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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, 2003

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
---- ----

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

YES X NO
---- ----

The number of shares outstanding of the issuer's only class of common stock, as
of October 31, 2003, was 14,465,480.



- 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, 2003 and 2002.....................3
Consolidated Statement of Comprehensive Income for the three
and nine months ended September 30, 2003 and 2002.................3
Consolidated Balance Sheet as of September 30, 2003
and December 31, 2002.............................................4
Consolidated Statement of Cash Flows for the three and
nine months ended September 30, 2003 and 2002.....................6

Notes to Consolidated Financial Statements.........................7
- Statement of Accounting Policies.............................7
- Capitalization...............................................9
- Rate-Related Regulatory Proceedings.........................10
- Short-term Credit Arrangements..............................13
- Income Taxes................................................14
- Supplementary Information...................................15
- Commitments and Contingencies...............................16
- Other Commitments and Contingencies......................16
- Connecticut Yankee Atomic Power Company...............16
- Hydro-Quebec..........................................17
- Environmental Concerns................................17
- Site Decontamination, Demolition and Remediation
Costs................................................17
- Claim of Enron Power Marketing, Inc...................18
- Cross-Sound Cable Company, LLC........................18
- American Payment Systems, Inc.........................19
- Segment Information.........................................20
- Goodwill and Other Intangible Assets........................21
- Subsequent Events...........................................22

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................23
- Major Influences on Financial Condition.....................23
- UIL Holdings Corporation.................................23
- The United Illuminating Company..........................23
- American Payment Systems, Inc............................25
- Xcelecom, Inc............................................27
- United Capital Investments, Inc..........................28
- United Bridgeport Energy, Inc............................30
- Liquidity and Capital Resources.............................30
- Contractual and Contingent Obligations...................31
- Critical Accounting Policies................................31
- Results of Operations.......................................31
- Looking Forward.............................................47

Item 3. Quantitative and Qualitative Disclosure About Market Risk.........51

Item 4. Controls and Procedures...........................................51
PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K..................................52

SIGNATURES........................................................53



- 2 -






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,
2003 2002 2003 2002
---- ---- ---- ----

OPERATING REVENUES (NOTE F)
Utility $194,948 $219,655 $516,323 $560,151

Non-utility businesses 97,160 101,428 301,566 303,556
----------- ----------- ----------- -----------
Total Operating Revenues 292,108 321,083 817,889 863,707
----------- ----------- ----------- -----------
OPERATING EXPENSES
Operation
Fuel and energy 77,394 78,164 206,242 204,139
Operation and maintenance 144,124 152,270 434,723 446,386
Depreciation and amortization (Note F) 22,681 30,613 73,208 70,259
Taxes - other than income taxes (Note F) 11,144 13,030 32,970 36,456
----------- ----------- ----------- -----------
Total Operating Expenses 255,343 274,077 747,143 757,240
----------- ----------- ----------- -----------
OPERATING INCOME 36,765 47,006 70,746 106,467
----------- ----------- ----------- -----------

OTHER INCOME (DEDUCTIONS), NET (NOTE F) 2,098 2,525 2,674 (1,430)
----------- ----------- ----------- -----------

INCOME BEFORE INTEREST CHARGES AND INCOME TAXES 38,863 49,531 73,420 105,037
----------- ----------- ----------- -----------

INTEREST CHARGES, NET
Interest on long-term debt 6,611 10,843 19,755 32,486
Interest on Seabrook Lease Obligation Bonds owned by UI - (1,542) - (4,625)
Other interest, net (Note F) 950 699 1,573 1,681
----------- ----------- ----------- -----------
7,561 10,000 21,328 29,542
Amortization of debt expense and redemption premiums 316 484 941 1,547
----------- ----------- ----------- -----------
Interest Charges, net 7,877 10,484 22,269 31,089
----------- ----------- ----------- -----------

INCOME BEFORE INCOME TAXES 30,986 39,047 51,151 73,948
----------- ----------- ----------- -----------

INCOME TAXES (NOTE E) 14,033 17,240 24,631 33,432
----------- ----------- ----------- -----------

NET INCOME AND INCOME AVAILABLE TO COMMON STOCK $ 16,953 $ 21,807 $ 26,520 $ 40,516
=========== =========== =========== ===========



AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC 14,295 14,265 14,287 14,228
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED 14,303 14,274 14,295 14,309

EARNINGS PER SHARE OF COMMON STOCK - BASIC $1.19 $1.53 $1.86 $2.85
EARNINGS PER SHARE OF COMMON STOCK - DILUTED $1.19 $1.53 $1.86 $2.83

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,
2003 2002 2003 2002
---- ---- ---- ----


NET INCOME $ 16,953 $ 21,807 $ 26,520 $ 40,516

OTHER COMPREHENSIVE INCOME, NET OF TAX:
UNREALIZED LOSS ON INVESTMENT - - - (519)
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ 16,953 $ 21,807 $ 26,520 $ 39,997
=========== =========== =========== ===========


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



- 3 -


UIL HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEET

ASSETS
(Thousands of Dollars)
(Unaudited)


September 30, December 31,
2003 2002
---- ----

Current Assets
Unrestricted cash and temporary cash investments $ 43,542 $ 20,568
Restricted cash 47,874 46,430
Utility accounts receivable less allowance of $1,654 and $1,654 57,276 58,171
Other accounts receivable less allowance of $2,706 and $2,471 87,359 94,161
Settlement assets 60,829 44,770
Unbilled revenues 39,474 38,403
Materials and supplies, at average cost 7,394 6,203
Prepayments 4,878 2,348
Other 2,748 1,105
---------------- -----------------
Total Current Assets 351,374 312,159
---------------- -----------------

Other Property and Investments
Investment in United Bridgeport Energy facility 82,588 83,677
Investment in debt securities - 25,000
Other 20,162 13,450
---------------- -----------------
Total Other Property and Investments 102,750 122,127
---------------- -----------------

Property, Plant and Equipment at original cost
In service 791,756 755,281
Less, accumulated depreciation 308,148 287,610
---------------- -----------------
483,608 467,671
Construction work in progress 54,853 49,411
---------------- -----------------
Net Property, Plant and Equipment 538,461 517,082
---------------- -----------------

Regulatory Assets (FUTURE AMOUNTS DUE FROM CUSTOMERS
THROUGH THE RATEMAKING PROCESS)
Nuclear plant investments-above market 441,616 456,950
Income taxes due principally to book-tax differences 66,244 69,115
Long-term purchase power contracts-above market 87,832 100,379
Connecticut Yankee 30,623 33,821
Unamortized redemption costs 18,927 18,245
Other 33,801 40,804
---------------- -----------------
Total Regulatory Assets 679,043 719,314
---------------- -----------------

Deferred Charges
Goodwill - net of amortization of $4,758 and $4,758 78,013 76,093
Unamortized debt issuance expenses 6,900 4,509
Long-term receivable - Cross-Sound Cable Project 23,465 -
Other long-term receivables 14,963 10,766
Other 14,711 18,761
---------------- -----------------
Total Deferred Charges 138,052 110,129
---------------- -----------------

Total Assets $ 1,809,680 $ 1,780,811
================ =================


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




- 4 -




UIL HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEET

LIABILITIES AND CAPITALIZATION
(Thousands of Dollars)
(Unaudited)


September 30, December 31,
2003 2002
---- ----

Current Liabilities
Notes payable $ 40,976 $ 46,315
Current portion of long-term debt 100,000 100,000
Accounts payable 36,652 44,007
Settlement obligations 106,320 82,659
Dividends payable 10,294 10,275
Accrued liabilities 66,971 72,723
Deferred revenues - non-utility businesses 16,230 25,553
Taxes accrued 13,259 7,314
Interest accrued 6,950 7,457
Obligations under capital leases 14,937 473
---------------- -----------------
Total Current Liabilities 412,589 396,776
---------------- -----------------

Noncurrent Liabilities
Purchase power contract obligation 87,832 100,379
Pension accrued 57,880 44,857
Connecticut Yankee contract obligation 25,409 28,442
Long-term notes payable 11,890 14,061
Obligations under capital leases - 14,815
Other 17,517 13,680
---------------- -----------------
Total Noncurrent Liabilities 200,528 216,234
---------------- -----------------

Deferred Income Taxes (FUTURE TAX LIABILITIES OWED
TO TAXING AUTHORITIES) 255,251 225,904
---------------- -----------------

Regulatory Liabilities (FUTURE AMOUNTS OWED TO CUSTOMERS
THROUGH THE RATEMAKING PROCESS)
Accumulated deferred investment tax credits 12,758 13,201
Deferred gains on sale of property 33,655 33,130
Customer refund 2,758 6,820
Other 17,456 10,962
---------------- -----------------
Total Regulatory Liabilities 66,627 64,113
---------------- -----------------

Commitments and Contingencies (Note L)

Capitalization (Note B)
Long-term debt 395,454 395,432
Common Stock Equity
Common Stock 296,951 296,501
Paid-in capital 4,180 3,749
Capital stock expense (2,170) (2,170)
Unearned employee stock ownership plan equity (5,699) (6,411)
Unearned compensation restricted stock (372) -
Accumulated other comprehensive income (loss) (26,694) (26,694)
Retained earnings 213,035 217,377
---------------- -----------------
Net Common Stock Equity 479,231 482,352

Total Capitalization 874,685 877,784
---------------- -----------------

Total Liabilities and Capitalization $ 1,809,680 $ 1,780,811
================ =================


The accompanying Notes to the 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,
2003 2002 2003 2002
----- ----- ----- ----

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 16,953 $ 21,807 $ 26,520 $ 40,516
----------- ----------- ------------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 18,187 20,981 53,954 53,743
Deferred income taxes (2,196) (3,518) (7,280) (4,582)
Future tax benefits (Note E) 15,400 - 34,800 -
Deferred investment tax credits - net (147) (174) (442) (388)
Amortization of nuclear fuel - 1,536 - 4,121
Allowance for funds used during construction (676) (543) (1,975) (1,611)
CTA and SBC regulatory deferral (661) 3,293 2,806 (1,968)
Changes in:
Accounts receivable - net (5,625) 2,872 7,697 10,470
Materials and supplies 1,661 132 (1,191) 737
Prepayments (2,073) (2,309) (2,530) (2,003)
Settlements assets 10,148 3,846 (16,059) (16,756)
Accounts payable 2,972 (7,453) (7,355) (16,582)
Interest accrued (332) (3,714) (507) 3,487
Taxes accrued 2,568 22,453 5,945 26,020
Settlements obligations (7,040) 24,248 23,661 16,280
Other assets and liabilities (9,338) (1,041) (11,598) (13,749)
----------- ----------- ------------- -----------
Total Adjustments 22,848 60,609 79,926 57,219
----------- ----------- ------------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 39,801 82,416 106,446 97,735
----------- ----------- ------------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired - - - (13,849)
Investment in non-utility business - (271) - (2,521)
Loan to Cross-Sound Cable Project (525) - (23,465) -
Deferred payments in prior acquisitions - (1,249) (2,757) (4,967)
Plant expenditures, including nuclear fuel (12,604) (16,386) (42,771) (40,487)
Investment in debt securities, net - - 25,000 5,043
----------- ----------- ------------- -----------
NET CASH USED IN INVESTING ACTIVITIES (13,129) (17,906) (43,993) (56,781)
----------- ----------- ------------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of common stock 545 290 1,222 5,898
Notes payable 15,415 (19,096) (8,063) (29,876)
Capital lease obligations (119) (111) (351) (396)
Payment of common stock dividend (10,286) (10,265) (30,843) (30,646)
----------- ----------- ------------- -----------
NET CASH USED IN FINANCING ACTIVITIES 5,555 (29,182) (38,035) (55,020)
----------- ----------- ------------- -----------

CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD 32,227 35,328 24,418 (14,066)
BALANCE AT BEGINNING OF PERIOD 59,189 36,702 66,998 86,096
----------- ----------- ------------- -----------
BALANCE AT END OF PERIOD 91,416 72,030 91,416 72,030
LESS: RESTRICTED CASH 47,874 56,414 47,874 56,414
----------- ----------- ------------- -----------
BALANCE: UNRESTRICTED CASH AND TEMPORARY CASH INVESTMENTS $ 43,542 $ 15,616 $ 43,542 $ 15,616
=========== =========== ============= ===========

CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $ 7,638 $ 11,881 $ 21,033 $ 23,847
=========== =========== ============= ===========
Income taxes - - $ 3,000 $ 12,800
=========== =========== ============= ===========


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




- 6 -



UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(A) STATEMENT OF ACCOUNTING POLICIES

BASIS OF PRESENTATION

UIL Holdings Corporation (UIL Holdings) has been the parent holding company for
The United Illuminating Company (UI) and United Resources, Inc. (URI) since July
2000. URI serves as the parent company for UIL Holdings' four non-utility
businesses, each of which is wholly-owned. URI's four subsidiaries are American
Payment Systems, Inc. (APS), Xcelecom, Inc. (Xcelecom), United Capital
Investments, Inc. (UCI), and United Bridgeport Energy, Inc. (UBE). UIL Holdings
is headquartered in New Haven, Connecticut, where its senior management
maintains offices and is responsible for overall planning, operating and
financial functions. UIL Holdings is an exempt public utility holding company
under the provisions of the Public Utility Holding Company Act of 1935. 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, 2002. Such notes are supplemented below.

The year-end consolidated balance sheet data was derived from audited financial
statements, but does not include all disclosures required by accounting
principles generally accepted in the United States of America. Certain
information and footnote disclosures that are normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to Securities and Exchange Commission
rules and regulations. UIL Holdings believes that the disclosures made are
adequate to make the information presented not misleading. The information
reflects all adjustments that, in the opinion of UIL Holdings, are necessary for
a fair presentation of the financial position and results of operations for the
interim periods set forth herein. All such adjustments are of a normal and
recurring nature. The results for the nine months ended September 30, 2003 are
not necessarily indicative of the results for the entire fiscal year ending
December 31, 2003.

Certain amounts previously reported have been reclassified to conform to the
current presentation.

STOCK-BASED COMPENSATION

Effective January 1, 2003, UIL Holdings adopted the fair value recognition
provisions of Statement of Financial Standards (SFAS) No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," an amendment of SFAS No.
123, "Accounting for Stock-Based Compensation." Under this statement, UIL
Holdings will record compensation expense prospectively for stock options
granted after January 1, 2003. There were no new stock options granted during
the third quarter of 2003. There were 302,000 stock options granted during the
first nine months of 2003 at an exercise price of $36.125, and, as a result,
compensation expense was recorded in the determination of net income for the
three and nine months ended September 30, 2003. No compensation expense was
recorded prior to 2003, as UIL Holdings accounted for employee stock-based
compensation in accordance with Accounting Principles Board (APB) No. 25,
"Accounting for Stock Issued to Employees," as permitted by SFAS No. 123. The
following table illustrates the effect on net income and earnings per share as
if the fair-value-based method had been applied to all outstanding and unvested
awards in each period.



- 7 -




UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

STOCK-BASED COMPENSATION



THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
---------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Net Income, as reported $16,953 $21,807 $26,520 $40,516
Add: Stock-based compensation
expense included in reported
net income, net of related tax effects 145 - 242 -
Deduct: Total stock-based compensation
determined under fair value based
method for all stock grants, net of
related tax effect (336) (180) (812) (542)
----- ----- ----- -----

Pro forma net income $16,762 $21,627 $25,950 $39,974
------- ------- ------- -------

Earnings per share:
Basic - as reported $1.19 $1.53 $1.86 $2.85
----- ----- ----- -----

Basic - proforma $1.17 $1.52 $1.82 $2.81
----- ------ ------ -----

Diluted - as reported $1.19 $1.53 $1.86 $2.83
----- ----- ----- -----

Diluted - proforma $1.17 $1.52 $1.82 $2.79
------ ----- ----- -----


The board of directors of UIL Holdings (the Board) granted 13,200 shares of
restricted stock to directors on March 25, 2003. Such shares were subject to
approval, and were pursuant to the Board's proposed amendment of the 1999 Stock
Option Plan (details of this amendment are discussed in Note B). The average
market price on the date of grant was $34.11. The shares were approved by
shareowners at the UIL Holdings Annual Meeting on May 14, 2003.

COMPREHENSIVE INCOME

Comprehensive income for the three months ended September 30, 2003 and 2002 was
equal to net income as reported. Additionally, comprehensive income for the nine
months ended September 30, 2003 was equal to net income. Comprehensive income
for the nine months ended September 30, 2002 included an unrealized pre-tax loss
of $862,500, ($518,578 after-tax) on a convertible note held by APS.

NEW ACCOUNTING STANDARDS

The Financial Accounting Standards Board (FASB) has issued interpretation No.46
(FIN 46), "Consolidation of Variable Interest Entities," an interpretation of
Accounting Research Bulletin (ARB) 51 which is effective immediately for
variable interest entities as defined in ARB 51, or interests therein,
established after January 31, 2003. Additionally, variable interest entities or
interests therein established prior to February 1, 2003 will be subject to the
provisions of FIN 46 at a future point in time to be determined by the FASB upon
issuance of final guidance. The primary objectives of FIN 46 are to provide
guidance on the identification of entities for which control is achieved through
means other than through voting rights (variable interest entities or VIEs) and
how to determine when and which business enterprise should consolidate the VIE
(the primary beneficiary). UIL Holdings does not have any VIEs, and therefore
the adoption of this standard has not, and is not expected to, have any impact
on UIL Holdings' consolidated financial position, results of operations or
liquidity.



- 8 -




UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


UIL Holdings adopted the provisions of SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity" which
are effective as of July 2003. This accounting standard requires accounting for
minority interests in limited-life subsidiaries to be reclassified to
liabilities and measured at settlement value. Many of the characteristics
include financial instruments in the form of shares that are mandatorily
redeemable, share repurchase agreements and required share issuances. UIL
Holdings does not expect the adoption of this standard to have any impact on its
consolidated financial position, results of operations or liquidity, as no such
instruments are currently held by UIL Holdings or its subsidiaries.

(B) CAPITALIZATION

COMMON STOCK

UIL Holdings had 14,465,480 shares of its common stock, without par value,
outstanding at September 30, 2003, of which 167,643 shares were unallocated
shares held by UI's 401(k)/Employee Stock Ownership Plan (KSOP) and not
recognized as outstanding for accounting purposes.

UI has 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 ending October 1, 2009, using employer contributions and UIL
Holdings' dividends paid on the unallocated shares of the stock held by the
KSOP. As of September 30, 2003, 167,643 shares, with a fair market value of $5.9
million, had been purchased by the KSOP and had not been committed to be
released or allocated to KSOP participants.

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 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 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. On March 24, 2003, the Board of Directors recommended
to the shareowners that the 1999 Stock Option Plan be amended and restated as
the UIL Holdings Corporation 1999 Amended and Restated Stock Plan (Stock Plan).
Under the Stock Plan, a maximum of 1,350,000 shares of UIL Holdings' common
stock is authorized for issuance upon exercise or granting of stock options,
stock appreciation rights (SARS), restricted stock, restricted stock units,
performance shares and other awards (collectively, Awards). No more than 200,000
shares of stock may be issued pursuant to Awards of restricted stock, restricted
stock units and performance share awards. Shareowners approved the Stock Plan at
the UIL Holdings Annual Meeting on May 14, 2003.

RETAINED EARNINGS RESTRICTION

The indenture under which UI has issued $100 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 $72 million were free from
such limitations at September 30, 2003.



- 9 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

LONG-TERM DEBT

On December 2, 2002, UI purchased the $25 million principal amount of Pollution
Control Refunding Revenue Bonds, 1999 Series, due December 1, 2029 (the 1999
Series Bonds), issued by the Business Finance Authority of the State of New
Hampshire (BFA). The 1999 Series Bonds were held by UI as an investment while
the borrowing agreement with the BFA was amended to provide more remarketing
flexibility. On February 5, 2003, the 1999 Series Bonds were sold to investors
and the interest rate was fixed at 3.25%. The new interest rate will remain in
effect for a four-year ten-month period through December 3, 2007. UI is
obligated, under its borrowing agreement with the BFA, to pay the interest on
the Bonds. Interest is payable semi-annually on June 1st and December 1st.

On September 4, 2003, $64.5 million principal amount of Pollution Control
Refunding Revenue Bonds, 2003 Series, due October 1, 2033 (the 2003 Bonds), were
issued by the Business Finance Authority of the State of New Hampshire (BFA).
The 2003 Bonds were issued to refinance $64.5 million principal amount of 5
7/8%, Pollution Control Refunding Revenue Bonds, 1993 Series, due October 1,
2033, which were redeemed on October 6, 2003. The 2003 Bonds were issued in an
"Auction Rate Mode," and will be repriced through an auction held every 35 days.
The interest rate on the 2003 Bonds during the initial period and as a result of
the first auction was 0.85% and 0.90%, respectively. UI is obligated, under its
borrowing agreement with the BFA, to pay interest on the 2003 Bonds.

(C) RATE-RELATED REGULATORY PROCEEDINGS

RATE CASE

On September 26, 2002, the Connecticut Department of Public Utility Control
(DPUC) issued a final decision in UI's retail customer ratemaking (Rate Case)
proceeding. The decision provided for a $30.9 million reduction in UI's annual
revenue requirements, including (1) a $20.3 million reduction to UI's customer
rates, (2) $2 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. In accordance with the decision,
and after converting from a revenue requirements basis to stranded cost
treatment, UI recorded accelerated amortization of stranded costs of $5.6
million before-tax ($4.7 million after-tax) in the fourth quarter of 2002, and
reduced customer rates by 3% overall and is continuing accelerated amortization
at $1.4 million before-tax ($1.2 million after-tax) per quarter commencing
January 1, 2003. The rate reductions, approved by the DPUC, were applied with no
significant rate design changes, although the generation services charge (GSC)
component of customers' rates was increased and the competitive transition
assessment (CTA) component was decreased in a dollar amount equal to the GSC
increase. The final Rate Case decision established rates on the basis of an
authorized return on equity of 10.45% for non-transmission rate base. Earnings
above the authorized return are to be shared 50% to customers and 50% to net
income, with the customers' share divided equally between bill reductions and
accelerated amortization of stranded costs. The Rate Case decision recognizes
that the revenue requirements determination for transmission, including the
applicable return on equity, is within the jurisdiction of the Federal Energy
Regulatory Commission (FERC). UI's authorized return on equity for transmission
is 10.75%.

On January 8, 2003, in a reopened proceeding requested by UI, the DPUC issued a
decision making a technical change to the Rate Case decision, approving UI's
proposed revenue transfer of $3.9 million annually from the CTA to the delivery
component of rates beginning with the September 26, 2002 effective date and
continuing until the decision in UI's next rate case proceeding.

On March 26, 2003, the DPUC issued a decision granting UI's request to reopen
its September 2002 Rate Case decision, to examine increased pension and
postretirement benefits expenses of UI for 2003. The March 26, 2003 decision
states that "1) there are various changed conditions that have affected the
pension related expenses of UI, 2) the underlying causes of such changed
conditions were largely beyond UI's control, and 3) the impact on UI of the
changed conditions is of a magnitude that could affect UI's financial
integrity."



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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

On June 25, 2003, the DPUC issued a decision denying, without prejudice, UI's
request for recovery of $15.5 million in increased pension and postretirement
benefits expenses. The DPUC stated that although "UI demonstrated increased
expenses related to those items, the Company's current earning at or near its
allowed return on equity indicates that no ratemaking relief is necessary at
present." On August 8, 2003, UI filed an administrative appeal from that
decision in the Connecticut Superior Court, asserting that the DPUC's decision
was contrary to law and should be reversed.

The DPUC's June 25, 2003 decision also noted "that the Company may request
regulatory treatment for this specific expense in the future by filing a motion
to reopen." On July 29, 2003 UI filed a motion to reopen the docket to request
recovery of the increased pension and postretirement benefits expense on a
going-forward basis, based upon UI's earnings for the first six months of 2003
and for the nine months since the Rate Case decision. On September 10, 2003, the
DPUC reopened the docket, and a technical meeting on this matter was held on
November 6, 2003. Hearings are scheduled for early December and settlement
discussions are ongoing.

SALE OF NUCLEAR GENERATION

The sale of UI's investment in Seabrook Station and the termination of the
sale/leaseback of a portion of its interest in Seabrook Unit 1 were consummated
on November 1, 2002. In compliance with Connecticut restructuring legislation,
the net-of-tax gain on these transactions, after adjusting for transaction costs
and sale-related costs, was used to reduce UI's stranded costs. In UI's
compliance filing with the DPUC on April 30, 2003, UI reported a net-of-tax gain
of approximately $5.0 million. This calculation was reviewed by the DPUC with a
final decision currently scheduled for December 2003.

OTHER REGULATORY MATTERS

DEPARTMENT OF PUBLIC UTILITY CONTROL

UI generally has several regulatory proceedings open and pending at the DPUC at
any given time. Examples of such proceedings include an annual DPUC review and
reconciliation of UI's competitive transition assessment and systems benefits
charge revenues and expenses, dockets to consider specific restructuring or
electricity market issues, consideration of specific rate or customer issues,
and review of conservation programs.

TAX CREDITS RELATED TO THE SALE OF GENERATION

On March 3, 2003, the Internal Revenue Service (IRS) issued proposed regulations
that would allow electric utilities to return certain tax benefits pertaining to
divested generation assets to customers. Specifically, these regulations deal
with accumulated deferred investment tax credits (ADITC) and excess deferred
federal income taxes (EDFIT) associated with generation assets.

UI had been previously ordered by the DPUC to seek a Private Letter Ruling (PLR)
from the IRS requesting permission to immediately flow-through to customers $3.2
million of ADITC and $0.2 million of EDFIT relating to its formerly owned
fossil-fueled generating stations. In addition to the sale of its fossil-fueled
generating stations, UI also had ADITC in the amount of $4.7 million relating to
the sale of its ownership interest in the Millstone Unit 3 nuclear generating
facility.

While the proposed regulations, as written, do allow electric utilities to
return ADITC and EDFIT to customers, the utility may do so only at the same rate
that would have been permitted if the generation assets remained public utility
property, not immediately, as had been sought in UI's PLR request.

Although the IRS has not officially responded to UI's PLR request, these
proposed regulations provide authoritative guidance with respect to the IRS'
position as to the treatment of these tax benefits. The IRS allowed for the
submission of written comments during a public comment period ended June 2,
2003, as well as at a public hearing


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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

that was held at the IRS National Office on June 25, 2003. In the event the
final regulations remain in their current form, there would be no resulting
material impact on UI's earnings or cash flow.

BRIDGEPORT RESCO GENERATING FACILITY

Effective January 1, 2003, UI began selling its energy entitlement from its
long-term purchase power contract with the Bridgeport RESCO generating facility
into the New England wholesale market at market prices. To the extent that UI
receives revenue from these sales that exceed the amount it pays to Bridgeport
RESCO for this energy on a cumulative basis, the difference is used to adjust
the above market portion of purchase power expense recovered through UI's CTA.
This methodology has been approved by the DPUC, with all relevant data and
calculations subject to review in the next CTA reconciliation docket. To the
extent that expenses paid for this energy exceed revenues on a cumulative basis,
UI would advise the DPUC and propose an alternative recovery mechanism.

WORK STOPPAGE PROCEEDING

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 conducted 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. On April 2, 2003, the DPUC issued a
final decision determining that "the quality of service provided by UI to its
customers was not impaired as a result of the work stoppage" and therefore that
no further action by the DPUC was warranted.

EXCESS GSC

Public Act 03-135 requires the DPUC to allocate the proceeds of the electric
distribution company's retail adder (excess GSC revenues over GSC costs) to the
utility's cost of procuring power, then to mitigate the increase in cost
relative to the existing standard offer that would be recovered from the
customer and then to stranded cost recovery. As a result, the DPUC ordered UI to
cease any further application of the retail adder toward accelerated stranded
cost reduction, pending DPUC determination of the use of the funds in future
proceedings. As of September 30, 2003, UI has deferred $5.8 million of excess
GSC.

FEDERAL ENERGY REGULATORY COMMISSION

UI has constructed transmission facilities to connect the 330-megawatt
transmission cable, connecting Connecticut and Long Island under Long Island
Sound, owned by Cross Sound Cable Company, LLC (Cross-Sound) to the New England
Power Pool (NEPOOL) transmission grid. Cross-Sound has paid UI $2 million for
the construction costs. The FERC has clarified its recent order directing UI to
reclassify a portion of this construction as transmission network upgrades
noting UI will not be required to reimburse Cross-Sound for any of the
construction monies received. The annual facilities charge will continue to be
reviewed by the FERC.

REGIONAL TRANSMISSION ORGANIZATION FOR NEW ENGLAND

On October 31, 2003, ISO New England Inc. (ISO-NE) filed a joint proposal with
the New England Transmission Owners at the FERC for the creation of a Regional
Transmission Organization (RTO). ISO-NE expects that the creation of an RTO for
New England will strengthen the independent oversight of the region's bulk power
system and wholesale electricity marketplace. UI is a signatory to the filing
and, if approved by the FERC, would have the opportunity to join the New England
RTO and become eligible for the FERC's return on equity joining incentive (50
basis points). If approved, the RTO could become operational in 2004.



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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(D) 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, 2003, UIL Holdings had $21 million outstanding under this arrangement.

UIL Holdings has a revolving credit agreement with a group of banks that was
amended on July 31, 2003 and extended to July 29, 2004. 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, 2003,
UIL Holdings had $15 million in short-term borrowings outstanding under this
facility.

Xcelecom has a revolving credit agreement with two banks that expires on June
30, 2004. This agreement provides for a $35 million revolving loan 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. Capital equipment loans under this facility
can be converted to amortizing term loans with a maturity of up to four years.
This agreement also provides for the payment of interest at a rate, at the
option of Xcelecom, based on the agent bank's prime interest rate or LIBOR. As
of September 30, 2003, there was a $3.9 million revolving working capital
balance outstanding. In addition, Xcelecom had $1.5 million of capital equipment
funding that had been converted to term notes outstanding and standby letters of
credit of $7.6 million outstanding at September 30, 2003. For the quarter ended
September 30, 2003, Xcelecom did not comply with the leverage ratio covenant
under this agreement and received a waiver of non-compliance from the banks. All
borrowings outstanding under this agreement are secured solely by assets of
Xcelecom and its subsidiaries.

APS had a revolving credit agreement with a bank that expired on April 11, 2003.
This agreement provided for a $10 million working capital facility for APS and
its subsidiaries, available for working capital needs, acquisitions of fixed
assets in an aggregate amount not to exceed $4 million, and to make additional
equity investments in acquired subsidiaries in an aggregate amount not to exceed
$1 million. On April 11, 2003 APS repaid all borrowings outstanding under this
agreement. The funds for such repayment were provided by UIL Holdings. APS
expects to meet its short-term capital requirements from funds from operations.
All short-term capital requirements that exceed available cash will be provided
by UIL Holdings, under a short-term loan arrangement, until APS replaces the
revolving credit agreement that expired. At September 30, 2003, the outstanding
balance under this arrangement was $3.5 million.



- 13 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


(E) INCOME TAXES


Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
(In Thousands) (In Thousands)

Income tax expense consists of:
Income tax provisions (benefit):
Current

Federal $ 12,429 $ 16,957 $ 24,058 $ 31,112
State 3,947 3,975 8,295 7,290
--------------- -------------- -------------- --------------
Total current 16,376 20,932 32,353 38,402
--------------- -------------- -------------- --------------
Deferred
Federal (1,324) (2,704) (4,400) (2,990)
State (872) (814) (2,880) (1,592)
--------------- -------------- -------------- --------------
Total deferred (2,196) (3,518) (7,280) (4,582)
--------------- -------------- -------------- --------------

Investment tax credits (147) (174) (442) (388)
--------------- -------------- -------------- --------------

Total income tax expense $ 14,033 $ 17,240 $ 24,631 $ 33,432
=============== ============== ============== ==============

Income tax components charged as follows:
Operating tax expense $ 15,218 $ 18,233 $ 25,924 $ 35,411
Nonoperating tax benefit (1,185) (993) (1,293) (1,979)
--------------- -------------- -------------- --------------

Total income tax expense $ 14,033 $ 17,240 $ 24,631 $ 33,432
=============== ============== ============== ==============



As a result of the sale of UI's interests in Seabrook Station and the
termination of the associated Seabrook Lease Obligation on November 1, 2002, UIL
Holdings incurred a net operating loss for federal income tax purposes for the
year 2002 of approximately $78 million that was carried forward and is being
utilized in 2003. This has resulted in the realization of cash tax benefits for
the three and nine months ended September 30, 2003 of $15.4 million and $34.8
million, respectively.

Legislation enacted in Connecticut on February 28, 2003 imposes a 20% surcharge
on the corporation business tax for the year 2003 only. This surcharge, which
was made retroactive to January 1, 2003, effectively increases the statutory
rate of Connecticut corporation business tax from 7.5% to 9.0% for the year
2003. Due to this change, the combined effective statutory federal and state
income tax rate for UIL Holdings' Connecticut-based entities will increase
slightly from 39.875% to 40.85% for the year 2003.

In addition, legislation was also enacted in Connecticut on August 16, 2003
which imposes a 25% surcharge on the corporation business tax for the year 2004,
which will increase the statutory rate from 7.5% to 9.375% for the year 2004
only.

The effective income tax rates for the three and nine months ended September 30,
2003 were 45.3% and 48.2%, respectively, as compared to 44.2% and 45.2% for the
three and nine months ended September 30, 2002, respectively. The increases in
the 2003 rates are due primarily to: (1) the imposition of a 20% surcharge on
the Connecticut corporation business tax for the year 2003, (2) an increase in
the amortization of regulatory assets, and (3) differences in the amounts of
book depreciation in excess of non-normalized tax depreciation.



- 14 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(F) SUPPLEMENTARY INFORMATION


Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
(In Thousands) (In Thousands)

OPERATING REVENUES
- ------------------
Utility
Retail $ 180,295 $ 192,252 $ 473,376 $488,239
Wholesale 6,053 18,254 19,024 49,372
Other 8,600 9,149 23,923 22,540
Non-utility businesses
American Payment Systems 22,405 22,691 83,326 68,042
Xcelecom 74,750 78,732 218,224 235,500
Other 5 5 16 14
------------ -------------- ------------ ------------
Total Operating Revenues $ 292,108 $ 321,083 $ 817,889 $ 863,707
============ ============== ============ ============

SALES BY CLASS(MEGAWATT-HOURS)
- -----------------------------
Retail
Residential 658,757 681,781 1,732,779 1,701,705
Commercial 693,967 691,040 1,906,079 1,863,242
Industrial 254,426 284,510 718,761 777,855
Other 10,176 10,238 32,649 32,818
------------ -------------- ------------ ------------
1,617,326 1,667,569 4,390,268 4,375,620
Wholesale 124,001 570,263 355,928 1,541,119
------------ -------------- ------------ ------------
Total Sales by Class 1,741,327 2,237,832 4,746,196 5,916,739
============ ============== ============ ============

DEPRECIATION AND AMORTIZATION
- -----------------------------
Utility property, plant, and equipment $ 7,276 $ 6,934 $ 21,061 $ 20,771
Non-utility business property, plant and equipment 1,765 1,613 5,336 4,323
Nuclear Decommissioning - 672 - 2,017
------------ -------------- ------------ ------------
Total Depreciation 9,041 9,219 26,397 27,111
------------ -------------- ------------ ------------
Amortization of intangibles 26 413 1,340 1,359
Amortization of nuclear plant regulatory assets 5,867 13,488 22,391 19,727
Amortization of purchase power contracts 6,058 6,052 17,976 17,961
Amortization of other regulatory assets 1,426 1,148 4,255 3,222
Amortization of cancelled plant 263 293 849 879
------------ -------------- ------------ ------------
Total Amortization 13,640 21,394 46,811 43,148
------------ -------------- ------------ ------------
Total Depreciation and Amortization $ 22,681 $ 30,613 $ 73,208 $ 70,259
============ ============== ============ ============

TAXES - OTHER THAN INCOME TAXES
- -------------------------------
Operating:
Connecticut gross earnings $ 7,791 $ 8,516 $ 20,307 $ 21,470
Local real estate, personal property and sales tax 2,358 3,085 7,645 9,672
Payroll taxes 995 1,429 5,018 5,314
------------ -------------- ------------ ------------
Total Taxes - Other than Income Taxes $ 11,144 $ 13,030 $ 32,970 $ 36,456
============ ============== ============ ============

OTHER INCOME (EXPENSE), NET
- ---------------------------
Interest income $ 363 $ (207) $ 1,003 $ 521
Allowance for funds used during construction 676 543 1,975 1,611
Equity earnings (loss) from Connecticut Yankee 77 539 233 724
Non-utility business passive income (expense) 875 2,192 (1,903) (3,481)
Miscellaneous other income and (expense) - net 107 (542) 1,366 (805)
------------ -------------- ------------ ------------
Total Other Income (expense), net $ 2,098 $ 2,525 $ 2,674 $ (1,430)
============ ============== ============ ============

OTHER INTEREST, NET
- -------------------
Notes Payable $ 151 $ 123 $ 421 $ 332
Other 799 576 1,152 1,349
------------ -------------- ------------ ------------
Total Other Interest, net $ 950 $ 699 $ 1,573 $ 1,681
============ ============== ============ ============





- 15 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(J) COMMITMENTS AND CONTINGENCIES

OTHER COMMITMENTS AND CONTINGENCIES

CONNECTICUT YANKEE ATOMIC POWER COMPANY

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 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%.

In 2002, as part of an ongoing review process, management of Connecticut Yankee
prepared revised estimates of the cost of decommissioning the Connecticut Yankee
Unit. The estimated costs of decommissioning the Connecticut Yankee Unit have
increased by approximately $150 million over prior estimates. The new estimates
are attributable mainly to increases in the projected costs of spent fuel
storage, security, and liability and property insurance. UI's 9.5% ownership
share of the increased costs would be approximately $14.3 million.

To the extent that the estimates described above are related to spent fuel
storage, they could be affected by the outcome of an ongoing dispute between the
federal Department of Energy (DOE) and several utilities and states. Under the
Nuclear Waste Policy Act of 1982 (the Act), the DOE is required to design,
license, construct and operate a permanent repository for high-level radioactive
waste and spent nuclear fuel. The Act requires the DOE to provide for the
disposal of spent nuclear fuel and high-level waste from commercial nuclear
plants through contracts with the owners. In return for payment of established
disposal fees, the federal government was required to take title to and dispose
of the utilities' high-level waste and spent nuclear fuel beginning no later
than January 1998. After the DOE announced that its first high-level waste
repository will not be in operation earlier than 2010, several utilities and
states obtained a judicial declaration that the DOE has a statutory
responsibility to take title to and dispose of high-level waste and spent
nuclear fuel beginning in January 1998. Although the federal government now
concedes that its failure to begin disposing of high-level waste and spent
nuclear fuel in January 1998 constituted a breach of contract, it continues to
dispute that the entities with which it had contracts are entitled to damages.

On June 13, 2003, Connecticut Yankee terminated its fixed-price decommissioning
contract with Bechtel Power Corporation (Bechtel), subject to Bechtel's right to
cure various defaults in its obligations. Bechtel then filed a lawsuit in
Connecticut Superior Court against Connecticut Yankee alleging breach of
contract and other claims seeking compensatory and punitive damages. On August
22, 2003, Connecticut Yankee filed its response to the lawsuit denying Bechtel's
claims and asserting counterclaims against Bechtel. In addition, Connecticut
Yankee is pursuing its rights under a $36 million performance bond. The
termination became effective on July 14, 2003, after Bechtel failed to cure its
defaults. Connecticut Yankee will perform the remaining decommissioning work.
Bechtel's defaults and the resulting termination may delay decommissioning of
the Connecticut Yankee Unit. Absent recovery from Bechtel and recovery under the
performance bond, Connecticut Yankee's decommissioning costs may increase.

The estimates of the cost of decommissioning the Connecticut Yankee Unit will be
revised from time to time based on information available to Connecticut Yankee
regarding future costs. Prior cost estimates have been included in Connecticut
Yankee's FERC approved rates. UI expects Connecticut Yankee to seek recovery of
these increases in rate applications to be filed in due course with the FERC,
with any resulting adjustments being charged to their respective sponsors
including UI. The timing, amount and outcome of these filings cannot be
predicted at this time. UI would expect in turn to seek recovery of its
respective share of any allowed increases from its customers through appropriate
state and federal rate proceedings.



- 16 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

HYDRO-QUEBEC

UI is a participant in the Hydro-Quebec transmission intertie facility linking
New England and Quebec, Canada. UI has a 5.45% participating share in Phase I
and Phase II of this facility, which in aggregate have a maximum 2000 megawatt
equivalent generation capacity value. UI is obligated to furnish a guarantee for
its participating share of the debt financing for the Phase II facility. As of
September 30, 2003, UI's guarantee liability for this debt was approximately $4
million. The underlying outstanding debt, upon which the guarantee is based, is
being paid over time with the final payment scheduled in 2015.

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 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 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 had
been recovering through retail rates $1.1 million per year of environmental
remediation costs for the demolition and decontamination of its Steel Point
Station property in Bridgeport. As a result of the Rate Case decision dated
September 26, 2002, UI will recover the remaining $3 million of these costs
ratably during the 2002 through 2004 time period. This 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
adjustment upon disposition of the property. UI is also replacing portions of
the bulkhead at the Steel Point Station property. The work is expected to cost
approximately $6.4 million and is currently expected to be completed in 2004. UI
is entitled to reimbursement of these costs from the City of Bridgeport pursuant
to UI's contract with the City.

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, if any, cannot be estimated
at this time. Concurrent with the removal of the East Main Street Substation in
2000, the Congress Street Substation was expanded to replace it. As of September
30, 2003, $10.6 million of the total cost is reimbursable from the City of
Bridgeport. UI has initiated arbitration proceedings to collect these funds from
the City of Bridgeport.

UI has completed the replacement of the bulkhead surrounding a site, bordering
the Mill River in New Haven, that contains transmission facilities and
deactivated generation facilities, at a cost of $13.5 million. Of this amount,
$4.2 million represents the portion of the costs to protect UI's transmission
facilities and has been capitalized as plant in service; the remaining estimated
cost of $9.3 million has been expensed. 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. 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.

On April 16, 1999, 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. 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


- 17 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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.

From 1961 to 1976, UI owned a parcel of property in Derby, Connecticut, on which
it operated an oil-fired electric generating unit. For several years, the
Connecticut Department of Environmental Protection has been remediating a
migration of fuel oil contamination from a neighboring parcel of property into
the adjacent Housatonic River. Based on its own investigation to date, UI
believes it has no responsibility for this contamination. However, if regulatory
agencies determine that UI is responsible for the cost of these remediation
activities, UI may experience substantial costs, no estimate of which is
currently available.

CLAIM OF ENRON POWER MARKETING, INC.

UI has an agreement for standard offer generating service with Dominion Energy
Marketing (Dominion), assignee of Virginia Electric and Power Company (VEPCO).
The Dominion/VEPCO agreement replaced an earlier wholesale power agreement and
other related agreements with Enron Power Marketing, Inc. (EPMI), originally
intended to supply all of the power needed to meet UI's standard offer
obligations until the end of the standard offer period (the Agreements).
Following EPMI's bankruptcy filing on December 2, 2001, UI terminated the
Agreements in accordance with their terms, effective January 1, 2002, in
reliance upon provisions of the Bankruptcy Code that permit termination of such
contracts. The Agreements permitted UI to calculate its gains and losses
resulting from the termination, and globally to net these gains and losses
against one another, and against any other amounts that UI owed to EPMI under
the Agreements, to arrive at a single sum. EPMI, however, commenced on January
31, 2003 an adversary proceeding against UI and UIL Holdings in the EPMI
bankruptcy. UIL Holdings was sued as the guarantor of UI's financial obligations
under the Agreements. EPMI contends that UI was not entitled to offset, against
any losses UI suffered from the termination of the Agreements, any amounts owing
to EPMI for power delivered to UI after the date EPMI filed for bankruptcy. The
amount of the allegedly improper setoff that EPMI seeks to recover in the
adversary proceeding is approximately $8.2 million, plus interest and attorneys'
fees. In the event that UI is determined to owe EPMI a portion or all of such
amount for power delivered after EPMI filed for bankruptcy, UI will seek
recovery of such amount through the regulatory process.

CROSS-SOUND CABLE COMPANY, LLC

As of September 30, 2003, UCI's 25% share of the actual project cost for the
Cross-Sound Cable Company, LLC (Cross-Sound) cable was $33 million. UCI's 25%
share of the estimated total final cost of the project is $34.3 million. UCI has
provided an equity infusion of $10 million to Cross-Sound and UIL Holdings
loaned $23.5 million to Cross-Sound. In addition, a guarantee of $3.8 million,
in support of Hydro-Quebec's guarantees to third parties in connection with the
construction of the project has been provided. It is expected that any
obligations of Cross-Sound that are supported by the guarantee would be funded
by capital contributions from the owners, who are affiliates of the guarantors,
in amounts in proportion to their respective ownership shares of Cross-Sound. No
liability was recorded related to the guarantee, as the likelihood of UIL
Holdings having to perform under the guarantee is remote. Absent other
developments, UCI anticipates that the cable will achieve commercial operation
in 2005. Although commercial operation has not yet been achieved, the cable has
been operating under a Department of Energy Emergency Order since the August 14,
2003 blackout and is expected to remain operational under this order until such
time as the Emergency identified in the Order ceases to exist. Upon commercial
operation, the loan from UIL Holdings is expected to be refinanced with external
project financing. UCI will be responsible for 25% of any additional cost of
project completion over the estimated amount.




- 18 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

AMERICAN PAYMENT SYSTEMS, INC.

The majority of APS's business consists of transmitting data and money for bill
payments to domestic utilities and telecommunication companies, as agent of
these companies. The customer payments are processed through a retail network
managed by APS. APS's bill payment and stored value businesses are subject to
state and federal money transmitter laws, which require APS to be licensed in
the states in which it conducts business and to be federally registered as a
money services business. The state and federal governments may impose penalties
for conducting such activities without a license. APS has applied for or
obtained licenses for its businesses in all states in which it is offering these
services and has been advised that it is required to do so.

The number and complexity of regulatory requirements have increased
significantly following passage of the USA PATRIOT ACT in October 2001, to
detect and prevent money laundering and terrorist financing. Federal and state
regulators have revised, imposed or are considering the imposition of a variety
of implementing regulations. Among other things, APS is required under the
federal Bank Secrecy Act to make certain filings with regulators, keep certain
records, maintain an anti-money laundering compliance program and be examined
for regulatory compliance. A failure to comply with such requirements could
result in sanctions, including civil or criminal penalties against APS and/or
its agents. APS is continually reviewing and enhancing its compliance program to
meet the requirements of all applicable laws and regulations. At this time,
management is unable to determine the full impact compliance with such
regulatory requirements will have on APS's operations.




- 19 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


(M) SEGMENT INFORMATION

UIL Holdings has three segments, UI, its regulated electric utility business
engaged in the purchase, transmission, distribution and sale of electricity,
Xcelecom, its non-utility, indirect, wholly-owned subsidiary, which provides
specialized contracting services in the electrical, mechanical, communications
and data network infrastructure industries, and APS, its non-utility, indirect,
wholly-owned subsidiary, which provides a variety of financial products and
services, including walk-in bill payments, prepaid telephony products and
prepaid stored value cards. Revenues from inter-segment transactions are not
material. 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 and
inter-segment eliminations.

SEPTEMBER 30, 2003 DECEMBER 31, 2002
------------------ -----------------
Total Assets (In Thousands)
- ------------
UI $1,429,713 $1,403,283
Xcelecom 182,099 195,721
APS (Note) 147,486 123,037
Other 50,382 58,770
-----------------------------------------
Total UIL Holdings $1,809,680 $1,780,811
=========================================

Note: Includes settlement assets and restricted cash of $106,652 and $85,221 as
of September 30, 2003 and December 31, 2002, respectively.




THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT. 30, 2003 SEPT. 30, 2002 SEPT. 30, 2003 SEPT. 30, 2002
-------------- -------------- -------------- --------------
Revenues from External Customers (In Thousands) (In Thousands)
- --------------------------------

UI $194,948 $219,655 $516,323 $560,151
Xcelecom 74,750 78,732 218,224 235,500
APS 22,404 22,691 83,326 68,042
Other 6 5 16 14
------------------ ----------------- ------------------- --------------------
Total UIL Holdings $292,108 $321,083 $817,889 $863,707
================== ================= =================== ====================



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

UI $32,412 $37,903 $64,118 $85,604
Xcelecom (170) 1,783 (2,278) 800
APS 574 (253) (958) (796)
Other (1,830) (386) (9,731) (11,660)
------------------ ----------------- ------------------- --------------------
Total UIL Holdings $30,986 $39,047 $51,151 $73,948
================== ================= =================== ====================






- 20 -



UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(N) GOODWILL AND OTHER INTANGIBLE ASSETS

As of September 30, 2003 and December 31, 2002, UIL Holdings maintained $78
million and $76.1 million, respectively, of goodwill related to its non-utility
businesses that, in accordance with SFAS 142, is no longer being amortized, and
$8.8 million and $7.8 million, at September 30, 2003 and December 31, 2002,
respectively, of identifiable intangible assets that continue to be amortized.

A summary of UIL Holdings' goodwill as of September 30, 2003 is as follows:

American
(Thousands of Dollars) Xcelecom Payment Systems Total
-------------------------------------------

Balance, December 31, 2002 $66,957 $9,136 $76,093

Goodwill additions during the nine
months ended September 30, 2003 1,669 251 1,920
-------------------------------------------
Balance, September 30, 2003 $68,626 $9,387 $78,013
===========================================

There were no impairments to the goodwill balances recognized during the nine
months ended September 30, 2003.

As of September 30, 2003 and December 31, 2002, UIL Holdings' intangible assets
and related accumulated amortization consisted of the following:



As of September 30, 2003
-------------------------------------------------------------
(Thousands of Dollars) Gross Accumulated Amortization Net Balance
-------------------------------------------------------------

Intangible assets subject to amortization:
Agent listing $5,603 $1,627 $3,976
Non-compete agreements 2,465 1,936 529
Backlog 256 256 -
Employee sales force 150 138 12
Trade name 100 92 8
Finder fee 200 117 83
-------------------------------------------------------------
Total $8,774 $4,166 $4,608
=============================================================




As of December 31, 2002
-------------------------------------------------------------
(Thousands of Dollars) Gross Accumulated Amortization Net Balance
-------------------------------------------------------------

Intangible assets subject to amortization:
Agent listing $5,577 $ 687 $4,890
Non-compete agreements 1,485 1,057 428
Backlog 256 214 42
Employee sales force 150 113 37
Trade name 100 76 24
Finder fee 200 67 133
-------------------------------------------------------------
Total $7,768 $2,214 $5,554
=============================================================


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



- 21 -


UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

UIL Holdings recorded amortization expense of $0.5 million and $1.2 million,
respectively, for the three and nine months ended September 30, 2003, and $0.6
million and $1.4 million, respectively, for the three and nine months ended
September 30, 2002, 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 as follows:

2003 2004 2005 2006 2007
---- ---- ---- ---- ----
(In Thousands)
$1,461 $1,350 $1,010 $1,010 $714

(O) SUBSEQUENT EVENTS

TRANSITIONAL STANDARD OFFER

UI entered into an agreement on October 22, 2003 with PSEG Energy & Resources
Trade LLC (PSEG) for the supply of all of UI's transitional standard offer
generation service needs for the entire transitional standard offer period in
Connecticut, from January 1, 2004 through December 31, 2006. The contract with
PSEG is a fixed price contract under which PSEG is responsible for the risks of
delivery to UI associated with the implementation of New England's standard
market design, including congestion costs and marginal line losses. The
agreement excludes UI's generation service requirements for special contract
customers through 2008, which are provided through an existing contract with
Dominion. On October 23, 2003 the DPUC issued a decision approving the
procurement process and the resulting prices and material terms of the
agreement. The DPUC decision provides that the results of the procurement
process will be considered in the formulation of UI's retail transitional
standard offer "without change or alteration." The DPUC's retail Transitional
Standard Offer proceeding is required by legislation to be completed by December
15, 2003 for implementation on January 1, 2004. UI anticipates that the retail
prices will meet all legislative requirements.






- 22 -


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

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.

MAJOR INFLUENCES ON FINANCIAL CONDITION

UIL HOLDINGS CORPORATION

UIL Holdings' financial condition and financing capability will be dependent on
many factors, including the level of income and cash flow of UIL Holdings'
subsidiaries, conditions in the securities markets, economic conditions,
interest rates, legislative and regulatory developments and regulations and the
ability to retain key personnel.

The loss of key personnel or the inability to hire and retain qualified
employees could have an adverse effect on the business, financial condition and
results of operations for UIL Holdings' and its operating subsidiaries: UI,
Xcelecom and APS. These operations depend on the continued efforts of its
current and future executive officers, senior management and management
personnel. Xcelecom has acquired a number of companies in the past. The success
of these acquisitions is dependent on the continued involvement of the operating
management of these entities. UIL Holdings cannot guarantee that any member of
management at the corporate or subsidiary level will continue to serve in any
capacity for any particular period of time. If UIL Holdings were to lose a
number of key personnel, its operations could be adversely affected.

THE UNITED ILLUMINATING COMPANY

UI is an electric transmission and distribution utility, whose rates and allowed
return on equity are regulated by the Federal Energy Regulatory commission
(FERC) and the Connecticut Department of Public Utility Control (DPUC). The
primary factors affecting the financial results of UI are sales volume, ability
to control expenses and capital expenditures, and regulatory policies and
decisions. The two primary factors that affect electric utility sales volume are
economic conditions and weather. The weather can also have an impact on expenses
dependent on the level of work required to deal with storms or other extreme
conditions. The major expense components are (1) purchased power; (2)
amortization of stranded costs; (3) wages and benefits; (4) depreciation; and
(5) interest.

On September 26, 2002, the DPUC issued a final decision in UI's retail customer
ratemaking (Rate Case) proceeding. The decision provided for a $30.9 million
reduction in UI's annual revenue requirements, including (1) a $20.3 million
reduction to UI's customer rates, (2) $2 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 were
reduced by 3% overall. The final Rate Case decision established rates on the
basis of an authorized return on equity of 10.45%, excluding UI's investment in
transmission rate base. Earnings above the authorized return are to be shared
50% to customers and 50% to net income, with the customers' share divided
equally between bill reductions and an accelerated amortization of stranded
costs. The Rate Case decision recognizes that the revenue requirements
determination for transmission, including the applicable return on equity, is
within the jurisdiction of the FERC. UI's authorized return on equity for
transmission is 10.75%.

Following a work stoppage by UI's unionized employees from May 16, 2002 to June
9, 2002, UI and the Union entered into a three-year contract that provides for
average annual wage increases of 4.8%. In addition to wage and salary increases,
the cost of health care and pension benefits have increased and are expected to
continue to increase in the future.



- 23 -


On March 26, 2003, the DPUC issued a decision granting UI's request to reopen
its September 2002 Rate Case decision, to examine increased pension and
postretirement benefits expenses of UI for 2003. The March 26, 2003 decision
stated that "1) there are various changed conditions that have affected the
pension related expenses of UI, 2) the underlying causes of such changed
conditions were largely beyond UI's control, and 3) the impact on UI of the
changed conditions is of a magnitude that could affect UI's financial
integrity."

On June 25, 2003, the DPUC issued a decision denying, without prejudice, UI's
request for recovery of $15.5 million in increased pension and postretirement
benefits expenses. The DPUC stated that although "UI demonstrated increased
expenses related to those items, the Company's current earning at or near its
allowed return on equity indicates that no ratemaking relief is necessary at
present." On August 8, 2003, UI filed an administrative appeal from that
decision in the Connecticut Superior Court, asserting that the DPUC's decision
was contrary to law and should be reversed.

The DPUC's June 25, 2003 decision also noted "that the Company may request
regulatory treatment for this specific expense in the future by filing a motion
to reopen." On July 29, 2003 UI filed a motion to reopen the docket to request
recovery of the increased pension and postretirement benefits expense on a
going-forward basis, based upon UI's earnings for the first six months of 2003
and for the nine months since the Rate Case decision. On September 10, 2003, the
DPUC reopened the docket and a technical meeting on this matter was held on
November 6, 2003. Hearings are scheduled for early December and settlement
discussions are ongoing.

In April 1998, the Connecticut legislature enacted Public Act 98-28 (the
Restructuring Act), a statute designed to restructure the regulated electric
utility industry. Under the Restructuring Act, all Connecticut electricity
customers are able to choose their electricity suppliers. 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
electricity supplier, 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 electricity supplier 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 (VEPCO) 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. VEPCO assigned its obligations under
the terms of the agreement to Dominion Energy Marketing (Dominion) on February
1, 2003. As a result of the implementation of standard market design in New
England in 2003, the price of generation in transmission-constrained areas may
increase. Until December 31, 2003, such costs are included in the contractual
price paid by UI under its contract with Dominion.

In June 2003, the Connecticut General Assembly enacted Public Act 03-135,
subsequently amended in part by Public Act 03-221, to provide for electric
distribution companies to provide "transitional standard offer service,"
beginning January 1, 2004 and continuing through December 31, 2006, to each
customer who does not choose an alternate energy supplier. The 2003 legislation
also makes other changes to restructuring on a going forward basis, including a
provision for information on "federally mandated congestion costs" to be on
customer bills. The legislation provides that the DPUC will establish the
transitional standard offer rates in a contested proceeding by December 15,
2003, with the expected transitional standard offer price (which excludes
federally mandated congestion costs) to be not greater than 1996 price levels,
taking into account a subsequent ratemaking decision. The legislation also
provides for the electric distribution companies to recover their costs of
procuring and providing transitional standard offer service. Public Act 03-135
provides for a fee of $0.005 per kilowatt-hour to be collected by the electric
distribution company as further compensation for the procurement of transitional
standard offer supply. Renewable energy portfolio standards will be in effect as
of January 1, 2004, pursuant to the legislation, for generation services
provided to retail customers. UI has included the requirement to meet these
standards for transitional standard offer customers in its power supply
agreement, consistent with statutory requirements. The legislation is being
implemented through several DPUC proceedings. In addition, the legislation
requires that any new rate case filings include a four-year rate plan.

Public Act 03-6 of the June 30 special session and Public Act 03-1 of the
September 8 special session provides for the period February 1, 2003 through
July 31, 2005, for certain of the funds collected by electric distribution
companies from retail customers pursuant to Public Act 98-28 for conservation
and load management programs to be transferred to the general funds of the
state. The legislation provides that the transfer of funds would not occur
provided that the conservation and load management and renewable energy
investment funds are securitized for two fiscal years beginning July 1, 2003,
through the state's issuance of rate reduction bonds secured by customer


- 24 -


revenue streams. This process would result in the state receiving the net
proceeds from the rate reduction bonds. The legislation provides for the
companies' costs with respect to the bonds to be collected through the
competitive transition assessment on customers' bills. On September 15, 2003,
UI requested a financing order from the DPUC, providing for the issuance of
rate reduction bonds, adjustment of the conservation and renewable investment
charges, and increase in the competitive transition assessment on customers'
bills. The financing order was issued by the DPUC on October 28, 2003. The rate
reduction bonds are expected to be issued early in the first quarter of 2004.
Management believes that the securitization will not adversely impact the
electric distribution companies and that there will be no material impact on
UI's financial condition.

UI's agreement with Dominion for standard offer generation service replaced an
earlier wholesale power agreement and other related agreements with Enron Power
Marketing, Inc. (EPMI), originally intended to supply all of the power needed to
meet UI's standard offer obligations until the end of the standard offer period
(the Agreements). Following EPMI's bankruptcy filing on December 2, 2001, UI
terminated the Agreements in accordance with their terms, effective January 1,
2002, in reliance upon provisions of the Bankruptcy Code that permit termination
of such contracts. The Agreements permitted UI to calculate its gains and losses
resulting from the termination, and globally to net these gains and losses
against one another, and against any other amounts that UI owed to EPMI under
the Agreements, to arrive at a single sum. EPMI, however, commenced on January
31, 2003 an adversary proceeding against UI and UIL Holdings in the EPMI
bankruptcy. UIL Holdings was sued as the guarantor of UI's financial obligations
under the Agreements. EPMI contends that UI was not entitled to offset, against
any losses UI suffered from the termination of the Agreements, any amounts owing
to EPMI for power delivered to UI after the date EPMI filed for bankruptcy. The
amount of the allegedly improper setoff that EPMI seeks to recover in the
adversary proceeding is approximately $8.2 million, plus interest and attorneys'
fees. In the event that UI is determined to owe EPMI a portion or all of such
amount for power delivered after EPMI filed for bankruptcy, UI will seek
recovery of such amount through the regulatory process.

Under the Restructuring Act, UI is allowed to collect a competitive transition
assessment (CTA) to recover costs that have been reasonably incurred, or will be
incurred to meet its public service obligations, and that will likely not
otherwise be recoverable in a competitive 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). A significant amount of UI's earnings are generated by the allowed
return on the equity portion of the CTA rate base. The CTA rate base earns
exactly that return, no more and no less, by adjustments made to amortization
expense in each period. A significant portion of UI's cash flow from operations
is also generated from those earnings and from the recovery of the CTA rate
base. CTA rate base has declined from year to year for a number of reasons
including: amortization of CTA rate base components, the sale of the nuclear
units, and any adjustments made through the annual DPUC review process. The
original rate base component of stranded costs, as of January 1, 2000, was $433
million. It has since declined to $413 million at year-end 2000, $373 million at
year-end 2001, and $309 million at year-end 2002. Of the $64 million decrease
from year-end 2001 to year-end 2002, approximately $43 million was due to the
sale of UI's interests in Seabrook Station. The 2002 result is subject to DPUC
review during 2003, pursuant to an annual review of UI's CTA revenues and
expenses, and may be adjusted in accordance with that review. From 2003 on, CTA
rate base will likely decline at an accelerating rate due to increasing levels
of amortization. However, during July 2003, the DPUC issued an order requiring
that the reduction of CTA rate base utilizing excess generation services charge
(GSC) revenues be discontinued until further determination. Subject to the
ultimate use of these excess GSC revenues as ordered by the DPUC, UI's CTA
earnings will decrease while, based on UI's current projections, cash flow will
remain fairly constant until stranded costs are fully amortized between 2011 and
2015, depending upon the DPUC's decisions.

In order to maintain and improve its transmission and distribution system and to
provide quality customer service, UI is required to spend a significant amount
each year on capital projects. UI expects to fund capital projects internally
through the recovery of depreciation and from amortization of stranded costs. To
the extent that the cost of future capital projects exceeds internally generated
funds, the remainder must be financed externally.

AMERICAN PAYMENT SYSTEMS, INC.

The four primary risk factors affecting the financial results of APS and its
subsidiaries are (1) the ability to recruit and retain agents, (2) the ability
to manage and control agent fraud to ensure that the agents are depositing the
funds collected from the consumers in a timely fashion, (3) the maintenance of
internal control systems and procedures to account for the movement of
significant amounts of cash from the agents to APS and on to the biller, on
whose


- 25 -


behalf the funds are collected, and (4) compliance with increasingly complex
regulatory requirements applicable to its businesses.

APS has a formal program in place to recruit and train agents. The two key
elements of APS's agent retention program are: (1) offering multiple products
(i.e. walk-in bill payments, prepaid stored value cards, prepaid telephony
products) increases the agents' commission income, and (2) providing efficient
and reliable technology to interface with APS on transaction processing.

Upon acceptance of bill payments by its agents, APS guarantees the payments to
the billers. Accordingly, APS is at risk for the amount of the payments until it
collects such amounts from its agents. APS receives daily reports from agents
with respect to cash collected and deposited into APS-owned and agent-owned bank
accounts (field accounts). Cash is swept from the field accounts to APS's
concentration account on a daily basis and a substantial portion of the high
dollar volume accounts are reconciled on a daily basis. Any variation between
cash receipts and amounts deposited in the field accounts are investigated by
APS on a daily basis. APS self-insures its agent fraud risk.

APS's ability to make accurate banking transactions is critical to conducting
its business and eliminating risk. APS reviews its internal control systems and
investigates advances in technology as part of its efforts to make improvements
in its systems and procedures.

APS intends to reduce banking costs by reducing the number of bank accounts it
maintains and, instead, requiring agents to deposit payments into their own bank
accounts. Agents who maintain their own bank accounts are contractually
obligated to hold the collected funds in trust for the benefit of the biller.
This strategy will result in a delay of monitoring timely deposits by the agent,
which may increase agent fraud risk. The processing of bill payments also
requires APS to maintain a record-keeping system, and a reliable and secure
information technology system.

APS is subject to numerous state and federal banking regulations and is required
in states where it conducts business to have and maintain money transmitter
licenses. Most of APS's business consists of transmitting customer payments to
domestic utilities as agent of the utilities. APS's money transmitter and stored
value businesses are subject to licensing, operating and reporting requirements
imposed by many state money transmitter laws, and its operations are subject to
examination by state regulators. These state licensing laws may impose penalties
for conducting such activities without a license. APS has applied for or
obtained licenses for its businesses in all states in which it is offering these
services and has been advised that it is required to do so.

The number and complexity of regulatory requirements have increased
significantly following passage of the USA PATRIOT ACT in October 2001, to
detect and prevent money laundering and terrorist financing. Federal and state
regulators have revised, imposed or are considering the imposition of a variety
of implementing regulations. Among other things, APS is required under the
federal Bank Secrecy Act to make certain filings with regulators, keep certain
records, maintain an anti-money laundering compliance program and be examined
for regulatory compliance. A failure to comply with such requirements could
result in sanctions, including civil or criminal penalties against APS and/or
its agents. APS is continually reviewing and enhancing its compliance program to
meet the requirements of all applicable laws and regulations.

Other factors affecting the financial results of APS and its subsidiaries are
the pace of technological changes, competition, and attracting and retaining
management expertise.

APS's subsidiaries have included APS Card Services, Inc. (CSI), which was 100%
owned, and CellCards of Illinois, LLC (CCI), which is currently 51% owned. CSI
was organized by APS to market a prepaid stored value card to consumers through
the APS agent network. CSI was merged into APS on July 31, 2003. 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 through APS's network of agents. APS has the option (a call option)
to purchase the remaining 49% of CCI beginning in May 2004, at a price to be
determined by a formula based on future sales and earnings performance. The
other owners of CCI have the option (a put option) to require APS to purchase
such remaining 49%, beginning in May 2004, or earlier if certain change of
control events or management changes occur. The put and call options together
provide a synthetic forward option for the purchase of the remaining 49% of CCI
by APS.



- 26 -


UCI's $1 million investment in Bill Matrix, a provider of a bill payment by
phone service, was transferred to APS during the first quarter 2003. APS also
has a joint marketing agreement with Bill Matrix.

APS acquired point of sale activation (POSA) technology from a vendor. In
conjunction with this technology acquisition, APS entered into a Loan and
Security Agreement with this vendor. Under this agreement, APS made three loans
to the vendor and its affiliates totaling $3 million. In the fourth quarter
2002, APS declared the borrower in default of all loans and seized assets valued
at $0.8 million, including the borrower's accounts receivable, inventory,
assignment of contracted arrangements with the borrower's retailer network, and
POSA terminals. APS has sold a portion of the seized assets to CCI. As part of
the foreclosure, the remaining outstanding loan balance of $2.2 million was
restructured. The Amended and Restated Loan Agreement matures on November 19,
2006. APS has established an appropriate reserve against the remaining loan
balance with regard to the collectibility of the loan.

XCELECOM, INC.

The principal factors affecting the financial results of Xcelecom and its
subsidiaries are (1) construction spending; (2) competition; (3) fixed-priced
contract estimation and bidding; (4) work-related hazards and insurance; (5)
attracting and retaining management expertise; and (6) risks related to
management of internal growth. Additional risk factors include general economic
conditions, the pace of technological changes, recoverability and potential for
impairment of goodwill, and collectibility of receivables.

More than half of Xcelecom's business is the installation of electrical,
mechanical and integrated network information systems in newly constructed and
renovated buildings and plants. Downturns in levels of construction starts can
have a material adverse effect on Xcelecom's business, financial condition and
results of operations. In addition, Xcelecom's business is subject to seasonal
variations in operations and demand that affect the construction business,
particularly in new construction. Quarterly results may also be affected by
regional economic conditions and weather. Accordingly, Xcelecom's performance in
any particular quarter may not be indicative of the results that can be expected
for any other quarter or for the entire year.

The specialty contracting construction services business is highly fragmented
and competitive. A majority of Xcelecom's revenues are derived from projects
requiring competitive bids; however, an invitation to bid is often conditioned
upon prior experience, technical capability and financial strength. Xcelecom
competes with national, regional and local companies, many of which are small,
owner-operated entities that operate in a limited geographic area. Competitive
factors in the specialty contracting construction services business include: (1)
the availability of qualified and/or licensed personnel; (2) reputation for
integrity and quality; (3) safety record; (4) cost structure; (5) relationships
with customers; (6) geographic diversity; (7) the ability to control project
costs; (8) experience in specialized markets; (9) the ability to obtain surety
bonding; (10) adequate working capital; and (11) access to bank credit. The
competitive bidding process for new business contracts may also intensify during
economic downturns and result in lower potential profit margins and an increased
potential for project cost overruns, resulting in losses.

Xcelecom believes that current cash balances and borrowing capacity available
under lines of credit, combined with cash expected to be generated from
operations, will be sufficient to provide short-term and foreseeable long-term
liquidity and meet expected capital expenditure requirements. However,
Xcelecom's ability to generate positive cash flow at its historical levels in
the future could be adversely impacted by numerous risks, including economic
cycles, competition, cost overruns on fixed price projects, and reductions in
collections. Such reductions in cash flow, together with the financial and other
covenants in Xcelecom's credit facility agreements, could limit its ability to
borrow additional funds. Additionally, failing to comply with those covenants
could result in an event of default, which, if not cured or waived, could have a
material adverse affect on Xcelecom.

Many customers, particularly in connection with new construction, require
Xcelecom to post performance and payment bonds issued by a financial institution
known as a surety. These bonds provide a guarantee to the customer that Xcelecom
will perform under the terms of a contract and that it will pay subcontractors
and vendors. If Xcelecom fails to perform under a contract or to pay
subcontractors and vendors, the customer may demand that the surety make
payments or provide services under the bond. Xcelecom must reimburse the surety
for any expenses or outlays it incurs. To date, Xcelecom has not had any
significant reimbursements to its surety for bond-related costs,


- 27 -


and it believes that it is unlikely that it will have to fund claims under its
surety arrangements in the foreseeable future.

Xcelecom currently generates, and expects to continue to generate, a large
proportion of its revenues under fixed price contracts. Variations from
estimated contract costs along with other risks inherent in performing fixed
price contracts may result in actual revenue and gross profits for a project
differing from those originally estimated and could result in losses on
projects. Depending upon the size of a particular project, variations from
estimated contract costs can have a significant impact on Xcelecom's operating
results for any fiscal quarter or year.

Hazards related to Xcelecom's industry include, but are not limited to,
electrocutions, fires, mechanical failures, and transportation accidents. These
hazards can cause personal injury and loss of life, severe damage to or
destruction of property and equipment, and may result in suspension of
operations. Xcelecom's third-party insurance is subject to large deductibles for
which reserves are established. Accordingly, Xcelecom self-insures for this
exposure. Xcelecom believes its insurance and provisions for self-insurance of
deductibles are adequate to cover all losses and liabilities. Losses impacting
self-insurance provisions or exceeding insurance limits could impact Xcelecom's
operating results.

Historically, a significant amount of Xcelecom's growth has come through
acquisitions. From July of 1999 to Xcelecom's last significant acquisition in
April of 2002, Xcelecom has made 12 acquisitions. Xcelecom currently does not
intend to grow materially through acquisitions in the foreseeable future;
however, it will continually evaluate acquisition prospects to complement and
expand its existing business platforms. The timing, size or success of any
acquisition effort and the associated potential capital commitments cannot be
predicted. Each acquisition involves a number of risks. These risks include the
diversion of management's attention from existing businesses to integrating the
operations and personnel of the acquired business; possible adverse effects on
operating results during the integration process; and possible inability to
achieve the intended objectives of the combination. If future acquisitions do
not perform as expected, Xcelecom may be required to write-off some or all of
the value of any goodwill and intangible assets associated with the
acquisitions. Financial results may also be impacted depending on the degree of
integration of acquisitions, including the ability to achieve synergies over the
network of subsidiaries. Xcelecom's revenue growth over the past several years
has been generated principally through acquisitions. Without significant
acquisition activity, and in the absence of economic improvement in regional
markets in which it operates, Xcelecom does not expect any material growth in
revenues in 2003.

Xcelecom had a backlog as of September 30, 2003 of approximately $128 million,
compared with backlog, including the effects of 2002 acquisitions, of
approximately $113 million as of September 30, 2002.

On October 21, 2003, UIL Holdings announced the appointment of a new President
of Xcelecom, John Conroy, Xcelecom's former Senior Vice President and Chief
Financial Officer.

UNITED CAPITAL INVESTMENTS, INC.

UCI's investments in venture funds were viewed as an opportunity to earn an
appropriate return and a means of promoting local economic development. Due to
the type of investments and market conditions, the value of the Zero Stage VI
fund has decreased substantially in 2002 and 2001. The other two funds have been
established more recently and are not yet fully invested. These funds have
experienced a smaller decrease in value, principally due to fund management fees
and syndication costs. UCI has no current plans to make additional, new,
minority interest investments.

UCI also has a 25% interest in Cross-Sound Cable Company, LLC (Cross-Sound).
Cross-Sound owns and proposes to commercially operate a 330 megawatt
transmission line (cable) connecting Connecticut and Long Island under Long
Island Sound. TransEnergieUS Ltd., the project developer and majority owner, is
a Delaware corporation and a subsidiary of TransEnergie HQ Inc., the
transmission affiliate of Hydro-Quebec (HQ). Cross-Sound has a twenty year
contract with the Long Island Power Authority (LIPA) for the entire capacity of
the transmission line.



- 28 -


The Cross-Sound project has been opposed on environmental, safety, and economic
concerns by a number of public officials and private groups who have
participated actively in governmental permitting proceedings relative to the
project. In January 2002, the Connecticut Siting Council (CSC) granted a
certificate of environmental compatibility and public need to construct the
cable. The Connecticut Attorney General and the City of New Haven appealed the
CSC's decision to the Connecticut Superior Court. In August 2002, the Superior
Court upheld the CSC's decision, and the Connecticut Attorney General appealed
the Superior Court decision to the Connecticut Supreme Court. In September 2003
the Connecticut Attorney General withdrew this appeal, leaving intact the
Superior Court's decision upholding the CSC approval.

The project received all necessary permits prior to the cable being installed
in the spring of 2002. After installation, it was determined that several
sections of the cable in New Haven Harbor do not currently meet the burial
depths required by the permits. The authorized depth was not achieved due to
the obstruction of rock ledge, sediment and other more movable types of
obstruction, such as tree stumps and metal plate debris. The Department of
Environmental Protection (DEP) and United States Army Corp of Engineers have
raised no environmental or navigational concerns related to operation of the
cable as currently buried; however, the DEP has indicated that under the
current permit, the permit depth must be reached before commercial operation
can begin. Cross-Sound is developing proposals for achieving the required
burial depth. On June 12, 2003 Cross-Sound submitted a new Permit Application
to the DEP requesting that the DEP issue a permit to allow Cross-Sound to
operate the cable as installed in its current location through December 31,
2007.

A Connecticut legislative moratorium on installing new gas and utility lines
across Long Island Sound through early June 2004 has been enacted. This
moratorium has impacted the permitting process. Cross-Sound expects the DEP to
act on Cross-Sound's new permit application no later than when the moratorium
expires. Absent other developments, UCI anticipates that the cable will achieve
commercial operation in 2005.

On August 14, 2003, the day of the blackout that affected the Northeast and the
Upper Midwest areas of the United States as well as portions of Canada, the
Department of Energy (DOE) declared a federal emergency and issued an Emergency
Order to allow immediate operation of the Cross-Sound cable through September
1, 2003. On August 28, 2003 the DOE issued a new Order for the cable to operate
until the causes of the blackout are conclusively determined and the factors
that caused it mitigated. On August 29, 2003 the Connecticut Attorney General
and the DEP filed a request for Stay or Rehearing to the DOE of the August 28
DOE Emergency Order. Briefs were due by November 3, 2003 and a decision by the
DOE is not expected before December 2003. On September 23, 2003 the Connecticut
Attorney General also filed an appeal to the Federal Circuit Court of Appeals
in New York of the August 28 DOE Emergency Order. This appeal cannot proceed
before the DOE issues its decision on Stay or Rehearing.

Also, since the DOE Emergency Order, the DEP announced that it plans to issue a
request for proposal to hire an independent consultant to compare the
environmental impacts of cable operation in the current location with the
impacts that would result from reburying the cable to the permitted depth.

As of September 30, 2003, UCI's 25% share of the actual project cost for the
Cross-Sound cable was $33 million. UCI's 25% share of the estimated total final
cost of the project is $34.3 million. UCI has provided an equity infusion of
$10 million to Cross-Sound and UIL Holdings loaned $23.5 million to
Cross-Sound. In addition, a guarantee of $3.8 million, in support of
Hydro-Quebec's guarantees to third parties in connection with the construction
of the project has been provided. It is expected that any obligations of
Cross-Sound that are supported by the guarantee would be funded by capital
contributions from the owners, who are affiliates of the guarantors, in amounts
in proportion to their respective ownership shares of Cross-Sound. No liability
was recorded related to the guarantee, as the likelihood of UIL Holdings having
to perform under the guarantee is remote. Upon commercial operation, the loan
from UIL Holdings is expected to be refinanced with external project financing.
UCI will be responsible for 25% of any additional cost of project completion
over the estimated amount. Currently Cross-Sound and LIPA are working on a
compensation agreement which will cover all time periods for which DOE
Emergency Orders are, or were, in place. UCI has recorded no income for the
project in 2003. The FERC will have to approve any of the amounts that will be
paid for the operation of the cable during this period.



- 29 -


UNITED BRIDGEPORT ENERGY, INC.

Due to the relatively low wholesale price for both electricity and generation
capacity, and high natural gas prices during the past two years, UBE's
investment in Bridgeport Energy LLC (BE) has not produced the returns initially
anticipated. The facility is located in a transmission-constrained area and may
benefit from the implementation of standard market design changes in New
England. See "Looking Forward - United Resources, Inc. (URI) Earnings Estimates
for 2003 - URI Minority Interest Investments - United Bridgeport Energy, Inc."

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2003, UIL Holdings had $91.4 million of cash and temporary cash
investments, of which $47.9 million was restricted cash; the majority of
restricted cash was funds collected by APS's agents that had not been forwarded
to APS's clients. This represents an increase of $24.4 million from the
corresponding cash balance at December 31, 2002. The components of this
increase, which are detailed in the Consolidated Statement of Cash Flows, are
summarized as follows:

(In Millions)
-----------

Balance, December 31, 2002 $67.0
--------------

Net cash provided by operating activities:
- - Net cash provided by operating activities before
net settlements 98.8
- - Net settlements (1) 7.6
--------------
106.4
--------------
Net cash provided by (used in) investing activities:
- - Investment in debt securities, net 25.0
- - Loan to Cross-Sound cable project (23.5)
- - Cash invested in plant (42.8)
- - Deferred payments in prior acquisitions (2.7)
--------------
(44.0)
--------------

Net cash used in financing activities:
- - Financing activities, excluding dividend payments (7.2)
- - Dividend payments (30.8)
--------------
(38.0)

Net Change in Cash 24.4
--------------

Balance, September 30, 2003 $91.4
==============

(1) 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.

There have been no material changes in UIL Holdings' capital resources or
capital requirements from those reported in UIL Holdings' Annual Report on Form
10-K for the fiscal year ended December 31, 2002, except that APS has repaid the
$3 million outstanding balance under its $10 million revolving credit agreement
with a bank, and the agreement was not renewed when it expired on April 11,
2003. 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 and a $35 million
revolving credit agreement that Xcelecom has with two banks, 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
financial markets, economic conditions, and future income and cash flow. See
Item 1, "Financial Statements - Notes to Consolidated Financial Statements -
Note (B), Capitalization and Note (D), Short-Term Credit Arrangements" for a
discussion of UIL Holdings' credit arrangements.



- 30 -


CONTRACTUAL AND CONTINGENT OBLIGATIONS

At September 30, 2003 there was no material change in UIL Holdings' and its
subsidiaries contractual and contingent obligations from those reported in UIL
Holdings' Annual Report on Form 10-K for the fiscal year ended December 31,
2002.

CRITICAL ACCOUNTING POLICIES

The discussion of Results of Operations and financial condition relies on UIL
Holdings' Consolidated Financial Statements that are prepared based on certain
critical accounting policies that require management to make judgments and
estimates that are subject to varying degrees of uncertainty. UIL Holdings
believes that investors need to be aware of these policies and how they impact
UIL Holdings' financial reporting to gain a more complete understanding of UIL
Holdings' Consolidated Financial Statements as a whole, as well as UIL Holdings'
related discussion and analysis presented herein. While UIL Holdings believes
that these accounting policies are grounded on sound measurement criteria,
actual future events can and often do result in outcomes that can be materially
different from these estimates or forecasts. The accounting policies and related
risks described in UIL Holdings' Annual Report on Form 10-K for the fiscal year
ended December 31, 2002 are those that depend most heavily on these judgments
and estimates. At September 30, 2003, there have been no material changes to any
of the Critical Accounting Policies contained therein.

RESULTS OF OPERATIONS

UIL HOLDINGS CORPORATION RESULTS OF OPERATIONS: THIRD QUARTER 2003 VS. PREVIOUS
- --------------------------------------------------------------------------------
ESTIMATE
- --------

Net Income for UIL Holdings was $17 million in the third quarter of 2003, or
$1.19 per share. This was within the $1.15-$1.30 per share range estimated in
UIL Holdings' Form 10-Q for the quarterly period ended June 30, 2003. UI's
earnings exceeded third quarter expectations somewhat due to a warmer August
than had been anticipated in the previous estimate. That was offset by
Xcelecom's results which were lower than expected because of the continuing
economic slowdown in the non-residential construction industry.

THIRD QUARTER 2003 VS. THIRD QUARTER 2002
- -----------------------------------------

UIL HOLDINGS CORPORATION RESULTS OF OPERATIONS: THIRD QUARTER 2003 VS. THIRD
- -----------------------------------------------------------------------------
QUARTER 2002
- ------------

UIL Holdings' earnings for the third quarter of 2003 decreased by $4.8 million,
or $0.34 per share, compared to the third quarter of 2002. The decrease in
earnings was due to lower earnings at UI and URI. The UI earnings decrease was
mainly attributable to the absence of Nuclear Division earnings resulting from
the sale of Seabrook nuclear generating station in November of 2002, and the
impact of the Department of Public Utility Control's (DPUC) Rate Case decision.

The earnings decrease at URI was due primarily to lower earnings at Xcelecom,
Inc., which continues to be impacted by the economic slowdown in its markets,
and lower results from continuing increases in gas prices affecting UBE's
minority interest in BE.



- 31 -


The table below represents a comparison of UIL Holdings' Net Income and Earnings
per Share (EPS) for the third quarter of 2003 and the third quarter of 2002.



- -------------------------------------------------------------------------------------------------------------------
2003 more (less) than 2002
Quarter Ended Quarter Ended --------------------------
Sept. 30, 2003 Sept. 30, 2002 Amount Percent
- -------------------------------------------------------------------------------------------------------------------

NET INCOME (IN MILLIONS EXCEPT PERCENTS)
UI $17.8 $17.3 $0.5 3%
Nuclear Division 0.0 3.8 (3.8) (100)%
United Resources (Non-Utility) (0.8) 0.7 (1.5) (214%)
------ ------ -----
TOTAL NET INCOME FROM OPERATIONS $17.0 $21.8 $(4.8) (22)%
===== ===== ===

EPS FROM OPERATIONS
UI $1.25 $1.21 $.04 3%
Nuclear Division 0.00 0.27 (0.27) (100)%
United Resources (Non-Utility) (0.06) 0.05 (.11) (220)%
------ ---- -----
TOTAL EPS - BASIC $1.19 $1.53 $(0.34) (22)%
===== ===== ====
TOTAL EPS - DILUTED (NOTE A) $1.19 $1.53 $(0.34) (22)%
===== ===== ====
- -------------------------------------------------------------------------------------------------------------------

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



- 32 -


The following table is a line-by-line breakdown of certain line items of UIL
Holdings' Consolidated Statement of Income by subsidiary, including comparisons
between the third quarter of 2003 and the third quarter of 2002. Significant
variances are explained in the individual subsidiary sections that follow.



UIL HOLDINGS CORPORATION
SEGMENTED CONSOLIDATED INCOME STATEMENT


QUARTER ENDED QUARTER ENDED 2003 MORE (LESS)
(IN MILLIONS) SEPT. 30, 2003 SEPT. 30, 2002 THAN 2002
- ------------- -------------- -------------- ---------

OPERATING REVENUES

UI from operations, before sharing $194.9 $212.0 ($17.1)
UI Sharing from operations 0.0 (6.6) 6.6
Nuclear 0.0 14.3 (14.3)
Xcelecom 74.8 78.7 (3.9)
APS 22.5 22.7 (0.2)
Minority Interest Investment and Other (0.1) 0.0 (0.1)
----- ----- -----
TOTAL OPERATING REVENUES 292.1 321.1 (29.0)
===== ===== =====

FUEL AND ENERGY EXPENSES
UI 77.4 76.2 1.2
Nuclear 0.0 2.0 (2.0)
---- ---- ----
TOTAL FUEL AND ENERGY EXPENSES 77.4 78.2 (0.8)
==== ==== ====

OPERATION AND MAINTENANCE EXPENSES
UI 48.5 49.7 (1.2)
Nuclear 0.0 4.9 (4.9)
Xcelecom 73.3 75.4 (2.1)
APS 21.5 21.8 (0.3)
Minority Interest Investment and Other 0.8 0.5 0.3
----- ----- ----
TOTAL OPERATION AND MAINTENANCE EXPENSES 144.1 152.3 (8.2)
===== ===== ====

DEPRECIATION AND AMORTIZATION EXPENSES
UI 7.3 7.3 0.0
Nuclear 0.0 0.3 (0.3)
Xcelecom 0.9 0.8 0.1
APS 0.9 0.8 0.1
---- ---- ----
Subtotal depreciation 9.1 9.2 (0.1)
Amortization of regulatory assets (UI) 13.6 21.0 (7.4)
Amortization Xcelecom 0.3 0.3 0.0
Amortization APS (0.3) 0.1 (0.4)
---- ---- ----
TOTAL DEPRECIATION AND AMORTIZATION EXPENSES 22.7 30.6 (7.9)
==== ==== ====

TAXES - OTHER THAN INCOME TAXES
UI - State gross earnings tax 7.8 8.5 (0.7)
UI - other 3.1 3.7 (0.6)
Nuclear - other 0.0 0.2 (0.2)
Xcelecom 0.4 0.3 0.1
APS (0.2) 0.3 (0.5)
---- ---- ----
TOTAL TAXES - OTHER THAN INCOME TAXES 11.1 13.0 (1.9)
==== ==== ====





- 33 -




QUARTER ENDED QUARTER ENDED 2003 MORE (LESS)
(IN MILLIONS) SEPT. 30, 2003 SEPT. 30, 2002 THAN 2002
- ------------- -------------- -------------- ---------

OTHER INCOME (DEDUCTIONS)
UI 1.1 0.5 0.6
Xcelecom 0.1 0.1 0.0
APS 0.1 (0.1) 0.2
Minority Interest Investment and Other 0.8 2.0 (1.2)
--- --- ----
TOTAL OTHER INCOME (DEDUCTIONS) 2.1 2.5 (0.4)
=== === ====

EARNINGS BEFORE INTEREST AND TAXES (EBIT)
UI 38.3 39.5 (1.2)
Nuclear 0.0 6.9 (6.9)
Xcelecom 0.0 2.0 (2.0)
APS 0.7 (0.4) 1.1
Minority Interest Investment and Other (0.1) 1.5 (1.6)
---- ---- ----
TOTAL EARNINGS BEFORE INTEREST AND TAXES (EBIT) 38.9 49.5 (10.6)
==== ==== =====

INTEREST CHARGES
UI 5.6 9.1 (3.5)
UI - Interest on Seabrook obligation bonds owned by UI 0.0 (1.5) 1.5
UI - Amortization: debt expense, redemption premiums 0.3 0.5 (0.2)
Nuclear 0.0 0.5 (0.5)
Xcelecom 0.1 0.2 (0.1)
APS 0.0 (0.1) 0.1
Minority Interest Investment and Other 1.9 1.8 0.1
--- ---- ----
TOTAL INTEREST CHARGES 7.9 10.5 (2.6)
=== ==== ====

INCOME TAXES
UI 14.6 14.1 0.5
Nuclear 0.0 2.6 (2.6)
Xcelecom 0.0 0.7 (0.7)
APS 0.2 (0.1) 0.3
Minority Interest Investment and Other (0.8) (0.1) (0.7)
---- ---- ----
TOTAL INCOME TAXES 14.0 17.2 (3.2)
==== ==== ====

NET INCOME
UI 17.8 17.3 0.5
Nuclear 0.0 3.8 (3.8)
Xcelecom (0.1) 1.1 (1.2)
APS 0.4 (0.2) 0.6
Minority Interest Investment and Other (1.1) (0.2) (0.9)
---- ---- ----
TOTAL NET INCOME $17.0 $21.8 ($4.8)
===== ===== =====





- 34 -




THE UNITED ILLUMINATING COMPANY RESULTS OF OPERATIONS: THIRD QUARTER OF 2003
- -----------------------------------------------------------------------------
VS. THIRD QUARTER OF 2002
- -------------------------



- -------------------------------------------------------------------------------------------------------------------
2003 more (less) than 2002
Quarter Ended Quarter Ended --------------------------
Sept. 30, 2003 Sept. 30, 2002 Amount Percent
- -------------------------------------------------------------------------------------------------------------------

EPS FROM OPERATIONS
UI before Nuclear Division and Sharing $1.25 $1.73 $(0.48) (28)%
Sharing 0.00 (0.52) 0.52 100%
---- ------ ----
Subtotal UI excluding Nuclear 1.25 1.21 0.04 3%
Nuclear Division 0.00 0.27 (0.27) (100)%
---- ---- ------
TOTAL UI EPS FROM OPS.-BASIC $1.25 $1.48 $(0.23) (16)%
==== ==== ======
TOTAL UI EPS FROM OPS.-DILUTED $1.25 $1.48 $(0.23) (16)%
==== ==== ======
- -------------------------------------------------------------------------------------------------------------------
RETAIL SALES (MILLIONS OF KWH) 1,617 1,668 (51) (3)%
- -------------------------------------------------------------------------------------------------------------------


UI EXCLUDING THE NUCLEAR DIVISION

Excluding the Nuclear Division, UI's net income was $17.8 million, or $1.25 per
share, in the third quarter of 2003, compared to $17.3 million, or $1.21 per
share, in the third quarter of 2002. Before sharing, UI's earnings were $1.73
per share in the third quarter of 2002. The sharing of $0.52 per share in 2002
was a nine month adjustment distributing $0.26 per share to customers and
allocating $0.26 per share to stranded costs for the earnings above the
authorized return on equity of 11.5%. The primary causes for the pre-sharing
decrease in 2003 were the DPUC Rate Case decision and lower sales compared to
the third quarter of 2002. These were slightly more than offset by the absence
of sharing in the third quarter of 2003, and slightly lower O&M expense. The
lower O&M expenses were a result of temporary cost reductions UI introduced to
mitigate the effect of increases in pension and postretirement benefits
expenses.

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 and earnings per share
impact, while changes to those items in "other unbundled utility divisions" do
not. The other divisions are the CTA, the Systems Benefits Charge (SBC), the
GSC, the Conservation and Load Management program assessment (C&LM), and the
Renewable Energy Investment Fund charge (REI). The CTA and SBC both were allowed
to earn an 11.5% return on the equity portion of their respective rate bases
until the September 26, 2002 effective date of the Rate Case decision, and
10.45% thereafter in accordance with that decision. Those returns were achieved,
after all revenue and expense considerations, either by expensing additional
amortization, or by deferring such expenses, as required to achieve the
authorized return. Amortization expenses in the CTA and SBC divisions impact
earnings indirectly also through changes to rate base. The GSC, C&LM and REI are
pass-through divisions. Except for a small management fee earned in the C&LM
division, expenses are either accrued or deferred or revenues are transferred
between divisions such that there is no net income associated with these three
unbundled divisions.

UI's revenue decreased by $17.1 million, from $212 million in the third quarter
of 2002 to $194.9 million in the third quarter of 2003. A decrease of $23.7
million was offset partially by revenue sharing of $6.6 million in the same
quarter of 2002. In 2003, the lower revenue at UI was due to the impact of the
DPUC Rate Case decision that was effective on September 26, 2002.

Overall, the decision reduced UI's allowed return on utility common equity from
11.50% to 10.45%, reduced overall retail rates by 3%, and increased stranded
cost amortization expense. In 2002, UI earned $0.78 per share more in its
allowed return, $0.52 per share of which was shared with customers. In summary,
the Rate Case decision, lower retail sales and other factors reduced UI's
earnings by $0.48 per share in the third quarter of 2003 compared to the third
quarter of 2002. The absence of sharing in 2003 increased earnings by $0.52 per
share. Details of this change in revenue are as follows:



- 35 -


- --------------------------------------------------------------------------------
In Millions From Operations
- --------------------------------------------------------------------------------
Revenue Increase/(Decrease)
- --------------------------------------------------------------------------------
RETAIL REVENUE FROM DISTRIBUTION DIVISION:
Estimate of operating Distribution Division component of
"weather normalized" retail sales growth, (0.5)% $(0.4)
Estimate of operating Distribution Division component of
weather effect on retail sales, (2.5)% (2.3)
Sharing (2002) 6.6
Impact of rate decrease and mix of sales on average price
and other (12.8)
-----
TOTAL RETAIL REVENUE FROM DISTRIBUTION DIVISION (8.9)
RETAIL REVENUE FROM OTHER UTILITY DIVISIONS (9.7)
-----
TOTAL UI RETAIL REVENUE (18.6)
OTHER OPERATING REVENUE INCREASE (DECREASE)
NEPOOL transmission revenues (0.2)
Other (0.4)
-----
TOTAL UI OTHER OPERATING REVENUES (0.6)

UI WHOLESALE REVENUE (CTA) 2.1
-----

TOTAL UI REVENUES $(17.1)
=====
- --------------------------------------------------------------------------------

UI's total fuel and energy expense increased by $1.2 million in the third
quarter of 2003, compared to the third quarter of 2002. Retail fuel and energy
expense increased by $1.2 million. UI has received, and expects to receive
through 2003, electricity to satisfy its standard offer retail customer service
requirements through a fixed-price purchased power agreement. These costs are
recovered through the GSC portion of UI's unbundled retail customer rates. UI's
financial results are not affected by its customers' selection of alternate
suppliers to provide generation services.

UI's O&M expenses decreased by $1.2 million, from $49.7 million in the third
quarter of 2002 to $48.5 million in the third quarter of 2003. The principal
components of these expense changes included:


- --------------------------------------------------------------------------------
Increase/
In Millions (Decrease)
- --------------------------------------------------------------------------------
Operating Division:
- --------------------------------------------------------------------------------
Net pension expense and postretirement benefits expenses (Note A) $3.2
Environmental remediation (3.2)
Mark-to-Market Stock Compensation adjustments 0.6
Other (1.9)
-----
TOTAL OPERATING DISTRIBUTION DIVISION (1.3)
NON-DISTRIBUTION O&M 0.1
---
TOTAL O&M EXPENSE $(1.2)
=====
- --------------------------------------------------------------------------------

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, depending on the
actual performance of the fund, require increased cash contributions
to the pension fund in the future.



- 36 -


Amortization of regulatory assets decreased by $7.4 million, from $21.0 million
in the third quarter of 2002 to $13.6 million in the third quarter of 2003. The
primary reason for the reduction was the DPUC order in July 2003 requiring that
the amortization of CTA rate base utilizing excess GSC revenues be discontinued
until further determination.

Other taxes (excluding State gross earnings tax) decreased by $0.6 million, from
$3.7 million in the third quarter of 2002 to $3.1 million in the third quarter
of 2003. The decrease was due to the absence of Seabrook property taxes due to
the sale of Seabrook Station on November 1, 2002.

Other income increased by $0.6 million in the third quarter of 2003 compared to
the third quarter of 2002 due to a higher level of short-term investments.

Interest charges decreased by $2.2 million, from $8.1 million in the third
quarter of 2002 to $5.9 million in the third quarter of 2003. Overall, the
decrease was due to the refinancing of certain UI debt issues and the
termination of the Seabrook Lease Obligation bonds in connection with the sale
of UI's interest in Seabrook Station on November 1, 2002.

The effective income tax rate was 45.3% for the third quarter of 2003 as
compared to 44.2% for the third quarter of 2002. This increase is due, in part,
to the imposition of a 20% surcharge on the Connecticut corporation business tax
for the year 2003, differences in the amounts of amortization of regulatory
assets, and differences in the amounts of book depreciation in excess of
non-normalized tax depreciation.

NUCLEAR DIVISION

The remaining operating assets of the Nuclear Division (Seabrook Station) were
sold on November 1, 2002. The Nuclear Division contributed net income of $3.8
million, or $0.27 per share in the third quarter of 2002.

UNITED RESOURCES, INC. RESULTS OF OPERATIONS: THIRD QUARTER 2003 VS. THIRD
- ---------------------------------------------------------------------------
QUARTER 2002
- ------------


- ---------------------------------------------------- ----------------- ---------------- ---------------------------
2003 more (less) than 2002
Quarter Ended Quarter Ended --------------------------
Sept. 30, 2003 Sept. 30, 2002 Amount
- ---------------------------------------------------- ----------------- ---------------- ---------------------------

EPS FROM OPERATIONS
Operating Businesses
American Payment Systems, Inc. (APS) $0.02 $(0.01) $0.03
Xcelecom, Inc. (Xcelecom) (0.01) 0.08 (0.09)
------ ---- ------
SUBTOTAL OPERATING BUSINESSES 0.01 0.07 (0.06)
Minority Interest Investments
United Bridgeport Energy, Inc. (UBE) 0.04 0.07 (0.03)
United Capital Investments, Inc. (UCI) (0.03) (0.02) (0.01)
---- ---- ------
SUBTOTAL MINORITY INTEREST
INVESTMENTS 0.01 0.05 (0.04)

URI HEADQUARTERS (NOTE A) (0.08) (0.07) (0.01)
---- ---- ------

TOTAL NON-UTILITY EPS FROM OPS.-BASIC $(0.06) $0.05 $(0.11)
==== ==== =====
TOTAL NON-UTILITY EPS FROM OPS.-
DILUTED (NOTE B) $(0.06) $0.05 $(0.11)
==== ==== ====

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

Note A: Includes interest charges on intercompany and unallocated debt and
administrative costs associated with the non-utility holding company.
Note B: Reflecting the effect of unexercised dilutive stock options.



- 37 -


Overall, the consolidated non-utility businesses operating under the parent,
URI, lost approximately $0.8 million, or $0.06 per share, in the third quarter
of 2003, compared to earnings of about $0.7 million, or $0.05 per share, in the
third quarter of 2002, for a decrease of $1.5 million, or $0.11 per share.
Operating revenue for the URI businesses decreased by $4.2 million, or 4%.
Expenses for the URI businesses, including losses on minority interest
investments but excluding income taxes decreased nearly $1.6 million in the
third quarter of 2003 compared to the third quarter of 2002. Income taxes
decreased by $1.1 million.

The results of each of the subsidiaries of URI for the third quarter of 2003 and
the third quarter of 2002, 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 quarterly variances by URI
subsidiary.

URI OPERATING BUSINESSES

AMERICAN PAYMENT SYSTEMS, INC.

APS earned $0.4 million, or $0.02 per share, in the third quarter of 2003,
compared to a loss of $0.2 million, or $0.01 per share, in the third quarter of
2002. APS's core bill payment business continued to grow, with net revenues,
after agent fees, increasing by 33% in the third quarter of 2003 compared to the
third quarter of 2002, and margins increasing primarily from higher transaction
fees. Decreasing revenues and margins in the telephony products and low sales
volumes in the stored value card products have continued to produce weak
results. Overall, APS' revenues decreased by $0.2 million, to $22.5 million.
Administrative expenses were incurred in the third quarter of 2003, at a
continued high level for legal service to meet increased regulatory compliance
requirements, and to continue expanding the infrastructure and marketing of the
organization in order to enhance the bill payment business and introduce and
sell new products.

XCELECOM, INC.

Xcelecom lost $0.1 million or $0.01 per share in the third quarter, which was
$1.2 million or $0.08 per share less than third quarter earnings of $1.1 million
in 2002. Revenues decreased by $3.9 million or 5% from the third quarter of 2002
to $74.8 million. Overall, Xcelecom has experienced a construction market
economic slowdown in its Northeast region that has decreased revenues. As with
other companies in the non-residential construction industry, there has been a
very evident decline in economic activity in Xcelecom's markets. Xcelecom has
experienced project postponements and cancellations, a reduction in new project
orders, and increased competition for fewer jobs, resulting in both lower demand
and lower margins.

URI MINORITY INTEREST INVESTMENTS

UNITED BRIDGEPORT ENERGY, INC.

UBE owns a 33 1/3% interest in Bridgeport Energy, LLC (BE). UBE earned $0.6
million, or $0.04 per share, in the third quarter of 2003, compared to an
earnings of $1.1 million, or $0.07 per share in the third quarter of 2002. The
$0.03 per share decrease was due to three major factors: a $0.05 per share
reduction was due to lower installed capability (ICAP) revenues and $0.05 per
share was due to lower energy prices and increased gas prices which were offset
by reduced expenses of $0.07 per share mostly due to overhaul costs incurred in
2002.

Effective March 1, 2003, standard market design was implemented by ISO New
England. This had a minimal impact on energy sales prices during the third
quarter of 2003.



- 38 -




UNITED CAPITAL INVESTMENTS, INC.

UCI lost $0.4 million, or $0.03 per share, in the third quarter of 2003,
compared to a loss of $0.2 million, or $0.02 per share in the third quarter of
2002. The decrease was due to higher valuation losses of minority interest
investments. No earnings have been recorded relating to the temporary DOE
Emergency Order for the Cross-Sound cable operation. The FERC will have to
approve any amounts that will be paid for operation of the cable during this
period.

URI HEADQUARTERS

URI Headquarters incurred unallocated expenses of $1.3 million, after-tax, or
$0.08 per share, in the third quarter of 2003, compared to unallocated expenses
of $1.0 million, after-tax, or $0.07 per share, in the third quarter of 2002.
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 intercompany debt and strategic and administrative costs
for the subsidiaries of URI are retained by URI.

UIL HOLDINGS CORPORATION RESULTS OF OPERATIONS: FIRST NINE MONTHS 2003 ACTUAL
- ------------------------------------------------------------------------------
EARNINGS VS. PREVIOUS ESTIMATE
- ------------------------------

Net Income for UIL Holdings was $26.5 million in the first nine months of 2003,
or $1.86 per share. This was within the $1.80-$2.15 per share range estimated in
UIL Holdings' Form 10-Q for the quarterly period ended June 30, 2003.

FIRST NINE MONTHS 2003 VS. FIRST NINE MONTHS 2002
- -------------------------------------------------

UIL HOLDINGS CORPORATION RESULTS OF OPERATIONS: FIRST NINE MONTHS 2003 VS.
- ---------------------------------------------------------------------------
FIRST NINE MONTHS 2002
- ----------------------

UIL Holdings' earnings for the first nine months of 2003 decreased by $14
million, or $0.99 per share, compared to the first nine months of 2002. The
decrease in earnings was due to lower earnings at UI and URI. The UI earnings
decrease was mainly attributable to the absence of Nuclear Division earnings
resulting from the sale of Seabrook nuclear generating station in November of
2002, and the impact of the DPUC Rate Case decision. These decreases were
partially offset by reduced earnings in the third quarter 2002 resulting from
earnings sharing as calculated in accordance with the then-existing rate plan.

The earnings decrease at URI was due to decreased earnings at its operating
businesses partly offset by smaller decreases in valuations of minority interest
investments. Xcelecom continues to be impacted by the economic slowdown in its
markets, and APS' earnings decreased due to higher expenses.



- 39 -


The table below represents a comparison of UIL Holdings' Net Income and Earnings
per Share (EPS) for the first nine months of 2003 and the first nine months of
2002.



- -------------------------------------------------------------------------------------------------------------------
2003 more (less) than 2002
Nine Months Nine Months --------------------------
Ended Ended
Sept. 30, 2003 Sept. 30, 2002 Amount Percent
- -------------------------------------------------------------------------------------------------------------------

NET INCOME (IN MILLIONS EXCEPT PERCENTS)
UI $34.4 $40.1 $(5.7) (14)%
Nuclear Division 0.0 7.4 (7.4) (100)%
United Resources (Non-Utility) (7.9) (7.0) (0.9) (13)%
---- ---- -----
TOTAL NET INCOME FROM OPERATIONS $26.5 $40.5 $(14.0) (35)%
==== ==== ======

EPS FROM OPERATIONS
UI $2.41 $2.82 $(0.41) (15)%
Nuclear Division 0.00 0.52 (0.52) (100)%
United Resources (Non-Utility) (0.55) (0.49) (0.06) (12)%
---- ---- ----
TOTAL EPS - BASIC $1.86 $2.85 $(0.99) (35)%
==== ==== ====
TOTAL EPS - DILUTED (NOTE A) $1.86 $2.83 $(0.97) (34)%
==== ==== ====
- -------------------------------------------------------------------------------------------------------------------

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




- 40 -



The following table is a line-by-line breakdown of certain line items of UIL
Holdings' Consolidated Statement of Income by subsidiary, including comparisons
between the first nine months of 2003 and the first nine months of 2002.
Significant variances are explained in the individual subsidiary sections that
follow.


UIL HOLDINGS CORPORATION
SEGMENTED CONSOLIDATED INCOME STATEMENT


YEAR TO DATE YEAR TO DATE 2003 MORE (LESS)
(IN MILLIONS) SEPT. 30, 2003 SEPT. 30, 2002 THAN 2002
- ------------- -------------- -------------- ---------

OPERATING REVENUES
UI from operations, before sharing $516.3 $529.0 ($12.7)
UI sharing from operations 0.0 (6.6) 6.6
Nuclear 0.0 37.8 (37.8)
Xcelecom 218.2 235.5 (17.3)
APS 83.5 68.2 15.3
Minority Interest Investment and Other (0.1) (0.2) 0.1
----- ----- -----
TOTAL OPERATING REVENUES 817.9 863.7 (45.8)
===== ===== =====

FUEL AND ENERGY EXPENSES
UI 206.2 198.9 7.3
Nuclear 0.0 5.2 (5.2)
----- ----- ----
TOTAL FUEL AND ENERGY EXPENSES 206.2 204.1 2.1
===== ===== ====

OPERATION AND MAINTENANCE EXPENSES
UI 135.8 131.1 4.7
Nuclear 0.0 16.8 (16.8)
Xcelecom 215.6 229.8 (14.2)
APS 80.9 66.2 14.7
Minority Interest Investment and Other 2.4 2.5 (0.1)
----- ----- ----
TOTAL OPERATION AND MAINTENANCE EXPENSES 434.7 446.4 (11.7)
===== ===== ====

DEPRECIATION AND AMORTIZATION EXPENSES
UI 21.1 21.7 (0.6)
Nuclear 0.0 1.1 (1.1)
Xcelecom 2.6 2.2 0.4
APS 2.7 2.1 0.6
---- ---- ----
Subtotal depreciation 26.4 27.1 (0.7)
Amortization of regulatory assets (UI) 45.5 41.8 3.7
Amortization Xcelecom 1.0 1.0 0.0
Amortization APS 0.3 0.4 (0.1)
---- ---- ----
TOTAL DEPRECIATION AND AMORTIZATION EXPENSES 73.2 70.3 2.9
==== ==== ====

TAXES - OTHER THAN INCOME TAXES
UI - State gross earnings tax 20.3 21.5 (1.2)
UI - other 10.5 12.4 (1.9)
Nuclear - other 0.0 0.9 (0.9)
Xcelecom 1.4 1.2 0.2
APS 0.8 0.5 0.3
---- ---- ----
TOTAL TAXES - OTHER THAN INCOME TAXES 33.0 36.5 (3.5)
==== ==== ====





- 41 -





YEAR TO DATE YEAR TO DATE 2003 MORE (LESS)
(IN MILLIONS) SEPT. 30, 2003 SEPT. 30, 2002 THAN 2002
- ------------- -------------- -------------- ---------

OTHER INCOME (DEDUCTIONS)
UI 4.2 2.2 2.0
Xcelecom 0.5 0.5 0.0
APS 0.4 0.3 0.1
Minority Interest Investment and Other (2.5) (4.4) 1.9
---- ---- ---
TOTAL OTHER INCOME (DEDUCTIONS) 2.6 (1.4) 4.0
==== ==== ===

EARNINGS BEFORE INTEREST AND TAXES (EBIT)
UI 81.1 97.2 (16.1)
Nuclear 0.0 13.8 (13.8)
Xcelecom (1.9) 1.8 (3.7)
APS (0.8) (0.7) (0.1)
Minority Interest Investment and Other (5.0) (7.1) 2.1
---- ----- ----
TOTAL EARNINGS BEFORE INTEREST AND TAXES (EBIT) 73.4 105.0 (31.6)
==== ===== ====

INTEREST CHARGES
UI 16.4 27.2 (10.8)
UI - Interest on Seabrook obligation bonds owned by UI 0.0 (4.6) 4.6
UI - Amortization: debt expense, redemption premiums 0.6 1.5 (0.9)
Nuclear 0.0 1.3 (1.3)
Xcelecom 0.4 1.0 (0.6)
APS 0.1 0.1 0.0
Minority Interest Investment and Other 4.8 4.6 0.2
---- ---- ----
TOTAL INTEREST CHARGES 22.3 31.1 (8.8)
==== ==== ====

INCOME TAXES
UI 29.7 33.0 (3.3)
Nuclear 0.0 5.1 (5.1)
Xcelecom (0.8) 0.3 (1.1)
APS (0.3) (0.3) 0.0
Minority Interest Investment and Other (4.0) (4.7) 0.7
---- ---- ----
TOTAL INCOME TAXES 24.6 33.4 (8.8)
==== ==== ====

NET INCOME
UI 34.4 40.1 (5.7)
Nuclear 0.0 7.4 (7.4)
Xcelecom (1.5) 0.5 (2.0)
APS (0.6) (0.5) (0.1)
Minority Interest Investment and Other (5.8) (7.0) 1.2
----- ----- -----
TOTAL NET INCOME $26.5 $40.5 ($14.0)
===== ===== =====




- 42 -



THE UNITED ILLUMINATING COMPANY RESULTS OF OPERATIONS: FIRST NINE MONTHS 2003
- ------------------------------------------------------------------------------
VS. FIRST NINE MONTHS 2002
- --------------------------


- -------------------------------------------------------------------------------------------------------------------
2003 more (less) than 2002
Nine Months Nine Months --------------------------
Ended Ended
Sept. 30, 2003 Sept. 30, 2002 Amount Percent
- -------------------------------------------------------------------------------------------------------------------

EPS FROM OPERATIONS
UI before Nuclear Division and Sharing $2.41 $3.34 $(0.93) (28)%
Sharing 0.00 (0.52) 0.52 100%
---- ------ ----
Subtotal UI excluding Nuclear Division 2.41 2.82 (0.41) (15)%
Nuclear Division 0.00 0.52 (0.52) (100)%
---- ---- ------
TOTAL UI EPS FROM OPS.-BASIC $2.41 $3.34 $(0.93) (28)%
==== ==== ====
TOTAL UI EPS FROM OPS-DILUTED (NOTE A) $2.41 $3.32 $(0.91) (27)%
==== ==== ====
- -------------------------------------------------------------------------------------------------------------------
RETAIL SALES (MILLIONS OF KWH) 4,390 4,376 14 0.3%
- -------------------------------------------------------------------------------------------------------------------

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

UI EXCLUDING THE NUCLEAR DIVISION

Excluding the Nuclear Division, UI's net income was $34.4 million, or $2.41 per
share, in the first nine months of 2003, compared to $40.1 million, or $2.82 per
share, in the first nine months of 2002. Before sharing, UI's earnings were
$3.34 per share in the first nine months of 2002. Included in the $3.34 per
share 2002 earnings was $0.78 per share for earnings greater than the authorized
return on equity of 11.5%. The $0.78 per share is comprised of $0.26 per share
retained by shareowners, $0.26 per share returned to customers and $0.26 per
share allocated to reduce stranded costs. The primary cause for the pre-sharing
decrease was the DPUC Rate Case decision. This was partly offset by the absence
of sharing in the third quarter of 2003, also due to the rate decision, and
slightly lower O&M expense. UI has introduced temporary cost reductions to
mitigate the effect of increases in pension and postretirement benefits
expenses.

The decrease of $0.41 per share was due to the results of the September 26, 2002
Rate Case decision, and higher pension and postretirement benefits expenses. The
2002 net income of $2.82 per share reflects a $6.6 million reduction in revenue
for revenue sharing.

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 and earnings per share
impact, while changes to those items in "other unbundled utility divisions" do
not. The other divisions are the CTA, the SBC, the GSC, the C&LM, and the REI.
The CTA and SBC both earned an 11.5% return on the equity portion of their
respective rate bases until the September 26, 2002 effective date of the Rate
Case decision, and 10.45% allowed return on equity thereafter in accordance with
that decision. Those returns were achieved, after all revenue and expense
considerations, either by expensing additional amortization, or by deferring
such expenses, as required to achieve the authorized return. Amortization
expenses in the CTA and SBC divisions impact earnings indirectly also through
changes to rate base. The GSC, C&LM and REI are pass-through divisions. Except
for a small management fee earned in the C&LM division, expenses are either
accrued or deferred or revenues are transferred such that there is no net income
associated with these three unbundled divisions.



- 43 -


UI revenue decreased by $12.7 million, from $529 million in the first nine
months of 2002 to $516.3 million in the first nine months of 2003. A decrease of
$19.3 million was offset partially by revenue sharing of $6.6 million in the
third quarter of 2002. In 2003, the lower revenue at UI was due to the impact of
the DPUC's Rate Case decision, that was effective on September 26, 2002.
Overall, the decision reduced UI's allowed return on utility common equity from
11.50% to 10.45%, reduced overall retail rates by 3%, and increased stranded
cost amortization expense. In 2002, UI earned $0.78 per share more than its
allowed return, $0.52 per share of which was shared with customers. In summary,
the Rate Case decision, and other factors reduced UI's earnings by $0.41 per
share in the third quarter of 2003 compared to the third quarter of 2002. The
absence of sharing in 2003 increased earnings by $0.52 per share.

Details of the 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 normalized" retail sales growth, (0.0)% $0.0
Estimate of operating Distribution Division component of
weather effect on retail sales, 0.5% (1.7)
Impact of rate decrease and mix of sales on average price
and other (13.6)
------
TOTAL RETAIL REVENUE FROM DISTRIBUTION DIVISION (15.3)
RETAIL REVENUE FROM OTHER UTILITY DIVISIONS (NOTE A) (6.2)
------
TOTAL UI RETAIL REVENUE (21.5)
OTHER OPERATING REVENUE INCREASE (DECREASE)
NEPOOL transmission revenues 0.7
Other 0.7
-----
TOTAL UI OTHER OPERATING REVENUES 1.4

UI WHOLESALE REVENUE 7.4
-----
TOTAL UI REVENUES $(12.7)
=====
- --------------------------------------------------------------------------------
Note A: Includes a 0.9% increase in electricity sales and a corresponding
$2.4 million revenue increase due to the absence of adjustments made
in the second quarter of 2002 resulting from the resolution of a
station service dispute with a generating plant owner.

Total fuel and energy expenses increased by $7.3 million in the first nine
months of 2003, compared to the first nine months of 2002. Retail fuel and
energy expense increased by $7.0 million. UI has received, and expects to
receive through 2003, electricity to satisfy its standard offer retail customer
service requirements through a fixed-price purchased power agreement. These
costs are recovered through the GSC portion of UI's unbundled retail customer
rates. UI's financial results are not affected by its customers' selection of
alternate suppliers to provide generation services. UI's wholesale energy
expense increased by $0.3 million.

UI's O&M expenses increased by $4.7 million, from $131.1 million in the first
nine months of 2002 to $135.8 million in the first nine months of 2003. The
principal components of these expense changes included:


- 44 -


- --------------------------------------------------------------------------------
Increase/
In Millions (Decrease)
- --------------------------------------------------------------------------------
Operating Division:
- --------------------------------------------------------------------------------
Net pension expense and postretirement benefits expenses (Note A) $11.4
Environmental remediation (3.2)
Incentive and medical costs (1.2)
Mark-to-Market Stock compensation expense 0.7
Other (3.1)
-----
TOTAL OPERATING DISTRIBUTION DIVISION $4.6
NON-DISTRIBUTION O&M 0.1
-----
TOTAL O&M EXPENSE $4.7
=====
- --------------------------------------------------------------------------------
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, depending on the
actual performance of the fund, require increased cash contributions
to the pension fund in the future.

Amortization of regulatory assets increased by $3.7 million, from $41.8 million
in the first nine months of 2002 to $45.5 million in the first nine months of
2003. The primary reason for the increase is $8.3 million of accelerated
amortization ordered in the Rate Case decision, partially offset by the
reduction resulting from the DPUC order in July 2003 requiring that the
amortization of CTA rate base utilizing excess GSC revenues be discontinued
until further determination.

Other taxes (excluding State gross earnings tax) decreased by $1.9 million, from
$12.4 million in the first nine months of 2002 to $10.5 million in the first
nine months of 2003. The decrease was due to the absence of Seabrook property
taxes due to the sale of Seabrook Station on November 1, 2002.

Other income increased by $2 million in the first nine months of 2003 compared
to the first nine months of 2002 due primarily to a higher level of short-term
investments.

Interest charges decreased by $7.1 million, from $24.1 million in the first nine
months of 2002 to $17 million in the first nine months of 2003. Overall, the
decrease was due to the refinancing of certain UI debt issues and the
termination of the Seabrook Lease Obligation bonds in connection with the sale
of UI's interest in Seabrook Station on November 1, 2002.

The effective income tax rate was 48.2% as compared to 45.2% for the nine months
ending September 30, 2003 and 2002, respectively. This increase is due, in part,
to the imposition of a 20% surcharge on the Connecticut corporation business tax
for the year 2003, differences in the amounts of amortization of regulatory
assets, and differences in the amounts of book depreciation in excess of
non-normalized tax depreciation.

NUCLEAR DIVISION

The remaining operating assets of the Nuclear Division (Seabrook Station) were
sold on November 1, 2002. The Nuclear Division contributed net income of $7.4
million, or $0.52 per share in the first nine months of 2002.



- 45 -


UNITED RESOURCES, INC. RESULTS OF OPERATIONS: FIRST NINE MONTHS 2003 VS.
- -------------------------------------------------------------------------
FIRST NINE MONTHS 2002
- ----------------------



- ----------------------------------------------------------------------------------------------------------------------
Nine Months Nine Months 2003 more (less) than 2002
Ended Ended ---------------------------
Sept. 30, 2003 Sept. 30,2002 Amount
- ----------------------------------------------------------------------------------------------------------------------

EPS FROM OPERATIONS
Operating Businesses
American Payment Systems, Inc. (APS) $(0.04) $(0.03) $(0.01)
Xcelecom, Inc. (Xcelecom) (0.10) 0.03 (0.13)
------ ---- ------
SUBTOTAL OPERATING BUSINESSES (0.14) (0.00) (0.14)
Minority Interest Investments
United Bridgeport Energy, Inc. (UBE) (0.11) (0.02) (0.09)
United Capital Investments, Inc. (UCI) (0.05) (0.23) 0.18
---- ---- ----
SUBTOTAL MINORITY INTEREST
INVESTMENTS (0.16) (0.25) 0.09

URI HEADQUARTERS (NOTE A) (0.25) (0.24) (0.01)
---- ---- ------

TOTAL NON-UTILITY EPS FROM OPS.-BASIC $(0.55) $(0.49) $(0.06)
==== ===== =====
TOTAL NON-UTILITY EPS FROM OPS.-DILUTED
(NOTE B) $(0.55) $(0.49) $(0.06)
==== ==== =====
- ----------------------------------------------------------------------------------------------------------------------

Note A: Includes interest charges on intercompany and unallocated debt and
administrative costs associated with the non-utility holding company.
Note B: Reflecting the effect of unexercised dilutive stock options.

Overall, the consolidated non-utility businesses operating under the parent,
URI, lost approximately $7.9 million, or $0.55 per share, in the first nine
months of 2003, compared to losses of about $7 million, or $0.49 per share, in
the first nine months of 2002, for a decrease of $0.9 million, or $0.06 per
share. Operating revenue for the URI businesses decreased by $1.9 million, or
1%. Expenses for the URI businesses, including losses on minority interest
investments but excluding income taxes, decreased by $0.6 million, and income
taxes decreased by $0.4 million.

The results of each of the subsidiaries of URI for the first nine months of 2003
and the first nine months of 2002, 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, Xcelecom and UCI, 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 first nine months variances by
URI subsidiary to prior year.

URI OPERATING BUSINESSES

AMERICAN PAYMENT SYSTEMS, INC.

APS lost $0.6 million, or $0.04 per share, in the first nine months of 2003,
compared to a loss of $0.5 million, or $0.03 per share, in the first nine months
of 2002. Revenues increased by $15.3 million, to $83.5 million, reflecting gains
in both the bill payment business and in the sale of other products and
services. Cost of sales increased, and additional administrative expenses were
incurred for legal services to meet increased regulatory compliance requirements
in APS' lines of business, and to expand the infrastructure of the organization
in order to enhance the bill payment business and introduce and sell new
products and services to generate future profits. These cost increases, and an
increase in depreciation and amortization expenses, which were higher due to the
purchase and installation of additional field equipment and contract costs, more
than offset the revenue gains.

XCELECOM, INC.

Xcelecom lost $1.5 million or $0.10 per share in the first nine months of 2003,
compared to earnings of $0.5 million or $0.03 per share in the first nine months
of 2002. Revenue decreased by $17.3 million or 8% to $218.2 million for


- 46 -


the first nine months of 2003 from $235.5 million for the same period of 2002.
As with other companies in the non-residential construction industry, there has
been a very evident decline in economic activity in Xcelecom's markets. Xcelecom
has been experiencing customer postponements and cancellations of projects, a
reduction in new project orders, and increased competition for fewer jobs,
resulting in both lower demand and lower margins. These general economic factors
reduced earnings by $0.14 per share from 2002 levels, but a lower net overall
requirement for loss reserves on construction projects in 2003 improved earnings
by $0.02 per share from levels a year earlier. Additionally, the completion of
several large, profitable, non-recurring contracts in 2002 that have not been
replaced in 2003 has resulted in an earnings decline of $0.09 per share. These
decreases were partly offset by improved performance in the systems integration
segment, which added about $0.08 in the first nine months of 2003 compared to
the first nine months of 2002.

URI MINORITY INTEREST INVESTMENTS

UNITED BRIDGEPORT ENERGY, INC.

UBE owns a 33 1/3% interest in Bridgeport Energy, LLC (BE). UBE lost $1.6
million, or $0.11 per share, in the first nine months of 2003, compared to a
loss of $0.3 million, or $0.02 per share in the first nine months of 2002. The
$0.09 per share decrease was due to several factors: a $0.20 per share reduction
of lower installed capability (ICAP) revenues, a $0.06 per share reduction of
lower energy revenues and higher gas prices, a $0.03 per share one-time
insurance payment in 2002, offset by a $0.20 per share increase from reduced
expenses, mostly the absence of overhaul costs incurred in the first nine months
of 2002.

Effective March 1, 2003, standard market design was implemented by ISO New
England. This has had a minimal impact on energy sales prices to date.

UNITED CAPITAL INVESTMENTS, INC.

UCI lost $0.6 million, or $0.05 per share, in the first nine months of 2003,
compared to a loss of $3.2 million, or $0.23 per share in the first nine months
of 2002. The improvement was due to the absence of a $0.16 per share impairment
loss recorded in the second quarter of 2002, reduced administrative costs
contributing $0.01 per share, and the remainder due to lower valuation losses on
minority interest investments No earnings have been recorded relating to the
temporary DOE Emergency Order for the Cross-Sound cable operation. The FERC will
have to approve any amounts that will be paid for operation of the cable during
this period.

In March 2003, Souwestcon Properties, Inc. completed the sale of a parcel of
land in North Haven, CT for $0.8 million.

URI HEADQUARTERS

URI Headquarters incurred unallocated expenses of $3.6 million, after-tax, or
$0.25 per share, in the first nine months of 2003, compared to unallocated
expenses of $3.4 million, after-tax, or $0.24 per share, in the first nine
months of 2002. 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 intercompany debt and administrative
costs for the subsidiaries of URI are retained by URI.

LOOKING FORWARD

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

UIL HOLDINGS' CONSOLIDATED EARNINGS ESTIMATES FOR 2003

UIL Holdings has reduced its earnings guidance for 2003 from $2.20-$2.35 per
share to $1.90-$2.00 per share. The primary reason for the decrease is lowered
2003 expectations for URI's non-utility subsidiaries, particularly Xcelecom,
Inc.

UIL Holdings' current earnings range estimate for 2003 is less than UIL
Holdings' current dividend rate of $2.88 per common share. However, UIL Holdings
continues to have positive cash flow from operating activities. This


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cash flow comes primarily from UI, and includes, in addition to positive cash
flow from the Distribution Division, the accelerated recovery of stranded costs
built into the CTA rate base. UIL Holdings has sufficient internally generated
cash flows to pay its dividends to shareowners and to fund most, if not all, of
its investing activities. UIL Holdings may borrow funds for its investment
program to finance short-term needs from time to time, but expects to keep such
borrowings at a reasonable level.

Based on current earnings projections, UIL Holdings expects that, at its
quarterly reviews of the dividend, maintenance of the annual dividend of $2.88
per share will be justified, absent adverse events that materially affect
earnings projections.

THE UNITED ILLUMINATING COMPANY (UI)

UI EARNINGS ESTIMATES FOR 2003

UI is expected to earn $2.55-$2.65 per share in 2003, as compared to the
previous estimate of $2.50-$2.60 per share. The increase is due to a warmer
August than had been expected when UIL Holdings last issued earnings guidance.

For 2003, UI will incur approximately $15.5 million of additional pension and
postretirement benefits expenses not presently recovered in rates under the
September 26, 2002 Rate Case decision. In response to UI's November 2002
request, on March 26, 2003, the DPUC reopened the 2002 Rate Case docket for the
limited purpose of examining these increased costs. In its decision on June 25,
2003, the DPUC denied the request for recovery of these increased expenses but
noted that, "the Company may request regulatory treatment for this specific
expense in the future by filing a motion to reopen." On July 29, 2003, UI filed
a motion to reopen the June 25, 2003 decision, and on September 10, 2003, the
DPUC agreed to reopen the docket. A technical meeting was held by the DPUC on
November 6, 2003. Hearings are scheduled for early December and settlement
discussions are ongoing. The additional pension and postretirement benefits
expenses have been recorded, pro rata, by UI during 2003, and UI has taken
short-term actions to mitigate their effects. Since UI must take into account
the interests of its customers in making any changes to its operations to lower
expenses, there is no assurance that UI will continue these short-term actions,
or that UI will be able to achieve the authorized return on equity in 2003 or
beyond.

UI has contracted with Dominion/VEPCO for the supply, on a fixed-price basis, 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 generation services
requirements through 2008. 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 and other factors that may or may not
occur in 2003.

Several DPUC proceedings that are currently pending could materially affect the
earnings and cash flow estimates for UI in 2003 or beyond. These include, but
are not limited to:

o UI Rate Case Reopening for Pension and Postretirement Benefits Expense.
o Seabrook Disposition of Proceeds.
o Annual CTA/SBC Reconciliation. This is the normal annual review of
accounting for the CTA.
o Establishment of the Transitional Standard Offer.

See Item 1, "Financial Statements - Notes to Consolidated Financial Statements -
Note (C), Rate-Related Regulatory Proceedings" for details.



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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 $0.65 to $0.75
per share in 2003. This is a reduction from the previous range estimate of
losses of $0.30 to $0.45 per share, and reflects estimated reductions in
Xcelecom and minority interest investments.

URI OPERATING BUSINESSES

AMERICAN PAYMENTS SYSTEMS, INC. (APS)

APS is expected to earn $0.00-$0.10 per share for UIL Holdings in 2003,
unchanged from the previous earnings estimate. APS has incurred significantly
higher than anticipated legal expenses to meet regulatory compliance
requirements in its lines of business in the first nine months of 2003. APS has
also experienced delays in achieving, to the degree and the timing anticipated,
bank fees savings derived from switching to agent owned bank accounts from APS
owned bank accounts, but significant progress has been made and is expected to
continue. The estimate for 2003 includes improvements in the fourth quarter of
the year compared to the first nine months due to reduced legal expenses,
continued reduction of bank fees, increased revenues from higher transaction
fees, and reduced sales, general and administrative expenses. The estimate for
2003 is an improvement from the 2002 loss of $0.13 per share due to the addition
of a major new customer in late 2002, higher revenues and improved margins for
the bill payment business, continued reduction of bank fees, and operational
efficiencies.

XCELECOM, INC.

Due to a large loss on a project recorded in the first nine months of 2003, and
the continuation of reduced economic activity in Xcelecom's markets, Xcelecom is
expected to lose $0.05-$0.15 per share for UIL Holdings in 2003, reduced from
the previous 2003 earnings estimate of $0.10-$0.20 per share. As with other
companies in the construction and systems integration industries, Xcelecom has
experienced customer postponements and cancellations of projects, slowdown in
spending for technology by its customers, and increased competition for fewer
jobs, resulting in both lower demand and lower margins. Xcelecom has taken
actions to reduce the negative impact of these items by working to reduce
operating and overhead related costs. Generally, the economic activity of the
non-residential 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. Xcelecom is beginning to see some recovery in certain of its markets,
but not in all, and Xcelecom's backlog at the end of September 2003 is up 13%
compared to the same time last year. This is not expected to have any effect on
results for the remainder of 2003, however.

URI MINORITY INTEREST INVESTMENTS

Losses from URI's minority interest investments, including United Bridgeport
Energy, Inc. (UBE) and United Capital Investments, Inc. (UCI), and from URI
Headquarters' costs, are expected to be $0.55-$0.65 per share in 2003, revised
from the previous 2003 estimated loss of $0.45-$0.55 per share. URI
Headquarters' costs include unallocated interest and administrative costs.

UNITED BRIDGEPORT ENERGY, INC.

The earnings estimate for UBE for 2003 is a loss of $0.15-$0.20 per share,
unchanged from the previous estimate. Results at UBE continue to be hampered by
high natural gas prices reducing both margins and sales levels. The 2003
estimate also reflects significantly lower installed capability (ICAP) revenues
than those recorded in 2002, as a result of the termination of a long-term
contract, but it also reflects the absence of overhauls that occurred in 2002.

Bridgeport Energy, LLC (BE) will continue to market ICAP in the open market, and
UBE will share in any proceeds from that activity. The results will be subject
to market conditions for ICAP.

Effective March 1, 2003, standard market design was implemented by ISO New
England. This had a minimal impact on energy sales prices to date. In the longer
term, the new market design is expected to benefit BE because


- 49 -


BE is located in the southwest region of Connecticut, which has energy supply
problems due primarily to transmission congestion.

UNITED CAPITAL INVESTMENTS, INC.

UCI is expected to lose up to $0.10 per share in 2003, unchanged from the
previous estimate. This is an improvement from the losses in 2002 of $0.31 per
share, due principally to the absence of the $0.16 per share impairment loss
taken by UCI in the second quarter of 2002.

UIL HOLDINGS' QUARTERLY EARNINGS PATTERN FOR 2003
- -------------------------------------------------

The 2003 quarterly earnings pattern for UIL Holdings is expected to be somewhat
different than the 2002 pattern primarily because the DPUC decision in UI's Rate
Case was effective September 26, 2002, and Seabrook Station was sold on November
1, 2002. These factors have lowered earnings in the first three quarters of 2003
compared to the first three quarters of 2002. As a result of the lowered
expectations for the year for the non-utility businesses, particularly Xcelecom,
as explained above, UIL Holdings is expected to earn $0.00-$0.15 per share in
the fourth quarter of 2004, compared to the previous estimate of $0.35-$0.45 per
share.

Actual 2003 results may vary from estimates depending on factors that could
affect some or all of UIL Holdings' businesses to varying degrees. The factors
are discussed in the "Major Influences on Financial Condition" section, and
their impacts can change from quarter to quarter.

UIL Holdings' current overall estimate of earnings per share from operations for
2003 is a range of $1.90-$2.00. The estimates of quarterly results are as
follows:

Earnings per share from operations:

Estimated Actual Actual
Quarter 2003 Range* 2003 2002
------- ---------- ---- ----
1 $0.25-$0.35 $0.37 $0.68
2 $0.40-$0.50 0.30 $0.64
3 $1.15-$1.30 1.19 $1.53
4 $0.00-$0.15 $0.24
----
$3.09

* 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 $1.90-$2.00 per share.





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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 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.

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 as of September 30, 2003. Based on
the foregoing, UIL Holdings' Chief Executive Officer and Chief Financial Officer
concluded that its disclosure controls and procedures were effective.

There have been no changes in UIL Holdings' internal control over financial
reporting during the quarter ended September 30, 2003 that have materially
affected, or are reasonably likely to materially affect UIL Holdings' internal
control over financial reporting.




- 51 -



PART II. OTHER INFORMATION

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

(a) Exhibits.

Exhibit
Table Item Exhibit
Number Number Description
--------- ------ -----------
(31) 31.1 Certification of Periodic Financial Report.
(31) 31.2 Certification of Periodic Financial Report.
(32) 32 Certification of Periodic Financial Report.


(b) Reports on Form 8-K.

Item Financial
Reported Statements Date of Report
-------- ---------- --------------
7, 9 None July 28, 2003



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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 11/07/2003 /s/ Louis J. Paglia
----------------------- --------------------------------------------
Louis J. Paglia
Executive Vice President
and Chief Financial Officer



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