ACE BOWNE OF TORONTO 05/24/2010 10:57 NO MARKS NEXT PCN: 002.00.00.00 -- Page/graphics valid 05/24/2010 10:57 BOT U08763 001.00.00.00 41

Prospectus dated 25 May 2010 THIS DOCUMENT AND ANY ACCOMPANYING DOCUMENTS ARE IMPORTANT AND REQUIRE YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek immediately your own personal financial advice from your stockbroker, bank manager, solicitor, accountant, fund manager or other appropriate independent financial advisor, who is authorised under the Financial Services and Markets Act 2000 (the “FSMA”) if you are in the United Kingdom or, if not, from another appropriately authorised independent financial advisor. If you sell or have sold or otherwise transferred all of your Existing Shares (other than ex-rights) held in certificated form before 8:00 a.m. (London time) on 26 May 2010 (the “Ex-Rights Date”) please send this document, together with any Provisional Allotment Letter, if and when received, at once to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee except that, subject to certain exceptions, such documents should not be sent to any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including but not limited to the United States, the Excluded Territories or the Restricted Territories. If you sell or have sold or otherwise transferred all or some of your Existing Shares (other than ex-rights) held in uncertificated form before the Ex-Rights Date, a claim transaction will automatically be generated by Euroclear UK which, on settlement, will transfer the appropriate number of Nil Paid Rights to the purchaser or transferee. If you sell or have sold or otherwise transferred only part of your holding of Existing Shares (other than ex- rights) held in certificated form before the Ex-Rights Date, you should refer to the instruction regarding split applications in Part III “Terms and Conditions of the Rights Issue” of this document and in the Provisional Allotment Letter, if and when received.

National Grid plc (incorporated and registered in England and Wales under the Companies Act 1985 with registered number 4031152) AI, 5.1.1 AI, 5.1.2 2 for 5 underwritten Rights Issue of 990,439,017 New Shares at 335 pence per Share AIII, 4.1 AIII, 4.4 Morgan Stanley BofA Merrill Lynch Deutsche Bank AIII, 5.4.1 Lead Financial Advisor, Financial Advisor, Joint Sponsor, Joint Global Co-ordinator AIII, 5.3.1 Joint Sponsor, Joint Global Co-ordinator Joint Global Co-ordinator and Joint Bookrunner and Joint Bookrunner and Joint Bookrunner

This document, which comprises a prospectus relating to the Rights Issue prepared in accordance with the Prospectus Rules, has been approved by the Financial Services Authority (the “FSA”) in accordance with Section 87A of the FSMA and made available to the public in accordance with Rule 3.2 of the Prospectus Rules. The Company intends to request that the FSA provides a certificate of approval and a copy of this document to the relevant competent authorities in Cyprus, France, Germany, Greece, Ireland, Malta, the Netherlands and Spain pursuant to the passporting provision of the FSMA. The Nil Paid Rights, the Fully Paid Rights and the New Shares have not been and will not be registered under the US Securities Act of 1933 (the “US Securities Act”) or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer of the Nil Paid Rights, the Fully Paid Rights and the New Shares in the United States. The Nil Paid Rights, the Fully Paid Rights and the New Shares will also not be registered under the securities laws of any Excluded Territory or Restricted Territory and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within such jurisdictions except pursuant to an applicable exemption. In particular, subject to certain exceptions, this document, the Provisional Allotment Letter and any other such documents should not be distributed, forwarded to or transmitted in or into the United States, the Excluded Territories or the Restricted Territories. Accordingly, neither this document nor any advertisement or any other offering material may be distributed or published in any jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this document comes are required to inform themselves about and observe any such restrictions, including those set out in the preceding paragraphs. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. For further information on the manner of distribution of the Nil Paid Rights, Fully Paid Rights and New Shares, and the transfer restrictions to which they are subject, see Part III of this document. The Existing Shares are listed and admitted to trading on the London Stock Exchange’s main market for listed securities. Application will be made to the UK Listing Authority and to the London Stock Exchange for the New Shares to be admitted to the Official List of the UK Listing Authority and to trading on the main market for listed securities of the London Stock Exchange, respectively. It is expected that Admission will become effective and that dealings on the London Stock Exchange in the Nil Paid Rights will commence at 8:00 a.m. (London time) on 26 May 2010. Your attention is drawn to the letter from your Chairman which is set out on pages 20 to 24. You should read the whole of this document and any documents incorporated herein by reference. Shareholders and any other persons contemplating a purchase of New Shares should review the risk factors set out on pages 6 to 11 of this document for a discussion of certain factors that should be ACE BOWNE OF TORONTO 05/23/2010 17:37 NO MARKS NEXT PCN: 003.00.00.00 -- Page is valid, no graphics BOT U08763 002.00.00.00 21

considered when deciding on what action to take in relation to the Rights Issue and deciding whether or not to purchase Nil Paid Rights, Fully Paid Rights or New Shares. Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited, Merrill Lynch International and Deutsche Bank AG, London Branch, each of which is authorised and regulated in the United Kingdom by the FSA, are acting exclusively for the Company and no one else in connection with the Rights Issue and will not regard any other person (whether or not a recipient of this document) as a client in relation to the Rights Issue and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients or for providing advice in relation to the Rights Issue or any matters referred to in this document. Save for the sponsor’s responsibilities of Deutsche Bank AG, London Branch and Morgan Stanley & Co. International plc under the FSMA which are owed solely to the UKLA, Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited, Merrill Lynch International and Deutsche Bank AG, London Branch assume no responsibility whatsoever and make no representation or warranty express or implied, in relation to the contents of this document, including its accuracy, completeness or verification and nothing contained in this document is, or shall be, relied upon as a promise or representation in this respect whether as to the past or the future, in connection with the Company, the Nil Paid Rights, the Fully Paid Rights, the New Shares or the Rights Issue. Each of Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited, Merrill Lynch International and Deutsche Bank AG, London Branch accordingly disclaim to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise which they might otherwise be found to have in respect of this document or any such statement.

The latest time and date for acceptance and payment in full for the New Shares by holders of the Nil Paid Rights is expected to be AIII, 5.1.3 11:00 a.m. on 11 June 2010. The procedures for delivery of the Nil Paid Rights, acceptance and payment are set out in AIII, 5.1.8 paragraph 2.2 of Part III of this document and, for Qualifying Non-CREST Shareholders (other than, subject to certain exceptions, those who have registered addresses, or are resident, in the United States, the Excluded Territories or the Restricted Territories), also in the Provisional Allotment Letter. All Overseas Shareholders and any person (including, without limitation, a nominee, custodian or trustee) who has a contractual or legal obligation to forward this document or any Provisional Allotment Letter, if and when received, or other document to a jurisdiction outside the United Kingdom should read the information set out in paragraph 2.5 of Part III of this document. Any reproduction or distribution of this document, in whole or in part, and any disclosure of its contents or use of any information contained in this document for any purpose other than considering an acquisition of New Shares is prohibited. No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied upon as having been authorised by the Company or by the Banks. Neither the delivery of this document nor any subscription or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this document or that the information in this document is correct as at any time subsequent to its date. In making an investment decision, each investor must rely on their own examination, analysis and enquiry of the Company and the terms of the Rights Issue, including the merits and risks involved. The contents of the websites of the Group do not form part of this document. Certain information in relation to the Group is incorporated by reference into this document as set out in Part XII “Documentation Incorporated by Reference” of this document. Unless the context requires otherwise, capitalised terms used in this document have the meanings ascribed to them in Part XIII “Definitions” of this document.

WHERE TO FIND HELP Part II “ Some Questions and Answers about the Rights Issue” of this document answers some of the questions most often asked by Shareholders about rights issues. If you have further questions, please telephone the Shareholder Helpline on the numbers set out below. This helpline is available from 8:30 a.m. to 5:30 p.m. Monday to Friday (except UK bank holidays) and will remain open until 16 July 2010. Calls to the 0871 664 9235 number are charged at ten pence per minute if calling from a BT landline. Other telephone providers’ charges may vary. Calls to the +44 800 141 2950 number from outside the United Kingdom are charged at applicable international rates. Shareholder Helpline 0871 664 9235 (from inside the United Kingdom) or +44 800 141 2950 (from outside the United Kingdom) Please note that, for legal reasons, the Shareholder Helpline will only be able to provide information contained in this document and information relating to the Company’s register of members and will be unable to give advice on the merits of the Rights Issue or provide financial, investment, legal or tax advice.

ii ACE BOWNE OF TORONTO 05/23/2010 16:46 NO MARKS NEXT PCN: 004.00.00.00 -- Page is valid, no graphics BOT U08763 003.00.00.00 20

TABLE OF CONTENTS

SUMMARY...... 1 RISK FACTORS...... 6 RIGHTS ISSUE STATISTICS ...... 12 EXPECTED TIMETABLE OF PRINCIPAL EVENTS ...... 13 IMPORTANT INFORMATION ...... 14 DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISORS...... 18 PART I LETTER FROM THE CHAIRMAN OF NATIONAL GRID PLC...... 20 PART II SOME QUESTIONS AND ANSWERS ABOUT THE RIGHTS ISSUE ...... 35 PART III TERMS AND CONDITIONS OF THE RIGHTS ISSUE ...... 40 PART IV INFORMATION ON THE GROUP ...... 63 PART V REGULATORY ENVIRONMENT...... 73 PART VI OPERATING AND FINANCIAL REVIEW ...... 91 PART VII FINANCIAL INFORMATION ON THE GROUP ...... 92 PART VIII CAPITALISATION AND INDEBTEDNESS ...... 96 PART IX UNAUDITED PRO FORMA FINANCIAL INFORMATION ...... 98 PART X TAXATION ...... 101 PART XI ADDITIONAL INFORMATION...... 107 PART XII DOCUMENTATION INCORPORATED BY REFERENCE ...... 137 PART XIII DEFINITIONS ...... 139

iii ACE BOWNE OF TORONTO 05/23/2010 12:35 NO MARKS NEXT PCN: 005.00.00.00 -- Page is valid, no graphics BOT U08763 004.00.00.00 15

(This page intentionally left blank)

iv ACE BOWNE OF TORONTO 05/23/2010 12:35 NO MARKS NEXT PCN: 006.00.00.00 -- Page is valid, no graphics BOT U08763 005.00.00.00 24

SUMMARY

The following summary information should be read as an introduction to the more detailed information appearing PR 2.1.7 elsewhere in this document. Any investment decision relating to the Rights Issue should be based on the PR 2.2.10 consideration of the document as a whole and not solely on this summarised information. Where a claim relating to the information contained in this document is brought before a court in a member state of the European Economic Area, the claimant may, under the national legislation of that member state where the claim is brought, be required to bear the costs of translating this document before legal proceedings are initiated. Civil liability attaches to those persons who are responsible for this summary, including any translation of this summary, but only if this summary is misleading, inaccurate or inconsistent when read together with other parts of this document.

1 Background to and reasons for the Rights Issue

In November 2006, National Grid set out its strategy to focus primarily on the transmission and distribution of electricity and gas in its chosen markets of the United Kingdom and the United States. National Grid believes this strategy has maximised shareholder value by investing in organic growth under regulatory regimes and long-term contracts, by continuing to deliver operating efficiencies and by maintaining an efficient capital structure. In the United Kingdom, National Grid continues to focus investment on replacing ageing assets and on major infrastructure reinforcement. In the United States, National Grid is restoring baseline business performance through implementing new rate plans, strengthening its regulatory relationships and improving operating efficiency. Consistent with that focus, National Grid’s US investment strategy will be driven by its ability to earn long-term acceptable returns. National Grid believes its disciplined approach to investment delivers attractive, predictable and sustainable returns to investors. National Grid’s core strategy remains unchanged as the Group positions itself to respond to the ongoing developments in the UK energy landscape. In addition, National Grid intends to maintain its policy of targeting an eight per cent. per annum increase in dividend until 31 March 2012, after adjusting the 2009/10 dividend to take account of the bonus element of the Rights Issue. Beyond 2012, National Grid intends to pursue a policy that targets real growth in dividends reflecting the strong growth prospects of the business.

UK energy landscape and capital investment

Since 2006, there have been significant developments in the UK energy landscape focused on maintaining security of supply and reducing carbon emissions. Environmental targets, legislation, age-related power station retirements and the decline of the UK’s North Sea gas reserves are expected to result in a significant change in the generation mix between now and 2020. The Electricity Networks Strategy Group has identified the electricity transmission reinforcements needed to support the Government’s 2020 energy policy targets. National Grid has begun committing capital investment to a number of these projects under incentive arrangements provided by Ofgem. National Grid believes that this investment in transmission networks is essential to facilitate the timely connection of new generation and to meet current energy policy commitments.

National Grid’s capital expenditure has been steadily increasing in recent years in response to the changing energy environment and the need to replace end of life assets in its core regulated businesses. Capital expenditure reached a record £3.3 billion in 2009/10, of which £2.2 billion was focused on the United Kingdom. Over the next five years, we forecast capital expenditure to increase significantly — totalling approximately £22 billion in aggregate. Of that amount, we expect that approximately three-quarters of this investment will be made in the United Kingdom and around sixty per cent. will be in the transmission business. This significant increase in our UK capital expenditure over the period is required to: (i) increase investment in transmission asset replacement by £1.0 billion to continue to provide an efficient, economical and secure network in the future and (ii) invest £3.6 billion in reinforcing the on- shore transmission networks to enable connections of new generation in its core licence area to meet National Grid’s obligations under the existing regulatory framework and renewable energy policy targets.

National Grid expects this disciplined capital investment programme will be incorporated within National Grid’s existing and future UK regulatory arrangements and therefore will deliver attractive returns to shareholders. In addition, National Grid has identified a pipeline of investment opportunities within the United Kingdom (including potential investment in offshore transmission, interconnectors, expansion of the Group’s liquefied natural gas (“LNG”) import facility and CO2 networks associated with carbon capture and storage), which are aligned with its current core business. These opportunities would potentially require capital expenditure of up to £1.0 billion over the next five years. Investment in these opportunities is discretionary and may be contingent on a competitive tender process. Consequently, a commitment to invest will only be made if National Grid expects these opportunities to generate attractive returns.

1 ACE BOWNE OF TORONTO 05/23/2010 12:35 NO MARKS NEXT PCN: 007.00.00.00 -- Page is valid, no graphics BOT U08763 006.00.00.00 29

Maintaining single A credit ratings National Grid is committed to maintaining single A credit ratings for its UK operating companies. This rating optimises National Grid’s cost of capital and enhances its long-term competitive advantage. In prior years surplus capital has been returned to shareholders, consistent with this commitment to maintain an efficient balance sheet.

Reasons for the Rights Issue

The Board believes that raising £3.2 billion through the Rights Issue will give it the scope and appropriate financial AIII, 8.1 flexibility to deliver the Group’s strategy. In particular, the Board believes it will allow the Group to fund a significant increase in capital investment, and continue to deliver attractive returns to shareholders, whilst maintaining single A credit ratings for its UK operating companies in a more volatile economic environment. The Board also believes that raising equity today will strengthen the Company’s long-term competitive position to take advantage of an appropriate share of UK growth opportunities.

2 Use of proceeds The proceeds from the Rights Issue (amounting to approximately £3.2 billion net of expenses) will be used to fund a portion of National Grid’s UK capital investment programme, further details of which are described below, and for general corporate purposes. The Group’s UK capital investment programme over the next five years will focus on expenditure required to: • replace transmission assets to continue to provide an efficient, economical and secure network in the future; and • reinforce the onshore transmission network to enable connections of new generation in National Grid’s core licence area to meet its obligations under the existing regulatory framework and renewable energy policy targets. In addition, National Grid has identified a pipeline of discretionary investment opportunities within the United Kingdom (including potential investment in offshore transmission, interconnectors, expansion of the Group’s LNG facility and CO2 networks associated with carbon capture and storage), which are aligned with its current core business.

3 Principal terms of the Rights Issue

The Rights Issue is being made to all Shareholders on the register of members of the Company at the close of AIII, 4.1 business on 19 May 2010. Pursuant to the Rights Issue, the Company is proposing to offer 990,439,017 New Shares AIII, 4.4 by way of rights to Qualifying Shareholders other than, subject to certain exceptions, Qualifying Shareholders with a registered address, or resident, in the United States, the Excluded Territories or the Restricted Territories, at 335 pence per New Share, payable in full on acceptance by no later than 11:00 a.m. on 11 June 2010.

The Rights Issue is expected to raise approximately £3.2 billion, net of expenses. The Rights Issue will be on the AIII 8.1 basis of 2 New Shares for every 5 Existing Shares. The Issue Price represents a 35.7 per cent. discount to the theoretical ex-rights price based on the closing middle-market price of 620 pence per Ordinary Share on 19 May 2010 (being the last business day before the announcement of the Rights Issue), adjusted for the recommended final dividend of 24.84 pence per Ordinary Share which will not be paid on the New Shares. The New Shares, when issued and fully paid, will rank pari passu in all respects with the Existing Shares, save for the right to receive the final dividend of 24.84 pence per Ordinary Share proposed to be paid in respect of the year ended 31 March 2010.

The Rights Issue is fully underwritten by the Underwriters pursuant to the Underwriting Agreement. The Rights AIII, 5.4.3 Issue is conditional, inter alia, on: AIII, 5.4.4 (i) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been rescinded or terminated in accordance with its terms prior to Admission; and (ii) Admission becoming effective by not later than 8:00 a.m. on 26 May 2010 (or such later time and date as the Company and the Joint Bookrunners may agree). It is expected that Admission will occur and that dealings in the Nil Paid Rights will commence on the London Stock Exchange at 8:00 a.m. on 26 May 2010.

4 Financial effects of the Rights Issue Qualifying Shareholders who take up their pro rata entitlement in full will suffer no dilution to their interests in the Company. Qualifying Shareholders who do not take up any of their rights to subscribe for the New Shares will suffer an immediate dilution of 28.6 per cent. to their interests in the Company.

2 ACE BOWNE OF TORONTO 05/24/2010 07:25 NO MARKS NEXT PCN: 008.00.00.00 -- Page is valid, no graphics BOT U08763 007.00.00.00 25

Adjusting for the receipt of the net proceeds from the Rights Issue, the Company’s illustrative net assets as at 31 March 2010 on a pro forma basis would have been £7,418 million. Please see Part IX “Unaudited Pro Forma Financial Information” of this document. The Directors expect that the Rights Issue will make a positive contribution to earnings in the year ending 31 March 2011 as a result of a lower interest expense reflecting lower average levels of net debt. However, the Directors expect that the increased number of Ordinary Shares in issue following the Rights Issue will have a negative effect on the Group’s earnings per share for the same period.

5 Selected Financial Information on National Grid

The financial summary set out below has been extracted without material adjustment from the audited consolidated financial statements of National Grid for the three years ended 31 March 2010, 2009 and 2008. The summary financial information should be read together with the financial statements. The consolidated financial statements for the years ended 31 March 2010, 2009 and 2008 are each incorporated by reference into this document.

Summary Consolidated Income Statement

For the years ended 31 March 2010 2009 2008 (£ millions) Revenue ...... 13,988 15,624 11,423 Operating profit Before exceptional items, remeasurements and stranded cost recoveries ...... 3,121 2,915 2,595 Exceptional items, remeasurements and stranded cost recoveries ...... 172 (292) 369 Total operating profit...... 3,293 2,623 2,964 Profit before taxation Before exceptional items, remeasurements and stranded cost recoveries ...... 1,974 1,770 1,829 Exceptional items, remeasurements and stranded cost recoveries ...... 219 (376) 353 Total profit before taxation ...... 2,193 1,394 2,182 Profit from continuing operations after taxation Before exceptional items, remeasurements and stranded cost recoveries ...... 1,421 1,253 1,250 Exceptional items, remeasurements and stranded cost recoveries ...... (32) (331) 325 Profit for the year from continuing operations ...... 1,389 922 1,575 Earnings per share from continuing operations(1) Basic...... 56.1p 36.9p 59.5p Diluted ...... 55.8p 36.6p 59.1p

Note: (1) Comparative EPS data have been restated to reflect the impact of the additional shares issued as scrip dividends.

Summary Consolidated Statement of Net Assets

As at 31 March 2010 2009 2008 (£ millions) Non-current assets ...... 38,488 37,712 30,830 Current assets ...... 5,065 6,755 5,435 Assets of businesses held for sale ...... — — 1,506 Total assets ...... 43,553 44,467 37,771 Current liabilities ...... (6,559) (7,026) (7,146) Non-current liabilities ...... (32,783) (33,457) (25,188) Liabilities of businesses held for sale ...... — — (63) Total liabilities ...... (39,342) (40,483) (32,397) Net assets ...... 4,211 3,984 5,374

3 ACE BOWNE OF TORONTO 05/23/2010 14:55 NO MARKS NEXT PCN: 009.00.00.00 -- Page is valid, no graphics BOT U08763 008.00.00.00 31

Summary Consolidated Cash Flow Statement For the years ended 31 March 2010 2009 2008 (£ millions) Net cash inflow from operating activities ...... 4,516 3,413 3,165 Net cash flow used in investing activities ...... (2,332) (1,998) (3,023) Net cash flow used in financing activities ...... (2,212) (877) (1,592) Net (decrease)/increase in cash and cash equivalents...... (28) 538 (1,450)

6 Dividends and dividend policy In January 2008 National Grid announced its objective to target an increase of eight per cent. per annum in its dividend until 2012. On 19 May 2010, the Board recommended a final dividend of 24.84 pence per Ordinary Share (US$1.7737 per ADS). This results in a proposed total dividend for the year of 38.49 pence per Ordinary Share (US$2.9217 per ADS), an increase of eight per cent. year on year in line with its long-term dividend policy. National Grid intends to maintain its policy of targeting an eight per cent. per annum increase in dividend until 31 March 2012, after adjusting the 2009/10 dividend to take account of the bonus element of the Rights Issue. Beyond 2012, National Grid intends to pursue a policy that targets real growth in dividends reflecting the strong growth prospects of the business. The recommended final dividend, if approved, will be paid on 18 August 2010 to Shareholders on the register as at 4 June 2010. Again, a scrip dividend alternative will be offered. New Shares issued as part of the Rights Issue will not be eligible for the final dividend.

7 Current trading and prospects

National Grid’s performance in the first weeks of 2010/11 is encouraging and it is confident that this will be another AI, 12.2 year of growth. National Grid expects to see continued growth in 2010/11 across all its businesses. National Grid’s UK regulated revenues are subject to RPI-X indexation at the start of each financial year. For the purpose of setting revenue for 2010/11 the average RPI-X element of the rate increases was 0.2 per cent. In addition both the UK and US businesses are expected to recover timing related items. National Grid expects its financing costs in 2010/11 to continue to benefit from current low interest rates, although the pick up in inflation will impact this year’s index linked debt. Our tax rate is expected to return to previous higher levels. In 2010/11 National Grid plans to invest around £3.9 billion (including joint ventures), supported by its current rate plans and long-term contracts.

8 Information on the Group

National Grid’s principal operations are the ownership and operation of regulated electricity and gas infrastructure CESR 21-26 networks in the United Kingdom and the United States serving around 19 million customers directly and many more AI, 7.1 indirectly. National Grid also has interests in related markets, including electricity interconnectors, metering services, LNG storage and importation facilities and property in the United Kingdom, LNG storage and transportation and non-regulated gas transmission pipelines in the United States and as a generator of electricity on Long Island, New York. The Group has over 28,000 employees located in the United Kingdom and the United States.

9 Summary of risk factors

Investors should consider the following key risks: AI, 4 AIII, 2 Risks related to the Group CESR 27 • Changes in law or regulation and decisions by governmental bodies or regulators could have a material adverse effect on the Group’s results of operations. • Breaches of, or changes in, environmental, climate change or health and safety laws or regulations could expose the Group to increased costs, claims for financial compensation and adverse regulatory consequences, as well as damaging the Group’s reputation. • Network failure or interruption, the inability to carry out critical non-network operations and damage to infrastructure may have significant material adverse impacts on the Group’s financial position and reputation.

4 ACE BOWNE OF TORONTO 05/23/2010 16:45 NO MARKS NEXT PCN: 010.00.00.00 -- Page is valid, no graphics BOT U08763 009.00.00.00 21

• The Group’s 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. • The Group’s reputation may be harmed if consumers of energy suffer a disruption to their supply. • Fluctuations in exchange rates, interest rates and commodity price indices and settlement of hedging arrangements could have a significant impact on the Group’s results of operations, indebtedness and cash flow. • The Group is subject to restrictions with respect to its borrowing and debt arrangements, and its funding costs and access to financing may be adversely affected by changes to credit ratings by prolonged periods of market volatility or illiquidity. • The Group’s results of operations could be affected by deflation or inflation. • Business development activity may be based on incorrect assumptions or conclusions; there may be unforeseen significant liabilities or there may be other unanticipated or unintended effects. • Future funding requirements of the Group’s pension schemes and other post-retirement benefits could materially adversely affect the Group’s results of operations. • New or revised accounting standards, rules and interpretations could have a material adverse effect on the Group’s reported financial results. Changes in law and accounting standards could increase the Group’s effective rate of tax. • Customers and counterparties to the Group’s transactions may fail to perform their obligations which could harm the Group’s results of operations. • The Group’s operating results may fluctuate on a seasonal and quarterly basis. • The loss of key personnel or the inability to attract, train or retain qualified personnel could affect the Group’s ability to implement its strategy and have a material adverse effect on the Group’s business, financial condition, results of operations and prospects. • National Grid plc is a holding company, and therefore depends on the operational and financial performance of its subsidiaries. Risks related to the Rights Issue and the New Shares • National Grid’s share price may fluctuate. • Shareholders who do not acquire New Shares in the Rights Issue will experience dilution in their ownership of the Company. • An active trading market in the Nil Paid Rights or the Fully Paid Rights may not develop. • Any future issues of National Grid plc shares will further dilute the current National Grid Shareholders and could adversely affect the market price of National Grid’s shares. • Shareholders outside the United Kingdom may not be able to receive the New Shares in the Rights Issue. • The ability of Overseas Shareholders to bring actions or enforce judgments against National Grid or the Directors may be limited.

5 ACE BOWNE OF TORONTO 05/23/2010 12:35 NO MARKS NEXT PCN: 011.00.00.00 -- Page is valid, no graphics BOT U08763 010.00.00.00 13

RISK FACTORS

The following risks should be considered carefully by Shareholders before making any investment decision. AI, 4 AIII, 2 This section addresses the existing and future material risks to the Company’s business. The risks below are not the CESR 27 only ones that the Company will face. Some risks are not yet known and some that are not currently deemed material could later prove to be material. All of these risks could materially adversely affect the Company, its reputation, business, results of operations and overall financial condition. In such a case, the market price of Ordinary Shares may decline and Shareholders could lose all or part of their investment. Shareholders should read this section in conjunction with the letter from the Chairman of the Company contained in Part I of this document.

Risks related to the Group Changes in law or regulation and decisions by governmental bodies or regulators could have a material adverse effect on the Group’s results of operations. Many of the Group’s businesses are utilities or networks that are subject to regulation by governments and other authorities. Consequently, changes in law or regulation or regulatory policy and precedent in the countries or states in which the Group operates could materially adversely affect the Group. Decisions or rulings concerning, for example: (i) whether licences, approvals or agreements to operate or supply are granted or are renewed, or whether there has been any breach of the terms of a licence, approval or regulatory requirement; (ii) timely recovery of incurred expenditure or obligations, the ability to pass through commodity costs, a decoupling of energy usage and revenue and other decisions relating to the impact of general economic conditions on National Grid, its markets and customers, implications of climate change, remuneration for stranded assets, the level of permitted revenues and dividend distributions for the Group’s businesses and in relation to proposed business development activities; and (iii) structural changes in regulation (including as a result of Ofgem’s RPI-X@20 review), could have a material adverse impact on the Group’s results of operations, cash flows, the financial condition of the Group’s businesses and the ability to develop those businesses in the future. See Part V for further details on the Group’s regulatory environment and factors that impact the Group’s regulatory arrangements.

Breaches of, or changes in, environmental, climate change or health and safety laws or regulations could expose the Group to increased costs, claims for financial compensation and adverse regulatory consequences, as well as damaging the Group’s reputation. Aspects of the Group’s activities are potentially dangerous, such as the operation and maintenance of electricity generation facilities and electricity lines and the transmission and distribution of gas. Electricity and gas utilities also typically use and generate in their operations hazardous and potentially hazardous products and by-products. In addition, there may be other aspects of the Group’s operations that are not currently regarded or proved to have adverse effects but could become so, such as the effects of electric and magnetic fields. The Group is subject to laws and regulations relating to pollution, the protection of the environment, and the use and disposal of hazardous substances and waste materials. These expose the Group to costs and liabilities relating to the Group’s operations and the Group’s properties whether current, including those inherited from predecessor bodies, or formerly owned by the Group and sites used for the disposal of its waste. The cost of future environmental remediation obligations is often inherently difficult to estimate and uncertainties can include the extent of contamination, the appropriate corrective actions and the Group’s share of the liability. The Group is also subject to laws and regulations in the United Kingdom and the United States governing health and safety matters protecting the public and the Group’s employees. The Group is increasingly subject to regulation in relation to climate change. The Group commits significant expenditure toward complying with these laws and regulations and to meeting the Group’s obligations under negotiated settlements. If additional requirements are imposed or the Group’s ability to recover these costs under relevant regulatory frameworks changes, this could have a material adverse impact on the Group’s businesses, reputation, results of operations and financial position. Furthermore, any breach of the Group’s regulatory or contractual obligations, or even incidents that do not amount to a breach, could materially adversely affect the Group’s results of operations and its reputation.

Network failure or interruption, the inability to carry out critical non-network operations and damage to infrastructure may have significant material adverse impacts on the Group’s financial position and reputation. The Group may suffer a major network failure or interruption, or may not be able to carry out critical non-network operations. Operational performance could be materially adversely affected by a failure to maintain the health of the system or network, inadequate forecasting of demand, inadequate record keeping or failure of information systems

6 ACE BOWNE OF TORONTO 05/23/2010 16:50 NO MARKS NEXT PCN: 012.00.00.00 -- Page is valid, no graphics BOT U08763 011.00.00.00 21

and supporting technology. This could cause the Group to fail to meet agreed standards of service, incentive and reliability targets, or be in breach of a licence, approval, regulatory requirement or contractual obligation, and even incidents that do not amount to a breach could result in adverse regulatory and financial consequences, as well as harming the Group’s reputation. In addition to these risks, the Group may be affected by other potential events that are largely outside the Group’s control such as the impact of weather (including as a result of climate change), unlawful or unintentional acts of third parties or force majeure. Weather conditions, including prolonged periods of adverse weather, can affect financial performance and severe weather that causes outages or damages infrastructure will materially adversely affect operational and potentially business performance and the Group’s reputation. Terrorist attack, sabotage or other intentional acts may also damage the Group’s assets or otherwise significantly affect corporate activities and as a consequence have a material adverse impact on the Group’s business, results of operations and financial condition.

The Group’s 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 the Group’s regulated gas and electricity businesses will be affected by the Group’s ability to meet or exceed efficiency and integration targets and service quality standards set by, or agreed with, the Group’s regulators. In addition, from time to time, the Group publishes cost and efficiency savings targets for the Group’s businesses. To meet these targets and standards, the Group must continue to improve operational performance, service reliability and customer service and continue to invest in the development of its information technology. If the Group does not meet these targets and standards, the Group may not achieve the expected benefits, its business may be materially adversely affected and its performance, results of operations and reputation may be materially harmed.

The Group’s reputation may be harmed if consumers of energy suffer a disruption to their supply. The Group’s energy delivery businesses are responsible for transporting available electricity and gas. The Group consults with, and provides information to, regulators, governments and industry participants about future demand and the availability of supply. However, where there is insufficient supply, the Group’s role is to manage the relevant network safely and reliably which, in extreme circumstances, may require the Group to disconnect consumers, which may damage the Group’s reputation.

Fluctuations in exchange rates (in particular in the US dollar to sterling exchange rate), interest rates and commodity price indices and settlement of hedging arrangements could have a significant impact on the Group’s results of operations, indebtedness and cash flow. The Group has significant operations in the United States and is therefore subject to the exchange rate risks normally associated with non-domestic operations, including the need to translate US assets and liabilities, and income and expenses, into sterling, the Group’s primary reporting currency. In addition, the Group’s results of operations and net debt position may be affected because a significant proportion of the Group’s 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. Furthermore, the Group’s cash flow may be materially affected as a result of settling hedging arrangements entered into to manage its exchange rate, commodity and interest rate exposure, or by cash collateral movements relating to derivative market values, which also depend on Euro and other exchange rates.

The Group is subject to restrictions with respect to its borrowing and debt arrangements, and its funding costs and access to financing may be adversely affected by changes to credit ratings and by prolonged periods of market volatility or illiquidity. The Group is subject to certain covenants and restrictions in relation to its listed debt securities and bank lending facilities. In addition, restrictions imposed by regulators may also limit the manner in which the Group services the financial requirements of its current businesses or the financing of newly acquired or developing businesses. The Group’s business is financed through cash generated from its ongoing operations and the capital markets, particularly the long-term debt capital markets. The maturity and repayment profile of debt used by the Group to finance investments often does not correlate to cash flows from the Group’s assets. As a result the Group accesses commercial paper and money markets and longer-term bank and capital markets as sources of finance. Some of the debt issued by National Grid and its subsidiaries is rated by credit rating agencies and changes to these ratings may affect both the Group’s borrowing capacity and the cost of those borrowings. As evidenced during recent periods, financial markets can be subject to periods of volatility and shortages of liquidity and if the Group were unable to access the capital markets or other sources of finance at competitive rates for a prolonged period, the Group’s cost of financing may increase, the discretionary and uncommitted elements of its proposed capital investment programme may need to be reconsidered and the manner in which the Group implements its strategy may need to be reassessed.

7 ACE BOWNE OF TORONTO 05/23/2010 16:50 NO MARKS NEXT PCN: 013.00.00.00 -- Page is valid, no graphics BOT U08763 012.00.00.00 17

The occurrence of any such events could have a material adverse impact on the Group’s business, results of operations and prospects. The Group’s results of operations could be affected by deflation or inflation. The Group’s income under its price controls in the United Kingdom is linked to the retail price index. Therefore, if the UK economy suffers from a prolonged period of deflation, the Group’s revenues may decrease, which may not be offset by reductions in operating costs. Conversely, during a period of inflation, the Group’s operating costs may increase without a corresponding increase in the retail price index and therefore without a corresponding increase in UK revenues. The Group’s income under its rate plans in the United States is not typically linked to inflation. In periods of inflation in the United States, the Group’s operating costs may increase by more than its revenues. In both the United Kingdom and the United States such increased costs may materially adversely affect the Group’s results of operations. In addition, even where increased costs are recoverable under the Group’s price controls or rate plans, in both the United Kingdom and the United States there may be a delay in the Group’s ability to recover its increased costs. Business development activity, including acquisitions and disposals, may be based on incorrect assumptions or conclusions; there may be unforeseen significant liabilities or there may be other unanticipated or unintended effects. Business development activities, including acquisitions and disposals, entail a number of risks, including an inability to identify suitable acquisition opportunities or obtain funding for such acquisitions, that such transactions may be based on incorrect assumptions or conclusions, the inability to integrate acquired businesses effectively with the Group’s existing operations, failure to realise planned levels of synergy and efficiency savings from acquisitions, unanticipated operational, financial and tax impacts (including unanticipated costs) and other unanticipated effects. The Group may also be liable for the past acts, omissions or liabilities of companies or businesses it has acquired, which may be unforeseen or greater than anticipated at the time of the relevant acquisition. The occurrence of any of these events could have a material adverse impact on the Group’s results of operations or financial condition, and could also impact the Group’s ability to enter into other transactions. Future funding requirements of the Group’s pension schemes and other post-retirement benefits could materially adversely affect the Group’s results of operations. The Group participates in a number of pension schemes that together cover substantially all of the Group’s employees. In both the United Kingdom and the United States, the principal schemes are defined benefit schemes where the scheme assets are held independently of the Group’s own financial resources. In the United States, the Group also has other post-retirement benefit schemes. 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 long-term bond yields, average life expectancies and relevant legal requirements. The impact of these assumptions and other factors may require the Group to make additional contributions to these pension schemes which, to the extent they are not recoverable under the Group’s price controls or state rate plans, could materially adversely affect the Group’s results of operations and financial condition. New or revised accounting standards, rules and interpretations could have a material adverse effect on the Group’s reported financial results. Changes in law and accounting standards could increase the Group’s effective rate of tax. The accounting treatment under IFRS as adopted by the European Union of, among other things, replacement expenditure, rate regulated entities, pension and post-retirement benefits, derivative financial instruments and commodity contracts, significantly affects the way the Group reports its financial position and results of operations. New or revised standards and interpretations may be issued, which could have a significant impact on the financial results and financial position that the Group reports. The effective rate of tax of the Group may be influenced by a number of factors including changes in law and accounting standards, the results of which could increase that rate and therefore have a material adverse impact on the Group’s results of operations.

8 ACE BOWNE OF TORONTO 05/23/2010 12:40 NO MARKS NEXT PCN: 014.00.00.00 -- Page is valid, no graphics BOT U08763 013.00.00.00 15

Customers and counterparties to the Group’s transactions may fail to perform their obligations which could harm the Group’s results of operations.

The Group’s operations are exposed to the risk that customers and counterparties to the Group’s transactions that owe the Group money or commodities will not perform their obligations, which could materially adversely affect the Group’s financial position. This risk is most significant where the Company’s subsidiaries have concentrations of receivables from gas and electricity utilities and their affiliates, as well as industrial customers and other purchasers and may also arise where customers are unable to pay the Company as a result of increasing commodity prices or adverse economic conditions.

The Group’s operating results may fluctuate on a seasonal and quarterly basis.

The Group’s electricity and gas businesses are seasonal businesses and are subject to weather conditions. In particular, revenues from the Group’s gas distribution networks in the United States are weighted towards the end of the Group’s financial year, when demand for gas increases due to colder weather conditions. As a result, the Group is subject to seasonal variations in working capital because the Group purchases gas supplies for storage in the first and second quarters of its financial year and must finance these purchases. Accordingly, the Group’s results of operations for this business fluctuate substantially on a seasonal basis. In addition, portions of the Group’s electricity businesses are seasonal and subject to weather and weather-related market conditions. Sales of electricity to customers are influenced by temperature changes. Significant changes in heating or cooling requirements, for example, could have a substantial effect. As a result, fluctuations in weather and competitive supply between years may have a significant effect on the Group’s results of operations for both gas and electricity businesses.

The loss of key personnel or the inability to attract, train or retain qualified personnel could affect the Group’s ability to implement its strategy and have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

The Group’s ability to implement its long-term business strategy depends on the capabilities and performance of its personnel. Loss of key personnel or an inability to attract, train or retain appropriately qualified personnel (in particular for technical positions where availability of appropriately qualified personnel may be limited) could affect the Group’s ability to implement its long-term business strategy and may have a material adverse effect on the Group’s business, financial condition, results of operations and prospects.

National Grid is a holding company, and therefore depends on the operational and financial performance of its subsidiaries.

National Grid is a holding company and as such, has no revenue-generating operations of its own. As a result, National Grid depends on (i) the earnings and cash flows of its operating subsidiaries, (ii) the ability of its subsidiaries to pay dividends (which may be restricted due to legal or regulatory constraints or otherwise), (iii) its subsidiaries repaying funds due to National Grid, and (iv) the maintenance by its subsidiaries of certain minimum credit ratings (which also depend on the credit rating of National Grid plc). If National Grid’s subsidiaries are unable to achieve any of the foregoing, National Grid may be unable to pay dividends and there may be a material adverse impact on its operations, costs associated with financing or its ability to access the capital markets or other forms of bank financing at competitive rates.

Risks related to the Rights Issue and the New Shares

The market price of the Ordinary Shares may fluctuate in response to factors which are outside the Group’s control.

The market price of the New Shares, the Nil Paid Rights, the Fully Paid Rights and/or the Ordinary Shares could be subject to significant fluctuations due to a change in sentiment in the market regarding the New Shares, the Nil Paid Rights, the Fully Paid Rights and/or the Ordinary Shares. The fluctuations could result from national and global economic market and financial conditions, the market’s response to the Rights Issue, market perceptions of the Group and various other factors and events, including its ability to manage its existing debt facilities and raise new capital, regulatory changes affecting the Group’s operations, variations in the Group’s operating results, business developments of the Group and/or its competitors and liquidity of financial markets. Furthermore, the Group’s operating results and prospects from time to time may be below the expectations of market analysts and investors. Any of these events could result in a decline in the market price of the New Shares, the Nil Paid Rights, the Fully Paid Rights and/or the Ordinary Shares.

9 ACE BOWNE OF TORONTO 05/23/2010 12:40 NO MARKS NEXT PCN: 015.00.00.00 -- Page is valid, no graphics BOT U08763 014.00.00.00 16

Shareholders who do not, or are unable to, acquire New Shares in the Rights Issue will experience dilution in their ownership of the Company. If Shareholders do not, or are unable to, take up the offer of New Shares in the Rights Issue, their proportionate ownership and voting interests in National Grid will be reduced and the percentage that their Shares will represent of the total share capital of National Grid will be reduced accordingly. Even if a Shareholder elects to sell his unexercised Nil Paid Rights, or such Nil Paid Rights are sold on his behalf, the consideration he receives may be nothing or may not be sufficient to compensate him fully for the dilution of his percentage ownership of the Company’s share capital that may be caused as a result of the Rights Issue.

If an active trading market in the Nil Paid Rights or the Fully Paid Rights does not develop their market price may be adversely affected. Application has been made to admit the New Shares (nil and fully paid) for trading on the London Stock Exchange’s main market for listed securities. It is expected that dealings in the Nil Paid Rights and Fully Paid Rights on the London Stock Exchange’s main market for listed securities will commence at 8:00 a.m. on 26 May 2010. An active trading market in the Nil Paid Rights or the Fully Paid Rights may not develop on the London Stock Exchange during the trading period. The Nil Paid Rights are expected to have an initial value that is lower than the Ordinary Shares and will have a limited trading life, which may impair the development of an active trading market. If an active trading market for the Nil Paid Rights does not develop, the limited liquidity may have an adverse effect on their market price. In addition, because the trading price of the Nil Paid Rights and the Fully Paid Rights depends on the trading price of the Ordinary Shares, the Nil Paid Rights and the Fully Paid Rights prices may be volatile and subject to the same risks as noted elsewhere herein.

Any future issues of National Grid shares will further dilute the holdings of current National Grid Shareholders and could adversely affect the market price of National Grid’s shares. Other than the proposed issue of shares under the Rights Issue, National Grid has no current plans for an offering of National Grid shares. However, it is possible that National Grid may decide to offer additional National Grid shares in the future either to raise capital or for other purposes. If Shareholders did not take up such offer of shares or were not invited or eligible to participate in such offering, their proportionate ownership and voting interests in National Grid would be reduced and the percentage that their Shares would represent of the total share capital of National Grid would be reduced accordingly. An additional offering, or significant sales of National Grid shares by major Shareholders, could increase volatility of, and could have a material adverse effect on, the market price of National Grid shares as a whole.

Shareholders outside the United Kingdom may not be able to subscribe for or to receive the New Shares in the Rights Issue or any future issue of shares carried out by National Grid. Securities laws of certain jurisdictions may restrict National Grid’s ability to allow participation by certain Shareholders in the Rights Issue or any future issue of shares carried out by the Company. In particular, holders of Ordinary Shares who are located in the United States (including those who hold ADSs) may not be able to exercise their Nil Paid Rights unless a registration statement under the US Securities Act is effective with respect to such rights or an exemption from the registration requirements of the US Securities Act is available thereunder. The Rights Issue will not be registered under the US Securities Act. Securities laws of certain other jurisdictions may also restrict National Grid’s ability to allow the participation of all Shareholders in such jurisdictions in the Rights Issue or any future issue of shares carried out by the Company. Qualifying Shareholders who have a registered address or are resident in, or who are citizens of, countries other than the United Kingdom should consult their professional advisors as to whether they require any governmental or other consents or need to observe any other formalities to enable them to receive Nil Paid Rights, Fully Paid Rights, Provisional Allotment Letters or the New Shares in the Rights Issue.

The ability of Overseas Shareholders to bring actions or enforce judgments against National Grid or the Directors may be limited. The ability of an Overseas Shareholder to bring an action against National Grid may be limited under law. National Grid is a public limited company incorporated in England and Wales. Most of its assets are located in the United States and the United Kingdom. The rights of holders of Shares are governed by English law and by National Grid’s Articles of Association. These rights differ in certain respects from the rights of shareholders in typical US corporations and some other non-UK corporations. An Overseas Shareholder may not be able to enforce a judgment against some or all of the Directors and executive officers. The majority of the Directors and executive officers are residents of the United Kingdom. Consequently, it may not be possible for an Overseas Shareholder to effect service of process upon the Directors and executive officers within the Overseas Shareholder’s country of residence or to

10 ACE BOWNE OF TORONTO 05/23/2010 12:40 NO MARKS NEXT PCN: 016.00.00.00 -- Page is valid, no graphics BOT U08763 015.00.00.00 15

enforce against the Directors and executive officers judgments of courts of the Overseas Shareholder’s country of residence based on civil liabilities under that country’s securities laws. There can be no assurance that an Overseas Shareholder will be able to enforce any judgments in civil and commercial matters or any judgments under the securities laws of countries other than the United Kingdom against the Directors or executive officers who are residents of the United Kingdom or countries other than those in which judgment is made. In addition, English or other courts may not impose civil liability on the Directors or executive officers in any original action based solely on foreign securities laws brought against National Grid or the Directors in a court of competent jurisdiction in England or other countries.

11 ACE BOWNE OF TORONTO 05/24/2010 09:56 NO MARKS NEXT PCN: 017.00.00.00 -- Page is valid, no graphics BOT U08763 016.00.00.00 26

RIGHTS ISSUE STATISTICS AIII, 5.3.1 Price per New Share (Issue Price) ...... 335pence AIII, 5.1.2 Basis of Rights Issue ...... 2NewShares for every 5 Existing Shares(1) Number of Ordinary Shares in issue at the date of this document(2) .... 2,476,097,542 Number of New Shares to be issued by the Company ...... 990,439,017 Number of Ordinary Shares in issue immediately following completion of the Rights Issue(2)(3) ...... 3,466,536,559 New Shares as a percentage of enlarged issued share capital of the Company immediately following completion of the Rights Issue(2)(3) . . . 28.6 per cent. Estimated net proceeds receivable by the Company after expenses ..... £3.2billion AIII, 8.1 Estimated expenses of the Rights Issue ...... £111million AIII, 8.1 Notes: (1) held by Qualifying Shareholders on the Record Date. (2) Excludes 141,092,553 Ordinary Shares held in treasury. (3) Assuming that no further Ordinary Shares are issued as a result of the exercise of any options between 21 May 2010, being the latest practicable date prior to the publication of this document, and the completion of the Rights Issue.

12 ACE BOWNE OF TORONTO 05/23/2010 12:40 NO MARKS NEXT PCN: 018.00.00.00 -- Page is valid, no graphics BOT U08763 017.00.00.00 16

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Each of the times and dates in the table below is indicative only and may be subject to change. AIII 4.7 Record Date for entitlement under the Rights Issue for Qualifying CREST close of business AIII 5.2.3(g) Shareholders and Qualifying Non-CREST Shareholders ...... on 19 May 2010 Dispatch of Provisional Allotment Letters (to Qualifying Non-CREST Shareholders only)...... 25May2010 Start of subscription period ...... 26May2010 Dealings in Nil Paid Rights and Fully Paid Rights commence on the London Stock Exchange ...... 8:00 a.m. on 26 May 2010 Existing Shares marked “ex-rights” by the London Stock Exchange ...... 8:00 a.m. on 26 May 2010 Nil Paid Rights credited to stock accounts in CREST (Qualifying CREST as soon as practicable after Shareholders only)...... 8:00 a.m. on 26 May 2010 Nil Paid Rights and Fully Paid Rights enabled in CREST ...... 8:00 a.m. on 26 May 2010 Recommended latest time for requesting withdrawal of Nil Paid Rights and Fully Paid Rights from CREST (i.e. if your Nil Paid Rights and Fully Paid Rights are in CREST and you wish to convert them to certificated form) ..... 4:30 p.m. on 7 June 2010 Latest time for depositing renounced Provisional Allotment Letters, nil or fully paid, into CREST or for dematerialising Nil Paid Rights or Fully Paid Rights into a CREST stock account (i.e. if your Nil Paid Rights and Fully Paid Rights are represented by a Provisional Allotment Letter and you wish to convert them to uncertificated form) ...... 3:00 p.m. on 8 June 2010 Latest time and date for splitting Provisional Allotment Letters, nil or fully paid ...... 3:00 p.m. on 9 June 2010 Latest time and date for acceptance, payment in full and registration of renunciation of Provisional Allotment Letters...... 11:00 a.m. on 11 June 2010 Dealings in New Shares commence on the London Stock Exchange ...... 8:00 a.m. on 14 June 2010 Expected date of announcement of results of the Rights Issue ...... 14June 2010 New Shares credited to CREST stock accounts...... assoon as practicable after 8:00 a.m. on 14 June 2010 Dispatch of definitive share certificates for the New Shares in certificated form ...... by25June 2010

General Notes: (1) The ability to participate in the Rights Issue is subject to certain restrictions relating to Shareholders with registered addresses outside the United Kingdom, details of which are set out in paragraph 2.5 of Part III “Terms and Conditions of the Rights Issue” of this document. (2) The times and dates set out in the expected timetable of principal events above and mentioned throughout this document may be adjusted by National Grid (in consultation with the Joint Bookrunners), in which event details of the new times and dates will be notified to the UK Listing Authority, the London Stock Exchange and, where appropriate, Qualifying Shareholders. (3) Different deadlines and procedures for applications may apply in certain cases. For example, if you hold your Existing Shares through a CREST member or other nominee, that person may set an earlier date for application and payment than the dates noted above. (4) References to times in this document are to London times unless otherwise stated. (5) On 2 June 2010, Existing Shares will go ex-dividend.

13 ACE BOWNE OF TORONTO 05/23/2010 12:40 NO MARKS NEXT PCN: 019.00.00.00 -- Page is valid, no graphics BOT U08763 018.00.00.00 18

IMPORTANT INFORMATION

Presentation of financial information The Company publishes its financial statements in pounds sterling (“£”or“sterling”). The abbreviations “£m” represents millions of pounds sterling and “£bn” represents billions of pounds sterling, and references to “pence” and “p” represent pence in the United Kingdom. References to “US dollars”, “US$”, “$” and “US cents” are to the lawful currency of the United States and the abbreviations “$m” represents millions of US dollars and “$bn” represents billions of US dollars. References to “Euro” and “E” are to the lawful single currency of member states of the European Union that adopt or have adopted the euro as their currency in accordance with the legislation of the European Union relating to the European Economic and Monetary Union and the abbreviation “Em” represents millions of Euros. The financial information presented in a number of tables in this document has been rounded to the nearest whole number or the nearest decimal place. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in this document reflect calculations based upon the underlying information prior to rounding, and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers.

International Financial Reporting Standards As required by the Companies Act and Article 4 of the EU IAS Regulation, the consolidated financial statements of the Group are prepared in accordance with IFRS issued by the IASB as adopted by the European Union and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB as adopted by the European Union.

Forward-looking statements This document also contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking statements within the meaning of Section 27A of the US Securities Act, and Section 21E of the US Securities Exchange Act of 1934. These statements include information with respect to National Grid’s financial condition, National Grid’s results of operations and businesses, strategy, plans and objectives. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “targets”, “may”, “will”, “continue”, “project” and similar expressions, as well as statements in the future tense, identify forward-looking statements. These forward-looking statements are not guarantees of National Grid’s future performance and are subject to assumptions, risks and uncertainties that could cause actual future results to differ materially from those expressed in or implied by such forward-looking statements. Many of these assumptions, risks and uncertainties relate to factors that are beyond National Grid’s ability to control or estimate precisely, such as changes in laws or regulations and decisions by governmental bodies or regulators; breaches of, or changes in, environmental, climate change and health and safety laws or regulations; network failure or interruption, the inability to carry out critical non-network operations and damage to infrastructure; performance against regulatory targets and standards, including delivery of costs and efficiency savings; customers and counterparties failing to perform their obligations; and unseasonable weather affecting energy demands. Other factors that could cause actual results to differ materially from those described in this document include fluctuations in exchange rates, interest rates, commodity price indices and settlement of hedging arrangements; restrictions in the Group’s borrowing and debt arrangements; changes to credit ratings of National Grid and its subsidiaries; adverse changes and volatility in the global credit markets; the Group’s ability to access capital markets and other sources of credit in a timely manner and on acceptable terms; deflation or inflation; the seasonality of the Group’s businesses; the future funding requirements of the Group’s pension schemes and other post-retirement benefit schemes, and the regulatory treatment of pension costs; the loss of key personnel or the inability to attract, train or retain qualified personnel; new or revised accounting standards, rules and interpretations, including changes of law and accounting standards that may affect the Group’s effective rate of tax; incorrect assumptions or conclusions underpinning business development activity, and any unforeseen significant liabilities or other unanticipated or unintended effects of such activities and the performance of National Grid’s subsidiaries. In addition National Grid’s reputation may be harmed if consumers of energy suffer a disruption to their supply. For a more detailed description of some of these assumptions, risks and uncertainties, together with any other risk factors, please see “Risk Factors” set out on pages 6 to 11 of this document. The effects of these factors are difficult to predict. New factors emerge from time to time and National Grid cannot assess the potential impact of any such factor on National Grid’s activities or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.

14 ACE BOWNE OF TORONTO 05/23/2010 16:44 NO MARKS NEXT PCN: 020.00.00.00 -- Page is valid, no graphics BOT U08763 019.00.00.00 10

These forward-looking statements speak only as at the date of this document. Except as required by the FSA, the London Stock Exchange, the Part VI Rules or applicable law, National Grid does not have any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, further events or otherwise. Except as required by the FSA, the London Stock Exchange, the Part VI Rules or applicable law, National Grid expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in National Grid’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document might not occur.

Notice to European Economic Area investors In relation to each member state of the European Economic Area which has implemented the Prospectus Directive (each, a “relevant member state”) (except for the United Kingdom), with effect from and including the date on which the Prospectus Directive was implemented in that relevant member state (the “relevant implementation date”) no Nil Paid Rights, Fully Paid Rights or New Shares have been offered or will be offered pursuant to the Rights Issue to the public in that relevant member state prior to the publication of a prospectus in relation to the Nil Paid Rights, Fully Paid Rights or the New Shares which has been approved by the competent authority in the relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in the relevant member state all in accordance with the Prospectus Directive, except that with effect from and including the relevant implementation date, offers of Nil Paid Rights, Fully Paid Rights and the New Shares may be made to the public in that relevant member state at any time: (a) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; (b) to any legal entity which has two or more of (i) an average of at least 250 employees during the last financial year; (ii) a total balance sheet of more than A43 million; and (iii) an annual turnover of more than A50 million, as shown in its last annual or consolidated accounts; (c) to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the Joint Bookrunners for any such offer; or (d) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Nil Paid Rights, Fully Paid Rights or the New Shares shall result in a requirement for the publication by the Company or any Bank of a prospectus pursuant to Article 3 of the Prospectus Directive. For this purpose, the expression “an offer of any Nil Paid Rights, Fully Paid Rights or New Shares to the public” in relation to any Nil Paid Rights, Fully Paid Rights or New Shares in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the Rights Issue and any Nil Paid Rights, Fully Paid Rights or New Shares to be offered so as to enable an investor to decide to acquire any Nil Paid Rights, Fully Paid Rights or New Shares as the same may be varied in that relevant member state by any measure implementing the Prospectus Directive in that relevant member state. In the case of any Nil Paid Rights, Fully Paid Rights or New Shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, such financial intermediary will also be deemed to have represented, acknowledged and agreed that the Nil Paid Rights, Fully Paid Rights or New Shares acquired by it in the Rights Issue have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any Nil Paid Rights, Fully Paid Rights or New Shares to the public other than their offer or resale in a relevant member state to qualified investors as so defined or in circumstances in which the prior consent of the Company and the Joint Bookrunners has been obtained to each such proposed offer or resale.

Notice to US and other overseas investors (outside of the European Economic Area) Subject to certain exceptions, neither this document nor the Provisional Allotment Letter constitutes, or will constitute, or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, New Shares, Nil Paid Rights and/or Fully Paid Rights to any Shareholder in, or with a registered address in, or who is resident in, the United States or to any ADS holder. If you are in the United States, you may not exercise your Nil Paid Rights, Fully Paid Rights and/or acquire any New Shares offered hereby. Notwithstanding the foregoing, National Grid reserves the right to offer and deliver the Nil Paid Rights to, and the Fully Paid Rights and the New Shares may be offered to and acquired by, a limited number of Shareholders in the United States that are determined by National Grid to be eligible to participate in the Rights Issue, which may include persons reasonably believed to be “qualified institutional buyers”, as defined in Rule 144A under the US Securities Act (“QIBs”), in

15 ACE BOWNE OF TORONTO 05/23/2010 12:40 NO MARKS NEXT PCN: 021.00.00.00 -- Page is valid, no graphics BOT U08763 020.00.00.00 10

offerings exempt from, or in transactions not subject to, the registration requirements under the US Securities Act. The Nil Paid Rights, the Fully Paid Rights and the New Shares being offered outside the United States are being offered in reliance on Regulation S under the US Securities Act. Any envelope containing a Provisional Allotment Letter and post-marked from the United States will not be valid unless it contains a duly executed investor representation letter in the appropriate form. Similarly, any Provisional Allotment Letter in which the exercising holder requests New Shares to be issued in registered form and gives an address in the United States will not be valid unless it contains a duly executed investor letter. The payment paid in respect of the Provisional Allotment Letters that do not meet the foregoing criteria will be returned without interest. Subject to certain limited exceptions, any person in the United States who obtains a copy of this document and who is not a QIB is required to disregard it. In addition, until 40 days after the commencement of the Rights Issue, an offer, sale or transfer of the Nil Paid Rights, the Fully Paid Rights or the New Shares within the United States by a dealer (whether or not participating in the Rights Issue) may violate the registration requirements of the US Securities Act. Subject to certain exceptions, this document does not constitute an offer of the Nil Paid Rights, the Fully Paid Rights or the New Shares to any person with a registered address, or who is resident or located, in any of the Excluded or Restricted Territories. The Nil Paid Rights, the Fully Paid Rights and the New Shares have not been and will not be registered under the relevant laws of any state, province or territory of any of the Excluded or Restricted Territories and may not be offered, sold, taken up, exercised, renounced, resold, transferred or delivered, directly or indirectly, within any Excluded or Restricted Territory except pursuant to an applicable exemption from registration requirements. All Overseas Shareholders and any person (including, without limitation, a nominee or trustee) who has a contractual or legal obligation to forward this document or any Provisional Allotment Letter, if and when received, or other document to a jurisdiction outside the United Kingdom, should read paragraph 2.5 of Part III “Terms and Conditions of the Rights Issue” of this document.

Enforcement of civil liabilities The ability of an Overseas Shareholder to bring an action against National Grid may be limited under law. National Grid is a public limited company incorporated in England. The rights of holders of Shares are governed by English law and by National Grid’s Articles of Association. These rights differ from the rights of shareholders in typical US corporations and some other non-UK corporations. An Overseas Shareholder may not be able to enforce a judgment against some or all of the Directors and executive officers. The majority of the Directors and executive officers are residents of the United Kingdom. Consequently, it may not be possible for an Overseas Shareholder to effect service of process upon the Directors and executive officers within the Overseas Shareholder’s country of residence or to enforce against the Directors and executive officers judgments of courts of the Overseas Shareholder’s country of residence based on civil liabilities under that country’s securities laws. There can be no assurance that an Overseas Shareholder will be able to enforce any judgments in civil and commercial matters or any judgments under the securities laws of countries other than the United Kingdom against the Directors or executive officers who are residents of the United Kingdom or countries other than those in which judgment is made. In addition, English or other courts may not impose civil liability on the Directors or executive officers in any original action based solely on foreign securities laws brought against National Grid or the Directors in a court of competent jurisdiction in England or other countries.

Notice to all investors Any reproduction or distribution of this document and/or any Provisional Allotment Letter, in whole or in part, and any disclosure of its contents or use of information in this document for any purpose other than considering an investment in the Nil Paid Rights, the Fully Paid Rights or the New Shares is prohibited. By accepting delivery of this document you agree with the foregoing. The distribution of this document and/or the Provisional Allotment Letter and/or the transfer of the Nil Paid Rights, the Fully Paid Rights and/or the New Shares into jurisdictions other than the United Kingdom may be restricted by law. Persons into whose possession these documents come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. In particular, such documents should not be distributed, forwarded to or transmitted in or into the United States, the Excluded Territories or the Restricted Territories.

16 ACE BOWNE OF TORONTO 05/23/2010 12:40 NO MARKS NEXT PCN: 022.00.00.00 -- Page is valid, no graphics BOT U08763 021.00.00.00 15

The Nil Paid Rights, the Fully Paid Rights, the Provisional Allotment Letter and the New Shares are not transferable, except in accordance with, and the distribution of this document is subject to, the restrictions set out in paragraph 2.5 of Part III of this document.

No action has been taken by National Grid or the Banks that would permit an offer of the Nil Paid Rights, the Fully Paid Rights or the New Shares or rights thereto or possession or distribution of this document or any other offering or publicity material in any jurisdiction where action for that purpose is required, other than in the United Kingdom, except that the Company intends to request that the FSA provides a certificate of approval and a copy of this document to the relevant competent authorities in Cyprus, France, Germany, Greece, Ireland, Malta, the Netherlands and Spain pursuant to the passporting provision of the FSMA. It is expected that Qualifying Shareholders in each member state of the European Economic Area will be able to participate in the Rights Issue.

No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied upon as having been authorised by the Company or the Banks. Neither the delivery of this document nor any subscription or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of National Grid since the date of this document or that the information in this document is correct as at any time subsequent to its date.

The investors also acknowledge that: (i) they have not relied on the Banks or any person affiliated with them in connection with any investigation of the accuracy of any information contained in this document or their investment decision and (ii) they have relied only on the information contained in this document, and that no person has been authorised to give any information or to make any representation concerning the Company or its subsidiaries or the Nil Paid Rights, the Fully Paid Rights and the New Shares (other than as contained in this document) and, if given or made, any such other information or representation should not be relied upon as having been authorised by the Company or the Banks.

In making an investment decision, each investor must rely on their own examination, analysis and enquiry of the Company and the terms of the Rights Issue, including the merits and risks involved.

The contents of the websites of the Group do not form part of this document.

Certain information in relation to the Group is incorporated by reference into this document as set out in Part XII “Documentation Incorporated by Reference” of this document.

Unless the context requires otherwise, capitalised terms used in this document have the meanings ascribed to them in Part XIII “Definitions” of this document.

General notice

Nothing contained in this document is intended to constitute investment, legal, tax, accounting or other professional advice. This document is for your information only and nothing in this document is intended to endorse or recommend a particular course of action. None of the Company, the Banks, or any of their respective representatives, is making any representation to any offeree or purchaser of the Nil Paid Rights, the Fully Paid Rights and the New Shares regarding the legality of an investment in the Nil Paid Rights, the Fully Paid Rights and the New Shares by such offeree or purchaser under the laws applicable to such offeree or purchaser. You should consult with an appropriate professional for specific advice rendered on the basis of your situation.

In connection with the Rights Issue, each of the Banks and any of their respective affiliates, acting as an investor for its own account, may take up New Shares and in that capacity may retain, purchase or sell for its own account such securities and any New Shares or related investments and may offer or sell such New Shares or other investments otherwise than in connection with the Rights Issue. Accordingly, references in this document to New Shares being offered or placed should be read as including any offering or placement of New Shares to any of the Banks or any of their respective affiliates acting in such capacity. None of the Banks intend to disclose the extent of any such investment or transaction otherwise than in accordance with any legal or regulatory obligation to do so.

The Nil Paid Rights, the Fully Paid Rights, the Provisional Allotment Letter and the New Shares are not transferable, except in accordance with, and the distribution of this document is subject to, the restrictions set out in paragraph 2.5 of Part III of this document.

17 ACE BOWNE OF TORONTO 05/23/2010 12:25 NO MARKS NEXT PCN: 023.00.00.00 -- Page is valid, no graphics BOT U08763 022.00.00.00 15

DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISORS

Directors AIII, 1.1 Sir John Parker ...... Chairman AI, 1.1 Steve Holliday ...... Chief Executive AI, 14.1 Steve Lucas ...... Finance Director Nick Winser...... Executive Director Mark Fairbairn ...... Executive Director Tom King ...... Executive Director Ken Harvey ...... Non-executive Director and Senior Independent Director Linda Adamany ...... Non-executive Director Philip Aiken...... Non-executive Director John Allan ...... Non-executive Director Stephen Pettit...... Non-executive Director Maria Richter...... Non-executive Director George Rose ...... Non-executive Director The business address of each of the Directors is the Company’s registered address at: 1-3 Strand London WC2N 5EH United Kingdom

Company Secretary & General Counsel Helen Mahy

Registered office AI, 5.1.4 1-3 Strand London WC2N 5EH United Kingdom

Registered in England No. 4031152

18 ACE BOWNE OF TORONTO 05/24/2010 08:15 NO MARKS NEXT PCN: 024.00.00.00 -- Page is valid, no graphics BOT U08763 023.00.00.00 19

JOINT SPONSOR AND LEAD FINANCIAL FINANCIAL ADVISOR, JOINT GLOBAL ADVISOR CO-ORDINATOR AND JOINT BOOKRUNNER AIII, 5.4.1

Morgan Stanley & Co. International plc BofA Merrill Lynch 25 Cabot Square 2 King Edward Street Canary Wharf London EC1A 1HQ London E14 4QA United Kingdom United Kingdom

JOINT GLOBAL CO-ORDINATOR AND JOINT JOINT SPONSOR, JOINT GLOBAL BOOKRUNNER CO-ORDINATOR AND JOINT BOOKRUNNER

Morgan Stanley Securities Limited Deutsche Bank AG, London Branch 25 Cabot Square Winchester House Canary Wharf 1 Great Winchester Street London E14 4QA London EC2N 2DB United Kingdom United Kingdom

LEGAL ADVISORS TO THE COMPANY LEGAL ADVISORS TO THE UNDERWRITERS AI, 2.1 as to English and US law as to English and US law AIII, 10.1

Linklaters LLP Herbert Smith LLP One Silk Street Exchange House London EC2Y 8HQ Primrose Street United Kingdom London EC2A 2HS United Kingdom

AUDITORS AND REPORTING ACCOUNTANTS RECEIVING AGENT

PricewaterhouseCoopers LLP Capita Registrars Limited AIII, 5.4.2 1 Embankment Place Corporate Actions London WC2N 6RH The Registry United Kingdom 34 Beckenham Road Beckenham Kent BR3 4TU United Kingdom

REGISTRAR Capita Registrars Limited Northern House Woodsome Park Fenay Bridge Huddersfield West Yorkshire HD8 0LA United Kingdom

19 ACE BOWNE OF TORONTO 05/23/2010 17:04 NO MARKS NEXT PCN: 025.00.00.00 -- Page/graphics valid 05/23/2010 17:05 BOT U08763 024.00.00.00 25

PART I

LETTER FROM THE CHAIRMAN OF NATIONAL GRID PLC (Incorporated and registered in England and Wales with registered number 4031152)

Registered Office: 1-3 Strand London WC2N 5EH www.nationalgrid.com

25 May 2010

Dear Shareholder

Capital raising by way of a 2 for 5 Rights Issue at 335 pence per New Share to Qualifying Shareholders

1 Introduction National Grid announced on 20 May 2010 that the Group is proposing to raise approximately £3.2 billion (net of expenses) by way of a fully underwritten Rights Issue of 990,439,017 New Ordinary Shares at 335 pence per New Share on the basis of 2 New Ordinary Shares for every 5 Existing Ordinary Shares. The Issue Price represents a 43.7 per cent. discount to the closing middle market price per Ordinary Share, adjusted for the recommended final dividend for 2009/10 of 24.84 pence, on 19 May 2010 (being the last business day prior to the announcement of the Rights Issue) and a discount of 35.7 per cent. to the theoretical ex-rights price on the same basis. The Board believes that raising £3.2 billion through the Rights Issue will give it the scope and appropriate financial flexibility to deliver the Group’s strategy. In particular, the Board believes it will allow the Group to fund a significant increase in its UK capital investment, and continue to deliver attractive returns to shareholders, whilst maintaining single A credit ratings for its UK operating companies. National Grid intends to maintain its policy of targeting an eight per cent. per annum increase in dividend until 31 March 2012, after adjusting the 2009/10 AI, 20.7 dividend to take account of the bonus element of the Rights Issue. Beyond 2012, National Grid intends to pursue a policy that targets real growth in dividends reflecting the strong growth prospects of the business. The Rights Issue has been fully underwritten by Morgan Stanley Securities Limited, BofA Merrill Lynch and Deutsche Bank AG, London Branch. A summary of the material terms of the Underwriting Agreement is set out in AIII, 5.4.3 paragraph 16.1 of Part XI “Additional Information”.

The purpose of this letter is to set out the background to, reasons for and details of the Rights Issue. AI, 6.5 Shareholders should read the whole of the Prospectus, including the information incorporated by reference and not only rely on the summarised information in this letter.

2 Background to and reasons for the Rights Issue In November 2006, National Grid set out its strategy to focus primarily on the transmission and distribution of electricity and gas in its chosen markets of the United Kingdom and the United States. We believe this strategy has maximised shareholder value by investing in organic growth under regulatory regimes and long-term contracts, by continuing to deliver operating efficiencies and by maintaining an efficient capital structure. Over the last five years, National Grid has invested over £14 billion delivering a significant increase to our asset base. This major investment programme has been financed from internally generated cash flow and through the issue of debt, demonstrating the strength of our business model. In addition, over the same period National Grid has returned over £4 billion of capital to shareholders, and increased our ordinary dividend by 62 per cent. We believe our disciplined approach to investment delivers attractive, predictable and sustainable returns to investors. In the United Kingdom, we continue to focus investment on replacing ageing assets and on major infrastructure reinforcement. In the United States, we are restoring baseline business performance through implementing new rate plans, strengthening our regulatory relationships and improving operating efficiency. Consistent with that focus, our US investment strategy will be driven by our ability to earn long-term acceptable returns.

20 ACE BOWNE OF TORONTO 05/23/2010 12:40 NO MARKS NEXT PCN: 026.00.00.00 -- Page is valid, no graphics BOT U08763 025.00.00.00 18

National Grid’s core strategy remains unchanged as we position the Group to respond to the ongoing developments in the UK energy landscape.

UK energy landscape Since 2006, there have been significant developments in the UK energy landscape focused on maintaining security of supply and reducing carbon emissions. Environmental targets, legislation, age-related power station retirements and the decline of the UK’s North Sea gas reserves are expected to result in a significant change in the generation mix between now and 2020. The Electricity Networks Strategy Group has identified the electricity transmission reinforcements needed to support the Government’s 2020 energy policy targets. National Grid has begun committing capital investment to a number of these projects under incentive arrangements provided by Ofgem. We believe that this investment in transmission networks is essential to facilitate the timely connection of new generation and to meet current energy policy commitments.

A step change in UK infrastructure investment is required National Grid’s capital expenditure has been steadily increasing in recent years in response to the changing energy environment and the need to replace end of life assets in our core regulated businesses. Capital expenditure reached a record £3.3 billion in 2009/10, of which £2.2 billion was focused on the United Kingdom. Over the next five years, we forecast capital expenditure to increase significantly — totalling approximately £22 billion in aggregate. Of that amount, we expect that approximately three-quarters of this investment will be made in the United Kingdom and around sixty per cent. will be in the transmission business. This significant increase in our UK capital expenditure over the period is required to: • increase investment in transmission asset replacement by £1.0 billion to continue to provide an efficient, economical and secure network in the future; and • invest £3.6 billion in reinforcing the on-shore transmission networks to enable connections of new generation in our core licence area to meet our obligations under the existing regulatory framework and renewable energy policy targets. We expect this disciplined capital investment programme will be incorporated within National Grid’s existing and future UK regulatory arrangements and therefore will deliver attractive returns to shareholders. In addition, we have identified a pipeline of investment opportunities within the United Kingdom (including potential investment in offshore transmission, interconnectors, expansion of our LNG import facility and CO2 networks associated with carbon capture and storage), which are aligned with our current core business. These opportunities would potentially require capital expenditure of up to £1.0 billion over the next five years. Investment in these opportunities is discretionary and may be contingent on a competitive tender process. Consequently, a commitment to invest will only be made if we expect these opportunities to generate attractive returns.

Maintaining single A credit ratings National Grid is committed to maintaining single A credit ratings for its UK operating companies. This rating optimises National Grid’s cost of capital and enhances its long-term competitive advantage. In prior years surplus capital has been returned to shareholders, consistent with this commitment to maintain an efficient balance sheet.

Reasons for the Rights Issue The Board believes that raising £3.2 billion through the Rights Issue will give it the scope and appropriate financial flexibility to deliver the Group’s strategy. In particular, the Board believes it will allow the Group to fund a significant increase in capital investment and continue to deliver attractive returns to shareholders, whilst maintaining single A credit ratings for our UK operating companies in a more volatile economic environment. The Board also believes that raising equity today will strengthen the Company’s long-term competitive position to take advantage of an appropriate share of UK growth opportunities.

3 Principal terms of the Rights Issue The Company is proposing to offer 990,439,017 New Shares by way of a Rights Issue. The New Shares will be offered to Qualifying Shareholders other than, subject to certain exceptions, Qualifying Shareholders with a registered address, or resident, in the United States, the Excluded Territories or the Restricted Territories. The Rights Issue is expected to raise approximately £3.2 billion (net of expenses). The Issue Price represents a 43.7 per

21 ACE BOWNE OF TORONTO 05/23/2010 12:40 NO MARKS NEXT PCN: 027.00.00.00 -- Page is valid, no graphics BOT U08763 026.00.00.00 16

cent. discount to the closing middle market price of 620 pence per Ordinary Share on 19 May 2010 (being the last business day before the announcement of the Rights Issue), adjusted for the recommended final dividend for 2009/ 10 of 24.84 pence per Ordinary Share which will not be paid on the New Shares, and a 35.7 per cent. discount to the theoretical ex-rights price on the same basis. The New Shares, when issued and fully paid, will rank pari passu in all respects with the Existing Shares, save for the right to receive the final dividend of 24.84 pence per Ordinary Share proposed to be paid in respect of the year ended 31 March 2010.

The Rights Issue will be made on the basis of:

2 New Shares at 335 pence per New Share for every 5 Existing Shares

held by Qualifying Shareholders on the Record Date (being the close of business on 19 May 2010).

Entitlements to New Shares will be rounded down to the nearest whole number. The fractional entitlements not allotted to Qualifying Shareholders will be aggregated and placed in the market ultimately for the benefit of the Company. Holdings of Existing Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue.

The Rights Issue is underwritten by the Underwriters pursuant to and subject to the terms and conditions of the Underwriting Agreement, the principal terms and conditions of which are summarised in paragraph 16.1 of Part XI “Additional Information” of this document.

The Rights Issue will result in 990,439,017 New Shares being issued (representing approximately 40 per cent. of the existing issued share capital and 28.6 per cent. of the enlarged issued share capital immediately following completion of the Rights Issue).

The Rights Issue is conditional, inter alia, upon:

(i) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been rescinded or terminated in accordance with its terms prior to Admission; and

(ii) Admission becoming effective by not later than 8:00 a.m. on 26 May 2010 (or such later time and date as the Company and the Joint Bookrunners may agree).

Application will be made to the UK Listing Authority and to the London Stock Exchange for the New Shares to be admitted to the Official List and to trading on the London Stock Exchange. It is expected that Admission will occur and that dealings in the Nil Paid Rights on the London Stock Exchange will commence at 8:00 a.m. on 26 May 2010.

Some questions and answers, together with details of further terms and conditions of the Rights Issue, including the procedure for acceptance and payment and the procedure in respect of rights not taken up, are set out in Parts II and III of this document and, where relevant, will also be set out in the Provisional Allotment Letter.

Overseas Shareholders should refer to paragraph 2.5 of Part III “Terms and Conditions of the Rights Issue” of this document for further information on their ability to participate in the Rights Issue.

4 Structure of the Rights Issue

The structure of the Rights Issue is expected to have the effect of creating a merger reserve in an amount approximately equal to the net proceeds of the Rights Issue less the par value of the New Shares issued by the Company. The Company and the Subscribing Bank have agreed to acquire, by direct issue, ordinary shares in National Grid Jersey Investments Three Limited (“Newco”). Capita Registrars will receive, into an account set up specifically for the purpose and as agent for and on behalf of the Subscribing Bank, monies from Qualifying Shareholders, or renouncees, taking up New Shares under the Rights Issue, and from any persons procured by the Joint Bookrunners to acquire New Shares not taken up by Qualifying Shareholders or by the Joint Bookrunners as underwriters. Provided certain conditions are met, the Subscribing Bank will use certain amounts in the Capita Proceeds Account to acquire by direct issue redeemable preference shares in Newco.

The Company will allot and issue the New Shares to those persons entitled thereto in consideration for the Subscribing Bank transferring its holdings of Ordinary Shares and redeemable preference shares in Newco to the Company. Accordingly, instead of receiving cash as consideration for the issue of the New Shares, at the conclusion of the Rights Issue the Company will own the entire issued share capital of Newco whose only asset will be its cash reserves, which will represent an amount equivalent to the net proceeds of the Rights Issue.

22 ACE BOWNE OF TORONTO 05/23/2010 14:52 NO MARKS NEXT PCN: 028.00.00.00 -- Page is valid, no graphics BOT U08763 027.00.00.00 17

To the extent the merger reserve is considered to be realised, this would result in distributable reserves, which would facilitate the payment of dividends and any potential return of capital to Shareholders. For a description of the material contracts relating to the Rights Issue structure, see paragraph 16 of Part XI “Additional Information” of this document.

5 Current trading and prospects On 20 May 2010, the Company announced its financial results for the year ended 31 March 2010, and relevant sections of the Company’s full year results announcement are appended hereto as Appendix A.

6 Dividends and dividend policy AI, 20.7 In January 2008 we announced our objective to target an increase of eight per cent. per annum in our dividend until 2012. On 19 May 2010, the Board recommended a final dividend of 24.84 pence per Ordinary Share (US$1.7737 per ADS). This results in a proposed total dividend for the year of 38.49 pence per Ordinary Share (US$2.9217 per ADS), an increase of eight per cent. year on year in line with our long-term dividend policy. National Grid intends to maintain its policy of targeting an eight per cent. per annum increase in dividend until 31 March 2012, after adjusting the 2009/10 dividend to take account of the bonus element of the Rights Issue. Beyond 2012, National Grid intends to pursue a policy that targets real growth in dividends reflecting the strong growth prospects of the business. The recommended final dividend, if approved, will be paid on 18 August 2010 to Shareholders on the register as at 4 June 2010. Again, a scrip dividend alternative will be offered. New Shares issued as part of the Rights Issue will not be eligible for the final dividend.

7 Overseas Shareholders The attention of Overseas Shareholders who have registered addresses outside the United Kingdom, or who are citizens of or resident or located in countries other than the United Kingdom, and any person who is holding Ordinary Shares for the benefit of such persons (including, without limitation, a custodian, nominee or trustee) or who has a contractual or legal obligation to forward this document or any Provisional Allotment Letter, if and when received, or other document to a jurisdiction outside the United Kingdom, is drawn to the information in paragraph 2.5 of Part III “Terms and Conditions of the Rights Issue” of this document. In particular, Qualifying Shareholders who have registered addresses outside the United Kingdom, or who are citizens of or residents in or are located in countries other than the United Kingdom, should consult their professional advisors as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their entitlements to the Rights Issue. New Shares will be provisionally allotted (nil paid) to all Qualifying Shareholders, including Overseas Shareholders. However, subject to certain exceptions, Provisional Allotment Letters will not be sent to Qualifying Shareholders with registered addresses in the United States, the Excluded Territories or the Restricted Territories. Although Nil Paid Rights may be credited to the CREST accounts of Qualifying CREST Shareholders with registered addresses, or resident, in the United States, the Excluded Territories or the Restricted Territories, such crediting of Nil Paid Rights does not constitute an offer to Shareholders and any such Qualifying CREST Shareholders will not be entitled to take up or transfer rights in the Rights Issue unless such action would not result in the contravention of any registration or other legal requirement in any jurisdiction. Notwithstanding any other provision of this document or a Provisional Allotment Letter, the Company reserves the right to permit any Qualifying Shareholder to take up his rights if the Company in its absolute discretion is satisfied that the transaction in question will not violate applicable laws. The provisions of paragraph 2.3.1 of Part III “Terms and Conditions of the Rights Issue” of this document dealing with rights not taken up by Qualifying Shareholders will apply generally to Overseas Shareholders who cannot or do not take up the New Shares provisionally allotted to them.

8 UK and US taxation Certain information about UK and US taxation in relation to the Rights Issue is set out in Part X “Taxation” of this document. If you are in any doubt as to your tax position, or you are subject to tax in a jurisdiction other than the United Kingdom or the United States you should consult your own independent tax advisor without delay.

23 ACE BOWNE OF TORONTO 05/24/2010 09:41 NO MARKS NEXT PCN: 029.00.00.00 -- Page is valid, no graphics BOT U08763 028.00.00.00 18

9 Action to be taken

If you sell or have sold or otherwise transferred all of your Ordinary Shares held (other than ex-rights) in certificated form before 8:00 a.m. on 26 May 2010, please forward this document and any Provisional Allotment Letter, if and when received, at once to the purchaser or transferee or the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee, except that such documents should not be sent to any jurisdiction where to do so might constitute a violation of local securities laws or regulations, including, but not limited to, the United States, the Excluded Territories and the Restricted Territories.

If you sell or have sold or otherwise transferred only part of your holding of Existing Shares (other than ex-rights) held in certificated form before the Ex-Rights Date, you should refer to the instruction regarding split applications in Part III “Terms and Conditions of the Rights Issue” of this document and in the Provisional Allotment Letter.

If you sell or have sold or otherwise transferred all or some of your Ordinary Shares (other than ex-rights) held in uncertificated form before the Ex-Rights Date, a claim transaction will automatically be generated by Euroclear UK which, on settlement, will transfer the appropriate number of Nil Paid Rights to the purchaser or transferee.

The latest time and date for acceptance and payment in full in respect of the Rights Issue is expected to be 11:00 a.m. on 11 June 2010, unless the Company notifies Qualifying Shareholders, through publication of a supplementary prospectus or announcement, of a later date. The procedure for acceptance and payment is set out in Part III “Terms and Conditions of the Rights Issue” of this document and, in respect of Qualifying Non-CREST Shareholders only, other than, subject to certain exceptions, Shareholders with a registered address in the United States, the Excluded Territories or the Restricted Territories, in the Provisional Allotment Letter.

For Qualifying Non-CREST Shareholders who validly take up their rights, the New Shares will be issued in certificated form and will be represented by definitive share certificates, which are expected to be dispatched to the registered address of the person(s) entitled to them by no later than 25 June 2010 (or such later date as may be notified by the Company through publication of a supplementary prospectus or announcement).

For Qualifying CREST Shareholders who validly take up their rights, the Registrar will instruct CREST to credit the stock accounts of the Qualifying CREST Shareholders with their entitlements to New Shares. It is expected that this will take place as soon as practicable after 8:00 a.m. on 14 June 2010 (or such later date as may be notified by the Company through publication of a supplementary prospectus or announcement).

Qualifying CREST Shareholders who are CREST sponsored members should refer to their CREST sponsor regarding the action to be taken in connection with this document and the Rights Issue.

If you are in any doubt as to the action you should take, you should immediately seek your own financial advice from your stockbroker, bank, solicitor, accountant or other independent financial advisor authorised under the FSMA or, if you are outside the United Kingdom, by another appropriately authorised independent financial advisor.

10 Directors’ recommendation and intentions regarding the Rights Issue

The Directors are fully supportive of the Rights Issue and each, to the extent permitted, intends to take up his or her rights in full under the Rights Issue.

11 Further information

Your attention is drawn to the further information set out in Parts II to XI of this document. Qualifying Shareholders should read the whole of this document and not rely solely on the information set out in this letter. Shareholders should consider fully and carefully the risk factors associated with the Company and the Rights Issue set out in the section headed “Risk Factors” on pages 6 to 11 of this document.

Yours sincerely

Sir John Parker Chairman

24 ACE BOWNE OF TORONTO 05/24/2010 07:26 NO MARKS NEXT PCN: 030.00.00.00 -- Page is valid, no graphics BOT U08763 029.00.00.00 26

Appendix A

On 20 May 2010, the Company released an announcement regarding its financial results for the year ended 31 March 2010. The information below has been extracted without material adjustment from that announcement:

FINANCIAL RESULTS FOR CONTINUING OPERATIONS

Year ended 31 March 2010 2009 % change (£m, at actual exchange rate) Business performance(1) Operating profit ...... 3,121 2,915 7 Pre-tax profit...... 1,974 1,770 12 Earnings ...... 1,418 1,250 13 Earnings per share ...... 57.4p 50.2p(2) 14 Statutory results Operating profit ...... 3,293 2,623 26 Pre-tax profit ...... 2,193 1,394 57 Earnings ...... 1,386 919 51 Earnings per share ...... 56.1p 36.9p(2) 52 Dividend per share ...... 38.49p 35.64p 8

(1) Business performance results are the primary financial performance measure used by National Grid, being the results for continuing operations before exceptional items, remeasurements and stranded cost recoveries. Remeasurements comprise gains or losses recorded in the income statement arising from changes in the fair value of commodity contracts and of derivative financial instruments to the extent that hedge accounting is not achieved or is not fully effective. Stranded cost recoveries are costs associated with historic generation investment and related contractual commitments that were not recovered through the sale of those investments. (2) In accordance with IAS 33, comparative period amounts have been restated as a result of shares issued via scrip dividends.

Steve Holliday, Chief Executive, said:

“We have delivered another year of strong operational and financial performance. Our pre-tax profit increased by 12%, earnings per share increased by 14% and we are recommending an 8% increase in our full year dividend. I am particularly pleased with our reliability performance in the UK and US. We are delivering improvements in customer satisfaction in all of our businesses. We continue to make progress in our priority areas: ensuring appropriate regulatory arrangements, delivering investments and making further efficiencies. I’m delighted to report that the run rate of synergy savings from KeySpan has now exceeded $150m.

These excellent results clearly demonstrate that National Grid’s strategy continues to deliver. Our performance in the first weeks of 2010/11 is encouraging and we are confident that this will be another year of growth. We believe that the rights issue announced today will give us the scope and appropriate financial flexibility to deliver the Group’s strategy.”

CHIEF EXECUTIVE’S REVIEW

Last year I reaffirmed that our priorities for 2009/10 were to focus on regulation both in the US and UK, deliver disciplined investment and continue to deliver cost savings and drive for efficiency.

Regulatory filings in the US

We have continued to make good progress in the US, receiving decisions on rate case filings for upstate New York Gas (NMPC), New Hampshire Gas (Energy North), Massachusetts Electric and Rhode Island Electric (Narragansett) during 2009/10. On 20 May 2009 the new rates agreed with the New York Public Service Commission (NYPSC) for the NMPC gas distribution business came into effect. These provided for a 13.7% increase in revenues, an allowed return on equity of 10.20% and importantly introduced new mechanisms to decouple revenues from volumes transported as well as ‘true-ups’ for pensions and the impact of commodity price changes on bad debts. New rates for Massachusetts Electric came into effect on 1 January 2010 providing for a 6.9%

25 ACE BOWNE OF TORONTO 05/23/2010 16:42 NO MARKS NEXT PCN: 031.00.00.00 -- Page is valid, no graphics BOT U08763 030.00.00.00 21

increase in revenues and an allowed return on equity of 10.35%. Again, this outcome included appropriate frameworks for volume decoupling and ‘true-ups’ for pensions and bad debts. In addition, this year we have benefited from a full year’s performance in our Long Island generation business reflecting the rates agreed with the Federal Energy Regulatory Commission (FERC) in January 2010, which retrospectively came into effect from 1 February 2009. These have delivered an 18.1% increase in revenues and an allowed return on equity of 10.75%. We were, however, disappointed with the decisions from the Rhode Island Public Utilities Commission on the rate case filing for Narragansett Electric and the New Hampshire Public Utilities Commission on the rate case filing for Energy North. We have considered our position in both cases and for Narragansett Electric have already submitted a filing to the Rhode Island Supreme court requesting that the court hear our appeal of the Commission’s decision. We will, in parallel, be filing a new rate case this year. We have decided that both our gas and electricity distribution rate plans in New Hampshire, which together represent less than 2% of our US rate base, do not enable us to meet long term customer needs and earn acceptable returns. Therefore, we have decided to evaluate options to allow us to exit both these businesses. In the last quarter of 2009/10 we also completed the rate case filings for upstate New York Electric (NMPC) for $369m a year, as adjusted, of additional transmission and distribution revenue with effect from January 2011. We expect a decision in December 2010. In April 2010, we submitted a rate case filing for our Massachusetts Gas companies requesting additional revenue of $106m a year effective November 2010. A decision is expected in October 2010. We remain confident that our continued programme of regulatory development will deliver appropriate, forward looking rate cases for all of our US business.

Regulatory developments in the UK In the UK we have continued constructive dialogue with Ofgem in relation to their review of the UK regulatory regime (the ‘RPI-X@20’ review). We expect discussions to continue into the early summer of 2010 with Ofgem submitting final recommendations to their board later in the summer prior to a final consultation with industry in the autumn of this year. In parallel, we have also supported Ofgem with its Project Discovery, examining the adequacy of current energy market arrangements to meet the challenges of achieving climate change targets and ensuring both security of supply and affordability for customers. In July 2009 we established the team within the Transmission business in the UK to manage our submissions to the Transmission Price Control Reviews. The current price controls end on 31 March 2012. Ofgem have however announced that there will be a one year roll-over of the existing price controls to 31 March 2013, although they have only recently consulted on the scope of this ‘roll-over’. We anticipate a full review of capital expenditure in this roll- over year (2012/13) and a less detailed review of operating costs, cost of capital and pension costs. Recently, we have also established the team that will lead our response to the UK Gas Distribution Price Control Review which runs to 31 March 2013. We expect the full Transmission and Distribution Price Controls to run concurrently.

Disciplined investment programme In 2009/10, we delivered a £3.3bn capital expenditure programme supported by our current rate plans and long term contracts. This is in line with our planned target of £3.4bn. This has increased our UK and US asset bases by 8% and 3% respectively. In 2010/11 we plan to invest around £3.9bn including joint ventures, supported by our current rate plans and long term contracts. We forecast that over the next five years capital expenditure will increase significantly — totalling approximately £22bn, in aggregate. Over the year, our net debt has fallen to £22.1 bn from an opening position of £22.7bn. This is reflective of the strong operating cashflow of the group and the weakening of the US dollar against sterling. The effective interest rate on treasury managed debt for our businesses in 2009/10 was 4.6%.

Driving efficiency via the global operating model We continue to embed our global operating model into our business. Through this we are standardising processes across the business in order to improve efficiency and productivity. We have made solid progress against our targets in 2009/10. The integration of KeySpan is progressing well. As at 31 March 2010 the run rate of synergy savings was $159m and we remain on track to deliver the forecast $200m savings by August 2011.

26 ACE BOWNE OF TORONTO 05/20/2010 11:19 NO MARKS NEXT PCN: 032.00.00.00 -- Page is valid, no graphics BOT U08763 031.00.00.00 19

In addition, we have made annualised procurement savings amounting to more than £160m, much of which is related to the purchase of new fixed assets for our substantial capital investment programme. These savings have been achieved through both leveraging our global procurement ability and working closely with supply chains to achieve significant reductions in delivery times. Although we will continue to see cost pressures associated with our growing asset base, we continue to drive productivity throughout all our businesses. Real controllable costs (excluding bad debts) reduced by 2% this year and as expected our efficiency metric has improved to 7.6%. Security of supply and climate change We remain focused on playing a leading role in addressing the longer term issues of security of supply and climate change facing the energy industry. In the US we have received approval to build initially 5MW of regulated distributed solar energy generation in Massachusetts. This investment will earn the same return as that awarded in the distribution rate case, 10.35%. During the year we were also awarded $2.1m by the US Department of Energy to develop smart grid work force training. This matches a similar amount from the upstate New York electricity rate case. Finally, both New York and Massachusetts state regulators approved our enlarged energy efficiency programmes. These will help us to attain our climate change objectives as agreed by the relevant states and provide us the opportunity to earn enhanced incentives. In the UK we continue to work closely with Ofgem in response to the reports from the Electricity Networks Strategy Group. This includes actively progressing preliminary work on the infrastructure investment required to facilitate early connection of new renewable generation assets, for which we have now agreed funding of over £200m to 2012 for both design and construction activities. In parallel, we are making steady progress on the development of new regulatory frameworks to enable rapid and efficient connection of new renewable generation. On both sides of the Atlantic we are working with developers on renewable gas demonstration plans. DIVIDEND We intend to maintain our policy of 8% per annum growth until 31 March 2012 after adjusting the dividend to take account of the bonus element of the rights issue. Beyond 2012, we intend to pursue a policy that targets real growth in dividends reflecting the growth prospects of the business. In line with this policy, the Board has recommended a final dividend of 24.84p per ordinary share ($1.7737 per American Depository share (ADS)), bringing the full-year dividend to 38.49p per ordinary share ($2.9217 per ADS). The final dividend is to be paid on 18 August 2010 to shareholders on the register as at 4 June 2010. An option for a scrip dividend was approved at the Annual General Meeting in July 2009. The take up of this option was 25% for the 2008/09 final dividend and 20% for the 2009/10 interim dividend. We plan to offer a similar option for the 2009/10 final dividend. OUTLOOK We expect to see continued growth in 2010/11 across all our businesses. Our UK regulated revenues are subject to RPI-X indexation at the start of each financial year. For the purpose of setting revenue for 2010/11 the average RPI-X element of the rate increases was 0.2%. In addition both the UK and US businesses are expected to recover timing related items. We expect our financing costs in 2010/11 to continue to benefit from current low interest rates, although the pick up in inflation will impact index linked debt. Our tax rate is expected to return to previous higher levels. In 2010/11 we plan to invest around £3.9bn including joint ventures, supported by our current rate plans and long term contracts. We believe the rights issue announced today will give us the scope and appropriate financial flexibility to deliver the Group’s strategy. In particular, we believe it will allow the Group to fund a significant increase in capital investment, whilst maintaining single A credit ratings for its UK operating companies. BASIS OF PRESENTATION Unless otherwise stated, all financial commentaries are given on a business performance basis, at actual exchange rates. Business performance represents the results for continuing operations before exceptional items, mark-to-market remeasurements of commodity contracts and financial instruments that are held for economic hedging purposes but did not achieve hedge accounting, and US stranded cost recoveries. Commentary provided in respect of results after exceptional items, mark-to-market remeasurements and US stranded cost recoveries is described as ‘statutory’.

27 ACE BOWNE OF TORONTO 05/23/2010 07:36 NO MARKS NEXT PCN: 033.00.00.00 -- Page is valid, no graphics BOT U08763 032.00.00.00 20

REVIEW OF RESULTS AND FINANCIAL POSITION Year ended 31 March Operating profit 2010 2009 % change (£m) Revenue and other operating income ...... 14,007 15,687 (11) Operating costs ...... (9,698) (11,650) 17 Depreciation and amortisation ...... (1,188) (1,122) (6) Operating profit — actual exchange rate...... 3,121 2,915 7 Operating profit — constant currency ...... 3,121 2,888 8 Operating profit was £3,121m, up 7% on the prior year (up 8% on a constant currency basis). This was primarily driven by strong results in our Transmission and Electricity Distribution and Generation businesses. Net finance costs were £1,155m, flat on the prior year. Profit before tax was up 12% to £1,974m. The tax charge on profit was £553m, £36m higher than the prior year, resulting in an effective tax rate for the year of 28% (down from 29.2% in 2008/09). Earnings were £1,418m, up 13% on the prior year. Earnings per share increased 14% from 50.2p (adjusted for the scrip dividend) last year to 57.4p. Exceptional items, remeasurements and stranded cost recoveries for continuing operations decreased earnings by £32m after tax. Exceptional items include restructuring and environmental costs. Operating cash flows from continuing operations, before exceptional items, remeasurements, stranded cost recoveries and taxation, were £810m higher than the prior year at £4,146m. Organic investment in our continuing businesses was £3.3bn, flat on the previous year. Our net debt reduced to £22.1bn at 31 March 2010 compared with £22.7bn at 31 March 2009. This mainly reflected the weakening of the US dollar over the year. Our average return on equity was 11.3% over the three year period ending 31 March 2010, compared with 10.8% over the three year period ending 31 March 2009. In 2009/10 the annual return was 15%, up on the prior year, largely reflecting UK inflation. Interest cover at 31 March 2010 was 3.9x, up from 3.1x at 31 March 2009, mainly reflecting strong business cash flows and a lower interest charge. REVIEW OF TRANSMISSION OPERATIONS Year ended 31 March Summary results 2010 2009 % change (£m) Revenue and other operating income...... 3,880 3,937 (1) Operating costs ...... (1,984) (2,227) 11 Depreciation and amortisation...... (432) (409) (6) Operating profit — actual exchange rate ...... 1,464 1,301 13 Operating profit — constant currency ...... 1,464 1,297 13 Year ended 31 March Operating profit by geographical segment 2010 2009 % change (£m, at constant currency) UK...... 1,311 1,126 16 US...... 153 171 (11) Operating profit ...... 1,464 1,297 13 Year ended 31 March Capital investment 2010 2009 % change (£m, at actual exchange rate) UK...... 1,254 1,259 — US...... 240 182 32 Capital investment...... 1,494 1,441 4

28 ACE BOWNE OF TORONTO 05/24/2010 09:42 NO MARKS NEXT PCN: 034.00.00.00 -- Page is valid, no graphics BOT U08763 033.00.00.00 22

Rate base* 2009/10 2008/09 % change UK regulatory asset value (£m) ...... 12,033 11,001 9 US rate base ($m) ...... 1,117 1,032 8

Returns 2009/10 2008/09 UK operational return (real) Electricity transmission ...... 6.6% 4.7% Gas transmission ...... 7.6% 6.9% US regulatory return on equity** (nominal) New England*** ...... 11.8% 11.8%

Notes: * Details of returns and rate base for all rate plans can be found at www.nationalgrid.com. National Grid’s estimate of US rate base (as at 31 December): regulatory filings or an alternative US GAAP invested capital measure where either recent rate base filings are not available or where the actual filed rate base currently excludes certain regulatory asset balances. ** Weighted average return on equity based on regulatory asset value. *** In New York, our electricity, transmission and distribution activities (including our stranded cost recoveries) make a combined regulatory filing each calendar year. The combined New York rate base and returns are reported in our Electricity Distribution and Generation line of business.

Transmission delivered a very strong performance during the year. Operating profit increased by £163m. This was primarily driven by allowed increases in net regulated income of £142m. The largest component of this was UK net regulated income which increased by £133m, largely as a result of above-inflation revenue increases under the price control allowance. An under-recovery of income of £80m in the UK and £4m in the US will be carried forward to 2010/11. In addition UK incentive scheme performance increased operating profit by £35m and a reduction in controllable costs increased operating profit by £23m. Other items reduced operating profit by £33m. This was mainly the result of the French Interconnector returning to more normal levels as expected. Movement in the dollar exchange rate had a £4m year-on-year negative effect on operating profit. Capital investment in Transmission was £1,494m. This mainly related to UK electricity transmission investment, which included the Thames Estuary reinforcement, our London cable tunnels project and transmission investment in renewable generation (TIRG). Investment in our US transmission networks included reliability spend in New York and investment in the New England East-West Solution (NEEWS) project, where we earn an enhanced Federal Energy Regulatory Commission (FERC) return on equity of 12.89%. These investments resulted in increases in our Transmission UK regulatory asset value and US rate base by 9% and 8% respectively, as compared to the prior year. In 2009/10 we have sanctioned a number of large UK projects including the connection of renewables and nuclear generation. We measure the financial performance of our UK regulated business using an operational return metric. In our electricity and gas transmission businesses we achieved operational returns of 6.6% and 7.6% respectively, outperforming our regulatory assumptions for the year. The main contributing factor was strong incentive performance, particularly in managing system balancing costs and maintaining high levels of network reliability. In the US we measure our financial performance against the allowed regulatory return on equity, the basis used by our regulators in the US for setting rates. In New England we achieved a weighted average 11.8% return on equity, in line with the prior year. Our New York electricity transmission and distribution businesses currently operate under a single rate plan; this rate base and return are reported in our Electricity Distribution and Generation line of business. REVIEW OF GAS DISTRIBUTION OPERATIONS

Year ended 31 March Summary results 2010 2009 % change (£m) Revenue and other operating income...... 5,226 6,254 (16) Operating costs ...... (3,715) (4,621) 20 Depreciation and amortisation...... (374) (349) (7) Operating profit — actual exchange rate ...... 1,137 1,284 (11) Operating profit — constant currency ...... 1,137 1,268 (10)

29 ACE BOWNE OF TORONTO 05/24/2010 09:41 NO MARKS NEXT PCN: 035.00.00.00 -- Page is valid, no graphics BOT U08763 034.00.00.00 21

Year ended 31 March Operating profit by geographical segment 2010 2009 % change (£m, at constant currency) UK...... 723 672 8 US...... 414 596 (31) Operating profit ...... 1,137 1,268 (10)

Year ended 31 March Capital investment 2010 2009 % change (£m, at actual exchange rate) UK capex ...... 205 173 18 UK repex ...... 465 425 9 US...... 409 421 (3) Capital investment...... 1,079 1,019 6

Rate base* 2009/10 2008/09 % change UK regulatory asset value (£m) Gas Distribution...... 7,001 6,550 7 US rate base ($m) NewYork...... 5,352 5,156 4 New England** ...... 2,066 2,016 2

Returns 2009/10 2008/09 UK operational return (real) Gas Distribution...... 6.3% 5.8% US regulatory return on equity (nominal)*** NewYork...... 9.4% 10.2% New England*** ...... 3.6% 7.8%

Notes: * Details of returns and rate base for all rate plans can be found at www.nationalgrid.com. National Grid’s estimate of US rate base (as at 31 December): regulatory filings or an alternative US GAAP invested capital measure where either recent rate base filings are not available or where the actual filed rate base currently excludes certain regulatory asset balances. ** 2008/09 rate base restated to exclude $937m of goodwill. *** Weighted average return on equity based on regulatory asset value.

Gas Distribution operating profit decreased by 11% during the year to £1,137m, primarily driven by timing related items in the US. UK net regulated income increased by £65m, largely as a result of above-inflation revenue increases under the price control allowance. US net regulated income decreased by £177m, largely as a result of timing and a one off Long Island property tax recovery item. Revenue increases in our rate plans increased operating profit by £32m and timing items reduced operating profit by £115m. In addition the economic impact on volumes reduced operating profit by £38m. Other items reduced operating profit by £19m. The year-on-year movement in exchange rates decreased operating profit by £16m. The UK and US regulated businesses will carry forward an under-recovery of £20m and £55m of income respectively to 2010/11.

Despite a severe winter, our UK Gas Distribution operations met all but one of their customer service targets. Our US Gas Distribution operations met or exceeded all their regulatory targets for system performance and customer satisfaction.

During the period, together with our gas distribution alliance partners, we have replaced over 2,000km of gas mains in the UK, resulting in total replacement expenditure (repex) of £465m, up 9% on last year. In the US, in addition to investment in replacing ageing network infrastructure, we added around 44,000 new gas customers during 2009/10. Overall, our investment in network infrastructure projects in the UK and US resulted in total capital expenditure (including repex) of £1,079m.

We measure the financial performance of our UK regulated business using an operational return metric. We achieved a 6.3% operational return, significantly outperforming regulatory assumptions. This was mainly as a result of outperformance on operating expenditure and incentives.

30 ACE BOWNE OF TORONTO 05/23/2010 07:25 NO MARKS NEXT PCN: 036.00.00.00 -- Page is valid, no graphics BOT U08763 035.00.00.00 21

In New York, we achieved a weighted average 9.4% regulatory return on equity. This is largely as a result of outperformance of base allowed returns in our downstate New York gas businesses where we achieved 10.5% in Long Island and 11.2% in New York. This was slightly offset by the Niagara Mohawk gas business return which does not include a full year of the new rate plan. Our New England businesses are not currently earning their allowed returns, achieving a weighted average 3.6% regulatory return on equity. We have recently filed a new rate case for Massachusetts and our Narragansett business return has been impacted by an increase in bad debts. We continue to make good regulatory progress in the US. On 14 May 2009 our Niagara Mohawk gas rate case, recommended by the New York Public Service Commission (NYPSC) staff, was approved in full with a base allowed return of 10.2% and provided for a $39m increase in revenues. The revenue increase came into effect on 20 May 2009. The rate case settlement included a year two update. In compliance with the agreement, we filed for a $14m revenue increase. We have received conditional approval and new rates will be effective 20 May 2010. On 29 May 2009 the New Hampshire gas rate case (covering around 1% of our US rate base) was approved. We were disappointed with the allowed return on equity of 9.54%, which is out of line with other regulatory decisions. We have decided that both our gas and electricity distribution rate plans in New Hampshire, which together represent less than 2% of our US rate base, do not enable us to meet long term customer needs and earn acceptable returns. Therefore, we have decided to evaluate options to allow us to exit both these businesses. On 16 April 2010 we filed the Massachusetts rate cases. This included a filing for Colonial Gas and a combined filing for Boston and Essex Gas. We are proposing an 11.3% return on equity, a revenue increase of $106m and revenue decoupling, capital investment, bad debt and pension and healthcare trackers. On 29 January 2010 we made a compliance filing seeking recovery of site investigation and remediation costs for our New York downstate gas companies. If approved, these companies will begin recovering approximately $65m per year beginning January 2011. REVIEW OF ELECTRICITY DISTRIBUTION AND GENERATION OPERATIONS Year ended 31 March Summary results 2010 2009 % change (£m) Revenue and other operating income* ...... 3,963 4,537 (13) Operating costs...... (3,380) (4,054) 17 Depreciation and amortisation ...... (209) (218) (4) Operating profit — actual exchange rate ...... 374 265 41 Operating profit — constant currency ...... 374 258 45 Year ended 31 March Operating profit by principal activities 2010 2009 % change (£m, at constant currency) Electricity distribution ...... 263 205 28 Long Island transmission and distribution services...... 41 23 78 Long Island generation ...... 70 30 133 Operating profit ...... 374 258 45 Year ended 31 March Capital investment 2010 2009 % change (£m, at actual exchange rate) Electricity distribution ...... 338 317 7 Long Island generation ...... 34 38 (11) Capital investment ...... 372 355 5 Rate base** 2009/10 2008/09 % change ($m) US rate base NewYork...... 4,227 4,124 2 New England ...... 2,162 2,190 (1) Returns 2009/10 2008/09 UK regulatory return on equity (nominal)*** NewYork...... 5.9% 6.7% New England ...... 2.6% 5.9%

Notes:

31 ACE BOWNE OF TORONTO 05/24/2010 09:42 NO MARKS NEXT PCN: 037.00.00.00 -- Page is valid, no graphics BOT U08763 036.00.00.00 19

* Excludes revenue from stranded cost recoveries. ** Details of returns and rate base for all rate plans can be found at www.nationalgrid.com. National Grid’s estimate of US rate base (as at 31 December): regulatory filings or an alternative US GAAP invested capital measure where either recent rate base filings are not available or where the actual filed rate base currently excludes certain regulatory asset balances. *** Weighted average return on equity based on regulatory asset value. Electricity Distribution and Generation delivered a strong performance during the year. Operating profit increased by 41% to £374m, primarily driven by rate increases in our Long Island Generation business and the absence of severe storms. Regulated net income increased operating profit by £35m, including rate increases in our generation business that increased operating profit by £42m. An under-recovery of income of £40m will be carried forward to 2010/11. In addition the absence of the severe ice storms which hit our service territory in December 2008 increased operating profit by £80m relative to the prior year. Other items increased operating profit by £1m. The weakening of the dollar had a £7m year-on-year negative impact on operating profit. Our US Electricity Distribution operations met or exceeded all their regulatory targets for system performance and customer satisfaction. Capital expenditure was up 5% on the prior year at £372m. The investment was principally driven by higher spend on line reliability enhancement programmes and substation asset condition improvements. We measure our US financial performance against the allowed regulatory returns on equity, the basis used by our regulators in the US for setting rates. In New England we achieved a weighted average 2.6%. This includes Massachusetts and Rhode Island Electric. In both businesses the new rate plans which have been agreed are not included in the returns. In New York we achieved a weighted average of 5.9%. This includes our upstate New York electricity business where we recently filed a new rate plan. We continue to make good progress in our electric rate cases. The Massachusetts electric rate plan was approved on 30 November 2009 with a base allowed return on equity of 10.35% and a $42m rate increase effective 1 January 2010. In addition we have agreement to recover $24m over four years from 2011 in relation to past storm costs. The plan also includes volume decoupling, annual trackers for capital investment and pension and healthcare costs and improved allowance for bad debt. On 5 January 2010 the Federal Energy Regulatory Commission (FERC) approved the agreement with the Long Island Power Authority, which included a $65.7m rate increase effective 1 February 2009 and a 10.75% return on equity. In addition the agreement includes annual trackers for pension and healthcare costs as well as capital expenditure. On 9 February 2010 and confirmed in a later order, the Rhode Island rate plan was approved, providing an allowed return on equity of 9.8% and a $23m increase in revenue effective 1 January 2010. Although we received an improved allowance for bad debt, we did not receive approval of volume decoupling or annual trackers for capital investment and pension and other post-employment benefits costs. We are disappointed with the outcome and, on 20 April 2010, we filed a petition with the Rhode Island Supreme Court requesting that it review the legality and reasonableness of the regulator’s decision. On 29 January 2010 (as amended on 3 May 2010) we filed a three-year electric rate plan for Niagara Mohawk for an increase in annual transmission and distribution revenue of $369m, effective 1 January 2011. We have also requested volume decoupling and a tracker for capital investment in addition to an 11.1% return on equity. REVIEW OF NON-REGULATED AND OTHER ACTIVITIES Year ended 31 March Summary results 2010 2009 % change (£m) Revenue and other operating income ...... 741 750 (1) Operating costs ...... (422) (539) 22 Depreciation and amortisation ...... (173) (146) (18) Operating profit ...... 146 65 125

32 ACE BOWNE OF TORONTO 05/23/2010 12:41 NO MARKS NEXT PCN: 038.00.00.00 -- Page is valid, no graphics BOT U08763 037.00.00.00 16

Year ended 31 March Operating profit by principal activities 2010 2009 % change (£m, at actual exchange rate) Metering ...... 162 133 22 Grain LNG ...... 51 21 143 Property...... 6 1 — Sub-total operating profit ...... 219 155 41 Corporate and other activities ...... (73) (90) 19 Operating profit ...... 146 65 125

Year ended 31 March Capital investment 2010 2009 % change (£m, at actual exchange rate) Metering ...... 121 137 (12) Grain LNG ...... 117 213 (45) Property...... 15 9 67 Other ...... 54 68 (21) Capital investment ...... 307 427 (28)

Operating profit from our Non-regulated and other activities increased by 125% during the year to £146m. This very strong performance mainly reflected an increase in operating profit in our Metering and Grain LNG businesses. As reported last year, we have taken action to defer property sales in order to preserve value in the current challenging market conditions. This has resulted in operating profit in our Property business remaining similar to last year at £6m. Operating profit in our Metering business increased by £29m. This was primarily driven by inflationary price increases and lower controllable costs. In February 2008, the Gas and Electricity Markets Authority (GEMA) issued a decision to fine us £41.6m for a breach of the UK Competition Act 1998. The fine was reduced on appeal to the Competition Appeal Tribunal and on 23 February 2010 further reduced to £15m by the Court of Appeal. On 22 March we sought leave to appeal the Court of Appeal’s judgement to the Supreme Court. Our OnStream business has launched an innovative smart metering package which incorporates an electricity smart meter and a standalone gas smart meter. We will be carrying out a series of small field trials this summer with two energy suppliers before a larger scale rollout. Our Grain LNG business delivered an operating profit of £51m, an increase of £30m on the prior year, as a result of Phase II being operational for the whole year. Capital expenditure reduced to £117m as a result of the completion of Phase II. Phase III construction commenced in July 2008 and is planned to be completed in the winter of 2010. This will add a further LNG tank and a second unloading jetty, increasing the total annual capacity of the terminal to around 15m tonnes, representing around 20% of total UK gas demand. These investments are underpinned by long- term, take-or-pay contracts, which deliver an index-linked revenue stream.

JOINT VENTURES BritNed, a 50/50 joint venture with TenneT (the Dutch electricity transmission owner), is on target for completion of the 260 km electricity link between the UK and the Netherlands by December 2010 and commercial operation in April 2011. Construction of the converter sites at Maasvlakte and the Isle of Grain is now complete. Land cable manufacture is now complete and the majority of the marine cable has now been manufactured and tested. We have made further progress towards generating sustainable power and heat at our pressure reduction stations via Blue-NG, our joint venture with the renewable generation company, 2OC. Construction contracts for the first two sites are in place and detailed design work is well underway. The Millennium pipeline in New York has completed its first full year of operations this year. Expansion plans are being considered to provide a gas transmission service from the Marcellus Shale production areas in Pennsylvania to the New York City markets.

BOARD CHANGES Robert Catell retired as Non-executive Director and Deputy Chairman of National Grid on 27 July 2009.

33 ACE BOWNE OF TORONTO 05/23/2010 16:45 NO MARKS NEXT PCN: 039.00.00.00 -- Page is valid, no graphics BOT U08763 038.00.00.00 17

METRIC DEFINITIONS

The financial metrics we have reported today are designed to give greater transparency on National Grid’s relative performance and our performance against regulatory contracts.

NATIONAL GRID RETURN ON EQUITY (nominal)

This metric captures the total operational and financial performance of the company.

Calculation: IFRS adjusted profit after tax divided by the equity base.

• IFRS adjusted operating profit after tax is as reported on a business performance basis, adjusted for: regulatory depreciation; capitalisation, mainly relating to gas distribution mains replacement (repex) in the UK; pensions; indexation of our UK regulatory asset value; and discontinued operations. • Equity base is equal to the total UK regulatory asset value; plus total capital invested in our US businesses; plus net assets for our Non-regulated and other businesses; minus net debt as reported under IFRS.

UK OPERATIONAL RETURN (real)

(Transmission — UK; Gas Distribution — UK)

This metric is comparable to the “vanilla return” used by Ofgem.

Calculation: (IFRS adjusted operating profit minus current tax), divided by regulatory asset value.

• IFRS adjusted operating profit is as reported on a business performance basis, adjusted for: regulatory depreciation; capitalisation of gas distribution mains replacement (repex); and pensions. • Current tax is the tax charge as reported on a regulatory basis.

US REGULATED RETURN ON EQUITY (nominal)

(Transmission — US; Gas Distribution — US; Electricity Distribution & Generation)

This is a US GAAP metric as calculated annually (financial year to 31 March for New England Power; calendar year to 31 December in Massachusetts and New York) and reported to our regulators.

Calculation: Regulated net income divided by equity rate base.

• Regulated net income is adjusted for earned savings in New York. • Equity rate base is as reported to our regulators. For New England Power the rate base applied is the common equity excluding goodwill.

INTEREST COVER

This is an IFRS metric and reflects the calculation used by our credit rating agencies. It is used as an indicator of balance sheet efficiency.

Calculation: Adjusted funds from operations divided by adjusted interest expense.

EFFICIENCY METRIC

Calculation: Adjusted regulated controllable costs divided by asset base.

• Regulated controllable costs excluding bad debts. • Asset base is the estimated mid year UK regulatory asset value and US rate base.

34 ACE BOWNE OF TORONTO 05/23/2010 13:34 NO MARKS NEXT PCN: 040.00.00.00 -- Page is valid, no graphics BOT U08763 039.00.00.00 21

PART II

SOME QUESTIONS AND ANSWERS ABOUT THE RIGHTS ISSUE The questions and answers set out in this Part II are intended to be in general terms only and, as such, you should read Part III “Terms and Conditions of the Rights Issue” of this document for full details of what action you should take. If you are in any doubt as to what action you should take, you are recommended to seek immediately your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial advisor, duly authorised under the FSMA if you are resident in the United Kingdom or, if not, from another appropriately authorised independent financial advisor. This Part II deals with general questions relating to the Rights Issue and more specific questions relating to Ordinary Shares held by persons resident in the United Kingdom who hold their Ordinary Shares in certificated form only. If you are an Overseas Shareholder, you should read paragraph 2.5 of Part III of this document and you should take professional advice as to whether you are eligible and/or you need to observe any formalities to enable you to take up your rights. If you hold your Ordinary Shares in uncertificated form (that is, through CREST) you should read Part III of this document for full details of what action you should take. If you are a CREST sponsored member, you should also consult your CREST sponsor. If you do not know whether your Ordinary Shares are in certificated or uncertificated form, please call the Shareholder Helpline on 0871 664 9235 (from inside the United Kingdom) or +44 800 141 2950 (from outside the United Kingdom) between 8:30 a.m. and 5:30 p.m. on any weekday (excluding UK bank holidays). For legal reasons, the Shareholder Helpline will be unable to give advice on the merits of the Rights Issue or provide financial, investment, legal or tax advice. Calls to the 0871 664 9235 number are charged at ten pence per minute, if calling from a BT landline. Other telephone providers’ charges may vary. Calls to the +44 800 141 2950 number from outside the UK are charged at applicable international rates.

1 What is the Rights Issue? A rights issue is a way for companies to raise money by giving their existing shareholders a right to buy further shares in proportion to their existing shareholdings. This Rights Issue is an offer by the Company of 990,439,017 New Shares at a price of 335 pence per New Share. If you hold Ordinary Shares on the Record Date, you will be a “Qualifying Shareholder”. Qualifying Shareholders, other than, subject to certain exceptions, those who have a registered address, or are resident in the United States, the Excluded Territories or the Restricted Territories, will be entitled to buy New Shares under the Rights Issue. If you hold your Existing Shares in certificated form, your entitlement will be set out in your Provisional Allotment Letter. The Issue Price of 335 pence per New Share represents a 35.7 per cent. discount to the theoretical ex-rights price based on the closing middle-market price quotation as derived from the London Stock Exchange Daily Official List of 620 pence per Ordinary Share on 19 May 2010 (the last business day prior to the date of announcement of the Rights Issue), adjusted for the recommended final dividend for 2009/10 of 24.84 pence per Ordinary Share which will not be paid on the New Shares. Because of this discount and while the market value of the Existing Shares exceeds the Issue Price, the right to buy the New Shares is potentially valuable. The New Shares, when fully paid, will rank pari passu in all respects with the Existing Shares, save for the right to receive the final dividend of 24.84 pence per Ordinary Share recommended to be paid in respect of the year ended 31 March 2010. The Rights Issue is on the basis of 2 New Shares for every 5 Existing Shares held by Qualifying Shareholders on the Record Date. If you are a Qualifying Shareholder other than, subject to certain exceptions, a Shareholder with a registered address, or resident, in the United States, the Excluded Territories or the Restricted Territories, and you do not want to buy the New Shares to which you are entitled, you can instead sell or transfer your rights (called “Nil Paid Rights”) to those New Shares and receive the net proceeds, if any, of the sale or transfer in cash. This is referred to as dealing “nil paid”.

2 I hold my Existing Shares in certificated form. How do I know if I am able to acquire New Shares under the Rights Issue? If you receive a Provisional Allotment Letter and are not a Qualifying Shareholder with a registered address in the United States, the Excluded Territories or the Restricted Territories, then you should be eligible to participate in the Rights Issue (as long as you have not sold all of your Existing Shares before 8:00 a.m. on 26 May 2010 (the time when the Existing Shares are expected to be marked “ex-rights” by the London Stock Exchange)).

35 ACE BOWNE OF TORONTO 05/24/2010 08:20 NO MARKS NEXT PCN: 041.00.00.00 -- Page is valid, no graphics BOT U08763 040.00.00.00 24

3 I hold my Existing Shares in certificated form. What do I need to do in relation to the Rights Issue?

If you hold your Existing Shares in certificated form at the Record Date and do not have a registered address in the United States, the Excluded Territories or the Restricted Territories, you will be sent a Provisional Allotment Letter that shows:

• how many Existing Shares you held at the close of business on 19 May 2010 (the Record Date for the Rights Issue);

• how many New Shares you are entitled to buy; and

• how much you need to pay if you want to take up your right to buy all the New Shares provisionally allotted to you in full.

Subject to certain exceptions, if you have a registered address in the United States, the Excluded Territories or the Restricted Territories, you will not receive a Provisional Allotment Letter.

4 I am a Qualifying Shareholder with a registered address in the United Kingdom and I hold my Existing Shares in certificated form. What are my choices and what should I do with the Provisional Allotment Letter?

(a) If you want to take up all of your rights AIII, 5.1.8 If you want to take up all of your rights to subscribe for the New Shares to which you are entitled, all you need to do is send the Provisional Allotment Letter, together with your cheque or banker’s draft for the full amount, payable to Capita Registrars re: NG plc Rights Issue a/c and crossed “A/C payee only”, by post or (during normal business hours only) by hand to Capita Registrars, to arrive by no later than 11:00 a.m. on 11 June 2010. Within the United Kingdom only, you can use the reply-paid envelope which will be enclosed with the Provisional Allotment Letter. Full instructions are set out in Part III of this document and will be set out in the Provisional Allotment Letter. A definitive share certificate will then be sent to you for the New Shares that you take up. Your definitive share certificate for New Shares is expected to be dispatched to you by no later than 25 June 2010. You will only need your Provisional Allotment Letter to be returned to you if you want to deal in your Fully Paid Rights. Your Provisional Allotment Letter will not be returned to you unless you tick the appropriate box on the Provisional Allotment Letter.

Cheques must be in sterling and drawn on a UK account. Third party cheques will not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the cheque or draft to such effect. The account name should be the same as that shown on the Provisional Allotment Letter. Post-dated cheques will not be accepted.

(b) If you do not want to take up your rights at all

If you do not want to take up your rights, you do not need to do anything. If you do not return your Provisional Allotment Letter subscribing for the New Shares to which you are entitled by 11:00 a.m. on 11 June 2010, National Grid has made arrangements under which the Joint Bookrunners will try to find investors to take up your rights and the rights of others who have not taken them up. If the Joint Bookrunners find investors who agree to pay a premium above the Issue Price and the related expenses of procuring those investors (including any applicable brokerage and commissions and amounts in respect of VAT), you will be sent a cheque for your share of the amount of that premium provided that this is £5.00 or more. Cheques are expected to be dispatched by 25 June 2010 and will be sent to your existing address appearing on the Company’s register of members (or to the first-named holder if you hold your Existing Shares jointly). If the Joint Bookrunners cannot find investors who agree to pay a premium over the Issue Price and related expenses so that your entitlement would be £5.00 or more, you will not receive any payment. Alternatively, if you do not want to take up your rights, you can sell or transfer your Nil Paid Rights (see paragraph 4(e) below).

(c) If you want to utilise the cashless take-up facility

If you want to utilise Capita’s postal dealing service to sell a sufficient number of Nil Paid Rights to raise money to take up the remainder you should tick Box 2 on the front page of your Provisional Allotment Letter, sign and date it

36 ACE BOWNE OF TORONTO 05/24/2010 09:35 NO MARKS NEXT PCN: 042.00.00.00 -- Page is valid, no graphics BOT U08763 041.00.00.00 22

and return the Provisional Allotment Letter by 11:00 a.m. on 8 June 2010. Other stockbrokers may offer this service and you would need to provide them with your Provisional Allotment Letter. Fees for Capita’s postal dealing service are £10.00 for sales of up to 1,000 Nil Paid Rights and £20.00 for sales of over 1,000 Nil Paid Rights up to a maximum of A15,000. The terms and conditions of the service are appended to the Rights Issue Guide which accompanies the Provisional Allotment Letter.

(d) If you want to take up some but not all of your rights

If you want to take up some but not all of your rights and wish to sell some or all of those you do not want to take up, you should first apply to have your Provisional Allotment Letter split by completing Form X (the form of renunciation) on the Provisional Allotment Letter, and returning it by post or (during normal business hours only) by hand to Capita Registrars to be received by 3:00 p.m. on 9 June 2010, together with confirmation of the number of split Provisional Allotment Letters required and the number of Nil Paid Rights to be comprised in each split Provisional Allotment Letter. You should then deliver the split Provisional Allotment Letter(s) representing the New Shares that you wish to accept together with your cheque or banker’s draft to Capita Registrars (see paragraph 4(a) above) to be received by 11:00 a.m. on 11 June 2010, while the split Provisional Allotment Letter(s) relating to the rights you wish to sell should be forwarded to your agent undertaking the sale.

Alternatively, if you only want to take up some of your rights (but not sell some or all of the rest), you should complete Form X on the Provisional Allotment Letter and return it by 11:00 a.m. on 11 June 2010 with a cheque or banker’s draft, in accordance with the provisions set out in the Provisional Allotment Letter.

Further details are set out in Part III of this document and will be set out in the Provisional Allotment Letter.

(e) If you want to sell all of your rights

If you want to sell all of your rights, you should complete and sign the Provisional Allotment Letter and return it to Capita Registrars if you wish to use Capita’s postal dealing service or pass the entire letter to your stockbroker, bank manager or other appropriate financial advisor or to the transferee (provided they are not in the United States, the Excluded Territories or the Restricted Territories).

The latest time and date for selling all of your rights is 11:00 a.m. on 11 June 2010. Please ensure, however, that you allow enough time so as to enable the person acquiring your rights to take all necessary steps in connection with taking up the entitlement prior to 11:00 a.m. on 11 June 2010.

If you want to sell some of your rights you will first need to apply to have your Provisional Allotment Letter split (see paragraph 4(d) above). Please note that the ability to sell your rights is dependent on demand for such rights and that the price of Nil Paid Rights will fluctuate.

5 I acquired my Existing Shares prior to the “Ex-Rights Date” and hold my Existing Shares in certificated form. What if I do not receive a Provisional Allotment Letter?

If you do not receive a Provisional Allotment Letter but hold your Shares in certificated form, this probably means that you are not eligible to participate in the Rights Issue. Some Non-CREST Shareholders, however, will not receive a Provisional Allotment Letter but may still be eligible to participate in the Rights Issue, namely:

• Qualifying CREST Shareholders who held their Existing Shares in uncertificated form on 19 May 2010 and who have converted them to certificated form;

• Qualifying Non-CREST Shareholders who bought Existing Shares but were not registered as the holders of those Shares at the close of business on 19 May 2010; and

• certain Overseas Shareholders.

If you do not receive a Provisional Allotment Letter but think that you should have received one, please contact the Shareholder Helpline on 0871 664 9235 or, if telephoning from outside the United Kingdom, on +44 800 141 2950 between 8:30 a.m. and 5:30 p.m. on any weekday (except UK bank holidays). Calls to the 0871 664 9235 number are charged at ten pence per minute if calling from a BT landline. Other telephone providers’ charges may vary. Calls to the +44 800 141 2950 number from outside the United Kingdom are charged at applicable international rates. Capita Registrars cannot provide advice on the merits of the Rights Issue nor give any financial, investment, legal or tax advice.

37 ACE BOWNE OF TORONTO 05/23/2010 14:56 NO MARKS NEXT PCN: 043.00.00.00 -- Page is valid, no graphics BOT U08763 042.00.00.00 18

6 If I buy Shares after the Record Date (19 May 2010), will I be eligible to participate in the Rights Issue? If you bought Shares after the Record Date but prior to 8:00 a.m. on 26 May 2010 (the time when the Existing Shares are expected to start trading ex-rights on the London Stock Exchange), you may be eligible to participate in the Rights Issue. If you are in any doubt, please consult your stockbroker, bank or other appropriate financial advisor, or whoever arranged your share purchase, to ensure you claim your entitlement. If you buy Shares at or after 8:00 a.m. on 26 May 2010 (the “Ex-Rights Date”), you will not be eligible to participate in the Rights Issue in respect of those Shares.

7 I hold my Existing Shares in certificated form. If I take up my rights, when will I receive the certificate representing my New Shares? If you take up your rights under the Rights Issue, share certificates for the New Shares are expected to be posted by no later than 25 June 2010.

8 What if the number of New Shares to which I am entitled is not a whole number: am I entitled to fractions of New Shares? Your entitlement to New Shares will be calculated at the Record Date. If the result is not a whole number, you will not receive a fraction of a New Share and your entitlement will be rounded down to the nearest whole number. The New Shares representing the aggregated fractions that would otherwise be allotted to Shareholders will be sold in the market nil paid for the benefit of the Company.

9 Will I be taxed if I take up or sell my rights or if my rights are sold on my behalf? Certain information about UK and US taxation is contained in Part X “Taxation” of this document. If you are in any doubt as to your tax position, or are subject to tax in a jurisdiction other than the United Kingdom or the United States, you should consult an appropriate professional advisor as soon as possible. Please note the Shareholder Helpline will not be able to assist you with taxation issues.

10 What if I hold options or awards under the Company’s employee share plans? If the Directors consider it appropriate in the circumstances, options and conditional awards granted under the National Grid employee share plans may be adjusted to compensate for the effect of the Rights Issue. Such adjustments will be subject to approval by HMRC, where appropriate. Participants will be contacted separately with further information on how their options and awards will be affected by the Rights Issue. Shareholder approval is not required for any adjustment. In relation to those National Grid employee share plans in respect of which participants are beneficially entitled to Ordinary Shares, they will be entitled to participate in the Rights Issue and will be contacted separately with further information on what actions (if any) they may need to take. This does not apply to employee share plans in the United States or to US employees.

11 I understand that there is a period when there is trading in the Nil Paid Rights. What does this mean? If you do not want to buy the New Shares being offered to you under the Rights Issue, you can instead sell or transfer your rights (called “Nil Paid Rights”) to those New Shares and receive the net proceeds of the sale or transfer in cash. This is referred to as dealing “nil paid”. This means that, during the Rights Issue offer period, a person can either purchase Ordinary Shares (which will not carry any entitlement to participate in the Rights Issue) or can trade in the Nil Paid Rights.

12 I hold my Existing Shares in certificated form. What if I want to sell the New Shares which I have paid for? Provided the New Shares have been paid for and you have requested the return of the receipted Provisional Allotment Letter, you can transfer the Fully Paid Rights by completing Form X (the form of renunciation) on the receipted Provisional Allotment Letter in accordance with the instructions set out in the Provisional Allotment Letter until 11:00 a.m. on 11 June 2010. After that time, you will be able to sell your New Shares in the normal way. The share certificate relating to your New Shares is expected to be dispatched to you by no later than 25 June 2010.

38 ACE BOWNE OF TORONTO 05/24/2010 08:18 NO MARKS NEXT PCN: 044.00.00.00 -- Page is valid, no graphics BOT U08763 043.00.00.00 24

Pending dispatch of the share certificate, instruments of transfer will be certified by Capita Registrars against the register.

Further details are set out in Part III of this document.

13 What should I do if I live outside the United Kingdom?

Your ability to take up rights to New Shares may be affected by the laws of the country in which you live and you should take professional advice as to whether you require any governmental or other consents or need to observe any other formalities to enable you to take up your rights. Qualifying Shareholders with registered addresses in the United States, the Excluded Territories or the Restricted Territories are, subject to certain exceptions, not eligible to participate in the Rights Issue. Your attention is drawn to the information in paragraph 2.5 of Part III of this document.

The Company has made arrangements under which the Joint Bookrunners will try to find investors to take up your rights and those of other Qualifying Shareholders who have not taken up their rights. If the Joint Bookrunners find investors who agree to pay a premium above the Issue Price and the related expenses of procuring those investors (including any applicable brokerage and commissions and amounts in respect of VAT), you will be sent a cheque for your share of the amount of that premium provided that this is £5.00 or more. Cheques are expected to be dispatched by 25 June 2010 and will be sent to your address appearing on the Company’s register of members (or to the first- named holder if you hold your Shares jointly). If the Joint Bookrunners cannot find investors who agree to pay a premium over the Issue Price and related expenses so that your entitlement would be £5.00 or more, you will not receive any payment.

14 Will the Rights Issue affect the future dividends that the Company pays?

National Grid intends to maintain its policy to increase dividends by eight per cent. per annum until 31 March 2012 after adjusting the 2009/10 dividend to take account of the bonus element of the Rights Issue. Beyond 2012, National Grid intends to pursue a policy that targets real growth in dividends reflecting the strong growth prospects of the business. In addition, the Company intends to continue to offer Shareholders the opportunity to increase their holding in National Grid through a scrip dividend.

15 What should I do if I think my holding of Shares is incorrect?

If you have bought or sold Ordinary Shares shortly before 19 May 2010, your transaction may not be entered on the register of members in time to appear on the register at the Record Date. If you are concerned about the figure in the Provisional Allotment Letter or otherwise concerned that your holding of Ordinary Shares is incorrect, please contact the Shareholder Helpline on 0871 664 9235 (from inside the United Kingdom) or +44 800 141 2950 (from outside the United Kingdom) between 8:30 a.m. and 5:30 p.m. on any weekday (except UK bank holidays). Calls to the 0871 664 9235 number cost ten pence per minute if calling from a BT landline. Other telephone providers’ charges may vary. Calls to the +44 800 141 2950 number from outside the United Kingdom are charged at applicable international rates. For legal reasons, the Shareholder Helpline will only be able to provide information contained in this document (and, in addition, information relating to the Company’s register of members) and will be unable to give advice on the merits of the Rights Issue or to provide financial, investment, legal or tax advice.

16 Where can I find further information on the Rights Issue?

For further information on the Rights Issue, please contact the Shareholder Helpline on 0871 664 9235 (from inside the United Kingdom) or +44 800 141 2950 (from outside the United Kingdom) between 8:30 a.m. and 5:30 p.m. on any weekday (excluding UK bank holidays). Calls to the 0871 664 9235 number are charged at ten pence per minute if calling from a BT landline. Other telephone providers’ costs may vary. Calls to the +44 800 141 2950 number from outside the United Kingdom are charged at applicable international rates. For legal reasons, the Shareholder Helpline will only be able to provide information contained in this document (and, in addition, information relating to the Company’s register of members) and will be unable to give advice on the merits of the Rights Issue or to provide financial, investment, legal or tax advice.

39 ACE BOWNE OF TORONTO 05/23/2010 14:53 NO MARKS NEXT PCN: 045.00.00.00 -- Page is valid, no graphics BOT U08763 044.00.00.00 18

PART III

TERMS AND CONDITIONS OF THE RIGHTS ISSUE

1 Introduction The Company is proposing to raise proceeds of approximately £3.2 billion (net of expenses) by way of a rights issue PRA3 5.12 of 990,439,017 New Shares. Subject to the fulfilment of the conditions of the Underwriting Agreement, the New PRA3 3.4 Shares will be offered by way of rights at 335 pence per New Share, payable in full on acceptance by Qualifying PRA3 4.4 Shareholders other than, subject to certain exceptions as set out in paragraph 2.5 of this Part III, Qualifying PRA3 5.3.1 Shareholders with a registered address, or resident, in the United States, the Excluded Territories or the Restricted Territories on the basis of:

2 New Shares for every 5 Existing Shares PRA3 5.2.1 PRA3 5.3.1 held on the Record Date (and so in proportion for any other number of Existing Shares then held) and otherwise on the terms and conditions as set out in this document and, in the case of Qualifying Non-CREST Shareholders (subject to certain exclusions and restrictions), the Provisional Allotment Letter.

Qualifying Shareholders are holders of Ordinary Shares on the register of members of the Company at the Record AIII 5.2.1 Date. With the exclusion (subject to certain exceptions) of Qualifying Shareholders with a registered address or located or resident in the United States, the Excluded Territories or the Restricted Territories, Qualifying Shareholders will be entitled to take up the New Shares represented by their entitlements to Nil Paid Rights. Subject to certain exceptions, Nil Paid Rights to which Qualifying Shareholders with registered addresses in the United States, the Excluded Territories or the Restricted Territories would otherwise be entitled will be aggregated with entitlements to Nil Paid Rights which have not been taken up by other Qualifying Shareholders and, if possible, sold as described in paragraph 2.3.1 below.

Timetable dates in this Part III have been included on the basis of the expected timetable set out on page 13. The Issue Price of 335 pence per New Share represents a 35.7 per cent. discount to the theoretical ex-rights price PRA3 5.3.1 based on the closing middle-market price of an Ordinary Share as derived from the London Stock Exchange Daily Official List of 620 pence per Existing Share on 19 May 2010 (the last business day prior to the date of announcement of the terms of the Rights Issue), adjusted for the recommended final dividend for 2009/10 of 24.84 pence per Ordinary Share. The New Shares, when issued and fully paid, will rank pari passu in all respects with the Existing Shares, save for the right to receive the final dividend of 24.84 pence per Ordinary Share recommended to be paid in respect of the year ended 31 March 2010. Qualifying Shareholders who do not take up entitlements to New Shares will have their proportionate shareholdings AIII, 9.1 in the Company diluted by approximately 28.6 per cent. Those Qualifying Shareholders who take up their rights in full will, subject to fractions, have the same proportionate voting and distribution rights as held on the Record Date. The Nil Paid Rights, also described as New Shares (nil paid), are entitlements to acquire the New Shares subject to payment of the Issue Price. The Fully Paid Rights are entitlements to receive the New Shares, for which a subscription and payment has already been made. Holdings of Existing Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue. Entitlements to New Shares will be rounded down to the next lowest whole number and fractions of New Shares will not be allotted to Qualifying Shareholders. Such fractions will be aggregated and, if possible, sold as soon as practicable after the commencement of dealings in the Nil Paid Rights. The net proceeds of such sales (after deduction of expenses) will be aggregated and will ultimately accrue for the benefit of the Company. This document constitutes the offer of New Shares to all Qualifying CREST Shareholders, other than, subject to certain exceptions as set out in paragraph 2.5 of this Part III, Shareholders with a registered address, or resident, in the United States, the Excluded Territories or the Restricted Territories, and all Qualifying Non-CREST Shareholders, other than, subject to certain exceptions as set out in paragraph 2.5 of this Part III, Shareholders with a registered address, or resident, in the United States, the Excluded Territories or the Restricted Territories, to whom Provisional Allotment Letters are dispatched. The crediting of Nil Paid Rights to a stock account in CREST does not constitute an offer to Shareholders in any jurisdiction.

40 ACE BOWNE OF TORONTO 05/23/2010 12:41 NO MARKS NEXT PCN: 046.00.00.00 -- Page is valid, no graphics BOT U08763 045.00.00.00 13

The attention of Overseas Shareholders or any person (including, without limitation, custodians, nominees and trustees) who has a contractual or other legal obligation to forward this document into a jurisdiction other than the United Kingdom is drawn to paragraph 2.5 below. The offer of New Shares and the Rights Issue will not be made into certain territories. Subject to the provisions of paragraph 2.5, Qualifying Shareholders with a registered address in the United States, the Excluded Territories or the Restricted Territories are not being sent this document and will not be sent Provisional Allotment Letters.

Applications will be made to the UK Listing Authority and to the London Stock Exchange for the New Shares (nil AIII 4.7 paid and fully paid) to be admitted to the Official List and to trading on the London Stock Exchange’s main market AIII 6.1 for listed securities respectively. It is expected that Admission will become effective on 26 May 2010 and that dealings in the Nil Paid Rights, will commence on the London Stock Exchange by 8:00 a.m. on that date. The New Shares and the Existing Shares are in registered form and can be held in certificated form or uncertificated form via CREST.

The Existing Shares are already admitted to CREST. No further application for admission to CREST is required for the New Shares and all of the New Shares when issued and fully paid may be held and transferred by means of CREST.

Applications will be made for the Nil Paid Rights and the Fully Paid Rights to be admitted to CREST. Euroclear UK requires the Company to confirm to it that certain conditions (imposed by the CREST Manual) are satisfied before Euroclear UK will admit any security to CREST. It is expected that these conditions will be satisfied, in respect of the Nil Paid Rights and the Fully Paid Rights, on Admission. As soon as practicable after satisfaction of the conditions, the Company will confirm this to Euroclear UK.

The ISIN for the New Shares will be the same as that of the Existing Shares being GB00B08SNH34. The ISIN code AIII 4.1 for the Nil Paid Rights is GB00B4QNFN88 and for the Fully Paid Rights is GB00B4M9XX62.

None of the New Shares is being made available to the public other than pursuant to the Rights Issue.

The Rights Issue has been fully underwritten by the Underwriters and is conditional, inter alia, upon: AIII 5.1.1 AIII 5.4.3 (i) the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms; and

(ii) Admission becoming effective by not later than 8:00 a.m. on 26 May 2010 (or such later date as the Company and the Joint Bookrunners may agree).

The Underwriting Agreement is conditional upon certain matters being satisfied or not breached prior to Admission AIII 5.1.4 and may be terminated by the Underwriters prior to Admission upon the occurrence of certain specified events, in which case the Rights Issue will not proceed. The Underwriting Agreement is not capable of termination following Admission. The Joint Bookrunners may arrange sub-underwriting for some, all or none of the New Shares. A summary of certain terms and conditions of the Underwriting Agreement is contained in paragraph 16.1 of Part XI “Additional Information” of this document.

The Banks and any of their respective affiliates may engage in trading activity in connection with their roles under the Underwriting Agreement and, in that capacity, may retain, purchase, sell, offer to sell or otherwise deal for their own account in securities of the Company and related or other securities and instruments (including Ordinary Shares, Nil Paid Rights and Fully Paid Rights). Except as required by applicable law or regulation, the Banks do not propose to make any public disclosure in relation to such transactions.

The Company will not proceed with the Rights Issue if the Underwriting Agreement is terminated at any time prior to Admission and commencement of dealings in the Nil Paid Rights.

Subject, inter alia, to the conditions referred to above being satisfied (other than the condition relating to Admission) and save as provided in paragraph 2.5 below, it is intended that:

(i) Provisional Allotment Letters in respect of Nil Paid Rights will be dispatched to Qualifying Non-CREST Shareholders on 25 May 2010 (other than, subject to certain exceptions, a Qualifying Shareholder who has a registered address, or is resident, in the United States, the Excluded Territories or the Restricted Territories);

(ii) Capita Registrars will instruct Euroclear UK to credit the appropriate stock accounts of Qualifying CREST AIII 5.1.9 Shareholders (other than, subject to certain exceptions, a Qualifying Shareholder who has a registered address in the United States, the Excluded Territories or the Restricted Territories) with such Shareholders’ entitlements to Nil Paid Rights as soon as practicable after 8:00 a.m. on 26 May 2010;

41 ACE BOWNE OF TORONTO 05/23/2010 12:41 NO MARKS NEXT PCN: 047.00.00.00 -- Page is valid, no graphics BOT U08763 046.00.00.00 15

(iii) the Nil Paid Rights and the Fully Paid Rights will be enabled for settlement by Euroclear UK by 8:00 a.m. on 26 May 2010 or as soon as practicable after the Company has confirmed to Euroclear UK that all the conditions for admission of such rights to CREST have been satisfied; (iv) New Shares will be credited to the relevant Qualifying CREST Shareholders who validly take up their rights as soon as practicable after 8:00 a.m. on 14 June 2010; and (v) share certificates for the New Shares will be dispatched to Qualifying Non-CREST Shareholders who validly take up their rights by no later than 25 June 2010. The New Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Shares, save for the right to receive the final dividend of 24.84 pence per Ordinary Share recommended to be paid in respect of the year ended 31 March 2010. All documents including Provisional Allotment Letters (which constitute temporary documents of title) and cheques and certificates posted to, by or from Qualifying Shareholders and/or their transferees or renouncees (or their agents, as appropriate) will be posted at their own risk. Shareholders taking up their rights by completing a Provisional Allotment Letter or by sending a Many-To-Many (“MTM”) instruction to Euroclear UK will be deemed to have given the representations and warranties set out in paragraph 2.5.6 of this Part III, unless the requirement is waived by the Company.

2 Action to be taken The action to be taken in respect of the New Shares depends on whether, at the relevant time, the Nil Paid Rights or the Fully Paid Rights in respect of which action is to be taken are in certificated form (that is, are represented by Provisional Allotment Letters) or are in uncertificated form (that is, are in CREST). If you are a Qualifying Non-CREST Shareholder other than, subject to certain exceptions, a Qualifying Shareholder who has a registered address, or is resident, in the United States, the Excluded Territories or the Restricted Territories, please refer to paragraph 2.1 and paragraphs 2.3 to 2.8 below. If you are a Qualifying CREST Shareholder other than, subject to certain exceptions, a Qualifying Shareholder who has a registered address, or is resident, in the United States, the Excluded Territories or the Restricted Territories, please refer to paragraphs 2.2 to 2.8 below and to the CREST Manual for further information on the CREST procedures referred to below. If you are a Qualifying CREST Shareholder or a Qualifying Non-CREST Shareholder who has a registered address, or is resident, in the United States, the Excluded Territories or the Restricted Territories, please refer to paragraph 2.5 below. CREST sponsored members should refer to their CREST sponsors, as only their CREST sponsors will be able to take the necessary actions specified below to take up the entitlements or otherwise to deal with the Nil Paid Rights or Fully Paid Rights of CREST sponsored members. All enquiries in relation to the Provisional Allotment Letters should be addressed to the Shareholder Helpline on 0871 664 9235 from within the United Kingdom (+44 800 141 2950 if you are calling from outside the United Kingdom) between 8:30 a.m. and 5:30 p.m. Monday to Friday (except UK bank holidays). Calls to the 0871 664 9235 number are charged at ten pence per minute from a BT landline. Other telephone providers’ costs may vary. Calls to the +44 800 141 2950 number from outside the United Kingdom are charged at applicable international rates. For legal reasons, the Shareholder Helpline will be unable to give advice on the merits of the Rights Issue or to provide financial, investment, legal or tax advice.

2.1 Action to be taken by Qualifying Non-CREST Shareholders in relation to the Nil Paid Rights represented by Provisional Allotment Letters 2.1.1 General

Provisional Allotment Letters are expected to be dispatched to Qualifying Non-CREST Shareholders other than AIII 5.1.6 Qualifying Shareholders with a registered address, or resident, in one of the Excluded Territories or, subject to certain exceptions, the United States or one of the Restricted Territories on 25 May 2010. Each Provisional Allotment Letter will set out: (i) the holding at the Record Date of Existing Shares in certificated form on which a Qualifying Non-CREST Shareholder’s entitlement to New Shares has been based;

42 ACE BOWNE OF TORONTO 05/23/2010 12:41 NO MARKS NEXT PCN: 048.00.00.00 -- Page is valid, no graphics BOT U08763 047.00.00.00 15

(ii) the aggregate number and cost of New Shares in certificated form which have been provisionally allotted to AIII 5.2.4 that Qualifying Non-CREST Shareholder;

(iii) the procedures to be followed if a Qualifying Non-CREST Shareholder wishes to dispose of all or part of his entitlement or to convert all or part of his entitlement into uncertificated form; and

(iv) instructions regarding acceptance and payment, consolidation, splitting and registration of renunciation.

On the basis that Provisional Allotment Letters are posted on 25 May 2010, and that dealings in Nil Paid Rights AIII 5.1.8 commence on 26 May 2010, the latest time and date for acceptance and payment in full will be 11:00 a.m. on 11 June 2010.

If the Rights Issue is delayed so that Provisional Allotment Letters cannot be dispatched on 25 May 2010, the expected timetable, as set out on page 13 of this document, will be adjusted accordingly and the revised dates will be set out in the Provisional Allotment Letters and announced through a Regulatory Information Service. All references in this Part III should be read as being subject to such adjustment.

2.1.2 Procedure for acceptance and payment AIII 5.1.5 AIII 5.1.10 (i) Qualifying Non-CREST Shareholders who wish to accept in full

Holders of Provisional Allotment Letters who wish to take up all of their entitlements must return the Provisional Allotment Letter, together with a cheque or banker’s draft in pounds sterling, made payable to Capita Registrars re: NG plc Rights Issue a/c and crossed “A/C payee only”, for the full amount payable on acceptance, in accordance with the instructions printed on the Provisional Allotment Letter, by post or (during normal business hours only) by hand to Capita Registrars, so as to arrive as soon as possible and in any event so as to be received by not later than 11:00 a.m. on 11 June 2010. A reply-paid envelope will be enclosed with the Provisional Allotment Letter for this purpose and for use in the United Kingdom only. If you post your Provisional Allotment Letter within the United Kingdom by first-class post, it is recommended that you allow at least four days for delivery.

(ii) Qualifying Non-CREST Shareholders who wish to accept in part

Holders of Provisional Allotment Letters who wish to take up some but not all of their Nil Paid Rights and wish to sell some or all of those rights which they do not want to take up, should first apply for split Provisional Allotment Letters by completing Form X on the Provisional Allotment Letter and returning it, together with a covering letter stating the number of split Provisional Allotment Letters required and the number of Nil Paid Rights or Fully Paid Rights (if appropriate) to be comprised in each split Provisional Allotment Letter, by post or (during normal business hours only) by hand to Capita Registrars by 3:00 p.m. on 9 June 2010, the last date and time for splitting Nil Paid Rights or Fully Paid Rights. The Provisional Allotment Letter will then be cancelled and exchanged for the split Provisional Allotment Letters required. Such holders of Provisional Allotment Letters should then deliver the split Provisional Allotment Letter representing the rights they wish to take up together with a cheque or banker’s draft in pounds sterling for this number of rights, payable to Capita Registrars re: NG plc Rights Issue a/c and crossed “A/C payee only” to arrive by 11:00 a.m. on 11 June 2010, the last date and time for acceptance. The further split Provisional Allotment Letters (representing the New Shares the Shareholder does not wish to take up) will be required in order to sell those rights not being taken up.

Alternatively, Qualifying Non-CREST Shareholders who wish to take up some of their rights, without selling or transferring the remainder, should complete Form X on the original Provisional Allotment Letter and return it together with a cheque or banker’s draft in pounds sterling to pay for this number of New Shares, by post or by hand (during normal business hours only) to Capita Registrars. In this case, the Provisional Allotment Letter and payment must be received by Capita Registrars by 11:00 a.m. on 11 June 2010, the last date and time for acceptance and payment.

(iii) Company’s discretion as to validity of acceptances

If payment is not received in full by 11:00 a.m. on 11 June 2010, the provisional allotment will be deemed to have been declined and will lapse. The Company may elect, with the agreement of the Joint Bookrunners, but shall not be

43 ACE BOWNE OF TORONTO 05/23/2010 14:54 NO MARKS NEXT PCN: 049.00.00.00 -- Page is valid, no graphics BOT U08763 048.00.00.00 16

obliged, to treat as valid Provisional Allotment Letters and accompanying remittances for the full amount due which are not received through the post prior to 11:00 a.m. on 11 June 2010. The Company may elect, with the agreement of the Joint Bookrunners, but shall not be obliged, to treat as a valid acceptance, the receipt of an appropriate remittance by 11:00 a.m. on 11 June 2010 from an authorised person (as detailed in section 31(2) of FSMA) specifying the number of New Shares to be acquired and containing an undertaking by that person to lodge the relevant Provisional Allotment Letter, duly completed, in due course (and by no later than 5:00 p.m. on 11 June 2010). The Company may also (in its sole discretion) treat a Provisional Allotment Letter as valid and binding on the person(s) by whom or on whose behalf it is lodged even if it is not completed in accordance with the relevant instructions or is not accompanied by a valid power of attorney where required. The Company reserves the right to treat as invalid any acceptance or purported acceptance of the New Shares that appears to the Company to have been executed in, dispatched from, or that provided an address for delivery of definitive share certificates for New Shares in, the United States, the Excluded Territories or the Restricted Territories unless the Company is satisfied that such act could not result in a contravention of any registration or other legal requirement in any jurisdiction. A Qualifying Non-CREST Shareholder who makes a valid acceptance and payment in accordance with this paragraph 2.1.2 is deemed to request that the New Shares to which they will become entitled be issued to them on the terms set out in this document and subject to the Articles of Association. By completing and delivering a Provisional Allotment Letter, a Qualifying Non-CREST Shareholder will be deemed to have represented and agreed certain matters as set out in paragraph 2.5.6 of this Part III, and agrees and acknowledges that (i) Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited, Merrill Lynch International and Deutsche Bank AG, London Branch are acting exclusively for National Grid and no one else in connection with the Rights Issue and the listing of the New Shares and will not be responsible to anyone other than National Grid for providing the protections afforded to their respective clients or for providing advice in connection with the Rights Issue, Admission or the contents of this document; and (ii) apart from the responsibilities and liabilities, if any, which may be imposed on Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited, Merrill Lynch International and Deutsche Bank AG, London Branch by FSMA, none of Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited, Merrill Lynch International and Deutsche Bank AG, London Branch has any responsibility whatsoever for the contents of this document including its accuracy, completeness or verification or for any other statement made or purported to be made by any of them, or on behalf of them, in connection with National Grid, the Nil Paid Rights, the Fully Paid Rights, the New Shares or the Rights Issue. None of Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited, Merrill Lynch International and Deutsche Bank AG, London Branch shall have any liability whatsoever, whether arising in tort, contract or otherwise (save as referred to above) in respect of this document or any such statement.

(iv) Payments AIII 5.1.10 All payments must be in pounds sterling and made by cheque or banker’s draft made payable to Capita Registrars re: NG plc Rights Issue a/c and crossed “A/C payee only” drawn on an account where the Shareholder has sole or joint title to the funds. Cheques or banker’s drafts must be drawn on a bank or building society or branch of a bank or building society in the United Kingdom or Channel Islands which is either a settlement member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged for its cheques and banker’s drafts to be cleared through the facilities provided by any of those companies or committees and must bear the appropriate sort code in the top right-hand corner. Such payments will be held by Capita Registrars on trust for the Subscribing Bank, who is acting as principal on receipt of such monies. Third party cheques will not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the cheque or draft to such effect. The account name should be the same as that shown on the application. Post-dated cheques will not be accepted. Cheques or banker’s drafts will be presented for payment upon receipt. The Joint Bookrunners and the Company reserve the right to instruct Capita Registrars to seek special clearance of cheques and banker’s drafts to allow value to be obtained for remittances at the earliest opportunity. No interest will be paid on payments made before they are due. It is a term of the Rights Issue that cheques shall be honoured on first presentation and the Company may elect to treat as invalid acceptances in respect of which cheques are not so honoured. All documents, cheques and banker’s drafts sent through the post will be sent at the risk of the sender. Payments via CHAPS, BACS or electronic transfer will not be accepted. If the New Shares have already been allotted to a Qualifying Non-CREST Shareholder prior to any payment not being so honoured upon first presentation or such acceptances being treated as invalid, the Company may (in its

44 ACE BOWNE OF TORONTO 05/20/2010 10:52 NO MARKS NEXT PCN: 050.00.00.00 -- Page is valid, no graphics BOT U08763 049.00.00.00 17

absolute discretion as to manner, timing and terms) make arrangements for the sale of such New Shares on behalf of such Qualifying Non-CREST Shareholders and hold the proceeds of sale (net of the Company’s reasonable estimate of any loss it has suffered as a result of the same and of the expenses of the sale, including, without limitation, any stamp duty or stamp duty reserve tax (“SDRT”) payable on the transfer of such New Shares, and of all amounts payable by such Qualifying Non-CREST Shareholders pursuant to the terms of the Rights Issue in respect of the acquisition of such New Shares) on behalf of such Qualifying Non-CREST Shareholders. Neither the Company nor the Banks or any other person shall be responsible for, or have any liability for, any loss, expense or damage suffered by such Qualifying Non-CREST Shareholders as a result. Holders of Provisional Allotment Letters who wish to take up any of their entitlements must make the representations and warranties set out in paragraph 2.5.6 below.

2.1.3 Money Laundering Regulations It is a term of the Rights Issue that, to ensure compliance with the Money Laundering Regulations, the Receiving Agent, Capita Registrars, may require verification of the identity of the person by whom or on whose behalf a Provisional Allotment Letter is lodged with payment (which requirements are referred to below as the “verification of identity requirements”). The person(s) (in this paragraph 2.1.3, the “acceptor”) who, by lodging a Provisional Allotment Letter with payment, as described above, accept(s) the allotment of the New Shares (in this paragraph 2.1.3, the “relevant shares”) comprised in such Provisional Allotment Letter (being the provisional allottee or, in the case of renunciation, the person named in such Provisional Allotment Letter) shall thereby be deemed to agree to provide the Registrar and/or the Company with such information and other evidence as they or either of them may require to satisfy the verification of identity requirements. If the Receiving Agent determines that the verification of identity requirements apply to an acceptance of an allotment and the verification of identity requirements have not been satisfied (which the Receiving Agent shall in its absolute discretion determine) by 11:00 a.m. on 11 June 2010, the Company may, in its absolute discretion, and without prejudice to any other rights of the Company, treat the acceptance as invalid or may confirm the allotment of the relevant shares to the acceptor but (notwithstanding any other term of the Rights Issue) such shares will not be issued to him or registered in his name until the verification of identity requirements have been satisfied (which the Receiving Agent shall in its absolute discretion determine). If the acceptance is not treated as invalid and the verification of identity requirements are not satisfied within such period, being not less than seven days after a request for evidence of identity is dispatched to the acceptor, as the Company may in its absolute discretion allow, the Company will be entitled to make arrangements (in its absolute discretion as to manner, timing and terms) to sell the relevant shares (and for that purpose the Company will be expressly authorised to act as agent of the acceptor). Any proceeds of sale (net of expenses) of the relevant shares which shall be issued to and registered in the name of the purchaser(s) or an amount equivalent to the original payment, whichever is the lower, will be held by the Company on trust for the acceptor, subject to the requirements of the Money Laundering Regulations. The Receiving Agent is entitled in its absolute discretion to determine whether the verification of identity requirements apply to any acceptor and whether such requirements have been satisfied. Neither the Company nor the Receiving Agent will be liable to any person for any loss suffered or incurred as a result of the exercise of any such discretion or as a result of any sale of relevant shares. Return of a Provisional Allotment Letter with the appropriate remittance will constitute a warranty from the acceptor that the Money Laundering Regulations will not be breached by acceptance of such remittance. If the verification of identity requirements apply, failure to provide the necessary evidence of identity may result in the acceptor’s acceptance being treated as invalid or in delays in the dispatch of a receipted fully paid Provisional Allotment Letter or a share certificate. The verification of identity requirements will not usually apply: (i) if the acceptor is an organisation required to comply with the Money Laundering Directive 2005/60/EC of the European Parliament and of the EC Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing; or (ii) if the acceptor is a regulated UK broker or intermediary acting as agent and is itself subject to the Money Laundering Regulations; or (iii) if the acceptor (not being an acceptor who delivers his acceptance in person) makes payment by way of a cheque drawn on an account in the name of such acceptor; or (iv) if the aggregate subscription price for the relevant shares is less than A15,000 (approximately £13,000).

45 ACE BOWNE OF TORONTO 05/20/2010 10:53 NO MARKS NEXT PCN: 051.00.00.00 -- Page is valid, no graphics BOT U08763 050.00.00.00 17

Where the verification of identity requirements apply, please note the following as this will assist in satisfying the requirements. Satisfaction of the verification of identity requirements may be facilitated in the following ways: (a) if payment is made by cheque or banker’s draft in pounds sterling drawn on a branch in the United Kingdom of a bank or building society and bears a UK bank sort code number in the top right-hand corner, the following applies. Cheques should be made payable to Capita Registrars re: NG plc Rights Issue a/c and crossed “A/C payee only”. Third party cheques will not be accepted with the exception of building society cheques or banker’s drafts where the building society or bank has confirmed the name of the account holder by stamping or endorsing the building society cheque/banker’s draft to such effect. The account name should be the same as that shown on the Provisional Allotment Letter; (b) if the Provisional Allotment Letter is lodged with payment by an agent which is an organisation of the kind referred to in (a) above or which is subject to anti money laundering regulation in a country which is a member of the Financial Action Task Force (the non-EU members of which are Argentina, Australia, Brazil, Canada, China, Hong Kong, Iceland, Japan, Mexico, New Zealand, Norway, the Republic of Korea, the Russian Federation, Singapore, South Africa, Switzerland, Turkey, the United States and, by virtue of their membership of the Gulf Co-operation Council, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates), the agent should provide written confirmation with the Provisional Allotment Letter that it has that status and a written assurance that it has obtained and recorded evidence of the identity of the persons for whom it acts and that it will on demand make such evidence available to the Registrar or the relevant authority; or (c) if a Provisional Allotment Letter is lodged by hand by the acceptor in person, he should ensure that he has with him evidence of identity bearing his photograph (for example, his passport) and evidence of his address. In order to confirm the acceptability of any written assurance referred to in (c) above or any other case, the acceptor should contact the Receiving Agent.

2.1.4 Dealings in Nil Paid Rights AIII 5.2.4

Assuming the Rights Issue becomes unconditional, dealings in the Nil Paid Rights on the London Stock Exchange AIII 5.1.10 are expected to commence at 8:00 a.m. on 26 May 2010. A transfer of Nil Paid Rights can be made by renunciation of the Provisional Allotment Letter in accordance with the instructions printed on it and delivery of the letter to the transferee. The latest time and date for acceptance, payment in full and registration of renunciation of Provisional Allotment Letters is expected to be 11:00 a.m. on 11 June 2010.

2.1.5 Dealings in Fully Paid Rights After acceptance of the provisional allotment and payment in full in accordance with the provisions set out in this document and the Provisional Allotment Letter, the Fully Paid Rights may be transferred by renunciation of the relevant Provisional Allotment Letter and delivering it, by post or (during normal business hours only) by hand to Capita Registrars, by not later than 11:00 a.m. on 11 June 2010. To do this, Qualifying Non-CREST Shareholders will need to have their fully paid Provisional Allotment Letters returned to them after acceptance has been effected by Capita Registrars. However, fully paid Provisional Allotment Letters will not be returned to Shareholders unless their return is requested by ticking the appropriate box on the Provisional Allotment Letter. After 11 June 2010, the New Shares will be in registered form and transferable in the usual way (see paragraph 2.1.10 below).

2.1.6 Renunciation and splitting of Provisional Allotment Letters Qualifying Non-CREST Shareholders who wish to transfer all of their Nil Paid Rights or, after acceptance of the provisional allotment and payment in full, Fully Paid Rights comprised in a Provisional Allotment Letter may (save as required by the laws of certain overseas jurisdictions) renounce such allotment by completing and signing Form X on the Provisional Allotment Letter (if it is not already marked “Original Duly Renounced”) and passing the entire Provisional Allotment Letter to their stockbroker or bank or other appropriate financial advisor or to the transferee. Once a Provisional Allotment Letter has been renounced, the letter will become a negotiable instrument in bearer form and the Nil Paid Rights or Fully Paid Rights (as appropriate) comprised in the Provisional Allotment Letter may be transferred by delivery of the Provisional Allotment Letter to the transferee. The latest time and date for registration of renunciation of Provisional Allotment Letters, fully paid, is 11:00 a.m. on 11 June 2010. If a holder of a Provisional Allotment Letter wishes to have only some of the New Shares registered in his name and to transfer the remainder, or wishes to transfer all the Nil Paid Rights or (if appropriate) Fully Paid Rights but to different persons, he may have the Provisional Allotment Letter split, for which purpose he must complete and sign Form X on the Provisional Allotment Letter. The Provisional Allotment Letter must then be delivered by post or

46 ACE BOWNE OF TORONTO 05/20/2010 10:48 NO MARKS NEXT PCN: 052.00.00.00 -- Page is valid, no graphics BOT U08763 051.00.00.00 17

(during normal business hours only) by hand to Capita Registrars, by not later than 3:00 p.m. on 9 June 2010, to be cancelled and exchanged for the split Provisional Allotment Letters required. The number of split Provisional Allotment Letters required and the number of Nil Paid Rights or (as appropriate) Fully Paid Rights to be comprised in each split letter should be stated in an accompanying letter. Form X on split Provisional Allotment Letters will be marked “Original Duly Renounced” before issue. The Company reserves the right to refuse to register any renunciation in favour of any person in respect of which the Company believes such renunciation may violate applicable legal or regulatory requirements, including (without limitation) any renunciation in the name of any person with an address outside the United Kingdom. Alternatively, Qualifying Non-CREST Shareholders who wish to take up some of their rights, without transferring the remainder, should complete Form X on the original Provisional Allotment Letter and return it, together with a cheque or banker’s draft in pounds sterling to pay for this number of New Shares, by post or (during normal business hours only) by hand to Capita Registrars. In this case, the Provisional Allotment Letter and payment must be received by Capita Registrars by 11:00 a.m. on 11 June 2010.

2.1.7 Registration in names of Qualifying Shareholders A Qualifying Shareholder who wishes to have all the New Shares to which he is entitled registered in his name must accept and make payment for such allotment in accordance with the provisions set out in this document and the Provisional Allotment Letter but need take no further action. A share certificate is expected to be dispatched to such Qualifying Shareholders by no later than 25 June 2010.

2.1.8 Registration in names of persons other than Qualifying Shareholders originally entitled In order to register Fully Paid Rights in certificated form in the name of someone other than the Qualifying Shareholders(s) originally entitled, the renouncee or his agent(s) must complete Form Y on the Provisional Allotment Letter (unless the renouncee is a CREST member who wishes to hold such New Shares in uncertificated form, in which case Form X and the CREST Deposit Form must be completed (see paragraph 2.2 below)) and deliver the entire Provisional Allotment Letter, when fully paid, by post or (during normal business hours only) by hand to Capita Registrars, by not later than the latest time for registration of renunciations, which is expected to be 11:00 a.m. on 11 June 2010. Registration cannot be effected unless and until the New Shares comprised in a Provisional Allotment Letter are fully paid. The New Shares comprised in several renounced Provisional Allotment Letters may be registered in the name of one holder (or joint holders) if Form Y on the Provisional Allotment Letter is completed on one Provisional Allotment Letter (the “Principal Letter”) and all the Provisional Allotment Letters are delivered in one batch. Details of each Provisional Allotment Letter (including the Principal Letter) should be listed in the Consolidated Listing Form adjacent to Forms X and Y of the Principal Letter and the allotment number of the Principal Letter should be entered in the space provided on each of the other Provisional Allotment Letters.

2.1.9 Deposit of Nil Paid Rights or Fully Paid Rights into CREST AIII 5.1.10 The Nil Paid Rights or Fully Paid Rights represented by the Provisional Allotment Letter may be converted into uncertificated form, that is, deposited into CREST (whether such conversion arises as a result of a renunciation of those rights or otherwise). Similarly, Nil Paid Rights or Fully Paid Rights held in CREST may be converted into certificated form, that is, withdrawn from CREST. Subject as provided in the next following paragraph or in the Provisional Allotment Letter, normal CREST procedures and timings apply in relation to any such conversion. You are recommended to refer to the CREST Manual for details of such procedures. The procedure for depositing the Nil Paid Rights represented by the Provisional Allotment Letter into CREST, whether such rights are to be converted into uncertificated form in the name(s) of the person(s) whose name(s) and address appear(s) on page 1 of the Provisional Allotment Letter or in the name of a person or persons to whom the Provisional Allotment Letter has been renounced, is as follows: Form X and the CREST Deposit Form (both on the Provisional Allotment Letter) will need to be completed and the Provisional Allotment Letter deposited with the CREST Courier and Sorting Service (“CCSS”). In addition, the normal CREST Stock Deposit procedures will need to be carried out, except that (a) it will not be necessary to complete and lodge a separate CREST Transfer Form (prescribed under the Stock Transfer Act 1963) with the CCSS and (b) only the whole of the Nil Paid Rights or the Fully Paid Rights represented by the Provisional Allotment Letter may be deposited into CREST. If you wish to deposit some only of the Nil Paid Rights or the Fully Paid Rights represented by the Provisional Allotment Letter into CREST, you must first apply for split Provisional Allotment Letters by following the instructions in paragraph 2.1.6 above. If the rights represented by more than one Provisional Allotment Letter are to be deposited,

47 ACE BOWNE OF TORONTO 05/20/2010 10:49 NO MARKS NEXT PCN: 053.00.00.00 -- Page is valid, no graphics BOT U08763 052.00.00.00 17

the CREST Deposit Form on each Provisional Allotment Letter must be completed and deposited. The Consolidation Listing Form (as defined in the Regulations) must not be used. A holder of the Nil Paid Rights (or, if appropriate, the Fully Paid Rights) represented by a Provisional Allotment Letter who is proposing to convert those rights into uncertificated form (whether following a renunciation of such rights or otherwise) is recommended to ensure that the conversion procedures are implemented in sufficient time to enable the person holding or acquiring the Nil Paid Rights (or, if appropriate, the Fully Paid Rights) in CREST following the conversion to take all necessary steps in connection with taking up the entitlement prior to 11:00 a.m. on 11 June 2010. In particular, having regard to processing times in CREST and on the part of Capita Registrars, the latest recommended time for depositing a renounced Provisional Allotment Letter (with Form X and the CREST Deposit Form on the Provisional Allotment Letter duly completed) with the CCSS in order to enable the person acquiring the Nil Paid Rights (or, if appropriate, the Fully Paid Rights) in CREST as a result of the conversion to take all necessary steps in connection with taking up the entitlement prior to 11:00 a.m. on 11 June 2010 is 3:00 p.m. on 8 June 2010. When Form X and the CREST Deposit Form (on the Provisional Allotment Letter) have been completed, the title to the Nil Paid Rights or the Fully Paid Rights represented by the Provisional Allotment Letters will cease to be renounceable or transferable by delivery, and for the avoidance of doubt any entries in Form Y will not subsequently be recognised or acted upon by Capita Registrars. All renunciations or transfers of Nil Paid Rights or Fully Paid Rights must be effected through the CREST system once such Nil Paid Rights or Fully Paid Rights have been deposited into CREST. CREST sponsored members should contact their CREST sponsor as only their CREST sponsor will be able to take the necessary action to take up the entitlement or otherwise to deal with the Nil Paid Rights or Fully Paid Rights of the CREST sponsored member.

2.1.10 Issue of New Shares in definitive form AIII 4.3 Definitive share certificates in respect of the New Shares to be held in certificated form are expected to be dispatched by post by 25 June 2010 at the risk of the persons entitled thereto to Qualifying Non-CREST Shareholders (or their transferees who hold Fully Paid Rights in certificated form), or in the case of joint holdings, to the first-named Shareholders, at their registered address (unless lodging agent details have been completed on the Provisional Allotment Letter). After dispatch of the definitive share certificates, Provisional Allotment Letters will cease to be valid for any purpose whatsoever. Pending dispatch of definitive share certificates, instruments of transfer of the New Shares will be certified by Capita Registrars against the register.

2.2 Action to be taken by Qualifying CREST Shareholders in relation to Nil Paid Rights and Fully Paid Rights in CREST 2.2.1 General

It is expected that each Qualifying CREST Shareholder other than, subject to certain exceptions, Shareholders with AIII 5.1.6 a registered address, or resident, in the United States, the Excluded Territories or the Restricted Territories will AIII 5.2.4 receive a credit to his stock account in CREST of his entitlement to Nil Paid Rights on 26 May 2010. It is expected that such rights will be enabled by 8:00 a.m. on 26 May 2010. The CREST stock account to be credited will be an account under the participant ID and member account ID that apply to the Existing Shares in uncertificated form held at the close of business on the Record Date by the Qualifying CREST Shareholder in respect of which the Nil Paid Rights are provisionally allotted. The Nil Paid Rights will constitute a separate security for the purposes of CREST and can accordingly be transferred, in whole or in part, by means of CREST in the same manner as any other security that is admitted to CREST. If, for any reason, it is impracticable to credit the stock accounts of Qualifying CREST Shareholders, or to enable the Nil Paid Rights by 8:00 a.m. on 26 May 2010, Provisional Allotment Letters shall, unless the Company determines otherwise, be sent out in substitution for the Nil Paid Rights which have not been so credited or enabled and the expected timetable as set out in this document will be adjusted as appropriate. References to dates and times in this document should be read as subject to any such adjustment. The Company will make an appropriate announcement to a Regulatory Information Service giving details of any revised dates but Qualifying CREST Shareholders may not receive any further written communication. CREST members who wish to take up their entitlements in respect of or otherwise to transfer Nil Paid Rights or Fully Paid Rights held by them in CREST should refer to the CREST Manual for further information on

48 ACE BOWNE OF TORONTO 05/20/2010 10:50 NO MARKS NEXT PCN: 054.00.00.00 -- Page is valid, no graphics BOT U08763 053.00.00.00 14

the CREST procedures referred to below. If you are a CREST sponsored member, you should consult your CREST sponsor if you wish to take up your entitlement as only your CREST sponsor will be able to take the necessary action to take up your entitlements or otherwise to deal with your Nil Paid Rights or Fully Paid Rights.

2.2.2 Procedure for acceptance and payment (i) MTM instructions CREST members who wish to take up all or some of their entitlement in respect of Nil Paid Rights in CREST must send (or, if they are CREST sponsored members, procure that their CREST sponsor sends) an MTM instruction to Euroclear UK that, on its settlement, will have the following effect: (a) the crediting of a stock account of Capita Registrars under the participant ID and member account ID specified below, with the number of Nil Paid Rights to be taken up; (b) the creation of a settlement bank payment obligation (as this term is defined in the CREST Manual), in accordance with the RTGS payment mechanism (as this term is defined in the CREST Manual), in favour of the RTGS settlement bank of Capita Registrars in pounds sterling in respect of the full amount payable on acceptance in respect of the Nil Paid Rights referred to in paragraph 2.2.2(i)(a) above; and (c) the crediting of a stock account of the accepting CREST member (being an account under the same participant ID and member account ID as the account from which the Nil Paid Rights are to be debited on settlement of the MTM instruction) of the corresponding number of Fully Paid Rights to which the CREST member is entitled on taking up his Nil Paid Rights referred to in paragraph 2.2.2(i)(a) above.

(ii) Contents of MTM instructions The MTM instruction must be properly authenticated in accordance with Euroclear UK’s specifications and must contain, in addition to the other information that is required for settlement in CREST, the following details: (a) the number of Nil Paid Rights to which the acceptance relates; (b) the participant ID of the accepting CREST member; (c) the member account ID of the accepting CREST member from which the Nil Paid Rights are to be debited; (d) the participant ID of Capita Registrars, in its capacity as a CREST receiving agent. This is 9RA01; (e) the member account ID of Capita Registrars, in its capacity as a CREST receiving agent. This is 27051NGP; (f) the number of Fully Paid Rights that the CREST member is expecting to receive on settlement of the MTM instruction. This must be the same as the number of Nil Paid Rights to which the acceptance relates; (g) the amount payable by means of the CREST assured payment arrangements on settlement of the MTM instruction. This must be the full amount payable on acceptance in respect of the number of Nil Paid Rights referred to in paragraph 2.2.2(ii)(a) above; (h) the intended settlement date. This must be on or before 11:00 a.m. on 11 June 2010; (i) the Nil Paid Rights ISIN number which is GB00B4QNFN88; (j) the Fully Paid Rights ISIN number which is GB00B4M9XX62; (k) the Corporate Action Number for the Rights Issue. This will be available by viewing the relevant corporate action details in CREST; and (l) contact name and telephone number in the shared note field.

(iii) Valid acceptance An MTM instruction complying with each of the requirements as to authentication and contents set out in paragraph 2.2.2(ii) above will constitute a valid acceptance where either: (a) the MTM instruction settles by not later than 11:00 a.m. on 11 June 2010; or (b) at the discretion of the Company: (I) the MTM instruction is received by Euroclear UK by not later than 11:00 a.m. on 11 June 2010;

49 ACE BOWNE OF TORONTO 05/20/2010 10:51 NO MARKS NEXT PCN: 055.00.00.00 -- Page is valid, no graphics BOT U08763 054.00.00.00 15

(II) a number of Nil Paid Rights at least equal to the number of Nil Paid Rights inserted in the MTM instruction is credited to the CREST stock member account of the accepting CREST member specified in the MTM instruction at 11:00 a.m. on 11 June 2010; and (III) the relevant MTM instruction settles by 2:00 p.m. on 11 June 2010 (or such later date as the Company may determine). An MTM instruction will be treated as having been received by Euroclear UK for these purposes at the time at which the instruction is processed by the Network Providers’ Communications Host (as this term is defined in the CREST Manual) at Euroclear UK of the network provider used by the CREST member (or by the CREST sponsored member’s CREST sponsor). This will be conclusively determined by the input time stamp applied to the MTM instruction by the Network Providers’ Communications Host.

(iv) Representations, warranties and undertakings of CREST members A CREST member or CREST sponsored member who makes a valid acceptance in accordance with this paragraph 2.2.2 represents, warrants and undertakes to the Company and the Joint Bookrunners that he has taken (or procured to be taken), and will take (or will procure to be taken), whatever action is required to be taken by him or by his CREST sponsor (as appropriate) to ensure that the MTM instruction concerned is capable of settlement at 11:00 a.m. on 11 June 2010 and remains capable of settlement at all time until 2:00 p.m. on 11 June 2010 (or such later date as the Company may determine). In particular, the CREST member or CREST sponsored member represents, warrants and undertakes that, at 11:00 a.m. on 11 June 2010 (or until such later time and date as the Company may determine), there will be sufficient Headroom within the Cap (as those terms are defined in the CREST Manual) in respect of the cash memorandum account to be debited with the amount payable on acceptance to permit the MTM instruction to settle. CREST sponsored members should contact their CREST sponsor if they are in any doubt. Such CREST member or CREST sponsored member taking up entitlements must make the representations and the warranties set out in paragraph 2.5.6 below. If there is insufficient Headroom within the Cap (as those terms are defined in the CREST Manual) in respect of the cash memorandum account of a CREST member or CREST sponsored member for such amount to be debited or the CREST member’s or CREST sponsored member’s acceptance is otherwise treated as invalid and New Shares have already been allotted to such CREST member or CREST sponsored member, the Underwriters or the Company may (in their absolute discretion as to the manner, timing and terms) make arrangements for the sale of such New Shares on behalf of that CREST member or CREST sponsored member and hold the proceeds of sale (net of the Company’s reasonable estimate of any loss that has been suffered as a result of the acceptance being treated as invalid and of the expenses of sale, including, without limitation, any stamp duty or SDRT payable on the transfer of such New Shares, and of all amounts payable by the CREST member or CREST sponsored member pursuant to the Rights Issue in respect of the acquisition of such New Shares) on behalf of such CREST member or CREST sponsored member. None of the Company, the Banks, or any other person shall be responsible for, or have any liability for, any loss, expense or damage suffered by such CREST member or CREST sponsored member as a result.

(v) CREST procedures and timings CREST members and CREST sponsors (on behalf of CREST sponsored members) should note that Euroclear UK does not make available special procedures in CREST for any particular corporate action. Normal system timings and limitations will therefore apply in relation to the input of an MTM instruction and its settlement in connection with the Rights Issue. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST sponsored member, to procure that his CREST sponsor takes) the action necessary to ensure that a valid acceptance is received as stated above by 11:00 a.m. on 11 June 2010. In connection with this, CREST members and (where applicable) CREST sponsors are referred in particular to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.

(vi) CREST member’s undertaking to pay A CREST member or CREST sponsored member who makes a valid acceptance in accordance with the procedures set out in this paragraph 2.2.2, (a) undertakes to pay to Capita Registrars, or procure the payment to Capita Registrars of, the amount payable in pounds sterling on acceptance in accordance with the above procedures or in such other manner as Capita Registrars may require (it being acknowledged that, where payment is made by means of CREST RTGS payment mechanism, the creation of an RTGS payment obligation in pounds sterling in favour of Capita Registrars’ RTGS settlement bank (as defined in the CREST Manual) in accordance with the RTGS payment mechanism shall, to the extent of the obligation so created, discharge in full the obligation of the CREST member (or CREST sponsored member) to pay the amount payable on acceptance) and (b) requests that the Fully

50 ACE BOWNE OF TORONTO 05/20/2010 10:47 NO MARKS NEXT PCN: 056.00.00.00 -- Page is valid, no graphics BOT U08763 055.00.00.00 15

Paid Rights and/or New Shares to which he will become entitled be issued to him on the terms set out in this document and subject to the Articles of Association of the Company. Such payment will be held by Capita Registrars on trust for the Subscribing Bank who is acting as principal on receipt of such monies. If the payment obligations of the relevant CREST member or CREST sponsored member in relation to such New Shares are not discharged in full and such New Shares have already been allotted to the CREST member or CREST sponsored member, the Underwriters or the Company may (in their absolute discretion as to manner, timing and terms) make arrangements for the sale of such Shares on behalf of the CREST member or CREST sponsored member and hold the proceeds of sale (net of the Company’s reasonable estimate of any loss that has been suffered as a result of the same and of the expenses of the sale, including, without limitation, any stamp duty or SDRT payable on the transfer of such Shares, and of all amounts payable by such CREST member or CREST sponsored member pursuant to the terms of the Rights Issue in respect of the acquisition of such Shares) or an amount equal to the original payment of the CREST member or CREST sponsored member. None of the Company or the Banks or any other person shall be responsible for, or have any liability for, any loss, expense or damage suffered by the CREST member or CREST sponsored member as a result.

(vii) Company’s discretion as to rejection and validity of acceptances The Company may agree in its absolute sole discretion to: (a) reject any acceptance constituted by an MTM instruction, which is otherwise valid, in the event of breach of any of the representations, warranties and undertakings set out or referred to in this paragraph 2.2.2. Where an acceptance is made as described in this paragraph 2.2.2, which is otherwise valid, and the MTM instruction concerned fails to settle by 11:00 a.m. on 11 June 2010 (or by such later time and date as the Company and the Joint Bookrunners have determined), the Company and the Joint Bookrunners shall be entitled to assume, for the purposes of their right to reject an acceptance contained in this paragraph 2.2.2, that there has been a breach of the representations, warranties and undertakings set out or referred to in this paragraph 2.2.2 unless the Company is aware of any reason outside the control of the CREST member or CREST sponsor (as appropriate) for the failure to settle; (b) treat as valid (and binding on the CREST member or CREST sponsored member concerned) an acceptance which does not comply in all respects with the requirements as to validity set out or referred to in this paragraph 2.2.2; (c) accept an alternative properly authenticated dematerialised instruction from a CREST member or (where applicable) a CREST sponsor as constituting a valid acceptance in substitution for, or in addition to, an MTM instruction and subject to such further terms and conditions as the Company and the Joint Bookrunners may determine; (d) treat a properly authenticated dematerialised instruction (in this paragraph 2.2.2(vii)(d), the “first instruction”) as not constituting a valid acceptance if, at the time at which Capita Registrars receives a properly authenticated dematerialised instruction giving details of the first instruction, either the Company or Capita Registrars has received actual notice from Euroclear UK of any of the matters specified in Regulation 35(5)(a) of the Regulations in relation to the first instruction. These matters include notice that any information contained in the first instruction was incorrect or notice of lack of authority to send the first instruction; and (e) accept an alternative instruction or notification from a CREST member or CREST sponsored member or (where applicable) a CREST sponsor, or extend the time for acceptance and/or settlement of an MTM instruction or any alternative instruction or notification, if, for reasons or due to circumstances outside the control of any CREST member or CREST sponsored member or (where applicable) CREST sponsor, the CREST member or CREST sponsored member is unable validly to take up all or part of his Nil Paid Rights by means of the above procedures. In normal circumstances, this discretion is only likely to be exercised in the event of any interruption, failure or breakdown of CREST (or of any part of CREST) or on the part of facilities and/or systems operated by Capita Registrars in connection with CREST.

2.2.3 Money Laundering Regulations If you hold your Nil Paid Rights in CREST and apply to take up all or part of your entitlement as agent for one or more persons and you are not a UK or EU regulated person or institution (e.g. a UK financial institution), then, irrespective of the value of the application, Capita Registrars is entitled to take reasonable measures to establish the identity of the person or persons (or the ultimate controller of such person or persons) on whose behalf you are making the application. You must therefore contact Capita Registrars before sending any MTM instruction or other instruction so that appropriate measures may be taken.

51 ACE BOWNE OF TORONTO 05/20/2010 10:54 NO MARKS NEXT PCN: 057.00.00.00 -- Page is valid, no graphics BOT U08763 056.00.00.00 15

Submission of an MTM instruction which constitutes, or which may on its settlement constitute, a valid acceptance as described above constitutes a warranty and undertaking by the applicant to provide promptly to Capita Registrars any information Capita Registrars may specify as being required for the purposes of the verification of the identity requirements in the Money Laundering Regulations or the FSMA. Pending the provision of such information and other evidence as Capita Registrars may require to satisfy the verification of identity requirements, Capita Registrars, having consulted with the Company, may take, or omit to take, such action as it may determine to prevent or delay settlement of the MTM instruction. If such information and other evidence of identity has not been provided within a reasonable time, then Capita Registrars will not permit the MTM instruction concerned to proceed to settlement but without prejudice to the right of the Company and/or the Joint Bookrunners to take proceedings to recover any loss suffered by it as a result of failure by the applicant to provide such information and other evidence.

2.2.4 Dealings in Nil Paid Rights in CREST Assuming the Rights Issue becomes unconditional, dealings in the Nil Paid Rights on the London Stock Exchange are expected to commence at 8:00 a.m. on 26 May 2010. A transfer (in whole or in part) of Nil Paid Rights can be made by means of CREST in the same manner as any other security that is admitted to CREST. The Nil Paid Rights are expected to be disabled in CREST after the close of CREST business on 11 June 2010.

2.2.5 Dealings in Fully Paid Rights in CREST After acceptance of the provisional allotment and payment in full in accordance with the provisions set out in this document, the Fully Paid Rights may be transferred by means of CREST in the same manner as any other security that is admitted to CREST. The last time for settlement of any transfer of Fully Paid Rights in CREST is expected to be 11:00 a.m. on 11 June 2010. The Fully Paid Rights are expected to be disabled in CREST after the close of CREST business on 11 June 2010. After 11 June 2010, the New Shares will be registered in the name(s) of the person(s) entitled to them in the Company’s register of members and will be transferable in the usual way (see paragraph 2.2.7 below).

2.2.6 Withdrawal of Nil Paid Rights or Fully Paid Rights from CREST Nil Paid Rights or Fully Paid Rights held in CREST may be converted into certificated form, that is, withdrawn from CREST. Normal CREST procedures (including timings) apply in relation to any such conversion. The recommended latest time for receipt by Euroclear UK of a properly authenticated dematerialised instruction requesting withdrawal of Nil Paid Rights or, if appropriate, Fully Paid Rights from CREST is 4:30 p.m. on 7 June 2010, so as to enable the person acquiring or (as appropriate) holding the Nil Paid Rights or, if appropriate, Fully Paid Rights following the conversion to take all necessary steps in connection with taking up the entitlement prior to 11:00 a.m. on 11 June 2010. You are recommended to refer to the CREST Manual for details of such procedures.

2.2.7 Issue of New Shares in CREST

Fully Paid Rights in CREST are expected to be disabled in CREST after the close of CREST business on 11 June AIII 4.3 2010, (the latest date for settlement of transfers of Fully Paid Rights in CREST). New Shares (in definitive form) will be issued in uncertificated form to those persons registered as holding Fully Paid Rights in CREST at the close of business on the date on which the Fully Paid Rights are disabled. Capita Registrars will instruct Euroclear UK to credit the appropriate stock accounts of those persons (under the same participant ID and member account ID that applied to the Fully Paid Rights held by those persons) with their entitlements to New Shares with effect from the next business day (expected to be 14 June 2010).

2.2.8 Right to allot/issue in certificated form Despite any other provision of this document, the Company reserves the right to allot and/or issue any Nil Paid Rights, Fully Paid Rights or New Shares in certificated form. In normal circumstances, this right is only likely to be exercised in the event of an interruption, failure or breakdown of CREST (or of any part of CREST) or on the part of the facilities and/or systems operated by Capita Registrars in connection with CREST.

2.3 Procedure in respect of rights not taken up and withdrawal 2.3.1 Procedure in respect of New Shares not taken up

If an entitlement to New Shares is not validly taken up by 11:00 a.m. on 11 June 2010, in accordance with the AIII 5.1.10 procedure laid down for acceptance and payment, then that provisional allotment will be deemed to have been

52 ACE BOWNE OF TORONTO 05/23/2010 11:50 NO MARKS NEXT PCN: 058.00.00.00 -- Page is valid, no graphics BOT U08763 057.00.00.00 19

declined and will lapse. The Joint Bookrunners will endeavour to procure, by not later than 4:30 p.m. on the second business day after 11 June 2010, subscribers for all of those New Shares not taken up at a price per New Share which is at least equal to the aggregate of the Issue Price and the expenses of procuring such subscribers (including any applicable brokerage and commissions and amounts in respect of VAT).

Notwithstanding the above, the Joint Bookrunners may cease to endeavour to procure any such subscribers if, in their opinion, it is unlikely that any such subscribers can be procured at such a price and by such a time. If and to the extent that subscribers for New Shares cannot be procured on the basis outlined above, the relevant New Shares will be subscribed by the Underwriters or their sub-underwriters, if any, at the Issue Price pursuant to the terms of the Underwriting Agreement.

Any premium over the aggregate of the Issue Price and the expenses of procuring subscribers (including any applicable brokerage and commissions and amounts in respect of VAT) shall be paid (subject as provided in this paragraph 2.3):

(i) where the Nil Paid Rights were, at the time they lapsed, represented by a Provisional Allotment Letter, to the person whose name and address appeared on the Provisional Allotment Letter;

(ii) where the Nil Paid Rights were, at the time they lapsed, in uncertificated form, to the person registered as the holder of those Nil Paid Rights at the time of their disablement in CREST; and

(iii) where an entitlement to New Shares was not taken up by an Overseas Shareholder, to that Overseas Shareholder.

New Shares for which subscribers are procured on this basis will be reallotted to the subscribers and the aggregate of any premiums (being the amount paid by the subscribers after deducting the Issue Price and the expenses of procuring the subscribers, including any applicable brokerage and commissions and amounts in respect of VAT), if any, will be paid (without interest) to those persons entitled (as referred to above) pro rata to the relevant lapsed provisional allotments, save that amounts of less than £5.00 per holding will not be so paid but will be aggregated and retained by Capita Registrars on trust for the Subscribing Bank who is acting as principal on receipt of such monies. Cheques for the amounts due will be sent by post, at the risk of the person(s) entitled, to their registered address (the registered address of the first-named holder in the case of joint holders), provided that, where any entitlement concerned was held in CREST, the amount due will, unless the Company (in its absolute discretion) otherwise determines, be satisfied by the creation of an assured payment obligation in favour of the relevant CREST member’s (or CREST sponsored member’s) RTGS settlement bank in respect of the cash amount concerned in accordance with the RTGS payment mechanism.

Any transactions undertaken pursuant to this paragraph 2.3 or paragraph 2.5.1 below shall be deemed to have been undertaken at the request of the persons entitled to the lapsed provisional allotments or other entitlements and none of the Company or the Banks or any other person procuring subscribers shall be responsible for any loss or damage (whether actual or alleged) arising from the terms or timing of any such acquisition, any decision not to endeavour to procure subscribers or the failure to procure subscribers on the basis so described. The Joint Bookrunners will be entitled to retain any brokerage fees, commissions or other benefits received in connection with these arrangements.

2.3.2 Withdrawal rights

Persons who have the right to withdraw their acceptances under Section 87Q(4) of the FSMA after a supplementary AIII, 5.1.7 prospectus (if any) has been published and who wish to exercise such right of withdrawal must do so by lodging a written notice of withdrawal (which shall not include a notice sent by facsimile), which must include the full name and address of the person wishing to exercise such statutory withdrawal rights and, if such person is a CREST member, the participant ID and the member account ID of such CREST member, by post or by hand (during normal business hours only) with Capita Registrars Limited, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU or by email to [email protected], so as to be received no later than two business days after the date on which the supplementary prospectus was published, withdrawal being effective as at receipt of the written notice of withdrawal. Notice of withdrawal given by any other means or which is deposited with or received by Capita Registrars after the expiry of such period will not constitute a valid withdrawal. Furthermore, the Company will not permit the exercise of withdrawal rights after payment by the relevant Shareholder of its acquisition in full and the allotment of the New Shares to such Shareholder becoming unconditional. In such circumstances, Shareholders are advised to consult their professional advisors, including their legal advisors, as this may be a matter of law.

53 ACE BOWNE OF TORONTO 05/18/2010 08:47 NO MARKS NEXT PCN: 059.00.00.00 -- Page is valid, no graphics BOT U08763 058.00.00.00 15

Provisional allotments of entitlements to New Shares which are the subject of a valid withdrawal notice will be deemed to be declined. Such entitlements to New Shares will be subject to the provisions of paragraph 2.3.1 above as if the entitlement had not been validly taken up.

2.4 Taxation The information contained in Part X “Taxation” of this document is intended only as a general guide to the current tax position in the United Kingdom and the United States and Qualifying Shareholders should consult their own tax advisors regarding the tax treatment of the Rights Issue in light of their own circumstances. Qualifying Shareholders or other investors who are in any doubt as to their tax position or who are subject to tax in any other jurisdiction should consult an appropriate advisor as soon as possible.

2.5 Overseas Shareholders This document has been approved by the FSA, being the competent authority in the United Kingdom. The Company intends to request that the FSA provides a certificate of approval and a copy of this document to the relevant competent authorities in Cyprus, France, Germany, Greece, Ireland, Malta, the Netherlands and Spain pursuant to the passporting provision of the FSMA. It is expected that Qualifying Shareholders in each member state of the European Economic Area will be able to participate in the Rights Issue. Accordingly, the making of the proposed offer of New Shares to persons located or resident in, or who are citizens of, or who have a registered address in countries other than the United Kingdom may be affected by the law or regulatory requirements of the relevant jurisdiction. Any Shareholder who is in any doubt as to his position should consult an appropriate professional advisor without delay.

2.5.1 General The making or acceptance of the proposed offer of Nil Paid Rights, Fully Paid Rights and/or New Shares to persons who have registered addresses outside the United Kingdom, or who are resident, or located, in, or citizens of, countries other than the United Kingdom, may be affected by the laws of the relevant jurisdiction. Those persons should consult their professional advisors as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their rights. It is the responsibility of any person (including, without limitation, custodians, nominees and trustees) outside the United Kingdom wishing to take up rights under the Rights Issue or to transfer their rights to satisfy himself as to the full observance of the laws of any relevant territory in connection therewith, including the obtaining of any governmental or other consents which may be required, the compliance with other necessary formalities and the payment of any issue, transfer or other taxes due in such territories. The comments set out in this paragraph 2.5 are intended as a general guide only and any Overseas Shareholder who is in doubt as to his position should consult his professional advisor without delay. Receipt of this document and/or a Provisional Allotment Letter or the crediting of Nil Paid Rights to a stock account in CRESTwill not constitute an offer in those jurisdictions in which it would be illegal to make an offer and, in those circumstances, this document and/or a Provisional Allotment Letter must be treated as sent for information only and should not be copied or redistributed. New Shares will be provisionally allotted (nil paid) to all Shareholders on the register at the Record Date, including Overseas Shareholders. However, Provisional Allotment Letters will not be sent to Shareholders with registered addresses in the United States, the Excluded Territories or the Restricted Territories or their agent or intermediary, except where the Company is satisfied that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction. No person receiving a copy of this document and/or a Provisional Allotment Letter and/or receiving a credit of Nil Paid Rights to a stock account in CREST in any territory other than the United Kingdom may treat the same as constituting an invitation or offer to him nor should he in any event use the Provisional Allotment Letter or deal with Nil Paid Rights or Fully Paid Rights in CREST unless, in the relevant territory, such an invitation or offer could lawfully be made to him or the Provisional Allotment Letter could lawfully be used or dealt with without contravention of any registration or other legal requirements. In such circumstances, this document and the Provisional Allotment Letter are to be treated as sent for information only and should not be copied or redistributed. Persons (including, without limitation, custodians, nominees and trustees) receiving a copy of this document and/or a Provisional Allotment Letter or whose stock account is credited with Nil Paid Rights or Fully Paid Rights should not, in connection with the Rights Issue, distribute or send the same or transfer Nil Paid Rights or Fully Paid Rights

54 ACE BOWNE OF TORONTO 05/23/2010 14:52 NO MARKS NEXT PCN: 060.00.00.00 -- Page is valid, no graphics BOT U08763 059.00.00.00 19

in or into any jurisdiction where to do so would or might contravene local security laws or regulations. If a Provisional Allotment Letter or a credit of Nil Paid Rights or Fully Paid Rights is received by any person in any such territory, or by his agent or nominee, he must not seek to take up the rights referred to in the Provisional Allotment Letter or in this document or renounce the Provisional Allotment Letter or transfer the Nil Paid Rights or Fully Paid Rights unless such actions would not violate applicable legal or regulatory requirements. Any person (including, without limitation, custodians, nominees and trustees) who does forward this document or a Provisional Allotment Letter or transfer Nil Paid Rights or Fully Paid Rights into any such territories (whether pursuant to a contractual or legal obligation or otherwise) should draw the recipient’s attention to the contents of this paragraph 2.5. The Company reserves the right to treat as invalid and will not be bound to allot or issue any New Shares in respect of any acceptance or purported acceptance of the offer of New Shares which: (i) appears to the Company or its agents to have been executed, effected or dispatched from one of the United States, the Excluded Territories or the Restricted Territories; (ii) in the case of a Provisional Allotment Letter, provides an address for delivery of the share certificates in or, in the case of a credit of New Shares in CREST, to a CREST member or CREST sponsored member whose registered address would be in one of the United States, the Excluded Territories or the Restricted Territories or any other jurisdiction outside the United Kingdom in which it would be unlawful to deliver such share certificates or make such a credit; or (iii) purports to exclude the warranties required by paragraph 2.5.6. The attention of Overseas Shareholders with registered addresses in the United States, the Excluded Territories or the Restricted Territories is drawn to paragraphs 2.5.2 to 2.5.7 below.

Nil Paid Rights to which Qualifying Shareholders with registered addresses in the United States, the Excluded LR 13.3.1(9)(f) Territories or the Restricted Territories would otherwise be entitled will be aggregated with entitlements to Nil Paid Rights which have not been taken up by other Qualifying Shareholders and, if possible, sold as described in paragraph 2.3.1 above. The net proceeds of such sales (after deduction of expenses) will be paid to the relevant Qualifying Shareholders pro-rated to their holdings of Existing Shares at the Record Date as soon as practicable after receipt, except that (i) individual amounts of less than £5.00 per holding and (ii) amounts in respect of fractions will not be distributed but will be retained by Capita Registrars on trust for the Subscribing Bank who is acting as principal on receipt of such monies. None of the Company, the Banks or any other person shall be responsible or have any liability whatsoever for any loss or damage (actual or alleged) arising from the terms or the timing of the acquisition or the procuring of it or any failure to procure subscribers. Despite any other provision of this document or a Provisional Allotment Letter, the Company reserves the right to permit any Qualifying Shareholder to take up rights on the terms and conditions set out in this document if the Company in its sole and absolute discretion is satisfied that the transaction in question is exempt from or not subject to the legislation or regulations giving rise to the restrictions in question. Those Shareholders who wish, and are permitted, to take up their entitlement should note that payments must be made as described in paragraphs 2.1.2 (Qualifying Non-CREST Shareholders) and 2.2.2 (Qualifying CREST Shareholders) above. Overseas Non-CREST Shareholders should note that all subscription monies must be paid in pounds sterling by cheque or banker’s draft and should be drawn on a bank in the United Kingdom, made payable to Capita Registrars re: NG plc Rights Issue a/c and crossed “A/C payee only”. Subject to certain limited exceptions, Shareholders located in the United States and holders of American depositary shares (“ADSs”) representing Ordinary Shares will not be entitled to participate in the Rights Issue.

2.5.2 Member States of the European Economic Area (other than the United Kingdom) In relation to each member state of the European Economic Area which has implemented the Prospectus Directive (each, a “relevant member state”) (except for the United Kingdom), with effect from and including the date on which the Prospectus Directive was implemented in that relevant member state (the “relevant implementation date”) no New Shares, Nil Paid Rights or Fully Paid Rights have been offered or will be offered pursuant to the Rights Issue to the public in that relevant member state prior to the publication of a prospectus in relation to the New Shares, Nil Paid Rights and Fully Paid Rights which has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in the relevant member state, all in accordance with the Prospectus Directive, except that with effect from

55 ACE BOWNE OF TORONTO 05/23/2010 12:41 NO MARKS NEXT PCN: 061.00.00.00 -- Page is valid, no graphics BOT U08763 060.00.00.00 17

and including the relevant implementation date, offers of New Shares, Nil Paid Rights or Fully Paid Rights may be made to the public in that relevant member state at any time: (i) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; (ii) to any legal entity which has two or more of (a) an average of at least 250 employees during the last financial year; (b) a total balance sheet of more than A43 million; and (c) an annual turnover of more than A50 million, as shown in its last annual or consolidated accounts; (iii) to fewer than 100 natural or legal persons (other than qualified investors, as defined in the Prospectus Directive) subject to obtaining the prior written consent of the Joint Bookrunners; and (iv) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of New Shares, Nil Paid Rights or Fully Paid Rights shall result in a requirement for the publication by the Company or any Bank of a prospectus pursuant to Article 3 of the Prospectus Directive. For this purpose, the expression “an offer of any New Shares, Nil Paid Rights or Fully Paid Rights to the public” in relation to any New Shares, Nil Paid Rights and Fully Paid Rights in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the Rights Issue and any New Shares, Nil Paid Rights and Fully Paid Rights to be offered so as to enable an investor to decide to acquire any New Shares, Nil Paid Rights or Fully Paid Rights, as the same may be varied in that relevant member state by any measure implementing the Prospectus Directive in that relevant member state. This document has been approved by the FSA, being the competent authority in the United Kingdom. The Company intends to request that the FSA provides a certificate of approval and a copy of this document to the relevant competent authorities in Cyprus, France, Germany, Greece, Ireland, Malta, the Netherlands and Spain pursuant to the passporting provisions of the FSMA. It is expected that Qualifying Shareholders in each member state of the European Economic Area will be able to participate in the Rights Issue.

2.5.3 United States The Nil Paid Rights, Fully Paid Rights and the New Shares have not been and will not be registered under the US Securities Act or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States except pursuant to an exemption from or, in a transaction not subject to, the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. Accordingly, National Grid is not extending the offer under the Rights Issue into the United States unless an exemption from the registration requirements of the US Securities Act is available and, subject to certain exceptions, none of this document nor the Provisional Allotment Letter constitutes or will constitute an offer or an invitation to apply for, or an offer or an invitation to acquire, any Nil Paid Rights, Fully Paid Rights and the New Shares in the United States. Subject to certain exceptions, neither this document nor a Provisional Allotment Letter will be sent to any Shareholder in, or with a registered address in, the United States. Subject to certain exceptions, Provisional Allotment Letters or renunciations thereof sent from or post-marked in the United States will be deemed to be invalid and all persons acquiring New Shares and wishing to hold such Shares in registered form must provide an address for registration of the New Shares issued upon exercise thereof outside the United States. Subject to certain exceptions, any person who acquires Nil Paid Rights, Fully Paid Rights or the New Shares will be deemed to have declared, warranted and agreed, by accepting delivery of this document or the Provisional Allotment Letter taking up their entitlement or accepting delivery of the Nil Paid Rights, Fully Paid Rights or the New Shares that it is not, and that at the time of acquiring the Nil Paid Rights, Fully Paid Rights or the New Shares it will not be, in the United States or acting on behalf of, or for the account or benefit of a person on a non- discretionary basis in the United States or any state of the United States. National Grid reserves the right to treat as invalid any Provisional Allotment Letter (or renunciation thereof) that appears to National Grid or its agents to have been executed in or dispatched from the United States, or that provides an address in the United States for the acceptance or renunciation of the Rights Issue, or which does not make the warranty set out in the Provisional Allotment Letter to the effect that the person accepting and/or renouncing the Provisional Allotment Letter does not have a registered address and is not otherwise located in the United States and is not acquiring the Nil Paid Rights, the Fully Paid Rights or the New Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such Nil Paid Rights, Fully Paid Rights or New Shares

56 ACE BOWNE OF TORONTO 05/24/2010 09:43 NO MARKS NEXT PCN: 062.00.00.00 -- Page is valid, no graphics BOT U08763 061.00.00.00 20

in the United States or where National Grid believes acceptance of such Provisional Allotment Letter may infringe applicable legal or regulatory requirements. National Grid will not be bound to allot (on a non-provisional basis) or issue any New Shares, Nil Paid Rights, or Fully Paid Rights to any person with an address in, or who is otherwise located in, the United States in whose favour a Provisional Allotment Letter or any Nil Paid Rights, Fully Paid Rights or New Shares may be transferred or renounced. In addition, National Grid and the Underwriters reserve the right to reject any MTM instruction sent by or on behalf of any CREST member with a registered address in the United States in respect of the Nil Paid Rights.

In addition, until 40 days after the commencement of the Rights Issue, an offer, sale or transfer of the New Shares, the Nil Paid Rights, the Fully Paid Rights or the Provisional Allotment Letters within the United States by a dealer (whether or not participating in the Rights Issue) may violate the registration requirements of the US Securities Act.

The Nil Paid Rights, Fully Paid Rights and the New Shares have not been approved or disapproved by the SEC or any state securities commission in the United States or any other US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Nil Paid Rights, Fully Paid Rights and the New Shares or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence in the United States.

The provisions of paragraph 2.3.1 above will apply to any rights not taken up. Accordingly, subject to certain exceptions, Shareholders with a registered address in the United States will be treated as unexercising holders and the Underwriters will endeavour to procure on behalf of such unexercising holders subscribers for the New Shares.

2.5.4 The Excluded Territories

Due to restrictions under the securities laws of the Excluded Territories, and subject to certain exemptions, no Provisional Allotment Letters in relation to the New Shares will be sent to Shareholders with registered addresses in the Excluded Territories. Subject to certain exceptions, the Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights and the New Shares may not be transferred or sold to, or renounced or delivered in, the Excluded Territories. No offer of New Shares is being made by virtue of this document or the Provisional Allotment Letters into the Excluded Territories.

Although Nil Paid Rights may be credited to the CREST accounts of Qualifying CREST Shareholders (i) with a registered address, or resident, in one of the Excluded Territories, (ii) in the United States or any of the Restricted Territories or (iii) with a registered address, or who hold on behalf of, or for the account or benefit of persons in the United States or located in the United States, or who hold on behalf of, or for the account or benefit of, any person on a non-discretionary basis who is in the United States, or any state of the United States, such crediting of Nil Paid Rights does not constitute an offer to Shareholders and such Shareholders will not be entitled to take up or transfer rights in the Rights Issue or acquire New Shares in the Rights Issue unless such action would not result in the contravention of any registration or other legal requirement in any jurisdiction, and their entitlements will be sold if possible in accordance with the provisions of paragraph 2.3.1 above.

2.5.5 Overseas territories other than member states of the European Economic Area, the United States, the Excluded Territories and the Restricted Territories

Provisional Allotment Letters are expected to be dispatched to Qualifying Non-CREST Shareholders other than to Qualifying Shareholders with a registered address, or resident, in one of the Excluded Territories or, subject to certain exceptions, the United States or one of the Restricted Territories. Such Qualifying Shareholders may, subject to the laws of the relevant jurisdictions, accept their rights under the Rights Issue in accordance with the instructions set out in this document and, if relevant, the Provisional Allotment Letter. Although Nil Paid Rights may be credited to the CREST accounts of all Qualifying CREST Shareholders, the crediting of Nil Paid Rights does not constitute an offer to Shareholders. Such Shareholders will not be entitled to take up or transfer rights in the Rights Issue or acquire New Shares in the Rights Issue if to do so would result in the contravention of any registration or other legal requirement in any jurisdiction. In cases where Overseas Shareholders are not able to, or do not, take up Nil Paid Rights, their entitlements will be sold, if possible, in accordance with the provisions of paragraph 2.3.1 above.

Qualifying Shareholders who have registered addresses in or who are resident in countries other than the United Kingdom should consult their professional advisors as to whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their rights.

57 ACE BOWNE OF TORONTO 05/23/2010 11:50 NO MARKS NEXT PCN: 063.00.00.00 -- Page is valid, no graphics BOT U08763 062.00.00.00 19

(i) Australia

This document constitutes an offering of the Nil Paid Rights, Fully Paid Rights and New Shares to Qualifying Shareholders with a registered address in Australia. This document is not an Australian law compliant prospectus for the purposes of Divisions 3, 4 and 5 of Part 6D.2 of the Corporations Act (other than section 718) and sections 728(1)(b) and (c), 728(3)(b), 730(1)(b) and (c), 734 and 735 of the Corporations Act. The information disclosed in this document may not be the same as that which would have been disclosed if this document had been prepared in accordance with Australian law. This document will be lodged with the Australian Securities and Investments Commission.

The Nil Paid Rights, Fully Paid Rights or New Shares issued to Ordinary Shareholders under the Rights Issue will be issued for the purpose of raising equity capital and not for the purpose of existing Ordinary Shareholders on-selling or transferring them.

Although Nil Paid Rights will be credited to the CREST accounts of Qualifying CREST Shareholders (including Shareholders with registered addresses, or resident, in Australia), such crediting of Nil Paid Rights does not constitute an offer to Shareholders and any such Qualifying CREST Shareholders will not be entitled to take up or transfer rights in the Rights Issue or acquire New Shares in the Rights Issue unless such action would not result in the contravention of any registration or other legal requirement in Australia or any other jurisdiction.

(ii) Canada

Neither the Nil Paid Rights, the Fully Paid Rights nor the New Shares have been or will be qualified by prospectus for offer or sale to the public in Canada under applicable Canadian securities laws and, accordingly, any offer or sale of Nil Paid Rights, Fully Paid Rights or New Shares in Canada will be made pursuant to an exemption from the applicable prospectus filing requirements, and otherwise in compliance with applicable Canadian laws.

This document is not, and under no circumstances is to be construed as, a prospectus, an advertisement or a public offering of the securities described herein in Canada. No securities commission or similar authority in Canada has reviewed or in any way passed upon this document or the merits of the securities described herein, and any representation to the contrary is an offence.

Canadian resale restrictions

The distribution of the Nil Paid Rights, Fully Paid Rights and New Shares is being made pursuant to exemptions from the requirement to file a prospectus. Accordingly, any resale or transfer of the Nil Paid Rights, Fully Paid Rights or New Shares must be made (a) through an appropriately registered dealer or in accordance with an exemption from the registration requirements of applicable provincial securities laws, and (b) in accordance with, or pursuant to an exemption from, the prospectus requirements of such laws. Such resale restrictions may not apply to resales made through an exchange or market outside of Canada or to a person or company outside of Canada, depending on the circumstances. Recipients or purchasers of Nil Paid Rights, Fully Paid Rights or New Shares are advised to seek legal advice prior to any resale of Nil Paid Rights, Fully Paid Rights or New Shares.

Canadian tax considerations and eligibility for investment

This document does not address the Canadian tax consequences of the offering, exercise, ownership, sale or exchange of Nil Paid Rights, Fully Paid Rights or New Shares. Prospective Canadian investors should consult their own legal and tax advisers with respect to the tax consequences of an investment in the Nil Paid Rights, Fully Paid Rights or New Shares in their particular circumstances and about the eligibility of the Nil Paid Rights, Fully Paid Rights or New Shares for investment by purchasers under relevant Canadian legislation.

Enforcement of legal rights

All of the Directors and officers (or their equivalents) of the Company, as well as any experts named herein may be located outside of Canada and, as a result, it may not be possible for purchasers to effect service of process within Canada upon the Company or such experts. All or a substantial portion of the assets of the Company and such experts may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the Company or such experts in Canada or to enforce a judgment obtained in a Canadian court against the Company or such experts outside of Canada.

58 ACE BOWNE OF TORONTO 05/24/2010 09:47 NO MARKS NEXT PCN: 064.00.00.00 -- Page is valid, no graphics BOT U08763 063.00.00.00 20

Language of document Each recipient or purchaser or recipient of Nil Paid Rights, Fully Paid Rights or New Shares in Canada that receives a confirmation hereby agrees that it is such purchaser’s express wish that all documents evidencing or relating in any way to the offer or sale of such Nil Paid Rights, Fully Paid Rights or New Shares be drafted in the English language only. Chaque acheteur au Canada des valeurs mobilières recevant un avis de confirmation à l’égard de son acquisition reconnaît que c’est sa volonté expresse que tous les documents faisant foi ou se rapportant de quelque manière à la vente des valeurs mobilières soient rédigés uniquement en anglais. Although Nil Paid Rights may be credited to the CREST accounts of Qualifying CREST Shareholders (including Shareholders with registered addresses, or resident, in Canada), the crediting of Nil Paid Rights does not constitute an offer to Shareholders, and any such Qualifying CREST Shareholders will not be entitled to take up or transfer rights in the Rights Issue or acquire New Shares in the Rights Issue unless such action would not result in the contravention of any registration or other legal requirement in any Canadian or other jurisdiction.

(iii) People’s Republic of China The Nil Paid Rights, Fully Paid Rights and New Shares are not being offered or sold and may not be offered or sold, directly or indirectly, in the People’s Republic of China (for such purposes, not including the Hong Kong and Macau Special Administrative Regions or Taiwan), except as permitted by the securities laws of the People’s Republic of China. Although Nil Paid Rights may be credited to the CREST accounts of Qualifying CREST Shareholders (including Shareholders with registered addresses, or resident, in the People’s Republic of China), the crediting of Nil Paid Rights does not constitute an offer to Shareholders and any such Qualifying CREST Shareholders will not be entitled to take up or transfer rights in the Rights Issue or acquire New Shares in the Rights Issue unless such action would not result in the contravention of any registration or other legal requirement in the People’s Republic of China or any other jurisdiction.

(iv) Hong Kong WARNING The contents of this document and the Provisional Allotment Letter have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the Rights Issue. If you are in any doubt about any of the contents of this document and/or the Provisional Allotment Letter, you should obtain independent professional advice. Neither this document, the Provisional Allotment Letter nor any other document constitutes an offer or sale in Hong Kong of Nil Paid Rights, Fully Paid Rights or New Shares and no person may offer or sell in Hong Kong, by means of this document, any Nil Paid Rights, Fully Paid Rights or New Shares, or any other document, other than to (a) professional investors within the meaning of Section 1 of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571) (“SFO”) and any rules made under the SFO (“professional investors”) or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance of Hong Kong (Cap. 32) (“CO”) or which do not constitute an offer or invitation to the public for the purposes of the CO or the SFO. No person shall issue or possess for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to Nil Paid Rights, Fully Paid Rights or New Shares which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to those Nil Paid Rights, Fully Paid Rights or New Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to such professional investors. Although Nil Paid Rights may be credited to the CREST accounts of Qualifying CREST Shareholders (including Shareholders with registered addresses, or resident, in Hong Kong), the crediting of Nil Paid Rights does not constitute an offer to Shareholders, and any such Qualifying CREST Shareholders will not be entitled to take up or transfer rights in the Rights Issue or acquire New Shares in the Rights Issue unless such action would not result in the contravention of any registration or other legal requirement in Hong Kong or any other jurisdiction.

(v) Japan The Rights Issue of New Shares offered hereby has not been and will not be registered under the Financial Instruments and Exchange Law, as amended (the “FIEL”). The document is not an offer of securities for sale, directly or indirectly, of any Nil Paid Rights, Fully Paid Rights or New Shares in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan) or to others for re-offering or resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the FIEL and other relevant laws and regulations and ministerial guidelines of Japan.

59 ACE BOWNE OF TORONTO 05/23/2010 07:10 NO MARKS NEXT PCN: 065.00.00.00 -- Page is valid, no graphics BOT U08763 064.00.00.00 24

Although Nil Paid Rights may be credited to the CREST accounts of Qualifying CREST Shareholders (including Shareholders with registered addresses, or resident, in Japan), the crediting of Nil Paid Rights does not constitute an offer to Shareholders and any such Qualifying CREST Shareholders will not be entitled to take up or transfer rights in the Rights Issue or acquire New Shares in the Rights Issue unless such action would not result in the contravention of any registration or other legal requirement in Japan or any other jurisdiction.

(vi) New Zealand This document constitutes an offering of the Nil Paid Rights, Fully Paid Rights and New Shares to Qualifying Shareholders with a registered address in New Zealand. This document is not a New Zealand prospectus or an investment statement and has not been registered, filed with or approved by any New Zealand regulatory authority under or in accordance with the Securities Act 1978 (or any other relevant New Zealand law). This document may not contain all the information that an investment statement or prospectus under New Zealand law is required to contain. The Nil Paid Rights, Fully Paid Rights and New Shares are offered to the public of New Zealand under this document in reliance on the Securities Act (Overseas Companies) Exemption Notice 2002 (New Zealand). Although Nil Paid Rights may be credited to the CREST accounts of Qualifying CREST Shareholders (including Shareholders with registered addresses, or resident, in New Zealand), the crediting of Nil Paid Rights does not constitute an offer to Shareholders and any such Qualifying CREST Shareholders will not be entitled to take up or transfer rights in the Rights Issue or acquire New Shares in the Rights Issue unless such action would not result in the contravention of any registration or other legal requirement in New Zealand or any other jurisdiction. If you are a Qualifying Shareholder, have a registered address in New Zealand and are no longer a registered holder of the Company’s Shares at the time of the offer, you will have no entitlement and may not accept the offer being made under this document.

(vii) Singapore This document has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this document and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Nil Paid Rights, Fully Paid Rights or New Shares may not be circulated or distributed, nor may the Nil Paid Rights, Fully Paid Rights or New Shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Where the Nil Paid Rights, Fully Paid Rights or the New Shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Nil Paid Rights, Fully Paid Rights or the New Shares pursuant to an offer made under Section 275 of the SFA except: (1) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; (2) where no consideration is or will be given for the transfer; (3) where the transfer is by operation of law; or (4) as specified in Section 276(7) of the SFA. Although Nil Paid Rights may be credited to the CREST accounts of Qualifying CREST Shareholders (including Shareholders with registered addresses, or resident, in Singapore), the crediting of Nil Paid Rights does not constitute an offer to Shareholders and any such Qualifying CREST Shareholders will not be entitled to take up or

60 ACE BOWNE OF TORONTO 05/23/2010 08:48 NO MARKS NEXT PCN: 066.00.00.00 -- Page is valid, no graphics BOT U08763 065.00.00.00 22

transfer rights in the Rights Issue or acquire New Shares in the Rights Issue unless such action would not result in the contravention of any registration or other legal requirement in Singapore or any other jurisdiction.

(viii) Switzerland This document as well as any other material relating to the Nil Paid Rights, Fully Paid Rights and New Shares which are the subject of the Rights Issue does not constitute an issue prospectus pursuant to Articles 652a and/or 115b of the Swiss Code of Obligations. The Nil Paid Rights, Fully Paid Rights and New Shares will not be listed on the SIX Swiss Exchange and, therefore, the documents relating to the Nil Paid Rights, Fully Paid Rights and New Shares, including, but not limited to, this document, do not claim to comply with the disclosure standards of the listing rules of the SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange. This document is being communicated in or from Switzerland to a small number of selected investors only, without any public offer and only to investors who do not purchase the new shares with the intention to distribute them to the public. Each copy of this document is addressed to a specifically named recipient and may not be passed on to third parties. The Nil Paid Rights, Fully Paid Rights and New Shares are not being offered to the public in or from Switzerland, and neither this document, nor any other offering material in relation to the Nil Paid Rights, Fully Paid Rights or New Shares, may be distributed in connection with any such public offering. The investors will be individually approached by the Company from time to time. Although Nil Paid Rights may be credited to the CREST accounts of Qualifying CREST Shareholders (including Shareholders with registered addresses, or resident, in Switzerland), the crediting of Nil Paid Rights does not constitute an offer to Shareholders and any such Qualifying CREST Shareholders will not be entitled to take up or transfer rights in the Rights Issue or acquire New Shares in the Rights Issue unless such action would not result in the contravention of any registration or other legal requirement in Switzerland or any other jurisdiction.

2.5.6 Representations and warranties relating to Overseas Shareholders (i) Qualifying Non-CREST Shareholders Any person accepting and/or renouncing a Provisional Allotment Letter or requesting registration of the New Shares comprised therein represents and warrants to the Company and the Banks that, except where proof has been provided to the Company’s satisfaction that such person’s use of the Provisional Allotment Letter will not result in the contravention of any applicable legal requirement in any jurisdiction, (a) such person is not accepting and/or renouncing the Provisional Allotment Letter, or requesting registration of the relevant New Shares, from within the United States, the Excluded Territories or the Restricted Territories; (b) such person is not in any territory in which it is unlawful to make or accept an offer to subscribe for New Shares or to use the Provisional Allotment Letter in any manner in which such person has used or will use it; (c) such person is not acting on a non-discretionary basis for a person located within the United States, the Excluded Territories or the Restricted Territories at the time the instruction to accept or renounce was given; and (d) such person is not acquiring New Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such New Shares into the United States, the Excluded Territories or the Restricted Territories. The Company may treat as invalid any acceptance or purported acceptance of the allotment of New Shares comprised in, or renunciation or purported renunciation of, a Provisional Allotment Letter if it (a) appears to the Company to have been executed in or dispatched from the United States, the Excluded Territories or the Restricted Territories or otherwise in a manner which may involve a breach of the laws of any jurisdiction or if it believes the same may violate any applicable legal or regulatory requirement; (b) provides an address in the United States, the Excluded Territories or the Restricted Territories for delivery of definitive share certificates for New Shares (or any jurisdiction outside the United Kingdom in which it would be unlawful to deliver such certificates); or (c) purports to exclude the warranty required by this paragraph 2.5.6.

(ii) Qualifying CREST Shareholders A CREST member or CREST sponsored member who makes a valid acceptance in accordance with the procedures set out in this Part III represents and warrants to the Company and the Banks that, except where proof has been provided to the Company’s satisfaction that such person’s acceptance will not result in the contravention of any applicable legal requirement in any jurisdiction, (a) he is not within the United States, the Excluded Territories or the Restricted Territories; (b) he is not in any territory in which it is unlawful to make or accept an offer to subscribe for New Shares; (c) he is not accepting on a non-discretionary basis for a person located within the United States, the Excluded Territories or the Restricted Territories; and (d) he is not acquiring New Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such New Shares into the United States, the Excluded Territories or the Restricted Territories.

61 ACE BOWNE OF TORONTO 05/19/2010 19:33 NO MARKS NEXT PCN: 067.00.00.00 -- Page is valid, no graphics BOT U08763 066.00.00.00 16

2.5.7 Waiver The provisions of this paragraph 2.5 and of any other terms of the Rights Issue relating to Overseas Shareholders may be waived, varied or modified as regards specific Shareholders or on a general basis by the Company in its absolute discretion. Subject to this, the provisions of this paragraph 2.5 supersede any terms of the Rights Issue inconsistent herewith. References in this paragraph 2.5 to Shareholders shall include references to the person or persons executing a Provisional Allotment Letter and, in the event of more than one person executing a Provisional Allotment Letter, the provisions of this paragraph 2.5 shall apply to them jointly and to each of them.

2.6 Times and dates The Company shall, in its discretion and after consultation with its financial and legal advisors, be entitled to amend the dates that Provisional Allotment Letters are dispatched or dealings in Nil Paid Rights commence or amend or extend the latest date for acceptance under the Rights Issue and all related dates set out in this document and in such circumstances shall notify the UK Listing Authority, and make an announcement via a Regulatory Information Service approved by the UK Listing Authority and, if appropriate, to Shareholders but Qualifying Shareholders may not receive any further written communication. If a supplementary prospectus is issued by the Company two or fewer business days prior to the latest time and date for acceptance and payment in full under the Rights Issue specified in this document (or such later date as may be agreed between the Company and the Joint Bookrunners), the latest date for acceptance under the Rights Issue shall be extended to the date that is three business days after the date of issue of the supplementary prospectus (and the dates and times of principal events due to take place following such date shall be extended accordingly).

2.7 Governing law The terms and conditions of the Rights Issue and any non-contractual obligation arising out of or in relation to the Rights Issue as set out in this document and the Provisional Allotment Letter shall be governed by, and construed in accordance with, English law.

2.8 Jurisdiction The courts of England and Wales are to have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the Rights Issue, this document or the Provisional Allotment Letter. By accepting rights under the Rights Issue in accordance with the instructions set out in this document and, in the case of Qualifying Non-CREST Shareholders only, the Provisional Allotment Letter, Qualifying Shareholders irrevocably submit to the jurisdiction of the courts of England and Wales and waive any objection to proceedings in any such court on the ground of venue or on the ground that proceedings have been brought in an inconvenient forum.

62 ACE BOWNE OF TORONTO 05/23/2010 11:41 NO MARKS NEXT PCN: 068.00.00.00 -- Page is valid, no graphics BOT U08763 067.00.00.00 17

PART IV

INFORMATION ON THE GROUP Set out below is a summary of National Grid’s business. For a detailed description, please refer to pages 14 to 83 of the Annual Report and Accounts 2009/10 which is incorporated by reference into this document as described in Part XII “Documentation Incorporated by Reference” of this document.

1 Overview

National Grid’s principal operations are the ownership and operation of regulated electricity and gas infrastructure AI, 6.1.1 networks in the United Kingdom and the United States, serving around 19 million consumers directly and many AI, 6.2 more indirectly. National Grid also has interests in related markets, including electricity interconnectors, metering AI, 6.5 services, LNG storage and importation facilities and property in the United Kingdom, LNG storage and AI, 7.1 transportation and non-regulated gas transmission pipelines in the United States and a generator of electricity on Long Island, New York. The Group has over 28,000 employees in the United Kingdom and the United States.

National Grid’s principal businesses are: AI, 5.2.2 • Gas and electricity transmission; • Gas distribution; • Electricity distribution and generation; and • Non-regulated businesses. The performance of these businesses is reported by National Grid by segments reflecting the management responsibilities and economic characteristics of each activity. These segments are: • Transmission — UK; • Transmission — US; • Gas Distribution — UK; • Gas Distribution — US; and • Electricity Distribution & Generation — US. The Group’s remaining non-regulated businesses are not treated as a segment but are instead classified and reported as non-regulated businesses and other. Further information about each of these segments and other operations is set out below.

2 History

National Grid originated from the restructurings of the UK gas industry in 1986 and the UK electricity industry in AI, 5.1.5 1990. AI, 8.1 In 1990, the transmission activities of the Central Electricity Generating Board were transferred to National Grid Company plc, which was owned by the regional electricity companies (created when the electricity market in the United Kingdom was privatised) through a holding company, National Grid Group plc. In 1995, shares in National Grid Group plc were listed on the London Stock Exchange. Within a year, most of the regional electricity companies had disposed of their interests. National Grid Group plc entered the US electricity delivery market in 2000 in New England, acquiring New England Electric System and Eastern Utilities Associates, and expanded into upstate New York in 2002 with the acquisition of Niagara Mohawk Holdings, Inc. The Group began to resemble its current form following a recommended merger between National Grid Group plc and Lattice Group plc, the owner of the UK gas transmission and distribution business Transco. This merger was implemented by way of a court sanctioned scheme of arrangement under the Companies Act 1985 between Lattice Group plc and its shareholders and was completed on 21 October 2002. Following the closing of the merger, National Grid Group plc was renamed National Grid Transco plc and on 26 July 2005 it changed its name to National Grid plc. The Group increased its UK wireless infrastructure activities in 2004, acquiring a network from Crown Castle International Corp, and in 2005 sold four UK regional gas distribution networks for £5.8 billion. The Group retained

63 ACE BOWNE OF TORONTO 05/23/2010 12:42 NO MARKS NEXT PCN: 069.00.00.00 -- Page is valid, no graphics BOT U08763 068.00.00.00 16

ownership of four other distribution networks, which comprise almost half of Great Britain’s gas distribution network by customer numbers. In 2006, the Group acquired the gas distribution network in Rhode Island and in 2007, acquired KeySpan, which was the fifth largest distributor of natural gas in the United States. The acquisition of these two natural gas delivery companies doubled the size of the Company’s American operations, creating the second largest utility in the United States by customer numbers, with over eight million customers. Sales of UK and US wireless infrastructure operations and the Basslink electricity interconnector in Australia were effected during 2007. In 2008, the Ravenswood generation station was also sold. Key milestones 1986 ...... British Gas is privatised and listed on the London Stock Exchange 1990 ...... Electricity transmission network in England and Wales transferred to National Grid on electricity privatisation 1995 ...... National Grid is privatised and listed on the London Stock Exchange 1997 ...... British Gas (BG) demerged Centrica 1997 ...... National Grid demerged Energis 2000 ...... Lattice Group plc demerged from BG and listed separately 2000 ...... NewEngland Electric System and Eastern Utilities Associates acquired 2002 ...... Niagara Mohawk Power Corporation merged with National Grid in the United States 2002 ...... Merger of National Grid and Lattice Group plc 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 and adoption of the name National Grid 2006 ...... Acquisition of Rhode Island gas distribution network 2007 ...... Sales of UK and US wireless infrastructure operations and of the Basslink electricity interconnector in Australia 2007 ...... Acquisition of KeySpan Corporation 2008 ...... Sale of the Ravenswood generation station The history of operations that are now part of National Grid actually dates back much further than the dates above. For example, the first national gas company in the United Kingdom commenced operations in 1812.

3 Organisational structure The Company is, directly or indirectly, the ultimate holding company of all the companies in the Group and its assets substantially comprise shares in such companies. The Company does not conduct any other business and is accordingly dependent on the other members of the Group and revenues generated by them. The Company’s principal subsidiaries are: • National Grid Electricity Transmission plc (“NGET”), which owns its UK electricity transmission business; • National Grid Gas plc, which owns its UK gas transmission and UK gas distribution businesses; and • National Grid USA, the holding company for its US electricity transmission, electricity distribution and generation and gas distribution businesses. National Grid USA’s assets primarily consist of shares of the US public utility companies acquired, over time, pursuant to several merger and acquisition transactions. National Grid USA, as a holding company, does not conduct any business other than through its US subsidiaries and is dependent on dividends or distributions from its US subsidiaries. National Grid USA’s principal public utility subsidiaries are as follows: • KeySpan Corporation directly and indirectly owns public utilities consisting of: • The Brooklyn Union Gas Company — New York; • KeySpan Gas East Corporation — New York; • Colonial Gas Company — New England; • Boston Gas Company — New England; • Essex Gas Company — New England; and • EnergyNorth Natural Gas, Inc. — New England;

64 ACE BOWNE OF TORONTO 05/23/2010 11:43 NO MARKS NEXT PCN: 070.00.00.00 -- Page is valid, no graphics BOT U08763 069.00.00.00 21

• Niagara Mohawk Power Corporation — New York; • New England Power Company — New England; • Massachusetts Electric Company — Massachusetts; • The Narragansett Electric Company — Rhode Island; • Granite State Electric Company — New Hampshire; • Nantucket Electric Company — Massachusetts; • New England Electric Transmission Corporation — Massachusetts and New Hampshire; • New England Hydro-Transmission Corporation — New Hampshire; and • New England Hydro-Transmission Electric Company, Inc. — Massachusetts.

4 Vision, Strategy and Objectives National Grid’s vision is to be the foremost international electricity and gas company, delivering unparalleled safety, reliability and efficiency, vital to the wellbeing of its customers and communities. National Grid is committed to being an innovative leader in energy management and to safeguarding the global environment for future generations.

Strategy and Company objectives National Grid’s strategy is to build its core UK and US, electricity and gas, regulated business base and to have the financial discipline to deliver sustainable growth and superior financial performance. In particular: • In the United Kingdom, National Grid expects to seek to grow through replacing and expanding its core networks and investing in other organic growth opportunities relating to climate change and security of supply. In developing the future UK and EU policy and regulatory framework, National Grid expects to actively influence the energy policy agenda and endeavour to position itself as the go-to company for current and new governments both with regard to expert opinion on matters relating to UK energy policy and climate change, and as the company of choice for delivering large energy infrastructure projects. National Grid will endeavour to ensure that future price controls reflect the need for substantial and timely investments to ensure climate change targets and security of supply requirements are met, while delivering acceptable and timely rates of return. • In the United States, National Grid expects to focus on filing rate plans and achieving appropriate outcomes, while also addressing its cost base. National Grid expects to grow through core business customer growth, and asset replacement and network reinforcement. In developing the future US policy and regulatory framework, National Grid will endeavour to drive towards achieving rate plans that deliver fair rates of returns, along with operating and capital cost recovery. National Grid will continue to push for decoupling and the extension of energy efficiency programmes. National Grid will also seek to achieve forward-looking rate plans, together with trackers for key areas of increase and volatility such as capital expenditure, pensions and bad debts. National Grid aims for rate plans to include remuneration for climate change initiatives such as smart grid, solar and transmission projects to connect renewables.

Objectives The following objectives are fundamental to National Grid’s business and are the building blocks of its strategy: • Driving improvements in National Grid’s safety, customer and operational performance. • Delivering strong, sustainable regulatory and long-term contracts with good returns. • Modernising and extending National Grid’s transmission and distribution networks. • Expanding National Grid’s capabilities and identifying new financeable opportunities to grow. • Becoming more efficient through transforming National Grid’s operating model and increasingly aligning National Grid’s processes. • Building trust, transparency and an inclusive and engaged workforce. • Developing National Grid’s talent, leadership skills and capabilities. • Positively shaping the energy and climate change agenda with National Grid’s external stakeholders in both regions.

65 ACE BOWNE OF TORONTO 05/23/2010 16:44 NO MARKS NEXT PCN: 071.00.00.00 -- Page is valid, no graphics BOT U08763 070.00.00.00 20

5 Business activities and description

5.1 Transmission AI, 6.1.1 AI, 6.2 National Grid’s transmission business operates in both the United Kingdom and the United States and has a total of AI, 11 3,953 employees as at 31 March 2010. As a consequence of the respective economic and regulatory environments, AI, 12.1 National Grid reports the results of its transmission business as two segments: Transmission — UK and Transmission — US.

5.1.1 Transmission — UK National Grid, through NGET, owns the electricity transmission system in England and Wales. As at 31 March 2010, its electricity assets comprise a route length of over 7,200 kilometres of overhead line, mainly consisting of double circuits, about 713 kilometres of underground cable and 338 substations at 242 sites. National Grid is also the National Electricity Transmission System Operator responsible for managing the operations of both the England and Wales transmission system which it owns and also the two high voltage electricity transmission networks in Scotland, which it does not own. Day-to-day operation of the Great Britain electricity transmission system involves the continuous real-time matching of demand and generation output, ensuring the stability and security of the power system and the maintenance of satisfactory voltage and frequency. National Grid is also designated as system operator for the new offshore electricity transmission regime. National Grid also owns the gas national transmission system in Great Britain. As at 31 March 2010, this comprises approximately 7,600 kilometres of high pressure pipeline and 23 compressor stations, connecting to eight distribution networks, and to third party independent systems for onward transportation of gas to end consumers. National Grid operates the gas national transmission system, which includes balancing supply and demand, maintaining satisfactory system pressures and ensuring gas quality standards are met. National Grid owns and operates the UK assets, and a portion of the subsea cables, that comprise the electricity interconnector between England and France as part of a joint arrangement with the French transmission operator. As at 31 March 2010, National Grid also owns and operates three LNG storage facilities in Great Britain. The revenues from the interconnector and part of the revenues from LNG storage are not regulated, but realised from tenders or capacity auctions. NGET is the holder of an electricity transmission licence under the Electricity Act 1989. The Electricity Act requires all persons who participate in the transmission of electricity to hold a licence to do so (if not exempted from such requirement). The transmission licence permits NGET to: • own electricity transmission assets in England and Wales (there are separate licences in respect of transmission assets in Scotland); and • operate the electricity transmission system throughout Great Britain (that is, including the transmission systems owned by the electricity transmission licensees in Scotland) as well as being system operator designate in relation to offshore transmission systems. Revenue from charges for using the transmission network and charges for connections made before March 1990 is controlled by revenue restriction conditions set out in the transmission licence. This revenue restriction, known as a price control, takes into account, among other factors, operating expenditure, capital expenditure and cost of capital. National Grid is permitted to set charges for connections to the transmission system in Great Britain made since March 1990 to recover the costs directly or indirectly incurred in providing connections, together with a reasonable rate of return on such costs. As National Electricity Transmission System Operator, National Grid is responsible for the residual balancing of generation and demand in the Great Britain electricity market and ensuring the secure, reliable and efficient delivery of electricity in real-time. National Grid is the counterparty for all connection and use of system agreements in Great Britain with generators, suppliers, distributors and interconnector owners and users. It levies charges to fund balancing activities and transmission services which are provided by National Grid in England and Wales and by the transmission system owners in Scotland. Revenue from charges for provision of balancing services is usually regulated under an annual incentive scheme, where benefits of external cost savings in system operation compared to targets are shared with customers. National Grid is also incentivised over the five years of the price control in relation to its internal costs of providing balancing

66 ACE BOWNE OF TORONTO 05/23/2010 16:43 NO MARKS NEXT PCN: 072.00.00.00 -- Page is valid, no graphics BOT U08763 071.00.00.00 20

services and is subject to wider statutory and licence obligations in relation to the external costs of providing those services. National Grid, through its subsidiary National Grid Gas plc, holds a gas transporter licence under the Gas Act 1986 (the “Gas Act”). The licence permits National Grid Gas plc to own gas transmission assets in Great Britain and operate the national gas transmission system in Great Britain. Under the Gas Act, National Grid has a duty to develop and maintain an efficient and economical pipeline system for the conveyance of gas. Day-to-day operation of the system includes balancing supply and demand at the end of each day, maintaining satisfactory system pressures and ensuring gas quality standards are met. National Grid is also required to maintain levels of short-term gas reserves to ensure domestic and other non-interruptible gas supplies can be maintained during prolonged cold conditions.

5.1.2 Transmission — US In the United States as at 31 March 2010, National Grid owns and operates an electricity transmission network of approximately 13,800 kilometres spanning upstate New York, Massachusetts, Rhode Island, New Hampshire and Vermont. Its US transmission facilities operate at voltages ranging from 69 kV to 345 kV, comprising nearly 13,700 kilometres of overhead lines, nearly 140 kilometres of underground cable and 525 substations. National Grid is the largest electricity transmission service provider in New England and New York by reference to the length of these high voltage transmission lines. In addition, it owns and operates a 224 kilometre direct current transmission line rated at 450 kV that is a key section of an interconnector between New England and Canada. National Grid’s electricity transmission network is directly interconnected with other utility systems in New York, Massachusetts, Vermont, Pennsylvania, Rhode Island, Connecticut, New Hampshire and the Canadian provinces of Ontario and Quebec and indirectly interconnected with most of the electricity utility systems through the Eastern Interconnection power grid of the United States and Canada. In New England and New York, National Grid’s transmission business operates with two independent system operators (“ISOs”), the New England ISO and the New York ISO. The ISOs are responsible for: • operating organised wholesale markets for energy, operating reserves and capacity; • maintaining the operating reliability of the New England and New York transmission networks; • co-ordinating the activities of the transmission owners; and • managing transparent transmission expansion planning processes. National Grid is one of several transmission owners operating within each of these ISOs. The transmission owners are responsible for certain aspects of the operation of the transmission facilities they each own, such as maintenance, equipment restoration and switching operations. National Grid works closely with the ISOs in New England and New York to support efficient market and network operations and transmission investment.

5.2 Gas Distribution National Grid’s gas distribution business operates in the United Kingdom and the United States and has a total of 9,828 employees as at 31 March 2010. As with its transmission business, as a consequence of the differences in the respective economic and regulatory environments, National Grid reports the results of this business as two segments: Gas Distribution — UK and Gas Distribution — US.

5.2.1 Gas Distribution — UK As at 31 March 2010, National Grid’s UK gas distribution segment comprises four of Great Britain’s eight regional gas distribution networks, consisting of approximately 132,000 kilometres of distribution pipeline. National Grid transports gas on behalf of approximately 26 active gas shippers from the gas national transmission system to around 10.8 million consumers. National Grid also manages the national emergency number for all of the distribution networks and for other gas transporters in Great Britain. National Grid holds a single gas distribution transporter licence in the United Kingdom, which authorises National Grid to operate the four gas distribution networks it owns. Detailed arrangements for transporting gas are set out in the Uniform Network Code. This defines the roles and responsibilities of industry participants and is approved by Ofgem. National Grid’s four regional gas distribution networks each have a separate price control which determines the prices National Grid can charge to gas shippers for its gas delivery service.

67 ACE BOWNE OF TORONTO 05/23/2010 16:45 NO MARKS NEXT PCN: 073.00.00.00 -- Page is valid, no graphics BOT U08763 072.00.00.00 25

The price control formulae specify a maximum allowed revenue for each network. Each formula consists of a fixed core revenue element, cost pass-through items and incentive schemes including environmental emissions incentives, an exit capacity scheme, and innovation, environmental and community incentives. The safety and reliability of the network is principally maintained by replacing older metallic gas mains with polyethylene equivalents. Ofgem treats 50 per cent. of projected replacement expenditure as recoverable during the price control period and 50 per cent. as recoverable over future years. Each network is subject to its own mains replacement incentive mechanism and retains 36 per cent. of any outperformance against Ofgem’s annual cost targets as additional return or, alternatively, bears 36 per cent. of any overspend if it underperforms. Transportation charges are set broadly to recover allowed revenue but in any year collected revenue can be more or less than allowed. Any difference is carried forward and the charges are adjusted accordingly in future periods. In its UK gas operations, National Grid is required to meet certain standards of service which are established by Ofgem. These include: answering 90 per cent. of all calls to the national gas emergency number, enquiry line and meter number enquiry line within 30 seconds of the call being connected; attending 97 per cent. of reports of a gas escape or other gas emergency within the required timescale; and providing guaranteed standards of service for its other transportation services such as restoration of supply after an unplanned interruption and complaint handling. Compensation is payable for any failures to meet guaranteed standards of service.

5.2.2 Gas Distribution — US As at 31 March 2010, National Grid’s US gas distribution segment comprises gas distribution networks providing services to around 3.5 million consumers across the northeastern United States, located in service territories in upstate New York, New York City, Long Island, Massachusetts, New Hampshire and Rhode Island. Its network of approximately 58,000 kilometres of gas pipelines serves an area of approximately 26,400 square kilometres. National Grid’s gas distribution operations provide the core services of operation, maintenance and emergency response, as well as billing, customer service, and supply services. Except for residential and small commercial consumers in Rhode Island and residential consumers in New Hampshire, consumers may purchase their supply from independent providers. The majority of gas supplied to consumers in the United States is sold by regulated utilities to their consumers. Regulated utilities, such as National Grid’s gas distribution companies, purchase gas from gas producers and gas transporters, and then transport this gas on the independent interstate pipeline system and into the regulated utilities’ gas distribution networks for onward delivery to customers. National Grid’s gas distribution companies receive gas from the interstate pipeline system at 94 gate stations. The interstate pipeline system and local gas distribution networks are also used to deliver gas on behalf of customers who purchase gas from independent suppliers or direct from gas producers. Gas supplies required to meet the needs of National Grid’s gas customers’ winter demands for gas are purchased under long- and short-term firm contracts, as well as on the spot market. Gas supplies purchased by National Grid for its customers are transported by interstate pipelines under long-term contracts with interstate pipeline companies from domestic and Canadian supply basins. In addition to long-term pipeline contracts, National Grid is capable of supplementing its winter supply portfolio on the coldest days of the year with seasonal firm transportation pipeline contracts, various long-term contracts for underground storage capacity and peaking supplies to economically meet the increased requirements of its heating customers. The peaking supplies include various LNG interests and operations, which are located strategically across National Grid’s service territories in New York, New Hampshire, Rhode Island and Massachusetts. National Grid is currently evaluating options to allow it to exit its gas and electricity businesses in New Hampshire.

5.3 Electricity Distribution & Generation US National Grid USA operates the Group’s US electricity distribution and generation business, which has a total of 8,344 employees as at 31 March 2010. National Grid’s electricity distribution system operates in upstate New York through Niagara Mohawk Power Corporation, in Massachusetts through Massachusetts Electric Company (“MECO”) and Nantucket Electric Company (“NEC”), in Rhode Island through The Narragansett Electric Company and in New Hampshire through Granite State Electric Company, with customers that include domestic homes and small and large commercial and industrial enterprises. As at 31 March 2010, National Grid’s US Electricity Distribution & Generation business, excluding management and operation of LIPA assets, served approximately 3.4 million electricity customers over a network of approximately 116,800 circuit kilometres in New England and upstate New York.

68 ACE BOWNE OF TORONTO 05/23/2010 12:44 NO MARKS NEXT PCN: 074.00.00.00 -- Page is valid, no graphics BOT U08763 073.00.00.00 26

On Long Island, New York, National Grid is responsible for managing the electricity transmission and distribution system on behalf of LIPA, under agreements that cover the period until 2013, after which renewal of the Management Services Agreement will be subject to a competitive tender offer process. National Grid’s responsibilities include managing the day-to-day operations and maintenance of LIPA’s transmission and distribution system, providing services to LIPA’s retail customers and managing the delivery of the energy which National Grid produces under contract to LIPA. National Grid owns 57 electricity generation units on Long Island that together provide 4.1 GW of power under contract to LIPA. National Grid’s plants consist of oil and gas fired steam turbine, gas turbine and diesel driven generating units ranging from 2 to 375 MW. Any available power not needed to meet LIPA’s requirements is made available for sale in the open market. National Grid’s primary business drivers in the United States are the rates, tariffs and rate plans approved by state regulators for National Grid’s utility subsidiaries. National Grid recovers its costs of providing electricity to customers through delivery rates approved by applicable regulators, which are based on historical or forecasted costs, and which include a return on National Grid’s distribution assets. The cost of the electricity supplied is passed through to customers. National Grid’s businesses are also subject to service quality standards including among other things reliability levels, customer satisfaction levels and safety that vary among National Grid’s rate plans for those states in which National Grid operates. Many of these service standards have penalties associated with them if certain specified minimum standards are not met. The rate plans also include sharing arrangements which allow for the retention of a portion of the return earned above the allowed return built into the rate plan assumptions. Typically National Grid retains all the benefits up to a certain level of ROE after which National Grid retains only a proportion of the benefits with the balance returned to customers. New England Electric Transmission Corporation owns and operates the first phase of the Hydro-Quebec and New England interconnection, consisting of six miles of high voltage direct current transmission line and related facilities in New Hampshire. New England Hydro-Transmission Corporation, in which National Grid holds 54 per cent. of the common stock, owns and operates 121 miles of high voltage direct current transmission line in New Hampshire for the second phase of the interconnection, extending to the Massachusetts border. New England Hydro-Transmission Electric Company, Inc., in which National Grid holds 54 per cent. of the common stock, owns and operates an alternating current/ direct current terminal and related facilities for the second phase of the interconnection and 12 miles of high voltage direct current transmission line in Massachusetts. These facilities are made available to customers under the New England ISO’s Open Access Transmission Tariff, and are subject to New England ISO operational control. In addition, National Grid has established certain regulatory arrangements that provide for: (i) the recovery of National Grid’s historical investments in generating plants that were “stranded” when National Grid USA divested its generation business as part of the industry restructuring and wholesale power deregulation process in New England and New York; and (ii) the recovery of certain above-market costs of commodity purchase contracts that were in place at the time of restructuring and deregulation. National Grid USA, with the approval of the utility commissions in the states in which National Grid’s subsidiaries operate, recovers most of these costs through the special rate charged to electricity customers. This revenue stream will decline as the recovery of stranded costs is completed. National Grid is currently evaluating options to allow it to exit its gas and electricity businesses in New Hampshire.

5.4 Non-regulated businesses and other activities National Grid also has an interest in certain non-regulated and other business activities, employing 3,533 employees excluding shared services employees as at 31 March 2010. In the United Kingdom, National Grid Metering Limited and Utility Metering Services Limited provide metering installation and maintenance services to energy suppliers in the regulated and unregulated markets respectively. These businesses provide services for an asset base of around 20 million domestic, industrial and commercial meters. National Grid Grain LNG Limited is an LNG importation terminal, with revenues driven by the provision of importation capacity to shippers under long-term take-or-pay contracts (typically 20 years from commissioning). National Grid Property is responsible for the management of all of National Grid’s major occupied property in the United Kingdom and the management, clean-up and disposal of surplus sites (largely comprising former gas works). BritNed Development Limited is a joint venture between National Grid and TenneT, the Dutch transmission system operator, to build and operate a 260 kilometre 1,000 MW subsea electricity link between the Netherlands and the United Kingdom. Fulcrum operates across the UK mainland and offers multi-utility connections and environmental services for all customer categories. As a gas transporter, Fulcrum designs, constructs, owns and operates distribution systems.

69 ACE BOWNE OF TORONTO 05/23/2010 16:44 NO MARKS NEXT PCN: 075.00.00.00 -- Page is valid, no graphics BOT U08763 074.00.00.00 28

In addition to these non-regulated activities, other activities comprise the following: (i) xoserve Limited delivers transportation transactional services on behalf of the major gas network transportation companies in Great Britain, including National Grid. xoserve is jointly owned by the five major gas distribution network companies, and National Grid’s UK Transmission business is the majority shareholder; and (ii) Blue-NG is a joint venture between National Grid and 2OC Ltd to construct and operate a new type of highly efficient power station that makes use of the energy released as gas pressure is reduced through normal operation of the network, and simultaneously generates renewable electricity and heat. In the United States, National Grid’s non-regulated businesses include LNG storage, LNG road transportation, unregulated transmission pipelines, including shares in the Millennium and Iroquois pipelines, and West Virginia gas fields. A subsidiary of National Grid, National Grid Energy Services, which provides energy related services such as appliance servicing and maintenance to commercial and domestic customers, was sold to a subsidiary of HomeServe plc on 13 April 2010. The sale is expected to close by mid-August 2010.

6 Competition The principal markets in which National Grid operates are the electricity and gas markets in Great Britain and in Massachusetts, New York, Rhode Island and New Hampshire in the United States. The supply of electricity and gas in the United Kingdom and in most states in which we operate in the northeastern United States is competitive in that consumers can choose their energy supplier. Those suppliers are then responsible for sourcing that energy from electricity generators or from gas extractors or importers as appropriate, as well as arranging for that energy to be delivered through physical delivery networks. These networks, including the ones operated by National Grid, are generally monopolies in their local areas as, for the majority of consumers, there are no alternative methods of receiving electricity or gas.

6.1 Energy delivery in the United Kingdom In general, in the United Kingdom, energy is transported through electricity or gas transmission networks to regional electricity or gas distribution networks that then deliver energy to consumers on behalf of suppliers. Certain end users, primarily large industrial consumers, receive electricity or gas directly from the relevant transmission network. National Grid is the owner and operator of the high voltage 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 national transmission system and of four of the eight regional gas distribution networks in Great Britain. National Grid charges electricity and gas suppliers, electricity generators and gas shippers for the services that it provides. The other principal infrastructure owners and operators in the United Kingdom are EDF Group, which owns three electricity distribution networks, Scottish & Southern Energy, Iberdrola, E.ON, Western Power Distribution, and Berkshire Hathaway Inc., each of which owns two electricity distribution networks, and Electricity North West, which owns one electricity distribution network. Scottish & Southern Energy and Iberdrola also each own an electricity transmission network in Scotland, both of which are operated by National Grid. The gas distribution networks in Scotland and southeast England are owned by Scotia Gas Networks, in the north of England by Northern Gas Networks and in Wales and the west of England by Wales & West Utilities.

6.2 Energy delivery in the northeastern United States In most of National Grid’s operating areas in northeastern United States, consumers are able to purchase their energy through independent energy suppliers. While a number of large customers have chosen suppliers other than the local utility provider, the majority of residential and small commercial consumers still purchase electricity or gas from their local electricity or gas distribution network business. The major alternative fuel source to gas is oil, which many consumers use for domestic heating purposes. Electricity is transported either directly from generators or independent suppliers into local electricity distribution networks or via electricity transmission networks, while gas is obtained from importation terminals, gas producers or independent suppliers transported on gas transmission pipelines and then transported through local gas distribution networks. Certain end users, primarily large industrial customers, receive electricity or gas directly from the electricity transmission networks or interstate gas transmission pipelines. National Grid’s US electricity and gas distribution businesses support regulatory policies that encourage customers to purchase their energy from independent suppliers. Where this occurs, National Grid delivers that energy to

70 ACE BOWNE OF TORONTO 05/23/2010 13:07 NO MARKS NEXT PCN: 076.00.00.00 -- Page is valid, no graphics BOT U08763 075.00.00.00 28

consumers on behalf of those suppliers. For the majority of consumers in National Grid’s operating areas who continue to purchase their energy from National Grid, energy is sourced from electricity generators or gas suppliers on behalf of the customers in accordance with regulatory approved arrangements. National Grid is generally responsible for billing customers both for delivery services and for electricity and gas consumed (on which National Grid does not charge any additional margin). On Long Island, National Grid operates the electricity transmission and distribution network on behalf of the network’s owner, LIPA, under agreements that cover the period until 2013. National Grid owns 57 electricity generation plants on Long Island that supply power under contract to LIPA and National Grid’s agreements with LIPA also cover its provision of fuel procurement and management services. Electricity transmission and distribution networks, including the ones National Grid owns, are members of the regional transmission operators or independent system operators that have the responsibility for balancing electricity supply with demand and for the reliability of the regional transmission network. Gas distribution networks, including the ones National Grid owns, are each responsible for balancing gas supply with demand within their respective distribution areas. There are more than 25 companies and organisations that own or operate energy delivery infrastructure in the northeastern United States, including National Grid, Consolidated Edison, NSTAR, Iberdrola and Northeast Utilities. Despite significant declines in wholesale energy prices since mid-2008, high consumer energy prices have been experienced in the US markets. This has 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 on customers. As the debate continues, National Grid has taken a leadership position by advocating a well- managed system as 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. National Grid continues to collaborate with regulators, policy makers, and customers to advance the development of the competitive electricity marketplace. In the United States, the recent change in administration has brought an increased political desire to tackle the issues around climate change and security of supply. The development of smart grid technologies is expected to enable more efficient use of the transmission and distribution grid, lower line losses, greater use of renewables and to provide information to utilities and their customers that will lead to greater investment in transmission, energy efficiency and reduced peak load demands.

6.3 Other areas in which National Grid operates The Group’s other businesses primarily operate in energy related markets in the United Kingdom and the United States or are directly connected to the regulated businesses described above. This includes the Group’s metering services businesses in the United Kingdom, incorporating both National Grid’s legacy regulated metering business, which owns approximately 75 per cent. of the domestic gas meters in the United Kingdom, and National Grid’s competitive metering services business which owns a further 11 per cent. In addition, National Grid has a significant property portfolio and management business.

7 Regulatory asset value and rate base Across National Grid’s regulated businesses, the primary revenue driver is a return based on the value of regulated assets. In the United Kingdom, the regulatory asset value (“RAV”) is defined as the value ascribed by Ofgem to the capital employed in the relevant licensed business. It is formed of an estimate of initial market value of the asset base at privatisation, plus subsequent allowed additions at historical cost, less depreciation. It is indexed to RPI to adjust for inflation. In the United States the rate base is defined as base investment on which the utility is authorised to earn a cash return. It includes the original cost of facilities, minus depreciation, an allowance for working capital

71 ACE BOWNE OF TORONTO 05/23/2010 13:07 NO MARKS NEXT PCN: 077.00.00.00 -- Page is valid, no graphics BOT U08763 076.00.00.00 22

and other accounts. The RAVs and rate bases for each of National Grid’s regulated entities are shown in the table below, along with the percentage that entity comprises of either National Grid’s RAV or rate base, respectively. Date of Value Value Percentage (£ millions) UK RAV UK Electricity Transmission ...... 31Mar2010 7,500 39 UK Gas Distribution ...... 31Mar2010 7,001 37 UK Gas Transmission ...... 31Mar2010 4,533 24 Total National Grid UK RAV ...... 19,034 100 (US$ millions) US Rate Base* NMPC Electric ...... 31Dec2009 3,724 25 Brooklyn Union Gas Company ...... 31Dec2009 2,350 16 Key Span Gas East Corporation ...... 31Dec2009 1,899 13 Massachusetts Gas ...... 31Dec2009 1,536 10 MECO...... 31Dec2009 1,494 10 NMPCGas...... 31Dec2010 1,103 7 New England Power ...... 31Dec2009 861 6 Narragansett Electric Distribution ...... 31Dec2009 548 4 Long Island Generation...... 31Dec2009 503 3 Narragansett Gas ...... 31Dec2009 337 2 Energy North ...... 31Dec2009 193 1.3 Narragansett Electric Transmission ...... 31Dec2009 189 1.3 Canadian interconnector ...... 31Dec2009 67 0.45 Nantucket Electric ...... 31Dec2009 62 0.42 Granite State Electric ...... 31Dec2009 58 0.39 Total National Grid US rate base ...... 14,924 100

Notes: * National Grid’s estimate of US rate base: regulatory filings or an alternative US GAAP invested capital measure where either recent rate base filings are not available or where the actual filed rate base currently excludes certain regulatory asset balances.

72 ACE BOWNE OF TORONTO 05/23/2010 13:08 NO MARKS NEXT PCN: 078.00.00.00 -- Page is valid, no graphics BOT U08763 077.00.00.00 26

PART V

REGULATORY ENVIRONMENT

1 Overview AI, 6.4 AI, 6.2 National Grid operates in a highly regulated environment, which means that good relationships with economic and AI, 8.2 safety regulators, in addition to its other stakeholders, are essential because they set the frameworks within which its AI, 9.2.3 businesses operate. Due to National Grid’s position in, and importance to, the economies that the Group serves, its electricity and gas transmission and distribution businesses are subject to UK, EU and US federal and state laws and regulations. Therefore, National Grid has multiple regulators, each of which exercises power over how members of the Group operate within their respective jurisdictions. In the United Kingdom, energy networks are regulated by Ofgem. Ofgem operates under the direction and governance of the Gas and Electricity Markets Authority (“GEMA”) and has established price control mechanisms that restrict the amount of revenue that can be earned by regulated businesses. National Grid’s UK electricity and gas transmission businesses are subject to regulation of their revenues (otherwise known as price controls) under their respective transmission licences, as is National Grid’s UK gas distribution business under its distribution licence. National Grid has eight price controls in the United Kingdom, comprising two for its UK electricity transmission operations, two for its gas transmission operations, and one for each of its four regional gas distribution networks. These price controls provide a financial incentive to operate and invest efficiently, as National Grid receives a return on efficiently incurred capital expenditure that increases its regulatory asset value, and also provide incentives by which the Group can gain or lose for its performance in managing system operation, in controlling internal costs, and for service quality. In the United States, public utilities are regulated by the Federal Energy Regulatory Commission (the “FERC”), and by utility commissions in each of the states, including the New York Public Service Commission, the Massachusetts Department of Public Utilities, the Rhode Island Public Utilities Commission and the New Hampshire Public Utilities Commission. These US regulators set service standards, determine allowable levels of return and usually approve mergers and acquisitions of public utilities. The FERC also regulates public utility holding companies, including the US business of National Grid. In July 2006, FERC certified the North American Electric Reliability Corporation (“NERC”) as the independent, self-regulating electricity reliability organisation that develops and enforces mandatory electricity reliability rules on all users, owners, and operators of the US bulk electricity power transmission system. FERC has oversight of NERC and approves the standards developed by NERC. National Grid has four electricity rate plans and nine sets of gas rates in the United States, covering its electricity distribution operations in upstate New York, Massachusetts, Rhode Island and New Hampshire and its gas distribution networks in upstate New York, New York City, Long Island, Massachusetts, New Hampshire and Rhode Island. National Grid’s electricity rate plan in upstate New York also covers its electricity transmission network in that state. National Grid’s rates for its electricity transmission network in New England are subject to federal regulatory approval by FERC. National Grid’s rate plans are based on its cost and regulatory asset base, together with a return on capital expenditure. Some rate plans include earned savings mechanisms that allow National Grid to retain a proportion of the savings achieved through improving efficiency, with the balance benefiting customers. National Grid is also permitted to recover commodity and other pass-through costs which it incurs, together with the recovery of stranded costs. Stranded cost recoveries represent the recovery of historical generation related costs for assets that are no longer owned. National Grid’s reliability performance under certain rate plans is subject to performance targets established by the relevant regulator, under which National Grid can be subject to monetary penalties for failing to meet those targets. Further information in relation to National Grid’s rate plans is set out below.

2 Regulation of the electricity and gas industries in the United Kingdom The electricity and onshore gas industries in Great Britain are regulated primarily under the provisions of the Electricity Act 1989 (the “Electricity Act”), the Gas Act, the Utilities Act 2000 (the “Utilities Act”), the Energy Act 2004 (the “Energy Act”) and the Energy Act 2008 (the “Energy Act 2008”). They are also subject to regulatory developments at EU level. The Electricity and Gas Acts provided for the privatisation and restructuring of the industries in the late 1980s and the 1990s, including, among other things, the structure of regulation through licensing of transportation, distribution and supply (in relation to gas and electricity), generation (electricity) and of competition in electricity generation and the supply of both gas and electricity. The Electricity and Gas Acts created regulatory bodies for each of the electricity and gas industries. In 2000, the Utilities Act enabled the electricity and

73 ACE BOWNE OF TORONTO 05/23/2010 13:10 NO MARKS NEXT PCN: 079.00.00.00 -- Page is valid, no graphics BOT U08763 078.00.00.00 24

gas regulators to be merged as GEMA and provided powers for Government Ministers to give statutory guidance on social and environmental issues and to set energy efficiency targets and renewables obligations. The Utilities Act also provided the Secretary of State with powers to implement the New Electricity Trading Arrangements in England and Wales. In 2004, the Energy Act provided the Secretary of State with powers to implement Great Britain-wide electricity trading and transmission arrangements, which led to the introduction of the British Electricity Trading and Transmission Arrangements in 2005. The Utilities Act transferred the functions of the previous electricity and gas industry regulators to GEMA and provided for the appointment of a Chairman and other members of GEMA by the Secretary of State. The Chairman of GEMA holds office for renewable periods of five years, and GEMA’s Chief Executive is also the Chief Executive of Ofgem. Ofgem operates under the direction and governance of GEMA which makes all major decisions and sets policy priorities. Under the Utilities Act (and further clarified by the Energy Act 2010), the principal objective of the Secretary of State and GEMA is to protect the interests of customers, wherever appropriate by promoting effective competition. In carrying out those functions, the Secretary of State and GEMA are required to have regard to the need to secure that all reasonable demands for electricity and gas are met; the need to ensure that licence holders are able to finance their functions; and the interests of individuals who are disabled or chronically sick, of pensionable age, with low incomes or residing in rural areas. GEMA exercises certain functions relating to anti-competitive conduct (concurrently with the Office of Fair Trading (“OFT”)), under the Enterprise Act 2002, the Competition Act 1998 and Articles 101 and 102 of the Treaty on the Functioning of the European Union (“TFEU”). These include powers to investigate breaches of competition laws and to impose fines of up to ten per cent. of worldwide group turnover in the event of breach of certain of those laws, namely those which prohibit anti-competitive agreements or the abuse of a dominant position. GEMA also manages UK compliance with the European Union’s regulatory framework, which has sought to introduce competition in generation and supply and non-discriminatory access to gas transportation and electricity transmission and distribution across the European Union. In March 2008, Ofgem announced a review of the current RPI-X based regulatory framework. The RPI-X@20 review is an assessment of the current regulatory regime and its ability to address the challenges facing energy networks in the future. Ofgem’s intention is for the output from this project to feed into future price controls. To allow the output of RPI-X@20 to be fully incorporated into the next full transmission price review, the current transmission price controls will be rolled over and extended by one year to March 2013. The next gas distribution price control is also scheduled to end in March 2013. The outcome of the RPI-X@20 review is unlikely to impact National Grid’s current regulatory settlements, but is expected to influence future transmission price controls from 2013.

2.1 The licensing regime GEMA is responsible for granting new licences or licence extensions for each of: gas transportation; gas interconnection; gas shipping; the supply of gas and electricity; electricity transmission; electricity distribution; electricity interconnection; and electricity generation. Further information in relation to the licensing of the activities in which National Grid is engaged, including gas transportation and electricity transmission, is set out below.

2.1.1 Gas transportation Companies conveying gas must either be licensed or benefit from an exemption from the requirement to hold a licence. The gas transporter licence allows the licensee to: • convey gas through pipes to any premises within an area authorised by the licence; or • convey gas through pipes to any pipeline system operated by another gas transporter, or other pipeline system specified in the licence. The onshore transportation system can be broadly divided into the gas national transmission system (“NTS”) which operates at higher pressures, and the eight gas distribution networks (“DNs”) which distribute from the NTS to consumers both domestic and commercial. There are a small number of large customers connected directly to the NTS. National Grid Gas owns and operates the vast majority of the NTS and four of the DNs. The other DNs are owned and operated by Northern Gas Networks, Scotia Gas Networks (part of Scottish & Southern Energy, which owns two networks) and Wales & the West Utilities. National Grid Gas is also the NTS System Operator, responsible for residual system balancing. In addition to the companies above, there are a number of smaller independent gas transporters who own and operate distribution networks. All the gas transporters are licensed with an extensive

74 ACE BOWNE OF TORONTO 05/23/2010 12:42 NO MARKS NEXT PCN: 080.00.00.00 -- Page is valid, no graphics BOT U08763 079.00.00.00 21

range of licence conditions. These conditions and obligations vary according to the type and size of transporter involved. The licences also include price control conditions which restrict the revenue which may be collected by the licensee. The NTS is interconnected (by independently owned interconnections) with the gas transportation systems of continental Europe, Northern Ireland, the Republic of Ireland, and the Isle of Man. There are a small number of high pressure gas pipelines, which are connected to the NTS but which are operated by a different transporter, for example, connecting specific power stations to the gas grid or which are operated by a party who has an exemption from the requirement to hold a licence, for example storage operators.

2.1.2 Electricity transmission The electricity transmission licence allows the licensee to participate in the transmission of electricity for the purpose of enabling a supply to be given. Electricity transmission can be described as the bulk transfer of electricity across a high voltage network of overhead lines, underground cables and associated equipment. As with gas, electricity transmission is divided into transmission owner and system operator roles. There are three British transmission operators: National Grid Electricity Transmission plc in England and Wales, ScottishPower Transmission Ltd in south Scotland and Scottish Hydro-Electric Transmission Ltd in north Scotland. NGET is also the National Electricity Transmission System Operator for the whole of Great Britain. The electricity transmission licences, as in gas, contain a range of conditions and obligations according to the individual roles. The licences also contain price control conditions which restrict the revenue which can be collected by the licensees. In terms of access to the transmission system, currently the Transmission Access Review Project is considering ways in which access can be improved given the UK Government’s commitments around renewable generation. The Department for Energy and Climate Change has consulted on a proposed way forward. The latest consultation closed in April 2010, and no final decision has been made in relation to the outcome of this project. In addition to the above, under the recently developed offshore transmission regime, there will be a new licensed activity, that of offshore transmission operators owning and operating the connections between offshore facilities and onshore substations. Offshore transmission operators will be expected to design, build, own and operate the connections in exchange for which they will receive a price controlled revenue stream, normally set for 20 years. National Grid’s participation as a transmission operator in this regime is discretionary and contingent on success in a competitive tender process.

2.1.3 Electricity interconnection The electricity interconnector licence allows the licensee to participate in the operation of an electricity interconnector. Participating in the operation of an electricity interconnector is defined as: • co-ordinating and directing the flow of electricity into or through an electricity interconnector; or • making such an interconnector available for use for the conveyance of electricity. Great Britain is connected to Continental Europe by the England France Interconnector, of which ownership is shared under an arrangement between National Grid and Réseau de Transport d’Electricité, and to Northern Ireland by the Moyle Interconnector. BritNed, a joint venture between National Grid and the Dutch transmission system operator, is currently building a further interconnector to the Netherlands. National Grid anticipates the link will be fully operational in the first quarter of 2011. For further discussion of the BritNed joint venture, see paragraph 5.4 of Part IV “Information on the Group” of this document.

2.2 National Grid’s licences 2.2.1 Gas National Grid Gas holds a gas transporter licence under the Gas Act in respect of each of its NTS and DN gas transportation activities. Detailed arrangements for transporting gas are provided through the Uniform Network Code. This defines the obligations, responsibilities and roles of industry participants and is approved by Ofgem. The Gas Act and the licences oblige National Grid Gas in respect of each of National Grid Gas’s businesses of the NTS and the DNs (taken as a whole) to develop, maintain and operate an economic and efficient pipeline system for the conveyance of gas in Great Britain. These obligations also require National Grid Gas to comply, so far as it is economical for it to do so, with all reasonable requests to connect to the respective systems and convey gas by means of those systems to any premises or other pipeline system. National Grid Gas must also facilitate competition in the supply of gas in Great Britain.

75 ACE BOWNE OF TORONTO 05/23/2010 12:44 NO MARKS NEXT PCN: 081.00.00.00 -- Page is valid, no graphics BOT U08763 080.00.00.00 17

The licences set out the responsibilities of each business in respect of charging, system access/use, metering and other specific obligations required for the proper functioning of the relevant activity and also restrict the revenues which National Grid Gas may derive from its licensed activities (known as the “price controls”). The licences also require National Grid Gas to conduct each of its transportation businesses in the manner best calculated to secure that neither the NTS nor the DN businesses (or any affiliate or related undertaking), any gas shipper or supplier nor any other gas transporter operating a distribution network obtains an unfair commercial advantage including, in particular, any advantage from a preferential or discriminatory arrangement. The licences can only be amended either in accordance with the procedures contained in the licences themselves or the Gas Act. The licences continue in force until determined by not less than ten years’ notice in writing given by GEMA (such notice not to be served earlier than 22 August 2011) or otherwise revoked in accordance with the terms of the licences (such as in the event of financial default). Each of the licences contains conditions which have the effect of “ring fencing” each of the NTS and DN businesses. These include: • prohibiting National Grid Gas from carrying on activities other than those permitted by the licences; • requiring that each business has sufficient managerial and financial resources available to it to conduct the relevant licensed activities; • requiring National Grid Gas to maintain an investment grade issuer credit rating; • prohibiting National Grid Gas from creating indebtedness or entering into any other obligations (except in limited circumstances) other than on an arm’s length basis on normal commercial terms for one of its permitted purposes; • prohibiting the creation of “cross-default” obligations; and • prohibiting either the NTS or the DN businesses from giving or receiving any cross-subsidy from any other group business. If National Grid Gas is in default of any of these “ring fence” obligations, it is prohibited from declaring and paying a dividend. In October 2002, GEMA consented to National Grid Gas making loans to its immediate parent company, National Grid Gas Holdings Limited. This consent was renewed by GEMA in May 2005. As a result, National Grid Gas Holdings Limited is subject to a number of the “ring fencing” conditions of the licences as if it were itself the holder of those licences. The licences also contain “business separation” conditions requiring National Grid Gas to maintain appropriate managerial and operational independence of the transportation businesses of the NTS and DNs from each other in order to ensure that each business complies with the obligations not to confer any unfair commercial advantage or cross-subsidy on the other. This is backed up by specific requirements on the manner in which the NTS and DN businesses must interact with one another. The Gas Act provides that GEMA may impose legally enforceable orders or financial penalties on National Grid Gas for contravening conditions of the licences or contravening a relevant requirement of that Act or the Utilities Act. In addition, Part 3 of the Energy Act provides for Ofgem to be able to apply to the court, with the consent of the Secretary of State, to place National Grid Gas into special administration if it gets into financial distress. The level of revenue which each of the NTS and DN transportation businesses may receive from the supply of gas transportation services is set out in the price control conditions contained in the respective licences. These are generally set for a period of five years by GEMA, either with the agreement of National Grid Gas or after referral to the Competition Commission. Each price control is set taking account of, among other things, an assessment of National Grid Gas’s operating costs, capital expenditure, cost of capital and transportation volumes. Details of the price controls currently applicable to National Grid Gas are given below. On 15 January 2007, National Grid Gas accepted Ofgem’s final proposals for the price control to apply to its NTS operations covering the period from 1 April 2007 to 31 March 2012. In December 2009, Ofgem published its decision to roll over this price control for a further year until 31 March 2013. The key elements of this price control are a 4.4 per cent. post-tax real rate of return on National Grid Gas’s regulatory asset value, a £0.9 billion baseline five-year capital expenditure allowance and a £0.3 billion five-year operating expenditure allowance. The amendments to the licence which applies to its NTS operations required to put these final proposals into effect were implemented in part in April 2007, with the remaining elements implemented on 5 September 2007 with retrospective effect from 1 April 2007.

76 ACE BOWNE OF TORONTO 05/23/2010 12:44 NO MARKS NEXT PCN: 082.00.00.00 -- Page is valid, no graphics BOT U08763 081.00.00.00 17

In addition, National Grid Gas has also accepted Ofgem’s final proposals for the incentive schemes covering: • the external costs of its system operation role to apply from 1 April 2010; and • the internal costs of system operation to apply for the five years from 1 April 2007. These proposals have been implemented through licence changes to National Grid Gas’s gas transporter licence in respect of its NTS operations and can be summarised as follows: • Residual Balancing: setting a two-year incentive, such that National Grid Gas will need to continually improve its performance in order to continue to earn the same revenues as in the current year; • Demand Forecasting: setting a two-year incentive, with a tightening of the demand forecasting measure in each year to provide for continuous improvement from National Grid Gas; • Environmental: setting a volume target and the reference price to take account of updated information as part of a one-year incentive; • Data Publication: rolling over the current scheme for a two-year period; and • Operating Margins: given the ongoing introduction of operating margin contestability, Ofgem is proposing that National Grid Gas passes through all of its costs for one year. Ofgem will be considering how National Grid Gas should be incentivised in the future in respect of operating margin costs. Ofgem is also proposing to implement a new licence condition requiring National Grid Gas to use reasonable endeavours to develop (and implement if appropriate) a gas linepack product. The proposed licence condition will also require National Grid Gas to review (and update if appropriate) the current “default” gas cash-out prices. National Grid Gas has also accepted Ofgem’s final proposals for the price control applicable to its four DNs for the five years from 1 April 2008 to 31 March 2013. The key elements of these proposals are a 4.3 per cent. post-tax real rate of return on National Grid Gas’s regulatory asset value, with a £1.6 billion five-year operating expenditure allowance and a £2.5 billion baseline five-year capital expenditure allowance, reflecting £1.8 billion for replacement expenditure and £0.7 billion for capital expenditure. The changes to the licence applicable to National Grid Gas’s DNs reflecting these proposals were implemented with effect from 1 April 2008. On 18 January 2008, National Grid Gas accepted Ofgem’s final proposals in respect of the prices its LNG storage business may charge for the provision of certain regulated services including the provision of operating margins services. This permits these prices to increase in line with inflation. National Grid Gas also derives revenues from the provision of gas storage services to gas shippers at its LNG storage sites, but these services are sold by auction and the prices are not regulated. In February 2009, Ofgem amended National Grid Gas’s licence in respect of the NTS business in order to give it the power to suspend these price caps in the event that contestability is established in relation to the provision of operating margins services. In January 2010, Ofgem announced that it proposed to consult on a further amendment to National Grid Gas’s licence in respect of the NTS business in order to provide greater clarity in relation to the circumstances in which it may suspend the price caps.

2.2.2 Electricity NGET is licensed under the Electricity Act to participate in the transmission of electricity and is required to: • develop, operate and maintain an efficient, co-ordinated and economical system of electricity transmission; and • facilitate competition in the supply and generation of electricity. National Grid’s interest in the England France Interconnector is also regulated by an interconnector licence granted under the Electricity Act. The transmission licence held by NGET under the Electricity Act can only be amended in accordance with that Act, unless the Secretary of State is specifically given the power to amend it by statute. The transmission licence came into effect on privatisation and, unless revoked, will continue in force until determined by not less than 25 years’ notice by the Secretary of State. The transmission licence may also be revoked by the Secretary of State on shorter notice (immediately or not less than 30 days) in specified circumstances, including non-payment of fees or penalties, insolvency, cessation of the transmission business of NGETand non-compliance with enforcement orders made by GEMA, and non-compliance with orders issued under certain provisions of general competition legislation. Consistent with the position under NGET’s gas licence, Part 3 of the Energy Act also provides for Ofgem to be able to apply to the court, with the consent of the Secretary of State, to place NGET into special administration if it gets into financial distress.

77 ACE BOWNE OF TORONTO 05/23/2010 12:44 NO MARKS NEXT PCN: 083.00.00.00 -- Page is valid, no graphics BOT U08763 082.00.00.00 17

The transmission licence held by NGET contains conditions which have the effect of “ring fencing” NGET’s business. These include: • prohibiting NGET from carrying on activities other than those permitted by the transmission licence; • requiring that the business has sufficient managerial and financial resources available to it to conduct its licensed activities; • requiring NGET to maintain an investment grade issuer credit rating; • prohibiting NGET from creating indebtedness (except in limited circumstances) other than on an arm’s length basis on normal commercial terms for one of its permitted purposes; • prohibiting the creation of “cross-default” obligations; and • prohibiting NGET from giving or receiving any cross-subsidy to or from any other group business. If NGET is in default of any of the “ring fence” obligations, it is prohibited from declaring and paying a dividend. NGET is prohibited by the transmission licence from purchasing or otherwise acquiring electricity on its own account for the purpose of sale or other disposition to third parties except: • pursuant to the procurement or use of balancing services in connection with co-ordinating and directing the flow of electricity onto and over the National Electricity Transmission System (and doing so economically and efficiently); or • with the written consent of GEMA. Revenue from charges for using the transmission network and charges for connections made before March 1990 is controlled by revenue restriction conditions set out in the transmission licence. This revenue restriction, known as a price control, takes into account, among other factors, operating expenditure, capital expenditure and cost of capital. The present price control arrangements for NGET’s electricity network cover the period from 1 April 2007 to 31 March 2012, although in December 2009 Ofgem published its decision to roll this price control over for a further year until 31 March 2013. The key elements of the price control are a 4.4 per cent. post-tax real rate of return on its regulatory asset value, a £3.5 billion baseline five-year capital expenditure allowance and a £0.9 billion five-year operating expenditure allowance. In addition, the costs of non-domestic rates and the fees payable by NGET to GEMA under the transmission licence are passed directly through to NGET’s customers through its charges. NGET is permitted to set charges for connections to the transmission system in Great Britain made since March 1990 to recover the costs directly or indirectly incurred in providing connections, together with a reasonable rate of return on such costs. In relation to the system operator scheme for electricity transmission, NGETalso has a balancing services incentive scheme that covers the external costs incurred in balancing the system. For 2010/11, National Grid has accepted an incentive scheme with a cost target of £577.5 million, such that National Grid retains 15 per cent. (up to a cap of £15 million) of any savings below £550 million, and National Grid loses 15 per cent. (down to a collar of £15 million) of any costs in excess of £605 million and neither retains nor loses any amount if costs are within a deadband of £550 million to £605 million. The target is also subject to two pre-agreed adjusters such that if known possible events occur that will reduce system operator costs then both the target and deadband will be adjusted and the residual costs of system operator activities are then socialised across all system users. In addition to this financial incentive, Ofgem is also proposing a new licence obligation requiring NGET to co-operate in a review of its cost forecasting methodologies with consultants (jointly appointed by Ofgem and NGET) with a view to designing multi-year incentives for the future.

2.3 Enforcement of licence conditions and modification of licences GEMA is responsible for monitoring compliance with the conditions of licences and, where necessary, enforcing them through procedures laid down in the Gas and Electricity Acts. GEMA may impose fines for breach of provisions of the Gas and Electricity Acts or licences thereunder up to a maximum of ten per cent. of the relevant licence holder’s turnover. Licences include standard licence conditions, which apply to all licences of a particular class, and special conditions particular to that licence. GEMA may modify standard licence conditions collectively through making proposals to all relevant licence holders. If some licence holders object, the modification may be carried out only if the number of objectors is below a specified minority. GEMA may modify a special licence condition with the consent of the licence holder after due notice, public consultation and consideration of any representations or objections. In the absence of agreement for a special licence condition or if objections are above

78 ACE BOWNE OF TORONTO 05/23/2010 13:07 NO MARKS NEXT PCN: 084.00.00.00 -- Page is valid, no graphics BOT U08763 083.00.00.00 21

the specified minority threshold for a standard licence condition, the only means by which GEMA can secure a modification is following a modification reference to the UK Competition Commission and in the circumstances set out below. A modification reference requires the UK Competition Commission to investigate and report on whether matters specified in the reference in pursuance of a licence modification operate, or may be expected to operate, against the public interest, and, if so, whether the adverse public interest effect of these factors could be remedied or prevented by modification of the conditions of the licence. If the UK Competition Commission so concludes, GEMA must then make such modifications to the licence as appear to it necessary for the purpose of remedying or preventing the adverse effects specified in the report, after giving due notice and consideration to any representations and objections. GEMA is required to give notice to the UK Competition Commission of any proposed modifications following a UK Competition Commission report, and the UK Competition Commission has a right of veto over such proposed modifications. Modifications to licence conditions may also be made in order to address any concerns in relation to competition law that may arise from time to time (for example, when a merger is under consideration by the OFT or the UK Competition Commission under the relevant provisions of the Enterprise Act). There are also certain specific circumstances in which the Secretary of State has a time-limited power by statute to amend licence conditions, such as the powers to modify licences granted by: • Section 84 of the Energy Act 2008 in relation to transmission access; • Section 88 of the Energy Act 2008 in relation to the introduction of smart meters; and • Section 94 of the Energy Act 2008 for the recovery of certain payments made by the Secretary of State in relation to meter testing.

2.4 Other UK regulation considerations National Grid Metering Limited is indirectly subject to the metering price controls imposed through National Grid’s gas transporter licences. National Grid Grain LNG Limited has been granted exemptions by Ofgem from the provisions of the Gas Act, which would otherwise regulate the terms on which it would have had to offer third parties access to phases I, II and III of the project. Each of National Grid Interconnectors Limited and BritNed Development Limited (a 50/50 joint venture with the Dutch electricity transmission operator, TenneT) is licensed under the Electricity Act to participate in the operation of an electricity interconnector. BritNed Development Limited also benefits from an exemption from the obligations in its licence and under Article 6(6) of Regulation 1228/2003/EC in respect of the uses to which its revenues may be put. In addition, Fulcrum Pipelines Limited holds a gas transporter licence under the Gas Act in respect of its gas transportation business. Generally, however, National Grid’s other businesses tend to be affected to a lesser extent or only indirectly by related regulatory regimes.

3 Regulation of the electricity and gas industries in the European Union In the mid-1990s, two EU directives were passed which were intended to help create a single market across the European Union in electricity and gas. Their objective was to open up the European Union’s electricity and gas markets through the gradual introduction of competition, thereby increasing efficiency in the sector and the competitiveness of the European economy as a whole. These were amended in 2003 to increase their effectiveness and, in 2007, the European Commission announced proposals for a third legislative package for electricity and gas to take the liberalisation agenda further.

3.1 The First Gas Directive The First Gas Directive of 1998 established common rules for the transmission, distribution, supply and storage of natural gas. It laid down rules relating to the organisation and functioning of the natural gas sector, including LNG, access to the market, the operation of systems and the criteria and procedures applying to the granting of authorisations for transmission, distribution, supply and storage of natural gas. Eventually, all gas-fired power generators and all large and medium-sized industrial gas consumers were to be allowed to choose freely their gas supplier from anywhere in the European Union and to have their gas transported through the gas network owned by third parties to their site of consumption. When providing access to the system, a pipeline owner was not allowed to discriminate between system uses and particularly not in favour of any of its own related affiliates which might be engaged in gas production, storage or supply. In addition, to assist regulators to ensure non-discrimination and fair access, the First Gas Directive required

79 ACE BOWNE OF TORONTO 05/23/2010 12:44 NO MARKS NEXT PCN: 085.00.00.00 -- Page is valid, no graphics BOT U08763 084.00.00.00 21

“unbundling”, whereby vertically or horizontally integrated gas companies had, at a minimum, to keep separate internal accounts for their transmission, distribution, storage and non-gas activities as if they were carried out by separate companies.

3.2 The First Electricity Directive The First Electricity Directive of 1996 broadly followed the same principles as the First Gas Directive. It provided for a gradual opening of the electricity market over a six-year period that commenced at the beginning of 1999. As with the First Gas Directive, the main aim was to provide third party access to the market to ensure that consumers could benefit from price competition.

3.3 The Second Gas and Electricity Directives In 2000, the European Commission reviewed progress under the First Gas Directive and the First Electricity Directive. Although some progress had been made, the European Commission concluded that further measures were necessary to complete the internal market and so it tabled a formal proposal for the amendment of the First Gas and Electricity Directives. The amending directives contained the following main provisions: • the non-domestic gas market was to be fully liberalised by 1 January 2003 but full market opening for both gas and electricity (to include domestic consumers) was to be achieved by 1 January 2005; • member states were to ensure, at a minimum, that transmission be carried out via a subsidiary company that was legally and functionally separate vis-à-vis its day-to-day operations from generation and sales activities; • there was to be a legal separation of electricity distribution system operators by 2003 and of gas distribution system operators by 2004, in each case, on largely the same conditions as those applying to the transmission system operator; • the importance of access to gas storage, other ancillary services and flexibility instruments was clarified; • gas companies were obliged to identify and create separate operators responsible for storage and LNG activities (though separate legal entities would not be required for these activities); • a published and regulated tariff structure was to apply to both transmission and distribution in both markets; and • member states were to establish independent regulatory authorities with the competence, inter alia, to set and/or approve tariffs and conditions for access to gas and electricity transmission and distribution networks.

3.4 The Third Gas and Electricity Directives The European Commission’s third package of legislative proposals for the European gas and electricity markets, first published in September 2007, was passed in July 2009 and must now be transposed into UK domestic legislation by April 2011. The new legislation consists of two directives on rules for the internal gas and electricity markets, two regulations on conditions for access to those markets, and one regulation establishing an Agency for the Cooperation of Energy Regulators, with binding decision powers. The package also provides for an unbundling regime with the following three alternative models: • the ownership unbundling model; • the independent system operator (the “ISO”); and • the independent transmission operator (the “ITO”). Whilst the original draft legislation contained measures to force energy companies to unbundle their transmission businesses from supply and generation activities, the final proposals include alternatives to full unbundling. Each model a member state chooses to implement is subject to a certification procedure. Although these models provide for different degrees of structural separation of network operation from production and supply activities, each of them is expected to be effective in removing any conflicts of interests between producers, suppliers and transmission system operators. This means that they are expected to remove the incentive for vertically integrated undertakings to discriminate against competitors as regards access to networks, access to commercially relevant information and investment in networks. The structure of the markets in Great Britain is such that National Grid’s gas and electricity network businesses appear to be most likely to be certified as compliant under the ownership unbundling model, since National Grid has no material interests in production and supply of either electricity or gas. Whilst the original draft legislation envisaged the creation of a new Energy Customers’ Charter, the final legislation provides a new focus on the level of service that customers can expect from their energy supplier, such as accurate

80 ACE BOWNE OF TORONTO 05/23/2010 12:44 NO MARKS NEXT PCN: 086.00.00.00 -- Page is valid, no graphics BOT U08763 085.00.00.00 22

data availability, standards for customer contact and dispute settlement, the provision of a consumer checklist and the provision of information on consumer rights. Consumers who wish to change their supplier will see that change effected within three weeks and receive a final bill from their original supplier within six weeks thereafter. More generally, the new legislation strengthens the powers and independence of national regulators in member states, improves market transparency on network operation and supply, and establishes a new European Agency for the Cooperation of Energy Regulators together with a network for gas and electricity transmission system operators, which will cooperate to develop common commercial and technical codes and security standards, as well as plan and coordinate the investments needed at EU level.

3.5 The Treaty on the Functioning of the European Union and the Competition Act 1998 National Grid is subject to laws and regulations relating to competition law. Articles 101 and 102 of the TFEU and Chapters I and II of the Competition Act 1998 prohibit anti-competitive agreements and conduct. Ofgem and the OFT have been given the power to investigate such agreements and conduct in the energy sector. These powers include the power to impose fines of up to ten per cent. of National Grid’s worldwide turnover for the business year preceding the finding of the infringement.

4 Regulation of the electricity and gas industries in the United States 4.1 Electricity transmission The transmission activities of each of National Grid’s US public utilities are regulated by the relevant state utility commission in New York, Massachusetts, Rhode Island, and New Hampshire and by FERC. In relation to electricity transmission, the commissions, amongst other things, set service standards for the transmission business of these US public utilities, approve reliability standards set by NERC, determine the potential levels of return on regulated transmission service and approve wholesale electricity market rules. Although FERC has siting authority over transmission lines in certain limited circumstances, the siting of transmission lines, as well as the ultimate recovery of transmission rates from retail customers is principally regulated by the relevant state utility commission or siting authority (in addition to the other matters regulated by these commissions or agencies). FERC has authorised the NERC to establish electricity transmission industry reliability standards and to implement and monitor such standards and impose monetary penalties for any non- compliance. Revenue for National Grid’s US electricity transmission businesses is collected from two sources: (i) end-use distribution customers through tariffs approved by the state commissions and (ii) through tariffs approved by FERC. The bundled retail electricity distribution and transmission rates of National Grid USA’s New York subsidiary, Niagara Mohawk Power Corporation (“NMPC”), are set by the New York Public Service Commission (“NYPSC”). Generally, under the New York retail electricity distribution and transmission rate plan, to the extent that more energy is delivered than forecasted, it results in increased revenue. NMPC’s rates allow for capital expenditure on its transmission network based upon historic levels which are lagging behind NMPC’s current level of investment. However, NMPC has made a filing with the NYPSC in which it proposes to decouple revenue from the amount of energy delivered and to increase rates to recover the undepreciated cost of its network taking into account forecasted levels of investment. If approved by the NYPSC, the proposal would become effective on 1 January 2011. The New England rate structure is such that network availability, energy delivery and operational expenditures are all pass-through items to the customers. National Grid USA’s New England transmission tariffs allow for recovery of, and return on, capital expenditures as new investment enters service, bringing immediate revenue benefits.

4.2 Electricity Distribution and Generation The US electricity distribution activities of each of National Grid’s US public utilities are regulated by the relevant state utility commission in the states in which these operate (New York, Massachusetts, Rhode Island and New Hampshire). The US state utility commissions, amongst other things, set distribution service standards, retail rates for end use customers and determine the authorised levels of return on distribution service. However, FERC regulates wholesale electricity sales by National Grid’s US public utilities, to the extent that any sales are made. In New England, revenue for the distribution entities in each state is collected through tariffs approved by the applicable state utility commissions. Each of the electricity distribution entities have been operating under multi- year rate plans. In anticipation of MECO’s, NEC’s and Narragansett’s rate plans expiring at the end of 2009, National Grid USA filed proposed new rate plans during 2009 to replace the expiring rate plans. The new rate plans are more fully described in paragraphs 6.2.2 and 6.2.3 of this Part V. Narragansett agreed to extend its existing rate

81 ACE BOWNE OF TORONTO 05/23/2010 13:09 NO MARKS NEXT PCN: 087.00.00.00 -- Page is valid, no graphics BOT U08763 086.00.00.00 25

plan until 1 March 2010, at which time its new rate plan commenced. Pursuant to an Order of the Rhode Island Public Utilities Commission (“RIPUC”), Narragansett will be able to recover any additional revenues that it would have collected had the new rate plan been in effect during the months of January and February 2010. In New York, revenue for National Grid’s electricity and gas distribution businesses is collected from distribution customers exclusively through tariffs approved by the NYPSC. The rate plan for National Grid USA’s upstate New York distribution business, NMPC, was established in 2002 following National Grid’s acquisition of NMPC and was scheduled to expire in 2011. On 29 January 2010, NMPC submitted a comprehensive electricity delivery rate proposal to establish new electricity delivery rates which is more fully described in paragraph 6.2.1 of this Part V. With respect to the wholesale generation activities of National Grid, the FERC regulates wholesale generation, including pricing. However, relevant state authorities retain authority over issues relating to siting, expansion of facilities and certain environmental matters. Under various legacy contractual arrangements including the 2006 Management Services Agreement, as amended, between certain of National Grid USA’s KeySpan subsidiaries and LIPA, a corporate municipal instrumentality and political subdivision of the State of New York, National Grid USA is compensated for providing various services to LIPA and its 1.1 million electricity retail customers, such as managing the day-to-day operation of LIPA’s electricity transmission and distribution system. Other services currently provided under the legacy contracts include billing and other customer services and managing the fuel supplies for National Grid’s 57 electricity generating facilities located on Long Island. These agreements cover the period until 2013, after which renewal of the Management Services Agreement will be subject to a competitive tender offer process. All of the generating capacity and, to the extent requested, energy conversion services from National Grid’s Long Island based generating facilities are sold to LIPA under long-term contracts and any power not purchased by LIPA is made available for sale in the open market. LIPA had an option to acquire certain electricity generating facilities owned by one of National Grid’s KeySpan generation subsidiaries on Long Island but such option expired by its express terms on 30 September 2009. At that time, no further extensions of time were requested by LIPA or otherwise granted by National Grid.

4.3 Gas distribution The gas distribution activities of each of National Grid’s US public utilities are derived from a mixture of statutory authority, legislative charters, tariff provisions and municipal grants and agreements (e.g. franchise agreements) which differ among jurisdictions within National Grid’s US service territory in the states in which National Grid’s US utilities operate. The gas distribution activities are regulated by the relevant state utility commission in the states in which they operate (New York, Massachusetts, Rhode Island and New Hampshire). In addition, there are federal and state laws and regulations covering both general business practices and the gas business in particular, especially with respect to safety, energy transactions, customer sales and service, levels of performance, rates, finances and environmental concerns. National Grid USA’s revenue for gas distribution is collected through tariffs approved by the applicable state commissions. In New England, two of National Grid USA’s three gas distribution entities in Massachusetts are operating under plans that have expired. The plan for the largest Massachusetts gas distribution company, Boston Gas Company, is scheduled to expire in 2013. However, National Grid USA filed a request to reset rates for all three Massachusetts gas distribution entities in April 2010. The rates for National Grid USA’s gas distribution business in Rhode Island went into effect in November 2008 and National Grid USA filed for new gas rates in New Hampshire in February 2010. In New York, National Grid USA’s gas distribution businesses are currently operating under multi-year rate plans. On 29 January 2010, Brooklyn Union Gas Company and KeySpan Gas East Corporation made a filing with the NYPSC allowed under their rate plans to increase rates by up to US$65 million annually effective 1 January 2011. If approved by the NYPSC, the increased revenue would be applied to environmental site investigation and remediation costs which the companies have a right to defer under their rate plans. On 12 April 2010, NMPC made a filing with the NYPSC allowed under its rate plan to increase rates by approximately US$14 million annually. NMPC has received conditional approval and the new rates became effective on 20 May 2010.

5 Recent regulatory developments 5.1 US electricity transmission 5.1.1 New England On 17 September 2008, NEP, Narragansett, and Northeast Utilities jointly filed with FERC to recover financial incentives for the New England East-West Solution (“NEEWS”) pursuant to FERC’s Transmission Pricing Policy

82 ACE BOWNE OF TORONTO 05/23/2010 13:14 NO MARKS NEXT PCN: 088.00.00.00 -- Page is valid, no graphics BOT U08763 087.00.00.00 21

Order, Order No. 679. NEEWS is estimated to cost a total of US$2.1 billion. NEEWS consists of a series of inter- related transmission upgrades identified in the New England Regional System Plan and is being undertaken to address a number of reliability problems in the tri-state area of Connecticut, Massachusetts and Rhode Island. Narragansett’s share of the upgrade cost is estimated to be US$474 million and NEP’s share is estimated to be US$160 million. Effective as of 18 November 2008, FERC granted for NEEWS (i) an incentive ROE of 12.89 per cent., (ii) inclusion of 100 per cent. of construction work in progress in the rate base and (iii) recovery of plant abandoned for reasons beyond the companies’ control. Parties opposing the NEEWS incentives have sought rehearing of the FERC order. Under settlement agreements approved by the appropriate state regulatory commissions and FERC orders, NEP, as National Grid USA’s New England transmission operator, is permitted to recover costs associated with its former generating investments (nuclear and non-nuclear) and related contractual commitments that were not recovered through the sale of those investments (i.e. stranded costs). Stranded costs are recovered from NEP’s affiliated former wholesale customers with whom it has settlement agreements through Contract Termination Charges (“CTC”). NEP’s affiliated former wholesale customers (i.e. National Grid USA’s New England electric distribution businesses) in turn recover the stranded cost charges through delivery charges to their distribution customers. NEP earns an ROE of approximately 11 per cent. on stranded cost recovery. Most stranded costs will be fully recovered through CTCs by the end of 2010. NEP’s stranded cost obligation related to the above-market cost of the purchase of power contracts and nuclear decommissioning costs are recovered through the CTC when the costs are actually incurred. NEP, under certain settlement agreements, earns incentives based on successful mitigation of its stranded costs to December 2009 and these incentives supplement NEP’s ROE.

5.1.2 New York NMPC’s retail transmission rates are bundled with its electricity distribution rates. Recent developments concerning NMPC’s retail electricity distribution and transmission businesses are discussed in paragraph 6.2.1 of this Part V. Recent developments concerning NMPC’s formula transmission rate for customers that take service under the New York Independent System Operator’s (“NYISO”) tariff are discussed in paragraph 6.1.1(ii) of this Part V.

5.2 Federal regulatory policy developments At the federal level, the Obama Administration and the US Congress have proposed or passed new energy legislation in two areas that impact National Grid: economic stimulus and comprehensive energy legislation. In February 2009, the US$787 billion American Recovery and Reinvestment Act (the “Recovery Act”) was passed. The Recovery Act, which covers all sectors of the economy, has significant incentives for the energy industry, including amounts relating to the expansion of the electricity transmission network with a focus on smart grid development, a broad array of energy efficiency programmes, clean fuel transportation incentives, and research and development programmes. National Grid is developing various programmes and initiatives to take advantage of the incentives provided by the Recovery Act. In addition to federal energy legislation that has been enacted into law in the last few years, the Obama Administration and the US Congress have also proposed legislation to address comprehensive climate and energy policy, including global greenhouse gas emissions and a federal renewable energy standard and energy security and supply provisions. While National Grid cannot predict the outcome of US Congressional deliberations, National Grid is actively supporting these climate and energy policy initiatives which have been made policy priorities by National Grid.

5.3 State regulatory policy developments 5.3.1 Massachusetts On 2 July 2008, the Commonwealth of Massachusetts enacted into law comprehensive legislation regarding energy policy and the environment, entitled the Green Communities Act. This legislation is broad, mandating large scale and innovative ideas for implementing renewable energy, alternative energy and energy efficiency throughout the Commonwealth of Massachusetts. The legislation sets forth numerous requirements for utilities, including the filing of three-year energy efficiency plans that would cover calendar years 2010 to 2012. MECO filed its plan on 30 October 2009. Other provisions of the law that will affect National Grid USA’s other Massachusetts-based electricity and gas subsidiaries include requirements to invest in equipment and other resources designed to assist customers in reducing their current energy supply costs, long-term contracts with renewable electricity suppliers for up to three per cent. of the utilities’ load, the development of a smart grid pilot programme and net metering to allow customers to sell self-generated electricity back to the utilities. Utilities would be allowed to recover certain costs associated with these new requirements and have the opportunity to earn incentives for certain of these provisions.

83 ACE BOWNE OF TORONTO 05/23/2010 12:44 NO MARKS NEXT PCN: 089.00.00.00 -- Page is valid, no graphics BOT U08763 088.00.00.00 18

In addition, under the new law, the maximum level of service quality penalties has been increased from 2 per cent. to 2.5 per cent. of distribution revenues. National Grid USA’s subsidiaries, MECO and NEC, have filed a proposed smart grid pilot programme on 1 April 2009 which is pending before the MDPU. The direct expenditures of the proposed pilot programme are estimated at approximately US$56.4 million. If the programme is approved by the MDPU, the provisions of the Green Communities Act allow for the recovery of the programme costs through basic service rates. The MDPU has not issued an order with respect to the 1 April 2009 filing. National Grid USA did not receive any significant awards under the Recovery Act’s smart grid grant programme. However, the MDPU is still considering approval of the original plan that was filed in 2009. The Green Communities Act also allows electricity utilities to invest in solar generation, provided that any such utility does not own or operate more than 50 MW of solar capacity after 1 January 2010. On 23 April 2009, MECO filed a proposal with the MDPU to construct, own and operate approximately 4.8 MW of solar generation on five separate company-owned properties in Massachusetts. On 23 October 2009, the MDPU issued an order approving the project. MECO estimates that the total capital cost of this project will be approximately US$31 million. On 7 May 2010, National Grid signed an agreement with Cape Wind to buy clean power from the first large-scale offshore wind farm in the United States. The contract has been filed with the MDPU for approval. Cape Wind is expected to come online by the end of 2012. Under the contract, National Grid will purchase 50 per cent. of the wind farm’s output, including renewable energy certificates as well as capacity and energy, beginning in 2013.

5.3.2 New York The principal regulatory policy developments continue to focus on the need for significant increases in energy efficiency and the development of renewable generation. The NYPSC and other policy makers are establishing targets for utility energy efficiency programmes and renewable generation. The NYPSC has instructed utilities to file decoupling proposals as part of their next rate cases. A part of NMPC’s gas distribution revenues and a part of the revenues of Brooklyn Union Gas and KeySpan Gas East are subject to revenue decoupling mechanisms. NMPC has proposed a revenue decoupling mechanism for all of its electricity revenues in its pending rate case filed in January 2010 as more fully described in paragraph 6.1.2 of this Part V. There is also an increasing interest in exploring the deployment by New York utilities of smart grid technologies. NMPC is a partner in the NYISO- sponsored Phasor Measurement Unit Project and Capacitor Project as well as the Premium Power Corporation- sponsored Energy Storage Demonstration Project. NMPC filed a modified New York Smart Program proposal with the NYPSC on 15 January 2010 seeking approval and cost recovery for a smart grid demonstration project in the Syracuse area. The NYPSC has yet to act on NMPC’s modified proposal which has an estimated cost of approximately US$123 million inclusive of NMPC’s contribution to the aforementioned NYISO-sponsored projects and the Premium Power project.

5.3.3 Rhode Island In 2009, Rhode Island enacted legislation (the “2009 Legislation”) promoting the development of renewable energy resources through long-term contracts for the purchase of capacity, energy and attributes. On 1 March 2010, pursuant to the 2009 Legislation and RIPUC rules enacted pursuant to the 2009 Legislation, Narragansett filed its proposed timetable and method of execution for annual long-term contract solicitations scheduled to begin on 1 July 2010. The 2009 Legislation permits Narragansett to recover all costs incurred in the negotiation, administration, enforcement and implementation of long-term contracts entered into pursuant to the statute and to recover remuneration equal to 2.75 per cent. of the actual annual payments made under the long-term contracts for those projects that are commercially operating. The 2009 Legislation also included a provision requiring us to solicit proposals for a smaller scale renewable energy generation project of up to eight wind turbines with aggregate nameplate capacity of up to 30 MW to benefit the Town of New Shoreham (“Block Island”). In response to the Company’s request for proposals, Deepwater Wind Block Island LLC (“Deepwater”) submitted the sole bid for an offshore wind farm off the coast of Block Island. On 9 December 2009, the Company filed with the RIPUC a signed Power Purchase Agreement (“PPA”) with Deepwater. Under the PPA, the Company had the option, but not the obligation, subject to final and non-appealable regulatory approval, to own, operate or otherwise participate in the transmission cable that would have interconnected both the wind farm and the island to the mainland. Under the 2009 Legislation, the Company is authorised to recover the actual costs under the PPA, including the above-market costs, from all customers through an adjustment to distribution rates. On 30 March 2010, the RIPUC voted to reject the PPA indicating that the pricing terms were not commercially reasonable. However, legislation has been introduced that would effectively override the Commission’s decisions.

84 ACE BOWNE OF TORONTO 05/23/2010 16:44 NO MARKS NEXT PCN: 090.00.00.00 -- Page is valid, no graphics BOT U08763 089.00.00.00 22

6 Further information regarding rate plans in the United States 6.1 General 6.1.1 Transmission rate plans (i) New England NEP is a participating transmission owner (“PTO”), in the New England Regional Transmission Organization which commenced operations effective 1 February 2005. The Independent System Operator for New England (“ISO-NE”) has been authorised by FERC to exercise the operations and system planning functions required of Regional Transmission Organisations (“RTO”) and is the independent regional transmission provider under the ISO-NE Open Access Transmission Tariff (the “ISO-NE OATT”). The ISO-NE OATT is designed to provide non- discriminatory open access transmission services over the transmission facilities of the PTOs and recover their revenue requirements. FERC issued a series of orders in 2004 and 2005 that approved the establishment of the RTO and resolved certain ROE issues concerning the New England Transmission Owners (“NETO”), including NEP. In a series of related orders from 2006 to 2008, FERC approved a one per cent. ROE adder for all new transmission investment approved through the regional system planning process and placed in service prior to 31 December 2008 as an incentive to build new transmission infrastructure and also approved a base ROE that varied depending on whether costs are recovered through regional or local network service rates, and whether the costs are for existing or new facilities. For new transmission investment after 31 December 2008, FERC made clear that any future transmission investment incentives must be sought through initiating an incentive proposal under Section 205 of the Federal Power Act pursuant to the Commission’s Order No. 679 Transmission Pricing Policy. Opposing parties to FERC’s decision regarding future transmission investment filed appeals with the US Circuit Court of Appeals for the District of Columbia in December 2008. Legal briefs were filed in May 2009 and oral arguments completed in December 2009. On 29 January 2010, the US Circuit Court of Appeals for the District of Columbia denied the petition and affirmed the FERC’s decision to award the one per cent. ROE adder for RTO-approved transmission projects placed in service by 31 December 2008.

(ii) New York NMPC’s retail transmission rates are bundled with its electricity distribution rates. Recent developments concerning NMPC’s bundled retail electricity distribution and transmission rate plan are discussed in paragraph 6.2.1 of this Part V. NMPC is a transmission owner under the operating authority of the NYISO. NMPC participates in a regional planning process with the NYISO to identify regional reliability needs and has proposed regulated transmission solutions to reliability needs identified by the NYISO. In addition, as part of FERC’s open access transmission tariff reform, FERC approved in October 2008 the NYISO process to address economic planning and is pursuing implementation of that economic planning process. In February 2008, NMPC filed with FERC a formula transmission rate for customers that take service under the NYISO tariff. On 6 April 2009, the Company filed a settlement agreement which was accepted by FERC by its order issued on 22 June 2009, and which resolves all issues in the proceeding. This decision marked the first formula rate for a transmission owner in New York. The formula provides for recovery of transmission costs with an authorised ROE of 11.5 per cent. The effective date for the settlement was 1 January 2009 with a phase-in of the settlement rate over the period from 1 January to 30 June 2009. In July 2009, NMPC refunded to customers, inclusive of FERC required interest, amounts that had been collected in excess of the settlement rates for the period from October 2008 to June 2009. The increase in revenues resulting from the new formula rate are charged to wholesale transmission customers and credited back to retail electric customers through the transmission revenue adjustment clause mechanism.

6.1.2 Electricity and Gas Distribution rate plans In the past, increased deliveries of electricity and gas would result in higher revenues for distribution companies similar to those of National Grid. Conversely, a reduction in deliveries would result in lower revenues. This is due to the fact that a significant portion of distribution rates are volumetric. The states of New York and Massachusetts, however, have adopted policies to employ revenue decoupling rate mechanisms. In addition, revenue decoupling may be proposed by a utility in Rhode Island and New Hampshire subject to regulatory approval. The policy objective behind revenue decoupling is to eliminate the disincentive for utilities to aggressively pursue energy efficiency programmes, which reduces delivery revenues. While the mechanism can be structured with different features, the general principle is to allow the utility to recover a targeted revenue requirement once the revenue level is set after a rate proceeding establishes new rates or a new rate plan. To the extent revenues are below the target

85 ACE BOWNE OF TORONTO 05/23/2010 12:44 NO MARKS NEXT PCN: 091.00.00.00 -- Page is valid, no graphics BOT U08763 090.00.00.00 20

revenue level, the utility is allowed to implement a surcharge to recover the shortfall. Conversely, to the extent the utility over-recovers the targeted revenue level, a credit is given to customers through rates. Under the policy, decoupling is not typically implemented until rate cases are filed to set new rates.

In all of the relevant state jurisdictions, gas and electricity distribution companies, including those principal operating subsidiaries of National Grid USA, operate under the provisions of service quality plans. While the plans differ slightly from state to state, most share the common feature of imposing financial penalties if service quality performance, as defined by certain objective reliability, safety and customer service measures, does not meet minimum specified levels.

In connection with the NYPSC’s approval of National Grid plc’s acquisition of KeySpan, NMPC was required under its existing rate plan to provide a follow-on merger credit for the benefit of NMPC’s upstate New York electricity and gas customers. On 29 May 2008, the NYPSC issued an order in connection with NMPC’s compliance filing regarding the follow-on merger credit requiring a credit in the amount of US$52 million to be returned to NMPC’s customers. NMPC filed a petition with the NYPSC for rehearing regarding the calculation of the follow-on merger credit which petition for rehearing was denied in an order dated 24 February 2009.

A settlement has been filed with the NYPSC which, if approved, would resolve two additional follow-on merger credit savings issues that were not addressed in the NYPSC’s May 2009 Order. The Department of Public Service Staff contended in a white paper published in 2008 that NMPC owed an incremental follow-on merger credit of approximately US$12 million to electric and gas customers attributable to the period from August 2007 through December 2011. Multiple Intervenors, an organisation that represents certain large industrial customers of NMPC, made a filing with the NYPSC in which it argued that a larger credit was owed. On 4 January 2010, the parties filed a joint proposal with the NYPSC that would provide for an incremental follow-on merger credit of approximately US$4 million. The settlement is currently pending before the NYPSC.

6.2 Electricity Distribution and Generation rate plans

6.2.1 New York

NMPC’s electricity distribution and transmission retail rates are subject to approval by the NYPSC. NMPC is currently operating under a rate plan that will end in December 2010. The current rate plan provides that if the earned ROE exceeds 11.75 per cent., varying percentages of the excess are shared with customers. For earnings sharing purposes, the ROE is measured in accordance with US GAAP on a two-year rolling basis. The earnings calculation used to determine the regulated returns excludes half of the electricity portion of the efficiency gains and synergy savings from the acquisition of NMPC by National Grid plc in 2002, net of the cost to achieve such gains, that are assumed in the rate plan.

The NMPC rate plan also allows for recovery of specified cost and revenue items that have occurred since the rate plan was established. These deferral items include changes in the levels of pension and post-retirement benefit expenses from levels specified in the rate plan, as well as various other items, including extraordinary storm costs, environmental remediation costs and certain rate discounts provided to customers, together with costs and revenues from changes in tax, accounting and regulatory requirements that have an annual impact exceeding US$2 million. The deferred costs are allowed to accumulate in an account. Every two years, NMPC was allowed to make an adjustment to rates to recover the increment over US$100 million. On 3 August 2009, NMPC filed with the NYPSC to recover approximately US$312 million of costs in excess of US$100 million that were forecasted to accumulate in the deferral account through the end of 2011. The filing sought to increase annual rate recovery from the then current amount of approximately US$124 million to US$156 million for each of 2010 and 2011. On 21 December 2009, the NYPSC issued an order continuing rate recovery at the annual level of US$124 million. At the end of the rate plan, the full balance remaining in the deferral account is recoverable from customers in future rates.

In obtaining approval of the KeySpan acquisition, NMPC made a commitment to invest US$1.47 billion in the electricity distribution and transmission system over five years, pursuant to a capital investment plan filed with the NYPSC. NMPC is also required to file annual reports, showing amounts spent each year under the investment plan. To the extent NMPC spends less than its committed amounts each year cumulatively, NMPC is subject to a financial penalty equal to carrying charges at the allowed overall cost of capital on the under spent amounts, accrued as a deferred credit for the future benefit of customers. NMPC has met its cumulative spending targets each year to date.

86 ACE BOWNE OF TORONTO 05/23/2010 12:43 NO MARKS NEXT PCN: 092.00.00.00 -- Page is valid, no graphics BOT U08763 091.00.00.00 19

In 2009, NMPC petitioned the NYPSC for additional revenues with respect to incremental capital related expenditure in 2008. That petition is currently pending before the Commission. NMPC anticipates filing similar petitions for 2009 and 2010. NMPC has filed a proposed three-year electricity distribution and transmission rate plan with NYPSC applicable to years 2011 to 2014. NMPC requests a revenue increase in 2011 of approximately US$369 million based on a proposed ROE of 11.1 per cent. and a capital structure comprised of 50 per cent. equity. The electricity distribution and transmission revenue increase would be offset by a reduction in stranded cost revenues due to a proposed extension of the period for amortizing stranded costs. The filing proposes new annual reconciliations of incremental costs associated with capital expenditures, bad debt, property taxes, major storms, interest on pollution control auction debt and changes to the methodology for allocating costs from affiliated service companies. NMPC is also proposing a revenue decoupling mechanism. A decision is expected in December 2010 for effect on 1 January 2011. On 30 January 2009, National Grid Generation (“NG Generation”) filed with FERC for a rate increase for the final five year rate term of the 15-year contract for the electricity generated and supplied to LIPA under the principal legacy power supply contract that provides for the sale to LIPA of all of the Long Island generation capacity. FERC issued an order on 31 March 2009 accepting NG Generation’s proposed tariff rates effective from 1 February 2009, subject to the outcome of FERC proceedings. On 5 January 2010, FERC accepted the settlement agreement between LIPA and NG Generation, in which LIPA and NG Generation agreed to a US$65 million rate increase and 10.75 per cent. ROE with an agreed rate base of US$517 million. The settlement agreement is effective from 10 March 2010 with new rates effective from February 2009 until May 2013. In addition, the agreement includes annual escalators on labour benefits and payroll expenses and annual trackers for pension and healthcare costs as well as an annual capital expenditure true-up.

6.2.2 Massachusetts Rates for services rendered by National Grid USA’s Massachusetts electricity distribution companies, MECO and NEC, are subject to approval by the MDPU. The rate plan generally provides for distribution revenues designed to allow MECO and NEC an opportunity to recover their costs associated with the operation of the electricity distribution systems and also includes provisions for recovery of major storm costs and recovery of incremental costs for certain specified exogenous events and environmental remediation costs. In May 2009, MECO and NEC jointly filed a proposal for a comprehensive electricity rate review with the MDPU, marking the first comprehensive review of the distribution rates for MECO and NEC in more than a decade. On 30 November 2009, the MDPU issued an order on the joint request of MECO and NEC for a base rate increase effective 1 January 2010 allowing MECO and NEC an increase, further supplemented by an order on 13 April 2010. The decisions allow for a US$42.2 million distribution rate increase, based on an allowed ROE of 10.35 per cent. with an equity ratio of 49.99 per cent. Additionally, the MDPU approved the collection over a five-year period of an additional US$30 million in storm costs. The MDPU order provided for a full revenue decoupling mechanism, an annual capital tracker on capital spent in the previous year (capped at US$170 million per year), an annual tracker for commodity related bad debt and working capital associated with the provision of commodity service, an annual pension and post-retirement benefits other than pensions tracker and an allowance in rates to replenish the storm fund balance to address future storms. These new rates will remain in effect until a subsequent base rate case is filed and new rates are approved by the MDPU.

6.2.3 Rhode Island Rates for electricity distribution delivery services provided by Narragansett are subject to approval by the RIPUC. National Grid USA’s electricity distribution business in Rhode Island was governed by a multi-year rate plan, which had frozen distribution rates in 2009. The rate plan also included provisions for recovery of major storm costs and recovery of incremental costs for certain specified exogenous events and environmental remediation costs. However, this plan expired at the end of 2009. Narragansett, under Rhode Island law, continues to be authorised to recover all costs associated with procuring power for its customers, all transmission costs, and costs charged by National Grid’s affiliates, for stranded costs associated with Narragansett’s former electricity generation investments. On 1 June 2009, Narragansett filed for an increase in base electricity distribution rates. This rate case filing sought approval of an increase in revenue of approximately US$75.3 million as compared to the revenues generated at the then current rates. During the evidentiary discovery period and regulatory hearings, the increase in revenue was revised to approximately US$67.5 million. On 9 February 2010, the RIPUC approved an increase in revenue of approximately US$23.5 million. Narragansett’s proposal for (i) revenue decoupling, (ii) a capital additions recovery mechanism and (iii) recovery of actual pension costs charged to income, were not approved by the RIPUC.

87 ACE BOWNE OF TORONTO 05/23/2010 12:43 NO MARKS NEXT PCN: 093.00.00.00 -- Page is valid, no graphics BOT U08763 092.00.00.00 21

Commodity related bad debt recovery was approved at a fixed average write-off rate applied to commodity revenue, however, a full reconciliation mechanism was denied. Narragansett made compliance filings which were approved by the RIPUC pursuant to a written order issued on 14 April 2010 and the new rates went into effect on 1 March 2010. The new rates are retroactive to 1 January 2010. The RIPUC approved recovery of the rate increase for January and February 2010 over a 13 month period commencing 1 March 2010. In April 2010, Narragansett commenced an appeal of the RIPUC’s decision.

6.2.4 New Hampshire Rates for services rendered by National Grid USA’s New Hampshire electricity distribution company, Granite State, are subject to approval by the New Hampshire Public Utilities Commission (“NHPUC”). In July 2007, the NHPUC approved a settlement agreement (the “2007 Settlement”) related to issues surrounding the acquisition of KeySpan. Among other things, the 2007 Settlement provided for a two step reduction in Granite State’s base distribution rates totalling US$2.2 million. The 2007 Settlement also contains a distribution rate plan spanning five years effective from 1 January 2008. During the rate plan period, distribution rates are frozen except for rate adjustments related to certain reliability enhancement programmes. The rate plan also includes provisions for recovery of major storm costs through a storm contingency fund and recovery of incremental costs for certain uncontrollable specified exogenous events. The rate plan also includes an earnings share mechanism based on an ROE sharing threshold of 11 per cent. Earnings above the 11 per cent. threshold are shared equally between customers and Granite State.

6.3 Gas rate plans 6.3.1 New York The prices charged for gas delivery service to customers are based on a cost of service model whereby the rates established by the NYPSC are designed to recover the costs that National Grid USA incurs in providing service to its customers, together with an ROE invested. Customer bills typically comprise a commodity rate to recover the cost of gas delivered and a delivery rate to cover the gas delivery service. Gas costs are pass-through costs, in that prices are adjusted on a regular basis to ensure that over- or under-recovery of these costs is returned to or recovered from customers with interest, which recovery is subject to timing differences between when costs are incurred and when costs are recovered from customers. The two gas distribution companies located downstate, in New York City and Long Island, The Brooklyn Union Gas Company and KeySpan Gas East Corporation, are currently subject to five-year rate plans until 31 December 2012. The rate plans arose from the companies’ rate filings made in the context of the National Grid plc merger proceeding. Base delivery rates were increased by US$60 million for Gas East and were maintained at then current levels for Brooklyn Union. The base delivery rates are frozen for five years. The plans are based on an allowed ROE of 9.8 per cent. for each entity. Cumulative earnings above 10.5 per cent. are to be shared with gas customers. There are various reconciliation mechanisms that permit the companies to fully or partially true-up to established thresholds for such items as real property, special franchise taxes, and site investigation and remediation costs. In the case of non growth-related capital, Brooklyn Union and Gas East must return unspent funds below established targets to customers, but may not recover overspending. Both companies are permitted to reconcile their actual pension and other post-employment benefit expense to the amount allowed in rates. In addition, the companies are subject to affiliate rules and various financial protections for the terms of the rate plans. On 29 January 2010, Brooklyn Union and Gas East filed a petition to reopen proceedings to recover deferred balances starting in January 2011. The current rate plans provide for such a filing to address whether the level of revenues in rate year four, calendar year 2011, should change to mitigate the future rate impact of deferrals. In their petition, the companies proposed a site investigation and remediation adjustment mechanism commencing 1 January 2011 that would permit the companies to commence a gradual recovery of current and future deferred site investigation and remediation costs. The proposed mechanism would fully utilise existing rate allowances and ongoing net deferral credits to offset the site investigation and remediation costs to be recovered. Between both companies, the proposal would increase rates by up to US$65 million per year over five years. A decision is expected from the NYPSC by December 2010. On 13 February 2009, NMPC filed a joint proposal reflecting a settlement of a 2008 rate filing among NMPC, the NY State Department of Public Service Staff and other parties that provided for an annual revenue increase of US$39.4 million resulting in an overall 5.1 per cent. increase on customer bills. In addition, the joint proposal also included a two-year rate plan. The NYPSC approved the joint proposal and the new rates became effective on 20 May 2009. The joint proposal contained a 10.2 per cent. ROE, a revenue decoupling mechanism, increased negative revenue adjustments for failure to meet certain service quality performance metrics, a new rate for low income customers and a commodity related bad debt expense recovery mechanism that adjusts for fluctuations in

88 ACE BOWNE OF TORONTO 05/23/2010 12:43 NO MARKS NEXT PCN: 094.00.00.00 -- Page is valid, no graphics BOT U08763 093.00.00.00 16

commodity prices. On 12 April 2010, NMPC submitted a supplemental filing to update certain cost items for incorporation in its rates during the second year of the rate plan. If approved by the NYPSC, revenues would increase by approximately US$14 million per year effective on 20 May 2010. NMPC’s approved rate plan permits it to retain earnings up to an ROE of 11.35 per cent.; earnings in excess of that return are partially retained by NMPC with the balance returned to customers.

6.3.2 Massachusetts Rates for services rendered by National Grid USA’s Massachusetts gas distribution companies, Boston Gas, Colonial Gas and Essex Gas, are subject to approval by the MDPU. Boston Gas currently has a long-term rate plan in place to 2013, unless terminated earlier. Under this plan, rates are adjusted each year, with the approval of the MDPU, based on a Gross Domestic Product-based price-cap formula (post-retirement benefits other than pensions). Certain environmental remediation costs are also separately collected through a reconciling mechanism. There is also an earnings sharing mechanism. If the achieved ROE is greater than 14.2 per cent. customers share 25 per cent. of any excess. Conversely, if the ROE is lower than 6.2 per cent. customers bear 25 per cent. of any shortfall. For Essex Gas, its multi-year rate plan expired in September 2008. Until new rates are put in effect, the rates from the previous plan remain in effect. For Colonial Gas, its current multi-year rate plan terminated in August 2009. In the case of Colonial Gas, National Grid USA will be allowed recovery of merger-related costs and a return on cash investment resulting from its merger with Eastern Enterprises, subject to a stipulated merger savings proof. On 16 April 2010, the three Massachusetts gas distribution companies filed comprehensive proposals with the MDPU to establish new gas distribution rates that would increase base distribution rates by approximately US$106 million to accommodate an ROE of 11.3 per cent., if approved. The rate proposals contemplate that the MDPU will allow Boston Gas and Essex Gas to be consolidated as companies. A decision is expected by 1 November 2010. In December 2009, a petition was filed with the MDPU, requesting approval to merge Essex Gas with and into Boston Gas, with Boston Gas being the surviving entity. Evidentiary hearings were held in March 2010 and a decision is expected within the next six months. This merger is not expected to have a material effect on how the gas distribution companies in Massachusetts are operated or regulated.

6.3.3 Rhode Island In April 2008, National Grid USA filed a request to increase Narragansett’s Rhode Island gas distribution rates by approximately US$20 million, which National Grid USA later adjusted to US$18.4 million. After approval by the RIPUC, rates were put into effect allowing a US$13.6 million gas distribution rate increase, effective in December 2008 (with rates retroactive to 1 November 2008). The rate increase included a new rate for low-income customers and increased recovery of commodity related bad debt expense. The RIPUC also approved a 10.5 per cent. allowed ROE based on an imputed equity ratio of 47.7 per cent., a discrete funding mechanism for an accelerated base-steel and cast-iron mains replacement programme and a full reconciliation of pension and post-retirement benefits other than pensions. The RIPUC approved Narragansett’s proposed rate base, which was based on forecasted additions to plant in service through the end of the rate year, subject to subsequent adjustments to reflect any actual lower amount of plant in service. The RIPUC denied Narragansett’s revenue decoupling proposal, indicating that full revenue decoupling was not appropriate at this time. Narragansett is allowed recovery of all of its gas commodity costs through a fully reconciling rate recovery mechanism. On 3 August 2009, the Company made its Distribution Adjustment Charge filing, which proposed a downward adjustment to the approved rate base. The RIPUC approved the adjustment on 26 October 2009 which resulted in an approximately US$2 million one-time credit to customers and a corresponding US$2 million reduction to the annual revenue requirement.

6.3.4 New Hampshire Rates for services rendered by National Grid USA’s New Hampshire gas distribution company, EnergyNorth, are subject to approval by the NHPUC. On 25 February 2008, EnergyNorth filed a request for a rate increase of approximately US$10 million which was the first request for an increase in EnergyNorth’s gas distribution rates since 1993. The filing included a request for a pension and post-retirement benefits other than pensions reconciliation mechanism. On 29 May 2009, the NHPUC issued an order approving a partial settlement agreement providing for a US$5.5 million gas distribution rate increase. In its order, NHPUC found against EnergyNorth on the ROE issue, establishing an allowed ROE of 9.54 per cent. as compared to the 12.25 per cent. requested by EnergyNorth. On 12 June 2009, the Company made its compliance tariff filing and began billing new rates to its 85,000 New Hampshire customers on 1 July 2009. The new rates are retroactive to 24 August 2008. A motion for reconsideration of the allowed ROE was filed by EnergyNorth on 29 June 2009 which motion was denied by the NHPUC on 13 November 2009.

89 ACE BOWNE OF TORONTO 05/23/2010 12:43 NO MARKS NEXT PCN: 095.00.00.00 -- Page is valid, no graphics BOT U08763 094.00.00.00 16

On 26 February 2010, EnergyNorth filed another natural gas base distribution rate case seeking an increase in distribution rates of US$11.4 million per year over and above what was allowed in the last rate case described above. In addition, EnergyNorth is also requesting a reconciling mechanism to track actual costs and recover the company’s bad debt expense and a revenue decoupling mechanism to encourage expanded energy efficiency programmes for customers.

7 Environmental regulation AI, 8.2 7.1 National Grid’s operations in the United Kingdom A wide range of EU and UK environmental (including climate change related) and health and safety regulations apply to National Grid’s businesses. In the United Kingdom, health and safety regulation is enforced by the Health and Safety Executive. The Group’s UK gas operations work under a permissioning regime, whereby National Grid’s organisation, processes and procedures are documented in safety cases that are subject to acceptance by the Health and Safety Executive. Health and safety related requirements change frequently, however, with the result that continued compliance may require material investment, or involve a material increase in National Grid’s cost base. National Grid cannot predict future regulatory developments such as increasingly strict requirements of environmental or climate change laws or enforcement policies that might affect the Group’s operations or activities. A risk of increased costs and impacts from this area of regulation is inherent in the energy sector and there can be no assurance that material liabilities and costs will not be incurred in the future. Notwithstanding this, National Grid does not expect that it will be affected differently from other companies with comparable assets engaged in similar businesses.

7.2 National Grid’s operations in the northeastern United States The ongoing operations and historic activities of National Grid USA’s public utility subsidiaries are subject to various federal, state and local environmental laws and regulations. National Grid USA’s subsidiaries’ businesses generate some hazardous and potentially hazardous waste and by-products. Under federal and state laws, potential liability for the historic contamination of property may be imposed on responsible parties jointly and severally, without fault, even if the activities were lawful when they occurred. The federal Environmental Protection Agency, various state environmental protection agencies, such as the New York State Department of Environmental Conservation and the Massachusetts Department of Environmental Protection, and various private entities have alleged that certain of National Grid USA’s subsidiaries are a potentially responsible party under state or federal law for a number of sites at which hazardous waste is alleged to have been released. National Grid USA’s public utility subsidiaries are generally responsible for on-site liabilities, and in some cases off-site liabilities, associated with the environmental condition of their current and former assets, regardless of when the liabilities arose and whether they were known or unknown. The most significant liabilities relate to former manufactured gas plant facilities. As required by the Environmental Protection Agency, or an applicable state environmental protection agency, those manufactured gas plant sites and certain other properties are currently being investigated and remediated, as necessary. Some of National Grid USA’s utility subsidiaries have rate plans generally allowing for recovery of the costs of investigation and remediation of manufactured gas plant sites. National Grid believes that the ongoing operations of the subsidiaries, and their approach to addressing conditions at historic sites, are in substantial compliance with all applicable environmental laws.

90 ACE BOWNE OF TORONTO 05/23/2010 14:53 NO MARKS NEXT PCN: 096.00.00.00 -- Page is valid, no graphics BOT U08763 095.00.00.00 15

PART VI

OPERATING AND FINANCIAL REVIEW

The information comprising National Grid’s operating and financial review for the year ended 31 March 2010 AI, 9.1 (which also includes details of our operating and financial performance for the years ended 31 March 2009 and AI, 9.2.1 2008) can be found on pages 14 to 83 of the Annual Report and Accounts 2009/10 which is incorporated by AI, 9.2.2 reference into this document as described in Part XII “Documentation Incorporated by Reference.” AI, 9.2.3 CESR 27-32

91 ACE BOWNE OF TORONTO 05/24/2010 07:28 NO MARKS NEXT PCN: 097.00.00.00 -- Page is valid, no graphics BOT U08763 096.00.00.00 19

PART VII

FINANCIAL INFORMATION ON THE GROUP

The consolidated financial statements of the Company and its subsidiaries included in the Annual Reports and AI, 20.1 Accounts together with the audit reports thereon are incorporated by reference into this document. Pricewater- AI, 20.3 houseCoopers LLP of 1 Embankment Place, London, WC2N 6RH, chartered accountants regulated by the Institute AI, 20.4.1 of Chartered Accountants in England and Wales, has issued unqualified audit opinions on the consolidated AI, 20.5.1 financial statements of the Company and its subsidiaries included in the Annual Reports and Accounts. The audit AI, 20.6.1 opinion for the year ended 31 March 2008 is set out on page 113 of the Annual Report and Accounts 2007/08. The AI, 20.6.2 audit opinion for the year ended 31 March 2009 is set out on page 115 of the Annual Report and Accounts 2008/09. AIII, 10.1 The audit opinion for the year ended 31 March 2010 is set out on page 111 of the Annual Report and Accounts 2009/ 10. See Part XII “Documentation Incorporated by Reference” of this document for further details about information that has been incorporated by reference into this document. The tables below set out selected Group audited financial information for the years ended and as at 31 March 2010, 2009 and 2008. The data for the three years ended and as at 31 March 2010, 2009 and 2008 has been extracted without material adjustment from, and should be read together with, the relevant financial statements incorporated by reference into this document.

Consolidated Income Statement For the years ended 31 March 2010 2009 2008 (£ millions) Revenue ...... 13,988 15,624 11,423 Other operating income ...... 19 63 75 Operating costs ...... (10,714) (13,064) (8,534) Operating profit: Before exceptional items, remeasurements and stranded cost recoveries..... 3,121 2,915 2,595 Exceptional items, remeasurements and stranded cost recoveries ...... 172 (292) 369 Total operating profit ...... 3,293 2,623 2,964 Interest income and similar income ...... 1,005 1,315 1,275 Interest expense and other finance costs: Before exceptional items and remeasurements ...... (2,160) (2,465) (2,045) Exceptional items and remeasurements ...... 47 (84) (16) Total interest expense and other finance costs...... (2,113) (2,549) (2,061) Share of post-tax results of joint ventures and associates ...... 8 5 4 Profit before taxation: Before exceptional items, remeasurements and stranded cost recoveries..... 1,974 1,770 1,829 Exceptional items, remeasurements and stranded cost recoveries ...... 219 (376) 353 Total profit before taxation ...... 2,193 1,394 2,182 Taxation: Before exceptional items, remeasurements and stranded cost recoveries..... (553) (517) (579) Exceptional items, remeasurements and stranded cost recoveries ...... (251) 45 (28) Total taxation ...... (804) (472) (607)

92 ACE BOWNE OF TORONTO 05/24/2010 07:38 NO MARKS NEXT PCN: 098.00.00.00 -- Page is valid, no graphics BOT U08763 097.00.00.00 14

For the years ended 31 March 2010 2009 2008 (£ millions) Profit from continuing operations after taxation: Before exceptional items, remeasurements and stranded cost recoveries..... 1,421 1,253 1,250 Exceptional items, remeasurements and stranded cost recoveries ...... (32) (331) 325 Profit for the year from continuing operations ...... 1,389 922 1,575 Profit for the year from discontinued operations: Before exceptional items and remeasurements ...... — 9 28 Exceptional items and remeasurements ...... — 16 1,590 Total profit for the year from discontinued operations ...... — 25 1,618 Profit for the year ...... 1,389 947 3,193 Attributable to: Equity shareholders of the parent ...... 1,386 944 3,190 Minority interests ...... 3 3 3 Total ...... 1,389 947 3,193 Earnings per share from continuing operations(1) Basic...... 56.1p 36.9p 59.5p Diluted ...... 55.8p 36.6p 59.1p Earnings per share(1) Basic...... 56.1p 37.9p 120.7p Diluted ...... 55.8p 37.6p 120.0p

Note: (1) Comparative EPS data have been restated to reflect the impact of the additional shares issued as scrip dividends.

93 ACE BOWNE OF TORONTO 05/21/2010 17:55 NO MARKS NEXT PCN: 099.00.00.00 -- Page is valid, no graphics BOT U08763 098.00.00.00 11

Consolidated Balance Sheet As at 31 March 2010 2009 2008 (£ millions) Non-current assets Goodwill ...... 5,102 5,391 3,904 Other intangible assets ...... 389 370 271 Property, plant and equipment ...... 30,855 29,545 24,331 Deferred tax assets ...... — 137 — Pension asset ...... — 269 846 Other non-current assets ...... 162 106 164 Financial and other investments ...... 486 361 251 Derivative financial assets ...... 1,494 1,533 1,063 Total non-current assets ...... 38,488 37,712 30,830 Current assets Inventories and current intangible assets ...... 407 556 438 Trade and other receivables ...... 2,293 2,672 2,265 Financial and other investments ...... 1,397 2,197 2,095 Derivative financial assets ...... 248 593 463 Cash and cash equivalents ...... 720 737 174 Total current assets ...... 5,065 6,755 5,435 Assets of businesses held for sale ...... — — 1,506 Total assets ...... 43,553 44,467 37,771 Current liabilities Borrowings ...... (2,806) (3,253) (3,882) Derivative financial liabilities ...... (212) (307) (114) Trade and other payables ...... (2,847) (2,835) (2,480) Current tax liabilities ...... (391) (383) (295) Provisions ...... (303) (248) (375) Total current liabilities ...... (6,559) (7,026) (7,146) Non-current liabilities Borrowings ...... (22,318) (23,540) (17,121) Derivative financial liabilities ...... (662) (633) (319) Other non-current liabilities ...... (1,974) (2,092) (1,721) Deferred tax liabilities ...... (3,324) (2,661) (3,259) Pensions and other post-retirement benefit obligations ...... (3,098) (3,080) (1,746) Provisions ...... (1,407) (1,451) (1,022) Total non-current liabilities ...... (32,783) (33,457) (25,188) Liabilities of businesses held for sale ...... — — (63) Total liabilities ...... (39,342) (40,483) (32,397) Net assets ...... 4,211 3,984 5,374 Equity Called up share capital ...... 298 294 294 Share premium account ...... 1,366 1,371 1,371 Retained earnings...... 7,316 7,135 8,943 Other equity reserves ...... (4,781) (4,830) (5,252) Shareholders’ equity ...... 4,199 3,970 5,356 Minority interests ...... 12 14 18 Total equity ...... 4,211 3,984 5,374

94 ACE BOWNE OF TORONTO 05/23/2010 06:03 NO MARKS NEXT PCN: 100.00.00.00 -- Page is valid, no graphics BOT U08763 099.00.00.00 13

Consolidated Cash Flow Statement AI, 10.2 For the years ended 31 March 2010 2009 2008 (£ millions) Cash flows from operating activities Total operating profit ...... 3,293 2,623 2,964 Adjustments for: Exceptional items, remeasurements and stranded cost recoveries ...... (172) 292 (369) Depreciation and amortisation ...... 1,188 1,122 994 Share-based payment charge ...... 25 22 18 Changes in working capital ...... 431 54 (150) Changes in provisions ...... (98) (99) (5) Changes in pensions and other post-retirement benefit obligations ...... (521) (678) (333) Cash flows relating to exceptional items...... (135) (131) (132) Cash flows relating to stranded cost recoveries ...... 361 359 278 Cash flows generated from continuing operations ...... 4,372 3,564 3,265 Cash flows relating to discontinued operations (excluding tax) ...... — (8) 10 Cash generated from operations ...... 4,372 3,556 3,275 Tax received/(paid) ...... 144 (143) (110) Net cash inflow from operating activities ...... 4,516 3,413 3,165 Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired ...... — — (3,502) Acquisition of other investments ...... (86) (73) (26) Sale of investments in subsidiaries and other investments ...... 6 — 55 Purchases of intangible assets ...... (104) (78) (45) Purchases of property, plant and equipment ...... (3,007) (3,107) (2,832) Disposals of property, plant and equipment ...... 15 27 26 Dividends from joint ventures ...... 18 — — Interest received ...... 21 85 206 Purchases of financial investments ...... (2,832) (6,173) (8,788) Sales of financial investments ...... 3,637 6,272 8,833 Cash flows used in continuing operations — investing activities ...... (2,332) (3,047) (6,073) Cash flows relating to discontinued operations — investing activities (net of tax) ...... — 1,049 3,050 Net cash flow used in investing activities ...... (2,332) (1,998) (3,023) Cash flows from financing activities Proceeds from issue of share capital and sale of treasury shares ...... 18 8 23 Proceeds from loans received ...... 1,933 4,892 1,568 Repayment of loans ...... (2,257) (2,618) (650) Net movements in short-term borrowings and derivatives ...... (175) (633) 671 Interest paid ...... (1,003) (1,061) (900) Exceptional finance costs on the redemption of debt ...... (33) — — Dividends paid to shareholders...... (688) (838) (780) Cash paid to shareholders under B share scheme ...... — — (26) Repurchase of share capital and purchase of treasury shares ...... (7) (627) (1,498) Net cash flow used in financing activities ...... (2,212) (877) (1,592) Net (decrease)/increase in cash and cash equivalents ...... (28) 538 (1,450) Exchange movements ...... (1) 18 4 Cash included within assets of businesses held for sale ...... — — 23 Net cash and cash equivalents at start of year ...... 720 164 1,587 Net cash and cash equivalents at end of year(1) ...... 691 720 164

Notes: (1) Net of bank overdrafts of £29 million (2009: £17 million; 2008: £10 million).

95 ACE BOWNE OF TORONTO 05/24/2010 07:24 NO MARKS NEXT PCN: 101.00.00.00 -- Page is valid, no graphics BOT U08763 100.00.00.00 17

PART VIII

CAPITALISATION AND INDEBTEDNESS The following table shows the consolidated capitalisation and indebtedness of National Grid as at 31 March 2010 AI, 10.1 and has been extracted, without material adjustment, from the accounting records underlying the audited financial AI, 10.3 statements for the year ended 31 March 2010 which are incorporated by reference into this document as set out in AI, 10.4 Part XII “Documentation Incorporated by Reference” of this document. AI, 20.4.3 The following table shows the capitalisation and gross indebtedness of the Group as at 31 March 2010: AIII, 3.2

As at 31 March 2010 (£ millions) (unaudited) Total current debt Secured(1) ...... 1 Unsecured ...... 2,805 Total ...... 2,806 Total non-current debt Secured(1) ...... 514 Unsecured ...... 21,804 Total ...... 22,318 Total gross indebtedness ...... 25,124 Shareholders’ equity Share capital ...... 298 Share premium ...... 1,366 Retained earnings ...... 7,316 Other equity reserves ...... (4,781) Total shareholders’ equity ...... 4,199

Note: (1) Charges over the Group’s property, plant and other assets were provided as collateral as at 31 March 2010, totalling £515 million. The following table sets out the net financial indebtedness of the Group as at 31 March 2010: As at 31 March 2010 (£ millions) (unaudited) Cash(1) ...... 136 Cash equivalents(1)...... 584 Liquidity ...... 720 Current financial receivables(2) ...... 1,397 Net current derivative financial assets(3) ...... 36 Current bank debt ...... (890) Current bonds ...... (1,730) Other current financial debt(4) ...... (186) Current financial indebtedness ...... (2,806) Net current financial indebtedness ...... (653) Net non-current derivative financial assets(5) ...... 832 Non-current bank loans ...... (2,163) Non-current bonds ...... (19,835) Other non-current financial debt(6) ...... (320) Non-current financial indebtedness ...... (22,318)

Net financial indebtedness ...... (22,139)

96 ACE BOWNE OF TORONTO 05/24/2010 07:34 NO MARKS NEXT PCN: 102.00.00.00 -- Page is valid, no graphics BOT U08763 101.00.00.00 22

Notes: (1) Included within cash and cash equivalents are restricted balances of £52 million and £7 million respectively. (2) Current financial receivables comprise available-for-sale investments of £1,285 million (principally comprising short-term money funds) and loans and receivables of £112 million (principally comprising collateral posted with counterparties). Included within the total are restricted balances of £397 million, representing cash and investments within our captive insurance companies and collateral posted with counterparties. (3) Net current derivative financial assets comprises assets of £248 million and liabilities of £212 million. (4) Other current financial debt comprises commercial paper of £121 million, finance leases of £29 million, bank overdrafts of £29 million and other loans of £7 million. (5) Net non-current derivative financial assets comprises assets of £1,494 million and liabilities of £662 million. (6) Other non-current financial debt comprises finance leases of £173 million and other loans of £147 million.

The value of National Grid’s guarantees at 31 March 2010 amounted to £1,189 million. Details of the guarantees entered into by the Company or its subsidiary undertakings at 31 March 2010 are shown below: (a) a guarantee in respect of Ravenswood Unit 40 financing amounting to approximately £377 million. This expires in 2040; (b) a letter of support of obligations under a shareholders’ agreement relating to the interconnector project between Britain and the Netherlands amounting to approximately £254 million. This expires on commissioning expected early 2011; (c) guarantees of certain obligations in respect of the UK Grain LNG Import Terminal amounting to approximately £164 million. These run for varying lengths of time, expiring between now and 2028; (d) a guarantee amounting to approximately £120 million of half of the obligations of the interconnector project between Britain and the Netherlands. This expires on commissioning expected early 2011; (e) guarantees of the liabilities of a metering subsidiary under meter operating contracts amounting to £53 million. These are ongoing; (f) an uncapped guarantee, for which the maximum liability is estimated at £40 million, to The Crown Estates in support of the transfer of the interconnector between France and England to National Grid Interconnectors Limited as part of the Licence to Assign Lease. This is ongoing; (g) letters of credit in support of gas balancing obligations amounting to £26 million, lasting for less than one year; (h) guarantees of £14 million relating to certain property obligations. The bulk of these expire by December 2025; (i) collateral of £15 million to secure syndicate insurance obligations which are evergreen; (j) guarantees in respect of a former associate amounting to £14 million, the bulk of which relates to its obligations to supply telecommunications services. These are open-ended; (k) guarantees of the liabilities of our subsidiary, National Grid Carbon Limited, under contracts in connection with work on a carbon capture and storage demonstration project amounting to £20 million. These expire on completion of the project, expected in 2011; and (l) other guarantees amounting to £92 million arising in the normal course of business and entered into on normal commercial terms. These guarantees run for varying lengths of time. As at 31 March 2010, the group has commitments totalling £926 million under non-cancellable operating leases.

97 ACE BOWNE OF TORONTO 05/24/2010 07:34 NO MARKS NEXT PCN: 103.00.00.00 -- Page is valid, no graphics BOT U08763 102.00.00.00 27

PART IX

UNAUDITED PRO FORMA FINANCIAL INFORMATION AI, 20.2 AI, 20.4.3 Section A: Unaudited Pro Forma Statement of Net Assets of the Group The unaudited pro forma statement of net assets of the Group set out below has been prepared to illustrate the effect of the Rights Issue on the assets and liabilities of the Group as if the Rights Issue had taken place as at 31 March 2010. The unaudited pro forma statement of net assets, which has been produced for illustrative purposes only, by its AII, 1 nature addresses a hypothetical situation and, therefore, does not represent the Group’s actual financial position or AII, 5 results. The unaudited pro forma statement of net assets has been prepared on the basis set out in the notes below and in accordance with the requirements of items 1 to 6 of Annex II to the PD Regulation. AII, 2 As at 31 AII, 3 March Pro forma 2010(1) Adjustment(2) Total AII, 4 (£ millions) Non-current assets Goodwill ...... 5,102 — 5,102 Other intangible assets ...... 389 — 389 Property, plant and equipment...... 30,855 — 30,855 Other non-current assets ...... 162 — 162 Financial and other investments ...... 486 — 486 Derivative financial assets...... 1,494 — 1,494 Total non-current assets ...... 38,488 — 38,488 Current assets Inventories and current intangible assets ...... 407 — 407 Trade and other receivables ...... 2,293 — 2,293 Financial and other investments ...... 1,397 — 1,397 Derivative financial assets...... 248 — 248 Cash and cash equivalents ...... 720 3,207 3,927 Total current assets ...... 5,065 3,207 8,272 Total assets ...... 43,553 3,207 46,760 Current liabilities Borrowings ...... (2,806) — (2,806) Derivative financial liabilities ...... (212) — (212) Trade and other payables ...... (2,847) — (2,847) Current tax liabilities ...... (391) — (391) Provisions ...... (303) — (303) Total current liabilities ...... (6,559) — (6,559) Non-current liabilities Borrowings ...... (22,318) — (22,318) Derivative financial liabilities ...... (662) — (662) Other non-current liabilities ...... (1,974) — (1,974) Deferred tax liabilities ...... (3,324) — (3,324) Pensions and other post-retirement obligations ...... (3,098) — (3,098) Provisions ...... (1,407) — (1,407) Total non-current liabilities ...... (32,783) — (32,783) Total liabilities ...... (39,342) — (39,342) Net assets ...... 4,211 3,207 7,418

Notes: (1) The financial information has been extracted, without material adjustment, from the audited consolidated financial statements of the Group AII, 6 for the year ended 31 March 2010, which are prepared in accordance with IFRS as adopted by the European Union. (2) The adjustment reflects the net proceeds of the Rights Issue receivable by the Group of £3,207 million being gross proceeds of £3,318 million on the basis that the Group issues 990,439,017 New Ordinary Shares at the Issue Price, less expected fees and expenses of £111 million. (3) The adjustment reflects the application of the net proceeds of the Rights Issue against the cash and cash equivalents balance as at 31 March 2010. The adjustment reduces the net indebtedness of the Group as at 31 March 2010 from £22,139 million (made up of current borrowings of £2,806 million and non-current borrowings of £22,318 million less net derivative financial assets of £868 million, current financial and other investments of £1,397 million and cash and cash equivalents of £720 million) to £18,932 million (reflecting an increase in cash and cash equivalents of £3,207 million to £3,927 million). (4) No adjustment has been made to reflect the trading results of the Group since 31 March 2010. (5) The pro forma financial information does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act.

98 ACE BOWNE OF TORONTO 05/24/2010 09:35 NO MARKS NEXT PCN: 104.00.00.00 -- Page/graphics valid 05/24/2010 09:35 BOT U08763 103.00.00.00 26

Section B: Report on the unaudited pro forma financial information of the Group

AIII, 10.2

PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH

The Directors National Grid plc 1-3 Strand London WC2N 5EH Deutsche Bank AG, London Branch Winchester House 1 Great Winchester Street London EC2N 2DB Morgan Stanley & Co. International plc 25 Cabot Square Canary Wharf London E14 4QA 25 May 2010

Dear Sirs

National Grid plc (the “Company”) We report on the unaudited pro forma net asset statement (the “Pro forma financial information”) set out in Section A of Part IX of the Company’s prospectus dated 25 May 2010 (the “Prospectus”) which has been prepared on the basis described in the notes to the Pro forma financial information, for illustrative purposes only, to provide information about how the proposed rights issue might have affected the financial information presented on the basis of the accounting policies adopted by the Company in preparing the financial statements for the year ended 31 March 2010. This report is required by item 20.2 of Annex I to the PD Regulation and is given for the purpose of complying with that PD Regulation and for no other purpose.

Responsibilities It is the responsibility of the Directors of the Company to prepare the Pro forma financial information in accordance with item 20.2 of Annex I to the PD Regulation. It is our responsibility to form an opinion, as required by item 7 of Annex II to the PD Regulation as to the proper compilation of the Pro forma financial information and to report our opinion to you. In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro forma financial information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue. Save for any responsibility which we may have to those persons to whom this report is expressly addressed and for any responsibility arising under item 5.5.3 R(2)(f) of the Prospectus Rules to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of Annex I to the PD Regulation, consenting to its inclusion in the Prospectus.

PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Services Authority for designated investment business.

99 ACE BOWNE OF TORONTO 05/23/2010 07:29 NO MARKS NEXT PCN: 105.00.00.00 -- Page is valid, no graphics BOT U08763 104.00.00.00 17

Basis of opinion We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro forma financial information with the Directors of the Company. We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro forma financial information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Company. Our work has not been carried out in accordance with auditing standards or other standards and practices generally accepted in the United States of America or auditing standards of the Public Company Accounting Oversight Board (United States) and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.

Opinion AII, 7 In our opinion: (a) the Pro forma financial information has been properly compiled on the basis stated; and (b) such basis is consistent with the accounting policies of the Company.

Declaration For the purposes of Prospectus Rule 5.5.3 R(2)(f), we are responsible for this report as part of the Prospectus and we declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of Annex I to the PD Regulation.

Yours faithfully

PricewaterhouseCoopers LLP Chartered Accountants

100 ACE BOWNE OF TORONTO 05/23/2010 16:43 NO MARKS NEXT PCN: 106.00.00.00 -- Page is valid, no graphics BOT U08763 105.00.00.00 20

PART X

TAXATION

1 United Kingdom AIII, 4.11 The comments set out below are based on current UK law and published HMRC practice as at the date of this document, both of which are subject to change, possibly with retrospective effect. They are intended as a general guide and apply only to Shareholders resident and, in the case of individuals, ordinarily resident, for tax purposes in the United Kingdom (except insofar as express reference is made to the treatment of non-UK residents), who hold Shares in the Company as an investment and who are the absolute beneficial owners thereof. The discussion does not address all possible tax consequences relating to an investment in the Shares. Certain categories of Shareholders, such as traders, brokers, dealers, banks, financial institutions, insurance companies, investment companies, collective investment schemes, tax-exempt organisations, persons connected with the Company or Group, persons holding the Shares as part of hedging or conversion transactions, Shareholders who are not domiciled or not ordinarily resident in the United Kingdom, Shareholders who have (or are deemed to have) acquired their Shares by virtue of an office or employment, and Shareholders who are or have been officers or employees of the Company or a company forming part of the Group, may be subject to special rules and this summary does not apply to such Shareholders. Shareholders who are in any doubt about their tax position, or who are resident or otherwise subject to taxation in a jurisdiction outside the United Kingdom, should consult their own professional advisors immediately.

1.1 Capital gains tax For the purposes of UK taxation of capital gains, the issue of the New Shares should be regarded as a reorganisation of the share capital of the Company. Accordingly, you should not be treated as making a disposal of all or part of your holding of existing Ordinary Shares by reason of taking up all or part of your rights to New Shares. No liability to UK tax on capital gains in respect of the New Shares should arise if you take up your entitlement to New Shares in full. Your existing Ordinary Shares and New Shares should be treated as the same asset acquired at the time you acquired your existing Ordinary Shares. The subscription monies for your New Shares should be added to the base cost of your existing holding(s). In the case of a corporate Shareholder, indexation allowance will apply to the amount paid for the New Shares only from the date the monies for the New Shares are paid or liable to be paid. If you sell all or some of the New Shares allotted to you, or your rights to subscribe for them, or if you allow or are deemed to have allowed your rights to lapse and receive a cash payment in respect of them, you may, depending on your circumstances, incur a liability to tax on any capital gain realised. If you dispose of all or part of your rights to subscribe for New Shares or allow or are deemed to allow them to lapse in return for a cash payment and the proceeds resulting from the disposal or lapse of rights are “small” as compared to the value of the Ordinary Shares in respect of which the rights arose, you may be treated as making no disposal for the purpose of tax on capital gains. No liability to tax on capital gains will then arise as a result of the disposal or lapse of the rights, but the proceeds will be deducted from the base cost of your holding of existing Ordinary Shares. HMRC interprets “small” as five per cent. or less of the value of the Ordinary Shares in respect of which the rights arose or £3,000 or less, regardless of whether or not it would pass the five per cent. test.

1.2 Taxation of dividends The Company will not be required to withhold tax at source when paying a dividend. A UK resident individual Shareholder who receives a dividend from the Company will be entitled to a tax credit which may be set off against the Shareholder’s total income tax liability on the dividend. The tax credit will be equal to ten per cent. of the aggregate of the dividend and the tax credit (in this paragraph 1.2, the “gross dividend”), which is also equal to one-ninth of the cash dividend received. Such an individual Shareholder who is liable to income tax at the basic rate will be subject to tax on the dividend at the rate of ten per cent. of the gross dividend, so that the tax credit will satisfy in full such Shareholder’s liability to income tax on the dividend. In the case of such an individual Shareholder who is liable to income tax at the higher rate, the tax credit will be set against but not fully match the Shareholder’s tax liability on the gross dividend and such Shareholder will have to account for additional income tax equal to 22.5 per cent. of the gross dividend (which is also equal to 25 per cent. of the cash dividend

101 ACE BOWNE OF TORONTO 05/23/2010 11:43 NO MARKS NEXT PCN: 107.00.00.00 -- Page is valid, no graphics BOT U08763 106.00.00.00 22

received) to the extent that the gross dividend when treated as the top slice of the Shareholder’s income falls above the threshold for higher rate income tax. In the case of such an individual Shareholder who is subject to income tax at the additional rate, the tax credit will also be set against but not fully match the Shareholder’s liability on the gross dividend and such Shareholder will have to account for additional income tax equal to 32.5 per cent. of the gross dividend (which is also equal to approximately 36 per cent. of the cash dividend received) to the extent that the gross dividend when treated as the top slice of the Shareholder’s income falls above the threshold for additional rate income tax. A UK resident individual Shareholder who is not liable to income tax in respect of the gross dividend and other UK resident taxpayers who are not liable to UK tax on dividends, including pension funds and charities, will not be entitled to claim repayment of the tax credit attaching to dividends paid by the Company. Shareholders who are within the charge to corporation tax will be subject to corporation tax on dividends paid by the Company, unless (subject to special rules for such Shareholders that are small companies) the dividends fall within an exempt class and certain other conditions are met. It is expected that the dividends paid by the Company would generally be exempt for such Shareholders. Such Shareholders will not be able to claim repayment of tax credits attaching to dividends. Non-UK resident Shareholders will not generally be able to claim repayment from HMRC of any part of the tax credit attaching to dividends paid by the Company. A Shareholder resident outside the United Kingdom may also be subject to foreign taxation on dividend income under local law. Shareholders who are not resident for tax purposes in the United Kingdom should obtain their own tax advice concerning tax liabilities on dividends received from the Company.

1.3 Stamp duty and stamp duty reserve tax 1.3.1 Subject to paragraph 1.3.5 below, no stamp duty or stamp duty reserve tax (“SDRT”) will be payable on the issue of Provisional Allotment Letters or split Provisional Allotment Letters. 1.3.2 The purchase of rights to New Shares represented by Provisional Allotment Letters or split Provisional Allotment Letters or credited in CREST (whether nil paid or fully paid) on or before the latest time for registration or renunciation will not generally be liable to stamp duty, but the purchaser will normally be liable to pay SDRT at the rate of 0.5 per cent. of the actual consideration paid. 1.3.3 Where such a purchase is effected through a stockbroker or other financial intermediary that person will normally account for the liability of SDRT and will indicate that this has been done in any contract note issued to a purchaser. In other cases, the purchaser of the rights to the New Shares represented by the Provisional Allotment Letter or split Provisional Allotment Letters is liable to pay the SDRT and must account for it to HMRC. 1.3.4 No stamp duty or SDRT will be payable on the registration of Provisional Allotment Letters or split Provisional Allotment Letters, whether by the original holders or their renouncees. 1.3.5 Where New Shares are issued or transferred (i) to, or to a nominee or (in the case of stamp duty) agent for, a person whose business is or includes the provision of clearance services or (ii) to, or to a nominee or agent for, a person whose business is or includes issuing depositary receipts, stamp duty or SDRT will be payable at the higher rate of 1.5 per cent. of the consideration payable, or in certain circumstances, the value of the New Shares. However, the European Court of Justice (“ECJ”) has found in C-569/07 HSBC Holdings plc, Vidacos Nominees Limited v The Commissioners of Her Majesty’s Revenue & Customs that the 1.5 per cent. charge is contrary to EU law where shares are issued to a clearance service, and HMRC has subsequently indicated that it will not levy the charge on shares issued to a clearance service within the European Union. The reasoning applied by the ECJ in the HSBC Holdings case may also apply where shares are issued to a depositary receipts system, although this is currently untested in the courts. Under current UK tax legislation, an unconditional agreement to transfer shares within a clearance service or depositary receipts system which has not made an election under Section 97A of the Finance Act 1986 will not be subject to SDRT. However, following the HSBC Holdings case, HMRC has announced that it will determine whether and how to amend the SDRT rules to ensure movements of shares into and within clearance services bear their fair share of tax, whilst ensuring the rules are compatible with EU law. The law in this area may therefore be particularly susceptible to change. Any liability for stamp duty or SDRT which does arise will strictly be accountable by the clearance service or depositary receipt operator or their nominee, as the case may be, but will, in practice, be borne by you. Clearance services may opt, provided certain conditions are satisfied, for normal stamp duty or SDRT treatment to apply to issues or transfers of shares into, and to

102 ACE BOWNE OF TORONTO 05/18/2010 08:46 NO MARKS NEXT PCN: 108.00.00.00 -- Page is valid, no graphics BOT U08763 107.00.00.00 20

transactions within, such services instead of the higher rate applying to an issue or a transfer of shares into the clearance service.

1.3.6 Any subsequent dealings in New Shares will be subject to stamp duty or SDRT in the normal way. The transfer on sale of Ordinary Shares will generally be liable to ad valorem stamp duty at the rate of 0.5 per cent. thereof (rounded to the nearest multiple of £5.00) of the consideration paid. An unconditional agreement to transfer such Shares will generally be liable to SDRT at the rate of 0.5 per cent. of the consideration paid, but such liability will be cancelled if the agreement is completed by a duly-stamped transfer within six years of the agreement having become unconditional.

1.3.7 Under the CREST system for paperless share transfers, no stamp duty or SDRT will arise on a transfer of Shares into the system, unless this is in settlement of an agreement to sell. Transfers of Shares within CREST are liable to SDRT (at a rate of 0.5 per cent.) rather than stamp duty, and SDRT on relevant transactions settled within the system or reported through it for regulatory purposes will be collected by CREST.

2 United States

TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, HOLDERS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS DOCUMENT IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY HOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON HOLDERS UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS INCLUDED HEREIN BY THE ISSUER IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230) BY THE ISSUER OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) HOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

The following is a summary of certain material US federal income tax consequences of the acquisition, ownership and disposition of Nil Paid Rights, Fully Paid Rights and New Shares by a US Holder (as defined below). This summary deals only with initial holders of Nil Paid Rights, Fully Paid Rights and New Shares that are US Holders and that will hold the Nil Paid Rights, Fully Paid Rights and New Shares as capital assets. The discussion does not cover all aspects of US federal income taxation that may be relevant to, or the actual tax effect that any of the matters described herein will have on, the acquisition, ownership or disposition of Nil Paid Rights, Fully Paid Rights and New Shares by particular investors, and does not address state, local, foreign or other tax laws. This summary also does not address tax considerations applicable to investors that own (directly or indirectly) ten per cent. or more of the voting stock of the Company, nor does this summary discuss all of the tax considerations that may be relevant to certain types of investors subject to special treatment under the US federal income tax laws (such as financial institutions, insurance companies, investors liable for the alternative minimum tax, individual retirement accounts and other tax-deferred accounts, tax-exempt organisations, dealers in securities or currencies, investors that will hold the Nil Paid Rights, Fully Paid Rights and New Shares as part of straddles, hedging transactions or conversion transactions for US federal income tax purposes or investors whose functional currency is not the US dollar).

As used herein, the term “US Holder” means a beneficial owner of Nil Paid Rights, Fully Paid Rights or New Shares that is, for US federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation created or organised under the laws of the United States or any State thereof, (iii) an estate the income of which is subject to US federal income tax without regard to its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more US persons have the authority to control all substantial decisions of the trust, or the trust has elected to be treated as a domestic trust for US federal income tax purposes.

The US federal income tax treatment of a partner in a partnership that holds Nil Paid Rights, Fully Paid Rights or New Shares will depend on the status of the partner and the activities of the partnership. Prospective purchasers that are partnerships should consult their tax advisors concerning the US federal income tax consequences to their partners of the acquisition, ownership and disposition of Nil Paid Rights, Fully Paid Rights or New Shares by the partnership.

The summary assumes that the Company is not a passive foreign investment company (a “PFIC”) for US federal income tax purposes, which the Company believes to be the case. The Company’s possible status as a PFIC must be determined annually and therefore may be subject to change. If the Company were to be a PFIC in any year, materially adverse consequences could result for US Holders.

103 ACE BOWNE OF TORONTO 05/18/2010 08:46 NO MARKS NEXT PCN: 109.00.00.00 -- Page is valid, no graphics BOT U08763 108.00.00.00 19

The summary is based on the tax laws of the United States, including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, all as of the date hereof and all subject to change at any time, possibly with retroactive effect. THE SUMMARY OF US FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. ALL PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING THE RIGHTS AND NEW SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAW.

2.1 Taxation in respect of Nil Paid Rights 2.1.1 Receipt of Nil Paid Rights The tax consequences of the receipt of Nil Paid Rights by a US Holder are not free from doubt. In particular, it is not clear whether the sale of New Shares by the Underwriters, and the remittance of the proceeds from that sale to certain holders, should be treated as a sale and distribution by the Company, or as a distribution of Nil Paid Rights by the Company and a subsequent exercise of those Nil Paid Rights and sale of the New Shares by the relevant holders. If the sale and distribution were considered to be made by the Company, then the receipt of Nil Paid Rights would be taxable to US Holders as a dividend to the extent of the Company’s current or accumulated earnings and profits, as described in paragraph 2.3.1 below under “Taxation in Respect of New Shares — Dividends”. However, based on the particular facts relating to the Nil Paid Rights and the sale of New Shares by the Underwriters, the Company believes that the better view is that a US Holder is not required to include any amount in income for US federal income tax purposes as a result of the receipt of the Nil Paid Rights. It is possible that the US Internal Revenue Service (the “IRS”) will take a contrary view and require a US Holder to include in income the fair market value of the Nil Paid Rights on the date of their distribution. The remainder of this discussion assumes that the receipt of the Nil Paid Rights will not be a taxable event for US federal income tax purposes. If, on the date of receipt, the fair market value of Nil Paid Rights is less than 15 per cent. of the fair market value of the Existing Shares with respect to which Nil Paid Rights are received, Nil Paid Rights will be allocated a zero tax basis unless the US Holder affirmatively elects to allocate tax basis in proportion to the relative fair market values of the US Holder’s Shares and Nil Paid Rights received determined on the date of receipt. This election must be made in the US Holder’s timely filed US federal income tax return for the taxable year in which Nil Paid Rights are received, in respect of all Nil Paid Rights received by the US Holder, and is irrevocable. If, on the date of receipt, the fair market value of Nil Paid Rights is 15 per cent. or more of the fair market value of the Existing Shares with respect to which the rights are received, then, except as discussed in paragraph 2.1.3 below under “Expiration of Nil Paid Rights”, the basis in the US Holder’s Existing Shares must be allocated between the Existing Shares and Nil Paid Rights received in proportion to their fair market values determined on the date of receipt.

2.1.2 Sale or other disposition of Nil Paid Rights Upon a sale or other disposition of Nil Paid Rights, a US Holder will generally recognise capital gain or loss equal to the difference, if any, between the US dollar value of the amount realised (as determined on the date of the sale or other disposition) and the US Holder’s adjusted tax basis in the Nil Paid Rights. Any gain or loss will generally be US source, and will be long-term capital gain or loss if the US Holder’s holding period in the Nil Paid Rights exceeds one year. AUS Holder’s holding period in the Nil Paid Rights will include the holding period in the Existing Shares with respect to which the Nil Paid Rights were distributed. However, a US Holder’s holding period in Fully Paid Rights will not include the holding period in the Existing Shares with respect to which the Nil Paid Rights were distributed.

2.1.3 Expiration of Nil Paid Rights If a US Holder allows the Nil Paid Rights to expire without selling or exercising them and does not receive any proceeds from the sale of New Shares by the Underwriters, such US Holder will not recognise any loss upon the expiration of the Nil Paid Rights, and such US Holder will not be entitled to allocate any basis to the Nil Paid Rights, and any basis previously allocated to the Nil Paid Rights will be re-allocated to the Existing Shares.

2.1.4 Exercise of Nil Paid Rights A US Holder will not recognise taxable income upon the receipt of Fully Paid Rights pursuant to the exercise of Nil Paid Rights.

104 ACE BOWNE OF TORONTO 05/18/2010 06:39 NO MARKS NEXT PCN: 110.00.00.00 -- Page is valid, no graphics BOT U08763 109.00.00.00 17

2.1.5 Proceeds from sale by Underwriters The US federal income tax treatment of a US Holder that receives proceeds as a result of the sale by the Underwriters of New Shares at a premium over the exercise price in respect of such US Holder’s Nil Paid Rights is not free from doubt. Generally, such a US Holder will be treated either as having sold the Nil Paid Rights (as described above) or as having exercised the Nil Paid Rights and sold the New Shares. A US Holder that is treated as having sold the New Shares will recognise a short-term capital gain or loss as described in paragraph 2.3.2 below under “Taxation in Respect of New Shares-Sale or Other Disposition”, regardless of the holding period of the Nil Paid Rights. US Holders that receive amounts in respect of lapsed Nil Paid Rights should consult their own tax advisors regarding the US federal income tax treatment of such amounts.

2.2 Taxation in respect of Fully Paid Rights 2.2.1 Receipt of Fully Paid Rights A US Holder’s basis in Fully Paid Rights will equal the sum of the US dollar value of the Issue Price determined as the spot rate on the date of exercise and the US Holder’s basis in the Nil Paid Rights exercised to obtain the Fully Paid Rights. A US Holder’s holding period for Fully Paid Rights will begin with and include the date of exercise of the underlying Nil Paid Rights.

2.2.2 Sale or exchange of Fully Paid Rights A US Holder will recognise capital gain or loss on the sale or other disposition of Fully Paid Rights in an amount equal to the US dollar value of the difference between the amount realised on the disposition and the US Holder’s tax basis in the Fully Paid Rights. Such capital gain or loss will generally be short-term capital gain or loss. Short- term capital gain or loss of a non-corporate US Holder is generally taxed at the same rates as ordinary income. A US Holder’s ability to deduct any capital losses may be subject to significant limitations. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

2.2.3 Receipt of New Shares The receipt of New Shares through issuance to the US Holders of Fully Paid Rights should be a non-taxable event to a US Holder for US federal income tax purposes.

2.3 Taxation in respect of New Shares 2.3.1 Dividends (i) General Distributions paid by the Company out of current or accumulated earnings and profits (as determined for US federal income tax purposes) will generally be taxable to a US Holder as foreign source dividend income, and will not be eligible for the dividends received deduction allowed to corporations. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of the US Holder’s basis in the New Shares and thereafter as capital gain. However, the Company does not maintain calculations of its earnings and profits in accordance with US federal income tax accounting principles. US Holders should therefore assume that any distribution by the Company with respect to New Shares will constitute ordinary dividend income. US Holders should consult their own tax advisors with respect to the appropriate US federal income tax treatment of any distribution received from the Company. For taxable years that begin before 2011, dividends paid by the Company will generally be taxable to a non- corporate US Holder at the special reduced rate normally applicable to long-term capital gains, provided the Company qualifies for the benefits of the income tax treaty between the United States and the United Kingdom. A US Holder will be eligible for this reduced rate only if it has held the New Shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date.

(ii) Foreign currency dividends Dividends paid in sterling will be included in income in a US dollar amount calculated by reference to the exchange rate in effect on the day the dividends are received by the US Holder, regardless of whether the sterling is converted into US dollars at that time. If dividends received in sterling are converted into US dollars on the day they are received, the US Holder generally will not be required to recognise foreign currency gain or loss in respect of the dividend income.

105 ACE BOWNE OF TORONTO 05/23/2010 11:42 NO MARKS NEXT PCN: 111.00.00.00 -- Page is valid, no graphics BOT U08763 110.00.00.00 18

2.3.2 Sale or other disposition

Upon a sale or other disposition of New Shares, a US Holder generally will recognise capital gain or loss for US federal income tax purposes equal to the difference, if any, between the amount realised on the sale or other disposition and the US Holder’s adjusted tax basis in the New Shares. This capital gain or loss will be long-term capital gain or loss if the US Holder’s holding period in the New Shares exceeds one year. However, regardless of a US Holder’s actual holding period, any loss may be long-term capital loss to the extent the US Holder receives a dividend that qualifies for the reduced rate described in paragraph 2.3.1(i) above under “Dividends-General”, and exceeds ten per cent. of the US Holder’s basis in its New Shares.

For this purpose, the holding period of the New Shares includes the holding period of the Fully Paid Rights but will not include that of the corresponding Nil Paid Rights. Any gain or loss will generally be US source.

A US Holder’s tax basis in a New Share will generally be the US Holder’s basis in the Fully Paid Rights with respect to which the New Shares were issued. The amount realised on a sale or other disposition of New Shares for an amount in foreign currency will be the US dollar value of this amount on the date of sale or disposition. On the settlement date, the US Holder will recognise US source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the US dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date. However, in the case of New Shares traded on an established securities market that are sold by a cash basis US Holder (or an accrual basis US Holder that so elects), the amount realised will be based on the exchange rate in effect on the settlement date for the sale, and no exchange gain or loss will be recognised at that time.

2.3.3 Disposition of foreign currency

Foreign currency received on the sale or other disposition of a New Share will have a tax basis equal to its US dollar value on the settlement date. Foreign currency that is purchased will generally have a tax basis equal to the US dollar value of the foreign currency on the date of purchase. Any gain or loss recognised on a sale or other disposition of a foreign currency (including its use to purchase New Shares or upon exchange for US dollars) will be US source ordinary income or loss.

2.4 Backup withholding and information reporting

Payments of dividends and other proceeds with respect to New Shares by a US paying agent or other US intermediary will be reported to the IRS and to the US Holder as may be required under applicable regulations. Backup withholding may apply to these payments if the US Holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to report all interest and dividends required to be shown on its US federal income tax returns. Certain US Holders (including, among others, corporations) are not subject to backup withholding. US Holders should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption.

2.4.1 New legislation

Recently enacted legislation imposes new reporting requirements on the holding of certain foreign financial assets, including equity of foreign entities, if the aggregate value of all of these assets exceeds US$50,000. The New Shares are expected to constitute foreign financial assets subject to these requirements unless the New Shares are held in an account at a domestic financial institution. US Holders should consult their tax advisors regarding the application of this legislation.

2.5 Transfer reporting requirements

A US Holder who purchases New Shares may be required to file Form 926 (or similar form) with the IRS if the purchase, when aggregated with all transfers of cash or other property made by the US Holder (or any related person) to the Company within the preceding 12-month period, exceeds US$100,000 (or its equivalent). A US Holder who fails to file any such required form could be required to pay a penalty equal to ten per cent. of the gross amount paid for the New Shares (subject to a maximum penalty of US$100,000, except in cases of intentional disregard). US Holders should consult their tax advisors with respect to this or any other reporting requirement that may apply to an acquisition of the New Shares.

106 ACE BOWNE OF TORONTO 05/24/2010 09:48 NO MARKS NEXT PCN: 112.00.00.00 -- Page is valid, no graphics BOT U08763 111.00.00.00 28

PART XI

ADDITIONAL INFORMATION

1 Responsibility

The Company and the Directors, whose names are set out on page 18 of this document, accept responsibility for the AI, 1.1 information contained in this document. To the best of the knowledge of the Company and the Directors (who have AI, 1.2 taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance AIII, 1.1 with the facts and does not omit anything likely to affect the import of such information. AIII, 1.2

2 Incorporation and Registered Office 2.1 The Company was incorporated and registered in England and Wales on 11 July 2000 under the Companies Act 1985 as a private limited company under the name Intercede 1610 Limited. On 30 August 2000 it changed its name to New National Grid Limited, and on 29 November 2000 it re-registered as a public limited company under the name of New National Grid plc. On 31 January 2002 it changed its name to National Grid Group plc. On 21 October 2002 it changed its name to National Grid Transco plc. On 26 July 2005 it changed its name to its present name, National Grid plc. The Company is registered under company number 4031152.

2.2 The Company is domiciled in the United Kingdom. Its head office and registered office is at 1-3 AI, 5.1.3 Strand, London WC2N 5EH (telephone number: +44 20 7004 3000). AI, 5.1.1 AI, 5.1.4 2.3 The principal laws and legislation under which the Company operates, and under which the Ordinary Shares AIII, 4.2 have been created, are the Companies Act and regulations made thereunder.

3 The Company’s Share Capital

3.1 As at 21 May 2010 (being the latest practicable date prior to the date of this document), the issued and fully AI, 21.1.7 paid share capital of the Company was as follows: AI, 21.1.1(a) Issued, called up and fully paid AI, 21.1.1(b) Number Nominal value AI, 21.1.1(c) Ordinary Shares ...... 2,617,190,095 £298,237,941

Note: (1) Includes 141,092,553 Ordinary Shares held in treasury. 3.2 The issued, called up and fully paid Ordinary Share capital of the Company immediately following completion of the Rights Issue is expected to be as follows: AI, 21.1.1(a) Issued, called up and fully paid AI, 21.1.1(b) Number Nominal value AI, 21.1.1(c) Ordinary Shares ...... 3,607,629,112 £411,101,922

Note: (1) Includes 141,092,553 Ordinary Shares held in treasury. (2) Assuming that no further Ordinary Shares are issued as a result of the exercise of any options between 21 May 2010 being the latest practicable date prior to the publication of this document and the completion of the Rights Issue. Between 1 April 2010 and 21 May 2010 (being the latest practicable date prior to the publication of this document), there has been no issue of share capital of the Company, fully or partly paid, either in cash or for other consideration, and (other than in connection with the exercise of options) no such issues are proposed. As at the date of this document, the Company holds 141,092,553 Ordinary Shares in treasury.

3.3 The number of Ordinary Shares outstanding at the beginning and end of the last financial year is as follows: AI, 21.1.1(d) Issued, called up and Date fully paid 1 April 2009...... 2,581,974,851 Issues during the year ...... 35,215,244 31 March 2010 ...... 2,617,190,095

107 ACE BOWNE OF TORONTO 05/24/2010 10:04 NO MARKS NEXT PCN: 113.00.00.00 -- Page is valid, no graphics BOT U08763 112.00.00.00 29

3.4 History of Ordinary Share capital Issued Ordinary Share capital As at 1 April 2007, the first day covered by the historical financial information incorporated by reference into this document, 2,701,058,872 Ordinary Shares were in issue fully paid or credited as fully paid. Since 1 April 2007, there have been the following changes in the issued Ordinary Share capital of the Company: During the year ended 31 March 2008

Issued share capital Ordinary Shares Number Nominal value (£) As at 1 April 2007 ...... 2,701,058,872 308,000,000 Issues of Ordinary Shares(1) ...... 7,672,356 900,000 Repurchased and registered during the year(2) ...... (193,514,040) 22,000,000 At 31 March 2008(3) ...... 2,581,913,516 294,000,000

Notes: (1) Included within issues of Ordinary Shares are 3,705,193 Ordinary Shares issued following the conversion of the Company’s B shares to Ordinary Shares on 28 September 2007. Other issues of Ordinary Shares were related to the Company’s employee share schemes. (2) Includes Ordinary Shares repurchased from 30 May 2007 to 27 November 2007 by the Company and subsequently cancelled under its share repurchase programme (126,817,712 Ordinary Shares for an aggregate consideration of £946 million, including transaction costs). The Ordinary Shares repurchased had a nominal value of £15 million and represented approximately five per cent. of the Ordinary Shares in issue as at 31 March 2008. The consideration was charged against retained earnings. (3) Includes 66,696,328 Ordinary Shares held in treasury. During the year ended 31 March 2009 Issued share capital Ordinary Shares Number Nominal value (£) As at 1 April 2008 ...... 2,581,913,516 294,000,000 Issues of Ordinary Shares(1) ...... 61,335 3,000 Repurchased during the year(2) ...... (89,417,497) 10,000,000 At 31 March 2009(2) ...... 2,581,974,851 294,000,000

Notes: (1) Issues of Ordinary Shares related to the Company’s employee share schemes. (2) Includes 153,136,625 Ordinary Shares held in treasury. During the year ended 31 March 2010

Issued share capital Ordinary Shares Number Nominal value (£) As at 1 April 2009(1) ...... 2,581,974,851 294,000,000 Issues of Ordinary Shares(2) ...... 35,215,244 4,000,000 At 31 March 2010(3) ...... 2,617,190,095 298,000,000

Notes: (1) Includes 153,136,625 Ordinary Shares held in treasury. (2) Issues of 35,215,244 Ordinary Shares in relation to the scrip dividends in August 2009 and January 2010. (3) Includes 144,100,618 Ordinary Shares held in treasury. During the period since 1 April 2010 Issued share capital Ordinary Shares Number Nominal value (£) As at 1 April 2010 and 21 May 2010 ...... 2,617,190,095 298,000,000

Note: (1) Up to 21 May 2010 (being the latest practicable date prior to the publication of this document). (2) As at 21 May 2010 141,092,553 Ordinary Shares were held in treasury.

108 ACE BOWNE OF TORONTO 05/20/2010 07:19 NO MARKS NEXT PCN: 114.00.00.00 -- Page is valid, no graphics BOT U08763 113.00.00.00 18

3.5 Pursuant to the Rights Issue, 990,439,017 New Shares will be issued at a price of 335 pence per New Share. This will result in the issued Ordinary Share capital of the Company increasing by approximately 40 per cent.

Qualifying Shareholders who take up their pro rata entitlement in full will suffer no dilution to their interests AIII, 9.1 in the Company. Qualifying Shareholders who do not take up any of their rights to subscribe for the New AIII, 9.2 Shares will suffer an immediate dilution of 28.6 per cent. to their interests in the Company.

3.6 At the Annual General Meeting of the Company held on 27 July 2009, the power conferred on the Directors AIII, 4.6 by the Articles of Association to allot unissued Shares was renewed, pursuant to Section 80 of the Companies Act 1985, for a period ending on the date of the 2010 Annual General Meeting or on 27 October 2010, whichever is the earlier, and pursuant to which the “Section 80 amount” was set at £92,404,802 and at a further £92,404,802 in connection with a rights issue.

4 Articles of Association The Company’s Articles of Association are available for inspection at the Company’s registered office as specified in paragraph 2.2 above.

Articles of Association The Company’s objects are not restricted by its Articles of Association.

4.1 Shares

4.1.1 Respective rights of different classes of shares AI, 21.2.3 The Company may issue new shares with such rights or restrictions as determined by either the Company by ordinary resolution, or the Directors if they do not conflict with any resolution passed by the shareholders.

4.1.2 Voting rights At a general meeting, subject to any special rights or restrictions attached to any class of shares: (a) on a show of hands, every shareholder present in person and every duly-appointed proxy present shall have one vote; and (b) on a poll, a shareholder has one vote for every share which he holds and a duly-appointed proxy or a corporate representative who is entitled to be present and to vote, has one vote for every share for which he has been appointed. No shareholders shall be entitled to attend or vote at a general meeting, either personally or by proxy, if any sums due from him to the Company at the time of the meeting in respect of that share remains unpaid.

4.1.3 Variation of rights AI, 21.2.4 Special rights attaching to any class may be varied or cancelled either with the written consent of the holders of at least three-quarters of the existing shares of the class (by nominal value), or if approved by a special resolution passed at a class meeting of the holders of the relevant class of shares.

4.1.4 Transfer of shares Every transfer of shares in certificated form shall be in writing and signed, or made effective in some other way, by the transferor and either in the usual standard form (known as a stock transfer form), or in any other form approved by the Directors. The transferor shall remain the holder of the shares concerned until the name of the transferee is entered in the register of members in respect of those shares. Transfers of uncertificated shares shall be carried out using a relevant system and shall comply with the CREST Regulations. A transfer form for shares in certificated form shall be delivered to the office where the register is kept (or any other place the Directors may decide) and shall have with it (a) the share certificate for the shares to be transferred and (b) any other evidence which the Directors ask for to prove that the person wanting to make the transfer is entitled to do so. Transfers may not be in favour of more than four joint holders.

109 ACE BOWNE OF TORONTO 05/19/2010 08:40 NO MARKS NEXT PCN: 115.00.00.00 -- Page is valid, no graphics BOT U08763 114.00.00.00 17

4.2 General meetings

4.2.1 Notice of general meetings etc. AI, 21.2.5 The Company shall give at least 21 clear days’ notice in writing for every Annual General Meeting and at least 14 clear days’ notice in writing for every other general meeting other than a general meeting convened by shorter notice. Notice of general meetings shall include all information required to be included under the Companies Act and shall be given to all shareholders, other than those holders who are not entitled to receive such notices from the Company under the provisions of the Articles.

4.2.2 Quorum No business other than the appointment of a chairman shall be transacted at any general meeting unless a quorum is present at the time when the meeting proceeds to business. Two people entitled to attend and vote shall be a quorum.

4.3 Directors

There shall be at least two Directors (other than alternate Directors) but the Company may, by ordinary resolution, AI, 21.2.2 increase this minimum number. A Director shall not be required to hold any shares of the Company by way of qualification.

4.3.1 Proceedings of the Board The Directors may decide on when to have meetings, on how the meetings will be conducted, and on the quorum. They may also adjourn their meetings. For the purposes of Section 175 of the Companies Act, the Directors shall have the power to authorise any matter which would or could constitute or give rise to a breach of a Director’s duty to avoid a situation in which he has, or could have, a direct or indirect interest that conflicts, or could conflict, with the interests of the Company. Any matter so authorised shall include any existing or potential conflict of interest which it is reasonable to expect may arise out of the authorised matter and any such authorisation shall be subject to any limitations or conditions that the Board decides. The Directors may also terminate any such authorisation at any time.

4.3.2 Borrowing powers The Directors shall limit the borrowings of the Company and exercise all voting and other rights or powers of control that the Company has over its subsidiary undertakings so as to ensure that the total amount of monies borrowed by the Group outstanding at any time (excluding any borrowings owed by one member of the Group to another) will not be more than £35,000,000,000 or any other amount approved by shareholders by an ordinary resolution at a general meeting.

4.3.3 Powers of the Directors The Directors may delegate any of their powers or discretions, including those involving the payment of remuneration or the conferring of any other benefit to the Directors, to committees of one or more Directors. A committee shall, unless the Directors decide otherwise, have the power to sub-delegate any of the powers or discretions to sub-committees.

4.3.4 Directors’ liabilities To the fullest extent permitted by law, the Company shall indemnify all its Directors and officers out of the Company’s own funds against (a) any liability incurred by or attaching to them in connection with any negligence, default, breach of duty or breach of trust by them in relation to the Company or (b) any other liability incurred by them in the execution of their duties, the exercise of their powers or otherwise in connection with their duties, powers or offices.

4.4 Dividends AI, 21.2.3 The Directors can recommend the amount of any final dividend which the Company, by ordinary resolution, may then declare. However, no dividend shall be declared unless it has been recommended by the Directors and does not exceed the amount recommended by the Directors. The Directors may also pay interim dividends on shares of any class in amounts and on dates and periods as they think fit.

110 ACE BOWNE OF TORONTO 05/23/2010 12:24 NO MARKS NEXT PCN: 116.00.00.00 -- Page is valid, no graphics BOT U08763 115.00.00.00 18

The Directors may, if authorised by ordinary resolution, offer shareholders the right to elect to receive scrip dividends (extra shares credited as fully paid) in lieu of cash dividends.

4.5 Disclosure of shareholding ownership AI, 21.2.7 The Disclosure and Transparency Rules require a member to notify the Company if the voting rights held by such member (including by way of certain financial instruments) reach, exceed or fall below three per cent. and each one per cent. threshold thereafter up to 100 per cent. Under the Disclosure and Transparency Rules, certain voting rights in the Company may be disregarded.

5 Mandatory Takeover Bids, Squeeze-out and Sell-out Rules AIII, 4.9 Other than as provided by the Companies Act and the City Code on Takeovers and Mergers, there are no rules or provisions relating to mandatory bids and/or squeeze-out and sell-out rules in relation to the Ordinary Shares.

6 Directors of the Company

Directors AI, 1.1 AI, 14.1 The Directors and their principal functions are as follows:

Directors Function AIII, 1.1 Sir John Parker ...... Chairman Steve Holliday...... Chief Executive Steve Lucas...... Finance Director Nick Winser ...... Executive Director, Transmission Mark Fairbairn ...... Executive Director, Gas Distribution Tom King ...... Executive Director, Electricity Distribution & Generation Ken Harvey...... Non-executive Director and Senior Independent Director Linda Adamany...... Non-executive Director Philip Aiken ...... Non-executive Director John Allan ...... Non-executive Director Stephen Pettit ...... Non-executive Director Maria Richter ...... Non-executive Director George Rose ...... Non-executive Director

Sir John Parker, Chairman Nominations Committee (Chairman) Sir John Parker became Chairman in October 2002 following the merger of National Grid Group plc and Lattice Group plc having been Chairman of Lattice Group plc since its demerger from BG Group plc in 2000. Sir John’s career has encompassed the engineering, shipbuilding and defence industries. He is Chairman of Anglo American plc and Deputy Chairman of DP World (Dubai). He is also a Non-executive Director of Carnival plc and Carnival Corporation, Inc., and the European Aeronautic Defence and Space Company (EADS) and Chancellor of the University of Southampton. Sir John was previously Senior Non-executive Director (Chair) of the Court of the Bank of England, a former joint Chairman of Mondi plc, a former Chairman of P&O Group and of RMC Group plc, and a former Chairman and Chief Executive of Harland & Wolff plc and Babcock International Group PLC.

Steve Holliday, Chief Executive Executive Committee (Chairman), Finance Committee Steve Holliday became Chief Executive of National Grid in January 2007 having joined National Grid Group plc as Group Director, UK and Europe in March 2001 becoming responsible for the electricity and gas transmission businesses in October 2002. 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. He is a Non-executive Director of Marks and Spencer Group plc and Chairman of The UK Business Council for Sustainable Energy, Chair of the National Technician Council and a member of both the Board of Trustee Directors for Business in The Community and Infrastructure UK.

111 ACE BOWNE OF TORONTO 05/23/2010 12:44 NO MARKS NEXT PCN: 117.00.00.00 -- Page is valid, no graphics BOT U08763 116.00.00.00 14

Steve Lucas, Finance Director Executive Committee, Finance Committee Steve Lucas has been Finance Director since his appointment in October 2002 following the merger of National Grid Group plc and Lattice Group plc and is additionally responsible for Property and Shared Services. He had been Executive Director, Finance of Lattice Group plc since its demerger from BG Group plc. Previously, he was Treasurer of BG Group plc having joined British Gas plc in 1994. Prior to this he was with Shell International Petroleum Company for 11 years occupying a number of finance management positions and treasury roles including seven years in Africa and the Far East. Steve is also a Non-executive Director of Compass Group PLC.

Nick Winser, Executive Director Executive Committee Nick Winser joined the Board in April 2003 as Executive Director responsible for Transmission. He was previously Chief Operating Officer of the US transmission business 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. He is a Non-executive Director of Kier Group PLC and co-chair of the Energy Research Partnership.

Mark Fairbairn, Executive Director Executive Committee Mark Fairbairn was appointed to the Board in January 2007 as Executive Director with responsibility for Gas Distribution. He joined National Grid in 1989 from BNFL. Previously Chief Operating Officer of the UK gas distribution business, he has played a key role in helping to restructure the UK gas distribution market through the gas networks sale and the creation of National Grid’s new gas distribution business. Mark is a member of Living with Environmental Change Business Advisory Board.

Tom King, Executive Director Executive Committee Tom King was appointed to the Board as Executive Director in August 2007 with responsibility for Electricity Distribution & Generation operations. Tom was President of PG&E Corporation and Chairman and CEO of Pacific Gas and Electric Company from 2003 to 2007. Before that, he served as Senior Vice President of PG&E Corporation, and as President of PG&E National Energy Group having joined PG&E Gas Transmission as President in 1998. Prior to PG&E, he served as President and Chief Operating Officer of Kinder Morgan Energy Partners and served for nine years in officer positions in Enron’s inter-state pipeline businesses.

Ken Harvey, Non-executive Director and Senior Independent Director Nominations Committee, Remuneration Committee, Risk & Responsibility Committee Ken Harvey joined the Board in October 2002 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.

Linda Adamany, Non-executive Director Audit Committee, Risk & Responsibility Committee Linda Adamany joined the Board in November 2006. Until April 2008 she was Group Vice President, BP plc. Linda has over 35 years of business experience with 27 years in the international energy sector, having held various roles for BP in both the United Kingdom and the United States, in refining & marketing, exploration & production and petrochemicals businesses, including Chief Executive of BP Shipping and Group Vice President and Commercial Director, BP Refining & Marketing. She also serves as a member of various not-for-profit boards and formerly held board level positions in international shipping bodies. She is also a certified public accountant, qualifying in 1975.

112 ACE BOWNE OF TORONTO 05/23/2010 11:51 NO MARKS NEXT PCN: 118.00.00.00 -- Page is valid, no graphics BOT U08763 117.00.00.00 18

Philip Aiken, Non-executive Director Audit Committee, Risk & Responsibility Committee Philip Aiken joined the Board in May 2008. He is Chairman of Robert Walters plc, a Non-executive and Senior Independent Director of Kazakhmys plc and a Non-executive Director of Miclyn Express Offshore and Essar Energy. Formerly, Group President of BHP Billiton’s Energy business, Executive Director of BTR plc and senior positions in BOC Group plc and senior advisor to Macquarie Capital (Europe) Limited.

John Allan, Non-executive Director Finance Committee, Remuneration Committee (Chairman) John Allan joined the Board in May 2005. He is Chairman of DSG International plc and a Non-executive Director of 3i Group plc and ISS. He is an advisor to Deutsche Bank AG and a member of the University of Edinburgh Campaign Board. John was previously Chairman of Samsonite Corporation, a former Non-executive Director of PHS Group plc, Wolseley plc, Hamleys plc and Connell plc. He retired as CFO of Deutsche Post in 2009, having been appointed to the Management Board following its acquisition of Exel plc in December 2005 where he was Chief Executive. He is a former member of the Supervisory Boards of both Lufthansa AG and Deutsche Postbank.

Stephen Pettit, Non-executive Director Finance Committee, Remuneration Committee, Risk & Responsibility Committee (Chairman) Stephen Pettit was appointed to the Board in October 2002 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 Non-executive Director of Halma plc and is Chairman of ROK 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.

Maria Richter, Non-executive Director Audit Committee, Finance Committee (Chairman), Nominations Committee 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 Non-executive Director of Pro Mujer International, an international microfinance organisation, The Pantry, Inc., The Vitec Group plc and The Bessemer Group Inc.

George Rose, Non-executive Director Audit Committee (Chairman), Nominations Committee, Remuneration Committee George Rose was appointed to the Board in October 2002 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 since 1998, having joined the company in 1992. He is a Non-executive Director of SAAB AB and a member of the UK Industrial Development Advisory Board. Formerly a member of the Financial Reporting Review Panel and a Non-executive Director of Orange plc.

7 Directors’ Interests

Save as set out in paragraphs 7.1 and 7.2 below, no Director has any interests (beneficial or non-beneficial) in the AI, 17.2 share capital of the Company or any of its subsidiaries.

7.1 Directors’ shareholdings As at 21 May 2010 (being the latest practicable date prior to the publication of this document), the interests (all of which are beneficial unless otherwise stated) of the Directors (as well as their immediate families) in the share capital of the Company or (so far as is known or could with reasonable due diligence be ascertained by the relevant Director) interests of a person connected (within the meaning of Section 252 of the Companies Act) with a Director and the existence of which was known to or could, with reasonable diligence, be ascertained by the Directors as at

113 ACE BOWNE OF TORONTO 05/24/2010 08:32 NO MARKS NEXT PCN: 119.00.00.00 -- Page is valid, no graphics BOT U08763 118.00.00.00 29

21 May 2010 together with such interests as are expected to be held immediately following completion of the Rights Issue are as follows:

Executive Directors Immediately following completion of the Rights As at 21 May 2010 Issue Number of Number of Issued share New and Issued share Existing capital Existing capital Shares (per cent.) Shares (per cent.) Steve Holliday ...... 290,472(1) 0.0117% 406,226(2) 0.0117% Steve Lucas ...... 207,852(1) 0.0084% 290,721(2) 0.0084% Nick Winser ...... 256,942(1) 0.0104% 359,718 0.0104% Mark Fairbairn ...... 176,919(1) 0.0071% 247,174(2) 0.0071% Tom King ...... 97,640 0.0039% 136,696 0.0039%

Note: (1) The 2009 DSP awards to UK-based Executive Directors were made over restricted shares. Those shares are subject to the Rights Issue and therefore are included in the number of Existing Shares above. (2) The number of New and Existing Shares shown assumes the Directors take up their rights under the Rights Issue in full. However, the rules of the National Grid plc Share Incentive Plan and the Lattice Group All Employee Share Ownership Plan require participants to sell some of their rights in order to take up the remainder and this will apply to the UK-based Executive Directors indicated above.

Non-executive Directors Immediately following completion of the Rights As at 21 May 2010 Issue Number of Number of Issued share New and Issued share Existing capital Existing capital Shares (per cent.) Shares (per cent.) Sir John Parker ...... 81,635 0.0033% 114,289 0.0033% Ken Harvey ...... 3,740 0.0002% 5,236 0.0002% Linda Adamany ...... 2,000 0.0001% 2,800 0.0001% Philip Aiken ...... 3,500 0.0001% 4,900 0.0001% John Allan...... 7,000 0.0003% 9,800 0.0003% Stephen Pettit ...... 2,632 0.0001% 3,684 0.0001% Maria Richter ...... 10,255 0.0004% 14,357 0.0004% George Rose ...... 4,852 0.0002% 6,792 0.0002%

114 ACE BOWNE OF TORONTO 05/23/2010 16:43 NO MARKS NEXT PCN: 120.00.00.00 -- Page is valid, no graphics BOT U08763 119.00.00.00 19

7.2 Directors’ options and awards As at 21 May 2010 (being the latest practicable date prior to the publication of this document), the Executive Directors held options and awards to subscribe for Shares or were allocated conditional share awards under the plans as follows:

Options exercised Options or lapsed granted during during the period the period Exercise 1 April Market 1 April price Options 2009 to price at 2009 to Options per Normal held at 21 May exercise 21 May held at share Exercise 1 April 2009 2010 (pence) 2010 21 May 2010 (pence) Period Steve Holliday ESOP ...... 67,497 — — — 67,497 481.5 June 2005 to June 2012 Share Match . . . . . 10,350 — — — 10,350 100 in total June 2005 to June 2012 14,083 — — — 14,083 100 in total June 2006 to June 2013 18,713 — — — 18,713 nil May 2007 to May 2014 Sharesave ...... 3,432 — — — 3,432 488 Apr 2014 to Sep 2014 Total ...... 114,075 — — 114,075 Steve Lucas ESOP ...... 54,404 — — — 54,404 434.25 Dec 2005 to Dec 2012 Sharesave ...... 1,693 1,693(1) — — — 558 Apr 2010 to Sep 2010 — — — 2,990 2,990 520 Apr 2015 to Sep 2015 Total ...... 56,097 1,693 2,990 57,394 Nick Winser ESOP ...... 19,755 19,755(2) — — — 531.5 June 2003 to June 2010 Total ...... 19,755 19,755 — — Mark Fairbairn ESOP ...... 2,180 2,180(3) 539.5 — — 435.75 July 2002 to July 2009 33,489 33,489(2) — — — 531.5 June 2003 to June 2010 31,152 31,152(3) 539.5 — — 481.5 June 2005 to June 2012 Sharesave ...... 862 862(1) — — — 383 Apr 2010 to Sep 2010 1,760 — — — 1,760 558 Apr 2012 to Sep 2012 512 — — — 512 655 Apr 2013 to Sep 2013 Total ...... 69,955 67,683 — 2,272

Notes: (1) On 1 April 2010, Steve Lucas and Mark Fairbairn exercised Sharesave options over 1,693 and 862 Shares respectively. The market price at the date of exercise was 647.5p. (2) The performance condition was not satisfied for the ESOP award granted in 2000. As a result, the awards have lapsed in full. (3) Mark Fairbairn exercised simultaneously two ESOP awards over a total of 33,332 Shares. The market price at the date of exercise was 539.5p.

Directors’ interests in the National Grid plc Performance Share Plan, National Grid plc Deferred Share Plan and National Grid plc Special Retention Award Plan The table below provides details of the Executive Directors’ holdings of Shares awarded under the National Grid plc Performance Share Plan (“PSP”) whereby Executive Directors receive a conditional award of Shares, up to a current maximum of 200 per cent. of salary, which is subject to performance criteria over a three-year performance period. Awards vest based on the Company’s TSR performance when compared to the FTSE 100 at the date of grant (50 per cent. of the award) and the annualised growth of the Company’s earnings per share (50 per cent. of the award). Shares are then released on the fourth anniversary of the date of grant, following a retention period. The table includes share awards under the National Grid plc Deferred Share Plan (“DSP”), where Executive Directors receive an award of Shares representing one half of any Annual Performance Plan award earned in the year. The deferred Shares are held in trust for three years before release. As part of a contractual commitment made to Tom King at the time of his recruitment, he received an award under the National Grid plc Special Retention Award Plan (“SRA”). The one-off award of National Grid ADSs vests in equal tranches, over three years, on the anniversary of the award (November 2008 through to November 2010) subject to continued employment. There are no performance conditions attached to the award.

115 ACE BOWNE OF TORONTO 05/23/2010 11:27 NO MARKS NEXT PCN: 121.00.00.00 -- Page is valid, no graphics BOT U08763 120.00.00.00 20

Awards Awards Release of Awards lapsed vested PSP awards granted PSP, DSP during during during during and SRA the period the period the period the period Market conditional 1 April 1 April 1 April 1 April price at Conditional Type awards at 2009 to 2009 to 2009 to 2009 to award awards at of 1 April 21 May 21 May 21 May 21 May (pence Date of 21 May Release award 2009 2010 2010 2010 2010 except #) award 2010 date Steve Holliday .... PSP 100,801 — — 100,801(1) — 527.03 June 2005 — June 2009 PSP 126,788 — 126,788 126,788(2) — 591.5382 June 2006 — March 2010 PSP 139,217 — — — — 740.75 June 2007 139,217 June 2011 PSP 77,247 — — — — 800.9919 Nov 2007 77,247 Nov 2011 PSP 276,947 — — — — 667.9967 June 2008 276,947 June 2012 PSP — — — — 342,353 540.3773 June 2009 342,353 June 2013 DSP 36,389 — 36,389(3) — — 583.96 June 2006 — June 2009 DSP 42,435 — 42,435(4) — — 726.87 June 2007 — March 2010 DSP 85,307 — — — — 697.48 June 2008 85,307 June 2011 DSP — — — — 68,960(5) 541.14 June 2009 68,960 June 2012 Total ...... 885,131 — 205,612 227,589 411,313 990,031 Steve Lucas ...... PSP 99,615 — — 99,615(1) — 527.03 June 2005 — June 2009 PSP 101,430 — 101,430 101,430(2) — 591.5382 June 2006 — March 2010 PSP 84,930 — — — — 740.75 June 2007 84,930 June 2011 PSP 47,125 — — — — 800.9919 Nov 2007 47,125 Nov 2011 PSP 157,186 — — — — 667.9967 June 2008 157,186 June 2012 PSP — — — — 194,308 540.3773 June 2009 194,308 June 2013 DSP 34,882 — 34,882(3) — — 583.96 June 2006 — June 2009 DSP 29,276 — 29,276(4) — — 726.87 June 2007 — March 2010 DSP 47,263 — — — — 697.48 June 2008 47,263 June 2011 DSP — — — — 38,656(5) 541.14 June 2009 38,656 June 2012 Total ...... 601,707 — 165,588 201,045 232,964 569,468 Nick Winser ..... PSP 91,314 — — 91,314(1) — 527.03 June 2005 — June 2009 PSP 88,751 — 88,751 88,751(2) — 591.5382 June 2006 — March 2010 PSP 75,008 — — — — 740.75 June 2007 75,008 June 2011 PSP 41,620 — — — — 800.9919 Nov 2007 41,620 Nov 2011 PSP 138,413 — — — — 667.9967 June 2008 138,413 June 2012 PSP — — — — 171,102 540.3773 June 2009 171,102 June 2013 DSP 31,316 — 31,316(3) — — 583.96 June 2006 — June 2009 DSP 25,596 — 25,596(4) — — 726.87 June 2007 — March 2010 DSP 36,008 — — — — 697.48 June 2008 36,008 June 2011 DSP — — — — 33,804(5) 541.14 June 2009 33,804 June 2012 Total ...... 528,026 — 145,663 180,065 204,906 495,955 Mark Fairbairn . . . PSP 40,225 — — 40,225(1) — 527.03 June 2005 — June 2009 PSP 40,572 — 40,572 40,572(2) — 591.5382 June 2006 — March 2010 PSP 67,499 — — — — 740.75 June 2007 67,499 June 2011 PSP 37,453 — — — — 800.9919 Nov 2007 37,453 Nov 2011 PSP 138,324 — — — — 667.9967 June 2008 138,324 June 2012 PSP — — — — 170,991 540.3773 June 2009 170,991 June 2013 DSP 10,800 — 10,800(3) — — 583.96 June 2006 — June 2009 DSP 13,867 — 13,867(4) — — 726.87 June 2007 — March 2010 DSP 40,646 — — — — 697.48 June 2008 40,646 June 2011 DSP — — — — 32,605(5) 541.14 June 2009 32,605 June 2012 Total ...... 389,386 — 65,239 80,797 203,596 487,518 Tom King ...... PSP ADSs 24,006 — — — — US$83.3121# Nov 2007 ADSs 24,006 Nov 2011 PSP ADSs 32,099 — — — — US$65.4211# June 2008 ADSs 32,099 June 2012 PSP — — — — ADSs 47,609(6) US$44.1091# June 2009 ADSs 47,609 June 2013 SRA ADSs 23,658 — ADSs 11,829(7) — — US$84.5360# Nov 2007 ADSs 11,829 Nov 2008 to Nov 2010 DSP ADSs 4,843 — — — — US$68.1174# June 2008 ADSs 4,843 June 2011 DSP — — — — ADSs 12,080(6) US$44.8371# June 2009 ADSs 12,080 June 2012 Total ADSs ...... ADSs 84,606 — ADSs 11,829 — ADSs 59,689 ADSs 132,466

Notes: (1) The 2005 PSP award vested in full in June 2008 and then entered a retention period. The Shares under the award were released on the fourth anniversary of the date of grant (June 2009). (2) The 2006 PSP award vested in full in June 2009 and then entered a retention period. The Remuneration Committee approved an early release of the Shares on 1 March 2010. Cash payments in lieu of dividends accrued during the retention period were paid as follows: Steve Holliday £32,401 in August 2009 and £19,230 in February 2010; Steve Lucas £25,921 and £15,384; Nick Winser £22,681 and £13,461; and Mark Fairbairn £10,368 and £6,153 respectively. (3) Following the three-year deferral period, the 2006 DSP award was released in June 2009. Cash payments in lieu of dividends accrued during the deferral period were paid as follows: Steve Holliday £39,357; Steve Lucas £37,727; Nick Winser £33,870 and Mark Fairbairn £11,681. (4) Following a near complete deferral period, the Remuneration Committee approved the early release of the 2007 DSP award on 1 March 2010. Cash payments in lieu of dividends accrued during the deferral period were paid as follows: Steve Holliday £38,800; Steve Lucas £26,768; Nick Winser £23,403 and Mark Fairbairn £12,679. (5) Exceptionally, the 2009 DSP award for UK-based Executive Directors was made over restricted Shares. The award was subject to income tax and National Insurance Contributions on grant and therefore Shares shown reflect the net number of Shares. (6) Awards were made over ADSs and each ADS represents five Ordinary Shares. (7) Tom King received a Special Retention Award as part of a contractual commitment made at the time of his recruitment. The award vests in three equal tranches over three years, the second vesting for which was November 2009 for 11,829 ADSs. The ADS price on vesting for the second tranche was US$54.62450.

116 ACE BOWNE OF TORONTO 05/24/2010 08:16 NO MARKS NEXT PCN: 122.00.00.00 -- Page is valid, no graphics BOT U08763 121.00.00.00 23

No Director has or has had any interest in any transaction which is or was unusual in its nature or conditions or is or was significant to the business of the Company and which was effected by any member of the Company in the current or immediately preceding financial year or which was effected during an earlier financial year and remains in any respect outstanding or unperformed.

There are no guarantees provided by any member of the Company for the benefit of the Directors.

7.3 Within the period of five years preceding the date of this document, none of the Directors:

(a) has any convictions in relation to fraudulent offences; AI, 14.1.1(b) AI, 14.1(c) (b) has been a member of the administrative, management or supervisory bodies or director or senior manager (who is relevant to establishing that a company has the appropriate expertise and experience for the management of that company) of any company at the time of any bankruptcy, receivership or liquidation of such company; or

(c) has received any official public incrimination and/or sanction by any statutory or regulatory authorities AI, 14.1(d) (including designated professional bodies) or has ever been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of a company.

7.4 Save as disclosed above in paragraph 6, none of the Directors has any potential conflicts of interests AI, 14.2 between their duties to the Company and their private interests or other duties.

8 Remuneration Details, Directors’ Service Contracts and Letters of Appointment

8.1 Remuneration of Directors AI, 15.1

In the financial year ended 31 March 2010, the aggregate total remuneration paid (including contingent or deferred compensation) and benefits in kind granted (under any description whatsoever) to the Directors by members of the Company was as set out on page 103 of the Annual Report and Accounts 2009/10, which is incorporated by reference into this document.

The Executive Directors’ remuneration and benefits for the year ending 31 March 2010 are set out below: AI, 15.1 Total year AI, 15.2 Annual Benefits Benefits ended Performance in kind(2) in kind(2) Other 31 March Salary(1) Plan (cash) (non-cash) emoluments 2010 (£ thousands) Executive Directors Steve Holliday ...... 925 1,323 12 13 — 2,273 Steve Lucas(3) ...... 521 730 — 19 — 1,270 Nick Winser ...... 462 652 — 15 — 1,129 Mark Fairbairn(3) ...... 461 527 — 14 — 1,002 Tom King(4) ...... 665 898 5 14 — 1,582 Total ...... 3,034 4,130 17 75 — 7,256

Notes: (1) The Executive Directors decided voluntarily to forego salary increases in 2009. It is anticipated that salaries will next be reviewed in June 2010. (2) Benefits in kind comprise benefits such as private medical insurance, life assurance, either a fully expensed car or cash in lieu of a car and the use of a driver when required. (3) These Executive Directors participate in the UK flexible benefits plan which operates by way of salary sacrifice; therefore their salaries are reduced by the benefits they have purchased. The value of these benefits is included in the Benefits in kind (non-cash) figure. The values are Steve Lucas £3,688 and Mark Fairbairn £801. (4) For US-based Executive Directors, the exchange rate averaged over the year 1 April 2009 to 31 March 2010 to convert US dollars to UK pounds sterling is US$1.579:£1.

117 ACE BOWNE OF TORONTO 05/24/2010 08:16 NO MARKS NEXT PCN: 123.00.00.00 -- Page is valid, no graphics BOT U08763 122.00.00.00 20

Year ended 31 March 2010 Other Fees emoluments Total (£ thousands) Non-executive Directors Sir John Parker(1) ...... 550 65 615 Ken Harvey ...... 80 — 80 Linda Adamany ...... 78 — 78 Philip Aiken ...... 68 — 68 John Allan ...... 82 — 82 Stephen Pettit...... 82 — 82 Maria Richter...... 94 — 94 George Rose ...... 81 — 81 Bob Catell(2) ...... 22 — 22 Total ...... 1,137 65 1,202

Notes: (1) Sir John Parker’s other emoluments comprise a fully expensed car, private medical insurance and life assurance. (2) Bob Catell was a Non-executive Director for the period 1 April 2009 to 27 July 2009, after having retired from the Board as an Executive Director on 31 March 2009.

Sir John Parker 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. The other Non-executive Directors do not participate in either the Annual Performance Plan or long term incentive plan, nor do they receive any pension benefits from the Company. Details of the total amounts set aside or accrued by the Company or its subsidiaries to provide pension, retirement or similar benefits are set out on page 104 of the Annual Report and Accounts 2009/10 which is incorporated by reference into this document as described in Part XII “Documentation Incorporated by Reference” of this document.

8.2 Directors’ remuneration policy The remuneration policy for Executive Directors consists of the following elements:

8.2.1 Salary Salaries are reviewed annually and targeted broadly at the median position against the relevant market. For UK- based and US-based Executive Directors, UK and US markets are used respectively. In setting individual salary levels, the Remuneration Committee takes into account business performance, the individual’s performance and experience in the role together with salary practices prevailing for other employees in the Company to ensure any increases are broadly in line with those for employees generally in the Company.

8.2.2 Annual Performance Plan including Deferred Share Plan (the DSP) The Annual Performance Plan is based on the achievement of a combination of Company, individual and, where applicable, divisional targets. The principal measures of Company performance in 2009/10 were adjusted earnings per share, consolidated cash flow and return on equity. The main divisional measures were operating profit and line of business returns targets, with some employees having slightly different targets dependent upon their role and area of the business. One half of any award earned under the Annual Performance Plan is automatically deferred into National Grid Shares (ADSs for US-based Executive Directors) through the DSP. Further details of the DSP are provided in paragraph 13.7 of this Part XI.

8.2.3 Long term incentive (the PSP) Further details of the PSP are provided in paragraph 13.6 of this Part XI.

8.2.4 Pension Current UK-based Executive Directors are provided with final salary pension benefits. The pension provisions for the UK-based Executive Directors are designed to provide a pension of one thirtieth of final salary at age 60 for each

118 ACE BOWNE OF TORONTO 05/23/2010 12:42 NO MARKS NEXT PCN: 124.00.00.00 -- Page is valid, no graphics BOT U08763 123.00.00.00 16

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 twelve months prior to leaving the Company. From December 2009, Flexible Pension Savings (“FPS”), a salary sacrifice arrangement was introduced for all members of the defined benefit pension schemes. All UK-based Executive Directors participate in FPS. 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. UK-based 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. An appropriate provision in respect of the unfunded scheme has been made in the Company’s balance sheet. Alternatively, these Executive Directors are able to cease accrual in the pension schemes and take a 30 per cent. cash allowance in lieu of pension if they so wish. These choices are in line with those offered to current senior employees in the Company, except the cash allowance varies depending upon organisational grade. US-based Executive Directors participate in a qualified pension plan and an executive supplemental retirement plan provided by National Grid’s US companies. These plans are non-contributory defined benefit arrangements. The qualified plan is directly funded, while the executive supplemental retirement 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 or three consecutive years. In line with many US plans, the calculation of benefits under the arrangements takes into account salary, Annual Performance Plan awards and incentive share awards (DSP) but not share options or PSP awards. The normal retirement age under the qualified pension plan is 65. The executive supplemental retirement plan provides unreduced pension benefits from age 55. On the death of the Executive Director, the plans also provide for a spouse’s pension of at least 50 per cent. of that accrued by the Executive Director. Benefits under these arrangements do not increase once in payment.

8.2.5 Non-cash benefits The Company provides competitive benefits to Executive Directors, such as a fully expensed car or a cash alternative in lieu of a car, use of a driver when required, private medical insurance and life assurance. Business expenses incurred are reimbursed in such a way as to give rise to no benefit to the Executive Director.

8.2.6 Flexible benefits plan Additional benefits may be purchased under the flexible benefits plan, in which UK-based Executive Directors, along with most other UK employees, have been given the opportunity to participate. The flexible benefits plan operates by way of salary sacrifice, that is, the participants’ salaries are reduced by the monetary value used to purchase benefits under the flexible benefits plan.

8.3 Directors’ service contracts and letters of appointment Service contracts for all Executive Directors provide for one year’s notice by either party. In the event of early termination by the Company of an Executive Director’s employment, contractual base salary reflecting the notice period would normally be payable. The Remuneration Committee operates a policy of mitigation in these circumstances with any payments being made on a monthly basis. The departing Executive Director would generally be expected to mitigate any losses where employment is taken up during the notice period; however, this policy remains subject to the Remuneration Committee’s discretion, based on the circumstances of the termination.

Details of the Executive Directors’ notice periods under their service contracts are set out below: AI, 16.1 Date of current AGM at which AI, 16.2 Name contract Notice period term expires Steve Holliday ...... 1April 2006 12 months 2010 Steve Lucas ...... 13June 2002 12 months 2010 Nick Winser ...... 28April 2003 12 months 2010 Mark Fairbairn ...... 23January 2007 12 months 2010 Tom King...... 11July 2007 12 months 2010 Non-executive Directors’ fees are determined by the Executive Directors subject to the limits applied by the Articles of Association. Non-executive Directors’ remuneration comprises an annual fee (£45,000) and a fee for each Board meeting attended (£1,500) with a higher fee for meetings held outside the Non-executive Director’s country of residence (£4,000). An additional fee of £12,500 is payable for chairmanship of a Board committee and for holding the position of Senior Independent Director. The Audit Committee chairman receives a chairmanship fee of £15,000 to recognise the additional responsibilities commensurate with this role.

119 ACE BOWNE OF TORONTO 05/23/2010 12:26 NO MARKS NEXT PCN: 125.00.00.00 -- Page is valid, no graphics BOT U08763 124.00.00.00 15

The Non-executive Directors each have letters of appointment reflecting their responsibilities and commitments. The Chairman’s letter of appointment provides for a period of six months’ notice by either party to give the Company reasonable security with regard to his service. For all Non-executive Directors, their initial appointment and subsequent re-appointment is subject to election by Shareholders. The letters of appointment do not contain provision for termination payments. The original date of appointment as a Non-executive Director of the Company and the latest date for the next re- election are as follows: Latest date for Date of appointment next re-election Sir John Parker ...... 21October 2002 2010 AGM Ken Harvey ...... 21October 2002 2010 AGM Linda Adamany ...... 1November 2006 2010 AGM Philip Aiken ...... 15May2008 2010 AGM John Allan ...... 1May2005 2010 AGM Stephen Pettit ...... 21October 2002 2010 AGM Maria Richter ...... 1October 2003 2010 AGM George Rose ...... 21October 2002 2010 AGM Bob Catell(1) ...... 1April 2009 N/A

Note: (1) Bob Catell retired as a Non-executive Director on 27 July 2009. Under the Articles of Association, all Directors must retire by rotation and seek re-election by Shareholders every three years. Pursuant to the Rights Issue, in accordance with investor guidelines, it is expected that all the Directors will put themselves forward for re-election at the 2010 Annual General Meeting.

9 Corporate Governance and Board Committees 9.1 Introduction National Grid plc is committed to operating in a sustainable and responsible manner. The corporate governance framework forms an integral part of this approach in order to safeguard shareholder value. The Combined Code recommends that at least half the members of the board of directors (excluding the Chairman) of a public limited company incorporated in the United Kingdom should be independent in character and judgement and free from relationships or circumstances which are likely to affect, or could appear to affect, their judgement. Currently, the Board is composed of 13 members, consisting of the Chairman, five Executive Directors and seven Non-executive Directors (all of whom are independent). The Board reserves a number of matters for its sole consideration where these matters impact the strategic direction and effective oversight of the Company and its businesses. Examples include: corporate governance, strategy, finance and approval of the budget and business plan, Director/employee issues such as Director succession planning (with input and recommendations from the Nominations Committee), and stock exchange and listing requirements such as dividend approval/recommendation and approval of results announcements, interim management statements and annual report and accounts. In addition to the matters reserved for the Board, a full description of which is available on the Company’s website at www.nationalgrid.com, certain items of strategic, operational or governance importance are considered at every scheduled Board meeting including: safety, health and the environment; the financial status of the Company; operational headlines from the Company’s businesses together with a detailed update from one of the lines of business on a rotating basis; updates on business development and strategy implementation; updates on external matters affecting the Company; reports from Board Committees; and updates on the governance of the Company and its businesses and any legal or new risk issues that the Board should be aware of. In order to have the opportunity to discuss matters, for example, relating to governance, independently of management, the Chairman and Non-executive Directors meet formally at least once a year without Executive Directors or other members of management present. The Chairman and Non-executive Directors also meet formally at least once a year with the Chief Executive. Ad-hoc meetings may also be held as required. The independence of the Non-executive Directors is considered at least annually. This assessment also considers the character, judgement and commitment of each Non-executive Director as well as their performance on the Board and relevant Committees. The Board in its deliberations specifically takes into consideration the Combined Code

120 ACE BOWNE OF TORONTO 05/23/2010 13:26 NO MARKS NEXT PCN: 126.00.00.00 -- Page is valid, no graphics BOT U08763 125.00.00.00 16

and examples of indicators of potential non-independence including length of service on the Board of more than nine years. Following such evaluation at 18 May 2010, each of the Non-executive Directors has been determined by the Board to be independent.

Throughout the year ended 31 March 2010 and subsequent thereto through to the date of this document, the AI, 16.4 Company has complied in full with the provisions of the Combined Code issued by the Financial Reporting Council in June 2008. National Grid plc, as a foreign issuer with ADSs, listed on the NYSE, is obliged by the NYSE Standards to disclose any significant differences in corporate governance practices from the NYSE Standards. The Company has reviewed the NYSE Standards and believes that its practices are broadly consistent with them. In order to operate effectively and to give appropriate attention and consideration to matters, the Board has delegated authority to its Committees to carry out certain tasks as defined in, and regulated by, the Committees’ terms of reference, which are available on the Company’s website at www.nationalgrid.com. These Committees comprise the Audit, Executive, Finance, Nominations, Remuneration and Risk & Responsibility Committees. The Board is kept apprised by the Committee chairmen through the provision of a summary of the issues discussed and decisions taken by the Committee. Minutes of Committee meetings are circulated to other Directors once available. The following sections explain the areas of responsibility of each Board Committee.

9.2 Audit Committee AI, 16.3 The key functions of the Audit Committee include in accordance with its terms of reference: reviewing the Company’s financial reporting and internal controls and their effectiveness; the procedures for the identification, assessment and reporting of risks; the appropriateness of the auditors in carrying out certain non-audit work; and the level of audit and non-audit fees payable to the auditors. The current Audit Committee members are George Rose (chairman), Linda Adamany, Philip Aiken and Maria Richter. The Audit Committee, whose members are all independent Non-executive Directors, considers that both management and the external auditors should attend meetings where possible in order to provide the members of the Audit Committee with the information that they require and to answer questions. Accordingly, others invited to attend meetings include the Chairman, Chief Executive, Finance Director, director of corporate audit, financial controller, Company Secretary & General Counsel, chief accountant and external auditors. Additionally, the Executive Directors, global director of tax and treasury and global head of risk management are invited to attend Audit Committee meetings, as necessary, to provide updates and background information. At least once a year, the Audit Committee meets privately with the external auditors without management present. The Audit Committee holds at least four meetings a year. Due to the technical nature of some of the financial and accounting issues that come before it, all the Audit Committee’s members are required to have an understanding of financial matters and experience of dealing with such issues at a senior executive level. In addition, the Board has determined that George Rose, finance director of BAE Systems plc, has recent and relevant financial experience in accordance with the Combined Code and deems him to be a suitably qualified financial expert as required by the Audit Committee’s terms of reference and US requirements.

9.3 Executive Committee The Executive Committee oversees the financial, operational and safety performance of the Company, taking whatever management action it considers necessary to safeguard the interests of the Company and to further the strategy, business and objectives and targets established by the Board. The current Executive Committee members are Steve Holliday (chairman), Mark Fairbairn, Tom King, Steve Lucas, Nick Winser, David Lister (chief information officer), Helen Mahy (Company Secretary & General Counsel), George Mayhew (corporate affairs director), Mike Westcott (global human resources director) and Alison Wood (global director of strategy and business development). Senior management personnel are invited to attend meetings of the Executive Committee as necessary to keep it fully apprised of the Company’s businesses.

121 ACE BOWNE OF TORONTO 05/23/2010 12:32 NO MARKS NEXT PCN: 127.00.00.00 -- Page is valid, no graphics BOT U08763 126.00.00.00 13

9.4 Finance Committee

The Finance Committee’s responsibilities include setting policy and granting authority for short-, medium- and long-term financing decisions, bank accounts, credit exposure, control mechanisms for hedging and foreign exchange transactions, guarantees and indemnities and approving, or if appropriate recommending for consideration by the Board, other treasury and tax management policies of the Company. It also considers and approves the risk management procedures in relation to trading and hedging activities undertaken.

The current Finance Committee members are Maria Richter (chairman), John Allan, Steve Holliday, Steve Lucas and Stephen Pettit.

The Finance Committee comprises the Chief Executive and Finance Director and three Non-executive Directors, one of whom is chairman of the Committee. The global director of tax and treasury is invited to attend Finance Committee meetings on a regular basis. External advisors are also invited to attend as and when considered appropriate, together with the global head of retirement plans and other executives from the Company.

9.5 Nominations Committee

The Nominations Committee, consisting of the Chairman and other Non-executive Directors, is responsible for considering the structure, size and composition of the Board and for identifying and proposing individuals to be Directors and senior management. A key consideration is succession planning for the Board and senior management. External recruitment consultants are generally used as part of any appointments process. Changes to the Board require Board approval following recommendation from the Committee.

The current Nominations Committee members are Sir John Parker (chairman), Ken Harvey, Maria Richter and George Rose.

The Chief Executive is invited to attend Nominations Committee meetings on a regular basis. Advice is sought from the global human resources director and external advice is sought as appropriate.

9.6 Remuneration Committee

The Remuneration Committee, consisting of Non-executive Directors, is responsible for developing policy relating to executive remuneration, and for determining the remuneration of the Executive Directors and executives below Board level who report directly to the Chief Executive. It also has oversight of remuneration policies for other employees of the Company and provides direction over the Company’s employee share plans.

The current Remuneration Committee members are John Allan (chairman), Ken Harvey, Stephen Pettit and AI, 16.3 George Rose.

The global human resources director and global head of compensation & benefits provide advice on remuneration policies and practices and are usually invited to attend meetings, along with the Chairman and the Chief Executive. Independent external advisors are also utilised by the Remuneration Committee where appropriate.

9.7 Risk & Responsibility Committee

The Risk & Responsibility Committee, consisting of Non-executive Directors, is responsible for reviewing the strategies, policies, targets and performance of the Company within its Framework for Responsible Business (a copy of which is available on the Company’s website at www.nationalgrid.com). The Committee reviews the Company’s non-financial risks for which it has oversight and in this regard the Committee interfaces with and works closely with the Audit Committee. Accordingly it reviews matters such as: safety, including public and process safety; the environment and climate change; employee wellbeing and occupational health; inclusion and diversity; security, including that related to information systems; human rights issues; and business ethics and conduct.

The current Risk & Responsibility Committee members are Stephen Pettit (chairman), Linda Adamany, Philip Aiken and Ken Harvey.

The Chief Executive, Company Secretary & General Counsel, director of UK safety, health and environment, US senior VP safety, health, environmental services and security and director of corporate audit are invited to attend Risk & Responsibility Committee meetings. Executive Directors, the corporate affairs director and others, including business representatives, are invited to attend as necessary.

122 ACE BOWNE OF TORONTO 05/24/2010 08:15 NO MARKS NEXT PCN: 128.00.00.00 -- Page is valid, no graphics BOT U08763 127.00.00.00 22

10 Significant Shareholdings

10.1 As at 21 May 2010, the Company had been notified of the following Shareholders who were directly or AI, 18.1 indirectly interested in three per cent. or more of the issued Ordinary Shares: As at 21 May 2010 Percentage Ordinary of issued Shares share capital* Black Rock Inc...... 123,761,405 4.99 Legal and General Group plc ...... 107,703,278 4.35 Crescent Holding GmbH ...... 106,724,490 4.34 Capital Group Companies, Inc ...... 102,067,366 3.75 FMR Corp ...... 82,805,863 3.06

Note: * As at date of notification. 10.2 Save as disclosed in this paragraph 10, the Company is not aware of any person who as at 21 May 2010 (being the latest practicable date prior to the publication of this document), directly or indirectly, has a holding which exceeds the threshold of three per cent. or more of the total voting rights attaching to its issued share capital.

10.3 The Company is not aware of any persons who, as at 21 May 2010 (being the latest practicable date prior to AI, 18.3 the publication of this document), directly or indirectly, jointly or severally, exercise or could exercise AI, 18.4 control over the Company nor is it aware of any arrangements, the operation of which may at a subsequent date result in a change of control of the Company.

10.4 All Existing Shares rank pari passu. None of the Shareholders referred to in this paragraph 10 has different AI, 18.2 voting rights from any other holder of Shares in respect of any Shares held by them.

123 ACE BOWNE OF TORONTO 05/23/2010 12:43 NO MARKS NEXT PCN: 129.00.00.00 -- Page is valid, no graphics BOT U08763 128.00.00.00 18

11 Subsidiaries

The following table contains a list of the principal subsidiaries of the Company (each of which is considered by the AI, 7.2 Company to be likely to have a significant effect on the assessment of the assets, liabilities, the financial position AI, 25.1 and/or the profits and losses of the Group): AI, 5.2.1 Percentage AI, 21.1.3 ownership interest and Name voting power Field of activity Country of incorporation

National Grid Gas plc ...... 100 Transmission and distribution of gas England and Wales National Grid Electricity Transmission England and Wales plc...... 100 Transmission of electricity New England Power Company ...... 100 Transmission of electricity United States Massachusetts Electric Company . . . . 100 Distribution of electricity United States The Narragansett Electric Company . . 100 Transmission and distribution of United States electricity Niagara Mohawk Power Corporation . . 100 Transmission of electricity and United States distribution of electricity and gas National Grid Metering Limited . . . . . 100 Metering services England and Wales Utility Metering Services Limited . . . . 100 Metering services England and Wales National Grid Grain LNG Limited . . . 100 LNG importation terminal England and Wales Boston Gas Company...... 100 Distribution of gas United States National Grid Electric Services LLC . . 100 Transmission and distribution of United States electricity National Grid Generation LLC ...... 100 Generation of electricity United States New England Electric Transmission United States Corporation ...... 100 Transmission of electricity Nantucket Electric Company ...... 100 Distribution of electricity United States KeySpan Gas East Corporation...... 100 Distribution of gas United States The Brooklyn Union Gas Company . . . 100 Distribution of gas United States NGG Finance plc ...... 100 Financing England and Wales British Transco Finance Inc...... 100 Financing United States British Transco International Finance Netherlands BV...... 100 Financing National Grid Property Limited . . . . . 100 Property services England and Wales National Grid Holdings One plc . . . . . 100 Holding company England and Wales Lattice Group plc ...... 100 Holding company England and Wales National Grid USA ...... 100 Holding company United States Niagara Mohawk Holdings, Inc. . . . . 100 Holding company United States National Grid Commercial Holdings England and Wales Limited ...... 100 Holding company National Grid Gas Holdings Limited . . 100 Holding company England and Wales National Grid (US) Holdings United States Limited ...... 100 Holding company National Grid Holdings Limited . . . . . 100 Holding company England and Wales KeySpan Corporation ...... 100 Holding company United States

Principal joint ventures and associates The following table contains a list of the principal joint ventures and associates of the Company: Percentage ownership interest and Name voting power Field of activity Country of incorporation Blue–NG (Holdings) Limited ...... 50 Holding company England and Wales BritNed Development Limited ...... 50 Interconnector England and Wales Millennium Pipeline Company, LLC ...... 26.25 Transmission of gas United States Iroquois Gas Transmission System, L.P...... 20.4 Transmission of gas United States

124 ACE BOWNE OF TORONTO 05/23/2010 14:53 NO MARKS NEXT PCN: 130.00.00.00 -- Page is valid, no graphics BOT U08763 129.00.00.00 16

12 Employees

As at 31 March 2010, the Company had 28,106 employees. AI, 17.1 Average number of employees for the year ended 31 March 2010 2009 2008 United Kingdom ...... 10,269 10,296 10,093 United States ...... 17,798 17,829 14,288 Rest of the world ...... — — 5 Continuing operations ...... 28,067 28,125 24,386 Discontinued operations ...... — 83 119 28,067 28,208 24,505

13 National Grid plc Employee Share Plans AI, 17.3 13.1 The Company operates the following employee share plans: (i) National Grid plc Share Incentive Plan (the “SIP”); (ii) Lattice Group All Employee Share Ownership Plan (the “AESOP”); (iii) National Grid plc Employee Stock Purchase Plan 2002 (the “ESPP”); (iv) National Grid plc Performance Share Plan (the “PSP”); (v) National Grid plc Deferred Share Plan (the “DSP”); (vi) National Grid plc Retention Award Plan (the “Retention Award Plan”); (vii) National Grid plc Special Retention Award Plan (the “Special Retention Award Plan”); (viii) National Grid plc Share Matching Plan 2002 (the “Share Matching Plan”); (ix) National Grid plc Savings Related Share Option Plan 2002 (“Sharesave”); (x) National Grid plc Executive Share Option Plan 2002 (the “ESOP”); (xi) National Grid plc Executive Share Option Scheme 1990 (the “ESOS”); and (xii) Lattice Group Short Term Incentive Scheme (the “STIS”). The principal features of the National Grid plc Employee Share Plans are summarised below. In addition to the National Grid plc Employee Share Plans above, National Grid plc also operates the National Grid plc 1996 Employee Benefit Trust and the National Grid Employee Share Trust.

13.2 Common features The following features are common to each of the National Grid plc Employee Share Plans:

13.2.1 Dilution Limits Shares can be issued or transferred out of treasury under any of the National Grid plc Employee Share Plans except the DSP, the Retention Award Plan, the Special Retention Award Plan and the STIS. In any ten-year period, not more than ten per cent. of the issued Ordinary Share capital of National Grid plc may be issued or committed to be issued under employee share plans operated by National Grid plc. In addition, in any ten-year period, not more than five per cent. of the issued Ordinary Share capital of National Grid plc may be issued or committed to be issued under discretionary employee share plans adopted by National Grid plc. These limits do not include options or other rights which have lapsed or been surrendered.

13.2.2 Timing of operation Awards and options under the National Grid plc Employee Share Plans are normally granted within 42 days after the announcement of the Company’s results for any period. Awards and options may also be granted at other times in exceptional circumstances.

125 ACE BOWNE OF TORONTO 05/23/2010 12:43 NO MARKS NEXT PCN: 131.00.00.00 -- Page is valid, no graphics BOT U08763 130.00.00.00 14

13.2.3 Amendments Except for the DSP, the Retention Award Plan, the Special Retention Award Plan and the STIS, shareholder approval is required to amend certain provisions of the National Grid plc Employee Share Plans to the advantage of participants. These provisions relate to: eligibility; individual and dilution limits; option price; rights attaching to options or awards; adjustment of options or awards on a variation in the Company’s share capital and the adjustment power. Shareholder approval is not required, however, where the change relates to any minor alteration to benefit the administration of the National Grid plc Employee Share Plans, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for participants, or to amend or add to the provisions of the National Grid plc Employee Share Plans to take account of tax, exchange control or securities laws which apply to non-UK employees.

13.2.4 Administration The National Grid plc Employee Share Plans are administered by the Board or a duly appointed committee under it.

13.2.5 Other provisions Participants do not have dividend or voting rights in respect of Ordinary Shares under award or option until such Ordinary Shares have been issued or transferred to them. However, the relevant committee has the discretion under some of the National Grid plc Employee Share Plans to make dividend equivalent payments. Any Ordinary Shares issued under the National Grid plc Employee Share Plans will rank equally with other Ordinary Shares of the same class in issue on the date of allotment except in respect of rights by reference to a record date prior to the date of allotment. Application will be made to the UK Listing Authority for the Ordinary Shares to be admitted to the Official List and to the London Stock Exchange for the Ordinary Shares to be admitted to trading. In the event of a variation in the share capital of National Grid plc, a demerger and/or special dividend, awards or options may be adjusted. Where necessary, adjustments are subject to the prior approval of HMRC. All the National Grid plc Employee Share Plans except the AESOP and the STIS will terminate ten years after their approval by the Company’s shareholders, adoption by the Company (where shareholder approval was not required) or earlier if the relevant committee decides. Termination will not affect outstanding awards and options, but no new rights may be granted under the National Grid plc Employee Share Plans after termination.

13.3 SIP 13.3.1 Outline The SIP is an all-employee plan which operates through a UK resident trust. It allows employees to be awarded free or matching shares, to use deductions from salary to buy partnership shares and to reinvest dividends into dividend shares on the basis the shares are held in trust. The SIP is approved by HMRC. To date, the SIP has only been operated in relation to partnership shares and dividend shares.

13.3.2 Eligibility All employees of National Grid plc and any participating companies must be invited to participate in the SIP if they are UK taxpayers. Other employees may be invited to participate on a discretionary basis.

13.3.3 Free shares The Company does not currently operate this element of the SIP. The maximum value of free shares which may be awarded to an employee is £3,000 each year. If a free share award is granted, free shares must be offered to all eligible employees on the same basis, but the number of free shares awarded can vary by reference to performance targets and/or the percentage of the eligible employee’s salary. Participants may not generally withdraw free shares from the SIP for three years and will suffer income tax and national insurance charges if they withdraw them within five years of the award date.

13.3.4 Partnership shares The SIP allows eligible employees the opportunity to purchase partnership shares using money deducted from their pre-tax salary. The amount deducted must not exceed £1,500 (or ten per cent. of salary, if lower), in any tax year.

126 ACE BOWNE OF TORONTO 05/23/2010 14:52 NO MARKS NEXT PCN: 132.00.00.00 -- Page is valid, no graphics BOT U08763 131.00.00.00 14

Partnership shares can be withdrawn from the SIP at any time, but income tax and national insurance charges will apply if they are withdrawn within five years of the purchase date. If the partnership shares are withdrawn within three years of the purchase date, any related matching shares will be forfeited.

13.3.5 Matching shares

The Company does not currently operate this element of the SIP. The SIP provides that where employees acquire partnership shares, they may, at the relevant committee’s discretion, be awarded additional shares on a matched basis at a ratio of not more than two matching shares to every one partnership share. Participants may not generally withdraw the matching shares for three years and will suffer income tax and national insurance charges if they withdraw them within five years of the award date.

13.3.6 Dividend shares

The SIP provides that any dividends received in respect of shares held in trust may be reinvested in further shares on the participant’s behalf. Participants may not generally withdraw the dividend shares for three years and after this time they may be withdrawn free of any income tax.

13.3.7 Leaving employment

Shares awarded to a participant whose employment terminates must be withdrawn from the SIP immediately. Charges to income tax and national insurance will apply unless the participant leaves by reason of death, injury, disability, redundancy, retirement or the sale of the business or subsidiary for which the participant works or the shares have been retained in the SIP for at least five years.

13.4 AESOP

The rules of the AESOP are similar to those described above in respect of the SIP. The AESOP, which had originally been established by Lattice Group plc, operated in respect of free shares, partnership shares and dividend shares only. No further awards are made under the AESOP other than in relation to dividend shares awarded in respect of any dividends paid on shares still retained in the AESOP (and where participants have so elected to receive dividend shares).

13.5 ESPP

13.5.1 Outline

US-based employees may be eligible to participate in the ESPP. Eligible employees have the opportunity to purchase American depositary shares (ADSs) on a monthly basis at a ten per cent. discount to the market value of an ADS, up to a maximum annual contribution (currently US$20,000).

13.5.2 Eligibility

Employees are eligible to join the ESPP if they are employed by a participating company for more than 20 hours per week and have been employed for at least three months at the offer date.

13.5.3 Participation

Every month, participants have the opportunity to purchase ADSs at a ten per cent. discount to the market value of an ADS. Participants can contribute up to 20 per cent. of salary to purchase ADSs. Dividends received on ADSs may be received in cash or reinvested to purchase further ADSs.

Participants can sell the ADSs at any time but there are tax benefits associated with holding the ADSs for at least two years.

13.5.4 Leaving employment

On leaving employment, outstanding contributions together with the ADSs and any residual cash amounts are withdrawn from the ESPP and returned to participants.

127 ACE BOWNE OF TORONTO 05/23/2010 12:40 NO MARKS NEXT PCN: 133.00.00.00 -- Page is valid, no graphics BOT U08763 132.00.00.00 14

13.6 PSP 13.6.1 Outline Under the PSP, the Company may make awards of conditional shares which will vest subject to the achievement of performance conditions over a three-year period and provided the participant remains in employment. Shares are released on the fourth anniversary of the date of grant following a retention period.

13.6.2 Eligibility All employees and Executive Directors of the Company and any subsidiary company are eligible to participate in the PSP. In practice, however, only Executive Directors and approximately 400 other senior employees who have significant influence over the Company’s ability to meet its strategic objectives may receive an award.

13.6.3 Grant and vesting of awards Generally, awards to a participant in any financial year cannot exceed 250 per cent. of his or her basic salary at the time of award. In practice, Executive Directors may receive an award up to a maximum of 200 per cent. of salary and for all other participants it varies by grade and seniority. Shares vest after three years, conditional upon the satisfaction of the relevant performance criteria. Vested shares must then be held for a further period (the retention period) after which they are released to the participant on the fourth anniversary of the date of grant.

13.6.4 Leaving employment Awards will vest early when a participant ceases employment with National Grid plc before vesting as a result of death, ill health, injury, disability, pregnancy, redundancy, retirement or the sale of the employing company or business. In such circumstances, the award will generally vest on the date of leaving to the extent the performance conditions have been met and will be reduced on a pro rata basis to take account of the proportion of the three-year period from grant that has not been completed. Where the participant ceases employment for other reasons, the award will lapse.

13.6.5 Change of control, merger or other reorganisations Generally, on a takeover, scheme of arrangement or other corporate reconstruction, awards vest subject to the satisfaction of the performance conditions as at the time of the event and reduced on a pro rata basis to take account of the proportion of the vesting period that has not been completed.

13.7 DSP 13.7.1 Outline Under the DSP, participants may defer a proportion of their annual performance plan award in shares.

13.7.2 Eligibility All employees and Executive Directors of the Company and any subsidiary company are eligible to participate in the DSP. In practice, only the most senior employees, approximately 60, participate in this plan.

13.7.3 Grant and vesting of awards Awards are granted based on a proportion of a participant’s annual performance plan award for the relevant financial year. Awards will generally vest on the third anniversary of the grant date subject to the participant remaining in employment.

13.7.4 Leaving employment If a participant ceases employment before the third anniversary of the grant date as a result of death, ill health, injury, disability, retirement, redundancy or the sale of the employing company or business, the award vests immediately. If employment ceases for other reasons, the award lapses.

128 ACE BOWNE OF TORONTO 05/23/2010 12:40 NO MARKS NEXT PCN: 134.00.00.00 -- Page is valid, no graphics BOT U08763 133.00.00.00 16

13.7.5 Change of control, merger or other reorganisations If there is a takeover or scheme of arrangement, awards will either vest or may be exchanged for equivalent awards over shares in the acquiring company. In the event of a demerger or other corporate event, the relevant committee may allow awards to vest subject to any conditions it decides to impose.

13.8 Retention Award Plan 13.8.1 Outline Under the Retention Award Plan conditional awards of National Grid plc shares may be granted to eligible employees.

13.8.2 Eligibility All employees of the Company and any subsidiary company are eligible to participate in the Retention Award Plan. However, Executive Directors of the Company are not eligible. In practice, only a very small number of employees participate in this plan, the majority being KeySpan employees who received an award on merger.

13.8.3 Vesting Awards vest in accordance with a vesting schedule set by the relevant committee or agent, subject to the participant remaining employed.

13.8.4 Leaving employment If a participant ceases to be an employee of a participating company, all unvested awards will generally lapse. In the event of death, unvested awards will vest on the date of death.

13.8.5 Change of control, merger or other reorganisations In the event of a takeover, merger, scheme of arrangement or other change of control, the relevant committee may determine at their discretion whether and to what extent awards vest. To the extent awards do not vest, they will lapse as to the balance.

13.9 Special Retention Award Plan The rules of the Special Retention Award Plan are similar to those described above in respect of the Retention Award Plan. To date only Tom King has been made an award under the Special Retention Award Plan as part of his recruitment to the Company.

13.10 Share Matching Plan 13.10.1 Outline Eligible employees have bought shares out of post-tax bonuses (“Qualifying Shares”) and have been awarded a matching award of shares (“Matching Award”). No further awards are made under the Share Matching Plan other than in relation to any dividend shares which are awarded in respect of any dividend paid on Qualifying Shares still retained in the Share Matching Plan.

13.10.2 Eligibility Executive Directors or employees of the Company and any subsidiary company who are not within one year of the normal retirement date may be selected to participate in the Share Matching Plan.

13.10.3 Exercise of a Matching Award A Matching Award will normally be exercisable between the third and tenth anniversary of the grant date subject to the Qualifying Shares in respect of which the Matching Award was made being held in trust for at least three years and the continued employment of the participant.

13.10.4 Change of control, merger or other reorganisations On a takeover, scheme of arrangement, merger or certain other corporate reorganisation, Matching Awards may generally be exercised early. Alternatively, Matching Awards may be exchanged for equivalent awards over shares

129 ACE BOWNE OF TORONTO 05/23/2010 12:41 NO MARKS NEXT PCN: 135.00.00.00 -- Page is valid, no graphics BOT U08763 134.00.00.00 19

in the acquiring company. Qualifying Shares will be subject to the relevant corporate event in the same way as all other shares held by Shareholders.

13.11 Sharesave 13.11.1 Outline Sharesave is an all-employee plan under which employees may be invited to apply for options to acquire Ordinary Shares. The number of shares over which the option is granted is determined by the amount the employee commits to save under a savings contract including a tax-free bonus added to the savings at the end of the savings contract. Sharesave is approved by HMRC.

13.11.2 Eligibility All employees of National Grid plc and any participating companies must be invited to participate in Sharesave if they are UK taxpayers and have been employed by National Grid plc or a participating company for a qualifying period (which cannot exceed five years). Other employees may be invited to participate on a discretionary basis.

13.11.3 Grant and exercise of options A participant may be granted a three-year and/or five-year option with the opportunity to extend the five-year option to seven. The option price must not be less than 80 per cent. of the market value of an Ordinary Share, calculated as either the price on the business day before the date of invitation or the average price of the three previous business days. The savings contract must not permit savings of more than (currently) £250 per month and will run for a period of either three or five years (to match the option period). If the five-year option is extended to seven, the savings period will still be five years. Options are normally exercisable during the six months after the end of the savings contract.

13.11.4 Leaving employment Options will normally lapse when the participant ceases to be employed before vesting. However, if employment ends because of death, injury, disability, redundancy, retirement or sale of the employing company or business, options immediately become exercisable to the extent of the related savings. Options will remain exercisable for six months (or twelve months in the case of death) and then lapse.

13.11.5 Change of control Options may be exercised for six months from a change of control and will lapse if not exercised. Alternatively, options may be exchanged, by agreement with the acquiring company for equivalent options over shares in the acquiring company.

13.12 ESOP 13.12.1 Outline The ESOP is a share option plan under which options are granted at market value. Options have been granted which are both HMRC approved and unapproved. No new options have been granted under this plan since 2003 and it is not intended that any further options will be granted.

13.12.2 Eligibility All employees and Executive Directors of the Company and any subsidiary company are eligible to be granted options under the ESOP. In practice, however, only the most senior employees of the Company received options.

13.12.3 Grant and exercise of options HMRC approved options have been granted up to a value of £30,000 per participant. This limit is not applicable to unapproved options. The option price of outstanding options is not less than the market value of an Ordinary Share as at the date of grant. Options are normally exercisable between three and ten years after grant, subject to the satisfaction of performance conditions.

130 ACE BOWNE OF TORONTO 05/23/2010 12:41 NO MARKS NEXT PCN: 136.00.00.00 -- Page is valid, no graphics BOT U08763 135.00.00.00 22

13.12.4 Leaving employment Where a participant ceases to be an employee by reason of death, injury, disability, pregnancy, redundancy, retirement with the agreement of his employer or his employing company ceasing to be part of the Company, he will be entitled to exercise his option for twelve months (or six months in the event of retirement) and it will then lapse. Where the participant ceases employment for any other reason, the option may not be exercised at all unless and to the extent the relevant committee so permits.

13.12.5 Change of control, merger or other reorganisations On a takeover, scheme of arrangement, merger or certain other corporate reorganisation, options can generally be exercised early. Alternatively, participants may be allowed to exchange their options for options over shares in the acquiring company.

13.13 ESOS The rules of the ESOS are similar to those described above in respect of the ESOP. The ESOS expired in 2000 and no further options can be granted under it.

13.14 STIS The STIS is an annual incentive scheme in which employees who are active members of the Defined Benefit Section of the National Grid UK Pension Scheme are eligible to participate. Subject to meeting certain business targets and individual performance objectives over a financial year under the Annual Performance Plan, an award in the form of shares in National Grid plc may be awarded instead of a cash payment. There is no retention period in relation to the shares.

14 Pension Benefits Substantially all National Grid’s employees are members of either defined benefit or defined contribution pension plans.

14.1 UK pension schemes National Grid’s defined benefit pension arrangements are funded with assets held in separate trustee administered funds. The arrangements are subject to independent actuarial 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 schemes’ assets, are expected to be sufficient to fund the benefits payable under the schemes. From April 2009 Flexible Pension Savings, a salary sacrifice arrangement, was introduced for active defined contribution section members of the National Grid UK Pension Scheme. Flexible Pension Savings was introduced in respect of active defined benefit members in December 2009. Member contributions and National Grid’s service charge reflects the new arrangement.

14.2 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 latest full actuarial valuation was carried out by Towers Watson as at 31 March 2007. The market value of the scheme’s assets was £12,923 million and the value of the assets represented 97 per cent. of the actuarial value of benefits due to members, calculated on the basis of pensionable earnings and service at 31 March 2007 on an ongoing basis and allowing for projected increases in pensionable earnings. There was a funding deficit of £442 million (£318 million net of tax) on the valuation date in the light of which the Company agreed to a recovery plan with the trustees. The actuarial valuation showed that, based on long-term financial assumptions, the contribution rate required to meet future benefit accrual was 32.4 per cent. of pensionable earnings (29.4 per cent. employers and 3 per cent. employees). In addition, the employers pay an allowance for administration expenses which was 3.2 per cent. of pensionable earnings for 2008/09, giving a total Company rate of 32.6 per cent. of pensionable earnings. The employer contribution rate will be reviewed at the next valuation on 31 March 2010, whilst the administration rate is reviewed annually.

131 ACE BOWNE OF TORONTO 05/23/2010 12:41 NO MARKS NEXT PCN: 137.00.00.00 -- Page is valid, no graphics BOT U08763 136.00.00.00 28

In accordance with the recovery plan agreed with the trustees at the 2007 valuation, the Company paid its final contributions of £59 million (£42 million net of tax) in the year ended 31 March 2010 which ensured that the deficit reported at the 2007 valuation is paid in full. Contributions to the scheme during the year to 31 March 2011 are expected to comprise normal contributions only.

14.3 Electricity Supply Pension Scheme The Electricity Supply Pension Scheme is a funded scheme which is divided into sections, one of which is National Grid’s section. National Grid’s section of the scheme provides final salary defined benefits and was closed to new entrants on 1 April 2006. The latest full actuarial valuation was carried out by Hewitt Associates as at 31 March 2007. The market value of the scheme’s assets was £1,345 million and the value of the assets represented 77 per cent. of the actuarial value of benefits due to members, calculated on the basis of pensionable earnings and service at 31 March 2007 on an ongoing basis and allowing for projected increases in pensionable earnings. There was a funding deficit of £405 million (£292 million net of tax) on the valuation date in the light of which the Company agreed to a recovery plan with the trustees. The actuarial valuation showed that, based on long-term financial assumptions, the contribution rate required to meet future benefit accrual was 26.5 per cent. of pensionable earnings (20.5 per cent. employers and 6 per cent. employees). These contribution rates will be reviewed at the next valuation as at 31 March 2010. Following the 2007 actuarial valuation, the Company and the trustees agreed a recovery plan which will see the remaining deficit paid off by March 2017. The Company paid deficit repair contributions of £90 million (£65 million net of tax) in the year to 31 March 2010 and anticipates no further deficit payments in the year ending 31 March 2011 in line with the recovery plan. Contributions to the scheme in the year ending 31 March 2011 are expected to consist of ongoing normal contributions only. Since 2007, National Grid has also agreed to bring forward payment of the outstanding deficit plus interest in the event that certain triggers are breached. The conditions under which payment of the outstanding deficit would be made are if NGET ceases to hold the licence granted under the Electricity Act 1989 or NGET’s credit rating by two out of three specified agencies falls below certain agreed levels for a period of 40 days.

14.4 US pension plans National Grid’s defined benefit pension plans in the United States provide annuity or lump sum payments for all vested employees. In addition, employees are provided with matched defined contribution benefits. The assets of the plans are held in separate trustee administered funds. Employees do not contribute to the defined benefit plans. Employer contributions are made in accordance with the rules set out by the US Internal Revenue Code. These contributions vary according to the funded status of the plans and the amounts that are tax deductible. At present, there is some flexibility in the amount that is contributed on an annual basis. In general, the Company’s policy for funding the US pension plans is to contribute amounts collected in rates. These contributions are expected to meet the requirements of the Pension Protection Act of 2006.

14.5 US retiree healthcare and life insurance plans National Grid provides healthcare and life insurance benefits to eligible retired US employees. Eligibility is based on certain age and length of service requirements and in most cases retirees contribute to the cost of their coverage. In the United States, there is no governmental requirement to pre fund post-retirement health and welfare plans. However, there may be requirements under the various state regulatory agreements to contribute to these plans. Depending upon the rate jurisdiction and the plan, the funding level may be: equal to the expense as determined under US GAAP; equal to the amount collected in rates; equal to the maximum tax deductible contribution; or zero. These requirements may change as rate agreements are reset. National Grid expects to contribute US$404 million to the US pension plans and US$224 million to other post- retirement benefit plans from 1 April 2010 to 31 March 2011, although this figure may vary due to changes in market conditions and regulatory recovery.

15 Litigation

Save as disclosed in the following paragraphs, there have been no governmental, legal or arbitration proceedings AI, 20.8 (including, so far as National Grid is aware, any such proceedings pending or threatened) during the 12 months

132 ACE BOWNE OF TORONTO 05/23/2010 12:41 NO MARKS NEXT PCN: 138.00.00.00 -- Page is valid, no graphics BOT U08763 137.00.00.00 26

immediately preceding the date of this document which may have, or have had in the recent past, a significant effect on the Group’s financial position or profitability.

15.1 Metering competition investigation On 25 February 2008, GEMA announced it had decided National Grid breached Chapter II of the Competition Act 1998 and Article 82 (now Article 102) of the TFEU and fined it £41.6 million. National Grid appealed GEMA’s decision to the Competition Appeal Tribunal, which upheld the appeal in part in April 2009 and reduced the fine to £30 million. National Grid appealed further to the Court of Appeal in respect of certain aspects of the Competition Appeal Tribunal’s judgment. On 23 February 2010, in a reserved judgment, the Court of Appeal decided that it would not interfere with the judgment of the Competition Appeal Tribunal save that it further reduced the fine to £15 million. On 22 March 2010, National Grid applied to the Supreme Court for leave to appeal the Court of Appeal’s judgment. As at 31 March 2010, National Grid has provided for the fine together with associated costs and has provided against certain trade receivables and other balance sheet items. Without prejudice to National Grid’s position in relation to appealing the Court of Appeal’s judgment, the £15 million fine was paid to GEMA on 1 April 2010.

15.2 Gas Distribution mains replacement investigation In October 2008, the Group informed Ofgem that mains replacement activity carried out by the UK Gas Distribution business may have been misreported. Ofgem’s investigation continues, so that at present it is too early to determine the likely outcome of the investigation and any potential consequences as a result of it, including the quantum of any amounts that may become payable.

15.3 KeySpan and US Department of Justice In May 2007, KeySpan received a civil investigative demand (“CID”) from the Antitrust Division of the US Department of Justice (the “DoJ”), requesting the production of documents and information relating to its investigation of competitive issues in the New York City electricity capacity market prior to the Company’s acquisition of KeySpan. In April 2008, KeySpan received a second CID in connection with this matter. On 22 February 2010, the DoJ filed a proposed final judgment in the US District Court for the Southern District of New York. Under the terms of the proposed settlement, the DoJ and KeySpan have agreed that KeySpan will pay US$12 million in full and final resolution of the DoJ’s CIDs from May 2007 and April 2008. The agreement contains no admissions of wrongdoing by KeySpan and remains subject to court approval which is currently anticipated later in 2010.

15.4 KeySpan class action On 18 March 2010, a putative class action was commenced against KeySpan and Morgan Stanley in the Supreme Court for the State of New York in Bronx County. The complaint alleges four causes of action based on the core allegation that the financial swap transaction between KeySpan and Morgan Stanley dated 18 January 2006 caused customers of Consolidated Edison, Inc. to overpay for electricity between May 2006 and February 2008. The complaint seeks compensatory damages of not less than US$160 million, as well as punitive damages plus legal costs. National Grid’s management believes that the complaint and its allegations are without merit.

16 Material Contracts of the Group

The following are all of the contracts (not being contracts entered into in the ordinary course of business) that have AI, 22 been entered into by members of the Group: (a) within the two years immediately preceding the date of this document which are, or may be, material to the Group; or (b) at any time and contain obligations or entitlements which are, or may be, material to the Group as at the date of this document.

16.1 Underwriting Agreement On 20 May 2010, the Company entered into an Underwriting Agreement with the Banks. Pursuant to the terms and conditions of the Underwriting Agreement, the Joint Bookrunners have severally agreed, subject to certain conditions, to use reasonable endeavours to procure subscribers for, or failing which the Underwriters will themselves, in their respective proportions, severally procure subscribers, or failing which subscribe for New Shares not taken up under the Rights Issue, in each case at the Issue Price. Under the Underwriting Agreement, the Company has also appointed each of Morgan Stanley & Co. International plc and Deutsche Bank AG, London Branch as Joint Sponsors in connection with its application for Admission. In consideration of their services under the Underwriting Agreement, and subject to their obligations under the Underwriting Agreement having become unconditional and the Underwriting Agreement not being terminated, the

133 ACE BOWNE OF TORONTO 05/23/2010 12:41 NO MARKS NEXT PCN: 139.00.00.00 -- Page is valid, no graphics BOT U08763 138.00.00.00 22

Company has agreed to pay the Underwriters a commission of 2 per cent. of an amount equal to the Issue Price multiplied by the aggregate number of New Shares and, at the discretion of the Company, an additional commission of up to 0.75 per cent. of such amount. Sub-underwriting commissions (to the extent that sub-underwriters are or have been procured) will be paid out of such commission. The Company shall, pursuant to the Underwriting Agreement pay, (whether or not the obligations of the Underwriters under the Underwriting Agreement become unconditional or are terminated) all costs and expenses of, or in connection with, the Rights Issue, the allotment and issue of the New Shares and the Underwriting Agreement including (but not limited to) the UK Listing Authority and the London Stock Exchange listing and trading fees, printing and advertising costs, postage, the Registrar’s charges, its own and, subject to various restrictions, the Banks’ legal and other out of pocket expenses, all accountancy and other professional fees and (subject to certain exceptions) all stamp duty and SDRT (if any) and other similar duties and taxes paid or payable by the Banks. The Company has given certain customary representations and warranties to the Banks as to the accuracy of the information contained in this document and other relevant documents, and in relation to other matters relating to the Group and its business. In addition, the Company has given customary indemnities to the Banks and certain indemnified persons connected with each of them. The liabilities of the Company are unlimited as to time and amount. The obligations of the Banks under the Underwriting Agreement are subject to certain conditions including, amongst others: (a) the Company having complied with all of its material obligations and undertakings under the Underwriting Agreement and under the terms and conditions of the Rights Issue which fall to be performed or satisfied prior to Admission; (b) each condition to enable the Nil Paid Rights and the Fully Paid Rights to be admitted as a participating security in CREST (other than Admission) being satisfied on or before 25 May 2010; and (c) Admission having occurred by not later than 8:00 a.m. on 26 May 2010 (or such later time and/or date as the Company may agree with the Joint Bookrunners). If any of the conditions are not satisfied (or waived by the Joint Bookrunners acting in good faith and following consultation with the Company) or shall have become incapable of being satisfied by the required time and date therefor, the obligations of the Banks under the Underwriting Agreement shall cease and determine. Additionally, each Joint Bookrunner (acting in good faith and following consultation with the Company) may terminate the Underwriting Agreement in its entirety in certain circumstances, but only prior to Admission.

16.2 Initial Subscription and Put and Call Option Deed and Subscription and Transfer Deed In connection with the Rights Issue, the Company, Newco and Deutsche Bank AG, London Branch (the “Subscribing Bank”) have entered into (i) an Initial Subscription and Put and Call Option Deed and (ii) a Subscription and Transfer Deed, in each case dated 20 May 2010, in respect of the subscription and transfer of ordinary shares and redeemable preference shares in Newco. Under the terms of these deeds: 16.2.1 the Company and the Subscribing Bank have agreed to subscribe for ordinary shares in Newco and enter into put and call options in respect of the ordinary shares in Newco subscribed for by the Subscribing Bank that are exercisable if the Rights Issue does not proceed; 16.2.2 the Subscribing Bank will apply monies received from Qualifying Shareholders or renouncees taking up New Shares under the Rights Issue and held by the Receiving Agent, Capita Registrars, on trust for the Subscribing Bank (acting as principal on receipt of such monies) to subscribe for redeemable preference shares in Newco to an aggregate value equal to such Rights Issue monies, after deduction of the amount of the commissions referred to above, together with any relevant amounts in respect of any New Shares subscribed for by the Underwriters or for which the Joint Bookrunners or Underwriters have procured subscribers pursuant to the Underwriting Agreement (after deducting relevant commissions and/or expenses); and 16.2.3 the Company will allot and issue the New Shares to those persons entitled thereto in consideration of the Subscribing Bank transferring its holdings of redeemable preference shares and ordinary shares in Newco to the Company. Accordingly, instead of receiving cash as consideration for the issue of the New Shares, at the conclusion of the Rights Issue the Company will own the entire issued ordinary and redeemable preference share capital of Newco

134 ACE BOWNE OF TORONTO 05/24/2010 09:46 NO MARKS NEXT PCN: 140.00.00.00 -- Page is valid, no graphics BOT U08763 139.00.00.00 27

whose only assets will be its cash reserves, which will represent an amount equivalent to the net proceeds of the Rights Issue. The Company will be able to utilise this amount equivalent to the Rights Issue proceeds by either exercising its right of redemption over the redeemable preference shares it holds in Newco or by procuring that Newco pays a dividend to the Company, as Newco’s sole shareholder and, during any interim period prior to redemption, by procuring that Newco lends the amount to the Company (or one of the Company’s subsidiaries). Qualifying Shareholders are not party to these arrangements and so will not acquire any direct right against the Subscribing Bank pursuant to these arrangements. The Company will be responsible for enforcing the Subscribing Bank’s obligations thereunder.

17 Related Party Transactions

Other than as disclosed in note 29 to the financial information incorporated by reference into this document from the AI, 19 Annual Report and Accounts 2009/10, there are no related party transactions between the Company or members of the Group that were entered into during the financial years ended 31 March 2010, 2009 and 2008. During the period between 1 April 2010 and 19 May 2010 (the latest practicable date prior to the publication of this document) there have been no related party transactions.

18 Dividends

The following table sets out the dividend per Ordinary Share paid in respect of each of the financial years ended AI, 20.7.1 31 March 2010, 2009 and 2008: AIII, 4.5 For the year ended 31 March 2010 2009 2008 (pence) Dividend per Ordinary Share Interim ...... 13.65 12.64 11.70 Final...... 24.84(1) 23.00 21.30 Total...... 38.49 35.64 33.00

Note: (1) Final dividend recommended; to be paid on 18 August 2010. A scrip dividend will be offered as an alternative to cash.

19 Working Capital

The Company is of the opinion that, after taking into account existing available bank and other facilities and the net AIII, 3.1 proceeds of the Rights Issue, the Group has sufficient working capital for its present requirements, that is, for at least the next 12 months from the date of this document.

20 No Significant Change

There has been no significant change in the trading or financial position of the Group since 31 March 2010 (the date AI, 20.9 to which the latest consolidated financial information of the Company was prepared).

21 Consents

21.1 PricewaterhouseCoopers LLP has given and has not withdrawn its written consent to the inclusion of its AI, 2.1 report on the unaudited pro forma financial information in Section B of Part IX of this document in the form AI, 23.1 and context in which it appears and has authorised the contents of that report for the purposes of AIII, 10.2 item 5.5.3R(2)(f) of the Prospectus Rules. AIII, 10.3 A written consent under the Prospectus Rules is different from a consent filed with the Securities and Exchange Commission under Section 7 of the US Securities Act. As the New Shares have not been and will not be registered under the US Securities Act, PricewaterhouseCoopers LLP has not filed a consent under Section 7 of the US Securities Act.

22 General

22.1 The financial information concerning the Company contained or incorporated by reference in this document AI, 2.1 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act. The AI, 20.4.1 consolidated financial statements of the Company in respect of the three years ended 31 March 2010, 2009 and 2008 were reported on by PricewaterhouseCoopers LLP, the auditors of the Company within the

135 ACE BOWNE OF TORONTO 05/24/2010 09:46 NO MARKS NEXT PCN: 141.00.00.00 -- Page is valid, no graphics BOT U08763 140.00.00.00 25

meaning of Section 495 of the Companies Act for the period of the historical financial information set out in this document. The auditors of the Company made reports under Section 503 of the Companies Act in respect of each of the three years ended 31 March 2010, 2009 and 2008 and such reports were unqualified reports within the meaning of Sections 836 to 841 of the Companies Act.

22.2 The Rights Issue is being underwritten in full by the Underwriters pursuant to the Underwriting Agreement, AIII, 5.4.3 details of which are set out in paragraph 16.1 of this Part XI.

22.3 The total costs, charges and expenses payable by the Company in connection with the Rights Issue are AIII, 8.1 estimated to be £111 million.

22.4 The Company remains subject to the continuing obligations of the Listing Rules with regard to the issue of AIII, 4.5 securities for cash and the provisions of Section 561 of the Companies Act (which confers on Shareholders AIII, 5.3.3 rights of pre-emption in respect of the allotment of equity securities which are, or are to be, paid up in cash) apply to the balance of the equity securities that the Directors are authorised to allot which is not the subject of the disapplication approved by the Shareholders in a general meeting of the Company.

22.5 The Existing Shares are in registered form, are capable of being held in uncertificated form and are admitted AIII, 6.2 to the Official List and are traded on the main market for listed securities of the London Stock Exchange. AIII, 4.3

22.6 The New Shares will be in registered form and, from Admission, will be capable of being held in AIII, 4.3 uncertificated form and title to such shares may be transferred by means of a relevant system (as defined in the CREST Regulations). Where New Shares are held in certificated form, share certificates will be sent to AIII, 4.1 the registered members by first-class post. Where New Shares are held in CREST, the relevant CREST stock account of the registered members will be credited. The New Shares will be admitted with the ISIN GB00B08SNH34.

26 22.7 The New Shares will be issued at 335 pence per Share. This represents a premium of 323 ⁄43 pence per AIII, 4.4 17 Ordinary Share to the nominal value of 11 ⁄43 pence per Ordinary Share.

23 Documents Available for Inspection

Copies of the following documents may be inspected at the registered office of the Company at 1-3 Strand, London AI, 24 WC2N 5EH and at the offices of Linklaters LLP, One Silk Street, London EC2Y 8HQ during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) up to and including 11 June 2010: (a) the Articles of Association; (b) the Annual Reports and Accounts of the Company for the three financial years ended 31 March 2010, 2009 and 2008; (c) the consent letter referred to in paragraph 21 above; and (d) this document.

24 Announcement of Results AIII, 5.1.9 AIII, 5.2.4 The Company will make an appropriate announcement(s) to a Regulatory Information Service giving details of the results of the Rights Issue and details of the sale of New Shares not taken up by Qualifying Shareholders on or about 14 June 2010.

136 ACE BOWNE OF TORONTO 05/23/2010 13:29 NO MARKS NEXT PCN: 142.00.00.00 -- Page is valid, no graphics BOT U08763 141.00.00.00 21

PART XII

DOCUMENTATION INCORPORATED BY REFERENCE The Annual Report and Accounts of National Grid for each of the financial years ended 31 March 2010, 2009 and 2008 are available for inspection in accordance with Part XI “Additional Information” of this document and contain information which is relevant to the Rights Issue. These documents are also available on National Grid’s website at www.nationalgrid.com. The table below sets out the various sections of such documents which are incorporated by reference into this document so as to provide the information required under the Prospectus Rules and to ensure that Shareholders and others are aware of all information which, according to the particular nature of National Grid and of the New Shares, is necessary to enable Shareholders and others to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of National Grid. AI, 20.1(a)-(e) Page numbers in such AI, 20.6.1 Document Section document AI, 20.6.2 Annual Report and Accounts 2009/10 of Board of Directors 12-13 National Grid plc Annual Report and Accounts 2009/10 of Operating and Financial Review 14-83 National Grid plc Annual Report and Accounts 2009/10 of Corporate Governance 84-92 National Grid plc Annual Report and Accounts 2009/10 of Directors’ Report — Research and 96 National Grid plc development Annual Report and Accounts 2009/10 of Directors’ Report — Employees 97 National Grid plc Annual Report and Accounts 2009/10 of Audited part of the Directors’ 103-108 National Grid plc Remuneration Report Annual Report and Accounts 2009/10 of Statement of Directors’ Responsibilities 110 National Grid plc Annual Report and Accounts 2009/10 of Independent Auditors’ Report 111 National Grid plc Annual Report and Accounts 2009/10 of Accounting Policies 112-117 National Grid plc Annual Report and Accounts 2009/10 of Adoption of New Accounting Standards 118-119 National Grid plc Annual Report and Accounts 2009/10 of Consolidated Income Statement 120 National Grid plc Annual Report and Accounts 2009/10 of Consolidated Statement of Comprehensive 121 National Grid plc Income Annual Report and Accounts 2009/10 of Consolidated Balance Sheet 122 National Grid plc Annual Report and Accounts 2009/10 of Consolidated Statement of Changes in 123 National Grid plc Equity Annual Report and Accounts 2009/10 of Consolidated Cash Flow Statement 124 National Grid plc Annual Report and Accounts 2009/10 of Notes to the Consolidated Financial 125-178 National Grid plc Statements Annual Report and Accounts 2008/09 of Audited part of Directors’ Remuneration 107-112 National Grid plc Report Annual Report and Accounts 2008/09 of Independent Auditors’ Report 115 National Grid plc Annual Report and Accounts 2008/09 of Consolidated Income Statement 126 National Grid plc Annual Report and Accounts 2008/09 of Consolidated Balance Sheet 127 National Grid plc

137 ACE BOWNE OF TORONTO 05/23/2010 16:46 NO MARKS NEXT PCN: 143.00.00.00 -- Page is valid, no graphics BOT U08763 142.00.00.00 18

Page numbers in such Document Section document Annual Report and Accounts 2008/09 of Consolidated Cash Flow Statement 129 National Grid plc Annual Report and Accounts 2008/09 of Consolidated Statement of Recognised 128 National Grid plc Income and Expense Annual Report and Accounts 2008/09 of Accounting Policies 116-123 National Grid plc Annual Report and Accounts 2008/09 of Adoption of New Accounting Standards 124-125 National Grid plc Annual Report and Accounts 2008/09 of Notes to the Consolidated Financial 130-186 National Grid plc Statements Annual Report and Accounts 2007/08 of Statement of Directors’ Responsibilities 112 National Grid plc Annual Report and Accounts 2007/08 of Audited part of Directors’ Remuneration 105-110 National Grid plc Report Annual Report and Accounts 2007/08 of Independent Auditors’ Report 113 National Grid plc Annual Report and Accounts 2007/08 of Consolidated Income Statement 122 National Grid plc Annual Report and Accounts 2007/08 of Consolidated Balance Sheet 123 National Grid plc Annual Report and Accounts 2007/08 of Consolidated Cash Flow Statement 125 National Grid plc Annual Report and Accounts 2007/08 of Consolidated Statement of Recognised 124 National Grid plc Income and Expense Annual Report and Accounts 2007/08 of Accounting Policies 114-120 National Grid plc Annual Report and Accounts 2007/08 of Adoption of New Accounting Standards 121 National Grid plc Annual Report and Accounts 2007/08 of Notes to the Consolidated Financial 126-178 National Grid plc Statements

138 ACE BOWNE OF TORONTO 05/24/2010 09:35 NO MARKS NEXT PCN: 144.00.00.00 -- Page is valid, no graphics BOT U08763 143.00.00.00 26

PART XIII

DEFINITIONS In this document the following expressions have the following meaning unless the context requires otherwise: Admission admission of the New Shares to the Official List and to trading on the London Stock Exchange’s main market for listed securities becoming effective in accordance with, respectively, the Listing Rules and the Admission and Disclosure Standards Admission and Disclosure Standards requirements contained in the publication of the London Stock Exchange’s “Admission and Disclosure Standards” (as amended from time to time) containing, amongst other things, the admission requirements to be observed by companies seeking admission to trading on the London Stock Exchange’s main market for listed securities ADSs American depositary shares, being securities of National Grid listed on the New York Stock Exchange, each of which represents five Ordinary Shares AESOP Lattice Group All Employee Share Ownership Plan Annual General Meeting meeting of shareholders of the Company held each year to consider ordinary and special business as provided in the notice of Annual General Meeting Annual Report and Accounts the annual report and consolidated accounts prepared by the Company for the financial years ended 31 March 2010, 2009 and 2008 Annual Report and Accounts 2007/08 the annual report and consolidated accounts prepared by the Company for the financial year ended 31 March 2008 Annual Report and Accounts 2008/09 the annual report and consolidated accounts prepared by the Company for the financial year ended 31 March 2009 Annual Report and Accounts 2009/10 the annual report and consolidated accounts prepared by the Company for the financial year ended 31 March 2010 Articles of Association the articles of association of the Company Banks Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited, Merrill Lynch International and Deutsche Bank AG, London Branch Board the board of Directors of the Company Boston Gas Boston Gas Company, New England BritNed BritNed Development Limited Brooklyn Union The Brooklyn Union Gas Company, New York Capita Registrars a trading name of Capita Registrars Limited CCSS CREST Courier and Sorting Service CO Companies Ordinance of Hong Kong Colonial Gas Colonial Gas Company, New England Combined Code Combined Code on Corporate Governance Companies Act Companies Act 2006 Company or National Grid National Grid plc, incorporated in England and Wales with registered number 4031152 or the Group as the context requires

139 ACE BOWNE OF TORONTO 05/24/2010 09:31 NO MARKS NEXT PCN: 145.00.00.00 -- Page is valid, no graphics BOT U08763 144.00.00.00 22

CREST the system for the paperless settlement of trades in securities and the holding of uncertificated securities operated by Euroclear UK & Ireland Limited in accordance with CREST Regulations CREST Manual the rules governing the operation of CREST, consisting of the CREST Reference Manual, CREST International Manual, CREST Central Counterparty Service Manual, CREST Rules, Registrars Service Standards, Settlement Discipline Rules, CCSS Operations Manual, Daily Timetable, CRESTApplication Procedure and CREST Glossary of Terms (all as defined in the CREST Glossary of Terms promulgated by Euroclear UK on 15 July 1996 and as amended since) CREST Regulations the Uncertificated Securities Regulations 2001, as amended from time to time CTC Contract Termination Charges Directors the directors of the Company, whose names are set out on page 18 of this document Disclosure and Transparency Rules Disclosure and Transparency Rules made by the FSA pursuant to Part VI of the FSMA, as amended DNs gas distribution networks DSP National Grid plc Deferred Share Plan Electricity Act Electricity Act 1989 Energy Act Energy Act 2004 EnergyNorth EnergyNorth Natural Gas, Inc., New England ESOP National Grid plc Executive Share Option Plan 2002 ESOS National Grid plc Executive Share Option Scheme 1990 ESPP National Grid plc Employee Stock Purchase Plan 2002 Essex Gas Essex Gas Company, New England Euro or E the single currency of the member states of the European Communities that adopt or have adopted the Euro as their lawful currency under the legislation of the EU or European Monetary Union Euroclear UK Euroclear UK & Ireland Limited European Union or EU the European Union Excluded Territories India and the Republic of South Africa and “Excluded Territory” means any one of them Executive Directors the executive Directors of the Company, whose names are set out on page 18 of this document Existing Shares the existing issued Ordinary Shares Ex-Rights Date the date on which the National Grid Ordinary Shares are marked ex- rights by the London Stock Exchange, expected to be 26 May 2010 FERC Federal Energy Regulatory Commission FSA Financial Services Authority of the United Kingdom FSMA Financial Services and Markets Act 2000, as amended Fully Paid Rights fully paid rights to subscribe for New Shares Gas Act Gas Act 1986 Gas East KeySpan Gas East, New York GEMA the Gas and Electricity Markets Authority

140 ACE BOWNE OF TORONTO 05/24/2010 09:36 NO MARKS NEXT PCN: 146.00.00.00 -- Page is valid, no graphics BOT U08763 145.00.00.00 24

Grain LNG National Grid Grain LNG Limited Granite State Granite State Electric Company, New Hampshire Great Britain the countries of England, Scotland and Wales Group the Company and its subsidiaries and subsidiary undertakings GW gigawatt, being an amount of power equal to one billion watts (109 watts) HMRC Her Majesty’s Revenue and Customs IAS International Accounting Standards IASB International Accounting Standards Board ICAEW Institute of Chartered Accountants in England and Wales IFRS International Financial Reporting Standards IRS US Internal Revenue Service ISIN International Securities Identification Number ISO-NE the Independent System Operator for New England ISO-NE OATT ISO-NE Open Access Transmission Tariff ISOs independent system operators Issue Price 335 pence per New Share Joint Bookrunners Morgan Stanley Securities Limited, Merrill Lynch International and Deutsche Bank AG, London Branch Joint Global Co-ordinators Morgan Stanley Securities Limited, Merrill Lynch International and Deutsche Bank AG, London Branch Joint Sponsors Morgan Stanley & Co. International plc and Deutsche Bank AG, London Branch joint venture a company or other entity which is controlled jointly with other parties KeySpan KeySpan Corporation and its subsidiaries kV kilovolt, being an amount of electric force equal to 1,000 volts LIPA the Long Island Power Authority Listing Rules the listing rules made by the FSA pursuant to Part VI of the FSMA LNG liquefied natural gas, being natural gas that has been condensed into a liquid form, typically at temperatures at or below -163™C (-260™F) London Stock Exchange London Stock Exchange plc Mass. Hydro New England Hydro-Transmission Electric Company, Inc., Massachusetts mcm million standard cubic metres, equivalent to approximately 35.3 million standard cubic feet MDPU Massachusetts Department of Public Utilities MECO Massachusetts Electric Company, Massachusetts Money Laundering Regulations Money Laundering Regulations 2007, amended from time to time MTM Many-to-Many MW megawatts, being an amount of power equal to one million watts Narragansett The Narragansett Electric Company, Rhode Island

141 ACE BOWNE OF TORONTO 05/24/2010 09:36 NO MARKS NEXT PCN: 147.00.00.00 -- Page is valid, no graphics BOT U08763 146.00.00.00 25

National Grid Employee Share Plans National Grid plc Share Incentive Plan; Lattice Group All Employee Share Ownership Plan; National Grid plc Employee Stock Purchase Plan 2002; National Grid plc Performance Share Plan; National Grid plc Deferred Share Plan; National Grid plc Retention Award Plan; National Grid plc Special Retention Award Plan; National Grid plc Share Matching Plan 2002; National Grid plc Savings Related Share Option Plan 2002; National Grid plc Executive Share Option Plan 2002; National Grid plc Executive Share Option Scheme 1990; and Lattice Group Short Term Incentive Scheme

National Grid Metering National Grid Metering Limited, National Grid’s UK regulated metering business

NEC Nantucket Electric Company, Massachusetts

NEET New England Electric Transmission Corporation, Massachusetts and New Hampshire

NEEWS New England East-West Solution

NEP New England Power Company, New England

NETO New England Transmission Owners

New England the term refers to a region within the northeastern US that includes the states of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. National Grid’s New England operations are primarily in the states of Massachusetts, New Hampshire and Rhode Island

New Shares new Ordinary Shares to be issued by the Company in connection with the Rights Issue

Newco National Grid Jersey Investments Three Limited

NGET National Grid Electricity Transmission plc

NHPUC New Hampshire Public Utilities Commission

Nil Paid Rights New Shares in nil paid form provisionally allotted to Qualifying CREST Shareholders and Qualifying Non-CREST Shareholders

NMPC Niagara Mohawk Power Corporation, New York

Non-CREST Shareholders Shareholders holding Ordinary Shares in certificated form

Non-executive Directors the non-executive Directors of the Company, whose names are set out on page 18 of this document

northeastern US the northeastern region of the US, comprising the states of Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont

NTS UK gas national transmission system

NYISO New York Independent Systems Operator, Inc.

NYPSC New York Public Service Commission

NYSE New York Stock Exchange

NYSE Standards NYSE Corporate Governance Standards

Ofgem the UK Office of Gas and Electricity Markets, part of GEMA, which regulates the energy markets in the United Kingdom

142 ACE BOWNE OF TORONTO 05/24/2010 09:36 NO MARKS NEXT PCN: 148.00.00.00 -- Page is valid, no graphics BOT U08763 147.00.00.00 30

OnStream Utility Metering Services Limited, National Grid’s UK unregulated metering business

17 Ordinary Shares or Shares the ordinary shares of 11 /43 pence each in the capital of the Company and “Ordinary Share”or“Share” means any one of them Overseas Shareholders Shareholders with registered addresses outside the United Kingdom or who are citizens or residents of, or located in, countries outside the United Kingdom Part VI Rules the rules made by the FSA in accordance with the FSMA price control the term given to the mechanism by which Ofgem sets restrictions on the amounts of revenue that National Grid is allowed to collect from customers in its UK businesses. The allowed revenues are intended to cover efficiently incurred operational expenditure, capital expenditure and financing costs, including a return on equity invested Prospectus Directive the Directive of the European Parliament and of the Council of the European Union 2003/71/EC Prospectus Rules the prospectus rules made by the FSA pursuant to Part VI of the FSMA Provisional Allotment Letter the renounceable provisional allotment letter expected to be sent to Qualifying Non-CREST Shareholders in respect of the New Shares to be provisionally allotted to them pursuant to the Rights Issue PSP National Grid plc Performance Share Plan PTO participating transmission owner QIBs Qualified Institutional Buyers, as defined in Rule 144A under the US Securities Act Qualifying CREST Shareholders Qualifying Shareholders holding Ordinary Shares in uncertificated form Qualifying Non-CREST Shareholders Qualifying Shareholders holding Ordinary Shares in certificated form Qualifying Shareholders Shareholders on the register of members of the Company as at the Record Date and “Qualifying Shareholder” means any one of them rate base the base investment on which the utility is authorised to earn a cash return. It includes the original cost of facilities, minus depreciation, an allowance for working capital and other accounts rate plan the term given to the mechanism by which a US utility regulator sets terms and conditions for utility service, including in particular tariffs and rate schedules. The term can mean a multi-year plan that is approved for a specified period, or an order approving tariffs and rate schedules that remain in effect until changed as a result of a future regulatory proceeding. Such proceedings can be commenced through a filing by the utility or on the regulator’s own initiative Receiving Agent Capita Registrars Record Date close of business (London time) on 19 May 2010 Recovery Act American Recovery and Reinvestment Act of 2009 Registrar Capita Registrars Regulation S Regulation S under the US Securities Act regulatory asset value or RAV the value ascribed by Ofgem to the capital employed in the relevant licensed business. It is an estimate of the initial market value of the regulated asset base at privatisation, plus subsequent allowed additions at historical cost, less the deduction of annual regulatory depreciation. Deductions are also made to reflect the value realised from the disposal of certain assets that formed part of the regulatory

143 ACE BOWNE OF TORONTO 05/23/2010 12:39 NO MARKS NEXT PCN: 149.00.00.00 -- Page is valid, no graphics BOT U08763 148.00.00.00 22

asset base. It is also indexed to the retail price index to allow for the effects of inflation Regulatory Information Service a regulatory information service that is approved by the FSA and that is on the list of regulatory information service providers maintained by the FSA relevant implementation date the date on which the Prospectus Directive was implemented in the relevant member state relevant member state a member state of the European Economic Area which has implemented the Prospectus Directive Restricted Territories the People’s Republic of China, Hong Kong, Japan and Switzerland and “Restricted Territory” means any one of them Rights Issue the offer by way of rights of New Shares to Qualifying Shareholders on the basis described in this document and, in the case of Qualifying Non-CREST Shareholders (other than, subject to certain exceptions, Shareholders with a registered address in the United States, the Excluded Territories or the Restricted Territories), in the Provisional Allotment Letter RIPUC Rhode Island Public Utility Commission ROE return on equity route length the route length of an electricity transmission line is the geographical distance from the start tower to the end tower. In most cases in the UK, and in many cases in the US, the transmission line consists of a double circuit for additional reliability. In such cases, the circuit length is twice the route length RPI-X@20 a project conducted by Ofgem to review the workings of the current approach to regulating Great Britain’s energy networks and develop future policy recommendations, which is expected to have an impact on future price controls RTGS real time gross settlement RTO Regional Transmission Organization SDRT UK stamp duty reserve tax SFO Securities and Futures Ordinance of Hong Kong Share Matching Plan National Grid plc Share Matching Plan 2002 Shareholders the holders of Ordinary Shares in the capital of the Company and “Shareholder” means any one of them Sharesave National Grid plc Savings Related Share Option Plan 2002 SIP National Grid plc Share Incentive Plan SRA National Grid plc Special Retention Award Plan standard cubic metre a quantity of gas which at 15¤C and atmospheric pressure (1.013 bar) occupies the volume of 1m3 sterling or £ or pence or p the lawful currency of the United Kingdom STIS Lattice Group Short Term Incentive Scheme Subscribing Bank Deutsche Bank AG, London Branch TFEU Treaty on the Functioning of the European Union UK Listing Authority the FSA acting in its capacity as the competent authority for the purposes of Part VI of the FSMA

144 ACE BOWNE OF TORONTO 05/24/2010 09:34 NO MARKS NEXT PCN: 150.00.00.00 -- Page is valid, no graphics BOT U08763 149.00.00.00 12

Underwriters Morgan Stanley Securities Limited, Merrill Lynch International and Deutsche Bank AG, London Branch Underwriting Agreement the underwriting agreement dated 20 May 2010 between the Company, Morgan Stanley & Co. International plc, Morgan Stanley Securities Limited, Merrill Lynch International and Deutsche Bank AG, London Branch described in paragraph 16.1 of Part XI “Additional Information” of this document Uniform Network Code the legal and contractual framework for the supply and transport of gas in the UK, comprising a common set of rules for all industry participants which ensure competition can be facilitated on level terms United Kingdom or UK the United Kingdom of Great Britain and Northern Ireland and its dependent territories United States or US the United States of America (including the states of the United States and the District of Columbia), its possessions and territories and all areas subject to its jurisdiction US dollars or US cents or US$ the lawful currency of the United States US GAAP US Generally Accepted Accounting Principles US Securities Act US Securities Act 1933 Utilities Act Utilities Act 2000 VAT value added tax

145