Commitments and contingencies

• Contractual obligations at 31 March 2005
• Off balance sheet arrangements
• Retirement arrangements
• Details of material litigation to which the Group was a party at 31 March 2005

The Group's commitments and contingencies outstanding at 31 March are summarised in the table below:

Commitments and contingencies	2005 £m	2004 £m
Future capital expenditure contracted but not provided	927	448
Total operating lease commitments	930	478
Power commitments	4,915	5,555
Other commitments, contingencies and guarantees	349	263

Information regarding the Group's obligations under pension and other post-retirement benefits is given below under the heading 'Retirement arrangements'.

The power commitments shown in the commitments and contingencies table above reflect the Group's obligation to purchase energy under long-term contracts. To the extent that power commitment obligations exceed the above market values that are attributable to these contracts, the net present value of these amounts is reflected in creditors and is not shown in this table. At 31 March 2005, the component of power commitments representing the above market value amounts included, within creditors, amounts falling due within one year and amounts falling due after more than one year of £54 million (2004: £57 million) and £90 million (2004: £149 million) respectively.

The Group proposes to meet all of its commitments from operating cash flows, existing credit facilities, future facilities and other financing that it reasonably expects to be able to secure in the future.

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Contractual obligations at 31 March 2005

The table of contractual obligations shown below analyses the long-term contractual obligations of the Group according to its payment period.

Purchase obligations reflect the Group's commitments under power commitments (excluding the above market amounts) and future capital expenditure contracted for but not provided. The other long-term liabilities reflected in the balance sheet at 31 March 2005 comprise the net present value of purchase power obligations in respect of above market amounts; liability for index-linked swap contracts; and other creditors that represent contractual obligations falling due after more than one year.

Contractual obligations	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years
Total borrowings	14,219	3,256	2,471	2,506	5,986
Operating lease  commitments	930	99	174	156	501
Purchase obligations	5,842	1,656	1,534	1,030	1,622
Other long-term liabilities  reflected in the  balance sheet	616	126	318	126	46
	21,607	5,137	4,497	3,818	8,155

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Off balance sheet arrangements

With the exception of derivative financial instruments used for the purpose of managing risks associated with fluctuations in interest rates, exchange rates and commodity prices, described in Treasury Policy and Commodity price hedging, the Group does not have any other off balance sheet arrangements that have or are likely to have any current or future effect on the financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material.

Note 21 to the accounts provides fair value information in relation to all off balance sheet derivative financial instruments used by the Group.

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Retirement arrangements

The Group operates three major UK occupational pension schemes - the National Grid Company Group of the Electricity Supply Pension Scheme (the National Grid Scheme), the Lattice Group Pension Scheme (the Lattice Scheme) and the Crown Castle UK Pension Scheme (the Crown Castle Scheme). The National Grid Scheme is a defined benefit pension scheme. The Lattice Scheme has a defined benefit section that is effectively closed to new entrants and a defined contribution section. The Crown Castle Scheme is a defined benefit pension scheme that is closed to new entrants. There are no current plans to merge the schemes.

In addition to the UK schemes, employees of National Grid USA companies are eligible to receive retirement income benefits primarily through defined benefit arrangements. Post-retirement healthcare and life insurance benefits are also provided to qualifying retirees.

Actuarial valuations of the Lattice Scheme and the National Grid Scheme were carried out as at 31 March 2003 and 31 March 2004 respectively. The last actuarial valuation of the Crown Castle Scheme was as at 31 December 2002.

In respect of US-based pension and other post-retirement schemes, the latest full actuarial valuations were carried out at 1 April 2004. These valuations were updated using assumptions and market values at 31 March 2005.

The actuarial valuation of the Lattice Scheme as at 31 March 2003 was completed during the year ended 31 March 2004. This revealed that the pre-tax deficit was £879 million (£615 million net of tax) in the defined benefit section on the basis of the funding assumptions adopted by the actuary.

An assessment of the Lattice Scheme was conducted as at 31 March 2004. This assessment indicated that the deficit has decreased in the defined benefit section on the basis of the funding assumptions adopted by the actuary. The next full valuation will be conducted at 31 March 2006.

It has been agreed that no funding of the deficit identified in the 2003 actuarial valuation will need to be provided to the scheme until the outcome of an interim actuarial assessment as at 31 March 2007 is known. At this point, the Group will pay the gross amount of any deficit up to a maximum amount of £520 million (£364 million net of tax) into the scheme. Until the 31 March 2007 actuarial valuation has been completed, the Group has arranged for banks to provide the trustees of the Lattice Scheme with letters of credit. The main conditions under which these letters of credit could be drawn relate to events which would imperil the interests of the scheme, such as Transco plc, a Group undertaking, becoming insolvent or the Group failing to make agreed payments into the fund. Employer cash contributions for the ongoing cost of the Lattice Scheme are currently being made at a rate of 23.3% of pensionable payroll for the year to 31 March 2006.

The actuarial valuation of the National Grid Scheme at 31 March 2004 was completed during the year ended 31 March 2005 and revealed a pre-tax deficit of £272 million (£190 million net of tax) on the basis of the funding assumptions adopted by the actuary.

It has been agreed that no funding of the deficit identified in the 2004 actuarial valuation will need to be provided to the scheme until the outcome of the actuarial valuation as at 31 March 2007 is known. At this point, the Group will pay the gross amount of any deficit up to a maximum amount of £68 million (£48 million net of tax) into the scheme. Until the 31 March 2007 actuarial valuation has been completed, the Group has arranged for banks to provide the trustees of the National Grid Scheme with letters of credit. The main conditions under which these letters of credit could be drawn relate to events which would imperil the interests of the scheme, such as National Grid Company plc becoming insolvent or the Group failing to make agreed payments into the fund. Employer cash contributions for the ongoing cost of the National Grid Scheme are currently being made at a rate of 13.1% of pensionable payroll.

The actuarial valuation of the Crown Castle Scheme as at 31 December 2002 was completed during the year ended 31 December 2003. This revealed that the pre-tax deficit was £3 million (£2 million net of tax) on the basis of the funding assumptions adopted by the actuary. The next valuation will be conducted at 31 December 2005. Employer cash contributions for the ongoing cost of the Crown Castle Scheme are currently being made at a rate of 18.4% of pensionable payroll.

There are no set employer contribution rates for the US schemes.

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Details of material litigation to which the Group was a party at 31 March 2005

Our subsidiary Transco plc has been charged with breaches of the Health and Safety at Work Act 1974 following fatal accidents at Larkhall, Lanarkshire, in December 1999 and at Cavendish Mill, Lancashire, in November 2001. In each case the maximum penalty for such breaches is an unlimited fine.

Further details of litigation and other material disputes are contained within note 29 to the accounts.

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