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BOWNE INTEGRATED TYPESETTING SYSTEM

CRC: 17689

Name: NATIONAL GRID

Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: (212)924-5500Site: BOWNE OF NEW YORK

Y59930.SUB, DocName: EX-2.B.6.1, Doc: 6, Page: 95

Description: EXH 2(B).6.1

0/2699.00.00.00Y59930BNY

[E/O] EDGAR 2 *Y59930/699/2*

BOWNE INTEGRATED TYPESETTING SYSTEM

CRC: 17689

Name: NATIONAL GRID

Date: 17-JUN-2008 03:10:51.35Operator: BNY99999TPhone: (212)924-5500Site: BOWNE OF NEW YORK

Y59930.SUB, DocName: EX-2.B.6.1, Doc: 6, Page: 95

Description: EXH 2(B).6.1

0/2699.00.00.00Y59930BNY

[E/O] EDGAR 2 *Y59930/699/2*

F-10

NOTE A – SIGNIFICANT ACCOUNTING POLICIES

1 Nature of Operations

National Grid USA (the Company) is a public utility holdin

company with re

ulated subsidiaries en

ed in the transmission,

distribution, and sale of electricity and natural

as. The Company is a wholly owned subsidiary of National Grid plc. The

Company’s electricity and

as distribution subsidiaries serve approximately 4.1 million customers in New York State,

Massachusetts, Rhode Island and New Hampshire. The Company’s transmission subsidiaries provide electricity transmission in

New York throu

h Nia

ara Mohawk Power Corporation (Nia

ara Mohawk) and in New En

land principally throu

h New

land Power Company (NEP) and The Narra

ansett Electric Company (Narra

ansett). In Au

ust 2006, the Company

acquired the Rhode Island gas assets of New England Gas Company (see Note L — Acquisitions). For unre

ulated

subsidiaries engaged in construction and leasing of telecommunications infrastructures see Note M — “Discontinued

Operations.”

2 Basis of Presentation

The Company’s accountin

policies conform to

enerally accepted accountin

principles in the United States of America (US

GAAP), including accounting principles for rate-regulated entities with respect to the Company’s transmission, distribution and

as operations (re

ulated subsidiaries), and are in accordance with the accountin

requirements and ratemakin

practices of

the re

ulator

authorities havin

urisdiction

(

see below

)

The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries and

minorit

interests. All intercom

transactions and balances between consolidated subsidiaries have been eliminated.

The Company owns approximately 53.7 percent of the outstanding common stock of both New England Hydro-Transmission

Electric Company, Inc. and New England Hydro-Transmission Corporation (together, the Hydro-Transmission companies). The

Hydro-Transmission companies own and operate an international transmission interconnection between Hydro-Quebec (a

eneration facility in Quebec, Canada) and New En

land. The consolidated financial statements include 100 percent of the

assets, liabilities, and earnings of the Hydro-Transmission companies. Minority interests in the Hydro-Transmission companies,

which represent the minority stockholders’ proportionate share of the equity, is separately disclosed on the Company’s

consolidated balance sheet and the proportionate share of income is included in ‘Other deductions, net’ on the Company’s

consolidated statements of income.

NEP has a minority ownership interest in each of three re

ional nuclear

eneratin

companies which own

eneratin

facilities

that are

ermanentl

shut down. NEP accounts for these ownershi

interests under the e

uit

method.

3 Use of Estimates

The preparation of financial statements in conformity with US GAAP requires mana

ement to make estimates that affect the

reported amounts of assets and liabilities and the disclosures of contin

ent assets and liabilities as of the date of the balance

sheets, and revenues and expenses for the period. These estimates may differ from actual amounts if future circumstances

cause a change in the assumptions used to calculate these estimates.

4 Re

ulation

The Company’s re

ulated subsidiaries must comply with the rules prescribed by the Federal Ener

y Re

ulatory Commission

(FERC) and the applicable state utility commissions of New York, Massachusetts, Rhode Island and New Hampshire. See Note

B – “Rates and Regulatory.” Niagara