What Should Be the Future Roles and Responsibilities of Transmission and Distribution Companies in New England? Robert H. McLarenPresident, Massachusetts & New Hampshire DistributionNational GridJune 23, 2006

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National Grid: Who We Are

International energy delivery company High voltage transmission

England & Wales Natural gas distribution

Created by merger with Lattice 11 million customers in UK

Electric T&D and gas distribution in NY, MA, RI & NH Created by merger of NEES, EUA, NiMo 3.3 million electric customers 565,000 gas customers in NY

Acquiring KeySpan Energy and NE Gas (RI) 2.8 million additional gas customers in NY, MA, RI & NH

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Growing & Striving to Become the Premier Energy Delivery Company in the US

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US Distribution Strategic Agenda Vision

To be the premier energy delivery company in the US

Core values Respect Integrity Ownership

Core objectives: Safety Reliability Efficiency Responsibility

NationalGrid

Platform for further US growth

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Energy Delivery:What Does It Take to Be Premier? Becoming the company that

customers want to be served by, employees want to work for, investors want to invest in, and regulators and government leaders look to for leadership and

innovation

Focusing on energy delivery providing safe, reliable service to customers at a reasonable

price helping customers manage their home and business energy

needs being a responsible member of the communities we serve

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Distribution reliability improvements over the next 5 years, including Reliability Enhancement Plan: $500 million

Transmission capex: $600 million Other capex: $400 million Total investment in Mass. infrastructure

and reliability over next 5 years $1.5 billion

Transmission investments foster efficient wholesale market

While our low delivery rates remain stable thru 2009

Investing to Improve Reliability

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National Grid Offers Lowest Delivery Rates

5.33.9

5.2 4.9 4.73.7

NSTAR - Com Elec NSTAR - Cambridge NSTAR - BECo FG&E WMECo MA

Transition

Transmission

DSM* / renewables / others

Distribution

cents per kWh

9.2 9.0 8.78.2

5.9 5.5

* DSM = Demand Side ManagementTypical Residential 500 kWh customer bill (April 2006) for major investor-owned utilities, excluding power supply costs

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Helping Customers Manage Their Energy Costs Facilitating choice of retail supply

80% of large customer load served by competitive suppliers Fewer choices for smaller customers

Opportunities to lower market entry barriers Advocating reasonable, workable wholesale market rules

Supporting improved capacity market rules Promoting market-leading investments in energy efficiency

$2 billion of customer savings over last 19 years Providing economic development benefits to New England

Fostering seamless integration of DR into DSM Timely evolution of DSM programs to capture capacity value

Valuable G,T&D peak demand reductions

What Should Not Be the Future Roles and Responsibilities of Transmission and Distribution Companies in New England?

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Regulated Generation Business Model

Customers bore supply cost risk Inefficient price signals to customers Shareholder returns disconnected from

performance

Regulated generation

model had problems

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Competitive Generation Business Model

Generators bear supply cost risk Efficient price signals to customers Shareholder returns linked to performance Reduced air emissions Lower fuel-price adjusted wholesale prices

Competitive generation

model is better

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Carefully Navigating The Road Ahead

High Fuel

Prices

Evolution of

Market Rules

Limite

d New

Genera

tion

Global Climate

Change

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Generation Implement forward capacity market

New generation in pipeline Avoid “hybrid” generation model – regulated / unregulated

New regulated generation may poison the well for new unregulated investments

Transmission Continue infrastructure expansion Platform for operation of efficient wholesale markets

We Need to Stay the Course