content: Securities and Exchange Commission
                                  
                        Washington, DC 20549
                                  
                             Form 8-K/A
                                  
                           Current Report
                                  
               Pursuant to Section 13 to 15(d) of the
                    Securities Exchange Act 1934
                                  
                  Date of Report February 18, 1997
                  (Date of earliest event reported)
                                  
                                  
                                  
                       CalEnergy Company, Inc.
       (Exact name of registrant as specified in its charter)
                                  
                                  
       Delaware                  1-9874             94-2213782
       (State or other       (Commission File    (IRS Employee
       jurisdiction of       Number)             Identification No.)
       incorporation)
                                  
   302 South 36th Street, Suite 400,  Omaha,  NE          68131
   (Address of principle executive offices)             Zip Code
                                  
                                  
  Registrant's Telephone Number, including area code: (402) 341-4500
                                  
                                           N/A
    (Former name or former address, if changed since last report)
  Item 2.   Acquisition or Disposition of Assets.
  
  On  December 24, 1996, CE Electric UK plc ("CE Electric"),  which
  is   70%  owned  indirectly  by  CalEnergy  Company,  Inc.   (the
  "Company")  and 30% owned indirectly by Peter Kiewit  Sons'  Inc.
  ("PKS"),  acquired majority ownership of the outstanding ordinary
  share capital of Northern Electric plc ("Northern") pursuant to a
  cash tender offer, with a loan note alternative, (the "Tender Offer")
  to Northern's public shareholders which was commenced in the United Kingdom
  by CE Electric on November 5, 1996.  The total amount expected to
  be  paid  to  acquire all of Northern's ordinary  and  preference
  shares  is  approximately $1.3 billion.  The purchase price per share
  contained in the Tender Offer was determined by CE Electric based upon
  the then prevailing market price of Northern's shares on the London Stock
  Exhange plus a premium in an amount sufficient, as determined by CE Electri,
  to provide fair compensation to holders of Northern shares and to enable CE
  Electric to acquire a significant position in Northern.  In January  1997,
  CE Electric designated a majority  of  Northern's board  of
  directors  and  assumed management  control.   Through January  31,
  1997, CE Electric had purchased more  than  90%  of
  Northern's  ordinary shares.  CE Electric expects to acquire  the
  remaining  Northern shares by April 30, 1997 pursuant  to  United
  Kingdom statutory powers available to compulsorily acquire shares
  not purchased in the Tender Offer.
  
  As  of  February  13,  1997, the Company had  contributed  to  CE
  Electric  approximately  $410 million of the  approximately  $1.3
  billion  required  to  acquire all  of  Northern's  ordinary  and
  preference  shares in connection with the Tender Offer,  and  PKS
  had  contributed  approximately $176 million  to  CE  Electric  for  such
  purpose.   The  Company obtained such funds from  cash  on  hand,
  short-term  borrowings,  and  borrowings  of  approximately  $100
  million  under a $100 Million Credit Agreement entered into  with
  Credit   Suisse  on  October  28,  1996  (the  "CalEnergy  Credit
  Facility").   Borrowings under the CalEnergy Credit Facility  are
  unsecured  and mature on October 28, 1997, subject to  prepayment
  by  the  Company  at any time. The remaining funds  necessary  to
  consummate the Tender Offer (approximately $734 million) will  be
  provided  from capital contributions or loans to be  made  to  CE
  Electric  by  its sole shareholder, CE Electric UK Holdings  ("CE
  Electric  Holdings"),  which has arranged  a  560  million  ($896
  million)  Term  Loan  and  Revolving  Facility  Agreement,  dated
  October  28, 1996 (the "U.K. Credit Facility"), by and  among  CE
  Electric,  CE Electric Holdings and Credit Suisse.   The  Company
  has  not  guaranteed nor is it otherwise subject to recourse  for
  amounts  borrowed under the U.K. Credit Facility.  As of  January
  31,  1997,  CE  Electric Holdings had borrowed approximately  321
  million  under  the  U.K. Credit Facility  to  pay  for  Northern
  ordinary and preference shares purchased to date.
  
  The  Company's strategy remains focused primarily upon  continued
  growth  in  its  core  power  generation  business  through   the
  development of new projects, enhancement of existing and acquired
  assets'  performance,  and  the  acquisition  of  companies   and
  projects   that   diversify   the  Company's   power   generation
  technologies  and  enhance  its  competitive  capabilities.   The
  Company  also  intends to pursue strategic expansion  into  other
  aspects  of the global power business, including the distribution
  and  supply   of electricity, in order to diversify its  business
  and  cash  flows, develop and enhance its distribution, marketing
  and  power pool skills and increase its competitive capabilities.
  The  Northern acquisition was implemented in furtherance of  this
  aspect  of its strategy.  The Company believes that its  existing
  assets,   strengths   and   skills,   coupled   with   Northern's
  distribution  and supply skills, its experience  in  the  largely
  deregulated  United  Kingdom  power  market  and  the   resulting
  diversification  in the Company's assets and geographic  location
  will  position the Company to maximize its ability to participate
  successfully   (by   way   of  acquisition   or   otherwise)   in
  opportunities  expected to be created in the next  few  years  by
  restructurings  in  the  United States and  other  global  energy
  markets.  The Company also selectively will seek opportunities to
  expand beyond power generation, distribution and supply in  areas
  related to these core businesses, such as power transmission  and
  gas production and supply, if such opportunities will enhance the
  Company's competitive capabilities and financial position.
  
  Northern  is  one  of  the twelve regional electricity  companies
  ("RECs")   which  came  into  existence  as  a  result   of   the
  restructuring  and  subsequent privatization of  the  electricity
  industry  in  the United Kingdom in 1990.  Northern is  primarily
  engaged  in the distribution and supply of electricity.  Northern
  was granted a Public Electricity Supply ("PES") license under the
  Electricity  Act 1989 (the "Electricity Act") to  distribute  and
  supply  electricity  in  Northern's authorized  area  located  in
  northeast  England  (Northern's "Authorized  Area").   Northern's
  Authorized  Area  covers approximately 14,400  square  kilometers
  with  a  population  of  approximately  3.2  million  people  and
  includes  the counties of Northumberland, Tyne and Wear,  Durham,
  Cleveland  and  North  Yorkshire.  Northern supplies  electricity
  outside  its  Authorized Area pursuant to second  tier  licenses.
  Northern  also is involved in non-regulated activities, including
  the generation of electricity, electrical appliance retailing and
  gas exploration and production.
  
  The  electricity  industry in Great Britain is  overseen  by  the
  Office  of Electricity Regulation headed by the Director  General
  of   Electricity   Supply  (the  "Regulator").   The   regulatory
  framework includes price controls which limit the maximum average
  prices  that  Northern can charge for distributing and  supplying
  electricity.
  
  Since its reorganization in 1995, Northern's principal assets are
  the  capital stock of its subsidiaries and all of the assets used
  by such subsidiaries in their business.  Each of the subsidiaries
  focuses  on its own particular objectives and customers and  each
  has  its own employees and management team.  Northern provides  a
  number    of    services    to   the   subsidiaries,    including
  telecommunications,  transportation and technology  support,  and
  certain of the subsidiaries provide services to each other.   The
  operating subsidiaries are as follows:
  
  Northern   Electric  Distribution  Limited.   Northern   Electric
  Distribution    Limited   ("Northern   Distribution")    receives
  electricity  from  the  national  grid  transmission  system  and
  distributes   electricity  to  each  customer's  premises   using
  Northern's  network  of  transformers,  switchgear  and   cables.
  Substantially all of the customers in Northern's Authorized  Area
  are connected to Northern's network and can only be supplied with
  electricity through Northern Distribution's distribution  system,
  regardless  of whether the electricity is supplied by  Northern's
  supply  business  or by other suppliers, thus providing  Northern
  with  distribution  volume  that is stable  from  year  to  year.
  Northern serves approximately 1.5 million customers in Northern's
  area  and  charges its customers access fees for the use  of  the
  distribution system.
  
  The prices for distribution to most customers are controlled by a
  prescribed  formula  that  limits  increases  (and  may   require
  decreases) based on the rate of inflation in the United  Kingdom.
  Prices  for  distribution to customers taking their  supplies  at
  extra  high voltages are not directly controlled.  The  Regulator
  reviewed the initial price formula in 1994 and introduced changes
  that  initially caused prices to be approximately  17%  lower  in
  Northern's fiscal year ended March 31, 1996 than they would  have
  been  had the initial formula continued unchanged.  The Regulator
  also  limited price increases in future years, and in July,  1995
  the   Regulator  limited  price  increases  further.   Currently,
  increases  will  be  limited  to three  percentage  points  below
  inflation  through March 31, 2000.  Northern estimates  that  the
  combined  effect  of the two reviews will be  to  reduce  pre-tax
  income by approximately 95 million (based on 1995-96 prices)  for
  the four year period ending March 31, 2000.
  
  Most  of Northern's distribution customers are customers  in  its
  Authorized  Area  with a maximum demand of not  more  than  100kW
  ("Franchise   Area  Supply  Customers").   This  customer   group
  consists   predominantly  of  residential  and  small  commercial
  consumers which are believed by Northern to constitute  a  stable
  customer   base.    Northern's  fastest   growing   category   of
  distribution  customers,  in  terms  of  units  distributed   and
  revenues,  is  domestic and commercial customers  (as  contrasted
  with  industrial customers).  Commercial activity  of  Northern's
  customers  is about 40% industrial and 25% commercial.   Northern
  also  distributes  electricity  to  industrial  concerns  in  its
  Authorized Area.  Northern's 20 largest distribution customers in
  its  Authorized  Area accounted for approximately  18%  of  total
  electricity  distributed by Northern in  Northern's  fiscal  year
  ended  March  31,  1996  in terms of units distributed,  with  no
  single customer exceeding 4% of total electricity distributed.
  
  Northern  Electric  Supply  Limited.   Northern  Electric  Supply
  Limited ("Northern Supply") focuses on Northern's supply business
  and  is responsible for marketing, tariff setting, contracts  and
  customer   service  in  connection  with  the  supply   of   both
  electricity  and  gas.  Northern's supply business  involves  the
  bulk  purchase  of  electricity, primarily  from  the  Pool,  and
  subsequent sale to individual customers.  Until March  31,  1998,
  each  of  the  RECs is the exclusive supplier of  electricity  to
  premises  in  each  of their authorized areas, except  where  the
  maximum  demand of a customer is greater than 100kW.  The formula
  described in footnote 26 to the financial statements contained in
  Item  7  controls the income that the supply business may receive
  from  Franchise Area Supply Customers and therefore the profits that
  can  be derived  from  the supply of electricity to franchise  customers.
  Supplies to other customers are not regulated since the Regulator
  believes  that  the  market in excess of  100kW  is  sufficiently
  competitive  not  to require this. The current  regulations  that
  permit  each of the RECs to be the exclusive supplier in each  of
  their authorized areas will expire as of March 31, 1998.
  
  Northern  is one of the largest suppliers in the competitive  and
  open  electricity  market  in  the United  Kingdom  and  supplies
  customers  in  all  15  PES areas in Great Britain  and  Northern
  Ireland.  Northern supplies substantially more sites than it  had
  previously supplied prior to the beginning of open competition in
  the supply business in the United Kingdom.  In addition, Northern
  Supply  maintains a gas supply business and, at March  31,  1996,
  Northern  had won gas supply contracts for more than 4,000  sites
  nationally, mainly outside northeast England.
  
  Northern  Utility  Services Limited.  Northern  Utility  Services
  Limited ("Northern Utility") is an engineering company whose role
  is  to  adapt, maintain and restore the distribution  network  of
  Northern and to sell related services to third parties.  Northern
  Utility  has  been able to make significant cost  reductions  for
  Northern during the past year by working with suppliers in  order
  to  improve  core  processes,  close  selected  depot  locations,
  increase staff productivity and reduce material and plant  costs.
  Northern   Utility  has  pioneered  techniques  using  innovative
  diagnostic testing equipment which reduces the need for intrusive
  maintenance.   The equipment can identify some of the  causes  of
  potential  systems failures before breakdown and subsequent  loss
  of  supply occurs.  Also, the continued development in the use of
  trenchless   technology   has   brought   both   financial    and
  environmental  benefits  to Northern and  its  customers.   While
  Northern Utility's largest customer is Northern Distribution,  it
  increasingly  has  sold its services to third parties.   Northern
  Utility is Northern's largest employer.
  
  Northern  Electric  Retail  Limited.   Northern  Electric  Retail
  Limited sells electrical and gas  appliances
  and   provides  account  collection  and  customer  services  for
  Northern's other businesses.
  
  Northern   Electric   Generation  Limited.    Northern   Electric
  Generation Limited ("Northern Generation") focuses on electricity
  generation,  primarily  through  its  15.4%  stock  ownership  of
  Teesside Power Limited, a company that owns and operates a  1,875
  MW combined cycle gas-fired power station.  Northern takes 400 MW
  of  electricity  from the plant pursuant to a 15  year  contract.
  Northern  Generation also operates a 5 MW diesel power generating
  plant located in Northallerton, England in which the Company  has
  a  3  MW  net ownership interest, and Northern operates 47 small-
  scale combined heat and power facilities.
  
  Northern  Metering Services Limited.  Northern Metering  Services
  Limited    ("Northern   Metering")   provides    meter    supply,
  installation, refurbishment and certification services as well as
  meter  operator and data collection services.  Northern  Metering
  has  developed an energy profiling system which helps  businesses
  reduce  costs  through the more efficient use of all  fuels,  not
  just electricity.
  
  Sovereign  Exploration  Limited.  Sovereign  Exploration  Limited
  ("Sovereign  Exploration"),  a  gas  exploration  and  production
  company,  holds  interests in the southern basin  of  the  United
  Kingdom  sector of the North Sea, including a 5% ownership interest in
  of  the  Victor Field, which had a subsea pipeline connection  of
  the north west extension of the field completed in 1995, and a 2%
  ownership  interest  in the Schooner Field,  which  is  currently
  under   development.   Sovereign  Exploration  also  has  a   20%
  ownership  interest  in  the  Windermere  Field,  which  obtained
  regulatory  consent  for development in  April  1996.   Sovereign
  Exploration  has  interests in other potential  gas  developments
  located in United Kingdom waters.
  
  
  Item 7.  Financial Statements and Exhibits                              Page
       (a)  Financial statements of business acquired:
  
            Northern Electric plc
  
            Financial  Statements for the period ended  March  31, 1996:
            Report of Independent Auditors                                  6
            Group  Profit  and Loss Account for  the  three  years
             ended in the period March 31, 1996                             7
            Statement of Total Recognised Gains and Losses for the
             three years in the period ended March 31 1996                  8
            Group Balance Sheet as of March 31, 1996 and 1995               9
            Group  Statement of Cash Flows for the three years  in
             the period ended March 31, 1996                               10
            Notes to the Accounts                                          11
  
            Financial Statements for the period ended September 30, 1996:
            Independent Accountants' Review Report                         48
            Condensed  Group Profit and Loss Account for  the  six
             months ended September 30, 1996 and 1995 (unaudited)          49
            Condensed  Group  Balance Sheet as  of  September  30,
             1996 (unaudited)                                              50
            Condensed  Group Statement of Cash Flows for  the  six
             months ended September 30, 1996 and 1995 (unaudited)          51
            Notes to the condensed Interim Accounts (unaudited)            52
  
       (b)  Pro Forma Condensed Combined Unaudited Financial Data:
            Condensed  Combined  Unaudited  Balance  Sheet  as  of
             September 30, 1996                                            59
            Condensed  Combined  Unaudited Statement  of  Earnings
             for the year ended December 31, 1995                          60
            Condensed  Combined  Unaudited Statement  of  Earnings
             for the nine months ended September 30, 1996                  61
            Notes to Pro Forma Condensed Combined Unaudited 
             Financial Data                                                62
                                  
           NORTHERN ELECTRIC plc AND SUBSIDIARY COMPANIES
                                  
                   REPORT OF INDEPENDENT AUDITORS
  
  
  To the Board of Directors
  
  We  have audited the accompanying group balance sheet of Northern
  Electric plc as of 31 March 1996 and 1995, and the related  group
  profit and loss account, statement of total recognised gains  and
  losses and statement of cash flows for each of the three years in
  the  period ended 31 March 1996.  These financial statements  are
  the    responsibility   of   the   Company's   management.    Our
  responsibility  is  to  express an  opinion  on  these  financial
  statements based on our audits.
  
  We  conducted  our  audits  in  accordance  with  United  Kingdom
  auditing standards which do not differ in any significant respect
  from  United States generally accepted auditing standards.  Those
  standards  require that we plan and perform the audit  to  obtain
  reasonable  assurance about whether the financial statements  are
  free of material misstatement.  An audit includes examining, on a
  test  basis,  evidence supporting the amounts and disclosures  in
  the  financial statements.  An audit also includes assessing  the
  accounting principles used and significant estimates made by  the
  management, as well as evaluating the overall financial statement
  presentation.   We believe that our audits provide  a  reasonable
  basis for our opinion.
  
  In our opinion, the consolidated financial statements referred to
  above  present fairly, in all material respects, the consolidated
  financial position of Northern Electric plc at 31 March 1996  and
  1995,  and  the  consolidated results of its operations  and  its
  consolidated cash flows for each of the three years in the period
  ended  31  March  1996  in conformity with accounting  principles
  generally accepted in the United Kingdom which differ in  certain
  respects from those followed in the United States (see Note 31 of
  Notes to the Accounts).
  
  
  
  
  
  ERNST & YOUNG
  Chartered Accountants
  
  
  Newcastle upon Tyne, England
  20 June 1996,
  except for Note 28 - Contingent Liabilities and
  Note 31 - Differences between United Kingdom and
  United States generally accepted accounting principles,
  as to which the date is
  14 February 1997.
  
  <TABLE>
  <CAPTION>
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                    GROUP PROFIT AND LOSS ACCOUNT
  
  
                                         Year ended 31 March
                                Notes 1996    1996    1995   1994
                                        $m    pound   pound  pound
  <S>                          <C>  <C>       <C>    <C>     <C>
  TURNOVER                     2&6   1,412.2   902.2 1,080.8 1,030.5
  
  Cost of sales                     (1,035.4) (661.5) (753.9) (739.0)
                                 --------------------------------------
  GROSS PROFIT                   6     376.8   240.7   326.9   291.5
  
  Distribution costs                  (121.8)  (77.8)  (80.4)  (81.0)
  Administrative expenses             (169.5) (108.3) (111.5)  (97.1)
  Other operating income                 1.3     0.8     1.1     0.9
  Income from interest in
    associated undertakings              0.9     0.6     0.1       -
                                 --------------------------------------
  OPERATING PROFIT               5&6    87.7    56.0   136.2   114.3
  
  Profit on disposal of
   fixed assets                  6      39.6    25.3     4.0     0.4
  Exceptional shareholder costs  6     (24.6)  (15.7)  (15.1)      -
  Income from investments        3&6   154.2    98.5    19.5    17.6
                                 --------------------------------------
  PROFIT ON ORDINARY ACTIVITIES
       BEFORE INTEREST                 256.9   164.1   144.6   132.3
  
  Net interest                   4     (20.8)  (13.3)   (3.9)   (3.6)
                                 --------------------------------------
  PROFIT ON ORDINARY ACTIVITIES
       BEFORE TAXATION           2&6   236.1   150.8   140.7   128.7
  
  Tax on profit on ordinary
   activities                    9     (54.2)  (34.6)  (37.5)  (30.4)
  Tax on exceptional items       6     (75.8)  (48.4)    -         -
                                 --------------------------------------
  PROFIT FOR THE YEAR*                 106.1    67.8   103.2    98.3
  
  Dividend on non-equity shares  10     (7.7)   (4.9)    0.0       -
  Dividends on equity shares     10   (675.3) (431.4)  (36.8)  (30.7)
                                 --------------------------------------
  RETAINED (LOSS)/ PROFIT
   FOR THE YEAR                       (576.9) (368.5)  (66.4)  (67.6)
                                      ======   =====   =====    =====
  EARNINGS PER SHARE:            11   cents    pence   pence    pence
  
  Basic                                100.2    64.0    99.2    79.8
  Exceptional items              6      23.6    15.1    11.2       -
                                 --------------------------------------
  Earnings per share before charging
  or crediting exceptional items       123.8    79.1   110.4    79.8
                                       ======   =====   =====  =====
  </TABLE>
  * A summary of the significant adjustments to profit for the year
  that would be required if United States generally accepted
  accounting principles had been applied instead of those generally
  accepted in the United Kingdom is set out in Note 31 of Notes to
  the Accounts.
  
  <TABLE>
  <CAPTION>
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
           STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
  
                                                   Year ended 31 March
                                      Notes    1996    1996    1995   1994
                                                $m    pound    pound  pound
  <S>                                 <C>       <C>     <C>     <C>    <C>
  Profit attributable to members
   of the parent company                        106.1    67.8   103.2   98.3
  Revaluation gain on investments      13       287.2   183.5       -      -
                                              -------------------------------
  Total recognised gains and losses
   related to the year                          393.3  251.3    103.2   98.3
                                                =====   =====   =====   ====
  </TABLE>
  NOTES OF HISTORICAL COST PROFITS AND LOSSES
  
  <TABLE>
                                                        Year ended 31 March
                                                    1996    1996    1995   1994
                                                     $m    pound    pound  pound
  <S>                                              <C>     <C>     <C>    <C>
  Reported profit on ordinary 
   activities before taxation                       236.1   150.8  140.7  128.7
  Realisation of revaluation gain
   on First Hydro Limited                            17.1    10.9      -      -
                                                 -------------------------------
  Historical cost profit on ordinary
   activities before taxation                       253.2   161.7  140.7  128.7
                                                    =====   =====  =====  =====
  Historical cost (loss)/profit for the year
   retained after taxation and dividends           (293.8) (187.7)  66.4   67.6
                                                    =====   =====  =====   ====
  </TABLE>
  
  <TABLE>
  <CAPTION>
                  NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                           GROUP BALANCE SHEET
  
                                                          31 March
                                         Notes     1996     1996      1995
  FIXED ASSETS                                      $m      pound    pound
  <S>                                    <C>      <C>      <C>       <C>
  Tangible assets                          12     732.7    468.1     423.1
  Investments                              13      70.6     45.1     103.8
                                                 -------------------------
                                                  803.3    513.2     526.9
                                                  =====    =====     =====
  CURRENT ASSETS
  Stocks                                   14      18.6    11.9        9.6
                                                 -------------------------
  Debtors:                                 15
   amounts falling due after one year              42.0     26.8      38.2
   amounts falling due within one year            290.2    185.4     186.8
                                                 -------------------------
                                                  332.2    212.2     225.0
  Investments                             16       73.9     47.2      14.5
  Cash at bank and in hand                17       54.6     34.9      20.4
                                                 -------------------------
                                                  479.3    306.2     269.5 
  CREDITORS: amounts falling due
    within one year:                      18
  Loans and overdrafts                            (46.5)   (29.7)   (84.5)
  Creditors and accruals                         (300.5)  (192.0)  (138.4)
                                                 -------------------------
                                                 (347.0)  (221.7)  (222.9)
  
  NET CURRENT ASSETS                              132.3     84.5     46.6
                                                 -------------------------
  TOTAL ASSETS LESS CURRENT LIABILITIES           935.6    597.7    573.5
                                                  =====    =====    =====
  CREDITORS: amounts falling due
    after more than one year             19
  Loans                                         (402.4)   (257.1)  (61.5)
  Other creditors                                (44.6)    (28.5)  (22.4)
                                                 -------------------------
                                                (447.0)   (285.6)  (83.9)  
  PROVISIONS FOR LIABILITIES
    AND CHARGES                          21      (57.2)    (36.5)  (33.1)
                                               ---------------------------
  TOTAL ASSETS LESS LIABILITIES           2      431.4     275.6   456.5
                                                  =====    =====   =====
  CAPITAL AND RESERVES
  Called up share capital               22        91.3      58.3    55.8
  Share premium account                 23         5.3       3.4     1.8
  Capital redemption reserve            23         9.7       6.2     6.2
  Statutory reserve                     23         3.4       2.2     1.0
  Revaluation reserve                   23         4.2       2.7       -
  Profit and loss account               23       317.5     202.8   391.7
                                               -------------------------
  SHAREHOLDERS' FUNDS *                          431.4    275.6    456.5
                                                 =====    =====    =====
  
  Equity interests                               429.7    274.5    456.5
  Non-equity interests                             1.7      1.1        -
                                               -------------------------
                                                431.4     275.6    456.5
                                                =====     =====    =====
  </TABLE>
  
  * A summary of the significant adjustments to shareholders' funds
  that would be required if United States generally accepted
  accounting principles had been applied instead of those generally
  accepted in the United Kingdom is set out in Note 31 of Notes to
  the Accounts.
  
  <TABLE>
  <CAPTION>
                  NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                      GROUP STATEMENT OF CASH FLOWS
                                  
                                                   Year ended 31 March
                                        Notes    1996    1996   1995      1994
                                                  $m   pounds m pounds m  pounds m
  <S>                                   <C>    <C>     <C>    <C>    <C>
  NET CASH INFLOW FROM OPERATING
   ACTIVITIES                             5     218.5   139.6   83.7  177.0
                                            ---------------------------------
  RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
  Interest received                               5.8     3.7    4.8    2.8
  Interest paid                                 (13.3)   (8.5)  (7.6)  (7.2)
  Ordinary dividends and investment
   income received                               24.1    15.4   15.0    8.7
  Exceptional dividends received                108.8    69.5      -      -
  Ordinary dividends paid                       (59.3)  (37.9) (32.3) (27.7)
  Exceptional dividends paid                   (270.2) (172.6)     -      -
                                             ---------------------------------
  NET CASH OUTFLOW FROM RETURNS ON
   INVESTMENTS AND SERVICING OF FINANCE        (204.1) (130.4) (20.1) (23.4)
                                                =====   =====   ====   ====
  TAXATION
  Corporation tax paid (including
   ACT on dividends)                           (117.4)  (75.0) (39.2) (22.8)
                                                =====   =====   ====   ====
  INVESTING ACTIVITIES
  Payments to acquire tangible fixed assets     (87.0)  (55.6) (71.7) (68.9)
  Receipts from sales of tangible fixed assets    2.3     1.5    5.0    0.5
  Receipt of consumers' contributions            19.7    12.6   13.8   12.9
  Purchase of subsidiary undertaking
   (net of cash and loans acquired)      13     (24.3)  (15.5)     -      -
  Payments to acquire fixed asset 
   investments                                  (21.0)  (13.4)  (4.6)  (2.0)
  Receipts from sales of fixed asset
   investments                                   58.2    37.2      -      -
  Payments to acquire equity accounted
   entities                                         -       -   (1.7) (10.7)
  Payments to acquire current asset 
   investments with a maturity date of 
   more than three months                        (4.1)   (2.6) (47.5) (75.6)
  Receipts from disposals of current
   asset investments with a maturity
   date of more than three months                11.0     7.0   67.5   47.0
  Receipts from sale of preference
   shares by Northern Electric Share
   Scheme Trustee Limited                         2.0     1.3      -      -
                                            ---------------------------------
  NET CASH OUTFLOW FROM  INVESTING
   ACTIVITIES                                   (43.2)  (27.5) (39.2) (96.8)
                                                =====   =====   ====   ====
  NET CASH (OUTFLOW)/INFLOW BEFORE
   FINANCING                                   (146.2)  (93.3) (14.8)  34.0
                                                =====   =====   ====   ====
  FINANCING
  Issue of ordinary share capital      22       (6.4)    (4.1)  (0.5)  (1.7)
  Purchase of own shares               22          -        -  101.6      -
  Loan finance                         20     (253.6)  (162.0) (33.0)  (0.6)
  Repayment of loans                               -        -      -   19.0
                                       -------------------------------------
  NET CASH (INFLOW)/OUTFLOW FROM
   FINANCING                                  (260.0)  (166.1)  68.1   16.7
                                       -------------------------------------
  INCREASE/(DECREASE) IN CASH
   AND CASH EQUIVALENTS                17      113.8     72.8  (82.9)  17.3
                                       -------------------------------------
                                              (146.2)   (93.3) (14.8)  34.0
                                               =====     =====  =====  ====
  </TABLE>
  1 Major non-cash transactions are disclosed in Note 23
  2 The significant differences between the cash flow statements
   presented above and those required under United States
   generally accepted accounting principles are set out in Note 31
   of Notes to the Accounts.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                        NOTES TO THE ACCOUNTS
  
  1. ACCOUNTING POLICIES
  
  General
  
  Northern  Electric plc ("the Company") is one of twelve  Regional
  Electricity  Companies ("RECs") in England and Wales licensed  to
  distribute,   supply   and,   to  a  limited   extent,   generate
  electricity.   The  RECs  were  created  as  a  result   of   the
  privatisation  of the UK electricity industry in 1990  after  the
  state  owned low voltage distribution networks were allocated  to
  the  then  existing  twelve regional boards. The  Company's  main
  business, the distribution and supply of electricity to customers
  in the North East of England, is regulated under the terms of the
  Company's  Public  Electricity Supply License by  the  Office  of
  Electricity Regulation ("OFFER").
  
  Basis of preparation
  
  The accounts are prepared under the historical cost convention as
  modified  to  include the revaluation of fixed asset  investments
  and in accordance with applicable UK accounting standards.
  
  These  financial  statements  are presented  in  pounds  sterling
  ("pounds").  Solely  for  the  convenience of the  reader,  US  dollar
  amounts  have been translated at the exchange rate of 1 pound  =  U.S.
  $1.5653,  the  noon  buying  rate in  New  York  City  for  cable
  transfers in pounds sterling as certified for customs purposes by
  the  Federal Reserve Bank of New York on September 30,  1996.  No
  representation  is  made that the pounds  sterling  amounts  have
  been, could have been, or could be converted into U.S. dollars at
  that or any other rate of exchange.
  
  Basis of consolidation
  
  With  the  exception  of  the accounts of  Sovereign  Exploration
  Limited  which  are made up to 31 December each year,  the  Group
  accounts  consolidate  the  accounts  of  the  Company  and   its
  subsidiary undertakings (together, the "Group" ) drawn up  to  31
  March each year. No profit and loss account is presented for  the
  Company as permitted by Section 230 of the Companies Act 1985.
  
  Undertakings, other than subsidiary undertakings,  in  which  the
  Group has an investment of not less than 20% of the voting rights
  and  over  which it exerts significant influence are  treated  as
  associated  undertakings.  Where  material,  the  Group  accounts
  include the appropriate share of these undertakings' results  and
  reserves based on the most recent audited accounts.
  
  Goodwill
  
  Depending  on  the  circumstances of each acquisition,  purchased
  goodwill is either set off directly against reserves or amortised
  through  the profit and loss account over the directors' estimate
  of its useful life.
  
  Turnover
  
  Turnover represents the value of electricity and gas sold  during
  the  period,  including an estimate of the sales value  of  units
  supplied to customers between the date of the last meter  reading
  and the period end, and the invoice value of other goods sold and
  services  provided,  exclusive of value added  tax.  Income  from
  credit sales charges is apportioned in the trading accounts  over
  the period of the sales agreements.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                        NOTES TO THE ACCOUNTS
  
  1.  ACCOUNTING POLICIES continued
  
  Regulatory correction factor (K Factor)
  
  Where there is an overrecovery of supply or distribution business
  revenues  against  the  maximum regulated  amount,  revenues  are
  deferred  equivalent  to the overrecovered amount.  The  deferred
  amount is deducted from turnover and included in provisions Where
  there  is  an  underrecovery, no anticipation  of  any  potential
  future recovery is made.
  
  Royalties
  
  Royalties in respect of gas production are accounted for  in  the
  same  year as the turnover to which they relate and are  included
  in cost of sales.
  
  Tangible fixed assets and depreciation
  
  Tangible  fixed  assets  are  stated  at  cost.  The  charge  for
  depreciation is calculated to write off assets to their  residual
  values  over  their  estimated useful  lives  using  the  methods
  described  below for distribution system and oil and  gas  assets
  and straight-line depreciation for all other assets, as follows:
  
    Distribution system assets _________________________..40 years
  
        Depreciation is charged at 3% for 20 years followed  by  2%
  for the remaining 20 years
  
        Certain   short-life metering equipment included in 
  distribution system assets up to 10 years
  
    Oil and gas assets
  
       Expenditure on oil and gas properties is accounted for using
       the  full  cost  method.  Under  this  method,  exploration,
       appraisal and development costs are capitalised in a  single
       cost   pool.   Capitalised  costs,  other  than   costs   of
       unevaluated  exploration  projects  and  projects   awaiting
       development  consent,  are  depleted  using  the   unit   of
       production   method.  Depletion  is  calculated   based   on
       hydrocarbon  reserves of properties in  the  evaluated  pool
       estimated   to  be  commercially  recoverable  and   include
       anticipated  future development costs in  respect  of  those
       reserves.
  
    Non-operational assets
  
         Buildings - freehold.                        up to 60 years
                   - leasehold     lower of lease period or 60 years
  
       Vehicles and mobile plant                      up to 10 years
       Fixtures and equipment                         up to 10 years
  
  Freehold land is not depreciated.
  
  Consumers' contributions and capital grants are credited  to  the
  profit  and loss account over a 40 year period  at a rate  of  3%
  for the first 20 years followed by 2% for the remaining 20 years.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  1.   ACCOUNTING POLICIES continued
  
  Commercial reserves of oil and gas
  
  Commercial  reserves used in the unit of production  calculations
  are proven and probable reserves. Reserves are based on estimates
  provided by the operators.
  
  Abandonment costs
  
  Provision  is  made  on  a  unit  of  production  basis  for  the
  abandonment  of  oil  and  gas production facilities,  calculated
  field-by-field using the same reserve quantities as are used  for
  depreciation purposes. The estimated costs, based on price levels
  at  the  balance sheet date, are computed on the assumption  that
  the  facilities will be fully removed where appropriate  and  are
  based on estimates provided by the operators. It is assumed  that
  certain abandonment costs will be allowable for petroleum revenue
  tax and corporation tax purposes when incurred.
  
  Effects of changing estimates
  
  The  effects  of  changes  in estimated costs  or  other  factors
  affecting  oil  and  gas  unit  of  production  calculations  for
  depreciation  and abandonment costs are dealt with  prospectively
  over the estimated remaining commercial reserves of each field.
  
  Ceiling test of oil and gas assets
  
  Ceiling tests are carried out at least annually and provision  is
  made  for  any permanent impairment where the net book amount  of
  capitalised  expenditure, less provisions for future  abandonment
  costs  and  royalties, exceeds the estimated future  undiscounted
  net  revenues using prices and cost levels ruling at the  balance
  sheet date.
  
  Over and underlifts
  
  The  quantities of oil and other hydrocarbons lifted  may  differ
  from  the  equity  share of production giving  rise  to  over  or
  underlifts. Overlifts are included in accruals whilst  underlifts
  are  included in debtors, both being valued at the year end  spot
  or   prevailing  contract  price.  Any  adjustment  for  over  or
  underlift is reflected in cost of sales.
  
  Petroleum revenue tax
  
  Provision  is  made for petroleum revenue tax over  the  expected
  life  of  each  field on a unit of production basis  taking  into
  account   the   estimated  benefit  of  uplift,  oil   allowance,
  exploration  expenditure relief, safeguard and abandonment  costs
  and  using the relevant oil prices and cost levels prevailing  at
  the balance sheet date.
  
  Property clawback
  
  Under  a trust deed HM Government is entitled to a proportion  of
  any  property gain (above certain thresholds) accruing or treated
  as  accruing  to the Company as a result of disposals  or  deemed
  disposals. These  arrangements will last until 31 March  2000.  A
  provision  in respect of property disposals is made only  to  the
  extent  that  it  is probable that a liability will  crystallise.
  Such  a  liability  will crystallise when  an  actual  or  deemed
  disposal occurs.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  1.   ACCOUNTING POLICIES continued
  
  Investments
  
  Fixed  asset  investments are stated at cost less  provision  for
  permanent  impairment  in  value,  or  at  directors'  valuation.
  Current  asset  investments  are  shown  at  cost  or  directors'
  valuation. Investments held in employee share option schemes  are
  written  down to the option price over the period from the  grant
  of  the  option  to the first date on which the  options  can  be
  exercised.
  
  Stocks and work in progress
  
  Stocks  are stated at the lower of cost and net realisable  value
  as follows:
  
        Raw  materials and goods for resale - purchase cost  on  an
  average price basis.
  
       Work  in progress - cost of direct materials and labor  plus
       attributable overheads based on the normal level of activity
       less progress payments on short-term contracts.
  
       Net  realisable  value is based on estimated  selling  price
       less further costs expected to be incurred to completion and
       disposal.
  
  Research and development
  
  Expenditure  on research and development is written  off  to  the
  profit  and  loss account in the period in which it is  incurred,
  except  that  development expenditure incurred on  an  individual
  project  is  carried  forward when its future recoverability  can
  reasonably  be  regarded  as  assured.  Any  expenditure  carried
  forward  is  amortised in line with the expected future  benefits
  from the related project.
  
  Deferred taxation
  
  Deferred taxation is provided using the liability method  on  all
  timing  differences  to  the extent that  they  are  expected  to
  reverse in the future without being replaced, calculated  at  the
  rate  at  which  it  is anticipated the timing  differences  will
  reverse.  Deferred tax assets are only recognised if recovery  is
  reasonably certain.
  
  Pensions
  
  The  Group  contributes to the Electricity Supply Pension  Scheme
  and  contributions to the scheme are charged to  the  profit  and
  loss account.
  The  capital  cost  of  ex gratia and supplementary  pensions  is
  normally charged to the profit and loss account in the period  in
  which  they  are granted. Variations in pension cost,  which  are
  identified  as  a result of actuarial valuations,  are  amortised
  over the average expected remaining working lives of employees in
  proportion  to their expected payroll costs. Differences  between
  the amounts funded and the amounts charged to the profit and loss
  account  are treated as either provisions or prepayments  in  the
  balance sheet.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  2.                       TURNOVER AND SEGMENTAL ANALYSIS
  
  The  Group operates in four principal areas of activity, that  of
  the  distribution,  supply  and generation  of  electricity,  and
  retailing,  all in the United Kingdom.  The distribution,  supply
  and  generation  activities are treated  as  separate  businesses
  under  the  Public  Electricity Supply  License  granted  to  the
  Company in 1990.
  
  Turnover, all of which is in respect of continuing activities and
  sales  to  United  Kingdom customers, Group  profit  on  ordinary
  activities before taxation and net assets are analysed below:
  
  <TABLE>
  <CAPTION>
                                          Year ended at 31 March 1996
    
                      Distribution   Supply  Generation  Retailing  Other    Other     Total
                                                                   Trading
                                                                 Activities
   
  TURNOVER              pound m      pound m     pound m    pound m   pound m  pound m  pound m
  <S>                   <C>          <C>        <C>        <C>       <C>      <C>     <C>
  Total sales             240.7       798.5       1.0       54.1      158.9     57.6   1,310.8
  Inter-segment sales    (205.8)       (1.8)     (0.3)      (8.1)    (142.3)   (50.3)   (408.6)
                        --------     -------     -----      -----    ------    ------  --------
  Sales to third parties   34.9       796.7       0.7       46.0       16.6      7.3     902.2
                        ========     =======     =====      =====    ======    ======  ========
  PROFIT BEFORE TAXATION
  
  Segment profit           79.7       (43.6)     (1.4)       3.9        2.8     14.0      55.4
  
  Profit on disposal of
   fixed assets             1.0           -         -          -          -     24.3      25.3
  Exceptional shareholder
   costs                      -           -         -          -          -    (15.7)    (15.7)
  Group share of profit/
   (loss) before taxation of
   associated undertakings    -           -      (0.5)         -        1.1         -      0.6
  
  Investment income           -           -       6.6          -          -      91.9     98.5
  
  Net interest                -           -         -          -          -     (13.3)   (13.3)
                         ------      -------    ------     ------      ----     ------   ------
  Profit on ordinary activities
   before taxation         80.7       (43.6)      4.7        3.9        3.9     101.2    150.8
                         =======     =======    ======     ======     =====     ======   ======
  NET ASSETS
  
  Total net assets
   by segment             386.6       (4.1)      42.9       32.6       32.5     (214.9)  275.6
                         ======       =====      ====       ====       =====     ======  =====
  </TABLE>
  
  <TABLE>
  <CAPTION>
                    NORTHERN ELECTRIC plc AND SUBSIDIARIE
                                       
                        NOTES TO THE ACCOUNTS CONTINUED
  
  
  2.                       TURNOVER AND SEGMENTAL ANALYSIS (continued)
  
                                      Year ended and at 31 March 1995
  
                      Distribution  Supply  Generation  Retailing  Other  Other  Total
                                                                  Trading
                                                                 Activities
  
                           pound m  pound m    pound m    pound m pound m pound m pound m
  TURNOVER
  <S>                     <C>      <C>        <C>        <C>     <C>      <C>   <C>
  Total sales              260.1    982.9       1.2       57.0    13.9     38.5 1,353.6
  Inter-segment sales     (227.3)    (2.1)     (0.4)      (7.6)   (0.5)   (34.9) (272.8)
                          -------------------------------------------------------------
  Sales to third parties    32.8    980.8       0.8       49.4    13.4      3.6 1,080.8
                           =====    =====      ====      =====    =====   ===== =======
  PROFIT BEFORE TAXATION
  
  Segment profit            98.8     24.9      (0.5)       3.5     1.2      8.2   136.1
  
  Profit on disposal of
   fixed assets              0.6        -         -          -      -       3.4     4.0
  Exceptional shareholder
   costs                       -        -         -          -      -     (15.1)  (15.1)
  Group share of profit/(loss)
   before taxation of associated
   undertakings                -        -      (1.0)         -     1.1        -     0.1
  
  Investment income            -        -       6.3          -       -     13.2    19.5
  
  Net interest                 -        -         -          -       -     (3.9)   (3.9)
                           -------------------------------------------------------------
  Profit on ordinary activities
   before taxation          99.4     24.9       4.8        3.5     2.3      5.8   140.7
                           =====    =====      ====      =====    =====   =====   =====
  NET ASSETS
  
  Net assets by segment    376.5     34.0      42.9       41.2     1.1    (49.4)  446.3
  
  Group share of the
   net assets of associated
   undertakings                -        -         -         -     10.2        -    10.2
                           ------------------------------------------------------------
  Total net assets         376.5     34.0      42.9      41.2     11.3    (49.4)  456.5
                           =====    =====      ====     =====    =====    =====  ======
  </TABLE>
  
                    NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                       
                        NOTES TO THE ACCOUNTS CONTINUED
  
  
  2.                       TURNOVER AND SEGMENTAL ANALYSIS (continued)
  <TABLE>
  <CAPTION>
                                         Year ended and at 31 March 1994
  
                             Distribution  Supply  Generation  Retailing  Other  Other   Total
                                                                         Trading
                                                                        Activities
  
                                pound m    pound m    pound m   pound m  pound m  pound m pound m
  TURNOVER
  <S>                           <C>         <C>        <C>      <C>      <C>     <C>     <C>
  Total sales                     250.6     957.6       0.6      52.2     8.8     44.2   1,314.0
  Inter-segment sales            (229.8)     (1.7)     (0.1)     (8.8)   (1.1)   (42.0)   (283.5)
                                 ----------------------------------------------------------------
  Sales to third
   parties (ii) (iii)              20.8     955.9       0.5      43.4     7.7      2.2   1,030.5
                                  =====     =====      ====     =====    =====   =====   =======
  PROFIT BEFORE TAXATION
  
  Segment profit                   97.3       5.8      (0.6)      2.7     0.3      8.8     114.3
  
  Profit on disposal of fixed
   assets                           0.4         -         -         -       -        -       0.4
  
  Investment income                   -         -       5.4         -       -     12.2      17.6
  
  Net interest                        -         -         -         -       -     (3.6)     (3.6)
                                 -----------------------------------------------------------------
  Profit on ordinary activities
   before taxation (ii)            97.7       5.8       4.8       2.7     0.3     17.4     128.7
                                  =====     =====      ====     =====    =====   =====     =====
  NET ASSETS
  
  Net assets by segment           339.3     (15.2)     39.5      33.1     1.6     85.0     483.3
  
  Group share of the net assets
   of associated undertakings         -         -         -         -       -     10.7      10.7
                                 -----------------------------------------------------------------
  Total net assets                339.3     (15.2)     39.5      33.1     1.6     95.7     494.0
                                  =====     =====      ====     =====    =====   =====     ======
  </TABLE>
  
  (i)    Other comprises business support units, and unallocated items
    including investments, financing, dividends and taxation.  The other
    Trading Activities reflect the change in Group Structure effective from
    1 April 1995 and include the Group's engineering, gas and energy
    marketing activities.
  
  (ii)   Supply's turnover in 1996 is net of a 67.1m pound customer rebate in
    consequence of the flotation of the National Grid Group plc.  Segment
    profit in 1996 is net of 61.0m pounds reflecting the reduction in cost of
    sales owing to abatement of the non-fossil fuel levy.  (Note 6)
  
  (iii)  Distribution's turnover in 1996 reflects an overrecovery of 2.9m
    pounds (1995 - 4.1m pound underrecovery, 1994 - 0.5m pound overrecovery).
    Supply's turnover reflects a net increase in the overrecovery of 0.1m pounds
    (1995 - 9.2m pound reduction in overrecovery, 1994 - 4.9m pound reduction in
    overrecovery).
  
  At 31 March 1996 the cumulative underrecovery in the distribution business
  was 2.0m pounds (1995 - 4.9m pound underrecovery) and in the supply business the
  cumulative overrecovery was 7.2m pounds (1995 - 7.1m pound overrecovery).
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  3.                         INCOME FROM FIXED ASSET INVESTMENTS
  
                                               Year ended 31 March
                                                1996    1995   1994
                                               pound m pound m poound m
  
  Exceptional dividends received from The
   National Grid Group plc (Note 6)             69.5     -       -
  Tax credit attributable to exceptional
   dividends (Note 9)                           14.1     -       -
  Ordinary dividends receivable from The
   National Grid Group plc                       4.5  10.6     9.7
  Tax credit attributable to ordinary
   dividends (Note 9)                            1.2   2.6     2.5
  Dividends received by Northern Electric
   Share Scheme Trustee Limited                  2.6     -       -
                                              ---------------------
                                                91.9  13.2    12.2
  Interest receivable from Teesside
   Power Limited                                 6.6   6.3     5.4
                                              ---------------------
  Amount included in profit and loss account    98.5  19.5    17.6
                                                ====  ====    ====
  
  
  4.                                                NET INTEREST
                                                 Year ended 31 March
                                                 1996   1995   1994
                                               pound m  pound m pound m
  Interest payable:
  
  On loans and overdrafts wholly
   repayable within five years                  (8.7)   (8.0)  (0.3)
  On long-term loans repayable in
   whole or in part after five years            (8.0)      -   (7.0)
                                                 ====   ====   ====
  Total interest payable                        (16.7) (8.0)   (7.3)
  Interest receivable                             3.4   4.1     3.7
                                              -----------------------
                                                (13.3) (3.9)   (3.6)
                                                 ====   ====  ====
  <TABLE>
  <CAPTION>
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  5.  OPERATING PROFIT                  Cost of  Distribution  Administrative
  (i) This is stated after charging:     Sales      Costs        Expenses   Total
                                        pound m    pound m       pound m   pound m
  <S>                                      <C>       <C>            <C>      <C>
  Year ended 31 March 1996
  Staff costs (Note 7)                     3.9       29.9           34.7     68.5
  Restructuring costs (Note 7)               -          -           13.5     13.5
  Research and development expenditure       -          -            0.5      0.5
  Depreciation                             0.5       18.2            9.5     28.2
  Exceptional depreciation on 
   non-operational property                  -          -            2.4      2.4
  Rental of land and buildings               -          -            3.4      3.4
  Hire of plant and machinery                -        2.0              -      2.0
  Hire of computer equipment                 -          -            1.8      1.8
  Auditors' remuneration - audit services    -          -            0.1      0.1
                         - other services    -          -            0.2      0.2
                                         =====      =====          =====    =====
  Year ended 31 March 1995
  Staff costs (Note 7)                     3.4       31.8           44.0     79.2
  Restructuring costs (Note 7)               -          -           19.8     19.8
  Research and development expenditure       -        0.1            0.9      1.0
  Depreciation                             0.2       18.7            7.7     26.6
  Depreciation credit on re-lifting
   key meters                                -       (1.6)             -     (1.6)
  Rental of land and buildings               -          -            3.5      3.5
  Hire of plant and machinery                -        1.9              -      1.9
  Hire of computer equipment                 -          -            2.2      2.2
  Auditors' remuneration - audit services    -          -            0.1      0.1
                         - other services    -          -            0.2      0.2
                                          =====     =====          =====     ====
  Year ended 31 March 1994
  Staff costs (Note 7)                     4.4       33.0           46.2     83.6
  Restructuring costs (Note 7)               -          -            6.9      6.9
  Research and development expenditure       -        0.1            1.0      1.1
  Depreciation                             0.2       16.9            7.0     24.1
  Rental of land and buildings               -          -            3.5      3.5
  Hire of plant and machinery                -        1.6              -      1.6
  Hire of computer equipment                 -          -            1.9      1.9
  Auditors' remuneration - audit services    -          -            0.1      0.1
                         - other services    -          -            0.1      0.1
                                          =====     =====          =====    =====
  </TABLE>
  
  In addition to the auditors' remuneration for other services,
  there are fees payable of 0.2m pounds (1995 - 0.6m pounds) included within
  the exceptional shareholder costs of 15.7m pounds (1995 - 15.1m pounds).
  
  (ii) Reconciliation of operating profit to net cash inflow from  operating
  activities:
                                                 Year ended 31 March
                                                1996    1995     1994
                                                pound m pound m pound m
  Operating profit                              56.0    136.2   114.3
  Exceptional shareholder costs                 (9.1)   (15.1)      -
  Share of losses of associated undertakings    (0.6)    (0.1)      -
  Depreciation charges                          30.6     25.0    24.1
  Increase/(decrease) in provisions              3.4     (8.3)   (2.8)
  (Increase)/decrease in stocks                 (2.3)     0.5    (0.6)
  Decrease/(increase) in debtors                52.3    (37.0)   (8.5)
  Increase/(decrease) in creditors               9.3    (17.5)   50.5
                                               -----    ------   -----
  Net cash inflow from operating activities    139.6     83.7   177.0
                                               =====    =====   =====
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
                                  
  6.  EXCEPTIONAL ITEMS  Year ended 31 March
  
                                                      1996     1995    1994
                                                      pound m pound m pound m
  Recognised in arriving at operating profit:
  Customer rebate in consequence of the flotation of
   The National Grid Group plc                       (67.1)      -     -
  Reduction in fossil fuel levy                        6.1       -     -
                                                     ------    ---   ----
  Effect on gross profit                             (61.0)      -     -
                                                     ------    ---   ----
  Recognised below operating profit:
  Professional expenses incurred in respect of
   the flotation of The National Grid Group plc       (1.1)      -     -
  Expenses incurred in respect of share option
   compensation                                      (10.8)      -     -
  Expenses incurred in respect of the shareholder
   package                                            (3.8)  (15.1)    -
                                                     ------  ------  ----
  Exceptional shareholder costs charged to
   profit and loss account                           (15.7) (15.1)     -
  
  Profit on sale of fixed assets                      24.1    3.4      -
  Specie dividend paid to Northern Electric
   Share Scheme Trustee Limited                        2.6      -      -
  Dividends received from The National Grid 
   Group plc (Note 3)                                 83.6      -      -
                                                    ------   -----   ----
                                                      94.6  (11.7)     -
                                                    ------   -----   ----
  Effect on profit before tax                         33.6  (11.7)     -
  Taxation effect of above (Note 9)                  (28.2)     -      -
  Advance corporation tax written off (Note 9)       (20.2)     -      -
                                                    ------  -----    ----
  Effect on earnings                                 (14.8) (11.7)     -
  Dividends paid (Note 10)                          (391.6)     -      -
                                                    ------- -----    -----
                                                    (406.4) (11.7)     -
                                                    ======  =====    =====
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
                                  
  7.  STAFF COSTS
                                             Year ended 31 March
                                            1996     1995    1994
                                           pound m   pound m  pound m
  Salaries                                   79.5     83.5    84.9
  Social security costs                       6.2      7.1     7.4
  Other pension costs                         8.9     10.6    10.7
  Release of Barber v Guardian
   Royal Exchange provision                  (5.5)       -       -
                                         --------------------------
                                             89.1    101.2   103.0
  Less: charged as capital expenditure       20.6     22.0    19.4
                                         --------------------------
                                             68.5     79.2    83.6
  Add: restructuring costs                   13.5     19.8     6.9
                                         --------------------------
  Charged to profit and loss account         82.0     99.0    90.5
                                            =====    =====   =====
  
  The salaries and social security costs are before charging those
  elements of income tax and national insurance contributions borne
  by the Group and included in the share option compensation
  referred to in Note 6.
  
  The average number of employees during the year was:
  
                                         Year ended 31 March
                                           1996    1995    1994
                                         Number   Number  Number
  Electricity                            2,844   3,235    3,500
  Retail                                   606     650      645
  Other                                    432     571      569
                                      ---------------------------
                                         3,882   4,456    4,714
                                          =====   =====    =====
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  8.  DIRECTORS' REMUNERATION
  
                                           Year ended 31 March
                                            1996    1995      1994
  Chairman                               pound 000  pound 000 pound 000
  Executive directors' remuneration          141     185     187
  Performance-related bonuses                 30      45      21
                                        ---------------- -------
                                             171     230     208
  Pension costs - funded scheme               41      25      25
                - unfunded arrangement        84      77      70
                                        ---------------- -------
  Total remuneration                         296     332     303
                                            ====    ====    ====
  Chief Executive (i)
  Executive directors' remuneration          200     175
  Performance-related bonuses                 43      40
                                        ----------------
                                            243      215
  Pension costs - funded scheme              58       24
                - unfunded arrangement       73       74
                                        ----------------
  Total remuneration                         374     313
                                            ====    ====
  
  (i)  Amounts relating to the Chief Executive for 1994 were not
  required to be disclosed.
  
  All directors
  Non-executive directors' fees               60      53      53
  Executive directors' remuneration          740     704     641
  Performance-related bonuses                155     164      71
                                        ---------------- -------
                                             955     921     765
  Pension costs - funded scheme              211      95      87
           - unfunded arrangement            170     151     134
                                        ---------------- -------
  Total remuneration                       1,336   1,167     986
  Payment on retirement of executive
   director                                   94       -       -
                                        ---------------- -------
                                           1,430    1,167     986
                                           =====    =====    ====
  
  The additional payment in 1996 was in respect of Alan Groves and
  included benefits in kind of 14,000 pounds being the market value of
  his company car given to him on his retirement from executive
  office in August 1995.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  8. DIRECTORS' REMUNERATION continued
  
  The number of directors with emoluments, excluding pension
  contributions, within the bands stated were:
  
                                       Year ended 31 March
                                       1996      1995       1994
                                      Number    Number     Number
  
    pound          5,001 -  10,000          -         2          -
    pound         15,001 -  20,000          3         2          3
    pound         90,001 -  95,000          1         -          -
    pound        100,001 - 105,000          1         -          1
    pound        115,001 - 120,000          -         -          1
    pound        120,001 - 125,000          -         -          1
    pound        125,001 - 130,000          -         1          -
    pound        135,001 - 140,000          1         -          -
    pound        145,001 - 150,000          1         2          -
    pound        160,001 - 165,000          -         -          1
    pound        170,001 - 175,000          1         -          -
    pound        205,001 - 210,000          -         -          1
    pound        215,001 - 220,000          -         1          -
    pound        225,001 - 230,000          -         1          -
    pound        240,001 - 245,000          1         -          -
  
  
  The Chief Executive was the highest paid director in 1996 ( 1995
  and 1994- Chairman)
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  9.  TAX ON PROFIT ON ORDINARY AND EXCEPTIONAL ACTIVITIES
  
                                                      Year ended 31 March
                                                      1996   1995    1994
                                                   pound m  pound m  pound m
  Tax on profit for the year:
  
  Corporation tax at 33% (1995 - 33%)                 47.4   32.4    19.4
  Provision for payment for consortium relief          2.3    3.2    11.2
  Tax credits attributable to dividends received      15.3    2.6     2.5
  Surplus advance corporation tax written off         20.2      -       -
  Corporation tax under/(over) provided in
   previous years                                      1.8   (7.4)   (6.3)
                                                   -----------------------
                                                      87.0   30.8    26.8
  Deferred tax                                        (4.9)   6.2     3.6
                                                   -----------------------
                                                      82.1   37.0    30.4
  Tax on profits from associates                       0.9    0.5     -
                                                   -----------------------
  Tax charge                                          83.0   37.5    30.4
                                                      ====   ====    ====
  
  In arriving at the tax charge, it has been assumed that shareholder value
  costs and The  National  Grid  Group  plc  flotation costs are disallowable
  expenses.
  
  The   tax  effect  in  the  profit  and  loss  account  relating   to   the
  exceptional  items  recognised  before  operating  profit  was   a   credit
  of 20.1m pounds (1995 and 1994 - Nil).
  
  The  overall  tax  effect  on  the  Group  of  the  exceptional  items  was
  an  additional  charge  to  corporation  tax  of  48.4m pounds  (1995 and 1994
  -   Nil)  including  advance  corporation  tax  written  off  of  20.2m  pounds
  (1995 and 1994 - Nil).
  
  Deferred   tax   has   been   provided   on   interest   receivable    from
  Teesside   Power   Limited   and   on   the   dividends   receivable   from
  Northern   Electric   Insurance   Services   Limited.   A   deferred    tax
  asset   has   been  created  on  deferred  income  received  and   interest
  payable within Northern Electric Finance plc.
  
  The   tax   charge   has  been  reduced  by  5.5m pounds  (1995 - 11.0m pounds,
  1994 - 11.5m pounds)   being   the   effect   of  timing  differences   for 
  which no provision  has been made.  Potential  deferred  tax  liabilities, for
  which   no   provision  has  been  made,  computed  at   the   current   of
  corporation tax of 33% (1995 - 33%), are as follows:
  
                                                             31 March
                                                          1996     1995
                                                        pound m    pound m
  
  Capital allowances in excess of depreciation            66.1     66.9
  Other timing differences                                49.6     43.3
                                                       -------- --------
                                                         115.7    110.2
  Advance corporation tax written off                    (20.2)       -
                                                       -------- --------
                                                          95.5    110.2
                                                          ====    =====
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  10.  DIVIDENDS
  <TABLE>
  <CAPTION>
                                              Year ended 31 March
                                    1996   1995 (i) 1994   1996    1995  1994
                                  pence   pence    pence  pound m pound m pound m
  <S>                             <C>     <C>       <C>    <C>   <C>    <C>
  Preference dividend for period
   to 31 March 1996                 4.47      -         -    4.9     -     -
                                    ====   ====       ====  ==== =====  =====
  Interim dividend on ordinary
   shares paid                     12.00  10.85      7.40   11.9  10.7    9.1
  Final dividend on ordinary
   shares proposed                 27.90  26.45     17.45   27.9  26.1   21.6
                                 --------------------------------------------
                                   39.90  37.30     24.85   39.8  36.8   30.7
                                 --------------------------------------------
  Exceptional dividend on ordinary shares
   paid in September 1995 (ii)    113.04      -         -  110.4    -       -
  Specie dividend on flotation of
   The National Grid Group plc    221.49      -         -  219.0    -       -
  Exceptional dividend on ordinary
   shares paid in January 1996     63.50      -         -   62.2    -       -
                                 --------------------------------------------
                                  398.03      -         -  391.6    -       -
                                 --------------------------------------------
  Total dividends paid and payable to
   ordinary shareholders (iii)   437.93   37.30     24.85  431.4 36.8    30.7
                                 ======   =====     =====  ===== ====   =====
  
  </TABLE>
  
  (i)    The dividend per share for 1995 was 33.00 pence (1994 -
    24.85 pence) which, after adjustment for share consolidation,
    is equivalent to 37.30 pence (1994 - 28.09 pence).
  (ii)   The exceptional dividend of 100.00 pence paid in
    September 1995 is equivalent to 113.04 pence after adjustment
    for consolidation.
  (iii)  Dividends of 2.1m pounds were waived by Northern Electric Share
    Scheme Trustee Limited in 1996.
  
  11.  EARNINGS PER ORDINARY SHARE
  
  The  calculation  of  basic  earnings  per  ordinary  share  is  based   on
  earnings,  after  deducting  preference  dividend,  of  62.9m pounds  (1995 -
  103.2m pounds, 1994 - 98.3m pounds)  and  on  98,323,626  ordinary   shares,
  being the  weighted average  number of  shares  in  issue  during  the year
  (1995-117,651,149,   1994-123,184,663,   adjusted   on   consolidation   to
  1995-104,074,206,    1994-112,472,953),    excluding    those    held    by
  Northern   Electric  Share  Scheme  Trustee  Limited   which   has   waived
  rights   to   dividends.    The   calculation   of   earnings   per   share
  excluding  net  exceptional  charges  of  14.8m pounds  (1995 - 11.7m pounds,
  1994 - Nil)  is  included  to  give  a  fairer  indication  of  the  underlying
  performance of the Group in the year.
  
                    NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                       
                        NOTES TO THE ACCOUNTS CONTINUED
  
  <TABLE>
  <CAPTION>
  
  12.  TANGIBLE FIXED ASSET
  
                         Distribution  Oil and gas    Non-    Fixtures  Vehicles      Deduct:    Total
                            System        assets  operational   and     and mobile   Consumers'
                                                   land and   equipment   plant    contributions
                                                   buildings
                           pound m       pound m   pound m     pound m    pound m   pound m      pound m
  <C>                         <C>          <C>        <C>        <C>         <C>      <C>         <C>
  COST:
  At 1 April 1993             630.6           -       40.4       48.7        20.1     (158.0)     581.8
  Reclassification of assets   (6.0)          -       (1.5)       7.6        (0.1)         -          -
  Additions                    53.2           -       (0.1)      12.0         3.0      (13.5)      54.6
  Disposals                    (4.1)          -       (0.1)      (0.1)       (0.6)       0.3       (4.6)
                             -------------------------------------------------------------
  At 1 April 1994             673.7           -       38.7       68.2        22.4     (171.2)     631.8
  Reclassification of assets    2.2           -          -       (2.2)          -          -          -
  Additions                    60.5           -          -        6.5         3.4      (13.2)      57.2
  Disposals                    (3.9)          -       (0.8)      (0.4)       (1.6)       0.3       (6.4)
                             -------------------------------------------------------------
  At 1 April 1995             732.5           -       37.9       72.1        24.2     (184.1)     682.6
  Additions                    50.4        33.7          -        3.5         0.9      (12.6)      75.9
  Disposals                    (5.2)          -          -       (5.8)       (2.0)       0.7      (12.3)
                             -------------------------------------------------------------
  At 31 March 1996            777.7        33.7       37.9       69.8        23.1     (196.0)     746.2
                             -------------------------------------------------------------
  DEPRECIATION:
  At 1 April 1993             219.0           -        6.9       26.0         9.4      (41.0)     220.3
  Reclassification of assets   (1.4)          -          -        1.4           -          -          -
  Provided during the year     18.0           -        0.7        7.7         2.3       (4.6)      24.1
  Disposals                    (4.1)          -          -       (0.1)       (0.6)       0.3       (4.5)
                             -------------------------------------------------------------
  At 1 April 1994             231.5           -        7.6       35.0        11.1      (45.3)     239.9
  Reclassification of assets    1.4           -          -       (1.4)          -          -          -
  Provided during the year     18.9           -        0.8        8.2         2.1       (5.0)      25.0
  Disposals                    (3.9)          -       (0.1)      (0.4)       (1.3)       0.3       (5.4)
                             -------------------------------------------------------------
  At 1 April 1995             247.9           -        8.3       41.4        11.9      (50.0)     259.5
  Provided during the year     22.0           -        3.0        8.7         2.4       (5.5)      30.6
  Disposals                    (5.2)          -          -       (5.8)       (1.7)       0.7      (12.0)
                             -------------------------------------------------------------
  At 31 March 1996            264.7           -       11.3       44.3        12.6      (54.8)     278.1
                              =====        ====      =====       ====        ====      =====      =====
  Net book value at
   31 March 1996              513.0        33.7       26.6       25.5        10.5     (141.2)     468.1
                              =====        ====      =====       ====        ====      =====      =====
  Net book value at
   31 March 1995              484.6           -       29.6       30.7        12.3     (134.1)     423.1
                              =====        ====      =====       ====        ====      =====      =====
  Net book value at
   31 March 1994              442.2           -       31.1       33.2        11.3     (125.9)     391.9
                              =====        ====      =====       ====        ====      =====      =====
  Assets in the course of construction included:
  At 31 March 1996             10.5         5.4          -          -           -          -       15.9
                              =====        ====      =====       ====        ====      =====      =====
  At 31 March 1995             10.3           -          -          -           -          -       10.3
                              =====        ====      =====       ====        ====      =====      =====
  At 31 March 1994              1.6           -          -        0.7           -          -        2.3
                              =====        ====      =====       ====        ====      =====      =====
  </TABLE>
  
  The  depreciation charge was 30.6m pounds (1995 - 25.0m pounds, 1994 -  24.1m
  pounds) before taking  account  of profit from disposals of 1.2m pounds (1995 -
  4.0m pounds, 1994 - 0.4m pounds).The depreciation charge for 1995 includes an 
  exceptional  credit of 1.6m pounds following a reassessment which extended the
  economic  lives  of  key meters from five to ten years.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
                                  
  12.           TANGIBLE FIXED ASSETS continued
  
  The net book value of non-operational land and buildings
  comprises:
  
                                                        31 March
                                                       1996    1995
                                                      pound m  pound m
  
  Freehold                                             23.1   24.6
  Long leasehold                                        3.4    4.9
  Short leasehold                                       0.1    0.1
                                                      -----   ----
                                                       26.6   29.6
                                                      =====   ====
  The total of land which is not depreciated is:        3.7    3.6
                                                      =====   ====
  <TABLE>
  <CAPTION>
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  13. INVESTMENTS
                            Associated undertakings  Other undertakings  Total
                                 Shares   Loans        Shares   Loans
                                 pound m  pound m      pound m  pound m  pound m
  <S>                              <C>    <C>          <C>      <C>     <C>
  Cost:
  At 1 April 1993                     -      -           56.5   31.5      88.0
  Additions                         5.0    5.7            2.0      -      12.7
  Disposals                           -      -              -      -         -
                                  ------  -----          -----   ----    -----
  At 1 April 1994                   5.0    5.7           58.5   31.5     100.7
  Restatement of opening position on change to
     associate (ii) status          1.0     -            (1.0)     -         -
  Additions                         1.7     -             4.2    0.4       6.3
  Share of losses in associated
   undertakings                    (0.4)    -               -      -      (0.4)
  Goodwill written off             (2.0)  (0.8)             -      -      (2.8)
                                  ------  -----         -----   ----     -----
  At 1 April 1995                   5.3    4.9           61.7   31.9     103.8
  Share of losses in associated
   undertakings                    (0.2)     -              -      -      (0.2)
  Acquisition of controlling
   interest in associate (iii)     (6.3)  (4.9)             -      -     (11.2)
  Additions                           -      -           12.4    1.0      13.4
  Revaluation of investment in
   The National Grid Group plc (iv)   -      -          171.4      -     171.4
  Revaluation of investment in
   First Hydro Limited (iv)           -      -           10.9      -      10.9
  Revaluation of associated
   undertaking's assets             1.2      -              -      -       1.2
  Disposals (v)                       -      -         (244.2)     -    (244.2)
                                   -----   -----         -----   ----   -------
  At 31 March 1996                    -      -           12.2   32.9      45.1
                                   =====   =====         =====  =====   =======
  </TABLE>
  -------------------------------------------
  (i)    All investments are unlisted securities.
  (ii)   Following the increases in 1995 in the shareholding in
    Combined Power Systems Limited to 29.95% this company is now
    accounted for as an associate and the shareholding at 1 April
    1994 (1.0m pounds) was restated under the associates column.
  (iii)  Following the increase in the shareholding in Sovereign
    Exploration Limited to 100% on 31 December 1995, this company
    is now fully consolidated as a subsidiary.
  (iv)   In the year ended 31 March 1996 the investment in The
    National Grid Group plc (NGG) was increased by 11.2m pounds and then
    revalued by the directors to its flotation value of 226.6m pounds
    prior to its distribution to Northern Electric plc
    shareholders as a specie dividend. The residual investment in
    First Hydro Limited was revalued by the directors to 17.6m pounds on
    1 April 1995.
  (v)    The disposals comprise the specie dividend of NGG shares
    226.6m pounds and the sale of First Hydro Limited 17.6m pounds.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
                                  
  13. INVESTMENTS continued
  
  On  31  December  1995,  the  Group acquired  from  Neste  Oy  the  balance
  of   the   ordinary  shares  of  Sovereign  Exploration  Limited,   thereby
  increasing   its   investment   to  100%  of  Sovereign's   nominal   share
  capital.   The   purchase   consideration  was   11.2m pounds,   comprising
  5m pounds for   the  ordinary  shares,  5m pounds  for  loan  notes  of 1 pound
  nominal value and 1.2m pounds  in  respect  of  accrued  interest,  paid  to 
  Neste.  At  the same   time   a   capital   reconstruction  was   effected 
  by  Sovereign involving   the   issue   of   an   additional   10,000,000
  1 pound ordinary shares to the  Group  in  consideration  of  the  conversion
  of the 10m pound loan   notes   into   equity   capital.   On   18   January
  1996, Sovereign   issued   to   the  Group  a  further  3,204,000   1 pound
  ordinary shares in consideration   for  the  repayment of 3.2m pounds short-term
  loans.   The   investment  in  Sovereign  Exploration  Limited   has   been
  included  in  the  balance  sheet  at  its  fair  value  at  the  date   of
  acquisition and an analysis of the acquisition is given below:
  
                                  Book value      Adjustments          Fair value
                                              Revaluation Loan notes    to Group
                                   pound m      pound m    pound m       pound m
  Net assets at date of acquisition:
  Tangible fixed assets              31.6          2.4         -           34.0
  Debtors                             1.4            -         -            1.4
  Cash                                0.3            -         -            0.3
  Creditors due within one year      (5.3)           -         -           (5.3)
  Creditors due after one year      (14.6)           -      10.0           (4.6)
  Provisions                         (3.4)           -         -           (3.4)
                                   -------      ------    ------           -----
  Net assets                         10.0          2.4      10.0           22.4
                                   =======      ======    ======           =====
  
  Existing carrying value of Sovereign Exploration Limited as an
  associate                                                               (11.2)
                                                                          ------
                                                                           11.2
                                                                          ======
  Discharged by:
  Cash purchase of remaining 5,000,000 1 pound ordinary shares,
  5,000,000 1 pound loan notes and 1.2m pounds accrued interest from Neste
                                                                           11.2
  
  Sovereign   Exploration  Limited  was  acquired  on   31   December   1995,
  the  end  of  its  financial  year,  and  became  a  subsidiary  from  that
  date.   Thus,   the  acquisition  had  no  effect  on  the   Group's   cash
  flows  for  the  year.  The  cash  flows in  respect  of  the  purchase  of
  Sovereign Exploration Limited were as follows:
  
                                                                     pound m
  Cash in Sovereign Exploration Limited at date of acquisition         0.3
  Loans in Sovereign Exploration Limited at date of acquisition       (4.6)
  Cash consideration                                                 (11.2)
                                                                     ------
  Net cash outflow on acquisition of subsidiary undertaking          (15.5)
                                                                     ======
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  13.  INVESTMENTS continued
  
  Sovereign Exploration Limited incurred an after tax loss in the
  year ended 31 December 1995 of 0.4m pounds (1994 - 0.4m pounds profit). The
  summarised profit and loss account for the period from 1 January
  1995 to 31 December 1995, the date of acquisition, was as follows:
  
                                                           pound m
  Turnover                                                   6.0
                                                           =====
  Operating profit                                           2.3
                                                           =====
  Profit before tax                                          1.3
  Taxation                                                  (1.7)
                                                           ------
  Loss for the year ended 31 December 1995                  (0.4)
                                                           =====
  
  There were no recognised gains and losses in the year ended 31
  December 1995 other than the loss of 0.4m pounds above and the
  unrealised gain on revaluation of 2.4m pounds.
  
  Details of the principal investments of the Group are listed
  below.
  
                             Country of          Holding    Proportion
                             registration           of      of voting
                             (or incorporation)  ordinary   rights and   Nature of
  Name of company            and operation       shares     shares held  business
  -------------------------------------------------------------------------------
  Associated undertakings
  
  Held by Northern Electric subsidiaries:
  -------------------------------------------------------------------------------
  Combined Power Systems 
   Limited                   England and        457,475     29.95%  Manufacturing
                             Wales              at 1 pound          power supply
                                                                    systems
  -------------------------------------------------------------------------------
  Fixed asset investments
  Held by Northern Electric plc
  -------------------------------------------------------------------------------
  Teesside Power Limited     England and    26,923,176      15.4%  Generation of
                             Wales          at 1p                  electricity
  -------------------------------------------------------------------------------
  Ionica L3 Limited          England and        69,564      8.2%   Public 
                             Wales              at 10p             telephony
                                                                   operator
  -------------------------------------------------------------------------------
  UK Data Collection
   Services Limited          England and      155,000       8.3%   Data collection
                             Wales            at 1 pound           agency
  -------------------------------------------------------------------------------
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
  14. STOCKS
  
                                                        31 March
                                                      1996    1995
                                                  pound m   pound m
  
  Raw materials and consumables                      3.7     3.7
  Work in progress                                   3.9     2.9
  Finished goods and goods for resale                6.7     5.7
  Payments on account                               (2.4)   (2.7)
                                                    -----   -----
                                                    11.9     9.6
                                                    =====  =====
  
  The difference between the purchase price or production cost of
  stocks and their replacement cost is  not material.
  
  15.  DEBTORS
  
                                                        31 March
                                                      1996    1995
                                                   pound m    pound m
  Amounts falling due within one year:
  
  Trade debtors                                      7.7    65.1
  Credit sales installments not yet due              7.1     9.1
  Prepayments and accrued income                     3.5     1.3
  Unbilled consumption                              87.5    73.2
  Advance corporation tax recoverable               48.2     9.8
  Other                                             31.4    28.3
                                                    ----    -----
                                                   185.4   186.8
  Amounts falling due after more than one year:
  
  Credit sales installments not yet due             20.9    33.4
  Deferred tax                                       5.9     4.8
                                                    ----   -----
  Total debtors                                    212.2   225.0
                                                   =====   =====
  
  
  16.  CURRENT ASSET INVESTMENTS
                                                       31 March
                                                     1996    1995
                                                   pound m  pound m
  
  Listed equity investments                          5.7     7.0
  Short-term deposits with banks                    38.8     0.5
  Treasury stock                                     2.7     7.0
                                                    ----    -----
                                                    47.2    14.5
                                                    =====  =====
  
  The listed investments include a direct holding of 883,959 shares
  (1995 - 141,051 shares) in the Company of 3.9m pounds (1995 - 1.1m pounds),
  held by Northern Electric Share Scheme Trustee Limited as part of
  the Northern Electric Employees' Share Trust explained in Note 22.
                                  
  The market value of the listed investments at 31 March 1996 was
  10.2m pounds (1995 - 13.0m pounds).
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  17.  CASH AND CASH EQUIVALENTS 31 March
                                          1996    1995    Change
                                         ound m  pound m  pound m
  Analysis of balances in Group balance sheet:
  Cash at bank and in hand                34.9    20.4   14.5
  Short-term investments                  37.1     0.0   37.1
  Short-term borrowings                  (29.7)  (50.9)  21.2
                                    ---------------------------
                                          42.3   (30.5)  72.8
                                        =====   =====  =====
  Investments with an original maturity
   date of more than three months         10.1    14.5   (4.4)
  Provision made against value of
   employee share option trust assets
   to write down to option price           0.6    0.6     0.0
                                    ---------------------------
                                          10.7    15.1   (4.4)
                                         =====   =====  =====
  
  
                                          1995    1994   Change
                                       pound m   pound m pound m
  Cash at bank and in hand                20.4    14.9    5.5
  Short-term investments                   -      37.5  (37.5)
  Short-term borrowings                  (50.9)    -    (50.9)
                                    ---------------------------
                                         (30.5)   52.4  (82.9)
                                        =====   =====  =====
  Investments with an original maturity 
   date of more than three months         14.5    34.7  (20.2)
  Provision made against value of
   employee share option trust assets
   to write down to option price           0.6    0.4     0.2
                                    ---------------------------
                                          15.1    35.1  (20.0)
                                        =====   =====  =====
  
                                          1994    1993      Change
                                        pound m   pound m   pound m
  Cash at bank and in hand                14.9     9.0        5.9
  Short-term investments                  37.5    26.1       11.4
                                        ---------------------------
                                          52.4    35.1       17.3
                                         =====   =====      =====
  Investments with an original maturity
   date of more than three months         34.7     6.3       28.4
  Provision made against value of 
   employee share option trust assets
   to write down to option price           0.4    0.2         0.2
                                       ---------------------------
                                          35.1     6.5       28.6
                                         =====   =====      =====
   
  
              NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
                                  
  18.  CREDITORS:  amounts falling due within one year
  
  
                                                 31 March
                                               1996    1995
                                             pound m   pound m
  Loans and overdrafts (Note 20)               29.7    84.5
  Payments received on account                  5.1    12.8
  Trade creditors                              89.4    69.8
  Corporation tax                              18.9    11.0
  Advance corporation tax                      26.8     6.6
  Consortium relief                               -     0.4
  Other taxes and social security costs         4.3     3.1
  Other creditors                              11.5     7.7
  Accruals and deferred income                  3.2     0.9
  Dividends accrued and proposed (Note 10)     32.8    26.1
                                           ------------------
                                              221.7   222.9
                                              =====   =====
  
  19.  CREDITORS:  amounts
  
  falling due after more than one year
                                            31 March
                                          1996    1995
                                        pound m  pound m
  Loans (Note 20)                        257.1    61.5
  Deferred tax                             7.0     2.8
  Consortium relief                       21.5    19.1
  Other creditors                          -       0.5
                                      ------------------
                                         285.6    83.9
                                         =====   =====
  
  20.  BORROWINGS
  
                                                      31 March
                                                    1996    1995
                                                  pound m   pound m
  Analysis of borrowings:
  Not wholly repayable within five years            199.1      -
  Wholly repayable between two to five years         58.0    61.5
  Wholly repayable within one year                   29.7    84.5
                                                 ------------------
                                                    286.8   146.0
                                                    =====   =====
  
  
  The principal loans not wholly repayable within five years are
  bearer bonds, repayable in 100m pound tranches in 2005 and 2020,
  bearing interest at 8.625% and 8.875% respectively.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
  Analysis of changes in borrowings during the year:
  
                                          Year ended 31 March
                                          1996    1995     1994
                                       pound m   pound m  pound m
  At 1 April                             146.0    62.1   80.5
  Net cash (outflow)/inflow  from 
   cash and cash equivalents (Note 17)   (21.2)   50.9      -
  Net cash (outflow)/inflow from
   borrowings                            162.0    33.0  (18.4)
                                    ---------------------------
  
  At 31 March                            286.8   146.0   62.1
                                         =====   =====  =====
  
  21.  PROVISIONS FOR LIABILITIES AND CHARGES
  
  <TABLE>
  <CAPTION>
                             Regulatory    Pensions   Insurance  Restructuring   Other   Total
                             correction               claims
                             factor
  
                            pound m        pound m    pound m       pound m       pound m  pound m
  <S>                        <C>            <C>         <C>          <C>          <C>     <C>
  At 1 April 1993             21.2           5.5         9.2          5.4          2.9     44.2
  Utilised/paid in year      (21.2)            -        (0.4)        (4.0)        (0.5)   (26.1)
  Transferred from/(to)
   profit and loss account    16.3           0.2         2.8          3.9          0.1     23.3
  At 31 March 1994            16.3           5.7        11.6          5.3          2.5     41.4
                           ---------      ---------   ---------     --------     -------  ------ 
  Utilised/paid in year      (16.3)            -        (0.7)        (5.3)        (0.7)   (23.0)
  Transferred from/(to)
   profit and loss account     7.1           0.2         1.9          6.0         (0.5)    14.7
                           ---------      ---------   ---------     --------    -------  -----  
  At 31 March 1995             7.1           5.9        12.8          6.0          1.3     33.1
                          ----------      ---------   ---------     --------    -------   ----- 
  Utilised/paid in year       (7.1)            -        (2.8)        (6.0)        (0.4)   (16.3)
  Transferred from/(to)
   profit and loss account     7.2          (5.3)       (0.5)        13.5          4.8     19.7
                          ----------      ---------   ---------     --------    -------   -----
  At 31 March 1996             7.2           0.6         9.5         13.5          5.7     36.5
                          ==========      =========   =========     ========    =======
  </TABLE>
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  22.  SHARE CAPITAL
  <TABLE>
  <CAPTION>
                                           31 March
                             1996       1995       1994    1996    1995    1994
                            Number     Number     Number  pound m  pound m pound m
                           (millions) (millions)  (millions)
  <S>                      <C>          <C>         <C>      <C>     <C>    <C>
  Authorised
  Equity--ordinary
   shares of 50p each          -        200.0       200.0        -   100.0  100.0
  Equity--ordinary shares
   of 56 12/23p each       176.9            -           -    100.0       -      -
  Non equity--cumulative
   preference shares 
   of 1p each              115.0            -           -      1.2       -      -
                           -----        -----       -----    -----   -----  -----
                           291.9        200.0       200.0    101.2   100.0  100.0
                           =====        =====       =====    =====   =====  =====
  
  Allotted, called up and
   fully paid 
  Equity - ordinary shares
   of 50p each                -        111.5        123.7       -     55.8   61.9
  Equity - ordinary shares
   of 56 12/23p each      101.1            -            -    57.2        -      -
  Non equity--cumulative
   preference shares
   of 1p each             111.7            -            -     1.1        -      -
                          -----       ------        -----   -----    -----  -----
                          212.8        111.5        123.7    58.3    545.8   61.9
                          =====       ======        =====   =====    =====  =====
  </TABLE>
  
  On   11   September   1995   the  Company  issued  111,662,378   preference
  shares of an aggregate  nominal  value  of  1.1m pounds  to  its  shareholders
  as   a  bonus  issue  of  one  preference  share  for  every  one  ordinary
  share   of   50p   held  as  at  16  August  1995.  Cumulative   preference
  shares:
  
       (i)entitle   holders,   in   priority  to   holders   of   all   other
          classes   of   shares,   to   a   fixed   cumulative   preferential
          dividend  of  8.061p  (net)  per  share  per  annum  payable   half
          -yearly in equal amounts on 31 March and 30 September;
       
       (ii)on   a   return  of  capital  on  a  winding  up,  or   otherwise,
          will   carry   the   right  to  repayment   of   capital   together
          with  a  premium  of  99p  per  share  and  a  sum  equal  to   any
          arrears   or   accruals   of   dividend;   this   right    is    in
          priority to the rights of ordinary shareholders;
       
       (iii)carry   the   right   to  attend  a  general   meeting   of   the
          Company,  and  vote  if,  at  the  date  of  the  notice  convening
          the   meeting,   payment  of  the  dividend  to  which   they   are
          entitled   is   six   months  or  more  in   arrears,   or   if   a
          resolution  is  to  be  considered  at  the  meeting  for   winding
          up   the  Company  or  abrogating,  varying  or  modifying  any  of
          the special rights attaching to them; and,
       
       (iv)are   redeemable   in  the  event  of  the   revocation   by   the
          Secretary   of   State   of  the  Company's   Public    Electricity
          Supply License at the value given in (ii) above.
  
  In  September  1995  the  share  capital  was  consolidated  on  the  basis
  of  twenty  three  new  5612/23p  ordinary  shares  for  every  twenty  six
  50p   ordinary   shares.  Fractional  shares  arising  as   a   consequence
  of   the  consolidation  were  sold  by  the  Company  on  behalf  of   the
  shareholders   entitled  to  them  and  the  proceeds  of  sale   (net   of
  expenses) were paid to those shareholders.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  22. SHARE CAPITAL continued
  
  At    an    Extraordinary   General   Meeting   on    8    December    1995
  shareholders   approved   the  distribution   of   the   benefit   of   the
  Company's  holding  in  The  National  Grid  Group  plc  ("NGG")   by   way
  of   a   dividend   in   specie.   As  a  consequence,   holders   of   the
  Company's   ordinary   shares   received   1.07   NGG   shares   for   each
  Northern   Electric   plc  ordinary  share  held  at   8   December   1995.
  Fractions   of  NGG  shares  were  not  transferred  to  shareholders   but
  were   aggregated   and  transferred  to  the  employee   share   ownership
  trust.   3,698,479   NGG  shares  were  retained   by   the   Company   for
  purchase   by   the  Trustee  of  the  Northern  Electric  Employee   Share
  Trust   to   meet  its  obligations  under  the  Company's   share   option
  schemes.
  
  At    the    Group's    Annual   General   Meeting    in    August    1994,
  shareholders  gave  approval  to  on-market  purchases  of  up  to  10%  of
  its   shares  and  this  was  given  effect  on  21  September  1994   when
  12,370,400   ordinary   shares,  with  an  aggregate   nominal   value   of
  6.2m pounds,   were  purchased  for  a  consideration  of 101.6m pounds.  The
  special rights  redeemable  preference  share  held  by  the  Secretary  of 
  State for  Trade  and  Industry  was  redeemed  at  par by the Company on  30
  March 1995.
  
  At   an  extraordinary  general  meeting  held  on  15  February  1995,   a
  special   resolution  to  alter  the  Company's  Articles  of   Association
  to   remove   the   restriction  limiting  ownership   of   shares   by   a
  single shareholder to 15% was passed.
  
  Employee Share Schemes
  
  On   11   December   1995,   786,334  ordinary   and   795,067   preference
  shares   were   transferred  out  of  trust  to  employees  under   special
  arrangements  made  at  the  time  of  the  Offer  for  Sale  in   November
  1990.
  
  On   8   and  15  August  1995  the  Trustee  exercised  its  option  under
  the     agreement    to    acquire    500,000    and    1,088,500    shares
  respectively  from  the  Bank  at  an aggregate  price of 6.3m pounds to meet
  Northern    Electric   plc's   obligations   under   its    share    option
  schemes.
  
  As   at  3  June  1996  the  Company,  through  the  Trustee  held  858,135
  (1995   -  1,716,920,  1994  -  1,642,653)  of  its  own  shares  in  trust
  on behalf of employees in connection with share option schemes.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  22. SHARE CAPITAL continued
  
  At   31   March  1996,  options  remained  outstanding  for  the   purchase
  of shares as follows:
  
                            Option     Date of                      Number
                            price      Exercise                    of Shares
                            pound
  To employees under the
   Sharesave Scheme         1.5683     1 March 1996                 146,071
  
                            2.7960     1 October 1997             1,030,987
  
  To senior executives
   under the Executive
   Share Option Scheme      3.486      1 July 1995-July 2002         29,739
  
                            3.4861     July 1995-July 2002           65,560*
  
  
                            6.1745     January 1997-January 2004     228,649
  
                            6.1745     January 1997-January 2004      76,202
  
                            5.8788     July 1997 - July 2004         199,589
  
                            5.8788     July 1997 - July 2004          66,514*
  
  
                            6.3269     August 1997 - August 2004     156,244
  
                            6.3269     August 1997 - August 2004      52,053*
  
  
  *In  relation  to  these  options,  a second  option  was  granted  on  the
  same  date  over  the  same  number  of Northern  Electric  plc  shares  at
  a   price   discounted   by   up  to  15%.   Each   of   these   discounted
  options  may  be  exercised  in  whole  or  in  part  from  the  fifth   to
  the  tenth  anniversary  of  the  date  of  the  grant,  in  lieu  of,  but
  not  in  addition  to,  the  higher priced option  of  the  same  pair  and
  provided   that  Northern  Electric  plc  achieves  a  growth  in  earnings
  per   share  over  the  five  financial  years  from  the  financial   year
  immediately   prior  to  the  date  of  grant  which  is   at   least   10%
  above the Retail Price Index growth for the same period.
  
  In   accordance   with  the  rules  of  the  Northern  Electric   Sharesave
  and   Northern  Electric  Executive  Share  Option  Schemes,   the   option
  price   and  number  of  options  granted  were  adjusted  for  each  grant
  with   effect  from  11  September  1995  following  the  bonus  issue   of
  preference   shares   by   Northern   Electric   plc.   The    method    of
  adjustment   was   approved  by  the  Inland  Revenue  and   certified   by
  the Group's auditors to be fair and reasonable.
  
  3,211,515   (1995  -  228,931,  1994-622,431)  ordinary   shares   with   a
  nominal   value   of   1.8m pounds   (1995  -  0.1m pounds,   1994 - 0.3m
  pounds) have been transferred to employees  and  senior  executives during
  the year under the share option  schemes  for  an  aggregate  consideration of
  6.8m pounds (1995 - 0.5m pounds, 1994 - 1.7m pounds).  This includes new shares
  issued by the Company  with  a  nominal value of 1.4m pounds  (1995 - 0.1m 
  pounds,  1994 - Nil)   and   shares  transferred  from  Northern  Electric 
  Share Scheme Trustee  Limited  with  a  nominal  value of 0.4m pounds (1995 and
  1994 - Nil).
  
  In   addition  2,444,060  (1995  and  1994  -  Nil)  NGG  ordinary   shares
  with   a  nominal  value  of 0.2m pounds  (1995  and  1994  -  Nil)  have  been
  issued   to  employees  and  senior  executives  under  the  share   option
  schemes.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  22.  SHARE CAPITAL continued
  
  
  
                                             Year ended 31 March
                                            1996    1995   1994
  
  Analysis of changes in share capital
   during the year:                       pound m  pound m pound m
  
  At 1 April                                55.8   61.9    61.6
                                           -----  -----   -----
  Issue of share capital                     4.1    0.5     1.7
  Purchase of own shares                       - (101.6)      -
                                           -----  ------  -----
  Net cash inflow/(outflow) from financing   4.1 (101.1)    1.7
  
  Nominal value of shares transferred
   to capital redemption reserve              -    (6.2)      -
  Premium on shares transferred to 
   share premium account                   (2.7)   (0.4)   (1.4)
  Premium on shares transferred from
   profit and loss reserves                   -   101.6       - 
  Preference shares issued                  1.1       -       -
                                          -----   -----   -----
  At 31 March                              58.3    55.8    61.9
                                           =====  =====   =====
  
  Analysis of changes in share premium during the year:
  At 1 April                                1.8    1.4        -
  Issue of preference share                (1.1)     -        -
  Net cash inflow from financing            2.7    0.4      1.4
                                           -----  -----   -----
  At 31 March                               3.4    1.8      1.4
                                           =====  =====   =====
  Analysis of changes in capital redemption reserve during the
  year:
  At 1 April                               6.2       -        -
  Purchase of own shares                     -     6.2        -
                                          -----  -----    -----
  At 31 March                              6.2     6.2        -
                                          =====  =====   =====
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  23. MOVEMENT ON RESERVES AND RECONCILIATION OF SHAREHOLDERS' FUNDS
  
  <TABLE>
  <CAPTION>
                                   Share   Share     Capital      Statutory  Revaluation  Profit        Total
                                  Capital  Premium   Redemption   Reserve    Reserve      & Loss    Shareholders
                                           Account   Reserve                              Account       Funds
                                  pound m  pound m   pound m      pound m    pound m      pound m       pound m
  <S>                              <C>      <C>         <C>         <C>     <C>          <C>           <C>
  Total shareholders' funds
   at 1 April 1993                 61.6        -          -          0.3          -       362.8         424.7
  
  Profit attributable to members      -        -          -            -          -        98.3          98.3
  Dividends                           -        -          -            -          -       (30.7)        (30.7)
  Transfer to statutory reserve (i)   -        -          -          0.2          -        (0.2)            -
  Issue of ordinary shares          0.3      1.4          -            -          -           -           1.7
                              --------- ---------   ---------    ---------  ---------   ---------       ------
  
  Total shareholders' funds at
   31 March 1994                  61.9       1.4          -          0.5          -       430.2         494.0
  
  Profit attributable to members     -         -          -            -          -       103.2         103.2
  Dividends                          -         -          -            -          -       (36.8)        (36.8)
  Transfer to statutory reserve      -         -          -          0.5          -        (0.5)            -
  Issue of ordinary shares         0.1       0.4          -            -          -           -           0.5
  Purchase of own shares (ii)     (6.2)        -        6.2            -          -      (101.6)       (101.6)
  Adjustment to goodwill on 
   investments (iii)                 -         -          -            -          -        (2.8)         (2.8)
                              --------- ---------   ---------    ---------  ---------   ---------     ---------
  Total shareholders' funds
   at 31 March 1995               55.8       1.8        6.2          1.0          -       391.7         456.5
  
  Profit attributable to members     -         -          -            -          -        67.8          67.8
  Dividends                          -         -          -            -          -      (217.3)       (217.3)
  Issue of preference shares (iv)  1.1      (1.1)         -            -          -           -             -
  Issue of ordinary shares         1.4       2.7          -            -          -           -           4.1
  Revaluation of fixed asset
   investments (v)                   -         -          -            -      182.3           -         182.3
  Reserves on acquisition of
   Sovereign Exploration Limited     -         -          -            -        1.2           -           1.2
  Release of revaluation reserve
   on distribution (iv) & (v) in
   specie of shares in The 
   National Grid Group plc           -         -          -            -     (169.9)      169.9             -
  Distribution in specie of
   shares in The National (iv)
   & (v) Grid Group plc              -         -          -            -          -      (219.0)       (219.0)
  Disposal of investment in First
   Hydro Limited (vi)                -         -          -            -      (10.9)       10.9             -
  Transfer to statutory reserve      -         -          -          1.2          -        (1.2)            -
                              ---------   -------   ---------    ---------   --------- ---------      ---------
  Total shareholders' funds
   at 31 March 1996               58.3       3.4        6.2          2.2        2.7       202.8         275.6
                                ======    ======      ======      ======     ======      ======         =====
  Equity interests                                                                                      274.5
  Non-equity interests                                                                                    1.1
                                                                                                      ---------
                                                                                                        275.6
                                                                                                      =======
  </TABLE>
  
  The cumulative amount of goodwill written off at 31 March 1996 is
  2.8m pounds (1995 - 2.8m pounds, 1994 - Nil).
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  23.  MOVEMENT ON RESERVES AND RECONCILIATION OF SHAREHOLDERS' FUNDS
  
  
  (i)In  order  to  comply with the requirements of  the  insurance
     legislation in the Isle of Man, the Group's insurance  company
     has  increased the statutory reserve by 1.2m pounds (1995 - 0.5m pounds,
     1994 - 0.2m pounds) out of profits earned in the year.
  
  (ii)  At  the Company's Annual General Meeting in  August  1994,
     shareholders  gave  approval  to  on-market
     purchases  of  up  to  10% of its shares and  this  was  given
     effect  on  21  September  1994 when  12,370,400  shares  were
     purchased.
  
  (iii)                    The write-down of goodwill is in respect
     of  the investment in Combined Power Systems Limited  which is
     now accounted for as an associate on the equity basis.
  
  (iv)                     The  issue  of  the  preference  shares,
     1.1m pounds, and the demerger of the National Grid Group plc  by  a
     dividend  in  specie, 219.0m pounds, constituted the major  non-cash
     transactions of the Group during the year.
  
  (v)The investment in The National Grid Group plc was revalued  by
     the   directors   to  its  flotation  value   prior   to   its
     distribution  as  a  dividend in specie, to Northern  Electric
     plc shareholders.
  
  (vi)                     As  part  of  the arrangements  for  the
     demerger  of  The National Grid Group plc, the pumped  storage
     business,  First Hydro Limited, was retained by  the  regional
     electricity   companies   and  was  subsequently   sold.   The
     investment  was  revalued by the directors  to  the  estimated
     market value of the share of the net assets attributed to  the
     Group.
                                  
                                  
  24.  PENSION COMMITMENTS
  
  The Electricity Supply Pension Scheme is a defined benefit scheme
  for  directors  and  employees which provides pension  and  other
  related  benefits based on final pensionable pay.  The assets  of
  the Scheme are held in a separate trustee administered fund.
  
  The  pension cost to the Group for the period was 8.9m pounds (1995 -
  10.6m pounds, 1994 -10.7m pounds). The last full actuarial valuation of the
  Group's share of the Scheme was carried out by Bacon and Woodrow,
  consulting actuaries, as at 31 March 1995 and the results of this
  valuation  have been used as a basis for assessing pension  cost.
  The  attained  age  method  was  used  for  the  valuation.   The
  principal  actuarial assumptions were that the investment  return
  would  exceed  salary increases by 2.5% per annum  (exclusive  of
  merit  awards)  and  exceed future pension increases  by  4%  per
  annum.  The  previous  valuation was carried  out  by  Bacon  and
  Woodrow  as  at 31 March 1992 using the attained age method.  The
  principal  actuarial assumptions were that the investment  return
  would  exceed  salary increases by 2% per annum  (  exclusive  of
  merit  awards ) and exceed further pension increases  by  4%  per
  annum.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  24.  PENSION COMMITMENTS
  
  For  the  Northern Electric Group the valuation showed  that  the
  actuarial value of the assets represented 106.1% ( 31 March  1995
  -  108%  )  of  the actuarial value of the accrued benefits.  The
  accrued  benefits include all benefits for pensioners  and  other
  former members as well as benefits based on service completed  to
  date  for  active members, allowing for future salary  increases.
  Improvements  in benefits for members and dependants  are  to  be
  made   with  effect  from  1  April  1996.  Allowing  for   these
  improvements  the actuarial value represents 103.2%  (  31  March
  1995, allowing for improvements in benefits made with effect from
  1 April 1993 - 104.6% ) of accrued benefits.
  
  The total market value of the assets of the Scheme at the date of
  actuarial  valuation was 12,482.8m pounds (1995 - 9,521m pounds)  of  which
  443.9m pounds  (1995 - 327.3m pounds) represented the section of the  Scheme
  relating to the Northern Electric Group.
  
  Contributions, based on a composite rate and payable by the Group
  to  the Scheme during the year were 8.7m pounds (1995 - 10.4m pounds,
  1994 - 10.6m pounds).  In  addition, 0.2m pounds (1995 - 0.2m pounds,
  1994 - 0.1m pounds)  was incurred for provisions for unfunded supplementary
  pensions.  The latest actuarial valuation allowed for the additional liabilities
  which  have arisen from the European Court of Justice's  decision
  on  17  May 1990 in the case of Barber v Guardian Royal  Exchange
  which  relates  to  the  equal treatment  of  men  and  women  in
  occupational pension schemes.
  
  The  Actuary's valuation of the Scheme and of the separate Groups
  is  based on the situation known at the date of signature of  the
  report. It takes no account of any changes to the Group's  assets
  or  liabilities  which  may arise from the determination  of  the
  complaints in relation to the Scheme which may have been notified
  by  the Pensions Ombudsman at the request of certain  members and
  pensioners.  Those  complaints relate  to  other  Groups  and  no
  complaints have been  registered regarding the Northern  Electric
  Group.
  
  25. OBLIGATIONS UNDER HIRE AGREEMENTS
  
                                                 Land and
                                                 Buildings        Other
  
                                                 31 March       31 March
  Annual commitments under non-cancellable     1996    1995   1996  1995
  operating leases are as follows:           pound m  pound m pound m pound m
  
  Expiring within one year                      0.2    0.1     0.3    0.6
  Expiring between two and five years           0.3    0.1     2.1    3.6
  Expiring after five years                     2.5    2.6       -      -
                                                ---    ---     ---    ---
                                                3.0    2.8     2.4    4.2
                                               ====   ====    ====    ===
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  26.  REGULATORY MATTERS
  
  The  Company  is subject to price cap regulation. OFFER  controls
  the  revenues  generated by the Company in its  distribution  and
  supply businesses by applying a price control formula, P + RPI  -
  X  (where  X is currently 3% for distribution and 2% for supply),
  where  P  is  the  price  level at  the  beginning  of  each  new
  regulatory  period, RPI is the change in the Retail  Price  Index
  and X is an adjustment factor determined by OFFER.
  
  In  the  distribution  business, the Distribution  Price  Control
  Formula  ("DPCR") is usually set for a five-year period,  subject
  to  more  frequent  adjustments as determined  necessary  by  the
  Director  General  of Electricity Supply (the  "Regulator").   At
  each   review,  the  Regulator  can  require  a  one-time   price
  reduction. An initial review by the Regulator of allowable income
  in  the  distribution business led to a reduction  of  the  price
  level  by 17% for the Company starting 1 April 1995, followed  by
  efficiency factors of X = 2% for each year until March 2000. On 6
  July  1995,  the  Regulator announced the  result  of  a  further
  distribution  price  review  which was  precipitated  by  certain
  market  events  in  the  UK electric utility  industry.  For  the
  Company, such announcement meant a further real reduction of  11%
  in  allowable  distribution income for the twelve months  from  1
  April 1996, followed by an efficiency factor X = 3% for each year
  until 31 March 2000, before an allowed increase for inflation.
  
  In  the  supply business, which is progressively being opened  to
  competition,  price regulation still applies to  the  market  for
  customers with demand of not more than 100kW. The calculation  of
  the  maximum  supply  charge is based on a Supply  Price  Control
  Formula,  similar to the DPCR and is set for a four-year  period.
  In  1993, OFFER announced the supply franchise market (i.e., with
  demand  of not more than 100kW) income entitlement for the  four-
  year  period  ending  March 1998. A relatively  small  efficiency
  factor  of X = 2% was applied to the Company and is being  offset
  by   an  allowance  for  both  unit  and  customer  growth.   The
  nonfranchise markets (above 1MW) were opened to full  competition
  during  privatisation  in  1990; the nonfranchise  markets  above
  100kW were opened to full competition starting in April 1994.
  
  27.  CAPITAL AND OTHER COMMITMENTS
  
  Capital expenditure authorised by the Board of Directors but  not
  provided  for  at 31 March 1996 was 37.5m pounds (1995  -  50.7m pounds) in
  respect   of   which  the  Group  has  entered  into  contractual
  commitments of 2.9m pounds (1995 - 5.1m pounds).
  
  The  Company has entered into a contract relating to the purchase
  of  400  megawatts of capacity from a 15.4% owned related  party,
  Teesside  Power Limited ("Teesside"), for a period  of  15  years
  beginning  1  April  1993. The contract sets escalating  purchase
  prices  at  predetermined levels. Current contract prices  exceed
  those  paid  by the Company to the electricity pool (the  "Pool")
  which  is  operated by the NGG. However, the Company is  able  to
  recover  these costs under current price cap regulation  expected
  to expire 1 April 1998.
  
  The  Company  additionally  utilises  contracts  for  differences
  ("CFDs") to mitigate its exposure to volatility in the prices  of
  electricity purchased through the Pool. Such contracts allow  the
  Company  effectively to convert the majority of  its  anticipated
  Pool  purchases  from market to fixed prices.  As  of  31,  March
  1996,  CFDs  were  in  place  to hedge electricity  purchases  of
  approximately 49,000 GWh through the year 2008.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  28.  CONTINGENT LIABILITIES
  
  There  were no contingent liabilities at 31 March 1996 or  at  31
  March  1995; however, the following have developed subsequent  to
  31 March 1996:
  
  The  Labour Party has asserted that, if they are elected  at  the
  next  General Election, which must be held no later than  22  May
  1997,  they will seek to introduce a "windfall" assessment to  be
  levied  on  the privatised utilities including the  Company.  The
  basis  for  such  a  potential  assessment  is  unknown  but,  if
  introduced, such assessment could be substantial.
  
  Following  a  complaint by two pensioners, in December  1996  the
  Pensions  Ombudsman  made a ruling against  National  Grid  Group
  relating  to the use of an actuarial valuation surplus  in  their
  part  of the Electricity Supply Pension Scheme (the "ESPS").  The
  ruling,  prohibits  the  use of valuation  surplus  to  meet  the
  additional  pension  costs  of  early  retirement  arising   from
  restructuring.  Although  Northern would  intend  to  appeal  any
  similar  ruling against it, if a similar ruling was made  against
  Northern Electric and any subsequent appeal was unsuccessful then
  the  Company  could potentially be required to make contributions
  in lieu of utilizing any ESPS actuarial valuation surplus.
  
  29.  DIRECTORS' INTERESTS
  
  There  are  no  interests in contracts which are required  to  be
  disclosed under the Companies Act 1985.
  
  30.    COMPANIES ACT 1985
  
  These accounts do not compromise the Company's statutory accounts
  within  the meaning of  section 240 of the Companies Act 1985  of
  Great  Britain. Statutory accounts for the years ended  31  March
  1996,  1995  and  1994,  on  which  the  auditors'  reports  were
  unqualified,  have been delivered to the Registrar  of  Companies
  for England and Wales.
  
  
  31.     DIFFERENCES  BETWEEN  UNITED KINGDOM  AND  UNITED  STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
  
  The Group's consolidated accounts are prepared in accordance with
  accounting  principles generally accepted in the  United  Kingdom
  ("UK  GAAP")  which differ from United States generally  accepted
  accounting principles ("US GAAP"). The significant differences as
  they apply to the Group are summarised below.
  
  Pension costs
  
  The Group provides for the cost of retirement benefits based upon
  the  consistent  percentages  of employees'  pensionable  pay  as
  recommended  by  independent  actuaries.  Under  US   GAAP,   the
  projected benefit obligation, calculated using the projected unit
  credit  method and a discount rate which reflects current  market
  rates  at which pension liabilities could effectively be settled,
  would be matched against the fair value of the plan's assets  and
  would  be  adjusted  to reflect any unrecognised  obligations  or
  assets  in  determining the pension cost or credit for the  year.
  As  it  is  not feasible to adopt US GAAP prior to 1 April  1994,
  that  date  has  been used as the adoption date and,  accordingly
  12.1m pounds of the transitional asset of 34.7m pounds at that date
  has  been recognised as a credit to shareholders' funds as of 1 April
  1994 with the remaining 22.6m pounds being amortised over 9 years.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  31.     DIFFERENCES  BETWEEN  UNITED KINGDOM  AND  UNITED  STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES continued
  
  Deferred taxation
  
  The  Group  provides  for deferred taxation using  the  liability
  method  on  all  timing differences to the extent that  they  are
  expected  to  reverse  in  the  future  without  being  replaced.
  Deferred tax assets are only recognised if recovery is reasonably
  certain.  Under  US GAAP, deferred tax would be computed  on  all
  differences between the tax bases and book values of  assets  and
  liabilities  which  will  result in  taxable  or  tax  deductible
  amounts  in future years. Deferred tax assets would be recognised
  where their realisation is more likely than not.
  
  Dividends
  
  Under  UK  GAAP, dividends are provided, and the related  advance
  corporation  tax  ("ACT") accrued, in  the  year  to  which  they
  relate.  Under  US  GAAP, dividends would be  provided,  and  the
  related ACT accrued, in the year in which they are declared.
  
  Exceptional items
  
  The  amounts  reported  under  UK  GAAP  after  operating  profit
  relating  to  profit on disposal of fixed assets and  exceptional
  shareholder  costs  would be dealt with in the  determination  of
  operating  profit under US GAAP.  Further, US GAAP do not  permit
  the  disclosure  of  earnings  per share  before  the  effect  of
  exceptional items.
  
  Goodwill
  
  Under  UK  GAAP,  goodwill  arising  on  the  acquisition  of   a
  subsidiary  or  associated  company is  either  set  off  against
  reserves  in  the  year of acquisition or amortised  through  the
  profit and loss account over its estimated useful life. Under  US
  GAAP,  such  goodwill would be capitalised and amortised  through
  the  profit and loss account over its estimated useful life,  not
  exceeding 40 years. Under UK GAAP 2.8m pounds of goodwill has been set
  off against reserves. Under US GAAP, however, this goodwill would
  have  been written off as impaired to the profit and loss account
  in the year ended 31 March 1995.
  
  Investment in The National Grid Group plc and First Hydro Limited
  
  Under  UK GAAP, the Group's investment in The National Grid Group
  plc  ("NGG")  was  recorded  at its  share  of  NGG's  pro  forma
  historical cost net asset value at 31 March 1990 of 780m pounds,  which
  amounted to 50.7m pounds. Under US GAAP the investment would have  been
  recorded  at  Nil.  In  connection with the  flotation  of  NGG,
  Northern Electric made a further investment in NGG and the  carry
  value  of  the  investment in NGG was revalued to  its  flotation
  value  prior  to  its  distribution as a dividend  in  specie  to
  Northern  Electric's shareholders, pro rata to their holdings  of
  Northern Electric ordinary shares. Under US GAAP, at the time  of
  flotation  the investment would have been treated as an available
  for  sale marketable security and would have been recorded at its
  market value with a corresponding credit, net of related deferred
  taxes, to a separate component of shareholders' funds.  Under  US
  GAAP,   the   unrealised  gain  previously  credited  direct   to
  shareholders' funds would have been taken to Income at  the  time
  the  dividend  in  specie was declared.  Of the specie  dividend,
  2.1m  related to Northern Electric shares held by the ESOP.  Under
  UK  GAAP  this has been credited to the profit and loss  account.
  Under US GAAP this would have been deducted from the value of the
  specie dividend.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  31.     DIFFERENCES  BETWEEN  UNITED KINGDOM  AND  UNITED  STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES continued
  
  Under UK GAAP, prior to its sale, the Group's investment in First
  Hydro was revalued to the estimated market value of the share  of
  its  net  assets attributable to the Group. Under US  GAAP,  this
  revaluation would not have been made and the gain on  sale  would
  have been correspondingly higher.
  
  Under  UK  GAAP, NGG dividends and the related tax  credits  were
  accounted  for in the period to which they related to the  extent
  they  had  been  announced  prior  to  the  finalisation  of  the
  Company's  accounts for those periods. Under US GAAP, they  would
  have been recognised in the periods in which they were declared.
  
  Current asset investments - own shares
  
  Under  UK  GAAP, the shares in the Company held by  the  Northern
  Electric Share Trust (the "ESOP") are classified as current asset
  investments.  Under US GAAP, such shares would be  classified  as
  treasury  shares  and reflected as a reduction  of  shareholders'
  funds.
  
  The  following  is  a summary of the significant  adjustments  to
  profit attributable to members of the parent company (net income)
  and  shareholders' funds which would be required if US GAAP  were
  to be applied instead of UK GAAP.
  
       Net income
                                             Year ended 31 March
                                                1996      1995
                                               pound m   pound m
  
  Net income as reported in the Group
   profit and loss account                      67.8     103.2
  
  Adjustments:
    Dividends receivable                         6.2      (8.8)
    Pension costs                                9.0       6.8
    Goodwill write off                           -        (2.8)
    Profit distribution of NGG shares          215.4       -
    Profit on disposal of fixed assets          17.6       -
    Advance corporation tax written off         20.2       -
    Tax credits on dividends receivable         (1.3)      1.8
  Deferred  taxation - on above  adjustments   (19.7)     (2.2)
                     - methodology             (15.1)     (9.4)
                                            ---------  ---------
  Net income as adjusted to accord
   with US GAAP                                300.1      88.6
                                            ---------  ---------
                                              pence      pence
  Per ordinary share as so adjusted            305.3      85.1
                                               =====      =====
  
  Net income per ordinary share has been calculated by dividing net
  income  in accordance with US GAAP of 300.1m pounds (1995 - 88.6m pounds) by
  98.3m  shares (1995 - 117.7m adjusted on consolidation  of  share
  capital  to 104.1m) being the weighted average number of ordinary
  shares in issue.
                                  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  31.     DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES continued
  
  
  
       Shareholders' funds
                                                31 March
                                              1996         1995
                                             pound m     pound m
  
  Shareholders' funds as reported in 
   the Group balance  sheet                    275.6     456.5
  
  Adjustments:
    Fixed Asset Investments                      -       (50.7)
    Dividends receivable                         -        (7.0)
    Current asset investment                    (3.9)     (7.0)
    Pension costs                               27.9      18.9
    Dividends payable                           27.9      26.1
    Advance corporation tax payable              7.0       -
  Deferred taxation - on above adjustments      (9.2)     10.5
             methodology                       (96.0)    (92.9)
                                            ---------  ---------
  Shareholders'  funds as adjusted 
  to accord with US GAAP                       229.3     354.4
                                               =====     =====
  
  Cash flows
  
  The Group statement of cash flows prepared under UK GAAP presents
  substantially the same information as that required under US GAAP
  although  there are differences with regard to the classification
  of  items within the statements and as regards the definition  of
  cash and cash equivalents.
  
  Under UK GAAP, cash and cash equivalents are stated net of short-
  term  borrowings and include own shares. Under US GAAP, cash  and
  cash equivalents would not include short-term borrowings and  own
  shares.  Under  UK GAAP, cash flows are presented separately  for
  operating  activities, returns on investments  and  servicing  of
  finance,  taxation, investing activities and financing. US  GAAP,
  however,  require only three categories of cash flow activity  to
  be  reported: operating, investing and financing. Cash flows from
  taxation  and  returns  on investments and servicing  of  finance
  shown  separately  under UK GAAP would be included  as  operating
  activities  under US GAAP with the exception of  the  payment  of
  dividends which would be included as a financing activity.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  
  31.     DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES continued
  
  The  categories of cash flow activity under US GAAP  can  be
     summarised as follows:
  
  
                                             Year ended 31 March
                                                  1996     1995
                                                 pound m   pound m
  
  Cash inflow from operating activities           143.0     56.7
  Cash outflow from investing activities          (28.8)   (59.9)
  Cash outflow from financing activities          (65.6)   (49.5)
                                                 -------  -------
  Increase/(decrease) in cash and
   cash equivalents                                48.6    (52.7)
  Cash and cash equivalents at 1 April             27.9     80.6
                                                 -------  -------
  Cash and cash equivalents at 31 March            76.5     27.9
                                                   ====     ====
  
  
  INDEPENDENT ACCOUNTANTS' REVIEW REPORT
  The Board of Directors
  
  We  have reviewed the accompanying condensed group balance  sheet
  of Northern Electric plc and subsidiaries as of 30 September 1996
  and  the  related  condensed group profit and loss  accounts  and
  condensed  group  statements  of cash  flows  for  the  six-month
  periods  ended  30  September  1996  and  1995.  These  financial
  statements are the responsibility of the Company's management.
  
  We  conducted our reviews in accordance with the Bulletin "Review
  of  Interim  Financial Information" issued by the United  Kingdom
  Auditing Practices Board which does not differ in any significant
  respect  from the standards established by the American Institute
  of  Certified Public Accountants.  A review of interim  financial
  information   consists   principally   of   applying   analytical
  procedures  to  financial data, and making inquiries  of  persons
  responsible   for  financial  and  accounting  matters.   It   is
  substantially less in scope than an audit conducted in accordance
  with  generally  accepted  auditing  standards,  which  will   be
  performed  for  the  year  with the objective  of  expressing  an
  opinion  regarding  the financial statements taken  as  a  whole.
  Accordingly, we do not express such an opinion.
  
  Based   on  our  reviews,  we  are  not  aware  of  any  material
  modifications  that should be made to the accompanying  condensed
  group  financial statements referred to above for them to  be  in
  conformity with accounting principles generally accepted  in  the
  United  Kingdom  which  differ  in certain  respects  from  those
  followed  in the United States (see Note 8 of Notes to  Condensed
  Interim Accounts).
  
  
  
  ERNST & YOUNG
  Chartered Accountants
  Newcastle upon Tyne England
  
  
  
  29 November 1996,
  except for Note 8 - Differences between United Kingdom and
  United States generally accepted Accounting Principles,
  as to which the date is
  14 February 1997
                                  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
         Condensed Group Profit and Loss Account (unaudited)
  
                                            Six months ended 30 September
                                                 1996    1996      1995
                                                  $m     pound m  pound m
  
  Turnover                                       695.0    444.0   429.8
  
  Cost of sales                                 (485.6)  (310.2) (290.4)
                                              ---------  ------- -------
  Gross profit                                   209.4    133.8   139.4
  
  Distribution costs                             (56.8)   (36.3)  (38.4)
  Administrative expenses                        (66.1)   (42.2)  (45.0)
  Other operating income                           0.3      0.2     0.2
  Income from interests in associated undertakings   -        -     0.7
                                              ---------   ------- ------
  Operating profit                                86.8     55.5    56.9
  
  Exceptional shareholder costs                   (0.8)    (0.5)   (2.9)
  Profit on disposal of fixed assets               3.6      2.3     0.3
  Income from investments                          5.3      3.4     8.9
                                              ---------   ------- ------
  Profit on ordinary activities before interest   94.9     60.7    63.2
  
  Interest payable                               (19.6)   (12.5)   (4.7)
  Interest receivable                              3.9      2.5     0.2
                                              ---------   ------- ------
  Profit on ordinary activities before taxation   79.2     50.7    58.7
  
  Tax on profit on ordinary activities           (20.7)   (13.2)  (16.0)
  Deferred tax on revaluation of The 
   National Grid Group plc                           -        -   (35.6)
                                              ---------   ------  ------
  Profit for the period  *                        58.5      37.5     7.1
  
  Dividend on non-equity shares                   (6.9)     (4.4)   (0.4)
  Ordinary dividend on equity shares             (20.2)    (12.9)  (11.9)
                                              ---------   -------  ------
  Retained profit/(loss)                          31.4      20.2    (5.2)
  
  Special dividends on equity shares                 -         -  (114.9)
                                              ---------   -------  ------
  Transfer (from)/to reserves                     31.4      20.2  (120.1)
                                              =========   =======  ======
  Earnings per equity share
                                                 Cents     Pence    Pence
  Basic                                           51.6      33.0     6.8
  Exceptional items                               (2.8)     (1.8)    2.9
  Deferred tax provision on revaluation
   of The National Grid Group plc                    -         -    36.0
                                              ---------   -------  ------
  Earnings per share before non-operating
   exceptional items                              48.8      31.2    45.7
                                              =========   =======  ======
  Interim dividend per equity share               20.11     12.85   12.00
  
  Special dividends per equity share:
   Exceptional dividend on ordinary
   shares paid in September 1995                     -         -   113.04
   Exceptional dividend on ordinary
   shares paid in January 1996                       -         -     4.58
                                              ---------   -------  -------
                                                     -         -   117.62
                                              ---------   -------  -------
  Average number of equity shares                100.4m    100.4m   98.8m
  
  *  A  summary  of the significant adjustments to profit  for  the
  period that would be required if United States generally accepted
  accounting principles had been applied instead of those generally
  accepted  in the United Kingdom is set out in Note 8 of Notes  to
  Condensed Interim Accounts.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
              Condensed Group Balance Sheet (unaudited)
  
                                                       As at
                                                 30 September 1996
                                                    $m    pound m
  Fixed assets
  
  Tangible assets                                  744.0   475.3
  Investments                                       70.6    45.1
                                                   -----   -----
  Current assets                                   814.6   520.4
                                                   -----   -----
  Stocks                                            19.3    12.3
  Debtors: amounts falling due after one year       48.4    30.9
  Debtors: amounts falling due within one year     188.3   120.3
  Investments                                      181.3   115.8
  Cash at bank and in hand                          60.7    38.8
                                                   -----   -----
                                                   498.0   318.1
                                                   -----   -----
  Creditors: amounts falling due within one year:
  
  Loans and overdrafts                             (59.5)  (38.0)
  Creditors and accruals                          (282.7) (180.6)
                                                   -----   -----
                                                  (342.2) (218.6)
                                                   -----   -----
  Net current assets                               155.8    99.5
                                                   -----   -----
  Total assets less current liabilities            970.4   619.9
                                                   -----   -----
  
  Creditors: amounts falling due after more than one year:
  
  Loans                                           (402.4) (257.1)
  Other creditors                                  (45.1)  (28.8)
                                                   -----   -----
                                                  (447.5) (285.9)
                                                   -----   -----
  Provisions for liabilities and charges           (57.4)  (36.7)
                                                   -----   -----
  Total assets less liabilities                    465.5   297.3
                                                   =====   =====
  Capital and reserves
  
  Called up share capital                           91.6    58.5
  Share premium account                              5.5     3.5
  Capital redemption reserve account                 9.7     6.2
  Other reserves                                     7.7     4.9
  Profit and loss account                          351.0   224.2
                                                   -----   -----
  Shareholders' funds *                            465.5   297.3
                                                   =====   =====
  Equity interests                                 463.7   296.2
  Non-equity interests                               1.8     1.1
                                                   -----   -----
                                                   465.5   297.3
                                                   =====   =====
  
  * A summary of the significant adjustments to shareholders' funds
  that  would  be  required  if  United States  generally  accepted
  accounting principles had been applied instead of those generally
  accepted  in the United Kingdom is set out in Note 8 of Notes  to
  Condensed Interim Accounts.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
          Condensed Group Statement Cash Flows (unaudited)
  
  
                                               Notes Six months ended 30 September
                                                         1996   1996      1995
                                                          $m    pound m   pound m
  
  Net cash inflow from operating activities       4      135.9    86.8  135.9
                                                        -----   -----  ------
  Returns on investments and servicing of finance
  
  Interest received                                       3.3    2.1     0.3
  Interest paid                                          (0.5)  (0.3)   (4.4)
  Ordinary dividends and investment income received       5.6     3.6    2.4
  Dividends paid                                        (56.7)  (36.2) (26.1)
  Exceptional dividends paid                                -       - (110.4)
                                                        -----   -----  ------
  Net cash outflow from returns on investments
   and servicing of finance                             (48.3) (30.8) (138.2)
                                                        -----   -----  ------
  Taxation
  
  Corporation tax (paid)/recovered 
   (including ACT on dividends)                         43.7    27.9   (1.8)
                                                       -----   -----   ------
  Investing activities
  
  Payments to acquire tangible fixed assets            (49.3)  (31.5)  (24.7)
  Receipts from sales of tangible fixed assets           0.8     0.5     1.1
  Receipt of consumers' contributions                   11.3     7.2     5.1
  Payments to acquire fixed asset investments              -       -    (0.7)
  Receipts from sales of fixed asset investments         7.2     4.6       -
  Payments to acquire current asset investments
   with a maturity date of more than three months      (63.7)  (40.7)   (2.3)
  Receipts from disposals of current asset
   investments with a maturity date of more 
   than three months                                    24.6    15.7     9.4
                                                       -----   -----   ------
  Net cash outflow from investing activities           (69.1)  (44.2)  (12.1)
                                                       -----   -----   ------
  Net cash (outflow)/inflow before financing            62.2    39.7   (16.2)
                                                       =====   =====   =====
  Financing
  
  Issue of ordinary share capital                      (0.5)  (0.3)     (0.5)
  Loan finance                                            -      -      39.5
                                                      -----  -----    -------
  
  Net cash (inflow)/outflow from financing             (0.5)  (0.3)     39.0
  
  Increase/(decrease) in cash and cash
   equivalents                               5         62.7   40.0     (55.2)
                                                      -----  -----    -------
                                                       62.2   39.7     (16.2)
                                                      =====  =====    =======
  
  The  significant  differences between the  cash  flow  statements
  presented  above and those required under United States generally
  accepted accounting principles are set out in Note 8 of Notes  to
  the Condensed Interim Accounts.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
           Notes to Condensed Interim Accounts (unaudited)
  
  
  1.   General:
  
  In  the  opinion  of  management of Northern Electric  plc  ("the
  Company"), the accompanying unaudited condensed interim  accounts
  contain all adjustments (consisting of normal recurring accruals)
  necessary  to  present fairly the financial  position  as  of  30
  September  1996 and the results of operations and cash flows  for
  the six months ended 30 September 1996 and 1995.
  
  Operating  results  for the six month period ended  30  September
  1996 and 1995 are not necessarily indicative of the results  that
  may be expected for the full year.
  
  These  interim  accounts should be read in conjunction  with  the
  Company's  audited  accounts for the year  ended  31  March  1996
  included elsewhere in this current report on Form 8-K.
  
  These interim accounts have been prepared in accordance with  the
  historical  cost  convention, as modified by the  revaluation  of
  certain  fixed  asset investments, and for the  purposes  of  the
  interim  accounts  the  accounting  policy  is  that  an  average
  electricity  cost  for the year as a whole is used  in  order  to
  establish  an  appropriate  cost of sales  in  the  non-franchise
  market.  With  the  exception of the  foregoing,  the  accounting
  policies applied in the preparation of these interim accounts are
  in  accordance with those set out in the audited accounts for the
  year ended 31 March 1996.
  
  These  financial  statements  are presented  in  pounds  sterling
  ("pounds").  Solely  for  the  convenience of the  reader,  US  dollar
  amounts  have been translated at the exchange rate of 1 pound  =  U.S.
  $1.5653,  the  noon  buying  rate in  New  York  City  for  cable
  transfers in pounds sterling as certified for customs purposes by
  the  Federal Reserve Bank of New York on September 30,  1996.  No
  representation  is  made that the pounds  sterling  amounts  have
  been, could have been, or could be converted into U.S. dollars at
  that or any other rate of exchange.
  
  2.   Other Footnote Information:
  
  Profit is after charging depreciation of 14.3m pounds (1995 - 13.9m pounds).
  
  The  last  full actuarial valuation of the Group's share  of  the
  Electricity Supply Pension Scheme (the "ESPS") was carried out by
  Bacon and Woodrow, consulting actuaries, as at 31 March 1995.  At
  the  Company's request the actuaries have carried out a  separate
  formal  review  of  the  Company's  future  pension  costs  using
  assumptions which represent a reasonable best estimate  of  those
  costs   in  accordance  with  Statement  of  Standard  Accounting
  Practice  24.  This review has been based on the same  membership
  and other data as at 31 March 1995. In the light of this review ,
  the  actuaries  have  confirmed that it  is  appropriate  to  use
  revised  assumptions, on the basis of which  they have identified
  an  unutilised  actuarial surplus as at  31  March  1995 of 60m
  pounds.  This  is  spread over the estimated  remaining  service
  lives of employees in the ESPS of approximately 12 years.
  
  The  Board  has,  therefore, formally approved  the  use  of  the
  revised  assumptions for the purpose of calculating  the  Group's
  pension cost charge. The total pension charge for the six  months
  ended 30 September 1996 has been reduced by 3.4m pounds to  0.9m
  pounds (expected reduction in profit and loss  charge  for  the
  full year 5.6m pounds).
  
  The  difference between the amounts charged in the  accounts  and
  the  amounts  paid over to the fund are shown as a prepayment  in
  the balance sheet.
                                  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
      Notes to Condensed Interim Accounts (unaudited) Continued
  
  
  2.   Other Footnote Information continued
  
  The  taxation  charge for the six months has been arrived  at  by
  applying the estimated effective tax rate for the financial year.
  
  Earnings  per  ordinary share are based on  the  profit  for  the
  period, after deducting dividend on non-equity shares, and on the
  weighted  average number of ordinary shares in issue  during  the
  period,  excluding those held by Northern Electric  Share  Scheme
  Trustee Limited which has waived rights to dividends.
  
  The  profit and loss account reserve has been adjusted  by  1.2m pounds
  which  represents the value of the shares issued to  satisfy  the
  requirements of the scrip dividend alternative.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
      Notes to Condensed Interim Accounts (unaudited) Continued
  
  
  3. Turnover and segmental analysis
    
                                               Six months ended and at
                                                     30 September
                                                     1996    1995
                                                   pound m  pound m
  Turnover
  Distribution                                     101.8   110.4
  Supply                                           392.4   383.2
  Generation                                         0.7     0.5
  Retailing                                         24.1    24.1
  Other Trading Activities                          61.5    73.4
  Other                                             26.0    26.9
                                                   -----   -----
  Total sales                                      606.5   618.5
  
  Inter-segment sales                             (162.5) (188.7)
                                                   -----   -----
  Sales to third parties                           444.0   429.8
                                                   =====  ======
  Profit before taxation
  Distribution                                      31.4    35.5
  Supply                                            11.5    10.1
  Generation                                         3.0     2.9
  Retailing                                          0.8     0.5
  Other Trading Activities                           5.6     1.8
  Other                                              8.9     8.9
  Exceptional shareholder costs                     (0.5)   (2.9)
                                                    ----   -----
                                                    60.7    56.8
  Dividend receivable from The National
   Grid Group plc                                      -     5.7
  Group share of profit before taxation of
   associated undertakings                             -     0.7
  Net interest                                     (10.0)   (4.5)
                                                    -----   -----
  Group profit  before taxation                     50.7    58.7
                                                    =====  =====
  Net assets
  Distribution                                     396.7   364.4
  Supply                                           (33.5)  (22.4)
  Generation                                        42.5    41.5
  Retail                                            32.2    29.8
  Other Trading Activities                          35.2    15.2
  Other                                           (175.8)   77.3
                                                   -----   -----
                                                   297.3   505.8
  
  Group share of the net assets of
   associated undertakings                             -    12.3
                                                    ----   -----
  Total net assets                                 297.3   518.1
                                                   =====   =====
  
  The Distribution turnover in the period reflects an underrecovery
  of  3.5m pounds  (1995  -  1.4m pounds) and at the  end  of  the  period  the
  cumulative  underrecovery  was 5.5m pounds.  In  the  supply  business
  turnover reflects an overrecovery of 1.8m pounds (1995 - 2.5m pounds) and  at
  the  end  of  the  period the cumulative overrecovery  was  9.1m pounds
  (1995 - 4.6m pounds).
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
      Notes to Condensed Interim Accounts (unaudited) Continued
  
  
  4.  Reconciliation of operating profit to net cash inflow from
      operating activities
  
                                      Six months ended 30 September
                                               1996      1995
                                             pound m    pound m
  
  Operating profit                             55.5      56.9
  Exceptional shareholder costs                 0.3      (2.9)
  Share of profits of associated undertakings   -        (0.7)
  Depreciation charges                         14.3      13.9
  Increase/(decrease) in provisions             0.2      (4.6)
  Increase in stocks                           (0.4)     (2.1)
  Decrease in debtors                          11.4      58.7
  Increase in creditors                         5.5      16.7
                                               ----     -----
  Net cash inflow from operating activities    86.8     135.9
                                               =====    =====
  
  5.  Reconciliation of the movement of cash and cash equivalents
      and the movement in net liquid funds
                                                   Six months ended 30 September
                                                              1996      1995
                                                             pound m    pound m
  
  Increase/(decrease) in cash and cash equivalents            40.0     (55.2)
  Non-cash equivalent short-term borrowings made                 -      46.7
  Net purchase/(sale) of non-cash equivalent current asset
  investments                                                 25.0      (7.1)
  Provision made against value of employee share option trust
  assets                                                      (0.8)     (0.3)
                                                           --------- ---------
  Increase/(decrease) in net liquid funds in balance sheet    64.2     (15.9)
                                                              =====     =====
  
  6.  Net borrowings
  
                                       Six months ended 30 September
                                                1996      1995
                                               pound m    pound m
  
  Cash at bank and in hand                       38.8      11.9
  Investments                                   115.8       7.1
  Borrowings                                   (295.1)   (153.2)
                                               --------- ---------
  Net borrowings                               (140.5)   (134.2)
                                               =====      =====
  
  7.  Net gearing*
  
                                        Six months ended 30 September
                                              1996      1995
  
                                               47.3%     26.0%
  
  *Net gearing is the quotient of net borrowings divided by
  shareholders' funds expressed as a percentage.
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
      Notes to Condensed Interim Accounts (unaudited) Continued
  
  
  8.  Differences between United Kingdom and United States  generally
      accepted accounting principles
  
  The  differences between accounting principles generally accepted
  in the United Kingdom ("UK GAAP") and the United States generally
  accepted accounting principles ("US GAAP"),  significant  to  the
  Group  are  described  in Note 31 of Notes  to  the  Accounts  of
  Northern Electric plc included elsewhere in this Current  Report.
  The  effect  of  applying  those  differences  is  summarised  as
  follows:
  
  Net income                                     Six months ended 30 September
                                                           1996      1995
                                                         pound m    pound m
  Net income as reported in the Group 
   profit and loss account                                 37.5       7.1
  
  Adjustments:
       Pension costs                                        1.3       4.5
       Dividend receivable                                    -      (7.1)
       Advance corporation tax written off                  0.8         -
       Tax credits on dividends receivable                    -       1.4
       Deferred tax - on above adjustments                 (0.4)     (1.3)
                methodology                                 0.1       4.5
                                                        ---------    ------
  Net income as adjusted to accord with US GAAP            39.3       9.1
                                                          =====      =====
  Per ordinary share as so adjusted                        39.1p      9.2p
                                                          =====      =====
  
  Net income per ordinary share has been calculated by dividing net
  income  in  accordance with US GAAP of 39.3m pounds  (1995 -  9.1m pounds) by
  100.404m  shares (1995 - 98.756m), being the weighted average  of
  ordinary shares in issue.
  
                                                           As at 30 September
  Shareholders' funds                                              1996
                                                                  pound m
  Shareholders' funds as reported in the Group balance sheet      297.3
  
  Adjustments:
       Current asset investments                                   (6.9)
       Pension costs                                               29.2
       Dividends payable                                           12.9
       Deferred tax - on above adjustments                         (9.6)
               methodology                                        (88.1)
                                                                ---------
  Shareholders' funds as adjusted to accord with US GAAP          234.8
                                                                  =====
                                            Six months ended 30 September
  Cash flows                                        1996       1995
                                                   pound m    pound m
  Cash inflow from operating activities             120.1     132.4
  Cash outflow from investing activities            (22.2)    (17.0)
  Cash outflow from financing activities            (27.6)   (128.8)
                                                 ---------   -------
  Increase/(decrease) in cash and cash equivalents   70.3     (13.4)
  Cash and cash equivalents at 1 April               76.5      27.9
                                                 ---------   -------
  Cash and cash equivalents at 30 September         146.8      14.5
                                                    =====      =====
  
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
      Notes to Condensed Interim Accounts (unaudited) Continued
  
  
  9.  CAPITAL AND OTHER COMMITMENTS
  
  The  Company has entered into a contract relating to the purchase
  of  400  megawatts of capacity from a 15.4% owned related  party,
  Teesside  Power Limited ("Teesside"), for a period  of  15  years
  beginning  April  1993.   The contract sets  escalating  purchase
  prices  at predetermined levels.  Current contract prices  exceed
  those  paid  by the Company to the electricity pool (the  "Pool")
  which  is  operated  by the National Grid  Group.   However,  the
  Company  is able to recover these costs under current prices  cap
  regulation expected to expire 1 April 1998.
  
  The  Company  additionally  utilises  contracts  for  differences
  (CFD's)  to mitigate its exposure to volatility in the prices  of
  electricity purchased through the Pool.  Such contracts allow the
  Company  to  effectively convert the majority of its  anticipated
  Pool  purchases from market to fixed prices.  As of 30  September
  1996,  CFD's  were  in  place to hedge a portion  of  electricity
  purchases of approximately 55,000 GWh through the year 2008.
  
  10.  CONTINGENT LIABILITIES
  
  The  Labour Party has asserted that, if they are elected  at  the
  next  General Election, which must be held no later than  22  May
  1997,  they will seek to introduce a "windfall" assessment to  be
  levied  on  the privatised utilities including the Company.   The
  basis  for  such  a  potential  assessment  is  unknown  but,  if
  introduced, such an assessment could be substantial.
  
  Following  a  complaint by two pensioners, in December  1996  the
  Pensions  Ombudsman  made a provisional ruling  against  National
  Grid  Group relating to the use of an actuarial valuation surplus
  in  their  part  of the Electricity Supply Pension  Scheme  ("the
  ESPS").  The provisional ruling, which is under appeal, prohibits
  the use of valuation surplus to meet the additional pension costs
  of   early   retirement  arising  from  restructuring.   Although
  Northern would intend to appeal any similar ruling against it, if
  a  similar  ruling  was made against Northern  Electric  and  any
  subsequent  appeal  was  unsuccessful  then  the  Company   could
  potentially  be  required  to  make  contributions  in  lieu   of
  utilizing any ESPS actuarial valuation surplus.
  
  11.  Subsequent Event:
  
  On  24  December  1996, CalEnergy Company Inc., through  its  70%
  owned  subsidiary  CE Electric plc, acquired a 50.3%  controlling
  interest  in  the Company and extended its offer to  acquire  all
  minority equity interests.
  
                               
     PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL DATA
  
  The   following  Pro  Forma  Condensed  Combined  Unaudited
  Balance  Sheet  as  of  September  30,  1996  combines  the
  historical consolidated balance sheet of CalEnergy Company,
  Inc. ("the Company") and Northern Electric plc ("Northern")
  as  if  the acquisition had occurred on September 30, 1996.
  The  Pro  Forma Condensed Combined Unaudited Statements  of
  Earnings for the year ended December 31, 1995 and the  nine
  months  ended  September  30, 1996 combine  the  historical
  statements  of earnings of the Company, (i) Northern,  (ii)
  Falcon  Seaboard  Resources, Inc.  ("FSRI")  and  (iii)  BN
  Geothermal, Inc., Niguel Energy Company, San Felipe  Energy
  Company,  Inc. and Conejo Energy Company (collectively  the
  "Mission  Acquired Companies") as if each  acquisition  had
  occurred  at  the beginning of the periods presented.   The
  Company's,  FSRI's  and  the  Mission  Acquired  Companies'
  fiscal years end on December 31 and Northern's fiscal  year
  ends  on  March 31. The acquisitions of Northern, FSRI  and
  the  Mission  Acquired  Companies are  recorded  under  the
  purchase method of accounting, after giving effect  to  the
  applicable pro forma adjustments and assumptions  described
  in the accompanying notes.
  
  The Company has completed its preliminary assessment of the
  fair  values  of  Northern, FSRI and the  Mission  Acquired
  Companies  assets and liabilities.  The Company expects  to
  finalise  its  fair value assessment in the year  following
  each   respective  acquisition.   Accordingly,  the   final
  purchase  price allocation may differ from  the  pro  forma
  amounts set forth herein.
  
  Northern's   historical  financial   statements,   included
  elsewhere herein, were prepared in accordance with UK GAAP,
  which  differs  in  certain  respects  from  US  GAAP.  The
  historical financial statements included in the  Pro  Forma
  Condensed  Combined  Unaudited  Financial  Data  have  been
  restated  to  reflect  Northern's  financial  position  and
  results of operations in accordance with US GAAP.
  
  The  pro forma condensed combined unaudited financial  data
  are  intended  for information purposes only  and  are  not
  intended  to  present the results that would have  actually
  occurred  if  the acquisitions of Northern,  FSRI  and  the
  Mission  Acquired  Companies had  been  in  effect  on  the
  assumed  dates  and for the assumed periods,  and  are  not
  necessarily indicative of the results that may be  obtained
  in the future.
  
  <TABLE>
  <CAPTION>
          PRO FORMA CONDENSED COMBINED UNAUDITED BALANCE SHEET
                           September 30, 1996
                             (In thousands)
  
                                                          (1A&B and 2A&B)
                                          The                   Pro Forma      Pro Forma
                                        Company      Northern   Adjustments    Combined
  Assets                      -----------------------------------------------------------
  <S>                                 <C>          <C>         <C>            <C>
  Cash and investments                $  334,335     $149,560   $(254,841)      $229,054
  Joint venture cash and investments      37,092            -           -         37,092
  Restricted cash                         94,392            -           -         94,392
  Short-term investments                   2,864       46,200           -         49,064
  Accounts receivable                    109,453      197,200           -        306,653
  Due from Joint Ventures                 18,211            -           -         18,211
  Properties, plants, contracts
    and equipment, net                 2,223,770      794,464     528,908      3,547,142
  Notes receivable-partnerships           11,250            -           -         11,250
  Excess of cost over fair value
    of net assets acquired, net          393,763            -     678,365      1,072,128
  Equity investments                     200,408            -           -        200,408
  Deferred charges and other assets      122,904      178,902      207,266       509,072
                            -------------------------------------------------------------
    Total assets                      $3,548,442   $1,366,326   $1,159,698    $6,074,466
                                       =========    =========    =========     ==========
  Liabilities and Stockholders' Equity 
  Liabilities:
  Accounts  payable                      $ 7,118      $188,020   $       -      $195,138
  Other accrued liabilities              103,160       196,254     662,827       962,241
  Project finance loans                  284,779             -           -       284,779
  Construction loans                     351,923             -           -       351,923
  Senior discount notes                  514,626             -           -       514,626
  Senior Notes                           224,137             -           -       224,137
  Salton Sea notes and bonds             563,035             -           -       563,035
  Limited recourse senior secured notes  200,000             -           -       200,000
  Convertible subordinated debentures     73,755             -           -        73,755
  Revolving line of credit                35,000             -      60,000        95,000
  Acquisition Loan                             -             -     100,000       100,000
  Northern Electric Bonds                      -       429,820      13,038       442,858
  UK Credit Facility                           -             -     739,054       739,054
  Deferred income taxes                  339,923       159,816    (200,594)      299,145
                                --------------------------------------------------------
    Total liabilities                  2,697,456       973,910   1,374,325     5,045,691
  Deferred income                         25,244             -           -        25,244
  Convertible preferred securities
    of subsidiary                        103,930             -           -       103,930
  Minority interest                            -             -     177,789       177,789
  Total stockholders' equity             721,812       392,416    (392,416)      721,812
                                --------------------------------------------------------
  Total liabilities and 
   stockholders' equity               $3,548,442   $1,366,326   $1,159,698    $6,074,466
                                       =========   ==========    =========     =========
  </TABLE>
  
  The accompanying notes are an integral part of these pro forma
  unaudited condensed financial statements.
  
  <TABLE>
  <CAPTION>
             PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENT OF EARNING
                    for the for the year ended December 31, 1995
                        (In thousands, except per share data)
  
                                                                  (1,3B&C)               The                   (1,2 C)
                                            Mission  (1,4,B,C&D)    FSRI     FSRI      Company       (2D)     Northern
                                     The   Acquired   Pro Forma   Acquired  Pro Forma    as       Northern   Pro Forma    Pro Forma
                                   Company Companies  Adjustments Companies Adjustments Adjusted  Electric  Adjustments   Combined
  Revenues:         ---------------------------------------------------------------------------------------------------------------
  <S>                              <C>        <C>       <C>       <C>       <C>       <C>       <C>           <C>        <C>
  Sales of electricity and steam   $335,630   $    -    $97,728   $74,250   $     -   $507,608  $ 1,412,989   $      -   $1,920,597
  Royalty income                     19,482        -        980         -         -     20,462            -          -       20,462
  Equity in earnings of affiliates        -        -          -    16,776   (12,249)     4,527            -          -        4,527
  Interest and other income          43,611        -       (959)    4,009    (9,700)    36,961      570,511   (546,562)      60,910
                   ----------------------------------------------------------------------------------------------------------------
    Total revenues                  398,723        -     97,749    95,035   (21,949)   569,558    1,983,500   (546,562)   2,006,496
                   ----------------------------------------------------------------------------------------------------------------
  Cost and expenses:
  Cost of sales                           -        -          -         -         -          -    1,035,120    (95,526)     939,594
  Other operating costs              79,294        -     45,604    42,416         -    167,314      205,278          -      372,592
  General and administration         23,376    2,740      1,064     1,225      (375)    28,030       49,589     (1,723)      75,896
  Royalties                          24,308        -          -         -         -     24,308            -          -       24,308
  Depreciation and amortisation      72,249        -     24,994     6,403    13,717    117,363       47,826     68,979      234,168
  Equity in loss of affiliates          362        -          -         -         -        362            -          -          362
  Interest                          134,637        -     10,937    14,782     2,450    162,806       20,934     96,850      280,590
    Less interest capitalised       (32,554)       -     (1,347)        -         -    (33,901)           -          -      (33,901)
                   ----------------------------------------------------------------------------------------------------------------
    Total costs and expenses        301,672    2,740     81,252    64,826    15,792    466,282    1,358,747     68,580    1,893,609
                   ----------------------------------------------------------------------------------------------------------------
  Income (loss) before provision
   for income taxes                  97,051   (2,740)    16,497    30,209   (37,741)   103,276      624,753   (615,142)     112,887
  Provision for income taxes         30,631   (2,959)     5,363     3,963    (6,013)    30,985      154,823   (130,167)      55,641
                   ----------------------------------------------------------------------------------------------------------------
  Income (loss) before minority
   interest and preferred dividends 66,420       219     11,134    26,246   (31,728)    72,291      469,930   (484,975)      57,246
  Minority interest                  3,005         -     (3,005)        -         -          -            -      2,279        2,279
                   ----------------------------------------------------------------------------------------------------------------
  Net income (loss)                 63,415       219     14,139    26,246   (31,728)    72,291      469,930   (487,254)      54,967
  Preferred dividends                1,080         -          -         -         -      1,080        7,641     (7,641)       1,080
                   ----------------------------------------------------------------------------------------------------------------
  Net income (loss) available to
   common stockholders            $ 62,335  $   219    $ 14,139  $ 26,246  $(31,728)   $71,211     $462,289  $(479,613)     $53,887
                                   ======== ========   ========  ========  =========   =======     ========   =========     =======
  Net income per share-primary    $   1.25                                             $  1.35                              $  1.02
                                  ---------                                            -------                              -------
  Net income per share-fully
   diluted                        $   1.18                                             $  1.29                              $   .99
                                  ---------                                            -------                              ------- 
  Average number of shares
   outstanding-primary              49,971                                              52,772                               52,772
                                  ---------                                            -------                              -------
  Fully diluted shares              57,742                                              60,543                               60,543
                                  ---------                                            -------                              -------
  </TABLE>
  
      The accompanying notes are an integral part of these pro forma unaudited
                           condensed financial statements.
  
  
             PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENT OF EARNING
                    for the Nine Months Ended September 30, 1996
                        (In thousands, except per share data)
  
  <TABLE>
  <CAPTION>
                                                              (1,3B&C)  The            (1,2 C)
                                     Mission(1,4B,C&D)FSRI    FSRI    Company          Northern
                             The  Acquired Pro FormaAcquiredPro Forma    as   NorthernPro FormaPro Forma
                          Company CompaniesAdjustmentsCompaniesAdjustmentsAdjustedElectricAdjustmentsCombined
  Revenues:         ------------------------------------------------------------------------------------------------------------------
  <S>                              <C>           <C>     <C>        <C>         <C>        <C>        <C>            <C>  <C>     
  Sales of electricity and steam   $346,166      $   -   $18,250    $46,642     $     -    $411,058   $1,105,664      -   $1,516,722
  Royalty income                      5,995          -         -          -           -       5,995            -      -        5,995
  Equity in earnings of affiliates    2,998          -         -     15,306      (7,145)     11,159            -      -       11,159
  Interest and other income          30,039          -       436      2,299      (5,658)     27,116       14,519      -       41,635
                    ------------------------------------------------------------------------------------------------------------------
  
   Total revenues                   385,198          -    18,686     64,247     (12,803)    455,328    1,120,183      -    1,575,511
                    ------------------------------------------------------------------------------------------------------------------
  Cost and expenses:
  Cost of sales                           -          -         -          -           -           -      770,418      -      770,418
  Other operating cots               73,546          -     9,911     25,911           -     109,368      148,437      -      257,805
  General and administration         15,814        684         -      1,310        (396)     17,412       38,591      -       56,003
  Royalties                          18,294          -         -          -           -      18,294            -      -       18,294
  Depreciation and amortisation      80,300          -     5,259      3,709       8,003      97,271       37,163 50,732      185,166
  Equity in loss of affiliates        3,966          -         -          -           -       3,966            -      -        3,966
  Interest                          116,521          -     1,700      7,638       1,429     127,288       23,561 74,149      224,998
    Less interest capitalised       (31,459)         -         -          -           -     (31,459)           -      -      (31,459)
  Dividends on convertible
   preferred securities               3,067          -         -          -           -       3,067            -      -        3,067
                    -------------------------------------------------------------------------------------------------- --------------
    Total costs and expenses        280,049        684    16,870     38,568       9,036     345,207    1,018,170  124,881  1,488,258
                    -------------------------------------------------------------------------------------------------- -------------
  Income before provision for
   income taxes                     105,149       (684)    1,816    25,679     (21,839)    110,121       102,013 (124,881)    87,253
  Provision for income taxes         33,862       (644)      683       684       1,037      35,622        34,899  (29,391)    41,130
                    -------------------------------------------------------------------------------------------------- -------------
  Income before minority interest
   and preferred dividends           71,287        (40)    1,133    24,995     (22,876)     74,499        67,114  (95,490)    46,123
  Minority interest                       -          -         -         -           -           -             -   (4,607)    (4,607)
                    -------------------------------------------------------------------------------------------------- --------------
  Net income                         71,287        (40)    1,133    24,995     (22,876)     74,499         67,114 (90,883)    50,730
  Preferred dividends                     -          -         -         -           -           -         14,287 (14,287)         -
                    ----------------------------------------------------------------------------------------------------------------
  Net income available to common
   stockholders                     $71,287      $ (40)   $1,133   $24,995    $(22,876)    $74,499        $52,827 $(76,596)  $50,730
                                    ========    ========  ======   =======   =================================================
  Net income per share-primary      $  1.29                                                $  1.35                           $ 0.92
                                    --------                                               -------                           -------
  Net income per share-fully
   diluted                          $  1.18                                                $  1.22                           $ 0.87
                                    --------                                               --------                          -------
  Average number of shares
   outstanding-primary               55,362                                                 55,362                           55,362
                                    --------                                               --------                          -------
  Fully diluted shares               66,397                                                 66,397                           66,397
                                    --------                                               --------                          -------
  
      The accompanying notes are an integral part of these pro forma unaudited
                           condensed financial statements.
  
  
         NOTES TO PRO FORMA CONDENSED CONSOLIDATED UNAUDITED
                           FINANCIAL DATA
                                  
                        (Table in thousands)
  
  
           On    December    24,    1996,    CalEnergy    Company,    Inc.    (the
  "Company")   announced   that  CE  Electric  UK   plc,   which   is   indirectly
  owned   70%   by  the  Company  and  30%  by  Peter  Kiewit  Sons'   Inc.,   had
  acquired   a   majority   of   the   ordinary  shares   of   Northern   Electric
  plc   (`Northern").   As   of  that  date  CE  Electric   had   acquired   50.3%
  or    51,077,904    shares   of   Northern's   outstanding    ordinary    shares
  and   had   extended   offers   to  acquire  the   remaining   minority   equity
  interest   in   Northern.   As   of  January   29,   1997,   CE   Electric   had
  purchased   91.39%   of   Northern's   outstanding   stock,   which   gives   CE
  Electric   the   ability   to  legally  force  the   sale   of   the   remaining
  minority   shares.   Since  CE  Electric  has  the   ability   and   intent   to
  acquire   the   remaining   shares   in   the   near   term,   effectively    CE
  Electric has acquired 100% of Northern.
  
         On   August   7,  1996  the  Company  acquired  all  of  the   stock   of
  Falcon    Seaboard   Resources,   Inc.   ("FSRI"),   including   its   ownership
  interests     in     three    operating    gas-fired    cogeneration     plants,
  Saranac    Power   Partners,   L.P.,   Power   Resources,   Inc.   and    NorCon
  Power   Partners,   L.P.,   for  $226  million   in   cash.    Certain   assets,
  liabilities   and   subsidiaries  of  FSRI  were   distributed   out   of   FSRI
  prior to the Company's acquisition of FSRI stock.
  
         On   April   17,  1996,  a  subsidiary  of  the  Company   acquired   all
  of    the    stock    of   BN   Geothermal,   Inc.   ("BNG"),   Niguel    Energy
  Company   ("Niguel"),   San   Felipe   Energy   Company   ("San   Felipe")   and
  Conejo     Energy     Company     (collectively    the     "Mission     Acquired
  Companies")    from    Edison   Mission   Energy   for    $70    million.    The
  Mission   Acquired   Companies   own   50%   partnership   interests   in   each
  of    the    Imperial    Valley   partnership   projects    (the    "Partnership
  Projects")    in   which   the   Company   had   an   existing   50%   ownership
  interest    resulting   from   the   acquisition   of   Magma   Power    Company
  ("Magma").     During    the    first   quarter    of    1995,    the    Company
  acquired the stock of Magma.
  
          The    acquisitions   of   Northern,   FSRI,   the   Mission    Acquired
  Companies   and   Magma   have   been  accounted  for   as   purchase   business
  combinations   pursuant   to   the   principles   of   APB   Opinion   No.   16,
  "Business   Combinations."   In   applying  APB   No.   16,   all   identifiable
  assets   acquired   and   liabilities  assumed  are  assigned   a   portion   of
  the    cost    of    acquiring   Northern,   FSRI,    the    Mission    Acquired
  Companies   and   Magma,   equal  to  their  fair  values   at   the   date   of
  the    acquisitions.     The    net    cash   flow    projections    used    for
  determining   the   fair   values  in  the  purchase   accounting   were   those
  used   for   the   acquisitions  as  prepared  by  the   Company   and   reflect
  estimated     cost    reductions.     The    resulting    purchase    accounting
  adjustments   are   based   on   the   fair  values   determined   in   purchase
  accounting    and   the   historical   financial   statements    of    Northern,
  FSRI,   the   Mission   Acquired   Companies  and   the   Partnership   Projects
  in which the Acquired Companies have invested and Magma.
  The    Pro    Forma   Condensed   Combined   Unaudited   Financial   Data    are
  based on the following assumptions:
  
  1.      A.      CE   Electric   had   completed   its   acquisition   of    100%
          of the outstanding equity interests of Northern.
  
          B.      The   Company   obtained   an   acquisition   loan   for    $100
          million    and   increased   its   revolving   loan   to   $95   million
          and    CE    Electric    obtained   a   credit   facility    for    $739
          million     to    complete    the    financing    of    the     Northern
          acquisition.
  
          C.      The    acquisitions    of   Northern,    FSRI,    the    Mission
          Acquired    Companies   and   Magma   occurred    at    the    beginning
          of    the    periods    presented    for    statements    of    earnings
          purposes.     The    Pro    Forma    Condensed    Combined     Unaudited
          Statement    of    Earnings   for   the   Year   Ended   December    31,
          1995    combines    the    Companies,    FSRI's    and    the    Mission
          Acquired    Companies   historical   Statements    of    Earnings    for
          the     Year     Ended    December    31,    1995    with     Northern's
          historical    Statement    of    Earnings    for    the    Year    Ended
          March     31,    1996.     The    Pro    Forma    Condensed     Combined
          Unaudited    Statement    of    Earnings    for    the    Nine    Months
          Ended     September     30,     1996     combines     the     Companies,
          Northern's,    FSRI's    and    the    Mission    Acquired     Companies
          historical    Statements   of   Earnings    for    the    Nine    Months
          Ended September 30, 1996.
  
  2.   The    pro   forma   adjustments   to   reflect   the   effect    of    the
       Northern acquisition are as follows:
  
             A.   The   adjustments   which  have  been   made   to   the   assets
          and   liabilities   of   Northern  to  reflect   the   effect   of   the
          acquisition     accounted     for     as     a     purchase     business
          combination follow:
  
  
             Property and plant                        $528,908
             Goodwill                                   678,365
             Investments                                187,208
             Deferred taxes                             200,594
             Other Assets and liabilities               (16,526)
             Accrued preacquisition contingencies      (636,607)
             Long-term debt                             (13,038)
                                                       --------
             Net increase in assets and liabilities    $928,904
                                                       ========
  
          Included  in  accrued  preacquisition  contingencies  are
          reserves  for contingent liabilities existing at Northern
          at  the  time  of  acquisition relating  to   a  contract
          Northern  had  entered into relating to the  purchase  of
          400  megawatts  of  capacity from a 15.4%  owned  related
          party,  Teesside Power Limited ("Teesside"), for a period
          of  15 years beginning  April 1, 1993.  The contract sets
          escalating  purchase  prices  at  predetermined   levels.
          Current  contract prices exceed those paid by the Company
          to   the  electricity  pool  which  is  operated  by  the
          National Grid Group.
          B.    The  cash  which  was  used  to  acquire  Northern,
          including estimated transaction costs, has been  provided
          for in the pro forma adjustments as follows:
  
             Reduced cash on hand at the Company       $   219,841
             Increase in borrowings of the Company         195,000
             CE Electric Credit Facility                   739,054
             Contribution from Minority Shareholder        177,789
                                                           -------
                                                        $1,331,684
                                                          ========
             Payments to shareholders                   $1,289,897
             Other direct transaction costs                 31,424
             Financing costs                                10,363
                                                          --------
                                                        $1,331,684
                                                          ========
  
          C.     The  pro  forma  adjustments  to  the  Pro   Forma
          Condensed  Combined Unaudited Statements of Earnings  are
          as follows:
  
          i. Provide  depreciation  and amortisation  of  the  fair
              values   assigned  to  all  identifiable  assets   as
              described  below. The Company's policy is to  provide
              depreciation  and  amortisation  expense   upon   the
              commencement   of   revenue   production   over   the
              estimated  remaining useful life of the  identifiable
              assets and to periodically assess the carrying  value
              of  such assets for possible impairment in accordance
              with   the   provisions  of  Statement  of  Financial
              Accounting Standards No. 121.
    
              The   fair   value  of  property  and  equipment   is
              depreciated   using   a  systematic   method,   which
              approximates  the  straight  line  method,  over  the
              remaining  portion  (between  1-40  years)   of   the
              original asset lives (between 3-60 years).
         
              ii     The   fair   values  assigned  to   Northern's
              investments  are being amortised over  the  remaining
              contract  life  of  11 years using  a  straight  line
              method.
     
          iii.      Record  amortisation  of  the  excess  purchase
              price   over  the  net  assets  acquired  using   the
              straight line method over 40 years.
  
          iv.Adjust  interest relating to (1) the borrowings  under
              The  Company's  acquisition loan and credit  facility
              (2)  CE  Electric's  credit  facility  and  (3)  $225
              million  of  Senior  Notes,  previously  issued,   to
              reflect  use  of the proceeds from that  offering  in
              this transaction.
  
          v. Northern's  historical Statement of Earnings  for  the
              Year  Ended  March  31, 1996, has  been  adjusted  to
              eliminate  one time non-recurring income and  expense
              of  $546.6 million (349.0 million) and $97.2  million
              (62.1   million),  respectively.   This  income   and
              expense  is attributable to the receipt of shares  of
              the  National Grid Group plc and associated  dividend
              income,  related customer discounts and the  ultimate
              sale  and  distribution  of the  shares  to  Northern
              shareholders as a dividend-in-kind.
          
          vi.Change  income  tax expense as a result of  pro  forma
              adjustments  which  affect  taxable  income  and   to
              reflect   incremental  US  tax  expense  on   foreign
              earnings.
  
          vii.    Adjust for minority interest in CE Electric.
  
  
  
  3.   The  acquisition on August 7, 1996 of FSRI is  reflected  in
       the  Company's  historical consolidated balance sheet as  of
       September 30, 1996 and its historical consolidated statement
       of   earnings  beginning  August  1,  1996.  The  pro  forma
       adjustments  to  reflect  the acquisition  of  FSRI  are  as
       follows:
  
          A.    The  adjustments which have been made to the assets
          and  liabilities  of FSRI to reflect the  effect  of  the
          acquisition   accounted  for  as  a   purchase   business
          combination follow:
  
              Property and plant..              $  58,050
              Power sale agreements                46,604
              Goodwill                             99,206
              Equity investments                  136,375
              Other assets and liabilities          8,008
              Deferred taxes                     (95,206)
                                             ------------
              Net increase in assets and
                liabilities                     $253,037
                                                 =======
  
          B.    The  FSRI historical statements have been  adjusted
          to  reflect the exclusion of FSRI assets, liabilities and
          subsidiaries  not acquired by the Company  and  eliminate
          historical   general  and  administrative  expenses   and
          project  development  expenses  of  FSRI  which  will  no
          longer   be   incurred  by  FSRI   These   FSRI   assets,
          liabilities  and  subsidiaries were  distributed  out  of
          FSRI  prior  to the acquisition of FSRI's  stock  by  the
          Company.
  
          C.     The  pro  forma  adjustments  to  the  Pro   Forma
          Condensed  Combined Unaudited Statements of Earnings  are
          as follows:
  
              i.    Provide  depreciation and amortisation  of  the
              fair  values assigned to all identifiable  assets  as
              described below.  The Company's policy is to  provide
              depreciation  and  amortisation  expense   upon   the
              commencement   of   revenue   production   over   the
              estimated  remaining useful life of the  identifiable
              assets and to periodically assess the carrying  value
              of  such assets for possible impairment in accordance
              with   the   provisions  of  Statement  of  Financial
              Accounting Standards No. 121.
  
              The   fair   value  of  property  and  equipment   is
              depreciated using the straight line method  over  the
              remaining  portion  (between  22-28  years)  of   the
              original 30-year life.
  
              Power sales agreements have been assigned values  for
              the   remaining  contract  period  and    are   being
              amortised  over such period using the  straight  line
              method.
  
              The   fair   values   assigned   to   FSRI's   equity
              investments  are being amortised over  the  remaining
              contract periods using the straight line method.
  
              ii.    Record  amortisation  of  the  excess  of  the
              purchase  price  over the net assets  acquired  using
              the  straight line method over the remaining weighted
              average  useful life of the facilities  acquired  (25
              years).
  
              iii.  Record  anticipated  incremental  general   and
              administrative  expenses of The Company  of  $850,000
              per  year  and reclassify historical state  franchise
              taxes  from  general and administrative  expenses  to
              income tax expense.
              iv.   Adjust  interest relating to (1) the borrowings
              under the Company's revolving line of credit and  (2)
              the use of existing funds.
  
              v.    Change  income tax expense as a result  of  pro
              forma adjustments which affect taxable income.
  4.    The  acquisition on April 17, 1996 of the Mission  Acquired
        Companies   is   reflected  in  the  Company's   historical
        consolidated  balance sheet as of September  30,  1996  and
        its   historical   consolidated   statement   of   earnings
        beginning  April  1,  1996.  The pro forma  adjustments  to
        reflect  the  effect  of  the acquisition  of  the  Mission
        Acquired Companies are as follows:
  
          A.    The  adjustments which have been made to the assets
          and  liabilities  of  the Mission Acquired  Companies  to
          reflect the effect of the acquisitions accounted  for  as
          a purchase business combination follow:
  
             Property and plant                        $(101,999)
             Power sale agreements                        44,797
             Other assets and liabilities                 (4,882)
                                                        ---------
             Net decrease in assets and liabilities    $ (62,084)
                                                          =======
  
          B.    The  Salton Sea Funding Corporation Series D  notes
          and  Series E bonds were issued and all existing  project
          level  debt of the Partnership Projects was paid  off  at
          the beginning of the period presented.
  
          C.     The  pro  forma  adjustments  to  the  Pro   Forma
          Condensed  Combined Unaudited Statements of Earnings  are
          as follows:
  
              i.    Provide  depreciation and amortisation  of  the
              fair  values assigned to all identifiable  assets  as
              described  below  and capitalise  interest  on  costs
              allocated   to   projects   under   development   and
              construction.   The Company's policy  is  to  provide
              depreciation  and  amortisation  expense   upon   the
              commencement   of   revenue   production   over   the
              estimated  remaining useful life of the  identifiable
              assets and to periodically assess the carrying  value
              of  such assets for possible impairment in accordance
              with   the   provisions  of  Statement  of  Financial
              Accounting Standards No. 121.
  
              The  fair  value  of property and equipment,  net  of
              salvage  value, and exploration and development  cost
              is  depreciated using the straight line  method  over
              the  remaining portion (approximately  23  years)  of
              the original 30-year life.
              
              Power  sales  agreements have  been  assigned  values
              separately  for each of (1) the remaining portion  of
              the  scheduled  price  periods  of  the  power  sales
              agreements  and (2) the 20 year avoided cost  periods
              of   the  power  sales  agreements  and   are   being
              amortised  separately  over such  periods  using  the
              straight line method.
  
              ii.  Adjust interest relating to (1) the issuance  of
              the  Salton  Sea Funding Corporation Series  D  notes
              and  Series  E  bonds  net of the  repayment  of  all
              project  level debt at the Partnership  Projects  and
              (2) the use of existing funds.
  
              iii.  Change  income tax expense as a result  of  pro
              forma adjustments which affect taxable income.
  
          D.                      For  the year ended December  31,
          1995,   reflect  the  Magma  Acquisition  as  a  purchase
          business combination beginning January 1, 1995.
  
  
                              SIGNATURE
  
  
  Pursuant to the requirements of the Securities Exchange Act of
  1934, the Registrant has duly caused this report to be signed on
  its behalf by the undersigned hereunto duly authorized.
  
                                CalEnergy Company, Inc.
  
                                By: /s/ Douglas L. Anderson
                                    Douglas L. Anderson
                                    Assistant Secretary and
                                    Assistant Genral Counsel
                                    (U.S. and Corporate)
  
  
  Dated:  February 18, 1997
  
  
  </TABLE>
metadata_documents: [{"type": "8-K", "sequence": "1", "secsgml_size_bytes": 213678}]
metadata_filer: {"company-data": {"conformed-name": "CALENERGY CO INC", "cik": "0000720556", "assigned-sic": "4991", "irs-number": "942213782", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-09874", "film-number": "97537918"}, "business-address": {"street1": "302 S 36TH ST", "street2": "STE 400", "city": "OMAHA", "state": "NE", "zip": "68131", "phone": "4023414500"}, "mail-address": {"street1": "302 SOUTH 36TH STREET", "street2": "SUITE 400-A", "city": "OMAHA", "state": "NE", "zip": "68131"}, "former-company": {"former-conformed-name": "CALIFORNIA ENERGY CO INC", "date-changed": "19920703"}}
text: Securities and Exchange Commission
                                  
                        Washington, DC 20549
                                  
                             Form 8-K/A
                                  
                           Current Report
                                  
               Pursuant to Section 13 to 15(d) of the
                    Securities Exchange Act 1934
                                  
                  Date of Report February 18, 1997
                  (Date of earliest event reported)
                                  
                                  
                                  
                       CalEnergy Company, Inc.
       (Exact name of registrant as specified in its charter)
                                  
                                  
       Delaware                  1-9874             94-2213782
       (State or other       (Commission File    (IRS Employee
       jurisdiction of       Number)             Identification No.)
       incorporation)
                                  
   302 South 36th Street, Suite 400,  Omaha,  NE          68131
   (Address of principle executive offices)             Zip Code
                                  
                                  
  Registrant's Telephone Number, including area code: (402) 341-4500
                                  
                                           N/A
    (Former name or former address, if changed since last report)
  Item 2.   Acquisition or Disposition of Assets.
  
  On  December 24, 1996, CE Electric UK plc ("CE Electric"),  which
  is   70%  owned  indirectly  by  CalEnergy  Company,  Inc.   (the
  "Company")  and 30% owned indirectly by Peter Kiewit  Sons'  Inc.
  ("PKS"),  acquired majority ownership of the outstanding ordinary
  share capital of Northern Electric plc ("Northern") pursuant to a
  cash tender offer, with a loan note alternative, (the "Tender Offer")
  to Northern's public shareholders which was commenced in the United Kingdom
  by CE Electric on November 5, 1996.  The total amount expected to
  be  paid  to  acquire all of Northern's ordinary  and  preference
  shares  is  approximately $1.3 billion.  The purchase price per share
  contained in the Tender Offer was determined by CE Electric based upon
  the then prevailing market price of Northern's shares on the London Stock
  Exhange plus a premium in an amount sufficient, as determined by CE Electri,
  to provide fair compensation to holders of Northern shares and to enable CE
  Electric to acquire a significant position in Northern.  In January  1997,
  CE Electric designated a majority  of  Northern's board  of
  directors  and  assumed management  control.   Through January  31,
  1997, CE Electric had purchased more  than  90%  of
  Northern's  ordinary shares.  CE Electric expects to acquire  the
  remaining  Northern shares by April 30, 1997 pursuant  to  United
  Kingdom statutory powers available to compulsorily acquire shares
  not purchased in the Tender Offer.
  
  As  of  February  13,  1997, the Company had  contributed  to  CE
  Electric  approximately  $410 million of the  approximately  $1.3
  billion  required  to  acquire all  of  Northern's  ordinary  and
  preference  shares in connection with the Tender Offer,  and  PKS
  had  contributed  approximately $176 million  to  CE  Electric  for  such
  purpose.   The  Company obtained such funds from  cash  on  hand,
  short-term  borrowings,  and  borrowings  of  approximately  $100
  million  under a $100 Million Credit Agreement entered into  with
  Credit   Suisse  on  October  28,  1996  (the  "CalEnergy  Credit
  Facility").   Borrowings under the CalEnergy Credit Facility  are
  unsecured  and mature on October 28, 1997, subject to  prepayment
  by  the  Company  at any time. The remaining funds  necessary  to
  consummate the Tender Offer (approximately $734 million) will  be
  provided  from capital contributions or loans to be  made  to  CE
  Electric  by  its sole shareholder, CE Electric UK Holdings  ("CE
  Electric  Holdings"),  which has arranged  a  560  million  ($896
  million)  Term  Loan  and  Revolving  Facility  Agreement,  dated
  October  28, 1996 (the "U.K. Credit Facility"), by and  among  CE
  Electric,  CE Electric Holdings and Credit Suisse.   The  Company
  has  not  guaranteed nor is it otherwise subject to recourse  for
  amounts  borrowed under the U.K. Credit Facility.  As of  January
  31,  1997,  CE  Electric Holdings had borrowed approximately  321
  million  under  the  U.K. Credit Facility  to  pay  for  Northern
  ordinary and preference shares purchased to date.
  
  The  Company's strategy remains focused primarily upon  continued
  growth  in  its  core  power  generation  business  through   the
  development of new projects, enhancement of existing and acquired
  assets'  performance,  and  the  acquisition  of  companies   and
  projects   that   diversify   the  Company's   power   generation
  technologies  and  enhance  its  competitive  capabilities.   The
  Company  also  intends to pursue strategic expansion  into  other
  aspects  of the global power business, including the distribution
  and  supply   of electricity, in order to diversify its  business
  and  cash  flows, develop and enhance its distribution, marketing
  and  power pool skills and increase its competitive capabilities.
  The  Northern acquisition was implemented in furtherance of  this
  aspect  of its strategy.  The Company believes that its  existing
  assets,   strengths   and   skills,   coupled   with   Northern's
  distribution  and supply skills, its experience  in  the  largely
  deregulated  United  Kingdom  power  market  and  the   resulting
  diversification  in the Company's assets and geographic  location
  will  position the Company to maximize its ability to participate
  successfully   (by   way   of  acquisition   or   otherwise)   in
  opportunities  expected to be created in the next  few  years  by
  restructurings  in  the  United States and  other  global  energy
  markets.  The Company also selectively will seek opportunities to
  expand beyond power generation, distribution and supply in  areas
  related to these core businesses, such as power transmission  and
  gas production and supply, if such opportunities will enhance the
  Company's competitive capabilities and financial position.
  
  Northern  is  one  of  the twelve regional electricity  companies
  ("RECs")   which  came  into  existence  as  a  result   of   the
  restructuring  and  subsequent privatization of  the  electricity
  industry  in  the United Kingdom in 1990.  Northern is  primarily
  engaged  in the distribution and supply of electricity.  Northern
  was granted a Public Electricity Supply ("PES") license under the
  Electricity  Act 1989 (the "Electricity Act") to  distribute  and
  supply  electricity  in  Northern's authorized  area  located  in
  northeast  England  (Northern's "Authorized  Area").   Northern's
  Authorized  Area  covers approximately 14,400  square  kilometers
  with  a  population  of  approximately  3.2  million  people  and
  includes  the counties of Northumberland, Tyne and Wear,  Durham,
  Cleveland  and  North  Yorkshire.  Northern supplies  electricity
  outside  its  Authorized Area pursuant to second  tier  licenses.
  Northern  also is involved in non-regulated activities, including
  the generation of electricity, electrical appliance retailing and
  gas exploration and production.
  
  The  electricity  industry in Great Britain is  overseen  by  the
  Office  of Electricity Regulation headed by the Director  General
  of   Electricity   Supply  (the  "Regulator").   The   regulatory
  framework includes price controls which limit the maximum average
  prices  that  Northern can charge for distributing and  supplying
  electricity.
  
  Since its reorganization in 1995, Northern's principal assets are
  the  capital stock of its subsidiaries and all of the assets used
  by such subsidiaries in their business.  Each of the subsidiaries
  focuses  on its own particular objectives and customers and  each
  has  its own employees and management team.  Northern provides  a
  number    of    services    to   the   subsidiaries,    including
  telecommunications,  transportation and technology  support,  and
  certain of the subsidiaries provide services to each other.   The
  operating subsidiaries are as follows:
  
  Northern   Electric  Distribution  Limited.   Northern   Electric
  Distribution    Limited   ("Northern   Distribution")    receives
  electricity  from  the  national  grid  transmission  system  and
  distributes   electricity  to  each  customer's  premises   using
  Northern's  network  of  transformers,  switchgear  and   cables.
  Substantially all of the customers in Northern's Authorized  Area
  are connected to Northern's network and can only be supplied with
  electricity through Northern Distribution's distribution  system,
  regardless  of whether the electricity is supplied by  Northern's
  supply  business  or by other suppliers, thus providing  Northern
  with  distribution  volume  that is stable  from  year  to  year.
  Northern serves approximately 1.5 million customers in Northern's
  area  and  charges its customers access fees for the use  of  the
  distribution system.
  
  The prices for distribution to most customers are controlled by a
  prescribed  formula  that  limits  increases  (and  may   require
  decreases) based on the rate of inflation in the United  Kingdom.
  Prices  for  distribution to customers taking their  supplies  at
  extra  high voltages are not directly controlled.  The  Regulator
  reviewed the initial price formula in 1994 and introduced changes
  that  initially caused prices to be approximately  17%  lower  in
  Northern's fiscal year ended March 31, 1996 than they would  have
  been  had the initial formula continued unchanged.  The Regulator
  also  limited price increases in future years, and in July,  1995
  the   Regulator  limited  price  increases  further.   Currently,
  increases  will  be  limited  to three  percentage  points  below
  inflation  through March 31, 2000.  Northern estimates  that  the
  combined  effect  of the two reviews will be  to  reduce  pre-tax
  income by approximately 95 million (based on 1995-96 prices)  for
  the four year period ending March 31, 2000.
  
  Most  of Northern's distribution customers are customers  in  its
  Authorized  Area  with a maximum demand of not  more  than  100kW
  ("Franchise   Area  Supply  Customers").   This  customer   group
  consists   predominantly  of  residential  and  small  commercial
  consumers which are believed by Northern to constitute  a  stable
  customer   base.    Northern's  fastest   growing   category   of
  distribution  customers,  in  terms  of  units  distributed   and
  revenues,  is  domestic and commercial customers  (as  contrasted
  with  industrial customers).  Commercial activity  of  Northern's
  customers  is about 40% industrial and 25% commercial.   Northern
  also  distributes  electricity  to  industrial  concerns  in  its
  Authorized Area.  Northern's 20 largest distribution customers in
  its  Authorized  Area accounted for approximately  18%  of  total
  electricity  distributed by Northern in  Northern's  fiscal  year
  ended  March  31,  1996  in terms of units distributed,  with  no
  single customer exceeding 4% of total electricity distributed.
  
  Northern  Electric  Supply  Limited.   Northern  Electric  Supply
  Limited ("Northern Supply") focuses on Northern's supply business
  and  is responsible for marketing, tariff setting, contracts  and
  customer   service  in  connection  with  the  supply   of   both
  electricity  and  gas.  Northern's supply business  involves  the
  bulk  purchase  of  electricity, primarily  from  the  Pool,  and
  subsequent sale to individual customers.  Until March  31,  1998,
  each  of  the  RECs is the exclusive supplier of  electricity  to
  premises  in  each  of their authorized areas, except  where  the
  maximum  demand of a customer is greater than 100kW.  The formula
  described in footnote 26 to the financial statements contained in
  Item  7  controls the income that the supply business may receive
  from  Franchise Area Supply Customers and therefore the profits that
  can  be derived  from  the supply of electricity to franchise  customers.
  Supplies to other customers are not regulated since the Regulator
  believes  that  the  market in excess of  100kW  is  sufficiently
  competitive  not  to require this. The current  regulations  that
  permit  each of the RECs to be the exclusive supplier in each  of
  their authorized areas will expire as of March 31, 1998.
  
  Northern  is one of the largest suppliers in the competitive  and
  open  electricity  market  in  the United  Kingdom  and  supplies
  customers  in  all  15  PES areas in Great Britain  and  Northern
  Ireland.  Northern supplies substantially more sites than it  had
  previously supplied prior to the beginning of open competition in
  the supply business in the United Kingdom.  In addition, Northern
  Supply  maintains a gas supply business and, at March  31,  1996,
  Northern  had won gas supply contracts for more than 4,000  sites
  nationally, mainly outside northeast England.
  
  Northern  Utility  Services Limited.  Northern  Utility  Services
  Limited ("Northern Utility") is an engineering company whose role
  is  to  adapt, maintain and restore the distribution  network  of
  Northern and to sell related services to third parties.  Northern
  Utility  has  been able to make significant cost  reductions  for
  Northern during the past year by working with suppliers in  order
  to  improve  core  processes,  close  selected  depot  locations,
  increase staff productivity and reduce material and plant  costs.
  Northern   Utility  has  pioneered  techniques  using  innovative
  diagnostic testing equipment which reduces the need for intrusive
  maintenance.   The equipment can identify some of the  causes  of
  potential  systems failures before breakdown and subsequent  loss
  of  supply occurs.  Also, the continued development in the use of
  trenchless   technology   has   brought   both   financial    and
  environmental  benefits  to Northern and  its  customers.   While
  Northern Utility's largest customer is Northern Distribution,  it
  increasingly  has  sold its services to third parties.   Northern
  Utility is Northern's largest employer.
  
  Northern  Electric  Retail  Limited.   Northern  Electric  Retail
  Limited sells electrical and gas  appliances
  and   provides  account  collection  and  customer  services  for
  Northern's other businesses.
  
  Northern   Electric   Generation  Limited.    Northern   Electric
  Generation Limited ("Northern Generation") focuses on electricity
  generation,  primarily  through  its  15.4%  stock  ownership  of
  Teesside Power Limited, a company that owns and operates a  1,875
  MW combined cycle gas-fired power station.  Northern takes 400 MW
  of  electricity  from the plant pursuant to a 15  year  contract.
  Northern  Generation also operates a 5 MW diesel power generating
  plant located in Northallerton, England in which the Company  has
  a  3  MW  net ownership interest, and Northern operates 47 small-
  scale combined heat and power facilities.
  
  Northern  Metering Services Limited.  Northern Metering  Services
  Limited    ("Northern   Metering")   provides    meter    supply,
  installation, refurbishment and certification services as well as
  meter  operator and data collection services.  Northern  Metering
  has  developed an energy profiling system which helps  businesses
  reduce  costs  through the more efficient use of all  fuels,  not
  just electricity.
  
  Sovereign  Exploration  Limited.  Sovereign  Exploration  Limited
  ("Sovereign  Exploration"),  a  gas  exploration  and  production
  company,  holds  interests in the southern basin  of  the  United
  Kingdom  sector of the North Sea, including a 5% ownership interest in
  of  the  Victor Field, which had a subsea pipeline connection  of
  the north west extension of the field completed in 1995, and a 2%
  ownership  interest  in the Schooner Field,  which  is  currently
  under   development.   Sovereign  Exploration  also  has  a   20%
  ownership  interest  in  the  Windermere  Field,  which  obtained
  regulatory  consent  for development in  April  1996.   Sovereign
  Exploration  has  interests in other potential  gas  developments
  located in United Kingdom waters.
  
  Item 7.  Financial Statements and Exhibits                              Page
       (a)  Financial statements of business acquired:
  
            Northern Electric plc
  
            Financial  Statements for the period ended  March  31, 1996:
            Report of Independent Auditors                                  6
            Group  Profit  and Loss Account for  the  three  years
             ended in the period March 31, 1996                             7
            Statement of Total Recognised Gains and Losses for the
             three years in the period ended March 31 1996                  8
            Group Balance Sheet as of March 31, 1996 and 1995               9
            Group  Statement of Cash Flows for the three years  in
             the period ended March 31, 1996                               10
            Notes to the Accounts                                          11
  
            Financial Statements for the period ended September 30, 1996:
            Independent Accountants' Review Report                         48
            Condensed  Group Profit and Loss Account for  the  six
             months ended September 30, 1996 and 1995 (unaudited)          49
            Condensed  Group  Balance Sheet as  of  September  30,
             1996 (unaudited)                                              50
            Condensed  Group Statement of Cash Flows for  the  six
             months ended September 30, 1996 and 1995 (unaudited)          51
            Notes to the condensed Interim Accounts (unaudited)            52
  
       (b)  Pro Forma Condensed Combined Unaudited Financial Data:
            Condensed  Combined  Unaudited  Balance  Sheet  as  of
             September 30, 1996                                            59
            Condensed  Combined  Unaudited Statement  of  Earnings
             for the year ended December 31, 1995                          60
            Condensed  Combined  Unaudited Statement  of  Earnings
             for the nine months ended September 30, 1996                  61
            Notes to Pro Forma Condensed Combined Unaudited 
             Financial Data                                                62
                                  
           NORTHERN ELECTRIC plc AND SUBSIDIARY COMPANIES
                                  
                   REPORT OF INDEPENDENT AUDITORS
  
  To the Board of Directors
  
  We  have audited the accompanying group balance sheet of Northern
  Electric plc as of 31 March 1996 and 1995, and the related  group
  profit and loss account, statement of total recognised gains  and
  losses and statement of cash flows for each of the three years in
  the  period ended 31 March 1996.  These financial statements  are
  the    responsibility   of   the   Company's   management.    Our
  responsibility  is  to  express an  opinion  on  these  financial
  statements based on our audits.
  
  We  conducted  our  audits  in  accordance  with  United  Kingdom
  auditing standards which do not differ in any significant respect
  from  United States generally accepted auditing standards.  Those
  standards  require that we plan and perform the audit  to  obtain
  reasonable  assurance about whether the financial statements  are
  free of material misstatement.  An audit includes examining, on a
  test  basis,  evidence supporting the amounts and disclosures  in
  the  financial statements.  An audit also includes assessing  the
  accounting principles used and significant estimates made by  the
  management, as well as evaluating the overall financial statement
  presentation.   We believe that our audits provide  a  reasonable
  basis for our opinion.
  
  In our opinion, the consolidated financial statements referred to
  above  present fairly, in all material respects, the consolidated
  financial position of Northern Electric plc at 31 March 1996  and
  1995,  and  the  consolidated results of its operations  and  its
  consolidated cash flows for each of the three years in the period
  ended  31  March  1996  in conformity with accounting  principles
  generally accepted in the United Kingdom which differ in  certain
  respects from those followed in the United States (see Note 31 of
  Notes to the Accounts).
  
  ERNST & YOUNG
  Chartered Accountants
  
  Newcastle upon Tyne, England
  20 June 1996,
  except for Note 28 - Contingent Liabilities and
  Note 31 - Differences between United Kingdom and
  United States generally accepted accounting principles,
  as to which the date is
  14 February 1997.
  NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                    GROUP PROFIT AND LOSS ACCOUNT
  
                                         Year ended 31 March
                                Notes 1996    1996    1995   1994
                                        $m    pound   pound  pound
  TURNOVER                     2&6   1,412.2   902.2 1,080.8 1,030.5
  
  Cost of sales                     (1,035.4) (661.5) (753.9) (739.0)
                                 --------------------------------------
  GROSS PROFIT                   6     376.8   240.7   326.9   291.5
  
  Distribution costs                  (121.8)  (77.8)  (80.4)  (81.0)
  Administrative expenses             (169.5) (108.3) (111.5)  (97.1)
  Other operating income                 1.3     0.8     1.1     0.9
  Income from interest in
    associated undertakings              0.9     0.6     0.1       -
                                 --------------------------------------
  OPERATING PROFIT               5&6    87.7    56.0   136.2   114.3
  
  Profit on disposal of
   fixed assets                  6      39.6    25.3     4.0     0.4
  Exceptional shareholder costs  6     (24.6)  (15.7)  (15.1)      -
  Income from investments        3&6   154.2    98.5    19.5    17.6
                                 --------------------------------------
  PROFIT ON ORDINARY ACTIVITIES
       BEFORE INTEREST                 256.9   164.1   144.6   132.3
  
  Net interest                   4     (20.8)  (13.3)   (3.9)   (3.6)
                                 --------------------------------------
  PROFIT ON ORDINARY ACTIVITIES
       BEFORE TAXATION           2&6   236.1   150.8   140.7   128.7
  
  Tax on profit on ordinary
   activities                    9     (54.2)  (34.6)  (37.5)  (30.4)
  Tax on exceptional items       6     (75.8)  (48.4)    -         -
                                 --------------------------------------
  PROFIT FOR THE YEAR*                 106.1    67.8   103.2    98.3
  
  Dividend on non-equity shares  10     (7.7)   (4.9)    0.0       -
  Dividends on equity shares     10   (675.3) (431.4)  (36.8)  (30.7)
                                 --------------------------------------
  RETAINED (LOSS)/ PROFIT
   FOR THE YEAR                       (576.9) (368.5)  (66.4)  (67.6)
                                      ======   =====   =====    =====
  EARNINGS PER SHARE:            11   cents    pence   pence    pence
  
  Basic                                100.2    64.0    99.2    79.8
  Exceptional items              6      23.6    15.1    11.2       -
                                 --------------------------------------
  Earnings per share before charging
  or crediting exceptional items       123.8    79.1   110.4    79.8
                                       ======   =====   =====  =====
  * A summary of the significant adjustments to profit for the year
  that would be required if United States generally accepted
  accounting principles had been applied instead of those generally
  accepted in the United Kingdom is set out in Note 31 of Notes to
  the Accounts.
  NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
           STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
  
                                                   Year ended 31 March
                                      Notes    1996    1996    1995   1994
                                                $m    pound    pound  pound
  Profit attributable to members
   of the parent company                        106.1    67.8   103.2   98.3
  Revaluation gain on investments      13       287.2   183.5       -      -
                                              -------------------------------
  Total recognised gains and losses
   related to the year                          393.3  251.3    103.2   98.3
                                                =====   =====   =====   ====
  NOTES OF HISTORICAL COST PROFITS AND LOSSES
  
                                                        Year ended 31 March
                                                    1996    1996    1995   1994
                                                     $m    pound    pound  pound
  Reported profit on ordinary 
   activities before taxation                       236.1   150.8  140.7  128.7
  Realisation of revaluation gain
   on First Hydro Limited                            17.1    10.9      -      -
                                                 -------------------------------
  Historical cost profit on ordinary
   activities before taxation                       253.2   161.7  140.7  128.7
                                                    =====   =====  =====  =====
  Historical cost (loss)/profit for the year
   retained after taxation and dividends           (293.8) (187.7)  66.4   67.6
                                                    =====   =====  =====   ====
  NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                           GROUP BALANCE SHEET
  
                                                          31 March
                                         Notes     1996     1996      1995
  FIXED ASSETS                                      $m      pound    pound
  Tangible assets                          12     732.7    468.1     423.1
  Investments                              13      70.6     45.1     103.8
                                                 -------------------------
                                                  803.3    513.2     526.9
                                                  =====    =====     =====
  CURRENT ASSETS
  Stocks                                   14      18.6    11.9        9.6
                                                 -------------------------
  Debtors:                                 15
   amounts falling due after one year              42.0     26.8      38.2
   amounts falling due within one year            290.2    185.4     186.8
                                                 -------------------------
                                                  332.2    212.2     225.0
  Investments                             16       73.9     47.2      14.5
  Cash at bank and in hand                17       54.6     34.9      20.4
                                                 -------------------------
                                                  479.3    306.2     269.5 
  CREDITORS: amounts falling due
    within one year:                      18
  Loans and overdrafts                            (46.5)   (29.7)   (84.5)
  Creditors and accruals                         (300.5)  (192.0)  (138.4)
                                                 -------------------------
                                                 (347.0)  (221.7)  (222.9)
  
  NET CURRENT ASSETS                              132.3     84.5     46.6
                                                 -------------------------
  TOTAL ASSETS LESS CURRENT LIABILITIES           935.6    597.7    573.5
                                                  =====    =====    =====
  CREDITORS: amounts falling due
    after more than one year             19
  Loans                                         (402.4)   (257.1)  (61.5)
  Other creditors                                (44.6)    (28.5)  (22.4)
                                                 -------------------------
                                                (447.0)   (285.6)  (83.9)  
  PROVISIONS FOR LIABILITIES
    AND CHARGES                          21      (57.2)    (36.5)  (33.1)
                                               ---------------------------
  TOTAL ASSETS LESS LIABILITIES           2      431.4     275.6   456.5
                                                  =====    =====   =====
  CAPITAL AND RESERVES
  Called up share capital               22        91.3      58.3    55.8
  Share premium account                 23         5.3       3.4     1.8
  Capital redemption reserve            23         9.7       6.2     6.2
  Statutory reserve                     23         3.4       2.2     1.0
  Revaluation reserve                   23         4.2       2.7       -
  Profit and loss account               23       317.5     202.8   391.7
                                               -------------------------
  SHAREHOLDERS' FUNDS *                          431.4    275.6    456.5
                                                 =====    =====    =====
  
  Equity interests                               429.7    274.5    456.5
  Non-equity interests                             1.7      1.1        -
                                               -------------------------
                                                431.4     275.6    456.5
                                                =====     =====    =====
  * A summary of the significant adjustments to shareholders' funds
  that would be required if United States generally accepted
  accounting principles had been applied instead of those generally
  accepted in the United Kingdom is set out in Note 31 of Notes to
  the Accounts.
  NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                      GROUP STATEMENT OF CASH FLOWS
                                  
                                                   Year ended 31 March
                                        Notes    1996    1996   1995      1994
                                                  $m   pounds m pounds m  pounds m
  NET CASH INFLOW FROM OPERATING
   ACTIVITIES                             5     218.5   139.6   83.7  177.0
                                            ---------------------------------
  RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
  Interest received                               5.8     3.7    4.8    2.8
  Interest paid                                 (13.3)   (8.5)  (7.6)  (7.2)
  Ordinary dividends and investment
   income received                               24.1    15.4   15.0    8.7
  Exceptional dividends received                108.8    69.5      -      -
  Ordinary dividends paid                       (59.3)  (37.9) (32.3) (27.7)
  Exceptional dividends paid                   (270.2) (172.6)     -      -
                                             ---------------------------------
  NET CASH OUTFLOW FROM RETURNS ON
   INVESTMENTS AND SERVICING OF FINANCE        (204.1) (130.4) (20.1) (23.4)
                                                =====   =====   ====   ====
  TAXATION
  Corporation tax paid (including
   ACT on dividends)                           (117.4)  (75.0) (39.2) (22.8)
                                                =====   =====   ====   ====
  INVESTING ACTIVITIES
  Payments to acquire tangible fixed assets     (87.0)  (55.6) (71.7) (68.9)
  Receipts from sales of tangible fixed assets    2.3     1.5    5.0    0.5
  Receipt of consumers' contributions            19.7    12.6   13.8   12.9
  Purchase of subsidiary undertaking
   (net of cash and loans acquired)      13     (24.3)  (15.5)     -      -
  Payments to acquire fixed asset 
   investments                                  (21.0)  (13.4)  (4.6)  (2.0)
  Receipts from sales of fixed asset
   investments                                   58.2    37.2      -      -
  Payments to acquire equity accounted
   entities                                         -       -   (1.7) (10.7)
  Payments to acquire current asset 
   investments with a maturity date of 
   more than three months                        (4.1)   (2.6) (47.5) (75.6)
  Receipts from disposals of current
   asset investments with a maturity
   date of more than three months                11.0     7.0   67.5   47.0
  Receipts from sale of preference
   shares by Northern Electric Share
   Scheme Trustee Limited                         2.0     1.3      -      -
                                            ---------------------------------
  NET CASH OUTFLOW FROM  INVESTING
   ACTIVITIES                                   (43.2)  (27.5) (39.2) (96.8)
                                                =====   =====   ====   ====
  NET CASH (OUTFLOW)/INFLOW BEFORE
   FINANCING                                   (146.2)  (93.3) (14.8)  34.0
                                                =====   =====   ====   ====
  FINANCING
  Issue of ordinary share capital      22       (6.4)    (4.1)  (0.5)  (1.7)
  Purchase of own shares               22          -        -  101.6      -
  Loan finance                         20     (253.6)  (162.0) (33.0)  (0.6)
  Repayment of loans                               -        -      -   19.0
                                       -------------------------------------
  NET CASH (INFLOW)/OUTFLOW FROM
   FINANCING                                  (260.0)  (166.1)  68.1   16.7
                                       -------------------------------------
  INCREASE/(DECREASE) IN CASH
   AND CASH EQUIVALENTS                17      113.8     72.8  (82.9)  17.3
                                       -------------------------------------
                                              (146.2)   (93.3) (14.8)  34.0
                                               =====     =====  =====  ====
  1 Major non-cash transactions are disclosed in Note 23
  2 The significant differences between the cash flow statements
   presented above and those required under United States
   generally accepted accounting principles are set out in Note 31
   of Notes to the Accounts.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                        NOTES TO THE ACCOUNTS
  
  1. ACCOUNTING POLICIES
  
  General
  
  Northern  Electric plc ("the Company") is one of twelve  Regional
  Electricity  Companies ("RECs") in England and Wales licensed  to
  distribute,   supply   and,   to  a  limited   extent,   generate
  electricity.   The  RECs  were  created  as  a  result   of   the
  privatisation  of the UK electricity industry in 1990  after  the
  state  owned low voltage distribution networks were allocated  to
  the  then  existing  twelve regional boards. The  Company's  main
  business, the distribution and supply of electricity to customers
  in the North East of England, is regulated under the terms of the
  Company's  Public  Electricity Supply License by  the  Office  of
  Electricity Regulation ("OFFER").
  
  Basis of preparation
  
  The accounts are prepared under the historical cost convention as
  modified  to  include the revaluation of fixed asset  investments
  and in accordance with applicable UK accounting standards.
  
  These  financial  statements  are presented  in  pounds  sterling
  ("pounds").  Solely  for  the  convenience of the  reader,  US  dollar
  amounts  have been translated at the exchange rate of 1 pound  =  U.S.
  $1.5653,  the  noon  buying  rate in  New  York  City  for  cable
  transfers in pounds sterling as certified for customs purposes by
  the  Federal Reserve Bank of New York on September 30,  1996.  No
  representation  is  made that the pounds  sterling  amounts  have
  been, could have been, or could be converted into U.S. dollars at
  that or any other rate of exchange.
  
  Basis of consolidation
  
  With  the  exception  of  the accounts of  Sovereign  Exploration
  Limited  which  are made up to 31 December each year,  the  Group
  accounts  consolidate  the  accounts  of  the  Company  and   its
  subsidiary undertakings (together, the "Group" ) drawn up  to  31
  March each year. No profit and loss account is presented for  the
  Company as permitted by Section 230 of the Companies Act 1985.
  
  Undertakings, other than subsidiary undertakings,  in  which  the
  Group has an investment of not less than 20% of the voting rights
  and  over  which it exerts significant influence are  treated  as
  associated  undertakings.  Where  material,  the  Group  accounts
  include the appropriate share of these undertakings' results  and
  reserves based on the most recent audited accounts.
  
  Goodwill
  
  Depending  on  the  circumstances of each acquisition,  purchased
  goodwill is either set off directly against reserves or amortised
  through  the profit and loss account over the directors' estimate
  of its useful life.
  
  Turnover
  
  Turnover represents the value of electricity and gas sold  during
  the  period,  including an estimate of the sales value  of  units
  supplied to customers between the date of the last meter  reading
  and the period end, and the invoice value of other goods sold and
  services  provided,  exclusive of value added  tax.  Income  from
  credit sales charges is apportioned in the trading accounts  over
  the period of the sales agreements.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                        NOTES TO THE ACCOUNTS
  
  1.  ACCOUNTING POLICIES continued
  
  Regulatory correction factor (K Factor)
  
  Where there is an overrecovery of supply or distribution business
  revenues  against  the  maximum regulated  amount,  revenues  are
  deferred  equivalent  to the overrecovered amount.  The  deferred
  amount is deducted from turnover and included in provisions Where
  there  is  an  underrecovery, no anticipation  of  any  potential
  future recovery is made.
  
  Royalties
  
  Royalties in respect of gas production are accounted for  in  the
  same  year as the turnover to which they relate and are  included
  in cost of sales.
  
  Tangible fixed assets and depreciation
  
  Tangible  fixed  assets  are  stated  at  cost.  The  charge  for
  depreciation is calculated to write off assets to their  residual
  values  over  their  estimated useful  lives  using  the  methods
  described  below for distribution system and oil and  gas  assets
  and straight-line depreciation for all other assets, as follows:
  
    Distribution system assets _________________________..40 years
  
        Depreciation is charged at 3% for 20 years followed  by  2%
  for the remaining 20 years
  
        Certain   short-life metering equipment included in 
  distribution system assets up to 10 years
  
    Oil and gas assets
  
       Expenditure on oil and gas properties is accounted for using
       the  full  cost  method.  Under  this  method,  exploration,
       appraisal and development costs are capitalised in a  single
       cost   pool.   Capitalised  costs,  other  than   costs   of
       unevaluated  exploration  projects  and  projects   awaiting
       development  consent,  are  depleted  using  the   unit   of
       production   method.  Depletion  is  calculated   based   on
       hydrocarbon  reserves of properties in  the  evaluated  pool
       estimated   to  be  commercially  recoverable  and   include
       anticipated  future development costs in  respect  of  those
       reserves.
  
    Non-operational assets
  
         Buildings - freehold.                        up to 60 years
                   - leasehold     lower of lease period or 60 years
  
       Vehicles and mobile plant                      up to 10 years
       Fixtures and equipment                         up to 10 years
  
  Freehold land is not depreciated.
  
  Consumers' contributions and capital grants are credited  to  the
  profit  and loss account over a 40 year period  at a rate  of  3%
  for the first 20 years followed by 2% for the remaining 20 years.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  1.   ACCOUNTING POLICIES continued
  
  Commercial reserves of oil and gas
  
  Commercial  reserves used in the unit of production  calculations
  are proven and probable reserves. Reserves are based on estimates
  provided by the operators.
  
  Abandonment costs
  
  Provision  is  made  on  a  unit  of  production  basis  for  the
  abandonment  of  oil  and  gas production facilities,  calculated
  field-by-field using the same reserve quantities as are used  for
  depreciation purposes. The estimated costs, based on price levels
  at  the  balance sheet date, are computed on the assumption  that
  the  facilities will be fully removed where appropriate  and  are
  based on estimates provided by the operators. It is assumed  that
  certain abandonment costs will be allowable for petroleum revenue
  tax and corporation tax purposes when incurred.
  
  Effects of changing estimates
  
  The  effects  of  changes  in estimated costs  or  other  factors
  affecting  oil  and  gas  unit  of  production  calculations  for
  depreciation  and abandonment costs are dealt with  prospectively
  over the estimated remaining commercial reserves of each field.
  
  Ceiling test of oil and gas assets
  
  Ceiling tests are carried out at least annually and provision  is
  made  for  any permanent impairment where the net book amount  of
  capitalised  expenditure, less provisions for future  abandonment
  costs  and  royalties, exceeds the estimated future  undiscounted
  net  revenues using prices and cost levels ruling at the  balance
  sheet date.
  
  Over and underlifts
  
  The  quantities of oil and other hydrocarbons lifted  may  differ
  from  the  equity  share of production giving  rise  to  over  or
  underlifts. Overlifts are included in accruals whilst  underlifts
  are  included in debtors, both being valued at the year end  spot
  or   prevailing  contract  price.  Any  adjustment  for  over  or
  underlift is reflected in cost of sales.
  
  Petroleum revenue tax
  
  Provision  is  made for petroleum revenue tax over  the  expected
  life  of  each  field on a unit of production basis  taking  into
  account   the   estimated  benefit  of  uplift,  oil   allowance,
  exploration  expenditure relief, safeguard and abandonment  costs
  and  using the relevant oil prices and cost levels prevailing  at
  the balance sheet date.
  
  Property clawback
  
  Under  a trust deed HM Government is entitled to a proportion  of
  any  property gain (above certain thresholds) accruing or treated
  as  accruing  to the Company as a result of disposals  or  deemed
  disposals. These  arrangements will last until 31 March  2000.  A
  provision  in respect of property disposals is made only  to  the
  extent  that  it  is probable that a liability will  crystallise.
  Such  a  liability  will crystallise when  an  actual  or  deemed
  disposal occurs.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  1.   ACCOUNTING POLICIES continued
  
  Investments
  
  Fixed  asset  investments are stated at cost less  provision  for
  permanent  impairment  in  value,  or  at  directors'  valuation.
  Current  asset  investments  are  shown  at  cost  or  directors'
  valuation. Investments held in employee share option schemes  are
  written  down to the option price over the period from the  grant
  of  the  option  to the first date on which the  options  can  be
  exercised.
  
  Stocks and work in progress
  
  Stocks  are stated at the lower of cost and net realisable  value
  as follows:
  
        Raw  materials and goods for resale - purchase cost  on  an
  average price basis.
  
       Work  in progress - cost of direct materials and labor  plus
       attributable overheads based on the normal level of activity
       less progress payments on short-term contracts.
  
       Net  realisable  value is based on estimated  selling  price
       less further costs expected to be incurred to completion and
       disposal.
  
  Research and development
  
  Expenditure  on research and development is written  off  to  the
  profit  and  loss account in the period in which it is  incurred,
  except  that  development expenditure incurred on  an  individual
  project  is  carried  forward when its future recoverability  can
  reasonably  be  regarded  as  assured.  Any  expenditure  carried
  forward  is  amortised in line with the expected future  benefits
  from the related project.
  
  Deferred taxation
  
  Deferred taxation is provided using the liability method  on  all
  timing  differences  to  the extent that  they  are  expected  to
  reverse in the future without being replaced, calculated  at  the
  rate  at  which  it  is anticipated the timing  differences  will
  reverse.  Deferred tax assets are only recognised if recovery  is
  reasonably certain.
  
  Pensions
  
  The  Group  contributes to the Electricity Supply Pension  Scheme
  and  contributions to the scheme are charged to  the  profit  and
  loss account.
  The  capital  cost  of  ex gratia and supplementary  pensions  is
  normally charged to the profit and loss account in the period  in
  which  they  are granted. Variations in pension cost,  which  are
  identified  as  a result of actuarial valuations,  are  amortised
  over the average expected remaining working lives of employees in
  proportion  to their expected payroll costs. Differences  between
  the amounts funded and the amounts charged to the profit and loss
  account  are treated as either provisions or prepayments  in  the
  balance sheet.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  2.                       TURNOVER AND SEGMENTAL ANALYSIS
  
  The  Group operates in four principal areas of activity, that  of
  the  distribution,  supply  and generation  of  electricity,  and
  retailing,  all in the United Kingdom.  The distribution,  supply
  and  generation  activities are treated  as  separate  businesses
  under  the  Public  Electricity Supply  License  granted  to  the
  Company in 1990.
  
  Turnover, all of which is in respect of continuing activities and
  sales  to  United  Kingdom customers, Group  profit  on  ordinary
  activities before taxation and net assets are analysed below:
  Year ended at 31 March 1996
    
                      Distribution   Supply  Generation  Retailing  Other    Other     Total
                                                                   Trading
                                                                 Activities
   
  TURNOVER              pound m      pound m     pound m    pound m   pound m  pound m  pound m
  Total sales             240.7       798.5       1.0       54.1      158.9     57.6   1,310.8
  Inter-segment sales    (205.8)       (1.8)     (0.3)      (8.1)    (142.3)   (50.3)   (408.6)
                        --------     -------     -----      -----    ------    ------  --------
  Sales to third parties   34.9       796.7       0.7       46.0       16.6      7.3     902.2
                        ========     =======     =====      =====    ======    ======  ========
  PROFIT BEFORE TAXATION
  
  Segment profit           79.7       (43.6)     (1.4)       3.9        2.8     14.0      55.4
  
  Profit on disposal of
   fixed assets             1.0           -         -          -          -     24.3      25.3
  Exceptional shareholder
   costs                      -           -         -          -          -    (15.7)    (15.7)
  Group share of profit/
   (loss) before taxation of
   associated undertakings    -           -      (0.5)         -        1.1         -      0.6
  
  Investment income           -           -       6.6          -          -      91.9     98.5
  
  Net interest                -           -         -          -          -     (13.3)   (13.3)
                         ------      -------    ------     ------      ----     ------   ------
  Profit on ordinary activities
   before taxation         80.7       (43.6)      4.7        3.9        3.9     101.2    150.8
                         =======     =======    ======     ======     =====     ======   ======
  NET ASSETS
  
  Total net assets
   by segment             386.6       (4.1)      42.9       32.6       32.5     (214.9)  275.6
                         ======       =====      ====       ====       =====     ======  =====
  NORTHERN ELECTRIC plc AND SUBSIDIARIE
                                       
                        NOTES TO THE ACCOUNTS CONTINUED
  
  2.                       TURNOVER AND SEGMENTAL ANALYSIS (continued)
  
                                      Year ended and at 31 March 1995
  
                      Distribution  Supply  Generation  Retailing  Other  Other  Total
                                                                  Trading
                                                                 Activities
  
                           pound m  pound m    pound m    pound m pound m pound m pound m
  TURNOVER
  Total sales              260.1    982.9       1.2       57.0    13.9     38.5 1,353.6
  Inter-segment sales     (227.3)    (2.1)     (0.4)      (7.6)   (0.5)   (34.9) (272.8)
                          -------------------------------------------------------------
  Sales to third parties    32.8    980.8       0.8       49.4    13.4      3.6 1,080.8
                           =====    =====      ====      =====    =====   ===== =======
  PROFIT BEFORE TAXATION
  
  Segment profit            98.8     24.9      (0.5)       3.5     1.2      8.2   136.1
  
  Profit on disposal of
   fixed assets              0.6        -         -          -      -       3.4     4.0
  Exceptional shareholder
   costs                       -        -         -          -      -     (15.1)  (15.1)
  Group share of profit/(loss)
   before taxation of associated
   undertakings                -        -      (1.0)         -     1.1        -     0.1
  
  Investment income            -        -       6.3          -       -     13.2    19.5
  
  Net interest                 -        -         -          -       -     (3.9)   (3.9)
                           -------------------------------------------------------------
  Profit on ordinary activities
   before taxation          99.4     24.9       4.8        3.5     2.3      5.8   140.7
                           =====    =====      ====      =====    =====   =====   =====
  NET ASSETS
  
  Net assets by segment    376.5     34.0      42.9       41.2     1.1    (49.4)  446.3
  
  Group share of the
   net assets of associated
   undertakings                -        -         -         -     10.2        -    10.2
                           ------------------------------------------------------------
  Total net assets         376.5     34.0      42.9      41.2     11.3    (49.4)  456.5
                           =====    =====      ====     =====    =====    =====  ======
  NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                       
                        NOTES TO THE ACCOUNTS CONTINUED
  
  2.                       TURNOVER AND SEGMENTAL ANALYSIS (continued)
  Year ended and at 31 March 1994
  
                             Distribution  Supply  Generation  Retailing  Other  Other   Total
                                                                         Trading
                                                                        Activities
  
                                pound m    pound m    pound m   pound m  pound m  pound m pound m
  TURNOVER
  Total sales                     250.6     957.6       0.6      52.2     8.8     44.2   1,314.0
  Inter-segment sales            (229.8)     (1.7)     (0.1)     (8.8)   (1.1)   (42.0)   (283.5)
                                 ----------------------------------------------------------------
  Sales to third
   parties (ii) (iii)              20.8     955.9       0.5      43.4     7.7      2.2   1,030.5
                                  =====     =====      ====     =====    =====   =====   =======
  PROFIT BEFORE TAXATION
  
  Segment profit                   97.3       5.8      (0.6)      2.7     0.3      8.8     114.3
  
  Profit on disposal of fixed
   assets                           0.4         -         -         -       -        -       0.4
  
  Investment income                   -         -       5.4         -       -     12.2      17.6
  
  Net interest                        -         -         -         -       -     (3.6)     (3.6)
                                 -----------------------------------------------------------------
  Profit on ordinary activities
   before taxation (ii)            97.7       5.8       4.8       2.7     0.3     17.4     128.7
                                  =====     =====      ====     =====    =====   =====     =====
  NET ASSETS
  
  Net assets by segment           339.3     (15.2)     39.5      33.1     1.6     85.0     483.3
  
  Group share of the net assets
   of associated undertakings         -         -         -         -       -     10.7      10.7
                                 -----------------------------------------------------------------
  Total net assets                339.3     (15.2)     39.5      33.1     1.6     95.7     494.0
                                  =====     =====      ====     =====    =====   =====     ======
  (i)    Other comprises business support units, and unallocated items
    including investments, financing, dividends and taxation.  The other
    Trading Activities reflect the change in Group Structure effective from
    1 April 1995 and include the Group's engineering, gas and energy
    marketing activities.
  
  (ii)   Supply's turnover in 1996 is net of a 67.1m pound customer rebate in
    consequence of the flotation of the National Grid Group plc.  Segment
    profit in 1996 is net of 61.0m pounds reflecting the reduction in cost of
    sales owing to abatement of the non-fossil fuel levy.  (Note 6)
  
  (iii)  Distribution's turnover in 1996 reflects an overrecovery of 2.9m
    pounds (1995 - 4.1m pound underrecovery, 1994 - 0.5m pound overrecovery).
    Supply's turnover reflects a net increase in the overrecovery of 0.1m pounds
    (1995 - 9.2m pound reduction in overrecovery, 1994 - 4.9m pound reduction in
    overrecovery).
  
  At 31 March 1996 the cumulative underrecovery in the distribution business
  was 2.0m pounds (1995 - 4.9m pound underrecovery) and in the supply business the
  cumulative overrecovery was 7.2m pounds (1995 - 7.1m pound overrecovery).
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  3.                         INCOME FROM FIXED ASSET INVESTMENTS
  
                                               Year ended 31 March
                                                1996    1995   1994
                                               pound m pound m poound m
  
  Exceptional dividends received from The
   National Grid Group plc (Note 6)             69.5     -       -
  Tax credit attributable to exceptional
   dividends (Note 9)                           14.1     -       -
  Ordinary dividends receivable from The
   National Grid Group plc                       4.5  10.6     9.7
  Tax credit attributable to ordinary
   dividends (Note 9)                            1.2   2.6     2.5
  Dividends received by Northern Electric
   Share Scheme Trustee Limited                  2.6     -       -
                                              ---------------------
                                                91.9  13.2    12.2
  Interest receivable from Teesside
   Power Limited                                 6.6   6.3     5.4
                                              ---------------------
  Amount included in profit and loss account    98.5  19.5    17.6
                                                ====  ====    ====
  
  4.                                                NET INTEREST
                                                 Year ended 31 March
                                                 1996   1995   1994
                                               pound m  pound m pound m
  Interest payable:
  
  On loans and overdrafts wholly
   repayable within five years                  (8.7)   (8.0)  (0.3)
  On long-term loans repayable in
   whole or in part after five years            (8.0)      -   (7.0)
                                                 ====   ====   ====
  Total interest payable                        (16.7) (8.0)   (7.3)
  Interest receivable                             3.4   4.1     3.7
                                              -----------------------
                                                (13.3) (3.9)   (3.6)
                                                 ====   ====  ====
  NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  5.  OPERATING PROFIT                  Cost of  Distribution  Administrative
  (i) This is stated after charging:     Sales      Costs        Expenses   Total
                                        pound m    pound m       pound m   pound m
  Year ended 31 March 1996
  Staff costs (Note 7)                     3.9       29.9           34.7     68.5
  Restructuring costs (Note 7)               -          -           13.5     13.5
  Research and development expenditure       -          -            0.5      0.5
  Depreciation                             0.5       18.2            9.5     28.2
  Exceptional depreciation on 
   non-operational property                  -          -            2.4      2.4
  Rental of land and buildings               -          -            3.4      3.4
  Hire of plant and machinery                -        2.0              -      2.0
  Hire of computer equipment                 -          -            1.8      1.8
  Auditors' remuneration - audit services    -          -            0.1      0.1
                         - other services    -          -            0.2      0.2
                                         =====      =====          =====    =====
  Year ended 31 March 1995
  Staff costs (Note 7)                     3.4       31.8           44.0     79.2
  Restructuring costs (Note 7)               -          -           19.8     19.8
  Research and development expenditure       -        0.1            0.9      1.0
  Depreciation                             0.2       18.7            7.7     26.6
  Depreciation credit on re-lifting
   key meters                                -       (1.6)             -     (1.6)
  Rental of land and buildings               -          -            3.5      3.5
  Hire of plant and machinery                -        1.9              -      1.9
  Hire of computer equipment                 -          -            2.2      2.2
  Auditors' remuneration - audit services    -          -            0.1      0.1
                         - other services    -          -            0.2      0.2
                                          =====     =====          =====     ====
  Year ended 31 March 1994
  Staff costs (Note 7)                     4.4       33.0           46.2     83.6
  Restructuring costs (Note 7)               -          -            6.9      6.9
  Research and development expenditure       -        0.1            1.0      1.1
  Depreciation                             0.2       16.9            7.0     24.1
  Rental of land and buildings               -          -            3.5      3.5
  Hire of plant and machinery                -        1.6              -      1.6
  Hire of computer equipment                 -          -            1.9      1.9
  Auditors' remuneration - audit services    -          -            0.1      0.1
                         - other services    -          -            0.1      0.1
                                          =====     =====          =====    =====
  In addition to the auditors' remuneration for other services,
  there are fees payable of 0.2m pounds (1995 - 0.6m pounds) included within
  the exceptional shareholder costs of 15.7m pounds (1995 - 15.1m pounds).
  
  (ii) Reconciliation of operating profit to net cash inflow from  operating
  activities:
                                                 Year ended 31 March
                                                1996    1995     1994
                                                pound m pound m pound m
  Operating profit                              56.0    136.2   114.3
  Exceptional shareholder costs                 (9.1)   (15.1)      -
  Share of losses of associated undertakings    (0.6)    (0.1)      -
  Depreciation charges                          30.6     25.0    24.1
  Increase/(decrease) in provisions              3.4     (8.3)   (2.8)
  (Increase)/decrease in stocks                 (2.3)     0.5    (0.6)
  Decrease/(increase) in debtors                52.3    (37.0)   (8.5)
  Increase/(decrease) in creditors               9.3    (17.5)   50.5
                                               -----    ------   -----
  Net cash inflow from operating activities    139.6     83.7   177.0
                                               =====    =====   =====
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
                                  
  6.  EXCEPTIONAL ITEMS  Year ended 31 March
  
                                                      1996     1995    1994
                                                      pound m pound m pound m
  Recognised in arriving at operating profit:
  Customer rebate in consequence of the flotation of
   The National Grid Group plc                       (67.1)      -     -
  Reduction in fossil fuel levy                        6.1       -     -
                                                     ------    ---   ----
  Effect on gross profit                             (61.0)      -     -
                                                     ------    ---   ----
  Recognised below operating profit:
  Professional expenses incurred in respect of
   the flotation of The National Grid Group plc       (1.1)      -     -
  Expenses incurred in respect of share option
   compensation                                      (10.8)      -     -
  Expenses incurred in respect of the shareholder
   package                                            (3.8)  (15.1)    -
                                                     ------  ------  ----
  Exceptional shareholder costs charged to
   profit and loss account                           (15.7) (15.1)     -
  
  Profit on sale of fixed assets                      24.1    3.4      -
  Specie dividend paid to Northern Electric
   Share Scheme Trustee Limited                        2.6      -      -
  Dividends received from The National Grid 
   Group plc (Note 3)                                 83.6      -      -
                                                    ------   -----   ----
                                                      94.6  (11.7)     -
                                                    ------   -----   ----
  Effect on profit before tax                         33.6  (11.7)     -
  Taxation effect of above (Note 9)                  (28.2)     -      -
  Advance corporation tax written off (Note 9)       (20.2)     -      -
                                                    ------  -----    ----
  Effect on earnings                                 (14.8) (11.7)     -
  Dividends paid (Note 10)                          (391.6)     -      -
                                                    ------- -----    -----
                                                    (406.4) (11.7)     -
                                                    ======  =====    =====
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
                                  
  7.  STAFF COSTS
                                             Year ended 31 March
                                            1996     1995    1994
                                           pound m   pound m  pound m
  Salaries                                   79.5     83.5    84.9
  Social security costs                       6.2      7.1     7.4
  Other pension costs                         8.9     10.6    10.7
  Release of Barber v Guardian
   Royal Exchange provision                  (5.5)       -       -
                                         --------------------------
                                             89.1    101.2   103.0
  Less: charged as capital expenditure       20.6     22.0    19.4
                                         --------------------------
                                             68.5     79.2    83.6
  Add: restructuring costs                   13.5     19.8     6.9
                                         --------------------------
  Charged to profit and loss account         82.0     99.0    90.5
                                            =====    =====   =====
  
  The salaries and social security costs are before charging those
  elements of income tax and national insurance contributions borne
  by the Group and included in the share option compensation
  referred to in Note 6.
  
  The average number of employees during the year was:
  
                                         Year ended 31 March
                                           1996    1995    1994
                                         Number   Number  Number
  Electricity                            2,844   3,235    3,500
  Retail                                   606     650      645
  Other                                    432     571      569
                                      ---------------------------
                                         3,882   4,456    4,714
                                          =====   =====    =====
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  8.  DIRECTORS' REMUNERATION
  
                                           Year ended 31 March
                                            1996    1995      1994
  Chairman                               pound 000  pound 000 pound 000
  Executive directors' remuneration          141     185     187
  Performance-related bonuses                 30      45      21
                                        ---------------- -------
                                             171     230     208
  Pension costs - funded scheme               41      25      25
                - unfunded arrangement        84      77      70
                                        ---------------- -------
  Total remuneration                         296     332     303
                                            ====    ====    ====
  Chief Executive (i)
  Executive directors' remuneration          200     175
  Performance-related bonuses                 43      40
                                        ----------------
                                            243      215
  Pension costs - funded scheme              58       24
                - unfunded arrangement       73       74
                                        ----------------
  Total remuneration                         374     313
                                            ====    ====
  
  (i)  Amounts relating to the Chief Executive for 1994 were not
  required to be disclosed.
  
  All directors
  Non-executive directors' fees               60      53      53
  Executive directors' remuneration          740     704     641
  Performance-related bonuses                155     164      71
                                        ---------------- -------
                                             955     921     765
  Pension costs - funded scheme              211      95      87
           - unfunded arrangement            170     151     134
                                        ---------------- -------
  Total remuneration                       1,336   1,167     986
  Payment on retirement of executive
   director                                   94       -       -
                                        ---------------- -------
                                           1,430    1,167     986
                                           =====    =====    ====
  
  The additional payment in 1996 was in respect of Alan Groves and
  included benefits in kind of 14,000 pounds being the market value of
  his company car given to him on his retirement from executive
  office in August 1995.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  8. DIRECTORS' REMUNERATION continued
  
  The number of directors with emoluments, excluding pension
  contributions, within the bands stated were:
  
                                       Year ended 31 March
                                       1996      1995       1994
                                      Number    Number     Number
  
    pound          5,001 -  10,000          -         2          -
    pound         15,001 -  20,000          3         2          3
    pound         90,001 -  95,000          1         -          -
    pound        100,001 - 105,000          1         -          1
    pound        115,001 - 120,000          -         -          1
    pound        120,001 - 125,000          -         -          1
    pound        125,001 - 130,000          -         1          -
    pound        135,001 - 140,000          1         -          -
    pound        145,001 - 150,000          1         2          -
    pound        160,001 - 165,000          -         -          1
    pound        170,001 - 175,000          1         -          -
    pound        205,001 - 210,000          -         -          1
    pound        215,001 - 220,000          -         1          -
    pound        225,001 - 230,000          -         1          -
    pound        240,001 - 245,000          1         -          -
  
  The Chief Executive was the highest paid director in 1996 ( 1995
  and 1994- Chairman)
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  9.  TAX ON PROFIT ON ORDINARY AND EXCEPTIONAL ACTIVITIES
  
                                                      Year ended 31 March
                                                      1996   1995    1994
                                                   pound m  pound m  pound m
  Tax on profit for the year:
  
  Corporation tax at 33% (1995 - 33%)                 47.4   32.4    19.4
  Provision for payment for consortium relief          2.3    3.2    11.2
  Tax credits attributable to dividends received      15.3    2.6     2.5
  Surplus advance corporation tax written off         20.2      -       -
  Corporation tax under/(over) provided in
   previous years                                      1.8   (7.4)   (6.3)
                                                   -----------------------
                                                      87.0   30.8    26.8
  Deferred tax                                        (4.9)   6.2     3.6
                                                   -----------------------
                                                      82.1   37.0    30.4
  Tax on profits from associates                       0.9    0.5     -
                                                   -----------------------
  Tax charge                                          83.0   37.5    30.4
                                                      ====   ====    ====
  
  In arriving at the tax charge, it has been assumed that shareholder value
  costs and The  National  Grid  Group  plc  flotation costs are disallowable
  expenses.
  
  The   tax  effect  in  the  profit  and  loss  account  relating   to   the
  exceptional  items  recognised  before  operating  profit  was   a   credit
  of 20.1m pounds (1995 and 1994 - Nil).
  
  The  overall  tax  effect  on  the  Group  of  the  exceptional  items  was
  an  additional  charge  to  corporation  tax  of  48.4m pounds  (1995 and 1994
  -   Nil)  including  advance  corporation  tax  written  off  of  20.2m  pounds
  (1995 and 1994 - Nil).
  
  Deferred   tax   has   been   provided   on   interest   receivable    from
  Teesside   Power   Limited   and   on   the   dividends   receivable   from
  Northern   Electric   Insurance   Services   Limited.   A   deferred    tax
  asset   has   been  created  on  deferred  income  received  and   interest
  payable within Northern Electric Finance plc.
  
  The   tax   charge   has  been  reduced  by  5.5m pounds  (1995 - 11.0m pounds,
  1994 - 11.5m pounds)   being   the   effect   of  timing  differences   for 
  which no provision  has been made.  Potential  deferred  tax  liabilities, for
  which   no   provision  has  been  made,  computed  at   the   current   of
  corporation tax of 33% (1995 - 33%), are as follows:
  
                                                             31 March
                                                          1996     1995
                                                        pound m    pound m
  
  Capital allowances in excess of depreciation            66.1     66.9
  Other timing differences                                49.6     43.3
                                                       -------- --------
                                                         115.7    110.2
  Advance corporation tax written off                    (20.2)       -
                                                       -------- --------
                                                          95.5    110.2
                                                          ====    =====
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  10.  DIVIDENDS
  Year ended 31 March
                                    1996   1995 (i) 1994   1996    1995  1994
                                  pence   pence    pence  pound m pound m pound m
  Preference dividend for period
   to 31 March 1996                 4.47      -         -    4.9     -     -
                                    ====   ====       ====  ==== =====  =====
  Interim dividend on ordinary
   shares paid                     12.00  10.85      7.40   11.9  10.7    9.1
  Final dividend on ordinary
   shares proposed                 27.90  26.45     17.45   27.9  26.1   21.6
                                 --------------------------------------------
                                   39.90  37.30     24.85   39.8  36.8   30.7
                                 --------------------------------------------
  Exceptional dividend on ordinary shares
   paid in September 1995 (ii)    113.04      -         -  110.4    -       -
  Specie dividend on flotation of
   The National Grid Group plc    221.49      -         -  219.0    -       -
  Exceptional dividend on ordinary
   shares paid in January 1996     63.50      -         -   62.2    -       -
                                 --------------------------------------------
                                  398.03      -         -  391.6    -       -
                                 --------------------------------------------
  Total dividends paid and payable to
   ordinary shareholders (iii)   437.93   37.30     24.85  431.4 36.8    30.7
                                 ======   =====     =====  ===== ====   =====
  (i)    The dividend per share for 1995 was 33.00 pence (1994 -
    24.85 pence) which, after adjustment for share consolidation,
    is equivalent to 37.30 pence (1994 - 28.09 pence).
  (ii)   The exceptional dividend of 100.00 pence paid in
    September 1995 is equivalent to 113.04 pence after adjustment
    for consolidation.
  (iii)  Dividends of 2.1m pounds were waived by Northern Electric Share
    Scheme Trustee Limited in 1996.
  
  11.  EARNINGS PER ORDINARY SHARE
  
  The  calculation  of  basic  earnings  per  ordinary  share  is  based   on
  earnings,  after  deducting  preference  dividend,  of  62.9m pounds  (1995 -
  103.2m pounds, 1994 - 98.3m pounds)  and  on  98,323,626  ordinary   shares,
  being the  weighted average  number of  shares  in  issue  during  the year
  (1995-117,651,149,   1994-123,184,663,   adjusted   on   consolidation   to
  1995-104,074,206,    1994-112,472,953),    excluding    those    held    by
  Northern   Electric  Share  Scheme  Trustee  Limited   which   has   waived
  rights   to   dividends.    The   calculation   of   earnings   per   share
  excluding  net  exceptional  charges  of  14.8m pounds  (1995 - 11.7m pounds,
  1994 - Nil)  is  included  to  give  a  fairer  indication  of  the  underlying
  performance of the Group in the year.
  
                    NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                       
                        NOTES TO THE ACCOUNTS CONTINUED
  12.  TANGIBLE FIXED ASSET
  
                         Distribution  Oil and gas    Non-    Fixtures  Vehicles      Deduct:    Total
                            System        assets  operational   and     and mobile   Consumers'
                                                   land and   equipment   plant    contributions
                                                   buildings
                           pound m       pound m   pound m     pound m    pound m   pound m      pound m
  COST:
  At 1 April 1993             630.6           -       40.4       48.7        20.1     (158.0)     581.8
  Reclassification of assets   (6.0)          -       (1.5)       7.6        (0.1)         -          -
  Additions                    53.2           -       (0.1)      12.0         3.0      (13.5)      54.6
  Disposals                    (4.1)          -       (0.1)      (0.1)       (0.6)       0.3       (4.6)
                             -------------------------------------------------------------
  At 1 April 1994             673.7           -       38.7       68.2        22.4     (171.2)     631.8
  Reclassification of assets    2.2           -          -       (2.2)          -          -          -
  Additions                    60.5           -          -        6.5         3.4      (13.2)      57.2
  Disposals                    (3.9)          -       (0.8)      (0.4)       (1.6)       0.3       (6.4)
                             -------------------------------------------------------------
  At 1 April 1995             732.5           -       37.9       72.1        24.2     (184.1)     682.6
  Additions                    50.4        33.7          -        3.5         0.9      (12.6)      75.9
  Disposals                    (5.2)          -          -       (5.8)       (2.0)       0.7      (12.3)
                             -------------------------------------------------------------
  At 31 March 1996            777.7        33.7       37.9       69.8        23.1     (196.0)     746.2
                             -------------------------------------------------------------
  DEPRECIATION:
  At 1 April 1993             219.0           -        6.9       26.0         9.4      (41.0)     220.3
  Reclassification of assets   (1.4)          -          -        1.4           -          -          -
  Provided during the year     18.0           -        0.7        7.7         2.3       (4.6)      24.1
  Disposals                    (4.1)          -          -       (0.1)       (0.6)       0.3       (4.5)
                             -------------------------------------------------------------
  At 1 April 1994             231.5           -        7.6       35.0        11.1      (45.3)     239.9
  Reclassification of assets    1.4           -          -       (1.4)          -          -          -
  Provided during the year     18.9           -        0.8        8.2         2.1       (5.0)      25.0
  Disposals                    (3.9)          -       (0.1)      (0.4)       (1.3)       0.3       (5.4)
                             -------------------------------------------------------------
  At 1 April 1995             247.9           -        8.3       41.4        11.9      (50.0)     259.5
  Provided during the year     22.0           -        3.0        8.7         2.4       (5.5)      30.6
  Disposals                    (5.2)          -          -       (5.8)       (1.7)       0.7      (12.0)
                             -------------------------------------------------------------
  At 31 March 1996            264.7           -       11.3       44.3        12.6      (54.8)     278.1
                              =====        ====      =====       ====        ====      =====      =====
  Net book value at
   31 March 1996              513.0        33.7       26.6       25.5        10.5     (141.2)     468.1
                              =====        ====      =====       ====        ====      =====      =====
  Net book value at
   31 March 1995              484.6           -       29.6       30.7        12.3     (134.1)     423.1
                              =====        ====      =====       ====        ====      =====      =====
  Net book value at
   31 March 1994              442.2           -       31.1       33.2        11.3     (125.9)     391.9
                              =====        ====      =====       ====        ====      =====      =====
  Assets in the course of construction included:
  At 31 March 1996             10.5         5.4          -          -           -          -       15.9
                              =====        ====      =====       ====        ====      =====      =====
  At 31 March 1995             10.3           -          -          -           -          -       10.3
                              =====        ====      =====       ====        ====      =====      =====
  At 31 March 1994              1.6           -          -        0.7           -          -        2.3
                              =====        ====      =====       ====        ====      =====      =====
  The  depreciation charge was 30.6m pounds (1995 - 25.0m pounds, 1994 -  24.1m
  pounds) before taking  account  of profit from disposals of 1.2m pounds (1995 -
  4.0m pounds, 1994 - 0.4m pounds).The depreciation charge for 1995 includes an 
  exceptional  credit of 1.6m pounds following a reassessment which extended the
  economic  lives  of  key meters from five to ten years.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
                                  
  12.           TANGIBLE FIXED ASSETS continued
  
  The net book value of non-operational land and buildings
  comprises:
  
                                                        31 March
                                                       1996    1995
                                                      pound m  pound m
  
  Freehold                                             23.1   24.6
  Long leasehold                                        3.4    4.9
  Short leasehold                                       0.1    0.1
                                                      -----   ----
                                                       26.6   29.6
                                                      =====   ====
  The total of land which is not depreciated is:        3.7    3.6
                                                      =====   ====
  NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  13. INVESTMENTS
                            Associated undertakings  Other undertakings  Total
                                 Shares   Loans        Shares   Loans
                                 pound m  pound m      pound m  pound m  pound m
  Cost:
  At 1 April 1993                     -      -           56.5   31.5      88.0
  Additions                         5.0    5.7            2.0      -      12.7
  Disposals                           -      -              -      -         -
                                  ------  -----          -----   ----    -----
  At 1 April 1994                   5.0    5.7           58.5   31.5     100.7
  Restatement of opening position on change to
     associate (ii) status          1.0     -            (1.0)     -         -
  Additions                         1.7     -             4.2    0.4       6.3
  Share of losses in associated
   undertakings                    (0.4)    -               -      -      (0.4)
  Goodwill written off             (2.0)  (0.8)             -      -      (2.8)
                                  ------  -----         -----   ----     -----
  At 1 April 1995                   5.3    4.9           61.7   31.9     103.8
  Share of losses in associated
   undertakings                    (0.2)     -              -      -      (0.2)
  Acquisition of controlling
   interest in associate (iii)     (6.3)  (4.9)             -      -     (11.2)
  Additions                           -      -           12.4    1.0      13.4
  Revaluation of investment in
   The National Grid Group plc (iv)   -      -          171.4      -     171.4
  Revaluation of investment in
   First Hydro Limited (iv)           -      -           10.9      -      10.9
  Revaluation of associated
   undertaking's assets             1.2      -              -      -       1.2
  Disposals (v)                       -      -         (244.2)     -    (244.2)
                                   -----   -----         -----   ----   -------
  At 31 March 1996                    -      -           12.2   32.9      45.1
                                   =====   =====         =====  =====   =======
  -------------------------------------------
  (i)    All investments are unlisted securities.
  (ii)   Following the increases in 1995 in the shareholding in
    Combined Power Systems Limited to 29.95% this company is now
    accounted for as an associate and the shareholding at 1 April
    1994 (1.0m pounds) was restated under the associates column.
  (iii)  Following the increase in the shareholding in Sovereign
    Exploration Limited to 100% on 31 December 1995, this company
    is now fully consolidated as a subsidiary.
  (iv)   In the year ended 31 March 1996 the investment in The
    National Grid Group plc (NGG) was increased by 11.2m pounds and then
    revalued by the directors to its flotation value of 226.6m pounds
    prior to its distribution to Northern Electric plc
    shareholders as a specie dividend. The residual investment in
    First Hydro Limited was revalued by the directors to 17.6m pounds on
    1 April 1995.
  (v)    The disposals comprise the specie dividend of NGG shares
    226.6m pounds and the sale of First Hydro Limited 17.6m pounds.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
                                  
  13. INVESTMENTS continued
  
  On  31  December  1995,  the  Group acquired  from  Neste  Oy  the  balance
  of   the   ordinary  shares  of  Sovereign  Exploration  Limited,   thereby
  increasing   its   investment   to  100%  of  Sovereign's   nominal   share
  capital.   The   purchase   consideration  was   11.2m pounds,   comprising
  5m pounds for   the  ordinary  shares,  5m pounds  for  loan  notes  of 1 pound
  nominal value and 1.2m pounds  in  respect  of  accrued  interest,  paid  to 
  Neste.  At  the same   time   a   capital   reconstruction  was   effected 
  by  Sovereign involving   the   issue   of   an   additional   10,000,000
  1 pound ordinary shares to the  Group  in  consideration  of  the  conversion
  of the 10m pound loan   notes   into   equity   capital.   On   18   January
  1996, Sovereign   issued   to   the  Group  a  further  3,204,000   1 pound
  ordinary shares in consideration   for  the  repayment of 3.2m pounds short-term
  loans.   The   investment  in  Sovereign  Exploration  Limited   has   been
  included  in  the  balance  sheet  at  its  fair  value  at  the  date   of
  acquisition and an analysis of the acquisition is given below:
  
                                  Book value      Adjustments          Fair value
                                              Revaluation Loan notes    to Group
                                   pound m      pound m    pound m       pound m
  Net assets at date of acquisition:
  Tangible fixed assets              31.6          2.4         -           34.0
  Debtors                             1.4            -         -            1.4
  Cash                                0.3            -         -            0.3
  Creditors due within one year      (5.3)           -         -           (5.3)
  Creditors due after one year      (14.6)           -      10.0           (4.6)
  Provisions                         (3.4)           -         -           (3.4)
                                   -------      ------    ------           -----
  Net assets                         10.0          2.4      10.0           22.4
                                   =======      ======    ======           =====
  
  Existing carrying value of Sovereign Exploration Limited as an
  associate                                                               (11.2)
                                                                          ------
                                                                           11.2
                                                                          ======
  Discharged by:
  Cash purchase of remaining 5,000,000 1 pound ordinary shares,
  5,000,000 1 pound loan notes and 1.2m pounds accrued interest from Neste
                                                                           11.2
  
  Sovereign   Exploration  Limited  was  acquired  on   31   December   1995,
  the  end  of  its  financial  year,  and  became  a  subsidiary  from  that
  date.   Thus,   the  acquisition  had  no  effect  on  the   Group's   cash
  flows  for  the  year.  The  cash  flows in  respect  of  the  purchase  of
  Sovereign Exploration Limited were as follows:
  
                                                                     pound m
  Cash in Sovereign Exploration Limited at date of acquisition         0.3
  Loans in Sovereign Exploration Limited at date of acquisition       (4.6)
  Cash consideration                                                 (11.2)
                                                                     ------
  Net cash outflow on acquisition of subsidiary undertaking          (15.5)
                                                                     ======
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  13.  INVESTMENTS continued
  
  Sovereign Exploration Limited incurred an after tax loss in the
  year ended 31 December 1995 of 0.4m pounds (1994 - 0.4m pounds profit). The
  summarised profit and loss account for the period from 1 January
  1995 to 31 December 1995, the date of acquisition, was as follows:
  
                                                           pound m
  Turnover                                                   6.0
                                                           =====
  Operating profit                                           2.3
                                                           =====
  Profit before tax                                          1.3
  Taxation                                                  (1.7)
                                                           ------
  Loss for the year ended 31 December 1995                  (0.4)
                                                           =====
  
  There were no recognised gains and losses in the year ended 31
  December 1995 other than the loss of 0.4m pounds above and the
  unrealised gain on revaluation of 2.4m pounds.
  
  Details of the principal investments of the Group are listed
  below.
  
                             Country of          Holding    Proportion
                             registration           of      of voting
                             (or incorporation)  ordinary   rights and   Nature of
  Name of company            and operation       shares     shares held  business
  -------------------------------------------------------------------------------
  Associated undertakings
  
  Held by Northern Electric subsidiaries:
  -------------------------------------------------------------------------------
  Combined Power Systems 
   Limited                   England and        457,475     29.95%  Manufacturing
                             Wales              at 1 pound          power supply
                                                                    systems
  -------------------------------------------------------------------------------
  Fixed asset investments
  Held by Northern Electric plc
  -------------------------------------------------------------------------------
  Teesside Power Limited     England and    26,923,176      15.4%  Generation of
                             Wales          at 1p                  electricity
  -------------------------------------------------------------------------------
  Ionica L3 Limited          England and        69,564      8.2%   Public 
                             Wales              at 10p             telephony
                                                                   operator
  -------------------------------------------------------------------------------
  UK Data Collection
   Services Limited          England and      155,000       8.3%   Data collection
                             Wales            at 1 pound           agency
  -------------------------------------------------------------------------------
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
  14. STOCKS
  
                                                        31 March
                                                      1996    1995
                                                  pound m   pound m
  
  Raw materials and consumables                      3.7     3.7
  Work in progress                                   3.9     2.9
  Finished goods and goods for resale                6.7     5.7
  Payments on account                               (2.4)   (2.7)
                                                    -----   -----
                                                    11.9     9.6
                                                    =====  =====
  
  The difference between the purchase price or production cost of
  stocks and their replacement cost is  not material.
  
  15.  DEBTORS
  
                                                        31 March
                                                      1996    1995
                                                   pound m    pound m
  Amounts falling due within one year:
  
  Trade debtors                                      7.7    65.1
  Credit sales installments not yet due              7.1     9.1
  Prepayments and accrued income                     3.5     1.3
  Unbilled consumption                              87.5    73.2
  Advance corporation tax recoverable               48.2     9.8
  Other                                             31.4    28.3
                                                    ----    -----
                                                   185.4   186.8
  Amounts falling due after more than one year:
  
  Credit sales installments not yet due             20.9    33.4
  Deferred tax                                       5.9     4.8
                                                    ----   -----
  Total debtors                                    212.2   225.0
                                                   =====   =====
  
  16.  CURRENT ASSET INVESTMENTS
                                                       31 March
                                                     1996    1995
                                                   pound m  pound m
  
  Listed equity investments                          5.7     7.0
  Short-term deposits with banks                    38.8     0.5
  Treasury stock                                     2.7     7.0
                                                    ----    -----
                                                    47.2    14.5
                                                    =====  =====
  
  The listed investments include a direct holding of 883,959 shares
  (1995 - 141,051 shares) in the Company of 3.9m pounds (1995 - 1.1m pounds),
  held by Northern Electric Share Scheme Trustee Limited as part of
  the Northern Electric Employees' Share Trust explained in Note 22.
                                  
  The market value of the listed investments at 31 March 1996 was
  10.2m pounds (1995 - 13.0m pounds).
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  17.  CASH AND CASH EQUIVALENTS 31 March
                                          1996    1995    Change
                                         ound m  pound m  pound m
  Analysis of balances in Group balance sheet:
  Cash at bank and in hand                34.9    20.4   14.5
  Short-term investments                  37.1     0.0   37.1
  Short-term borrowings                  (29.7)  (50.9)  21.2
                                    ---------------------------
                                          42.3   (30.5)  72.8
                                        =====   =====  =====
  Investments with an original maturity
   date of more than three months         10.1    14.5   (4.4)
  Provision made against value of
   employee share option trust assets
   to write down to option price           0.6    0.6     0.0
                                    ---------------------------
                                          10.7    15.1   (4.4)
                                         =====   =====  =====
  
                                          1995    1994   Change
                                       pound m   pound m pound m
  Cash at bank and in hand                20.4    14.9    5.5
  Short-term investments                   -      37.5  (37.5)
  Short-term borrowings                  (50.9)    -    (50.9)
                                    ---------------------------
                                         (30.5)   52.4  (82.9)
                                        =====   =====  =====
  Investments with an original maturity 
   date of more than three months         14.5    34.7  (20.2)
  Provision made against value of
   employee share option trust assets
   to write down to option price           0.6    0.4     0.2
                                    ---------------------------
                                          15.1    35.1  (20.0)
                                        =====   =====  =====
  
                                          1994    1993      Change
                                        pound m   pound m   pound m
  Cash at bank and in hand                14.9     9.0        5.9
  Short-term investments                  37.5    26.1       11.4
                                        ---------------------------
                                          52.4    35.1       17.3
                                         =====   =====      =====
  Investments with an original maturity
   date of more than three months         34.7     6.3       28.4
  Provision made against value of 
   employee share option trust assets
   to write down to option price           0.4    0.2         0.2
                                       ---------------------------
                                          35.1     6.5       28.6
                                         =====   =====      =====
   
  
              NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
                                  
  18.  CREDITORS:  amounts falling due within one year
  
                                                 31 March
                                               1996    1995
                                             pound m   pound m
  Loans and overdrafts (Note 20)               29.7    84.5
  Payments received on account                  5.1    12.8
  Trade creditors                              89.4    69.8
  Corporation tax                              18.9    11.0
  Advance corporation tax                      26.8     6.6
  Consortium relief                               -     0.4
  Other taxes and social security costs         4.3     3.1
  Other creditors                              11.5     7.7
  Accruals and deferred income                  3.2     0.9
  Dividends accrued and proposed (Note 10)     32.8    26.1
                                           ------------------
                                              221.7   222.9
                                              =====   =====
  
  19.  CREDITORS:  amounts
  
  falling due after more than one year
                                            31 March
                                          1996    1995
                                        pound m  pound m
  Loans (Note 20)                        257.1    61.5
  Deferred tax                             7.0     2.8
  Consortium relief                       21.5    19.1
  Other creditors                          -       0.5
                                      ------------------
                                         285.6    83.9
                                         =====   =====
  
  20.  BORROWINGS
  
                                                      31 March
                                                    1996    1995
                                                  pound m   pound m
  Analysis of borrowings:
  Not wholly repayable within five years            199.1      -
  Wholly repayable between two to five years         58.0    61.5
  Wholly repayable within one year                   29.7    84.5
                                                 ------------------
                                                    286.8   146.0
                                                    =====   =====
  
  The principal loans not wholly repayable within five years are
  bearer bonds, repayable in 100m pound tranches in 2005 and 2020,
  bearing interest at 8.625% and 8.875% respectively.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
                                  
  Analysis of changes in borrowings during the year:
  
                                          Year ended 31 March
                                          1996    1995     1994
                                       pound m   pound m  pound m
  At 1 April                             146.0    62.1   80.5
  Net cash (outflow)/inflow  from 
   cash and cash equivalents (Note 17)   (21.2)   50.9      -
  Net cash (outflow)/inflow from
   borrowings                            162.0    33.0  (18.4)
                                    ---------------------------
  
  At 31 March                            286.8   146.0   62.1
                                         =====   =====  =====
  
  21.  PROVISIONS FOR LIABILITIES AND CHARGES
  Regulatory    Pensions   Insurance  Restructuring   Other   Total
                             correction               claims
                             factor
  
                            pound m        pound m    pound m       pound m       pound m  pound m
  At 1 April 1993             21.2           5.5         9.2          5.4          2.9     44.2
  Utilised/paid in year      (21.2)            -        (0.4)        (4.0)        (0.5)   (26.1)
  Transferred from/(to)
   profit and loss account    16.3           0.2         2.8          3.9          0.1     23.3
  At 31 March 1994            16.3           5.7        11.6          5.3          2.5     41.4
                           ---------      ---------   ---------     --------     -------  ------ 
  Utilised/paid in year      (16.3)            -        (0.7)        (5.3)        (0.7)   (23.0)
  Transferred from/(to)
   profit and loss account     7.1           0.2         1.9          6.0         (0.5)    14.7
                           ---------      ---------   ---------     --------    -------  -----  
  At 31 March 1995             7.1           5.9        12.8          6.0          1.3     33.1
                          ----------      ---------   ---------     --------    -------   ----- 
  Utilised/paid in year       (7.1)            -        (2.8)        (6.0)        (0.4)   (16.3)
  Transferred from/(to)
   profit and loss account     7.2          (5.3)       (0.5)        13.5          4.8     19.7
                          ----------      ---------   ---------     --------    -------   -----
  At 31 March 1996             7.2           0.6         9.5         13.5          5.7     36.5
                          ==========      =========   =========     ========    =======
  NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  22.  SHARE CAPITAL
  31 March
                             1996       1995       1994    1996    1995    1994
                            Number     Number     Number  pound m  pound m pound m
                           (millions) (millions)  (millions)
  Authorised
  Equity--ordinary
   shares of 50p each          -        200.0       200.0        -   100.0  100.0
  Equity--ordinary shares
   of 56 12/23p each       176.9            -           -    100.0       -      -
  Non equity--cumulative
   preference shares 
   of 1p each              115.0            -           -      1.2       -      -
                           -----        -----       -----    -----   -----  -----
                           291.9        200.0       200.0    101.2   100.0  100.0
                           =====        =====       =====    =====   =====  =====
  
  Allotted, called up and
   fully paid 
  Equity - ordinary shares
   of 50p each                -        111.5        123.7       -     55.8   61.9
  Equity - ordinary shares
   of 56 12/23p each      101.1            -            -    57.2        -      -
  Non equity--cumulative
   preference shares
   of 1p each             111.7            -            -     1.1        -      -
                          -----       ------        -----   -----    -----  -----
                          212.8        111.5        123.7    58.3    545.8   61.9
                          =====       ======        =====   =====    =====  =====
  On   11   September   1995   the  Company  issued  111,662,378   preference
  shares of an aggregate  nominal  value  of  1.1m pounds  to  its  shareholders
  as   a  bonus  issue  of  one  preference  share  for  every  one  ordinary
  share   of   50p   held  as  at  16  August  1995.  Cumulative   preference
  shares:
  
       (i)entitle   holders,   in   priority  to   holders   of   all   other
          classes   of   shares,   to   a   fixed   cumulative   preferential
          dividend  of  8.061p  (net)  per  share  per  annum  payable   half
          -yearly in equal amounts on 31 March and 30 September;
       
       (ii)on   a   return  of  capital  on  a  winding  up,  or   otherwise,
          will   carry   the   right  to  repayment   of   capital   together
          with  a  premium  of  99p  per  share  and  a  sum  equal  to   any
          arrears   or   accruals   of   dividend;   this   right    is    in
          priority to the rights of ordinary shareholders;
       
       (iii)carry   the   right   to  attend  a  general   meeting   of   the
          Company,  and  vote  if,  at  the  date  of  the  notice  convening
          the   meeting,   payment  of  the  dividend  to  which   they   are
          entitled   is   six   months  or  more  in   arrears,   or   if   a
          resolution  is  to  be  considered  at  the  meeting  for   winding
          up   the  Company  or  abrogating,  varying  or  modifying  any  of
          the special rights attaching to them; and,
       
       (iv)are   redeemable   in  the  event  of  the   revocation   by   the
          Secretary   of   State   of  the  Company's   Public    Electricity
          Supply License at the value given in (ii) above.
  
  In  September  1995  the  share  capital  was  consolidated  on  the  basis
  of  twenty  three  new  5612/23p  ordinary  shares  for  every  twenty  six
  50p   ordinary   shares.  Fractional  shares  arising  as   a   consequence
  of   the  consolidation  were  sold  by  the  Company  on  behalf  of   the
  shareholders   entitled  to  them  and  the  proceeds  of  sale   (net   of
  expenses) were paid to those shareholders.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  22. SHARE CAPITAL continued
  
  At    an    Extraordinary   General   Meeting   on    8    December    1995
  shareholders   approved   the  distribution   of   the   benefit   of   the
  Company's  holding  in  The  National  Grid  Group  plc  ("NGG")   by   way
  of   a   dividend   in   specie.   As  a  consequence,   holders   of   the
  Company's   ordinary   shares   received   1.07   NGG   shares   for   each
  Northern   Electric   plc  ordinary  share  held  at   8   December   1995.
  Fractions   of  NGG  shares  were  not  transferred  to  shareholders   but
  were   aggregated   and  transferred  to  the  employee   share   ownership
  trust.   3,698,479   NGG  shares  were  retained   by   the   Company   for
  purchase   by   the  Trustee  of  the  Northern  Electric  Employee   Share
  Trust   to   meet  its  obligations  under  the  Company's   share   option
  schemes.
  
  At    the    Group's    Annual   General   Meeting    in    August    1994,
  shareholders  gave  approval  to  on-market  purchases  of  up  to  10%  of
  its   shares  and  this  was  given  effect  on  21  September  1994   when
  12,370,400   ordinary   shares,  with  an  aggregate   nominal   value   of
  6.2m pounds,   were  purchased  for  a  consideration  of 101.6m pounds.  The
  special rights  redeemable  preference  share  held  by  the  Secretary  of 
  State for  Trade  and  Industry  was  redeemed  at  par by the Company on  30
  March 1995.
  
  At   an  extraordinary  general  meeting  held  on  15  February  1995,   a
  special   resolution  to  alter  the  Company's  Articles  of   Association
  to   remove   the   restriction  limiting  ownership   of   shares   by   a
  single shareholder to 15% was passed.
  
  Employee Share Schemes
  
  On   11   December   1995,   786,334  ordinary   and   795,067   preference
  shares   were   transferred  out  of  trust  to  employees  under   special
  arrangements  made  at  the  time  of  the  Offer  for  Sale  in   November
  1990.
  
  On   8   and  15  August  1995  the  Trustee  exercised  its  option  under
  the     agreement    to    acquire    500,000    and    1,088,500    shares
  respectively  from  the  Bank  at  an aggregate  price of 6.3m pounds to meet
  Northern    Electric   plc's   obligations   under   its    share    option
  schemes.
  
  As   at  3  June  1996  the  Company,  through  the  Trustee  held  858,135
  (1995   -  1,716,920,  1994  -  1,642,653)  of  its  own  shares  in  trust
  on behalf of employees in connection with share option schemes.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  22. SHARE CAPITAL continued
  
  At   31   March  1996,  options  remained  outstanding  for  the   purchase
  of shares as follows:
  
                            Option     Date of                      Number
                            price      Exercise                    of Shares
                            pound
  To employees under the
   Sharesave Scheme         1.5683     1 March 1996                 146,071
  
                            2.7960     1 October 1997             1,030,987
  
  To senior executives
   under the Executive
   Share Option Scheme      3.486      1 July 1995-July 2002         29,739
  
                            3.4861     July 1995-July 2002           65,560*
  
                            6.1745     January 1997-January 2004     228,649
  
                            6.1745     January 1997-January 2004      76,202
  
                            5.8788     July 1997 - July 2004         199,589
  
                            5.8788     July 1997 - July 2004          66,514*
  
                            6.3269     August 1997 - August 2004     156,244
  
                            6.3269     August 1997 - August 2004      52,053*
  
  *In  relation  to  these  options,  a second  option  was  granted  on  the
  same  date  over  the  same  number  of Northern  Electric  plc  shares  at
  a   price   discounted   by   up  to  15%.   Each   of   these   discounted
  options  may  be  exercised  in  whole  or  in  part  from  the  fifth   to
  the  tenth  anniversary  of  the  date  of  the  grant,  in  lieu  of,  but
  not  in  addition  to,  the  higher priced option  of  the  same  pair  and
  provided   that  Northern  Electric  plc  achieves  a  growth  in  earnings
  per   share  over  the  five  financial  years  from  the  financial   year
  immediately   prior  to  the  date  of  grant  which  is   at   least   10%
  above the Retail Price Index growth for the same period.
  
  In   accordance   with  the  rules  of  the  Northern  Electric   Sharesave
  and   Northern  Electric  Executive  Share  Option  Schemes,   the   option
  price   and  number  of  options  granted  were  adjusted  for  each  grant
  with   effect  from  11  September  1995  following  the  bonus  issue   of
  preference   shares   by   Northern   Electric   plc.   The    method    of
  adjustment   was   approved  by  the  Inland  Revenue  and   certified   by
  the Group's auditors to be fair and reasonable.
  
  3,211,515   (1995  -  228,931,  1994-622,431)  ordinary   shares   with   a
  nominal   value   of   1.8m pounds   (1995  -  0.1m pounds,   1994 - 0.3m
  pounds) have been transferred to employees  and  senior  executives during
  the year under the share option  schemes  for  an  aggregate  consideration of
  6.8m pounds (1995 - 0.5m pounds, 1994 - 1.7m pounds).  This includes new shares
  issued by the Company  with  a  nominal value of 1.4m pounds  (1995 - 0.1m 
  pounds,  1994 - Nil)   and   shares  transferred  from  Northern  Electric 
  Share Scheme Trustee  Limited  with  a  nominal  value of 0.4m pounds (1995 and
  1994 - Nil).
  
  In   addition  2,444,060  (1995  and  1994  -  Nil)  NGG  ordinary   shares
  with   a  nominal  value  of 0.2m pounds  (1995  and  1994  -  Nil)  have  been
  issued   to  employees  and  senior  executives  under  the  share   option
  schemes.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  22.  SHARE CAPITAL continued
  
                                             Year ended 31 March
                                            1996    1995   1994
  
  Analysis of changes in share capital
   during the year:                       pound m  pound m pound m
  
  At 1 April                                55.8   61.9    61.6
                                           -----  -----   -----
  Issue of share capital                     4.1    0.5     1.7
  Purchase of own shares                       - (101.6)      -
                                           -----  ------  -----
  Net cash inflow/(outflow) from financing   4.1 (101.1)    1.7
  
  Nominal value of shares transferred
   to capital redemption reserve              -    (6.2)      -
  Premium on shares transferred to 
   share premium account                   (2.7)   (0.4)   (1.4)
  Premium on shares transferred from
   profit and loss reserves                   -   101.6       - 
  Preference shares issued                  1.1       -       -
                                          -----   -----   -----
  At 31 March                              58.3    55.8    61.9
                                           =====  =====   =====
  
  Analysis of changes in share premium during the year:
  At 1 April                                1.8    1.4        -
  Issue of preference share                (1.1)     -        -
  Net cash inflow from financing            2.7    0.4      1.4
                                           -----  -----   -----
  At 31 March                               3.4    1.8      1.4
                                           =====  =====   =====
  Analysis of changes in capital redemption reserve during the
  year:
  At 1 April                               6.2       -        -
  Purchase of own shares                     -     6.2        -
                                          -----  -----    -----
  At 31 March                              6.2     6.2        -
                                          =====  =====   =====
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  23. MOVEMENT ON RESERVES AND RECONCILIATION OF SHAREHOLDERS' FUNDS
  Share   Share     Capital      Statutory  Revaluation  Profit        Total
                                  Capital  Premium   Redemption   Reserve    Reserve      & Loss    Shareholders
                                           Account   Reserve                              Account       Funds
                                  pound m  pound m   pound m      pound m    pound m      pound m       pound m
  Total shareholders' funds
   at 1 April 1993                 61.6        -          -          0.3          -       362.8         424.7
  
  Profit attributable to members      -        -          -            -          -        98.3          98.3
  Dividends                           -        -          -            -          -       (30.7)        (30.7)
  Transfer to statutory reserve (i)   -        -          -          0.2          -        (0.2)            -
  Issue of ordinary shares          0.3      1.4          -            -          -           -           1.7
                              --------- ---------   ---------    ---------  ---------   ---------       ------
  
  Total shareholders' funds at
   31 March 1994                  61.9       1.4          -          0.5          -       430.2         494.0
  
  Profit attributable to members     -         -          -            -          -       103.2         103.2
  Dividends                          -         -          -            -          -       (36.8)        (36.8)
  Transfer to statutory reserve      -         -          -          0.5          -        (0.5)            -
  Issue of ordinary shares         0.1       0.4          -            -          -           -           0.5
  Purchase of own shares (ii)     (6.2)        -        6.2            -          -      (101.6)       (101.6)
  Adjustment to goodwill on 
   investments (iii)                 -         -          -            -          -        (2.8)         (2.8)
                              --------- ---------   ---------    ---------  ---------   ---------     ---------
  Total shareholders' funds
   at 31 March 1995               55.8       1.8        6.2          1.0          -       391.7         456.5
  
  Profit attributable to members     -         -          -            -          -        67.8          67.8
  Dividends                          -         -          -            -          -      (217.3)       (217.3)
  Issue of preference shares (iv)  1.1      (1.1)         -            -          -           -             -
  Issue of ordinary shares         1.4       2.7          -            -          -           -           4.1
  Revaluation of fixed asset
   investments (v)                   -         -          -            -      182.3           -         182.3
  Reserves on acquisition of
   Sovereign Exploration Limited     -         -          -            -        1.2           -           1.2
  Release of revaluation reserve
   on distribution (iv) & (v) in
   specie of shares in The 
   National Grid Group plc           -         -          -            -     (169.9)      169.9             -
  Distribution in specie of
   shares in The National (iv)
   & (v) Grid Group plc              -         -          -            -          -      (219.0)       (219.0)
  Disposal of investment in First
   Hydro Limited (vi)                -         -          -            -      (10.9)       10.9             -
  Transfer to statutory reserve      -         -          -          1.2          -        (1.2)            -
                              ---------   -------   ---------    ---------   --------- ---------      ---------
  Total shareholders' funds
   at 31 March 1996               58.3       3.4        6.2          2.2        2.7       202.8         275.6
                                ======    ======      ======      ======     ======      ======         =====
  Equity interests                                                                                      274.5
  Non-equity interests                                                                                    1.1
                                                                                                      ---------
                                                                                                        275.6
                                                                                                      =======
  The cumulative amount of goodwill written off at 31 March 1996 is
  2.8m pounds (1995 - 2.8m pounds, 1994 - Nil).
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  23.  MOVEMENT ON RESERVES AND RECONCILIATION OF SHAREHOLDERS' FUNDS
  
  (i)In  order  to  comply with the requirements of  the  insurance
     legislation in the Isle of Man, the Group's insurance  company
     has  increased the statutory reserve by 1.2m pounds (1995 - 0.5m pounds,
     1994 - 0.2m pounds) out of profits earned in the year.
  
  (ii)  At  the Company's Annual General Meeting in  August  1994,
     shareholders  gave  approval  to  on-market
     purchases  of  up  to  10% of its shares and  this  was  given
     effect  on  21  September  1994 when  12,370,400  shares  were
     purchased.
  
  (iii)                    The write-down of goodwill is in respect
     of  the investment in Combined Power Systems Limited  which is
     now accounted for as an associate on the equity basis.
  
  (iv)                     The  issue  of  the  preference  shares,
     1.1m pounds, and the demerger of the National Grid Group plc  by  a
     dividend  in  specie, 219.0m pounds, constituted the major  non-cash
     transactions of the Group during the year.
  
  (v)The investment in The National Grid Group plc was revalued  by
     the   directors   to  its  flotation  value   prior   to   its
     distribution  as  a  dividend in specie, to Northern  Electric
     plc shareholders.
  
  (vi)                     As  part  of  the arrangements  for  the
     demerger  of  The National Grid Group plc, the pumped  storage
     business,  First Hydro Limited, was retained by  the  regional
     electricity   companies   and  was  subsequently   sold.   The
     investment  was  revalued by the directors  to  the  estimated
     market value of the share of the net assets attributed to  the
     Group.
                                  
                                  
  24.  PENSION COMMITMENTS
  
  The Electricity Supply Pension Scheme is a defined benefit scheme
  for  directors  and  employees which provides pension  and  other
  related  benefits based on final pensionable pay.  The assets  of
  the Scheme are held in a separate trustee administered fund.
  
  The  pension cost to the Group for the period was 8.9m pounds (1995 -
  10.6m pounds, 1994 -10.7m pounds). The last full actuarial valuation of the
  Group's share of the Scheme was carried out by Bacon and Woodrow,
  consulting actuaries, as at 31 March 1995 and the results of this
  valuation  have been used as a basis for assessing pension  cost.
  The  attained  age  method  was  used  for  the  valuation.   The
  principal  actuarial assumptions were that the investment  return
  would  exceed  salary increases by 2.5% per annum  (exclusive  of
  merit  awards)  and  exceed future pension increases  by  4%  per
  annum.  The  previous  valuation was carried  out  by  Bacon  and
  Woodrow  as  at 31 March 1992 using the attained age method.  The
  principal  actuarial assumptions were that the investment  return
  would  exceed  salary increases by 2% per annum  (  exclusive  of
  merit  awards ) and exceed further pension increases  by  4%  per
  annum.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  24.  PENSION COMMITMENTS
  
  For  the  Northern Electric Group the valuation showed  that  the
  actuarial value of the assets represented 106.1% ( 31 March  1995
  -  108%  )  of  the actuarial value of the accrued benefits.  The
  accrued  benefits include all benefits for pensioners  and  other
  former members as well as benefits based on service completed  to
  date  for  active members, allowing for future salary  increases.
  Improvements  in benefits for members and dependants  are  to  be
  made   with  effect  from  1  April  1996.  Allowing  for   these
  improvements  the actuarial value represents 103.2%  (  31  March
  1995, allowing for improvements in benefits made with effect from
  1 April 1993 - 104.6% ) of accrued benefits.
  
  The total market value of the assets of the Scheme at the date of
  actuarial  valuation was 12,482.8m pounds (1995 - 9,521m pounds)  of  which
  443.9m pounds  (1995 - 327.3m pounds) represented the section of the  Scheme
  relating to the Northern Electric Group.
  
  Contributions, based on a composite rate and payable by the Group
  to  the Scheme during the year were 8.7m pounds (1995 - 10.4m pounds,
  1994 - 10.6m pounds).  In  addition, 0.2m pounds (1995 - 0.2m pounds,
  1994 - 0.1m pounds)  was incurred for provisions for unfunded supplementary
  pensions.  The latest actuarial valuation allowed for the additional liabilities
  which  have arisen from the European Court of Justice's  decision
  on  17  May 1990 in the case of Barber v Guardian Royal  Exchange
  which  relates  to  the  equal treatment  of  men  and  women  in
  occupational pension schemes.
  
  The  Actuary's valuation of the Scheme and of the separate Groups
  is  based on the situation known at the date of signature of  the
  report. It takes no account of any changes to the Group's  assets
  or  liabilities  which  may arise from the determination  of  the
  complaints in relation to the Scheme which may have been notified
  by  the Pensions Ombudsman at the request of certain  members and
  pensioners.  Those  complaints relate  to  other  Groups  and  no
  complaints have been  registered regarding the Northern  Electric
  Group.
  
  25. OBLIGATIONS UNDER HIRE AGREEMENTS
  
                                                 Land and
                                                 Buildings        Other
  
                                                 31 March       31 March
  Annual commitments under non-cancellable     1996    1995   1996  1995
  operating leases are as follows:           pound m  pound m pound m pound m
  
  Expiring within one year                      0.2    0.1     0.3    0.6
  Expiring between two and five years           0.3    0.1     2.1    3.6
  Expiring after five years                     2.5    2.6       -      -
                                                ---    ---     ---    ---
                                                3.0    2.8     2.4    4.2
                                               ====   ====    ====    ===
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  26.  REGULATORY MATTERS
  
  The  Company  is subject to price cap regulation. OFFER  controls
  the  revenues  generated by the Company in its  distribution  and
  supply businesses by applying a price control formula, P + RPI  -
  X  (where  X is currently 3% for distribution and 2% for supply),
  where  P  is  the  price  level at  the  beginning  of  each  new
  regulatory  period, RPI is the change in the Retail  Price  Index
  and X is an adjustment factor determined by OFFER.
  
  In  the  distribution  business, the Distribution  Price  Control
  Formula  ("DPCR") is usually set for a five-year period,  subject
  to  more  frequent  adjustments as determined  necessary  by  the
  Director  General  of Electricity Supply (the  "Regulator").   At
  each   review,  the  Regulator  can  require  a  one-time   price
  reduction. An initial review by the Regulator of allowable income
  in  the  distribution business led to a reduction  of  the  price
  level  by 17% for the Company starting 1 April 1995, followed  by
  efficiency factors of X = 2% for each year until March 2000. On 6
  July  1995,  the  Regulator announced the  result  of  a  further
  distribution  price  review  which was  precipitated  by  certain
  market  events  in  the  UK electric utility  industry.  For  the
  Company, such announcement meant a further real reduction of  11%
  in  allowable  distribution income for the twelve months  from  1
  April 1996, followed by an efficiency factor X = 3% for each year
  until 31 March 2000, before an allowed increase for inflation.
  
  In  the  supply business, which is progressively being opened  to
  competition,  price regulation still applies to  the  market  for
  customers with demand of not more than 100kW. The calculation  of
  the  maximum  supply  charge is based on a Supply  Price  Control
  Formula,  similar to the DPCR and is set for a four-year  period.
  In  1993, OFFER announced the supply franchise market (i.e., with
  demand  of not more than 100kW) income entitlement for the  four-
  year  period  ending  March 1998. A relatively  small  efficiency
  factor  of X = 2% was applied to the Company and is being  offset
  by   an  allowance  for  both  unit  and  customer  growth.   The
  nonfranchise markets (above 1MW) were opened to full  competition
  during  privatisation  in  1990; the nonfranchise  markets  above
  100kW were opened to full competition starting in April 1994.
  
  27.  CAPITAL AND OTHER COMMITMENTS
  
  Capital expenditure authorised by the Board of Directors but  not
  provided  for  at 31 March 1996 was 37.5m pounds (1995  -  50.7m pounds) in
  respect   of   which  the  Group  has  entered  into  contractual
  commitments of 2.9m pounds (1995 - 5.1m pounds).
  
  The  Company has entered into a contract relating to the purchase
  of  400  megawatts of capacity from a 15.4% owned related  party,
  Teesside  Power Limited ("Teesside"), for a period  of  15  years
  beginning  1  April  1993. The contract sets escalating  purchase
  prices  at  predetermined levels. Current contract prices  exceed
  those  paid  by the Company to the electricity pool (the  "Pool")
  which  is  operated by the NGG. However, the Company is  able  to
  recover  these costs under current price cap regulation  expected
  to expire 1 April 1998.
  
  The  Company  additionally  utilises  contracts  for  differences
  ("CFDs") to mitigate its exposure to volatility in the prices  of
  electricity purchased through the Pool. Such contracts allow  the
  Company  effectively to convert the majority of  its  anticipated
  Pool  purchases  from market to fixed prices.  As  of  31,  March
  1996,  CFDs  were  in  place  to hedge electricity  purchases  of
  approximately 49,000 GWh through the year 2008.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  28.  CONTINGENT LIABILITIES
  
  There  were no contingent liabilities at 31 March 1996 or  at  31
  March  1995; however, the following have developed subsequent  to
  31 March 1996:
  
  The  Labour Party has asserted that, if they are elected  at  the
  next  General Election, which must be held no later than  22  May
  1997,  they will seek to introduce a "windfall" assessment to  be
  levied  on  the privatised utilities including the  Company.  The
  basis  for  such  a  potential  assessment  is  unknown  but,  if
  introduced, such assessment could be substantial.
  
  Following  a  complaint by two pensioners, in December  1996  the
  Pensions  Ombudsman  made a ruling against  National  Grid  Group
  relating  to the use of an actuarial valuation surplus  in  their
  part  of the Electricity Supply Pension Scheme (the "ESPS").  The
  ruling,  prohibits  the  use of valuation  surplus  to  meet  the
  additional  pension  costs  of  early  retirement  arising   from
  restructuring.  Although  Northern would  intend  to  appeal  any
  similar  ruling against it, if a similar ruling was made  against
  Northern Electric and any subsequent appeal was unsuccessful then
  the  Company  could potentially be required to make contributions
  in lieu of utilizing any ESPS actuarial valuation surplus.
  
  29.  DIRECTORS' INTERESTS
  
  There  are  no  interests in contracts which are required  to  be
  disclosed under the Companies Act 1985.
  
  30.    COMPANIES ACT 1985
  
  These accounts do not compromise the Company's statutory accounts
  within  the meaning of  section 240 of the Companies Act 1985  of
  Great  Britain. Statutory accounts for the years ended  31  March
  1996,  1995  and  1994,  on  which  the  auditors'  reports  were
  unqualified,  have been delivered to the Registrar  of  Companies
  for England and Wales.
  
  31.     DIFFERENCES  BETWEEN  UNITED KINGDOM  AND  UNITED  STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
  
  The Group's consolidated accounts are prepared in accordance with
  accounting  principles generally accepted in the  United  Kingdom
  ("UK  GAAP")  which differ from United States generally  accepted
  accounting principles ("US GAAP"). The significant differences as
  they apply to the Group are summarised below.
  
  Pension costs
  
  The Group provides for the cost of retirement benefits based upon
  the  consistent  percentages  of employees'  pensionable  pay  as
  recommended  by  independent  actuaries.  Under  US   GAAP,   the
  projected benefit obligation, calculated using the projected unit
  credit  method and a discount rate which reflects current  market
  rates  at which pension liabilities could effectively be settled,
  would be matched against the fair value of the plan's assets  and
  would  be  adjusted  to reflect any unrecognised  obligations  or
  assets  in  determining the pension cost or credit for the  year.
  As  it  is  not feasible to adopt US GAAP prior to 1 April  1994,
  that  date  has  been used as the adoption date and,  accordingly
  12.1m pounds of the transitional asset of 34.7m pounds at that date
  has  been recognised as a credit to shareholders' funds as of 1 April
  1994 with the remaining 22.6m pounds being amortised over 9 years.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  31.     DIFFERENCES  BETWEEN  UNITED KINGDOM  AND  UNITED  STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES continued
  
  Deferred taxation
  
  The  Group  provides  for deferred taxation using  the  liability
  method  on  all  timing differences to the extent that  they  are
  expected  to  reverse  in  the  future  without  being  replaced.
  Deferred tax assets are only recognised if recovery is reasonably
  certain.  Under  US GAAP, deferred tax would be computed  on  all
  differences between the tax bases and book values of  assets  and
  liabilities  which  will  result in  taxable  or  tax  deductible
  amounts  in future years. Deferred tax assets would be recognised
  where their realisation is more likely than not.
  
  Dividends
  
  Under  UK  GAAP, dividends are provided, and the related  advance
  corporation  tax  ("ACT") accrued, in  the  year  to  which  they
  relate.  Under  US  GAAP, dividends would be  provided,  and  the
  related ACT accrued, in the year in which they are declared.
  
  Exceptional items
  
  The  amounts  reported  under  UK  GAAP  after  operating  profit
  relating  to  profit on disposal of fixed assets and  exceptional
  shareholder  costs  would be dealt with in the  determination  of
  operating  profit under US GAAP.  Further, US GAAP do not  permit
  the  disclosure  of  earnings  per share  before  the  effect  of
  exceptional items.
  
  Goodwill
  
  Under  UK  GAAP,  goodwill  arising  on  the  acquisition  of   a
  subsidiary  or  associated  company is  either  set  off  against
  reserves  in  the  year of acquisition or amortised  through  the
  profit and loss account over its estimated useful life. Under  US
  GAAP,  such  goodwill would be capitalised and amortised  through
  the  profit and loss account over its estimated useful life,  not
  exceeding 40 years. Under UK GAAP 2.8m pounds of goodwill has been set
  off against reserves. Under US GAAP, however, this goodwill would
  have  been written off as impaired to the profit and loss account
  in the year ended 31 March 1995.
  
  Investment in The National Grid Group plc and First Hydro Limited
  
  Under  UK GAAP, the Group's investment in The National Grid Group
  plc  ("NGG")  was  recorded  at its  share  of  NGG's  pro  forma
  historical cost net asset value at 31 March 1990 of 780m pounds,  which
  amounted to 50.7m pounds. Under US GAAP the investment would have  been
  recorded  at  Nil.  In  connection with the  flotation  of  NGG,
  Northern Electric made a further investment in NGG and the  carry
  value  of  the  investment in NGG was revalued to  its  flotation
  value  prior  to  its  distribution as a dividend  in  specie  to
  Northern  Electric's shareholders, pro rata to their holdings  of
  Northern Electric ordinary shares. Under US GAAP, at the time  of
  flotation  the investment would have been treated as an available
  for  sale marketable security and would have been recorded at its
  market value with a corresponding credit, net of related deferred
  taxes, to a separate component of shareholders' funds.  Under  US
  GAAP,   the   unrealised  gain  previously  credited  direct   to
  shareholders' funds would have been taken to Income at  the  time
  the  dividend  in  specie was declared.  Of the specie  dividend,
  2.1m  related to Northern Electric shares held by the ESOP.  Under
  UK  GAAP  this has been credited to the profit and loss  account.
  Under US GAAP this would have been deducted from the value of the
  specie dividend.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  31.     DIFFERENCES  BETWEEN  UNITED KINGDOM  AND  UNITED  STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES continued
  
  Under UK GAAP, prior to its sale, the Group's investment in First
  Hydro was revalued to the estimated market value of the share  of
  its  net  assets attributable to the Group. Under US  GAAP,  this
  revaluation would not have been made and the gain on  sale  would
  have been correspondingly higher.
  
  Under  UK  GAAP, NGG dividends and the related tax  credits  were
  accounted  for in the period to which they related to the  extent
  they  had  been  announced  prior  to  the  finalisation  of  the
  Company's  accounts for those periods. Under US GAAP, they  would
  have been recognised in the periods in which they were declared.
  
  Current asset investments - own shares
  
  Under  UK  GAAP, the shares in the Company held by  the  Northern
  Electric Share Trust (the "ESOP") are classified as current asset
  investments.  Under US GAAP, such shares would be  classified  as
  treasury  shares  and reflected as a reduction  of  shareholders'
  funds.
  
  The  following  is  a summary of the significant  adjustments  to
  profit attributable to members of the parent company (net income)
  and  shareholders' funds which would be required if US GAAP  were
  to be applied instead of UK GAAP.
  
       Net income
                                             Year ended 31 March
                                                1996      1995
                                               pound m   pound m
  
  Net income as reported in the Group
   profit and loss account                      67.8     103.2
  
  Adjustments:
    Dividends receivable                         6.2      (8.8)
    Pension costs                                9.0       6.8
    Goodwill write off                           -        (2.8)
    Profit distribution of NGG shares          215.4       -
    Profit on disposal of fixed assets          17.6       -
    Advance corporation tax written off         20.2       -
    Tax credits on dividends receivable         (1.3)      1.8
  Deferred  taxation - on above  adjustments   (19.7)     (2.2)
                     - methodology             (15.1)     (9.4)
                                            ---------  ---------
  Net income as adjusted to accord
   with US GAAP                                300.1      88.6
                                            ---------  ---------
                                              pence      pence
  Per ordinary share as so adjusted            305.3      85.1
                                               =====      =====
  
  Net income per ordinary share has been calculated by dividing net
  income  in accordance with US GAAP of 300.1m pounds (1995 - 88.6m pounds) by
  98.3m  shares (1995 - 117.7m adjusted on consolidation  of  share
  capital  to 104.1m) being the weighted average number of ordinary
  shares in issue.
                                  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  31.     DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES continued
  
       Shareholders' funds
                                                31 March
                                              1996         1995
                                             pound m     pound m
  
  Shareholders' funds as reported in 
   the Group balance  sheet                    275.6     456.5
  
  Adjustments:
    Fixed Asset Investments                      -       (50.7)
    Dividends receivable                         -        (7.0)
    Current asset investment                    (3.9)     (7.0)
    Pension costs                               27.9      18.9
    Dividends payable                           27.9      26.1
    Advance corporation tax payable              7.0       -
  Deferred taxation - on above adjustments      (9.2)     10.5
             methodology                       (96.0)    (92.9)
                                            ---------  ---------
  Shareholders'  funds as adjusted 
  to accord with US GAAP                       229.3     354.4
                                               =====     =====
  
  Cash flows
  
  The Group statement of cash flows prepared under UK GAAP presents
  substantially the same information as that required under US GAAP
  although  there are differences with regard to the classification
  of  items within the statements and as regards the definition  of
  cash and cash equivalents.
  
  Under UK GAAP, cash and cash equivalents are stated net of short-
  term  borrowings and include own shares. Under US GAAP, cash  and
  cash equivalents would not include short-term borrowings and  own
  shares.  Under  UK GAAP, cash flows are presented separately  for
  operating  activities, returns on investments  and  servicing  of
  finance,  taxation, investing activities and financing. US  GAAP,
  however,  require only three categories of cash flow activity  to
  be  reported: operating, investing and financing. Cash flows from
  taxation  and  returns  on investments and servicing  of  finance
  shown  separately  under UK GAAP would be included  as  operating
  activities  under US GAAP with the exception of  the  payment  of
  dividends which would be included as a financing activity.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
                   NOTES TO THE ACCOUNTS CONTINUED
  
  31.     DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES
    GENERALLY ACCEPTED ACCOUNTING PRINCIPLES continued
  
  The  categories of cash flow activity under US GAAP  can  be
     summarised as follows:
  
                                             Year ended 31 March
                                                  1996     1995
                                                 pound m   pound m
  
  Cash inflow from operating activities           143.0     56.7
  Cash outflow from investing activities          (28.8)   (59.9)
  Cash outflow from financing activities          (65.6)   (49.5)
                                                 -------  -------
  Increase/(decrease) in cash and
   cash equivalents                                48.6    (52.7)
  Cash and cash equivalents at 1 April             27.9     80.6
                                                 -------  -------
  Cash and cash equivalents at 31 March            76.5     27.9
                                                   ====     ====
  
  INDEPENDENT ACCOUNTANTS' REVIEW REPORT
  The Board of Directors
  
  We  have reviewed the accompanying condensed group balance  sheet
  of Northern Electric plc and subsidiaries as of 30 September 1996
  and  the  related  condensed group profit and loss  accounts  and
  condensed  group  statements  of cash  flows  for  the  six-month
  periods  ended  30  September  1996  and  1995.  These  financial
  statements are the responsibility of the Company's management.
  
  We  conducted our reviews in accordance with the Bulletin "Review
  of  Interim  Financial Information" issued by the United  Kingdom
  Auditing Practices Board which does not differ in any significant
  respect  from the standards established by the American Institute
  of  Certified Public Accountants.  A review of interim  financial
  information   consists   principally   of   applying   analytical
  procedures  to  financial data, and making inquiries  of  persons
  responsible   for  financial  and  accounting  matters.   It   is
  substantially less in scope than an audit conducted in accordance
  with  generally  accepted  auditing  standards,  which  will   be
  performed  for  the  year  with the objective  of  expressing  an
  opinion  regarding  the financial statements taken  as  a  whole.
  Accordingly, we do not express such an opinion.
  
  Based   on  our  reviews,  we  are  not  aware  of  any  material
  modifications  that should be made to the accompanying  condensed
  group  financial statements referred to above for them to  be  in
  conformity with accounting principles generally accepted  in  the
  United  Kingdom  which  differ  in certain  respects  from  those
  followed  in the United States (see Note 8 of Notes to  Condensed
  Interim Accounts).
  
  ERNST & YOUNG
  Chartered Accountants
  Newcastle upon Tyne England
  
  29 November 1996,
  except for Note 8 - Differences between United Kingdom and
  United States generally accepted Accounting Principles,
  as to which the date is
  14 February 1997
                                  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
         Condensed Group Profit and Loss Account (unaudited)
  
                                            Six months ended 30 September
                                                 1996    1996      1995
                                                  $m     pound m  pound m
  
  Turnover                                       695.0    444.0   429.8
  
  Cost of sales                                 (485.6)  (310.2) (290.4)
                                              ---------  ------- -------
  Gross profit                                   209.4    133.8   139.4
  
  Distribution costs                             (56.8)   (36.3)  (38.4)
  Administrative expenses                        (66.1)   (42.2)  (45.0)
  Other operating income                           0.3      0.2     0.2
  Income from interests in associated undertakings   -        -     0.7
                                              ---------   ------- ------
  Operating profit                                86.8     55.5    56.9
  
  Exceptional shareholder costs                   (0.8)    (0.5)   (2.9)
  Profit on disposal of fixed assets               3.6      2.3     0.3
  Income from investments                          5.3      3.4     8.9
                                              ---------   ------- ------
  Profit on ordinary activities before interest   94.9     60.7    63.2
  
  Interest payable                               (19.6)   (12.5)   (4.7)
  Interest receivable                              3.9      2.5     0.2
                                              ---------   ------- ------
  Profit on ordinary activities before taxation   79.2     50.7    58.7
  
  Tax on profit on ordinary activities           (20.7)   (13.2)  (16.0)
  Deferred tax on revaluation of The 
   National Grid Group plc                           -        -   (35.6)
                                              ---------   ------  ------
  Profit for the period  *                        58.5      37.5     7.1
  
  Dividend on non-equity shares                   (6.9)     (4.4)   (0.4)
  Ordinary dividend on equity shares             (20.2)    (12.9)  (11.9)
                                              ---------   -------  ------
  Retained profit/(loss)                          31.4      20.2    (5.2)
  
  Special dividends on equity shares                 -         -  (114.9)
                                              ---------   -------  ------
  Transfer (from)/to reserves                     31.4      20.2  (120.1)
                                              =========   =======  ======
  Earnings per equity share
                                                 Cents     Pence    Pence
  Basic                                           51.6      33.0     6.8
  Exceptional items                               (2.8)     (1.8)    2.9
  Deferred tax provision on revaluation
   of The National Grid Group plc                    -         -    36.0
                                              ---------   -------  ------
  Earnings per share before non-operating
   exceptional items                              48.8      31.2    45.7
                                              =========   =======  ======
  Interim dividend per equity share               20.11     12.85   12.00
  
  Special dividends per equity share:
   Exceptional dividend on ordinary
   shares paid in September 1995                     -         -   113.04
   Exceptional dividend on ordinary
   shares paid in January 1996                       -         -     4.58
                                              ---------   -------  -------
                                                     -         -   117.62
                                              ---------   -------  -------
  Average number of equity shares                100.4m    100.4m   98.8m
  
  *  A  summary  of the significant adjustments to profit  for  the
  period that would be required if United States generally accepted
  accounting principles had been applied instead of those generally
  accepted  in the United Kingdom is set out in Note 8 of Notes  to
  Condensed Interim Accounts.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
  
              Condensed Group Balance Sheet (unaudited)
  
                                                       As at
                                                 30 September 1996
                                                    $m    pound m
  Fixed assets
  
  Tangible assets                                  744.0   475.3
  Investments                                       70.6    45.1
                                                   -----   -----
  Current assets                                   814.6   520.4
                                                   -----   -----
  Stocks                                            19.3    12.3
  Debtors: amounts falling due after one year       48.4    30.9
  Debtors: amounts falling due within one year     188.3   120.3
  Investments                                      181.3   115.8
  Cash at bank and in hand                          60.7    38.8
                                                   -----   -----
                                                   498.0   318.1
                                                   -----   -----
  Creditors: amounts falling due within one year:
  
  Loans and overdrafts                             (59.5)  (38.0)
  Creditors and accruals                          (282.7) (180.6)
                                                   -----   -----
                                                  (342.2) (218.6)
                                                   -----   -----
  Net current assets                               155.8    99.5
                                                   -----   -----
  Total assets less current liabilities            970.4   619.9
                                                   -----   -----
  
  Creditors: amounts falling due after more than one year:
  
  Loans                                           (402.4) (257.1)
  Other creditors                                  (45.1)  (28.8)
                                                   -----   -----
                                                  (447.5) (285.9)
                                                   -----   -----
  Provisions for liabilities and charges           (57.4)  (36.7)
                                                   -----   -----
  Total assets less liabilities                    465.5   297.3
                                                   =====   =====
  Capital and reserves
  
  Called up share capital                           91.6    58.5
  Share premium account                              5.5     3.5
  Capital redemption reserve account                 9.7     6.2
  Other reserves                                     7.7     4.9
  Profit and loss account                          351.0   224.2
                                                   -----   -----
  Shareholders' funds *                            465.5   297.3
                                                   =====   =====
  Equity interests                                 463.7   296.2
  Non-equity interests                               1.8     1.1
                                                   -----   -----
                                                   465.5   297.3
                                                   =====   =====
  
  * A summary of the significant adjustments to shareholders' funds
  that  would  be  required  if  United States  generally  accepted
  accounting principles had been applied instead of those generally
  accepted  in the United Kingdom is set out in Note 8 of Notes  to
  Condensed Interim Accounts.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
          Condensed Group Statement Cash Flows (unaudited)
  
                                               Notes Six months ended 30 September
                                                         1996   1996      1995
                                                          $m    pound m   pound m
  
  Net cash inflow from operating activities       4      135.9    86.8  135.9
                                                        -----   -----  ------
  Returns on investments and servicing of finance
  
  Interest received                                       3.3    2.1     0.3
  Interest paid                                          (0.5)  (0.3)   (4.4)
  Ordinary dividends and investment income received       5.6     3.6    2.4
  Dividends paid                                        (56.7)  (36.2) (26.1)
  Exceptional dividends paid                                -       - (110.4)
                                                        -----   -----  ------
  Net cash outflow from returns on investments
   and servicing of finance                             (48.3) (30.8) (138.2)
                                                        -----   -----  ------
  Taxation
  
  Corporation tax (paid)/recovered 
   (including ACT on dividends)                         43.7    27.9   (1.8)
                                                       -----   -----   ------
  Investing activities
  
  Payments to acquire tangible fixed assets            (49.3)  (31.5)  (24.7)
  Receipts from sales of tangible fixed assets           0.8     0.5     1.1
  Receipt of consumers' contributions                   11.3     7.2     5.1
  Payments to acquire fixed asset investments              -       -    (0.7)
  Receipts from sales of fixed asset investments         7.2     4.6       -
  Payments to acquire current asset investments
   with a maturity date of more than three months      (63.7)  (40.7)   (2.3)
  Receipts from disposals of current asset
   investments with a maturity date of more 
   than three months                                    24.6    15.7     9.4
                                                       -----   -----   ------
  Net cash outflow from investing activities           (69.1)  (44.2)  (12.1)
                                                       -----   -----   ------
  Net cash (outflow)/inflow before financing            62.2    39.7   (16.2)
                                                       =====   =====   =====
  Financing
  
  Issue of ordinary share capital                      (0.5)  (0.3)     (0.5)
  Loan finance                                            -      -      39.5
                                                      -----  -----    -------
  
  Net cash (inflow)/outflow from financing             (0.5)  (0.3)     39.0
  
  Increase/(decrease) in cash and cash
   equivalents                               5         62.7   40.0     (55.2)
                                                      -----  -----    -------
                                                       62.2   39.7     (16.2)
                                                      =====  =====    =======
  
  The  significant  differences between the  cash  flow  statements
  presented  above and those required under United States generally
  accepted accounting principles are set out in Note 8 of Notes  to
  the Condensed Interim Accounts.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
           Notes to Condensed Interim Accounts (unaudited)
  
  1.   General:
  
  In  the  opinion  of  management of Northern Electric  plc  ("the
  Company"), the accompanying unaudited condensed interim  accounts
  contain all adjustments (consisting of normal recurring accruals)
  necessary  to  present fairly the financial  position  as  of  30
  September  1996 and the results of operations and cash flows  for
  the six months ended 30 September 1996 and 1995.
  
  Operating  results  for the six month period ended  30  September
  1996 and 1995 are not necessarily indicative of the results  that
  may be expected for the full year.
  
  These  interim  accounts should be read in conjunction  with  the
  Company's  audited  accounts for the year  ended  31  March  1996
  included elsewhere in this current report on Form 8-K.
  
  These interim accounts have been prepared in accordance with  the
  historical  cost  convention, as modified by the  revaluation  of
  certain  fixed  asset investments, and for the  purposes  of  the
  interim  accounts  the  accounting  policy  is  that  an  average
  electricity  cost  for the year as a whole is used  in  order  to
  establish  an  appropriate  cost of sales  in  the  non-franchise
  market.  With  the  exception of the  foregoing,  the  accounting
  policies applied in the preparation of these interim accounts are
  in  accordance with those set out in the audited accounts for the
  year ended 31 March 1996.
  
  These  financial  statements  are presented  in  pounds  sterling
  ("pounds").  Solely  for  the  convenience of the  reader,  US  dollar
  amounts  have been translated at the exchange rate of 1 pound  =  U.S.
  $1.5653,  the  noon  buying  rate in  New  York  City  for  cable
  transfers in pounds sterling as certified for customs purposes by
  the  Federal Reserve Bank of New York on September 30,  1996.  No
  representation  is  made that the pounds  sterling  amounts  have
  been, could have been, or could be converted into U.S. dollars at
  that or any other rate of exchange.
  
  2.   Other Footnote Information:
  
  Profit is after charging depreciation of 14.3m pounds (1995 - 13.9m pounds).
  
  The  last  full actuarial valuation of the Group's share  of  the
  Electricity Supply Pension Scheme (the "ESPS") was carried out by
  Bacon and Woodrow, consulting actuaries, as at 31 March 1995.  At
  the  Company's request the actuaries have carried out a  separate
  formal  review  of  the  Company's  future  pension  costs  using
  assumptions which represent a reasonable best estimate  of  those
  costs   in  accordance  with  Statement  of  Standard  Accounting
  Practice  24.  This review has been based on the same  membership
  and other data as at 31 March 1995. In the light of this review ,
  the  actuaries  have  confirmed that it  is  appropriate  to  use
  revised  assumptions, on the basis of which  they have identified
  an  unutilised  actuarial surplus as at  31  March  1995 of 60m
  pounds.  This  is  spread over the estimated  remaining  service
  lives of employees in the ESPS of approximately 12 years.
  
  The  Board  has,  therefore, formally approved  the  use  of  the
  revised  assumptions for the purpose of calculating  the  Group's
  pension cost charge. The total pension charge for the six  months
  ended 30 September 1996 has been reduced by 3.4m pounds to  0.9m
  pounds (expected reduction in profit and loss  charge  for  the
  full year 5.6m pounds).
  
  The  difference between the amounts charged in the  accounts  and
  the  amounts  paid over to the fund are shown as a prepayment  in
  the balance sheet.
                                  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
      Notes to Condensed Interim Accounts (unaudited) Continued
  
  2.   Other Footnote Information continued
  
  The  taxation  charge for the six months has been arrived  at  by
  applying the estimated effective tax rate for the financial year.
  
  Earnings  per  ordinary share are based on  the  profit  for  the
  period, after deducting dividend on non-equity shares, and on the
  weighted  average number of ordinary shares in issue  during  the
  period,  excluding those held by Northern Electric  Share  Scheme
  Trustee Limited which has waived rights to dividends.
  
  The  profit and loss account reserve has been adjusted  by  1.2m pounds
  which  represents the value of the shares issued to  satisfy  the
  requirements of the scrip dividend alternative.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
      Notes to Condensed Interim Accounts (unaudited) Continued
  
  3. Turnover and segmental analysis
    
                                               Six months ended and at
                                                     30 September
                                                     1996    1995
                                                   pound m  pound m
  Turnover
  Distribution                                     101.8   110.4
  Supply                                           392.4   383.2
  Generation                                         0.7     0.5
  Retailing                                         24.1    24.1
  Other Trading Activities                          61.5    73.4
  Other                                             26.0    26.9
                                                   -----   -----
  Total sales                                      606.5   618.5
  
  Inter-segment sales                             (162.5) (188.7)
                                                   -----   -----
  Sales to third parties                           444.0   429.8
                                                   =====  ======
  Profit before taxation
  Distribution                                      31.4    35.5
  Supply                                            11.5    10.1
  Generation                                         3.0     2.9
  Retailing                                          0.8     0.5
  Other Trading Activities                           5.6     1.8
  Other                                              8.9     8.9
  Exceptional shareholder costs                     (0.5)   (2.9)
                                                    ----   -----
                                                    60.7    56.8
  Dividend receivable from The National
   Grid Group plc                                      -     5.7
  Group share of profit before taxation of
   associated undertakings                             -     0.7
  Net interest                                     (10.0)   (4.5)
                                                    -----   -----
  Group profit  before taxation                     50.7    58.7
                                                    =====  =====
  Net assets
  Distribution                                     396.7   364.4
  Supply                                           (33.5)  (22.4)
  Generation                                        42.5    41.5
  Retail                                            32.2    29.8
  Other Trading Activities                          35.2    15.2
  Other                                           (175.8)   77.3
                                                   -----   -----
                                                   297.3   505.8
  
  Group share of the net assets of
   associated undertakings                             -    12.3
                                                    ----   -----
  Total net assets                                 297.3   518.1
                                                   =====   =====
  
  The Distribution turnover in the period reflects an underrecovery
  of  3.5m pounds  (1995  -  1.4m pounds) and at the  end  of  the  period  the
  cumulative  underrecovery  was 5.5m pounds.  In  the  supply  business
  turnover reflects an overrecovery of 1.8m pounds (1995 - 2.5m pounds) and  at
  the  end  of  the  period the cumulative overrecovery  was  9.1m pounds
  (1995 - 4.6m pounds).
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
      Notes to Condensed Interim Accounts (unaudited) Continued
  
  4.  Reconciliation of operating profit to net cash inflow from
      operating activities
  
                                      Six months ended 30 September
                                               1996      1995
                                             pound m    pound m
  
  Operating profit                             55.5      56.9
  Exceptional shareholder costs                 0.3      (2.9)
  Share of profits of associated undertakings   -        (0.7)
  Depreciation charges                         14.3      13.9
  Increase/(decrease) in provisions             0.2      (4.6)
  Increase in stocks                           (0.4)     (2.1)
  Decrease in debtors                          11.4      58.7
  Increase in creditors                         5.5      16.7
                                               ----     -----
  Net cash inflow from operating activities    86.8     135.9
                                               =====    =====
  
  5.  Reconciliation of the movement of cash and cash equivalents
      and the movement in net liquid funds
                                                   Six months ended 30 September
                                                              1996      1995
                                                             pound m    pound m
  
  Increase/(decrease) in cash and cash equivalents            40.0     (55.2)
  Non-cash equivalent short-term borrowings made                 -      46.7
  Net purchase/(sale) of non-cash equivalent current asset
  investments                                                 25.0      (7.1)
  Provision made against value of employee share option trust
  assets                                                      (0.8)     (0.3)
                                                           --------- ---------
  Increase/(decrease) in net liquid funds in balance sheet    64.2     (15.9)
                                                              =====     =====
  
  6.  Net borrowings
  
                                       Six months ended 30 September
                                                1996      1995
                                               pound m    pound m
  
  Cash at bank and in hand                       38.8      11.9
  Investments                                   115.8       7.1
  Borrowings                                   (295.1)   (153.2)
                                               --------- ---------
  Net borrowings                               (140.5)   (134.2)
                                               =====      =====
  
  7.  Net gearing*
  
                                        Six months ended 30 September
                                              1996      1995
  
                                               47.3%     26.0%
  
  *Net gearing is the quotient of net borrowings divided by
  shareholders' funds expressed as a percentage.
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
      Notes to Condensed Interim Accounts (unaudited) Continued
  
  8.  Differences between United Kingdom and United States  generally
      accepted accounting principles
  
  The  differences between accounting principles generally accepted
  in the United Kingdom ("UK GAAP") and the United States generally
  accepted accounting principles ("US GAAP"),  significant  to  the
  Group  are  described  in Note 31 of Notes  to  the  Accounts  of
  Northern Electric plc included elsewhere in this Current  Report.
  The  effect  of  applying  those  differences  is  summarised  as
  follows:
  
  Net income                                     Six months ended 30 September
                                                           1996      1995
                                                         pound m    pound m
  Net income as reported in the Group 
   profit and loss account                                 37.5       7.1
  
  Adjustments:
       Pension costs                                        1.3       4.5
       Dividend receivable                                    -      (7.1)
       Advance corporation tax written off                  0.8         -
       Tax credits on dividends receivable                    -       1.4
       Deferred tax - on above adjustments                 (0.4)     (1.3)
                methodology                                 0.1       4.5
                                                        ---------    ------
  Net income as adjusted to accord with US GAAP            39.3       9.1
                                                          =====      =====
  Per ordinary share as so adjusted                        39.1p      9.2p
                                                          =====      =====
  
  Net income per ordinary share has been calculated by dividing net
  income  in  accordance with US GAAP of 39.3m pounds  (1995 -  9.1m pounds) by
  100.404m  shares (1995 - 98.756m), being the weighted average  of
  ordinary shares in issue.
  
                                                           As at 30 September
  Shareholders' funds                                              1996
                                                                  pound m
  Shareholders' funds as reported in the Group balance sheet      297.3
  
  Adjustments:
       Current asset investments                                   (6.9)
       Pension costs                                               29.2
       Dividends payable                                           12.9
       Deferred tax - on above adjustments                         (9.6)
               methodology                                        (88.1)
                                                                ---------
  Shareholders' funds as adjusted to accord with US GAAP          234.8
                                                                  =====
                                            Six months ended 30 September
  Cash flows                                        1996       1995
                                                   pound m    pound m
  Cash inflow from operating activities             120.1     132.4
  Cash outflow from investing activities            (22.2)    (17.0)
  Cash outflow from financing activities            (27.6)   (128.8)
                                                 ---------   -------
  Increase/(decrease) in cash and cash equivalents   70.3     (13.4)
  Cash and cash equivalents at 1 April               76.5      27.9
                                                 ---------   -------
  Cash and cash equivalents at 30 September         146.8      14.5
                                                    =====      =====
  
               NORTHERN ELECTRIC plc AND SUBSIDIARIES
                                  
      Notes to Condensed Interim Accounts (unaudited) Continued
  
  9.  CAPITAL AND OTHER COMMITMENTS
  
  The  Company has entered into a contract relating to the purchase
  of  400  megawatts of capacity from a 15.4% owned related  party,
  Teesside  Power Limited ("Teesside"), for a period  of  15  years
  beginning  April  1993.   The contract sets  escalating  purchase
  prices  at predetermined levels.  Current contract prices  exceed
  those  paid  by the Company to the electricity pool (the  "Pool")
  which  is  operated  by the National Grid  Group.   However,  the
  Company  is able to recover these costs under current prices  cap
  regulation expected to expire 1 April 1998.
  
  The  Company  additionally  utilises  contracts  for  differences
  (CFD's)  to mitigate its exposure to volatility in the prices  of
  electricity purchased through the Pool.  Such contracts allow the
  Company  to  effectively convert the majority of its  anticipated
  Pool  purchases from market to fixed prices.  As of 30  September
  1996,  CFD's  were  in  place to hedge a portion  of  electricity
  purchases of approximately 55,000 GWh through the year 2008.
  
  10.  CONTINGENT LIABILITIES
  
  The  Labour Party has asserted that, if they are elected  at  the
  next  General Election, which must be held no later than  22  May
  1997,  they will seek to introduce a "windfall" assessment to  be
  levied  on  the privatised utilities including the Company.   The
  basis  for  such  a  potential  assessment  is  unknown  but,  if
  introduced, such an assessment could be substantial.
  
  Following  a  complaint by two pensioners, in December  1996  the
  Pensions  Ombudsman  made a provisional ruling  against  National
  Grid  Group relating to the use of an actuarial valuation surplus
  in  their  part  of the Electricity Supply Pension  Scheme  ("the
  ESPS").  The provisional ruling, which is under appeal, prohibits
  the use of valuation surplus to meet the additional pension costs
  of   early   retirement  arising  from  restructuring.   Although
  Northern would intend to appeal any similar ruling against it, if
  a  similar  ruling  was made against Northern  Electric  and  any
  subsequent  appeal  was  unsuccessful  then  the  Company   could
  potentially  be  required  to  make  contributions  in  lieu   of
  utilizing any ESPS actuarial valuation surplus.
  
  11.  Subsequent Event:
  
  On  24  December  1996, CalEnergy Company Inc., through  its  70%
  owned  subsidiary  CE Electric plc, acquired a 50.3%  controlling
  interest  in  the Company and extended its offer to  acquire  all
  minority equity interests.
  
                               
     PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL DATA
  
  The   following  Pro  Forma  Condensed  Combined  Unaudited
  Balance  Sheet  as  of  September  30,  1996  combines  the
  historical consolidated balance sheet of CalEnergy Company,
  Inc. ("the Company") and Northern Electric plc ("Northern")
  as  if  the acquisition had occurred on September 30, 1996.
  The  Pro  Forma Condensed Combined Unaudited Statements  of
  Earnings for the year ended December 31, 1995 and the  nine
  months  ended  September  30, 1996 combine  the  historical
  statements  of earnings of the Company, (i) Northern,  (ii)
  Falcon  Seaboard  Resources, Inc.  ("FSRI")  and  (iii)  BN
  Geothermal, Inc., Niguel Energy Company, San Felipe  Energy
  Company,  Inc. and Conejo Energy Company (collectively  the
  "Mission  Acquired Companies") as if each  acquisition  had
  occurred  at  the beginning of the periods presented.   The
  Company's,  FSRI's  and  the  Mission  Acquired  Companies'
  fiscal years end on December 31 and Northern's fiscal  year
  ends  on  March 31. The acquisitions of Northern, FSRI  and
  the  Mission  Acquired  Companies are  recorded  under  the
  purchase method of accounting, after giving effect  to  the
  applicable pro forma adjustments and assumptions  described
  in the accompanying notes.
  
  The Company has completed its preliminary assessment of the
  fair  values  of  Northern, FSRI and the  Mission  Acquired
  Companies  assets and liabilities.  The Company expects  to
  finalise  its  fair value assessment in the year  following
  each   respective  acquisition.   Accordingly,  the   final
  purchase  price allocation may differ from  the  pro  forma
  amounts set forth herein.
  
  Northern's   historical  financial   statements,   included
  elsewhere herein, were prepared in accordance with UK GAAP,
  which  differs  in  certain  respects  from  US  GAAP.  The
  historical financial statements included in the  Pro  Forma
  Condensed  Combined  Unaudited  Financial  Data  have  been
  restated  to  reflect  Northern's  financial  position  and
  results of operations in accordance with US GAAP.
  
  The  pro forma condensed combined unaudited financial  data
  are  intended  for information purposes only  and  are  not
  intended  to  present the results that would have  actually
  occurred  if  the acquisitions of Northern,  FSRI  and  the
  Mission  Acquired  Companies had  been  in  effect  on  the
  assumed  dates  and for the assumed periods,  and  are  not
  necessarily indicative of the results that may be  obtained
  in the future.
  PRO FORMA CONDENSED COMBINED UNAUDITED BALANCE SHEET
                           September 30, 1996
                             (In thousands)
  
                                                          (1A&B and 2A&B)
                                          The                   Pro Forma      Pro Forma
                                        Company      Northern   Adjustments    Combined
  Assets                      -----------------------------------------------------------
  Cash and investments                $  334,335     $149,560   $(254,841)      $229,054
  Joint venture cash and investments      37,092            -           -         37,092
  Restricted cash                         94,392            -           -         94,392
  Short-term investments                   2,864       46,200           -         49,064
  Accounts receivable                    109,453      197,200           -        306,653
  Due from Joint Ventures                 18,211            -           -         18,211
  Properties, plants, contracts
    and equipment, net                 2,223,770      794,464     528,908      3,547,142
  Notes receivable-partnerships           11,250            -           -         11,250
  Excess of cost over fair value
    of net assets acquired, net          393,763            -     678,365      1,072,128
  Equity investments                     200,408            -           -        200,408
  Deferred charges and other assets      122,904      178,902      207,266       509,072
                            -------------------------------------------------------------
    Total assets                      $3,548,442   $1,366,326   $1,159,698    $6,074,466
                                       =========    =========    =========     ==========
  Liabilities and Stockholders' Equity 
  Liabilities:
  Accounts  payable                      $ 7,118      $188,020   $       -      $195,138
  Other accrued liabilities              103,160       196,254     662,827       962,241
  Project finance loans                  284,779             -           -       284,779
  Construction loans                     351,923             -           -       351,923
  Senior discount notes                  514,626             -           -       514,626
  Senior Notes                           224,137             -           -       224,137
  Salton Sea notes and bonds             563,035             -           -       563,035
  Limited recourse senior secured notes  200,000             -           -       200,000
  Convertible subordinated debentures     73,755             -           -        73,755
  Revolving line of credit                35,000             -      60,000        95,000
  Acquisition Loan                             -             -     100,000       100,000
  Northern Electric Bonds                      -       429,820      13,038       442,858
  UK Credit Facility                           -             -     739,054       739,054
  Deferred income taxes                  339,923       159,816    (200,594)      299,145
                                --------------------------------------------------------
    Total liabilities                  2,697,456       973,910   1,374,325     5,045,691
  Deferred income                         25,244             -           -        25,244
  Convertible preferred securities
    of subsidiary                        103,930             -           -       103,930
  Minority interest                            -             -     177,789       177,789
  Total stockholders' equity             721,812       392,416    (392,416)      721,812
                                --------------------------------------------------------
  Total liabilities and 
   stockholders' equity               $3,548,442   $1,366,326   $1,159,698    $6,074,466
                                       =========   ==========    =========     =========
  The accompanying notes are an integral part of these pro forma
  unaudited condensed financial statements.
  PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENT OF EARNING
                    for the for the year ended December 31, 1995
                        (In thousands, except per share data)
  
                                                                  (1,3B&C)               The                   (1,2 C)
                                            Mission  (1,4,B,C&D)    FSRI     FSRI      Company       (2D)     Northern
                                     The   Acquired   Pro Forma   Acquired  Pro Forma    as       Northern   Pro Forma    Pro Forma
                                   Company Companies  Adjustments Companies Adjustments Adjusted  Electric  Adjustments   Combined
  Revenues:         ---------------------------------------------------------------------------------------------------------------
  Sales of electricity and steam   $335,630   $    -    $97,728   $74,250   $     -   $507,608  $ 1,412,989   $      -   $1,920,597
  Royalty income                     19,482        -        980         -         -     20,462            -          -       20,462
  Equity in earnings of affiliates        -        -          -    16,776   (12,249)     4,527            -          -        4,527
  Interest and other income          43,611        -       (959)    4,009    (9,700)    36,961      570,511   (546,562)      60,910
                   ----------------------------------------------------------------------------------------------------------------
    Total revenues                  398,723        -     97,749    95,035   (21,949)   569,558    1,983,500   (546,562)   2,006,496
                   ----------------------------------------------------------------------------------------------------------------
  Cost and expenses:
  Cost of sales                           -        -          -         -         -          -    1,035,120    (95,526)     939,594
  Other operating costs              79,294        -     45,604    42,416         -    167,314      205,278          -      372,592
  General and administration         23,376    2,740      1,064     1,225      (375)    28,030       49,589     (1,723)      75,896
  Royalties                          24,308        -          -         -         -     24,308            -          -       24,308
  Depreciation and amortisation      72,249        -     24,994     6,403    13,717    117,363       47,826     68,979      234,168
  Equity in loss of affiliates          362        -          -         -         -        362            -          -          362
  Interest                          134,637        -     10,937    14,782     2,450    162,806       20,934     96,850      280,590
    Less interest capitalised       (32,554)       -     (1,347)        -         -    (33,901)           -          -      (33,901)
                   ----------------------------------------------------------------------------------------------------------------
    Total costs and expenses        301,672    2,740     81,252    64,826    15,792    466,282    1,358,747     68,580    1,893,609
                   ----------------------------------------------------------------------------------------------------------------
  Income (loss) before provision
   for income taxes                  97,051   (2,740)    16,497    30,209   (37,741)   103,276      624,753   (615,142)     112,887
  Provision for income taxes         30,631   (2,959)     5,363     3,963    (6,013)    30,985      154,823   (130,167)      55,641
                   ----------------------------------------------------------------------------------------------------------------
  Income (loss) before minority
   interest and preferred dividends 66,420       219     11,134    26,246   (31,728)    72,291      469,930   (484,975)      57,246
  Minority interest                  3,005         -     (3,005)        -         -          -            -      2,279        2,279
                   ----------------------------------------------------------------------------------------------------------------
  Net income (loss)                 63,415       219     14,139    26,246   (31,728)    72,291      469,930   (487,254)      54,967
  Preferred dividends                1,080         -          -         -         -      1,080        7,641     (7,641)       1,080
                   ----------------------------------------------------------------------------------------------------------------
  Net income (loss) available to
   common stockholders            $ 62,335  $   219    $ 14,139  $ 26,246  $(31,728)   $71,211     $462,289  $(479,613)     $53,887
                                   ======== ========   ========  ========  =========   =======     ========   =========     =======
  Net income per share-primary    $   1.25                                             $  1.35                              $  1.02
                                  ---------                                            -------                              -------
  Net income per share-fully
   diluted                        $   1.18                                             $  1.29                              $   .99
                                  ---------                                            -------                              ------- 
  Average number of shares
   outstanding-primary              49,971                                              52,772                               52,772
                                  ---------                                            -------                              -------
  Fully diluted shares              57,742                                              60,543                               60,543
                                  ---------                                            -------                              -------
  The accompanying notes are an integral part of these pro forma unaudited
                           condensed financial statements.
  
             PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENT OF EARNING
                    for the Nine Months Ended September 30, 1996
                        (In thousands, except per share data)
  (1,3B&C)  The            (1,2 C)
                                     Mission(1,4B,C&D)FSRI    FSRI    Company          Northern
                             The  Acquired Pro FormaAcquiredPro Forma    as   NorthernPro FormaPro Forma
                          Company CompaniesAdjustmentsCompaniesAdjustmentsAdjustedElectricAdjustmentsCombined
  Revenues:         ------------------------------------------------------------------------------------------------------------------
  Sales of electricity and steam   $346,166      $   -   $18,250    $46,642     $     -    $411,058   $1,105,664      -   $1,516,722
  Royalty income                      5,995          -         -          -           -       5,995            -      -        5,995
  Equity in earnings of affiliates    2,998          -         -     15,306      (7,145)     11,159            -      -       11,159
  Interest and other income          30,039          -       436      2,299      (5,658)     27,116       14,519      -       41,635
                    ------------------------------------------------------------------------------------------------------------------
  
   Total revenues                   385,198          -    18,686     64,247     (12,803)    455,328    1,120,183      -    1,575,511
                    ------------------------------------------------------------------------------------------------------------------
  Cost and expenses:
  Cost of sales                           -          -         -          -           -           -      770,418      -      770,418
  Other operating cots               73,546          -     9,911     25,911           -     109,368      148,437      -      257,805
  General and administration         15,814        684         -      1,310        (396)     17,412       38,591      -       56,003
  Royalties                          18,294          -         -          -           -      18,294            -      -       18,294
  Depreciation and amortisation      80,300          -     5,259      3,709       8,003      97,271       37,163 50,732      185,166
  Equity in loss of affiliates        3,966          -         -          -           -       3,966            -      -        3,966
  Interest                          116,521          -     1,700      7,638       1,429     127,288       23,561 74,149      224,998
    Less interest capitalised       (31,459)         -         -          -           -     (31,459)           -      -      (31,459)
  Dividends on convertible
   preferred securities               3,067          -         -          -           -       3,067            -      -        3,067
                    -------------------------------------------------------------------------------------------------- --------------
    Total costs and expenses        280,049        684    16,870     38,568       9,036     345,207    1,018,170  124,881  1,488,258
                    -------------------------------------------------------------------------------------------------- -------------
  Income before provision for
   income taxes                     105,149       (684)    1,816    25,679     (21,839)    110,121       102,013 (124,881)    87,253
  Provision for income taxes         33,862       (644)      683       684       1,037      35,622        34,899  (29,391)    41,130
                    -------------------------------------------------------------------------------------------------- -------------
  Income before minority interest
   and preferred dividends           71,287        (40)    1,133    24,995     (22,876)     74,499        67,114  (95,490)    46,123
  Minority interest                       -          -         -         -           -           -             -   (4,607)    (4,607)
                    -------------------------------------------------------------------------------------------------- --------------
  Net income                         71,287        (40)    1,133    24,995     (22,876)     74,499         67,114 (90,883)    50,730
  Preferred dividends                     -          -         -         -           -           -         14,287 (14,287)         -
                    ----------------------------------------------------------------------------------------------------------------
  Net income available to common
   stockholders                     $71,287      $ (40)   $1,133   $24,995    $(22,876)    $74,499        $52,827 $(76,596)  $50,730
                                    ========    ========  ======   =======   =================================================
  Net income per share-primary      $  1.29                                                $  1.35                           $ 0.92
                                    --------                                               -------                           -------
  Net income per share-fully
   diluted                          $  1.18                                                $  1.22                           $ 0.87
                                    --------                                               --------                          -------
  Average number of shares
   outstanding-primary               55,362                                                 55,362                           55,362
                                    --------                                               --------                          -------
  Fully diluted shares               66,397                                                 66,397                           66,397
                                    --------                                               --------                          -------
  
      The accompanying notes are an integral part of these pro forma unaudited
                           condensed financial statements.
  
         NOTES TO PRO FORMA CONDENSED CONSOLIDATED UNAUDITED
                           FINANCIAL DATA
                                  
                        (Table in thousands)
  
           On    December    24,    1996,    CalEnergy    Company,    Inc.    (the
  "Company")   announced   that  CE  Electric  UK   plc,   which   is   indirectly
  owned   70%   by  the  Company  and  30%  by  Peter  Kiewit  Sons'   Inc.,   had
  acquired   a   majority   of   the   ordinary  shares   of   Northern   Electric
  plc   (`Northern").   As   of  that  date  CE  Electric   had   acquired   50.3%
  or    51,077,904    shares   of   Northern's   outstanding    ordinary    shares
  and   had   extended   offers   to  acquire  the   remaining   minority   equity
  interest   in   Northern.   As   of  January   29,   1997,   CE   Electric   had
  purchased   91.39%   of   Northern's   outstanding   stock,   which   gives   CE
  Electric   the   ability   to  legally  force  the   sale   of   the   remaining
  minority   shares.   Since  CE  Electric  has  the   ability   and   intent   to
  acquire   the   remaining   shares   in   the   near   term,   effectively    CE
  Electric has acquired 100% of Northern.
  
         On   August   7,  1996  the  Company  acquired  all  of  the   stock   of
  Falcon    Seaboard   Resources,   Inc.   ("FSRI"),   including   its   ownership
  interests     in     three    operating    gas-fired    cogeneration     plants,
  Saranac    Power   Partners,   L.P.,   Power   Resources,   Inc.   and    NorCon
  Power   Partners,   L.P.,   for  $226  million   in   cash.    Certain   assets,
  liabilities   and   subsidiaries  of  FSRI  were   distributed   out   of   FSRI
  prior to the Company's acquisition of FSRI stock.
  
         On   April   17,  1996,  a  subsidiary  of  the  Company   acquired   all
  of    the    stock    of   BN   Geothermal,   Inc.   ("BNG"),   Niguel    Energy
  Company   ("Niguel"),   San   Felipe   Energy   Company   ("San   Felipe")   and
  Conejo     Energy     Company     (collectively    the     "Mission     Acquired
  Companies")    from    Edison   Mission   Energy   for    $70    million.    The
  Mission   Acquired   Companies   own   50%   partnership   interests   in   each
  of    the    Imperial    Valley   partnership   projects    (the    "Partnership
  Projects")    in   which   the   Company   had   an   existing   50%   ownership
  interest    resulting   from   the   acquisition   of   Magma   Power    Company
  ("Magma").     During    the    first   quarter    of    1995,    the    Company
  acquired the stock of Magma.
  
          The    acquisitions   of   Northern,   FSRI,   the   Mission    Acquired
  Companies   and   Magma   have   been  accounted  for   as   purchase   business
  combinations   pursuant   to   the   principles   of   APB   Opinion   No.   16,
  "Business   Combinations."   In   applying  APB   No.   16,   all   identifiable
  assets   acquired   and   liabilities  assumed  are  assigned   a   portion   of
  the    cost    of    acquiring   Northern,   FSRI,    the    Mission    Acquired
  Companies   and   Magma,   equal  to  their  fair  values   at   the   date   of
  the    acquisitions.     The    net    cash   flow    projections    used    for
  determining   the   fair   values  in  the  purchase   accounting   were   those
  used   for   the   acquisitions  as  prepared  by  the   Company   and   reflect
  estimated     cost    reductions.     The    resulting    purchase    accounting
  adjustments   are   based   on   the   fair  values   determined   in   purchase
  accounting    and   the   historical   financial   statements    of    Northern,
  FSRI,   the   Mission   Acquired   Companies  and   the   Partnership   Projects
  in which the Acquired Companies have invested and Magma.
  The    Pro    Forma   Condensed   Combined   Unaudited   Financial   Data    are
  based on the following assumptions:
  
  1.      A.      CE   Electric   had   completed   its   acquisition   of    100%
          of the outstanding equity interests of Northern.
  
          B.      The   Company   obtained   an   acquisition   loan   for    $100
          million    and   increased   its   revolving   loan   to   $95   million
          and    CE    Electric    obtained   a   credit   facility    for    $739
          million     to    complete    the    financing    of    the     Northern
          acquisition.
  
          C.      The    acquisitions    of   Northern,    FSRI,    the    Mission
          Acquired    Companies   and   Magma   occurred    at    the    beginning
          of    the    periods    presented    for    statements    of    earnings
          purposes.     The    Pro    Forma    Condensed    Combined     Unaudited
          Statement    of    Earnings   for   the   Year   Ended   December    31,
          1995    combines    the    Companies,    FSRI's    and    the    Mission
          Acquired    Companies   historical   Statements    of    Earnings    for
          the     Year     Ended    December    31,    1995    with     Northern's
          historical    Statement    of    Earnings    for    the    Year    Ended
          March     31,    1996.     The    Pro    Forma    Condensed     Combined
          Unaudited    Statement    of    Earnings    for    the    Nine    Months
          Ended     September     30,     1996     combines     the     Companies,
          Northern's,    FSRI's    and    the    Mission    Acquired     Companies
          historical    Statements   of   Earnings    for    the    Nine    Months
          Ended September 30, 1996.
  
  2.   The    pro   forma   adjustments   to   reflect   the   effect    of    the
       Northern acquisition are as follows:
  
             A.   The   adjustments   which  have  been   made   to   the   assets
          and   liabilities   of   Northern  to  reflect   the   effect   of   the
          acquisition     accounted     for     as     a     purchase     business
          combination follow:
  
             Property and plant                        $528,908
             Goodwill                                   678,365
             Investments                                187,208
             Deferred taxes                             200,594
             Other Assets and liabilities               (16,526)
             Accrued preacquisition contingencies      (636,607)
             Long-term debt                             (13,038)
                                                       --------
             Net increase in assets and liabilities    $928,904
                                                       ========
  
          Included  in  accrued  preacquisition  contingencies  are
          reserves  for contingent liabilities existing at Northern
          at  the  time  of  acquisition relating  to   a  contract
          Northern  had  entered into relating to the  purchase  of
          400  megawatts  of  capacity from a 15.4%  owned  related
          party,  Teesside Power Limited ("Teesside"), for a period
          of  15 years beginning  April 1, 1993.  The contract sets
          escalating  purchase  prices  at  predetermined   levels.
          Current  contract prices exceed those paid by the Company
          to   the  electricity  pool  which  is  operated  by  the
          National Grid Group.
          B.    The  cash  which  was  used  to  acquire  Northern,
          including estimated transaction costs, has been  provided
          for in the pro forma adjustments as follows:
  
             Reduced cash on hand at the Company       $   219,841
             Increase in borrowings of the Company         195,000
             CE Electric Credit Facility                   739,054
             Contribution from Minority Shareholder        177,789
                                                           -------
                                                        $1,331,684
                                                          ========
             Payments to shareholders                   $1,289,897
             Other direct transaction costs                 31,424
             Financing costs                                10,363
                                                          --------
                                                        $1,331,684
                                                          ========
  
          C.     The  pro  forma  adjustments  to  the  Pro   Forma
          Condensed  Combined Unaudited Statements of Earnings  are
          as follows:
  
          i. Provide  depreciation  and amortisation  of  the  fair
              values   assigned  to  all  identifiable  assets   as
              described  below. The Company's policy is to  provide
              depreciation  and  amortisation  expense   upon   the
              commencement   of   revenue   production   over   the
              estimated  remaining useful life of the  identifiable
              assets and to periodically assess the carrying  value
              of  such assets for possible impairment in accordance
              with   the   provisions  of  Statement  of  Financial
              Accounting Standards No. 121.
    
              The   fair   value  of  property  and  equipment   is
              depreciated   using   a  systematic   method,   which
              approximates  the  straight  line  method,  over  the
              remaining  portion  (between  1-40  years)   of   the
              original asset lives (between 3-60 years).
         
              ii     The   fair   values  assigned  to   Northern's
              investments  are being amortised over  the  remaining
              contract  life  of  11 years using  a  straight  line
              method.
     
          iii.      Record  amortisation  of  the  excess  purchase
              price   over  the  net  assets  acquired  using   the
              straight line method over 40 years.
  
          iv.Adjust  interest relating to (1) the borrowings  under
              The  Company's  acquisition loan and credit  facility
              (2)  CE  Electric's  credit  facility  and  (3)  $225
              million  of  Senior  Notes,  previously  issued,   to
              reflect  use  of the proceeds from that  offering  in
              this transaction.
  
          v. Northern's  historical Statement of Earnings  for  the
              Year  Ended  March  31, 1996, has  been  adjusted  to
              eliminate  one time non-recurring income and  expense
              of  $546.6 million (349.0 million) and $97.2  million
              (62.1   million),  respectively.   This  income   and
              expense  is attributable to the receipt of shares  of
              the  National Grid Group plc and associated  dividend
              income,  related customer discounts and the  ultimate
              sale  and  distribution  of the  shares  to  Northern
              shareholders as a dividend-in-kind.
          
          vi.Change  income  tax expense as a result of  pro  forma
              adjustments  which  affect  taxable  income  and   to
              reflect   incremental  US  tax  expense  on   foreign
              earnings.
  
          vii.    Adjust for minority interest in CE Electric.
  
  3.   The  acquisition on August 7, 1996 of FSRI is  reflected  in
       the  Company's  historical consolidated balance sheet as  of
       September 30, 1996 and its historical consolidated statement
       of   earnings  beginning  August  1,  1996.  The  pro  forma
       adjustments  to  reflect  the acquisition  of  FSRI  are  as
       follows:
  
          A.    The  adjustments which have been made to the assets
          and  liabilities  of FSRI to reflect the  effect  of  the
          acquisition   accounted  for  as  a   purchase   business
          combination follow:
  
              Property and plant..              $  58,050
              Power sale agreements                46,604
              Goodwill                             99,206
              Equity investments                  136,375
              Other assets and liabilities          8,008
              Deferred taxes                     (95,206)
                                             ------------
              Net increase in assets and
                liabilities                     $253,037
                                                 =======
  
          B.    The  FSRI historical statements have been  adjusted
          to  reflect the exclusion of FSRI assets, liabilities and
          subsidiaries  not acquired by the Company  and  eliminate
          historical   general  and  administrative  expenses   and
          project  development  expenses  of  FSRI  which  will  no
          longer   be   incurred  by  FSRI   These   FSRI   assets,
          liabilities  and  subsidiaries were  distributed  out  of
          FSRI  prior  to the acquisition of FSRI's  stock  by  the
          Company.
  
          C.     The  pro  forma  adjustments  to  the  Pro   Forma
          Condensed  Combined Unaudited Statements of Earnings  are
          as follows:
  
              i.    Provide  depreciation and amortisation  of  the
              fair  values assigned to all identifiable  assets  as
              described below.  The Company's policy is to  provide
              depreciation  and  amortisation  expense   upon   the
              commencement   of   revenue   production   over   the
              estimated  remaining useful life of the  identifiable
              assets and to periodically assess the carrying  value
              of  such assets for possible impairment in accordance
              with   the   provisions  of  Statement  of  Financial
              Accounting Standards No. 121.
  
              The   fair   value  of  property  and  equipment   is
              depreciated using the straight line method  over  the
              remaining  portion  (between  22-28  years)  of   the
              original 30-year life.
  
              Power sales agreements have been assigned values  for
              the   remaining  contract  period  and    are   being
              amortised  over such period using the  straight  line
              method.
  
              The   fair   values   assigned   to   FSRI's   equity
              investments  are being amortised over  the  remaining
              contract periods using the straight line method.
  
              ii.    Record  amortisation  of  the  excess  of  the
              purchase  price  over the net assets  acquired  using
              the  straight line method over the remaining weighted
              average  useful life of the facilities  acquired  (25
              years).
  
              iii.  Record  anticipated  incremental  general   and
              administrative  expenses of The Company  of  $850,000
              per  year  and reclassify historical state  franchise
              taxes  from  general and administrative  expenses  to
              income tax expense.
              iv.   Adjust  interest relating to (1) the borrowings
              under the Company's revolving line of credit and  (2)
              the use of existing funds.
  
              v.    Change  income tax expense as a result  of  pro
              forma adjustments which affect taxable income.
  4.    The  acquisition on April 17, 1996 of the Mission  Acquired
        Companies   is   reflected  in  the  Company's   historical
        consolidated  balance sheet as of September  30,  1996  and
        its   historical   consolidated   statement   of   earnings
        beginning  April  1,  1996.  The pro forma  adjustments  to
        reflect  the  effect  of  the acquisition  of  the  Mission
        Acquired Companies are as follows:
  
          A.    The  adjustments which have been made to the assets
          and  liabilities  of  the Mission Acquired  Companies  to
          reflect the effect of the acquisitions accounted  for  as
          a purchase business combination follow:
  
             Property and plant                        $(101,999)
             Power sale agreements                        44,797
             Other assets and liabilities                 (4,882)
                                                        ---------
             Net decrease in assets and liabilities    $ (62,084)
                                                          =======
  
          B.    The  Salton Sea Funding Corporation Series D  notes
          and  Series E bonds were issued and all existing  project
          level  debt of the Partnership Projects was paid  off  at
          the beginning of the period presented.
  
          C.     The  pro  forma  adjustments  to  the  Pro   Forma
          Condensed  Combined Unaudited Statements of Earnings  are
          as follows:
  
              i.    Provide  depreciation and amortisation  of  the
              fair  values assigned to all identifiable  assets  as
              described  below  and capitalise  interest  on  costs
              allocated   to   projects   under   development   and
              construction.   The Company's policy  is  to  provide
              depreciation  and  amortisation  expense   upon   the
              commencement   of   revenue   production   over   the
              estimated  remaining useful life of the  identifiable
              assets and to periodically assess the carrying  value
              of  such assets for possible impairment in accordance
              with   the   provisions  of  Statement  of  Financial
              Accounting Standards No. 121.
  
              The  fair  value  of property and equipment,  net  of
              salvage  value, and exploration and development  cost
              is  depreciated using the straight line  method  over
              the  remaining portion (approximately  23  years)  of
              the original 30-year life.
              
              Power  sales  agreements have  been  assigned  values
              separately  for each of (1) the remaining portion  of
              the  scheduled  price  periods  of  the  power  sales
              agreements  and (2) the 20 year avoided cost  periods
              of   the  power  sales  agreements  and   are   being
              amortised  separately  over such  periods  using  the
              straight line method.
  
              ii.  Adjust interest relating to (1) the issuance  of
              the  Salton  Sea Funding Corporation Series  D  notes
              and  Series  E  bonds  net of the  repayment  of  all
              project  level debt at the Partnership  Projects  and
              (2) the use of existing funds.
  
              iii.  Change  income tax expense as a result  of  pro
              forma adjustments which affect taxable income.
  
          D.                      For  the year ended December  31,
          1995,   reflect  the  Magma  Acquisition  as  a  purchase
          business combination beginning January 1, 1995.
  
                              SIGNATURE
  
  Pursuant to the requirements of the Securities Exchange Act of
  1934, the Registrant has duly caused this report to be signed on
  its behalf by the undersigned hereunto duly authorized.
  
                                CalEnergy Company, Inc.
  
                                By: /s/ Douglas L. Anderson
                                    Douglas L. Anderson
                                    Assistant Secretary and
                                    Assistant Genral Counsel
                                    (U.S. and Corporate)
  
  Dated:  February 18, 1997