Robert H. McLaren President, Massachusetts & New Hampshire Distribution National Grid

1. What Should Be the Future Roles and Responsibilities of Transmission and Distribution Companies in New England? Robert H. McLaren President, Massachusetts & New Hampshire Distribution National Grid June 23, 2006

2. National Grid: Who We Are • Internationalenergy deliverycompany • High voltage transmission • England & Wales • Natural gas distribution • Created by merger with Lattice • 11 million customers in UK • Electric T&D and gas distribution in NY, MA, RI & NH • Created by merger of NEES, EUA, NiMo • 3.3 million electric customers • 565,000 gas customers in NY • Acquiring KeySpan Energy and NE Gas (RI) • 2.8 million additional gas customers in NY, MA, RI & NH

3. Growing & Striving to Become the Premier Energy Delivery Company in the US

4. US Distribution Strategic Agenda • Vision • To be the premier energy delivery company in the US • Core values • Respect • Integrity • Ownership • Core objectives: • Safety • Reliability • Efficiency • Responsibility National Grid Platform for further US growth

5. Energy Delivery:What Does It Take to Be Premier? • Becoming the company that • customers want to be served by, • employees want to work for, • investors want to invest in, and • regulators and government leaders look to for leadership and innovation • Focusing on energy delivery • providing safe, reliable service to customers at a reasonable price • helping customers manage their home and business energy needs • being a responsiblemember of the communities we serve

6. Investing to Improve Reliability • Distribution reliability improvements over the next 5 years, including Reliability Enhancement Plan: $500 million • Transmission capex: $600 million • Other capex: $400 million • Total investment in Mass. infrastructure and reliability over next 5 years $1.5 billion • Transmission investments foster efficient wholesale market • While our low delivery rates remain stable thru 2009

7. National Grid Offers Lowest Delivery Rates cents per kWh 9.2 9.0 8.7 8.2 5.9 5.5 * DSM = Demand Side Management Typical Residential 500 kWh customer bill (April 2006) for major investor-owned utilities, excluding power supply costs

8. Helping Customers Manage Their Energy Costs • Facilitating choice of retail supply • 80% of large customer load served by competitive suppliers • Fewer choices for smaller customers • Opportunities to lower market entry barriers • Advocating reasonable, workable wholesale market rules • Supporting improved capacity market rules • Promoting market-leading investments in energy efficiency • $2 billion of customer savings over last 19 years • Providing economic development benefits to New England • Fostering seamless integration of DR into DSM • Timely evolution of DSM programs to capture capacity value • Valuable G,T&D peak demand reductions

9. What Should Not Be the Future Roles and Responsibilities of Transmission and Distribution Companies in New England?

10. Regulated Generation Business Model • Customers bore supply cost risk • Inefficient price signals to customers • Shareholder returns disconnected from performance Regulated generation model had problems

11. Competitive Generation Business Model • Generators bear supply cost risk • Efficient price signals to customers • Shareholder returns linked to performance • Reduced air emissions • Lower fuel-price adjusted wholesale prices Competitive generation model is better

12. Carefully Navigating The Road Ahead High Fuel Prices Evolution of Market Rules Global Climate Change Limited New Generation

13. We Need to Stay the Course • Generation • Implement forward capacity market • New generation in pipeline • Avoid “hybrid” generation model – regulated / unregulated • New regulated generation may poison the well for new unregulated investments • Transmission • Continue infrastructure expansion • Platform for operation of efficient wholesale markets