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National Grid Group PLC – ‘U-1/A’ on 3/14/00

On: Tuesday, 3/14/00 · As of: 3/15/00 · Accession #: 898080-0-108 · File #: 70-09519

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/15/00  National Grid Group PLC           U-1/A       3/14/00    1:118K                                   Dewey & Leboeuf LLP

Pre-Effective Amendment to Application or Declaration — Form U-1
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: U-1/A       Form U-1 Amendment #8                                 57    174K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Applicable Statutory Provisions Description of the Proposed Transaction Exhibits and Financial Statements Fees, Commissions and Expenses Procedure Regulatory Approvals Statement as to Environmental Effects
1	1st Page - Filing Submission
4	Item 1. Description of the Proposed Transaction
"	Item 2. Fees, Commissions and Expenses
"	Item 3. Applicable Statutory Provisions
"	Item 4. Regulatory Approvals
"	Item 5. Procedure
"	Item 6. Exhibits and Financial Statements
"	Item 7. Statement as to Environmental Effects

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                                                                File No. 70-9519

 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------

 AMENDMENT NO. 8
TO
FORM U-1
 APPLICATION-DECLARATION
 UNDER

THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
----------------------------------------------------

The National Grid Group plc        New England Electric System                  
National Grid (US) Holdings        New England Power Company                    
Limited                Massachusetts Electric Company   
National Grid (US)                 The Narragansett Electric Company            
Investments               Granite State Electric Company      
Kirby Corner Road                  Nantucket Electric Company                   
Coventry CV48JY                    New England Electric Transmission Corporation
United Kingdom                     New England Hydro-Transmission Corporation   
                             New England Hydro-Transmission Electric
National Grid (Ireland) 1          Company, Inc.                                
     Limited                  Vermont Yankee Nuclear Power Corporation
National Grid (Ireland) 2          New England Hydro Finance Company, Inc.      
Limited                   NEES Global, Inc.                   
8-10 rue Mathias Hardt             NEES Energy, Inc.                            
BP39, L2010                        AllEnergy Marketing Company, L.L.C.          
Luxembourg                         Granite State Energy, Inc.                   
               New England Power Service
National Grid General                       Company, Inc.                       
Partnership               NEES Communication, Inc.            
NGG Holdings, Inc.                 Texas Liquids, L.L.C.                        
10th Floor                         Texas-Ohio Gas, Inc.                         
Oliver Building                    Metro West Realty L.L.C.                     
2 Oliver Street                    25 Research Drive                            
Boston, MA 02109                   Westborough, Massachusetts 01582             

(Name of company filing this statement and
 address of principal executive offices)
----------------------------------------------

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The National Grid Group plc                 New England Electric System   

 (Name of top registered holding company
parent of each applicant or declarant)
------------------------------------------

Jonathan M. G. Carlton                  Douglas W. Hawes                        
The National Grid Group plc             Joanne C. Rutkowski                     
National Grid House                     Sheri E. Bloomberg                      
Kirby Corner Road                       Markian M.W. Melnyk                     
Coventry CV4 8JY                        LeBoeuf, Lamb, Greene & MacRae, L.L.P.  
United Kingdom                          125 West 55th Street                    
Telephone: 011-44-1203-537-777          New York, NY  10019                     
Facsimile: 011-44-1203-423-678          Telephone: 212-424-8000                 
                       Facsimile: 212-424-8500
NGG Holdings, Inc.                                                              
10th Floor                                                                      
Oliver Building                                                                 
2 Oliver Street                                                                 
Boston, MA  02109                                                               
Telephone:  617-946-2104                                                        
Facsimile:  617-946-2111                                                        

Michael E. Jesanis                      Clifford M. Naeve                       
Kirk L. Ramsauer                        Judith A. Center                        
New England Electric System             Skadden, Arps, Slate, Meagher           
25 Research Drive                         & Flom L.L.P.                         
Westborough, Massachusetts 01582        1440 New York Avenue, N.W.              
                       Washington, D.C.  20005

------------------------------------
 (Names and addresses of agents for service)

U-1/A 3rd Page of 57 TOC 1st Previous Next ↓Bottom Just 3rd
 Defined Terms

   1.   Applicants means the Intermediate Companies, National Grid and NEES.

     2.   Intermediate  Companies  means  National Grid (US)  Holdings  Limited,
          National Grid (US)  Investments,  National  Grid  (Ireland) 1 Limited,
          National   Grid   (Ireland)  2  Limited  and  National   Grid  General
Partnership.                                                

     3.   NEES  --  Immediately  after  the  proposed  Merger,  pursuant  to  an
          amendment to NEES' Agreement and Declaration of Trust,  NEES will have
          been merged with NGG Holdings,  LLC, with NEES as the surviving entity
          and then merged again into another LLC (which  survives) which in turn
          will merge into NGG  Holdings,  Inc.  with NGG  Holdings,  Inc. as the
          surviving  entity.  The  term  "NEES"  refers  to  both  NEES  and NGG
Holdings, Inc. as the surviving entity.                     

4.   National Grid means The National Grid Group plc.                 

     5.   National Grid System means National Grid and its subsidiary companies.

6.   NEES Group means NEES and the NEES Subsidiary Companies.         

7.   NEES Subsidiary Companies means the subsidiary companies of NEES.

     8.   U.S.  Subsidiary  Companies means NEES, the NEES Subsidiary  Companies
and the Intermediate Companies.                             

     9.   U.S.   Utility   Subsidiaries   means  New  England   Power   Company,
          Massachusetts  Electric  Company,  The Narragansett  Electric Company,
          Granite  State  Electric  Company,  Nantucket  Electric  Company,  New
          England  Electric   Transmission   Corporation,   New  England  Hydro-
          Transmission  Corporation,  New  England  Hydro-Transmission  Electric
Company, Inc. and Vermont Yankee Nuclear Power Corporation. 

U-1/A 4th Page of 57 TOC 1st Previous Next ↓Bottom Just 4th
 TABLE OF CONTENTS

ITEM 1.      DESCRIPTION OF THE PROPOSED TRANSACTION                            

A.  Introduction and General Request                          

B.  Description of Existing NEES Financing Arrangements       

C.  Overview of Proposed Financings                           

D.  Specifics of Proposed Financing Arrangements              

1.   National Grid External Financing                 

(a)  Ordinary Shares                        

(b)  Preferred Stock                        

(c)  Debt                                   

           (d)  Interest Rate and Currency Risk Management Devices

2.   U.S. Subsidiary Company Financings               

(a)  Money Pool                             

(b)  Guarantees                             

                (c)  Payment of Dividends Out of Capital or Unearned Surplus

 (d)  Approval of New Tax Allocation Agreement

3.   Changes in Capital Stock of Subsidiaries         

4.   Financing Entities                               

5.   EWG/FUCO-related Financings                      

E.  Filing of Certificates of Notification                    

ITEM 2.      FEES, COMMISSIONS AND EXPENSES                                     

ITEM 3.      APPLICABLE STATUTORY PROVISIONS                                    

ITEM 4.      REGULATORY APPROVALS                                               

ITEM 5.      PROCEDURE                                                          

ITEM 6.      EXHIBITS AND FINANCIAL STATEMENTS                                  

ITEM 7.      STATEMENT AS TO ENVIRONMENTAL EFFECTS                              

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     This  Pre-effective  Amendment  No. 8  replaces  and  revises  the Form U-1
Application/Declaration in this proceeding, originally filed with the Securities
and Exchange  Commission  on June 11, 1999 in File No.  70-9519 in its entirety,
with the exception that it does not replace exhibits previously filed:          

ITEM 1.   DESCRIPTION OF THE PROPOSED TRANSACTION                               

A.   Introduction and General Request                                 

     This  Application-Declaration  is submitted in connection with the proposed
acquisition  of the New England  Electric  System  ("NEES")  by  National  Grid.
National Grid and NEES have previously filed an  Application/Declaration on Form
U-1  (File  No.  70-9473)  with the  Securities  and  Exchange  Commission  (the
"Commission")  under the Public Utility  Holding Company Act of 1935, as amended
(the "1935 Act" or "Act") (the "Merger U-1"),  seeking approvals relating to the
proposed  acquisition by National Grid of all of the voting  securities of NEES,
and its consequent  indirect  acquisition  of the voting  securities of the NEES
Subsidiary  Companies,   as  well  as  for  certain  related  transactions  (the
"Merger").1                                                                     

     Upon consummation of the transactions described in the Merger U-1, National
Grid and each of the Intermediate  Companies will register as holding  companies
under  Section 5 of the Act.2 NEES will continue to be regulated as a registered
holding company,  and its subsidiary  companies will continue to be regulated as
members of a registered holding company                                         

--------                                                                        
     1 On February 1, 1999, NEES announced that it had entered into an agreement
to acquire all of the outstanding  common stock of Eastern Utilities  Associates
("EUA"),  a holding company  registered  under the Act. The  consummation of the
merger  between  NEES  and  EUA  is  not   conditional  on,  and  is  proceeding
independently  from, the closing of the Merger.  It is contemplated that similar
authority will be requested in connection with EUA and its subsidiary companies.

     2 The  Intermediate  Companies  either have been or will be formed prior to
the consummation of the Merger. They have been added to the instant application,
and will be added to the application for the Merger, to enable the Commission to
notice the Merger-related transactions.  The Intermediate Companies will require
the approval of their respective boards of directors to engage in the activities
contemplated by this filing and the Merger U-1.                                 

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system.3   National  Grid's  other  operations  have  been  segregated  under  a
newly-formed   first-tier  subsidiary  company,   National  Grid  Holdings  Ltd.
("Holdings"),  which  will be a foreign  utility  company  ("FUCO")  within  the
meaning of Section 33 of the Act. The  Applicants  intend that the operations of
Holdings and its  subsidiary  companies will largely be financed at the Holdings
level to avoid the need for significant  additional  capital  investments by, or
credit support from,  National Grid. The purpose of this separation is to create
a  financial  firewall  between the NEES Group,  on the one hand,  and  National
Grid's non-U.S.  interests,  on the other.  Exhibit D-1 sets forth the corporate
structure  of National  Grid System  after the  proposed  Merger and Exhibit D-2
describes each company in the National Grid System.                             

     In the instant matter,  the Applicants  request that the Commission  extend
the existing financing authority of the NEES Group for a period of approximately
three and one-half years from the date of consummation of the Merger through May
31,  2003  (the  "Authorization  Period").  In  addition,  the  Applicants  seek
authority for the following transactions through the Authorization Period:      

     (i) financings by National  Grid,  including but not limited to issuance of
ordinary  shares and American  Depositary  Shares,  preferred  stock,  short and
long-term debt, and currency and interest rate swaps;                           

(ii) financings by the U.S. Subsidiary Companies;                     

     (iii)  intrasystem  financings,  including (a) the continuation of the NEES
system money pool ("Money  Pool"),  (b)  guarantees of the  obligations  of, and
other  forms of credit  support  for,  the U.S.  Subsidiary  Companies,  (c) the
payment of dividends out of capital or unearned  surplus,  and (d) approval of a
new tax allocation agreement;                                                   

     (iv) the issuance by the U.S. Subsidiary Companies of additional shares, or
alteration of the terms of any then-existing authorized security;               

     (v) the  formation of financing  entities and the issuance by such entities
of  securities  otherwise  authorized  to be issued  and sold  pursuant  to this
Application/Declaration  or pursuant  to  applicable  exemptions  under the Act,
including intrasystem guarantees of such securities; and                        

--------                                                                        
     3 The Merger U-1 further requests that the Commission deem the Intermediate
Companies not to be "subsidiary companies" of National Grid, solely for purposes
of complying with the "great-grandfather" provisions of Section 11(b)(2).       

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     (vi) financings by National Grid for the purposes of acquiring,  or funding
the operations of, exempt wholesale generators ("EWGs") and FUCOs.              

     As explained  more fully herein,  the specific  terms and conditions of the
requested  authority  are not known at this time.  Accordingly,  the  Applicants
represent  that the  proposed  transactions  will be  subject  to the  following
general terms and conditions:                                                   

     1. National  Grid will maintain its long-term  debt rating at an investment
grade  level  as  established  by a  nationally  recognized  statistical  rating
organization,  as that term is used in paragraphs (c)(2)(vi)(E),  (F) and (H) of
Rule 15c3-1 of the  Securities  Exchange Act of 1934. In addition,  the National
Grid System will maintain a ratio of Consolidated EBITDA to Net Interest Payable
of not less than 3:1, and a ratio of Consolidated Total Net Debt to Consolidated
EBITDA not to exceed 4.75:1;4                                                   

--------                                                                        
     4 National  Grid's  commitment  to maintain the above stated  EBITDA ratios
demonstrates    that    the    securities    issuances    proposed    in    this
Application-Declaration  will be reasonably  adapted to National Grid's security
structure and earning power,  and that such issuances will not be detrimental to
the  public  interest  in  a  prudently   capitalized  holding  company  system,
consistent  with the standards of Sections 7(d) and 10(b)(3)  under the Act. The
terms are as defined in the Credit Agreement which is attached as Exhibit B-3 to
the Merger U-1. Generally,                                                      

Consolidated EBITDA means: in respect of any period, Consolidated Profits Before
Interest and Tax for that period after adding back depreciation and amortization
of goodwill  and  excludes  the group's  share of  associate  and joint  venture
operating  results.  An associate interest is an equity interest of greater than
20%, but less than 50%;                                                         

Consolidated  Profits Before  Interest and Tax means:  in respect of any period,
the consolidated net pre-taxation  profits on operating activities (after adding
back Net Interest  Payable and excluding any Exceptional  Items and after adding
back  restructuring   costs  incurred  as  a  result  of  the  Merger  or  other
acquisitions) of the National Grid System;                                      

Consolidated  Total Net Debt means:  the aggregate  principal amount (or amounts
equivalent  to  principal,  howsoever  described)  comprised  in  the  financial
indebtedness   of  the  National  Grid  System  at  the  time  calculated  on  a
consolidated  basis  less cash and cash  equivalents  held by any  member of the
National Grid System as shown in the  consolidated  financial  statements.  Cash
equivalents  are readily  marketable  securities  such as gilts  (i.e.  treasury
bonds) and other near-cash items such as deposits and commercial paper;         

Exceptional  Items:  has  the  meaning  given  to it in  FRS3  issued  by the UK
Accounting  Standards  Board (i.e.,  material  items which derive from events or
transactions  that fall within the ordinary  activities of the reporting  entity
and which  individually  or,  if of a similar  type,  in  aggregate,  need to be
disclosed by virtue of their size or incidence if the financial  statements  are
to give a true and fair view); and                                              

Net Interest Payable means: in relation to any period, all interest,  acceptance
commission  and all other  continuing,  regular or periodic  costs,  charges and
expenses  in the nature of  interest  (whether  paid,  payable  or  capitalized)
incurred by the National Grid System in effecting,  servicing or maintaining all
financial  indebtedness  of the National Grid System less all interest and other
similar  income  receivable  by members of the National  Grid System during that
period  (but  only to the  extent  the same  accrue  and are  receivable  by the
National Grid System in a freely convertible and transferrable currency) in each
case as determined from the consolidated  financial  statements relating to that
period and  excludes  the  group's  share of  associate  and joint  venture  net
interest payable.                                                               

If any subsidiary has joined the National Grid System during the financial year,
an  adjustment  will be made to  reflect  a full  12  months  period  and if any
subsidiary  leaves the National  Grid System an  equivalent  adjustment  will be
made.                                                                           

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     2. The common stock equity5 of NEES on a consolidated  basis,  as reflected
in its most recent annual,  quarterly or other periodic earnings report, and the
NEES electric utility  subsidiaries,6  individually,  will not fall below 35% of
total capitalization;7                                                          

     3.  National  Grid expects that its common stock equity as a percentage  of
total  capitalization,  measured on a book value US GAAP basis,  will  generally
increase through the  Authorization  Period.8  National Grid undertakes to cause
its common stock equity percentage                                              

--------                                                                        
     5 Common stock equity includes common stock (i.e.,  amounts  received equal
to the par or stated value of the common stock),  additional paid in capital and
retained earnings.                                                              

     6 New England Electric Transmission  Corporation and Vermont Yankee Nuclear
Power   Corporation   would  be  excluded  from  the  35%  common  stock  equity
capitalization  standard. In addition,  the 35% standard would be applied to the
combined capitalization of Nantucket Electric Company and Massachusetts Electric
Company.                                                                        

     7   Applicants   would   calculate   the  common   stock  equity  to  total
capitalization   ratio  as  follows:   equity/(gross   debt  +  equity).   Total
capitalization  is the sum of common stock equity,  preferred  stock,  long-term
debt, short-term debt and current maturities.                                   

     8 National Grid recently sold 27,000,000  shares of its subsidiary  Energis
plc ("Energis"),  a  telecommunications  company.  National Grid proposes to use
part of the net proceeds from the sale to implement a buy-back  program of up to
400 million pounds ($640 million) of National Grid shares.  The buy-back program
will be  implemented  over a period of time. The amount  eventually  bought back
will be  subject  to market  conditions  and  National  Grid's  other  financing
requirements. National Grid wishes to buy back its own shares to use its surplus
cash  efficiently  and to take advantage of a share price which does not reflect
the  Board's  view  of the  underlying  value  of  the  business.  The  markets'
short-term  judgement  of the value of a  company  does not  always  necessarily
reflect  the  underlying  value of the  business,  and  "shareholder  value" can
therefore be enhanced on occasions through buy-backs at the right price.        

In the U.K. once shares are  repurchased  they are  canceled,  as opposed to the
U.S.  where  they  can be held on the  balance  sheet as  treasury  stock - this
practice is not permitted under U.K. company law. Assuming the full execution of
the buyback  program  (i.e.,  the  repurchase  of $640 million of National  Grid
shares) by March 31, 2000, and given the effect of the Energis share sale, it is
anticipated  that the following common stock equity  capitalization  ratios will
result:                                                                         

March 31:                        2000              2001              2002       
-------------------------  ----------------- ----------------- -----------------
Equity capitalization            28.5%             28.9%             30.1%      
ratio                                                                           
-------------------------  ----------------- ----------------- -----------------

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measured  on such  basis  to be  28.5%  or  above  at the  time of  closing  and
thereafter during the Authorization Period, and 30% or above by March 31, 2002;9

     4. The cost of money on debt  financings  of National  Grid will not exceed
300 basis  points over that for  comparable  term U.S.  treasury  securities  or
government benchmark for the currency concerned;                                

     5. The cost of money on preferred securities or other fixed income oriented
securities of National Grid, when issued,  will not exceed 500 basis points over
that for comparable term U.S.  treasury  securities or government  benchmark for
the currency concerned;                                                         

     6. The underwriting fees, commissions or other similar remuneration paid in
connection with the  non-competitive  issue,  sale or distribution of a security
pursuant to the  Application/Declaration  will not exceed 5% of the principal or
total amount of the security being issued;                                      

     7. The aggregate amount of external debt and equity issued by National Grid
pursuant to the authority requested in this matter will not exceed $4.0 billion,
at any one time outstanding;                                                    

     8. Post-Merger,  National Grid's additional "aggregate  investment" in EWGs
and FUCOs,  as  defined in Rule 53 under the Act,  will not exceed 50 percent of
the consolidated retained earnings of the National Grid System; and             

--------                                                                        
     9 National Grid will report its  compliance  with this  undertaking  in its
Rule 24 certificates.                                                           

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     9.  The  proceeds  from  the  sale  of  securities  in  external  financing
transactions  will be used for the  acquisition,  retirement  or  redemption  of
securities issued by National Grid or its U.S. Subsidiary Companies, without the
need  for  prior  Commission  approval  and for  necessary  and  urgent  general
corporate  purposes  including  (i)  extension or renewal of the  merger-related
debt, (ii) the financing,  in part, of the capital  expenditures of the National
Grid System, (iii) the financing of working capital requirements of the National
Grid System, and (iv) other lawful general purposes.                            

     The Applicants represent that no financing proceeds will be used to acquire
a new  subsidiary,  other than a special purpose  financing  entity as described
below, unless such acquisition is consummated in accordance with an order of the
Commission  or an  available  exemption  under the Act. The proceeds of external
financings will be allocated to companies in the National Grid System in various
ways through  intrasystem  financing  discussed in this  application and will be
used for general and corporate purposes including capital expenditures,  working
capital and other  permitted  activities.  Similarly,  the  proceeds of external
financings  of the NEES  Group,  authorized  previously  by the  Commission  and
extended by the authorization  requested in this  application,  will be used for
general and corporate purposes including capital  expenditures,  working capital
and other purposes consistent with permitted activities.                        

     The requested authority will give the Applicants the flexibility to respond
quickly  and  efficiently  to their  financing  needs and to  changes  in market
conditions  to the  benefit of  customers  and  shareholders.  Approval  of this
Application/Declaration  is consistent with existing Commission precedent,  both
for newly registered holding company systems (See, e.g., Conectiv, Inc., Holding
Co. Act Release No. 26833 (Feb.  26,1998);  New Century Energies,  Inc., Holding
Co. Act Release No. 26750 (Aug.1,  1997)),  and for holding company systems that
have been  registered  for a longer period of time (See,  e.g., The Columbia Gas
System,  Inc.,  Holding Co. Act Release No. 26634 (Dec.  23, 1996);  Gulf States
Utilities Co., Holding Co. Act Release No. 26451 (Jan.16, 1996)).               

     The table below shows the revenues, net income and total assets of National
Grid,  NEES and EUA for the twelve  months to September  30, 1999,  according to
U.S. GAAP.                                                                      

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                          National Grid            NEES                EUA
                               ($ mm)              ($ mm)             ($ mm)
Revenues                         2,412                2,513               548   
Net Income                       1,661                 149                17    
Total Assets                     8,437                4,900              1,481  

     The table below shows the  capitalization  of National Grid, NEES, EUA, and
the combined group on a pro forma basis, as of September 30, 1999,  according to
U.S. GAAP.10                                                                    

                                                                [Download Table]

              National  National   NEES   NEES     EUA    EUA   Pro Forma  Pro Forma
                Grid    Grid (%)  ($ mm)   (%)   ($ mm)   (%)   Combined   Combined 
               ($ mm)                                            ($ mm)       (%)   

                                                                                    
Short-term      404       6.7%      39    1.4%     118   16.8%     561       5.7%   
debt                                                                                

Long-term      3,133     52.3%     1,059  38.8%    190   27.1%   6,682 11   68.2%   
debt                                                                                

Preferred        -         -        20    0.7%     35    5.0%      55        0.6%   
stock                                                                               

Minority         1         -        39    1.4%      -      -       40        0.4%   
interest                                                                            

Common         2,454     41.0%     1,578  57.7%    358   51.1%    2,454     25.1%12 
stock equity                                                                        

Total          5,992      100%     2,735  100%     701   100%     9,791      100%   

--------                                                                        
     10 The figures for  revenues,  net income and assets were  translated  into
dollars using a rate of U.S. $1.60 equals one pound.  Consistent with U.S. GAAP,
National Grid's share of joint ventures and  associate's  businesses is included
in net  income  and assets  but is  omitted  from  revenues.  For the year ended
September  30, 1999,  National  Grid's share of Energis  losses were $26 million
(excluding exceptional profits of $1,427 million).                              

11 Includes $2,300 million of acquisition financing.                  

     12 Cash  balances  of  $1,074  million  (on a pro  forma  basis) on hand on
September 30, 1999 are not shown above.                                         

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B.   Description of Existing NEES Financing Arrangements              

     Unlike some of the other U.S.  registered holding companies,  NEES does not
have a so-called "omnibus" financing order. Instead, financing transactions have
been  authorized  on a  discrete  basis.  The major  NEES  financing  orders are
summarized below:                                                               

     By order dated October 29, 1997, the Commission authorized participation in
the NEES intrasystem  money pool by Massachusetts  Electric  Company,  Nantucket
Electric Company,  Narragansett Electric Company, New England Hydro-Transmission
Electric  Co.,  Inc.,  New England  Power  Company and New England Power Service
Company  (collectively,  the "Borrowing  Companies"),  and the issue and sale of
commercial  paper and short-term  debt by the Borrowing  Companies,  all through
October 31, 2001. The Borrowing Companies were authorized to borrow money and/or
issue  commercial  paper  up  to  the  following   amounts:   $150  million  for
Massachusetts  Electric Company, $5 million for Nantucket Electric Company, $100
million  for  Narragansett   Electric  Company,  $25  million  for  New  England
Hydro-Transmission  Electric  Co.,  Inc.,  $375  million for New  England  Power
Company and $12 million for New England Power Service  Company.  The order noted
that financings for the remaining U.S.  Utility  Subsidiaries had been expressly
authorized by the New Hampshire Public Utilities Commission and were thus exempt
pursuant to Rule 52. New England  Electric  System,  Holding Co. Act Release No.
26768 (Oct. 29, 1997).                                                          

     By order  dated  June 2,  1998,  the  Commission  increased  the  limits on
short-term  borrowings  by New England  Power  Company from $375 million to $750
million. New England Electric System, Holding Co. Act Release No. 26881 (June 2,
1998).                                                                          

     By order dated October 9, 1996, the Commission authorized NEES to issue and
sell  short-term  notes in a principal  amount of up to $100  million at any one
time outstanding through October 31, 2001. New England Electric System,  Holding
Co. Act Release No. 26589 (Oct. 9, 1996),  as amended by Holding Co. Act Release
No. 26793 (Dec. 10, 1997) (authorizing NEES to borrow up to $500 million).      

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     NEES has also been  authorized  to invest up to $50  million in one or more
new special  purpose  subsidiaries  that will  acquire  interests  in office and
warehouse  space  that  would be  leased to  associate  companies,  New  England
Electric System, Holding Co. Act Release No. 26969 (Jan. 27, 1999), and to issue
up to two million  shares of its common  stock,  through  December 31, 2002,  to
acquire the stock or assets of one or more  "energy-related  companies,"  within
the meaning of Rule 58. New England Electric System, Holding Co. Act Release No.
26849 (March 25,  1998),  as modified by Holding Co. Act Release No. 26942 (Nov.
18, 1998).                                                                      

     Lastly,  by order dated  September 25, 1998,  New England Power Company was
authorized to  repurchase  up to 5 million  shares of its common stock from NEES
through December 31, 2000. New England Electric System,  Holding Co. Act Release
No. 26918 (Sept. 25, 1998).                                                     

C.   Overview of Proposed Financings                                  

     Briefly stated, the proposed  financing  authority is intended primarily to
fund  National  Grid's  U.S.  operations.  A  secondary  purpose is to provide a
limited source of capital and credit support for Holdings and its  subsidiaries.
It should be emphasized that any parent-level  financing is merely supplementary
to financings at the Holdings level. In this regard, the Applicants believe that
Holdings and its subsidiary companies will be largely self funding.             

D.   Specifics of Proposed Financing Arrangements                     

1.   National Grid External Financing                       

     National  Grid  proposes  to issue  long-term  equity  and debt  securities
aggregating  not more than $4.0 billion at any one time  outstanding  during the
Authorization Period.13 Such securities could include, but would not necessarily
be limited to, ordinary shares,  preferred shares, options,  warrants, long- and
short-term debt (including commercial paper), convertible securities,           

--------                                                                        
     13 The overall limit of $4.0 billion includes the merger-related financing.

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subordinated  debt,  bank  borrowings and  securities  with call or put options.
National  Grid may also enter into currency and interest rate swaps as described
below.                                                                          

     National  Grid  proposes  that the various  securities  to be issued  would
generally  fall  within the  following  limits,  but would not in the  aggregate
exceed the $4.0 billion limit stated above:                                     

                      Security                                  $ billions

Equity, including options and warrants14                               0.5      
Preferred stock                                                        0.1      
Bank debt                                                              3.0      
Commercial paper                                                       3.0      
Bond issues - straight                                                 3.0      
Bond issues - convertible                                              1.0      

     (a) Ordinary Shares. As discussed in the Merger U-1, National Grid's common
stock  equity  consists of ordinary  shares,  with a par value of 11 13/17 pence
each, that are listed on the London Stock Exchange.  National Grid currently has
a small number of American Depositary Shares ("ADS'") in the U.S. which trade as
American Depositary Receipts ("ADRs"). National Grid has established a sponsored
ADR program in the US and has its ADRs listed on the New York Stock Exchange and
registered  under the Securities Act of 1933, as amended (the "1933 Act").  As a
result,  National Grid has registered under the Securities Exchange Act of 1934,
as amended  (the "1934  Act"),  and will file the  periodic  disclosure  reports
required of a foreign issuer with the Commission.  The request  contained herein
with  respect to ordinary  shares  refers to the  issuance  of  ordinary  shares
directly or through the ADR program                                             

--------                                                                        
     14 National Grid  currently has  outstanding  $742 million  (translated  at
$1.60  equals one Pound) of 4.25%  exchangeable  bonds that mature in 2008.  The
bonds are  exchangeable  on or prior to February  8, 2008,  at the option of the
holder,  into common stock of National Grid. Should  bondholders  exchange their
bonds prior to maturity,  National  Grid may issue up to 110 million  additional
shares of  common  stock not  included  in the  overall  $4.0  billion  external
financing limit and the $0.5 billion sub-limit for equity issuances.            

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and, for purposes of this request, the ADS' and ADRs are not considered separate
securities from the underlying ordinary shares.                                 

     Ordinary shares may be sold pursuant to  underwriting  agreements of a type
generally  standard in the  industry in the U.K. or the U.S.  (depending  on the
selling  location).  Such  public  distributions  may  be  pursuant  to  private
negotiation  with  underwriters,  dealers or agents (as discussed in more detail
below) or effected through competitive bidding among underwriters.  In addition,
sales may be made through private  placements or other  non-public  offerings to
one or more  persons.  All such  sales of  ordinary  shares  will be at rates or
prices and under conditions negotiated or based upon or otherwise determined by,
competitive capital markets.                                                    

     Ordinary share financings covered by this Application/Declaration may occur
in any one of the following  ways:  (i) through  underwriters  or dealers;  (ii)
through agents;  (iii) directly to a number of purchasers or a single purchaser;
(iv)  directly to employees  (or to trusts  established  for their  benefit) and
other  shareholders  through National Grid's employee  benefit  schemes;  or (v)
through  the  issuance  of bonus  shares  (i.e.,  stock  dividends)  to existing
shareholders.  If  underwriters  are  used in the sale of the  securities,  such
securities will be acquired by the underwriters for their own account and may be
resold  from  time to time in one or  more  transactions,  including  negotiated
transactions,  at a fixed public offering price or at varying prices  determined
at the time of sale.  The securities may be offered to the public either through
underwriting  syndicates (which may be represented by a managing  underwriter or
underwriters   designated  by  National   Grid)  or  directly  by  one  or  more
underwriters  acting alone. The securities may be sold directly by National Grid
or through agents  designated by National Grid from time to time. If dealers are
utilized  in the sale of any of the  securities,  National  Grid  will sell such
securities  to the  dealers  as  principals.  Any dealer  may then  resell  such
securities  to the public at varying  prices to be  determined by such dealer at
the time of resale.  If common stock is being sold in an underwritten  offering,
National  Grid  may  grant  the  underwriters  thereof  a  "green  shoe"  option
permitting the purchase from National Grid at the same price  additional  shares
then being offered solely for the purpose of covering over-allotments.          

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     National  Grid seeks  authority to use its ordinary  shares (or  associated
ADS' or ADRs) as consideration  for acquisitions  that are otherwise  authorized
under the Act.  Among other  things,  transactions  may involve the  exchange of
parent company equity securities for securities of the company being acquired in
order to provide the seller with certain tax advantages.  These transactions are
individually  negotiated.  The ability to offer stock as consideration  provides
both National Grid and the seller of the business with flexibility. The National
Grid ordinary  shares to be exchanged may,  among other things,  be purchased on
the  open  market  pursuant  to  Rule  42 or may be  original  issue.  From  the
perspective  of the  Commission,  the use of stock as  consideration  valued  at
market value is no different  than a sale of common stock on the open market and
use of the proceeds to acquire securities, the acquisition of which is otherwise
authorized.  For purposes of the $4.0 billion external financing limit, National
Grid  ordinary  shares  used to fund an  acquisition  of a company  through  the
exchange of National Grid equity for securities being acquired,  would be valued
at market value based upon the closing price on the London Stock Exchange on the
day before closing of the sale or issuance.                                     

     In addition to other general corporate  purposes,  the ordinary shares will
be used to fund employee benefit plans.  National Grid currently maintains three
employee  benefit  plans  pursuant to which its  employees  may  acquire  equity
interests in the company as part of their  compensation:  (a) The National  Grid
1990 Savings  Related  Share Option  Scheme.  National Grid operates an employee
savings  plan that  offers  staff who take out  special  savings  contracts  the
opportunity to purchase National Grid shares at a discount. Approximately 85% of
employees  participate  in this scheme.  (b) The National Grid  Executive  Share
Option Scheme 1990.  National  Grid operates an executive  share option plan for
its  senior  executives.  Share  options  have been  granted  to over 120 senior
executives  under  this plan to a maximum  aggregate  level of four  times  base
salary for executive directors and lower levels for other participants.  Options
may be exercised  after they have been held for a minimum  period of three years
provided that financial performance targets have been achieved. (c) The National
Grid Share Match Plan 1996. The share match plan requires executive directors to
invest 25% of their annual bonuses, net of income tax, in shares. Provided these
shares  are  held for a  minimum  of  three  years,  the  company  will  provide
additional  shares  equal to the pre-tax  equivalent  of the  investment  by the
director.  A small  number of other  senior  executives  may  also,  but are not
required to, participate in the share match.                                    

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     Following  consummation  of the  Merger,  National  Grid  intends  to issue
ordinary shares to US employees through the introduction of the National Grid US
Employee Stock Purchase Plan (the "US Plan").  The US Plan, which is designed to
qualify under Section 423 of the US Internal  Revenue Code of 1986,  will enable
US employees to receive awards of National Grid shares on an all-employee basis.
In addition, other share-based plans may be developed to motivate and retain key
executives.                                                                     

     Certain  existing NEES programs provide for investment in or awards payable
in NEES shares (see,  e.g.,  Holding Co. Act Release Nos.  26301 (June 2, 1995);
25051 (Mar. 8, 1990); 25678 (Nov. 18, 1992); and 26195 (Dec. 19, 1994). NEES has
also guaranteed to the participants in certain plans that if his or her employer
does not make  distributions  provided  thereunder,  NEES will make such planned
payments.  Under deferral plans for employees and  directors,  participants  are
given the option of investing at the prime rate or, at the present time, in NEES
shares.                                                                         

     Following  consummation  of the  Merger,  National  Grid  may wish to adopt
similar plans to give investment opportunities,  to provide retirement benefits,
to facilitate deferral of compensation opportunities, and to motivate and retain
key executives and other  employees.  National Grid requests  authority to issue
ordinary shares,  including  options,  warrants,  and similar securities such as
stock  appreciation  rights,  to employees under its existing plans, the US Plan
and such  additional  plans that may be developed for the purposes stated above.
Securities  issued by  National  Grid  under all of the plans  will be  included
within the $4.0 billion external financing limit and will be valued, if ordinary
shares,  at market value based on the closing price on the London Stock Exchange
on the day before the award.  Securities  issued by National Grid to a plan that
are not ordinary shares (e.g., options) will be valued based on a reasonable and
consistent method applied at the time of the award.                             

     By order dated December 11, 1996,  NEES was authorized to issue and sell up
to 10,693,536 shares of its authorized but unissued common stock pursuant to the
NEES System Dividend  Reinvestment  and Common Share Purchase Plan ("Plan").  In
the  alternative,  NEES was authorized to purchase shares of its common stock on
the open  market and sell  those  shares to the Plan at the  market  price.  New
England Electric System, Holding Co. Act Release No. 26621                      

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(Dec. 11, 1996). As all outstanding  shares of NEES will be acquired by National
Grid  pursuant  to the  Merger,  the Plan will  cease to operate  following  the
Merger.                                                                         

     (b) Preferred  Stock.  National Grid proposes to issue preferred stock from
time to time during the  Authorization  period.  Any such preferred  stock would
have dividend rates or methods of determining the same,  redemption  provisions,
conversion  or put terms and other terms and  conditions  as  National  Grid may
determine at the time of issuance, provided that, the cost of money on preferred
stock of National Grid, when issued,  will not exceed 500 basis points over that
for comparable  term U.S.  treasury  securities or government  benchmark for the
currency  concerned.  In addition,  all issuances of preferred  stock will be at
rates or prices,  and under  conditions  negotiated  pursuant to, based upon, or
otherwise determined by competitive capital markets.                            

     (c) Debt. National Grid proposes to issue debt securities from time to time
during the Authorization Period. Any debt securities would have the designation,
aggregate principal amount,  interest rate(s) or method of determining the same,
terms of payment of interest,  redemption provisions,  non-refunding provisions,
sinking fund terms,  conversion  or put terms and other terms and  conditions as
are deemed appropriate at the time of issuance,  provided however, that the cost
of money on debt  financings  of National  Grid will not exceed 300 basis points
over that for comparable term U.S. treasury  securities or government  benchmark
for the currency  concerned.  In addition,  the maturity of any debt  securities
will not exceed 50 years.                                                       

     The  debt   securities   may  be  issued  and  sold  pursuant  to  standard
underwriting  agreements or under  negotiated  bank  facilities.  In the case of
public debt offerings, distribution may be effected through private negotiations
with  underwriters,  dealers or agents,  or through  competitive  bidding  among
underwriters.  In addition,  the debt  securities may be issued and sold through
private  placements  or other  non-public  offerings  to one or more  persons or
distributed by dividend or otherwise to existing shareholders.  All transactions
will be at rates or prices, and under conditions  negotiated  pursuant to, based
upon, or otherwise determined by competitive capital markets.                   

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     National  Grid  intends to finance  the  acquisition  of NEES (and the NEES
acquisition  of EUA) through a  combination  of borrowings  under  existing bank
facilities  and  other  internal  cash  sources.   Debt  incurred  to  fund  the
acquisition  is  included  in the  $4.0  billion  external  financing  authority
requested in this  application.  Given the price  escalation  provisions  of the
Merger  Agreement  and the nature of the  transaction,  the exact cash  purchase
price to be paid to NEES shareholders in the aggregate will depend on the timing
of the closing of the Merger as well as the number of NEES shares outstanding at
that  time.  However,  it  is  expected  that  the  acquisition  price  will  be
approximately $3.2 billion. On March 5, 1999, National Grid entered into a fully
committed  bank  facility with six banks  providing for up to $2.750  billion in
borrowings  by  National   Grid,   wholly-owned   National   Grid   subsidiaries
incorporated  in the UK (other than National Grid  Company),  and other National
Grid  subsidiaries  as  approved  in writing by the  banks,  plus a further  250
million Pound  Sterling  facility  available to National Grid Company only.  The
facility has a maturity of 3 to 5 years.  Each of these banks is a sophisticated
commercial  lender and the  facilities  were  negotiated at arm's length.  It is
expected  that  additional  banks will be added to the facility  and  subsequent
syndication may bring the number of banks involved to over 70. These  facilities
were  established  both for funding the acquisition and to provide other working
capital needs for National Grid. In addition,  National Grid will have access to
other  internal  sources  of funds for the  acquisition,  namely  existing  cash
balances. As of September 30, 1999, National Grid had on hand deposits of $2,432
million.15                                                                      

     Parent-level  debt may be issued in  connection  with the  servicing of the
acquisition  debt as well as for  necessary  and urgent  general  and  corporate
purposes   including,   financing  capital   expenditures  and  working  capital
requirements, the acquisition,  retirement or redemption of securities issued by
National  Grid or its  U.S.  Subsidiary  Companies,  and  other  lawful  general
purposes.  Section 7(c)(2)(A)  expressly  contemplates that a registered holding
company  can issue such  securities  "for the purpose of  refunding,  extending,
exchanging,  or discharging an  outstanding  security of the declarant  and/or a
predecessor  company  thereof."  Section  7(c)(2)(D)  further  provides  for the
issuance of nontraditional  securities if "such security is to be issued or sold
solely for necessary or urgent  corporate  purposes of the  declarant  where the
requirements of                                                                 

--------                                                                        
     15 As of  February  21,  2000,  National  Grid  had  on  hand  deposits  of
approximately $3,317 million.                                                   

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the provisions of paragraph (1) would impose an  unreasonable  financial  burden
upon the declarant and are not necessary or appropriate  in the public  interest
or for the  protection of investors or  consumers."  Registered gas systems have
relied on this  provision for years in connection  with their routine  financing
transactions.  See, e.g., The Columbia Gas System, Inc., Holding Co. Act Release
No. 26634 (Dec. 23, 1996)  (authorizing  Columbia to issue  external,  long-term
debt which, in the aggregate with equity financing issued by Columbia, would not
exceed $5 billion at any one time outstanding through December 31, 2001).       

     To the extent that the question is not the existence of  parent-level  debt
per se but rather the appropriateness of debt at more than one level, again, the
Commission  has  resolved  that issue.  In the 1992  amendments  to Rule 52, the
Commission  eliminated the requirement that a public-utility  subsidiary company
could issue debt to nonassociates  only if its parent holding company had issued
no  securities  other than common stock and  short-term  debt.  The rule release
explains:                                                                       

          Condition (6) provides that a  public-utility  subsidiary  company may
     issue and sell  securities  to  nonassociates  only if its  parent  holding
     company has issued no  securities  other than common  stock and  short-term
     debt. All eight commenters that considered this condition  recommended that
     it be  eliminated.  They  noted  that it may be  appropriate  for a holding
     company to issue and sell  long-term  debt and that such a  transaction  is
     subject to prior  Commission  approval.  They further  observed  that other
     controls,  that  did not  exist  when  the  statute  was  enacted,  provide
     assurance that such  financings  will not lead to abuse.  These include the
     likely adverse reaction of rating agencies to excessive  amounts of debt at
     the parent holding  company level and the disclosure  required of companies
     seeking public capital.  The Commission agrees with these  observations and
     also notes the power of many state utility commissions to limit the ability
     of utility  subsidiaries to service holding company debt by restricting the
     payment of dividends to the parent company.  The Commission  concludes that
this provision should be eliminated.                                  

Exemption  of  Issuance  and  Sale  of  Certain   Securities  by  Public-Utility
Subsidiary Companies of Registered Public-Utility Holding Companies, Holding Co.
Act Release No. 25573 (July 7, 1992).                                           

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     The Applicants have  commissioned a study by Professor Julian Franks of the
London Business School,  working with  independent  consultants from the Brattle
Group,   to  address  the  financial   strength  of  the  National  Grid  System
post-Merger.16  The  Franks/Brattle  Study examines  National  Grid's debt level
after both the merger with NEES and the  subsequent  acquisition by NEES of EUA,
and  concludes  that  National  Grid's  post-acquisition  debt,  relative to its
projected  rate base,  will lie within a range for  comparable  U.S.  utilities.
Credit rating  agencies have  confirmed  that National Grid will retain a strong
credit  rating.  The debt  issuances of National Grid currently have a rating of
"AA" from  Standard  and Poor's  and "A1" from  Moody's.  Although  on a "credit
watch" by  Standard  and Poor's and  Moody's,  the major  rating  agencies  have
indicated  that National Grid will retain at least an "A" rating  post-Merger.17
The  financial  strength  is  confirmed  by the  competitive  terms  under which
National Grid has been able to secure financing for the proposed transaction.   

     National Grid believes that a restriction  against  parent-level debt is an
unreasonable financial burden that is not necessary or appropriate in the public
interest  or for  the  protection  of  investors  or  consumers  because  it may
interfere with National Grid's ability to implement an optimal capital structure
for its  business.  Prior to  issuing  debt,  preferred  securities  or  equity,
National Grid will evaluate the relevant financial implications of the issuance,
including  without  limit,  the cost of capital,  and select the  security  that
provides the most efficient  capital  structure  consistent with sound financial
practices and the capital markets.                                              

     It is important to note,  however,  that the issuance of debt is subject to
certain  objective  conditions  intended to ensure the  financial  integrity  of
National  Grid and the NEES  Group.  National  Grid has  committed  to cause its
common stock equity as a percentage of total capitalization,  measured on a book
value U.S. GAAP basis, to be 30% or above by March 31,                          

--------                                                                        
     16 A copy of the study (the "Franks/Brattle  Study") is included in Exhibit
J-3 to the Merger U-1 in File No. 70-9473.                                      

     17 The investment  bank Dresdner  Kleinwort  Benson  ("Dresdner")  has also
projected  that  National  Grid will continue to have an A rating after the NEES
transaction.  Franks  Brattle Study at 12.  Dresdner is National  Grid's primary
external financial  adviser,  a participant bank in the syndicate  providing the
$2.75 billion credit facility  discussed  above,  and a market maker in National
Grid's stock on the London Stock  Exchange.  Dresdner does not hold an ownership
interest in National Grid.                                                      

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2002.  In addition,  National Grid will maintain the common stock equity of NEES
and, with limited exceptions,  its electric utility subsidiaries at or above 35%
of total capitalization.18                                                      

     (d)  Interest Rate and Currency Risk Management Devices

     In order to protect the  National  Grid System from adverse  interest  rate
movements, the interest rate on the debt portfolio is managed through the use of
fixed-rate debt,  combined with interest rate swaps,  options and option-related
instruments  with a view to maintaining a significant  proportion of fixed rates
over the medium term.  The proportion of debt at fixed rates is varied over time
and within policy guidelines, depending on debt projections and market levels of
interest rates. The resulting  position as of September 30, 1999 was that 57% of
the System borrowings were at fixed rates of interest.                          

     The National Grid System's  exposure to currency risk is not significant at
present. In the future, National Grid may seek to hedge its exposure to currency
fluctuations   through   currency   swaps  and   forward   exchange  or  similar
transactions.                                                                   

     National Grid maintains a central treasury  department whose activities are
governed by policies and  guidelines  approved by the Board of  Directors,  with
regular  reviews  and  monitoring  by a standing  committee  of the  Board.  The
treasury  department operates as a service center rather than as a profit center
and is subject to internal and external audit.  Treasury  activities are managed
in a  non-speculative  manner and all  transactions in financial  instruments or
products are matched to an underlying  business  requirement.  Such transactions
will meet the criteria  established by the Financial  Accounting Standards Board
in order to qualify for hedge- accounting  treatment or will so qualify under UK
GAAP.  In the event  transactions  in  financial  instruments  or  products  are
qualified for hedge  accounting  treatment under UK GAAP, but not under US GAAP,
National  Grid's  financial  statements  filed in accordance with Form 20-F will
contain a reconciliation of the difference between the two methods of accounting
treatment.  No gain or loss on a hedging  transaction  will be  allocated to any
company in the NEES Group,  regardless of the accounting  treatment  accorded to
the transaction.                                                                

--------                                                                        
18 See note 6, supra.                                                 

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2.   U.S. Subsidiary Company Financings                     

     The existing financing  arrangements of the NEES Group have been authorized
by rule or  Commission  order.  These  arrangements  will  remain in place.  The
Applicants request the Commission to extend the term of any existing  authority,
as necessary,  for the Authorization  Period.  The dollar amount and the type of
securities authorized in the existing NEES Group financing  authorizations would
not be affected by the extension of the term through the  Authorization  Period.
The extended existing NEES Group financing  authority is in addition to the $4.0
billion external financing authority requested by National Grid.                

     Each of the  Intermediate  Companies and NEES is seeking  authorization  to
issue and sell securities to, and acquire  securities from, its immediate parent
and subsidiary companies,  respectively.  Each of the Intermediate Companies and
NEES is also seeking authorization to issue guarantees and other forms of credit
support to direct and  indirect  subsidiaries.  Guarantees  entered into by NEES
will be subject to a limit of $500 million  based upon the amount at risk. In no
case would the Intermediate  Companies or NEES borrow,  or receive any extension
of  credit  or  indemnity  from  any of  their  respective  direct  or  indirect
subsidiary  companies.  For  reasons  of  economic  efficiency,  the  terms  and
conditions of any such financings will be on an arm's length basis,  except that
the interest rates and maturity dates of any debt security issued by NEES to its
immediate parent company will be designed to parallel the effective cost of debt
capital of  National  Grid.19  Securities  issuances  by NEES will be limited to
issuances  permitted by the existing NEES group  financing  orders,  as extended
through the Authorization Period.                                               

     (a) Money Pool.  National Grid requests authority to continue the operation
of the NEES  Money  Pool,  with the  substitution  of NGG  Holdings,  Inc.,  the
successor  to NEES,  as an  investor  in the Money Pool and the  addition to the
Money Pool as lenders only of the Intermediate Companies,  National Grid and all
other  newly-formed or acquired or currently  non-participating  NEES Subsidiary
Companies.                                                                      

--------                                                                        
     19 Borrowings by an Intermediate Company or NEES, for example, would not be
subject to Rule 52 because each is a holding company.                           

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     (b)  Guarantees.   National  Grid  requests  authorization  to  enter  into
guarantees,   obtain  letters  of  credit,  enter  into  guaranty-type   expense
agreements or otherwise  provide credit support with respect to the  obligations
of the U.S.  Subsidiary  Companies as may be  appropriate  to enable such system
companies to carry on their respective  authorized or permitted  businesses.  In
addition,  authority is requested for the NEES Subsidiary  Companies (except the
U.S. Utility  Subsidiaries) to enter into similar arrangements with one another,
except as exempted under Rule 45. Guarantees  entered into by National Grid will
be subject to a $2.0  billion  limit  (i.e.,  not  included in the $4.0  billion
external financing limit), based upon the amount at risk.                       

     (c) Payment of Dividends Out of Capital or Unearned Surplus. As a result of
the application of the purchase method of accounting to the Merger,  the current
retained   earnings  of  NEES  and  the  NEES   Subsidiary   Companies  will  be
recharacterized  as additional paid-  in-capital.  In addition,  the Merger will
give  rise to a  substantial  level of  goodwill,  the  difference  between  the
aggregate fair values of all identifiable tangible and intangible (non-goodwill)
assets on the one hand, and the total  consideration to be paid for NEES and the
fair value of the  liabilities  assumed,  on the other.  In accordance  with the
Commission's  Staff  Accounting  Bulletin  No. 54,  Topic 5J ("Staff  Accounting
Bulletin"),  the goodwill will be "pushed down" to the NEES Subsidiary Companies
and reflected as additional paid-in-capital in their financial statements.20 The
effect of these  accounting  conventions  would be to leave the NEES  Subsidiary
Companies with no retained earnings, the traditional source of dividend payment,
but, nevertheless, strong balance sheets showing significant common stock equity
levels.  Applicants request authorization to pay dividends out of the additional
paid-in-capital  account up to the amount of the NEES Group companies' aggregate
retained  earnings  just  prior to the  Merger  and out of  earnings  before the
amortization of the goodwill thereafter.                                        

     The accounting for a business combination is done on a pooling of interests
basis if it meets certain specified criteria.  Business combinations that do not
meet all of the specified                                                       

--------                                                                        
     20 Applicants are  commissioning  their public accounting firm to perform a
fair value study in connection with the application of purchase accounting.  One
purpose of this fair value study is to  determine  the amount of  goodwill  that
should be recorded on each  subsidiary's  books.  NEES'  auditors have confirmed
that the push down of goodwill is appropriate and consistent with SEC accounting
guidance.                                                                       

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criteria must be accounted  for as a purchase.  One  requirement  for pooling of
interests   accounting  is  that  cash  represent  not  more  than  10%  of  the
consideration paid for the acquisition.  The NEES/National Grid combination does
not meet  this  criteria  because  more  than 10% of the  consideration  paid by
National Grid to NEES  shareholders is cash - in fact, all of the  consideration
is cash. Another requirement is that significant assets cannot be disposed of in
contemplation  of  the  combination.   The  Commission's  accounting  staff  has
concluded  that a sale of assets prior to a combination  would be presumed to be
in  contemplation  of the  combination.  New England  Power's sale of generation
assets which  commenced in September 1996 but was not concluded  until September
1998 may be viewed as significant.  While NEES believes that there are arguments
to rebut the Staff's  presumption,  there is no  certainty  that the  Commission
would allow pooling because of the generation sale.                             

     In purchase  accounting,  the grand total value,  which must be assigned to
NEES's assets,  is the total  consideration  to be paid for NEES,  plus the fair
value  of all  liabilities  assumed  in  the  acquisition.  Generally  speaking,
goodwill is the residual  balance of the total value remaining after fair values
have been  assigned to all of NEES's  identifiable  assets  (both  tangible  and
non-goodwill  intangible  assets).  Accordingly,  the  excess  of  the  purchase
consideration  over the fair market value of the acquired assets of NEES will be
assigned to goodwill for US GAAP purposes.21                                    

     As  indicated  in the  Staff  Accounting  Bulletin,  registrants  that have
substantially all (generally  defined as in excess of 95%) of their common stock
acquired by a third party,  in a business  combination  accounted  for under the
purchase  method,  should reflect the push-down of goodwill in the  registrant's
post-acquisition financial statements. For any post-acquisition reporting of the
consolidated NEES financial  statements,  push down accounting will be reflected
in those  statements  and the full amount of goodwill  associated  with the NEES
acquisition will be reflected.  Push down accounting will also be applied to the
NEES Subsidiary Companies.                                                      

--------                                                                        
     21 The amount of goodwill for US reporting purposes will vary somewhat from
the UK goodwill amount because of identified UK/US GAAP differences,  which will
have an effect on the respective fair valuation analyses.                       

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     Under UK GAAP, there is a presumption that the goodwill amortization period
should not exceed 20 years.  This presumption is rebuttable by annual valuations
to  confirm  that no  impairment  of the  carrying  value  of the  goodwill  has
occurred.  National Grid  currently  intends to amortize the goodwill  resulting
from the acquisition of NEES over a 20-year period.  US GAAP at present allows a
goodwill life of up to 40 years. The Commission,  however,  has been challenging
registrants that adopt the maximum period. Additionally, the FASB draft proposal
relating  to  accounting  for  business  combinations  would  limit the  maximum
goodwill life to 20 years.  Applicants,  therefore,  currently intend to adopt a
20-year  goodwill  amortization  period for NEES for purposes of its separate US
reporting. This has the advantage of consistency with UK reporting requirements.

     The application of "push down" accounting represents the termination of the
old  accounting  entity  and the  creation  of a new one.  For  FERC  and  state
commission  reporting  purposes,  goodwill will be recorded in the  "Acquisition
adjustments"  account.  The original historical basis of the plant accounts will
not be disturbed.                                                               

     As a result of the push  down of the  goodwill,  the  common  stock  equity
balances of NEES and the NEES Subsidiary  Companies are effectively  reset as if
they were new companies,  because a new basis of accounting has been pushed down
to the entities.  As a result,  retained  earnings are  eliminated.  Immediately
following this accounting  treatment,  the only components with a recorded value
would be:                                                                       

o    Common stock - which would  continue to reflect the par value of the common
stock issued.                                                         

o    Additional  paid in capital - which would reflect a value  consistent  with
     total common stockholders equity minus the par value recorded in the common
stock line.                                                           

In other words, the resulting common  stockholders'  equity will equal the total
consideration paid for the entity.                                              

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     Based on financial information as of September 30, 1999, the application of
these accounting  principles to the NEES/National Grid merger will result in the
following  adjustments  to NEES'  accounts  (adjusted  to reflect  the pro forma
effect of the merger of NEES and EUA):                                          

                                                        [Enlarge/Download Table]

$'000                                   Sept. 30,           Adjustments1          Adjustments2          Restated     
                                           1999                                                                      
                                                                                                                     
Common shares                             64,970                 -                      -                64,970      
Paid in capital                          736,661              780,003               2,242,227           3,758,891    
Retained earnings                       1,010,489           (1,010,489)                 -                   -        
Treasury stock                          (231,199)             231,199                   -                   -        
Accumulated income, net                    713                 (713)                    -                   -        
Total common stock equity               1,581,634                -                  2,242,227           3,823,861    
----------------------------------- ------------------ ---------------------- --------------------- -----------------

    Adjustments 1 -- capital accounts are restated as Paid in Capital.

         Adjustments 2 -- goodwill is added to Paid in Capital,  which  includes
         an additional  capital  contribution of $633,516,000 from National Grid
to pay for the EUA acquisition.                               

     The push down of the goodwill also has an impact on the net income of NEES.
Since the goodwill  will be amortized  over 20 years,  NEES's net income will be
reduced  by the  amount of the  amortization.  For  example,  net income of $190
million in 1998 would be reduced by a goodwill  amortization of $80 million. The
resulting net income after  amortization  would be $110 million.  That amount is
less than the $147 million in dividends paid to NEES's shareholders in 1998.    

     NEES'  acquisition of EUA also will involve similar issues.  The premium to
be paid to acquire  EUA will  result in goodwill  and the  elimination  of EUA's
retained  earnings.  EUA's  consolidation  with NEES will further increase NEES'
additional paid in capital  account.  The  amortization of the EUA goodwill also
will reduce net income.  The  required  accounting  adjustments  put NEES in the
anomalous  position  of  having  greater  stockholders'  equity  following  both
mergers,  but projected net income below NEES's current  dividend payment levels
and no retained  earnings  from which to pay  dividends.  As  discussed  further
below, these merger-related  accounting  adjustments do not affect the cash flow
associated with the U.S. Utility Subsidiaries.                                  

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     Section 12 of the 1935 Act, and Rule 46 thereunder,  generally prohibit the
payment of dividends out of "capital or unearned  surplus" except pursuant to an
order of the Commission.  The legislative  history  explains that this provision
was intended to "prevent  the milking of operating  companies in the interest of
the controlling  holding company groups." S. Rep. No. 621, 74th Cong., 1st Sess.
34 (1935).22 In determining  whether to permit a registered  holding  company to
pay dividends out of capital surplus,  the Commission considers various factors,
including: (i) the asset value of the company in relation to its capitalization,
(ii) the  company's  prior  earnings,  (iii) the company's  current  earnings in
relation  to the  proposed  dividend,  and (iv)  the  company's  projected  cash
position after payment of a dividend. See Eastern Utilities Associates,  Holding
Co. Act Release No. 25330 (June 13, 1991), and cases cited therein. Further, the
payment of the  dividend  must be  "appropriate  in the public  interest."  Id.,
citing Commonwealth & Southern Corporation, 13 S.E.C. 489, 492 (1943).          

     National Grid and the U.S.  Subsidiary  Companies  request authority to pay
dividends  out  of  additional   paid-in-capital  up  to  the  amount  of  NEES'
consolidated  retained  earnings  just prior to the  Merger and out of  earnings
before the  amortization of goodwill  thereafter.  In no case would dividends be
paid if the common stock equity of NEES as a percentage of total  capitalization
was below 35% on a consolidated  basis.  This restriction is intended to protect
both investors and consumers.                                                   

     In support of their request,  Applicants  assert that each of the standards
of Section 12(c) of the 1935 Act enunciated in the EUA case are satisfied:      

     (i)  After the Merger, and giving effect to the pushdown of goodwill, NEES'
          common stock equity as a percentage  of total  capitalization  will be
          75%,  substantially  in  excess  of the  traditional  levels of equity
          capitalization that the Commission has authorized for other registered
          holding  company  systems.  Applicants'  commitment  to  maintain  the
          capitalization  of NEES at or  above  35%  common  stock  equity  on a
          consolidated  basis should  result in a capital  structure  consistent
with industry norms.                                        

--------                                                                        
22 Compare Section 305(a) of the Federal Power Act.                   

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     (ii) NEES  has a  favorable  history  of prior  earnings  and it has a long
record of consistent dividend payments.23                   

     (iii)Applicants  anticipate  that NEES' cash flow after the Merger will not
          differ  significantly  from its pre-Merger cash flow and that earnings
          before the  amortization of goodwill  ("Gross  Earnings"),  therefore,
          should remain stable post- Merger.  Applicants  intend that  dividends
          paid out of  post-Merger  earnings will continue to reflect a dividend
          payout  ratio of between  60% and 100% of Gross  Earnings,  based on a
          rolling 5-year average.  In addition,  to assure that the U.S. Utility
          Subsidiaries   have  sufficient  cash  to  support  their  businesses,
          Applicants will not cause any of the U.S. Utility  Subsidiaries to pay
          more than 80% of their post- Merger Gross Earnings as dividends, based
          on a rolling  5-year  average.24  Exhibit D-3  describes  the dividend
          history of the NEES subsidiaries in detail for the years 1994 to 1998.

     (iv) The projected cash position of NEES and its U.S. Utility  Subsidiaries
          after the Merger  will be  adequate  to meet the  obligations  of each
          company.  As of  September  30, 1999,  NEES had cash  balances of $201
          million on a consolidated  basis.  The  amortization  of goodwill is a
non-cash expense that will not affect the                   

--------                                                                        
23 In recent years, NEES' net income and dividends have been:         

        Year           Net Income ($ millions)       Dividends Paid ($ millions)
1994                     199                             148    
1995                     205                             151    
1996                     209                             154    
1997                     220                             153    
1998                     190                             147    
1999                     163                             137    

     24 Applicants  request the Commission to grant the proposed dividend relief
for the duration of the goodwill amortization period.                           

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          cash flow of NEES or its subsidiaries. Each of NEES and its subsidiary
          companies is forecast to have  sufficient cash to pay dividends in the
amounts contemplated.                                       

     (v)  The proposed  dividend  payments are in the public interest.  NEES and
          its subsidiary companies are in sound financial condition as indicated
          by their credit ratings.  NEES'  commercial  paper is rated A-1 by S&P
          and Prime-1 by Moody's.  The long-term debt of Massachusetts  Electric
          Co.,  Narragansett  Electric  Co., and New England  Power Co. is rated
          AA-, A1; AA-, A1; and A+, A1 by S&P and Moody's, respectively. Indeed,
          Standard & Poor's has placed the credit ratings of NEES, Massachusetts
          Electric Co.,  Narragansett  Electric Co. and New England Power Co. on
          "creditwatch with positive  implications."25 The positive implications
          for NEES and its subsidiaries  are a result of their  association with
          the even  stronger  credit  of  National  Grid.  The  expectations  of
          continued  strong  credit  ratings  by the U.S.  Utility  Subsidiaries
          should allow them to continue to access the capital markets to finance
their operations and growth.                                

In  addition,  the dividend  payments are  consistent  with  investor  interests
because  they allow the  capital  structure  of the NEES Group to be adjusted to
more  appropriate  levels of debt and equity.  Lastly, a prohibition on dividend
payments out of additional  paid-in-capital  would seriously harm the ability of
National Grid to service the  acquisition  debt incurred in connection  with the
Merger.                                                                         

     (d)  Approval  of New  Tax  Allocation  Agreement  The  Applicants  ask the
Commission to approve an agreement for the allocation of consolidated  tax among
National Grid General  Partnership  ("NGGP") and the NEES Group post-Merger (the
"Tax Allocation  Agreement").  Approval is necessary  because the Tax Allocation
Agreement  provides for the retention by NGGP of certain payments for tax losses
that it has  incurred,  rather than the  allocation of such losses to subsidiary
companies  without  payment as would  otherwise  be required  by Rule  45(c)(5).
Exhibit C-1 is a copy of the proposed Tax Allocation Agreement.  Applicants have
provided a detailed legal analysis of Rule 45(c) and the proposed Tax Allocation
Agreement in Exhibit C-2.                                                       

--------                                                                        
25 Standard & Poor's Credit Wire (Dec. 14, 1998).                     

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     Provisions  in a tax  allocation  agreement  between a  registered  holding
company and its subsidiaries  must comply with Section 12 of the Act and Rule 45
thereunder.  Rule 45(a) of the Act generally  prohibits any  registered  holding
company or subsidiary  company from,  directly or indirectly,  lending or in any
manner  extending  its  credit to or  indemnifying,  or making any  donation  or
capital contribution to, any company in the same holding company system,  except
pursuant to a Commission order. Rule 45(c) provides that no approval is required
for a  tax  allocation  agreement  between  eligible  associate  companies  in a
registered  holding  company  system,  that "provides for allocation  among such
associate   companies  of  the  liabilities  and  benefits   arising  from  such
consolidated tax return for each tax year in a manner not inconsistent with" the
conditions of the rule. Of interest here, Rule 45(c)(5) provides that:          

          The  agreement  may,  instead  of  excluding  members as  provided  in
          paragraph  (c)(4),  include  all  members  of the  group  in  the  tax
          allocation,   recognizing  negative  corporate  taxable  income  or  a
          negative  corporate tax, according to the allocation method chosen. An
          agreement  under this  paragraph  shall  provide that those  associate
          companies with a positive allocation will pay the amount allocated and
          those  subsidiary  companies with a negative  allocation  will receive
          current  payment of their  corporate tax credits.  The agreement shall
          provide a method for apportioning such payments, and for carrying over
          uncompensated  benefits,  if the consolidated  loss is too large to be
          used in full. Such method may assign  priorities to specified kinds of
benefits. (Emphasis added.)                                 

Under the rule, only "subsidiary companies," as opposed to "associate companies"
(which includes the holding company in a holding company  system),  are entitled
to be paid for corporate tax credits.  However,  if a tax  allocation  agreement
does not fully comply with the provisions of Rule 45(c),  it may  nonetheless be
approved by the Commission under Section 12(b) and Rule 45(a).                  

     In connection with the 1981 amendments to Rule 45, the Commission explained
that  the  distinction  between  associate  companies,  on  the  one  hand,  and
subsidiary  companies,  on the other,  represented a policy decision to preclude
the holding company from sharing in consolidated return savings.  The Commission
noted that  exploitation of utility  companies by holding  companies through the
misallocation of consolidated tax return benefits was among the                 

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abuses examined in the investigations  underlying the enactment of the 1935 Act.
Holding Co. Act Release No. 21968 (March 25,  1981),  citing Sen.  Doc. 92, Part
72A, 70th Congress,  1st Sess. at 477-482. It must be noted,  however,  that the
result in Rule  45(c)(5) is not dictated by the statute  and, as the  Commission
has  recognized,  there is  discretion  on the part of the agency to approve tax
allocation  agreements that do not, by their terms, comply with Rule 45(c) -- so
long as the policies and provisions of the Act are otherwise satisfied.  In this
matter,  where the holding  company is seeking  only to receive  payment for tax
losses that have been generated by it, in the limited and discrete circumstances
where the losses were incurred in connection with acquisition-related debt only,
the  proposed  arrangement  will not give rise to the types of  problems  (e.g.,
upstream  loans) that the Act was intended to address.  Compare Section 12(a) of
the Act. Accordingly, the Applicants request that the Commission approve the Tax
Allocation Agreement.                                                           

     National  Grid may suffer an  increased  UK tax  liability  without the tax
allocation  agreement.  UK  corporate  law looks at each  company  as a separate
entity,  even where a company is a wholly  owned  subsidiary  of  another.  This
perspective  requires the  maintenance of corporate  capital and is particularly
important  for  creditor  protection.  Each  company is  required to prepare and
publicly file its own statutory accounts.                                       

     Each  company  is also taxed  separately.  The UK does not have a system of
consolidated  groups. If one company in a group has a loss for tax purposes then
it may  "surrender"  that loss to another  member  thereby  reducing its taxable
profits  by the  amount of the loss  surrendered.  The  companies  are  separate
entities,  however,  for  corporate  law  purposes  and,  because  a tax loss is
available to reduce future taxable  profits and therefore tax liabilities if not
surrendered,  a loss is  considered  an asset  which is  invariably  paid for if
surrendered. A payment avoids distorting the results of each entity and the risk
of voiding the surrender.                                                       

     When a UK  company  receives  a  dividend  from an  overseas  company it is
subject to tax on that  dividend but is given a credit for the foreign tax borne
on the profits out of which the dividend has been paid. These rules also operate
on an entity by entity  basis  (consistent  with the general  approach in the UK
explained  above).  Therefore,  if the tax paid by the foreign  company has been
reduced by a loss incurred by another member of the group,  the amount of relief
for foreign tax is distorted unless the foreign entity reimburses the loss maker
for the losses.  This is illustrated in the example below.  In the example it is
assumed that NGGP has debt of $2.2 billion                                      

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and is a holding company of the U.S. Utility  Subsidiaries only (i.e,, not EUA).
The example  shows the impact of the tax  allocation  payments and the potential
increase in UK tax if the payments were not made.                               

                                                        [Enlarge/Download Table]

                                                            Illustrative post-acquisition           
                                                                  using 1998 figures                
                                                   ------------------------------------------------ 
                                 1998                  Without tax              With tax allocation 
                                                   allocation payments               payments       
                                 $'000                    $'000                        $'000        
                                                                                                    
Profit before tax (note 1)       312,396                 312,396                      312,396       
Tax (note 2)                                                                                        
- tax payments                   122,354                  76,154                       76,154       
     - tax allocation                  0                       0                       46,200       
     agreement payments     ------------------------------------------------------------------------
Profit after tax                 190,042                 236,242                      190,042       
Dividends (note 3)               145,648                 145,648                      145,648       
UK tax on dividend of                                     10,829                        2,839       
     $145,648 (note 4)                                                                              

Notes                                                                           

1.   The debt:equity ratio of the U.S.  Utility  Subsidiaries will be unaffected
     by the National Grid acquisition and therefore the profit before tax of the
U.S. Utility Subsidiaries will not change for this reason.            

2.   If the debt in NGGP is assumed to be $2,200  million and the interest  rate
     is 6%,  interest of $132  million is payable per annum by NGGP.  Tax relief
     for  this  interest  reduces  the  federal  tax  paid by the  U.S.  Utility
Subsidiaries by 35% of $132 million, i.e. $46.2 million.              

     If no tax allocation  payment is made, the U.S. Utility  Subsidiaries'  tax
     expense is reduced by $46.2 million to $76.1 million. Alternatively,  under
     the proposed tax allocation  agreement the U.S. Utility  Subsidiaries  will
     make a payment of $46.2  million to NGGP to leave  their  total tax expense
     the  same as it would be on a  separate  return  basis.  The  proposed  tax
     allocation  agreement  provides  that the  utilities  tax  payments and tax
     allocation  payments  together  will not  exceed  their tax  payments  on a
separate return basis.                                                

3.   Dividends cannot exceed profit after tax.                                  

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4.   The calculations are as follows:                                           

                                Without tax allocation       With tax allocation
                                 payment                     Payment
                                 $'000                       $'000
                                 -----                       -----

Dividend                                145,648                   145,648       

Gross up 145,648 x 76,154                46,950                                 
------                                    
236,242                                     

  145,648 x 76,154                                          58,364
            ------                                          ------
190,042                                     

Taxable amount                          192,598                   204,012       
                                 =======                   =======

UK tax @ 30%                              57779                    61,203       
Less credit for US tax                   46,950                    58,364       
                                  ------                    ------
UK tax due                               10,829                      2839       
                                  ======                      ====

     It is important to note that various  safeguards  assure that the structure
proposed  in this  application  cannot be used to the  detriment  of  investors,
consumers  or  the  public  interest.  Most  importantly,   the  tax  allocation
agreement, included as Exhibit C-1 to this application,  provides that "under no
circumstances  shall the amount of tax allocated to a Member exceed its separate
tax liability." Secondly,  the U.S. Utility Subsidiaries are limited to dividend
payments  that do not exceed 80% of their  Gross  Earnings.  Further,  NEES on a
consolidated   basis  and,  with  limited   exceptions,   its  electric  utility
subsidiaries must maintain common stock equity capitalization of at least 35% of
total  capitalization.26  With regard to debt  financing,  NEES'  financing will
mirror the market terms of debt raised by National Grid and the NEES  Subsidiary
Companies will finance their  operations as permitted under existing  Commission
orders  or the rules  under  the 1935  Act.  Lastly,  with  respect  to  service
transactions, the NEES Group will receive certain limited services from National
Grid and its subsidiaries,  but all service  transactions will be priced at cost
in accordance with Section 13 and the rules thereunder.  Consequently,  the NEES
Group is effectively  insulated from the financial  abuses  targeted by the 1935
Act. The proposed tax allocation  agreement and Intermediate  Company  structure
should be permitted as reasonable and appropriate  measures to organize National
Grid's ownership of NEES efficiently in a manner  consistent with the protection
of investors, consumers and the public interest.                                

--------                                                                        
26 See note 6, supra.                                                 

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     If not reinvested in NEES or another  business,  National Grid expects that
funds retained by NGGP under the tax allocation agreement will flow up the chain
of Intermediate Companies to National Grid through dividends, interest payments,
share repurchases and the repayment of principal.27                             

3.   Changes in Capital Stock of Subsidiaries               

     The portion of an individual U.S. Subsidiary  Company's aggregate financing
to be effected  through the sale of equity  securities to its  immediate  parent
company  during the  Authorization  Period cannot be determined at this time. It
may happen that the proposed sale of capital securities may in some cases exceed
the then authorized capital stock of such U.S.  Subsidiary Company. In addition,
the U.S. Subsidiary Company may choose to use other forms of capital securities.
Capital  stock  includes  common  stock,   preferred   stock,   other  preferred
securities,  options and/or warrants convertible into common or preferred stock,
rights, and similar securities.  As needed to accommodate the sale of additional
equity,  Applicants  request the  authority to increase the amount or change the
terms of any such  U.S.  Subsidiary  Company's  authorized  capital  securities,
without additional Commission approval, except as provided below. The terms that
may  be  changed  include  dividend  rates,  conversion  rates  and  dates,  and
expiration dates.  Applicants note that each of the Intermediate  Companies will
be wholly-owned  directly or indirectly by National Grid and that none will have
third-party   investors.   Applicants   request  that  the  Commission   reserve
jurisdiction  over changes to the capital stock of NEES and any U.S.  Subsidiary
Company that is not  wholly-owned  directly or indirectly by National  Grid. The
changes  to  capital  stock  proposed  above  affect  only the  manner  in which
financing is conducted by the U.S.  Subsidiary  Companies and will not alter the
terms or limits proposed in this application or those of the existing NEES Group
financing orders.                                                               

--------                                                                        
     27  Exhibit  C-3  describes  the  manner  in which  funds  flow  among  the
Intermediate Companies.                                                         

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4.   Financing Entities                                     

     Authority is sought for National Grid and the U.S. Subsidiary  Companies to
organize new  corporations,  trusts,  partnerships or other entities created for
the purpose of facilitating  financings  through their issuance to third parties
of income preferred  securities or other securities  authorized hereby or issued
pursuant to an applicable  exemption.  Request is also made for these  financing
entities to issue such  securities to third parties in the event such  issuances
are  not  exempt  pursuant  to  Rule  52.  Additionally,  request  is  made  for
authorization  with respect to (i) the issuance of debentures or other evidences
of  indebtedness by any of National Grid or the U.S.  Subsidiary  Companies to a
financing  entity  in  return  for  the  proceeds  of the  financing,  (ii)  the
acquisition by any of National Grid or the U.S.  Subsidiary  Companies of voting
interests  or equity  securities  issued by the  financing  entity to  establish
ownership of the financing  entity and (iii) the guarantee by the  Applicants of
such financing entity's  obligations in connection  therewith.  Each of National
Grid and the U.S.  Subsidiary  Companies also may enter into expense  agreements
with its respective  financing  entity,  pursuant to which it would agree to pay
all  expenses  of such  entity.  All  expense  reimbursements  would be at cost.
Applicants seek authorization for such expense reimbursement  arrangements under
Section  7(d)(4)  of the  Act,  regarding  the  reasonableness  of fees  paid in
connection  with the issuance of a security,  and/or under Section 13 of the Act
and the rules thereunder to the extent the financing entity is deemed to provide
services to an associate company.                                               

     Any amounts issued by such financing  entities to third parties pursuant to
this  authorization will count against the $4.0 billion external financing limit
authorized  herein for the immediate parent of such financing  entity.  However,
the  underlying  intra-system  mirror debt and parent  guarantee  will not count
against the $4 billion  external  financing limit or the separate  National Grid
and NEES  guarantee  limits.  The  authorization  sought  herein with respect to
financing  entities  is  substantially  the same as that  given  to New  Century
Energies,  Inc. in Holding Co. Act Release No. 26750 (Aug.1, 1997) and Conectiv,
Inc. in Holding Co. Act Release No. 26833 (Feb. 26, 1998).                      

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5.   EWG/FUCO-related Financings                            

     National Grid has adopted a corporate structure that separates its existing
foreign operations from its U.S. utility operations. The organization of foreign
activities  under Holdings,  and U.S. utility  activities  under NEES,  reflects
National  Grid's  intent to develop  these two business  areas in a  financially
independent manner. As a general matter,  National Grid intends to fund its FUCO
activities at the Holdings level, although under certain circumstances it may be
necessary from time to time for National Grid to provide some investment capital
or credit support for FUCO  acquisitions or operations.28 To that end,  National
Grid is seeking  authority to finance EWG and FUCO investments and operations in
an aggregate  amount of up to 50% of its consolidated  retained  earnings at any
one time  outstanding,  during the  Authorization  Period.29 As of September 30,
1999, 50% of National Grid's consolidated retained earnings on a U.S. GAAP basis
was $874 million.  Such  financings  may include the issue or sale of a security
for purposes of financing  the  acquisition  or operations of an EWG or FUCO, or
the  guarantee of a security of an EWG or FUCO.  As explained  more fully below,
the  proposed  financing  will  not  have an  adverse  effect  on the  financial
integrity of the National Grid System, nor will it have an adverse impact on any
U.S. Utility Subsidiary,  any customers of any U.S. Utility  Subsidiary,  or the
ability  of  the  affected  state   commissions  to  protect  the  U.S.  Utility
Subsidiaries and their customers.                                               

     National Grid differs from all other registered holding companies with FUCO
investments because it developed first as a foreign utility company, involved in
high-voltage  transmission  of  electricity  in  England  and  Wales,  and  only
secondarily  has become  involved,  through  the NEES  acquisition,  in the U.S.
energy  industry.  National  Grid,  therefore,  joins the  family of  registered
holding companies with significant foreign investments and operating  experience
in foreign  markets.  As of September  30, 1999  National Grid had an "aggregate
investment",  as the term is defined in Rule 53 under the Act, in EWGs and FUCOs
of $3,532                                                                       

--------                                                                        
     28 For example,  it may be desirable for reasons of economic  efficiency to
hold certain FUCO interests outside Holdings and its subsidiary companies.      

     29 As noted above,  all of National  Grid's current  subsidiaries  are held
through a FUCO. The National Grid System will not own any EWGs at the closing of
the Merger. In the Merger U-1, National Grid has requested that its pre-existing
investment in FUCOs be grandfathered  for purposes of the financing limits under
Rule 53.                                                                        

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million.  This investment represents 202% of the combined NEES and National Grid
pro forma consolidated  retained earnings as of September 30, 1999 calculated in
accordance with U.S. GAAP.                                                      

     This  information  is provided for historical  perspective  only. As stated
above,  due to National  Grid's  unique  history as a  significant  operator and
investor  in  foreign  utility  companies  at the  time  that it will  become  a
registered holding company,  a forward-looking  view of the appropriate level of
investment  in EWGs and  FUCOs  is most  valuable  in  determining  whether  the
financing  proposed in this application  will have a substantial  adverse effect
upon the financial  integrity of the registered holding company system. In fact,
the  expertise  that National Grid has gained in operating the England and Wales
transmission system, and other transmission throughout the world, promises to be
of  substantial  benefit to U.S.  consumers in the  management of NEES. It would
indeed  be a  curious  result  if the  Commission  found  that  National  Grid's
preexisting FUCO investments  adversely  affected the registered holding company
system, U.S. customers or state regulation.                                     

     National  Grid's  unique  background  makes it difficult for the company to
comply  fully  with  certain  of the  technical  requirements  of  Rule  53.  In
particular because National Grid has pre-existing foreign utility operations, it
cannot at this time  commit to  maintain  the books and  records of its FUCOs in
conformity  with U.S.  GAAP.  Nonetheless,  National Grid satisfies the ultimate
standards,  as set forth in Section 32 and reflected in Rule 53(c),  namely, the
proposed  investment will not have a substantial adverse impact on the financial
integrity of the National Grid System,  or an adverse  impact on any of the U.S.
Utility Subsidiaries, or their customers, or on the ability of state commissions
to protect such  subsidiary  or customers.  National  Grid makes this  assertion
based on an assessment of its business  activities,  its capital structure,  the
earnings and cash flows  anticipated  from its assets,  and the risks that could
affect the financial stability of the National Grid System.                     

     The Franks/Brattle  Study provides useful comparisons between National Grid
and other registered holding companies. In particular,  the business of National
Grid's  primary  asset,  The National  Grid Company plc ("NGC"),  enjoys  stable
revenues from its electric transmission  business.  NGC's current rate structure
insulates it from the weather-related or economy-related                        

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variability in revenues that typically  affect U.S.  utilities.  National Grid's
other significant  business is a  telecommunications  company named Energis plc.
The majority of Energis shares are publicly held and National Grid has announced
its intention to dispose of its Energis  holdings  over the next several  years.
The investment bank Dresdner  Kleinwort  Benson has opined that "National Grid's
credit  will remain  stronger  than that of its peers  since its  earnings  will
almost exclusively be derived from stable predictable monopoly  distribution and
transmission cash flows."30 This stability is reflected in the low volatility of
National  Grid's  stock since its initial  public  offering in  December,  1995.
National Grid's beta, a measure of a stock's  variability of returns as compared
with the  returns  of the  market as a whole,  is .66.  Stated  in other  words,
National  Grid's stock was only 66% as volatile as the market.  The average beta
of U.K.  electric  utilities is .84, and the betas of comparable U.S.  utilities
range from .55 to .85. National Grid's business activities, therefore, present a
favorable financial profile.                                                    

     The soundness of National Grid's security structure can be shown in several
ways.  Perhaps the best overall  expression  of sound  capitalization  is a high
credit  rating.  National  Grid's AA rating by  Standard  & Poor's  exceeds  the
ratings  of  the  other  U.S.  registered  holding  companies  examined  in  the
Franks/Brattle  Study.31  National Grid shares an A1 Moody's rating with several
of the  utilities  in the study  group.  In contrast to the 63% average  debt to
asset base ratio of the utilities in the  Franks/Brattle  Study group,  National
Grid will have a  post-Merger  ratio of 56% of regulatory  asset base.  National
Grid also gains additional  flexibility from having  convertible debt as part of
its capital structure. National Grid's current stock price is above the exchange
price of the convertible  debt, making it likely that the debt will be converted
into equity.  The debt ratio comparison shows that National Grid has significant
debt capacity and that the proposed FUCO  investment  authority would not result
in a substantial adverse impact to the system.                                  

     Cash flow  forecasts  indicate  that National Grid would be able to finance
new capital expenditures and pay down all debt over the estimated useful life of
its  assets.32  National  Grid's  remaining  equity  holdings  in  Energis  also
represent a large, marketable security that National Grid                       

--------                                                                        
30 Franks/Brattle Study, at 11.                                       

31 Franks/Brattle Study, Table 5.                                     

32 Id.                                                                

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may use to service the acquisition debt or the additional  financing proposed in
this Application- Declaration. The market value of National Grid's Energis stake
is $3.3 billion  (based on the  September  30, 1999 closing  market price on the
London Stock Exchange).33                                                       

     As of March 31,  1998 and  March 31,  1999,  National  Grid's  consolidated
capitalization (on a U.S. GAAP basis) is shown in the table below:              

                        March 31, 1998                    March 31, 1999
                     National Grid       (%)           National Grid         (%)
          ($ mm)                            ($ mm)

Debt                    2,500.2          71%             3,676.0             60%

Common stock            1,022.2          29%             2,415.8             40%
equity                                                                          

Total                   3,522.4         100%             6,091.8            100%

     National Grid's equity market value to book value ratios and stock price to
earnings  ratios  over  periods  before and after the  announcement  of the NEES
acquisition are provided below:                                                 

--------                                                                        
     33 After the recent sale by National Grid of 27,000,000 Energis shares, the
market value of National Grid's remaining  Energis stake is $5.8 billion,  based
on the February 14, 2000 closing market price on the London Stock Exchange.     

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                                                        [Enlarge/Download Table]


                                                 Market to Book Value                    

At:                      Mar. 31, 1998  Sept. 30, 1998      Mar. 31, 1999  Sept. 30, 1999
                              $mm             $mm                $mm             $mm     

                                                                                         
Market value of equity      8,551.5        10,617.1            11,084.3       10,232.7   

Book value of equity        1,022.2         1,100.1            2,415.8         2,530.9   
(under U.S. GAAP)                                                                        

Ratio of market to book      8.4x            9.7x                4.6x           4.0x     
value (times)                                                                            

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                                                                [Download Table]

                                   Price/Earnings Ratios        

                              $       $               $      $  

                                                                
Basic earnings per share    0.518   0.167           1.129  0.205
(U.S. GAAP)34                                                   

Annualized earnings per     0.518   0.334           1.129  0.410
share (U.S. GAAP)                                               

Ratio of price to earnings  11.2x   21.6x            6.6x  16.8x

The recent growth in National Grid's retained  earnings and consolidated  common
stock equity is shown below:                                                    

                                                                [Download Table]

At:                   Mar. 31, 1997  Mar. 31, 1998  Mar. 31, 1999  Sept. 30, 1999
                           $mm            $mm            $mm            $mm      

                                                                                 
Capital stock             283.1          286.3          286.9          287.9     

Paid-in-capital           304.4          384.0          406.7          440.1     

Treasury stock              --           (17.3)         (18.2)         (25.2)    

Retained earnings        1,251.6         369.2         1,740.4        1,828.1    

Shareholder's equity     1,839.1        1,022.2        2,415.8        2,530.9    

Annual growth rate          --          (44)%35          136%            5%      

Growth rate over                                                        38%      
last 2.5 years                                                                   

Annualized growth                                                       14%      
rate                                                                             

--------                                                                        
     34 Unadjusted  for the net income  arising on the sale of Energis shares in
the year ended March 31, 1999 of $1,149.8 million.  Unadjusted for the reduction
in our interest in Energis in the year ended March 31, 1998 of $184.5 million.  

     35 A special dividend of $1.23 billion was paid during the year ended March
31, 1998, which distorts the historical trend in growth of shareholder's equity.

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The following  table  compares  National  Grid's net income to the net income of
National Grid Company:                                                          

                                                        [Enlarge/Download Table]

                        National Grid                 NGC                    NGC as % of 
                                                                            National Grid

                                       For the year ended March 31, 1998                 
                             $mm                      $mm                         %      

                                                                                         
Net income (U.S. GAAP)      757.2                   1,073.0                     142%     

Adjustment36                                         418.6                               

Pro forma net income        757.2                                                86%     
(U.S. GAAP)                                          654.4                               

                                            Year ended March 31, 1999                    
Net income (U.S. GAAP)     1,654.6                   564.4                       34%     

                                       Six months ended September 30, 1999               
Net income (U.S. GAAP)      302.3                    259.6                       86%     

     The  final  aspect  of the  Commission's  inquiry  into the  proposed  FUCO
financing  should focus on whether  risks  associated  with the foreign  utility
businesses could adversely affect the financial stability of the system. In this
regard,  National  Grid's  successful  operation  of  a  national,  high-voltage
transmission  system and its profitable  investment in Energis  should  indicate
that the firm has sound management skills and expertise in the utility industry,
particularly as it relates to foreign utility  operations.  To ensure  continued
success in its new ventures,  National  Grid  subjects all project  proposals to
stringent reviews.                                                              

     National Grid's  disciplined  investment review process minimizes the risks
associated with FUCO activities.  Before National Grid or its subsidiaries  make
any  investment in a project,  the project is analyzed in detail,  including the
specific country risk, where  applicable.  The project review process includes a
series of independent internal reviews, both at the subsidiary and National Grid
levels.                                                                         

--------                                                                        
     36 NGC  recorded a profit on the sale of Energis  shares to National  Grid.
This profit is adjusted out of NGC's income on the pro forma net income line.   

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     In the UK,  the  majority  of  projects  by  number  will  relate  to NGC's
transmission business. Each potential project is subjected to a series of formal
reviews  to  ensure  its  financial  robustness.   The  process  begins  with  a
consideration  of NGC's strategic  plans,  which are updated  periodically.  The
investment  procedure  follows on from and integrates with the planning cycle of
National  Grid.  Individual  project  business plans are prepared as part of the
process of including  potential  investments  in the Group  Business  Plan.  All
projects  identified  as requiring  future  funding must be included  within the
planning  cycle.   This  planning   procedure   ensures  that  all  capital  and
non-recurring  revenue  project  expenditures  can  be  justified  on  business,
technical and economic  grounds.  In addition  project progress is monitored and
subject to normal business  control to ensure that approved  projects meet their
performance targets.                                                            

     The project review process includes  consideration of business,  financial,
regulatory,  environmental  and legal risks.  Foreign projects are subject to an
additional level of scrutiny concerning:                                        

o    the political and economic stability of the particular country,            

o    the host governments' commitment to private power,                         

o    the legal and  regulatory  framework  for  private  investment  in  utility
facilities,                                                           

o    the local business support for long-term investment of private capital,    

o    the economic viability of the project,                                     

o    the environmental impact, and o the currency conversion and repatriation of
dividends                                                             

     Project  proposals  are  subject to  successive  stages of review by senior
management and directors  depending  upon National  Grid's  projected  financial
exposure in a particular project.  Generally, the process by which National Grid
identifies,  manages and approves its business development  activities,  broadly
follows the following lines:                                                    

o    The production of an Opportunity  Registration Paper ("ORP"), which covers,
     in outline form, a description of the opportunity,  a brief  description of
     the investment environment,  the strategic importance of the investment and
     future actions. The ORP would also be presented to the Business Development
Committee for approval.                                               

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o    The production of a Development  Strategy Paper ("DSP"),  which  identifies
     the  development  strategy for the investment and covers,  in outline form,
     market conditions,  the development  strategy,  competitive position and an
     action plan.  The DSP would also be  presented to the Business  Development
Committee for approval.                                               

o    The production of an Investment Proposal Paper ("IPP") seeking approval for
     a bid.  This paper  would  cover the  investment  opportunity,  a financial
     appraisal,  existing strategy,  the transaction,  bid details,  and planned
     future  actions.  The IPP is the board paper for National Grid, and must be
approved by the directors.                                            

     Once development of a project is undertaken,  milestones are established to
ensure  that  continuing  expenditures  are  producing  acceptable  results.  In
addition,  project  teams are  established  to  identify  the  major  technical,
financial,  commercial and legal risks associated with a particular  project and
risk  mitigation  strategies.  The  process  would  follow the  following  broad
outline:                                                                        

o    undertake due diligence                                                    

o    prepare valuation                                                          

o    prepare business plan                                                      

o    obtain internal approvals                                                  

o    obtain acquisition financing                                               

o    develop corporate and tax structure                                        

o    prepare corporate communications plan                                      

o    prepare and submit bid/offer                                               

o    prepare post acquisition plan                                              

     The final  project  review  process,  in many cases is, to a large  extent,
duplicated by the lenders who agree to provide  construction  or permanent  debt
financing  on a  non-recourse  basis,  since  repayment of that debt will depend
solely  upon the  success of the  project.  National  Grid's  ability to arrange
appropriate  levels of  non-recourse  financing for its existing  investments is
evidence  of the  success  of the  project  review and risk  management  process
outlined above.                                                                 

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     In addition,  it is  noteworthy  that none of the  conditions  described in
paragraph  (b) of Rule 53 is  applicable.  Specifically;  (1)  there has been no
bankruptcy  of  any  National  Grid  associate   company  in  which  a  plan  of
reorganization  has not been confirmed;  (2) the average  consolidated  retained
earnings  for the two most recent  semiannual  periods has not  decreased  by 10
percent from the average for the previous two  semiannual  periods;37 and (3) in
the  past  fiscal  year,   National  Grid  has  not  reported  operating  losses
attributable to its direct or indirect investments in EWGs and FUCOs.           

     Statement of Financial  Accounting  Standards  No.121,  Accounting  for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets To Be Disposed Of,
requires  an  evaluation  of the  impairment  of all assets of a utility  that a
company plans to write down and take as a loss.  National Grid  currently has no
assets that would need to be written down under SFAS 121. No assets with respect
to any FUCOs  currently  owned  (directly or  indirectly)  by National  Grid are
expected to require a write down under SFAS 121,  nor has any  associate  EWG or
FUCO ever  defaulted  under the terms of any financing  document.  National Grid
undertakes to notify the Commission by filing a post-effective amendment in this
proceeding  in the event that any of the  circumstances  described in Rule 53(b)
occurs during the authorization period.                                         

     The  Commission  has found the standards of the Act satisfied in connection
with  requests by a number of U.S.  registered  holding  companies to exceed the
so-called  "50  percent  limit"  under Rule 53.  Southern  Co.,  Holding Co. Act
Release No. 26501 (April 1, 1996);  Central and South West Corporation,  Holding
Co. Act Release No. 26653 (Jan. 24. 1997).  See also GPU, Inc.,  Holding Co. Act
Release No. 26779 (Nov. 17, 1997);  Cinergy  Corp.,  Holding Co. Act Release No.
26848 (March 23, 1998); American Electric Power Company, Holding Co. Act Release
No. 26864 (April 27, 1998);  New Century  Energies,  Holding Co. Act Release No.
26982 (Feb.  26, 1999).  In each of those matters,  the applicant  sought relief
from the safe-harbor  requirements  of Rule 53(a)(1) to allow  investments in an
amount equal to the applicant's  consolidated retained earnings.  The Commission
found that the applicants in each matter had demonstrated successfully,  through
the use of certain financial indicators, that investing in EWGs                 

--------                                                                        
     37 Although  Rule 53 specifies  quarterly  periods,  National Grid does not
prepare accounts with this frequency.                                           

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and FUCOs in an amount not to exceed their consolidated  retained earnings would
not have a substantial  adverse impact on the financial integrity of the holding
company system.  Applicants assert that the comparison of the financial measures
and indicators  discussed above,  and National Grid's  stringent  project review
procedures, demonstrate that the financial integrity of the National Grid System
is  superior  to or  substantially  similar to the  financial  integrity  of the
applicants in matters in which the Commission has previously  granted exceptions
to the safe harbor requirements of Rule 53.                                     

     The soundness of National Grid's  financial  structure and the lack of risk
to U.S. utility consumers is further demonstrated by the following:             

o    National  Grid's  commitment  to maintain the common stock equity ratios of
     NEES and, with limited exceptions,  its electric utility  subsidiaries at a
minimum of 35%;38                                                     

o    National  Grid's  commitment  to maintain its  long-term  debt rating at an
investment grade level;                                               

o    National   Grid's   commitment   to  maintain  its  interest   cover  ratio
  (Consolidated EBITDA to Net Interest Payable) at not less than 3:1, and;

o    National  Grid's  undertaking  to  cause  its  common  stock  equity  as  a
     percentage of total capitalization, measured on a book value US GAAP basis,
to be 30% or above by March 31, 2002.                                 

     Under Rule 53(c)(2) National Grid must demonstrate that the proposed use of
financing  proceeds to invest in FUCOs will not have an "adverse  impact" on any
of the U.S. Utility Subsidiaries,  their respective customers, or on the ability
of the State  commissions  having  jurisdiction  over one or more  such  utility
subsidiaries to protect such public utility companies or such customers.        

     The conclusion that the customers of the U.S. Utility Subsidiaries will not
be adversely impacted by increased levels of investment is well-supported by the
following:                                                                      

--------                                                                        
38 See note 6, supra.                                                 

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     (a) All of National Grid's investments in EWGs and FUCOs will be segregated
from the U.S. Utility  Subsidiaries.  None of the U.S. Utility Subsidiaries will
provide  financing for,  extend credit to, or sell or pledge its assets directly
or  indirectly  to any EWG or FUCO in which  National  Grid  owns any  interest.
National  Grid  further  commits not to seek  recovery  in retail  rates for any
failed investment in, or inadequate returns from, an EWG or FUCO investment.    

     (b)  Investments in EWGs and FUCOs will not have any negative impact on the
ability of the U.S. Utility Subsidiaries to fund operations and growth. The U.S.
Utility  Subsidiaries  currently  have  financial  facilities  in place that are
adequate  to  support  their   operations.39   These  facilities  will  continue
subsequent to the Merger.  Indeed,  as noted  previously,  Standard & Poor's has
placed the credit  ratings of NEES,  Massachusetts  Electric  Co.,  Narragansett
Electric  Co.  and  New  England  Power  Co.  on   "creditwatch   with  positive
implications."40  The positive  implications for NEES and its subsidiaries are a
result of their  association with the even stronger credit of National Grid. The
expectation of continued strong credit ratings by the U.S. Utility  Subsidiaries
should  allow them to continue to access the  capital  markets to finance  their
operations and growth.                                                          

     (c)  National  Grid will  comply  with the  requirements  of Rule  53(a)(3)
regarding the limitation on the use of the U.S. Utility Subsidiaries'  employees
in connection with providing  services to FUCOs. It is contemplated that project
development,  management and home office support functions for the projects will
be largely  performed by Holdings and its subsidiary  companies,  and by outside
consultants (e.g.,  engineers,  investment advisors,  accountants and attorneys)
engaged by National Grid or Holdings.  On a going-forward  basis,  National Grid
also will comply with Rule  53(a)(4)  regarding  the  provision  of EWG and FUCO
related  information  to  every  federal,   state  and  local  regulator  having
jurisdiction  over  the  retail  rates,  as  applicable,  of  the  U.S.  Utility
Subsidiaries.                                                                   

     (d) National Grid believes that the State  commissions  are able to protect
utility  customers  within  their  respective  states.  In  connection  with the
National Grid/NEES transaction generally,  representatives of National Grid have
met with each of the affected state commissions                                 

--------                                                                        
39 See, Item 1.B., supra.                                             

40 Standard & Poor's CreditWire (Dec. 14, 1998).                      

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and requested them to provide the Commission  with letters  certifying  that the
state commission has jurisdiction over the respective NEES system public-utility
companies and that the state  commission will exercise this authority to protect
ratepayers.                                                                     

     (e) In addition,  National  Grid will provide the  information  required by
Form 20-F to permit the Commission to monitor the effect of National  Grid's EWG
and FUCO investments on National Grid's financial condition.                    

E.   Filing of Certificates of Notification                           

     It is proposed that,  with respect to National Grid which,  as noted above,
has registered  under the 1934 Act in connection with its sponsored ADR program,
the  reporting  systems  of the 1934 Act and the  1933  Act be  integrated  with
reports under the 1935 Act. This would eliminate duplication of filings with the
Commission that cover  essentially the same subject matters,  and reduce burdens
on both the  Commission  and  National  Grid.  To effect such  integration,  the
Applicants  propose to incorporate by reference into the Rule 24 certificates of
notification  under this file the  portion of the 1933 Act and 1934 Act  reports
containing or reflecting  disclosures of transactions  occurring pursuant to the
authorization  granted in this proceeding.  The certificates  would also contain
all other information required by Rule 24, including the certification that each
transaction  included in the report had been carried out in accordance  with the
terms and conditions of and for the purposes represented in this Application.   

     Applicants  propose to provide Rule 24 certificates on a semiannual  basis,
consistent with the frequency of financial  reporting  required in the UK. Under
UK  rules,  National  Grid  must  prepare  and  publish  consolidated  financial
information  semi-annually.  In  addition,  semiannual  financial  reporting  is
consistent with National Grid's ADR listing on the New York Stock Exchange.  Due
to National  Grid's  extensive  foreign  holdings,  it would entail  significant
additional work and expense for National Grid to prepare consolidated  financial
statements on a quarterly basis. In that regard,  in the interest of maintaining
the consistent  presentation of financial  information,  Applicants propose that
their Form U5S filings will  comprise  National  Grid's  consolidated  financial
statements  in the format  required by Form 20-F,  i.e.,  U.K.  GAAP format with
reconciliations  to U.S.  GAAP.  In addition,  Applicants  propose to include in
their Form U5S                                                                  

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filings:  (1) U.S. GAAP  financial  statements for all the companies in the NEES
Group,  and (2) U.S. GAAP  financial  statements or financial  statements in the
format required by Form 20-F for (a) Holdings,  on a consolidated basis, (b) any
subsequently acquired FUCO, and (c) the Intermediate Companies. Amounts included
in Form U5S filings will be stated in U.S.  dollars.  National Grid will provide
the Commission access to the books, records and financial statements,  or copies
thereof, of any of its subsidiary  companies,  in English, as the Commission may
request.                                                                        

     Applicants  also request an  exemption  from Rule  26(a)(1)  under the Act,
regarding the maintenance of financial statements in conformance with Regulation
S-X.  The  exemption  would  apply only to  subsidiaries  of  Holdings  that are
organized outside the U.S., provided that with respect to any direct or indirect
acquisition, after the issuance of an order in this Application- Declaration, of
any securities of or interest in an entity that owns or operates facilities that
are not located in any state and which are used for the generation, transmission
or  distribution  of electric  energy for sale or the  distribution at retail of
natural or  manufactured  gas:  (i)  National  Grid will cause a Form U-57 to be
filed by or on behalf of that  entity,  and (ii) the entity  will  maintain  its
financial  statements in accordance  with U.S. GAAP or reconcile such statements
to U.S. GAAP in the same manner as required by Form 20-F.                       

     National Grid will also provide the following  supplemental  information in
its annual Form U5S filing:                                                     

1.   The amount of any income tax credit and/or  income tax  liability  incurred
     during  the  previous  fiscal  year  by  NGGP:  (a)  as  a  result  of  any
     acquisition-related debt; and (b) as a result of any other income source or
expense;                                                              

2.   A description  of how the income tax credit and/or income tax liability was
     calculated and allocated to all companies  included in the consolidated tax
     return,  showing all of NGGP's interest costs and any  assumptions  used in
the calculation;                                                      

3.   A description of how any  acquisition-related  funding is effected  through
all Intermediate Companies;                                           

4.   A  description  of the amount and  character of any  payments  made by each
     Intermediate  Company to any other  National Grid System company during the
reporting period; and                                                 

5.   A  statement  that  the  allocation  of tax  credits  and  liabilities  was
     conducted in  accordance  with the tax  allocation  agreement in effect and
filed as an exhibit to the Form U5S.                                  

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     The Rule 24 certificates  will be provided to the Commission within 90 days
after the end of  National  Grid's  fiscal year and within 60 days of the end of
its second fiscal quarter and will contain the following information:           

     a.   The principal amount,  interest rate, term,  number of shares,  market
          price per share,  sales price per share (if other than  market  price)
          and aggregate  proceeds,  as applicable,  of any securities  issued by
          National Grid during the reporting period, including securities issued
to dividend reinvestment plans and employee benefit plans;  

     b.   The  amount  of  guarantees  issued  during  the  reporting  period by
          National  Grid,  the name of the  beneficiary of the guarantee and the
terms and purpose of the guarantee;                         

     c.   National  Grid's  aggregate  investment,  as defined under Rule 53, in
          EWGs and FUCOs, excluding grandfathered investments,  as of the end of
          the reporting period in dollars and as a percentage of National Grid's
          consolidated  retained  earnings,  and a  description  of EWG and FUCO
investments during the reporting period;                    

     d.   The  aggregate  amount  of  securities  and the  aggregate  amount  of
          guarantees  issued and  outstanding by National Grid since the date of
       the order in this application, including any NEES acquisition debt;

     e.   A list of the securities  issued by the Intermediate  Companies during
          the reporting period, including principal amount, interest rate, term,
          number of shares  and  aggregate  proceeds,  as  applicable,  with the
acquiring company identified;                               

     f.   The amount and terms of any short-term debt issued by any U.S. Utility
          Subsidiary, and a list of the deposits and withdrawals by company from
the system money pool during the reporting period;          

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     g.   The amount and terms of any nonexempt  financings  consummated  during
          the period by any U.S. Utility Subsidiary during the reporting period;

     h.   The amount and terms of any nonexempt  financings  consummated  by any
   nonutility U.S. Subsidiary Company during the reporting period;

     i.   A  retained  earnings  analysis  of each  company  in the  NEES  Group
          detailing Gross Earnings, goodwill amortization, dividends paid out of
          each capital  account,  and the resulting  capital account balances at
the end of the reporting period;                            

     j.   A table showing, as of the end of the reporting period, the dollar and
          percentage  components  of the capital  structures  of National  Grid,
          Holdings,  each  Intermediate  Company,  and each  company in the NEES
Group;                                                      

     k.   Paper copies of National  Grid's  filings of Form 20-F and  semiannual
reports to shareholders; and                                

     l.   As  applicable,  all amounts  shall be  expressed  in U.K.  Pounds and
          converted to U.S.  dollars and shall be presented in  accordance  with
          the U.S. GAAP reconciliation requirements of Form 20-F. In particular,
          the semiannual  reports  provided to the Commission in Rule 24 filings
          under  this  Application-Declaration  shall be  organized  so that all
          columns  showing  amounts in Pounds in financial  statements or tables
are accompanied by parallel columns showing dollar amounts. 

ITEM 2    FEES, COMMISSIONS AND EXPENSES                                        

     Applicants  have  incurred  or will incur  estimated  fees and  expenses of
approximately $30 million in connection with the financing transactions proposed
in this Application.  This amount includes arrangement fees, underwriting costs,
facility fees and hedging and option costs. As noted  previously,  National Grid
proposes that fees, commissions or other similar remuneration paid in connection
with the  non-competitive  issue, sale or distribution of a security pursuant to
the  Application  will not  exceed 5% of the  principal  or total  amount of the
security issued. Fees for                                                       

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investment bankers, lawyers, brokers, accountants, consultants and other service
providers are included  within the  Merger-related  fees  disclosed in Item 2 of
File No. 70-9473.                                                               

ITEM 3    APPLICABLE STATUTORY PROVISIONS                                       

     Sections  6(a),  7, 9(a), 10 and 12 of the Act and Rules 42, 43, 45, 52, 53
and 54 are considered applicable to the proposed transactions.                  

     To  the  extent  that  the  proposed  transactions  are  considered  by the
Commission to require authorization,  exemption or approval under any section of
the Act or the rules and regulations  other than those set forth above,  request
for such authorization, exemption or approval is hereby made.                   

ITEM 4    REGULATORY APPROVALS                                                  

     The Federal Energy Regulatory  Commission has jurisdiction over the payment
by a  jurisdictional  public  utility  company  of  dividends  out of capital or
unearned  surplus  and  has  issued  an  order  approving  such  payment.41  The
Massachusetts   Department  of   Telecommunications   and  Energy  ("MDTE")  has
jurisdiction  over the  acquisition  of  securities  by  Massachusetts  Electric
Company,  New  England  Hydro-Transmission  Electric  Company,  Inc.,  Nantucket
Electric Company and New England Power Company.  In addition,  the New Hampshire
Public  Utilities  Commission  ("NHPUC") has  jurisdiction  over the issuance of
short-term  debt by Granite State Electric  Company,  New England Power Company,
New England  Electric  Transmission  Company and New England  Hydro-Transmission
Company.  Such  transactions  have been  authorized  through October 31, 2001.42
Applicants  have requested  that the Commission  extend the term of any existing
NEES Group financing  authority through the Authorization  Period. To the extent
that any NEES Subsidiary Company requires further authorization from the MDTE or
the  NHPUC  subsequent  to  October  31,  2001,  the  Applicants  will seek such
authorization. Except as discussed                                              

--------                                                                        
41 New England Power Company, et al., 89 FERCP. 61,266 (1999).        

     42 New England Electric  System,  et al., Holding Co. Act Release No. 26768
(Oct. 29, 1997).                                                                

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above, no state or federal regulatory agency other than the Commission under the
Act has jurisdiction over the proposed transactions.                            

ITEM 5    PROCEDURE                                                             

     The   Applicants   hereby   request  that  there  be  no  hearing  on  this
Application/Declaration  and  that the  Commission  issue  its  order as soon as
practicable after the filing hereof. The Commission is respectfully requested to
issue and publish the requisite  notice under Rule 23 with respect to the filing
of this  Application/Declaration  not later than June 30,  1999,  such notice to
specify a date not later than July 25,  1999,  by which  comments may be entered
and a date not later than the date of the Commission's order for the Merger U-1,
as the date on which an order of the  Commission  granting  and  permitting  the
Application/Declaration to become effective may be entered by the Commission.   

     The  Applicants  hereby  (i)  waive a  recommended  decision  by a  hearing
officer,  (ii) waive a recommended  decision by any other responsible officer or
the  Commission,  (iii) consent that the Division of Investment  Management  may
assist in the preparation of the  Commission's  decision and (iv) waive a 30-day
waiting  period between the issuance of the  Commission's  order and the date on
which it is to become effective.                                                

ITEM 6    EXHIBITS AND FINANCIAL STATEMENTS                                     

Exhibits                                                                        

A-1            Articles  and   Memorandum  of   Association   of  National  Grid
          (incorporated by reference to Exhibit A-1 of the Merger U-1)

B-1            National  Grid Credit  Facility  (incorporated  by  reference  to
Exhibit B-3 of the Merger U-1)                    

C-1            Form of Tax Allocation Agreement, revised                        

C-2            Legal  Analysis  of Rule 45(c) and the  Proposed  Tax  Allocation
Agreement                                         

C-3            Intercompany Debt and Funds Flow                                 

D-1            National Grid Corporate Chart (Filed on Form SE)                 

D-2            Description of the Companies in the National Grid System         

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D-3            Dividend History of NEES and its Subsidiaries                    

F-1.1          Opinion of counsel                                               

F-1.2          Past-tense opinion of counsel (to be filed by amendment)         

H-1            Annual Report of National Grid dated March 31, 1998 (incorporated
by reference to Exhibit H-1 of the Merger U-1)    

H-2            Annual  Report on Form 10-K of NEES for the year  ended  December
               31, 1998 (filed with the  Commission  on March 31, 1999 (File No.
1-3446) and incorporated by reference herein)     

I-1            Proposed Form of Notice                                          

K-1            Response to the  Comments of Russell G.  Gilmore  (filed with the
               Commission  on  November  30,  1999  in  File  No.   70-9473  and
incorporated herein by reference)                 

Financial Statements                                                            

FS-1           National Grid Unaudited Pro Forma Condensed  Consolidated Balance
Sheet (Confidential Treatment Requested)          

FS-2           National  Grid   Unaudited  Pro  Forma   Condensed   Consolidated
    Statement of Income (Confidential Treatment Requested)

FS-3           Notes to Unaudited  Pro Forma  Condensed  Consolidated  Financial
Statements (Confidential Treatment Requested)     

FS-4           National Grid Consolidated Balance Sheet as of September 30, 1998
           (incorporated by reference to Exhibit FS-4 to the Merger U-1)

FS-5           National  Grid  Consolidated  Statement of Income as of September
               30, 1998 (incorporated by reference to Exhibit FS-5 to the Merger
U-1)                                              

FS-6           NEES Consolidated Balance Sheet as of December 31, 1998 (see NEES
               Form 10-K for the year  ended  December  30,  1998  (Exhibit  H-2
hereto))                                          

FS-7           NEES Consolidated Statement of Income for the twelve months ended
               December 31, 1998 (see NEES Form 10-K for the year ended December
31, 1998 (Exhibit H-2 hereto))                    

FS-8           National  Grid  Financial  Projections  for the  Years  1999-2004
(Confidential Treatment Requested)                

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FS-9           Notes to  National  Grid's  Financial  Projections  for the Years
1999-2004 (Confidential Treatment Requested)      

FS-10          Pro   Forma   Capitalization   Tables   (Confidential   Treatment
Requested)                                        

ITEM 7    STATEMENT AS TO ENVIRONMENTAL EFFECTS                                 

     None of the  matters  that are the subject of this  Application  involves a
"major  federal  action"  nor do they  "significantly  affect the quality of the
human  environment" as those terms are used in Section 102(2)(C) of the National
Environmental  Policy  Act.  The  transactions  that  are  the  subject  of this
Application will not result in changes in the operation of the company that will
have an impact on the  environment.  The Applicants are not aware of any federal
agency that has prepared or is preparing an environmental  impact statement with
respect to the transactions that are the subject of this Application.           

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 SIGNATURE

     Pursuant to the  requirements  of the Public Utility Holding Company Act of
1935, the undersigned  companies have duly caused this  Pre-Effective  Amendment
No. 8 to the  Application-Declaration,  File No. 70-9519,  to be signed on their
behalf by the undersigned thereunto duly authorized.                            

     The  signature  of the  Applicants  and of the persons on their  behalf are
restricted to the information  contained in this application  which is pertinent
to the application of the respective companies.                                 

Date:  March 14, 2000                                                           
                    /s/ Jonathan M. G. Carlton
                    --------------------------
                Jonathan M. G. Carlton
                                    Business Development Manager -- Regulation
                     The National Grid Group plc

           /s/ Kirk Ramsauer
                    --------------------------
       Kirk Ramsauer
                Deputy General Counsel
                      New England Electric System*

*The name "New England  Electric  System"  means the trustee or trustees for the
time being (as trustee or trustees but not  personally)  under an agreement  and
declaration of trust dated January 2, 1926, as amended, which is hereby referred
to, and a copy of which as amended  has been  filed  with the  Secretary  of the
Commonwealth  of  Massachusetts.  Any agreement,  obligation or liability  made,
entered  into or incurred by or on behalf of New England  Electric  System binds
only its trust estate, and no shareholder,  director,  trustee, officer or agent
thereof assumes or shall be held to any liability therefor.                     

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘U-1/A’ Filing	Date	First	Last	Other Filings

	2/8/08	14
	5/31/03	6
	12/31/02	13
	3/31/02	9	47
	12/31/01	20
	10/31/01	12	53
	12/31/00	13
	3/31/00	8
Filed as of:	3/15/00			U-1/A
Filed on:	3/14/00	57		U-1/A
	2/21/00	19
	2/14/00	40
	11/30/99	55
	9/30/99	10	43
	7/25/99	54
	6/30/99	54
	6/11/99	5		U-1
	3/31/99	40	55
	3/5/99	19
	2/26/99	46
	2/1/99	5
	1/27/99	13
	12/31/98	55
	12/30/98	55
	12/14/98	30	48
	11/18/98	13
	9/30/98	41	55
	9/25/98	13
	6/2/98	12
	4/27/98	46
	3/31/98	40	55
	3/25/98	13
	3/23/98	46
	2/26/98	36
	12/10/97	12
	11/17/97	46
	10/29/97	12	53
	3/31/97	42
	12/23/96	10	20
	12/11/96	17	18
	10/9/96	12
	4/1/96	46
	6/2/95	17
	12/19/94	17
	11/18/92	17
	7/7/92	20
				List all Filings

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Filing Submission 0000898080-00-000108 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

National Grid Group PLC – ‘U-1/A’ on 3/14/00

On: Tuesday, 3/14/00 · As of: 3/15/00 · Accession #: 898080-0-108 · File #: 70-09519

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Dates Referenced Herein and Documents Incorporated by Reference

Pre-Effective Amendment to Application or Declaration — Form U-1
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