
|Finance lease                                             |  | Capital lease                                                                                                                 
|Financial year                                            |  | Fiscal year                                                                                                                   
|Fixed asset investments                                   |  | Non-current investments                                                                                                       
|Freehold                                                  |  | Ownership with absolute rights in perpetuity                                                                                  
|FRS                                                       |  | Financial Reporting Standard (UK)                                                                                             
|Group accounts                                            |  | Consolidated financial statements                                                                                             
|Interest receivable                                       |  | Interest income                                                                                                               
|Interest payable                                          |  | Interest expense                                                                                                              
|Joint venture                                             |  | Equity investment                                                                                                             
|Net book value                                            |  | Book value                                                                                                                    
|Operating profit                                          |  | Net operating income                                                                                                          
|Own shares                                                |  | Treasury stock                                                                                                                
|Pension scheme                                            |  | Pension plan                                                                                                                  
|Profit                                                    |  | Income (or earnings)                                                                                                          
|Profit and loss account (reserve)                         |  | Retained earnings                                                                                                             
|Profit and loss account                                   |  | Income statement                                                                                                              
|Profit for the year                                       |  | Net income                                                                                                                    
|Provision for doubtful debts                              |  | Allowance for bad and doubtful accounts receivable                                                                            
|Provisions                                                |  | Long-term liabilities other than debt and specific accounts payable                                                           
|Reconciliation of movements in equity shareholders funds |  | Statement of changes in stockholders' equity                                                                                  
|Reserves                                                  |  | Stockholders' equity other than common stock                                                                                  
|SFAS                                                      |  | Statement of Financial Accounting Standards (US)                                                                              
|Share capital                                             |  | Ordinary shares, capital stock or common stock issued and fully paid                                                          
|Share premium account                                     |  | Additional paid-in capital relating to proceeds of sale of stock in excess of par value or paid-in surplus (not distributable)
|SSAP                                                      |  | Statement of Standard Accounting Practice (UK)                                                                                
|Stocks                                                    |  | Inventories                                                                                                                   
|Tangible fixed assets                                     |  | Property, plant and equipment                                                                                                 
|Turnover                                                  |  | Revenues (or sales)                                                                                                           
|UK GAAP                                                   |  | United Kingdom generally accepted accounting principles                                                                       
|US GAAP                                                   |  | United States generally accepted accounting principles                                                                        



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

Risk factors

84




Proposed Lattice merger

The proposed merger with Lattice is subject to the approval of the shareholders
of both National Grid and Lattice, satisfaction of certain regulatory
conditions, and sanction of the Lattice Scheme by the Court. It is expected
that the regulatory approvals will be received so that completion of merger can
occur in the autumn of 2002.

There is also the risk that the merger will not generate the savings and
benefits as expected. The Chairmans statement on page 2 notes that the
combined management team have a proven track record, demonstrating that the
Group has the abilities required.

Business performance

Earnings maintenance and growth from the UK regulated electricity industry is
dependent upon outperforming regulatory efficiency targets set by Ofgem.
Generally, over time, the continued ability to make efficiency improvements
will decline. National Grid has published cost and efficiency saving targets
for its UK regulated business. To meet these targets National Grid must
continue to improve management and operational performance. Earnings are
increasingly dependent on the performance of the US regulated businesses. Under
the state rate plans, the ability to deliver integration savings will affect
earnings. To meet National Grids announced savings targets for its acquisition
of Niagara Mohawk, National Grid must improve efficiency and reduce costs. US
earnings are also dependent on meeting service quality standards set by state
regulators. In order to meet such standards, National Grid must improve service
reliability and customer service.

National Grids core skills are the design, construction, system operation,
regulatory management and customer service activities associated with operating
complex networks. National Grid aims to continually improve these skills. These
skills allow National Grid to address these and other business performance
risks. For more information see Outlook on page 4 and Operating and
financial review starting on page 5.

Regulation

Most of National Grids businesses are utilities that are subject to regulation
by authorities of the UK, the US, the EU or other jurisdictions. Decisions by
regulators concerning permitted revenues and rates of return, market trading
arrangements, the facilitation of competition in markets in which National Grid
operates and proposed acquisitions or mergers could have an adverse impact on
National Grids business, including its results of operations, cash flow,
financial condition and ability to develop its business in the future. For
instance, National Grid believes it is positioned in the US market to take
advantage of the development of RTOs. Whilst National Grid is in discussion
with a number of parties, further agreements among the parties and FERC are
required. Adverse decisions by FERC would affect National Grids ability to
become an independent transmission company.

National Grids core skills are the design, construction, system operation,
regulatory management and customer service activities associated with operating
complex networks. These skills allow National Grid to address
these and other regulatory risks. For more information see Transmission
business development on page 9. For a description of current UK regulation see
Electricity networks  England and Wales on pages 6 and 7. For a description
of current US regulation see Electricity and gas networks  US on pages 8 to
11.

Commodity risk

The costs incurred by National Grid in purchasing electricity are subject to
movements in underlying commodity prices, particularly of oil and gas.
Regulatory arrangements in the UK and US provide some ability to pass through
higher prices. For more information see Electricity networks  England and
Wales on pages 6 and 7 and Electricity and gas networks  US on pages 8 to
11.

Operational performance

Electricity and gas utilities are subject to certain risks mainly outside of
their control such as weather or possible security breaches. Unusually hot or
cold weather will affect revenues, particularly in the US. Severe weather that
causes outages or damages infrastructure will adversely affect revenues. The
Group has security protocols and business continuity plans in place to manage
these types of risks but cannot ensure they are adequate for all risks.

Joint ventures

National Grids investments in joint ventures are subject to risks normally
associated with ventures that are not majority owned. National Grid is not able
to exercise complete control over the joint venture operations and may be
dependent on the actions of the other joint owners regarding decisions such as
continued funding or interest in the business. The health of the joint venture
is also dependent upon the financial health of the other owners. The problems
associated with National Grids joint venture telecoms highlight these risks.
Following a review of National Grids telecoms investments, the Group has
decided to concentrate on its wholly-owned infrastructure businesses. For more
information see Other electricity businesses and projects on page 12 and
Telecoms on page 13.

Safety and environmental

Aspects of the Groups business are inherently dangerous, such as the operation
and maintenance of high voltage transmission lines and the transmission and
distribution of natural gas. Electricity and gas utilities typically utilise
and generate in their operations a range of potentially hazardous products and
by-products. The Group is subject to numerous laws and regulations in each of
the jurisdictions in which it operates relating to pollution, the protection of
the environment, the generation, storage, handling, transportation, treatment,
disposal and remediation of hazardous substances and waste materials, and the
health and safety of employees and the general public. National Grid requires
all operating companies to comply fully with all relevant laws and regulations.
For a description of National Grids approach to business responsibility see
Our framework for a responsible business on page 14.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

85




Financial measures

National Grid is subject to certain covenants and limits in relation to listed
debt and bank lending facilities. Such limits may hinder National Grid in the
servicing of current businesses or the financing of new businesses. National
Grids debt is rated by credit rating agencies and these ratings may impact the
borrowing capacity of the Group.

In order to take advantage of National Grids current financing authority under
the Public Utility Holding Company Act of 1935, National Grid must maintain an
equity capitalisation ratio calculated on a US GAAP basis of at least 30 per
cent. A large deterioration in the equity base through, for example, the write
down in the value of assets, or a large increase in debt through, for example,
business expansion, currency or fair value adjustments could cause National
Grid to not meet this requirement.

The Group manages these risks in part through the operations of its Treasury
Policy Committee, a committee of the Board, which is responsible for the
regular review and monitoring of treasury activity. For further information see
Treasury policy on page 23.

Interest rates

A proportion of National Grids borrowings are subject to interest rates that
may fluctuate with certain prevailing interest rates. Increases in these
prevailing interest rates would result in increased costs for the Group.
Interest rates are among the items regularly reviewed by the Treasury Policy
Committee, a committee of the Board. For further information see Interest rate
risk on page 23.

Foreign currency exchange/Foreign operations

National Grid has significant international operations and conducts business in
many currencies. These operations are subject to the risks normally associated
with international operations, including the need to translate foreign currency
denominated assets and profits into National Grids reporting currency.

Other risks of international operations include trade barriers, tariffs,
exchange controls, national and regional labour strikes, social and political
risks, general economic risks, required compliance with a variety of foreign
laws, including tax laws, and the need to enforce agreements and collect
receivables through foreign legal systems. For example, National Grids
investment in Transener has been impacted by the devaluation of the Argentine
peso. Transener could default on its debt obligations without government
intervention. Currency risk is among the items regularly reviewed by the
Treasury Policy Committee, a committee of the Board. For further information
see Currency risk on page 25.

Technological change

National Grids principal business is the transmission and distribution of
electricity via lines and cables. It is therefore vulnerable to certain types
of technological changes. Examples of possible changes are growth in
distributed generation, renewable energy sources, fuel cells and the
introduction of an alternative power carrier. Directors are briefed on
technology issues and the Group invests each year in research and development.
For more information see Research and development on page 31.

Business development

The Group is subject to the risk that any business development will be based on
incorrect assumptions or conclusions or that substantial liabilities will be
overlooked. The Group has a business development process in place and ultimate
responsibility for certain decisions falls to the Directors. For further
information see Directors on page 32.

Internal controls

There is a risk that, with the rate of organisational change and development,
management may become distracted from the core business of the Group with
adverse consequences. To ensure that the business remains focused the Group has
in place an established a system of internal control. For more information see
Internal control on page 33.



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##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02




Investor information

86




Exchange rates

The following tables set out, for the periods indicated, certain information
concerning the noon buying rate in New York City for cable transfers in pounds
sterling, as certified for customs purposes by the Federal Reserve Bank of New
York (the Noon Buying Rate) expressed in US dollars per £1.00.

|               |  |            |      |  |          |  |      |      |  |  |      |  |  |  |      | 
|-------------- |  | ---------- | ---- |  | -------- |  | ---- | ---- |  |  | ---- |  |  |  | ---- | 
|Financial year |  | Period end |      |  | Average |  |      | High |  |  | Low 
|              
|1997/98        |  |            | 1.68 |  |          |  | 1.65 |      |  |  | 1.70 |  |  |  | 1.58 | 
|1998/99        |  |            | 1.61 |  |          |  | 1.65 |      |  |  | 1.72 |  |  |  | 1.60 | 
|1999/2000      |  |            | 1.59 |  |          |  | 1.61 |      |  |  | 1.68 |  |  |  | 1.55 | 
|2000/01        |  |            | 1.42 |  |          |  | 1.47 |      |  |  | 1.60 |  |  |  | 1.40 | 
|2001/02        |  |            | 1.42 |  |          |  | 1.44 |      |  |  | 1.48 |  |  |  | 1.37 | 
|              

*The average of the Noon Buying Rates on
the last business day of each month
during the relevant period.


|              |  |      |      |  |     |  |      | 
|------------- |  | ---- | ---- |  | --- |  | ---- | 
|              |  | High |      |  | Low
|             
|December 2001 |  |      | 1.46 |  |     |  | 1.42 | 
|January 2002  |  |      | 1.45 |  |     |  | 1.41 | 
|February 2002 |  |      | 1.43 |  |     |  | 1.41 | 
|March 2002    |  |      | 1.43 |  |     |  | 1.41 | 
|April 2002    |  |      | 1.46 |  |     |  | 1.43 | 
|May 2002*     |  |      | 1.47 |  |     |  | 1.45 | 
|             

*For the period to 29 May 2002.


Market prices

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

|               |  |                 |       |     |        |  |       |         |  |  |        |  |  |  |       | 
|-------------- |  | --------------- | ----- | --- | ------ |  | ----- | ------- |  |  | ------ |  |  |  | ----- | 
|               |  | Ordinary shares |       | ADS
|Financial year |  | High(p)         |       |     | Low(p) |  |       | High($) |  |  | Low($)
|              
|1997/98        |  |                 | 355.0 |     |        |  | 208.5 |         |  |  | 30.73  |  |  |  | 20.44 | 
|1998/99        |  |                 | 552.5 |     |        |  | 353.0 |         |  |  | 45.62  |  |  |  | 29.75 | 
|1999/2000      |  |                 | 597.0 |     |        |  | 388.5 |         |  |  | 48.12  |  |  |  | 31.87 | 
|2000/01        |  |                 | 646.0 |     |        |  | 479.5 |         |  |  | 47.87  |  |  |  | 37.00 | 
|2001/02        |  |                 | 581.0 |     |        |  | 417.2 |         |  |  | 41.75  |  |  |  | 30.40 | 
|              

|                 |  |                 |       |     |        |  |       |         |  |  |        |  |  |  |       | 
|---------------- |  | --------------- | ----- | --- | ------ |  | ----- | ------- |  |  | ------ |  |  |  | ----- | 
|                 |  | Ordinary shares |       | ADS
|Financial period |  | High(p)         |       |     | Low(p) |  |       | High($) |  |  | Low($)
|                
|2000/01          |  |                 |       |     |        |  |       |         |  |  |        |  |  |  |       | 
|Quarter 1        |  |                 | 573.0 |     |        |  | 479.5 |         |  |  | 45.75  |  |  |  | 37.50 | 
|Quarter 2        |  |                 | 597.0 |     |        |  | 517.5 |         |  |  | 43.25  |  |  |  | 37.75 | 
|Quarter 3        |  |                 | 646.0 |     |        |  | 568.0 |         |  |  | 47.87  |  |  |  | 40.75 | 
|Quarter 4        |  |                 | 638.0 |     |        |  | 518.0 |         |  |  | 47.00  |  |  |  | 37.00 | 
|                
|2001/02          |  |                 |       |     |        |  |       |         |  |  |        |  |  |  |       | 
|Quarter 1        |  |                 | 581.0 |     |        |  | 518.0 |         |  |  | 41.75  |  |  |  | 36.90 | 
|Quarter 2        |  |                 | 536.0 |     |        |  | 424.5 |         |  |  | 37.50  |  |  |  | 31.64 | 
|Quarter 3        |  |                 | 502.0 |     |        |  | 417.2 |         |  |  | 36.04  |  |  |  | 30.04 | 
|Quarter 4        |  |                 | 471.5 |     |        |  | 434.5 |         |  |  | 33.61  |  |  |  | 31.11 | 
|                

|              |  |                 |       |     |        |  |       |         |  |  |        |  |  |  |       | 
|------------- |  | --------------- | ----- | --- | ------ |  | ----- | ------- |  |  | ------ |  |  |  | ----- | 
|              |  | Ordinary shares |       | ADS
|              |  | High(p)         |       |     | Low(p) |  |       | High($) |  |  | Low($)
|             
|December 2001 |  |                 | 438.0 |     |        |  | 420.5 |         |  |  | 31.95  |  |  |  | 30.40 | 
|January 2002  |  |                 | 461.0 |     |        |  | 434.5 |         |  |  | 33.06  |  |  |  | 31.11 | 
|February 2002 |  |                 | 471.5 |     |        |  | 451.7 |         |  |  | 33.61  |  |  |  | 32.17 | 
|March 2002    |  |                 | 468.0 |     |        |  | 447.5 |         |  |  | 33.18  |  |  |  | 31.74 | 
|April 2002    |  |                 | 505.0 |     |        |  | 460.7 |         |  |  | 36.65  |  |  |  | 32.87 | 
|May 2002*     |  |                 | 511.5 |     |        |  | 492.0 |         |  |  | 37.40  |  |  |  | 35.90 | 
|             

*For the period to 29 May 2002.


Trading markets for ordinary shares

National Grids ordinary shares have been listed on the London Stock Exchange
since 11 December 1995. National Grids ADSs have had a full listing on the New
York Stock Exchange since 7 October 1999.

Defaults, dividend arrearages and delinquencies

There has been no material default in the payment of principal, interest, a
sinking or purchase fund instalment or any other material default with respect
to any indebtedness for or in respect of monies borrowed or raised by whatever
means of the Company or any of its significant subsidiaries. There have been no
arrears in the payment of dividends on, and no material delinquency with
respect to, any class of preferred stock of any significant subsidiary of the
Company.

Exchange controls

There are currently no UK laws, decrees or regulations that restrict the export
or import of capital, including, but not limited to, foreign exchange control
restrictions, or that affect the remittance of dividends or other payments to
non-UK resident holders of ordinary shares except as otherwise set out in
Taxation below and except in respect of the governments of and/or certain
citizens, residents or bodies of Iraq, the Federal Republic of Yugoslavia,
Serbia, Burma and Afghanistan (in each case as more particularly described in
applicable Bank of England Notices or European Union Council Regulations in
force as at the date of this document).

Taxation

The following summary describes the principal US Federal income and UK tax
consequences to beneficial owners of ADSs or ordinary shares who are residents
of the United States. The summary is not a complete analysis or listing of all
of the possible tax consequences of ownership and does not discuss special tax
rules that may be applicable to certain classes of investors, including banks,
insurance companies, securities dealers, investors with a functional currency
other than the US dollar and any corporation which, alone or together with one
or more corporations which are treated as associated for the purposes of the
US/UK taxation convention relating to income and capital gains (the Income Tax
Convention), directly or indirectly controls 10 per cent or more of the voting
share capital of National Grid. The statements regarding US Federal tax laws
set out below are based (i) on the US Internal Revenue Code of 1986, as amended
(the Code) and regulations issued thereunder, all of which are subject to
change, possibly with retroactive effect and (ii) in part on representations of
The Bank of New York as depositary (the Depositary) and assume that each
obligation provided for in or otherwise contemplated by the deposit agreement
entered into by and among National Grid, the Depositary and the registered
holders of ADRs pursuant to



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National Grid Annual Report and Form 20-F 2001/02

87




which ADRs have been issued dated as of 21 November 1995 and amended and
restated as of 31 January 2002 (the Deposit Agreement) and any related
agreement will be performed in accordance with its terms. The statements
regarding UK tax set out below are based on UK domestic law and the Income Tax
Convention as in force on the date of this document and on what is understood
to be the practice of the UK Inland Revenue as at such date and are subject to
any change therein (including any change having retroactive effect). Beneficial
owners of the ADSs who are residents or citizens of the United States will be
treated as the owners of the underlying ordinary shares for the purposes of the
Code.

For the purposes of this discussion, the term US Holder refers to a
beneficial owner of ADSs or ordinary shares who is a resident of the United
States for US Federal income tax purposes and, as to the description under
Taxation of dividends and Taxation of capital gains below, is also a
resident of the United States for the purposes of the Income Tax Convention.

Taxation of dividends

The tax credit to which UK resident individual shareholders are generally
entitled in respect of any dividend on their ordinary shares and which they can
set against their total income tax liability is equal to one-ninth of the cash
dividend (10 per cent of the aggregate of the tax credit and the cash
dividend). Under the terms of the Income Tax Convention, US residents and
corporations controlling less than 10 per cent of the voting share capital of
National Grid are technically entitled to a refund (the Tax Treaty Payment)
in respect of dividends paid by National Grid calculated by reference to the
amount of the tax credit available to a UK individual, less a withholding.
However, the combination of the reduction in the value of the tax credit on
dividends paid to UK individuals to one-ninth of the cash dividend and the
withholding means that no Tax Treaty Payments will be made to those US Holders
holding less than 10 per cent of the voting share capital of National Grid.

Taxation of capital gains

A US Holder who is not resident or ordinarily resident for UK tax purposes in
the UK will not be liable for UK taxation on capital gains realised or accrued
on the sale or other disposal of ADSs or ordinary shares unless the US Holder
carries on a trade, profession or vocation in the UK through a branch or agency
and such ADSs or ordinary shares are or have been used, held or acquired for
the purposes of such trade, profession or vocation or such branch or agency. A
US Holder will be liable for US Federal income tax on gains on the sale of ADSs
or ordinary shares to the same extent as on any other gains from sales of
stock. Gain, if any, will generally be US source.

A US citizen who is resident or ordinarily resident in the UK, a US corporation
which is resident in the UK by reason of its business being managed and
controlled in the UK or a US citizen who, or US corporation which, is trading
or carrying on a profession or vocation in the UK through a branch or agency
and has used, held or acquired ADSs or ordinary shares for the purpose of such
trade, profession or vocation or such branch or agency, may be liable for both
UK and US tax on a capital gain recognised on the disposal of ADSs or ordinary
shares. Such holder, however, will generally be entitled to foreign tax credit,
subject to certain limitations, against any
US Federal tax liability for the amount of any UK tax (namely capital gains tax
in the case of an individual and corporation tax on chargeable gains in the
case of a corporation) which is paid in respect of such gain.

A US Holder who becomes resident in the UK after a period of temporary
non-residence (of up to five years) following an earlier period of residence in
the UK may also be liable to UK capital gains tax.

UK stamp duty and stamp duty reserve tax (SDRT)

Transfers of ordinary shares Generally speaking SDRT at the rate of 0.5 per cent of the amount or value of
the consideration paid is payable where an agreement, to transfer ordinary
shares is not completed by a duly stamped transfer to the transferee. Where an
instrument of transfer is executed and duly stamped before the expiry of the
period of six years beginning with such date, the SDRT liability will be
cancelled, and any SDRT which has been paid will be refunded. SDRT is due
whether or not the agreement or transfer of such chargeable securities is made
or carried out in the UK and whether or not any party to that agreement or
transfer is a UK resident.

Purchases of ordinary shares completed by execution of a stock transfer form
will generally give rise to a liability to UK stamp duty at the rate of 0.5 per
cent (rounded up to the nearest £5) of the actual consideration paid.

Paperless transfers under the CREST paperless settlement system will generally
be liable to SDRT at the rate of 0.5 per cent, and not stamp duty.

The transfer of ordinary shares where there is no change of beneficial
ownership will generally attract fixed rate stamp duty of £5 per transfer.

SDRT is generally the liability of the purchaser and UK stamp duty is usually
paid by the purchaser or transferee.

Transfer of ADSsNo UK stamp duty will be payable on the acquisition or
transfer of existing ADSs or beneficial ownership of ADSs, provided that any
instrument of transfer or written agreement to transfer is executed outside the
UK and remains at all times outside the UK. An agreement for the transfer of
ADSs in the form of American Depositary Receipts (ADRs) will not give rise to a
liability for SDRT. On a transfer of ordinary shares from the London, England
office of The Bank of New York as agent of the Depositary (the Custodian) to
a holder of ADSs upon cancellation of the ADSs, only a fixed stamp duty fee of
£5 per instrument of transfer will be payable. Any transfer for value of the
underlying ordinary shares represented by ADSs may give rise to a liability on
the transferee to UK stamp duty or SDRT.

A charge to stamp duty or SDRT may arise on the issue or transfer of ordinary
shares to the Depositary or the Custodian. The rate of stamp duty or SDRT will
generally be 1.5 per cent of either (i) in the case of an issue of ordinary
shares, the issue price of the ordinary shares concerned, or (ii) in the case
of a transfer of ordinary shares, the value of the consideration or, in some
circumstances, the value of the ordinary shares concerned. The Depositary will
generally be liable for the stamp duty or SDRT. In accordance with the terms of
the Depositary Agreement, the Depositary will charge any tax payable by the
Depositary or the Custodian (or their nominees) on the deposit of ordinary
shares to the party to whom the ADSs are delivered against such deposits.



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If the stamp duty is not already a multiple of £5, the duty will be rounded up
to the nearest multiple of £5.

US information reporting and backup withholding

A US resident Holder who holds ADSs may in certain circumstances be subject to
information reporting to the IRS and possible US backup withholding at a rate
of 30 per cent with respect to dividends on ADSs and proceeds from the sale or
other disposition of ADSs unless such holder furnishes a correct taxpayer
identification number or is otherwise exempt.

UK inheritance tax

An individual who is domiciled in the US for the purposes of the convention
between the US and the UK for the avoidance of double taxation with respect to
estate and gift taxes (the Estate Tax Convention) and who is not a national
of the UK for the purposes of the Estate Tax Convention will generally not be
subject to UK inheritance tax in respect of the ADSs on the individuals death
or on a gift of the ADSs during the individuals lifetime, unless the ADSs are
part of the business property of a permanent establishment of the individual in
the UK or pertain to a fixed base in the UK of an individual who performs
independent personal services. Special rules apply to ADSs held in trust. In
the exceptional case where the shares are subject both to UK inheritance tax
and to US Federal gift or estate tax, the Estate Tax Convention generally
provides for the tax paid in the UK to be credited against tax paid in the US.

Memorandum and Articles of Association

The following description is a summary of the material terms of National Grids
share capital and material provisions of the Memorandum and Articles of
Association of National Grid (the Articles) and English law. The following
description is a summary only and is qualified in its entirety by reference to
the Articles, which have been filed with the US Securities and Exchange
Commission, and the Companies Act 1985, as amended (the Companies Act).
National Grids authorised share capital is 2,500,000,000 ordinary shares of 10
pence each and one special rights non-voting redeemable preference share of £1.
All of the outstanding shares are fully paid. Accordingly, no further
contribution of capital may be required by National Grid from the holders of
such shares.

GeneralNational Grid is incorporated under the name National Grid Group plc
and is registered in England and Wales with registered number 4031152. The
Companys objects are set forth in the fourth clause of its Memorandum of
Association and cover a wide range of activities, including the following:



| |  | carrying on the business of a holding company;                                                                   
|- |  | -----------------------------------------------------------------------------------------------------------------
| 
| |  | employing the funds of the Company to develop and
expand its business; and                                       
| 
| |  | carrying on any other activity supplemental to the
foregoing or capable of enhancing the Companys
profitability.

The Memorandum of Association grants National Grid a broad range of corporate
powers to effect these objectives.

DirectorsThe Articles provide that unless otherwise determined by an ordinary
resolution of the Companys shareholders, the number of Directors shall not be
less than two but shall not be subject to any maximum number. Under the
Articles, a Director may not vote in respect of any contract in which the
Director, directly or indirectly, has an interest. This is subject to certain
exemptions relating to (a) giving the Director any guarantee, security or
indemnity in respect of obligations incurred at the request of or for the
benefit of National Grid, (b) giving any guarantee, security or indemnity to a
third party in respect of obligations of National Grid for which the Director
has assumed responsibility under an indemnity or guarantee, (c) an offer of
securities of National Grid in which the Director may be entitled to
participate or will be interested as an underwriter, (d) any contract
concerning any other company in which the Director is beneficially interested
in less than one per cent of that other company, (e) any arrangement for the
benefit of employees of National Grid under which he benefits in a similar
manner as the employees and (f) any contract concerning any insurance that
National Grid is empowered to purchase or maintain for its Directors.

The compensation awarded to Executive Directors is decided by a remuneration
committee, which consists exclusively of Non-executive Directors.

The Directors are empowered to exercise all the powers of National Grid to
borrow money, subject to the limitation that the aggregate principal amount
outstanding of all borrowings shall not exceed an amount equal to four times
National Grids share capital and aggregate reserves, calculated in the manner
described in the Articles, unless sanctioned by an ordinary resolution of the
Companys shareholders.

Any Director not otherwise required to retire at an annual general meeting of
shareholders shall do so unless he was appointed or re-appointed as a Director
at either of the last two annual general meetings before that meeting. At each
annual general meeting at least one-third of the Directors (or, if their number
is not a multiple of three, the number nearest to but not greater than
one-third) shall retire from office by rotation. A retiring Director shall be
eligible for re-election. No Director shall be required to retire by reason
only of the fact that he has attained the age of 70 or any other age.

A Director is not required to hold shares of National Grid in order to qualify
as a Director.

The Special ShareAny one of Her Majestys Secretaries of State, another
Minister of the Crown, the Solicitor for the affairs of HM Treasury or any
other person acting on behalf of the Crown may hold the special share. The
registered holder of the special share may, after consulting National Grid and
subject to the provisions of the Companies Act, require National Grid to redeem
the special share at par at any time. The holder of the special share has the
right to receive notice of, and to attend and speak at, any general meeting or
any separate meeting of the holders of any class of shares, but the special
share confers no right to vote nor any other rights at any shareholders
meeting. The special share confers no right to participate in National Grids
capital or profits except that, on a distribution of capital in a winding-up,
the holder of the special share is entitled to repayment of £1 in priority to
other shareholders.



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Each of the following actions is effective only with the written consent of the
holder of the special share:



|(a) |  | the amendment, removal or alteration of the effect of
(including the ratification of any breach of) specified
provisions of the Articles, including the Article relating
to the special share, the Article on general limitations on
shareholdings, the Article on shareholding restrictions on
Pool members or licence holders and the Article relating
to the disclosure of interests in shares under section 212
of the Companies Act (each as described under General
Limitations on Shareholdings and Shareholding
Restrictions on Persons who are bound by the Balancing
and Settlement Code or Licence Holders below) except
to the extent that any amendment, removal or alteration
of the Article relating to the disclosure of interests in
shares is required to comply with the Listing Rules of the
UK Listing Authority;
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | the creation or issue of any shares in National Grid
carrying voting rights other than (1) shares carrying
voting rights in all circumstances at general meetings and
(2) shares which do not constitute equity share capital
(as defined in the Companies Act) and which, when
aggregated with all other similar shares, carry the right to
cast less than 15 per cent of the votes capable of being
cast on a poll on any resolution at any general meeting;                                                                                                                                                                                                                                                                                                                                                                            
|   
|(c) |  | the variation of any rights (save for dividend rights and
rights to repayment of capital) attached to any shares in
National Grid;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(d) |  | the disposal by National Grid of any shares in
The National Grid Company plc to any person which
is not a wholly-owned subsidiary;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(e) |  | any scheme or arrangement which, if put into effect,
would relieve The National Grid Company plc or any of
National Grids affiliates of, or otherwise modify, the
obligations which National Grid must impose on them by
virtue of the provisions described under Obligations
Relating to the Transmission Licence Holder below;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(f) |  | the voluntary winding-up of National Grid, a special
resolution to the effect that National Grid should be
wound up by the court, the presentation by National
Grid or by the Board of Directors of a petition for the
winding-up of National Grid by the court, or any
proposal for any of the foregoing;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(g) |  | the presentation by National Grid or by the Board of
Directors of a petition applying for an administration
order or a proposal by the Board of Directors for a
voluntary arrangement, in each case pursuant to the
Insolvency Act 1986; or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(h) |  | the establishment of a holding company for
National Grid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Ordinary SharesDividends and Other Distributions:National Grid may not pay
any dividend otherwise than out of profits available for distribution under the
Companies Act and the other applicable provisions of English law. In addition,
as a public company, National Grid may make a distribution only if and to the
extent that, at the time of the distribution, the amount of its net assets is
not less than the aggregate of its called-up share capital and undistributable
reserves (as defined in the Companies Act). Subject to the foregoing,
National Grid may, by ordinary resolution, declare dividends in accordance with the
respective rights of the shareholders but not exceeding the amount recommended
by the Board of Directors. The Board of Directors may pay interim dividends if
the Board of Directors considers that National Grids financial position
justifies the payment.

Except insofar as the rights attaching to any share otherwise provide, all
dividends will be apportioned and paid proportionately to the amounts paid up
(otherwise than in advance of calls) on the shares.

A general meeting declaring a dividend may, upon the recommendation of the
Board of Directors, direct that the dividend be satisfied wholly or partly by
the distribution of assets and may be declared or paid in any currency. The
Board of Directors may, if authorised by a shareholders ordinary resolution,
offer the holders of ordinary shares the right to elect to receive new ordinary
shares credited as fully paid, instead of cash for all or part of the dividend
specified by that ordinary resolution.

National Grid may stop paying dividends or other monies payable in respect of a
share to a shareholder if in respect of at least two consecutive dividend
payments, through no fault of National Grid, has not been effected (or,
following one such occasion, reasonable enquiries have failed to establish any
new address of the holder or appropriate details for effecting payment by other
means). National Grid must resume payment of dividends or other monies payable
in respect of a share if the shareholder or person entitled by transmission
claims the arrears of dividend.

All dividends or other sums payable unclaimed for one year after having been
declared may be invested or otherwise made use of by the Board of Directors for
the benefit of National Grid until claimed. Any dividend or interest unclaimed
for 12 years from the date when it was declared or became due for payment will
be forfeited and revert to National Grid.

In a winding-up, a liquidator may, with the sanction of a special resolution of
National Grid and any other sanction required by applicable provisions of
English law, (a) divide among the shareholders the whole or any part of
National Grids assets (whether the assets are of the same kind or not) and may
for this purpose value any assets and determine how the division should be
carried out as between different shareholders or different classes of
shareholders or otherwise as the resolution may provide, or (b) vest the whole
or any part of the assets in trustees upon such trusts for the benefit of the
contributories as the liquidator, with the sanction of a special resolution,
determines, but in neither case will a shareholder be compelled to accept
assets upon which there is a liability.

Unless the Board of Directors determines otherwise, no shareholder holding
shares representing 0.25 per cent or more of any class of National Grids
shares will be entitled to receive payment of any dividend or other
distribution if he or any person appearing to be interested in those shares has
been given a notice under section 212 of the Companies Act and has failed to
give National Grid the information required by the notice within 14 days from
the date of service of the notice.

Voting rights:Subject to any rights or restrictions attached to any shares and
to any other provisions of the Articles, at any general meeting on a show of
hands every shareholder who



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90




is present in person will have one vote and on a poll every shareholder will
have one vote for every share which he holds. On a poll, shareholders may cast
votes either personally or by proxy and a proxy need not be a shareholder.
Under the Articles all special and extraordinary resolutions must be decided on
a poll.

In the case of joint holders of a share, the vote of the senior who tenders a
vote, whether in person or by proxy, will be accepted to the exclusion of the
votes of the other joint holders. Seniority will be determined by the order in
which the names of the holders appear in the register of shareholders.

Unless the Board of Directors otherwise determines, no shareholder, or person
to whom any of that shareholders holding is transferred other than by a
transfer approved under the Articles, can vote at any general meeting either in
person or by proxy in respect of any share in National Grid held by him:



|(1) |  | if all monies presently payable by him in respect of that
share have not been paid;                                                                                                                                                                                                                                                                                                
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | if he or any other person appearing to be interested in the
share has been given a notice under section 212 of the
Companies Act and has failed to provide the information
required by the notice within 14 days from the date of
service of the notice (or in the case of shares representing
less than 0.25 per cent of their class, within 28 days of
service of the notice); or
|   
|(3) |  | in the circumstances referred to under General
Limitations on Shareholdings and Shareholding
Restrictions on Persons who are bound by the Balancing
and Settlement Code or Licence Holders below.                                                                                                                                                                              

Variation of Rights:Subject to applicable provisions of English law and the
rights attached to any specific class of shares, the rights attached to any
class of shares of National Grid may be varied with the written consent of the
holders of three-fourths in nominal value of the issued shares of that class,
or with the sanction of an extraordinary resolution passed at a separate
meeting of the holders of the shares of that class. The applicable provisions
of English law and the Articles relating to general meetings will generally
apply to any such separate meeting except that:



|(1) |  | the necessary quorum will be two persons between them
Holding or representing by proxy not less than one-third
in nominal amount of the issued shares of that class or, at
any adjourned meeting of holders of shares of that class at
which that quorum is not present, will be any holder of
shares of that class who is present in person or by proxy
whatever the number of shares held by him;
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | any holder of shares of that class present in person or by
proxy may demand a poll; and                                                                                                                                                                                                                                                                                                            
|   
|(3) |  | every holder of shares of that class will, on a poll,
have one vote in respect of every share of that class
held by him.                                                                                                                                                                                                                                                                           

Alteration of CapitalNational Grid may by ordinary resolution increase,
consolidate and divide and sub-divide its share capital. Subject to applicable
provisions of English law, National Grid may by special resolution reduce its
share capital, any capital redemption reserve and any share premium account or
other undistributable reserve in any manner. Subject to applicable provisions
of English law and to any rights conferred on the holder of any class of
shares, National Grid may purchase all or any of its shares of any class
(including any redeemable shares).

General Limitations on ShareholdingsThe Articles contain provisions which
limit interests in voting shares. These provisions are described briefly below:



|(a) |  | If any person has, or appears to the Board of Directors to
have, an interest in shares which carry 15 per cent or
more of the total votes attaching to the relevant share
capital (as defined in the Companies Act) of National
Grid and capable of being cast on a poll or is deemed so
to have such an interest, the Board of Directors must take
the following actions. The Board must give notice to all
persons who appear to the Board of Directors to have
interests in the shares concerned and, if different, to the
registered holders of those shares. The notice will require
that the interest concerned be reduced to less than
15 per cent by selling shares within 2 days of the notice
(or a longer period that the Board of Directors considers
reasonable). No transfer of the shares to which the
interest relates may then be registered except for the
purpose of reducing the interest to less than 15 per cent
or until the notice has been withdrawn.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | If a person receiving a notice described in paragraph
(a) does not comply with it, the Board of Directors will,
so far as it is able, sell the shares on appropriate terms, as
it determines. The proceeds of that sale will be received
by National Grid and paid (without interest and after
deduction of any expenses of sale) to the former
registered holder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(c) |  | A registered holder receiving a notice described in
paragraph (a) is not entitled, until he has complied with
the notice, to attend or vote at any general meeting of
National Grid or of any class of shares. Likewise, the
holder will not be able to exercise any other of the rights
of a shareholder in relation to that meeting, and those
rights will vest in the chairman of that meeting who will
have discretion to exercise them or not.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(d) |  | Any resolution or determination of, or decision or
exercise of any discretion or power by, the Board of
Directors or any Director or the chairman of any meeting
under the relevant Article will be final and conclusive.
Any disposal or transfer made by or on behalf of or on
the authority of the Board of Directors or any Director
pursuant to the relevant Article will be conclusive and
binding on all persons concerned and will not be open to
challenge. The Board of Directors is not required to give
any reasons for any decision, determination or declaration
taken or made in accordance with the relevant Article.                                                                                                                                                                                                                                                                                                                                         

There are limited exceptions to these restrictions relating principally to
holdings of a trustee or fiduciary nature and market clearing arrangements.
These restrictions do not apply to the Depositary acting in its capacity as
such.



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Shareholding Restrictions on Persons who are bound by the Balancing and
Settlement Code or Licence HoldersThe Articles contain additional restrictions
which are intended to prevent any person who is bound by the Balancing and
Settlement Code by virtue of being a party to the BSC Framework Agreement dated
14 August 2000, a holder of a licence under the Electricity Act 1989, or in
either case, any affiliate thereof, from having an interest in shares which
carry one per cent or more of the total votes attaching to the relevant share
capital of National Grid and capable of being cast on a poll.

The Board of Directors has the same rights as those set out under General Limitations on
Shareholdings above to require the sale or to sell sufficient numbers of
shares to bring the relevant interest within the permitted limit where these
provisions are breached.

Obligations Relating to the Transmission Licence HolderThe Articles provide
that National Grid must provide that, without the consent in writing of the
holder of the special share:



|(a) |  | the transmission licence (as subsequently amended)
which was granted by the then Secretary of State for
Energy may not be held by any person which is not
National Grid or a wholly-owned subsidiary of
National Grid;                                                                                                                                                                                                                                                                                                         
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | National Grid and its wholly-owned subsidiaries may not
cease to carry on, or dispose of or relinquish operational
control over any asset required to carry on, the
transmission business or the interconnectors business
(as defined in the transmission licence in place at
11 December 1995) except if that cessation, disposal or
relinquishment is required by law or is permitted pursuant
to or by virtue of the terms of the transmission licence;                                                                     
|   
|(c) |  | neither National Grid nor any affiliate of National Grid
is permitted to carry on in the United Kingdom any
activity which requires a generation or supply licence or
which is exempted from such requirement, save where
that activity is expressly permitted under the terms of the
transmission licence in place at 11 December 1995 and
neither National Grid nor any affiliate of National Grid
is permitted to engage outside the United Kingdom in
the generation of electricity to be imported into the
United Kingdom;
|   
|(d) |  | no employee or director of any person who is bound by
the Balancing and Settlement Code by virtue of being a
party to the BSC Framework Agreement dated 14 August
2000 or the holder of a licence under the Electricity Act
1989 or, in either case, any affiliate thereof (other than
National Grid or any wholly-owned subsidiary of
National Grid) is permitted to be a director of National
Grid or the transmission licence holder; and                                                                                   
|   
|(e) |  | the transmission licence holder is not permitted to carry
on activities other than:                                                                                                                                                                                                                                                                                                                                                                                                                                            



| | (i)  |  | those required or contemplated on the part of the
transmission licence holder (in its capacity as the
holder of the transmission licence) by the
transmission licence or the Electricity Act 1989
or related to those requirements; or
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) |  | those carried on by The National Grid Company plc
at or prior to 11 December 1995.                                                                                                                                                    

The restrictions set out in this sub-paragraph (e) would not prevent the
acquisition of any share capital by the transmission licence holder in any
company (subject to sub-paragraph (c)).

Annual General Meetings and Extraordinary General Meetings
Annual General Meetings must be convened upon advance written notice of 21
days. An Extraordinary General Meeting must be convened upon advance written
notice of 21 days for the passing of a special resolution and 14 days for any
other resolution, depending on the nature of the business to be transacted. The
notice must specify the nature of the business to be transacted. The notice
must also specify the place, the day and the time of the meeting.

Rights of Non-ResidentsThere are no restrictions under National Grids
Memorandum and Articles of Association that would limit the rights of persons
not resident in the UK, as such, to vote ordinary shares.

Disclosure of Interests



|(a) |  | A shareholder may lose the right to vote his shares if he
or any other person appearing to be interested in those
shares fails to comply within a prescribed period of time
with a request by National Grid under the Companies
Act to give the required information with respect to past
or present ownership or interests in those shares. In the
case of holders of more than 0.25 per cent in nominal
amount of the share capital of National Grid or any class
of the share capital, in addition to disenfranchisement,
the sanctions that may be applied by National Grid
include withholding of the right to receive payment of
dividends and other monies payable on shares, and
restrictions on transfers of the shares.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | The Companies Act provides that a person (including a
company and other legal entities) that acquires an
interest of three per cent or more in any class of shares
constituting an English public companys relevant share
capital (i.e. National Grids issued share capital carrying
the right to vote in all circumstances at a general meeting
of National Grid) is required to notify the company of its
interest within two business days following the day on
which the obligation arises. After the 3 per cent level is
exceeded, similar notifications must be made in respect of
increases or decreases of one per cent or more.                                                                                     

For purposes of the notification obligation, the interest of a person in shares
means any kind of interest in shares including interests in any shares (a) in
which a spouse, or child or stepchild under the age of 18 is interested, (b) in
which a corporate body is interested and either (1) that corporate body or its
directors generally act in accordance with that persons directions or
instructions or (2) that person controls one-third or more of the voting power
of that corporate body or (c) in which another party is interested and the
person and that other party are parties to a concert party agreement. A
concert party agreement is one which provides for one or more parties to
acquire interests in shares of a particular company and imposes obligations or
restrictions on any one of the parties as to the use, retention or disposal of
such interests acquired under the agreement, and any interest in the companys
shares is in fact acquired by any of the parties under the agreement. Some of
the interests (e.g. those held by certain investment fund managers) may be
disregarded for the purposes of calculating the three per cent threshold,



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but the obligations of disclosure will still apply where those interests exceed
10 per cent or more of any class of the companys relevant share capital and to
increases or decreases of one per cent or more thereafter.

In addition, section 212 of the Companies Act provides that a public company
may send a written notice to a person whom the company knows or has reasonable
cause to believe to be, or to have been at any time during the three years
immediately preceding the date on which the notice is issued, interested in
shares constituting the companys relevant share capital. The notice will
require that person to state whether he has an interest in the shares, and in
case that person holds or had held an interest in those shares, to give
additional information relating to that interest and any other interest in the
shares of which that person is aware.

Where a company serves notice under the provisions described above on a person
who is or was interested in shares of the company and that person fails to give
the company any information required by the notice within the time specified in
the notice, the company may apply to an English court for an order directing
that the shares in question be subject to restrictions prohibiting, among other
things, any transfer of those shares, the taking up of rights in respect of
those shares and, other than in a liquidation, payments in respect of those
shares.

A person who fails to fulfill the obligations imposed by those provisions of
the Companies Act described above is subject to criminal penalties.

Material contracts

A summary of material contracts found in Part IX, Section 17.1 of the National
Grid Transco plc Listing Particulars is incorporated by reference herein.

Proposed Lattice Merger

A summary of terms for the proposed merger with Lattice found in Part I,
Section 1 and Sections 2.8-2.11 of the National Grid Transco plc Listing
Particulars is incorporated by reference herein.

Subsidiaries

Note 29 to the accounts (Group undertakings, joint ventures and associate) sets
out in respect of National Grids principal subsidiaries, its principal joint
ventures and the associate company Energis details including jurisdiction of
incorporation or formation and National Grids ownership interest.

Documents on display

National Grid is subject to the filing requirements of the US Securities
Exchange Act of 1934. In accordance with these requirements, National Grid
files reports and other information with the US Securities and Exchange
Commission (SEC). These materials, including this document, may be inspected
during normal business hours at National Grids registered office at 15
Marylebone Road, London NW1 5JD or at the SECs Public Reference Room at 450
Fifth Street, NW, Washington, DC 20549. For further information about the
Public Reference Room, please call the SEC on 1-800-SEC-0330. Some of National
Grids filings are also available on the SECs website at www.sec.gov.



---



##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

93




Exhibits

The following have been filed with the
Securities and Exchange Commission or
will so be filed with the 2001/02
Annual Report and Form 20-F:



|1    |  | Memorandum and Articles of Association of National
Grid Group plc                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|2(a) |  | Amended and restated Deposit Agreement dated as of
31 January 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|2(b) |  | (i) Offering circular issued by NGG Finance plc on
20 August 2001 summarising the trust deeds,
subscription agreements and paying agency agreements
relating to the 1,250,000,000 5.25 per cent guaranteed
bonds due 2006 and the 750,000,000 6.125 per cent
guaranteed bonds due 2001 issued by NGG Finance plc
and guaranteed by National Grid
(ii) Offering circular issued by National Grid Company
on 23 July 2001 summarising the trust deeds,
subscription agreements and paying agency agreements
relating to the £200,000,000 3.806 per cent Retail Price
Index-linked bonds due 2020, the £40,000,000 3.589
per cent limited Retail Price Index-linked bonds due
2030 and the £360,000,000 6.50 per cent bonds due
2028 issued by National Grid Company
(iii) Credit agreement dated 22 November 2001
between National Grid Group plc (as guarantor and
borrower); NGG Finance plc (as borrower); HSBC
Investment Bank plc (the agent); HSBC (USA) Inc.
(the swingline agent); and certain banks and financial
institutions (the banks) which provides a $1.7 billion
364 day multicurrency revolving credit facility and
$600 million five year multicurrency revolving facility
with a $300 million swingline facility



|4(a) |  | (i)   | Supplemental Trust Deed dated 10 December 2001
between National Grid Company, National Grid,
National Grid Holdings One plc and The Law
Debenture Trust Company p.l.c. relating to
£460 million 4.25 per cent unsecured
exchangeable bonds                                                                                                                                                                                                                             
|---- |  | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | (ii)  | Letter Agreement dated 20 November 2001
between National Grid, National Grid Company,
National Grid Holdings One plc and the European
Investment Bank relating to a guarantee given by
National Grid                                                                                                                                                                                                                                                                   
|    
|     |  | (iii) | Agreement and Plan of Merger and Scheme of
Arrangement, dated as of 4 September 2000, as
amended 1 December 2000, entered into between
National Grid, National Grid Holdings One plc,
Grid Delaware, Inc. and Niagara Mohawk                                                                                                                                                                                                                                           
|    
|     |  | (iv)  | Asset Purchase Agreement dated as of
11 December 2000 and made between Niagara
Mohawk Power Corporation, Constellation
Nuclear and Constellation Energy Group, Inc.
regarding the sale of the Nine Mile Point No. 1
nuclear generating facilities                                                                                                                                                                                                                      
|    
|     |  | (v)   | Asset Purchase Agreement dated as of
11 December 2000 and made between Niagara
Mohawk Power Corporation, RG&E, Central
Hudson, NYSEG, Constellation Nuclear and
Constellation Energy Group, Inc. regarding the
sale of the Nine Mile Point No. 2 nuclear
generating facilities                                                                                                                                                                                         
|    
|     |  | (vi)  | Purchase and Sale Agreement dated as of 13 April
2002 and made by and among North Atlantic
Energy Corporation, The United Illuminating
Company, Great Bay Power Corporation, New
England Power Company, The Connecticut Light
and Power Company, Canal Electric Company,
Little Bay Power Corporation, New Hampshire
Electric Cooperative, Inc., North Atlantic
Energy Service Corporation, and FPL Energy
Seabrook, LLC regarding the sale of Seabrook
Nuclear Station



|4(b)  |  | (i)                                                                                       | Service Agreement  Edward Astle                 
|----- |  | ----------------------------------------------------------------------------------------- | -------------------------------------------------
|     
|      |  | (ii)                                                                                      | Service Agreement  Stephen Box                  
|     
|      |  | (iii)                                                                                     | Employment Agreement  William E Davis           
|     
|      |  | (iv)                                                                                      | Service Agreement  Steven Holliday              
|     
|      |  | (v)                                                                                       | Employment Agreement  Richard P Sergel          
|     
|      |  | (vi)                                                                                      | Service Agreement  Roger Urwin                  
|     
|4(c)  |  | National Grid Executive Share Option Plan 2002 and
National Grid Share Matching Plan 2002
|     
|6     |  | Earnings per share.See note 11 to the accounts                                           
|     
|7     |  | Ratio of earning to fixed charges. See note 8 to the
accounts and page 17                
|     
|8     |  | List of subsidiaries                                                                     
|     
|10(b) |  | (i)                                                                                       | Details of proposed merger with Lattice Group plc
|     
|10(b) |  | (ii)                                                                                      | Summaries of material contracts                  



---



##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02




Cross reference to Form 20-F

94




|       |  |                                                                                      |  |  |     |      |  | 
|------ |  | ------------------------------------------------------------------------------------ |  |  | --- | ---- |  | 
|Item   |  |                                                                                      |  |  |     | Page
|Part 1 |  |                                                                                      |  |  |     |      | 
|1      |  | Identity of Directors, Senior Management and Advisers                                |  |  | n/a |     
|2      |  | Offer Statistics and expected timetable                                              |  |  | n/a |     
|3      |  | Key Information                                                                      |  |  |     |     
|       |  | A. Selected financial data                                                           |  |  |     |     
|       |  | Five-year financial summary                                                          |  |  | 18  |     
|       |  | Dividends                                                                            |  |  | 20  |     
|       |  | B. Capitalisation and indebtedness                                                   |  |  | n/a |     
|       |  | C. Reasons for and use of proceeds                                                   |  |  | n/a |     
|       |  | D. Risk factors                                                                      |  |  |     |     
|       |  | Risk factors                                                                         |  |  | 84  |     
|4      |  | Information on the Company                                                           |  |  |     |     
|       |  | A. History and development of the Company                                            |  |  |     |     
|       |  | Overview of National Grid                                                            |  |  | 5   |     
|       |  | History and development of the business                                              |  |  | 5   |     
|       |  | Incorporation of the Company                                                         |  |  | 30  |     
|       |  | Proposed Lattice Merger                                                              |  |  | 92  |     
|       |  | B. Business overview                                                                 |  |  |     |     
|       |  | Overview of National Grid                                                            |  |  | 5   |     
|       |  | Business strategy                                                                    |  |  | 5   |     
|       |  | Electricity networks  England and Wales                                             |  |  | 6   |     
|       |  | Electricity and gas networks  US                                                    |  |  | 8   |     
|       |  | Other electricity businesses and projects                                            |  |  | 12  |     
|       |  | Telecoms                                                                             |  |  | 13  |     
|       |  | Financial review                                                                     |  |  | 17  |     
|       |  | Seasonality                                                                          |  |  | 27  |     
|       |  | Note 2 to the accounts: Segmental analysis                                           |  |  | 47  |     
|       |  | C. Organisational structure                                                          |  |  |     |     
|       |  | Note 30 to the accounts: Group undertakings, joint ventures and associate            |  |  | 74  |     
|       |  | D. Property, plants and equipment                                                    |  |  |     |     
|       |  | Electricity networks  England and Wales                                             |  |  | 6   |     
|       |  | Fixed assets in the UK                                                               |  |  | 7   |     
|       |  | Electricity and gas networks  US                                                    |  |  | 8   |     
|       |  | Fixed assets in the US                                                               |  |  | 11  |     
|5      |  | Operating and financial review                                                       |  |  |     |     
|       |  | A. Operating results                                                                 |  |  |     |     
|       |  | Business review                                                                      |  |  | 5   |     
|       |  | Financial review                                                                     |  |  | 17  |     
|       |  | B. Liquidity and capital resources                                                   |  |  |     |     
|       |  | Liquidity and capital resources                                                      |  |  | 22  |     
|       |  | Going concern                                                                        |  |  | 27  |     
|       |  | Note 29 to the
accounts: Commitments and contingencies, (a) Future capex expenditure |  |  | 73  |     
|       |  | C. Research and development, patents and licences, etc.                              |  |  |     |     
|       |  | Research and development                                                             |  |  | 31  |     
|       |  | D. Trend information                                                                 |  |  |     |     
|       |  | Electricity networks  England and Wales                                             |  |  | 6   |     
|       |  | Electricity and gas networks  US                                                    |  |  | 8   |     
|       |  | Other electricity businesses and projects                                            |  |  | 12  |     
|       |  | Telecoms                                                                             |  |  | 13  |     
|       |  | Changes and developments                                                             |  |  | 27  |     
|       |  | Risk factors                                                                         |  |  | 84  |     
|6      |  | Directors, senior management and employees                                           |  |  |     |     
|       |  | A. Directors and senior management                                                   |  |  |     |     
|       |  | Board of Directors                                                                   |  |  | 28  |     
|       |  | B. Compensation                                                                      |  |  |     |     
|       |  | Directors' report  Remuneration                                                     |  |  | 34  |     
|       |  | Note 7 to the accounts: Pensions and post-retirement benefits                        |  |  | 53  |     
|       |  | C. Board practices                                                                   |  |  |     |     
|       |  | Service contracts                                                                    |  |  | 36  |     
|       |  | Directors' report  Corporate governance                                             |  |  | 32  |     
|       |  | D. Employees                                                                         |  |  |     |     
|       |  | Note 5 to the accounts: Payroll costs and employees                                  |  |  | 52  |     
|       |  | E. Share ownership                                                                   |  |  |     |     
|       |  | Directors' interests in share options                                                |  |  | 37  |     
|       |  | Directors' beneficial interests                                                      |  |  | 38  |     
|       |  | Employment policies                                                                  |  |  | 30  |     
|7      |  | Major shareholders and related party transactions                                    |  |  |     |     
|       |  | A. Major shareholders                                                                |  |  |     |     
|       |  | Substantial shareholdings                                                            |  |  | 30  |     
|       |  | Analyses of shareholdings at 29 May 2002                                             |  |  | 96  |     
|       |  | B. Related party transactions                                                        |  |  |     |     
|       |  | Related party transactions                                                           |  |  | 26  |     
|       |  | Note 28 to the accounts: Related party transactions                                  |  |  | 72  |     
|       |  | C. Interests of experts and counsel                                                  |  |  | n/a |     
|8      |  | Financial Information                                                                |  |  |     |     
|       |  | A. Consolidated statements and other financial information                           |  |  |     |     
|       |  | Directors' responsibilities                                                          |  |  | 40  |     
|       |  | Independent auditors' report                                                         |  |  | 41  |     
|       |  | Accounting policies                                                                  |  |  | 42  |     
|       |  | Group profit and loss account                                                        |  |  | 44  |     
|       |  | Balance sheets                                                                       |  |  | 45  |     
|       |  | Group cash flow statement                                                            |  |  | 46  |     
|       |  | Notes to the accounts                                                                |  |  | 47  |     
|       |  | Note 22 to the accounts: Share capital                                               |  |  | 65  |     
|       |  | Note 29 to the accounts: Commitments and contingencies                               |  |  | 73  |     
|       |  | Dividends                                                                            |  |  | 30  |     
|       |  | Dividend policy                                                                      |  |  | 20  |     
|       |  | B. Significant changes                                                               |  |  |     |     
|       |  | Changes and developments                                                             |  |  | 27  |     
|9      |  | The offer and listing                                                                |  |  |     |     
|       |  | A. Offer and listing details                                                         |  |  |     |     
|       |  | Market prices                                                                        |  |  | 86  |     
|       |  | B. Plan of distribution                                                              |  |  | n/a |     
|       |  | C. Markets                                                                           |  |  |     |     
|       |  | Incorporation of the Company                                                         |  |  | 30  |     
|       |  | D. Selling shareholders                                                              |  |  | n/a |     
|       |  | E. Dilution                                                                          |  |  | n/a |     
|       |  | F. Expenses of the issue                                                             |  |  | n/a |     



---



##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02

95




|       |  |                                                                              |  |  |     |      |  | 
|------ |  | ---------------------------------------------------------------------------- |  |  | --- | ---- |  | 
|Item   |  |                                                                              |  |  |     | Page
|10     |  | Additional information                                                       |  |  |     |     
|       |  | A. Share capital                                                             |  |  |     |     
|       |  | Note 22 to the accounts: Share capital                                       |  |  | 65  |     
|       |  | B. Memorandum and articles of association                                    |  |  |     |     
|       |  | Memorandum and Articles of Association                                       |  |  | 88  |     
|       |  | C. Material contracts                                                        |  |  |     |     
|       |  | Material contracts                                                           |  |  | 92  |     
|       |  | D. Exchange controls                                                         |  |  |     |     
|       |  | Exchange controls                                                            |  |  | 86  |     
|       |  | E. Taxation                                                                  |  |  |     |     
|       |  | Taxation                                                                     |  |  | 86  |     
|       |  | F. Dividends and paying agents                                               |  |  | n/a |     
|       |  | G. Statement by experts                                                      |  |  | n/a |     
|       |  | H. Documents on display                                                      |  |  |     |     
|       |  | Documents on display                                                         |  |  | 92  |     
|       |  | I. Subsidiary information                                                    |  |  |     |     
|       |  | Note 30 to the accounts: Group undertakings, joint ventures and associate    |  |  |     |     
|11     |  | Quantitative
and qualitative disclosures about market risk                   |  |  |     |     
|       |  | Interest rate risk                                                           |  |  | 23  |     
|       |  | Currency risk                                                                |  |  | 25  |     
|       |  | Liquidity risk                                                               |  |  | 25  |     
|       |  | Credit risk                                                                  |  |  | 25  |     
|12     |  | Description of securities other than equity securities                       |  |  | n/a |     
|Part 2 |  |                                                                              |  |  |     |      | 
|13     |  | Defaults, dividend arrearages and delinquencies                              |  |  |     |     
|       |  | Defaults, dividend arrearages and delinquencies                              |  |  | 86  |     
|14     |  | Material modifications to the rights of security holders and use of proceeds |  |  | n/a |     
|15     |  | [Reserved]                                                                   |  |  | n/a |     
|16     |  | [Reserved]                                                                   |  |  | n/a |     
|Part 3 |  |                                                                              |  |  |     |      | 
|17     |  | Financial statements                                                         |  |  |     |     
|       |  | See Item 18                                                                  |  |  |     |     
|18     |  | Financial statements                                                         |  |  |     |     
|       |  | Independent auditors' report                                                 |  |  | 41  |     
|       |  | Accounting policies                                                          |  |  | 42  |     
|       |  | Group profit and loss account                                                |  |  | 44  |     
|       |  | Balance sheets                                                               |  |  | 45  |     
|       |  | Group cash flow statement                                                    |  |  | 46  |     
|       |  | Notes to the accounts                                                        |  |  | 47  |     
|       |  | Note 11 to the accounts: Earnings per share                                  |  |  | 56  |     
|19     |  | Exhibits                                                                     |  |  |     |     
|       |  | Exhibits                                                                     |  |  | 93  |     



---



##### Table of Contents



National Grid Annual Report and Form 20-F 2001/02




Shareholder information

96




Analyses of shareholdings as at 29 May 2002:

Distribution of shares by type of shareholder

|                                   |  |              |         |  |        |  |               |               |             |  |        | 
|---------------------------------- |  | ------------ | ------- |  | ------ |  | ------------- | ------------- | ----------- |  | ------ | 
|                                   |  | Number of    |         |  |        |  |               |               | % of issued
|                                   |  | shareholders |         |  | Shares |  |               | share capital
|                                  
|ADSs1                              |  |              | 1       |  |        |  | 109,992,348   |               |             |  | 6.19   | 
|Banks                              |  |              | 22      |  |        |  | 2,293,027     |               |             |  | 0.13   | 
|Electricity companies2             |  |              | 7       |  |        |  | 277,666       |               |             |  | 0.02   | 
|Individuals                        |  |              | 616,122 |  |        |  | 153,620,369   |               |             |  | 8.65   | 
|Insurance companies                |  |              | 12      |  |        |  | 13,355,730    |               |             |  | 0.75   | 
|Nominee companies3                 |  |              | 10,026  |  |        |  | 1,324,600,277 |               |             |  | 74.54  | 
|Other corporate bodies             |  |              | 363     |  |        |  | 60,218,961    |               |             |  | 3.39   | 
|Pension funds                      |  |              | 25      |  |        |  | 81,740        |               |             |  |       | 
|Other limited and
public companies |  |              | 1,301   |  |        |  | 112,538,555   |               |             |  | 6.33   | 
|                                  
|Total                              |  |              | 627,879 |  |        |  | 1,776,978,673 |               |             |  | 100.00 | 
|                                  

Distribution of shares by size of holding

|                    |  |              |         |  |        |  |               |               |             |  |        | 
|------------------- |  | ------------ | ------- |  | ------ |  | ------------- | ------------- | ----------- |  | ------ | 
|                    |  | Number of    |         |  |        |  |               |               | % of issued
|                    |  | shareholders |         |  | Shares |  |               | share capital
|                   
|1  99              |  |              | 368,803 |  |        |  | 25,775,725    |               |             |  | 1.45   | 
|100  499           |  |              | 193,417 |  |        |  | 40,642,442    |               |             |  | 2.29   | 
|500  999           |  |              | 34,360  |  |        |  | 23,376,394    |               |             |  | 1.32   | 
|1,000  4,999       |  |              | 26,675  |  |        |  | 51,945,541    |               |             |  | 2.92   | 
|5,000  9,999       |  |              | 2,111   |  |        |  | 14,222,617    |               |             |  | 0.80   | 
|10,000  49,999     |  |              | 1,331   |  |        |  | 26,882,324    |               |             |  | 1.51   | 
|50,000  99,999     |  |              | 282     |  |        |  | 20,361,827    |               |             |  | 1.15   | 
|100,000  499,999   |  |              | 540     |  |        |  | 122,173,840   |               |             |  | 6.87   | 
|500,000  999,999   |  |              | 130     |  |        |  | 89,915,806    |               |             |  | 5.06   | 
|1,000,000 and above |  |              | 230     |  |        |  | 1,361,682,157 |               |             |  | 76.63  | 
|                   
|Total               |  |              | 627,879 |  |        |  | 1,776,978,673 |               |             |  | 100.00 | 
|                   

1ADSs are listed on the New York Stock Exchange. Each ADS represents
five National Grid Ordinary Shares. Holdings in ADSs are registered with
The Bank of New York, our US depositary.2In accordance with National Grids Articles of Association, no holder of
a licence under the Electricity Act 1989 and no affiliate of such licence
holder, has an interest of 1 per cent or more in the voting share capital
of National Grid.3Nominee companies typically hold shares on behalf of banks, insurance
companies, investment trusts, pension funds and PEP and ISA investors.


In addition to the number of registered shareholders shown, there are
approximately 31,000 beneficial and 30,000 registered holders of ADSs.

Financial calendar

|               |  |                                                         
|-------------- |  | --------------------------------------------------------
|              
|30 May 2002    |  | 2001/02 preliminary results                             
|              
|5 June 2002    |  | National Grid shares go ex-dividend                     
|              
|7 June 2002    |  | Record date for 2001/02 final dividend                  
|              
|23 July 2002   |  | Annual General Meeting and
Extraordinary General Meeting
|              
|15 August 2002 |  | 2001/02 final dividend paid to qualifying
shareholders  
|              

Shareholder queries

Queries from shareholders should be addressed to the Registrar, Lloyds TSB
Registrars, The Causeway, Worthing, West Sussex BN99 6DA (telephone 0870 600
3969, fax 0870 600 3980, www.shareview.co.uk).

Queries from holders of American Depositary Shares (ADSs) should be addressed
to the depositary, The Bank of New York, Shareholders Correspondence, PO Box
11258, New York, NY 10286-1258 (for calls inside the US, telephone
1-800-466-7215, for international calls telephone +1-610-312-5315, e-mail
shareowner-svcs@bankofny.com, www.adrbny.com).

Other documents available from National Grid

We send a copy of the Annual Review to all of our shareholders each year.

For the assistance of visually impaired shareholders, an audio tape version of
the Annual Review is produced and may be obtained free of charge by contacting
the Registrar, Lloyds TSB Registrars.

Shareholders may opt to receive copies of our Annual Report and Form 20-F which
contains the full accounts and additional information required by the
Securities and Exchange Commission in the US.

National Grids principal UK subsidiary, The National Grid Company plc, is the
holder of the electricity licence for England and Wales. Under the terms of
this licence it is required to provide to the regulator an accounting statement
for its licenced businesses. Copies of these statements are available from the
Registrar, Lloyds TSB Registrars.

National Grid has published the first Group-wide responsible business website
Connecting with the Future which can be found on our website at
www.nationalgrid.com.

Other information about National Grid is also available on our website at
www.nationalgrid.com.

Electronic communication

Information about National Grid is available via the internet on
www.nationalgrid.com. Share price information, annual reports and shareholder
FAQs can be found in the Investors section.

Shareholders may elect to receive all shareholder communications, such as the
Annual Review and Notice of AGM by electronic means. Shareholders who wish to
take advantage of this service can register on our Registrars website
www.shareview.co.uk. Registration is free. Once registered, shareholders will
receive notification by e-mail, when documentation is available with
instructions on how to view it. There are no particular software requirements
to view the documents, other than those described and available on our website,
www.nationalgrid.com.

Shareholders who register to receive electronic notification but decide at any
time in the future that they would prefer to receive paper copies, may register
this preference on the website, www.shareview.co.uk, or by contacting the
Registrar at the address above.

Holders of ADSs may elect to receive some documents electronically by checking
the appropriate box on the reverse side of their voting instruction card.
Alternatively, they may call The Bank of New York at 1-800-466-7215.

Prior to general meetings of National Grid, ADS holders will be mailed a notice
of meeting with instructions on how to electronically access the Annual Review.

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



---



##### Table of Contents



Contacts and Advisers




Principal offices

|                                  |  |                                                        |  |                                                     
|--------------------------------- |  | ------------------------------------------------------ |  | ----------------------------------------------------
|National Grid Group plc           |  | National Grid UK                                       |  | National Grid USA                                   
|15 Marylebone Road
London
NW1 5JD |  | National Grid House
Kirby Corner Road
Coventry
CV4 8JY |  | 25 Research Drive
Westborough
Massachusetts
MA 01582
|                                 
|                                  |  |                                                        |  | 300 Erie Boulevard West
Syracuse
New York
NY 13202  

Principal advisers

|                                                                                             |  |                                                                                              |  |                                                                                     
|-------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------
|Auditors and Reporting Accountants
PricewaterhouseCoopers
1 Embankment Place
London
WC2N 6RH |  | Depositary
The Bank of New York
101 Barclay Street
22nd Floor West
New York
NY10286          |  | Legal Advisers
CMS Cameron McKenna
Mitre House
160 Aldersgate Street
London
EC1A 4DD
|                                                                                            
|Bankers
Barclays Bank plc
54 Lombard Street
London
EC3P 3AH                                  |  | Financial Advisers
N M Rothschild & Sons Limited
New Court
St Swithins Lane
London
EC4P 4DU |  | Registrar
Lloyds TSB Registrars
The Causeway
Worthing
West Sussex
BN99 6DA          
|                                                                                            
|Joint Brokers
Credit Suisse First Boston (Europe) Limited
One Cabot Square
London
E14 4QJ    |  | Dresdner Kleinwort Wasserstein
20 Fenchurch Street
London
EC3P 3DB                           |  |                                                                                     
|                                                                                            
|Merrill Lynch International
2 King Edward Street
London
EC1A 1HQ                             |  |                                                                                              |  |                                                                                     

Registered in England and Wales
No. 4031152
Registered office
15 Marylebone Road
London
NW1 5JD
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##### Table of Contents



BACK COVER



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##### Table of Contents



EXHIBIT INDEX

|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |               
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------
|EXHIBIT   |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | PAGE          
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |               
|1         |  | Memorandum and Articles of
Association of National Grid
Group plc                                                                                                                                                                                                                                                                                                                                                                                            |  | Filed herewith
|         
|2(a)      |  | Amended and restated Deposit
Agreement dated as of 31
January 2002                                                                                                                                                                                                                                                                                                                                                                                           |  | Filed herewith
|         
|2(b)(i)   |  | Offering circular issued by NGG
Finance plc on 20 August 2001
summarising the trust deeds,
subscription agreements and paying
agency agreements relating to the
1,250,000,000 5.25 per cent
guaranteed bonds due 2006 and the
750,000,000 6.125 per cent
guaranteed bonds due 2001 issued by
NGG Finance plc and guaranteed by
National Grid                                                                                                               |  | Filed herewith
|         
|2(b)(ii)  |  | Offering circular issued by National
Grid Company on 23 July 2001 summari-
sing the trust deeds, subscription
agreements and paying agency agreement
relating to the £200,000,000 3.806 per
cent Retail Price Index-linked bonds due
2020, the £40,000,000 3.89 per cent
limited Retail Price Index linked bonds
due 2030 and the £360,000,000 6.50 per
cent bonds due 2028 issued by National
Grid Company                                                  |  | Filed herewith
|         
|2(b)(iii) |  | Credit agreement dated 22 November
2001 between National Grid Group plc
(as guarantor and borrower); NGG Finance plc
(as borrower); HSBC Investment Bank plc
(the agent); HSBC (USA) Inc. (the swing-line agent); and certain banks and
financial institutions (the banks) which
provides a $1.7 billion 364 day multi-currency revolving credit facility and
$600 million five year multicurrency
revolving facility with a $300 million
swingline facility |  | Filed herewith



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|          |  |                                                                                                                                                                                                                                                                                                                                                                     |  |                          
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|EXHIBIT   |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                         |  | PAGE                     
|          |  |                                                                                                                                                                                                                                                                                                                                                                     |  |                          
|4(a)(i)   |  | Supplemental Trust Deed dated
10 December 2001 between National
Grid Company, National Grid,
National Grid Holdings One plc and
The Law Debenture Trust Company
p.l.c. relating to £460 million 4.25
per cent unsecured exchangeable bonds                                                                                                                          |  | Filed herewith           
|         
|4(a)(ii)  |  | Letter Agreement dated 20 November
2001 between National Grid, National
Grid Company, National Grid Holdings
One plc and the European Investment
Bank relating to a guarantee given by
National Grid                                                                                                                                                                |  | Filed herewith           
|         
|4(a)(iii) |  | Agreement and Plan of Merger and Scheme
of Arrangement, dated as of 4 September
2000, as amended 1 December 2000, entered
into between National Grid, National Grid
Holdings One plc, Grid Delaware, Inc. and
Niagara Mohawk (Annex A to National Grid
Form F-4 filed December 4, 2000 File No.
1-4315)                                                             |  | Incorporated
by reference
|         
|4(a)(iv)  |  | Asset Purchase Agreement dated as of
11 December 2000 and made between Niagara
Mohawk Power Corporation, Constellation
Nuclear and Constellation Energy Group,
Inc. regarding the sale of the Nine Mile
Point No. 1 nuclear generating facilities
(Exhibit 10-42a to Niagara Mohawk Form 10-K
filed February 16, 2001 File No. 1-2987)                              |  | Incorporated
by reference
|         
|4(a)(v)   |  | Asset Purchase Agreement dated as of 11
December 2000 and made between Niagara
Mohawk Power Corporation, RG&E, Central
Hudson, NYSEG, Constellation Nuclear and
Constellation Energy Group, Inc. regarding
the sale of the Nine Mile Point No. 2
Nuclear generating facilities (Exhibit 10-42b
to Niagara Mohawk Form 10-K filed February 16,
2001 File No. 1-2987) |  | Incorporated
by reference
|         
|4(a)(vi)  |  | Purchase and Sale Agreement dated as
of 13 April 2002 and made by and among
North Atlantic Energy Corporation, The
United Illuminating Company, Great Bay
Power Corporation, New England Power Company,
The Connecticut Light and Power Company,
Canal Electric Company, Little Bay Power                                                                           |  | Incorporated
by reference



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##### Table of Contents



|          |  |                                                                                                                                                                                                                                                                          |  |                          
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------
|EXHIBIT   |  | DESCRIPTION                                                                                                                                                                                                                                                              |  | PAGE                     
|          |  |                                                                                                                                                                                                                                                                          |  |                          
|          |  | Corporation, New Hampshire Electric Cooperative, Inc., North Atlantic Energy
Service Corporation, and FPL Energy
Seabrook, LLC regarding the sale of
Seabrook Nuclear Station (Exhibit 99(a) to
New England Power Company Form 8-K filed
April 23, 2002 File No. 7-1337) |  |                          
|         
|4(b)(i)   |  | Service Agreement  Edward Astle                                                                                                                                                                                                                                         |  | Filed herewith           
|         
|4(b)(ii)  |  | Service Agreement  Stephen Box
(Exhibit 3(ii)(a) to National Grid Form
20-F dated October 1999 File No. 1-4315)                                                                                                                                                         |  | Incorporated
by reference
|         
|4(b)(iii) |  | Employment Agreement  William E. Davis                                                                                                                                                                                                                                  |  | Filed herewith           
|         
|4(b)(iv)  |  | Service Agreement  Steven Holliday
(Exhibit 3(b)(iv) to National Grid Form
20-F dated June 2001 File No. 1-4315)                                                                                                                                                        |  | Incorporate
by reference 
|         
|4(b)(v)   |  | Employment Agreement  Richard P. Sergel
(Exhibit 2 to National Grid Form 20-F
dated June 2000 File No. 1-4315)                                                                                                                                                          |  | Incorporated
by reference
|         
|4(b)(vi)  |  | Service Agreement  Roger Urwin
(Exhibit 3(ii)(d) to National Grid Form
20-F dated October 1999 File No. 1-4315)                                                                                                                                                         |  | Incorporated
by reference
|         
|4(c)      |  | National Grid Executive Share Option
Plan 2002 and National Grid Share
Matching Plan 2002                                                                                                                                                                                |  | Filed herewith           
|         
|8         |  | List of subsidiaries                                                                                                                                                                                                                                                     |  | Filed herewith           
|         
|10(b)(i)  |  | Details of proposed merger with Lattice
Group plc                                                                                                                                                                                                                        |  | Filed herewith           
|         
|10(b)(ii) |  | Summaries of material contracts                                                                                                                                                                                                                                          |  | Filed herewith