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About National Grid

Regulation

As a result of our position in, and importance to, the economies we serve, our electricity and gas transmission and distribution businesses are subject to UK, European Union and US federal and state laws and regulations.

In the UK, energy networks are regulated by the Office of Gas and Electricity Markets (Ofgem). Ofgem operates under the direction and governance of the Gas and Electricity Markets Authority and has established price control mechanisms that restrict the amount of revenue that can be earned by regulated businesses, typically covering five year price control periods.

In the US, public utilities are regulated by the Federal Energy Regulatory Commission (FERC) and by utility commissions in the states in which we operate, comprising 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 and determine allowable levels of return. FERC also regulates public utility mergers and acquisitions and public utility holding companies, although prior to 8 August 2005 public utility holding companies were regulated by the US Securities and Exchange Commission.

Our principal rate plans and price controls can be summarised as follows:


Country	Overview
UK	We have two price controls for each of our UK electricity and gas transmission operations, one in our role as transmission owner and the other as the system operator. For our UK gas distribution operations, we have four price controls, one for each of our four regional gas distribution networks. These price controls are based around incentives. We have a financial incentive to invest, receiving a return on efficiently incurred capital expenditure which increases our regulatory asset base, and we can gain or lose through incentive arrangements for our performance in managing system operation, internal costs, pass-through costs and service quality.
US	We have electricity rate plans in New York, Massachusetts and Rhode Island covering our electricity distribution networks and, in the case of New York, our electricity transmission network. Our rates in New Hampshire and those for our electricity transmission networks in New England are subject to regulatory approval. We have two gas rate plans covering our gas distribution networks in New York and Rhode Island respectively. Our rate plans are based around the efficiency of our cost base, with earned savings mechanisms that allow us to retain a proportion of the savings we achieve with the balance benefiting customers. We receive a return on approved capital expenditure and we can gain or lose through incentive or penalty arrangements based on our performance against reliability and service quality benchmarks. We are also permitted to recover commodity and other pass-through costs which we incur, together with the recovery of stranded costs.

Country

Overview

We have two price controls for each of our UK electricity and gas transmission operations, one in our role as transmission owner and the other as the system operator. For our UK gas distribution operations, we have four price controls, one for each of our four regional gas distribution networks.

These price controls are based around incentives. We have a financial incentive to invest, receiving a return on efficiently incurred capital expenditure which increases our regulatory asset base, and we can gain or lose through incentive arrangements for our performance in managing system operation, internal costs, pass-through costs and service quality.

We have electricity rate plans in New York, Massachusetts and Rhode Island covering our electricity distribution networks and, in the case of New York, our electricity transmission network. Our rates in New Hampshire and those for our electricity transmission networks in New England are subject to regulatory approval.

We have two gas rate plans covering our gas distribution networks in New York and Rhode Island respectively.

Our rate plans are based around the efficiency of our cost base, with earned savings mechanisms that allow us to retain a proportion of the savings we achieve with the balance benefiting customers. We receive a return on approved capital expenditure and we can gain or lose through incentive or penalty arrangements based on our performance against reliability and service quality benchmarks.

We are also permitted to recover commodity and other pass-through costs which we incur, together with the recovery of stranded costs.

The periods of our current and future price controls and rate plans can be summarised as follows:

Bar chart depicting current and future price controls and rate plans

*Rate plan subject to approval

Our businesses are subject to safety legislation in the UK and the US, which is enforced by the Health and Safety Executive (HSE) in the UK and by federal safety bodies and by state and local authorities in the US. Our UK gas operations work under a permissioning regime, whereby our organisation, processes and procedures are documented in safety cases that are subject to acceptance by the HSE.

Our shares are listed on the London Stock Exchange, and we also have a listing on the New York Stock Exchange. As a consequence, we are regulated by the Financial Services Authority in the UK and by the US Securities and Exchange Commission.

More information about the regulatory environments in which we operate, and on the nature of our rate plans and price controls, is provided in the business discussions sections.