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BOWNE INTEGRATED TYPESETTING SYSTEM

CRC: 15924

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: 104

Description: EXH 2(B).6.1

0/2708.00.00.00Y59930BNY

[E/O] EDGAR 2 *Y59930/708/2*

BOWNE INTEGRATED TYPESETTING SYSTEM

CRC: 15924

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: 104

Description: EXH 2(B).6.1

0/2708.00.00.00Y59930BNY

[E/O] EDGAR 2 *Y59930/708/2*

instituted a $10 million settlement credit that terminated on March 1, 2005. Durin

this period, known as the Rate Freeze

Period, distribution rates (after the reduction for the $10 million settlement credit) were frozen. Durin

the period from March 1,

2005 throu

h December 31, 2009, the Rate Index Period, subsequent to the increase in distribution rates resultin

from the

termination of the $10 million settlement credit, the Company’s distribution rates are adjusted annually, upward or downward,

based upon the movement of a distribution index rate (in cents per kilowatt-hour) of similarly unbundled distribution utilities in

New En

land, New York, Pennsylvania and New Jersey. The Company determined that its initial relative position a

ainst this

index of utilities established usin

distribution rates in effect July 1, 2004 was less than 90 percent, which allowed it to reflect in

distribution rates the effect of terminatin

the entire $10 million settlement credit. On July 1 of each succeedin

year, the

Company updates the re

ional index rate and, based upon the movement, upward or downward, of this re

ional index rate,

adjusts its own distribution rates accordin

ly effective March 1 of the followin

year. In the first two such adjustments the

Company implemented a 3.5 percent and a 1.6 percent increase in distribution rates pursuant to this mechanism effective

March 1, 2006 and March 1, 2007, respectively. Durin

2009, the Company will file a distribution cost of service to determine

the share of earned savin

s, if any, that it will be able to include in this and future cost of service studies for the purpose of

establishin

distribution rates to be in effect from January 2010 throu

h May 2020, in accordance with a sharin

mechanism

defined in the rate plan. The Company will be allowed to retain 100 percent of annual earned savin

s up to $70 million and

50 percent of annual earned savings between $70 million and $145 million (all figures pre-tax). Earned savin

s represent the

difference between annual distribution revenue based on rates in effect on March 1, 2009 and the Company’s cost of providin

service, includin

a re

ional avera

e authorized return. These efficiency incentive mechanisms provide an opportunity to

achieve returns in excess of traditional regulatory allowed returns.

Nantucket Electric’s distribution rates are linked to Massachusetts Electric’s rates. In addition, Nantucket Electric owns and

operates two 46 kilovolt submarine cables that interconnect Nantucket Island to the transmission system on Cape Cod, the

costs of which are recovered through a special surcharge to its customers.

The Narragansett Electric Company

Electric segment: In Rhode Island, Narragansett Electric’s distribution rates are governed by a long-term rate plan. Under its

rate plan, effective from November 2004 until December 2009, Narra

ansett Electric a

reed to reduce its distribution rates by

$10.2 million (pre-tax) per year. Be

innin

in January 2005, Narra

ansett has been able to keep an amount equal to 100

percent of its earnings up to an allowed ROE of 10.5 percent, plus $4.65 million (pre-tax), which represents its share of

demonstrated savin

s subsequent to the acquisition of EUA in 2000. Earnin

s above that amount up to an additional 1 percent

ROE are to be shared equally between Narra

ansett and its customers, while additional earnin

s will be allocated 75 percent to

customers and 25 percent to Narra

ansett. This re

ulatory mechanism offers the potential to achieve returns in excess of

traditional regulatory allowed returns.

In addition, Narragansett has implemented a customer credit totalling $27.6 million on most of its customers’ bills from

November 2004 through December 2005. This credit was designed to return customers’ share of the excess earnin

s accrued

under the mer

er rate plan approved and implemented in 2000

overnin

the mer

er of Narra

ansett with Blackstone Valley

Electric Company and Newport Electric Corporation.

Gas segment: In May 2002, the Rhode Island Public Utility Commission approved a settlement a

reement between the New

land Gas Company and the Rhode Island Division of Public Utilities and Carriers (the Division). The settlement a

reement

resulted in a $3.9 million decrease in base revenues for the New England Gas Company, a unified rate structure (“One State;

One Rate”) and an inte

ration /mer

er savin

s mechanism. The settlement a

reement also allows New En

land Gas Company

to retain $2 million of mer

er savin

s and to share incremental earnin

s with customers when the return on equity exceeds

11.25 percent. Included in the settlement a

reement was a conversion to therm billin

and the approval of a reconcilin

Distribution Adjustment Clause (DAC). The DAC allows New En

land Gas Company to continue its low income assistance and

weatherization programs and to

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