National Grid Group PLC – ‘U-1’ on 6/11/99

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Application or Declaration   —   Form U-1
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: U-1         Application or Declaration                            43    121K 
 2: EX-99.1     Form of Tax Allocation Agreement                       6     21K 
 3: EX-99.2     Form of Notice                                         1      6K 

U-1   —   Application or Declaration
Document Table of Contents

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                                                              File No. 70-

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

 APPLICATION-DECLARATION
 UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
----------------------------------------------------

The National Grid Group plc        New England Electric System                  
National Grid House                New England Power Company                    
Kirby Corner Road                  Massachusetts Electric Company               
Coventry CV4 8JY                   The Narragansett Electric Company            
United Kingdom                     Granite State Electric Company               
                Nantucket Electric Company
National Grid (US) Holdings        New England Electric Transmission Corporation
      Limited                   New England Hydro-Transmission Corporation
National Grid (US)                 New England Hydro-Transmission Electric      
Investments                        Company, Inc.              
National Grid (Ireland) 1          Vermont Yankee Nuclear Power Corporation     
   Limited                   New England Hydro Finance Company, Inc.
National Grid (Ireland) 2          NEES Global, Inc.                            
Limited                   NEES Energy, Inc.                   
National Grid General              AllEnergy Marketing Company, L.L.C.          
Partnership               Granite State Energy, Inc.          
NGG Holdings, Inc.                 New England Water Heating Company            
                       New England Power Service Company
       25 Research Drive
                      Westborough, Massachusetts 01582

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

The National Grid Group plc                 New England Electric System     

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

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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                          New York, NY  10019                     
Telephone: 011-44-1203-537-777          Telephone: 212-424-8000                 
Facsimile: 011-4401203-423-678          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)

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 Defined Terms

1.   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.            

2.   NEES -- Immediately  after the proposed Merger,  NEES will have been merged
     with and into NGG Holdings, LLC, with NEES as the surviving entity and then
     merged again into another  to-be-formed  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.                                                     

3.   National Grid means The National Grid Group plc.                           

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

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

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

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

8.   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.                                                          

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 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) Debt                                        
      (c) Interest Rate and Currency Risk Management Devices
2.  U.S. Subsidiary Company Financings                  
(a)  National Grid and U.S. Subsidiary Companies
(b)  Money Pool                                 
(c)  Guarantees                                 
            (d)  Payment of Dividends Out of Capital or Unearned Surplus
(e)  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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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"),   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 U-1").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  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                                                                         

--------                                                                        
     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.                                 

     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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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.                 

     In the instant matter,  the Applicants  request that the Commission  extend
the  existing  financing  authority of the NEES Group for a period of five years
from the date of consummation  of the Merger (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,  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                        

     (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:                                                   

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     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  2.5:1,  and a  ratio  of  Consolidated  Total  Net  Debt  to
Consolidated EBITDA not to exceed 6:1;4                                         

--------                                                                        
     4 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 profits;                                                              

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;         

Exceptional  Items:  has  the  meaning  given  to it in  FRS3  issued  by the UK
Accounting Standards Board; 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 equity (including additional paid in capital) and reserves of
NEES on a consolidated  basis,  as reflected in its most recent Annual Report or
Interim Earnings Report, will not fall below 30% of total capitalization;5      

     3. 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;                                

     4. 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;                                                         

     5. 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.                                      

     6. The aggregate amount of external debt and equity issued by National Grid
pursuant to the authority requested in this matter will not exceed $7.5 billion,
at any one time outstanding.                                                    

     7. 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.                 

     8.  The  proceeds  from  the  sale  of  securities  in  external  financing
transactions  will be used for  general and  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, (iv) 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 (v)
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 financing                      

--------                                                                        
     5 Applicants  would calculate the equity to total  capitalization  ratio as
follows: equity/(gross debt + equity - cash).                                   

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is  consummated  in accordance  with an order of the  Commission or an available
exemption under the Act.                                                        

     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)).               

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                                  

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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).      

     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 one 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.
11, 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).                                                     

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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 $7.5 billion at any one time  outstanding  during the
Authorization  Period.6 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,
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.                                                                          

     (a) Ordinary Shares. As discussed in the Merger U-1, National Grid's common
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").  Prior to the consummation of the Merger,
National Grid intends to establish a sponsored ADR program in the US pursuant to
which ADRs will be listed on a national stock exchange and registered  under the
Securities Act of 1933, as amended (the "1933 Act"). As a result,  National Grid
will register under the  Securities  Exchange Act of 1934, as amended (the "1934
Act"),  and file the periodic  disclosure  reports  required of a foreign issuer
with the Commission. The request                                                

--------                                                                        
    6 The overall limit of $7.5 billion includes the merger-related financing.

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contained  herein with  respect to  ordinary  shares  refers to the  issuance of
ordinary  shares  directly or through the ADR program  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"                 

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option  permitting the purchase from National Grid at the same price  additional
shares then being offered solely for the purpose of covering over-allotments.   

     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.  The National Grid
ordinary  shares 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 based upon
average  high and low  prices for a period  prior to the  closing of the sale as
negotiated by the parties.  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.                               

     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                                                 

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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.                                                                          

     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 (Dec.  11,  1996).
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 prime rate or, at the present  time,  in NEES
shares. It may be desirable to add additional  investment options in the future.
The companies  understand that it is the position of the staff of the Commission
that interests in deferred compensation plans may be securities for the purposes
of the securities laws.                                                         

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     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.                                             

     (b) 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, maturity,  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.  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.                                      

     The Commission has previously  approved the use of  parent-level  debt by a
registered  electric  utility  holding company in connection with a cross-border
transaction.  In General Public Utilities  Corporation,  Holding Co. Act Release
No. 26559 (Aug.  23,  1996),  the  Commission  authorized  GPU to issue and sell
debentures  with  terms of one up to 40 years  and to use the  proceeds  of such
financings to, among other things,  "fund the  acquisition of interests,  and to
make  investments,  in . . .  foreign  utility  companies,"  and "for  other GPU
corporate purposes."                                                            

     Parent-level  debt may be issued in  connection  with the  servicing of the
acquisition  debt as well  as for  general  working  capital  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       

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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 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).  In
addition, as noted above, the Commission has also authorized registered electric
systems to issue  parent-level  debt for  general  corporate  purposes.  General
Public Utilities Corporation, Holding Co. Act Release No. 26559 (Aug. 23, 1996).

     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                                       

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         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).                                           

     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.7 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.  The major  rating  agencies  have
indicated  that  National  Grid will retain at least an "A" rating post- Merger.
The  financial  strength  is  confirmed  by the  competitive  terms  under which
National Grid has been able to secure financing for the proposed transaction.   

(c)  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  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 March 31, 1999 was that 57% of the
System borrowings were at fixed rates of interest.                              

--------                                                                        
     7 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.                                      

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     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.                     

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.                                     

     Each of the  Intermediate  Companies is seeking  approval to issue and sell
securities,  acquire securities,  and issue guarantees and other forms of credit
support,  to  National  Grid or the U.S.  Subsidiary  Companies.8  The terms and
conditions of any financings will be on an arm's length basis. In addition:     

     (a)  National  Grid and  U.S.  Subsidiary  Companies.  National  Grid,  the
Intermediate  Companies  and NEES may finance the  acquisition  and operation of
U.S.  Subsidiary  Companies  (except the U.S. Utility  Subsidiaries)  during the
Authorization  Period.  Such  financings  would generally be in the form of open
account advances,  long-term loans, and/or capital stock purchases. Open account
advances will provide funds for general corporate                               

--------                                                                        
     8 Such financings  will be consistent with the  requirements of the Act, in
particular, Section 12(a).                                                      

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purposes and other working  capital  requirements  and  temporarily  for capital
expenditures  until  long-term  financing  is  obtained  and/or  cash  generated
internally.                                                                     

     Downstream loans and open account  advances with interest,  which would not
be covered by rule 45 or Rule 52, may be made,  repaid and remade on a revolving
basis,  with  interest  at the same  effective  rate of  interest  as the  daily
weighted  average  effective rate of commercial  paper,  revolving credit and/or
other  borrowings  in the same  currency  of National  Grid or the lending  U.S.
Subsidiary  Company,  as the case may be. If no such  borrowings are outstanding
then,  the  interest  rate shall be on an arm's length  basis  predicated  on an
appropriate and relevant open market benchmark (e.g.,  LIBOR, Fed Funds rate, UK
Pound Base Rate, etc.).                                                         

     (b) 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. From time to time, NEES may
form or acquire new subsidiary  companies or reorganize  its existing  holdings.
National Grid accordingly  seeks permission to add newly-formed or acquired NEES
Subsidiary  Companies  to the NEES Money Pool  without  the need for  additional
Commission   approval,   provided  that  it  will  not  add  a  FUCO  or  exempt
telecommunications  company as  defined  in Section 34 of the Act,  to the Money
Pool.                                                                           

     (c)  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.  Such
credit  support  may be in the  form of  committed  bank  lines  of  credit.  In
addition, authority is requested for the U.S. Subsidiary Companies to enter into
similar  arrangements with one another,  consistent with the limitations imposed
by Section 12(a) of the Act.                                                    

     (d) 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                                                                        

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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.  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   equity  levels.
Applicants  request  authorization  to  pay  dividends  out  of  the  additional
paid-in-capital account up to the amount of NEES Subsidiary 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  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                                                

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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.9                                                                      

     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.                                                      

     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                                                            

--------                                                                        
     9 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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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 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.                                              

     Based on 1998 financial  information,  the application of these  accounting
principles to the NEES/National Grid merger will result in following adjustments
to NEES' accounts:                                                              

                                                        [Enlarge/Download Table]
                                                                                                                            
$'000                                           1998             Adjustments1         Adjustments2            Restated      

Common shares                                  64,970                 -                     -                  64,970       
Paid in capital                               736,689              768,538              1,620,148            3,125,375      
Retained earnings                             998,912             (998,912)                 -                    -          
Treasury stock                               (231,125)             231,125                  -                    -          
Accumulated  comprehensive                      751                 (751)                   -                    -          
income, net                                                                                                                 
Total equity                                 1,570,197                -                 1,620,148            3,190,345      
--------------------------------------  -------------------- -------------------- --------------------- --------------------

Adjustments 1 -- capital accounts are restated as Paid in Capital.              
Adjustments 2 -- goodwill is added to Paid in Capital.                          

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     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 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.                                  

     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).10 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). --------
10 Compare Section 305(a) of the Federal Power Act.                             

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     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 equity of NEES as a percentage  of total  capital was below 30% 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'
          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 30% equity on a consolidated  basis
        should result in a capital structure consistent with industry norms.

     (ii) NEES  has a  favorable  history  of prior  earnings  and it has a long
record of consistent dividend payments.11                   

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

Year           Net Income ($ millions)         Dividends Paid ($ millions)
1994                     199                               149            
1995                     205                               152            
1996                     209                               153            
1997                     220                               152            
1998                     190                               146            

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     (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 future earnings will continue to reflect a dividend payout
          ratio of between  60% and 100% of Gross  Earnings,  based on a rolling
5-year average.                                             

     (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 March 31, 1999, NEES had cash balances of $62.9 million
          and marketable  securities of $93.9 million on a  consolidated  basis.
          The  amortization  of  goodwill  is a non-cash  expense  that will not
          affect the 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."12 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.                                

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

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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.                                                                         

     (e)  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  and the NEES Group  post-Merger  (the "Tax
Allocation  Agreement").  Approval  is  necessary  because  the  Tax  Allocation
Agreement  provides for the  retention by National Grid General  Partnership  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.                                                                      

     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
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

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         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 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, 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.               

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 National Grid or other
intermediate parent                                                             

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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.
As needed to accommodate  such proposed  transactions  and to provide for future
issues,  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.                                         

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 requests authorization to enter into
expense  agreements with its respective  financing entity,  pursuant to which it
would agree to pay all  expenses  of such  entity.  Any  amounts  issued by such
financing  entities  to third  parties  pursuant to this  authorization  will be
included in the overall external financing limitation  authorized herein for the
immediate parent of such financing entity.  However, the underlying intra-system
mirror debt and parent  guarantee  shall not be so included.  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.13 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.14 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.                                                             

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

     14 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 purpose on the financing limits under
Rule 53.                                                                        

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     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 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."15 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.                                                                        

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

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     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.16  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.17  National  Grid's  remaining  equity  holdings  in  Energis  also
represent a large, marketable security that National Grid may use to service the
acquisition  debt or the  additional  financing  proposed  in this  Application-
Declaration.  The current market value of National  Grid's Energis stake is $3.7
billion  (based on the June 7, 1999  closing  market  price on the London  Stock
Exchange).                                                                      

     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.                                                              

--------                                                                        
16 Franks/Brattle Study, Table 5.                                     

17 Id.                                                                

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     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.                                                                         

     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                      

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     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.                                               

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                                                  

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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.                                                                 

     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 four most recent  quarterly  periods has not  decreased  by 10
percent from the average for the previous four quarterly periods; 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 requires a listing of
all assets of a utility  that a company  plans to write down and take as a loss.
National Grid  currently  has no assets  listed  pursuant to SFAS 121. No assets
with respect to any FUCOs  currently  owned (directly or indirectly) by National
Grid are expected to be listed  pursuant to 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.                                         

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     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 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.                                     

     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:                                                                      

     (a) All of National Grid's investments in FUCOs will be segregated from the
U.S. Utility  Subsidiaries.  None of the U.S. Utility  Subsidiaries will provide
financing for, extend credit                                                    

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to, or sell or pledge its assets  directly  or  indirectly  to any 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, a 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.18   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."19  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.                                           

     (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  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.        

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

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

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E.   Filing of Certificates of Notification                           

     It is proposed that,  with respect to National Grid which,  as noted above,
will register  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  disclose  financial  information
semi-annually.  In  addition,  National  Grid  intends  to  maintain  semiannual
financial  reporting  subsequent  to its  planned  listing on a U.S.  securities
exchange.  To allow National Grid to present consolidated  financial statements,
all of National Grid's subsidiary  companies also prepare  financial  statements
semi-annually,  which is the standard practice for UK listed  companies.  Due to
the 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 or more frequent basis.                               

The Rule 24 certificates will contain the following information:      

     a.   If sales of ordinary shares or debt by National Grid are reported, the
          purchase price per share and the market price per share at the date of
the agreement of sale;                                      

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     b.   The total number of shares of National Grid ordinary  shares issued or
          issuable  pursuant to options granted during the period under employee
benefit plans including any plans hereinafter adopted;      

     c.   If National Grid ordinary shares have been  transferred to a seller of
          securities  of a  company  being  acquired,  the  number  of shares so
          issued,  the value per share, and whether the shares are restricted in
the hands of the acquirer;                                  

     d.   If a guarantee is issued during the period, the name of the guarantor,
          the name of the beneficiary of the guarantee and the amount, terms and
purpose of the guarantee;                                   

     e.   The amount and terms of any short-term debt issued by any U.S. Utility
Subsidiary during the period;                               

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

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

     h.   A list of U-6B-2  forms filed with the  Commission  during the period,
   including the name of the filing entity and the date of filing;

     i    Consolidated  balance  sheets as of the end of the period and separate
          balance sheets as of the end of the period for each company, including
          National   Grid,   that  has  engaged  in   jurisdictional   financing
transactions during the period; and                         

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     j.   Future  registration  statements filed under the 1933 Act with respect
          to  securities  that are subject of the  Application  will be filed or
          incorporated  by reference as exhibits to the next  certificate  filed
pursuant to Rule 24.                                        

ITEM 2    FEES, COMMISSIONS AND EXPENSES                                        

             Estimated legal fees and expenses                    $  *
             Estimated miscellaneous expenses                     $  *
                                                                    ------
                      Total                                       $  *

*To be filed by amendment.                                                      

The  above  fees  do not  include  the  expenses  for  the  public  issuance  of
securities. As noted previously, National Grid proposes that such fees be capped
at 5% of the issuance amount.                                                   

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                                                  

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

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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                                           

F-1.1 Opinion of counsel (to be filed by amendment)                             

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)                           

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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                                                    

Financial Statements                                                            

FS-1 National Grid Unaudited Pro Forma Condensed  Consolidated Balance Sheet (to
be filed by amendment)                                                

FS-2 National  Grid  Unaudited  Pro Forma  Condensed  Consolidated  Statement of
Income (to be filed by amendment)                                     

FS-3 Notes to Unaudited Pro Forma Condensed  Consolidated  Financial  Statements
(to be filed by amendment)                                            

S-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))                                                          

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                                      

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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 Form U-1 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:  June  9, 1999                                                            
    /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’ Filing		Date		First		Last			Other Filings
		12/31/02		10					None on these Dates
		12/31/01		16
		10/31/01		9		10
		12/31/00		10
		7/25/99		40
		6/30/99		40
Filed on:		6/11/99
		6/9/99		43
		6/7/99		31
		3/31/99		17		41
		2/26/99		35
		2/1/99		5
		1/27/99		10
		12/31/98		41
		12/30/98		41
		12/14/98		25		36
		11/11/98		10
		9/30/98		41
		9/25/98		10
		6/2/98		10
		4/27/98		35
		3/31/98		40
		3/25/98		10
		3/23/98		35
		2/26/98		28
		12/10/97		10
		11/17/97		35
		10/29/97		9		10
		12/23/96		9		16
		12/11/96		14
		10/9/96		10
		8/23/96		15		16
		4/1/96		35
		6/2/95		14
		12/19/94		14
		11/18/92		14
		7/7/92		17
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