##### 



Exhibit
15.1
  18
    
    Board of Directors20
    
    Operating and Financial Review20
    
    About National Grid29
    

Legal and related matters30
    
    Key performance indicators31
    
    Performance during the year37
    

Dividends38
    
    UK electricity and gas transmission43
    
    US electricity transmission45
    
    UK gas distribution48
    
    US electricity and gas distribution51
    
    US stranded cost recoveries52
    
    Wireless infrastructure54
    
    Other activities56
    
    Financial position and financial management57
    

Treasury
policy59
    

Commodity
contracts62
    
    Accounting policies68
    
    Corporate Governance74
    
    Risk
factors77
    
    Directors Report77
    
    Research and
development78
    

Employee
share ownership79
    
    Directors Remuneration Report90
    
    Independent Verifiers Report on Corporate Responsibility*91
    
    Contents to Financial Statements91
    
    Statement of Directors Responsibilities93
    
    Group Accounting Policies100
    
    Group Income Statement101
    
    Group Balance Sheet102
    
    Group Statement of Recognised Income and Expense103
    
    Group Cash Flow Statement104
    
    Notes to the Accounts114
    
    Note 9
Pensions and other post-retirement benefits141
    
Note
31 Share capital147
    
Note
34 Related party transactions148
    

Note
36 Group undertakings and joint ventures172
    
    Glossary of Terms173
    
    Definitions175
    
    Shareholder Information 
 *
    
    The Independent Verifiers Report on Corporate Responsibility on page 90 relates to the corporate responsibility elements of the full Annual Report and Accounts available on our website.




---



##### Table of Contents



18
    
    Board of Directors
    
   Annual Report and Accounts 2005/06National Grid
 
   
 
 
 
    
 
 
 
    01 Sir JohnParkerChairman  (appointed October 2002) (Age 64) N (ch)
 02 Roger UrwinGroup Chief Executive  (appointed November 1995) (Age 60)E (ch), F
 03 Steve HollidayDeputy Group Chief Executive  (appointed March 2001) (Age 49) E
 04 Steve LucasGroup Finance Director  (appointed October 2002) (Age 52) E, F
    Committee membership
 A
    
    AuditE
    
    ExecutiveF
    
    FinanceN
    
    NominationsR
    
    RemunerationR&R
    
    Risk & Responsibility(ch)
    
    denotes Committee chairman
 05 Nick WinserGroup Director  (appointed April 2003) (Age 45) E
 06 Mike JesanisGroup Director  (appointed July 2004) (Age 49) E
 07 Edward AstleGroup Director  (appointed September 2001) (Age 52) E




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Board of Directors
    
    19
  
 
 
 
    
 
 
 
    08 Ken HarveyNon-executive Director andSenior Independent Director  (appointed October 2002) (Age 65)N, R, R&R
 09 John AllanNon-executive Director  (appointed May 2005) (Age 57)A, R (ch)
 10 John GrantNon-executive Director  (appointed November 1995) (Age 60)A, N, R
 11 Paul JoskowNon-executive Director  (appointed March 2000) (Age 58)F (ch), N
    12 Stephen PettitNon-executive Director  (appointed October 2002) (Age 55)F, R, R&R (ch)
 13 Maria RichterNon-executive Director  (appointed October 2003) (Age 51)A, F, R&R
 14 George RoseNon-executive Director  (appointed October 2002) (Age 54)A (ch), N, R
 * Helen MahyGroup Company Secretaryand General Counsel  (appointed October 2002) (Age 45) E




---



##### Table of Contents



20
    
    Operating and Financial ReviewAbout National Grid
    
   Annual Report and Accounts 2005/06National Grid
 
   
 About National Grid
     Key milestones1986
    
    British Gas incorporated as a public limited company1990
    
    Electricity transmission network in England and Wales
transferred to National Grid on electricity privatisation1995
    
    National Grid listed on the London Stock Exchange1997
    
    British Gas (renamed BG) demerged Centrica1997
    
    National Grid demerged Energis2000
    
    New England Electric System and Eastern Utilities Associates
acquired by National Grid2000
    
    Lattice Group demerged from BG Group and listed separately2002
    
    Niagara Mohawk Power Corporation merged with National
Grids US operations2002
    
    Merger of National Grid and Lattice Group to form National
Grid Transco2004
    
    Acquisition of UK wireless infrastructure network from Crown
Castle International Corp.2005
    
    Sales of four UK regional gas distribution networks2005
    
    Adoption of National Grid as a single name for our
principal businesses2006
    
    Agreements to acquire KeySpan Corporation and Southern
Union Companys Rhode Island gas distribution network
  Section
    
    Page
    
    Section
    
    PageAbout National Grid
    
    20
    
    US electricity andgas distribution
    
    48Key performance indicators
    
    30
    
    US stranded costrecoveries
    
    51Performance during the year
    
    31
    
    Wireless infrastructure
    
    52UK electricity and gas
    
    
    
    Other activities
    
    54transmission
    
    38US electricity transmission
    
    43
    
    Financial position andfinancial management
    
    56UK gas distribution
    
    45
    
    Accounting policies
    
    62
   Business
    
    Segment
    
    Description of principal activitiesTransmission
    
    UK electricity
and gas
transmission
    
    Owner and operator of the high-voltage electricity transmission
network in England and Wales, the
gas transmission network in Great
Britain, electricity interconnectors
with Scotland and with France, and
storage facilities for LNG. Operator
of the electricity transmission networks
in Scotland.US electricity
transmission
    
    Owner and operator of high-voltage
electricity transmission networks in
the northeastern US.UK
Distribution
    
    UK gas
distribution
    
    The distribution of gas within
England as the owner and operator
of four of the UKs eight gas
distribution networks.US
Distribution
    
    US electricity
and gas
distribution
    
    The delivery of electricity and gas
in New York and electricity in
New England.US stranded
cost recoveries
    
    Recovery, through charges to
electricity customers, of costs
mainly incurred prior to divestiture of
electricity generation.Wireless
    
    Wireless
infrastructure
    
    Provision of structures and
equipment to serve the broadcast
and mobile telecommunications
industries, principally in the UK, but
also in the US.Other
businesses
and corporate
activities
    
    Other
activities
    
    Other businesses, including metering
services, property management,
an LNG gas import terminal in the
UK and an electricity interconnector
business in Australia, as well as
corporate activities, such as
business development.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewAbout National Grid
    
    21
  Sales of four regional gas distribution networks
    Proposed acquisitions in the northeastern US
       
 Other acquisitions and disposals




---



##### Table of Contents



22
    
    Operating and Financial ReviewAbout National Grid
    
   Annual Report and Accounts 2005/06National Grid
   Energy markets in the UK and the US
     
   
 Energy market developments
   Wireless infrastructure market




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewAbout National Grid
    
    23
         Regulatory developments
  n
    
    on 1 April 2005, in our role as Great Britain
System operator, we took responsibility for operating
the Scottish electricity transmission networks in
addition to the England and Wales network;n
    
    on 1 May 2005, our UK gas transmission and distribution
businesses (and each of the networks that we
subsequently sold) were each granted a gas transporter
licence, replacing the single integrated transmission
and distribution licence that we held previously. A new
Uniform Network Code was introduced by Ofgem,
establishing the mechanisms for the operation of the UK
gas delivery market participants;n
    
    to align the price control periods for electricity
transmission with that of gas transmission in the
UK, Ofgem extended the electricity transmission
price control period due to end on 31 March 2006 by a further year, extending the
current period to 31 March 2007;n
    
    Ofgem also intends
to extend the current gas distribution price
control period originally scheduled to end on 31
March 2007 to 31 March 2008. The next five-year
price control review period will commence on 1
April 2008; andn
    
    following their review of the
broadcasting transmission services market, Ofcom
introduced a new regulatory regime in April 2005
that required broadcast network access providers,
including National Grid Wireless, to publish
reference offer terms and conditions for new
contracts with effect from 30 December 2005.
   Price controls and rate plans




---



##### Table of Contents



24
    
    Operating and Financial ReviewAbout National Grid
    
   Annual Report and Accounts 2005/06National Grid
   Price controls
and rate plans
    
    The prices we charge for use of our energy
transmission and distribution networks are
determined in accordance with regulator-approved
price controls in the UK and rate plans in the US.
The negotiation of these arrangements has a
significant impact on the revenue we obtain from
our operations.In addition, these arrangements may include
incentives that permit us to earn additional revenues
based on our performance or penalise us if we do
not meet various targets.The length of these arrangements is significant to
us in that they provide stability to our operations and
allow us to plan ahead and invest with confidence
that we will obtain financial returns. In the UK, our
price controls typically cover periods of five years,
while in the US our electricity rate plans usually cover
periods of 10 to 20 years.Our wireless infrastructure network in the UK is also
subject in part to regulatory price controls.Multi-year
contractual arrangements
    
    Revenues in our Wireless infrastructure business and
several of our other businesses, including metering
services, our LNG import terminal in the UK and our
electricity interconnector in Australia, are determined
by contractual arrangements, usually long-term and
with blue chip customers.Safety and
reliability
    
    Our ability to operate safely and reliably is very
important to us, our employees, our customers, the
public and our regulators. Our financial performance
is affected by our performance in these areas.Efficiency
    
    Our objective, and that of our regulators, is to deliver
services as efficiently as possible. This allows us
to limit price increases or to reduce prices to our
customers and improve our own financial performance
to the benefit of our shareholders.Capital investment
    
    Capital investment is a significant driver for organic
growth.In our regulated energy networks, the prices we charge
include an allowed return for capital investment
determined in accordance with our price controls
and rate plans. These provide incentives for us to
enhance the quality and reach of our networks
through capital improvements.For other businesses, our capital investment in new
assets allows us to develop new revenue streams or
to increase revenue from existing assets.Acquisitions
and disposals
    
    We consider investing in energy and other network
infrastructure businesses where we believe we can
create value through operational improvements,
synergies and financial benefits.We consider disposals where we believe that the
price on offer is better than the long-term return we
can obtain ourselves or where a business does not
fit with our long-term strategy.Responsibility
    
    Our reputation is important to us. Delivering
sustainable value depends on the trust and confidence
of our stakeholders and this can only be earned by
conducting our business in a responsible manner.
  Volumes
    
    Changes in the quantities of electricity and gas
delivered through our transmission and distribution
networks may result in an increase or decrease
in our revenue. Volumes are affected by weather,
consumer demand and network availability as well
as other factors. The impact of changing volumes
may sometimes be offset by changes in costs or
may sometimes result in an under- or over-recovery
against our allowable revenue, with a corresponding
increase or decrease in revenue in future periods.Exchange rates
    
    The reported results, cash flows and financial position
of our US operations are affected by movements in
the US dollar to sterling exchange rate. However, the
effect of these movements is partially hedged through
the use of US dollar denominated debt and derivative
financial instruments.Commodity
and other
pass-through
costs
    
    We are allowed to recover certain costs, including
commodity costs in the US and other direct costs
in both the UK and the US, through charges to
customers. The timing of recovery of these costs can
vary between financial periods leading to an under-
or over-recovery within any particular financial period.
We are affected by movements in commodity prices
to the extent that they affect our own energy
requirements, the most significant of which relates to
gas purchases required for the operation of our gas
transmission and gas distribution networks in the UK.
Certain US commodity contracts are recorded in
our balance sheet at their fair values, which are
affected by movements in commodity prices. Although
remeasurements in the carrying values of these
contracts are reflected in our income statement,
under our rate plans we expect to recover the net
costs incurred under these contracts from customers
in future periods.Inflation
    
    Without action to improve efficiency, our operating costs
will increase each year as a result of wage increases
and inflation in external costs. In general, our revenues
also increase each year, although not necessarily at the
same rate, depending on our regulatory or contractual
arrangements. As a consequence, our ability to control
costs and improve efficiency is important to our
ability to increase operating profits.Our price controls in the UK are linked to retail price
inflation, while our regulatory settlements in Rhode
Island and New York allow us to recover additional
distribution revenue from customers if there is a
significant change in the rate of inflation.Seasonality
    
    Revenues from our gas distribution networks in the
UK and the US and our gas transmission network in
the UK are weighted towards the end of the financial
year, as gas demand is typically higher during the
winter months. Otherwise, seasonality does not have
a significant impact on revenues.With the exception of commodity and other
volume-related costs passed through to customers, our operating costs are generally not seasonal.Interest rates
    
    The costs of financing our operations are affected
by changes in prevailing interest rates, as some of
our debt is at floating rates. We hedge some of our
exposure to interest rates with fixed rate debt and
derivative financial instruments to maintain a
proportion of our debt at fixed interest rates.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewAbout National Grid
    
    25
   
  Safety
    
    Safety is paramount. Our most important goals are to
ensure that members of the public are not injured as
a direct result of our operations and to deliver a working
environment where there are zero work-related
injuries and illnesses wherever we operate in the
world.Our goals also include reducing the risks of
transporting gas and improving the health of our
staff so they are fit for work every day.Reliability
    
    Our principal operations are critical to the functioning
of the economies we serve. The reliability of our
energy and wireless infrastructure networks, and the
quality of our service to our customers, are therefore
our next highest priorities after safety.Efficiency
    
    By improving efficiency we can constrain the cost of
our operations borne by customers and improve
returns to shareholders. We continually seek
improvements in efficiency throughout our
businesses. This includes enhancing the performance
of our staff through their development and training.Responsibility
    
    We are committed to operating in a responsible way
and we have adopted high ethical and governance
standards. We take actions to minimise the
environmental impact of our operations and to
remediate contaminated land, promote inclusion and
diversity in our workforce, and invest in the
communities in which we operate.
   n
    
    using our operational expertise to outperform benchmarks and regulatory targets;n
    
    managing regulatory relationships to benefit customers and shareholders; andn
    
    using a disciplined approach to investment to maximise returns.
    Value
    
    Objective
    
    Key performance indicatorSafety
    
    Zero public injuries
    
    Members of the public injured as a
direct result of our operationsZero work-related injuries
    
    Employee lost time injury
frequency rateReduce risks from transporting gas
    
    Standards of service for responding
to gas escapesLength of UK gas distribution
mains replacedZero work-related ill health
    
    Sickness absence rateReliability
    
    Operational reliability
    
    Business-specific reliability and
service quality measuresEfficiency
    
    Operate efficiently
    
    Adjusted operating profit*Achieve real reduction of 35% in
UK gas distribution controllable
costs by 31 March 2007Responsibility
    
    Reduce environmental impact
    
    Number of significant direct
environmental incidentsGreenhouse gas emissions per £m
of revenueTotal amount of fines from citations
and prosecutionsEmploy an
inclusive and
diverse work-force
    
    Percentage of female employeesPercentage of ethnic
minority employeesShareholder value
    
    Improve financial performance
    
    Adjusted earnings per share*Operating cash flowsTotal shareholder returnInvest for future growth
    
    Capital expenditureInvestments in acquisitions
 *
    
    Adjusted operating profit and adjusted earnings per share are equal to operating
profit and earnings per share excluding exceptional items and remeasurements in each case.




---



##### Table of Contents



26
    
    Operating and Financial ReviewAbout National Grid
    
   Annual Report and Accounts 2005/06National Grid
   n
    
    the skills and expertise of our people;n
    
    our processes and techniques for managing large complex networks;n
    
    our relationships with customers, regulators and other stakeholders;n
    
    our ability to work together to achieve our objectives;n
    
    the control and/or ownership of the assets used in our networks; andn
    
    our financial position, together with the committed and uncommitted borrowing facilities available to us.
        Employee engagement
    Inclusion and diversity
        Isle of Grain




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewAbout National Grid
    
    27
 National Grid Australia
   Digital switchover
        n
    
    investing in infrastructure and
systems to provide the operational tools and
techniques necessary to manage our assets and
operations to high standards and investing in the
renewal of assets;n
    
    investing in the skills and
capabilities of our people to give them the ability to
operate our networks to a high degree of service
excellence;n
    
    and maintaining a constant focus on
reliability as one of our principal objectives,
ensuring we are proactive about planning to ensure
reliability and that we react quickly to factors that
could compromise reliability.
      Ethics
   Environmental management




---



##### Table of Contents



28
    
    Operating and Financial ReviewAbout National Grid
    
   Annual Report and Accounts 2005/06National Grid
 Climate change
   Contaminated land
   Electric and magnetic fields (EMFs)
    Human rights
    Community investment




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewAbout National Grid
    
    29
 Stakeholder engagement
       n
    
    changes in laws or regulation;n
    
    breaches in environmental or health and safety law or regulation;n
    
    network failure or inability to carry out critical non-network operations;n
    
    achievement of business performance objectives;n
    
    regulatory
treatment of commodity costs passed through to
consumers;n
    
    reputation damage from disruptions to
supply, even if outside our control;n
    
    business
development activities;n
    
    fluctuations in the US
dollar or movements in interest rates, restrictions
in borrowings and debt arrangements or changes in
credit ratings;n
    
    pension scheme funding
requirements;n
    
    changes in tax rates; andn
    
    changes in
accounting standards.




---



##### Table of Contents



30
    
    Operating and Financial ReviewKey performance indicators
    
   Annual Report and Accounts 2005/06National Grid
 
  Value
    
    KPI
    
    Description
    
    Target
    
    ResultsSafety
    
    Injuries to the public
    
    Members of the public
injured as a direct result
of our operations
    
    Zero
    
    2005/06: 20
2004/05: 52Employee lost time
injury frequency rate
    
    Injuries resulting in employees
taking time off work
(per 100,000 hours worked)
    
    Zero
    
    2005/06: 0.28
2004/05: 0.37Gas safety-related
service standards
    
    Proportion of uncontrolled
gas escapes attended within
one hour in the UK
    
    97%
    
    
    2005/06: 97.97%
2004/05: 98.46%UK gas distribution
mains replacement
    
    Length of gas main
decommissioned
    
    2005/06: 1,724km
2004/05: 1,492km
    
    2005/06: in excess of 1,710 km
2004/05:1,458kmSickness absence
rate
    
    Proportion of available work
days which are lost due
to sickness
    
    Zero work-related
sickness
    
    2005/06: 2.38%
2004/05: 2.69%Reliability
    
    Business-specific reliability and service quality measures are discussed in the business segment sections on pages 41, 44, 46,
50, 53 and 55.Efficiency
    
    Adjusted operating
profit*
    
    Operating profit from continuing
operations excluding exceptional
items and remeasurements
    
    To increase each year
    
    2005/06: £2,527 million
2004/05: £2,443 millionUK gas distribution
controllable costs
    
    Operating costs over which
we have direct control
    
    Reduce controllable costs
by 35% in real terms of their
2002 level by 31 March 2007
    
    Achieved by 31 March 2006Responsibility
    
    Significant direct
environmental incidents
    
    Category 1 environmental
incidents
    
    Zero
    
    2005/06: 22
2004/05: 23Greenhouse gas
emissions tonnes per
£m of revenue
    

CO2equivalent emissions
estimated to be directly
or indirectly caused by
our operations
    
    60% reduction by 2050
    
    2005/06: 1,110
2004/05: 1,680Fines from environmental
citations and
prosecutions
    
    Financial quantity
of fines imposed
    
    Zero
    
    2005/06: Zero
2004/05: US$3,000
               and A$1,000Percentage of female
employees
    
    Proportion of employees
who are female
    
    We do not have specific targets  our aim is to ensure that we
recruit the best candidates regardless of sex, race, disability,
sexual orientation, age, religion
or belief
    
    2005/06: 23.4%
2004/05: 21.0%Percentage of ethnic
minority employees
    
    Proportion of employees
who are from ethnic minorities
    
    
    2005/06: 6.7%
2004/05: 6.0%Shareholder
value
    
    Adjusted earnings
per share**
    
    Earnings per share from
continuing operations
excluding exceptional
items and remeasurements
    
    To increase sufficiently
to support 7% dividend growth
through to March 2008
    
    2005/06: 46.7p
2004/05: 42.3pOperating cash flows
    
    Cash generated from
continuing operations
    
    To increase each year
    
    2005/06: £3,131 million
2004/05: £2,911 millionTotal shareholder
return
    
    Growth in share price, assuming
reinvestment of dividends and
returns of capital
    
    To increase
    
    2005/06: 22.9%
2004/05: 19.0%Capital expenditure
    
    Additions to property,
plant and equipment
and to intangible assets
    
    There is no numerical target for
capital expenditure or for
acquisitions, as each investment is different and is considered
on its merits
    
    2005/06: £2,062 million
2004/05: £1,518 millionInvestments in
acquisitions
    
    Consideration in respect of
acquired businesses
    
    
    2005/06: No acquisitions
2004/05: £1,151 million
 
    
    Major injuries comprise fatalities and other injuries that require the person to receive
hospital treatment or, in the UK, injuries reported under the Reporting of Injuries, Diseases
and Dangerous Occurrences Regulations.
    
    The sickness absence rate includes absences resulting from both work-related and not
work-related illnesses.*
    
    Operating profit from continuing operations including exceptional items and remeasurements
increased from £2,142 million in 2004/05 to £2,439 million in 2005/06. See page 33.**
    
    Earnings per share from continuing operations including exceptional items and remeasurements
increased from 36.3p in 2004/05 to 42.8p in 2005/06. See pages 35 and 36.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewPerformance during the year
    
    31
 
   Safety performance




---



##### Table of Contents



32
    
    Operating and Financial ReviewPerformance during the year
    
   Annual Report and Accounts 2005/06National Grid
 Responsibility
   Ethics
  Environmental management
   
 Contaminated land
    Climate change
  2
 
 2
 Inclusion and diversity
  Community investment




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewPerformance during the year
    
    33
      Continuing and discontinued operations
   Use of adjusted profit measures
     Operating financial performance
 Years ended 31 March2006
    
    
    2005Continuing operations
    
    £m
    
    
    £mRevenue
    
    
    9,193
    
    
    
    7,382Other operating income
    
    
    80
    
    
    
    70Operating costs excluding
exceptional items and remeasurements
    
    
    (6,746
    )
    
    
    (5,009
    )Adjusted operating profit
    
    
    2,527
    
    
    
    2,443Exceptional items
    
    
    (39
    )
    
    
    (263
    )Remeasurements
    
    
    (49
    )
    
    
    (38
    )Total operating profit
    
    
    2,439
    
    
    
    2,142
   Years ended 31 March2006
    
    
    2005Continuing operations
    
    £m
    
    
    £mUK electricity and gas transmission
    
    
    2,710
    
    
    
    1,995US electricity transmission
    
    
    310
    
    
    
    284UK gas distribution
    
    
    1,222
    
    
    
    1,113US electricity and gas distribution
    
    
    3,711
    
    
    
    3,087US stranded cost recoveries
    
    
    511
    
    
    
    409Wireless infrastructure
    
    
    325
    
    
    
    208Other activities
    
    
    701
    
    
    
    734Total segmental revenues
    
    
    9,490
    
    
    
    7,830Less: sales between business segments
    
    
    (297
    )
    
    
    (448
    )Revenue
    
    
    9,193
    
    
    
    7,382
  Years ended 31 March2006
    
    
    2005Continuing operations
    
    £m
    
    
    £mUK electricity and gas transmission
    
    
    844
    
    
    
    859US electricity transmission
    
    
    127
    
    
    
    126UK gas distribution
    
    
    483
    
    
    
    424US electricity and gas distribution
    
    
    364
    
    
    
    375US stranded cost recoveries
    
    
    489
    
    
    
    465Wireless infrastructure
    
    
    75
    
    
    
    42Other activities
    
    
    145
    
    
    
    152Adjusted operating profit
    
    
    2,527
    
    
    
    2,443
  Years ended 31 March2006
    
    
    2005Continuing operations
    
    £m
    
    
    £mUK electricity and gas transmission
    
    
    843
    
    
    
    857US electricity transmission
    
    
    127
    
    
    
    119UK gas distribution
    
    
    432
    
    
    
    333US electricity and gas distribution
    
    
    364
    
    
    
    258US stranded cost recoveries
    
    
    440
    
    
    
    427Wireless infrastructure
    
    
    70
    
    
    
    29Other activities
    
    
    163
    
    
    
    119Operating profit
    
    
    2,439
    
    
    
    2,142




---



##### Table of Contents



34
    
    Operating and Financial ReviewPerformance during the year
    
   Annual Report and Accounts 2005/06National Grid
 Revenue, operating costs and operating profit
  Revenueand otheroperating
    
    
    Operating
    
    
    Operatingincome
    
    
    costs
    
    
    profit£m
    
    
    £m
    
    
    £m2004/05 results
    
    
    7,452
    
    
    
    (5,310
    )
    
    
    2,142Add back 2004/05 exceptional
items and remeasurements
    
    
    
    
    
    
    301
    
    
    
    3012004/05 adjusted results
    
    
    7,452
    
    
    
    (5,009
    )
    
    
    2,443Exchange on US operations
    
    
    169
    
    
    
    (125
    )
    
    
    442004/05 constant currency results
    
    
    7,621
    
    
    
    (5,134
    )
    
    
    2,487UK electricity and gas transmission
    
    
    715
    
    
    
    (730
    )
    
    
    (15
    )US electricity transmission
    
    
    13
    
    
    
    (18
    )
    
    
    (5
    )UK gas distribution
    
    
    113
    
    
    
    (54
    )
    
    
    59US electricity and gas distribution
    
    
    488
    
    
    
    (516
    )
    
    
    (28
    )US stranded cost recoveries
    
    
    84
    
    
    
    (81
    )
    
    
    3Wireless infrastructure
    
    
    114
    
    
    
    (81
    )
    
    
    33Other activities
    
    
    (26
    )
    
    
    19
    
    
    
    (7
    )Sales between businesses
    
    
    151
    
    
    
    (151
    )
    
    
    2005/06 adjusted results
    
    
    9,273
    
    
    
    (6,746
    )
    
    
    2,5272005/06 exceptional items
and remeasurements
    
    
    
    
    
    
    (88
    )
    
    
    (88
    )2005/06 results
    
    
    9,273
    
    
    
    (6,834
    )
    
    
    2,439
         Earnings from continuing operations
 Years ended 31 March2006
    
    
    2005Continuing operations
    
    £m
    
    
    £mAdjusted operating profit
    
    
    2,527
    
    
    
    2,443Net finance costs excluding
exceptional items and remeasurements
    
    
    (606
    )
    
    
    (706
    )Share of post-tax results of joint ventures
    
    
    3
    
    
    
    3Adjusted profit before taxation
    
    
    1,924
    
    
    
    1,740Taxation excluding tax on
exceptional items and remeasurements
    
    
    (597
    )
    
    
    (437
    )Adjusted profit from continuing operations
    
    
    1,327
    
    
    
    1,303Adjusted earnings per share
from continuing operations
    
    
    46.7p
    
    
    
    42.3p
  Years ended 31 March2006
    
    
    2005Continuing operations
    
    £m
    
    
    £mTotal operating profit
    
    
    2,439
    
    
    
    2,142Net finance costs
    
    
    (663
    )
    
    
    (706
    )Share of post-tax results of joint ventures
    
    
    3
    
    
    
    3Profit before taxation
    
    
    1,779
    
    
    
    1,439Taxation
    
    
    (562
    )
    
    
    (319
    )Profit from continuing operations
    
    
    1,217
    
    
    
    1,120Earnings per share from continuing operations
    
    
    42.8p
    
    
    
    36.3p




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewPerformance during the year
    
    35
 Net finance costs
  Exceptional finance costs and remeasurements
   Taxation
    Exchange rates
    Profit for the year from continuing operations
  Adjusted profit measures
   Years ended 31 March2006
    
    
    2005Continuing operations
    
    £m
    
    
    £mAdjusted operating profit
    
    
    2,527
    
    
    
    2,443Exceptional operating items
    
    
    (39
    )
    
    
    (263
    )Operating remeasurements
    
    
    (49
    )
    
    
    (38
    )Total operating profit
    
    
    2,439
    
    
    
    2,142
   Years ended 31 March2006
    
    
    2005Continuing operations
    
    £m
    
    
    £mAdjusted profit before taxation
    
    
    1,924
    
    
    
    1,740Exceptional operating items
    
    
    (39
    )
    
    
    (263
    )Operating remeasurements
    
    
    (49
    )
    
    
    (38
    )Exceptional finance costs
    
    
    (49
    )
    
    
    Financial remeasurements
    
    
    (8
    )
    
    
    Total profit before taxation
    
    
    1,779
    
    
    
    1,439
   Years ended 31 March2006
    
    
    2005Continuing operations
    
    £m
    
    
    £mAdjusted earnings
    
    
    1,327
    
    
    
    1,303Exceptional operating items
    
    
    (39
    )
    
    
    (263
    )Operating remeasurements
    
    
    (49
    )
    
    
    (38
    )Exceptional finance costs
    
    
    (49
    )
    
    
    Financial remeasurements
    
    
    (8
    )
    
    
    Tax on exceptional items and remeasurements
    
    
    35
    
    
    
    118Earnings
    
    
    1,217
    
    
    
    1,120
  Earnings per share from continuing operations




---



##### Table of Contents



36
    
    Operating and Financial ReviewPerformance during the year
    
   Annual Report and Accounts 2005/06National Grid
 
 Years ended 31 March2006
    
    
    2005Continuing operations
    
    pence
    
    
    penceAdjusted basic earnings per share
    
    
    46.7
    
    
    
    42.3Exceptional operating items
    
    
    (1.4
    )
    
    
    (8.5
    )Exceptional finance costs
    
    
    (1.7
    )
    
    
    Tax on exceptional items
    
    
    0.9
    
    
    
    3.3Remeasurements
    
    
    (2.0
    )
    
    
    (1.2
    )Tax on remeasurements
    
    
    0.3
    
    
    
    0.4Earnings per share
    
    
    42.8
    
    
    
    36.3
     2006
    
    
    2005Years ended 31 March
    
    £m
    
    
    £mRevenue
    
    
    168
    
    
    
    1,102Operating costs before exceptional items
    
    
    (107
    )
    
    
    (592
    )Adjusted operating profit
    
    
    61
    
    
    
    510Exceptional items
    
    
    (15
    )
    
    
    (74
    )Operating profit
    
    
    46
    
    
    
    436Share of post-tax results of joint ventures
    
    
    
    
    
    
    (5
    )Taxation
    
    
    (18
    )
    
    
    (140
    )Profit from discontinued operations
    
    
    28
    
    
    
    291Gain on disposal of discontinued operations
    
    
    2,605
    
    
    
    13Profit for the year
    
    
    2,633
    
    
    
    304
          Cash flows from operating activities
   Cash flows from investing activities




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewPerformance during the year
    
    37
  Cash flows from financing activities
       
 Dividends in respect of the financial year
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Dividends
    
    pence
    
    
    pence
    
    
    pence
    
    
    pence
    
    
    penceInterim
    
    
    10.2
    
    
    
    8.5
    
    
    
    7.91
    
    
    
    6.86
    
    
    
    6.46Final
    
    
    15.9
    
    
    
    15.2
    
    
    
    11.87
    
    
    
    10.34
    
    
    
    9.58Total
    
    
    26.1
    
    
    
    23.7
    
    
    
    19.78
    
    
    
    17.20
    
    
    
    16.04
 Dividends per ADS
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Interim
    
    
    0.88
    
    
    
    0.79
    
    
    
    0.67
    
    
    
    0.54
    
    
    
    0.47Final
    
    
    1.51
    
    
    
    1.38
    
    
    
    1.05
    
    
    
    0.84
    
    
    
    0.73Total
    
    
    2.39
    
    
    
    2.17
    
    
    
    1.72
    
    
    
    1.38
    
    
    
    1.20




---



##### Table of Contents



38
    

Operating and Financial ReviewUK electricity and gas transmission
    
   Annual Report and Accounts 2005/06National Grid
 
 UK electricity and gas transmission
  
 Principal activities
  Electricity
transmission
owner
    
    We own the electricity transmission system in
England and Wales.
Our electricity assets comprise approximately
4,500 miles of overhead line, about 415 miles of
underground cable and 337 substations at 240 sites.Electricity
system
operator
    
    We are the Great Britain System Operator,
responsible for managing the operations of both the
England and Wales transmission system that we own
and also the two high-voltage electricity transmission
networks in Scotland.
Day-to-day operation of the Great Britain electricity
transmission system involves the continuous real-time
matching of demand and generation output, ensuring
the stability and security of the power system and the
maintenance of satisfactory voltage and frequency.Gas
transmission
owner
    
    We own the gas transmission network in Great Britain.
This comprises approximately 4,300 miles of high
pressure pipe and 26 compressor stations, connecting
to eight distribution networks and to third party
independent systems for onward transportation
of gas to end consumers.Gas system
operator
    
    We operate the gas transmission network.
Day-to-day operation includes balancing supply and
demand, maintaining satisfactory system pressures
and ensuring gas quality standards are met.French
interconnector
    
    We own and operate the UK assets, and a portion
of the subsea cables, that comprise the electricity
interconnector between England and France as part
of a joint arrangement with the French transmission
operator, RTE.LNG storage
    
    We own and operate four liquefied natural gas (LNG)
storage facilities in the UK.
 External and regulatory environment




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewUK electricity and gas transmission
    
    39
    Business drivers
    n
    
    the price
controls set by Ofgem, which determine the prices that
can be charged to users of the electricity and gas
transmission networks;n
    
    capital investment, which
drives the regulatory asset value, a key component in
determining our allowed revenues under our price
controls;n
    
    our ability to operate reliably, and so to
earn incentives for good performance and avoid
penalties for poor performance;n
    
    meeting regulatory
targets for management of the electricity and gas
systems, generating incentives for good performance; andn
    
    our ability to operate efficiently.
  Business driver
    
    DescriptionPrice
controls
    
    The charges that we can make for access to our
electricity and gas transmission systems are currently
determined by a formula linked to retail price inflation
(RPI). For electricity this is set at RPI 1.5% and for
gas RPI 2%. These formulae are based upon
Ofgems estimates of operating expenditure, capital
expenditure and asset replacement, together with an
allowed rate of return. The current rate of return is set
at a real pre-tax rate of 6.25% on our regulatory
asset value for both our electricity and gas networks.
Our electricity regulatory asset value as of 31 March
2006 is estimated at approximately £5.6 billion
(£5.3 billion March 2005) and for gas £2.8 billion
(£2.5 billion March 2005).Reliability
    
    We are subject to an incentive scheme based on the
reliability of the electricity transmission network in
England and Wales. This is based on achieving
reliability in excess of 99.9999%.
For 2006/07 there is the potential to earn additional
revenue up to 1% if loss of supply is less than
248 MWh. For loss of supply in excess of 274 MWh
up to a collar of 635 MWh we can potentially lose
up to 1.5% of revenue.Efficiency
    
    Both of our gas and electricity system operations
(SO) have incentive schemes where, if we operate
our networks more efficiently than Ofgems forecasts,
we can increase our revenues.
Our electricity SO external incentive, the Balancing
Services Incentive Scheme (BSIS), has historically
been agreed on an annual basis. For the 2006/07
scheme, we decided not to accept Ofgems
proposals for the BSIS target. We considered that
neither of Ofgems external proposals offered an
appropriate balance of risk and reward. Normal
arrangements for the operation of the system and
management of payments will continue, but without a
financial incentive. We are at all times obligated under
our transmission licence to operate the system in an
economic and efficient manner.
For gas we have seven incentive schemes covering
activities such as cost of investment for additional
capacity, managing constraints, the cost of
purchasing shrinkage gas (gas used in operating the
system or lost during transport) and other gas
system operation costs.




---



##### Table of Contents



40
    
    Operating and Financial ReviewUK electricity and gas transmission
    
   Annual Report and Accounts 2005/06National Grid
  British Electricity Trading and Transmission Arrangements (BETTA)
   Gas transporter licence
  UK energy market developments
   
    Gas supply




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewUK electricity and gas transmission
    
    41
  Emissions trading
   Capital investment
      Operating performance
     Objective
    
    PerformanceSafety
    
    During 2005/06 there were 14 lost time injuries
compared with 8 in 2004/05. The lost time injury
frequency rate increased to 0.28 in 2005/06 from
0.17 in 2004/05.Reliability
    
    Electricity transmission network reliability in 2005/06
was 99.99990%. This compared with 99.99998%
in 2004/05.
Our target reliability is 99.99990%.Average annual availability of our electricity network
in 2005/06 was 95.09%. This compared with 95.3%
in 2004/05.
This reflects the increased amount of asset
replacement activity to ensure the reliability of the
network for years to come.
System availability at winter peak demand was
97.9% in 2005/06 compared with 97.6% in 2004/05.Compressor fleet performance during 2005/06
improved with the average time between compressor
failures at 10% above our five-year average.




---



##### Table of Contents



42
    
    Operating and Financial ReviewUK electricity and gas transmission
    
   Annual Report and Accounts 2005/06National Grid
 Financial performance
  2006
    
    
    2005Years ended 31 March
    
    £m
    
    
    £mRevenue
    
    
    2,710
    
    
    
    1,995Operating costs excluding exceptional items
    
    
    (1,866
    )
    
    
    (1,136
    )Adjusted operating profit
    
    
    844
    
    
    
    859Exceptional items
    
    
    (1
    )
    
    
    (2
    )Operating profit
    
    
    843
    
    
    
    857
  Operating
    
    
    OperatingRevenue
    
    
    costs
    
    
    profit£m
    
    
    £m
    
    
    £m2004/05 results
    
    
    1,995
    
    
    
    (1,138
    )
    
    
    857Add back 2004/05 exceptional items
    
    
    
    
    
    
    2
    
    
    
    22004/05 adjusted results
    
    
    1,995
    
    
    
    (1,136
    )
    
    
    859LNG storage
    
    
    34
    
    
    
    (4
    )
    
    
    30French interconnector
    
    
    43
    
    
    
    (3
    )
    
    
    40Balancing Services Incentive Scheme
    
    
    214
    
    
    
    (235
    )
    
    
    (21
    )Scottish networks pass-through
    
    
    259
    
    
    
    (259
    )
    
    
    Transmission owner depreciation
and amortisation
    
    
    
    
    
    
    (83
    )
    
    
    (83
    )Other
    
    
    165
    
    
    
    (146
    )
    
    
    192005/06 adjusted results
    
    
    2,710
    
    
    
    (1,866
    )
    
    
    8442005/06 exceptional items
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )2005/06 results
    
    
    2,710
    
    
    
    (1,867
    )
    
    
    843
     Capital expenditure
    2006
    
    
    2005£m
    
    
    £mProperty, plant & equipment
    
    
    799
    
    
    
    464Intangible assets
    
    
    91
    
    
    
    65Capital investment
    
    
    890
    
    
    
    529




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewUS electricity transmission
    
    43
 
 US electricity transmission
  
 Principal activities
  External and regulatory environment
   Business drivers
     Energy Policy Act
  Regulation
   Capital investment




---



##### Table of Contents



44
    
    Operating and Financial ReviewUS electricity transmission
    
   Annual Report and Accounts 2005/06National Grid
  Operating performance
  Objective
    
    PerformanceSafety
    
    US electricity transmission had a lost time injury
frequency rate of zero during 2005/06, extending the
time since the last lost time injury to 35 months.Reliability
    
    Average annual network availability in 2005/06 was
98.7%. This compared with 98.55% in 2004/05.
Overall average network availability was similar in
New England and New York, for both summer and
winter.
 Financial performance
 2005constant2006
    
    
    currency
    
    
    2005Years ended 31 March
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    310
    
    
    
    297
    
    
    
    284Operating costs excluding exceptional items
    
    
    (183
    )
    
    
    (165
    )
    
    
    (158
    )Adjusted operating profit
    
    
    127
    
    
    
    132
    
    
    
    126Exceptional items
    
    
    
    
    
    
    (8
    )
    
    
    (7
    )Operating profit
    
    
    127
    
    
    
    124
    
    
    
    119
  Operating
    
    
    OperatingRevenue
    
    
    costs
    
    
    profit£m
    
    
    £m
    
    
    £m2004/05 results
    
    
    284
    
    
    
    (165
    )
    
    
    119Add back 2004/05 exceptional items
    
    
    
    
    
    
    7
    
    
    
    72004/05 adjusted results
    
    
    284
    
    
    
    (158
    )
    
    
    126Exchange rate movements
    
    
    13
    
    
    
    (7
    )
    
    
    62004/05 constant currency results
    
    
    297
    
    
    
    (165
    )
    
    
    132Tariff adjustment
    
    
    7
    
    
    
    (7
    )
    
    
    Other
    
    
    6
    
    
    
    (11
    )
    
    
    (5
    )2005/06 results
    
    
    310
    
    
    
    (183
    )
    
    
    127
     Capital expenditure




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewUK gas distribution
    
    45
 
 UK gas distribution
  
 Principal activities
     External and regulatory environment
     Business drivers
  Business driver
    
    DescriptionGas distribution price control
    
    The price controls that apply to UK gas distribution
take into account Ofgems estimates of operating
expenditure, capital expenditure, replacement
expenditure and allowed rate of return. The current
rate of return is set at a real pre-tax rate of 6.25% on
our regulatory asset value. As at 31 March 2006, our
regulatory asset value is estimated at approximately
£5.9 billion.Factors driving revenue
    
    The networks price control formulae specify a
maximum allowed revenue assigned to each
network. Each formula retains a 65% fixed, 35%
variable revenue associated with transportation
volume changes, a mains replacement incentive
mechanism and the pass-through of prescribed rates
and gas transporter licence fees.In any year, revenue can be more or less than is
allowed under the price control formula, although
charges should be set to recover allowed revenue.
Any difference is carried forward and our charges are
adjusted accordingly.Replacement expenditure
    
    Replacement expenditure improves the future safety
and reliability of the network, through the replacement
of older gas pipes with modern pipes.Ofgem treats 50% of projected replacement
expenditure as recoverable during the year and
50% as recoverable over future years.Each network is subject to its own mains
replacement incentive mechanism and retains 33%
of any outperformance against Ofgems annual cost
targets as additional return or, alternatively, bears
50% of any overspend if it underperforms.Capital expenditure
    
    Capital expenditure ensures supply security and
meets growing customer demand. Central
coordination ensures capital investment is effective
and efficient.
 Standards of service
   n
    
    overall standards of service, for
example answering 90% of all calls to the national
gas emergency number within 30 seconds of the call
being connected and informing 97% of all customers
when they are due to be reconnected after an
unplanned interruption;n
    
    connections standards of
service that require us to provide connections to
customers to agreed timescales; andn
    
    guaranteed
standards of service for our other transportation
services.




---



##### Table of Contents



46
    
    Operating and Financial ReviewUK gas distribution
    
   Annual Report and Accounts 2005/06National Grid
  Network sales
   Regulatory price control reviews
  Business improvements
      Operating performance
   Objective
    
    PerformanceSafety
    
    As described on page 31 there was one employee
fatality during 2005/06.Lost time injuries for the retained networks fell from
56 in 2004/05 to 24 in 2005/06, a 57% decrease. The
lost time injury frequency rate fell from 0.35 to 0.17.We again exceeded our targets on safety-related
standards  more than 97% of uncontrolled gas
escapes (where the gas leak cannot be controlled
by turning the gas supply off at the meter) were
attended within one hour, and more than 98%
of controlled gas escapes (where the gas leak
can be controlled at the meter) were attended
within two hours.We have decommissioned in excess of 1,710 km
(1,063 miles) of gas pipes in 2005/06 (in line with
our target of 1,724 km (1,071 miles)) compared with
1,458 km (906 miles) in 2004/05.Reliability
    
    Over the year we have achieved all our connections
standards of service along with all other standards of
service set by Ofgem that relate to our gas
transportation services.Efficiency
    
    Our target of 35% reduction in controllable costs has
been achieved one year early.Our performance during 2005/06 under the current
distribution network exit incentive scheme and
the mains replacement incentive scheme was
broadly neutral.During the year ended 31 March 2006, we made
around 50,000 new connections to our network.
 Financial performance
  2006
    
    
    2005Years ended 31 March
    
    £m
    
    
    £mRevenue
    
    
    1,222
    
    
    
    1,113Other operating income
    
    
    4
    
    
    
    Operating costs excluding exceptional items
    
    
    (743
    )
    
    
    (689
    )Adjusted operating profit
    
    
    483
    
    
    
    424Exceptional items
    
    
    (51
    )
    
    
    (91
    )Operating profit
    
    
    432
    
    
    
    333




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewUK gas distribution
    
    47
  Revenueand otheroperating
    
    
    Operating
    
    
    Operatingincome
    
    
    costs
    
    
    profit£m
    
    
    £m
    
    
    £m2004/05 results
    
    
    1,113
    
    
    
    (780
    )
    
    
    333Add back 2004/05 exceptional items
    
    
    
    
    
    
    91
    
    
    
    912004/05 adjusted results
    
    
    1,113
    
    
    
    (689
    )
    
    
    424Business rates pass-through
    
    
    23
    
    
    
    (23
    )
    
    
    Weather and volumes
    
    
    12
    
    
    
    
    
    
    
    12Other price changes
    
    
    10
    
    
    
    
    
    
    
    10Way Ahead operating costs
    
    
    
    
    
    
    52
    
    
    
    52Gas commodity costs
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Other revenues and costs
    
    
    68
    
    
    
    (66
    )
    
    
    22005/06 adjusted results
    
    
    1,226
    
    
    
    (743
    )
    
    
    4832005/06 exceptional items
    
    
    
    
    
    
    (51
    )
    
    
    (51
    )2005/06 results
    
    
    1,226
    
    
    
    (794
    )
    
    
    432
        Capital expenditure
  2006
    
    
    2005Years ended 31 March
    
    £m
    
    
    £mCapital expenditure
    
    
    149
    
    
    
    120Replacement expenditure
    
    
    295
    
    
    
    239Gross investment in the continuing business
    
    
    444
    
    
    
    359




---



##### Table of Contents



48
    
    Operating and Financial ReviewUS electricity and gas distribution
    
   Annual Report and Accounts 2005/06National Grid
 
 US electricity and gas distribution
  
 Principal activities
  External and regulatory environment
     Business drivers
     New York
    
    Our electricity delivery rates are governed by a ten-year rate plan that began on 1 February 2002. Under
the plan, after reflecting our share of savings related
to the acquisition of our New York business, we may
earn a threshold return on equity for our electricity
distribution business of 10.6%, or 12.0% if certain
customer outreach, education, competition-related
and low income incentive targets are met, and half
of any earnings in excess of that amount up to 14%,
25% of any earnings in excess of that up to 16% and
10% beyond that.This effectively offers us the potential to achieve
a return in excess of the regulatory allowed return
of 10.6%.Under the plan, gas delivery rates were frozen until
the end of the 2004 calendar year, and we now have
the right to request an increase at any time, if
needed. We may earn a threshold return on equity
ranging from 10.6% to 12.6% depending on the
achievement of certain customer migration levels
and customer awareness and understanding of gas
competitive opportunities. Above this threshold, the
revenue equivalent of gas earnings must be shared
equally between shareholders and customers.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewUS electricity and gas distribution
    
    49
 Massachusetts
    
    Under our long-term rate plan in Massachusetts,
which runs until 2020, there is no cap on earnings
and no earnings-sharing mechanism until 2010. From
May 2000 until February 2005, rates were frozen. In
March 2005, a settlement credit in the companys
rates expired, which represents an increase of
£6 million in pre-tax income through to
February 2006.From March 2006, rates are adjusted each March
until 2009 by the annual percentage change in
average electricity distribution rates in the
northeastern US. Regulators approved the first such
annual increase in the amount of £11 million, effective
1 March 2006. In 2009, actual earned savings will be
determined and we will be allowed to retain 100%
of annual earned savings up to £39 million and 50%
of annual earned savings between £39 million and
£81 million before tax. Earned savings represent
the difference between a test years distribution
revenue and our cost of providing service during
the same test year, including a regional average
authorised return.These efficiency incentive mechanisms provide an
opportunity to achieve returns in excess of traditional
regulatory allowed returns. We will be allowed to
include our share of earned savings in demonstrating
our costs of providing service to customers from
January 2010 until May 2020.Rhode Island
    
    Our distribution rates in Rhode Island are also
governed by a long-term rate plan. Between May
2000 and the end of October 2004, rates were
frozen, and we were permitted to retain 100% of our
Rhode Island earnings up to an allowed return on
equity of 12%. We kept 50% of earnings between
12% and 13%, and 25% of earnings in excess of
13%. With effect from November 2004 until
December 2009, we agreed to lower our rates by
£6 million before tax per year.From January 2005 onwards we are able to keep
an amount equal to 100% of our earnings up to an
allowed return on equity of 10.5%, plus £2.6 million
before tax, which represents our share of
demonstrated savings subsequent to the acquisition
of Eastern Utilities Associates in 2000. Earnings
above that amount up to an additional 1% return on
equity are to be shared equally with our customers,
while additional earnings will be allocated 75% to
customers and 25% to us. This regulatory
mechanism offers the potential to achieve returns in
excess of traditional regulatory allowed returns.New Hampshire
    
    Our distribution rates in New Hampshire are based
on our costs of providing distribution service plus
a return on our investment, predominantly in the
distribution system infrastructure. These rates are
authorised by the New Hampshire Public Utilities
Commission.
 Objectives and strategy
     n
    
    vegetation management  incremental tree trimming to address an increase in customer interruptions related to contacts with tree limbs;n
    
    feeder hardening  upgrading our worst-performing overhead electric circuits by replacing aged and deteriorated
components and protecting against lightning strikes and animal contacts;n
    
    asset replacement  replacing aging distribution equipment before its expected end of life, including poles, underground cable and substation
equipment; andn
    
    inspection and maintenance  increasing our preventive maintenance and repair activities to find potential faults before they occur.




---



##### Table of Contents



50
    
    Operating and Financial ReviewUS electricity and gas distribution
    
   Annual Report and Accounts 2005/06National Grid
       Operational performance
  Safety
    
    The number of employee lost time injuries in the US
electricity and gas distribution business fell from 81
recorded at the end of 2004/05 to 66 in 2005/06,
a decrease of 19%.As a consequence, our lost time injury frequency rate
reduced from 0.5 in 2004/05 to 0.45 in 2005/06.Customer service
    
    We met or improved our standards on customer
service, earning an incentive of £2.3 million in
Massachusetts.Reliability
    
    We missed targets for reliability in the 2005 calendar
year, incurring an aggregate penalty of £8.7 million.
We are committed to reducing the frequency and
duration of service interruptions.
 Financial performance
  2005constant2006
    
    
    currency
    
    
    2005Years ended 31 March
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    3,711
    
    
    
    3,225
    
    
    
    3,087Other operating income
    
    
    2
    
    
    
    
    
    
    
    Operating costs excluding
exceptional items
    
    
    (3,349
    )
    
    
    (2,833
    )
    
    
    (2,712
    )Adjusted operating profit
    
    
    364
    
    
    
    392
    
    
    
    375Exceptional items
    
    
    
    
    
    
    (122
    )
    
    
    (117
    )Operating profit
    
    
    364
    
    
    
    270
    
    
    
    258
   Revenueand otheroperating
    
    
    Operating
    
    
    Operatingincome
    
    
    costs
    
    
    profit£m
    
    
    £m
    
    
    £m2004/05 results
    
    
    3,087
    
    
    
    (2,829
    )
    
    
    258Add back 2004/05 exceptional items
    
    
    
    
    
    
    117
    
    
    
    1172004/05 adjusted results
    
    
    3,087
    
    
    
    (2,712
    )
    
    
    375Exchange movements
    
    
    138
    
    
    
    (121
    )
    
    
    172004/05 constant currency
    
    
    3,225
    
    
    
    (2,833
    )
    
    
    392Purchased power
    
    
    439
    
    
    
    (444
    )
    
    
    (5
    )Volume
    
    
    18
    
    
    
    
    
    
    
    18Weather
    
    
    14
    
    
    
    
    
    
    
    14Storm costs
    
    
    
    
    
    
    (13
    )
    
    
    (13
    )Depreciation and amortisation
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )Pension costs
    
    
    
    
    
    
    (23
    )
    
    
    (23
    )Other
    
    
    17
    
    
    
    (29
    )
    
    
    (12
    )2005/06 results
    
    
    3,713
    
    
    
    (3,349
    )
    
    
    364




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewUS electricity and gas distribution and US stranded cost recoveries
    
    51
 Capital investment
   
 US
stranded cost recoveries
  Principal activities
    USGen settlement
     Financial performance
  2005constant2006
    
    
    currency
    
    
    2005Years ended 31 March
    
    £m
    
    
    £m
    
    
    £mRevenue
    
    
    511
    
    
    
    427
    
    
    
    409Operating costs excluding remeasurements
    
    
    (22
    )
    
    
    59
    
    
    
    56Adjusted operating profit
    
    
    489
    
    
    
    486
    
    
    
    465Remeasurements
    
    
    (49
    )
    
    
    (40
    )
    
    
    (38
    )Operating profit
    
    
    440
    
    
    
    446
    
    
    
    427




---



##### Table of Contents



52
    
    Operating and Financial ReviewWireless infrastructure
    
   Annual Report and Accounts 2005/06National Grid
 
 Wireless infrastructure
  
 Principal activities
   UK mobile telephone infrastructure
    
    We have around 5,000 active sites used for mobile
communications. Our main activity is the provision
of sites under contracts to the UKs five mobile
phone operators. In addition, sites are also used by
other customers such as the emergency services and
taxi companies. We also provide other services such
as site design, antenna installation and project
management. In total we have around 13,500
marketable sites.As the leading independent provider of network
infrastructure to mobile operators, with a substantial
portfolio of undeveloped sites, the business is well
positioned to benefit from continued demand for
mobile infrastructure, not least the roll-out of 3G
networks.UK broadcast infrastructure
    
    Our broadcast transmission business is a network
of transmission towers and broadcast equipment. It
has contracts to transmit analogue and digital radio
and television signals for reception by the public from
content providers such as the BBC, BSkyB, MTV,
Channel 4, Virgin Radio and talkSPORT. We own
some 750 purpose-built broadcast towers and
associated transmission equipment used for this
purpose. We also hold licences for two digital
television multiplexes utilised by broadcasters
to broadcast eleven digital channels in the UK.US operations
    
    Our US business provides communications
infrastructure and related network services to wireless
and fixed network operators in the northeastern US.
Services include the use of communication towers,
wireless pylon attachments, distributed antenna
system networks and related network services and
a dark fibre network.
 External and regulatory environment
     Business drivers
  Multi-year contractual arrangements
    
    We have contracts with a number of broadcasters,
of which the most significant is our contract with
the BBC. We also have long-term contracts with
mobile telecommunication providers in the UK,
including Vodafone, Orange, T-Mobile, Hutchinson
3G and O2.UK digital switchover
    
    The switchover in the UK from analogue to digital
television by 2012 will have major capital investment
implications as well as freeing up spectrum for
alternative uses.Mobile operator demand
    
    Another driver of our business is the continued
demand for site infrastructure to support the
expansion of the mobile operators networks,
particularly important to the roll out of 3G. The advent
of new technologies such as mobile television may
drive future increases in demand.Channel technology
    
    We expect the broadcast business to continue to
benefit from advances in technology over time,
allowing additional channels to be offered to the
marketplace.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewWireless infrastructure
    
    53
  Completion of integration
   New digital multiplex channels
  UK digital switchover
    Network access price control
    Operating performance
 Objective
    
    PerformanceSafety
    
    The major operational risks in our business arise
from working at height and driving. During 2005/06,
Wireless infrastructure had one employee lost time
injury compared with five in 2004/05.As a consequence our lost time injury frequency rate
reduced from 0.25 in 2004/05 to 0.07 in 2005/06.Reliability
    
    Our broadcast networks operate with an average
availability in excess of 99.9%.Efficiency
    
    We achieved our target of £18 million annualised
cash savings in January 2006, two months ahead
of target.Improvements in multiplexing technology allowed us
to offer a further three new channels for commercial
broadcasting, bringing the total number of television
channels to eleven across our two multiplexes.
 Financial performance
  2006
    
    
    2005Years ended 31 March
    
    £m
    
    
    £mRevenue
    
    
    325
    
    
    
    208Other operating income
    
    
    
    
    
    
    3Operating costs excluding exceptional items
    
    
    (250
    )
    
    
    (169
    )Adjusted operating profit
    
    
    75
    
    
    
    42Exceptional items
    
    
    (5
    )
    
    
    (13
    )Operating profit
    
    
    70
    
    
    
    29
  Revenueand otheroperating
    
    
    Operating
    
    
    Operatingincome
    
    
    costs
    
    
    profit£m
    
    
    £m
    
    
    £m2004/05 results
    
    
    211
    
    
    
    (182
    )
    
    
    29Add back 2004/05 exceptional items
    
    
    
    
    
    
    13
    
    
    
    132004/05 adjusted results
    
    
    211
    
    
    
    (169
    )
    
    
    42Full year trading results and synergies
    
    
    114
    
    
    
    (81
    )
    
    
    332005/06 adjusted results
    
    
    325
    
    
    
    (250
    )
    
    
    752005/06 exceptional items
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )2005/06 results
    
    
    325
    
    
    
    (255
    )
    
    
    70
   Capital expenditure




---



##### Table of Contents



54
    
    Operating and Financial ReviewOther activities
    
   Annual Report and Accounts 2005/06National Grid
 
 Other activities
  Principal activities
  Businessor activity
    
    DescriptionMetering
    
    National Grid Metering and OnStream provide
installation, maintenance and meter reading services
to gas and electricity suppliers in the regulated and
unregulated markets.National Grid Metering provides services for an asset
base of around 20 million domestic, industrial and
commercial gas meters.OnStreams focus is the provision of metering
services to the competitive market.National Grid
Australia
    
    The Basslink project is a 600 MW interconnector
linking the electricity network on the island state of
Tasmania to mainland Australia.Grain LNG
    
    The Isle of Grain liquefied natural gas (LNG) import
terminal is the first new LNG import terminal
constructed and operated in the UK for some 20
years, involving planned investment of approximately
£500 million for Phases I and II.National Grid
Property
    
    National Grid Property is responsible for the
management of all major occupied properties in
the UK, and for the management, clean up and
disposal of surplus properties, largely comprising
contaminated former gas works.Fulcrum
Connections
    
    Fulcrum Connections is the largest provider of gas
connections and associated design services with a
national footprint in the UK.Advantica
    
    Advantica is a consultancy providing engineering
and software services to enhance safety in the gas,
oil, electricity and water sectors, primarily in the
UK and US.Corporate
activities
    
    This includes corporate overheads that are not
allocated to individual businesses, and expenditure
incurred on business development.
 External and regulatory environment
     Business drivers
  Regulatory
price controls
    
    National Grid Metering operates within the
parameters set out within its licence.Multi-year
contractual
arrangements
    
    The majority of National Grid Meterings domestic
meters are covered by long-term contracts with gas
suppliers. These contracts provide gas suppliers with
the flexibility to replace our meters while reducing the
risk of asset stranding.OnStream has a five-year contract with Centrica for
the provision of gas and electricity meters.National Grid Australia has a 25-year contract with
Hydro Tasmania to build, own and operate the
Basslink Interconnector.Phase I of Grain LNG is underpinned by a long-term
contract with BP/Sonatrach. Similarly Phase II,
currently under construction, is underpinned by long-term contracts signed with Centrica, Gaz de France
and Sonatrach.Capital
investment
    
    We seek to make capital investments in projects
that utilise our infrastructure expertise, such as our
investments in Grain LNG and Basslink, which we
believe will result in returns being generated from the
operation of these assets.Efficiency
    
    Efficiency in delivering capital programmes and in
operating our other businesses and corporate
activities results in driving improved financial
performance.
  Grain LNG




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewOther activities
    
    55
 National Grid Australia
    Metering
  Other developments
   Operating performance
  Objective
    
    PerformanceSafety
    
    There was an increase in the total number of employee
lost time injuries in other businesses and corporate
activities from 10 in 2004/05 to 12 in 2005/06.Reliability
    
    Our other businesses operated reliably throughout
the year.Invest for
future growth
    
    We completed two major capital investment projects,
being Phase I of Grain LNG, which commenced
operations in July 2005, and the Basslink Interconnector,
which commenced operations in April 2006.
 Financial performance
  2006
    
    
    2005Years ended 31 March
    
    £m
    
    
    £mRevenue
    
    
    701
    
    
    
    734Other operating income
    
    
    74
    
    
    
    67Operating costs excluding exceptional items
    
    
    (630
    )
    
    
    (649
    )Adjusted operating profit
    
    
    145
    
    
    
    152Exceptional items
    
    
    18
    
    
    
    (33
    )Operating profit
    
    
    163
    
    
    
    119
  Revenueand otheroperating
    
    
    Operating
    
    
    Operatingincome
    
    
    costs
    
    
    profit£m
    
    
    £m
    
    
    £m2004/05 results
    
    
    801
    
    
    
    (682
    )
    
    
    119Add back 2004/05 exceptional items
    
    
    
    
    
    
    33
    
    
    
    332004/05 adjusted results
    
    
    801
    
    
    
    (649
    )
    
    
    152Metering
    
    
    (10
    )
    
    
    38
    
    
    
    28Property
    
    
    (4
    )
    
    
    (10
    )
    
    
    (14
    )Grain LNG
    
    
    27
    
    
    
    (16
    )
    
    
    11Insurance
    
    
    (15
    )
    
    
    2
    
    
    
    (13
    )Other
    
    
    (24
    )
    
    
    5
    
    
    
    (19
    )2005/06 adjusted results
    
    
    775
    
    
    
    (630
    )
    
    
    1452005/06 exceptional items
    
    
    
    
    
    
    18
    
    
    
    182005/06 results
    
    
    775
    
    
    
    (612
    )
    
    
    163
    Capital expenditure




---



##### Table of Contents



56
    
    Operating and Financial ReviewFinancial position and financial management
    
   Annual Report and Accounts 2005/06National Grid
 
 Financial position and financial management
     Balance sheet
  NetAssets
    
    
    Liabilities
    
    
    assets£m
    
    
    £m
    
    
    £mProperty, plant & equipment
and non-current intangible assets
    
    
    19,256
    
    
    
    
    
    
    
    19,256Goodwill and non-current investments
    
    
    2,302
    
    
    
    
    
    
    
    2,302Current assets and liabilities
    
    
    1,668
    
    
    
    (2,749
    )
    
    
    (1,081
    )Other non-current assets and liabilities
    
    
    38
    
    
    
    (2,255
    )
    
    
    (2,217
    )Post-retirement obligations
    
    
    
    
    
    
    (1,915
    )
    
    
    (1,915
    )Deferred tax
    
    
    159
    
    
    
    (2,161
    )
    
    
    (2,002
    )Total before net debt
    
    
    23,423
    
    
    
    (9,080
    )
    
    
    14,343Net debt
    
    
    2,501
    
    
    
    (13,351
    )
    
    
    (10,850
    )Total as at 31 March 2006
    
    
    25,924
    
    
    
    (22,431
    )
    
    
    3,493Total as at 31 March 2005
    
    
    27,560
    
    
    
    (25,439
    )
    
    
    2,121
  Net debt and gearing
  
    2006
    
    
    2005Adjustment to net assets
    
    £m
    
    
    £mNet assets per balance sheet
    
    
    3,493
    
    
    
    2,121Adjustment for UK business regulatory values
    
    
    2,815
    
    
    
    5,821Adjustment for US regulatory assets
    
    
    2,702
    
    
    
    2,754Deferred tax
    
    
    (1,925
    )
    
    
    (2,848
    )Adjusted net assets
    
    
    7,085
    
    
    
    7,848
 Shareholders equity
   Cash flow
  Cash flow forecasting




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewFinancial position and financial management
    
    57
 Credit facilities and unutilised Commercial Paper and Medium Term Note Programmes
     
    Treasury policy




---



##### Table of Contents



58
    
    Operating and Financial ReviewFinancial position and financial management
    
   Annual Report and Accounts 2005/06National Grid
 Refinancing risk management
  Interest rate risk management
   Foreign exchange risk management
     Counterparty risk management
  Derivative financial instruments held for purposes other than trading
     Valuation and sensitivity analysis




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewFinancial position and financial management
    
    59
     Power purchase contracts for normal sale and purchase
  Commodity derivatives
   Commodity contracts carried at fair value




---



##### Table of Contents



60
    
    Operating and Financial ReviewFinancial position and financial management
    
   Annual Report and Accounts 2005/06National Grid
  Commodity trading
     2006
    
    
    2005£m
    
    
    £mFuture capital expenditure contracted
but not provided for
    
    
    1,343
    
    
    
    927Total operating lease commitments
    
    
    831
    
    
    
    930Power commitments
    
    
    5,453
    
    
    
    4,915Other commitments, contingencies and guarantees
    
    
    334
    
    
    
    349
     Contractual obligations at 31 March 2006
   Less than
    
    
    
    
    
    
    
    
    
    
    More thanContractual obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsTotal borrowings
    
    
    13,126
    
    
    
    2,839
    
    
    
    1,690
    
    
    
    1,383
    
    
    
    7,214Derivative financial
liabilities
    
    
    222
    
    
    
    92
    
    
    
    6
    
    
    
    7
    
    
    
    117Operating lease
commitments
    
    
    831
    
    
    
    87
    
    
    
    156
    
    
    
    138
    
    
    
    450Purchase obligations
    
    
    6,796
    
    
    
    2,847
    
    
    
    1,688
    
    
    
    682
    
    
    
    1,579Trade and other liabilities
reflected in the
balance sheet
    
    
    2,394
    
    
    
    1,756
    
    
    
    420
    
    
    
    125
    
    
    
    9323,369
    
    
    
    7,621
    
    
    
    3,960
    
    
    
    2,335
    
    
    
    9,453
 Off balance sheet arrangements
   UK retirement arrangements
  n
    
    the National Grid UK Pension Scheme, formerly
named the Lattice Group Pension Scheme (National
Grid UK Scheme);n
    
    the National Grid Electricity
Group of the Electricity Supply Pension Scheme
(National Grid Electricity Scheme); andn
    
    the National Grid Wireless Pension Scheme, formerly
named the Crown Castle UK Pension Scheme (the
Wireless Scheme).




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewFinancial position and financial management
    
    61
     US retirement arrangements




---



##### Table of Contents



62
    
    Operating and Financial ReviewAccounting policies
    
   Annual Report and Accounts 2005/06National Grid
 
 Accounting policies
            Replacement
expenditure
    
    Replacement expenditure, primarily relating to our UK
gas distribution networks, was expensed under UK
GAAP but is capitalised under IFRS.Regulatory
assets
    
    Regulatory assets, principally representing the right to
recover revenues in the future from customers in
accordance with rate plans, were recorded as assets
under UK GAAP. Under IFRS these are not
recognised as assets.Goodwill and
intangible
assets
    
    Goodwill was amortised under UK GAAP. Under IFRS
goodwill is not amortised, and we have elected to
retain the goodwill balance under UK GAAP at
31 March 2004 as our brought forward goodwill
balance at 1 April 2005 under IFRS.

Under IFRS more intangibles, such as customer
relationships acquired in a business combination, are
recognised as assets than was the case under UK
GAAP. These intangible assets are amortised over
their useful economic lives.Post-retirement
benefits
    
    Under IFRS the actuarially calculated value of
obligations in respect of pensions and other post-retirement benefit plans are recorded in the balance
sheet, net of the market value of scheme
investments. Changes in the value of the net liability
that differ from the actuarially calculated service cost
and expected investment returns and interest
charges are recorded as actuarial gains and losses in
the statement of recognised income and expense.Deferred
taxation
    
    Deferred tax under UK GAAP was recorded based
on timing differences. Under IFRS deferred tax is
recorded based on temporary differences, in most
cases being the difference between an assets or a
liabilitys carrying value in the balance sheet and its
associated tax basis.Proposed
final
dividend
    
    Under UK GAAP the proposed final dividend was
recorded as a liability in the balance sheet. Under IFRS
it is not recorded as a liability until the subsequent
financial period.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewAccounting policies
    
    63
 Summary of the impact of adoption of IFRS
  31 March
    
    
    1 April2005
    
    
    2004£m
    
    
    £mNet assets as reported under UK GAAP
    
    
    1,391
    
    
    
    1,271Replacement expenditure
    
    
    3,014
    
    
    
    2,778Non recognition of regulatory assets
    
    
    (1,587
    )
    
    
    (1,791
    )Goodwill and intangible assets
    
    
    127
    
    
    
    Post-retirement benefits
    
    
    (1,149
    )
    
    
    (1,382
    )Deferred taxation
    
    
    (95
    )
    
    
    (84
    )Proposed final dividend
    
    
    469
    
    
    
    366Non-equity minority interests
    
    
    (22
    )
    
    
    (38
    )Other
    
    
    (27
    )
    
    
    (10
    )Net assets reported under IFRS
    
    
    2,121
    
    
    
    1,110
  2005£mProfit for the year as reported under UK GAAP
    
    
    907Replacement expenditure
    
    
    236Non recognition of regulatory assets
    
    
    151Goodwill and intangible assets
    
    
    105Post-retirement benefits
    
    
    41Deferred taxation
    
    
    (11
    )Non-equity minority interests
    
    
    (2
    )Other
    
    
    (3
    )Profit for the year reported under IFRS
    
    
    1,424Less: profit for the year from discontinued operations
    
    
    (304
    )Profit for the year from continuing operations
    
    
    1,120
 Accounting for financial instruments
    Choices made in adopting IFRS
  Option
    
    Choices available
    
    Choice adoptedDate of transition to IFRS
    
    1 April 2003  two periods of IFRS comparatives
    
    1 April 2004  one period of IFRS comparatives1 April 2004  one period
of IFRS comparativesBusiness
combinations
    
    Restate some or all previous
combinations
    
    Do not restate
prior business
combinations
(in particular, retain
merger accounting
for Lattice merger)Do not restate prior business
combinationsPensions
    
    Recognise actuarial gains
and losses each year
    
    Recognise actuarial
gains and losses
each year in the
statement of
recognised income and expenseAdopt corridor method
going forwardAdopt corridor method
retrospectivelyFinancial
instruments
    
    Adopt IAS 39 retrospectively
    
    Adopt IAS 39 on
1 April 2005Adopt IAS 39 on 1 April 2004Adopt IAS 39 on 1 April 2005Carrying value
of assets at
    
    Depreciated cost (adjusted
for IFRS changes)
    
    Depreciated cost
(adjusted for IFRS
changes) in most
casesdate of
transition
    
    Fair value at date of transitionShare-based
payments
    
    Recognise all active grants
retrospectively
    
    Recognise all
active grants retrospectively (already adopted
under UK GAAP
with FRS 20)Recognise only grants since
7 November 2002Cumulative
translation differences on foreign subs
    
    Restate cumulative translations retrospectively
    
    Cumulative differences from 1 April 2004 onlyCumulative differences from 1 April 2004 onlyJoint ventures
    
    Equity account jointly controlled entities
    
    Equity account jointly controlled entitiesProportionally consolidate
jointly controlled entitiesUse of
UK GAAP or
IFRS in
    
    Adopt IFRS for parent
company and subsidiaries
    
    Retain UK GAAP for parent and subsidiaries individual financial statementsindividual
accounts
    
    IFRS for parent, UK GAAP
for subsidiariesRetain UK GAAP for parent
and UK subsidiaries




---



##### Table of Contents



64
    
    Operating and Financial ReviewAccounting policies
    
   Annual Report and Accounts 2005/06National Grid
     Estimated
asset economic lives
    
    The reported amounts for amortisation of intangible
fixed assets and depreciation of property, plant and
equipment can be materially affected by the
judgements exercised in determining their estimated
economic lives.

Intangible asset amortisation and depreciation
of property, plant and equipment for continuing
operations amounted to £57 million and £895 million
respectively in 2005/06 and £45 million and
£774 million respectively in 2004/05.Carrying value
of assets and
potential for
impairments
    
    The carrying value of assets recorded in the
consolidated balance sheet could be materially
reduced if an impairment were to be assessed as
being required. Our total assets at 31 March 2006
were £25,924 million, including £18,935 million of
property, plant and equipment, £2,142 million of
goodwill and £321 million of other intangible assets.
Impairment reviews are carried out either when a
change in circumstance is identified that indicates an
asset might be impaired or, in the case of goodwill,
annually. An impairment review involves calculating
either or both of the fair value or the value-in-use of
an asset or group of assets and comparing with the
carrying value in the balance sheet. These
calculations involve the use of assumptions as to the
price that could be obtained for, or the future cash
flows that will be generated by, an asset or group of
assets, together with an appropriate discount rate to
apply to those cash flows.Revenue accruals
    
    Revenue includes 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.
Our estimates of unbilled revenues in 2005/06
amounted to £169 million in the US and £268 million
in the UK compared with £130 million and £276 million
respectively in 2004/05.Assets and
liabilities carried
at fair value
    
    Certain assets and liabilities, principally financial
investments, derivative financial instruments and
certain commodity contracts are carried in the
balance sheet at their fair value rather than
historical cost.
The fair value of financial investments is based on
market prices, as are those of derivative financial
instruments where market prices exist. Other
derivative financial instruments and those commodity
contracts carried at fair value are valued using
financial models, which include judgements on, in
particular, future movements in exchange and interest
rates as well as equity and commodity prices.Hedge accounting
    
    We use derivative financial instruments to hedge
certain economic exposures arising from movements
in exchange and interest rates or other factors that
could affect either the value of our assets or liabilities
or affect our future cash flows.
Movements in the fair values of derivative financial
instruments may be accounted for using hedge
accounting where we meet the relevant eligibility,
documentation and effectiveness testing
requirements. If a hedge does not meet the strict
criteria for hedge accounting, or where there is
ineffectiveness or partial ineffectiveness, then the
movements will be recorded in the income statement
immediately instead of being recognised in the
statement of recognised income and expense or
being offset by adjustments to the carrying value of
debt.Pensions
and other
post-retirement
benefit plans
    
    Pensions and other post-retirement benefit obligations
recorded in the balance sheet are calculated actuarially
using a number of assumptions about the future
including inflation, salary increases, length of service
and pension and investment returns, together with
the use of a discount rate based on corporate bond
yields to calculate the present value of the obligation.
The selection of these assumptions can have a
significant impact on both the pension obligation
recorded in the balance sheet and on the net charge
recorded in the income statement.Assets held
for sale and
discontinued
operations
    
    At 31 March 2005, the planned sales of four of our
regional gas distribution networks did not meet the
criteria to be classified as assets held for sale. On
1 May 2005, these criteria were met and the assets
and liabilities of these businesses were classified as
assets held for sale and depreciation ceased from
that date until their disposal on 1 June 2005.
The results of these operations have been classified
as discontinued operations and the comparatives
reclassified accordingly.
The determination of the date that the planned sales
met the criteria to be classified as assets held for sale
is a matter of judgement by management, with
consequential impact on balance sheet presentation
and the amount recorded for depreciation in the
results of the discontinued operation.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewAccounting policies
    
    65
 Exceptional items
    
    Exceptional items, in particular restructuring costs, are
items of income or expense that are identified as
being material or one-off in nature that need to be
separately identified in the income statement.
Restructuring costs principally comprise severance
or other costs necessary to complete a major
programme of restructuring.Judgement is required in deciding the classification
of items as exceptional.Provisions
    
    Provision is made for liabilities that are uncertain
in timing or amount of settlement. These include
provisions for the cost of environmental restoration
and remediation, asset decommissioning,
restructuring and employer and public liability claims.Calculations of these provisions are 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 and
decommissioning liabilities are based on
management estimates supported by the use of
external consultants.At 31 March 2006, we have recorded provisions
totalling £771 million (2005: £791 million), including
£429 million (2005: £491 million) and £127 million
(2005: £105 million) in respect of environmental
and decommissioning liabilities respectively.Tax estimates
    
    The Groups tax charge is based on the profit for the
year and tax rates in effect. The determination of
appropriate provisions for taxation requires us to take
into account anticipated decisions of tax authorities
and estimate our ability to utilise tax benefits through
future earnings and tax planning. Our estimates and
assumptions may differ from future events.
  Assets
useful
economic lives
    
    An increase in the useful economic lives of assets
of one year on average would reduce our annual
depreciation charge on property, plant and
equipment by approximately £40 million and our
annual amortisation charge on intangible assets by
£9 million.Revenue
accruals
    
    A 10% change in our estimate of unbilled revenues
at 31 March 2006 would result in an increase or
decrease in our recorded net assets and profit for
the year of approximately £22 million net of tax.Assets
carried at fair value
    
    A 10% change in assets and liabilities carried at fair
value would result in an increase or decrease in the
carrying value of derivative financial instruments and
commodity contract liabilities of £44 million and
£49 million respectively.Hedge accounting
    
    If the gains and losses arising on derivative financial
instruments during the year ended 31 March 2006
had not achieved hedge accounting, the profit for the
year would have been £131 million lower than that
reported net of tax and net assets would have been
£1 million lower.Provisions
    
    A 10% change in the estimates of future cash flows
in respect of provisions for liabilities would result in an
increase or decrease in net assets of approximately
£50 million net of tax.
  New IFRS accounting standards and interpretations adopted in 2005/06
  Capital resource disclosures
    
    Amendment to IAS 1: Presentation of Financial
Statementsrequires new disclosures to be made
about management of capital resources and
compliance with capital requirements.Actuarial gains and
losses
    
    Amendment to IAS 19
Employee Benefits: Actuarial Gains and Losses, Group Plans and
Disclosuresenables actuarial gains and losses in
respect of the Groups defined benefit schemes to be
recognised in the statement of recognised income
and expense.Cash flow hedges
    
    Amendment to IAS 39
Financial Instruments: Recognition and Measurement: Cash Flow Hedge
Accounting of Forecast Intra-group Transactions
allows the foreign currency risk of a highly probable
forecast intra-group transaction to qualify as a
hedged item in consolidated financial statements,
provided that the transaction is denominated in a
currency other than the functional currency of the
entity entering into that transaction and the foreign
currency risk will affect consolidated profit or loss.Financial instrument disclosures
    
    IFRS 7 Financial Instruments: Disclosuresreplaces
the disclosure requirements in IAS 32 and locates
in one place all disclosures relating to financial
instruments. The new requirements incorporate many
of IAS 32s disclosures as well as additional
qualitative and quantitative disclosures on the risks
arising from financial instruments.
 Forthcoming changes in IFRS
  Leases
    
    International Financial Reporting Interpretations
Committee (IFRIC) No. 4 Determining whether an
arrangement contains a leaseprovides guidance
on determining whether arrangements which convey
the right to use an asset in return for a series of
payments should be accounted for in accordance
with IAS 17 Leases.Share-based payments
    
    IFRIC 8 Scope of IFRS 2addresses the issue of
whether IFRS 2 Share Based Payment applies
to transactions in which the entity cannot identify
specifically some or all of the goods or services
received.Embedded derivatives
    
    IFRIC 9 Reassessment of Embedded Derivatives
prohibits reassessment of the treatment of embedded
derivatives subsequent to initial recognition unless
there is a change in the terms of the contract that
significantly modifies the cash flows which otherwise
would be required under the contract, in which case
reassessment is required.




---



##### Table of Contents



66
    
    Operating and Financial ReviewAccounting policies
    
   Annual Report and Accounts 2005/06National Grid
  Overview
  Results and financial position under US GAAP
     Merger with Lattice Group
    
    The application of UK GAAP to the business
combination of National Grid Group and Lattice
Group in 2002/03 resulted in the transaction
being treated as a merger. As permitted by IFRS,
merger accounting for this transaction continues
under IFRS. Under US GAAP, purchase accounting
was applied rather than merger accounting, and
National Grid Group (now National Grid) was viewed
as the acquirer of Lattice Group.The results of the Group under US GAAP include the
results of Lattice Group only from 21 October 2002,
the date of the business combination and not prior to
that date.In addition, the recognition of Lattice Groups assets
and liabilities at fair value under US GAAP resulted in
£3,824 million of goodwill being recognised.The former Lattice Group assets included the four
regional gas distribution networks that were disposed
of in 2005/06. The higher book value of these assets
under US GAAP resulted in a significantly lower gain
recognised on disposal. The gain on disposal under
US GAAP was £2 billion lower than under IFRS.Regulatory assets
    
    These assets are recorded in the US GAAP balance
sheet in accordance with the principles of SFAS 71
Accounting for the Effects of Certain Types of
Regulation. SFAS 71 provides that certain costs may
be deferred on the balance sheet (referred to as
regulatory assets) if it is probable that the costs will
be recovered through future increases in regulated
revenue rates. An entity applying SFAS 71 does not
need absolute assurance prior to capitalising a cost,
only reasonable assurance. If the principles of SFAS
71 were not applicable, it is likely that this would
result in the full or partial non-recognition of these
regulatory assets and thereby materially alter the view
given under US GAAP.The total carrying value of regulatory assets,
under US GAAP, at 31 March 2006 amounted to
£3,051 million (£3,350 million at 31 March 2005).Derivatives
    
    Under US GAAP, all derivatives are recorded at fair
value except those that qualify for exemptions, such
as normal purchase rules for commodity contracts.
Changes in fair values of derivatives not designated
as a hedge under US GAAP are recorded through
earnings. The Group applies a hedging strategy
which meets IFRS requirements, but many of these
hedges do not meet the requirements to achieve
hedge accounting under US GAAP. This results in a
much greater volatility in the US GAAP income
statements. Under IFRS, the Group did not adopt
IAS 39 until 1 April 2005 and, therefore, did not
record derivatives at fair value in the year ended
2004/05. Upon adoption of IAS 39, the Group
recorded its outstanding derivatives at fair value and
took advantage of certain transition accommodations
that allowed for hedge accounting. These transition
alternatives were not available under US GAAP.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Operating and Financial ReviewAccounting policies
    
    67
 Pensions
    
    Under US GAAP, when the amount of pension
scheme assets is less than the accumulated benefit
obligation of that scheme, a minimum pension liability
is recognised. When compared with IFRS, differences
in the measurement of pension obligations, plan
assets, and periodic pension expense exist. The
primary difference is the fact that under US GAAP,
the Group includes actuarial gains and losses as a
component of periodic pension expense but, under
IFRS, these items are recorded directly to equity.
Differences in key assumptions used to measure plan
assets and obligations also create differences.
 New US accounting pronouncements adopted during 2005/06
  Asset
retirement obligations
    
    FASB interpretation No. 47 Accounting for
Conditional Asset Retirement Obligations (FIN 47)
clarified that the term conditional asset retirement
obligation, as used in SFAS No. 143 Accounting for
Asset Retirement Obligations (SFAS 143), refers to a
legal obligation to perform an asset retirement activity
in which the timing and/or method of settlement are
conditional on a future event that may or may not be
within the control of the Group.The adoption of FIN 47 did not have a material
impact on the US GAAP consolidated financial
statements.
 Recent US pronouncements not yet adopted
  Share-based
payments
    
    FASB Statement No. 123
Share Based Payment (SFAS 123(R)) requires all share-based payments to
employees, including grants of employee stock
options, to be recognised in the income statement
based on their fair values. Pro forma disclosure is no
longer an alternative.SFAS 123(R) is similar to IFRS 2, and to the method
already adopted by the Group under FASB
Statement No. 148 Accounting for Stock Based
Compensation  Transition and Disclosure.Adoption of SFAS 123(R) is not expected to have
a material impact on our results of operations or
financial position under US GAAP when it is adopted
on 1 April 2006.Exchanges of
non-monetary
assets
    
    FASB Statement No. 153
Exchanges of Non-Monetary Assets (SFAS 153) removes an exemption
in APB Opinion No. 29 Accounting for Non-Monetary
Transactions (APB 29) which permitted
exchanges of similar productive assets to be
accounted for at the carrying value of the assets
relinquished. All non-monetary transactions (apart
from those without commercial substance) must in
future be recorded at fair value.The impact of the adoption of SFAS 153 cannot be
predicted at this time because it will depend on
whether applicable non-monetary transactions take
place after 1 April 2006.Carrying
value
of inventories
    
    FASB Statement No. 151
Inventory Costs  an
amendment of ARB No. 43 (SFAS 151) clarifies
that abnormal amounts of idle facility expense,
freight handling costs and wasted materials (spoilage)
should be recognised as current period expense.The adoption of SFAS 151 is not expected to have a
material effect on our results or financial position
under US GAAP.Accounting
for changes in accounting policies
    
    FASB Statement No. 154 Accounting Changes and
Error Corrections  a replacement of APB Opinion No. 20 and
FASB Statement No. 3 (SFAS 154) requires
retrospective application of prior periods financial
statements for changes in accounting principle.The adoption of SFAS 154 on
1 April 2006 will not
have a material effect on our US GAAP results and
financial position. However, there would be significant
differences in the presentation of changes in US
GAAP accounting policies if changes were to be
made in future periods compared with current
requirements.Hybrid
financial instruments
    
    FASB Statement No. 155 Accounting for Certain
Hybrid Financial Instruments  an amendment of SFAS
No. 133 and SFAS No. 140 (SFAS 155) provides
a fair value measurement option for certain hybrid
financial instruments, which allows the recording of
an entire financial instrument at fair value rather than
accounting for the host instrument and the embedded
derivative separately, simplifying the accounting for
these instruments. It also requires that beneficial
interests in securitised financial assets be analysed to
determine whether they are freestanding derivatives
or they are hybrid instruments that contain embedded
derivatives requiring separate recognition.The adoption of SFAS 155 is not expected to have a
material effect on our results or financial position
under US GAAP.




---



##### Table of Contents



68
    
    Corporate Governance
    
   Annual Report and Accounts 2005/06National Grid




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Corporate Governance
    
    69
   n
    
    continued monitoring of the balance of Board time spent on administration,
governance, operation and strategy to ensure adequate
time is spent on strategic debate;n
    
    consideration of additional site visits for Non-executive Directors
between scheduled Board meetings; andn
    
    more critical
feedback on information presented to the Board to
ensure content is appropriate and adequate.
  n
    
    a review of Matters Reserved to the Board; andn
    
    a review of Committee interfaces.
          n
    
    corporate governance;n
    
    strategy/finance;n
    
    approval of the Groups budget and business plan;n
    
    Director/employee issues;n
    
    Director succession planning;n
    
    listing requirements;n
    
    dividend policy; andn
    
    approval of results announcements and the Annual Report and Accounts.




---



##### Table of Contents



70
    
    Corporate Governance
    
   Annual Report and Accounts 2005/06National Grid
 www.nationalgrid.com/corporate/about+us
 Audit Committee
     n
    
    recommendation with respect to the level of audit fees paid to the external auditors;n
    
    reviews of external auditor non-audit fees and consultancy spend;n
    
    review of the performance of the external auditors;n
    
    International Financial Reporting Standards conversion project;n
    
    reports from the external auditors;n
    
    reports from the internal auditors;n
    
    review of results and Annual Report and Accounts;n
    
    reports on risk, compliance and business conduct (including whistleblowing);n
    
    reports on Sarbanes-Oxley compliance preparations;n
    
    review of the Audit Committee terms of reference;n
    
    evaluation of the external audit process;n
    
    review of independence and objectivity of the external auditors;n
    
    review of the effectiveness of internal controls for the year; andn
    
    reports from the disclosure committee.  Executive Committee
   n
    
    reports on safety, health and environment;n
    
    strategy/business development;n
    
    reports and discussions on human resources, succession planning and employee issues;n
    
    finance;n
    
    pensions;n
    
    budget and business plan;n
    
    foreign exchange and treasury management;n
    
    year-end processes (preliminary statements, assurance processes, dividend payments, review of internal controls); andn
    
    administrative items. Finance Committee
    n
    
    treasury performance and activity reports;n
    
    Group funding/debt;n
    
    long-term treasury performance management;n
    
    committed borrowing facilities;n
    
    US financing;n
    
    foreign exchange policy;n
    
    guarantees;n
    
    delegations of authority;n
    
    tax updates;n
    
    pensions;n
    
    insurance renewal; andn
    
    electricity and gas trading activity.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Corporate Governance
    
    71
 Nominations Committee
     n
    
    Board and Board Committee performance evaluation;n
    
    oversight of Group Chief Executive succession;n
    
    Non-executive Director succession; andn
    
    chairmanship of the Remuneration Committee.
   Remuneration Committee
       n
    
    remuneration issues and disclosure;n
    
    performance share plan update;n
    
    total shareholder return update;n
    
    Directors Remuneration Report;n
    
    bonuses and personal targets;n
    
    headroom/dilution update;n
    
    pensions update;n
    
    feedback on discussions with advisers;n
    
    tender for advisers; andn
    
    benchmarking and market trends.
 Risk & Responsibility Committee
     n
    
    Group risk, compliance (specifically non-financial items) and business conduct;n
    
    safety, health and environment audit programme and plan;n
    
    independent verification of non-financial data in the Annual Report and Accounts;n
    
    review of corporate responsibility issues relevant to the business;n
    
    non-financial performance targets;n
    
    work-related stress;n
    
    climate change;n
    
    human rights;n
    
    inclusion and diversity;n
    
    external advisers to the Risk & Responsibility Committee; andn
    
    electric and magnetic field science.




---



##### Table of Contents



72
    
    Corporate Governance
    
   Annual Report and Accounts 2005/06National Grid
 Board and Board Committee attendance
  Board CommitteesBoard
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Risk &meetings
    
    
    Audit
    
    
    Executive
    
    
    Finance
    
    
    Nominations
    
    
    Remuneration
    
    
    ResponsibilityTotal meetings during the year
    
    
    11
    
    
    
    6
    
    
    
    12
    
    
    
    5
    
    
    
    5
    
    
    
    8
    
    
    
    4Sir John Parker
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    Roger Urwin
    
    
    11
    
    
    
    
    
    
    
    12
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Steve Holliday
    
    
    11
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Steve Lucas
    
    
    10
    
    
    
    
    
    
    
    10
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Nick Winser
    
    
    11
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mike Jesanis
    
    
    11
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Edward Astle
    
    
    10
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ken Harvey
    
    
    10
    
    
    
    1
    (i)
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    8
    
    
    
    3
    (ii)John Allan
    
    
    7
    (iii)
    
    
    4
    (iii)
    
    
    
    
    
    
    
    
    
    
    
    (iv)
    
    
    5
    (iii)
    
    
    John Grant
    
    
    11
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    8
    
    
    
    Paul Joskow
    
    
    11
    
    
    
    1
    (i)
    
    
    
    
    
    
    5
    
    
    
    4
    (v)
    
    
    
    
    
    
    Stephen Pettit
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    (iv)
    
    
    8
    
    
    
    4Maria Richter
    
    
    10
    
    
    
    5
    (vi)
    
    
    
    
    
    
    5
    
    
    
    
    (iv)
    
    
    
    
    
    
    4George Rose
    
    
    9
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    7
    
    
    
    
 (i)
    
    Ken Harvey and Paul Joskow officially left the Audit Committee as of 1 May 2005; they
were only eligible to attend one meeting.(ii)
    
    Ken Harvey joined the Risk & Responsibility Committee on 1 May 2005; he was eligible
to attend a total of three meetings.(iii)
    
    John Allan joined the Board on 1 May 2005; he was eligible to attend a total of 10
meetings of the Board, five meetings of the Audit Committee and seven meetings of the
Remuneration Committee. As he was only notified of the dates of Board and Committee
meetings upon his appointment, he was unable to join meetings on some occasions due to
diary clashes.(iv)
    
    At Nominations Committee meetings where the Group Chief Executives succession was
discussed, all Non-executive Directors were invited to attend, meaning John Allan, Maria
Richter and Stephen Pettit attended some meetings of the Committee.(v)
    
    Paul Joskow joined the Nominations Committee on 1 May 2005; he was eligible to attend
a total of four meetings.(vi)
    
    Maria Richter joined the Audit Committee on 1 May 2005; she was eligible to attend a
total of five meetings.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Corporate Governance
    
    73
   n
    
    different tests of independence for Board members
are applied under the Combined Code and Section
303A;n
    
    there is no requirement for a separate
corporate governance committee in the UK; all
Directors on the Board discuss and decide upon
governance issues; andn
    
    while the Group reports
compliance with the Combined Code in each Annual
Report and Accounts, there is no requirement to
adopt and disclose separate corporate governance
guidelines.




---



##### Table of Contents



74
    
    Corporate Governance
    
   Annual Report and Accounts 2005/06National Grid




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Corporate Governance
    
    75




---



##### Table of Contents



76
    
    Corporate Governance
    
   Annual Report and Accounts 2005/06National Grid




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Directors Report
    
    77
 
                   
        17 43




---



##### Table of Contents



78
    
    Directors Report
    
   Annual Report and Accounts 2005/06National Grid
           % ofissuedsharecapitalThe Capital Group Companies, Inc.
    
    
    5.86Barclays plc
    
    
    4.60Legal and General Investment Management Ltd
    
    
    4.21Credit Suisse First Boston group
    
    
    3.41
  
            Helen Mahy




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Directors Remuneration Report
    
    79
 
        John Grant
(1 April 2005 to 28 February 2006)
    
    John Allan
(From 1 March 2006)
        n
    
    Ernst & Young LLP, independent remuneration advisors until
July 2005. They also provide taxation and financial
advice to the Group;n
    
    Deloitte & Touche LLP, independent remuneration advisors from November 2005. They also
provide taxation and financial advice to the Group;n
    
    Alithos Limited, provision of Total Shareholder Return calculations for the Performance Share Plan and
Executive Share Option Plan;n
    
    Linklaters, advice
relating to Directors service contracts as well as
providing other legal advice to the Group; andn
    
    Mercer Human Resource Consulting Limited, advice relating to
pension taxation legislation. They also provide general
advice with respect to human resource issues across the
Group.
   n
    
    total
rewards should be set at levels that are competitive
in the relevant market;n
    
    a significant proportion of
the Executive Directors total reward should be
performance based. Performance based incentives will
be earned through the achievement of demanding targets
for short-term business and personal performance; and
long-term shareholder value creation, consistent with
our Framework for Responsible Business which can be
found at
www.nationalgrid.com/responsibility/managementandgovernance;n
    
    for higher levels of performance, rewards should
be substantial but not excessive;n
    
    incentive plans,
performance measures and targets should be structured
to operate soundly throughout the business cycle.
They should be prudent and aligned as closely as
possible with shareholders interests.




---



##### Table of Contents



80
    
    Directors Remuneration Report
    
   Annual Report and Accounts 2005/06National Grid
 Executive Directors remuneration
  n
    
    salary;n
    
    annual bonus including the Deferred Share Plan;n
    
    long-term incentive, the Performance Share Plan;n
    
    all-employee share plans;n
    
    pension contributions; andn
    
    non-cash benefits.
      Level of performance achieved in 2005/06Financial measures
    
    as determined by the Remuneration CommitteeGroup targets
    
    
    Divisional targetsAdjusted EPS
    
    StretchCash flow
    
    StretchOperating profit
    
    
    
    
    
    StretchCash flow
    
    
    
    
    
    Stretch (i)Earnings (ii)
    
    
    
    
    
    Stretch
 (i)
    
    Except US Distribution, where threshold was not achieved.(ii)
    
    US Distribution financial measure only.
      Performance Share Plan (PSP)




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Directors Remuneration Report
    
    81
  Ameren Corporation
    
    Iberdrola SAAWG plc
    
    International Power plcCentrica plc
    
    Kelda Group plcConsolidated Edison, Inc.
    
    Pennon Group plcDominion Resources, Inc.
    
    RWE AGE.ON AG
    
    Scottish Power plcElectrabel SA
    
    Scottish & Southern Energy plcEndesa SA
    
    Severn Trent plcEnel SpA
    
    The Southern Company, Inc.Exelon Corporation
    
    Suez SAFirstEnergy Corporation
    
    United Utilities plcFPL Group, Inc.
    
    Viridian Group plcGas Natural SDG SA
           
   n
    
    Sharesave: Employees resident in the UK, including
Executive Directors, are eligible to participate in
HM Revenue and Customs approved all-employee
Sharesave schemes. Under these schemes,
participants may contribute between £5 and £250 in
total each month, for a fixed period of three
years, five years or both. Contributions are taken
from net salary. At the end of the savings period,
these contributions can be used to purchase
ordinary shares in National Grid at a discount,
capped at 20% of the market price, set at the
launch of the scheme.




---



##### Table of Contents



82
    
    Directors Remuneration Report
    
   Annual Report and Accounts 2005/06National Grid
 n
    
    Share Incentive Plan (SIP): Employees
resident in the UK, including UK-based Executive
Directors, are eligible to participate in the SIP.
Contributions up to £125 are taken from
participants gross salary and used to purchase
ordinary shares in National Grid each month. The shares are placed in trust and if they are left in
trust for at least five years, they can be removed
free of UK income tax and National Insurance
Contributions.n
    
    US Incentive Thrift Plan: Employees resident in the
US, including the US-based Executive Director, are
eligible to participate in the Thrift Plan, a
tax-advantaged savings plan (commonly referred to
as a 401(k) plan) provided for employees of
National Grids US companies. This is a defined
contribution pension plan that gives participants
the opportunity to invest a maximum of 50% of
salary (pre-tax) and/or up to 15% of salary
(post-tax) up to applicable Federal salary limits
(US$210,000 for calendar year 2005 and US$220,000
for 2006). The Company then matches 100% of the
first 2% and 75% of the next 4% of salary
contributed, resulting in a maximum matching
contribution of 5% of salary up to the Federal
salary cap. Employees may invest their own and
Company contributions in Group shares or various
mutual fund options.
           Share ownership guidelines
  Share dilution through the operation of share-based incentive plans




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Directors Remuneration Report
    
    83
 Executive Directors service contracts
  Date of contract
    
    
    Notice periodExecutive DirectorsRoger Urwin
    
    17 November 1995
    
    
    12 monthsSteve Holliday
    
    6 March 2001
    
    
    12 monthsSteve Lucas
    
    13 June 2002
    
    
    12 monthsNick Winser
    
    28 April 2003
    
    
    12 monthsMike Jesanis
    
    8 July 2004
    
    
    12 monthsEdward Astle
    
    27 July 2001
    
    
    12 months
 External appointments and retention of fees
  Company
    
    
    Retained fees (£)Executive DirectorsRoger Urwin
    
    Utilico Investment Trust plc
    
    
    20,250Steve Holliday
    
    Marks and Spencer Group plc
    
    
    50,000Steve Lucas
    
    Compass Group PLC
    
    
    66,875
 Non-executive Directors remuneration
  Non-executive Directors letters of appointment
  Date of letter
    
    
    End of periodof appointment
    
    
    of appointmentNon-executive DirectorsSir John Parker (Chairman)
    
    12 January 2004
    
    
    2006 AGMKen Harvey
    
    5 June 2003
    
    
    2006 AGMJohn Allan
    
    3 November 2005
    
    
    2008 AGMJohn Grant
    
    14 November 2005
    
    
    2006 AGMPaul Joskow
    
    3 November 2005
    
    
    2008 AGMStephen Pettit
    
    5 June 2003
    
    
    2006 AGMMaria Richter
    
    30 September 2003
    
    
    2007 AGMGeorge Rose
    
    5 June 2003
    
    
    2008 AGM




---



##### Table of Contents



84
    
    Directors Remuneration Report
    
   Annual Report and Accounts 2005/06National Grid
   1. Directors emoluments
  Year ended31 MarchTable 1A
    
    Year ended 31 March 2006
    
    
    2005Benefits
    
    
    BenefitsAnnual
    
    
    in kind (i)
    
    
    in kindSalary
    
    
    bonus
    
    
    (cash)
    
    
    (non-cash)
    
    
    Total
    
    
    Total£000s
    
    
    £000s
    
    
    £000s
    
    
    £000s
    
    
    £000s
    
    
    £000sExecutive DirectorsRoger Urwin
    
    
    765
    
    
    
    734
    
    
    
    
    
    
    
    19
    
    
    
    1,518
    
    
    
    1,125Steve Holliday (ii) (iii)
    
    
    425
    
    
    
    425
    
    
    
    
    
    
    
    20
    
    
    
    870
    
    
    
    660Steve Lucas (iv)
    
    
    417
    
    
    
    407
    
    
    
    
    
    
    
    24
    
    
    
    848
    
    
    
    648Nick Winser
    
    
    385
    
    
    
    366
    
    
    
    
    
    
    
    20
    
    
    
    771
    
    
    
    531Mike Jesanis (v) (vi)
    
    
    469
    
    
    
    385
    
    
    
    7
    
    
    
    13
    
    
    
    874
    
    
    
    446Edward Astle
    
    
    400
    
    
    
    336
    
    
    
    12
    
    
    
    11
    
    
    
    759
    
    
    
    622Total
    
    
    2,861
    
    
    
    2,653
    
    
    
    19
    
    
    
    107
    
    
    
    5,640
    
    
    
    4,032
 (i)
    
    Benefits in kind comprise benefits such as a fully expensed car, driver, private
medical insurance and life assurance.(ii)
    
    Steve Hollidays salary was increased to £600,000 on 1 April 2006, on appointment to
Deputy Group Chief Executive.(iii)
    
    The total for 2005 for Steve Holliday includes, as disclosed last year, an
additional ex gratia bonus of £80,000 paid on completion of the sales of four of the UK
gas distribution networks.(iv)
    
    Steve Lucas participates in the Flexible Benefits Plan which operates by way of
salary sacrifice, therefore his salary is reduced by the value of the benefits he has
purchased. The value of these benefits (£3,050) is included in the benefits in kind
(non-cash) figure.(v)
    
    Mike Jesaniss values use an exchange rate averaged over the year 1 April 2005 to 31
March 2006 of US$1.79:£1. The exchange rate for the previous year was US$1.87:£1.(vi)
    
    Mike Jesaniss bonus includes a payment worth £4,787 in respect of his participation
in the USA Goals Program (described on page 80).
 Year ended31 MarchTable 1B
    
    Year ended 31 March 2006
    
    
    2005OtherFees
    
    
    emoluments
    
    
    Total
    
    
    Total£000s
    
    
    £000s
    
    
    £000s
    
    
    £000sNon-executive DirectorsSir John Parker (i)
    
    
    400
    
    
    
    45
    
    
    
    445
    
    
    
    406Ken Harvey
    
    
    67
    
    
    
    
    
    
    
    67
    
    
    
    58John Allan (ii)
    
    
    45
    
    
    
    
    
    
    
    45
    
    
    
    John Grant
    
    
    67
    
    
    
    
    
    
    
    67
    
    
    
    65Paul Joskow
    
    
    74
    
    
    
    
    
    
    
    74
    
    
    
    73Stephen Pettit
    
    
    68
    
    
    
    
    
    
    
    68
    
    
    
    58Maria Richter
    
    
    61
    
    
    
    
    
    
    
    61
    
    
    
    66George Rose
    
    
    67
    
    
    
    
    
    
    
    67
    
    
    
    61Total
    
    
    849
    
    
    
    45
    
    
    
    894
    
    
    
    787
 (i)
    
    Sir John Parkers other emoluments comprise benefits in kind such as a fully expensed
car, driver, private medical insurance and life assurance.(ii)
    
    John Allans appointment to the Board was effective from 1 May 2005 and he became
Chairman of the Remuneration Committee on 1 March 2006.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Directors Remuneration Report
    
    85
 2. Directors pensions
  Transfer value ofincrease inAdditional
    
    
    accrued benefitbenefit earned
    
    
    in the year endedTransfer value of
    
    
    
    
    
    
    in the
    
    
    31 March 2006Additional benefit
    
    
    Accrued
    
    
    accrued benefits
    
    
    Increase in
    
    
    year ended
    
    
    (excludingearned during
    
    
    entitlement
    
    
    as at 31 March (i)
    
    
    transfer value
    
    
    31 March 2006
    
    
    Directorsthe year ended
    
    
    as at
    
    
    
    
    
    
    
    
    
    
    less Directors
    
    
    (excluding
    
    
    contributions31 March 2006
    
    
    31 March 2006
    
    
    2006
    
    
    2005
    
    
    contributions
    
    
    inflation)
    
    
    and inflation)Table 2
    
    £000s
    
    
    £000s
    
    
    £000s
    
    
    £000s
    
    
    £000s
    
    
    £000s
    
    
    £000sRoger Urwin
    
    
    59
    
    
    
    516
    
    
    
    11,291
    
    
    
    9,016
    
    
    
    2,229
    
    
    
    47
    
    
    
    990Steve Holliday (ii)
    
    
    17
    
    
    
    71
    
    
    
    1,161
    
    
    
    679
    
    
    
    466
    
    
    
    16
    
    
    
    247Steve Lucas
    
    
    18
    
    
    
    160
    
    
    
    2,725
    
    
    
    2,261
    
    
    
    452
    
    
    
    14
    
    
    
    224Nick Winser (iii)
    
    
    24
    
    
    
    132
    
    
    
    2,000
    
    
    
    1,281
    
    
    
    696
    
    
    
    21
    
    
    
    283Mike Jesanis (iv)
    
    
    82
    
    
    
    279
    
    
    
    2,497
    
    
    
    1,687
    
    
    
    810
    
    
    
    82
    
    
    
    583Edward Astle
    
    
    16
    
    
    
    61
    
    
    
    1,086
    
    
    
    639
    
    
    
    431
    
    
    
    15
    
    
    
    253
 (i)
    
    The transfer values shown at 31 March 2005 and 2006 represent the value of each
Executive Directors accrued benefits based on total service completed to the relevant
date.The transfer values for the UK-based Executive Directors have been calculated in accordance
with guidance note GN11 issued by the Institute of Actuaries and the Faculty of
Actuaries.
The transfer values for the US-based Executive Director have been calculated using discount
rates based on high yield US corporate bonds and associated yields at the relevant dates.(ii)
    
    In addition, as a result of transferring in retained pension benefits during the
year, there was an increase in accrued pension of £17,000 per annum and an increase in
transfer value at the year-end of £324,000. The transfer in also provides an accrued lump
sum entitlement of £50,000.(iii)
    
    The above information allows for the accrual of a pension benefit of two thirds of
salary at age 60 taking into account standard benefits earned prior to 1 September 1998.
This means that, as well as the pension stated above, there is an accrued lump sum
entitlement of £217,000 as at 31 March 2006. The increase to the accumulated lump sum
including inflation was £28,000 and excluding inflation was £23,000 in the year to 31
March 2006. The transfer value information above includes the value of the pension
equivalent of the lump sum.(iv)
    
    Through participation in the Thrift Plan in the US, the Group also made contributions
worth £6,058 to a defined contribution pension arrangement. The exchange rate as at 31
March 2006 was US$1.74:£1. The exchange rate as at 31 March 2005 was US$1.89:£1.
 3. Directors interests in share options
  Options exercised
    
    
    Market price
    
    
    
    
    
    
    
    
    
    
    Exercise priceOptions held
    
    
    or lapsed
    
    
    at date of
    
    
    Options granted
    
    
    Options held at
    
    
    per shareTable 3
    
    at 1 April 2005
    
    
    during the year
    
    
    exercise (pence)
    
    
    during the year
    
    
    31 March 2006
    
    
    (pence)
    
    
    Normal exercise periodRoger
UrwinESOP
    
    
    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
    (i)
    
    
    
    
    
    
    
    
    
    
    
    
    
    563.00
    
    June 2004
    
    June 2011186,915
    
    
    
    62,305
    (ii)
    
    
    
    
    
    
    
    
    
    
    124,610
    
    
    481.50
    
    June 2005
    
    June 2012Share Match
    
    
    4,047
    
    
    
    4,047
    (iii)
    
    
    528.00
    
    
    
    
    
    
    
    
    
    
    100 in total
    
    June 2001
    
    June 20053,884
    
    
    
    3,884
    (iii)
    
    
    528.00
    
    
    
    
    
    
    
    
    
    
    100 in total
    
    Jan 2002
    
    June 20063,859
    
    
    
    3,859
    (iii)
    
    
    528.00
    
    
    
    
    
    
    
    
    
    
    100 in total
    
    Jan 2002
    
    June 20075,635
    
    
    
    5,635
    (iii)
    
    
    528.00
    
    
    
    
    
    
    
    
    
    
    100 in total
    
    June 2004
    
    June 200818,644
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,644
    
    
    100 in total
    
    June 2005
    
    June 201225,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    100 in total
    
    June 2006
    
    June 201330,762
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,762
    
    
    nil
    
    May 2007
    
    May 2014
    
    
    
    
    
    
    
    
    
    
    
    25,570
    
    
    
    25,570
    
    
    nil
    
    June 2008
    
    June 2015Sharesave
    
    
    2,910
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,910
    
    
    317.00
    
    Apr 2007
    
    Sep 2007Total
    
    
    731,831
    
    
    
    212,944
    
    
    
    
    
    
    
    25,570
    
    
    
    544,457Steve
HollidayESOP
    
    
    150,000
    
    
    
    150,000
    (i)
    
    
    
    
    
    
    
    
    
    
    
    
    
    540.00
    
    Mar 2004
    
    Mar 201171,936
    
    
    
    71,936
    (i)
    
    
    
    
    
    
    
    
    
    
    
    
    
    563.00
    
    June 2004
    
    June 2011101,246
    
    
    
    33,749
    (iv)
    
    
    
    
    
    
    
    
    
    
    67,497
    
    
    481.50
    
    June 2005
    
    June 2012Share Match
    
    
    10,350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,350
    
    
    100 in total
    
    June 2005
    
    June 201214,083
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,083
    
    
    100 in total
    
    June 2006
    
    June 201318,713
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,713
    
    
    nil
    
    May 2007
    
    May 2014
    
    
    
    
    
    
    
    
    
    
    
    9,983
    
    
    
    9,983
    
    
    nil
    
    June 2008
    
    June 2015Sharesave
    
    
    4,692
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,692
    
    
    350.00
    
    Mar 2008
    
    Aug 2008Total
    
    
    371,020
    
    
    
    255,685
    
    
    
    
    
    
    
    9,983
    
    
    
    125,318




---



##### Table of Contents



86
    
    Directors Remuneration Report
    
   Annual Report and Accounts 2005/06National Grid
 3. Directors interests in share options (continued)
 Options exercised
    
    
    Market price
    
    
    
    
    
    
    
    
    
    
    Exercise priceOptions held
    
    
    or lapsed
    
    
    at date of
    
    
    Options granted
    
    
    Options held at
    
    
    per shareTable 3(continued)
    
    at 1 April 2005
    
    
    during the year
    
    
    exercise (pence)
    
    
    during the year
    
    
    31 March 2006
    
    
    (pence, except*)
    
    
    Normal exercise periodSteve
LucasESOP
    
    
    54,404
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,404
    
    
    
    434.25
    
    
    Dec 2005
    
    
    Dec 2012Share Match
    
    
    16,909
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,909
    
    
    nil
    
    
    May 2007
    
    
    May 2014
    
    
    
    
    
    
    
    
    
    
    
    14,778
    
    
    
    14,778
    
    
    nil
    
    
    June 2008
    
    
    June 2015Sharesave
    
    
    2,700
    
    
    
    2,700
    
    
    
    603.00
    
    
    
    
    
    
    
    
    
    
    
    350.00
    
    
    Mar 2006
    
    
    Aug 2006Total
    
    
    74,013
    
    
    
    2,700
    
    
    
    
    
    
    
    14,778
    
    
    
    86,091Nick
WinserESOP
    
    
    10,633
    
    
    
    10,633
    
    
    
    610.50
    
    
    
    
    
    
    
    
    
    
    
    375.75
    
    
    June 2001
    
    
    June 200847,236
    
    
    
    47,236
    
    
    
    610.50
    
    
    
    
    
    
    
    
    
    
    
    455.25
    
    
    June 2002
    
    
    June 200919,755
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,755
    
    
    
    531.50
    
    
    June 2003
    
    
    June 201024,156
    
    
    
    24,156
    (i)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    563.00
    
    
    June 2004
    
    
    June 201137,383
    
    
    
    37,383
    
    
    
    598.00
    
    
    
    
    
    
    
    
    
    
    
    481.50
    
    
    June 2005
    
    
    June 2012Share Match
    
    
    2,509
    
    
    
    2,509
    (v)
    
    
    598.00
    
    
    
    
    
    
    
    
    
    
    100 in total
    
    
    June 2005
    
    
    June 20123,937
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,937
    
    
    100 in total
    
    
    June 2006
    
    
    June 201314,059
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,059
    
    
    nil
    
    
    May 2007
    
    
    May 2014
    
    
    
    
    
    
    
    
    
    
    
    11,581
    
    
    
    11,581
    
    
    nil
    
    
    June 2008
    
    
    June 2015Total
    
    
    159,668
    
    
    
    121,917
    
    
    
    
    
    
    
    11,581
    
    
    
    49,332Mike
JesanisESOP
    
    
    77,861
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,861
    
    
    
    566.50
    
    
    Mar 2003
    
    
    Mar 201051,169
    
    
    
    51,169
    (i)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    563.00
    
    
    June 2004
    
    
    June 201166,099
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,099
    
    
    
    481.50
    
    
    June 2005
    
    
    June 2012Total (shares)
    
    
    195,129
    
    
    
    51,169
    
    
    
    
    
    
    
    
    
    
    
    143,960Phantom ADSs (vi)
    
    
    666
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    699
    
    
    
    US$39.590
    *
    
    
    
    
    
    
    2,857
    
    
    
    
    
    
    
    
    
    
    
    143
    
    
    
    3,000
    
    
    
    US$34.270
    *
    
    
    
    
    
    
    3,288
    
    
    
    
    
    
    
    
    
    
    
    164
    
    
    
    3,452
    
    
    
    US$32.320
    *
    
    
    
    
    
    
    2,895
    
    
    
    
    
    
    
    
    
    
    
    144
    
    
    
    3,039
    
    
    
    US$39.376
    *
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,730
    
    
    
    4,730
    
    
    
    US$47.762
    *
    
    
    
    
    
    
    Total (Phantom ADSs)
    
    
    9,706
    
    
    
    
    
    
    
    
    
    
    
    5,214
    
    
    
    14,920Edward
AstleESOP
    
    
    193,952
    
    
    
    193,952
    (i)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    479.50
    
    
    Sep 2004
    
    
    Sep 2011101,246
    
    
    33,749
    (vii)
    
    
    
    
    
    
    
    
    
    
    67,497
    
    
    
    481.50
    
    
    June 2005
    
    
    June 2012112,262
    
    
    112,262
    (vii)
    
    
    594.50
    
    
    
    
    
    
    
    
    
    
    
    434.25
    
    
    Dec 2005
    
    
    Dec 2012131,086
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131,086
    
    
    
    400.50
    
    
    June 2006
    
    
    June 2013Share Match
    
    
    6,553
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,553
    
    
    100 in total
    
    
    June 2005
    
    
    June 201213,812
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,812
    
    
    100 in total
    
    
    June 2006
    
    
    June 201315,716
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,716
    
    
    nil
    
    
    May 2007
    
    
    May 2014
    
    
    
    
    
    
    
    
    
    
    
    14,637
    
    
    
    14,637
    
    
    nil
    
    
    June 2008
    
    
    June 2015Sharesave
    
    
    2,392
    
    
    
    2,392
    
    
    
    527.00
    
    
    
    
    
    
    
    
    
    
    
    397.00
    
    
    Sep 2005
    
    
    Feb 2006Total
    
    
    577,019
    
    
    
    342,355
    
    
    
    
    
    
    
    14,637
    
    
    
    249,301
 (i)
    
    For Executive Share Options granted in 2001, the performance condition was not
satisfied at the end of the first three years of the performance period. It has
subsequently been re-tested on 31 March 2004 and 2005 and as a result the options have
lapsed in full.(ii)
    
    For Executive Share Options granted in 2002, the performance condition was partly
satisfied at the end of the first three years of the performance period. As a result
62,305 shares of the original 186,915 grant have lapsed.(iii)
    
    Roger Urwin exercised Share Match awards over 17,425 shares. The market price at the
date of exercise was 528p and he was required to pay 100p per award. He also received
£15,704 in respect of a cash payment in lieu of dividends on exercise of the four Share
Match awards.(iv)
    
    For Executive Share Options granted in 2002, the performance condition was partly
satisfied at the end of the first three years of the performance period. As a result
33,749 shares of the original 101,246 grant have lapsed.(v)
    
    Nick Winser exercised a Share Match award over 2,509 shares. The market price at the
date of exercise was 598p and he was required to pay 100p in total. He also received
£1,976 in respect of a cash payment in lieu of dividends on exercise of the Share Match
award.(vi)
    
    In place of participation in the Share Matching Plan, Mike Jesanis elected to defer
the ADS component of his bonus into a deferred compensation plan. For a Phantom award
under the deferred compensation plan, the ADS market value is tracked, additional value is
accrued for dividends and the value is delivered, net of normal US deductions, depending
on the participants election ie: in 10 years, on a specified age date from 55 to 75, or
on leaving, including retirement. The closing market price of ADSs at 31 March 2006 was
US$49.63 (each ADS represents five ordinary shares).(vii)
    
    For Executive Share Options granted in 2002, the performance condition was partly
satisfied at the end of the first three years of the performance period. As a result
33,749 shares of the original 101,246 granted in June have lapsed and a further 37,421 of
the original 112,262 granted in December have lapsed. During the year, Edward Astle
exercised the remaining options granted in December 2002.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Directors Remuneration Report
    
    87
 3. Directors interests in share options (continued)
       Allegheny Energy, Inc.
    
    Energy East Corporation
    
    NSTAR
    
    Scottish Power plcBG Group plc
    
    FPL Group, Inc.
    
    Powergen plc
    
    Southern CompanyBritish Energy plc
    
    GPU, Inc.
    
    Progress Energy, Inc.
    
    TXU, CorpCentral & South West
Corporation
    
    Innogy Holdings plc
    
    Public Service Enterprise
    
    United Utilities plcConsolidated Edison, Inc.
    
    International Power plc
    

Group,
Inc.
    
    Xcel Energy, Inc.Duke Energy Corporation
    
    Niagara Mohawk Holdings, Inc.
    
    Scottish & Southern Energy plc




---



##### Table of Contents



88
    
    Directors Remuneration Report
    
   Annual Report and Accounts 2005/06National Grid
 4. Directors interests in the PSP
  Awards
    
    
    
    
    
    
    Market
    
    
    
    
    
    
    
    
    
    
    LapsedConditional
    
    
    exercised/
    
    
    Awards
    
    
    price at
    
    
    
    
    
    
    
    
    
    
    without
    
    
    Conditionalshares at
    
    
    lapsed
    
    
    granted
    
    
    award
    
    
    Date
    
    
    Vested
    
    
    vesting
    
    
    shares at
    
    
    ReleaseTable
4
    
    31 March 2005
    
    
    during year
    
    
    during year
    
    
    (pence, except*)
    
    
    of award
    
    
    in year
    
    
    in year
    
    
    31 March 2006
    
    
    dateRoger Urwin
    
    
    195,866
    
    
    
    
    
    
    
    
    
    
    
    405.25
    
    
    June 2003
    
    
    
    
    
    
    
    
    
    
    
    195,866
    
    
    June 2007198,587
    
    
    
    
    
    
    
    
    
    
    
    424.875
    
    
    June 2004
    
    
    
    
    
    
    
    
    
    
    
    198,587
    
    
    June 2008
    
    
    
    
    
    
    
    181,442
    
    
    
    527.03
    
    
    June 2005
    
    
    
    
    
    
    
    
    
    
    
    181,442
    
    
    June 2009Total
    
    
    394,453
    
    
    
    
    
    
    
    181,442
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    575,895Steve Holliday
    
    
    115,669
    
    
    
    
    
    
    
    
    
    
    
    405.25
    
    
    June 2003
    
    
    
    
    
    
    
    
    
    
    
    115,669
    
    
    June 2007117,681
    
    
    
    
    
    
    
    
    
    
    
    424.875
    
    
    June 2004
    
    
    
    
    
    
    
    
    
    
    
    117,681
    
    
    June 2008
    
    
    
    
    
    
    
    100,801
    
    
    
    527.03
    
    
    June 2005
    
    
    
    
    
    
    
    
    
    
    
    100,801
    
    
    June 2009Total
    
    
    233,350
    
    
    
    
    
    
    
    100,801
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    334,151Steve Lucas
    
    
    115,669
    
    
    
    
    
    
    
    
    
    
    
    405.25
    
    
    June 2003
    
    
    
    
    
    
    
    
    
    
    
    115,669
    
    
    June 2007116,210
    
    
    
    
    
    
    
    
    
    
    
    424.875
    
    
    June 2004
    
    
    
    
    
    
    
    
    
    
    
    116,210
    
    
    June 2008
    
    
    
    
    
    
    
    99,615
    
    
    
    527.03
    
    
    June 2005
    
    
    
    
    
    
    
    
    
    
    
    99,615
    
    
    June 2009Total
    
    
    231,879
    
    
    
    
    
    
    
    99,615
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    331,494Nick Winser
    
    
    92,535
    
    
    
    
    
    
    
    
    
    
    
    405.25
    
    
    June 2003
    
    
    
    
    
    
    
    
    
    
    
    92,535
    
    
    June 200798,558
    
    
    
    
    
    
    
    
    
    
    
    424.875
    
    
    June 2004
    
    
    
    
    
    
    
    
    
    
    
    98,558
    
    
    June 2008
    
    
    
    
    
    
    
    91,314
    
    
    
    527.03
    
    
    June 2005
    
    
    
    
    
    
    
    
    
    
    
    91,314
    
    
    June 2009Total
    
    
    191,093
    
    
    
    
    
    
    
    91,314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    282,407Mike Jesanis
    
    
    41,871
    
    
    
    
    
    
    
    
    
    
    
    405.25
    
    
    June 2003
    
    
    
    
    
    
    
    
    
    
    
    41,871
    
    
    June 2007ADSs 19,987
    (i)
    
    
    
    
    
    
    
    
    
    
    US$39.40
    *
    
    June 2004
    
    
    
    
    
    
    
    
    
    
    ADSs 19,987
    
    
    June 2008
    
    
    
    
    
    
    
    ADSs 21,634
    (i)
    
    
    US$48.534
    *
    
    June 2005
    
    
    
    
    
    
    
    
    
    
    ADSs 21,634
    
    
    June 2009Total
    
    Shares 41,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares 41,871ADSs 19,987
    
    
    
    
    
    
    ADSs 21,634
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ADSs 41,621Edward Astle
    
    
    107,958
    
    
    
    
    
    
    
    
    
    
    
    405.25
    
    
    June 2003
    
    
    
    
    
    
    
    
    
    
    
    107,958
    
    
    June 2007110,326
    
    
    
    
    
    
    
    
    
    
    
    424.875
    
    
    June 2004
    
    
    
    
    
    
    
    
    
    
    
    110,326
    
    
    June 2008
    
    
    
    
    
    
    
    94,872
    
    
    
    527.03
    
    
    June 2005
    
    
    
    
    
    
    
    
    
    
    
    94,872
    
    
    June 2009Total
    
    
    218,284
    
    
    
    
    
    
    
    94,872
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    313,156
 (i)
    
    Mike Jesanis received awards over ADSs in June 2004 and 2005. Each ADS represents five ordinary shares.
 5. Directors interests under the Lattice Long-Term Incentive Scheme (LTIS)
 Award held at
    
    
    
    
    
    
    Shares
    
    
    
    
    
    
    Market1 April 2005
    
    
    Adjusted
    
    
    resulting
    
    
    
    
    
    
    price atOriginal
    
    
    including dividend
    
    
    market price
    
    
    from dividend
    
    
    Award
    
    
    date ofaward
    
    
    reinvestment
    
    
    for award
    
    
    reinvestment
    
    
    released
    
    
    release
    
    
    Award held
    
    
    Date awarddate
    
    
    shares
    
    
    at rollover
    
    
    in year
    
    
    during year
    
    
    (pence)
    
    
    31 March 2006
    
    
    releasedSteve Lucas
    
    Nov 2001
    
    
    
    98,201
    
    
    
    388.24
    
    
    
    2,856
    
    
    
    101,057
    
    
    
    511.53
    
    
    
    
    
    
    Nov 2005Total
    
    
    
    
    
    
    98,201
    
    
    
    
    
    
    
    2,856
    
    
    
    101,057
    
    
    
    
    
    
    
    




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Directors Remuneration Report
    
    89
 6. Directors beneficial interests
 17 43
 Options/awards over
    
    
    Options/awards overOrdinary shares at
    
    
    Ordinary shares at
    
    
    ordinary shares at
    
    
    ordinary shares at31 March 2006
    (i)
    
    1 April 2005
    
    
    31 March 2006
    (iv)
    
    1 April 2005Sir John Parker
    
    
    55,832
    
    
    
    52,229
    
    
    
    
    
    
    
    Roger Urwin (ii) (iii) (v)
    
    
    247,630
    
    
    
    249,517
    
    
    
    1,253,566
    
    
    
    1,126,284Steve Holliday (iii) (v)
    
    
    28,063
    
    
    
    25,843
    
    
    
    531,405
    
    
    
    604,370Steve Lucas (ii) (iii) (vi) (vii) (viii)
    
    
    159,379
    
    
    
    102,063
    
    
    
    417,585
    
    
    
    404,093Nick Winser (ii) (iii)
    
    
    56,687
    
    
    
    36,515
    
    
    
    355,895
    
    
    
    350,761Mike Jesanis
    
    
    3,281
    
    
    
    3,557
    
    
    
    445,105
    
    
    
    336,935Edward Astle (iii)
    
    
    28,428
    
    
    
    21,118
    
    
    
    756,409
    
    
    
    795,303Ken Harvey (ii)
    
    
    3,399
    
    
    
    3,874
    
    
    
    
    
    
    
    John Allan
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    John Grant
    
    
    8,775
    
    
    
    10,000
    
    
    
    
    
    
    
    Paul Joskow
    
    
    4,385
    
    
    
    5,000
    
    
    
    
    
    
    
    Stephen Pettit
    
    
    2,632
    
    
    
    3,000
    
    
    
    
    
    
    
    Maria Richter
    
    
    1,755
    
    
    
    2,000
    
    
    
    
    
    
    
    George Rose (ii)
    
    
    4,409
    
    
    
    5,025
    
    
    
    
    
    
    
    
 (i)
    
    There has been no other change in the beneficial interests of the Directors in ordinary
shares between 1 April 2006 and 17 May 2006, except in respect of routine monthly
purchases under the SIP (see note (v) below).(ii)
    
    Following the Return of Cash and subsequent ordinary share consolidation and issue of
B shares in August 2005 (see pages 77 and 78 for further details), the following Directors
held B shares at 31 March 2006: Roger Urwin (281,977), Steve Lucas (318), Nick Winser
(20,787), Ken Harvey (3,874) and George Rose (5,025).(iii)
    
    Each of the Executive Directors, with the exception of Mike Jesanis, was for
Companies Act purposes deemed to be a potential beneficiary under the National Grid 1996
Employee Benefit Trust and thereby to have an interest in 47 ordinary shares held by the
1996 Employee Benefit Trust as at 31 March 2006.(iv)
    
    Includes the PSP awards detailed in table 4 above.(v)
    
    Beneficial interest includes shares purchased under the monthly operation of the SIP
in the year to 31 March 2006. Further shares were purchased in April and May 2006 on
behalf of Steve Holliday (22 shares) and Roger Urwin (22 shares).(vi)
    
    Steve Lucas was, for Companies Act purposes, deemed to be a potential beneficiary in
the 21,015 ordinary shares and 23,948 B shares held by Lattice Group Trustees Limited as
trustee of the Lattice Group Employee Share Ownership Trust, as at 31 March 2006.(vii)
    
    Beneficial interest includes shares acquired pursuant to the Lattice All Employee
Share Ownership Plan.(viii)
    
    Includes the LTIS award detailed in table 5 above.
 7. National Grid share price range
   Helen Mahy




---



##### Table of Contents



90
    
    Independent Verifiers Report on Corporate Responsibility
    
   Annual Report and Accounts 2005/06National Grid
 
   www.nationalgrid.com/corporate/our+responsibility/assurance
       n
    
    explained more clearly on its website how the
Groups activities translate into impacts on the
environment and society;n
    
    communicated objectives,
targets and future challenges in this report, to
increase transparency of the Groups performance
expectations and achievements;n
    
    finalised strategies
and policies for health and community investment and
implemented initiatives supporting these. While
there has been continued work in developing tools to
assess potential human rights risks in its supply
chain, this initiative has yet to be fully implemented;n
    
    allocated additional resources to the implementation
of its inclusion and diversity programme with a
focus on establishing networks and training to
increase awareness; andn
    
    improved the sharing of
information between different parts of the business
on a wide range of issues.
   Materiality
  Completeness
   Responsiveness
  Recommendations
  n
    
    refining safety performance metrics and reporting
to drive forward continuing improvements in
safety performance;n
    
    ensuring that the commitments
made to assess the risks posed by human rights in
the supply chain are implemented; andn
    
    monitoring
implementation of the new strategies and
programmes, in particular climate change, to
enable performance against targets to be measured
and reported.
 Belinda Howell, Director




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Contents to Financial StatementsStatement of Directors Responsibilities for Preparing the Accounts
    
    91
 
  91
    
    Statement of Directors Responsibilities for Preparing the Accounts92
    
    Independent Auditors Report to the Members of National Grid plc93
    
    Group Accounting Policies100
    
    Group Income Statement101
    
    Group Balance Sheet102
    
    Group Statement of Recognised Income and Expense103
    
    Group Cash Flow Statement104
    
    Notes to the Accounts104
    
    Note 1  Adoption of International Financial Reporting Standards (IFRS)109
    
    Note 2  Adoption of IAS 39 and IAS 32 and presentation of net debt at 1 April 2005109
    
    Note 3  Segmental analysis112
    
    Note 4  Other operating income112
    
    Note 5  Operating costs113
    
    Note 6  Exceptional items and remeasurements113
    
    Note 7  Payroll costs and employees114
    
    Note 8  Directors emoluments114
    
    Note 9  Pensions and other post-retirement benefits119
    
    Note 10  Finance income and costs120
    
    Note 11  Taxation121
    
    Note 12  Discontinued operations121
    
    Note 13  Dividends122
    
    Note 14  Earnings per share123
    
    Note 15  Goodwill124
    
    Note 16  Acquisitions125
    
    Note 17  Other intangible assets126
    
    Note 18  Property, plant and equipment127
    
    Note 19  Investments in joint ventures127
    
    Note 20  Deferred tax assets and liabilities128
    
    Note 21  Other non-current receivables128
    
    Note 22  Financial investments129
    
    Note 23  Financial instruments136
    
    Note 24  Inventories136
    
    Note 25  Trade and other receivables137
    
    Note 26  Cash and cash equivalents137
    
    Note 27  Borrowings139
    
    Note 28  Trade and other payables139
    
    Note 29  Other non-current liabilities140
    
    Note 30  Provisions141
    
    Note 31  Share capital145
    
    Note 32  Reconciliation of movements in total equity146
    
    Note 33  Group cash flow statement147
    
    Note 34  Related party transactions147
    
    Note 35  Commitments and contingencies148
    
    Note 36  Group undertakings and joint ventures149
    
    Note 37  Differences between IFRS and US generally accepted accounting principles157
    
    Note 38  Condensed US GAAP financial information161
    
    Note 39  National Grid Gas plc additional US GAAP disclosures166
    
    Company Accounting Policies168
    
    Company Balance Sheet169
    
    Notes to the Company Accounts169
    
    Note 1  Changes in accounting policies169
    
    Note 2  Fixed asset investments170
    
    Note 3  Debtors170
    
    Note 4  Creditors (amounts falling due within one year)170
    
    Note 5  Creditors (amounts falling due after more than one year)170
    
    Note 6  Borrowings171
    
    Note 7  Provisions for liabilities and charges171
    
    Note 8  Share capital171
    
    Note 9  Reserves171
    
    Note 10  Commitments and contingencies




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsGroup Accounting Policies
    
    93
 
  for the year ended 31 March 2006
 (a) Basis of preparation of Group financial statements
        (i)
    
    The Group has elected to adopt International
Accounting Standard (IAS) 32 Financial Instruments:
Disclosure and Presentation and IAS 39 Financial
Instruments: Recognition and Measurement with
effect from 1 April 2005, with no restatement of
comparative information for the year to 31 March
2005. Accounting policy notes (o) and (p) explain
the basis of accounting for financial instruments
before and after 1 April 2005.(ii)
    
    IFRS 3 Business combinations has not been
applied to business combinations that occurred
before 1 April 2004.(iii)
    
    The Group has deemed cumulative translation
differences for foreign operations to be zero at the
date of transition. Any gains and losses on
subsequent disposals of foreign operations will not
therefore include translation differences arising
prior to the transition date.
  (i)
    
    At the date of transition, the vast majority of
assets were valued at depreciated cost, as adjusted
for IFRS measurement changes with some assets being
measured at deemed cost.(ii)
    
    The Group has elected to account for existing
joint ventures using the equity method. See Group
Accounting Policies  (b) Basis of consolidation on
page 94.(iii)
    
    For pensions accounting, the Group has elected
to recognise all actuarial gains and losses each year
in the statement of recognised income and expense.
See Group Accounting Policies  (m) Pensions and
other post-retirement benefits on page 97.(iv)
    
    For share-based payments, all active grants were
recognised retrospectively. This is consistent with
the treatment the Group had applied in prior years
under UK GAAP in accordance with Financial Reporting
Standard (FRS) 20. See Group Accounting Policies 
(r) Share-based payments on page 99.
    Amendment to IAS 1 Presentation of Financial Statements
  Amendment to IAS 19 Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures
  Amendment to IAS 39 Financial Instruments: Recognition and Measurement: Cash Flow Hedge Accounting of Forecast Intragroup Transactions




---



##### Table of Contents



94
    
    Group Financial StatementsGroup Accounting Policies
    
   Annual Report and Accounts 2005/06National Grid
  IFRS 7 Financial Instruments: Disclosures
       (b) Basis of consolidation
      (c) Foreign currencies
     (d) Goodwill




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsGroup Accounting Policies
    
    95
  (e) Intangible assets other than goodwill
     Amortisation periods for categories of intangibles
    
    YearsSoftware
    
    
    3 to 5Telecommunication licences
    
    
    10 to 25Acquired customer relationships
    
    
    10 to 25
 (f) Property, plant and equipment
        Depreciation periods for category of assets
    
    YearsPlant and machineryElectricity transmission plant
    
    
    15 to 60Electricity distribution plant
    
    
    15 to 60Interconnector plant
    
    
    15 to 60Gas plant
 mains, services and regulating equipment
    
    
    30 to 100Gas plant
 storage
    
    
    40Gas plant
 meters
    
    
    10 to 33Wireless towers/infrastructure
    
    
    20 to 55Freehold and leasehold buildings
    
    up to 65Motor vehicles and office equipment
    
    up to 10
 (g) Impairment of assets




---



##### Table of Contents



96
    
    Group Financial StatementsGroup Accounting Policies
    
   Annual Report and Accounts 2005/06National Grid
 (h) Taxation
           (i) Discontinued operations and non-current assets held for sale
    (j) Inventories
  (k) Decommissioning and environmental costs
    (l) Revenues




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsGroup Accounting Policies
    
    97
    (m) Pensions and other post-retirement benefits
         (n) Leases
   (o) Financial instruments




---



##### Table of Contents



98
    
    Group Financial StatementsGroup Accounting Policies
    
   Annual Report and Accounts 2005/06National Grid
    (p) Hedge accounting and derivative financial instruments




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsGroup Accounting Policies
    
    99
 (q) Restructuring costs
  (r) Share-based payments
   (s) Exceptional items and remeasurements
   (t) Other operating income
  (u) Emission allowances
  (v) Cash and cash equivalents
  (w) Key sources of estimation uncertainty
   n
    
    The categorisation of certain items as
exceptional and the definition of adjusted
earnings  notes 6 and 14.n
    
    The exemptions adopted under IFRS including, in
particular, those relating to business combinations
  Group Accounting Policies (a) Basis of
preparation of Group financial statements.
  n
    
    Impairment of goodwill  Group Accounting
Policies (d) Goodwill and note 15.n
    
    Review of residual lives, carrying values and
impairment charges for other intangible assets and
property, plant and equipment  Group Accounting
Policies (e) Intangible assets other than
goodwill, (f) Property, plant and equipment and
(g) Impairment of assets.n
    
    Estimation of liabilities for pension and other
post-retirement costs  note 9.n
    
    Valuation of financial instruments and
derivatives  note 23.n
    
    Revenue recognition and
assessment of unbilled revenue  Group Accounting
Policies (l) Revenues.n
    
    Recoverability of deferred tax assets  Group
Accounting Policies (h) Taxation and note 20.n
    
    Environmental liabilities  note 30.




---



##### Table of Contents



100
    
    Group Financial StatementsGroup Income Statement
    
   Annual Report and Accounts 2005/06National Grid
 
  for the years ended 31 March
 2006
    
    
    2005
    (i)Notes
    
    
    £m
    
    
    £mGroup revenue
    
    
    3(a)
    
    
    
    9,193
    
    
    
    7,382Other operating income
    
    
    4
    
    
    
    80
    
    
    
    70Operating costs
    
    
    5
    
    
    
    (6,834
    )
    
    
    (5,310
    )Operating profitBefore exceptional items and remeasurements
    
    
    3(b)
    
    
    
    2,527
    
    
    
    2,443Exceptional items and remeasurements
    
    
    6
    
    
    
    (88
    )
    
    
    (301
    )Total operating profit
    
    
    3(b)
    
    
    
    2,439
    
    
    
    2,142Interest income and similar income
    
    
    10
    
    
    
    1,038
    
    
    
    946Interest expense and other finance costsBefore exceptional items and remeasurements
    
    
    6
    
    
    
    (1,644
    )
    
    
    (1,652
    )Exceptional items and remeasurements
    
    
    6,10
    
    
    
    (57
    )
    
    
    10
    
    
    
    (1,701
    )
    
    
    (1,652
    )Share of post-tax results of joint ventures
    
    
    3(c)
    
    
    
    3
    
    
    
    3Profit before taxationBefore exceptional items and remeasurements
    
    
    
    
    
    
    1,924
    
    
    
    1,740Exceptional items and remeasurements
    
    
    
    
    
    
    (145
    )
    
    
    (301
    )Total profit before taxation
    
    
    
    
    
    
    1,779
    
    
    
    1,439TaxationBefore exceptional items and remeasurements
    
    
    11
    
    
    
    (597
    )
    
    
    (437
    )Exceptional items and remeasurements
    
    
    6,11
    
    
    
    35
    
    
    
    118Total taxation
    
    
    11
    
    
    
    (562
    )
    
    
    (319
    )Profit from continuing operations after taxationBefore exceptional items and remeasurements
    
    
    
    
    
    
    1,327
    
    
    
    1,303Exceptional items and remeasurements
    
    
    6
    
    
    
    (110
    )
    
    
    (183
    )Profit for the year from continuing operations
    
    
    
    
    
    
    1,217
    
    
    
    1,120Profit for the year from discontinued operationsBefore exceptional items
    
    
    12
    
    
    
    43
    
    
    
    352Exceptional items
    
    
    12
    
    
    
    2,590
    
    
    
    (48
    )12
    
    
    
    2,633
    
    
    
    304Profit for the year
    
    
    
    
    
    
    3,850
    
    
    
    1,424Attributable to:Equity shareholders of the parent
    
    
    
    
    
    
    3,848
    
    
    
    1,424Minority interests
    
    
    
    
    
    
    2
    
    
    
    3,850
    
    
    
    1,424Earnings per share from continuing operationsBasic
    
    
    14
    
    
    
    42.8p
    
    
    
    36.3pDiluted
    
    
    14
    
    
    
    42.6p
    
    
    
    36.2pEarnings per shareBasic
    
    
    14
    
    
    
    135.6p
    
    
    
    46.2pDiluted
    
    
    14
    
    
    
    135.0p
    
    
    
    46.0p
 (i)
    
    Refer to note 1 for the basis of preparation of the comparatives presented under
International Financial Reporting Standards.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsGroup Balance Sheet
    
    101
 
  at 31 March
 2006
    
    
    2005
    (i)Notes
    
    
    £m
    
    
    £mNon-current assetsGoodwill
    
    
    15
    
    
    
    2,142
    
    
    
    2,031Other intangible assets
    
    
    17
    
    
    
    321
    
    
    
    358Property, plant and equipment
    
    
    18
    
    
    
    18,935
    
    
    
    22,645Investments in joint ventures
    
    
    19
    
    
    
    12
    
    
    
    17Deferred tax assets
    
    
    20
    
    
    
    159
    
    
    
    318Other receivables
    
    
    21
    
    
    
    38
    
    
    
    96Financial investments
    
    
    22
    
    
    
    148
    
    
    
    131Derivative financial assets
    
    
    23
    
    
    
    351
    
    
    
    Total non-current assets
    
    
    
    
    
    
    22,106
    
    
    
    25,596Current assetsOther intangible assets
    
    
    17
    
    
    
    41
    
    
    
    Inventories
    
    
    24
    
    
    
    108
    
    
    
    101Trade and other receivables
    
    
    25
    
    
    
    1,519
    
    
    
    1,193Financial investments
    
    
    22
    
    
    
    384
    
    
    
    398Derivative financial assets
    
    
    23
    
    
    
    314
    
    
    
    Cash and cash equivalents
    
    
    26
    
    
    
    1,452
    
    
    
    272Total current assets
    
    
    
    
    
    
    3,818
    
    
    
    1,964Total assets
    
    
    3
    (d)
    
    
    25,924
    
    
    
    27,560Current liabilitiesBank overdrafts
    
    
    26
    
    
    
    (3
    )
    
    
    (18
    )Borrowings
    
    
    27
    
    
    
    (2,839
    )
    
    
    (3,243
    )Derivative financial liabilities
    
    
    23
    
    
    
    (92
    )
    
    
    Trade and other payables
    
    
    28
    
    
    
    (2,095
    )
    
    
    (2,337
    )Current tax liabilities
    
    
    
    
    
    
    (419
    )
    
    
    (103
    )Provisions
    
    
    30
    
    
    
    (235
    )
    
    
    (273
    )Total current liabilities
    
    
    
    
    
    
    (5,683
    )
    
    
    (5,974
    )Non-current liabilitiesBorrowings
    
    
    27
    
    
    
    (10,287
    )
    
    
    (11,047
    )Derivative financial liabilities
    
    
    23
    
    
    
    (130
    )
    
    
    Other non-current liabilities
    
    
    29
    
    
    
    (1,719
    )
    
    
    (2,429
    )Deferred tax liabilities
    
    
    20
    
    
    
    (2,161
    )
    
    
    (3,189
    )Pensions and other post-retirement benefit obligations
    
    
    9
    
    
    
    (1,915
    )
    
    
    (2,282
    )Provisions
    
    
    30
    
    
    
    (536
    )
    
    
    (518
    )Total non-current liabilities
    
    
    
    
    
    
    (16,748
    )
    
    
    (19,465
    )Total liabilities
    
    
    3
    (d)
    
    
    (22,431
    )
    
    
    (25,439
    )Net assets
    
    
    
    
    
    
    3,493
    
    
    
    2,121EquityCalled up share capital
    
    
    31
    
    
    
    310
    
    
    
    309Share premium account
    
    
    32
    
    
    
    1,316
    
    
    
    1,289Retained earnings
    
    
    32
    
    
    
    6,817
    
    
    
    5,650Translation reserve
    
    
    32
    
    
    
    127
    
    
    
    (6
    )Cash flow hedge reserve
    
    
    32
    
    
    
    37
    
    
    
    Available-for-sale investment reserve
    
    
    32
    
    
    
    6
    
    
    
    Other reserves
    
    
    32
    
    
    
    (5,131
    )
    
    
    (5,131
    )Total parent company shareholders equity
    
    
    
    
    
    
    3,482
    
    
    
    2,111Minority interests
    
    
    32
    
    
    
    11
    
    
    
    10Total equity
    
    
    
    
    
    
    3,493
    
    
    
    2,121
 (i)
    
    Refer to note 1 for the basis of preparation of the comparatives presented under
International Financial Reporting Standards.
  Sir John Parker  Steve Lucas




---



##### Table of Contents



102
    
    Group Financial StatementsGroup Statement of Recognised Income and Expense
    
   Annual Report and Accounts 2005/06National Grid
 
  for the years ended 31 March
 2006
    
    
    2005
    (i)£m
    
    
    £mExchange adjustments
    
    
    141
    
    
    
    (6
    )Actuarial gains
    
    
    181
    
    
    
    253Net losses taken to equity in respect of cash flow hedges
    
    
    (12
    )
    
    
    Transferred to profit or loss on cash flow hedges
    
    
    (20
    )
    
    
    Net gains taken to equity on available-for-sale investments
    
    
    4
    
    
    
    Transferred to profit or loss on sale of available-for-sale investments
    
    
    (1
    )
    
    
    Tax on items taken directly to or transferred from equity
    
    
    (43
    )
    
    
    (66
    )Net income recognised directly in equity
    
    
    250
    
    
    
    181Profit for the year
    
    
    3,850
    
    
    
    1,424Total recognised income and expense for the year
    
    
    4,100
    
    
    
    1,605Attributable to:Equity shareholders of the parent
    
    
    4,097
    
    
    
    1,605Minority interests
    
    
    3
    
    
    
    4,100
    
    
    
    1,605Effect of
change in accounting policy  IAS 39 (ii)
    
    
    (43
    )
    
    
    
 (i)
    
    Refer to note 1 for the basis of preparation of the comparatives presented under
International Financial Reporting Standards.(ii)
    
    The Group has adopted IAS 32 Financial Instruments: Disclosure and Presentation and
IAS 39 Financial Instruments: Recognition and Measurement prospectively with effect from
1 April 2005, in accordance with the transition provisions of IFRS 1. An analysis of the
impact that the adoption of IAS 39 had on the Groups reserves is provided in note 32. The
impact of IAS 39 attributable to minority interests was £nil.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsGroup Cash Flow Statement
    
    103
 
  for the years ended 31 March
 2006
    
    
    2005
    (i)Notes
    
    
    £m
    
    
    £mCash flows from operating activitiesTotal operating profit
    
    
    
    
    
    
    2,439
    
    
    
    2,142Adjustments for:Exceptional items and remeasurements
    
    
    
    
    
    
    88
    
    
    
    301Depreciation and amortisation
    
    
    
    
    
    
    952
    
    
    
    819Share-based payment charge
    
    
    
    
    
    
    15
    
    
    
    12Changes in working capital
    
    
    
    
    
    
    (212
    )
    
    
    (105
    )Changes in provisions
    
    
    
    
    
    
    9
    
    
    
    (119
    )Changes in pensions and other post-retirement benefit obligations
    
    
    
    
    
    
    (42
    )
    
    
    (19
    )Cash flows relating to exceptional items
    
    
    
    
    
    
    (118
    )
    
    
    (120
    )Cash flows generated from continuing operations
    
    
    
    
    
    
    3,131
    
    
    
    2,911Cash flows relating to discontinued operations
    
    
    33
    (a)
    
    
    (20
    )
    
    
    547Cash generated from operations
    
    
    
    
    
    
    3,111
    
    
    
    3,458Tax paid  continuing operations
    
    
    
    
    
    
    (103
    )
    
    
    (52
    )Tax paid  discontinued operations
    
    
    
    
    
    
    (37
    )
    
    
    (98
    )Net cash inflow from operating activities
    
    
    
    
    
    
    2,971
    
    
    
    3,308Cash flows from investing activitiesAcquisition of subsidiaries, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (1,122
    )Sale of investments in joint ventures
    
    
    
    
    
    
    8
    
    
    
    8Purchases of intangible assets
    
    
    
    
    
    
    (16
    )
    
    
    (79
    )Purchases of property, plant and equipment
    
    
    
    
    
    
    (1,750
    )
    
    
    (1,427
    )Disposals of property, plant and equipment
    
    
    
    
    
    
    18
    
    
    
    22Purchases of financial investments
    
    
    
    
    
    
    (2,870
    )
    
    
    (113
    )Sales of financial investments
    
    
    
    
    
    
    2,895
    
    
    
    54Dividends received from joint ventures
    
    
    
    
    
    
    2
    
    
    
    5Cash flows used in continuing operations investing activities
    
    
    
    
    
    
    (1,713
    )
    
    
    (2,652
    )Cash flows
relating to discontinued operations  disposal proceeds
    
    
    
    
    
    
    5,750
    
    
    
    Cash flows relating to discontinued operations  other investing activities
    
    
    
    
    
    
    (115
    )
    
    
    (323
    )Net cash inflow from/(used in) investing activities
    
    
    
    
    
    
    3,922
    
    
    
    (2,975
    )Cash flows from financing activitiesProceeds from issue of share capital
    
    
    
    
    
    
    54
    
    
    
    13Proceeds from loans received
    
    
    
    
    
    
    1,026
    
    
    
    998Repayment of loans
    
    
    
    
    
    
    (1,714
    )
    
    
    (868
    )Net movements in short-term borrowings and derivatives
    
    
    
    
    
    
    (1,616
    )
    
    
    922Interest received
    
    
    
    
    
    
    130
    
    
    
    75Interest paid
    
    
    
    
    
    
    (834
    )
    
    
    (837
    )Exceptional finance costs on the repayment of debt
    
    
    
    
    
    
    (49
    )
    
    
    Dividends paid to shareholders
    
    
    
    
    
    
    (745
    )
    
    
    (628
    )Cash paid to shareholders under B share scheme
    
    
    
    
    
    
    (1,957
    )
    
    
    Purchase of treasury shares
    
    
    
    
    
    
    (7
    )
    
    
    Net cash used in financing activities
    
    
    
    
    
    
    (5,712
    )
    
    
    (325
    )Net increase in cash and cash equivalents
    
    
    
    
    
    
    1,181
    
    
    
    8Exchange movements
    
    
    
    
    
    
    14
    
    
    
    (1
    )Net cash and cash equivalents at start of year (ii)
    
    
    
    
    
    
    254
    
    
    
    247Net cash and cash equivalents at end of year (ii)
    
    
    26
    
    
    
    1,449
    
    
    
    254
 (i)
    
    Refer to note 1 for the basis of preparation of the comparatives presented under
International Financial Reporting Standards.(ii)
    
    Net of bank overdrafts.




---



##### Table of Contents



104
    
    Group Financial StatementsNote 1
    
   Annual Report and Accounts 2005/06National Grid
 
  1. Adoption of International Financial Reporting Standards (IFRS)
           At 1 April 2004
    
    Notes
    
    
    £mNet assets under UK GAAP
    
    
    
    
    
    
    1,271IFRS measurement adjustmentsReplacement expenditure
    
    
    1(c)(i)
    
    
    
    2,778Derecognition of regulatory assets
    
    
    1(c)(ii)
    
    
    
    (1,791
    )Pensions and other post-retirement benefits
    
    
    1(c)(v)
    
    
    
    (1,382
    )Deferred taxation
    
    
    1(c)(vi)
    
    
    
    (84
    )Proposed final dividend
    
    
    1(c)(vii)
    
    
    
    366Other adjustments
    
    
    1(c)(viii)
    
    
    
    (10
    )(123
    )IFRS presentation adjustmentsNon-equity minority interests
    
    
    1(d)(i)
    
    
    
    (38
    )Net assets under IFRS
    
    
    
    
    
    
    1,110




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 1 (continued)
    
    105
 1. Adoption of IFRS (continued)
   For the year ended 31 March 2005
    
    Notes
    
    
    £mProfit for the year before minority interests under UK GAAP
    
    
    
    
    
    
    907IFRS measurement adjustmentsReplacement
expenditure  gross
    
    1(c)(i)
    
    
    
    344Replacement
expenditure  depreciation
    
    1(c)(i)
    
    
    
    (108
    )Derecognition of regulatory assets
    
    1(c)(ii)
    
    
    
    151Goodwill amortisation
    
    1(c)(iii)
    
    
    
    109Amortisation of intangible assets other than goodwill
    
    1(c)(iv)
    
    
    
    (4
    )Pensions and other post-retirement benefits
    
    1(c)(v)
    
    
    
    41Deferred taxation
    
    1(c)(vi)
    
    
    
    (11
    )Other adjustments
    
    1(c)(viii)
    
    
    
    (6
    )516IFRS presentation adjustmentsNon-equity minority interests
    
    1(d)(i)
    
    
    
    (2
    )Share of results of joint ventures
    
    1(d)(ii)
    
    
    
    31Profit for the year under IFRS
    
    
    
    
    
    
    1,424Less: profit
for the year under IFRS  discontinued operations
    
    
    
    
    
    
    (304
    )Profit
for the year under IFRS  continuing operations
    
    
    
    
    
    
    1,120
  At 31 March 2005
    
    Notes
    
    
    £mNet assets under UK GAAP
    
    
    
    
    
    
    1,391IFRS measurement adjustmentsReplacement expenditure
    
    1(c)(i)
    
    
    
    3,014Derecognition of regulatory assets
    
    1(c)(ii)
    
    
    
    (1,587
    )Goodwill
    
    1(c)(iii)
    
    
    
    28Intangible assets other than goodwill
    
    1(c)(iv)
    
    
    
    99Pensions and other post-retirement benefits
    
    1(c)(v)
    
    
    
    (1,149
    )Deferred taxation
    
    1(c)(vi)
    
    
    
    (95
    )Proposed final dividend
    
    1(c)(vii)
    
    
    
    469Other adjustments
    
    1(c)(viii)
    
    
    
    (27
    )752IFRS presentation adjustmentsNon-equity minority interests
    
    1(d)(i)
    
    
    
    (22
    )Net assets under IFRS
    
    
    
    
    
    
    2,121




---



##### Table of Contents



106
    
    Group Financial StatementsNote 1 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 1. Adoption of IFRS (continued)
   (i)
    
    Replacement expenditure (repex)Repex represents the cost of planned replacement of gas mains and services and is undertaken to
maintain the safety of the networks. Under UK GAAP, the gas distribution pipeline network is
treated as a single infrastructure asset for accounting purposes and repex is recorded as an
expense as it represents a repair to that single infrastructure asset and repex does not have
the effect of enhancing the economic benefits of the pipeline network as a whole. Under IFRS,
the individual assets and components within the gas distribution pipeline network are recorded
separately, and hence repex is treated as the replacement or restoration of those individual
assets or components.The adjustment to net assets reflects the aggregate of the cumulative capitalisation of repex
incurred, net of cumulative depreciation, the derecognition of previously replaced gas mains
and services, and the effect on cumulative depreciation of depreciating gas mains and services
at an individual asset or component level, rather than at a distribution pipeline network
level.(ii)
    
    Derecognition of regulatory assetsRegulatory assets arise when a US-based public utility, authorised by its regulator, defers to
its balance sheet certain costs or revenues that will be recovered from or passed on to
customers through future rate changes. These assets were recognised in the balance sheet under
UK GAAP as they met the definition of an asset as set out in FRS 5 Reporting the Substance of
Transactions. Under IFRS, regulatory assets are not permitted to be recognised in the balance
sheet as they do not meet the definition of an asset under the different definition that is set
out in IAS 1. In addition, the International Financial Reporting Interpretations Committee has
expressed the opinion that the recognition criteria of US Statement of Financial Accounting
Standard (SFAS) 71 is not fully consistent with IFRS recognition criteria. Under IFRS, costs
are charged to the income statement when incurred and recoveries from customers are recognised
when receivable.(iii)
    
    Goodwill and goodwill amortisationIn accordance with IFRS 1, the Group has not restated any business combinations that occurred
prior to 31 March 2004 and goodwill at 1 April 2004, which mainly related to US businesses, has
therefore not been adjusted from the amount calculated under UK GAAP.Goodwill arising on the acquisition of the UK operations of Crown Castle International Corp.
during the year ended 31 March 2005 has been remeasured under IFRS, resulting in a reduction in
goodwill of £80m, principally relating to the recognition of intangible assets partially offset
by higher deferred tax liabilities recognised on the acquisition under IFRS.In addition, an adjustment has been recorded in respect of goodwill amortisation of £109m.
Under UK GAAP, goodwill is amortised over a period of 20 years, while under IFRS goodwill
amortisation ceased from 1 April 2004 onwards. IFRS instead requires that goodwill is reviewed
for impairment on an annual basis or when indicators of impairment are identified.(iv)
    
    Intangible assets other than goodwill and related amortisationIn a business combination, IFRS requires fair values to be attributed to intangible assets that
are not recognised under UK GAAP together with associated deferred tax balances. A
corresponding reduction in goodwill arises as a consequence. The acquisition of the UK
operations of Crown Castle International Corp. during the year ended 31 March 2005 resulted in
the recognition under IFRS of certain intangibles, amounting to £188m at the date of
acquisition, which are being amortised on a straight-line basis over periods ranging from 10 to
25 years.(v)
    
    Pensions and other post-retirement benefitsUnder UK GAAP, the Groups pensions and other post-retirement benefits were accounted for under
SSAP 24 prior to the date of transition. Under IFRS, these benefits are accounted for under IAS
19, with the Group recognising all of its net pension and other post-retirement benefit
obligations in the balance sheet at 1 April 2004 with a corresponding adjustment to opening
reserves. There are also differences in the measurement of the annual pension expense under IAS
19 compared with SSAP 24.(vi)
    
    Deferred taxationUnder UK GAAP, deferred tax is recognised in respect of timing differences. Under IFRS,
deferred tax is recognised in respect of temporary differences, being the differences between
the book recorded value and the tax base of assets and liabilities. The adoption of IFRS
resulted in a total reduction in the net deferred tax liability of £165m, which includes the
tax effect of the other IFRS adjustments, which are shown net of tax in the reconciliations
above.(vii)
    
    Proposed final dividendUnder UK GAAP, final ordinary dividends are recorded as a liability in the year in respect of
which they are proposed by the Board of Directors for approval by the shareholders. Under IFRS,
dividends are not provided for until approved.(viii)
    
    Other measurement adjustmentsOther differences on transition from UK GAAP to IFRS for the year ended 31 March 2005 are not
individually material and relate to recognition of finance lease obligations and the related
finance lease assets, certain intangible assets and the timing of recognition of provisions.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 1 (continued)
    
    107
 1. Adoption of IFRS (continued)
   (i)
    
    Non-equity minority interestsIn the income statement, under UK GAAP, dividends paid to non-equity minority interests are
included within Loss for the year attributable to minority interests. Under IFRS, this amount
is included within Net finance costs.Under UK GAAP, non-equity minority interests are shown separately from shareholders equity
within capital and reserves. Under IFRS this amount is included within liabilities, resulting
in lower net assets.(ii)
    
    Share of results of joint venturesUnder UK GAAP, the Groups share of the joint ventures operating profits, interest and tax are
classified within their respective income statement captions. IFRS instead requires that, where equity
accounting is adopted, the post-tax share of results from joint ventures is separately
disclosed as a single line-item in the income statement.(iii)
    
    Gains on disposal of property, plant and equipmentUnder UK GAAP, gains and losses on disposal of properties by our property management business
are included within exceptional items, even though these are considered to be part of the
normal recurring operating activities of the Group. Under IFRS, such gains and losses are
included within other operating income.(iv)
    
    Profit on disposal of joint ventureUnder UK GAAP, the profit on disposal of a joint venture has been disclosed as a non-operating
exceptional item. Under IFRS, this profit has been disclosed within the single line-item
profit for the year from discontinued operations in the income statement.(v)
    
    Cash and cash equivalentsUnder UK GAAP, cash excludes short-term highly liquid investments that are readily convertible
to known amounts of cash and subject to an insignificant change in value. Under IFRS, such
investments are included within cash and cash equivalents.(vi)
    
    SoftwareUnder UK GAAP, software is capitalised together with the related hardware within property,
plant and equipment. Under IFRS, software is classified within intangible assets.(vii)
    
    Short-term provisionsUnder UK GAAP, provisions are presented on the balance sheet separately from creditors and
include both current and non-current provisions. Under IFRS, the current portion of provisions
is included within current liabilities.(viii)
    
    Cumulative translation differencesExchange adjustments arising on the retranslation of overseas subsidiaries net assets on
consolidation are recorded directly in equity within the reserve for cumulative translation
differences. As permitted by IFRS 1, this was set at nil on 1 April 2004. This adjustment
reflects the reclassification of UK GAAP translation differences from retained earnings into
the cumulative translation differences reserve during the year ended 31 March 2005.




---



##### Table of Contents



108
    
    Group Financial StatementsNote 1 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 1. Adoption of IFRS (continued)
  As previouslypresented
    
    
    IFRS
    
    
    IFRS
    
    
    IFRSunder
    
    
    measurement
    
    
    presentation
    
    
    discontinuedUK GAAP
    (i)
    
    changes
    
    
    changes
    
    
    operations
    
    
    IFRS£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mSummary Group Income Statementfor the year ended 31 March 2005Group revenue
    
    
    8,521
    
    
    
    (37
    )
    
    
    
    
    
    
    (1,102
    )
    
    
    7,382Other operating income
    
    
    n/a
    
    
    
    
    
    
    
    70
    
    
    
    
    
    
    
    70Operating costs
    
    
    (6,676
    )
    
    
    700
    
    
    
    
    
    
    
    666
    
    
    
    (5,310
    )Operating profit
    
    
    1,845
    
    
    
    663
    
    
    
    70
    
    
    
    (436
    )
    
    
    2,142Share of joint ventures operating profit
    
    
    7
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    n/aNon-operating exceptional items
    
    
    83
    
    
    
    
    
    
    
    (83
    )
    
    
    
    
    
    
    n/aNet finance costs
    
    
    (783
    )
    
    
    69
    
    
    
    8
    
    
    
    
    
    
    
    (706
    )Share of post-tax results of joint ventures
    
    
    n/a
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Profit before taxation
    
    
    1,152
    
    
    
    732
    
    
    
    (9
    )
    
    
    (436
    )
    
    
    1,439Taxation
    
    
    (245
    )
    
    
    (216
    )
    
    
    2
    
    
    
    140
    
    
    
    (319
    )Profit for the year from continuing operations
    
    
    907
    
    
    
    516
    
    
    
    (7
    )
    
    
    (296
    )
    
    
    1,120Profit for the year from discontinued operations
    
    
    n/a
    
    
    
    
    
    
    
    8
    
    
    
    296
    
    
    
    304Minority interests
    
    
    1
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    n/aProfit for the year
    
    
    908
    
    
    
    516
    
    
    
    
    
    
    
    
    
    
    
    1,424Summary Group Balance Sheetas at 31 March 2005Non-current assets
    
    
    22,395
    
    
    
    3,201
    
    
    
    
    
    
    
    
    
    
    
    25,596Current assets
    
    
    2,316
    
    
    
    (352
    )
    
    
    
    
    
    
    
    
    
    
    1,964Total assets
    
    
    24,711
    
    
    
    2,849
    
    
    
    
    
    
    
    
    
    
    
    27,560Current liabilities
    
    
    (6,148
    )
    
    
    447
    
    
    
    (273
    )
    
    
    
    
    
    
    (5,974
    )Non-current liabilities
    
    
    (17,172
    )
    
    
    (2,544
    )
    
    
    251
    
    
    
    
    
    
    
    (19,465
    )Total liabilities
    
    
    (23,320
    )
    
    
    (2,097
    )
    
    
    (22
    )
    
    
    
    
    
    
    (25,439
    )Net assets
    
    
    1,391
    
    
    
    752
    
    
    
    (22
    )
    
    
    
    
    
    
    2,121EquityCalled up share capital
    
    
    309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    309Share premium account
    
    
    1,289
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,289Retained earnings
    
    
    4,892
    
    
    
    685
    
    
    
    73
    
    
    
    
    
    
    
    5,650Other reserves
    
    
    (5,131
    )
    
    
    67
    
    
    
    (73
    )
    
    
    
    
    
    
    (5,137
    )Total shareholders equity
    
    
    1,359
    
    
    
    752
    
    
    
    
    
    
    
    
    
    
    
    2,111Minority interests
    
    
    32
    
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    10Total equity
    
    
    1,391
    
    
    
    752
    
    
    
    (22
    )
    
    
    
    
    
    
    2,121Summary Group Cash Flow Statementfor the year ended 31
March 2005Cash generated from operationsCash flows
from operating activities  continuing operations
    
    
    2,909
    
    
    
    479
    
    
    
    70
    
    
    
    (547
    )
    
    
    2,911Cash flows
from operating activities  discontinued operations
    
    
    n/a
    
    
    
    
    
    
    
    
    
    
    
    547
    
    
    
    547Tax paid
 continuing operations
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    98
    
    
    
    (52
    )Tax paid
 discontinued operations
    
    
    n/a
    
    
    
    
    
    
    
    
    
    
    
    (98
    )
    
    
    (98
    )Net cash inflow from operations
    
    
    2,759
    
    
    
    479
    
    
    
    70
    
    
    
    
    
    
    
    3,308Cash flows from investing activitiesCash flows
from investing activities  continuing operations
    
    
    (2,441
    )
    
    
    (475
    )
    
    
    (59
    )
    
    
    323
    
    
    
    (2,652
    )Cash flows
from investing activities  discontinued operations
    
    
    n/a
    
    
    
    
    
    
    
    
    
    
    
    (323
    )
    
    
    (323
    )Net cash used in investing activities
    
    
    (2,441
    )
    
    
    (475
    )
    
    
    (59
    )
    
    
    
    
    
    
    (2,975
    )Net cash flows from financing activities
    
    
    (305
    )
    
    
    (4
    )
    
    
    (16
    )
    
    
    
    
    
    
    (325
    )Net increase in cash and cash equivalents
    
    
    13
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    8
 (i)
    
    Represents UK GAAP measurement principles, but presented in IFRS formats for comparability.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNotes 2 and 3
    
    109
 2. Adoption of IAS 39 and IAS 32 and presentation of net debt at 1 April 2005
      IAS 39
    
    
    IAS 39transition
    
    
    reclass-
    
    
    IFRSadjustment
    
    
    ifications
    
    
    post-at 1 April
    
    
    at 1 April
    
    
    IAS 39At 31 March
    
    
    2005
    
    
    2005
    
    
    at 1 April2005
    
    
    (i) (ii) (iii) (iv)
    
    
    (v)
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £mCash and cash equivalents
    
    
    272
    
    
    
    
    
    
    
    
    
    
    
    272Bank overdrafts
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    (18
    )Net cash and cash equivalents
    
    
    254
    
    
    
    
    
    
    
    
    
    
    
    254Financial investments
    
    
    398
    
    
    
    3
    
    
    
    
    
    
    
    401Borrowings
    
    
    (14,290
    )
    
    
    (580
    )
    
    
    (314
    )
    
    
    (15,184
    )(13,638
    )
    
    
    (577
    )
    
    
    (314
    )
    
    
    (14,529
    )Derivative financial assets
    
    
    
    
    
    
    633
    
    
    
    92
    
    
    
    725Derivative financial liabilities
    
    
    
    
    
    
    (178
    )
    
    
    (4
    )
    
    
    (182
    )Net debt
    
    
    (13,638
    )
    
    
    (122
    )
    
    
    (226
    )
    
    
    (13,986
    )Accrued interest
    
    
    (255
    )
    
    
    29
    
    
    
    226
    
    
    
    Deferred gains and losses
    
    
    (39
    )
    
    
    39
    
    
    
    
    
    
    
    Available-for-sale investments
    
    
    131
    
    
    
    4
    
    
    
    
    
    
    
    135Commodity contract assets
    
    
    
    
    
    
    63
    
    
    
    
    
    
    
    63Commodity contract liabilities
    
    
    (327
    )
    
    
    (193
    )
    
    
    
    
    
    
    (520
    )Purchased power obligations
    
    
    (144
    )
    
    
    130
    
    
    
    
    
    
    
    (14
    )Other assets and liabilities
    
    
    16,393
    
    
    
    7
    
    
    
    
    
    
    
    16,400Net assets
    
    
    2,121
    
    
    
    (43
    )
    
    
    
    
    
    
    2,078
 (i)
    
    On the adoption of IAS 39, derivative financial assets and liabilities are recognised
on the balance sheet, with corresponding adjustments to retained earnings or to other
reserves within equity (in respect of derivatives qualifying as cash flow hedges or net
investment hedges) or to the carrying value of debt (in respect of derivatives qualifying
as fair value hedges). The impact on other assets and liabilities principally relates to
the deferred tax effect of these adjustments.(ii)
    
    Up to 31 March 2005, deferred gains and losses relating to hedged financial
instruments were carried forward in the balance sheet and reflected in the income
statement in line with those hedged financial instruments. Under IAS 39, deferred gains
and losses relating to qualifying hedge relationships are recorded in equity (for cash
flow hedges and net investment hedges) or by adjusting the carrying value of the hedged
financial instrument (for fair value hedges) or in the income statement if hedge
accounting is not achieved.(iii)
    
    On the adoption of IAS 39, available-for-sale investments (being financial
investments not held for financial management purposes) and financial investments have
been adjusted by £4m and £3m respectively. Under UK GAAP and IFRS at 31 March 2005, these
are carried at cost, while under IAS 39 these are carried at fair value.(iv)
    
    Up to 31 March 2005, index-linked swap contracts were carried at fair value. Under
IAS 39, these commodity contracts are treated as derivative financial instruments and are
also carried at fair value. In addition, assets and liabilities arising from certain other
commodity contract assets and liabilities not previously recognised as at 31 March 2005
are recorded on the balance sheet as at 1 April 2005, offset by a reduction in purchased
power obligations.(v)
    
    Up to 31 March 2005, accrued interest was presented separately within creditors from
the financial instruments to which it relates. Under IAS 32 and IAS 39 the carrying value
of borrowings and derivative financial assets and liabilities includes the related accrued
interest balance.
 3. Segmental analysis
   UK electricity and gas transmission
    
    High-voltage electricity transmission networks, the gas transmission network in the UK, the
UK liquefied natural gas storage activities and the Scottish and French
electricity interconnectorsUS electricity transmission
    
    High-voltage electricity transmission networks and management of electricity transmission
operations for other utilities in the USUK gas distribution
    
    Four of the eight regional networks of Great Britains gas distribution systemUS electricity and gas distribution
    
    Electricity and gas distribution in New York and electricity distribution in New EnglandUS stranded cost recoveries
    
    The recovery of stranded costs from US customers as permitted by regulatory agreementsWireless infrastructure
    
    Broadcast and mobile telephone infrastructure in the UK and US




---



##### Table of Contents



110
    
    Group Financial StatementsNote 3 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 3. Segmental analysis (continued)
      Sales
    
    
    Sales
    
    
    
    
    
    
    Sales
    
    
    SalesTotal
    
    
    between
    
    
    to third
    
    
    Total
    
    
    between
    
    
    to thirdsales
    
    
    businesses
    
    
    parties
    
    
    sales
    
    
    businesses
    
    
    parties2006
    
    
    2006
    
    
    2006
    
    
    2005
    
    
    2005
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mBusiness segmentsUK electricity and gas transmission
    
    
    2,710
    
    
    
    15
    
    
    
    2,695
    
    
    
    1,995
    
    
    
    10
    
    
    
    1,985US electricity transmission
    
    
    310
    
    
    
    48
    
    
    
    262
    
    
    
    284
    
    
    
    45
    
    
    
    239UK gas distribution
    
    
    1,222
    
    
    
    86
    
    
    
    1,136
    
    
    
    1,113
    
    
    
    135
    
    
    
    978US electricity and gas distribution
    
    
    3,711
    
    
    
    2
    
    
    
    3,709
    
    
    
    3,087
    
    
    
    2
    
    
    
    3,085US stranded cost recoveries
    
    
    511
    
    
    
    
    
    
    
    511
    
    
    
    409
    
    
    
    
    
    
    
    409Wireless infrastructure
    
    
    325
    
    
    
    
    
    
    
    325
    
    
    
    208
    
    
    
    
    
    
    
    208Other activities
    
    
    701
    
    
    
    146
    
    
    
    555
    
    
    
    734
    
    
    
    256
    
    
    
    4789,490
    
    
    
    297
    
    
    
    9,193
    
    
    
    7,830
    
    
    
    448
    
    
    
    7,382Geographical segmentsUK
    
    
    
    
    
    
    
    
    
    
    4,671
    
    
    
    
    
    
    
    
    
    
    
    3,621US
    
    
    
    
    
    
    
    
    
    
    4,522
    
    
    
    
    
    
    
    
    
    
    
    3,7619,193
    
    
    
    
    
    
    
    
    
    
    
    7,382




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 3 (continued)
    
    111
 3. Segmental analysis (continued)
  Before exceptional items
    
    
    After exceptional itemsand remeasurements
    
    
    and remeasurements2006
    
    
    2005
    
    
    2006
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £mBusiness segmentsUK electricity and gas transmission
    
    
    844
    
    
    
    859
    
    
    
    843
    
    
    
    857US electricity transmission
    
    
    127
    
    
    
    126
    
    
    
    127
    
    
    
    119UK gas distribution
    
    
    483
    
    
    
    424
    
    
    
    432
    
    
    
    333US electricity and gas distribution
    
    
    364
    
    
    
    375
    
    
    
    364
    
    
    
    258US stranded cost recoveries
    
    
    489
    
    
    
    465
    
    
    
    440
    
    
    
    427Wireless infrastructure
    
    
    75
    
    
    
    42
    
    
    
    70
    
    
    
    29Other activities
    
    
    145
    
    
    
    152
    
    
    
    163
    
    
    
    1192,527
    
    
    
    2,443
    
    
    
    2,439
    
    
    
    2,142Geographical segmentsUK
    
    
    1,549
    
    
    
    1,473
    
    
    
    1,489
    
    
    
    1,335US
    
    
    983
    
    
    
    970
    
    
    
    934
    
    
    
    807Rest of the World
    
    
    (5
    )
    
    
    
    
    
    
    16
    
    
    
    2,527
    
    
    
    2,443
    
    
    
    2,439
    
    
    
    2,142
     Total assets
    
    
    Total liabilities2006
    
    
    2005
    
    
    2006
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £mBusiness segmentsGroup
undertakings  continuing operationsUK electricity and gas transmission
    
    
    7,181
    
    
    
    6,635
    
    
    
    (1,447
    )
    
    
    (1,837
    )US electricity transmission
    
    
    1,653
    
    
    
    1,545
    
    
    
    (40
    )
    
    
    (99
    )UK gas distribution
    
    
    5,091
    
    
    
    4,766
    
    
    
    (1,154
    )
    
    
    (1,152
    )US electricity and gas distribution
    
    
    5,756
    
    
    
    5,001
    
    
    
    (1,761
    )
    
    
    (1,734
    )US stranded cost recoveries
    
    
    104
    
    
    
    63
    
    
    
    (665
    )
    
    
    (618
    )Wireless infrastructure
    
    
    1,571
    
    
    
    1,579
    
    
    
    (293
    )
    
    
    (267
    )Other activities
    
    
    1,896
    
    
    
    1,628
    
    
    
    (1,106
    )
    
    
    (748
    )23,252
    
    
    
    21,217
    
    
    
    (6,466
    )
    
    
    (6,455
    )Group
undertakings  discontinued operations
    
    
    
    
    
    
    5,300
    
    
    
    
    
    
    
    (1,115
    )Group undertakings
    
    
    23,252
    
    
    
    26,517
    
    
    
    (6,466
    )
    
    
    (7,570
    )Joint
ventures  continuing operations (electricity activities)
    
    
    12
    
    
    
    17
    
    
    
    
    
    
    
    Unallocated
    
    
    2,660
    
    
    
    1,026
    
    
    
    (15,965
    )
    
    
    (17,869
    )25,924
    
    
    
    27,560
    
    
    
    (22,431
    )
    
    
    (25,439
    )Geographical segmentsUK
    
    
    15,227
    
    
    
    19,504
    
    
    
    (3,948
    )
    
    
    (5,072
    )US
    
    
    7,659
    
    
    
    6,750
    
    
    
    (2,488
    )
    
    
    (2,467
    )Rest of the World
    
    
    378
    
    
    
    280
    
    
    
    (30
    )
    
    
    (31
    )Unallocated
    
    
    2,660
    
    
    
    1,026
    
    
    
    (15,965
    )
    
    
    (17,869
    )25,924
    
    
    
    27,560
    
    
    
    (22,431
    )
    
    
    (25,439
    )




---



##### Table of Contents



112
    
    Group Financial StatementsNotes 3 (continued), 4 and 5
    
   Annual Report and Accounts 2005/06National Grid
 3. Segmental analysis (continued)
  Depreciation andCapital expenditure
    
    
    amortisation2006
    
    
    2005
    
    
    2006
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £mBusiness segmentsContinuing operationsUK electricity and gas transmission
    
    
    890
    
    
    
    529
    
    
    
    377
    
    
    
    296US electricity transmission
    
    
    91
    
    
    
    74
    
    
    
    45
    
    
    
    41UK gas distribution
    
    
    444
    
    
    
    359
    
    
    
    161
    
    
    
    163US electricity and gas distribution
    
    
    244
    
    
    
    234
    
    
    
    145
    
    
    
    135Wireless infrastructure
    
    
    43
    
    
    
    19
    
    
    
    64
    
    
    
    37Other activities
    
    
    350
    
    
    
    303
    
    
    
    160
    
    
    
    1472,062
    
    
    
    1,518
    
    
    
    952
    
    
    
    819Discontinued operations
    
    
    87
    
    
    
    387
    
    
    
    13
    
    
    
    176Group undertakings
    
    
    2,149
    
    
    
    1,905
    
    
    
    965
    
    
    
    995Geographical segmentsUK
    
    
    1,738
    
    
    
    1,455
    
    
    
    771
    
    
    
    816US
    
    
    340
    
    
    
    312
    
    
    
    194
    
    
    
    179Rest of the World
    
    
    71
    
    
    
    138
    
    
    
    
    
    
    
    2,149
    
    
    
    1,905
    
    
    
    965
    
    
    
    995
   4. Other operating income
  5. Operating costs
 Before exceptional items
    
    
    Exceptional items andand remeasurements
    
    
    remeasurements
    
    
    Total2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mDepreciation of property, plant and equipment
    
    
    895
    
    
    
    774
    
    
    
    
    
    
    
    
    
    
    
    895
    
    
    
    774Amortisation of intangible assets
    
    
    57
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    45Payroll costs (note 7(a))
    
    
    844
    
    
    
    828
    
    
    
    48
    
    
    
    91
    
    
    
    892
    
    
    
    919Other operating charges:Purchases of electricity
    
    
    1,928
    
    
    
    1,458
    
    
    
    49
    
    
    
    38
    
    
    
    1,977
    
    
    
    1,496Purchases of gas
    
    
    566
    
    
    
    357
    
    
    
    
    
    
    
    
    
    
    
    566
    
    
    
    357Rates and property taxes
    
    
    443
    
    
    
    406
    
    
    
    
    
    
    
    
    
    
    
    443
    
    
    
    406Electricity transmission services scheme direct costs
    
    
    536
    
    
    
    301
    
    
    
    
    
    
    
    
    
    
    
    536
    
    
    
    301Payments to Scottish network owners under BETTA
    
    
    259
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259
    
    
    
    Other operating charges
    
    
    1,218
    
    
    
    840
    
    
    
    (9
    )
    
    
    172
    
    
    
    1,209
    
    
    
    1,0124,950
    
    
    
    3,362
    
    
    
    40
    
    
    
    210
    
    
    
    4,990
    
    
    
    3,5726,746
    
    
    
    5,009
    
    
    
    88
    
    
    
    301
    
    
    
    6,834
    
    
    
    5,310Operating costs include:Research expenditure
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    9Operating lease rentalsPlant and machinery
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    20Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84
    
    
    
    63Auditors remunerationStatutory audit servicesAnnual audit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    5Regulatory reporting
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Further audit related services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Tax compliance services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Tax advisory services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Other non-audit services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNotes 6 and 7
    
    113
 6. Exceptional items and remeasurements
  2006
    
    
    2005£m
    
    
    £mExceptional items  restructuring costs (i)
    
    
    60
    
    
    
    121Exceptional items  past service pension costs (ii)
    
    
    
    
    
    
    41Exceptional items  environmental related provisions (iii)
    
    
    
    
    
    
    101Exceptional items  profit on sale and reversal of impairment (iv)
    
    
    (21
    )
    
    
    Remeasurements  commodity contracts (v)
    
    
    49
    
    
    
    38Total exceptional items and remeasurements included within operating profit
    
    
    88
    
    
    
    301Exceptional finance costs (vi)
    
    
    49
    
    
    
    Remeasurements  commodity contracts (v)
    
    
    14
    
    
    
    Remeasurements  net gains on derivative financial instruments (vii)
    
    
    (6
    )
    
    
    Total exceptional items and remeasurements included within finance costs
    
    
    57
    
    
    
    Total exceptional items and remeasurements before taxation
    
    
    145
    
    
    
    301Tax on restructuring costs (i)
    
    
    (12
    )
    
    
    (34
    )Tax on exceptional past service pension costs (ii)
    
    
    
    
    
    
    (17
    )Tax on environmental related provisions (iii)
    
    
    
    
    
    
    (39
    )Tax on commodity contract remeasurements (v)
    
    
    (25
    )
    
    
    (15
    )Tax on exceptional finance costs (vi)
    
    
    (15
    )
    
    
    Tax on derivative financial instrument remeasurements (vii)
    
    
    17
    
    
    
    Other exceptional tax credits (viii)
    
    
    
    
    
    
    (13
    )Tax on exceptional items and remeasurements
    
    
    (35
    )
    
    
    (118
    )Total exceptional items and remeasurements
    
    
    110
    
    
    
    183
 (i)
    
    Restructuring costs relate to planned cost reduction programmes in the UK (2005: UK and
US) businesses. For the year ended 31 March 2006, restructuring costs included pension
curtailment costs of £25m arising as a result of redundancies (2005: £22m).(ii)
    
    Past service pension costs arose from the renegotiation of terms and conditions of
service with certain employees in the US.(iii)
    
    During the year ended 31 March 2005, a review of the environmental provisions was
undertaken to take into account the impact of changes to UK regulations on waste disposal.
This review, together with related revisions to the expected UK expenditure profile,
resulted in a charge of £41m in 2005. Following a similar review in the US of
environmental provisions, an additional exceptional charge of £60m was made for site
restoration, which reflected the experience of restoring similar sites.(iv)
    
    Reversal of a prior period impairment of £13m related to National Grids investment
in Copperbelt Energy Corporation (CEC) and a gain on disposal of an investment in Energis
Polska of £8m.(v)
    
    Remeasurements  commodity contracts represent mark-to-market movements on certain
commodity contract obligations, primarily indexed-linked swap contracts, in the US. Under
the Groups existing rate plans in the US, commodity costs are fully recovered from
customers, although the pattern of recovery may differ from the pattern of costs incurred.These movements are comprised of those impacting operating profit which are based on the
change in the commodity contract liability and those impacting finance costs as a result of
changing discount rates due to market fluctuations.(v)
    
    Exceptional finance costs for the year ended 31 March 2006 represent costs incurred
on the early redemption of debt following the disposal of four gas distribution networks
(£39m), together with issue costs associated with the B share scheme (£10m).(vii)
    
    Remeasurements  net gains on derivative financial instruments comprise non-cash
gains and losses arising on derivative financial instruments reported in the income
statement. These exclude gains and losses for which hedge accounting has been effective,
which have been recognised directly in equity or offset by adjustments to the carrying
value of debt.(viii)
    
    The exceptional tax credit in 2005 includes: a credit of £22m associated with the prior
period disposal of Energis, a former associate company; a £3m credit associated with the
prior period write-down of investments; and a £12m charge relating to the settlement of
the liabilities arising from operating the Groups Qualifying Employee Share Ownership
Trust.
 7. Payroll costs and employees
  2006
    
    
    2005£m
    
    
    £mWages and salaries
    
    
    891
    
    
    
    911Social security costs
    
    
    63
    
    
    
    59Other pension costs
    
    
    142
    
    
    
    147Share-based payments
    
    
    15
    
    
    
    12Severance costs
    
    
    23
    
    
    
    121,134
    
    
    
    1,141Less: Amounts capitalised
    
    
    (242
    )
    
    
    (222
    )892
    
    
    
    919




---



##### Table of Contents



114
    
    Group Financial StatementsNotes 7 (continued), 8 and 9
    
   Annual Report and Accounts 2005/06National Grid
 7. Payroll costs and employees (continued)
  31 March
    
    
    Average
    
    
    Average2006
    
    
    2006
    
    
    2005Number
    
    
    Number
    
    
    NumberUK
    
    
    11,409
    
    
    
    11,421
    
    
    
    11,784US
    
    
    8,362
    
    
    
    8,414
    
    
    
    8,663Rest of the World
    
    
    12
    
    
    
    8
    
    
    
    13Continuing operations
    
    
    19,783
    
    
    
    19,843
    
    
    
    20,460Discontinued operations
    
    
    
    
    
    
    686
    
    
    
    4,14719,783
    
    
    
    20,529
    
    
    
    24,607
  
    
    the US are either directly or indirectly employed in the transmission and distribution of
electricity or the distribution of gas.
    
    the UK are either directly or indirectly employed in the
transmission and distribution of gas or the transmission of electricity. At 31 March 2006, 3,011
employees were employed in other businesses, of which 695 were in the Wireless infrastructure
segment.
  2006
    
    
    2005£m
    
    
    £mSalaries and short-term employee benefits
    
    
    7
    
    
    
    6Post-employment benefits
    
    
    5
    
    
    
    4Share-based payments
    
    
    2
    
    
    
    214
    
    
    
    12
  8. Directors emoluments
  
 9. Pensions and other post-retirement benefits




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 9 (continued)
    
    115
 9. Pensions and other post-retirement benefits (continued)




---



##### Table of Contents



116
    
    Group Financial StatementsNote 9 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 9. Pensions and other post-retirement benefits (continued)
 US other post-Pensions
    
    
    retirement benefits2006
    
    
    2005
    
    
    2006
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £mThe amounts recognised in the balance sheet are determined as follows:Present value of funded obligations
    
    
    (16,520
    )
    
    
    (15,679
    )
    
    
    (1,223
    )
    
    
    (1,068
    )Fair value of plan assets
    
    
    15,341
    
    
    
    14,077
    
    
    
    568
    
    
    
    488(1,179
    )
    
    
    (1,602
    )
    
    
    (655
    )
    
    
    (580
    )Present value of unfunded obligations
    
    
    (96
    )
    
    
    (90
    )
    
    
    
    
    
    
    Other post-employment liabilities
    
    
    
    
    
    
    
    
    
    
    (34
    )
    
    
    (34
    )Unrecognised past service cost
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    50Net liability in the balance sheet
    
    
    (1,275
    )
    
    
    (1,692
    )
    
    
    (640
    )
    
    
    (564
    )Liabilities
    
    
    (1,275
    )
    
    
    (1,718
    )
    
    
    (640
    )
    
    
    (564
    )Assets
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    Net liability
    
    
    (1,275
    )
    
    
    (1,692
    )
    
    
    (640
    )
    
    
    (564
    )The amounts recognised in the income statement are as follows:Defined contribution scheme costs
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    Defined benefit scheme costsCurrent service cost
    
    
    114
    
    
    
    107
    
    
    
    16
    
    
    
    11Past service cost
    
    
    
    
    
    
    16
    
    
    
    6
    
    
    
    25Curtailment (gain)/loss on redundancies
    
    
    (24
    )
    
    
    22
    
    
    
    
    
    
    
    Special termination benefits on redundancies
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    Curtailment cost  augmentations
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Total in payroll costs
    
    
    142
    
    
    
    147
    
    
    
    22
    
    
    
    36Interest cost
    
    
    828
    
    
    
    825
    
    
    
    63
    
    
    
    56Expected return on plan assets
    
    
    (862
    )
    
    
    (843
    )
    
    
    (41
    )
    
    
    (39
    )Total in finance costs
    
    
    (34
    )
    
    
    (18
    )
    
    
    22
    
    
    
    17Current service costs
    
    
    5
    
    
    
    27
    
    
    
    
    
    
    
    Curtailment/settlement gain on sale of distribution networks
    
    
    (168
    )
    
    
    
    
    
    
    
    
    
    
    Total in discontinued operations
    
    
    (163
    )
    
    
    27
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    2,359
    
    
    
    1,261
    
    
    
    65
    
    
    
    26




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 9 (continued)
    
    117
 9. Pensions and other post-retirement benefits (continued)
 US other post-Pensions
    
    
    retirement benefits2006
    
    
    2005
    
    
    2006
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £mChanges in the present value of the defined benefit obligationOpening defined benefit obligation
    
    
    15,769
    
    
    
    15,403
    
    
    
    1,068
    
    
    
    1,002Current service cost
    
    
    119
    
    
    
    134
    
    
    
    16
    
    
    
    11Interest cost
    
    
    828
    
    
    
    825
    
    
    
    63
    
    
    
    56Actuarial losses
    
    
    1,300
    
    
    
    147
    
    
    
    40
    
    
    
    5Curtailment (gain)/loss on redundancies
    
    
    (24
    )
    
    
    22
    
    
    
    
    
    
    
    Curtailment gain on sale of distribution networks
    
    
    (168
    )
    
    
    
    
    
    
    
    
    
    
    Settlement on sale of distribution networks
    
    
    (589
    )
    
    
    
    
    
    
    
    
    
    
    Net transfers and disposals
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    Gains on settlements
    
    
    (20
    )
    
    
    (1
    )
    
    
    
    
    
    
    Special termination benefits
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    Curtailment cost  augmentations
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Liabilities assumed in a business combination
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    Plan amendment
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    79Employee contributions
    
    
    14
    
    
    
    17
    
    
    
    
    
    
    
    Benefits paid
    
    
    (775
    )
    
    
    (783
    )
    
    
    (59
    )
    
    
    (52
    )Exchange differences on foreign plans
    
    
    127
    
    
    
    (43
    )
    
    
    95
    
    
    
    (33
    )Closing defined benefit obligation
    
    
    16,616
    
    
    
    15,769
    
    
    
    1,223
    
    
    
    1,068Changes in the fair value of plan assetsOpening fair value of plan assets
    
    
    14,077
    
    
    
    13,411
    
    
    
    488
    
    
    
    496Expected return on plan assets
    
    
    862
    
    
    
    843
    
    
    
    41
    
    
    
    39Actuarial gains/(losses)
    
    
    1,497
    
    
    
    418
    
    
    
    24
    
    
    
    (13
    )Assets distributed on settlements and transfers
    
    
    (623
    )
    
    
    
    
    
    
    
    
    
    
    Employer contributions
    
    
    191
    
    
    
    184
    
    
    
    30
    
    
    
    32Employee contributions
    
    
    14
    
    
    
    17
    
    
    
    
    
    
    
    Assets acquired in a business combination
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    Benefits paid
    
    
    (774
    )
    
    
    (783
    )
    
    
    (59
    )
    
    
    (52
    )Exchange differences on foreign plans
    
    
    97
    
    
    
    (34
    )
    
    
    44
    
    
    
    (14
    )Closing fair value of plan assets
    
    
    15,341
    
    
    
    14,077
    
    
    
    568
    
    
    
    488Expected contributions to defined benefit plans in the following year
    
    
    153
    
    
    
    164
    
    
    
    50
    
    
    
    50




---



##### Table of Contents



118
    
    Group Financial StatementsNote 9 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 9. Pensions and other post-retirement benefits (continued)
 US other post-Pensions
    
    
    retirement benefits2006
    
    
    2005
    
    
    2006
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £mAmounts recognised in statement of recognised income and expenseActuarial gain/(loss) during the year
    
    
    197
    
    
    
    271
    
    
    
    (16
    )
    
    
    (18
    )Exchange differences
    
    
    (30
    )
    
    
    9
    
    
    
    (51
    )
    
    
    19Total recognised for the year
    
    
    167
    
    
    
    280
    
    
    
    (67
    )
    
    
    1Cumulative actuarial gain/(loss)
    
    
    468
    
    
    
    271
    
    
    
    (34
    )
    
    
    (18
    )
  US other post-UK pensions
    
    
    US pensions
    
    
    retirement benefits2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005%
    
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %Equities
    
    
    40.7
    
    
    
    41.5
    
    
    
    66.4
    
    
    
    64.5
    
    
    
    69.0
    
    
    
    65.0Corporate bonds
    
    
    19.2
    
    
    
    17.3
    
    
    
    32.0
    
    
    
    34.0
    
    
    
    30.6
    
    
    
    33.8Gilts
    
    
    30.1
    
    
    
    31.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property
    
    
    8.5
    
    
    
    8.0
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    
    
    
    
    Other
    
    
    1.5
    
    
    
    1.3
    
    
    
    1.4
    
    
    
    1.2
    
    
    
    0.4
    
    
    
    1.2Total
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0The principal actuarial assumptions used were:Discount rate (i)
    
    
    4.9
    
    
    
    5.4
    
    
    
    6.0
    
    
    
    5.8
    
    
    
    6.0
    
    
    
    5.8Expected return on plan assets
    
    
    5.8
    
    
    
    6.2
    
    
    
    8.3
    
    
    
    8.3
    
    
    
    8.3
    
    
    
    8.3Rate of increase in salaries (ii)
    
    
    3.9
    
    
    
    3.9
    
    
    
    4.1
    
    
    
    4.1
    
    
    
    
    
    
    
    Rate of increase in pensions in payment and deferred pensions
    
    
    3.0
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rate of increase in Retail Price Index or equivalent
    
    
    2.9
    
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Initial healthcare cost trend rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.0
    
    
    
    10.0Ultimate healthcare cost trend rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.0
    
    
    
    5.0
 (i)
    
    For the year ended 31 March 2006, a 0.1% reduction in the discount rate would increase
the current service cost by £3m and reduce the interest on liabilities by £1m.(ii)
    
    A promotional age-related scale has also been used where appropriate.(iii)
    
    The pensions and other post-retirement benefit assumptions allow for future
improvements in mortality.
    2006
    
    
    2005£m
    
    
    £mIncreaseEffect on the aggregate of the service cost and interest cost
    
    
    15
    
    
    
    12Effect on defined benefit obligation
    
    
    186
    
    
    
    156DecreaseEffect on the aggregate of the service cost and interest cost
    
    
    (12
    )
    
    
    (10
    )Effect on defined benefit obligation
    
    
    (161
    )
    
    
    (136
    )2006
    
    
    
    2005£m
    
    
    
    £mExperience gains on liabilities
    
    
    192
    
    
    
    42Experience gains on assets
    
    
    1,521
    
    
    
    405




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 10
    
    119
 10. Finance income and costs
 2006
    
    
    2005£m
    
    
    £mPensions  expected return on scheme assets
    
    
    903
    
    
    
    882Interest income on financial instruments held at amortised cost
    
    
    135
    
    
    
    64Interest income and similar income
    
    
    1,038
    
    
    
    946Pensions  interest on scheme liabilities
    
    
    (891
    )
    
    
    (881
    )Interest expense on financial liabilities held at amortised cost
    
    
    (746
    )
    
    
    (820
    )Exceptional debt redemption and B share issue costs
    
    
    (49
    )
    
    
    Interest on derivatives
    
    
    (49
    )
    
    
    Unwinding of discounts on provisions
    
    
    (18
    )
    
    
    (14
    )Less: interest capitalised
    
    
    60
    
    
    
    63Interest expense
    
    
    (1,693
    )
    
    
    (1,652
    )Net (losses)/gains on derivative financial instruments:On derivatives designated as fair value hedges
    
    
    (10
    )
    
    
    On derivatives designated as cash flow hedges
    
    
    17
    
    
    
    On derivatives designated as net investment hedges
    
    
    (25
    )
    
    
    On undesignated forward rate risk relating to derivatives designated as net investment hedges
    
    
    36
    
    
    
    On derivatives not designated as hedges or ineligible for hedge accounting
    
    
    (12
    )
    
    
    Financial element of remeasurements on commodity contracts
    
    
    (14
    )
    
    
    Net losses on derivative financial instruments and commodity contracts
    
    
    (8
    )
    
    
    Interest expense and other finance costs
    
    
    (1,701
    )
    
    
    (1,652
    )Net finance costs
    
    
    (663
    )
    
    
    (706
    )Comprising:Interest income and similar income
    
    
    1,038
    
    
    
    946Interest expense and other finance costsBefore exceptional items and remeasurements
    
    
    (1,644
    )
    
    
    (1,652
    )Exceptional items and remeasurements
    
    
    (57
    )
    
    
    (663
    )
    
    
    (706
    )




---



##### Table of Contents



120
    
    Group Financial StatementsNote 11
    
   Annual Report and Accounts 2005/06National Grid
 11. Taxation
  2006
    
    
    2005£m
    
    
    £mUnited KingdomCorporation tax at 30%
    
    
    290
    
    
    
    31Adjustment in respect of prior years (i)
    
    
    (5
    )
    
    
    (19
    )Deferred tax
    
    
    1
    
    
    
    82286
    
    
    
    94OverseasCorporate tax
    
    
    125
    
    
    
    33Adjustment in respect of prior years
    
    
    22
    
    
    
    (21
    )Deferred tax
    
    
    129
    
    
    
    213276
    
    
    
    225Taxation
    
    
    562
    
    
    
    319Comprising:Taxation  excluding exceptional items and remeasurements
    
    
    597
    
    
    
    437Taxation  exceptional items and remeasurements (note 6)
    
    
    (35
    )
    
    
    (118
    )562
    
    
    
    319
 (i)
    
    The UK corporation tax adjustment in respect of prior years includes £nil (2005: £10m) that
relates to exceptional items.
  2006
    
    
    2005£m
    
    
    £mDeferred tax charge on available-for-sale investments
    
    
    1
    
    
    
    Deferred tax credit on revaluation of cash flow hedges
    
    
    (20
    )
    
    
    Deferred tax credit on employee share options
    
    
    (7
    )
    
    
    (4
    )Deferred tax charge on actuarial gains
    
    
    62
    
    
    
    6636
    
    
    
    62
  Before
    
    
    After
    
    
    Before
    
    
    Afterexceptionals
    
    
    exceptionals
    
    
    exceptionals
    
    
    exceptionalsand
    
    
    and
    
    
    and
    
    
    andremeasure-
    
    
    remeasure-
    
    
    remeasure-
    
    
    remeasure-ments
    
    
    ments
    
    
    ments
    
    
    ments2006
    
    
    2006
    
    
    2005
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £mProfit before taxationBefore exceptional items and remeasurements
    
    
    1,924
    
    
    
    1,924
    
    
    
    1,740
    
    
    
    1,740Exceptional items and remeasurements
    
    
    
    
    
    
    (145
    )
    
    
    
    
    
    
    (301
    )Profit before taxation from continuing operations
    
    
    1,924
    
    
    
    1,779
    
    
    
    1,740
    
    
    
    1,439Profit on continuing operations multiplied by rate of
corporation tax in the UK of 30% (2005: 30%)
    
    
    577
    
    
    
    534
    
    
    
    522
    
    
    
    432Effects of:Adjustments in respect of current income tax of previous years
    
    
    17
    
    
    
    17
    
    
    
    (30
    )
    
    
    (40
    )Expenses not deductible for tax purposes
    
    
    90
    
    
    
    114
    
    
    
    89
    
    
    
    55Non-taxable income
    
    
    (179
    )
    
    
    (181
    )
    
    
    (174
    )
    
    
    (124
    )Adjustment in respect of foreign tax rates
    
    
    69
    
    
    
    59
    
    
    
    37
    
    
    
    22Impact of employee share options
    
    
    (3
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    (2
    )Other
    
    
    26
    
    
    
    22
    
    
    
    (5
    )
    
    
    (24
    )Total taxation (continuing operations)
    
    
    597
    
    
    
    562
    
    
    
    437
    
    
    
    319%
    
    
    
    %
    
    
    
    %
    
    
    
    %At the effective income tax rate
    
    
    31.0
    
    
    
    31.6
    
    
    
    25.1
    
    
    
    22.2




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNotes 12 and 13
    
    121
 12. Discontinued operations
   2006
    
    
    2005£m
    
    
    £mRevenues
    
    
    168
    
    
    
    1,102Operating costs
    
    
    (122
    )
    
    
    (666
    )Operating profit before exceptional items
    
    
    61
    
    
    
    510Exceptional items (i)
    
    
    (15
    )
    
    
    (74
    )Total operating profit from discontinued operations
    
    
    46
    
    
    
    436Share of post-tax results of joint venture
    
    
    
    
    
    
    (5
    )Profit before tax from discontinued operations
    
    
    46
    
    
    
    431Taxation
    
    
    (18
    )
    
    
    (140
    )Profit after tax from discontinued operations
    
    
    28
    
    
    
    291Gain on disposal of gas distribution networks (ii)
    
    
    2,636
    
    
    
    Gain on disposal of joint venture
    
    
    
    
    
    
    13Gain on disposal of discontinued operations before tax
    
    
    2,636
    
    
    
    13Taxation
    
    
    (31
    )
    
    
    Gain on disposal of discontinued operations
    
    
    2,605
    
    
    
    13Total profit for the year from discontinued operationsBefore exceptional items
    
    
    43
    
    
    
    352Exceptional items
    
    
    2,590
    
    
    
    (48
    )2,633
    
    
    
    304
 (i)
    
    The operating exceptional item for the year ended 31 March 2006 related to a fine
incurred in respect of a breach of the Health and Safety at Work Act arising from a gas
explosion in Scotland in December 1999. Exceptional items for the year ended 31 March 2005
related to restructuring costs (£70m) and environmental costs (£4m).(ii)
    
    The gain on disposal of the gas distribution networks resulted from proceeds of
£5,760m comprising cash and cash equivalents, which is significantly in excess of the net
book value of the net assets disposed of £3,155m.
 13. Dividends
  2006
    
    
    
    
    
    
    2005pence
    
    
    
    
    
    
    pence(per ordinary
    
    
    2006
    
    
    (per ordinary
    
    
    2005share)
    
    
    £m
    
    
    share)
    
    
    £mOrdinary dividendsFinal dividend for the year ended 31 March 2005
    
    
    15.2
    
    
    
    469
    
    
    
    
    
    
    
    Interim dividend for the year ended 31 March
    
    
    10.2
    
    
    
    276
    
    
    
    8.5
    
    
    
    262Final dividend for the year ended 31 March 2004
    
    
    
    
    
    
    
    
    
    
    11.9
    
    
    
    36625.4
    
    
    
    745
    
    
    
    20.4
    
    
    
    628




---



##### Table of Contents



122
    
    Group Financial StatementsNote 14
    
   Annual Report and Accounts 2005/06National Grid
 14. Earnings per share
    Profit for
    
    
    Earnings
    
    
    Profit for
    
    
    Earningsthe year
    
    
    per share
    
    
    the year
    
    
    per share2006
    
    
    2006
    
    
    2005
    
    
    2005£m
    
    
    pence
    
    
    £m
    
    
    penceAdjusted earnings  continuing operations
    
    
    1,325
    
    
    
    46.7
    
    
    
    1,303
    
    
    
    42.3Exceptional operating items
    
    
    (39
    )
    
    
    (1.4
    )
    
    
    (263
    )
    
    
    (8.5
    )Exceptional finance costs
    
    
    (49
    )
    
    
    (1.7
    )
    
    
    
    
    
    
    Tax on exceptional items
    
    
    27
    
    
    
    0.9
    
    
    
    103
    
    
    
    3.3Remeasurements
    
    
    (57
    )
    
    
    (2.0
    )
    
    
    (38
    )
    
    
    (1.2
    )Tax on remeasurements
    
    
    8
    
    
    
    0.3
    
    
    
    15
    
    
    
    0.4Earnings per share  continuing operations
    
    
    1,215
    
    
    
    42.8
    
    
    
    1,120
    
    
    
    36.3Adjusted earnings  discontinued operations
    
    
    43
    
    
    
    1.5
    
    
    
    352
    
    
    
    11.4Gain on disposal of gas distribution networks (net of tax)
    
    
    2,605
    
    
    
    91.8
    
    
    
    
    
    
    
    Other exceptional items (net of tax)
    
    
    (15
    )
    
    
    (0.5
    )
    
    
    (48
    )
    
    
    (1.5
    )Earnings per share  discontinued operations
    
    
    2,633
    
    
    
    92.8
    
    
    
    304
    
    
    
    9.9Basic earnings per share
    
    
    3,848
    
    
    
    135.6
    
    
    
    1,424
    
    
    
    46.22006
    
    
    
    
    
    
    
    2005millions
    
    
    
    
    
    
    
    millionsWeighted average number of shares  basic
    
    
    
    
    
    
    2,837
    
    
    
    
    
    
    
    3,082
  Profit for
    
    
    Earnings
    
    
    Profit for
    
    
    Earningsthe year
    
    
    per share
    
    
    the year
    
    
    per share2006
    
    
    2006
    
    
    2005
    
    
    2005£m
    
    
    pence
    
    
    £m
    
    
    penceAdjusted diluted earnings  continuing operations
    
    
    1,325
    
    
    
    46.5
    
    
    
    1,303
    
    
    
    42.1Exceptional operating items
    
    
    (39
    )
    
    
    (1.4
    )
    
    
    (263
    )
    
    
    (8.5
    )Exceptional finance costs
    
    
    (49
    )
    
    
    (1.7
    )
    
    
    
    
    
    
    Tax on exceptional items
    
    
    27
    
    
    
    0.9
    
    
    
    103
    
    
    
    3.3Remeasurements
    
    
    (57
    )
    
    
    (2.0
    )
    
    
    (38
    )
    
    
    (1.2
    )Tax on remeasurements
    
    
    8
    
    
    
    0.3
    
    
    
    15
    
    
    
    0.5Diluted earnings per share  continuing operations
    
    
    1,215
    
    
    
    42.6
    
    
    
    1,120
    
    
    
    36.2Adjusted diluted earnings  discontinued operations
    
    
    43
    
    
    
    1.5
    
    
    
    352
    
    
    
    11.4Gain on disposal of gas distribution networks (net of tax)
    
    
    2,605
    
    
    
    91.4
    
    
    
    
    
    
    
    Other exceptional items (net of tax)
    
    
    (15
    )
    
    
    (0.5
    )
    
    
    (48
    )
    
    
    (1.6
    )Diluted earnings per share  discontinued operations
    
    
    2,633
    
    
    
    92.4
    
    
    
    304
    
    
    
    9.8Diluted earnings per share
    
    
    3,848
    
    
    
    135.0
    
    
    
    1,424
    
    
    
    46.02006
    
    
    
    
    
    
    
    2005millions
    
    
    
    
    
    
    
    millionsWeighted average number of shares  diluted
    
    
    
    
    
    
    2,851
    
    
    
    
    
    
    
    3,096
  2006
    
    
    
    
    
    
    2005millions
    
    
    
    
    
    
    millionsWeighted average number of ordinary shares  basic
    
    
    2,837
    
    
    
    
    
    
    
    3,082Effect of dilutive potential ordinary shares  employee share options
    
    
    14
    
    
    
    
    
    
    
    14Weighted average number of ordinary shares  diluted
    
    
    2,851
    
    
    
    
    
    
    
    3,096




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 15
    
    123
 15. Goodwill
 £mCost at 1 April 2004
    
    
    1,548Exchange adjustments
    
    
    (47
    )Acquisition of Group undertakings
    
    
    544Cost at 31 March 2005
    
    
    2,045Exchange adjustments
    
    
    111Cost at 31 March 2006
    
    
    2,156Accumulated impairment losses at 1 April 2004
    
    
    12Impairment charge
    
    
    2Accumulated impairment losses at 31 March 2005 and 31 March 2006
    
    
    14Net book value at 31 March 2006
    
    
    2,142Net book value at 31 March 2005
    
    
    2,031




---



##### Table of Contents



124
    
    Group Financial StatementsNote 16
    
   Annual Report and Accounts 2005/06National Grid
 16. Acquisitions
     OtherCrown Castle acquisition
    
    
    acquisitionBook
    
    
    Accountingvalue at
    
    
    policy
    
    
    Fair value
    
    
    Final
    
    
    Book and
    
    
    Totalacquisition
    
    
    adjustments
    
    
    adjustments
    
    
    fair value
    
    
    fair value
    
    
    fair value£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mIntangible assets
    
    
    
    
    
    
    6
    
    
    
    188
    
    
    
    194
    
    
    
    
    
    
    
    194Property, plant and equipment
    
    
    519
    
    
    
    (10
    )
    
    
    103
    
    
    
    612
    
    
    
    6
    
    
    
    618Inventories
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Trade and other receivables
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    4
    
    
    
    47Cash and cash equivalents
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    29Current liabilities
    
    
    (152
    )
    
    
    
    
    
    
    
    
    
    
    (152
    )
    
    
    
    
    
    
    (152
    )Deferred tax liabilities
    
    
    (32
    )
    
    
    4
    
    
    
    (85
    )
    
    
    (113
    )
    
    
    
    
    
    
    (113
    )Pensions and other post-retirement benefit obligations
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Provisions
    
    
    (2
    )
    
    
    (1
    )
    
    
    (6
    )
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Net assets acquired
    
    
    408
    
    
    
    (11
    )
    
    
    200
    
    
    
    597
    
    
    
    10
    
    
    
    607Goodwill arising on acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    541
    
    
    
    3
    
    
    
    544Total consideration
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,138
    
    
    
    13
    
    
    
    1,151
    OtherCrown Castle
    
    
    acquisitions
    
    
    Total£m
    
    
    £m
    
    
    £mCash consideration
    
    
    1,138
    
    
    
    13
    
    
    
    1,151Cash acquired
    
    
    (29
    )
    
    
    
    
    
    
    (29
    )1,109
    
    
    
    13
    
    
    
    1,122




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 17
    
    125
 17. Other intangible assets
 Customerrelationships
    
    
    Software
    
    
    Other
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mCost at 1 April 2004
    
    
    
    
    
    
    197
    
    
    
    8
    
    
    
    205Exchange adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of Group undertakings
    
    
    164
    
    
    
    6
    
    
    
    24
    
    
    
    194Additions
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    78Disposals
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )Cost at 31 March 2005
    
    
    164
    
    
    
    273
    
    
    
    32
    
    
    
    469Exchange adjustments
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    8Additions
    
    
    
    
    
    
    14
    
    
    
    42
    
    
    
    56Disposals
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Cost at 31 March 2006
    
    
    164
    
    
    
    292
    
    
    
    74
    
    
    
    530Amortisation at 1 April 2004
    
    
    
    
    
    
    68
    
    
    
    7
    
    
    
    75Exchange adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortisation charge for the year
    
    
    6
    
    
    
    38
    
    
    
    1
    
    
    
    45Disposals
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Amortisation at 31 March 2005
    
    
    6
    
    
    
    97
    
    
    
    8
    
    
    
    111Exchange adjustments
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Amortisation charge for the year
    
    
    11
    
    
    
    45
    
    
    
    1
    
    
    
    57Disposals
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Amortisation at 31 March 2006
    
    
    17
    
    
    
    142
    
    
    
    9
    
    
    
    168Net book value at 31 March 2006
    
    
    147
    
    
    
    150
    
    
    
    65
    
    
    
    362Net book value at 31 March 2005
    
    
    158
    
    
    
    176
    
    
    
    24
    
    
    
    358
   2006
    
    
    2005£m
    
    
    £mCurrent
    
    
    41
    
    
    
    Non-current
    
    
    321
    
    
    
    358362
    
    
    
    358
 Expected amortisation of intangible assets for the next five years is:
    
    £m2007
    
    
    522008
    
    
    552009
    
    
    512010
    
    
    482011
    
    
    43




---



##### Table of Contents



126
    
    Group Financial StatementsNote 18
    
   Annual Report and Accounts 2005/06National Grid
 18. Property, plant and equipment
 Assets
    
    
    MotorPlant
    
    
    in the
    
    
    vehiclesLand and
    
    
    and
    
    
    course of
    
    
    and officebuildings
    
    
    machinery
    
    
    construction
    
    
    equipment
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCost at 1 April 2004
    
    
    858
    
    
    
    28,967
    
    
    
    1,129
    
    
    
    797
    
    
    
    31,751Exchange adjustments
    
    
    (13
    )
    
    
    (202
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    (218
    )Acquisition of Group undertakings
    
    
    29
    
    
    
    584
    
    
    
    
    
    
    
    5
    
    
    
    618Additions
    
    
    32
    
    
    
    808
    
    
    
    980
    
    
    
    7
    
    
    
    1,827Disposals
    
    
    (34
    )
    
    
    (117
    )
    
    
    
    
    
    
    (22
    )
    
    
    (173
    )Reclassifications
    
    
    39
    
    
    
    776
    
    
    
    (838
    )
    
    
    23
    
    
    
    Cost at 31 March 2005
    
    
    911
    
    
    
    30,816
    
    
    
    1,269
    
    
    
    809
    
    
    
    33,805Exchange adjustments
    
    
    35
    
    
    
    555
    
    
    
    12
    
    
    
    1
    
    
    
    603Additions
    
    
    65
    
    
    
    588
    
    
    
    1,339
    
    
    
    101
    
    
    
    2,093Disposal of Group undertakings
    
    
    (30
    )
    
    
    (6,976
    )
    
    
    (9
    )
    
    
    (253
    )
    
    
    (7,268
    )Disposals
    
    
    (25
    )
    
    
    (128
    )
    
    
    
    
    
    
    (18
    )
    
    
    (171
    )Reclassifications
    
    
    18
    
    
    
    847
    
    
    
    (895
    )
    
    
    37
    
    
    
    7Cost at 31 March 2006
    
    
    974
    
    
    
    25,702
    
    
    
    1,716
    
    
    
    677
    
    
    
    29,069Depreciation at 1 April 2004
    
    
    276
    
    
    
    9,634
    
    
    
    
    
    
    
    526
    
    
    
    10,436Exchange adjustments
    
    
    (3
    )
    
    
    (73
    )
    
    
    
    
    
    
    (1
    )
    
    
    (77
    )Depreciation charge for the year (i)
    
    
    19
    
    
    
    846
    
    
    
    
    
    
    
    85
    
    
    
    950Impairment charge
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Disposals
    
    
    (12
    )
    
    
    (121
    )
    
    
    
    
    
    
    (18
    )
    
    
    (151
    )Depreciation at 31 March 2005
    
    
    282
    
    
    
    10,286
    
    
    
    
    
    
    
    592
    
    
    
    11,160Exchange adjustments
    
    
    7
    
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    207Depreciation charge for the year (i)
    
    
    17
    
    
    
    816
    
    
    
    
    
    
    
    75
    
    
    
    908Disposal of Group undertakings
    
    
    (13
    )
    
    
    (1,781
    )
    
    
    
    
    
    
    (200
    )
    
    
    (1,994
    )Disposals
    
    
    (9
    )
    
    
    (121
    )
    
    
    
    
    
    
    (17
    )
    
    
    (147
    )Depreciation at 31 March 2006
    
    
    284
    
    
    
    9,400
    
    
    
    
    
    
    
    450
    
    
    
    10,134Net book value at 31 March 2006
    
    
    690
    
    
    
    16,302
    
    
    
    1,716
    
    
    
    227
    
    
    
    18,935Net book value at 31 March 2005
    
    
    629
    
    
    
    20,530
    
    
    
    1,269
    
    
    
    217
    
    
    
    22,645
 (i)
    
    Includes amounts in respect of discontinued operations of £13m (2005: £176m).
  2006
    
    
    2005£m
    
    
    £mFreehold
    
    
    649
    
    
    
    590Long leasehold (over 50 years)
    
    
    13
    
    
    
    12Short leasehold (under 50 years)
    
    
    28
    
    
    
    27690
    
    
    
    629




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNotes 19 and 20
    
    127
 19. Investments in joint ventures
 £mAt 1 April 2004
    
    
    19Disposals
    
    
    5Share of retained loss
    
    
    (2
    )Dividends received
    
    
    (5
    )At 31 March 2005
    
    
    17Exchange adjustments
    
    
    2Disposals
    
    
    (2
    )Share of retained profit
    
    
    3Dividends received
    
    
    (2
    )Impairment provision written back
    
    
    13Reclassification as asset held for sale
    
    
    (19
    )At 31 March 2006
    
    
    12
  20. Deferred tax assets and liabilities
   Pensionsand otherAccelerated
    
    
    Employee
    
    
    post-
    
    
    
    
    
    
    Other nettax
    
    
    share
    
    
    retirement
    
    
    Mark-to-
    
    
    temporarydepreciation
    
    
    options
    
    
    benefits
    
    
    market
    
    
    differences
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mDeferred tax assets at 1 April 2004
    
    
    
    
    
    
    (8
    )
    
    
    (684
    )
    
    
    
    
    
    
    (1,087
    )
    
    
    (1,779
    )Deferred tax liabilities at 1 April 2004
    
    
    3,939
    
    
    
    
    
    
    
    127
    
    
    
    
    
    
    
    77
    
    
    
    4,143At 1 April 2004
    
    
    3,939
    
    
    
    (8
    )
    
    
    (557
    )
    
    
    
    
    
    
    (1,010
    )
    
    
    2,364Exchange adjustments
    
    
    (21
    )
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    29
    
    
    
    17Charged/(credited) to income statement
    
    
    111
    
    
    
    (6
    )
    
    
    20
    
    
    
    
    
    
    
    219
    
    
    
    344Charged/(credited) to equity
    
    
    
    
    
    
    (4
    )
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    62Acquisition of Group undertakings
    
    
    69
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    113Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    (29
    )At 31 March 2005
    
    
    4,098
    
    
    
    (18
    )
    
    
    (462
    )
    
    
    
    
    
    
    (747
    )
    
    
    2,871Deferred tax assets at 31 March 2005
    
    
    
    
    
    
    (18
    )
    
    
    (462
    )
    
    
    
    
    
    
    (931
    )
    
    
    (1,411
    )Deferred tax liabilities at 31 March 2005
    
    
    4,098
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184
    
    
    
    4,282At 31 March 2005
    
    
    4,098
    
    
    
    (18
    )
    
    
    (462
    )
    
    
    
    
    
    
    (747
    )
    
    
    2,871First time adoption of IAS 39
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    (54
    )
    
    
    (16
    )At 1 April 2005
    
    
    4,098
    
    
    
    (18
    )
    
    
    (462
    )
    
    
    38
    
    
    
    (801
    )
    
    
    2,855Exchange adjustments
    
    
    60
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (72
    )
    
    
    (22
    )Charged/(credited) to income statement
    
    
    31
    
    
    
    (3
    )
    
    
    25
    
    
    
    (4
    )
    
    
    130
    
    
    
    179Charged/(credited) to equity
    
    
    
    
    
    
    (7
    )
    
    
    62
    
    
    
    (20
    )
    
    
    1
    
    
    
    36Disposal of Group undertakings
    
    
    (1,068
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    (1,059
    )Other
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    25
    
    
    
    13At 31 March 2006
    
    
    3,121
    
    
    
    (28
    )
    
    
    (397
    )
    
    
    14
    
    
    
    (708
    )
    
    
    2,002Deferred tax assets at 31 March 2006
    
    
    (5
    )
    
    
    (28
    )
    
    
    (397
    )
    
    
    (6
    )
    
    
    (835
    )
    
    
    (1,271
    )Deferred tax liabilities at 31 March 2006
    
    
    3,126
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    127
    
    
    
    3,2733,121
    
    
    
    (28
    )
    
    
    (397
    )
    
    
    14
    
    
    
    (708
    )
    
    
    2,002
   2006
    
    
    2005£m
    
    
    £mDeferred tax liabilities
    
    
    2,161
    
    
    
    3,189Deferred tax assets
    
    
    (159
    )
    
    
    (318
    )2,002
    
    
    
    2,871




---



##### Table of Contents



128
    
    Group Financial StatementsNotes 20 (continued), 21 and 22
    
   Annual Report and Accounts 2005/06National Grid
 20. Deferred tax assets and liabilities (continued)
  2006
    
    
    2005£m
    
    
    £mCapital losses
    
    
    338
    
    
    
    304Non-trade deficits
    
    
    166
    
    
    
    166Trading losses
    
    
    17
    
    
    
    17Pre-trading expenditure
    
    
    9
    
    
    
    6
   21. Other non-current receivables
 2006
    
    
    2005£m
    
    
    £mLease debtors
    
    
    23
    
    
    
    31Prepayments
    
    
    7
    
    
    
    7Other debtors
    
    
    8
    
    
    
    5838
    
    
    
    96
 22. Financial investments
 2006
    
    
    2005£m
    
    
    £mNon-currentAvailable-for-sale investments
    
    
    83
    
    
    
    65Loans and receivables
    
    
    6
    
    
    
    8Other financial investments at fair value through the income statement
    
    
    59
    
    
    
    58148
    
    
    
    1312006
    
    
    
    2005£m
    
    
    
    £mCurrentAvailable-for-sale investments
    
    
    254
    
    
    
    Loans and receivables
    
    
    130
    
    
    
    398384
    
    
    
    398




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 23
    
    129
 23. Financial instruments
      2006
    
    
    2005Book value
    
    
    Fair value
    
    
    Book value
    
    
    Fair value£m
    
    
    £m
    
    
    £m
    
    
    £mBorrowings
    
    
    (13,126
    )
    
    
    (13,757
    )
    
    
    (14,290
    )
    
    
    (15,646
    )Cash and cash equivalents
    
    
    1,452
    
    
    
    1,452
    
    
    
    272
    
    
    
    272Bank overdrafts
    
    
    (3
    )
    
    
    (3
    )
    
    
    (18
    )
    
    
    (18
    )Financial investmentsAvailable-for-sale
    
    
    337
    
    
    
    337
    
    
    
    65
    
    
    
    69Other financial investments through the income statement
    
    
    59
    
    
    
    59
    
    
    
    58
    
    
    
    58Loans and receivables
    
    
    136
    
    
    
    136
    
    
    
    406
    
    
    
    406Trade and other receivablesLoans and receivables
    
    
    1,006
    
    
    
    1,005
    
    
    
    709
    
    
    
    709Assets held for sale
    
    
    19
    
    
    
    19
    
    
    
    
    
    
    
    Trade and other payables
    
    
    (1,906
    )
    
    
    (1,891
    )
    
    
    (1,905
    )
    
    
    (1,905
    )Derivative financial assets
    
    
    665
    
    
    
    665
    
    
    
    
    
    
    
    725Derivative financial liabilities
    
    
    (222
    )
    
    
    (222
    )
    
    
    
    
    
    
    (182
    )Commodity contract liabilities
    
    
    (488
    )
    
    
    (488
    )
    
    
    (471
    )
    
    
    (471
    )




---



##### Table of Contents



130
    
    Group Financial StatementsNote 23 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 23. Financial instruments (continued)
   At 31 March 2006
 More thanWithin 1 year
    
    
    1-2 years
    
    
    2-3 years
    
    
    3-4 years
    
    
    4-5 years
    
    
    5 years
    
    
    TotalFixed rate
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mLiabilitiesOther bondsSterling
    
    
    (285
    )
    
    
    (229
    )
    
    
    (212
    )
    
    
    (294
    )
    
    
    (248
    )
    
    
    (1,915
    )
    
    
    (3,183
    )Euro
    
    
    (1,206
    )
    
    
    (12
    )
    
    
    (775
    )
    
    
    (205
    )
    
    
    
    
    
    
    (1,796
    )
    
    
    (3,994
    )US dollar
    
    
    (392
    )
    
    
    (121
    )
    
    
    (37
    )
    
    
    (363
    )
    
    
    (3
    )
    
    
    (621
    )
    
    
    (1,537
    )Other
    
    
    (49
    )
    
    
    
    
    
    
    (207
    )
    
    
    (7
    )
    
    
    (10
    )
    
    
    (217
    )
    
    
    (490
    )Other loansSterling
    
    
    (55
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55
    )US dollar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24
    )
    
    
    (24
    )Bank loansSterling
    
    
    (37
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )Finance leasesSterling
    
    
    (4
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (8
    )(2,028
    )
    
    
    (364
    )
    
    
    (1,232
    )
    
    
    (870
    )
    
    
    (261
    )
    
    
    (4,573
    )
    
    
    (9,328
    )
 More thanWithin 1 year
    
    
    1-2 years
    
    
    2-3 years
    
    
    3-4 years
    
    
    4-5 years
    
    
    5 years
    
    
    TotalFloating rate
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mLiabilitiesOther bondsSterling (i)
    
    
    (25
    )
    
    
    
    
    
    
    (39
    )
    
    
    (214
    )
    
    
    
    
    
    
    (1,391
    )
    
    
    (1,669
    )Euro
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )US dollar
    
    
    (13
    )
    
    
    (6
    )
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    (588
    )
    
    
    (618
    )Other
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    (20
    )
    
    
    (59
    )Other loansSterling
    
    
    (70
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )Bank loansSterling
    
    
    (64
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (550
    )
    
    
    (614
    )US dollar
    
    
    (176
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (176
    )Other
    
    
    (441
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (441
    )Finance leasesUS dollar
    
    
    (10
    )
    
    
    (5
    )
    
    
    (6
    )
    
    
    (6
    )
    
    
    (6
    )
    
    
    (89
    )
    
    
    (122
    )Bank overdraftSterling
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )(814
    )
    
    
    (40
    )
    
    
    (56
    )
    
    
    (220
    )
    
    
    (33
    )
    
    
    (2,638
    )
    
    
    (3,801
    )
 (i)
    
    Includes bonds linked to the retail price index.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 23 (continued)
    
    131
 23. Financial instruments (continued)
   Due within 1 year
    
    
    Due between 1 and 2 yearsFixed
    
    
    Floating
    
    
    
    
    
    
    Fixed
    
    
    Floatinginterest
    
    
    interest
    
    
    Repayment
    
    
    interest
    
    
    interest
    
    
    Repayment£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNon derivative financial liabilitiesOther bonds
    
    
    (483
    )
    
    
    (40
    )
    
    
    (1,778
    )
    
    
    (436
    )
    
    
    (40
    )
    
    
    (404
    )Other loans
    
    
    
    
    
    
    (10
    )
    
    
    (55
    )
    
    
    
    
    
    
    
    
    
    
    Bank loans
    
    
    
    
    
    
    (39
    )
    
    
    (736
    )
    
    
    
    
    
    
    (27
    )
    
    
    Finance lease liabilities
    
    
    
    
    
    
    (6
    )
    
    
    (14
    )
    
    
    
    
    
    
    (6
    )
    
    
    (5
    )Other non-interest bearing liabilities
    
    
    
    
    
    
    
    
    
    
    (1,582
    )
    
    
    
    
    
    
    
    
    
    
    (324
    )(483
    )
    
    
    (95
    )
    
    
    (4,165
    )
    
    
    (436
    )
    
    
    (73
    )
    
    
    (733
    )Derivative liabilities (net)Cross currency interest rate swaps
    
    
    (17
    )
    
    
    (5
    )
    
    
    (32
    )
    
    
    (17
    )
    
    
    
    
    
    
    (1
    )Foreign exchange forward contracts
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    (9
    )
    
    
    (11
    )
    
    
    
    
    
    
    (7
    )
    
    
    (8
    )
    
    
    Commodity contracts
    
    
    
    
    
    
    
    
    
    
    (174
    )
    
    
    
    
    
    
    
    
    
    
    (169
    )(26
    )
    
    
    (16
    )
    
    
    (209
    )
    
    
    (24
    )
    
    
    (8
    )
    
    
    (170
    )Derivative assets (net)Cross currency interest rate swaps
    
    
    2
    
    
    
    (4
    )
    
    
    194
    
    
    
    (5
    )
    
    
    
    
    
    
    (4
    )Foreign exchange forwards
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1Interest rate swaps
    
    
    3
    
    
    
    4
    
    
    
    
    
    
    
    2
    
    
    
    4
    
    
    
    5
    
    
    
    
    
    
    
    196
    
    
    
    (3
    )
    
    
    4
    
    
    
    (3
    )Total at 31 March 2006
    
    
    (504
    )
    
    
    (111
    )
    
    
    (4,178
    )
    
    
    (463
    )
    
    
    (77
    )
    
    
    (906
    )
 Due between 2 and 3 years
    
    
    Due 3 years and beyondFixed
    
    
    Floating
    
    
    
    
    
    
    Fixed
    
    
    Floatinginterest
    
    
    interest
    
    
    Repayment
    
    
    interest
    
    
    interest
    
    
    Repayment£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mNon derivative financial liabilitiesOther bonds
    
    
    (384
    )
    
    
    (38
    )
    
    
    (1,317
    )
    
    
    (3,835
    )
    
    
    (49
    )
    
    
    (8,303
    )Other loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94
    )Bank loans
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    
    
    
    
    (111
    )
    
    
    (551
    )Finance lease liabilities
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )
    
    
    (105
    )Other non-interest bearing liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (384
    )
    
    
    (71
    )
    
    
    (1,323
    )
    
    
    (3,835
    )
    
    
    (166
    )
    
    
    (9,053
    )Derivative liabilities (net)Cross currency interest rate swaps
    
    
    (14
    )
    
    
    
    
    
    
    1
    
    
    
    (94
    )
    
    
    
    
    
    
    (50
    )Foreign exchange forwards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    4
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )
    
    
    (31
    )
    
    
    Commodity contracts
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    
    
    
    
    
    
    
    
    (95
    )(10
    )
    
    
    (8
    )
    
    
    (49
    )
    
    
    (102
    )
    
    
    (31
    )
    
    
    (145
    )Derivative assets (net)Cross currency interest rate swaps
    
    
    (2
    )
    
    
    
    
    
    
    54
    
    
    
    (22
    )
    
    
    (7
    )
    
    
    272Foreign exchange forwards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    1
    
    
    
    3
    
    
    
    
    
    
    
    121
    
    
    
    33
    
    
    
    (1
    )
    
    
    3
    
    
    
    54
    
    
    
    99
    
    
    
    26
    
    
    
    272Total at 31 March 2006
    
    
    (395
    )
    
    
    (76
    )
    
    
    (1,318
    )
    
    
    (3,838
    )
    
    
    (171
    )
    
    
    (8,926
    )




---



##### Table of Contents



132
    
    Group Financial StatementsNote 23 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 23. Financial instruments (continued)
   n
    
    the sensitivity to interest rates relates only to derivative financial instruments, as debt and
deposits are carried at amortised cost and so their carrying value does not change as interest
rates move;n
    
    the sensitivity of accrued interest to movements in interest rates is calculated on
net floating rate exposures on debt, deposits and derivative instruments with no sensitivity
assumed for RPI-linked debt;n
    
    changes in the carrying value of derivatives from movements in
interest rates designated as cash flow hedges are assumed to be recorded fully within equity;n
    
    changes in the carrying value of derivative financial instruments designated as fair value
hedges from movements in interest rates have an immaterial effect on the income statement and
equity due to compensating adjustments in the carrying value of debt;n
    
    changes in the carrying
value of derivative financial instruments designated as net investment hedges from movements in
interest rates are recorded in the income statement designated using the spot rather than the
forward translation method;n
    
    changes in the carrying value of derivative financial instruments
designated as net investments from movements in the US dollar to sterling exchange rate are
recorded directly in equity;n
    
    changes in the carrying value of derivative financial instruments
not in hedging relationships only affect the income statement;n
    
    all other changes in the carrying
value of derivative financial instruments designated as hedges are fully effective with no
impact on the income statement;n
    
    debt with a maturity below one year is floating rate for the
accrued interest part of the calculation; andn
    
    the floating leg of any swap or any floating rate
debt is treated as not having any interest rate already set, therefore a change in interest
rates affects a full twelve month period for the accrued interest portion of the sensitivity
calculations.
  Incomestatement
    
    
    Equity+/- £m
    
    
    +/- £mUK interest rates +/- 0.10%
    
    
    14
    
    
    
    14US interest rates +/- 0.10%
    
    
    6
    
    
    
    2US dollar exchange rate +/- 10%
    
    
    52
    
    
    
    228
   Fair value hedges




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 23 (continued)
    
    133
 23. Financial instruments (continued)
 Cash flow hedges
    Net investment hedges
    Derivatives not in a formal hedge relationship
    TotalMaturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Maturity
    
    
    fairwithin
    
    
    Maturity
    
    
    Maturity
    
    
    Maturity
    
    
    Maturity
    
    
    over
    
    
    value1 year
    
    
    1-2 years
    
    
    2-3 years
    
    
    3-4 years
    
    
    4-5 years
    
    
    5 years
    
    
    2006£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mDerivative financial assetsInterest rate swaps
    
    
    73
    
    
    
    
    
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    135
    
    
    
    213Cross currency swaps
    
    
    238
    
    
    
    3
    
    
    
    52
    
    
    
    17
    
    
    
    1
    
    
    
    138
    
    
    
    449Foreign exchange forward contracts
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Total at 31 March 2006
    
    
    314
    
    
    
    3
    
    
    
    56
    
    
    
    18
    
    
    
    1
    
    
    
    273
    
    
    
    665Derivative financial liabilitiesInterest rate swaps
    
    
    (42
    )
    
    
    
    
    
    
    (4
    )
    
    
    (5
    )
    
    
    (1
    )
    
    
    (31
    )
    
    
    (83
    )Cross currency swaps
    
    
    (47
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    
    
    
    
    (85
    )
    
    
    (136
    )Foreign exchange forward contracts
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )(92
    )
    
    
    (1
    )
    
    
    (6
    )
    
    
    (6
    )
    
    
    (1
    )
    
    
    (116
    )
    
    
    (222
    )Commodity contract liabilities
    
    
    (174
    )
    
    
    (169
    )
    
    
    (50
    )
    
    
    (15
    )
    
    
    (13
    )
    
    
    (67
    )
    
    
    (488
    )Total at 31 March 2006
    
    
    (266
    )
    
    
    (170
    )
    
    
    (56
    )
    
    
    (21
    )
    
    
    (14
    )
    
    
    (183
    )
    
    
    (710
    )
  TotalMaturity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Maturity
    
    
    fairwithin
    
    
    Maturity
    
    
    Maturity
    
    
    Maturity
    
    
    Maturity
    
    
    over
    
    
    value1 year
    
    
    1-2 years
    
    
    2-3 years
    
    
    3-4 years
    
    
    4-5 years
    
    
    5 years
    
    
    2006£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mDerivative financial assetsInterest rate swaps
    
    
    1,196
    
    
    
    65
    
    
    
    475
    
    
    
    117
    
    
    
    
    
    
    
    1,844
    
    
    
    3,697Cross currency swaps
    
    
    1,254
    
    
    
    35
    
    
    
    1,109
    
    
    
    189
    
    
    
    26
    
    
    
    2,322
    
    
    
    4,935Foreign exchange forward contracts
    
    
    46
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65Total at 31 March 2006
    
    
    2,496
    
    
    
    119
    
    
    
    1,584
    
    
    
    306
    
    
    
    26
    
    
    
    4,166
    
    
    
    8,697Derivative financial liabilitiesInterest rate swaps
    
    
    1,534
    
    
    
    50
    
    
    
    370
    
    
    
    378
    
    
    
    86
    
    
    
    1,037
    
    
    
    3,455Cross currency swaps
    
    
    864
    
    
    
    7
    
    
    
    160
    
    
    
    8
    
    
    
    10
    
    
    
    1,087
    
    
    
    2,136Foreign exchange forward contracts
    
    
    (47
    )
    
    
    (11
    )
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78
    )Total at 31 March 2006
    
    
    2,351
    
    
    
    46
    
    
    
    510
    
    
    
    386
    
    
    
    96
    
    
    
    2,124
    
    
    
    5,513




---



##### Table of Contents



134
    
    Group Financial StatementsNote 23 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 23. Financial instruments (continued)
  Assets
    
    
    LiabilitiesNotional
    
    
    
    
    
    
    NotionalFair value
    
    
    amount
    
    
    Fair value
    
    
    amountAt 31 March 2006
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mFair value hedge derivative instrumentsInterest rate swaps
    
    
    92
    
    
    
    (1,408
    )
    
    
    (9
    )
    
    
    (908
    )Cross currency swaps
    
    
    146
    
    
    
    (1,453
    )
    
    
    (72
    )
    
    
    (755
    )Forward foreign currency contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    238
    
    
    
    (2,861
    )
    
    
    (81
    )
    
    
    (1,663
    )Cash flow hedge derivative instrumentsInterest rate swaps
    
    
    80
    
    
    
    (436
    )
    
    
    (16
    )
    
    
    (685
    )Cross currency swaps
    
    
    112
    
    
    
    (1,745
    )
    
    
    (22
    )
    
    
    (804
    )Forward foreign currency contracts
    
    
    3
    
    
    
    (78
    )
    
    
    (3
    )
    
    
    24195
    
    
    
    (2,259
    )
    
    
    (41
    )
    
    
    (1,465
    )Net investment hedge derivative instrumentsInterest rate swaps
    
    
    19
    
    
    
    (904
    )
    
    
    (16
    )
    
    
    (525
    )Cross currency swaps
    
    
    191
    
    
    
    (1,735
    )
    
    
    (40
    )
    
    
    (565
    )Forward foreign currency contracts
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    27210
    
    
    
    (2,602
    )
    
    
    (56
    )
    
    
    (1,063
    )Other derivative instrumentsInterest rate swaps
    
    
    22
    
    
    
    (949
    )
    
    
    (42
    )
    
    
    (1,337
    )Cross currency swaps
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    (12
    )Forward foreign currency contracts
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    27Commodities instruments
    
    
    
    
    
    
    
    
    
    
    (488
    )
    
    
    (488
    )22
    
    
    
    (975
    )
    
    
    (532
    )
    
    
    (1,810
    )Total
    
    
    665
    
    
    
    (8,697
    )
    
    
    (710
    )
    
    
    (6,001
    )Analysed as follows:Current
    
    
    314
    
    
    
    (2,496
    )
    
    
    (266
    )
    
    
    (2,351
    )Non-current
    
    
    351
    
    
    
    (6,201
    )
    
    
    (444
    )
    
    
    (3,650
    )665
    
    
    
    (8,697
    )
    
    
    (710
    )
    
    
    (6,001
    )




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 23 (continued)
    
    135
 23. Financial instruments (continued)
    Unrecognised
    
    
    Unrecognised
    
    
    Unrecognised
    
    
    Deferred
    
    
    Deferred
    
    
    Deferredgains
    
    
    losses
    
    
    net gain
    
    
    gains
    
    
    losses net
    
    
    (loss)/gain£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mGains/(losses) on hedges at 1 April 2004
    
    
    430
    
    
    
    (326
    )
    
    
    104
    
    
    
    131
    
    
    
    (82
    )
    
    
    49(Gains)/losses arising in previous years recognised in
the year
    
    
    (25
    )
    
    
    23
    
    
    
    (2
    )
    
    
    (19
    )
    
    
    10
    
    
    
    (9
    )Gains/(losses) arising in previous years not recognised
in the year
    
    
    405
    
    
    
    (303
    )
    
    
    102
    
    
    
    112
    
    
    
    (72
    )
    
    
    40Gains/(losses) arising in the year
    
    
    (64
    )
    
    
    36
    
    
    
    (28
    )
    
    
    36
    
    
    
    (8
    )
    
    
    28Gains/(losses) on hedges at 31 March 2005
    
    
    341
    
    
    
    (267
    )
    
    
    74
    
    
    
    148
    
    
    
    (80
    )
    
    
    68Of which:Gains/(losses) expected to be recognised within one year
    
    
    12
    
    
    
    (7
    )
    
    
    5
    
    
    
    25
    
    
    
    (14
    )
    
    
    11Gains/(losses) expected to be recognised after one year
    
    
    329
    
    
    
    (260
    )
    
    
    69
    
    
    
    123
    
    
    
    (66
    )
    
    
    57
   Fixed rate assetsWeightedaverageNon-
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    periodinterest
    
    
    Variable
    
    
    
    
    
    
    average
    
    
    for whichTotal
    
    
    bearing
    
    
    rate
    
    
    Fixed rate
    
    
    interest rate
    
    
    rate is fixed£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    %
    
    
    yearsAt 31 March 2005Sterling
    
    
    455
    
    
    
    
    
    
    
    455
    
    
    
    
    
    
    
    
    
    
    
    US dollars
    
    
    189
    
    
    
    
    
    
    
    189
    
    
    
    
    
    
    
    
    
    
    
    Other currencies
    
    
    26
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    Cash and investments
    
    
    670
    
    
    
    
    
    
    
    670
    
    
    
    
    
    
    
    
    
    
    
    Other financial assets (sterling)
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    11.50
    
    
    
    4.1Other financial assets (US dollars)
    
    
    72
    
    
    
    27
    
    
    
    9
    
    
    
    36
    
    
    
    5.18
    
    
    
    13.2783
    
    
    
    27
    
    
    
    679
    
    
    
    77
    
    
    
    8.54
    
    
    
    8.4
   Fixed rate assetsWeightedaverageWeighted
    
    
    periodVariable
    
    
    
    
    
    
    average
    
    
    for whichTotal
    
    
    rate
    
    
    Fixed rate
    
    
    interest rate
    
    
    rate is fixed£m
    
    
    £m
    
    
    £m
    
    
    %
    
    
    yearsAt 31 March 2005Sterling
    
    
    9,639
    
    
    
    6,656
    
    
    
    2,983
    
    
    
    6.31
    
    
    
    9.4US dollars
    
    
    4,580
    
    
    
    1,814
    
    
    
    2,766
    
    
    
    6.11
    
    
    
    5.3Borrowings
    
    
    14,219
    
    
    
    8,470
    
    
    
    5,749
    
    
    
    6.21
    
    
    
    7.4Other financial liabilities (sterling)
    
    
    61
    
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    Other financial liabilities (US dollars)
    
    
    501
    
    
    
    479
    
    
    
    22
    
    
    
    4.11
    
    
    
    14,781
    
    
    
    9,010
    
    
    
    5,771
    
    
    
    6.20
    
    
    
    7.4




---



##### Table of Contents



136
    
    Group Financial StatementsNotes 23 (continued), 24 and 25
    
   Annual Report and Accounts 2005/06National Grid
 23. Financial instruments (continued)
   Assets
    
    
    Liabilities£m
    
    
    £mWithin one year
    
    
    687
    
    
    
    3,328In more than one year, but not more than two years
    
    
    12
    
    
    
    2,171In more than two years, but not more than three years
    
    
    11
    
    
    
    618In more than three years, but not more than four years
    
    
    12
    
    
    
    1,316In more than four years, but not more than five years
    
    
    4
    
    
    
    1,316In more than five years
    
    
    57
    
    
    
    6,032783
    
    
    
    14,781
       24. Inventories
 2006
    
    
    2005£m
    
    
    £mRaw materials and consumables
    
    
    62
    
    
    
    60Work in progress
    
    
    22
    
    
    
    27Fuel stocks
    
    
    24
    
    
    
    14108
    
    
    
    101
  25. Trade and other receivables
 2006
    
    
    2005£m
    
    
    £mTrade receivables
    
    
    838
    
    
    
    553Other receivables
    
    
    137
    
    
    
    67Prepayments and accrued income
    
    
    525
    
    
    
    573Asset held for sale
    
    
    19
    
    
    
    1,519
    
    
    
    1,193




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNotes 25 (continued), 26 and 27
    
    137
 25. Trade and other receivables (continued)
  £mAt 1 April 2004
    
    
    128Exchange adjustments
    
    
    (3
    )Charge for the year
    
    
    42Uncollectable amounts written off net of recoveries
    
    
    (34
    )At 31 March 2005
    
    
    133Exchange adjustments
    
    
    (9
    )Charge for the year
    
    
    24Uncollectable amounts written off net of recoveries
    
    
    (41
    )At 31 March 2006
    
    
    107
 26. Cash and cash equivalents
 2006
    
    
    2005£m
    
    
    £mCash at bank and in hand
    
    
    46
    
    
    
    100Short-term deposits
    
    
    1,406
    
    
    
    172Cash and cash equivalents
    
    
    1,452
    
    
    
    272Bank overdrafts
    
    
    (3
    )
    
    
    (18
    )Net cash and cash equivalents
    
    
    1,449
    
    
    
    254
   27. Borrowings
  2006
    
    
    2005£m
    
    
    £mCurrent:Bank loans
    
    
    717
    
    
    
    402Commercial paper
    
    
    
    
    
    
    1,469Other bonds
    
    
    1,983
    
    
    
    1,348Finance leases
    
    
    14
    
    
    
    5Other loans
    
    
    125
    
    
    
    192,839
    
    
    
    3,243Non-current:Bank loans
    
    
    550
    
    
    
    910Other bonds
    
    
    9,598
    
    
    
    10,043Finance leases
    
    
    115
    
    
    
    62Other loans
    
    
    24
    
    
    
    3210,287
    
    
    
    11,047Total borrowings
    
    
    13,126
    
    
    
    14,290
 2006
    
    
    2005£m
    
    
    £mTotal borrowings are repayable as follows:In one year or less
    
    
    2,839
    
    
    
    3,243In more than one year, but not more than two years
    
    
    404
    
    
    
    2,004In more than two years, but not more than three years
    
    
    1,288
    
    
    
    467In more than three years, but not more than four years
    
    
    1,090
    
    
    
    1,213In more than four years, but not more than five years
    
    
    294
    
    
    
    1,293In more than five years:by instalments
    
    
    131
    
    
    
    35other than by instalments
    
    
    7,080
    
    
    
    6,03513,126
    
    
    
    14,290




---



##### Table of Contents



138
    
    Group Financial StatementsNote 27 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 27. Borrowings (continued)
  Issuer
    
    Description of instrument (notional amount)British Transco Finance (No5) Limited (i)
    
    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 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 Electricity Transmission plc (i)
    
    GBP 240 million 8.0% Fixed Rate Instruments due 2006National Grid Electricity Transmission plc
    
    EUR 600 million 4.125% Fixed Rate Instruments due 2008National Grid Electricity Transmission plc
    
    GBP 250 million 4.75% Fixed Rate Instruments due 2010National Grid Electricity Transmission plc
    
    GBP 300 million 2.983% Guaranteed Retail Price Index-Linked Instruments due 2018National Grid Electricity Transmission plc
    
    GBP 220 million 3.806% Retail Price Index-Linked Instruments due 2020National Grid Electricity Transmission plc
    
    GBP 450 million 5.875% Fixed Rate Instruments due 2024National Grid Electricity Transmission plc
    
    GBP 360 million 6.5% Fixed Rate Instruments due 2028National Grid Electricity Transmission plc
    
    GBP 70 million 3.589% Limited Retail Price Index-Linked Instruments due 2030National Grid Electricity Transmission plc
    
    GBP 50 million 2.817% Guaranteed Limited Retail Price Index-Linked Instruments due 2032National Grid Electricity Transmission plc
    
    GBP 75 million 5.0% Fixed Rate Instruments due 2035National Grid Electricity Transmission plc (ii)
    
    GBP 50 million 2.2280% Retail Price Index-Linked Instruments due 2035National Grid Electricity Transmission plc (ii)
    
    GBP 75 million 2.0353% Retail Price Index-Linked Instruments due 2035National Grid Electricity Transmission plc (ii)
    
    GBP 50 million 1.8204% Retail Price Index-Linked Instruments due 2035National Grid plc (i)
    
    EUR 200 million Floating Rate Instruments due 2005National Grid plc (i)
    
    EUR 500 million Floating Rate Instruments due 2006National Grid plc
    
    EUR 500 million 3.75% Fixed Rate Instruments due 2008National Grid plc (ii)
    
    EUR 750 million 4.125% Fixed Rate Instruments due 2013National Grid plc
    
    EUR 600 million 5.0% Fixed Rate Instruments due 2018National Grid plc
    
    EUR 500 million 4.375% Fixed Rate Instruments due 2020New England Power Company
    
    USD 135.85 million Tax Exempt Pollution Control Revenue Bonds, Variable Rate due 2020New England Power Company
    
    USD 106.15 million Tax Exempt Pollution Control Revenue Bonds, Variable Rate due 2022NGG 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 110 million 6.625% Taxable First Mortgage Bonds due 2005Niagara Mohawk Power Corporation (i)
    
    USD 400 million 7.625% Senior Notes due 2005Niagara Mohawk Power Corporation (i)
    
    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 115.71 million 7.2% Tax-Exempt First Mortgage Bonds due 2029 (iii)National Grid Gas Holdings plc
    
    GBP 503.078 million Floating Rate Instruments due 2009National Grid Gas Holdings plc
    
    GBP 503.078 million 4.1875% Index-Linked Instruments due 2022National Grid Gas Holdings plc
    
    GBP 503.078 million 7.0% Fixed Rate Instruments due 2024National Grid Gas plc
    
    EUR 650 million 5.25% Fixed Rate Instruments due 2006National Grid Gas plc
    
    GBP 250 million 6.125% Fixed Rate Instruments due 2006National Grid Gas plc
    
    GBP 300 million 5.625% Fixed Rate Instruments due 2007National Grid Gas plc
    
    GBP 250 million 8.875% Fixed Rate Instruments due 2008National Grid Gas plc
    
    AUD 500 million 7.0% Fixed Rate Instruments due 2008National Grid Gas plc
    
    GBP 300 million 5.375% Fixed Rate Instruments due 2009National Grid Gas plc
    
    GBP 300 million 6.0% Fixed Rate Instruments due 2017National Grid Gas plc
    
    GBP 275 million 8.75% Fixed Rate Instruments due 2025National Grid Gas plc
    
    GBP 50 million 6.2% Fixed Rate Instruments due 2028
 (i)
    
    Matured during the year ended 31 March 2006(ii)
    
    Issued during the year ended 31 March 2006(iii)
    
    Refinanced and initially issued in auction rate mode during year ended 31 March 2005




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNotes 27 (continued), 28 and 29
    
    139
 27. Borrowings (continued)
    2006
    
    
    2005£m
    
    
    £mExpiring:In one year or less
    
    
    963
    
    
    
    3,165In more than one year, but not more than two years
    
    
    200
    
    
    
    57In more than two years
    
    
    1,681
    
    
    
    2,844
    
    
    
    3,222
  28. Trade and other payables
 2006
    
    
    2005£m
    
    
    £mTrade payables
    
    
    1,313
    
    
    
    1,111Commodity contract liabilities
    
    
    174
    
    
    
    153Social security and other taxes
    
    
    147
    
    
    
    219Other payables
    
    
    269
    
    
    
    512Deferred income
    
    
    192
    
    
    
    3422,095
    
    
    
    2,337
  29. Other non-current liabilities
 2006
    
    
    2005£m
    
    
    £mCommodity contract liabilities
    
    
    314
    
    
    
    318Other payables
    
    
    324
    
    
    
    282Deferred income
    
    
    1,081
    
    
    
    1,8291,719
    
    
    
    2,429




---



##### Table of Contents



140
    
    Group Financial StatementsNote 30
    
   Annual Report and Accounts 2005/06National Grid
 30. Provisions
 TotalDecommissioning
    
    
    Environmental
    
    
    Emissions
    
    
    Restructuring
    
    
    Other
    
    
    provisions£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 1 April 2004
    
    
    131
    
    
    
    428
    
    
    
    
    
    
    
    61
    
    
    
    93
    
    
    
    713Exchange adjustments
    
    
    (4
    )
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Acquisition of a Group undertaking
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    9Additions
    
    
    
    
    
    
    107
    
    
    
    4
    
    
    
    142
    
    
    
    7
    
    
    
    260Unwinding of discount
    
    
    5
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Unused amounts reversed
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (6
    )Utilised
    
    
    (26
    )
    
    
    (47
    )
    
    
    
    
    
    
    (113
    )
    
    
    (3
    )
    
    
    (189
    )At 31 March 2005
    
    
    105
    
    
    
    491
    
    
    
    4
    
    
    
    90
    
    
    
    101
    
    
    
    791Exchange adjustments
    
    
    9
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28Disposal of Group undertakings
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    (66
    )Additions
    
    
    18
    
    
    
    3
    
    
    
    19
    
    
    
    35
    
    
    
    70
    
    
    
    145Reclassification
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    29Unwinding of discount
    
    
    3
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18Utilised
    
    
    (32
    )
    
    
    (55
    )
    
    
    
    
    
    
    (50
    )
    
    
    (37
    )
    
    
    (174
    )At 31 March 2006
    
    
    127
    
    
    
    429
    
    
    
    23
    
    
    
    75
    
    
    
    117
    
    
    
    771
  2006
    
    
    2005£m
    
    
    £mCurrent
    
    
    235
    
    
    
    273Non-current
    
    
    536
    
    
    
    518771
    
    
    
    791




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNotes 30 (continued) and 31
    
    141
 30. Provisions (continued)
        
 31. Share capital
 Allotted, called upand fully paidmillions
    
    
    £mAt 31 March 2004
    
    
    3,088
    
    
    
    309Issued during the year
    
    
    2
    
    
    
    At 31 March 2005
    
    
    3,090
    
    
    
    309Issued during the year
    
    
    8
    
    
    
    1Effect of share consolidation (i)
    
    
    (378
    )
    
    
    At 31 March 2006
    
    
    2,720
    
    
    
    310
 (i)
    
    On 29 July 2005, the ordinary share capital was consolidated with 43 new ordinary shares of
1117/43 pence each issued for every 49 existing ordinary shares of 10
pence each cancelled.






17 43 17 43




17 43












---



##### Table of Contents



142
    
    Group Financial StatementsNote 31 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 31. Share capital (continued)




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 31 (continued)
    
    143
 31. Share capital (continued)
   Sharesave
    
    
    Executive Plan
    
    Totalscheme options
    
    
    options
    
    optionsWeighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averageprice
    
    
    
    
    
    
    price£
    
    
    millions
    
    
    £
    
    
    millions
    
    
    millionsAt 31 March 2004
    
    
    3.32
    
    
    
    31.7
    
    
    
    4.84
    
    
    
    12.0
    
    
    
    43.7Granted
    
    
    3.83
    
    
    
    4.8
    
    
    
    
    
    
    
    
    
    
    
    4.8Lapsed  expired
    
    
    3.36
    
    
    
    (1.5
    )
    
    
    5.02
    
    
    
    (1.1
    )
    
    
    (2.6
    )Exercised
    
    
    3.37
    
    
    
    (3.8
    )
    
    
    3.90
    
    
    
    (0.5
    )
    
    
    (4.3
    )At 31 March 2005
    
    
    3.35
    
    
    
    31.2
    
    
    
    4.86
    
    
    
    10.4
    
    
    
    41.6Granted
    
    
    4.34
    
    
    
    5.6
    
    
    
    
    
    
    
    
    
    
    
    5.6Lapsed  expired
    
    
    3.33
    
    
    
    (4.1
    )
    
    
    4.32
    
    
    
    (0.9
    )
    
    
    (5.0
    )Exercised
    
    
    3.25
    
    
    
    (12.8
    )
    
    
    4.04
    
    
    
    (2.3
    )
    
    
    (15.1
    )At 31 March 2006
    
    
    3.68
    
    
    
    19.9
    
    
    
    5.01
    
    
    
    7.2
    
    
    
    27.1
  At 31 March 2006
    
    3.24
    
    
    0.5
    
    
    5.03
    
    
    7.1
    
    
    7.6At 31 March 2005
    
    
    3.25
    
    
    
    0.3
    
    
    
    4.99
    
    
    
    6.3
    
    
    
    6.6
   2006
    
    
    2005Sharesave scheme options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.89
    
    
    
    4.49Executive Plan options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.50
    
    
    
    4.65
  Weighted average
    
    
    
    
    
    
    Weighted averageexercise price of
    
    
    Number
    
    
    exercise price of
    
    
    Number
    
    
    Exercise price
    
    
    Normal datesexercisable options
    
    
    exercisable
    
    
    outstanding options
    
    
    outstanding
    
    
    per share
    
    
    of exercise£
    
    
    millions
    
    
    £
    
    
    millions
    
    
    pence
    
    
    yearsExecutive Plan
    
    
    2.81
    
    
    
    0.2
    
    
    
    2.81
    
    
    
    0.2
    
    
    
    258.0  280.5
    
    
    
    2001  20083.81
    
    
    
    0.3
    
    
    
    3.81
    
    
    
    0.3
    
    
    
    375.8  490.0
    
    
    
    2002  20095.50
    
    
    
    1.2
    
    
    
    5.50
    
    
    
    1.2
    
    
    
    424.0  566.5
    
    
    
    2003  20105.28
    
    
    
    0.9
    
    
    
    5.28
    
    
    
    0.9
    
    
    
    526.0  623.0
    
    
    
    2004  20115.48
    
    
    
    1.9
    
    
    
    5.48
    
    
    
    1.9
    
    
    
    479.5  563.0
    
    
    
    2005  20124.72
    
    
    
    2.6
    
    
    
    4.72
    
    
    
    2.6
    
    
    
    434.3  481.5
    
    
    
    2006  20134.05
    
    
    
    
    
    
    
    4.05
    
    
    
    0.1
    
    
    
    405.0
    
    
    
    2007  20145.03
    
    
    
    7.1
    
    
    
    5.01
    
    
    
    7.2




---



##### Table of Contents



144
    
    Group Financial StatementsNote 31 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 31. Share capital (continued)
      2006
    
    
    2005Where the exercise price is less than the market price at the date of grant
    
    
    569.0p
    
    
    
    496.0p
  2006
    
    
    2005Where the exercise price is less than the market price at the date of grant
    
    
    434.0p
    
    
    
    383.0p
  2006
    
    
    2005Where the exercise price is less than the market price at the date of grant
    
    
    128.0p
    
    
    
    90.4p
  2006
    
    
    2005Dividend yield (%)
    
    
    4.5
    
    
    
    5.5-5.8Volatility (%)
    
    
    15.6-18.9
    
    
    
    15.4Risk-free investment rate (%)
    
    
    4.2
    
    
    
    4.5Average life (years)
    
    
    4.3
    
    
    
    4.0
   (i)
    
    implied volatility in traded options over the Groups shares;(ii)
    
    historical volatility of the Groups shares from October 2002 (the date of the merger of
National Grid Group plc and Lattice Group plc); and(iii)
    
    implied volatility of comparator
companies where options in their shares are traded.
    2006
    
    
    2005Average share price
    
    
    535.6p
    
    
    
    431.7pAverage fair value
    
    
    358.0p
    
    
    
    210.6p
  2006
    
    
    2005Dividend yield (%)
    
    
    4.4
    
    
    
    5.3-5.7Volatility (%)
    
    
    19.9
    
    
    
    15.4Risk-free investment rate (%)
    
    
    4.1
    
    
    
    4.5-5.2




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 32
    
    145
 32. Reconciliation of movements in total equity
 Available-Called-up
    
    
    Share
    
    
    
    
    
    
    
    
    
    
    Cash flow
    
    
    for-sale
    
    
    
    
    
    
    Totalshare
    
    
    premium
    
    
    Retained
    
    
    Translation
    
    
    hedge
    
    
    investment
    
    
    Other
    
    
    shareholders
    
    
    Minority
    
    
    Totalcapital
    
    
    account
    
    
    earnings
    
    
    reserve
    
    
    reserve
    
    
    reserve
    
    
    reserves
    
    
    equity
    
    
    interests
    
    
    equity£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAt 31 March 2004
    
    
    309
    
    
    
    1,280
    
    
    
    4,642
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,131
    )
    
    
    1,100
    
    
    
    10
    
    
    
    1,110Net income/(expense) recognised
directly in equity
    
    
    
    
    
    
    
    
    
    
    187
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181
    
    
    
    
    
    
    
    181Profit for the year
    
    
    
    
    
    
    
    
    
    
    1,424
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,424
    
    
    
    
    
    
    
    1,424Equity dividends
    
    
    
    
    
    
    
    
    
    
    (628
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (628
    )
    
    
    
    
    
    
    (628
    )Issue of ordinary share capital
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    9Movement in shares held by
employee share trusts
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5Employee share option scheme
issues
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    16Tax on employee share option
scheme issues
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4At 31 March 2005
    
    
    309
    
    
    
    1,289
    
    
    
    5,650
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    (5,131
    )
    
    
    2,111
    
    
    
    10
    
    
    
    2,121Adoption of IAS 39
    
    
    
    
    
    
    
    
    
    
    (91
    )
    
    
    (7
    )
    
    
    51
    
    
    
    4
    
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    (43
    )At 1 April 2005
    
    
    309
    
    
    
    1,289
    
    
    
    5,559
    
    
    
    (13
    )
    
    
    51
    
    
    
    4
    
    
    
    (5,131
    )
    
    
    2,068
    
    
    
    10
    
    
    
    2,078Net income/(expense) recognised
directly in equity
    
    
    
    
    
    
    
    
    
    
    121
    
    
    
    140
    
    
    
    (14
    )
    
    
    2
    
    
    
    
    
    
    
    249
    
    
    
    1
    
    
    
    250Profit for the year
    
    
    
    
    
    
    
    
    
    
    3,848
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,848
    
    
    
    2
    
    
    
    3,850Equity dividends
    
    
    
    
    
    
    
    
    
    
    (745
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (745
    )
    
    
    
    
    
    
    (745
    )Return of capital to shareholders
through B share scheme
    
    
    
    
    
    
    
    
    
    
    (2,009
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,009
    )
    
    
    
    
    
    
    (2,009
    )Issue of ordinary share capital
    
    
    1
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    28Other movements in minority
interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Movement in shares held in
employee share trusts
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    19Employee share option scheme
issues
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    17Tax on employee share option
scheme issues
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7At 31 March 2006
    
    
    310
    
    
    
    1,316
    
    
    
    6,817
    
    
    
    127
    
    
    
    37
    
    
    
    6
    
    
    
    (5,131
    )
    
    
    3,482
    
    
    
    11
    
    
    
    3,493




---



##### Table of Contents



146
    
    Group Financial StatementsNote 33
    
   Annual Report and Accounts 2005/06National Grid
 33. Group cash flow statement
  2006
    
    
    2005£m
    
    
    £mOperating profit
    
    
    46
    
    
    
    436Adjustments for:Exceptional items
    
    
    15
    
    
    
    74Depreciation and amortisation
    
    
    13
    
    
    
    176Share-based payment charge
    
    
    2
    
    
    
    4Changes in working capital and provisions
    
    
    (73
    )
    
    
    (69
    )Cash flow relating to exceptional items
    
    
    (23
    )
    
    
    (74
    )Cash flow relating to discontinued operations
    
    
    (20
    )
    
    
    547
  2006
    
    
    2005£m
    
    
    £mMovement in cash and cash equivalents
    
    
    1,181
    
    
    
    8(Decrease)/increase in financial investments
    
    
    (25
    )
    
    
    59Decrease/(increase) in borrowings and derivatives
    
    
    2,304
    
    
    
    (1,052
    )Cash paid to shareholders under B share scheme
    
    
    1,957
    
    
    
    Net interest paid (i)
    
    
    704
    
    
    
    n/aChange in net debt resulting from cash flows
    
    
    6,121
    
    
    
    (985
    )Exchange adjustments (i)
    
    
    
    
    
    
    112Changes in fair value of financial assets and liabilities and exchange movements (i)
    
    
    (299
    )
    
    
    n/aIssue of B shares
    
    
    (2,009
    )
    
    
    Net interest charge (i)
    
    
    (660
    )
    
    
    n/aOther non-cash movements
    
    
    (17
    )
    
    
    (28
    )Movement in net debt (net of related derivative financial instruments) in the year
    
    
    3,136
    
    
    
    (901
    )Net debt at start of year
    
    
    (13,638
    )
    
    
    (12,737
    )Impact of adoption of IAS 32 and IAS 39 (i)
    
    
    (348
    )
    
    
    Net debt (net of related derivative financial instruments) at end of year
    
    
    (10,850
    )
    
    
    (13,638
    )
 (i)
    
    The adoption of IAS 39 resulted in changes to the carrying value of borrowings and
financial investments as at 1 April 2005 as described in note 2.
  OtherAt 1 April
    
    
    Cash
    
    
    Exchange
    
    
    non-cash
    
    
    At 31 March2004
    
    
    flow
    
    
    adjustments
    
    
    movements
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCash and cash equivalents
    
    
    273
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    272Bank overdrafts
    
    
    (26
    )
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    (18
    )247
    
    
    
    8
    
    
    
    (1
    )
    
    
    
    
    
    
    254Financial investments
    
    
    343
    
    
    
    59
    
    
    
    (4
    )
    
    
    
    
    
    
    398Borrowings
    
    
    (13,327
    )
    
    
    (1,052
    )
    
    
    117
    
    
    
    (28
    )
    
    
    (14,290
    )(12,737
    )
    
    
    (985
    )
    
    
    112
    
    
    
    (28
    )
    
    
    (13,638
    )
 Impact ofadoption of
    
    
    
    
    
    
    Fair
    
    
    
    
    
    
    
    
    
    
    OtherAt 1 April
    
    
    IAS 32 and
    
    
    Cash
    
    
    value gains
    
    
    Issue of
    
    
    Interest
    
    
    non-cash
    
    
    At 31 March2005
    
    
    IAS 39 (i)
    
    
    flow
    
    
    and losses
    
    
    B shares
    
    
    charges
    
    
    movements
    
    
    2006£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCash and cash equivalents
    
    
    272
    
    
    
    
    
    
    
    1,166
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,452Bank overdrafts
    
    
    (18
    )
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )254
    
    
    
    
    
    
    
    1,181
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,449Financial investments (ii)
    
    
    398
    
    
    
    3
    
    
    
    (155
    )
    
    
    3
    
    
    
    
    
    
    
    135
    
    
    
    
    
    
    
    384Borrowings (ii)
    
    
    (14,290
    )
    
    
    (894
    )
    
    
    5,037
    
    
    
    (207
    )
    
    
    (2,009
    )
    
    
    (746
    )
    
    
    (17
    )
    
    
    (13,126
    )Derivatives (ii)
    
    
    
    
    
    
    543
    
    
    
    58
    
    
    
    (109
    )
    
    
    
    
    
    
    (49
    )
    
    
    
    
    
    
    443(13,638
    )
    
    
    (348
    )
    
    
    6,121
    
    
    
    (299
    )
    
    
    (2,009
    )
    
    
    (660
    )
    
    
    (17
    )
    
    
    (10,850
    )
 (i)
    
    There are no comparatives for net debt related derivative assets and liabilities as the
Group adopted IAS 39 with effect from 1 April 2005 consistent with the requirements of IFRS 1. The
adoption of IAS 39 also resulted in changes to the carrying value of borrowings and financial
investments as at 1 April 2005 (see note 2).(ii)
    
    Includes interest.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNotes 34 and 35
    
    147
 34. Related party transactions
  2006
    
    
    2005£m
    
    
    £mSales: Services supplied to a Group pension fund
    
    
    4
    
    
    
    4Purchases: Services received from joint ventures
    
    
    32
    
    
    
    24
   35. Commitments and contingencies
  2006
    
    
    2005£m
    
    
    £mContracted for but not provided
    
    
    1,343
    
    
    
    927
   2006
    
    
    2005£m
    
    
    £mIn one year or less
    
    
    87
    
    
    
    99In more than one year, but not more than two years
    
    
    80
    
    
    
    91In more than two years, but not more than three years
    
    
    75
    
    
    
    83In more than three years, but not more than four years
    
    
    71
    
    
    
    79In more than four years, but not more than five years
    
    
    67
    
    
    
    77In more than five years
    
    
    451
    
    
    
    501831
    
    
    
    930
   2006
    
    
    2005£m
    
    
    £mIn one year or less
    
    
    1,504
    
    
    
    1,058In more than one year, but not more than two years
    
    
    935
    
    
    
    623In more than two years, but not more than three years
    
    
    753
    
    
    
    583In more than three years, but not more than four years
    
    
    588
    
    
    
    567In more than four years, but not more than five years
    
    
    94
    
    
    
    462In more than five years
    
    
    1,579
    
    
    
    1,6225,453
    
    
    
    4,915
    (i)
    
    performance guarantees of £20m relating to certain property obligations of Group undertakings.
The bulk of these expire by December 2025;(ii)
    
    a guarantee of £50m of the obligations of a Group
undertaking to make payments in respect of any liabilities under a meter operating contract that
runs until May 2008;(iii)
    
    a performance guarantee relating to the construction of the Victoria to
Tasmania Interconnector of 48m Australian dollars (A$48m) (£20m). This halved on commissioning in
April 2006 and expires in November 2006;




---



##### Table of Contents



148
    
    Group Financial StatementsNotes 35 (continued) and 36
    
   Annual Report and Accounts 2005/06National Grid
 35. Commitments and contingencies (continued)
 (iv)
    
    a guarantee of the payment obligations of a Group undertaking in respect of a Power Connection
Agreement amounting to an annual maximum of A$7m, reducing over the term of the contract. This runs
until June 2051, but the maximum potential payout is estimated at £5m;(v)
    
    a guarantee of the
payment obligations of a Group undertaking in respect of a Nitrogen Supply Agreement amounting to a
maximum potential payout of £14m subject to a cap of £1m per annum. This runs until November 2019;(vi)
    
    a guarantee of the payment obligations of a Group undertaking in respect of a Power Connection
Agreement amounting to a maximum potential payout of £14m subject to a cap of £7m per annum. This
runs until December 2024;(vii)
    
    guarantees in respect of a former associate amounting to £14m, the
bulk of which relates to its obligations to supply telecommunications services. This is open-ended;
and(viii)
    
    other guarantees amounting to £12m arising in the normal course of business and entered
into on normal commercial terms. These guarantees run for varying lengths of time.
   36. Group undertakings and joint ventures
   Principal activityNational Grid Gas plc (i)
    
    Gas transportationNational Grid Electricity Transmission plc (i)
    
    Transmission of electricity in England and WalesNew England Power Company (Incorporated in the US) (i)
    
    Transmission 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 gasNational Grid Wireless No 2 Limited (i)
    
    Telecommunications infrastructureNational Grid Wireless Limited (i)
    
    Telecommunications and broadcast infrastructureNGG Finance plc (ii)
    
    FinancingBritish Transco International Finance B.V. (Incorporated in The Netherlands) (i)
    
    FinancingNational Grid Property Limited (i)
    
    PropertyNational Grid Holdings One plc (ii)
    
    Holding companyLattice Group plc (i)
    
    Holding companyNational Grid USA (Incorporated in the US) (i)
    
    Holding companyNiagara Mohawk Holdings Inc. (Incorporated in the US) (i)
    
    Holding companyNational Grid Commercial Holdings Limited (i)
    
    Holding companyNational Grid Gas 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 plc.
   Country ofincorporationGroup holding
    
    and operation
    
    Principal activityCopperbelt Energy Corporation plc (i)
    
    38.5% ordinary shares
    
    Zambia
    
    Transmission, distribution and supply of electricity
 (i)
    
    31 December year end.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 37
    
    149
 37. Differences between IFRS and US generally accepted accounting principles
      2006
    
    
    2005Notes
    
    
    £m
    
    
    £mProfit for the year attributable to equity shareholders under IFRS
    
    
    
    
    
    
    3,848
    
    
    
    1,424Adjustments to conform with US GAAPDepreciation of property, plant and equipment
    
    
    (a
    )
    
    
    (127
    )
    
    
    (233
    )US regulatory accounting
    
    
    (b
    )
    
    
    (269
    )
    
    
    (246
    )Pensions and other post-retirement benefits
    
    
    (c
    )
    
    
    (56
    )
    
    
    2Financial instruments
    
    
    (d
    )
    
    
    (130
    )
    
    
    254Severance costs
    
    
    (e
    )
    
    
    (63
    )
    
    
    62Revenue recognition
    
    
    (f
    )
    
    
    (48
    )
    
    
    13Amortisation of intangibles
    
    
    (h
    )
    
    
    (2
    )
    
    
    (2
    )Interest on discounted provisions
    
    
    (i
    )
    
    
    (14
    )
    
    
    Deferred taxation
    
    
    (k
    )
    
    
    208
    
    
    
    28Other
    
    
    (l
    )
    
    
    (3
    )
    
    
    2Discontinued operations  gains on disposal of business
    
    
    (a),(g
    )
    
    
    (2,196
    )
    
    
    Discontinued operations  pensions and other post-retirement benefits
    
    
    (c
    )
    
    
    (127
    )
    
    
    Discontinued operations  deferred taxation
    
    
    (k
    )
    
    
    286
    
    
    
    (2,541
    )
    
    
    (120Net income under US GAAP
    
    
    
    
    
    
    1,307
    
    
    
    1,304
   2006
    
    
    2005Notes
    
    
    £m
    
    
    £mTotal shareholders equity under IFRS
    
    
    
    
    
    
    3,482
    
    
    
    2,111Adjustments to conform with US GAAPProperty, plant and equipment
    
    
    (a
    )
    
    
    2,162
    
    
    
    3,116Goodwill
    
    
    (g
    )
    
    
    2,689
    
    
    
    4,027US regulatory accounting
    
    
    (b
    )
    
    
    2,702
    
    
    
    2,746Pensions and other post-retirement benefits
    
    
    (c
    )
    
    
    886
    
    
    
    944Financial instruments
    
    
    (d
    )
    
    
    119
    
    
    
    117Severance liabilities
    
    
    (e
    )
    
    
    2
    
    
    
    65Revenue recognition
    
    
    (f
    )
    
    
    (42
    )
    
    
    6Intangible assets
    
    
    (h
    )
    
    
    28
    
    
    
    30Provisions
    
    
    (i
    )
    
    
    (154
    )
    
    
    (130
    )Non-reversal of impairments
    
    
    (j
    )
    
    
    (39
    )
    
    
    (29
    )Deferred taxation
    
    
    (k
    )
    
    
    (2,090
    )
    
    
    (2,441
    )Other
    
    
    (l
    )
    
    
    2
    
    
    
    296,265
    
    
    
    8,480Shareholders equity under US GAAP
    
    
    
    
    
    
    9,747
    
    
    
    10,591)




---



##### Table of Contents



150
    
    Group Financial StatementsNote 37 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 37. Differences between IFRS and US generally accepted accounting principles (continued)
             Other post-retirementPensions
    
    
    benefits2006
    
    
    2005
    
    
    2006
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £mService cost
    
    
    118
    
    
    
    135
    
    
    
    16
    
    
    
    12Interest cost
    
    
    804
    
    
    
    828
    
    
    
    63
    
    
    
    56Expected return on plan assets
    
    
    (849
    )
    
    
    (860
    )
    
    
    (41
    )
    
    
    (40
    )Amortisation of prior service cost
    
    
    5
    
    
    
    6
    
    
    
    6
    
    
    
    3Amortisation of previously unrecognised actuarial losses
    
    
    58
    
    
    
    45
    
    
    
    
    
    
    
    20136
    
    
    
    154
    
    
    
    44
    
    
    
    51Release of pension provision
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    
    
    
    134
    
    
    
    152
    
    
    
    44
    
    
    
    51
  2006
    
    
    2005£m
    
    
    £m(Gain)/cost of termination benefits and curtailments
    
    
    (9
    )
    
    
    30




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 37 (continued)
    
    151
 37. Differences between IFRS and US generally accepted accounting principles (continued)
    US
    
    
    UK2006
    
    
    2005
    
    
    2006
    
    
    2005%
    
    
    %
    
    
    %
    
    
    %Discount rate
    
    
    5.8
    
    
    
    5.8
    
    
    
    5.1
    
    
    
    5.5Expected return on assets
    
    
    7.0-8.3
    
    
    
    8.3
    
    
    
    5.8-6.4
    
    
    
    6.2-6.7General salary increases
    
    
    3.9-4.3
    
    
    
    3.3-5.3
    
    
    
    3.9
    
    
    
    3.9Pension increases
    
    
    nil
    
    
    
    nil
    
    
    
    3.0
    
    
    
    3.0
   Pensions
    
    

Other post-retirement benefits2006
    
    
    2005
    
    
    2006
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £mProjected benefit obligation at 31 March
    
    
    (16,603
    )
    
    
    (15,758
    )
    
    
    (1,223
    )
    
    
    (1,068
    )Fair value of plan assets at 31 March
    
    
    15,349
    
    
    
    14,086
    
    
    
    568
    
    
    
    488Excess of projected benefit obligation over plan assets
    
    
    (1,254
    )
    
    
    (1,672
    )
    
    
    (655
    )
    
    
    (580
    )Unrecognised net actuarial loss
    
    
    840
    
    
    
    1,180
    
    
    
    335
    
    
    
    316Unrecognised prior service cost
    
    
    56
    
    
    
    60
    
    
    
    69
    
    
    
    70Net accrued benefit liability  before minimum liability adjustment
    
    
    (358
    )
    
    
    (432
    )
    
    
    (251
    )
    
    
    (194
    )Additional minimum liability adjustment
    
    
    (472
    )
    
    
    (811
    )
    
    
    
    
    
    
    Net accrued benefit liability
    
    
    (830
    )
    
    
    (1,243
    )
    
    
    (251
    )
    
    
    (194
    )
    US
    
    
    UK2006
    
    
    2005
    
    
    2006
    
    
    2005%
    
    
    %
    
    
    %
    
    
    %Discount rate
    
    
    6.0
    
    
    
    5.8
    
    
    
    4.9
    
    
    
    5.4General salary increases
    
    
    4.1
    
    
    
    3.9-4.3
    
    
    
    3.9
    
    
    
    3.9Pension increases
    
    
    nil
    
    
    
    nil
    
    
    
    2.95
    
    
    
    3.0




---



##### Table of Contents



152
    
    Group Financial StatementsNote 37 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 37. Differences between IFRS and US generally accepted accounting principles (continued)
   Other post-retirementPensions
    
    
    benefits2006
    
    
    2005
    
    
    2006
    
    
    2005£m
    
    
    £m
    
    
    £m
    
    
    £mProjected benefit obligation at start of year
    
    
    15,758
    
    
    
    15,394
    
    
    
    1,068
    
    
    
    1,002Service cost
    
    
    118
    
    
    
    135
    
    
    
    16
    
    
    
    12Interest cost
    
    
    804
    
    
    
    828
    
    
    
    63
    
    
    
    56Plan participants contributions
    
    
    14
    
    
    
    17
    
    
    
    
    
    
    
    Plan amendment  prior service cost
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    79Terminations
    
    
    49
    
    
    
    30
    
    
    
    
    
    
    
    Curtailments
    
    
    (157
    )
    
    
    
    
    
    
    
    
    
    
    Settlements
    
    
    (619
    )
    
    
    (1
    )
    
    
    
    
    
    
    Actuarial loss
    
    
    1,301
    
    
    
    136
    
    
    
    40
    
    
    
    5Benefits paid
    
    
    (775
    )
    
    
    (783
    )
    
    
    (59
    )
    
    
    (52
    )Acquisition of Group undertakings
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    Transfers
    
    
    (17
    )
    
    
    1
    
    
    
    
    
    
    
    Exchange adjustments
    
    
    127
    
    
    
    (47
    )
    
    
    95
    
    
    
    (34
    )Projected benefit obligation at end of year
    
    
    16,603
    
    
    
    15,758
    
    
    
    1,223
    
    
    
    1,068Fair value of plan assets at start of year
    
    
    14,086
    
    
    
    13,432
    
    
    
    488
    
    
    
    496Actual return on assets
    
    
    2,370
    
    
    
    1,248
    
    
    
    65
    
    
    
    26Employer contributions
    
    
    191
    
    
    
    184
    
    
    
    30
    
    
    
    32Plan participants contributions
    
    
    14
    
    
    
    17
    
    
    
    
    
    
    
    Benefits paid
    
    
    (774
    )
    
    
    (783
    )
    
    
    (59
    )
    
    
    (52
    )Acquisition of Group undertakings
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    Settlements
    
    
    (609
    )
    
    
    (1
    )
    
    
    
    
    
    
    Transfers
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    Exchange adjustments
    
    
    95
    
    
    
    (32
    )
    
    
    44
    
    
    
    (14
    )Fair value of plan assets at end of year
    
    
    15,358
    
    
    
    14,086
    
    
    
    568
    
    
    
    488
  Otherpost-retirementPensions
    
    
    benefitsYear ended 31 March
    
    £m
    
    
    £m2007
    
    
    761
    
    
    
    662008
    
    
    774
    
    
    
    692009
    
    
    786
    
    
    
    712010
    
    
    802
    
    
    
    742011
    
    
    821
    
    
    
    7620122016
    
    
    4,547
    
    
    
    378




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 37 (continued)
    
    153
 37. Differences between IFRS and US generally accepted accounting principles (continued)
   £m2007
    
    
    42008
    
    
    52009
    
    
    52010
    
    
    52011
    
    
    520122016
    
    
    29




---



##### Table of Contents



154
    
    Group Financial StatementsNote 37 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 37. Differences between IFRS and US generally accepted accounting principles (continued)
             2006
    
    
    2005£m
    
    
    £mCurrent taxes
    
    
    432
    
    
    
    24Deferred taxes (credit)/charge
    
    
    (84
    )
    
    
    279Tax charge
    
    
    348
    
    
    
    303
  2006
    
    
    2005£m
    
    
    £mDeferred taxation liabilities:Excess of book value over taxation value of fixed assets
    
    
    3,778
    
    
    
    5,029Other temporary differences
    
    
    1,494
    
    
    
    1,1625,272
    
    
    
    6,191Deferred taxation assets:Other temporary differences (i)
    
    
    (1,252
    )
    
    
    (900
    )4,020
    
    
    
    5,291Analysed as follows:Current
    
    
    (43
    )
    
    
    (184
    )Non-current
    
    
    4,063
    
    
    
    5,4754,020
    
    
    
    5,291
 (i)
    
    Deferred taxation assets at 31 March 2006 were stated net of a £530m valuation
allowance adjustment in respect of capital losses, non-trade deficits, trading losses and
pre-trading expenditure (2005: £493m).




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 37 (continued)
    
    155
 37. Differences between IFRS and US generally accepted accounting principles (continued)
    Non-GAAP measures
     Other presentational differences between IFRS and US GAAP
       Restricted net assets




---



##### Table of Contents



156
    
    Group Financial StatementsNote 37 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 37. Differences between IFRS and US generally accepted accounting principles (continued)
  FIN 47
   SFAS 123(R)
    SFAS 151
  SFAS 153
  SFAS 154
  SFAS 155




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 38
    
    157
 38. Condensed
US GAAP financial information
  Condensed US GAAP income statement
 2006
    
    
    
    
    
    
    2006National
    
    
    2006
    
    
    NationalGrid
    
    
    US GAAP
    
    
    Grid(IFRS)
    
    
    adjustments
    
    
    (US GAAP)£m
    
    
    £m
    
    
    £mTurnover
    
    
    9,193
    
    
    
    23
    
    
    
    9,216Other operating income
    
    
    80
    
    
    
    (30
    )
    
    
    50Operating costsDepreciation
    
    
    (895
    )
    
    
    (122
    )
    
    
    (1,017
    )Payroll and severance costs
    
    
    (892
    )
    
    
    (41
    )
    
    
    (933
    )Purchases of electricity
    
    
    (1,977
    )
    
    
    (116
    )
    
    
    (2,093
    )Purchases of gas
    
    
    (566
    )
    
    
    3
    
    
    
    (563
    )Rates and property taxes
    
    
    (443
    )
    
    
    (2
    )
    
    
    (445
    )Electricity transmission services scheme direct costs
    
    
    (536
    )
    
    
    
    
    
    
    (536
    )Provision for doubtful debts
    
    
    (24
    )
    
    
    
    
    
    
    (24
    )Other operating charges
    
    
    (1,501
    )
    
    
    (344
    )
    
    
    (1,845
    )(6,834
    )
    
    
    (622
    )
    
    
    (7,456
    )Operating profit
    
    
    2,439
    
    
    
    (629
    )
    
    
    1,810Net finance costs
    
    
    (663
    )
    
    
    (88
    )
    
    
    (751
    )Share of post-tax results of joint ventures
    
    
    3
    
    
    
    (3
    )
    
    
    Profit before taxation
    
    
    1,779
    
    
    
    (720
    )
    
    
    1,059Taxation
    
    
    (562
    )
    
    
    214
    
    
    
    (348
    )Profit for the year
    
    
    1,217
    
    
    
    (506
    )
    
    
    711Minority interests
    
    
    (2
    )
    
    
    (1
    )
    
    
    (3
    )Interest in equity accounted affiliates (net of tax of £nil)
    
    
    
    
    
    
    3
    
    
    
    3Net income from continuing operations
    
    
    1,215
    
    
    
    (504
    )
    
    
    711Net income from discontinued operations (net of tax of £237m credit)
    
    
    2,633
    
    
    
    (2,037
    )
    
    
    596Net income for the year
    
    
    3,848
    
    
    
    (2,541
    )
    
    
    1,307Basic
earnings per share under US GAAP (pence)  continuing operations
    
    
    
    
    
    
    
    
    
    
    26.2pDiluted
earnings per share under US GAAP (pence)  continuing operations
    
    
    
    
    
    
    
    
    
    
    26.1pBasic
earnings per ADS under US GAAP (pence)  continuing operations
    
    
    
    
    
    
    
    
    
    
    131.0pDiluted
earnings per ADS under US GAAP (pence)  continuing operations
    
    
    
    
    
    
    
    
    
    
    130.5pBasic
earnings per share under US GAAP (pence)  discontinued operations
    
    
    
    
    
    
    
    
    
    
    22.0pDiluted
earnings per share under US GAAP (pence)  discontinued operations
    
    
    
    
    
    
    
    
    
    
    21.9pBasic
earnings per ADS under US GAAP (pence)  discontinued operations
    
    
    
    
    
    
    
    
    
    
    110.0 pDiluted
earnings per ADS under US GAAP (pence)  discontinued operations
    
    
    
    
    
    
    
    
    
    
    109.5 pBasic
earnings per share under US GAAP (pence)  total Group
    
    
    
    
    
    
    
    
    
    
    48.2pDiluted
earnings per share under US GAAP (pence)  total Group
    
    
    
    
    
    
    
    
    
    
    48.0pBasic
earnings per ADS under US GAAP (pence)  total Group
    
    
    
    
    
    
    
    
    
    
    241.0pDiluted
earnings per ADS under US GAAP (pence)  total Group
    
    
    
    
    
    
    
    
    
    
    240.0pWeighted
average number of shares in issue (million)  for basic EPS
    
    
    
    
    
    
    
    
    
    
    2,710Weighted
average number of shares in issue (million)  for diluted EPS
    
    
    
    
    
    
    
    
    
    
    2,724




---



##### Table of Contents



158
    
    Group Financial StatementsNote 38 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 38. Condensed US GAAP financial information (continued)
  2005
    
    
    
    
    
    
    2005National
    
    
    2005
    
    
    NationalGrid
    
    
    US GAAP
    
    
    Grid(IFRS)
    
    
    adjustments
    
    
    (US GAAP)£m
    
    
    £m
    
    
    £mTurnover
    
    
    7,382
    
    
    
    42
    
    
    
    7,424Other operating income
    
    
    70
    
    
    
    (31
    )
    
    
    39Operating costsDepreciation
    
    
    (774
    )
    
    
    (191
    )
    
    
    (965
    )Payroll and severance costs
    
    
    (919
    )
    
    
    54
    
    
    
    (865
    )Purchases of electricity
    
    
    (1,496
    )
    
    
    (182
    )
    
    
    (1,678
    )Purchases of gas
    
    
    (357
    )
    
    
    
    
    
    
    (357
    )Rates and property taxes
    
    
    (406
    )
    
    
    
    
    
    
    (406
    )Electricity transmission services scheme direct costs
    
    
    (301
    )
    
    
    
    
    
    
    (301
    )Provision for doubtful debts
    
    
    (41
    )
    
    
    
    
    
    
    (41
    )Other operating charges
    
    
    (1,016
    )
    
    
    (30
    )
    
    
    (1,046
    )(5,310
    )
    
    
    (349
    )
    
    
    (5,659
    )Operating profit
    
    
    2,142
    
    
    
    (338
    )
    
    
    1,804Net finance costs
    
    
    (706
    )
    
    
    246
    
    
    
    (460
    )Share of post-tax results of joint ventures
    
    
    3
    
    
    
    (3
    )
    
    
    Profit before taxation
    
    
    1,439
    
    
    
    (95
    )
    
    
    1,344Taxation
    
    
    (319
    )
    
    
    16
    
    
    
    (303
    )Profit for the year
    
    
    1,120
    
    
    
    (79
    )
    
    
    1,041Minority interests
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Interest in equity accounted affiliates (net of tax of £2m)
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Net income from continuing operations
    
    
    1,120
    
    
    
    (83
    )
    
    
    1,037Net income from discontinued operations (net of tax of £128m charge)
    
    
    304
    
    
    
    (37
    )
    
    
    267Net income for the year
    
    
    1,424
    
    
    
    (120
    )
    
    
    1,304Basic earnings per share under US GAAP (pence)  continuing operations (i)
    
    
    
    
    
    
    
    
    
    
    38.3pDiluted earnings per share under US GAAP (pence)  continuing operations (i)
    
    
    
    
    
    
    
    
    
    
    38.1pBasic earnings per ADS under US GAAP (pence)  continuing operations (i)
    
    
    
    
    
    
    
    
    
    
    191.5pDiluted earnings per ADS under US GAAP (pence)  continuing operations (i)
    
    
    
    
    
    
    
    
    
    
    190.7pBasic earnings per share under US GAAP (pence)  discontinued operations (i)
    
    
    
    
    
    
    
    
    
    
    9.9 pDiluted earnings per share under US GAAP (pence)  discontinued operations (i)
    
    
    
    
    
    
    
    
    
    
    9.8 pBasic earnings per ADS under US GAAP (pence)  discontinued operations (i)
    
    
    
    
    
    
    
    
    
    
    49.5 pDiluted earnings per ADS under US GAAP (pence)  discontinued operations (i)
    
    
    
    
    
    
    
    
    
    
    49.0 pBasic earnings per share under US GAAP (pence)  total Group (i)
    
    
    
    
    
    
    
    
    
    
    48.2pDiluted earnings per share under US GAAP (pence)  total Group (i)
    
    
    
    
    
    
    
    
    
    
    47.9pBasic earnings per ADS under US GAAP (pence)  total Group (i)
    
    
    
    
    
    
    
    
    
    
    241.0pDiluted earnings per ADS under US GAAP (pence)  total Group (i)
    
    
    
    
    
    
    
    
    
    
    239.5pWeighted average number of shares in issue (million)  for basic EPS (i)
    
    
    
    
    
    
    
    
    
    
    2,705Weighted average number of shares in issue (million)  for diluted EPS (i)
    
    
    
    
    
    
    
    
    
    
    2,719
 (i)
    
    Restated as a result of the 43 for 49 share consolidation, related to the return of capital via the B share scheme.
  2006
    
    
    2005£m
    
    
    £mNet income
    
    
    1,307
    
    
    
    1,304Additional minimum pension liability (net of tax of £82m and £16m)
    
    
    168
    
    
    
    33Exchange adjustments (i)
    
    
    368
    
    
    
    (80
    )Mark-to-market of financial instruments (net of tax of £nil and £43m)
    
    
    3
    
    
    
    111Comprehensive income
    
    
    1,846
    
    
    
    1,368Dividends
    
    
    (745
    )
    
    
    (628
    )Other shares issued
    
    
    28
    
    
    
    9Share options granted
    
    
    17
    
    
    
    16Return of capital to shareholders through B share scheme
    
    
    (2,009
    )
    
    
    Movement in treasury stock
    
    
    19
    
    
    
    5Shareholders equity at 1 April
    
    
    10,591
    
    
    
    9,821Shareholders equity at 31 March
    
    
    9,747
    
    
    
    10,591
 (i)
    
    Included within exchange adjustments is £91m relating to losses on net investment hedges during the year.




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Group Financial StatementsNote 38 (continued)
    
    159
 38. Condensed US GAAP financial information (continued)
  2006
    
    
    2005£m
    
    
    £mAssetsCurrent assetsCash and cash equivalents (i)
    
    
    1,466
    
    
    
    285Marketable securities (i)
    
    
    384
    
    
    
    396Accounts and notes receivable
    
    
    838
    
    
    
    553Inventories
    
    
    108
    
    
    
    101Regulatory assets
    
    
    246
    
    
    
    443Prepaid expenses and other current assets
    
    
    612
    
    
    
    599Total current assets
    
    
    3,654
    
    
    
    2,377Property, plant and equipment cost
    
    
    30,738
    
    
    
    34,282Property, plant and equipment accumulated depreciation
    
    
    (10,503
    )
    
    
    (10,022
    )20,235
    
    
    
    24,260Goodwill cost
    
    
    4,927
    
    
    
    6,156Goodwill accumulated amortisation and impairments
    
    
    (96
    )
    
    
    (97
    )
 4,831
    
    
    
    6,059Intangible assets
    
    
    390
    
    
    
    272Investments
    
    
    160
    
    
    
    152Regulatory assets
    
    
    2,805
    
    
    
    2,907Other receivables
    
    
    212
    
    
    
    1,247Total assets
    
    
    32,287
    
    
    
    37,274Liabilities and shareholders equityCurrent liabilitiesBank overdrafts
    
    
    3
    
    
    
    18Accounts payable
    
    
    2,097
    
    
    
    1,111Short-term borrowings
    
    
    2,612
    
    
    
    3,229Accrued income taxes
    
    
    419
    
    
    
    79Other accrued liabilities
    
    
    165
    
    
    
    1,416Total current liabilities
    
    
    5,296
    
    
    
    5,853Long-term borrowings
    
    
    9,838
    
    
    
    11,475Post-retirement benefits
    
    
    1,348
    
    
    
    1,515Deferred income taxes
    
    
    4,063
    
    
    
    5,475Other liabilities
    
    
    1,954
    
    
    
    2,327Total liabilities
    
    
    22,499
    
    
    
    26,645Minority
interest  equity
    
    
    11
    
    
    
    10Cumulative preference stock issued by Group undertakings
    
    
    30
    
    
    
    28Shareholders equityCommon stock (par value £0.1139 per share; shares authorised 4,390m; shares issued 2006: 2,720m; 2005: 3,090m)
    
    
    310
    
    
    
    309Additional paid in capital
    
    
    7,837
    
    
    
    7,793Other reserves
    
    
    359
    
    
    
    359Retained earnings
    
    
    1,920
    
    
    
    3,377Accumulated comprehensive loss
    
    
    (679
    )
    
    
    (1,218
    )Treasury stock
    
    
    
    
    
    
    (29
    )Shareholders equity
    
    
    9,747
    
    
    
    10,591Total liabilities and shareholders equity
    
    
    32,287
    
    
    
    37,274
 (i)
    
    A reclassification of £240m for the comparative period has been made between cash and cash equivalents and marketable securities.
  2006
    
    
    2005£m
    
    
    £mCumulative translation adjustment
    
    
    (453
    )
    
    
    (853
    )Additional minimum pension liability
    
    
    (370
    )
    
    
    (618
    )Unrealised gains on derivatives
    
    
    9
    
    
    
    9Unrealised gains on available-for-sale investments
    
    
    7
    
    
    
    4Taxation
    
    
    124
    
    
    
    236Other
    
    
    4
    
    
    
    4(679
    )
    
    
    (1,218
    )




---



##### Table of Contents



160
    
    Notes to the AccountsNote 38 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 38. Condensed US GAAP financial information (continued)
   2006
    
    
    2005£m
    
    
    £mRevenue by business segmentContinuing operationsUK electricity and gas transmission
    
    
    2,667
    
    
    
    1,937US electricity transmission
    
    
    306
    
    
    
    283UK gas distribution
    
    
    1,217
    
    
    
    1,113US electricity and gas distribution
    
    
    3,759
    
    
    
    3,112US stranded cost recoveries
    
    
    556
    
    
    
    420Wireless infrastructure
    
    
    325
    
    
    
    208Other activities
    
    
    683
    
    
    
    844Sales between businesses
    
    
    (297
    )
    
    
    (493
    )Group revenue  continuing operations
    
    
    9,216
    
    
    
    7,424Operating profit by business segmentContinuing operationsUK electricity and gas transmission
    
    
    710
    
    
    
    711US electricity transmission
    
    
    121
    
    
    
    121UK gas distribution
    
    
    360
    
    
    
    315US electricity and gas distribution
    
    
    371
    
    
    
    356US stranded cost recoveries
    
    
    124
    
    
    
    121Wireless infrastructure
    
    
    66
    
    
    
    4Other activities
    
    
    58
    
    
    
    176Operating profit  continuing operations
    
    
    1,810
    
    
    
    1,804
  Property, plant and equipment2006
    
    
    2005£m
    
    
    £mAnalysis by business segmentUK electricity and gas transmission
    
    
    7,110
    
    
    
    6,642US electricity transmission
    
    
    1,339
    
    
    
    1,176UK gas distribution
    
    
    5,457
    
    
    
    10,479US electricity and gas distribution
    
    
    3,826
    
    
    
    3,401US stranded cost recoveries
    
    
    
    
    
    
    7Wireless infrastructure
    
    
    662
    
    
    
    681Other activities
    
    
    1,841
    
    
    
    1,87420,235
    
    
    
    24,260Analysis by geographical regionUK
    
    
    14,667
    
    
    
    19,350US
    
    
    5,219
    
    
    
    4,633Rest of the World
    
    
    349
    
    
    
    27720,235
    
    
    
    24,260
  UK electricity
    
    
    
    
    
    
    
    
    
    
    US electricity
    
    
    US strandedand gas
    
    
    US electricity
    
    
    UK gas
    
    
    and gas
    
    
    cost
    
    
    Wireless
    
    
    Othertransmission
    
    
    transmission
    
    
    distribution
    
    
    distribution
    
    
    recoveries
    
    
    infrastructure
    
    
    activities
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m1 April 2004
    
    
    756
    
    
    
    348
    
    
    
    2,990
    
    
    
    1,354
    
    
    
    
    
    
    
    83
    
    
    
    74
    
    
    
    5,605Exchange adjustments
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (58
    )Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    512
    
    
    
    
    
    
    
    5121 April 2005
    
    
    756
    
    
    
    337
    
    
    
    2,990
    
    
    
    1,310
    
    
    
    
    
    
    
    592
    
    
    
    74
    
    
    
    6,059Exchange adjustments
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    150Disposals
    
    
    
    
    
    
    
    
    
    
    (1,369
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,369
    )Adjustments to provisional fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )31 March 2006
    
    
    756
    
    
    
    366
    
    
    
    1,621
    
    
    
    1,426
    
    
    
    
    
    
    
    588
    
    
    
    74
    
    
    
    4,831




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Notes to the AccountsNote 39
    
    161
 39. National Grid Gas plc additional US GAAP disclosures




---



##### Table of Contents



162
    
    Notes to the AccountsNote 39 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 39. National Grid Gas plc additional US GAAP disclosures (continued)
  Parent
    
    
    Issuer of
    
    
    Subsidiaryguarantor
    
    
    notes
    
    
    guarantorNational
    
    
    British
    
    
    National
    
    
    
    
    
    
    
    
    
    
    NationalGrid
    
    
    Transco
    
    
    Grid Gas
    
    
    Other
    
    
    Consolidation
    
    
    Gridplc
    
    
    Finance Inc.
    
    
    plc
    
    
    subsidiaries
    
    
    adjustments
    
    
    Group£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mTurnover
    
    
    1
    
    
    
    
    
    
    
    2,261
    
    
    
    7,317
    
    
    
    (363
    )
    
    
    9,216Other operating income
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    46
    
    
    
    
    
    
    
    50Operating costsDepreciation
    
    
    
    
    
    
    
    
    
    
    (492
    )
    
    
    (525
    )
    
    
    
    
    
    
    (1,017
    )Payroll and severance costs
    
    
    
    
    
    
    
    
    
    
    (282
    )
    
    
    (651
    )
    
    
    
    
    
    
    (933
    )Purchases of electricity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,093
    )
    
    
    
    
    
    
    (2,093
    )Purchases of gas
    
    
    
    
    
    
    
    
    
    
    (148
    )
    
    
    (415
    )
    
    
    
    
    
    
    (563
    )Rates and property taxes
    
    
    
    
    
    
    
    
    
    
    (180
    )
    
    
    (265
    )
    
    
    
    
    
    
    (445
    )Electricity transmission services scheme direct costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (536
    )
    
    
    
    
    
    
    (536
    )Provision for doubtful debts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    (24
    )Other operating charges
    
    
    
    
    
    
    
    
    
    
    (977
    )
    
    
    (1,663
    )
    
    
    795
    
    
    
    (1,845
    )
    
    
    
    
    
    
    
    (2,079
    )
    
    
    (6,172
    )
    
    
    795
    
    
    
    (7,456
    )Operating profit
    
    
    1
    
    
    
    
    
    
    
    186
    
    
    
    1,191
    
    
    
    432
    
    
    
    1,810Net finance costs
    
    
    (29
    )
    
    
    
    
    
    
    (215
    )
    
    
    (507
    )
    
    
    
    
    
    
    (751
    )Dividends receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    310
    
    
    
    (310
    )
    
    
    Profit before taxation
    
    
    (28
    )
    
    
    
    
    
    
    (29
    )
    
    
    994
    
    
    
    122
    
    
    
    1,059Taxation
    
    
    42
    
    
    
    
    
    
    
    (64
    )
    
    
    (326
    )
    
    
    
    
    
    
    (348
    )Profit for the year
    
    
    14
    
    
    
    
    
    
    
    (93
    )
    
    
    668
    
    
    
    122
    
    
    
    711Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Interest in equity accounted affiliates
    
    
    697
    
    
    
    
    
    
    
    452
    
    
    
    3
    
    
    
    (1,149
    )
    
    
    3Net income from continuing operations
    
    
    711
    
    
    
    
    
    
    
    359
    
    
    
    668
    
    
    
    (1,027
    )
    
    
    711Net income from discontinued operations
    
    
    596
    
    
    
    
    
    
    
    546
    
    
    
    62
    
    
    
    (608
    )
    
    
    596Net income for the year
    
    
    1,307
    
    
    
    
    
    
    
    905
    
    
    
    730
    
    
    
    (1,635
    )
    
    
    1,307
  Parent
    
    
    Issuer of
    
    
    Subsidiaryguarantor
    
    
    notes
    
    
    guarantorNational
    
    
    British
    
    
    National
    
    
    
    
    
    
    
    
    
    
    NationalGrid
    
    
    Transco
    
    
    Grid Gas
    
    
    Other
    
    
    Consolidation
    
    
    Gridplc
    
    
    Finance Inc.
    
    
    plc
    
    
    subsidiaries
    
    
    adjustments
    
    
    Group£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mTurnover
    
    
    1
    
    
    
    
    
    
    
    2,041
    
    
    
    5,896
    
    
    
    (514
    )
    
    
    7,424Other operating income
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    37
    
    
    
    
    
    
    
    39Operating costsDepreciation
    
    
    
    
    
    
    
    
    
    
    (497
    )
    
    
    (468
    )
    
    
    
    
    
    
    (965
    )Payroll and severance costs
    
    
    (2
    )
    
    
    
    
    
    
    (276
    )
    
    
    (587
    )
    
    
    
    
    
    
    (865
    )Purchases of electricity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,678
    )
    
    
    
    
    
    
    (1,678
    )Purchases of gas
    
    
    
    
    
    
    
    
    
    
    (85
    )
    
    
    (272
    )
    
    
    
    
    
    
    (357
    )Rates and property taxes
    
    
    
    
    
    
    
    
    
    
    (160
    )
    
    
    (246
    )
    
    
    
    
    
    
    (406
    )Electricity transmission services scheme direct costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (301
    )
    
    
    
    
    
    
    (301
    )Provision for doubtful debts
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    (45
    )
    
    
    
    
    
    
    (41
    )Other operating charges
    
    
    (29
    )
    
    
    
    
    
    
    (3,276
    )
    
    
    (1,091
    )
    
    
    3,350
    
    
    
    (1,046
    )(31
    )
    
    
    
    
    
    
    (4,290
    )
    
    
    (4,688
    )
    
    
    3,350
    
    
    
    (5,659
    )Operating profit
    
    
    (30
    )
    
    
    
    
    
    
    (2,247
    )
    
    
    1,245
    
    
    
    2,836
    
    
    
    1,804Net finance costs
    
    
    123
    
    
    
    
    
    
    
    (443
    )
    
    
    (146
    )
    
    
    6
    
    
    
    (460
    )Dividends receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    (500
    )
    
    
    Profit before taxation
    
    
    93
    
    
    
    
    
    
    
    (2,690
    )
    
    
    1,599
    
    
    
    2,342
    
    
    
    1,344Taxation
    
    
    (20
    )
    
    
    
    
    
    
    (32
    )
    
    
    (249
    )
    
    
    (2
    )
    
    
    (303
    )Profit for the year
    
    
    73
    
    
    
    
    
    
    
    (2,722
    )
    
    
    1,350
    
    
    
    2,340
    
    
    
    1,041Minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Interest in equity accounted affiliates
    
    
    1,231
    
    
    
    
    
    
    
    2,930
    
    
    
    (2
    )
    
    
    (4,161
    )
    
    
    (2
    )Net income from continuing operations
    
    
    1,304
    
    
    
    
    
    
    
    208
    
    
    
    1,346
    
    
    
    (1,821
    )
    
    
    1,037Net income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    
    
    
    
    267Net income for the year
    
    
    1,304
    
    
    
    
    
    
    
    475
    
    
    
    1,346
    
    
    
    (1,821
    )
    
    
    1,304




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Notes to the AccountsNote 39 (continued)
    
    163
 39. National Grid Gas plc additional US GAAP disclosures (continued)
  Parent
    
    
    Issuer of
    
    
    Subsidiaryguarantor
    
    
    notes
    
    
    guarantorNational
    
    
    British
    
    
    National
    
    
    
    
    
    
    
    
    
    
    NationalGrid
    
    
    Transco
    
    
    Grid Gas
    
    
    Other
    
    
    Consolidation
    
    
    Gridplc
    
    
    Finance Inc.
    
    
    plc
    
    
    subsidiaries
    
    
    adjustments
    
    
    Group£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAssetsCurrent assetsCash and cash equivalents
    
    
    1,046
    
    
    
    1
    
    
    
    221
    
    
    
    212
    
    
    
    (14
    )
    
    
    1,466Marketable securities
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    349
    
    
    
    
    
    
    
    384Accounts and notes receivable
    
    
    16
    
    
    
    3
    
    
    
    171
    
    
    
    648
    
    
    
    
    
    
    
    838Inventories
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    85
    
    
    
    
    
    
    
    108Amounts owed by Group undertakings
    
    
    7,093
    
    
    
    
    
    
    
    5,722
    
    
    
    4,529
    
    
    
    (17,344
    )
    
    
    Regulatory assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    246
    
    
    
    
    
    
    
    246Prepaid expenses and other current assets
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    548
    
    
    
    
    
    
    
    612Total current assets
    
    
    8,219
    
    
    
    4
    
    
    
    6,172
    
    
    
    6,617
    
    
    
    (17,358
    )
    
    
    3,654Property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    8,983
    
    
    
    11,287
    
    
    
    (35
    )
    
    
    20,235Goodwill
    
    
    
    
    
    
    
    
    
    
    2,377
    
    
    
    2,454
    
    
    
    
    
    
    
    4,831Intangible assets
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    357
    
    
    
    
    
    
    
    390Investments
    
    
    5,209
    
    
    
    
    
    
    
    52
    
    
    
    16,323
    
    
    
    (21,424
    )
    
    
    160Amounts owed by Group undertakings
    
    
    
    
    
    
    157
    
    
    
    
    
    
    
    
    
    
    
    (157
    )
    
    
    Regulatory assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,805
    
    
    
    
    
    
    
    2,805Other receivables
    
    
    79
    
    
    
    
    
    
    
    3
    
    
    
    130
    
    
    
    
    
    
    
    212Total assets
    
    
    13,507
    
    
    
    161
    
    
    
    17,620
    
    
    
    39,973
    
    
    
    (38,974
    )
    
    
    32,287Liabilities and shareholders equityCurrent liabilitiesBank overdrafts
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    (14
    )
    
    
    3Accounts payable
    
    
    
    
    
    
    
    
    
    
    342
    
    
    
    1,755
    
    
    
    
    
    
    
    2,097Short-term borrowings
    
    
    114
    
    
    
    4
    
    
    
    723
    
    
    
    1,771
    
    
    
    
    
    
    
    2,612Accrued income taxes
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    349
    
    
    
    
    
    
    
    419Amounts owed to Group undertakings
    
    
    1,813
    
    
    
    
    
    
    
    920
    
    
    
    14,611
    
    
    
    (17,344
    )
    
    
    Other accrued liabilities
    
    
    63
    
    
    
    
    
    
    
    83
    
    
    
    96
    
    
    
    (77
    )
    
    
    165Total current liabilities
    
    
    2,004
    
    
    
    4
    
    
    
    2,138
    
    
    
    18,585
    
    
    
    (17,435
    )
    
    
    5,296Long-term borrowings
    
    
    1,741
    
    
    
    157
    
    
    
    1,958
    
    
    
    5,982
    
    
    
    
    
    
    
    9,838Amounts owed to Group undertakings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157
    
    
    
    (157
    )
    
    
    Post-retirement benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,348
    
    
    
    
    
    
    
    1,348Deferred income taxes
    
    
    15
    
    
    
    
    
    
    
    2,151
    
    
    
    1,897
    
    
    
    
    
    
    
    4,063Other liabilities
    
    
    
    
    
    
    
    
    
    
    172
    
    
    
    1,782
    
    
    
    
    
    
    
    1,954Total liabilities
    
    
    3,760
    
    
    
    161
    
    
    
    6,419
    
    
    
    29,751
    
    
    
    (17,592
    )
    
    
    22,499Minority
interest  equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    11Cumulative preference stock issued by Group undertakings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    30Shareholders equityCommon stock
    
    
    310
    
    
    
    
    
    
    
    45
    
    
    
    541
    
    
    
    (586
    )
    
    
    310Additional paid in capital
    
    
    7,837
    
    
    
    
    
    
    
    9,680
    
    
    
    8,072
    
    
    
    (17,752
    )
    
    
    7,837Other reserves
    
    
    359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    359Retained earnings
    
    
    1,920
    
    
    
    
    
    
    
    1,476
    
    
    
    1,568
    
    
    
    (3,044
    )
    
    
    1,920Accumulated comprehensive loss
    
    
    (679
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (679
    )Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shareholders equity
    
    
    9,747
    
    
    
    
    
    
    
    11,201
    
    
    
    10,181
    
    
    
    (21,382
    )
    
    
    9,747Total liabilities and shareholders equity
    
    
    13,507
    
    
    
    161
    
    
    
    17,620
    
    
    
    39,973
    
    
    
    (38,974
    )
    
    
    32,287




---



##### Table of Contents



164
    
    Notes to the AccountsNote 39 (continued)
    
   Annual Report and Accounts 2005/06National Grid
 39. National Grid Gas plc additional US GAAP disclosures (continued)
  Parent
    
    
    Issuer of
    
    
    Subsidiaryguarantor
    
    
    notes
    
    
    guarantorNational
    
    
    British
    
    
    National
    
    
    
    
    
    
    
    
    
    
    NationalGrid
    
    
    Transco
    
    
    Grid Gas
    
    
    Other
    
    
    Consolidation
    
    
    Gridplc
    
    
    Finance Inc.
    
    
    plc
    
    
    subsidiaries
    
    
    adjustments
    
    
    Group£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mAssetsCurrent assetsCash and cash equivalents
    
    
    118
    
    
    
    
    
    
    
    4
    
    
    
    163
    
    
    
    
    
    
    
    285Marketable securities
    
    
    
    
    
    
    
    
    
    
    200
    
    
    
    396
    
    
    
    (200
    )
    
    
    396Accounts and notes receivable
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    516
    
    
    
    
    
    
    
    553Inventories
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    71
    
    
    
    
    
    
    
    101Amounts owed by Group undertakings
    
    
    10,695
    
    
    
    
    
    
    
    72
    
    
    
    4,529
    
    
    
    (15,296
    )
    
    
    Regulatory assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    443
    
    
    
    
    
    
    
    443Prepaid expenses and other current assets
    
    
    2
    
    
    
    
    
    
    
    264
    
    
    
    333
    
    
    
    
    
    
    
    599Total current assets
    
    
    10,815
    
    
    
    
    
    
    
    607
    
    
    
    6,451
    
    
    
    (15,496
    )
    
    
    2,377Property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    13,950
    
    
    
    10,317
    
    
    
    (7
    )
    
    
    24,260Goodwill
    
    
    
    
    
    
    
    
    
    
    3,746
    
    
    
    2,313
    
    
    
    
    
    
    
    6,059Intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    272
    
    
    
    
    
    
    
    272Investments
    
    
    3,332
    
    
    
    
    
    
    
    1,605
    
    
    
    16,314
    
    
    
    (21,099
    )
    
    
    152Amounts owed by Group undertakings
    
    
    9
    
    
    
    178
    
    
    
    2,644
    
    
    
    840
    
    
    
    (3,671
    )
    
    
    Regulatory assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,907
    
    
    
    
    
    
    
    2,907Other receivables
    
    
    226
    
    
    
    
    
    
    
    151
    
    
    
    870
    
    
    
    
    
    
    
    1,247Total assets
    
    
    14,382
    
    
    
    178
    
    
    
    22,703
    
    
    
    40,284
    
    
    
    (40,273
    )
    
    
    37,274Liabilities and shareholders equityCurrent liabilitiesBank overdrafts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    18Accounts payable
    
    
    
    
    
    
    
    
    
    
    342
    
    
    
    769
    
    
    
    
    
    
    
    1,111Short-term borrowings
    
    
    792
    
    
    
    
    
    
    
    1,233
    
    
    
    1,204
    
    
    
    
    
    
    
    3,229Accrued income taxes
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    57
    
    
    
    
    
    
    
    79Amounts owed to Group undertakings
    
    
    1,752
    
    
    
    
    
    
    
    2,777
    
    
    
    10,695
    
    
    
    (15,224
    )
    
    
    Other accrued liabilities
    
    
    63
    
    
    
    
    
    
    
    552
    
    
    
    878
    
    
    
    (77
    )
    
    
    1,416Total current liabilities
    
    
    2,607
    
    
    
    
    
    
    
    4,926
    
    
    
    13,621
    
    
    
    (15,301
    )
    
    
    5,853Long-term borrowings
    
    
    1,168
    
    
    
    178
    
    
    
    2,811
    
    
    
    7,591
    
    
    
    (273
    )
    
    
    11,475Amounts owed to Group undertakings
    
    
    
    
    
    
    
    
    
    
    840
    
    
    
    2,831
    
    
    
    (3,671
    )
    
    
    Post-retirement benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,515
    
    
    
    
    
    
    
    1,515Deferred income taxes
    
    
    8
    
    
    
    
    
    
    
    3,421
    
    
    
    2,046
    
    
    
    
    
    
    
    5,475Other liabilities
    
    
    8
    
    
    
    
    
    
    
    158
    
    
    
    2,161
    
    
    
    
    
    
    
    2,327Total liabilities
    
    
    3,791
    
    
    
    178
    
    
    
    12,156
    
    
    
    29,765
    
    
    
    (19,245
    )
    
    
    26,645Minority interest  equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10Cumulative preference stock issued by
Group undertakings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    28Shareholders equityCommon stock
    
    
    309
    
    
    
    
    
    
    
    45
    
    
    
    2,191
    
    
    
    (2,236
    )
    
    
    309Additional paid in capital
    
    
    7,793
    
    
    
    
    
    
    
    9,680
    
    
    
    8,072
    
    
    
    (17,752
    )
    
    
    7,793Other reserves
    
    
    359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    359Retained earnings
    
    
    3,377
    
    
    
    
    
    
    
    822
    
    
    
    1,357
    
    
    
    (2,179
    )
    
    
    3,377Accumulated comprehensive loss
    
    
    (1,218
    )
    
    
    
    
    
    
    
    
    
    
    (1,110
    )
    
    
    1,110
    
    
    
    (1,218
    )Treasury stock
    
    
    (29
    )
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    29
    
    
    
    (29
    )Shareholders equity
    
    
    10,591
    
    
    
    
    
    
    
    10,547
    
    
    
    10,481
    
    
    
    (21,028
    )
    
    
    10,591Total liabilities and shareholders equity
    
    
    14,382
    
    
    
    178
    
    
    
    22,703
    
    
    
    40,284
    
    
    
    (40,273
    )
    
    
    37,274




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Notes to the AccountsNote 39 (continued)
    
    165
 39.
National Grid Gas plc additional US GAAP disclosures
(continued)  Cash flow statements  US GAAP
 Parent
    
    
    Issuer of
    
    
    Subsidiaryguarantor
    
    
    notes
    
    
    guarantorNational
    
    
    British
    
    
    National
    
    
    
    
    
    
    
    
    
    
    NationalGrid
    
    
    Transco
    
    
    Grid Gas
    
    
    Other
    
    
    Consolidation
    
    
    Gridplc
    
    
    Finance Inc.
    
    
    plc
    
    
    subsidiaries
    
    
    adjustments
    
    
    Group£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mYear ended 31 March 2006Net cash
provided by/(used in) operating activities 
continuing operations
    
    
    (9
    )
    
    
    1
    
    
    
    1,501
    
    
    
    1,586
    
    
    
    (802
    )
    
    
    2,277Net cash used in operating activities  discontinued
operations
    
    
    
    
    
    
    
    
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    (57
    )Net cash provided by/(used in) operating activities
    
    
    (9
    )
    
    
    1
    
    
    
    1,444
    
    
    
    1,586
    
    
    
    (802
    )
    
    
    2,220Net cash used in investing activities  continuing operations
    
    
    
    
    
    
    
    
    
    
    (681
    )
    
    
    (1,034
    )
    
    
    
    
    
    
    (1,715
    )Net cash provided by investing activities  discontinued
operations
    
    
    
    
    
    
    
    
    
    
    5,635
    
    
    
    
    
    
    
    
    
    
    
    5,635Net cash provided by/(used in) investing activities
    
    
    
    
    
    
    
    
    
    
    4,954
    
    
    
    (1,034
    )
    
    
    
    
    
    
    3,920Net cash (used in)/provided by financing activities
    
    
    937
    
    
    
    
    
    
    
    (6,181
    )
    
    
    (517
    )
    
    
    788
    
    
    
    (4,973
    )Increase in cash and cash equivalents in the year
    
    
    928
    
    
    
    1
    
    
    
    217
    
    
    
    35
    
    
    
    (14
    )
    
    
    1,167Year ended 31 March 2005Net cash
provided by/(used in) operating activities 
continuing operations
    
    
    1,108
    
    
    
    (1
    )
    
    
    3,594
    
    
    
    1,855
    
    
    
    (4,522
    )
    
    
    2,034Net cash provided by operating activities  discontinued
operations
    
    
    
    
    
    
    
    
    
    
    449
    
    
    
    
    
    
    
    
    
    
    
    449Net cash provided by/(used in) operating activities
    
    
    1,108
    
    
    
    (1
    )
    
    
    4,043
    
    
    
    1,855
    
    
    
    (4,522
    )
    
    
    2,483Net cash used in investing activities  continuing operations
    
    
    (273
    )
    
    
    
    
    
    
    (5,126
    )
    
    
    (1,966
    )
    
    
    4,763
    
    
    
    (2,602
    )Net cash used in investing activities  discontinued
operations
    
    
    
    
    
    
    
    
    
    
    (323
    )
    
    
    
    
    
    
    
    
    
    
    (323
    )Net cash used in investing activities
    
    
    (273
    )
    
    
    
    
    
    
    (5,449
    )
    
    
    (1,966
    )
    
    
    4,763
    
    
    
    (2,925
    )Net cash provided by/(used in) financing activities
    
    
    (723
    )
    
    
    
    
    
    
    1,336
    
    
    
    68
    
    
    
    (241
    )
    
    
    440Increase/(decrease) in cash and cash equivalents in the year
    
    
    112
    
    
    
    (1
    )
    
    
    (70
    )
    
    
    (43
    )
    
    
    
    
    
    
    (2
    )




---



##### Table of Contents



172
    
    Glossary of Terms
    
   Annual Report and Accounts 2005/06National Grid




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Definitions
    
    173
 
   American Depositary Shares or ADSs
  B shares
  Combined Code
  Corporate Centre
  FAS
  FERC
  FRS
  GAAP
  GW
 9
 GWh
  HSE
  IAS
  IFRS
  KPI
  kV
 3
 kW
 3
 kWh
  Lifetime Allowance
  LNG
  Lost time injury or LTI
  mcm
  Merger
  MW
 6
 MWh
  National Grid
  National Grid Electricity Transmission
  National Grid Gas
  National Grid Wireless
  Ofcom
  Ofgem
  Ordinary shares
 17 43
 Personal Lifetime Allowance
  SEC
  tonnes
CO 2 equivalent
  TW
 12
 TWh




---



##### Table of Contents



Annual Report and Accounts 2005/06National Grid
    
    Shareholder Information
    
    175




---



##### Table of Contents



176
    
    Shareholder Information
    
   Annual Report and Accounts 2005/06National Grid
   
 
   
 
   
   7 June 2006
    
    Ordinary shares ex-dividend9 June 2006
    
    Ordinary share 2005/06 final dividend record date12 July 2006
    
    DRIP application deadline 2005/06 final dividend31 July 2006
    
    2006 Annual General Meeting7 Aug 2006
    
    B share continuing dividend payment date8 Aug 2006
    
    Further repurchase of B shares as elected23 Aug 2006
    
    Ordinary share 2005/06 final dividend payment date16 Nov 2006
    
    2006/07 interim results29 Nov 2006
    
    Ordinary shares ex-dividend1 Dec 2006
    
    Ordinary share 2006/07 interim dividend record date8 Dec 2006
    
    DRIP application deadline 2006/07 interim dividend24 Jan 2007
    
    Ordinary share 2006/07 interim dividend payment dateMay 2007
    
    2006/07 preliminary resultsJune 2007
    
    Ordinary shares ex-dividendJune 2007
    
    Ordinary share 2006/07 final dividend record dateJuly 2007
    
    DRIP application deadline 2006/07 final dividendJuly 2007
    
    2007 Annual General MeetingAug 2007
    
    B share continuing dividend payment dateAug 2007
    
    Final repurchase of B shares as electedAug 2007
    
    Conversion of remaining B sharesAug 2007
    
    Ordinary shares 2006/07 final dividend payment date