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Directors’ Remuneration Report

We are pleased to present the Directors’ Remuneration Report for 2007/08. Our policy of relating pay to the performance of the Company continues to be a strong principle underlying the Remuneration Committee’s consideration of executive remuneration. We aim to ensure the Company continues to attract, motivate and retain high calibre individuals to deliver the highest possible performance for our shareholders.

The acquisition of KeySpan completed during this performance year, resulting in larger and more complex roles for many of our senior employees. Last year, we consulted with our major shareholders and reported we had increased the maximum annual bonus opportunity for Executive Directors to 150% of salary for the year 2007/08 onwards. While doing so, we amended performance targets to be more stretching and adjusted the framework so that, for Executive Directors, only 40% of the bonus (60% of salary) is payable for target performance (previously 50% of the bonus was payable for target performance).

Following the 2007 Annual General Meeting, where our shareholders supported our proposal to increase the maximum permissible award under our long term incentive plan (the Performance Share Plan) to 250% of salary, we introduced a more challenging Earnings per Share (EPS) upper target for the 2007 award. However, as disclosed last year, we plan to continue with the maximum awards to Executive Directors being on the basis of 200% of salary.

We have made no other changes to our arrangements and firmly believe the changes detailed above provide an appropriate and balanced opportunity for executives. Our incentive plans remain aligned with the Company’s strategic objectives and our shareholders’ interests generally, while continuing to motivate and engage the team leading the Company to achieve stretching targets.

Overall, we believe salary levels and the mix between fixed and variable compensation continues to be appropriate, however, we shall continue to review the remuneration package on a regular basis to ensure it remains so.

During the year, we have welcomed both Bob Catell and Tom King to the Board. Bob, who joins us from KeySpan, brings a wealth of experience in the US energy industry to his Executive Director role as Chairman of National Grid USA and will play a key role, through a fixed two year contract, in our integration activities. Following the completion of the acquisition, Bob’s maximum potential bonus and long term incentive arrangements were significantly reduced from those applicable at KeySpan. To effect this contractual change and on the basis we did not want historical KeySpan entitlements outstanding, the Remuneration Committee decided to buy out Bob’s KeySpan contractual severance arrangements and place him on a National Grid contract. This now aligns his arrangements with our other Executive Directors and remuneration policy. Details of these payments follow later in the report.

Tom, who has joined us from Pacific Gas and Electric Company, has 20 years’ experience in the US energy industry and has a strong track record in reliability improvement and customer service. As part of a contractual commitment made on his recruitment, Tom received a Special Retention Award in November 2007, details of which can be found later in this report.

John Allan
Chairman of the Remuneration Committee