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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 20-F

(Mark One)

REGISTRATION
  STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
  1934

or

ANNUAL
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: March 31, 2003
  or

TRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-14958

NATIONAL GRID TRANSCO PLC(Exact name of Registrant as specified in its charter)England and Wales(Jurisdiction of incorporation or organization)

1-3 Strand, London WC2N 5EH, England
  (Address of principal executive offices)

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

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

Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report:

| | Ordinary Shares of 10 pence each                       | 3,076,903,379 | 
| | ------------------------------------------------------ | ------------- | 
| | Special Rights Redeemable Preference Share
      of £1 | 1             | 



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:

Yes           No

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

Item 17Item
  18

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National Grid Transco is one of
    the worlds largest utilities, focused on delivering energy safely, reliably
    and efficiently. Annual Report andAccounts2002/03




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FinancialHighlights

Group
  turnover  £9,400m




Operating profit    £2,185m Adjusted*  £1,736m Basic




Net cash inflow from operating activities  £3,154m  Adjusted   £2,826m Basic




Earnings per share    28.3p  Adjusted*  12.7p  Basic




Ordinary dividends    17. 20p




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|    | Contents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | 02                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|04  | Chief
      Executives Review                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10  | Business
      Review                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|26  | Board
      of Directors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|29  | Directors
      Report and Operating
      and Financial Review                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|29  | Operating
      and Financial Review                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|41  | Corporate
      Governance and
      Internal Control                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|44  | Directors
      Remuneration Report                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|53  | Risk
      Factors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|55  | General
      Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|56  | Independent
      Auditors Report to
      the Members of National Grid
      Transco plc                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|119 | Shareholder
      Statistics                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|119 | Financial
      Calendar                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|57  | Accounting
      Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Cautionary
      statement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | This
      document contains certain statements that are neither reported financial
      results nor other historical information. These statements are forward-looking
      statements within the meaning of Section 27A of the United States Securities
      Act of 1933, as amended, and Section 21E of the United States Securities
      Exchange Act of 1934, as amended. Because these forward-looking statements
      are subject to assumptions, risks and uncertainties, actual future results
      may differ materially from those expressed in or implied by such statements.
      Many of these assumptions, risks and uncertainties relate to factors that
      are beyond National Grid Transcos ability to control or estimate precisely,
      such as delays in obtaining or adverse conditions contained in regulatory
      approvals, competition and industry restructuring, changes in economic conditions,
      currency fluctuations,
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Group Summary National Grid Transco
  is an international energy delivery business. We are the UKs largest investor-owned
  utility and one of the largest worldwide. We own and operate
  the gas transmission and distribution systems in Britain, which deliver gas
  to some 21 million homes, offices and factories, and the high-voltage electricity
  transmission system in England and Wales. In the US, we are a
  major electricity delivery company, with one of the largest electricity transmission
  and distribution systems in the Northeast. In addition, we operate a gas distribution
  system in upstate New York.





| |                                        |                                                                                                                       |                  |  |                                                                                                                |  |                                           |                                                              | 
| | -------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---------------- |  | -------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ------------------------------------------------------------ | 
| | Our Businesses                         |                                                                                                                       |                  |  |                                                                                                                |  |                                           |                                                             
| |                                        |                                                                                                                       |                  |  |                                                                                                                |  |                                           |                                                             
| | UK Distribution                        |                                                                                                                       | UK Transmission  |  |                                                                                                                | 
| |                                        |                                                                                                                       |                  | 
| | Gas                                    |                                                                                                                       | Electricity      |  | Gas                                                                                                            | 
| |                                        |                                                                                                                       |                  |  |                                                                                                                | 
| |                                        | 172,000
      miles of distribution pipelines                                                                         |                  |  | 4,500 miles
      of high-voltage overhead line and 400 miles of underground cable                             |  |                                           | 4,100
      miles of high pressure pipeline                  | 
| |                                        | Distributes
      gas on behalf of gas shippers and suppliers to around 21 million consumers                          |                  |  | 60 entry
      points to the network                                                                           |  |                                           | Gas comes
      ashore at six beach terminals                | 
| |                                        | Operates the
      free national gas emergency number: 0800 111 999                                                   |                  |  | 200 supply
      points to distribution companies and large users                                              |  |                                           | 150 offtake
      points for the eight distribution Networks | 
| |                                        | Around
      six million calls dealt with in 2002/03                                                                  |                  |  | 340 substations
      at around 230 separate sites                                                             |  |                                           | Gas pumped
      around the system by 24 compressors         | 
| |                                        |                                                                                                                       |                  |  |                                                                                                                |  |                                           |                                                              | 
| |                                        |                                                                                                                       |                  |  |                                                                                                                |  |                                           |                                                              | 
| |                                        |                                                                                                                       |                  |  |                                                                                                                |  |                                           |                                                              | 
| | US Transmission
      and Distribution |                                                                                                                       | Other businesses | 
| |                                        |                                                                                                                       |                  | 
| | Electricity                            |                                                                                                                       | Gas              |  |                                                                                                                |  |                                          
| |                                        |                                                                                                                       |                  |  |                                                                                                                | 
| |                                        | 14,000
      miles of electricity transmission network                                                                |                  |  | Approximately
      550,000 gas customers over a distribution network of 8,000 miles in upstate
      New York |  | Non-regulated
      businesses provide:   |                                                             
| |                                        | 3.2 million electricity
      customers over a distribution network of 72,000 miles in New York and New
      England |                  |  |                                                                                                                |  | Metering
      and meter reading services |                                                             
| |                                        |                                                                                                                       |                  |  |                                                                                                                |  |                                           | Communications
      infrastructure solutions                | 
| |                                        |                                                                                                                       |                  |  |                                                                                                                |  |                                           | Interconnectors
      between national electricity networks  | 
| |                                        |                                                                                                                       |                  |  |                                                                                                                |  |                                           |                                                              | 
| |                                        |                                                                                                                       |                  |  |                                                                                                                |  |                                           |                                                              | 
|
| |                                        |                                                                                                                       |                  |  |                                                                                                                |  |                                           |                                                              | 
| |                                        |                                                                                                                       |                  |  |                                                                                                                |  |                                           |                                                              | 













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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Chairmans
      Statement |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | National Grid Transco,
      created from the Merger of National Grid and Lattice, brought together two
      groups with world-leading reputations for operating complex energy networks.
      Combined, we are the UKs largest investor-owned utility and one of
      the largest worldwide.
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|As your Chairman, may I welcome you to
        this, our first Annual Report for National Grid Transco which was created
        last October through the Merger of National Grid and Lattice. It brought
        together two groups, both of which already had world-leading reputations
        for operating complex energy networks. Combined, we are the UKs
        largest investor-owned utility and one of the largest worldwide.
      Uniquely, our skills and strategy are
        focused on energy delivery and infrastructure. We own and operate the
        major part of Britains gas transmission and distribution systems
        and the electricity transmission system in England and Wales. We are one
        of the top ten electricity delivery companies in the US and operate a
        gas distribution network in upstate New York.
      Our vision is to develop a modern, progressive,
        forward-looking company that benefits all our stakeholders. This means
        continuing to operate and grow a safe and reliable electricity and gas
        transmission and distribution business. We do so with the conviction that
        ever greater levels of safety and efficiency, coupled with high service
        standards, can be achieved through the application of technology and innovation.
        In addition, under well-designed regulatory incentives, such gains benefit
        shareholders and consumers alike. Delivering this vision provides a safely-managed
        and stimulating environment for all our employees. We will also, very
        selectively, transfer our network skills to other similar markets when
        long-term value creation opportunities arise.
      Group results and
        dividend In our first year as National Grid Transco,
        we have been keenly focused on delivering against our published targets.
        We have made excellent progress across the Group in meeting our key operational
        goals. In both the UK and the US, our core businesses are meeting or outperforming
        against targets for reducing costs. At the same time, we are maintaining
        our solid record of delivering energy safely, reliably and with high standards
        of customer |                            | service
        as well as effectively implementing our integration plans.
      Group turnover increased
        during the year by 24%, from £7.6 billion to £9.4 billion,
        largely due to the contribution from the New York operation (Niagara Mohawk)
        of National Grid USA, which joined the Group on 31 January 2002.
      Total operating profit before
        exceptional items and goodwill amortisation for the year increased 23%,
        representing strong performance from all our regulated operations in the
        UK and US and the first full-year contribution from the New York operation.
      Adjusted earnings per share
        was 28.3 pence, down from 30.8 pence in 2001/02, the fall reflecting the
        benefit of releasing tax provisions last year.
      The Board is recommending
        a final dividend of 10.34 pence per ordinary share. This brings the total
        dividend for the year to 17.20 pence per ordinary share, a 7.2% increase
        compared with last years National Grid payment, in line with our
        aim to increase dividends per ordinary share by 5% in real terms in each
        financial year to 31 March
        2006.
      The final dividend per American
        Depositary Share (ADS) proposed by the Board is $0.8396, bringing the
        total dividend for the year to $1.3748 per ADS.
      Sound
        governance On both sides of the Atlantic, corporate
        governance practice has recently been the subject of considerable review,
        public debate and new legislation. From the outset of the Merger, the
        Board has been determined to ensure that the Group has in place the highest
        standards of corporate governance. We have also taken particular care
        to ensure that all procedures, policies and authorities, as well as the
        Board and committee structure, match these objectives. |                                                                                                                                                                                                                                                                                                  

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|Energy
        policy Energy policy continues to be high on the
        agenda in the UK, Europe and US, especially over issues regarding security
        and diversity of supply. In February 2003, the UK Government published
        a White Paper outlining its proposals for future energy policy.
      The White Paper rightly recognises the
        importance of robust and flexible infrastructure for the transmission
        and distribution of both gas and electricity to realise the Governments
        policy objectives. In the case of gas, Transcos National Transmission
        System will need to adapt to the growing proportion of gas and LNG imports
        from a variety of landing points.
      For electricity, the regulatory arrangements
        for National Grid Companys essential role in connecting the new
        sources of renewable energy to the market, and balancing their intermittency,
        will be crucial to delivery of the White Papers objectives. We are
        working closely with the Government to meet these new challenges.
      In the US, although deliberations are
        far from complete, Congress is currently considering comprehensive energy
        legislation which includes a number of provisions that are important to
        National |  | Grid USAs
        ongoing operations and business development efforts. Among other things,
        Congress is considering the repeal of the Public Utility Holding Company
        Act, which would streamline regulation in the US, and the enactment of
        several provisions that would promote electricity transmission infrastructure
        development.
      National
        Grid Transco people None of this years achievements would
        have been possible without the skills, dedication and enthusiasm of National
        Grid Transco people. I would therefore like to extend my thanks to all
        our employees for their commitment to delivering our success and willingness
        to embrace change.
      The Merger saw a number
        of changes to the Board and I am grateful to all the Directors who have
        served on the Boards of National Grid and Lattice throughout the year.
        National Grid Transco is fortunate in having a very strong and committed
        team of Directors, which was further strengthened by the addition of Nick
        Winser to the Board in April 2003 as an Executive Director. He has assumed
        responsibility for our UK and US transmission operations, having previously
        been Chief Operating Officer of our transmission operations in the US. |  | Steve Holliday, previously responsible
        for our transmission operations, has taken over as Executive Director
        with responsibility for UK gas distribution. Rick Sergel retains responsibility
        for our US distribution business. Edward Astle, responsible for our non-regulated
        businesses, is also now responsible for business development.
      Outlook
        Our Group-wide cost reduction and synergy
        creation programmes are exceeding our targets. We are confident that 2003/04
        will be another strong year for the Group.
      
      Sir John ParkerChairman | 
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Sir John Parker, Chairman (seated)
  andRoger Urwin,
  Group Chief Executive

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| | Chief
      Executives 
      Review | National Grid Transcos
      success and reputation as a world-class business depend on the safe, reliable
      and efficient delivery of energy, around the clock, 365 days a year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
| | ------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
| |                                       | Strategy National Grid Transco is one of the worlds
        leading energy delivery companies. Our core skills lie in the design,
        development, operation and maintenance of complex energy networks under
        performance-based regulatory incentives. We manage these networks to the
        highest standards of safety, reliability and customer service.
      We have also transferred our network
        skills to related markets in the UK and US.
      We aim to deliver world-class operating
        and financial performance in order to provide superior returns and grow
        value for shareholders. To achieve this we must: | 



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•
      continue to earn our reputation for
        innovation and continuous improvement to achieve leading standards of
        efficiency, safety, reliability and customer service;•
      continue the productive and professional
        conduct of regulatory relationships to deliver innovative, performance-based
        agreements which provide benefits for investors and consumers;•
      continue to develop our unique experience
        and expertise in providing the infrastructure, commercial arrangements
        and related systems that provide the essential basis for competitive electricity
        and gas markets;




•
      transfer best practices across businesses
        and functions and realise integration synergies in electricity and gas
        transmission and distribution;•
      exploit our core skills, assets and scale
        to pursue selected growth opportunities in infrastructure and related
        services; and•
      manage our businesses in accordance with
        the culture and behavioural values needed for the responsible, long-term
        stewardship of vital infrastructure assets  our
        Framework for Responsible Business.









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                                              |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | LeftTransco
      is responsible for the safety of Britains national gas pipeline system
      24 hours a day, 365 days a year. Around six million telephone calls were
      made throughout the year to the three national call centres that operate
      the free national gas emergency number  0800 111 999*.
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                                              |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Business performance
        Last year saw excellent progress in delivering
        our strategy. Each of our businesses maintained aggressive cost-cutting
        and improved efficiency, and we delivered over £140 million in real
        savings for the year ended 31 March 2003 alone. We continue to deliver
        significant outperformance in the UK electricity business and to date
        we have achieved real reductions of 22%. In our UK gas business, we met
        the first-year target to reduce operating costs by 6.3% in real terms.
        In the US, we are progressing well in integrating the New England and
        New York operations. We have already achieved a reduction of 6.5%.
      The Group has made good progress in securing
        the savings related to the National Grid and Lattice Merger. The two previous
        London headquarters were brought together on the day we completed the
        Merger, and we are in the process of moving to our new operational centre
        in Warwick.
      The combined UK gas and electricity transmission
        businesses have identified savings and efficiencies above our original
        targets. We are now confident of achieving at least £135 million
        annualised synergy savings, the great majority of which will be achieved
        by March 2004.
      UK gas distribution Our gas distribution business in the UK
        is organised into eight regional Networks and delivers gas to around 21
        million consumers. Adjusted operating profit rose by £6 million
        to £554 million and controllable costs were £26 million lower
        than in the previous year. The replacement expenditure (repex)
        on UK gas mains totalled £405 million in the year. Our performance
        under the new repex incentive mechanism has been encouraging, and we earned
        an estimated £15 million in the first year.
      Separation of Transcos distribution
        price control into eight regional price controls is well advanced, and
        Ofgem is due to |                                               | publish its final proposals
        shortly. We are also in detailed discussions with Ofgem on the many regulatory
        issues associated with the separation and potential sale of individual
        Networks. We expect Ofgem to publish a consultation document on these
        issues later this summer. However, the process will require extensive
        consultations across the gas industry, including detailed discussions
        with the HSE, which are likely to take many months to complete. We are
        committed to retaining a major presence in the UK gas distribution business
        but will consider the sale of one or more individual Networks if this
        were to maximise shareholder value.
      UK electricity and gas
        transmission The UK electricity and gas transmission
        business comprises National Grid Companys electricity transmission
        network in England and Wales as well as Transcos gas transmission
        network in Britain. The business continued to deliver strong performance,
        achieving adjusted operating profits of £846 million, an increase
        of £65 million over the previous year. Operating highlights included
        further significant reductions in controllable costs and strong performance
        under the electricity System Operator incentive scheme.
      US electricity and gas
        networks National Grid USA delivers electricity
        and gas in the northeastern US. It delivered good results, with cost-cutting
        and favourable weather conditions offsetting the impact of the sluggish
        economy, a weakened US dollar and increased pension costs. The US businesses
        contributed £699 million to adjusted operating profit, compared
        with £370 million for the previous year, reflecting a full-year
        contribution from our New York operations. Adjusted operating profit for
        electricity distribution amounted to £513 million in 2002/03, compared
        with £266 million in 2001/02; electricity transmission amounted
        to £128 million in 2002/03, compared with £87 million in 2001/02;
        and gas distribution amounted to £58 million in 2002/03, compared
        with £17 million in 2001/02. Operating profit for |  | 2001/02 included two months of results
        for Niagara Mohawk, which was acquired on 31 January 2002.
      The development of regional electricity
        markets and the associated electricity transmission restructuring in the
        US continues to make progress. In June 2002, we announced the establishment
        of GridAmerica, an independent transmission company. Following receipt
        of the remaining regulatory approvals, we expect it to begin operations
        in autumn 2003, managing the transmission assets of three midwestern utilities:
        Ameren, First Energy and Northern Indiana Public Service Company. These
        assets span over 14,000 miles of transmission lines.
      Non-regulated businesses
        Our portfolio of non-regulated businesses
        in the field of infrastructure provision and related services is selectively
        utilising our core skills and assets in areas such as metering, communications
        infrastructure, interconnectors, gas connections and property. During
        the year, we have made real progress in refocusing our non-regulated businesses
        and improving their safety and operational performance.
      Our competitive metering business, OnStream,
        was awarded four contracts by British Gas Trading (Centrica) to provide
        metering services for around 11 million domestic gas and electricity customers
        in Britain.
      We continue to make progress in developing
        Gridcom which provides communications infrastructure and related services
        to fibre and wireless network operators in the UK and northeastern US.
      We are adding to our successful interconnector
        business the £300 million Basslink project, to build, own and operate
        an interconnector between the Australian mainland and Tasmania. Final
        approval for the project from federal and state Government in Australia
        was received during the year and it is due for completion in late 2005.
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                                              |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | * All calls are recorded and may be monitored |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                      



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      Grid USA deals with weather extremes during both the summer and winter.
      In some areas last year, temperatures ranged from a high of over 37°C
      during the summer to a low of -24°C during the winter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | 
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                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 
|Our withdrawal from altnet (alternative
        telecoms network) investments is nearly complete. During the year, we
        sold our stakes in Manquehue net and Silica Networks and restructured
        our shareholding in Energis Polska. We also sold the assets of 186k, our
        fibre optic network business.
      Delivering energy
         safely The electricity and gas we deliver is essential
        to the countries and regions in which we operate. It is of paramount importance
        to us that we do so safely and we work to safeguard the public in all
        that we do.
      Across the Group, we have a goal of zero
        injuries to employees and, for the year ended 31 March 2003, the rate
        of injuries resulting in lost time decreased by up to 46% across our major
        operations compared with 2001/02. In our drive for continuous improvement,
        we investigate all incidents to ensure that the lessons are learned and
        communicated. Last year, we also audited the progress made in safety management
        since the assessment of National Grids operations in the UK and
        US by DuPont in 2001. In January 2003, we invited DuPont to carry out
        a safety assessment of Transco.
      In the UK, Transco has successfully completed
        its demanding programme to replace 1,500 miles of medium pressure mains
        made of ductile iron. We have also commenced a long-term programme to
        replace all metallic mains within 30 metres of buildings with modern polyethylene
        pipes that should reduce further the risk of gas leaks from the system.
      In the US, we have a programme under
        way to replace older bare steel and cast iron gas mains that may be at
        risk of deteriorating.
      ...with year-round
        reliability We must also deliver energy reliably, especially
        during extremes of weather. The winter of 2002/03 saw the highest demands
        for electricity and gas ever recorded in the UK. The electricity |  | transmission network in
        England and Wales carried a record 54.4 GW on 10 December 2002 
        up more than 5% from the previous peak and the largest percentage increase
        in demand since 1995.
      The record maximum daily
        demand for gas in Britain of 450 mcm was met on 7 January 2003. This also
        represented an increase of over 5% on the previous peak.
      In the US, there were extremes
        of both hot and cold weather, with temperatures that ranged from a high
        of over 37°C during the summer to a low of -24°C during the winter.
        The need for summer air conditioning and winter heating increased the
        demand for energy. In the New England region, all-time peak electricity
        demand records were set in both the summer and winter.
      The weather in the US, however,
        also included a significant number of ice and snow storms that caused
        outages, including a very severe ice storm in New York in early April
        2003 that cut off power to more than a quarter of a million of our customers.
        It is a credit to the dedication and professionalism of our employees
        that we were able to restore power quickly with many tributes received
        from the customers affected.
      and
        with high service standards We have the largest integrated gas system
        in the European Union. Through some 176,000 miles of pipeline we transport
        gas on behalf of gas shippers and suppliers to around 21 million consumers.
        We also operate the national gas emergency service. Safety-related targets
        continued to be exceeded, with 99% of uncontrolled gas escapes
        (where the gas leak cannot be controlled by turning the gas supply off
        at the meter) attended within one hour. 99% of controlled
        gas escapes (where the gas leak can be controlled at the meter) were attended
        within two hours.
      In the US, we also work
        towards service quality standards set by the state |  | regulators. During the year, we had
        mixed results in the area of reliability, which measures the frequency
        and duration of outages. While in New York and Rhode Island we met our
        targets, we fell short in Massachusetts. As a result, major construction
        efforts are under way to improve reliability in the distribution infrastructure
        through the upgrade of low-voltage power supply lines (feeders) in New
        England and the completion of four new substations.
      Customer satisfaction is higher and billing
        accuracy and efficiency have been improved in the US through our Automated
        Meter Reading (AMR) project. AMR enables us to read up to 15,000 meters
        a day using a specially equipped van, compared with approximately 400
        meters per day by a meter reader. AMR provides accurate reads, which means
        fewer customer calls about bills and fewer regulatory complaints.
      We also work closely with our customers
        in the US and UK to improve their energy efficiency. Five of the programmes
        offered in New England were among the 31 nominations selected as the nations
        best by the American Council for an Energy-Efficient Economy. In Britain,
        our Affordable Warmth programme is a leading contributor to the eradication
        of fuel poverty  a prime Government objective.
      Operating responsibly
        The past year has seen an increasing emphasis
        on the way in which companies manage their affairs and the arrangements
        they have put in place to ensure effective corporate governance.
      Our Framework for Responsible Business,
        developed with the help of our employees and external stakeholders, sets
        out the principles by which we will manage our business to deliver long-term
        value. It provides the context for our approach to corporate governance
        and is supported by Group-wide policies addressing issues such as safety,
        environment and business ethics. | 



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We are proud of our achievements
  in this area. This year we have been listed in the top 20% of the UK Business
  in the Communitys Corporate Responsibility Index and the Premier
  League of the associated environmental index. We have also been rated
  by certain fund managers as an industry leader, for our management
  of environmental and social issues. This financial year has also seen
  us enter the FTSE4Good and Dow Jones Sustainability Indices, at a time when
  these issues are taking on greater importance for the investment community. We place great emphasis on the
  relationships we have with the local communities we serve. We have established
  the National Grid Transco Foundation to bring our business expertise, knowledge
  and resources to




bear on social and environmental
  issues faced by communities. It is also the means through which our UK employees
  can become actively involved in community activities. In recent years there has been
  a shortage of skilled engineers and technicians across the UK. The Foundation
  has been involved in developing a pilot scheme to address this shortage. We
  have trained young offenders in gas distribution and streetworks and they have
  found jobs with National Grid Transco and our engineering contractors. Most encouragingly, experience
  shows that there is a dramatically reduced inclination to re-offend among these
  young people. The UK Government is therefore considering how this scheme might
  be applied nationwide, under the leadership of Sir John Parker.






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Last year we gave some £3.4 million
    ($5.4 million) to charitable causes in the US. This included support for needy
    populations through a fuel-assistance programme similar to our Affordable
    Warmth programme in Britain. It also included an educational services programme
    that distributed more than 200,000 instructional booklets on various energy
    topics to students and held more than 2,000 classroom safety presentations
    reaching more than 50,000 children.




A foundation
    for the futureWe have successfully established National Grid
    Transco as the worlds foremost company specialising in the ownership
    and operation of the advanced networks that provide the essential basis for
    competitive electricity and gas markets. Our challenge is to build on this
    achievement to the benefit of our employees, our shareholders and the millions
    of customers served by our networks.











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| | Business
      Review |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | National Grid
        Transco is an international energy delivery company. The newly merged
        Group has made excellent progress in bringing together two businesses
        both focused on the safe and efficient delivery of energy.
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| |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                             
| |                       | Introduction
        Overview of National Grid Transco
        In the UK, through Transco, we own, operate
        and develop Britains natural gas transmission and distribution systems
        which deliver gas to around 21 million consumers. Through National Grid
        Company, we own, operate and develop the high-voltage electricity transmission
        system in England and Wales. In the US, National Grid USAs distribution
        networks serve approximately 3.2 million electricity customers in the
        Northeast and 550,000 gas customers in upstate New York.
      Other electricity interests
        include interconnectors in the UK, US and under construction in Australia,
        and joint ventures operating in Argentina and Zambia.
      We have also transferred
        our network skills to related markets in the UK and US.
      Our UK gas distribution
        operation comprises eight regional Networks in Britain.
      Immediately following the
        Merger, the Group combined the management of National Grids UK electricity
        and Transcos gas transmission operations. In spring 2003, we brought
        together our UK and US transmission activities. This follows the creation
        of GridAmerica, which is expected to become operational in autumn 2003
        and to commence management of the transmission operations of three major
        power companies in the midwestern US. However, while we are reporting
        separately on UK transmission, our US transmission activities are reviewed
        as part of our US electricity and gas networks. |                                                                                                                                                                                                                                             
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      be read in conjunction with the Operating and Financial Review on pages
      29 to 40                                                                                                                    

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        working enables highly trained engineers to undertake routine maintenance
        to overhead lines, minimising the need to switch off the power supply.LeftUsing
        the latest laser guided tunnelling equipment, Transco engineers work to
        replace existing gas mains with new polyethylene pipe beneath one of Londons
        busiest trunk roads. The specially constructed 48-inch tunnel was used
        to insert the new 450 mm pipe with minimum disruption to the public.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
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                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|The UK gas industry was nationalised
        in 1948 and the British Gas Corporation was established in 1973. British
        Gas was incorporated as a public limited company in April 1986 and the
        Government sold substantially all of its shareholding in it to the public
        in December 1986. In 1997, Centrica, which was then primarily a supplier
        of gas to end users, was demerged from British Gas which was re-named
        BG. BG retained the gas transportation and storage businesses, the majority
        of the exploration and production business as well as the international
        downstream and a number of smaller businesses. In December 1999, BG completed
        a financial and restructuring programme which resulted in the creation
        of a new parent company, BG Group, and involved separating its UK regulated
        business, Transco, from its other businesses. This created a ring-fence
        around Transco designed to ensure its financial, organisational and managerial
        independence. In October 2000, Lattice was demerged from BG Group and
        comprised Transco, together with start-up telecommunications and non-regulated
        infrastructure services businesses.
      Restructuring programmes
        Prior to the Merger, Transco and National
        Grid were each in the midst of restructuring programmes. In the UK, these
        programmes were designed to meet and, where possible, outperform the regulatory
        targets set by Ofgem. In the US, as part of the acquisition process, National
        Grid negotiated rate settlements with regulators in the states where the
        companies it acquired had substantial operations.
      Transco embarked on its extensive restructuring
        programme following settlement of its price control review which took
        effect in April 2002. Since then, controllable costs have been reduced
        by 6.3% in real terms and we have delivered on our initial target of reducing
        the monthly rate of operating expenditure to the corresponding regulatory
        target by March 2003. |  | Staying Ahead
        was launched in National Grid in the UK in January 2002. It set out a
        vision of continuous improvement and of being world class in all aspects
        of the business. It also set out the strategic context for the vision,
        linking it to benefits for the business and for the individual. We have
        reduced Transmission Owner controllable costs by 22% in real terms since
        1 April 2001. We therefore remain confident that we will achieve the planned
        30% real reduction over the period to March 2006.
      Following the merger of
        our gas and electricity transmission operations in the UK, we have re-examined
        the challenges facing this business and concluded that the Staying Ahead
        vision remains valid for the combined UK transmission business. We have
        therefore extended the principles of Staying Ahead across the merged UK
        transmission organisation.
      In the US, National Grid
        USA has entered into long-term rate plans that project certain synergy
        savings and efficiency gains. The Group has set the goal of a 20% reduction
        of controllable costs in US operations over the three-year period ending
        31 March 2005. By the end of 2002/03, integration savings were being delivered
        ahead of schedule, with controllable costs having been reduced by 6.5%
        thus far.
      Merger benefits
        The newly merged Group has made good progress
        in bringing together two businesses both focused on the efficient delivery
        of energy. Our Group corporate centre functions were combined on the day
        we completed the Merger, and we are in the process of moving the majority
        of our UK business services staff to Warwick as we further consolidate
        locations. We brought together our UK gas and electricity transmission
        businesses and we are realising savings and efficiencies. We are now confident
        of achieving at least £135 million annualised synergy savings, the
        great majority of which will be achieved by March 2004. |  | UK gas distribution
        Background information The UK gas distribution business of National
        Grid Transco is operated by Transco and comprises the majority of Britains
        gas distribution system. The gas distribution system is organised into
        eight regional Networks and consists of approximately 172,000 miles of
        distribution pipelines. Gas is transported on behalf of approximately
        70 active gas shippers from the National Transmission System to around
        21 million consumers and also to third party pipeline systems. As well
        as gas transportation, Transco is responsible for the safety, development
        and maintenance of the transportation system and operates the national
        gas emergency service.
      Regulation Transco is the holder of a gas transporter
        licence for England, Wales and Scotland in respect of its gas distribution,
        transmission and metering businesses. From 1 April 2002, the UK gas distribution
        business became subject to a separate five-year price control formula.
        The formula takes into account, among other factors, operating expenditure,
        replacement expenditure, capital expenditure, cost of capital at a real
        pre-tax rate of 6.25% and transportation volumes. The price control is
        structured so that 65% of revenue is fixed and 35% varies with volumes.
        In addition, pass-through is given in respect of some of the formula rates
        the Group is liable for and Ofgems licence fees. We are currently
        working with Ofgem on disaggregating the control into a separate price
        control for each Network.
      In setting the price control, replacement
        expenditure costs were divided 50:50 between regulatory capital and regulatory
        operating expenditure. This ensures that the cost of the metallic mains
        replacement programme does not fall wholly on todays customers,
        but is shared with future customers who will also stand to benefit from
        the further improvements in safety and operational integrity. The regulatory
        treatment of replacement expenditure | 

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contrasts with the accounting treatment where all such costs are expensed (see critical accounting policies  replacement expenditure on page 37). The distribution mains replacement incentive scheme provides that if Transco outperforms cost targets, it keeps 33% of the savings as additional allowed revenues but, if it underperforms, it may recover only 50% of its
additional expenditure through additional allowed revenues. In 2002/03, Transco generated an estimated additional £15 million of allowed revenues through outperformance of the cost target. Financial performance UK gas distribution turnover for the year ended
    31 March 2003 was £2,089 million compared with £2,013 million
    in 2001/02 and £2,070 million in 2000/01. UK gas distribution adjusted operating profit for the year ended 31 March 2003 was £554 million, compared with £548 million in 2001/02 and £663 million in 2000/01. The £6
        million increase in adjusted operating profit comparing 2002/03 to 2001/02
        was mainly a result of the following:
      colder weather
        that increased turnover by £10 million;
    
    
      a £26
        million reduction in controllable operating costs; and
      an offsetting
        increase in replacement expenditure of £37 million with the commencement
        of the long-term programme to replace all metallic distribution mains
        within 30 metres of a building (see critical accounting policies  replacement
        expenditure on page 37).Principal factors
        behind the £115 million decrease in operating profit comparing 2001/02
        to 2000/01 were:
      warmer weather
        that reduced turnover by £78 million;
      a £92
        million increase in replacement expenditure; and
      a £50
        million provision for shipper related liabilities in 2000/01.


UK gas Transco transports gas for around 70
          active shippers from coastal terminals to consumersmeters, delivering gas to around 21 million consumers. Transco also
          operates the 24-hour 365 days a year national gas emergency service.Operating
          performance Gas throughput was 708 TWh in 2002/03
          compared with 697 TWh in 2001/02 and 733 TWh in 2000/01. If the weather
          had corresponded to seasonal normal temperatures, it is estimated that
          gas throughput would have been 730 TWh in 2002/03 compared with 727
          TWh in 2001/02 and 726 TWh in 2000/01.
        While there has been underlying
          growth of 2.0% in demand from domestic users (2001/02 1.0% demand growth),
          2002/03 saw a 1.6% reduction in underlying demand from business and
          other large
      
      users (2001/02
          1.0% reduction). This is attributed to higher relative gas prices compared
          to competing fuels and to the recession in manufacturing.
        The Quarterback system, which provides
          mobile workforce technology to field operations in the eight Networks,
          is on schedule for roll-out in late summer. Cumulatively to 31 March
          2003, £20 million had been spent on this system. In addition,
          we have implemented in-vehicle technology (VeSaS) to manage the performance
          and utilisation of our large vehicle fleet better and we are undertaking
          further improvement of our supply chain


Adjusted operating profit excludes the impact of exceptional items and goodwill amortisation

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RightConstruction
  of a new 43-mile, 48-inch high pressure pipeline between St Fergus Terminal
  and Aberdeen Compressor Station in Scotland is part of our investment programme
  to meet increased gas demand.Far
  rightNational Grid
  Companys
  control room for England and Wales, where supply and demand are balanced on
  a second-by-second basis in what is perhaps the most sophisticated and liberalised
  wholesale electricity market in the world.












deliveries by reducing and rationalising our
    logistics network. Investment in the network Capital expenditure on the reinforcement and
    extension of the gas distribution network was £380 million in 2002/03
    compared with £455 million in 2001/02 and £360 million in 2000/01.
    During the year ended 31 March 2003, 220,000 new connections were made to
    the gas distribution network and there was a net increase of 60,000 in the
    number of consumers. Transco has successfully completed its programme
    to replace certain medium pressure ductile iron mains and has now commenced
    the long-term programme, agreed with the HSE in 2001, to replace all metallic
    mains within 30 metres of buildings. This amounts to a potential 57,000 miles
    of mains. Ofgem has allowed £1.5 billion (2000 prices) of investment
    in the UK gas distribution price control, covering thefirstfive
    years of the programme. Fixed assets The gas distribution system in Britain comprises
    approximately 172,000 miles of distribution pipelines. Agreements with landowners
    or occupiers are only required for those pipes that cross private land, which
    are mainly local transmission mains. These agreements largely comprise perpetual
    easements or Scottish equivalents. Transco owns the freeholds of the substantial
    majority of its operational sites where there are larger operational plant
    and gas storage facilities. Around 80% of office
    buildings, depots and stores occupied by the UK gas distribution business
    are leased from another National Grid Transco company, SecondSite Property.
    Other offices
    and depots, including Transcos
    principal offices at 31 and 35 Homer
    Road in Solihull, are leased from third parties. UK electricity and gas
    transmission Background information The UK transmission business comprises the
    high-voltage electricity transmission




system in England and Wales and
    the gas transmission system in Britain. It owns and operates electricity assets
    consisting of approximately 4,500 miles of overhead line, about 400 miles
    of underground cable and some 340 substations at around 230 separate sites.
    Day-to-day operation of the electricity transmission system involves the continuous
    matching of generation output with demand, ensuring the stability and security
    of the power system and the maintenance of satisfactory voltage and frequency.
    The business also owns and operates the national gas transmission system comprising
    approximately 4,100 miles of high pressure pipe, six beach terminals and 24
    compressor stations, connecting to Transcos
    eight distribution Networks and third party independent systems for onward
    transportation of gas to end consumers. The UK transmission
        business now comprises four separately regulated businesses:
      Electricity Transmission
        Owner;
      Electricity System Operator;
      Gas Transmission Owner;
        and
      Gas System Operator. The Transmission Owner (TO)
    activity involves the ownership and maintenance of the physical assets, developing
    the networks to accommodate new connections/disconnections, managing a programme
    of asset replacement and investment to ensure the long-term reliability of
    the systems. The System Operators (SO) undertake
    a range of activities necessary for the successful delivery in real time of
    secure, reliable and efficient
    energy and the continuous balancing of supply and demand. The electricity
    and gas SOs are subject to a number of separate regulatory incentive schemes,
    many of which are rebased on an annual basis. We also own and operate the
    electricity interconnectors between England and Scotland and between England
    and France.




In February 2003, the UK Government
    published a White Paper outlining its proposals for future energy policy.
    This highlights four goals in terms of reducing carbon emissions, maintaining
    reliability and security of energy supplies, continuing to promote a market-based
    framework for the energy sector and ensuring affordable warmth for consumers.
    Gas is acknowledged as continuing to form a large part of the energy mix beyond
    2020 and the Government sets an aspirational target of 20% renewables by 2020,
    as well as aiming for significant
    increases in energy efficiency. The White Paper recognises the importance of robust andflexible infrastructure for the transmission and distribution of both gas and
electricity to realise the Governments policy objectives. In the case of gas, Transco's National Transmission System will need to adapt to the growing proportion of
gas imports from a variety of landing points and LNG sources. It will further need to do so in a timescale which will accommodate new patterns of gas transmission in Continental Europe and the UK. In the case of electricity, the White Paper
recognises that regulatory arrangements are crucial to the ability to deliver the necessary network infrastructure to support a major increase in renewable generation. Under the proposed European Directives on electricity and gas liberalisation, July 2004 has been set as the deadline for the introduction of full competition in the industrial and commercial sectors of
Europes gas and electricity markets; and July 2007, as the deadline for full domestic competition. Another draft Directive proposes common standards relating to the
security of gas supplies and coordination of emergency arrangements in the event of a supply disruption. Work on contingency planning in the event of such incidents in the UK has already taken place.





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      national control centre, gas pressures and flows are monitored to ensure
      the continuous balancing of supply and demand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | 
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|                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|                                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | TORevenue 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, which was introduced on
        1 April 2001 and is expected to remain in force until 31 March 2006, takes
        into account, among other factors, operating expenditure, capital expenditure
        and cost of capital at a real pre-tax rate of 6.25%. National Grid Company
        is permitted to set 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.
      SOAs
        System Operator, National Grid Company is responsible for the operation
        of the high-voltage electricity transmission system across England and
        Wales including the procurement and use of balancing services. Revenue
        from charges for provision of balancing services is regulated under an
        incentive scheme, where benefits
        of cost savings in system operation are shared with customers. Legislation
        is being prepared to introduce the British Electricity Transmission and
        Trading Arrangements (BETTA), following which a single system operator
        for the entire GB transmission system (theGBSO)
        will be appointed. The Department of Trade and Industry has announced
        that it is minded to award the GBSO role to National Grid Company.
      Gas
        The UK gas transmission business is undertaken
        under the terms of Transcos
        gas transporter licence. From 1 April 2002, the UK gas transmission business
        became subject to two separatefive-year
        price control formulae in respect of its TO and SO activities. The formulae,
        which last until March 2007, take into account, among other factors, operating
        expenditure, capital expenditure, cost of capital at a real pre-tax rate
        of 6.25% and transportation volumes. In addition, pass-through is given
|UK electricityNational Grid Company transports electricity
        and balances the system on a second-by-second basis, delivering electricity
        from generators and interconnectors to 12 regional electricity companies
        for local distribution to over 24 million consumers and directly to a
        small number of large industrial users. |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
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|                                                                                                                                                                                                                                                                                                                                                              | RegulationThe electricity and gas TOs
        are regulated by separatefive-year
        RPI-X price controls, currently until 2006 for electricity and 2007 for
        gas.
      Electricity
        National Grid Company is the sole holder
        of an electricity transmission licence for England and Wales and owns
        and operates the high-voltage electricity transmission system. We have
        a statutory duty under the Electricity Act 1989 (as amended by the Utilities
        Act 2000) to develop and maintain an efficient, |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | coordinated and economical
      system of electricity transmission and to facilitate competition in the
      supply and generation of electricity. Under the terms of the transmission
      licence, National Grid Company 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. Use of system
      charges are levied in respect of the provision of transmission assets/infrastructure
      (the TO activity) and for operating the system (the SO activity). | 
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | LeftNational Grid
      USAs training centre in Massachusetts
      houses more than a dozen classrooms, conference rooms
      and hands-on skills training areas. The centre includes
      outdoor laboratories where students train on overhead and
      underground electricity distribution equipment such as
      transformers, poles and a working substation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|in respect
        of formula rates and Ofgems
        licence fees attributable to the gas transmission business.
      The SO price control includes
        a series of incentive arrangements such that if performance exceeds the
        targets set in the licence, Transco retains a share of the benefits, and vice versa. The incentives primarily cover the
        costs of managing capacity constraints, the costs of purchasing shrinkage
        gas and Transcos own operating costs. Investment incentives are also included
        in the licence and are expected to increase in significance
        over time.
      Financial
        performanceTotal adjusted operating profit for the
        UK electricity and gas transmission business for the year ended 31 March
        2003 was £846 million, compared with £781 million in 2001/02
        and £756 million in 2000/01. For the year ended 31 March 2003, this
        includes:  £551
        million from electricity transmission;  £274
        million from gas transmission and LNG; and  £21
        million from interconnectors.
      UK transmission performance
        last year underlines our ability to operate and manage complex transmission
        networks in an incentive-based regulatory environment. Specifically, we have:  earned
        SO incentive scheme profits
        of £49 million in electricity and £12 million in gas; and  delivered
        TO controllable cost reductions of 14% in electricity.
      Electricity transmission
        Financial performance
        UK electricity transmission turnover for
        the year ended 31 March 2003 was £1,341 million, compared with £1,285
        million in 2001/02 and £1,316 million in 2000/01.
      UK electricity transmission adjusted
        operating profit
        for the year ended 31 March 2003 was £551 million, compared with
        £523 million in 2001/02 and £486 million in 2000/01. |  | The £28 million increase
        in adjusted operating profit
        in 2002/03 was mainly as a result of the following:
        reduction
        in TO controllable costs of 14%, totalling 22% since the commencement
        of the current price control, keeping us on track to deliver cost reductions
        in excess of 30% over the price review period; and
        SO
        incentive scheme profits
        of £49 million, including £45 million from the Balancing Services
        Incentive Scheme (BSIS).
      The increase in adjusted
        operating profit
        of £37 million comparing 2001/02 to 2000/01 was due to improved
        SO incentive scheme performance and reductions in TO controllable costs.
      Operating
        performanceThe winter of 2002/03 saw the highest demand
        for electricity ever recorded on the transmission network in England and
        Wales, with a record 54.4 GW on 10 December 2002. This compared with the
        previous peak recorded on 3 January 2002 of 51.5 GW.
      We have more than halved
        the electricity losses incurred due to plant failure and improved the
        average annual availability of the electricity network for use from 95.4%
        to 95.8%. System availability at winter peak demand was 98.8% in 2002/03,
        compared with 98.3% in 2001/02.
      Gas transmission
        Financial performance
        UK gas transmission turnover for the year
        ended 31 March 2003 was £567 million, compared with £528 million
        in 2001/02 and £501 million in 2000/01.
      UK gas transmission adjusted
        operating profit
        for the year ended 31 March 2003 was £274 million, compared with
        £238 million in 2001/02 and £227 million in 2000/01.
      The £36 million increase
        in adjusted operating profit
        in 2002/03 was mainly |  | as a result
        of higher income from system entry capacity auctions.
      The £11 million increase
        in adjusted operating profit
        comparing 2001/02 to 2000/01 was also as a result of an increase in income
        from system entry capacity auctions, partly offset by an increase in the
        price of gas used in operating the system.
      Operating performance
        The winter of 2002/03 also saw the highest
        demand for gas, with a record maximum demand of 450 mcm on 7 January 2003.
        This compared with the previous peak recorded on 2 January 2002 of 427
        mcm.
      There has been an increase in 2002/03
        of more than 17% in the mean time between compressor failures building
        on the 27% increase achieved in 2001/02. We have also reduced by a third
        the time compressors are taken out of service by improving the efficiency
        with which maintenance is carried out or enhancements made.
      Investment in the networks
        Capital investment on the reinforcement
        and extension of the UK electricity transmission system and interconnectors
        in 2002/03 was £391 million, compared with £381 million in
        2001/02 and £364 million in 2000/01.
      Capital investment on the reinforcement
        and extension of the gas transmission network in 2002/03 was £182
        million, compared with £239 million in 2001/02 and £228 million
        in 2000/01.
      Interconnectors Operating profit
        from the UK interconnectors for the year ended 31 March 2003 was £21
        million, compared with £20 million in 2001/02 and £44 million
        in 2000/01.
      Fixed assets Agreements with landowners or occupiers
        are required for the overhead lines and

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                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        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      and where the gasflow is
      monitored and quality checked before it is transported throughout Britain
      via Transcos National Transmission System.LeftNiagara
      Mohawk, which serves 550,000 gas customers in upstate New York, has a programme
      under way to replace older bare steel and cast iron mains that may be at
      risk of corrosion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|underground cables which make up our
        electricity network in England and Wales. Approximately 80% of agreements
        are in the form of terminable wayleaves. The remaining 20% 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 electricity
        substations are split between freehold and leasehold. Of the leasehold
        sites, the large majority are substations located on the premises of generators
        and are held on long-term leases for nominal rental payments. Of the remaining
        sites, most are held as ground rents (market price payable for land only)
        from the respective landlords, who include electricity distribution companies.
      National Grid Company also owns the freehold
        of its control centre in Berkshire and the learning and development centre
        at Eakring in Nottinghamshire. It has major offices in Coventry (leasehold), Warwick (leasehold) and
        Leeds (freehold).
      The gas transmission system in Britain
        comprises approximately 4,100 miles of high pressure national transmission
        pipelines. Transcos
        interest in these pipelines is legally protected although the legal protection
        is slightly different in Scotland from that in England and Wales.
      In England and Wales, Transcos
        interest in the pipelines is legally protected by both private easements,
        entered into with third party landowners, and by statutory rights. 99%
        of all associated sites are owned outright through a freehold purchase
        process, with the remainder covered by long-term leasing arrangements.
      In Scotland, Transcos
        interest in the pipelines is protected by deeds of servitude as well as
        statutory rights. 95% of all associated sites are owned outright through
        a disposition purchase process. The remaining associated sites are owned
        through a feudal disposition where an outright purchase has been made
        but the previous owner retains specified rights, for example
        mineral or forestry rights. |  | Transco has three Commercial
        Lettings, at St Fergus to Shell and Mobil, and at Theddlethorpe to ConocoPhillips.
        Any land issues impacting on normal agricultural activity local to pipelines
        and their associated easement or servitude are covered by national agreements
        with the National Farmers Union, the Country Land and Business Association
        of England and Wales, and the Scottish Landowners Association.
      US electricity
        and gas networksBackground informationIn the US, National Grid Transco, operating
        as National Grid USA, is one of the leading electricity distribution and
        transmission service providers in the northeastern US, by reference to
        energy delivered and length of transmission network, and one of the ten
        largest utilities in the US, as measured by the number of electricity
        distribution customers. Electricity distribution serves approximately
        3.2 million customers over a network of 72,000 miles. Electricity transmission
        maintains a network of 14,000 miles, which includes a high-voltage direct
        current (DC) transmission line of 139 miles. Gas distribution serves around
        550,000 customers over a network of 8,000 miles.
      National Grid USA provides
        electricity distribution and transmission and gas distribution in New
        York through its subsidiary Niagara Mohawk Power Corporation. It provides
        electricity distribution in New England through its subsidiaries Massachusetts
        Electric Company, Nantucket Electric Company, The Narragansett Electric
        Company and Granite State Electric Company. It provides electricity transmission
        in New England through its subsidiary New England Power Company.
      US regulatory environmentFederal and state mandates have encouraged
        the separation of generation from transmission and distribution in order
        to promote competition and reduce prices to customers. National Grid USA
        has divested substantially all its generation |  | assets and operates primarily in the
        transmission and distribution sectors.
      The company provides electricity distribution
        in upstate New York and New England and gas distribution in upstate New
        York. The company also provides electricity transmission in upstate New
        York and New England. Broadly speaking, distribution service is regulated
        by a states
        public utilities authority and transmission service is regulated by the
        Federal Energy Regulatory Commission (FERC).
      As a result of our ownership of several
        US public utility companies, National Grid Transco is a registered public
        utility holding company under PUHCAthe Public Utility Holding Company Act of 1935. The implications
        of registration as a holding company include, among other things, various
        conditions and limitations relating tofinancing, subsidiary company transactions, ownership of
        non-utility businesses and the requirement for SEC consent for further
        US utility acquisitions. The non-US operations of the Group are exempt
        from full regulation under PUHCA.
      Distribution rate regulationMulti-year rate plans cover substantially
        all the companys
        gas and electricity distribution revenue. National Grid USAs rate plan
        for a given jurisdiction is set with that states
        public utilities authority. Although each state operates independently
        and the rate plans are different, the plans have common elements. Key
        among them is theflow-through
        to customers of the commodity costs of generation, along with the recovery
        of costs associated with the divestment of generating assets, calledstranded
        costs. Comprehensive
        service quality standards are a feature of the companys
        rate plans, with the risk of penalties for failure to meet certain goals
        and, in some cases, the potential for reward if services exceed standards.
        Efforts to control costs are rewarded through shared savings mechanisms
        that allow the company to retain a portion of the savings achieved. In
        certain

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      network in order to maintain reliable electricity services to 3.2 million
      customers in the northeastern US.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
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                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|jurisdictions, earnings are
        shared with customers upon reaching a particular percentage return on
        equity. The plans permit National Grid USA, or the relevant state, to
        seek adjustments to rates in the case of extraordinary events.
      Massachusetts distribution
        rates (Massachusetts Electric Company and Nantucket Electric Company)Under the Massachusetts Electric distribution
        rate plan approved by the Massachusetts Department of Telecommunications
        and Energy, distribution rates were reduced by $10 million on 1 May 2000
        and will remain frozen until the end of February 2005. From March 2005
        to the end of December 2009, distribution rates will be indexed to the
        average of distribution rates of similarly unbundled investor-owned utilities
        in New England, New York, New Jersey and Pennsylvania. Massachusetts Electric
        has agreed that increases in its distribution rates will initially be
        capped at 90% of the regional average. Based on a predetermined formula,
        annual savings related to Massachusetts Electrics acquisition by
        National Grid that are achieved up to the end of 2009 will be calculated
        and shared equitably with customers from January 2010 until May 2020.
      Nantucket Electrics
        distribution rates are linked to Massachusetts Electrics rates and became effective on 1 May 2000.
      Rhode Island distribution
        rates (The Narragansett Electric Company)Under the rate plan for Narragansett Electric
        approved by the Rhode Island Public Utilities Commission (RIPUC), distribution
        rates were reduced by approximately $13 million on 1 May 2000 and will
        remain frozen until 31 December 2004. During the rate freeze, Narragansett
        Electric is permitted to retain earnings up to 12% return on equity. Any
        earnings between 12% and 13% will be shared equally with customers. If
        earnings exceed 13%, the excess will be divided between customers and
        the company, with customers receiving 75%. |  | From 1 January
        2005, distribution rates will be set by the RIPUC in accordance with Narragansett
        Electrics
        cost of service. From that date until the end of 2019, the company will
        be able to include in its cost of service half of any proven savings achieved
        since the merger of two former distribution companies that belonged to
        Eastern Utilities Associates (EUAwhich became part
        of the Group in 2000) with Narragansett Electric. Narragansett Electric
        willfile
        evidence of the EUA merger savings with the RIPUC in 2003 and these savings
        will be subject to further verification
        in 2007.
      New Hampshire
        distribution rates (Granite State Electric Company)The current rates for Granite State Electric
        are subject to regulation by the New Hampshire Public Utilities Commission
        and became effective in July 1998.
      New York
        distribution rates(Niagara Mohawk Power
        Corporation)Niagara Mohawks
        distribution rates are regulated by the New York State Public Service
        Commission (NYPSC).
      As part of the regulatory
        approval process for the acquisition of Niagara Mohawk, a 10-year rate
        plan was approved by the NYPSC on 28 November 2001, which became effective
        on 31 January 2002. Electricity delivery rates were reduced by $152 million
        and are subject to only limited adjustments for a period of 10 years.
        However, Niagara Mohawk will continue to be able to adjust rates to recover
        the full commodity costs of generation. Under the plan, after reflecting
        its share of savings related to the acquisition, Niagara Mohawk may earn
        a return on equity of up to 11.75%, or 12.0% if certain customer education
        targets are met. Returns above this level are then subject to a sharing
        mechanism with customers.
      The 10-year rate plan also
        provides for a freeze on gas delivery rates until the end of 2004, but
        permits Niagara Mohawk to pass through to customers gas commodity and
        transportation costs. |  | Niagara Mohawk may earn a
        threshold return on equity of up to 10%, or 12% if certain customer migration
        and education goals are met, and is required to share with customers earnings
        above this threshold.
      Transmission rate regulationA portion of the electricity transmission
        business is regulated at the federal level by the FERC where the company
        is allowed to recover the costs of providing transmission services, with
        a return on capital. In New York, the transmission business is regulated
        by the state with provisions similar to the distribution regulation outlined
        in the distribution rate regulation section on page 16.
      Regional Transmission
        Organisations (RTOs)The transmission sector in the US is undergoing
        fundamental structural change. In its Order 2000, the FERC required electricity
        utilities to file proposals for transferring to RTOs the management of transmission
        assets and the tariffs setting out the rates, terms and conditions of
        transmission service. National Grid USA is currently a member of two independent
        system operators (ISOs), ISO New England Inc. and New York ISO, which
        administer the markets and provide oversight of transmission in their
        respective regions. The FERC has not yet determined the shape of the RTO
        or RTOs that will cover the New England and New York regions. Within the
        New England and New York regions, National Grid USA is discussing with
        other transmission owners the possible formation of an independent transmission
        company (ITC) within an RTO. This ITC would manage transmission assets
        and tariffs within a for-profit
        business model, as opposed to a typically not-for-profit
        RTO. In other regions of the US, National Grid USAs
        participation may involve the acquisition and operation of the transmission
        assets of participants in RTOs.
      The electricity markets and transmission
        grid in the midwestern US are currently managed by the Midwest Independent

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System Operator
  Inc. (MISO), which has been approved by the FERC to operate as an RTO. In June
  2002, National Grid USA announced the formation of GridAmerica as a result of
  an agreement with Ameren, First Energy, Northern Indiana Public Service Company
  and MISO. Under the agreement, GridAmerica is to act as an ITC within MISO,
  managing the transmission assets of the companies within MISO on an annual fee
  basis. The agreement allows the transmission-owning companies to sell their
  assets to GridAmerica for cash and stock. Pending fi nal
  federal and state approvals, the company expects to begin managing the transmission
  systems of the three utilities in autumn 2003.    Financial performanceThe following average exchange
      rates havebeen used in translating
      the US financialresults for the following
      periods:2002/03
    £1 =
    $1.5902001/02
    £1 =
    $1.4402000/01
    £1 =
    $1.483  Turnover for National Grid USA was as follows:
   electricity distribution: £3,446 million in 2002/03, compared with £2,282 million in 2001/02 and £1,854 million in 2000/01;
   electricity transmission: £407 million in 2002/03, compared with £278 million in 2001/02 and £243 million in 2000/01; and
   gas distribution: £446 million in 2002/03, compared with £104 million in 2001/02 and none in 2000/01. The summary above includes two months of results
  for Niagara Mohawk (this acquisition was completed on 31 January 2002) in the
  comparativefigures for the year ended
  31 March 2002. Adjusted operating profit
  for National Grid USA was as follows: Group undertakings:
    electricity distribution:
      £513 million in 2002/03, compared with £266 million in 2001/02
      and £215 million in 2000/01;





    electricity transmission:
      £128 million in 2002/03, compared with £87 million in 2001/02
      and £72 million in 2000/01; and
    gas distribution: £58
      million in 2002/03, compared with £17 million in 2001/02 and none
      in 2000/01.  Joint ventures
      and associate:
    Nuclear generation and other
      joint ventures: £2 million in 2002/03, compared with £6 million
      in 2001/02 and £8 million in 2000/01. The summary above includes two
  months of results for Niagara Mohawk (this acquisition was completed on 31 January
  2002) in the comparativefigures for the year ended 31 March 2002. Operating profit
  increased by £363 million (net of exchange rate) in 2002/03 over 2001/02
  primarily due to thefirst full year of results
  from the Niagara Mohawk acquisition. Exchange rate impact on the 2002/03 results
  was a loss of £34 million based on the 2001/02 average exchange rate.
  This analysis excludes ten months of Niagara Mohawk operating profit
  since there are no comparablefigures for the prior year. Operating profit
  increased by £72 million (net of exchange rate) in 2001/02 over 2000/01
  primarily due to thefirst two months of results
  from the Niagara Mohawk acquisition. Exchange rate impact on the 2001/02 results
  was a gain of £11 million based on the 2000/01 average exchange rate. National Grid Transcos electricity
  deliveries grew in the US, normalising for weather and billing days, in 2002/03
  by 0.6% and in 2001/02 by 0.3%. This was despite a weak economy that has seen
  companies in many industries reduce in size or even close down, resulting in
  a downturn in commercial demand for energy which is expected to continue. In
  2002/03, the Group was aided by weather that was hotter than normal during the
  summer and








colder than normal during the winter,
  causing an increase in energy use to run air conditioning and heating systems.
  This amounted to £34 million more turnover than normal in the 2002/03
  financial year. By contrast, 2001/02 weather was cooler than normal during the
  summer and warmer than normal during the winter, causing a decrease in energy
  use to run air conditioning and heating systems. This amounted to £2 million
  less turnover than normal in 2001/02 exclusive of Niagara Mohawk.  Pension and post-retirement health costs adversely impacted the 2002/03 results, increasing by £8 million over 2001/02 exclusive of Niagara Mohawk. Beginning with the acquisition of Niagara Mohawk, the Group developed a goal for its US operation to reduce controllable costs by 20% in real terms by the 2004/05 financial year. Substantial progress was made in
2002/03, reducing these costs by 6.5% in real terms. Operating performance We work toward service quality standards that
  the state regulators expect us to achieve. If we fall below a prescribed standard,
  we can incur a penalty. If we do better than the standard, we can in certain
  cases achieve an incentive. In the area of reliability, which measures the frequency
  and duration of outages, we had mixed results, with Niagara Mohawk and Narragansett
  Electric meeting their targets but Massachusetts Electric falling short and
  incurring a £3 million penalty. Massachusetts
  Electric, however, partially offset the penalty with £0.7 million in incentives
  for above average performance related to customer service. On the other hand, gains in customer satisfaction, and billing accuracy and efficiency have been realised through the Automated Meter Reading
(AMR) project. With AMR the company is now able to read a customers meter automatically using


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Left National
  Grid USA has introduced Automated Meter Reading (AMR), which allows customers  meters to be read using radio signals transmitted to a computer in a company
  van. This enables up to 15,000 meters to be read compared with 400 meters per
  day by a meter reader.













radio signals
  transmitted to a computer in a company van, rather than walking to every meter.
  AMR enables up to 15,000 meters to be read compared with 400 meters per day
  by a meter reader. New England distribution completed its AMR installations
  in December 2002. New York distribution began its AMR installations in October
  2002. AMR provides accurate monthly reads, which means fewer customer calls
  about bills, fewer regulatory complaints and fewer re-reads of meters.   Investment in
      the networksCapital investment on the reinforcement and
        extension of the electricity and gasnetworks
        in 2002/03 was:
    electricity distribution: £209 million, compared
      with £141 million in 2001/02 and
      £94 million in 2000/01;
    electricity transmission: £49 million, compared with £38 million in 2001/02 and
      £30 million in 2000/01; and
    gas distribution: £40 million, compared with
      £3 million in 2001/02 and none in 2000/01. Electricity distribution included spending to establish AMR of £39 million in 2002/03 compared to £29 million in 2001/02. The summary above includes two months for Niagara Mohawk in 2001/02. Nuclear facilities National Grid USA no longer holds an ownership
  interest in any operating nuclear facility. During the pastfinancial
  year, the Group sold its interests in the Seabrook Nuclear Generating Station
  and the Vermont Yankee Nuclear Generating Station. As part of these transactions,
  the respective buyers assumed the decommissioning liability for these plants.
  The majority of the net proceeds from the sales will be credited to customers
  through contract termination charges.








National Grid USA holds minority
  interests in three nuclear power companies (the Yankees): Yankee Atomic Electric
  Company, Maine Yankee Atomic Power Company and Connecticut Yankee Atomic Power
  Company. Each of the Yankees owns a nuclear generating unit, all of which have
  been permanently shut down. The company is liable for its share of the decommissioning
  costs of these shut down nuclear generating units. Decommissioning costs include
  the costs of decontaminating and dismantling the units, spent fuel storage,
  security, insurance and other costs. National Grid USA pays its share of these
  projected costs through power purchase agreements with the operators. It is
  permitted to recover prudently incurred decommissioning costs from its customers
  through contract termination charges.  Although the US Department of
  Energy is responsible for the disposal of spent nuclear fuel, it has not established
  a depository for it, nor has it estimated a date by which it will. Many utilities,
  including the Yankees, are plaintiffs in ongoing litigation related to the Department
  of Energys
  failure to accept spent nuclear fuel. Any recovery from the proceedings, after
  litigation expenses and taxes, will be returned to customers through contract
  termination charges. Fixed assets Substantially all National Grid USAs
  properties and franchises are subject to the liens of indentures under which
  mortgage bonds have been issued. The majority of transmission lines are located
  on 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. National Grid USA owns in fee the offices
  in Westborough and Northborough, Massachusetts and in Syracuse and Albany, New
  York.








Other businesses  The Group has successfully exited from most of
  its alternative telecoms network (altnet) businesses during 2002/03. Signi fi cant
  progress has also been made in re-focusing the portfolio of other non-regulated
  businesses.  The adjusted operating profit for Group undertakings within other activities for the year ended 31 March 2003 was £117 million compared
with £179 million in 2001/02 and £203 million in 2000/01. Included within the other activities are the businesses below. Metering Our UK Metering businesses provide installation,
  maintenance and meter reading services to gas shippers, including British Gas.
  The businesses have a national footprint and established skills in managing
  a large asset base and workforce. The major focus during 2002/03 has been to respond to the challenges of competition, which is developing in the UK metering market. Currently, nearly all Britains approximately 20 million domestic gas meters are owned by Transco, which receives revenue regulated under its price control. In the competitive market, newly installed meters are provided by the metering companies that
install them. Our priorities are to continue to provide the services for our currently installed base of gas meters, and to take advantage of the opportunities in the emerging competitive market for new gas and electricity meters. In January 2003, National Grid Transco announced that its Metering business, OnStream, had been awarded afive-year contract with British Gas
Trading (Centrica) to provide competitive metering services in four UK regions for around 11 million domestic gas and electricity customers.






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      towers can accommodate multiple telecommunications operators by site sharing.
      It actively promotes such site sharing to UK mobile operators to prevent
      a proliferation of masts and lessen the impact on the environment.
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Gridcom Gridcom provides communications infrastructure
        solutions tofibre
        and wireless network operators in the UK and northeastern US. In the UK,
        the merger of the mobile infrastructure activities of National Grid and
        Lattice has been successfully completed. In the US, the newly established
        Gridcom business and NEESCom are now operating under the same management
        team.
      Gridcom builds, leases and operates sites
        for the base stations and radio masts needed by mobile operators, leveraging
        the Groups
        project management skills and electricity and gas infrastructure. In the
        US, it also offers darkfibre
        and related facilities to telecoms operators.
      Demand has been depressed during 2002/03
        in both UK and US markets, because of delays in the roll-out of 3G (third
        generation) mobile phones and the operatorsmajor reductions in capital expenditure.
      Fulcrum Connections Fulcrum Connections was established in
        July 2001 in response to Ofgems
        drive to introduce competition into the gas connections market. During
        2002/03, it has provided gas connection services on behalf of Transco
        to around 130,000 new domestic and industrial consumers.
      Fulcrums
        short-term objectives are to improve performance against its contract
        with Transco in readiness for the development of competition. Transco
        is |  | working with Ofgem to remove
        the barriers to the development of competition in the connections market.
        In view of this, the management of Fulcrum has begun a programme to reducefixed costs and improve
        management controls.
      SecondSite Property
        SecondSite Propertys
        principal activity is the management, clean-up and disposal of surplus
        non-operational properties (including former Transco and National Grid
        sites in the UK), largely comprising contaminated former gas works. SecondSite
        aims to tackle the historic legacy of gas manufacture on our sites so
        that they can be reclaimed and returned to beneficial community use.
      During the year ended 31
        March 2003, SecondSite Property Portfolio Ltd disposed of 66 properties
        and generated £85 million in disposal proceeds, compared with 67
        properties and £107 million in 2001/02 and 75 properties and £140
        million in 2000/01.
      Advantica
        Advantica provides technology-based solutions
        to Transco, other utilities and pipeline operators worldwide. Following
        last years
        acquisition of software and technology company Stoner, the company now
        operates in the US as well as Europe.
      After a review, Advantica
        has been defined
        as non-core and its management has taken action to reduce costs, prepare
        the company for disposal and to seek a purchaser for the business. |  | Discontinued operationsExit from altnet businesses During 2002/03, we successfully completed
        our exit from a number of altnet businesses in the UK and South America186k, Silica Networks and Manquehue net. We reduced our interest in Energis
        Polska and progressed our exit from Intelig, Urband and Bulldog. We will
        not provide any additional funding to these businesses over and above
        existing provisions and remain confident that we
        will complete our exit from them within the provisions that we have announced.
      Sales During 2002/03, we sold The Leasing Group
        and put Lattice Energy Services up for sale. Connections +, which formed
        part of Lattice Energy Services, was sold in April 2003.

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Operating
      responsiblyAchievements
    Introduction of Framework
      for Responsible Business
    Top quintile in BitCs
      1st Corporate Responsibility Index
      Constituent
        of FTSE4Good and Dow Jones Sustainability Indices In merging National Grid and Lattice we recognised that it was essential to build on the approach to corporate responsibility that both companies had been developing in recent years. In doing so, we have implemented an
approach which represents a step change in how companies can operate responsibly. Our approach has gained external recognition through our listing in the topfifth of
Business in the Communitys (BitCs) 1st Corporate Responsibility Index and the
FTSE4Good and Dow Jones Sustainability Indices. We recognise that as one of the worlds largest utilities we have long-term responsibilities that form an important part of our wish to
create value for our shareholders. We believe it is important to inform our shareholders and the wider community, not just about what we do as a business buthowwe
do business. In this section of the Annual Report and Accounts we include material on the non-financial components of our business. Fuller details of policies and materials
referred to in this section can be accessed via our website, www.ngtgroup.com. The material in this section of the report has been independently verified by an external
consultant, URS Verification Ltd, and their verification statement is published on page
110. Our Framework for Responsible Business
    Our Framework for Responsible Business (theFramework)
    defines
    the sort of business we are, sets the context in which we operate, and helps
    us achieve the right balance between economic, environmental and social factors.




We have built our Framework around three
        goals that clearly define
        our desire to be a company with a long-term future:  Sustainable
        growth
      We are constantly looking
        to expand and grow our business by transferring our skills to new markets.
        Growth needs to be sustainable if we are to bring long-term value to our
        shareholders and others.Profits with
        responsibility
      For our business to be sustainable,
        we must be profitable.
        However, increasing our profitability at any cost
        is neither sustainable nor acceptable. We therefore have to be responsible
        in the way in which we generate our profits.Investing
        in the future
      As a responsible business,
        our commercial success enables us to invest in the future in a way that
        benefits
        our shareholders, our employees, the environment and society. This investment
        is a reflection
        of our desire to be a long-term business.Driving our
        governance Achievements
      Governance approach linked
        to Framework for Responsible Business
      Implementation of new Group-wide
        policies
      Establishment of new Board
        Risk and Responsibility Committee In a climate where the governance
    arrangements in large companies are increasingly under scrutiny, the Board
    has implemented a transparent approach, driven by our Framework and underpinned
    by a suite of policies. Our assurance processes are intended to provide the
    Board with a rigorous assessment of the robustness of management controls. Our Group-wide
    policies In December 2002, the Board approved Group-wide
    policies, procedures and an external position statement, on electric and magneticfields,
    supporting key areas of




Far
        LeftSchoolchildren
        visiting National Grid Companys recently renovated Bramley Frith
        Environmental Education Centre near Basingstoke in Hampshire, UK, where
        they learn about environmental issues and biodiversity. The new facilities
        include a number of energy-efficient features, plus offices, a library
        and a staff workroom.LeftPaper-making
        at National Grid Companys
        Pelham Centre for the Environment, Hertfordshire, UK. In addition to term-time
        visits, schoolchildren can attend holiday play schemes where activities
        boost their awareness of the natural world. the Framework.
        The policies establish common principles by which we will manage these
        issues across all our operating businesses. Where we are involved in a
        joint venture, we will encourage our partners to adopt policies and practices
        consistent with the principles we have established.Board
        Risk and Responsibility CommitteeOverall responsibility for matters
        of corporate responsibility rests with the Board which has established
        the Risk and Responsibility Committee chaired by James Ross, Deputy Chairman,
        to ensure that these areas are reviewed in appropriate depth. The Committee
        has responsibility for reviewing the non-financial risks, strategies,
        policies, management, targets and performance of the Group, and where
        appropriate our suppliers and contractors, in the following areas:
      Occupational and public
        safety
      Occupational health
      Environment
      Equality and diversity
      Human rights
      Business ethics
      Role of the Group in societyThe Risk and
        Responsibility Committee works closely with the Audit Committee to enable
        the latter to provide assurance to the Board that all risks to the Group
        have been thoroughly assessed and managed through sound systems of internal
        control. Independent external advisors support the Committee on matters
        of safety and the environment.Providing
        assuranceAssurance is provided through a number of related routes. Central to this
        is the integration of risk management within the Group. Further details
        are provided in the section on Corporate Governance and Internal Control
        on page 41.We have also
        established a Group-wide safety and environmental audit programme. This
        programme assesses the robustness of management controls





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put in place to ensure our safety and environmental performance is in line with our policies. Progress in implementing this programme is reviewed quarterly by the Risk and Responsibility Committee. In addition, the Board and the Executive Directors separately receive a monthly report on the safety and environmental performance of the businesses in the Group. This report also highlights any emerging risks where
Executive action may be warranted. At the year end, our Directors and senior managers sign a formal letter providing their personal assessment of compliance with Group-wide policies, the extent to which risks are being managed and any weaknesses in
management controls that may have been identified. A safe way of working Achievements
      Group-wide Safety and Occupational
        Health policy now in place
      Independent review of safety
        management in all major operations completed
      Significant
        reduction in rate of Lost Time Injuries compared with 2001/02 We believe that safety is paramount and that all work-related injuries and illnesses are preventable. We strive to safeguard the public in all we do. A new Group-wide Safety and Occupational Health policy was approved
by the Board in December 2002. The policy establishes our strategic aims and each of our businesses will be audited to ensure it is transferring the policy into practice. Our management of safety
    During 2002/03, our operations have not resulted
    in any fatalities to our employees or contractors, and the rate of injuries
    resulting in lost time has decreased by up to 46% across our major operations
    compared with 2001/02. However, 269 of our employees were involved in accidents
    which led to their taking time off work.




As with all our incidents, these
    are being investigated to ensure that lessons are learned and communicated
    throughout the Company. We monitor Lost Time Injuries across the Group and
    report the data monthly to the Executive Committee and Board. We recognise that to deliver
    the Group goal of zero injuries we need to create a safety culture where everyone
    is able to challenge constructively unsafe behaviours wherever they occur. We have audited the progress
    made in safety management since the review of our National Grid operations
    in New England and the UK by DuPont Safety Resources in 2001. In both organisations, strong
    management commitment to safety has clearly been recognised by employees and
    improvements can be seen in most of the elements of safety management. The
    goal of zero injuries is widely recognised. Nearly all employees involved
    in the audit stated that they could influence
    their own health and safety and the safety of others, and that they participate
    in decisions concerning safety. It was concluded that the businesses need
    to refocus efforts in some key areas such as learning through accident investigations
    and reporting near misses, but that the steps taken are beginning to have
    a positive influence
    on attitudes to safety. We invited DuPont to carry out
    a safety assessment on Transco in January 2003. DuPont noted a number of areas
    where best practice could be rolled out across other businesses and other
    areas where further work is required. They recognised areas of good safety
    governance involving employees from different staff grades and sound contractor
    management in our gas transmission business. The Risk and Responsibility Committee
    will review the progress we have made during 2003/04. DuPont will be carrying
    out a similar review of Fulcrum Connectionssafety management systems in 2003. We are




now well placed to drive forward best practice across the Group against standard benchmark measures. Protecting the public
    We believe safety is paramount, and we aim
    to safeguard the public in everything we do. We keep our approach to safe
    working under continuous review. We continue to invest significant capital resources
    in maintaining the gas distribution infrastructure in the UK. Our long-term
    programme aimed at replacing metallic mains with modern polyethylene pipes
    should reduce further the risk of gas leaks from the network. We also make
    significant
    resources available to the public in both the UK and US to explain the risks
    associated with both gas and electricity and to ensure the public uses both
    sources of energy safely. Despite our best efforts, regrettably three members of the public died as a result of gas explosions associated with Transcos operations
in the UK during the year. The verdict at the inquest into the explosion at Clitheroe on 1 April 2002 in which one person died was one of accidental death. On 3 October 2002, an explosion at West Bridgford, Nottingham resulted in the deaths of two
people. HSE investigations are continuing. In December 2002, an explosion occurred at a property in Hedgerley injuring one person. In January 2003, an explosion damaged a property in Chipping Norton. The HSE has indicated that it is minded to prosecute Fulcrum
Connections following a gas explosion damaging a property in Breistfield, Yorkshire in August 2002. As a result of a fatal accident in Larkhall, Lanarkshire in December 1999 in which four people died, the Crown Office in Scotland served an
indictment on Transco in February 2003. This charges that company with culpable homicide with an alternative charge of a contravention of Sections 3 and 33 of the Health and Safety at Work Act 1974.


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Charging the company with culpable homicide is unprecedented under Scots law and therefore before a full trial can proceed, a number of fundamental legal issues associated with the indictment are required to be
resolved. Working with contractors
    Contractors are selected from an approved vendor
    list that requires submission to a safety and environmental review. For the purpose of safety management, contractors are treated like, and receive safety briefings alongside, direct employees. Our contractors
recognise that we have high safety standards and, especially for large projects, safety is at the forefront from tender to project completion. We encourage the sharing of best practice between our major engineering contractors. Our UK gas transmission contractors have established aPipeline construction group health and safety forum. The forum is chaired by a director of one of the member companies. We have, during thefinancial year, removed contractors from jobs because of our concerns over their ability to operate safely. Environment Achievements
      Group-wide Environment policy
        and a position statement on EMF now in place
      InPremier
        Leagueof
        7th BiE environmental index
      Group-wide environmental
        audit programme implemented As a result of the Merger we took the opportunity to review our Environment policy. It sets the principles by which we manage our key environmental risks. Our businesses differ in the impact they may have on the
environment, so each is establishing a plan through which it will manage the environmental risks relevant to its operations. In March 2003, we were one of 18 companies (out of over 200)




placed in thePremier
    Leagueof Business in the Communitys
    7th BiE Index of Corporate Environmental Engagement. Our approach
    to environmental managementWe were not prosecuted by any environmental
    regulatory body for an environmental offence during thisfinancial year. The operation of environmental
    management systems (EMSs) in our businesses provides the Executive Directors
    with direct assurance that our approach is robust and properly focused on
    significant environmental risks
    and liabilities. In the US, our New England electricity transmission system
    is certified
    to ISO 14001 and our New York electricity transmission system conforms to
    ISO 14001 and will receive a registration audit in June 2003. Our US electricity
    and gas distribution businesses have developed EMSs that conform to ISO 14001.
    We are evaluating the merits of seeking ISO 14001 registration for our US
    distribution businesses. The majority of our UK operations are certified
    to ISO 14001. Over 80% of our employees operate with ISO 14001 certified
    or compatible systems. Electric and
    magneticfields
    All electrical equipment and appliances produce
    electric and magneticfields
    (EMFs). This includes household appliances as well as the power lines used
    in transmission and distribution of electricity. At higher frequencies, mobile
    phones and the masts used for transmission also produce EMFs. In December 2002, we published
    our position statement on EMFs making a clear commitment to playing a constructive
    and proactive role on this issue. The balance of scientific evidence indicates
    that EMFs do not lead to adverse health effects. However, we recognise that
    some people have concerns about EMFs and we make information and advice available
    whenever requested. We comply




with the standards, guidelines and regulations in force on EMFs in the countries and states in which we operate. Contaminated land We continue to manage our inherited portfolio
    of potentially contaminated land. This contamination has mainly arisen from
    the historic manufacture of gas from coal and oil, and from older electrical
    substations where there is a risk that the ground may have been contaminated
    with oil in the past through accidental spillage or leakage from equipment.
    The sites of former manufactured gas plants can sometimes have a complex mix
    of contamination dating back to the 19th century. In the US, we have responsibility for 135 contaminated sites and are actively conducting environmental assessments and, where necessary, remediations at more than 80 of these locations. In the last year, we have
completed remediations at two sites and implemented risk reduction measures at 29 other locations. Sites are prioritised through the application of state and federal regulatory requirements, which typically focus on preventing human or environmental
exposures. In the UK, we operate one of the largest clean up programmes in the country through SecondSite Property. With around 525 sites to reclaim, not all sites can be cleaned up at once. We apply a rigorous approach to the
identification, assessment, control and remediation of these sites. SecondSite Property, therefore, sets its priorities with care, following a national approach presented to
the Environment Agency and communicated to the relevant local authorities. We continue to give priority to addressing statutory obligations on our sites and seek agreement with environmental regulators on standards and timetables. Over the pastfive years, we have spent £190 million on site clean up in the UK. Over the past year, we have completed remediation work at 32 sites in the UK.





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Climate change We actively manage our activities to reduce
    their impact on climate change. Across our operations the largest source of greenhouse gas emissions is methane leakage from the Transco distribution network. Most leakage is associated with the joints on older cast iron parts of the low pressure gas
network. Cast iron currently makes up 37% of the distribution system and, as this pipe is replaced by polyethylene, the level of methane emissions will be gradually reduced. Methane emissions arising from leakage and venting from our UK and US gas networks account for approximately 56% of our greenhouse gas emissions. A detailed analysis of our greenhouse gas emissions is available on our
website. Sulphur Hexafluoride (SF6) is an
extremely effective electrical insulant and has very significant advantages over alternative materials. It is non-flammable, a critical requirement in the high-voltage applications for which we use it, and because of its effectiveness, takes up less volume than an equivalent insulating volume of an oil
alternative. We have some 431 tonnes of SF6in our electrical equipment and until a new proven technology becomes available our use of this material will continue. Equipment filled with SF6can leak and requires replacement. We estimate that the loss of SF6to the atmosphere over the last year was 21.6 tonnes, equivalent to approximately 517,000 tonnes CO2. Through monitoring SF6losses we are able to prioritise our repair programme. While not a significant contributor to our overall greenhouse gas emissions inventory, we consider transport to be a key sustainability issue
of strategic and operational importance. During the year, ourfleet mileage (including contractor movements for SecondSite Property) was approximately 211 million miles,
equivalent to 47.7 million litres of fuel. We encourage our businesses to consider actively the




alternatives to business travel, such as videoconferencing and teleconferencing.
    Both these technologies are applied widely across the Group. Our total mileage
    was equivalent to some 143,000 tonnes CO2. Our people Achievements
      Group-wide Human Resources
        policy now in place
      Whistleblowing policy and
        arrangements in place
      Group intranet site launched We have reviewed our Human Resources
    policies and condensed them into a high level Group-wide policy. We aim to
    foster a learning environment where all our employees can realise their full
    potential. Each business is updating procedures to cover the areas of Diversity,
    Learning & Development, Performance Management, Reward Framework, Recruitment
    & Selection and Flexible Working. Whilst achieving the standards set in
    the Group policy, these procedures will reflect
    local cultures and practices. We have established, through
    e-mails, intranets, cascade briefings
    and in-house magazines, effective methods for communicating with employees
    on matters of concern to them. Regular consultation with staff and their trade
    union representatives takes place using both formal and informal mechanisms. Restructuring
    our business Prior to the Merger, both National Grid and
    Transco were undergoing substantial restructuring. Alongside this, as part
    of the Merger process, we have combined our Corporate Centres, and our UK
    operational headquarters. As stated in our Framework, we wish to ensure we
    have the right number of people to deliver our business in the long term.
    Throughout this process, we have consulted with trade union representatives
    and our employees and we aim wherever possible to achieve redundancies through
    early retirement or voluntarily.




In the US, restructuring as a result of the merger between National Grid and Niagara Mohawk in 2002 was accomplished using a competency-based selection model. Employees were assessed on eight competencies that closely
aligned with our US business objectives and company values. Displaced employees were provided with comprehensive outplacement assistance. Ethical standards National Grid USAs
    existing Standards of Conduct will be matched by a UK Code of Conduct. These
    document our employeesresponsibilities
    with regard to ethical and legal issues. We provide our employees with a confidential
    helpline through which they can discuss any concerns or report behaviour that
    does not align with our standards. Our US Ethics Office has responsibility for answering questions about the Standards of Conduct, receiving and evaluating reports of misconduct
and ensuring that allegations are fully and promptly investigated. We aim to adopt this approach in the UK. Equality and diversity
    We are committed to being an equal opportunity
    employer, encouraging diversity and avoiding any discrimination on the grounds
    of race, colour, religion, political opinion, nationality, gender, disability,
    sexual orientation, age, social status and origin, indigenous status or other
    status unrelated to the individuals
    ability to perform his or her work. We are currently considering the reporting processes that will enable us to ensure our approach to equality and diversity is operating in practice. Employee share ownership
    We encourage share ownership among our employees
    as a means of aligning employee and shareholder objectives. We operate a Sharesave
    Scheme in the UK. Approximately 81% of eligible employees participated in
    the scheme in 2002.


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Approximately 84% of US employees are investors in the Group through the employee incentive thrift plans. Working with others Achievements
      Helped our customers save
        2 billion kWh of electricity in the US
      74,500 children visited
        our environmental centres
      40% reduction in complaints
        received from Transcos
        consumers National Grid Transco has a diverse range of
    external stakeholders including customers, consumers, suppliers, contractors,
    Government, non-governmental organisations, regulators, grantors and action
    groups. In our dealings with external audiences we strive to be open and constructive.
    In this section, we report on how we have developed our relationships with
    a number of these key audiences over the past year. Our customers In the US, we work closely with our customers
    to improve their energy efficiency
    andfive of the programmes offered by our New England electricity
    distribution companies were among the 31 nominations selected as the nations
    best by the American Council for an Energy-Efficient
    Economy. The programmes were recognised for their effectiveness and innovation
    in helping customers achieve greater levels of energy efficiency
    in their homes, businesses and facilities. During 2002, National Grid USAs customers have saved more than 2 billion kWh of electricity
    as a result of participating in these programmes. In the UK, Transco has continued to focus on service delivery to the 21 million gas consumers. Throughout 2002, Transco has surveyed and measured consumer views on its key consumer products and services. This indicates
that consumers are generally satisfied with the quality of service being provided. The introduction of a complaint management improvement




package, supported by information
    from the consumer satisfaction programme, has continued to support our focus
    on reducing levels of complaints received from consumers. Our suppliers
    As a Group with a capital programme of over
    £1.5 billion we recognise the positive impact that good procurement
    practices and standards can have on the quality of our supply chain. We aim
    to create strategic supplier relationships. These provide the opportunity
    to work with suppliers to improve their performance and provide key suppliers
    with an appreciation of our business needs, while maintaining or improving
    safety standards. The safety, health, environmental and quality performance
    of suppliers is considered as part of the tendering process. Where possible
    we aggregate and maximise our Group-wide collective buying power. In 2002/03,
    savings of some £17 million and £10 million were achieved in our
    supply chain in the UK and US respectively. Governments
    We engage actively with the Governments in
    our countries of operation. Over the past year in the UK we have provided
    written and oral evidence to a number of Commons Select Committees on subjects
    such as:Towards a
    non-carbon fuel economy;
    pre-legislative scrutiny of the Electricity (Trading and Transmission) Bill;
    and the Impact of Streetworks legislation. In addition, pre-Merger, both National
    Grid and Lattice provided submissions to the UK Government Review of Energy
    Policy and hosted an industry conference to discuss infrastructure and security
    of supply issues. Local communities
    We believe it is possible to create both shareholder
    value and social valuethese aims need not be in conflict. We place great
    emphasis on the relationships we have with the local communities we serve
    and the wider social needs of the societies in which we operate. Investing
    in projects that have a social value is important to the




Left In a pilot project with the children  s charity NCH, National Grid Transco Foundation aims to raise the educational achievements of young people in care. At an NCH Family Centre in London, the Foundation has installed self-contained learning workstations for cared for
children.          Group but we are not able to support all the projects and programmes proposed to us. The principal focus of our investment is on three themes:
   Regenerating local communities
   Improving the environment
   Education and skills Following the Merger, we undertook a review of our community investment in the UK against our three themes to ensure the balance of activities is appropriate for the new Group. The US community investment programme
will be reviewed against the three themes over the coming year. In the UK, we have established the National Grid Transco Foundation as a focus for bringing our business expertise, knowledge and resources to bear on pressing social and environmental issues faced by communities
throughout the UK. It is also the vehicle through which our UK employees can become actively involved in working in partnership with communities and voluntary organisations at local, regional and national levels. During 2002/03, we invested about £5.5 million and about £3.4 million respectively in the UK and US in our community investment programmes. Grantors The continued safe and reliable operation of
    a national infrastructure, such as the electricity transmission network in
    England and Wales, involves maintaining good working relationships with the
    owners and occupiers of land on which our assets are installed and over, or
    under, whose land our lines cross. The owners and occupiers provide us with
    rights to enable us to operate, inspect, maintain, repair, replace and remove
    our equipment. We have more than 19,000 different land owners and occupiers
    throughout the countrywhom we callgrantors.
    We provide a point of contact for all grantors and our quarterly grantors
    newsletterGridlineprovides them with timely and relevant
    information.





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Board
        of Directors01 Sir
        John ParkerChairman(appointed October 2002) (N*)Sir John Parker became Chairman
        of the Group following the Merger, having been Chairman of Lattice Group
        since its Demerger from BG Group in 2000. He had previously been a Non-executive
        Director of BG from 1997. Sir Johns
        career has encompassed the engineering, shipbuilding and defence industries.
        He is Chairman of RMC Group plc and a Non-executive Director of Brambles
        Industries plc and Carnival plc. Sir John is a former Chairman and Chief
        Executive of Harland & Wolff plc and Babcock International Group PLC.
        He is a Fellow of the Royal Academy of Engineering. (Age 61)
      
      02 James
        RossDeputy Chairman
        and Senior Independent Director(first
        appointed March 1999) (R&R*)
        James Ross was appointed as Non-executive Director and Deputy Chairman
        of National Grid in March 1999, becoming Chairman in July 1999. Following
        the Merger, he became Deputy Chairman and Senior Independent Director.
        He is a Non-executive Director of McGraw Hill and of Datacard, both based
        in the US, and of Schneider Electric based in France. He was Chairman
        of Littlewoods plc from 1996 to April 2002 and was Chief Executive of
        Cable and Wireless plc from 1992 to 1995. Previously, he was Managing
        Director of the British Petroleum Company plc and Chairman and CEO of
        BP America. At BP he had responsibility for its activities in North and
        South America and Africa as well as the companys environmental policies. (Age 64)


03 Roger
        UrwinGroup Chief
        Executive(first appointed November 1995)
        (E*, F)
        Roger Urwin was appointed as a Director of National Grid in November 1995,
        becoming Group Chief Executive in April 2001. He was previously Chief
        Executive of London Electricity plc. Earlier, he held a number of appointments
        within the Central Electricity Generating Board before joining the Midlands
        Electricity Board as Director of Engineering. He is a Non-executive Director
        of The Special Utilities Investment Trust PLC and is a Fellow of the Royal
        Academy of Engineering. (Age 57)
      
      04 Steve
        LucasGroup Finance
        Director(appointed October 2002) (E, F)
        Steve Lucas joined the Board following the Merger in October 2002. He
        had been Executive Director, Finance of Lattice Group since its Demerger
        from BG Group in 2000. Previously, he was Treasurer of BG Group having
        joined British Gas plc in 1994. A Chartered Accountant, he worked in private
        practice in the City of London until 1983. He then joined Shell International
        Petroleum Company, occupying a number of finance management positions
        and treasury roles, including seven years in Africa and the Far East.
        (Age 49)05 Steve
        HollidayGroup Director(appointed March 2001) (E)
        Steve Holliday joined National Grid as Group Director, UK and Europe at
        the end of March 2001. Following the Merger, he was principally responsible
        for the Groups transmission businesses and is now Group Director responsible
        for UK Gas Distribution and Business Services. He was formerly an Executive
        Director of British Borneo Oil and Gas. Previously, he spent 19 years
        with the Exxon Group, where he held senior positions in the international
        gas business and operational areas such as refining
        and shipping. His international experience includes a four-year spell
        in the US. He also worked developing business opportunities in countries
        as diverse as Russia, Australia, Japan, Brazil and China. (Age 46)
      
      06 Edward
        AstleGroup Director(appointed September 2001) (E)
        Edward Astle joined National Grid as Group Director, Telecommunications
        in September 2001 and is now Group Director responsible for Unregulated
        Business and leads the Groups Business Development and Strategy.
        He was Managing Director of BICC Communications from 1997 to 1999 and
        between 1989 and 1997 he held a variety of positions with Cable and Wireless
        (C&W). He was Regional Director Europe, CEO of its global networks
        and marine divisions, and in 1995 joined the C&W Board as Executive
        Director  Global Businesses. He is a Non-executive Director of Intec
        Telecom Systems plc. (Age 49)07 Rick
          SergelGroup Director(appointed March 2000) (E)
          Rick Sergel was appointed as a Director of National Grid following the
          acquisition of New England Electric System (NEES) in March 2000. He
          is President, Chief Executive Officer and a Director of National Grid
          USA and has Board responsibility for US Gas and Electricity Distribution.
          Between February 1998 and March 2000 he served as President and Chief
          Executive Officer of NEES. His previous positions with NEES included
          Senior Vice President in charge of retail operations and unregulated
          ventures, Vice President and Treasurer. He is a Non-executive Director
          of State Street Corporation. (Age 53)


|Board Committees:AAudit
      EExecutive
      FFinance NNominations RRemuneration R&RRisk and Responsibility 
      (* denotes chairman of the committee)
|----------------------------------------------------------------------------------------------------------------------------------------------------------

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08 Nick
        WinserGroup Director(appointed April 2003) (E)
        Nick Winser joined the Board in April 2003 as Group Director responsible
        for UK and US Transmission operations. He was previously Chief Operating
        Officer of US Transmission for National Grid Transco. He had joined National
        Grid Company in 1993, becoming Director of Engineering in 2001. Prior
        to this he had been with PowerGen since 1991 as principal negotiator on
        commercial matters having joined the Central Electricity Generating Board
        in 1983 where he served in a variety of technical engineering roles. (Age
        42)
      
      09 John
        WybrewGroup Corporate Affairs Director(appointed October 2002) (E)
        John Wybrew joined the Board following the Merger in October 2002. At
        Lattice Group he was Executive Director responsible for corporate affairs,
        human resources and health, safety, security and environment. He had joined
        the Board of British Gas in 1996 and then served as an Executive Director
        of BG Group. He previously had a career with the Royal Dutch/Shell Group
        spanning more than 30 years and was Corporate Affairs Director for Shell
        UK Ltd before joining BG. In the mid 1980s he was seconded to the Prime
        Minsters Policy Unit, advising Mrs Thatcher on energy and transport
        policies. (Age 61)




12 Kenneth
        HarveyNon-executive Director(appointed October 2002) (A,
        N, R)
        Kenneth Harvey joined the Board following the Merger in October 2002,
        having been appointed to the Lattice Group Board in September 2000. He
        is Chairman of Pennon Group plc (which includes South West Water). He
        is also Non-executive Chairman of The Intercare Group plc and of Beaufort
        Group plc. A Chartered Engineer, he is a former Chairman of Norweb plc
        and of Comax Holdings Ltd. (Age 62)
      
      13 Stephen
        PettitNon-executive Director(appointed October 2002) (F,
        R&R)
        Stephen Pettit was appointed to the Board following the Merger, having
        been appointed to the Lattice Group Board in 2001. He is Chairman of Damovo,
        the privately owned network integration company and Chairman of Norwood
        Systems. He is also a Non-executive Director of National Air Traffic Services
        and KBC Advanced Technologies plc. He is a former Executive Director of
        Cable and Wireless plc. Before joining Cable and Wireless, he was Chief
        Executive, Petrochemicals at British Petroleum. (Age 52)





|10 Bonnie
      HillNon-executive Director(appointed February 2002) (R,
      R&R)
      Bonnie Hill was appointed a Director of National Grid in February 2002 following
      the acquisition of Niagara Mohawk, where she had been a Director. She is
      President of B.Hill Enterprises, LLC, a consulting firm, and Chief Operating
      Officer of Icon Blue, a brand marketing company. She is also 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.
      Before 2001, she was President and Chief Executive Officer of The Time Mirror
      Foundation and was also Senior Vice President of the Los Angeles Times newspaper.
      (Age 61) |  | 11 Paul
      JoskowNon-executive Director(appointed March 2000) (A, F*)
      Paul Joskow was appointed a Director of National Grid in March 2000 following
      the acquisition of New England Electric System (NEES) where he had been
      a Director. He is a Professor of Economics and Management at the Massachusetts
      Institute of Technology (MIT), Director of 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. (Age 55) |  | 14 George
      RoseNon-executive Director(appointed October 2002) (A*, N, R)
      George Rose was appointed to the Board following the Merger, having been
      appointed to the Lattice Group Board in September 2000. He has been Finance
      Director of BAe Systems plc (formerly British Aerospace plc) since 1998,
      having joined the company in 1992. He is also a Non-executive Director of
      SAAB AB, a Member of the Financial Reporting Review Panel and a former Non-executive
      Director of Orange plc. (Age 51) |  | 15John GrantNon-executive Director(appointed November 1995) (A, N, R*)
      John Grant was appointed a Director of National Grid in November 1995. He
      is Executive Chairman of Hasgo Group Limited and of Peter Stubs Limited.
      He is Chairman of the Royal Automobile Club Motor Sports Association Limited
      and a Non-executive Director of Torotrak plc, Corac Group Plc and Cordex
      Plc. He was Chief Executive of Ascot Plc from 1997 to 2000 and Finance Director
      of Lucas Industries plc from 1992 to 1996. He previously held a number of
      senior executive positions during 25 years with Ford Motor Company. (Age
      57) | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Helen MahyGroup Company
      Secretary(appointed October 2002) Helen Mahy
      was appointed as Group Company Secretary following the Merger, having been
      Company Secretary at Lattice Group since March 2002. She was appointed a
      Non-executive Director of Aga Foodservice Group plc in March 2003. She is
      a Barrister and an Associate of the Chartered Insurance Institute. Previously,
      she was Group General Counsel and Company Secretary at Babcock International
      Group PLC. (Age 42)                    | 

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Contents to thefinancial section29
   DirectorsReport and Operating and Financial Review29
   Operating and Financial Review41
   Corporate Governance and Internal Control44
   DirectorsRemuneration Report53
   Risk Factors55
   General Information56
   Independent AuditorsReport to the Members of National Grid Transco plc57
   Accounting Policies60
   Group Profit and Loss Account60
   Group Statement of Total Recognised Gains and Losses




61
      Balance Sheets62
      Group Cash Flow Statement63
      Notes to the Accounts107
      Summary Group Financial
        Information108
      Glossary of Terms109
      Definitions110
      Independent Verifiers Report on Operating
        Responsibly111
      Investor Information118
      Cross Reference to Form
        20-F119
      Shareholder Statistics119
      Financial Calendar120
      Shareholder Information


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Directors
  Report and Operating and Financial ReviewOperating and Financial Review

References to adjusted operating
  profit, adjusted profit before taxation, adjusted earnings (profit/(loss) for
  the year) and adjusted earnings per share are stated before exceptional items
  and goodwill amortisation. A reconciliation of operating profit to adjusted
  operating profit is shown on the face of the profit and loss account on page
  60, while a reconciliation of adjusted profit before taxation, adjusted earnings
  and adjusted earnings per share is shown in note 11 to the accounts on page
  73.  The Directors believe that use of the adjusted measures described above give a better indication of the underlying business performance of the Group than the unadjusted measures. Adjusted total operating profit for 2002/03 was £2,185 million (2001/02: £1,783 million; 2000/01: £1,780 million) and excludes operating exceptional items relating to continuing and discontinued
operations and goodwill amortisation. Exceptional items for 2002/03 relating to continuing and discontinued operations amounted to £308 million (2001/02: £285 million; 2000/01: £88 million) and £39 million (2001/02:
£1,042 million; 2000/01: £nil) respectively, and goodwill amortisation amounted to £102 million (2001/02: £97 million; 2000/01: £85 million). These items can be seen on the face of the profit and loss account on page
60, reconciling to total operating profit for 2002/03 of £1,736 million (2001/02: £359 million; 2000/01: £1,607 million). Merger of National Grid and Lattice
On 21 October 2002, the merger of National Grid and Lattice was completed and National Grid was renamed National Grid Transco. In accordance with UK Generally Accepted Accounting Principles (GAAP), the Merger has been
accounted for using merger accounting principles, as explained in note 1 to the accounts on page 63. As a consequence, the results of the merged entity together with the financial review associated with the UK GAAP results are presented as if the
Group had been in existence for all of the financial years presented. The results for all years are presented on the basis of uniform accounting policies. Under US GAAP, the business combination of National Grid and Lattice must be accounted for as an acquisition in accordance with acquisition accounting principles (purchase accounting). A discussion of the
impact of US GAAP accounting principles is shown below, and details of the principal differences between UK and US GAAP are shown in note 34 to the accounts on page 100.




Segmental
    reporting  As a result of the Merger, National
    Grid Transco has reported its audited results for the first time and reporting
    segments have been aligned to reflect the management responsibilities and
    economic characteristics of the Groups business activities. As an example,
    management responsibility for electricity and gas transmission
    in the UK resides with an Executive Director and these activities share long-term
    economic characteristics. Such characteristics include the fact that they
    are both subject to similar regulatory environments, and income is derived
    from the provision of transmission services, with limited exposure to commodity
    risk.  The choice of segments has also
    had regard to the level of materiality of some of the Groups activities
    and to ensure that the disclosures are not overly detailed. Segmental information is disclosed
    in note 2 to the accounts on pages 63 to 65, and a review of the performance
    of these businesses is contained on pages 10 to 20. Additional financial and
    performance information relating to the reporting segments is also included
    in the business review. The presentation of segment
    information is based on the management responsibilities that existed at 31
    March 2003. The segments that existed at
    31 March 2003 comprised UK distribution; UK electricity and gas transmission;
    US transmission; US electricity distribution (including recovery of stranded
    costs); US gas; and other activities. Management responsibilities
    have changed with effect from 28 April 2003, and, as a result, in future presentations
    of the Groups results segmental reporting will be aligned to reflect
    these changes in responsibilities. Financial
    year ended 31 March 2003 (2002/03) compared with financial year ended 31 March
    2002 (2001/02)Group turnover
  Group turnover for 2002/03 increased
    by £1,846 million over 2001/02 to £9,400 million, reflecting a
    full years turnover being recorded in respect of Niagara Mohawk, which
    was acquired by the Group on 31 January 2002. Group operating profit
  Group total operating profit
    rose by £1,377 million to £1,736 million in 2002/03, primarily
    reflecting a movement in the total operating exceptional net charges relating
    to both continuing and discontinued operations, which fell from £1,327
    million in 2001/02 to £347 million in 2002/03.




A separate discussion of exceptional items is
  shown below.  Group total adjusted operating profit rose by £402 million to £2,185 million, primarily reflecting increased adjusted operating profit from US electricity transmission and US electricity distribution which
have reported a full years contribution from the acquisition of Niagara Mohawk in January 2002. As a result, the contribution of US electricity transmission and US electricity distribution rose from £353 million in 2001/02 to £641
million in 2002/03, an increase of £288 million, accounting for 72% of the total increase. Total operating profit from Group undertakings included losses of £194 million relating to discontinued operations compared with £496 million for 2001/02, as a result of the sale of, or exit by the Group
from, certain business activities during the year. The principal businesses included The Leasing Group and 186k, a UK-based fibre optic telecommunications company. Group operating profit also included a profit of £109 million compared with losses of £672 million in 2001/02 relating to the discontinued activities of joint ventures and the associate. A discussion of the
impact the activities of discontinued joint ventures and the associate have had on the results is shown below. Associate and joint ventures
On 16 July 2002, Energis plc (Energis) went into administration. As a direct result of this event, Energis ceased to be an associate of the Group from that date. The results for 2002/03 have not been
affected by this change in status, because the Groups investment in Energis had been fully written down during 2001/02 and Energis had not publicly declared any results since reporting its results for the six months ended 30 September 2001. The Group ceased equity accounting for Intelig, its Brazilian telecoms joint venture, with effect from 30 September 2002. This arose as a result of the Groups share of net assets falling to zero and the Group
declaring its intention not to fund this business any further while pursuing a withdrawal strategy. The Groups interests in Energis Polska,
  Manquehue net and Silica Networks have been disposed of or, in the case of Energis
  Polska, the interest reduced to a level where the Group has no significant influence
  on the activities of these businesses. As a result, these entities are no longer
  equity accounted for, and any loss arising from the disposal or reduction in
  interest has been reflected in exceptional items.





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Operating and Financial Review continued  As explained in Exceptional items
    below, the total operating profit for 2002/03 of joint ventures (discontinued
    operations) included an exceptional pre-tax credit amounting to £129
    million. The £129 million credit represents the partial release of impairment
    provisions charged in the year ended 31 March 2002 to match the recognition
    of retained losses arising from these joint ventures, and is recorded within
    the net £109 million credit relating to the Groups share
    of joint ventures and associates operating profit/(loss) 
    discontinued operations. The retained losses of the joint ventures against which the provisions are being released are reflected in the profit and loss account according to their nature, for example: share of operating loss; share of net
interest; and share of tax, the principal element being an exceptional net interest charge of £92 million (before and after tax) relating to the Groups share of exchange losses incurred on foreign exchange borrowings at Intelig. Operating losses of £672 million recorded in 2001/02 in respect of the discontinued activities of joint ventures and associate reflect the very significant level of impairment charges incurred during that
year. Operating results for all the above associate
    and joint ventures have been reflected in the accounts within share
    of joint ventures and associates operating profit/(loss) 
    discontinued operations. Goodwill amortisation
Goodwill amortisation for 2002/03 rose from £97 million to £102 million. This increase reflects a full years amortisation of goodwill relating to the prior years acquisition of Niagara Mohawk,
partially offset by the following: 
      no recognition of the Groups
        share of goodwill amortisation in the year in respect of Energis; and
      the reduced sterling cost
        of US dollar denominated goodwill amortisation as a result of the weakening
        of the US dollar. Exceptional items
The results for the year ended 31 March 2003 included total net exceptional pre-tax charges of £477 million (£349 million post-tax). Pre-tax charges are made up of pre-tax net charges of £308 million
and £39 million of operating exceptional items relating to continuing and discontinued operations respectively; £99 million of non-operating exceptional items (note 4(b) to the accounts on page 66); and £31 million of
financing-related exceptional charges. In addition, the Group reflected




£28 million of exceptional minority interest charge. These net charges, including minority interest effect, comprise:  
      costs arising from the Merger
        of £184 million (£147 million after tax) relating to transaction
        costs of the Merger, together with related employee share scheme costs
        amounting to £79 million and other property and employee costs of
        £105 million;
      restructuring costs principally
        arising from business related efficiency programmes of £209 million
        (£165 million after tax). These costs are mainly severance-related;
      an impairment charge relating
        to the Groups telecoms assets held by 186k of £168 million
        (£143 million after tax);
      a £135 million credit
        (£155 million after tax) in respect of Intelig and other telecoms
        joint ventures of which £129 million has been reflected in share
        of joint ventures and associates operating profit/(loss) 
        discontinued operations  see above;
      an exceptional net interest
        loss of £31 million (before and after tax). This relates to the
        Groups share of exchange losses incurred on foreign exchange borrowings
        of £98 million (£92 million of which related to Intelig) partially
        offset by a gain on net monetary liabilities of £67 million as a
        result of the adoption of hyper-inflationary accounting, under UK GAAP,
        relating to Citelec, the Groups Argentinian joint venture 
        see Exchange rates and hyper-inflation below;
      a £28 million minority
        interest charge being a share of the £61 million net exceptional
        credit related to the Argentinian joint venture  see Exchange
        rates and hyper-inflation below;
      a £68 million loss
        (before and after tax) arising from the sale of the Groups leasing
        business, The Leasing Group, and loss on termination of 186ks operations;
        and
      net profit on the disposal
        of tangible fixed assets of £48 million (£50 million after
        tax). InterestNet interest rose from £799
    million in 2001/02 to £970 million in 2002/03. Both years included exceptional
    financing costs amounting to £142 million and £31 million in 2001/02
    and 2002/03 respectively. A separate discussion of exceptional financing costs
    is contained in Exceptional items when comparing the results for
    each year. Net interest, excluding exceptional
    items, rose from £657 million in 2001/02 to




£939 million for 2002/03, as shown in note 8 to the accounts on page 71. This increase is explained by a full years interest charge in respect of the acquisition of Niagara Mohawk and foreign exchange
movements.  Taxation
The net tax charge for 2002/03 of £245 million included an exceptional tax credit on pre-tax exceptional items of £128 million. Excluding the exceptional tax items from the tax charge, the effective tax
rate for 2002/03 based on adjusted profit before taxation was 29.9% compared with the standard corporation tax rate in the UK of 30%. The effective tax rate for 2002/03 based on profit before taxation before exceptional items was 32.6%. Note 9 to
the accounts on page 72 shows a reconciliation of the main components giving rise to the difference between the relevant effective tax rate and the UK standard corporation tax rate. Exchange rates and hyper-inflation
Exchange rate movements have had an adverse effect on the translation of US dollar adjusted operating profit for 2002/03 compared with 2001/02. US dollar adjusted operating profit was translated at a weighted average
rate of £1.00 = $1.59 during 2002/03 as compared with £1.00 = $1.44 for 2001/02. If the rate that applied during 2001/02 had been used, sterling operating profit and adjusted operating profit for 2002/03 would have been higher by around
£57 million and £74 million respectively. The above analysis does not take into account the fact that Niagara Mohawk only impacted on Group results for two months in 2001/02. On page 18, taking into account this factor, it is estimated that adjusted operating
profit would have been higher by around £34 million. The reduced adjusted operating profit and operating profit is largely offset by the reduced sterling cost of US dollar debt taken out to finance US dollar denominated investments and the reduced sterling cost of US
taxes. As a result, the impact of the higher US dollar rate on National Grid USAs results has not had a significant effect on adjusted earnings per share or earnings per share. Exchange rates have marginally affected the Groups recognition of operating losses arising in respect of Intelig, the Groups Brazilian telecoms joint venture. This reflected sterlings continued
strengthening against the Brazilian currency in the period that the Group equity accounted for Intelig  see Associate and joint ventures above. The Group estimates that, as compared with the average exchange rate for 2001/02, this
effect has reduced our share of operating losses by around £2 million.


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The Groups joint venture in Argentina, Citelec, is currently considered to be operating within a hyper-inflationary economy. In accordance with UK GAAP, the accounts of the joint venture, which includes
Transener, a transmission company, have been prepared using hyper-inflationary accounting principles. This has resulted in all entries in the joint ventures accounts being measured at current purchasing price. The fall in the Argentinian exchange rate has given rise to the recognition of the Groups share of exchange losses arising on the joint ventures US dollar denominated debt, amounting to £6 million.
This loss is more than offset by the Groups share of a gain on net monetary liabilities of £67 million, arising as a result of inflating these liabilities as part of the hyper-inflationary adjustments referred to above. Together with the
minority interests share of these items, all of these effects have been reflected as exceptional in the profit and loss account. Retirement arrangements Following the Merger, the Group now operates
    two major UK occupational pension schemes  the National Grid Company
    Group of the Electricity Supply Pension Scheme (the National Grid Scheme)
    and the Lattice Group Pension Scheme (the Lattice Scheme). The National Grid Scheme is a defined benefit pension scheme. The Lattice Scheme has a defined benefit section which is effectively closed to new entrants and a defined contribution section. There are no current plans
to merge the two schemes. In addition to the UK schemes, employees of National Grid USA are eligible to receive retirement income benefits through defined benefit arrangements. Post-retirement healthcare and life insurance benefit are also
provided to qualifying retirees. The next actuarial valuation of the Lattice Scheme is being carried out as at 31 March 2003, while the National Grid Scheme actuarial valuation will be carried out as at 31 March 2004. In respect of the US-based pension schemes,
    the latest full actuarial valuations were carried out as at 31 March 2002.
    These valuations were updated using assumptions and market values at
    31 March
    2003. In respect of the healthcare and life insurance schemes, the latest actuarial valuations were carried out at 31 March 2002 in respect of the New England and New York schemes. Updated valuations of these schemes were
carried out at 31 March 2003.




Note 7 to the accounts on pages
    68 to 70 provides more information on the Groups retirement arrangements. Pension accounting
    The Group continues to account for pensions
    under UK GAAP in accordance with Statement of Standard Accounting Practice
    24 (SSAP 24) and, consistent with that statement, the Group had been spreading
    pension surpluses and deficits over the remaining service lives of employees
    based on the information contained in the last formal actuarial valuations. The Board is of the view that,
    in light of the performance of the worlds stock markets over the past
    year, if a formal actuarial valuation of both the UK pension funds were conducted,
    this would in all likelihood reveal a deficit in both schemes. The continuing
    recognition of a surplus is incompatible with this position, and until the
    next formal actuarial valuations are undertaken, the decision to suspend the
    recognition of any further pension surplus has been taken in respect of both
    schemes. Consequently, with effect from 1
    October 2002, the spreading of pension surpluses in respect of the UK defined
    benefit schemes, based on their last formal actuarial valuations at 31 March
    2001, was suspended. Adjusted operating profit and
    net interest included £21 million and £12 million respectively
    in respect of the recognition of the UK pension schemes surplus up to
    30 September 2002, totalling £33 million (£23 million net of tax).
    As a result of the suspension of the recognition of any further pension surplus
    since that date, adjusted operating profit and net interest have been reduced
    and increased by £21 million and £10 million respectively compared
    with the ongoing recognition of a surplus. Accordingly,
    adjusted profit before tax has been reduced by around £31 million (£22
    million net of tax). The Group does not account for
    pension costs under Financial Reporting Standard 17 Retirement benefits
    (FRS 17), but has provided the required transitional pension scheme disclosures
    as shown in note 7 to the accounts on pages 68 to 70. Application of UK GAAP accounting
    policies As explained above, the application of UK GAAP
    to the business combination of Lattice and National Grid has resulted in the
    transaction being treated as a merger. As a result, the financial information
    presented for all years has been prepared on the basis of common accounting
    policies as if the Group had always applied those accounting policies.




There have been no new UK GAAP accounting pronouncements issued during the year that have had any significant impact on the Group. Accounting policies adopted by Lattice that were changed to accord with the accounting policies adopted by the Group were deferred taxation and the classification of the amortisation of a pension surplus in the profit
and loss account. Full details of these changes are given in note 29 to the accounts on page 90. In addition, National Grid adopted, as a merger adjustment, the accounting treatment relating to capital contributions to the cost of tangible fixed assets (capital contributions) as previously applied by
Lattice. As a result, the net book value of capital contributions included in National Grids accounts at 31 March 2002 of £90 million has been transferred from tangible fixed assets to creditors as part of the Merger adjustments to
arrive at the opening balances for creditors and tangible fixed assets at 31 March 2002  see note 29 to the accounts on page 90. Earnings per share Adjusted basic earnings per share for 2002/03
    were 28.3 pence compared with 30.8 pence for 2001/02. Basic earnings per share
    for 2002/03 rose from a loss per share of 11.3 pence in 2001/02 to earnings
    of 12.7 pence per share, reflecting a reduction in net exceptional charges
    between the two years. A reconciliation of the movement from basic earnings per share to adjusted basic earnings per share is shown in note 11 to the accounts on page 73. Ordinary dividends The total ordinary dividend for 2002/03 (£530
    million) amounted to 17.20 pence per ordinary share. This represents an increase
    of 7.2% (5% in real terms) over the previous years National Grid ordinary
    dividend per share, as this is the most appropriate dividend comparison for
    the reason explained in Dividend policy below. The total ordinary
    dividend per share is covered 1.6 times by adjusted earnings per ordinary
    share and 0.7 times by basic earnings per ordinary share. Dividends The table on the following page (dividend
    table) shows the ordinary dividends paid or payable by National Grid
    Transco or National Grid, as appropriate (see Dividend policy
    below), for the last five most recent financial years. These dividends do
    not include any associated UK tax credit in respect of such dividends.





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Operating and Financial Review
        continuedDividends
      2002/03
      2001/02
      2000/01
      1999/00
      1998/99p
      p
      p
      p
      pInterim
      6.86
      6.46
      6.05
      5.59
      5.25Final
      10.34
      9.58
      9.03
      8.35
      7.82Total ordinary dividends
      17.20
      16.04
      15.08
      13.94
      13.07US dollar per ADS
      2002/03
      2001/02
      2000/01
      1999/00
      1998/99$
      $
      $
      $
      $Interim
      0.54
      0.47
      0.45
      0.46
      0.44Final
      0.84
      0.73
      0.65
      0.63
      0.61Total ordinary dividends
      1.38
      1.20
      1.10
      1.09
      1.05




Dividends expressed in US dollars per ADS in the dividend table reflect the actual amount paid to ADS holders, expressed to two decimal places, with respect to all amounts with the exception of the final ordinary
dividend for 2002/03. The final ordinary dividend per ADS for 2002/03 reflects the declared US$ amount expressed to two decimal places. Dividend policy As announced on 22 April 2002, on completion
    of the Merger, National Grid Transco adopted National Grids dividend
    policy and, as a consequence, any historical comparison of dividends paid
    or payable by National Grid Transco in 2002/03 and beyond should be made by
    reference to National Grids dividends. National Grid Transcos dividend policy is to aim to increase dividends per share (as expressed in pounds sterling) by a real rate of 5% in each of the financial years to March 2006. Financial year ended 31
    March 2002 (2001/02) compared with financial year ended 31 March 2001 (2000/01)
    Acquisition of Niagara Mohawk
    On 31 January 2002, the Group successfully
    completed the acquisition of Niagara Mohawk, for a consideration of £2,186
    million satisfied by the issue of shares amounting to £1,270 million
    and cash of £916 million, including £45 million relating to the
    costs of acquisition. The net assets acquired had a provisional fair value
    of £1,376 million, subsequently revised to £1,294 million resulting
    in goodwill of £892 million being recognised and amortised over 20 years.
    Details of the acquisition are contained in note 28 to the accounts on page
    89. Niagara Mohawk contributed £83 million to adjusted operating profit and £2 million to operating profit for the period from the date of acquisition to 31 March 2002. Group turnover Group turnover increased from £6,891
    million in 2000/01 to £7,554 million




in 2001/02, substantially reflecting
    the acquisition of Niagara Mohawk, which accounted for over 70% of the increase.
    The remaining increases are substantially explained by higher distribution
    turnover for National Grid USA as a result of higher energy prices, which
    are substantially passed through to customers, and EnMo, partially offset
    by reduced turnover from UK electricity and gas transmission and UK gas distribution. Group total operating profit Total operating profit fell from £1,607
    million to £359 million in 2001/02, primarily as a result of the high
    level of exceptional charges incurred during 2001/02. For a separate discussion
    of the impact of exceptional items on the results for the year, see Exceptional
    items below. Total adjusted operating profit
    rose by £3 million to £1,783 million reflecting higher adjusted
    contributions from: 
      Niagara Mohawk amounting
        to £83 million. This contribution is reflected in the US electricity
        transmission, US electricity distribution and US gas segments;
      UK electricity and gas transmission,
        which increased its contribution to £781 million from £756
        million in 2000/01; and
      Intelig, reflecting an adjusted
        operating loss of £36 million for 2001/02 as compared with £118
        million for 2000/01 reflected in discontinued operations of joint ventures
        and associate. These were substantially
        offset by lower adjusted contributions from:
      UK gas distribution, where
        adjusted operating profit fell by £115 million to £548 million;
      other activities of Group
        undertakings (continuing operations) where adjusted operating profit fell
        from £203 million in 2000/01 to £179 million in 2001/02;
      other discontinued operations
        of Group undertakings that recorded adjusted




operating losses of £60
        million in 2001/02 compared with £39 million for 2000/01; and
      other discontinued activities
        of an associate and joint ventures (excluding Intelig) that recorded adjusted
        losses of £18 million in 2001/02 compared with adjusted profit of
        £2 million in 2000/01. Goodwill amortisation Goodwill amortisation for 2001/02 rose by £12
    million to £97 million. This increase mainly reflects the amortisation
    of goodwill relating to the acquisition of Niagara Mohawk and a full years
    amortisation of goodwill relating to the acquisition of Eastern Utilities
    Associates (EUA). Exceptional items The results for 2001/02 included net exceptional
    pre-tax losses of £1,313 million (£1,147 million post-tax). Pre-tax net exceptional charges are made up of £285 million and £1,042 million of operating exceptional items relating to continuing and discontinued operations respectively; £142 million of
financing-related exceptional charges; partially offset by non-operating exceptional credits of £156 million (note 4b to the accounts on page 66). In addition, the Group reflected £50 million of exceptional minority interest credit.
These net charges comprise: 
      an impairment of the Groups
        associate and joint venture investments amounting to £792 million
        pre-tax (£775 million post-tax);
      an impairment of assets
        in 186k, a telecoms subsidiary, amounting to £250 million (£175
        million post-tax);
      the Groups share of
        the pre- and post-tax exceptional charge of a telecoms joint venture (SST)
        amounting to £48 million, reflecting the write-down of an investment
        and goodwill in that joint venture, prior to the acquisition of all of
        the issued ordinary share capital of this entity by the Group;
      an impairment of the Groups
        LNG storage assets of £50 million (£35 million post-tax),
        reflecting a reduction in the expected future cash flows under the current
        regulatory arrangements;
      restructuring and integration
        costs within the UK businesses and the integration of Niagara Mohawk,
        amounting to £187 million pre-tax (£130 million post-tax);
        and
      the Groups share of
        Citelecs foreign exchange pre- and post-tax financing charge amounting
        to £142 million relating to the devaluation of the Argentine peso.


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These exceptional
        losses were partially offset by:
      pre-tax profits amounting
        to £94 million (£96 million post-tax) relating to the sale
        of tangible fixed assets;
      a £31 million pre-
        and post-tax gain on the sale of BG Group shares by the Lattice All
        Employee Share Ownership Plan;
      an exceptional pre- and
        post-tax profit of £31 million relating to the gain on disposal
        of investments; and
      a credit of £50 million
        relating to the Groups share of the minority interests share
        of the foreign exchange financing charge referred to above. Interest Net interest rose from £635 million in
    2000/01 to £799 million in 2001/02. 2000/01 included exceptional financing
    costs of £142 million. A separate discussion of exceptional financing
    costs is contained in Exceptional items above. Net interest, excluding exceptional items as shown in note 8 to the accounts on page 71, rose from £635 million to £657 million for 2001/02. This increase is a result of 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. Taxation The net tax charge of £85 million for
    2001/02, includes a net credit relating to exceptional items amounting to
    £166 million as shown in note 9 to the accounts on page 71. If these
    exceptional items are excluded, the adjusted tax charge for 2001/02 was £251
    million, including a £73 million tax credit arising from an adjustment
    to prior years tax. Excluding the exceptional tax items from the tax
    charge, the effective tax rate on adjusted profit before taxation for 2001/02
    was 28.6%. The effective tax rate on profit before taxation before exceptional
    items for 2001/02 was 24.4%. Note 9 to the accounts on page 72 shows a reconciliation
    of the main components giving rise to the difference between the relevant
    effective tax rate and the UK standard corporation tax rate. Exchange rates Exchange rate movements had a beneficial effect
    on the translation of US dollar adjusted operating profit for 2001/02 compared
    with 2000/01. US dollar adjusted operating profit was translated at a weighted
    average rate of £1.00 = $1.44 during 2001/02 compared with £1.00
    = $1.483 for 2000/01. If the rate




that applied during 2000/01 had
    been used, sterling adjusted operating profit and operating profit for 2001/02
    would have been lower by about £11 million and £7 million respectively. The increased operating profit
    was 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 results did not have a significant effect on Group earnings
    per share. Similarly, the impact of exchange rates on US dollar debt and taxes
    means that there was no significant impact on Group adjusted earnings per
    share. Exchange rate movements have
    favourably impacted on the Groups share of operating losses in Intelig
    as sterling strengthened against the Brazilian currency during 2001/02. We
    estimate that, compared with the average exchange rate for 2000/01, this impact
    reduced our share of operating losses by approximately £10 million. As a result of the devaluation
    of the Argentine peso, the Group reflected
    its share of an exceptional foreign exchange financing charge relating to
    a joint venture (Citelec) of £142 million, partially offset by the minority
    interests share amounting to £50 million as shown in Exceptional
    items above. Earnings/(loss) per share The adjusted basic earnings per share for 2001/02
    were 30.8 pence compared with 26.9 pence in the previous year. Basic earnings
    per share for 2001/02 fell from an earnings per share of 40.5 pence in 2000/01
    to a loss of 11.3 pence per share, reflecting the very significant level of
    net exceptional losses in 2001/02. A reconciliation of the movement from basic
    earnings per share to adjusted earnings per share is shown in note 11 to the
    accounts on page 73. Ordinary dividends
    As shown in the dividend table on page 32,
    the total National Grid ordinary dividend for 2001/02 amounted to 16.04 pence
    per ordinary share. This represented an increase of 6.4% over the previous
    year. Liquidity,
    resources and capital expenditure Cash flow Net cash inflow from operations in 2002/03
    was £2,826 million compared with £2,291 million in 2001/02 and
    £2,353 million in 2000/01. Included within net cash inflow from operations
    were exceptional cash outflows of £328 million; £103 million;
    and £129 million in 2002/03; 2001/02; and 2000/01 respectively.




Net cash inflow from operations before exceptional items was £3,154 million in 2002/03 compared with £2,394 million in 2001/02 and £2,482 million in 2000/01. The 2002/03 increase in net cash flow from
operations before exceptional items reflected the first full year contribution from Niagara Mohawk. The 2001/02 reduction in net cash flow from operations arose for a number of reasons: reduced adjusted operating profit from UK gas distribution; a
special pension payment to the Lattice pension fund of £275 million; with these partially offset by the collection of under-recovered power costs relating to 2000/01 in the US; the recovery of NETA-related development costs in the UK; and the
first contribution from Niagara Mohawk. Details of the components of net cash inflow from operations before exceptional items are set out in note 27(a) to the accounts on page 87. Exceptional cash flows in 2002/03 principally relate to cash flows arising from restructuring initiatives, Merger-related costs and environmental expenditure. In respect of 2001/02, exceptional cash outflows related to
environmental and restructuring costs. In respect of 2000/01, such cash outflows related to environmental, restructuring and other costs relating to the demerger of Lattice from BG Group. Payments to the providers of finance, in the form of dividends and interest, totalled £1,483 million (net) in 2002/03, compared with £1,183 million in 2001/02 and £1,027 million in 2000/01. Net
interest cash outflows increased from £687 million and £696 million in 2000/01 and 2001/02 respectively to £901 million in 2002/03. The increase between 2001/02 and 2002/03 primarily reflects the additional net interest expense
incurred for a full year following the acquisition of Niagara Mohawk on 31 January 2002. Net corporate tax payments amounted to £112 million in 2002/03 compared with £212 million in 2001/02 and £350 million in 2000/01. Net corporate tax payments in 2002/03 were lower than in 2001/02,
mainly as a result of: 
      the cessation of trade in
        186k creating balancing allowances that reduced UK corporation tax payable
        in 2002/03 by around £60 million; and
      the interaction of the timing
        of UK corporation tax payments on account and the Lattice Group post-tax
        exceptional charge in 2002/03 resulting in a reduction of around £40
        million as compared with 2001/02.





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Operating and Financial Reviewcontinued 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 million were
        received in 2001/02 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. Net purchases of tangible and intangible fixed assets absorbed cash of £1,407 million in 2002/03, compared with £1,543 million in 2001/02 and £1,206 million in 2000/01. The reduction in net cash
outflow in 2002/03 primarily reflects reductions in UK gas distribution; UK electricity and gas transmission; the disposal of The Leasing Group which purchased commercial vehicles and other assets for the Group; reduced expenditure on 186k assets;
partially offset by increased capital expenditure arising from the acquisition of Niagara Mohawk. The increase in net expenditure in 2001/02 mainly relates to the purchase of new National Transmission System and other high pressure gas pipeline
projects. Cash outflow in 2002/03 relating to the acquisition of Group undertakings and other investments amounted to £165 million, of which £153 million related to expected contractual funding obligations in respect
of joint ventures. Cash outflow in 2001/02 relating to the acquisition of Group undertakings and other investments amounted to £1,006 million, of which £932 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 £783 million in 2000/01. The 2000/01 cash outflows substantially related to the acquisition of EUA and an additional
investment in Intelig. Cash inflow from the disposal of investments in 2002/03 amounted to £328 million. This relates primarily to the receipt of £157 million in respect of the full settlement of deferred payment arrangements
arising from the sale of nuclear plant conducted before the completion of the acquisition of Niagara Mohawk, £53 million from the sale of other nuclear assets and £92 million from the sale of The Leasing Group. During 2002/03, the Group purchased for cancellation 24.2 million shares resulting in a cash outflow of £97 million.




Equity shareholders
    funds Equity shareholders funds fell from £1,690
    million at 31 March 2002 to £1,152 million at 31 March 2003. This reduction
    is primarily explained by net foreign exchange adjustments amounting to £322
    million; share buy-backs amounting to £97 million; and retained losses
    for the year amounting to £139 million. Capital expenditureCapital expenditure in 2002/03 was £1,520 million, compared with
    £1,847 million in 2001/02 and £1,504 million in 2000/01. The lower
    level of capital expenditure for 2002/03 as compared with 2001/02 reflects
    a lower level of capital expenditure relating to UK gas distribution and UK
    electricity and gas transmission and reduced capital expenditure relating
    to discontinued operations. An analysis of capital expenditure by segment
    is contained in note 2(d) to the accounts on page 65. The business review contains
    details of significant capital expenditure programmes. Net debt and gearing
    Net debt fell from £14,299 million at
    31 March 2002 to £13,878 million at 31 March 2003, primarily as a result
    of exchange adjustments. Gearing at 31 March 2003, calculated as net debt
    at that date expressed as a percentage of net debt plus net assets shown by
    the balance sheet amounted to 92%, up from 89% at the start of the year. By
    comparison, the gearing ratio, adjusted for the inclusion of UK businesses
    at their estimated regulatory asset values (adjusted gearing ratio),
    amounted to 59%, at both 31 March 2003 and 31 March 2002. The Group believes this adjusted
    ratio is a more relevant measure of gearing than one based on
    book values alone, because the book values do not reflect the economic value
    of those assets. A reconciliation of the adjustments
    necessary to calculate adjusted net assets is shown in the table below: £m
      
      £mNet assets per balance sheet
      1,236
      
      1,784Adjustment for increase in UK business
        regulatory values
      8,570
      
      8,072Adjusted net assets
      9,806
      
      9,856Adjustments to net assets
      2003
      
      2002 An analysis of debt is provided in note 20 to the accounts on page 77, and a reconciliation of the movement in net debt from 1 April 2002 to 31 March 2003 is provided in note 27(d)/(e) to the accounts on page 88.




Both short- and long-term cash flow forecasts are produced frequently to assist in identifying the liquidity requirements of the Group. These are supplemented by a financial headroom position that is supplied to the
Finance Committee of the Board regularly to demonstrate funding adequacy for at least a 12-month period. The Group also maintains a minimum level of committed facilities in support of that objective. Credit facilities and unutilised
    Commercial Paper and Medium Term Note ProgrammesAs at 31 March 2003, National Grid Transco
    had a US$2.0 billion US Commercial Paper Programme (US$1.1 billion unutilised);
    National Grid Company had a £250 million Sterling Commercial Paper Programme
    (unutilised); and National Grid Transco and National Grid Company had a joint
    Euro Medium Term Note Programme of€4
    billion (€3.6 billion unissued). Transco plc had a US$1.25 billion Euro
    Commercial Paper Programme (unutilised); a US$2.5 billion US Commercial Paper
    Programme (unutilised); a US$0.5 billion Extendible Commercial Note Programme
    (unutilised); and a Euro Medium Term Note Programme of€7.0
    billion (€2.3
    billion unissued). At 31 March 2003, the Group had £0.62 billion of short-term (364 day) committed facilities (undrawn); £0.6 billion and $2.1 billion of long-term committed facilities (undrawn); and £1.33 billion
(£0.9 billion undrawn) of uncommitted borrowing facilities. Companies within the National Grid USA group, excluding the Niagara Mohawk subgroup, had committed facilities of $419 million (£264 million), all of which were undrawn at 31 March 2003. Companies within the
Niagara Mohawk sub-group had committed bank facilities of $424 million (£267 million) which were also all undrawn at the year-end. Of these undrawn amounts, $843 million was providing support to debt issuance programmes within the US
group. 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 Board. The Finance Committee, a committee of
    the Board, is responsible for regular review and monitoring of treasury activity
    and for approval of specific transactions, the authority for which may be
    delegated. The Group has a Treasury function that raises all of the funding
    for the Group and manages interest rate and foreign exchange rate risk.


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The Group has separate financing programmes
  for each of the main Group companies. All funding programmes are approved by
  the Finance Committee of the Board and the Finance Committee of the appropriate
  Group undertaking. The Treasury function 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. The
    use of derivative financial instruments is controlled by policy guidelines
    set by the Board. 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 Holding Company Act of 1935 (PUHCA), National Grid Transco
    operates under certain regulatory restrictions applied by the SEC. As a result,
    the scope of the financing activity of the Group is limited to specific areas
    which are authorised from time to time, such authorisation being currently
    set sufficient to cover all normal requirements. In addition, the Company
    is required to maintain its consolidated common stock equity as a percentage
    of its total consolidated capitalisation (defined in general, as common stock
    equity plus preferred stock plus gross debt) measured on a book value US GAAP
    basis at 30% or above. At 31 March
    2003, this ratio stood at 38.4%. As a result of PUHCA and other US regulatory
    limits applicable to certain US companies in the Group, the freedom of these
    companies to provide financing amongst themselves is restricted. Nevertheless,
    external financings or other arrangements are in place to ensure that Group
    companies have adequate access to short-term liquidity. Details of the maturity, currency and interest
    rate profile of the Groups borrowings as at 31 March 2003 are shown
    in notes 20 and 21 to the accounts on pages 77 to 81. The Groups financial position enables
    it to borrow on the wholesale capital and money markets and most of its borrowings
    are through public bonds and commercial paper. The Group places surplus funds on the money
    markets usually in the form of short-term fixed deposits which are invested
    with approved banks and counterparties. Details relating to the Groups
    cash, short-term investments and other financial assets as at 31 March 2003
    are shown in note 21 to the accounts on page 80.




There exist within the Group
    different credit rated entities. For example, National Grid Company has a
    credit rating of A2/A. Transco has a credit rating of A2/A. Transco Holdings
    plc has been separately rated A3/A-. It is a condition of the regulatory ring-fences
    around National Grid Company, Transco and Transco Holdings plc that they use
    reasonable endeavours to maintain an investment grade credit rating. It is
    also an SEC requirement that National Grid Transco maintains an investment
    grade credit rating. By maintaining these ratings the principal borrowing
    entities of the Group should have ready access to the capital and money markets
    for future funding when necessary.
 The main risks arising from
    the Groups financing activities are set out below. The Board and the
    Finance Committee reviews and agrees policies for managing each risk and they
    are summarised below. Refinancing risk management
  The Board mainly controls refinancing risk
    by limiting the amount of financing obligations (both principal and interest)
    arising on borrowings in any 12-month and 36-month period. This policy restricts
    the Group from having an excessively large amount of debt to refinance in
    a given time-frame. During the year, a mixture of short-term and long-term
    debt was issued. Interest rate risk management
  The interest rate exposure of the Group arising
    from its borrowings and deposits is managed by the use of fixed and floating
    rate debt, interest rate swaps, swaptions and forward rate agreements. The
    Groups interest rate risk management policy is to seek to minimise total
    financing costs (ie interest costs and changes in the market value of debt)
    subject to constraints so that, even with large movements in interest rates,
    neither the interest cost nor the total financing cost can exceed pre-set
    limits. Some of the bonds in issue from National Grid Company and Transco
    Holdings plc are index-linked, ie their cost is linked to changes in the UK
    Retail Price Index (RPI). The Group believes these bonds provide a good hedge
    for revenues which are also RPI-linked under the price control formula. The performance of the Treasury
    function in interest rate risk management is measured by comparing the actual
    total financing costs of its debt with those of a passively-managed benchmark
    portfolio. Foreign exchange risk managementThe Group has a policy of hedging certain contractually
    committed foreign exchange transactions over a prescribed minimum size. It
    covers 75% of such transactions expected to occur up to six months in advance
    and




50% of transactions
  in the six to 12 month period in advance. Cover generally takes the form of
  forward sale or purchase of foreign currencies and must always relate to underlying
  operational cash flows.  The principal foreign exchange risk to which
    the Group is exposed arises from assets and liabilities not denominated in
    sterling. In relation to these, the objective 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. Foreign exchange 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 21 to the accounts on pages
    79 and 80. Counterparty risk management
Counterparty risk arises from the investment
    of surplus funds and from the use of derivative instruments. The Finance Committee
    has agreed a policy for managing such risk, which is controlled through credit
    limits, approvals and monitoring procedures. Derivative financial instruments held for purposes other than tradingAs part of its business operations, the Group
    is exposed to risks arising from fluctuations in interest rates and exchange
    rates. The Group uses off-balance sheet derivative financial instruments (derivatives)
    to manage exposures of this type and as such they are a useful tool in reducing
    risk. The Groups policy is not to use derivatives for trading purposes.
    Derivative transactions can, to varying degrees, carry both counterparty and
    market risk. The Group enters into interest rate swaps to
    manage the composition of floating and fixed rate debt, and so hedge the exposure
    of borrowings to interest rate movements. The Group enters into foreign currency
    swaps to manage the currency composition of borrowings and so hedge the exposure
    to exchange rate movements. Certain agreements are combined foreign currency
    and interest rate swap transactions. Such agreements are known as cross-currency
    swaps.





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The Group enters into forward rate agreements
    to hedge interest rate risk on short-term debt and money market investments.
    Forward rate agreements are commitments to fix an interest rate that is to
    be paid or received on a notional deposit of specified maturity, starting
    at a future specified date. Valuation and sensitivity analysis
The Group calculates the fair value of debt
    and derivative instruments by discounting all future cash flows by the market
    yield curve at the balance sheet date. In the case of instruments with optionality,
    the Blacks variation of the Black-Scholes model is used to calculate
    fair value. For debt and derivative instruments held, the
    Group utilises a sensitivity analysis technique to evaluate the effect that
    changes in relevant rates or prices will have on the market value of such
    instruments. At 31 March 2003, the potential change in the
    fair value of the aggregation of long-term debt and derivative instruments
    was £274 million and £474 million respectively assuming a 10%
    change in the level of interest rates and exchange rates. Commodity price hedging
In the normal course of business the Group
    is party to commodity derivatives. These include indexed swap contracts, gas
    futures, electricity swaps, gas options, gas forwards, gas basis swaps and
    oil commodity swaps that are principally used to manage commodity prices associated
    with its gas and electricity delivery operations. This includes the buying
    back of capacity rights already sold in accordance with the Groups UK
    Gas Transporters Licence and Network Code obligations. These financial exposures are monitored and
    managed as an integral part of the Groups financial risk management
    policy. At the core of this policy is a condition that the Group 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. The Group does not
    issue or intend to hold derivative instruments for trading purposes, and holds
    such instruments consistent with its various licence and regulatory obligations
    in the UK and US. As a result of the restructuring of the electricity
    industry in New York State during 1998, Niagara Mohawk entered into indexed
    swap contracts that expire in June 2008. 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. Another three swap contracts that expire in June and September
  2003 resulted from the sale of Niagara Mohawks fossil fuel generating
  stations. The indexed swaps and fossil fuel plant swaps are the subject of regulatory
  rulings that allow the gains and losses to be passed on to customers.  At 31 March 2003, the Group
    had liabilities of £502 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. A 10% movement in the market price of electricity would result in
    a £48 million movement in the value of the indexed swap contracts. There
    would be no impact on earnings as a result of a corresponding movement in
    the book value of the related regulatory asset. Payments made by Niagara Mohawk
    under indexed swap contracts are affected by the price of natural gas. Niagara
    Mohawk uses New York Mercantile Exchange (NYMEX) gas futures as hedges to
    mitigate this impact. The futures contracts are derivative instruments with
    gains and losses deferred as an offset to the corresponding increases and
    decreases in the swap payments. Gains relating to these contracts at 31 March
    2003 were not material and, as a result of regulatory treatments, have no
    impact on earnings. Niagara Mohawks gas rate
    agreement allows for collection of the commodity cost of natural gas sold
    to customers. The regulator also requires that actions be taken to limit the
    volatility in gas prices passed on to customers. Niagara Mohawk meets this
    requirement through the use of NYMEX gas futures and combinations of NYMEX
    call and put options structured as collars. These contracts are
    hedges of Niagara Mohawks natural gas purchases. Gains and losses are
    deferred until the month that the hedged contract settles. At 31 March 2003,
    deferred gains on these contracts were immaterial in the context of the Group
    as a whole. UK transmission is obliged to
    offer for sale through a series of auctions a predetermined quantity of entry
    capacity for every day in the year at pre-defined locations. Where, on the
    day, the gas transmission systems capability is constrained, such that
    gas is prevented from entering the system for which entry capacity rights
    have been sold, then UK transmission is required to buy back those entry capacity
    rights sold in excess of system capability. Forward and option contracts are
    used to




reduce the
  risk and exposure to on-the-day entry capacity prices.  UK transmission operations have also entered
    into electricity options, pursuant to its requirement to stabilise the electricity
    market in England and Wales through the operation of the new electricity trading
    arrangements (NETA). The options are for varying terms and have been entered
    into so that the Group has the ability to deliver electricity as required
    to meet its obligations under the electricity Transmission Licence. The Group
    has not and does not expect to enter into any significant derivatives in connection
    with its NETA role. Commitments, contingencies and litigation
Commitments and contingencies
The Groups commitments and contingencies
    outstanding at 31 March are summarised in the table below: Commitments and contingencies
      2003
      
      2002£m
      
      £mFuture capital expenditurecontracted for but not provided
      664
      
      550Total operatinglease commitments
      476
      
      387Power
          commitments
      6,329
      
      7,312Third
          party contingencies
      27
      
      455Other commitmentsand contingencies
      194
      
      202  The Group proposes to meet these commitments
    from 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, where they can be reasonably estimated, is shown
    in note 31 to the accounts on pages 91 to 93. Details of material litigation to which the Group was a party as at 31 March 2003As a result of a fatal accident in Larkhall,
    Lanarkshire in December 1999 in which four people died, the Crown Office in
    Scotland served an indictment on Transco on 5 February 2003. This charged
    the company with culpable homicide, with an alternative charge of a contravention
    of Sections 3 and 33 of the Health and Safety at Work Act 1974. Charging the
    company with culpable homicide is unprecedented under Scots law and therefore
    before a full trial can proceed, a number of fundamental legal issues associated
    with the indictment are required to be resolved. At a preliminary hearing
    in March 2003 to determine issues as to the competency and relevancy and other
    associated matters in relation to the charges, judgement was issued in favour
    of the Crown. Transco has appealed against this decision and the appeal hearing
    commenced on 20 May 2003. On




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indictment, the maximum penalties for both culpable homicide and contravention of Sections 3 and 33 are unlimited fines. 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 USA, 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 31 to the accounts on page 92. The Group has received notification of violations of US air pollution laws relating to the operation of two coal-fired generation plants, formerly owned by Niagara Mohawk. As a consequence, the Group has been notified
that US regulatory authorities are seeking substantial fines against the Group and the current owners of these generation plants. The Group is resisting these claims. Further details of this litigation are contained within note 31 to the accounts on
page 93. Critical accounting policies
    The Group accounts are prepared in accordance
    with UK GAAP. The Groups accounting policies are described on pages
    57 to 59 of 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 lives the 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. Goodwill, under UK GAAP, is principally being amortised over 20 years, and the economic lives of tangible fixed assets are disclosed in Accounting policies  e) Tangible fixed assets and depreciation.
The adoption of particular economic lives involves the exercise of judgement, and can materially impact on the profit and loss account. For the year ended 31 March 2003, the Group profit and loss account reflected goodwill amortisation and
depreciation of tangible fixed assets amounting to £102 million and £851 million respectively. Goodwill is not amortised under US GAAP, but is subject to regular impairment reviews. Impairment of fixed assets goodwill, 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 effect on the future results of the Group. Reviews for impairments are
    carried out under UK GAAP in the event that circumstances or events indicate
    the carrying value of fixed assets may not be recoverable. Examples of circumstances
    or events that might indicate that impairment had occurred include: a pattern
    of losses involving the fixed asset; a decline in the market value for a particular
    fixed asset; and an adverse change in the business or market in which the
    fixed asset is involved. When a review for impairment
    is carried out under UK GAAP, the carrying value of the asset, or group of
    assets if it is not reasonably practicable to identify cash flows arising
    from an individual fixed asset, are compared to the recoverable amount of
    that asset or group of assets. The recoverable amount is determined as being
    the higher of the expected net realisable value or the present value of the
    expected cash flows attributable to that asset or assets. The discount rate
    used to determine the present value is an estimate of the rate the market
    would expect on an equally risky investment, and is calculated on a pre-tax
    basis. Estimates of future cash flows relating to particular assets or groups
    of assets involve exercising a significant amount of judgement. During the year ended 31 March
    2003, reviews for impairments were carried out in respect of goodwill and
    other assets  telecoms, LNG, interconnector and metering. Net impairment
    charges were recorded in respect of telecoms assets  shown as exceptional
    and discussed under Exceptional items on page 30. Replacement expenditurerepresents
    the cost of planned maintenance on gas mains and services assets, the vast
    majority relating to the Groups UK gas distribution business. This expenditure
    is principally undertaken to maintain the safety of the gas network in the
    UK and is written off to the profit and loss account as incurred, because
    such expenditure does not enhance the performance of those assets. If such
    expenditure in the future were considered to enhance these assets, it would
    be capitalised and treated as an addition to tangible fixed assets, thereby
    significantly affecting the reporting of future results. The total amount charged to
    the profit and loss account in respect of replacement expenditure during the
    year ended 31 March 2003 was £405 million. This




accounting policy only materially affects the results of the UK gas distribution segment. Under US GAAP, this expenditure is capitalised. The US GAAP accounting policy is shown in note 34 to the accounts Fixed assets  impact of Lattice purchase accounting and replacement expenditure on
page 104. Regulatory assetsare recorded in the accounts under UK GAAP in accordance with the principles of SFAS 71 Accounting for the Effects of Certain Types of
Regulation, a US GAAP accounting standard. If the principles of SFAS 71 were not applicable, it would result in the non-recognition of these assets, and thereby materially alter the view given by the accounts. In applying the principles of SFAS 71, UK GAAP measurement principles are followed in the preparation of the Groups UK GAAP results. Regulatory assets under UK GAAP are only recognised if a US GAAP regulatory
asset has already been recognised, but UK GAAP measurement principles are followed with only those regulatory assets arising as a result of a past transaction or event being recorded. Regulatory assets are only recognised in respect of US
activities, and primarily relate to the US electricity distribution segment. The total carrying value of regulatory assets, under UK GAAP, at 31 March 2003 amounted to £3,743 million. Turnoverincludes an assessment of energy and transportation services supplied to customers between the date of the last meter reading and the year end. Changes to the
estimate of the energy or transportation services supplied during this period would have an impact on the reported results of the Group. Estimates of energy supplied are made based on a combination of known energy purchases and historical pattern of billings information. These estimates only affect US electricity transmission, US electricity
distribution and US gas activities. Turnover in respect of transportation services supplied comprises amounts invoiced to shippers plus an estimate for transportation services supplied but not yet invoiced, which substantially represented the
transportation services supplied in respect of the last month of the year. The estimated element of turnover is determined as the total of commodity services supplied, calculated from the actual volume of gas transported at estimated weighted
average prices, based on recent history





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Operating and Financial Reviewcontinued and the value of capacity services supplied, which are contracted amounts. This estimate affects the UK gas distribution and UK electricity and gas transmission segments. Under UK GAAP, the Group is not permitted to and has not recognised any liability for amounts received or receivable from customers in excess of the maximum amount allowed for the year under regulatory agreements that
will result in an adjustment to future prices. Under US GAAP such liabilities are recognised. 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 scheme in accordance with SSAP 24. As explained in note 7 to the accounts on page 69, a new UK accounting standard (FRS 17) will replace existing GAAP and significantly change the
measurement and disclosure of pension and other post-retirement costs in the Group accounts. Pension and other post-retirement benefits are inherently long term, and future experience may differ from the actuarial assumptions used to determine the net charge for pension and other post-retirement
charges. As explained on page 31 in Pension accounting, as a result of the deterioration of world stock markets, illustrating that the Groups actual experience has differed from actuarial assumptions, the Directors have
suspended the continuing amortisation of pension surpluses relating to UK pension schemes with effect from 1 October 2002. Note 7 to the accounts on page 68 describes the principal assumptions that have been used to determine the pension and post-retirement charges in accordance with current UK GAAP. The calculation of any charge relating
to pensions and other post-retirement benefits is clearly dependent on the assumptions used, which reflects the exercise of judgement. Management exercises that judgement having regard to independent actuarial advice. As shown in note 7 to the accounts on pages 69 and 70, the application of the measurement principles of FRS 17 would significantly affect the results of the Group, reducing the pre-exceptional net charge for
pensions and other post-retirement benefits by £61 million (pre-tax). Restructuring costs the application of UK GAAP measurement principles results in the recognition of restructuring costs, mainly redundancy related, when the




Group is irrevocably committed
    to the expenditure, with the main features of any restructuring plan being
    communicated to affected employees. If material, these costs are recognised
    as exceptional. Restructuring costs recognised
    by the Group are referred to in Exceptional items for each year
    discussed above. Derivative financial instruments derivatives are used by the
    Group to manage its interest rate, foreign currency and commodity price risks
    in respect of expected energy usage. All such transactions are undertaken
    to provide a commercial hedge of risks entered into by the Group. With the exception of indexed-linked
    swap contracts, UK GAAP applies an historical cost and hedge
    accounting model to these derivatives. Substantially, this model results
    in gains and losses arising on derivatives being recognised in the profit
    and loss account or statement of total recognised gains and losses at the
    same time as the gain or loss on the item being hedged is recognised. The application of a fair
    value model would result in derivatives being marked to market. Gains
    or losses relating to these derivatives may or may not be recognised in the
    profit and loss account or statement of total recognised gains and losses
    at the same time as any related gains or losses on underlying economic exposures,
    depending upon whether the derivatives are deemed to have a hedging relationship. Note 21 to the accounts on pages
    79 to 81 gives a significant amount of detail relating to the Groups
    financial instruments. This includes the identification of the difference
    between the carrying value and fair value of the Groups
    financial instruments, including derivatives. Environmental liabilities provision is made for liabilities
    arising from environmental restoration and remediation costs relating to various
    sites owned by the Group. The calculation of this provision is based on estimated
    cash flows relating to these costs discounted at an appropriate rate where
    the impact of discounting is material. The total costs and timing of cash
    flows relating to environmental liabilities are based on management estimates,
    and include the use of external consultants. There may be variances from these
    amounts that could materially affect future results. Related party
    transactions The Group provides services to and receives
    services from its related parties. In the year ended 31 March 2003, the Group
    charged £21 million and received charges




of £72 million from its related parties. Amounts charged to and by Energis, the Groups former associate, amounted to £19 million and £20 million respectively. Amounts charged to Energis were primarily in respect of enhancements to and maintenance of the Energis telecoms infrastructure, while amounts charged by Energis relate to telecoms services provided. Amounts charged to
Energis also include £11 million in respect of a finance lease. On 12 October 2002, the Group sold its subsidiary, The Leasing Group, which consequently became treated as a related party from that date until the year end. Amounts charged to and by The Leasing Group during this period amounted to £nil and £13 million respectively. During the year, amounts were paid to or in respect of joint ventures, arising from the Groups obligations from its decision to exit from these investments, totalling £153 million, all of which had been
provided for at 31 March 2002. Further details relating to related parties is contained within note 30 to the accounts on page 91. Changes and developments
    Any significant changes and developments that
    have occurred since 31 March 2003 have been noted in this Annual Report and
    Accounts 2002/03. Otherwise, there have been no significant changes or developments
    since 31 March 2003. 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 differs in certain significant respects from US GAAP. The
    US GAAP accounting information in note 34 to the accounts on pages 100 to
    106 gives a summary of the main differences between the amounts determined
    in accordance with the Groups accounting policies (based on UK GAAP)
    and those determined in accordance with US GAAP. In addition, summary income
    statements, summary balance sheets, summary cash flows and a reconciliation
    of net income and equity shareholders funds from UK to US GAAP are provided
    in note 33 to the accounts on pages 93 to 100.


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As referred to earlier, UK GAAP merger accounting principles have been adopted in accounting for the business combination of National Grid and Lattice. Under US GAAP, acquisition accounting principles have been applied
to the business combination, which is a fundamentally different method of accounting from merger accounting. Under US GAAP, National Grid is viewed as the acquirer of Lattice, and as a result the separately identifiable net assets attributable to Lattice have been fair valued at the date of acquisition on 21 October 2002.
Note 34 to the accounts on pages 100 and 101 details the fair value of the separately identifiable net assets acquired, together with the principal adjustments made to the book values at that date. A further consequence of acquisition accounting, in contrast to merger accounting, is that the results of the Group under US GAAP only include the results of Lattice with effect from the date of acquisition. Therefore,
under US GAAP, in respect of the Group results for the three years ended 31 March 2003, Lattice results only feature in the period 21 October 2002 to 31 March 2003. In addition, because fair values have been attributed to Lattices separately
identifiable net assets rather than the book values as used in merger accounting, goodwill is recognised. Net income from continuing operations for 2002/03 under US GAAP was £790 million (2001/02: £690 million; 2000/01: £423 million). The US GAAP results for 2002/03, 2001/02 and 2000/01 include losses
(profits) relating to discontinued operations amounting to £39 million; £857 million; and £387 million (profits) respectively. Consequently, net income for 2002/03 under US GAAP was £751 million (2001/02: £167 million
(net loss); 2000/01: £810 million). This compares with the net income (loss) under UK GAAP for 2002/03, 2001/02 and 2000/01 of £391 million; £321 million (loss); and £1,124 million respectively. Equity shareholders
funds under US GAAP at 31 March 2003 were £9,426 million (31 March 2002: £3,759 million) compared with £1,152 million (31 March 2002: £1,690 million) under UK GAAP. Because the application of merger accounting principles under UK GAAP has fundamentally affected the comparison of UK GAAP results with US GAAP results, the following is a discussion of the impact the application of US
GAAP has had on the results, which should be read in conjunction with the review of the business results given on pages 10 to 20 and the rest of this financial review.




The treatment of Lattice as an
    acquisition under US GAAP has significantly impacted on the UK electricity
    and gas transmission segment, UK gas distribution segment, and Other,
    as compared with the treatment under UK GAAP. The remaining segments are unaffected
    by differences caused as a result of differences between merger and acquisition
    accounting principles. Consequently, this has impacted
    on the results of the segments, as follows: 
      The results of the UK electricity
        and gas transmission segment for 2000/01 and 2001/02 under US GAAP relate
        solely to UK electricity activities, excluding the impact of any gas transmission
        activity, which is shown under UK GAAP. UK gas transmission has only impacted
        on the UK electricity and gas transmission in 2002/03 since the date of
        acquisition on 21 October 2002 and contributed £96 million to operating
        profit since that date;
      UK gas distribution is a
        new segment created as a result of the acquisition of Lattice. As a result,
        there is no impact on the operating result of UK gas distribution for
        2001/02 or 2000/01 but the segment contributed £567 million to operating
        profit for 2002/03; and
      Similarly, the operating
        loss for Other in respect of 2000/01 and 2001/02 relates solely
        to the activities of National Grid, which related primarily to the activities
        of EnMo, contracting activities and other costs incurred that were not
        attributable to business segments. In 2002/03, the operating loss of Other
        amounted to £60 million, including a loss of £26 million arising
        from the acquisition of Lattice. A full tabulation of the operating
    results and other segmental information under US GAAP is shown in note 33
    to the accounts on page 98. Note 33 to the accounts on pages
    93 to 100 show a summary income statement for 2002/03; 2001/02; and 2000/01
    under US GAAP. These statements have reconciled the impact that all material
    US GAAP adjustments have had on the UK GAAP income statement, including the
    impact of the elimination of all merger accounting (pooling of interests)
    adjustments under UK GAAP, and the inclusion of acquisition (purchase accounting)
    adjustments under US GAAP. The adjustments eliminating the pre-acquisition
    UK GAAP results impacting on turnover and operating costs are much larger
    in 2000/01 and 2001/02 than in 2002/03, as the adjustments do not eliminate
    post-acquisition results of Lattice since the date of acquisition.




Some of the adjustments included within the US GAAP summary income statements and balance sheet substantially reflect reclassifications of items that are treated differently under UK GAAP and US GAAP, but that do not
significantly impact on net income or net assets. Under UK GAAP, the operating results of discontinued operations are classified as part of total operating profit, whereas under US GAAP these amounts are shown net of any related interest and tax and shown as net
income from discontinued operations. Similarly, under UK GAAP, the share of equity affiliates operating profit/(loss); net interest; taxation; and minority interests are accounted for separately, whereas under US GAAP all these amounts
are accounted for within interest in equity accounted affiliates. The principal adjustments to UK GAAP net income that have had a net impact in arriving at US GAAP net income are shown in note 33 to the accounts on page 99. Explanations
for the principal reasons giving rise to differences between UK and US GAAP are shown in note 34 to the accounts on pages 100 to 106. The treatment of the business combination of Lattice as an acquisition by National Grid has resulted in the recognition of provisional goodwill amounting to £3,813 million as a result of allocating provisional
fair values to the separately identifiable net assets of Lattice at the date of acquisition. The fair values attributed to the net assets of Lattice, together with a description of the purchase allocation process undertaken, is shown in note 34 to
the accounts on pages 100 and 101. The application of acquisition accounting principles explains the vast majority of the increase in equity shareholders funds at 31 March 2003 from £1,152 million under UK GAAP to £9,426 million
under US GAAP. A summary US GAAP balance sheet at 31 March 2002 and 31 March 2003 is shown in note 33 to the accounts on page 97. The balance sheet at 31 March 2003 reflects the impact of the incorporation of Lattice-related net
assets at fair value on the date of acquisition. During 2002/03, as a result of the decline in the market value of pension scheme assets and in accordance with the requirements of SFAS 87, the Group has recognised an additional minimum pension liability of
£1,583 million, of which £1,301 million (pre-tax) has been reflected through other comprehensive income. A reconciliation of the funded status of the Group pension and other post-retirement schemes is shown in note 34 to the accounts on
page 103.





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Operating and Financial Reviewcontinued During 2002/03,
        the Group adopted the following US GAAP accounting standards:
      SFAS 144 Accounting
        for the Impairment or Disposal of Long-Lived Assets;
      SFAS 145 Recession
        of FASB Statements No. 4, 44 and 64,Amendment of FASB Statement No.13 and Technical Corrections;
      SFAS 146 Accounting
        for Costs Associated with Exit or Disposal Activities;
      SFAS 148 Accounting
        for Stock-Based Compensation  Transition and Disclosure
      An Amendment of FAS No.123;
        and
      FASB Interpretation
        (FIN) 45 Guarantors Accounting and Disclosure Requirements for Guarantees,
        Including Indirect Guarantees of Indebtedness of Others.Details of the
        effect of adopting these accounting standards can be seen in note 34 to
        the accounts on page 106.Other
        mattersInflationIn the UK, the Group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 the Groups cost
    base, this impact would be more than offset by increased revenue allowed under
    the Groups regulated revenue controls. Higher inflation would increase
    the cost base of the Groups US businesses. However, if there is a significant
    change in the rate of inflation, as measured by the change in the Gross Domestic
    Product Implicit Price Deflator, the regulatory settlements in Massachusetts,
    Rhode Island and New York 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 and gas can
    vary on a seasonal basis, the Groups UK transmission turnover and adjusted
    earnings are not, generally speaking, subject to substantial seasonal variations,
    because the largest elements of UK transmission turnover relate to customers
    use of the transmission systems. Customers are charged for these
    services in a number of ways, some giving rise to




variation in income over a financial year, but overall this typically provides for a relatively constant revenue stream over the course of the financial year. UK gas distribution is subject to regulatory agreements governing the maximum revenue that should be billed in a financial year. But the timings of the recognition of these revenues are such that typically 60% of total
revenue would be recognised in the second half of the year. US electricity transmission would normally provide for a relatively constant revenue stream over the course of a financial year. US electricity distribution and US gas would usually expect total revenues in the second half of the year to be higher than the first half, as a result of a higher demand for energy in the winter months. Euro In January 2002, the euro was introduced as
    the cash currency in 12 European Union countries. This has had minimal impact
    on the operations of the Group. The UK may introduce the euro at a later date
    requiring sterling to convert irrevocably into the euro. The Group will continue
    to monitor and upgrade the progress already made on assessing the implications
    of the introduction of the euro for the Group.


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Directors Report and Operating
  and Financial ReviewCorporate Governance and Internal Control

Corporate Governance  Compliance  Corporate Governance is essentially the way companies
  are directed and controlled. Shareholders are responsible for appointing the
  directors and the directors are then responsible for the governance of the company.
  The Annual Report is the main way the directors can report back to shareholders
  on the system of corporate governance they have put in place.  The following section should allow shareholders
    to understand how corporate governance operates at National Grid Transco.
    This explanation is required by the Listing Rules of the UK Listing Authority
    and must set out how the Principles of Good Governance of the Combined Code,
    which is attached to the Listing Rules, have been applied. As part of the Merger process, the Board carried
    out a thorough governance review. It considered all procedures, policies and
    authorities as well as board and committee structures to ensure that these
    were appropriate for the newly merged Group. The aim of the Board is that
    the Company has in place the highest standards of corporate governance. The
    explanation of National Grid Transcos corporate governance (as set out
    below) relates to the principles adopted following the Merger. The Combined Code also contains a Code of Best
    Practice. Companies are required to state whether or not they have complied
    with its provisions and provide explanations where they have not. National
    Grid Transco complied with all the provisions during the year except that
    requiring the appointment of a senior independent director. It was only following
    the Merger that James Ross, previously Chairman of National Grid Group, was
    nominated as the Senior Independent Director. Prior to this, it was felt that
    the Chairman and Group Chief Executive were the appropriate points of contact
    for shareholders with any concerns. This provides shareholders with a further
    point of contact in the event they wish to raise issues that they do not wish
    to discuss with the Chairman or Group Chief Executive. Shareholders may be aware of the recent Review
    of the role and effectiveness of non-executive directors by Derek Higgs.
    The review suggested a number of changes to the Combined Code. National Grid
    Transco considers that, following a modest number of appropriate changes,
    it will be well placed to comply with the majority of the recommendations
    contained in the Higgs Review. Relations with shareholders
National Grid Transco has regular meetings




with institutional investors,
    fund managers and financial analysts throughout the year. These meetings are
    used to discuss information made public by the Company.
 Twice a year, following the
    publication of results, the general views of institutional shareholders prepared
    by the Companys brokers are discussed with the Board. This ensures that
    each of the Directors, including the Non-executive Directors, is fully aware
    of shareholders views and any outstanding issues. The Annual General Meeting (AGM)
    is the principal meeting at which National Grid Transco communicates directly
    with its many individual shareholders. This meeting is used to present the
    years results to shareholders and allows any shareholder to ask questions
    of the Directors, all of whom will normally attend the AGM. National Grid Transco will also
    continue the programme offered by National Grid that allowed shareholders
    to visit the Company, see operations at first hand and speak to senior members
    of staff and Directors about the business. For more information on Shareholder
    networking see page 120. DirectorsThe Board of Directors is responsible for managing
    the Companys business and for establishing and overseeing its governance
    framework. This is based on National Grid Transcos Framework for Responsible
    Business, which contains statements on sustainable growth, profits with responsibility,
    investing in the future and behavioural values. This statement ties together
    elements of National Grid Transcos governance framework which includes
    Board Committee Terms of Reference, Delegations of Authority and the Share
    Dealing Code. National Grid Transcos
    Board consists of the Chairman, the Group Chief Executive, six Executive Directors
    and seven Non-executive Directors (including the Deputy Chairman). The biographies
    of each of the Directors, setting out their current roles and previous experience,
    are on pages 26 and 27. The Board considers that each
    of the Non-executive Directors is independent. This means that in the view
    of the Board they have no links to the Executive Directors and other managers
    and no business or other relationship with the Company that could interfere
    with their judgement. To ensure its effectiveness,
    the Board has a number of matters reserved to it. By controlling these selected
    items, for example approving the Groups financial




policy and
  establishing Board committees, the Board ensures that it maintains control on
  the corporate governance of the Company. The Board is also in the process of
  adopting an internal procedure to evaluate the performance of the whole Board,
  each Committee, the Chairman and each individual Director.  During the year, the Board met formally 15
    times, excluding separate strategy meetings. For each scheduled meeting the
    Company Secretary, on behalf of the Chairman, collates the relevant papers
    and circulates them to all Directors, aiming to provide papers a minimum of
    four working days in advance of any meeting. All papers are considered at
    a senior level, often being considered first by the Group Executive Committee,
    and must receive support from a relevant Director. All Directors are required to be re-elected
    by shareholders at the AGM following their appointment by the Board and then
    at least once every three years. To ensure that a representative number of
    Directors are re-elected by shareholders, each year one-third of the Board
    (excluding new Directors) must stand for re-election at each AGM. Nominations Committee
The main role of the Nominations Committee
    is to review the structure, size and composition of the Board, nominating
    candidates where vacancies arise. It consists of the Chairman and four Non-executive
    Directors who consider the appointment of any new Director or Company Secretary
    and make recommendations to the Board. The Nominations Committee, which has
    clearly defined terms of reference, also considers the periodic re-election
    of the Non-executive Directors. Remuneration Committee
A Remuneration Committee, consisting exclusively
    of Non-executive Directors, ensures that the Company has an appropriate remuneration
    policy for its Executive Directors and certain senior managers. The Remuneration
    Committee acts under clear terms of reference and aims to ensure that rewards
    are linked to performance. A full report on Directors remuneration,
    reviewed and approved by the Remuneration Committee, is on pages 44 to 52
    of this report. Audit Committee
An Audit Committee is in place, with clear
    terms of reference, to keep under review and report to the Board on the effectiveness
    of the Companys financial reporting, internal control policies and procedures
    for risk management and internal audit. The Audit Committee consists entirely
    of independent







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Corporate Governance and Internal Control continued  Non-executive
        Directors and meets at least four times during the year. The Audit Committee
        will also meet separately with the external auditors and is responsible
        for their appointment and compensation.The Audit Committee
        is also responsible for managing the relationship with the external auditors
        including:
      ensuring the independence
        and objectivity of the external auditors;
      considering the level of
        audit fees (value for money) and fees paid to external auditors in respect
        of non-audit services; and
      discussions with the external
        auditors concerning compliance issues.In relation
        to non-audit work by the external auditors, the Audit Committee must approve
        all such work in advance. Details of both the audit fees and the fees
        paid for non-audit services are given in note 3 to the accounts on page
        65.Risk and
        Responsibility CommitteeThe Risk and Responsibility
        Committee consists of three Non-executive Directors, including the Deputy
        Chairman, and meets at least four times a year.The main duties
        of this Committee, as set out in its terms of reference, are to review
        proactively the strategies, policies, management, initiatives, targets
        and performance of the Company, and where appropriate our suppliers and
        contractors, in relation to occupational and public safety, occupational
        health, environment, equality and diversity, human rights and business
        ethics and the role of the Company in society.Finance CommitteeThe Finance Committee is made
        up of the Group Chief Executive, the Group Finance Director and two independent
        Non-executive Directors. It is chaired by a Non-executive Director.The Finance
        Committee meets at least four times a year to consider and set finance
        policies and make recommendations to the Board relating to items such
        as pensions and Company tax strategy.Executive
        CommitteeThe Board has essentially delegated authority for the day-to-day running
        of the Company to the Executive Committee. As noted above, the Board retains
        certain responsibilities but delegates to the Executive Committee tasks
        such as the development of Group strategy for Board discussion and approval
        and the implementation of Board strategy.




The Executive
        Committee is chaired by the Group Chief Executive and comprises each of
        the other Executive Directors, Fiona Smith, the Group General Counsel
        and Mike Jesanis, the Chief Operating Officer of National Grid USA. The
        Executive Committee meets monthly and additionally as necessary.Internal
        ControlNational Grid Transcos
        system of internal control helps to safeguard shareholders investment
        and the Groups assets and is designed to manage, rather than 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. Following
        the Merger, the National Grid Transco Board has approved a new governance
        framework for the new organisation recognising that this is a key element
        of internal control.In response
        to the requirements of the Sarbanes-Oxley Act 2002, National Grid Transco
        has constituted several disclosure committees. The Group disclosure committee
        is chaired by the Group Finance Director. The main purpose of the committee
        is to ensure that when disclosing information the Company represents itself
        completely, fairly and accurately to its security holders and that it
        complies with applicable laws and stock exchange requirements.Up to the point
        of Merger, both National Grid and Lattice had ongoing processes in place
        for identifying, evaluating and managing the significant risks faced by
        the respective groups. Both of these processes were compliant with the
        Turnbull working party guidance (published September 1999) and the ABI
        Disclosure Guidelines on Socially Responsible Investment (published October
        2001) which focus on Social, Ethical and Environmental risks. While National
        Grid Transco has continued to utilise those same processes for the remainder
        of the financial year, work has commenced to identify and pull together
        the best risk management practices from across the new Group. Subsequently,
        a new integrated approach that compares favourably with external perspectives
        of best practice will be rolled out to the new organisation in 2003/04.
        Notwithstanding this, the risk management process adopted for year-end
        reporting has promoted both a top-down and bottom-up assessment of risk.
      The top-down assessment
        has involved the Executive Directors and a number of senior executives
        from the businesses




and Corporate Centre. It
        has resulted in a balanced and robust identification and consideration
        of cross-organisation risks that have been clearly aligned to National
        Grid Transcos key strategic and operational objectives.
      The bottom-up assessment,
        undertaken in accordance with interim risk assessment and reporting guidance,
        has resulted in the detailed analysis of risks by the individual businesses
        and corporate functions captured in the form of risk registers.Subsequently,
        both elements have been pulled together through the production of a Schedule
        of Board-level risks. That Schedule has been presented to and discussed
        with both the Audit Committee and the Risk and Responsibility Committee.Any material
        changes to the risks and associated controls and actions contained in
        the Schedule of Board-level risks and business risk registers are reported
        through the monthly operational business performance reports to the Executive
        Committee. In addition, quarterly meetings are held with Executive Directors
        specifically to review and discuss key changes in risk profiles.National Grid
        Transco recognises that the implementation of risk management is an iterative
        process and subject to continuing improvement. During the year, National
        Grid USA and Niagara Mohawk (which was acquired in January 2002) have
        integrated their risk management practices. After the Merger, the process
        of introducing a compliance management process that seeks to raise visibility
        and awareness around the ever-expanding compliance obligations has been
        introduced. By utilising a top-down view of compliance obligations developed
        by Group Legal, the businesses have:
      identified their key compliance
        obligations and the potential impacts of non-compliance;
      identified existing controls,
        designed and implemented in the first instance to ensure compliance or
        flag instances of non-compliance should they occur;
      self-assessed the effectiveness
        of those existing controls and identified improvement actions; and
      discussed their findings
        with their respective management teams.The Group is
        committed to continuing to raise the visibility and robustness of compliance
        management throughout the organisation.


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Following
  the Merger, the National Grid Transco Board has approved, as part of the new
  governance framework, its process for reviewing the effectiveness of internal
  control. That process recognises that assurance over the effectiveness of internal
  control including risk management flows through two main sources, namely line
  managers and independent assurance providers. The Board, through the Executive
  Committee and the Audit Committee (the latter complemented by the Risk and Responsibility
  Committee), regularly reviews the effectiveness of internal control, including
  the process for identifying, evaluating and managing significant risks and compliance
  obligations through the assurance mechanisms detailed below. Any material matters
  arising are reported to the Board.  Throughout
        the year:The Executive
        Committee considers:
      monthly safety and environmental
        performance reports;
      monthly operational business
        performance reports;
      the Groups annual
        business plan, including the capital programme and the annual operating
        budget;
      proposals for new business
        development and significant project expenditure;
      half-yearly self-certifications
        on the completeness and accuracy of financial statements and associated
        disclosures;
      half-yearly reviews of risk
        and compliance registers; and
      on an exceptions basis,
        reports on the results of internal audits, safety and environmental audits
        and occupational health reviews.The Audit
        Committee considers:
      external and internal audit
        work plans;
      summary reports from external
        and internal audit on significant financial matters arising;





      key risks and compliance
        obligations and the extent to which risk and compliance management is
        being embedded in the organisation;
      specific reports from management
        on the actions taken to manage key risk areas and, if applicable, to address
        material control weaknesses and any instances of ethical misconduct and
        matters investigated as a result of whistleblowing; and
      the performance of the external
        auditors and internal audit.The Risk
        and Responsibility Committee considers:
      key risks of a non-financial
        nature;
      safety, health and environmental
        audit plans;
      summary reports from assurance
        providers on significant non-financial matters arising; and
      specific reports from management
        on the actions taken to manage certain key non-financial risk areas and,
        if applicable, to address relevant material control weaknesses and any
        instances of ethical misconduct and matters investigated as a result of
        whistleblowing.At the end
        of each financial year:The Board:
      receives the Group Chief
        Executives Letter of Assurance which seeks to confirm compliance
        with all major internal and external requirements, the existence of appropriate
        internal controls and risk management processes and provides details of
        material risks and any control weaknesses; and
      confirms that it has conducted
        a formal review of the effectiveness of internal control based on the
        information and assurances provided to it.The Audit
        Committee considers:
      the effectiveness of the
        Annual Letter of




Assurance process
        and the assurances provided by the Group Chief Executive to the Board;
      a report from the Group
        disclosure committee;
      a report from the Group
        Head of Audit on internal audit issues and the effectiveness of the control
        framework including fraud and malpractice occurances;
      specific reports on significant
        corporate governance and legal issues and risk management; and
      external audit issues.The Risk
        and Responsibility Committee considers:
      specific reports on safety,
        health, environment and corporate responsibility;
      specific reports on significant
        corporate governance and legal issues and risk management.Evaluation
        of disclosure controls and proceduresWithin the 90 day period prior to the filing date of this report, the
        Company carried out an evaluation under the supervision and with the participation
        of its management, including the Group Chief Executive and Group Finance
        Director, of the effectiveness of the design and operation of the Groups
        disclosure controls and procedures. Based upon and as of that evaluation,
        the Group Chief Executive and Group Finance Director concluded that the
        disclosure controls and procedures are effective in all material respects
        to ensure that the information required to be disclosed in the reports
        that National Grid Transco files and submits under the US Securities Exchange
        Act of 1934, as amended, is recorded, processed, summarised and reported
        as and when required.There have been
        no significant changes in the Companys internal controls or in other
        factors that could significantly affect these controls subsequent to the
        date of their evaluation.







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        Report and Operating and Financial ReviewDirectors
        Remuneration Report
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|Remuneration
        Committee Role of the Remuneration Committee and
        its Terms of Reference The Remuneration Committee is responsible
        for developing Group policy on executive remuneration, and for determining
        the remuneration of Executive Directors and the executives below Board
        level who report directly to the Chief Executive. It also monitors the
        remuneration of other senior employees of the Group and has oversight
        of the operation of all the Groups share and share option plans.
        The Remuneration Committee operates within terms of reference agreed by
        the Board.
      The Board has accepted all of the recommendations
        made by the Remuneration Committee during the year.
      Composition of the Remuneration Committee
        The Remuneration Committee is made up entirely
        of independent Non-executive Directors. The members of the Remuneration
        Committee have been as follows:
      John Grant (Chairman of the National
        Grid Transco Remuneration Committee since the Merger, and member of the
        National Grid Remuneration Committee until then)
      Kenneth Harvey (appointed to the National
        Grid Transco Remuneration Committee since the Merger)
      Dr Bonnie Hill (appointed to the National
        Grid Transco Remuneration Committee since the Merger)
      George Rose (appointed to the National
        Grid Transco Remuneration Committee since the Merger)
      Bob Faircloth (Chairman of the National
        Grid Remuneration Committee until the Merger)
      Richard Reynolds (member of the National
        Grid Remuneration Committee until the Merger).
      The Group Chairman, Deputy Chairman,
        Chief Executive and Group Director for Human Resources (Pat Fulker) are
        invited to attend meetings to provide advice on remuneration policies
        and practices. Mark Johnson, former Director of Human Resources at National
        Grid, also assisted the National Grid Remuneration Committee in its consideration
        of Directors remuneration before the Merger. No Director participates
        in any discussion on his or her own remuneration.
      The Remuneration Committee also drew
        on advice from the following external independent remuneration consultants: |                                                                                                   

















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payments in view of operating circumstances during the year. For the financial year 2003/04, the target and maximum bonus levels for UK-based Executive Directors are 50% and 75% of salary respectively. Rick Sergel has
lower target and maximum bonus levels of 41.7% and 62.5% of base salary respectively. Rick Sergel also participates in the USA Goals Program, an all-employee bonus plan that can pay up to 4.5% of base salary on the achievement of certain earnings
and performance targets. In line with US market practice, Rick Sergels cash bonuses are pensionable. A predetermined part of each Directors bonus entitlement is automatically deferred (net of tax) into National Grid Transco shares, and a matching award may be made under the Share Matching Plan. Currently,
UK-based Executive Directors are required to defer one third of any cash annual bonus into shares in this way. At the end of three years, provided the Director is still employed by the Group, additional matching shares equal in value at the date of
deferral to the pre-tax value of the amount of bonus deferred are released to the individual. US executives, including Rick Sergel, participate in this plan on a slightly different basis, in that an award calculated as a proportion of their cash
annual bonus (currently 60% for Rick Sergel) is paid under this plan in National Grid Transco shares or American Depository Shares (ADSs) subject to a minimum three-year vesting period. The total target and maximum values of the annual bonus plan,
including deferral and matching, are therefore 67% and 100% of base salary respectively for all Executive Directors. The participant also receives a cash payment equal to the dividends that have been paid on the matching shares over the three-year
holding period. The Remuneration Committee believes that operation of the Share Matching Plan as part of the annual bonus plan allows National Grid Transco to maintain competitiveness in annual bonus levels, while ensuring that
Executive Directors hold a significant proportion of their remuneration in shares. Requiring Executive Directors to invest in the Group increases the proportion of rewards linked to both short-term performance and longer-term total shareholder
returns. The bonus deferral and share match also acts as a retention tool and ensures that Executive Directors share a significant level of personal risk with the Companys shareholders. Long-term incentives:The long-term incentive plans currently approved by shareholders are the National Grid Transco Performance Share Plan (PSP), the National Grid
Executive Share Option Plan (ESOP) and the National Grid Group Share Matching




Plan described above. National
    Grid Transco has made a commitment to shareholders to make grants under no
    more than two long-term incentive plans to any one Director in any year. For
    the year to 31 March 2004, the Remuneration Committee has decided to make
    grants under the PSP and the Share Matching Plan. The PSP has been selected
    in preference to the ESOP because the Remuneration Committee believes rewards
    from the PSP are likely to be less volatile, and less influenced by general
    stock market movements, than would be the case with the ESOP. Under the PSP, Executive Directors,
    and certain other employees who have significant influence over the Groups
    ability to meet its strategic objectives, receive notional allocations of
    shares worth up to a maximum of 125% of base salary. Shares vest after three
    years, subject to the satisfaction of the relevant performance criteria, set
    by the Remuneration Committee at the date of grant. Shares must then be held
    for a further year, after which they are released, subject to the Executive
    Directors continuing employment with the Group. The performance criterion for
    grants in the year to 31 March 2004 is Total Shareholder Return (TSR) relative
    to a comparator group as follows: Ameren Corporation
    AWG plc
    Centrica plc
    Consolidated Edison, Inc.
    Dominion Resources, Inc.
    E.ON AG Electrabel SA
    Endesa SA
    Enel SpA
    Exelon Corporation
    FirstEnergy Corporation
    FPL Group, Inc.
    Gas Natural SDG SA
    Iberdrola SA International Power plc
    Kelda Group plc
    Pennon Group plc
    RWE AG Scottish Power plc Scottish & Southern Energy plc
    Severn Trent plc
    The Southern Company, Inc.
    Suez SA United Utilities plc
    Viridian Group plc This comparator group has been
    selected to include companies in the energy distribution sector, against which
    National Grid Transco benchmarks its performance for business purposes, and
    other UK and international utilities. The Remuneration Committee believes
    that this comparator




group sets a
        stretching target for the long-term performance of the Group. Under the
        terms of the PSP, the Remuneration Committee may allow shares to vest
        early to departing executives, and may amend the list of comparator companies
        if circumstances make this necessary (for example, as a result of takeovers
        or mergers of comparator companies).TSR has been
        chosen for the performance criterion as a direct measure of shareholder
        value creation. In calculating TSR, it is assumed that all dividends are
        reinvested. In assessing whether this performance condition has been met,
        data purchased from Alithos Limited will be used. No shares will be released
        if the Groups TSR over the three-year performance period, when ranked
        against that of each of the comparator companies, falls below the median.
        For TSR at the median, 30% of the shares awarded will be released. 100%
        of the shares awarded will be released for TSR ranking at the upper quartile
        or above. For performance between median and upper quartile against the
        comparator group, the number of shares released is calculated on a straight-line
        basis.No grants are
        planned to be made under the ESOP in 2003/04, unless required for recruitment
        purposes or to fulfil existing contractual commitments. A commitment outstanding
        to Edward Astle will be satisfied by a grant of options to the value of
        1.5 times his base salary, after the announcement of the final results
        for 2002/03. Details of outstanding options granted to Directors under
        the ESOP, including full details of the performance conditions attaching
        to these options, are set out in table 3 on page 49. The TSR performance
        condition attaching to these outstanding options was chosen on the same
        basis as set out for the PSP above and will be calculated in the same
        way.All-employee
        share plans:
      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:Executive Directors resident
        in the US are eligible to participate in a tax-advantaged savings plan
        (commonly referred to as a 401(k) plan) provided for employees of National
        Grid USA.
      Share Incentive Plan
        (SIP):The Remuneration Committee
        intends to implement a SIP during the year to31 March 2004. Employees resident in the UK, including Executive Directors,
        will be encouraged to participate in the SIP (subject to eligibility).





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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Pensions:Post-Merger,
        legacy pension arrangements have continued for Executive Directors. The
        policy for newly appointed Executive Directors is being reviewed following
        the recently announced Government proposals on pensions reform.
      UK-based Executive Directors who were
        previously directors of National Grid are members of the National Grid
        Company Group of the Electricity Supply Pension Scheme, which is a tax-approved
        pension scheme. Base salary only is pensionable. The provisions for participating
        Executive Directors are designed to give a pension at normal retirement
        age of two thirds final salary subject to completion of 20 years
        service (although participating Executive Directors may retire early from
        age 55 with a reduction in pension). Normal retirement age is 60. A spouses
        pension is payable on the death in service of a participating Executive
        Director equal to two thirds of that payable to the participating Executive
        Director based on potential service to normal retirement age. On death
        in retirement a spouses pension is payable equal to two thirds of
        the participating Executive Directors pension on death prior to
        exchanging any of it for a cash lump sum. Pensions in payment are increased
        by price inflation by up to 5% per annum. For participating Executive
        Directors affected by the earnings cap, a restriction on the
        amount of pay which can be used to calculate pensions due from a tax-approved
        pension scheme, the Company provides benefits on salary above the cap
        on a partially funded basis.
      US-based former National Grid Executive
        Directors 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.
      The qualified plan is directly funded,
        while the supplemental plan is indirectly funded through a rabbi
        trust. Participating Executive Directors benefits are calculated
        using a formula based on years of service and highest average compensation
        over five consecutive years. In line with many US plans, the calculation
        of benefits under the arrangements takes into account salary, bonuses
        and incentive share awards but not share options. Normal retirement age
        is 65. The executive supplemental plan, however, provides total unreduced
        pension benefits from age 55 for specified executives. The plans also
        provide for a spouses pension of at least 50% of that accrued by
        the participating Executive Director unless waived by the spouse. Benefits
        under these arrangements do not increase once in payment. |                                               | Executive Directors who were
      formerly directors of Lattice Group plc participate in the defined benefit
      section of the Lattice Group Pension Scheme which is a tax-approved pension
      scheme. Base salary only is pensionable. All participating Executive Directors
      are subject to the earnings cap. They also participate in the Lattice Group
      Supplementary Benefits Scheme, an unfunded unapproved arrangement which
      increases retirement benefits to at least the level which would otherwise
      have been provided in the Lattice Group Pension Scheme, had they not been
      subject to the earnings cap. The provisions for participating Executive
      Directors are designed to give two thirds of salary (which may be restricted
      by remuneration averaged over three years) at retirement age, inclusive
      of any pension rights earned in previous employment. Normal retirement age
      is 65. With the employers consent, provided 10 years service
      has been completed with National Grid Transco (which includes pensionable
      service transferred from previous employment), the accrued pension can be
      paid from age 55 with no actuarial reduction in benefit. A dependants
      pension is payable on death in service of a participating Executive Director
      based on potential service to normal retirement age. On death in retirement,
      a dependants pension is payable equal to two thirds of the participating
      Executive Directors pension, prior to exchanging any of it for a cash
      lump sum. Pensions in |                                                        | payment are
        increased in line with price inflation.
      Provision has been made in the accounts
        in respect of unfunded obligations for post-retirement benefits.
      Non-cash benefits:The
        Company provides competitive benefits to Executive Directors, such as
        a fully expensed car or cash alternative in lieu of car, chauffeur, financial
        advice, private medical insurance and life assurance. UK-based Executive
        Directors with less than five years continuous service, who were previously
        directors of National Grid, are provided with long-term ill health insurance.
        Business expenses incurred are reimbursed in such a way as to give rise
        to no material benefit to the Director.
      Share ownership guidelines:Executive
        Directors are encouraged to build up and retain a shareholding of at least
        one times annual base salary. As a minimum, this should be achieved by
        retaining 50% of the after-tax gain on any options exercised or shares
        received through the long-term incentive or all-employee share plans.
      Share dilution through the operation
        of share-based incentive plans:Where
        shares are issued to satisfy incentives, the aggregate dilution resulting
        from executive incentives will not exceed 5% in any ten-year period, and
        dilution resulting from all
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                               | Date of contract                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Notice period                                          | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                  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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Executive Directors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Roger Urwin                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                               | 17 November 1995                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 12 months                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Steve Lucas                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                               | 13 June 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 12 months                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Edward Astle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                               | 27 July 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                        | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Steve Holliday                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                               | 6 March 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 12 months                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Rick Sergel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                               | 22 March 2000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 12 months                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|John Wybrew                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                               | 13 June 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 12 months                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Stephen Box (resigned 21/10/2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|William Davis (resigned 21/10/2002)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                               | Date of contract/letter
      of appointment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Notice period
      End of period
      of appointment | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Non-executive Directors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Sir John Parker                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                               | 13 June 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 12 months                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|James Ross                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                               | 24 October 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 2004 AGM                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|John Grant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                               | 24 October 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 2004 AGM                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Kenneth Harvey                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                               | 11 June 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 2006 AGM                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Bonnie Hill                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 11 February 2002
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Paul Joskow                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 24 October 2001 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Stephen Pettit                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 11 June 2002    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | George Rose                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 11 June 2002    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Bob Faircloth (resigned 21/10/2002)                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Richard Reynolds (resigned
      21/10/2002)           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                 
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | (i)                                                    | The contracts for the Chairman,
      Sir John Parker, and all current Executive Directors are for rolling 12-month
      periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | (ii)                                                   | Edward Astles contract
      commenced with effect from 1 September 2001. For the first year, the notice
      period was two years. For the second year, the notice period declines on
      a straight-line basis until with effect from1 September 2003, his notice
      period will be 12 months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                 

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incentives, including all-employee incentives, will not exceed 10% in any ten-year period. The Remuneration Committee reviews dilution against these limits regularly. Non-executive Directors remuneration:
    Non-executive Directors fees are determined
    by the Executive Directors, or by a Committee authorised by the Board, subject
    to the limits applied by National Grid Transcos Articles of Association.
    Non-executive Directors remuneration is built up from an annual fee,
    a fee for each Board meeting attended (with a higher fee for meetings held
    outside their country of residence), and an additional fee payable for Committee
    chairmanship. Directors service contracts:Service contracts for Executive Directors are set at one years notice. The application of longer contract periods at appointment,
reducing after an initial period, may be used in exceptional circumstances if considered appropriate by the Remuneration Committee to recruit certain key executives. The service contract of Nick Winser (appointed to the Board with effect from 28
April 2003) will be set at one years notice. Sir John Parkers contract provides for a liquidated damages payment of one years salary if his contract is terminated within one year of a change of control of the Company. The contracts of Steve Lucas and
John Wybrew provide for a liquidated damages payment of one years salary plus a credit of one years pensionable service if their contracts are terminated within one year of a change of control of the Company. Rick Sergels contract
provides for compensation following the termination of his contract either without cause or within two years following a change of control of one years salary, annual bonus (including share matching) at target level and the maintenance, at the
Companys expense, of his benefit programmes for three years. The Remuneration Committee, in determining any other such payments will give due regard to the comments and recommendations of the Combined Code, the UK Listing Authoritys Listing Rules and associated guidance
and other requirements of legislation, regulation and good governance.




Directors letters of
    appointment:The terms of engagement
    of Non-executive Directors (excluding Sir John Parker) are set out in letters
    of appointment. The initial appointment and any subsequent re-appointment
    is subject to election or re-election by shareholders. The letters of appointment
    do not contain provision for termination payments. Performance
    graph The graph above represents the
    comparative TSR performance of the Group from 31 March 1998 to 31 March 2003.
    For the period before the Merger of National Grid Group and Lattice, the TSR
    shown is that of National Grid Group. This graph shows the Groups
    performance against the performance of the FTSE 100 index, which is considered
    an appropriate comparator as it is a broad equity market index of which National
    Grid Transco is a constituent. This graph has been produced in accordance
    with the requirements of the Directors Remuneration Report Regulations
    2002. In drawing this graph it has
    been assumed that all dividends paid have been reinvested. The TSR level shown
    at 31 March each year is the average
    of the closing daily TSR levels for the 30-day period up to and including
    that date.









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Directors Remuneration Reportcontinued Remuneration
    outcomes during the year ended 31 March 2003 Tables 1A, 1B, 2, 3 and 4 comprise the auditable
    part of the Directors Remuneration Report, being the information required
    by part 3 of schedule 7A to the Companies Act 1985. 1. Directors emoluments
    The following tables set out an analysis of
    the pre-tax remuneration during the years ended 31 March 2003 and 2002, including
    bonuses but excluding pensions, for individual Directors who held office in
    National Grid Transco and National Grid during the year ended 31 March 2003. Table 1A Executive Directors Year ended31 March2003
      
      Year ended31 March2002Basesalary£000
      
      Annual
        bonus
        £000
      
      Termination
        payments
        £000
      
      Benefits
        in kind
        £000
      (i)
      Total
        £000
      
      Total
        £000
      (ii)Roger Urwin
      
      600
      
      300
      
      
      
      24
      
      924
      
      794Steve Lucas
      
      315
      
      164
      
      
      
      18
      
      497
      
      423Edward Astle(iii)
      
      325
      
      266
      
      
      
      15
      
      606
      
      284Steve Holliday
      
      325
      
      169
      
      
      
      23
      
      517
      
      444Rick Sergel
      
      519
      
      219
      
      
      
      17
      
      755
      
      728John Wybrew
      
      360
      
      176
      
      
      
      28
      
      564
      
      500Stephen Box (resigned 21/10/2002)(iv)
      
      233
      
      111
      
      4
      
      13
      
      361
      
      532William Davis (resigned 21/10/2002)
      
      301
      
      10
      
      
      
      5
      
      316
      
      139Totals
      
      2,978
      
      1,415
      
      4
      
      143
      
      4,540
      
      3,844 (i)
   Benefits in kind comprise benefits such as a fully expensed car or cash alternative in lieu of car, chauffeur, private medical insurance and life assurance.(ii)
   Totals for the year ended 31 March 2002 for Steve Lucas and John Wybrew include bonus payments in respect of the 15-month period 1 January 2001 to 31 March 2002.(iii)
   Edward Astles annual bonus figure includes a payment of £50,000 in June 2002 and a further payment of £50,000 in August 2002 in respect of special bonus arrangements agreed at the
time of his original contract. He was appointed to the Board of National Grid on 1 September 2001.(iv)
   Stephen Box resigned from the Board with effect from 21 October 2002 but remained an employee until 30 November 2002 when he retired on health grounds. He received his salary to 30 November 2002 and
his bonus was pro-rated for eight months of the year. An ex-gratia payment of £3,957 will be made to Stephen Box equal to the dividends which would have been earned on those shares subject to his matching options under the Share Matching
Plan. Table 1B Non-executive Directors Year
          ended
        31 March
        2003
      
      Year
          ended
        31 March
        2002Fees
        £000
      
      Other
        emoluments
        £000
      
      Total
        £000
      
      Total
        £000Sir John Parker(i)
      
      386
      
      26
      
      412
      
      343James Ross
      
      175
      
      22
      
      197
      
      165John Grant
      
      38
      
      
      
      38
      
      35Kenneth Harvey
      
      30
      
      
      
      30
      
      30Bonnie Hill(ii)
      
      32
      
      
      
      32
      
      4Paul Joskow(iii)
      
      50
      
      
      
      50
      
      57Stephen Pettit
      
      25
      
      
      
      25
      
      10George Rose
      
      30
      
      
      
      30
      
      30Bob Faircloth (resigned 21/10/2002)
      
      21
      
      
      
      21
      
      42Richard Reynolds (resigned 21/10/2002)(iv)
      
      32
      
      
      
      32
      
      55Totals
      
      819
      
      48
      
      867
      
      771 (i)
   Sir John Parkers fees include a supplement of £23,000 per month from 22 November 2001 to the date of the Merger while temporarily acting as Chief Executive of Lattice Group plc. This
supplement totalled £161,000 (2001/02: £98,000).(ii)
   Appointed to the Board of National Grid on 11 February 2002.(iii)
   Paul Joskows fees include US$22,500 (2001/02: US$30,000) paid in respect of strategic advice provided on regulatory issues to National Grid USA.(iv)
   Richard Reynolds fees include a fee at the rate of £25,000 per annum (2001/02: £25,000 per annum) in respect of additional duties as a member of the Supervisory Board of
Intelig.


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2. Directors pensions The table below gives details of the Executive
  Directors pension benefits in accordance with both the Directors
  Remuneration Report Regulations and the Listing Rules. Table 2Executive
          Directors
      Additional
        benefit earned
        (excluding
        inflation) during
        the year ended
        31 March 2003
        Pension
        £000
        pa
      
      Accrued
        entitlement
        as at
        31 March 2003
        Pension
        £000
        pa
      
      
      
      Increase in
        transfer value
        less Directors
        contributions
        £000
      
      Additional
        accrued
        pension earned
        in the year
        (excluding
        inflation)
        £000
        pa
      
      Transfer
          value
        of increase in
        accrued
        pension
        (excluding
        Directors
        contributions
        and inflation)
        £000Transfer
          value of
        accrued benefits
        as at 31 March
          (i)2003
        £000
      
      2002
        £000Roger Urwin
      70
      
      370
      
      6,291
      4,717
      
      1,556
      
      65
      
      1,090Steve Lucas(ii),(iii)
      18
      
      99
      
      951
      
      958
      
      (17
      )
      16
      
      147Edward Astle
      11
      
      17
      
      189
      
      65
      
      114
      
      11
      
      112Steve Holliday
      13
      
      22
      
      214
      
      87
      
      116
      
      13
      
      113Rick Sergel
      60
      
      377
      
      2,259
      1,454
      
      805
      
      60
      
      360John Wybrew(ii)
      17
      
      105
      
      1,981
      1,595
      
      375
      
      16
      
      284Stephen Box (resigned 21/10/2002)(iv)
      92
      
      146
      
      3,297
      
      663
      
      2,627
      
      91
      
      1,977William Davis (resigned 21/10/2002)(v)
      15
      
      37
      
      359
      
      281
      
      78
      
      15
      
      21 (i)
      The transfer values shown at 31 March 2002
        and 2003 represent the value of each Executive Directors accrued
        pension based on total service completed to the relevant date. The transfer
        values for the UK Executive Directors have been calculated in accordance
        with guidance note GN11 issued by the Institute of Actuaries
        and the Faculty of Actuaries. The transfer value given above for Stephen
        Box at 31 March 2003 relates to his pension after reduction for commutation,
        plus the commutation lump sum of £329,000 and pension payments of
        £39,700 made during the year. The transfer values for the US Executive
        Directors have been calculated using discount rates based on high yield
        US corporate bonds and associated yields at the relevant dates.(ii)
      Steve Lucas and John Wybrew became Executive
        Directors on 21 October 2002 and were previously Executive Directors of
        Lattice Group plc. The information provided is for the full year to 31
        March 2003.(iii)
      Due to clarification of remuneration since
        31 March 2002, the accrued annual pension as at 31 March 2002 should have
        been £81,300 and not £71,400 as previously stated in the Lattice
        Group accounts.(iv)
      The accrued pension figures for Stephen
        Box are before commutation, although in practice he retired on ill health
        grounds on 30 November 2002 and took a lump sum of £329,000 by commutation,
        leaving a residual pension of £119,000 per annum.(v)
      William Davis retired on 31 March 2003 with
        an annual pension of £36,695. His non-qualified benefits under Niagara
        Mohawks Supplemental Executive Retirement Plan were paid to him
        by way of a lump sum payment of £6,265,202 in January 2002. 3. Directors interests in share options Table 3Options
          held
          at 1 April 2002
          or on appointment
      *
      Options
        exercised
        or lapsed
        during the year
      
      Options granted
          during the year
      
      Options
        held at
        31 March 2003
        or on resignation
      
      Exercise
        price
        per share
        (pence)
      
      Normal exercise
        periodRoger UrwinExecutive
      169,340
      
      
      
      
      
      169,340
      
      280.50
      
      Sep
          2000
      
      Sep
          200791,656
      
      
      
      
      
      91,656
      
      375.75
      
      June
          2001
      
      June
          200822,098
      
      
      
      
      
      22,098
      
      455.25
      
      June
          2002
      
      June
          200933,867
      
      
      
      
      
      33,867
      
      531.50
      
      June
          2003
      
      June
          2010133,214
      
      
      
      
      
      133,214
      
      563.00
      
      June
          2004
      
      June
          2011
      
      
      
      186,915
      
      186,915
      
      481.50
      
      June
          2005
      
      June
          2012Share Match
      4,047
      
      
      
      
      
      4,047
      
      100
          in total
      
      June
          2001
      
      June
          20053,884
      
      
      
      
      
      3,884
      
      100
          in total
      
      Jan
          2002
      
      June
          20063,859
      
      
      
      
      
      3,859
      
      100
          in total
      
      Jan
          2002
      
      June
          20075,635
      
      
      
      
      
      5,635
      
      100
          in total
      
      June
          2004
      
      June
          2008
      
      
      
      18,644
      
      18,644
      
      100
          in total
      
      June
          2005
      
      June
          2012Sharesave
      3,692
      
      
      
      
      
      3,692
      
      457.00
      
      Sep
          2006
      
      Feb
          2007Total
      471,292
      
      
      
      205,559
      
      676,851Edward AstleExecutive
      193,952
      
      
      
      
      
      193,952
      
      479.50
      
      Sep
          2004
      
      Sep
          2011
      
      
      
      101,246
      
      101,246
      
      481.50
      
      June
          2005
      
      June
          2012
      
      
      
      112,262
      
      112,262
      
      434.25
      
      Dec
          2005
      
      Dec
          2012Share Match
      
      
      
      
      6,553
      
      6,553
      
      100
          in total
      
      June
          2005
      
      June
          2012Sharesave
      
      
      
      
      2,392
      
      2,392
      
      397.00
      
      Sep
          2005
      
      Feb
          2006Total
      193,952
      
      
      
      222,453
      
      416,405







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Directors Remuneration Reportcontinued 3. Directors interests
        in share optionscontinuedOptions held
      *
      Options exercised
      
      Options
        granted
      
      Options held
      
      Exercise price
      
      Normal
        exerciseat 1 April 2002
      or lapsed
      at 31 March 2003
      per shareor on appointment
      during the year
      during the year
      or on resignation
      (pence)
      periodStephen Box(resigned from the Boardon 21 October 2002)Executive
      160,427
      
      
      
      
      
      160,427
      
      280.50
      
      Sep 2000
      Sep 200793,147
      
      
      
      
      
      93,147
      
      375.75
      
      June 2001
      June 200843,931
      
      
      
      
      
      43,931
      
      455.25
      
      June 2002
      June 200937,630
      
      
      
      
      
      37,630
      
      531.50
      
      June 2003
      June 201093,250
      
      
      
      
      
      93,250
      
      563.00
      
      June 2004
      June 2011Share Match
      3,844
      
      
      
      
      
      3,844
      
      100 in total
      
      Jan 2002
      June 20064,122
      
      
      
      
      
      4,122
      
      100 in total
      
      Jan 2002
      June 20076,134
      
      
      
      
      
      6,134
      
      100 in total
      
      June 2004
      June 2008Total
      442,485
      
      
      
      
      
      442,485Steve HollidayExecutive
      150,000
      
      
      
      
      
      150,000
      
      540.00
      
      Mar 2004
      Mar 201171,936
      
      
      
      
      
      71,936
      
      563.00
      
      June 2004
      June 2011
      
      
      
      101,246
      
      101,246
      
      481.50
      
      June 2005
      June 2012Share Match
      
      
      
      
      10,350
      
      10,350
      
      100 in total
      
      June 2005
      June 2012Sharesave
      3,692
      (i)
      
      
      4,692
      (i)
      4,692
      
      350.00
      
      Mar 2008
      Aug 2008Total
      225,628
      
      
      
      116,288
      
      338,224 (i)
      During the year, Steve Holliday
        elected to cancel his sharesave option over 3,692 shares at an option
        price of 457p. He was granted a new sharesave option over 4,692 shares
        during the year. Rick Sergel(ii)Executive
      201,845
      
      
      
      
      
      201,845
      
      566.50
      
      Mar 2003
      Mar 2010134,321
      
      
      
      
      
      134,321
      
      563.00
      
      June 2004
      June 2011
      
      
      
      172,836
      
      172,836
      
      481.50
      
      June 2005
      June 2012Total
      336,166
      
      
      
      172,836
      
      509,002 (ii)
      Rick Sergels participation
        in the Share Matching Plan is in the form of phantom ADSs. He was awarded
        5,332 phantom ADSs in June 2002 which vest in June 2005, and 4,240 phantom
        ADSs in June 2001 which vest in June 2004. The value of an ADS at 31 March
        2003 was US$30.75. John Wybrew(appointed to the Boardon 21 October 2002)Executive
      
      
      
      
      62,262
      
      62,262
      
      434.25
      
      Dec 2005
      Dec 2012Sharesave
      3,078
      *(iii)
      
      
      
      
      3,078
      
      314.50
      
      Mar 2004
      Aug 2004Total
      3,078
      *
      
      
      62,262
      
      65,340 (iii)
      Pursuant to the Merger proposals,
        John Wybrew elected to release his existing sharesave option over Lattice
        Group shares in exchange for a new sharesave option over National Grid
        Transco shares. The replacement option was granted under the Lattice Group
        Sharesave Scheme and has the same maturity date as the original option. Steve Lucas(appointed to the Boardon 21 October 2002)Executive
      
      
      
      
      54,404
      
      54,404
      
      434.25
      
      Dec 2005
      Dec 2012Sharesave
      
      
      
      
      2,700
      
      2,700
      
      350.00
      
      Mar 2006
      Aug 2006Total
      
      
      
      
      57,104
      
      57,104William Davis(iv)(resigned from the Boardon 21 October 2002)Executive
      
      
      
      
      179,791
      
      179,791
      
      481.50
      
      June 2005
      June 2012Total
      
      
      
      
      179,791
      
      179,791 (iv)
      William Davis participation
        in the Share Matching Plan was in the form of phantom ADSs. He was awarded
        1,083 phantom ADSs in June 2002 which vested upon his retirement on 31
        March 2003. The value of an ADS at 31 March 2003 was US$30.75.


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Executive Share Option Plan
  (ESOP)An option will normally be exercisable between
  the third and tenth anniversaries of its date of grant, subject to performance
  conditions. The performance conditions attaching to outstanding ESOP options
  are set out below. If the performance condition is not satisfied after the first
  three years, it will be re-tested as indicated. The options granted to Directors
  in September 1997 and June 1998 have vested. For options granted in June 1999
  and March 2000 to become fully exercisable, the Company must achieve EPS growth
  over three years of RPI plus 3% per annum. Only half the option will be exercisable
  if EPS growth over three years equals RPI plus 2% per annum. The performance
  condition will be re-tested throughout the lifetime of the option. For options granted from June
  2000, options worth up to one times an optionholders base salary will
  become exercisable in full if Total Shareholder Return (TSR) measured over a
  period of three years, beginning with the financial year in which the option
  is granted, is at least median compared with a comparator group of companies
  (such comparator group being in compliance with the performance condition). Grants in excess of 100% of salary
  vest on a sliding scale, becoming fully exercisable if the Companys TSR
  is in the top quartile. The performance condition attaching to options granted
  in June 2000 is tested annually throughout the lifetime of the option. For options
  granted from March 2001 the same TSR test is used but the performance condition
  can only be re-tested in years 4 and 5. The comparator group was revised
  in June 2002 to reflect, inter alia, consolidation in the marketplace, the acquisition
  of Niagara Mohawk and the proposed Merger with Lattice Group plc. The revised
  comparator group was used for options granted in June and December 2002 and
  is set out below. Allegheny Energy, Inc.
      Energy East Corporation
      NSTAR Corporation
      Scottish Power plcBG Group plc
      Exelon Corporation
      Potomac Electric Power Company
      The Southern Company, Inc.British Energy plc
      FirstEnergy Corporation
      Powergen Limited
      TXU, Inc.Centrica plc
      FPL Group, Inc.
      Progress Energy, Inc.
      United Utilities plcConsolidated Edison, Inc.
      International Power plc
      Public Service Enterprise Group, Inc.
      Xcel Energy, Inc.Duke Energy Corporation
      Northeast Utilities Corporation
      Scottish & Southern Energy plc Details of the closing price of
  National Grid Transco shares as at 31 March 2003 and the high and low prices
  during the year are shown in table 5 Directors beneficial interests. Details
  of the 1999 Lattice LTIS awards rolled over into options are set out in table
  4 below. 4. Lattice Long Term Incentive
  Scheme (LTIS)The following Lattice LTIS awards were rolled
  over at the time of the Merger by John Wybrew and Steve Lucas and were still
  held at the end of the last financial year. The market value of National Grid
  Transco shares on Merger (21 October 2002) was 459.625p. Table 4 John Wybrew Date
          award
        vests/option
        becomes exercisable1999 award (converted to an option on
        Merger)
      114,380
      
      Oct 2003Dividend reinvested on shares held in
        trust
      1,799
      
      Oct 20032000 award
      95,597
      
      Nov 20042001 award
      112,687
      
      Nov 2005Total
      324,463Steve LucasDate
          award
        vests/option
        becomes exercisable1999 award (converted to an option on
        Merger)
      31,237
      
      Oct 2003Dividend reinvested on shares held in
        trust
      491
      
      Oct 20032000 award
      79,902
      
      Nov 20042001 award
      96,589
      
      Nov 2005Total
      208,219 Under the terms of the Lattice
  LTIS notional allocations of shares were made to key individuals. The allocations
  were subject to a three-year performance period set out below and a further
  retention period of one year. The number of shares actually released to participants
  depends on the Companys TSR compared with that of other regulated utility
  companies operating in a similar environment. No awards will be made if the
  Companys TSR when compared with that of other companies in the comparator
  group over the performance period falls below the median. Between the median
  company and the upper quartile of companies the proportion of shares which may
  be transferred is pro-rated on a straight-line basis between 40% and 100%. The Remuneration Committee will
  decide that shares should be released only if the Companys TSR also reflects
  sound underlying financial performance.





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Directors Remuneration Reportcontinued Pursuant to the Merger proposals,
    John Wybrew and Steve Lucas agreed to roll over their existing LTIS awards
    over Lattice Group shares for LTIS awards or options over National Grid Transco
    shares. Consequently, on 21 October 2002, the 2000 and 2001 LTIS awards held
    by John Wybrew and Steve Lucas continued over the number of National Grid
    Transco shares shown above and remain subject to the rules of the Lattice
    LTIS except that (i) since 21 October 2002, the performance target measures
    the Companys total shareholder return against the original comparator
    group of each award; and (ii) the awards will not be forfeit on John Wybrew
    or Steve Lucas ceasing employment unless the Remuneration Committee decides
    otherwise. The comparator group for the
    2000 and 2001 LTIS awards is set out below: Powergen Limited
   Pennon Group plc
   Centrica plc
   British Energy plcKelda Group plc
   United Utilities plc
   Scottish Power plc
   BT Group plcScottish & Southern Energy plc
   Severn Trent plc
   Viridian Group plc
   Railtrack plc (2000 only)BAA plc
   AWG plc
   International Power plc
   Thames Water plc (2000 only) For the roll-over of the 1999 LTIS awards,
    John Wybrew and Steve Lucas have each been granted a £1 option by the
    Trustee of the Lattice Group Employees Share Trust over the number of shares
    which would otherwise be subject to their 1999 awards. The options will become
    exercisable on 1 October 2003, when the shares subject to the original 1999
    awards would have been released to John Wybrew and Steve Lucas. 5. Directors beneficial interests
The Directors beneficial interests (which
    include those of their families) in the ordinary shares of National Grid Transco
    (which from 1 April 2002 to 21 October 2002 was National Grid Group) of 10p
    each are shown below: Ordinary shares
          at
        31 March 2003
        or on resignation
      (i)
      Ordinary shares
          at
        1 April 2002
          or on
        appointment
      *
      Options
          over
        ordinary shares
          at
        31 March 2003
        or on resignation
      
      Options
          over
        ordinary shares
        at 1 April 2002
        or on appointment
      *Sir John Parker
      17,429
      
      4,729
      *
      
      
      James Ross
      19,000
      
      19,000
      
      
      
      Roger Urwin(ii)
      159,518
      
      147,920
      
      676,851
      
      471,292Edward Astle(ii)
      3,932
      
      -
      
      416,405
      
      193,952Stephen Box
      18,459
      
      18,459
      
      442,485
      
      442,485William Davis
      11,755
      
      11,520
      
      179,791
      
      Bob Faircloth
      
      
      
      
      
      
      John Grant
      10,000
      
      10,000
      
      
      
      Ken Harvey
      1,874
      
      1,861
      *
      
      
      Bonnie Hill
      2,930
      
      2,930
      
      
      
      Steve Holliday(ii)
      6,210
      
      
      
      338,224
      
      225,628Paul Joskow
      5,000
      
      5,000
      
      
      
      Steve Lucas(ii),(iii),(iv),(v)
      23,789
      
      23,471
      *
      265,323
      
      207,728
      *Stephen Pettit
      1,875
      
      1,875
      *
      
      
      Richard Reynolds
      10,000
      
      10,000
      
      
      
      George Rose
      5,025
      
      5,025
      *
      
      
      Rick Sergel(ii)
      2,928
      
      2,763
      
      509,002
      
      336,166John Wybrew(ii),(iii),(iv),(v)
      62,344
      
      62,025
      *
      389,803
      
      325,742
      * (i)
      There have been no other changes in the
        beneficial interests of the Directors in the ordinary shares of National
        Grid Transco between 1 April 2003 and 20 May 2003.(ii)
      Each of the Executive Directors of National
        Grid Transco was, for Companies Act 1985 purposes, deemed to be a potential
        beneficiary under the National GridQualifying Employee Share Ownership Trust (QUEST)
        and the National Grid 1996 Employee Benefit Trust and thereby to have
        an interest in the 9,040,718 National Grid Transco shares held by the
        QUEST and the 440,618 National Grid Transco shares held by the 1996 Employee
        Benefit Trust as at 31 March 2003.(iii)
      Each of the former Lattice Executive
        Directors of National Grid Transco (Steve Lucas and John Wybrew) was,
        for Companies Act 1985 purposes, deemed to be a potential beneficiary
        in the 1,069,339 National Grid Transco shares held by Mourant and Co.
        Trustees as Trustee of the Lattice Group Employees Share Trust operated
        in conjunction with the Lattice LTIS and the 127,992 National Grid Transco
        shares held by Lattice Group Trustees Limited as Trustee of the Lattice
        Group Employee Share Ownership Trust.(iv)
      Beneficial interest includes shares acquired
        pursuant to the Lattice AESOP and the BG Group Employee Profit Sharing
        Scheme.(v)
      Including the Lattice LTIS award detailed
        above.Nick Winser was appointed
        to the Board on 28 April 2003 and on that date had a beneficial interest
        in 17,489 National Grid Transco shares and held options over a further
        150,225 National Grid Transco shares.All of the shares held under
        the former Lattice AESOP have been allocated and are beneficially owned
        by participants of the plan. The closing price of a National Grid Transco
        share on 31 March 2003 was 387.5p. The range during the year was 511.5p
        (high) and 365.75p (low). Please note the Register of Directors
        Interests contains full details of shareholdings and options held by Directors
        as at 31 March 2003. On behalf of the Board Helen MahyGroup Company Secretary
    20 May 2003


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Directors Report and Operating
  and Financial ReviewRisk Factors

National Grid Transco has established an internal process for the review of and response to actual and potential risks facing the Group. More information on this process is set out in the section of this document
entitled Internal Control on pages 42 to 43. The following are the significant risks the Group is aware of as a consequence of this process that could have a materially adverse effect on its business, turnover, profits, assets,
liquidity, capital resources and/or reputation. Any forward-looking statements contained in this document should be considered in light of these risk factors and the cautionary statement set out on the inside front cover. Law and regulation
    Most of National Grid Transcos businesses
    are utilities subject to the laws of and regulation by government and/or regulatory
    authorities in the UK, the US, the European Union or other jurisdictions.
    Changes in law or regulation in the countries and/or states in which the Groups
    businesses operate could have an adverse effect on those businesses. Decisions
    by regulators and/or regulatory authorities concerning, for example, whether
    licences/concessions/ approvals to operate those utilities are renewed or
    not, the level of permitted revenues, the allowance of pass-through of costs
    such as the cost of funding pension schemes, allowed rates of return for these
    businesses, market trading arrangements, the facilitation of competition in
    markets in which the Group operates and proposed business development activities
    could have an adverse impact on the Groups results of operations, cash
    flow, financial condition and the ability to develop those businesses in the
    future. The introduction of the British Electricity Transmission and Trading
    Arrangements (BETTA) could affect financial returns for the Group depending
    upon the terms of the relevant regulations. For more information concerning
    BETTA, see page 14 of the Business Review section of this document.
    The requirement for the Groups businesses in the UK, particularly Transco,
    to conduct working practices so as to comply with the New Road and Streetworks
    Act 1991 or to meet any liabilities for breach could increase operational
    costs and thereby affect business performance. The development of GridAmerica
    is subject to, amongst other things, regulation by the FERC and relevant US
    state regulators. The timing and content of regulatory decisions by those
    organisations could adversely affect the development of and/or financial return
    from GridAmericas business. The Group is also subject to law and regulation
    arising from its issue of securities, such as those recently introduced and/or
    in the course of introduction by the Sarbanes-Oxley Act of 2002.




Safety and
    environmentAspects of the Groups business are inherently
    dangerous, such as the operation and maintenance of electricity lines and
    the transmission and distribution of natural gas. Electricity and gas utilities
    typically use and generate in their operations a range of potentially hazardous
    products and byproducts. 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. Breach of these
    laws and regulations, or any safety or environmental incident without a breach,
    could expose the Group to claims for financial compensation, to adverse regulatory
    consequences and/or otherwise damage the Groups relationship with its
    stakeholders. This area of the Groups business is subject to increasing
    regulation and/or changes in the legal requirements within which it operates. Operational
    performance The Group may suffer a major transmission or
    distribution network failure and/or may not be able to carry out critical
    non-network operations. Electricity and gas utilities are subject to certain
    risks that are largely outside their control such as the weather or possible
    security breaches. Weather conditions can affect financial performance, particularly
    in the US. In addition, severe weather that causes outages or damages infrastructure
    will adversely affect operational and business performance. Terrorist attack
    or sabotage may also physically damage one or more of the Groups businesses
    or otherwise significantly affect its corporate activities. Other risks to
    operational performance could include inadequate record keeping, failure to
    maintain the health of the system or network and/or inadequate forecasting
    of demand. Business
    performance Earnings maintenance and growth from the UK
    regulated gas and electricity industry are dependent upon outperforming regulatory
    efficiency targets set by Ofgem. Generally, over time, the continued ability
    to make efficiency improvements will decline. National Grid Transco has published
    cost and efficiency savings targets for its UK regulated businesses. To meet
    these targets National Grid Transco must continue to improve management and
    operational performance. Under the US state rate plans, earnings from the
    US regulated businesses of the Group will be affected by the ability to deliver
    integration savings. To




meet National
  Grid Transcos announced savings targets for its acquisition of Niagara
  Mohawk and in relation to the Merger, the Group must improve the efficiency
  and reduce the costs of those businesses. US earnings are also dependent on
  meeting service quality standards set by state regulators. To meet such standards,
  the Group must improve service reliability and customer service. National Grid
  Transcos unregulated businesses may also fail to reach the Groups
  financial targets because of market conditions or other reasons. For example,
  Gridcom may be adversely affected by a deterioration in the mobile telecommunications
  market. The achievement of the Groups objectives will be influenced by
  general economic conditions in the jurisdictions in which the Group operates
  and, in particular, in the US. Other factors include potential increases in
  business and property taxes/rates in the US and the UK which could adversely
  affect the Groups results. The performance of the Groups businesses
  may also be affected by human resource issues such as the loss of key management
  or strikes, working to rule and other industrial action by its employees.
  The insolvency or administration of a key customer, such as Centrica plc, or
  a key supplier to a core business could have an adverse financial impact on
  the Group.  Commodity risk and security
    of supply The costs incurred by National Grid Transcos
    electricity businesses in purchasing electricity are subject to movements
    in underlying commodity prices, particularly of oil and gas. Regulatory arrangements
    in the UK and US provide the ability to pass through some and in certain cases
    virtually all the increased costs related to commodity prices by way of higher
    prices. For more information, see the Business Review section of this document. In the UK, any shortfall in the availability of gas (unless arising as a result of a failure in the Groups transmission or distribution networks) is not the responsibility of Transco. However, the Group may
suffer reputational consequences if consumers of gas suffer disruption to their supply. Internal controls
    The Groups systems and processes, including
    its internal control policies, are designed to ensure that the operational
    risks associated with its activities, the risk of loss of focus by management
    and the other risks that the Group is exposed to are, to the extent reasonably
    practicable, appropriately controlled, but any





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| | Risk factorscontinued
| | ---------------------
| |                      




weakness in these systems and processes could have a negative impact on its results of operations. Business development
    The Group is subject to the risk that any business
    development activity, such as an acquisition, will be based on incorrect assumptions
    or conclusions or that substantial liabilities will be overlooked. The Group
    may also fail to achieve its targets for integration savings arising from
    the Niagara Mohawk merger in the US, the Merger and other subsequent transactions. Financial management
    The Group is subject to certain covenants and
    limits in relation to its listed debt and bank lending facilities. Such limits
    may hinder the Group in the servicing of current businesses or the financing
    of new businesses. The debt of National Grid Transco and certain of its subsidiaries
    is rated by credit rating agencies and changes in these ratings may affect
    both the borrowing capacity of the Group as a whole and the cost of those
    borrowings. The effective rate of tax paid by the Group may be influenced
    by a number of factors including changes in law and regulation or the Groups
    approach to such matters the result of which could increase or decrease that
    rate. Interest rates
    A proportion of National Grid Transcos
    borrowings is subject to interest rates that may fluctuate with changes to
    prevailing interest rates. Increases in these interest rates will result in
    increased costs for the Group. For further information see Interest
    rate risk management on page 35.




Foreign currency
    exchange/foreign operations National Grid Transco has significant international
    operations and conducts business in a number of currencies. These operations
    are subject to the risks normally associated with international businesses,
    including the need to translate foreign currency denominated assets and profits
    into National Grid Transcos reporting currency. For example, fluctuations
    in the value of the US dollar could have a significant impact on the Company
    because of the size of the Groups businesses in the US. 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.
    The Groups investment in Transener, for example, has been and continues
    to be affected by the devaluation of the Argentine peso and the deterioration
    of the economy in Argentina. For further information see Foreign exchange
    risk management on page 35.




Technological
    change National Grid Transcos businesses involved
    in the transmission and distribution of energy are vulnerable to certain types
    of technological changes. Examples of possible changes are the growth in distributed
    generation, renewable energy sources, fuel cells and the introduction of an
    alternative power carrier. Adapting to technological changes may be costly
    and there is no guarantee that the Group may foresee or be able to adequately
    respond to such changes. Joint ventures
    The Groups investments in joint ventures
    are subject to risks normally associated with ventures that are not majority
    owned. The Group is not able to exercise complete control over a joint ventures
    operations and may be dependent on the actions of the other parties to a joint
    venture regarding decisions such as continued funding or interest in the business.
    The success of any joint venture is also dependent upon the financial health
    and strategies of the other joint venture partners.


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Directors Report and Operating
  and Financial ReviewGeneral Information

Incorporation
    National Grid Transco plc is incorporated in
    England and Wales with its registered office at 1-3 Strand, London WC2N 5EH
    (telephone +44 (0) 20 7004 3000). The Company was incorporated on 11 July
    2000. The Companys agent in the US is Lawrence
    J Reilly, National Grid USA, 25 Research Drive, Westborough, MA 01582.
    DividendsAn interim dividend of 6.86 pence per ordinary share (US$0.5352 per ADS) was paid on 21 January 2003. The Directors are recommending a final dividend of 10.34 pence per ordinary share (US$0.8396 per ADS). Subject to
approval by shareholders at the Annual General Meeting, the final dividend will be paid on 20 August 2003 and will bring the total dividend for the year to 17.20 pence per ordinary share (US$1.3748 per ADS). Share buy-back
    In common with most other companies, National
    Grid Transco has shareholder authority to repurchase its own shares. During
    the year, the Directors used this authority to repurchase and cancel 24,225,000
    ordinary shares, each with a nominal value of 10 pence, at an average cost
    of 401.5 pence per share. These shares represented approximately 0.8% of the total issued share capital before repurchases. The aggregate value of repurchases was approximately £97 million. The Directors considered that the repurchases were in the best interests of the Company given market conditions at the time. Research and development
    Expenditure on research and development in
    2002/03 was £18.2 million, compared with £16.0 million for 2001/02. Payment to suppliers
    National Grid Transco is a signatory to the
    Confederation of British Industry (CBI) Prompt Payment Code and has procedures
    to ensure the payment of bills in accordance with contract terms. Copies of
    the CBI Prompt Payment Code may be obtained from the CBI, Centre Point, 103
    New Oxford Street, London WC1A 1DU. The average creditor payment period at 31 March 2003 for the Groups operations in the UK was 25 days.




Donations
    In the UK, charitable donations of £1,209,500
    were made in 2002/03. In the US, charitable donations
    of approximately US$3,000,000 (£1,887,000) were made in 2002/03. In addition to these contributions,
    National Grid Transco provides financial and in-kind support to many other
    organisations through its community involvement programme. No donations were made in the
    UK and EU for the purposes of the Political Parties, Elections and Referendums
    Act 2000. During 2002/03, aggregate contributions
    of US$86,950 (£54,690) were made in the US to state and national political
    party and campaign committees and for ballot question advocacy. Of these contributions
    US$61,950 were made by National Grid USAs political action committees,
    which are funded entirely by voluntary employee contributions. National Grid
    USAs contributions are in compliance with US state and Federal law. Material interests
    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. Substantial
    shareholders Details of substantial shareholdings in National
    Grid Transco are given on page 119. Employee
    policyInformation on National Grid Transcos
    employee policies is included on page 24, under the heading Our People. Future developments
    An outline of future developments is included
    in the Chief Executives Review. Auditors
    During the year, National Grid Transcos
    Auditors, PricewaterhouseCoopers, converted to a Limited Liability Partnership.
    PricewaterhouseCoopers therefore resigned on 21 February 2003 and the Board
    appointed PricewaterhouseCoopers LLP to fill the vacancy. Special notice having
    been given, a resolution for their reappointment will be proposed at the Annual
    General Meeting.




Statement of Directors
    responsibilities for preparing the accounts The Directors are required by the Companies
    Act 1985 to prepare accounts for each financial year which give a true and
    fair view of the state of affairs of the Company and of the Group as at the
    end of the financial year and of the profit or loss of the Group for the financial
    year. The Directors consider that in preparing the accounts (detailed in the following sections: Principal Accounting Policies, Accounts and Notes to the Accounts) the Company has used appropriate accounting policies,
consistently applied and supported by reasonable and prudent judgements and estimates, and all applicable accounting standards have been followed. The Directors have responsibility for ensuring that the Company keeps accounting records which disclose with reasonable accuracy the financial position of the Company and of the Group and which enable them to ensure
that the accounts comply with the Companies Act 1985. The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and to detect fraud and other irregularities. The Directors, having prepared the accounts, have requested the Auditors to take whatever steps and to undertake whatever inspections they consider to be appropriate for the purposes of enabling them to give their
audit report. The Directors confirm that the Audit Committee continues to review the adequacy of the system of internal financial controls adopted by the Group. Annual General Meeting
    National Grid Transcos Annual General
    Meeting will be held on Monday 21 July 2003. Details are set out in the separate
    Notice of Annual General Meeting. On behalf of the Board Helen MahyGroup Company Secretary 20 May 2003 Registered office:1-3 Strand, London WC2N 5EH Registered in England and Wales No. 4031152





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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Independent
      Auditors Report to the Members of National Grid Transco plc
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|We have audited the accounts
        which comprise the Group Profit and Loss Account, the Balance Sheets,
        the Group Cash Flow Statement, the Group Statement of Total Recognised
        Gains and Losses and the related notes. We have also audited the disclosures
        required by Part 3 of Schedule 7A to the Companies Act 1985 contained
        in the Directors Remuneration Report (the auditable part).
      Respective responsibilities of Directors
        and Auditors The Directors responsibilities for
        preparing the Annual Report, the Form 20-F, the Directors remuneration
        report and the accounts in accordance with applicable United Kingdom law
        and accounting standards and the requirements of the US Securities and
        Exchange Commission are set out in the Statement of Directors responsibilities.
      Our responsibility is to audit the accounts
        and the auditable part of the Directors Remuneration Report in accordance
        with relevant legal and regulatory requirements and United Kingdom Auditing
        Standards issued by the Auditing Practices Board and Auditing Standards
        generally accepted in the United States.
      We report to you our opinion as to whether
        the accounts give a true and fair view and whether the accounts and the
        auditable part of the Directors Remuneration Report have been properly
        prepared in accordance with the 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 regarding directors
        remuneration and transactions is not disclosed. |                                                                               

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Accounting Policies

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 respects to US GAAP. A summary of the results under US GAAP is shown in note 33 to the accounts and explanation of the main
differences between UK and US GAAP is set out in note 34. 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, disclosures of
contingent assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. 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
2006. 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 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 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 translating into sterling the Groups share of the net assets and results of a joint venture operating in a hyper-inflationary economy for the year ended 31 March 2003, adjustments have been made to




reflect
          current price levels. Such adjustments have been reflected through the
          Group profit and loss account or statement of total recognised gains
          and losses as appropriate. The Groups share of the gain on net
          monetary liabilities has been credited to the Group profit and loss
          account through net interest, and is shown as part of the
          Groups exceptional financing costs  note 4(c).
        The accounting treatment
          for the merger of National Grid and Lattice is set out in note 1. Further
          disclosures regarding the Merger are given in note 29.
        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 on a
          straight-line basis, through the profit and loss account over its estimated
          useful economic life, principally 20 years.
        d) Foreign currencies
          The results of the Groups overseas
          operations are generally translated into sterling at weighted average
          rates of exchange for the period the overseas operations are included
          within the Group accounts. In certain limited circumstances, where the
          use of a weighted average rate would distort material transactions,
          those transactions are separately translated at the rates of exchange
          relevant to the dates on which the transactions occurred. 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, then 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
          directly 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) Tangible fixed assets and depreciation
          Tangible fixed assets are included in
          the balance sheet at their cost less accumulated depreciation. Cost
          includes payroll and finance costs incurred which are directly attributable
          to the construction of tangible fixed assets.
        Tangible fixed assets include assets
          in which the Groups interest comprises legally protected statutory
          or contractual rights of use.
        Additions represent the purchase or
          construction of new assets, extensions to or significant increases in
          the capacity of tangible fixed assets.
        Contributions received towards the
          cost of tangible fixed assets are included in creditors as deferred
          income and credited on a straight-line basis to the profit and loss
          account over the estimated economic lives of the assets.
        No depreciation is provided on freehold
          land and assets in the course of construction. Other tangible fixed
          assets are depreciated, principally on a straight-line basis, at rates
          estimated to write off their book values over their estimated useful
          economic lives. In assessing estimated useful economic lives, which
          are reviewed on a regular basis, consideration is given to any contractual
          arrangements and operational requirements relating to particular assets.
          Unless otherwise determined by operational requirements, the depreciation
          periods for the principal categories of tangible fixed assets are, in
          general, as shown below: Depreciation periods for categories
        of tangible fixed assets
      YearsPlant and machineryElectricity transmission
        plant
      15 to 60Electricity distribution
        plant
      15 to 60Interconnector
        plant
      15 to 25Gas plant 
        mains, services and regulating equipment
      35 to 65Gas plant 
        storage
      40Gas plant 
        meters
      10 to 33Freehold and leasehold buildings
      up to 65Motor vehicles and office equipment
      up to 10





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Accounting policies continued  f) Impairment of fixed assets
Impairments of fixed assets are calculated
    as the difference between the carrying values of the net assets of income
    generating units, including, where appropriate, investments and goodwill and
    their recoverable amounts. Recoverable amount is defined as the higher of
    net realisable value or estimated value in use at the date the impairment
    review is undertaken. Net realisable value represents the net amount that
    can be generated through sale of the assets. Value in use represents the present
    value of expected future cash flows discounted on a pre-tax basis, using the
    estimated cost of capital of the income generating unit. Impairment reviews are carried out if there
    is some indication that an impairment may have occurred, or, where otherwise
    required, to ensure that fixed assets are not carried above their estimated
    recoverable amounts. Impairments are recognised in the profit and
    loss account, and where material are disclosed as exceptional. g) Replacement expenditure
Replacement expenditure represents the cost of planned maintenance of the UKs gas mains and services assets by replacing or lining sections of pipe. This expenditure is principally undertaken to repair and to
maintain the safety of the network and is written off as incurred. Expenditure that enhances the performance of the mains and services assets is treated as an addition to tangible fixed assets. h) Deferred taxation and investment tax credits
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 balances have not been discounted. Investment tax credits are amortised over the
    economic life of the asset giving rise to the credits.




i) Stocks  Stocks are carried at cost less provision for
  deterioration and obsolescence.  j) Regulatory assets
  The US Statement of Financial Accounting Standards
    71 Accounting for the Effects of Certain Types of Regulation (SFAS
    71) establishes US GAAP for utilities whose regulators have the power to approve
    and/or regulate rates that may be charged to customers. Provided that through
    the regulatory process the utility is substantially assured of recovering
    its allowable costs by the collection of revenue from its customers, such
    costs not yet recovered are deferred as regulatory assets. Due to the different
    regulatory environment, no equivalent accounting standard applies in the UK. Under UK GAAP, regulatory assets
    established in accordance with the principles of SFAS 71 are recognised in
    debtors 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 (notes 18 and 19), the decommissioning provision (note 22)
    and the under-recovery of power costs incurred. k) Decommissioning and environmental
    costsDecommissioning and environmental costs, based
    on discounted future estimated expenditures expected to be incurred, are provided
    for in full and where appropriate a corresponding tangible fixed asset or
    regulatory asset is also recognised. The unwinding of the discount is included
    within the profit and loss account as a financing charge net of the unwinding
    of the discount on any related regulatory asset. l) TurnoverTurnover primarily represents the amounts derived
    from the supply, transmission and distribution of energy and the provision
    of related services, including the recovery of stranded costs. Turnover includes
    an assessment of energy and transportation services 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. Where revenues received
  or receivable exceed the maximum amount permitted by regulatory agreement and
  adjustments will be made to future prices to reflect this over-recovery, no
  liability is recognised. m) 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
    pension cost are allocated over the estimated average remaining service lives
    of current employees, with the interest component of any variation being reflected
    in net interest and the other component reflected through staff costs. n) 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. o) 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, interest rate swaptions 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.




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o) Financial
  instruments (continued)
  Termination payments made or received in respect of derivatives are spread over
  the shorter of the life of the original instrument or the life of the underlying
  exposure in cases where the underlying exposure continues to exist. Where the
  underlying exposure ceases to exist, any termination payments are taken to the
  profit and loss account.  Currency swaps and forward currency agreements
    are retranslated 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.




p) Restructuring costs  Costs arising from Group restructuring programmes
  primarily relate to redundancy costs. Redundancy costs are charged to the profit
  and loss account in the period in which the Group becomes irrevocably committed
  to incurring the costs and the main features of the restructuring plan have
  been announced to affected employees. q) Research and developmentAll research and development
    expenditure is written off as incurred except for laboratory buildings, equipment
    used for research and development and capitalised software. These are capitalised
    and depreciated in accordance with the depreciation policies set out above.







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Group Profit
    and Loss Accountfor the years ended
    31 March 2003
      
      
      2002
      
      
      2001Notes
      £m
      £m
      £mTurnover, including share of joint ventures
      
      
      9,566
      
      
      7,821
      
      
      7,103Less: share of joint ventures turnover
         continuing operations
      
      
      (99
      )
      
      (141
      )
      
      (114
      )Less: share of joint ventures and
        associates turnover  discontinued operations
      
      
      (67
      )
      
      (126
      )
      
      (98
      )Group turnover  continuing operations
      
      
      9,363
      
      
      7,471
      
      
      6,845Group turnover  discontinued operations
      
      
      37
      
      
      83
      
      
      46Group turnover
      2(a)
      
      9,400
      
      
      7,554
      
      
      6,891Operating costs
      3
      
      (7,788
      )
      
      (6,494
      )
      
      (5,179
      )Operating profit of Group undertakings
         continuing operations
      2(b)
      
      1,806
      
      
      1,556
      
      
      1,751Operating loss of Group undertakings
         discontinued operations
      2(b)
      
      (194
      )
      
      (496
      )
      
      (39
      )1,612
      
      
      1,060
      
      
      1,712Share of joint ventures operating
        profit/(loss)  continuing operations
      2(b)
      
      15
      
      
      (29
      )
      
      26Share of joint ventures and associates
        operating profit/(loss)  discontinued operations
      2(b)
      
      109
      
      
      (672
      )
      
      (131
      )124
      
      
      (701
      )
      
      (105
      )Operating profit Before exceptional items and goodwill
        amortisation
      2(b)
      
      2,185
      
      
      1,783
      
      
      1,780 Exceptional items  continuing
        operations
      4(a)
      
      (308
      )
      
      (285
      )
      
      (88
      ) Exceptional items  discontinued
        operations
      4(a)
      
      (39
      )
      
      (1,042
      )
      
       Goodwill amortisation
      
      
      (102
      )
      
      (97
      )
      
      (85
      )Total operating profit
      2(b)
      
      1,736
      
      
      359
      
      
      1,607Merger costs  continuing operations
      4(b)
      
      (79
      )
      
      
      
      
      Profit on disposal of tangible fixed
        assets  continuing operations
      4(b)
      
      48
      
      
      94
      
      
      24Gain on sale of shares by employee share
        plan  continuing operations
      4(b)
      
      
      
      
      31
      
      
      19Loss on sale or termination of operations
         discontinued operations
      4(b)
      
      (68
      )
      
      
      
      
      Profit on disposal of investments 
        discontinued operations
      4(b)
      
      
      
      
      31
      
      
      263Net interest Excluding exceptional items
      8
      
      (939
      )
      
      (657
      )
      
      (635
      ) Exceptional items
      4(c),8
      
      (31
      )
      
      (142
      )
      
      8
      
      (970
      )
      
      (799
      )
      
      (635
      )Profit/(loss) on ordinary activities
        before taxation
      
      
      667
      
      
      (284
      )
      
      1,278Taxation Excluding exceptional items
      9
      
      (373
      )
      
      (251
      )
      
      (390
      ) Exceptional items
      4(d),9
      
      128
      
      
      166
      
      
      2439
      
      (245
      )
      
      (85
      )
      
      (147
      )Profit/(loss) on ordinary activities
        after taxation
      
      
      422
      
      
      (369
      )
      
      1,131Minority interests Excluding exceptional items
      
      
      (3
      )
      
      (2
      )
      
      (7
      ) Exceptional items
      4(e)
      
      (28
      )
      
      50
      
      
      (31
      )
      
      48
      
      
      (7
      )Profit/(loss) for the year
      
      
      391
      
      
      (321
      )
      
      1,124Dividends
      10
      
      (530
      )
      
      (580
      )
      
      (469
      )(Loss)/profit transferred (from)/to
        profit and loss account reserve
      24
      
      (139
      )
      
      (901
      )
      
      655Earnings/(loss) per ordinary share Basic, including exceptional items
        and goodwill amortisation
      11
      
      12.7
      p
      
      (11.3
      )p
      
      40.5
      p Adjusted basic, excluding exceptional
        items and goodwill amortisation
      11
      
      28.3
      p
      
      30.8
      p
      
      26.9
      p Diluted, including exceptional
        items and goodwill amortisation
      11
      
      12.8
      p
      
      (10.1
      )p
      
      39.4
      p Adjusted diluted, excluding exceptional
        items and goodwill amortisation
      11
      
      27.9
      p
      
      30.2
      p
      
      26.4
      p Group Statement
    of Total Recognised Gains and Lossesfor
    the years ended 31 March 2003
        £m
      
      
      2002
        £m
      
      
      2001
        £mProfit/(loss) for the year
      391
      
      
      (321
      )
      
      1,124Exchange adjustments
      (322
      )
      
      (58
      )
      
      (15
      )Tax on exchange adjustments
      12
      
      
      21
      
      
      32Reduction in revaluation reserve on reclassification
        of investment properties
      
      
      
      (50
      )
      
      Unrealised gain on transfer of fixed
        assets to a joint venture (net of tax)
      6
      
      
      7
      
      
      19Total recognised gains and losses
      87
      
      
      (401
      )
      
      1,160


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Balance Sheetsat 31 March Notes
      
      Group
      
      
      Company2003
        £m
      
      
      2002
        £m
      2003
        £m
      
      
      2002
        £mFixed assetsIntangible assets
      12
      
      1,893
      
      
      2,107
      
      
      
      
      
      Tangible assets
      13
      
      16,847
      
      
      17,210
      
      
      
      
      
      Investments in joint ventures Share of gross assets
      
      
      542
      
      
      882
      
      
      
      
      
       Share of gross liabilities
      
      
      (498
      )
      
      (678
      )
      
      
      
      
       Share of net assets
      
      
      44
      
      
      204
      
      
      
      
      
       Loans to joint ventures
      
      
      
      
      
      87
      
      
      
      
      
       Impairment of investments in joint
        ventures
      
      
      
      
      
      (230
      )
      
      
      
      
      Investments in joint ventures (net of
        impairment)
      
      
      44
      
      
      61
      
      
      
      
      
      Other investments
      
      
      209
      
      
      257
      
      
      2,225
      
      
      2,080Total investments
      14
      
      253
      
      
      318
      
      
      2,225
      
      
      2,08018,993
      
      
      19,635
      
      
      2,225
      
      
      2,080Current assetsStocks
      15
      
      126
      
      
      125
      
      
      
      
      
      Debtors (amounts falling due within one
        year)
      16
      
      1,811
      
      
      1,889
      
      
      2,664
      
      
      2,029Debtors (amounts falling due after more
        than one year)
      16
      
      3,395
      
      
      4,058
      
      
      
      
      
      Assets held for exchange
      17
      
      17
      
      
      17
      
      
      
      
      
      Investment held for resale
      28
      
      
      
      
      15
      
      
      
      
      
      Current asset investments
      
      
      482
      
      
      354
      
      
      123
      
      
      Cash at bank and in hand
      
      
      119
      
      
      110
      
      
      1
      
      
      45,950
      
      
      6,568
      
      
      2,788
      
      
      2,033Creditors (amounts falling due within
        one year)Borrowings
      
      
      (2,246
      )
      
      (2,050
      )
      
      (557
      )
      
      (604
      )Other creditors
      
      
      (2,800
      )
      
      (2,838
      )
      
      (1,764
      )
      
      (1,513
      )18
      
      (5,046
      )
      
      (4,888
      )
      
      (2,321
      )
      
      (2,117
      )Net current assets/(liabilities)
      
      
      904
      
      
      1,680
      
      
      467
      
      
      (84
      )Total assets less current liabilities
      
      
      19,897
      
      
      21,315
      
      
      2,692
      
      
      1,996Creditors (amounts falling due after
        more than one year)Convertible bonds
      
      
      (502
      )
      
      (491
      )
      
      
      
      
      Other borrowings
      
      
      (11,731
      )
      
      (12,222
      )
      
      
      
      
      Other creditors
      
      
      (2,022
      )
      
      (2,155
      )
      
      
      
      
      19
      
      (14,255
      )
      
      (14,868
      )
      
      
      
      
      Provisions for liabilities and chargesJoint ventures Share of gross assets
      
      
      
      
      
      296
      
      
      
      
      
       Share of gross liabilities
      
      
      
      
      
      (333
      )
      
      
      
      
      Share of net liabilities
      
      
      
      
      
      (37
      )
      
      
      
      
      Other provisions
      
      
      (4,406
      )
      
      (4,626
      )
      
      
      
      
      (77
      )22
      
      (4,406
      )
      
      (4,663
      )
      
      
      
      
      (77
      )Net assets employed
      
      
      1,236
      
      
      1,784
      
      
      2,692
      
      
      1,919Capital and reservesCalled up share capital
      23
      
      308
      
      
      310
      
      
      308
      
      
      178Share premium account
      24
      
      1,247
      
      
      1,243
      
      
      1,247
      
      
      1,243Other reserves
      24
      
      (5,131
      )
      
      (5,139
      )
      
      2
      
      
      Profit and loss account
      24
      
      4,728
      
      
      5,276
      
      
      1,135
      
      
      498Equity shareholders funds
      
      
      1,152
      
      
      1,690
      
      
      2,692
      
      
      1,919Minority interestsEquity
      
      
      15
      
      
      15
      
      
      
      
      
      Non-equity
      25
      
      69
      
      
      79
      
      
      
      
      
      84
      
      
      94
      
      
      
      
      
      1,236
      
      
      1,784
      
      
      2,692
      
      
      1,919 Commitments and contingencies are shown in note 31. The accounts on pages 57 to 106 inclusive were approved by the Board of Directors on 20 May 2003 and were signed on its behalf by: Sir John ParkerChairman Steve LucasGroup Finance Director





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Group
  Cash Flow Statement for the years
  ended 31 March  Notes
      
      2003
        £m
      
      
      2002
        £m
      
      
      2001
        £mNet cash inflow from operating activities
        before exceptional items
      27
      (a)
      3,154
      
      
      2,394
      
      
      2,482Expenditure relating to exceptional items
      
      
      (328
      )
      
      (103
      )
      
      (129
      )Net cash inflow from operating activities
      
      
      2,826
      
      
      2,291
      
      
      2,353Dividends from joint ventures
      
      
      11
      
      
      13
      
      
      20Returns on investments and servicing
        of financeInterest received and similar income
      
      
      56
      
      
      88
      
      
      112Interest paid and similar charges
      
      
      (957
      )
      
      (784
      )
      
      (799
      )Dividends paid to minority interests
      
      
      (11
      )
      
      (9
      )
      
      (4
      )Net cash outflow for returns on investments
        and servicing of finance
      
      
      (912
      )
      
      (705
      )
      
      (691
      )TaxationCorporate tax paid
      
      
      (112
      )
      
      (212
      )
      
      (350
      )Capital expenditure and financial
        investmentNet payments to acquire intangible and
        tangible fixed assets
      
      
      (1,518
      )
      
      (1,734
      )
      
      (1,343
      )Receipts from disposals of tangible fixed
        assets
      
      
      111
      
      
      191
      
      
      137Receipts from disposals of shares by
        an employee share plan
      
      
      
      
      
      50
      
      
      28Other
      
      
      
      
      
      10
      
      
      (1
      )Net cash outflow for capital expenditure
        and financial investment
      
      
      (1,407
      )
      
      (1,483
      )
      
      (1,179
      )Acquisitions and disposalsPayments to acquire investments
      
      
      (165
      )
      
      (56
      )
      
      (342
      )Receipts from disposals of investments
      27
      (b)
      328
      
      
      37
      
      
      196Acquisition of Group undertaking
      27
      (c)
      
      
      
      (950
      )
      
      (441
      )Net cash inflow/(outflow) for acquisitions
        and disposals
      
      
      163
      
      
      (969
      )
      
      (587
      )Equity
          dividends paid
      
      
      (571
      )
      
      (478
      )
      
      (336
      )Net cash outflow before the management
        of liquid resources and financing
      
      
      (2
      )
      
      (1,543
      )
      
      (770
      )Management of liquid resources(Increase)/decrease in short-term deposits
      
      
      (138
      )
      
      347
      
      
      696Net cash (outflow)/inflow from the
        management of liquid resources
      27(d)
      ,(e)
      (138
      )
      
      347
      
      
      696FinancingIssue of ordinary shares
      
      
      4
      
      
      12
      
      
      7Payments to repurchase ordinary shares
      
      
      (97
      )
      
      
      
      
      Increase/(decrease) in borrowings
      27(d)
      ,(e)
      267
      
      
      1,206
      
      
      (208
      )Funding movement on Demerger of Lattice
        from BG Group plc
      
      

      
      
      
      
      
      
      260Net cash inflow from financing
      
      
      174
      
      
      1,218
      
      
      59Movement
          in cash and overdrafts
      27(d)
      ,(e)
      34
      
      
      22
      
      
      (15
      ) Included in the cash flows above are cash flows for discontinued operations as set out below: 2003
        £m
      
      2002
        £m
      
      2001
        £mNet cash (outflow)/inflow from operating
        activities
      (71
      )
      52
      
      (4
      )Net cash (outflow)/inflow for returns
        on investments and servicing of finance
      (14
      )
      (3
      )
      5Net cash (outflow)/inflow for taxation
      (1
      )
      13
      
      (2
      )Net cash outflow for capital expenditure
        and financial investment
      (123
      )
      (342
      )
      (145
      )Net cash outflow for acquisitions and
        disposals
      (3
      )
      (12
      )
      (9
      )Net
          cash outflow before the management of liquid resources and financing
      (212
      )
      (292
      )
      (155
      ) Liquid resources comprise money market deposits, equities and gilts.




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Notes
    to the Accounts 1.
      Merger of
          National Grid and LatticeThe business combination of National Grid and Lattice meets the merger
          accounting criteria under UK GAAP and the Companies Act 1985 and therefore
          the transaction has been accounted for as a merger. The consolidated
          accounts have been presented as if National Grid and Lattice had always
          comprised the Group. The combined accounts have been adjusted for the
          issue on Merger of 1,323m shares with a nominal value of £132m
          and for the elimination of balances between the former groups.
        An adjustment to other reserves of £221m
          has been made for all years presented (note 24). The adjustment represents
          the difference between the £132m nominal value of the shares issued
          on Merger by National Grid and the called up share capital of Lattice
          at 21 October 2002.
        Further details relating to the Merger
          are shown in note 29.2.
      Segmental
          analysisThe basis for the preparation of
          segmental information is set out on page 29.
        The US electricity distribution segment
          shown below includes the recovery of stranded costs.
        Continuing operations  Other
          activities primarily relates to gas metering activities; EnMo
          which provides the on-the-day commodity market for gas trading in Great
          Britain; Advantica which provides advanced technology and systems solutions
          for energy and utility companies worldwide; and Gridcom which provides
          telecommunications infrastructure to operators in Great Britain and
          the US.
        In the 2001/02 segmental analysis of
          turnover and operating profit, the repayment of £267m of surplus
          entry capacity auction revenue, that was rebated to shippers through
          distribution tariffs, has been reported within the UK electricity and
          gas transmission segment. a)
        TurnoverTotal
        sales
        2003
        £m
      
      Sales
        between
        businesses
        2003
        £m
      
      Sales
        to third
        parties
        2003
        £m
      
      Total
        sales
        2002
        £m
      
      Sales
        between
        businesses
        2002
        £m
      
      Sales
        to third
        parties
        2002
        £m
      
      Total
        sales
        2001
        £m
      
      Sales
        between
        businesses
        2001
        £m
      
      Sales
        to third
        parties
        2001
        £mTurnover, including share of joint ventures continuing
        operations
      9,793
      
      331
      
      9,462
      
      7,857
      
      245
      
      7,612
      
      7,044
      
      85
      
      6,959 discontinued
        operations
      123
      
      19
      
      104
      
      246
      
      37
      
      209
      
      185
      
      41
      
      144Less: share of
        joint ventures turnover continuing
        operations
      (99
      )
      
      
      (99
      )
      (141
      )
      
      
      (141
      )
      (114
      )
      
      
      (114
      ) discontinued
        operations
      (67
      )
      
      
      (67
      )
      (126
      )
      
      
      (126
      )
      (98
      )
      
      
      (98
      )Group turnover
      9,750
      
      350
      
      9,400
      
      7,836
      
      282
      
      7,554
      
      7,017
      
      126
      
      6,891Continuing operationsUK gas distribution
      2,089
      
      47
      
      2,042
      
      2,013
      
      
      
      2,013
      
      2,070
      
      
      
      2,070UK electricity and gas transmission
      1,948
      
      8
      
      1,940
      
      1,850
      
      21
      
      1,829
      
      1,948
      
      5
      
      1,943US electricity transmission
      407
      
      5
      
      402
      
      278
      
      1
      
      277
      
      243
      
      3
      
      240US electricity distribution
      3,446
      
      1
      
      3,445
      
      2,282
      
      5
      
      2,277
      
      1,854
      
      1
      
      1,853US gas
      446
      
      
      
      446
      
      104
      
      
      
      104
      
      
      
      
      
      Other activities
      1,358
      
      270
      
      1,088
      
      1,189
      
      218
      
      971
      
      815
      
      76
      
      7399,694
      
      331
      
      9,363
      
      7,716
      
      245
      
      7,471
      
      6,930
      
      85
      
      6,845Discontinued operations
      56
      
      19
      
      37
      
      120
      
      37
      
      83
      
      87
      
      41
      
      46Group turnover
      9,750
      
      350
      
      9,400
      
      7,836
      
      282
      
      7,554
      
      7,017
      
      126
      
      6,891Europe
      
      
      
      
      5,096
      
      
      
      
      
      4,865
      
      
      
      
      
      4,786North America
      
      
      
      
      4,304
      
      
      
      
      
      2,689
      
      
      
      
      
      2,1059,400
      
      
      
      
      
      7,554
      
      
      
      
      
      6,891The analysis of turnover
        by geographical area is on the basis of origin. Turnover on a destination
        basis would not be materially different.Approximately 16% of the
        Groups turnover for the year ended 31 March 2003 amounting to approximately
        £1.5bn derives from a single customer, the Centrica Group. The majority
        of this turnover is in the UK gas distribution segment with lesser amounts
        in other activities and the UK electricity and gas transmission segment.





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Notes to the
        accountscontinued2.
      Segmental analysis(continued) b) Operating profit Operating
        profitBefore
        exceptional itemsand goodwill amortisation
      
      After
        exceptional itemsand goodwill amortisation2003
        £m
      
      2002£m
      
      2001£m
      
      2003
        £m
      
      2002£m
      
      2001£mGroup undertakings  continuing
        operationsUK gas distribution
      
      554
      
      548
      
      663
      
      443
      
      504
      
      631UK electricity and gas transmission
      
      846
      
      781
      
      756
      
      800
      
      688
      
      750US electricity transmission
      
      128
      
      87
      
      72
      
      103
      
      64
      
      60US electricity distribution
      
      513
      
      266
      
      215
      
      413
      
      149
      
      118US gas
      
      58
      
      17
      
      
      
      49
      
      8
      
      Other activities
      
      117
      
      179
      
      203
      
      (2
      )
      143
      
      1922,216
      
      1,878
      
      1,909
      
      1,806
      
      1,556
      
      1,751Discontinued
          operations
      
      (26
      )
      (60
      )
      (39
      )
      (194
      )
      (496
      )
      (39
      )Operating
          profit of Group undertakings
      
      2,190
      
      1,818
      
      1,870
      
      1,612
      
      1,060
      
      1,712Joint ventures and associate  continuing
        operationsElectricity activities
      
      15
      
      36
      
      35
      
      15
      
      36
      
      35Other activities
      
      
      
      (17
      )
      (9
      )
      
      
      (65
      )
      (9
      )15
      
      19
      
      26
      
      15
      
      (29
      )
      26Discontinued
          operations
      
      (20
      )
      (54
      )
      (116
      )
      109
      
      (672
      )
      (131
      )Operating
          (loss)/profit of joint ventures and associate
      
      (5
      )
      (35
      )
      (90
      )
      124
      
      (701
      )
      (105
      )Total
          operating profit
      
      2,185
      
      1,783
      
      1,780
      
      1,736
      
      359
      
      1,607Europe
      
      1,481
      
      1,420
      
      1,588
      
      1,051
      
      440
      
      1,530North America
      
      704
      
      377
      
      286
      
      549
      
      224
      
      171Latin America
      
      (7
      )
      (19
      )
      (98
      )
      128
      
      (310
      )
      (98
      )Rest of the World
      
      7
      
      5
      
      4
      
      8
      
      5
      
      42,185
      
      1,783
      
      1,780
      
      1,736
      
      359
      
      1,607 c) Total and net assetsTotal
        assets
      
      Net
        assets2003£m
      
      2002£m
      
      2003£m
      
      2002£mGroup undertakings  continuing
        operationsUK gas distribution
      
      4,998
      
      4,736
      
      3,480
      
      3,394UK electricity and gas transmission
      
      5,951
      
      5,694
      
      5,200
      
      4,871US electricity transmission
      
      1,736
      
      1,914
      
      1,656
      
      1,805US electricity distribution
      
      8,507
      
      9,986
      
      6,405
      
      7,292US gas
      
      930
      
      972
      
      778
      
      845Other activities
      
      2,075
      
      1,776
      
      1,154
      
      1,24024,197
      
      25,078
      
      18,673
      
      19,447Discontinued
          operations
      
      9
      
      320
      
      (3
      )
      190Group
          undertakings
      
      24,206
      
      25,398
      
      18,670
      
      19,637Joint ventures and associate  continuing
        operationsElectricity activities
      
      42
      
      57
      
      42
      
      20Other activities
      
      2
      
      4
      
      2
      
      4Joint ventures and associate
      
      44
      
      61
      
      44
      
      24Unallocated
      
      693
      
      744
      
      (17,478
      )
      (17,877
      )24,943
      
      26,203
      
      1,236
      
      1,784Europe
      
      12,974
      
      12,370
      
      9,774
      
      9,183North America
      
      11,209
      
      13,057
      
      8,873
      
      10,484Latin America
      
      
      
      
      
      
      
      (37
      )Rest of the World
      
      67
      
      32
      
      67
      
      31Unallocated
      
      693
      
      744
      
      (17,478
      )
      (17,877
      )24,943
      
      26,203
      
      1,236
      
      1,784  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, current asset investments, cash and
    taxation related regulatory assets. Unallocated net liabilities include net
    borrowings, taxation, interest, dividends, investment in own shares, assets
    held for exchange and taxation related regulatory assets.


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2.   Segmental analysis(continued) d) Other segmental information Capital
        expenditure
      
      Depreciation
        and amortisation2003£m
      
      2002£m
      
      2001£m
      
      2003£m
      
      2002£m
      
      2001£mGroup undertakings  continuing
        operationsUK gas distribution
      
      380
      
      455
      
      360
      
      185
      
      176
      
      179UK electricity and gas transmission
      
      573
      
      620
      
      592
      
      261
      
      252
      
      225US electricity transmission
      
      49
      
      38
      
      30
      
      71
      
      46
      
      39US electricity distribution
      
      209
      
      141
      
      94
      
      359
      
      192
      
      170US gas
      
      40
      
      3
      
      
      
      34
      
      6
      
      Other activities
      
      174
      
      199
      
      228
      
      152
      
      153
      
      1231,425
      
      1,456
      
      1,304
      
      1,062
      
      825
      
      736Discontinued operations
      
      95
      
      391
      
      200
      
      26
      
      51
      
      33Group undertakings
      
      1,520
      
      1,847
      
      1,504
      
      1,088
      
      876
      
      769Europe
      
      1,172
      
      1,638
      
      1,347
      
      613
      
      619
      
      552North America
      
      298
      
      203
      
      154
      
      475
      
      257
      
      217Rest of the World
      
      50
      
      6
      
      3
      
      
      
      
      
      1,520
      
      1,847
      
      1,504
      
      1,088
      
      876
      
      769  Capital expenditure comprises
  additions to tangible and intangible fixed assets (excluding goodwill) amounting
  to £1,519m (2002: £1,840m; 2001: £1,504m) and £1m (2002:
  £7m; 2001: £nil) respectively.
  3.
      Operating costs Continuing
        operations
      
      Discontinued
        operations
      
      Total2003£m
      
      2002£m
      
      2001£m
      
      2003£m
      
      2002£m
      
      2001£m
      
      2003£m
      
      2002£m
      
      2001£mTotal operating costs
      
      7,557
      
      5,916
      
      5,094
      
      250
      
      616
      
      126
      
      7,807
      
      6,532
      
      5,220Charged from:
        continuing operations
      
      
      
      
      
      
      
      
      
      (1
      )
      
      
      
      
      (1
      )
      
        discontinued operations
      
      (19
      )
      (37
      )
      (41
      )
      
      
      
      
      
      
      (19
      )
      (37
      )
      (41
      )External operating costs
      
      7,538
      
      5,879
      
      5,053
      
      250
      
      615
      
      126
      
      7,788
      
      6,494
      
      5,179Depreciation
      
      825
      
      700
      
      630
      
      26
      
      50
      
      35
      
      851
      
      750
      
      665Payroll costs (note 5(a))
      
      1,093
      
      907
      
      723
      
      14
      
      39
      
      13
      
      1,107
      
      946
      
      736Purchases of electricity
      
      1,901
      
      1,410
      
      1,248
      
      
      
      
      
      
      
      1,901
      
      1,410
      
      1,248Purchases of gas
      
      357
      
      171
      
      98
      
      
      
      
      
      
      
      357
      
      171
      
      98Rates and property taxes
      
      537
      
      422
      
      389
      
      
      
      2
      
      1
      
      537
      
      424
      
      390Electricity transmission services schemedirect costs
      
      252
      
      204
      
      220
      
      
      
      
      
      
      
      252
      
      204
      
      220EnMo direct costs
      
      530
      
      395
      
      201
      
      
      
      
      
      
      
      530
      
      395
      
      201Replacement expenditure
      
      405
      
      368
      
      276
      
      
      
      
      
      
      
      405
      
      368
      
      276Exceptional operating items
      
      308
      
      237
      
      88
      
      168
      
      436
      
      
      
      476
      
      673
      
      88Other non-exceptional operating charges
      
      1,330
      
      1,065
      
      1,180
      
      42
      
      88
      
      77
      
      1,372
      
      1,153
      
      1,2577,538
      
      5,879
      
      5,053
      
      250
      
      615
      
      126
      
      7,788
      
      6,494
      
      5,179Operating costs include:Research and development costs
      
      
      
      
      
      
      
      
      
      
      
      
      
      18
      
      16
      
      26Operating lease rentals
        Plant and machinery
      
      
      
      
      
      
      
      
      
      
      
      
      
      16
      
      8
      
      4
        Other
      
      
      
      
      
      
      
      
      
      
      
      
      
      52
      
      22
      
      27Amortisation of goodwill (i)
      
      
      
      
      
      
      
      
      
      
      
      
      
      102
      
      85
      
      70Amortisation of regulatory assets
      
      
      
      
      
      
      
      
      
      
      
      
      
      132
      
      35
      
      33Other amortisation
      
      
      
      
      
      
      
      
      
      
      
      
      
      3
      
      6
      
      1Auditors remuneration (ii)Statutory audit services
        Annual audit (audit fee for the Company was £8,500 (2002: £8,000))
      
      
      
      3
      
      4
      
      3
        Regulatory reporting
      
      
      
      
      
      
      
      
      
      
      
      
      
      1
      
      1
      
      1Further audit related services (iii)
      
      
      
      
      
      
      
      
      
      
      
      
      
      3
      
      2
      
      Tax advisory services
      
      
      
      
      
      
      
      
      
      
      
      
      
      3
      
      1
      
      1Other non-audit services (iv)
      
      
      
      
      
      
      
      
      
      
      
      
      
      3
      
      6
      
      4 (i)
          Includes the amortisation
        of negative goodwill of £4m (2002 and 2001: £nil) and excludes
        the amortisation of goodwill of £nil (2002: £12m; 2001: £15m)
        relating to joint ventures and associate.(ii)
        In addition to the fees
        included above, fees of: a) £nil (2002: £2m; 2001: £2m)
        incurred in respect of acquisitions have been capitalised; and b) £nil
        (2002: £nil; 2001: £1m) incurred in respect of disposals have
        been charged at arriving at profit on disposal on investments.(iii)
          Included within further
        audit related services are £2m of fees relating to the Merger which
        have been included within non-operating exceptional items.(iv)
          For the year ended 31 March
        2003, other non-audit services include £2m (2002: £6m; 2001:
        £3m) in relation to services provided by the consulting business
        unit of PricewaterhouseCoopers which was sold to IBM United Kingdom Limited
        on 30 September 2002.







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Notes
        to the accounts continued4.
      Exceptional
        itemsa)
      Operating 2003£m
      
      2002£m
      
      2001£mContinuing operationsRestructuring costs (i)
      203
      
      187
      
      45Merger costs (ii)
      105
      
      
      
      Impairment of assets (iii)
      
      
      50
      
      Demerger costs (iv)
      
      
      
      
      43Share of exceptional operating items
        of joint venture (v)
      
      
      48
      
      308
      
      285
      
      88Discontinued operationsRestructuring costs (i)
      6
      
      
      
      Impairment of business (vi)
      168
      
      250
      
      Impairment of investments in joint ventures
        and associate (vii)
      (135
      )
      792
      
      39
      
      1,042
      
      Total operating exceptional
        items
      347
      
      1,327
      
      88 (i)
      Relates to costs incurred
        in business reorganisations in the UK and US businesses (2003: £165m
        after tax; 2002: £130m after tax; 2001: £39m after tax).(ii)
      Represents employee and
        property costs associated with the Merger (£76m after tax).(iii)
      The impairment charge for
        2002 relates to a review of the carrying value of LNG storage assets,
        which resulted in a charge to operating profit amounting to £50m
        (£35m after tax). In the LNG review, future cash flows were determined
        based on a five-year business plan projected out to 20 years and discounted
        at a pre-tax rate of 6.25%.(iv)
      2001 results include £43m
        (£36m after tax) of costs that arose as a direct result of the Demerger
        of Lattice from BG Group plc.(v)
      Share of exceptional operating
        items of a joint venture in 2002 represents the Groups share of
        the write-off of an investment and the write-down of goodwill in a joint
        venture prior to it becoming a wholly owned subsidiary of the Group (£48m
        after tax). The write-down of goodwill followed an impairment review which
        applied a discount rate of 15%. The review used growth rates over a plan
        period covering nine years. The assumptions of the plan were consistent
        with management views of the market and the joint ventures performance
        therein.(vi)
      Following a review of the
        carrying value of certain of the Groups telecom assets, the Group
        has incurred impairment charges resulting in the write-down of those assets
        to their estimated recoverable amounts and the recognition of other related
        costs (2003: £143m after tax; 2002: £175m after tax; 2001:
        £nil after tax).(vii)
      The 2003 credits relate
        to Intelig and other telecom joint ventures (£155m after tax). The
        exceptional credits arising in 2003 substantially represent the reversal
        of the Groups share of retained losses incurred by these joint ventures
        during the period from 1 April 2002 to the date of disposal or the date
        that equity accounting ceased. £129m of the pre-tax exceptional
        credits have been reflected in Share of joint ventures and
        associates operating profit/(loss)  discontinued operations.
        The 2002 exceptional charge of £792m (£775m after tax) relates
        to the write-down of the Groups investment in its joint ventures
        and associate. This charge comprised a write-down of the carrying value
        of the investments of £606m (£589m after tax) to their estimated
        recoverable amounts, and the recognition of related liabilities of £186m
        (£186m after tax). b)
      Non-operating2003
        £m
      
      2002
        £m
      
      2001
        £mContinuing operationsMerger costs (viii)
      79
      
      
      
      Profit on disposal of tangible
        fixed assets (ix)
      (48
      )
      (94
      )
      (24
      )Gain on sale of shares by
        an employee share plan (x)
      
      
      (31
      )
      (19
      )31
      
      (125
      )
      (43
      )Discontinued operationsLoss on sale or termination
        of operations (xi)
      68
      
      
      
      Profit on disposal of investments
        (xii)
      
      
      (31
      )
      (263
      )68
      
      (31
      )
      (263
      )Total non-operating exceptional
        items
      99
      
      (156
      )
      (306
      ) (viii)
      The after tax transaction
        cost of the Merger was £71m.(ix)
      The after tax profit on
        disposal of tangible fixed assets was £50m (2002: £96m; 2001:
        £24m).(x)
      The after tax gain on sale
        of shares by an employee share plan was £nil (2002: £31m;
        2001: £19m).(xi)
      Relates to the loss on sale
        of The Leasing Group of £45m and loss on closure of 186k of £23m.
        The after tax loss relating to the sale and closure amounted to £68m.(xii)
      The after tax profit on
        disposal of investments was £nil (2002: £31m; 2001: £263m).


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4.
    Exceptional items(continued)c) Financing costs
      The exceptional net interest cost of £31m (2002: £142m; 2001:
      £nil) (2003: £31m after tax; 2002: £142m after tax; 2001:
      £nil after tax) relates to the Groups share of foreign exchange
      losses incurred on foreign currency borrowings by joint ventures amounting
      to £98m (2002: £142m; 2001: £nil), partially offset by
      the Groups share of a gain on net monetary liabilities of £67m
      (2002 and 2001: £nil). The gain on the net monetary liabilities relates
      to Citelec, a joint venture operating in Argentina, and reflects the net
      gain arising on net monetary liabilities that are financing the operation
      in a hyper-inflationary economy.d)
      Tax creditIncluded in the 2001 net exceptional
      tax credit of £243m is a tax credit of £230m (note 9), which
      represents the reversal of a 2000 exceptional tax charge relating to an
      exceptional profit on the disposal of investments, arising from the realisation
      of capital losses for tax purposes as a result of Group restructurings.e)
      Minority interestsThe 2003 exceptional minority interest charge of £28m relates to the
      Groups share of the minority interest in the after taxation exceptional
      items of Citelec, a joint venture, and primarily reflects the minority interests
      share of the gain on net monetary liabilities referred to above (note 4(c)).The 2002 exceptional
      minority interest credit of £50m relates to the Groups share
      of the minority interest in the after taxation exceptional items of Citelec,
      a joint venture, and primarily relates to foreign exchange losses incurred
      on foreign currency borrowings.5.
    Payroll costs and
      employees 2003£m
      
      2002£m
      
      2001£ma) Payroll costsWages and salaries
      1,124
      
      940
      
      836Social security costs
      84
      
      73
      
      67Other pension costs/(credits)
      117
      
      90
      
      (17
      )1,325
      
      1,103
      
      886Less: Amounts capitalised
      (158
      )
      (129
      )
      (116
      )Payroll
        costs included in replacement and research and development expenditure
      (60
      )
      (28
      )
      (14
      )Payroll
        costs included in exceptional items
      
      
      
      
      (20
      )1,107
      
      946
      
      736 31
        March2003Number
      
      Average2003Number
      
      Average2002Number
      
      Average2001Numberb) Number of employeesEurope
      17,333
      
      18,399
      
      19,227
      
      19,015North America
      9,939
      
      10,120
      
      5,094
      
      3,839Rest of the World
      15
      
      14
      
      25
      
      25Continuing operations
      27,287
      
      28,533
      
      24,346
      
      22,879Discontinued operations
      21
      
      407
      
      768
      
      31827,308
      
      28,940
      
      25,114
      
      23,197 The vast majority
        of employees in:
      Europe
        are either directly or indirectly employed in the transmission and distribution
        of gas and the transmission of electricity in the UK.
      North America
        are either directly or indirectly employed in the transmission and distribution
        of electricity and the distribution of gas in the US.6.
      Directors
        emolumentsDetails
        of Directors emoluments are contained in the auditable part of the
        Directors Remuneration Report on pages 48 to 52.





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Notes to the
        accounts continued7.
      Pensions and post-retirement
        benefitsUK post-retirement
        schemesSubstantially all of the Groups UK employees are members of either
        the Electricity Supply Pension Scheme or the Lattice Group Pension Scheme.Electricity Supply
        Pension SchemeThe Electricity Supply Pension Scheme provides final salary defined benefits
        on a funded basis. 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. It is subject to independent valuations at least
        every three years, on the basis of which the qualified actuary certifies
        the rate of employers contributions which, together with the specified
        contributions payable by the employees and proceeds from the schemes
        assets, are expected to be sufficient to fund the benefits payable under
        the scheme. The latest full actuarial valuation of the Groups section
        of the scheme was carried out by Bacon & Woodrow, Consulting Actuaries
        (now Hewitt, Bacon and Woodrow), at 31 March 2001.The projected unit method
        was used for the last valuation and the principal actuarial assumptions
        adopted were that the real annual rates of return on investments held
        in respect of pre-retirement members would average 4.5% and on investments
        held in respect of post-retirement members would average 3.5%; 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 market value of the assets relating to the Groups
        section of the scheme at 31 March 2001 was £1,336m 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 employers and employees contribution rates
        for the forthcoming year are 12% and 6% respectively. These contribution
        rates will be reviewed when the next independent actuarial valuation is
        carried out, which will be at 31 March 2004.Lattice Group
        Pension SchemeThe Lattice Group Pension Scheme provides final salary defined benefits
        for employees who joined the Lattice Group prior to 31 March 2002. A defined
        contribution section was added to the scheme from 1 April 2002 for employees
        joining Lattice Group from that date. The scheme is self-administered
        and funded to cover pension liabilities in respect of service up to the
        balance sheet date. It is subject to independent valuations at least every
        three years, on the basis of which the qualified actuary certifies the
        rate of employers contributions which, together with the specified
        contributions payable by the employees and proceeds from the schemes
        assets, are expected to be sufficient to fund the benefits payable under
        the scheme.The latest full actuarial
        valuation of the scheme was carried out by Watson Wyatt LLP at 31 March
        2001. The projected unit method was used and the principal actuarial assumptions
        adopted were that the annual rate of inflation and pensions increases
        would be 2.3%; that future real increases in pensionable earnings would
        be 1.9%; that the annual real rate of return on existing investments would
        be 2.9%; and that the real annual rate of return on future contributions
        would be 3.7%. Excluding assets and liabilities attributable to BG Group
        members who left the scheme on 4 July 2001, the aggregate market value
        of the schemes assets was £11,963m and the value of the assets
        represented approximately 104% of the actuarial value of benefits due
        to members calculated on the basis of pensionable earnings and service
        at 31 March 2001 on an ongoing basis and allowing for projected increases
        in pensionable earnings and pensions.The results of the actuarial
        valuation carried out at 31 March 2001 showed that based on long-term
        financial assumptions the contribution rate required to meet the future
        benefit accrual was 26.6% of pensionable earnings (23.6% employers and
        3% employees) though employers contributions could have been maintained
        at the level of 3% until March 2004. Employers contributions were,
        however, increased from 3% to 8.5% with effect from1January
        2002. This contribution rate will be reviewed when the next independent
        actuarial valuation is carried out, which will be at 31 March 2003.US post-retirement
        schemesPension
        Substantially all of the Groups US employees are members of defined
        benefit plans. The assets of the plans are held in separate trustee administered
        funds. The latest full actuarial valuations were carried out by Hewitt
        Associates LLC at 31 March 2002 and were used to calculate the pension
        cost for the year ended 31 March 2003. These valuations have been updated
        using assumptions and market values at 31 March 2003. The projected unit
        method was used for the updated valuations and the principal actuarial
        assumptions adopted were that the real annual rate of return on investments
        would average 5.5% for New York schemes and 4.5% for other US schemes;
        that real annual increases in salary would average 0.25% for New York
        schemes and 0.5% for other US schemes; that inflation would average 3.0%
        for New York schemes and 3.5% for other US schemes; and that nominal increases
        in pensions would be nil. The market value of the assets relating to the
        Groups US defined benefit plans at 31 March 2003 totalled US$1,607m
        and the actuarial value of the assets represented 67% of the actuarial
        value of the benefits that had accrued to members, after allowing for
        future salary increases. There are no formally agreed contribution rates
        for the US plans.Healthcare and life
        insurance  retireesIn the US, the Group provides healthcare and life insurance to eligible
        retired US employees. Eligibility is based on certain age and length of
        service requirements and in some cases retirees must contribute to the
        cost of their coverage. The latest full actuarial valuations were carried
        out at 31 March 2002. These valuations have been updated using assumptions
        and market values at 31 March 2003. The principal assumptions adopted
        were a discount rate of 6.25% and that medical costs would increase by
        10.0% per annum, decreasing to 5.0% by 2008 and remain at this rate thereafter.The cost of providing
        healthcare and life insurance to retired US employees for the year ended
        31 March 2003 amounted to £37m (2002: £9m; 2001: £7m).Pension cost,
        prepayment and provisions for liabilities and chargesThe pension cost charged to operating
        profit for the year ended 31 March 2003 was £117m (2002: £90m;
        2001: £17m credit). This represents defined contribution scheme
        costs of £1m (2002 and 2001: £nil), and defined benefit regular
        pension costs of £136m (2002: £127m; 2001: £88m) less
        a variation from the regular pension cost totalling £20m (2002:
        £37m; 2001: £105m), of which £2m (2002: £2m; 2001:
        £2m) relates to the partial release of a pension provision. In addition,
        net interest includes a credit of £3m (2002: £30m; 2001: £63m)
        in respect of the notional interest element of the variation from the
        regular pension cost.As a result of the deterioration
        in world stock markets, if formal actuarial valuations of the UK pension
        funds were carried out, this would in all likelihood reveal deficits.
        The continuing recognition of a surplus in these circumstances is incompatible
        with this position. Consequently, the Group has suspended the recognition
        of any further UK pension surplus amortisation with effect from 1 October
        2002. As a result of this action, operating profit and net interest charge
        are reduced and increased by £21m and £10m respectively compared
        with the ongoing recognition of such a surplus.Included in debtors at
        31 March 2003 is a pension prepayment of £37m (2002: £35m).Included within provisions
        for liabilities and charges at 31 March 2003 is a pension and other post-retirement
        benefits provision of £551m (2002: £681m)  see note
        22.


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7.
      Pensions and
        post-retirement benefits(continued)FRS 17 Retirement benefitsOn 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 beginning on or after 1 January 2005, though disclosures are
        required in the financial years prior to its full implementation. Disclosures
        showing the impact on the Groups profit and loss account and balance
        sheet, together with other disclosures required by FRS 17, are set out
        below.The disclosures have been
        prepared by updating the results of the aforementioned valuations by independent
        qualified actuaries using the projected unit method of valuation on the
        basis of the following assumptions. 2003
      
      2002UK
        Pensions
      
      US
        Pensions
      
      US
        Other post-
        retirement
        benefits
      
      UK
        Pensions
      
      US
        Pension
      
      US
        Other post-
        retirement
        benefitsRate of increase in salaries(i)
      
      3.5
      
      4.0
      
      
      
      4.7
      
      4.0
      
      Rate of increase in pensions in payment
        and deferred pensions
      
      2.6
      
      
      
      
      
      2.8
      
      
      
      Discount rate for liabilities
      
      5.4
      
      6.3
      
      6.3
      
      5.8
      
      7.5
      
      7.5Rate of increase in Retail Price Index
        or equivalent
      
      2.5
      
      3.2
      
      
      
      2.8
      
      3.5
      
      Initial healthcare cost trend rate
      
      
      
      
      
      10.0
      
      
      
      
      
      10.0Ultimate healthcare cost trend rate
      
      
      
      
      
      5.0
      
      
      
      
      
      5.0 (i)
      A promotional age-related scale has also
        been used where appropriate.  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 2003 and 31 March 2002 were as follows:
  US 
        Other post-UK 
        Pensions
      
      US 
        Pensions
      
      retirement
        benefitsLong-term
        rate of return
        expected at
        31 March
        2003
        %
      
      Value at
        31 March
        2003
        £m
      
      Long-term
        rate of return
        expected at
        31 March
        2003
        %
      
      Value at
        31 March
        2003
        £m
      
      Long-term
        rate of return
        expected at
        31 March
        2003
        %
      
      Value at
        31 March
        2003
        £mEquities
      
      8.5
      
      4,590
      
      11.0
      
      586
      
      11.0
      
      158Bonds
      
      4.6
      
      5,436
      
      5.1
      
      395
      
      5.0
      
      157Property
      
      6.5
      
      901
      
      9.0
      
      8
      
      
      
      Other
      
      4.0
      
      171
      
      6.8
      
      28
      
      3.5
      
      58Total market value of assets
      
      
      
      11,098
      
      
      
      1,017
      
      
      
      373Present value of scheme liabilities
      
      
      
      (13,269
      )
      
      
      (1,617
      )
      
      
      (1,003
      )Deficit in schemes
      
      
      
      (2,171
      )
      
      
      (600
      )
      
      
      (630
      )Related deferred tax asset
      
      
      
      651
      
      
      
      238
      
      
      
      250Net liability
      
      
      
      (1,520
      )
      
      
      (362
      )
      
      
      (380
      )  US 
        Other post-UK 
        Pensions
      
      US 
        Pensions
      
      retirement
        benefitsLong-termrate
        of returnexpected at31
        March2002%
      
      Value
        at31 March2002£m
      
      Long-termrate
        of returnexpected at31
        March2002%
      
      Value
        at31 March2002£m
      
      Long-termrate
        of returnexpected at31
        March2002%
      
      Value
        at31 March2002£mEquities
      
      7.5
      
      7,462
      
      10.2
      
      902
      
      10.3
      
      236Bonds
      
      5.4
      
      4,115
      
      6.4
      
      476
      
      5.9
      
      160Property
      
      6.5
      
      852
      
      8.0
      
      11
      
      
      
      Other
      
      4.4
      
      520
      
      5.6
      
      48
      
      5.9
      
      1Total market value of assets
      
      
      
      12,949
      
      
      
      1,437
      
      
      
      397Present value of scheme liabilities
      
      
      
      (12,642
      )
      
      
      (1,623
      )
      
      
      (884
      )Surplus/(deficit) in the schemes
      
      
      
      307
      
      
      
      (186
      )
      
      
      (487
      )Related deferred tax (liability)/asset
      
      
      
      (93
      )
      
      
      74
      
      
      
      193Net asset/(liability)
      
      
      
      214
      
      
      
      (112
      )
      
      
      (294
      )  The net liability/asset for UK  Pensions
  comprises net pension liabilities relating to funded schemes in deficit of £1,503m
  (2002: £36m), net pension assets relating to funded schemes in surplus
  of £nil (2002: £261m) and net pension liabilities relating to unfunded
  schemes of £17m (2002: £11m).
   The net liability for US  Pensions comprises
  net pension liabilities relating to funded schemes in deficit of £319m
  (2002: £98m), net pension assets relating to funded schemes in surplus
  of £nil (2002: £31m) and net pension liabilities relating to unfunded
  schemes of £43m (2002: £45m).
   The net liability for US  Other post-retirement
  benefits relates to funded schemes for both years presented.  An increase of 0.1% in the discount rate would
  decrease the present value of liabilities for all schemes by around £235m
  and decrease the liability net of deferred tax by £161m and vice versa.





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Notes to the accounts continued 7.
      Pensions
          and post-retirement benefits(continued)If the FRS 17 position
        had been recognised in the Groups accounts, the Groups net
        assets employed at 31 March would have been as follows: 2003
      
      2002£m
      £mNet assets employed excluding net SSAP
        24 liabilities and related impact on regulatory assets
      1,481
      
      2,097Net FRS 17 liabilities
      (2,262
      )
      (192
      )Net
          (liabilities)/assets including net FRS 17 liabilities
      (781
      )
      1,905The impact of the implementation
        of FRS 17 on net (liabilities)/assets employed, as shown above, would
        be reflected within the profit and loss account reserve.The pension and other post-retirement
        deficit has moved during the year ended 31 March 2003 as set out below: £mAt 1 April 2002
      (366
      )Current service cost
      (171
      )Past service cost
      (8
      )Net loss on settlements or curtailments
      (118
      )Contributions
      317Other financial income
      89Actuarial losses
      (3,208
      )Exchange adjustments
      64At
          31 March 2003
      (3,401
      )If FRS 17 had been implemented
        for the year ended 31 March 2003, the following amounts would have been
        charged to the profit and loss account in respect of pensions and other
        post-retirement benefits for the year. £mOperating chargeCurrent service cost
      171Past service cost
      8Net loss on settlements or curtailments
      118Total
          charge to operating profit
      297Other financial (income)/costsExpected return on scheme assets
      (977
      )Interest on scheme liabilities
      888Impact
          on financial income
      (89
      )Net
          profit and loss charge before taxation
      208As the Lattice scheme is
        a closed scheme, under the projected unit method of valuation, the current
        service cost will increase as the members of the scheme approach retirement.If the Group was to prepare
        its accounts under FRS 17, the net loss on settlements or curtailments
        above would be reported as part of exceptional items. The net FRS 17 profit
        and loss account impact before tax excluding these exceptional items amounts
        to £90m and would compare to the current UK GAAP charge in respect
        of pensions and other post-retirement benefits amounting to £151m.
        The pre-exceptional profit and loss account charge (pre-tax) would therefore
        decrease by £61m.In addition, the following
        pre-tax amounts would have been recognised in the statement of total recognised
        gains and losses. £mDifference between actual and expected
        return on scheme assets
      (2,529
      )Experience gains arising on scheme liabilities
      11Changes in assumptions
      (690
      )Actuarial losses
      (3,208
      )Exchange adjustments
      64Net
          charge to the statement of total recognised gains and losses
      (3,144
      )History of experience gains
        and losses that would be recognised on an FRS 17 basis is set out below: Difference between actual and expected
        return on scheme assets (£m)
      (2,529
      ) percentage of scheme assets
      (20%
      )Experience gains arising on scheme liabilities
        (£m)
      11 percentage of present value of
        scheme liabilities
      Actuarial losses (£m)
      (3,208
      ) percentage of present value of
        scheme liabilities
      (20%
      )




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8.
    Net interest 2003
      
      
      2002
      
      
      2001£m
      
      
      £m
      
      
      £mBank loans and overdrafts
      257
      
      
      143
      
      
      142Other
      724
      
      
      612
      
      
      649Interest payable and similar charges
      981
      
      
      755
      
      
      791Unwinding of discount on provisions
      13
      
      
      17
      
      
      19Interest capitalised
      (28
      )
      
      (38
      )
      
      (21
      )Interest payable and similar charges
        net of interest capitalised
      966
      
      
      734
      
      
      789Interest receivable and similar income
      (55
      )
      
      (123
      )
      
      (192
      )911
      
      
      611
      
      
      597Joint
          ventures (including exceptional net interest of £31m (2002: £142m;
          2001: £nil),
                  net of interest capitalised £1m (2002: £10m; 2001: £19m))
      59
      
      
      172
      
      
      12Associate
      
      
      
      16
      
      
      2659
      
      
      188
      
      
      38970
      
      
      799
      
      
      635Comprising:Net interest, excluding exceptional net
        interest
      939
      
      
      657
      
      
      635Exceptional net interest (note 4(c))
      31
      
      
      142
      
      
      Net interest, including
        exceptional net interest
      970
      
      
      799
      
      
      635 Interest on the funding attributable to assets
    in the course of construction was capitalised during the year at a rate of
    5.9% (2002: 6.2% to 7.0%; 2001: 6.7%). Interest payable and similar charges for
    2001 includes £21m 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 includes a £17m gain
    on closing out sterling fixed interest rate swaps that were originally entered
    into as hedges for sterling borrowings. Interest payable and similar charges includes
    £12m (2002: £3m; 2001: £nil) relating to the loss incurred
    on the repurchase of debt during the year.
 9.
    Taxation 2003
      
      
      2002
      
      
      2001£m
      
      
      £m
      
      
      £mUnited Kingdom Corporation tax at 30%
      12
      
      
      153
      
      
      (2
      ) Adjustment in respect of prior
        years
      
      
      
      (78
      )
      
      (20
      ) Deferred tax: timing differences
      107
      
      
      (26
      )
      
      68 Adjustment in respect of prior
        years
      
      
      
      4
      
      
      18119
      
      
      53
      
      
      64Overseas Corporate tax
      27
      
      
      73
      
      
      27 Adjustment in respect of prior
        years
      
      
      
      1
      
      
       Deferred tax: timing differences
      94
      
      
      (48
      )
      
      44121
      
      
      26
      
      
      71240
      
      
      79
      
      
      135Joint ventures
      5
      
      
      6
      
      
      4Associate
      
      
      
      
      
      
      8245
      
      
      85
      
      
      147Comprising:Taxation  excluding exceptional
        items
      373
      
      
      251
      
      
      390Taxation  exceptional tax credit
        (note 4(d))
      
      
      
      
      
      
      (230
      )Taxation  exceptional items
      (128
      )
      
      (166
      )
      
      (13
      )(128
      )
      
      (166
      )
      
      (243
      )245
      
      
      85
      
      
      147





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Notes to the
        accountscontinued9.
      Taxation(continued)A reconciliation of the
        UK corporation tax rate to the effective tax rate of the Group is as follow % of profit
        before taxation2003
      
      2002
      
      2001UK corporation tax rate
      30.0
      
      30.0
      
      30.0Effect on tax charge of:Origination and reversal of timing differences
      (12.3
      )
      (4.6
      )
      (10.6
      )Permanent differences
      2.1
      
      1.2
      
      1.8Overseas income taxed at other than UK
        statutory rate
      (2.5
      )
      (5.2
      )
      (2.8
      )Other
      0.3
      
      2.6
      
      5.6Current tax charge
      17.6
      
      24.0
      
      24.0Deferred taxation: origination and reversal
        of timing differences
      12.3
      
      4.6
      
      10.6Effective tax rate before goodwill amortisation,
        prior year adjustments and exceptional items
      29.9
      
      28.6
      
      34.6Effect of goodwill amortisation
      2.7
      
      2.8
      
      2.4Effective tax rate before prior year
        adjustments and exceptional items
      32.6
      
      31.4
      
      37.0Adjustment in respect of prior years
      
      
      (7.0
      )
      (0.2
      )Effective tax rate after adjustments
        in respect of prior years and before exceptional items
      32.6
      
      24.4
      
      36.8Exceptional items
      4.1
      
      (54.3
      )
      (25.3
      )Effective
          tax rate after exceptional items
      36.7
      
      (29.9
      )
      11.5 Factors that
        may affect future tax chargesThe Group
        has brought forward non-trading debits of £75m (2002: £75m;
        2001: £78m), which may reduce taxable profits in future years.No provision has been made
        for deferred tax on gains recognised on the sale of properties where potentially
        taxable gains have been rolled over into replacement assets. Such tax
        would become payable only if the replacement assets were sold without
        it being possible to claim roll-over relief. The total amount unprovided
        for is £58m (2002: £56m; 2001: £52m). At present, it
        is not envisaged that any tax will become payable in the foreseeable future.10.
      DividendsThe following table shows
        the dividends paid or proposed by National Grid Transco for the year ended
        31 March 2003: 2003pence(per
          ordinary
      
      2003share)
      
      £mNational Grid TranscoOrdinary dividends Interim
      6.86
      
      213 Proposed final
      10.34
      
      31717.20
      
      530  The following disclosures relate to National
        Grid and Lattice prior to the Merger: 2002
      
      2001pence
      pence(per
          ordinary
      (per
          ordinary
      2002
      2001share)
      share)
      £m
      £mNational GridOrdinary dividends Interim
      6.46
      
      6.05
      
      96
      
      89 Final
      9.58
      
      9.03
      
      169
      
      13416.04
      
      15.08
      
      265
      
      223LatticeOrdinary dividends Interim
      3.60
      
      3.50
      
      126
      
      123 Second interim
      5.40
      
      
      
      189
      
       Final
      
      
      3.50
      
      
      
      1239.00
      
      7.00
      
      315
      
      246Total
          pre-Merger dividends
      n/a
      
      n/a
      
      580
      
      469


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11.
    Earnings per share
        and adjusted profit on ordinary activities before taxationa) Earnings
      per share Earnings
        per
        share2003pence
      
      Profit
        for
        theyear
        2003
        £m
      
      Weighted
        average
        number
        shares
        2003
        million
      
      (Loss)/
        earnings
        per
        share
        2002
        pence
      
      (Loss)/profit
        for the
        year
        2002
        £m
      
      Weighted
        average
        number
        shares
        2002
        million
      
      Earnings
        per
        share
        2001
        pence
      
      Profit
        for the
        year
        2001
        £m
      
      Weighted
        average
        number
        shares
        2001
        millionBasic, including
        exceptional itemsand goodwill
        amortisation
      12.7
      
      391
      
      3,078
      
      (11.3
      )
      (321
      )
      2,832
      
      40.5
      
      1,124
      
      2,777Exceptional operating items (note 4(a))
      11.3
      
      347
      
      
      
      46.9
      
      1,327
      
      
      
      3.2
      
      88
      
      Exceptional non-operating items (note
        4(b))
      3.2
      
      99
      
      
      
      (5.5
      )
      (156
      )
      
      
      (11.0
      )
      (306
      )
      Exceptional financing charge (note 4(c))
      1.0
      
      31
      
      
      
      5.0
      
      142
      
      
      
      
      
      
      
      Exceptional tax credit (note 4(d))
      (4.1
      )
      (128
      )
      
      
      (5.9
      )
      (166
      )
      
      
      (8.8
      )
      (243
      )
      Exceptional minority interest (note 4(e))
      0.9
      
      28
      
      
      
      (1.8
      )
      (50
      )
      
      
      
      
      
      
      Goodwill amortisation
      3.3
      
      102
      
      
      
      3.4
      
      97
      
      
      
      3.0
      
      85
      
      Adjusted basic,
        excluding exceptional itemsand
        goodwill amortisation
      28.3
      
      870
      
      3,078
      
      30.8
      
      873
      
      2,832
      
      26.9
      
      748
      
      2,777Dilutive impact of employee share options
      (0.1
      )
      
      
      10
      
      (0.2
      )
      
      
      21
      
      (0.2
      )
      
      
      18Dilutive impact of 4.25% Exchangeable
        Bonds
      (0.3
      )
      22
      
      110
      
      (0.4
      )
      22
      
      110
      
      (0.3
      )
      21
      
      110Adjusted diluted,
        excluding exceptional itemsand
        goodwill amortisation
      27.9
      
      892
      
      3,198
      
      30.2
      
      895
      
      2,963
      
      26.4
      
      769
      
      2,905Exceptional operating items (note 4(a))
      (10.9
      )
      (347
      )
      
      
      (44.8
      )
      (1,327
      )
      
      
      (3.0
      )
      (88
      )
      Exceptional non-operating items (note
        4(b))
      (3.1
      )
      (99
      )
      
      
      5.3
      
      156
      
      
      
      10.5
      
      306
      
      Exceptional financing charge (note 4(c))
      (1.0
      )
      (31
      )
      
      
      (4.8
      )
      (142
      )
      
      
      
      
      
      
      Exceptional tax credit (note 4(d))
      4.0
      
      128
      
      
      
      5.6
      
      166
      
      
      
      8.4
      
      243
      
      Exceptional minority interest (note 4(e))
      (0.9
      )
      (28
      )
      
      
      1.7
      
      50
      
      
      
      
      
      
      
      Goodwill amortisation
      (3.2
      )
      (102
      )
      
      
      (3.3
      )
      (97
      )
      
      
      (2.9
      )
      (85
      )
      Diluted, including
        exceptional itemsand goodwill
        amortisation
      12.8
      
      413
      
      3,198
      
      (10.1
      )
      (299
      )
      2,963
      
      39.4
      
      1,145
      
      2,905  Earnings per ordinary share, excluding exceptional
  items and goodwill amortisation, are provided in order to reflect the underlying
  performance of the Group.  In respect of the years ended 31 March 2003
  and 31 March 2002, the potential ordinary shares related to the 4.25% Exchangeable
  Bonds are dilutive, as they would decrease earnings from continuing operations.
  Consequently, the diluted earnings per share are higher than basic earnings
  per share because of the effect of losses arising from discontinued operations. b) Adjusted profit on ordinary activities
    before taxationThe following table reconciles profit
    before taxation on ordinary activities to adjusted profit on ordinary activities
    before taxation. Adjusted profit on ordinary activities before taxation excludes
    exceptional items and goodwill amortisation and is provided to reflect the
    underlying pre-tax performance of the Group.
  2003
      
      2002
      
      2001£m
      
      £m
      
      £mProfit/(loss) on ordinary activities
        before taxation
      667
      
      (284
      )
      1,278Exceptional operating items (note 4(a))
      347
      
      1,327
      
      88Exceptional non-operating items (note
        4(b))
      99
      
      (156
      )
      (306
      )Exceptional financing charge (note 4(c))
      31
      
      142
      
      Goodwill amortisation
      102
      
      97
      
      85Adjusted profit on
        ordinary activities before taxation
      1,246
      
      1,126
      
      1,145





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Notes to the accountscontinued12.
      Intangible fixed assets Group
      Goodwill
        £m
      
      Negative
        goodwill
        £m
      
      Other
        £m
      
      Total
        £mCost at 1 April 2002
      2,295
      
      (37
      )
      11
      
      2,269Exchange adjustments
      (238
      )
      
      
      (1
      )
      (239
      )Adjustment to provisional fair value
        at acquisition (note 28)
      82
      
      
      
      
      
      82Additions
      
      
      
      
      1
      
      1Disposals
      (4
      )
      
      
      
      
      (4
      )Cost
          at 31 March 2003
      2,135
      
      (37
      )
      11
      
      2,109Amortisation at 1 April 2002
      160
      
      
      
      2
      
      162Exchange adjustments
      (14
      )
      
      
      
      
      (14
      )Charge/(credit) for the year
      106
      
      (4
      )
      3
      
      105Release relating to asset impairment
        (note 13)
      
      
      (33
      )
      
      
      (33
      )Disposals
      (4
      )
      
      
      
      
      (4
      )Amortisation
          at 31 March 2003
      248
      
      (37
      )
      5
      
      216Net
          book value at 31 March 2003
      1,887
      
      
      
      6
      
      1,893Net
          book value at 31 March 2002
      2,135
      
      (37
      )
      9
      
      2,107 13.
      Tangible fixed assets Group
      Land and
        buildings
        £m
      
      Plant
        and
        machinery
        £m
      
      Assets
        in the
        course of
        construction
        £m
      
      Motor
        vehicles
        and office
        equipment
        £m
      
      Total
        £mCost at 1 April 2002
      1,240
      
      22,918
      
      881
      
      1,190
      
      26,229Exchange adjustments
      (63
      )
      (774
      )
      (15
      )
      (5
      )
      (857
      )Adjustment to provisional fair value
        at acquisition (note 28)
      
      
      (14
      )
      
      
      
      
      (14
      )Additions
      62
      
      292
      
      1,016
      
      149
      
      1,519Disposal of Group undertakings
      (82
      )
      (193
      )
      (2
      )
      (246
      )
      (523
      )Other disposals
      (123
      )
      (390
      )
      
      
      (234
      )
      (747
      )Reclassifications
      3
      
      826
      
      (845
      )
      16
      
      Cost
          at 31 March 2003
      1,037
      
      22,665
      
      1,035
      
      870
      
      25,607Depreciation at 1 April 2002
      386
      
      7,953
      
      
      
      680
      
      9,019Exchange adjustments
      (17
      )
      (289
      )
      
      
      (2
      )
      (308
      )Charge for the year
      20
      
      691
      
      
      
      140
      
      851Impairment write-down
      108
      
      19
      
      
      
      41
      
      168Disposal of Group undertakings
      (75
      )
      (184
      )
      
      
      (65
      )
      (324
      )Other disposals
      (79
      )
      (372
      )
      
      
      (195
      )
      (646
      )Depreciation
          at 31 March 2003
      343
      
      7,818
      
      
      
      599
      
      8,760Net
          book value at 31 March 2003
      694
      
      14,847
      
      1,035
      
      271
      
      16,847Net
          book value at 31 March 2002
      854
      
      14,965
      
      881
      
      510
      
      17,210  The net book value of land and buildings
          comprises:2003
        £m
      
      2002
        £mFreehold
      653
      
      763Long leasehold (over 50 years)
      32
      
      33Short leasehold (under 50 years)
      9
      
      58694
      
      854Included within the impairment
        write-down of £168m, is a write-down of tangible fixed assets amounting
        to £33m, which has been matched by an equivalent release of related
        negative goodwill  see note 12.Included within creditors
        (amounts falling due within one year) and creditors (amounts falling due
        after more than one year) are contributions to the cost of tangible fixed
        assets amounting to £32m (2002: £33m) and £1,079m (2002:
        £1,117m) respectively.


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14.
      Fixed asset investments Group
      
      CompanyUnlisted
          joint ventures
      
      AssociateShare
          of netassets£m
      
      Loans£m
      
      Share
          of netassets£m
      
      Ownshares£m
      
      Otherinvestments£m
      
      Total£m
      
      Groupundertakings£mAt 1 April 2002
      
      204
      
      87
      
      392
      
      53
      
      204
      
      940
      
      2,080Exchange adjustments
      
      (24
      )
      (8
      )
      
      
      
      
      (20
      )
      (52
      )
      Additions
      
      2
      
      
      
      
      
      
      
      8
      
      10
      
      188Disposals
      
      (60
      )
      
      
      
      
      (14
      )
      (18
      )
      (92
      )
      (43
      )Share of retained loss
      
      (112
      )
      
      
      
      
      
      
      
      
      (112
      )
      Reclassification
      
      70
      
      (70
      )
      
      
      
      
      
      
      
      
      Write-off
      
      (9
      )
      (9
      )
      (392
      )
      
      
      (4
      )
      (414
      )
      Transfer from provisions
      
      (27
      )
      
      
      
      
      
      
      
      
      (27
      )
      At 31
          March 2003
      
      44
      
      
      
      
      
      39
      
      170
      
      253
      
      2,225Impairment at 1 April
          2002
      
      143
      
      87
      
      392
      
      
      
      
      
      622
      
      Exchange adjustments
      
      (17
      )
      (8
      )
      
      
      
      
      
      
      (25
      )
      Charge for the year
      
      2
      
      
      
      
      
      
      
      
      
      2
      
      Utilised
      
      (129
      )
      
      
      
      
      
      
      
      
      (129
      )
      Disposals
      
      (60
      )
      
      
      
      
      
      
      
      
      (60
      )
      Write-off
      
      (9
      )
      (9
      )
      (392
      )
      
      
      
      
      (410
      )
      Reclassification
      
      70
      
      (70
      )
      
      
      
      
      
      
      
      
      Impairment
          at 31 March 2003
      
      
      
      
      
      
      
      
      
      
      
      
      
      Net
          book value at 31 March 2003
      
      44
      
      
      
      
      
      39
      
      170
      
      253
      
      2,225Net
          book value at 31 March 2002
      
      61
      
      
      
      
      
      53
      
      204
      
      318
      
      2,080  At 31 March 2002, the associate
    (Energis plc) was a listed company and the Groups investment had a market
    value of £16m at that date. The associates shares are no longer
    listed.
   Own shares at 31 March 2003
    related to 10m 10p ordinary shares in National Grid Transco plc, held by employee
    share trusts for the purpose of satisfying certain obligations under the various
    share option schemes operated by the Group. The carrying value of £39m
    (market value £37m at 31 March 2003) represented the exercise amounts
    receivable in respect of those shares which were issued at market value by
    the Company and the cost in respect of those shares purchased in the open
    market.
   Funding is provided to the trusts
    by Group undertakings. The trusts have waived their rights to dividends on
    these shares.
   Own shares at 31 March 2002
    related to 13m 10p ordinary shares in National Grid (book value £46m)
    and 33m 10p ordinary shares in Lattice (book value £7m), prior to the
    Merger.
   At 31 March 2002, the 13m 10p
    ordinary shares in National Grid were held by employee share trusts for the
    purpose of satisfying certain obligations under the various share option schemes
    operated by National Grid. The carrying value of £46m (market value
    £61m at 31 March 2002) represented the exercise amounts receivable in
    respect of those shares which were issued at market value by National Grid
    and the cost in respect of those shares purchased in the open market.
   At 31 March 2002, the 33m 10p
    ordinary shares in Lattice were held by an All Employee Share Ownership Plan
    (AESOP) for future employee share schemes which were dependent on performance
    targets. The carrying value of the shares at 31 March 2002 was £7m (market
    value £57m at 31 March 2002).
   The names of the principal Group
    undertakings and joint ventures are included in note 32.
  15.
      Stocks Group2003
          £m
      
      2002
          £mRaw materials and consumables
      
      60
      
      78Work in progress
      
      53
      
      34Fuel stocks
      
      13
      
      13126
      
      125







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Notes to the accountscontinued16.
    Debtors Group
      
      Company2003
      
      2002
      
      2003
      
      2002£m
      
      £m
      
      £m
      
      £mAmounts falling due within one year:Trade debtors
      
      628
      
      668
      
      
      
      Amounts owed by Group undertakings
      
      
      
      
      
      2,652
      
      2,023Amounts owed by a former associate (i)
      
      6
      
      22
      
      
      
      Regulatory assets
      
      406
      
      444
      
      
      
      Prepayments and accrued income
      
      396
      
      395
      
      
      
      Other debtors
      
      375
      
      360
      
      12
      
      61,811
      
      1,889
      
      2,664
      
      2,029Amounts falling due after more than one
        year:Amounts owed by a former associate (i)
      
      44
      
      40
      
      
      
      Regulatory assets
      
      3,337
      
      3,970
      
      
      
      Other debtors
      
      14
      
      48
      
      
      
      3,395
      
      4,058
      
      
      
      Total debtors
      
      5,206
      
      5,947
      
      2,664
      
      2,029GroupProvision for doubtful debts
      
      
      
      
      
      
      
      £mAt 1 April 2002
      
      
      
      
      
      
      
      72Adjustments to provisional fair value
        at acquisition (note 28)
      
      
      
      
      
      
      
      42Charge for the year
      
      
      
      
      
      
      
      24Uncollectable amounts written off net
        of recoveries
      
      
      
      
      
      
      
      (22
      )At 31 March 2003
      
      
      
      
      
      
      
      116 (i)Comparative figures reflect status
        as an associate.Other debtors include
        tax recoverable of £62m (2002: £6m) and debtors arising on
        the sale of nuclear plant of £nil (2002: £176m).The amounts owed by a former
        associate (2002: associate) include a net investment in a finance lease
        amounting to £50m (2002: £45m) comprising total rentals receivable
        of £71m (2002: £65m) less unearned income of £21m (2002:
        £20m), of which £6m (2002: £5m) falls due within one
        year and £44m (2002: £40m) falls due after more than one year.
        Rentals received and receivable in the year amounted to £11m (2002:
        £9m). At 31 March 2003, the minimum lease payments for each of the
        five years ending 31 March 2008 are £11m.17.
      Assets
        held for exchangeThe assets held for exchange
        of £17m (2002: £17m) represent the carrying value of 74m (2002:
        74m) shares in Energis plc which are held to satisfy obligations under
        the 6% Mandatorily Exchangeable Bonds 2003, as explained in note 20. The
        voting rights in respect of 61m (2002: 61m) of these shares are vested
        in the bondholders.18.
      Creditors(amounts falling due within one year) Group
      
      Company2003
      
      2002
      
      2003
      
      2002£m
      
      £m
      
      £m
      
      £mBorrowings (note 20)
      
      2,246
      
      2,050
      
      557
      
      604Trade creditors and accruals
      
      1,249
      
      1,133
      
      
      
      Amounts owed to Group undertakings
      
      
      
      
      
      1,439
      
      1,340Amounts owed to a former associate (i)
      
      
      
      5
      
      
      
      Purchased power obligations
      
      68
      
      102
      
      
      
      Corporate tax
      
      
      
      30
      
      
      
      Social security and other taxes
      
      203
      
      194
      
      
      
      Proposed dividend
      
      317
      
      358
      
      317
      
      169Liability for index-linked swap contracts
      
      121
      
      53
      
      
      
      Other creditors
      
      589
      
      687
      
      8
      
      4Deferred income
      
      253
      
      276
      
      
      
      5,046
      
      4,888
      
      2,321
      
      2,117(i) Comparative figures reflect status
        as an associate.Other creditors include interest payable
        of £269m (2002: £310m).


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19.
    Creditors(amounts
      falling due after more than one year) Group
      
      Company2003
      
      2002
      
      2003
      
      2002£m
      
      £m
      
      £m
      
      £mBorrowings (note 20)
      
      12,233
      
      12,713
      
      
      
      Purchased power obligations
      
      253
      
      362
      
      
      
      Liability for index-linked swap contracts
      
      381
      
      408
      
      
      
      Other creditors
      
      309
      
      268
      
      
      
      Deferred income
      
      1,079
      
      1,117
      
      
      
      14,255
      
      14,868
      
      
      
       Purchased power
        obligationsAs 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 16), represents the net present value of these
        monthly payments discounted at 2.78%. At 31 March 2003, amounts falling
        due after more than five years totalled £15m (2002: £65m).Liability for
        index-linked swap contractsNational Grid USA has entered into
        indexed swap contracts that expire in 2008 and a further three swap contracts
        that expire in June and September 2003. National Grid USA has recorded
        a liability in respect of these contractual obligations and recorded a
        corresponding regulatory asset as losses on these instruments will 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 may be adjusted as periodic assessments are
        made of energy prices.20.
      BorrowingsThe
        following table analyses the Groups total borrowings after taking
        account of currency and interest rate swaps: Group
      
      Company2003
      
      2002
      
      2003
      
      2002£m
      
      £m
      
      £m
      
      £mAmounts falling due within one year:Bank loans and overdrafts
      
      484
      
      180
      
      
      
      Commercial paper
      
      557
      
      642
      
      557
      
      6046% Mandatorily Exchangeable Bonds 2003
      
      243
      
      243
      
      
      
      Other bonds
      
      730
      
      889
      
      
      
      Other loans
      
      232
      
      96
      
      
      
      2,246
      
      2,050
      
      557
      
      604Amounts falling due after more than one
        year:Bank loans
      
      613
      
      318
      
      
      
      4.25% Exchangeable Bonds 2008
      
      502
      
      491
      
      
      
      Other bonds
      
      10,881
      
      11,627
      
      
      
      Other loans
      
      237
      
      277
      
      
      
      12,233
      
      12,713
      
      
      
      Total borrowings
      
      14,479
      
      14,763
      
      557
      
      604Total borrowings are repayable as follows:In one year or less
      
      2,246
      
      2,050
      
      557
      
      604In more than one year, but not
        more than two years
      
      1,031
      
      1,212
      
      
      
      In more than two years, but not
        more than three years
      
      834
      
      954
      
      
      
      In more than three years, but
        not more than four years
      
      1,924
      
      742
      
      
      
      In more than four years, but
        not more than five years
      
      882
      
      2,005
      
      
      
      In more than five years by instalments
      
      46
      
      56
      
      
      
       other than by instalments
      
      7,516
      
      7,744
      
      
      
      14,479
      
      14,763
      
      557
      
      604  At 31 March 2003, borrowings totalling
  £1,415m (2002: £1,889m) were secured by charges over property, plant
  and other assets of the Group.
   In February 1999, National Grid Holdings One
  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$401m. The EPICs were 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,
  a company which prior to 16 July 2002 was an associated undertaking. On 16 July
  2002, trading in the shares of Energis plc were suspended and on 6 May 2003,
  five Energis shares for each EPICs were delivered by the Group to bondholders
  in satisfaction of the bonds outstanding at 31 March 2003.
   The notional amount at maturity of the Groups
  debt portfolio is £15,621m (2002: £15,954m).





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Notes to the
        accountscontinued20.
      Borrowings(continued)The 4.25% Exchangeable Bonds
        2008 (the Bonds) are exchangeable on or prior to 8 February
        2008 at the option of the holder into 110,302,907 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 four years but
        not more than five years.The principal items included
        within Other bonds are listed below. Unless otherwise indicated, these
        instruments were outstanding as at both 31 March 2003 and 31 March 2002. Issuer
      Description of instrument
          (notional amount)British Transco Finance
        (No5) Limited
      GBP 115 million Floating
        Rate Instruments due 2006British Transco Finance
        Inc.
      USD 300 million 6.625% Fixed
        Rate Instruments due 2018British Transco International
        Finance BV
      USD 500 million 6.125% Fixed
        Rate Instruments due 2003British Transco International
        Finance BV
      ITL 150,000 million 10.75%
        Fixed Rate Instruments due 2003British Transco International
        Finance BV
      USD 250 million 6.25% Fixed
        Rate Instruments due 2003British Transco International
        Finance BV
      USD 300 million 6.0% Fixed
        Rate Instruments due 2004British Transco International
        Finance BV
      USD 350 million 6.625% Fixed
        Rate Instruments due 2004British Transco International
        Finance BV
      ITL 250,000 million 5.25%
        Fixed Rate Instruments due 2005British Transco International
        Finance BV
      USD 350 million 7.0% Fixed
        Rate Instruments due 2006British Transco International
        Finance BV
      FRF 2,000 million 5.125%
        Fixed Rate Instruments due 2009British Transco International
        Finance BV
      USD 1,500 million Zero Coupon
        Bond due 2021National Grid Company plc
        (i)
      GBP 26.2 million Zero Coupon
        Bond due 2002National Grid Company plc
      GBP 240 million 8.0% Fixed
        Rate Instruments due 2006National Grid Company plc
        (ii)
      GBP 250 million 4.75% Fixed
        Rate Instruments due 2010National Grid Company plc
        (ii)
      GBP 300 million 2.983% Guaranteed
        Retail Price Index-Linked Instruments due 2018National Grid Company plc
        (iii)
      GBP 220 million 3.806% Retail
        Price Index-Linked Instruments due 2020National Grid Company plc
      GBP 450 million 5.875% Fixed
        Rate Instruments due 2024National Grid Company plc
      GBP 360 million 6.5% Fixed
        Rate Instruments due 2028National Grid Company plc
        (iii)
      GBP 70 million 3.589% Limited
        Retail Price Index-Linked Instruments due 2030National Grid Company plc
        (ii)
      GBP 50 million 2.817% Guaranteed
        Limited Retail Price Index-Linked Instruments due 2032NGG Finance plc
      EUR 1,250 million 5.25%
        Fixed Rate Instruments due 2006NGG Finance plc
      EUR 750 million 6.125% Fixed
        Rate Instruments due 2011Niagara Mohawk Power Corporation
        (i)
      USD 230 million 5.875% Taxable
        First Mortgage Bonds due 2002Niagara Mohawk Power Corporation
        (i)
      USD 400 million 7.25% Senior
        Notes due 2002Niagara Mohawk Power Corporation
      USD 400 million 7.375% Senior
        Notes due 2003Niagara Mohawk Power Corporation
      USD 220 million 7.375% Taxable
        First Mortgage Bonds due 2003Niagara Mohawk Power Corporation
      USD 300 million 8.0% Taxable
        First Mortgage Bonds due 2004Niagara Mohawk Power Corporation
      USD 300 million 5.375% Senior
        Notes due 2004Niagara Mohawk Power Corporation
      USD 110 million 6.625% Taxable
        First Mortgage Bonds due 2005Niagara Mohawk Power Corporation
      USD 400 million 7.625% Senior
        Notes due 2005Niagara Mohawk Power Corporation
      USD 150 million 9.75% Taxable
        First Mortgage Bonds due 2005Niagara Mohawk Power Corporation
      USD 275 million 7.75% Taxable
        First Mortgage Bonds due 2006Niagara Mohawk Power Corporation
      USD 200 million 8.875% Senior
        Notes due 2007Niagara Mohawk Power Corporation
      USD 600 million 7.75% Senior
        Notes due 2008Niagara Mohawk Power Corporation
      USD 500 million 8.5% Senior
        Notes due 2010Niagara Mohawk Power Corporation
        (iv)
      USD 165 million 8.5% Taxable
        First Mortgage Bonds due 2023Niagara Mohawk Power Corporation
      USD 210 million 7.875% Taxable
        First Mortgage Bonds due 2024Niagara Mohawk Power Corporation
      USD 115.71 million 7.2%
        Tax-Exempt First Mortgage Bonds due 2029Transco Holdings plc
      GBP 503.078 million Floating
        Rate Instruments due 2009Transco Holdings plc
      GBP 503.078 million 4.1875%
        Index-Linked Instruments due 2022Transco Holdings plc
      GBP 503.078 million 7.0%
        Fixed Rate Instruments due 2024Transco plc (i)
      JPY 55,000 million Floating
        Rate Instruments due 2002Transco plc (i)
      GBP 200 million 8.125% Fixed
        Rate Instruments due 2003Transco plc
      EUR 650 million 5.25% Fixed
        Rate Instruments due 2006Transco plc
      GBP 250 million 6.125% Fixed
        Rate Instruments due 2006Transco plc
      GBP 200 million 5.625% Fixed
        Rate Instruments due 2007Transco plc
      GBP 250 million 8.875% Fixed
        Rate Instruments due 2008Transco plc
      AUD 500 million 7.0% Fixed
        Rate Instruments due 2008Transco plc
      GBP 300 million 5.375% Fixed
        Rate Instruments due 2009Transco plc
      GBP 250 million 6.0% Fixed
        Rate Instruments due 2017Transco plc
      GBP 275 million 8.75% Fixed
        Rate Instruments due 2025Transco plc
      GBP 50 million 6.2% Fixed
        Rate Instruments due 2028 (i)
      Matured during the year
        ended 31 March 2003.(ii)
      Issued during the year ended
        31 March 2003.(iii)
      Issue tapped during the
        year ended 31 March 2003.(iv)
      Redeemed during the year
        ended 31 March 2003.


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21.
    Financial instrumentsThe Groups
      treasury policy, described on pages 34 to 36, includes details of the nature,
      terms and credit risk associated with financial instruments with off-balance
      sheet risk.The Groups
      counterparty exposure under foreign currency swaps and foreign exchange
      contracts was £443m (2002: £235m) and under interest rate swaps
      was £170m (2002: £40m).The Group
      had no significant exposure to either individual counterparties or geographical
      groups of counterparties at 31 March 2003.Where permitted
      by FRS 13 Derivatives and other Financial Instruments: Disclosures,
      short-term debtors and creditors, have been excluded from the following
      disclosures. It is assumed that because of short maturities, the fair value
      of short-term debtors and creditors approximates to their book value.Currency
      and interest rate composition of financial liabilitiesThe
      currency and interest rate composition of the Groups financial liabilities
      are shown in the table below after taking into account currency and interest
      rate swaps: Fixed rate
        liabilitiesAt
          31 March 2003
      
      Total
        £m
      
      Variable
          rate
        £m
      
      Fixed rate
        £m
      
      Weighted
        average
        interest
          rate
        %
      
      Weighted
        average
        period
        for which
        rate is fixed
        yearsSterling
      
      9,655
      
      4,157
      
      5,498
      
      6.29
      
      8.3US dollars
      
      4,824
      
      965
      
      3,859
      
      7.09
      
      5.9Borrowings
      
      14,479
      
      5,122
      
      9,357
      
      6.62
      
      7.3Other financial liabilities (sterling)
      
      76
      
      60
      
      16
      
      5.34
      
      2.7Other financial liabilities (US dollars)
      
      824
      
      755
      
      69
      
      5.77
      
      
      (i)15,379
      
      5,937
      
      9,442
      
      6.61
      
      7.2At 31
          March 2002Sterling
      
      8,840
      
      4,065
      
      4,775
      
      6.30
      
      9.6US dollars
      
      5,923
      
      1,081
      
      4,842
      
      7.33
      
      6.1Borrowings
      
      14,763
      
      5,146
      
      9,617
      
      6.71
      
      7.5Other financial liabilities (sterling)
      
      28
      
      5
      
      23
      
      5.34
      
      3.6Other financial liabilities (US dollars)
      
      947
      
      868
      
      79
      
      5.80
      
      
      (i)15,738
      
      6,019
      
      9,719
      
      6.70
      
      7.4 (i) Excludes non-equity minority interests of £69m (2002: £79m) with no final repayment date.
 At 31 March 2003, the weighted average interest
  rate on short-term borrowings of £2,246m (2002: £2,050m) was 5.8%
  (2002: 4.5%).
  Foreign exchange forward deals held to manage
  the currency mix of the Groups borrowings portfolios comprising £165m
  (2002: £190m) forward sale of US dollars, have not been adjusted in the
  table above.
   Other US dollar financial liabilities predominantly
  relate to indexed-linked energy swap contracts of £502m (2002: £461m),
  purchased power obligations due after more than one year of £253m (2002:
  £362m), exchange translation of cross-currency swaps of £nil (2002:
  £45m) and non-equity minority interests of £69m (2002: £79m).
  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 US 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 assumed to have a life based on
        the earliest date at which they can be cancelled.


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Notes to the
        accounts continued21.
    Financial instruments(continued)Currency
        and interest rate composition of financial assetsThe currency and interest
        rate composition of the Groups financial assets are shown in the
        table below after taking into account currency and interest rate swaps:  Fixed rate
        assetsWeightedaverageWeighted
      
      periodNon-interest
      
      
      
      
      
      average
      
      for whichAt
        31 March 2003
      
      Total
      
      bearing
      
      Variable rate
      
      Fixed rate
      
      interest rate
      
      rate is fixed£m
      
      £m
      
      £m
      
      £m
      
      %
      
      yearsSterling
      
      423
      
      
      
      423
      
      
      
      
      
      US dollars
      
      147
      
      
      
      147
      
      
      
      
      
      Other currencies
      
      31
      
      
      
      31
      
      
      
      
      
      Cash and investments
      
      601
      
      
      
      601
      
      
      
      
      
      Other financial assets (sterling)
      
      67
      
      17
      
      
      
      50
      
      11.5
      
      4.5Other financial assets (US dollars)
      
      34
      
      
      
      1
      
      33
      
      4.77
      
      10.8702
      
      17
      
      602
      
      83
      
      8.85
      
      7.0At 31 March 2002Sterling
      
      340
      
      
      
      198
      
      142
      
      
      
      US dollars
      
      122
      
      
      
      120
      
      2
      
      
      
      Other currencies
      
      2
      
      
      
      2
      
      
      
      
      
      Cash and investments
      
      464
      
      
      
      320
      
      144
      
      
      
      Other financial assets (sterling)
      
      62
      
      17
      
      
      
      45
      
      11.5
      
      4.1Other financial assets (US dollars)
      
      59
      
      17
      
      14
      
      28
      
      4.72
      
      9.2585
      
      34
      
      334
      
      217
      
      8.87
      
      6.1  Other financial assets at 31 March
  2003 predominantly relate to assets held for exchange of £17m (2002: £17m),
  a net investment in a finance lease of £50m (2002: £45m), fixed
  asset investments of £33m (2002: £40m) and investment held for resale
  of £nil (2002: £15m). Cash and investments earn interest at local
  prevailing rates for maturity periods generally not exceeding 12 months, and
  include listed investments with a cost and market value of £226m (2002:
  £228m). The non-interest bearing assets held for exchange were realised
  in May 2003, on redemption of the 6% Mandatorily Exchangeable Bonds 2003, as
  described in note 20.
   The maturity profile of the Groups
  financial liabilities and assets are shown in the tables below after taking
  into account currency and interest rate swaps:
  Maturity
        of financial liabilities at 31 March
      2003
      
      2002£m
      
      £mIn one year or less
      2,380
      
      2,153In more than one year, but not more than
        two years
      1,192
      
      1,379In more than two years, but not more
        than three years
      1,005
      
      1,115In more than three years, but not more
        than four years
      2,090
      
      901In more than four years, but not more
        than five years
      1,040
      
      2,151In more than five years
      7,672
      
      8,03915,379
      
      15,738Maturity
        of financial assets at 31 March
      2003
      
      2002£m
      
      £mIn one year or less
      611
      
      511In more than one year, but not more than
        two years
      8
      
      6In more than two years, but not more
        than three years
      25
      
      22In more than three years, but not more
        than four years
      10
      
      7In more than four years, but not more
        than five years
      11
      
      7In more than five years
      37
      
      32702
      
      585


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21.
      Financial instruments(continued)Fair values of
        financial instruments at 31 March 2003
      
      2002Book
        value
      
      Fair
        value
      
      Book value
      
      Fair value£m
      
      £m
      
      £m
      
      £m6% Mandatorily Exchangeable Bonds 2003
      
      (243
      )
      (17
      )
      (243
      )
      (18
      )Other short-term debt
      
      (1,965
      )
      (1,973
      )
      (1,807
      )
      (1,830
      )4.25% Exchangeable Bonds 2008
      
      (502
      )
      (510
      )
      (491
      )
      (543
      )Other long-term debt
      
      (12,081
      )
      (13,042
      )
      (12,347
      )
      (12,987
      )Cash and investments
      
      601
      
      601
      
      464
      
      464Other financial liabilities
      
      (900
      )
      (871
      )
      (975
      )
      (971
      )Net investment in finance lease
      
      50
      
      50
      
      45
      
      46Assets held for exchange
      
      17
      
      17
      
      17
      
      17Other financial assets
      
      34
      
      50
      
      59
      
      57Financial instruments held to manage
        interest rate and currency profiles:Interest rate swaps
      
      
      
      8
      
      
      
      (38
      )Forward foreign currency contracts and
        cross-currency swaps
      
      312
      
      533
      
      125
      
      189Market 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
        profiles for interest rate swaps and forward rate agreements, foreign
        currency contracts and cross-currency swaps, amounted to £6,363m
        (2002: £10,042m) and £5,017m (2002: £5,958m) respectively. Gains and losses on hedgesUnrecognised
      
      Unrecognised
      
      Unrecognised
      
      Deferred
      
      Deferred
      
      Deferredgains
      
      losses
      
      net gain
      
      gains
      
      losses
      
      net loss£m
      
      £m
      
      £m
      
      £m
      
      £m
      
      £mGains/(losses) on hedges at 1 April 2002
      180
      
      (154
      )
      26
      
      29
      
      (89
      )
      (60
      )(Gains)/losses arising in previous years
        recognised in the year
      (27
      )
      7
      
      (20
      )
      (7
      )
      14
      
      7Gains/(losses) arising in previous years
        not recognised in the year
      153
      
      (147
      )
      6
      
      22
      
      (75
      )
      (53
      )Gains/(losses) arising in the year
      305
      
      (82
      )
      223
      
      17
      
      (13
      )
      4Gains/(losses)
        on hedges at 31 March 2003
      458
      
      (229
      )
      229
      
      39
      
      (88
      )
      (49
      )Of which:Gains/(losses) expected to be recognised
        within one year
      2
      
      (12
      )
      (10
      )
      11
      
      (12
      )
      (1
      )Gains/(losses) expected to be recognised
        after one year
      456
      
      (217
      )
      239
      
      28
      
      (76
      )
      (48
      ) Borrowing facilitiesAt 31 March 2003, the Group
        had bilateral committed credit facilities of £1,221m (2002: £1,641m)
        all of which were undrawn. The Group also had committed credit facilities
        from syndicates of banks of £1,880m at 31 March 2003 (2002: £2,688m)
        all of which were undrawn, and an analysis of the maturity of these undrawn
        committed facilities is shown below:Undrawn committed borrowing
        facilities2003
      
      2002£m
      
      £mExpiring:In one year or less
      1,155
      
      1,562In more than one year, but not more than
        two years
      966
      
      323In more than two years
      980
      
      2,4443,101
      
      4,329Of the unused facilities
        £2,135m (2002: £2,321m) were being held as backup to commercial
        paper and similar borrowings. The remainder was available as additional
        backup to commercial paper and for other general corporate purposes.





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Notes to the accounts continued 22.
      Provisions for liabilities and charges Group
      
      CompanyDecommissioning£m
      
      Post-retirement
          benefits£m
      
      Environmental£m
      
      Deferredtaxation£m
      
      Restructuring£m
      
      Other£m
      
      Totalprovisions£m
      
      Other£mAt 1 April 2002
      
      121
      
      681
      
      470
      
      2,996
      
      107
      
      288
      
      4,663
      
      77Exchange adjustments
      
      (12
      )
      (67
      )
      (19
      )
      (102
      )
      
      
      (12
      )
      (212
      )
      Adjustment to provisional fair values
        at acquisition (note 28)
      
      
      
      2
      
      
      
      (54
      )
      
      
      
      
      (52
      )
      Additions
      
      68
      
      108
      
      
      
      201
      
      186
      
      17
      
      580
      
      Unwinding of discount
      
      9
      
      
      
      24
      
      
      
      
      
      
      
      33
      
      Unused amounts reversed
      
      (30
      )
      (2
      )
      (4
      )
      
      
      
      
      (97
      )
      (133
      )
      (77
      )Utilised
      
      (13
      )
      (171
      )
      (29
      )
      
      
      (137
      )
      (86
      )
      (436
      )
      Disposal of Group undertaking
      
      
      
      
      
      
      
      (14
      )
      
      
      
      
      (14
      )
      Transfer to fixed asset investments
      
      
      
      
      
      
      
      
      
      
      
      (27
      )
      (27
      )
      Other
      
      
      
      
      
      
      
      4
      
      
      
      
      
      4
      
      At
          31 March 2003
      
      143
      
      551
      
      442
      
      3,031
      
      156
      
      83
      
      4,406
      
        The decommissioning provision
    of £143m at 31 March 2003 represented the net present value of the estimated
    expenditure (discounted at rates between 4.25% and 5.00%) expected to be incurred
    in respect of the decommissioning of certain nuclear generating units and
    other related provisions. Related regulatory assets were also recognised (note
    16). Expenditure is expected to be incurred between 2003 and 2010. Additions
    in the year included £9m in respect of the change in the discount rate.  The post-retirement benefits provision
    was in respect of pensions £253m (2002: £285m) and other post-retirement
    benefits (health care and life insurance) £298m (2002: £396m).
   The environmental provision represented
    the estimated environmental restoration and remediation costs relating to
    a number of sites. At 31 March 2003, £244m (2002: £266m) of this
    provision represented the net present value of statutory decontamination costs
    of old gas manufacturing sites (discounted at 4.00%). The anticipated timing
    of the cashflows for statutory decontamination cannot be predicted with certainty.
    The provision at 31 March 2003 also included £186m (2002: £189m)
    which represented the net present value of estimated expenditure in the United
    States which had been discounted at a rate of 6.25%. This expenditure is expected
    to be incurred between 2003 and 2042. Substantially all of the remainder of
    the environmental provision is expected to be utilised within the next five
    years. The undiscounted amount of the provision was £561m.  At 31 March 2003, £50m of
    the total restructuring provision (2002: £40m) consisted primarily of
    provisions for the disposal of surplus leasehold interests and rates payable
    on surplus properties. The expected payment dates for property restructuring
    costs remain uncertain. Other provisions included £12m
    (2002: £223m) in respect of obligations associated with the impairment
    of investments in joint ventures and associate and, in respect of the position
    at 31 March 2002, included the recognition of the net liabilities of a joint
    venture amounting to £37m. Other provisions also included £49m
    (2002: £58m) of estimated liabilities in respect of past events incurred
    by the Groups insurance undertakings, including employer liability claims.
    In accordance with insurance industry practice, these estimates were based
    on experience from previous years and there was, therefore, no identifiable
    payment date.
  Deferred taxation comprised:Provided2003£m
      
      2002
        £mAccelerated capital allowances
      
      2,997
      
      2,915Other timing differences
      
      34
      
      813,031
      
      2,996  A deferred tax asset in respect
    of substantial capital losses had not been recognised because their future
    recovery was uncertain. The exact amount of these losses not recognised at
    31 March 2003 was not yet quantified pending agreement of the amount with
    relevant tax authorities.
  23.
      Share capital Group
      
      Allotted,
          called up
          and fully paidmillions
      
      £mAt 31
          March 2000 (i)
      
      2,808
      
      281At 31 March 2001
      
      2,808
      
      281Issued during the year
      
      292
      
      29At 31 March 2002
      
      3,100
      
      310Issued during the year
      
      1
      
      Redeemed during the year
      
      (24
      )
      (2
      )At
          31 March 2003
      
      3,077
      
      308One
          £1 special rights non-voting redeemable preference share (2002
          and 2001: one). (i)
      In accordance with merger
        accounting principles, the shares issued in connection with the Merger
        have been treated as if those shares were in issue throughout the year
        and comparative periods.


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23.
      Share capital(continued)The total
        consideration received by the Group in respect of shares issued during
        the year ended 31 March 2003 was £4m, all of which was received
        from employee share trusts, which represented contributions from Group
        undertakings.During the course
        of the year, the Group purchased for cancellation 24,225,000 of its ordinary
        shares at an average price per ordinary share of 401.59p. Company
      
      Allotted
        and issued
      
      Called up
        and partly paid
      
      Called up
        and fully paidnumber
      
      £
      
      number
      
      £
      
      millions
      
      £mOn 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
      
      1,776,932,870
      
      177,693,287
      
      23,450
      (i)
      2,345
      
      1,777
      
      178At 31 March 2002
      
      1,776,932,870
      
      177,693,287
      
      23,450
      
      2,345
      
      1,777
      
      178Issued during the year
      
      1,324,195,509
      
      132,419,551
      
      
      
      
      
      1,324
      
      132Fully paid up during the year
      
      
      
      
      
      (23,450
      )
      (2,345
      )
      
      
      Repurchased and cancelled during the
        year
      
      (24,225,000
      )
      (2,422,500
      )
      
      
      
      
      (24
      )
      (2
      )At
          31 March 2003
      
      3,076,903,379
      
      307,690,338
      
      
      
      
      
      3,077
      
      308One
          £1 special rights non-voting redeemable preference share (2002:
          one; 2001: nil). (i)
      These shares were nil paid
        at 31 March 2002. They represented shares issued to financial institutions
        in order to purchase Niagara Mohawk which were not required to form part
        of the final consideration and were sold on the open market during the
        year ended 31 March 2003.  The Company was incorporated on 11 July 2000
    with authorised share capital of 100 ordinary shares of £1 each. 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 was £250m (2,500m ordinary shares of 10 pence each and
    one £1 special rights non-voting
    redeemable preference share).
   On 21 October 2002, the authorised share capital
    of the Company was increased to £500m (5,000m ordinary shares of 10
    pence each and one £1 special
    rights non-voting redeemable preference share). This remained unchanged at
    31 March 2003.
   The total consideration received by the Company
    in respect of ordinary shares issued during the year ended 31 March 2003 was
    £136m, of which £4m  was
    received from employee share trusts, which represented contributions from
    Group undertakings. The remaining ordinary shares were issued on the
    merger with Lattice as explained in notes 1 and 29.
   The special rights non-voting redeemable preference
    share of £1 in National Grid Transco plc (the Special Share),
    held on behalf of the Crown, was issued
    by National Grid to the Secretary of State for Trade and Industry on 31 January
    2002 as part of a 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 holder of the Special Share 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.
   A similar special share in Lattice was held
    at 31 March 2002 by the Crown. This share was redeemed on 21 October 2002
    as part of the Merger arrangements.
   Share option schemes The Group operates two principal
    forms of share option schemes. They are an employee sharesave scheme and an
    Executive Share Option Scheme (the
    Executive Scheme). The details given below relate to the schemes operated
    by National Grid and Lattice, which became schemes of National Grid
    Transco plc as of the date of the Merger. Each Lattice scheme option was converted
    into 0.375 National Grid Transco plc options.
   In any ten year period, the maximum number of
    shares that may be issued or issuable pursuant to the exercise of options
    under all of the Groups share
    option schemes may not exceed the number of shares representing 10% of the
    issued ordinary share capital from time to time.





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Notes to the
        accountscontinued23.
      Share capital(continued)National Grid share
        option schemes
        The sharesave scheme is savings related where, under normal circumstances,
        share options are exercisable on completion of a three or a five-year
        save-as-you-earn contract. The exercise price of options granted represents
        80% of the market price at the date the option was granted.The Executive Scheme applies
        to senior executives, including Executive Directors. Options granted for
        the 1999/2000 financial year are subject to the achievement of performance
        targets related to earnings per share growth over a three-year period.
        Options granted for 2000/01 financial year and thereafter 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.Movement in options to subscribe
        for ordinary shares under the Groups various options schemes for
        the three years ended 31 March 2003 are shown below and include those
        options related to shares issued to employee benefit trusts: Weighted
      
      Sharesave
      
      Weighted
      
      Executiveaverage price
      
      scheme
      
      average price
      
      share scheme
      
      Total£
      
      millions
      
      £
      
      millions
      
      millionsAt 31 March 2000
      2.16
      
      16.2
      
      3.75
      
      6.0
      
      22.2Granted
      4.16
      
      1.4
      
      5.31
      
      1.6
      
      3.0Lapsed  forfeited
      2.89
      
      (0.4
      )
      
      
      
      
      (0.4
      )Exercised
      1.68
      
      (4.1
      )
      2.15
      
      (0.7
      )
      (4.8
      )At 31 March 2001
      2.54
      
      13.1
      
      4.31
      
      6.9
      
      20.0Granted
      4.57
      
      2.4
      
      5.50
      
      2.6
      
      5.0Lapsed  forfeited
      3.74
      
      (0.7
      )
      
      
      
      
      (0.7
      )Lapsed  expired
      
      
      
      
      4.17
      
      (0.1
      )
      (0.1
      )Exercised
      1.76
      
      (5.0
      )
      3.05
      
      (0.9
      )
      (5.9
      )At 31 March 2002
      3.33
      
      9.8
      
      4.81
      
      8.5
      
      18.3Converted from Lattice sharesave scheme
      3.18
      
      26.7
      
      
      
      
      
      26.7Granted
      3.62
      
      9.9
      
      4.78
      
      5.1
      
      15.0Lapsed  forfeited
      4.14
      
      (3.7
      )
      5.10
      
      
      
      (3.7
      )Lapsed  expired
      3.68
      
      (1.0
      )
      2.85
      
      (0.1
      )
      (1.1
      )Exercised
      2.39
      
      (3.7
      )
      2.84
      
      (0.4
      )
      (4.1
      )At 31 March 2003
      3.31
      
      38.0
      
      4.86
      
      13.1
      
      51.1Included within options outstanding
        at 31 March 2003 were the following options which were exercisable:At 31 March 2003
      3.34
      
      1.7
      
      3.72
      
      2.4
      
      4.1  Lattice sharesave schemeWeighted
      
      Sharesaveaverage price
      
      scheme£
      
      millionsAt 31 March 2000
      
      
      Granted
      1.18
      
      71.0At 31 March 2001
      1.18
      
      71.0Granted
      1.29
      
      11.0Lapsed  forfeited
      1.18
      
      (2.8
      )At 31 March 2002
      1.19
      
      79.2Lapsed  forfeited
      1.21
      
      (1.4
      )Lapsed  expired
      1.20
      
      (3.4
      )Exercised
      1.19
      
      (1.9
      )Converted to National Grid Transco options
      1.19
      
      (71.2
      )At 31 March 2003
      1.20
      
      1.3Included within options outstanding at
        31 March 2003 were the following options which were exercisable:At 31 March 2003
      1.19
      
      0.7


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23.
      Share capital(continued)Options outstanding at 31
        March 2003 and 31 March 2002, together with their exercise prices and
        dates were as follows: Exercise
        price
      
      Normal dates2003
      
      2002
      
      per share
      
      of exercisemillions
      
      millions
      
      pence
      
      YearsEmployee sharesave schemes
      
      
      2.2
      
      171.0
      
      2002
      
      0.9
      
      337.0
      
      20021.1
      
      1.3
      
      312.0
      
      20030.4
      
      0.5
      
      416.0
      
      20031.6
      
      1.9
      
      337.0
      
      20040.2
      
      0.7
      
      457.0
      
      200422.7
      (i)
      
      
      314.7
      
      2004  20050.4
      
      0.7
      
      416.0
      
      20050.4
      
      
      
      397.0
      
      20053.3
      (i)
      
      
      344.0
      
      2005  20077.2
      
      
      
      350.0
      
      2005  20070.3
      
      1.6
      
      457.0
      
      20060.4
      
      
      
      397.0
      
      200738.0
      
      9.8 (i)
    These amounts represent former Lattice
      sharesave options converted to National Grid options. Following the merger of Lattice
        and National Grid a number of employees did not convert their Lattice
        options into National Grid Transco options. These options remain options
        over shares in Lattice but are converted to shares in National Grid Transco
        upon exercise, details are disclosed below.Exercise
        price
      
      Normal dates2003
      
      2002
      
      per share
      
      of exercisemillions
      
      millions
      
      pence
      
      YearsLattice sharesave options
      1.1
      
      69.1
      
      118.0
      
      2004 
        20060.2
      
      10.1
      
      129.0
      
      2005  20071.3
      (ii)
      79.2 (ii)
      On 29 April 2003, 20,383
        of the Lattice sharesave scheme options were exercised and immediately
        converted into National Grid Transco shares. The remaining sharesave scheme
        options lapsed without being exercised.The National
        Grid Transco employee sharesave scheme and the Lattice sharesave scheme
        are Inland Revenue approved and hence, as permitted by Urgent Issues Task
        Force (UITF) abstract 17 (revised 2000), no charge has been made to the
        profit and loss account. Exercise
        price
      
      Normal dates2003
      
      2002
      
      per share
      
      of exercisemillions
      
      millions
      
      pence
      
      YearsExecutive scheme
      0.9
      
      1.1
      
      205.5 
        280.0
      
      2001 
        20070.8
      
      1.0
      
      375.8
      
      2001  20080.6
      
      0.7
      
      424.0  455.3
      
      2002  20091.5
      
      2.9
      
      526.5  566.5
      
      2003  20104.2
      
      2.8
      
      479.5  623.0
      
      2004  20115.1
      
      
      
      460.3  481.5
      
      2005  201213.1
      
      8.5





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Notes to the accountscontinued 24.
    Reserves Group
      
      CompanyShare
      
      
      
      
      
      Profit
      
      Share
      
      
      
      Profitpremium
      
      Revaluation
      
      Other
      
      and loss
      
      premium
      
      Other
      
      and lossaccount
      
      reserve
      
      reserves
      
      account
      
      account
      
      reserve
      
      account£m
      
      £m
      
      £m
      
      £m
      
      £m
      
      £m
      
      £mAt 31 March 2000
      
      
      
      50
      
      (5,243
      )
      5,509
      
      
      
      
      
      Exchange adjustments
      
      
      
      
      
      
      
      (15
      )
      
      
      
      
      Tax on exchange adjustments
      
      
      
      
      
      
      
      32
      
      
      
      
      
      Ordinary shares issued during the year
      
      1
      
      
      
      
      
      
      
      
      
      
      
      Transfer on issue of certain shares under
        share option schemes
      
      1
      
      
      
      
      
      (1
      )
      
      
      
      
      Contribution to sharesave trust
      
      
      
      
      
      
      
      45
      
      
      
      
      
      Unrealised gain on transfer of assets
        to a joint venture (net of tax)
      
      
      
      
      
      19
      
      
      
      
      
      
      
      Funding movements with BG Group
      
      
      
      
      
      20
      
      
      
      
      
      
      
      Retained profit for the year
      
      
      
      
      
      
      
      655
      
      
      
      
      
      Transfer
      
      (2
      )
      
      
      2
      
      
      
      
      
      
      
      At 31 March 2001
      
      
      
      50
      
      (5,202
      )
      6,225
      
      
      
      
      
      Exchange adjustments
      
      
      
      
      
      
      
      (58
      )
      
      
      
      
      Tax on exchange adjustments
      
      
      
      
      
      
      
      21
      
      
      
      
      
      Ordinary shares issued during the year Share option scheme
      
      46
      
      
      
      
      
      
      
      1
      
      
      
       Acquisition
      
      1,242
      
      
      
      
      
      
      
      1,242
      
      
      
      Transfer on issue of certain shares under
        share option schemes
      
      11
      
      
      
      
      
      (11
      )
      
      
      
      
      Unrealised gain on transfer of assets
        to a joint venture (net of tax)
      
      
      
      
      
      7
      
      
      
      
      
      
      
      Reduction in revaluation reserve
      
      
      
      (50
      )
      
      
      
      
      
      
      
      
      Retained (loss)/profit for the year
      
      
      
      
      
      
      
      (901
      )
      
      
      
      
      498Transfer
      
      (56
      )
      
      
      56
      
      
      
      
      
      
      
      At 31 March 2002
      
      1,243
      
      
      
      (5,139
      )
      5,276
      
      1,243
      
      
      
      498Exchange adjustments
      
      
      
      
      
      
      
      (322
      )
      
      
      
      
      Tax on exchange adjustments
      
      
      
      
      
      
      
      12
      
      
      
      
      
      Ordinary shares issued during the year
      
      2
      
      
      
      
      
      
      
      4
      
      
      
      Repurchase and cancellation of ordinary
        shares
      
      
      
      
      
      2
      
      (97
      )
      
      
      2
      
      (97
      )Transfer on issue of certain shares under
        share option schemes
      
      2
      
      
      
      
      
      (2
      )
      
      
      
      
      Unrealised gain on transfer of assets
        to a joint venture (net of tax)
      
      
      
      
      
      6
      
      
      
      
      
      
      
      Retained (loss)/profit for the year
      
      
      
      
      
      
      
      (139
      )
      
      
      
      
      734At 31 March 2003
      
      1,247
      
      
      
      (5,131
      )
      4,728
      
      1,247
      
      2
      
      1,135 The Company has not presented its own
        profit and loss account as permitted by section 230 of the Companies Act
        1985. The Companys profit after taxation was £1,264m (2002:
        £667m; 2001: £nil).Other reserves are non-distributable
        reserves. They included merger accounting differences but, primarily represented
        the difference between the carrying value of Group undertakings, investments
        and their respective capital structures following the Lattice Demerger
        from BG Group plc and the 1999 Lattice Refinancing of £(5,745)m.
        Also included in the reserve were the merger differences described below
        of £221m and £359m together with unrealised gains of £32m
        on transfer of fixed assets to a former joint venture which subsequently
        became a Group undertaking.The revaluation reserve brought forward
        as at 1 April 2000 related to investment properties. These properties
        were reclassified as other land and buildings in 2001 and are now reported
        at historical cost.During the year ended 31 March 2003,
        the application of merger accounting principles to the Merger gave rise
        to a difference of £221m. It was accounted for as a merger difference
        and included within other reserves. The difference represented the excess
        of nominal share capital in issue by Lattice at the date of the Merger
        over the National Grid Transco plc share capital issued to Lattice shareholders.
        In accordance with merger accounting principles, the shares issued in
        connection with the Merger were treated as if issued throughout the year
        ended 31 March 2003 and comparative periods.During the year ended 31 March 2002,
        the application of merger accounting principles to a group reconstruction
        which involved the creation of a new holding company gave rise to a difference
        of £359m. It was accounted for as a merger difference and included
        within other reserves. In accordance with merger accounting principles,
        the shares issued in connection with the scheme of arrangement to acquire
        the former holding company of the Group (National Grid Holdings One plc),
        as adjusted to reflect the issue of options were treated as if issued
        throughout the year ended 31 March 2002 and comparative period.25.
      Non-equity minority interestsThe non-equity minority interests of
        £69m (2002: £79m) comprised cumulative preference stock issued
        by Group undertakings.


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26.
    Reconciliation of movement in equity
      shareholders funds 2003£m
      
      2002£m
      
      2001£mProfit/(loss) for the year
      391
      
      (321
      )
      1,124Dividends
      (530
      )
      (580
      )
      (469
      )(139
      )
      (901
      )
      655Issue of ordinary shares
      2
      
      1,317
      
      1Repurchase and cancellation of ordinary
        shares
      (97
      )
      
      
      Exchange adjustments
      (322
      )
      (58
      )
      (15
      )Tax on exchange adjustments
      12
      
      21
      
      32Unrealised gain on transfer of assets
        to a joint venture (net of tax)
      6
      
      7
      
      19Reduction in revaluation reserve on reclassification
        of investment properties
      
      
      (50
      )
      Contribution to sharesave trust
      
      
      
      
      45Funding movement with BG Group
      
      
      
      
      20Net (decrease)/increase in equity shareholders
        funds
      (538
      )
      336
      
      757Equity shareholders funds at start
        of year
      1,690
      
      1,354
      
      597Equity shareholders
        funds at end of year
      1,152
      
      1,690
      
      1,354 27.
      Group cash flow statementa) Reconciliation of operating profit
        to net cash inflow from operating activities before exceptional items2003£m
      
      2002£m
      
      2001£mOperating profit of Group undertakings
      
      1,612
      
      1,060
      
      1,712Group exceptional operating items
      
      476
      
      673
      
      88Depreciation and amortisation
      
      1,088
      
      876
      
      769(Increase)/decrease in stocks
      
      (16
      )
      3
      
      (19
      )(Increase)/decrease in debtors
      
      (149
      )
      222
      
      (168
      )Increase/(decrease) in creditors
      
      159
      
      (180
      )
      147Decrease in provisions
      
      (16
      )
      (260
      )
      (37
      )Other
      
      
      
      
      
      (10
      )Net
          cash inflow from operating activities before exceptional items
      
      3,154
      
      2,394
      
      2,482 b) Disposal of investments2003£m
      
      2002£m
      
      2001£mCash consideration received
      328
      
      37
      
      205Cash balances of businesses disposed
      
      
      
      
      (9
      )328
      
      37
      
      196Comprises:Disposal of Group undertakings
      92
      
      37
      
      54Disposal of other investments
      236
      
      
      
      142328
      
      37
      
      196 c) Acquisition of Group undertakings2003£m
      
      2002
          £m
      
      2001£mPayments to acquire Group undertakings
      
      
      (943
      )
      (443
      )(Overdraft)/cash balances of Group undertakings
        acquired
      
      
      (7
      )
      2
      
      (950
      )
      (441
      )


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Notes to the
      accounts continued27.
    Group cash flow
        statement(continued)d) Reconciliation
      of net cash flow to movement in net debt 2003
      
      2002
      
      2001£m
      
      £m
      
      £mMovement in cash and overdrafts
      34
      
      22
      
      (15
      )Net cash outflow/(inflow) from the management
        of liquid resources
      138
      
      (347
      )
      (696
      )(Increase)/decrease in borrowings
      (267
      )
      (1,206
      )
      208Change in net debt resulting from cash
        flows
      (95
      )
      (1,531
      )
      (503
      )Acquisition of Group undertakings
      
      
      (3,678
      )
      (162
      )Disposal of Group undertaking
      (62
      )
      
      
      Certificates of tax deposit surrendered
      
      
      
      
      (4
      )Exchange adjustments
      593
      
      20
      
      (218
      )Other non-cash movements
      (15
      )
      (5
      )
      (51
      )Movement in net debt in the year
      421
      
      (5,194
      )
      (938
      )Net debt at start of year
      (14,299
      )
      (9,105
      )
      (8,167
      )Net debt at end of
        year
      (13,878
      )
      (14,299
      )
      (9,105
      ) e) Analysis of changes in net debtAt
        1 April2000£m
      
      Cashflow£m
      
      
      Acquisitionof
        Groupundertakings£m
      
      Exchangeadjustments£m
      
      Othernon-cashmovements£m
      
      At
        31 March2001£mCash at bank and in hand
      23
      
      5
      
      
      
      
      
      
      
      
      28Bank overdrafts
      (4
      )
      (20
      )
      
      
      
      
      
      
      
      (24
      )(15
      )Current asset investments
      1,170
      
      (696
      )
      
      
      
      21
      
      (4
      )
      491Borrowings due after one year
      (8,214
      )
      (310
      )
      
      (50
      )
      (205
      )
      525
      
      (8,254
      )Borrowings due within one year
      (1,142
      )
      518
      
      
      (112
      )
      (34
      )
      (576
      )
      (1,346
      )208(8,167
      )
      (503
      )
      
      (162
      )
      (218
      )
      (55
      )
      (9,105
      ) At 1 April
        2001
        £m
      
      Cash
        flow£m
      
      
      Acquisition
        of
        Groupundertakings£m
      
      Exchange
        adjustments£m
      
      Other
        non-cashmovements£m
      
      At
        31 March2002£mCash at bank and in hand
      28
      
      82
      
      
      
      
      
      
      
      
      110Bank overdrafts
      (24
      )
      (60
      )
      
      
      
      
      
      
      
      (84
      )22Current asset investments
      491
      
      (347
      )
      
      215
      
      (5
      )
      
      
      354Borrowings due after one year
      (8,254
      )
      (1,830
      )
      
      (3,189
      )
      11
      
      549
      
      (12,713
      )Borrowings due within one year
      (1,346
      )
      624
      
      
      (704
      )
      14
      
      (554
      )
      (1,966
      )(1,206
      )(9,105
      )
      (1,531
      )
      
      (3,678
      )
      20
      
      (5
      )
      (14,299
      ) At 1 April
        2002£m
      
      Cash
        flow£m
      
      
      Disposal
        of
        Groupundertaking£m
      
      Exchange
        adjustments£m
      
      Other
        non-cashmovements£m
      
      At 31 March
        2003
        £mCash at bank and in hand
      110
      
      12
      
      
      
      
      (3
      )
      
      
      119Bank overdrafts
      (84
      )
      22
      
      
      
      
      
      
      
      
      (62
      )34Current asset investments
      354
      
      138
      
      
      
      
      (10
      )
      
      
      482Borrowings due after one year
      (12,713
      )
      (1,226
      )
      
      (55
      )
      497
      
      1,264
      
      (12,233
      )Borrowings due within one year
      (1,966
      )
      959
      
      
      (7
      )
      109
      
      (1,279
      )
      (2,184
      )(267
      )(14,299
      )
      (95
      )
      
      (62
      )
      593
      
      (15
      )
      (13,878
      )


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28.
      AcquisitionsThe acquisition of Niagara
        Mohawk was completed on 31 January 2002 at a total cost of £2,186m.
        The net assets acquired were ascribed a provisional fair value of £1,376m
        resulting in goodwill of £810m. During the year ended 31 March 2003,
        the provisional fair values applied were reviewed and a number of adjustments
        were made to those provisional values as a result of better information
        being available, as shown below: Provisionalfair
          value
      
      Fair
          value
      
      Finalat
          acquisition
      
      adjustments
      
      fair
          value£m
      
      £m
      
      £mTangible fixed assets
      3,265
      
      (14
      )(i)
      3,251Fixed asset investments
      64
      
      
      
      64Stocks
      36
      
      
      
      36Debtors
      3,955
      
      (115
      )(ii)(iii)
      3,840Investment held for resale
      15
      
      1
      
      16Cash and deposits
      215
      
      
      
      215Creditors excluding borrowings
      (939
      )
      (6
      )(iv)
      (945
      )Borrowings
      (3,852
      )
      
      
      (3,852
      )Provisions for liabilities and charges
      (1,317
      )
      52
      (v)
      (1,265
      )Minority interests
      (66
      )
      
      
      (66
      )Net
          assets acquired
      1,376
      
      (82
      )
      1,294 Fair value adjustments
        primarily comprise revaluation adjustments relating to:(i)
      Write-off of construction
        work in progress (£13m);(ii)
      Increase in bad debt provision
        (£42m);(iii)
      Reduction in regulatory
        assets (£64m);(iv)
      Adjustment to accruals (£6m);
        and(v)
      Deferred tax on certain
        fair value adjustments (£54m). The following unaudited pro forma summary
        gives effect to the acquisition of Niagara Mohawk, as if the acquisition
        had taken place on 1 April 2000 and on 1 April 2001. The pro forma 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 after giving effect to certain adjustments. These adjustments
        include estimates of the effect of adopting the final fair value adjustments
        and the increased net interest expense, together with the associated tax
        effects, as a result of financing the acquisition. In addition, the earnings
        per share calculation has been adjusted as if the shares issued to acquire
        Niagara Mohawk were issued on the assumed date of acquisition for the
        purposes of preparing the pro forma summary. The pro forma summary does
        not necessarily reflect the results of operations as they would have been
        if the Group (excluding the acquisition) and the acquisition had constituted
        a single entity during the periods presented.The unaudited pro forma summary is prepared
        on the basis of UK GAAP and includes the business combination of Lattice
        and National Grid on a merger accounting basis. As stated in note 33,
        under US GAAP, this business combination is accounted for as an acquisition
        of Lattice by National Grid. Therefore in note 34, additional disclosure
        is provided that presents pro forma financial information to reflect the
        business combination of National Grid and Lattice on the basis of acquisition
        accounting under US GAAP. 2002
      
      2001£m
      £mTurnover
      10,126
      
      10,209(Loss)/profit for the year  including
        exceptional items and goodwill amortisation
      (352
      )
      1,045Profit for the year  excluding
        exceptional items and goodwill amortisation
      846
      
      626Earnings per ordinary shareBasic, including exceptional items and
        goodwill amortisation
      (12.4
      )p
      37.6
      pAdjusted basic, excluding exceptional
        items and goodwill amortisation
      33.6
      p
      22.8
      p


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Notes to the accountscontinued29.
      Merger accounting a) Alignment
        of accounting policies and fair value of shares issued on MergerLattice made changes to its accounting
        policies with effect from 1 April 2002. These changes were reported in
        its interim results for the six months ended 30 September 2002 and therefore
        have not been included as alignments of accounting policies at the time
        of the Merger. The changes made were as follows:i) Lattice changed its accounting
        policy in respect of deferred tax, with the effect that Lattice no longer
        discounted deferred tax balances, resulting in an increase in the 2002
        tax charge of £4m (£26m on pre-exceptional profits) and an
        increase in the deferred tax liability of £605m; 
        ii) A pension interest credit of £22m that was included within the
        net pension charge in operating profit is now reported within net interest;
        and 
        iii) Own shares of £7m in 2002 were recorded in other debtors but
        are now included within fixed asset investments.In addition to the above
        changes, National Grid changed its policy in respect of the capitalisation
        of capital contributions. An adjustment has been made to the 31 March
        2002 balances to reclassify £90m of capital contributions from tangible
        fixed assets to creditors (amounts due within one year) of £3m and
        to creditors (amounts due after more than one year) of £87m.The fair value of the shares
        issued to effect the Merger was £6.6 billion. In addition, costs
        directly related to the Merger transaction itself of £79m were incurred.b) Analysis of Group
        profit and loss account for the years ended 31 March 2002 and 2003 National
          Grid
          1 April to
          20 October
          2002
          £m
      
      
      Lattice
          1 April to
          20October
          2002
          £m
      
      
      National
          Grid
          Transco
          21 Oct 2002
          to 31 March
          2003
          £m
      
      
      Total
          year ended
          31 March
          2003
          £m
      
      
      National
          Grid
          year ended
          31 March
          2002
          £m
      
      
      Lattice
          year ended
          31 March
          2002
          £m
      
      
      National
          Grid
          Transco
          year ended
          31 March
          2002
          £mTurnover, including share of joint ventures
      3,475
      
      
      1,470
      
      
      4,621
      
      
      9,566
      
      
      4,660
      
      
      3,161
      
      
      7,821Less: share of joint venturesturnover  continuing
        operations
      (72
      )
      
      
      
      
      (27
      )
      
      (99
      )
      
      (133
      )
      
      (8
      )
      
      (141
      )Less: share of joint venturesturnover  discontinued
        operations
      (65
      )
      
      
      
      
      (2
      )
      
      (67
      )
      
      (126
      )
      
      
      
      
      (126
      )Group turnover continuing operations
      3,338
      
      
      1,434
      
      
      4,591
      
      
      9,363
      
      
      4,401
      
      
      3,070
      
      
      7,471 discontinued operations
      
      
      
      36
      
      
      1
      
      
      37
      
      
      
      
      
      83
      
      
      833,338
      
      
      1,470
      
      
      4,592
      
      
      9,400
      
      
      4,401
      
      
      3,153
      
      
      7,554Operating profit/(loss)Adjusted operating profit(i) ofGroup undertakings
         continuing operations
      708
      
      
      243
      
      
      1,265
      
      
      2,216
      
      
      893
      
      
      985
      
      
      1,878Adjusted operating loss(i) ofGroup undertakings
         discontinued operations
      
      
      
      (18
      )
      
      (8
      )
      
      (26
      )
      
      
      
      
      (60
      )
      
      (60
      )708
      
      
      225
      
      
      1,257
      
      
      2,190
      
      
      893
      
      
      925
      
      
      1,818Share of joint ventures and associates
        adjustedoperating profit/(loss)(i)
         continuing operations
      8
      
      
      (1
      )
      
      8
      
      
      15
      
      
      36
      
      
      (17
      )
      
      19Share of joint ventures and associates
        adjustedoperating loss/(profit)(i)
         discontinued operations
      (22
      )
      
      
      
      
      2
      
      
      (20
      )
      
      (54
      )
      
      
      
      
      (54
      )(14
      )
      
      (1
      )
      
      10
      
      
      (5
      )
      
      (18
      )
      
      (17
      )
      
      (35
      )Exceptional items  continuing operations
      (22
      )
      
      (104
      )
      
      (182
      )
      
      (308
      )
      
      (122
      )
      
      (163
      )
      
      (285
      )Exceptional items  discontinued
        operations
      127
      
      
      (172
      )
      
      6
      
      
      (39
      )
      
      (792
      )
      
      (250
      )
      
      (1,042
      )Goodwill amortisation  continuing
        operations
      (60
      )
      
      (1
      )
      
      (41
      )
      
      (102
      )
      
      (78
      )
      
      (7
      )
      
      (85
      )Goodwill amortisation  discontinued
        operations
      
      
      
      
      
      
      
      
      
      
      
      
      (12
      )
      
      
      
      
      (12
      )Total operating profit/(loss)
      739
      
      
      (53
      )
      
      1,050
      
      
      1,736
      
      
      (129
      )
      
      488
      
      
      359Non-operating exceptional items 
        continuing operations
      (32
      )
      
      (35
      )
      
      36
      
      
      (31
      )
      
      22
      
      
      103
      
      
      125Non-operating exceptional items 
        discontinued operations
      
      
      
      (32
      )
      
      (36
      )
      
      (68
      )
      
      30
      
      
      1
      
      
      31Profit/(loss) on ordinary activitiesbefore interest
        and taxation
      707
      
      
      (120
      )
      
      1,050
      
      
      1,637
      
      
      (77
      )
      
      592
      
      
      515Net interest  excluding exceptional
        items
      (306
      )
      
      (203
      )
      
      (430
      )
      
      (939
      )
      
      (293
      )
      
      (364
      )
      
      (657
      )Net interest  exceptional items
      (55
      )
      
      
      
      
      24
      
      
      (31
      )
      
      (142
      )
      
      
      
      
      (142
      )Net interest
      (361
      )
      
      (203
      )
      
      (406
      )
      
      (970
      )
      
      (435
      )
      
      (364
      )
      
      (799
      )Profit/(loss)
          on ordinary activities before taxation
      346
      
      
      (323
      )
      
      644
      
      
      667
      
      
      (512
      )
      
      228
      
      
      (284
      )Taxation  excluding exceptional
        items
      (107
      )
      
      (5
      )
      
      (261
      )
      
      (373
      )
      
      (85
      )
      
      (166
      )
      
      (251
      )Taxation  exceptional items
      25
      
      
      34
      
      
      69
      
      
      128
      
      
      60
      
      
      106
      
      
      166(82
      )
      
      29
      
      
      (192
      )
      
      (245
      )
      
      (25
      )
      
      (60
      )
      
      (85
      )Profit/(loss)
          on ordinary activities after taxation
      264
      
      
      (294
      )
      
      452
      
      
      422
      
      
      (537
      )
      
      168
      
      
      (369
      )Minority interests  excluding exceptional
        items
      (4
      )
      
      1
      
      
      
      
      
      (3
      )
      
      (6
      )
      
      4
      
      
      (2
      )Minority interests  exceptional
        items
      (12
      )
      
      
      
      
      (16
      )
      
      (28
      )
      
      50
      
      
      
      
      
      50(16
      )
      
      1
      
      
      (16
      )
      
      (31
      )
      
      44
      
      
      4
      
      
      48Profit/(loss)
          for the period
      248
      
      
      (293
      )
      
      436
      
      
      391
      
      
      (493
      )
      
      172
      
      
      (321
      ) (i) Adjusted operating profit/(loss) is
        presented before exceptional items and goodwill amortisation. There was no intercompany trading between
        National Grid and Lattice.


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29.
    Merger accounting(continued)c) Analysis
      of statement of total recognised gains and losses  21 Oct 20021 April
        2002
      
      to 31 Marchto 20 Oct
        2002
      
      2003
      
      2003
      
      2002National
          Grid
      
      Lattice
      
      NGT
      
      Total
      
      National
          Grid
      
      Lattice
      
      Total£m
      
      £m
      
      £m
      
      £m
      
      £m
      
      £m
      
      £mProfit/(loss) for the period
      
      248
      
      (293
      )
      436
      
      391
      
      (493
      )
      172
      
      (321
      )Exchange adjustments
      
      (281
      )
      
      
      (41
      )
      (322
      )
      (58
      )
      
      
      (58
      )Tax on adjustments
      
      
      
      
      
      12
      
      12
      
      21
      
      
      
      21Other recognised gains and losses
      
      
      
      (2
      )
      8
      
      6
      
      
      
      (43
      )
      (43
      )Total recognised gains and
        losses
      
      (33
      )
      (295
      )
      415
      
      87
      
      (530
      )
      129
      
      (401
      ) d) Book value of net assets at date of
  Merger
 £mBook value of National Grid net assets
        at date of Merger
      3,039Book value of Lattice net liabilities
        at date of Merger
      (1,806
      )Total net assets at date
        of Merger
      1,233  30.
    Related party transactionsTransactions
      with related parties were in the normal course of business and are summarised
      below. The Leasing Group plc, a former Group undertaking, was sold on 12
      October 2002. As a result, its transactions with the Group from the date
      of disposal were deemed to be related party transactions and are included
      below:  2003
      
      2002
      
      2001£m
      
      £m
      
      £mSales:Services supplied
      10
      
      33
      
      47Finance lease rentals
      11
      
      9
      
      11Tangible fixed assets
      
      
      28
      
      47Purchases:Services received
      59
      
      55
      
      26Finance lease rentals
      1
      
      
      
      Tangible fixed assets
      12
      
      3
      
        Amounts owed from and to a former associate
  are given in note 16 and note 18 respectively.
   Amounts owed to and from The Leasing Group
  plc amounted to £73m and £79m respectively at 31 March 2003. In
  respect of prior years, The Leasing Group plc was included within the Group
  accounts as a Group undertaking.
   During the year, amounts were paid to or in
  respect of joint ventures, arising from the Groups obligations from its
  decision to exit from these investments. The payments made during the year amounted
  to £153m, all of which had been provided for at 31 March 2002.
  31.
    Commitments and contingenciesa) Future
      capital expenditure Group
      
      Joint ventures2003
      
      2002
      
      2003
      
      2002£m
      
      £m
      
      £m
      
      £mContracted for but not provided
      
      664
      
      550
      
      1
      
      26  b) Lease commitments At 31 March 2003, the Groups
  operating lease commitments for the financial year ending 31 March 2004 amounted
  to £74m (2002: £39m) and are analysed by lease expiry date as follows:
  Land and
        buildings
      
      Other
      
      Total2003
      
      2002
      
      2003
      
      2002
      
      2003
      
      2002£m
      
      £m
      
      £m
      
      £m
      
      £m
      
      £mWithin one year
      
      1
      
      1
      
      7
      
      2
      
      8
      
      3Between two and five years
      
      4
      
      3
      
      20
      
      12
      
      24
      
      15After five years
      
      26
      
      12
      
      16
      
      9
      
      42
      
      2131
      
      16
      
      43
      
      23
      
      74
      
      39





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Notes to the
      accounts continued31.
    Commitments and contingencies(continued) Total commitments under non-cancellable
        operating leases were as follows:2003
      
      2002£m
      
      £mIn one year or less
      74
      
      39In more than one year, but not more than
        two years
      52
      
      35In more than two years, but not more
        than three years
      41
      
      32In more than three years, but not more
        than four years
      32
      
      30In more than four years, but not more
        than five years
      30
      
      24In more than five years
      247
      
      227476
      
      387 c) Power commitmentsAt 31 March 2003, the Group
        had obligations to purchase energy under long-term contracts. The following
        table analyses these commitments, excluding those purchased power obligations,
        the net present value of which is already reflected in creditors (notes
        18 and 19):2003
        £m
      
      2002
        £mIn one year or less
      1,252
      
      1,340In more than one year, but not more than
        two years
      948
      
      1,189In more than two years, but not more
        than three years
      610
      
      1,057In more than three years, but not more
        than four years
      592
      
      684In more than four years, but not more
        than five years
      565
      
      692In more than five years
      2,362
      
      2,3506,329
      
      7,312 d) Third party contingenciesThe Group has outstanding
        BG Group related commitments and contingencies amounting to £13m
        (2002: £441m), arising from the restructuring of BG Group in 1999.
        BG Group has been working with the Group since early 1999 to remove all
        the relevant guarantees or to find an alternative guarantor which is not
        part of the Group. For any guarantees that have not been replaced, the
        Group will continue to provide such guarantees on an arms length
        basis until they are removed or replaced. The Group has issued guarantees
        in respect of a former associate amounting to £14m (2002: £14m
        (associate)). During the year ended 31 March 2003, Transco, a Group undertaking,
        was released from financial guarantees given as part of the Centrica demerger
        in 1997 as to the performance by Centrica of certain long-term interruptible
        gas supply contracts.e) Other commitments and contingencies
        The value of other Group commitments and contingencies at 31 March 2003
        amounted to £194m (2002: £202m), including guarantees of £120m
        (2002: £133m), of which £nil (2002: £11m) was in respect
        of a joint venture. Details of the guarantees
        entered into by the Group at 31 March 2003 are shown below:i)
      Performance guarantees of
        £24m relating to certain property obligations of a Group undertaking;ii)
      £50m guarantee of the obligations
        of a Group undertaking to pay liabilities under a meter operating contract
        for a duration expected to be 20-30 years;iii)
      A four-year guarantee relating to an
        interconnector construction project amounting to £18m provided by
        the Company; andiv)
      Other guarantees amounting to £28m
        arising in the normal course of business and entered into on normal commercial
        terms. The Company has guaranteed the lease
        obligations of a former associate to a Group undertaking, amounting to
        £50m (2002: £45m).f) Parent Company loan guarantees
        on behalf of Group undertakingsThe Company has guaranteed the repayment of principal sums, any associated
        premium and interest on specific loans due from certain Group undertakings
        to third parties. At 31 March 2003, the sterling equivalent amounted to
        £1,845m (2002: £1,426m). The guarantees are for varying terms
        between four and ten years.g) Larkhall prosecutionAs a result of a fatal accident in Larkhall, Lanarkshire in December
        1999 in which four people died, the Crown Office in Scotland served an
        indictment on Transco on 5 February 2003. This charged the company with
        culpable homicide, with an alternative charge of a contravention of Sections
        3 and 33 of the Health and Safety at Work Act 1974. Charging the company
        with culpable homicide is unprecedented under Scots law and therefore
        before a full trial can proceed, a number of fundamental legal issues
        associated with the indictment are required to be resolved. At a preliminary
        hearing in March 2003 to determine issues as to the competency and relevancy
        and other associated matters in relation to the charges, judgement was
        issued in favour of the Crown. Transco has appealed against this decision
        and the appeal hearing commenced on 20 May 2003. On indictment, the maximum
        penalties for both culpable homicide and contravention of Sections 3 and
        33 are unlimited fines.h) Sale of Millstone 3In November 1999, New England Power (NEP), a subsidiary of National
        Grid USA, 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%
        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$28m (£20m)
        were received by NEP. Millstone 3 was subsequently sold to Dominion Resources
        Inc. for a total of approximately US$855m (£602m).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$140m of sale proceeds without the agreement. Any dispute
        will be resolved by the Federal Energy Regulatory Commission (FERC). The
        Group 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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31.
      Commitments and
        contingencies(continued)i) Environmental related
        litigationOn 10 January 2002, New York State filed a civil action against Niagara
        Mohawk in federal district court in Buffalo, New York, for alleged violations
        of the federal Clean Air Act and related state environmental laws, at
        the Huntley and Dunkirk power plants, which Niagara Mohawk sold in 1999
        to NRG Energy Inc. and its affiliates (collectively, NRG). The State alleged,
        among other things, that between 1982 and 1999 Niagara Mohawk modified
        the two plants 55 times without obtaining proper preconstruction permits
        and implementing proper pollution equipment controls.Niagara Mohawk
        and NRG moved to dismiss the complaint on statute of limitations and other
        grounds in 2002, and on 27 March 2003, the court granted the motions in
        part, holding that the violations of the Clean Air Act prior to November
        1996 were barred by the federal five-year statute of limitations, and
        that related state statutory violations prior to November 1999 were barred
        by the state three-year statute of limitations. At the same time, the
        court preserved the States non-regulatory claims against Niagara
        Mohawk and dismissed NRG from the suit. On 25 April, the State filed a
        motion for leave to amend the complaint to assert new claims against both
        Niagara Mohawk and NRG.Prior to the
        commencement of the enforcement action, on 13 July 2001, Niagara Mohawk
        filed a declaratory judgement action in New York State court in Syracuse
        against NRG seeking a ruling that NRG is responsible for the costs of
        pollution controls and mitigation that might result from the States
        enforcement action. As a result of NRGs voluntary bankruptcy petition,
        filed in New York federal court for bankruptcy on 14 May 2003, Niagara
        Mohawks declaratory judgement action is stayed.32.
      Group undertakings
        and joint venturesPrincipal Group
        undertakingsThe principal Group undertakings included in the Group accounts at 31
        March 2003 are listed below. These undertakings are wholly-owned and,
        unless otherwise indicated, are incorporated in Great Britain. Principal
          activityTransco plc (i)
      Gas transportationNational Grid Company plc (i)
      Transmission of electricity in England
        and WalesNew England Power Company (Incorporated
        in the US) (i)
      Transmission and generation of electricityMassachusetts Electric Company (Incorporated
        in the US) (i)
      Distribution of electricityThe Narragansett Electric Company (Incorporated
        in the US) (i)
      Distribution of electricityNiagara Mohawk Power Corporation (Incorporated
        in the US) (i)
      Distribution and transmission of electricity
        and gasNGG Finance plc (ii)
      FinancingBritish Transco International Finance
        B.V. (Incorporated in The Netherlands) (i)
      FinancingSecondSite Property Portfolio Limited
        (i)
      PropertyNational Grid Holdings One plc (ii)
      Holding companyLattice Group plc (ii)
      Holding companyNational Grid USA (Incorporated in the
        US) (i)
      Holding companyNiagara Mohawk Holdings Inc. (Incorporated
        in the US) (i)
      Holding companyLattice Group Holdings Limited (i)
      Holding companyTransco Holdings plc (i)
      Holding companyNational Grid (US) Holdings Limited (ii)
      Holding companyNational Grid Holdings Limited (i)
      Holding company (i)
      Issued ordinary share capital
        held by Group undertakings.(ii)
      Issued ordinary share capital
        held by National Grid Transco plc. Principal joint ventures(at 31 March 2003)Group
        holding
      Country
        ofincorporationand
        operation
      Principal
        activityCompañia Inversora En TransmicionElectrica CITELEC S.A.(i)
      42.5% ordinary shares
      Argentina
      Transmission of electricityCopperbelt Energy Corporation Plc.(i)
      38.5% ordinary shares
      Zambia
      Transmission, distributionand supply of electricity (i)
    31December
      year end.The investments
        in joint ventures are held by Group undertakings.A full list
        of all Group and associated undertakings is available from the Group Company
        Secretary.33.
      Summary
        US GAAP income statement, balance sheet, notes and associated reconciliationsThe Group
        prepares its consolidated accounts in accordance with United Kingdom Generally
        Accepted Accounting Principles (UK GAAP), which differ in certain respects
        from United States Generally Accepted Accounting Principles (US GAAP).The most significant
      difference between UK and US GAAP is that, under UK GAAP, the combination
      of National Grid and Lattice has been accounted for as a merger (pooling
      of interests), while under US GAAP this transaction is accounted for as
      an acquisition (purchase accounting) of Lattice by National Grid. Consequently,
      under UK GAAP, the accounts represent the combined accounts of National
      Grid and Lattice on an historical cost basis for all periods presented.
      Under US GAAP, the accounts presented prior to the Merger are those of National
      Grid only.The income statements
      and balance sheets shown on the following pages are presented in a US GAAP
      format. The balance sheet at 31 March 2003 includes the impact of the fair
      value of the acquired assets and liabilities of Lattice prepared under US
      GAAP at the date of acquisition. A summary of the principal differences
      between UK and US GAAP is shown in note 34.


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Notes to the accountscontinued33.
    Summary US GAAP
      income statement, balance sheet, notes and associated reconciliations(continued)Summary US
      GAAP income statement 2003
      
      
      US
        GAAP adjustments
      
      
      2003National
      
      
      2003
      
      
      2003
      
      
      NationalGrid
      
      
      Lattice
          pre-
      
      
      Other
      
      
      GridTransco
      
      
      acquisition
      
      
      US
          GAAP
      
      
      Transco(UK
          GAAP)
      
      
      (UK
          GAAP)
      
      
      adjustments
      
      
      (US
          GAAP)£m
      
      
      £m
      
      
      £m
      
      
      £mTurnover
      9,400
      
      
      (1,470
      )
      
      1
      
      
      7,931Operating costsDepreciation
      (851
      )
      
      249
      
      
      (129
      )
      
      (731
      )Payroll costs
      (1,107
      )
      
      308
      
      
      (305
      )
      
      (1,104
      )Purchases of electricity
      (1,901
      )
      
      
      
      
      
      
      
      (1,901
      )Purchases of gas
      (357
      )
      
      53
      
      
      
      
      
      (304
      )Rates and property taxes
      (537
      )
      
      130
      
      
      
      
      
      (407
      )Electricity transmission services scheme
        direct costs
      (252
      )
      
      
      
      
      
      
      
      (252
      )EnMo direct costs
      (530
      )
      
      
      
      
      
      
      
      (530
      )Replacement expenditure
      (405
      )
      
      239
      
      
      166
      
      
      Other operating charges
      (1,848
      )
      
      543
      
      
      320
      
      
      (985
      )(7,788
      )
      
      1,522
      
      
      52
      
      
      (6,214
      )Operating profit
      1,612
      
      
      52
      
      
      53
      
      
      1,717Share of operating profits/(losses) of
        joint ventures and associate
      124
      
      
      1
      
      
      (125
      )
      
      Non-operating expenses
      (99
      )
      
      67
      
      
      27
      
      
      (5
      )Profit before interest and taxation
      1,637
      
      
      120
      
      
      (45
      )
      
      1,712Net interest expense
      (970
      )
      
      203
      
      
      103
      
      
      (664
      )Profit on ordinary activities before
        taxation
      667
      
      
      323
      
      
      58
      
      
      1,048Taxation
      (245
      )
      
      (29
      )
      
      16
      
      
      (258
      )Profit on ordinary activities after taxation
      422
      
      
      294
      
      
      74
      
      
      790Minority interests
      (31
      )
      
      (1
      )
      
      29
      
      
      (3
      )Interest in equity accounted affiliates
      
      
      
      
      
      
      3
      
      
      3Net income from continuing operations
      391
      
      
      293
      
      
      106
      
      
      790Net loss from discontinued operations
      
      
      
      
      
      
      (39
      )
      
      (39
      )Net
          income for the year
      391
      
      
      293
      
      
      67
      
      
      751Basic earnings per share under US GAAP
        (pence)  continuing operations
      
      
      
      
      
      
      
      
      
      33.6Diluted earnings per share under US GAAP
        (pence)  continuing operations
      
      
      
      
      
      
      
      
      
      32.9Basic earnings per ADS under US GAAP
        (pence)  continuing operations
      
      
      
      
      
      
      
      
      
      168.0Diluted earnings per ADS under US GAAP
        (pence)  continuing operations
      
      
      
      
      
      
      
      
      
      164.5Basic earnings per share under US GAAP
        (pence)  discontinued operations
      
      
      
      
      
      
      
      
      
      (1.7
      )Diluted earnings per share under US GAAP
        (pence)  discontinued operations
      
      
      
      
      
      
      
      
      
      (1.6
      )Basic earnings per ADS under US GAAP
        (pence)  discontinued operations
      
      
      
      
      
      
      
      
      
      (8.5
      )Diluted earnings per ADS under US GAAP
        (pence)  discontinued operations
      
      
      
      
      
      
      
      
      
      (8.0
      )Net
            income under US GAAP after £22m dilutive impact of 4.25% Exchangeable
            Bonds 2008
      
      
      
      
      
      
      
      
      
      773Weighted
          average number of shares in issue (million)  for basic EPS
      
      
      
      
      
      
      
      
      
      2,348Weighted
          average number of shares in issue (million)  for diluted EPS
      
      
      
      
      
      
      
      
      
      2,468 Consolidated statement of comprehensive income and changes in shareholders equity under US GAAP  2003
        £mNet income
      751Additional minimum pension liability
        (net of tax credit of £417m)
      (886
      )Exchange adjustments (net of tax credit
        of £12m)
      (322
      )Share of joint ventures other comprehensive
        income
      (10
      )Other
      9Comprehensive loss
      (458
      )Dividends
      (382
      )Shares issued to purchase Lattice
      6,566Other shares issued
      2Share options granted
      29Repurchase of shares
      (97
      )Movement in treasury stock
      7Shareholders equity at 1 April
        2002
      3,759Shareholders
          equity at 31 March 2003
      9,426  Cumulative foreign exchange losses
  recognised in other comprehensive income at 31 March 2003 under US GAAP were
  £365m (2002: £31m; 2001: £22m).


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33.
      Summary US GAAP income statement,
        balance sheet, notes and associated reconciliations(continued)Summary US GAAP income statement(continued) 2002
      
      
      US GAAPadjustments
      
      
      2002National
      
      
      2002
      
      
      2002
      
      
      NationalGrid
      
      
      Lattice pre-
      
      
      Other
      
      
      GridTransco
      
      
      acquisition
      
      
      US GAAP
      
      
      Transco(UK GAAP)
      
      
      (UK GAAP)
      
      
      adjustments
      
      
      (US GAAP)£m
      
      
      £m
      
      
      £m
      
      
      £mTurnover
      7,554
      
      
      (3,153
      )
      
      (4
      )
      
      4,397Operating costsDepreciation
      (750
      )
      
      431
      
      
      3
      
      
      (316
      )Payroll costs
      (946
      )
      
      581
      
      
      (52
      )
      
      (417
      )Purchases of electricity
      (1,410
      )
      
      
      
      
      
      
      
      (1,410
      )Purchases of gas
      (171
      )
      
      113
      
      
      
      
      
      (58
      )Rates and property taxes
      (424
      )
      
      227
      
      
      
      
      
      (197
      )Electricity transmission
        services scheme direct costs
      (204
      )
      
      
      
      
      
      
      
      (204
      )EnMo direct costs
      (395
      )
      
      
      
      
      
      
      
      (395
      )Replacement expenditure
      (368
      )
      
      368
      
      
      
      
      
      Other operating charges
      (1,826
      )
      
      880
      
      
      411
      
      
      (535
      )(6,494
      )
      
      2,600
      
      
      362
      
      
      (3,532
      )Operating profit
      1,060
      
      
      (553
      )
      
      358
      
      
      865Share of operating profits/(losses)
        of joint ventures and associate
      (701
      )
      
      65
      
      
      636
      
      
      Non-operating income
      156
      
      
      (104
      )
      
      (30
      )
      
      22Profit before interest and
        taxation
      515
      
      
      (592
      )
      
      964
      
      
      887Net interest expense
      (799
      )
      
      364
      
      
      295
      
      
      (140
      )Profit on ordinary activities
        before taxation
      (284
      )
      
      (228
      )
      
      1,259
      
      
      747Taxation
      (85
      )
      
      60
      
      
      13
      
      
      (12
      )Profit on ordinary activities
        after taxation
      (369
      )
      
      (168
      )
      
      1,272
      
      
      735Minority interests
      48
      
      
      (4
      )
      
      (46
      )
      
      (2
      )Interest in equity accounted
        affiliates
      
      
      
      
      
      
      (43
      )
      
      (43
      )Net income from continuing
        operations
      (321
      )
      
      (172
      )
      
      1,183
      
      
      690Net loss from discontinued
        operations
      
      
      
      
      
      
      (857
      )
      
      (857
      )Net loss for the year
      (321
      )
      
      (172
      )
      
      326
      
      
      (167
      )Basic earnings per share
        under US GAAP (pence)  continuing operations
      
      
      
      
      
      
      
      
      
      45.2Diluted earnings per share
        under US GAAP (pence)  continuing operations
      
      
      
      
      
      
      
      
      
      43.3Basic earnings per ADS under
        US GAAP (pence)  continuing operations
      
      
      
      
      
      
      
      
      
      226.0Diluted earnings per ADS
        under US GAAP (pence)  continuing operations
      
      
      
      
      
      
      
      
      
      216.5Basic earnings per share
        under US GAAP (pence)  discontinued operations
      
      
      
      
      
      
      
      
      
      (56.1
      )Diluted earnings per share
        under US GAAP (pence)  discontinued operations
      
      
      
      
      
      
      
      
      
      (52.1
      )Basic earnings per ADS under
        US GAAP (pence)  discontinued operations
      
      
      
      
      
      
      
      
      
      (280.5
      )Diluted earnings per ADS
        under US GAAP (pence)  discontinued operations
      
      
      
      
      
      
      
      
      
      (260.5
      )£mNet loss under US GAAP
      
      
      
      
      
      
      
      
      
      (167
      )Dilutive impact of 4.25%
        Exchangeable Bonds 2008
      
      
      
      
      
      
      
      
      
      22Net loss after dilution
      
      
      
      
      
      
      
      
      
      (145
      )Weighted average number
        of shares in issue (million)  for basic EPS
      
      
      
      
      
      
      
      
      
      1,527Weighted average number
        of shares in issue (million)  for diluted EPS
      
      
      
      
      
      
      
      
      
      1,644  Consolidated
    statement of comprehensive income and changes in shareholders equity
    under US GAAP (continued)
  2002£mNet loss
      (167
      )Exchange adjustments (net of tax credit
        of £7m)
      (2
      )Share of associates other comprehensive
        loss
      (5
      )Other
      (4
      )Comprehensive loss
      (178
      )Dividends
      (229
      )Other shares issued
      1,305Share options granted
      5Movement in treasury stock
      (36
      )Share of associates capital transactions
      (33
      )Other
      5Shareholders equity at 1 April
        2001
      2,920Shareholders equity
        at 31 March 2002
      3,759





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Notes to the accountscontinued33.
    Summary US GAAP income statements, balance
      sheets, notes and associated reconciliations(continued)Summary US GAAP income statements(continued) 2001
      
      
      US
        GAAP adjustments
      
      
      2001NationalGridTransco(UK GAAP)£m
      
      
      2001Lattice pre-acquisition
        (UK GAAP)
        £m
      
      
      2001OtherUS GAAPadjustments£m
      
      
      NationalGridTransco(US GAAP)£mTurnover
      6,891
      
      
      (3,091
      )
      
      (17
      )
      
      3,783Operating costsDepreciation
      (665
      )
      
      388
      
      
      3
      
      
      (274
      )Payroll costs
      (736
      )
      
      433
      
      
      (8
      )
      
      (311
      )Purchases of electricity
      (1,248
      )
      
      
      
      
      
      
      
      (1,248
      )Purchases of gas
      (98
      )
      
      98
      
      
      
      
      
      Rates and property taxes
      (390
      )
      
      214
      
      
      
      
      
      (176
      )Electricity transmission services scheme
        direct costs
      (220
      )
      
      
      
      
      
      
      
      (220
      )EnMo direct costs
      (201
      )
      
      
      
      
      
      
      
      (201
      )Replacement expenditure
      (276
      )
      
      276
      
      
      
      
      
      Other operating charges
      (1,345
      )
      
      676
      
      
      60
      
      
      (609
      )(5,179
      )
      
      2,085
      
      
      55
      
      
      (3,039
      )Operating profit
      1,712
      
      
      (1,006
      )
      
      38
      
      
      744Share of operating profits/(losses) of
        joint ventures and associate
      (105
      )
      
      9
      
      
      96
      
      
      Non-operating income
      306
      
      
      (43
      )
      
      (263
      )
      
      Profit before interest and taxation
      1,913
      
      
      (1,040
      )
      
      (129
      )
      
      744Net interest expense
      (635
      )
      
      380
      
      
      118
      
      
      (137
      )Profit on ordinary activities before
        taxation
      1,278
      
      
      (660
      )
      
      (11
      )
      
      607Taxation
      (147
      )
      
      200
      
      
      (245
      )
      
      (192
      )Profit on ordinary activities after taxation
      1,131
      
      
      (460
      )
      
      (256
      )
      
      415Minority interests
      (7
      )
      
      
      
      
      2
      
      
      (5
      )Interest in equity accounted affiliates
      
      
      
      
      
      
      13
      
      
      13Net income from continuing operations
      1,124
      
      
      (460
      )
      
      (241
      )
      
      423Net income from discontinued operations
      
      
      
      
      
      
      387
      
      
      387Net
          income for the year
      1,124
      
      
      (460
      )
      
      146
      
      
      810Basic earnings per share under US GAAP
        (pence)  continuing operations
      
      
      
      
      
      
      
      
      
      28.7Diluted earnings per share under US GAAP
        (pence)  continuing operations
      
      
      
      
      
      
      
      
      
      27.8Basic earnings per ADS under US GAAP
        (pence)  continuing operations
      
      
      
      
      
      
      
      
      
      143.5Diluted earnings per ADS under US GAAP
        (pence)  continuing operations
      
      
      
      
      
      
      
      
      
      139.0Basic earnings per share under US GAAP
        (pence)  discontinued operations
      
      
      
      
      
      
      
      
      
      26.2Diluted earnings per share under US GAAP
        (pence)  discontinued operations
      
      
      
      
      
      
      
      
      
      24.2Basic earnings per ADS under US GAAP
        (pence)  discontinued operations
      
      
      
      
      
      
      
      
      
      131.0Diluted earnings per ADS under US GAAP
        (pence)  discontinued operations
      
      
      
      
      
      
      
      
      
      121.0£mNet income under US GAAP
      
      
      
      
      
      
      
      
      
      810Dilutive impact of 4.25% Exchangeable
        Bonds 2008
      
      
      
      
      
      
      
      
      
      21Net
          income after dilution
      
      
      
      
      
      
      
      
      
      831Weighted
          average number of shares in issue (million)  for basic EPS
      
      
      
      
      
      
      
      
      
      1,476Weighted
          average number of shares in issue (million)  for diluted EPS
      
      
      
      
      
      
      
      
      
      1,596Consolidated
        statement of comprehensive income and changes in shareholders equity
        under US GAAP(continued)2001
        £mNet income
      
      
      
      
      
      
      
      
      
      810Exchange adjustments (net of tax credit
        of £32m)
      
      
      
      
      
      
      
      
      
      29Share of associates other comprehensive
        income
      
      
      
      
      
      
      
      
      
      (47
      )Other
      
      
      
      
      
      
      
      
      
      3Comprehensive income
      
      
      
      
      
      
      
      
      
      795Dividends
      
      
      
      
      
      
      
      
      
      (213
      )Other shares issued
      
      
      
      
      
      
      
      
      
      1Share options granted
      
      
      
      
      
      
      
      
      
      5Movement in treasury stock
      
      
      
      
      
      
      
      
      
      6Share of associates capital transactions
      
      
      
      
      
      
      
      
      
      (15
      )Other
      
      
      
      
      
      
      
      
      
      (5
      )Shareholders equity at 1 April
        2000
      
      
      
      
      
      
      
      
      
      2,346Shareholders
          equity at 31 March 2001
      
      
      
      
      
      
      
      
      
      2,920


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33.
    Summary US GAAP
      income statements, balance sheets, notes and associated reconciliations(continued)Summary US GAAP balance sheet 2003
        £m
      
      2002
        £mAssetsCurrent assetsCash and cash equivalents
      570
      
      178Marketable securities
      48
      
      65Accounts and notes receivable
      628
      
      725Inventories
      126
      
      56Regulatory assets
      407
      
      424Prepaid expenses and other current assets
      705
      
      373Total current assets
      2,484
      
      1,821Property, plant and equipment
      23,087
      
      9,089Goodwill
      5,900
      
      2,223Intangible assets
      74
      
      Investments
      210
      
      252Regulatory assets
      3,491
      
      3,848Other debtors
      843
      
      494Total
          assets
      36,089
      
      17,727Liabilities and shareholders equityCurrent liabilitiesBank overdrafts
      62
      
      37Accounts payable
      1,266
      
      770Short-term borrowings
      1,973
      
      1,136Accrued income taxes
      
      
      30Purchased power obligations
      68
      
      102Liability for index-linked swap contracts
      121
      
      53Other accrued liabilities
      1,067
      
      421Total current liabilities
      4,557
      
      2,549Long-term borrowings
      13,058
      
      6,954Purchased power obligations
      253
      
      362Liability for index-linked swap contracts
      381
      
      408Other liabilities
      3,638
      
      1,663Deferred income taxes
      4,687
      
      1,929Total
          liabilities
      26,574
      
      13,865Minority interest  equity
      15
      
      19Cumulative preference stock issued by
        Group undertakings
      74
      
      84Shareholders equityCommon stock
      308
      
      178Additional paid in capital
      7,710
      
      1,253Other reserves
      359
      
      359Retained earnings
      2,263
      
      1,982Other comprehensive (loss)/income
      (1,175
      )
      33Treasury stock
      (39
      )
      (46
      )Equity
          shareholders funds
      9,426
      
      3,759Total
          liabilities and shareholders equity
      36,089
      
      17,727





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Notes to the accounts continued 33.
      Summary US GAAP
        income statements, balance sheets, notes and associated reconciliations(continued)Segmental information under US GAAP 2003
        £m
      
      2002
        £m
      
      2001
        £mTurnover by business segmentContinuing operationsUK gas distribution
      
      1,239
      
      
      
      UK electricity and gas transmission
      
      1,662
      
      1,322
      
      1,430US electricity transmission
      
      400
      
      278
      
      243US electricity distribution
      
      3,446
      
      2,278
      
      1,854US gas
      
      446
      
      104
      
      Other
      
      915
      
      443
      
      281Sales between businesses
      
      (177
      )
      (28
      )
      (25
      )Group
          turnover  continuing operations
      
      7,931
      
      4,397
      
      3,783Operating profit by business
        segmentContinuing operationsUK gas distribution
      
      567
      
      
      
      UK electricity and gas transmission
      
      596
      
      540
      
      521US electricity transmission
      
      116
      
      95
      
      62US electricity distribution
      
      446
      
      240
      
      162US gas
      
      52
      
      17
      
      Other
      
      (60
      )
      (27
      )
      (1
      )Group
          undertakings  continuing operations
      
      1,717
      
      865
      
      744 Turnover and operating profit in the
        other segment relates primarily to Europe.Tangible fixed
        assets
      
      Goodwill2003
        £m
      
      2002
        £m
      
      2003
        £m
      
      2002
        £mAnalysis by business segmentContinuing operationsUK gas distribution
      
      10,153
      
      
      
      3,040
      
      UK electricity and gas transmission
      
      6,338
      
      3,570
      
      753
      
      US electricity transmission
      
      1,286
      
      1,431
      
      403
      
      438US electricity distribution
      
      2,971
      
      3,253
      
      1,433
      
      1,558US gas
      
      641
      
      694
      
      135
      
      141Other
      
      1,698
      
      141
      
      136
      
      8623,087
      
      9,089
      
      5,900
      
      2,223Analysis by location of customer and
        group undertakingEurope
      
      18,131
      
      3,624
      
      3,848
      
      North America
      
      4,897
      
      5,456
      
      2,052
      
      2,223Rest of the World
      
      59
      
      9
      
      
      
      23,087
      
      9,089
      
      5,900
      
      2,223




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33.
      Summary US GAAP
        income statements, balance sheets, notes and associated reconciliations(continued)Reconciliation of net income from UK to US GAAP
        The following is a summary of the material adjustments to net income which
        would have been required if US GAAP had been applied instead of UK GAAP: 2003
        £m
      
      
      2002
        £m
      
      
      2001
        £mNet income/(loss) under UK
        GAAP
      
      
      391
      
      
      (321
      )
      
      1,124Adjustments to conform with
        US GAAPElimination of Lattice pre-acquisition
        results, measured under UK GAAP
      
      
      293
      
      
      (172
      )
      
      (460
      )Merger costs
      
      
      32
      
      
      
      
      
      Deferred taxation
      
      
      7
      
      
      7
      
      
      (27
      )Pensions
      
      
      35
      
      
      29
      
      
      19Share option schemes
      
      
      (29
      )
      
      (5
      )
      
      (5
      )Fixed assets  purchase of Lattice
      
      
      (169
      )
      
      
      
      
      Replacement expenditure
      
      
      166
      
      
      
      
      
      Financial instruments
      
      
      40
      
      
      (83
      )
      
      (55
      )Carrying value of EPICs liability
      
      
      2
      
      
      203
      
      
      153Severance and integration costs
      
      
      (110
      )
      
      67
      
      
      23Recognition of income
      
      
      2
      
      
      (4
      )
      
      (17
      )Goodwill
      
      
      70
      
      
      78
      
      
      (2
      )Restructuring  purchase of Lattice
      
      
      46
      
      
      
      
      
      Share of joint ventures and associates
        adjustments
      
      
      (27
      )
      
      37
      
      
      56Other
      
      
      2
      
      
      (3
      )
      
      1360
      
      
      154
      
      
      (314
      )Net
          income/(loss) under US GAAP
      
      
      751
      
      
      (167
      )
      
      810 Reconciliation
        of equity shareholders funds from UK to US GAAPThe 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:2003
        £m
      
      
      2002
        £mEquity shareholders
        funds under UK GAAP
      
      
      1,152
      
      
      1,690Adjustments to conform with
        US GAAPElimination of Lattice shareholders
        funds
      
      
      
      
      
      1,506Deferred taxation
      
      
      (1,593
      )
      
      (52
      )Pensions
      
      
      (1,800
      )
      
      217Shares held by employee share trusts
      
      
      (39
      )
      
      (46
      )Ordinary dividends
      
      
      317
      
      
      169Tangible fixed assets  reversal
        of partial release of impairment provision
      
      
      (35
      )
      
      (38
      )Fixed assets  impact of Lattice
        purchase accounting and replacement expenditure
      
      
      7,243
      
      
      Financial instruments
      
      
      (253
      )
      
      (81
      )Issue costs associated with EPICs
      
      
      
      
      
      2Carrying value of EPICs liability
      
      
      243
      
      
      241Severance liabilities
      
      
      3
      
      
      15Recognition of income
      
      
      (27
      )
      
      (22
      )Regulatory assets
      
      
      241
      
      
      34Goodwill  purchase of Lattice
      
      
      3,829
      
      
      Goodwill  other acquisitions
      
      
      179
      
      
      105Restructuring  purchase of Lattice
      
      
      (6
      )
      
      Share of joint ventures and associates
        adjustments
      
      
      (17
      )
      
      21Other
      
      
      (11
      )
      
      (2
      )8,274
      
      
      2,069Equity
          shareholders funds under US GAAP
      
      
      9,426
      
      
      3,759





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Notes to the
        accounts continued33.
      Summary US GAAP
        income statements, balance sheets, notes and associated reconciliations(continued)Group cash flow statement
        The Group accounts include a cash flow statement prepared in accordance
        with UK Financial Reporting Standard 1 (Revised 1996) Cash Flow
        Statements (FRS 1 (revised)), the objectives and principles
        of which are substantially the same as US Statement of Financial Accounting
        Standard 95 Statement of Cash Flows (SFAS 95)
        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 nine 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 investments with original maturities of three months or less.Set out below is a summary
        of the Group cash flow statement under US GAAP: 2003
      
      
      2002
      
      
      2001£m
      £m
      £mNet cash provided by operating activities
        (i)
      1,834
      
      
      902
      
      
      425Investing activitiesPayments to acquire tangible fixed assets
      (1,004
      )
      
      (500
      )
      
      (472
      )Acquisition of Group undertakings (net
        of cash acquired)
      338
      
      
      (934
      )
      
      (441
      )Payments to acquire investments
      (163
      )
      
      (50
      )
      
      (337
      )Receipts from disposal of investments
      328
      
      
      37
      
      
      196Net movement in investments with an original
        maturity date of more than three months
      
      
      
      193
      
      
      19Other
      31
      
      
      54
      
      
      (25
      )Net cash used in investing activities
        (ii)
      (470
      )
      
      (1,200
      )
      
      (1,060
      )Net cash (used in)/provided by financing
        activities (iii)
      (962
      )
      
      222
      
      
      (104
      )Net increase/(decrease) in cash and cash
        equivalents
      402
      
      
      (76
      )
      
      (739
      )Cash and cash equivalents at beginning
        of year
      178
      
      
      259
      
      
      977Exchange adjustments
      (10
      )
      
      (5
      )
      
      21Cash and cash equivalents
        at end of year
      570
      
      
      178
      
      
      259 Set out below
        is an explanation of the reconciliation from US GAAP to UK GAAP cash flow
        headings:(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 the management of liquid resources which comprises deposits
        with an original maturity of more than three months.(iii)
      Net cash (used in)/provided
        by financing activities comprises equity dividends paid, financing, including
        costs relating to the issue of debt and movements in bank overdrafts. 34.
      Principal differences
        between UK and US accounting principlesThe principal differences
        between UK and US GAAP, as applied in preparing the Group accounts under
        US GAAP, are set out below:Acquisition (purchase)
        accounting adjustments (including elimination of merger costs)In order to determine the allocation
        of purchase price relating to the acquired assets and liabilities of Lattice
        under US GAAP purchase accounting, the cost of acquisition has been calculated
        using the market value of the shares issued, the fair value of vested
        options exchanged and direct external acquisition costs and then allocated
        to the fair value of net assets acquired. As a result of the fair value
        exercise, increases in the value of Lattices tangible fixed assets,
        financial instruments, pension obligations and restructuring provisions
        were recognised and market values attributed to its intangible fixed assets,
        mainly product licences, patents and trademarks, together with the recognition
        of appropriate deferred taxation effects. The difference between the cost
        of acquisition and the fair value of the separable assets and liabilities
        of Lattice has been recorded as goodwill. Additional depreciation in respect
        of the fair value of tangible fixed assets will be recorded over their
        respective economic useful lives.The adjustments to the assets
        and liabilities of Lattice to reflect the fair values and allocation of
        the excess purchase consideration over the fair values of net assets acquired,
        based on managements best estimates of fair value, are discussed
        below. The fair value adjustments to UK gas transmission and distribution
        fixed assets, pensions, restructuring provision and the related deferred
        tax thereon are provisional and may be subject to revision during the
        year ending 31 March 2004.a) The total purchase consideration
        was calculated by multiplying the number of National Grid shares issued
        to Lattice shareholders for all outstanding Lattice shares by the average
        fair value of National Grid shares. The average fair value of National
        Grid shares was calculated over a period of five business days, including
        two days prior to and two days subsequent to the announcement of the Merger
        on 22 April 2002.The total purchase consideration,
        which included merger costs of £32m that were expensed under UK
        GAAP, also included the fair value of Lattice vested options exchanged
        for vested options in National Grid Transco.The total number of Lattice
        vested options was multiplied by the respective fair value of each of
        the ordinary shares and ADR plans determined at 22 April 2002.b) The increase in the fair
        value of tangible fixed assets primarily relates to UK gas transmission
        and distribution. It was determined by calculating the value in use of
        these businesses. Value in use represents the present value of expected
        future cash flows discounted on a pre-tax basis, using the estimated cost
        of capital. Future cash flows are based on a five-year plan, projected
        out to perpetuity. The fair value of other fixed assets, largely gas metering
        assets, was determined using their depreciated replacement costs, based
        on current costs of replacing meters and expected remaining useful economic
        lives.c) The fair value attributed
        to pension obligations reflects the recognition of previously unrecognised
        actuarial gains and losses, prior service costs and transition amounts.
        The amounts recognised are based on actuarial assessments at the acquisition
        date.


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34.
      Principal
        differences between UK and US accounting principles(continued)Acquisition
        (purchase) accounting adjustments (including elimination of merger costs)(continued)d)
      The fair value attributed
        to intangible fixed assets relates to licences, patents and trade marks
        and has been determined based on discounted future cash flows.e)
      Restructuring costs (£60m)
        represent the costs being incurred in respect of the integration of activities
        within the newly merged Group and relate primarily to redundancy and property
        relocation costs.f)
      Deferred taxes have been
        computed on the excess of the fair value over book value, other than for
        goodwill, using the applicable statutory UK tax rate.g)
      Goodwill represents the
        remainder of unallocated purchase consideration.The fair value
        of consideration, assets and liabilities and the resulting goodwill is
        set out in the table below: Assets
      £mTotal current assets
      1,336Property, plant and equipment
      14,148Intangible assets
      20Other assets
      6Total assets
      15,510LiabilitiesTotal current liabilities
      2,656Long-term borrowings
      5,935Pensions
      535Other liabilities
      470Deferred income taxes
      3,129Total liabilities
      12,725Net assets
      2,785Consideration
      6,598Goodwill
      3,813 Acquisitions  pro forma resultsThe following unaudited pro forma summary
        gives effect to the acquisitions of Lattice and Niagara Mohawk, as if
        the acquisitions had taken place on 1 April 2001. The pro forma summary
        combines the actual consolidated results of the Group (excluding the effect
        of the acquisitions in the actual period that they took place) and the
        results of Lattice and Niagara Mohawk after giving effect to certain adjustments.
        These adjustments include estimates of the effect of adopting the final
        fair value adjustments, and the increased net interest expense, together
        with the associated tax effects, as a result of financing the acquisition
        of Niagara Mohawk. In addition, the earnings per share calculation has
        been adjusted as if the shares issued to acquire Lattice and Niagara Mohawk
        were issued on the assumed date of acquisition for the purposes of preparing
        the pro forma summary. The pro forma 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. Continuing
        operations
      2003
      
      2002£m
      
      £mTurnover
      9,332
      
      7,879Net income
      580
      
      957pence
      
      penceEarnings per share
      18.9
      
      31.2Diluted earnings per share
      18.8
      
      30.1pence
      
      penceEarnings per ADS
      94.5
      
      156.0Diluted earnings per ADS
      94.0
      
      150.5 Deferred taxationUnder UK GAAP, deferred taxation is provided
        in full on all material timing differences with certain exceptions, as
        outlined in Accounting Policies  Deferred taxation and investment
        tax credits. 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.





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Notes to the
      accounts continued34.
    Principal differences
        between UK and US accounting principles(continued)Deferred taxation(continued)The deferred tax
      liability under US GAAP is analysed as follows: 2003
      
      2002£m
      
      £mDeferred taxation liabilities:Excess of book value over taxation value
        of fixed assets
      4,955
      
      1,714Other temporary differences
      1,229
      
      1,3766,184
      
      3,090Deferred taxation assets:Other temporary differences
      (1,497
      )
      (1,161
      )4,687
      
      1,929Analysed as follows:Current
      31
      
      12Non-current
      4,656
      
      1,9174,687
      
      1,929  Pensions Under UK GAAP, pension costs have
  been accounted for in accordance with UK Statement of Standard Accounting Practice
  (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 US Statements of Financial
  Accounting Standards (SFAS) 87 and 88 and pension disclosures are presented
  in accordance with SFAS 132. Differences between UK GAAP and US GAAP figures
  arise from the requirement to use different actuarial methods and assumptions
  and a different method of amortising certain surpluses and deficits. Under US
  GAAP, the Company has estimated the effect on net income and shareholders
  equity assuming the adoption and application of SFAS 87 Employers
  Accounting for Pensions as of 1 April 1996, as the adoption of SFAS 87
  on the actual effective date of 1 April 1989 was not feasible. The unrecognised
  transition asset at 1 April 1989, using the financial assumptions at 1 April
  1996, amounted to £172m 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 £3m (2002: £30m; 2001:
  £63m) 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 charge/(credit)
  for pensions and other post-retirement benefits is as follows:
  Pensions
      
      Other post-retirement
        benefits2003
      
      2002
      
      2001
      
      2003
      
      2002
      
      2001£m
      
      £m
      
      £m
      
      £m
      
      £m
      
      £mService cost
      78
      
      30
      
      25
      
      8
      
      5
      
      3Interest cost
      456
      
      125
      
      111
      
      59
      
      29
      
      21Settlements
      19
      
      (12
      )
      
      
      
      
      
      
      Expected return on assets
      (490
      )
      (160
      )
      (142
      )
      (32
      )
      (21
      )
      (17
      )Amortisation of prior service cost
      5
      
      4
      
      3
      
      
      
      
      
      Amortisation of previously unrecognised
        losses
      4
      
      
      
      
      
      2
      
      
      
      Amortisation of transitional asset
      (11
      )
      (11
      )
      (11
      )
      
      
      
      
      61
      
      (24
      )
      (14
      )
      37
      
      13
      
      7Release of pension provision
      (2
      )
      (2
      )
      (2
      )
      
      
      
      
      59
      
      (26
      )
      (16
      )
      37
      
      13
      
      7  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:
  2003
      
      2002
      
      2001£m
      
      £m
      
      £mCost of termination benefits
        and curtailments
      
      
      
      
      
      
      
      119
      
      46
      
      4The principal
        financial assumptions used for the SFAS 87 calculations in respect of
        the US and UK defined benefit schemes are shown below:US
      
      UK2003
      
      2002
      
      2001
      
      2003
      
      2002
      
      2001%
      
      %
      
      %
      
      %
      
      %
      
      %Discount rate
      
      6.3
      
      7.5
      
      7.3
      
      5.4
      
      6.0
      
      5.5Return on assets
      
      8.5
      
      7.5  9.0
      
      8.8
      
      6.3  7.1
      
      7.0
      
      5.8General salary increases
      
      3.25  5.25
      
      3.25  4.5
      
      4.0
      
      3.5
      
      3.8
      
      3.3Pension increases
      
      nil
      
      nil
      
      nil
      
      2.6
      
      2.9
      
      2.5 The assumptions used for other
  post-retirement costs relate solely to US schemes. These assumptions were that
  the discount rate used would be 6.25% and that medical costs would increase
  by 10%, decreasing to 5% by 2008 and remain at 5% thereafter.


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34.
    Principal differences
      between UK and US accounting principles(continued)Pensions(continued)A
      reconciliation of the funded status of the Group pension and other post-retirement
      schemes to the (accrued benefit liability)/prepaid cost that would appear
      in the Groups balance sheet if prepared under US GAAP is as follows: Pensions
      
      Other post-retirement
        
        benefits2003
        £m
      
      2002
        £m
      
      2003
        £m
      
      2002
        £mProjected benefit obligation
      
      (15,030
      )
      (2,953
      )
      (1,004
      )
      (884
      )Fair value of plan assets
      
      12,115
      
      2,698
      
      373
      
      397Excess of projected benefit obligation
        over plan assets
      
      (2,915
      )
      (255
      )
      (631
      )
      (487
      )Unrecognised transition asset
      
      (11
      )
      (23
      )
      
      
      Unrecognised net loss
      
      2,508
      
      417
      
      336
      
      83Unrecognised prior service cost/(credit)
      
      57
      
      65
      
      (1
      )
      (2
      )(Accrued benefit liability)/prepaid cost
         before minimum liability adjustment
      
      (361
      )
      204
      
      (296
      )
      (406
      )Additional minimum liability adjustment
      
      (1,583
      )
      
      
      
      
      (Accrued
          benefit liability)/prepaid cost
      
      (1,944
      )
      204
      
      (296
      )
      (406
      )  In 2003, as required under SFAS
  87, an intangible asset of £57m has been recognised in relation to the
  additional minimum liability, being equal to the unrecognised prior service
  cost. A regulatory asset of £221m has also been created. The remaining
  additional minimum liability of £1,303m (before exchange adjustment of
  £2m) has been charged to other comprehensive income. All pension schemes
  have an additional minimum liability adjustment. The accumulated benefit obligation
  for pensions is £14,059m. The Group has followed approach two of Emerging
  Issues Task Force (EITF) Abstract 88-1 in calculating the accumulated benefit
  obligation. Changes in the projected benefit obligation and changes in the fair
  value of plan assets are shown below:
  Pensions
      
      Other
        post-retirement
        benefits2003
        £m
      
      2002
        £m
      
      2003
        £m
      
      2002£mProjected benefit obligation at start
        of year
      
      2,953
      
      1,906
      
      884
      
      316Service cost
      
      78
      
      30
      
      8
      
      5Interest cost
      
      456
      
      125
      
      59
      
      29Plan participants contributions
      
      10
      
      5
      
      
      
      Plan amendment  prior service cost
      
      8
      
      23
      
      
      
      (2
      )Terminations and curtailments
      
      100
      
      40
      
      
      
      7Settlements
      
      (109
      )
      
      
      
      
      Actuarial loss
      
      1,212
      
      118
      
      195
      
      25Benefits paid
      
      (423
      )
      (140
      )
      (54
      )
      (26
      )Acquisition of Group undertakings
      
      10,908
      
      901
      
      
      
      532Transfers
      
      (1
      )
      (50
      )
      
      
      Exchange adjustments
      
      (162
      )
      (5
      )
      (88
      )
      (2
      )Projected
          benefit obligation at end of year
      
      15,030
      
      2,953
      
      1,004
      
      884Fair value of plan assets at start of
        year
      
      2,698
      
      2,096
      
      397
      
      203Actual return on assets
      
      (437
      )
      19
      
      (35
      )
      10Employer contributions
      
      150
      
      23
      
      68
      
      16Plan participants contributions
      
      10
      
      5
      
      
      
      Benefits paid
      
      (423
      )
      (140
      )
      (18
      )
      (20
      )Acquisition of Group undertakings
      
      10,373
      
      739
      
      
      
      189Transfers
      
      
      
      (40
      )
      
      
      Settlements
      
      (109
      )
      
      
      
      
      Exchange adjustments
      
      (147
      )
      (4
      )
      (39
      )
      (1
      )Fair
          value of plan assets at end of year
      
      12,115
      
      2,698
      
      373
      
      397 It is estimated that a 1% change in the assumed
        healthcare cost trends would increase or decrease the accumulated post-retirement
        benefit obligation at 31 March 2003 by £106m (2002: £91m)
        and £96m (2002: £82m) respectively. The net periodic cost
        for the year ended 31 March 2003 would increase or decrease by £8m
        and £7m respectively (2002: immaterial).
 Share
      compensation plans
 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.


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Notes to the accountscontinued34.
    Principal differences
      between UK and US accounting principles(continued)Share
      option schemes(continued)Under
        US GAAP, a charge is made against net income based on the fair value of
        grants in accordance with SFAS 123 Accounting for Stock Based Compensation.
        Disclosures are provided in accordance with SFAS 123 and SFAS 148 Accounting
        for Stock Based Compensation  Transition and Disclosure  an
        amendment of FAS No. 123.The average fair
      value of the options granted during each of the three financial years ended
      31 March 2003 are estimated as follows: 2003
      
      2002
      
      2001Where the exercise price is less than
        the market price at the date of grant
      123.0
      p
      158.0
      p
      155.0
      pWhere the exercise price is equal to
        the market price at the date of grant
      50.0
      p
      62.0
      p
      68.0
      pWhere the exercise price is greater than
        the market price at the date of grant
      
      
      
      
      65.0
      pThe fair value of the options
        granted are estimated using the Black-Scholes European option pricing
        model using the following principal assumptions:2003
      
      2002
      
      2001Dividend yield (%)
      3.5
      
      3.5
      
      2.7Volatility (%)
      35.0
      
      30.0
      
      30.0Risk-free investment rate (%)
      4.4
      
      5.4
      
      5.9Average life (years)
      4.0
      
      4.2
      
      4.0  The compensation cost charged
  is £29m for the year ended 31 March 2003 (2002: £5m; 2001: £5m).
 Further details of the Groups share based
        plans are given in note 23, pages 82 to 85.
 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 
        reversal of partial release of impairment provisionDuring 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.
 Fixed
      assets  impact of Lattice purchase accounting and replacement expenditure  Under UK GAAP, the combination of National
      Grid and Lattice has been accounted for as a merger (pooling of interests)
      while under US GAAP this transaction is accounted for as an acquisition
      (purchase accounting) of Lattice by National Grid. Consequently, under US
      GAAP the tangible fixed assets of Lattice have been recorded at their fair
      value at the date of purchase and depreciation subsequent to acquisition
      is calculated on that fair value.
  In addition,
      under UK GAAP the Group charges to the profit and loss account replacement
      expenditure on certain components of plant and equipment, which is principally
      undertaken to repair and to maintain the safety of the pipeline system.
      Under US GAAP such expenditure is capitalised and depreciated over the assets
      useful lives.
  Financial
      instruments  Under UK GAAP, derivative financial instruments
      that qualify for hedge accounting are recorded at their historical cost,
      if any, and are not remeasured. 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,
      changes in the fair value of derivatives are 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. The related issue costs were written
      off in the year of issue. Under US GAAP, the issue costs were deferred and
      written off over the period to the date of redemption of the EPICs on 6
      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 20.


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34.
    Principal differences
      between UK and US accounting principles(continued)Regulatory
      assetsSFAS 71 Accounting for Certain Types of Regulation establishes
      US GAAP for utilities whose regulators have the power to approve and/or
      regulate rates that may be charged to customers. Provided that through the
      regulatory process the utility is substantially assured of recovering its
      allowable costs by the collection of revenue from its customers, such costs
      not yet recovered are deferred as regulatory assets. Due to the different
      regulatory environment, no equivalent accounting standard applies in the
      United Kingdom.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 incomeUnder 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, where prices would be reduced
      in a future period.Severance
      and integration costsUnder UK GAAP, severance costs are provided
      for in the accounts if it is determined that a constructive or legal obligation
      has arisen from a restructuring programme where it is probable that it will
      result in the outflow of economic benefits and the costs involved can be
      estimated with reasonable accuracy. Under US GAAP, severance costs are recognised
      when the employees accept the severance offer. In addition, where the number
      of employees leaving results in a significant reduction in the accrual of
      pension benefits for employees future service (a curtailment under
      US GAAP), the effects are reflected as part of the cost of such termination
      benefits. Accordingly, timing differences between UK and US GAAP arise on
      the recognition of such costs.Goodwill
       purchase of LatticeUnder UK GAAP the combination of National
      Grid and Lattice has been accounted for as a merger (pooling of interests)
      while under US GAAP this transaction is accounted for as an acquisition
      (purchase accounting) of Lattice by National Grid. In accordance with US
      GAAP, goodwill arising on the purchase has been capitalised, but is not
      amortised.Goodwill
       other acquisitionsUnder 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 differs 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, principally
      20 years. Under US GAAP, goodwill is not amortised, but is reviewed periodically
      for impairment.Restructuring
       purchase of LatticeUnder 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.Share
      of joint ventures and associates adjustmentsThe Groups share of the associated
      undertakings results and net assets, which also impact on the exceptional
      profit on disposal of investments and assets held for exchange, have been
      adjusted to conform with US GAAP.Other
      differences between UK and US GAAPUK 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 associate 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.Under UK GAAP,
      the impact of discontinued operations on turnover, operating costs and operating
      profit is required to be accounted for and disclosed separately from continuing
      operations. Under US GAAP, the net income/(loss) from discontinued operations
      is required to be separately accounted for and disclosed 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 144 Accounting for the Impairment or Disposal
      of Long-Lived Assets 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 2003.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  see note 33.





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Notes
      to the accounts continued34.
    Principal differences
      between UK and US accounting principles(continued)New
      US Accounting Standards adopted during 2002/03
      National Grid Transco has adopted either in whole or in part the following
      US GAAP Statements of Financial Accounting Standards (SFAS) which were issued
      by the Financial Accounting Standards Board (FASB) during the year:SFAS 144 Accounting
      for the Impairment or Disposal of Long-Lived Assets;SFAS 145 Rescission
      of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13
      and Technical Corrections; SFAS 146 Accounting for Costs Associated
      with Exit or Disposal Activities; SFAS 148 Accounting for Stock-Based
      Compensation  Transition and Disclosure  An amendment of FASB
      Statement No. 123; and FASB Interpretation No. 45 (FIN 45) Guarantors
      Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Guarantees of Indebtedness of Others.SFAS 144 replaces
      SFAS 121, but does not fundamentally alter the required accounting for either
      the recognition and measurement of the impairment of long-lived assets to
      be held and used or for the measurement of long-lived assets to be disposed
      of by sale. As a consequence, in this regard the application of this accounting
      standard has had no impact on the Group. SFAS 144 also supersedes the accounting
      and reporting provisions of Accounting Principles Board No. 30 (APB 30),
      principally with regard to the reporting of discontinued operations. The
      Group accounts have been prepared in accordance with SFAS 144, and the associated
      accounting and disclosures obligations complied with accordingly.SFAS 145 amends
      a number of accounting standards. The principal impact of compliance with
      this standard on the Group has been the recording of £12m of pre-tax
      losses relating to the extinguishment of debt as part of ordinary activities.
      Prior to the implementation of SFAS 145, such losses would have been reported
      as extraordinary items net of the related tax effect.SFAS 146 has addressed
      significant issues relating to the recognition, measurement and reporting
      of costs associated with exit and disposal activities, including restructuring
      activities. These provisions have been complied with in the preparation
      of the Group accounts and have not had any material impact on the results
      or financial condition of the Group.SFAS 148 provides
      additional transition guidance for those entities that elect to voluntarily
      adopt the accounting provisions of SFAS 123 Accounting for Stock-Based
      Compensation. Prior to the adoption by the Group of SFAS 148, the
      Group had continued to account for stock compensation costs in accordance
      with APB 25. The Group adopted the retroactive restatement method of accounting,
      resulting in the restatement of the income statement and balance sheet under
      US GAAP for each period presented.FIN 45 elaborates
      on the disclosures to be made by a guarantor about its obligations under
      certain guarantees that it has issued, and also requires the recording of
      liabilities at fair value associated with the issuance of any guarantees
      since 31 December 2002. The disclosure provisions of FIN 45 have been considered
      in the identification and reporting of obligations in the Group accounts
      and the measurement provisions have similarly been considered in respect
      of any guarantees issued since 31 December 2002.New
      US Accounting Standards and pronouncements not yet effectiveSFAS 143 Accounting for Asset Retirement
      Obligations requires entities to record the fair value of an asset
      retirement obligation arising in the period from legal obligations
      associated with the disposal of tangible fixed assets. This standard is
      applicable to the Group with effect from 1 April 2003. The application of
      this standard is not expected to have any material impact on the results
      or financial condition of the Group.On 17 January
      2003, the FASB issued Interpretation No. 46, (FIN 46) Consolidation
      of Variable Interest Entities (VIE). Under FIN 46, certain entities
      labelled Variable Interest Entities, must be consolidated by
      the primary beneficiary of the entity. The primary beneficiary
      is generally defined as the party exposed to the majority of the risks and
      rewards arising from the VIE. For VIEs in which a significant variable interest
      is held that is not a majority interest, certain disclosures are required.
      Full implementation of this interpretation to pre-existing entities is required
      from 1 July 2003; FIN 46 is applicable to any new VIEs with effect from
      1 February 2003, but the Company has not entered into any arrangements that
      meet the definition of a VIE since this date.SFAS 149 Amendment
      of Statement 133 on Derivative Instruments and Hedging Activities
      clarifies the circumstances in which a contract with an initial net investment
      meets the characteristic of a derivative and when a derivative contains
      a financing component. In addition, the statement amends the definition
      of an underlying to conform to language used in FIN 45 Guarantors
      Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Guarantees of Indebtedness of Others, and certain other existing pronouncements.
      The statement is effective prospectively for contracts entered into or modified,
      and for hedging relationships designated, after 30 June 2003. The application
      of this standard is not expected to have a material impact on the results
      or the financial condition of the Group.


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Summary Group
    Financial Information Financial summary (unaudited)
        The financial summary set out below
        has been derived from the audited consolidated accounts of National Grid
        Transco for the three financial years ended 31 March 2003. It should be
        read in conjunction with the Group accounts and related notes, together
        with the Operating and Financial Review. It is not practicable to derive
        the information for years prior to 2001 due to the different year end
        of Lattice and the fact that Lattice had not been demerged from BG Group
        for the years ended 31 March 1999 and 2000. 31
          March
      
      
      31
          March
      
      
      31
          March2003
      2002
      2001£m
      £m
      £mSummary profit and loss accountGroup turnover
      9,400
      
      
      7,554
      
      
      6,891Operating costs
      (7,788
      )
      
      (6,494
      )
      
      (5,179
      )Operating profit of Group undertakings
      1,612
      
      
      1,060
      
      
      1,712Share of joint ventures and associates
        operating profit/(loss)
      124
      
      
      (701
      )
      
      (105
      )Operating profit Before exceptional items and goodwill
        amortisation
      2,185
      
      
      1,783
      
      
      1,780 Exceptional items
      (347
      )
      
      (1,327
      )
      
      (88
      ) Goodwill amortisation
      (102
      )
      
      (97
      )
      
      (85
      )1,736
      
      
      359
      
      
      1,607Non-operating exceptional items
      (99
      )
      
      156
      
      
      306Net interest Excluding exceptional items
      (939
      )
      
      (657
      )
      
      (635
      ) Exceptional items
      (31
      )
      
      (142
      )
      
      Profit/(loss) on ordinary activities
        before taxation
      667
      
      
      (284
      )
      
      1,278Tax on profit on ordinary activities
         excluding exceptional items
      (373
      )
      
      (251
      )
      
      (390
      )Tax on profit on ordinary activities
         exceptional items
      128
      
      
      166
      
      
      243Profit/(loss) on ordinary activities
        after taxation
      422
      
      
      (369
      )
      
      1,131Minority interests including exceptional
        items
      (31
      )
      
      48
      
      
      (7
      )Profit/(loss)
          for the year
      391
      
      
      (321
      )
      
      1,124Summary statement of net assetsFixed assets
      18,993
      
      
      19,635
      
      
      15,696Current assets
      5,950
      
      
      6,568
      
      
      2,960Creditors: amounts falling due within
        one year
      (5,046
      )
      
      (4,888
      )
      
      (4,034
      )Net
          current assets/(liabilities)
      904
      
      
      1,680
      
      
      (1,074
      )Total assets less current liabilities
      19,897
      
      
      21,315
      
      
      14,622Creditors: amounts falling due after
        more than one year
      (14,255
      )
      
      (14,868
      )
      
      (9,793
      )Provisions for liabilities and charges
      (4,406
      )
      
      (4,663
      )
      
      (3,434
      )Net
          assets
      1,236
      
      
      1,784
      
      
      1,395Summary cash flow statementNet cash inflow from operating activities
        before exceptional items
      3,154
      
      
      2,394
      
      
      2,482Expenditure relating to exceptional items
      (328
      )
      
      (103
      )
      
      (129
      )Net cash inflow from operating activities
      2,826
      
      
      2,291
      
      
      2,353Dividends from joint ventures
      11
      
      
      13
      
      
      20Net cash outflow for returns on investments
        and servicing of finance
      (912
      )
      
      (705
      )
      
      (691
      )Net cash outflow for taxation
      (112
      )
      
      (212
      )
      
      (350
      )Net cash outflow for capital expenditure
        and financial investment
      (1,407
      )
      
      (1,483
      )
      
      (1,179
      )Net cash inflow/(outflow) for acquisitions
        and disposals
      163
      
      
      (969
      )
      
      (587
      )Equity dividends paid
      (571
      )
      
      (478
      )
      
      (336
      )Net cash outflow before the management
        of liquid resources and financing activities
      (2
      )
      
      (1,543
      )
      
      (770
      )Net cash (outflow)/inflow for the management
        of liquid resources
      (138
      )
      
      347
      
      
      696Net cash outflow b
        efore financing activities
      (140
      )
      
      (1,196
      )
      
      (74
      )Net cash inflow from financing activities
      174
      
      
      1,218
      
      
      59Net
          increase/(decrease) in cash in the year
      34
      
      
      22
      
      
      (15
      ) Amounts in accordance with US GAAP31
          March
      
      31
          March
      
      31
          March
      
      31
          March
      
      31
          March2003
      2002
      2001
      2000
      1999£m
      £m
      £m
      £m
      £mGroup turnover
      7,931
      
      4,397
      
      3,783
      
      1,615
      
      1,514Net income/(loss)
      751
      
      (167
      )
      810
      
      1,010
      
      1,003Earnings/(loss) per ADSBasic
      159.5
      p
      (54.5
      )p
      274.5
      p
      342.8
      p
      341.9
      pDiluted
      156.5
      p
      (44.0
      )p
      260.0
      p
      323.4
      p
      322.1
      pTotal assets
      36,089
      
      17,727
      
      10,392
      
      9,106
      
      5,190Net assets employed/total shareholders
        funds
      9,515
      
      3,862
      
      2,962
      
      2,381
      
      1,464Equity shareholders funds
      9,426
      
      3,759
      
      2,920
      
      2,346
      
      1,464





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Glossary of
    Terms Term used in annual reportAccounts Acquisition accounting 
    Allotted 
    Associate 
    Called up share capital 
    Capital allowances 
    Creditors 
    Debtors 
    Equity shareholders funds 
    Finance lease 
    Financial year 
    Fixed asset investments 
    Freehold 
    Freehold land 
    Group accounts 
    Interest payable 
    Interest receivable 
    Joint venture 
    Net asset value 
    Operating profit 
    Pension scheme 
    Profit 
    Profit and loss account 
    Profit and loss account (reserve) 
    Profit for the year 
    Provision for doubtful debts 
    Provisions 
	Reconciliation of movements in equity shareholders
    funds 
    Reserves
    Share capital
	Share premium account Stocks Tangible fixed assets 
  Turnover


US equivalent or brief descriptionFinancial statements 
    Purchase accounting 
    Issued
    Equity investment Common stock issued and fully paidTax term equivalent to US tax depreciation
    allowances 
    Accounts payable (or payables) 
    Accounts receivable (or receivables) 
    Shareholders equity 
    Capital lease 
    Fiscal year 
    Non-current investments 
    Ownership with absolute rights in perpetuity 
    Land owned 
    Consolidated financial statements 
    Interest expense 
    Interest income 
    Equity investment 
    Book value 
    Net operating income 
    Pension plan 
    Income (or earnings) 
    Income statement 
    Retained earnings 
    Net income 
    Allowance for bad and doubtful accounts receivable 
    Long-term liabilities other than debt and specific accounts payable 
    Statement of changes in stockholders equity 
    Stockholders equity other than common stock 
    Ordinary shares, capital stock or common stock issued and fully paid 
    Additional paid-in capital relating to proceeds of sale of stock in excess
    of par value or paid-in surplus (not distributable) 
    Inventories 
    Property, plant and equipment 
    Revenues (or sales)


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Definitions

ADRs American Depositary Receipts, negotiable certificates
  representing holdings in ADSs. ADSs American Depositary Shares, each of which represents
  the right to receive five ordinary shares. bcf Billion cubic feet. Company or National Grid Transco
  National Grid Transco plc. DC Direct current. Demerger The demerger of Lattice from BG Group plc which
  became effective on 23 October 2000. EMFs The electric and magnetic fields produced by
  all electrical equipment and appliances. FERC Federal Energy Regulatory Commission. Gridcom The Groups communications infrastructure
  business. Group National Grid Transco and/or its subsidiary undertakings
  or any of them as the context requires. GW Gigawatt, 109watts. GWh Gigawatt hours. HSE Health and Safety Executive. kV Kilovolt, 103volts. kW Kilowatt, 103watts.




kWh Kilowatt hours. Lattice or Lattice Group
  Lattice Group plc and/or its subsidiary undertakings
  or any of them as the context requires immediately prior to the completion of
  the Merger. LNG Liquefied natural gas. LTI Lost Time Injury. A work-related injury that
  caused the person to be away from work for at least one normal shift after the
  shift on which the injury occurred, because he/she is unfit to perform his/her
  duties. mcm Million cubic metres. Merger The merger of Lattice and National Grid which
  became effective on 21 October 2002. MJ/cuM Megajoules per cubic metre. MW Megawatt, 106watts. MWh Megawatt hours. National Grid or National Grid
  Group National Grid Group plc and/or its subsidiary
  undertakings or any of them as the context requires immediately prior to the
  completion of the Merger. National Grid Company or NGC
  National Grid Company plc. National Grid Transco or the
  Company National Grid Transco plc. National Grid USA
  The US holding company which owns the Groups
  US electricity, gas and telecommunications interests.




Niagara Mohawk
    Niagara Mohawk Holdings Inc., the US utility
    acquired by National Grid on 31 January 2002. NTS or National Transmission
  System The UK national gas transmission system owned
  and operated by Transco. Ofgem The Office of Gas and Electricity Markets which
  on 16 June 1999 became the new name for the combined Office of Electricity Regulation
  and Office of Gas Supply. pence or p United Kingdom (UK) currency. pound(s) sterling or £
  United Kingdom (UK) currency. PUHCA Public Utility Holding Company Act of 1935. SEC United States Securities and Exchange Commission. ordinary shares
  Ordinary shares of 10 pence each in the capital
  of National Grid Transco. tonnes CO2equivalent Measure of greenhouse gas emissions in relation
  to the impact of carbon dioxide. TW Terawatt, 1012watts. TWh Terawatt hours. Transco Transco plc. US dollars, US$ or $
  United States (US) currency.





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| | Independent
      Verifiers Report on Operating Responsibly
| | ------------------------------------------------------------




Verification objectives and scopeURS Verification Ltd (URSVL)
          has been commissioned by National Grid Transco to provide independent
          assurance of the Operating Responsibly section (pages 21 to 25), herein
          referred to as the report, of National Grid Transcos
          Annual Report and Accounts 2002/03.This assurance
        process focused on assessing governance arrangements and reviewing information
        presented in the report. This did not include a review of data presented
        in the report. These priorities were agreed between URSVL and National
        Grid Transco to be appropriate following the merger of National Grid and
        Lattice in October 2002.Objectives included
        assessment of the:
      robustness of corporate
        responsibility systems to enable delivery of Group performance;
      appropriateness of corporate
        metrics to demonstrate and communicate National Grid Transcos management
        of impacts and risks; and
      content and coverage of
        the report including the balance of issues.Based on the
        above objectives, URSVL focused the interview process at a Group level
        and conducted a selection of interviews with senior managers in the three
        most significant business units in the UK and USA-National Grid Company,
        Transco and National Grid USA.Responsibilities
        of Directors and VerifiersThe information contained in the 2002/03 Annual Report and Accounts is
        the sole responsibility of the Directors of National Grid Transco. This
        verification statement represents the independent opinion of URSVL in
        relation to the report. URSVL was not involved in the development of this
        material or associated corporate systems.URSVL has carried
        out its services by checking samples of information and documents which
        have been made available to URSVL by National Grid Transco. Accordingly,
        URSVL has not checked or reviewed all of National Grid Transcos
        information and documents. The verification statement provided herein
        by URSVL is not intended to be used as advice or as the basis for any
        decisions, including, without limitation, financial or investment decisions.




Verification method
    The approach followed by URSVL is aligned to
    International Accreditation Forum IAF Guide 66, Guidance to Guide 66-EA-7/02
    and EN 45012, frameworks for bodies operating independent assessment and certification
    of management systems. URSVL auditors conducted the verification process following
    the general principles of auditing and audit procedures as contained within
    the international standard, ISO 19011 and with consideration of the new assurance
    standard, AA1000. Corporate responsibility
    In URSVLs opinion, National Grid Transco
    has established clear roles and responsibilities at Board, Group and business
    unit levels, since the Merger. Appropriate Group policies for a number of
    key issues have been developed based on National Grid Transcos Framework
    for Responsible Business, with further policies under consideration. Whilst
    communication and implementation of the new policies has commenced, this should
    be seen as an ongoing process, building on the established safety and environment
    systems in place in the business units. National Grid Transco has also developed
    a systematic methodology for identifying and assessing Group-wide operational
    risks including corporate responsibility issues. There was a good awareness
    of the defined risks and the mechanisms for their management amongst the personnel
    interviewed. However, it was noted that the register defines the risks in
    general terms and greater clarity of the risks as presented in the register
    may assist in ongoing use and understanding of this document. Furthermore,
    internal reporting mechanisms on safety and environment performance are well
    established at Board, Group and business unit levels. However, the internal
    performance reporting to the Board does not cover all key defined corporate
    responsibility risks.




Content and coverage of the reportIn URSVLs opinion, the report text which focuses on key risks
          defined by National Grid Transco covers the appropriate corporate responsibility
          issues for the Group. The qualitative information provided is also considered
          fair, balanced across the business, and includes reporting of sensitive
          issues. The metrics in the report reflect where existing data was available,
          however these are not completely aligned with the internal reporting
          process.Areas for
        development of corporate responsibility and reportingTo build on this first corporate responsibility report by National Grid
        Transco and its internal strategy and systems, the following represent
        primary areas for consideration:
      further dissemination and
        implementation of policies across the Group building on existing systems;
      increased effectiveness
        in communication from Group to business unit level to strengthen integration
        of cultures and systems;
      greater clarity in the descriptions
        of risks covered in the risk register to ensure complete understanding
        of the risks covered;
      review and consider inclusion
        of additional metrics in the internal and external reporting process to
        reflect a broader range of corporate risks to increase robustness of the
        corporate responsibility process; and
      documenting and communicating
        targets and trends to increase openness and transparency of National Grid
        Transcos performance.  David Westwood 
    Director For and on behalf of URS Verification Ltd 
    London 
    May 2003


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Investor
    InformationMarket pricesThe following table sets out the highest
    and lowest market prices for the periods indicated: Ordinary
        shares
    
      ADSsHigh (p)
    
    Low (p)
    
    High ($)
    
    Low ($)1998/99
      552.75
    
      359.00
    
      45.625
    
      29.7501999/2000
    597.00
    
    388.50
    
    48.125
    
    31.8752000/01
    646.00
    
    479.50
    
    47.875
    
    37.0002001/02
    581.00
    
    417.25
    
    41.750
    
    30.400Quarter 1
    581.00
    
    518.00
    
    41.750
    
    36.900Quarter 2
    536.00
    
    424.50
    
    37.500
    
    31.640Quarter 3
    502.00
    
    417.25
    
    36.040
    
    30.400Quarter 4
    471.50
    
    434.50
    
    33.610
    
    31.1102002/03
    511.50
    
    365.75
    
    37.400
    
    29.690Quarter 1
    511.50
    
    459.00
    
    37.400
    
    32.870Quarter 2
    472.25
    
    402.25
    
    36.500
    
    31.400Quarter 3
    480.00
    
    418.00
    
    37.140
    
    32.800October 2002
    480.00
    
    451.50
    
    37.140
    
    35.300November
      2002
    453.00
    
    429.00
    
    36.160
    
    33.500December
      2002
    456.50
    
    418.00
    
    36.790
    
    32.800Quarter 4
    448.00
    
    365.75
    
    35.920
    
    29.690January 2003
    448.00
    
    384.00
    
    35.920
    
    32.060February
      2003
    421.00
    
    391.00
    
    33.560
    
    31.630March 2003
    417.00
    
    365.75
    
    32.610
    
    29.690April 2003
    418.00
    
    394.00
    
    33.180
    
    31.060May 2003*
    421.00
    
    400.50
    
    34.250
    
    32.100*For the period to 20 May 2003 Exchange ratesThe following table sets out the $ to
  £ exchange rates as indicated: Period end ($)
      
      Average ($) **
      
      High ($)
      
      Low ($)1998/99
      1.61
      
      1.65
      
      1.72
      
      1.601999/2000
      1.59
      
      1.61
      
      1.68
      
      1.552000/01
      1.42
      
      1.47
      
      1.60
      
      1.402001/02
      1.42
      
      1.44
      
      1.48
      
      1.372002/03
      1.58
      
      1.55
      
      1.65
      
      1.43October 2002
      
      
      
      
      1.57
      
      1.54November 2002
      
      
      
      
      1.59
      
      1.54December 2002
      
      
      
      
      1.61
      
      1.56January 2003
      
      
      
      
      1.65
      
      1.60February 2003
      
      
      
      
      1.65
      
      1.57March 2003
      
      
      
      
      1.61
      
      1.56April 2003
      
      
      
      
      1.60
      
      1.55May 2003*
      
      
      
      
      1.64
      
      1.59** The average rate is calculated
        using the exchange rates on the last day of each month during the period Trading markets for ordinary
          sharesNational Grid Transcos
          shares have been listed on the London Stock Exchange since 11 December
          1995. National Grid Transcos ADRs have had a full listing on the
          New York Stock Exchange since 7 October
          1999.
        Exchange controlsThere are currently no UK laws,
          decrees or regulations that restrict the export or import of capital,
          including, but not limited to, foreign exchange control restrictions,
          or that affect the remittance of dividends, interest 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, Myanmar (formerly 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).
        Defaults, dividend
          arrearages and delinquenciesThere has been no material default
          in the payment of principal, interest, a sinking or purchase fund instalment
          or any other material default with respect to the 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. TaxationThe following summary describes the principal
  US Federal income and UK tax consequences to beneficial owners of ADSs or ordinary
  shares who are residents of the United States. The summary is not a complete
  analysis or listing of all 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%
  or more of the voting share capital of National Grid Transco. 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 representation 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
  Transco, the Depositary and the registered holders of ADRs pursuant to which
  ADRs have been issued dated as of 21 November 1995 and amended and restated
  as of 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 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 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. The US and UK signed a new convention for the
  avoidance of double taxation with respect to income and capital gains on 24
  July 2001 (the New Treaty). The New Treaty entered into force following
  the exchange of instruments of ratification on 31 March 2003 and is effective
  for withholding taxes beginning 1 May 2003. This summary is based on the income
  tax treaty in effect at the end of National Grid Transcos taxable year
  31 March 2003 (the





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Investor Information continued Old Treaty), with
    a brief summary of the impact of the New Treaty on future distributions and
    disposals. 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 Old Treaty. Taxation of dividendsThe tax credit to which UK resident
    individual shareholders are generally entitled in respect of any dividend
    on their ordinary shares and which they can set against their total income
    tax liability is equal to one-ninth of the cash dividend (10% of the aggregate
    of the tax credit and the cash dividend). Under the terms of the 1975
    Income Tax Convention, effective for withholding tax purposes through to 30
    April 2003, dividends paid to US shareholders controlling less than 10% of
    the voting capital of National Grid Transco are not subject to withholding
    taxes in the United Kingdom. The 1975 Income Tax Convention technically allows
    such US shareholders to claim the refundable tax credit for dividends which
    is available to UK shareholders. The amount of such credit is one-ninth of
    the cash distribution (10% of the aggregate of the credit and the cash dividend).
    If claimed by a US shareholder, however, the 1975 Income Tax Convention requires
    the credit to be reduced by 15% of the sum of the dividend and the credit,
    resulting in no net refundable credit. Under the terms of the 2003
    Income Tax Convention, effective for withholding tax purposes beginning on
    1 May 2003, the United Kingdom is allowed to impose a 15% withholding tax
    on dividends paid to US shareholders controlling less than 10% of the voting
    capital of National Grid Transco. The United Kingdom does not, however, currently
    impose a withholding tax on such dividends. If it were to impose such a tax,
    the treaty provides for an exemption from withholding taxes for dividends
    paid on shares held through a tax exempt pension fund, 401(k) plan, or similar
    pension scheme. The 2003 Income Tax Convention eliminates the
    refundable tax credit provision found in the prior treaty. To obtain benefits
    under the New Treaty, a US holder must comply with the limitations on benefits
    article. Taxation of capital gainsA US Holder who is not resident
    or ordinarily resident for UK tax purposes in the UK will not be liable for
    UK taxation on




capital gains realised or accrued on the sale or other disposal of ADSs or
    ordinary shares unless the US Holder carries on a trade, profession or vocation
    in the UK through a branch or agency and such ADSs or ordinary shares are
    or have been used, held or acquired for the purposes of such trade, profession
    or vocation or such branch or agency. A US Holder will be liable for US Federal
    income tax on gains on the sale of ADSs or ordinary shares to the same extent
    as on any other gains from sales of stock. Gain, if any, will generally be
    US source. A US citizen who is resident
          or ordinarily resident in the UK, a US corporation which is resident
          in the UK by reason of its business being managed and controlled in
          the UK or a US citizen who, or a 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 nonresidence
          (of up to five years) following an earlier period of residence in the
          UK may also be liable to UK capital gains tax. The taxation of capital
          gains remains broadly unchanged under the New Treaty. However, a US
          Holder must comply with the limitation on benefits article in the New
          Treaty in order to obtain treaty benefits. UK stamp duty and stamp
          duty reserve tax (SDRT)Transfers of ordinary shares:Generally speaking SDRT at
          the rate of 0.5% 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% (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%, 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 ADSs:No
          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 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%
          of either (i) in the case of an issue of ordinary shares, the issue
          price of the ordinary shares concerned, or (ii) in the case of a transfer
          of ordinary shares, the value of the consideration or, in some circumstances,
          the value of the ordinary shares concerned. The Depositary will generally
          be liable for the stamp duty or SDRT. In accordance with the terms of
          the Depositary Agreement, the Depositary will charge any tax payable
          by the Depositary or the Custodian (or their nominees) on the deposit
          of ordinary shares to the party to whom the ADSs are delivered against
          such deposits. If the stamp duty is not already a multiple of £5,
          the duty will be rounded up to the nearest multiple of £5. US information reporting and backup
          withholdingA US resident Holder who holds
          ADSs may in certain circumstances be subject to information reporting
          to the IRS and possible US backup withholding at a rate of 30% with
          respect to dividends on ADSs and proceeds from the sale or other




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disposition
          of ADSs unless such holder furnishes a correct taxpayer identification
          number or is otherwise exempt. UK inheritance taxAn individual who is domiciled in the US for the purposes of the convention
          between the US and the UK for the avoidance of double taxation with
          respect to estate and gift taxes (the Estate Tax Convention)
          and who is not a national of the UK for the purposes of the Estate Tax
          Convention will generally not be subject to UK inheritance tax in respect
          of the ADSs on the individuals death or on a gift of the ADSs
          during the individuals lifetime, unless the ADSs are part of the
          business property of a permanent establishment of the individual in
          the UK or pertain to a fixed base in the UK of an individual who performs
          independent personal services. Special rules apply to ADSs held in trust.
          In the exceptional case where the shares are subject both to UK inheritance
          tax and to US Federal gift or estate tax, the Estate Tax Convention
          generally provides for the tax paid in the UK to be credited against
          tax paid in the US. Memorandum and Articles of AssociationThe following description is a summary
    of the material terms of National Grid Transcos share capital and material
    provisions of the Memorandum and Articles of Association of National Grid
    Transco (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 Transcos authorised share capital is 5,000,000,000 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 Transco from
    the holders of such shares. General:National
          Grid Transco is incorporated under the name National Grid Transco 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 Transco a broad range of corporate powers to effect these
          objectives. Directors:The Articles provide that
    unless otherwise determined by an ordinary resolution of the Companys
    shareholders, the number of Directors shall not be fewer 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 Transco, (b)
    giving any guarantee, security or indemnity to a third party in respect of
    obligations of National Grid Transco for which the Director has assumed responsibility
    under an indemnity or guarantee, (c) an offer of securities of National Grid
    Transco 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 1% of that other company,
    (e) any arrangement for the benefit of employees of National Grid Transco
    under which he benefits in a similar manner as the employees and (f) any contract
    concerning any insurance that National Grid Transco 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 Transco 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
          Transco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 reappointed as a Director at either of the last
          two annual general meetings before that meeting. At each annual general
          meeting 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 Transco in order to qualify as a Director. The Special Share:Any
          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 Transco and subject to the provisions of the Companies Act, require
          National Grid Transco 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 Transco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. 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 persons who are bound by the Balancing
          and Settlement Code or who are 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 who are 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 the Company with voting rights attached, not being: (i) shares comprised
          or shares which would, following issue, be comprised in the relevant
          share capital (as defined in section 198(2) of the Companies Act) of
          the Company; or (ii) shares which do not or shares which, following
          issue, would not constitute equity share capital (as defined in section
          744 of the Companies Act) and which, when aggregated with all other







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Investor Information continued such shares, carry (or would, if in issue carry) the right to cast less than 15% of the maximum number of votes capable of being cast on a poll on any resolution at any general meeting of the Company (whether or not
the votes could be cast on a poll in relation to all resolutions at all general meetings); (c) the variation of any rights (save for dividend rights and rights to repayment of capital) attached to any shares in National Grid Transco; (d) the disposal by the Company or the disposal by any other member of the Group, to any person who is not a member of the Group, of all or any of the shares or of any rights or interests therein held by such company
in the Transmission Licence Holder or in any company which directly or indirectly holds shares therein, or the entering into by the Company or any other member of the Group of any agreement or arrangement with any person who is not a member of the
Group with respect to, or to the exercise of any rights attaching to, such shares; (e) the giving by the Company of any consent or agreement to (including, without limitation, the casting of any vote in favour of) any amendment, removal or alteration of the effect of Article 10 of the Articles of
Association of Transco plc (company number 2006000) or of the equivalent article in the Articles of Association of each Relevant Subsidiary (as defined in the Articles); (f) the giving by the Company (or any Relevant Subsidiary) of any consent or agreement to (including, without limitation, the casting of any vote in favour of) the creation or issue of any shares in the capital of
Transco plc (or any Relevant Subsidiary) other than an issue of such shares following which the Company will own (directly or through any Relevant Subsidiary) the full legal and beneficial interest in, and control, shares in the capital of Transco
plc carrying at least 85% of the voting rights exercisable at general meetings of Transco plc (as defined in the Articles); (g) the disposal by the Company (or any Relevant Subsidiary) of any of the shares in Transco plc held by it (or any Relevant Subsidiary) or of any rights or interests therein or the entering into by the Company (or any
Relevant Subsidiary) of any agreement or arrangement with respect to, or to the exercise of any voting or other rights attaching to, such shares such that the Company would cease (directly or through any Relevant Subsidiary) to own the full legal
and beneficial interest in, and control, shares in the capital of Transco plc carrying at least 85% of the voting rights exercisable




at general meetings of Transco plc. For these purposes, disposal
    shall include any sale, gift, lease, licence, loan, mortgage, charge or the
    grant of any other encumbrance or the permitting of any encumbrance to subsist
    (other than a floating charge over the whole of the Companys or Relevant
    Subsidiarys assets), or any other disposition to a third party; (h) the giving by the Company
    (or any Relevant Subsidiary) of any consent or agreement to (including, without
    limitation, the casting of any vote in favour of) any abrogation, variation,
    waiver or modification of any of the rights or privileges attaching to any
    shares of any class in Transco plc (or any Relevant Subsidiary) such that
    the Company would cease (directly or through any Relevant Subsidiary) to own
    the full legal and beneficial interest in, and control, shares in the capital
    of Transco plc carrying at least 85% of the voting rights exercisable at any
    general meeting of Transco plc; (i) without limitation to any
    of the foregoing, any act or omission to act by the Company or the Board (or
    any Relevant Subsidiary or its board of directors) which results in the Company
    ceasing (directly or through any Relevant Subsidiary) to own the full legal
    and beneficial interest in, and control, shares in the capital of Transco
    plc carrying at least 85% of the voting rights exercisable at general meetings
    of Transco plc; (j) any scheme of arrangement
    which if put into effect would relieve the Transmission Licence Holder or
    any other Affiliate of the Company of, or otherwise modify, the obligation
    required to be imposed on such person by the Company; (k) the voluntary winding-up
    of the Company, a special resolution to the effect that the Company should
    be wound up by the court, the presentation by the Company or by the Directors
    (whether solely or jointly with each other or with any other person) of a
    petition for the winding-up of the Company by the court or any proposal for
    any of the foregoing; (l) the presentation by the
    Company (whether solely or jointly with any other person) of a petition to
    the court for, or the exercise by the Company of any rights in support of,
    the winding-up of the Transmission Licence Holder or any proposal for either
    of the foregoing; (m) the presentation by the
    Company or by the Directors (whether solely or jointly with each other or
    with any other person) of a petition applying for an administration order
    pursuant to section 9 of the Insolvency Act 1986 or any proposal thereof;




(n) the proposal by the Board of a voluntary arrangement pursuant to section
    1 of the Insolvency Act 1986; and (o) save with respect to a Qualifying Reorganisation (as defined in the Articles), the establishment of a holding company for the Company. Ordinary Shares Dividends and Other Distributions:National Grid Transco 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 Transco 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 Transco 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 Transco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. Dividends 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 Transco 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 Transco,
payment 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 Transco 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.




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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 Transco 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 Transco. In a winding-up, a liquidator may, with the sanction of a special resolution of National Grid Transco and any other sanction required by applicable provisions of English law, (a) divide among the shareholders the whole
or any part of National Grid Transco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% or more of any class of National Grid Transco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 Transco 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 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 Transco held by him: (a) if all monies presently
    payable by him in respect of that share have not been paid; (b) 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% of their class, within 28
    days of service of the notice); or (c) 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
    Transco 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: (a) 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; (b) any holder of shares of
    that class present in person or by proxy may demand a poll; and (c) 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 Capital:National
    Grid Transco may by ordinary resolution increase, consolidate and divide and
    subdivide its share capital. Subject to applicable provisions of English law,
    National Grid Transco 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 holders of any class of shares, National Grid
    Transco may purchase all or any of its shares of any class (including any
    redeemable shares). General Limitations on Shareholdings:The 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% or more of the total votes attaching to the relevant share capital (as defined in the Companies Act) of
National Grid Transco 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% by selling shares within 21 days of the notice (or such 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% 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 Transco 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 Transco 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


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Investor Informationcontinued




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. Shareholding Restrictions on Persons who
    are bound by the Balancing and Settlement Code or Licence Holders:The 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 1% or more of the total votes attaching to the relevant share
    capital of National Grid Transco 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 Holder:The Articles provide that National Grid Transco must procure 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 shall not be held by any person which is not National Grid Transco or a wholly-owned subsidiary of
National Grid Transco; (b) National Grid Transco and its wholly-owned subsidiaries shall 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 Transco
  nor any affiliate of National Grid Transco 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 Transco nor any
  affiliate of National Grid Transco 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 Transco or any wholly-owned subsidiary of National
  Grid Transco) is permitted to be a director of National Grid Transco 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 clear
    days. An Extraordinary General Meeting must be convened upon advance written
    notice of 21 clear days for the passing of a special resolution and 14 days
    for any other resolution. 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-Residents: There
  are no restrictions under National Grid Transco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 Transco 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% in nominal amount of any class of the share capital of National Grid Transco, in addition to disenfranchisement, the
sanctions that may be applied by National Grid Transco 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 3% or more in any class of shares constituting an English public companys relevant
share capital (ie National Grid Transcos issued share capital carrying the right to vote in all circumstances at a general meeting of National Grid Transco) is required to notify the company of its interest within two business days
following the day on which the obligation arises. After the 3% level is exceeded, similar notifications must be made in respect of increases or decreases of 1% 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 (i) that corporate body or its directors generally act in accordance with that persons directions or instructions or (ii) 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 (eg those held by certain investment fund managers) may be disregarded for the purposes of calculating the 3% threshold, but the obligations of disclosure will still
apply where those interests exceed 10% or more of any class of the companys relevant share capital and to increases or decreases of 1% 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


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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 fulfil the obligations imposed by those provisions of the Companies Act described above is subject to criminal penalties. Material contractsSave for the contracts described below, no
    contracts (other than contracts entered into in the ordinary course of business)
    have been entered into by the Group: within the two years immediately preceding
    the date of this document which are, or may be material; or which contain
    any provision under which any member of the Group has any obligation or entitlement
    which is material to the Group at the date of this document. (a) Credit agreement dated 22 November 2001
    between National Grid Transco plc (as guarantor and borrower); NGG Finance
    plc (as borrower); HSBC Investment Bank plc (the facility 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. An agreement to extend $1.5 billion of
    the 364 day multicurrency revolving credit facility for a further 364 days
    to 20 November 2003 was signed on 20 November 2002.




(b)  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%
        guaranteed bonds due 2006 and the€750,000,000
        6.125% guaranteed bonds due 2011 issued by NGG Finance plc and guaranteed
        by National Grid Transco.Documents on displayNational Grid Transco is subject
        to the filing requirements of the US Securities Exchange Act of 1934.
        In accordance with these requirements, National Grid Transco 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 Transcos registered office at 1-3
        Strand, London WC2N 5EH 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 Transcos filings are also available on the SECs
        website at www.sec.gov.ExhibitsThe following have been filed
        with the Securities and Exchange Commission or will so be filed with the
        2002/03 Form 20-F:1
      
      Memorandum and Articles
        of Association of National Grid Transco plc2(a)
      
      Amended and restated Deposit
        Agreement dated as of 31 January 20024(a)
      (i)
      Credit agreement dated22 November 2001 between National
        Grid Transco plc (as guarantor and borrower); NGG Finance plc (as borrower);
        HSBC Investment Bank plc (the facility 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. An agreement to extend $1.5 billion of the
        364 day multicurrency revolving credit facility for a further 364 days
        to20 November 2003 was signed on20 November 2002.




(ii)
      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%
        guaranteed bonds due 2006 and the€750,000,000
        6.125% guaranteed bonds due 2011 issued by NGG Finance plc and guaranteed
        by National Grid Transco.4(b)
      (i)
      Service Agreement 
        Edward Astle(ii)
      Service Agreement 
        Steve Holliday(iii)
      Service Agreement 
        Steve Lucas(iv)
      Service Agreement 
        Sir John Parker(v)
      Employment Agreement 
        Rick Sergel(vi)
      Service Agreement 
        Nick Winser(vii)
      Service Agreement 
        John Wybrew4(c)
      (i)
      National Grid Executive
        Share Option Plan 2002(ii)
      National Grid Group Share
        Matching Plan 2002(iii)
      National Grid Transco Performance
        Share Plan 2002(iv)
      National Grid Executive
        Share Option Plan 2000(v)
      National Grid Executive
        Share Option Scheme(vi)
      Lattice Long Term Incentive
        Scheme6
      Earnings per
        share  see note 11 to the accounts8
      List of subsidiaries12(a)
          Certifications
        pursuant to 18 U.S.C.Section 1350
        as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


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Cross
        Reference to Form 20-FItem
      
      
      PagePART I1
      
      Identity of Directors, Senior
        Management and Advisers.
      n/a2
      
      Offer Statistics and Expected Timetable.
      n/a3
      
      Key Information.A
      Selected Financial DataFinancial summary
      107Dividends
      31Exchange rates
      111B
      Capitalisation and Indebtedness
      n/aC
      Reasons for the Offer and Use of Proceeds
      n/aD
      Risk Factors
      534
      
      Information on the Company.A
      History and Development of the Company
        Overview of National Grid Transco
      10History and development of the business
      10Incorporation
      55Operating and Financial Review
      29B
      Business OverviewChief Executives Review
      4Business Review
      10Operating and Financial Review
      29C
      Organisational StructureNote 32 Group undertakings and joint
        ventures
      93D
      Property, Plant and EquipmentUK gas distributionBackground informationFixed assets
      11UK electricity and gas transmission
      13Background information
      13Fixed assetsUS electricity and gas networks
      15Background information
      16Fixed assets
      195
      
      Operating and Financial Review and
        Prospects.A
      Operating ResultsOperating and Financial Review
      29B
      Liquidity and Capital Resources Liquidity,
        resources and capital expenditure
      33C
      Research and Development, Patents and
        Licences etc Research and development
      55D
      Trend InformationBusiness Review
      10Operating and Financial Review
      29Changes and developments
      38E
      ReservedF
      ReservedG
      Reserved




Item
      
      Page6
      
      Directors, Senior Management and Employees.A
      Directors and Senior Management Board
        of Directors
      26B
      CompensationDirectors Remuneration Report
      44Note 7 Pension and post-retirement benefits
      68C
      Board PracticesDirectors service contracts
      47Corporate Governance and Internal Control
      41D
      EmployeesNote 5 Payroll costs and employees
      67E
      Share OwnershipDirectors Remuneration Report
      44Employee share ownership
      24Note 23 Share capital
      827
      
      Major Shareholders and Related Party
        Transactions.A
      Major ShareholdersSubstantial shareholdings
      119Voting rights of substantial shareholders
      119Distribution of shares by type of shareholder and size of shareholding
      119B
      Related Party TransactionsRelated party transactions
      38Note 16 Debtors
      76Note 18 Creditors
      76Note 30 Related party transactions
      91C
      Interests of Experts and Counsel
      n/a8
      
      Financial Information.A
      Consolidated Statements and Other Financial
        Information Statement of Directors responsibilities for preparing
        the accounts
      55Independent Auditors Report
      56Accounting Policies
      57Group Profit and Loss Account
      60Balance Sheets
      61Group Cash Flow Statement
      62Notes to the Accounts
      63Dividend policy
      32B
      Significant ChangesChanges
        and developments
      389
      
      The Offer and Listing.A
      Offer and Listing DetailsMarket prices
      111B
      Plan of Distribution
      n/aC
      MarketsTrading markets for ordinary shares
      111D
      Selling Shareholders
      n/aE
      Dilution
      n/aF
      Expenses of the Issue
      n/a




Item
      
      Page10
      
      Additional Information.A
      Share CapitalNote 23 Share capital
      82B
      Memorandum and Articles
        of Association
      113C
      Material Contracts
      117D
      Exchange Controls
      111E
      Taxation
      111F
      Dividends and Paying Agents
      n/aG
      Statement by Experts
      n/aH
      Documents on Display
      117I
      Subsidiary Information
      n/a11
      
      Quantitative and Qualitative
        Disclosures About Market Risk.Refinancing risk management
      35Interest rate risk management
      35Foreign exchange risk management
      35Counterparty risk management
      3512
      
      Description of Securities
        Other than Equity Securities.A
      Debt Securities
      n/aB
      Warrants and Rights
      n/aC
      Other Securities
      n/aD
      American Depositary Shares
      n/aPART II13
      
      Defaults, Dividend Arrearages
        and Delinquencies.
      11114
      
      Material Modifications
        to the Rights of Security Holders and Use of Proceeds.
      n/a15
      
      Controls and Procedures.Evaluation of disclosure
        controls and procedures
      4316
      
      Reserved.PART III17
      
      Financial Statements.See Item 1818
      
      Financial Statements.Statement of Directors
        responsibilities for preparing the accounts
      55Independent Auditors
        Report
      56Accounting Policies
      57Group Profit and Loss Account
      60Balance Sheets
      61Group Cash Flow Statement
      62Notes to the Accounts
      6319
      
      Exhibits.
      117


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Shareholder
    Statistics Distributions of shares by type of shareholder and size of shareholding The following analyses of shareholdings are as at 20 May 2003: Shareholders
      Number
          ofHolders
      
      Numberof shares
      
      %
          of issuedshare capital
      
      Shareholdings
      
      Number
          ofHolders
      
      Numberof shares
      
      %
          of issuedshare capitalADSs (a)
      1
      
      80,667,316
      
      2.62
      
      1-100
      
      684,779
      
      40,534,719
      
      1.32Banks
      30
      
      103,317,054
      
      3.36
      
      101-500
      
      674,757
      
      140,413,620
      
      4.56Electricity companies (b)
      7
      
      277,658
      
      0.01
      
      501-1,000
      
      67,772
      
      46,570,888
      
      1.51Individuals
      1,462,213
      
      329,915,052
      
      10.72
      
      1,001-5,000
      
      44,348
      
      86,107,088
      
      2.80Insurance companies
      14
      
      20,962,387
      
      0.68
      
      5,001-10,000
      
      2,881
      
      19,524,988
      
      0.64Nominee companies (c)
      13,313
      
      2,414,140,796
      
      78.45
      
      10,001-50,000
      
      1,608
      
      33,478,609
      
      1.09Other corporate bodies
      710
      
      26,663,976
      
      0.87
      
      50,001-100,000
      
      325
      
      23,498,327
      
      0.76Pension funds
      51
      
      167,315
      
      0.01
      
      100,001-500,000
      
      628
      
      147,472,659
      
      4.79Other limited
      
      
      
      
      
      
      500,001-1,000,000
      
      155
      
      107,080,422
      
      3.48and public companies
      1,260
      
      101,109,470
      
      3.28
      
      1,000,001 and above
      
      346
      
      2,432,539,704
      
      79.05Total
      1,477,599
      
      3,077,221,024
      
      100.00
      
      Total
      
      1,477,599
      
      3,077,221,024
      
      100.00  (a) ADSs are listed on the New York
          Stock Exchange. Each ADS represents five National Grid Transco ordinary
          shares. Holdings in ADSs are registered with The Bank of New York, the
          US depositary, that holds the ordinary shares represented by all ADSs.
        In addition to the number of ordinary
          shareholders shown there are approximately 18,200 beneficial and 23,110
          registered holders of ADSs.
        Substantial shareholdingsAs at 20 May 2003, National Grid Transco
          had been notified of the following beneficial interests in 3% or more
          of its issued share capital:
      
      (b) In accordance with National
        Grid Transco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% or more in the voting share capital of National Grid Transco.
      
      (c) Nominee companies typically
        hold shares on behalf of banks, insurance companies, investment trusts,
        pension funds and ISA investors.


|                                                                                                                                                                                                                                                      |             |  | %
        of issued   | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- |  | --------------------- | 
|                                                                                                                                                                                                                                                      | Shares      |  | share
        capital | 
|                                                                                                                                                                                                                                                      |             |  |                       | 
|The Capital Group Companies, Inc.                                                                                                                                                                                                                     | 215,635,632 |  | 7.00                  | 
|Legal and General Investment Management
      Ltd                                                                                                                                                                                                     | 104,964,080 |  | 3.41                  | 
|                                                                                                                                                                                                                                                      |             |  |                       | 
|No further notifications have
      been received. All ordinary shares have the same voting rights. The only
      other issued share in the capital of the Company is the Special Share. Details
      of the Special Share are set out on page 113. |            
|                                                                                                                                                                                                                                                      |             |  |                       | 
|Financial
      Calendar                                                                                                                                                                                                                              |             |  |                       | 
|                                                                                                                                                                                                                                                      |             |  |                       | 
|The following dates have been announced
      or are indicative of future dates:                                                                                                                                                                      |             |  |                       | 

|                    |                                                                  | 
|------------------- | ---------------------------------------------------------------- | 
|28 May 2003         | Ordinary
        shares go ex-dividend                           | 
|                    |                                                                  | 
|30 May
        2003 | Record
        date for 2002/03 final dividend                   | 
|                    |                                                                  | 
|21 July 2003        | Annual
        General Meeting                                   | 
|                    |                                                                  | 
|20 August 2003      | 2002/03 final dividend
        paid to qualifying shareholders   | 
|                    |                                                                  | 
|20 November 2003    | 2003/04 interim results                                          | 
|                    |                                                                  | 
|26 November 2003    | Ordinary shares go ex-dividend                                   | 
|                    |                                                                  | 
|28 November 2003    | Record date for 2003/04
        interim dividend                 | 
|                    |                                                                  | 
|21 January 2004     | 2003/04 interim dividend
        paid to qualifying shareholders | 
|                    |                                                                  | 
|

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Shareholder
    Information


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, e-mail ngtshareenq@lloydstsb-registrars.co.uk,
  www.shareview.co.uk, textphone for the hard of hearing 0870 600 3950). 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 shareowners@bankofny.com, www.adrbny.com). Additional information Additional information about National Grid Transco
  is available on our website at www.ngtgroup.com. Share price information, previous
  Annual Reports and Reviews and shareholder information can be found in the Investors
  section of that site. Documentation A copy of National Grid Transcos Annual
  Review is sent to all 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. A large type version
of the Annual Review is also available on request. Shareholders may opt to receive copies of National Grid Transcos Annual Report and Accounts that contain the full accounts and additional information required by the US Securities and Exchange Commission. To
request this document please contact either the Registrar, Lloyds TSB Registrars or the Depositary, The Bank of New York. If you currently receive the Annual Report and would like in future years to receive only the Annual Review, please contact either the Registrar, Lloyds TSB Registrars or the Depositary, The Bank of New York. Shareholders may elect to receive all shareholder communications, such as the Annual Review and Notice of AGM, by electronic means. To take advantage of this opportunity shareholders need to register on the
Registrars website www.shareview.co.uk. Registration is free. Once registered, shareholders will receive notification by e-mail when documentation is available, together with instructions on how to view it. There are no particular software
requirements to view the documents, other




than those described and available
    on the National Grid Transco website www.ngtgroup.com. Shareholders who register to
    receive electronic notification of documents, 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, Lloyds
    TSB Registrars. 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 should
    call The Bank of New York at 1-800-466-7215. Prior to general meetings of
    National Grid Transco, ADS holders will be mailed a notice of meeting with
    instructions on how to access the Annual Review and/or other documents electronically. Shareholders or ADS holders
    who wish to continue to receive all communications in paper form need take
    no action. Consolidated tax voucherShareholders who receive their dividends directly
    into their bank or building society accounts will receive a consolidated tax
    voucher once each year, rather than a tax voucher with each payment. This consolidated tax voucher
    will be sent out in January/February each year. Should shareholders wish to
    receive a separate voucher with each dividend they should contact the Registrars,
    Lloyds TSB Registrars. Share dealingInformation on a range of low cost share dealing
    services is available from the Registrars, Lloyds TSB Registrars, or from
    the National Grid Transco website. Should you not wish to use this
    service, you may find details of a broker in your local telephone directory,
    on the internet or enquire about share dealing at any high street bank or
    building society. The Directors of National Grid
    Transco are not in any way seeking to encourage shareholders either to buy
    or sell shares. If you are in any doubt as to the action you should take,
    you are recommended to seek your own financial advice from an independent
    financial adviser authorised pursuant to the Financial Services and Markets
    Act 2000 or other appropriately authorised independent financial adviser. ISA investorsIndividual Savings Accounts for National Grid
    Transco shares are available. Further




information may be obtained
    from the Account Manager: Stocktrade, PO Box 1076, 10 George Street, Edinburgh
    EH2 2PZ (telephone 0131 240 0443, www.stocktrade.co.uk/NGT_Sharedealing/ sharedealing_main.htm). CGT informationThe following is for information purposes only.
    It does not constitute financial, investment or tax advice. If in doubt, shareholders
    should obtain independent financial advice. The base cost for National Grid
    shareholders would depend on either the purchase price or the date their shares
    were distributed by the Regional Electricity Companies. For shares distributed
    on 8 December 1995 (by East Midlands, Midlands Electricity, SEEBOARD, London
    Electricity, Northern Electric, South Wales and Yorkshire Electricity), the
    acquisition base cost is 207 pence per share. For shares distributed on 23
    January 1996 by Southern Electric, the acquisition base cost is 192.5 pence
    per share. The split of the capital gains
    tax base cost of shares held in BG Group immediately prior to the Demerger
    has been calculated as: BG Group plc shares
      65.6212%Lattice Group plc shares
      34.3788% Under the terms of the Merger,
    Lattice Group shareholders received 37.5 National Grid Transco shares for
    every 100 Lattice Group shares. The first market value of National
    Grid Transco ordinary 10 pence shares following the merger of National Grid
    and Lattice, as calculated in accordance with Section 272(3) of the Taxation
    of Chargeable Gains Act 1992, and as derived from the London Stock Exchange
    Daily Official List on 21 October 2002, was 459.625 pence. All calculations are in accordance
    with the methodology set out in the Inland Revenue guidelines. Shareholder networkingNational Grid Transco will continue its innovative
    programme allowing shareholders to meet staff and visit operational sites.
    These visits allow us to explain National Grid Transcos business to
    you in person. If you would like to take part in a visit please write to:
    Shareholder networking organiser, NGT House, Warwick Technology Park, Gallows
    Hill, Warwick CV34 6DA.


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1-3 StrandLondon WC2N 5EH
        EnglandTelephone: +44 (0)20 7004 3000 
        Facsimile: +44 (0)20 7004 3004 
        www.ngtgroup.com UK Shareholder
        enquiries: 0870 600 3969 
        US Shareholder enquiries: 1 800 466 7215Registered in England and Wales
        No. 4031152


---




SIGNATURE

The
    registrant hereby certifies that it meets all of the requirements for filing
    on Form 20-F and that it has duly caused and authorized the undersigned to
    sign this annual report on its behalf.

|                    | NATIONAL
        GRID TRANSCO PLC
|------------------- | ---------------------------------
|                    |                                  
|                    | By:                              
|                    |                                  
|                    |                                  
|Date: June 11, 2003 |                                  

---






CERTIFICATIONS

I, Roger Urwin, certify that:

1. I have reviewed this annual report on Form 20-F of National Grid Transco plc;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|                    |  |                      
|------------------- |  | ---------------------
|Date: June 11, 2003 |  | /s/ Roger Urwin      
|                    |  |                      
|                    |  | Roger Urwin          
|                    |  | Group Chief Executive

---




I, Stephen Lucas, certify that:

1. I have reviewed this annual report on Form 20-F of National Grid Transco plc;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|                    |  |                       
|------------------- |  | ----------------------
|Date: June 11, 2003 |  | /s/ Stephen Lucas     
|                    |  |                       
|                    |  | Stephen Lucas         
|                    |  | Group Finance Director



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Exhibit List

|Exhibit   |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                                                                      | 
|--------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------- | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|1         |  | Memorandum
      and Articles of Association of National Grid Transco plc (Exhibit 1 to National
      Grid Group Form 20-F dated 21 June 2002 File No. 1-14958)                                                                                                                                                                                                                                                                                                        |  | Incorporated
      by reference (amendment filed herewith)           | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|2(a)      |  | Amended and restated Deposit
      Agreement dated as of 31 January 2002 (Exhibit 2(a) to National Grid Group
      Form 20-F dated 21 June 2002 File No. 1-14958)                                                                                                                                                                                                                                                                                                      |  | Incorporated by reference                                            | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(a)(i)   |  | Credit
      agreement dated 22 November 2001 between National Grid Transco plc (as guarantor
      and borrower); NGG Finance plc (as borrower); HSBC Investment Bank plc (the
      facility agent); HSBC (USA) Inc. (the swingline agent); and certain banks
      and financial institutions (the banks) and extension agreement dated 20
      November 2002. (Exhibit 2(b)(iii) to National Grid Group Form 20-F dated
      21 June 2002 File No. 1-14958)       |  | Incorporated
      by reference (extension agreement filed herewith) | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(a)(ii)  |  | 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% guaranteed bonds due 2006 and the €750,000,000 6.125% guaranteed
      bonds due 2011 issued by NGG Finance plc and guaranteed by National Grid
      Transco plc. (Exhibit 2(b)(ii) to National Grid Group Form 20-F dated 21
      June 2002 File No. 1-14958) |  | Incorporated by reference                                            | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(b)(i)   |  | Service Agreement  Edward
      Astle (Exhibit 4(b)(i) to National Grid Group Form 20-F dated 21 June 2002
      File No. 1-14958)                                                                                                                                                                                                                                                                                                                                     |  | Incorporated by reference                                            | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(b)(ii)  |  | Service Agreement  Steve
      Holliday (Exhibit 3(b)(iv) to National Grid Group Form 20-F dated 18 June
      2001 File No. 1-14958)                                                                                                                                                                                                                                                                                                                                  |  | Incorporated by reference                                            | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(b)(iii) |  | Service
      Agreement  Steve Lucas                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Filed
      herewith                                                 | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(b)(iv)  |  | Service
      Agreement  Sir John Parker                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Filed
      herewith                                                 | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(b)(v)   |  | Employment Agreement  Rick
      Sergel (Exhibit 2 to National Grid Group Form 20-F dated 28 June 2000 File
      No. 1-14958)                                                                                                                                                                                                                                                                                                                                         |  | Incorporated by reference                                            | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(b)(vi)  |  | Service
      Agreement  Nick Winser                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Filed
      herewith                                                 | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(b)(vii) |  | Service
      Agreement  John Wybrew                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | Filed
      herewith                                                 | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(c)(i)   |  | National Grid Executive Share
      Option Plan 2002 (Exhibit 4(c) to National Grid Group Form 20-F dated 21
      June 2002 File No. 1-14958)                                                                                                                                                                                                                                                                                                                          |  | Incorporated by reference                                            | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(c)(ii)  |  | National Grid Group Share Matching
      Plan 2002 (Exhibit 4(c) to National Grid Group Form 20-F dated 21 June 2002
      File No. 1-14958)                                                                                                                                                                                                                                                                                                                            |  | Incorporated by reference                                            | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(c)(iii) |  | National
      Grid Transco Performance Share Plan 2002                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Filed
      herewith                                                 | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(c)(iv)  |  | National Grid Executive Share
      Option Plan 2000 (Exhibit 4C to National Grid Group S-8 dated 26 July 2001
      File No. 333-65968)                                                                                                                                                                                                                                                                                                                                |  | Incorporated by reference                                            | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(c)(v)   |  | National Grid Executive Share
      Option Scheme (Exhibit 4D to National Grid Group S-8 dated 26 July 2001
      File No. 333-65968)                                                                                                                                                                                                                                                                                                                                   |  | Incorporated by reference                                            | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|4(c)(vi)  |  | Lattice
      Long Term Incentive Scheme                                                                                                                                                                                                                                                                                                                                                                                                                                |  | Filed
      herewith                                                 | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|6         |  | Earnings per share  see
      note 11 to the accounts                                                                                                                                                                                                                                                                                                                                                                                                                  |  | N/A                                                                  | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|8         |  | List
      of subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | Filed
      herewith                                                 | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 
|12(a)     |  | Certifications
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                      |  | Filed
      herewith                                                 | 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                      | 



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