EDITORS’ NOTE

Steve Holliday joined National Grid plc as Group Director, U.K. and Europe, in March 2001. Immediately following the merger of National Grid plc and Lattice Group plc in October 2002, he was responsible for the electricity and gas transmission businesses, and was named the Group Director of U.K. gas distribution and business services in April 2003. He assumed his current post in January 2007, after serving as Deputy Chief Executive since April 2006. Holliday has also served as an executive director of British Borneo Oil and Gas, and spent 19 years with the Exxon Group, where he held senior positions in the international gas business and managed refining and shipping. He is a Non-Executive Director of Marks and Spencer Group plc.

After earning his bachelor’s and master’s degrees in mechanical engineering at the City College of New York, Bob Catell joined Brooklyn Union Gas Company (later merged into KeySpan Corporation) in 1958. His rise through the company’s ranks culminated in his appointment as President and Chief Executive Officer in 1991 and Chairman and CEO in 1996. A registered professional engineer, Catell assumed his current posts upon the acquisition of KeySpan Corporation by National Grid plc in August 2007.

COMPANY BRIEF

National Grid (www.nationalgrid.com) is an international energy-delivery company. In the United States, National Grid delivers electricity to approximately 3.3 million customers in Massachusetts, New Hampshire, New York, and Rhode Island, and manages the electricity network on Long Island, New York, under an agreement with the Long Island Power Authority (LIPA). National Grid is the largest power producer in New York State, owning 6,650 megawatts of electricity generation that provides power to over one million LIPA customers and supplies roughly a quarter of New York City’s electricity needs. It is also the largest distributor of natural gas in the northeastern United States, serving approximately 3.4 million customers in New York, Massachusetts, New Hampshire, and Rhode Island. In August 2007, National Grid acquired Brooklyn, New York-based KeySpan Corporation.

What are the key benefits of the recent merger of National Grid and KeySpan?

Holliday: This is probably the best deal I’ve ever been involved in, and I’ve been involved in an awful lot of deals. It’s the perfect business fit. As a result of this transaction, National Grid is now 50 percent in the U.K. and 50 percent in the U.S., 50 percent gas and 50 percent electricity, and 50 percent transmission and 50 percent distribution. KeySpan had a number of gas territories with huge opportunities for growth. It was like a perfectly fitted jigsaw piece and it gives us a tremendously balanced company. KeySpan’s values and the organization’s style are also exactly in line with our organization, and its culture and values – the way in which we interact with our customers and constituencies and the way I want our company to behave. It’s not about absorbing a company; it’s about fundamentally changing National Grid in both the U.K. and the U.S. We’re seeing that already – we really are.

Catell: As I looked at KeySpan’s future, I knew we needed size and scale. We’re competing in a global energy market, and National Grid brought all the pieces together, and presented an excellent platform to grow both organically and through additional consolidation of our industry in the U.S. So it was a good fit from a business standpoint and, as Steve mentioned, a cultural standpoint. National Grid and KeySpan share values in terms of environmental sensitivity and involvement in the community. The same things that resonate with KeySpan resonate with National Grid.

Holliday: The building blocks were there from the start.

How did you manage to get both companies’ employees on board with the merger? Did they immediately understand the benefits they’d realize from the companies joining together?

Holliday: We ran lots of focus groups, and Bob and I did lots of listening. This isn’t about talking; it’s about listening. Did we get it all right? No, of course we didn’t. But we did an awful lot of listening.

The energy industry is facing a number of challenges, not the least of which is price volatility. What lies ahead for the industry, and how will National Grid address some of those challenges?

Holliday: It’s hard to talk about the issues our industry faces in isolation, because that’s not how they will be solved by our company, society, politicians, or regulators. The first issue on my list is climate change; the need for infrastructure investment is number two; and that is closely followed by the security of energy supplies and the price of energy. But in my brain, they are all one issue – we have to think about them together. Our industry is at a crossroads, as we need to move forward with a much greener and lower-carbon footprint, and we also have to spend billions of dollars on new infrastructure in the U.S. But the good news is we’ll build smart grids – a system that is much more flexible and dynamic than the system we have now. We have a chance to build something that will last another 30 to 50 years. If we don’t start investing in systems like this, reliability will go down. We just depend on energy so much, and renewables will reduce energy security issues.

Catell: That also touches on the price volatility issues.

Holliday: Yes. Energy prices are not going to go down anytime soon, that’s clear. Even renewable energy will require significant investment. So our challenge is to stabilize prices, and energy efficiency underpins all of this. We want to work very hard with our consumers to decrease their energy consumption, which will ultimately save them money. The heart of this issue is making sure our business is not motivated to ship more energy. If we are clever enough, we can meet all of our goals while keeping our customers’ bills pretty stable. The key is conserving energy and using less in the first place.

Catell: In my mind, that presents a number of challenges, as well as opportunities, for a global company like National Grid, which has the financial resources to make investments in new technology that will help customers conserve and operate more efficiently. For instance, there is a lot that can be done with smart meters and smart grids, and we have the capability to make investments in such things. If we can provide a more efficient environment for the customer, we can make investments in the infrastructure that will be used in the future. As a global company, we can truly have best practices in all of our lines of businesses to provide better, more efficient, and more economic levels of service to our customers.

How is the business structured post-merger?

Holliday: We have reorganized ourselves. This isn’t about moving the deck chairs around; this is about how we run the business now. We have a gas distribution and transmission business and an electric transmission business on both sides of the Atlantic. We have an electric distribution and generation business in America that is spread over a tremendous geography. So they’ve become three business lines, if you will, because we can achieve benefits through standardization. We’ve identified several areas where we can do things on a global basis to decrease our cost base and benefit our customers. For instance, in asset management, there are some principles and techniques we can apply to any asset – transmission or distribution, electricity or gas, or power stations. Historically, these businesses have been very local, but we needed to be much more global. The processes that underpin how you run a gas distribution business should be the same whether you’re in Manchester, England or Manchester, Massachusetts. We want to deliver consistent service anywhere we do business, and we choose the best approaches from both KeySpan and National Grid. We’ve picked some great things up from each other and it’s really beginning to work. There’s a lot of value for our customers here; they will have high expectations of us going forward.

Catell: We’re in the business of serving customers. We want their experiences with National Grid to be the best experiences possible. We’ll still operate locally and tailor ourselves to our communities, but if we can achieve consistency in our operations along these lines of businesses, we will operate more efficiently and give a better experience to our customers at the end of the day.

Holliday: Every now and again, someone asks, “Will a regulator be happy with that?” We’re actually trying to ensure that our operating standards are as high as they possibly can be. How can that not be aligned with regulations or political agendas? We know there is a certain inevitability in being our size and scale. It’s important to make the investments that are necessary and to attract the necessary talent and deliver the necessary expertise to our customers. But our main challenge is to remain local in some sense. We have to maintain our local involvement – if not build upon it – in the future, while overlaying the benefits of the size and scale we have today.

Do you predict continued consolidation in the energy industry?

Holliday: The bigger, more able enterprises will be at the heart of the massive reinvestments needed for the future of energy. Consolidation is inevitable in the U.S. In Europe, there are only four or five big players in utilities; in the U.S., there are thousands.

Catell: There will absolutely be opportunities for further consolidation. With our operating model and our focus on customers and communities, we think there will be future consolidation opportunities for us as well. But I think one of the things that attracted National Grid to KeySpan is our ability to grow organically. We have a tremendous customer base and a lot of opportunity for growth in our gas business. We’re looking at providing other services to customers in the spaces we operate in. We want them to see us as a true leader in the energy field. So there will be more consolidation, and we will certainly have an opportunity to be a player, but we also have tremendous organic growth that we can bring to the table.

Your business relies heavily on the technological expertise of your people. Yet, we hear so much about young people’s lack of education in math and the sciences. Are enough young people looking to the energy sector for their careers, and are they getting the baseline education they need to pursue a career in your industry?

Holliday: In a word, no, but we’ve been doing a lot on both sides of the Atlantic about this. Internally, we’re discussing how we can help our societies and help fund human resources for this business going forward. It’s a very serious issue. In the U.S. and the U.K., the number of engineers coming out of colleges is down; there are 100 Indian engineers for every one American engineer. So that’s why it’s quite important that we build a company that provides opportunities for people so we can attract the talent we need. It is a competitive marketplace, and I hate to use that expression, but it’s true. So we have to provide both a job and excitement for young engineers. This is a great industry to join right now. There are so many interesting things to get your mind around. We also have to provide the sort of place in which people want to work. We are very active when it comes to inclusion and diversity, which are two very important words. We want to build a company that’s very diverse. KeySpan is a diverse organization and National Grid has injected itself with that focus as well. Inclusion is not just about diversity; it’s about making people feel that they are part of this organization. We want you to contribute in whichever way you can, and we want you to develop so you can fulfill your ultimate ambitions and potential. It’s in your interest and in our interest. We’re not there yet – I don’t think any business is. But we do focus on it.

We also have to get into schools and to help people understand the exciting jobs that are available in math, science, technology, and economics. It’s a problem people talk about all the time, and we haven’t fixed it yet. However, if you list all of the things people are doing in the U.S. and the U.K. to combat the problem, you’ll see it will make a difference. We’ll turn the tide eventually, but it’s not happening at the moment.

Catell: Education continues to be a focus for both of our companies, starting in the elementary schools and working all the way up to colleges and universities. We need to find ways that we can attract more young people to math and the sciences. We need those technical skills as an industry. So much of what we are doing is technology-driven, and our companies need to take on initiatives in a cohesive manner in order to make a difference.

Holliday: We want to get them excited about science, but also educate them on the need to conserve energy and the things they can do, as members of the human race, to reduce their impact on the environment. We’re starting to bring those things together, and we’ll roll it out in schools on both sides of the Atlantic, hopefully, sometime in the middle of 2008. It will be great. Of course, it’s self-serving, but it will also give something back to our schools, without question. We have many links to the communities we serve.

Catell: We have to respond to some of that appetite for science-based curricula in schools. It has to be current, and we’re the best ones to do that.

Corporate social responsibility and involvement in the community seem to be very important parts of both KeySpan and National Grid’s culture.

Holliday: When it comes to our views on corporate citizenship, you couldn’t put a hair between them – that’s how close they are. KeySpan was a very socially responsible company. It wasn’t just gloss – it truly was. National Grid is exactly the same. I’m very proud of the company. Its history in that space is immense and largely unsung. These things go on behind the scenes. It’s the ethos of the organization. People understand what this company stands for. It’s about the human beings in our organization – their values and behaviors.

Catell: The business deal made sense for both companies, but beyond that, National Grid’s community-minded nature attracted me.

Holliday: All of our employees are very much engaged in the communities we serve. We have a tremendous army of people out there that really believe in it.

Catell: It also helps that they recognize that the company fully appreciates and embraces all they do outside the company.

Holliday: Our assets are out there, everywhere. We can’t get away from being a part of the community. In the next 10 or 20 years, we’ll be doing some things that people won’t want; we’ll be building things in the community, and digging things up and replacing them. Our ability to do that will be massively impacted by our reputation with the public. So we have to be involved – it’s our duty.

Catell: We really do want to be a company that does the right things, not only from a business standpoint, but also from a social responsibility standpoint.

Holliday: Complex issues surround the energy industry, and we have a role to play in helping our customers understand the headlines, as well as the details, as we transition as an industry.

Have private sector leaders such as yourselves been effectively brought into the political discussion over energy?

Holliday: We want to be welcomed into those discussions, but we’re not going to make politicians’ decisions. We want to be seen as straight and honest in our dealings, and objective in our views. We put factual information in front of politicians so they can think through the policies they want to adopt with well-informed, balanced views. That’s what National Grid is all about: providing a balanced view going forward. I think that’s beginning to happen.

It seems like the two of you could almost finish each others’ sentences. Do you really get along this well?

Holliday: We spend so much time together.

Catell: The answer is yes. When I thought about KeySpan being acquired, it wasn’t easy as a CEO, even at the end of my career. But Steve and I really connected, from both a personal and a business standpoint. I see in him all of the qualities I think a leader needs to take a company into the future. So that’s one of the reasons we get along very well. If I’m going to hand the keys to the company over to someone, he is the right guy. We don’t agree on everything – there are debates. But we are very honest with each other, and we don’t pull any punches. My goal is to see this company be successful.

Holliday: That’s my goal as well. It has been a privilege to spend this much time with Bob. I’ve learned a massive amount in the last 18 months.

Catell: It’s mutual.

Holliday: It has been great, and it will continue to be so for the next two years.

Catell: I’m looking forward to it. I really am.