Basis of preparation and recent accounting developments

Accounting policies describe our approach to recognising and measuring transactions and balances in the year. The accounting policies

applicable across the financial statements are shown below, whereas accounting policies that are specific to a component of the financial

statements have been incorporated into the relevant note.

This section also shows areas of judgement and key sources of estimation uncertainty in these financial statements. In addition, we have

summarised new International Accounting Standards Board (IASB) accounting standards, amendments and interpretations and whether these

are effective for this year end or in later years, explaining how significant changes are expected to affect our reported results.

National Grid’s principal activities involve the transmission and

distribution of electricity in Great Britain and of electricity and gas in

northeastern US. The Company is a public limited liability company

incorporated and domiciled in England and Wales, with its registered

office at 1–3 Strand, London, WC2N 5EH.

The Company, National Grid plc, which is the ultimate parent of the

Group, has its primary listing on the London Stock Exchange and is

also quoted on the New York Stock Exchange.

These consolidated financial statements were approved for issue

by the Board on 22 May 2024.

These consolidated financial statements have been prepared in

accordance with International Accounting Standards (IAS) and

International Financial Reporting Standards (IFRS) and related

interpretations as issued by the IASB. They are prepared on the basis

of all IFRS accounting standards and interpretations that are

mandatory for the period ended 31 March 2024 and in accordance

with the Companies Act 2006. The comparative financial information

has also been prepared on this basis.

The consolidated financial statements have been prepared on

a historical cost basis, except for the recording of pension assets

and liabilities, the revaluation of derivative financial instruments and

certain commodity contracts and certain financial assets and liabilities

measured at fair value.

These consolidated financial statements are presented in pounds

sterling, which is also the functional currency of the Company.

The notes to the financial statements have been prepared on a

continuing basis unless otherwise stated.

As part of the Directors’ consideration of the appropriateness of

adopting the going concern basis of accounting in preparing these

financial statements, the Directors have assessed the principal risks

alongside potential downside business cash flow scenarios impacting

the Group’s operations. The Directors specifically considered both a

base case and reasonable worst-case scenario for business cash flows.

As part of the assessment the Directors have included the expected

receipt of the fully underwritten Rights Issue. The assessment is

prepared on the conservative assumption that the Group has no access

to the debt capital markets.

The main cash flow impacts identified in the reasonable worst-case

•the timing of the sale of assets classified as held for sale (see note 10);

•adverse impacts of inflation and incremental spend on our capital

expenditure programme;

•adverse impact from timing across the Group (i.e. a net under-

recovery of allowed revenues or reductions in over-collections)

and slower collections of outstanding receivables;

•higher operating and financing costs than expected, including

non‑delivery of planned efficiencies across the Group; and

•the potential impact of further significant storms in the US.

As part of their analysis, the Board also considered the following

potential levers at their discretion to improve the position identified

by the analysis if the debt capital markets are not accessible:

•the payment of dividends to shareholders;

•significant changes in the phasing of the Group’s capital expenditure

programme, with elements of non-essential works and programmes

•a number of further reductions in operating expenditure across

Having considered the reasonable worst-case scenario and the further

levers at the Board’s discretion, the Group continues to have headroom

against the Group’s committed facilities identified in note 33 to the

financial statements.

In addition to the above, the ability to raise new and extend existing

financing was separately included in the analysis, and the Directors

noted £5.6 billion of new long-term senior debt issued in the period

from 1 April 2023 to 31 March 2024 as evidence of the Group’s ability

to continue to have access to the debt capital markets if needed.

Based on the above, the Directors have concluded the Group is well

placed to manage its financing and other business risks satisfactorily

and have a reasonable expectation that the Group will have adequate

resources to continue in operation for at least 12 months from the

signing date of these consolidated financial statements. They therefore

consider it appropriate to adopt the going concern basis of accounting

in preparing the financial statements.

1. Basis of preparation and recent accounting developments continued

B. Basis of consolidation

The consolidated financial statements incorporate the results, assets

and liabilities of the Company and its subsidiaries, together with a share

of the results, assets and liabilities of joint operations.

A subsidiary is defined as an entity controlled by the Group. Control is

achieved where the Group is exposed to, or has the rights to, variable

returns from its involvement with the entity and has the ability to affect

those returns through its power over the entity.

The Group accounts for joint ventures and associates using the equity

method of accounting, where the investment is carried at cost plus

post‑acquisition changes in the share of net assets of the joint venture

or associate, less any provision for impairment. Losses in excess of the

consolidated interest in joint ventures and associates are not recognised,

except where the Company or its subsidiaries have made a commitment

to make good those losses.

Where necessary, adjustments are made to bring the accounting policies

used in the individual financial statements of the Company, subsidiaries,

joint operations, joint ventures and associates into line with those used

by the Group in its consolidated financial statements under IFRS.

Intercompany transactions are eliminated.

The results of subsidiaries, joint operations, joint ventures and associates

acquired or disposed of during the year are included in the consolidated

income statement from the effective date of acquisition or up to the

effective date of disposal, as appropriate.

Acquisitions are accounted for using the acquisition method, where

the purchase price is allocated to the identifiable assets acquired and

liabilities assumed on a fair value basis and the remainder recognised

as goodwill.

C. Foreign currencies

Transactions in currencies other than the functional currency of the

Company or subsidiary concerned are recorded at the rates of exchange

prevailing on the date of the transactions. At each reporting date,

monetary assets and liabilities that are denominated in foreign currencies

are retranslated at closing exchange rates. Non-monetary assets are not

retranslated unless they are carried at fair value.

Gains and losses arising on the retranslation of monetary assets and

liabilities are included in the income statement, except where

the application of hedge accounting requires inclusion in other

comprehensive income (see note 32(e)).

On consolidation, the assets and liabilities of operations that have a

functional currency different from the Company’s functional currency

of pounds sterling, principally our US operations that have a functional

currency of US dollars, are translated at exchange rates prevailing at

the reporting date. Income and expense items are translated at the

average exchange rates for the period where these do not differ

materially from rates at the date of the transaction. Exchange differences

arising are recognised in other comprehensive income and transferred

to the consolidated translation reserve within other equity reserves

(see note 28).

D. Disposal of the UK Electricity System Operator

(ESO)

As described further in note 10, at the end of October 2023, the

legislation required to enable the separation of the ESO and the

formation of the National Energy System Operator (NESO) was passed

through Parliament. The NESO is expected to be established as an

independent Public Corporation this calendar year, with responsibilities

across both the electricity and gas systems. As a result, the Group took

the judgement to classify the associated assets and liabilities of the ESO

as held for sale in the consolidated statement of financial position at the

end of October 2023. The ESO has not met the criteria for classification

as a discontinued operation and therefore its results have not been

separately disclosed on the face of the income statement, and are

instead included within the results from continuing operations.

E. Disposal of the UK Gas Transmission business

Following the Group’s disposal of a 60% controlling stake in the UK Gas

Transmission business in the year ended 31 March 2023, the Group

completed the sale of a further 20% of its retained interest in the

business (held through GasT TopCo Limited) on 11 March 2024. The

other 80% of GasT TopCo Limited is owned by Macquarie Infrastructure

and Real Assets (MIRA) and British Columbia Investment Management

Corporation (BCI) (together, the Consortium). The Group’s remaining

20% interest in GasT TopCo Limited is classified as an investment in

an associate on the basis that the Group has a significant influence

over the business.

The remaining 20% interest is subject to an option agreement with the

Consortium, the Remaining Acquisition Agreement (RAA), which on

9 July 2023 replaced the previous Further Acquisition Agreement (FAA)

under which the 20% disposal in the year was executed. The RAA option

is exercisable, at the Consortium’s option, between 1 May 2024 and

31 July 2024. If the RAA option is partially exercised by the Consortium,

the Group will have the right to put the remainder of its interests in

GasT TopCo Limited to the Consortium, which can be exercised by the

Group between 1 December 2024 and 31 December 2024. Taking into

consideration the timing of the RAA exercise window, the Group has

continued to classify its remaining interest in GasT TopCo Limited as

held for sale and has not equity accounted for its share of the

associate’s results.

The loss on the 20% disposal of GasT TopCo Limited and the

remeasurements in relation to the FAA option and the RAA option have

been recorded within discontinued operations. As an associate held for

sale, the Group has not recognised any share of results in the year

ended 31 March 2024. The classification impacts on the consolidated

income statement, the consolidated statement of comprehensive income

and the consolidated cash flow statement, as well as earnings per share

(EPS) split between continuing and discontinued operations.

1. Basis of preparation and recent accounting developments continued

F. Areas of judgement and key sources

of estimation uncertainty

The preparation of financial statements requires management to make

estimates and assumptions that affect the reported amounts of assets

and liabilities, disclosures of contingent assets and liabilities, and the

reported amounts of revenue and expenses during the reporting period.

Actual results could differ from these estimates. Information about such

judgements and estimations is in the notes to the financial statements,

and the key areas are summarised below.

Areas of judgement that have the most significant effect on the amounts

recognised in the financial statements are:

•the judgement that it is appropriate to classify our 20% equity

investment in GasT TopCo Limited, together with the RAA option,

as held for sale, as detailed in note 10; and

•the judgement that, notwithstanding legislation enacted and targets

committing the states of New York and Massachusetts to achieving

net zero greenhouse gas emissions by 2050, these do not shorten the

remaining useful economic lives (UELs) of our US gas network assets,

which we consider will have an expected use and utility beyond 2050

(see key sources of estimation uncertainty below and note 13).

Key sources of estimation uncertainty that have a significant risk

of causing a material adjustment to the carrying amounts of assets

and liabilities within the next financial year are:

•the cash flows and real discount rates applied in determining the

US environmental provisions, in particular relating to three Superfund

sites and certain other legacy Manufacturing Gas Plant (MGP) sites

(see note 26);

•the estimates made regarding the UELs of our gas network assets

due to uncertainty over the pace of delivery of the energy transition

and the multiple pathways by which it could be delivered. Our

estimates consider anticipated changes in customer behaviour and

developments in new technology, the potential to decarbonise fuel

through the use of renewable natural gas and green hydrogen, and

the feasibility and affordability of increased electrification (see note 13

for details and sensitivity analysis); and

•the valuation of liabilities for pensions and other post-retirement

benefits (see note 25).

In order to illustrate the impact that changes in assumptions for

the valuation of pension assets and liabilities and cash flows for

environmental provisions could have on our results and financial

position, we have included sensitivity analysis in note 35.

G. Impact of climate change and the transition

to net zero – areas of judgement and key sources

of estimation uncertainty

In preparing these financial statements for the year ended 31 March

2024, management has taken into account the Group’s commitments

regarding its transition to net zero and the impact of climate change.

The Group has a published climate transition plan which sets out its

targets to achieve this commitment by 2050, in line with the Paris

Agreement. Management has also identified a number of significant

climate-related risks and opportunities. Changes to the Group’s

commitments and the impact of climate change may have a material

impact on the currently reported amounts of the Group’s assets and

liabilities and on similar assets and liabilities that may be recognised

in future reporting periods, as set out above with respect to the

judgement and key source of estimation uncertainty regarding the UELs

of our US gas network assets, and as further detailed below.

Repairs to property, plant and equipment and climate

adaptation activities

The Group’s network assets recorded within property, plant and

equipment (PP&E) are at risk of physical impacts from extreme weather

events such as major storms which may be accentuated by increased

frequency of weather incidents and changing long-term climate trends,

thereby leading to asset damage. Major storm costs, net of deductibles

and disallowances, incurred by the Group are recoverable as revenue in

future periods under our rate plans but the associated repair costs are

expensed as incurred as other operating costs under IFRS.

Impairment of property, plant and equipment and goodwill

Included within the Group’s plant and machinery (see note 13) are

£325 million of oil- and gas-fired electricity generation units with

approximately 3,800 MW of electric generation capacity located in

Long Island, New York. Whilst the Group retains ownership of these

assets, it sells all of the capacity, energy in response to dispatch

requests, and any related ancillary services provided by the generating

facilities to the Long Island Power Authority (LIPA) via a Power Supply

Agreement running until 2028.

The maximum UEL for these units ends in 2040, which aligns to the

target set by the state of New York to achieve decarbonised power

generation by 2040. However, there is a risk that the UEL of certain,

or all, of the units may be shortened, depending on the progress of

decarbonisation activities in Long Island. The Group believes there are

no material accounting judgements in respect of the generation assets

and the UELs have not been accelerated in the year.

The assets related to the Group’s liquefied natural gas (LNG) storage

facility at the Isle of Grain in the UK have a maximum UEL to 2045,

which is in line with the current commercial contracts. The UELs of

our assets related to our commercial operations in LNG at Providence,

Rhode Island are informed by the recovery periods used for ratemaking

purposes and the majority of the UELs are covered by fixed price

service contracts. The net book value of these assets will be immaterial

by 2050. Accordingly, the Group believes there are no material

accounting judgements in respect of the UELs of the LNG assets

as of 31 March 2024.

1. Basis of preparation and recent accounting developments continued

G. Impact of climate change and the transition

to net zero – areas of judgement and key sources

of estimation uncertainty continued

The net zero pathway may also impact our US gas networks which

in turn may affect the recoverable amount of our New York and New

England cash-generating units (CGUs). In assessing the recoverability

of our CGUs (see note 11), we calculate the value-in-use based on

projections that incorporate our best estimates of future cash flows and

assumptions pertaining to the net zero plans of the jurisdictions that we

operate in. In respect of our New York and New England CGUs, our

forecast cash flow duration used in our impairment testing is five years.

We apply a terminal growth rate informed by expected long-term

economic inflation and the discount rate used takes into consideration

the potential impact of net zero plans on our gas business. Accordingly,

the impact of certain variables that will play out in the medium to long

term as a result of the anticipated transition to decarbonised power

generation are not anticipated to have an impact on the recoverable

amount of our New York and New England CGUs.

Decommissioning provisions

Provisions to decommission significant portions of our regulated

transmission and distribution assets are not recognised where no legal

obligations exist, and a realistic alternative exists to incurring costs to

decommission assets at the end of their life. Included within the Group’s

decommissioning provisions as at 31 March 2024 (see note 26) is

£57 million relating to legal requirements to remove asbestos upon

major renovation or demolition of our oil- and gas-fired electricity

generation structures and facilities located in Long Island, New York.

As noted above, the progress of decarbonisation activities in Long

Island may bring forward the decommissioning of these assets, thereby

increasing the present value of associated decommissioning provisions.

In the current year, there have been no material changes to the

expected timing of decommissioning expenditures. Currently, the

expected timing of decommissioning expenditures has not materially

been brought forward but management will continue to review the

facts and circumstances.

Sensitivity to commodity contract derivatives

The Group has contracts associated with the forward purchase of

gas and enters into derivative financial instruments linked to commodity

prices, including gas options and swaps which are used to manage

market price volatility (see note 17(b)). As at 31 March 2024, the Group’s

gas commodity contract derivatives are primarily short-term and

accordingly we do not anticipate a risk as a result of the transition

H. Accounting policy choices

IFRS provides certain options available within accounting standards.

Choices we have made, and continue to make, include the following:

•Presentational formats: we use the nature of expense method for our

income statement and aggregate our statement of financial position

to net assets and total equity.

•Financial instruments: we normally opt to apply hedge accounting

in most circumstances where this is permitted (see note 32(e)).

I. New IFRS accounting standards and

interpretations effective for the year ended

The Group adopted the following new standards and amendments

to standards which have had no material impact on the Group’s results

or financial statement disclosures:

•IFRS 17 ‘Insurance Contracts’;

•amendments to IAS 1 and IFRS Practice Statement 2 – ‘Making

Materiality Judgements’;

•amendments to IAS 12 ‘International Tax Reform — Pillar Two Model

•amendments to IAS 8 ‘Accounting Policies, Changes in Accounting

Estimates and Errors’.

In May 2021, the IASB issued amendments to IAS 12 ‘Income Taxes’

in order to narrow the scope of the initial recognition exemption to

exclude transactions that give rise to equal and offsetting temporary

differences. Following the amendments, the Group recognised separate

deferred tax assets in relation to its lease liabilities and decommissioning

obligations, and deferred tax liabilities in relation to its right-of-use assets

(see note 7). As the balances qualify for offset, there is no impact on the

consolidated statement of financial position and the opening retained

earnings as at 1 April 2023.

J. New IFRS accounting standards and

interpretations not yet adopted

The following new accounting standards and amendments to existing

standards have been issued but are not yet effective:

•amendments to IFRS 10 and IAS 28 ‘Sale or Contribution of Assets

between an Investor and its Associate or Joint Venture’;

•amendments to IAS 1 ‘Classification of Liabilities as Current or

•amendments to IAS 1 ‘Non-current Liabilities with Covenants’;

•amendments to IAS 7 and IFRS 7 ‘Supplier Finance Arrangements’;

•amendments to IFRS 16 ‘Lease Liability in a Sale and Leaseback’; and

•amendments to IAS 21 ‘The Effects of Changes in Foreign Exchange

The Group is currently assessing the impact of the above standards,

but they are not expected to have a material impact.

The Group has not adopted any other standard, amendment or

interpretation that has been issued but is not yet effective.