annual report and accounts 200506
safety reliability
efficiency responsibility
  91 contents to financial statements
91 statement of directors’ responsibilities
92 independent auditors’ report
93 group accounting policies
100 group income statement
101 group balance sheet
102 group statement of recognised
income and expense
103 group cash flow statement
104 notes to the accounts
166 company accounting policies
168 company balance sheet
169 notes to the company accounts
172 glossary of terms
173 definitions
174 summary group financial information
175 shareholder information
01 highlights
02 chairman’ s statement
04 group chief executive’s review
06 business review
06 what we do
08 where we are
09 our history
10 safety
12 reliability
14 efficiency
16 responsibility
18 board of directors
20 operating and financial review
20 about national grid
30 key performance indicators
31 performance during the year
38 uk electricity and gas transmission
43 us electricity transmission
45 uk gas distribution
48 us electricity and gas distribution
51 us stranded cost recoveries
52 wireless infrastructure
54 other activities
56 financial position and 
financial management
62 accounting policies
68 corporate governance
77 directors’ report
79 directors’ remuneration report 
90 independent verifier’s report
on corporate responsibility
dear shareholder
we are delighted to report a strong financial performance for the year ended 31 march 2006
adjusted operating profit is up 3 with adjusted profit before tax and adjusted earnings per
share up 11 and 10 respectively these results reflect our continued commitment to driving 
our strategy forward together with careful investment in both our assets and the development 
of our people 
the group’s operational performance has also been strong and we continue to build on our
reputation for worldleading standards of service for reliability in energy delivery managing our
networks to the highest standards of safety is at the core of everything we do we continue to
improve our safety performance while constantly striving to be world class as a group we also
recognise the importance of acting responsibly in all that we do 
our core skills lie in the design development safe operation and maintenance of large and complex
networks we will continue to invest and focus on organic growth in our existing networks while
making appropriate acquisitions of networkrelated businesses that complement our current
portfolio indeed the two acquisitions that we are making in the us embody this strategy
we also appreciate that our success is due to the talented and diverse individuals whom we
employ to secure grow and retain the very best employees available we are committed to
investing in developing our people’s futures throughout all levels of our organisation
this is the first year that we are reporting as national grid plc following shareholder approval of
the group name change for our principal businesses our drive and determination coupled with our
substantial investment programmes emphasise our groupwide commitment to being the world’s
premier network utility by creating value from our existing businesses and identifying new
opportunities both at home and abroad
sir john parker roger urwin 
chairman group chief executive
annual report and accounts 200506
national grid highlights 01 annual report and accounts 200506
national grid
financial highlights
†
group revenue
£9193m
200405 £7382m
up 25
adjusted operating profit
£2527m
200405 £2443m
up 3
operating profit
£2439m
200405 £2142m
up 14
cash generated 
from operations
£3131m
200405 £2911m
up 8
ordinary dividends
261p
200405 237p
up 10
adjusted earnings per share
467p
200405 423p
up 10
earnings per share
428p
200405 363p
up 18
operating highlights
we agreed to acquire keyspan corporation a
northeastern us gas and electricity distribution company
for 73 billion £42 billion plus assumed debt of
approximately 45 billion £26 billion 
see pages 04 and 21
grain lng commenced commercial operations in july
2005 and phase ii expansion is under way
see pages 04 and 54
over the last 12 months a 27 reduction in lost time
injuries has been reported across the group see page 11
£200 million london infrastructure tunnel project
connecting hertfordshire to north london completed 
in september 2005 see page 14
proposed acquisition announced of southern union
company’s rhode island gas distribution business for
cash consideration of 498 million £286 million and
assumed debt of 77 million £44 million see page 21
£2 billion return of value to shareholders – 65 pence 
per share – made in august 2005 see page 37
construction of basslink complete with commercial
operations having commenced in april 2006 
see page 55
†
continuing operations
 excludes the impact of exceptional items and remeasurements
important notice
this document contains certain statements that are neither reported financial results nor
other historical information these statements are forwardlooking statements within the
meaning of section 27a of the securities act of 1933 as amended and section 21e of
the securities exchange act of 1934 as amended for a description of factors that
could affect future results reference should be made to the full ‘cautionary statement’
on the inside back cover 
highlights 02 chairman’s statement annual report and accounts 200506
national grid
chairman’s statement
i would like to thank the executive team for its strong leadership 
and all our employees for their individual contributions to our 
continued success during the past year
board
as a board we are conscious that we
oversee the activities of the business in the
interests of all our stakeholders in order to
achieve this we must ensure that we have
the very best people for the task to ensure
this we carry out a rigorous review of
board performance annually and regularly
examine senior management succession
very carefully
roger urwin group chief executive
intends to retire from national grid at the
end of this calendar year roger has led
national grid through transformational
change and delivered an outstanding track
record of success and value creation it has
been my privilege to have worked closely
with roger since the merger of national
grid group and lattice group in 2002 at
the board’s request roger agreed to defer
his retirement to enable a smooth transition 
to his successor ensuring that operating
performance momentum is maintained
together with management continuity through
this year’s transmission price review
to find a suitable replacement for roger
the nonexecutive directors undertook 
an extensive process of evaluating both
internal and external candidates we are
delighted to report that steve holliday will
succeed roger and was appointed deputy
group chief executive from the beginning
of national grid’s 200607 financial year
since joining national grid in 2001 steve
has led the uk transmission and the uk
gas distribution businesses to world
leading performance all the directors 
and i are confident of the future of the
group under steve’s leadership and wish
him every success
this year will also see john grant stepping
down from his nonexecutive directorship
john joined national grid in november 1995
he has made an outstanding contribution to
the board and our committees over the past
10
1
⁄2 years he has also been a major
contributor to all our key debates and we
shall miss his wisdom and insight
governance
the board of national grid continues to 
be committed to the highest standards 
of corporate governance it also seeks to
ensure that our values and internal processes
lead to the effective management of risk
and the equitable treatment of all our
stakeholders and employees we recognise
the significant benefit of management
leadership within a robust governance
framework that embodies strong financial
control and sound administration
in a climate where the governance
arrangements in large companies are
increasingly under scrutiny the board has
implemented a transparent approach this
is driven by our framework for responsible
business underpinned by a suite of policies
procedures public position statements and
welldefined internal control processes
employee engagement 
in may 2006 we undertook our second
groupwide employee opinion survey the
first survey was undertaken in july 2004
one initiative that resulted from the previous
survey was the promotion of ‘managers as
communicators’ to enhance dialogue and
feedback among the workforce 
following the 2004 employee opinion survey
the executive identified a number of areas
for improvement these included improving
opportunities for dialogue across the
group ensuring understanding of strategy
amongst employees managing change
better managing individual performance
effectively demonstrating our values in all
261p
ordinary dividends
467p
adjusted earnings 
per share
 excludes the impact of exceptional
items and remeasurements chairman’s statement 03 annual report and accounts 200506
national grid
that we do and continuing to progress our
inclusion and diversity policy 
the rebranding programme provided 
a platform this year to demonstrate 
our improvement in a number of these
areas and to introduce new approaches
across the group we have also refined 
our employee briefing processes and our
national employee publications for the first
time this year we have introduced a group
wide publication ‘national grid world’ to
provide employees with a broader view of
group activities
community investment 
national grid continues to support its
customers and communities through its
community investment activities the areas
that we support are closely aligned to our
business priorities education  skills
environment  energy and community
development 
both our us and uk operations have
programmes to support domestic consumers
who have difficulty with energy payments
in the us approximately 215000 national
grid customers are supported through our
low income discount rates which reduce
fuel bills by up to 25 national grid also
administers grants in the us to allow
customers to install energy efficiency
measures through the gas efficiency
programme which was initiated at the end
of 2005 lowincome customers are able 
to receive support from a fund of 5 million
in addition national grid in the us
sponsors assistance programmes run by
charitable organisations to support those
who are not able to pay their energy bills 
in the uk national grid has supported 
the fuel poor through its ‘affordable warmth
programme’ since it was established in
1999 the programme has assisted
377841 homes one of its key elements 
is the support for the warm zones concept
national grid currently supports four warm
zones working with government and social
housing providers and integrating sources
of funding to tackle the issue of fuel poverty
in a concentrated and systematic manner 
we have also continued to lead on the
‘young offender into work programme’
with the involvement now of over 50 ftse
companies we have seen 400 young
people secure a new future with a significant
reduction in the reoffending rate
dividend
the board is recommending a final dividend
of 261p per ordinary share – an increase of
10 this increase reflects our confidence
in the group’s longerterm prospects based
on this year’s good results and our strategic
commitment to invest in the growth of our
businesses
going forward we continue to target annual
increases of 7 to march 2008
outlook
given the opportunities across the group
for capital investment and revenue growth
with the continuing drive for cost
efficiencies the board continues to have 
full confidence in the group’s ability to
generate future earnings growth the 
group will also continue to maintain its
disciplined approach to both organic
growth and strategic investment
sir john parker
chairman
377841
the number of homes
that national grid 
has assisted through
its ‘affordable warmth
programme’
400
the number of young
people securing new
futures from national
grid’s ‘into work
programme’
the new name for our
principal businesses 04 group chief executive’s review annual report and accounts 200506
national grid
group chief executive’s review
our aim to be the world’s premier network utility 
and the delivery of our strategy are both at the heart 
of our daytoday activities 
strategy
as an infrastructurebased network
provider it is essential that we deliver high
standards of service and reliability as well
as outperforming our benchmarks and
regulatory targets we need to continue
managing our regulatory relationships
successfully to benefit both our customers
and shareholders our disciplined approach
to capital management remains paramount 
progress
delivering our strategy involves the
continued focus on our key strengths of
operational excellence our ability to exceed
our efficiency targets and our prudent 
use of capital investment in our current
businesses and strategic opportunities are
made only where we believe we can create
shareholder value 
our regulatory controls provide significant
incentives towards improving operational
efficiency by permitting the sharing of the
benefits of increased efficiencies between
energy users and shareholders this year
we added to national grid’s impressive
costefficiency track record when uk gas
distribution achieved its costefficiency
target one year early
investment
†
investment in our networks remains a
priority for the group total investment
reached £2 billion this year up by one third
over last year’s £15 billion we project a
further rise to around £25 billion per annum
over the next five years investment is rising
across the group with the largest increases
in our uk regulated businesses
new investment in uk electricity
transmission is being driven largely by 
asset replacement which reflects the age
and condition of the network uk gas
transmission investment is also increasing
but here it is primarily due to new
infrastructure required to meet the changing
gas supply pattern as the uk becomes a net
importer of gas this includes our largest
ever project connecting the new liquefied
natural gas lng terminals currently being
built at milford haven this will require
investment of more than £750 million over
the next two years 
our disciplined approach to capital
management is also reflected in the strategic
moves we made during the year on 1 june
2005 we completed the sales of four of
our regional gas distribution networks for 
a total cash consideration of £58 billion 
this creates what is in effect a new gas
distribution market in the uk we have
retained four of the networks which together
represent the largest of the uk gas
distribution businesses we look forward to
setting new levels of efficiency for the benefit
of both our customers and shareholders
the network sales led directly to the
£2 billion return of value to shareholders 
at 65 pence per share which we made in
august this was one of the largest returns
of value ever for a uk company
this year we also commissioned phase i 
of our lng import terminal at the isle of
grain in kent the facility has the capability
to import and process 33 million tonnes 
of lng per year construction of phase ii 
is now under way which will triple capacity
by the end of 2008 when complete our
total investment will be around £500 million
and the facility will have the capacity to
import around 13 of the current uk annual
gas demand
in february 2006 we announced the
agreed acquisition of keyspan corporation
a major us energy delivery company for
73 billion £42 billion plus assumed debt
of approximately 45 billion £26 billion 
£2527m 
adjusted operating
profit
adjusted operating profit 
by business £m
 844 uk electricity and gas transmission
 127 us electricity transmission
 483 uk gas distribution
 364 us electricity and gas distribution
 489 us stranded cost recoveries
 75 wireless infrastructure
 145 other activities
844
127
483
364
489
75
145
†
continuing operations
 excludes the impact of exceptional items and remeasurements group chief executive’s review 05 annual report and accounts 200506
national grid
it is the largest distributor of natural gas 
in the northeastern us with approximately
26 million customers in the same month
we announced the acquisition of gas
distribution assets from the southern union
company for cash consideration of
498 million £286 million and assumed
debt of 77 million £44 million
both acquisitions have an excellent
strategic operational and geographic fit
they are a natural extension of our business
and will expand the group’s growth
platform as well as creating substantial
opportunities for new cost savings 
financial performance
†
the group’s financial performance for
200506 has been strong adjusted 
profit before tax and adjusted earnings 
per share were 11 and 10 higher
respectively than last year while operating
cash flows were more than £3 billion
the performance of all our individual
businesses has been encouraging uk
transmission has entered an investmentled
growth phase during the year the group
invested £584 million in new electricity and
gas infrastructure and a further £265 million
replacing assets that were nearing the end
of their useful technical life the increased
investment as well as the writeoff of certain
assets led to an increase in depreciation
and amortisation this increase was
partially offset by successful capacity
auctions resulting in adjusted operating
profit of £844 million compared with 
£859 million last year us electricity
transmission had another good year with
adjusted operating profit of £127 million
uk gas distribution results were particularly
strong as adjusted operating profit was 
up 14 at £483 million compared with
£424 million last year this performance is
primarily due to the reduction in operating
expenditure excluding shrinkage which
was down £52 million as a result of our
‘way ahead’ programme controllable
costs have been cut by 35 in real terms
since march 2002
adjusted operating profit for us electricity
and gas distribution was down 3 at
£364 million primarily due to timing
differences related to pension charges and
commodity costs the majority of these costs
will be recovered in future periods adjusting
for these items profits were broadly flat
since weathernormalised residential
volume growth of 17 was offset by
higher depreciation and amortisation
the enlarged wireless infrastructure
business had a strong first full year as a
member of the group adjusted operating
profit was £75 million and the business
met its £18 million annualised cash 
synergy target growth from broadcast
was particularly strong reflecting the
successful launch of three new channels
we are expecting doubledigit organic
operating profit growth over the medium term
other activities contributed £145 million to
adjusted operating profit a decrease of
£7 million from 200405 national grid
metering has delivered strong performance
with adjusted operating profit up £28 million
the business made good progress in driving
operational efficiency which together with
growth in our competitive metering business
more than offset a decline in regulated
metering revenue adjusted operating profit
from national grid property at £88 million
was £14 million less than last year national
grid grain our new lng import terminal
contributed £6 million of adjusted operating
profit after coming on line in july
safety
safety is at the centre of everything we 
do over the past 12 months we have 
maintained an encouraging improvement in
our safety performance across the group
against these very significant improvements
over the past three years it is all the more
tragic that one of our colleagues was
overcome by gas and died while relaying
a gas service pipe in our uk gas
distribution business 
this very sad incident underlines the
fundamental importance of safety in all 
that we do it serves as a stark reminder 
to ensure that we continue to develop and
implement ever safer ways of working for
the protection of ourselves our colleagues
our contractors and members of the public 
outlook
the environment in which national grid
operates is ever more challenging and
complex however i am confident that 
we have a strong and clear strategy that
underpins everything we do and that will
benefit all our stakeholders our growth is
expected to be driven by new investments
new efficiencies and selected expansion 
in our current businesses 
you will have seen from sir john’s
statement that i intend to retire at the end
of 2006 it has been my privilege to lead
national grid through a series of major
changes our success is built on the talent
commitment and effort of everyone in
national grid with that continuing support
and his outstanding record leading uk
transmission and uk distribution i am
confident that steve holliday will lead 
the group to new levels of success
roger urwin 
group chief executive 06 business review
what we do
annual report and accounts 200506
national grid
what we do
national grid is dedicated to becoming the world’s premier network utility 
our core skills are in the management of large and complex networks 
our businesses are primarily concerned with energy delivery and other 
infrastructure and related services where we can exploit our core skills 
to create value
uk electricity 
and gas transmission
area of operation
we own and operate the electricity
transmission system in england and wales
this is the highvoltage network that runs
across both countries we operate but do
not own the electricity transmission system
in scotland we also own and operate the
gas transmission network in great britain
this is the high pressure gas pipeline
network that runs across the country
200506 highlights
on 1 april 2005 we became responsible 
for operating the great britain electricity
transmission system setting charges and
maintaining the charging statements for 
all transmission users in great britain
the winter of 200506 saw demand from 
the electricity transmission network in
england and wales hit a peak of 5373 gw
gigawatt this compares with the previous
year’s peak of 5329 gw
size and scope
4500 miles of overhead line 
415 miles of underground cable
337 electricity substations
4300 miles of high pressure gas pipeline 
us electricity 
transmission
area of operation 
we own and operate an electricity
transmission network of approximately 
9000 miles we are the largest electricity
transmission service provider in the
northeastern us by reference to the length
of our highvoltage transmission line we
also own and operate a 139mile direct
current transmission line that is a key section
of an interconnector between new england
and canada
200506 highlights
capital investment in the replacement
reinforcement and extension of the us
electricity transmission networks in 200506
was £91 million compared with £74 million in
200405
size and scope
8900 miles of overhead line
94 miles of underground cable
496 substations
uk gas distribution
area of operation 
our uk gas distribution business comprises
almost half of great britain’s gas distribution
system this system comprises the gas
pipelines that service homes and businesses
our gas distribution business remains the
largest in the country
we continue to operate the uk national gas
emergency number for our networks the
sold networks and other gas transporters
200506 highlights
on 1 june 2005 we successfully completed
the sales of four gas distribution networks 
for £58 billion
we achieved our 35 controllable cost
reduction target one year early
size and scope
distributes gas to 11 million homes 
and businesses
82000 miles of gas distribution pipeline business review 07
what we do
annual report and accounts 200506
national grid
us electricity and 
gas distribution
area of operation
our us electricity and gas distribution
business serves approximately 34 million
electricity customers in massachusetts 
new hampshire new york and rhode
island and around 569000 gas customers
in new york
200506 highlights
we launched the multiyear ‘reliability
enhancement programme’ that utilises 
new information technologies to identify
problem areas together with a combination
of asset replacement increased maintenance
and inspections and other actions to
improve reliability cost effectively
the nantucket island cable project was
completed at a cost of more than 40 million
to deliver electricity to the island with
enhanced capacity and reliability 
size and scope
72000 circuit miles of electricity
distribution network
8600 miles of gas pipeline forming the 
gas distribution network
wireless infrastructure
area of operation
in the uk we are the leading independent
provider of network infrastructure such 
as towers to mobile telephone operators 
and one of two providers of transmission
networks to television and radio
broadcasters our us business provides
communications infrastructure and related
network services to wireless and fixed
network operators in the northeastern us
200506 highlights
during 200506 we completed the process
of integrating the uk operations of crown
castle international corp that we acquired
for £11 billion in 200405
in november we concluded an agreement
with the bbc the ukbased public service
broadcaster to extend the provision of
analogue television until 2012 and am 
and fm radio until 2013 
size and scope
5500 active sites used for mobile
communications
750 purposebuilt broadcast towers for
radio and television broadcasting
other businesses
national grid metering provides regulated
gas metering and meterreading services on
behalf of our uk gas distribution business
onstream provides gas and electricity
metering and meterreading services to the
competitive market
national grid australia provides the 224mile
interconnector linking the electricity network
on the island of tasmania to mainland
australia – the longest such cable in the world
national grid grain is a liquefied natural gas
lng import terminal and storage facility
constructed and operated in the uk 
national grid property is responsible for 
the management of all our major occupied
property in the uk and the management
clean up and disposal of surplus properties
fulcrum connections provides gas
connections and associated design services
on behalf of gas distribution networks 
in the uk
advantica is a consultancy business providing
engineering and software services to enhance
safety and performance in the gas oil
electricity and water sectors 08 business review
where we are
annual report and accounts 200506
national grid
national grid’s main operations are based in the uk 
and the us the maps below show where we operate 
in each country 
where we are
maine 
vermont 
new  
hampshire 
new  
hampshire 
pennsylvania 
connecticut connecticut 
new  
jersey
rhode 
island
maine 
vermont 
massachusetts 
new york 
canada 
massachusetts 
new york 
canada 
pennsylvania 
new
jersey
rhode island
transmission network
us electricity 
transmission
us electricity and 
gas distribution
uk electricity 
transmission
uk gas 
distribution
uk gas 
transmission
wireless
infrastructure
theddlethorpe 
isle of grain 
easington 
bacton 
barrow 
burton  
point 
t o northern 
ireland 
t o the republic  
of ireland 
t eesside 
st fergus 
transmission system scotland 
transmission system england  wales
interconnector 
national grid 
operating area
reception terminals
transmission system
interconnector
main transmitting
stations
tofrom 
belgium 
tofrom 
france  business review 09
our history
annual report and accounts 200506
national grid
national grid’s original uk businesses were
created by the restructuring of the uk gas
industry in 1986 and the uk electricity
industry in 1990 we entered the us energy
delivery market in 2000 and substantially
expanded our uk wireless infrastructure
activities in 2004 this is a history of our
development
our history
august 1986 british gas incorporated as a 
public limited company
march 1990 electricity transmission network in england
and wales transferred to national grid on
electricity privatisation national grid owned
by 12 regional electricity companies 
december 1995 national grid listed on the 
london stock exchange 
february 1997 centrica demerged from british gas
which was renamed bg
december 1997 energis demerged from national grid 
december 1999 bg became bg group 
march 2000 new england electric system acquired by
national grid 
april 2000 eastern utilities associates acquired by
national grid 
october 2000 lattice group demerged from bg group
january 2002 niagara mohawk power corporation
merged with national grid’s us operations 
october 2002 merger of national grid and lattice group
to form national grid transco
august 2004 acquisition of uk wireless infrastructure
network from crown castle international
corp
june 2005 sales of four uk gas distribution networks
july 2005 adoption of national grid as single name 
for principal businesses
february 2006 agreements to acquire keyspan corporation
and southern union company’s gas
distribution network in rhode island
our brand
promise
our brand promise defines the way
we approach the delivery of all our
services in all the communities in
which we operate
safety
nothing we do is more important 
than the safety of our employees
contractors customers and the
general public a sustainable business
must operate to the highest safety
standards
reliability
our society depends on the reliable
transmission and distribution of
electricity and gas national grid is
focused on the highest levels of
reliability developing our networks 
and other businesses to meet the
changing patterns of supply and
demand 
efficiency
we aim to deliver worldclass
operational and financial 
performance while improving
continuously against demanding
targets for safety reliability and
customer service
responsibility
we are committed to operating our
business in a responsible way having
due regard for the impacts we have
on society in all our activities we
operate within our framework for
responsible business
safety
reliability
efficiency
responsibility 10 business review
safety
annual report and accounts 200506
national grid
safety
“i believe safety is core to the business we must all
recognise the responsibility each one of us has to
ensure our own safety the safety of our colleagues
and those who work with us or who are affected by
our operations”
steve holliday deputy group chief executive
0800 111 999
retention of the 0800 number
and rebranding
following the sales of four of 
our gas distribution networks we
are operating the four remaining
networks as one now known as
national grid gas its operating
area is shown on page 8
we continue to operate the uk
national gas emergency number
0800 111 999 for our own
network the sold networks and
other gas transporters during
200506 we handled approximately
25 million calls to the national gas
emergency number
we again exceeded our targets on
safetyrelated standards of service
for our gas distribution network 
more than 97 of ‘uncontrolled’
gas escapes where the gas leak
cannot be stopped by turning the
gas supply off at the meter were
attended within one hour more
than 98 of ‘controlled’ gas
escapes where the gas leak can
be stopped at the meter were
attended within two hours business review 11
safety
annual report and accounts 200506
national grid
road safety initiative
our national grid property site at ward
street bilston was one of the first to
incorporate a road safety initiative as part 
of the clean up programme the site is
situated close to a residential area and
within 500 yards of a primary school during
the 31week project 5800 lorry movements
were anticipated with up to 290 per week 
at the busiest times the safety initiative
included a school assembly briefing about
road safety and the dangers of construction
sites to support this we produced posters
wrote to parents and guardians produced a
driver road safety briefing pack for hauliers
thoroughly briefed the school crossing patrol
and worked closely with the local authority
the campaign minimised risk to the public
and educated both the local community and
our contractors this initiative is now being
replicated at other sites around the uk
avoiding overhead electricity cables
in the us
in 2005 national grid launched
‘dangerzone’ a comprehensive public
safety awareness campaign in the us
dangerzone consists of multilingual billboard
advertising videos brochures and posters
to alert contractors construction workers
and homeowners to the danger of contacting
overhead electrical lines with ladders
scaffolding vehicles heavy machinery and
equipment in the first year of dangerzone
contacts with overhead electricity cables
were reduced significantly we will be
expanding the campaign this year to include
underground safety and the importance 
of the public calling a freephone number 
to check on the presence of underground
lines and pipes before digging additionally
teachers in elementary and secondary
schools within national grid’s us service
territory requested and received more than
420000 student booklets and 4500 safety
videos designed to increase safety
awareness among children
golden rules for safety – uk gas 
and electricity businesses
national grid’s golden rules are a
framework to help everyone in the uk gas
and electricity businesses to be safe in
everything they do the rules apply as
much to working in offices as they do to
working on site
the golden rules are a fundamental
building block for ‘road to zero’ our 
fiveyear programme to reach the target 
of zero injuries
the golden rules do not introduce new
policies and procedures they reinforce
what we should be doing all the time
setting the standards for good safety
behaviours and continuing to develop a
culture whereby safety becomes second
nature they will also be used to identify 
areas in which we can make our working
practices and behaviours even safer
sharing best practice between the 
uk and us businesses
there is an ongoing programme of
exchange of best practice between the 
us transmission line services and uk
transmission line construction and
maintenance groups phase i was
completed when us staff visited the uk
which resulted in the implementation within
transmission line services of the double
lanyard fall protection system
the doublelanyard system ensures
enhanced fall protection by allowing at 
least one lanyard to be securely clipped 
to the structure at all times while ascending
to and descending from heights the uk
transmission groups visited the us in 
april 2006 to demonstrate various tools
equipment and procedures such as the
hook ladder and insulator replacement
techniques for possible implementation in
the us these tools and techniques enable
workers to perform their transmission
construction tasks better while reducing 
the potential risk for injury and providing 
for increased work efficiencies
metering
national grid metering and onstream 
place great importance upon safety
performance not only internally but within
our service provider network
during 200506 over 63 million jobs were
completed by the businesses with only two
employee lost time injuries and three
contractor lost time injuries both representing
over a 40 improvement on 200405 
going forward both companies will 
continue to work closely with service
providers to identify joint initiatives to
improve safety performance further
27

reduction in 
lost time injuries
safety will always be at
the centre of everything
we do during 200506
117 of our employees
received injuries that
resulted in them taking
time off work a 27
reduction compared on 
a likeforlike basis with
200405 
the employee lost time
injury frequency rate
provides a more accurate
indicator of yearonyear
performance by taking
into account the changes
in employee numbers
that result from
acquisitions and
disposals the number 
of employee lost time
injuries per 100000 hours
worked in 200506 fell to
028 a 24 improvement
when compared with the
previous year
there has also been a
significant reduction in
the number of contractor
lost time injuries across
the group falling from
146 in 200405 to 119 
in 200506 an 185
decrease  12 business review
reliability
annual report and accounts 200506
national grid
reliability enhancement
programme
the us electricity business has
launched a fiveyear programme 
to address its ageing system and
strengthen its infrastructure to
reduce the number and duration 
of outages 
national grid’s ‘reliability
enhancement programme’ utilises
data gleaned from geographic
information systems and other
technologies in which the company
has invested that enable better
identification of problem areas and
the steps necessary to fix them 
the key focus areas for the next
three years include significant
increases in vegetation
management improving protection
of the system from animal
contacts and lightning and
‘hardening’ of circuits hardening
improves the ability of a circuit 
to withstand exposure to the
elements through targeted 
replacement of deteriorated
components and equipment 
the reliability enhancement
programme also includes ongoing
condition assessment of the
distribution system as well as
increased inspection and
maintenance programmes and
substation refurbishments
expansions and rebuilds
reliability
“the reliability of our operations is borne out 
by our ability to deliver our services 24 hours 
a day 365 days a year”
mike jesanis group director business review 13
reliability
annual report and accounts 200506
national grid
nantucket island cable project
located off the massachusetts coast 
the island of nantucket is a popular travel
destination and place to own property that
over the past few years has seen growth in
demand for electricity rise dramatically
as a result national grid has installed a
second submarine cable system at a cost of
more than 40 million to deliver electricity to
the island nantucket was previously served
by a single 46 kilovolt 26mile underground
and submarine distribution cable connected
to the regional transmission grid on cape
cod this cable went into service in late
1996 replacing diesel generating units and
ushering in a new era of reliable electric
service for customers on the island 
the second cable system consists of a new
connection to the regional transmission 
grid more than five miles of underground
cable on the mainland and the island and
roughly 27 miles of submarine cable that
traverse nantucket sound at a depth of
approximately eight feet below the seabed 
improvements and upgrades
national grid has undertaken major expansion
projects at its ward hill and wachusett
substations in northeastern and central
massachusetts respectively both projects
which include the addition of new
transmission equipment and upgrades 
of existing transmission lines as well as
distribution improvements at ward hill 
will greatly enhance the reliability of new
england’s bulk transmission system they will
also improve local service for our customers
sharing best practice
uk gas distribution uses where possible
nodig pipelaying techniques to replace old
cast iron pipe with new plastic pipe one 
of these methods is known as ‘live main
insertion’ which enables the replacement 
of mains under live gas conditions and
avoids the need to dig long trenches
instead construction crews excavate small
sections at two ends of a length of cast iron
pipe and insert the plastic replacement pipe
into the iron pipe this avoids the need to 
interrupt supply to customers and reduces
construction costs with significantly less
excavation of roads driveways and 
gardens consequently this reduces
inconvenience to the public and customers
from construction work 
this process has been shared and adopted
by our colleagues in the us and received
the 2005 technology project of the year
award from the technology alliance of
central new york
last year uk gas distribution invested
£444 million in the reinforcement extension
and replacement of the uk gas distribution
network compared with £359 million in
200405 this excludes the investment in the
four regional gas distribution networks that
were sold on 1 june 2005 replacement
expenditure increased from £239 million in
200405 to £295 million in 200506 in line
with the planned increase in the longterm
cast iron mains replacement programme
agreed with the health and safety executive
this enabled us to decommission over
1710 km 1063 miles of old gas pipe 
in 200506 compared with 1458 km 
906 miles in 200405
ensuring the integrity of great
britain’s gas transmission network
operating from a newly established control
facility the gas national control centre
gncc is responsible for operating great
britain’s gas transmission network safely
reliably and efficiently managing the flow 
of gas from suppliers to customers 
we ensure that all gas entering the gas
transmission network meets the appropriate
quality standards we operate the system 
in accordance with appropriate legislation 
and the health and safety executive 
safety case while facilitating equitable and
transparent access to all market participants
gncc operates 4300 miles of high
pressure transmission pipeline across 
great britain facilitating the transportation 
of around 100 billion cubic metres of gas
per year to power stations industrial and
commercial customers and approximately
20 million domestic customers
national grid grain 
owns and operates the
liquefied natural gas
lng import facility
located at the isle of
grain in kent 
commercial operations
commenced on 15 july
2005 as at 31 march
2006 on the instruction
of its customer
bpsonatrach 19 gas
shipments had been
received and around 
161 twh terawatt hours
of gas delivered into the
gas network the facility
currently has the
capacity to import and
process 33 million
tonnes of lng per year 
the business is
incentivised to maintain
plant availability and
reliability and was
available for 99 of 
the winter period
securing an alternative
energy source 14 business review
efficiency
annual report and accounts 200506
national grid
london connection
in september 2005 national grid
completed its £200 million london
infrastructure tunnel project that
links elstree in hertfordshire to 
st john’s wood north london
this 12mile tunnel houses the
longest 400 kilovolt kv cross
linked polyethylene xlpe cable
circuit in europe xlpe cable is
insulated and cooled without the
use of oil and hence is more
environmentally friendly than
traditional oilcooled cables
this project represents a major
investment by national grid to
reinforce the transmission system
the new 400 kv circuit will enable
us to continue to meet london’s
demand for electricity by
constructing a tunnel most of the
works carried out underground
were invisible inaudible at 
ground level and minimised 
traffic disruption
since works started in march 2000 
in addition to the 12mile tunnel
seven head house buildings and
two new 400 kv substations have
been constructed at existing
national grid sites at elstree and 
st john’s wood 
efficiency
“i believe we can continue to improve our
efficiency and profitability without compromising
the reliability and integrity of our operations for
the benefit of all our stakeholders”
nick winser group director business review 15
efficiency
annual report and accounts 200506
national grid
way ahead
following completion of the ‘way ahead’
restructuring programme in uk gas
distribution a series of strategic development
initiatives has been successfully delivered in
support of our aim to be the most efficient
uk gas distribution network centralisation
of many key processes has enabled us to
place increased emphasis on safety and
efficiency while sharing best practice across
the organisation and delivering our office 
rationalisation programme having
completed the way ahead transformation
we are now concentrating on continuous
improvement techniques to refine our
existing business processes
strategic review of estate
management
throughout the year we have continued to
derive further value from the procurement 
of property services for the uk businesses
this has been achieved by aggregating our
business needs which in turn has enabled
us to leverage better value from our supply
chain in addition we continue to share best
practice across the whole portfolio thus
enabling us to maximise efficiencies in the
delivery and administration of property
services while providing optimal service
levels to occupiers
work and asset management project 
work and asset management wam aims
to reshape the way the company manages
its electricity transmission system assets in
the uk
wam is about finding a smarter way of
doing things the changes to business
processes supported by wam and the
implementation of new information systems
will enable us to be smarter in capital
planning target investment more effectively
and gain procurement efficiencies
mwork rollout – access to data from
crew cabs
‘mwork’ is national grid’s new mobile 
work management system in the us that
automates the way work and workrelated
information are scheduled received and
reported in the field mwork enhances the
process of dispatching and managing work
in the field ultimately to provide better
customer service through costefficient and
consistent work practices throughout
national grid’s us service territory 
all metering services and certain operations
field workers and supervisors who use
mwork will have computers in their vehicles
that provide realtime information online 
and right at their fingertips to help them
serve customers more efficiently and
effectively mwork provides optimised
routing assignments and all of the information
necessary to perform and report work
including allocating work orders from the
customer service and operations systems
realtime work status and job closeouts – 
all delivered via the wireless computer 
in vehicles 
national grid’s uk electricity transmission
business uses a similar version of this
technology called ‘office in the hand’ and
our uk gas distribution business uses
another version called ‘quarterback5’
automated meter reading
available to businesses via their gas
suppliers our uk national grid metering
business is now installing smart meter 
units for monthly and sixmonthly read 
gas meters the new technology logs data
remotely and uses either sms text message 
or gprs to send the meter reading data 
to the customer
without any disruption to supply a bolton
device is connected to the frequency output
of the meter and counts the number of
pulses as gas passes through it converts
them into a reading and then transmits 
the data to a digital hub using mobile
communications this accurate information
is then forwarded to gas suppliers to 
provide consumption profiles at regular
intervals benefits to commercial users
include synchronised billing for multiple
sites identification of energy wastage and
better management of cost
supporting the 2012 olympics
national grid is working to assist the
successful delivery of the london 2012
olympic games and paralympic games
through a range of activities we are working
with the london development agency and
the olympic delivery authority primarily in
the undergrounding of the power lines
crossing the olympic park site in the lower
lea valley to ensure continued security 
of electricity and gas supplies to the 
area national grid is also one of the two
infrastructure providers for the uk digital
switchover due to take place by 2012
national grid wireless 
has a strong position 
in the growing digital
television market we
hold two of the six 
uk digital terrestrial
television licences and
provide infrastructure
services to all freeview
channels including the
bbc and bskyb 
during the year the
business successfully
increased capacity on 
its multiplexes used 
for digital broadcasting
to launch three new
channels this was 
made possible by 
taking advantage of
improvements in
infrastructure technology
and maximising the value
of scarce digital capacity
this has allowed viewers
of the freeview service to
have a greater variety of
channels to choose from
digital television 16 business review
responsibility
annual report and accounts 200506
national grid
“it is important that we promote and maintain our reputation
as a company that manages its business in a responsible
way and contributes to all the societies in which we operate”
edward astle group director
environmental considerations
as part of national grid australia’s
environmental approvals for 
the basslink project and our
commitment to the environmental
integrity of the gippsland region
victoria we took responsibility 
for 280 hectares of rundown
agricultural property to return it 
to its native state 
in doing this work national grid
australia will provide a minimum 
of 30000 new large and medium
sized trees to replace the 1000
native trees removed to build the 
overhead transmission line 
the native trees selected for 
the project are being grown 
from seed collected from the
nearby mullundung forest and
nearby regions to ensure they are
similar to what would have grown
there originally in the spring 
september to november of 
2005 90 hectares of derelict
agricultural land was replanted
with seed and 50 hectares of
scrubland was protected to 
assist in natural regeneration 
the remaining 140 hectares of 
land will be planted with 40
different species in the spring 
of 2006
greening australia has been
contracted to national grid
australia to undertake this work
they have more than 20 years’
experience with replanting and
rehabilitation works national grid
australia is keen to build good
working relationships with farmers
and landowners alike
responsibility business review 17
responsibility
annual report and accounts 200506
national grid
group awarded top grade for
apprentice scheme 
national grid has been ranked among the
top 10 of uk employers for its engineering
apprenticeship scheme the company has
been awarded grade 1 – one of the few 
uk energy organisations to achieve the 
top mark – for outstanding leadership and
management of its scheme by the adult
learning inspectorate the government
body that monitors the standards of industry
education and training the grade recognises
national grid’s standards in a range of
areas including attraction and recruitment
learning plans for apprentices and contractual
requirements set out by the learning and
skills council
national grid’s apprentices are on a three
year scheme and receive practical on and 
offthejob training through our training
centre at eakring they are trained in
emergency and maintenance operations 
and in a range of electricity and gas roles
from electrical craftsperson to technician
inclusion and diversity
‘women in networks’ is a network for 
women in the uk and the us that provides
an opportunity to come together for
employees who share a common interest in
making national grid a great place to work
its aim is to allow employees to share and
explore some of the issues affecting women
in the workplace
women in networks was launched on
29 november 2005 with a live crossatlantic
link the uk event took place at the
heritage motor museum in warwick
attended by about 200 people the us held
events at four locations – buffalo albany
syracuse and westborough – at the same
time for a similar number of people deputy
group chief executive steve holliday
launched the uk event and mike jesanis
chief executive of national grid in the us
did the same in the us via a link to the four
american locations
electric and magnetic fields
electric and magnetic fields emfs can be
generated from a wide variety of sources
including our distribution and transmission
power lines and wireless infrastructure
national grid recognises that there is some
scientific evidence suggesting that certain
adverse health effects are linked to emfs 
we take these issues very seriously and
continually assess the scientific evidence 
in this area determine any implications for
the way in which we conduct our business
and explain to society what the science is
telling us
in all our operations as a minimum we
comply with emf regulations guidelines or
practices in force where we operate
responding to national emergencies
in the us national grid sends crews
whenever possible to assist other utilities
that have been hit hard by major storms that
cause largescale power outages in autumn
2005 national grid sent crews to florida in
the wake of hurricane wilma to help restore
power to 11 million customers it marked the
fifth time in a 13month period that national
grid crews were dispatched to florida and
the gulf coast 
nearly 550 national grid workers logged
tens of thousands of hours in those efforts
the edison electric institute recognised
national grid with an emergency assistance
award for its contributions following
hurricane wilma
energy delivery and climate change
our framework for responsible business
includes a commitment to make a
contribution to minimising climate change
the board agreed our longterm strategy
mapping out how we will achieve this as
well as contributing to the uk government’s
longterm emission reduction targets 
during 200506 our direct and indirect
emissions of greenhouse gases amounted 
to some 102 million tonnes co
2
equivalent
the same as 200405 if the sold networks
are excluded
compared with our verified baseline we
have already reduced our climate change
impact in the uk by 14 – achieving both
the kyoto 125 obligation in the uk 
and what would have been an 8 kyoto
obligation in the us ahead of time
national grid continues its leadership in 
the us in the area of energy efficiency 
the company’s cumulative investment in
energy efficiency programmes has topped
1 billion participating customers having
saved 21 billion
administrative staff
retraining in uk 
gas distribution
two of our female
administrative staff
recently took up new
roles as emergency gas
engineers they help to
provide 24 hour cover for
the country’s domestic
gas infrastructure and
their duties include
attending emergency 
gas leaks reported in
people’s homes 
the moves followed the
closure of the bolton
office as part of the
rationalisation of office
premises under the 
way ahead programme
see page 15 and 
the centralisation of
many administrative 
roles to hinckley and
northampton the two
assistants have been
equipped with the
required personal
protection equipment
and vehicles and are
studying for the required
qualification – snvq
core gas safety 18 board of directors annual report and accounts 200506
national grid
board of directors
01 sir john parker 
chairman
appointed october 2002 age 64 n ch
sir john parker became chairman of the
group following the merger of national grid
group plc and lattice group plc he had
been chairman of lattice group plc since its
demerger from bg group plc in 2000 he
had previously been a nonexecutive
director of bg plc from 1997 sir john’s
career has encompassed the engineering
shipbuilding and defence industries he is
chairman of the peninsular  oriental steam
navigation company a nonexecutive
director of carnival plc and carnival
corporation inc and senior nonexecutive
director of the court of the bank of england
sir john is a former chairman of rmc
group plc a former chairman and chief
executive of harland  wolff plc and
babcock international group plc and a
former nonexecutive director of brambles
industries plc gkn plc and british coal
corporation he is a fellow of the royal
academy of engineering
02 roger urwin
group chief executive
appointed november 1995 age 60 
e ch f
roger urwin became group chief executive
in october 2002 following the merger 
of national grid group plc and lattice 
group plc prior to the merger he had been
appointed group chief executive of 
national grid group plc in april 2001 
where he played a key role in establishing
the company’s international strategy and 
its successful expansion into the us he
joined the group in 1995 initially as ceo 
of the company’s uk transmission business
previously roger was managing director
and chief executive of london electricity
from 1990 to 1995 he is also a non
executive director of utilico investment trust
plc and a fellow of the royal academy of
engineering he has announced his intention
to retire from national grid at the end of
2006
03 steve holliday 
deputy group chief executive
appointed march 2001 age 49 e
steve holliday joined national grid group plc
as group director uk and europe in march
2001 immediately following the merger of
national grid group plc and lattice group
plc in october 2002 he was responsible for
the group’s electricity and gas transmission
businesses he was appointed as group
director responsible for uk gas distribution
and business services in april 2003 he was
formerly an executive director of british
borneo oil and gas previously he spent 
19 years with the exxon group where he
held senior positions in the international gas
business and managed major operational
areas such as refining and shipping steve’s
international experience includes a fouryear
spell in the us he has also developed
business opportunities in countries as diverse
as china australia japan brazil and the
former soviet union he is a nonexecutive
director of marks and spencer group plc
following the announcement of roger urwin’s
retirement he was appointed group chief
executive designate becoming deputy
group chief executive on 1 april 2006
04 steve lucas
group finance director
appointed october 2002 age 52 e f
steve lucas joined the board following the
merger of national grid group plc and
lattice group plc in october 2002 he had
been executive director finance of lattice
group plc since its demerger from bg
group plc in 2000 previously he was
treasurer of bg group plc having joined
british gas plc in 1994 a chartered
accountant he worked in private practice 
in the city of london until 1983 he then
joined shell international petroleum
company occupying a number of finance
management positions and treasury roles
including seven years in africa and the far
east steve is also a nonexecutive director
of compass group plc
05 nick winser
group director
appointed april 2003 age 45 e
nick winser joined the board in april 2003
as group director responsible for uk and
us transmission operations he was
previously chief operating officer of us
transmission for national grid transco plc
he joined national grid company plc in
1993 becoming director of engineering in
2001 prior to this he had been with
powergen since 1991 as principal negotiator
on commercial matters having joined the
central electricity generating board in 1983
where he served in a variety of technical
engineering roles
06 mike jesanis
group director
appointed july 2004 age 49 e
mike jesanis joined the board in july 2004
becoming group director responsible for 
us distribution he became president of
national grid usa in november 2003
having been its chief operating officer and
responsible for daytoday operations since
january 2001 he was chief financial officer
of national grid usa and new england
electric system nees between march
1998 and january 2001 having joined
nees in july 1983 mike is also chairman 
of the board of trustees of becker college
worcester massachusetts and a member
of the board of trustees of clarkson
university potsdam new york he is a
director of the massachusetts taxpayers
foundation jobs for massachusetts inc
and of the boston chamber of commerce
07 edward astle
group director
appointed september 2001 age 52 e
edward astle joined the board as group
director telecommunications in september
2001 and is now group director responsible
for nonregulated business and leads the
group’s business development he was
managing director of bicc communications
from 1997 to 1999 and between 1989 
and 1997 he held a variety of positions with
cable  wireless he was regional director
europe ceo of its global networks and
marine divisions and in 1995 joined the
cable  wireless board as executive
director global businesses
01 02 03 04
05 06 07
committee membership
a audit
e executive
f finance
n nominations
r remuneration
rr risk  responsibility
ch denotes committee chairman
  board of directors 19 annual report and accounts 200506
national grid
08 ken harvey
nonexecutive director and
senior independent director
appointed october 2002 age 65 
n r rr
ken harvey joined the board following the
merger of national grid group plc and
lattice group plc having been appointed 
to the lattice group plc board in september
2000 he was appointed senior independent
director in october 2004 he is chairman 
of pennon group plc a chartered engineer
ken is a former chairman and chief
executive of norweb plc and a former
chairman of comax holdings ltd the
intercare group plc and beaufort
international group plc
09 john allan
nonexecutive director 
appointed may 2005 age 57 
a r ch
john allan was appointed to the board in
may 2005 he is a member of the
management board of deutsche post
having been appointed following its
acquisition of exel plc in december 2005
where he had been chief executive since
september 1994 john started his career 
in marketing at lever brothers moving to
bristolmyers company limited and then
fine fare limited he joined bet plc in 1985
and was appointed to the board in 1987 he
is a member of the cbi’s presidents’
committee the international advisory
council of the singapore economic
development board and the university of
edinburgh campaign board john was
previously a nonexecutive director of phs
group plc wolseley plc hamleys plc and
connell plc
10 john grant
nonexecutive director 
appointed november 1995 age 60 
a n r
john grant was appointed a director of the
group in november 1995 he is chairman of
torotrak plc and hasgo group limited and a
nonexecutive director of corac group plc
and the royal automobile club limited 
he was chief executive of ascot plc from
1997 to 2000 and finance director of lucas
industries plc from 1992 to 1996 he
previously held a number of senior executive
positions during 25 years with ford motor
company john will retire from national grid
with effect from the close of the 2006 annual
general meeting
11 paul joskow
nonexecutive director
appointed march 2000 age 58 
f ch n
paul joskow was appointed a director 
of the group in march 2000 following the
acquisition of new england electric system
nees he served as a director of nees
between 1987 and its acquisition he is a
professor of economics and management at
the massachusetts institute of technology
mit a director of the mit center for energy
and environmental policy research a
research associate of the us national
bureau of economic research and a fellow
of the econometric society and of the
american academy of arts and sciences
paul is also an independent trustee of the
putnam mutual funds and an independent
nonexecutive director of transcanada 
12 stephen pettit
nonexecutive director
appointed october 2002 age 55 
f  r rr ch
stephen pettit was appointed to the board
following the merger of national grid group
plc and lattice group plc having been
appointed to the lattice group plc board 
in 2001 he is a nonexecutive director of
national air traffic services halma plc and 
is chairman of rok property solutions plc
stephen is also a member of bt plc’s
equality of access board he is a former
executive director of cable  wireless plc
before joining cable  wireless he was
chief executive petrochemicals at british
petroleum stephen was previously a 
nonexecutive director of kbc advanced
technologies plc and norwood systems
limited
13 maria richter
nonexecutive director 
appointed october 2003 age 51 
a f  rr
maria richter was appointed to the board in
october 2003 maria worked for morgan
stanley between 1993 and 2002 most
recently as managing director of its
corporate finance retail group prior to this
she was managing director of investment
banking in the southern cone of latin
america and executive director and head
of independent power and structured
finance business previous appointments
include vice president of independent power
group for salomon brothers and vice
president of prudential capital corporation
and power funding associates maria is a
director of pro mujer international an
international microfinance organisation 
and was until april 2006 a director of the
western electricity coordinating council
14 george rose
nonexecutive director
appointed october 2002 age 54 
a ch n r
george rose was appointed to the board
following the merger of national grid group
plc and lattice group plc having been
appointed to the lattice group plc board in
september 2000 he has been finance
director of bae systems plc formerly british
aerospace plc since 1998 having joined the
company in 1992 he is a member of the
shareholder committee of airbus sas and is
also a nonexecutive director of saab ab
and a member of the financial reporting
review panel george is also a former 
nonexecutive director of orange plc

helen mahy
group company secretary 
and general counsel 
appointed october 2002 age 45 e
helen mahy was appointed as group
company secretary following the merger of
national grid group plc and lattice group
plc having been company secretary at
lattice group plc since march 2002 she
was additionally appointed as general
counsel from october 2003 previously she
was group general counsel and company
secretary at babcock international group
plc helen was appointed a nonexecutive
director of aga foodservice group plc in
march 2003 she is a barrister member of
the bar council and an associate of the
chartered insurance institute 
08
12
09 11
13
10
14
 operating and financial review
this operating and financial review describes the main trends
and factors underlying the development performance and
position of national grid during the year ended 31 march 2006 as
well as those likely to affect our future development performance
and position it has been prepared in line with the guidance
provided in the reporting statement on the operating and
financial review issued by the uk accounting standards board
in january 2006 
about national grid
principal operations
our principal operations are in regulated networks and comprise
the transmission and distribution of electricity and gas and the
provision of network infrastructure to the broadcast and
telecommunications industries based mainly in the uk and the
us we also have interests in related markets including metering
services liquefied natural gas lng facilities and property in the
uk as well as electricity interconnectors in the uk and australia
history
national grid originated from the restructurings of the uk gas
industry in 1986 and the uk electricity industry in 1990 we
entered the us electricity delivery market in 2000 in new england
and expanded into new york in 2002 we substantially increased
our uk wireless infrastructure activities in 2004 in 2005 following
the sales of four uk regional gas distribution networks we adopted
national grid as a single name for all our principal businesses 
in 2006 we announced agreements to expand our activities in
the us with the proposed acquisitions of keyspan corporation
and of the rhode island gas distribution network owned by
southern union company
key milestones
1986 british gas incorporated as a public limited company
1990 electricity transmission network in england and wales
transferred to national grid on electricity privatisation 
1995 national grid listed on the london stock exchange
1997 british gas renamed bg demerged centrica
1997 national grid demerged energis
2000 new england electric system and eastern utilities associates
acquired by national grid 
2000 lattice group demerged from bg group and listed separately
2002 niagara mohawk power corporation merged with national
grid’s us operations
2002 merger of national grid and lattice group to form national
grid transco
2004 acquisition of uk wireless infrastructure network from crown
castle international corp
2005 sales of four uk regional gas distribution networks
2005 adoption of national grid as a single name for our 
principal businesses
2006 agreements to acquire keyspan corporation and southern
union company’s rhode island gas distribution network
the operating and financial review consists of the following
sections
section page section page
about national grid 20 us electricity and 
gas distribution 48
key performance indicators 30 us stranded cost 
recoveries 51
performance during the year 31 wireless infrastructure 52
uk electricity and gas other activities 54
transmission 38
us electricity transmission 43 financial position and
financial management 56
uk gas distribution 45 accounting policies 62
businesses and segments
the performances of our businesses are reported by segment
reflecting the management responsibilities and economic
characteristics of each activity our principal businesses and
segments are as follows
business segment description of principal activities
transmission uk electricity owner and operator of the high
and gas voltage electricity transmission 
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 owner and operator of highvoltage 
transmission electricity transmission networks in
the northeastern us
uk uk gas the distribution of gas within 
distribution distribution england as the owner and operator
of four of the uk’s eight gas
distribution networks
us us electricity the delivery of electricity and gas 
distribution and gas in new york and electricity in 
distribution new england
us stranded recovery through charges to
cost recoveries electricity customers of costs 
mainly incurred prior to divestiture of
electricity generation
wireless wireless provision of structures and 
infrastructure equipment to serve the broadcast
and mobile telecommunications
industries principally in the uk but
also in the us
other other other businesses including metering 
businesses activities services property management 
and corporate an lng gas import terminal in the 
activities uk and an electricity interconnector
business in australia as well as
corporate activities such as
business development
annual report and accounts 200506
national grid
20 operating and financial review
about national grid acquisitions and disposals
sales of four regional gas distribution networks
in june 2005 we sold four of our regional gas distribution
networks comprising approximately half of the gas distribution
network in great britain for net cash proceeds of £58 billion
the effect of these sales has been to reduce by about half the
size of our uk gas distribution segment which now comprises
four retained networks
the sales have resulted in a significant restructuring of the gas
distribution market in the uk so that four different owners are
now responsible for their respective regional networks
proposed acquisitions in the northeastern us
we have entered into two agreements to expand significantly our
operations in the northeastern us these comprise the proposed
acquisition of keyspan corporation for 73 billion £42 billion
together with the assumption of approximately 45 billion £26
billion of debt and the proposed acquisition from southern union
company of its rhode island gas distribution network for cash
consideration of 498 million £286 million and assumed debt 
of 77 million £44 million
keyspan is the fifth largest distributor of natural gas in the us
and the largest in the northeastern us serving 26 million
customers in new york massachusetts and new hampshire
keyspan also operates an electricity transmission and distribution
network serving 11 million customers in new york under a long
term contract with the long island power authority keyspan’s
other interests include 67 gw of generation capacity together
with a small portfolio of nonregulated energyrelated services
and strategic investments in certain gas pipeline storage and
lng assets 
the rhode island gas distribution business serves approximately
245000 customers through a distribution network of over 3000
miles of mains the network substantially overlaps our existing
electricity distribution service area in rhode island the rates for
the rhode island gas distribution business are set by the same
state regulators that set our electricity distribution rates in rhode
island both businesses have a history of performing under
incentivebased rate plans which provide substantial benefits 
to customers and shareholders
by combining our current us operations with those of keyspan
and the rhode island gas distribution business we expect to
become the third largest gas delivery business in the us 
these proposed acquisitions represent an excellent fit with our
strategy building on our core skills of owning and operating
network infrastructure and they are expected to provide
additional opportunities for growth
the proposed acquisition of keyspan is subject to approvals from
federal and state regulatory authorities our shareholders and
keyspan’s shareholders and is planned to be completed in early
2007 the proposed acquisition of the rhode island gas
distribution network is subject to approval by state regulatory
authorities and is expected to complete this summer
other acquisitions and disposals
there were no significant acquisitions completed during the year
ended 31 march 2006 
during the year we sold our interest in a joint venture energis
polska net proceeds from this disposal amounted to £8 million
in addition on 22 february 2006 we entered into an agreement
to sell our 385 interest in copperbelt energy corporation in
zambia this sale is subject to governmental and regulatory
consent by the zambian authorities
in 200405 we acquired the uk operations of crown castle
international corp for cash consideration of £1138 million 
and a telecommunications tower operation in the us for cash
consideration of £13 million also in 200405 we disposed of 
our investment in a joint venture citelec giving rise to a gain 
of £13 million
maine 
vermont 
new  
hampshire 
pennsylvania
connecticut 
new  
jersey
rhode 
island
massachusetts 
new york 
canada 
annual report and accounts 200506
national grid
operating and financial review 21
about national grid 22 operating and financial review
about national grid
annual report and accounts 200506
national grid
external market environment
the principal markets in which we operate are the energy
markets in the uk and the northeastern us and the wireless
infrastructure market in the uk
energy markets in the uk and the us
the generation and supply of electricity and gas in the uk and
the northeastern us are competitive in that consumers can
contract with different suppliers to obtain the energy they need
those suppliers are then responsible for sourcing that energy
from electricity generators or from gas producers as appropriate
as well as arranging for that energy to be delivered through
physical delivery networks 
these networks including the ones we operate are monopolies
in their local areas as for the majority of consumers there are no
methods of receiving energy other than through those networks
in the uk both domestic and commercial consumers contract
with energy suppliers which obtain the energy required from
electricity generators and gas producers energy is transported
through electricity or gas transmission networks to regional
electricity or gas distribution networks that then deliver that
energy to consumers 
we are the owner and operator of the electricity transmission
network in england and wales operator but not owner of 
the two electricity transmission networks in scotland and owner
and operator of the gas transmission network and of four of the
eight regional gas distribution networks in great britain
in the northeastern us consumers can purchase their energy
through independent energy suppliers but the majority still
purchase electricity or gas from their local electricity or gas
distribution business electricity is transported either direct into
local electricity distribution networks or via electricity transmission
networks while gas is produced primarily in the gulf of mexico
and canada and transported through interstate gas transmission
pipelines into local gas distribution networks regional transmission
organisations or independent system operators have the
responsibility for balancing electricity supply with demand gas
distribution networks including our new york gas distribution
business are each responsible for balancing gas supply with
demand in their distribution area
our us distribution businesses promote competition by
encouraging consumers to purchase their energy from
independent suppliers 
energy market developments
the uk and us are entering a period of changing supply patterns
for both gas and electricity as more reliance is placed on
imported gas and on new sources of electricity generation
including renewables in the uk the decline in uk continental
shelf gas reserves and the uk government’s emphasis on
combating climate change and encouragement of renewable
generation mean that we continue to see a trend toward greater
use of imported gas for both consumption and use in power
generation in the us there is also likely to be an increased
reliance on imported gas and significant interest in the
development of renewable power generation
these changes will have an impact on our electricity and gas
transmission and gas distribution businesses in particular
significant investment is likely to be required in our uk gas and
electricity transmission and distribution networks to link new
power plants and gas import facilities with domestic business
and industrial consumers
wireless infrastructure market
the broadcast industry is supported by infrastructure for the
transmission of terrestrial satellite cable and broadband signals
national grid wireless is one of the two providers of infrastructure
for terrestrial television and radio in the uk 
mobile infrastructure is provided by mobile operators and
independent wireless infrastructure providers of which national
grid wireless is the leading independent provider in the uk
electricity generators
other electricity 
transmission networks us electricity transmission
gas transmission 
pipelines
gas producers
other electricity 
distribution networks
other gas distribution
networks
us electricity and 
gas distribution
commercial and domestic consumers
electricity generators
commercial and domestic consumers
gas producers
uk electricity and gas transmission
regional electricity 
distribution networks uk gas distribution
other gas 
distribution networks regulatory environment
as a result of our position in and importance to the economies
we serve our electricity and gas transmission and distribution
businesses are subject to uk european union and us federal
and state laws and regulations
in the uk these businesses are regulated under the gas act
1986 and electricity act 1989 by the office of gas and electricity
markets ofgem ofgem operates under the direction and
governance of the gas and electricity markets authority and has
established price control mechanisms that restrict the amount of
revenue that can be earned by regulated businesses typically
covering fiveyear price control periods
in the us our public utilities are regulated by utility commissions 
in the states in which we operate and by the federal energy
regulatory commission ferc these us regulators set service
standards and determine allowable levels of return we were also
regulated under the public utility holding company act 1935 until
its repeal became effective on 8 february 2006
certain of the uk activities of our wireless business are subject to
regulation by the office of communications ofcom in particular
our television and radio transmission infrastructure networks we
operate two digital multiplexes under the terms of licences
granted by ofcom ofcom is also responsible for regulating the
broadcast and telecommunications industries
our businesses are covered by safety legislation which is
enforced by the health and safety executive hse in the uk and
federal and state safety regulators in the us our uk gas
operations work under a permissioning regime whereby our
organisation processes and procedures are documented in
safety cases that are subject to acceptance by the hse
our securities are listed on the london stock exchange and on 
the new york stock exchange we are regulated by the financial
services authority in the uk and by the securities and exchange
commission in the us
more information on the regulatory environment in which we operate
is provided in the segmental discussions on pages 38 to 55
regulatory developments
regulatory developments in the uk during the year included
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
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
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
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 fiveyear price control
review period will commence on 1 april 2008 and
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
regulatory developments in the us during the year included the
enactment of the energy policy act 2005 which is not expected
to have any immediate effect on the group’s business but certain
provisions including transmission pricing incentives and the
creation of national interest electric transmission corridors 
may benefit our longterm strategy 
the repeal of the public utility holding company act 1935
removed certain regulations imposed on us by the securities and
exchange commission and replaced them with new regulations
by the ferc
price controls and rate plans
our principal price controls and rate plans relate to electricity and
gas transmission and gas distribution in the uk and electricity
distribution in the us they can be summarised as follows
uk electricity transmission 
us 
electricity 
distribution 
uk gas transmission 
uk gas distribution 
massachusetts 
rhode island 
new york 
200102
200203
200304
200405
200506
200607
200708
200809
200910
201011
201112
201213
future price 
control 
future price 
control 
future price 
control 
extension
extension
current rate plan until 2019
current rate plan until 2019
current rate plan
current price 
control 
current price 
control 
current price 
control 
annual report and accounts 200506
national grid
operating and financial review 23
about national grid business drivers
our principal activities include the operation of highly complex
energy and other infrastructure networks as a consequence there
are many factors that influence the financial returns we obtain we
consider the following to be our main business drivers
price controls the prices we charge for use of our energy 
and rate plans transmission and distribution networks are
determined in accordance with regulatorapproved
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 
multiyear revenues in our wireless infrastructure business and
contractual several of our other businesses including metering 
arrangements services our lng import terminal in the uk and our
electricity interconnector in australia are determined
by contractual arrangements usually longterm and
with ‘blue chip’ customers
safety and our ability to operate safely and reliably is very 
reliability 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 capital investment is a significant driver for organic 
investment 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 we consider investing in energy and other network 
and disposals 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 longterm return we
can obtain ourselves or where a business does not 
fit with our longterm 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
a number of other factors also affect our financial performance
but are less significant than the principal business drivers above
or are mitigated by the way our operations are structured
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 overrecovery
against our allowable revenue with a corresponding
increase or decrease in revenue in future periods
exchange the reported results cash flows and financial position
rates 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 we are allowed to recover certain costs including 
and other commodity costs in the us and other direct costs 
passthrough in both the uk and the us through charges to 
costs customers the timing of recovery of these costs can
vary between financial periods leading to an under 
or overrecovery 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
annual report and accounts 200506
national grid
24 operating and financial review
about national grid objectives and strategy
our principal objective is to create value for our shareholders
through our goal of being the world’s premier network utility
to achieve our principal objective we have committed ourselves
to operating our businesses to the highest standards of safety
reliability and efficiency and to acting in a responsible way that
contributes to society we have established operating objectives
in the following areas
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 workrelated
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
we use our skills and assets to create value for shareholders
through investing for growth in our existing businesses investing
in energy and selected other network assets and businesses and
improving the efficiency of our existing and acquired businesses
to achieve our objectives our strategy is to focus on the
ownership and operation of large complex networks by
using our operational expertise to outperform benchmarks
and regulatory targets
managing regulatory relationships to benefit customers 
and shareholders and
using a disciplined approach to investment 
to maximise returns
key performance indicators
we measure the achievement of our objectives through the 
use of qualitative assessments and through the monitoring of
quantitative indicators termed key performance indicators kpis
in line with our operating objectives we use both financial and
nonfinancial kpis
kpis are used as our primary measures of whether we have
achieved our principal operating objectives the scale and size 
of our operations means that we use many other detailed
performance measures in addition to the kpis listed below 
we use qualitative assessments to judge progress against our
objectives in areas where numerical measures are less relevant
value objective key performance indicator
safety zero public members of the public injured as a 
injuries direct result of our operations 
zero work employee lost time injury 
related injuries frequency rate
reduce risks standards of service for responding 
from transporting to gas escapes
gas
length of uk gas distribution 
mains replaced 
zero workrelated sickness absence rate
ill health
reliability operational businessspecific reliability and 
reliability service quality measures
efficiency operate adjusted operating profit
efficiently
achieve real reduction of 35 in 
uk gas distribution controllable 
costs by 31 march 2007
responsibility reduce number of significant direct 
environmental environmental incidents
impact greenhouse gas emissions per £m 
of revenue
total amount of fines from citations
and prosecutions
employ an percentage of female employees
inclusive and 
percentage of ethnic 
diverse work 
minority employees
force
shareholder improve adjusted earnings per share
value financial 
operating cash flows
performance
total shareholder return
invest for capital expenditure
future growth
investments 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
details of kpis for the year ended 31 march 2006 are included on
page 30 while segmentspecific kpis are reflected in the business
segment sections on pages 38 to 55
shareholder value
regulatory
relationships
operational
expertise
investment
safety reliability efficiency responsibility
annual report and accounts 200506
national grid
operating and financial review 25
about national grid resources
our key strengths and resources include
the skills and expertise of our people
our processes and techniques for managing large complex
networks
our relationships with customers regulators and other
stakeholders
our ability to work together to achieve our objectives 
the control andor ownership of the assets used in our
networks and
our financial position together with the committed and
uncommitted borrowing facilities available to us
our strategy for developing our people is discussed below the
principal assets of each of our businesses are described in the
segmental sections of this operating and financial review on
pages 38 to 55 and our financial position is described on pages
56 to 61
developing our people
we continue to invest in the development of our people 
throughout national grid people development forums provide the
opportunity for management teams to discuss the performance
and potential of their teams this allows for the identification of
individual development needs and business skill requirements 
our uk engineering foundation programme has recently been
launched and is designed to facilitate the entrance training 
and progression of young people into key engineering roles
initially with uk electricity transmission we intend to provide
opportunities for the young people on this programme to obtain 
a new vocational qualification being an employerled uk
governmentbacked foundation degree
a new career development programme was launched in april 2005
for operations engineers to develop their skills as line managers
in addition our flagship leadership development programme is to
be extended to middle management in 2006 further development
is under way through an emerging leaders programme
our recruitment processes for apprentices graduates and university
placements in the uk and the intern programme in the us
continue to build on the previous successes of developing our
talent from within and addressing the decline in the number 
of graduates in technical engineering subjects 
employee engagement
following our first groupwide employee opinion survey in 2004
we identified a number of areas for improvement these included
improving opportunities for dialogue across the group
developing a better understanding of group strategy among
employees managing change better improving performance
management demonstrating our values in all that we do and
continuing to progress inclusion and diversity
we have established a core set of three behavioural values that
apply across all our operations respect integrity and ownership
across the group we have also refined our employee briefing
processes and publications we have relaunched our group uk
and us intranet sites and our uk and us employee newspapers
we have also introduced a groupwide publication ‘national grid
world’ to provide employees with a broader view of group activities
inclusion and diversity
in january 2005 we launched our inclusion and diversity
programme setting out how we intend to develop and operate
our business in a way that results in a more inclusive and diverse
culture we aim to ensure that our employees regardless of race
gender nationality age disability sexual orientation religion or
background have the opportunity to develop to their full potential
we have taken a number of steps to make this vision a reality 
we have established a number of employee groups including
networks for women and ethnic minority employees we hope
these will help us to identify and remove any barriers that exist 
for these groups of employees in particular we are committed 
to increasing the number of women in senior management 
from the existing 183 through a variety of measures including
mentoring development programmes and our continued
commitment to flexible working
employee development is extremely important to us and we 
have begun a programme of training for all our managers about
the knowledge and behaviour required to manage a diverse
workforce such that all our employees feel included and able 
to contribute effectively
capital investment
the group’s total annual capital expenditure is expected to be
approximately £25 billion per year over the next five years and
was £2062 million in 200506 in our continuing businesses
compared with £1518 million in 200405
this reflects changing energy infrastructure requirements as the
uk’s dependency on gas imports and its focus on renewable
energy sources both increase there is also a need to increase
the rate of asset replacement in uk electricity transmission as the
condition of assets built in the 1960s and 1970s necessitates
their replacement 
investment is being made in new england to deliver the 
regional system plan and in new york to address asset
replacement requirements and to maintain the safety 
and reliability of the network
isle of grain
in july 2005 commercial operations for the first phase of the isle
of grain lng import terminal commenced and work on phase ii
is now under way cumulative investment has now reached
£249 million out of an expected £500 million total spend all of
which is underpinned by longterm contracts signed with bp
centrica gaz de france and sonatrach market appetite for
further expansion at the isle of grain is currently being explored
annual report and accounts 200506
national grid
26 operating and financial review
about national grid national grid australia
we completed the construction of the basslink project in australia
an electricity interconnector linking victoria and tasmania during
the year and it became operational in april 2006
basslink can provide up to 600 mw of hydro electricity to
mainland australia and over 300 mw of electricity into tasmania
digital switchover
in our wireless infrastructure business we expect to invest 
over £200 million in new common digital television broadcast
infrastructure over the next six years to 2012 and around 
£50 million on our own digital broadcast transmission assets 
safety
our approach to safety and occupational health is set out in our
group vision for safety this is underpinned by groupwide
policies and strategy statements that are available on our
website our objective is to achieve zero workrelated injuries
zero workrelated ill health and zero injuries to the public while
this objective is demanding we believe it is achievable
this year we have reported a 27 reduction in the number of 
lost time injuries to our employees and an 185 reduction in lost
time injuries to our contractors we continue to develop initiatives
and safety awareness campaigns to protect both the public and
our employees and contractors who are affected by or involved
with our operations we also continue to exceed our safety
standards for uncontrolled and controlled gas escapes in the 
uk and to deliver our increased longterm iron mains replacement
programme as agreed with the health and safety executive 
overall our aim is to develop a culture in which acting safely
becomes second nature
reliability
our approach to maintaining and improving reliability involves
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 
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 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
efficiency
we continually review our operations to identify opportunities 
to improve the productivity of our assets and our people and 
to identify areas in which we can reduce costs or restrict cost
increases planning ahead is essential in our approach to
maintaining and improving efficiency for example in november
2005 we decided to establish a multifunction shared services
organisation for our businesses in the uk comprising supply
chain management and significant parts of human resources and
finance this is similar in nature to our existing shared services
organisation in the us
responsibility
our framework for responsible business defines the principles
by which we manage our business and our daytoday dealings
with our customers employees shareholders suppliers and local
communities it is underpinned by groupwide policies and
position statements that are also available on our website
we believe strong corporate governance is essential to operating
responsibly and achieving our goals we describe our approach
to corporate governance on pages 68 to 76
ethics
we have set out the ethical standards we expect each employee
to meet while conducting business for the group in our standards
of conduct applicable to our us employees and our code of
business conduct applicable to all our uk and other employees
allegations of misconduct are investigated and reported to our
ethics office in the us or to our business conduct committee in
the uk we aim to ensure that reported breaches are thoroughly
and promptly investigated and where appropriate acted upon
and any necessary improvements implemented the board risk
 responsibility committee receives a twiceyearly report on the
number and type of inquiries and allegations 
environmental management 
we are committed to a yearbyyear improvement in our
environmental performance our groupwide environmental policy
sets out the key areas we are addressing and we continue to
implement environmental management systems certified to the
international standard iso 14001 to help us deliver improvements
in these areas 
approximately 86 of our employees work to systems certified to
iso 14001 later this year national grid wireless will become the
latest of our businesses to seek external certification
annual report and accounts 200506
national grid
operating and financial review 27
about national grid climate change
we are committed to making a contribution towards minimising
climate change and our public position statement energy delivery
and climate change sets out how we propose to address the
issue of greenhouse gas emissions in particular following its
publication we established a groupwide climate change strategy
group which has established a longterm strategy that maps 
out how we will achieve a 60 reduction in emissions well in
advance of the target date of 2050 set by the uk government 
we have already achieved the uk kyoto obligation and what
would have been the us obligation we are seeking means 
of reducing our impact further taking into account the planned
acquisitions described on page 21
contaminated land
we manage a portfolio of contaminated land including former
manufactured gas plants industrial landfills former gas holders
and older substations on our distribution and transmission
networks sites can sometimes have a complex mix of
contamination dating back over 100 years
in the uk the main focus of our remediation programme is on
managing the environmental risk and returning land to beneficial
use while in the us our highest priority sites for remediation are
those with the highest environmental risk profile and those we are
required to remediate by regulatory agencies our goal is to return
these sites to productive public or private use
electric and magnetic fields emfs
national grid recognises that there is some scientific evidence
suggesting certain adverse health effects are linked to electric
and magnetic fields there is also evidence linking an increased
risk of certain diseases to proximity to powerlines though the
cause of this is not clear as a consequence there is public
concern and we take these issues very seriously the balance 
of evidence remains against both powerfrequency and radio
frequency electric and magnetic fields causing ill health
the world health organization has classified powerfrequency
magnetic fields as ‘possibly’ carcinogenic our recently updated
public position statement on emfs helps set the framework
within which we continually assess the scientific evidence in this
area determine any implications for the way in which we conduct
our business and explain to society what the science is telling us 
in all our operations as a minimum we aim to comply with
regulations guidelines or practices relating to emfs in force 
in the different jurisdictions in which we operate where other
companies such as telecommunications operators use our
assets we expect them similarly to comply with the relevant
regulations guidelines or practices
human rights 
human rights are primarily the responsibility of governments
however we believe we can make a valuable contribution within
the context of our own operations to support and respect the
observance of human rights
we do not have operations in countries that are considered to
have poor human rights we have therefore focused on extending
our existing risk management processes by identifying and
understanding the areas where the group might be exposed 
to human rights risks and opportunities should we develop new
business in such countries we have also started to assess the
human rights risks associated with our global supply chain and
have worked with other uk utilities to extend the screening of
potential suppliers to include labourrelated issues
we continue our work with the business leaders initiative on
human rights an international businessled initiative aimed at
developing practical business tools to incorporate human rights
into daytoday business decisionmaking as part of this work
we addressed the informal interactive hearings of the general
assembly of the united nations in june 2005 on how responsible
business practices can help promote and fulfil the rights 
of everyone
community investment
the role of national grid as a good corporate citizen is one 
that complements and adds value to our strategic ambitions 
and as such must be delivered through a consistent and
integrated approach 
the group’s community investment policy provides a framework
for ensuring that investment delivers benefits for our business and
the communities involved all community investment must develop
our business support our employees support communities and
enhance our reputation to achieve these benefits we focus our
investment on three key themes to ensure that we maximise the
impact of our investment skills and education environment and
energy and community development
through our social policy committee successful projects are
being reviewed to determine whether they can be adopted in
other parts of the business for example opportunities to transfer
the successful ‘young offender into work programme’ to the us
a wider implementation of the us syracuse recycling centre
model and a sharing of best practice for fuel poverty initiatives
across the uk and the us 
annual report and accounts 200506
national grid
28 operating and financial review
about national grid annual report and accounts 200506
national grid
operating and financial review 29
about national grid
stakeholder engagement
national grid has a diverse range of external stakeholders
including customers regulators government and local
communities we adopt an open and constructive approach 
in our dealings with external audiences 
stakeholder management includes coordinated activity 
ensuring appropriate engagement with the uk government 
and parliament us federal and state authorities and legislators
devolved assemblies regulators and other key stakeholders 
this is supplemented by businessspecific stakeholder planning
enabling appropriate engagement mechanisms and agreements
to be put in place in the context of the group and the wider
objectives of stakeholders 
each of our businesses engages with relevant stakeholders
including customers employees contractors and the community
both in terms of the services we provide the way that we 
operate and the impact that our activities have on each of 
our stakeholders
risk and uncertainties 
as well as the opportunities we have to grow and develop 
our business we face a number of risks and uncertainties 
in obtaining our objectives
the most significant risk factors we have identified relate to 
changes in laws or regulation
breaches in environmental or health and safety law or
regulation
network failure or inability to carry out critical nonnetwork
operations
achievement of business performance objectives
regulatory treatment of commodity costs passed through to
consumers
reputation damage from disruptions to supply even if outside
our control
business development activities
fluctuations in the us dollar or movements in interest rates
restrictions in borrowings and debt arrangements or changes
in credit ratings
pension scheme funding requirements
changes in tax rates and
changes in accounting standards
these are described in more detail on pages 74 to 76 we also
comment on financial risks and risk management ‘financial
position and financial management’ on pages 56 to 61
legal and related matters 
in june 2005 ofgem announced that certain aspects of the
domestic gas metering business were to be investigated by it
under the competition act 1998 information requested as part 
of this investigation was provided to ofgem in september 2005
on 17 may 2006 ofgem issued a statement of objections detailing
why it believes national grid’s conduct is in breach of the
competition act we shall be responding to the statement 
of objections in due course
other developments 
other developments during the year that may affect us include
the european union electricity regulation which requires a
mandatory interoperator compensation scheme to be
established in respect of electricity transfers between member
states the scheme may be introduced in the course of 2006
although this is by no means certain any receipts from or
payments to the scheme will have to be set against transmission
charges and so the overall impact is expected to be neutral the
scheme could also have an impact on charging arrangements for
the interconnector with france the regulation allows for other
changes to be made to transmission tariffs and congestion
management across member state borders although details of
these areas will only be developed over the coming year
a european union directive concerning measures to safeguard
security of natural gas supply is due for implementation in may
2006 this will ensure that member states have in place and
publish policies and standards on gas security of supply in
addition the gas regulation on conditions for access to gas
networks was adopted by the european union in september
2005 and will apply from 1 july 2006 
there are also a number of european directives and regulations in
development covering many issues including electricity security of
supply harmonisation of access to gas systems and infrastructure
development where the precise impact on our businesses in the
future is currently uncertain
we expect the impact of these regulations on our businesses to
be minimal key performance indicators
value kpi description target results
safety injuries to the public members of the public zero 200506 20
injured as a direct result 200405 52
of our operations
†
employee lost time injuries resulting in employees zero 200506 028
injury frequency rate taking time off work 200405 037
per 100000 hours worked
gas safetyrelated proportion of uncontrolled 97 200506 9797 
service standards gas escapes attended within 200405 9846
one hour in the uk
uk gas distribution length of gas main 200506 1724 km 200506 in excess of 1710 km
mains replacement decommissioned 200405 1492 km 2004051458 km 
sickness absence proportion of available work zero workrelated sickness
‡
200506 238 
rate days which are lost due 200405 269
to sickness
reliability businessspecific reliability and service quality measures are discussed in the business segment sections on pages 41 44 46 
50 53 and 55
efficiency adjusted operating operating profit from continuing to increase each year 200506 £2527 million
profit operations excluding exceptional 200405 £2443 million
items and remeasurements
uk gas distribution operating costs over which reduce controllable costs achieved by 31 march 2006
controllable costs we have direct control by 35 in real terms of their 
2002 level by 31 march 2007
responsibility significant direct category 1 environmental zero 200506 22
environmental incidents incidents 200405 23
greenhouse gas co
2
equivalent emissions 60 reduction by 2050 200506 1110
emissions tonnes per estimated to be directly 200405 1680 
£m of revenue or indirectly caused by
our operations
fines from environmental financial quantity zero 200506 zero
citations and prosecutions of fines imposed 200405 us3000 
and a1000
percentage of female proportion of employees we do not have specific targets 200506 234
employees who are female – our aim is to ensure that we 200405 210
recruit the best candidates
percentage of ethnic proportion of employees
regardless of sex race disability
200506 67
minority employees who are from ethnic minorities
sexual orientation age religion
200405 60
or belief
shareholder adjusted earnings earnings per share from to increase sufficiently 200506 467p
value per share continuing operations to support 7 dividend growth 200405 423p
excluding exceptional through to march 2008
items and remeasurements
operating cash flows cash generated from to increase each year 200506 £3131 million
continuing operations 200405 £2911 million
total shareholder growth in share price assuming to increase 200506 229
return reinvestment of dividends and 200405 190
returns of capital
capital expenditure additions to property there is no numerical target for 200506 £2062 million
plant and equipment capital expenditure or for 200405 £1518 million
and to intangible assets acquisitions as each investment
investments in acquisitions consideration in respect of 
is different and is considered
200506 no acquisitions
acquired businesses
on its merits
200405 £1151 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 workrelated and not workrelated illnesses
 operating profit from continuing operations including exceptional items and remeasurements increased from £2142 million in 200405 to £2439 million in 200506 see page 33
 earnings per share from continuing operations including exceptional items and remeasurements increased from 363p in 200405 to 428p in 200506 see pages 35 and 36
30 operating and financial review
key performance indicators
annual report and accounts 200506
national grid annual report and accounts 200506
national grid
operating and financial review 31
performance during the year
performance during the year
operating performance
safety performance
against the significant safety improvements we have seen over
the past three years it is with great sadness that we record that
there were six fatalities directly associated with our operations
during 200506 
in october 2005 an employee died while working on our london
gas distribution network there is an investigation into the incident
and we are working closely with the health and safety executive
we have reviewed our procedures and equipment for use 
while working in gaseous environments and we are currently
implementing an action plan under the management of a member 
of the uk gas distribution leadership team
two contractors died in a helicopter crash in scotland while
carrying out an aerial survey of our gas transmission network
there have also been three public fatalities resulting directly from
our operations an elderly person died after being hit by a vehicle
from our uk gas distribution operations in zambia a cyclist died
in a collision with a car driven by an employee of our joint venture
copperbelt electricity corporation and in the uk a man died
after parachuting illegally from an electricity pylon
these were tragic events and our thoughts and deepest
sympathies are with all those affected
200405 lost time injuries were 160 excluding and 201 including the sold networks
respectively 200506 excludes three lost time injuries that occurred in the sold networks
while still owned by national grid
over the past 12 months we have continued to see an
encouraging improvement in our safety performance across 
the group excluding the sold networks 117 of our employees
received injuries that resulted in them taking time off work during
200506 compared with 160 in 200405 a 27 reduction
200304 200405 200506
employee lost time injuries
number
283
201
160
117
the lost time injury frequency rate provides a more accurate
indicator of yearonyear performance than an absolute measure
because it takes into account changing employee numbers
resulting from acquisitions and disposals such as the sales of the
four uk gas distribution networks in 200506 the number of
employee lost time injuries per 100000 hours worked in 200506
fell to 028 a 24 improvement when compared with the
previous year
there has also been a significant reduction in the number of
contractor lost time injuries across the group falling from 146 
in 200405 to 119 in 200506 a 185 decrease
in december 2005 the safety management aspects of national
grid wireless’s integrated management system were certified to
the international occupational health and safety management
standard ohsas 18001 
in our uk transmission and distribution operations we have
reinforced our existing safety procedures by focusing on areas 
of our activities where there is most risk of serious injuries 
we believe these procedures will help drive continual
improvements in key areas 
in the us we have unified our employee safety rules into an
employee safety handbook that incorporates the best practices
from the new york and new england operations 
we have continued to focus on our employees’ health by promoting
physical wellbeing and highlighting mental health issues such as
stress in the uk we published a stress management standard
and implemented a drugs and alcohol policy complementing 
those already in place for our us employees in the us we have
promoted employee health and wellbeing by offering wellness
programmes 
around 238 of available work days were lost due to sickness
absence compared with 269 for the previous year
employee lost time injury frequency rate
per 100000 hours worked
06
05
04
03
02
01
0
mar 04 sep 04 mar 05 sep 05 mar 06 responsibility
this year has again seen external endorsement of our responsible
business approach we continue to feature in the dow jones
sustainability world and ftse4good indices we are one of only
two multiutilities listed in the dow jones sustainability world
index confirming that our approach to responsible business is
indeed worldclass
in may 2006 we were placed equal fourth in business in the
community’s fourth corporate responsibility index a leading 
uk benchmark of responsible business the only company to 
be ranked in the top five for three years running
ethics
in 200405 we reported on our website for the first time the
number of substantiated breaches of our employee codes of
business conduct in 200506 there were 476 substantiated
breaches per 1000 employees compared with 804 in 200405
offences include such things as internet and email abuse misuse
of company vehicles and other assets and climbing electricity
pylons unattached disciplinary actions can range from a verbal
warning to dismissal
environmental management
the number of significant environmental incidents in 200506
arising directly from our operations was 22 compared with 23 in
the previous year incidents out of our control resulting from third
party or weatherrelated damage to our networks was 25
compared with 11 for 200405 
there were no prosecutions by enforcing bodies resulting 
from these incidents we received 10 environmental citations in
200506 compared with 14 in the previous year although none
attracted fines
contaminated land
in the uk national grid property manages 382 contaminated
sites this compares with 470 sites in 200405 the reduction
principally reflecting the transfer of sites as part of the sales of 
the four uk gas distribution networks in 2005 in the us we have
responsibility for approximately 190 contaminated sites the vast
majority of which are formerly owned manufactured gas plants
during 200506 35 sites in the uk and four sites in the us 
were remediated 
together with the environment agency we have sought judicial
review to clarify the legal position with regard to the remediation
of a site in bawtry yorkshire following a decision by the
environment agency that national grid gas plc was an
appropriate party to be involved in the clean up of the land 
the site has a long and complex history of ownership on 
17 may 2006 the high court ruled in the environment agency’s
favour we intend to appeal this decision which we believe 
is incorrect in law
climate change
the largest sources of direct emissions continue to be methane
leakage and venting from our uk gas networks while the largest
source of indirect emissions is caused by losses across our
electricity networks together these account for some 79 
of our total emissions
during 200506 our direct and indirect emissions of greenhouse
gas amounted to some 102 million tonnes co
2
equivalent the
same as 200405 excluding the sold networks
in 200506 emissions per £million of revenue amounted to some
1110 tonnes co
2
equivalent compared with 1680 tonnes for the
previous year
inclusion and diversity
at 31 march 2006 of our 19783 employees across the group
234 were females and 67 were from ethnic minority groups
compared with 210 and 60 at 31 march 2005
community investment
the london benchmarking group model has been adopted to
provide a framework for measuring and reporting the group’s
community investment contributions processes are now in place
so that community investment spend across the group can be
captured and categorised according to the model and spend
against our agreed themes can be reported as described on
page 28 during 200506 we invested some £77 million in
support of community initiatives and relationships across 
group operations
200304 200405 200506
climate change
greenhouse gas emissions
106
124
102 102
million tonnes
14
12
10
8
6
4
2
0
200
175
150
125
100
050
025
0
’000 tonnes per £m revenue
totals are approximate and 
based on a combination of 
calendar and fiscal year data
revenue data in accordance 
with ifrs is not available 
for 200304
200304 200405 200506
200304 200405 200506
36
23
22
12
11
25
significant environmental incidents
direct
indirect
 restated to include one late 
 reported incident 
annual report and accounts 200506
national grid
32 operating and financial review
performance during the year annual report and accounts 200506
national grid
operating and financial review 33
performance during the year
during 200506 we contributed £912 million 200405 £1 billion
to the communities we operate in comprising employment
property and corporate taxes
business segment performance
the operating performance of each business segment is
described in the business segment reviews on pages 38 to 55
financial performance
we report our financial results and position in accordance with
international financial reporting standards ifrs as adopted in
the european union a summary of the effects of implementing
ifrs and the principal differences from our results for the year
ended 31 march 2005 previously reported under uk gaap is 
on pages 62 and 63
continuing and discontinued operations
the financial results of our business segments as described on
page 20 and of other activities are presented within continuing
operations
the results of the four gas distribution networks sold on 1 june
2005 are no longer included within the uk gas distribution
segment but are instead presented as discontinued operations
use of adjusted profit measures 
we separately disclose items of income and expenditure that 
are material either by their nature or their size and are relevant 
to an understanding of the group’s financial performance these
include exceptional income or charges that do not relate to the
underlying financial performance of the group and remeasurement
gains or losses arising from changes in the value of commodity
contracts and of derivative financial instruments recorded at fair
value in the balance sheet
in considering the financial performance of our businesses 
and segments we use ‘business performance’ or ‘adjusted’ 
profit measures references to ‘adjusted operating profit’
‘adjusted profit before taxation’ ‘adjusted earnings’ and ‘adjusted
earnings per share’ are stated before exceptional items and
marktomarket remeasurements of financial instruments and
commodity contracts
the directors believe that the use of these adjusted measures
best illustrates the underlying business performance of the group
excluding exceptional items and marktomarket remeasurements
of derivative financial instruments and commodity contracts
removes their distorting impact in order to provide a clearer
comparison from year to year
remeasurements arise on commodity contracts other than
normal sale and purchase contracts and on financial instruments
as these are recorded in the balance sheet at their fair values
remeasurements included in operating profit relate to changes 
in the fair value of those commodity contracts resulting from
movements in electricity and gas prices financial remeasurements
relate to changes in the fair values of derivative financial
instruments and in the fair value of commodity contracts 
resulting from changes in interest rates
operating financial performance
years ended 31 march
2006 2005
continuing operations £m £m
revenue 9193 7382
other operating income 80 70
operating costs excluding
exceptional items and remeasurements 6746 5009
adjusted operating profit 2527 2443
exceptional items 39 263
remeasurements 49 38
total operating profit 2439 2142
the following tables set out the revenue adjusted operating profit
and operating profit of the group by business segment
revenue by business segment
years ended 31 march
2006 2005
continuing operations £m £m
uk electricity and gas transmission 2710 1995
us electricity transmission 310 284
uk gas distribution 1222 1113
us electricity and gas distribution 3711 3087
us stranded cost recoveries 511 409
wireless infrastructure 325 208
other activities 701 734
total segmental revenues 9490 7830
less sales between business segments 297 448
revenue 9193 7382
segmental operating profit before exceptional items and
remeasurements
years ended 31 march
2006 2005
continuing operations £m £m
uk electricity and gas transmission 844 859
us electricity transmission 127 126
uk gas distribution 483 424
us electricity and gas distribution 364 375
us stranded cost recoveries 489 465
wireless infrastructure 75 42
other activities 145 152
adjusted operating profit 2527 2443
segmental operating profit after exceptional items and
remeasurements
years ended 31 march
2006 2005
continuing operations £m £m
uk electricity and gas transmission 843 857
us electricity transmission 127 119
uk gas distribution 432 333
us electricity and gas distribution 364 258
us stranded cost recoveries 440 427
wireless infrastructure 70 29
other activities 163 119
operating profit 2439 2142
details of the financial performance of business segments
including information on exceptional items and remeasurements
are included in the business segment reviews on pages 38 to 55 revenue operating costs and operating profit
the movements in the year in revenue and other operating
income operating costs and operating profit can be summarised
as follows
revenue
and other
operating operating operating
income costs profit
£m £m £m
200405 results 7452 5310 2142
add back 200405 exceptional 
items and remeasurements – 301 301
200405 adjusted results 7452 5009 2443
exchange on us operations 169 125 44
200405 constant currency results 7621 5134 2487
uk electricity and gas transmission 715 730 15
us electricity transmission 13 18 5
uk gas distribution 113 54 59
us electricity and gas distribution 488 516 28
us stranded cost recoveries 84 81 3
wireless infrastructure 114 81 33
other activities 26 19 7
sales between businesses 151 151 –
200506 adjusted results 9273 6746 2527
200506 exceptional items
and remeasurements – 88 88
200506 results 9273 6834 2439
the increases in revenue operating costs and operating profit
from 200405 to 200506 from exchange on us operations
reflected the movement in the average us dollar to sterling
exchange rate from 187£1 in 200405 to 179£1 in 200506
other operating income relates primarily to gains on the sales 
of property which were £10 million higher in 200506 than in
200405
the most significant increases in revenue and operating costs
arose in uk electricity and gas transmission including increased
revenues and operating costs in respect of operating the scottish
electricity transmission networks following the introduction of the
british electricity trading and transmission arrangements
betta increased passthrough costs in us electricity and gas
distribution and us stranded cost recoveries and a fullyear
contribution from the wireless infrastructure business revenue
and costs also increased in uk gas distribution with savings in
controllable costs resulting in increased operating profit
adjusted operating profit increased by £40 million on a constant
currency basis this was driven by favourable results from uk
capacity auctions in lng storage and the french interconnector
a continued focus on efficiencies particularly in uk gas
distribution sustained volume growth in the us and a fullyear
contribution from the enlarged and growing wireless
infrastructure business
these factors more than offset an increase in depreciation
charges in uk electricity and gas transmission lower system
operator incentive profits also in uk electricity and gas
transmission and the timing of the recovery of certain pass
through costs in the us
net operating exceptional charges of £39 million for 200506
consisted of £60 million of restructuring costs primarily cost
reduction programmes in uk gas distribution and £21 million of
gains relating to the disposals of joint venture investments this
compared with £263 million in 200405 comprising £121 million
in restructuring costs £82 million in uk gas distribution £23
million in our us businesses and £16 million in other businesses
£41 million in exceptional pension charges in the us and £101
million of increases in environmental provisions
operating remeasurements of £49 million 200405 £38 million
relate to changes in the value of commodity contracts in the us
carried in the balance sheet at fair value arising from movements
in energy prices
total operating profit rose by £297 million from 200405 to
200506 resulting from an increase in adjusted operating profit 
of £84 million and a decrease in operating exceptional charges
and remeasurements of £213 million as compared with 200405
earnings from continuing operations
adjusted earnings
years ended 31 march
2006 2005
continuing operations £m £m
adjusted operating profit 2527 2443
net finance costs excluding
exceptional items and remeasurements 606 706
share of posttax results of joint ventures 3 3
adjusted profit before taxation 1924 1740
taxation excluding tax on 
exceptional items and remeasurements 597 437
adjusted profit from continuing operations 1327 1303
adjusted earnings per share 
from continuing operations 467p 423p
earnings
years ended 31 march
2006 2005
continuing operations £m £m
total operating profit 2439 2142
net finance costs 663 706
share of posttax results of joint ventures 3 3
profit before taxation 1779 1439
taxation 562 319
profit from continuing operations 1217 1120
earnings per share from continuing operations 428p 363p
annual report and accounts 200506
national grid
34 operating and financial review
performance during the year annual report and accounts 200506
national grid
operating and financial review 35
performance during the year
net finance costs
net interest excluding exceptional finance costs and
remeasurements decreased by £100 million from 200405 to
200506 this was primarily explained by the reduction in our net
debt following the sales of the four uk gas distribution networks
and a reduction in the interest charge related to pensions this
decrease is partially offset by the impact of a stronger us dollar
exceptional finance costs and remeasurements
exceptional finance costs of £49 million in 200506 related to 
£39 million on the early repayment of debt and £10 million
relating to the issue of b shares as part of the return of capital to
shareholders the issue of the b shares was accounted for as
debt and the associated issue costs recorded as an exceptional
finance cost
financial remeasurements of £8 million relate to net gains on
derivative financial instruments and the financial element of
commodity contract revaluations 
taxation
a net charge of £562 million arose in 200506 compared with
£319 million in 200405 this reflects net tax credits amounting 
to £35 million and £118 million in respect of exceptional items
and remeasurements in 200506 and 200405 respectively the
effective tax rate was 32 for 200506 and 22 for 200405
excluding the effect of net tax credits on exceptional items and
remeasurements the effective tax rate for 200506 and 200405
was 31 and 25 respectively compared with a standard uk
corporation tax rate of 30 for both years 
a reconciliation of the main components giving rise to the
difference between the relevant effective tax rate and the uk
standard corporation tax rate is shown in note 11 to the accounts
exchange rates
the weighted average exchange rate used to translate all us
dollar results into sterling for 200506 and 200405 being
179£1 and 187£1 for each year respectively the balance
sheets at 31 march 2006 and 31 march 2005 have been
translated at 174£1 and 189£1 respectively
exchange rate movements impacted the translation of us dollar
denominated adjusted operating profit and operating profit for
200506 compared with 200405 if 200405 was translated 
on a comparable basis using the 200506 average exchange
rate of 179£1 adjusted operating profit and operating profit 
for 200405 would have been £44 million and £37 million 
higher respectively 
the effect of movements in the us dollar exchange rate on
adjusted operating profit and operating profit was largely offset by
the increased sterling cost of us dollar debt taken out to finance
us dollar denominated investments and the reduced sterling cost
of us taxes as a result adjusted profit for the year and profit for
the year from continuing operations for 200405 would have been
£23 million and £19 million higher respectively if translated at the
200506 average exchange rate of 179£1
profit for the year from continuing operations
profit for the year from continuing operations increased from
£1120 million in 200405 to £1217 million in 200506 as a
consequence of the changes in operating profit net finance costs
and taxation
adjusted profit measures
the following tables reconcile the adjusted profit measure to the
corresponding total profit measure in accordance with ifrs
a reconciliation of adjusted operating profit to total 
operating profit
years ended 31 march
2006 2005
continuing operations £m £m
adjusted operating profit 2527 2443
exceptional operating items 39 263
operating remeasurements 49 38
total operating profit 2439 2142
adjusted operating profit is presented on the face of the income
statement under the heading ‘operating profit – before exceptional
items and remeasurements’
b reconciliation of adjusted profit before taxation to profit
before taxation
years ended 31 march
2006 2005
continuing operations £m £m
adjusted profit before taxation 1924 1740
exceptional operating items 39 263
operating remeasurements 49 38
exceptional finance costs 49 –
financial remeasurements 8 –
total profit before taxation 1779 1439
adjusted profit before taxation is presented in note 11 to the
accounts under the heading ‘profit before taxation before
exceptional items and remeasurements’
c reconciliation of adjusted earnings to earnings profit for 
the year
years ended 31 march
2006 2005
continuing operations £m £m
adjusted earnings 1327 1303
exceptional operating items 39 263
operating remeasurements 49 38
exceptional finance costs 49 –
financial remeasurements 8 –
tax on exceptional items and remeasurements 35 118
earnings 1217 1120
adjusted earnings is presented on the face of the income
statement under the heading ‘profit from continuing operations
after taxation before exceptional items and remeasurements’
earnings per share from continuing operations
the following table sets out the adjusted basic earnings per 
share and basic earnings per share from continuing operations 
for 200506 and 200405 and reconciles the differences 
between them years ended 31 march
2006 2005
continuing operations pence pence
adjusted basic earnings per share 467 423
exceptional operating items 14 85
exceptional finance costs 17 –
tax on exceptional items 09 33
remeasurements 20 12
tax on remeasurements 03 04
earnings per share 428 363
adjusted basic earnings per share for 200506 increased by
44 pence an increase of 10 compared with 200405 
this reflected the increase in adjusted profit for the year from
continuing operations and the share consolidation in august 
2005 following the £2 billion return of value to shareholders
earnings per share from continuing operations increased from
363 pence in 200405 to 428 pence in 200506 reflecting the
increase in adjusted earnings combined with lower exceptional
items and remeasurements and the impact of the share
consolidation
diluted earnings per share from continuing operations was
426 pence in 200506 02 pence lower than basic earnings 
per share compared with 362 pence per share in 200405 
01 pence lower the principal reason for the dilution in 200506
and 200405 relates to employee share option schemes
discontinued operations
2006 2005
years ended 31 march £m £m
revenue 168 1102
operating costs before exceptional items 107 592
adjusted operating profit 61 510
exceptional items 15 74
operating profit 46 436
share of posttax results of joint ventures – 5
taxation 18 140
profit from discontinued operations 28 291
gain on disposal of discontinued operations 2605 13
profit for the year 2633 304
discontinued operations primarily comprise the four regional gas
distribution networks we sold on 1 june 2005 revenues
operating costs before exceptional items and adjusted operating
profit in 200506 are substantially lower than 200405 as they
relate to a twomonth period rather than a full year in addition
revenue for those two months is proportionally lower due 
to seasonality
the exceptional charge of £15 million in 200506 arose from the
payment of a fine relating to one of the sold networks the
exceptional items in 200405 related to costs incurred in
preparation for the disposal of the networks and to
reorganisations primarily due to cost reduction programmes
the group’s share of posttax results of joint ventures in 200405
relates to citelec which was sold in august 2004
the gain on disposal of discontinued operations in 200506 
relates to the sales of gas distribution networks and in 200405 
to citelec 
earnings per share from discontinued operations in 200506 was
928 pence which includes 918 pence relating to the gain on
disposal of four regional gas distribution networks this compares
with 99 pence in 200405 
net profit and total earnings per share for the year
net profit from both continuing and discontinued operations was
£3850 million in 200506 £1424 million in 200405 
total earnings per share from both continuing and discontinued
operations was 1356 pence in 200506 462 pence in 200405
cash flows
cash flows from operating activities
cash generated from continuing operations was £3131 million 
in 200506 compared with £2911 million in 200405 this
included cash outflows relating to exceptional items of 
£118 million and £120 million respectively after reflecting cash
flows relating to discontinued operations and tax paid net cash
inflow from operating activities was £2971 million compared 
with £3308 million in 200405 
net corporate tax payments amounted to £140 million in
200506 compared with £150 million in 200405
cash flows from investing activities
cash outflows from continuing operations investing activities 
fell from £2652 million in 200405 to £1713 million in 200506
as 200405 included £1122 million in respect of the acquisition
of the uk operations of crown castle international corp
£1109 million and a us telecommunications tower operation
£13 million cash flows relating to discontinued operations
included £5750 million of disposal proceeds and £115 million 
of cash outflows from investing activities compared with 
£323 million in 200405
200405 200506 200405 200506
earnings per share
pence
adjusted earnings
per share
earnings
per share
363
428
423
467
annual report and accounts 200506
national grid
36 operating and financial review
performance during the year annual report and accounts 200506
national grid
operating and financial review 37
performance during the year
purchases of tangible and intangible fixed assets net of disposal
proceeds absorbed cash of £1748 million compared with £1484
million in 200405
cash flows from financing activities
net cash used in financing activities of £5712 million in 200506
compared with £325 million in 200405 included £1957 million
in respect of the £2 billion return of value to shareholders 
payments to providers of finance in the form of net interest and
dividends totalled £1449 million in 200506 compared with
£1390 million in 200405
net interest cash outflows fell from £762 million in 200405 to
£704 million in 200506 the reduction reflected the beneficial
impact of refinancing debt lower shortterm interest rates the
stronger us dollar and receipt of £58 billion proceeds from the
four network sales
£2 billion return to shareholders 
following the successful completion of the sales of four regional
gas distribution networks for proceeds of £58 billion we
implemented a b share scheme to return £2 billion to
shareholders in a tax efficient manner
dividends
dividends in respect of the financial year
2006 2005 2004 2003 2002
dividends pence pence pence pence pence
interim 102 85 791 686 646
final 159 152 1187 1034 958
total 261 237 1978 1720 1604
dividends per ads  
interim 088 079 067 054 047
final 151 138 105 084 073
total 239 217 172 138 120
the proposed total ordinary dividend for 200506 amounts to 
£709 million or 261 pence per ordinary share this represents an
increase of 10 over the previous year’s ordinary dividend per
share of 237 pence £731 million
the above amounts exclude the return of £2 billion to
shareholders through the b share scheme
the total ordinary dividend per share was covered 18 times by
adjusted earnings per ordinary share 200405 covered 18 times
and covered 16 times by earnings per ordinary share from
continuing operations 200405 covered 15 times
the table above shows the ordinary dividends paid or payable 
by national grid for the past five financial years these dividends
do not include any associated uk tax credit in respect of such
dividends the table excludes dividends paid or payable by
lattice group prior to the merger with national grid group on
21 october 2002
dividends expressed in us dollars per ads in the table above
reflect the actual amount paid to ads holders expressed to two
decimal places with respect to all amounts with the exception of
the final ordinary dividend for 200506 the final ordinary dividend
per ads for 200405 reflects the declared us dollar amount
expressed to two decimal places
in accordance with ifrs the final dividend proposed in respect 
of each financial year is now reported in the financial statements
for the subsequent year as a consequence the final dividend
proposed to shareholders for 200506 of 159 pence per share
amounting to £433 million will be reported in the financial
statements for the year ending 31 march 2007
200203 200304 200405 200506
200203 200304
200102
200102 200405 200506
total ordinary dividends per 
share pence
total ordinary dividends per 
ads 
1720
1978
1604
2370
2610
138
172
120
217
239 uk electricity and gas
transmission
about the segment
principal activities
our uk electricity and gas transmission segment has the following
principal activities
electricity we own the electricity transmission system in 
transmission england and wales 
owner
our electricity assets comprise approximately 
4500 miles of overhead line about 415 miles of
underground cable and 337 substations at 240 sites
electricity we are the great britain system operator 
system responsible for managing the operations of both the 
operator england and wales transmission system that we own
and also the two highvoltage electricity transmission
networks in scotland
daytoday operation of the great britain electricity
transmission system involves the continuous realtime
matching of demand and generation output ensuring
the stability and security of the power system and the
maintenance of satisfactory voltage and frequency
gas we own the gas transmission network in great britain
transmission 
this comprises approximately 4300 miles of high
owner
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 we operate the gas transmission network 
operator
daytoday operation includes balancing supply and 
demand maintaining satisfactory system pressures
and ensuring gas quality standards are met
french we own and operate the uk assets and a portion 
interconnector 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
the electricity network infrastructure in the uk primarily
comprises three electricity transmission networks one in england
and wales and two in scotland and twelve regional electricity
distribution networks in general electricity generated is
transmitted over the electricity transmission networks to the
twelve regional electricity distribution companies which distribute
electricity to end consumers on behalf of electricity suppliers 
the energy markets in the uk are regulated by ofgem which 
has the responsibility for promoting competition wherever
appropriate and for regulating the companies that own and
operate the infrastructure through which electricity and gas 
are delivered
the functioning of the electricity market in great britain is
governed by the british electricity trading and transmission
arrangements betta which became effective on 1 april 2005
the gas infrastructure in the uk primarily comprises the gas
transmission network and eight regional gas distribution networks
gas is input into the gas transmission network which connects
with each of the eight regional gas distribution networks which in
turn distribute gas to consumers detailed arrangements for the
gas industry are provided through the uniform network code
issued by ofgem which defines the obligations responsibilities
and roles of the industry participants
certain consumers primarily large industrial users receive
electricity or gas direct from the relevant transmission network
through our subsidiary national grid electricity transmission plc
we are the sole holder of an electricity transmission licence for
england and wales this licence also covers our role as the great
britain system operator we have a duty under the electricity 
act 1989 to develop and maintain an efficient coordinated and
economical system of electricity transmission and to facilitate
competition in the supply and generation of electricity charges 
to users of the transmission networks comprise two principal
elements transmission network use of system charges in
respect of the electricity transmission owner activity and
balancing services use of system charges in respect of the
electricity system operator activity we collect these charges from
all great britain transmission network users and make payments
to the owners of the scottish transmission networks for the
element of the transmission network use of system charges 
that relate to their networks
uk gas 
transmission
theddlethorpe 
isle of grain 
easington 
bacton 
barrow 
burton
point 
t o northern 
ireland 
t o the republic  
of ireland 
t eesside 
st fergus 
reception terminals
transmission system
interconnector
tofrom 
belgium 
uk electricity 
transmission
transmission system scotland
transmission system england  wales
interconnector
tofrom
france
annual report and accounts 200506
national grid
38 operating and financial review
uk electricity and gas transmission annual report and accounts 200506
national grid
operating and financial review 39
uk electricity and gas transmission
through our subsidiary national grid gas plc we hold a gas
transporter licence in respect of the gas transmission network
we have a duty under the gas act 1986 to develop and maintain
an efficient and economical pipeline system for the conveyance of
gas under the terms of our licence we receive income through
charges to shippers for entry and exit capacity gas transmission
owner and gas system operator activity and commodity charges
gas system operator activity
ofgem sets price controls in respect of the amounts that can be
charged by the owners and operators of electricity and gas
infrastructure in the uk the current price controls in respect of
our electricity transmission owner activities commenced on 1 april
2001 and were originally intended to continue until 31 march
2006 but have been extended to 31 march 2007 the current
price controls in respect of our gas transmission owner and gas
system operator activities commenced on 1 april 2002 and are
due to continue until 31 march 2007 the next fiveyear price
control periods for both electricity and gas transmission activities
are due to commence on 1 april 2007
the electricity interconnector between england and france and
our lng storage facilities do not form part of our electricity and
gas transmission networks respectively and are each separately
regulated via a financial ringfencing arrangement a portion of the
lng storage capacity is set aside to support network operating
requirements with remaining capacity sold to gas shippers
business drivers
as electricity transmission owner and gas transmission owner 
we own and maintain the physical assets develop the networks
to accommodate new connections and disconnections and
manage a programme of asset replacement and investment to
ensure the longterm reliability of the respective networks
as electricity system operator and gas system operator we
undertake a range of activities necessary for the successful
delivery in realtime of secure reliable and efficient energy in the
case of electricity this involves the continuous realtime balancing
of supply and demand involving balancing services that include
commercial arrangements with market participants that enable
electricity demand or generation output to be varied in the 
case of gas we ensure the system is balanced with supply and
demand at the end of each day and we are required to maintain
levels of shortterm gas reserves to ensure that domestic and
other nondaily metered gas supplies can be maintained during
prolonged cold conditions
the principal business drivers for our uk electricity and gas
transmission activities include
the price controls set by ofgem which determine the prices
that can be charged to users of the electricity and gas
transmission networks
capital investment which drives the regulatory asset value a
key component in determining our allowed revenues under
our price controls
our ability to operate reliably and so to earn incentives for
good performance and avoid penalties for poor performance 
meeting regulatory targets for management of the electricity
and gas systems generating incentives for good
performance and
our ability to operate efficiently 
our principal business drivers are considered to be the following
business driver description
price the charges that we can make for access to our 
controls electricity and gas transmission systems are currently
determined by a formula linked to retail price inflation
rpi for electricity this is set at rpi 15 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 pretax rate of 625 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 £56 billion 
£53 billion march 2005 and for gas £28 billion
£25 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 999999
for 200607 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 15 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 200607
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 current and future developments
british electricity trading and transmission 
arrangements betta
on 1 april 2005 we became responsible for operating the great
britain transmission system setting charges and maintaining the
charging statements for all transmission users in great britain 
as a consequence under the regulatory arrangements for betta
the angloscottish interconnector previously subject to separate
commercial agreements outside the regulated business is now
subject to price control in the same manner as other network
infrastructure in the regulated businesses of scottish power and
national grid
on 28 october 2005 the judicial review sought by scottish
power of the gas and electricity markets authority’s decision to
approve the great britain electricity transmission network use of
system charging methodology developed and proposed by
national grid and ofgem was dismissed
gas transporter licence
on 1 may 2005 our gas transporter licence specific to our gas
transmission network was amended to facilitate the distribution
network sales the five gas transporter licenses relevant to the
gas distribution networks were amended at the same time four
of which were subsequently transferred to the four sold
distribution networks on 1 june 2005 
uk energy market developments
the uk is entering a period of changing supply patterns for both
gas and electricity the sources of gas and electricity are shifting
with the decline in uk continental shelf ukcs gas reserves and
the government’s emphasis on combating climate change and
encouragement of renewable generation we also continue to 
see trends towards greater use of gas in power generation with
the uk moving towards a low carbon economy 
we continue to work with the uk government and ofgem 
to make possible the necessary investments in the electricity
transmission network to support the development of renewable
energy projects the final transmission investment for renewable
generation proposals from ofgem recognised the need to invest
in networks to accommodate renewables funding costs for
£108 million of investment will be allocated to our electricity
transmission owner activity allowable revenue for the upgrade of
the angloscottish interconnector conditional on the satisfactory
outcome of key planning consent issues in scotland at this time
access has been sought by over 13 gw of renewable generation
consisting of over 200 offers in scotland for england and wales
offers have been made to 5 gw of renewable generation
as a consequence of the decline in gas production from the uk
continental shelf our latest forecast is that the uk will import
around 50 of its gas requirements by the end of the decade 
activity to increase import capability has involved the 
development of gas interconnectors and lng importation 
facilities by national grid and other market participants these
include the norwegian interconnector and the lng import facility
at milford haven in addition to our lng import facility on the isle 
of grain 
a number of gas pipeline and compressor projects are being
progressed to meet these developments around 90 miles of gas
pipeline is being constructed from ganstead to asselby in the
region of humberside and from pannal in north yorkshire to
nether kellet in lancashire to enable increased imports at
easington around 206 miles of new pipeline is being built in
south wales and gloucestershire to cater for the milford haven
importation facility which is to be connected during the 200708
gas supply year these projects responding to meet the 
changing supply sources require over £1000 million in capital
expenditure on the gas transmission network in the period up 
to 200809
gas supply
in 2004 our gas transporter safety case was amended to include 
a system of ‘safety monitors’ these monitor levels define
minimum levels of gas storage required to ensure continued and
safe delivery of gas to all domestic and other nondaily metered
customers under prolonged winter conditions 
gas supply projections
bcm per annum
120
90
60
30
0
0405 0506 0607 0708 0809 0910 1011
ukcs upside ukcs forecast forecast import requirement
demand forecast 
annual report and accounts 200506
national grid
40 operating and financial review
uk electricity and gas transmission annual report and accounts 200506
national grid
operating and financial review 41
uk electricity and gas transmission
for winter 200506 we worked with ofgem and the industry to
enhance the level of information that is available to the market to
further promote industry participant response to the gas supply
demand position of particular note is the introduction of the daily
summary report available on the national grid website and the
introduction of the gas balancing alert this system is designed
to highlight to the market that a reduction in demand might be
required when the supply and demand balance is very tight
emissions trading
the european union emissions trading scheme commenced 
on 1 january 2005 its purpose is to reduce the level of carbon
dioxide emitted by placing a financial incentive on participants to
reduce their emissions of this greenhouse gas allowances are
granted to participants in accordance with a national allocation
plan and any shortfall or surplus can be traded with other
participants 
our carbon dioxide emissions between 1 january and
31 december 2005 in the uk were broadly in line with our
allocation and so the scheme did not have a material financial
effect on our results in 200506 we similarly do not expect the
scheme to have a significant impact on our results in 2006 or
2007 phase 2 of the emissions trading scheme covering the
period from 1 january 2008 to 31 december 2012 is in the
process of being negotiated
capital investment
investment in electricity and gas transmission networks is by 
its nature variable and is largely driven by changing sources of
supply and asset replacement requirements the gas transporter
and electricity transmission licences oblige us to provide
connections and capacity upon request
the bulk of the current electricity transmission network was
installed during the 1960s and 1970s with main plant asset lives
typically of between 40 and 50 years over the next few years
we anticipate substantially increasing investment on replacing
parts of our uk electricity network as these assets become due
for renewal 
in addition parts of the gas transmission network are reaching
the end of their lives these are mainly compressor stations
control systems and valves ie above ground assets and not the
high pressure pipes this together with work required to meet
changing supply sources means that the uk electricity and gas
transmission business will be embarking on a significant increase
in investment and network renewal
to meet the increasing programme of work we have been
exploring ways to work more efficiently and collaboratively with
major suppliers and contractors to manage the increase in
workload effectively 
performance during the year
operating performance
the winter of 200506 saw demand from the electricity
transmission network in england and wales hit a peak 
of 5373 gw this compares with the previous year’s peak 
of 5329 gw
the total amount of electricity transmitted for 200506 was
312399 gwh compared with 308305 gwh for 200405
200506 saw a maximum gas demand of 411 mcm on
1 february 2006 this decrease on the previous year’s peak 
of 418 mcm was partly due to increased demandside response
reflecting the high gas prices that have been experienced 
this winter
our progress against our operating performance objectives 
during the year included the following
objective performance
safety during 200506 there were 14 lost time injuries
compared with 8 in 200405 the lost time injury
frequency rate increased to 028 in 200506 from
017 in 200405
reliability electricity transmission network reliability in 200506
was 9999990 this compared with 9999998 
in 200405
our target reliability is 9999990
average annual availability of our electricity network 
in 200506 was 9509 this compared with 953
in 200405
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
979 in 200506 compared with 976 in 200405
compressor fleet performance during 200506
improved with the average time between compressor
failures at 10 above our fiveyear average financial performance 
the results for the uk transmission segment for the years ended
31 march 2006 and 2005 were as follows
2006 2005
years ended 31 march £m £m
revenue 2710 1995
operating costs excluding exceptional items 1866 1136
adjusted operating profit 844 859
exceptional items 1 2
operating profit 843 857
the principal movements between 200405 and 200506 can be
summarised as follows
operating operating
revenue costs profit
£m £m £m
200405 results 1995 1138 857
add back 200405 exceptional items – 2 2
200405 adjusted results 1995 1136 859
lng storage 34 4 30
french interconnector 43 3 40
balancing services incentive scheme 214 235 21
scottish networks passthrough 259 259 –
transmission owner depreciation 
and amortisation – 83 83
other 165 146 19
200506 adjusted results 2710 1866 844
200506 exceptional items – 1 1
200506 results 2710 1867 843
the £715 million increase in uk electricity and gas transmission
revenue comparing 200506 with 200405 was mainly due to
higher incentivised costs associated with the balancing services
incentive scheme bsis which flow through to revenue and the
collection of transmission network use of system charges under
betta on behalf of the scottish network owners beneficial
outcomes from the capacity auctions in the lng and electricity
interconnector markets have resulted in higher revenues
compared to 200405 other higher revenues reflect favourable
timing and inflationary impacts and higher pass through of costs
partly reduced by the transfer of the scottish interconnector into
the electricity transmission regulated business under betta
operating costs excluding exceptional items increased by 
£730 million in 200506 compared to 200405 this is due to
higher incentivised bsis costs resulting from higher constraint
margin and energy balancing costs and transmission network
use of system charges owed to the scottish networks owners
under betta which became effective from 1 april 2005
transmission owner depreciation and amortisation has increased 
by £83 million largely due to higher accelerated depreciation
associated with early asset writeoffs and an increase in core
depreciation reflecting the ramp up in the capital programme
higher other operating costs reflected higher pass through costs
partly offset by the transfer of the scottish interconnector as
referred to above
the £15 million decrease in uk electricity and gas transmission
adjusted operating profit comparing 200506 with 200405
reflected the movement in revenue and operating costs as
described above 
the £1 million exceptional charge in 200506 relates to pension
related elements of the way ahead programme in uk gas
distribution that have affected uk electricity and gas transmission
capital expenditure
capital investment in the replacement reinforcement and
extension of the uk electricity and gas transmission networks 
in 200506 was £890 million compared with £529 million in
200405
in 200506 50 or £265 million 200405 41 or £163 million
of electricity transmission capital expenditure was related to asset
replacement reflecting the increasing need to replace transmission
network assets many of which were commissioned in the 1960s
in addition 200506 has seen a substantial increase in the level
of capital investment in gas pipeline projects some £156 million
higher than 200405
2006 2005
£m £m
property plant  equipment 799 464
intangible assets 91 65
capital investment 890 529 
this includes £41 million of additions relating to emissions
allowances received during 200506
annual report and accounts 200506
national grid
42 operating and financial review
uk electricity and gas transmission annual report and accounts 200506
national grid
operating and financial review 43
us electricity transmission
us electricity transmission
about the segment
principal activities
in the us we own and operate an electricity transmission network
of approximately 9000 miles spanning upstate new york
massachusetts rhode island new hampshire and vermont 
our us electricity transmission facilities operate at voltages
ranging from 69 kv to 345 kv utilising nearly 8900 miles of
overhead lines 94 miles of underground cable and 496 substations
we are the largest electricity transmission service provider in the
northeastern us by reference to the length of these highvoltage
transmission lines in addition we own and operate a 139mile
direct current transmission line rated at 450 kv that is a key
section of an interconnector between new england and canada
external and regulatory environment
in new england and new york our transmission business
operates within two independent organisations iso new
england a regional transmission organisation rto and new
york iso an independent system operator iso these nonprofit
entities are the system operators for the new england and new
york networks as system operators the isos are responsible 
for operating wholesale markets for energy operating reserves
and capacity maintaining the operating reliability of the new
england and new york networks coordinating the activities 
of the transmission owners and managing transparent
transmission expansion planning processes 
we are one of several transmission owners operating within 
each of these isos the transmission owners are responsible 
for certain aspects of the operation of the facilities they each 
own such as maintenance equipment restoration and switching
operations national grid works closely with iso new england
and new york iso to support efficient market and network
operations and transmission investment
business drivers
the revenue for our transmission business in new england and
new york is collected from transmission customers including our
us electricity distribution network businesses pursuant to tariffs
approved by state utility commissions and by the federal energy
regulatory commission ferc 
in new york efficient and reliable operations within our longterm
rate plan are our primary business drivers 
in new england efficient operations are also key however the
rate structure is such that network availability energy deliveries
and operational expenditure spend are all ‘passthrough’ items
we neither gain nor lose from variability of any of these the 
tariff allows for recovery of and a return on new investment
entering service
current and future developments
energy policy act
the energy policy act of 2005 was enacted in august 2005 
and contained several important provisions that affect our
transmission business among other things the federal legislation
called for ferc to finalise its transmission pricing policy providing
incentives for transmission investment and independence 
the establishment of an electric reliability organisation for new
mandated reliability standards and federal backstop siting
authority for transmission facilities located within tobedesignated
national interest electricity transmission corridors the focus 
of the legislation is to further the reliability and economic 
efficiency of the us electricity transmission network
regulation
consistent with the ferc’s proposed pricing policy and the
financial incentives for joining a rto following iso new
england’s filing to become a rto we have applied for an
increased rate of return for our new england assets this
application is still under review by the ferc
we have been pursuing a regional planning process with the new
york iso to identify regional transmission needs progress has
been made and the new york iso is in the first year of its
reliability planning process implementation the new york iso
has identified reliability needs and is in the process of evaluating
both regulated and market solutions to meet those needs
capital investment
we expect a significant level of investment in new england to
deliver our regional system expansion planning process projects
there will also be an increase in investment in new york in order
to address asset replacement requirements and maintain the
safety and reliability of the network
new  
hampshire 
connecticut 
maine 
vermont 
massachusetts new york 
canada 
pennsylvania new
jersey
rhode island
transmission network performance during the year
operating performance
our progress against our objectives during the year included the
following
objective performance
safety us electricity transmission had a lost time injury
frequency rate of zero during 200506 extending the
time since the last lost time injury to 35 months
reliability average annual network availability in 200506 was
987 this compared with 9855 in 200405 
overall average network availability was similar in
new england and new york for both summer and
winter
financial performance
2005
constant
2006 currency 2005
years ended 31 march £m £m £m
revenue 310 297 284
operating costs excluding exceptional items 183 165 158
adjusted operating profit 127 132 126
exceptional items – 8 7
operating profit 127 124 119
the principal movements between 200405 and 200506 can be
summarised as follows
operating operating
revenue costs profit
£m £m £m
200405 results 284 165 119
add back 200405 exceptional items – 7 7
200405 adjusted results 284 158 126
exchange rate movements 13 7 6
200405 constant currency results 297 165 132
tariff adjustment 7 7 –
other 6115
200506 results 310 183 127
the average exchange rates used to translate the results of us
operations during 200506 and 200405 were 179£1 and
187£1 respectively to illustrate underlying performance the
impact of exchange rate movements has been separated from
other changes by also presenting the operating results for
200405 on a constant currency basis using the average
exchange rate for 200506 of 179£1
the £13 million increase in revenue comparing 200506 with
200405 on a constant currency basis was due to a oneoff
adjustment of £7 million to revenues collected from us electricity
distribution affiliates under the rto tariff there is a corresponding
adjustment in operating costs and generally higher returns in
new england the beneficial timing impact of revenue collection 
in new york and higher passthrough costs in new england and
the interconnector between new england and canada partly
offsetting these increases was lower revenue from gridamerica
following cessation of its operations with effect from 1 november
2005 and a oneoff refund associated with a prior period billing
error in new england
operating costs excluding exceptional items increased by
£18 million in 200506 compared to 200405 this is due to 
the £7 million operating cost adjustment referred to above higher
payroll and associated benefits costs in new york a oneoff
writeoff of interconnection related costs and generally higher
costs to address reliability issues partly offset by lower operating
costs in gridamerica following its cessation of operations
the £1 million overall increase in adjusted operating profit 
and operating profit reflects a favourable exchange rate impact of
£6 million largely offset by the net £5 million movement in revenue
and operating costs as described above
capital expenditure
capital investment in the replacement reinforcement and
extension of the us electricity transmission networks in 200506
was £91 million compared with £74 million in 200405 
this increase in capital expenditure principally reflects additional
planned asset replacement in new england to increase reliability
and system security as well as facilitating an increase in transfer
capability into boston
annual report and accounts 200506
national grid
44 operating and financial review
us electricity transmission annual report and accounts 200506
national grid
operating and financial review 45
uk gas distribution
uk gas distribution
about the segment
principal activities
our uk gas distribution segment comprises almost half of great
britain’s gas distribution network and remains the largest gas
distribution network in the country consisting of approximately
82000 miles of distribution pipelines
we transport gas on behalf of approximately 70 active 
gas shippers from the gas transmission network through 
our four retained regional distribution networks to around
11 million consumers
we continue to be responsible for the safety development
maintenance and daily operation of our uk gas distribution
networks
we also continue to manage the national emergency number 
0800 111 999 for our networks the sold networks and the other
gas transporters during 200506 we handled around 25 million
calls to the national emergency number
external and regulatory environment
gas is piped from the gas transmission network into each of the
eight regional gas distribution networks which in turn distribute
gas to consumers 
detailed arrangements for the gas industry are provided through
the uniform network code as approved by ofgem from time to
time which defines the obligations responsibilities and roles of
the industry participants
we hold a single gas distribution transporter licence which
authorises us to operate the four gas distribution networks we
own however each of our four networks has its own separate
price control which establishes the prices we can charge for the
services provided by each network
each network’s separate regulatory asset value associated with
its distribution assets was originally allocated to it using an
estimate of the uk gas distribution business’s regulatory asset
value as at 1 april 2002 the allocation was aimed at minimising
unnecessary regional differentials in transportation charges
business drivers
our principal business drivers are considered to be the following
business driver description
gas the price controls that apply to uk gas distribution 
distribution take into account ofgem’s estimates of operating 
price control expenditure capital expenditure replacement
expenditure and allowed rate of return the current
rate of return is set at a real pretax rate of 625 on
our regulatory asset value as at 31 march 2006 our
regulatory asset value is estimated at approximately
£59 billion
factors driving the networks’ price control formulae specify a 
revenue 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 passthrough 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 replacement expenditure improves the future safety 
expenditure 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 capital expenditure ensures supply security and 
expenditure meets growing customer demand central
coordination ensures capital investment is effective
and efficient
standards of service
ofgem has established standards of service we are required to
meet that apply to our operations
these include
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
connections standards of service that require us to provide
connections to customers to agreed timescales and 
guaranteed standards of service for our other transportation
services 
compensation is paid to customers for any failures to meet both
the guaranteed and the connections standards of service
national grid operating area current and future developments
network sales
on 1 june 2005 we successfully completed the planned sales 
of four of our eight gas distribution networks scotland wales
and west north of england and south of england at a price 
of £58 billion a considerable premium to the regulatory asset
value from the cash sale proceeds we returned £2 billion to
shareholders and repaid around £23 billion of debt
during the coming year we will be working with the sold
networks in their exit from the existing transitional agreements
these agreements came into effect prior to completion of the
network sales and among those put in place we currently
provide a front office systems managed service and a system
operation service to the sold networks
regulatory price control reviews
ofgem intends to extend the current fiveyear gas distribution
price control for a further year through an extension price control
to cover the year ending 31 march 2008 discussions have
commenced with ofgem in relation to this extension period the
next full price control period will now cover the period from 1 april
2008 to 31 march 2013
business improvements
following completion of the way ahead restructuring programme
a series of strategic development initiatives has been delivered in
support of our aim to be the most efficient uk gas distribution
network centralisation of many key processes has enabled us to
place increased emphasis on safety and efficiency while sharing
best practice across the organisation and delivering our office
rationalisation programme this has resulted in the consolidation
of 14 regional office locations into three key centres – warwick
hinckley and northampton
centralising our asset management job scheduling and dispatch
processes has exploited our economies of scale while also
maintaining alignment of our operational workforce across the
network to satisfy consumer requirements 
control of the gas distribution network for great britain has been
integrated into the business during the year new connections work
associated with domestic premises has also been integrated which
has resulted in improved efficiency as well as continuity in meeting
the requirements of our customers on a more consistent basis 
having completed the way ahead transformation we are now
concentrating on continuous improvement techniques to refine
our existing business processes
performance during the year
operating performance
actual gas consumption rose to 347 twh in 200506 compared
with 344 twh in 200405 due to the weather being colder in
200506 however underlying levels of gas demand excluding
the effects of weather fell from 357 twh in 200405 to 346 twh
in 200506 due to the increasing levels of gas supply prices
during 200506 affecting usage the reduction was experienced
across all types of consumers but was particularly noticeable for
larger users
our progress against our operating performance objectives during
the year included the following
objective performance
safety as described on page 31 there was one employee
fatality during 200506 
lost time injuries for the retained networks fell from
56 in 200405 to 24 in 200506 a 57 decrease the
lost time injury frequency rate fell from 035 to 017 
we again exceeded our targets on safetyrelated
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 1710 km
1063 miles of gas pipes in 200506 in line with 
our target of 1724 km 1071 miles compared with
1458 km 906 miles in 200405
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 200506 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 50000 new connections to our network
financial performance
the results for the uk gas distribution segment for the years
ended 31 march 2006 and 2005 were as follows
2006 2005
years ended 31 march £m £m
revenue 1222 1113
other operating income 4 –
operating costs excluding exceptional items 743 689
adjusted operating profit 483 424
exceptional items 51 91
operating profit 432 333
these results exclude the results of the four regional gas
distribution networks that were sold on 1 june 2005 which are
presented within discontinued operations
annual report and accounts 200506
national grid
46 operating and financial review
uk gas distribution annual report and accounts 200506
national grid
operating and financial review 47
uk gas distribution
the principal movements between 200405 and 200506 can be
summarised as follows
revenue
and other
operating operating operating
income costs profit
£m £m £m
200405 results 1113 780 333
add back 200405 exceptional items – 91 91
200405 adjusted results 1113 689 424
business rates passthrough 23 23 –
weather and volumes 12 – 12
other price changes 10 – 10
way ahead operating costs – 52 52
gas commodity costs – 17 17
other revenues and costs 68 66 2
200506 adjusted results 1226 743 483
200506 exceptional items – 51 51
200506 results 1226 794 432
revenues in uk gas distribution increased by £109 million in
200506 compared with 200405 this included a £45 million
increase in revenue recovered under the distribution price control
formulae the weather in 200506 was colder than 200405 and
this contributed £29 million of the increase and an average price 
rise of 46 was implemented on 1 october 2005 resulting in 
a further £33 million increase this was partially offset by a
£17 million reduction in underlying volumes 
other revenues increased by £64 million in 200506 compared 
with 200405 primarily because of the provision of services to 
the four regional gas distribution networks following their sales 
on 1 june 2005 
significant cost efficiencies have been achieved as a result of the
way ahead restructuring programme controllable costs which
exclude increases in ongoing pension costs and gas commodity
prices as well as the costs of providing services to the sold
networks and the group’s other businesses decreased by 19
in real terms during the year they have now reduced by 35 in
real terms since march 2002 thus achieving one year early the
target reduction originally set for march 2007
total operating costs excluding exceptional items increased by
£54 million in 200506 compared with 200405 business rates
increased by £23 million following changes to rateable values
from 1 april 2005 but these have been recovered through the
price increases under the distribution price control as referred to
above the remaining increases in operating costs of £31 million
were primarily because of the effects of higher gas commodity
prices and the costs of providing services to the sold networks
and the group’s other businesses partially offset by the savings
made in way ahead operating costs
adjusted operating profit was £59 million higher in 200506 than
200405 an increase of 14
exceptional charges of £51 million in 200506 and £91 million 
in 200405 predominantly related to restructuring costs under the
way ahead programme 
operating profit was £99 million higher in 200506 than 200405 
an increase of 30 in summary revenue was £109 million 
higher other operating income was £4 million higher operating
costs were £54 million higher and exceptional charges were
£40 million lower
capital expenditure
gross investment in the reinforcement extension and
replacement of the uk gas distribution network was £444 million
in 200506 compared with £359 million in 200405 this excludes
the investment in the four regional gas distribution networks that
were sold on 1 june 2005
2006 2005
years ended 31 march £m £m
capital expenditure 149 120
replacement expenditure 295 239
gross investment in the continuing business 444 359
capital expenditure increased from £120 million in 200405 to
£149 million in 200506 because of a higher level of investment in
the reinforcement of high pressure pipelines such projects being
dependent on forecasts of future demand as well as higher
expenditure on new connections and the replacement of
commercial vehicles
replacement expenditure increased from £239 million in 200405
to £295 million in 200506 in line with the planned increase in the
longterm iron mains replacement programme agreed with the hse us electricity and gas distribution
about the segment
principal activities
we are one of the leading electricity distribution service providers
in the northeastern us as measured by energy delivered and
one of the largest utilities in the us as measured by the number
of electricity distribution customers us electricity and gas
distribution serves approximately 34 million electricity customers
over a network of 72000 circuit miles in new england and new
york and around 569000 gas customers over a pipeline 
of 8600 miles in new york
external and regulatory environment
in the us our electricity system spans upstate new york
massachusetts rhode island and new hampshire to customers
that include residences and small and large commercial 
and industrial enterprises our gas distribution system serves
customers in cities and towns in central and eastern new york
sharp increases in energy prices have renewed interest in the
public policy debate about restructuring the nation’s electricity
industry and increased the pressure on regulators and politicians
to consider taking action to mitigate the effects of increased
prices on customers
as the debate continues we have taken a leadership position 
by advocating that a wellmanaged electricity system is the 
key to enabling robust competitive electricity markets that offer
customers choice savings and other benefits state regulators
continue to strongly support current recovery of power supply costs
our regulated operations and certain unregulated businesses must
comply with rules prescribed by the applicable state utility
commissions of new york massachusetts rhode island and
new hampshire as well as the rules prescribed by the federal
energy regulatory commission certain regulated operations
were also subject to regulation by the securities and exchange
commission under the public utility holding company act of
1935 until its repeal became effective on 8 february 2006 
our new york business files reports with the securities and
exchange commission under its legal name niagara mohawk
power corporation
business drivers
our primary business drivers are the longterm rate plans with
state regulators through which we can earn and retain certain
amounts in excess of traditional regulatory allowed returns these
plans provide incentive returns and shared savings allowances
which allow us an opportunity to benefit from efficiency gains 
we may identify within our operations 
our other main business drivers for us electricity and gas
distribution include our ability to streamline operations to
enhance reliability and to generate funds for investment in our
infrastructure
we recover our costs of providing electricity and gas distribution
under rates approved by applicable regulators the rates are set
based on historical or forecasted costs and we earn a return on
our assets we benefit from the savings associated with
identifying additional efficiencies commodity costs are passed
through to customers we are also subject to service quality
standards with respect to reliability and certain aspects of
customer service and safety
we work towards service quality standards that our state
regulators expect us to achieve if we fall below a prescribed
standard we may incur a penalty if we do better than the
standard we may in some cases achieve an incentive
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 106 or 120 if certain
customer outreach education competitionrelated
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 106
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 106 to 126 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
maine 
vermont 
new  
hampshire 
pennsylvania
connecticut 
new  
jersey
rhode 
island
massachusetts 
new york 
canada 
annual report and accounts 200506
national grid
48 operating and financial review
us electricity and gas distribution annual report and accounts 200506
national grid
operating and financial review 49
us electricity and gas distribution
massachusetts under our longterm rate plan in massachusetts
which runs until 2020 there is no cap on earnings
and no earningssharing 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 pretax 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 longterm 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 105 plus £26 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 our distribution rates in new hampshire are based
hampshire 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
our objective is to be the premier us energy delivery company
through innovation and continuous improvement in safety service
quality and efficiency and by operating in an environmentally 
and ethically responsible manner to the benefit of customers
shareholders and employees alike
meeting or exceeding our regulated service quality goals is a main
objective we aim to realise this objective by increasing customer
satisfaction through a focus on improving service quality as we
strive for the optimum performance and implementing a reliability
enhancement programme to improve service to our customers 
a significant increase in spending on our infrastructure is under way
in order to modernise it to attain service quality goals
our approach to working towards our safety and occupational
health objective is to cultivate a culture in which acting safely
becomes second nature zero injuries every day for both our
employees and the people within our service territories is our 
goal and we believe this is achievable and sustainable we will
continue to collaborate with regulators policy makers and
customers to advance the development of the competitive
electricity and natural gas marketplace
in line with our reliability objective in order to improve
performance we have developed and begun execution of a five
year reliability enhancement programme this is made up of four
main categories of work
vegetation management – incremental tree trimming to
address an increase in customer interruptions related to
contacts with tree limbs
feeder hardening – upgrading our worstperforming overhead
electric circuits by replacing aged and deteriorated components
and protecting against lightning strikes and animal contacts
asset replacement – replacing aging distribution equipment
before its expected end of life including poles underground
cable and substation equipment and
inspection and maintenance – increasing our preventive
maintenance and repair activities to find potential faults before
they occur
the planned capital investment of £290 million over the next 
five years from these initiatives will be recovered from customers
in accordance with our rate plans the remaining incremental
operating costs will be offset by efficiencies created within 
our business
our workforce recruitment objective is to become the employer 
of choice we seek to source and hire the best and the brightest
to create a workplace as diverse as the population 
we serve our strategy is to expand conventional sourcing
strategies such as educational partnerships and offer
challenging career opportunities and succession plans to 
retain our valued employees we are committed to creating a climate that values respects
appreciates and celebrates the unique differences of all employees
stakeholders and customers the objective is to be a company
that better reflects our customer base and is recognised for our
inclusion and diversity efforts by our employees peers and the
communities we serve 
current and future developments
we expect to complete the purchase of southern union
company’s rhode island gas distribution network this summer 
the transaction is subject to approval by state regulatory
authorities 
we are moving forward with the proposed acquisition of keyspan
corporation this is subject to approvals from the federal 
state and local authorities our shareholders and keyspan’s
shareholders and is planned to be completed in early 2007
these two transactions combined with our current us
operations will make us the third largest gas distribution business
in the us based on customers in the us
performance during the year
operational performance
our progress toward our operational objectives included 
the following
safety the number of employee lost time injuries in the us
electricity and gas distribution business fell from 81 
recorded at the end of 200405 to 66 in 200506 
a decrease of 19
as a consequence our lost time injury frequency rate
reduced from 05 in 200405 to 045 in 200506
customer we met or improved our standards on customer
service service earning an incentive of £23 million in
massachusetts
reliability we missed targets for reliability in the 2005 calendar
year incurring an aggregate penalty of £87 million
we are committed to reducing the frequency and
duration of service interruptions
financial performance 
the results of the us electricity and gas distribution segment for
the years ended 31 march 2006 and 2005 were as follows
2005
constant
2006 currency 2005
years ended 31 march £m £m £m
revenue 3711 3225 3087
other operating income 2 – –
operating costs excluding 
exceptional items 3349 2833 2712
adjusted operating profit 364 392 375
exceptional items – 122 117
operating profit 364 270 258
the average exchange rates used to translate the results of 
us operations during 200506 and 200405 were 179£1 
and 187£1 respectively in order to illustrate underlying
performance the impact of exchange rate movements has been
separated from other changes by also presenting the operating
results for 200405 on a constant currency basis using the
average exchange rate for 200506 of 179£1
the principal movements between 200506 and 200405 can be
summarised as follows
revenue
and other
operating operating operating
income costs profit
£m £m £m
200405 results 3087 2829 258
add back 200405 exceptional items – 117 117
200405 adjusted results 3087 2712 375
exchange movements 138 121 17
200405 constant currency 3225 2833 392
purchased power 439 444 5
volume 18 – 18
weather 14 – 14
storm costs – 13 13
depreciation and amortisation – 7 7
pension costs – 23 23
other 17 29 12
200506 results 3713 3349 364
us electricity and gas distribution revenue increased by
£486 million in 200506 compared with 200405 on a constant
currency basis this was primarily due to the recovery of higher
purchased power costs of £439 million commodity costs are
recovered in full from customers although the recovery of these
costs can occur in more than one financial year the remaining
increases in revenue were due to favourable weather impact 
of £14 million primarily due to the hot summer weather and
underlying growth which added £18 million as weathernormalised
deliveries to residential customers increased 17 over last year
us electricity and gas distribution operating costs excluding
exceptional items increased by £516 million in 200506 compared
with 200405 on a constant currency basis this was primarily
due to higher purchased power costs of £444 million which as
mentioned above are recovered from customers the remainder
of the variance was largely due to increased pension costs of 
£23 million the majority of which will be recovered from customers
beginning in 200607 an increase in depreciation and amortisation
expense of £7 million as capital projects including new it
systems went into service and higher storm costs of £13 million 
the £28 million decrease in adjusted operating profit from us 
gas and electricity distribution was primarily due to a £23 million
increase in pension costs the majority of which will be recovered
in future years as described above and timing in the recovery of
commodity costs excluding these items us electricity and gas
distribution operating profit was flat year on year growth was
offset by higher depreciation and amortisation expense the
increase in deliveries due to weather was offset by higher storm
costs the strong focus on managing bad debts resulted in an
increase of only £2 million despite high gas and electricity prices
there were no exceptional items in 200506 and so adjusted
operating profit was equal to operating profit in 200405
exceptional charges of £117 million related to restructuring costs
exceptional pension charges and increases in environmental
provisions
annual report and accounts 200506
national grid
50 operating and financial review
us electricity and gas distribution  annual report and accounts 200506
national grid
operating and financial review 51
us electricity and gas distribution and us stranded cost recoveries
capital investment 
capital investment in the replacement reinforcement and extension
of the us electricity and gas distribution networks was £244 million
in 200506 compared with £234 million in 200405
us electricity and gas distribution capital investment expenditure
increased by £10 million in 200506 reflecting a £10 million impact
of exchange rate movements there was also an increase of
£14 million due to an investment in our nantucket cable project
which was offset by a lease recapitalisation of £13 million and 
other capital reductions
us stranded cost recoveries
about the segment
principal activities
the us stranded cost recoveries segment captures the recovery
of some of our historical investments in generating plants
together with costs incurred under certain commodity purchase
contracts that were ‘stranded’ when we divested our generation
business during the industry restructuring in new england and
new york in addition this segment includes the recovery of
certain abovemarket costs of commodity purchase contracts
that were in place at the time of restructuring and deregulation
we are able with the approval of the utility commissions in the
states in which we operate to recover most of these costs
through a special rate charged to electricity customers pursuant
to the agreements with our regulators revenue from this segment
will decline as the recovery of stranded costs is completed
current and future developments
usgen settlement
in 1998 we transferred entitlement to power procured under
several longterm contracts to usgen new england inc which
agreed to fulfil our performance and payment obligations under
the contracts 
when usgen subsequently filed for bankruptcy as part of the
bankruptcy settlement we resumed the performance and payment
obligations under the power contracts and received proceeds 
of approximately £115 million we received £6 million in january
2005 and £109 million in june 2005 and we are crediting the
£115 million to customers through a reduction in their rates over
the period ending 31 december 2009
the cost of power under commodity purchase contracts is in
excess of market values for electricity and so power purchased is
currently being resold at a loss these losses are recovered in full
from customers although the recovery of these losses can occur 
in more than one financial year these contracts are carried in the
balance sheet at fair value with remeasurements recognised in the
income statement as energy prices fluctuate at 31 march 2006
these commodity purchase contract liabilities were carried at 
£169 million
performance during the year
financial performance
the results of the us stranded cost recoveries segment for the
years ended 31 march 2006 and 2005 were as follows
2005
constant
2006 currency 2005
years ended 31 march £m £m £m
revenue 511 427 409
operating costs excluding remeasurements 22 59 56
adjusted operating profit 489 486 465
remeasurements 49 40 38
operating profit 440 446 427
the average exchange rates used to translate the results of us
operations during 200506 and 200405 were 179£1 and
187£1 respectively to illustrate underlying performance the
impact of exchange rate movements has been separated from
other changes by also presenting the operating results for 200405
on a constant currency basis using the average exchange rate
for 200506 of 179£1
the £84 million increase in revenue comparing 200506 with
200405 resulted from the recovery of higher purchased power
contract costs and increased recoveries of stranded costs in
accordance with our rate plans
operating costs for us stranded cost recoveries increased 
by £81 million mainly because of higher purchased power 
contract costs
adjusted operating profit increased by £3 million to £489 million
remeasurements are related to changes in the carrying value 
of commodity contract liabilities operating profit decreased by 
£6 million as a consequence of the above changes wireless infrastructure
about the segment
principal activities
national grid wireless operates in the uk and the us in the uk
we are the leading independent provider of network infrastructure
to mobile network operators and one of two providers of
transmission networks for analogue and digital television and
radio broadcasters
our primary operations comprise
uk mobile we have around 5000 active sites used for mobile 
telephone communications our main activity is the provision 
infrastructure 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 13500
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 rollout of 3g
networks 
uk broadcast our broadcast transmission business is a network
infrastructure 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 purposebuilt 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
the uk broadcast market comprises four transmission platforms
terrestrial satellite cable and adsl broadband the terrestrial
platform is provided on a freetoair basis while other services
are typically bundled with a subscription package including other
products for example telephony or internet access 
analogue terrestrial television and radio signals are transmitted 
by a number of different broadcasting organisations including 
the bbc itv channel 4 and five as well as other regional
television companies and commercial radio stations in addition
there are six multiplex licences to provide digital terrestrial
television services with two licences held by the bbc one 
by d34 one by sdn and two by national grid wireless
national grid wireless is one of the two incumbent suppliers 
of terrestrial broadcasting infrastructure in the uk terrestrial
broadcasting infrastructure suppliers provide managed
transmission services to individual broadcasters consisting 
of the provision of dedicated broadcast equipment and network
access which represents the provision of shared sites and
equipment to support multiple services network access services
are regulated by ofcom because of the uniqueness of these sites
and assets 
ofcom licenses all services that relate to fixed and wireless
communications and broadcasting in the uk market
business drivers
the principal business drivers for the wireless infrastructure
segment are considered to be as follows
multiyear we have contracts with a number of broadcasters 
contractual of which the most significant is our contract with 
arrangements the bbc we also have longterm contracts with
mobile telecommunication providers in the uk
including vodafone orange tmobile hutchinson
3g and o2
uk digital the switchover in the uk from analogue to digital 
switchover television by 2012 will have major capital investment 
implications as well as freeing up spectrum for 
alternative uses
mobile another driver of our business is the continued 
operator demand for site infrastructure to support the 
demand 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 we expect the broadcast business to continue to
technology benefit from advances in technology over time
allowing additional channels to be offered to the
marketplace
main transmitting
stations
annual report and accounts 200506
national grid
52 operating and financial review
wireless infrastructure annual report and accounts 200506
national grid
operating and financial review 53
wireless infrastructure
current and future developments
completion of integration
during 200506 we completed the process of integrating the 
uk operations of crown castle international corp which we
acquired for £11 billion in august 2004 
this enabled us to achieve a runrate of £18 million cash savings
ahead of the march 2006 target
new digital multiplex channels
due to improvements in multiplexing technology three new
channels were successfully launched in the year
uk digital switchover 
a significant change within the uk terrestrial broadcast market 
is the transition from analogue to digital television broadcasting
this is expected to take place on a region by region basis over
the six years to 2012 and will involve the rollout of new national
broadcast infrastructure
we are currently working closely with the broadcast industry and
government on the planning of switchover we expect to invest
over £200 million in new common digital television broadcast
infrastructure over the six years to 2012 and around £50 million 
on our own digital broadcast transmission assets 
during the year we successfully secured an extension to our
largest broadcast contract for the provision of analogue television
and radio services to the bbc during the switchover period
network access price control
during the year ofcom introduced regulatory requirements
governing network access services including access to the
masts the towers the buildings and equipment used for
broadcasting 
under these regulations we have to provide fair reasonable and
nondiscriminatory access to these assets ofcom is currently
consulting on the regulatory framework for public service
broadcasting it has provisionally announced that we can earn a
return before specific risk adjustments of 104 before tax on
the assets used for this service the final outcome is still awaited
performance during the year
operating performance
objective performance
safety the major operational risks in our business arise 
from working at height and driving during 200506
wireless infrastructure had one employee lost time
injury compared with five in 200405
as a consequence our lost time injury frequency rate
reduced from 025 in 200405 to 007 in 200506
reliability our broadcast networks operate with an average
availability in excess of 999
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 
the results for wireless infrastructure for the years ended
31 march 2006 and 2005 were as follows
2006 2005
years ended 31 march £m £m
revenue 325 208
other operating income – 3
operating costs excluding exceptional items 250 169
adjusted operating profit 75 42
exceptional items 5 13
operating profit 70 29
the principal movements between 200405 and 200506 can be
summarised as follows
revenue
and other
operating operating operating
income costs profit
£m £m £m
200405 results 211 182 29
add back 200405 exceptional items – 13 13
200405 adjusted results 211 169 42
full year trading results and synergies 114 81 33
200506 adjusted results 325 250 75
200506 exceptional items – 5 5
200506 results 325 255 70
the £114 million increase in wireless infrastructure revenue and
other operating income £81 million increase in operating costs
and £33 million increase in adjusted operating profit between
200506 and 200405 primarily reflects a full year’s 200405
seven months contribution from the uk operations of crown
castle international corp synergies and underlying profit growth
exceptional charges of £13 million in 200405 and £5 million in
200506 primarily relate to restructuring costs incurred in the
acquisition and integration of the uk operations of crown castle
international corp into national grid wireless
capital expenditure
capital investment in wireless infrastructure was £43 million 
in 200506 compared with £19 million in 200405 
the increase in capital expenditure primarily reflects a full year’s
capital expenditure compared with seven months capital
spending in 200405 other activities
about other activities
principal activities
other activities include the following businesses and activities
business 
or activity description
metering 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 the basslink project is a 600 mw interconnector 
australia 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 national grid property is responsible for the 
property 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 fulcrum connections is the largest provider of gas 
connections 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 this includes corporate overheads that are not 
activities allocated to individual businesses and expenditure
incurred on business development
external and regulatory environment
the majority of our other businesses either operate in markets
related to those of our principal businesses or provide support to
our own businesses
with the exception of national grid metering which is subject to
price controls our other businesses are only indirectly affected by
the relevant regulatory regimes grain lng was granted an
exemption by ofgem from the regulated third party access
provisions for both phase i and phase ii of the development the
exemption introduced certain obligations to put in place effective
measures to allow third parties to access unused capacity the
exemption is similar in nature to that in place at other new gas
supply infrastructure projects in the uk
national grid metering is regulated by ofgem as it has a dominant
market position in the provision of existing meters to uk gas
suppliers onstream is a participant in the competitive market that
now exists in the provision of new meters to gas and electricity
suppliers who wish to install or to replace meters as required
national grid australia is a supplier to a regulated electricity utility
hydro tasmania and so is indirectly affected by the requirements
of state and federal energy regulators in australia
business drivers
the principal business drivers for our other activities are
considered to be as follows
regulatory national grid metering operates within the 
price controls parameters set out within its licence 
multiyear the majority of national grid metering’s domestic 
contractual meters are covered by longterm contracts with gas 
arrangements suppliers these contracts provide gas suppliers with
the flexibility to replace our meters while reducing the
risk of asset stranding
onstream has a fiveyear contract with centrica for
the provision of gas and electricity meters
national grid australia has a 25year contract with
hydro tasmania to build own and operate the
basslink interconnector
phase i of grain lng is underpinned by a longterm
contract with bpsonatrach similarly phase ii
currently under construction is underpinned by long
term contracts signed with centrica gaz de france
and sonatrach 
capital we seek to make capital investments in projects 
investment 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 
current and future developments
grain lng
in july 2005 commercial operations for the first phase of the isle
of grain lng import terminal commenced the second phase of
development at the isle of grain lng import terminal announced
in march 2005 is now under way and is expected to be
completed by the end of 2008 this next phase will increase the
facility’s capacity to import and process lng from 33 million tonnes 
per year up to 98 million tonnes per year representing around
13 of current annual uk gas demand grain lng phase i was
completed in the year at a cost of £132 million and we have
spent £117 million of the £355 million to be invested in phase ii
market demand for a third phase of development is currently
being evaluated
annual report and accounts 200506
national grid
54 operating and financial review
other activities annual report and accounts 200506
national grid
operating and financial review 55
other activities
national grid australia
during the year we invested a further £71 million in basslink and
excluding financing costs total construction costs amounted to
£323 million
following a project delay the basslink interconnector was
successfully commissioned in april 2006
basslink can provide up to 600 mw of hydroelectricity to
mainland australia and over 300 mw of electricity into tasmania
metering
both national grid metering and onstream are investing in 
new automated meter reading systems in response to 
customer requirements
other developments
the hse has recently issued new planning guidance on the
development of sites in close proximity to hazardous installations
including gas holders without taking mitigating action this may
lead to a reduction in the selling price likely to be realised for 
our sites located close to gas holders as such we are currently
assessing the consequence for our portfolio along with the
actions we can take to mitigate the impact of the new guidance
performance during the year
operating performance
our progress against our principal nonfinancial operating
objectives during the year included the following
objective performance
safety there was an increase in the total number of employee
lost time injuries in other businesses and corporate
activities from 10 in 200405 to 12 in 200506
reliability our other businesses operated reliably throughout
the year
invest for we completed two major capital investment projects 
future growth being phase i of grain lng which commenced
operations in july 2005 and the basslink interconnector
which commenced operations in april 2006
financial performance 
the results for other activities for the years ended 31 march 2006
and 2005 were as follows
2006 2005
years ended 31 march £m £m
revenue 701 734
other operating income 74 67
operating costs excluding exceptional items 630 649
adjusted operating profit 145 152
exceptional items 18 33
operating profit 163 119
the principal movements between 200405 and 200506 can be
summarised as follows
revenue
and other
operating operating operating
income costs profit
£m £m £m
200405 results 801 682 119
add back 200405 exceptional items – 33 33
200405 adjusted results 801 649 152
metering 10 38 28
property 4 10 14
grain lng 27 16 11
insurance 15 2 13
other 24 5 19
200506 adjusted results 775 630 145
200506 exceptional items – 18 18
200506 results 775 612 163
revenue and other operating income from other activities has
fallen from £801 million in 200405 to £775 million in 200506
primarily due to reduced revenue from our metering businesses
where reductions at national grid metering were partially offset 
by revenue growth in onstream and reductions in other revenue
including property insurance and other businesses these
decreases were partially offset by an increase in revenue from
grain lng following its successful commissioning in july 2005
operating costs excluding exceptional items reduced by
£19 million to £630 million in 200506 the lower costs for
metering are linked to the reduction in revenues along with
further cost savings arising from operational efficiencies this 
was partially offset by an increase in costs at grain lng
exceptional items explain the difference between adjusted
operating profit and operating profit the favourable movement
this year principally relates to the gain on sale of energis 
polska and the reversal of a previous impairment in copperbelt 
energy corporation
capital expenditure
capital expenditure in 200506 amounted to £350 million an
increase of £47 million compared with £303 million in 200405
this reflected an increase of £85 million invested in the grain 
lng import terminal a net increase of £19 million in our metering
businesses and £42 million from the purchase of national grid
house in warwick partially offset by a reduction of £65 million 
in australia as a result of the completion of the basslink
interconnector £16 million in other property capital expenditure
and £18 million in other activities financial position and 
financial management
going concern
having made enquiries the directors consider that the company
and the group have adequate resources to continue in business
for the foreseeable future and that it is therefore appropriate to
adopt the going concern basis in preparing the accounts
we intend to finance the proposed acquisition of keyspan for 73
billion £42 billion together with the assumption of debt of 45
billion £26 billion through operating cash flows existing credit
facilities future facilities and other financing that we reasonably
expect to be able to secure in the future 
capital structure
balance sheet
our balance sheet at 31 march 2006 can be summarised as
follows
net
assets liabilities assets
£m £m £m
property plant  equipment
and noncurrent intangible assets 19256 – 19256
goodwill and noncurrent investments 2302 – 2302
current assets and liabilities 1668 2749 1081
other noncurrent assets and liabilities 38 2255 2217
postretirement obligations – 1915 1915
deferred tax 159 2161 2002
total before net debt 23423 9080 14343
net debt 2501 13351 10850
total as at 31 march 2006 25924 22431 3493
total as at 31 march 2005 27560 25439 2121
the increase in net assets from £2121 million at 31 march 2005
to £3493 million at 31 march 2006 resulted from the profit from
continuing operations of £1217 million the profit for the year
from discontinued operations of £2633 million net income
recognised directly in equity of £250 million and other changes 
in equity of £69 million partially offset by the return of value to
shareholders of £2009 million dividends paid of £745 million 
and the effect of the implementation of ias 39 of £43 million
net debt and gearing
net debt decreased by £27 billion from £136 billion at 31 march
2005 to £109 billion at 31 march 2006 primarily as a result of
debt repayments following the disposals of the four regional gas
networks for £58 billion partially offset by the £2 billion return of
capital to shareholders and an increase of £04 billion relating to
the adoption of ias 39 on financial instruments
the composition of net debt at 31 march 2006 is shown in note
33 to the accounts
gearing at 31 march 2006 and 31 march 2005 calculated as net
debt at that date expressed as a percentage of net debt plus net
assets shown in the balance sheet amounted to 76 and 87
respectively by comparison the gearing ratio adjusted for the
inclusion of uk and us regulated businesses at their estimated
regulatory asset values adjusted gearing ratio amounted to 60
at 31 march 2006 compared with 63 at 31 march 2005
the directors believe this adjusted ratio is a more relevant
measure of gearing than one based on book values alone
because the book values do not reflect the economic value of the
uk regulated business assets a reconciliation of the adjustments
necessary to calculate adjusted net assets is shown in the table
below
2006 2005
adjustment to net assets £m £m
net assets per balance sheet 3493 2121
adjustment for uk business regulatory values 2815 5821
adjustment for us regulatory assets 2702 2754
deferred tax 1925 2848
adjusted net assets 7085 7848
shareholders’ equity
shareholders’ equity rose from £2111 million at 31 march 2005
to £3482 million at 31 march 2006 this increased for the same
reasons that net assets increased together with net movements
in minority interests of £1 million
liquidity and treasury management
cash flow
cash flows from our operations are largely stable over a period of
years but they do depend on the timing of customer payments
and exchange rate movements the group’s electricity and gas
transmission and distribution operations in the uk and us are
subject to multiyear rate agreements with regulators in the uk
this results in essentially stable cash flows in local currency terms
however weather conditions can affect cash flows in those
businesses with abnormally mild or extreme weather driving
volumes down or up respectively in the us the regulatory
mechanisms for recovering costs from customers can result in
very significant cash flow swings from year to year
cash flow forecasting
both short and longterm cash flow forecasts are produced
frequently to assist in identifying the liquidity requirements of the
group
these forecasts are supplemented by a financial headroom
position details of which are supplied to the finance committee
of the board regularly to demonstrate funding adequacy for at
least a 12month period the group also maintains a minimum
level of committed facilities in support of that objective
31 march
2005
31 march
2006
net debt
£bn
136
109
annual report and accounts 200506
national grid
56 operating and financial review
financial position and financial management annual report and accounts 200506
national grid
operating and financial review 57
financial position and financial management
credit facilities and unutilised commercial paper and
medium term note programmes
the group has both committed and uncommitted facilities that
are available for general corporate purposes
at 31 march 2006 national grid had a us30 billion us
commercial paper programme unutilised national grid
electricity transmission plc had a us10 billion us commercial
paper programme unutilised and a us10 billion euro
commercial paper programme unutilised and national grid and
national grid electricity transmission plc had a joint euro medium
term note programme of û6 billion û20 billion unissued
national grid gas plc had a us25 billion us commercial paper
programme unutilised and a us125 billion euro commercial
paper programme unutilised and national grid gas plc and
national grid gas holdings plc had a joint euro medium term
note programme of û10 billion û66 billion unissued at
31 march 2006 the group in the uk had £129 billion of long
term committed facilities undrawn £50 million of shortterm 
364 day committed facilities undrawn and us155 billion 
of shortterm 364 day committed facilities undrawn and
£10 billion of uncommitted borrowing facilities undrawn 
the shortterm committed facilities include an option to extend
these facilities
national grid’s us companies had committed facilities of 
us680 million all of which were undrawn at 31 march 2006 
these facilities provide liquidity support for the taxexempt debt
programmes for new england power company massachusetts
electric company and nantucket electric company
in addition to the above facilities at 31 march 2006 national grid
australia had an a630 million loan facility a50 million undrawn
and national grid electricity transmission plc has signed a loan
agreement for £200 million with the european investment bank
which can be drawn any time before june 2007
note 27 to the accounts shows the maturity profile of all undrawn
committed borrowing facilities of the group in sterling at
31 march 2006
treasury policy
the funding and treasury risk management of the group is
carried out under policies and guidelines approved by the board
the finance committee a board committee for further details
see page 70 is responsible for regular review and monitoring 
of treasury activity and for approval of specific transactions the
authority for which may be delegated the group has a treasury
function that raises all the funding for the group and manages
interest rate and foreign exchange rate risk
the group has financing programmes for each of the main group
companies the finance committee and the finance committee
or board of the appropriate group undertaking approve all
funding programmes the treasury function is not operated as a
profit centre debt and treasury positions are managed in a non
speculative manner such that all transactions in financial
instruments or products are matched to an underlying current or
anticipated business requirement
the use of derivative financial instruments is controlled by policy
guidelines set by the board derivatives entered into in respect 
of gas and electricity commodities are used in support of
operational requirements and the policy regarding their use 
is explained on page 59
the group had borrowings outstanding at 31 march 2006
amounting to £13126 million 31 march 2005 £14290 million
the table in note 27 shows the expected maturity of these
borrowings
the group has in place appropriate committed facilities and
believes that the maturing amounts in respect of its contractual
obligations as shown in ‘commitments and contingencies’ on
page 60 can be met from these facilities operating cash flows
and other refinancings that it reasonably expects to be able to
secure in the future the group’s financial position enables it to
borrow on the wholesale capital and money markets and most of
its borrowings are through public bonds and commercial paper
the group places surplus funds on the money markets usually 
in the form of shortterm fixed deposits that are invested with
approved banks and counterparties details relating to the
group’s cash shortterm investments and other financial assets
at 31 march 2006 are shown in notes 22 and 26 to the accounts
we have a longterm senior unsecured credit rating of baa1a
provided by moody’s and sp respectively in addition certain
group undertakings are also creditrated national grid electricity
transmission plc has a credit rating of a2a provided by moody’s
and sp respectively whereas national grid gas plc has a credit
rating of a2aa and national grid gas holdings plc has been
separately rated a3aa by moody’s sp and fitch respectively
in connection with the proposed acquisition of keyspan
corporation our ratings have been moved to ‘creditwatch with
negative implications’ by sp moody’s has placed the ratings 
of national grid gas plc national grid gas holdings plc and
national grid electricity transmission plc on negative outlook 
and the other group ratings on to review for downgrade we
expect the longterm credit ratings of national grid plc to reduce
by one notch as a direct result of the financing required for the
keyspan acquisition
it is a condition of the regulatory ringfences around national grid
electricity transmission plc national grid gas plc and national
grid gas holdings plc that they use reasonable endeavours to
maintain an investment grade credit rating at these ratings 
the principal borrowing entities of the group should have good
access to the capital and money markets for future funding 
when necessary
the main risks arising from the group’s financing activities 
are set out on page 58 as are the policies for managing these
risks which are agreed and reviewed by the board and the
finance committee refinancing risk management
the board controls refinancing risk mainly by limiting the amount
of financing obligations both principal and interest arising on
borrowings in any financial year this policy restricts the group
from having an excessively large amount of debt to refinance in 
a given timeframe during the year a mixture of shortterm and
longterm debt was issued
interest rate risk management
the interest rate exposure of the group arising from its
borrowings and deposits is managed by the use of fixed and
floatingrate debt interest rate swaps swaptions and forward 
rate agreements our interest rate risk management policy is to
seek to minimise total financing costs being interest costs and
changes in the market value of debt subject to constraints so
that even with large movements in interest rates neither the
interest cost nor the total financing cost can exceed preset
limits some of the bonds in issue from national grid electricity
transmission plc and national grid gas holdings plc are index
linked that is their cost is linked to changes in the uk retail price
index rpi the group believes these bonds provide a good
hedge for revenues that are also rpilinked under the price
control formulae
the performance of the treasury function in interest rate risk
management is measured by comparing the actual total financing
costs of its debt with those of a passively managed benchmark
portfolio more information on the interest rate profile of our debt
is included in note 23 to the accounts
foreign exchange risk management
the group has a policy of hedging certain contractually committed
foreign exchange transactions over a prescribed minimum size 
it covers a minimum of 75 of such transactions expected to
occur up to six months in advance and a minimum of 50 of
transactions six to twelve months in advance cover generally
takes the form of forward sale or purchase of foreign currencies
and must always relate to underlying operational cash flows
the principal foreign exchange risk to which the group is exposed
arises from assets and liabilities denominated in us dollars in
relation to these risks the objective is to match the us dollar
proportion of the group’s financial liabilities to the proportion 
of its cash flow that arises in dollars and is available to service
those liabilities
foreign exchange fluctuations will affect the translated value of
overseas earnings and cash flows this translation has no impact
on the currency cash flows of the group and accordingly is not
hedged other than indirectly through the natural hedge of having
foreign currency interest expense arising on currency denominated
liabilities cash flows may be hedged through matching with
interest flows or by forward foreign exchange deals and options
the currency and average interest rate compositions of the
group’s financial liabilities and assets are shown in note 23 
to the accounts
counterparty risk management
counterparty risk arises from the investment of surplus funds and
from the use of derivative instruments the finance committee
has agreed a policy for managing such risk which is controlled
through credit limits approvals and monitoring procedures where
multiple transactions are entered into with a single counterparty 
a master netting arrangement can be put in place to reduce 
the group’s exposure to credit risk of that counterparty at the
present time the group uses standard international swap dealers
association isda documentation which provides for netting in
respect of all transactions governed by a specific isda agreement
with a counterparty when transacting interest rate and exchange
rate derivatives
derivative financial instruments held for purposes other
than trading
as part of its business operations the group is exposed to risks
arising from fluctuations in interest rates and exchange rates 
the group uses financial instruments derivatives to manage
exposures of this type and they are a useful tool in reducing risk
the group’s policy is not to use derivatives for trading purposes
derivative transactions can to varying degrees carry both
counterparty and market risk
the group enters into interest rate swaps to manage the
composition of fixed and floatingrate debt and so hedge the
exposure of borrowings to interest rate movements in addition
the group enters into bought and written option contracts on
interest rate swaps these contracts are known as swaptions
the group also enters into foreign currency swaps to manage the
currency composition of borrowings and so hedge the exposure
to exchange rate movements certain agreements are combined
foreign currency and interest rate swap transactions such
agreements are known as crosscurrency swaps
the group enters into forward rate agreements to hedge interest
rate risk on shortterm debt and money market investments
forward rate agreements are commitments to fix an interest rate
that is to be paid or received on a notional deposit of specified
maturity starting at a future specified date
more details on derivative financial instruments are provided in
note 23 to the accounts
valuation and sensitivity analysis
the group calculates the fair value of debt and derivative
instruments by discounting all future cash flows by the market
yield curve at the balance sheet date the market yield curve for
each currency is obtained from external sources for interest and
foreign exchange rates in the case of instruments that include
options the black’s variation of the blackscholes model is used
to calculate fair value
the valuation techniques described above for interest rate swaps
and currency swaps are a standard market methodology these
techniques do not take account of the credit quality of either
party but this is not considered to be a significant factor unless
there is a material deterioration in the credit quality of either party
annual report and accounts 200506
national grid
58 operating and financial review
financial position and financial management annual report and accounts 200506
national grid
operating and financial review 59
financial position and financial management
in relation to swaptions we use swaptions for hedging purposes
with a european style exercise as a consequence the black’s
variation of the blackscholes model is considered to be sufficiently
accurate for the purpose of providing fair value information in relation
to these types of swaptions more sophisticated valuation models
exist but the group does not believe it is necessary to employ
these models given the limited extent of its activities in this area
for debt and derivative instruments held the group utilises a
sensitivity analysis technique to evaluate the effect that changes
in relevant rates or prices will have on the market value of 
such instruments
at 31 march 2006 the potential change in the fair value of the
aggregation of longterm debt and derivative instruments
assuming an increase or decrease of 10 in the level of interest
rates and exchange rates was £44 million and £46 million for
interest rates and £427 million and £521 million for exchange
rates respectively
commodity contracts
power purchase contracts for normal sale and purchase
in the us we purchase electricity and gas to supply to our
customers the electricity contracts many of which are longterm 
in nature enable us to provide the electricity purchased by
customers who do not choose to purchase their energy from
independent suppliers gas is purchased on behalf of those
customers who continue to buy supply service from us and
encompasses both the gas itself and the interstate transportation
and storage services required to deliver gas to our system in
addition we purchase electricity and gas in both the uk and 
the us for our own operational requirements
commodity derivatives
in the normal course of business the group is party to
commodity derivatives these have included indexed swap
contracts gas futures electricity swaps gas options gas
forwards and gas basis swaps that are principally used to
manage commodity prices associated with its gas and electricity
delivery operations this includes the repurchase of capacity
rights already sold in accordance with our uk gas transporter
licences and uniform network code obligations
these financial exposures are monitored and managed as an
integral part of the group’s financial risk management policy 
at the core of this policy is a condition that the group will engage
in activities at risk only to the extent that those activities fall within
commodities and financial markets to which it has a physical
market exposure in terms and volumes consistent with its core
business the group does not issue or intend to hold derivative
instruments for trading purposes and holds such instruments
consistent with its various licence and regulatory obligations in 
the uk and us
commodity contracts carried at fair value
as a result of the restructuring of the electricity industry in new
york state a portion of existing power purchase agreements were
replaced in 1998 with indexed swap contracts that expire in june
2008 these indexed swaps are the subject of regulatory rulings
that allow the gains and losses to be passed on to customers
at 31 march 2006 the group had liabilities of £309 million
31 march 2005 £327 million in respect of the above indexed
swap contracts the liability will be discharged over the remaining
term of the swaps as nominal energy quantities are settled and
will be adjusted as periodic reassessments are made of energy
prices a 10 movement in the market price of electricity and
gas would result in a £12 million movement in the value of the
indexlinked swap contracts assuming a us dollar to sterling
exchange rate of 179£1 
the fair value of the indexlinked swap contracts is based on the
difference between projected future market prices and projected
contract prices as applied to the notional quantities stated in the
contracts and discounted using a us treasury bill rate curve to
the current present value
payments made under indexed swap contracts are affected by
the price of natural gas and we use new york mercantile
exchange nymex gas futures as hedges to mitigate the volatility
of this impact the futures contracts are derivative commodity
instruments with gains and losses deferred as an offset to the
corresponding increases and decreases in the swap payments 
we do not currently use options to hedge gas commodity
requirements gains relating to gas futures as at 31 march 2006
were not material
our rate agreement in new york allows for collection of the
commodity cost of natural gas sold to customers the regulator
also requires that actions be taken to limit the volatility in gas
prices passed on to customers we meet this requirement
through the use of nymex gas futures these contracts are
hedges of our natural gas purchases gains and losses are
deferred until the month that the hedged contract settles 
at 31 march 2006 deferred gains on these contracts were
immaterial in the context of the group as a whole
during 200506 a number of power purchase contracts reverted
to us as part of the settlement arising from usgen’s bankruptcy
as described on page 51 the power contracts were originally
entered into prior to the restructuring of the electricity industry 
in new england the power delivered is not required for our
normal energy delivery activities and is sold in the energy markets
at prices that are currently significantly below the amount we are
required to pay the fair value of these contracts amounted to
£169 million at 31 march 2006 not applicable at 31 march 2005
a 10 movement in the market price of electricity and gas would
result in a £16 million movement in the value of these contracts
assuming a us dollar to sterling exchange rate of 179£1
we are also a party to several other power purchase arrangements
entered into by the former generating business the output of
which is sold to third parties through backtoback arrangements
the agreements extend for various terms through 2017 we
recover the costs incurred under the contracts net of proceeds
received on sales from customers as part of the us stranded
cost recoveries segment as at 31 march 2006 our obligations under these agreements
totalled 13 billion £07 billion and our expected revenues from
sales was 09 billion £05 billion the fair value of the difference
between our obligations and the expected revenues from sales is
recorded in the balance sheet within commodity contract liabilities
commodity trading
in our uk gas transmission operations we are obliged to offer for
sale through a series of auctions both short and longterm a
predetermined quantity of entry capacity for every day in the year
at specified locations where on the day the gas transmission
system’s capability is constrained such that gas is prevented
from entering the system for which entry capacity rights have
been sold then uk gas transmission is required to buy back
those entry capacity rights sold in excess of system capability
forward and option contracts are used to reduce the risk and
exposure to ontheday entry capacity prices
our uk electricity transmission operations have also entered into
electricity options pursuant to the requirement to stabilise the
electricity market in great britain through the operation of betta
the options are for varying terms and have been entered into so
that the group has the ability to deliver electricity as required to
meet its obligations under the electricity transmission licence the
group has not and does not expect to enter into any significant
derivatives in connection with its betta role
commitments and contingencies
the group’s commitments and contingencies outstanding at
31 march are summarised in the table below
2006 2005
£m £m
future capital expenditure contracted 
but not provided for 1343 927
total operating lease commitments 831 930
power commitments 5453 4915
other commitments contingencies and guarantees 334 349
information regarding the group’s obligations under pension and
other postretirement benefits is given below under the heading
‘pensions and other postretirement obligations’
the power commitments shown in the commitments and
contingencies table above reflect the group’s obligation to
purchase energy under longterm contracts these contracts are
used in respect of the normal sale and purchase requirements for
the group and do not include commodity contracts carried at fair
value as described on page 59
in addition to the above we have entered into agreements to
purchase keyspan corporation for 73 billion £42 billion
together with the assumption of debt of 45 billion £26 billion
and southern union’s rhode island gas distribution network for
cash consideration of 498 million £286 million and assumed
debt of 77 million £44 million as described on page 21 
the group proposes to meet all of its commitments from
operating cash flows existing credit facilities future facilities 
and other financing which we reasonably expect to be able to
secure in the future
contractual obligations at 31 march 2006
the table of contractual obligations shown below analyses the
longterm contractual obligations of the group according to its
payment period
purchase obligations reflect the group’s commitments under
power commitments and future capital expenditure contracted 
for but not provided the other longterm liabilities reflected 
in the balance sheet at 31 march 2006 comprise commodity
contracts carried at fair value and trade and other liabilities that
represent contractual obligations 
less than more than
contractual obligations total 1 year 13 years 35 years 5 years
total borrowings 13126 2839 1690 1383 7214
derivative financial
liabilities 222 92 6 7 117
operating lease 
commitments 831 87 156 138 450
purchase obligations 6796 2847 1688 682 1579
trade and other liabilities 
reflected in the 
balance sheet 2394 1756 420 125 93
23369 7621 3960 2335 9453
off balance sheet arrangements
there were no significant off balance sheet arrangements other
than the contractual obligations and commitments and
contingencies described above
pensions and other postretirement obligations
uk retirement arrangements
the group operates three uk occupational pension schemes
the national grid uk pension scheme formerly named the
lattice group pension scheme national grid uk scheme 
the national grid electricity group of the electricity supply
pension scheme national grid electricity scheme and 
the national grid wireless pension scheme formerly named
the crown castle uk pension scheme the wireless
scheme 
with the exception of the national grid uk scheme which 
also has a defined contribution section the above schemes 
are defined benefit pension schemes all three defined benefit
pension schemes are closed to new entrants membership of the
defined contribution section of the national grid uk scheme is
offered to all new employees in the uk
actuarial valuations of the wireless scheme and the national grid
uk scheme are being carried out at 31 december 2005 and
31 march 2006 respectively and have not yet been completed
the last actuarial valuation for the national grid electricity
scheme was as at 31 march 2004 
the last completed full actuarial valuation of the national grid uk
scheme was as at 31 march 2003 this concluded that the pre
tax deficit was £879 million £615 million net of tax in the defined
benefit section on the basis of the funding assumptions adopted
by the actuary an interim annual assessment of the national grid
uk scheme was conducted at 31 march 2005 this assessment
showed that the deficit had decreased in the defined benefit section
on the basis of the funding assumptions adopted by the actuary
annual report and accounts 200506
national grid
60 operating and financial review
financial position and financial management annual report and accounts 200506
national grid
operating and financial review 61
financial position and financial management
it has been agreed that no funding of the deficit identified in the
2003 actuarial valuation will need to be provided to the scheme
until the outcome of the actuarial valuation at 31 march 2007 is
known at this point the group will pay the gross amount of any
deficit up to a maximum amount of £520 million £364 million net
of tax into the scheme until the 31 march 2007 actuarial
valuation has been completed the group has arranged for banks
to provide the trustees of the national grid uk scheme with
letters of credit the main conditions under which these letters of
credit could be drawn relate to events which would imperil the
interests of the scheme such as national grid gas plc a group
undertaking becoming insolvent or the group failing to make
agreed payments into the fund employer cash contributions for
the ongoing cost of the national grid uk scheme are currently
being made at a rate of 237 of pensionable payroll
the actuarial valuation of the national grid electricity scheme at
31 march 2004 was completed during the year ended 31 march
2005 and revealed a pretax deficit of £272 million £190 million
net of tax on the basis of the funding assumptions adopted by
the actuary
it has been agreed that no funding of the deficit identified in the
2004 actuarial valuation will need to be provided to the scheme
until the outcome of the actuarial valuation at 31 march 2007 is
known at this point the group will pay the gross amount of any
deficit up to a maximum amount of £68 million £48 million net of
tax into the scheme until the 31 march 2007 actuarial valuation
has been completed the group has arranged for banks to provide
the trustees of the national grid electricity scheme with letters of
credit the main conditions under which these letters of credit
could be drawn relate to events which would imperil the interests
of the scheme such as national grid electricity transmission plc
a group undertaking becoming insolvent or the group failing to
make agreed payments into the fund employer cash contributions
for the ongoing cost of the national grid electricity scheme are
currently being made at a rate of 131 of pensionable payroll
the last completed full actuarial valuation of the wireless scheme
was as at 31 december 2002 this revealed that the pretax
deficit was £3 million £2 million net of tax on the basis of the
funding assumptions adopted by the actuary employer cash
contributions for the ongoing cost of the wireless scheme are
currently being made at a rate of 184 of pensionable payroll
us retirement arrangements
the group operates defined benefit pension plans for its us
employees postretirement healthcare and life insurance benefits
are also provided to qualifying retirees
our us operations companies have noncontributory defined
benefit pension plans covering substantially all employees all
employees except unionrepresented employees hired on or
after 15 july 2002 participate in a cash balance pension plan
design under that design paybased credits are applied based
on service time and interest credits are applied based on 
an average annual 30year treasury bond yield nonunion
employees hired by our new england business prior to 15 july
2002 and new england business union employees generally
participate in the historic final average pay pension plans which
have been in effect for several decades in addition a large
number of employees hired by our new york business prior to
july 1998 are cash balance design participants who receive a
larger benefit if so yielded under precash balance conversion
final average pay formula provisions employees hired by our 
new york business following the august 1998 cash balance design
conversion participate under cash balance design provisions only
supplemental nonqualified noncontributory executive retirement
programmes provide additional defined pension benefits for 
certain executives
we also provide postretirement benefits other than pensions
benefits include healthcare and life insurance coverage to eligible
retired employees eligibility is based on certain age and length of
service requirements and in some cases retirees must contribute
to the cost of their coverage 
in new england except in unusual circumstances the funding
policy is to contribute to the plans each year the maximum tax
deductible amounts for that year in new york the funding policy
is determined largely by our settlement agreements with the new
york public service commission and the amounts recovered in
rates however the contribution for any year will not be less than
the minimum contribution required by federal law or greater than
the maximum taxdeductible amount
we manage our benefit plan investments to minimise the long
term cost of operating the plans with a reasonable level of risk
risk tolerance is reviewed based on the results of a periodic
assetliability study this study includes an analysis of plan
liabilities and funded status and results in the determination of 
the allocation of assets across equity and fixed income equity
investments are broadly diversified across us and nonus
equities as well as across growth value and small and large
capitalisation equity likewise the fixed income portfolio is
broadly diversified across the various fixed income market
segments for the other postretirement benefits since the
earnings on a portion of the assets are taxable those investments
are managed to maximise aftertax returns consistent with the
broad asset class parameters established by the asset allocations
investment risk and return are reviewed on a quarterly basis
details of material litigation to which the group was
a party at 31 march 2006
the group was not party to litigation that was considered to be
material at 31 march 2006
related party transactions
the group provides services to and receives services from related
parties in the year ended 31 march 2006 the group charged
£4 million and received charges of £32 million from its related
parties other than directors compared with £4 million and
£24 million respectively in 200405 
further information on related party transactions is contained
within note 34 to the accounts accounting policies
basis of accounting
the consolidated financial statements present our results for 
the years ended 31 march 2006 and 2005 and our financial
position as at 31 march 2006 and 2005 they have been
prepared using the accounting policies shown in accordance
with international financial reporting standards ifrs as
adopted by the european union
we also provide a reconciliation from our results and financial
position as prepared under ifrs to the results and financial
position as if they had been prepared in accordance with
generally accepted accounting principles in the united states 
us gaap together with condensed us gaap financial
information a discussion of the principal differences between
ifrs and us gaap is provided on pages 66 and 67
segmental reporting
in addition to presenting the consolidated financial results and
financial position in the financial statements we provide a
breakdown of those results and balances into our business
segments the presentation of segment information is based on
the management responsibilities that existed at 31 march 2006
our business segments are uk electricity and gas transmission
us electricity transmission uk gas distribution us electricity and
gas distribution us stranded cost recoveries and wireless
infrastructure with our other businesses and corporate activities
including business development being aggregated within other
activities our geographical segments reflect the group’s principal
activities in the uk and the us
uk lng storage activities and the scottish and french electricity
interconnectors are now included within the uk electricity and
gas transmission segment having previously been reported within
other activities this change in segmental presentation follows a
change in the organisational and management structure within
the group and the change in regulatory arrangements for the
scottish interconnector following the introduction of betta
the results of the four gas distribution networks sold on 1 june
2005 are no longer included within the uk gas distribution
segment but are instead presented as discontinued operations 
adoption of ifrs
with effect from 1 april 2005 we present our consolidated
financial statements in accordance with ifrs
note 1 to the consolidated financial statements presents the
impact of conversion from uk gaap to ifrs on the financial
results for the year ended 31 march 2005 and the financial
position at 31 march 2005 and 1 april 2004 as permitted by the
us securities and exchange commission only one year of ifrs
comparatives are included in the financial statements for the year
ending 31 march 2006 and hence the results for the year ended
31 march 2004 have not been presented under ifrs 
the principal differences in our reported results and financial
position between uk gaap and ifrs are as follows
replacement replacement expenditure primarily relating to our uk 
expenditure gas distribution networks was expensed under uk
gaap but is capitalised under ifrs
regulatory regulatory assets principally representing the right to 
assets 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 goodwill was amortised under uk gaap under ifrs 
intangible goodwill is not amortised and we have elected to 
assets 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
postretirement under ifrs the actuarially calculated value of
benefits 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 deferred tax under uk gaap was recorded based 
taxation 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 under uk gaap the proposed final dividend was 
final recorded as a liability in the balance sheet under ifrs
dividend it is not recorded as a liability until the subsequent
financial period
annual report and accounts 200506
national grid
62 operating and financial review
accounting policies annual report and accounts 200506
national grid
operating and financial review 63
accounting policies
summary of the impact of adoption of ifrs
the impact of the adoption of ifrs on net assets at 31 march
2005 and 1 april 2004 can be summarised as follows
31 march 1 april
2005 2004
£m£m
net assets as reported under uk gaap 1391 1271
replacement expenditure 3014 2778
non recognition of regulatory assets 1587 1791
goodwill and intangible assets 127 –
postretirement benefits 1149 1382
deferred taxation 95 84
proposed final dividend 469 366
nonequity minority interests 22 38
other 27 10
net assets reported under ifrs 2121 1110
the impact of the adoption of ifrs on the profit for the year
ended 31 march 2005 can be summarised as follows
2005
£m
profit for the year as reported under uk gaap 907
replacement expenditure 236
non recognition of regulatory assets 151
goodwill and intangible assets 105
postretirement benefits 41
deferred taxation 11
nonequity minority interests 2
other 3
profit for the year reported under ifrs 1424
less profit for the year from discontinued operations 304
profit for the year from continuing operations 1120
accounting for financial instruments
on 1 april 2005 we implemented new accounting policies for
financial instruments on the adoption of ias 32 and ias 39 as a
consequence derivative financial instruments are recorded on the
balance sheet at fair value with changes in those values recorded
in the income statement or in equity our new accounting policies
are described on pages 97 and 98
the impact of the adoption was to increase net debt by £348 million
from £13638 million to £13986 million and to reduce net assets
by £43 million as described in note 2 to the accounts
as permitted by ifrs 1 we adopted ias 32 and ias 39 with 
no restatement of comparatives and so the balance sheet 
at 31 march 2005 and the income statement for the year 
then ended have not been restated for these changes in
accounting policies
choices made in adopting ifrs
we were required to make a number of choices on the adoption
of ifrs the principal choices available to us and the choices
adopted were as follows
option choices available choice adopted
date of 1 april 2003 – two periods 1 april 2004 – 
transition of ifrs comparatives one period of 
to ifrs
1 april 2004 – one period 
ifrs comparatives
of ifrs comparatives
business restate some or all previous do not restate 
combinations combinations prior business 
do not restate prior business 
combinations
combinations
in particular retain 
merger accounting 
for lattice merger
pensions recognise actuarial gains recognise actuarial 
and losses each year gains and losses 
adopt ‘corridor’ method 
each year in the 
going forward
statement of 
adopt ‘corridor’ method 
recognised income 
retrospectively
and expense
financial adopt ias 39 retrospectively adopt ias 39 on 
instruments
adopt ias 39 on 1 april 2004 
1 april 2005
adopt ias 39 on 1 april 2005
carrying value depreciated cost adjusted depreciated cost 
of assets at for ifrs changes adjusted for ifrs 
date of 
fair value at date of transition
changes in most 
transition cases
sharebased recognise all active grants recognise all 
payments retrospectively active grants 
recognise only grants since 
retrospectively
7 november 2002
already adopted 
under uk gaap
with frs 20
cumulative restate cumulative cumulative 
translation translations retrospectively differences from 
differences on 
cumulative differences 
1 april 2004 only
foreign subs
from 1 april 2004 only
joint ventures equity account jointly equity account 
controlled entities jointly controlled 
proportionally consolidate 
entities
jointly controlled entities
use of adopt ifrs for parent retain uk gaap 
uk gaap or company and subsidiaries for parent and 
ifrs in 
ifrs for parent uk gaap 
subsidiaries’
individual 
for subsidiaries
individual financial 
accounts
retain uk gaap for parent 
statements
and uk subsidiaries  critical accounting policies
the application of accounting principles requires us to make
estimates judgements and assumptions that may affect the
reported amounts of assets liabilities revenue and expenses and
the disclosure of contingent assets and liabilities in the accounts
on an ongoing basis we evaluate our estimates using historical
experience consultation with experts and other methods that we
consider reasonable in the particular circumstances to ensure
compliance with ifrs and us gaap respectively actual results
may differ significantly from our estimates the effect of which is
recognised in the period in which the facts that give rise to the
revision become known
certain of the group’s accounting policies have been identified 
as critical accounting policies as these policies involve particularly
complex or subjective decisions or assessments the discussion
of critical accounting policies below should be read in conjunction
with the description of the group’s accounting policies set out in
the group financial statements where critical accounting policies
adopted under us gaap are significantly different from the ones
adopted under ifrs additional information is included in the
discussion on our us gaap accounting on pages 66 and 67
our critical accounting policies and accounting treatments are
considered to be
estimated the reported amounts for amortisation of intangible
asset fixed assets and depreciation of property plant and 
economic equipment can be materially affected by the 
lives 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 200506 and £45 million and
£774 million respectively in 200405
carrying value the carrying value of assets recorded in the 
of assets and consolidated balance sheet could be materially 
potential for reduced if an impairment were to be assessed as
impairments being required our total assets at 31 march 2006
were £25924 million including £18935 million of
property plant and equipment £2142 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 valueinuse 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 revenue includes an assessment of energy and 
accruals 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 200506
amounted to £169 million in the us and £268 million
in the uk compared with £130 million and £276 million
respectively in 200405
assets and certain assets and liabilities principally financial 
liabilities carried investments derivative financial instruments and 
at fair value 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 we use derivative financial instruments to hedge
accounting 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 pensions and other postretirement benefit obligations
and other recorded in the balance sheet are calculated actuarially
postretirement using a number of assumptions about the future
benefit plans 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 at 31 march 2005 the planned sales of four of our 
for sale and regional gas distribution networks did not meet the 
discontinued criteria to be classified as assets held for sale on 
operations 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
annual report and accounts 200506
national grid
64 operating and financial review
accounting policies annual report and accounts 200506
national grid
operating and financial review 65
accounting policies
exceptional exceptional items in particular restructuring costs are 
items items of income or expense that are identified as
being material or oneoff 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
in order to illustrate the impact that changes in assumptions
could have on our results and financial position the following
sensitivities are presented
assets’ useful an increase in the useful economic lives of assets 
economic lives 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 a 10 change in our estimate of unbilled revenues
accruals 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 a 10 change in assets and liabilities carried at fair
at fair value 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 if the gains and losses arising on derivative financial 
accounting 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
accounting developments
new ifrs accounting standards and interpretations
adopted in 200506
in preparing its consolidated financial statements the group has
complied with international financial reporting standards
international accounting standards and interpretations applicable
for periods beginning on or after 1 april 2005
capital ‘amendment to ias 1 presentation of financial 
resource statements’ requires new disclosures to be made 
disclosures about management of capital resources and
compliance with capital requirements
actuarial ‘amendment to ias 19 employee benefits 
gains and actuarial gains and losses group plans and 
losses 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 ‘amendment to ias 39 financial instruments
hedges recognition and measurement cash flow hedge 
accounting of forecast intragroup transactions’
allows the foreign currency risk of a highly probable
forecast intragroup 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 ifrs 7 ‘financial instruments disclosures’ replaces 
instrument the disclosure requirements in ias 32 and locates
disclosures 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
the following accounting standards and interpretations have not
yet been adopted but are expected to be adopted by the group
in future periods implementation of the following interpretations
are not expected to have a material impact on the group’s results
or assets and liabilities
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’
sharebased ifric 8 ‘scope of ifrs 2’ addresses the issue of 
payments 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 ifric 9 ‘reassessment of embedded derivatives’
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  us gaap reporting
overview
the consolidated financial statements have been prepared in
accordance with ifrs which differs in certain significant respects
from us gaap a reconciliation of net income and equity
shareholders’ funds from ifrs to us gaap  together with a
summary of adjustments is provided in note 37 to the accounts
in addition condensed income statements balance sheets and
segmental information prepared in accordance with us gaap are
provided in note 38 to the accounts
results and financial position under us gaap
net income from continuing operations for 200506 under 
us gaap was £711 million 200405 £1037 million the
us gaap results for 200506 and 200405 included profits
relating to discontinued operations amounting to £596 million 
and £267 million respectively consequently net income 
for 200506 under us gaap was £1307 million 200405
£1304 million this compared with the profit for the year 
under ifrs for 200506 and 200405 of £3850 million and
£1424 million respectively
shareholders’ equity under us gaap at 31 march 2006 
was £9747 million 2005 £10591 million compared with
£3842 million 2005 £2111 million under ifrs because the
application of merger accounting principles retained under ifrs
has fundamentally affected the comparison of ifrs results with 
us gaap results the following is a discussion of the impact 
the application of us gaap has had on the results which 
should be read in conjunction with the rest of this operating 
and financial review
the principal adjustments from net income and total shareholders’
equity under ifrs to their equivalents under us gaap relate to
differences in accounting for the business combination with lattice
group as a purchase instead of as a merger us regulatory
accounting the recording of derivative financial instruments 
at their fair value in the balance sheet and hedge accounting 
and differences in accounting for pensions the other adjustments
between ifrs and us gaap are explained in more detail in note 37
to the accounts
some of the adjustments included within the us gaap summary
income statements and balance sheet substantially reflect
reclassifications of items that are presented differently under 
ifrs and us gaap  but that do not significantly impact net 
income or net assets
merger with the application of uk gaap to the business 
lattice group combination of national grid group and lattice 
group in 200203 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
£3824 million of goodwill being recognised
the former lattice group assets included the four
regional gas distribution networks that were disposed
of in 200506 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 these assets are recorded in the us gaap balance 
assets 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 nonrecognition 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
£3051 million £3350 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
200405 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
annual report and accounts 200506
national grid
66 operating and financial review
accounting policies annual report and accounts 200506
national grid
operating and financial review 67
accounting policies
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
200506
during 200506 the group adopted the following us gaap
accounting interpretations issued by the us financial accounting
standards board fasb
asset fasb interpretation no 47 ‘accounting for 
retirement conditional asset retirement obligations’ fin 47 
obligations 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 andor 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
in preparing the us gaap reconciliation for 200506 we have not
reflected the impact of recent us accounting pronouncements
that are expected to be adopted in future periods the most
notable of these are
sharebased fasb statement no 123 ‘share based payment’
payments sfas 123r requires all sharebased 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 123r 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 123r 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 fasb statement no 153 ‘exchanges of non
nonmonetary monetary assets’ sfas 153 removes an exemption 
assets 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 nonmonetary 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 nonmonetary transactions take 
place after 1 april 2006
carrying value fasb statement no 151 ‘inventory costs – an 
of inventories 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 fasb statement no 154 ‘accounting changes and 
for changes error corrections – a replacement of apb opinion no
in accounting 20 and fasb statement no 3’ sfas 154 requires 
policies 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 fasb statement no 155 ‘accounting for certain 
financial hybrid financial instruments – an amendment of sfas 
instruments 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  corporate governance
governance
the board of national grid is committed to embedding leading
governance practices within the operations of the group this
commitment is based on compliance with the combined code
and both established and emerging best practice it extends
through national grid’s framework for responsible business
codes of conduct for employees and involvement in the business
leaders initiative on human rights
documents relating to national grid’s governance 
eg national grid’s framework for responsible business 
board committee terms of reference codes of conduct and 
position statements can be found on the group website 
at wwwnationalgridcomcorporateaboutus
the company complied fully with all provisions set out in section
1 of the combined code throughout the year
the board
the board of national grid currently consists of 14 directors 
comprising the chairman six executive directors and seven 
nonexecutive directors including the senior independent
director biographical details for each of the directors together
with details of board committee memberships are set out on
pages 18 and 19
the intended retirement of longserving nonexecutive director
john grant was announced prior to the year end john grant
stepped down as chairman of the remuneration committee 
at the end of february but remained a member to ensure an
effective transition to the new chairman of the committee 
john allan
nonexecutive director independence
each of the nonexecutive directors is considered by the board
to be independent such determination being made following
initial consideration by the nominations committee independence
is considered at least annually and is based on the factors set out
in the combined code but importantly further examines whether
each director is independent in character judgement and
behaviour also considered are factors such as participation and
performance on both the board and board committees when
considering the length of service board service at national grid
together with that at either lattice group plc or national grid
group plc prior to their merger is taken into account
professor paul joskow has now served on the board for six
years under the criteria set out above his period as a director of
new england electric system nees is not considered to have
an impact on his independence given nees now represents a
minor part of the group’s operations as a whole professor
joskow is viewed as a particularly valuable member by the
board he has extensive knowledge of the us utility scene and
the board recognises him as a world authority on utility regulation
group chief executive succession
during the year the group announced roger urwin’s intention 
to retire with effect from this calendar year end at the same time
it was announced that steve holliday would replace him and 
be appointed as deputy group chief executive with effect from
1 april 2006 to ensure a smooth and progressive handover 
of responsibilities
a particularly rigorous succession process was put in place by
the chairman this involved all the nonexecutive directors not
just the members of the nominations committee the process
extended over five months and included third party interviews of
the internal candidate benchmarking of external candidates and
extensive input of views from existing executive directors 
board training and development
national grid aims to ensure that all its directors receive 
uptodate information about the group’s operations director
attendance at meetings is monitored to make sure that board
members do not miss key visits and presentations board
members are also encouraged to attend external courses where
they feel that this will keep them updated on issues or will
improve their effectiveness as a director attendance at external
courses is one issue raised when the chairman holds his 
onetoone meetings with each director as part of the board
effectiveness process
continued attention is also given to the development
programmes put in place for each of the executive directors
these programmes were established following indepth personal
appraisals with the assistance of external specialists the
development programmes include external and internal mentoring
support attendance at relevant business schools and experience
of other boardrooms through serving as nonexecutive directors
particular attention is given to newly appointed directors
following appointment materials and presentations are provided
as an induction to the company and its businesses and detailed
information relating to the operation and management of the
board is supplied following his appointment in may 2005 john
allan attended a number of meetings with executive directors
and senior managers from both corporate centre functions and
various businesses within the group site visits were also arranged
to familiarise him with the group aiming to equip him to participate
more effectively in board meetings
board effectiveness
the effectiveness of the board the board committees and each
individual director is vital to the overall success of the group
annual report and accounts 200506
national grid
68 corporate governance the board has a well established process for evaluating the
performance of the board board committees and individual
directors this formal process consists of questionnaires sent to
each director and certain board committee attendees by the
group company secretary and general counsel on a confidential
basis the questionnaires are complemented by onetoone
meetings between the chairman and each director the
questionnaires consider the performance of the chairman the
operation and performance of the board and board committees
and committee chairmen the onetoone meetings include
discussions of individual performance and any knowledge gaps
requiring training the nonexecutive directors also meet
separately under the chairmanship of the senior independent
director to consider the performance of the chairman and to
provide him with feedback
the nominations committee initially considers all the results and
based on the feedback from the questionnaires an overall outline
of results and action plan is drawn up the results and action
plan are considered by the board and where relevant each
committee before being finalised the aim of the action plan is
continually to improve processes procedures and performance
actions highlighted in the 200506 action plan include
continued monitoring of the balance of board time spent on
administration governance operation and strategy to ensure
adequate time is spent on strategic debate
consideration of additional site visits for nonexecutive
directors between scheduled board meetings and
more critical feedback on information presented to the board
to ensure content is appropriate and adequate
actions undertaken as a result of the previous year’s evaluation
process included
a review of matters reserved to the board and
a review of committee interfaces
the possibility of having the evaluation process reviewed by a
third party was discussed during the year it was decided that
given the level of development of the process and the continued
progress of the action plan any review should be delayed until
the process was considered either in need of a major refresh or
no longer at the leading edge of best practice 
roles of the chairman and group chief executive
the roles of the chairman and group chief executive are distinct
and have been set out and approved by the board the chairman’s
main task is the management of the board and its governance
while the group chief executive’s is the daytoday management
of the group and the execution of boardapproved strategy
the chairman’s main duties outside the group are set out in his
biography on page 18 his principal external positions during the
year were as senior nonexecutive director of the court of the
bank of england chairman of peninsular  oriental steam
navigation company and as nonexecutive director of carnival
plc and carnival corporation inc the chairman’s contractual
commitment to the company is two days per week but in practice
this is generally exceeded
senior independent director
ken harvey has been the senior independent director throughout
the year as well as leading the nonexecutive directors when
assessing the chairman’s performance the senior independent
director is also available to shareholders in the event that they
feel it inappropriate to relay views via the chairman or the group
chief executive
operation of the board
to ensure effective control of the group the board has a number
of items reserved for its sole discussion and approval at its
september meeting the board discussed these items 
to ensure they were appropriate this review was prompted by
issues raised during the 200405 board evaluation process
the complete document matters reserved to the national 
grid plc board is available on the group website at
wwwnationalgridcomcorporateaboutus the broad 
areas covered are 
corporate governance 
strategyfinance 
approval of the group’s budget and business plan
directoremployee issues
director succession planning
listing requirements 
dividend policy and 
approval of results announcements and the annual report 
and accounts
items considered at each group board meeting relate to safety
health and environment finance businessfinance review business
development projects and governance and administration 
other items discussed during the year included the group’s 
new corporate identity and corporate values specifically their
development and work to embed them within business operations
board committees also carry out a significant amount of work
towards the successful management of the group the board
has established audit executive finance nominations
remuneration and risk  responsibility committees the board
committees ensure that issues of policy and oversight are given
time for detailed debate outside the board where time may 
be limited because of the number of issues to be covered 
to ensure that all directors are aware of discussions at board
committees board committee chairmen provide a summary 
at each appropriate board meeting of key issues debated and
present recommendations formulated
annual report and accounts 200506
national grid
corporate governance 69 each board committee has terms of reference agreed 
by both the board and board committee these terms 
of reference are all available on the group website at
wwwnationalgridcomcorporateaboutus
audit committee
the current membership of the audit committee is george rose
chairman maria richter john grant and john allan john allan
joined the audit committee following his appointment on 1 may
2005 and maria richter joined the audit committee at the same
time these two directors replaced ken harvey and paul joskow
each of these directors is nonexecutive and regarded by the
board as independent as required by the audit committee terms
of reference the board has determined that george rose is an
‘audit committee financial expert’ his biographical details are on
page 19
the chairman group chief executive group finance director
head of internal audit and group company secretary and
general counsel are invited to attend the majority of meetings
executive directors the head of risk  compliance the group
financial controller and external auditors may be invited to attend
the audit committee as required
items discussed by the audit committee during the year
included
recommendation with respect to the level of audit fees paid 
to the external auditors
reviews of external auditor nonaudit fees and 
consultancy spend
review of the performance of the external auditors
international financial reporting standards conversion
project
reports from the external auditors
reports from the internal auditors
review of results and annual report and accounts
reports on risk compliance and business conduct 
including whistleblowing 
reports on sarbanesoxley compliance preparations
review of the audit committee terms of reference
evaluation of the external audit process
review of independence and objectivity of the external
auditors
review of the effectiveness of internal controls for the year and
reports from the disclosure committee
all nonaudit work by the external auditors is subject to pre
approval and their total nonaudit fees are reviewed by the audit
committee quarterly details of both the audit and nonaudit fees
paid to the external auditors during the year are set out in note 5
to the accounts on page 112
executive committee
the operational management of the group and daytoday
decisions are delegated to the executive committee which is
made up of all of the executive directors and the group company
secretary and general counsel the executive committee is
chaired by the group chief executive and meets monthly
issues covered on executive committee agendas during the year
included
reports on safety health and environment
strategybusiness development
reports and discussions on human resources 
succession planning and employee issues
finance
pensions
budget and business plan
foreign exchange and treasury management
yearend processes preliminary statements assurance
processes dividend payments review of internal controls
and
administrative items
finance committee
the finance committee consists of paul joskow chairman
roger urwin steve lucas stephen pettit and maria richter
committee meetings are also attended by the group tax and 
treasury director
the main responsibilities of the finance committee are the setting
and review of finance policy and the granting of certain approvals
the discussion and review of issues at the finance committee
dovetails with processes at the executive committee and 
the board
items discussed at the finance committee during the year
included
treasury performance and activity reports
group fundingdebt
longterm treasury performance management
committed borrowing facilities
us financing
foreign exchange policy
guarantees
delegations of authority
tax updates
pensions
insurance renewal and
electricity and gas trading activity
annual report and accounts 200506
national grid
70 corporate governance nominations committee
the current members of the nominations committee are 
sir john parker chairman ken harvey john grant george
rose and paul joskow each of the nonexecutive members of
the nominations committee is considered by the board to be
independent
the group chief executive is invited to attend most meetings and
the group human resources director attends as required
the main responsibilities of the nominations committee are to
keep under review the size structure and composition of the
board to ensure that an adequate board succession plan is in
place and when necessary to identify and nominate individuals
for appointment to the board
items included for discussion by the nominations committee
during the year included
board and board committee performance evaluation
oversight of group chief executive succession
nonexecutive director succession and
chairmanship of the remuneration committee
the nominations committee also receives regular reports from
the group chief executive and group human resources director
on succession and development planning for senior positions
within the group
the nominations committee has overall responsibility for the
board performance evaluation process and for considering 
nonexecutive director independence prior to making
recommendations to the board
remuneration committee
the remuneration committee consists of john allan chairman
john grant ken harvey stephen pettit and george rose john
allan joined the remuneration committee following his
appointment to the board on 1 may 2005 john allan replaced
john grant as chairman of the remuneration committee with
effect from 1 march 2006 each member of the remuneration
committee is a nonexecutive director and is considered by the
board to be independent
the chairman group chief executive group human resources
director and group head of compensation  benefits are usually
invited to attend the remuneration committee to provide advice
as required
no committee member or attendee at the remuneration
committee participates in any discussion on his or her own
remuneration
the main responsibilities of the remuneration committee are the
development of group policy on executive director remuneration
and the determination of remuneration for executive directors
further detail is included in the directors’ remuneration report
on pages 79 to 89
to allow additional time for discussion the remuneration
committee held a separate strategy meeting during the year
items included on the remuneration committee agenda for
discussion during the year were
remuneration issues and disclosure
performance share plan update
total shareholder return update
directors’ remuneration report
bonuses and personal targets
headroomdilution update
pensions update
feedback on discussions with advisers
tender for advisers and
benchmarking and market trends
risk  responsibility committee
the members of the risk  responsibility committee are
stephen pettit chairman ken harvey and maria richter ken
harvey was appointed to the risk  responsibility committee
with effect from 1 may 2005
the group chief executive group corporate responsibility
director and the group company secretary and general counsel
normally attend committee meetings with executive directors
invited to attend as necessary
the risk  responsibility committee reviews strategies policies
management initiatives and group targets in respect of safety
environment health inclusion and diversity human rights ethics
and community involvement
the risk  responsibility committee is involved in internal control
processes as it considers and provides reports to the audit
committee on the nonfinancial and reputational risks faced by
the group items considered on the risk  responsibility agenda
during the year included
group risk compliance specifically nonfinancial items 
and business conduct
safety health and environment audit programme and plan
independent verification of nonfinancial data in the annual
report and accounts
review of corporate responsibility issues relevant to the
business
nonfinancial performance targets
workrelated stress
climate change
human rights
inclusion and diversity
external advisers to the risk  responsibility committee and
electric and magnetic field science
annual report and accounts 200506
national grid
corporate governance 71 communication with shareholders
during the year the group chief executive and group finance
director held regular meetings with institutional investors fund
managers and analysts to discuss information made public by 
the group in addition the chairman reminds major shareholders
in writing of his availability along with that of the senior
independent director or nonexecutive directors where required
should there be issues that shareholders do not wish to raise via
the group chief executive or group finance director
to ensure that the board is effectively informed of shareholder
views it receives biannual feedback from the company’s brokers
supplemented by the group head of investor relations in addition
notes from a number of analysts in the energy sector are circulated
to directors this ensures that all board members including the
nonexecutive directors are aware of the current views of major
shareholders and of any outstanding issues they may have
the principal method of communicating with the majority of
shareholders is through the annual review shareholders may
also attend the company’s annual general meeting where they
have the opportunity to question directors on any issues relating
to the management of the company the group also runs a very
successful shareholder networking programme which allows a
small number of shareholders to visit operational sites and meet
senior managers directors and the chairman more details of the
shareholder networking programme are on page 175
disclosure committees
national grid has constituted disclosure committees that
undertake various duties relating to the material disclosures made
by the company and relevant subsidiaries within the group
the group finance director chairs the national grid disclosure
committee this committee assists the group chief executive
and group finance director in fulfilling their responsibility under
us securities laws to oversee the accuracy and timeliness of
material disclosures made by the company this includes the
design and implementation of controls and other procedures
intended to ensure that information required by the company to
be disclosed is recorded processed summarised and reported
accurately and on a timely basis the disclosure committee also
monitors the effectiveness of the company’s disclosure controls
and reviews and considers the preparation of material public
disclosures it undertakes an evaluation of the effectiveness of 
the company’s disclosure controls at the end of the company’s
financial year and considers other matters as necessary
72 corporate governance annual report and accounts 200506
national grid
board and board committee attendance
the following table indicates the number of meetings of the board and each of its committees held during 200506 and the number of
those meetings that each of the directors attended as a member
board committees
board risk  
meetings audit executive finance nominations remunerationresponsibility 
total meetings during the year 11 6 12 5 5 8 4
sir 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 4
maria richter 10 5 vi – 5 – iv – 4
george 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 nonexecutive 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 corporate governance practices differences from
new york stock exchange nyse listing standards
the corporate governance practices of the group substantially
conform to those required of us companies listed on the nyse
the principal differences between the group’s governance
practices pursuant to the combined code and uk best 
practice and the section 303a corporate governance rules 
of the nyse are
different tests of independence for board members are
applied under the combined code and section 303a
there is no requirement for a separate corporate governance
committee in the uk all directors on the board discuss 
and decide upon governance issues and
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
information assurance
information is an important asset to the business and like any
other asset it must be fit for purpose
critical to demonstrating information integrity is a process of
assurance from the business that clearly demonstrates that
information is being sourced and managed effectively the group
recognises that these behaviours are important to achieving
necessary standards the key objective of having accurate 
and reliable information is supported by a riskbased holistic
approach that deals with information assurance as a business
critical function this approach ensures that accurate and reliable
information is available to those who need it in a timely fashion
thus enabling informed decisions that support and further our
group objectives
we manage a broad range of risks to our information key
elements in managing these risks are education training and
awareness these initiatives emphasise the importance of
information security the quality of data collection and the
affirmation process that supports our business transactions
evidencing our decisions and actions the group continues to
work collaboratively with a variety of organisations and
professional bodies to develop and implement best practice
internal control
the board is ultimately responsible for the group’s system 
of internal control and for reviewing its effectiveness
consequently the board together with the executive audit and
risk  responsibility committees is central to the internal control
process throughout the year the board receives reports from
each of these committees and as part of the yearend process
receives the group chief executive’s letter of assurance this
process seeks to confirm compliance with all major internal and
external requirements along with the existence of appropriate
controls and processes to manage risks and to provide details 
of material risks and control weaknesses the board additionally
conducts a formal review of the effectiveness of internal controls
based on the information and assurances provided to it directly
and through the committees mentioned 
during the year the company has undertaken a review of its
yearend processes with the aims of maximising coordination
between these processes and ensuring the most effective use 
of resources
as a result of the group’s new york listing we are also subject 
to the provisions of the us sarbanesoxley act including the
requirement to make an assessment of our internal control over
financial reporting commencing in 200607 a project team has
completed the labourintensive task of documenting processes
and testing is well advanced progress ahead of next year’s
disclosure is satisfactory
risk management
we believe that risk management is an essential discipline in our
business operations as an integral part of this we have a group
wide risk management process to ensure a consistent approach
to the assessment recording and reporting of our key risks in a
visible structured and continuous manner this process helps to
safeguard the group’s assets and is designed to manage rather
than eliminate material risks to the achievement of the group’s
business objectives while also recognising that any such process
can provide only reasonable and not absolute assurance against
material misstatement or loss this process complies with the
turnbull working party guidance revised october 2005 and in
addition contributes toward the group’s compliance with our
obligations under the sarbanesoxley act as well as other internal
assurance activities
annual report and accounts 200506
national grid
corporate governance 73 the risk management process continues to be based on both
bottomup and topdown assessments of operational financial
and other business risks from the bottom up business units and
corporate centre functions must prepare and maintain risk
registers that capture their key risks and the actions that are
being taken to manage them these risk registers are primarily
management tools for use at an operational level but are also
intended to ensure that risk is reported on a consistent basis
throughout the group the key element in the topdown
assessment of our risk profile is the involvement of the executive
directors and other senior management across the group at
critical stages in the review process their review of the bottom
up assessment produces an overall evaluation of the risks that
are faced by the group graphics that set out the group’s risk
profile and any significant changes to this between reporting
periods are considered by the executive committee the risk 
responsibility committee and the audit committee twice a year
the audit committee also reviews the risk management process
at least once during each year and reports on this to the board
during the year the group risk management process was subject
to independent internal review and found to be applied on a
consistent basis across the group in addition during the year we
have sought to derive further benefits from this process through
closer coordination with the group insurance team and a more
formalised interaction with the group internal audit function an
external benchmarking exercise has also continued with other
ftse 100 companies and similar organisations to measure the
effectiveness of our own approach and exchange best practice 
our risk management process has identified the risk factors set
out on pages 74 to 76
compliance management
during the year we have continued to develop and implement
our groupwide compliance management process which seeks
to ensure that key legal and regulatory obligations are identified
that appropriate control frameworks are established to minimise
the potential for and impact of noncompliance with these
obligations and that a transparent process exists to support this
the principal areas of focus during the year have been to close
any outstanding gaps in the process and ensure that it is
consistently applied across our businesses the compliance
management procedure is consistent with and complementary to
our risk management procedure including bottomup and top
down elements the process is also used to review compliance
with our group policies and procedures
twice a year the executive committee audit committee and 
risk  responsibility committee receive a report setting out 
the significant obligations across the group and any material non
compliances with those together with control opinions and action
plans to improve controls where necessary as with the group
risk management process the audit committee also reviews the
compliance management process at least once during each year
and reports on this to the board
the compliance management process also contributes toward
the entity level testing that is performed under the sarbanes
oxley act as well as some of our other internal assurance
activities following the progress made in implementing this
process during the year we have commenced a series of meetings
with other leading companies to benchmark what we have
achieved to date
risk factors
our risk management process has identified the following risk
factors which could have a material adverse effect on our
business financial condition results of operations and reputation
as well as the value and liquidity of our securities not all of these
factors are within our control in addition other factors besides
those listed below may have an adverse effect on the group any
investment decision regarding our securities and any forwardlooking
statements made by us should be considered in the light of these
risk factors and the cautionary statement set out on the inside
back cover
changes in law or regulation in the geographies in which we
operate could have an adverse effect on our results 
of operations
many of our businesses are utilities or networks that are subject
to regulation by governments and other authorities consequently
changes in law or regulation in the countries or states in which
we operate could adversely affect the group regulatory
decisions concerning for example whether licences or approvals
to operate are renewed whether market developments have been
satisfactorily implemented and whether there has been any
breach of the terms of a licence or approval the level of
permitted revenues for our businesses and proposed business
development activities could have an adverse impact on our
results of operations cash flows the financial condition of our
businesses and the ability to develop those businesses in the
future for further information see the operating and financial
review and in particular the ‘external and regulatory environment’
sections for each of the group’s business segments
74 corporate governance annual report and accounts 200506
national grid annual report and accounts 200506
national grid
corporate governance 75
breaches of or changes in environmental or health and safety 
laws or regulations could expose us to claims for financial
compensation and adverse regulatory consequences as well 
as damaging our reputation
aspects of our activities are potentially dangerous such as the
operation and maintenance of electricity lines and the transmission
and distribution of natural gas electricity and gas utilities also
typically use and generate in their operations hazardous and
potentially hazardous products and byproducts in addition
there may be other aspects of our operations which are not
currently regarded or proved to have adverse effects but could
become so for example the effects of electric and magnetic
fields we are subject to laws and regulations relating to pollution
the protection of the environment and how we use and dispose
of hazardous substances and waste materials we are also
subject to laws and regulations governing health and safety
matters protecting the public and our employees any breach of
these obligations or even incidents that do not amount to a
breach could adversely affect our results of operations and our
reputation for further information about environmental and health
and safety matters relating to our businesses see the ‘operating
responsibly’ section of our website at wwwnationalgridcom
network failure or the inability to carry out critical nonnetwork
operations may have significant adverse impacts on both our
financial position and our reputation
we may suffer a major network failure or may not be able to carry
out critical nonnetwork operations operational performance
could be adversely affected by a failure to maintain the health of
the system or network inadequate forecasting of demand or
inadequate record keeping this could cause us to fail to meet
agreed standards of service or be in breach of a licence or
approval and even incidents that do not amount to a breach
could result in adverse regulatory and financial consequences as
well as harming our reputation in addition to these risks we may
be affected by other potential events that are largely outside of our
control such as the impact of weather or unlawful acts of third
parties weather conditions can affect financial performance
particularly in the us and severe weather that causes outages 
or damages infrastructure will adversely affect operational and
potentially business performance terrorist attack sabotage or
other intentional acts may also physically damage our businesses
or otherwise significantly affect corporate activities and as a
consequence adversely impact the results of operations
our results of operations depend on a number of factors
relating to business performance including performance
against regulatory targets and the delivery of anticipated 
cost and efficiency savings
earnings maintenance and growth from our regulated gas and
electricity businesses will be affected by our ability to meet or
better efficiency targets set by ofgem and other regulators from
time to time we also publish cost and efficiency savings targets
for our businesses in the uk and the us to meet these targets
we must continue to improve operational performance in 
the us under our state rate plans earnings from our regulated
businesses will be affected by our ability to deliver integration and
efficiency savings earnings from our regulated businesses in both
the uk and the us also depend on meeting service quality
standards set by regulators to meet these standards we must
improve service reliability and customer service if we do not meet
these targets and standards both our results of operations and
our reputation may be harmed
changes to the regulatory treatment of commodity costs may
have an adverse effect on the results of operations
changes in commodity prices could potentially impact our energy
delivery businesses current regulatory arrangements in the uk
and the us provide the ability to pass through virtually all of the
increased costs related to commodity prices to consumers
however if regulators in the uk or the us were to restrict this
ability it could have an adverse effect on our operating results
our reputation may be harmed if consumers of energy suffer 
a disruption to their supply even if this disruption is outside 
our control
our energy delivery businesses are responsible for transporting
available electricity and gas we consult with and provide
information to regulators governments and industry participants
about future demand and the availability of supply however
where there is insufficient supply our role is to manage the
relevant system safely which in extreme circumstances may
require us to disconnect consumers
business development activity including acquisitions and
disposals may be based on incorrect assumptions or
conclusions significant liabilities may be overlooked or there
may be other unanticipated or unintended effects
in february 2006 we announced the acquisitions of keyspan
corporation and the rhode island gas distribution business of
southern union company these transactions are subject to a
number of conditions precedent in particular approvals from
relevant regulators and in the case of the acquisition of keyspan
the approval of both its and our shareholders these approvals
may not be received or they may be granted but on terms that
are different than anticipated we have also announced that we
expect to achieve certain levels of synergy and efficiency savings
from these transactions but these may not subsequently be
achievable for further details concerning these transactions 
see the ‘acquisitions and disposals’ section of the operating 
and financial review on page 21  fluctuations in exchange rates interest rates and commodity
price indices in particular in the us dollar could have a
significant impact on our results of operations because we have
substantial business interests in the us and because of the
significant proportion of our borrowings derivative financial
instruments and commodity contracts that may potentially be
affected by such fluctuations
we currently have significant operations in the us and the
proportion of our activities located there will substantially increase
following the completion of the acquisition of keyspan and the
rhode island gas distribution business of southern union
company these businesses are subject to the risks normally
associated with foreign operations including the need to translate
us assets and liabilities and income and expenses into sterling
our primary reporting currency our results of operations may be
similarly impacted because a significant proportion of our
borrowings derivative financial instruments and commodity
contracts are affected by changes in exchange rates interest
rates and commodity price indices in particular the us dollar to
sterling exchange rate for further information about this see the
‘financial position and financial management’ section of the
operating and financial review
the nature and extent of our borrowings means that an increase
in interest rates could have an adverse impact on our financial
position and business results
a significant proportion of our borrowings are subject to variable
interest rates which may fluctuate with changes to prevailing
interest rates increases in these interest rates could therefore
increase our costs and diminish our profits for further information
about this see the ‘financial position and financial management’
section of the operating and financial review
our financial position may be adversely affected by a number
of factors including restrictions in borrowing and debt
arrangements changes to credit ratings and effective tax rates
we are subject to certain covenants and restrictions in relation to
our listed debt securities and our bank lending facilities we are
also subject to restrictions on financing which have been imposed
by regulators these restrictions may hinder us in servicing the
financial requirements of our current businesses or the financing
of newly acquired or developing businesses our debt is rated by
credit rating agencies and changes to these ratings may affect
both our borrowing capacity and the cost of those borrowings
the effective rate of tax we pay may be influenced by a number
of factors including changes in law and accounting standards 
the proportion of our business operations which are located in the
us and our overall approach to tax planning the results of which
could increase that rate
future funding requirements of our pension schemes could
adversely affect our results of operations
we participate in a number of pension schemes which together
cover substantially all of our employees in both the uk and the
us the principal schemes are defined benefit schemes where 
the scheme assets are held independently of group finances
estimates of the amount and timing of future funding for these
schemes are based on various actuarial assumptions and other
factors including among other things the actual and projected
market performance of the scheme assets future longterm bond
yields average life expectancies and relevant legal requirements
the impact of these assumptions and other factors may require
us to make additional contributions to these pension schemes
which to the extent they are not recoverable under our price
controls or state rate plans could adversely affect our results 
of operations
new or revised accounting standards rules and interpretations
by the uk us or international accounting standard setting
boards and other relevant bodies could have an adverse effect
on the group’s reported financial results
with the adoption of international financial reporting standards
ifrs as adopted by the european union changes in the
accounting treatment of replacement expenditure regulatory
assets pension and postretirement benefits derivative financial
instruments and commodity contracts have significantly affected
the way we report our financial position and results of operations
new standards rules or interpretations may be issued which could
also have significant effects in addition as a body of practice
develops the application of accounting principles to our particular
circumstances may change
76 corporate governance annual report and accounts 200506
national grid directors’ report 
business review
accompanying this directors’ report are an operating 
and financial review ofr corporate governance section 
and directors’ remuneration report the ofr has been
prepared in accordance with ‘reporting statement operating
and financial review’ issued by the uk accounting standards
board and the directors therefore consider that this will fulfil 
the requirement for a business review the ofr also includes
information in respect of financial risks under the heading
‘liquidity and treasury management’ on pages 56 to 59 and
employee involvement and employment practices principally 
on page 26
principal activity
the company’s principal activity is as the ultimate holding
company of a group of companies involved in the transmission
and distribution of energy the provision of wireless infrastructure
and other related businesses in related markets
directors
biographical details of directors serving as at the date of this
report are included on pages 18 and 19 details of the remuneration
of all directors serving during the period along with information
on shares held are included in the directors’ remuneration
report on pages 79 to 89
the company arranges directors’ and officers’ liability insurance
cover which the board regards as appropriate and adequate 
a qualifying third party indemnity provision was granted in favour
of directors of the company in accordance with sections 309ab
of the companies act 1985 following changes in the group’s
memorandum and articles of association which were approved 
at the company’s annual general meeting in 2005 copies of
individual deeds of indemnity are available for inspection by
shareholders at the company’s registered office at 13 stand
london wc2n 5eh
at no time during the year did any director have any material
interest in a contract within the group being a contract of any
significance in relation to the group’s business
code of ethics
the board has adopted a code of ethics for senior financial
professionals this code is available on the group website at
wwwnationalgridcom where any amendments or waivers will
also be posted there were no amendments to or waivers of
our code of ethics during the year
dividends
an interim dividend of 102 pence per ordinary share 08816 per
american depositary share was paid on 25 january 2006 to
shareholders on the register on 2 december 2005 the directors
are recommending that a final dividend of 159 pence per ordinary
share 15115 per american depositary share be paid on 23
august 2006 to shareholders on the register on 9 june 2006
political donations
the group made no political donations in the uk or european union
during the year including donations as defined for the purposes
of the political parties elections and referendums act 2000
national grid usa’s political action committees funded entirely by
voluntary employee contributions gave 46490 £25972 to us
state and national political and campaign committees in 200506
charitable donations
during 200506 the group invested some £77 million 200405
£73 million in support of community initiatives and relationships
across its operations the london benchmarking group model
was used to assess this overall community investment within
this figure direct donations to charitable organisations amounted
to £27 million in the uk 200405 £13 million and £21 million
38 million in the us 200405 £18 million 34 million 
in addition to our charitable donations substantial financial
support was provided for our affordable warmth programme
education programme university research and our ‘young
offender into work programme’
research and development
expenditure on research and development during the year was 
£7 million compared with £9 million in 200405 
purchase of own ordinary shares
the company has authority from shareholders to repurchase up 
to 10 of its own ordinary shares this authority was not used
during the year nor in the period up to 17 may 2006 the board
intends to seek shareholder approval to renew the authority at
this year’s annual general meeting
companies are permitted to hold repurchased shares as treasury
shares rather than cancelling them the board has no current
intention to hold repurchased shares as treasury shares other
than as required for employee share schemes
return of cash – b shares
during the year the company returned £2 billion of value 
to shareholders by way of a b share scheme shareholders
received one b share for every existing ordinary share they held
shareholders then had choices in respect of the b shares and the
return of cash 1 single b share dividend 2 initial repurchase
offer and 3 future repurchase offers details were set out in the
circular to shareholders dated 6 june 2005
at the same time that the b shares were issued the ordinary
shares were consolidated to reflect the return of cash
shareholders received 43 new ordinary shares of 11
17
⁄43 pence
nominal value per share for every 49 existing ordinary shares 
of 10 pence nominal value per share
annual report and accounts 200506
national grid
directors’ report 77 following the consolidation shareholders may have ended up
with fractional entitlements to a new ordinary share these
fractional entitlements were all aggregated and sold and the
proceeds distributed pro rata to the relevant shareholders where
an individual’s fractional entitlement was less than £1 this was
not distributed but was retained by the company these retained
fractional entitlements amounted to about £145000 
and will be donated to charities selected by the company
the elections were split as follows 1226547 shareholders
elected for the single b share dividend 96845 shareholders
elected for the initial repurchase offer and 50753 shareholders
elected to retain b shares
elections for the initial repurchase were received in relation to 
over 843811272 b shares which were purchased at 65 pence
per share free of all dealing expenses and commissions on
22 august 2005 national grid purchased all of these b shares
which had initially been repurchased by jpmorgan cazenove 
for the same consideration all the b shares repurchased were
subsequently cancelled
a second repurchase of b shares is due to take place on 
8 august 2006 details will be sent to shareholders who opted 
to retain b shares setting out what they should do to accept the
offer the offer will again be carried out by a broker and approval
will be sought at the annual general meeting for the agreement
to repurchase shares from the broker the company will also
seek authority to renew its own authority to make market
purchases of up to 10 of the remaining b shares
in accordance with the company’s articles the 2162099630
unlisted deferred shares which were created following the
conversion of b shares upon the payment of the single b share
dividend were transferred to the company for an aggregate
1 pence following which all of the deferred shares were cancelled
policy on payment of creditors
it is the company’s policy to include in contracts or other
agreements terms of payment with suppliers once agreed 
the company aims to abide by these terms of payment
the average creditor payment period at 31 march 2006 for the
group’s principal operations in the uk was 20 days 28 days at 
31 march 2005
substantial shareholders
as at 17 may 2006 the group has been notified of the following
beneficial interests in 3 or more of its issued share capital
 of 
issued 
share
capital
the capital group companies inc 586
barclays plc 460
legal and general investment management ltd 421
credit suisse first boston group 341
no further notifications have been received
employee share ownership
the group facilitates share ownership among its uk employees
by the operation of both sharesave and share incentive plans 
in the us employees are able to invest in the group through
employee incentive thrift plans
in the uk approximately 83 of employees participate in
sharesave schemes there are also about 3000 participants in
the current share incentive plan holding shares purchased
monthly in the us approximately 77 of employees held adss
in the employee incentive thrift plans at 31 march 2006
annual general meeting
national grid’s 2006 annual general meeting will be held on
monday 31 july 2006 at the icc in birmingham details are set
out in a separate notice of annual general meeting
extraordinary general meeting
on 27 february 2006 national grid announced its acquisition of
keyspan corporation for approximately 73 billion £42 billion 
in cash enterprise value approximately 118 billion £68 billion
the acquisition is subject to a number of consents and approvals
keyspan is a major us energy delivery company it is the largest
distributor of natural gas in the northeastern us and the fifth
largest in the us with approximately 26 million customers in
new york massachusetts and new hampshire it also operates
an electricity transmission and distribution system serving
approximately 11 million customers in new york under a
contract with the long island power authority keyspan also
owns and operates 67 gw of generation capacity in new york
its other assets include investments in natural gas pipeline and
storage assets
national grid will seek shareholder approval for the acquisition 
at an extraordinary general meeting egm which is expected to 
be held immediately after the annual general meeting separate
documentation will be sent to shareholders about the egm
audit information
so far as the directors in office at the date of the signing of this
report are aware there is no relevant audit information of which
the auditors are unaware and each such director has taken 
all reasonable steps to make themselves aware of any relevant
audit information and to establish that the auditors are aware 
of that information
on behalf of the board
helen mahy
group company secretary and general counsel
17 may 2006
national grid plc 13 strand london wc2n 5eh
registered in england and wales no 4031152
78 directors’ report annual report and accounts 200506
national grid directors’ remuneration report
we are pleased to present the directors’ remuneration report 
for 200506 our policy of relating pay to the performance of the
group continues to be a strong principle underlying the
remuneration committee’s consideration of executive
remuneration
last year we thoroughly reviewed our remuneration policies 
as a result we have established revised performance criteria for
the performance share plan our longterm incentive plan and
introduced a deferred share plan as part of the annual bonus
plan we no longer operate the share matching plan we believe
this reflects best practice and aligns executive incentive plans as
closely as possible with the group’s strategic objectives and 
our shareholders’ interests generally 
our main focus in 200506 has been to review pension
arrangements to take account of uk legislative changes effective
from april 2006 the modifications to pension provision are
outlined below 
overall we believe that salary levels and the mix between fixed
and variable compensation are appropriate and we will continue
to review the remuneration package to ensure it remains so
we are confident that our approach continues to align executive
directors’ remuneration with the interests of shareholders
generally while maintaining the motivation and engagement of the
team leading the group
joint statement from chairmen remuneration committee
john grant john allan 
1 april 2005 to 28 february 2006 from 1 march 2006 
remuneration committee
the remuneration committee members are john grant 
john allan ken harvey stephen pettit and george rose 
the remuneration committee chairman was john grant until
february 2006 john allan became remuneration committee
chairman in march 2006 each of these nonexecutive directors
is regarded by the board as independent and served throughout
the year except john allan who was appointed to the board with
effect from 1 may 2005
the group human resources director and group head of
compensation  benefits provide advice on remuneration policies
and practices and are usually invited to attend meetings along
with the chairman and the group chief executive no director or
other attendee participates in any discussion on his or her own
remuneration
the remuneration committee is responsible for developing
group policy on executive remuneration and for determining the
remuneration of the executive directors and executives below
board level who report directly to the group chief executive it
also monitors the remuneration of other senior employees of the
group and provides direction over the group’s share plans
the board has accepted all the recommendations made by the
remuneration committee during the year
the remuneration committee has authority to obtain the advice
of outside independent remuneration consultants it is solely
responsible for their appointment retention and termination 
and for approval of their fees and other terms
in the year to 31 march 2006 the following advisors provided
services to the remuneration committee
ernst  young llp independent remuneration advisors until
july 2005 they also provide taxation and financial advice to
the group
deloitte  touche llp independent remuneration advisors
from november 2005 they also provide taxation and financial
advice to the group
alithos limited provision of total shareholder return
calculations for the performance share plan and executive
share option plan 
linklaters advice relating to directors’ service contracts as
well as providing other legal advice to the group and
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
remuneration policy
the remuneration committee determines remuneration policies
and practices with the aim of attracting motivating and retaining
high calibre executive directors and other senior employees to
deliver value for shareholders and high levels of customer service
safety and reliability in an efficient and responsible manner the
remuneration committee sets remuneration policies and
practices in line with best practice in the markets in which the
group operates remuneration policies continue to be framed
around the following key principles
total rewards should be set at levels that are competitive 
in the relevant market
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 shortterm business and personal
performance and longterm shareholder value creation
consistent with our framework for responsible business
which can be found at
wwwnationalgridcomresponsibilitymanagementandgovernance
for higher levels of performance rewards should be
substantial but not excessive and
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
it is currently intended to continue these policies in subsequent
years 
annual report and accounts 200506
national grid
directors’ remuneration report 79 executive directors’ remuneration
remuneration packages for executive directors consist of the
following elements
salary
annual bonus including the deferred share plan
longterm incentive the performance share plan
allemployee share plans
pension contributions and
noncash benefits
salary
salaries are reviewed annually and targeted broadly at the median
position in the relevant market in determining the relevant
market the remuneration committee takes account of the
regulated nature of the majority of the group’s operating activities
along with the size complexity and international scope of the
business for ukbased executive directors a uk market is used
and a us market is used for the usbased executive director in
setting individual salary levels the remuneration committee takes
into account business performance the individual’s experience in
the role and the employment and salary practices prevailing for
other employees in the group
annual bonus including the deferred share plan
annual bonuses are based on achievement of a combination of
demanding group individual and where applicable divisional
targets the principal measures of group performance are
adjusted earnings per share eps and cash flow the main
divisional measures are divisional operating profit and divisional
cash flow individual targets are set in relation to key operating
and strategic objectives and include overriding measures of 
safety and customer service performance the remuneration
committee sets targets at the start of the year and reviews
performance against those targets at year end the remuneration
committee may use its discretion to reduce payments to take
account of significant safety or service standard incidents or to
increase them in the event of exceptional value creation
performance against group and divisional financial targets for this
year is shown in the table below
level of performance achieved in 200506
financial measures as determined by the remuneration committee 
group targets divisional targets
adjusted eps stretch
cash flow stretch
operating profit stretch
cash flow stretch i
earnings ii stretch
i except us distribution where threshold was not achieved
ii us distribution financial measure only
in 200506 all executive directors participated in the annual bonus
arrangements with a maximum bonus opportunity of 100 
of base salary one half of any bonus earned is automatically
deferred into national grid shares adss for the usbased
executive director through the deferred share plan the shares
or adss are held in trust for three years before release during
this time they are not owned by the executive directors and
therefore no dividends are paid the remuneration committee
may at the time of release of the shares use its discretion to pay
a cash amount equivalent to the value of the dividends that would
have accumulated on the deferred shares
the remuneration committee believes that requiring executive
directors to invest a substantial amount of their bonus in national
grid shares increases the proportion of rewards linked to both
shortterm performance and longerterm total shareholder
returns this practice also ensures that executive directors share
a significant level of personal risk with the group’s shareholders
in line with us market practice the usbased executive
director’s bonus is pensionable
the usbased executive director also participates in the usa
goals program a bonus plan covering a large number of us
based employees that can pay up to 57 of salary on the
achievement of certain earnings and performance targets
longterm incentive 
performance share plan psp
executive directors and approximately 350 other senior
employees who have significant influence over the group’s ability
to meet its strategic objectives receive an award which will vest
subject to the achievement of performance conditions set by the
remuneration committee at the date of grant the value of
shares constituting an award as a percentage of salary may vary
by grade and seniority subject to a maximum for executive
directors of 125 of salary awards were made at the maximum
percentage to executive directors in the year 200506 shares
vest after three years subject to the satisfaction of the relevant
performance criteria vested shares must then be held for a
further year the retention period after which they are released
during the retention period the remuneration committee has
discretion to pay an amount equivalent in cash or shares to the
dividend which would have been paid on the vested shares
under the terms of the psp the remuneration committee may
allow shares to vest early to a departing executive director to the
extent the performance condition has been met in which event
the number of shares that vest will be prorated to reflect the
proportion of the performance period that has elapsed at the
executive director’s date of departure
80 directors’ remuneration report annual report and accounts 200506
national grid awards made in june 2003 and june 2004 were based on the
group’s total shareholder return tsr performance over a
threeyear period relative to the tsr performance of the following
group of comparator companies
ameren corporation iberdrola sa
awg plc international power plc
centrica plc kelda group plc
consolidated edison inc pennon group plc
dominion resources inc rwe ag
eon ag scottish power plc
electrabel sa scottish  southern energy plc
endesa sa severn trent plc
enel spa the southern company inc
exelon corporation suez sa
firstenergy corporation united utilities plc
fpl group inc viridian group plc
gas natural sdg sa
in calculating tsr for the 2003 and 2004 awards it is assumed
all dividends are reinvested no shares will be released if the
group’s tsr over the threeyear period when ranked against
that of each of the comparator companies falls below the
median for tsr at the median 30 of the shares awarded 
will be released 100 of the shares awarded will be released 
for tsr ranking at the upper quartile or above for performance
between median and upper quartile the number of shares
released is calculated on a straightline basis
the performance condition for the june 2005 award was amended
following consultation with our major shareholders so that 50 
of any award is based on the group’s tsr performance when
compared to the ftse 100 as at 27 june 2005 and 50 is
based on the annualised growth of the group’s eps
these measures were chosen because the remuneration
committee believes they offer an improved balance between
meeting the needs of shareholders by measuring tsr
performance against other large uk companies and providing a
measure of performance eps growth over which the executive
directors have direct influence the remuneration committee
considers the new psp performance conditions to be at least 
as challenging as the previous single performance criterion 
in calculating tsr for the 2005 award it is assumed that all
dividends are reinvested no shares will be released under the
tsr part of the award if the group’s tsr over the threeyear
performance period when ranked against that of the ftse 100
comparator group falls below the median for tsr at the median
30 of those shares will be released 100 will be released
where national grid’s tsr performance is 75 above that of the
median company in the ftse 100 upper target
the eps measure is calculated by reference to national grid’s
real eps growth where annualised growth in eps excluding
exceptional items and including continuing operations only over
the threeyear performance period exceeds the average annual
increase in rpi the general index of retail prices for all items 
over the same period by 3 threshold performance 30 of the 
shares under the eps part of the award will be released 100 
of the shares will be released where eps growth exceeds rpi
growth by 6 upper target
for performance for each target between threshold and the
upper target the number of shares released is calculated 
on a straightline basis 
if the remuneration committee considers in its absolute
discretion the underlying financial performance of the group
does not justify the vesting of awards even if either or both of the
tsr condition and the eps condition are satisfied in whole or in
part it can declare that some or all of the award lapses
no retesting of performance is permitted for any of the psp
awards that do not vest after the threeyear performance period
and any such awards lapse
executive directors’ remuneration package
illustrated below is the remuneration package of executive
directors excluding pensions allemployee share plans and non
cash benefits for both ‘maximum stretch’ performance and
assuming ‘on target’ performance of 50 for the bonus plan 
and tsr and eps performance such that 375 of psp awards
are released to participants at the end of the performance period
and subsequent retention period
note excludes mike jesanis’s participation in the usa goals program
allemployee share plans
sharesave employees resident in the uk including executive
directors are eligible to participate in hm revenue and
customs approved allemployee 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
annual base pay  31 
annual bonus 31 
psp award 38 
 
annual base pay  53 
annual bonus 27 
psp award 20 
 
on target performance maximum stretch performance 
38 
31 
31 
20 
27 
53 
annual report and accounts 200506
national grid
directors’ remuneration report 81 82 directors’ remuneration report annual report and accounts 200506
national grid
share incentive plan sip employees resident in the uk
including ukbased 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
us incentive thrift plan employees resident in the us
including the usbased executive director are eligible to
participate in the thrift plan a taxadvantaged savings plan
commonly referred to as a 401k 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 pretax andor up to 15 
of salary posttax up to applicable federal salary limits
us210000 for calendar year 2005 and us220000 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
pensions 
current ukbased executive directors are provided with final
salary pension benefits the pension provisions for the ukbased
executive directors are designed to provide a pension of one
thirtieth of final salary at age 60 for each year of service subject 
to a maximum of two thirds of final salary including any pension
rights earned in previous employment within the pension
schemes the pensionable salary is normally the base salary in 
the 12 months prior to leaving the company life assurance
provision of four times pensionable salary and a spouse’s pension
equal to two thirds of the executive director’s pension are
provided on death
ukbased executive directors who joined the company after 
31 may 1989 have been able to participate in an unfunded
scheme in respect of those benefits earned on pay above the 
hm revenue and customs earnings cap an appropriate
provision in respect of the unfunded scheme has been made 
in the company’s balance sheet 
in response to the new pensions taxation legislation which came
into force on 6 april 2006 a day the remuneration committee
ensured the pension policy post a day did not provide the
executive directors with additional benefit accrual as a result of
the change in pensions taxation the current ukbased executive
directors have elected to participate in the unfunded scheme in
respect of any benefits in excess of the lifetime allowance or
their personal lifetime allowance these executive directors are
able to cease accrual in the pension schemes and take a 30
cash allowance in lieu of pension if they so wish in the future
these choices are in line with those offered to current senior
employees in the company except the cash allowance varies
depending upon organisational grade 
mike jesanis participates in a qualified pension plan and an
executive supplemental retirement plan provided by national
grid’s us companies these plans are noncontributory defined
benefit arrangements the qualified plan is directly funded while
the supplemental plan is indirectly funded through a ‘rabbi trust’
benefits are calculated using a formula based on years of service
and highest average compensation over five consecutive years 
in line with many us plans the calculation of benefits under the
arrangements takes into account salary bonuses and incentive
share awards the deferred share plan but not share options or
the psp awards the normal retirement age under the qualified
pension plan is 65 the executive supplemental plan however
provides unreduced pension benefits from age 55 on the death
of the participating executive director the plans also provide for a
spouse’s pension of at least 50 of that accrued by the
participating executive director benefits under these
arrangements do not increase once in payment
noncash benefits
the group provides competitive benefits to executive directors
such as a fully expensed car or a cash alternative in lieu of car
and fuel use of a driver when required private medical insurance 
and life assurance ukbased executive directors with fewer than
five years’ continuous service who were previously executive
directors of national grid group plc are provided with longterm
illhealth insurance business expenses incurred are reimbursed 
in such a way as to give rise to no benefit to the director
flexible benefits plan
additional benefits may be purchased under the flexible benefits
plan the plan in which ukbased executive directors along
with most other uk employees have been given the opportunity
to participate the plan operates by way of salary sacrifice that
is the participants’ salaries are reduced by the monetary value
used to purchase benefits under the plan many of the benefits
are linked to purchasing additional healthcare and insurance
products for employees and their families one executive director
steve lucas participates in this plan and details of the impact 
on his salary are shown in table 1a on page 84 
a similar plan is offered to usbased employees however it is
not a salary sacrifice plan and therefore does not affect salary
values mike jesanis participates in this plan 
share ownership guidelines
executive directors are encouraged to build up and retain a
shareholding of at least 100 of annual salary as a minimum
this should be achieved by retaining 50 of the aftertax gain on
any options exercised or shares received through the longterm
incentive or allemployee share plans
share dilution through the operation of sharebased 
incentive plans
where shares may be issued or treasury shares reissued to
satisfy incentives the aggregate dilution resulting from executive
incentives will not exceed 5 in any 10year period dilution
resulting from all incentives including allemployee incentives 
will not exceed 10 in any 10year period the remuneration
committee reviews dilution against these limits regularly and
under these limits the company currently has headroom 
of 397 and 573 respectively executive directors’ service contracts
service contracts for all executive directors provide for one year’s
notice by either party the remuneration committee operates 
a policy of mitigation of losses in the event of an executive
director’s employment being terminated by the group if this
occurs the departing executive director would be expected 
to mitigate any losses incurred as a result of the termination
therefore entitlement to the payment of 12 months’
remuneration on early termination is not automatic but 
instead is based on the circumstances of the termination 
the remuneration committee in determining any other 
such payments will give due regard to the comments and
recommendations of the uk listing authority’s listing rules the
combined code and associated guidance and other
requirements of legislation regulation and good governance
date of contract notice period
executive directors
roger urwin 17 november 1995 12 months
steve holliday 6 march 2001 12 months
steve lucas 13 june 2002 12 months
nick winser 28 april 2003 12 months
mike jesanis 8 july 2004 12 months
edward astle 27 july 2001 12 months
external appointments and retention of fees
with the approval of the board in each case executive directors
may normally accept an external appointment as a nonexecutive
director of another company and retain any fees received the
table below details the executive directors who served as non
executive directors in other companies during the year ended
31 march 2006
company retained fees £
executive directors
roger urwin utilico investment trust plc 20250
steve holliday marks and spencer group plc 50000
steve lucas compass group plc 66875
nonexecutive directors’ remuneration
nonexecutive directors’ fees are determined by the executive
directors subject to the limits applied by national grid’s articles of
association nonexecutive directors’ remuneration comprises an
annual fee £35000 and a fee for each board meeting attended
£1500 with a higher fee for meetings held outside the non
executive director’s country of residence £3000 an additional
fee is payable for chairmanship of a board committee and for
holding the position of senior independent director £12500 
the audit committee chairman receives a chairmanship fee of
£15000 to recognise the additional responsibilities commensurate
with this role the chairman is covered by the company’s
personal accident and private medical insurance schemes and
the company provides him with life assurance cover a car with
driver when appropriate and fuel expenses nonexecutive
directors do not participate in the annual bonus plan or in any
longterm incentive scheme nor do they receive any pension
benefits from the group
nonexecutive directors’ letters of appointment
the chairman’s letter of appointment provides for a period of six
months’ notice to give the group reasonable security with regard
to his service the terms of engagement of nonexecutive
directors other than the chairman are also set out in letters 
of appointment for all nonexecutive directors their initial
appointment and any subsequent reappointment is subject 
to election by shareholders the letters of appointment do not
contain provision for termination payments
date of letter end of period
of appointment of appointment
nonexecutive directors
sir john parker chairman 12 january 2004 2006 agm
ken harvey 5 june 2003 2006 agm
john allan 3 november 2005 2008 agm
john grant 14 november 2005 2006 agm
paul joskow 3 november 2005 2008 agm
stephen pettit 5 june 2003 2006 agm
maria richter 30 september 2003 2007 agm
george rose 5 june 2003 2008 agm
performance graph
the graph below represents the comparative tsr performance of
the group from 31 march 2001 to 31 march 2006 for the period
before the merger of national grid group plc and lattice group
plc the tsr shown is that of national grid group plc
this graph represents the group’s performance against the
performance of the ftse 100 index which is considered suitable
for this purpose as it is a broad equity market index of which
national grid is a constituent this graph has been produced in
accordance with the requirements of schedule 7a to the
companies act 1985
in drawing this graph it has been assumed that all dividends have
been reinvested the tsr level shown at 31 march each year is
the average of the closing daily tsr levels for the 30day period
up to and including that date
3103
2001
3103
2002
3103
2003
3103
2004
3103
2005
3103
2006
140
120
100
80
60
40
20
0
national grid plcnational grid group plc ftse 100 
source datastream
national grid plcnational grid group plc
tsrvftse 100      tsr
annual report and accounts 200506
national grid
directors’ remuneration report 83 remuneration outcomes during the year ended 31 march 2006
sections 1 2 3 4 5 and 7 comprise the ‘auditable’ part of the directors’ remuneration report being the information required by part
3 of schedule 7a to the companies act 1985
1 directors’ emoluments
the following tables set out an analysis of the pretax emoluments during the years ended 31 march 2006 and 2005 including bonuses
but excluding pensions for individual directors who held office in national grid during the year ended 31 march 2006
year ended 
31 march
table 1a year ended 31 march 2006 2005 
benefits benefits
annual in kind i in kind
salary bonus cash noncash total total
£000s £000s £000s £000s £000s £000s
executive directors 
roger urwin 765 734 – 19 1518 1125
steve holliday ii iii 425 425 – 20 870 660
steve lucas iv 417 407 – 24 848 648
nick winser 385 366 – 20 771 531
mike jesanis v vi 469 385 7 13 874 446
edward astle 400 336 12 11 759 622
total 2861 2653 19 107 5640 4032
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 £600000 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 £80000 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 £3050 is included in the benefits in kind noncash figure
v mike jesanis’s values use an exchange rate averaged over the year 1 april 2005 to 31 march 2006 of us179£1 the exchange rate for the previous year was us187£1
vi mike jesanis’s bonus includes a payment worth £4787 in respect of his participation in the usa goals program described on page 80
year ended 
31 march
table 1b year ended 31 march 2006 2005
other 
fees emoluments total total
£000s £000s £000s £000s
nonexecutive directors 
sir john parker i 400 45 445 406
ken harvey 67 – 67 58
john allan ii 45 – 45 –
john grant 67 –6765
paul joskow 74 – 74 73
stephen pettit 68 – 68 58
maria richter 61 – 61 66
george rose 67 – 67 61
total 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
84 directors’ remuneration report annual report and accounts 200506
national grid annual report and accounts 200506
national grid
directors’ remuneration report 85
2 directors’ pensions
the table below gives details of the executive directors’ pension benefits in accordance with both schedule 7a of the companies 
act 1985 and the uk listing authority’s listing rules
transfer value of
increase in
additional accrued benefit
benefit earned in the year ended
transfer value of in the 31 march 2006
additional benefit accrued accrued benefits increase in year ended excluding
earned during entitlement as at 31 march i transfer value 31 march 2006 director’s
the year ended as at less director’s excluding contributions
31 march 2006 31 march 2006 2006 2005 contributions inflation and inflation
table 2 £000s £000s £000s £000s £000s £000s £000s
roger urwin 59 516 11291 9016 2229 47 990
steve holliday ii 17 71 1161 679 466 16 247
steve lucas 18 160 2725 2261 452 14 224
nick winser iii 24 132 2000 1281 696 21 283
mike jesanis iv 82 279 2497 1687 810 82 583
edward astle 16 61 1086 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 ukbased 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 usbased 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 £17000 per annum and an increase in transfer value at the
yearend of £324000 the transfer in also provides an accrued lump sum entitlement of £50000
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 £217000 as at 31 march 2006 the increase to the accumulated lump sum including inflation was
£28000 and excluding inflation was £23000 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 £6058 to a defined contribution pension arrangement the exchange rate as at 31 march 2006
was us174£1 the exchange rate as at 31 march 2005 was us189£1
3 directors’ interests in share options
the table below gives details of the executive directors’ holdings of share options awarded under the executive share option plan
esop the share matching plan and sharesave schemes
options exercised market price exercise price
options held or lapsed at date of options granted options held at per share
table 3 at 1 april 2005 during the year exercise pence during the year 31 march 2006 pence normal exercise period
roger urwin
esop 169340 – – – 169340 28050 sep 2000 sep 2007
91656 – – – 91656 37575 june 2001 june 2008
22098 – – – 22098 45525 june 2002 june 2009
33867 – – – 33867 53150 june 2003 june 2010
133214 133214 i – – – 56300 june 2004 june 2011
186915 62305 ii – – 124610 48150 june 2005 june 2012
share match 4047 4047 iii 52800 – – 100 in total june 2001 june 2005 
3884 3884 iii 52800 – – 100 in total jan 2002 june 2006
3859 3859 iii 52800 – – 100 in total jan 2002 june 2007
5635 5635 iii 52800 – – 100 in total june 2004 june 2008
18644 – – – 18644 100 in total june 2005 june 2012
25000 – – – 25000 100 in total june 2006 june 2013
30762 – – – 30762 nil may 2007 may 2014
– – – 25570 25570 nil june 2008 june 2015
sharesave 2910 – – – 2910 31700 apr 2007 sep 2007
total 731831 212944 25570 544457
steve holliday
esop 150000 150000 i – – – 54000 mar 2004 mar 2011
71936 71936 i – – – 56300 june 2004 june 2011
101246 33749 iv – – 67497 48150 june 2005 june 2012
share match 10350 – – – 10350 100 in total june 2005 june 2012
14083 – – – 14083 100 in total june 2006 june 2013
18713 – – – 18713 nil may 2007 may 2014
– – – 9983 9983 nil june 2008 june 2015
sharesave 4692 – – – 4692 35000 mar 2008 aug 2008
total 371020 255685 9983 125318 3 directors’ interests in share options continued
options exercised market price exercise price
options held or lapsed at date of options granted options held at per share
table 3 continued at 1 april 2005 during the year exercise pence during the year 31 march 2006 pence except normal exercise period
steve lucas 
esop 54404 – – – 54404 43425 dec 2005 dec 2012
share match 16909 – – – 16909 nil may 2007 may 2014
– – – 14778 14778 nil june 2008 june 2015
sharesave 2700 2700 60300 – – 35000 mar 2006 aug 2006
total 74013 2700 14778 86091
nick winser
esop 10633 10633 61050 – – 37575 june 2001 june 2008
47236 47236 61050 – – 45525 june 2002 june 2009
19755 – – – 19755 53150 june 2003 june 2010
24156 24156 i – – – 56300 june 2004 june 2011
37383 37383 59800 – – 48150 june 2005 june 2012
share match 2509 2509 v 59800 – – 100 in total june 2005 june 2012
3937 – – – 3937 100 in total june 2006 june 2013
14059 – – – 14059 nil may 2007 may 2014
– – – 11581 11581 nil june 2008 june 2015
total 159668 121917 11581 49332
mike jesanis
esop 77861 – – – 77861 56650 mar 2003 mar 2010
51169 51169 i – – – 56300 june 2004 june 2011
66099 – – – 66099 48150 june 2005 june 2012
total shares 195129 51169 – 143960
phantom adss vi 666 – – 33 699 us39590 – –
2857 – – 143 3000 us34270 – –
3288 – – 164 3452 us32320 – –
2895 – – 144 3039 us39376 – –
– – – 4730 4730 us47762 – –
total phantom adss 9706 – 5214 14920
edward astle
esop 193952 193952 i – – – 47950 sep 2004 sep 2011
101246 33749 vii – – 67497 48150 june 2005 june 2012
112262 112262 vii 59450 – – 43425 dec 2005 dec 2012
131086 – – – 131086 40050 june 2006 june 2013
share match 6553 – – – 6553 100 in total june 2005 june 2012
13812 – – – 13812 100 in total june 2006 june 2013
15716 – – – 15716 nil may 2007 may 2014
– – – 14637 14637 nil june 2008 june 2015
sharesave 2392 2392 52700 – – 39700 sep 2005 feb 2006
total 577019342355 14637249301
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 retested
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 62305 shares of the
original 186915 grant have lapsed
iii roger urwin exercised share match awards over 17425 shares the market price at the date of exercise was 528p and he was required to pay 100p per award he also received £15704
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 33749 shares of the
original 101246 grant have lapsed
v nick winser exercised a share match award over 2509 shares the market price at the date of exercise was 598p and he was required to pay 100p in total he also received £1976 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 us4963 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 33749 shares of the
original 101246 granted in june have lapsed and a further 37421 of the original 112262 granted in december have lapsed during the year edward astle exercised the remaining options
granted in december 2002
86 directors’ remuneration report annual report and accounts 200506
national grid annual report and accounts 200506
national grid
directors’ remuneration report 87
3 directors’ interests in share options continued
esop
no further awards will be made under this plan but there are outstanding options granted in previous years such options will normally
be exercisable between the third and tenth anniversary of the date of grant subject to a performance condition the performance
condition attached to the outstanding esop options is set out below if the performance condition is not satisfied after the first three
years it will be retested as indicated
options worth up to 100 of an optionholder’s base salary will become exercisable in full if tsr measured over the period of three
years beginning with the financial year in which the option is granted is at least median compared with a comparator group of
companies grants in excess of 100 of salary vest on a sliding scale becoming fully exercisable if the group’s tsr is in the top
quartile 
grants made in 2000 and 2001
the performance condition attached to options granted in june 2000 is tested annually throughout the lifetime of the option these
options remain unvested
the comparator group for the 2000 award is unaudited and this information follows below the remuneration committee at that time
believed the group to be an appropriate mix of energy distribution sector companies including uk and international utilities 
allegheny energy inc energy east corporation nstar scottish power plc
bg group plc fpl group inc powergen plc southern company
british energy plc gpu inc progress energy inc txu corp
central  south west corporation innogy holdings plc public service enterprise united utilities plc
consolidated edison inc international power plc group inc xcel energy inc
duke energy corporation niagara mohawk holdings inc scottish  southern energy plc
for options granted in june and september 2001 the performance condition could only be retested in years four and five the final re
test was undertaken in march 2006 and as the performance criterion was not met all the shares comprised in these awards have
lapsed
grants made in 2003
edward astle received a grant of executive share options on the basis of 15 times base salary at that time as a oneoff award in june
2003 to fulfill an existing contractual commitment made on his recruitment he was the only participant to receive such an award in
2003 the comparator group used for this award is unaudited and was the same group as that used for the 2003 psp award see page
81 the first test of the performance criterion was undertaken in march 2006 the performance criterion was not met and therefore it
may be retested twice in march 2007 and if required in march 2008 if the performance criterion has not been met by march 2008
the award will lapse
no alteration to the advantage of the participant may be made without prior approval of shareholders 88 directors’ remuneration report annual report and accounts 200506
national grid
4 directors’ interests in the psp
the table below gives details of the executive directors’ holdings of conditional shares awarded under the national grid psp under the
psp executive directors receive a conditional award of shares up to a maximum of 125 of salary which is subject to performance
criteria over a threeyear performance period see pages 80 and 81 for further details shares are then released following a further one
year retention period
awards market lapsed
conditional exercised awards price at without conditional
shares at lapsed granted award date vested vesting shares at release
table 4 31 march 2005 during year during year pence except of award in year in year 31 march 2006 date
roger urwin 195866 – – 40525 june 2003 – – 195866 june 2007
198587 – – 424875 june 2004 – – 198587 june 2008
– – 181442 52703 june 2005 – – 181442 june 2009
total 394453 – 181442 – – 575895
steve holliday 115669 – – 40525 june 2003 – – 115669 june 2007
117681 – – 424875 june 2004 – – 117681 june 2008
– – 100801 52703 june 2005 – – 100801 june 2009
total 233350 – 100801 – – 334151
steve lucas 115669 – – 40525 june 2003 – – 115669 june 2007
116210 – – 424875 june 2004 – – 116210 june 2008
– – 99615 52703 june 2005 – – 99615 june 2009
total 231879 – 99615 – – 331494
nick winser 92535 – – 40525 june 2003 – – 92535 june 2007
98558 – – 424875 june 2004 – – 98558 june 2008
– – 91314 52703 june 2005 – – 91314 june 2009
total 191093 – 91314 – – 282407
mike jesanis 41871 – – 40525 june 2003 – – 41871 june 2007
adss 19987 i – – us3940 june 2004 – – adss 19987 june 2008
– – adss 21634 i us48534 june 2005 – – adss 21634 june 2009
total shares 41871 – – – – shares 41871
adss 19987 – adss 21634 – – adss 41621
edward astle 107958 – – 40525 june 2003 – – 107958 june 2007
110326 – – 424875 june 2004 – – 110326 june 2008
– – 94872 52703 june 2005 – – 94872 june 2009
total 218284 – 94872 – – 313156
i mike jesanis received awards over adss in june 2004 and 2005 each ads represents five ordinary shares
5 directors’ interests under the lattice longterm incentive scheme ltis
award held at shares market
1 april 2005 adjusted resulting price at
original including dividend market price from dividend award date of
award reinvestment for award reinvestment released release award held date award
date shares at rollover in year during year pence 31 march 2006 released
steve lucas nov 2001 98201 38824 2856 101057 51153 – nov 2005
total 98201 2856101057 –
no awards have been made under the ltis since november 2001 under the terms of the ltis notional allocations of shares were
made to key individuals the allocations were subject to a performance condition over three years and a further retention period of one
year the number of shares actually released to participants depended on the group’s tsr compared with that of other regulated utility
companies operating in a similar environment
the 2001 ltis award held by steve lucas was released from trust on 2 november 2005  annual report and accounts 200506
national grid
directors’ remuneration report 89
6 directors’ beneficial interests
the directors’ beneficial interests which include those of their families in national grid ordinary shares of 11
17
 43p each are shown below
optionsawards over optionsawards over
ordinary shares at ordinary shares at ordinary shares at ordinary shares at
31 march 2006 i 1 april 2005 31 march 2006 iv 1 april 2005
sir john parker 55832 52229 – –
roger urwin ii iii v 247630 249517 1253566 1126284
steve holliday iii v 28063 25843 531405 604370
steve lucas ii iii vi vii viii 159379 102063 417585 404093
nick winser ii iii 56687 36515 355895 350761
mike jesanis 3281 3557 445105 336935
edward astle iii 28428 21118 756409 795303
ken harvey ii 3399 3874 – –
john allan 2000 – – –
john grant 8775 10000 – –
paul joskow 4385 5000 – –
stephen pettit 2632 3000 – –
maria richter 1755 2000 – –
george rose ii 4409 5025 – –
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 281977 steve lucas 318 nick winser 20787 ken harvey 3874 and george rose 5025
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 21015 ordinary shares and 23948 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
the closing price of a national grid share on 31 march 2006 was 5725p the range during the year was 61350p high and 48925p low
please note that the register of directors’ interests contains full details of shareholdings and optionsawards held by directors as at 
31 march 2006
on behalf of the board
helen mahy
group company secretary and general counsel
17 may 2006 independent verifier’s report on 
corporate responsibility
assurance statement
urs verification ltd ursvl was commissioned by national grid
to provide independent assurance of the corporate responsibility
elements of its annual report and accounts 200506 and the
website wwwnationalgridcomcorporateourresponsibility this
statement relates to the corporate responsibility elements of the
annual report and accounts 200506 for our full opinion and
scope see our statement at
wwwnationalgridcomcorporateourresponsibilityassurance
responsibilities of directors and assurors 
the information contained in national grid’s annual report 
and accounts is the sole responsibility of the directors of the
company the independence of our assurance team is important
and ursvl project team members have not been involved in 
the development of the report or associated systems this
assurance statement is not intended to be used as advice or as
the basis for any decisions including without limitation financial
or investment decisions
method
ursvl has performed this assurance process following the
principles of the aa1000 assurance standard ursvl auditors
also apply the general principles of auditing and audit procedures
as contained within international standard iso 19011
opinion
national grid has continued to develop and implement new and
existing programmes in support of its framework for responsible
business we continue to be impressed by the group’s management
focus on and commitment to addressing nonfinancial issues and
improving its impact on environment and society in relation to
recommendations made by ursvl last year the group has 
explained more clearly on its website how the group’s
activities translate into impacts on the environment 
and society 
communicated objectives targets and future challenges 
in this report to increase transparency of the group’s
performance expectations and achievements
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
allocated additional resources to the implementation of its
inclusion and diversity programme with a focus on
establishing networks and training to increase awareness and
improved the sharing of information between different parts of
the business on a wide range of issues
during the year national grid agreed an impressive climate change
strategy for the group achieving this should reduce the climate
change impact of its activities
national grid has achieved a continued reduction in lost time
incidents despite this the group recorded an employee fatality
directly associated with its operations in 2005 from our
engagement with personnel including field force as part of 
our assurance process it is clear that safety is recognised 
as the number one priority across the organisation although
based on a limited sample we believe further cultural changes
are required in order to drive forward continuing improvements 
in safety performance alternative safety metrics may also assist
in the measurement of associated improvements 
materiality 
national grid has well established and robust processes to
identify assess and manage both financial and nonfinancial risks
management processes to assess and monitor compliance with
internal and external requirements have matured and this has
strengthened the control of nonfinancial risk and issues
completeness
in developing the nonfinancial elements of this report national
grid has considered those risks and issues that would be of
interest to shareholders the key stakeholder group to which 
this report is directed it is our opinion that the appropriate issues
are contained within this report in a fair and balanced manner
however the completeness of the presentation of some issues 
or projects such as the milford haven pipeline may not reflect
challenges experienced during the year national grid plans to
include information on additional issues that may be material to
other stakeholder groups such as bribery and corruption within
their website disclosure 
national grid has further developed its online internetbased
reporting tool to now include environmental as well as health and
safety data this initiative should help improve the robustness of
reported environmental data 
responsiveness
stakeholder engagement occurs at many levels across the
organisation and there is encouraging evidence that national grid
seeks the views of external parties as an integral part of its decision
making processes recent changes to internal processes have
helped to focus attention on key issues for the group identify
stakeholders and track stakeholder engagement activity
recommendations
to build further on the progress made in developing and integrating
its strategy systems and reporting national grid should consider
refining safety performance metrics and reporting to drive
forward continuing improvements in safety performance 
ensuring that the commitments made to assess the 
risks posed by human rights in the supply chain are
implemented and
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 
for and on behalf of urs verification ltd london may 2006
90 independent verifier’s report on corporate responsibility annual report and accounts 200506
national grid annual report and accounts 200506
national grid
contents to financial statements 91
statement of directors’ responsibilities for preparing the accounts
statement of directors’ responsibilities for 
preparing the accounts
the directors are required by the companies act 1985 to prepare
accounts for each financial year which give a true and fair view of
the state of affairs of the company and of the group as at the
end of the financial year and of the profit or loss of the group for
the financial year
the directors consider that in preparing the group financial
statements and the company financial statements the company
has used appropriate accounting policies consistently applied
and supported by reasonable and prudent judgements and
estimates and all applicable accounting standards have been
followed
the directors have responsibility for preparing the accounts on
the going concern basis unless it is inappropriate to presume
that the group will continue in business therefore the accounts
have been prepared on the going concern basis
the directors have responsibility for ensuring that the company
keeps accounting records which disclose with reasonable
accuracy the financial position of the company and of the group
and which enable them to ensure that the accounts comply with
the companies act 1985
the directors have general responsibility for taking such steps 
as are reasonably open to them to safeguard the assets of the
group and to prevent and to detect fraud and other irregularities
the directors having prepared the accounts have requested 
the auditors to take whatever steps and to undertake whatever
inspections they consider to be appropriate for the purposes of
enabling them to give their audit report
the directors confirm that the audit committee continues to
review the adequacy of the system of internal financial controls
adopted by the group
contents to financial statements
91 statement of directors’ responsibilities for preparing 
the accounts
92 independent auditors’ report to the members 
of national grid plc
93 group accounting policies
100 group income statement
101 group balance sheet
102 group statement of recognised income and expense
103 group cash flow statement
104 notes to the accounts
104 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 2005
109 note 3 – segmental analysis
112 note 4 – other operating income
112 note 5 – operating costs
113 note 6 – exceptional items and remeasurements
113 note 7 – payroll costs and employees
114 note 8 – directors’ emoluments
114 note 9 – pensions and other postretirement benefits
119 note 10 – finance income and costs
120 note 11 – taxation
121 note 12 – discontinued operations
121 note 13 – dividends
122 note 14 – earnings per share
123 note 15 – goodwill
124 note 16 – acquisitions
125 note 17 – other intangible assets
126 note 18 – property plant and equipment
127 note 19 – investments in joint ventures
127 note 20 – deferred tax assets and liabilities
128 note 21 – other noncurrent receivables
128 note 22 – financial investments
129 note 23 – financial instruments
136 note 24 – inventories
136 note 25 – trade and other receivables
137 note 26 – cash and cash equivalents
137 note 27 – borrowings
139 note 28 – trade and other payables
139 note 29 – other noncurrent liabilities
140 note 30 – provisions
141 note 31 – share capital
145 note 32 – reconciliation of movements in total equity
146 note 33 – group cash flow statement
147 note 34 – related party transactions
147 note 35 – commitments and contingencies
148 note 36 – group undertakings and joint ventures
149 note 37 – differences between ifrs and us generally
accepted accounting principles
157 note 38 – condensed us gaap financial information
161 note 39 – national grid gas plc additional 
us gaap disclosures
166 company accounting policies
168 company balance sheet
169 notes to the company accounts
169 note 1 – changes in accounting policies
169 note 2 – fixed asset investments
170 note 3 – debtors
170 note 4 – creditors amounts falling due within one year
170 note 5 – creditors amounts falling due after more than 
one year
170 note 6 – borrowings
171 note 7 – provisions for liabilities and charges
171 note 8 – share capital
171 note 9 – reserves
171 note 10 – commitments and contingencies 92 independent auditors’ report to the members of national grid plc annual report and accounts 200506
national grid
independent auditors’ report to the members 
of national grid plc
we have audited the group and company financial statements
the ‘financial statements’ of national grid plc for the year ended
31 march 2006 which comprise the group income statement the
group and company balance sheets the group statement of
recognised income and expense the group cash flow statement
the group and company accounting policies the notes to the
accounts and the notes to the company accounts these
financial statements have been prepared under the accounting
policies set out therein we have also audited the information in
the directors’ remuneration report that is described as audited
respective responsibilities of directors and auditors
the directors’ responsibilities for preparing the annual report and
the group financial statements in accordance with applicable law
and international financial reporting standards ifrss as adopted
by the european union and the company financial statements
and the directors’ remuneration report in accordance with
applicable law and united kingdom accounting standards
united kingdom generally accepted accounting practice 
are set out in the statement of directors’ responsibilities
our responsibility is to audit the financial statements and the part of
the directors’ remuneration report to be audited in accordance
with relevant legal and regulatory requirements and international
standards on auditing uk and ireland this report including the
opinion has been prepared for and only for the company’s members
as a body in accordance with section 235 of the companies act
1985 and for no other purpose we do not in giving this opinion
accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing
we report to you our opinion as to whether the financial statements
give a true and fair view and whether the financial statements and
the part of the directors’ remuneration report to be audited have
been properly prepared in accordance with the companies act
1985 and whether in addition the group financial statements
have been properly prepared in accordance with article 4 of the
ias regulation we also report to you whether in our opinion the
information given in the directors’ report is consistent with the
financial statements the information given in the directors’ report
includes that specific information presented in the operating and
financial review that is crossreferred from the business review
section of the directors’ report we also report to you if in our
opinion the company has not kept proper accounting records 
if we have not received all the information and explanations we
require for our audit or if information specified by law regarding
directors’ remuneration and other transactions is not disclosed
we review whether the corporate governance statement reflects
the company’s compliance with the nine provisions of the 2003
frc combined code specified for our review by the listing rules
of the financial services authority and we report if it does not
we are not required to consider whether the board’s statements
on internal control cover all risks and controls or form an opinion
on the effectiveness of the group’s corporate governance
procedures or its risk and control procedures
we read other information contained in the annual report and
consider whether it is consistent with the audited financial
statements the other information comprises only the items listed
in the contents section of the annual report excluding the 2006
audited financial statements and the part of the directors’
remuneration report to be audited we consider the implications
for our report if we become aware of any apparent misstatements
or material inconsistencies with the financial statements our
responsibilities do not extend to any other information
basis of audit opinion
we conducted our audit in accordance with international standards
on auditing uk and ireland issued by the auditing practices
board an audit includes examination on a test basis of evidence
relevant to the amounts and disclosures in the financial statements
and the part of the directors’ remuneration report to be audited
it also includes an assessment of the significant estimates and
judgements made by the directors in the preparation of the
financial statements and of whether the accounting policies are
appropriate to the group’s and company’s circumstances
consistently applied and adequately disclosed
we planned and performed our audit so as to obtain all the
information and explanations which we considered necessary 
in order to provide us with sufficient evidence to give reasonable
assurance that the financial statements and the part of the directors’
remuneration report to be audited are free from material
misstatement whether caused by fraud or other irregularity or error
in forming our opinion we also evaluated the overall adequacy of
the presentation of information in the financial statements and the
part of the directors’ remuneration report to be audited
opinion
in our opinion
the group financial statements give a true and fair view
in accordance with ifrss as adopted by the european union
of the state of the group’s affairs as at 31 march 2006 and of
its profit and cash flows for the year then ended 
the group financial statements have been properly prepared
in accordance with the companies act 1985 and article 4 
of the ias regulation
the company financial statements give a true and fair view
in accordance with united kingdom generally accepted
accounting practice of the state of the company’s affairs 
as at 31 march 2006 
the company financial statements and the part of the directors’
remuneration report to be audited have been properly
prepared in accordance with the companies act 1985 and
the information given in the directors’ report is consistent
with the financial statements
pricewaterhousecoopers llp
chartered accountants and registered auditors
london
17 may 2006 group accounting policies 
for the year ended 31 march 2006
a basis of preparation of group financial statements
these group financial statements have been prepared in
accordance with international financial reporting standards
ifrs adopted by the european union they are prepared on 
the basis of all ifrss and interpretations that are mandatory for
periods ending 31 march 2006 and in accordance with applicable
united kingdom law and article 4 of the ias regulation the
2005 comparative financial information has also been prepared
on this basis with the exception of certain standards details of
which are given below for which comparative information has not 
been restated
in respect of the comparative financial information disclosed ifrs 1
requires that estimates made under ifrs must be consistent 
with estimates made for the same date under generally accepted
accounting principles in the united kingdom uk gaap except
where adjustments are required to reflect any differences in
accounting policies
the group financial statements have been prepared on a 
historical cost basis except for the recording of pension 
liabilities and revaluation of certain financial instruments from 
1 april 2005 onwards
these group financial statements are presented in pounds sterling
the preparation of financial statements requires management 
to make estimates and assumptions that affect the reported
amounts of assets and liabilities disclosures of contingent 
assets and liabilities and the reported amounts of revenue and
expenses during the reporting period actual results could differ
from these estimates
ifrs transitional arrangements
the group’s transition date to ifrs is 1 april 2004 the rules 
for firsttime adoption of ifrs are set out in ifrs 1 ‘firsttime
adoption of international financial reporting standards’ in
preparing the group’s first ifrs financial statements these
transition rules have been applied to the amounts reported
previously under uk gaap  ifrs 1 generally requires full
retrospective application of the standards and interpretations in
force at the first reporting date however ifrs 1 allows certain
exemptions in the application of particular standards to prior
periods in order to assist companies with the transition process
national grid has applied the following exemptions
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
other choices made on the adoption of ifrs
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 postretirement benefits 
on page 97 
iv for sharebased 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 sharebased payments on page 99 
new ifrs accounting standards and interpretations adopted 
in 200506
in preparing these financial statements the group has complied
with all ifrss applicable for periods beginning on or after
1 january 2005 
in addition the group has adopted the following amendments 
to standards
amendment to ias 1 ‘presentation of financial statements’
the amendment requires new disclosures about entities’
management of their capital resources and compliance with
capital requirements 
amendment to ias 19 ‘employee benefits actuarial gains
and losses group plans and disclosures’ 
the principal impact of adopting the amendment is that actuarial
gains and losses in respect of the group’s defined benefit
schemes are recognised in the statement of recognised income
and expense and additional disclosures regarding the schemes
have been provided
amendment to ias 39 ‘financial instruments recognition
and measurement cash flow hedge accounting of forecast
intragroup transactions’ 
in consolidated financial statements the amendment allows the
foreign currency risk of a highly probable forecast intragroup
transaction to qualify as a hedged item provided that the
transaction is denominated in a currency other than the functional
annual report and accounts 200506
national grid
group financial statements 93
group accounting policies annual report and accounts 200506
national grid
currency of the entity entering into that transaction and the
foreign currency risk will affect consolidated profit or loss
ifrs 7 ‘financial instruments disclosures’
this replaces the disclosure requirements in ias 32 ‘financial
instruments presentation and disclosure’ 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
new ifrs accounting standards and interpretations not 
yet adopted
international financial reporting interpretations committee 
ifric 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’
implementation of this interpretation is not expected to have a
material impact on the group’s results or assets and liabilities
ifric 5 ‘rights to interests arising from decommissioning
restoration and environmental rehabilitation funds’ addresses
the issues of how a contributor to such a fund should account for
its interest in the fund and how obligations to make additional
contributions should be accounted for the group has no such
funds and therefore adoption of ifric 5 would have no impact 
on the group
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 implementation of this interpretation is not expected to
have a material impact on the group’s results or assets and liabilities
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
that otherwise would be required under the contract in which
case reassessment is required implementation of this
interpretation is not expected to have a material impact on the
group’s results or assets and liabilities
b basis of consolidation
the group financial statements incorporate the financial statements
of the company and its subsidiaries group undertakings together
with the group’s share of the results assets and liabilities of jointly
controlled entities joint ventures using the equity method of
accounting where the investment is carried at cost plus post
acquisition changes in the group’s share of net assets of the joint
venture less any provision for impairment a subsidiary is defined
as an entity controlled by the company control is achieved where
the company has the power to govern the financial and operating
policies of an entity so as to obtain benefits from its activities a
joint venture is an entity established to engage in economic activity
which the group jointly controls with its fellow venturers
losses in excess of the group’s interest in joint ventures are not
recognised except where the group has made a commitment 
to make good those losses
where necessary adjustments are made to bring the accounting
policies used under relevant local gaap in the individual financial
statements of the company subsidiaries and joint ventures into
line with those used by the group under ifrs intercompany
transactions are eliminated
the results of subsidiaries and joint ventures acquired or
disposed of during the year are included in the group income
statement from the effective date of acquisition or up to the
effective date of disposal as appropriate
acquisitions are accounted for using the purchase method where
the purchase price is allocated to assets and liabilities on a fair
value basis and the remainder recognised as goodwill
c foreign currencies
transactions in currencies other than the functional currency of
the group undertaking concerned are recorded at the rates of
exchange prevailing on the dates of the transactions at each
balance sheet date monetary assets and liabilities that are
denominated in foreign currencies are retranslated at closing
exchange rates other nonmonetary assets are not retranslated
unless they are carried at fair value
as set out in note p below as permitted by ifrs 1 prior to 
1 april 2005 the group adopted uk gaap for hedge accounting
and consequently monetary assets and liabilities denominated 
in foreign currencies were translated at hedged rates instead of
closing exchange rates 
gains and losses arising on retranslation of monetary assets and
liabilities are included in the income statement
on consolidation the assets and liabilities of the operations that
have a functional currency different from the group’s presentation
currency are translated at exchange rates prevailing at the
balance sheet date income and expense items are translated at
the weighted average exchange rates for the period exchange
differences arising are classified as equity and transferred to the
group’s translation reserve 
d goodwill
goodwill arising on a business combination represents the
excess of the cost of acquisition over the group’s interest in the
fair value of the identifiable assets and liabilities of a subsidiary or
joint venture at the date of acquisition
goodwill is recognised as an asset and is not amortised but 
is reviewed for impairment at least annually any impairment is
recognised immediately in the income statement and is not
subsequently reversed
goodwill recorded under uk gaap arising on acquisitions before
1 april 2004 the date of transition to ifrs has been frozen at
that date subject to testing for impairment
94 group financial statements
group accounting policies goodwill and fair value adjustments arising on the acquisition of 
a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing exchange rate
e intangible assets other than goodwill
with the exception of goodwill as described above identifiable
intangible assets are recorded at cost less accumulated
amortisation and any provision for impairment
internally generated intangible fixed assets such as software are
recognised only if an asset is created that can be identified it is
probable that the asset created will generate future economic
benefits and that the development cost of the asset can be
measured reliably where no internally generated intangible asset
can be recognised development expenditure is recorded as an
expense in the period in which it is incurred
on a business combination as well as recording separable
intangible assets possessed by the acquired entity at their fair
value identifiable intangible assets that arise from contractual or
other legal rights are also included in the balance sheet at their
fair value
intangible assets other than goodwill are amortised on a
straightline basis over their estimated economic useful lives
amortisation periods for categories of intangible assets are 
amortisation periods for categories of intangibles years
software 3 to 5
telecommunication licences 10 to 25
acquired customer relationships 10 to 25
f property plant and equipment
property plant and equipment is recorded at cost or deemed
cost at the date of transition to ifrs less accumulated
depreciation and any impairment losses
cost includes payroll and finance costs incurred which are directly
attributable to the construction of property plant and equipment
as well as the cost of any associated asset retirement obligations
property plant and equipment includes assets in which the
group’s interest comprises legally protected statutory or
contractual rights of use
additions represent the purchase or construction of new assets
including capital expenditure for safety and environmental assets
and extensions to enhancements to or replacement of existing
assets
contributions received towards the cost of property plant and
equipment are included in creditors as deferred income and
credited on a straightline basis to the income statement over 
the estimated economic useful lives of the assets to which 
they relate
no depreciation is provided on freehold land and assets in the
course of construction
other property plant and equipment are depreciated principally
on a straightline basis at rates estimated to write off their book
values over their estimated useful economic lives in assessing
estimated useful economic lives which are reviewed on a regular
basis consideration is given to any contractual arrangements and
operational requirements relating to particular assets unless
otherwise determined by operational requirements the
depreciation periods for the principal categories of property plant
and equipment are in general as shown below
depreciation periods for category of assets years
plant and machinery
electricity transmission plant 15 to 60
electricity distribution plant 15 to 60
interconnector plant 15 to 60
gas plant – mains services and regulating equipment 30 to 100
gas plant – storage 40
gas plant – meters 10 to 33
wireless towersinfrastructure 20 to 55
freehold and leasehold buildings up to 65
motor vehicles and office equipment up to 10
g impairment of assets
impairments of assets are calculated as the difference between
the carrying value of the asset and its recoverable amount if
lower where such an asset does not generate cash flows that
are independent from other assets the group estimates the
recoverable amount of the cashgenerating unit to which that
asset belongs
recoverable amount is defined as the higher of fair value less
costs to sell and estimated value in use at the date the
impairment review is undertaken
value in use represents the present value of expected future cash
flows discounted using a pretax discount rate that reflects
current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash
flows have not been adjusted
goodwill is tested for impairment at least annually otherwise
tests for impairment are carried out only if there is some
indication that the carrying value of the assets may have been
impaired
impairments are recognised in the income statement and where
material are disclosed separately
annual report and accounts 200506
national grid
group financial statements 95
group accounting policies h taxation
current tax
current tax asset and liabilities for the current and prior periods
are measured at the amount expected to be recovered from or
paid to the taxation authorities the tax rates and tax laws used
to compute the amount are those that are enacted or
substantively enacted by the balance sheet date
deferred tax and investment tax credits
deferred tax is provided using the balance sheet liability method
and is recognised on temporary differences between the carrying
amounts of assets and liabilities in the financial statements 
and the corresponding tax bases used in the computation 
of taxable profit
deferred tax liabilities are generally recognised on all taxable
temporary differences and deferred tax assets are recognised 
to the extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised
such assets and liabilities are not recognised if the temporary
difference arises from the initial recognition of goodwill or from 
the initial recognition other than a business combination of other
assets and liabilities in a transaction that affects neither the
accounting profits nor the taxable profits
deferred tax liabilities are recognised on taxable temporary
differences arising on investments in subsidiaries and jointly
controlled entities except where the group is able to control 
the reversal of the temporary difference and it is probable that 
the temporary difference will not reverse in the foreseeable future
deferred tax is calculated at the tax rates that are expected 
to apply in the period when the liability is settled or the asset is
realised based on the tax rates and tax laws that have been
enacted or substantively enacted by the balance sheet date
deferred tax is charged or credited to the income statement
except where it relates to items charged or credited directly to
equity in which case the deferred tax is also dealt with in equity
the carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all
or part of the deferred tax asset to be recovered unrecognised
deferred tax assets are reassessed at each balance sheet date
and are recognised to the extent that it has become probable 
that future taxable profit will allow the deferred tax asset to be
recovered 
deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the
same taxation authority and the group intends to settle its current
tax asset and liabilities on a net basis
investment tax credits are amortised over the economic life of the
asset which gives rise to the credits
i discontinued operations and noncurrent assets 
held for sale
cash flows and operations that relate to a major component of
the business that has been sold or is classified as held for sale
are shown separately from the continuing operations of the group
noncurrent assets and disposal groups classified as held for
sale are measured at the lower of carrying amount and fair value
less costs to sell no depreciation is charged on assets and
disposal groups classified as held for sale
noncurrent assets and disposal groups are classified as held 
for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use this condition is
regarded as met only when the sale is highly probable and the
asset or disposal group is available for immediate sale in its
present condition management must be committed to the sale
which should be expected to qualify for recognition as a
completed sale within one year from the date of classification
j inventories
inventories are stated at the lower of cost and net realisable
value cost comprises direct materials and where applicable
direct labour costs as well as those overheads that have been
incurred in bringing the inventories to their present location and
condition
k decommissioning and environmental costs
provision is made for decommissioning and environmental costs
based on future estimated expenditures discounted to present
values where appropriate the establishment of a provision is
recorded as part of the original cost of the related property plant
and equipment
changes in the provision arising from revised estimates or
discount rates or changes in the expected timing of expenditures
that relate to property plant and equipment are recorded as
adjustments to their carrying value and depreciated prospectively
over their remaining estimated useful economic lives otherwise
such changes are recognised in the income statement
the unwinding of the discount is included within the income
statement as a financing charge
l revenues
revenues primarily represent the sales value derived from the
transmission and distribution of energy and recovery of us
stranded costs together with the sales value derived from the
provision of other services including wireless infrastructure
services to customers during the year and excludes value added
tax and intragroup sales
us stranded costs are various generationrelated costs that the
group incurred prior to the divestiture of generation assets
beginning in the late 1990s and the group is recovering these
costs over the period up to 2011
annual report and accounts 200506
national grid
96 group financial statements
group accounting policies the recovery of stranded costs and other amounts allowed to 
be collected from customers under regulatory arrangements 
are recognised in the period in which they are recoverable 
from customers
revenues include an assessment of energy and transportation
services supplied to customers between the date of the last
meter reading and the year end exclude interbusiness and inter
company transactions and are stated net of value added tax and
similar sales based taxes
where revenues received or receivable exceed the maximum
amount permitted by regulatory agreement and adjustments will
be made to future prices to reflect this overrecovery no liability is
recognised similarly no asset is recognised where a regulatory
agreement permits adjustments to be made to future prices in
respect of an underrecovery
m pensions and other postretirement benefits
for defined benefit retirement schemes the cost of providing
benefits is determined using the projected unit method with
actuarial valuations being carried out at each balance sheet date
current service cost is recognised in operating costs in the period
in which the defined benefit obligation increases as a result of
employee services
actuarial gains and losses are recognised in full in the period in which
they occur in the statement of recognised income and expense
past service costs are recognised immediately to the extent that
benefits are already vested otherwise such costs are amortised
on a straightline basis over the period until the benefits vest
settlements are recognised when the group enters into a
transaction that eliminates all further legal or constructive
obligations for benefits under a scheme
curtailments are recognised when the group is committed to 
a material reduction in the number of employees covered by 
a scheme
the retirement benefit obligations recognised in the balance sheet
represent the present value of the defined benefit obligations as
reduced by the fair value of scheme assets and any unrecognised
past service cost
the expected return on scheme assets and the unwinding of the
discount on defined benefit obligations are recognised within
interest income and expense respectively
n leases
rentals under operating leases are charged to income on a
straightline basis over the term of the relevant lease
assets held under finance leases are recognised at their fair 
value or if lower the present value of the minimum lease payments
on inception and depreciated over their useful economic lives
the corresponding liability is recognised as a finance lease
obligation within borrowings rental payments are apportioned
between finance costs and reduction in the finance lease
obligation so as to achieve a constant rate of interest
o financial instruments
financial assets liabilities and equity instruments are classified
according to the substance of the contractual arrangements
entered into an equity instrument is any contract that evidences
a residual interest in the assets of the group after deducting all 
of its liabilities and is recorded at the proceeds received net of
direct issue costs
trade receivables are initially recognised at fair value and
subsequently measured at amortised cost less any appropriate
allowances for estimated irrecoverable amounts a provision is
established for irrecoverable amounts when there is objective
evidence that the group will not be able to collect all amounts
due under the original payment terms indications that the trade
receivable may become irrecoverable would include financial
difficulties of the debtor likelihood of the debtor’s insolvency 
and default or significant failure of payment
loans receivable and other receivables are carried at amortised
cost using the effective interest rate method interest income
together with gains and losses when the loans and receivables are
derecognised or impaired are recognised in the income statement
other financial investments are initially measured at cost 
including transaction costs but with effect from 1 april 2005 
are subsequently carried at fair value changes in the fair value 
of investments classified at fair value through profit and loss are
included in the income statement while changes in the fair value
of investments classified as availableforsale are recognised
directly in equity until the investment is disposed of or is
determined to be impaired at which time the cumulative gain 
or loss previously recognised in equity is included in the net profit
or loss for the period investment income on investments classified
at fair value through profit and loss and on availableforsale
investments is recognised in the income statement as it accrues
interestbearing loans and overdrafts are recorded at the
proceeds received net of direct issue costs plus accrued interest
less any repayments and subsequently stated at amortised cost
any difference between the proceeds after direct issue costs and
the redemption value is recognised in the income statement over
the life of the borrowing prior to 1 april 2005 accrued interest is
presented as part of current liabilities and not combined with the
principal amounts payable
derivative financial instruments are recognised initially at fair value
and are subsequently also measured at fair value changes in the
fair value of derivative financial instruments are included in the
income statement to the extent hedge accounting is not applied
subsequent to initial recognition the fair values of financial
instruments measured at fair value that are quoted in active
markets are based on bid prices for assets held and offer prices
for issued liabilities when independent prices are not available
fair values are determined by using valuation techniques which
refer to observable market data these include comparison with
similar instruments where market observable prices exist
discounted cash flow analysis option pricing models and other
valuation techniques commonly used by market participants
annual report and accounts 200506
national grid
group financial statements 97
group accounting policies finance charges including premiums payable on settlement 
or redemption and direct issue costs are accounted for on an
accruals basis using the effective interest rate method
borrowing costs directly attributable to the acquisition
construction or production of qualifying assets being assets 
that necessarily take a substantial period of time to get ready for
their intended use or sale are added to their cost such additions
cease when the assets are substantially ready for their intended
use or sale all other borrowing costs are recognised in the
income statement in the period in which they are incurred
all regular way purchases and sales of financial assets are
recognised on the trade date being the date that the group
commits to purchase or sell the assets regular way transactions
require delivery of assets within the time frame generally established
by regulation or convention in the marketplace 
p hedge accounting and derivative financial instruments
the group enters into both derivative financial instruments
derivatives and nonderivative financial instruments in order 
to manage its interest rate and foreign currency exposures and
commodity price risks in respect of expected energy usage the
principal derivatives used include interest rate swaps forward rate
agreements currency swaps forward foreign currency contracts
interest rate swaptions and indexed swap contracts relating to
the purchase of energy
all derivative transactions are undertaken or maintained with 
a view to managing the interest currency or commodity price
risks associated with the group’s underlying business activities
and the financing of those activities
with effect from 1 april 2005 derivatives are carried in the
balance sheet at their fair value commodity contracts that meet
the definition of a derivative and which are not used for normal
purchase normal sale requirements are also carried at fair value 
from 1 april 2005 the accounting policy for hedge accounting 
is described below disclosures on the impact of implementing
ias 39 at 1 april 2005 are set out in note 2
changes in the carrying value of financial instruments that are
designated and effective as hedges of future cash flows cash
flow hedges are recognised directly in equity and any ineffective
portion is recognised immediately in the income statement amounts
deferred in equity in respect of cash flow hedges are subsequently
recognised in the income statement in the same period in which
the hedged item affects net profit or loss where a nonfinancial
asset or a nonfinancial liability results from a forecasted transaction
or firm commitment being hedged the amounts deferred in equity
are included in the initial measurement of that nonmonetary
asset or liability
changes in the carrying value of financial instruments that are
designated as hedges of the changes in the fair value of assets 
or liabilities fair value hedges are recognised in the income
statement an equal and opposite amount is recorded as an
adjustment to the carrying value of hedged items with a
corresponding entry in the income statement to the extent that
the change is attributable to the risk being hedged and that the
fair value hedge is effective
exchange gains or losses arising on financial instruments that are
designated and effective as hedges of the group’s net investment
in overseas operations net investment hedges are recorded
directly in equity with any ineffective portion recognised immediately
in the income statement amounts deferred in equity in respect 
of net investment hedges are subsequently recognised in the
income statement in the event of the disposal of the overseas
operations concerned
changes in the fair value of derivatives that do not qualify for
hedge accounting are recognised in the income statement as
they arise within finance costs remeasurements of commodity
contracts carried at fair value are recognised in the income
statement with changes due to movements in commodity prices
recorded in operating costs and changes relating to movements in
interest rates within finance costs
hedge accounting is discontinued when the hedging instrument
expires or is sold terminated exercised or no longer qualifies for
hedge accounting at that time any cumulative gains or losses
relating to cash flow hedges recognised in equity are initially
retained in equity and subsequently recognised in the income
statement in the same periods in which the previously hedged
item affects net profit or loss for fair value hedges the
cumulative adjustment recorded to the carrying value of the
hedged item at the date hedge accounting is discontinued 
is amortised to the income statement using the effective 
interest rate method
if a hedged transaction is no longer expected to occur the net
cumulative gain or loss recognised in equity is transferred to the
income statement immediately
derivatives embedded in other financial instruments or other host
contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of host contracts
and the host contracts are not carried at fair value with unrealised
gains or losses reported in the income statement
prior to 1 april 2005 the group adopted uk gaap for hedge
accounting and for derivatives derivatives used for hedging
purposes were not recorded on the balance sheet as assets or
liabilities monetary assets and liabilities in foreign currencies were
retranslated at hedged rates instead of closing rates exchange
gains and losses relating to the hedge of the net investment in
overseas subsidiaries were recorded directly in equity
as permitted by the provisions of ifrs 1 the comparative
balance sheet and income statement for the year ended 
31 march 2005 have not been restated to reflect either the
adoption of ias 39 or ias 32
annual report and accounts 200506
national grid
98 group financial statements
group accounting policies q restructuring costs
costs arising from group restructuring programmes primarily
relate to redundancy costs redundancy costs are charged to 
the income statement in the year in which the group becomes
irrevocably committed to incurring the costs and the main
features of the restructuring plan have been announced to
affected employees
r sharebased payments
the group issues equitysettled sharebased payments to certain
employees
equitysettled sharebased payments are measured at fair value
at the date of grant the fair value determined at the grant date 
of the equitysettled sharebased payments is expensed on a
straightline basis over the vesting period based on the group’s
estimate of shares that will eventually vest
s exceptional items and remeasurements
exceptional items are credits or charges relating to nonrecurring
transactions that are material by virtue of their size or nature and
therefore relevant to understanding the group’s financial
performance and are shown separately to provide a better
indication of the underlying results of the group
remeasurements are gains or losses arising from movements 
in the carrying value of commodity contracts and of financial
instruments principally derivatives which provide economic
hedges but do not achieve hedge accounting or are ineffective
under ias 39 and are shown separately to provide a better
indication of the underlying results of the group
t other operating income
other operating income includes profits or losses arising on the
disposal of properties by the group’s property management
business which is considered to be part of the normal recurring
operating activities of the group
u emission allowances
emission allowances are recorded as an intangible asset within
current assets and are initially recorded at deemed cost for
allocations of emission allowances granted to the group by the
uk government cost is measured as fair value at the date of
allocation receipts of such grants are treated as deferred income
and are recognised in the income statement over the period 
to which they relate a provision is recorded in respect of the
group’s obligation to deliver emission allowances and charges are
recognised in the income statement in the period in which carbon
dioxide emissions are made
v cash and cash equivalents
cash and cash equivalents include cash held at bank and in
hand together with shortterm highly liquid investments with 
an original maturity of less than three months that are readily
convertible to known amounts of cash and subject to an
insignificant change in value
w key sources of estimation uncertainty 
the preparation of financial statements requires management 
to make estimates and assumptions that affect the reported
amounts of assets and liabilities disclosures of contingent assets
and liabilities and the reported amounts of revenue and expenses
during the reporting period actual results could differ from these
estimates information about such judgements and estimation is
contained in the accounting policies andor the notes to the
accounts and the key areas are summarised below
areas of judgement that have the most significant effect on the
amounts recognised in the financial statements
the categorisation of certain items as exceptional and the
definition of adjusted earnings – notes 6 and 14
the exemptions adopted under ifrs including in particular
those relating to business combinations – group accounting
policies a basis of preparation of group financial statements
key sources of estimation uncertainty that have a significant risk
of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year
impairment of goodwill – group accounting policies d
goodwill and note 15
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
estimation of liabilities for pension and other postretirement
costs – note 9
valuation of financial instruments and derivatives – note 23
revenue recognition and assessment of unbilled revenue –
group accounting policies l revenues
recoverability of deferred tax assets – group accounting
policies h taxation and note 20
environmental liabilities – note 30
annual report and accounts 200506
national grid
group financial statements 99
group accounting policies group income statement 
for the years ended 31 march 
2006 2005 i
notes £m £m
group revenue 3a 9193 7382
other operating income 4 80 70
operating costs 5 6834 5310
operating profit
before exceptional items and remeasurements 3b 2527 2443 
exceptional items and remeasurements 6 88 301
total operating profit 3b 2439 2142
interest income and similar income 10 1038 946 
interest expense and other finance costs
before exceptional items and remeasurements 6 1644 1652
exceptional items and remeasurements 610 57 –
10 1701 1652
share of posttax results of joint ventures 3c 3 3
profit before taxation
before exceptional items and remeasurements 1924 1740
exceptional items and remeasurements 145 301
total profit before taxation 1779 1439
taxation
before exceptional items and remeasurements 11 597 437
exceptional items and remeasurements 611 35 118 
total taxation 11 562 319
profit from continuing operations after taxation
before exceptional items and remeasurements 1327 1303
exceptional items and remeasurements 6 110 183
profit for the year from continuing operations 1217 1120 
profit for the year from discontinued operations
before exceptional items 12 43 352
exceptional items 12 2590 48
12 2633 304
profit for the year 3850 1424
attributable to
equity shareholders of the parent 3848 1424
minority interests 2 –
3850 1424
earnings per share from continuing operations
basic 14 428p 363p
diluted 14 426p 362p
earnings per share
basic 14 1356p 462p
diluted 14 1350p 460p
i refer to note 1 for the basis of preparation of the comparatives presented under international financial reporting standards 
the notes on pages 104 to 165 form part of the group financial statements
100 group financial statements
group income statement
annual report and accounts 200506
national grid annual report and accounts 200506
national grid
group financial statements 101
group balance sheet
group balance sheet 
at 31 march
2006 2005 i
notes £m £m
noncurrent assets
goodwill 15 2142 2031
other intangible assets 17 321 358
property plant and equipment 18 18935 22645
investments in joint ventures 19 12 17
deferred tax assets 20 159 318
other receivables 21 38 96
financial investments 22 148 131
derivative financial assets 23 351 –
total noncurrent assets 22106 25596
current assets
other intangible assets 17 41 –
inventories 24 108 101
trade and other receivables 25 1519 1193
financial investments 22 384 398
derivative financial assets 23 314 –
cash and cash equivalents 26 1452 272
total current assets 3818 1964
total assets 3d 25924 27560
current liabilities
bank overdrafts 26 3 18 
borrowings 27 2839 3243
derivative financial liabilities 23 92 –
trade and other payables 28 2095 2337
current tax liabilities 419 103
provisions 30 235 273
total current liabilities 5683 5974
noncurrent liabilities
borrowings 27 10287 11047 
derivative financial liabilities 23 130 –
other noncurrent liabilities 29 1719 2429
deferred tax liabilities 20 2161 3189
pensions and other postretirement benefit obligations 9 1915 2282
provisions 30 536 518
total noncurrent liabilities 16748 19465
total liabilities 3d 22431 25439
net assets 3493 2121
equity
called up share capital 31 310 309
share premium account 32 1316 1289
retained earnings 32 6817 5650
translation reserve 32 127 6
cash flow hedge reserve 32 37 –
availableforsale investment reserve 32 6 –
other reserves 32 5131 5131
total parent company shareholders’ equity 3482 2111
minority interests 32 11 10
total equity 3493 2121
i refer to note 1 for the basis of preparation of the comparatives presented under international financial reporting standards 
these financial statements comprising the group income statement group balance sheet group statement of recognised income
and expense group cash flow statement and the related notes 1 to 39 were approved by the board of directors on 17 may 2006
and were signed on its behalf by
sir john parker chairman
steve lucas group finance director group statement of recognised income and expense
for the years ended 31 march 
2006 2005 i
£m £m
exchange adjustments 141 6
actuarial gains 181 253
net 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 availableforsale investments 4 –
transferred to profit or loss on sale of availableforsale investments 1 –
tax on items taken directly to or transferred from equity 43 66
net income recognised directly in equity 250 181
profit for the year 3850 1424
total recognised income and expense for the year 4100 1605
attributable to
equity shareholders of the parent 4097 1605
minority interests 3 –
4100 1605
effect 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
102 group financial statements
group statement of recognised income and expense
annual report and accounts 200506
national grid annual report and accounts 200506
national grid
group financial statements 103
group cash flow statement
group cash flow statement 
for the years ended 31 march
2006 2005 i
notes £m £m
cash flows from operating activities
total operating profit 2439 2142 
adjustments for
exceptional items and remeasurements 88 301 
depreciation and amortisation 952 819 
sharebased payment charge 15 12 
changes in working capital 212 105
changes in provisions 9 119
changes in pensions and other postretirement benefit obligations 42 19
cash flows relating to exceptional items 118 120
cash flows generated from continuing operations 3131 2911
cash flows relating to discontinued operations 33a 20 547
cash generated from operations 3111 3458
tax paid – continuing operations 103 52
tax paid – discontinued operations 37 98
net cash inflow from operating activities 2971 3308
cash flows from investing activities
acquisition of subsidiaries net of cash acquired – 1122
sale of investments in joint ventures 8 8
purchases of intangible assets 16 79
purchases of property plant and equipment 1750 1427
disposals of property plant and equipment 18 22 
purchases of financial investments 2870 113
sales of financial investments 2895 54
dividends received from joint ventures 2 5
cash flows used in continuing operations investing activities 1713 2652
cash flows relating to discontinued operations – disposal proceeds 5750 –
cash flows relating to discontinued operations – other investing activities 115 323
net cash inflow fromused in investing activities 3922 2975
cash flows from financing activities
proceeds from issue of share capital 54 13
proceeds from loans received 1026 998
repayment of loans 1714 868
net movements in shortterm borrowings and derivatives 1616 922
interest received 130 75
interest 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 1957 –
purchase of treasury shares 7 –
net cash used in financing activities 5712 325
net increase in cash and cash equivalents 1181 8
exchange movements 14 1
net cash and cash equivalents at start of year ii 254 247
net cash and cash equivalents at end of year ii 26 1449 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 notes to the accounts
104 group financial statements
note 1
annual report and accounts 200506
national grid
1 adoption of international financial reporting standards ifrs
with effect from 1 april 2005 national grid plc is required to report its consolidated financial statements in accordance with ifrs as
adopted by the eu
the tables below present the impact of conversion from uk generally accepted accounting principles uk gaap to ifrs on the primary
statements the transition date chosen for the adoption of ifrs is 1 april 2004 and only one year of ifrs comparatives are included in
these financial statements for the year ended 31 march 2006
as permitted by international financial reporting standard no 1 ‘firsttime adoption of ifrs’ ifrs 1 the comparative balance sheet
at 31 march 2005 and income statement for the year ended 31 march 2005 have not been restated to reflect the adoption of ias 39
and ias 32 on 1 april 2005 summary disclosures on the impact of the adoption of ias 39 and ias 32 as at 1 april 2005 are included 
in note 2
a comparative balance sheet at 31 march 2005 and an income statement cash flow statement and statement of recognised income
and expense for the year ended 31 march 2005 were originally set out in the group’s ifrs conversion statement for the year ended
31 march 2005 which was published on 29 july 2005 the financial information in respect of the year ended 31 march 2005 included 
in this annual report and accounts has been derived from the group’s ifrs conversion statement for the year ended 31 march 2005 
as noted in the ifrs conversion statement the comparative results and financial position under ifrs were subject to change as there
was not yet a significant established practice from which to draw conclusions on the application and interpretation of ifrs
during the year ended 31 march 2006 a reassessment of the ifrs adjustment for regulatory assets has resulted in an increase in net
assets under ifrs at 1 april 2004 and 31 march 2005 of £26m compared with the value attributed to net assets as presented in the
ifrs conversion statement there was no impact on the income statement for the year ended 31 march 2005
in august 2005 the provisional fair values applied on the acquisition of the uk operations of crown castle international corp were
reviewed and a number of adjustments were made to those provisional fair values as a result of better information becoming available
as required by ifrs 3 ‘business combinations’ the balance sheet presented for march 2005 has been represented to reflect these fair
value adjustments the overall impact on the carrying value of net assets was £nil goodwill increased by £10m property plant and
equipment decreased by £8m deferred tax liabilities decreased by £4m and noncurrent provisions increased by £6m there was no
impact on the income statement for the year ended 31 march 2005
a past service pension cost of £41m £24m net of tax that arose in the second half of 200405 which was included within the ifrs
conversion statement in operating profit before exceptional items and remeasurements has been reclassified as an exceptional item as
reported in note 6
a impact of adoption of ifrs on net assets at 1 april 2004 date of adoption of ifrs
the following is a summary of the ifrs measurement and presentation adjustments as they affected net assets at 1 april 2004 the date
of adoption of ifrs which arise as a consequence of applying ifrs measurement principles as compared with uk gaap
at 1 april 2004 notes £m
net assets under uk gaap 1271
ifrs measurement adjustments
replacement expenditure 1ci 2778 
derecognition of regulatory assets 1cii 1791
pensions and other postretirement benefits 1cv 1382
deferred taxation 1cvi 84
proposed final dividend 1cvii 366 
other adjustments 1cviii 10
123
ifrs presentation adjustments
nonequity minority interests 1di 38
net assets under ifrs 1110
amounts shown above are net of any related deferred tax on the underlying ifrs adjustment annual report and accounts 200506
national grid
group financial statements 105
note 1 continued
1 adoption of ifrs continued
b reconciliation of profit for the year and net assets under uk gaap to ifrs
the following tables show the effect of ifrs measurement and presentation adjustments on profit for the year and net assets measured
under uk gaap as a consequence of applying ifrs measurement principles as compared with uk gaap
for the year ended 31 march 2005 notes £m
profit for the year before minority interests under uk gaap 907
ifrs measurement adjustments
replacement expenditure – gross 1ci 344 
replacement expenditure – depreciation 1ci 108
derecognition of regulatory assets 1cii 151 
goodwill amortisation 1ciii 109 
amortisation of intangible assets other than goodwill 1civ 4
pensions and other postretirement benefits 1cv 41 
deferred taxation 1cvi 11
other adjustments 1cviii 6
516 
ifrs presentation adjustments
nonequity minority interests 1di 2
share of results of joint ventures 1dii 3
1
profit for the year under ifrs 1424
less profit for the year under ifrs – discontinued operations 304
profit for the year under ifrs – continuing operations 1120
amounts shown above are net of any related deferred tax on the underlying ifrs adjustment
at 31 march 2005 notes £m
net assets under uk gaap 1391
ifrs measurement adjustments
replacement expenditure 1ci 3014 
derecognition of regulatory assets 1cii 1587
goodwill 1ciii 28 
intangible assets other than goodwill 1civ 99 
pensions and other postretirement benefits 1cv 1149
deferred taxation 1cvi 95
proposed final dividend 1cvii 469 
other adjustments 1cviii 27
752
ifrs presentation adjustments
nonequity minority interests 1di 22
net assets under ifrs 2121
amounts shown above are net of any related deferred tax on the underlying ifrs adjustment 1 adoption of ifrs continued
c ifrs measurement adjustments
the following relate to the measurement adjustments included in the income statement and balance sheet
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 assets
regulatory assets arise when a usbased 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 amortisation
in 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 amortisation
in 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 straightline basis over 
periods ranging from 10 to 25 years
v pensions and other postretirement benefits
under uk gaap  the group’s pensions and other postretirement 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
postretirement 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 taxation
under 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 dividend
under 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 adjustments
other 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
106 group financial statements
note 1 continued
annual report and accounts 200506
national grid annual report and accounts 200506
national grid
group financial statements 107
note 1 continued
1 adoption of ifrs continued
d ifrs presentation adjustments
the following notes relate to the presentation adjustments included in the income statement and balance sheet 
i nonequity minority interests
in the income statement under uk gaap  dividends paid to nonequity 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  nonequity 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 ventures
under 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 posttax share of results from joint
ventures is separately disclosed as a single lineitem in the income statement
iii gains on disposal of property plant and equipment
under 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 venture
under uk gaap  the profit on disposal of a joint venture has been disclosed as a nonoperating exceptional item under ifrs 
this profit has been disclosed within the single lineitem ‘profit for the year from discontinued operations’ in the income statement
v cash and cash equivalents
under uk gaap  cash excludes shortterm 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 software
under uk gaap  software is capitalised together with the related hardware within property plant and equipment under ifrs
software is classified within intangible assets
vii shortterm provisions
under 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 differences
exchange 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 
e impact of adoption of ifrs on cash flow statement
the principal changes to the group cash flow statement for the year ended 31 march 2005 on adoption of ifrs are summarised below
income taxes of £150m paid during the year ended 31 march 2005 are classified as part of operating cash flows under ifrs but were
classified as a separate category of the cash flow under uk gaap
replacement expenditure of £474m which was previously written off to the income statement under uk gaap is now capitalised under
ifrs therefore this expenditure is classified as investing activities in the ifrs cash flow statement but was previously classified as
operating cash flow under uk gaap 
profits on disposal of property plant and equipment of £70m which were previously classified as investing activities under uk gaap are
now presented within operating cash flow in line with the treatment in the income statement under ifrs
in accordance with ias 7 ‘cash flow statements’ cash equivalents include certain shortterm highly liquid investments that are readily
convertible to known amounts of cash and subject to an insignificant change in value these were previously shown within cash flows
from the management of liquid resources as they did not fall within the definition of cash according to uk gaap 1 adoption of ifrs continued
f reconciliation of summary financial statements for the year ended 31 march 2005 from uk gaap to ifrs
as previously
presented ifrs ifrs ifrs
under measurement presentation discontinued
uk gaap i changes changes operations ifrs
£m £m £m £m £m 
summary group income statement for the year ended 31 march 2005
group revenue 8521 37 – 1102 7382
other operating income na – 70 – 70
operating costs 6676 700 – 666 5310
operating profit 1845 663 70 436 2142
share of joint ventures operating profit 7 – 7 – na
nonoperating exceptional items 83 – 83 – na
net finance costs 783 69 8 – 706
share of posttax results of joint ventures na – 3 – 3
profit before taxation 1152 732 9 436 1439
taxation 245 216 2 140 319
profit for the year from continuing operations 907 516 7 296 1120
profit for the year from discontinued operations na – 8 296 304
minority interests 1 – 1 – na
profit for the year 908 516 – – 1424
summary group balance sheet as at 31 march 2005
noncurrent assets 22395 3201 – – 25596
current assets 2316 352 – – 1964
total assets 24711 2849 – – 27560
current liabilities 6148 447 273 – 5974
noncurrent liabilities 17172 2544 251 – 19465
total liabilities 23320 2097 22 – 25439
net assets 1391 752 22 – 2121
equity
called up share capital 309 – – – 309
share premium account 1289 – – – 1289
retained earnings 4892 685 73 – 5650
other reserves 5131 67 73 – 5137
total shareholders’ equity 1359 752 – – 2111
minority interests 32 – 22 – 10
total equity 1391 752 22 – 2121
summary group cash flow statement for the year ended 31 march 2005
cash generated from operations
cash flows from operating activities – continuing operations 2909 479 70 547 2911
cash flows from operating activities – discontinued operations na – – 547 547
tax paid – continuing operations 150 – – 98 52
tax paid – discontinued operations na – – 98 98
net cash inflow from operations 2759 479 70 – 3308
cash flows from investing activities
cash flows from investing activities – continuing operations 2441 475 59 323 2652
cash flows from investing activities – discontinued operations na – – 323 323
net cash used in investing activities 2441 475 59 – 2975
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
108 group financial statements
note 1 continued
annual report and accounts 200506
national grid annual report and accounts 200506
national grid
group financial statements 109
notes 2 and 3
2 adoption of ias 39 and ias 32 and presentation of net debt at 1 april 2005
a adoption of ias 39 and ias 32
on 1 april 2005 the group adopted ias 39 and ias 32 ias 39 requires certain financial instruments to be recorded in the balance
sheet at fair value rather than historical cost note 23 contains the disclosures required by ias 39 ias 32 and ifrs 7 
the principal effect of the adoption of these standards at 1 april 2005 is to record derivative financial instruments and availableforsale
investments in the balance sheet at their fair value while deferred gains and losses relating to items qualifying for hedge accounting are
derecognised and instead 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
as permitted by ifrs 1 the balance sheet at 31 march 2005 and the income statement for the year ended 31 march 2005 have not
been restated to reflect the adoption of ias 39 and ias 32 on 1 april 2005
b effect of ias 39 on net debt and net assets
ias 39 ias 39
transition reclass ifrs
adjustment ifications post
at 1 april at 1 april ias 39
at 31 march 2005 2005 at 1 april
2005 i ii iii iv v 2005
£m £m £m £m
cash and cash equivalents 272 – – 272
bank overdrafts 18 – – 18
net cash and cash equivalents 254 – – 254
financial investments 398 3– 401
borrowings 14290 580 314 15184
13638 577 314 14529
derivative financial assets – 633 92 725
derivative financial liabilities – 178 4 182
net debt 13638 122 226 13986
accrued interest 255 29 226 –
deferred gains and losses 39 39 – –
availableforsale investments 131 4– 135
commodity contract assets – 63 – 63
commodity contract liabilities 327 193 – 520
purchased power obligations 144 130 – 14
other assets and liabilities 16393 7 – 16400
net assets 2121 43 – 2078
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 availableforsale 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 indexlinked 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
segmental information is presented in accordance with the management responsibilities and economic characteristics including
consideration of risks and returns of the group’s business activities
the following table describes the main activities for each business segment
uk electricity and gas transmission highvoltage electricity transmission networks the gas transmission network in the uk the
uk liquefied natural gas storage activities and the scottish and french electricity interconnectors 
us electricity transmission highvoltage electricity transmission networks and management of electricity transmission
operations for other utilities in the us
uk gas distribution four of the eight regional networks of great britain’s gas distribution system
us electricity and gas distribution electricity and gas distribution in new york and electricity distribution in new england
us stranded cost recoveries the recovery of stranded costs from us customers as permitted by regulatory agreements
wireless infrastructure broadcast and mobile telephone infrastructure in the uk and us
other activities primarily relates to ukbased gas metering activities uk property management a uk lng import terminal an electricity
interconnector in australia and our engineering and software company together with corporate activities including business development 3 segmental analysis continued
our uk liquefied natural gas storage activities and the scottish and french interconnectors are both included within uk electricity and
gas transmission these were previously reported in the group uk gaap accounts for the year ended 31 march 2005 within other
activities this change in segmental presentation follows a change in the organisational and management structure within the group and
the change in regulatory arrangements for the scottish interconnector following the introduction of the british electricity trading and
transmission arrangements betta the impact of this change on segment results has been reflected in the tables below the impact
of this change on the uk electricity and gas transmission segment results for the year ended 31 march 2005 was to increase revenue
by £65m and operating profit by £42m increase total assets by £191m and total liabilities by £16m increase capital expenditure by
£7m and increase depreciation and amortisation by £10m within other activities revenue was decreased by £110m and operating
profit by £42m total assets and total liabilities decreased by £191m and £16m respectively capital expenditure decreased by £7m and
depreciation and amortisation decreased by £10m intragroup revenue eliminations were reduced by £45m there was no difference
between the impact on operating profit before exceptional items and remeasurements and that for operating profit after exceptional
items and remeasurements
discontinued operations comprise the operations of the four uk gas distribution networks that the group sold on 1 june 2005 and the
results of citelec an argentinian joint venture sold in august 2004 the results for discontinued operations are disclosed in note 12
the group assesses the performance of its businesses principally on the basis of operating profit before exceptional items and
remeasurements the group’s primary reporting format is by business and the secondary reporting format is by geographical area
sales between businesses are priced having regard to the regulatory and legal requirements that the businesses are subject to
a group revenue
sales sales sales sales
total between to third total between to third
sales businesses parties sales businesses parties
2006 2006 2006 2005 2005 2005
£m£m£m £m£m£m
business segments
uk electricity and gas transmission 2710 15 2695 1995 10 1985
us electricity transmission 310 48 262 284 45 239
uk gas distribution 1222 86 1136 1113 135 978
us electricity and gas distribution 3711 2 3709 3087 2 3085
us stranded cost recoveries 511 – 511 409 – 409
wireless infrastructure 325 – 325 208 – 208
other activities 701 146 555 734 256 478
9490 297 9193 7830 448 7382
geographical segments
uk 4671 3621
us 4522 3761
9193 7382
the table above represents revenue from continuing operations only as disclosed in the group income statement as ‘group revenue’
revenue from discontinued operations for the year ended 31 march 2006 was £168m 2005 £1102m see note 12 for additional
disclosures on discontinued operations
the analysis of group revenue by geographical area is on the basis of destination there are no sales between the uk and us
geographical areas
approximately 9 2005 9 of group revenue for the year ended 31 march 2006 amounting to approximately £09bn 2005 £07bn
derives from a single customer the centrica group the majority of this revenue is in the uk gas distribution segment with lesser
amounts in other activities and the uk electricity and gas transmission segment 
110 group financial statements
note 3 continued
annual report and accounts 200506
national grid 3 segmental analysis continued
b operating profit
before exceptional items after exceptional items
and remeasurements and remeasurements
2006 2005 2006 2005
£m £m £m £m
business segments
uk electricity and gas transmission 844 859 843 857
us electricity transmission 127 126 127 119
uk gas distribution 483 424 432 333
us electricity and gas distribution 364 375 364 258
us stranded cost recoveries 489 465 440 427
wireless infrastructure 75 42 70 29
other activities 145 152 163 119
2527 2443 2439 2142
geographical segments
uk 1549 1473 1489 1335
us 983 970 934 807
rest of the world 5 – 16 –
2527 2443 2439 2142
the table above represents operating profit from continuing operations only as disclosed in the group income statement and excludes
the results of discontinued operations operating profit before exceptional items and remeasurements for discontinued operations for 
the year ended 31 march 2006 was £61m 2005 £510m operating profit after exceptional items and remeasurements for discontinued
operations for the year ended 31 march 2006 was £46m 2005 £436m see note 12 for additional disclosures on discontinued
operations
c share of posttax results of joint ventures 
the group’s share of its joint ventures’ posttax results relate to electricity activities and are located in the rest of the world
geographical segment 2006 £3m 2005 £3m
d total assets and total liabilities
total assets total liabilities
2006 2005 2006 2005
£m £m £m £m
business segments
group undertakings – continuing operations
uk electricity and gas transmission 7181 6635 1447 1837
us electricity transmission 1653 1545 40 99
uk gas distribution 5091 4766 1154 1152
us electricity and gas distribution 5756 5001 1761 1734
us stranded cost recoveries 104 63 665 618
wireless infrastructure 1571 1579 293 267
other activities 1896 1628 1106 748
23252 21217 6466 6455
group undertakings – discontinued operations – 5300 – 1115
group undertakings 23252 26517 6466 7570
joint ventures – continuing operations electricity activities 12 17 – –
unallocated 2660 1026 15965 17869
25924 27560 22431 25439
geographical segments
uk 15227 19504 3948 5072
us 7659 6750 2488 2467
rest of the world 378 280 30 31
unallocated 2660 1026 15965 17869
25924 27560 22431 25439
the analysis of total assets and total liabilities includes all attributable goodwill and excludes interbusiness balances unallocated total
assets include cash and cash equivalents taxation financial investments and derivative assets unallocated total liabilities include bank
overdrafts borrowings and derivative liabilities taxation interest and dividends
annual report and accounts 200506
national grid
group financial statements 111
note 3 continued 3 segmental analysis continued
e other segmental information
depreciation and 
capital expenditure amortisation
2006 2005 2006 2005
£m £m £m £m
business segments
continuing operations
uk electricity and gas transmission 890 529 377 296
us electricity transmission 91 74 45 41
uk gas distribution 444 359 161 163
us electricity and gas distribution 244 234 145 135
wireless infrastructure 43 19 64 37
other activities 350 303 160 147
2062 1518 952 819
discontinued operations 87 387 13 176
group undertakings 2149 1905 965 995
geographical segments
uk 1738 1455 771 816
us 340 312 194 179
rest of the world 71 138 – –
2149 1905 965 995
capital expenditure comprises additions to property plant and equipment and other intangible assets amounting to £2093m 
2005 £1827m and £56m 2005 £78m respectively
depreciation and amortisation includes depreciation of property plant and equipment and amortisation of other intangible assets
amounting to £908m 2005 £950m and £57m 2005 £45m respectively 
4 other operating income
other operating income represents income on disposal of property plant and equipment principally properties disposed of by the
group’s property management business
5 operating costs
before exceptional items exceptional items and
and remeasurements remeasurements total
2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m
depreciation of property plant and equipment 895 774 – – 895 774
amortisation of intangible assets 57 45 – – 57 45
payroll costs note 7a 844 828 48 91 892 919
other operating charges
purchases of electricity 1928 1458 49 38 1977 1496
purchases of gas 566 357 – – 566 357
rates and property taxes 443 406 – – 443 406
electricity transmission services scheme direct costs 536 301 – – 536 301
payments to scottish network owners under betta 259 – – – 259 –
other operating charges 1218 840 9 172 1209 1012
4950 3362 40 210 4990 3572
6746 5009 88 301 6834 5310
operating costs include
research expenditure 7 9
operating lease rentals
plant and machinery 36 20
other 84 63
auditors’ remuneration
statutory audit services
annual audit 4 5
regulatory reporting 1 1
further audit related services – 1
tax compliance services – 1
tax advisory services 1 1
other nonaudit services 1 –
112 group financial statements
notes 3 continued 4 and 5
annual report and accounts 200506
national grid 6 exceptional items and remeasurements
the group separately discloses items of income and expenditure relating to transactions that are material either by their nature or size
that are relevant to an understanding of the group’s financial performance these include nonrecurring exceptional income or charges
that do not relate to the underlying financial performance of the group and remeasurement gains or losses arising from movements in
the carrying value of certain commodity contracts and of derivative financial instruments
2006 2005
£m £m
exceptional items – restructuring costs i 60 121
exceptional items – past service pension costs ii – 41
exceptional items – environmental related provisions iii – 101
exceptional items – profit on sale and reversal of impairment iv 21 –
remeasurements – commodity contracts v 49 38
total exceptional items and remeasurements included within operating profit 88 301
exceptional 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 145 301
tax 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 marktomarket movements on certain commodity contract obligations primarily indexedlinked 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
vi 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 noncash 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 writedown 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
a payroll costs
2006 2005
£m £m
wages and salaries 891 911
social security costs 63 59
other pension costs 142 147
sharebased payments 15 12
severance costs 23 12
1134 1141
less amounts capitalised 242 222
892 919
payroll costs above represent continuing operations only payroll of discontinued operations for the year ended 31 march 2006 was
£29m 2005 £132m
annual report and accounts 200506
national grid
group financial statements 113
notes 6 and 7 7 payroll costs and employees continued
b number of employees
31 march average average
2006 2006 2005
number number number
uk 11409 11421 11784
us 8362 8414 8663
rest of the world 12 8 13
continuing operations 19783 19843 20460
discontinued operations – 686 4147
19783 20529 24607
the vast majority of employees in
– 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 3011 employees were employed in other businesses of which 695 were in the wireless infrastructure segment 
c key management compensation
2006 2005
£m £m
salaries and shortterm employee benefits 7 6
postemployment benefits 5 4
sharebased payments 2 2
14 12
the key management comprises the board of directors including the executive directors and nonexecutive directors
8 directors’ emoluments
details of directors’ emoluments are contained in the auditable part of the directors’ remuneration report on pages 84 to 89 which
form part of these accounts
9 pensions and other postretirement benefits
substantially all the group’s employees are members of defined benefit pension schemes
in the uk the principal schemes are the national grid uk pension scheme formerly named the lattice group pension scheme the
national grid electricity group of the electricity supply pension scheme and the national grid wireless pension scheme formerly
named the crown castle uk pension scheme
national grid uk pension scheme
the national grid uk pension scheme provides final salary defined benefits for employees who joined prior to 31 march 2002 and
defined contribution benefits for employees joining from 1 april 2002 the scheme is funded with assets held in a separate trustee
administered fund it is subject to independent valuations at least every three years on the basis of which the qualified actuary certifies
the rate of employers’ contribution which together with the specified contributions payable by the employees and proceeds from the
scheme’s assets are expected to be sufficient to fund the benefits payable under the scheme
the latest full actuarial valuation as at 31 march 2006 is currently being carried out by watson wyatt llp the last completed full
actuarial valuation was as at 31 march 2003 the aggregate market value of the scheme’s assets was £10141m and the value of the
assets represented approximately 92 of the actuarial value of benefits due to members calculated on the basis of pensionable
earnings and service at 31 march 2003 on an ongoing basis and allowing for projected increases in pensionable earnings
the results of the actuarial valuation carried out at 31 march 2003 showed that based on longterm financial assumptions the
contribution rate required to meet future benefit accrual was 237 of pensionable earnings 207 employers and 3 employees this
contribution rate is currently being reviewed the ongoing contribution rate does not include an allowance for administration expenses
these contributions are renewed annually from 1 april 2006 the rate used for the recovery of administration costs was 3 of salary
employers are currently therefore paying a total contribution rate of 237
it has been agreed that no funding of the deficit identified in the 2003 actuarial valuation will need to be provided to the scheme until 
the outcome of the interim actuarial assessment at 31 march 2007 is known at this point the group will pay the gross amount of any
deficit up to a maximum amount of £520m £364m net of tax into the scheme until the 31 march 2007 actuarial valuation has been
completed the group has arranged for banks to provide the trustees of the national grid uk scheme with letters of credit the main
conditions under which these letters of credit could be drawn relate to events that would imperil the interests of the scheme such as
national grid gas plc a group undertaking becoming insolvent or the group failing to make agreed payments into the fund
114 group financial statements
notes 7 continued 8 and 9
annual report and accounts 200506
national grid 9 pensions and other postretirement benefits continued
electricity supply pension scheme
the electricity supply pension scheme provides final salary defined benefits on a funded basis the assets of the scheme are held in a
separate trustee administered fund the scheme is divided into sections one of which is the group’s section the group’s section of the
scheme was closed to new entrants on 1 april 2006 it is subject to independent valuations at least every three years on the basis of
which the qualified actuary certifies the rate of employers’ contribution which together with the specified contributions payable by the
employees and proceeds from the scheme’s assets are expected to be sufficient to fund the benefits payable under the scheme
the latest full actuarial valuation was carried out by hewitt bacon woodrow at 31 march 2004 the aggregate market value of the
scheme’s assets was £1110m and the value of the assets represented approximately 804 of the actuarial value of benefits due to
members calculated on the basis of pensionable earnings and service at 31 march 2004 on an ongoing basis and allowing for projected
increases in pensionable earnings
the results of the actuarial valuation carried out at 31 march 2004 showed that based on longterm financial assumptions the
contribution rate required to meet future benefit accrual was 191 of pensionable earnings 131 employers and 6 employees 
this contribution rate will be reviewed when the next independent actuarial valuation is carried out which will be no later than 
31 march 2007
it has been agreed that no funding of the deficit identified in the 2004 actuarial valuation will need to be provided to the scheme until 
the outcome of the actuarial valuation at 31 march 2007 is known at this point the group will pay the gross amount of any deficit up 
to a maximum amount of £68m £48m net of tax into the scheme until the 31 march 2007 actuarial valuation has been completed the
group has arranged for banks to provide the trustees of the scheme with letters of credit the main conditions under which these letters
of credit could be drawn relate to events which would imperil the interests of the scheme such as national grid electricity transmission
plc a group undertaking becoming insolvent or the group failing to make agreed payments into the fund
national grid wireless pension scheme
the national grid wireless pension scheme provides final salary defined benefits for service up to and including 30 june 2003 and a
career averaged pension for service after 1 july 2003 on a funded basis the scheme was closed to new entrants on 1 august 1997
the assets of the scheme are held in a separate trustee administered fund it is subject to independent valuations at least every three
years on the basis of which the qualified actuary certifies the rate of employers’ contributions which together with the specified
contributions payable by employees and proceeds from the scheme’s assets are expected to be sufficient to fund the benefits payable
under the scheme 
the latest full actuarial valuation as at 31 december 2005 is currently being carried out by deloitte total reward and benefits limited
the last completed full actuarial valuation was as at 31 december 2002 the aggregate market value of the scheme’s assets was 
£15m and the value of the assets represented approximately 84 of the actuarial value of benefits due to members calculated on the
basis of pensionable earnings and service at 31 december 2002 on an ongoing basis and allowing for projected increases in
pensionable earnings
the results of the actuarial valuation carried out at 31 december 2002 showed that based on longterm financial assumptions the
contribution rate required to meet future benefit accrual was 259 of pensionable earnings 184 employers and 75 employees
this contribution rate is currently being reviewed
us defined benefit pension schemes
substantially all the group’s us employees are members of defined benefit plans the assets of the plans are held in separate trustee
administered funds the latest full actuarial valuations of these plans were carried out by hewitt associates llc at 1 april 2005 the
aggregate market value of the assets relating to the group’s us defined plans at 31 march 2005 totalled us1961m and the actuarial
value of the assets represented approximately 90 of the actuarial value of the benefits that had accrued to members after allowing for
future salary increases
us healthcare and life insurance – retirees
in the us the group provides healthcare and life insurance to eligible retired us employees eligibility is based on certain age and length
of service requirements and in some cases retirees must contribute to the cost of their coverage
annual report and accounts 200506
national grid
group financial statements 115
note 9 continued 9 pensions and other postretirement benefits continued
us other post
pensions retirement benefits
2006 2005 2006 2005
£m £m £m £m
the amounts recognised in the balance sheet are determined as follows
present value of funded obligations 16520 15679 1223 1068
fair value of plan assets 15341 14077 568 488
1179 1602 655 580
present value of unfunded obligations 96 90 – –
other postemployment liabilities – – 34 34
unrecognised past service cost – – 49 50
net liability in the balance sheet 1275 1692 640 564
liabilities 1275 1718 640 564
assets – 26 – –
net liability 1275 1692 640 564
the amounts recognised in the income statement are as follows
defined contribution scheme costs 2 2 – –
defined benefit scheme costs
current service cost 114 107 16 11
past service cost – 16 6 25
curtailment gainloss on redundancies 24 22 – –
special termination benefits on redundancies 45 – – –
curtailment cost – augmentations 5 – – –
total in payroll costs 142 147 22 36
interest cost 828 825 63 56
expected return on plan assets 862 843 41 39
total in finance costs 34 18 22 17
current service costs 5 27 – –
curtailmentsettlement gain on sale of distribution networks 168 – – –
total in discontinued operations 163 27 – –
actual return on plan assets 2359 1261 65 26
116 group financial statements
note 9 continued
annual report and accounts 200506
national grid 9 pensions and other postretirement benefits continued
us other post
pensions retirement benefits
2006 2005 2006 2005
£m £m £m £m
changes in the present value of the defined benefit obligation
opening defined benefit obligation 15769 15403 1068 1002
current service cost 119 134 16 11
interest cost 828 825 63 56
actuarial losses 1300 147 40 5
curtailment gainloss 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 – 79
employee contributions 14 17 – –
benefits paid 775 783 59 52
exchange differences on foreign plans 127 43 95 33
closing defined benefit obligation 16616 15769 1223 1068
changes in the fair value of plan assets
opening fair value of plan assets 14077 13411 488 496
expected return on plan assets 862 843 41 39
actuarial gainslosses 1497 418 24 13
assets distributed on settlements and transfers 623 – – –
employer contributions 191 184 30 32
employee 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 15341 14077 568 488
expected contributions to defined benefit plans in the following year 153 164 50 50
annual report and accounts 200506
national grid
group financial statements 117
note 9 continued 9 pensions and other postretirement benefits continued
us other post
pensions retirement benefits
2006 2005 2006 2005
£m £m £m £m
amounts recognised in statement of recognised income and expense
actuarial gainloss during the year 197 271 16 18
exchange differences 30 9 51 19
total recognised for the year 167 280 67 1
cumulative actuarial gainloss 468 271 34 18
the major categories of plan assets as a percentage of total plan assets were as follows
us other post
uk pensions us pensions retirement benefits
2006 2005 2006 2005 2006 2005
     
equities 407 415 664 645 690 650
corporate bonds 192 173 320 340 306 338
gilts 301 319 – – – –
property 85 80 02 03 – –
other 15 13 14 12 04 12
total 1000 1000 1000 1000 1000 1000
the principal actuarial assumptions used were
discount rate i 49 54 60 58 60 58
expected return on plan assets 58 62 83 83 83 83
rate of increase in salaries ii 39 39 41 41 – –
rate of increase in pensions in payment and deferred pensions 30 30 – – – –
rate of increase in retail price index or equivalent 29 29 – – – –
initial healthcare cost trend rate – – – – 100 100
ultimate healthcare cost trend rate – – – – 50 50
i for the year ended 31 march 2006 a 01 reduction in the discount rate would increase the current service cost by £3m and reduce the interest on liabilities by £1m
ii a promotional agerelated scale has also been used where appropriate
iii the pensions and other postretirement benefit assumptions allow for future improvements in mortality
in respect of us schemes the estimated rate of return for various passive asset classes is based both on analysis of historical rates 
of return and forwardlooking analysis of risk premiums and yields current market conditions such as inflation and interest rates are
evaluated in connection with the setting of our longterm assumptions a small premium is added for active management of both equity
and fixed income the rates of return for each asset class are then weighted in accordance with our target asset allocation and the
resulting longterm return on asset rate is then applied to the marketrelated value of assets the longterm target asset allocation for
the us pension schemes is 60 equities 35 bonds and 5 property and other the longterm target asset allocation for other post
retirement benefit schemes is 67 equities and 33 bonds
in respect of uk schemes the expected longterm rate of return on assets has been set reflecting the price inflation expectation the
expected real return on each major asset class and the longterm asset allocation strategy adopted for each plan the expected real
returns on specific asset classes reflect historical returns investment yields on the measurement date and general future return
expectations and have been set after taking advice from the schemes’ actuaries the longterm target asset allocation for the national
grid uk pension scheme is 40 equities 52 bonds and 8 property and other the longterm asset allocation for the group’s
section of the electricity supply pension scheme is 63 equities 30 bonds 7 property and other
assumed healthcare cost trend rates have a significant impact on the amounts recognised in the income statement a one percentage
point change in assumed healthcare cost trend rates would have the following effects
2006 2005
£m £m
increase
effect on the aggregate of the service cost and interest cost 15 12
effect on defined benefit obligation 186 156
decrease
effect on the aggregate of the service cost and interest cost 12 10
effect on defined benefit obligation 161 136
2006 2005
£m £m
experience gains on liabilities 192 42
experience gains on assets 1521 405
118 group financial statements
note 9 continued 
annual report and accounts 200506
national grid 10 finance income and costs
2006 2005
£m £m
pensions – expected return on scheme assets 903 882
interest income on financial instruments held at amortised cost 135 64
interest income and similar income 1038 946
pensions – 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 63
interest expense 1693 1652
net lossesgains 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 1701 1652
net finance costs 663 706
comprising
interest income and similar income 1038 946
interest expense and other finance costs
before exceptional items and remeasurements 1644 1652
exceptional items and remeasurements 57 –
663 706
interest income on financial instruments held at amortised cost comprises interest income from bank deposits and other financial assets
£131m 2005 £59m and interest receivable on finance leases £4m 2005 £5m
interest expense on financial liabilities held at amortised cost comprises interest on bank loans and overdrafts £33m 2005 £45m interest
on other borrowings £712m 2005 £772m and interest on finance leases £1m 2005 £3m
interest on funding attributable to assets in the course of construction was capitalised during the year at a rate of 59 2005 56
interest expense and other finance costs include £49m 2005 £12m relating to losses incurred on the repurchase of debt and b share
issue costs during the year
ineffectiveness on fair value hedges includes a net loss of £11m from derivatives designated as fair value hedges and a net gain of £1m
from the fair value adjustments to the carrying value of debt
net gains on derivatives designated as cash flow hedges includes net gains of £20m transferred from equity
annual report and accounts 200506
national grid
group financial statements 119
note 10 11 taxation
taxation on items chargedcredited to the income statement
2006 2005
£m £m
united kingdom
corporation tax at 30 290 31
adjustment in respect of prior years i 5 19
deferred tax 1 82
286 94
overseas
corporate tax 125 33
adjustment in respect of prior years 22 21
deferred tax 129 213
276 225
taxation 562 319
comprising
taxation – excluding exceptional items and remeasurements 597 437
taxation – 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
taxation on items chargedcredited to equity
2006 2005
£m £m
deferred tax charge on availableforsale 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 66
36 62
the tax charge for the period is higher 2005 lower than the standard rate of corporation tax in the uk 30 the differences are
explained below
before after before after
exceptionals exceptionals exceptionals exceptionals
and and and and
remeasure remeasure remeasure remeasure
ments ments ments ments
2006 2006 2005 2005
£m £m £m £m
profit before taxation
before exceptional items and remeasurements 1924 1924 1740 1740
exceptional items and remeasurements – 145 – 301
profit before taxation from continuing operations 1924 1779 1740 1439
profit on continuing operations multiplied by rate of corporation tax in the uk of 30 2005 30 577 534 522 432
effects of
adjustments in respect of current income tax of previous years 17 17 30 40
expenses not deductible for tax purposes 90 114 89 55
nontaxable income 179 181 174 124
adjustment in respect of foreign tax rates 69 59 37 22
impact 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 310 316 251 222
factors that may affect future tax charges
the group has £nil 2005 £39m nontrade deficits recognised and carried forward in the year
120 group financial statements
note 11
annual report and accounts 200506
national grid 12 discontinued operations
on 1 june 2005 the group disposed of its holdings in four of its eight regional gas distribution networks the results of these
operations were previously included within the uk gas distribution segment when reported under uk gaap the group disposed 
of its interest in citelec an argentinian joint venture in august 2004
results of discontinued operations
2006 2005
£m £m
revenues 168 1102
operating costs 122 666
operating profit before exceptional items 61 510
exceptional items i 15 74
total operating profit from discontinued operations 46 436
share of posttax results of joint venture – 5
profit before tax from discontinued operations 46 431
taxation 18 140
profit after tax from discontinued operations 28 291
gain on disposal of gas distribution networks ii 2636 –
gain on disposal of joint venture – 13
gain on disposal of discontinued operations before tax 2636 13
taxation 31 –
gain on disposal of discontinued operations 2605 13
total profit for the year from discontinued operations
before exceptional items 43 352
exceptional items 2590 48
2633 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 £5760m comprising cash and cash equivalents which is significantly in excess of the net book value of the
net assets disposed of £3155m
13 dividends
the following table shows the dividends paid to equity shareholders
2006 2005
pence pence
per ordinary 2006 per ordinary 2005
share £m share £m
ordinary dividends
final dividend for the year ended 31 march 2005 152 469 ––
interim dividend for the year ended 31 march 102 276 85 262
final dividend for the year ended 31 march 2004 –– 119 366
254 745 204 628
in addition the directors are proposing a final dividend for 2006 of 159p per share that will absorb £433m of shareholders’ equity 
it will be paid on 23 august 2006 to shareholders who are on the register of members on 9 june 2006
annual report and accounts 200506
national grid
group financial statements 121
notes 12 and 13 14 earnings per share 
earnings per ordinary share have been calculated by dividing the profit for the year attributable to equity shareholders of the parent
company by the weighted average number of ordinary shares in issue during the year
adjusted earnings per share excluding exceptional items and remeasurements are provided to reflect the underlying performance of the
group further details of exceptional items and remeasurements can be found in note 6 to the accounts
a basic earnings per share
profit for earnings profit for earnings
the year per share the year per share
2006 2006 2005 2005
£m pence £m pence
adjusted earnings – continuing operations 1325 467 1303 423
exceptional operating items 39 14 263 85
exceptional finance costs 49 17 ––
tax on exceptional items 27 09 103 33
remeasurements 57 20 38 12
tax on remeasurements 8 03 15 04
earnings per share – continuing operations 1215 428 1120 363
adjusted earnings – discontinued operations 43 15 352 114
gain on disposal of gas distribution networks net of tax 2605 918 ––
other exceptional items net of tax 15 05 48 15
earnings per share – discontinued operations 2633 928 304 99
basic earnings per share 3848 1356 1424 462
2006 2005
millions millions
weighted average number of shares – basic 2837 3082
b diluted earnings per share
profit for earnings profit for earnings
the year per share the year per share
2006 2006 2005 2005
£m pence £m pence
adjusted diluted earnings – continuing operations 1325 465 1303 421
exceptional operating items 39 14 263 85
exceptional finance costs 49 17 ––
tax on exceptional items 27 09 103 33
remeasurements 57 20 38 12
tax on remeasurements 8 03 15 05
diluted earnings per share – continuing operations 1215 426 1120 362
adjusted diluted earnings – discontinued operations 43 15 352 114
gain on disposal of gas distribution networks net of tax 2605 914 ––
other exceptional items net of tax 15 05 48 16
diluted earnings per share – discontinued operations 2633 924 304 98
diluted earnings per share 3848 1350 1424 460
2006 2005
millions millions
weighted average number of shares – diluted 2851 3096
c reconciliation of basic to diluted average number of shares
2006 2005
millions millions
weighted average number of ordinary shares – basic 2837 3082
effect of dilutive potential ordinary shares – employee share options 14 14
weighted average number of ordinary shares – diluted 2851 3096
as at 31 march 2006 there were 2367011 outstanding share options in respect of the executive share schemes that were antidilutive
instruments
122 group financial statements
note 14
annual report and accounts 200506
national grid 15 goodwill
£m
cost at 1 april 2004 1548
exchange adjustments 47
acquisition of group undertakings 544
cost at 31 march 2005 2045
exchange adjustments 111
cost at 31 march 2006 2156
accumulated impairment losses at 1 april 2004 12
impairment charge 2
accumulated impairment losses at 31 march 2005 and 31 march 2006 14
net book value at 31 march 2006 2142
net book value at 31 march 2005 2031
goodwill is reviewed annually for impairment the amounts disclosed above as at 31 march 2006 include balances relating to our
businesses in new england £882m 2005 £823m new york £639m 2005 £592m and national grid wireless £541m 2005 £541m 
within the new england and new york businesses goodwill is allocated to the individual subsidiary companies these are defined as
cash generating units for impairment testing purposes within national grid wireless goodwill is allocated to the three main business
sectors pylons towers and managed sites which are defined as cash generating units
the recoverability of the goodwill relating to the new england and new york companies has been assessed by comparing the carrying
value of these businesses with the recoverable amount on a valueinuse basis this has been calculated based on projections that
incorporate our best estimates of future cash flows customer rates costs future prices growth operating costs and the cash flows
prepared from internal forecasts for the next five years extrapolated into the future by using a 2 growth rate cash flow projections
have been discounted to reflect the time value of money using a discount rate of 575 the discount rate is the posttax weighted
average cost of capital on a pretax basis it is estimated that the discount rate would be approximately 958
the recoverable amount of the goodwill relating to national grid wireless has been based on an assessment of the fair value of the
business this has been determined by considering other recent transactions and external information on valuations placed on similar
wireless infrastructure businesses including national grid wireless the key assumption used relates to the earnings multiples that might
be applicable in the purchase or sale of wireless infrastructure networks
annual report and accounts 200506
national grid
group financial statements 123
note 15 16 acquisitions
on 31 august 2004 the group acquired the uk operations of crown castle international corp for a total consideration of £1138m
including acquisition costs of £14m this transaction has been recorded using the acquisition method of accounting
in accordance with ifrs 3 a hindsight review of the fair value of the assets and liabilities acquired was undertaken in august 2005
following this review the amount of goodwill arising on this acquisition being the difference between the purchase consideration and
the fair value of the assets and liabilities acquired was £541m 
the other acquisition that was carried out during the year ended 31 march 2005 was that of a telecommunications tower operation 
in the us the book and fair value of assets acquired was £10m compared with total cash consideration of £13m giving rise to 
goodwill of £3m
the acquired businesses are presented within the wireless infrastructure segment
other
crown castle acquisition acquisition
book accounting
value at policy fair value final book and total
acquisition adjustments adjustments fair value fair value fair value
£m £m £m £m £m £m
intangible assets – 6 188 194 – 194
property plant and equipment 519 10 103 612 6 618
inventories 3 –– 3– 3
trade and other receivables 43 – – 43 4 47
cash and cash equivalents 29 – – 29 – 29
current liabilities 152 – – 152 – 152
deferred tax liabilities 32 4 85 113 – 113
pensions and other postretirement benefit obligations – 10 – 10 – 10
provisions 2 1 6 9 – 9
net assets acquired 408 11 200 597 10 607
goodwill arising on acquisition 541 3 544
total consideration 1138 13 1151
the adjustments recorded to book value reflect accounting alignments to bring the accounting policies of the acquired businesses into
line with those of the group under ifrs which resulted in a reduction of £4m to tangible fixed assets relating to the accounting for
leasehold properties £6m of software costs transferred from property plant and equipment to intangible assets and an increase of £1m
to provisions for liabilities and charges relating to decommissioning provisions it also entailed the recognition of pensions and other
postretirement benefit obligations of £10m deferred tax on these transactions amounted to £4m
fair value adjustments primarily related to the revaluation of property plant and equipment recognition of intangible assets and net
provisions to their fair value at the date of acquisition deferred tax liabilities on these transactions amounted to £85m
the outflow of cash and cash equivalents on the acquisitions in 2005 was as follows
other
crown castle acquisitions total
£m £m £m
cash consideration 1138 13 1151
cash acquired 29 – 29
1109 13 1122
124 group financial statements
note 16
annual report and accounts 200506
national grid 17 other intangible assets
customer
relationships software other total
£m £m £m £m
cost at 1 april 2004 – 197 8 205
exchange adjustments –– ––
acquisition of group undertakings 164 6 24 194
additions – 78 – 78
disposals – 8 – 8
cost at 31 march 2005 164 273 32 469
exchange adjustments –8 –8
additions –144256
disposals – 3 – 3
cost at 31 march 2006 164 292 74 530
amortisation at 1 april 2004 – 68 7 75
exchange adjustments –– – –
amortisation charge for the year 6 38 1 45
disposals – 9 – 9
amortisation at 31 march 2005 6 97 8 111
exchange adjustments –3 –3
amortisation charge for the year 11 45 1 57
disposals – 3 – 3
amortisation at 31 march 2006 17 142 9 168
net book value at 31 march 2006 147 150 65 362
net book value at 31 march 2005 158 176 24 358
other consists of emissions allowances of £41m 2005 £nil and licences of £24m 2005 £24m
other intangible assets have been analysed as current and noncurrent as follows
2006 2005
£m £m
current 41 –
noncurrent 321 358
362 358
expected amortisation of intangible assets for the next five years is £m
2007 52
2008 55
2009 51
2010 48
2011 43
annual report and accounts 200506
national grid
group financial statements 125
note 17 18 property plant and equipment
assets motor
plant in the vehicles
land and and course of and office
buildings machinery construction equipment total
£m £m £m £m £m
cost at 1 april 2004 858 28967 1129 797 31751
exchange adjustments 13 202 2 1 218
acquisition of group undertakings 29 584 – 5 618
additions 32 808 980 7 1827
disposals 34 117 – 22 173
reclassifications 39 776 838 23 –
cost at 31 march 2005 911 30816 1269 809 33805
exchange adjustments 35 555 12 1 603
additions 65 588 1339 101 2093
disposal of group undertakings 30 6976 9 253 7268
disposals 25 128 – 18 171
reclassifications 18 847 895 37 7
cost at 31 march 2006 974 25702 1716 677 29069
depreciation at 1 april 2004 276 9634 – 526 10436
exchange adjustments 3 73 – 1 77
depreciation charge for the year i 19 846 – 85 950
impairment charge 2– –– 2
disposals 12 121 – 18 151
depreciation at 31 march 2005 282 10286 – 592 11160
exchange adjustments 7 200 – – 207
depreciation charge for the year i 17 816 – 75 908
disposal of group undertakings 13 1781 – 200 1994
disposals 9 121 – 17 147
depreciation at 31 march 2006 284 9400 – 450 10134
net book value at 31 march 2006 690 16302 1716 227 18935
net book value at 31 march 2005 629 20530 1269 217 22645
i includes amounts in respect of discontinued operations of £13m 2005 £176m
the net book value of land and buildings comprised
2006 2005
£m £m
freehold 649 590
long leasehold over 50 years 13 12
short leasehold under 50 years 28 27
690 629
the cost of property plant and equipment at 31 march 2006 included £504m 2005 £449m relating to interest capitalised 
included within trade and other payables and other noncurrent liabilities at 31 march 2006 are contributions to the cost of property
plant and equipment amounting to £31m 2005 £53m and £1018m 2005 £1150m respectively
during the course of the year some of our businesses have reviewed the useful lives of some of their assets these changes have
resulted in a net reduction in the depreciation charge of £17m
the carrying value of property plant and equipment which is carried at deemed cost within plant and machinery at the date of transition
to ifrs on 1 april 2004 amounted to £152m
126 group financial statements
note 18
annual report and accounts 200506
national grid 19 investments in joint ventures
£m
at 1 april 2004 19
disposals 5
share of retained loss 2
dividends received 5
at 31 march 2005 17
exchange adjustments 2
disposals 2
share of retained profit 3
dividends received 2
impairment provision written back 13
reclassification as asset held for sale 19
at 31 march 2006 12
the names of the principal group undertakings and joint ventures are included in note 36
20 deferred tax assets and liabilities
the following are the major deferred tax assets and liabilities recognised by the group and the movements thereon during the current
and prior reporting periods
deferred tax assetsliabilities
pensions
and other
accelerated employee post other net
tax share retirement markto temporary
depreciation options benefits market differences total
£m £m £m £m £m £m
deferred tax assets at 1 april 2004 – 8 684 – 1087 1779
deferred tax liabilities at 1 april 2004 3939 – 127 – 77 4143
at 1 april 2004 3939 8 557 – 1010 2364
exchange adjustments 21 – 9 – 29 17
chargedcredited to income statement 111 6 20 – 219 344
chargedcredited to equity – 4 66 – – 62
acquisition of group undertakings 69 – – – 44 113
other – – – – 29 29
at 31 march 2005 4098 18 462 – 747 2871
deferred tax assets at 31 march 2005 – 18 462 – 931 1411
deferred tax liabilities at 31 march 2005 4098 – – – 184 4282
at 31 march 2005 4098 18 462 – 747 2871
first time adoption of ias 39 – – – 38 54 16
at 1 april 2005 4098 18 462 38 801 2855
exchange adjustments 60 – 10 – 72 22
chargedcredited to income statement 31 3 25 4 130 179
chargedcredited to equity – 7 62 20 1 36
disposal of group undertakings 1068 – – – 9 1059
other – – 12 – 25 13
at 31 march 2006 3121 28 397 14 708 2002
deferred tax assets at 31 march 2006 5 28 397 6 835 1271
deferred tax liabilities at 31 march 2006 3126 – – 20 127 3273
3121 28 397 14 708 2002
deferred tax chargedcredited to income statement includes £49m 2005 £49m reported within profits for the year from discontinued
operations
deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is intention to settle the
balances net the following is an analysis of the deferred tax balances after offset for balance sheet purposes
2006 2005
£m £m
deferred tax liabilities 2161 3189
deferred tax assets 159 318
2002 2871
at the balance sheet date there were no material current deferred tax assets or liabilities
annual report and accounts 200506
national grid
group financial statements 127
notes 19 and 20 20 deferred tax assets and liabilities continued
deferred tax assets in respect of capital losses nontrade deficits trading losses and pretrading expenditure have not been recognised
as their future recovery is uncertain or not currently anticipated the deferred tax assets not recognised are as follows
2006 2005
£m £m
capital losses 338 304
nontrade deficits 166 166
trading losses 17 17
pretrading expenditure 9 6
the capital losses nontrade deficits trading losses and pretrading expenditure are available to carry forward indefinitely the capital
losses can be offset against specific types of future capital gains nontrade deficits against specific future nontrade profits and the
trading losses and pretrading expenditure against specific future trading profits
the aggregate amount of temporary differences associated with the unremitted earnings of overseas subsidiaries and joint ventures for
which deferred tax liabilities have not been recognised at the balance sheet date is approximately £546m no liability is recognised in
respect of the differences because the group is in a position to control the timing of the reversal of the temporary differences and it is
probable that such differences will not reverse in the foreseeable future
21 other noncurrent receivables
2006 2005
£m £m
lease debtors 23 31
prepayments 7 7
other debtors 8 58
38 96
22 financial investments
2006 2005
£m £m
noncurrent
availableforsale investments 83 65
loans and receivables 6 8
other financial investments at fair value through the income statement 59 58
148 131
2006 2005
£m £m
current
availableforsale investments 254 –
loans and receivables 130 398
384 398
availableforsale investments and other financial investments at fair value through the income statement are recorded at fair value as at
31 march 2006 and at cost as at 31 march 2005
there is no significant interest rate or currency rate risk on financial investments
128 group financial statements
notes 20 continued 21 and 22
annual report and accounts 200506
national grid 23 financial instruments
the group’s treasury policy described on pages 57 to 59 includes details of the objectives policies and strategies of the group
associated with financial instruments
the group’s counterparty exposure under derivative financial contracts at 31 march 2006 was £524m 2005 £671m
as at 31 march 2006 the group had a number of exposures to individual counterparties in accordance with group treasury policies
and exposure management practices counterparty credit exposure limits are continually monitored and adhered to and no individual
exposure is considered as significant in the context of the ordinary course of the group’s treasury management activity 
collateral agreements exist with certain counterparties the amount of cash posted with the group and by the group was £240m and
£20m respectively as at 31 march 2006 
book and fair values of financial instruments at 31 march
2006 2005
book value fair value book value fair value
£m £m £m £m
borrowings 13126 13757 14290 15646
cash and cash equivalents 1452 1452 272 272
bank overdrafts 3 3 18 18
financial investments
availableforsale 337 337 65 69
other financial investments through the income statement 5959 5858
loans and receivables 136 136 406 406
trade and other receivables
loans and receivables 1006 1005 709 709
assets held for sale 19 19 ––
trade and other payables 1906 1891 1905 1905
derivative financial assets 665 665 – 725
derivative financial liabilities 222 222 – 182
commodity contract liabilities 488 488 471 471
market values where available have been used to determine fair values where market values are not available fair values have been
calculated by discounting cash flows at prevailing interest rates due to their short maturities the fair value of shortterm receivables 
and payables approximates to their book value
annual report and accounts 200506
national grid
group financial statements 129
note 23 23 financial instruments continued
currency and interest rate composition of financial liabilities
the following table sets out the carrying amount by contractual maturity of the group’s nonderivative financial instruments that are
exposed to interest rate risks before taking into account currency and interest rate swaps
at 31 march 2006
more than
within 1 year 12 years 23 years 34 years 45 years 5 years total
fixed rate £m £m £m £m £m £m £m
liabilities
other bonds
sterling 285 229 212 294 248 1915 3183
euro 1206 12 775 205 – 1796 3994
us dollar 392 121 37 363 3 621 1537
other 49 – 207 7 10 217 490
other loans
sterling 55 – – – – – 55
us dollar – – – – – 24 24
bank loans
sterling 37 – – – – – 37
finance leases
sterling 4 2 1 1 – – 8
2028 364 1232 870 261 4573 9328
more than
within 1 year 12 years 23 years 34 years 45 years 5 years total
floating rate £m £m £m £m £m £m £m
liabilities
other bonds
sterling i 25 – 39 214 – 1391 1669
euro – 29 – – – – 29
us dollar 13 6 11 – – 588 618
other 12 – – – 27 20 59
other loans
sterling 70 – – – – – 70
bank loans
sterling 64 – – – – 550 614
us dollar 176 – – – – – 176
other 441 – – – – – 441
finance leases
us dollar 10 5 6 6 6 89 122
bank overdraft 
sterling 3 – – – – – 3
814 40 56 220 33 2638 3801
i includes bonds linked to the retail price index
130 group financial statements
note 23 continued
annual report and accounts 200506
national grid 23 financial instruments continued
liquidity analysis
the following is an analysis of contractual cash flows payable by national grid under financial liabilities by remaining contractual
maturities at the balance sheet date
due within 1 year due between 1 and 2 years
fixed floating fixed floating
interest interest repayment interest interest repayment
£m £m £m £m £m £m
non derivative financial liabilities
other bonds 483 40 1778 436 40 404
other loans – 10 55 – – –
bank loans – 39 736 – 27 –
finance lease liabilities – 6 14 – 6 5
other noninterest bearing liabilities – – 1582 – – 324
483 95 4165 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 – – 1
interest rate swaps 3 4 – 2 4 –
5 – 196 3 4 3
total at 31 march 2006 504 111 4178 463 77 906
due between 2 and 3 years due 3 years and beyond
fixed floating fixed floating
interest interest repayment interest interest repayment
£m £m £m £m £m £m
non derivative financial liabilities
other bonds 384 38 1317 3835 49 8303
other loans –– ––– 94
bank loans – 27 – – 111 551
finance lease liabilities – 6 6 – 6 105
other noninterest bearing liabilities – – – – – –
384 71 1323 3835 166 9053
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 7 272
foreign exchange forwards – – – – – –
interest rate swaps 1 3 – 121 33 –
1 3 54 99 26 272
total at 31 march 2006 395 76 1318 3838 171 8926
sensitivity analysis at 31 march 2006
financial instruments affected by market risk include borrowings deposits derivative financial instruments and commodity contracts
the following analysis required by ifrs 7 is intended to illustrate the sensitivity to changes in market variables being uk and us
interest rates and the us dollar to sterling exchange rate on our financial instruments we have excluded from this analysis the impact of
movements in market variables on the carrying value of our commodity contracts as we are able to recover the costs of these contracts
from customers in future periods
the analysis also excludes the impact of movements in market variables on the carrying value of pension and other postretirement
obligations provisions and on the assets and liabilities of overseas subsidiaries other than financial instruments
annual report and accounts 200506
national grid
group financial statements 131
note 23 continued 23 financial instruments continued
the sensitivity analysis has been prepared on the basis that the amount of net debt the ratio of fixed to floating interest rates of the debt
and derivatives portfolio and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge
designations in place at 31 march 2006 as a consequence this sensitivity analysis relates to the position as at 31 march 2006 and is
not representative of the year then ended as all of these varied during the course of 200506
the following assumptions were made in calculating the sensitivity analysis
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
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 rpilinked debt
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
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
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
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
changes in the carrying value of derivative financial instruments not in hedging relationships only affect the income statement
all other changes in the carrying value of derivative financial instruments designated as hedges are fully effective with no impact on the
income statement
debt with a maturity below one year is floating rate for the accrued interest part of the calculation and
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
using the above assumptions the following table shows the illustrative effect on the income statement and equity that would result from
movements in changes in uk and us interest rates and in the us dollar to sterling exchange rate
income
statement equity
 £m  £m
uk interest rates  010 14 14
us interest rates  010 62
us dollar exchange rate  10 52 228
derivative financial instruments
the group’s hedging policies are set out on page 58 the group has entered into a number of derivative financial instruments as
detailed below which are designated as follows
fair value hedges
the group maintains interest rate and currency swap contracts as fair value hedges of the interest rate and currency risk on fixed rate
debt issued by the group change in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the
income statement together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk the
gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognised in the income statement
within interest expense and other finance costs the gain or loss relating to the ineffective portion is recognised in the income statement
within net lossesgains on derivative financial instruments changes in the fair value of the hedged fixed rate borrowings attributable to
interest rate risk are recognised in the income statement within interest expense and other finance costs
if the hedge no longer meets the criteria for hedge accounting the adjustment to the carrying amount is amortised to the income
statement under the effective interest rate method
132 group financial statements
note 23 continued
annual report and accounts 200506
national grid 23 financial instruments continued
cash flow hedges
the group maintains interest rate swaps and cross currency swaps that qualify for hedge accounting as designated cash flow hedges
relating to future interest payments on debt the revaluation of these swaps is included in the cash flow hedge reserve and is recycled to
the income statement as the interest charge relating to the debt is recorded 
the group uses forward foreign currency contracts to hedge anticipated and committed future purchases where designated these
contracts qualify for hedge accounting and are designated as cash flow hedges when the underlying purchase is recorded the
associated gains and losses deferred in equity are removed and included in the initial cost of the asset
when a hedging instrument expires or is sold or when a hedge no longer meets the criteria for hedge accounting any cumulative gain
or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the
income statement when a forecast transaction is no longer expected to occur the cumulative gain or loss that was reported in equity 
is immediately transferred to the income statement
net investment hedges
the group uses us dollar borrowings cross currency swaps and forward currency contracts as instruments to hedge the net
investment in the group’s us based subsidiaries
the cross currency swaps and forward foreign currency contracts are hedge accounted using the spot to spot method the foreign
exchange gainloss on retranslation of the debt and the spot to spot movements on the cross currency swaps and forward currency
contracts are transferred to equity to offset lossesgains on translation of the net investment in the group’s us based subsidiaries
gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of
derivatives not in a formal hedge relationship
the group’s policy is not to use derivatives for trading purposes however due to the complex nature of hedge accounting under ias 39
some derivatives may not qualify for hedge accounting or are specifically not designated as a hedge where natural offset is appropriate
changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income
statement within net lossesgains on derivative financial instruments
the maturity of derivative assets and liabilities measured at fair value at 31 march 2006 can be analysed as follows
total
maturity maturity fair
within maturity maturity maturity maturity over value
1 year 12 years 23 years 34 years 45 years 5 years 2006
£m £m £m £m £m £m £m
derivative financial assets
interest rate swaps 73 – 4 1 – 135 213
cross currency swaps 238 3 52 17 1 138 449
foreign exchange forward contracts 3 – – – – – 3
total at 31 march 2006 314 3 56 18 1 273 665
derivative financial liabilities
interest 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
the notional amounts of the above derivatives and commodity contract liabilities can be analysed as follows
total
maturity maturity fair
within maturity maturity maturity maturity over value
1 year 12 years 23 years 34 years 45 years 5 years 2006
£m £m £m £m £m £m £m
derivative financial assets
interest rate swaps 1196 65 475 117 – 1844 3697
cross currency swaps 1254 35 1109 189 26 2322 4935
foreign exchange forward contracts 46 19 – – – – 65
total at 31 march 2006 2496 119 1584 306 26 4166 8697
derivative financial liabilities
interest rate swaps 1534 50 370 378 86 1037 3455
cross currency swaps 864 7 160 8 10 1087 2136
foreign exchange forward contracts 47 11 20 – – – 78
total at 31 march 2006 2351 46 510 386 96 2124 5513
annual report and accounts 200506
national grid
group financial statements 133
note 23 continued 23 financial instruments continued
commodity contract liabilities of £488m include electricity swaps with notional quantities totalling 9223107 mwh other commodity
contract liabilities relating to power purchase commitments over periods of two to twelve years do not have specified notional
quantities commodity contracts are described in more detail on pages 59 and 60
assets liabilities
notional notional 
fair value amount fair value amount
at 31 march 2006 £m £m £m £m
fair value hedge derivative instruments
interest rate swaps 92 1408 9 908
cross currency swaps 146 1453 72 755
forward foreign currency contracts – – – –
238 2861 81 1663
cash flow hedge derivative instruments
interest rate swaps 80 436 16 685
cross currency swaps 112 1745 22 804
forward foreign currency contracts 3 78 3 24
195 2259 41 1465
net investment hedge derivative instruments
interest rate swaps 19 904 16 525
cross currency swaps 191 1735 40 565
forward foreign currency contracts – 37 – 27
210 2602 56 1063
other derivative instruments
interest rate swaps 22 949 42 1337
cross currency swaps – 2 2 12
forward foreign currency contracts – 24 – 27
commodities instruments – – 488 488
22 975 532 1810
total 665 8697 710 6001
analysed as follows
current 314 2496 266 2351
noncurrent 351 6201 444 3650
665 8697 710 6001
gains and losses recognised in cash flow hedge reserve note 32 on interest rate swap contracts as of 31 march 2006 will be
continuously released to the income statement until the bank borrowings are repaid note 27
the amount of cash flow hedge reserve due to be released from reserves to the income statement within the next year is £20m with
the remaining amount due to be released with the same maturity profile as borrowings in note 27
134 group financial statements
note 23 continued
annual report and accounts 200506
national grid 23 financial instruments continued
financial instruments disclosures for the year ended 31 march 2005
the following information for 2005 shows certain of the disclosures required by uk gaap frs 13 ‘derivatives and other financial
instruments disclosures’
gains and losses on hedges for year ended 31 march 2005
unrecognisedunrecognisedunrecognised deferred deferred deferred
gains losses net gain gains losses net lossgain
£m £m £m £m £m £m
gainslosses on hedges at 1 april 2004 430 326 104 131 82 49
gainslosses arising in previous years recognised in the year 25 23 2 19 10 9
gainslosses arising in previous years not recognised in the year 405 303 102 112 72 40
gainslosses arising in the year 64 36 28 36 8 28
gainslosses on hedges at 31 march 2005 341 267 74 148 80 68
of which
gainslosses expected to be recognised within one year 12 7 5 25 14 11
gainslosses expected to be recognised after one year 329 260 69 123 66 57
currency and interest rate composition of financial assets and liabilities at 31 march 2005
the currency and interest rate composition of the group’s financial assets are shown in the table below after taking into account
currency and interest rate swaps
fixed rate assets
weighted
average
non weighted period
interest variable average for which
total bearing rate fixed rate interest rate rate is fixed
£m £m £m £m  years
at 31 march 2005
sterling 455 – 455 – – –
us dollars 189 – 189 – – –
other currencies 26 – 26– ––
cash and investments 670 – 670 – – –
other financial assets sterling 41 – – 41 1150 41
other financial assets us dollars 72 27 9 36 518 132
783 27 679 77 854 84
the notional amounts relating to financial instruments held to manage interest rate and currency profiles for interest rate swaps and
forward rate agreements foreign currency contracts and cross currency swaps at 31 march 2005 amounted to £7420m and £8017m
respectively
cash and investments earned interest at local prevailing rates for maturity periods generally not exceeding 12 months and included
listed investments with a cost of £242m and market value of £245m other financial assets at 31 march 2005 related to a net investment
in a finance lease of £41m fixed asset investments of £36m forward foreign currency contracts of £9m equities of £16m and mutual
funds of £11m
fixed rate assets
weighted
average
weighted period
variable average for which
total rate fixed rate interest rate rate is fixed
£m £m £m  years
at 31 march 2005
sterling 9639 6656 2983 631 94
us dollars 4580 1814 2766 611 53
borrowings 14219 8470 5749 621 74
other financial liabilities sterling 61 61– ––
other financial liabilities us dollars 501 479 22 411 –
14781 9010 5771 620 74
annual report and accounts 200506
national grid
group financial statements 135
note 23 continued 23 financial instruments continued
maturity of financial assets and liabilities at 31 march 2005
the maturity profile of the group’s financial assets and liabilities are shown in the table below after taking into account currency and
interest rate swaps
assets liabilities
£m £m
within one year 687 3328
in more than one year but not more than two years 12 2171
in more than two years but not more than three years 11 618
in more than three years but not more than four years 12 1316
in more than four years but not more than five years 4 1316
in more than five years 57 6032
783 14781
at 31 march 2005 the weighted average interest rate on shortterm borrowings of £3256m was 46
foreign exchange forward contracts held to manage the currency mix of the group’s borrowings portfolio comprising a £463m forward 
sale of us dollars have not been adjusted in the table above
other sterling financial liabilities at 31 march 2005 comprised onerous leases of £61m
other us dollar financial liabilities at 31 march 2005 comprised indexlinked energy swap contracts of £327m purchased power
obligations of £144m nonequity minority interests of £22m onerous leases of £6m forward currency contracts of £2m and interest
rate swaps of £nil which were shown at fair value as they are no longer considered a hedge
substantially all the variable rate borrowings are subject to interest rates which fluctuate with libor for the appropriate currency at
differing premiums or in the case of certain us companies are based on the market rate for taxexempt commercial paper
in calculating the weighted average number of years for which interest rates are fixed swaps which are cancellable at the option of the
swap provider are assumed to have a life based on the earliest date at which they can be cancelled
24 inventories
2006 2005
£m £m
raw materials and consumables 62 60
work in progress 22 27
fuel stocks 24 14
108 101
the group consumed £58m of inventories during the year 2005 £56m the above table includes £4m provision for obsolescence as
at 31 march 2006 2005 £5m
25 trade and other receivables
2006 2005
£m £m
trade receivables 838 553
other receivables 137 67
prepayments and accrued income 525 573
asset held for sale 19 –
1519 1193
the carrying amounts of the group’s trade and other receivables are denominated in sterling £687m and us dollars £832m
on 22 february 2006 a group subsidiary undertaking entered into an agreement for the sale of the group’s interest in a joint venture
copperbelt energy corporation plc it is expected that this sale will be completed during 200607 and as a result the joint venture investment
has been reclassified as an asset held for sale
136 group financial statements
notes 23 continued 24 and 25
annual report and accounts 200506
national grid 25 trade and other receivables continued
provision for impairment of receivables
£m
at 1 april 2004 128
exchange adjustments 3
charge for the year 42
uncollectable amounts written off net of recoveries 34
at 31 march 2005 133
exchange adjustments 9
charge for the year 24
uncollectable amounts written off net of recoveries 41
at 31 march 2006 107
26 cash and cash equivalents
2006 2005
£m £m
cash at bank and in hand 46 100
shortterm deposits 1406 172
cash and cash equivalents 1452 272
bank overdrafts 3 18
net cash and cash equivalents 1449 254
net cash and cash equivalents at 31 march 2006 include £350m held in us dollars and £12m held in euros converted into sterling at
the group’s year end exchange rates
national grid usa and its public utility subsidiaries all consolidated subsidiaries of the group are subject to restrictions on the payment
of dividends by administrative order and contract at 31 march 2006 £46m of cash and cash equivalents were restricted
27 borrowings
the following table analyses the group’s total borrowings excluding bank overdrafts
2006 2005
£m £m
current
bank loans 717 402
commercial paper – 1469
other bonds 1983 1348
finance leases 14 5
other loans 125 19
2839 3243
noncurrent
bank loans 550 910
other bonds 9598 10043
finance leases 115 62
other loans 24 32
10287 11047
total borrowings 13126 14290
2006 2005
£m £m
total borrowings are repayable as follows
in one year or less 2839 3243
in more than one year but not more than two years 404 2004
in more than two years but not more than three years 1288 467
in more than three years but not more than four years 1090 1213
in more than four years but not more than five years 294 1293
in more than five years 
by instalments 131 35
other than by instalments 7080 6035
13126 14290
charges over property plant and other assets of the group were provided as collateral over borrowings totalling £607m at 31 march
2006 2005 £729m
the notional amount outstanding of the group’s debt portfolio at 31 march 2006 was £13230m 2005 £14564m
included in current bank loans is £240m in respect of cash posted with the group under collateral agreements
annual report and accounts 200506
national grid
group financial statements 137
notes 25 continued 26 and 27 27 borrowings continued
the principal items included within other bonds are listed below unless otherwise indicated these instruments were outstanding 
at both 31 march 2006 and 31 march 2005
issuer description of instrument notional amount
british transco finance no5 limited i gbp 115 million floating rate instruments due 2006
british transco finance inc usd 300 million 6625 fixed rate instruments due 2018
british transco international finance bv usd 350 million 70 fixed rate instruments due 2006
british transco international finance bv frf 2000 million 5125 fixed rate instruments due 2009
british transco international finance bv usd 1500 million zero coupon bond due 2021
national grid electricity transmission plc i gbp 240 million 80 fixed rate instruments due 2006
national grid electricity transmission plc eur 600 million 4125 fixed rate instruments due 2008
national grid electricity transmission plc gbp 250 million 475 fixed rate instruments due 2010
national grid electricity transmission plc gbp 300 million 2983 guaranteed retail price indexlinked instruments due 2018
national grid electricity transmission plc gbp 220 million 3806 retail price indexlinked instruments due 2020
national grid electricity transmission plc gbp 450 million 5875 fixed rate instruments due 2024
national grid electricity transmission plc gbp 360 million 65 fixed rate instruments due 2028
national grid electricity transmission plc gbp 70 million 3589 limited retail price indexlinked instruments due 2030
national grid electricity transmission plc gbp 50 million 2817 guaranteed limited retail price indexlinked instruments due 2032
national grid electricity transmission plc gbp 75 million 50 fixed rate instruments due 2035
national grid electricity transmission plc ii gbp 50 million 22280 retail price indexlinked instruments due 2035
national grid electricity transmission plc ii gbp 75 million 20353 retail price indexlinked instruments due 2035
national grid electricity transmission plc ii gbp 50 million 18204 retail price indexlinked instruments due 2035
national grid plc i eur 200 million floating rate instruments due 2005
national grid plc i eur 500 million floating rate instruments due 2006
national grid plc eur 500 million 375 fixed rate instruments due 2008
national grid plc ii eur 750 million 4125 fixed rate instruments due 2013
national grid plc eur 600 million 50 fixed rate instruments due 2018
national grid plc eur 500 million 4375 fixed rate instruments due 2020
new england power company usd 13585 million tax exempt pollution control revenue bonds variable rate due 2020
new england power company usd 10615 million tax exempt pollution control revenue bonds variable rate due 2022
ngg finance plc eur 1250 million 525 fixed rate instruments due 2006
ngg finance plc eur 750 million 6125 fixed rate instruments due 2011
niagara mohawk power corporation i usd 110 million 6625 taxable first mortgage bonds due 2005
niagara mohawk power corporation i usd 400 million 7625 senior notes due 2005
niagara mohawk power corporation i usd 150 million 975 taxable first mortgage bonds due 2005
niagara mohawk power corporation usd 275 million 775 taxable first mortgage bonds due 2006
niagara mohawk power corporation usd 200 million 8875 senior notes due 2007
niagara mohawk power corporation usd 600 million 775 senior notes due 2008
niagara mohawk power corporation usd 11571 million 72 taxexempt first mortgage bonds due 2029 iii
national grid gas holdings plc gbp 503078 million floating rate instruments due 2009
national grid gas holdings plc gbp 503078 million 41875 indexlinked instruments due 2022
national grid gas holdings plc gbp 503078 million 70 fixed rate instruments due 2024
national grid gas plc eur 650 million 525 fixed rate instruments due 2006
national grid gas plc gbp 250 million 6125 fixed rate instruments due 2006
national grid gas plc gbp 300 million 5625 fixed rate instruments due 2007
national grid gas plc gbp 250 million 8875 fixed rate instruments due 2008
national grid gas plc aud 500 million 70 fixed rate instruments due 2008
national grid gas plc gbp 300 million 5375 fixed rate instruments due 2009
national grid gas plc gbp 300 million 60 fixed rate instruments due 2017
national grid gas plc gbp 275 million 875 fixed rate instruments due 2025
national grid gas plc gbp 50 million 62 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
the first mortgage bonds are secured against the assets of the niagara mohawk power corp
138 group financial statements
note 27 continued
annual report and accounts 200506
national grid 27 borrowings continued
borrowing facilities
at 31 march 2006 the group had bilateral committed credit facilities of £1540m 2005 £1985m of which £1540m 2005 £1985m
were undrawn the group also had committed credit facilities from syndicates of banks of £1543m at 31 march 2006 2005 £1437m
of which £1304m 2005 £1237m were undrawn an analysis of the maturity of these undrawn committed facilities is shown below
undrawn committed borrowing facilities
2006 2005
£m £m
expiring
in one year or less 963 3165
in more than one year but not more than two years 200 57
in more than two years 1681 –
2844 3222
of the unused facilities at 31 march 2006 £2232m 2005 £2805m was held as backup to commercial paper and similar borrowings
the remainder was available as additional backup to commercial paper and for other general corporate purposes
28 trade and other payables
2006 2005
£m £m
trade payables 1313 1111
commodity contract liabilities 174 153
social security and other taxes 147 219
other payables 269 512
deferred income 192 342
2095 2337
other payables at 31 march 2005 included interest payable of £255m in 2006 interest payable is included in borrowings in accordance
with ias 39
29 other noncurrent liabilities
2006 2005
£m £m
commodity contract liabilities 314 318
other payables 324 282
deferred income 1081 1829
1719 2429
commodity contract liabilities
commodity contract liabilities are contracts for the purchase of electricity and gas or derivative commodity instruments which are
carried at fair value in the balance sheet they comprise purchased power obligations indexlinked swap contracts and new york
mercantile exchange ‘nymex’ gas and electricity futures that do not qualify as hedges of future sales
under our rate plans in the us payments made under these contracts are recovered from customers 
annual report and accounts 200506
national grid
group financial statements 139
notes 27 continued 28 and 29 30 provisions
total
decommissioning environmental emissions restructuring other provisions 
£m £m £m £m £m £m
at 1 april 2004 131 428 – 61 93 713
exchange adjustments 4 6 – – – 10
acquisition of a group undertaking 1 – – – 8 9
additions – 107 4 142 7 260
unwinding of discount 5 9 – – – 14
unused amounts reversed 2 – – – 4 6
utilised 26 47 – 113 3 189
at 31 march 2005 105 491 4 90 101 791
exchange adjustments 9 19 – – – 28
disposal of group undertakings – 44 – – 22 66
additions 18 3 19 35 70 145
reclassification 24 – – – 5 29
unwinding of discount 3 15 – – – 18
utilised 32 55 – 50 37 174
at 31 march 2006 127 429 23 75 117 771
provisions have been analysed as current and noncurrent as follows
2006 2005
£m £m
current 235 273
noncurrent 536 518
771 791
decommissioning provision
the decommissioning provision of £127m at 31 march 2006 primarily represents the net present value of the estimated expenditure
discounted at a nominal rate of 55 expected to be incurred in respect of the decommissioning of certain nuclear generating units it
also includes £16m relating to the decommissioning of wireless infrastructure–related analogue signal assets and £8m relating to other
asset retirement obligations expenditure is expected to be incurred between 2007 and 2012 additions in the year include £1m in respect
of a change in the discount rate
environmental provision
the environmental provision represents the estimated environmental restoration and remediation costs relating to a number of sites
owned and managed by the group
at 31 march 2006 £193m 2005 £262m of the environmental provision represents the net present value of the estimated statutory
decontamination costs of old gas manufacturing sites in the uk discounted using a nominal rate of 525 the anticipated timing of
the cash flows for statutory decontamination cannot be predicted with certainty but they are expected to be incurred over the period
2007 to 2057 with some 69 of the spend projected to be spent over the next five years
there are a number of uncertainties that affect the calculation of the provision for uk gas site decontamination including the impact of
regulation the accuracy of the site surveys unexpected contaminants transportation costs the impact of alternative technologies and
changes in the discount rate the group has made its best estimate of the financial effect of these uncertainties in the calculation of the
provision but future material changes in any of the assumptions could materially impact on the calculation of the provision and hence
the income statement 
the undiscounted amount of the provision at 31 march 2006 relating to uk gas site decontamination is £239m 2005 £340m being
the undiscounted best estimate of the liability having regard to the uncertainties referred to above
the environmental provision at 31 march 2006 also includes £227m 2005 £219m which represents the net present value of estimated
remediation expenditure in the us that has been discounted at a nominal rate of 575 this expenditure is expected to be incurred
between 2007 and 2043 the uncertainties regarding the calculation of this provision are similar to those considered in respect of uk
gas decontamination however unlike the uk with the exception of immaterial amounts of such costs this expenditure is recoverable
from rate payers under the terms of the group’s various rate agreements in the us
the undiscounted amount of environmental provision relating to the group’s usbased sites amounts to £333m at 31 march 2006
2005 £324m the group does not have sufficient information to calculate a range of outcomes but it is expected that any outcome 
of the liability would be recovered from rate payers
the remainder of the environmental provision of £9m 2005 £10m relates to the expected cost of remediation of certain other sites 
in the uk this is calculated on an undiscounted basis and is expected to be utilised within the next five years 
140 group financial statements
note 30
annual report and accounts 200506
national grid 30 provisions continued
the undiscounted amount of the total group environmental provision at 31 march 2006 is £581m 2005 £674m
emissions provision
the provision for emission costs will be settled using emission allowances granted to the group which are reported as an intangible asset
restructuring provision
at 31 march 2006 £34m of the total restructuring provision 2005 £36m consists of provisions for the disposal of surplus leasehold
interests and rates payable on surplus properties the expected payment dates for property restructuring costs remain uncertain the
remainder of the restructuring provision relates to business reorganisation costs in the uk to be paid between 2007 and 2016
other provisions
other provisions at 31 march 2006 include £51m 2005 £59m of estimated liabilities in respect of past events insured by the group’s
insurance undertakings including employer liability claims in accordance with insurance industry practice these estimates are based 
on experience from previous years and there is therefore no identifiable payment date other provisions at 31 march 2006 also include
£28m 2005 £nil in respect of the sales of four uk gas distribution networks and were related to property transfer costs £11m 2005
£11m in respect of obligations associated with the impairment of investments in joint ventures and £11m 2005 £8m in national grid
wireless principally in respect of radio wave emissions and costsharing on broadcast services
31 share capital
allotted called up 
and fully paid
millions £m
at 31 march 2004 3088 309
issued during the year 2–
at 31 march 2005 3090 309
issued during the year 81
effect of share consolidation i 378 –
at 31 march 2006 2720 310
i on 29 july 2005 the ordinary share capital was consolidated with 43 new ordinary shares of 11
17
43 pence each issued for every 49 existing ordinary shares of 10 pence each cancelled
the total consideration received by the group and company in respect of ordinary shares issued during the year ended 31 march 2006
was £28m 2005 £9m
in june 2005 national grid issued a circular to shareholders dated 6 june 2005 outlining its £2bn return of cash to shareholders 
by way of a b share scheme shareholders were issued one b share a noncumulative preference share of 10 pence nominal value 
per share for every existing ordinary share they held shareholders then had choices in respect of the b shares and the return of cash
details of which were set out in the circular to shareholders
at the same time that the b shares were issued the ordinary shares were consolidated to reflect the return of cash shareholders
received 43 new ordinary shares of 11
17

43
pence nominal value per share for every 49 existing ordinary shares of 10 pence nominal
value per share held on the record date of 29 july 2005 this resulted in the existing 3091247761 issued ordinary shares of 10 pence
each at 29 july 2005 being replaced by a total of 2712727627 new ordinary shares of 11
17

43
pence each in addition 3091247761
b shares of 10 pence each were also issued
to facilitate the above the authorised share capital of the company was increased from £500m to £815m by the creation of 3150m 
b shares of 10 pence each
at 31 march 2006 the authorised share capital of the group was £815m 4388m ordinary shares of 11
17
⁄43 pence each and 3150m 
b shares of 10 pence each
at 31 march 2005 the authorised share capital of the group was £500m 5000m ordinary shares of 10 pence each
at 31 march 2004 the authorised share capital of the group was £500m 5000m ordinary shares of 10 pence each and one £1 special
rights nonvoting redeemable preference share during the year ended 31 march 2005 the one £1 special rights nonvoting redeemable
preference share was removed from the authorised share capital of the group
the special rights nonvoting redeemable preference share of £1 in national grid plc ‘the special share’ held on behalf of the crown
was issued by national grid to the secretary of state for trade and industry on 31 january 2002 as part of a scheme of arrangement it
was redeemed at par on 5 may 2004 and on 26 july 2004 an ordinary resolution was passed cancelling this share from inclusion in the
authorised share capital of the company the special share did not carry any rights to vote at general meetings but entitled the holder
to receive notice of and to attend and speak at such meetings certain matters in particular the alteration of certain articles of
association of the company required the prior written consent of the holder of the special share the special share conferred no right
to participate in the capital or profits of the company except that on a windingup the holder of the special share was entitled to
repayment of £1 in priority to other shareholders prior to 31 january 2002 the secretary of state for trade and industry held a special
share with equivalent rights in national grid holdings one plc a similar special share in lattice group plc was held at 31 march 2002
by the crown this share was redeemed on 21 october 2002 as part of the merger arrangements
annual report and accounts 200506
national grid
group financial statements 141
notes 30 continued and 31 31 share capital continued
share option and award schemes
the group operates two principal forms of share option scheme they are an employee sharesave scheme and an executive share
option plan the ‘executive plan’ the details given below relate to the schemes operated by the group and the sharesave scheme
formerly operated by lattice following the merger most lattice scheme options were converted into 0375 national grid plc options
the remaining lattice scheme options lapsed on 29 april 2003
in any 10year period the maximum number of shares that may be issued or issuable pursuant to the exercise of options under all 
of the group’s share option schemes may not exceed the number of shares representing 10 of the issued ordinary share capital from
time to time
the sharesave scheme is savingsrelated where under normal circumstances share options are exercisable on completion of a 
three or fiveyear saveasyouearn contract the exercise price of options granted represents 80 of the market price at the date 
the option was granted
the executive plan applies to senior executives including executive directors options granted for the 19992000 financial year were
subject to the achievement of performance targets related to earnings per share growth over a threeyear period and have now vested
options granted for the 200001 financial year and thereafter are subject to the achievement of performance targets related to total
shareholder returns over a threeyear period the share options are generally exercisable between the third and tenth anniversaries 
of the date of grant if the relevant performance target is achieved
the company also operates a number of share award schemes including a performance share plan psp a share matching plan and
a transitional share award and special share award in relation to former crown castle uk employees
under the psp awards have been made to executive directors and approximately 350 senior employees who have significant influence
over the group’s ability to meet its strategic objectives under the psp  awards are conditional on the group’s total shareholder return
over a threeyear period awards are delivered in national grid plc shares at 31 march 2006 the number of conditional awards of
ordinary share equivalents outstanding under the psp was 7736972 2005 5864904 of which nil 2005 nil were exercisable the
number of conditional awards during the year ended 31 march 2006 was 2320464 2005 2846546 with lapsesforfeits during the
year of 448396 2005 436700 and exercises of nil 2005 2997
the share matching plan applies to executive directors whereby a predetermined part of each director’s bonus entitlement is
automatically deferred into national grid plc shares and a matching award may be made under the plan after a threeyear period
provided the director is still employed by the group at 31 march 2006 the number of conditional awards of ordinary share equivalents
outstanding under the share matching plan was 435583 2005 341482 of which 45384 2005 28534 were exercisable the
number of conditional awards during the year ended 31 march 2006 was 149232 2005 171460 with lapses during the year of 1489
2005 nil and exercises during the year of 53642 2005 42163
the transitional share awards and special share awards were made during the year ended 31 march 2005 to former crown castle 
uk employees and have a vesting period of four and two years respectively provided the employee is still employed by the group the
number of awards made during the year ended 31 march 2005 were 188650 and 45700 respectively at 31 march 2006 the number of
conditional awards of ordinary share equivalents outstanding were 121170 2005 188650 and 11000 2005 45700 with lapses during
the year of 22560 2005 nil and 16825 2005 nil and exercises during the year of 44110 2005 nil and 17875 2005 nil respectively
142 group financial statements
note 31 continued
annual report and accounts 200506
national grid 31 share capital continued
share option and award schemes continued
movement in options to subscribe for ordinary shares under the group’s various options schemes for the two years ended 31 march
2006 are shown below and include those options related to shares issued to employee benefit trusts
sharesave executive plan total
scheme options options options
weighted weighted
average average
price price
£ millions £ millions millions
at 31 march 2004 332 317 484 120 437
granted 383 48 – – 48
lapsed – expired 336 15 502 11 26
exercised 337 38 390 05 43
at 31 march 2005 335 312 486 104 416
granted 434 56 – – 56
lapsed – expired 333 41 432 09 50
exercised 325 128 404 23 151
at 31 march 2006 368 199 501 72 271
included within options outstanding at 31 march 2006 and 31 march 2005 were the following options that were exercisable
at 31 march 2006 324 05 503 71 76
at 31 march 2005 325 03 499 63 66
the weighted average remaining contractual life of options in the employee sharesave scheme at 31 march 2006 was 2 years and 6
months these options have exercise prices between £315 and £457
the weighted average share price at the exercise dates was as follows
2006 2005
sharesave scheme options 589 449
executive plan options 550 465
options outstanding and exercisable and their weighted average exercise prices for the respective ranges of exercise prices and years
at 31 march 2006 are as follows
weighted average weighted average
exercise price of number exercise price of number exercise price normal dates 
exercisable options exercisable outstanding options outstanding per share of exercise
£ millions £ millions pence years
executive plan 281 02 281 02 2580 – 2805 2001 – 2008
381 03 381 03 3758 – 4900 2002 – 2009
550 12 550 12 4240 – 5665 2003 – 2010
528 09 528 09 5260 – 6230 2004 – 2011
548 19 548 19 4795 – 5630 2005 – 2012
472 26 472 26 4343 – 4815 2006 – 2013
405 – 405 01 4050 2007 – 2014
503 71 501 72
annual report and accounts 200506
national grid
group financial statements 143
note 31 continued 31 share capital continued
sharebased payment charges
under ifrs a charge is made to the income statement based on the fair value of grants in accordance with ifrs 2 ‘sharebased
payment’ all share awards are equity settled
the charge to the income statement for the year ended 31 march 2006 was £17m 2005 £16m
awards under share option plans
the average share prices at the date of options being granted during each of the two financial years ended 31 march were as follows
2006 2005
where the exercise price is less than the market price at the date of grant 5690p 4960p
the average exercise prices of the options granted during each of the two financial years ended 31 march were as follows
2006 2005
where the exercise price is less than the market price at the date of grant 4340p 3830p
the average fair values of the options granted during each of the two financial years ended 31 march were estimated as follows
2006 2005
where the exercise price is less than the market price at the date of grant 1280p 904p
the fair values of the options granted were estimated using the following principal assumptions
2006 2005
dividend yield  45 5558
volatility  156189 154
riskfree investment rate  42 45
average life years 43 40
the fair values of awards under the sharesave scheme have been calculated using the blackscholes model this is considered
appropriate given the short exercise window of sharesave options
volatility has been derived based on the following
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
volatility is assumed to revert from its current implied level to its long run mean based on historical volatility under ii above
awards under other share scheme plans
the average share prices and fair values at the date share awards were granted during each of the two financial years ended 31 march 
were as follows
2006 2005
average share price 5356p 4317p
average fair value 3580p 2106p
the fair values of the awards granted were estimated using the following principal assumptions
2006 2005
dividend yield  44 5357
volatility  199 154
riskfree investment rate  41 4552
fair values have been calculated using a monte carlo simulation model for awards with total shareholder return performance conditions
fair values of awards with performance conditions based on earnings per share have been calculated using the share price at date of
grant less the present value of dividends foregone during the performance period
for other share scheme awards where the primary vesting condition is that employees complete a specified number of years service
the fair value has been calculated as the share price at date of grant adjusted to recognise the extent to which participants do not
receive dividends over the vesting period
volatility for share awards has been calculated on the same basis as used for share options as described above
144 group financial statements
note 31 continued
annual report and accounts 200506
national grid 32 reconciliation of movements in total equity
available
calledup share cash flow forsale total
share premium retained translation hedge investment other shareholders’ minority total
capital account earnings reserve reserve reserve reserves equity interests equity
£m £m £m £m £m £m £m £m £m £m
at 31 march 2004 309 1280 4642 – – – 5131 1100 10 1110
net incomeexpense recognised 
directly in equity – – 187 6 – – – 181 – 181
profit for the year – – 1424 – – – – 1424 – 1424
equity dividends – – 628 – – – – 628 – 628
issue of ordinary share capital – 9 – – – – – 9 – 9
movement in shares held by 
employee share trusts – – 5 – – – – 5 – 5
employee share option scheme 
issues ––16––––16–16
tax on employee share option 
scheme issues – – 4 – – – – 4 – 4
at 31 march 2005 309 1289 5650 6 – – 5131 2111 10 2121
adoption of ias 39 – – 91 7 51 4 – 43 – 43
at 1 april 2005 309 1289 5559 13 51 4 5131 2068 10 2078
net incomeexpense recognised 
directly in equity – – 121 140 14 2 – 249 1 250
profit for the year – – 3848 – – – – 3848 2 3850
equity dividends – – 745 – – – – 745 – 745
return of capital to shareholders 
through b share scheme – – 2009 – – – – 2009 – 2009
issue of ordinary share capital 1 27 – – – – – 28 – 28
other movements in minority 
interests – – – – – – – – 2 2
movement in shares held in 
employee share trusts – – 19 – – – – 19 – 19
employee share option scheme 
issues ––17––––17–17
tax on employee share option 
scheme issues –– 7–– –– 7– 7
at 31 march 2006 310 1316 6817 127 37 6 5131 3482 11 3493
as at 31 march 2006 the group has nil own shares included in retained earnings as at 31 march 2005 own shares were included in
the retained earnings reserve related to 7m 10p ordinary shares in national grid plc held by employee share trusts for the purpose of
satisfying certain obligations under various share option schemes operated by the group the carrying value of £29m market value
£33m represented the exercise amounts receivable in respect of those shares that were issued at market value by the company and
the cost in respect of those shares purchased in the open market funding was provided to the trusts by group undertakings the
trusts waived their rights to dividends on those shares
other reserves primarily represent the difference between the carrying value of group undertakings investments and their respective
capital structures following the lattice demerger from bg group plc and the 1999 lattice refinancing of £5745m the reserve also
included merger differences of £221m and £359m together with unrealised gains of £32m on transfer of fixed assets to a former joint
venture which subsequently became a group undertaking
annual report and accounts 200506
national grid
group financial statements 145
note 32 33 group cash flow statement
a cash flow from operating activities – discontinued operations
2006 2005
£m £m
operating profit 46 436
adjustments for
exceptional items 15 74
depreciation and amortisation 13 176
sharebased payment charge 2 4
changes in working capital and provisions 73 69
cash flow relating to exceptional items 23 74
cash flow relating to discontinued operations 20 547
b reconciliation of net cash flow to movement in net debt
2006 2005
£m £m
movement in cash and cash equivalents 1181 8
decreaseincrease in financial investments 25 59
decreaseincrease in borrowings and derivatives 2304 1052
cash paid to shareholders under b share scheme 1957 –
net interest paid i 704 na
change in net debt resulting from cash flows 6121 985
exchange adjustments i – 112
changes in fair value of financial assets and liabilities and exchange movements i 299 na
issue of b shares 2009 –
net interest charge i 660 na
other noncash movements 17 28
movement in net debt net of related derivative financial instruments in the year 3136 901
net debt at start of year 13638 12737
impact of adoption of ias 32 and ias 39 i 348 –
net debt net of related derivative financial instruments at end of year 10850 13638
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 
c analysis of changes in net debt
other
at 1 april cash exchange noncash at 31 march
2004 flowadjustments movements 2005
£m £m £m £m £m
cash and cash equivalents 273 – 1 – 272
bank overdrafts 26 8 – – 18
247 8 1 – 254
financial investments 343 59 4 – 398
borrowings 13327 1052 117 28 14290
12737 985 112 28 13638
impact of
adoption of fair other
at 1 april ias 32 and cash value gains issue of interest noncash at 31 march
2005 ias 39 i flow and losses b shares charges movements 2006
£m £m £m £m £m £m £m £m
cash and cash equivalents 272 – 1166 14 – – – 1452
bank overdrafts 18 – 15 – – – – 3
254 – 1181 14 – – – 1449
financial investments ii 398 3 155 3 – 135 – 384
borrowings ii 14290 894 5037 207 2009 746 17 13126
derivatives ii – 543 58 109 – 49 – 443
13638 348 6121 299 2009 660 17 10850
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
146 group financial statements
note 33
annual report and accounts 200506
national grid 34 related party transactions
the following information is provided in accordance with ias 24 related party disclosures as being material transactions with related
parties during the year these transactions are with joint ventures and a group pension fund and were in the normal course of business
and are summarised below
2006 2005
£m £m
sales services supplied to a group pension fund 4 4
purchases services received from joint ventures 32 24
at 31 march 2006 the group had amounts receivable and payable amounting to £nil 2005 £1m and £1m 2005 £1m respectively
with related parties which are due on normal commercial terms
details of investments in principal group undertakings and joint ventures are disclosed in note 36 and information relating to pension
fund arrangements is disclosed in note 9 details of directors and key management remuneration is set out in note 7 and the directors’
remuneration report
35 commitments and contingencies
a future capital expenditure
2006 2005
£m £m
contracted for but not provided 1343 927
b lease commitments
total group commitments under noncancellable operating leases were as follows
2006 2005
£m £m
in one year or less 87 99
in more than one year but not more than two years 80 91
in more than two years but not more than three years 75 83
in more than three years but not more than four years 71 79
in more than four years but not more than five years 67 77
in more than five years 451 501
831 930
c power commitments
at 31 march 2006 the group had obligations to purchase energy under longterm contracts the following table analyses these
commitments excluding commodity contracts carried at fair value notes 28 and 29
2006 2005
£m £m
in one year or less 1504 1058
in more than one year but not more than two years 935 623
in more than two years but not more than three years 753 583
in more than three years but not more than four years 588 567
in more than four years but not more than five years 94 462
in more than five years 1579 1622
5453 4915
d other commitments contingencies and guarantees
the value of other group commitments contingencies and guarantees at 31 march 2006 amounted to £334m 2005 £349m including
guarantees amounting to £149m 2005 £189m 
details of the guarantees entered into by the group at 31 march 2006 are shown below
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 a48m
£20m this halved on commissioning in april 2006 and expires in november 2006
annual report and accounts 200506
national grid
group financial statements 147
notes 34 and 35 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 a7m 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 openended 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
e amounts receivable under sublease arrangements
the total of future minimum sublease payments expected to be received under noncancellable subleases is £26m 2005 £23m
36 group undertakings and joint ventures
principal group undertakings
the principal group undertakings included in the group accounts at 31 march 2006 are listed below these undertakings are wholly
owned and unless otherwise indicated are incorporated in great britain
principal activity
national grid gas plc i gas transportation
national grid electricity transmission plc i transmission of electricity in england and wales
new england power company incorporated in the us i transmission of electricity
massachusetts electric company incorporated in the us i distribution of electricity
the narragansett electric company incorporated in the us i distribution of electricity
niagara mohawk power corporation incorporated in the us i distribution and transmission of electricity and gas
national grid wireless no 2 limited i telecommunications infrastructure
national grid wireless limited i telecommunications and broadcast infrastructure
ngg finance plc ii financing
british transco international finance bv incorporated in the netherlands i financing
national grid property limited i property
national grid holdings one plc ii holding company
lattice group plc i holding company
national grid usa incorporated in the us i holding company
niagara mohawk holdings inc incorporated in the us i holding company
national grid commercial holdings limited i holding company
national grid gas holdings plc i holding company
national grid us holdings limited ii holding company
national 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
principal joint ventures
at 31 march 2006
country of
incorporation
group holding and operation principal activity
copperbelt energy corporation plc i 385 ordinary shares zambia transmission distribution 
and supply of electricity
i 31 december year end
investments in joint ventures are held by group undertakings
the joint venture investment in copperbelt energy corporation plc has been classified as an asset held for sale and sale completion is
expected during 200607
a full list of all group and associated undertakings is available from the group company secretary and general counsel
148 group financial statements
notes 35 continued and 36
annual report and accounts 200506
national grid 37 differences between ifrs and us generally accepted accounting principles
the group prepares its consolidated accounts in accordance with international financial reporting standards ifrs as adopted by the
eu which differ in certain respects from generally accepted accounting principles in the united states us gaap ifrs as adopted by
the eu is materially the same as ifrs published by the international accounting standards board iasb
the most significant difference between ifrs and us gaap as it relates to the group is that the business combination of the then
national grid group plc now national grid plc and lattice group plc was accounted for as a merger pooling of interests under the
group’s previous accounting standards accounting standards generally accepted in the uk uk gaap this transaction and its
resulting account balances were grandfathered at 1 april 2004 the date of transition to ifrs see note 1 under us gaap this
transaction was accounted for as an acquisition purchase accounting of lattice group plc consequently under ifrs the accounts
represent the combined accounts of national grid group plc and lattice group plc on an historical cost basis for all periods presented
under us gaap the accounts presented include the lattice group at fair value at the date of acquisition
condensed income statements statements of comprehensive income and changes in shareholders’ equity balance sheets and segmental
information in accordance with us gaap disclosure requirements are presented in note 38 the balance sheets at 31 march 2005 and
31 march 2006 include the impact of the fair value of the acquired assets and liabilities of lattice group plc prepared under us gaap at
the date of acquisition the effect of the us gaap adjustments to profit for the financial year and shareholders’ equity is set out below
reconciliation of profit from ifrs to us gaap
the following is a summary of the material adjustments to profit that would have been required if us gaap had been applied instead of
ifrs
2006 2005
notes £m £m
profit for the year attributable to equity shareholders under ifrs 3848 1424
adjustments to conform with us gaap
depreciation of property plant and equipment a 127 233
us regulatory accounting b 269 246
pensions and other postretirement benefits c 56 2
financial instruments d 130 254
severance costs e 63 62
revenue recognition f 48 13
amortisation of intangibles h 2 2
interest on discounted provisions i 14 –
deferred taxation k 208 28
other l 3 2
discontinued operations – gains on disposal of business a g 2196 –
discontinued operations – pensions and other postretirement benefits c 127 –
discontinued operations – deferred taxation k 286 –
2541 120
net income under us gaap 1307 1304
reconciliation of shareholders’ equity from ifrs to us gaap
the following is a summary of the material adjustments to shareholders’ equity that would have been required if us gaap had been
applied instead of ifrs
2006 2005
notes £m £m
total shareholders’ equity under ifrs 3482 2111
adjustments to conform with us gaap
property plant and equipment a 2162 3116
goodwill g 2689 4027
us regulatory accounting b 2702 2746
pensions and other postretirement benefits c 886 944
financial instruments d 119 117
severance liabilities e 2 65
revenue recognition f 42 6
intangible assets h 28 30
provisions i 154 130
nonreversal of impairments j 39 29
deferred taxation k 2090 2441
other l 2 29
6265 8480
shareholders’ equity under us gaap 9747 10591
annual report and accounts 200506
national grid
group financial statements 149
note 37 37 differences between ifrs and us generally accepted accounting principles continued
the principal differences between ifrs and us gaap  as applied in preparing the group accounts under us gaap are set out below
a depreciation of property plant and equipment
in accordance with ifrs 1 the group has not restated any business combinations that occurred prior to 31 march 2004 the lattice
group plc business combination has therefore not been adjusted from the amount calculated under the company’s previous basis of
accounting under uk gaap  this transaction continues to be accounted for as a merger pooling of interests under ifrs but under 
us gaap the business combination was accounted for using purchase accounting as a consequence fair value adjustments have
been recognised under us gaap in relation to property plant and equipment which are being depreciated over the related assets’
useful economic lives as a result goodwill arising on the purchase has been recognised for us gaap
fair value adjustments and goodwill associated with the businesses which were disposed during 200506 have been recycled to net
income and recognised as a reduction in the gain on disposal recorded under ifrs these adjustments are reported within discontinued
operations
b us regulatory accounting
statement of financial accounting standard sfas 71 ‘accounting for the effects of certain types of regulation’ establishes us gaap
for utilities whose regulators have the power to approve andor regulate rates that may be charged to customers provided that through
the regulatory process the utility is substantially assured of recovering its allowable costs by the collection of revenue from its customers
such costs not yet recovered are deferred as regulatory assets such recoverable assets which would be recognised as regulatory
assets under us gaap are not recognised as assets under ifrs on the basis that they do not meet the criteria for recognition as an
asset intangible or other under ifrs and are therefore expensed
c pensions and other postretirement benefits
under ifrs the group recognises actuarial gains and losses in the statement of recognised income and expense in the year in which
they occur under us gaap amortisation of unrecognised actuarial gains and losses that fall outside a specified corridor are recognised
within the income statement
in addition under us gaap  when a pension plan has an accumulated benefit obligation that exceeds the fair value of the plan assets
the unfunded amount is recognised as a minimum liability in the balance sheet in respect of such liabilities an intangible asset is
recognised up to the amount of any unrecognised prior service cost and a regulatory asset is recognised for such liabilities recoverable
through the regulatory process see b above thereafter the minimum liability is recognised in other comprehensive income
interest costs associated with the pension obligation are presented within finance costs under ifrs as opposed to within net periodic
pension costs under us gaap 
under ifrs the curtailmentsettlement gain on the sales of the distribution networks is included in full in the income statement under
us gaap this gain is recognised in the income statement to the extent that it exceeds unrecognised losses
the net periodic charge for pensions and other postretirement benefits is as follows
other postretirement 
pensions benefits
2006 2005 2006 2005
£m £m £m £m
service cost 118 135 16 12
interest cost 804 828 63 56
expected return on plan assets 849 860 41 40
amortisation of prior service cost 5 6 6 3
amortisation of previously unrecognised actuarial losses 58 45 – 20
136 154 44 51
release of pension provision 2 2 – –
134 152 44 51
the additional gaincost incurred in respect of severance cases computed in accordance with sfas 88 ‘employers’ accounting for
settlements and curtailments of defined benefit pension plans and for termination benefits’ is as follows
2006 2005
£m £m
gaincost of termination benefits and curtailments 9 30
150 group financial statements
note 37 continued
annual report and accounts 200506
national grid 37 differences between ifrs and us generally accepted accounting principles continued
c pensions and other postretirement benefits continued
the principal financial assumptions used for the sfas 87 calculations of net periodic charge based on a measurement date of
31 march 2005 in respect of the us and uk defined benefit schemes are shown below
us uk
2006 2005 2006 2005
   
discount rate 58 58 51 55
expected return on assets 7083 83 5864 6267
general salary increases 3943 3353 39 39
pension increases nil nil 30 30
the assumptions used for other postretirement costs relate solely to us schemes these assumptions were that the discount rate used 
would be 58 2005 575 and that medical costs would increase by 10 2005 10 decreasing to 5 2005 5 by 2011 and
remain at 5 2005 5 thereafter
a reconciliation of the funded status of the group pension and other postretirement schemes to the net accrued benefit liability that
was included in the group’s balance sheet prepared under us gaap is as follows
other postretirement 
pensions benefits
2006 2005 2006 2005
£m £m £m £m
projected benefit obligation at 31 march 16603 15758 1223 1068
fair value of plan assets at 31 march 15349 14086 568 488
excess of projected benefit obligation over plan assets 1254 1672 655 580
unrecognised net actuarial loss 840 1180 335 316
unrecognised prior service cost 56 60 69 70
net accrued benefit liability – before minimum liability adjustment 358 432 251 194
additional minimum liability adjustment 472 811 – –
net accrued benefit liability 830 1243 251 194
at 31 march 2006 as required under sfas 87 an intangible asset of £56m 2005 £60m was recognised in relation to the additional
minimum liability being equal to the unrecognised prior service cost a regulatory asset of £46m 2005 £133m was also created the
remaining additional minimum liability of £370m 2005 £618m has been included in other comprehensive income
the net accrued benefit liability above is shown net of a prepaid cost of £196m 2005 £181m in respect of one group scheme
the principal financial assumptions used for the sfas 87 calculations of the projected benefit obligation based on a measurement date
of 31 march 2006 in respect of the us and uk defined benefit schemes are shown below
us uk
2006 2005 2006 2005
   
discount rate 60 58 49 54
general salary increases 41 3943 39 39
pension increases nil nil 295 30
annual report and accounts 200506
national grid
group financial statements 151
note 37 continued 37 differences between ifrs and us generally accepted accounting principles continued
c pensions and other postretirement benefits continued
all pension schemes had an additional minimum liability adjustment except the national grid uk pension scheme and the national grid
wireless pension scheme the accumulated benefit obligation for pensions was £16180m at 31 march 2006 2005 £14825m the
group has followed approach two of emerging issues task force eitf abstract 881 in calculating the accumulated benefit obligation
changes in the projected benefit obligation and changes in the fair value of plan assets are shown below
other postretirement 
pensions benefits
2006 2005 2006 2005
£m £m £m £m
projected benefit obligation at start of year 15758 15394 1068 1002
service cost 118 135 16 12
interest cost 804 828 63 56
plan participants’ contributions 14 17 – –
plan amendment – prior service cost – 17 – 79
terminations 49 30 – –
curtailments 157 – – –
settlements 619 1 – –
actuarial loss 1301 136 40 5
benefits 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 16603 15758 1223 1068
fair value of plan assets at start of year 14086 13432 488 496
actual return on assets 2370 1248 65 26
employer contributions 191 184 30 32
plan 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 15358 14086 568 488
as at 31 march 2006 the following benefit payments which reflect future service as appropriate are expected to be paid
other
post
retirement
pensions benefits
year ended 31 march £m £m
2007 761 66
2008 774 69
2009 786 71
2010 802 74
2011 821 76
2012–2016 4547 378
in the uk the trustees for each plan are responsible for setting the longterm strategy after consultation with the group and professional
advisers the trustees’ objectives are to invest in assets of appropriate liquidity which together with future contributions from employers
and members would expect to generate income and capital growth to meet the cost of benefits from the plans to limit the risk and
minimise the longterm cost in the us the group manages its pension plan investments to minimise the longterm cost of operating
the plan with a reasonable level of risk
risk tolerance is determined as a result of periodic assetliability studies that analyse plan liabilities and funded status and results in the
determination of the allocation of assets
equity investments fixed income and indexlinked portfolios are broadly diversified investments are also held in property private equity
and timber with the objective of enhancing longterm returns whilst improving diversification investment risk and return are reviewed by
investment committees on a quarterly basis
152 group financial statements
note 37 continued
annual report and accounts 200506
national grid 37 differences between ifrs and us generally accepted accounting principles continued
c pensions and other postretirement benefits continued
expected subsidy receipts in respect of medical costs are as follows
£m
2007 4
2008 5
2009 5
2010 5
2011 5
2012–2016 29
d financial instruments
on 1 april 2005 the group adopted ias 39 in its ifrs financial statements and as a consequence derivatives are now recognised in 
the balance sheet at their fair value similar to the requirements of sfas 133 ‘accounting for derivative instruments and hedging
activities’ in accordance with ias 39 the group has adopted hedge accounting and has designated hedges as either fair value cash
flow or foreign currency exposures of net investments in foreign operations although similar in nature to sfas 133 there are differences
between the requirements of ias 39 and sfas 133 in particular sfas 133 does not include the transitional provisions of ias 39 that
permitted hedges to be recognised as effective on 1 april 2005 where hedges that meet the requirements of ias 39 also meet the
requirements of sfas 133 they are accounted for as hedges under us gaap  otherwise they are recognised in the us gaap income
statement and hence are included as reconciling differences with ifrs
under us gaap  as required by sfas 133 all derivative financial instruments including derivatives embedded within other contracts are
required to be recognised in the balance sheet as either assets or liabilities and measured at fair value sfas 133 permits hedge accounting
in specific circumstances where the hedge is designated and documented as one of three types fair value cash flow or foreign currency
exposures of net investments in foreign operations provided that it can be demonstrated that the hedge is highly effective and the relevant
hedging criteria have been met then in respect of fair value hedges both the change in fair value of the derivative and hedged item are
reflected in net income in the period of the change for cash flow hedges and hedges of foreign currency exposures of net investments in
foreign operations changes in fair value are reflected through other comprehensive income in the event that the conditions for hedge
accounting are not met changes in the fair value of derivatives are reflected in net income 
prior to 31 march 2005 the group did not apply hedge accounting for the purposes of sfas 133 except for certain hedges of net
investments in foreign operations excluding the hedges of net investments that were designated and qualified as hedges under sfas
133 the reconciliation to net income for the year ended 31 march 2005 reflected the changes in fair value of derivative financial
instruments there was no reconciling adjustment for the hedges of net investments for which the group had adopted hedge
accounting under sfas 133 as realised and unrealised gains and losses were taken to other comprehensive income under us gaap
contracts that qualify as normal purchases and normal sales and are designated as such are excluded from the requirements of sfas
133 the realised gains and losses on these contracts are reflected in the income statement at the contract settlement date
e severance costs
under ifrs severance costs in respect of the group’s voluntary severance arrangements are provided for when it is determined that 
a constructive or legal obligation has arisen from a restructuring programme where it is probable that it will result in the outflow of
economic benefits and the costs involved can be estimated with reasonable accuracy under us gaap such severance costs are
recognised when the employees accept the severance offer accordingly timing differences between ifrs and us gaap arise on the
recognition of such costs
similarly under ifrs future costs related to property leases have been accrued for in connection with vacating certain premises under
us gaap a liability was recognised when the ‘cease use’ date was reached resulting in a timing difference between ifrs and us gaap
on the recognition of such costs
f revenue recognition
under us gaap  revenue is recognised in the period that the service is provided up to the maximum revenue allowed under the terms of
the relevant regulatory regime under ifrs any revenue received or receivable in excess of the maximum revenue allowed for the
period under the terms of the relevant regulatory regime is recognised as income even where prices will be reduced in a future period
annual report and accounts 200506
national grid
group financial statements 153
note 37 continued 37 differences between ifrs and us generally accepted accounting principles continued 
g goodwill 
under ifrs the business combination of national grid plc and lattice group plc has been accounted for on the same basis as
previous gaap uk gaap as a merger pooling of interest while under us gaap this transaction was accounted for as an acquisition
purchase accounting of lattice group plc
under us gaap the fair value of net assets acquired is calculated in accordance with us gaap principles which differ in certain 
respects from ifrs principles as acquisitions made prior to 1 april 2004 were not reopened on transition to ifrs differences in
measurement between us gaap and uk gaap also exist as a result the us gaap fair value of net assets of group undertakings
acquired differs from the fair value of net assets as determined under ifrs principles in addition until 31 march 2004 goodwill was
amortised under previous gaap uk gaap whereas under us gaap amortisation of goodwill ceased on adoption of sfas 141
h intangible assets
under ifrs in a business combination intangible assets that meet certain criteria are recognised as assets separate from goodwill at
fair value under us gaap  these criteria are similar however the creation of the intangibles includes the recognition of notional tax
benefits
i provisions
ias 37 requires the time value of money to be taken into account when making a provision us gaap however only permits a provision
to be discounted where the amount of the liability and the timing of payments are fixed or reliably determinable or where the obligation is
a fair value obligation amounts associated with the unwinding of discounts on provisions are shown within interest expense under ifrs
j impairments
during the financial year ended 31 march 1990 an impairment provision was recorded in respect of certain property plant and
equipment as required under ifrs part of this impairment provision was subsequently released and shareholders’ equity credited
under us gaap this partial release is not permitted during the year an impairment in respect of a joint venture was reversed under
ifrs whereas under us gaap such an impairment reversal is not allowed
k deferred taxation
the deferred taxation adjustment principally reflects the tax effect of the other measurement and recognition differences between ifrs
and us gaap
the corporate tax charge on continuing operations under us gaap is analysed between current taxes and deferred taxes as follows
2006 2005
£m £m
current taxes 432 24
deferred taxes creditcharge 84 279
tax charge 348 303
the net deferred tax liability under us gaap is analysed as follows
2006 2005
£m £m
deferred taxation liabilities
excess of book value over taxation value of fixed assets 3778 5029
other temporary differences 1494 1162
5272 6191
deferred taxation assets
other temporary differences i 1252 900
4020 5291
analysed as follows
current 43 184
noncurrent 4063 5475
4020 5291
i deferred taxation assets at 31 march 2006 were stated net of a £530m valuation allowance adjustment in respect of capital losses nontrade deficits trading losses and pretrading
expenditure 2005 £493m
154 group financial statements
note 37 continued
annual report and accounts 200506
national grid 37 differences between ifrs and us generally accepted accounting principles continued
l other
other differences between ifrs and us gaap are not individually material and relate to differences arising from the recognition 
of amortisation expense on certain assets and other interest income
other us gaap disclosures
nongaap measures
in preparing the accounts in accordance with the companies act 1985 and ifrs certain information is presented that would be viewed
as ‘nongaap’ under regulations issued by the united states securities and exchange commission sec the group has described
such items and provided disclosure of the effects and reasons for presentation along with a condensed us gaap income statement
using the format prescribed by the sec the disclosure of each of the exceptional items would be prohibited within the form 20f if
such exceptional items were not expressly permitted by ias 1
management uses ‘adjusted’ profit measures in considering the performance of the group’s operating segments and businesses
references to ‘adjusted operating profit’ ‘adjusted profit before taxation’ ‘adjusted earnings’ or ‘adjusted earnings per share’ are stated
before exceptional items and remeasurements 
the directors believe that the use of these adjusted measures better indicates the underlying business performance of the group than
the unadjusted measures because the exclusion of these items provides a clearer comparison of results from year to year for each of
the years presented this is because this method of presentation removes the distorting impact of exceptional items and removes the
impact of remeasurements in order to enhance comparability with the reporting practices of other uk companies
exceptional items and remeasurements which are adjusted for in the adjusted measures referred to above are defined as material items
that derive from events that fall within the ordinary activities of the group but that require separate disclosure on the grounds of size or
incidence for the accounts to give a true and fair view such exceptional items include for example material restructuring costs and
impairments note 6 on page 113 contains a discussion of the nature of these exceptional items for each year
other presentational differences between ifrs and us gaap
under ifrs assets in the balance sheet are presented in ascending order of liquidity and the balance sheet is analysed between net
assets and shareholders’ funds under us gaap  assets are presented in descending order of liquidity and the balance sheet is
analysed between total assets and liabilities and shareholders’ equity as used in the presentation in note 38
i capital contributions – the group receives capital contributions for certain qualifying construction projects under ifrs these
contributions are recorded as deferred income within other liabilities whereas under us gaap these contributions are recorded as a
reduction of the asset’s cost
ii debt issuance costs – under ifrs direct and incremental costs incurred to issue debt securities are recorded as a reduction in the
carrying value of the related debt instrument and are unwound as a finance charge over the term of the debt under us gaap these
costs are classified as a noncurrent asset 
iii emission rights – under ifrs emission allowances are recorded as intangible assets and a provision is recorded for emission costs
incurred under us gaap the value of the emission allowances is reclassified to reduce the recorded provision resulting in a net liability
presentation 
iv cumulative preference shares – these nonequity instruments are presented within borrowings under ifrs but shown separately from
shareholders’ equity and liabilities under us gaap
v earnings per share eps – under us gaap  earnings per share are required to be adjusted retroactively as a result of the 43 for 49 
share consolidation related to the b share scheme accounted for as a share consolidation and a return of capital under ifrs the
b share scheme is accounted for as an insubstance share repurchase at fair value with eps being impacted prospectively from the
transaction date and no restatement of prior periods in accordance with ias 33
restricted net assets
national grid usa and its public utility subsidiaries all consolidated subsidiaries of the group are subject to restrictions on the payment
of dividends by administrative order and contract orders by the sec the federal energy regulatory commission and applicable state
regulatory commissions limit the payment of dividends as follows the subsidiaries may pay dividends in an amount up to cumulative
retained earnings including preacquisition retained earnings other orders by federal and state commissions require national grid usa
and its public utility subsidiaries to maintain a ratio of at least 30 equity to capital and debt covenants in effect require that this ratio
be maintained at a level of at least 35 at 31 march 2006 £25bn of net assets were restricted representing 26 of the group’s
consolidated net assets under us gaap at that date
annual report and accounts 200506
national grid
group financial statements 155
note 37 continued 37 differences between ifrs and us generally accepted accounting principles continued
new us accounting standards adopted during 200506
fin 47
fasb interpretation no 47 ‘accounting for conditional asset retirement obligations’ fin 47 clarifies that the term ‘conditional asset
retirement obligation’ as used in sfas no 143 ‘accounting for asset retirement obligation’ sfas 143 refers to a legal obligation to
perform an asset retirement activity in which the timing andor 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 group accounts
recent us pronouncements not yet adopted
sfas 123r
in december 2004 the fasb issued fasb statement no 123 revised 2004 ‘sharebased payment’ sfas 123r which is a revision
of fasb statement no 123 ‘accounting for stockbased compensation’ sfas 123 sfas 123r supersedes apb opinion no 25
‘accounting for stock issued to employees’ and amends fasb statement no 95 ‘statement of cash flows’ generally the approach
in sfas 123r is similar to the approach described in sfas 123 however sfas 123r requires all sharebased 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 the group expects to adopt sfas 123r as of 1 april 2006
sfas 123r permits adoption of the requirements using one of two methods a ‘modified prospective’ method where the requirements
are applied to all sharebased payments granted after the effective date of the pronouncement or a ‘modified retrospective’ method
which allows entities to restate prior periods based on the amounts previously recognised under sfas 123 for the purposes of pro
forma disclosures the group plans to adopt sfas 123r using the modified prospective method
the group adopted the fairvalue based method of accounting for sharebased payments using the ‘retroactive restatement method’
described in fasb statement no 148 ‘accounting for stockbased compensation – transition and disclosure’ currently the group
uses the blackscholes european option pricing model to estimate the value of stock options granted to employees and expects to
continue to use this acceptable option valuation model upon the required adoption of sfas 123r on 1 april 2006 the group does not
anticipate that adoption of sfas 123r will have a material impact on its results of operations or its financial position
sfas 151
the fasb issued sfas no 151 ‘inventory costs – an amendment of arb no 43’ sfas no 151 clarifies the accounting for abnormal
amounts of idle facility expense freight handling costs and wasted materials spoilage as current period charges sfas no 151 is
effective for fiscal periods beginning after 15 june 2005 the group does not believe that the adoption of sfas no 151 will have a
material effect on its accounts
sfas 153
in december 2004 as part of the fasb’s shortterm convergence project with the international accounting standards board the fasb
issued fasb statement no 153 ‘exchanges of nonmonetary assets’ sfas 153 which is an amendment to apb opinion no 29
‘accounting for nonmonetary transactions’ apb 29 apb 29 provided an exemption to its general principle of measuring such
transactions at fair value where the exchange related to similar productive assets the exemption permitted the exchange to be valued
at the recorded amount of the assets relinquished sfas 153 removes this exemption so that all nonmonetary transactions apart from
those without commercial substance are recorded at fair value the group expects to adopt sfas 153 prospectively for all transactions
taking place after 1 april 2006 the impact of the adoption of sfas 153 cannot be predicted at this time because it will depend on
whether applicable nonmonetary transactions take place after the effective date
sfas 154
in may 2005 the fasb issued sfas no 154 ‘accounting changes and error corrections – a replacement of apb opinion no 20 and
fasb statement no 3’ sfas no 154 requires retrospective application of prior periods’ financial statements for changes in accounting
principle sfas no 154 applies to accounting periods beginning after 15 december 2005 the group does not believe that the
adoption of sfas no 154 will have a material effect on its accounts
sfas 155
in february 2006 the fasb issued sfas no 155 ‘accounting for certain hybrid financial instruments – an amendment of sfas no 133 
and sfas no 140’ sfas no 155 provides clarification on specific points related to derivative accounting it provides a fair value
measurement option for certain hybrid financial instruments that contain embedded derivatives that would otherwise require bifurcation 
it also requires that beneficial interests in securitised financial assets be analysed to determine whether they are freestanding derivatives
or whether they are hybrid instruments that contain embedded derivatives requiring bifurcation sfas no 155 is effective for fiscal 
years beginning after 15 september 2006 the group does not believe that the adoption of sfas no 155 will have a material effect 
on its accounts
156 group financial statements
note 37 continued 
annual report and accounts 200506
national grid 38 condensed us gaap financial information
as described in note 37 the october 2002 business combination of national grid group plc and lattice group plc continues to be
accounted for as a merger pooling of interests in the ifrs financial statements and as an acquisition purchase accounting under us
gaap the different treatments result in the ifrs financial statements being fundamentally different compared with the amounts
presented under us gaap due to these differences condensed us gaap financial information is presented to show more clearly the
operating and financial position that would have been reported under us gaap
condensed us gaap income statement
2006 2006
national 2006 national
grid us gaap grid
ifrs adjustments us gaap
£m £m £m
turnover 9193 23 9216
other operating income 80 30 50
operating costs
depreciation 895 122 1017
payroll and severance costs 892 41 933
purchases of electricity 1977 116 2093
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 1501 344 1845
6834 622 7456
operating profit 2439 629 1810
net finance costs 663 88 751
share of posttax results of joint ventures 3 3 –
profit before taxation 1779 720 1059
taxation 562 214 348
profit for the year 1217 506 711
minority interests 2 1 3
interest in equity accounted affiliates net of tax of £nil 33
net income from continuing operations 1215 504 711
net income from discontinued operations net of tax of £237m credit 2633 2037 596
net income for the year 3848 2541 1307
basic earnings per share under us gaap pence – continuing operations 262p
diluted earnings per share under us gaap pence – continuing operations 261p
basic earnings per ads under us gaap pence – continuing operations 1310p
diluted earnings per ads under us gaap pence – continuing operations 1305p
basic earnings per share under us gaap pence – discontinued operations 220p
diluted earnings per share under us gaap pence – discontinued operations 219p
basic earnings per ads under us gaap pence – discontinued operations 1100p
diluted earnings per ads under us gaap pence – discontinued operations 1095p
basic earnings per share under us gaap pence – total group 482p
diluted earnings per share under us gaap pence – total group 480p
basic earnings per ads under us gaap pence – total group 2410p
diluted earnings per ads under us gaap pence – total group 2400p
weighted average number of shares in issue million – for basic eps 2710
weighted average number of shares in issue million – for diluted eps 2724
annual report and accounts 200506
national grid
group financial statements 157
note 38 38 condensed us gaap financial information continued
condensed us gaap income statement continued
2005 2005
national 2005 national
grid us gaap grid
ifrs adjustments us gaap
£m £m £m
turnover 7382 42 7424
other operating income 70 31 39
operating costs
depreciation 774 191 965
payroll and severance costs 919 54 865
purchases of electricity 1496 182 1678
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 1016 30 1046
5310 349 5659
operating profit 2142 338 1804
net finance costs 706 246 460
share of posttax results of joint ventures 3 3 –
profit before taxation 1439 95 1344
taxation 319 16 303
profit for the year 1120 79 1041
minority interests – 2 2
interest in equity accounted affiliates net of tax of £2m 2 2
net income from continuing operations 1120 83 1037
net income from discontinued operations net of tax of £128m charge 304 37 267
net income for the year 1424 120 1304
basic earnings per share under us gaap pence – continuing operations i 383p
diluted earnings per share under us gaap pence – continuing operations i 381p
basic earnings per ads under us gaap pence – continuing operations i 1915p
diluted earnings per ads under us gaap pence – continuing operations i 1907p
basic earnings per share under us gaap pence – discontinued operations i 99p
diluted earnings per share under us gaap pence – discontinued operations i 98p
basic earnings per ads under us gaap pence – discontinued operations i 495p
diluted earnings per ads under us gaap pence – discontinued operations i 490p
basic earnings per share under us gaap pence – total group i 482p
diluted earnings per share under us gaap pence – total group i 479p
basic earnings per ads under us gaap pence – total group i 2410p
diluted earnings per ads under us gaap pence – total group i 2395p
weighted average number of shares in issue million – for basic eps i 2705
weighted average number of shares in issue million – for diluted eps i 2719
i restated as a result of the 43 for 49 share consolidation related to the return of capital via the b share scheme
consolidated statement of comprehensive income and changes in shareholders’ equity under us gaap
2006 2005
£m £m
net income 1307 1304
additional minimum pension liability net of tax of £82m and £16m 168 33
exchange adjustments i 368 80
marktomarket of financial instruments net of tax of £nil and £43m 3 111
comprehensive income 1846 1368
dividends 745 628
other shares issued 28 9
share options granted 17 16
return of capital to shareholders through b share scheme 2009 –
movement in treasury stock 19 5
shareholders’ equity at 1 april 10591 9821
shareholders’ equity at 31 march 9747 10591
i included within exchange adjustments is £91m relating to losses on net investment hedges during the year
158 group financial statements
note 38 continued
annual report and accounts 200506
national grid 38 condensed us gaap financial information continued
condensed us gaap balance sheet
2006 2005
£m £m
assets
current assets
cash and cash equivalents i 1466 285
marketable securities i 384 396
accounts and notes receivable 838 553
inventories 108 101
regulatory assets 246 443
prepaid expenses and other current assets 612 599
total current assets 3654 2377
property plant and equipment cost 30738 34282
property plant and equipment accumulated depreciation 10503 10022
20235 24260
goodwill cost 4927 6156
goodwill accumulated amortisation and impairments 96 97
4831 6059
intangible assets 390 272
investments 160 152
regulatory assets 2805 2907
other receivables 212 1247
total assets 32287 37274
liabilities and shareholders’ equity
current liabilities
bank overdrafts 3 18
accounts payable 2097 1111
shortterm borrowings 2612 3229
accrued income taxes 419 79
other accrued liabilities 165 1416
total current liabilities 5296 5853
longterm borrowings 9838 11475
postretirement benefits 1348 1515
deferred income taxes 4063 5475
other liabilities 1954 2327
total liabilities 22499 26645
minority interest – equity 11 10
cumulative preference stock issued by group undertakings 30 28
shareholders’ equity
common stock par value £01139 per share shares authorised 4390m shares issued 2006 2720m 2005 3090m 310 309
additional paid in capital 7837 7793
other reserves 359 359
retained earnings 1920 3377
accumulated comprehensive loss 679 1218
treasury stock – 29
shareholders’ equity 9747 10591
total liabilities and shareholders’ equity 32287 37274
i a reclassification of £240m for the comparative period has been made between cash and cash equivalents and marketable securities
accumulated comprehensive loss can be analysed as follows
2006 2005
£m £m
cumulative translation adjustment 453 853
additional minimum pension liability 370 618
unrealised gains on derivatives 9 9
unrealised gains on availableforsale investments 7 4
taxation 124 236
other 4 4
679 1218
annual report and accounts 200506
national grid
group financial statements 159
note 38 continued 38 condensed us gaap financial information continued
segmental information under us gaap
segments have been determined in accordance with sfas 131 and segmented financial information has been presented in accordance
with us gaap
2006 2005
£m £m
revenue by business segment
continuing operations
uk electricity and gas transmission 2667 1937
us electricity transmission 306 283
uk gas distribution 1217 1113
us electricity and gas distribution 3759 3112
us stranded cost recoveries 556 420
wireless infrastructure 325 208
other activities 683 844
sales between businesses 297 493
group revenue – continuing operations 9216 7424
operating profit by business segment
continuing operations
uk electricity and gas transmission 710 711
us electricity transmission 121 121
uk gas distribution 360 315
us electricity and gas distribution 371 356
us stranded cost recoveries 124 121
wireless infrastructure 66 4
other activities 58 176
operating profit – continuing operations 1810 1804
revenue and operating profit in the other activities segment relates primarily to the uk
property plant and equipment
2006 2005
£m £m
analysis by business segment
uk electricity and gas transmission 7110 6642
us electricity transmission 1339 1176
uk gas distribution 5457 10479
us electricity and gas distribution 3826 3401
us stranded cost recoveries – 7
wireless infrastructure 662 681
other activities 1841 1874
20235 24260
analysis by geographical region
uk 14667 19350
us 5219 4633
rest of the world 349 277
20235 24260
goodwill
uk electricity us electricity us stranded
and gas us electricity uk gas and gas cost wireless other
transmission transmission distribution distribution recoveries infrastructure activities total
£m £m £m £m £m £m £m £m
1 april 2004 756 348 2990 1354 – 83 74 5605
exchange adjustments – 11 – 44 – 3 – 58
additions – – – – – 512 – 512
1 april 2005 756 337 2990 1310 – 592 74 6059
exchange adjustments – 29 – 116 – 5 – 150
disposals – – 1369 – – – – 1369
adjustments to provisional fair value – – – – – 9 – 9
31 march 2006 756 366 1621 1426 – 588 74 4831
160 notes to the accounts
note 38 continued
annual report and accounts 200506
national grid 39 national grid gas plc additional us gaap disclosures
the following condensed consolidating financial information comprising income statements balance sheets and cash flow statements is
given in respect of national grid gas plc subsidiary guarantor which became joint full and unconditional guarantor on 11 may 2004 with
national grid plc parent guarantor of the 6625 guaranteed notes due 2018 issued in june 1998 by british transco finance inc then
known as british gas finance inc issuer of notes national grid gas plc and british transco finance inc are whollyowned subsidiaries
of national grid plc
the following financial information for national grid plc national grid gas plc and british transco finance inc on a condensed
consolidating basis is intended to provide investors with meaningful and comparable financial information and is provided pursuant to
rule 310 of regulation sx in lieu of the separate financial statements of each subsidiary issuer of public debt securities
in addition the financial information for national grid plc is provided pursuant to rule 408e of regulation sx this parent company
only financial information should be read in conjunction with the company’s financial statements and footnotes presented in our 200506
annual report and accounts
summary income statements are presented on a consolidating basis for the two years ended 31 march 2006 summary income
statements of national grid plc and national grid gas plc are presented under us gaap measurement principles as modified by the
inclusion of the results of subsidiary undertakings on the basis of equity accounting principles
the summary balance sheets of national grid plc and national grid gas plc include the investments in subsidiaries recorded under the
equity method for the purposes of presenting condensed consolidating financial information under us gaap the us gaap summary
balance sheets present these investments within ‘investments’
the consolidation adjustments column includes the necessary amounts to eliminate the intercompany balances and transactions
between national grid plc national grid gas plc british transco finance inc and other subsidiaries
annual report and accounts 200506
national grid
notes to the accounts 161
note 39 39 national grid gas plc additional us gaap disclosures continued
summary income statement for the year ended 31 march 2006 – us gaap
parent issuer of subsidiary
guarantor notes guarantor
national british national national
grid transco grid gas other consolidation grid
plc finance inc plc subsidiaries adjustments group
£m £m £m £m £m £m
turnover 1 – 2261 7317 363 9216
other operating income – – 4 46 – 50
operating costs
depreciation – – 492 525 – 1017
payroll and severance costs – – 282 651 – 933
purchases of electricity – – – 2093 – 2093
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 1663 795 1845
– – 2079 6172 795 7456
operating profit 1 – 186 1191 432 1810
net finance costs 29 – 215 507 – 751
dividends receivable –––310310–
profit before taxation 28 – 29 994 122 1059
taxation 42 – 64 326 – 348
profit for the year 14 – 93 668 122 711
minority interests – – – 3 – 3
interest in equity accounted affiliates 697 – 452 3 1149 3
net income from continuing operations 711 – 359 668 1027 711
net income from discontinued operations 596 – 546 62 608 596
net income for the year 1307 – 905 730 1635 1307
summary income statement for the year ended 31 march 2005 – us gaap
parent issuer of subsidiary
guarantor notes guarantor
national british national national
grid transco grid gas other consolidation grid
plc finance inc plc subsidiaries adjustments group
£m £m £m £m £m £m
turnover 1 – 2041 5896 514 7424
other operating income –– 2 37– 39
operating costs
depreciation – – 497 468 – 965
payroll and severance costs 2 – 276 587 – 865
purchases of electricity – – – 1678 – 1678
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 – 3276 1091 3350 1046
31 – 4290 4688 3350 5659
operating profit 30 – 2247 1245 2836 1804
net finance costs 123 – 443 146 6 460
dividends receivable – – – 500 500 –
profit before taxation 93 – 2690 1599 2342 1344
taxation 20 – 32 249 2 303
profit for the year 73 – 2722 1350 2340 1041
minority interests – – – 2 – 2
interest in equity accounted affiliates 1231 – 2930 2 4161 2
net income from continuing operations 1304 – 208 1346 1821 1037
net income from discontinued operations – – 267 – – 267
net income for the year 1304 – 475 1346 1821 1304
162 notes to the accounts
note 39 continued
annual report and accounts 200506
national grid 39 national grid gas plc additional us gaap disclosures continued
balance sheet as at 31 march 2006 – us gaap
parent issuer of subsidiary
guarantor notes guarantor
national british national national
grid transco grid gas other consolidation grid
plc finance inc plc subsidiaries adjustments group
£m £m £m £m £m £m
assets
current assets
cash and cash equivalents 1046 1 221 212 14 1466
marketable securities – – 35 349 – 384
accounts and notes receivable 16 3 171 648 – 838
inventories – – 23 85 – 108
amounts owed by group undertakings 7093 – 5722 4529 17344 –
regulatory assets – – – 246 – 246
prepaid expenses and other current assets 64 – – 548 – 612
total current assets 8219 4 6172 6617 17358 3654
property plant and equipment – – 8983 11287 35 20235
goodwill – – 2377 2454 – 4831
intangible assets – – 33 357 – 390
investments 5209–521632321424160
amounts owed by group undertakings – 157 – – 157 –
regulatory assets – – – 2805 – 2805
other receivables 79 – 3 130 – 212
total assets 13507 161 17620 39973 38974 32287
liabilities and shareholders’ equity
current liabilities
bank overdrafts 14 – – 3 14 3
accounts payable – – 342 1755 – 2097
shortterm borrowings 114 4 723 1771 – 2612
accrued income taxes – – 70 349 – 419
amounts owed to group undertakings 1813 – 920 14611 17344 –
other accrued liabilities 63 – 83 96 77 165
total current liabilities 2004 4 2138 18585 17435 5296
longterm borrowings 1741 157 1958 5982 – 9838
amounts owed to group undertakings – – – 157 157 –
postretirement benefits – – – 1348 – 1348
deferred income taxes 15 – 2151 1897 – 4063
other liabilities – – 172 1782 – 1954
total liabilities 3760 161 6419 29751 17592 22499
minority interest – equity –– – 11– 11
cumulative preference stock issued by group undertakings – – – 30 – 30
shareholders’ equity
common stock 310 – 45 541 586 310
additional paid in capital 7837 – 9680 8072 17752 7837
other reserves 359 – – – – 359
retained earnings 1920 – 1476 1568 3044 1920
accumulated comprehensive loss 679 – – – – 679
treasury stock – – – – – –
shareholders’ equity 9747 – 11201 10181 21382 9747
total liabilities and shareholders’ equity 13507 161 17620 39973 38974 32287
annual report and accounts 200506
national grid
notes to the accounts 163
note 39 continued 39 national grid gas plc additional us gaap disclosures continued
balance sheet as at 31 march 2005 – us gaap
parent issuer of subsidiary
guarantor notes guarantor
national british national national
grid transco grid gas other consolidation grid
plc finance inc plc subsidiaries adjustments group
£m £m £m £m £m £m
assets
current assets
cash and cash equivalents 118 – 4 163 – 285
marketable securities – – 200 396 200 396
accounts and notes receivable – – 37 516 – 553
inventories – – 30 71 – 101
amounts owed by group undertakings 10695 – 72 4529 15296 –
regulatory assets – – – 443 – 443
prepaid expenses and other current assets 2 – 264 333 – 599
total current assets 10815 – 607 6451 15496 2377
property plant and equipment – – 13950 10317 7 24260
goodwill – – 3746 2313 – 6059
intangible assets – – – 272 – 272
investments 3332–16051631421099152
amounts owed by group undertakings 9 178 2644 840 3671 –
regulatory assets – – – 2907 – 2907
other receivables 226 – 151 870 – 1247
total assets 14382 178 22703 40284 40273 37274
liabilities and shareholders’ equity
current liabilities
bank overdrafts – – – 18 – 18
accounts payable – – 342 769 – 1111
shortterm borrowings 792 – 1233 1204 – 3229
accrued income taxes – – 22 57 – 79
amounts owed to group undertakings 1752 – 2777 10695 15224 –
other accrued liabilities 63 – 552 878 77 1416
total current liabilities 2607 – 4926 13621 15301 5853
longterm borrowings 1168 178 2811 7591 273 11475
amounts owed to group undertakings – – 840 2831 3671 –
postretirement benefits – – – 1515 – 1515
deferred income taxes 8 – 3421 2046 – 5475
other liabilities 8 – 158 2161 – 2327
total liabilities 3791 178 12156 29765 19245 26645
minority interest – equity –– – 10– 10
cumulative preference stock issued by group undertakings – – – 28 – 28
shareholders’ equity
common stock 309 – 45 2191 2236 309
additional paid in capital 7793 – 9680 8072 17752 7793
other reserves 359 – – – – 359
retained earnings 3377 – 822 1357 2179 3377
accumulated comprehensive loss 1218 – – 1110 1110 1218
treasury stock 29 – – 29 29 29
shareholders’ equity 10591 – 10547 10481 21028 10591
total liabilities and shareholders’ equity 14382 178 22703 40284 40273 37274
a reclassification of £240m for 2005 has been made between cash and cash equivalents and marketable securities
164 notes to the accounts
note 39 continued
annual report and accounts 200506
national grid 39 national grid gas plc additional us gaap disclosures continued
cash flow statements – us gaap
parent issuer of subsidiary
guarantor notes guarantor
national british national national
grid transco grid gas other consolidation grid
plc finance inc plc subsidiaries adjustments group
£m £m £m £m £m £m
year ended 31 march 2006
net cash provided byused in operating activities – continuing operations 9 1 1501 1586 802 2277
net cash used in operating activities – discontinued operations – – 57 – – 57
net cash provided byused in operating activities 9 1 1444 1586 802 2220
net cash used in investing activities – continuing operations – – 681 1034 – 1715
net cash provided by investing activities – discontinued operations – – 5635 – – 5635
net cash provided byused in investing activities – – 4954 1034 – 3920
net cash used inprovided by financing activities 937 – 6181 517 788 4973
increase in cash and cash equivalents in the year 928 1 217 35 14 1167
year ended 31 march 2005
net cash provided byused in operating activities – continuing operations 1108 1 3594 1855 4522 2034
net cash provided by operating activities – discontinued operations – – 449 – – 449
net cash provided byused in operating activities 1108 1 4043 1855 4522 2483
net cash used in investing activities – continuing operations 273 – 5126 1966 4763 2602
net cash used in investing activities – discontinued operations – – 323 – – 323
net cash used in investing activities 273 – 5449 1966 4763 2925
net cash provided byused in financing activities 723 – 1336 68 241 440
increasedecrease in cash and cash equivalents in the year 112 1 70 43 – 2
cash dividends were received by national grid plc from consolidated subsidiaries amounting to £nil during the year ended 31 march 2006
2005 £1139m
annual report and accounts 200506
national grid
notes to the accounts 165
note 39 continued company accounting policies 
a basis of preparation of company financial statements
these company financial statements have been prepared in
accordance with applicable uk accounting and financial reporting
standards and the companies act 1985
the company financial statements have been prepared on 
a historical cost basis except for the revaluation of financial
instruments from 1 april 2005 onwards
these company financial statements are presented in pounds
sterling because that is the currency of the primary economic
environment in which the company operates
the company has not presented its own profit and loss account
as permitted by section 230 of the companies act 1985 the
company has taken the exemption from preparing a cash flow
statement under the terms of frs 1 revised 1996 ‘cash flow
statements’
the preparation of financial statements requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities disclosures of contingent assets
and liabilities and the reported amounts of revenue and expenses
during the reporting period actual results could differ from 
these estimates
the company has adopted frs 21 ‘events after the balance
sheet date’ frs 23 ‘the effects of changes in foreign
exchange rates’ frs 25 ‘financial instruments disclosure and
presentation’ and frs 26 ‘financial instruments measurement’
the company has also adopted frs 29 ‘financial instruments
disclosures’ which replaces the disclosure requirements of frs
25 the impact of the adoption of these standards is shown 
in note 1
b fixed asset investments
investments held as fixed assets are stated at cost less any
provisions for impairment impairments are calculated such that
the carrying value of the fixed asset investment is the lower of its
cost or recoverable amount recoverable amount is the higher of
its net realisable value and its value in use
c deferred taxation
deferred taxation is provided in full on all material timing
differences with certain exceptions no provision for deferred
taxation is made for any timing differences on nonmonetary
assets arising from fair value adjustments except where there is 
a binding agreement to sell the assets concerned however no
provision is made where it is more likely than not that any taxable
gain will be rolled over into replacement assets
deferred tax assets are only recognised to the extent that they
are considered recoverable
deferred tax balances have not been discounted
d financial instruments
financial assets liabilities and equity instruments are classified
according to the substance of the contractual arrangements
entered into an equity instrument is any contract that evidences
a residual interest in the assets of the company after deducting
all of its liabilities and is recorded at the proceeds received net of
direct issue costs 
trade receivables do not carry any interest and are stated at their
nominal value as reduced by appropriate allowances for estimated
irrecoverable amounts trade payables are not interest bearing
and are stated at their nominal value 
interestbearing loans and overdrafts are recorded at the proceeds
received net of direct issue costs plus accrued interest less any
repayments prior to 1 april 2005 accrued interest is presented
as part of current liabilities and not combined with the principal
amounts payable
finance charges are recognised in the income statement in the
period in which they are incurred 
derivative financial instruments are recorded as described below
e hedge accounting and derivative financial instruments
the company enters into derivative financial instruments
‘derivatives’ in order to manage its interest rate and foreign
currency exposures the principal derivatives used include
interest rate swaps forward rate agreements currency swaps
forward foreign currency contracts and interest rate swaptions 
all derivative transactions are undertaken or maintained with a
view to providing a commercial hedge of the interest or currency
risks associated with the group’s underlying business activities
and the financing of those activities 
with effect from 1 april 2005 derivatives are carried in the
balance sheet at their fair value 
prior to 1 april 2005 derivatives used for hedging purposes 
were not recorded on the balance sheet as assets or liabilities
monetary assets and liabilities in foreign currencies were
retranslated at hedged rates instead of closing rates 
as permitted by the transition provisions of frs 26 prior year
adjustments have not been made to the balance sheet as at 
31 march 2005 or the profit and loss account for the year 
then ended to reflect the adoption of frs 26 ‘financial
instruments measurement’ 
from 1 april 2005 the accounting policy for hedge accounting 
is as described below disclosures on the impact of implementing
frs 26 at 1 april 2005 are set out in note 1 
166 company financial statements
company accounting policies
annual report and accounts 200506
national grid annual report and accounts 200506
national grid
changes in the carrying value of financial instruments that are
designated and effective as hedges of future cash flows ‘cash
flow hedges’ are recognised directly in equity and any ineffective
portion is recognised immediately in the income statement
amounts deferred in equity in respect of cash flow hedges are
subsequently recognised in the income statement in the same
period in which the hedged item affects net profit or loss 
changes in the carrying value of financial instruments that are
designated as hedges of the changes in the fair value of assets 
or liabilities ‘fair value hedges’ are recognised in the income
statement an equal and opposite amount is recorded as an
adjustment to the carrying value of hedged items with a
corresponding entry in the income statement to the extent that
the change is attributable to the risk being hedged and that the
fair value hedge is effective 
changes in the fair value of derivatives that do not qualify for
hedge accounting are recognised in the income statement as
they arise 
hedge accounting is discontinued when the hedging instrument
expires or is sold terminated exercised or no longer qualifies for
hedge accounting at that time any cumulative gains or losses
relating to cash flow hedges recognised in equity are initially
retained in equity and subsequently recognised in the income
statement in the same periods in which the previously hedged
item affects net profit or loss for fair value hedges the cumulative
adjustment recorded to its carrying value at the date hedge
accounting is discontinued is amortised to the income statement
using the effective interest rate method 
if a hedged transaction is no longer expected to occur the net
cumulative gain or loss recognised in equity is transferred to the
income statement immediately
derivatives embedded in other financial instruments or other host
contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of host contracts
and the host contracts are not carried at fair value with unrealised
gains or losses reported in the income statement
the notional amounts relating to financial instruments held to
manage interest rate and currency profiles for interest rate swaps
and forward rate agreements foreign currency contracts and
cross currency swaps at 31 march 2006 amounted to £2926m
and £3454m respectively
f parent company guarantees
the company has guaranteed the repayment of the principal and
any associated premium and interest on specific loans due from
certain group undertakings to third parties as these are
guarantees in the event of default or nonperformance by the
subsidiary the company accounts for these guarantees as
insurance contracts in accordance with frs 12
g sharebased payments
the group issues equitysettled sharebased payments to certain
employees detailed in the directors’ report the remuneration
report and in note 31 to the group accounts
equitysettled sharebased payments are measured at fair value
at the date of grant the company has no employees equity
settled sharebased payments that are made available to
employees of the company’s subsidiaries are treated as
increases in equity over the vesting period of the award with a
corresponding increase in the company’s investments in
subsidiaries based on the group’s estimate of the number of
shares that will eventually vest where payments are subsequently
received from subsidiaries these are accounted for as a disposal
of investment
h dividends
interim dividends are recognised when they are paid to the
company’s shareholders final dividends are recognised when
they are approved by shareholders
company financial statements 167
company accounting policies company balance sheet 
at 31 march 
2005
2006 restated i
notes £m £m
fixed assets
investments 2 2428 2428
2428 2428
current assets
debtors amounts falling due within one year 3 7109 10697
derivative financial instruments amounts falling due within one year 64 –
derivative financial instruments amounts falling due after more than one year 79 –
current asset investments 1046 118
8298 10815
creditors amounts falling due within one year
derivative financial instruments 21 –
borrowings 109 781
other creditors 1876 1764
4 2006 2545
net current assets 6292 8270
total assets less current liabilities 8720 10698
creditors amounts falling due after more than one year
derivative financial instruments 56 –
borrowings 1715 1020
other creditors – 8
5 1771 1028
provisions for liabilities and charges
deferred taxation 7 5 –
net assets employed 6944 9670
capital and reserves
called up share capital 8 310 309
share premium account 9 1316 1289
cash flow hedge reserve 9 7 –
other reserves 9 74 68
profit and loss account 9 5237 8004
equity shareholders’ funds 6944 9670
i during the year ended 31 march 2006 the company adopted frs 21 ‘events after the balance sheet date’ see note 1 to the company accounts ‘changes in accounting policies’ 
on page 169
commitments and contingencies are shown in note 10 to the company accounts on page 171
the notes on pages 169 to 171 form part of the company financial statements which were approved by the board of directors on 17
may 2006 and were signed on its behalf by
sir john parker chairman
steve lucas group finance director
168 company financial statements
company balance sheet
annual report and accounts 200506
national grid 1 changes in accounting policies
during the year the company has adopted frs 21 ‘events after the balance sheet date’ frs 23 ‘the effects of changes in foreign
exchange rates’ frs 25 ‘financial instruments disclosure and presentation’ frs 26 ‘financial instruments measurement’ and frs
29 ‘financial instruments disclosures’
frs 21 ‘events after the balance sheet date’
the adoption of frs 21 has resulted in a change to the timing of recognition of the company’s proposed final dividend previously such
dividends were recorded as a liability in the year in respect of which they were proposed by the board of directors for approval by the
shareholders in accordance with frs 21 such dividends are not recorded until approved the adoption of frs 21 has been reflected 
in the accounts as a prior year adjustment in accordance with frs 3 this has resulted in an increase in net assets as at 31 march 2005
of £469m and an increase in retained earnings for the year ended 31 march 2005 of £103m
frs 23 ‘the effects of changes in foreign exchange rates’
frs 25 ‘financial instruments disclosure and presentation’
frs 26 ‘financial instruments measurement’ 
frs 29 ‘financial instruments disclosures’ 
the adoption of frs 23 frs 25 frs 26 and frs 29 has resulted in a change to the accounting for the company’s financial
instruments derivative financial instruments and availableforsale investments are recorded in the balance sheet at fair value whilst
deferred gains and losses relating to items qualifying for hedge accounting are derecognised and instead 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 as
permitted by the transition provisions of frs 26 prior year adjustments have not been made to the balance sheet at 31 march 2005 or
to the profit and loss account for the year then ended 
the adoption of frs 23 frs 25 frs 26 and frs 29 reduced net assets at 1 april 2005 by £15m as shown below
£m
borrowings 213
derivative financial instruments 179
other assets and liabilities 19
net assets 15
it is not practical to calculate the impact of the adoption of frs 23 frs 25 frs 26 and frs 29 on the results for the year ended 
31 march 2006
2 fixed asset investments
group
undertakings
£m
at 1 april 2004 2275
additions 296
disposals 143
at 31 march 2005 2428
additions 6
disposals 6
at 31 march 2006 2428
the names of the principal group undertakings and joint ventures are included in note 36 to the group accounts
annual report and accounts 200506
national grid
company financial statements 169
notes 1 and 2 
notes to the company accounts 3 debtors
2006 2005
£m £m
amounts falling due within one year
amounts owed by group undertakings 7105 10695
prepayments and accrued income 4 2
7109 10697
4 creditors amounts falling due within one year
2005
2006 restated i
£m £m
derivative financial instruments 21 –
borrowings note 6 109 781
amounts owed to group undertakings 1856 1752
other creditors 20 12
2006 2545
i restated for adoption of frs 21 – see note 1 to the company accounts on page 169
5 creditors amounts falling due after more than one year
2006 2005
£m £m
derivative financial instruments 56 –
borrowings note 6 1715 1020
deferred income – 8
1771 1028
6 borrowings
the following table analyses the company’s total borrowings
2006 2005
£m £m
amounts falling due within one year
bank loans and overdrafts 27 89
commercial paper – 158
other bonds 27 534
other loans 55 –
109 781
amounts falling due after more than one year
other bonds 1715 1020
1715 1020
total borrowings 1824 1801
2006 2005
£m £m
total borrowings are repayable as follows
in one year or less 109 781
in more than two years but not more than three years 348 –
in more than three years but not more than four years – 298
in more than four years but not more than five years 37 –
in more than five years other than by instalments 1330 722
1824 1801
the notional amount of borrowings outstanding as at 31 march 2006 was £1835m
170 company financial statements
notes 3 4 5 and 6
annual report and accounts 200506
national grid annual report and accounts 200506
national grid
company financial statements 171
notes 7 8 9 and 10
7 provisions for liabilities and charges
deferred
taxation
£m
at 31 march 2005 –
first time adoption of frs 26 19
at 1 april 2005 19
credited to equity 14
at 31 march 2006 5
8 share capital
allotted and issued called up and fully paid
number £ millions £m
at 1 april 2004 3087603756 308760376 3088 309
issued during the year 2599199 259920 2 –
at 31 march 2005 3090202955 309020296 3090 309
issued during the year 8016297 898906 8 1
effect of share consolidation i 378520134 – 378 –
at 31 march 2006 2719699118 309919202 2720 310
i on 29 july 2005 the ordinary share capital was consolidated with 43 new ordinary shares of 11
17
⁄43 pence each issued for every 49 existing ordinary shares of 10 pence each cancelled
for further details on share capital see note 31 to the group accounts
9 reserves
share cash flow profit
premium hedge other and loss
account reserve reserves account
£m £m £m £m
at 31 march 2005 as originally reported 1289 – 68 7535
adoption of frs 21 i – – – 469
at 31 march 2005 restated 1289 – 68 8004
adoption of frs 26 – 39 7 47
at 1 april 2005 1289 39 61 7957
exchange adjustments – – 7 –
net loss transfered from equity in respect of cash flow hedges net of tax – 32 – –
ordinary shares issued during the year 27 – – –
employee option scheme issues –– 6–
return of capital to shareholders through b share scheme – – – 2009
retained loss for the year – – – 711
at 31 march 2006 1316 7 74 5237
i restated for the adoption of frs 21 – see note 1
the company has not presented its own profit and loss account as permitted by section 230 of the companies act 1985 the company’s
profit after taxation was £34m 2005 profit after tax £2652m of the company’s profit and loss account reserve of £5237m at 31 march
2006 £2581m relating to gains on intragroup transactions was not distributable to shareholders
10 commitments and contingencies
the company has guaranteed the repayment of principal sum any associated premium and interest on specific loans due from certain
group undertakings to third parties at 31 march 2006 the sterling equivalent amounted to £2082m 2005 £2019m the guarantees
are for varying terms between one month and 12 years
the company has also guaranteed the lease obligations of a former associate to a group undertaking amounting to £31m 2005 £37m 172 glossary of terms annual report and accounts 200506
national grid
glossary of terms
term used in annual report us equivalent or brief description
accounts financial statements
acquisition accounting purchase accounting
allotted issued
borrowings debt
called up share capital common stock issued and fully paid
capital allowances tax depreciation allowances
trade payables accounts payable
trade receivables accounts receivable
finance lease capital lease
financial year fiscal year
freehold ownership with absolute rights in perpetuity
freehold land land owned
group financial statements consolidated financial statements
joint venture equity investment
merger accounting pooling of interests
net asset value book value
operating profit net operating income
pension scheme pension plan
profit income or earnings
profit for the year net income
provision for doubtful debts allowance for bad and doubtful accounts receivable
provisions longterm liabilities other than debt and specific accounts payable
reconciliation of movements in total equity statement of changes in stockholders’ equity
equity reserves stockholders’ equity other than common stock
share capital ordinary shares capital stock or common stock issued and fully paid
share premium account additional paidin capital relating to proceeds of sale of stock in excess 
of par value or paidin surplus not distributable definitions
references in the annual report and accounts to the ‘company’
the ‘group’ ‘we’ ‘our’ and ‘us’ refer to national grid and its
subsidiaries
american depositary shares or adss
securities of national grid listed on the new york stock exchange
each of which represents the right to receive five ordinary shares
b shares
noncumulative preference shares of 10 pence nominal value each
combined code
the combined code on corporate governance as issued by the
financial reporting council
corporate centre
core group functions operating from the group’s head office
fas
us financial accounting standard
ferc
us federal energy regulatory commission
frs
uk financial reporting standard
gaap
generally accepted accounting principles
gw
gigawatt 10
9
watts
gwh
gigawatt hours
hse
health and safety executive
ias
international accounting standard
ifrs
international financial reporting standard
kpi
key performance indicator
kv
kilovolt 10
3
volts
kw
kilowatt 10
3
watts
kwh
kilowatt hours
lifetime allowance
the lifetime allowance is an overall ceiling on the amount of tax
privileged pension savings that any one individual can draw
lng
liquefied natural gas
lost time injury or lti
a workrelated injury that causes a person to be away from work
for at least one normal shift after the shift on which the injury
occurs because the person is unfit to perform his or her duties
mcm
million cubic metres
merger
the merger of lattice group plc and national grid group plc
which became effective on 21 october 2002
mw 
megawatt 10
6
watts
mwh
megawatt hours
national grid
national grid plc formerly national grid transco plc or as the
context requires the holding or main operating company of the
group at the time
national grid electricity transmission
national grid electricity transmission plc formerly national grid
company plc
national grid gas
national grid gas plc formerly transco plc
national grid wireless
national grid wireless limited formerly crown castle uk limited
ofcom
the office of communications
ofgem
the office of gas and electricity markets
ordinary shares
ordinary shares of 11
17
43 pence nominal value each
personal lifetime allowance
the lifetime allowance applicable to individuals who have
registered their pre 6 april 2006 pension benefits for protection
sec
us securities and exchange commission
tonnes co
2
equivalent
measure of greenhouse gas emissions in relation to the impact 
of carbon dioxide
tw
terawatt 10
12
watts
twh
terawatt hours
annual report and accounts 200506
national grid
definitions 173 summary group financial information
financial summary unaudited
the financial summary set out below has been derived from the audited consolidated accounts of national grid for the five financial
years ended 31 march 2006 it should be read in conjunction with the group accounts and related notes together with the operating
and financial review the information presented below for the years ended 31 march 2005 and 2006 has been prepared under ifrs as
adopted by the eu while the information for the years ended 31 march 2005 2004 2003 and 2002 has been presented under uk
gaap as no ifrs information has been prepared prior to the date of adoption of ifrs 1 april 2004
ifrs as previously measured under uk gaap
31 march 31 march 31 march 31 march 31 march 31 march
2006 2005 2005 2004 2003 2002
summary income statement £m £m £m £m £m £m
group revenue 9193 7382 8521 9033 9400 7554
operating profit
before exceptional items remeasurements and goodwill amortisation 2527 2443 2212 2213 2148 1764
exceptional items and remeasurements 88 301 251 277 350 1327
goodwill amortisation na na 109 99 102 97
2439 2142 1852 1837 1696 340
profit before tax
before exceptional items remeasurements and goodwill amortisation 1924 1740 1429 1391 1209 1107
exceptional items and remeasurements 145 301 168 45 480 1313
goodwill amortisation na na 109 99 102 97
1779 1439 1152 1337 627 303
profit for the year attributable to equity shareholders
before exceptional items remeasurements and goodwill amortisation 1368 1655 1106 1039 833 854
exceptional items and remeasurements 2480 231 89 134 380 1097
goodwill amortisation na na 109 99 102 97
3848 1424 908 1074 351 340
summary statement of net assets
noncurrent assets 22106 25596 19897 18394 18954 19582
current assets 3818 1964 4814 5003 5950 6568
total assets 25924 27560 24711 23397 24904 26150
current liabilities 5683 5974 5679 4147 4729 4530
noncurrent liabilities 16748 19465 17172 17613 18653 19523
total liabilities 22431 25439 22851 21760 23382 24053
net assets 3493 2121 1860 1637 1522 2097
summary cash flow statement
cash generated from operations
continuing operations 3131 2911 2909 2810 2826 2291
discontinued operations 20 547 na na na na
3111 3458 2909 2810 2826 2291
tax paid 140 150 150 18 112 212
net cash inflow from operations 2971 3308 2759 2792 2714 2079
net cash inflows fromused in investing activities 3922 2975 na na na na
dividends received from joint ventures na na 5 8 11 13
net cash outflow for capital expenditure and financial investment na na 1262 1254 1407 1483
net cash outflowinflow for acquisitions and disposals na na 1130 7 163 969
net cash outflowinflow for the management of liquid resources na na 54 48 138 347
net cash flows from financing activities 5712 325 na na na na
net cash outflow for returns on investments and servicing of finance na na 758 692 912 705
equity dividends paid na na 628 560 571 478
net cash inflowoutflow from financing activities na na 1081 240 174 1218
net increase in cash and cash equivalents uk gaap – cash only 1181 813133422
31 march 31 march 31 march 31 march 31 march
2006 2005 2004 2003 2002
amounts in accordance with us gaap £m £m £m £m £m
group revenues 9216 7424 7761 6741 4004
net incomeloss 1307 1304 998 751 167
earningsloss per ads
basic 2410p 2410p 1852p 1818p 621p
diluted 2400p 2395p 1846p 1772p 496p
total assets 32287 37274 35347 36947 17727
net assets employedtotal shareholders’ funds 9788 10629 9875 9515 3862
equity shareholders’ funds 9747 10591 9821 9426 3759
174 summary group financial information annual report and accounts 200506
national grid shareholder information
duplicate accounts
if you received two or more copies of the annual report and
accounts and multiple cheques for each dividend payment 
you will have more than one shareholder account
to receive just one annual report and accounts and one cheque
for each dividend payment please contact capita registrars and
ask to amalgamate your accounts
dividends
national grid normally pays dividends twice each year an interim
dividend in january and a final dividend in august
choosing to have dividends paid directly into your chosen bank
or building society account means that money will be available
on the day of payment there will be no delay paying cheques into
your account cheques cannot be lost and a tax voucher is still
provided for your records
over 530000 national grid shareholders already choose to have
dividends paid to them directly to request direct payment of your
dividends please contact capita registrars
dividend reinvestment plan
a dividend reinvestment plan drip has now been introduced
that will allow participating shareholders to use dividend
payments to purchase additional shares in national grid the
drip will begin operation from the payment of the 200506 
final dividend payment in august 2006 shareholders wishing 
to participate should contact capita registrars
electronic communication
instead of receiving bulky paper documents through the post 
you can choose to receive an email notifying you of the electronic
availability of national grid’s annual report and accounts
all shareholders choosing the electronic annual report and
accounts will receive a certificate recognising their support of
national grid’s climate saver programme managed by the
carbonneutral company
to apply for electronic documents and to see details of the
climate saver programme please visit the group website at
wwwnationalgridcom
share dealing
a lowcost share dealing service is available from capita
registrars allowing you to buy and sell national grid shares by
telephone and online trading by telephone or online allows you
to know the price of the shares at the time you deal
for more information please call 0870 458 4577 8am – 430pm
or visit wwwcapitadealcom
a postal dealing service is also available for a postal dealing
form please call 0870 162 3116
these details are provided for information only and any action you
take is at your own risk if you have any doubt as to the action
you should take you are recommended to seek your own financial
advice from your stockbroker bank manager accountant or other
independent financial adviser authorised pursuant to the financial
services and markets act 2000
individual savings accounts isas
isas for national grid shares are available from stocktrade
options include national grid maxi stocks and shares isa and
national grid mini stocks and shares isa further information 
may be obtained from the account manager 
stocktrade 
81 george street 
edinburgh eh2 3es
telephone 0131 240 0443
website
wwwstocktradecoukngtsharedealingsharedealingmainhtm
you may also consolidate other peps and isas by transferring
them to your national grid account
national grid cannot advise you on what action if any you
should take
sharegift
if you hold only a few shares and feel that it would be
uneconomical or just not worthwhile to sell them you could
consider donating your shares to charity
sharegift is an independent registered charity no 1052686 that
provides a free service for shareholders wishing to give small
holdings of shares to benefit charitable causes there are no
capital gains tax implications ie no gain or loss on gifts of shares
to charity and it is also possible to obtain income tax relief since
its launch in 1996 sharegift has been able to give millions of
pounds to hundreds of different uk charities
further information can be obtained at wwwsharegiftorg or from
capita registrars
shareholder networking
national grid continues to operate its shareholder networking
programme allowing shareholders to learn more about the
business by visiting operational sites and meeting directors
senior managers and staff
these visits allow us to explain the business to shareholders 
in person and for shareholders to ask any questions about 
the group this year’s visit is planned for early december
if you would like to take part in this visit please write to
shareholder networking organiser
national grid house
warwick technology park
gallows hill
warwick cv34 6da
participants will be selected from those applying with priority
given to those who have not previously attended
annual report and accounts 200506
national grid
shareholder information 175 annual report and accounts 200506
national grid
176 shareholder information
queries – ordinary shareholders
any queries from holders of ordinary shares should be directed to
capita registrars
national grid share register
capita registrars
northern house
woodsome park
fenay bridge
huddersfield hd8 0la
telephone 0870 242 2379 
from outside the uk 44 20 7098 1198
textphone 18001 0870 242 2379
fax 0870 240 1286 
from outside the uk 44 1484 600 702
email nationalgridcapitaregistrarscom
website wwwnationalgridcomshareholders
queries – american depositary shares
any queries from holders of american depositary shares should
be directed to the bank of new york
the bank of new york
shareholders correspondence
po box 11258
church street station
new york ny 102861258
telephone 18004667215 
for international calls 12128153700
email shareownersbankofnycom
website wwwadrbnycom
share price
the following graph shows the movement of national grid’s share
prices during the 200506 financial year
financial calendar
the following dates have been announced or are indicative 
of future dates
7 june 2006 ordinary shares exdividend
9 june 2006 ordinary share 200506 final dividend record date
12 july 2006 drip application deadline 200506 final dividend
31 july 2006 2006 annual general meeting
7 aug 2006 b share continuing dividend payment date
8 aug 2006 further repurchase of b shares as elected
23 aug 2006 ordinary share 200506 final dividend payment date 
16 nov 2006 200607 interim results
29 nov 2006 ordinary shares exdividend
1 dec 2006 ordinary share 200607 interim dividend record date
8 dec 2006 drip application deadline 200607 interim dividend
24 jan 2007 ordinary share 200607 interim dividend payment date 
may 2007 200607 preliminary results
june 2007 ordinary shares exdividend
june 2007 ordinary share 200607 final dividend record date
july 2007 drip application deadline 200607 final dividend
july 2007 2007 annual general meeting
aug 2007 b share continuing dividend payment date
aug 2007 final repurchase of b shares as elected
aug 2007 conversion of remaining b shares
aug 2007 ordinary shares 200607 final dividend payment date 
website
more information about national grid is available on the group
website at wwwnationalgridcom and includes current and
historical share price information previous annual reports and
accounts and information about each of the group businesses
0104
2005
0107
2005
0111
2005
3103
2006
650
630
610
590
570
550
530
510
490
470
450
60
58
56
54
52
50
48
46
44
42
40
ads price us ordinary share price pence 
us    pence cautionary statement
this document contains certain statements that are neither reported
financial results nor other historical information these statements 
are forwardlooking statements within the meaning of section 27a 
of the securities act of 1933 as amended and section 21e of 
the securities exchange act of 1934 as amended because these
forwardlooking statements are subject to assumptions risks and
uncertainties actual future results may differ materially from those
expressed in or implied by such statements many of these
assumptions risks and uncertainties relate to factors that are 
beyond our ability to control or estimate precisely such as delays in
obtaining or adverse conditions contained in regulatory approvals
and contractual consents including those required to complete 
the announced us acquisitions when or as planned unseasonable
weather affecting demand for electricity and gas competition and
industry restructuring changes in economic conditions currency
fluctuations changes in interest and tax rates changes in energy
market prices changes in historical weather patterns changes 
in laws regulations or regulatory policies developments in legal 
or public policy doctrines the impact of changes to accounting
standards and technological developments other factors that could
cause actual results to differ materially from those described in this
document include the ability to integrate the businesses relating to the
announced us acquisitions with the group and realise the expected
synergies from such integration the availability of new acquisition
opportunities and the timing and success of future acquisition
opportunities the impact of the sales of businesses by the group 
the failure for any reason to achieve reductions in costs or to achieve
operational efficiencies the failure to retain key management the
behaviour of uk electricity market participants on system balancing
the timing of amendments in prices to shippers in the uk gas market
the performance of our pension schemes and the regulatory treatment
of pension costs and any adverse consequences arising from
outages on or otherwise affecting energy networks including gas
pipelines which we own or operate for a more detailed description
of some of these assumptions risks and uncertainties together with
any other risk factors please see our filings with and submissions 
to the us securities and exchange commission and in particular 
the “risk factors” and “operating and financial review” sections 
in our most recent annual report on form 20f readers are
cautioned not to place undue reliance on these forwardlooking
statements which speak only as of the date of this document 
except as required by law or regulation national grid does not
undertake any obligation to release publicly any revisions to these
forwardlooking statements to reflect events or circumstances after
the date of this document
the paper in this document contains a mixture of recycled pulps and fibre 
from fsc certified forests
the paper was produced at a mill with iso 9001 iso 14001 and
fsc accreditation
designed and produced by corporate edge
printed by st ives  national grid plc
13 strand london wc2n 5eh united kingdom
registered in england and wales no 4031152
uk shareholder enquiries 0870 242 2379
us shareholder enquiries 18004667215
wwwnationalgridcom
  safety reliability
efficiency responsibility
annual review 200506 annual review 200506
national grid
01 highlights
02 chairman’s statement
04 group chief executive’s review
06 business review
06 what we do
08 where we are
09 our history
10 safety
12 reliability
14 efficiency
16 responsibility
18 board of directors
20 summary operating and 
financial review
22 summary corporate governance
22 summary directors’ 
remuneration report 
26 summary group income statement
27 summary group balance sheet
27 note to summary financial statement
28 basis of preparation and 
accounting policies
28 independent auditors’ statement to 
the members of national grid plc
28 independent verifier’s statement on 
corporate responsibility
29 shareholder information
dear shareholder
we are delighted to report a strong financial performance for the year ended 31 march 2006
adjusted operating profit is up 3 with adjusted profit before tax and adjusted earnings per
share up 11 and 10 respectively these results reflect our continued commitment to driving 
our strategy forward together with careful investment in both our assets and the development 
of our people 
the group’s operational performance has also been strong and we continue to build on our
reputation for worldleading standards of service for reliability in energy delivery managing our
networks to the highest standards of safety is at the core of everything we do we continue to
improve our safety performance while constantly striving to be world class as a group we also
recognise the importance of acting responsibly in all that we do 
our core skills lie in the design development safe operation and maintenance of large and complex
networks we will continue to invest and focus on organic growth in our existing networks while
making appropriate acquisitions of networkrelated businesses that complement our current
portfolio indeed the two acquisitions that we are making in the us embody this strategy
we also appreciate that our success is due to the talented and diverse individuals whom we
employ to secure grow and retain the very best employees available we are committed to
investing in developing our people’s futures throughout all levels of our organisation
this is the first year that we are reporting as national grid plc following shareholder approval of
the group name change for our principal businesses our drive and determination coupled with our
substantial investment programmes emphasise our groupwide commitment to being the world’s
premier network utility by creating value from our existing businesses and identifying new
opportunities both at home and abroad
sir john parker roger urwin 
chairman group chief executive highlights 01 annual review 200506
national grid
financial highlights
†
group revenue
£9193m
200405 £7382m
up 25
adjusted operating profit
£2527m
200405 £2443m
up 3
operating profit
£2439m
200405 £2142m
up 14
cash generated 
from operations
£3131m
200405 £2911m
up 8
ordinary dividends
261p
200405 237p
up 10
adjusted earnings per share
467p
200405 423p
up 10
earnings per share
428p
200405 363p
up 18
operating highlights
we agreed to acquire keyspan corporation a
northeastern us gas and electricity distribution company
for 73 billion £42 billion plus assumed debt of
approximately 45 billion £26 billion 
grain lng commenced commercial operations in july
2005 and phase ii expansion is under way
over the last 12 months a 27 reduction in lost time
injuries has been reported across the group
£200 million london infrastructure tunnel project
connecting hertfordshire to north london completed 
in september 2005
proposed acquisition announced of southern union
company’s rhode island gas distribution business for
cash consideration of 498 million £286 million and
assumed debt of 77 million £44 million
£2 billion return of value to shareholders – 65 pence 
per share – made in august 2005 
construction of basslink complete with commercial
operations having commenced in april 2006 
†
continuing operations
 excludes the impact of exceptional items and remeasurements
important notice
this summary financial statement as extracted from the full
annual report and accounts does not contain sufficient
information to allow for a full understanding of the results of
the group and the state of affairs of the company or the
group as would be provided by the full annual report and
accounts
the auditors’ report on the full financial statements for the
year ended 31 march 2006 was unqualified and did not
contain a statement concerning accounting records or failure
to obtain necessary information and explanations
shareholders who would like more detailed information may
obtain a copy of the full annual report and accounts 200506
and request any future full annual report and accounts by
contacting capita registrars whose details are on the back
cover
this document contains certain statements that are neither
reported financial results nor other historical information these
statements are forwardlooking statements within the meaning
of section 27a of the securities act of 1933 as amended
and section 21e of the securities exchange act of 1934 as
amended for a description of factors that could affect future
results reference should be made to the full ‘cautionary
statement’ on the back cover 
highlights 02 chairman’s statement annual review 200506
national grid
chairman’s statement
i would like to thank the executive team for its strong leadership 
and all our employees for their individual contributions to our 
continued success during the past year
board
as a board we are conscious that we
oversee the activities of the business in the
interests of all our stakeholders in order to
achieve this we must ensure that we have
the very best people for the task to ensure
this we carry out a rigorous review of
board performance annually and regularly
examine senior management succession
very carefully
roger urwin group chief executive
intends to retire from national grid at the
end of this calendar year roger has led
national grid through transformational
change and delivered an outstanding track
record of success and value creation it has
been my privilege to have worked closely
with roger since the merger of national
grid group and lattice group in 2002 at
the board’s request roger agreed to defer
his retirement to enable a smooth transition 
to his successor ensuring that operating
performance momentum is maintained
together with management continuity through
this year’s transmission price review 
to find a suitable replacement for roger
the nonexecutive directors undertook 
an extensive process of evaluating both
internal and external candidates we are
delighted to report that steve holliday will
succeed roger and was appointed deputy
group chief executive from the beginning
of national grid’s 200607 financial year
since joining national grid in 2001 steve
has led the uk transmission and the uk
gas distribution businesses to world
leading performance all the directors 
and i are confident of the future of the
group under steve’s leadership and wish
him every success
this year will also see john grant stepping
down from his nonexecutive directorship
john joined national grid in november 1995
he has made an outstanding contribution to
the board and our committees over the past
10
1
⁄2 years he has also been a major
contributor to all our key debates and we
shall miss his wisdom and insight
governance
the board of national grid continues to 
be committed to the highest standards 
of corporate governance it also seeks to
ensure that our values and internal processes
lead to the effective management of risk
and the equitable treatment of all our
stakeholders and employees we recognise
the significant benefit of management
leadership within a robust governance
framework that embodies strong financial
control and sound administration
in a climate where the governance
arrangements in large companies are
increasingly under scrutiny the board has
implemented a transparent approach this
is driven by our framework for responsible
business underpinned by a suite of policies
procedures public position statements and
welldefined internal control processes
employee engagement 
in may 2006 we undertook our second
groupwide employee opinion survey the
first survey was undertaken in july 2004
one initiative that resulted from the previous
survey was the promotion of ‘managers as
communicators’ to enhance dialogue and
feedback among the workforce 
following the 2004 employee opinion survey
the executive identified a number of areas
for improvement these included improving
opportunities for dialogue across the
group ensuring understanding of strategy
amongst employees managing change
better managing individual performance
effectively demonstrating our values in all
261p
ordinary dividends
467p
adjusted earnings 
per share
 excludes the impact of exceptional
items and remeasurements chairman’s statement 03 annual review 200506
national grid
that we do and continuing to progress our
inclusion and diversity policy 
the rebranding programme provided 
a platform this year to demonstrate 
our improvement in a number of these
areas and to introduce new approaches
across the group we have also refined 
our employee briefing processes and our
national employee publications for the first
time this year we have introduced a group
wide publication ‘national grid world’ to
provide employees with a broader view of
group activities
community investment 
national grid continues to support its
customers and communities through its
community investment activities the areas
that we support are closely aligned to our
business priorities education  skills
environment  energy and community
development 
both our us and uk operations have
programmes to support domestic consumers
who have difficulty with energy payments
in the us approximately 215000 national
grid customers are supported through our
low income discount rates which reduce
fuel bills by up to 25 national grid also
administers grants in the us to allow
customers to install energy efficiency
measures through the gas efficiency
programme which was initiated at the end
of 2005 lowincome customers are able 
to receive support from a fund of 5 million
in addition national grid in the us
sponsors assistance programmes run by
charitable organisations to support those
who are not able to pay their energy bills 
in the uk national grid has supported 
the fuel poor through its ‘affordable warmth
programme’ since it was established in
1999 the programme has assisted
377841 homes one of its key elements 
is the support for the warm zones concept
national grid currently supports four warm
zones working with government and social
housing providers and integrating sources
of funding to tackle the issue of fuel poverty
in a concentrated and systematic manner 
we have also continued to lead on the
‘young offender into work programme’
with the involvement now of over 50 ftse
companies we have seen 400 young
people secure a new future with a significant
reduction in the reoffending rate
dividend
the board is recommending a final dividend
of 261p per ordinary share – an increase of
10 this increase reflects our confidence
in the group’s longerterm prospects based
on this year’s good results and our strategic
commitment to invest in the growth of our
businesses
going forward we continue to target annual
increases of 7 to march 2008
outlook
given the opportunities across the group
for capital investment and revenue growth
with the continuing drive for cost
efficiencies the board continues to have 
full confidence in the group’s ability to
generate future earnings growth the 
group will also continue to maintain its
disciplined approach to both organic
growth and strategic investment
sir john parker
chairman
377841
the number of homes
that national grid 
has assisted through
its ‘affordable warmth
programme’
400
the number of young
people securing new
futures from national
grid’s ‘into work
programme’
the new name for our
principal businesses 04 group chief executive’s review annual review 200506
national grid
group chief executive’s review
our aim to be the world’s premier network utility 
and the delivery of our strategy are both at the heart 
of our daytoday activities 
strategy
as an infrastructurebased network
provider it is essential that we deliver high
standards of service and reliability as well
as outperforming our benchmarks and
regulatory targets we need to continue
managing our regulatory relationships
successfully to benefit both our customers
and shareholders our disciplined approach
to capital management remains paramount 
progress
delivering our strategy involves the
continued focus on our key strengths of
operational excellence our ability to exceed
our efficiency targets and our prudent 
use of capital investment in our current
businesses and strategic opportunities are
made only where we believe we can create
shareholder value 
our regulatory controls provide significant
incentives towards improving operational
efficiency by permitting the sharing of the
benefits of increased efficiencies between
energy users and shareholders this year
we added to national grid’s impressive
costefficiency track record when uk gas
distribution achieved its costefficiency
target one year early
investment
†
investment in our networks remains a
priority for the group total investment
reached £2 billion this year up by one third
over last year’s £15 billion we project a
further rise to around £25 billion per annum
over the next five years investment is rising
across the group with the largest increases
in our uk regulated businesses
new investment in uk electricity
transmission is being driven largely by 
asset replacement which reflects the age
and condition of the network uk gas
transmission investment is also increasing
but here it is primarily due to new
infrastructure required to meet the changing
gas supply pattern as the uk becomes a net
importer of gas this includes our largest
ever project connecting the new liquefied
natural gas lng terminals currently being
built at milford haven this will require
investment of more than £750 million over
the next two years 
our disciplined approach to capital
management is also reflected in the strategic
moves we made during the year on 1 june
2005 we completed the sales of four of
our regional gas distribution networks for 
a total cash consideration of £58 billion 
this creates what is in effect a new gas
distribution market in the uk we have
retained four of the networks which together
represent the largest of the uk gas
distribution businesses we look forward to
setting new levels of efficiency for the benefit
of both our customers and shareholders
the network sales led directly to the
£2 billion return of value to shareholders 
at 65 pence per share which we made in
august this was one of the largest returns
of value ever for a uk company
this year we also commissioned phase i 
of our lng import terminal at the isle of
grain in kent the facility has the capability
to import and process 33 million tonnes 
of lng per year construction of phase ii 
is now under way which will triple capacity
by the end of 2008 when complete our
total investment will be around £500 million
and the facility will have the capacity to
import around 13 of the current uk annual
gas demand
in february 2006 we announced the
agreed acquisition of keyspan corporation
a major us energy delivery company for
73 billion £42 billion plus assumed debt
of approximately 45 billion £26 billion 
£2527m 
adjusted operating
profit
adjusted operating profit 
by business £m
 844 uk electricity and gas transmission
 127 us electricity transmission
 483 uk gas distribution
 364 us electricity and gas distribution
 489 us stranded cost recoveries
 75 wireless infrastructure
 145 other activities
844
127
483
364
489
75
145
†
continuing operations
 excludes the impact of exceptional items and remeasurements group chief executive’s review 05 annual review 200506
national grid
it is the largest distributor of natural gas 
in the northeastern us with approximately
26 million customers in the same month
we announced the acquisition of gas
distribution assets from the southern union
company for cash consideration of
498 million £286 million and assumed
debt of 77 million £44 million
both acquisitions have an excellent
strategic operational and geographic fit
they are a natural extension of our business
and will expand the group’s growth
platform as well as creating substantial
opportunities for new cost savings 
financial performance
†
the group’s financial performance for
200506 has been strong adjusted 
profit before tax and adjusted earnings 
per share were 11 and 10 higher
respectively than last year while operating
cash flows were more than £3 billion
the performance of all our individual
businesses has been encouraging uk
transmission has entered an investmentled
growth phase during the year the group
invested £584 million in new electricity and
gas infrastructure and a further £265 million
replacing assets that were nearing the end
of their useful technical life the increased
investment as well as the writeoff of certain
assets led to an increase in depreciation
and amortisation this increase was
partially offset by successful capacity
auctions resulting in adjusted operating
profit of £844 million compared with 
£859 million last year us electricity
transmission had another good year with
adjusted operating profit of £127 million
uk gas distribution results were particularly
strong as adjusted operating profit was 
up 14 at £483 million compared with
£424 million last year this performance is
primarily due to the reduction in operating
expenditure excluding shrinkage which
was down £52 million as a result of our
‘way ahead’ programme controllable
costs have been cut by 35 in real terms
since march 2002
adjusted operating profit for us electricity
and gas distribution was down 3 at
£364 million primarily due to timing
differences related to pension charges and
commodity costs the majority of these costs
will be recovered in future periods adjusting
for these items profits were broadly flat
since weathernormalised residential
volume growth of 17 was offset by
higher depreciation and amortisation
the enlarged wireless infrastructure
business had a strong first full year as a
member of the group adjusted operating
profit was £75 million and the business
met its £18 million annualised cash 
synergy target growth from broadcast
was particularly strong reflecting the
successful launch of three new channels
we are expecting doubledigit organic
operating profit growth over the medium term
other activities contributed £145 million to
adjusted operating profit a decrease of
£7 million from 200405 national grid
metering has delivered strong performance
with adjusted operating profit up £28 million
the business made good progress in driving
operational efficiency which together with
growth in our competitive metering business
more than offset a decline in regulated
metering revenue adjusted operating profit
from national grid property at £88 million
was £14 million less than last year national
grid grain our new lng import terminal
contributed £6 million of adjusted operating
profit after coming on line in july
safety
safety is at the centre of everything we 
do over the past 12 months we have 
maintained an encouraging improvement in
our safety performance across the group
against these very significant improvements
over the past three years it is all the more
tragic that one of our colleagues was
overcome by gas and died while relaying
a gas service pipe in our uk gas
distribution business 
this very sad incident underlines the
fundamental importance of safety in all 
that we do it serves as a stark reminder 
to ensure that we continue to develop and
implement ever safer ways of working for
the protection of ourselves our colleagues
our contractors and members of the public 
outlook
the environment in which national grid
operates is ever more challenging and
complex however i am confident that 
we have a strong and clear strategy that
underpins everything we do and that will
benefit all our stakeholders our growth is
expected to be driven by new investments
new efficiencies and selected expansion 
in our current businesses 
you will have seen from sir john’s
statement that i intend to retire at the end
of 2006 it has been my privilege to lead
national grid through a series of major
changes our success is built on the talent
commitment and effort of everyone in
national grid with that continuing support
and his outstanding record leading uk
transmission and uk distribution i am
confident that steve holliday will lead 
the group to new levels of success
roger urwin 
group chief executive 06 business review
what we do
annual review 200506
national grid
what we do
national grid is dedicated to becoming the world’s premier network utility 
our core skills are in the management of large and complex networks 
our businesses are primarily concerned with energy delivery and other 
infrastructure and related services where we can exploit our core skills 
to create value
uk electricity 
and gas transmission
area of operation
we own and operate the electricity
transmission system in england and wales
this is the highvoltage network that runs
across both countries we operate but do
not own the electricity transmission system
in scotland we also own and operate the
gas transmission network in great britain
this is the high pressure gas pipeline
network that runs across the country
200506 highlights
on 1 april 2005 we became responsible 
for operating the great britain electricity
transmission system setting charges and
maintaining the charging statements for 
all transmission users in great britain
the winter of 200506 saw demand from 
the electricity transmission network in
england and wales hit a peak of 5373 gw
gigawatt this compares with the previous
year’s peak of 5329 gw
size and scope
4500 miles of overhead line 
415 miles of underground cable
337 electricity substations
4300 miles of high pressure gas pipeline 
us electricity 
transmission
area of operation 
we own and operate an electricity
transmission network of approximately 
9000 miles we are the largest electricity
transmission service provider in the
northeastern us by reference to the length
of our highvoltage transmission line we
also own and operate a 139mile direct
current transmission line that is a key section
of an interconnector between new england
and canada
200506 highlights
capital investment in the replacement
reinforcement and extension of the us
electricity transmission networks in 200506
was £91 million compared with £74 million in
200405
size and scope
8900 miles of overhead line
94 miles of underground cable
496 substations
uk gas distribution
area of operation 
our uk gas distribution business comprises
almost half of great britain’s gas distribution
system this system comprises the gas
pipelines that service homes and businesses
our gas distribution business remains the
largest in the country
we continue to operate the uk national gas
emergency number for our networks the
sold networks and other gas transporters
200506 highlights
on 1 june 2005 we successfully completed
the sales of four gas distribution networks 
for £58 billion
we achieved our 35 controllable cost
reduction target one year early
size and scope
distributes gas to 11 million homes 
and businesses
82000 miles of gas distribution pipeline business review 07
what we do
annual review 200506
national grid
us electricity and 
gas distribution
area of operation
our us electricity and gas distribution
business serves approximately 34 million
electricity customers in massachusetts 
new hampshire new york and rhode
island and around 569000 gas customers
in new york
200506 highlights
we launched the multiyear ‘reliability
enhancement programme’ that utilises 
new information technologies to identify
problem areas together with a combination
of asset replacement increased maintenance
and inspections and other actions to
improve reliability cost effectively
the nantucket island cable project was
completed at a cost of more than 40 million
to deliver electricity to the island with
enhanced capacity and reliability 
size and scope
72000 circuit miles of electricity
distribution network
8600 miles of gas pipeline forming the 
gas distribution network
wireless infrastructure
area of operation
in the uk we are the leading independent
provider of network infrastructure such 
as towers to mobile telephone operators 
and one of two providers of transmission
networks to television and radio
broadcasters our us business provides
communications infrastructure and related
network services to wireless and fixed
network operators in the northeastern us
200506 highlights
during 200506 we completed the process
of integrating the uk operations of crown
castle international corp that we acquired
for £11 billion in 200405
in november we concluded an agreement
with the bbc the ukbased public service
broadcaster to extend the provision of
analogue television until 2012 and am 
and fm radio until 2013 
size and scope
5500 active sites used for mobile
communications
750 purposebuilt broadcast towers for
radio and television broadcasting
other businesses
national grid metering provides regulated
gas metering and meterreading services on
behalf of our uk gas distribution business
onstream provides gas and electricity
metering and meterreading services to the
competitive market
national grid australia provides the 224mile
interconnector linking the electricity network
on the island of tasmania to mainland
australia – the longest such cable in the world
national grid grain is a liquefied natural gas
lng import terminal and storage facility
constructed and operated in the uk 
national grid property is responsible for 
the management of all our major occupied
property in the uk and the management
clean up and disposal of surplus properties
fulcrum connections provides gas
connections and associated design services
on behalf of gas distribution networks 
in the uk
advantica is a consultancy business providing
engineering and software services to enhance
safety and performance in the gas oil
electricity and water sectors 08 business review
where we are
annual review 200506
national grid
national grid’s main operations are based in the uk 
and the us the maps below show where we operate 
in each country 
where we are
maine
vermont
new 
hampshire
new 
hampshire
pennsylvania
connecticut connecticut
new 
jersey
rhode
island
maine
vermont
massachusetts
new york
canada
massachusetts
new york
canada
pennsylvania
new 
jersey
rhode island
transmission network
us electricity 
transmission
us electricity and 
gas distribution
uk electricity 
transmission
uk gas 
distribution
uk gas 
transmission
wireless
infrastructure
theddlethorpe
isle of grain
easington
bacton
barrow
burton 
point
to northern
ireland
to the republic 
of ireland
teesside
st fergus
transmission system scotland
transmission system england  wales
interconnector
national grid 
operating area
reception terminals
transmission system
interconnector
main transmitting 
stations
tofrom
belgium
tofrom
france business review 09
our history
annual review 200506
national grid
national grid’s original uk businesses were
created by the restructuring of the uk gas
industry in 1986 and the uk electricity
industry in 1990 we entered the us energy
delivery market in 2000 and substantially
expanded our uk wireless infrastructure
activities in 2004 this is a history of our
development
our history
august 1986 british gas incorporated as a 
public limited company
march 1990 electricity transmission network in england
and wales transferred to national grid on
electricity privatisation national grid owned
by 12 regional electricity companies 
december 1995 national grid listed on the 
london stock exchange 
february 1997 centrica demerged from british gas
which was renamed bg
december 1997 energis demerged from national grid 
december 1999 bg became bg group 
march 2000 new england electric system acquired by
national grid 
april 2000 eastern utilities associates acquired by
national grid 
october 2000 lattice group demerged from bg group
january 2002 niagara mohawk power corporation
merged with national grid’s us operations 
october 2002 merger of national grid and lattice group
to form national grid transco
august 2004 acquisition of uk wireless infrastructure
network from crown castle international
corp
june 2005 sales of four uk gas distribution networks
july 2005 adoption of national grid as single name 
for principal businesses
february 2006 agreements to acquire keyspan corporation
and southern union company’s gas
distribution network in rhode island
our brand
promise
our brand promise defines the way
we approach the delivery of all our
services in all the communities in
which we operate
safety
nothing we do is more important 
than the safety of our employees
contractors customers and the
general public a sustainable business
must operate to the highest safety
standards
reliability
our society depends on the reliable
transmission and distribution of
electricity and gas national grid is
focused on the highest levels of
reliability developing our networks 
and other businesses to meet the
changing patterns of supply and
demand 
efficiency
we aim to deliver worldclass
operational and financial 
performance while improving
continuously against demanding
targets for safety reliability and
customer service
responsibility
we are committed to operating our
business in a responsible way having
due regard for the impacts we have
on society in all our activities we
operate within our framework for
responsible business
safety        reliability
efficiency        responsibility  10 business review
safety
annual review 200506
national grid
safety
“i believe safety is core to the business we must all
recognise the responsibility each one of us has to
ensure our own safety the safety of our colleagues
and those who work with us or who are affected by
our operations”
steve holliday deputy group chief executive
0800 111 999
retention of the 0800 number
and rebranding
following the sales of four of 
our gas distribution networks we
are operating the four remaining
networks as one now known as
national grid gas its operating
area is shown on page 8
we continue to operate the uk
national gas emergency number
0800 111 999 for our own
network the sold networks and
other gas transporters during
200506 we handled approximately
25 million calls to the national gas
emergency number
we again exceeded our targets on
safetyrelated standards of service
for our gas distribution network 
more than 97 of ‘uncontrolled’
gas escapes where the gas leak
cannot be stopped by turning the
gas supply off at the meter were
attended within one hour more
than 98 of ‘controlled’ gas
escapes where the gas leak can
be stopped at the meter were
attended within two hours business review 11
safety
annual review 200506
national grid
road safety initiative
our national grid property site at ward
street bilston was one of the first to
incorporate a road safety initiative as part 
of the clean up programme the site is
situated close to a residential area and
within 500 yards of a primary school during
the 31week project 5800 lorry movements
were anticipated with up to 290 per week 
at the busiest times the safety initiative
included a school assembly briefing about
road safety and the dangers of construction
sites to support this we produced posters
wrote to parents and guardians produced a
driver road safety briefing pack for hauliers
thoroughly briefed the school crossing patrol
and worked closely with the local authority
the campaign minimised risk to the public
and educated both the local community and
our contractors this initiative is now being
replicated at other sites around the uk
avoiding overhead electricity cables
in the us
in 2005 national grid launched
‘dangerzone’ a comprehensive public
safety awareness campaign in the us
dangerzone consists of multilingual billboard
advertising videos brochures and posters
to alert contractors construction workers
and homeowners to the danger of contacting
overhead electrical lines with ladders
scaffolding vehicles heavy machinery and
equipment in the first year of dangerzone
contacts with overhead electricity cables
were reduced significantly we will be
expanding the campaign this year to include
underground safety and the importance 
of the public calling a freephone number 
to check on the presence of underground
lines and pipes before digging additionally
teachers in elementary and secondary
schools within national grid’s us service
territory requested and received more than
420000 student booklets and 4500 safety
videos designed to increase safety
awareness among children
golden rules for safety – uk gas 
and electricity businesses
national grid’s golden rules are a
framework to help everyone in the uk gas
and electricity businesses to be safe in
everything they do the rules apply as
much to working in offices as they do to
working on site
the golden rules are a fundamental
building block for ‘road to zero’ our 
fiveyear programme to reach the target 
of zero injuries
the golden rules do not introduce new
policies and procedures they reinforce
what we should be doing all the time
setting the standards for good safety
behaviours and continuing to develop a
culture whereby safety becomes second
nature they will also be used to identify 
areas in which we can make our working
practices and behaviours even safer
sharing best practice between the 
uk and us businesses
there is an ongoing programme of
exchange of best practice between the 
us transmission line services and uk
transmission line construction and
maintenance groups phase i was
completed when us staff visited the uk
which resulted in the implementation within
transmission line services of the double
lanyard fall protection system
the doublelanyard system ensures
enhanced fall protection by allowing at 
least one lanyard to be securely clipped 
to the structure at all times while ascending
to and descending from heights the uk
transmission groups visited the us in 
april 2006 to demonstrate various tools
equipment and procedures such as the
hook ladder and insulator replacement
techniques for possible implementation in
the us these tools and techniques enable
workers to perform their transmission
construction tasks better while reducing 
the potential risk for injury and providing 
for increased work efficiencies
metering
national grid metering and onstream 
place great importance upon safety
performance not only internally but within
our service provider network
during 200506 over 63 million jobs were
completed by the businesses with only two
employee lost time injuries and three
contractor lost time injuries both representing
over a 40 improvement on 200405 
going forward both companies will 
continue to work closely with service
providers to identify joint initiatives to
improve safety performance further
27

reduction in 
lost time injuries
safety will always be at
the centre of everything
we do during 200506
117 of our employees
received injuries that
resulted in them taking
time off work a 27
reduction compared on 
a likeforlike basis with
200405 
the employee lost time
injury frequency rate
provides a more accurate
indicator of yearonyear
performance by taking
into account the changes
in employee numbers
that result from
acquisitions and
disposals the number 
of employee lost time
injuries per 100000 hours
worked in 200506 fell to
028 a 24 improvement
when compared with the
previous year
there has also been a
significant reduction in
the number of contractor
lost time injuries across
the group falling from
146 in 200405 to 119 
in 200506 an 185
decrease  12 business review
reliability
annual review 200506
national grid
reliability enhancement
programme
the us electricity business has
launched a fiveyear programme 
to address its ageing system and
strengthen its infrastructure to
reduce the number and duration 
of outages 
national grid’s ‘reliability
enhancement programme’ utilises
data gleaned from geographic
information systems and other
technologies in which the company
has invested that enable better
identification of problem areas and
the steps necessary to fix them 
the key focus areas for the next
three years include significant
increases in vegetation
management improving protection
of the system from animal
contacts and lightning and
‘hardening’ of circuits hardening
improves the ability of a circuit 
to withstand exposure to the 
elements through targeted
replacement of deteriorated
components and equipment 
the reliability enhancement
programme also includes ongoing
condition assessment of the
distribution system as well as
increased inspection and
maintenance programmes and
substation refurbishments
expansions and rebuilds
reliability
“the reliability of our operations is borne out 
by our ability to deliver our services 24 hours 
a day 365 days a year”
mike jesanis group director business review 13
reliability
annual review 200506
national grid
nantucket island cable project
located off the massachusetts coast 
the island of nantucket is a popular travel
destination and place to own property that
over the past few years has seen growth in
demand for electricity rise dramatically
as a result national grid has installed a
second submarine cable system at a cost of
more than 40 million to deliver electricity to
the island nantucket was previously served
by a single 46 kilovolt 26mile underground
and submarine distribution cable connected
to the regional transmission grid on cape
cod this cable went into service in late
1996 replacing diesel generating units and
ushering in a new era of reliable electric
service for customers on the island 
the second cable system consists of a new
connection to the regional transmission 
grid more than five miles of underground
cable on the mainland and the island and
roughly 27 miles of submarine cable that
traverse nantucket sound at a depth of
approximately eight feet below the seabed 
improvements and upgrades
national grid has undertaken major expansion
projects at its ward hill and wachusett
substations in northeastern and central
massachusetts respectively both projects
which include the addition of new
transmission equipment and upgrades 
of existing transmission lines as well as
distribution improvements at ward hill 
will greatly enhance the reliability of new
england’s bulk transmission system they will
also improve local service for our customers
sharing best practice
uk gas distribution uses where possible
nodig pipelaying techniques to replace old
cast iron pipe with new plastic pipe one 
of these methods is known as ‘live main
insertion’ which enables the replacement 
of mains under live gas conditions and
avoids the need to dig long trenches
instead construction crews excavate small
sections at two ends of a length of cast iron
pipe and insert the plastic replacement pipe
into the iron pipe this avoids the need to 
interrupt supply to customers and reduces
construction costs with significantly less
excavation of roads driveways and 
gardens consequently this reduces
inconvenience to the public and customers
from construction work 
this process has been shared and adopted
by our colleagues in the us and received
the 2005 technology project of the year
award from the technology alliance of
central new york
last year uk gas distribution invested
£444 million in the reinforcement extension
and replacement of the uk gas distribution
network compared with £359 million in
200405 this excludes the investment in the
four regional gas distribution networks that
were sold on 1 june 2005 replacement
expenditure increased from £239 million in
200405 to £295 million in 200506 in line
with the planned increase in the longterm
cast iron mains replacement programme
agreed with the health and safety executive
this enabled us to decommission over
1710 km 1063 miles of old gas pipe 
in 200506 compared with 1458 km 
906 miles in 200405
ensuring the integrity of great
britain’s gas transmission network
operating from a newly established control
facility the gas national control centre
gncc is responsible for operating great
britain’s gas transmission network safely
reliably and efficiently managing the flow 
of gas from suppliers to customers 
we ensure that all gas entering the gas
transmission network meets the appropriate
quality standards we operate the system 
in accordance with appropriate legislation 
and the health and safety executive 
safety case while facilitating equitable and
transparent access to all market participants
gncc operates 4300 miles of high
pressure transmission pipeline across 
great britain facilitating the transportation 
of around 100 billion cubic metres of gas
per year to power stations industrial and
commercial customers and approximately
20 million domestic customers
national grid grain 
owns and operates the
liquefied natural gas
lng import facility
located at the isle of
grain in kent 
commercial operations
commenced on 15 july
2005 as at 31 march
2006 on the instruction
of its customer
bpsonatrach 19 gas
shipments had been
received and around 
161 twh terawatt hours
of gas delivered into the
gas network the facility
currently has the
capacity to import and
process 33 million
tonnes of lng per year 
the business is
incentivised to maintain
plant availability and
reliability and was
available for 99 of 
the winter period
securing an alternative
energy source 14 business review
efficiency
annual review 200506
national grid
london connection
in september 2005 national grid
completed its £200 million london
infrastructure tunnel project that
links elstree in hertfordshire to 
st john’s wood north london
this 12mile tunnel houses the
longest 400 kilovolt kv cross
linked polyethylene xlpe cable
circuit in europe xlpe cable is
insulated and cooled without the
use of oil and hence is more
environmentally friendly than
traditional oilcooled cables
this project represents a major
investment by national grid to
reinforce the transmission system
the new 400 kv circuit will enable
us to continue to meet london’s
demand for electricity by
constructing a tunnel most of the
works carried out underground
were invisible inaudible at 
ground level and minimised 
traffic disruption
since works started in march 2000 
in addition to the 12mile tunnel
seven head house buildings and
two new 400 kv substations have
been constructed at existing
national grid sites at elstree and 
st john’s wood 
efficiency
“i believe we can continue to improve our
efficiency and profitability without compromising
the reliability and integrity of our operations for
the benefit of all our stakeholders”
nick winser group director business review 15
efficiency
annual review 200506
national grid
way ahead
following completion of the ‘way ahead’
restructuring programme in uk gas
distribution a series of strategic development
initiatives has been successfully delivered in
support of our aim to be the most efficient
uk gas distribution network centralisation
of many key processes has enabled us to
place increased emphasis on safety and
efficiency while sharing best practice across
the organisation and delivering our office 
rationalisation programme having
completed the way ahead transformation
we are now concentrating on continuous
improvement techniques to refine our
existing business processes
strategic review of estate
management
throughout the year we have continued to
derive further value from the procurement 
of property services for the uk businesses
this has been achieved by aggregating our
business needs which in turn has enabled
us to leverage better value from our supply
chain in addition we continue to share best
practice across the whole portfolio thus
enabling us to maximise efficiencies in the
delivery and administration of property
services while providing optimal service
levels to occupiers
work and asset management project 
work and asset management wam aims
to reshape the way the company manages
its electricity transmission system assets in
the uk
wam is about finding a smarter way of
doing things the changes to business
processes supported by wam and the
implementation of new information systems
will enable us to be smarter in capital
planning target investment more effectively
and gain procurement efficiencies
mwork rollout – access to data from
crew cabs
‘mwork’ is national grid’s new mobile 
work management system in the us that
automates the way work and workrelated
information are scheduled received and
reported in the field mwork enhances the
process of dispatching and managing work
in the field ultimately to provide better
customer service through costefficient and
consistent work practices throughout
national grid’s us service territory 
all metering services and certain operations
field workers and supervisors who use
mwork will have computers in their vehicles
that provide realtime information online 
and right at their fingertips to help them
serve customers more efficiently and
effectively mwork provides optimised
routing assignments and all of the information
necessary to perform and report work
including allocating work orders from the
customer service and operations systems
realtime work status and job closeouts – 
all delivered via the wireless computer 
in vehicles 
national grid’s uk electricity transmission
business uses a similar version of this
technology called ‘office in the hand’ and
our uk gas distribution business uses
another version called ‘quarterback5’
automated meter reading
available to businesses via their gas
suppliers our uk national grid metering
business is now installing smart meter 
units for monthly and sixmonthly read 
gas meters the new technology logs data
remotely and uses either sms text message 
or gprs to send the meter reading data 
to the customer
without any disruption to supply a bolton
device is connected to the frequency output
of the meter and counts the number of
pulses as gas passes through it converts
them into a reading and then transmits 
the data to a digital hub using mobile
communications this accurate information
is then forwarded to gas suppliers to 
provide consumption profiles at regular
intervals benefits to commercial users
include synchronised billing for multiple
sites identification of energy wastage and
better management of cost
supporting the 2012 olympics
national grid is working to assist the
successful delivery of the london 2012
olympic games and paralympic games
through a range of activities we are working
with the london development agency and
the olympic delivery authority primarily in
the undergrounding of the power lines
crossing the olympic park site in the lower
lea valley to ensure continued security 
of electricity and gas supplies to the 
area national grid is also one of the two
infrastructure providers for the uk digital
switchover due to take place by 2012
national grid wireless 
has a strong position 
in the growing digital
television market we
hold two of the six 
uk digital terrestrial
television licences and
provide infrastructure
services to all freeview
channels including the
bbc and bskyb 
during the year the
business successfully
increased capacity on 
its multiplexes used 
for digital broadcasting
to launch three new
channels this was 
made possible by 
taking advantage of
improvements in
infrastructure technology
and maximising the value
of scarce digital capacity
this has allowed viewers
of the freeview service to
have a greater variety of
channels to choose from
digital television 16 business review
responsibility
annual review 200506
national grid
“it is important that we promote and maintain our reputation
as a company that manages its business in a responsible
way and contributes to all the societies in which we operate”
edward astle group director
environmental considerations
as part of national grid australia’s
environmental approvals for 
the basslink project and our
commitment to the environmental
integrity of the gippsland region
victoria we took responsibility 
for 280 hectares of rundown
agricultural property to return it 
to its native state 
in doing this work national grid
australia will provide a minimum 
of 30000 new large and medium
sized trees to replace the 1000
native trees removed to build the 
overhead transmission line 
the native trees selected for 
the project are being grown 
from seed collected from the
nearby mullundung forest and
nearby regions to ensure they are
similar to what would have grown
there originally in the spring 
september to november of 
2005 90 hectares of derelict
agricultural land was replanted
with seed and 50 hectares of
scrubland was protected to 
assist in natural regeneration 
the remaining 140 hectares of 
land will be planted with 40
different species in the spring 
of 2006
greening australia has been
contracted to national grid
australia to undertake this work
they have more than 20 years’
experience with replanting and
rehabilitation works national grid
australia is keen to build good
working relationships with farmers
and landowners alike
responsibility business review 17
responsibility
annual review 200506
national grid
group awarded top grade for
apprentice scheme 
national grid has been ranked among the
top 10 of uk employers for its engineering
apprenticeship scheme the company has
been awarded grade 1 – one of the few 
uk energy organisations to achieve the 
top mark – for outstanding leadership and
management of its scheme by the adult
learning inspectorate the government
body that monitors the standards of industry
education and training the grade recognises
national grid’s standards in a range of
areas including attraction and recruitment
learning plans for apprentices and contractual
requirements set out by the learning and
skills council
national grid’s apprentices are on a three
year scheme and receive practical on and 
offthejob training through our training
centre at eakring they are trained in
emergency and maintenance operations 
and in a range of electricity and gas roles
from electrical craftsperson to technician
inclusion and diversity
‘women in networks’ is a network for 
women in the uk and the us that provides
an opportunity to come together for
employees who share a common interest in
making national grid a great place to work
its aim is to allow employees to share and
explore some of the issues affecting women
in the workplace
women in networks was launched on
29 november 2005 with a live crossatlantic
link the uk event took place at the
heritage motor museum in warwick
attended by about 200 people the us held
events at four locations – buffalo albany
syracuse and westborough – at the same
time for a similar number of people deputy
group chief executive steve holliday
launched the uk event and mike jesanis
chief executive of national grid in the us
did the same in the us via a link to the four
american locations
electric and magnetic fields
electric and magnetic fields emfs can be
generated from a wide variety of sources
including our distribution and transmission
power lines and wireless infrastructure
national grid recognises that there is some
scientific evidence suggesting that certain
adverse health effects are linked to emfs 
we take these issues very seriously and
continually assess the scientific evidence 
in this area determine any implications for
the way in which we conduct our business
and explain to society what the science is
telling us
in all our operations as a minimum we
comply with emf regulations guidelines or
practices in force where we operate
responding to national emergencies
in the us national grid sends crews
whenever possible to assist other utilities
that have been hit hard by major storms that
cause largescale power outages in autumn
2005 national grid sent crews to florida in
the wake of hurricane wilma to help restore
power to 11 million customers it marked the
fifth time in a 13month period that national
grid crews were dispatched to florida and
the gulf coast 
nearly 550 national grid workers logged
tens of thousands of hours in those efforts
the edison electric institute recognised
national grid with an emergency assistance
award for its contributions following
hurricane wilma
energy delivery and climate change
our framework for responsible business
includes a commitment to make a
contribution to minimising climate change
the board agreed our longterm strategy
mapping out how we will achieve this as
well as contributing to the uk government’s
longterm emission reduction targets 
during 200506 our direct and indirect
emissions of greenhouse gases amounted 
to some 102 million tonnes co
2
equivalent
the same as 200405 if the sold networks
are excluded
compared with our verified baseline we
have already reduced our climate change
impact in the uk by 14 – achieving both
the kyoto 125 obligation in the uk 
and what would have been an 8 kyoto
obligation in the us ahead of time
national grid continues its leadership in 
the us in the area of energy efficiency 
the company’s cumulative investment in
energy efficiency programmes has topped
1 billion participating customers having
saved 21 billion
administrative staff
retraining in uk 
gas distribution
two of our female
administrative staff
recently took up new
roles as emergency gas
engineers they help to
provide 24hour cover for
the country’s domestic
gas infrastructure and
their duties include
attending emergency 
gas leaks reported in
people’s homes 
the moves followed the
closure of the bolton
office as part of the
rationalisation of office
premises under the 
way ahead programme
see page 15 and 
the centralisation of
many administrative 
roles to hinckley and
northampton the two
assistants have been
equipped with the
required personal
protection equipment
and vehicles and are
studying for the required
qualification – snvq
core gas safety  18 board of directors annual review 200506
national grid
board of directors
01 sir john parker 
chairman
appointed october 2002 age 64 n ch
sir john parker became chairman of the
group following the merger of national grid
group plc and lattice group plc he had
been chairman of lattice group plc since its
demerger from bg group plc in 2000 he
had previously been a nonexecutive
director of bg plc from 1997 sir john’s
career has encompassed the engineering
shipbuilding and defence industries he is
chairman of the peninsular  oriental steam
navigation company a nonexecutive
director of carnival plc and carnival
corporation inc and senior nonexecutive
director of the court of the bank of england
sir john is a former chairman of rmc
group plc a former chairman and chief
executive of harland  wolff plc and
babcock international group plc and a
former nonexecutive director of brambles
industries plc gkn plc and british coal
corporation he is a fellow of the royal
academy of engineering
02 roger urwin
group chief executive
appointed november 1995 age 60 
e ch f
roger urwin became group chief executive
in october 2002 following the merger 
of national grid group plc and lattice 
group plc prior to the merger he had been
appointed group chief executive of 
national grid group plc in april 2001 
where he played a key role in establishing
the company’s international strategy and 
its successful expansion into the us he
joined the group in 1995 initially as ceo 
of the company’s uk transmission business
previously roger was managing director
and chief executive of london electricity
from 1990 to 1995 he is also a non
executive director of utilico investment trust
plc and a fellow of the royal academy of
engineering he has announced his intention
to retire from national grid at the end of
2006
03 steve holliday 
deputy group chief executive
appointed march 2001 age 49 e
steve holliday joined national grid group plc
as group director uk and europe in march
2001 immediately following the merger of
national grid group plc and lattice group
plc in october 2002 he was responsible for
the group’s electricity and gas transmission
businesses he was appointed as group
director responsible for uk gas distribution
and business services in april 2003 he was
formerly an executive director of british
borneo oil and gas previously he spent 
19 years with the exxon group where he
held senior positions in the international gas
business and managed major operational
areas such as refining and shipping steve’s
international experience includes a fouryear
spell in the us he has also developed
business opportunities in countries as diverse
as china australia japan brazil and the
former soviet union he is a nonexecutive
director of marks and spencer group plc
following the announcement of roger urwin’s
retirement he was appointed group chief
executive designate becoming deputy
group chief executive on 1 april 2006
04 steve lucas
group finance director
appointed october 2002 age 52 e f
steve lucas joined the board following the
merger of national grid group plc and
lattice group plc in october 2002 he had
been executive director finance of lattice
group plc since its demerger from bg
group plc in 2000 previously he was
treasurer of bg group plc having joined
british gas plc in 1994 a chartered
accountant he worked in private practice 
in the city of london until 1983 he then
joined shell international petroleum
company occupying a number of finance
management positions and treasury roles
including seven years in africa and the far
east steve is also a nonexecutive director
of compass group plc
05 nick winser
group director
appointed april 2003 age 45 e
nick winser joined the board in april 2003
as group director responsible for uk and
us transmission operations he was
previously chief operating officer of us
transmission for national grid transco plc
he joined national grid company plc in
1993 becoming director of engineering in
2001 prior to this he had been with
powergen since 1991 as principal negotiator
on commercial matters having joined the
central electricity generating board in 1983
where he served in a variety of technical
engineering roles
06 mike jesanis
group director
appointed july 2004 age 49 e
mike jesanis joined the board in july 2004
becoming group director responsible for 
us distribution he became president of
national grid usa in november 2003
having been its chief operating officer and
responsible for daytoday operations since
january 2001 he was chief financial officer
of national grid usa and new england
electric system nees between march
1998 and january 2001 having joined
nees in july 1983 mike is also chairman 
of the board of trustees of becker college
worcester massachusetts and a member
of the board of trustees of clarkson
university potsdam new york he is a
director of the massachusetts taxpayers
foundation jobs for massachusetts inc
and of the boston chamber of commerce
07 edward astle
group director
appointed september 2001 age 52 e
edward astle joined the board as group
director telecommunications in september
2001 and is now group director responsible
for nonregulated business and leads the
group’s business development he was
managing director of bicc communications
from 1997 to 1999 and between 1989 
and 1997 he held a variety of positions with
cable  wireless he was regional director
europe ceo of its global networks and
marine divisions and in 1995 joined the
cable  wireless board as executive
director global businesses
01 02 03 04
05 06 07
committee membership
a audit
e executive
f finance
n nominations
r remuneration
rr risk  responsibility
ch denotes committee chairman board of directors 19 annual review 200506
national grid
08 ken harvey
nonexecutive director and
senior independent director
appointed october 2002 age 65 
n r rr
ken harvey joined the board following the
merger of national grid group plc and
lattice group plc having been appointed 
to the lattice group plc board in september
2000 he was appointed senior independent
director in october 2004 he is chairman 
of pennon group plc a chartered engineer
ken is a former chairman and chief
executive of norweb plc and a former
chairman of comax holdings ltd the
intercare group plc and beaufort
international group plc
09 john allan
nonexecutive director 
appointed may 2005 age 57 
a r ch
john allan was appointed to the board in
may 2005 he is a member of the
management board of deutsche post
having been appointed following its
acquisition of exel plc in december 2005
where he had been chief executive since
september 1994 john started his career 
in marketing at lever brothers moving to
bristolmyers company limited and then
fine fare limited he joined bet plc in 1985
and was appointed to the board in 1987 he
is a member of the cbi’s presidents’
committee the international advisory
council of the singapore economic
development board and the university of
edinburgh campaign board john was
previously a nonexecutive director of phs
group plc wolseley plc hamleys plc and
connell plc
10 john grant
nonexecutive director 
appointed november 1995 age 60 
a n r
john grant was appointed a director of the
group in november 1995 he is chairman of
torotrak plc and hasgo group limited and a
nonexecutive director of corac group plc
and the royal automobile club limited 
he was chief executive of ascot plc from
1997 to 2000 and finance director of lucas
industries plc from 1992 to 1996 he
previously held a number of senior executive
positions during 25 years with ford motor
company john will retire from national grid
with effect from the close of the 2006 annual
general meeting
11 paul joskow
nonexecutive director
appointed march 2000 age 58 
f ch n
paul joskow was appointed a director 
of the group in march 2000 following the
acquisition of new england electric system
nees he served as a director of nees
between 1987 and its acquisition he is a
professor of economics and management at
the massachusetts institute of technology
mit a director of the mit center for energy
and environmental policy research a
research associate of the us national
bureau of economic research and a fellow
of the econometric society and of the
american academy of arts and sciences
paul is also an independent trustee of the
putnam mutual funds and an independent
nonexecutive director of transcanada 
12 stephen pettit
nonexecutive director
appointed october 2002 age 55 
f  r rr ch
stephen pettit was appointed to the board
following the merger of national grid group
plc and lattice group plc having been
appointed to the lattice group plc board 
in 2001 he is a nonexecutive director of
national air traffic services halma plc and 
is chairman of rok property solutions plc
stephen is also a member of bt plc’s
equality of access board he is a former
executive director of cable  wireless plc
before joining cable  wireless he was
chief executive petrochemicals at british
petroleum stephen was previously a 
nonexecutive director of kbc advanced
technologies plc and norwood systems
limited
13 maria richter
nonexecutive director 
appointed october 2003 age 51 
a f  rr
maria richter was appointed to the board in
october 2003 maria worked for morgan
stanley between 1993 and 2002 most
recently as managing director of its
corporate finance retail group prior to this
she was managing director of investment
banking in the southern cone of latin
america and executive director and head
of independent power and structured
finance business previous appointments
include vice president of independent power
group for salomon brothers and vice
president of prudential capital corporation
and power funding associates maria is a
director of pro mujer international an
international microfinance organisation 
and was until april 2006 a director of the
western electricity coordinating council
14 george rose
nonexecutive director
appointed october 2002 age 54 
a ch n r
george rose was appointed to the board
following the merger of national grid group
plc and lattice group plc having been
appointed to the lattice group plc board in
september 2000 he has been finance
director of bae systems plc formerly british
aerospace plc since 1998 having joined the
company in 1992 he is a member of the
shareholder committee of airbus sas and is
also a nonexecutive director of saab ab
and a member of the financial reporting
review panel george is also a former 
nonexecutive director of orange plc

helen mahy
group company secretary 
and general counsel 
appointed october 2002 age 45 e
helen mahy was appointed as group
company secretary following the merger of
national grid group plc and lattice group
plc having been company secretary at
lattice group plc since march 2002 she
was additionally appointed as general
counsel from october 2003 previously she
was group general counsel and company
secretary at babcock international group
plc helen was appointed a nonexecutive
director of aga foodservice group plc in
march 2003 she is a barrister member of
the bar council and an associate of the
chartered insurance institute 
08
12
09 11
13
10
14
 summary operating and financial review
financial performance
2006 2005
years ended 31 march £m £m
group revenue 9193 7382
other operating income 80 70
operating costs excluding
exceptional items and remeasurements 6746 5009
adjusted operating profit 2527 2443
exceptional items and remeasurements 88 301
total operating profit 2439 2142
net finance costs excluding
exceptional items and remeasurements 606 706
exceptional items and remeasurements 57 –
share of posttax results of joint ventures 3 3
profit before taxation 1779 1439
taxation 562 319
profit from continuing operations 1217 1120
profit from discontinued operations 2633 304
profit for the year 3850 1424
the results for 200506 have been prepared in accordance with
international financial reporting standards ifrs for the first time
this year and so the comparative results for 200405 are different
from the results reported last year under uk gaap  as permitted
the comparatives were not changed on the adoption of new
accounting policies on accounting for financial instruments in
accordance with ias 39 on 1 april 2005 
revenue operating costs and operating profit
the movements in the year in revenue and other operating
income operating costs and operating profit can be summarised
as follows
revenue
and other
operating operating operating
income costs profit
£m £m £m
200405 results 7452 5310 2142
add back 200405 exceptional
items and remeasurements – 301 301
200405 adjusted results 7452 5009 2443
exchange on us operations 169 125 44
200405 constant currency results 7621 5134 2487
uk electricity and gas transmission 715 730 15
us electricity transmission 13 18 5
uk gas distribution 113 54 59
us electricity and gas distribution 488 516 28
us stranded cost recoveries 84 81 3
wireless infrastructure 114 81 33
other activities 26 19 7
sales between businesses 151 151 –
200506 adjusted results 9273 6746 2527
200506 exceptional items
and remeasurements – 88 88
200506 results 9273 6834 2439
adjusted operating profit was up £40 million on a constant
currency basis this was driven by favourable results from 
uk capacity auctions in liquefied natural gas lng storage 
and the french interconnector a continued focus on efficiencies
particularly in uk gas distribution sustained volume growth in 
the us and a fullyear contribution from the enlarged and growing
wireless infrastructure business
these factors more than offset an increase in depreciation
charges in uk electricity and gas transmission lower system
operator incentive profits also in uk electricity and gas
transmission and the timing of the recovery of certain pass
through costs in the us
net operating exceptional charges of £39 million for 200506
consisted of £60 million of restructuring costs primarily cost
reduction programmes in uk gas distribution and £21 million of
gains relating to the disposals of joint venture investments this
compared with charges of £263 million in 200405 comprising
£121 million in restructuring costs £41 million in exceptional
pension charges in the us and £101 million of increases in
environmental provisions
operating remeasurements of £49 million 200405 £38 million
relate to changes in the value of commodity contracts in the us
carried in the balance sheet at fair value arising from movements
in energy prices
net finance costs
excluding exceptional items and remeasurements net finance costs
have reduced by £100 million this was principally as a consequence
of lower levels of debt following the gas network sales
financial exceptional items and remeasurements comprised
£49 million in debt redemption costs and b share issue costs
and net losses on derivative financial instruments and the financial
element of commodity contract revaluations of £8 million
profit before taxation
the items described above have combined to deliver an 11
improvement in adjusted profit before tax from £1740 million 
to £1924 million and a 24 increase in profit before tax from
£1439 million to £1779 million
taxation
excluding the effect of net tax credits on exceptional items and
remeasurements the effective tax rate for 200506 and 200405
was 31 and 25 respectively compared with a standard uk
corporation tax rate of 30 for both years
earnings per share from continuing operations
after reflecting the impact of the share consolidation in august
2005 adjusted earnings per share from continuing operations are
up 10 from 423p to 467p
earnings per share from continuing operations increased from
363p to 428p
20 summary operating and financial review annual review 200506
national grid discontinued operations
discontinued operations primarily comprise the four regional gas
distribution networks we sold on 1 june 2005 and include gains
on the sales of £2605 million
discontinued revenues operating costs before exceptional 
items and adjusted operating profit from these networks were
£168 million £107 million and £61 million respectively in 200506
substantially lower than the respective results for 200405 of
£1102 million £592 million and £510 million as they relate to 
a twomonth period rather than a full year in addition revenue 
for those two months is proportionally lower due to seasonality
an exceptional charge of £15 million in 200506 arose from the
payment of a fine relating to one of the sold networks
dividends
the proposed total ordinary dividend for 200506 amounts to
£709 million or 261 pence per ordinary share this represents 
an increase of 10 over the previous year’s ordinary dividend per
share of 237 pence £731 million the above amounts exclude
the return of £2 billion to shareholders through the b share scheme
the final dividend proposed to shareholders for 200506 of 
159 pence per share amounting to £433 million will be reported
in the financial statements for the year ending 31 march 2007
dividend policy
the board has confirmed that its dividend policy which is to aim
to increase dividends per ordinary share expressed in sterling by
7 nominal in each financial year to 31 march 2008 remains its
policy
cash flow
cash generated from continuing operations was £3131 million 
in 200506 compared with £2911 million in 200405 this
includes cash outflows relating to exceptional items of
£118 million and £120 million respectively after reflecting cash
flows relating to discontinued operations and tax paid net cash
inflow from operating activities was £2971 million compared with
£3308 million in 200405 
cash outflows from continuing operations investing activities fell
from £2652 million in 200405 to £1713 million in 200506 as
200405 included £1122 million in respect of the acquisition of the
uk operations of crown castle international corp £1109 million
and a us telecommunications tower operation £13 million cash
flows relating to discontinued operations included £5750 million
of disposal proceeds and £115 million of cash outflows from
investing activities compared with £323 million in 200405
net cash used in financing activities of £5712 million in 200506
compared with £325 million in 200405 included £1957 million
in respect of the £2 billion return of value to shareholders
net debt and gearing
net debt decreased by £27 billion from £136 billion at 31 march
2005 to £109 billion at 31 march 2006 primarily as a result of
debt repayments following the disposals of the four regional gas
networks for £58 billion partially offset by the £2 billion return 
of value to shareholders and an increase of £04 billion relating 
to the adoption of ias 39 on financial instruments
treasury policy
the funding and treasury risk management of the group is
carried out by a central department operating under policies and
guidelines approved by the board the finance committee a
committee of the board is responsible for regular review and
monitoring of treasury activity and for approval of specific
transactions the authority for which may be delegated the
group has a treasury function that raises all the funding for the
group and manages interest rate and foreign exchange rate risk 
the group has separate financing programmes for each of the
main group companies the finance committee of the board
and the finance committee of the appropriate group undertaking
approve all funding programmes
the treasury function is not operated as a profit centre debt and
treasury positions are managed in a nonspeculative manner
such that all transactions in financial instruments or products are
matched to an underlying current or anticipated business
requirement the use of derivative financial instruments is
controlled by policy guidelines set by the board derivatives
entered into in respect of gas and electricity commodities are
used in support of the business’s operational requirements
going concern
having made enquiries the directors consider that the company
and the group have adequate resources to continue in business
for the foreseeable future and that it is therefore appropriate to
adopt the going concern basis in preparing the accounts
us gaap
the accounts have been prepared in accordance with ifrs
which differs in certain significant respects from us gaap 
net income for 200506 under us gaap was £1307 million
compared with £1304 million in 200405 this compared with
the profit for the year under ifrs for 200506 and 200405 of
£3850 million and £1424 million respectively
equity shareholders’ funds under us gaap at 31 march 2006
and 31 march 2005 were £9747 million and £10591 million
respectively compared with corresponding numbers under ifrs
of £3482 million and £2111 million
the principal adjustments from net income and equity shareholders’
funds under ifrs to their equivalents under us gaap mainly
relate to adjustments arising from differences in accounting for
regulatory assets in our us operations the treatment of the
business combination with lattice group plc as an acquisition
instead of as a merger accounting for pension scheme
arrangements derivative financial instruments and hedge accounting
summary operating and financial review 21 annual review 200506
national grid summary corporate
governance
summary directors’
remuneration report
the board is committed to good governance this commitment is
based on compliance with the combined code and both established
and emerging best practice documents relating to national
grid’s governance eg board committee terms of reference
codes of conduct and position statements can be found on the
group website at wwwnationalgridcomcorporateaboutus
the board of national grid currently consists of 14 directors 
comprising the chairman six executive directors and seven non
executive directors including the senior independent director 
the effectiveness of the board the board committees and each
individual director is vital to the overall success of the group the
board has a well established process to evaluate performance
which consists of questionnaires sent to each director and certain
board committee attendees and onetoone meetings between
the chairman and each director the questionnaires consider the
operation and performance of the board and board committees
and the performance of the chairman and committee chairmen
and the onetoone meetings include discussions of individual
performance and any knowledge gaps requiring training the
nonexecutive directors also meet separately under the
chairmanship of the senior independent director to consider the
performance of the chairman and to provide him with feedback
during the year the group chief executive and group finance
director held regular meetings with institutional investors fund
managers and analysts to discuss information made public by the
group in addition the chairman reminds major shareholders in
writing of his availability along with that of the senior independent
director or nonexecutive directors where required should there
be issues that shareholders wish to raise to ensure that the
board is effectively informed of shareholder views it receives bi
annual feedback from the company’s brokers supplemented by
the group head of investor relations this ensures that all board
members including the nonexecutive directors are aware of the
current views of major shareholders and of any outstanding issues
they may have
the principal method of communicating with the majority of
shareholders is through the annual review shareholders may
also attend the company’s annual general meeting where they
have the opportunity to question directors on any issues relating
to the management of the company the group also runs a very
successful shareholder networking programme which allows a
small number of shareholders to visit operational sites and meet
senior managers directors and the chairman more details of the
shareholder networking programme are on page 29
corporate governance practices differences from new york
stock exchange nyse listing standards a statement in respect
of the differences between the group’s governance practices 
and those required by the nyse can be found on the group
website at wwwnationalgridcomcorporateaboutus
we are pleased to present the directors’ remuneration report for
200506 our policy of relating pay to the performance of the
group continues to be a strong principle underlying the
remuneration committee’s consideration of executive
remuneration
last year we thoroughly reviewed our remuneration policies as a
result we have established revised performance criteria for the
performance share plan our longterm incentive plan and
introduced a deferred share plan as part of the annual bonus
plan we no longer operate the share matching plan we believe
this reflects best practice and aligns executive incentive plans as
closely as possible with the group’s strategic objectives and our
shareholders’ interests generally 
our main focus in 200506 has been to review pension
arrangements to take account of uk legislative changes effective
from april 2006 the modifications to pension provision are
outlined below 
overall we believe that salary levels and the mix between fixed
and variable compensation are appropriate and we will continue
to review the remuneration package to ensure it remains so
we are confident that our approach continues to align executive
directors’ remuneration with the interests of shareholders
generally while maintaining the motivation and engagement 
of the team leading the group
joint statement from chairmen remuneration committee
john grant john allan 
1 april 2005 to 28 february 2006 from 1 march 2006 
role of remuneration committee and its 
terms of reference
the remuneration committee is responsible for developing
group policy on the executive directors’ remuneration and that 
of other senior employees of the group and provides direction
over the operation of the group’s share plans the remuneration
committee operates within terms of reference agreed by the board
which are available on the group’s website or on request from the
group the board has accepted all the recommendations made
by the remuneration committee during the year
remuneration policy
the remuneration committee determines remuneration policies
and practices with the aim of attracting motivating and retaining
high calibre executive directors and other senior employees to
deliver value for shareholders and high levels of customer service
safety and reliability in an efficient and responsible manner the
remuneration committee sets remuneration policies and
practices in line with best practice in the markets in which the
group operates remuneration policies are framed around the
following key principles
total rewards should be set at levels that are competitive 
in the relevant market
annual review 200506
national grid
22 summary corporate governance and summary directors’ remuneration report a significant proportion of the executive directors’ total
rewards will be performance based these will be earned
through the achievement of demanding targets for shortterm
business performance and personal performance and long
term shareholder value creation and 
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
executive directors’ remuneration
remuneration packages for executive directors consist of salary
the annual bonus including the deferred share plan the
performance share plan longterm incentive allemployee share
plans pension contributions and noncash benefits
salary
salaries are reviewed annually and targeted broadly at the median
position against the relevant market in determining the relevant
market the remuneration committee takes account of the
regulated nature of the majority of the group’s operating activities
along with the size complexity and international scope of the
business in setting individual salary levels the remuneration
committee takes into account business performance the
individual’s experience in the role and salary practices prevailing
for other employees in the group
annual bonus including the deferred share plan
annual bonuses are based on achievement of a combination 
of demanding group individual and where applicable divisional
targets the principal measures of group performance are
adjusted earnings per share eps and cash flow the main
divisional measures are divisional operating profit and divisional
cash flow individual targets are set in relation to key operating
and strategic objectives and include overriding measures of 
safety and customer service performance the remuneration
committee may use its discretion to reduce payments to take
account of significant safety or service standard incidents or
increase them in the event of exceptional value creation
in 200506 all executive directors participated in the annual
bonus arrangements with a maximum bonus opportunity of 
100 of base salary one half of any bonus earned is automatically
deferred into national grid shares adss for the usbased
executive director through the deferred share plan the shares
or adss are held in trust for three years before release during
this time they are not owned by the executive directors and
therefore no dividends are paid the remuneration committee
may at the time of release of the shares use its discretion to pay
a cash amount equivalent to the value of the dividends that would
have accumulated on the deferred shares
the remuneration committee believes that requiring executive
directors to invest a substantial amount of their bonus in national
grid shares ensures that executive directors share a significant
level of personal risk with the group’s shareholders
in line with us market practice the usbased executive
director’s bonus is pensionable mike jesanis also participates 
in the usa goals program a bonus plan covering a large number
of usbased employees that can pay up to 57 of salary on the
achievement of certain earnings and performance targets
longterm incentive
performance share plan psp
executive directors receive an award over shares which will 
vest subject to the achievement of performance conditions set 
by the remuneration committee at the date of grant the value
of shares constituting an award is subject to a maximum for
executive directors of 125 of salary awards were made at the
maximum percentage to executive directors in the year 200506
shares vest after three years subject to the satisfaction of the
relevant performance criteria vested shares must then be held for
a further year the retention period after which they are released
during the retention period the remuneration committee has
discretion to pay an amount equivalent in cash or shares to the
dividend which would have been paid on the vested shares 
awards made in june 2003 and june 2004 were based on 
the group’s total shareholder return tsr performance over a
threeyear period relative to the tsr performance of a group of
comparator companies which included companies in the energy
distribution sector including uk and international utilities the
performance condition for the june 2005 award was amended
following consultation with our major shareholders so that 50
of any award is based on the group’s tsr performance when
compared to the ftse 100 as at 27 june 2005 and 50 
is based on the annualised growth of the group’s eps
in calculating tsr for the 2005 award it is assumed that all
dividends are reinvested no shares will be released under the
tsr part of the award if the group’s tsr over the threeyear
performance period when ranked against that of the ftse 100
comparator group falls below the median for tsr at the median
30 of those shares will be released 100 will be released for
upper target performance where national grid’s tsr performance
is 75 above that of the median company in the ftse 100
the eps measure is calculated by reference to national grid’s
real eps growth where annualised eps growth exceeds rpi 
the general index of retail prices for all items by 3 threshold
performance 30 will be released 100 where eps growth
exceeds rpi growth by 6 for performance for either target
between threshold and upper target the number of shares
released is calculated on a straightline basis 
summary directors’ remuneration report 23 annual review 200506
national grid no retesting of performance is permitted for any of the psp awards
that do not vest after the threeyear performance period if the
remuneration committee considers in its absolute discretion 
the underlying financial performance of the group does not justify
the vesting of awards it can declare that some or all of the award
lapses
allemployee share plans
sharesave employees resident in the uk including executive
directors are eligible to participate in hm revenue and
customs approved allemployee sharesave schemes
share incentive plan sip ukbased executive directors are
eligible to participate in the sip  
us incentive thrift plan the usbased executive director is
eligible to participate in the thrift plan a taxadvantaged
savings plan commonly referred to as a 401k plan provided
for employees of national grid’s us companies
pensions 
current ukbased executive directors are provided with final
salary pension benefits the pension provisions for the ukbased
executive directors are designed to provide a pension of one
thirtieth of final salary at age 60 for each year of service subject 
to a maximum of two thirds of final salary including any pension
rights earned in previous employment within the pension
schemes the pensionable salary is normally the base salary in 
the 12 months prior to leaving the company life assurance
provision of four times pensionable salary and a spouse’s pension
equal to two thirds of the executive director’s pension are
provided on death
ukbased executive directors who joined the company after
31 may 1989 have been able to participate in an unfunded
scheme in respect of those benefits earned on pay above the 
hm revenue and customs earnings cap an appropriate
provision in respect of the unfunded scheme has been made 
in the company’s balance sheet
in response to the new pensions taxation legislation which came
into force on 6 april 2006 a day the remuneration committee
ensured the pension policy post a day did not provide the
executive directors with additional benefit accrual as a result of
the change in pensions taxation the current ukbased executive
directors have elected to participate in the unfunded scheme in
respect of any benefits in excess of the lifetime allowance or
their personal lifetime allowance these executive directors are
able to cease accrual in the pension schemes and take a 30
cash allowance in lieu of pension if they so wish in the future
these choices are in line with those offered to current senior
employees in the company except the cash allowance varies
depending upon organisational grade
mike jesanis participates in a qualified pension plan and an
executive supplemental retirement plan provided through national
grid’s us companies these plans are noncontributory defined
benefit arrangements benefits are calculated using a formula
based on years of service and highest average compensation over
five consecutive years in line with many us plans the calculation
of benefits under the arrangements takes into account salary
bonuses and incentive share awards the deferred share plan
but not share options or the psp awards the normal retirement
age under the qualified pension plan is 65
noncash benefits
the group provides competitive benefits to executive directors
such as a fully expensed car or a cash alternative in lieu of car
and fuel use of a driver when required private medical insurance
and life assurance ukbased executive directors with fewer than
five years’ continuous service who were previously executive
directors of national grid group plc are provided with longterm
illhealth insurance business expenses incurred are reimbursed in
such a way as to give rise to no benefit to the director
flexible benefits plan
additional benefits eg healthcare and insurance products may
be purchased under the flexible benefits plan the plan in the
uk the plan operates by way of salary sacrifice the participants’
salaries are reduced by the monetary value used to purchase
benefits under the plan one executive director steve lucas
participates in this plan and details of the impact on his salary 
are shown in table 1 
a similar plan is offered to usbased employees however it is
not a salary sacrifice plan and therefore does not affect salary
values mike jesanis participates in this plan 
share ownership guidelines
executive directors are encouraged to build up and retain 
a shareholding of at least 100 of annual salary 
executive directors’ service contracts
service contracts for all executive directors provide for one 
year’s notice by either party the remuneration committee
operates a policy of mitigation of losses in the event of an
executive director’s employment being terminated by the 
group if this occurs the departing executive director would 
be expected to mitigate any losses incurred as a result of the
termination therefore entitlement to the payment of 12 months’
remuneration on early termination is not automatic but based on
the circumstances of the termination
nonexecutive directors’ remuneration
nonexecutive directors’ fees are determined by the executive
directors nonexecutive directors’ remuneration comprises an
annual fee £35000 and a fee for each board meeting attended
£1500 with a higher fee for meetings held outside the non
executive director’s country of residence £3000 an additional
fee is payable for chairmanship of a board committee and for
holding the position of senior independent director £12500
the audit committee chairman receives a chairmanship 
fee of £15000 to recognise the additional responsibilities
commensurate with this role the chairman is covered by 
the company’s personal accident and private medical insurance
24 summary directors’ remuneration report annual review 200506
national grid schemes and the company provides him with life assurance
cover a car with driver when appropriate and fuel expenses
nonexecutive directors do not participate in the annual bonus
plan or in any longterm incentive scheme nor do they receive
any pension benefits from the group
nonexecutive directors’ letters of appointment
the chairman’s letter of appointment provides for a period of six
months’ notice to give the group reasonable security with regard to
his service the terms of engagement of nonexecutive directors
other than the chairman are also set out in letters of appointment
for all nonexecutive directors their initial appointment and any
subsequent reappointment is subject to election by shareholders
directors’ emoluments
the aggregate amount of emoluments paid to or receivable by
directors in respect of qualifying services in the year to 
31 march 2006 was £6534000
year 
ended
31 march
table 1 executive directors year ended 31 march 2006 2005
benefits benefits
annual in kind in kind
salary bonus cash i noncash total total
£000s £000s £000s £000s £000s £000s
r urwin ii iii 765 734 – 19 1518 1125
s holliday ii iv v 425 425 – 20 870 660
s lucas ii vi vii viii 417 407 – 24 848 648
n winser ii ix 385 366 – 20 771 531
m jesanis ii x xi xii 469 385 7 13 874 446
e astle ii xiii 400 336 12 11 759 622
total 2861 2653 19 107 5640 4032
i benefits in kind comprise benefits such as a fully expensed car driver private medical
insurance and life assurance
ii each of the executive directors is accruing retirement benefits under a defined benefit
pension arrangement no executive director except mike jesanis participates in any
money purchase pension arrangement through the group see xii below
iii roger urwin exercised four share match awards over 17425 shares the market
price at the date of exercise was 528p and he was required to pay 100p per award
he also received £15704 in respect of a cash payment in lieu of dividends on
exercise of these share match awards
iv steve holliday’s salary was increased to £600000 on 1 april 2006 on appointment
to deputy group chief executive
v the total for 2005 for steve holliday includes as disclosed last year an additional ex
gratia bonus of £80000 paid on completion of the sales of four of the uk gas
distribution networks
vi 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 £3050 is included in the benefits in kind noncash figure
vii steve lucas exercised a sharesave option granted at 350p over 2700 shares the
market price at the date of exercise was 603p
viii in november 2005 101057 shares at a market price of 51153p were automatically
released at no cost to steve lucas under the lattice long term incentive scheme
ix nick winser exercised a share match award over 2509 shares the market price at
the date of exercise was 598p and he was required to pay 100p in total he also
received £1976 in respect of a cash payment in lieu of dividends on exercise of the
share match award nick winser also exercised executive share option awards as
follows 10633 shares with an exercise price of 37575p and market price on
exercise of 6105p 47236 shares with an exercise price of 45525p and market
price on exercise of 6105p and 37383 shares with an exercise price of 4815p and
market price on exercise of 598p
x mike jesanis’s values use an exchange rate averaged over the year 1 april 2005 to
31 march 2006 of us179£1 the exchange rate for the previous year was us187£1
xi mike jesanis’s bonus includes a payment worth £4787 in respect of his participation 
in the usa goals program described on page 23
xii the group made contributions in the us worth £6058 to a money purchase pension
arrangement in respect of mike jesanis’s thrift plan participation the exchange rate
used as at 31 march 2006 was us174£1
xiii edward astle exercised an executive share option over 74841 shares with an
exercise price of 43425p and market price on exercise of 5945p he also exercised
a sharesave option granted at 397p over 2392 shares the market price at the date
of exercise was 527p
year
ended
31 march
table 2 nonexecutive directors year ended 31 march 2006 2005
other
emolu
fees ments total total
£000s £000s £000s £000s
sir j parker i 400 45 445 406
k harvey 67 – 67 58
j allan ii 45 – 45 –
j grant 67 – 67 65
p joskow 74 – 74 73
s pettit 68 – 68 58
m richter 61 – 61 66
g rose 67 – 67 61
total 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
performance graph
the graph below represents the comparative tsr performance 
of the group from 31 march 2001 to 31 march 2006 for the
period before the merger of national grid group plc and lattice
group plc the tsr shown is that of national grid group plc
this graph represents the group’s performance against the
performance of the ftse 100 index which is considered suitable
for this purpose as it is a broad equity market index of which
national grid is a constituent this graph has been produced in
accordance with the requirements of schedule 7a to the
companies act 1985
in drawing this graph it has been assumed that all dividends have
been reinvested the tsr level shown at 31 march each year is
the average of the closing daily tsr levels for the 30day period
up to and including that date
3103
2001
3103
2002
3103
2003
3103
2004
3103
2005
3103
2006
140
120
100
80
60
40
20
0
national grid plcnational grid group plc ftse 100 
source datastream
national grid plcnational grid group plc
tsr v ftse 100      tsr
summary directors’ remuneration report 25 annual review 200506
national grid summary group income statement
for the years ended 31 march
2006 2005 i
£m £m
group revenue 9193 7382
other operating income 80 70
operating costs 6834 5310
operating profit
– before exceptional items and remeasurements 2527 2443
– exceptional items and remeasurements 88 301
total operating profit 2439 2142
interest income and similar income 1038 946
interest expense and other finance costs
– before exceptional items and remeasurements 1644 1652
– exceptional items and remeasurements 57 –
1701 1652
share of posttax results of joint ventures 3 3
profit before taxation
– before exceptional items and remeasurements 1924 1740
– exceptional items and remeasurements 145 301
total profit before taxation 1779 1439
taxation
– before exceptional items and remeasurements 597 437
– exceptional items and remeasurements 35 118
total taxation 562 319
profit from continuing operations after taxation
– before exceptional items and remeasurements 1327 1303
– exceptional items and remeasurements 110 183
profit for the year from continuing operations 1217 1120
profit for the year from discontinued operations
– before exceptional items 43 352
– exceptional items 2590 48
2633 304
profit for the year 3850 1424
attributable to
– equity shareholders of parent company 3848 1424
– minority interests 2 –
3850 1424
earnings per share from continuing operations
– basic 428p 363p
– diluted 426p 362p
earnings per share
– basic 1356p 462p
– diluted 1350p 460p
dividends per ordinary share paid during the year 254p 204p
dividends per ordinary share approved or proposed to be paid 261p 237p
i refer to basis of preparation and accounting policies on page 28 for the basis of preparation of comparatives under international financial
reporting standards
26 summary financial statement annual review 200506
national grid
exceptional items and
remeasurements
material nonrecurring items
and certain remeasurement
gains or losses arising from
movements in the carrying
value of commodity contracts
and financial instruments
profit for the year from
discontinued operations
the profit on disposal and
results of four uk gas
distribution networks sold on
1 june 2005 and citelec an
argentinian joint venture sold
in august 2004
earnings per share
basic – profit attributable to
equity shareholders divided by
the weighted average number
of ordinary shares in issue
during the year 
diluted – as per the basic
calculation but assuming that
new ordinary shares have been
issued on the exercise of share
options that have been granted
dividends per ordinary share
paid during the year –
represents cash paid to
shareholders during the year
ended 31 march
approved or proposed to be
paid – represents the interim
dividend paid and final dividend
proposed in respect of the year
ended 31 march
other operating income
other operating income
represents income on disposal
of property plant and
equipment principally
properties disposed of by the
group’s property management
business summary group balance sheet
at 31 march
summary financial statement 27
2006 2005 i
£m £m
noncurrent assets 22106 25596
current assets 3818 1964
total assets 25924 27560
current liabilities 5683 5974
noncurrent liabilities 16748 19465
total liabilities 22431 25439
net assets 3493 2121
equity
total shareholders’ equity 3482 2111
minority interests 11 10
total equity 3493 2121
i refer to basis of preparation and accounting policies on page 28 for the basis of preparation of comparatives under international financial
reporting standards
this summary financial statement was approved by the board of directors on 17 may 2006 and was
signed on its behalf by
sir john parker chairman
steve lucas group finance director
annual review 200506
national grid
total assets
includes goodwill and other
intangible assets property
plant and equipment
investment in joint ventures
inventories trade and other
receivables deferred tax assets
financial investments derivative
financial assets cash and 
cash equivalents
total liabilities
includes borrowings and
overdrafts derivative financial
liabilities trade and other
payables tax liabilities
provisions and pensions and
other postretirement benefit
obligations
2006 2005
net income £m £m
profit for the year attributable to
equity shareholders under ifrs 3848 1424
adjustments to conform with us gaap
depreciation of property plant and equipment 127 233
us regulatory accounting 269 246
pensions and other postretirement benefits 56 2
financial instruments 130 254
severance costs 63 62
revenue recognition 48 13
amortisation of intangibles 2 2
interest on discounted provisions 14 –
deferred taxation 208 28
discontinued operations 2037 –
other 3 2
total us gaap adjustments 2541 120
net income under us gaap 1307 1304
basic earnings per share 482p 482p
diluted earnings per share 480p 479p
2006 2005
total shareholders’ equity £m £m
total shareholders’ equity under ifrs 3482 2111
adjustments to conform with us gaap
property plant and equipment fair value 
adjustments 2162 3116
goodwill 2689 4027
us regulatory accounting 2702 2746
pensions and other postretirement benefits 886 944
financial instruments 119 117
severance liabilities 2 65
revenue recognition 42 6
intangible assets 28 30
provisions 154 130
nonreversal of impairments 39 29
deferred taxation 2090 2441
other 2 29
total us gaap adjustments 6265 8480
shareholders’ equity under us gaap 9747 10591
note to summary financial statement
difference between ifrs and us accounting principles
the group prepares its accounts in accordance with ifrs which differs in certain respects from us gaap  the significant adjustments
necessary to restate net income and equity shareholders’ funds in accordance with us gaap are set out below
minority interests
minority shareholders in certain
of the group’s subsidiary
undertakings 28 basis of preparation and accounting policies auditors’ statement and independent verifier’s statement annual review 200506
national grid
basis of preparation 
and accounting policies
the summary financial statement represents an abridged version
of the financial statements in the national grid annual report and
accounts 200506 which are prepared on the basis of
international financial reporting standards ifrs as adopted by
the european union eu a reconciliation of net income and
equity shareholders’ funds from ifrs to us gaap is shown in the
note to the summary financial statement
adoption of international financial reporting
standards
with effect from 1 april 2005 national grid plc is required to
report its consolidated financial statements in accordance with
ifrs the tables below present the impact of conversion from uk
generally accepted accounting principles uk gaap to ifrs on
profit for the year ended 31 march 2005 and net assets at
31 march 2005
for the year ended 31 march 2005 £m
profit for the year before minority interests 
under uk gaap 907
ifrs measurement adjustments
replacement expenditure 236
derecognition of regulatory assets 151
goodwill amortisation 109
amortisation of intangible assets other than goodwill 4
pensions and other postretirement benefits 41
deferred taxation 11
other adjustments 6
516
ifrs presentation adjustments
nonequity minority interests 2
share of results of joint ventures 3
1
profit for the year under ifrs 1424
less profit for the year under ifrs – discontinued operations 304
profit for the year under ifrs – continuing operations 1120
at 31 march 2005 £m
net assets under uk gaap 1391
ifrs measurement adjustments
replacement expenditure 3014
derecognition of regulatory assets 1587
goodwill 28
intangible assets other than goodwill 99
pensions and other postretirement benefits 1149
deferred taxation 95
proposed final dividend 469
other adjustments 27
752
ifrs presentation adjustments
nonequity minority interests 22
net assets under ifrs 2121
amounts shown above are net of any related deferred tax on the
underlying ifrs adjustment
explanations of the uk gaap to ifrs adjustments have been
provided in the group’s annual report and accounts 200506
available on the group’s website on wwwnationalgridcom
independent auditors’
statement to the members
of national grid plc
we have examined the summary financial statement of national
grid plc which comprises the summary group income
statement summary group balance sheet summary directors’
report and summary directors’ remuneration report
respective responsibilities of directors and auditors
the directors are responsible for preparing the summarised
annual review in accordance with applicable law our responsibility
is to report to you our opinion on the consistency of the summary
financial statement within the summarised annual review with
the annual financial statements the directors’ report and the
directors’ remuneration report and its compliance with the
relevant requirements of section 251 of the united kingdom
companies act 1985 and the regulations made thereunder 
we also read the other information contained in the summarised
annual review and consider the implications for our report 
if we become aware of any apparent misstatements or material
inconsistencies with the summary financial statement this
statement including the opinion has been prepared for and 
only for the company’s members in accordance with section 251
of the united kingdom companies act 1985 and for no other
purpose we do not in giving this opinion accept or assume
responsibility for any other purpose or to any other person to
whom this statement is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing
basis of opinion
we conducted our work in accordance with bulletin 19996 ‘the
auditors’ statement on the summary financial statement’ issued
by the auditing practices board for use in the united kingdom
opinion
in our opinion the summary financial statement is consistent
with the annual financial statements the directors’ report and
the directors’ remuneration report of national grid plc for the
year ended 31 march 2006 and complies with the applicable
requirements of section 251 of the united kingdom companies
act 1985 and the regulations made thereunder
pricewaterhousecoopers llp
chartered accountants and registered auditors
london 17 may 2006
independent verifier’s
statement on corporate
responsibility 
national grid has asked urs verification ltd ursvl to
undertake third party assurance of the corporate responsibility
elements of the annual report and accounts 200506 and
annual review 200506 information on the scope of ursvl’s
assurance activities and its opinion may be found on page 90 
of the annual report and accounts 200506 and on the group’s
website wwwnationalgridcomcorporateourresponsibility
assurance
belinda howell director
for and on behalf of urs verification ltd
london may 2006 shareholder information 29 annual review 200506
national grid
annual report and accounts
national grid shareholders will receive an annual review each
year unless they have requested the annual report and
accounts if you wish to receive the annual report and accounts
a larger document containing the full accounts and notes to the
accounts and more detailed information on the business you
should contact capita registrars
for the assistance of visually impaired shareholders audio tape
braille and large print versions of the annual review are available 
if you wish to receive any of these documents please contact
capita registrars
duplicate accounts
if you received two or more copies of the annual review and
multiple cheques for each dividend payment you will have more
than one shareholder account
to receive just one annual review and one cheque for each
dividend payment please contact capita registrars and ask 
to amalgamate your accounts
dividends
national grid normally pays dividends twice each year an interim
dividend in january and a final dividend in august
choosing to have dividends paid directly into your chosen bank
or building society account means that money will be available
on the day of payment there will be no delay paying cheques into
your account cheques cannot be lost and a tax voucher is still
provided for your records
over 530000 national grid shareholders already choose to have
dividends paid to them directly to request direct payment of your
dividends please contact capita registrars
dividend reinvestment plan
a dividend reinvestment plan drip has now been introduced
that will allow participating shareholders to use dividend
payments to purchase additional shares in national grid 
the drip will begin operation from the payment of the 200506
final dividend payment in august 2006 shareholders wishing to
participate should contact capita registrars
share dealing
a lowcost share dealing service is available from capita
registrars allowing you to buy and sell national grid shares by
telephone and online trading by telephone or online allows you
to know the price of the shares at the time you deal
for more information please call 0870 458 4577 8am – 430pm
or visit wwwcapitadealcom
a postal dealing service is also available for a postal dealing
form please call 0870 162 3116
these details are provided for information only and any action you
take is at your own risk if you have any doubt as to the action
you should take you are recommended to seek your own
financial advice from your stockbroker bank manager accountant
or other independent financial adviser authorised pursuant to the
financial services and markets act 2000
individual savings accounts isas
isas for national grid shares are available from stocktrade
options include national grid maxi stocks and shares isa 
and national grid mini stocks and shares isa further information
may be obtained from the account manager 
stocktrade 
81 george street edinburgh eh2 3es
telephone 0131 240 0443
website
wwwstocktradecoukngtsharedealingsharedealingmainhtm
you may also consolidate other peps and isas by transferring
them to your national grid account national grid cannot advise
you on what action if any you should take
sharegift
if you hold only a few shares and feel that it would be
uneconomical or just not worthwhile to sell them you could
consider donating your shares to charity
sharegift is an independent registered charity no 1052686 that
provides a free service for shareholders wishing to give small
holdings of shares to benefit charitable causes there are no
capital gains tax implications ie no gain or loss on gifts of shares
to charity and it is also possible to obtain income tax relief since
its launch in 1996 sharegift has been able to give millions of
pounds to hundreds of different uk charities
further information can be obtained at wwwsharegiftorg or from
capita registrars
shareholder networking
national grid continues to operate its shareholder networking
programme allowing shareholders to learn more about the
business by visiting operational sites and meeting directors
senior managers and staff
these visits allow us to explain the business to shareholders in
person and for shareholders to ask any questions about the
group this year’s visit is planned for early december
if you would like to take part in this visit please write to
shareholder networking organiser
national grid house warwick technology park gallows hill
warwick cv34 6da
participants will be selected from those applying with priority
given to those who have not previously attended
website
more information about national grid is available on the group
website at wwwnationalgridcom and includes current and
historical share price information previous annual reports and
accounts and information about each of the group businesses
shareholder information financial calendar
the following dates have been announced or are indicative 
of future dates
7 june 2006 ordinary shares exdividend
9 june 2006 ordinary share 200506 final dividend record date
12 july 2006 drip application deadline 200506 final dividend
31 july 2006 2006 annual general meeting
7 aug 2006 b share continuing dividend payment date
8 aug 2006 further repurchase of b shares as elected
23 aug 2006 ordinary share 200506 final dividend payment date 
16 nov 2006 200607 interim results
29 nov 2006 ordinary shares exdividend
1 dec 2006 ordinary share 200607 interim dividend record date
8 dec 2006 drip application deadline 200607 interim dividend
24 jan 2007 ordinary share 200607 interim dividend payment date 
may 2007 200607 preliminary results
june 2007 ordinary shares exdividend
june 2007 ordinary share 200607 final dividend record date
july 2007 drip application deadline 200607 final dividend
july 2007 2007 annual general meeting
aug 2007 b share continuing dividend payment date
aug 2007 final repurchase of b shares as elected
aug 2007 conversion of remaining b shares
aug 2007 ordinary shares 200607 final dividend payment date 
queries – ordinary shareholders
any queries from holders of ordinary shares should be directed to
capita registrars
national grid share register
capita registrars
northern house
woodsome park
fenay bridge
huddersfield hd8 0la
telephone 0870 242 2379 
from outside the uk 44 20 7098 1198
textphone 18001 0870 242 2379
fax 0870 240 1286 
from outside the uk 44 1484 600 702
email nationalgridcapitaregistrarscom
website wwwnationalgridcomshareholders
queries – american depositary shares
any queries from holders of american depositary shares should
be directed to the bank of new york
the bank of new york
shareholders correspondence
po box 11258
church street station
new york ny 102861258
telephone 18004667215 
for international calls 12128153700
email shareownersbankofnycom
website wwwadrbnycom
cautionary statement
this document contains certain statements
that are neither reported financial results nor
other historical information these statements
are forwardlooking statements within the
meaning of section 27a of the securities act
of 1933 as amended and section 21e of
the securities exchange act of 1934 as
amended because these forwardlooking
statements are subject to assumptions risks
and uncertainties actual future results may
differ materially from those expressed in or
implied by such statements many of these
assumptions risks and uncertainties relate
to factors that are beyond our ability to control
or estimate precisely such as delays in
obtaining or adverse conditions contained
in regulatory approvals and contractual
consents including those required to
complete the announced us acquisitions
when or as planned unseasonable weather
affecting demand for electricity and gas
competition and industry restructuring
changes in economic conditions currency
fluctuations changes in interest and tax
rates changes in energy market prices
changes in historical weather patterns
changes in laws regulations or regulatory
policies developments in legal or public
policy doctrines the impact of changes 
to accounting standards and technological
developments other factors that could
cause actual results to differ materially from
those described in this document include 
the ability to integrate the businesses relating
to the announced us acquisitions with the
group and realise the expected synergies
from such integration the availability of new
acquisition opportunities and the timing and
success of future acquisition opportunities
the impact of the sales of businesses by 
the group the failure for any reason to
achieve reductions in costs or to achieve
operational efficiencies the failure to retain
key management the behaviour of uk
electricity market participants on system
balancing the timing of amendments in
prices to shippers in the uk gas market 
the performance of our pension schemes 
and the regulatory treatment of pension
costs and any adverse consequences
arising from outages on or otherwise affecting
energy networks including gas pipelines
which we own or operate for a more detailed
description of some of these assumptions
risks and uncertainties together with any
other risk factors please see our filings with
and submissions to the us securities and
exchange commission and in particular the
‘risk factors’ and ‘operating and financial
review’ sections in our most recent annual
report on form 20f readers are cautioned
not to place undue reliance on these forward
looking statements which speak only as 
of the date of this document except as
required by law or regulation national grid
does not undertake any obligation to release
publicly any revisions to these forwardlooking
statements to reflect events or circumstances
after the date of this document
the paper in this document contains a mixture
of fibre from fsc certified forests and recycled pulps
both the paper mill and the printer involved in its
production are certified with iso 9001 and iso 14001
designed and produced by corporate edge
printed by st ives 
national grid plc
13 strand london wc2n 5eh united kingdom
registered in england and wales no 4031152
uk shareholder enquiries 0870 242 2379
us shareholder enquiries 18004667215
wwwnationalgridcom
email nationalgridcapitaregistrarscom
website wwwnationalgridcomshareholders
telephone 0870 242 2379 
from outside the uk 44 20 7098 1198
email shareownersbankofnycom
website wwwadrbnycom
telephone 18004667215 
for international calls 12128153700
capita registrars the bank of new york


Summary:
 04 group chief executive’s review annual report and accounts 200506
national grid
group chief executive’s review
our aim to be the world’s premier network utility 
and the delivery of our strategy are both at the heart 
of our daytoday activities 
strategy
as an infrastructurebased network
provider it is essential that we deliver high
standards of service and reliability as well
as outperforming our benchmarks and
regulatory targets we need to continue
managing our regulatory relationships
successfully to benefit both our customers
and shareholders our disciplined approach
to capital management remains paramount 
progress
delivering our strategy involves the
continued focus on our key strengths of
operational excellence our ability to exceed
our efficiency targets and our prudent 
use of capital investment in our current
businesses and strategic opportunities are
made only where we believe we can create
shareholder value 
our regulatory controls provide significant
incentives towards improving operational
efficiency by permitting the sharing of the
benefits of increased efficiencies between
energy users and shareholders this year
we added to national grid’s impressive
costefficiency track record when uk gas
distribution achieved its costefficiency
target one year early
investment
†
investment in our networks remains a
priority for the group total investment
reached £2 billion this year up by one third
over last year’s £15 billion we project a
further rise to around £25 billion per annum
over the next five years investment is rising
across the group with the largest increases
in our uk regulated businesses
new investment in uk electricity
transmission is being driven largely by 
asset replacement which reflects the age
and condition of the network uk gas
transmission investment is also increasing
but here it is primarily due to new
infrastructure required to meet the changing
gas supply pattern as the uk becomes a net
importer of gas this includes our largest
ever project connecting the new liquefied
natural gas lng terminals currently being
built at milford haven this will require
investment of more than £750 million over
the next two years 
our disciplined approach to capital
management is also reflected in the strategic
moves we made during the year on 1 june
2005 we completed the sales of four of
our regional gas distribution networks for 
a total cash consideration of £58 billion 
this creates what is in effect a new gas
distribution market in the uk we have
retained four of the networks which together
represent the largest of the uk gas
distribution businesses we look forward to
setting new levels of efficiency for the benefit
of both our customers and shareholders
the network sales led directly to the
£2 billion return of value to shareholders 
at 65 pence per share which we made in
august this was one of the largest returns
of value ever for a uk company
this year we also commissioned phase i 
of our lng import terminal at the isle of
grain in kent the facility has the capability
to import and process 33 million tonnes 
of lng per year construction of phase ii 
is now under way which will triple capacity
by the end of 2008 when complete our
total investment will be around £500 million
and the facility will have the capacity to
import around 13 of the current uk annual
gas demand
in february 2006 we announced the
agreed acquisition of keyspan corporation
a major us energy delivery company for
73 billion £42 billion plus assumed debt
of approximately 45 billion £26 billion 
£2527m 
adjusted operating
profit
adjusted operating profit 
by business £m
 844 uk electricity and gas transmission
 127 us electricity transmission
 483 uk gas distribution
 364 us electricity and gas distribution
 489 us stranded cost recoveries
 75 wireless infrastructure
 145 other activities
844
127
483
364
489
75
145
†
continuing operations
 excludes the impact of exceptional items and remeasurements group chief executive’s review 05 annual report and accounts 200506
national grid
it is the largest distributor of natural gas 
in the northeastern us with approximately
26 million customers in the same month
we announced the acquisition of gas
distribution assets from the southern union
company for cash consideration of
498 million £286 million and assumed
debt of 77 million £44 million
both acquisitions have an excellent
strategic operational and geographic fit
they are a natural extension of our business
and will expand the group’s growth
platform as well as creating substantial
opportunities for new cost savings 
financial performance
†
the group’s financial performance for
200506 has been strong adjusted 
profit before tax and adjusted earnings 
per share were 11 and 10 higher
respectively than last year while operating
cash flows were more than £3 billion
the performance of all our individual
businesses has been encouraging uk
transmission has entered an investmentled
growth phase during the year the group
invested £584 million in new electricity and
gas infrastructure and a further £265 million
replacing assets that were nearing the end
of their useful technical life the increased
investment as well as the writeoff of certain
assets led to an increase in depreciation
and amortisation this increase was
partially offset by successful capacity
auctions resulting in adjusted operating
profit of £844 million compared with 
£859 million last year us electricity
transmission had another good year with
adjusted operating profit of £127 million
uk gas distribution results were particularly
strong as adjusted operating profit was 
up 14 at £483 million compared with
£424 million last year this performance is
primarily due to the reduction in operating
expenditure excluding shrinkage which
was down £52 million as a result of our
‘way ahead’ programme controllable
costs have been cut by 35 in real terms
since march 2002
adjusted operating profit for us electricity
and gas distribution was down 3 at
£364 million primarily due to timing
differences related to pension charges and
commodity costs the majority of these costs
will be recovered in future periods adjusting
for these items profits were broadly flat
since weathernormalised residential
volume growth of 17 was offset by
higher depreciation and amortisation
the enlarged wireless infrastructure
business had a strong first full year as a
member of the group adjusted operating
profit was £75 million and the business
met its £18 million annualised cash 
synergy target growth from broadcast
was particularly strong reflecting the
successful launch of three new channels
we are expecting doubledigit organic
operating profit growth over the medium term
other activities contributed £145 million to
adjusted operating profit a decrease of
£7 million from 200405 national grid
metering has delivered strong performance
with adjusted operating profit up £28 million
the business made good progress in driving
operational efficiency which together with
growth in our competitive metering business
more than offset a decline in regulated
metering revenue adjusted operating profit
from national grid property at £88 million
was £14 million less than last year national
grid grain our new lng import terminal
contributed £6 million of adjusted operating
profit after coming on line in july
safety
safety is at the centre of everything we 
do over the past 12 months we have 
maintained an encouraging improvement in
our safety performance across the group
against these very significant improvements
over the past three years it is all the more
tragic that one of our colleagues was
overcome by gas and died while relaying
a gas service pipe in our uk gas
distribution business 
this very sad incident underlines the
fundamental importance of safety in all 
that we do it serves as a stark reminder 
to ensure that we continue to develop and
implement ever safer ways of working for
the protection of ourselves our colleagues
our contractors and members of the public 
outlook
the environment in which national grid
operates is ever more challenging and
complex however i am confident that 
we have a strong and clear strategy that
underpins everything we do and that will
benefit all our stakeholders our growth is
expected to be driven by new investments
new efficiencies and selected expansion 
in our current businesses 
you will have seen from sir john’s
statement that i intend to retire at the end
of 2006 it has been my privilege to lead
national grid through a series of major
changes our success is built on the talent
commitment and effort of everyone in
national grid with that continuing support
and his outstanding record leading uk
transmission and uk distribution i am
confident that steve holliday will lead 
the group to new levels of success
roger urwin 
group chief executive