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The US Foundation Program

Alan Foster October 4, 2013

Massachusetts Electric Company Nantucket Electric Company

each d/b/a National Grid D.P.U. 15-155

Attachment AG-23-9-1 of 49

Agenda

1 Overall Concept & Scope Business Rationale ERP scope

Pages 3-6

2 Overall Timeline Pages 7-8

3 Program Development Governance Partners / Delivery Model National Grid Resources Design (89 BPDs, Code block) Build (RICEFWS) Test (AT, PT, IT, UAT) Training Business Engagement

Pages 9-22

4 Program Implementation Pre Go-Live (Cutover Preparations, Decision making, Sandy considerations) Post go-live (Emergence of Issues, Payroll, Supply Chain, Financial Reporting, USFP Business Improvement)

Pages 23-34

5 Path Forward Status, timeline, governance model, & costs

Pages 35-43

6 Observations Pages 44-45

7 Appendices Payroll & SC improvement activities Detailed cutover plan

Pages 46-50

2




Overall Concept & Scope

3




USFP was created to address challenges from having a complex solutions architecture As a result of the KeySpan merger in 2007, National Grid had been operating with many

inconsistent business processes across numerous technology platforms Fragmented business processes / systems resulted in:

Complexity and risk across accounting closes, local and jurisdictional financial and regulatory reporting, financial planning and budgeting, and Group financial analysis and controls

Multiple HR hierarchies needing significant workarounds to address misalignment between organizational structure and how employees are organized in their respective HR systems

Inventory Management and Accounts Payable reporting across two back office systems; Procurement and IS reporting across three back office systems

Data analysts across all business units using spreadsheets for data consolidation and reporting, introducing additional inefficiencies and risk of manual errors

The complex support structure introduced technical risk associated with business critical systems running on aged infrastructure, often with limited vendor support

4

For the US business, National Grid identified SAP as the architectural solution to replace the fragmented systems & processes, to help reduce technical risk

National Grid’s effort to integrate its Human Resources, Supply Chain and Finance processes onto a single platform is identified as the US Foundation Program (USFP)

US Foundation Program




A Goal of USFP was to Significantly Simplify the Systems Environment Moved from ~50 to ~20 different systems across multiple functional areas

5

Pre-USFP Current State

*Pink represents SAP system




Our SAP scope required a complex solution that links to 51 Legacy Systems

85. Supplier Self Service

(SUS)

85. Supplier Self Service

(SUS)

SAP FINANCE

CO FI

Legacy Interfaces In Scope

30. SAP BW30. SAP BW

29. BSI/PY Tax Factory

29. BSI/PY Tax Factory

6. Cash Mgmt /Banks / Treasury

6. Cash Mgmt /Banks / Treasury

28. Time Evaluation28. Time

Evaluation

24. Payroll24. Payroll

13. Materials Management13. Materials Management

22. Non-Utility Billing

22. Non-Utility Billing

21. MDMCustomer

Master Data

21. MDMCustomer

Master Data

SAP SD

Succession Planning

Succession Planning

Performance Mgmt

Performance Mgmt

e-Recruitmente-Recruitment

Third Party Interfaces In Scope

Out of Scope

3. Cost Element

Accounting

3. Cost Element

Accounting

2. Cost CenterAccounting

2. Cost CenterAccounting

5. Profit Center

Accounting

5. Profit Center

Accounting4. Internal

Orders4. Internal

Orders

10.Project Systems

10.Project Systems

9. Accounts Payable

9. Accounts Payable

1. General Ledger

1. General Ledger

VendorsVendors E. J. WardE. J. Ward

Fleet Warranty

Fleet Warranty

BanksBanks

PR / Benefits

PR / Benefits

SurveysSurveys

State GovState GovFed GovFed Gov

PHHPHH

NTSNTS HCLHCL

Document Management

Document Management

LEXLEX

86. Reval86. Reval

27. CATS /Time entry

27. CATS /Time entry

US Foundation Program Scope

56. GPCS56. GPCS

77. Remedy77. Remedy

80. Safety / IMS

80. Safety / IMS

72. PAIRS72. PAIRS

73. Paving73. Paving

TSA TSA

62. Maximo62. Maximo

83. Storms83. Storms

71. PowerPlant

71. PowerPlant

68. MMA 68. MMA

79. ETRM79. ETRM

67. Open Text

67. Open Text

75. Primavera

75. Primavera

51. EMIT51. EMIT 57. GSHOP57. GSHOP

33. ACIS33. ACIS

55. EPIQ55. EPIQ

81. SEAL81. SEAL

53. EMS53. EMS

59. HRMI59. HRMI

58. HR158. HR1

60. LDAP60. LDAP

76. RACF76. RACF

52. Emergency

Preparedness

52. Emergency

Preparedness64. Medical

DB64. Medical

DB

74. Post & Bid

74. Post & Bid

38.Business Objects

38.Business Objects

49. DSM 49. DSM

45. CSA45. CSA

41.Cascade 41.Cascade

40. CAS40. CAS

44. CRIS44. CRIS

42. CCH42. CCH

34. Advantage

34. Advantage

39.Carousel39.Carousel

54. EOER54. EOER

35. Adobe35. Adobe

43.CMSWeb

43.CMSWeb

47. Customer

I&A

47. Customer

I&A

48.Diamond 48.Diamond

37. AMAG37. AMAG

50. DW50. DW 63. MDSI63. MDSI 66. ONYX66. ONYX 69. NAKISA69. NAKISA

31. SAP BPC31. SAP BPC

70. Plateau70. Plateau

SAP HCM

12. Warehouse

Management

12. Warehouse

Management

11. Plant Maintenance

11. Plant Maintenance

18. Supplier Relationship Management

18. Supplier Relationship Management

7. Regulatory Reporting

7. Regulatory Reporting

8. Non Utility Accounts

Receivables

8. Non Utility Accounts

Receivables

19. MDM Catalog19. MDM Catalog

SAPECCSAPECC

SAP Supply Chain / P2P

15. Travel & Expense

15. Travel & Expense

17. Fleet Management

17. Fleet Management

14. Inventory Management14. Inventory Management

46. CSS46. CSS

HubwooHubwoo

87. Active Directory

87. Active Directory

Right NowRight Now

89. UI Planner89. UI

Planner90. UK

Hyperion90. UK

Hyperion

88. Allegro

88. Allegro

82. Sabrix82. Sabrix

SAP In Scope

91. Limited Benefits

91. Limited Benefits

1

23. ESS / MSS23. ESS / MSS

26. PersonnelAdministration26. PersonnelAdministration

25. Organizational Management

25. Organizational Management

Upgraded or new non SAP system and Interfaces in scope

96. BizApps 20. Purchasing

(ECC)20. Purchasing

(ECC)

94. PRM94. PRM93. CDR93. CDR

95. Corp Tax

95. Corp Tax

6




Overall Timeline

7




Overall Timeline

8

2007 - 2009 2010 2011 2012 2013

Today

Multiple and complex business processes across

multiple and complex technology platforms

USFP mobilized Pre-KeySpan merger

Implementation activities

Design, Build, Testing, Training & Engaging the Business

Initial Stabilization

National Grid rapidly mobilize significant

resources to address post go-live issues

USFP BI Program

Cut

over

& G

o-Li

ve

Company transitions from Deloitte as design lead to multi-partner

delivery model with EY & Wipro

Hurricane Sandy USFP Business

Improvement established

Various target go-live dates at different stages

(Dec 11, July 12, Oct 12 , Nov 5)




Program Development

9




US Steering Committee

Business governance meeting

Program governance meeting

Solution Integrat-

ion /

Change Control

Business Readiness

Program & Business Escalations

Business Escalations

Program / business integration role

IS Governance

Executive Sponsors

Informed of resolved escalations and status

Release Mgmt

As needed for IS review

Change Requests / Design Issues

Business Escalations

Release Escalations

Process Steering Groups

Finance

Finance BIL

SSC

SSC BIL

Operations & Network Strategy

Operations BIL

Network Strategy

BIL

HR

HR BIL

Procure-ment

Procure-ment BIL

USFP Program Management

Governance Model for the Development of the US Foundation Program

10 BIL: Business Implementation Lead




Primary Partner Roles and Responsibilities Partner Role Key Responsibilities

E&Y

PMO & Program Mgmt

Provide overall Project Management support Responsible for project planning, resourcing, and tracking project progress against schedule and budget Support project personnel with project information and communications support

Process and Design Manage the overall design of the application, including interfaces to other applications Map application functions to business processes to ensure alignment

Controls Design and construct internal application controls to ensure the integrity of the system

Roles and Access Design user access process and SAP user roles Perform and ensure appropriate Segregation of duties are maintained

Business Readiness Assess business implementation readiness and assist in business implementation planning

Business Engagement

Design and conduct comprehensive communications for engaging the business Resolve organized labor issues Design and conduct comprehensive multi-media training program

Wipro

Build and Unit Test Construct the application, including all required interfaces and assemble the various application modules Prepare test scripts for unit testing and conduct the testing

Testing

Prepare test scripts for system and acceptance testing Manage system and acceptance testing Configure and maintain testing tools

Data Construct and test data conversion programs and procedures Design and manage data conversion review and correction processes

Reporting and Information

Build business intelligence data model Develop business intelligence test scenarios

Cutover Develop comprehensive cutover plan Develop technical contingency plans and coordinate with business continuity plans

SAP Design Support and Oversight

Provide design support and oversight including supporting solution integrity Deliver solution for payroll actual cost Support specified technical areas such as FERC

11




Secondary Partner Roles and Responsibilities Partner Role Key Responsibilities

T-systems Deliver infrastructure hosting

Deliver the infrastructure and operating systems for SAP solutions Deliver infrastructure only for PowerPlant

PowerPlan

Design Support Support the USFP Asset accounting and front office design including configuration of PowerPlant, and all required interfaces

Build and Unit Test

Construct the application, including all required interfaces and assemble the various application modules Build the conversion programs for the two previous PowerPlant installations at National Grid Prepare test scripts for unit testing and conduct the testing

Testing Provide comprehensive support and defect resolution for the test phase

IBM

Build and Unit Test Make changes to National Grid legacy applications, ensuring that they appropriately integrate with the new

USFP solution Prepare test scripts for unit testing and conduct the testing

Testing Provide test support include defect resolution

Data Construct and test data conversion programs and procedures Design and manage data conversion review and correction processes

CSC Desktop and device support

Ensure users have appropriate software on desktop devices to access various SAP solutions Provide support for other devices such as hand held terminals at warehouse locations

Verizon Network provision and maintenance

Provide network connections between National Grid and t-systems Support performance testing of the solution ensuring no network impacts to performance

Xerox Printing support Provide support for testing of printing including specialist printing capabilities in line with National Grid standard contract

Purple Monster

Business Engagement Support

Provide support and leadership on business engagement activities Provide innovative techniques in regard to business engagement Provide program support

Abreon Training provision Provide specialist SAP training support for training design, build and delivery

12




US Foundation Program Organizational Chart

Cutover

Program Management

Program Management Office

Business Readiness Solution Integrity

Testing Reporting & Information incl. BI/BW

Build & Defect Resolution

Technical Delivery

Data Conversion Data Readiness

Business Deployment

Business Engagement

Training Delivery

Compliance

NUB Team

Front Office

Finance Team and BPC

HR Team

Supply Chain Team

PowerPlant

Delivery Management

Approximately 108 full time National Grid employees assigned to the US Foundation Program

Additional 350+ employees from various parts of the business participated throughout the project

Employees were engaged in all aspects of the project including: Steering Group, Program Management,

delivery management, business readiness, Build, Testing, Technical Delivery, Cutover and Training

600+ employees actively involved as super and/or power users 13




USFP Assurance Approach – 3 Layer Model

3rd Line of Defence Independent Assurance for Program and Audit Committee – Corporate Audit, PwC

SAP Project Team Assurance for the Program

2nd Line of Defence Vendors/MaxAttention

Monitoring and QA role within project

1st Line of Defence Project Team - PMO/Project Streams Development of control frameworks to ensure successful project delivery

Engages with the program to provide independent assurance on business readiness, testing, IT security and access, vendor and benefits management and help co-ordinate the overall assurance efforts.

Corporate Audit Engaged by the program team to provide independent assurance on data conversion, security and access, IT and manual controls and technology eg environmental set up and changes, disaster recovery. Enables the planning of the execution of the external audit

PwC

The vendors to the program provide assurance through reviews of technology and project deliverables. SAP solution architecture review key deliverables, independent partner QA review by EY and Wipro, separate assurance activity for SAP solution through a global contract with MaxAttention

Vendor Assurance

The project team through the PMO governance process and internal QA processes provide management assurance for each workstream. This is a continuous process.

Project Team

14




Design Principles and Activities The Company utilized a hybrid of National Grid, SAP and EY best practices and industry

standard methodologies for the delivery phase (which includes the design phase)

Completed high level and detailed design phases

89 new single Business Processes designed, each with its own process flow and requirements

A review of minimum legal and regulatory requirements completed

A gap analysis was performed to identify applications/services SAP does not provide (for example, SABRIX was utilized for standard sales and use tax)

Natural tension in the design phase between what the business requires/ wants and what can be accommodated with a standard SAP offering

15

Design Build Test Readiness Cutover Post Go-live USFP BI




89 new processes needed to be designed

16

Total # of processes Supply Chain HR Non-Util Billing Operations Shared Service Finance

89 11 7 12 14 25 25

Supply Chain HR (non TDC) (cont’) Operations

Purchase Goods & Services – ECC Manage Compensation & Benefits Logistics

PTP_50.20_Create & Maintain Requisition HR_30.40_Manage Salary, Bonus and Compensation SC_50.10_Manage Requests and Issue Material

PTP_50.30_Perform business approval HR_30.50_Administer Comp Processes SC_50.20_Manage Receipts and Putaway

PTP_50.40_Create & Maintain Purchase Order HR_30.60_Manage Benefits Processes SC_50.30_Management of Stock

Purchase Goods & Services – SRM HR_30.70_Operate Benefits Processes Fleet management

PTP_60.20_Create & Maintain Shopping Cart HR_30.80_Define C&B Communications SC_60.10_Manage Fleet

PTP_60.30_Shopping Cart Approval Process HR_30.90_Administer C&B Communications SC_60.20_Identify and Plan Fleet Repair Maint.

PTP_60.40_Perform sourcing Non-Utility Billing SC_60.30_Plan Fleet Preventative Maintenance

PTP_60.50_Create & Maintain Purchase Orders OTC_10.60_Issue Quote to Customer SC_60.50_Execute Fleet Maintenance

PTP_60.60_Perform Receipts & Returns OTC_60.30_Validate and Issue Invoice and Credit nts SC_60.60_Perform Vehicle Refueling

SCM Support OTC_60.40_Validate and Issue Invoice SC_60.70_Manage Warranty Claim Process

SC_30.30_Manage Contracts & Catalogues OTC_60.80_Issue Supporting Documentation SCM Support

SC_30.90_Manage Service Master Data OTC_70.20_Process Payments SC_30.50_Manage Material Master Data

Source to Award OTC_70.30_Process Credit Notes & Refunds SC_30.60_Manage Fleet Master Data

SC_10.80_Manage Supplier Base OTC_70.70_Manage Payment Errors Manage Inventory

HR (non TDC) OTC_70.90_Reconcile Payments SC_40.10_Materials Requirement Planning

Manage ER & Cases OTC_100.10_Contact Customer SC_40.20_Review Slow Moving Material

HR_20.50_Manage Cases OTC_100.30_Issue Dunning Letters SC_40.30_Manage Vendor Returns

OTC_100.40_Escalate Matters

OTC_120.10_Customer Master Data





89 new processes needed to be designed

17

Total # of processes Supply Chain HR Non-Util Billing Operations Shared Service Finance

89 11 7 12 14 25 25

Shared Service Shared Service (cont’) Finance (cont’)

Manage Resourcing SCM Support Fixed Assets & Projects

HR_10.70_Manage New Hires/Transfers/Redeploy SC_30.40_Manage Vendor Master Data FI_30.10_Entry / approval of GL journals

HR_10.80_Define Leavers Processes SC_30.100_Supplier Self Service (SUS) FI_30.20_Fixed Asset Reporting

HR_10.90_Manage Leavers Travel & Expenses FI_30.30_Maintain Fixed Asset Register

Manage Payroll PTP_30.10_T&E Card Administration FI_30.40_Maintain Local Work Instr. for Fixed Asset Acct’g

HR_40.20_Manage Payroll Inputs PTP_30.20_T&E Reimbursement Process FI_30.50_Month end Accounting Process

HR_40.30_Manage Payroll Processing Finance FI_30.60_Work Breakdown Structure Maintenance

HR_40.40_Manage Payroll Outputs General Ledger Accounting Compliance

HR_40.50_Manage Time and Attendance FI_10.10_Entry / approval of GL journals FI_50.20_Manage delegations of authority & Gateway

Accounts Payable FI_10.20_Intercompany Accounting Shared Services Decision Support

PTP_10.40_Check Processing (Automatic & Manual) FI_10.40_Maintain master data definitions FI_60.10_Manage Allocations Process

PTP_10.50_Interfaced & Consolidated Invoice Requirement FI_10.50_Manage the closure of books Manage Treasury & Investments

PTP_10.60_Invoice Receipt & Entry Process FI_10.80_Perform Closing FERC FI_70.20_Cash and Liquidity Management

PTP_10.80_Payment Process Setup & Approval FI_10.90_Manage Sales Tax / Use Tax FI_70.30_Manage In house cash

PTP_10.90_Payment Process Execution Banking FI_70.40_Bank Communication Management

PTP_10.100_Post Payment Processing (Stops&Voids) FI_20.10_Maintain company bank accounts FI_70.50_Manage Investment

PTP_10.110_Recurring Payments Reporting & Analysis Manage Financial Strategy

Manage HR Operations FI_40.10_Develop New Mgt Reports for Business FI_80.10_Manage Capital Structure

HR_50.30_Manage Data and MI Planning & Consolidations Manage Income Tax

Procurement Card FI_20.10_Maintain company bank accounts FI_90.20_Manage Corporate income tax

PTP_40.10_Procurement Card Administration FI_100.20_Manage Budget Process

FI_100.60_Manage Capital Programs





A sophisticated accounting code block was designed to meet many requirements

Term Definition

Code Block The accounting structure against which the National Grid financial records are maintained

Code Block elements The data fields in SAP used by National Grid to capture the required information about financial transactions

Cost Object Cost Center, WBS Element, and Order are also referred to as Cost Objects since costs are assigned to them

FI Module: Financial Reporting CO Module: Management Reporting Work Mgmt. Reporting

Company Code

Legal Entity

4 Characters

Segment Jurisdiction/

Business Line Reporting

6 Characters

Profit Center Tracks

Business Line Financials

7 Characters

Trading Partner Used For

Eliminations

4 Characters

Partner Profile Center

Audit Trail for Profit Centers

7 Characters

GL Account Coding for Transactions

8 Characters

Cost Element Coding for Transactions

8 Characters (Primary) 5,6,9 Characters (Secondary)

Cost Objects

Partner Object Audit Trail for Cost Centers,

WBS’s, and Orders 9,11, or 14 Characters

Cost Center Home/

Responsibility Center

9 Characters

WBS Element

Tracks Project Activity Costs

14 Characters

Order What did you

work on?

11 Characters

Operations What task did you perform?

4 Characters

*CO is key for Finance & Internal Reporting 18





Build During the build phase, the SAP system is constructed through a combination of Configuration

and the development of a series of components commonly referred to as RICEFWs (Reports, Interfaces, Conversions, Enhancements, Forms, and Workflows)

− Reports = 112

− Interfaces = 194

− Conversions = 75

− Enhancements = 179

− Forms = 44

− Workflows = 32

− Total RICEFW = 636

19

Small-Size Utility

Medium-Size Utility 150-400 RICEFW

Large-Size Utility 400-650 RICEFW

National Grid USFP 636 RICEFW

100-150 RICEFW


RICEFW Ranges for Power Utilities

National Grid UK R1 322 RICEFW

National Grid UK R2 172 RICEFW




Testing

► ~400 Objects Built and Unit Tested for IEFWs and ECC Reports

► ~2500 Test Cases Executed





Build & Unit Test

Integration Test

Regression Test

User Acceptance

Test

Product Test 1 & 2

Assembly Test

Parallel Payroll

Test

Performance Test

Overall Testing Approach

Additional Technical Testing in Parallel

► Parallel runs focused on legacy run comparisons with PeopleSoft

► 65 test executed focusing on peak transaction volumes including 2500 concurrent users

20





Training

Training Approach

Best practices and industry standards Train the Trainer Process Based

Computer Based Training (CBT)

Super User Training for Post Go-live Support

67,000+ CBT courses assigned

Instructor Led Training (ILT)

Primary & Secondary Hub Locations

6,800+ ILT training assigned

Training Scope 16,000+ employees 133 locations (approximately) Employees spread out over 40,000 square miles

21





Business Engagement and Readiness

22

Pre Go-Live Efforts Post Go-Live Efforts

Monthly communication themes were delivered, which focused on key points business needed to understand at that point in time

Detailed engagement plans were developed by each business area (events, stakeholder management, communications, change networks) and were supported by USFP Business Engagement and Business Implementation Leads

Leading the Change one day events were held to support major stakeholder group (directors and managers) in what was changing and how to lead employees through that change

Business roles Catalogue and Descriptions prepared

Enduring Support Organization (ESO) Detailed Design completed

Training material developed

Dedicated team put in place to support business through transition

Super-users were key to the PGLS team plan

Implemented Business Continuity Management (BCM) Approach

Business Deployment Plan implemented

Data governance procedures and standards put in place





Pre Go-live




Multiple implementation strategies were considered during the early stages of the design phase

Implementation Strategies Considered During Design Phase

24

Options Considered

“Single Release”

“Dual release” (By Functional module Finance, SCM, HR)

Variations

− Regional (e.g.MA, RI)

− Systems (PS, Oracle)

− Jurisdictional

− Process (e.g. Fleet, NUB, etc.)

Outcome

Single release strategy selected for a number of reasons including:

− Better technical approach – simplifies technical environments

− Single impact of change to the business

− Lower overall program costs

− Overall benefits delivered earlier

Decision to implement SAP in a single release was re-evaluated in March 2011

and confirmed as the appropriate strategy





Three phases for cut-over – Master Data, Transaction Data, Post Conversion Processing (Catch-Up)

Master data conversion will start the beginning of September

Multiple go/no-go decisions will be made throughout the cut-over period

Black-out dates are defined by legacy system with corresponding contingency plan by system

Different SAP functionality will go-live at different dates, i.e. go-live is a continuous process over several weeks

Cutover Preparations

Cutover Preparation and Conceptual Phases

25

September October

M T W T F S S M T W T F S S M T W T F S S M

17 18 19 20 21 22 23 24 25 26 27 28 29 30 1 2 3 4 5 6 7 8

Master Data Conversions Transaction Data Conversions Post Conversions Processing

Black Out Days by System

Legacy Systems

SAP

Go-Live Window

Integrated Cutover Plan Created (over 4,000 action steps)

– Business tasks, operating procedures, continuity plans

– Data conversion and verification plans

– Technical Code and configuration activities

– Infrastructure set-up

– Functional code freeze (USFP and systems to be replaced)

Certification of user acceptance testing

US business contingency plans

Cross-functional Post Go Live Support (PGLS) organization

Formal incident management process (prioritization, dispatch, action)

– System defects

– Cutover issues

– Business process issues

Formal Go / No Go governance involving US business and technical leadership

Conceptual Cutover Phases - Illustrative





Cutover Governance Council Charter

Approves cutover plan on a page foundation / updates

Go / No Go decision process

Key decision process

Mediation of unresolved business alignment issues

Risk mitigations

Decisions

The Cutover Governance Council provides a direct link between the USSC and the USFP Cutover team:

Assure key decisions are vetted with key stakeholders

Communication of risks, issues and mitigations to the USSC

Empowered as a decision maker for escalated items

Ensure critical processes can Go-Live

Ensure cutover governance model is established

Stakeholder alignment

Support for the program adjunct from the USSC

Purpose / Activities The Cutover Governance Council operates under the Governance structure of the USSC Leadership Team for:

The Cutover Governance Council is expected to:

Governance

Metrics / Reporting Planning Risks

Change Control Escalation Issues

Manage / approve changes

Manage corporate relationships

Manage escalations

Manage key decisions Mitigate issues Provide leadership

and strategic direction

Strategy (Big Bang)

26





Decision Making A Risk Assessment Board1 was formed to make the final decision to go live

Date Key Decisions

September 4, 2012 Board determined initial go live date of October 1st was not viable. Payroll only process area that reported they were ready for October 1st date

September 24, 2012 Payroll and Finance reported they prepared for November 5th go live date. Optimistic all process areas would make Nov. 5th go live date

October 1, 2012 Cutover process initiated

October 8, 2012 Operations reported they are prepared for Nov. 5th go live date

October 15, 2012 P2P and Shared Services reported they are prepared for Nov. 5th go live date

November 4, 2012

Nov. 5th go live date finalized - All process areas reported they were prepared for Nov. 5th go live date

(Areas with risk had reported sufficient mitigation plans were in place) - EY had agreed on readiness; process owners had signed off; and stage

gates had been completed

27

1Risk Assessment Board comprised of: Tom King; Ellen Smith; Lee Eckert; Alan Foster; Ray Schlaff; Matt Guarini; Chris Root; Rudy Wynter; Bill Bollbach; Ann Marie Scaparro; Gary Dionne and Chris Murphy





• Decision making

Stage Gates for Ensuring Solution Readiness

28

Stage Date Main Purpose Why we need this Stage Gate Status

Gate 1 10/16 Readiness to start with Work Order Pre-Conversion

In this stage gate we will evaluate if all pre-requisites have been fulfilled for conducting a stable work order pre-conversion.

Gate 2 10/25 Readiness to start with the weekly time entry legacy shut-down process

This stage gate is required because on 10/27 the last week for time entry into legacy systems ends. After that employees will capture time on paper until SAP is ready for time entry.

Gate 3 10/29 Readiness to shut down TES, SMARTTIME and PEOPLESOFT HR

This is the last stage gate prior to shutting down time entry systems and PEOPLESOFT HR.

Gate 4 10/31 Readiness to start with weekly time entry

This is the last stage gate prior to opening up SAP for weekly employees for time entry.

Gate 5 11/2 Readiness to start with cutover week-end activities

This go/no-go meeting is required prior to major activities that occur on the final cutover week-end. Several major legacy systems will be shut down and converted and transactional data will be converted into SAP.

Gate 6 11/4 Readiness to release SAP for go-live

This stage gate is the ‘point of no return’. After passing this stage gate switching back to legacy systems would involve huge cost, effort, and technical complications. If it is a ‘go’, SAP and several legacy systems will be opened up for end users. If it is a ‘no-go’, we will execute rollback plans.





Hurricane Sandy Response By October 23, the weather service was forecasting a possible hurricane in National Grid’s service territory

The Company’s first priority was to prepare for storm restoration and mobilize to support our customers

The Company was, however, well into the cutover process, which had begun in early October

29

Go-live Impacts and Alternatives Go-live for the limited systems necessary for storm

restoration efforts could be postponed without significant ramifications

If there were a delay in go-live during the cutover process, business continuity plans would have had to be extended, which creates significant risk to the business

There was no plan or design to convert at mid-month

The Company would not go-live January 1 – March 31 due to financial reporting requirements

The alternative was to delay to at least April 2013, which would require the team to remain mobilized for five months, thereby incurring additional expense and delaying the anticipated benefits from implementation

Conclusion The Company concluded that, with certain

adjustments, storm restoration efforts and our customers would not be negatively impacted with a November 5 go-live

Accordingly, the Company’s SAP deployment strategy was adjusted

− The cutover for MDSI, MAXIMO and related systems was postponed

− The cutover for Carousel and MMA was postponed until after storm restoration

− The legacy inventory and warehouse systems continued until after storm restoration





Post Go-Live




Developments Since Go-live

Develop the program

USFP BI Program begins

May Feb

Financial close - Quality issues emerge and are addressed

01/31

Financial close - Timing issues emerge and are addressed

01/01

Supply Chain issues progressively emerge, containment & improvement actions implemented 11/30

Understanding of breadth of payroll issues emerges, containment & improvement actions implemented

Go-Live June

Payroll Finance

Supply Chain EBS

Mar Apr Dec Jan

As issues arose, National Grid reacted and formed teams and governance committees to address the difficulties with Payroll, Supply Chain and Financial Close and Reporting

11/20

31





Payroll

Extreme Employee Frustration

• Zero pay

•Inaccurate pay • W-2s delayed

IMPACTS

Insufficient staffing

Unclear pay statement

Incorrect hierarchy

Inaccurate time entry

Ineffective training

Limited reporting

Slow, inconsistent processing

Defects in code

Inefficient payroll process

Inaccurate master data Poor data conversion

People

System

Process

Data

ROOT CAUSES

Lack of contingencies for

key processes

Weak change control

Reputational Damage

• Trade unions

•Attorney Generals • Press

Resource Mobilization

• Create temporary

organization • Rapidly onboard

many FTEs

Financial Burden

• Cost of support

organization • Cost of fines,

penalties

Missing work schedules

Post go-live Payroll

32

A number of payroll issues led to employees being underpaid (or not paid at all in some cases), overpaid, and problems with withholdings and garnishments

During November it became progressively clear that payroll challenges would need a sustained improvement plan in order to address the root causes of inaccurate pay. Many individual root causes drove wide ranging impacts

Initially the TDC was overwhelmed by the number of employee calls about their pay. Peak issue backlog of nearly 17,000 issues each requiring investigation and closure

The Company retained approximately 450 external resources to assist with addressing payroll difficulties

First priority was to address employees that were underpaid or whose garnishments or other key withholdings were affected. These issues were largely addressed by the end of January

TDC remained open to assist employees 7 days a week with extended hours for four months. Payroll clinics in 53 field locations were established. Financial assistance programs were implemented. Additional training for time entry was provided





Supply Chain

Post go-live Supply Chain

33

Challenges Next Area of Focus

Invoice Backlog

Peak of over ~15,000 outstanding invoices as compared to business as usual level of ~5,250

Limitations in the PO conversion, inaccurate hierarchy, system functionality and 3-way match posed the biggest challenges

TDC was not staffed to handle the levels of invoices at the productivity / invoice that we have been able to achieve. 168 additional resources on-boarded to ‘muscle-through’ the amount of invoices and address the necessary change requests

Inventory Management

Cutover integrity challenged by running parallel systems through storm period

Data-related and system functionality issues add to challenges

We are conducting an end of year inventory count to address the weaknesses in our cycle count process

Buying Experience

Improve compliance of business to new buying channels and receipting requirements through:

Training Communication Reporting Improved usability

National Grid experienced difficulties relating to its ability to timely pay vendors

Initially, to expedite payment, the Company paid a batch of older, lower value invoices to a default account until it could appropriately clear that account to accurate accounting. In addition, a significant number of invoices remained unpaid

In addition, the Company experienced difficulties with inventory records

National Grid retained approximately 200 external resources to support the Company in addressing Supply Chain issues

The Company has reduced the backlog and is focused on improving its processes

Backlog of Invoices





Financial Close – Timing (Nov ’12 – Aug ‘13)

WD 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 … 28 29 30 31 32 33 34 35 37 38 39 40 41 42 43 WD

Improvement

Ove

rall

Clo

se

Pre-SAPClose N/A

NOVEMBER Actual: 43 Workdays 1st SAP

Close

DECEMBER Actual: 32 Workdays -11 WD

JANUARY Actual: 18 Workdays -14 WD

FEBRUARY Actual: 13 Workdays -5 WD

MARCH Actual: 12 Workdays -1 WD

APRIL Actual: 14 Workdays +2 WDs

MAY Actual: 9 Workdays -5 WDs

JUNE Actual: 9 Workdays 0 WD

JULY Actual: 7 Workdays -2 WDs

AUGUST Actual: 8 Workdays +1 WD 34

Over the last ten months, the close timeline stabilized to around an 8 day window. This is the result of a focus on driving the following improvements: • Accelerating the interfaces of key systems (Payroll, PowerPlant, etc.) • Minimizing reprocessing through stabilizing key system processes

(Burdens, Allocations) • Reducing system interface timelines (PowerPlant, BI) • Improving data quality to reduce manual rework and manipulations

(Adjusting JEs, Consolidations)

CLOSE IMPROVEMENT FOCUS AREAS

As the financial closes were completed, the Company analyzed the results and it became apparent that a number of data quality issues existed

National Grid retained approximately 200 external resources to support its significant efforts to address the issues

The Company has completed numerous system corrections and enhancements and implemented numerous corrective actions and improvements to ensure sufficient validation of its financial data

Since go-live, the Company’s ability to complete the financial close has consistently improved and the majority of outstanding financial and other reports have been completed

The Company’s ability to provide reports has improved, but significant work remains to automate and simplify the processes





Path Forward




Recent Progress and Status by Process

Progress over last quarter Current State

Payroll

Reduced average processing execution time from 12-14 hours to 6-8 hours for weekly paid employees and from 14-16 plus hours to 9-10 hours for monthly paid employees

Simplified Wage Statement redesign completed and reviewed with union leadership

Long Island Wage Statement logistics and delivery plans finalized

Volume of known system defects continues to impede the ability to ensure accurate weekly payments to all employees

Existing system functionality gaps continue to lead to workarounds and errors resulting in decreased payroll efficiency and greater run times

The continued excessive need for auto approval of time leads to inaccurate accounting outputs

Finance

Monthly close cycle reduced to 8 days

Original programed monthly labor distribution process (CDP) replaced with a manual process and correcting entries posted for prior periods

8 of 14 US GAAP subsidiary annual reports issued

Finance master data governance process in place

Reduced backlog of open cash clearing items that existed at May 1st by over 75%

Still heavily dependent on external support to remediate control deficiencies, support statutory reporting, and the monthly close

Nearing implementation of some critical fixes (treasury/cash accounts) and deferred functionality, however certain unresolved defects are causing continuing data issues

In the design phase for long-term critical projects e.g. labor distribution, work order simplification

Internal management reporting remains limited

Supply Chain

Initial audit reviews positive on inventory cycle count process, continue to work on improving inventory accuracy

AP invoice backlog around BAU level

Increasing proportion of shopping carts and purchase orders flowing through the system

Reporting capabilities beginning to improve across end-to-end Supply Chain

System issues continue to occur on a regular basis – impacting productivity and resources as well as material availability

Process and system issues still impacting AP in delaying supplier payments & eliminating ability to achieve supplier discounts and requiring incremental resources to process invoices

Buying Channels need refining and Users must adapt to new processes/controls

36





Business Improvement

LIPA TSA

Bill Fibkins

EBS

KC Healy

PMO Team Structure & Accountabilities

Process Owners Jim Cross Dave Campbell Ross Turrini

Business Enablement

Kathy Lyford

Commercial Lead

Lori Rounds

Cost Control (p/t)

Rachel Patton

Legal & Regulatory (p/t)

Keri Sweet

Executive Alan Foster

HR Support (p/t)

Jenn Briere

Corporate Communications

Jackie Barry

Integration & Outcome Mgmt.

Tom Bennett

IS Lead Vikki Pope

Key PMO Accountabilities Key Business Accountabilities Execution of Business Improvement Program Manage program project portfolios Overall Project prioritization & project approval Total USFP related expenditures USFP related communication Vendor management

Accountable for business aspects of delivery and achievement of intended business results

Provide process related resources, expertise and support for both projects and EBS

Management of process performance metrics and external costs Project prioritization within process / function

IS Projects Delivery

RTR Projects Delivery

Supply Chain Projects Delivery

Payroll Projects Delivery

Post go-live

37

From go-live through June 2013, the Company was reacting to and addressing the emerging critical issues with Payroll, Supply Chain and Financial Close and Reporting

Significant progress has been made; however, much work remains to be done To ensure accountability and develop an integrated plan for addressing the outstanding issues

identified since go-live, National Grid created the USFP Business Improvement Team





USFP Business Improvement Timeline for Stabilization

The Company recognizes that achieving the full benefits available from the US Foundation Program will take time

The USFP Business Improvement Program will ultimately be successful when the SAP system and associated business processes are completely stable, which means that National Grid can efficiently and reliably deliver on its obligations to all stakeholders

The initial hope was to completely stabilize by the end of this calendar year, but we now know that work will continue beyond this fiscal year

The complexity and the degree of change required to stabilize USFP affect the timeline:

Post go-live

38

System Process People / Organization

Magnitude of fixes

Number of systems and interfaces to be changed and degree customization required

Nature of system changes (structural vs enhancements)

Cross functional

Scope / magnitude of process changes

Degree of standardization

Compliance

Training, knowledge transfer

Organizational adjustments: recruiting, onboarding etc.

Communication

Employee engagement





USFP Business Improvement Scope of Work and Prioritization

The integrated plan for fiscal year 2014 is in the process of being finalized

The team’s first stabilization priority is to ensure that National Grid can comply with its obligations to others, including its obligations to accurately and timely pay its employees and vendors and to honor its legal, regulatory and other reporting obligations to its external stakeholders on a timely and accurate basis

Work to achieve this priority is underway and will be substantially delivered during the remainder of this fiscal year

The team’s second stabilization priority, of key importance, is the work to enable National Grid to be efficient and self sufficient in managing and realizing the benefits of the SAP system and associated business processes without significant reliance on external support

The effort to become fully efficient is also underway and will continue beyond this fiscal year. The scope of that work continues to be developed

Post go-live

39





Developing the Constrained Integrated Plan

Review all in-flight projects – stop those that are not mission critical

Identify required future projects to achieve stabilization

Obtain more data around process health, projects scope, staff augmentation activities and constraints

Evaluate constraints

Determine list of initiatives based on capacity, dependencies, benefits and risk appetite

Baseline integrated project plan based on critical evaluation of prioritization across all processes

Recommended project delivery model

Recommended staffing mix to address dependency on external consultants

Plan Development Process

Gather Additional Data

Constrained Integrated Project

Plan Quick Scan

Quick Screen

System SME Resource Cost

Review vendor contracts, commercials and delivery model

Renegotiate contracts with all vendors for volume discounts and move to risk based contracts

40





Q3 Q4 System Releases

Payroll

Finance

Supply Chain

EBS

12/31 – Implementation of critical Change Requests, (inventory system improvements)

The High-level Constrained Integrated Plan

Sept 30th Dec 31st March 31st

Release 3 Release 2

R3 – Payroll improvements Phase 2 changes go-live

R3 – New Reporting solutions deployed

FY15

External Staff Aug FTEs

10/15 – Wage Statements launched in Long Island followed by NY by 11/30

11/1 – Complete design & build for material master data and vendor master improvements

R3 – Deploy remaining major system enhancements for vendor, material, & fleet management

12/31 – Recruiting / on boarding complete (~100 FTEs) Wage Statement support ends

R3 – New reporting analytic capabilities & Mobility improvements

3/31 – EBS fully operational 9/30 – New support Operating model

deployed

R2 R3

9/30 – AG settlement payments issued

9/20 – Initiate transition to new delivery model

5/5 – Plc Year-end requirements complete

R3

R3 Plan Build Test

3/31 – Year-end preparations complete

5/31 – Fleet management and material planning system improvements

7/1 – YE Financial close support nears

completion

LIPA separation Long-Term solutions

Year-end preparation

1/31 – Controls improvement complete

12/31 – R2 Cutover Execution

10/30 – Controls design complete

1/31 – 2013 W2s Mailed

2/14 – Steady State Overpayment Recovery Module Deployed

3/31 – EBS staff aug ends

1/1 – R2 Payroll Updates

Implemented

11/30 – IFRS PowerPlant functionality deployed

41





Implementing through a Disciplined Operating Model

42

Project Execution Redefining the delivery model to achieve

significant vendor cost reductions Managing outcome delivery and measure

associated performance metrics Recruit and onboard internal resources for

sustainable business processes and organizations

Implementing quality control process to ensure outputs consistent with business process requirements

Management of Cost, Scope, and Schedule Overall Portfolio Management with weekly

status reporting Process Ownership and Accountability Formal Change Control Process Weekly Change Control Board





Summary of Costs

Notes:

(a) All capital spend has been recorded at NG USA Service Company.

Associated rental charges allocated to operating companies.

(b) All O&M has been recorded at NG USA (“Parent”).

* Forecasting operating costs for this fiscal year in the range of $250 million to $300 million (range includes the approximately $139M incurred April 1, 2013 through July 31, 2013).

The costs set forth in the schedule are all-inclusive, and not limited to costs that relate solely to fixing the system. They include initial capital costs associated with system design, training, costs incurred in performing transactional work to correct data entry issues, employee support costs, process improvements, improving controls, costs of fixing root causes, and costs incurred to implement processes outside of the system to process payroll and prepare financial reports, among other related stabilization costs.

US Foundation Program Total Costs Incurred ($M)

To Design, Build, Test, Launch

11/15/12 to 03/31/13 FY14* Total

Capital (a) $231.6M $42.4M $32.7M $306.7M

O&M (b) $128.0M $90.4M $261.0M $479.4M

Total $359.6M $132.8M $293.7M $786.1M

43





Observations




Observations The Company takes very seriously the impact the US Foundation Program difficulties have had on employees and the Company’s ability to deliver on its external commitments. In addition to its commitment to correct the issues prospectively, the Company has begun to look closely at what led to the difficulties, including completing an internal audit review.

Certain root causes with the benefit of hindsight:

45

1. Overly ambitious design – Limited critical evaluation of the process steps and system performance constraints that would be introduced led to a system designed to meet many requirements irrespective of the complexity and impracticality the solution created.

2. Significantly underestimated the scale of transformation needed to successfully implement the new single end-to-end SAP payroll process. Complexity in legacy union arrangements and inter-relationships with time entry process were not fully understood pre-go-live.

3. Ambitious business agenda during project life cycle resulted in limited availability of internal resources for the project. Compensated with consultants who lacked knowledge and experience of National Grid’s business.

4. Successful delivery demanded our partners lead us to success; however, the multi-partner delivery model did not bring the intended benefits (for example, in the area of assurance). Commercial arrangements did not transfer enough risk to our partners.

5. Lack of end-to-end process focus led to issues with ownership and accountability across some processes.

6. Testing proved to be far less effective than expected. Effectiveness was hampered by the limited range of scenarios considered and limited data availability.

7. Inadequate data quality and governance. Despite efforts to prioritize data cleansing pre go-live, it is clear we did not fully appreciate the challenges with our legacy data and the significance these challenges would have on our processes post go-live.

8. Too much focus on timeline and not enough on quality. A key focus was tracking to plan without fully understanding outcomes. There was insufficient effort to seek out and/or receive challenges to ready status.

9. Despite investing heavily in training the methods deployed did not prove to be effective in achieving the necessary level of capabilities within our organization.




Appendices




Business Process Cutover Plan

47




Roles, SOD & User Access

Pay Advice Guide +

Access issue

Time Keeper Capability

Improvement

TDC Call Center

Experience

Employee Time Entry Capability

SAP

Controls Augmentation

Payroll Oversight PMO

USFP HR Team

TDC Payroll Team

Holistic Issue Management Process

SAP Support Team (Max Attention)

Payroll Analytics & Reporting

TDC medium term Resource Plan

Downstream Accounting

Impacts

Improve Correction Implementation

Process

- Ernst & Young - National Grid - KPMG - WIPRO

Banking ACH

Process

Check ADP Process

Leading Activity:

Core Team Payroll Process Improvement Activities

Improve Hierachy Accuracy

Field Employee Clinics

Reduce Length of payroll process

Performance Hub –Operational Metrics

- SAP

Wipro technical support -Basis

-PI -Functional

Positive Auditing Of Pay Checks

Schedules Remediation

All Other Garnishments

Union Deductions

Define Exception AP Payment Process

Employee Expenses

Employee Taxes

Payroll Improvement Activities

Userbility of system

USFP Program Leadership

Advance / Loan

Facility

Master Data Verification

Auto-Email Messages

Improvement

Build Ad hoc pay Cycle Capability

401K Impact Management

Employee Experience Improvement Activities

W2 Impact Management

30

29

28

31 19

20

21

22

23

24

25

26

27

18

17

16

15

14

13

12

11 3

1

2

4

5

6

7

8

10 9

= First Priority

= Second Priority

Employee Communications

32

48




Master Data (Vendor, Material, Info Record)

Roles, SOD & User Access

P2P Advice Guide +

Access issues

TDC Receipting Capability

Improvement

SAP

Controls Augmentation

Procure-to-Pay Oversight PMO

USFP P2P Team

TDC P2P Team

Holistic Issue Management, including… •Performance Hub – Operational Metrics •Investigation of root cause of issues analysis

Xign Invoices

Customer Refunds

Banking ACH Process

Manual Check Process

Develop Specific P2P Hierarchy

Wipro technical support -Basis

-PI -Functional

STORM PO/Invoice Processing

PO Conversion

3rd Party/ Critical Payment Disbursements

• Payroll • Vendor

Procure-to-Pay Improvement Activities – Nov 20th

USFP Program Leadership

SOBO/ROBO Mobilization

Improve Auto-email messages: ERS/SUS Define Exception AP

Payment Process

Vendor Performance (SUS)

Receipt of Last Resort

PO/Invoice Backlog

Usability of System

TDC Resource Plan

Wire Process

Downstream Accounting Impacts

P2P Response Team

P2P Accounting Capability

Non-Stock Receipting Mgmt

Targeted Business Communications

Targeted Vendor Communications

Business Engagement

GR/IR Account Strategy

AP Query Management

Business Ownership of PO's

P2P Training Completion

P2P Analytics and Reporting

AP Realignment In the SAP Environment

P-Card/Storm-Card Clearing Activity

Employee P-Card/ Storm-Card Mgmt

Vendor

Core Team Procure-to-Pay Improvement Activities

Vendor & Customer Experience Improvement Activities

1

2

6

7

8

9

10

11

12

3

4

5

25

26

27

28

29

30

31

32

33

34

36

35

13

14

15

16

17

18

19

20

22

24

23

21

37

38

39

- Most Immediate Priorities

49




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