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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
------------ -------------



Commission file number 1-15995

UIL HOLDINGS CORPORATION

(Exact name of registrant as specified in its charter)

CONNECTICUT 06-1541045
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

157 CHURCH STREET, NEW HAVEN, CONNECTICUT 06506
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 203-499-2000


NONE
(Former name, former address and former fiscal year,
if changed since last report.)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YES X NO
--- ---

The number of shares outstanding of the issuer's only class of common stock, as
of October 31, 2002, was 14,460,680.




- 1 -




INDEX

PART I. FINANCIAL INFORMATION

PAGE
NUMBER
------

Item 1. Financial Statements. 3

Consolidated Statement of Income for the three and
nine months ended September 30, 2002 and 2001. 3
Consolidated Statement of Comprehensive Income for the
three and nine months ended September 30, 2002 and 2001. 3
Consolidated Balance Sheet as of September 30, 2002
and December 31, 2001. 4
Consolidated Statement of Cash Flows for the three and
nine months ended September 30,2002 and 2001. 6

Notes to Consolidated Financial Statements. 7
- Statement of Accounting Policies 7
- Capitalization 8
- Rate-Related Regulatory Proceedings 9
- Short-term Credit Arrangements 11
- Income Taxes 13
- Supplementary Information 14
- Commitments and Contingencies 15
- Capital Expenditure Program 15
- Nuclear Insurance Contingencies 15
- Other Commitments and Contingencies 15
- Connecticut Yankee 15
- Hydro-Quebec 16
- Cross-Sound Cable Project 16
- Environmental Concerns 16
- Site Decontamination, Demolition and
Remediation Costs 17
- Termination of Standard Offer Supply Agreement 18
- Nuclear Fuel Disposal and Nuclear Plant Decommissioning 18
- Segment Information 19
- Goodwill and Other Intangible Assets 19

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 21

- Major Influences on Financial Condition 21
- Capital Expenditure Program 22
- Liquidity and Capital Resources 23
- Subsidiary Operations 25
- Other Matters 26
- Results of Operations 27
- Looking Forward 39

Item 3. Quantitative and Qualitative Disclosure About Market Risk. 44

Item 4. Controls and Procedures 44

PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K. 46

SIGNATURES AND CERTIFICATIONS 47



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PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
UIL HOLDINGS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----


OPERATING REVENUES (NOTE G)
Utility $ 219,655 $ 209,896 $ 560,151 $ 548,824
Non-utility businesses 101,428 103,717 303,556 269,496
-------------- ------------- -------------- --------------
Total Operating Revenues 321,083 313,613 863,707 818,320
-------------- ------------- -------------- --------------
OPERATING EXPENSES
Operation
Fuel and energy 78,164 76,894 204,139 211,186
Operation and maintenance 152,270 143,638 446,386 385,523
Depreciation and amortization (Note G) 30,613 27,127 70,259 67,903
Taxes - other than income taxes (Note G) 13,030 12,515 36,456 34,468
-------------- ------------- -------------- --------------
Total Operating Expenses 274,077 260,174 757,240 699,080
-------------- ------------- -------------- --------------
OPERATING INCOME 47,006 53,439 106,467 119,240
-------------- ------------- -------------- --------------

OTHER INCOME (EXPENSE), NET (NOTE G) 2,525 2,698 (1,430) 5,703
-------------- ------------- -------------- --------------

INCOME BEFORE INTEREST CHARGES AND INCOME TAXES 49,531 56,137 105,037 124,943
-------------- ------------- -------------- --------------

INTEREST CHARGES, NET
Interest on long-term debt 10,843 10,898 32,486 31,949
Interest on Seabrook obligation bonds owned by UI (1,542) (1,579) (4,625) (4,739)
Other interest, net (Note G) 699 1,531 1,681 4,343
-------------- ------------- -------------- --------------
10,000 10,850 29,542 31,553
Amortization of debt expense and redemption premiums 484 531 1,547 1,625
-------------- ------------- -------------- --------------
Interest Charges, net 10,484 11,381 31,089 33,178
-------------- ------------- -------------- --------------

INCOME BEFORE INCOME TAXES 39,047 44,756 73,948 91,765
-------------- ------------- -------------- --------------

INCOME TAXES (NOTE F) 17,240 19,827 33,432 42,140
-------------- ------------- -------------- --------------

NET INCOME AND INCOME APPLICABLE TO COMMON STOCK $ 21,807 $ 24,929 $ 40,516 $ 49,625
============== ============= ============== ==============

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC 14,265 14,101 14,228 14,093
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED 14,274 14,151 14,309 14,147

EARNINGS PER SHARE OF COMMON STOCK - BASIC $ 1.53 $ 1.77 $ 2.85 $ 3.52
EARNINGS PER SHARE OF COMMON STOCK - DILUTED $ 1.53 $ 1.76 $ 2.83 $ 3.51

CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 0.72 $ 0.72 $ 2.16 $ 2.16



- ------------------------------------------------------------------------------------------------------------------------------

UIL HOLDINGS CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(THOUSANDS OF DOLLARS)
(UNAUDITED)

Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----


NET INCOME $ 21,807 $ 24,929 $ 40,516 $ 49,625
OTHER COMPREHENSIVE INCOME, NET OF TAX:
UNREALIZED LOSS ON INVESTMENT - - (519) -
-------------- ------------- -------------- --------------

COMPREHENSIVE INCOME (NOTE A) $ 21,807 $ 24,929 $ 39,997 $ 49,625
============== ============= ============== ==============


The accompanying Notes to Consolidated Financial Statements
are an integral part of the financial statements.






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UIL HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEET

ASSETS
(THOUSANDS OF DOLLARS)


September 30, December 31,
2002 2001*
---- -----
(Unaudited)


Current Assets
Unrestricted cash and temporary cash investments $ 15,616 $ 29,500
Restricted cash 56,414 56,596
Utility accounts receivable less allowance of $1,500 and $1,500 66,167 58,607
Other accounts receivable less allowance of $2,003 and $1,522 103,495 115,040
Settlement assets 55,959 37,655
Unbilled revenues 42,609 35,737
Materials and supplies, at average cost 13,972 14,528
Prepayments 5,094 3,299
Other 1,109 1,005
----------------- -----------------
Total Current Assets 360,435 351,967
----------------- -----------------

Other Property and Investments
Investment in United Bridgeport Energy facility 97,687 92,059
Nuclear decommissioning trust fund assets 26,064 26,269
Marketable securities - 3,954
Other 5,488 6,575
----------------- -----------------
Total Other Property and Investments 129,239 128,857
----------------- -----------------

Property, Plant and Equipment at original cost
In service 943,580 914,085
Less, accumulated depreciation 441,043 420,743
----------------- -----------------
502,537 493,342
Construction work in progress 42,464 32,103
Nuclear fuel 18,138 20,973
----------------- -----------------
Net Property, Plant and Equipment 563,139 546,418
----------------- -----------------

Regulatory Assets (AMOUNTS DUE FROM CUSTOMERS IN THE FUTURE
THROUGH THE RATEMAKING PROCESS)
Nuclear plant investments-above market 462,061 477,396
Income taxes due principally to book-tax differences 80,848 86,114
Long-term purchase power contracts-above market 104,561 112,250
Connecticut Yankee 17,172 21,291
Unamortized redemption costs 20,336 21,172
Other 49,325 44,752
----------------- -----------------
Total Regulatory Assets 734,303 762,975
----------------- -----------------

Deferred Charges
Goodwill 76,936 63,456
Unamortized debt issuance expenses 4,172 5,208
Other 5,410 5,050
----------------- -----------------
Total Deferred Charges 86,518 73,714
----------------- -----------------

Total Assets $ 1,873,634 $ 1,863,931
================= =================

*Derived from audited financial statements

The accompanying Notes to Consolidated Financial Statements
are an integral part of the financial statements.






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UIL HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEET

LIABILITIES AND CAPITALIZATION
(Thousands of Dollars)


September 30, December 31,
2002 2001*
---- -----
(Unaudited)

Current Liabilities
Notes payable $ 4,100 $ 33,215
Current portion of long-term debt 100,000 100,000
Accounts payable 25,989 40,716
Settlement obligations 108,775 92,348
Dividends payable 10,266 10,163
Accrued liabilities 101,001 103,374
Taxes accrued 32,522 6,373
Interest accrued 14,606 11,119
Obligations under capital leases 464 438
-------------- -------------
Total Current Liabilities 397,723 397,746
-------------- -------------

Noncurrent Liabilities
Purchase power contract obligation 104,561 112,250
Nuclear decommissioning obligation 26,064 26,269
Connecticut Yankee contract obligation 11,689 14,969
Long-term notes payable 16,977 12,788
Obligations under capital leases 14,937 15,288
Other 12,727 13,689
-------------- -------------
Total Noncurrent Liabilities 186,955 195,253
-------------- -------------

Deferred Income Taxes (FUTURE TAX LIABILITIES OWED
TO TAXING AUTHORITIES) 217,949 221,727
-------------- -------------

Regulatory Liabilities (AMOUNTS OWED TO CUSTOMERS IN THE FUTURE
THROUGH THE RATEMAKING PROCESS)
Accumulated deferred investment tax credits 13,376 13,764
Deferred gains on sale of property 30,265 29,827
Customer refund 6,821 3,657
Other 4,755 3,405
-------------- -------------
Total Regulatory Liabilities 55,217 50,653
-------------- -------------

Commitments and Contingencies (Note L)

Capitalization (Note B)
Long-term debt
Long-term debt 579,319 579,264
Investment in Seabrook obligation bonds (78,754) (80,707)
-------------- -------------
Net long-term debt 500,565 498,557
-------------- -------------

Common Stock Equity
Common Stock 296,501 291,788
Paid-in capital 3,751 2,760
Unrealized gain on investment - 519
Capital stock expense (2,170) (2,170)
Unearned employee stock ownership plan equity (6,648) (7,361)
Retained earnings 223,791 214,459
-------------- -------------
Net Common Stock Equity 515,225 499,995
-------------- -------------

Total Capitalization 1,015,790 998,552
-------------- -------------

Total Liabilities and Capitalization $ 1,873,634 $ 1,863,931
============== =============

*Derived from audited financial statements

The accompanying Notes to Consolidated Financial Statements
are an integral part of the financial statements.






- 5 -



UIL HOLDINGS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)


Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 21,807 $ 24,929 $ 40,516 $ 49,625
-------------- -------------- ------------ -------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 20,981 20,939 53,743 60,947
Deferred income taxes (3,518) (1,285) (4,582) (17,604)
Deferred investment tax credits - net (174) (166) (388) (477)
Amortization of nuclear fuel 1,536 1,572 4,121 4,014
Allowance for funds used during construction (543) (464) (1,611) (1,374)
CTA and SBC regulatory deferral 3,293 4,513 (1,968) (1,366)
Changes in:
Accounts receivable - net 3,890 (22,790) 12,018 (49,560)
Materials and supplies 132 (2,839) 737 (1,884)
Prepayments (2,309) (866) (2,003) (1,406)
Settlements assets 2,833 (11,509) (18,304) (6,343)
Accounts payable (7,304) (5,239) (16,729) (20,602)
Interest accrued (3,714) (3,718) 3,487 5,974
Taxes accrued 22,453 20,933 26,020 32,266
Settlements obligations 24,093 20,885 16,427 12,259
Other assets and liabilities (1,210) 4,378 (17,637) 30,695
-------------- -------------- ------------ -------------
Total Adjustments 60,439 24,344 53,331 45,539
-------------- -------------- ------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 82,246 49,273 93,847 95,164
-------------- -------------- ------------ -------------

CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of:
Common stock 290 330 5,898 1,030
Long-term debt - - - 75,000
Notes payable (20,175) (12,335) (30,955) (86,321)
Expenses of issuances - - - (825)
Lease obligations (111) (103) (396) (301)
Common stock dividends (10,265) (10,147) (30,646) (30,422)
-------------- -------------- ------------ -------------
NET CASH USED IN FINANCING ACTIVITIES (30,261) (22,255) (56,099) (41,839)
-------------- -------------- ------------ -------------

CASH FLOWS FROM INVESTING ACTIVITIES
Plant expenditures, including nuclear fuel (16,386) (8,803) (40,487) (28,304)
Acquisiton of businesses, net of cash acquired - (2,027) (13,849) (15,387)
Investment in non-utility business (271) - (2,521) -
Investment in debt securities, net - - 5,043 1,928
-------------- -------------- ------------ -------------
NET CASH USED IN INVESTING ACTIVITIES (16,657) (10,830) (51,814) (41,763)
-------------- -------------- ------------ -------------

CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD 35,328 16,188 (14,066) 11,562
BALANCE AT BEGINNING OF PERIOD 36,702 42,813 86,096 47,439
-------------- -------------- ------------ -------------
BALANCE AT END OF PERIOD 72,030 59,001 72,030 59,001
LESS: RESTRICTED CASH 56,414 39,163 56,414 39,163
-------------- -------------- ------------ -------------
BALANCE: UNRESTRICTED CASH AND
TEMPORARY CASH INVESTMENTS $ 15,616 $ 19,838 $ 15,616 $ 19,838
============== ============== ============ =============

CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $ 11,881 $ 12,757 $ 23,847 $ 23,494
============== ============== ============ =============
Income taxes $ - $ 2,800 $ 12,800 $ 30,300
============== ============== ============ =============




The accompanying Notes to Consolidated Financial Statements
are an integral part of the financial statements.






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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

BASIS OF PRESENTATION

The consolidated financial statements of UIL Holdings Corporation (UIL Holdings)
and its wholly-owned direct subsidiaries, The United Illuminating Company (UI)
and United Resources, Inc. (URI), have been prepared pursuant to the applicable
rules and regulations of the Securities and Exchange Commission (SEC). UIL
Holdings' consolidated financial statements include the accounts of UIL Holdings
and its wholly-owned subsidiaries, UI and URI. Intercompany accounts and
transactions have been eliminated in consolidation. The statements reflect all
adjustments that are, in the opinion of management, necessary to a fair
statement of the results of operations, financial position and cash flows for
the periods presented. All such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the SEC.
UIL Holdings believes that the disclosures are adequate to make the information
presented not misleading. Certain prior year amounts have been reclassified to
conform to the current year's presentation. UIL Holdings' consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes to consolidated financial statements included in UIL
Holdings' Annual Report on Form 10-K for the year ended December 31, 2001. Such
notes are supplemented as follows:

(A) STATEMENT OF ACCOUNTING POLICIES

NUCLEAR DECOMMISSIONING TRUSTS

External trust funds are maintained to fund the estimated future decommissioning
costs of the nuclear generating units in which UI has an ownership interest.
These costs are accrued as a charge to depreciation expense over the estimated
service lives of the units and are recovered in rates on a current basis. UI
paid $0.7 million and $2.0 million into the decommissioning trust fund for
Seabrook Unit 1 in the three and nine months ended September 30, 2002,
respectively. The payments made into the decommissioning trust funds for
Seabrook Unit 1 and Millstone Unit 3 were $0.8 million and $2.5 million for the
three and nine months ended September 30, 2001, respectively. The sale of UI's
interest in Millstone Unit 3 was consummated on March 31, 2001, and UI's share
of the unit's decommissioning trust funds were transferred to the buyer at that
time. The sale of UI's interest in Seabrook Station was consummated on November
1, 2002, and UI's share of the unit's decommissioning trust funds were
transferred to the buyer at that time.

At September 30, 2002, UI's share of the trust fund balance for Seabrook Unit 1,
which included accumulated earnings on the funds, was $26.1 million. This fund
balance is included in "Other Property and Investments" and the accrued
decommissioning obligation is included in "Noncurrent Liabilities" on the
Consolidated Balance Sheet.

IMPAIRMENT OF LONG-LIVED ASSETS

Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," requires the recognition of
impairment losses on long-lived assets when the book value of an asset exceeds
the sum of the expected future undiscounted cash flows that result from the use
of the asset and its eventual disposition. This standard also requires that
rate-regulated companies recognize an impairment loss when a regulator excludes
all or part of a cost from rates, even if the regulator allows the company to
earn a return on the remaining costs allowed. Under this standard, the
probability of recovery and the recognition of regulatory assets under the
criteria of SFAS No. 71 must be assessed on an ongoing basis. At September 30,
2002 and December 31, 2001, neither UI nor URI had any assets that were impaired
under this standard.

COMPREHENSIVE INCOME

Comprehensive income included unrealized pre-tax losses of $0 and $862,500 for
the three and nine months ended September 30, 2002, respectively, ($0 and
$518,578, respectively, after-tax), on a convertible note held by American


- 7 -




UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Payment Systems, Inc. (APS), a wholly-owned subsidiary of UIL Holdings. The
unrealized pre-tax loss of $862,500 for the nine months ended September 30, 2002
reversed an unrealized pre-tax gain of $862,500 on the convertible note that
occurred in the fourth quarter of 2001. The convertible note was repaid in May
2002. Comprehensive income for the three and nine months ended September 30,
2001 was equal to net income as reported.

NEW ACCOUNTING STANDARDS

The Financial Accounting Standards Board has issued SFAS No. 141, "Business
Combinations." SFAS No. 141, which applies to all business combinations
initiated after June 30, 2001, would result in UIL Holdings accounting for any
business combinations initiated after that date under the purchase method of
accounting. The adoption of SFAS No. 141 will not change the method of
accounting used in previous business combinations.

The Financial Accounting Standards Board has issued SFAS No. 142, "Goodwill and
Other Intangible Assets." UIL Holdings adopted SFAS No. 142 effective January 1,
2002. For further information regarding the adoption of this standard, see Note
(Q), "Goodwill and Other Intangible Assets," to the consolidated financial
statements.

The Financial Accounting Standards Board has issued SFAS No. 143, "Accounting
for Asset Retirement Obligations." This statement, which is effective for fiscal
years beginning after June 15, 2002, requires that an asset retirement
obligation be recognized at the time when an entity faces a legal obligation to
retire an asset. The asset retirement cost would be capitalized as part of the
related long-lived asset and initially measured at fair value and adjusted in
subsequent periods when necessary. Upon adoption of the statement, a cumulative
effect approach will be used to recognize transition amounts for any existing
asset retirement obligations. SFAS No. 143 will be effective for UIL Holdings
beginning January 1, 2003. UIL Holdings is currently assessing the impact of
this standard and expects to complete this review by December 31, 2002.

(B) CAPITALIZATION

COMMON STOCK

UIL Holdings had 14,460,680 shares of its common stock, without par value,
outstanding at September 30, 2002, of which 195,585 shares were unallocated
shares held by UI's 401(k)/Employee Stock Ownership Plan (KSOP) and not
recognized as outstanding for accounting purposes.

In 1998, UI entered into an arrangement under which it loaned $11.5 million to
the KSOP. The trustee for the KSOP used the funds to purchase 328,300 shares of
UI common stock in open market transactions. On July 20, 2000, effective with
the formation of a holding company structure, unallocated shares held by the
KSOP were converted into shares of UIL Holdings' common stock. The shares will
be allocated to employees' KSOP accounts, as the loan is repaid, to cover a
portion of the required KSOP contributions. The loan will be repaid by the KSOP
over a twelve-year period, using employer contributions and UIL Holdings'
dividends paid on the unallocated shares of the stock held by the KSOP. As of
September 30, 2002, 195,585 shares, with a fair market value of $6.9 million,
had been purchased by the KSOP and had not been committed to be released or
allocated to KSOP participants.

In 1990, UI's Board of Directors and the shareowners approved a stock option
plan for officers and key employees of UI. Effective with the formation of the
holding company structure on July 20, 2000, all options were converted into
options to purchase shares of UIL Holdings' common stock.

On June 28, 1999, UI's shareowners approved a stock option plan for directors,
officers and key employees of UI, providing for the awarding of options to
purchase up to 650,000 shares of common stock over periods of from one to ten
years following the dates when the options are granted. The exercise price of
each option cannot be less than the market value of the stock on the date of the
grant. Effective with the formation of the holding company structure on July 20,
2000, all options were converted into options to purchase shares of UIL
Holdings' common stock. On March 25, 2002, the Board of Directors recommended to
the shareowners that the plan be amended to increase the



- 8 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

maximum number of shares of UIL Holdings' common stock for which stock options
may be granted from 650,000 to 1,350,000, and to increase the limit on the
number of shares that may be covered by options granted in any one year to any
employee from 50,000 to 150,000. The shareowners approved this amendment at the
UIL Holdings Annual Meeting on May 15, 2002. The Board of Directors had granted
options to purchase 220,700 shares of stock at an exercise price of $56.605 per
share and 20,000 shares of stock at an exercise price of $57.60 per share,
contingent on shareowner approval of this amendment.

RETAINED EARNINGS RESTRICTION

The indenture under which UI has issued $200 million principal amount of Notes
places limitations on UI relative to the payment of cash dividends on its common
stock, which is wholly-owned by UIL Holdings, and the purchase or redemption of
said common stock. Retained earnings in the amount of $82.4 million were free
from such limitations at September 30, 2002.

LONG-TERM DEBT

On February 1, 2002, the interest rate on $27.5 million principal amount of
Pollution Control Refunding Revenue Bonds, 1997 Series, due July 1, 2027, issued
by the Business Finance Authority (BFA) of the State of New Hampshire was reset
from 4.35% to 3.75%. The new interest rate will remain in effect for a two-year
period through January 31, 2004. UI is obligated, under its borrowing agreement
with the BFA, to pay the interest on the Bonds. Interest is payable
semi-annually on August 1st and February 1st.

In conjunction with the sale of Seabrook Station on November 1, 2002, UI's
obligation under its Seabrook Unit 1 sale/leaseback agreement was terminated.
The obligation was paid off using proceeds from the sale of Seabrook Station,
the receipt of $80.8 million (including accrued interest of $2.0 million) from
the redemption of UI's investment in the Seabrook Lease Obligation Bonds, and
approximately $32.0 million of short-term borrowings. This temporary increase in
short-term borrowings will be paid off in 2003 with the realization of tax
benefits from the sale of Seabrook Station.

(C) RATE-RELATED REGULATORY PROCEEDINGS

In November 2001, as directed by the Connecticut Department of Public Utility
Control (DPUC), UI filed a retail customer rate case application and supporting
schedules and pre-filed testimony, with the DPUC (Rate Case). In that
application, UI proposed no change in its previously authorized base rates and
no change in its 11.5% previously authorized return on equity. UI had previously
agreed, and subsequently been ordered by the DPUC, to continue the earnings
sharing applicable to a previous multi-year rate plan for the period January 1,
2002 until the conclusion of the Rate Case proceeding. Under that prior earnings
sharing mechanism, earnings above 11.5% on an annual basis, were shared
one-third for customer bill reductions, which lowered recorded revenue, and
one-third to accelerate amortization of stranded costs, with one-third retained
by UI as earnings.

The DPUC issued a final decision in the Rate Case proceeding that became
effective on September 26, 2002. The decision provides for a $30.9 million
reduction in UI's annual revenue requirements, including (1) a $20.3 million
reduction to UI's transmission and distribution customer rates, (2) $2.0 million
to be applied annually for additional funding of conservation programs, (3) $8.3
million to be applied annually to reduce stranded costs, and (4) $0.3 million to
be applied to a combination of uncollectibles, taxes and rate base changes.
Customer rates are to be reduced by 3% overall. The rate reductions are to be
applied across-the-board, with no significant rate design changes, although the
generation services charge (GSC) component of customers' rates is increased and
the competitive transaction assessment (CTA) component is decreased in a dollar
amount equal to the GSC increase. The final Rate Case decision reduces UI's
authorized return on equity to 10.45%. Earnings above the authorized return are
to be shared 50% to customers and 50% to retained earnings, with the customers'
share divided equally between bill reductions and an accelerated amortization of
stranded costs. The Rate Case decision did not adopt or impose a multi-year rate
plan. The Rate Case decision recognizes that the revenue requirements
determination,


- 9 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

including the applicable return on equity, for transmission investment is within
the jurisdiction of the Federal Energy Regulatory Commission. UI's authorized
return on equity for transmission investment is 10.75%.

On October 11, 2002, UI filed with the DPUC a petition for reconsideration,
requesting that the DPUC reconsider its decision and correct two errors with
respect to the calculation of UI's revenue requirements. On November 6, 2002,
the DPUC issued a decision reopening the Rate Case to consider one of the errors
noted in UI's petition, and UI expects a prompt decision by the DPUC in the
reopened proceeding. The DPUC denied reconsideration of the second issue raised
in the UI petition. UI is also considering a future request that the DPUC reopen
the Rate Case docket to address anticipated increases in pension expenses.
Pension expense is expected to increase dramatically above levels approved in
the Rate Case decision due to poor equity market performance and the
historically low level of interest rates, both of which have increased UI's
pension expense. Absent significant improvement in the equity markets or an
increase in interest rates, UI's pension plan will be underfunded when measured
at December 31, 2002 and an increase in pension expense and cash funding will be
required in the future.

In April 1998, Connecticut enacted Public Act 98-28 (the Restructuring Act), a
massive and complex statute designed to restructure the State's regulated
electric utility industry. As a result of the Restructuring Act, the business of
selling electricity directly to consumers has been opened to competition since
January 2000. This business activity is separated from the business of
delivering electricity to consumers, also known as the transmission and
distribution business. The business of delivering electricity remains with the
incumbent franchised utility companies (including UI).

A major component of the Restructuring Act is the collection, by Distribution
Companies, of a "competitive transition assessment," a "systems benefits
charge," an "energy conservation and load management program charge" and a
"renewable energy investment charge." The competitive transition assessment
represents costs that have been reasonably incurred, or will be incurred, by
Distribution Companies to meet their public service obligations as Distribution
Companies, and that will likely not otherwise be recoverable in a competitive
generation and supply market. These costs include above-market long-term
purchased power contract obligations, regulatory asset recovery and above-market
investments in power plants (so-called stranded costs). The systems benefits
charge represents public policy costs, such as generation decommissioning and
displaced worker protection costs. Beginning in 2000, a Distribution Company is
required to collect the competitive transition assessment, the systems benefits
charge, the energy conservation and load management program charge and the
renewable energy investment charge from its customers. The DPUC has an annual
proceeding to review UI's collection of the competitive transition assessment
and systems benefits charge for the prior year, and to establish the applicable
competitive transition assessment charge and systems benefits charge for the
next year. UI had proposed no changes to these charges since they were
established in 1999 for collection beginning January 1, 2000. Because of
overcollection of systems benefits charge revenues in 2001, and an expectation
that such revenues will exceed systems benefits charge costs in 2002 and 2003,
the DPUC has ordered that UI's systems benefits charge on customers' bills be
reduced for 2003, with an offsetting increase to the competitive transition
assessment charge.

Under the Restructuring Act, all Connecticut electricity customers are able to
choose their power supply providers. Through December 31, 2003, UI is required
to offer retail service to its customers under a regulated "standard offer" rate
to each customer who does not choose an alternate power supply provider, even
though UI is no longer in the business of power generation. UI is also required
under the Restructuring Act to provide back-up power supply service to customers
whose alternate power supply provider fails to provide power supply services for
reasons other than the customers' failure to pay for such services. On December
28, 2001, UI entered into an agreement with Virginia Electric and Power Company
for the supply of all of UI's standard offer generation service needs from
January 1, 2002 through December 31, 2003, and for the supply of all of UI's
generation service requirements for special contract customers through 2008. See
discussion in Note (L) with respect to UI's prior standard offer supplier.

The Restructuring Act required that, in order for UI to recover any stranded
costs, it must attempt to divest its ownership interests in two nuclear-fueled
power plants prior to 2004. The sale of UI's ownership in Millstone Unit 3


- 10 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

was consummated on March 31, 2001. The sale of UI's interest in Seabrook Station
was consummated on November 1, 2002. In compliance with the Restructuring Act,
the net-of-tax gain from the sale, after termination of the sale/leaseback
agreement, that is in excess of the book value of the plant, as set by the DPUC,
based on its estimate of the market value of the plant, must be used to reduce
UI's stranded costs. Accordingly, there should be no direct contemporaneous
impact on UI's financial results as a result of the sale. However, UI will
receive no operating earnings from Seabrook Station after October 31, 2002.

The DPUC is required by Connecticut law to initiate a proceeding whenever a work
stoppage occurs at a public service company for a period of more than seven
days. Because the unionized employees at UI were on strike from May 16, 2002 to
June 9, 2002, the DPUC will conduct a proceeding to determine whether, as a
result of the work stoppage, UI earned unreasonable profits and whether the
quality of service to UI's customers was impaired. UI has submitted to the DPUC
a post-strike analysis of the financial impact of the strike, together with a
review of service quality metrics. The DPUC and the state's Office of Consumer
Counsel have submitted interrogatories to UI regarding this submission. No time
schedule has been set by the DPUC for this proceeding.

Under Connecticut law, the DPUC is required to conduct a management audit of
each electric public service company having more than seventy-five thousand
customers, no less frequently than once every six years. The last DPUC
management audit of UI began in 1996 and concluded in 1997, and in the third
quarter of 2002 the DPUC commenced the management audit process for UI. The
DPUC's Utilities Operations and Management Analysis Unit and the consulting firm
selected to assist the DPUC in its audit of UI have begun interviews of UI
personnel and a review of related data.

(E) SHORT-TERM CREDIT ARRANGEMENTS

UIL Holdings has a money market loan arrangement with JPMorgan Chase Bank. This
is an uncommitted short-term borrowing arrangement under which JPMorgan Chase
Bank may make loans to UIL Holdings for fixed maturities from one day up to six
months. JPMorgan Securities, Inc. acts as an agent and sells the loans to
investors. The fixed interest rates on the loans are determined based on
conditions in the financial markets at the time of each loan. As of September
30, 2002, UIL Holdings had no loans outstanding under this arrangement.

On August 1, 2002, UIL Holdings entered into a revolving credit agreement with a
group of banks, which extends to July 31, 2003. The borrowing limit of this
facility is $100 million. The facility permits UIL Holdings to borrow funds at a
fluctuating interest rate determined by the prime lending market in New York,
and also permits UIL Holdings to borrow money for fixed periods of time
specified by UIL Holdings at fixed interest rates determined by the Eurodollar
interbank market in London (LIBOR). If a material adverse change in the
business, operations, affairs, assets or condition, financial or otherwise, or
prospects of UIL Holdings and its subsidiaries, on a consolidated basis, should
occur, the banks may decline to lend additional money to UIL Holdings under this
revolving credit agreement, although borrowings outstanding at the time of such
an occurrence would not then become due and payable. As of September 30, 2002,
UIL Holdings had no short-term borrowings outstanding under this facility.

UIL Holdings' short-term borrowings increased by approximately $32.0 million in
connection with the consummation of the sale of Seabrook Station on November 1,
2002. This temporary increase in short-term borrowings will be paid off in 2003
with the realization of tax benefits from the sale of Seabrook Station.

Xcelecom, Inc. (Xcelecom), a wholly-owned indirect subsidiary of UIL Holdings,
has a revolving working capital credit agreement with two banks that expires on
June 30, 2004, which is subject to a post closing condition. Xcelecom expects
to resolve this condition by November 29, 2002. This agreement provides for a
$35 million revolving working capital facility, available to meet working
capital needs and up to $5 million in capital equipment needs, and to support
standby letters of credit issued by Xcelecom in the normal course of its
business. This agreement also provides for the payment of interest at a rate,
at the option of Xcelecom, based on the bank's prime interest rate or LIBOR.
As of September 30, 2002, the outstanding balance on this facility was $2.0
million. In


- 11 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

addition, Xcelecom had outstanding standby letters of credit of $5.1 million at
September 30, 2002. All borrowings outstanding under this agreement are secured
solely by assets of Xcelecom and its subsidiaries.

American Payment Systems, Inc. (APS), a wholly-owned indirect subsidiary of UIL
Holdings, has a $10 million revolving credit agreement with a bank that has been
extended to November 29, 2002. This agreement is available for working capital
needs, acquisition of fixed assets and investments in acquired companies. The
terms of this agreement allow APS to select the interest rate on its short-term
borrowings based on either the bank's prime interest rate or LIBOR. As of
September 30, 2002, APS had $1.2 million in short-term borrowings outstanding
under this agreement. APS is currently negotiating a new facility with the bank.
All borrowings outstanding under this agreement are secured solely by assets of
APS and its subsidiaries.



- 12 -



UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


(F) INCOME TAXES

Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
(In Thousands) (In Thousands)

Income tax expense consists of:
Income tax provisions (benefit):
Current
Federal $16,957 $17,233 $ 31,112 $ 48,750
State 3,975 4,045 7,290 11,471
---------- ------------ ------------ ------------
Total current 20,932 21,278 38,402 60,221
---------- ------------ ------------ ------------
Deferred
Federal (2,704) (845) (2,990) (13,914)
State (814) (440) (1,592) (3,690)
---------- ------------ ------------ ------------
Total deferred (3,518) (1,285) (4,582) (17,604)
---------- ------------ ------------ ------------

Investment tax credits (174) (166) (388) (477)
---------- ------------ ------------ ------------

Total income tax expense $17,240 $19,827 $ 33,432 $ 42,140
========== ============ ============ ============

Income tax components charged as follows:
Operating tax expense $18,233 $20,526 $ 35,411 $ 42,975
Nonoperating tax benefit (993) (699) (1,979) (835)
---------- ------------ ------------ ------------

Total income tax expense $17,240 $19,827 $ 33,432 $ 42,140
========== ============ ============ ============







- 13 -



UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

(G) SUPPLEMENTARY INFORMATION (UNAUDITED)

Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
(In Thousands) (In Thousands)

OPERATING REVENUES
Utility
Retail $ 192,252 $ 184,256 $ 488,239 $ 484,256
Wholesale 18,254 17,574 49,372 44,989
Other 9,149 8,066 22,540 19,579
Non-utility businesses
American Payment Systems 22,758 16,016 68,236 40,254
Xcelecom 78,732 87,752 235,500 229,355
Other/Eliminations (62) (51) (180) (113)
------------- ------------ ------------- -------------
Total Operating Revenues $ 321,083 $ 313,613 $ 863,707 $ 818,320
============= ============ ============= =============

SALES BY CLASS(MEGAWATT-HOURS)
Retail
Residential 681,781 604,532 1,701,705 1,630,657
Commercial 691,040 685,247 1,863,242 1,883,646
Industrial 284,510 287,234 777,855 820,257
Other 10,238 10,296 32,818 32,982
------------- ------------ ------------- -------------
Total Retail Sales 1,667,569 1,587,309 4,375,620 4,367,542
Wholesale 570,263 564,626 1,541,119 1,492,183
------------- ------------ ------------- -------------
Total Sales by Class 2,237,832 2,151,935 5,916,739 5,859,725
============= ============ ============= =============

DEPRECIATION AND AMORTIZATION
Utility property, plant, and equipment $ 6,934 $ 6,384 $ 20,771 $ 19,229
Non-utility business property, plant and equipment 1,613 959 4,323 2,741
Nuclear Decommissioning 672 833 2,017 2,604
------------- ------------ ------------- -------------
Total Depreciation 9,219 8,176 27,111 24,574
------------- ------------ ------------- -------------
Amortization of intangibles 413 1,162 1,359 3,257
Amortization of nuclear plant regulatory assets 13,589 9,476 19,783 15,350
Amortization of purchase power contracts 6,052 6,583 17,961 19,533
Amortization of other regulatory assets 1,047 1,437 3,166 4,310
Amortization of cancelled plant 293 293 879 879
------------- ------------ ------------- -------------
Total Amortization 21,394 18,951 43,148 43,329
------------- ------------ ------------- -------------
Total Depreciation and Amortization $ 30,613 $ 27,127 $ 70,259 $ 67,903
============= ============ ============= =============

TAXES - OTHER THAN INCOME TAXES
Operating:
Connecticut gross earnings $ 8,516 $ 8,094 $ 21,470 $ 20,434
Local real estate and personal property 3,085 3,070 9,672 9,489
Payroll taxes 1,429 1,351 5,314 4,545
------------- ------------ ------------- -------------
Total Taxes - Other than Income Taxes $ 13,030 $ 12,515 $ 36,456 $ 34,468
============= ============ ============= =============

OTHER INCOME (EXPENSE), NET
Interest income $ (207) $ 182 $ 211 $ 493
Allowance for funds used during construction 543 464 1,611 1,374
Equity earnings from Connecticut Yankee 539 99 724 190
Non-utility business passive income (expense) 2,141 1,398 (3,481) 3,241
Miscellaneous other income and (expense) - net (491) 555 (495) 405
------------- ------------ ------------- -------------
Total Other Income (Expense), net $ 2,525 $ 2,698 $ (1,430) $ 5,703
============= ============ ============= =============

OTHER INTEREST, NET
Notes Payable $ 123 $ 345 $ 332 $ 2,342
Other 576 1,186 1,349 2,001
------------- ------------ ------------- -------------
Total Other Interest, net $ 699 $ 1,531 $ 1,681 $ 4,343
============= ============ ============= =============






- 14 -



UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(L) COMMITMENTS AND CONTINGENCIES

CAPITAL EXPENDITURE PROGRAM

UIL Holdings' continuing capital expenditure program is estimated at $336.5
million, excluding UI's allowance for funds used during construction, for 2002
through 2006. As a result of the Rate Case decision, UIL Holdings is reviewing
its capital expenditure program. The estimated capital expenditures during the
period from 2002 to 2006, as shown in Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Capital Expenditure
Program," reflect the deferral of certain expenditures from one year to another
within the period.

UI is planning to participate in a proposed high voltage transmission line
project in southwestern Connecticut. The project will require numerous
regulatory approvals and permits, and it is being opposed by a number of public
officials and private groups. Due to uncertainty regarding approvals, timing and
UI's share of the cost of the project, this project has not been included in the
total estimated cost of UIL Holdings' capital expenditure program for 2002
through 2006.

NUCLEAR INSURANCE CONTINGENCIES

The Price-Anderson Act, the renewal of which is pending in a Congressional
conference committee, limits public liability resulting from a single incident
at a nuclear power plant. The first $200 million of liability coverage is
provided by purchasing the maximum amount of commercially available insurance.
Additional liability coverage will be provided by an assessment of up to $83.9
million per incident, levied on each of the nuclear units licensed to operate in
the United States, subject to a maximum assessment of $10 million per incident
per nuclear unit in any year. In addition, if the sum of all public liability
claims and legal costs resulting from any nuclear incident exceeds the maximum
amount of financial protection, each reactor operator can be assessed an
additional 5% of $83.9 million, or $4.2 million. The maximum assessment is
adjusted at least every five years to reflect the impact of inflation. With
respect to the one operating nuclear generating unit in which UI had an
interest, UI was obligated to pay its ownership and leasehold share of any
statutory assessment resulting from a nuclear incident at any nuclear generating
unit.

The Nuclear Regulatory Commission requires each operating nuclear generating
unit to obtain property insurance coverage in a minimum amount of $1.06 billion
and to establish a system of prioritized use of the insurance proceeds in the
event of a nuclear incident. The system requires that the first $1.06 billion of
insurance proceeds be used to stabilize the nuclear reactor to prevent any
significant risk to public health and safety and then for decontamination and
cleanup operations. Only following completion of these tasks would the balance,
if any, of the segregated insurance proceeds become available to the unit's
owners. For the one operating nuclear generating unit in which UI had an
interest, UI was required to pay its ownership and leasehold share of the cost
of purchasing such insurance. This unit had purchased $2.75 billion of property
insurance coverage, representing the limits of coverage available from
conventional nuclear insurance pools.

As a result of the sale of UI's interest in Seabrook Station, consummated on
November 1, 2002, UI is no longer required to maintain these nuclear property
and liability insurance coverages.

OTHER COMMITMENTS AND CONTINGENCIES

CONNECTICUT YANKEE

On December 4, 1996, the Board of Directors of the Connecticut Yankee Atomic
Power Company (Connecticut Yankee) voted unanimously to retire the Connecticut
Yankee nuclear plant (the Connecticut Yankee Unit) from commercial operation. UI
has a 9.5% stock ownership share in Connecticut Yankee. The power purchase
contract under which UI had purchased its 9.5% entitlement to the Connecticut
Yankee Unit's power output permits Connecticut Yankee to recover 9.5% of all of
its costs from UI. A decision by the FERC that became effective on August 1,
2000 allows Connecticut Yankee to collect through the power contracts with the
unit's owners, the


- 15 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

FERC-approved decommissioning costs, other costs associated with the permanent
shutdown of the Connecticut Yankee Unit, the unrecovered investment in the
Connecticut Yankee Unit, and a return on equity of 6%.

UI's estimate of its remaining share of Connecticut Yankee costs, including
decommissioning, less the return of UI's investment in Connecticut Yankee
(approximately $5.5 million) and the projected future return on this investment
(approximately $0.7 million) at September 30, 2002, is approximately $11.7
million. This estimate, which is subject to ongoing review and revision, has
been recorded as an obligation with an offsetting regulatory asset of $17.2
million, which includes the $5.5 million return of investment. UI estimates that
the decommissioning will be completed in 2004.

HYDRO-QUEBEC

UI is a participant in the Hydro-Quebec transmission intertie facility linking
New England and Quebec, Canada. Phase I of this facility, which became
operational in 1986 and in which UI has a 5.45% participating share, has a 690
megawatt equivalent generation capacity value; and Phase II, in which UI has a
5.45% participating share, increased the equivalent generation capacity value of
the intertie from 690 megawatts to a maximum of 2000 megawatts in 1991. UI is
obligated to furnish a guarantee for its participating share of the debt
financing for the Phase II facility. As of September 30, 2002, UI's guarantee
liability for this debt was approximately $4.5 million.

CROSS-SOUND CABLE PROJECT

United Capital Investments (UCI), an indirect wholly-owned subsidiary of UIL
Holdings, has a 25% interest in Cross-Sound Cable Company, LLC (Cross-Sound),
which owns and proposes to operate a 330-megawatt merchant transmission line
connecting Connecticut and Long Island under Long Island Sound. UCI has
furnished a credit support agreement for its participating share of the debt
financing during construction of this project, up to a maximum of $33.8 million.
Under a separate agreement, UIL Holdings is a guarantor of the credit-support
obligation of UCI. The project's construction loan financing arrangement extends
to February 28, 2003, by which time a new financing arrangement will have been
negotiated. Prior to closing of the new financing and based on the recommended
financing structure, the shareholders, including UCI, may be required to provide
an additional equity contribution. Cross-Sound has informed UCI that, as of
September 30, 2002, UCI's credit-support obligation was approximately $13.6
million, assuming that the primary third-party project guarantors meet their
obligations during the pendency of the litigation described below. This project
has been opposed by a number of public officials and private groups who have
participated actively in governmental permitting proceedings relative to the
project and have attempted to enact a state statute delaying the project. On
March 17, 2002, the Connecticut Department of Environmental Protection issued a
permit for the project and, on March 19, 2002, the United States Army Corps of
Engineers approved a permit application for siting the cable in the New Haven
Harbor navigation channel. On January 3, 2002, the Connecticut Siting Council
(CSC) approved a permit application for siting the cable; however, the
Connecticut Attorney General and the City of New Haven appealed the CSC's
decision to the Connecticut Superior Court. The Superior Court denied requests
filed by both the Attorney General and the City for a stay of the effectiveness
of the CSC permit pending the outcome of the appeals; and on August 21, 2002 the
same Court dismissed both the City of New Haven and Attorney General's appeals.
On September 5, 2002 the Attorney General appealed the Superior Court's decision
to the Connecticut Appellate Court. At this time UCI management believes that
the CSC decision will be upheld on appeal, although there can be no assurance
that it will be upheld. A full power test of the line was successfully performed
on August 8, 2002 and, on August 16, 2002, the Department of Energy issued an
order directing the line to operate under emergency, last resort, conditions
only. This order expired on October 1, 2002. Construction of the transmission
line in accordance with the governmental permits has not been completed; and it
is not known at this time when construction will be completed and commercial
operation will commence.

ENVIRONMENTAL CONCERNS

In complying with existing environmental statutes and regulations and further
developments in areas of environmental concern, including legislation and
studies in the fields of water quality, hazardous waste handling and disposal,
toxic


- 16 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

substances, and electric and magnetic fields, UIL Holdings and its
wholly-owned direct and indirect subsidiaries may incur substantial capital
expenditures for equipment modifications and additions, monitoring equipment and
recording devices, and it may incur additional operating expenses. The total
amount of these expenditures is not now determinable. Environmental damage
claims may also arise from the operations of UIL Holdings' subsidiaries.
Significant environmental issues known to UIL Holdings at this time are
described below.

SITE DECONTAMINATION, DEMOLITION AND REMEDIATION COSTS

As a result of a 1992 DPUC retail rate decision, since January 1, 1993, UI has
been recovering through retail rates $1.075 million per year of environmental
remediation costs for decontaminating its demolished Steel Point Station
property in Bridgeport. The amortization of approximately $3.0 million of these
costs, in the period 2002 through 2004, reflects the remaining cost of cleaning
up the property, assuming a zero sales value. Final costs will be offset by any
sale price realized, and will be subject to regulatory true-up upon disposition
of the property.

Subsequent to the demolition of Steel Point Station, the adjacent East Main
Street Substation was removed at the request of the City of Bridgeport. UI will
undertake an environmental subsurface investigation of the former substation
site, but potential environmental remediation costs cannot be estimated at this
time.

Concurrent with the removal of the East Main Street Substation, the Congress
Street Substation was expanded to replace it. The Congress Street Substation
expansion cost $11.1 million, of which $10.6 million is reimbursable from the
City of Bridgeport. UI expects that the receivable will be collectible from the
City of Bridgeport through anticipated redevelopment grants or similar funding
by the State of Connecticut. The City of Bridgeport has included these costs in
its request to the State of Connecticut for funding.

UI is in the process of replacing the bulkhead surrounding a site, bordering the
Mill River in New Haven, that contains transmission facilities and deactivated
generation facilities, at an estimated cost of $13.5 million. Of this amount,
$4.2 million represents the portion of the costs to protect UI's transmission
facilities and will be capitalized as plant in service; and the remaining
estimated cost of $9.3 million has been expensed. UI expects the project to be
completed in 2003. UI has conveyed to an unaffiliated entity, Quinnipiac Energy
LLC (QE), this entire site, reserving to UI permanent easements for the
operation of its transmission facilities on the site. QE will complete the
bulkhead replacement project at UI's expense, with UI acting as the project
manager. UI has also funded 61% (approximately $1.2 million) of the estimated
environmental remediation costs that will be incurred by QE to bring the site
into compliance with applicable minimum Connecticut environmental standards. QE
intends to reactivate the generation facilities on the site as a merchant
electric generating plant.

UI closed on the sale of its Bridgeport Harbor Station and New Haven Harbor
Station generating plants in compliance with Connecticut's electric utility
industry restructuring legislation on April 16, 1999. Environmental assessments
performed in connection with the marketing of these plants indicate that
substantial remediation expenditures will be required in order to bring the
plant sites into compliance with applicable minimum Connecticut environmental
standards. The purchaser of the plants has agreed to undertake and pay for the
remediation of the purchased properties. With respect to the portion of the New
Haven Harbor Station site that UI has retained, UI has performed an additional
environmental analysis and estimates that approximately $3.2 million in
remediation expenses will be incurred. The required remediation is virtually all
on transmission-related property; and UI accrued these estimated expenses during
the third quarter of 2002.

The owner of a parcel of property in Derby, Connecticut, has notified UI that
the owner is remediating soil contamination of the property by fuel oil, which
contamination the owner has asserted resulted from activities conducted on the
property when it was owned by UI during the period 1961 to 1976. Based on its
own investigation to date, UI has advised the owner that UI has no
responsibility for the alleged soil contamination. The Connecticut Department of
Environmental Protection is remediating a migration of fuel oil contamination
from a neighboring parcel of property into the adjacent Housatonic River. If
regulatory agencies determine that UI is responsible for the


- 17 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

costs of these remediation activities, UI may experience substantial costs,
although no estimate of potential costs is currently available.

TERMINATION OF STANDARD OFFER SUPPLY AGREEMENT

On December 28, 1999, UI entered into agreements with Enron Power Marketing,
Inc. (EPMI), a subsidiary of Enron Corp. (Enron), for the supply of all of the
power needed by UI to meet its standard offer generation service needs and its
other generation service requirements at fixed prices. Effective January 1,
2002, UI terminated all of its agreements with EPMI by reason of EPMI's default
under its agreements with UI, including EPMI's commencement of bankruptcy
proceedings on December 2, 2001. UI has been contacted by representatives of
EPMI seeking information relating to the calculation of the damages claimed by
UI as a result of EPMI's default and withheld by UI from its final payment to
EPMI.

(M) NUCLEAR FUEL DISPOSAL AND NUCLEAR PLANT DECOMMISSIONING

New Hampshire has enacted a law requiring that the funds required to finance the
decommissioning of nuclear generating units in that state be managed by the
State Treasurer. The New Hampshire Nuclear Decommissioning Financing Committee
(NDFC) has established $584.7 million (in 2002 dollars) as the decommissioning
cost estimate for Seabrook Station, of which UI's share would have been
approximately $102.3 million. This estimate assumes the property on which
Seabrook Station is located will be restored on a commercial-industrial site
restoration basis at the end of its estimated 36-year energy producing life.
UI's share of the decommissioning payments made to the state-managed
decommissioning trust fund during the first nine months of 2002 was $2.0
million. UI's share of the fund at September 30, 2002 was approximately $26.1
million.

The sale of UI's interest in Seabrook Station was consummated on November 1,
2002. UI's share of the decommissioning trust funds were transferred to the
buyer, along with the decommissioning and decommissioning funding obligation, at
the closing of the sale. UI made payments totaling $19.8 million at closing to
extinguish its decommissioning obligations. The amount paid is subject to a
post-closing true-up.

Connecticut has enacted a law requiring the operators of nuclear generating
units to file periodically with the DPUC their plans for financing the
decommissioning of the units in that state. The projected remaining
decommissioning cost for the Connecticut Yankee Unit, assuming the prompt
removal and dismantling of the unit, under the August 1, 2000 FERC decision with
respect to Connecticut Yankee described above, escalated to September 30, 2002,
is approximately $209.8 million, of which UI's 9.5% equity ownership share is
approximately $19.9 million. Decommissioning costs of $1.2 million were funded
by UI during the first nine months of 2002, and UI's share of the fund at
September 30, 2002 was $22.7 million, based on the market value of the fund at
that time. The $22.7 million trust fund balance consists of $6.6 million
reserved for remaining decommissioning costs, $14.4 million for spent fuel
disposal obligations, and the remainder for completed decommissioning work not
yet paid.




- 18 -




UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(P) SEGMENT INFORMATION

UIL Holdings has two reportable operating segments, UI, its regulated electric
utility business engaged in the purchase, transmission, distribution and sale of
electricity, and Xcelecom, its non-utility, indirect, wholly-owned subsidiary,
which provides specialized contracting services in the electrical,
communications and data network infrastructure industries. Revenues from
inter-segment transactions are minimal. All of UIL Holdings' revenues are
derived in the United States.

The following table reconciles certain segment information with that provided in
UIL Holdings' consolidated financial statements. In the table, Other includes
the information for the remainder of UIL Holdings' non-utility businesses,
corporate activity and inter-segment eliminations.

SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ -----------------
Total Assets (In Thousands)
------------
Utility $1,525,286 $1,536,802
Xcelecom - Non-utility business 193,545 180,794
Other 154,803 146,335
-------------------------------------------
Total - UIL Holdings $1,873,634 $1,863,931
===========================================





THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 2002 SEPT. 30, 2001 SEPT. 30, 2002 SEPT. 30, 2001
-------------- -------------- -------------- --------------
Revenues from External Customers (In Thousands) (In Thousands)
- --------------------------------

Utility $219,655 $209,896 $560,151 $548,824
Xcelecom - Non-utility business 78,732 87,752 235,500 229,355
Other 22,696 15,965 68,056 40,141
---------------------------------------------------------------
Total - UIL Holdings $321,083 $313,613 $863,707 $818,320
===============================================================




Income (Loss) before Income Taxes
- ---------------------------------

Utility $37,903 $41,854 $85,604 $89,802
Xcelecom - Non-utility business 1,783 3,861 800 7,265
Other (639) (959) (12,456) (5,302)
---------------------------------------------------------------
Total - UIL Holdings $39,047 $44,756 $73,948 $91,765
===============================================================


(Q) GOODWILL AND OTHER INTANGIBLE ASSETS

Effective January 1, 2002, UIL Holdings adopted SFAS No. 142. Under this
standard, UIL Holdings is no longer amortizing its existing goodwill. In
addition, UIL Holdings was required to measure goodwill for impairment effective
January 1, 2002 as part of the transition provisions. SFAS No. 142 requires
goodwill to be allocated to reporting units and measured for impairment under a
two-step test.

UIL Holdings has completed the necessary test to determine if any impairment
existed under the prescribed standard. No goodwill impairment was found under
the prescribed standard.

As of September 30, 2002, UIL Holdings maintains $76.9 million of goodwill
related to its non-utility businesses that is no longer being amortized, and
$6.4 million of identifiable intangible assets that continue to be amortized
under the new standard.



- 19 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

A summary of UIL Holdings' goodwill as of September 30, 2002 is as follows:


(Thousands of Dollars) Xcelecom Other Total
--------------------------------------

Balance, January 1, 2002 $56,974 $ 6,482 $63,456

Goodwill acquired during the nine
months ended September 30, 2002 9,877 3,603 13,480
--------------------------------------
Balance, September 30, 2002 $66,851 $10,085 $76,936
======================================


There were no impairments to the goodwill balances during the nine months ended
September 30, 2002.

As of September 30, 2002, and December 31, 2001, UIL Holdings' intangible assets
and related accumulated amortization consisted of the following:

As of September 30, 2002
--------------------------------------------
Accumulated Net
(Thousands of Dollars) Gross Amortization Balance
--------------------------------------------
Intangible assets subject to
amortization:
Agent listing $4,418 $ 333 $4,085
Non-compete agreements 1,485 795 690
Backlog 256 150 106
Employee sales force 150 100 50
Trade name 100 67 33
--------------------------------------------
Total $6,409 $1,445 $4,964
============================================


As of December 31, 2001
--------------------------------------------
Accumulated Net
(Thousands of Dollars) Gross Amortization Balance
--------------------------------------------
Intangible assets subject to
amortization:
Non-compete agreements $ 640 $105 $535
Agent listing 500 209 291
Employee sales force 150 62 88
Trade name 100 42 58
--------------------------------------------
Total $1,390 $418 $972
============================================


The intangible asset balance is included in Other Deferred Charges on the
Consolidated Balance Sheet.

UIL Holdings recorded amortization expense of $0.4 million and $1.4 million for
the three and nine months ended September 30, 2002, respectively, related to
these intangible assets. Assuming there are no acquisitions or dispositions that
occur in the future, the estimated amortization expense for the years 2003
through 2007 is approximately $1.8 million per year.

The elimination of goodwill amortization in 2002 will increase earnings per
share by approximately $0.15 for the year, compared to 2001. For the three and
nine months ended September 30, 2001, UIL Holdings' net income, adjusted to
exclude the effect of amortization of goodwill during those periods, was $25.5
million and $51.4 million, respectively. Basic and diluted earnings per share
for UIL Holdings, adjusted to exclude the effect of amortization of goodwill
during the three and nine months ended September 30, 2001, were $1.81 per share
and $3.64 per share, respectively.



- 20 -





ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

MAJOR INFLUENCES ON FINANCIAL CONDITION

The financial condition of UIL Holdings Corporation (UIL Holdings) will continue
to be dependent on the retail rate levels and the level of the electric utility
retail sales of its direct subsidiary, The United Illuminating Company (UI) and
on UI's ability to control its expenses, as well as on the performance of the
businesses of UIL Holdings' non-utility subsidiaries. The two primary factors
that affect electric utility sales volume are economic conditions and weather.
The principal factors affecting the financial condition of UIL Holdings'
operating non-utility subsidiaries, American Payment Systems, Inc. and Xcelecom,
Inc., are the pace of technological changes, competition, risks related to
management of internal growth, acquisition financing and integration, exposure
to downturns in the economy, risks associated with contracts, recoverability and
possible impairment of goodwill, and collectibility of receivables.

UIL Holdings' financial status and financing capability will continue to be
sensitive to many other factors, including conditions in the securities markets,
economic conditions, interest rates, the level of income and cash flow of UIL
Holdings' subsidiaries, and legislative and regulatory developments, including
the cost of compliance with increasingly stringent environmental legislation and
regulations.

In November 2001, as directed by the Connecticut Department of Public Utility
Control (DPUC), UI filed a retail customer rate case application and supporting
schedules and pre-filed testimony, with the DPUC (Rate Case). In that
application, UI proposed no change in its previously authorized base rates and
no change in its 11.5% previously authorized return on equity. UI had previously
agreed, and subsequently been ordered by the DPUC, to continue the earnings
sharing applicable to a previous multi-year rate plan for the period January 1,
2002 until the conclusion of the Rate Case proceeding. Under that prior earnings
sharing mechanism, earnings above 11.5% on an annual basis, were shared
one-third for customer bill reductions, which lowered recorded revenue, and
one-third to accelerate amortization of stranded costs, with one-third retained
by UI as earnings.

The DPUC issued a final decision in the Rate Case proceeding that became
effective on September 26, 2002. The decision provides for a $30.9 million
reduction in UI's annual revenue requirements, including (1) a $20.3 million
reduction to UI's transmission and distribution customer rates, (2) $2.0 million
to be applied annually for additional funding of conservation programs, (3) $8.3
million to be applied annually to reduce stranded costs, and (4) $0.3 million to
be applied to a combination of uncollectibles, taxes and rate base changes.
Customer rates are to be reduced by 3% overall. The rate reductions are to be
applied across-the-board, with no significant rate design changes, although the
generation services charge (GSC) component of customers' rates is increased and
the competitive transaction assessment (CTA) component is decreased in a dollar
amount equal to the GSC increase. The final Rate Case decision reduces UI's
authorized return on equity to 10.45%. Earnings above the authorized return are
to be shared 50% to customers and 50% to retained earnings, with the customers'
share divided equally between bill reductions and an accelerated amortization of
stranded costs. The Rate Case decision did not adopt or impose a multi-year rate
plan. The Rate Case decision recognizes that the revenue requirements
determination, including the applicable return on equity, for transmission
investment is within the jurisdiction of the Federal Energy Regulatory
Commission. UI's authorized return on equity for transmission investment is
10.75%.

On October 11, 2002, UI filed with the DPUC a petition for reconsideration,
requesting that the DPUC reconsider its decision and correct two errors with
respect to the calculation of UI's revenue requirements. On November 6, 2002,
the DPUC issued a decision reopening the Rate Case to consider one of the errors
noted in UI's petition, and UI expects a prompt decision by the DPUC in the
reopened proceeding. The DPUC denied reconsideration of the second issue raised
in the UI petition. UI is also considering a future request that the DPUC reopen
the Rate Case docket to address anticipated increases in pension expenses.
Pension expense is expected to increase dramatically above levels approved in
the Rate Case decision due to poor equity market performance and the
historically low level of interest rates, both of which have increased UI's
pension expense. Absent significant improvement in the equity markets or an
increase in interest rates, UI's pension plan will be underfunded when measured
at December 31, 2002 and an increase in pension expense and cash funding will be
required in the future.



- 21 -


In April 1998, Connecticut enacted Public Act 98-28 (the Restructuring Act), a
massive and complex statute designed to restructure the State's regulated
electric utility industry. As a result of the Restructuring Act, the business of
selling electricity directly to consumers has been opened to competition since
January 2000. This business activity is separated from the business of
delivering electricity to consumers, also known as the transmission and
distribution business. The business of delivering electricity remains with the
incumbent franchised utility companies (including UI).

Under the Restructuring Act, all Connecticut electricity customers are able to
choose their power supply providers. Through December 31, 2003, UI is required
to offer retail service to its customers under a regulated "standard offer" rate
to each customer who does not choose an alternate power supply provider, even
though UI is no longer in the business of power generation. UI is also required
under the Restructuring Act to provide back-up power supply service to customers
whose alternate power supply provider fails to provide power supply services for
reasons other than the customers' failure to pay for such services.

The Restructuring Act required that, in order for UI to recover any stranded
costs, it must attempt to divest its ownership interests in two nuclear-fueled
power plants prior to 2004. The sale of UI's ownership in Millstone Unit 3 was
consummated on March 31, 2001. The sale of UI's interest in Seabrook Station was
consummated on November 1, 2002. In compliance with the Restructuring Act, the
net-of-tax gain from the sale, after termination of the sale/leaseback
agreement, that is in excess of the book value of the plant, as set by the DPUC,
based on its estimate of the market value of the plant, must be used to reduce
UI's stranded costs. Accordingly, there should be no direct contemporaneous
impact on UI's financial results as a result of the sale. However, UI will
receive no operating earnings from Seabrook Station after October 31, 2002.

CAPITAL EXPENDITURE PROGRAM

UIL Holdings' 2002-2006 estimated capital expenditure program, excluding UI's
allowance for funds used during construction, is shown below:



2002 2003 2004 2005 2006 TOTAL
---- ---- ---- ---- ---- -----
(In Millions)

UI Distribution and Transmission (1) $56.6 $40.9 $53.8 $59.6 $26.1 $237.0
-------------------------------------------------------

United Resources, Inc. (URI)
American Payment Systems 17.9 8.0 10.1 13.8 13.9 63.7
Xcelecom 10.7 3.0 3.0 3.0 3.0 22.7
United Capital Investments 1.3 9.3 0.2 - - 10.8
United Bridgeport Energy 2.3 - - - - 2.3
-------------------------------------------------------
Total URI 32.2 20.3 13.3 16.8 16.9 99.5
-------------------------------------------------------

Total UIL Holdings $88.8 $61.2 $67.1 $76.4 $43.0 $336.5
=======================================================


(1) Any capital expenditures in connection with UI's interest in Seabrook
Station, including those for nuclear fuel, made during 2002 will be
recovered, subject to DPUC approval, through the sale of UI's interest in
Seabrook Station, which was consummated on November 1, 2002. These
expenditures are not included above.



- 22 -




LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2002, UIL Holdings had $72.0 million of cash and temporary cash
investments, of which $56.4 million is restricted cash. This represents a
decrease of $14.1 million from the corresponding balance at December 31, 2001.
The components of this decrease, which are detailed in the Consolidated
Statement of Cash Flows, are summarized as follows:

(In Millions)

Balance, December 31, 2001 $86.1
--------------

Net cash provided by operating activities:
- Net cash provided by operating activities before
net settlements 95.7
- Net settlements (Note A) (1.9)
--------------
93.8
--------------

Net cash used in financing activities:
- Financing activities, excluding dividend payments (25.5)
- Dividend payments (30.6)
--------------
(56.1)
--------------

Net cash used in investing activities:
- Investment in debt securities, net 5.0
- Cash invested in plant, including nuclear fuel (40.5)
- Acquisition of businesses, net of cash acquired (13.8)
- Investment in non-utility business (2.5)
--------------
(51.8)
--------------

Net Change in Cash (14.1)
--------------

Balance, September 30, 2002 $72.0
==============

Note A: The net settlements reflected above as a component of cash provided
by operating activities represent the change in net accounts receivable
due from APS's agents, as well as net payables due to APS's clients.


- 23 -


UIL Holdings' capital requirements are projected as follows:



2002 2003 2004 2005 2006
---- ---- ---- ---- ----
(In millions)

Unrestricted Cash on Hand - Beginning of Year (1) $29.5 $ - $ - $ - $ -
Funds from Operations less Dividends (2) 76.6 69.3 82.4 96.0 101.2
-----------------------------------------------
Subtotal 106.1 69.3 82.4 96.0 101.2

Less:
Capital Expenditures (2)
UI 56.6 40.9 53.8 59.6 26.1
URI 32.2 20.3 13.3 16.8 16.9
-----------------------------------------------
Total Capital Expenditures 88.8 61.2 67.1 76.4 43.0

Plus:
Net Cash (after-tax) from Sale of Seabrook (3) 98.0 36.3 - - -
Proceeds from Redemption of Seabrook Lease Obligation
Bonds Owned by UI (3) 80.8 - - - -
-----------------------------------------------

Cash Available to pay Debt Maturities and Redemptions 196.1 44.4 15.3 19.6 58.2

Less:
Maturities and Mandatory Redemptions 100.0 100.0 - 4.3 4.3
Termination of Obligation under Seabrook Unit 1
Sale/leaseback Agreement (3) 208.9 - - - -
-----------------------------------------------

External Financing Requirements (Surplus) (2) 112.8 55.6 (15.3) (15.3) (53.9)
-----------------------------------------------

Plus:
Issuance of Long-term Debt 100.0 100.0 - - -
-----------------------------------------------

Increase (Decrease) in Short-Term Borrowings 12.8 (44.4) (15.3) (15.3) (53.9)
-----------------------------------------------

Short-Term Borrowings/(Temporary Cash Investments) -
End of Year $46.0 $1.6 $(13.7) $(29.0) $(82.9)
===============================================


(1) Excludes restricted cash in American Payment Systems, Inc. of $53.0
million, UI of $3.2 million and Xcelecom, Inc. of $0.4 million.
(2) "Funds from Operations less Dividends," "Capital Expenditures" and
"External Financing Requirements (Surplus)" are estimates based on current
earnings and cash flow projections. All of these estimates are subject to
change due to future events and conditions that may be substantially
different from those used in developing the projections.
(3) The sale of Seabrook Station was consummated on November 1, 2002. Some of
the cash income tax benefit will not be realized until 2003. In conjunction
with the sale, UI's obligation under its Seabrook Unit 1 sale/leaseback
agreement was terminated. The obligation was paid off using proceeds from
the sale of Seabrook Station, the receipt of $80.8 million (including
accrued interest of $2.0 million) from the redemption of UI's investment in
the Seabrook Lease Obligation Bonds, and approximately $32.0 million of
short-term borrowings. This temporary increase in short-term borrowings
will be paid off in 2003 with the realization of tax benefits from the sale
of Seabrook Station. Including the receipt of the tax benefits in 2003, the
sale of UI's interest in Seabrook Station is expected to generate
approximately $4 million in net cash.

All capital requirements that exceed available cash will have to be provided by
external financing. Although there is no commitment to provide such financing
from any source of funds, other than a $100 million revolving credit agreement
that UIL Holdings has with a group of banks, a $35 million revolving credit
agreement that Xcelecom has
- 24 -

with two banks, and a $10 million revolving credit agreement that APS has with a
bank, future external financing needs are expected to be satisfied by the
issuance of additional short-term and long-term debt. The continued availability
of these methods of financing will be dependent on many factors, including
conditions in the securities markets, economic conditions, and future income and
cash flow.

SUBSIDIARY OPERATIONS

UI is a regulated operating electric public utility established in 1899. It is
engaged principally in the purchase, transmission, distribution and sale of
electricity for residential, commercial and industrial purposes in a service
area of about 335 square miles in the southwestern part of the State of
Connecticut. The population of this area is approximately 730,000, which
represents approximately 21% of the population of the State. The service area,
largely urban and suburban in character, includes the principal cities of
Bridgeport (population approximately 140,000) and New Haven (population
approximately 124,000) and their surrounding areas. Situated in the service area
are retail trade and service centers, as well as large and small industries
producing a wide variety of products, including helicopters and other
transportation equipment, electrical equipment, chemicals and pharmaceuticals.
Of UI's 2001 retail electric revenues, approximately 42% were derived from
residential sales, 41% from commercial sales, 15% from industrial sales and 2%
from other sales.

URI serves as the parent corporation for several non-utility businesses, each of
which is incorporated separately to participate in business ventures that are
intended to provide long-term rewards to UIL Holdings' shareowners. As of
September 30, 2002, UIL Holdings has invested approximately $266.0 million in
URI. URI, which is not itself an operating company, has four wholly-owned
subsidiaries:

AMERICAN PAYMENT SYSTEMS, INC. (APS) provides a variety of financial products
and services to consumers through its network of over 10,000 retailers
throughout the United States. The flagship product is an electronic bill payment
service that allows consumers to pay their bills in person. APS has contractual
relationships with many major electric and telecommunication companies
("billers"), making APS their authorized processor of walk-in bill payments; and
APS moves the payment information and funds from its retailer network to the
billers. APS is compensated by the billers, and it manages and compensates the
retailers who provide this service directly to the consumers. APS's contractual
relationships are for a period of three to five years, and APS has a successful
renewal rate of approximately 95%. APS is the largest processor of contracted
utility customer in-person bill payments in the United States, operating in 45
states. In August 2002, APS signed a five-year contract with Bell South. Bell
South is expected to be APS's largest client, producing approximately 20% of
APS's contracted bill payment transaction volume for 2003. In addition, APS has
a non-contracted bill payment service that offers consumers a wide choice of
electronic bill payment options. APS manages the non-contracted bill payment
business directly through its retailer network. In 2001, APS processed 91
million transactions for bill payments of approximately $9.0 billion. APS
currently carries a $539,000 bad debt reserve for its retailer network, based on
a 36-month write-off experience. APS's subsidiaries include APS Card Services,
Inc. (CSI), which is 100% owned, and CellCards of Illinois, LLC (CCI), which is
51% owned. CSI has been organized by APS to market a prepaid stored value card
to consumers through APS's network of retailers. CCI, in which APS acquired its
ownership interest in April 2001, sells prepaid long distance telephone service,
prepaid telephone calling cards and prepaid wireless telephone service in
check-cashing and convenience store locations nationwide, as well as APS's
network of retailers. In June 2002, Point of Sale Activation (POSA) by APS was
launched to provide real-time processing of prepaid telephone transactions for
CCI and other distributors.

APS currently has a promissory note in the amount of $3.0 million due from a
vendor of POSA technology. APS has recently declared the vendor in default due
to a delay in a quarterly interest payment and for failure to supply APS with
financial statements. The note is collateralized by all of the vendor's accounts
receivable, inventory, retailer base, POSA terminals and intellectual property.
The vendor is currently attempting to remedy this default. The default of the
vendor is not expected to adversely impact the operations of APS.

XCELECOM, INC. (Xcelecom) and its subsidiaries, provide general and specialty
electrical and voice-data-video design, construction, systems integration and
related services in regional markets of the Eastern United States. The Xcelecom
subsidiaries, all of which have been obtained through acquisitions, include
Allan Electric Co., Inc., Brite-Way Electrical Contractors, Inc., JBL Electric,
Inc. and The Datastore, Incorporated, all in New Jersey,


- 25 -


Orlando Diefenderfer Electrical Contractors, Inc., in Pennsylvania, 4Front
Systems, Inc., in North Carolina, J. E. Richards, Inc. and Richards Electric,
Inc. in Maryland, Terry's Electric, Inc. in Florida, and Johnson Electric Co.,
Inc., M. J. Daly & Sons, Inc., McPhee Electric Ltd., LLC and McPhee Utility
Power and Signal, Ltd., all in Connecticut. Xcelecom also owns and operates two
heating and cooling energy centers, through its Thermal Energies, Inc.
subsidiary, that provide heating and cooling service to two of New Haven,
Connecticut's largest office and government complexes.

UNITED CAPITAL INVESTMENTS, INC. (UCI) invests in passive business investments.
Some of its investments include:

o CROSS-SOUND CABLE COMPANY, LLC (CROSS-SOUND) - UCI has a 25% interest in
a merchant electric transmission line project that owns and proposes to
operate a 330-megawatt high voltage direct current transmission line
connecting Connecticut and Long Island under Long Island Sound. UCI has
furnished a credit support agreement for its participating share of the
debt financing during construction of this project, up to a maximum of
$33.8 million. Under a separate agreement, UIL Holdings is a guarantor of
the credit-support obligation of UCI. The project's construction loan
financing arrangement extends to February 28, 2003, by which time a new
financing arrangement will have been negotiated. Prior to closing of
the new financing and based on the recommended financing structure, the
shareholders, including UCI, may be required to provide an additional
equity contribution. Cross-Sound has informed UCI that, as of
September 30, 2002, UCI's credit-support obligation was approximately $13.6
million, assuming that the primary third-party guarantors meet their
obligations during the pendency of the litigation described below. This
project has been opposed by a number of public officials and private groups
who have participated actively in governmental permitting proceedings
relative to the project and have attempted to enact a state statute
delaying the project. On March 17, 2002, the Connecticut Department of
Environmental Protection issued a permit for the project and, on March 19,
2002, the United States Army Corps of Engineers approved a permit
application for siting the cable in the New Haven Harbor navigation
channel. On January 3, 2002,the Connecticut Siting Council (CSC) approved
a permit application for siting the cable; however, the Connecticut
Attorney General and the City of New Haven appealed the CSC's decision to
the Connecticut Superior Court. The Superior Court denied requests filed
by both the Attorney General and the City for a stay of the effectiveness
of the CSC permit pending the outcome of the appeals; and on August 21,
2002 the same Court dismissed both the City of New Haven and Attorney
General's appeals. On September 5, 2002 the Attorney General appealed the
Superior Court's decision to the Connecticut Appellate Court. At this time
UCI management believes that the CSC decision will be upheld on appeal,
although there can be no assurance that it will be upheld. A full power
test of the line was successfully performed on August 8, 2002 and, on
August 16, 2002, the Department of Energy issued an order directing the
line to operate under emergency, last resort, conditions only. This order
expired on October 1, 2002. Construction of the transmission line in
accordance with the governmental permits has not been completed; and it is
not known at this time when construction will be completed and commercial
operation will commence.

o ZERO STAGE CAPITAL - Regional high technology venture capital funds in
which UCI has invested, both as a financial investment and as a means of
promoting local economic development.

o IRONBRIDGE MEZZANINE FUND - A regional Small Business Investment Company
committed to investing a portion of its capital in women and minority owned
businesses and businesses located in low and moderate income areas.

UNITED BRIDGEPORT ENERGY, INC. (UBE) owns, as a passive investor, 331/3% of a
merchant wholesale electric generating facility co-owned and operated by a unit
of Duke Energy and located in Bridgeport, Connecticut. As of September 30, 2002,
UBE has invested $97.7 million in the facility.

OTHER MATTERS

The audit committee of UIL Holdings' Board of Directors has approved
approximately $373,000 in non-audit services to be performed by its auditors
during 2002. The principal areas in which such non-audit services are being
provided are: auditing benefit plans, transaction due diligence for APS and
Xcelecom, and state tax services.



- 26 -


RESULTS OF OPERATIONS

UIL HOLDINGS CORPORATION RESULTS OF OPERATIONS: THIRD QUARTER 2002 ACTUAL
- --------------------------------------------------------------------------
EARNINGS VS. PREVIOUS ESTIMATE
- ------------------------------

Net Income for UIL Holdings Corporation (UIL Holdings) was $21.8 million in the
third quarter of 2002, or $1.53 per share. The third quarter result was in the
middle of the range estimated in UIL Holdings' second quarter earnings release
dated July 22, 2002. Third quarter earnings for The United Illuminating Company
(UI), excluding the Nuclear Division, were $17.3 million, or $1.21 per share.
This result was in the middle of the estimated range for the quarter. However,
it reflected higher than anticipated retail kilowatt-hour sales due primarily to
weather factors, higher average prices, likely also due to weather-induced
kilowatt-hour usage factors, and lower expenses, some of which was due to
timing. These improvements were offset by earnings sharing, recorded in the
third quarter for the year-to-date results. Earnings above 11.5% on an annual
basis, were shared, according to the previous multi-year rate plan, one-third
for customer bill reductions, which lowered recorded revenue, and one-third to
accelerate amortization of stranded costs, with one-third retained by UI as
earnings. UI earnings also improved slightly from the previous estimate at the
Nuclear Division because of improved performance and lower expenses. Results for
the non-utility businesses were also within the anticipated range.

THIRD QUARTER 2002 VS. THIRD QUARTER 2001
- -----------------------------------------

UIL HOLDINGS CORPORATION RESULTS OF OPERATIONS: THIRD QUARTER 2002 VS.
- -----------------------------------------------------------------------
THIRD QUARTER 2001
- ------------------

UIL Holdings' third quarter 2002 earnings decreased by $3.1 million, or $0.24
per share, compared to third quarter 2001 earnings of $24.9 million, or $1.77
per share. The change in earnings was made up of the following components:
earnings at UI, excluding the Nuclear Division, decreased by $0.20 per share.
Nuclear Division earnings increased by $0.03 per share. Earnings for United
Resources, Inc. (URI) decreased by $0.07 per share, due primarily to the impact
of the slowdown in construction activity and technology spending on URI's
Xcelecom subsidiary.

The table below represents a comparison of UIL Holdings' Net Income and Earnings
Per Share (EPS) for the third quarter of 2002 and the third quarter of 2001.



- ----------------------------------------------------------------------------------------------------
2002 more (less) than 2001
--------------------------
Quarter Ended Quarter Ended
From Operations Sept. 30, 2002 Sept. 30, 2001 Amount Percent
- ----------------------------------------------------------------------------------------------------

NET INCOME (IN MILLIONS EXCEPT PERCENTS)
UI $17.3 $19.9 $(2.6) (13)%
Nuclear Division 3.8 3.4 0.4 12%
United Resources (Non-Utility) 0.7 1.6 (0.9) (57)%
------ ------ -----
TOTAL NET INCOME FROM OPERATIONS $21.8 $24.9 $(3.1) (12)%

EPS
UI $1.21 $1.41 $(0.20) (14)%
Nuclear Division 0.27 0.24 0.03 13%
United Resources (Non-Utility) 0.05 0.12 (0.07) (58)%
---- ---- -----
TOTAL EPS - BASIC $1.53 $1.77 $(0.24) (14)%
TOTAL EPS - DILUTED (NOTE A) $1.53 $1.76 $(0.23) (13)%
==== ==== ====
- ----------------------------------------------------------------------------------------------------


Note A: Reflecting the effect of unexercised dilutive stock options.




- 27 -




The following table is a line-by-line breakdown of UIL Holdings' Consolidated
Statement of Income by subsidiary, including comparisons between the third
quarter of 2002 and the third quarter of 2001. Significant variances are
explained in the individual subsidiary sections that follow.



QUARTER ENDED QUARTER ENDED 2002 MORE
(IN MILLIONS) SEPT. 30, 2002 SEPT. 30, 2001 LESS) THAN 2001
- ------------- -------------- -------------- ---------------

OPERATING REVENUE
UI from operations, before sharing $212.0 $196.7 $15.3
UI sharing from operations (6.6) (1.2) (5.4)
Nuclear 14.3 14.4 (0.1)
URI 101.4 103.7 (2.3)
----- ----- ----
Total $321.1 $313.6 $7.5
====== ===== ====
FUEL AND ENERGY EXPENSE
UI $76.2 $74.9 $1.3
Nuclear 2.0 2.0 0.0
---- ---- ----
Total $78.2 $76.9 $1.3
===== ===== ====
OPERATION AND MAINTENANCE EXPENSE
UI $49.7 $40.4 $9.3
Nuclear 4.9 5.7 (0.8)
URI 97.7 97.6 0.1
----- ----- ----
Total $152.3 $143.7 $8.6
====== ====== ====
DEPRECIATION AND AMORTIZATION
UI $7.3 $6.9 $0.4
Nuclear 0.3 0.3 0.0
URI 1.6 1.2 0.4
---- ---- ----
Subtotal depreciation 9.2 8.4 0.8
Amortization of regulatory assets (UI) 21.0 17.8 3.2
Amortization URI 0.4 0.9 (0.5)
---- ---- ----
Total depreciation and amortization $30.6 $27.1 $3.5
===== ===== ====
TAXES - OTHER THAN INCOME TAXES
UI - State gross earnings tax $8.5 $8.1 $0.4
UI - other 3.7 3.7 0.0
Nuclear - other 0.2 0.2 0.0
URI - other 0.6 0.5 0.1
---- ---- ---
Total $13.0 $12.5 $0.5
===== ===== ====
OTHER INCOME AND DEDUCTIONS
UI $0.5 $1.3 ($0.8)
Nuclear 0.0 0.0 0.0
URI 2.0 1.4 0.6
---- ---- ---
Total $2.5 $2.7 ($0.2)
==== ==== =====
INTEREST CHARGES
UI $9.1 $10.0 ($0.9)
UI - Interest on Seabrook obligation bonds owned by UI (1.5) (1.6) 0.1
UI - Amortization: debt expense, redemption premiums 0.5 0.5 0.0
Nuclear 0.5 0.5 0.0
URI 1.9 2.0 (0.1)
---- ---- -----
Total $10.5 $11.4 ($0.9)
===== ===== =====
INCOME TAXES
UI $14.1 $16.2 ($2.1)
Nuclear 2.6 2.3 0.3
URI 0.5 1.3 (0.8)
---- ---- -----
Total $17.2 $19.8 ($2.6)
===== ===== =====
NET INCOME
UI $17.3 $19.9 ($2.6)
Nuclear 3.8 3.4 0.4
URI 0.7 1.6 (0.9)
---- ---- -----
Total $21.8 $24.9 ($3.1)
===== ===== =====



- 28 -


THE UNITED ILLUMINATING COMPANY RESULTS OF OPERATIONS: THIRD QUARTER 2002 VS.
- ------------------------------------------------------------------------------
THIRD QUARTER 2001
- ------------------



- -------------------------------------------------------------------------------------------------
2002 more (less) than 2001
--------------------------
Quarter Ended Quarter Ended
Sept. 30, 2002 Sept. 30, 2001 Amount Percent
- -------------------------------------------------------------------------------------------------

EPS FROM OPERATIONS (BASIC)
UI excluding the Nuclear Division $1.21 $1.41 $(0.20) (14)%
Nuclear Division 0.27 0.24 0.03 13%
---- ---- ----
Total UI EPS from Operations $1.48 $1.65 $(0.17) (10)%
==== ==== =====
RETAIL SALES (MILLIONS OF KWH) 1,668 1,588 80 5%
- -------------------------------------------------------------------------------------------------


UI EXCLUDING THE NUCLEAR DIVISION

Excluding the Nuclear Division, UI's net income was $17.3 million, or $1.21 per
share, in the third quarter of 2002, compared to $19.9 million, or $1.41 per
share, in the third quarter of 2001. The $0.20 per share decrease was due
primarily to higher operation and maintenance (O&M) expense and lower other
income, partly offset by an increase in revenues, after the effects of earnings
sharing. A decrease in accelerated amortization expense was offset by an
increase in sharing amortization in the Distribution Division. Overall,
amortization of regulatory assets increased by $3.2 million.

The details below explain the variances for all of UI, excluding the Nuclear
Division. It should be noted that changes to income and expense items in the
Distribution Division have an immediate net income impact, while changes to
those items in "other unbundled utility divisions" do not. Those divisions
include the Competitive Transition Assessment (CTA) and the Systems Benefits
Charge (SBC), both of which earned an 11.5% return on the equity portion of
their respective rate bases up until the effective date of the Rate Case
decision and 10.45% thereafter. That return was achieved either by accruing
additional amortization expenses, or by deferring such expenses, as required.
Amortization expenses in those divisions impact earnings indirectly through
changes to rate base. The "other unbundled utility divisions" also include the
Generation Services Charge (GSC), the Conservation and Load Management Program
Assessment (C&LM), and the Renewable Energy Investment Fund Charge (REI). Those
are pass-through charges. Except for a small management fee earned in the C&LM
division, expenses are either accrued or deferred such that there is no net
income associated with those pass-through charge divisions.



- 29 -


Overall, UI's total revenue increased by $9.9 million, from $195.5 million in
the third quarter of 2001 to $205.4 million in the third quarter of 2002.
Details of this change in revenue are as follows:

- --------------------------------------------------------------------------------
From
In Millions Operations
- --------------------------------------------------------------------------------
Revenue Increase/(Decrease)
- --------------------------------------------------------------------------------
RETAIL REVENUE FROM DISTRIBUTION DIVISION:
Estimate of operating Distribution Division component of
"weather corrected" retail sales growth, 0.7% $0.6
Estimate of operating Distribution Division component of
weather effect on retail sales, 4.3% 3.5
Impact of mix of sales on average price and other 3.6
Sharing (5.4)
---
TOTAL RETAIL REVENUE FROM DISTRIBUTION DIVISION 2.3
RETAIL REVENUE FROM OTHER UTILITY DIVISIONS 5.8
---
TOTAL UI RETAIL REVENUE 8.1

OTHER OPERATING REVENUE INCREASE (DECREASE)
NEPOOL transmission revenues 0.7
Other 0.4
---
TOTAL UI OTHER OPERATING REVENUES 1.1

UI WHOLESALE PASS-THROUGH REVENUE 0.7
---

TOTAL UI REVENUES $9.9
===
- --------------------------------------------------------------------------------

Retail fuel and energy expense increased by $0.6 million, from $71.8 million in
the third quarter of 2001 to $72.4 million in the third quarter of 2002. UI has
received, and expects to receive through 2003, electricity to satisfy its
standard offer retail customer service requirements through fixed-price
purchased power agreements. These costs are recovered through the GSC portion of
UI's unbundled retail customer rates. It should be noted that a small number of
customers have selected alternate suppliers to provide generation services, but
this has no effect on UI's financial results. UI's wholesale energy expense
increased by $0.7 million, but these costs are recovered from customers through
the CTA.

UI's O&M expenses increased by $9.3 million, from $40.4 million in the third
quarter of 2001 to $49.7 million in the third quarter of 2002. The principal
components of these expense changes included:

- --------------------------------------------------------------------------------
Increase/
In Millions (Decrease)
- --------------------------------------------------------------------------------
Operating Distribution Division:
- --------------------------------------------------------------------------------
Net pension expense and Post Employment Benefits (Note A) $1.5
Environmental remediation 3.2
NEPOOL transmission expense 0.5
Severance costs (0.5)
Other 2.4
---
TOTAL OPERATING DISTRIBUTION DIVISION $7.1
O&M AND CAPACITY FROM OTHER UTILITY DIVISIONS 2.2
---
TOTAL O&M EXPENSE $9.3
===
- --------------------------------------------------------------------------------

Note A: The increase in pension expense reflects the lower returns being
generated since approximately the beginning of 2000 by the equity
investments held by the UI pension plan, a portion of which must be
recognized


- 30 -


immediately with the remainder deferred and amortized over time.
These returns, when combined with the lower market value of the
assets in the pension fund and the increase in projected liabilities
caused by lower discount rates, may require increased cash
contributions to the pension fund in the future.

Amortization of regulatory assets, as booked, increased by $3.2 million in the
third quarter of 2002 compared to the third quarter of 2001. The principal
components of these changes were:

- --------------------------------------------------------------------------------
Increase (Decrease) In Millions As Booked After-tax
- --------------------------------------------------------------------------------
AMORTIZATION OF REGULATORY ASSETS:
Accelerated amortization in Distribution Division $(3.6) $(3.1)
Sharing amortization in Distribution Division 3.6 3.0
Amortization in CTA and SBC 3.2 1.8
--- ---
TOTAL AMORTIZATION OF REGULATORY ASSETS $3.2 $1.7
==== ====
- --------------------------------------------------------------------------------

Other pre-tax income decreased by $0.8 million in the third quarter of 2002
compared to the third quarter of 2001, due primarily to reductions in interest
income and earnings on supplemental retirement plan investments.

NUCLEAR DIVISION

The Nuclear Division contributed net income of $3.8 million, or $0.27 per share,
in the third quarter of 2002, compared to $3.4 million, or $0.24 per share, in
the third quarter of 2001. The increase of $0.4 million, or $0.03 per share, was
due to lower operation and maintenance expense at the Seabrook nuclear
generating unit. The unit operated at 100% availability in both quarters.
Wholesale sales margin (revenues less energy expense) was about the same in both
quarters.

UNITED RESOURCES, INC. RESULTS OF OPERATIONS: THIRD QUARTER 2002 VS.
- --------------------------------------------------------------------
THIRD QUARTER 2001
- ------------------



- --------------------------------------------------------------------------------------------------------
2002 more (less) than 2001
---------------------------
Quarter Ended Quarter Ended
Sept. 30, 2002 Sept. 30, 2001 Amount Percent
- --------------------------------------------------------------------------------------------------------

EPS FROM OPERATIONS (BASIC)
Operating Businesses
American Payment Systems, Inc. (APS) $(0.01) $0.00 $(0.01) - -
Xcelecom, Inc. (Xcelecom) 0.08 0.16 (0.08) (50)%
---- ---- ----
SUBTOTAL OPERATING BUSINESSES 0.07 0.16 (0.09) (56)%
Passive Investments
United Bridgeport Energy, Inc. (UBE) 0.07 0.11 (0.04) (36)%
United Capital Investments, Inc. (UCI) (0.02) (0.08) 0.06 - -
---- ---- ----
SUBTOTAL PASSIVE INVESTMENTS 0.05 0.03 0.02 67%

URI HEADQUARTERS (NOTE A) (0.07) (0.07) 0.00 - -
---- ---- ----

TOTAL NON-UTILITY EPS FROM OPERATIONS $0.05 $0.12 $(0.07) (58)%
==== ==== ====
- --------------------------------------------------------------------------------------------------------


Note A: Includes interest charges on intercompany debt and strategic and
administrative costs of the non-utility holding company.

Overall, the consolidated non-utility businesses operating under the parent,
URI, earned approximately $0.7 million, or $0.05 per share, in the third quarter
of 2002 compared to income of about $1.6 million, or $0.12 per share, in the
third quarter of 2001. Operating revenue for the URI businesses decreased by
$2.3 million, or 2%, from $103.7


- 31 -


million in the third quarter of 2001 to $101.4 million in the third quarter of
2002. Expenses for the URI businesses, including gains or losses on passive
investments but excluding income taxes, decreased by $0.6 million, and income
taxes decreased by $0.8 million.

The results of each of the subsidiaries of URI for the third quarters of 2002
and 2001, as presented below, reflect the allocation of debt costs from the
parent based on a capital structure, including an equity component, and an
interest rate deemed appropriate for that type of business. The targeted capital
structures for each of URI's subsidiaries are: 100% equity for APS, UCI and
Xcelecom, and 30% equity and 70% debt for UBE. URI absorbs interest charges on
the equity portion of its investments in its subsidiaries to the extent those
investments are financed with debt. URI may incur other expenses necessary to
manage its investments from time to time.

The following is a detailed explanation of the 2002-2001 variances by URI
subsidiary.

URI OPERATING BUSINESSES

AMERICAN PAYMENT SYSTEMS, INC.

APS lost $0.01 per share in the third quarter of 2002, compared to breakeven in
the third quarter of 2001. Earnings from operations from the core contracted
payment business improved by about $0.03 per share. The number of authorized
transactions processed by APS's core business increased by 12.4%, and gross
margin on those transactions increased by 14.4%. Start-up and infrastructure
expenses in APS's other strategic initiatives, which are expected to produce
future growth, reduced earnings by $0.04 per share compared to 2001.

XCELECOM, INC.

Xcelecom earned $0.08 per share in the third quarter of 2002, compared to
earnings of $0.16 per share in the third quarter of 2001. As with other
companies in the construction and systems integration industries, there is a
very evident decline in economic activity in Xcelecom's markets. Xcelecom is
experiencing customer postponements and cancellations of projects, a reduction
in new project orders, a continuing slowdown in spending for technology by its
customers, and increased competition for fewer jobs, resulting in both lower
demand and lower margins. Xcelecom is continuing to be selective in bidding for
jobs. Additionally, the completion of several large, non-recurring contracts in
2001 that have not been replaced has contributed to the earnings decline. The
negative earnings impact of these items, about $0.17 per share, was partly
offset by an increase of about $0.03 per share from acquisitions made since the
third quarter of 2001, and an increase of $0.04 per share due to the change in
accounting for goodwill mandated by Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets." The negative impact was also
partly offset by the conversion, in the third quarter of 2002, to a 100% equity
capital structure from the 65% equity and 35% debt structure used previously.
This conversion contributed $0.02 per share in the third quarter of 2002. That
earnings improvement was offset by an earnings decrease in URI Headquarters,
which received less interest income from Xcelecom. For a further explanation of
the debt conversion, see the "Looking Forward" section.

URI PASSIVE INVESTMENTS

UNITED BRIDGEPORT ENERGY, INC.

UBE owns a 33 1/3% interest in Bridgeport Energy, LLC (BE). UBE earned $0.07 per
share in the third quarter of 2002, compared to earnings of $0.11 per share in
the third quarter of 2001. Of the $0.04 per share decrease, $0.03 per share was
due to higher expenses, including some preliminary work done for an overhaul on
the second turbine, scheduled for October through November 2002, and $0.02 per
share was due to lower Installed Capability (ICAP) revenues. These were partly
offset by lower interest charges that added $0.01 per share to earnings. An
overhaul on the second combustion turbine is planned for October through
November 2002, as was done on the first turbine in the April 2002 outage. In
2001, UBE had an agreement with Duke Energy Trading and Marketing that
effectively eliminated UBE's operating and margin risks. There has been no such
agreement in 2002, and UBE has recorded its share of BE's income in the third
quarter of 2002. See the "Looking Forward" section for information on UBE's ICAP
revenues.


- 32 -


UNITED CAPITAL INVESTMENTS, INC.

UCI lost $0.02 per share in the third quarter of 2002, compared to a loss of
$0.08 per share in the third quarter of 2001. The variance was due to reduced
losses on passive investments.

URI HEADQUARTERS

URI Headquarters incurred an after-tax loss of $1.0 million, or $0.07 per share,
in the third quarter of 2002, compared to a loss of $1.0 million, or $0.07 per
share, in the third quarter of 2001. Some unallocated interest charges and
strategic and administrative costs for the subsidiaries of URI are retained by
the parent URI.

UIL HOLDINGS CORPORATION RESULTS OF OPERATIONS: FIRST NINE MONTHS 2002
- -----------------------------------------------------------------------
ACTUAL EARNINGS VS. PREVIOUS ESTIMATE
- -------------------------------------

Net Income for UIL Holdings was $40.5 million in the first nine months of 2002,
or $2.85 per share. This result was within the estimated ranges for the first
three quarters as reported in UIL Holdings' second quarter earnings release
dated July 22, 2002. Earnings for UI, excluding the Nuclear Division, were $40.1
million, or $2.82 per share. This result was in the middle of the estimated
range for the first nine months of 2002. However, it reflected higher than
anticipated retail kilowatt-hour sales, due primarily to weather factors, higher
average prices, likely also due to weather induced kilowatt-hour usage factors,
and lower expenses, some of which were due to timing. These improvements were
mostly offset by earnings sharing, recorded in the third quarter for the
year-to-date results. Earnings above 11.5% on an annual basis, were shared,
according to the previous multi-year rate plan, one-third for customer bill
reductions, which lowered recorded revenue, and one-third to accelerate
amortization of stranded costs, with one-third retained by UI as earnings.
Results for the Nuclear Division and the non-utility businesses were also within
their respective anticipated ranges.

FIRST NINE MONTHS 2002 VS. FIRST NINE MONTHS 2001
- -------------------------------------------------

UIL HOLDINGS CORPORATION RESULTS OF OPERATIONS: FIRST NINE MONTHS 2002 VS.
- ---------------------------------------------------------------------------
FIRST NINE MONTHS 2001
- ----------------------

UIL Holdings' earnings for the first nine months of 2002 decreased by $9.1
million, or $0.67 per share, compared to the first nine months of 2001 earnings
of $49.6 million, or $3.52 per share. The decrease in earnings was due to a
$0.54 per share decrease in non-utility businesses under URI, and a $0.17 per
share decrease at UI, excluding the Nuclear Division, offset slightly by an
increase in Nuclear Division earnings.

The table below represents a comparison of UIL Holdings' Net Income and Earnings
Per Share (EPS) for the first nine months of 2002 and the first nine months of
2001.



- -----------------------------------------------------------------------------------------------------
2002 more (less) than 2001
---------------------------
Nine Months Nine Months
Ended Ended
Sept. 30, 2002 Sept. 30, 2001 Amount Percent
- -----------------------------------------------------------------------------------------------------

NET INCOME (IN MILLIONS EXCEPT PERCENTS)
UI $40.1 $42.0 $(1.9) (5)%
Nuclear Division 7.4 6.8 0.6 9%
United Resources (Non-Utility) (7.0) 0.8 (7.8) - -
----- ----- -----
TOTAL NET INCOME FROM OPERATIONS $40.5 $49.6 $(9.1) (18)%

EPS FROM OPERATIONS
UI $2.82 $2.99 $(0.17) (6)%
Nuclear Division 0.52 0.48 0.04 8%
United Resources (Non-Utility) (0.49) 0.05 (0.54) - -
----- ---- -----
TOTAL EPS - BASIC $2.85 $3.52 $(0.67) (19)%
TOTAL EPS - DILUTED (NOTE A) $2.83 $3.51 $(0.68) (19)%
==== ==== ====
- -----------------------------------------------------------------------------------------------------


Note A: Reflecting the effect of unexercised dilutive stock options.



- 33 -




The following table is a line-by-line breakdown of UIL Holdings' Consolidated
Statement of Income by subsidiary, including comparisons between the first nine
months of 2002 and the first nine months of 2001. Significant variances are
explained in the individual subsidiary sections that follow.



NINE MONTHS NINE MONTHS 2002 MORE
ENDED ENDED (LESS)
(IN MILLIONS) SEPT. 30, 2002 SEPT. 30, 2001 THAN 2001
- ------------- -------------- -------------- ---------

OPERATING REVENUE
UI from operations, before sharing $529.0 $514.3 $14.7
UI sharing from operations (6.6) (1.2) (5.4)
Nuclear 37.8 35.7 2.1
URI 303.5 269.5 34.0
----- ------ ----
Total $863.7 $818.3 $45.4
====== ====== =====
FUEL AND ENERGY EXPENSE
UI $198.9 $206.1 ($7.2)
Nuclear 5.2 5.1 0.1
----- ----- ----
Total $204.1 $211.2 ($7.1)
====== ====== =====
OPERATION AND MAINTENANCE EXPENSE
UI $131.1 $114.4 $16.7
Nuclear 16.8 16.0 0.8
URI 298.5 255.1 43.4
----- ------ ----
Total $446.4 $385.5 $60.9
====== ====== =====
DEPRECIATION AND AMORTIZATION
UI $21.7 $20.7 $1.0
Nuclear 1.1 1.1 0.0
URI 4.3 3.5 0.8
---- ---- ----
Subtotal depreciation 27.1 25.3 1.8
Amortization of regulatory assets (UI) 41.8 40.1 1.7
Amortization URI 1.4 2.5 (1.1)
---- ---- ----
Total depreciation and amortization $70.3 $67.9 $2.4
===== ===== ====
TAXES - OTHER THAN INCOME TAXES
UI - State gross earnings tax $21.5 $20.4 $1.1
UI - other 12.4 12.0 0.4
Nuclear - other 0.9 0.9 0.0
URI - other 1.7 1.2 0.5
---- ---- ----
Total $36.5 $34.5 $2.0
===== ===== ====
OTHER INCOME AND DEDUCTIONS
UI $2.2 $4.3 ($2.1)
Nuclear 0.0 0.2 (0.2)
URI (3.6) 1.2 (4.8)
----- ---- -----
Total ($1.4) $5.7 ($7.1)
===== ==== =====
INTEREST CHARGES
UI $27.2 $28.4 ($1.2)
UI - Interest on Seabrook obligation bonds owned by UI (4.6) (4.8) 0.2
UI - Amortization: debt expense, redemption premiums 1.5 1.6 (0.1)
Nuclear 1.3 1.5 (0.2)
URI 5.7 6.5 (0.8)
---- ----- -----
Total $31.1 $33.2 ($2.1)
===== ===== =====
INCOME TAXES
UI $33.0 $36.5 ($3.5)
Nuclear 5.1 4.5 0.6
URI (4.7) 1.1 (5.8)
----- ---- -----
Total $33.4 $42.1 ($8.7)
===== ===== =====
NET INCOME
UI $40.1 $42.0 ($1.9)
Nuclear 7.4 6.8 0.6
URI (7.0) 0.8 (7.8)
----- ---- -----
Total $40.5 $49.6 ($9.1)
===== ===== =====





- 34 -




THE UNITED ILLUMINATING COMPANY RESULTS OF OPERATIONS: FIRST NINE MONTHS 2002
- ------------------------------------------------------------------------------
VS. FIRST NINE MONTHS 2001
- --------------------------



- -----------------------------------------------------------------------------------------------
2002 more (less) than 2001
----------------------------
Nine Months Nine Months
Ended Ended
Sept. 30, 2002 Sept. 30, 2001 Amount Percent
- -----------------------------------------------------------------------------------------------

EPS FROM OPERATIONS (BASIC)
UI excluding Nuclear Division $2.82 $2.99 $(0.17) (6)%
Nuclear Division 0.52 0.48 0.04 8%
---- ---- ----
Total UI EPS from operations $3.34 $3.47 $(0.13) (4)%
==== ==== ======
RETAIL SALES (MILLIONS OF KWH) 4,376 4,368 8 0%
- -----------------------------------------------------------------------------------------------


UI EXCLUDING THE NUCLEAR DIVISION

Excluding the Nuclear Division, UI's net income was $40.1 million, or $2.82 per
share, in the first nine months of 2002, compared to $42.0 million, or $2.99 per
share, in the first nine months of 2001. The $0.17 per share decrease was due
primarily to higher O&M expense and lower other income, partly offset by an
increase in revenues, after the effects of earnings sharing. A decrease in
accelerated amortization expense was partly offset by an increase in sharing
amortization.

The details below explain the variances for all of UI, excluding the Nuclear
Division. It should be noted that changes to income and expense items in the
Distribution Division have an immediate net income impact, while changes to
those items in "other unbundled utility divisions" do not. Those divisions
include the CTA and the SBC, both of which earned an 11.5% return on the equity
portion of their respective rate bases up until the effective date of the Rate
Case decision and 10.45% thereafter. That return was achieved either by accruing
additional amortization expenses, or by deferring such expenses, as required.
Amortization expenses in those divisions impact earnings indirectly through
changes to rate base. The "other unbundled utility divisions" also include the
GSC, the C&LM, and the REI. Those are pass-through charges. Except for a small
management fee earned in the C&LM division, expenses are either accrued or
deferred such that there is no net income associated with those pass-through
charge divisions.




- 35 -



Overall, UI's total revenue increased by $9.3 million, from $513.1 million in
the first nine months of 2001 to $522.4 million in the first nine months of
2002. Details of this change in revenue are as follows:

- --------------------------------------------------------------------------------
From
In Millions Operations
- --------------------------------------------------------------------------------
Revenue Increase/(Decrease)
- --------------------------------------------------------------------------------
REVENUE FROM DISTRIBUTION DIVISION:
Estimate of operating Distribution Division component of
"weather corrected" retail sales growth, 0.3% $1.1
Estimate of operating Distribution Division component of
weather effect on retail sales, 0.7% 1.4
Impact of mix of sales on average price and other 5.0
Sharing (5.4)
---
TOTAL RETAIL REVENUE FROM DISTRIBUTION DIVISION 2.1
RETAIL REVENUE FROM OTHER UTILITY DIVISIONS (NOTE A) 1.9
---
TOTAL UI RETAIL REVENUE 4.0
OTHER OPERATING REVENUE INCREASE (DECREASE)
NEPOOL transmission revenues 3.1
Other (0.1)
---
TOTAL UI OTHER OPERATING REVENUES 3.0

UI WHOLESALE PASS-THROUGH REVENUE 2.3
---

TOTAL UI REVENUES $9.3
===
- --------------------------------------------------------------------------------

Note A: Includes a 2.8% reduction in electricity sales and a corresponding $2.4
million revenue reduction resulting from the resolution of a station
service dispute with a generating plant owner.

Retail fuel and energy expense decreased by $8.9 million in the first nine
months of 2002, compared to the first nine months of 2001. UI has received, and
expects to receive through 2003, electricity to satisfy its standard offer
retail customer service requirements through fixed-price purchased power
agreements. These costs are recovered through the GSC portion of UI's unbundled
retail customer rates. It should be noted that a small number of customers have
selected alternate suppliers to provide generation services, but this has no
effect on UI's financial results. UI's wholesale energy expense increased by
$1.7 million, but these costs are recovered from customers through the CTA.

UI's O&M expenses increased by $16.7 million, from $114.4 million in the first
nine months of 2001 to $131.1 million in the first nine months of 2002. The
principal components of these expense changes included:

- --------------------------------------------------------------------------------
Increase/
In Millions (Decrease)
- --------------------------------------------------------------------------------
Operating Distribution Division:
- --------------------------------------------------------------------------------
Net pension expense and post retirement benefits (Note A) $5.1
Environmental remediation 3.2
NEPOOL transmission expense 2.2
Severance costs (2.4)
Other 5.6
---
TOTAL OPERATING DISTRIBUTION DIVISION $13.7
O&M AND CAPACITY FROM OTHER UTILITY DIVISIONS 3.0
---
TOTAL O&M EXPENSE $16.7
====
- --------------------------------------------------------------------------------



- 36 -


Note A: The increase in pension expense reflects the lower returns being
generated since approximately the beginning of 2000 by the equity
investments held by the UI pension plan, a portion of which must be
recognized immediately with the remainder deferred and amortized
over time. These returns, when combined with the lower market value
of the assets in the pension fund and the increase in projected
liabilities caused by lower discount rates, may require increased
cash contributions to the pension fund in the future.

Amortization of regulatory assets, as booked, increased by $1.7 million in the
first nine months of 2002 compared to the first nine months of 2001. The
principal components of these changes were:

- --------------------------------------------------------------------------------
Increase (Decrease) In Millions As Booked After-tax
- --------------------------------------------------------------------------------
AMORTIZATION OF REGULATORY ASSETS:
- --------------------------------------------------------------------------------
Accelerated amortization in Distribution Division $(10.8) $(9.4)
Sharing amortization in Distribution Division 3.6 3.0
Amortization in CTA and SBC 8.9 5.1
--- ---
TOTAL AMORTIZATION OF REGULATORY ASSETS $1.7 $(1.3)
=== ===
- --------------------------------------------------------------------------------

Other pre-tax income decreased by $2.1 million in the first nine months of 2002
compared to the first nine months of 2001, due primarily to reductions in
interest income and earnings on supplemental retirement plan investments.

NUCLEAR DIVISION

The Nuclear Division contributed net income of $7.4 million, or $0.52 per share,
in the first nine months of 2002 compared to $6.8 million, or $0.48 per share,
in the first nine months of 2001. Outages of about equal duration at the
Seabrook nuclear generating unit, a refueling outage in the third quarter of
2002 and an outage extension in the first quarter of 2001, largely offset one
another. The unit had slightly better availability in the first nine months of
2002, resulting in a margin improvement of about $2.0 million. Operation and
maintenance expense increased by about $0.8 million as a result primarily of the
refueling outage, and income tax expense increased by $0.6 million.


UNITED RESOURCES, INC. RESULTS OF OPERATIONS: FIRST NINE MONTHS 2002 VS.
- ------------------------------------------------------------------------
FIRST NINE MONTHS 2001
- ----------------------



- ------------------------------------------------------------------------------------------------------
2002 more (less) than 2001
--------------------------
Nine Months Nine Months
Ended Ended
Sept. 30, 2002 Sept. 30, 2001 Amount Percent
- ------------------------------------------------------------------------------------------------------

EPS FROM OPERATIONS (BASIC)
Operating Businesses
American Payment Systems, Inc. (APS) $(0.03) $0.00 $(0.03) - -
Xcelecom, Inc. (Xcelecom) 0.03 0.29 (0.26) (90)%
---- ---- ----
SUBTOTAL OPERATING BUSINESSES 0.00 0.29 (0.29) (100)%
Passive Investments
United Bridgeport Energy, Inc. (UBE) (0.02) 0.16 (0.18) (113)%
United Capital Investments, Inc. (UCI) (0.23) (0.21) (0.02) - -
---- ---- ------
SUBTOTAL PASSIVE INVESTMENTS (0.25) (0.05) (0.20) - -

URI HEADQUARTERS (NOTE A) (0.24) (0.19) (0.05) - -
---- ---- ----

TOTAL NON-UTILITY EPS FROM OPERATIONS $(0.49) $0.05 $(0.54) - -
==== ==== ====
- ------------------------------------------------------------------------------------------------------




- 37 -


Note A: Includes interest charges on intercompany debt and strategic and
administrative costs of the non-utility holding company.

Overall, the consolidated non-utility businesses operating under the parent,
URI, lost approximately $7.0 million, or $0.49 per share, in the first nine
months of 2002, compared to earnings of about $0.8 million, or $0.05 per share,
in the first nine months of 2001. Operating revenue for the URI businesses
increased by $34.0 million, or 13%, mainly due to business acquisitions, from
$269.5 million in the first nine months of 2001 to $303.5 million in the first
nine months of 2002. Expenses for the URI businesses, including losses on
passive investments but excluding income taxes, increased by $47.6 million, and
income taxes decreased by $5.8 million.

The results of each of the subsidiaries of URI for the first nine months of 2002
and 2001, as presented below, reflect the allocation of debt costs from the
parent based on a capital structure, including an equity component, and an
interest rate deemed appropriate for that type of business. The targeted capital
structures for each of URI's subsidiaries are: 100% equity for APS and UCI, 65%
equity and 35% debt for Xcelecom for all periods prior to the second quarter of
2002 and 100% equity beginning in the second quarter of 2002, and 30% equity and
70% debt for UBE. See the Xcelecom section for an explanation on the change to
Xcelecom's capital structure. URI absorbs interest charges on the equity portion
of its investments in its subsidiaries to the extent those investments are
financed with debt. URI may incur other expenses necessary to manage its
investments from time to time.

The following is a detailed explanation of the 2002-2001 variances by URI
subsidiary.

URI OPERATING BUSINESSES

AMERICAN PAYMENT SYSTEMS, INC.

APS lost $0.03 per share in the first nine months of 2002, compared to breakeven
in the first nine months of 2001. Earnings from operations from the core
contracted payment business improved by about $0.09 per share. The number of
authorized transactions processed by APS's core business increased by 14.7%, and
gross margin on those transactions increased by 13.5%. Start-up and
infrastructure expenses in APS's other strategic initiatives, which are expected
to produce future growth, reduced earnings by $0.12 per share compared to 2001.

XCELECOM, INC.

Xcelecom earned $0.03 per share in the first nine months of 2002, compared to
earnings of $0.29 per share in the first nine months of 2001. Higher loss
reserve charges relating to projects at several Xcelecom subsidiaries reduced
earnings by about $0.05 per share. Also, as with other companies in the
construction and systems integration industries, there is a very evident decline
in economic activity in Xcelecom's markets. Xcelecom is experiencing customer
postponements and cancellations of projects, a reduction in new project orders,
a continuing slowdown in spending for technology by its customers, and increased
competition for fewer jobs, resulting in both lower demand and lower margins.
Additionally, the completion of several large, non-recurring contracts in 2001
that have not been replaced has contributed to the earnings decline. The
negative earnings impact of these items, about $0.39 per share, was partly
offset by an increase of about $0.04 per share from acquisitions made since the
third quarter of 2001, and an increase of $0.10 per share due to the change in
accounting for goodwill mandated by Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets." The negative impact was also
partly offset by the conversion, in the second quarter of 2002, to a 100% equity
capital structure from the 65% equity and 35% debt structure used previously.
This conversion contributed $0.04 per share in the first nine months of 2002.
That earnings improvement was offset by an earnings decrease in URI
Headquarters, which received less interest income from Xcelecom. For a further
explanation of the debt conversion, see the "Looking Forward" section.



- 38 -


URI PASSIVE INVESTMENTS

UNITED BRIDGEPORT ENERGY, INC.

UBE owns a 33 1/3% interest in Bridgeport Energy, LLC (BE). UBE lost $0.02 per
share in the first nine months of 2002, compared to earnings of $0.16 per share
in the first nine months of 2001. Of the $0.18 per share decrease, $0.02 was due
to lower energy sales revenues, $0.04 was due to lower ICAP revenues, $0.10 per
share was due to costs associated with a 2002 overhaul, and $0.13 was due to
higher operating expenses, including some preliminary work done for an overhaul
on the second turbine, scheduled for October through November 2002. The overhaul
on the first turbine began March 16 and ended April 17, 2002. Offsetting these
negatives was an improvement of $0.06 per share due to lower interest charges,
and a non-recurring benefit of $0.05 per share due to an insurance credit. In
2001, UBE had an agreement with Duke Energy Trading and Marketing that
effectively eliminated UBE's operating and margin risks. There has been no such
agreement in 2002, and UBE has recorded its share of BE's income in the third
quarter of 2002 and the nine months ended September 30, 2002. See the "Looking
Forward" section for information on UBE's ICAP revenues.

UNITED CAPITAL INVESTMENTS, INC.

UCI lost $0.23 per share in the first nine months of 2002, compared to a loss of
$0.21 per share in the first nine months of 2001. An impairment of UCI's
investment in Gemini Networks, Inc., (Gemini) a broadband fiber-optic business,
caused a $0.16 per share loss. That write-off reflected the generally depressed
economic conditions in the telecommunications industry that worsened in the
second quarter of 2002 and an associated inability of Gemini to access capital
markets to continue its network build-out. The remaining variance was due to
lower losses on other passive investments.

URI HEADQUARTERS

URI Headquarters incurred an after-tax loss of $3.4 million, or $0.24 per share,
in the first nine months of 2002, compared to a loss of $2.6 million, or $0.19
per share, in the first nine months of 2001. The results of each of the
subsidiaries of URI, as presented above, reflect interest expense on allocated
debt from URI, based on a capital structure, including an equity component, and
an interest rate deemed appropriate for that type of business. Some unallocated
interest charges and strategic and administrative costs for the subsidiaries of
URI are retained by the parent URI. The increase in losses at URI Headquarters
reflects additional administrative expenses incurred for managing investments.
Lower interest income from the reclassification of Xcelecom's intercompany debt
to equity, beginning in the second quarter of 2002, was offset in the nine-month
period by lower interest charges from reduced interest rates.

LOOKING FORWARD

CERTAIN STATEMENTS CONTAINED HEREIN, REGARDING MATTERS THAT ARE NOT HISTORICAL
FACTS, ARE FORWARD-LOOKING STATEMENTS (AS DEFINED IN THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995). SUCH FORWARD-LOOKING STATEMENTS INCLUDE RISKS
AND UNCERTAINTIES; CONSEQUENTLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
EXPRESSED OR IMPLIED THEREBY, DUE TO IMPORTANT FACTORS INCLUDING, BUT NOT
LIMITED TO, GENERAL ECONOMIC CONDITIONS, LEGISLATIVE AND REGULATORY CHANGES,
DEMAND FOR ELECTRICITY AND OTHER PRODUCTS AND SERVICES, CHANGES IN ACCOUNTING
PRINCIPLES, POLICIES OR GUIDELINES, AND OTHER ECONOMIC, COMPETITIVE,
GOVERNMENTAL, AND TECHNOLOGICAL FACTORS AFFECTING THE OPERATIONS, MARKETS,
PRODUCTS, SERVICES AND PRICES OF THE SUBSIDIARIES OF UIL HOLDINGS CORPORATION
(UIL HOLDINGS). FORWARD-LOOKING STATEMENTS INCLUDED HEREIN SPEAK ONLY AS OF THE
DATE HEREOF, AND UIL HOLDINGS UNDERTAKES NO OBLIGATION TO REVISE OR UPDATE SUCH
STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO
REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS OR CIRCUMSTANCES.



- 39 -


A LOOK AT 2002
- --------------

UIL HOLDINGS' CONSOLIDATED EARNINGS ESTIMATES FOR 2002

As a result of better than expected performance from UI in the third quarter of
2002, UIL Holdings is increasing its earnings guidance for 2002 to $2.95-$3.05
per share from the previously stated guidance of $2.60-$2.85 per share. See
below for further details.


THE UNITED ILLUMINATING COMPANY (UI)

UI EARNINGS ESTIMATES FOR 2002

Overall, UI, including the Nuclear Division, is expected to contribute
$3.60-$3.70 per share to UIL Holdings' earnings per share in 2002, including
$0.60-$0.65 per share for the Nuclear Division. Excluding the Nuclear Division,
UI is expected to earn $3.00-$3.10 per share. This estimate reflects actual
results through the first nine months of 2002.

NUCLEAR DIVISION EARNINGS ESTIMATES FOR 2002

The Nuclear Division is expected to contribute to earnings in the lower end of
the previously stated range estimate of $0.60-$0.65 per share through October
31, 2002. The Seabrook nuclear unit, which was the only asset in the Nuclear
Division, was sold on November 1, 2002. At the time of sale there was no direct
contemporaneous impact on financial results as a result of the sale. UI will,
however, receive no future operating earnings from the Nuclear Division after
October 31, 2002.


UNITED RESOURCES, INC. (URI) EARNINGS ESTIMATES FOR 2002

UIL Holdings' non-utility businesses, under its parent wholly-owned subsidiary
URI, are expected to lose $0.60-$0.70 per share for UIL Holdings in 2002,
reflecting the poor performance of passive investments, higher loss reserve
charges relating to projects at certain Xcelecom subsidiaries that were recorded
in the first quarter of 2002, the economic downturn's impact on Xcelecom's
businesses, and some additional strategic expenses to enhance American Payment
Systems, Inc.'s future growth potential.


URI OPERATING BUSINESSES

AMERICAN PAYMENTS SYSTEMS, INC. (APS)

APS is expected to lose from $0.05-$0.10 per share for UIL Holdings in 2002. The
loss reflects the initial costs associated with the five-year contract signed in
August 2002 with Bell South. This new customer is expected to increase APS's
contracted transactions by 25%, and this contract is expected to be profitable
beginning in 2003. The expected results also reflect other strategic expenses
designed to produce future earnings enhancements in the non-contracted payment
and financial services segments of APS's business.

XCELECOM, INC.

Earnings for Xcelecom are expected to be approximately $0.05-$0.15 per share for
UIL Holdings in 2002. This estimate reflects the negative impact of the slowing
economy on the construction and systems integration industries, the completion
of several large, non-recurring contracts in 2001, and $0.16 per share in loss
reserve charges taken on a major project in the first quarter of 2002, partially
offset by a $0.15 per share increase compared to 2001, due to a reduction in the
amortization of goodwill from the implementation of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets."



- 40 -


Through the first quarter of 2002, Xcelecom was financed, as a subsidiary of
URI, at a target capital structure of 65% equity and 35% debt. In the second
quarter of 2002, all of Xcelecom's intercompany debt was converted to equity.
This conversion is expected to make Xcelecom financially stronger on a
stand-alone basis and improve the terms of any future acquisitions. The
conversion of Xcelecom's intercompany debt to equity beginning in the second
quarter of 2002 will have a $0.07 per share benefit to Xcelecom for the year
that will be absorbed at URI Headquarters, for no net change to UIL Holdings
results. These changes are incorporated in the 2002 earnings estimates for both
Xcelecom and URI Headquarters.

URI PASSIVE INVESTMENTS

Losses from URI's passive investments, including United Bridgeport Energy, Inc.
(UBE) and United Capital Investments, Inc. (UCI), and from URI Headquarters'
costs, are expected to be $0.65-$0.75 per share for UIL Holdings in 2002. URI
Headquarters' costs include interest expense on allocated debt from URI, based
on a capital structure, including an equity component, and an interest rate
deemed appropriate for that type of business. Some unallocated interest charges
and strategic and administrative costs for the subsidiaries of URI are retained
by the parent URI.

UNITED BRIDGEPORT ENERGY, INC.

URI's investment in United Bridgeport Energy, Inc. (UBE) is expected to lose up
to $0.10 per share in 2002, due to weak energy prices, costs associated with the
2002 overhauls, and increases in operating and maintenance expenses. UBE owns,
as a passive investor, 33 1/3% of a merchant wholesale electric generating
facility, Bridgeport Energy, LLC (BE), co-owned and operated by a unit of Duke
Energy and located in Bridgeport, Connecticut. There has been an ongoing dispute
between BE and one of its customers on an Installed Capability (ICAP) contract.
On November 5, 2002 an agreement in principle was reached between BE and its
ICAP customer to resolve the contract dispute. A final executed agreement is
expected to be completed by mid-November. That settlement will not affect the
2002 earnings range estimate for UBE. See the 2003 "Looking Forward" section for
more on the ICAP dispute and settlement.

UNITED CAPITAL INVESTMENTS, INC.

The estimated losses in 2002 from UCI's passive investments reflect the results
of the first nine months of 2002 and contemplate no net investment income for
the last three months of the year at UCI.



UIL QUARTERLY EARNINGS PATTERN FOR 2002
- ---------------------------------------

The 2002 quarterly earnings pattern for UIL Holdings is expected to be somewhat
different than the 2001 pattern. The timing of nuclear generating unit outages,
which occurred in the second quarter of 2002 and in the first quarter of 2001,
and an outage at Bridgeport Energy LLC's electric generating facility in the
first half of 2002, changed the earnings pattern, particularly in the second
quarter of 2002, from the second quarter of 2001. Additionally, as a result of
UI's September 26, 2002 Rate Case decision, and as a result of the scheduled
overhaul of the second turbine at Bridgeport Energy's facility, earnings are
expected to be significantly lower in the fourth quarter of 2002 than they were
in the fourth quarter of 2001.

Actual 2002 results may vary from estimates depending on factors that could
affect some or all of UIL Holdings' businesses to varying degrees. The factors
include the changes due to weather, economic conditions, sales mix, the ability
to control expenses, the ability to manage growth, the availability of and the
ability to execute acquisitions and the results of those acquisitions,
recoverability and possible impairment of goodwill, contract risks and
collectability of receivables, and unanticipated risks and events. These factors
can change from quarter to quarter.

UIL Holdings' current overall estimate of earnings per share from operations for
2002 is a range of $2.95-$3.05. The company earned $2.85 per share in the first
nine months of 2002, implying an estimated earnings range of $0.10-$0.20 per
share in the fourth quarter of the year. The estimates of quarterly results are
as follows:



- 41 -


Earnings per share from operations:

Estimated Actual Actual
Quarter 2002 Range* 2002 2001
------- ---------- ---- ----
1 $0.65-$0.70 $0.68 $0.67
2 $0.55-$0.65 $0.64 $1.08
3 $1.45-$1.60 $1.53 $1.77
4 $0.10-$0.20 $0.69
----
$4.21

* Quarterly high and low range estimates are not additive, that is, the sums of
the low and high range values should not be construed as representing any
estimate other than UIL Holdings' annual estimate of $2.95-$3.05 per share.


A LOOK AT 2003
- --------------

UIL HOLDINGS' CONSOLIDATED EARNINGS ESTIMATES FOR 2003

UIL Holdings is reducing its earnings guidance for 2003 to $2.45-$2.65 per
share, reflecting a reduction in expected ICAP revenues at UBE. The previous
estimate was $2.70-$2.95 per share.

THE UNITED ILLUMINATING COMPANY (UI)

UI EARNINGS ESTIMATES FOR 2003

If UI were to earn the 10.45% return on regulated utility common stock equity in
2003 allowed in the Rate Case decision, that level of earnings would generate
$2.45-$2.60 per share for UIL Holdings. Earning this level will be a challenge
for UI under the terms of the DPUC's Rate Case decision and the changes it will
require if the decision is not modified. Since any changes UI makes must balance
the interests of customers and UIL Holdings' shareowners, there is no assurance
that UI will achieve the new authorized return on equity.

UI has contracted with Virginia Electric and Power Company for the supply of all
of UI's retail customer standard offer service requirements through December 31,
2003, and for the supply of all of UI's special contract customer service
requirements through 2008, on a fixed-price basis. This arrangement is intended
to protect UI's retail customers and UIL Holdings' shareowners from market and
pricing volatility.

The only retail electricity sales volume fluctuations that directly impact UI's
net income when they occur are those that apply to the operating Distribution
Division component of rates. Thus, a 1% sales volume increase in retail
electricity sales in 2003 compared to 2002 would produce additional sales margin
of about $2.2 million ($2.1 million after gross earnings tax). However, retail
electric sales and Distribution Division revenues were significantly higher than
anticipated in 2002, because of weather factors that may or may not occur in
2003.

On November 1, 2002, an affiliate of FPL Group, Inc. purchased 88.2% of Seabrook
Station, including all of UI's ownership and leasehold interests in the plant.
UI will receive no operating earnings from Seabrook Station after October 31,
2002. In compliance with Connecticut's regulated electric utility industry
restructuring legislation, the net-of-tax gain from the sale, after termination
of the sale/leaseback agreement, that is in excess of the book value of the
plant, as set by the DPUC, based on its estimate of the market value of the
plant, must be used to reduce UI's stranded costs. As a result, there will be a
reduction of rate base for stranded cost recovery through the CTA beginning
November 1, 2002 and averaged into CTA earnings over the succeeding twelve
months. That rate base reduction is currently estimated to be about $45 million,
but the final amount will be subject to change, including true-up by the DPUC.
These two earnings reductions will be partly offset by a reduction of interest
charges associated with the termination of the sale/leaseback obligation.
Overall, earnings in 2003 are expected to be reduced by approximately $0.45 per
share compared to 2002 as a result of the sale.



- 42 -


UNITED RESOURCES, INC. (URI) EARNINGS ESTIMATES FOR 2003

Earnings from UIL Holdings' non-utility businesses, under the parent
wholly-owned subsidiary URI, are expected to range from losses of $0.05 per
share to earnings of $0.10 per share in 2003. That range is lower than the
previous range estimate, reflecting a reduction in expected ICAP revenues at
UBE. Overall, the new expected range is an improvement from the 2002 level, due
primarily to the absence in 2003 of costs that were incurred in 2002 in each of
URI's businesses. These costs are described in the following URI subsidiary
sections.


URI OPERATING BUSINESSES

AMERICAN PAYMENTS SYSTEMS, INC. (APS)

APS is expected to earn $0.15-$0.20 per share for UIL Holdings in 2003. This
improvement from the estimated 2002 losses of $0.05-$0.10 per share is due
primarily to the addition of a major new customer and to an anticipated
reduction of strategic expenses that were incurred in 2002 to grow future
earnings.

XCELECOM, INC.

Earnings for Xcelecom are expected to be approximately $0.20-$0.35 per share for
UIL Holdings in 2003. This improvement from the estimated 2002 earnings of
$0.05-$0.15 per share is due primarily to the absence of a $0.16 per share loss
reserve charge, taken in the first quarter of 2002, for a specific contract. As
with other companies in the construction and systems integration industries,
Xcelecom is experiencing customer postponements and cancellations of projects, a
reduction in new project orders, a continuing slowdown in spending for
technology by its customers, and increased competition for fewer jobs, resulting
in both lower demand and lower margins. Xcelecom is taking action to offset the
negative impact of these items by working to reduce operating and overhead
related costs. Generally, the economic activity of the construction markets in
which Xcelecom participates lags the general economy by six to eighteen months,
both in economic downturns and recoveries. A return to growth in Xcelecom's
primary markets is therefore likely to lag any general upturn in the economy,
and the timing of any recovery remains uncertain. The 2003 earnings estimate
assumes no material difference in economic conditions in Xcelecom's markets
between 2003 and 2002.

Xcelecom has no current plans for acquisitions, and the earnings estimate for
2003 reflects this strategy. However, Xcelecom will consider opportunities for
acquisitions if there is a significant potential to earn a premium return on its
investments, to the extent such investments are available.


URI PASSIVE INVESTMENTS

Losses from URI's passive investments, including United Bridgeport Energy, Inc.
(UBE) and United Capital Investments, Inc. (UCI), and from URI Headquarters'
costs, are expected to be $0.40-$0.45 per share for UIL Holdings in 2003. URI
Headquarters' costs include interest expense on allocated debt from URI, based
on a capital structure, including an equity component, and an interest rate
deemed appropriate for that type of business. Some unallocated interest charges
and strategic and administrative costs for the subsidiaries of URI are retained
by the parent URI.

UNITED BRIDGEPORT ENERGY, INC.

UBE has recorded its 33 1/3% portion of the operating results of Bridgeport
Energy, LLC (BE), including its Installed Capability (ICAP) revenues. A
significant portion of the ICAP revenues has been recorded under the



- 43 -


contract with a single ICAP customer that has been disputing its contract with
BE. That contract extended through April 2004.

On November 5, 2002 an agreement in principle was reached between BE and its
ICAP customer to resolve the contract dispute. A final executed agreement is
expected to be completed by mid-November. That settlement will recover, through
a cash payment, all amounts expected to be receivable under the original
contract through the end of December 2002, and a small amount for future
periods. This will produce a significant cash inflow to UBE of approximately
$10.5 million, will eliminate any uncertainty over ICAP revenues previously
recorded by UBE, and will eliminate the need to proceed with litigation. The
settlement will also eliminate any claims the ICAP customer has regarding the
contract in dispute. However, the settlement will also close out the current
contractual relationship with the ICAP customer, reducing current expectations
for ICAP revenue and UBE earnings in 2003 and 2004.

BE will continue to market ICAP in the open market, and UBE will share any
proceeds from that activity. The results will be subject to market conditions
for ICAP, and UBE believes that there are some opportunities to improve earnings
from ICAP sales under the new standard market design to be implemented in New
England in early 2003. However, due to the uncertainty, going forward,
surrounding the ICAP market and energy prices, UIL Holdings is reducing its
earnings estimates for UBE in 2003 by $0.25 per share. The new earnings estimate
for UBE for 2003 is a loss of $0.10-$0.15 per share, compared to previously
estimated earnings of $0.10-$0.15 per share. This estimate reflects essentially
breakeven operations at the project level. The estimated loss for UBE includes
UBE's financing costs.

UNITED CAPITAL INVESTMENTS, INC.

UCI is expected to break even in 2003, reflecting no net investment income or
losses. This is an improvement from the estimated losses in 2002, due
principally to the absence of the $0.16 per share impairment loss taken by UCI
in the second quarter of 2002.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

UIL Holdings believes that it has no material quantitative or qualitative
exposure to market risk associated with activities in derivative financial
instruments, other financial instruments or derivative commodity instruments.

ITEM 4. CONTROLS AND PROCEDURES.

UIL Holdings Corporation (UIL Holdings) maintains disclosure controls and
procedures that are designed to ensure that information required to be disclosed
in its periodic reports to the Securities and Exchange Commission (SEC) is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to UIL Holdings' management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure based closely on the definition of "disclosure controls and
procedures" in Rule 13a-14(c). In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Also, through United Capital Investments, Inc.
and United Bridgeport Energy, Inc., UIL Holdings has minority ownership
investments in certain other entities. As UIL Holdings does not control or
manage these entities, its disclosure controls and procedures with respect to
such entities are necessarily substantially more limited than those it maintains
with respect to its subsidiaries.

Within 90 days prior to the date of this report, UIL Holdings carried out an
evaluation, under the supervision and with the participation of its management,
including its Chief Executive Officer and its Chief Financial Officer, of the
effectiveness of the design and operation of UIL Holdings' disclosure controls
and procedures. Based on the foregoing, UIL Holdings' Chief Executive Officer
and Chief Financial Officer concluded that its disclosure controls and
procedures were effective.




- 44 -


There have been no significant changes in UIL Holdings' internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date UIL Holdings completed its evaluation.



- 45 -


PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits.



Exhibit
Table Item Exhibit
Number Number Description
---------- ------- -----------


(10) 10.7d Copy of Agreement and Supplemental Agreement, effective June 9,
2002, between The United Illuminating Company and Local 470-1,
Utility Workers of America, AFL-CIO, superseding Exhibits 10.7a,
10.7b and 10.7c.



(b) Reports on Form 8-K.

Item Financial
Reported Statements Date of Report
-------- ---------- --------------

7, 9 None September 12, 2002
5, 7, 9 None September 26, 2002




- 46 -




SIGNATURES

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 thereunto duly authorized.

UIL HOLDINGS CORPORATION




Date 11/12/2002 Signature /s/ Louis J. Paglia
--------------- -------------------------------
Louis J. Paglia
Executive Vice President
and Chief Financial Officer



- 47 -




I, NATHANIEL D. WOODSON, certify that:

1. I have reviewed this quarterly report on Form 10-Q of UIL Holdings
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.



Date 11/12/2002 /s/Nathaniel D. Woodson
-------------- ----------------------------------
Nathaniel D. Woodson
Chairman of the Board of Directors,
President and Chief Executive Officer




- 48 -



I, LOUIS J. PAGLIA, certify that:

1. I have reviewed this quarterly report on Form 10-Q of UIL Holdings
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.



Date 11/12/2002 /s/ Louis J. Paglia
-------------- --------------------------------
Louis J. Paglia
Executive Vice President
and Chief Financial Officer




- 49 -