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Financial Statements

35. Commitments and contingencies

a) Future capital expenditure

	2007 £m	2006 £m
Contracted for but not provided	1,554	1,343

b) Lease commitments

Total commitments under non-cancellable operating leases were as follows:

	2007 £m	2006 £m
In one year or less	80	87
In more than one year, but not more than two years	76	80
In more than two years, but not more than three years	72	75
In more than three years, but not more than four years	68	71
In more than four years, but not more than five years	64	67
In more than five years	440	451
	800	831

c) Power commitments

At 31 March 2007, there were obligations to purchase energy under long-term contracts. The following table analyses these commitments, excluding commodity contracts carried at fair value (notes 28 and 29):

	2007 £m	2006 £m
In one year or less	1,233	1,391
In more than one year, but not more than two years	642	821
In more than two years, but not more than three years	476	641
In more than three years, but not more than four years	186	494
In more than four years, but not more than five years	141	14
In more than five years	1,053	1,314
	3,731	4,675

In addition, power commitments under commodity contracts recorded at fair value and incorporated in Other non-current liabilities were £389m (2006: £778m).

d) KeySpan

We have agreed to purchase KeySpan Corporation, a US utility company for $7.3bn (£3.7bn), conditional on regulatory approval.

e) Other commitments, contingencies and guarantees

The value of other commitments, contingencies and guarantees at 31 March 2007 amounted to £537m (2006: £334m), including guarantees amounting to £229m (2006: £149m) and commitments largely relating to gas purchasing and property remediation of £198m (2006: £114m). The value of other commitments and contingencies relating to businesses held for sale was £62m.

Details of the guarantees entered into by the Company or its subsidiary undertakings at 31 March 2007 are shown below:

(i)a guarantee of £50m of the obligations of a subsidiary undertaking to make payments in respect of any liabilities under a meter operating contract that runs until May 2008;

(ii)an uncapped guarantee, for which the maximum liability is estimated at £40m, 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;

(iii)a guarantee in support of the payment obligations of a subsidiary undertaking in respect of a combined heat and power plant which will increase to approximately £40m in February 2010. This reduces following commissioning, expected to be in February 2010, by £2m per annum until it expires in 2027;

(iv)guarantees of £20m relating to certain property obligations of subsidiary undertakings. The bulk of these expire by December 2025;

(v)guarantees in respect of a former associate amounting to £14m, the bulk of which relates to its obligations to supply telecommunications services. These are open-ended;

(vi)a guarantee of the payment obligations of a subsidiary undertaking in respect of a power connection agreement amounting to a maximum potential payout of £14m subject to a cap of £7m per annum. This runs until December 2024;

(vii)indemnities estimated to be up to a maximum of £14m given to the trustees of a defined contribution pension scheme. These are open-ended;

(viii)a guarantee of the payment obligations of a subsidiary undertaking in respect of a nitrogen supply agreement amounting to a maximum potential payout of £12m subject to a cap of £1m per annum. This runs until November 2019; and

(ix)other guarantees amounting to £25m arising in the normal course of business and entered into on normal commercial terms. These guarantees run for varying lengths of time.

Subsequent to 31 March 2007, we issued letters of support to third parties currently amounting to approximately £193m in total relating to the BritNed electricity interconnector project. In addition, we entered into a guarantee in favour of a third party of approximately £260m with respect to the construction contract for Phase III of the Grain LNG import terminal.

f) Amounts receivable under sublease arrangements

The total of future minimum sublease payments expected to be received under non-cancellable subleases is £32m (2006: £26m).

g) Litigation and claims

National Grid, together with the Environment Agency, sought judicial review to clarify the legal position with regard to the remediation of a site in Bawtry, Yorkshire, a former gas site which was not part of the assets that formed part of the gas privatisation in 1986 and therefore had never been owned by National Grid. On 17 May 2006, the High Court found in favour of the Environment Agency. However, the judgement concluded that the matters raised in the proceedings were of considerable general importance and permission to apply for leave to appeal directly to the House of Lords was granted.

A hearing before the House of Lords has been set for 21 and 22 May 2007 and a judgement is expected in the summer of 2007.

We remain convinced of our case that National Grid has no legal liability with respect to the site in Bawtry, nor for other former UK gas sites which did not form part of the assets we acquired at the time of privatisation, and believe that our position will be upheld by the House of Lords.

At this stage we are unable to estimate reliably the impact of an adverse decision.

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