UIL 10K/A 2012 Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 2)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012

o	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 1-15052

(Exact name of registrant as specified in its charter)

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

157 Church Street, New Haven, Connecticut		06506
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 203‑499-2000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered

Common Stock, no par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the UIL Holdings’ voting stock held by non-affiliates, computed by reference to the price at which the common equity was last sold as of the last business day of UIL Holdings’ most recently completed second fiscal quarter (June 30, 2012) was $1,791,227,691 based on a closing sales price of $35.86 per share.

The number of shares outstanding of the registrant’s only class of common stock, as of September 20, 2013 was 50,712,507.

EXPLANATORY NOTE

UIL Holdings Corporation (the “Company”) is filing this Amendment No. 2 on Form 10-K/A to amend Item 8 of Part II of its Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the Securities and Exchange Commission on February 21, 2013, as amended by Amendment No. 1 thereto, filed September 10, 2013 (the “Original Filing”). The purpose of this Amendment No. 2 is to provide additional footnote disclosures regarding regulatory assets, stock-based compensation and restricted net assets in Note A and Note B. No other revisions or amendments have been made to Part II, Item 8 or to any other portion of the Original Filing. This Amendment No. 2 does not otherwise update information in the Original Filing or Amendment No. 1 thereto to reflect facts or events occurring subsequent to the date of the Original Filing. Currently-dated certifications from the Company's Chief Executive Officer and Chief Financial Officer have been included as exhibits to this Amendment No. 2.

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Item 8. Financial Statements and Supplementary Data.

UIL HOLDINGS CORPORATION

CONSOLIDATED STATEMENT OF INCOME

For the Years Ended December 31, 2012, 2011 and 2010

(In Thousands except per share amounts)

	2012		2011		2010

Operating Revenues	$	1,486,501	$	1,570,094	$	997,666

Operating Expenses
Operation
Purchased power		154,546		180,149		242,268
Natural gas purchased		370,234		429,079		81,428
Operation and maintenance		356,277		381,814		258,282
Transmission wholesale		79,469		77,997		72,169
Depreciation and amortization (Note F)		181,348		167,462		113,946
Taxes - other than income taxes (Note F)		114,037		114,211		78,702
Acquisition-related costs		-		-		25,572
Total Operating Expenses		1,255,911		1,350,712		872,367
Operating Income		230,590		219,382		125,299

Other Income and (Deductions), net (Note F), (Note H)		25,246		26,932		17,262

Interest Charges, net
Interest on long-term debt		86,469		87,394		50,357
Other interest, net (Note F)		3,636		5,216		1,553
		90,105		92,610		51,910
Amortization of debt expense and redemption premiums		2,437		2,775		1,788
Total Interest Charges, net		92,542		95,385		53,698


Income Before Income Taxes, Equity Earnings		163,294		150,929		88,863

Income Taxes (Note E)		74,866		62,501		35,284

Income Before Equity Earnings		88,428		88,428		53,579
Income from Equity Investments		15,273		11,282		1,278

Net Income		103,701		99,710		54,857
Less:
Preferred Stock Dividends of Subsidiary, Noncontrolling Interests		64		54		3

Net Income attributable to UIL Holdings	$	103,637	$	99,656	$	54,854

Average Number of Common Shares Outstanding - Basic		50,831		50,609		35,722
Average Number of Common Shares Outstanding - Diluted		51,108		50,926		36,083

Earnings Per Share of Common Stock - Basic (Note A)	$	2.04	$	1.96	$	1.53

Earnings Per Share of Common Stock - Diluted (Note A)	$	2.02	$	1.95	$	1.52

Cash Dividends Declared per share of Common Stock	$	1.728	$	1.728	$	1.728

UIL HOLDINGS CORPORATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the Years Ended December 31, 2012, 2011 and 2010

(Thousands of Dollars)

	2012			2011			2010

Net Income	$	103,701		$	99,710		$	54,857
Other Comprehensive Income (Loss), net		(74	)		(541	)		166
Comprehensive Income		103,627			99,169			55,023
Less:
Preferred Stock Dividends of Subsidiary, Noncontrolling Interests		64			54			3
Comprehensive Income attributable to UIL Holdings	$	103,563		$	99,115		$	55,020

The accompanying Notes to the Consolidated Financial

Statements are an integral part of the financial statements.

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UIL HOLDINGS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Years Ended December 31, 2012, 2011 and 2010

(Thousands of Dollars)

	2012			2011			2010
Cash Flows From Operating Activities
Net income	$	103,701		$	99,710		$	54,857
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		183,785			170,237			115,734
Deferred income taxes		68,121			83,273			57,042
Allowance for funds used during construction (AFUDC) - equity		(7,480	)		(10,539	)		(7,174	)
Stock-based compensation expense (Note A)		4,907			5,286			4,080
Pension expense		39,906			39,028			28,811
Undistributed (earnings) losses in equity investments		(15,440	)		(11,702	)		(1,440	)
Excess generation service charge		4,894			(5,047	)		(28,217	)
Deferred Transmission (income) expense		(33,007	)		(15,408	)		36,009
Other non-cash items, net		4,962			(48,632	)		(14,643	)
Changes in:
Accounts receivable, net		(51,301	)		34,654			(62,370	)
Unbilled revenues		(11,999	)		9,693			(9,830	)
Natural gas in storage		26,748			(3,436	)		23,553
Cash distribution received from GenConn		19,672			7,977			-
Accounts payable		(20,221	)		4,446			25,209
Interest accrued		900			(1,341	)		8,954
Taxes accrued/refundable, net		60,614			(41,366	)		(29,598	)
Accrued liabilities		16,271			(2,528	)		7,962
Accrued pension		(59,317	)		(77,005	)		(8,862	)
Other assets		6,811			2,750			2,605
Other liabilities		(8,586	)		(17,188	)		12,651
Total Adjustments		230,240			123,152			160,476
Net Cash provided by Operating Activities		333,941			222,862			215,333

Cash Flows from Investing Activities
Acquisition of Gas Companies, net of cash acquired		-			11,211			(856,952	)
Related party note receivable		-			(1,050	)		(9,750	)
Plant expenditures including AFUDC debt		(288,633	)		(328,079	)		(203,530	)
Investment in GenConn		-			(2,000	)		(6,000	)
Cash distributions from GenConn		1,872			-			-
Changes in restricted cash		3,717			(4,123	)		1,297
Deposits in New England East West Solution (NEEWS) (Note C)		(24,059	)		(2,393	)		(7,231	)
Other		844			401			(114	)
Net Cash (used in) Investing Activities		(306,259	)		(326,033	)		(1,082,280	)

Cash Flows from Financing Activities
Issuances of common stock		1,943			200			502,220
Issuances of long-term debt		203,500			51,050			556,109
Payments on long-term debt		(109,955	)		(146,573	)		(59,826	)
Line of credit borrowings (repayments), net		(48,000	)		228,000			2,100
Payment of common stock dividend		(87,490	)		(87,274	)		(51,836	)
Other		(822	)		(1,514	)		(6,808	)
Net Cash provided by (used in) Financing Activities		(40,824	)		43,889			941,959

Unrestricted Cash and Temporary Cash Investments:
Net change for the period		(13,142	)		(59,282	)		75,012
Balance at beginning of period		30,999			90,281			15,269
Balance at end of period		17,857			30,999			90,281

Cash paid during the period for:
Interest (net of amount capitalized)	$	81,658		$	83,365		$	33,395
Income taxes	$	4,750		$	11,475		$	24,600

Non-cash investing activity:
Plant expenditures included in ending accounts payable	$	47,475		$	45,046		$	54,492
Related party note receivable (Note H)	$	-		$	62,833		$	55,540
Equity investment in Related Party (Note H)	$	-		$	(62,833	)	$	(55,540	)
Plant expenditures funded by deposits in NEEWS	$	(6,346	)	$	-		$	-
Deposits in New England East West Solution (NEEWS)	$	6,346		$	-		$	-

The accompanying Notes to the Consolidated Financial

Statements are an integral part of the financial statements.

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UIL HOLDINGS CORPORATION

CONSOLIDATED BALANCE SHEET

December 31, 2012 and 2011

ASSETS

(In Thousands)

	2012		2011
Current Assets
Unrestricted cash and temporary cash investments	$	17,857	$	30,999
Restricted cash		2,805		6,522
Accounts receivable less allowance of $11,867 and $10,939, respectively		230,799		180,465
Unbilled revenues		83,956		71,957
Current regulatory assets (Note A)		118,961		102,900
Natural gas in storage, at average cost		84,768		111,516
Materials and supplies, at average cost		10,709		8,370
Deferred income taxes		41,605		41,635
Refundable taxes		1,686		74,983
Current portion of derivative assets (Note A)		12,671		14,189
Other		20,892		23,692
Total Current Assets		626,709		667,228

Other investments
Equity investment in GenConn (Note A)		124,799		131,082
Other		23,931		22,571
Total Other investments		148,730		153,653

Net Property, Plant and Equipment		2,787,354		2,570,355

Regulatory Assets (future amounts due from customers through the ratemaking process) (Note A)		1,017,220		983,222

Deferred Charges and Other Assets
Unamortized debt issuance expenses		16,625		17,631
Other long-term receivable		1,501		1,278
Derivative assets (Note A)		67,167		73,264
Goodwill		266,205		266,797
Other		28,587		11,181
Total Deferred Charges and Other Assets		380,085		370,151

Total Assets	$	4,960,098	$	4,744,609

The accompanying Notes to the Consolidated Financial

Statements are an integral part of the financial statements.

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UIL HOLDINGS CORPORATION

CONSOLIDATED BALANCE SHEET

December 31, 2012 and 2011

LIABILITIES AND CAPITALIZATION

(In Thousands)

	2012			2011
Current Liabilities
Line of credit borrowings	$	187,000		$	235,000
Current portion of long-term debt		48,296			13,712
Accounts payable		176,861			194,641
Dividends payable		21,887			21,847
Accrued liabilities		98,262			78,138
Current regulatory liabilities (Note A)		21,284			26,245
Taxes accrued		18,235			21,870
Interest accrued		22,427			21,527
Current portion of derivative liabilities (Note A)		30,804			28,888
Total Current Liabilities		625,056			641,868

Noncurrent Liabilities
Pension accrued		325,547			243,980
Connecticut Yankee contract obligation (Note J)		11,129			14,247
Other post-retirement benefits accrued		98,147			84,810
Derivative liabilities (Note A)		224,639			239,147
Other		49,506			68,371
Total Noncurrent Liabilities		708,968			650,555

Deferred Income Taxes (future tax liabilities owed to taxing authorities)		456,411			388,553

Regulatory Liabilities (future amounts owed to customers through the ratemaking process) (Note A)		452,416			420,175

Commitments and Contingencies (Note J)

Capitalization (Note B)
Long-term debt, net of unamortized discount and premiun		1,600,354			1,548,347

Preferred Stock of Subsidiary
Redeemable preferred stock, noncontrolling interests		340			750

Common Stock Equity
Common stock		936,702			931,153
Paid-in capital		20,400			19,791
Retained earnings		159,900			143,792
Accumulated other comprehensive loss		(449	)		(375	)
Net Common Stock Equity		1,116,553			1,094,361

Total Capitalization		2,717,247			2,643,458

Total Liabilities and Capitalization	$	4,960,098		$	4,744,609

The accompanying Notes to the Consolidated Financial

Statements are an integral part of the financial statements.

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UIL HOLDINGS CORPORATION

Consolidated Statement of Changes in Shareholders' Equity

December 31, 2012, 2011 and 2010

(Thousands of Dollars)

										Accumulated
										Other
	Common Stock				Paid-in		Retained			Comprehensive
	Shares (a)		Amount		Capital		Earnings			Income (Loss)			Total
Balance as of December 31, 2009		29,976,506	$	422,008	$	14,859	$	137,309		$	-		$	574,176

Net income for 2010								54,857						54,857
Cash dividends on common stock - $1.728 per share								(60,707	)					(60,707	)
Preferred stock dividends of subsidiary, noncontrolling interests								(3	)					(3	)
Issuance of 20,513,492 shares of common stock - no par value		20,528,945		505,486										505,486
Stock based compensation						2,167								2,167
Other comprehensive income (net of deferred tax benefit of $111)											166			166
Balance as of December 31, 2010		50,505,451	$	927,494	$	17,026	$	131,456		$	166		$	1,076,142
Net income for 2011								99,710						99,710
Cash dividends on common stock - $1.728 per share								(87,320	)					(87,320	)
Preferred stock dividends of subsidiary, noncontrolling interests								(54	)					(54	)
Issuance of 102,404 shares of common stock - no par value		140,039		3,659										3,659
Stock based compensation						2,765								2,765
Other comprehensive loss (net of deferred tax benefit of $361)											(541	)		(541	)
Balance as of December 31, 2011		50,645,490	$	931,153	$	19,791	$	143,792		$	(375	)	$	1,094,361
Net income for 2012								103,701						103,701
Cash dividends on common stock - $1.728 per share								(87,529	)					(87,529	)
Preferred stock dividends of subsidiary, noncontrolling interests								(64	)					(64	)
Issuance of 119,627 shares of common stock - no par value		229,093		5,549										5,549
Stock based compensation						609								609
Other comprehensive loss (net of deferred tax benefit of $49)											(74	)		(74	)
Balance as of December 31, 2012		50,874,583	$	936,702	$	20,400	$	159,900		$	(449	)	$	1,116,553

(a) There were 125,000,000 shares authorized in 2012 and 2011

The accompanying Notes to Consolidated Financial

Statements are an integral part of the financial statements.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(A) STATEMENT OF ACCOUNTING POLICIES

UIL Holdings is headquartered in New Haven, Connecticut, where its senior management maintains offices and is responsible for overall planning, operating and financial functions. The primary business of UIL Holdings is ownership of its operating regulated utility businesses. The utility businesses consist of the electric distribution and transmission operations of The United Illuminating Company (UI) and the natural gas transportation, distribution and sales operations of The Southern Connecticut Gas Company (SCG), a subsidiary of Connecticut Energy Corporation (CEC), Connecticut Natural Gas Corporation (CNG), a subsidiary of CTG Resources, Inc. (CTG), and The Berkshire Gas Company (Berkshire), a subsidiary of Berkshire Energy Resources (BER, and together with SCG, CNG, Berkshire, CEC and CTG, the Gas Companies). Each of CEC, CTG and BER is a holding company whose sole business is ownership of its respective operating regulated gas utility. The Gas Companies were acquired by UIL Holdings in November 2010 for a purchase price of approximately $1.3 billion (the Acquisition).

UI is also a 50-50 joint venturer with NRG Energy, Inc. (NRG) in GCE Holding LLC, whose wholly owned subsidiary, GenConn Energy LLC (collectively, GenConn) operates two peaking generation plants in Devon, Connecticut (GenConn Devon) and Middletown, Connecticut (GenConn Middletown).

Accounting Records

The accounting records of UIL Holdings are maintained in conformity with generally accepted accounting principles in the United States of America (GAAP).

The accounting records for UI and the Gas Companies are also maintained in accordance with the uniform systems of accounts prescribed by the Federal Energy Regulatory Commission (FERC), PURA, and the Massachusetts Department of Public Utilities (DPU), as applicable.

Basis of Presentation

The Consolidated Financial Statements include the accounts of UIL Holdings and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to use estimates and assumptions that affect (1) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and (2) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain immaterial amounts that were reported as such in the Consolidated Financial Statements in previous periods have been reclassified to conform to the current presentation.

Allowance for Funds Used During Construction

In accordance with the uniform systems of accounts, the Company capitalizes AFUDC, which represents the approximate cost of debt and equity capital devoted to plant under construction. The portion of the allowance applicable to borrowed funds and the allowance applicable to equity funds are presented as other income in the Consolidated Statement of Income. Although the allowance does not represent current cash income, it has been recoverable under the ratemaking process over the service lives of the related properties. Weighted-average AFUDC rates for 2012, 2011 and 2010 were 5.61%, 5.75% and 6.65%, respectively.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Asset Retirement Obligations

The fair value of the liability for an asset retirement obligation (ARO) and/or a conditional ARO is recorded in the period in which it is incurred and the cost is capitalized by increasing the carrying amount of the related long-lived asset. The liability is adjusted to its present value periodically over time, and the capitalized cost is depreciated over the useful

life of the related asset. Upon settlement, the obligation is settled either at its recorded amount or a gain or a loss is incurred. Any timing differences between rate recovery and depreciation expense are deferred as either a regulatory asset or a regulatory liability.

The term conditional ARO refers to an entity's legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. If an entity has sufficient information to reasonably estimate the fair value of the liability for a conditional ARO, it must recognize that liability at the time the liability is incurred.

As of December 31, 2012 and 2011, UIL Holdings’ ARO, including estimated conditional AROs, was $18.3 million and $18.1 million, respectively, and consisted primarily of obligations related to the removal or retirement of asbestos, polychlorinated biphenyl (PCB)-contaminated equipment, gas pipeline and cast iron gas mains. The long-lived assets associated with the AROs are gas storage property, distribution property and other property. UIL Holdings’ ARO is carried on the balance sheet as other long-term liabilities.

Cash and Temporary Cash Investments

UIL Holdings considers all of its highly liquid debt instruments with an original maturity of three months or less at the date of purchase to be cash and temporary cash investments.

Depreciation

Provisions for depreciation on utility plant for book purposes are computed on a straight‑line basis, using estimated service lives. For utility plant other than software, service lives are determined by independent engineers and subject to review and approval by PURA and DPU. Software service life is based upon management’s estimate of useful life. The aggregate annual provisions for depreciation for the years 2012, 2011 and 2010 were approximately 3.5%, 3.3%, and 3.6%, respectively, of the original cost of depreciable property.

Derivatives

UIL Holdings’ regulated subsidiaries are parties to contracts, and involved in transactions, that are derivatives. The fair values of the gross derivative assets and liabilities as of December 31, 2012 and 2011 were as follows:

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

	December 31, 2012
	(In Thousands)

			Deferred Charges		Current			Noncurrent
	Current Assets		and Other Assets		Liabilities			Liabilities

Contracts for differences	$	11,671	$	67,167	$	(30,804	)	$	(224,639	)
Weather insurance contracts		1,000		-		-			-
Total derivative assets/(liabilities), gross	$	12,671	$	67,167	$	(30,804	)	$	(224,639	)

	December 31, 2011
	(In Thousands)

			Deferred Charges		Current			Noncurrent
	Current Assets		and Other Assets		Liabilities			Liabilities

Contracts for differences	$	10,678	$	73,264	$	(28,888	)	$	(239,147	)
Weather insurance contracts		3,511		-		-			-
Total derivative assets/(liabilities), gross	$	14,189	$	73,264	$	(28,888	)	$	(239,147	)

Contracts for Differences (CfDs)

Pursuant to Connecticut’s 2005 Energy Independence Act (EIA), PURA solicited bids to create new or incremental capacity resources in order to reduce federally mandated congestion charges, and selected four new capacity resources. To facilitate the transactions between selected capacity resources and Connecticut electric customers, and provide the commitment necessary for owners of these resources to obtain necessary financing, PURA required that UI and The Connecticut Light and Power Company (CL&P) execute long-term contracts with the selected resources. In August 2007, PURA approved four CfDs, each of which specifies a capacity quantity and a monthly settlement that reflects the difference between a forward market price and the contract price. UI executed two of the contracts and CL&P executed the other two contracts. The cost of the contracts will be paid by customers and will be subject to a cost-sharing agreement whereby approximately 20% of the cost is borne by UI customers and approximately 80% by CL&P customers.

PURA has determined that costs associated with these CfDs will be recoverable by UI and CL&P, and in accordance with ASC 980 “Regulated Operations,” UI has deferred recognition of costs (a regulatory asset) or obligations (a regulatory liability). The CfDs are marked-to-market in accordance with ASC 815 “Derivatives and Hedging.” For those CfDs signed by CL&P, UI records its approximate 20% portion, pursuant to the cost-sharing agreement noted above. As of December 31, 2012, UI has recorded a gross derivative asset of $78.8 million, a regulatory asset of $176.6 million, and a gross derivative liability of $255.4 million ($156.9 million of which is related to UI’s portion of CL&P’s derivative liabilities). See Note (K) “Fair Value of Financial Instruments” for additional CfD information.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

The unrealized gains and losses from fair value adjustments to these derivatives recorded in regulatory assets or regulatory liabilities for years ended December 31, 2012 and 2011 were as follows:

	Year Ended
	December 31,
	2012			2011
	(In Thousands)

Regulatory Assets - Derivative assets	$	(7,500	)	$	69,397

Regulatory Liabilities - Derivative liabilities	$	12		$	5,736

Weather Insurance Contracts

On an annual basis, SCG and CNG assess the need for weather insurance contracts for the winter period of November 1 through April 30 in order to provide financial protection from significant weather fluctuations. According to the terms of such contracts, if temperatures are warmer than normal at a prescribed level for the contract period, SCG and CNG each receive a payment, up to the maximum amount allowed under the contracts; however, if temperatures are colder than normal at a prescribed level for the contract period, SCG and CNG each make a payment of up to a maximum amount. The premiums paid are amortized over the terms of the contracts. The fair value of the contracts is carried on the balance sheet as a derivative with changes in value recorded in the income statement as Other Income and (Deductions).

In May 2012, each of SCG and CNG received a payment of $3 million upon the expiration of their respective contracts for the winter period of November 1, 2011 through April 30, 2012.

In October 2012, SCG and CNG each entered into weather insurance contracts for the winter period of November 1, 2012 through April 30, 2013. If temperatures are warmer than normal, SCG and CNG will each receive a payment, up to the maximum amount allowed under the contracts of $3 million; however, if temperatures are colder than normal, SCG and CNG will each make a payment of up to a maximum of $2 million. As of December 31, 2012, the variations from normal weather during the contract periods are not projected to reach the prescribed level stated in the contracts. Accordingly, no amounts were accrued by either SCG or CNG.

In November 2011, Berkshire entered into a weather insurance contract for 2012 in order to provide financial protection from significant weather fluctuations. According to the terms of the contract, if temperatures were warmer than normal for the contract period, Berkshire would receive a payment, up to the maximum amount allowed under the contract of $1 million. The premiums paid were amortized over the term of the contract. The fair value of the contract is carried on the balance sheet as a derivative with changes in value recorded in the income statement as Other Income and (Deductions). The derivative asset related to this contract totaled $1 million at December 31, 2012. On January 8, 2013, Berkshire received a payment of $1 million upon the expiration of the contract. Berkshire did not enter into a weather insurance contract for 2013.

- 10 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Earnings per Share

The following table presents a reconciliation of the basic and diluted earnings per share calculations for the years 2012, 2011 and 2010:

	Year Ended December 31,
	2012		2011		2010
	(In Thousands, except per share amounts)

Numerator:
Net income attributable to UIL Holdings	$	103,637	$	99,656	$	54,854
Less: Net income allocated to unvested units		184		210		149
Net income attributable to common shareholders	$	103,453	$	99,446	$	54,705

Denominator:
Basic average number of shares outstanding		50,831		50,609		35,722
Effect of dilutive securities		277		317		361
Diluted average number of shares outstanding		51,108		50,926		36,083

Earnings per share:
Basic	$	2.04	$	1.96	$	1.53
Diluted	$	2.02	$	1.95	$	1.52

All outstanding options to purchase shares of common stock during 2012 were included in the computation of diluted earnings per share because the options’ exercise prices were lower than the average market price of the common shares during such period. Options to purchase 89,336 and 98,079 shares of common stock were outstanding during 2011 and 2010, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares during such period.

Equity Investments

In February 2008, UI and an NRG affiliate formed GenConn, a 50-50 joint venture, for the purpose of constructing peaking generation plants in Connecticut. UI’s investment in GenConn is being accounted for as an equity investment, the carrying value of which was $124.8 million and $131.1 million as of December 31, 2012 and 2011, respectively.

UI’s pre-tax income from its equity investment in GenConn was $15.3 million, $11.3 million and $1.3 million for the years ended December 31, 2012, 2011 and 2010, respectively. During the years ended December 31, 2012 and 2011, UI received cash distributions from GenConn of approximately $21.5 million and $8.0 million, respectively, which are reflected as either distributions of earnings or as returns of capital in the operating and investing sections of the Consolidated Statement of Cash Flows, respectively. As of December 31, 2012, there was $0.1 million of undistributed earnings from UI’s equity investment in GenConn.

Goodwill

UIL Holdings may be required to recognize an impairment of goodwill in the future due to market conditions or other factors related to its results of operations and performance. Those market events could include a decline in the forecasted results in the company business plan, significant adverse rate case results, changes in capital investment budgets or changes in interest rates that could permanently impair the fair value of a reporting unit. Recognition of impairments of a significant portion of

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

goodwill would negatively affect reported results of operations and total capitalization, the effect of which could be material and could make it more difficult to maintain credit ratings, secure financing on attractive terms, maintain compliance with debt covenants and meet expectations of regulators.

A goodwill impairment test is performed each year and the test will be updated between annual tests if events or circumstances occur that may reduce the fair value of a reporting unit below its carrying value. The annual analysis of the potential impairment of goodwill is a two step process. Step one of the impairment test consists of comparing the fair values of reporting units with their aggregate carrying values, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, step two must be performed to determine the amount, if any, of the goodwill impairment loss. If the carrying amount is less than fair value, further testing of goodwill impairment is not performed.

Step two of the goodwill impairment test consists of comparing the implied fair value of the reporting unit’s goodwill against the carrying value of the goodwill. Determining the implied fair value of goodwill requires the valuation of a reporting unit’s identifiable tangible and intangible assets and liabilities as if the reporting unit had been acquired in a business combination on the testing date. The difference between the fair value of the entire reporting unit as determined in step one and the net fair value of all identifiable assets and liabilities represents the implied fair value of goodwill. A goodwill impairment charge, if any, would be the difference between the carrying amount of goodwill and the implied fair value of goodwill upon the completion of step two.

As of October 1, 2012, the fair values of UIL Holdings’ applicable reporting units exceeded their carrying values and therefore no impairment was recognized. No events or circumstances occurred subsequent to October 1, 2012 that would make it more likely than not that the fair value of the reporting units fell below their respective carrying values.

Impairment of Long‑Lived Assets and Investments

ASC 360 “Property, Plant, and Equipment” requires the recognition of impairment losses on long‑lived assets when the book value of an asset exceeds the sum of the expected future undiscounted cash flows that result from the use of the asset and its eventual disposition. If impairment arises, then the amount of any impairment is measured based on discounted cash flows or estimated fair value.

ASC 360 also requires that rate‑regulated companies recognize an impairment loss when a regulator excludes all or part of a cost from rates, even if the regulator allows the company to earn a return on the remaining costs allowed. Under this standard, the probability of recovery and the recognition of regulatory assets under the criteria of ASC 980 must be assessed on an ongoing basis. As discussed in the description of ASC 980 in this Note (A) under “Regulatory Accounting,” determination that certain regulatory assets no longer qualify for accounting as such could have a material impact on the financial condition of UI, the Gas Companies and UIL Holdings. At December 31, 2012, UI and the Gas Companies, as rate-regulated entities, did not have any assets that were impaired under this standard.

ASC 323 “Investments” requires that a loss in the value of an investment that is other than a temporary decline should be recognized. In accordance with ASC 323, UIL Holdings reviews its investments accounted for by the equity method for impairment by identifying and measuring losses in the value based upon a comparison of fair value to carrying value. At December 31, 2012, UIL Holdings did not have any equity investments that were impaired under this standard.

Income Taxes

In accordance with ASC 740 “Income Taxes,” UIL Holdings has provided deferred taxes for all temporary book‑tax differences using the liability method. The liability method requires that deferred tax balances be adjusted to reflect enacted future tax rates that are anticipated to be in effect when the temporary differences reverse. In accordance with generally accepted accounting principles for regulated industries, UIL Holdings’ regulated subsidiaries have established a regulatory asset for the net revenue requirements to be recovered from customers for the related future tax expense associated with

- 12 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

certain of these temporary differences. For ratemaking purposes, UIL Holdings’ regulated subsidiaries normalize all investment tax credits (ITCs) related to recoverable plant investments.

Under ASC 740, UIL Holdings may recognize the tax benefit of an uncertain tax position only if management believes it is more likely than not that the tax position will be sustained on examination by the taxing authority based upon the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based upon the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. UIL Holdings’ policy is to recognize interest accrued and penalties associated with uncertain tax positions as a component of operating expense. See – Note (E), Income Taxes for additional information.

UIL Holdings files consolidated federal tax return which include all of the activities of its subsidiaries. Each subsidiary company is treated as a member of the consolidated group and each subsidiary company’s current and deferred tax expense or benefit is calculated based on the separate return method.

Pension and Other Postretirement Benefits

UIL Holdings accounts for pension plan costs and other postretirement benefits, consisting principally of health and life insurance, in accordance with the provisions of ASC 715 “Compensation - Retirement Benefits.” See – Note (G), Pension and Other Benefits.

Property, Plant and Equipment

The cost of additions to property, plant and equipment and the cost of renewals and betterments are capitalized. Cost consists of labor, materials, services and certain indirect construction costs, including an allowance for funds used during construction (AFUDC). The costs of current repairs, major maintenance projects and minor replacements are charged to appropriate operating expense accounts as incurred. The original cost of utility property, plant and equipment retired or otherwise disposed of and the cost of removal, less salvage, are charged to the accumulated provision for depreciation.

UI and the Gas Companies accrue for estimated costs of removal for certain of their plant-in-service. Such removal costs are included in the approved rates used to depreciate these assets. At the end of the service life of the applicable assets, the accumulated depreciation in excess of the historical cost of the asset provides for the estimated cost of removal. In accordance with ASC 980 “Regulated Operations,” the accrued costs of removal have been recorded as a regulatory liability. Accrued costs of removal as of December 31, 2012 and 2011 were $243.9 million and $224.1 million, respectively.

UIL Holdings’ property, plant and equipment as of December 31, 2012 and 2011 were comprised as follows:

	2012		2011
	(In Thousands)

Electric distribution plant	$	860,096	$	822,899
Electric transmission plant		577,669		508,738
Gas distribution plant		1,386,288		1,318,914
Software		136,219		139,241
Building and improvements		219,234		112,146
Land		64,421		64,137
Other plant		185,648		166,181
Total property, plant & equipment		3,429,575		3,132,256
Less accumulated depreciation		953,561		929,401
		2,476,014		2,202,855
Construction work in progress		311,340		367,500
Net property, plant & equipment	$	2,787,354	$	2,570,355

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Regulatory Accounting

Generally accepted accounting principles for regulated entities in the United States of America allow UIL Holdings’ regulated subsidiaries to give accounting recognition to the actions of regulatory authorities in accordance with the provisions of Accounting Standards Codification (ASC) 980 “Regulated Operations.” In accordance with ASC 980, UIL Holdings’ regulated utilities have deferred recognition of costs (a regulatory asset) or have recognized obligations (a regulatory liability) if it is probable that such costs will be recovered or obligations relieved in the future through the ratemaking process. UIL Holdings’ regulated utilities are allowed to recover all such deferred costs through its regulated rates. See Note (C), “Regulatory Proceedings,” for a discussion of the recovery of certain deferred costs, as well as a discussion of the regulatory decisions that provide for such recovery.

UI also has obligations under long‑term power contracts, the recovery of which is subject to regulation. If UIL Holdings’ regulated utilities, or a portion of their assets or operations, were to cease meeting the criteria for application of these accounting rules, accounting standards for businesses in general would become applicable and immediate recognition of any previously deferred costs would be required in the year in which such criteria are no longer met (if such deferred costs are not recoverable in the portion of the business that continues to meet the criteria for application of ASC 980). UIL Holdings expects its regulated utilities to continue to meet the criteria for application of ASC 980 for the foreseeable future. If a change in accounting were to occur, it could have a material adverse effect on the earnings and retained earnings of the applicable regulated utility and UIL Holdings in that year and could also have a material adverse effect on the on going financial condition of the applicable regulated utility and UIL Holdings.

- 14 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Unless otherwise stated below, all of UIL Holding’s regulatory assets earn a return. UIL Holdings’ regulatory assets and liabilities as of December 31, 2012 and 2011 included the following:

	Remaining	December 31,		December 31,
	Period	2012		2011
		(In Thousands)
Regulatory Assets:
Nuclear plant investments – above market	(a)	$	252,498	$	272,943
Connecticut Yankee	3 years		11,129		14,247
Unamortized redemption costs	9 to 21 years		12,103		12,906
Pension and other post-retirement benefit plans	(b)		458,019		344,746
Environmental remediation costs	4 to 5 years		14,772		19,101
Customer rate surcharge	(c)		-		15,757
Hardship programs	(d)		29,852		37,420
Debt premium	1 to 25 years		41,016		48,275
Deferred purchased gas	(e)		12,444		15,558
Deferred income taxes	(f)		731		20,994
Unfunded future income taxes	(f)		17,319		11,657
Contracts for differences	(g)		176,597		184,105
Excess generation service charge	(h)		8,864		13,758
Deferred transmission expense	(i)		21,379		-
Storm Costs	(j)		52,009		29,618
Other	(k)		27,449		45,037
Total regulatory assets			1,136,181		1,086,122
Less current portion of regulatory assets			118,961		102,900
Regulatory Assets, Net		$	1,017,220	$	983,222

Regulatory Liabilities:
Accumulated deferred investment tax credits	31 years	$	4,612	$	4,758
Income taxes due principally to book-tax differences	(k)		41,928		14,445
Deferred gain on sale of property	(a)		37,933		37,798
Middletown/Norwalk local transmission network service collections	37 years		21,975		22,548
Pension and other post-retirement benefit plans	1 to 8 years		15,016		17,956
Deferred income taxes	(f)		48,951		48,740
Asset retirement obligation	(l)		4,995		8,941
Low income programs	(m)		17,651		9,958
Unfunded future income taxes	(f)		125		9,735
Asset removal costs	(k)		243,854		224,125
Deferred transmission expense	(i)		-		11,628
Other	(k)		36,660		35,788
Total regulatory liabilities			473,700		446,420
Less current portion of regulatory liabilities			21,284		26,245
Regulatory Liabilities, Net		$	452,416	$	420,175

(a) Asset/Liability relates to the Competitive Transition Assessment (CTA). Total CTA costs recovery is currently projected to be completed in 2015, with stranded cost amortization expected to end in 2013. The remaining balances will be fully offset by amounts primarily included in income taxes, due principally to book-tax differences.

(b) Asset life is dependent upon timing of final pension plan distribution; balance is recalculated each year in accordance with ASC 715 "Compensation-Retirement Benefits" (Note G).

(d) Hardship customer accounts deferred for future recovery to the extent they exceed the amount in rates.

(e) Deferred purchase gas costs balances at the end of the rate year are normally recorded/returned in the next year.

(f) The balance will be extinguished when the asset or liability has been realized or settled, respectively.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(g) Asset life is equal to delivery term of related contracts (which vary from approximately 7 - 15 years); balance fluctuates based upon quarterly market analysis performed on the related derivatives (Note K); amount, which does not earn a return, is fully offset by corresponding derivative asset/liability.

(h) Working capital allowance for generation service charge; this amount fluctuates based upon cash inflows and outflows in a given period.

(i) Regulatory asset or liability which defers transmission income or expense and fluctuates based upon actual revenues and revenue requirements.

(j) Storm costs include accumulated costs for major storms occurring from January 2009 forward. UI will seek recovery of these costs in future rate proceedings.

(k) Amortization period and/or balance vary depending on the nature, cost of removal and/or remaining life of the underlying assets/liabilities; asset amount includes decoupling ($7.9 million) and certain other amounts that are not currently earning a return.

(l) The liability will be extinguished simultaneous with the retirement of the assets and settlement of the corresponding asset retirement obligation.

(m) Various hardship and payment plan programs approved for recovery.

Restricted Cash

UIL Holdings’ restricted cash at December 31, 2012 and 2011 totaled $2.8 million and $6.5 million, respectively, which primarily relates to electric distribution and transmission capital projects, which have been withheld by UI and will remain in place until the verification of fulfillment of contractor obligations.

Revenues

Regulated utility revenues are based on authorized rates applied to each customer. These retail rates are approved by regulatory bodies and can be changed only through formal proceedings.

UI utilizes a customer accounting software package integrated with the network meter reading system to estimate unbilled revenue on a customer-by-customer basis, utilizing actual daily meter readings at the end of each month to calculate consumption and pricing for each customer. A significant portion of utility retail kilowatt-hour consumption is read through the network meter reading system. For those customers still requiring manual meter readings, consumption is estimated based upon historical usage and actual pricing for each customer.

The Gas Companies’ unbilled revenues represent estimates of receivables for products and services provided but not yet billed. The estimates are determined based on various assumptions, such as current month energy load requirements, billing rates by customer classification and weather.

Stock-Based Compensation

Certain members of management have the opportunity to earn a pre-determined number of performance shares, the number of which is predicated upon the achievement of various pre-defined performance measures over a three-year period. These performance shares are issued under the UIL Holdings 2008 Stock and Incentive Compensation Plan (2008 Stock Plan). Each award of performance shares vests at the end of a three-year cycle with the actual issuance of UIL Holdings’ common stock in respect of such performance shares following the end of each three-year cycle. A new three-year cycle begins in January of each year.

UIL Holdings records compensation expense for these performance shares ratably over the three-year period, except in the case of retirement-eligible employees, for whom compensation expense is immediately recognized in accordance with ASC 718 “Compensation-Stock Compensation,” based on the value of the expected payout at the end of each year relative to the performance measures achieved.

Pursuant to the 2008 Stock Plan, a target amount of 119,640 performance shares was granted to certain members of management in March 2012; the average of the high and low market price on the grant date was $34.45 per share.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Also in March 2012, UIL Holdings granted a total of 2,286 shares of restricted stock to its President and Chief Executive Officer under the 2008 Stock Plan and in accordance with his employment agreement; the average of the high and low market price on the date of grant was $34.45 per share. Such shares vest in equal annual installments over a five year period.

In May 2012, UIL Holdings granted a total of 23,461 shares of restricted stock to non-employee directors under the 2008 Stock Plan; the average of the high and low market price on the date of grant was $33.42 per share. Such shares vest in May 2013.

In September 2012, 10,220 shares of previously-granted performance shares were forfeited upon the resignation of a member of management.

Total stock-based compensation expense for the years ended December 31, 2012, 2011 and 2010 was $4.9 million, $5.3 million and $4.1 million, respectively.

Variable Interest Entities

UIL Holdings has identified GenConn as a variable interest entity (VIE), which is accounted for under the equity method. UIL Holdings is not the primary beneficiary of GenConn, as defined in ASC 810 “Consolidation,” because it shares control of all significant activities of GenConn with its joint venturer, NRG. As such, GenConn is not subject to consolidation. GenConn recovers its costs through CfDs, which are cost of service-based and have been approved by PURA. As a result, with the achievement of commercial operation by GenConn Devon and GenConn Middletown, UIL Holdings’ exposure to loss is primarily related to the potential for unrecovered GenConn operating or capital costs in a regulatory proceeding, the effect of which would be reflected in the carrying value of UIL Holdings’ 50% ownership position in GenConn and through “Income from Equity Investments” in UIL Holdings’ Consolidated Financial Statements. Such exposure to loss cannot be determined at this time. For further discussion of GenConn, see “–Equity Investments” as well as Note (C) “Regulatory Proceedings – Electric Distribution and Transmission – Equity Investment in Peaking Generation.”

UIL Holdings has identified the selected capacity resources with which UI has CfDs as VIEs and has concluded that UI is not the primary beneficiary as UI does not have the power to direct any of the significant activities of these capacity resources. As such, UIL Holdings has not consolidated the selected capacity resources. UI’s maximum exposure to loss through these agreements is limited to the settlement amount under the CfDs as described in “–Derivatives – Contracts for Differences (CfDs)” above. UI has no requirement to absorb additional losses nor has UI provided any financial or other support during the periods presented that were not previously contractually required.

UIL Holdings has identified the entities for which UI is required to enter into long-term contracts to purchase Renewable Energy Credits (RECs) as VIEs. In assessing these contracts for VIE identification and reporting purposes, UIL Holdings has aggregated the contracts based on similar risk characteristics and significance to UI. UI is not the primary beneficiary as UI does not have the power to direct any of the significant activities of these entities. UI’s exposure to loss is primarily related to the purchase and resale of the RECs, but, any losses incurred are recoverable through electric rates. For further discussion of RECs, see Note (C) “Regulatory Proceedings – Electric Distribution and Transmission – New Renewable Source Generation.

New Accounting Standards

In May 2011, the FASB issued amendments to ASC 820 “Fair Value Measurements and Disclosures,” which UIL Holdings adopted on a prospective basis on January 1, 2012. The adoption of the amendments resulted in additional details being included in new and existing tabular fair value disclosures as well as additional discussion regarding unobservable inputs. The implementation of this guidance did not have a material impact on UIL Holdings’ consolidated financial statements.

- 17 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(B) CAPITALIZATION

Common Stock

UIL Holdings had 50,665,114 shares of its common stock, no par value, outstanding as of December 31, 2012 and 50,545,487 shares of its common stock, no par value, outstanding at December 31, 2011. Not included in such shares were 209,469 and 100,003 shares of restricted stock as of December 31, 2012 and 2011, respectively. These shares of restricted stock are, however, recognized as outstanding for purposes of calculating basic earnings per share because such shares represent the net of the amount of deferred vested restricted stock, less the amount of non-deferred unvested restricted stock.

Restricted stock activity for 2012 is as follows:

				Weighted Average
	Number			Grant Date
	of Shares			Fair Value
Nonvested Balance – December 31, 2011		107,241		$	28.12
Granted		25,747		$	35.51
Forfeited		-			N/	A
Vested		(58,857	)	$	27.48
Nonvested Balance – December 31, 2012		74,131		$	30.49

Performance share activity for 2012 is as follows:

	Number			Weighted Average
	of Performance			Grant Date
	Shares			Fair Value
Nonvested Balance – December 31, 2011		324,601		$	27.43
Granted		122,302		$	34.20
Forfeited		(10,220	)	$	31.10
Vested		(110,795	)	$	22.90
Nonvested Balance – December 31, 2012		325,888		$	31.39

The weighted average grant date fair value of all restricted stock and performance shares granted during the year was $34.33, $33.33 and $28.43 for the years ended December 31, 2012, 2011 and 2010 respectively.

- 18 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Stock option transactions for 2012, 2011 and 2010 are as follows:

								Average
	Number				Option Price			Exercise
	of Options				per Share			Price
Balance – December 31, 2009		168,501			$	21.68-$34.51		$	30.32
Granted		-				N/	A		N/	A
Forfeited		(3,202	)			N/	A		N/	A
Exercised		(30,305	)		$	21.68-$23.64			N/	A
Balance – December 31, 2010		134,994			$	21.68-$34.51		$	31.70
Granted		-				N/	A		N/	A
Forfeited		(7,910	)			N/	A		N/	A
Exercised		(28,864	)		$	21.68-$31.25			N/	A
Balance – December 31, 2011		98,220			$	21.68-$33.96		$	33.39
Granted		-				N/	A		N/	A
Forfeited		(38,000	)			N/	A		N/	A
Exercised		(56,887	)		$	31.25-$33.96			N/	A
Balance – December 31, 2012		3,333			$	21.68		$	21.68


Exercisable at December 31, 2010		134,994			$	21.68-$34.51		$	31.70
Exercisable at December 31, 2011		98,220			$	21.68-$33.96		$	33.39
Exercisable at December 31, 2012		3,333		(1)	$	21.68		$	21.68

(1) The intrinsic value of exercisable stock options at December 31, 2012 was $0.05 million.

As of December 31, 2012, 2011 and 2010, the weighted-average remaining contractual lives for those options outstanding was 0.3 years, 0.5 years, and 1.3 years, respectively.

As of December 31, 2012, total stock option compensation costs were zero, performance share costs were $2.4 million, and restricted stock costs related to non-vested awards not yet recognized were $0.7 million. The weighted-average period over which the stock option compensation costs, performance-share cost, and restricted stock cost will be recognized is zero months, 10 months, and 8 months, respectively.

Cash received from options exercised under all share-based payment arrangements for the years ended December 31, 2012, 2011 and 2010, was $1.9 million, $0.8 million, and $0.7 million, respectively. The actual tax benefit realized by UIL Holdings for the tax deductions from the exercises totaled $0.1 million for each of 2012, 2011 and 2010.

The shares issued to non-employee directors as well as employee performance shares and options are drawn from the 2008 Stock Plan.

Redeemable Preferred Stock of Subsidiaries, Noncontrolling Interests

The redeemable preferred stock of subsidiaries are noncontrolling interests because they contain a feature that allows the holders to elect a majority of the subsidiary’s board of directors if preferred stock dividends are in default in an amount equivalent to four full quarterly dividends. Such a potential redemption-triggering event is not solely within the control of the subsidiary.

- 19 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

CNG has one 8.00% non-callable series of cumulative preferred stock authorized with a par value of $3.125 per share. As of December 31, 2012, there were 108,706 shares issued and outstanding with a value of approximately $0.3 million and 775,609 shares authorized but unissued.

CNG also has one 6.00% series of cumulative preferred stock authorized with a par value of $100 per share. Effective November 30, 2012, CNG redeemed all of its 6.00% series preferred stock, which had 4,104 shares issued and outstanding. As of December 31, 2012, CNG had 9,999,068 shares of $100 par value preferred stock authorized but unissued.

- 20 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Long-Term Debt

	December 31,
	2012		2011
	(In Thousands)
UIL Holdings
4.625% Unsecured Senior Notes, due 2020	$	450,000	$	450,000

UI
Pollution Control Revenue Bonds:

5.75%, 1996 Series, due 2026 (1)		-		7,500
4.50% 2010 Series, due 2027		27,500		27,500
7.13%, 1997 Series, due 2027 (1)		-		71,000
6.88%, 2009 Series, due 2029 (1)		-		25,000
Auction Rate, 2003 Series, due 2033 (2)		64,460		64,460

Senior Unsecured Notes:

6.06% Senior Notes, Series A and B, due 2017		70,000		70,000
2.98% Senior Notes, Series A due 2019		31,000		-
3.61% Senior Notes, Series B and C and 6.26% Senior Notes, Series C and D, due 2022		162,500		77,000
6.51% Senior Notes, Series E and F due 2037		28,000		28,000
6.46% Senior Notes, Series A and 6.51%, Senior Notes, Series B, due 2018		100,000		100,000
6.61% Senior Notes, Series C, due 2020		50,000		50,000
5.61% Senior Notes, due 2025		50,000		50,000
6.09% Senior Notes, due 2040		100,000		100,000
4.89% Senior Notes, Series D and E, due 2042		87,000		-

Gas Companies
Senior Secured Notes:

3.88% - 7.50% Senior Secured Medium Term Note IV, due 2018 - 2041		100,000		100,000
5.77% - 6.38% Senior Secured Medium Term Notes III, due 2025 - 2037		85,000		85,000
6.88% - 7.95% Senior Secured Medium Term Notes I, due 2026 - 2028		29,000		29,000
10.06% First Mortgage Bond Series P, due 2019		10,000		10,000

Unsecured Notes:

4.76% - 9.60% Senior Unsecured Notes, due 2020 - 2021		21,090		22,545
6.85% - 9.10% Unsecured Medium Term Notes, Series A, due 2013 - 2017		50,000		55,000
6.50% Unsecured Medium Term Note, Series D, due 2013		20,000		20,000
8.12% - 8.49% Unsecured Medium Term Notes, Series B, due 2014 - 2024		10,000		10,000
5.63% - 6.66% Unsecured Medium Term Notes, Series C, due 2035 - 2037		65,000		65,000

Long-Term Debt		1,610,550		1,517,005
Less: Current portion of long-term debt (3)		48,296		13,712
Less: Unamortized discount		2,916		3,221
Plus: Unamortized premium		41,016		48,275
Net Long-Term Debt	$	1,600,354	$	1,548,347

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(1)	The interest rates on these bonds were due to be remarketed on February 1, 2012; however such bonds were refinanced in January 2012, as discussed below.

(2)	The interest rate on these Bonds is reset through an auction held every 35 days. On January 18, 2013, the interest rate on the Bonds was 0.41%.

(3)	Includes the current portion of unamortized premium.

The amount of restricted net assets as of December 31, 2012 was approximately $578.9 million, of which approximately $124.7 million related to UI’s equity investment in GenConn. Substantially all of the respective utility’s properties are pledged as collateral for the applicable Senior Secured Medium Term Notes and First Mortgage Bonds.

The weighted-average remaining fixed rate period of outstanding long-term debt obligations of UIL Holdings and its subsidiaries as of December 31, 2012 was 12 years, at an average interest rate of 5.6%.

The fair value of UIL Holdings’ long-term debt was $1.9 billion and $1.7 billion as of December 31, 2012 and 2011, respectively, which was estimated by UIL Holdings based on market conditions. The expenses to issue long‑term debt are deferred and amortized over the life of the respective debt issue or the fixed interest-rate period in the case of pollution control revenue bonds.

Information regarding maturities and mandatory redemptions/repayments are set forth below:

	2013		2014		2015		2016		2017 & thereafter
(In Thousands)
Maturities	$	41,455	$	6,455	$	1,455	$	11,455	$	1,549,730

Due to conditions in the municipal bond market, UIL Holdings determined it was economically favorable to refinance multiple series of pollution control revenue bonds in the aggregate principal amount outstanding of $103.5 million with notes issued in the private placement market. On January 30, 2012, UI entered into a Note Purchase Agreement with a group of institutional accredited investors to issue $203.5 million principal amount of senior unsecured notes. On January 30, 2012, $103.5 million of such notes were issued as follows: 3.61%, Series B, due January 31, 2022, in the principal amount of $51.5 million and 4.89%, Series D, due January 30, 2042, in the principal amount of $52 million. On April 2, 2012, the remaining $100 million of such notes were issued as follows: 2.98%, Series A, due January 31, 2019, in the principal amount of $31 million, 3.61%, Series C, due January 31, 2022 in the principal amount of $34 million and 4.89%, Series E, due January 30, 2042, in the principal amount of $35 million.

In September 2011, SCG repaid, upon maturity, the outstanding balance of its 6.59% senior secured medium term notes totaling $30 million.

On August 29, 2011, SCG entered into a note purchase agreement with a group of institutional accredited investors providing for the sale to such investors of (1) secured 3.88% medium-term notes due September 22, 2021 (constituting a series of first mortgage bonds) in the principal amount of $25 million, and (2) secured 5.39% medium-term notes due September 22, 2041 (constituting a series of first mortgage bonds) in the principal amount of $25 million. SCG received $25 million, upon the issuance of such notes on September 22, 2011.

In July 2011, UI repaid, upon maturity, approximately $63 million of borrowings under its equity bridge loan (EBL) relating to GenConn. The EBL was used by UI to fund its commitments as a 50-50 joint venturer in GenConn.

In May 2011, Berkshire repaid, upon maturity, the outstanding balance of its 4.76% unsecured notes totaling $3.0 million.

In February 2011, UIL Holdings repaid, upon maturity, the outstanding balances of its 7.23% Series A Senior Notes totaling $4.3 million and its 7.38% Series B Senior Notes totaling $45 million.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

In August 2012, PURA issued a final decision in its investigation of the service response and communications of utilities, including UI, CNG and SCG, after Tropical Storm Irene, which passed through Connecticut in August 2011, and the autumn nor’easter, which passed through Connecticut in October 2011. The decision contains reporting requirements for UI (including with respect to improving mutual assistance and the release of customer information in emergency situations) and CNG and SCG (including with respect to a fueling plan).

In November 2012, pursuant to Connecticut Law (PA 12-148), PURA opened a docket to investigate UI’s and the Gas Companies’ performance in restoring service following Hurricane Sandy, which passed through Connecticut in October 2012. Hearings are scheduled for the second quarter of 2013 with a final decision expected in the third quarter of 2013.

Electric Distribution and Transmission

ISO-NE, an independent, not-for-profit corporation, is the Regional Transmission Organization (RTO) for New England. ISO-NE is responsible for the reliable operation of the region’s bulk electric power system, which includes UI’s electric system, and administration of the region’s wholesale electricity marketplace. ISO-NE also is responsible for the management of the comprehensive bulk electric power system and wholesale markets’ planning processes that address the region's electricity needs.

Hurricane Sandy caused extensive damage to the electric system in UI's service territory and resulted in approximately 284,000 customer outages. In accordance with PURA regulatory decisions and past storm cost guidance, UI has established a regulatory asset for its storm-related expense. As of December 31, 2012, UI’s estimate of the cost of repairing the damage resulting from the storm and restoring service to customers is approximately $37.5 million, of which approximately $12.5 million has been capitalized as property plant and equipment and the remainder as a regulatory asset. UI is seeking recovery of these costs in its rate proceeding discussed below.

Rates

On February 15, 2013, UI filed an application to amend its existing distribution rate schedules for two rate years. The changes are designed to produce additional distribution revenues of approximately $69 million in rate year one (from July 1, 2013 through June 30, 2014) and an additional $26 million in rate year two (from July 1, 2014 through June 30, 2015). For rate year one, these additional revenues represent an increase of approximately 8.7% over the total revenues that would be expected under current rate schedules and projected sales on a total bill basis. For rate year two, the additional revenues represent an increase of approximately 3.0% over rate year one revenues. Included in this request is the initiation of the recovery of UI’s storm regulatory asset of approximately $52 million for previously incurred storm costs not included in rates. UI’s application proposes a six-year recovery period for these costs along with the establishment of a storm reserve of $2 million per year to help address future storm costs and the ability to defer additional storm costs above the reserve amount as a regulatory asset for recovery in a future proceeding. UI does not currently have a storm reserve funded in rates. In addition, UI proposed to use revenue from other sources, such as the 2010 and 2012 earning sharing amounts owed to customers along with anticipated excess CTA revenue collections, to recover increased distribution revenue requirements through the end of 2013, which allows the implementation of the distribution rate increase to be deferred until January 1, 2014 coincident with the expiration of the CTA rate. PURA is expected to issue a final decision in the third quarter of 2013.

UI’s allowed distribution return on equity established by PURA is 8.75%. UI has an earnings sharing mechanism in place that allows the Company to retain 50% of any distribution earnings above the allowed 8.75% ROE in a calendar year.

UI filed its revised distribution 2011 rate year decoupling results with PURA in June 2012. The decoupling results included a decoupling adjustment of approximately $4.4 million which is to be collected from customers beginning in the first quarter of 2013, pending PURA approval. PURA is expected to issue a decision on the decoupling adjustment in the first quarter of 2013. Additionally, PURA approved last resort service Generation Services Charge rates for the period through March 31, 2013.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Power Supply Arrangements

UI’s retail electricity customers are able to choose their electricity supplier. Since January 1, 2007, UI has been required to offer standard service to those of its customers who do not choose a retail electric supplier and have a maximum demand of less than 500 kilowatts. In addition, UI is required to offer supplier of last resort service to customers who are not eligible for standard service and who do not choose to purchase electric generation service from a retail electric supplier licensed in Connecticut.

UI must procure its standard service power pursuant to a procurement plan approved by PURA. The procurement plan must provide for a portfolio of service agreements procured in a manner that maintains standard service cost volatility within reasonable levels. On October 10, 2012, PURA approved the Standard Service Procurement Plan (the Procurement Plan) submitted by DEEP’s procurement manager to PURA for approval as required by Connecticut law. The Procurement Plan, which was developed by the procurement manager, in consultation with UI, CL&P and the Connecticut Office of Consumer Counsel (OCC), provides for UI to continue to procure wholesale power for standard service customers on a full requirements basis but reduces the maximum duration of contracts from three years to 12 months, with the delivery of such wholesale power to commence no later than six months from the applicable bid day. The length of term and tranche sizes may be modified by the mutual agreement of UI and the procurement manager.

UI has wholesale power supply agreements in place for the supply of all of its standard service customers for all of 2013, and 30% for the first half of 2014. Supplier of last resort service is procured on a quarterly basis. UI determined that its contracts for standard service and supplier of last resort service are derivatives under ASC 815 “Derivatives and Hedging” and elected the “normal purchase, normal sale” exception under ASC 815 “Derivatives and Hedging.” As such, UI regularly assesses the accounting treatment for its power supply contracts. These wholesale power supply agreements contain default provisions that include required performance assurance, including certain collateral obligations, in the event that UI’s credit rating on senior debt was to fall below investment grade. In November 2012, Moody’s Investor Services released its updated credit opinion for UI and maintained its Baa2 rating with a stable outlook. In May 2012, Standard & Poor’s Investor Services released its updated credit opinion for UI, maintaining its BBB rating with a stable outlook. If UI’s credit rating were to decline one rating and UI were to be placed on negative credit watch, monthly amounts due and payable to the power suppliers would be accelerated to semi-monthly payments. UI’s credit rating would have to decline two ratings to fall below investment grade at either rating service. If this were to occur, UI would have to deliver collateral security in an amount equal to the receivables due to the sellers for the thirty-day period immediately preceding the default notice. If such a situation had been in effect as of December 31, 2012, UI would have had to post approximately $10.5 million in collateral.

UI is permitted to seek long-term contracts for up to 20% of standard service requirements, in order to obtain long-term energy supply contracts and Connecticut Class I Renewable Energy Certificates for UI’s standard service customers that will result in an economic benefit to ratepayers, both in terms of risk and cost mitigation. UI continues to keep apprised of possible long-term contracts that could benefit customers but, UI has not executed any long-term contracts.

New Renewable Source Generation

Under Connecticut law, electric distribution companies were required to enter into contracts to purchase the output of new renewable generation totaling at least 150 MW, at prices and upon terms approved by PURA in accordance with statutory requirements. PURA approved a number of these projects from 2007 through 2009, all of which are governed by a cost sharing agreement with CL&P whereby UI pays approximately 20% of the costs and obtains approximately 20% of the benefits of such contracts. UI was a direct party to two of the contracts. UI’s costs associated with all such contracts are recoverable, whether UI is a direct party or pursuant to the sharing agreement. In September 2011, PURA issued a report to the legislature stating that, of the original 150 MW, only 47 MW have the capability of achieving commercial operation within contractual deadlines. One of the contracts to which UI was a direct party has since been terminated. Many of the other contracts are also expected to be terminated as the commercial operation deadlines expire. On September 20, 2012, PURA approved a request by Bridgeport

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Fuel Cell Park, LLC to extend the in-service date under its contract with CL&P to February 14, 2014. To date, none of the projects have achieved commercial operation.

Under a 2011 Connecticut law (PA 11-80), UI and CL&P are required to enter into long-term contracts to purchase RECs from small renewable generators located on customer premises. Under this program, UI will be required to enter into contracts totaling approximately $200 million in commitments over an approximate 21 year period. The obligations will phase in over a six year solicitation period, and are expected to peak at an annual commitment level of about $13.6 million/year after six years. Upon purchase, the RECs will be accounted for as inventory. UI expects to partially mitigate the cost of the contracts through the resale of the RECs. PA 11-80 provides that the remaining costs of the contracts, including any gain or loss resulting from the resale of the RECs, are recoverable through electric rates. In December 2011, UI and CL&P submitted a joint petition to PURA outlining a plan to address the new requirements and in April 2012, PURA approved the program. In October 2012, UI received PURA approval for executed REC purchase contracts totaling up to approximately $1.5 million annually in payments for 15 year delivery terms commencing in 2013. On January 8, 2013, UI opened a tariff-based application process to procure RECs from small renewable projects, and expects to enter into REC purchase contracts in the first quarter of 2013 totaling up to approximately $0.6 million annually in payments for 15 year delivery terms commencing in 2013 and 2014.

PA 11-80 also allows for the development of up to 30 MW of grid-connected renewable energy. UI and CL&P are each allowed to develop projects capable of generating up to 10 MW and DEEP is to solicit proposals for projects capable of generating 10 MW. In December 2011, DEEP announced that it had selected two 5 MW solar projects in CL&P service territory. CL&P executed contracts with the developers of the two 5 MW solar projects to purchase energy and associated products from both projects. These contracts, and the associated cost recovery, have been approved by DEEP and PURA, respectively. UI and CL&P executed a sharing arrangement, pursuant to which UI will pay 20% of the costs, and receive 20% of the revenues, associated with the projects. Pursuant to PURA’s approval of the cost recovery, the costs of payments made to projects are recoverable through electric rates. In January 2012, UI filed a proposal with PURA outlining a framework for approval of UI’s renewable connections program under which UI would develop up to 10 MW of renewable generation for recovery on a cost of service basis. PURA issued a final decision in July 2012, in which it approved the construction of one solar facility and two fuel cell facilities. The decision approves a return on equity (ROE) equal to the then currently allowed distribution ROE over the life of the investment, which is currently 8.75%. UI had requested a ROE of 9.5% for the renewable connections program projects. In September 2012 PURA reopened the proceeding on its own motion and issued interrogatories, responses to which were filed by UI. UI’s participation in the program is voluntary.

Transitional Standard Offer Incentive (TSO)

State legislation significantly restructured the electric utility industry in Connecticut in 1998 and 2003. The primary restructuring legislation includes Public Act 98-28 (the 1998 Restructuring Legislation) and Public Act 03-135, as amended in part by Public Act 03-221 (the 2003 Restructuring Legislation). The 2003 Restructuring Legislation provided for PURA to establish an incentive plan for the procurement of long-term contracts for transitional standard offer service that compares UI’s actual average contract price to a regional average price for electricity, making adjustments as deemed appropriate by PURA. For each of 2004, 2005 and 2006, if UI’s price was lower than the average, the legislation provided for the plan to allocate $0.00025/kilowatt-hour of transitional standard offer service to the distribution company. PURA issued a final decision in January 2009 that found UI was not eligible for a procurement incentive for 2004. UI appealed PURA’s final decision to the state superior court. By decision filed February 5, 2010, the superior court determined that PURA did not apply the proper standard in determining whether UI qualified for the incentive and that PURA made other errors, and remanded the case to PURA for further proceeding in accordance with the court's decision. PURA appealed the superior court’s decision to the state appellate court. On October 2, 2012, UI, CL&P and the Connecticut Office of Consumer Counsel (OCC) filed with PURA a joint motion for approval of a settlement agreement by and among UI, CL&P, and the OCC. On October 31, 2012, PURA issued a final decision approving the settlement agreement which resolves all of the issues relating to the incentive for the procurement of power for 2004 through 2006. The settlement agreement provides that UI has met the statutory standard for receiving 2005 and 2006 TSO incentives previously collected of approximately $2.7 million, which were recorded in the third quarter of 2012 and are included in “Other Income and (Deductions)” in UIL Holdings’ Consolidated Statement of Income.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

The settlement agreement also provides that no further amounts are due from UI to customers relating to the 2004 incentive in light of amounts refunded to customers in 2009.

Transmission

PURA decisions do not affect the revenue requirements determination for transmission, including the applicable return on equity (ROE), which are within the jurisdiction of the FERC. The FERC has issued orders establishing allowable ROEs for transmission projects of transmission owners in New England, including UI. The FERC established a base-level ROE of 11.14%in November 2006, as well as a 50 basis point ROE adder on Pool Transmission Facilities (PTF) for participation in the RTO for New England and a 100 basis point ROE incentive for projects included in the ISO-NE Regional System Plan that were completed and on line as of December 31, 2008. For projects placed in service after December 31, 2008, incentives may be requested from the FERC, through a specific showing justifying the incentive, on a project-specific basis.

UI’s overall transmission ROE is determined by the mix of UI’s transmission rate base between new and existing transmission assets, and whether such assets are PTF or non-PTF. UI’s transmission assets are primarily PTF. For 2012, UI’s overall allowed weighted-average ROE for its transmission business was 12.3%. UI recovers its transmission revenue requirements on a prospective basis, subject to reconciliation with actual revenue requirements. UI is required to file information regarding its approved formula rates on an annual basis with the FERC.

In September 2011, several New England governmental entities, including PURA, the Connecticut Attorney General and the Connecticut Office of Consumer Counsel, filed a complaint with the FERC against ISO-NE and several New England transmission owners, including UI, claiming that the current approved base ROE on transmission investments of 11.14% is not just and reasonable and seeking a proposed reduction of the base ROE to 9.20%. The New England transmission owners filed their response to the complaint in October 2011, opposing any change to the base ROE as unsupported. In May 2012, the FERC issued an order setting the matter for hearing and establishing settlement procedures. The parties have been unable to reach a settlement. Settlement proceedings have terminated, and a hearing judge has been assigned. Pursuant to the procedural schedule, the direct case of the complainants was filed in October 2012, seeking a base ROE of 9.0%. Respondents filed their answer to the direct case in November 2012. In January 2013, FERC trial staff filed testimony supporting a base ROE of 9.66%. Respondents filed reply testimony to the trial staff’s testimony in February 2013. A hearing is scheduled for the second quarter of 2013, with an initial decision by the hearing judge expected in the third quarter of 2013. UI is unable to predict the outcome at this time. A 25 basis point change in the weighted-average ROE for UI’s transmission business would change net income by approximately $0.6 million annually, for example. In the event there is a reduction to the ROE, the May 2012 order established a refund effective date of October 1, 2011, for a period of 15 months.

In December 2012, various customer entities filed a complaint with the FERC against several New England transmission owners, including UI, seeking a proposed reduction of the base ROE to 8.70%. The transmission owners filed an answer and request for dismissal in January 2013, including opposition to the establishment of a second 15 month refund period because the complaint seeks substantially the same relief against the same respondents but for a different 15 month period as the pending complaint of governmental entities. The complainants filed their answer to the respondents’ answer in February 2013. UI is unable to predict the outcome at this time.

New England East-West Solution

Pursuant to an agreement with CL&P (the NEEWS Agreement), UI has the right to invest in, and own transmission assets associated with, the Connecticut portion of CL&P’s New England East West Solution (NEEWS) projects to improve regional energy reliability. NEEWS consists of four inter-related transmission projects being developed by subsidiaries of Northeast Utilities (NU), the parent company of CL&P, in collaboration with National Grid USA. Three of the projects have portions located in Connecticut: (1) the Greater Springfield Reliability Project, which is currently under construction, (2) the Interstate Reliability Project, which has Connecticut Siting Council approval and (3) the Central Connecticut Reliability Project, which is

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

currently being considered by ISO-NE as part of a broader study that includes other electrically connected areas within Connecticut.

Under the terms of the NEEWS Agreement, UI has the option to make quarterly deposits to CL&P in exchange for ownership of specific transmission assets as they are placed in service. UI has the right to invest up to the greater of $60 million or an amount equal to 8.4% of CL&P’s costs for the Connecticut portions of the NEEWS projects. Based upon the current projected costs, this amount is approximately $60 million. As assets are placed in service, CL&P will transfer title to certain transmission assets to UI in proportion to its investments, but CL&P will continue to maintain these portions of the transmission system pursuant to an operating and maintenance agreement with UI. There are certain circumstances under which CL&P can terminate the NEEWS Agreement, but such termination would have no effect on the assets previously transferred to UI.

In June 2012, NU, on behalf of CL&P, submitted the operation and maintenance agreement (the O&M Agreement) between UI and CL&P to the FERC, which the FERC accepted. Under the O&M Agreement, CL&P will serve as a contractor to manage, operate and maintain transmission assets in Connecticut that the FERC has authorized UI to acquire from CL&P.

In September 2012, CL&P transferred approximately $6.2 million of transmission assets associated with the Greater Springfield Reliability Project to UI, upon which the O&M Agreement became effective. CL&P and UI plan to transfer the remaining portion of this project’s assets from CL&P to UI by the end of the first quarter of 2013.

UI made deposits in NEEWS totaling $33.5 million and $9.6 million as of December 31, 2012 and 2011, respectively. The total deposits made as of December 31, 2012 include the transferred assets noted above. UI expects to make the remaining deposits over a period of three to five years, depending on the timing and amount of CL&P’s capital expenditures and the projects’ in service dates. UI earned pre-tax income of approximately $1.6 million and $1 million on such deposits in the years ended December 31, 2012 and 2011, respectively.

Approval for the Issuance of Debt

UI has PURA approval for the issuance of up to $379 million principal amount of debt securities from 2010 through 2013 (the Proposed Notes). The proceeds from the sales of any Proposed Notes may be used by UI for the following purposes: (1) to finance capital expenditures; (2) the repayment, in July 2011, of the equity bridge loan, the proceeds of which were used to finance UI’s equity contribution in GenConn for the development and construction of GenConn Devon and GenConn Middletown; (3) to fund UI’s pension plan; (4) to partially repay short‑term borrowings that are incurred to temporarily fund the preceding needs; (5) to pay for issuance costs related to the Proposed Notes; (6) to repay $103.5 million principal amount outstanding of pollution control revenue bonds, which were remarketed in the municipal bond market in February 2012 and (7) for general corporate purposes. UI has issued $303.5 million principal amount of senior unsecured notes pursuant to such PURA approval, $100 million of which were issued in July 2010, $103.5 million of which were issued in January 2012 and $100 million of which were issued in April 2012.

Pension and Postretirement Expenses

In response to the Internal Revenue Service (IRS) mandated change in mortality tables utilized for certain Employee Retirement Income Security Act of 1974 (ERISA)-related liability calculations, effective January 1, 2007, PURA allowed regulatory treatment for the change in pension and postretirement expenses resulting from the use of the new mortality tables. In 2009, PURA approved the recovery of these expenses over a four-year period beginning in 2009. As of December 31, 2012, the remaining regulatory asset was approximately $0.1 million.

In 2009, PURA also approved the establishment of an annual regulatory asset to address a portion of the actual increase in pension and postretirement expense for each of 2009 and 2010. As of December 31, 2009, UI had recorded a regulatory asset of approximately $10.2 million which was fully recovered in 2010. Additionally, $11.4 million was included in rates in 2010 for UI’s estimate of 2010 pension and postretirement expense.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Other Proceedings

UI generally has several regulatory proceedings open and pending at PURA at any given time. Examples of such proceedings include an annual PURA review and reconciliation of UI’s Competitive Transition Assessment (CTA) and Systems Benefits Charges (SBC) revenues and expenses, dockets to consider specific restructuring or electricity market issues, consideration of specific rate or customer issues, and review of conservation programs.

UI files semi-annual true-ups with PURA regarding Bypassable Federally Mandated Congestion Charges and Non-Bypassable Federally Mandated Congestion Charges. These customer charges relate to “congestion costs” associated with not having adequate transmission infrastructure to move energy from the generating sources to the consumer and costs associated with ensuring adequate capacity on the electric system, such as peaking generation and capacity CfDs with generators. These costs change from time to time and the semi-annual true-ups provide a mechanism for the electric distribution companies to adjust the charges to customers that allow the companies to recover the Federally Mandated Congestion Charges.

UI makes a semi-annual transmission adjustment clause (TAC) filing with PURA setting forth its actual transmission revenues, projected transmission revenue requirement, and the required TAC charge or credit so that any under- or over-collections of transmission revenues from prior periods are reconciled along with the expected revenue requirements for the next six months from filing. PURA holds an administrative proceeding to approve the TAC charge or credit and holds a hearing to determine the accuracy of customer billings under the TAC. The TAC tariff and this semi-annual change of the TAC charge or credit facilitates the timely matching of transmission revenues and transmission revenue requirements.

Equity Investment in Peaking Generation

UI is a 50-50 joint venturer with NRG in GenConn, which operates two peaking generation plants in Connecticut. The two peaking generation plants, GenConn Devon and GenConn Middletown, are both participating in the ISO-New England markets. PURA has approved revenue requirements for the period from January 1, 2013 through December 31, 2013 of $33.1 million and $40.2 million for GenConn Devon and GenConn Middletown, respectively. In addition, PURA has ruled that GenConn project costs that were in excess of the proposed costs originally submitted in 2008 were prudently incurred and are recoverable. Such costs are included in the determination of the 2013 approved revenue requirements. The increase in project costs was driven primarily by increased financing costs and the cost to build interconnection facilities at GenConn Middletown.

Gas Distribution

Rates

The allowed returns on equity established by PURA are 9.41% and 9.36% for CNG and SCG, respectively. Berkshire’s rates are established by the Massachusetts Department of Public Utilities (DPU). Berkshire’s 10-year rate plan, which was approved by the DPU and included an approved ROE of 10.5%, expired on January 31, 2012. Berkshire continues to charge the rates that were in effect at the end of the rate plan.

Purchased Gas Adjustment Clause

SCG and CNG each have purchased gas adjustment clauses and Berkshire has a cost of gas adjustment clause, approved by PURA and DPU, respectively, which enable them to pass their reasonably incurred cost of gas purchases through to customers. These clauses allow utilities to recover costs associated with changes in the market price of purchased natural gas, substantially eliminating exposure to natural gas price risk. Additionally, Berkshire’s mechanism allows for the recovery of the gas-cost portion of bad debt.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Approval for the Issuance of Debt

Berkshire has DPU approval to issue, from time to time, long-term debt in an aggregate principal amount not to exceed $20 million through a period ending December 14, 2014. The proceeds from any such debt issuances may be used by Berkshire for the following purposes: (1) to finance capital expenditures; (2) to refinance short-term debt; (3) to pay anticipated environmental expenditures; (4) to provide general working capital; and (5) any other purposes as the DPU may authorize. Berkshire may issue long-term debt with maturities up to 30 years and issue secured or unsecured securities or execute a bank financing.

Gas Supply Arrangements

The Gas Companies satisfy their natural gas supply requirements through purchases from various producer/suppliers, withdrawals from natural gas storage capacity contracts and winter peaking supplies and resources. The Gas Companies operate diverse portfolios of gas supply, firm transportation, gas storage and peaking resources. Actual reasonable gas costs incurred by each of the Gas Companies are passed through to customers through state regulated purchased gas adjustment mechanisms, subject to regulatory review.

The Gas Companies purchase the majority of their natural gas supply at market prices under seasonal, monthly or mid-term supply contracts and the remainder is acquired on the spot market. The Gas Companies diversify their sources of supply by amount purchased and location. The Gas Companies primarily acquire gas at various locations in the US Gulf of Mexico region, in the Appalachia region and in Canada.

The Gas Companies acquire firm transportation capacity on interstate pipelines under long-term contracts and utilize that capacity to transport both natural gas supply purchased and natural gas withdrawn from storage to the local distribution system. Collectively, the Gas Companies hold ninety-two firm transportation contracts on twelve different pipelines. Three of those pipelines, Tennessee Gas Pipeline, Algonquin Gas Transmission and Iroquois Gas Transmission, interconnect with one or more of the Gas Companies’ distribution system and the other pipelines provide indirect services upstream of the city gates. The prices and terms and conditions of the firm transportation capacity long-term contracts are regulated by the FERC. Similar to the treatment of gas costs, the actual reasonable cost of such contracts is passed through to customers through state regulated purchased gas adjustment mechanisms. The future obligations under these contracts as of December 31, 2012 are as follows:

	(In Thousands)
2013	$	123,376
2014		119,744
2015		97,415
2016		83,070
2017		66,634
2018-after		99,226
	$	589,465

The Gas Companies acquire firm underground natural gas storage capacity using long-term contracts and fill the storage facilities with gas in the summer months for subsequent withdrawal in the winter months. Collectively, the Gas Companies hold 24 gas storage contracts with seven different storage contractors. The storage facilities are located in Pennsylvania, New York, West Virginia and Michigan.

Winter peaking resources are primarily attached to the local distribution systems and are either owned or are contracted for by the Gas Companies, each of which is a Local Distribution Company (LDC). Each LDC owns or has rights to the natural gas stored in a Liquefied Natural Gas (LNG) facility directly attached to its distribution system.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(D) SHORT‑TERM CREDIT ARRANGEMENTS

UIL Holdings, UI, CNG, SCG, and Berkshire are parties to a revolving credit agreement with a group of banks that will expire on November 30, 2016 (the UIL Holdings Credit Facility). The borrowing limit under the UIL Holdings Credit Facility is $400 million, all of which is available to UIL Holdings, $250 million of which is available to UI, $150 million of which is available to each of CNG and SCG, and $25 million of which is available to Berkshire. The UIL Holdings Credit Facility permits borrowings at fluctuating interest rates and also permits borrowings for fixed periods of time specified by each Borrower at fixed interest rates determined by the Eurodollar interbank market in London (LIBOR). The UIL Holdings Credit Facility also permits the issuance of letters of credit of up to $50 million.

As of December 31, 2012, there was $87 million outstanding under the UIL Holdings Credit Facility. Under the UIL Holdings Credit Facility, UIL Holdings has outstanding standby letters of credit in the aggregate amount of $4.4 million, which expire on January 31, 2014 and June 16, 2013. Available credit under the UIL Holdings Credit Facility at December 31, 2012 totaled $308.6 million for UIL Holdings and its subsidiaries in the aggregate. UIL Holdings records borrowings under the UIL Holdings Credit Facility as short‑term debt, but the UIL Holdings Credit Facility provides for longer term commitments from banks allowing UIL Holdings to borrow and reborrow funds, at its option, until its expiration on November 17, 2014, thus affording UIL Holdings flexibility in managing its working capital requirements. On February 15, 2013, UIL Holdings issued an additional standby letter of credit in the amount of $1 million which expires on January 31, 2014.

As of December 31, 2012, UIL Holdings had no short-term borrowings outstanding under its money market loan arrangement with JPMorgan Chase Bank.

In October 2012, UIL Holdings entered into a credit agreement with a borrowing limit of $100 million that expires on October 31, 2013 (the Credit Agreement). As of December 31, 2012, there was $100 million outstanding under the Credit Agreement.

In January 2012, UI entered into a revolving credit agreement with JPMorgan Chase Bank, N.A. that expired on July 13, 2012 (the UI Credit Facility). The borrowing limit under the UI Credit Facility was $105 million. The use of funds under the UI Credit Facility provided additional liquidity for UI’s obligation to either remarket or repay and cancel $103.5 million of pollution control revenue bonds, due to be remarketed in the municipal bond market on February 1, 2012. The pollution control revenue bonds were repaid and cancelled with the issuance of senior unsecured notes that UI issued to a group of institutional accredited investors in January 2012, as discussed above. Subsequently, the UI Credit Facility was terminated.

- 30 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Information with respect to short-term borrowings is set forth below:

	2012			2011
	($ In Thousands)
UIL Holdings

Maximum aggregate principal amount of short-term borrowing outstanding at any month-end	$	168,000		$	46,000
Average aggregate short-term borrowings outstanding during the year*	$	109,268		$	20,310
Weighted average interest rate*		1.61	%		2.02	%
Principal amounts outstanding at year-end	$	157,000		$	35,000

UI

Maximum aggregate principal amount of short-term borrowing outstanding at any month-end	$	243,000		$	200,000
Average aggregate short-term borrowings outstanding during the year*	$	78,533		$	82,690
Weighted average interest rate*		1.58	%		1.91	%
Principal amounts outstanding at year-end	$	30,000		$	200,000

Gas Companies

Maximum aggregate principal amount of short-term borrowing outstanding at any month-end	$	6,000		$	10,000
Average aggregate short-term borrowings outstanding during the year*	$	128		$	1,222
Weighted average interest rate*		1.59	%		1.80	%
Principal amounts outstanding at year-end	$	-		$	-

* Average short‑term borrowings represent the sum of daily borrowings outstanding, weighted for the number of days outstanding and divided by the number of days in the period. The weighted average interest rate is determined by dividing interest expense by the amount of average borrowings.

- 31 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(E) INCOME TAXES

	2012			2011			2010
	(In Thousands)
Income tax expense consists of:
Income tax provisions:
Current
Federal	$	5,830		$	(16,626	)	$	(21,059	)
State		1,110			(3,951	)		(547	)
Total current		6,940			(20,577	)		(21,606	)
Deferred
Federal		61,510			72,840			56,484
State		6,611			10,433			558
Total deferred		68,121			83,273			57,042

Investment tax credits		(195	)		(195	)		(152	)

Total income tax expense	$	74,866		$	62,501		$	35,284

The following table details the components of the deferred income tax provision:
Property related (accelerated depreciation and other)	$	36,140		$	43,734		$	76,168
Pension benefits		36,409			11,653			(11,182	)
Regulatory deferrals		8,820			6,570			(19,213	)
Storm costs		8,715			8,922			2,358
Goodwill		2,038			4,668			588
Investment in GenConn		893			32,694			19,201
Corporate acquisition costs		212			6,260			(9,206	)
Net operating loss carryforward		(3,475	)		(23,300	)		-
Post retirement benefits		(1,474	)		(2,117	)		(2,271	)
Alternative minimum tax		(2,488	)		-			-
Seabrook lease buyout		(3,151	)		(2,985	)		(2,542	)
Deferred gas costs		(3,288	)		(1,608	)		4,216
Conservation and customer payment programs		(7,930	)		864			418
Other - net		(3,300	)		(2,082	)		(1,493	)

Deferred income tax provision - net	$	68,121		$	83,273		$	57,042

- 32 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Total income taxes differ from the amounts computed by applying the federal statutory tax rate to income before taxes. The reasons for the differences are as follows:

	2012			2011			2010
	(In Thousands)
Computed tax at federal statutory rate	$	62,499		$	56,774		$	31,549
Increases (reductions) resulting from:
Investment tax credits		(195	)		(195	)		(152	)
Allowance for equity funds used during construction		(2,749	)		(3,689	)		(2,511	)
Amortization of nuclear plant regulatory assets		9,334			8,885			7,661
Book depreciation more (less) than non-normalized tax depreciation		(1,163	)		(1,023	)		(734	)
State income taxes, net of federal income tax benefits		5,018			4,214			7
ESOP dividend payments		(555	)		(526	)		(488	)
Mark-to-market adjustments to non-qualified pension investments		(274	)		3			(208	)
Customer conservation and payment programs		2,886			1,477			159
Gas acquisition costs		-			6			967
Other items, net		65			(3,425	)		(966	)

Total income tax expense	$	74,866		$	62,501		$	35,284

Book income before income taxes	$	178,567		$	162,211		$	90,141

Effective income tax rates		41.9	%		38.5	%		39.1	%

For 2012, the combined statutory federal and state income tax rate was 40.9%. In 2011 and 2010, the combined statutory federal and state income tax rate for UIL Holdings was 40.4%. Legislation enacted in Connecticut in 2011 imposed an additional 10% surcharge on the corporation business tax for the years 2012 and 2013. This additional surcharge increased the statutory rate of the Connecticut corporation business tax from 8.25% to 9% and increased the combined statutory federal and state income tax rate for UIL Holdings for 2012 to 40.9%.

Differences in the treatment of certain transactions for book and tax purposes occur which cause the rate of UIL Holdings’ reported income tax expense to differ from the statutory tax rate described above. The effective book income tax rate for the year ended December 31, 2012 was 41.9%, as compared to 38.5% for the year ended December 31, 2011. The increase in the 2012 effective book income tax rate was primarily due to costs associated with customer conservation and payment programs.

During 2011, UIL Holdings incurred a net operating loss (NOL) for federal income tax purposes of approximately $136 million, which was primarily due to bonus depreciation on capital additions during that year. UIL Holdings carried back approximately $33 million of the NOL and has received a refund amounting to $10.0 million of federal income taxes paid in the carryback years. The remaining $103 million of the 2011 NOL and an additional $12 million of a prior years’ NOL were carried forward, of which an anticipated $39 million will be utilized for the 2012 tax year and the remainder utilized in the 2013 tax year. As a result of the carryback of the NOL to prior years and the utilization of a portion of the NOL in 2012, UIL Holdings has accrued an Alternative Minimum Tax (AMT) liability of approximately $2.5 million as of December 31, 2012. This AMT liability is available as an income tax credit which will be carried forward and applied to reduce UIL Holdings regular federal income tax liability in future years.

Federal income tax legislation enacted during the fourth quarter of 2010 provided for accelerated capital recovery for federal income tax purposes for certain capital additions placed in service during the fourth quarter of 2010 and calendar years 2011 and 2012. As a result, during these periods, UIL Holdings recognized additional tax deductions for capital recovery that resulted in cash benefits that were recognized through lower cash requirements for federal income tax deposits.

- 33 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

During 2010, UIL Holdings recognized a significant current income tax deduction, which it reflected on its 2009 state and federal income tax returns, related to repair and maintenance costs it had previously capitalized for tax purposes. This current income tax deduction resulted in a cash benefit of approximately $40.5 million. As a result of this change in accounting for tax purposes, as of December 31, 2011, UIL Holdings had gross unrecognized tax benefits of approximately $13.7 million, including approximately $0.5 million of interest, of which none would impact the effective tax rate if recognized. In December 2011 and during 2012, the Internal Revenue Service (IRS) issued new and clarifying regulations with respect to the tax deductibility of previously capitalized repair and maintenance costs. These regulations replaced previous proposed regulations issued by the IRS in March 2008. During 2012, UIL Holdings recognized the impact of implementing these new regulations which resulted in an increase in current income tax expense and a decrease in deferred income tax expense of approximately $12 million that was deferred for book purposes. As a result of implementing these new regulations, which included an audit safe harbor from the IRS if the regulations were fully implemented, UIL Holdings reversed a gross reserve for unrecognized tax benefits of approximately $13.7 million, including $0.8 million of interest, none of which had an impact on the effective tax rate. As a result of this reversal, UIL Holdings did not have any gross income tax reserves for uncertain tax positions as of December 31, 2012.

The following table sets forth a reconciliation of the changes in the gross income tax reserves for the years ended December 31, 2012 and 2011:

	2012			2011
	(In Thousands)
Balance as of December 31	$	13,676		$	11,349
Increases for tax positions related to current year		-			2,327
Reductions for tax positions of prior years		(13,676	)		-
Balance as of December 31	$	-		$	13,676

UIL Holdings and its subsidiaries are subject to the United States federal income tax statutes administered by the Internal Revenue Service (IRS). UIL Holdings and its subsidiaries are also subject to the income tax statutes of the State of Connecticut and, in the case of Berkshire Energy Resources, the income tax statutes of the Commonwealth of Massachusetts. As of December 31, 2012, the tax years 2009, 2010 and 2011 are open and subject to audit for federal, State of Connecticut, and State of Massachusetts income tax purposes.

The Company files a consolidated federal income tax return with its subsidiaries, all of which have joint and several liability for any potential assessments against the consolidated group.

At December 31, 2012, UIL Holdings had non-current deferred tax liabilities for taxable temporary differences of $720.7 million and non-current deferred tax assets for deductible temporary differences of $264.3 million, resulting in a net non-current deferred tax liability of $456.4 million. UIL Holdings had current deferred tax assets of $41.6 million at December 31, 2012. UIL Holdings did not have any current deferred tax liabilities at December 31, 2012.

- 34 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

The following table summarizes UIL Holdings’ deferred tax assets and liabilities as of December 31, 2012 and 2011:

	2012		2011
	(In Thousands)
Deferred income tax assets:
Regulatory asset related to pension and other post-retirement benefits	$	93,619	$	83,057
Post-retirement benefits		37,005		69,624
Accrued removal obligation		78,956		78,610
Net operating loss carry forward		26,775		23,300
Long-term incentive plan		5,305		4,622
Gross-up effect on deferred taxes		8,745		3,531
Connecticut Yankee equity investment		3,140		3,145
Acquisition costs		2,735		2,947
Vacation accrual		3,016		2,927
Incentive compensation plans		3,336		2,895
Deferred compensation plan		5,947		2,708
Stock compensation plans		2,263		2,037
Alternative minimum tax		2,488		-
Uncollectibles		1,277		1,359
Other		31,269		19,908
	$	305,876	$	300,670


Deferred income tax liabilities:
Accelerated depreciation timing differences	$	270,825	$	220,030
Plant basis differences		178,989		169,890
Storm regulatory asset		21,102		11,955
Regulatory asset related to pension and other post-retirement benefits		93,619		71,325
Investment in GenConn Energy		52,920		52,027
Seabrook lease buyout		10,505		13,656
Bond redemption costs		5,107		5,446
Hardship programs		14,272		5,037
Other		73,343		98,222
	$	720,682	$	647,588

ASC 740 requires that all current deferred tax assets and liabilities within each particular tax jurisdiction be offset and presented as a single amount in the Consolidated Balance Sheet. A similar procedure is followed for all non-current deferred tax assets and liabilities. Amounts in different tax jurisdictions cannot be offset against each other. The amount of deferred income taxes as of December 31, 2012 and 2011 included on the following lines of the Consolidated Balance Sheet is as follows:

- 35 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

	2012		2011
	(In Thousands)
Assets:
Deferred and refundable income taxes	$	41,605	$	41,635
Liabilities:
Deferred income taxes		456,411		388,553
Deferred income taxes – net	$	414,806	$	346,918

(F) SUPPLEMENTARY INFORMATION

	2012		2011		2010
	(In Thousands)
Depreciation and Amortization
Property, plant, and equipment depreciation	$	112,002	$	98,343	$	55,118
Amortization of nuclear plant regulatory assets		46,550		44,635		45,898
Amortization of other regulatory assets		22,745		24,436		12,885
Other		51		48		45
Total Amortization		69,346		69,119		58,828
Total Depreciation and Amortization	$	181,348	$	167,462	$	113,946

Taxes - Other than Income Taxes
Operating:
Connecticut gross earnings	$	65,753	$	69,906	$	51,708
Local real estate and personal property		40,588		34,902		21,130
Payroll taxes		7,274		9,373		5,659
Other		422		30		205
Total Taxes - Other than Income Taxes	$	114,037	$	114,211	$	78,702

Other Income and (Deductions), net
Interest income	$	2,631	$	3,483	$	4,163
Allowance for funds used during construction - equity		7,480		10,539		7,180
Allowance for funds used during construction - debt		6,979		9,143		4,735
Weather insurance		3,488		3,090		(100	)
TSO incentives		2,745		-		-
Other		1,923		677		1,284
Total Other Income and (Deductions), net	$	25,246	$	26,932	$	17,262

- 36 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(G) PENSION AND OTHER BENEFITS

Disclosures pertaining to UIL Holdings’ pension and other postretirement benefit plans (the Plans) are in accordance with ASC 715 “Compensation-Retirement Benefits.” UIL Holdings has an investment policy addressing the oversight and management of pension assets and procedures for monitoring and control. UIL Holdings has engaged State Street Bank as the trustee and investment manager to assist in areas of asset allocation and rebalancing, portfolio strategy implementation, and performance monitoring and evaluation.

The goals of the asset investment strategy are to:

·	Achieve long‑term capital growth while maintaining sufficient liquidity to provide for current benefit payments and UIL Holdings’ pension plan operating expenses.

·	Provide a total return that, over the long term, provides sufficient assets to fund UIL Holdings’ pension plan liabilities subject to an appropriate level of risk, contributions and pension expense.

·	Optimize the return on assets, over the long term, by investing primarily in a diversified portfolio of equities and additional asset classes with differing rates of return, volatility and correlation.

·	Diversify investments within asset classes to maximize preservation of principal and minimize over‑exposure to any one investment, thereby minimizing the impact of losses in single investments.

The Plans seek to maintain compliance with the Employee Retirement Income Security Act of 1974 (ERISA) as amended, and any applicable regulations and laws.

The Retirement Benefits Plans Investment Committee of the Board of Directors oversees the investment of the Plans’ assets in conjunction with management and has conducted a review of the investment strategies and policies of the Plans. This review included an analysis of the strategic asset allocation, including the relationship of Plan assets to Plan liabilities, and portfolio structure. The 2013 target asset allocations, which may be revised by the Retirement Benefits Plans Investment Committee, are approximately as follows: 50% equity securities, 40% debt securities and 10% other securities, which consist primarily of real assets, hedge funds and high yield securities. In the event that the relationship of Plan assets to Plan liabilities changes, the Retirement Benefits Plans Investment Committee will consider changes to the investment allocations. The other postretirement employee benefit fund assets are invested in a balanced mutual fund and, accordingly, the asset allocation mix of the balanced mutual fund may differ from the target asset allocation mix from time to time.

The funding policy for the Plans is to make annual contributions that satisfy the minimum funding requirements of ERISA, but that do not exceed the maximum deductible limits of the Internal Revenue Code. These amounts are determined each year as a result of an actuarial valuation of the Plans. UIL Holdings has a minimum funding requirement for 2013 currently estimated at $20 million. Depending upon final actuarial calculations, the 2013 contribution may ultimately range between $50 million and $60 million.

UIL Holdings applies consistent estimation techniques regarding its actuarial assumptions, where appropriate, across the pension and postretirement plans of its operating subsidiaries. The estimation technique utilized to develop the discount rate for its pension and postretirement benefit plans is based upon the settlement of such liabilities as of December 31, 2012 utilizing a hypothetical portfolio of actual, high quality bonds, which would generate cash flows required to settle the liabilities. UIL Holdings believes such an estimate of the discount rate more accurately reflects the settlement value for plan obligations than the different yield curve methodologies used in prior years, and results in cash flows which closely match the expected payments to participants.

UIL Holdings is utilizing a discount rate of 4.25% as of December 31, 2012 for all of its qualified pension plans, compared to 5.30% in 2011. The decline in the discount rate resulted in an increase to the projected benefit obligation of approximately $100 million from 2011 to 2012. The discount rate for non-qualified pension plans as of December 31, 2012 was 4.0% compared to 5.05% in 2011.

- 37 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

The discount rate for UIL Holdings’ postretirement benefits plans reflects the differing plan requirements and expected future cash flows. For the UI postretirement plan, the discount rate at December 31, 2012 and 2011 was 4.25%. For the Gas Company postretirement plans, the December 31, 2012 discount rate was a composite rate of 4.0%, weighted by expected future cash outflows, compared to 5.05% for the previous year.

The December 31, 2012 discount rate was selected based on the yield of a portfolio of high quality corporate bonds that could be purchased as of the measurement date to produce cash flows matching the expected plan disbursements within reasonable tolerances.

The pension and other postretirement benefits plans assumptions may be revised over time as economic and market conditions change. Changes in those assumptions could have a material impact on pension and other postretirement expenses. For example, if there had been a 0.25% change in the discount rate assumed for the pension plans, the 2012 pension expense would have increased or decreased inversely by $2.5 million. If there had been a 1% change in the expected return on assets assumed for the pension plans, the 2012 pension expense would have increased or decreased inversely by $6.4 million. If there had been a 0.25% change in the discount rate assumed for the other postretirement benefits plans, the 2012 other postretirement benefits plan expenses would have increased or decreased inversely by $0.4 million. If there had been a 1% change in the expected return on assets assumed for the other postretirement benefits plans, the 2012 other postretirement benefits plan expenses would have increased or decreased inversely by $0.4 million.

Pension Plans

The United Illuminating Company Pension Plan (the UI Pension Plan) covers the majority of employees of UIL Holdings Corporate and UI. UI also has a non‑qualified supplemental pension plan for certain employees and a non‑qualified retiree‑only pension plan for certain early retirement benefits.

The Gas Companies have multiple qualified pension plans covering substantially all of their union and management employees. These entities also have non‑qualified supplemental pension plans for certain employees. The qualified pension plans are traditional defined benefit plans or cash balance plans for those hired on or after specified dates. In some cases, neither of these plans is offered to new employees and have been replaced with enhanced 401(k) plans for those hired on or after specified dates.

UI has established a supplemental retirement benefit trust and through this trust purchased life insurance policies on certain officers of UIL Holdings and UI to fund the future liability under the non-qualified supplemental plan. The cash surrender value of these policies is included in “Other investments” on the Consolidated Balance Sheet.

In addition, regarding the non-qualified plans, UIL Holdings has several rabbi trusts which were established to provide a supplemental retirement benefit for certain officers and directors of the Gas Companies.

Other Postretirement Benefits Plans

In addition to providing pension benefits, UI also provides other postretirement benefits, consisting principally of health care and life insurance benefits, for retired employees and their dependents. UI does not provide prescription drug benefits for Medicare-eligible employees in its other postretirement health care plans. Non-union employees who are 55 years of age and whose sum of age and years of service at time of retirement is equal to or greater than 65 are eligible for benefits partially subsidized by UI. The amount of benefits subsidized by UI is determined by age and years of service at retirement. For funding purposes, UI established a 401(h) account in connection with the UI Pension Plan and Serial Voluntary Employee Benefit Association Trust (VEBA) accounts for the years 2007 through 2020 to fund other postretirement benefits for UI’s non‑union employees who retire on or after January 1, 1994. These VEBA accounts were approved by the IRS and UI contributed $4.5 million to fund the Serial VEBA accounts in 2007. UI does not expect to make a contribution in 2013 to fund OPEB for non-union employees.

- 38 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Union employees whose sum of age and years of service at the time of retirement is equal to or greater than 85 (or who are 62 with at least 20 years of service) are eligible for benefits partially subsidized by UI. The amount of benefits subsidized by UI is determined by age and years of service at retirement. For funding purposes, UI established a VEBA to fund other postretirement benefits for UI’s union employees. The funding strategy for the VEBA is to select funds that most clearly mirror the pension allocation strategy. Approximately 51% of UI’s employees are represented by Local 470‑1, Utility Workers Union of America, AFL‑CIO, for collective bargaining purposes. Plan assets for the union VEBA consist primarily of equity and fixed‑income securities. UI does not expect to make a contribution in 2013 to fund other postretirement benefits for union employees.

SCG and CNG also have plans providing other postretirement benefits for substantially all of their employees. These benefits consist primarily of health care, prescription drug and life insurance benefits, for retired employees and their dependents. The eligibility for these benefits is determined by the employee’s date of hire, number of years of service, age and whether the employee belongs to a certain group, such as a union. Dependents are also eligible at the employee’s date of retirement provided the retired participant pays the necessary contribution. These plans are contributory with the level of participant’s contributions evaluated annually. Benefits payments under these plans include annual caps for CNG participants hired after 1993 and SCG participants hired after 1996. SCG non-union employees hired after November 1995 are not eligible for these benefits. Union employees hired after April 1, 2010 and December 1, 2009 at SCG and CNG, respectively, are not eligible for these benefits. As such, Gas Company OPEB liabilities are not especially sensitive to increases in the healthcare trend rate. These plans are funded through a combination of 401(h) accounts and Voluntary Employee Benefit Association Trust (VEBA) accounts. UIL Holdings did not make any contributions to these plans in 2012, nor does it currently plan to make a contribution in 2013.

Other Accounting Matters

ASC 715 requires an employer that sponsors one or more defined benefit pension or other postretirement plans to recognize an asset or liability for the overfunded or underfunded status of the plan. For a pension plan, the asset or liability is the difference between the fair value of the plan’s assets and the projected benefit obligation. For any other postretirement benefit plan, the asset or liability is the difference between the fair value of the plan’s assets and the accumulated postretirement benefit obligation. UIL Holdings reflects all unrecognized prior service costs and credits and unrecognized actuarial gains and losses as regulatory assets rather than in accumulated other comprehensive income, as management believes it is probable that such items will be recoverable through the ratemaking process. As of December 31, 2012 and 2011, UIL Holdings has recorded regulatory assets of $264.6 million and $146.6 million, respectively.

In accordance with ASC 715, UIL Holdings utilizes an alternative method to amortize prior service costs and unrecognized gains and losses. UIL Holdings amortizes prior service costs for both the pension and other postretirement benefits plans on a straight-line basis over the average remaining service period of participants expected to receive benefits. UIL Holdings utilizes an alternative method to amortize unrecognized actuarial gains and losses related to the pension and other postretirement benefits plans over the lesser of the average remaining service period or 10 years. For ASC 715 purposes, UIL Holdings does not recognize gains or losses until there is a variance in an amount equal to at least 5% of the greater of the projected benefit obligation or the market-related value of assets. There is no such allowance for a variance in capturing the amortization of other postretirement benefits unrecognized gains and losses.

The following table represents the change in benefit obligation, change in plan assets and the respective funded status of UIL Holdings’ pension and other postretirement plans as of December 31, 2012 and 2011. Plan assets and obligations have been measured as of December 31, 2012 and 2011.

- 39 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

							Other Post-Retirement
	Pension Benefits						Benefits
	2012			2011			2012			2011
Change in Benefit Obligation:	(In Thousands)
Benefit obligation at beginning of year	$	792,101		$	776,131		$	122,382		$	130,633
Net transfer in due to acquistion of the Gas Companies		-			-			-			-
Service cost		12,032			12,574			1,604			2,164
Interest cost		41,470			40,484			6,246			6,634
Participant contributions		-			-			1,305			3,020
Actuarial (gain) loss		149,088			5,492			12,500			(9,072	)
Benefits paid (including expenses)		(44,083	)		(42,580	)		(7,350	)		(10,997	)
Benefit obligation at end of year	$	950,608		$	792,101		$	136,687		$	122,382

Change in Plan Assets:
Fair value of plan assets at beginning of year	$	548,122		$	502,327		$	37,573		$	40,762
Net transfer in due to acquistion of the Gas Companies		-			-			-			-
Actual return on plan assets		71,595			13,848			4,092			501
Employer contributions		49,427			74,542			-			-
Participant contributions		-			-			1,305			3,020
Benefits paid (including expenses)		(44,083	)		(42,596	)		(4,430	)		(6,711	)
Fair value of plan assets at end of year	$	625,061		$	548,121		$	38,540		$	37,572

Funded Status at December 31:
Projected benefits (less than) greater than plan assets	$	325,547		$	243,980		$	98,147		$	84,810

Amounts Recognized in the Statement of Financial Position consist of:
Non-current assets	$	-		$	-		$	-		$	-
Current liabilities	$	3,488		$	914		$	214		$	194
Non-current liabilities	$	322,059		$	243,065		$	97,933		$	84,615

Amounts Recognized as a Regulatory Asset consist of:
Transition obligation (asset)	$	-		$	-		$	-		$	392
Prior service cost		859			1,506			45			(23	)
Net (gain) loss		244,032			134,838			19,643			9,847
Total recognized as a regulatory asset	$	244,891		$	136,344		$	19,688		$	10,216

Information on Pension Plans with an Accumulated Benefit Obligation in excess of Plan Assets:
Projected benefit obligation	$	950,608		$	776,133			N/	A		N/	A
Accumulated benefit obligation	$	858,803		$	709,235			N/	A		N/	A
Fair value of plan assets	$	625,060		$	532,595			N/	A		N/	A

The following weighted average actuarial assumptions were used in calculating the benefit obligations at December 31:
Discount rate (Qualified Plans)		4.25	%		5.30	%		N/	A		N/	A
Discount rate (Non-Qualified Plans)		4.00	%		5.05	%		N/	A		N/	A
Discount rate (Other Post-Retirement Benefits)		N/	A		N/	A		4.00-4.25	%		5.05-5.30	%
Average wage increase		3.50-3.80	%		3.50-3.80	%		N/	A		N/	A
Health care trend rate (current year)		N/	A		N/	A		7.50	%		8.00	%
Health care trend rate (2019-2028 forward)		N/	A		N/	A		5.00	%		5.00	%

- 40 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

	For the Year Ended December 31,
	Pension Benefits									Other Post-Retirement Benefits
	2012			2011			2010			2012			2011			2010
	(In Thousands)
Components of net periodic benefit cost:
Service cost	$	12,032		$	12,574		$	7,675		$	1,604		$	2,164		$	1,450
Interest cost		41,470			40,484			22,702			6,246			6,634			4,285
Expected return on plan assets		(44,874	)		(42,588	)		(20,739	)		(2,503	)		(2,965	)		(1,910	)
Amortization of:
Prior service costs		647			643			646			(69	)		(101	)		(103	)
Transition obligation (asset)		-			-			-			392			1,020			1,058
Actuarial (gain) loss		13,173			14,032			(23,978	)		965			2,008			690
Net periodic benefit cost	$	22,448		$	25,145		$	(13,694	)	$	6,635		$	8,760		$	5,470

Other Changes in Plan Assets and Benefit Obligations Recognized as a Regulatory Asset:
Net (gain) loss	$	122,368		$	34,524		$	21,425		$	10,760		$	(6,608	)	$	2,173
Amortization of:
Prior service costs		(647	)		(626	)		(646	)		69			101			103
Transition obligation (asset)		-			-			-			(392	)		(1,020	)		(1,058	)
Actuarial (gain) loss		(13,173	)		(14,032	)		23,978			(965	)		(2,008	)		(690	)
Total recognized as regulatory asset	$	108,548		$	19,866		$	44,757		$	9,472		$	(9,535	)	$	528

Total recognized in net periodic benefit costs and regulatory asset	$	130,996		$	45,011		$	31,063		$	16,107		$	(775	)	$	5,998

Estimated Amortizations from Regulatory Assets into Net Periodic Benefit Cost for the period January 1, 2012 - December 31, 2012:
Amortization of transition obligation	$	-		$	-		$	-		$	-		$	392		$	1,020
Amortization of prior service cost		605			647			643			(50	)		(69	)		(101	)
Amortization of net (gain) loss		20,808			13,173			14,032			1,939			965			2,008
Total estimated amortizations	$	21,413		$	13,820		$	14,675		$	1,889		$	1,288		$	2,927

The following actuarial weighted average assumptions were used in calculating net periodic benefit cost:
Discount rate		5.05-5.30	%		5.10-5.35	%		5.00-5.35	%		5.05-5.30	%		5.15-5.30	%		5.00-5.30	%
Average wage increase		3.50-3.80	%		3.50-3.80	%		3.80-4.00	%		N/	A		N/	A		N/	A
Return on plan assets		7.75-8.00	%		8.25-8.50	%		8.25-8.50	%		5.56-8.00	%		5.86-8.25	%		5.89-8.25	%
Health care trend rate (current year)		N/	A		N/	A		N/	A		8.00	%		7.80-8.50	%		8.10-8.50	%
Health care trend rate (2019 forward)		N/	A		N/	A		N/	A		5.00	%		4.50-5.00	%		4.50-5.00	%

A one percentage point change in the assumed health care cost trend rate would have the following effects:

	1% Increase		1% Decrease
	(In Thousands)
Aggregate service and interest cost components	$	836	$	(676	)
Accumulated post-retirement benefit obligation	$	12,162	$	(10,000	)

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

			Other
			Postretirement
Year	Pension Benefits		Benefits
	(In Thousands)
2013	$	49,350	$	7,446
2014	$	48,447	$	7,593
2015	$	49,385	$	7,713
2016	$	49,625	$	7,750
2017	$	50,484	$	7,903
2018-2022	$	265,991	$	40,146

Defined Contribution Retirement Plans/401(k)

Since 2005, new UIL Holdings and UI employees do not participate in the UI Pension Plan or receive retiree medical plan benefits. These employees participate in a different retirement plan, which is a “defined contribution plan,” consisting of the current provisions of UI’s 401(k)/Employee Stock Ownership Plan (KSOP) plus the following benefits:

·	An additional cash contribution of 4.0% of total annual compensation (as defined in the KSOP Plan) to a separate account in the KSOP of new hires.

·	An additional cash contribution of $1,000 per year (pro rata per pay period) into a separate Retiree Medical Fund within the KSOP account for new hires.

·	New employees do not need to contribute to the KSOP to receive these additional cash contribution amounts; they only need to be enrolled in the KSOP Plan.

·	Both additional cash contributions to the KSOP vest 100% after five years of service.

The KSOP, in which substantially all of UIL Holdings’ and UI’s employees are eligible to participate, enables employees to defer receipt of a portion of their compensation, up to statutory limits, and to invest such funds in a number of investment alternatives. Matching contributions are made to the KSOP, in the form of UIL Holdings’ common stock, based on each employee’s salary deferrals in the KSOP. For union employees, the matching contribution to the KSOP is 100% of the first 3% of employee compensation deferred and 50% of the next 2% deferred. The maximum match is 4% of annual salary. For non-union employees, the matching contribution to the KSOP is 100% of the first 2% of employee compensation deferred and 50% of the next 2% deferred. All matching contributions are made in the form of UIL Holdings’ common stock. Matching contributions to the KSOP during 2012, 2011 and 2010 were $3.3 million, $2.6 million and $2.4 million, respectively. UIL Holdings pays dividends on the shares of stock in the KSOP to the participant and UIL Holdings receives a tax deduction for the dividends paid.

The Gas Companies have several 401(k) plans in which substantially all of its employees are eligible to participate. Employees may defer a portion of the compensation and invest in various investment alternatives. Matching contributions are made in the form of cash and are dependent on the specific provisions of each of the plans. The matching expense related to the Gas Companies for UIL Holdings for 2012 and 2011 were $1.6 million and $2.0 million and was immaterial for the post-acquisition period in 2010.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(H) RELATED PARTY TRANSACTIONS

During the years ended December 31, 2012 and 2011, UI received cash distributions from GenConn. See Note (A) “Business Organization and Statement of Accounting Policies – Equity Investments.”

A Director of UIL Holdings holds a beneficial interest in the building located at 157 Church Street, New Haven, Connecticut, where UIL Holdings leases office space. UIL Holdings’ lease payments for this office space for the years ended December 31, 2012, 2011 and 2010 totaled $4.8 million, $11.4 million and $10.8 million, respectively. The decrease in lease payments in 2012 is due to a reduction in office space utilized by UIL Holdings headquarters.

Interest income related to a promissory note from UI to GenConn, which was converted to an equity investment in July 2011, is included in “Other Income and (Deductions), net” in the accompanying Consolidated Statements of Income, in the amounts of $1.2 million and $3.3 million for the years ended December 31, 2011 and 2010, respectively.

(I) LEASE OBLIGATIONS

UIL Holdings and its wholly-owned direct and indirect subsidiaries have lease arrangements for data processing equipment, office equipment, office space and land.

Operating leases, which are charged to operating expense, consist principally of leases of office space and facilities, land, railroad rights of way and a wide variety of equipment. The future minimum lease payments under these operating leases are estimated to be as follows:

	(In Thousands)
2013	$	4,591
2014		3,686
2015		3,181
2016		3,196
2017		3,189
2018-after		42,313
	$	60,156

Rental payments charged to operating expenses in 2012, 2011 and 2010 were as follows:

	Year Ended December 31,
	2012		2011		2010
	(In Thousands)

Rental payments	$	14,548	$	17,949	$	13,997
Less: Sublease rental payments received		241		1,148		1,120
Rental payments charged to operating expenses	$	14,307	$	16,801	$	12,877

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(J) COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, UIL Holdings and its subsidiaries are involved in various proceedings, including legal, tax, regulatory and environmental matters, which require management’s assessment to determine the probability of whether a loss will occur and, if probable, an estimate of probable loss. When assessments indicate that it is probable that a liability has been incurred and an amount can be reasonably estimated, UIL Holdings accrues a reserve and discloses the reserve and related matter. UIL Holdings discloses matters when losses are probable but for which an estimate is reasonably possible. Subsequent analysis is performed on a periodic basis to assess the impact of any changes in events or circumstances and any resulting need to adjust existing reserves or record additional reserves.

Connecticut Yankee Atomic Power Company

UI has a 9.5% stock ownership share in the Connecticut Yankee Atomic Power Company (Connecticut Yankee), the carrying value of which was $0.2 million as of December 31, 2012. In 1996, the Board of Directors of Connecticut Yankee voted unanimously to retire the Connecticut Yankee nuclear plant (the Connecticut Yankee Unit) from commercial operation. Connecticut Yankee updates the cost of its remaining decommissioning activity, which consists primarily of groundwater monitoring and nuclear fuel storage, at least annually, and provides UI with a projected recovery schedule depicting annual costs expected to be billed to UI, including a return on investment over the term of the projected recovery period. The present value of these costs is calculated using UI’s weighted-average cost of capital and, after consideration of recoverability, recorded as a Connecticut Yankee Contract Obligation and a corresponding regulatory asset. At December 31, 2012, UI has regulatory approval to recover in future rates (through the CTA) its $11.1 million regulatory asset for Connecticut Yankee over a term ending in 2015.

DOE Spent Fuel Litigation

In the Nuclear Waste Policy Act of 1982 (the Act), Congress provided for the United States Department of Energy (DOE) to dispose of spent nuclear fuel and other high-level waste (Nuclear Waste) from nuclear generating plants. In 1983, Connecticut Yankee and the DOE entered into a standard disposal contract mandated by the Act which required the DOE to begin disposing of Connecticut Yankee’s Nuclear Waste by the end of January 1998.

In 1998, Connecticut Yankee filed claims in the United States Court of Federal Claims seeking damages resulting from the breach of the 1983 contracts by the DOE. In September 2010, the Court issued its decision and awarded Connecticut Yankee damages of $39.7 million for its spent fuel-related costs through 2001. In May 2012, the United States Court of Appeals affirmed the September 2010 United States Court of Federal Claims award and in August 2012 the DOE filed a petition for rehearing with the appellate court which was subsequently denied. Connecticut Yankee has received payment of the damage award and, in light of its ownership share, UI will receive approximately $3.8 million of such award which will be refunded to customers.

In December 2007, Connecticut Yankee filed a second set of complaints with the United States Court of Federal Claims against the DOE seeking unspecified damages incurred since January 1, 2002 for the DOE’s failure to remove Connecticut Yankee’s spent fuel. In July 2009, Connecticut Yankee provided the DOE with a second set of damage claims totaling approximately $135 million for damages incurred from January 1, 2002 through December 31, 2008. In light of its ownership share, UI would receive approximately $12.8 million of such award which would be refunded to customers. As an interim measure until the DOE complies with its contractual obligation to dispose of Connecticut Yankee’s spent fuel, Connecticut Yankee constructed an independent spent fuel storage installation (ISFSI), utilizing dry-cask storage, on the site of the Connecticut Yankee Unit and completed the transfer of its Nuclear Waste to the ISFSI in 2005.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

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, climate change 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, as well as 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

In June 2006, UI executed an agreement with the City of Bridgeport and its Redevelopment Authority (the City) to transfer title of UI’s Steel Point property to the City. Pursuant to a Memorandum of Understanding (MOU) among UI, the City, and the City’s selected developer for the property, the City and the developer released UI from any further liability with respect to the Steel Point property after title transferred, and the City and/or the developer has indemnified UI for environmental matters related to the Steel Point property. The Steel Point property includes the land up to the bulkhead. The MOU provides that there is no indemnity for liability related to contaminated harbor sediments, and UI is not aware of any such claims. UI would seek to recover any uninsured costs related to such sediments that are UI’s responsibility, to the extent incurred, through the CTA, in accordance with the ratemaking treatment approved in PURA’s July 2006 decision.

A site on the Mill River in New Haven was conveyed in 2000 by UI to an unaffiliated entity, Quinnipiac Energy LLC (QE), reserving to UI permanent easements for the operation of its transmission facilities on the site. At the time of the sale, a fund of approximately $1.9 million, an amount equal to the then-current estimate for remediation, was placed in escrow for purposes of bringing soil and groundwater on the site into compliance with applicable environmental laws. As of December 31, 2012, approximately $0.1 million of the escrow fund remained. In 2006, QE sold the property to Evergreen Power, LLC (Evergreen Power) and Asnat Realty LLC (Asnat). UI is unaware of what agreement was reached between QE and Evergreen Power and Asnat regarding future environmental liability and of what remediation activity remains to be undertaken at the site. In January 2012, Evergreen Power and Asnat filed a lawsuit in federal district court in Connecticut against UI seeking, among other things: (i) an order directing UI to reimburse the plaintiffs for costs they have incurred and will incur for the testing, investigating and remediation of hazardous substances at the property and (ii) an order directing UI to investigate and remediate the property. In May 2012, UI filed an answer and counterclaims, and the plaintiffs filed an answer to UI’s counterclaims. In July 2012, Evergreen Power and Asnat filed a motion for partial summary judgment with respect to UI’s liability under the federal Comprehensive Environmental Response, Compensation, and Liability Act. On October 12, 2012, the motion for summary judgment was denied without prejudice. UI’s knowledge of the current conditions at the site is insufficient to make a reasonable update of the original $1.9 million remediation estimate. UIL Holdings cannot presently assess the potential financial impact, if any, of the suit, and thus has not recorded a liability related to it.

In April 1999, UI completed the sale of its Bridgeport Harbor Station and New Haven Harbor Station generating plants in compliance with Connecticut’s electric utility industry restructuring legislation. With respect to the portion of the New Haven Harbor Station site that UI retained, UI has performed an additional environmental analysis, indicating that approximately $3.2 million in remediation expenses will be incurred. Actual remediation costs may be higher or lower than what is currently estimated. The required remediation is virtually all on transmission‑related property and UI has accrued these estimated expenses, which were recovered in transmission rates.

From 1961 to 1976, UI owned a parcel of property in Derby, CT, on which it operated an oil‑fired electric generating unit. For several years, DEEP has been monitoring and 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

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

has no responsibility for this contamination. If regulatory agencies determine that UI is responsible for the cost of these remediation activities, UI may incur substantial costs, no estimate of which is currently available.

The Gas Companies own or have previously owned properties where Manufactured Gas Plants (MGPs) historically operated. MGP operations have led to contamination of soil and groundwater with petroleum hydrocarbons, benzene and metals, among other things, at these properties, the regulation and cleanup of which is regulated by the federal Resource Conservation and Recovery Act as well as other federal and state statutes and regulations. Each of the Gas Companies has or had an ownership interest in one of such properties contaminated as a result of MGP-related activities. Under the existing regulations, the cleanup of such sites requires state and at times, federal, regulators’ involvement and approval before cleanup can commence. In certain cases, such contamination has been evaluated, characterized and remediated. In other cases, the sites have been evaluated and characterized, but not yet remediated. Finally, at some of these sites, the scope of the contamination has not yet been fully characterized; no liability was recorded in respect of these sites as of December 31, 2012. In the past, the Gas Companies have received approval for the recovery of MGP-related remediation expenses from customers through rates and will seek recovery in rates for ongoing MGP-related remediation expenses for all of their MGP sites.

SCG owns property on Housatonic Avenue in Bridgeport, CT, a former MGP site. Costs associated with the remediation of the site could be significant and will be subject to a review by PURA as to whether these costs are recoverable in rates. UIL Holdings cannot presently estimate the costs of remediation or the likelihood of recoverability. As such, as of December 31, 2012, no liability related to this claim has been recorded.

SCG owns property located on Chapel Street in New Haven, CT, the site of one of its former operations centers and a former MGP site. SCG may be subject to remediation expenses for part of the site, which could be significant and will be subject to a review by PURA as to whether these costs are recoverable in rates. UIL Holdings cannot presently estimate the costs of remediation or the likelihood of recoverability. As such, as of December 31, 2012, no liability related to this claim has been recorded.

A property located on Columbus Boulevard in Hartford, CT is the former Operations Center and Corporate Headquarters of CNG. The property is also a former MGP site. Costs associated with the remediation of the site could be significant and will be subject to a review by PURA as to whether these costs are recoverable in rates. UIL Holdings cannot presently estimate the costs of remediation or the likelihood of recoverability. As such, as of December 31, 2012, no liability related to this claim has been recorded.

A site on Mill Street in Greenfield, MA is currently owned by Berkshire and is used as a regional operations center. This site is on the Massachusetts Department of Environmental Protection (MDEP) list of confirmed disposal sites and investigation and remediation of contamination resulting from disposal of byproducts and wastes generated by the historic coal and water gas manufacturing operations is ongoing. Extensive soil, and coal tar product non-aqueous phase liquid (NAPL) recovery and remediation work on the land side of the property has been completed, and sediments containing NAPL have been removed from the adjoining Green River. Evaluation of the NAPL distribution in the river sediments and in the subsurface in stream banks on an adjacent property is complete. Installation of land based containment systems was completed in 2012. River sediments, stream bank and adjacent properties are scheduled for remediation in 2013. After completion of the additional remedial activities, there will be ongoing monitoring and reporting to the MDEP that will continue on the site for the foreseeable future. UIL Holdings estimates that expenses will most likely amount to $4.5 million and has recorded a liability and offsetting regulatory asset for such expenses as of December 31, 2012. Historically, Berkshire has received approval from the DPU for recovery of environmental expenses in its customer rates. While management cannot predict the exact costs of the ongoing and future remediation and monitoring expenses, Berkshire will seek regulatory rate recovery of these expenses.

Berkshire formerly owned a site on East Street (the East Street Site) in Pittsfield, MA that was used for gas manufacturing operations. The East Street Site is part of a larger site known as the GE–Pittsfield/Housatonic River Site.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Berkshire sold the East Street Site to the General Electric Company (GE) in the 1970s and was named a potentially responsible party by the EPA in 1990. GE filed suit against Berkshire in 2000 seeking reimbursement of and contribution toward costs incurred by GE in responding to releases of hazardous substances attributed to Berkshire’s predecessor at the East Street Site. Berkshire was found liable to GE under the federal Comprehensive Environmental Response, Compensation and Liability Act and the Massachusetts Oil and Hazardous Materials Release Prevention and Response Act for costs that GE has and will incur in response to historic releases attributed to Berkshire’s predecessor. In December 2002, Berkshire reached a settlement with GE (the Settlement Agreement) which provides, among other things, a framework for Berkshire and GE to allocate various monitoring and remediation costs at the East Street Site. Pursuant to an agreement signed in July 2012, by Berkshire and GE, Berkshire paid GE approximately $0.9 million for its share of remediation expenses incurred by GE at the East Street Site from 2006 through 2010. Berkshire expects that it and GE will continue to operate under the terms of the Settlement Agreement in connection with the East Street Site. As of December 31, 2012, UIL Holdings has accrued approximately $2.0 million and established a regulatory asset for these and future costs incurred by GE in responding to releases of hazardous substances at the East Street Site. Historically, Berkshire has received approval from the DPU for recovery of remediation expenses in its customer rates. While management cannot predict the exact costs of the ongoing and future remediation and monitoring expenses, Berkshire will seek regulatory rate recovery of these expenses.

Middletown/Norwalk Transmission Project

The general contractor and two subcontractors responsible for civil construction work in connection with the installation of UI’s portion of the Middletown/Norwalk Transmission Project’s underground electric cable system filed lawsuits in Connecticut state court on September 22, 2009, March 23, 2009 and January 25, 2010, respectively. The claims, as revised by the general contractor in October 2011, sought payment for change order requests of approximately $33.3 million, a 10% general contractor mark-up on any approved subcontractor change order claims (approximately $2.3 million), interest, costs, and attorneys' fees. In December 2011, UI settled claims brought by the two subcontractors and their respective lawsuits were dismissed with prejudice. The claim by the general contractor was not settled and UI is vigorously defending the litigation. Based on the settlement of the subcontractors’ claims, and after the completion of evidence in the state court trial, UI estimates that the general contractor’s claims have been reduced to approximately $7.7 million, exclusive of the contractor’s claims for interest, costs, and attorneys’ fees. UI also is pursuing an indemnification claim against the general contractor. The trial on the general contractor’s claims and UI’s indemnification claim concluded in December 2012. Post-trial briefing and oral argument are scheduled to be completed in the first quarter of 2013. A decision by the judge could be issued as early as the second quarter of 2013. UI expects to recover amounts paid to resolve the contractor and subcontractor claims through UI’s transmission revenue requirements. In October 2012, the general contractor filed a complaint against UI with the FERC alleging that UI’s inclusion of certain costs incurred by UI in connection with the Middletown/Norwalk Transmission Project were not reasonably and/or prudently incurred and/or were not incurred in good faith by UI, and subsequently filed an amended complaint. UI vigorously defended against these allegations, pursuant to FERC rules of practice. On February 21, 2013, FERC dismissed the complaint, without prejudice.

Purchase and Sale Agreement

As part of its plan to consolidate operations and office personnel, in July 2011, UI entered into an agreement for the sale of the Electric System Work Center (ESWC) located at 801 Bridgeport Avenue in Shelton, CT for approximately $10.2 million. Prior to the expiration of the due diligence period, the buyer requested a price reduction and certain other changes to the agreement. The parties were unable to reach an agreement and in November 2012, the buyer sent UI notice terminating the agreement. UI expects to return or recover any gain or loss, respectively, that may result from the future sale of the property through the regulatory process.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(K) FAIR VALUE MEASUREMENTS

As required by ASC 820 “Fair Value Measurements and Disclosures,” financial assets and liabilities are classified in their entirety, based on the lowest level of input that is significant to the fair value measurement. UIL Holdings’ assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The following tables set forth UIL Holdings’ financial assets and liabilities, other than pension benefits and OPEB, which were accounted for at fair value on a recurring basis as of December 31, 2012 and December 31, 2011.

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total
December 31, 2012	(In Thousands)
Assets:
Contracts for differences	$	-	$	-		$	78,838		$	78,838
Weather insurance contracts		-		-			1,000			1,000
Noncurrent investments available for sale		9,902		-			-			9,902
Deferred Compensation Plan		3,745		-			-			3,745
Supplemental retirement benefit trust life insurance policies		-		6,438			-			6,438
	$	13,647	$	6,438		$	79,838		$	99,923

Liabilities:
Contracts for differences	$	-	$	-		$	255,443		$	255,443
Long-term debt		-		1,886,440			-			1,886,440
	$	-	$	1,886,440		$	255,443		$	2,141,883

Net fair value assets/(liabilities), December 31, 2012	$	13,647	$	(1,880,002	)	$	(175,605	)	$	(2,041,960	)

December 31, 2011
Assets:
Contracts for differences	$	-	$	-		$	83,942		$	83,942
Weather insurance contracts		-		-			3,512			3,512
Noncurrent investments available for sale		9,152		-			-			9,152
Deferred Compensation Plan		3,739		-			-			3,739
Supplemental retirement benefit trust life insurance policies		-		5,655			-			5,655
	$	12,891	$	5,655		$	87,454		$	106,000

Liabilities:
Contracts for differences	$	-	$	-		$	268,035		$	268,035
Long-term debt		-		1,715,724			-			1,715,724
	$	-	$	1,715,724		$	268,035		$	1,983,759

Net fair value assets/(liabilities), December 31, 2011	$	12,891	$	(1,710,069	)	$	(180,581	)	$	(1,877,759	)

The determination of fair value of the CfDs was based on a probability-based expected cash flow analysis that was discounted at the December 31, 2012 or December 31, 2011 risk-free interest rates, as applicable, and an adjustment for non-performance risk using credit default swap rates. Certain management assumptions were required, including development of pricing that extended over the term of the contracts. For information regarding the determination of the fair value of the weather insurance contracts, see Note (A) “Business Organization and Statement of Accounting Policies – Derivatives.” Additional quantitative information about Level 3 fair value measurements is as follows:

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

Unobservable Input		Range


Contracts for differences	Risk of non-performance			0.78% - 1.54	%
	Discount rate			1.18% - 1.48	%
	Forward pricing ($ per MW)		$	1.40 - $9.83

Weather insurance contracts	Heating degree days			4,625 - 4,904

Significant isolated changes in the risk of non-performance, the discount rate or the contract term pricing would result in an inverse change in the fair value of the CfDs. A significant change in heating degree days would result in an inverse change in the fair value of the weather derivative contracts.

In addition, UIL performed an assessment of risks related to obtaining regulatory, legal and siting approvals, as well as obtaining financing resources and ultimately attaining commercial operation. PURA has determined that changes in fair value associated with the CfDs are fully recoverable. As a result, such changes have no impact on UIL Holdings’ net income.

Fair value of long-term debt is based on evaluated prices that reflect significant observable market information such as reported trades, actual trade information of similar securities, benchmark yields, broker/dealer quotes of new issue prices and relevant credit information.

The fair value of the noncurrent investments available for sale is determined using quoted market prices in active markets for identical assets. The investments primarily consist of money market funds.

Under the UIL Deferred Compensation Plan (DCP), directors, named executive officers and certain other executives may elect to defer certain elements of compensation. Participants in the DCP are permitted to direct investments of their elective deferral accounts into “deemed” investments consisting of mutual funds and UIL Holdings common stock equivalents. These investments, which are actively traded in sufficient frequency and volume to provide pricing information on an ongoing basis, are marked-to-market based upon such pricing information.

The determination of the fair value of the supplemental retirement benefit trust life insurance policies was based on quoted prices as of December 30, 2012 and December 31, 2011 in the active markets for the various funds within which the assets are held.

The following tables set forth a reconciliation of changes in the fair value of the assets and liabilities above that are classified as Level 3 in the fair value hierarchy for the twelve month periods ended December 31, 2012 and 2011.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

	Year Ended
	December 31, 2012
	(In Thousands)

Net derivative assets/(liabilities), December 31, 2011	$	(180,581	)
Unrealized gains and (losses), net
Included in earnings		3,488
Included in regulatory assets/(liabilities)		7,488
Settlements		(6,000	)
Net derivative assets/(liabilities), December 31, 2012	$	(175,605	)

Change in unrealized gains (losses), net relating to net derivative assets/(liabilities), still held as of December 31, 2012	$	7,488

	Year Ended
	December 31, 2011
	(In Thousands)

Net derivative assets/(liabilities), December 31, 2010	$	(108,618	)
Unrealized gains and (losses), net
Included in earnings		3,090
Included in other comprehensive income		64
Included in regulatory assets/(liabilities)		(75,117	)
Net derivative assets/(liabilities), December 31, 2011	$	(180,581	)

Change in unrealized gains (losses), net relating to net derivative assets/(liabilities), still held as of December 31, 2011	$	(71,963	)

The following table sets forth a reconciliation of changes in the net regulatory asset/(liability) balances that were established to recover any unrealized gains/(losses) associated with the CfDs for the years ended December 31, 2012 and 2011. The amounts offset the net CfDs liabilities included in the derivative liabilities detailed above.

- 50 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

	Year Ended
	December 31, 2012
	(In Thousands)

Net regulatory assets/(liabilities), December 31, 2011	$	184,093
Unrealized (gains) and losses, net		(7,488	)
Net regulatory assets/(liabilities), December 31, 2012	$	176,605

	Year Ended
	December 31, 2011
	(In Thousands)

Net regulatory assets/(liabilities), December 31, 2010	$	108,976
Unrealized (gains) and losses, net		75,117
Net regulatory assets/(liabilities), December 31, 2011	$	184,093

The following tables set forth the fair values of UIL Holdings’ pension and OPEB assets that were accounted for at fair value on a recurring basis as of December 31, 2012 and 2011.

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
December 31, 2012	(In Thousands)

Pension assets
Cash and cash equivalents	$	1,606	$	-	$	-	$	1,606
Mutual funds		-		595,772		-		595,772
Hedge fund		-		-		27,683		27,683
		1,606		595,772		27,683		625,061
OPEB assets
Mutual funds		38,540		-		-		38,540
		38,540		-		-		38,540

Fair value of plan assets, December 31, 2012	$	40,146	$	595,772	$	27,683	$	663,601

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

	Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
December 31, 2011	(In Thousands)

Pension assets
Cash and cash equivalents	$	27,204	$	-	$	-	$	27,204
Mutual funds		-		520,917		-		520,917
		27,204		520,917		-		548,121

OPEB assets
Mutual funds		37,572		-		-		37,572
		37,572		-		-		37,572

Fair value of plan assets, December 31, 2011	$	64,776	$	520,917	$	-	$	585,693

The determination of fair value of the Level 1 and Level 2 pension and OPEB assets was based on quoted prices, as of December 31, 2012 and 2011, in the active markets for the various funds within which the assets are held. The determination of fair value of the Level 3 pension assets was based on the Net Asset Value (NAV) provided by the managers of the underlying fund investments and the unrealized gains and losses. The NAV provided by the managers typically reflect the fair value of each underlying fund investment. Changes in the fair value of pension benefits and OPEB are accounted for in accordance with ASC 715 Compensation – Retirement Benefits as discussed in Note (G) “Pension and Other Benefits”.

The following tables set forth a reconciliation of changes in the fair value of the assets above that are classified as Level 3 in the fair value hierarchy for the twelve month periods ended December 31, 2012 and 2011.

	Year Ended
	December 31, 2012
	(In Thousands)
Pension assets-Level 3, December 31, 2011	$	-
Unrealized/Realized gains and (losses), net		479
Purchases		27,204
Pension assets-Level 3, December 31, 2012	$	27,683

	Year Ended
	December 31, 2011
	(In Thousands)

Pension assets-Level 3, December 31, 2010	$	390
Unrealized/Realized gains and (losses), net		(6	)
Settlements		(384	)
Pension assets-Level 3, December 31, 2011	$	-

- 52 -

UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(L) QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data for 2012 and 2011 are set forth below:

	1^st Quarter		2^nd Quarter		3rd Quarter		4^th Quarter
(In Thousands, Except Per Share Amounts)
2012
Operating Revenues	$	458,338	$	283,508	$	323,809	$	420,846
Operating Income	$	87,461	$	36,507	$	39,126	$	67,496
Net Income attributable to UIL Holdings	$	47,050	$	11,999	$	15,749	$	28,839

Earnings Per Share of Common Stock – Basic: (1)	$	0.93	$	0.24	$	0.31	$	0.57

Earnings Per Share of Common Stock – Diluted: (2)	$	0.92	$	0.23	$	0.31	$	0.56

2011
Operating Revenues	$	561,053	$	314,049	$	321,427	$	373,565
Operating Income	$	99,815	$	40,224	$	34,253	$	45,090
Net Income attributable to UIL Holdings	$	52,044	$	14,156	$	12,180	$	21,276

Earnings Per Share of Common Stock – Basic: (1)	$	1.03	$	0.28	$	0.24	$	0.42

Earnings Per Share of Common Stock – Diluted: (2)	$	1.02	$	0.28	$	0.24	$	0.42

(1)	Based on weighted average number of shares outstanding each quarter.

(2)	Based on weighted average number of shares outstanding each quarter. Reflecting the effect of dilutive stock options, performance shares and restricted stock.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(M) SEGMENT INFORMATION

UIL Holdings is organized between Electric Distribution, Electric Transmission and Gas Distribution reporting segments based on several factors including, but not limited to, the nature of each segment’s products and services, the sources of operating revenues and expenses and the regulatory environment in which each segment operates. The following measures of segment profit and loss are utilized by management to make decisions about allocating resources to the segments and assessing performance. The following table reconciles certain segment information with that provided in UIL Holdings’ Consolidated Financial Statements. In the table, distribution includes all electric utility revenue and expenses except for transmission, which is provided in a separate column. “Other” includes the information for the remainder of UIL Holdings’ non‑utility activities and unallocated corporate costs, including minority interest investments and administrative costs. Revenues from inter‑segment transactions are not material. All of UIL Holdings’ revenues are derived in the United States.

(In Thousands)

	December 31, 2012
	Electric Distribution and Transmission
	Distribution		Transmission		Total		Gas Distribution		Other			Total
Operating Revenues	$	561,148	$	222,314	$	783,462	$	702,887	$	152		$	1,486,501
Purchased power and gas		154,546		-		154,546		370,234		-			524,780
Operation and maintenance		178,862		43,185		222,047		137,707		(3,477	)		356,277
Transmission wholesale		-		79,469		79,469		-		-			79,469
Depreciation and amortization		88,672		14,890		103,562		75,205		2,581			181,348
Taxes - other than income taxes		44,845		26,773		71,618		42,254		165			114,037
Operating Income		94,223		57,997		152,220		77,487		883			230,590

Other Income and (Deductions), net		16,562		3,945		20,507		4,071		668			25,246

Interest Charges, net		28,308		12,941		41,249		28,001		23,292			92,542

Income Before Income Taxes and Equity Earnings		82,477		49,001		131,478		53,557		(21,741	)		163,294
Income Taxes		45,091		17,025		62,116		21,305		(8,555	)		74,866
Income Before Equity Earnings		37,386		31,976		69,362		32,252		(13,186	)		88,428
Income from Equity Investments		15,273		-		15,273		-		-			15,273
Net Income (Loss)		52,659		31,976		84,635		32,252		(13,186	)		103,701
Less:
Preferred Stock Dividends of Subsidiary, Noncontrolling Interests		-		-		-		64		-			64
Net Income (Loss) attributable to UIL Holdings	$	52,659	$	31,976	$	84,635	$	32,188	$	(13,186	)	$	103,637

	Electric Distribution and Transmission (1)
	Distribution		Transmission		Total		Gas Distribution		Other			Total (2)
Total Assets at December 31, 2012	$	-	$	-	$	2,875,765	$	1,994,291	$	90,042		$	4,960,098

(1)

Information for segmenting total assets between Distribution and Transmission is not available. Total Electric Distribution and Transmission assets are disclosed in the Total Electric Distribution and Transmission column. Net plant in service is segregated by segment and, as of December 31, 2012, was $1,058.6 million and $607.8 million for Distribution and Transmission, respectively.

(2)	Includes $266.2 million of goodwill in the Gas Distribution segment as of December 31, 2012.

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UIL HOLDINGS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)

(M) SEGMENT INFORMATION (Continued)

(In Thousands)

	December 31, 2011
	Electric Distribution and Transmission
	Distribution		Transmission		Total		Gas Distribution		Other			Total
Operating Revenues	$	599,153	$	198,503	$	797,656	$	772,315	$	123		$	1,570,094
Purchased power and gas		180,149		-		180,149		429,079		-			609,228
Operation and maintenance		216,361		32,027		248,388		133,126		300			381,814
Transmission wholesale		-		77,997		77,997		-		-			77,997
Depreciation and amortization		83,725		12,690		96,415		70,694		353			167,462
Taxes - other than income taxes		45,967		24,736		70,703		43,494		14			114,211
Operating Income (Loss)		72,951		51,053		124,004		95,922		(544	)		219,382

Other Income and (Deductions), net		14,697		6,651		21,348		6,571		(987	)		26,932

Interest Charges, net		30,489		13,235		43,724		28,939		22,722			95,385

Income Before Income Taxes and Equity Earnings		57,159		44,469		101,628		73,554		(24,253	)		150,929
Income Taxes		30,865		13,186		44,051		29,721		(11,271	)		62,501
Income Before Equity Earnings		26,294		31,283		57,577		43,833		(12,982	)		88,428
Income from Equity Investments		11,282		-		11,282		-		-			11,282
Net Income (Loss)		37,576		31,283		68,859		43,833		(12,982	)		99,710
Less:
Preferred Stock Dividends of Subsidiary, Noncontrolling Interests		-		-		-		54		-			54
Net Income (Loss) attributable to UIL Holdings	$	37,576	$	31,283	$	68,859	$	43,779	$	(12,982	)	$	99,656

	Electric Distribution and Transmission (1)
	Distribution		Transmission		Total		Gas Distribution		Other			Total (2)
Total Assets at December 31, 2011	$	-	$	-	$	2,716,460	$	1,953,079	$	75,070		$	4,744,609


	December 31, 2010
	Electric Distribution and Transmission
	Distribution		Transmission		Total		Gas Distribution		Other			Total
Operating Revenues	$	667,737	$	191,810	$	859,547	$	138,105	$	14		$	997,666
Purchased power and gas		242,268		-		242,268		81,428		-			323,696
Operation and maintenance		210,646		27,699		238,345		19,297		640			258,282
Transmission wholesale		-		72,169		72,169		-		-			72,169
Depreciation and amortization		96,007		12,402		108,409		5,492		45			113,946
Taxes - other than income taxes		44,206		27,435		71,641		7,054		7			78,702
Acquisition-related costs		-		-		-		-		25,572			25,572
Operating Income (Loss)		74,610		52,105		126,715		24,834		(26,250	)		125,299

Other Income and (Deductions), net		13,101		2,939		16,040		107		1,115			17,262

Interest Charges, net		28,539		12,034		40,573		4,014		9,111			53,698

Income Before Income Taxes and Equity Earnings		59,172		43,010		102,182		20,927		(34,246	)		88,863
Income Taxes		25,026		14,682		39,708		8,026		(12,450	)		35,284
Income Before Equity Earnings		34,146		28,328		62,474		12,901		(21,796	)		53,579
Income from Equity Investments		1,278		-		1,278		-		-			1,278
Net Income (Loss)		35,424		28,328		63,752		12,901		(21,796	)		54,857
Less:
Preferred Stock Dividends of Subsidiary, Noncontrolling Interests		-		-		-		3		-			3
Net Income (Loss) attributable to UIL Holdings	$	35,424	$	28,328	$	63,752	$	12,898	$	(21,796	)	$	54,854

	Electric Distribution and Transmission (1)
	Distribution		Transmission		Total		Gas Distribution		Other			Total (2)
Total Assets at December 31, 2010	$	-	$	-	$	2,383,057	$	2,050,332	$	48,449		$	4,481,838

(1)

Information for segmenting total assets between Distribution and Transmission is not available. Total Electric Distribution and Transmission assets are disclosed in the Total Electric and Distribution and Transmission column. Net plant in service is segregated by segment and, as of December 31, 2011, was $1,029.8 million and $495.8 million for Distribution and Transmission, respectively. As of December 31, 2010, net plant in service was $820.9 million and $512.2 million for Distribution and Transmission, respectively.

(2)	Includes $266.8 million and $298.9 million of goodwill in the Gas Distribution segment as of December 31, 2011 and 2010, respectively.

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of UIL Holdings Corporation:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of UIL Holdings Corporation and its subsidiaries (the Company) at December 31, 2012 and December 31, 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 21, 2013

- 56 -

Part IV

Item 15. Exhibits and Financial Statement Schedules.

The following documents are filed as a part of this report:

(a)	1. Financial Statements (see Item 8):

Consolidated Statement of Income for the years ended December 31, 2012, 2011 and 2010

Consolidated Statement of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010

Consolidated Statement of Cash Flows for the years ended December 31, 2012, 2011 and 2010

Consolidated Balance Sheet, December 31, 2012 and 2011

Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2012, 2011 and 2010

Notes to Consolidated Financial Statements

Report of independent registered public accounting firm

Financial Statement Schedules (see S-1 through S-4):

**Schedule I – Condensed Financial Statements of Registrant for the years ended December 31, 2012, 2011 and 2010

*Schedule II ‑ Valuation and Qualifying Accounts for the years ended December 31, 2012, 2011 and 2010

* Previously filed with Form 10-K filed for the fiscal year ended December 31, 2012.

** Previously filed with Form 10-K/A Amendment No. 1 filed for the fiscal year ended December 31, 2012.

Exhibits:

Pursuant to Rule 12b‑32 under the Securities Exchange Act of 1934, certain of the following listed exhibits, which are annexed as exhibits to previous statements and reports filed by UIL Holdings Corporation (Commission File Number 1‑15052) and/or The United Illuminating Company (Commission File Number 1‑6788), are hereby incorporated by reference as exhibits to this report.

- 57 -

Exhibits:

Exhibit No.		Description
2.1		Purchase Agreement, dated as of May 25, 2010 by and between Iberdrola USA, Inc. and UIL Holdings Corporation (pursuant to Item 601(b)(2) of Regulation S-K, schedules to the Purchase Agreement have been omitted; schedules will be provided supplemental to the SEC upon request), (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on May 25, 2010).

2.2		Agreement, dated as of July 14, 2010 by and between The United Illuminating Company and The Connecticut Light & Power Company (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on July 15, 2010).

3.1		Certificate of Incorporation of UIL Holdings Corporation, as amended through May 10, 2011 (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2011).

3.2		Bylaws of UIL Holdings Corporation as amended through April 27, 2009 (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2009).

4.1		Indenture, dated as of August 1, 1991, from The United Illuminating Company to The Bank of New York, Trustee (incorporated herein by reference to UI Registration Statement No. 33-40169 effective August 12, 1991).

4.2		Note Purchase Agreement, dated July 29, 2008, for 6.46% Series A Senior Notes, 6.51% Series B Senior Notes, and 6.61% Series C Senior Notes (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on August 1, 2008).

4.3		Note Purchase Agreement, dated December 10, 2009, for 5.61% Senior Notes (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2009).

4.4		Note Purchase Agreement, dated May 13, 2010, for 6.09% Senior Notes (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on May 14, 2010).

4.5		Senior Indenture, dated as of October 7, 2010, between UIL Holdings Corporation and The Bank of New York Mellon, as trustee (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on October 7, 2010).

4.6		First Supplemental Indenture, dated as of October 7, 2010, between UIL Holdings Corporation and The Bank of New York Mellon, as trustee (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on October 7, 2010).

4.7		Form of Note (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on October 7, 2010).

- 58 -

Exhibit No.		Description
4.8		Note Purchase Agreement, dated August 29, 2011, for 3.88% and 5.39% Medium-Term Notes (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on September 1, 2011).

4.9		Thirty-First Supplemental Indenture, dated November 1, 2008 (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on September 1, 2011).

4.10		Note Purchase Agreement, dated January 30, 2012, for $31,000,000 2.98% Senior Notes, Series A, due January 30, 2019; $51,500,000 3.61% Senior Notes, Series B, due January 31, 2022; $34,000,000 3.61% Senior Notes, Series C, due January 31, 2022; $52,000,000 4.89% Senior Notes, Series D, due January 30, 2042 and $35,000,000 4.89% Senior Notes, Series E, due January 30, 2042. (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on February 1, 2012).

10.1		Amended and Restated Transmission Line Agreement, dated May 15, 2003, between the State of Connecticut Department of Transportation and The United Illuminating Company (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2003).

10.2		Agreement, effective May 16, 2011, between The United Illuminating Company and Local 470-1, Utility Workers Union of America, AFL‑CIO (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2011).

10.2a		Supplemental Agreement, effective May 16, 2011, between The United Illuminating Company and Local 470-1, Utility Workers Union of America, AFL‑CIO (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2011).

10.3*		Employment Agreement, dated as of July 8, 2005, between The United Illuminating Company and Richard J. Nicholas (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on July 11, 2005).

10.3a*		First Amendment, dated August 4, 2008, to Employment Agreement, dated as of July 8, 2005, between The United Illuminating Company and Richard J. Nicholas (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2008).

10.4*		Employment Agreement, dated as of January 10, 2006, between UIL Holdings Corporation and James P. Torgerson (incorporated herein by reference to Form 8‑K filed with the Securities and Exchange Commission on January 11, 2006).

10.4a*		First Amendment, dated August 4, 2008, to Employment Agreement, dated as of January 10, 2006, between UIL Holdings Corporation and James P. Torgerson (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2008).

10.5*		Amended and Restated UIL Holdings Corporation Change In Control Severance Plan dated August 4, 2008 (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2008).

- 59 -

Exhibit No.		Description
10.6*		Non‑Employee Directors’ Common Stock and Deferred Compensation Plan of UIL Holdings Corporation, as amended through December 31, 2000 (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2000).

10.7*		Non‑Employee Directors’ Common Stock and Deferred Compensation Plan of UIL Holdings Corporation, as amended through December 16, 2008 (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2012).

10.8*		UIL Holdings Corporation Non‑Employee Directors Change in Control Severance Plan (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended September 30, 2000).

10.9*		Employment Agreement, dated February 28, 2007, between UIL Holdings Corporation and Linda L. Randell (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended March 31, 2007).

10.10a*		First Amendment, dated August 4, 2008, to Employment Agreement, dated as of February 28, 2007, between UIL Holdings Corporation and Linda L. Randell (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2008).

10.11*		Employment Agreement, dated January 26, 2004, between The United Illuminating Company and Anthony J. Vallillo (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2007).

10.11a*		First Amendment, dated November 18, 2004, to Employment Agreement, dated as of January 26, 2004, between The United Illuminating Company and Anthony J. Vallillo (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2007).

10.11b*		Second Amendment, dated November 28, 2005, to Employment Agreement, dated as of January 26, 2004, between The United Illuminating Company and Anthony J. Vallillo (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2007).

10.11c*		Third Amendment, dated August 4, 2008, to Employment Agreement, dated as of January 26, 2004, between The United Illuminating Company and Anthony J. Vallillo (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2008).

10.11d*		Fourth Amendment, dated March 4, 2011, to Employment Agreement, dated as of January 26, 2004, between The United Illuminating Company and Anthony J. Vallillo (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended March 31, 2011).

- 60 -

Exhibit No.		Description
10.12*		Employment Agreement, dated July 1, 2005, between The United Illuminating Company and Steven P. Favuzza (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2007).

10.13*		UIL Holdings Corporation 2008 Stock and Incentive Compensation Plan, dated May 14, 2008 (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2008).

10.14*		UIL Holdings Corporation Deferred Compensation Plan Grandfathered Benefits Provisions, dated August 4, 2008 (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2008).

10.15*		UIL Holdings Corporation Deferred Compensation Plan Non-Grandfathered Benefits Provisions, dated August 4, 2008 (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2008).

10.16*		The United Illuminating Company Supplemental Executive Retirement Plan Grandfathered Benefits Provisions, dated August 4, 2008 (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2008).

10.17*		The United Illuminating Company Supplemental Executive Retirement Plan Non-Grandfathered Benefits Provisions, dated August 4, 2008 (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended June 30, 2008).

10.18		Agreement effective March 24, 2010, between the Southern Connecticut Gas Company and Local 12000, the United Steelworkers of America (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2010).

10.19		Agreement effective December 1, 2009, between the Connecticut Natural Gas Corporation and Local 12924, the Connecticut Independent Utility Workers (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2010).

10.20		Agreement effective March 5, 2010, between The Berkshire Gas Company and Local 12325, the United Steelworkers, AFL-CIO-CLC (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2010).

10.21		Agreement effective April 1, 2011, between the Connecticut Natural Gas Corporation and Local 380, the Utility Workers Union of America (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2011).

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Exhibit No.		Description
10.22		UIL Holdings Corporation 2012 Non-Qualified Employee Stock Purchase Plan (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on February 16, 2012).

10.22a		UIL Holdings Corporation 2012 Non-Qualified Employee Stock Purchase Plan, as amended through April 10, 2012 (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended March 31, 2012).

10.23		$400,000,000 Amended and Restated Credit Agreement, dated as of November 30, 2011, among UIL Holdings Corporation, The United Illuminating Company and the other Borrowers from time to time parties thereto, as Borrowers, the banks named therein, as Banks, JPMorgan Chase Bank, N. A. and Union Bank, N.A. as LC Banks, and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on December 2, 2011).

10.24		$105,000,000 Credit Agreement, dated as of January 13, 2012, among The United Illuminating Company, as Borrower, JP Morgan Chase Bank, N.A., as Administrative Agent and the banks named therein (incorporated herein by reference to Form 8-K filed with the Securities and Exchange Commission on January 17, 2012).

10.25		$100,000,000 Credit Agreement, dated October 31, 2012, among UIL Holdings Corporation, as borrower, JPMorgan Chase Bank, as Administrative Agent, and the banks named therein (incorporated herein by reference to Form 10-Q filed with the Securities and Exchange Commission for the fiscal quarter ended September 30, 2012).

10.26*		Amended and Restated UIL Holdings Corporation Deferred Compensation Plan Non-Grandfathered Benefit Provisions dated January 1, 2013 (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2012).

14		UIL Holdings Corporation Code of Ethics for the Chief Executive Officer, Presidents, and Senior Financial Officers (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2003).

21.1		List of Subsidiaries of UIL Holdings Corporation (incorporated herein by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2010).

23		Consent of Independent Registered Public Accounting Firm.

31.1		Certification of Periodic Financial Report.

31.2		Certification of Periodic Financial Report.

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Exhibit No.		Description
32		Certification of Periodic Financial Report.

101.INS		The following financial information from the UIL Holdings Annual Report on Form 10-K/A for the year ended
101.SCH		December 31, 2012, filed with the SEC on September 25, 2013, is formatted in Extensible Business Reporting
101.CAL		Language (XBRL): (i) the Consolidated Statement of Income for the years ended December 31, 2012, 2011 and
101.LAB		2010, (ii) the Consolidated Statement of Comprehensive Income (Loss) for the years ended December 31, 2012,
101.PRE		2011 and 2010, (iii) the Consolidated Balance Sheet as of December 31, 2012 and December 31, 2011, (iv) the
101.DEF		Consolidated Statement of Cash Flows for the years ended December, 31 2012, 2011 and 2010 and (v) the Notes to Consolidated Financial Statements.

* Management contract or compensatory plan or arrangement.

The foregoing list of exhibits does not include instruments defining the rights of the holders of certain long‑term debt of UIL Holdings Corporation and its subsidiaries where the total amount of securities authorized to be issued under the instrument does not exceed ten percent (10%) of the total assets of UIL Holdings Corporation and its subsidiaries on a consolidated basis; and UIL Holdings Corporation hereby agrees to furnish a copy of each such instrument to the Securities and Exchange Commission on request.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, UIL Holdings Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	UIL HOLDINGS CORPORATION
Date: September 25, 2013	By:	/s/ Richard J. Nicholas
		Richard J. Nicholas
		Executive Vice President
		and Chief Financial Officer

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UIL (UIL) Inactive 10-K/A2012 FY Annual report (amended)