Acquisition

National Grid PLC
27 February 2006

                  NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION

                     IN OR INTO CANADA, AUSTRALIA OR JAPAN




             NATIONAL GRID ANNOUNCES AGREED ACQUISITION OF KEYSPAN


                 NATURAL EXTENSION OF NATIONAL GRID'S BUSINESS



    • Agreement to acquire KeySpan for cash consideration of approximately
      $7.3 billion (£4.2 billion) plus assumption of $4.5 billion (£2.6 billion)
      of debt

    • Excellent strategic and operational fit with National Grid's existing
      business and provides enhanced growth platform

    • Savings of $200 million per year identified

    • Earnings and cash flow enhancing(1) in the first full year following
      Completion


National Grid and KeySpan today announce that they have reached agreement under
which National Grid will acquire KeySpan for $42.00 (£24.00) per share in cash.
The terms of the agreement value the equity of KeySpan at approximately $7.3
billion (£4.2 billion) and the enterprise value of KeySpan at approximately
$11.8 billion (£6.7 billion) (including estimated net debt of approximately $4.5
billion (£2.6 billion) as at 31 December 2005).

KeySpan is a major US energy delivery company. It is the largest distributor of
natural gas in the Northeastern US and the fifth largest in the US, with
approximately 2.6 million customers in New York, Massachusetts and New 
Hampshire. In addition, it operates an electricity transmission and distribution
system serving approximately 1.1 million customers in New York, under a contract
with the Long Island Power Authority (LIPA). KeySpan also owns and operates 6.7
GW of generation capacity in New York. Its other assets include investments in
natural gas pipeline and storage assets.


ACQUISITION BENEFITS

KeySpan is an excellent strategic and operational fit with National Grid and a
natural extension of National Grid's business. Together with the recently agreed
acquisition of the Rhode Island gas distribution assets from Southern Union
Company, the acquisition of KeySpan will build upon National Grid's successful
track record in the US.

• KeySpan's gas distribution and electricity distribution and transmission
  businesses operate in states where National Grid already has a presence and
  where it has strong regulatory relationships. The geographic fit between the
  two companies will facilitate the implementation of efficiency initiatives
  across the enlarged Group.

• The Acquisition will allow National Grid to deploy its core skills of owning
  and operating network infrastructure within an incentive-based regulatory
  environment across a larger rate base.

In addition, National Grid will have a stronger US growth platform across its
distribution business including building on KeySpan's investments in gas
pipelines and gas storage.

National Grid believes the Acquisition will create significant value and deliver
a return on invested capital greater than National Grid's cost of capital. It is
expected to be earnings and cash flow enhancing(2) in the first full year
following Completion.

National Grid expects to:

• Deliver identified integration savings of $200 million per year, through the
  rationalisation of overlapping functions and the sharing of best practices.

• Unlock additional organic growth by investing in KeySpan's gas distribution
  business.

• Invest in other growth opportunities including gas pipelines and storage.


GENERATION

KeySpan's well managed generation business includes plants on Long Island (4.2
GW) which operate under agreements that purchase their full production capacity
on a full cost pass through basis. The remaining 2.5 GW of capacity is located
within the constrained New York City 'load pocket'.


MANAGEMENT

Following Completion, Michael E. Jesanis will continue as CEO of the enlarged
National Grid USA and Bob Catell, Chairman and CEO of KeySpan, will join the
Board as Deputy Chairman of National Grid and Chairman of National Grid USA.


FINANCING

National Grid intends to finance the Acquisition wholly from borrowings.
National Grid expects that its credit ratings post Completion will be downgraded
by no more than one notch and it remains committed to its ratings target of an A
range for both of its rated UK operating companies.


FINANCIAL RESULTS

For the year ended 31 December 2004, KeySpan reported earnings before interest,
tax, depreciation and amortisation of $1.5 billion (£0.9 billion) on revenues of
$6.7 billion (£3.8 billion), and had net assets of $3.9 billion (£2.2 billion)
(3). KeySpan's gas and electricity delivery businesses accounted for 66 per
cent. of its operating income for the year ending 31 December 2004, and 75 per
cent. of its assets as at that date. The corresponding figures for generation
are 33 per cent. and 17 per cent. respectively.


COMPLETION

The Acquisition is subject to a number of conditions, including approval by
National Grid's and KeySpan's shareholders as well as certain regulatory and
other consents and approvals in the US. The principal regulatory approvals
required are from the Federal Energy Regulatory Commission and the states of New
York and New Hampshire. The Acquisition also requires clearance under US
anti-trust and foreign investment laws. National Grid is targeting Completion to
take place by early 2007.


Sir John Parker, Chairman of National Grid, said:

'KeySpan is an acquisition which makes sense at every level. We look forward to
its completion and to welcoming Bob Catell to our Board; he brings a wealth of
industry experience.'


Roger Urwin, Chief Executive of National Grid, said:

'KeySpan is a natural extension of our business and our strategy. It fits
strategically, operationally and geographically. It will create value and it
will expand our overall growth platform.'


Steve Holliday, Chief Executive Designate of National Grid, said:


'KeySpan creates substantial opportunities for cost savings. In addition, by
investing in the business, we can unlock its growth potential. All of this
builds upon our existing experience and track record.'


Bob Catell, Chief Executive Officer and Chairman of KeySpan, said:

'I am delighted to have reached this agreement to join forces with National
Grid. The agreement is in the best interests of our shareholders and will
provide significant benefits to our customers, employees and the communities we
serve.'


Rothschild is advising National Grid and Lazard is advising KeySpan. Deutsche
Bank and Morgan Stanley are brokers to National Grid.


This summary should be read in conjunction with the attached announcement.


For ease of reference, in this document: (i) all currency conversions between
pounds sterling and US dollars have been made at a rate of $1.75: £1.00; and
(ii) financial information for KeySpan is presented in US GAAP.



ANALYST PRESENTATION

An equity analyst presentation will be held at City Presentation Centre, 4
Chiswell Street, London EC1Y 4UP at 9.30 am (UK time) today.


Live telephone coverage of the analyst presentation - password National Grid plc

Dial in number [phone]

US dial in number [phone]


Telephone replay of the analyst presentation (available until 13 March 2006),


Dial in number [phone]

access code 869448

recording number 355761


There will be a debt investor conference call at 12:00 noon UK time. Dial in:
[phone]


A live webcast of the presentation will also be available at
www.nationalgrid.com


Photographs are available on www.newscast.co.uk



ENQUIRIES
National Grid plc
Equity Investors
David Campbell        [phone]        [phone] (m)
Richard Smith         [phone]        [phone] (m)
James Waite           [phone]        [phone] (m)

Debt Investors
Malcolm Cooper        [phone]        [phone] (m)
Andy Mead             [phone]        [phone] (m)

Media
Clive Hawkins         [phone]        [phone] (m)


Citigate Dewe Rogerson                     [phone]
Anthony Carlisle                           [phone] (m)

Rothschild
UK                                         [phone]
Nicholas Wrigley                           Managing Director
James Douglas-Hamilton                     Managing Director
US                                         [phone]
Yves-Andre Istel                           Senior Advisor
Matthew Savage                             Managing Director



Deutsche Bank AG London                    [phone]
James Agnew                                Managing Director

Morgan Stanley                             [phone]
Nick Wiles                                 Managing Director



Cautionary statement


This announcement contains certain statements that are neither reported
financial results nor other historical information. These statements are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Because these forward-looking statements are subject to assumptions,
risks and uncertainties, actual future results may differ materially from those
expressed in or implied by such statements. Many of these assumptions, risks and
uncertainties relate to factors that are beyond National Grid's ability to
control or estimate precisely, in particular, the ability to obtain, delays in
obtaining, or adverse conditions contained in, regulatory approvals and
contractual consents, the ability to integrate the acquired business or to
realise the expected synergies from such integration, the failure for any reason
to achieve reductions in costs or to achieve operational efficiencies, and
unseasonable weather affecting demand for electricity and gas. Other factors
include competition and industry restructuring, changes in economic conditions,
currency fluctuations, changes in interest and tax rates, changes in energy
market prices, changes in historical weather patterns, changes in laws,
regulations or regulatory policies, developments in legal or public policy
doctrines, the impact of changes to accounting standards, technological
developments, the failure to retain key management, the availability of new
acquisition opportunities or the timing and success of future acquisition
opportunities. Other factors that could cause actual results to differ
materially from those described in this announcement include the behaviour of UK
electricity market participants on system balancing, the timing of amendments in
prices to shippers in the UK gas market, the performance of National Grid's
pension schemes, and the regulatory treatment of pension costs, and any adverse
consequences arising from outages on or otherwise affecting energy networks,
including gas pipelines, owned or operated by National Grid. For a more detailed
description of some of these assumptions, risks and uncertainties, together with
any other risk factors, please see National Grid's filings with and submissions
to the US Securities and Exchange Commission (and in particular the 'Risk
Factors' and 'Operating and Financial Review' sections in its most recent Annual
Report on Form 20-F). Recipients are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
announcement. National Grid does not undertake any obligation to release
publicly any revisions to these forward-looking statements to reflect events or
circumstances after the date of this announcement.




                                  NEWS RELEASE


            NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO
                           CANADA, AUSTRALIA OR JAPAN




             NATIONAL GRID ANNOUNCES AGREED ACQUISITION OF KEYSPAN


                 NATURAL EXTENSION OF NATIONAL GRID'S BUSINESS



1.             Introduction

National Grid and KeySpan today announce that they have signed a merger
agreement under which National Grid will acquire KeySpan for cash. Under the
terms of the Merger Agreement, KeySpan shareholders will receive $42.00 (£24.00)
in cash for each KeySpan share held. The terms of the agreement value the equity
of KeySpan at approximately $7.3 billion (£4.2 billion) and the enterprise value
of KeySpan at approximately $11.8 billion (£6.7 billion) (including estimated
net debt of approximately $4.5 billion (£2.6 billion) as at 31 December 2005).


KeySpan is a major US energy delivery company. It is the largest distributor of
natural gas in the Northeastern US and the fifth largest in the US, with six
regulated utilities serving approximately 2.6 million customers in New York,
Massachusetts and New Hampshire. In addition, it also operates an electricity
transmission and distribution system serving approximately 1.1 million customers
in New York, under a contract with LIPA. KeySpan also owns and operates 6.7 GW
of generation capacity in New York. Its other assets include investments in
natural gas pipelines and gas storage assets.


For the year ended 31 December 2004, KeySpan reported earnings before interest,
tax, and depreciation and amortisation of $1.5 billion (£0.9 billion) on
revenues of $6.7 billion (£3.8 billion) and had net assets of $3.9 billion (£2.2
billion)(4). Further details of KeySpan's business are set out in Appendix III.


The Acquisition is subject to a number of conditions, including regulatory and
other consents and approvals in the US and the approval of the shareholders of
both National Grid and KeySpan. The Acquisition is targeted to complete by early
2007.


Rothschild is advising National Grid and Lazard is advising KeySpan. Deutsche
Bank and Morgan Stanley are brokers to National Grid.



2.             Attractions of KeySpan

2.1.       Leading gas and electricity delivery business

KeySpan is a major US utility, focused primarily on gas distribution and
electricity transmission and distribution. It owns and operates six regulated
utilities that distribute natural gas to approximately 2.6 million customers:
approximately 1.7 million in New York City and Long Island and approximately 0.9
million in Massachusetts and New Hampshire. It is the fifth largest gas
distribution company in the US and the largest in the Northeastern US. Over 90
per cent. of its customer base comprises residential and small commercial
customers.


KeySpan also has a contract to operate the electricity transmission and
distribution system owned by LIPA, which serves approximately 1.1 million
customers in Long Island. KeySpan and LIPA recently agreed to extend, subject to
approval by the relevant authorities, the contract from 2008 to 2013, providing
further cost and revenue certainty, and allowing KeySpan to benefit from
enhanced operational efficiencies and synergies, as well as from electric load
growth during the life of the contract.


KeySpan's gas distribution and electricity transmission and distribution
activities accounted for approximately 66 per cent. of its operating income for
the year ended 31 December 2004.


2.2.       Excellent strategic and operational fit

The Acquisition considerably strengthens National Grid's presence in the
Northeastern US. National Grid USA will be the 3rd largest energy delivery
business in the US based on number of customers. KeySpan's energy delivery
businesses are located in New York, Massachusetts and New Hampshire - states
where National Grid is present already and where it has strong regulatory
relationships. The geographic fit between the two businesses will facilitate the
operation of the enlarged group and increase opportunities for integration
savings and economies of scale.


The Acquisition plays to National Grid's strengths, allowing National Grid to
deploy its core skills of owning and operating network infrastructure within an
incentive-based regulatory environment and to share best practices between both
businesses.


The Acquisition is a natural extension of National Grid's business. Together
with the recently agreed acquisition of the Rhode Island gas distribution assets
of Southern Union Company, the acquisition of KeySpan will build upon National
Grid's successful track record in the US.



2.3.       Low risk generation portfolio

KeySpan owns 6.7 GW of fossil-fuelled generation capacity located in Long Island
and New York City. These well managed and well maintained plants cover some 80
per cent. of Long Island's power needs and approximately 25 per cent. of New
York City's.


The Long Island facilities (amounting to 4.2 GW) are used to provide LIPA with
generating capacity, energy conversion, and ancillary services under long-term
contracts, an extension of which has recently been agreed to 2013 subject to the
approval of the relevant authorities. Under these contracts the rates, which are
regulated by FERC, ensure full recovery of costs plus an appropriate rate of
return. Some 33 per cent. of KeySpan's operating income from generation for the
year to 31 December 2004 was derived from these fully contracted plants.


The remaining 2.5 GW of generation capacity is derived from the Ravenswood
plant, which is located within the constrained New York City 'load pocket'. The
majority of the plant's revenues are derived from the capacity market and its
dual fuel capability provides flexibility to manage movements in commodity
costs. From May 2006, the NYISO's local reliability rules will require that a
minimum of 83 per cent. of the city's electricity capacity needs be provided by
'in-City' generators such as the Ravenswood facility.


Although National Grid does not currently own any generation assets, the KeySpan
generation assets are low risk and have high quality characteristics. National
Grid has no current plans to divest this portfolio.


3.         Benefits of the acquisition

3.1.       Value enhancing transaction

National Grid believes that KeySpan represents an opportunity to create
significant value in its US business from two principal areas.


Integration cost savings and improved operating performance

National Grid expects to deliver $200m per year of identified integration
savings through the rationalisation of overlapping functions and the sharing of
best practices. National Grid projects these savings to be achieved within 4
years of Completion, with savings of approximately 50 per cent. of this amount
realised in the first full financial year post Completion.


Growth opportunities

KeySpan's gas distribution system currently serves 53% of the residential
customer base and 61% of the commercial and industrial base in its service
territories. Given the low levels of market penetration, particularly in the
Long Island and New England markets National Grid believes there is significant
opportunity for organic growth in this business.

KeySpan recently agreed the extension of the Management Services Agreement
whereby it operates LIPA's electricity transmission and distribution assets. On
approval by the relevant New York regulatory authorities, the revised contract
will continue in effect until 2013. Under the revised contract, KeySpan will
benefit from load growth on LIPA's electricity networks.


The enlarged National Grid business will constitute a stronger platform for
future growth in the US. Furthermore, the Acquisition will increase National
Grid's focus on the US gas sector. Combined with KeySpan's investments in gas
pipelines and gas storage, the enlarged National Grid USA will be well placed to
take advantage of a broader range of future opportunities in the US.

3.2.       Financial impact

National Grid believes the Acquisition will create significant value and deliver
a return on invested capital greater than National Grid's cost of capital. The
Acquisition is expected to be earnings and cash flow enhancing(5) in the first
full year following Completion. The enlarged National Grid group is expected to
maintain strong operational cash flows.


4.         Board, management and employees

A Joint Integration Committee of National Grid USA and KeySpan, will be set up
immediately to ensure a smooth transition in the period between announcement and
Completion.


National Grid's management is confident that the good relationship that has been
established between the management teams of KeySpan and National Grid will
assist in the negotiation of the regulatory approval process and the subsequent
integration phase.


Michael E. Jesanis will continue as President and CEO of the enlarged National
Grid USA. Upon completion of the Acquisition, Bob Catell, currently Chairman and
CEO of KeySpan will join the National Grid Board as Deputy Chairman and will
also become Chairman of National Grid USA.


It is anticipated that career opportunities for employees of the enlarged
National Grid group will be enhanced as a result of the Acquisition and both
sets of employees will benefit from potential transfers within the enlarged
National Grid group. National Grid has confirmed that all KeySpan employment
agreements will be honoured.



5.        Terms of the Acquisition

The Acquisition will be effected in accordance with the terms of the Merger
Agreement, a brief description of the principal terms and conditions of which
are set out in Appendix I. Under the terms of the Merger Agreement, KeySpan
shareholders will be entitled to receive a cash payment of $42.00 (£24.00) per
KeySpan Share held at Completion. The Merger Agreement also provides that
KeySpan shareholders will be entitled to receive ordinary quarterly dividends of
up to 46.50 cents per share (rising to 47.50 cents per share for the quarterly
dividend payable after 31 December 2006) until Completion and a stub dividend
pro-rated for the quarter in which Completion takes place.


The Agreement includes a $250 million break fee payable under certain customary
conditions by KeySpan should certain specified events occur, including if
KeySpan were to terminate the Agreement to accept a superior offer. The
Agreement also includes a break fee of the lesser of $250 million or 1% of
National Grid's market capitalisation, payable by National Grid to KeySpan if
the Agreement were to be terminated because National Grid's shareholders did not
approve the Acquisition and, prior to termination, any person publicly announces
an acquisition of National Grid.



The terms of the Merger Agreement:


• value the equity of KeySpan at approximately $7.3 billion approximately £4.2
  billion) and the enterprise value of KeySpan at approximately $11.8 billion
  (approximately £6.7 billion), including net debt of approximately $4.5 billion
  (approximately £2.6 billion) as at 31 December 2005.

• represent a premium of 16.1 per cent. to the undisturbed price of a KeySpan
  share(6); a 1.4 per cent. premium to the closing price of $41.41 per KeySpan
  share on 24 February 2006 (the last trading day in the US prior to the
  execution of the Merger Agreement); and a 17.1 per cent. premium to the three
  month average closing price per KeySpan share.



6.             Financing the Acquisition

Under the terms of the Merger Agreement, the total consideration payable is $7.3
billion (£4.2 billion), which will be satisfied in cash. The Board intends to
finance the Acquisition wholly from borrowings. National Grid expects that its
credit ratings post Completion will be downgraded by no more than one notch and
it remains committed to its ratings target of an A range for both of its rated
UK operating companies.


7.             Approvals

7.1.       Shareholder approvals

National Grid


Because of its size, the Acquisition is subject to approval by a majority vote
of National Grid shareholders. The Merger Agreement is conditional upon such
approval being obtained and the satisfaction or waiver of the other conditions
in such agreement. A circular containing further details of the Acquisition will
be despatched to National Grid shareholders in due course.


KeySpan

The Acquisition is also subject to approval by the holders of a majority vote of
KeySpan shareholders and the Merger Agreement is conditional upon such approval
being obtained.


A proxy statement relating to the Acquisition will be mailed to KeySpan
shareholders as soon as practicable. The proxy statement will contain a notice
convening a meeting of KeySpan shareholders at which they will be asked to
approve the Acquisition.


7.2.       Regulatory consents and timing

The Acquisition cannot be completed until a number of conditions have been
satisfied, which include the granting of regulatory and other consents and
approvals by the US. The principal regulatory approvals required are approval by
the Federal Energy Regulatory Commission together with certain approvals from
the states of New York and New Hampshire. The Acquisition also requires
clearance under US anti-trust and foreign investment laws.


The Acquisition will become effective at the time when a certificate of merger
is delivered for filing with the Secretary of State in the State of New York and
is targeted to occur by early 2007.



8.             Recommendation

The Board of Directors of National Grid, who have received financial advice from
Rothschild, considers the Acquisition to be in the best interests of the
shareholders of National Grid as a whole. In providing advice to the Board of
Directors of National Grid, Rothschild has relied upon the Board of Directors'
commercial assessment of the Acquisition. Accordingly, the directors unanimously
intend to recommend that the shareholders of National Grid vote in favour of the
Acquisition, as they intend to do so in respect of their own beneficial
shareholdings amounting in aggregate to 575,195 ordinary shares, representing
approximately 0.02 per cent. of the current issued share capital of National
Grid (excluding treasury shares).


The Board of KeySpan has unanimously approved the Acquisition and intends to
recommend that KeySpan shareholders vote in favour of the resolutions to be
proposed at the shareholder meeting of KeySpan to approve the Acquisition.
Lazard, which is acting as financial adviser to KeySpan, has provided an opinion
to the Board of Directors of KeySpan that the consideration for the Acquisition
is fair from a financial point of view to the shareholders of KeySpan.



9.             Other

For ease of reference, in this document: (i) all currency conversions between
pounds sterling and US dollars have been made at a rate of $1.75: £1.00; and
(ii) financial information for KeySpan is presented in US GAAP.



10.         Analyst presentation

An equity analyst presentation will be held at City Presentation Centre, 4
Chiswell Street, London EC1Y 4UP at 9.30 am (UK time) today.


Live telephone coverage of the analyst presentation - password National Grid plc


Dial in number [phone]

US dial in number [phone]


Telephone replay of the analyst presentation (available until 13 March 2006),


Dial in number [phone]

access code 869448

recording number 355761



There will be a debt investor conference call at 12:00 noon UK time. Dial in:
[phone]



A live webcast of the presentation will also be available at
www.nationalgrid.com


Photographs are available on www.newscast.co.uk



Enquiries
National Grid
Equity Investors

David Campbell           [phone]       [phone] (m)
Richard Smith            [phone]       [phone] (m)
James Waite              [phone]       [phone] (m)
Debt Investors
Malcolm Cooper           [phone]       [phone] (m)
Andy Mead                [phone]       [phone] (m)
Media

Clive Hawkins            [phone]       [phone] (m)
CitigateDewe Rogerson    [phone]
Anthony Carlisle



Rothschild
UK                                         [phone]
Nicholas Wrigley                           Managing Director,
James Douglas-Hamilton                     Managing Director
US                                         [phone]
Yves-Andre Istel                           Senior Adviser
Matthew Savage                             Managing Director


Deutsche Bank AG London                    [phone]
James Agnew                                Managing Director

Morgan Stanley                             [phone]
Nick Wiles                                 Managing Director





Cautionary statement

This announcement contains certain statements that are neither reported
financial results nor other historical information. These statements are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Because these forward-looking statements are subject to assumptions,
risks and uncertainties, actual future results may differ materially from those
expressed in or implied by such statements. Many of these assumptions, risks and
uncertainties relate to factors that are beyond National Grid's ability to
control or estimate precisely, in particular, the ability to obtain, delays in
obtaining, or adverse conditions contained in, regulatory approvals and
contractual consents, the ability to integrate the acquired business or to
realise the expected synergies from such integration, the failure for any reason
to achieve reductions in costs or to achieve operational efficiencies, and
unseasonable weather affecting demand for electricity and gas. Other factors
include competition and industry restructuring, changes in economic conditions,
currency fluctuations, changes in interest and tax rates, changes in energy
market prices, changes in historical weather patterns, changes in laws,
regulations or regulatory policies, developments in legal or public policy
doctrines, the impact of changes to accounting standards, technological
developments, the failure to retain key management, the availability of new
acquisition opportunities or the timing and success of future acquisition
opportunities. Other factors that could cause actual results to differ
materially from those described in this announcement include the behaviour of UK
electricity market participants on system balancing, the timing of amendments in
prices to shippers in the UK gas market, the performance of National Grid's
pension schemes, and the regulatory treatment of pension costs, and any adverse
consequences arising from outages on or otherwise affecting energy networks,
including gas pipelines, owned or operated by National Grid. For a more detailed
description of some of these assumptions, risks and uncertainties, together with
any other risk factors, please see National Grid's filings with and submissions
to the US Securities and Exchange Commission (and in particular the 'Risk
Factors' and 'Operating and Financial Review' sections in its most recent Annual
Report on Form 20-F). Recipients are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
announcement. National Grid does not undertake any obligation to release
publicly any revisions to these forward-looking statements to reflect events or
circumstances after the date of this announcement.







Appendix I - Summary of the principal conditions of the Merger Agreement

1.             Introduction

Under the terms of the Merger Agreement, a wholly-owned subsidiary of National
Grid will merge with and into KeySpan, whereby each outstanding share of KeySpan
common stock will be converted into the right to receive $42.00 (£24.00) in
cash. KeySpan will be the surviving entity in the merger and, as a result of the
merger, will become a wholly-owned subsidiary of National Grid USA.


The Merger Agreement sets out the conditions to Completion. It also contains
certain termination rights, mutual representations and warranties and various
covenants, including certain limitations on the operation of the business of
KeySpan in the period prior to Completion.


2.             Principal Conditions

The Acquisition is subject to the fulfilment of several customary conditions,
including receipt of the approval of each of National Grid's and KeySpan's
shareholders, receipt of US state and federal regulatory approvals, and there
having been no material adverse effect on KeySpan since the date of the Merger
Agreement.


Each of National Grid and KeySpan must use their 'reasonable best efforts' to
obtain the required regulatory approvals. The principal regulatory approvals
required are approval by the Federal Energy Regulatory Commission together with
certain approvals from the states of New York and New Hampshire. The Acquisition
also requires clearance under US anti-trust and foreign investment laws.
Approval may also be required by the Federal Communications Commission and the
Nuclear Regulatory Commission. It is a condition to Completion that the required
regulatory approvals do not have a material adverse effect on KeySpan.


3.             Termination Rights

The Merger Agreement may be terminated by mutual agreement of National Grid and
KeySpan. It also may be terminated by either party if a final order, decree or
ruling restrains the Acquisition, if the other party breaches the agreement such
that the closing conditions cannot be satisfied (or cured within 30 days), if
either party's shareholders do not approve the Acquisition, or if the
Acquisition has not been consummated by the end date (15 months from the date of
the Merger Agreement, subject to a three month extension).


Additionally, National Grid may terminate the agreement if the Board of
Directors of KeySpan withdraws or qualifies its recommendation of the
Acquisition or accepts another takeover proposal or by KeySpan if, prior to its
shareholder meeting, it accepts a takeover proposal meeting certain conditions
and pays National Grid the required termination fee.


4.             Effect of Termination in Certain Circumstances

KeySpan is required to make a payment to National Grid of $250 million under the
following circumstances:


   •if National Grid terminates because the Board of Directors of KeySpan
    does not recommend, or withdraws or qualifies its recommendation of the
    Acquisition and National Grid terminates the Merger Agreement;
   •if National Grid terminates because the Board of Directors of KeySpan
    approves or recommends a competing takeover proposal;
   •if National Grid terminates because the Board of Directors of KeySpan
    fails to recommend against a tender or exchange offer commenced for 20% or
    more of KeySpan capital stock;
   •if KeySpan terminates because it determined to accept a superior takeover
    proposal meeting certain conditions prior to its shareholders meeting and
    National Grid did not adequately improve its offer; or
   •if the agreement is terminated by either National Grid or KeySpan because
    the KeySpan shareholder vote was not obtained, or because the end date was
    reached, and, prior to termination, any person publicly disclosed a takeover
    proposal for KeySpan.


National Grid is required to pay a termination fee to KeySpan equal to the
lesser of $250 million or 1% of National Grid's market capitalisation, if the
Merger Agreement is terminated because the National Grid's shareholder vote was
not obtained and, prior to termination, any person publicly disclosed an
acquisition proposal for more than 50% of the capital stock of National Grid, or
all or substantially all of its assets.



Appendix II - Information on National Grid


1.             Business description

National Grid is an international energy delivery business, whose principal
activities are in the regulated electricity and gas industries.


In the UK National Grid owns and operates the high-voltage electricity
transmission network in England and Wales, comprising approximately 4,500 miles
of overhead line, approximately 410 miles of underground cable and 341
substations. Almost all of the assets comprising the transmission system operate
at 400 kV or 275 kV. Since 1 April 2005, National Grid has been responsible for
operating the high-voltage electricity transmission system in Scotland. National
Grid is also the owner and operator of the gas National Transmission System in
Great Britain, which comprises approximately 4,300 miles of high pressure pipe
and 26 compressor stations, connecting to its own and third party gas
distribution networks. Its gas distribution networks comprise almost 50% of
Britain's distribution system, comprising a network of approximately 82,000
miles which delivers gas to around 11 million supply points in homes, offices
and factories in Britain.


National Grid entered the US market in 2000 through the acquisition of NEES and
EUA. In 2002, it completed the acquisition of Niagara Mohawk, more than doubling
the size of its US business. These companies now operate as National Grid.
National Grid announced a further acquisition, of the Rhode Island gas
distribution assets of Southern Union Company, on 16 February 2006. The
transaction is expected to complete by the summer of 2006.


National Grid USA currently owns and operates approximately 9,000 miles of
transmission lines in upstate New York and New England. It is one of the leading
electricity distribution service providers in the Northeastern US, as measured
by energy delivered, and one of the largest utilities in the US, as measured by
number of electricity distribution customers. Its electricity distribution
network serves approximately 3.3 million customers over a network of around
72,000 circuit miles in upstate New York, Massachusetts, Rhode Island and New
Hampshire. National Grid USA's existing gas business delivers gas to around
565,000 customers in upstate New York over a network of approximately 8,500
miles. The Rhode Island gas distribution assets will increase its gas customer
base to approximately 810,000 customers and its distribution network to over
11,500 miles.


National Grid also has a number of businesses operating in related areas such as
wireless infrastructure for broadcast and telecommunications, metering and
interconnectors. It also operates an LNG importation terminal in the UK.



The following information is extracted from National Grid's results for the six
months ended 30 September 2005:


Group Income Statement (IFRS)

                                        Six months      Six months          Year
                                          ended 30        ended 30      ended 31
                                    September 2005  September 2004    March 2005
                                              £m              £m            £m

Group revenue                              3,891           3,378         7,382
Other
operating
income                                        23              20            70
Operating costs                           (2,870)         (2,440)       (5,310)
                                         ---------       ---------      --------
Operating profit
                          - Before
                       exceptional
                         items and
                    remeasurements         1,091           1,030         2,443
                     - Exceptional
                         items and
                    remeasurements           (47)            (72)         (301)
Total
operating
profit                                     1,044             958         2,142
Net finance costs
                          - Before
                       exceptional
                         items and
                    remeasurements          (317)           (334)         (706)
                     - Exceptional
                         items and
                    remeasurements             7               -             -
                                            (310)           (334)         (706)
Share of
post-tax
results of
joint ventures                                 2               1             3
                                         ---------       ---------      --------
Profit before taxation
                          - Before
                       exceptional
                         items and
                    remeasurements           776             697         1,740
                     - Exceptional
                         items and
                    remeasurements           (40)            (72)         (301)
                                             736             625         1,439
Taxation
                          - Before
                       exceptional
                         items and
                    remeasurements          (246)           (204)         (437)
                     - Exceptional
                         items and
                    remeasurements            11              27           118
                                            (235)           (177)         (319)
                                         ---------       ---------      --------
Profit from continuing operations
after taxation
                          - Before
                       exceptional
                         items and
                    remeasurements           530             493         1,303
                     - Exceptional
                         items and
                    remeasurements           (29)            (45)         (183)
Profit for the
period from
continuing
operations                                   501             448         1,120

Profit for the period from
discontinued operations
                          - Before
                       exceptional
                             items            44              82           352
                     - Exceptional
                             items         2,519             (26)          (48)
                                           2,563              56           304
                                         ---------       ---------      --------
Profit for the
period                                     3,064             504         1,424
                                         =========       =========      ========
Attributable to:
                          - Equity
                      shareholders         3,062             504         1,424
                        - Minority
                         interests             2               -             -
                                         ---------       ---------      --------
                                           3,064             504         1,424
                                         =========       =========      ========
Earnings per share
                       - Basic             103.7p           16.4p         46.2p
                   - Diluted               103.1p           16.4p         46.0p
Earnings per share from continuing
operations
                       - Basic              16.9p           14.5p         36.3p
                   - Diluted                16.8p           14.5p         36.2p
Dividends per
ord. share:
paid during
the period                                  15.2p           11.9p         20.4p
Dividend per
ord. share:
approved or
proposed to be
paid                                        10.2p            8.5p         23.7p

Group balance sheet (IFRS)

                            At 30 September      At 30 September     At 31 March
                                       2005                 2004            2005
                                       £m                   £m              £m
Non current assets
Goodwill                            2,140                2,107           2,031
Other
intangible
assets                                357                  337             358
Property,
plant and
equipment                          18,175               22,395          22,645
Investments in
joint ventures                         18                   19              17
Deferred tax
assets                                280                  419             318
Other
receivables                            32                  108              96
Investments                           147                  135             131
Derivative
assets                                405                    -               -
                                  ---------            ---------        --------
Total
non-current
assets                             21,554               25,520          25,596
                                  ---------            ---------        --------

Current assets
Inventories                           164                  158             101
Trade and
other
receivables                         1,252                1,142           1,193
Financial
investments
and derivative
assets                              2,517                  307             398
Cash and cash
equivalents                           547                  381             272
                                  ---------            ---------        --------
Total current
assets                              4,480                1,988           1,964
                                  ---------            ---------        --------
Total assets                       26,034               27,508          27,560
                                  ---------            ---------        --------

Current liabilities
Bank overdrafts                       (23)                 (28)            (18)
Borrowings and
derivative
liabilities                        (4,025)              (3,310)         (3,243)
Trade and
other payables                     (1,660)              (2,029)         (2,337)
Current tax
liabilities                           (97)                (110)           (103)
Provisions                           (201)                (229)           (273)
                                  ---------            ---------        --------
Total
non-current
liabilities                        (6,006)              (5,706)         (5,974)
                                  ---------            ---------        --------

Non-current liabilities
Borrowings and
derivative
liabilities                       (10,476)             (11,941)        (11,047)
Other
non-current
liabilities                        (1,883)              (2,551)         (2,429)
Deferred tax
liabilities                        (2,170)              (3,045)         (3,189)
Pensions and
other
post-retiremen
t benefit
obligations                        (2,283)              (2,493)         (2,282)
Provisions                           (551)                (453)           (518)
                                  ---------            ---------        --------
Total
non-current
liabilities                       (17,313)             (20,483)        (19,465)
                                  ---------            ---------        --------
Total
liabilities                       (23,319)             (26,189)        (25,439)
                                  ---------            ---------        --------
Net assets
employed                            2,715                1,319           2,121
                                  =========            =========        ========

Capital and reserves
Called up
share capital                         309                  309             309
Share premium
account                             1,293                1,283           1,289
Retained
earnings                            6,085                4,830           5,650
Other reserves                     (4,984)              (5,114)         (5,137)
                                  ---------            ---------        --------
Total
shareholders'
equity                              2,703                1,308           2,111
Minority
interests                              12                   11              10
                                  ---------            ---------        --------
Total equity                        2,715                1,319           2,121
                                  =========            =========        ========

Net debt (net
of relative
derivative
financial
instruments)
included above                     11,055               14,591          13,638



Appendix III - Information on KeySpan


1.             Business description

KeySpan is the fifth largest distributor of natural gas in the US and the
largest in the Northeastern US. KeySpan was formed in May 1998 as a result of
the merger of KeySpan Energy Corporation, the parent company of Brooklyn Union
Gas, and certain businesses of the Long Island Lighting Company. On 8 November
2000, KeySpan acquired Eastern Enterprises, the parent of several gas utilities
operating in Massachusetts and New Hampshire.


Following these acquisitions, KeySpan owns six regulated gas utilities serving
approximately 1.2 million customers in New York, approximately 0.5 million
customers in Long Island, and approximately 0.9 million customers in
Massachusetts and New Hampshire.


KeySpan also manages Long Island's electricity transmission and distribution
system for approximately 1.1 million customers under long term contracts with
the Long Island Power Authority. In addition, KeySpan owns and operates 6.7 GW
of oil and gas-fired electric generating plans in New York City and Long Island.
Its other assets include investments in natural gas pipelines and gas storage
assets.





The financial information for the two years to 31 December 2004 has been
extracted from KeySpan's annual report. The financial information for the nine
months ended 30 September 2004 is extracted from KeySpan's quarterly report for
the period ended 30 September 2005.


Consolidated Statement of Income (US GAAP)

                          Year ended 31       Year ended 31          Nine months
                          December 2003       December 2004             ended 30
                                                                  September 2004
                                    $'m                 $'m                  $'m

Operating
revenue                         6,536               6,650                5,126

Operating expenses:
Purchased gas
for resale                      2,495               2,664                2,206
Fuel and
purchased
power                             415                 540                  547
Operations and
maintenance                     1,623               1,567                1,143
Depreciation,
depletion and
amortisation                      572                 552                  296
Operating taxes                   418                 404                  303
Impairment
charges                             -                  41                    -
Total
operating
expenses                        5,522               5,769                4,495

Operating income:
Income from
equity
investments                        19                  47                   13
Gain on sale
of property                        15                   7                    1
Operating
income                          1,048                 935                  645

Total other
income and
(deductions)
including
interest                         (340)                  5                 (208)
Income taxes                      281                 326                  160
Earnings from
continuing
operations                        426                 615                  277

Cumulative
change in
accounting
principles                        (37)
Loss from
discontinued
operations                         (2)               (151)                  (2)
Net income                        387                 464                  275
Preferred
stock dividend
requirements                        6                   6                    2
Earnings for
common stock                      381                 458                  273
Basic earnings
per share                       $2.41               $2.86                $1.62



Consolidated balance sheet (US GAAP)

                                 At 31 December At 31 December  At 30 September
                                           2003           2004             2005
                                        $'000          $'000            $'000
Assets
Current assets                          2,387          3,079            2,953
Investments
and other                                 249            273              243
Property                                8,894          7,068            7,228
Regulatory
assets                                    578            555              484
Deferred
charges and
other assets                            2,532          2,389            2,406
                                      ---------       --------         --------
                                       14,640         13,364           13,314
                                      ---------       --------         --------
Liabilities and capitalisation
Current
liabilities                             1,852          2,282            1,709
Deferred
credits and
other
liabilities                             2,913          2,735            3,288
                                      ---------       --------         --------
Total
liabilities                             4,765          5,017            4,997
                                      ---------       --------         --------

Total common
shareholders'
equity                                  3,671          3,895            4,388
Preferred stock                            84             20                -
Long-term debt
and capital
leases                                  5,611          4,419            3,915
                                      ---------       --------         --------
Total
capitalisation                          9,365          8,333            8,302
                                      ---------       --------         --------
Minority
interest in
consolidated
companies                                 510             14               15
                                      ---------       --------         --------
Total
liabilities
and
capitalisation                         14,640         13,364           13,314
                                      ---------       --------         --------



Appendix IV - Definitions


The following definitions apply throughout this press release unless the context
requires otherwise:

'Acquisition' the acquisition of KeySpan by National Grid pursuant to the Merger
              Agreement;
'Business     Earnings from continuing operations before exceptional items and
Performance'  intangible asset amortisation;
'Completion'  the closing of the Acquisition following satisfaction or waiver of
              the conditions attaching to the Acquisition and the delivery of a
              certificate of merger for filing with the Secretary of State in
              New York;
'EUA'         Eastern Utilities Associates;
'GW'          Gigawatt, 109 watts;
'KeySpan'     KeySpan Corporation;
'KeySpan      holders of KeySpan shares;
shareholders'
'KeySpan      shares of KeySpan;
shares'
'Lazard'      Lazard Freres & Co. LLC;
'LIPA'        Long Island Power Authority;
'LNG'         Liquefied natural gas;
'Merger       the Agreement and Plan of Merger entered into between National
Agreement'    Grid, National Grid US 8 Inc., a wholly owned subsidiary of
              National Grid, and KeySpan;
National Grid National Grid plc;
National Grid National Grid's wholly owned US subsidiary, National Grid USA,
USA           Inc.;
'NEES'        New England Electric System;
'Niagara      Niagara Mohawk Power Corporation;
Mohawk'
'NYISO'       New York Independent System Operator;
'Rothschild'  N M Rothschild & Sons Limited and Rothschild Inc.;
'SEC'         the US Securities and Exchange Commission;
'UK'          the United Kingdom;
'US'          the United States of America, its territories and possessions, any
              state of the United States of America and the District of
              Columbia, and all other areas subject to its jurisdiction;and
'$'           US dollar.



--------------------------

(1) On a Business Performance basis.

(2) On a Business Performance basis.

(3) US GAAP.

(4) US GAAP

(5) On a Business Performance basis.

(6) The closing price of a KeySpan share on 16 February 2006, the last day prior
to KeySpan's announcement that it was in discussions with various parties
regarding potential strategic combinations.



                      This information is provided by RNS
            The company news service from the London Stock Exchange