It is the second major acquisition of a US utility by a UK electricity group in a week.

National Grid is on the hunt for more deals

The US company, New England Electrical Systems, (NEES) is based in Massachusetts and serves 1.3 million customers in the North East of the US.

National Grid has been keen to expand its interests outside the highly regulated power sector in the UK for some time.

The deal could be the first of many. National Grid said is was examining further acquisitions in the US. "The region has got a number of smaller players in it and consolidation is underway. We anticipate we will be part of that process," said chief executive David Jones.

Reversal of fortune

The deal marks a dramatic reversal in fortunes for the UK electricity industry.

Most of the industry ended up in foreign hands following privatisation, as international predators looked for bargains. However a crackdown on electricity prices by UK regulators made the investments look less attractive. Over the past 12 months US energy groups have been selling up in the UK. And now the tables have turned completely with UK groups hunting for deals abroad.

Last week Scottish Power became the first non-US company to enter the market in North America with an agreement to buy Pacificorp to form a £12bn energy giant.

Good chemistry

National Grid is financing the deal through borrowings and does not intend to sell its stake in UK telecoms company Energis to help pay for the acquisition.

The UK group is also taking on $1.4bn of debt, making the total deal worth $4.6bn.

The deal is subject to approval by US electricity regulators and shareholders and is expected to be completed in 2000.

David Jones said the chemistry between the NEES and National Grid management was "excellent".

However investors were wary about the acquisition. National Grid's shares slipped 6.5p to 491.5p in early trading.