(E) INCOME TAXES

	2011			2010			2009
	(In Thousands)
Income tax expense consists of:
Income tax provisions:
Current
Federal	$	(16,626	)	$	(21,059	)	$	35,452
State		(3,951	)		(547	)		4,331
Total current		(20,577	)		(21,606	)		39,783
Deferred
Federal		72,840			56,484			(1,835	)
State		10,433			558			(4,706	)
Total deferred		83,273			57,042			(6,541	)

Investment tax credits		(195	)		(152	)		(146	)

Total income tax expense	$	62,501		$	35,284		$	33,096

The following table details the components of the deferred income tax provision:
Property related (accelerated depreciation and other)	$	43,734		$	76,168		$	10,289
Investment in GenConn		32,694			19,201			132
Pension benefits		11,653			(11,182	)		(5,941	)
Storm costs		8,922			2,358			184
Regulatory deferrals		6,570			(19,213	)		(5,278	)
Corporate acquisition costs		6,260			(9,206	)		-
Goodwill		4,668			588			-
Conservation adjustment mechanisms-Gas Companies		864			418			-
Bond redemption costs		(340	)		(340	)		(340	)
Incentive compensation plans		(620	)		268			(634	)
Deferred gas costs		(1,608	)		4,216			-
Post retirement benefits		(2,117	)		(2,271	)		(2,870	)
Seabrook lease buyout		(2,985	)		(2,542	)		(1,367	)
Net operating loss carryforward		(23,300	)		-			-
Other, net		(1,122	)		(1,421	)		(716	)

Deferred income tax provision, net	$	83,273		$	57,042		$	(6,541	)

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:

Tax rate

	2011			2010			2009
	(In Thousands)
Computed tax at federal statutory rate	$	56,774		$	31,549		$	30,595
Increases (reductions) resulting from:
ITC taken into income		(195	)		(152	)		(146	)
Allowance for equity funds used during construction		(3,689	)		(2,511	)		(227	)
Amortization of nuclear plant regulatory assets		8,885			7,661			3,696
Book depreciation more (less) than non-normalized tax depreciation		(1,023	)		(734	)		313
State income taxes, net of federal income tax benefits		4,214			7			(223	)
ESOP dividend payments		(526	)		(488	)		(457	)
Mark-to-market adjustments to non-qualified pension investments		3			(208	)		(391	)
Uncollectible reserve and programs		1,477			159			-
Acquisition and closing related expenses		6			967			-
Other items, net		(3,425	)		(966	)		(64	)

Total income tax expense	$	62,501		$	35,284		$	33,096

Book income before income taxes	$	162,211		$	90,141		$	87,413

Effective income tax rates		38.5	%		39.1	%		37.9	%

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, 2011 was 38.5%, as compared to 39.1% for the year ended December 31, 2010. The decrease in the 2011 effective book income tax rate was primarily due to the absence of acquisition and closing-related expenses associated with the acquisition of the Gas Companies in 2010.

During 2011, UIL Holdings incurred a net operating loss (NOL) for federal income tax purposes of approximately $100 million. It is currently anticipated that a portion of the NOL will be carried back and utilized to obtain a refund of federal income taxes paid in prior years, with the remainder carried forward and utilized commencing with 2012. The NOL carry forward resulted in a deferred tax asset of approximately $23 million as of December 31, 2011.

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 year 2011. As a result, during the fourth quarter of 2010 and calendar year 2011, 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 required in the fourth quarter of 2010 and calendar year 2011. The remainder of the cash benefits will be recognized through lower operational financing requirements during 2012.

During 2010, UIL Holdings recognized a significant one-time 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 one-time 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, the Internal Revenue Service (IRS) issued new regulations with respect to the tax deductibility of previously capitalized repair and maintenance costs, which replaced previous proposed regulations issued by the IRS in March 2008. UIL Holdings is currently reviewing the impact of implementing these new regulations with the filing of its 2011 federal and state income tax returns. This review is expected to be completed during the second quarter of 2012 and is not anticipated to result in a material impact to UIL Holdings' consolidated financial statements.

The following table sets forth a reconciliation of the changes in the gross income tax reserves for the years ended December 31, 2011 and 2010:

	2011		2010
	(In Thousands)
Balance as of December 31	$	11,349	$	-
Increases for tax positions related to prior years		-		8,922
Increases for tax positions related to current year		2,327		2,427
Balance as of December 31	$	13,676	$	11,349

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 BER, the income tax statutes of the Commonwealth of Massachusetts. As of December 31, 2011, the tax years 2008, 2009, and 2010 remain open and subject to audit for State of Connecticut income tax purposes. As of December 31, 2011, the tax years 2008, 2009, and 2010 are open and subject to audit for federal income tax purposes. During 2009, the IRS closed examinations of the tax years 2004, 2005, 2006, and 2007. The IRS examination of the tax years 2004, 2005, and 2006 resulted in an immaterial assessment to UIL Holdings. The examination of the tax year 2007 resulted in no additional assessment or refund to UIL Holdings.

At December 31, 2011, UIL Holdings had non-current deferred tax liabilities for taxable temporary differences of $512.7 million and non-current deferred tax assets for deductible temporary differences of $124.1 million, resulting in a net non-current deferred tax liability of $388.6 million. UIL Holdings had current deferred tax assets of $41.6 million at December 31, 2011. UIL Holdings did not have any current deferred tax liabilities at December 31, 2011.

The following table summarizes UIL Holdings' deferred tax assets and liabilities as of December 31, 2011 and 2010:

	2011		2010
	(In Thousands)
Deferred income tax assets:
Regulatory asset related to pension and other post-retirement benefits	$	83,057	$	78,427
Post-retirement benefits		69,624		12,106
Net operating loss carry forward		23,300		-
Regulatory deferrals		4,751		10,966
Acquisition and closing related expenses		2,947		9,207
ASC 740 gross-up effect on deferred taxes		3,531		6,477
Deferred gas company costs		-		3,637
Connecticut Yankee equity investment		3,145		3,145
Long-term incentive plan		4,622		3,498
Vacation accrual		2,927		2,728
Incentive compensation plans		2,895		2,275
Deferred compensation plan		2,708		2,171
Supplemental pensions		2,354		2,134
Stock compensation plans		2,037		1,836
Uncollectibles		1,359		1,439
Post-employment benefits		615		700
Gains on sale of property		662		662
Interest during construction		360		442
Other		11,166		12,449
	$	222,060	$	154,299


Deferred income tax liabilities:
Plant basis differences	$	169,890	$	182,797
Accelerated depreciation timing differences		220,030		154,067
Regulatory asset related to pension and other post-retirement benefits		71,325		69,358
Investment in GenConn		52,027		19,332
Seabrook lease buyout		13,656		16,641
Hardship programs		5,037		5,889
Bond redemption costs		5,446		5,786
Other		31,567		30,554
	$	568,978	$	484,424

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, 2011 and 2010 included on the following lines of the Consolidated Balance Sheet is as follows:

	2011		2010
	(In Thousands)
Assets:
Deferred and refundable income taxes	$	41,635	$	24,039
Liabilities:
Deferred income taxes		388,553		354,164
Deferred income taxes – net	$	346,918	$	330,125