Fiscal Years 2004/2005 Pursuing Environmental Excellence

04_05 Environ Annual Report_restored.qxd 08/10/2005 2:29 PM Page 1 National Grid’s U.S. Environmental Report Fiscal Years 2004/2005 Pursuing Environmental Excellence natioionalgr d 04_05 Environ Annual Report_restored.qxd 08/10/2005 2:29 PM Page 2 Cover Photo The Red-spotted Newt, also known as the Eastern Newt, in its Eft stage. The Red-spotted Newt and many species of amphibians are hatched in water, including vernal pools, throughout the Northeast in the spring time. Today, vernal pools are as threat- ened as the species they harbor. National Grid’s Paul Richards (photo page 28) has co-authored a paper recommending new “standards of care” to help National Grid and others in the power industry protect vernal pools and their inhabitants within electrical transmission rights of way. 04_05 Environ Annual Report_restored.qxd 08/10/2005 2:29 PM Page 1 A Message from the CEO At National Grid we are as proud of our reputation for delivering energy safely, reliably and efficiently, as we are of our efforts to protect the environment for future generations. Our commitment to the environment is more than just a priority. It is the way we do business. Each day at National Grid we apply our own natural resources to protecting the environment…our people. From a service technician on a house call to an administrator in our Westborough, Massachusetts headquarters, National Grid employees are encouraged to apply innovative thinking to reduce waste, pre- vent pollution and improve our environmental performance. With our commitment to helping meet the needs of customers both today and for generations to come, the people of National Grid are identify- ing and adopting environmentally sustainable practices and working to minimize the impact our operations might have on the environment. Over the last two years we have done much to clean up haz- ardous waste sites, reduce pollution, recycle waste and preserve land for future generations. We expanded our commitment to the EPA SF6 Emission Reduction Partnership, a voluntary program to reduce emissions of sulfur hexafluoride (SF6), a highly potent greenhouse gas used for insulation in electric transm ission and distribution equipment. We took steps to reduce methane gas leakage in New York by replacing old cast iron natural gas distribution mains with polyethylene pipe. We continue to promote the purchase of electricity from such non-polluting sources as wind, solar, biomass and small hydro resources and to provide technical and financial assistance for customer energry conservation. And our foresters and environmental engineers took steps to protect the wildlife that thrives on our more than 8,700 miles of transmission rights of way. Within this report you will meet some of the many National Grid employees who monitor the environmental impact of our business activities. You’ll find details on our strategies, policies and programs. And you’ll learn about our successes and chal- lenges in the area of environmental performance. Finally, at National Grid we strive to build mutual under- standing and respect through open communication with our employees and all of our stakeholders – investors, customers, regulators and neighbors. Your input is important to us. We welcome your feedback on this report and encourage your suggestions. Thank you for your ongoing support. 1 Mike Jesanis President and Chief Executive Officer National Grid USA 04_05 Environ Annual Report_restored.qxd 08/10/2005 2:30 PM Page 3 Table of Contents Company Profile ....................................................... 4 Leadership, Management Systems and Training ............................................................. 6 Programs Promoting Energy Efficiency and Conservation .................................................... 7 Renewable Energy Programs ................................... 11 Waste Reduction and Recycling............................... 13 Pollution Prevention ................................................ 16 Contaminated Site Remediation............................... 22 Environmental Stewardship ..................................... 24 Performance Measurement .................................... 29 Compliance Audit Program ..................................... 30 Legal Notices .......................................................... 31 Goal Setting ........................................................... 33 Verification Statement ........................................... 34 For More Information .............................................. 37 Note: This National Grid Environmental Report covers the company’s fiscal year 2004 (April 1, 2003 through March 31, 2004) and fiscal year 2005 (April 1, 2004 through March 31, 2005). Reference to data and information associated with a National Grid fiscal year is always prefaced with “fiscal year” or “FY”. All years not prefaced with “fiscal year” are to be regarded as calendar years. National Grid Transco Ranked #1 for Environmental and Sustainability Reporting In July, 2005, the Roberts Environmental Center at Claremont McKenna College of Claremont, CA released their rankings for environmental and sustainability reporting by the world's largest energy and utility companies. National Grid Transco was the leader among the 46 companies studied. See page 36 3 National Grid’s U.S. service territory. 04_05 Environ Annual Report_restored.qxd 08/10/2005 2:30 PM Page 4 Company Profile National Grid USA, a wholly owned subsidiary of National Grid plc, is focused on delivering energy safely, reliably and efficiently. In the United States, we are a major electricity delivery company, with one of the largest distribution and transmission systems in the Northeast. In New York, we are also a leading distributor of natural gas. In England and Wales, National Grid owns and operates the high voltage electricity transmission system, and the company delivers natural gas to millions of homes in Britain. As one of the word’s largest utilities, we believe that a responsible approach to doing business is fundamental. We strive to act in a sustainable manner as a business, in our social role, and in how we interact with the environment. National Grid plc/Financial Highlights Fiscal Year 2003 2004 2005 Operating Revenues ($m) 17,181 16,510 15,575 Basic earnings (loss) per share (¢) 23.2 64.0 53.9 Dividends per share (¢) 31.4 36.2 43.3 Total Assets ($m) 45,519 42,765 45,167 Total Debt ($m) 35,278 32,858 34,633 Note: Financial results are converted from the British pound and expressed at the exchange rate on 6/27/05 National Grid US Operating Companies Electricity Transmission and Distribution Our five U.S. electricity distribution companies serve approximately 3.2 million customers over a network of 72,000 miles of distribution line covering approximately 29,000 square miles in New England and New York. 1.5 million electricity customers in 669 New York communities 1.2 million customers in 168 Massachusetts communities Distribution Facts 465,000 customers in 38 Rhode Island communities 38,000 customers in 21 New Hampshire communities 10,000 year-round customers on the island community of Nantucket National Grid owns and operates approximately 14,000 miles of electricity transmission and sub-transmission (23 kV and up) lines in New England and New York. We operate two converter facilities and high voltage direct current transmission lines as part of a New England-Hydro Quebec interconnection. Natural Gas Distribution National Grid delivers natural gas to more than 550,000 customers in 197 communities in central and eastern New York. The company maintains more than 8,400 miles of main and 4 distribution pipe across a 4,500 square mile service territory. Telecommunications Services National Grid supports the telecommunications industry with infrastructure and turnkey services and provides dark fiber optic capacity and related services to business, telephone companies and wireless providers. 04_05 Environ Annual Report_restored.qxd 08/10/2005 2:30 PM Page 5 National Grid plc Rated # 1 and #2 by Business in the Community Business in the Community (BITC) is a UK organization with more than 700 member companies and a further 1600 participating in programs and campaigns. BITC was created over 20 years ago to inspire, challenge, engage and support business in continually improving its positive impact on society. The BITC Corporate Responsibility Index was set up in 2002, and has quickly established itself as the authoritative voluntary benchmark of responsible business practice - over 140 companies are now using the benchmark. National Grid plc’s world-wide operations were rated first in the index in 2003 and second in 2004. National Grid plc is also a constituent of the Dow Jones Sustainability World Index and FTSE4Good, both of which track companies with high standards of environmental and social performance. Framework for Responsible Business Sustainable Growth, Profits with Responsibility, Investing in the Future National Grid is guided by the Framework for Responsible Business, which was created with input from thousands of employees, as well as investors, customers, regulators and media. The Framework sets out the principles by which we can grow our business and deliver long-term share- holder value, while making a positive contribution to society. It provides the context for our approach to corporate governance and is supported by policies addressing issues such as safety, business ethics and the environment. In The Framework for Responsible Business we commit ourselves

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