BUSINESS ORGANIZATION AND STATEMENT OF ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2012

BUSINESS ORGANIZATION AND STATEMENT OF ACCOUNTING POLICIES [Abstract]

Basis of Presentation

Basis of Presentation

The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP).  Certain information and footnote disclosures, which are normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted in accordance with Securities and Exchange Commission (SEC) rules and regulations.  UIL Holdings believes that the disclosures made are adequate to make the information presented not misleading.  The information presented in the Consolidated Financial Statements reflects all adjustments which, in the opinion of UIL Holdings, are necessary for a fair statement of the financial position and results of operations for the interim periods described herein.  All such adjustments are of a normal and recurring nature.  The results for the six month period ended June 30, 2012 are not necessarily indicative of the results for the entire fiscal year ending December 31, 2012.

The Company has revised its previously issued quarterly financial statements to correct an error in the 2011 Consolidated Financial Statements. The effect of this revision on the financial statements is a $4.6 million and a $13.5 million adjustment increasing depreciation and amortization expense and decreasing operation and maintenance expense in the Consolidated Statement of Income for the three and six month periods ended June 30, 2011, respectively.  Corresponding adjustments were made within net cash provided by operating activities in the Consolidated Statement of Cash Flows for the six-month period ended June 30, 2011. These adjustments were not considered to be material individually or in the aggregate to previously issued financial statements.

Derivatives

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 June 30, 2012 and December 31, 2011 were as follows:

	June 30, 2012
	(In Thousands)
	Current Portion		Noncurrent Portion		Current Portion			Noncurrent Portion
	Derivative Assets		Derivative Assets		Derivative Liabilities			Derivative Liabilities
Contracts for differences	$	11,410	$	70,161	$	(30,332	)	$	(229,563	)
Weather insurance contracts		1,000		-		-			-
Total derivative assets/(liabilities), gross	$	12,410	$	70,161	$	(30,332	)	$	(229,563	)

	December 31, 2011
	(In Thousands)
	Current Portion		Noncurrent Portion		Current Portion			Noncurrent Portion
	Derivative Assets		Derivative Assets		Derivative Liabilities			Derivative 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 June 30, 2012, UI has recorded a gross derivative asset of $81.6 million, a regulatory asset of $178.3 million, and a gross derivative liability of $259.9 million ($157.9 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.

The unrealized gains and losses from fair value adjustments to these derivatives recorded in regulatory assets or regulatory liabilities for the three and six month periods ended June 30, 2012 and 2011 were as follows:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2012		2011			2012			2011
	(In Thousands)					(In Thousands)
Regulatory Assets - Derivative liabilities	$	2,167	$	30,375		$	(5,781	)	$	70,536
Regulatory Liabilities - Derivative assets	$	40	$	(584	)	$	12		$	5,748

Weather Insurance Contracts

In October 2011, SCG and CNG each entered into weather insurance contracts for the winter period of November 1, 2011 through April 30, 2012 in order to provide financial protection from significant weather fluctuations.  According to the terms of each contract, if temperatures were warmer than normal at a prescribed level for the contract period, SCG and CNG would each receive a payment, up to the maximum amount allowed under the contracts of $3 million; however, if temperatures were colder than normal at a prescribed level for the contract period, SCG and CNG would each make a payment of up to a maximum of $2 million.  The premiums paid were 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).  Each of SCG and CNG received a payment of $3 million upon the expiration of their respective contracts.

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 are warmer than normal for the contract period, Berkshire will receive a payment, up to the maximum amount allowed under the contract of $1 million.  The premiums paid are 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 June 30, 2012.

Earnings per Share

Earnings per Share

The following table presents a reconciliation of the basic and diluted earnings per share calculations for the three and six month periods ended June 30, 2012 and 2011:

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
	(In Thousands, except per share amounts)
Numerator:
Net income attributable to UIL Holdings	$	11,999	$	14,156	$	59,049	$	66,200
Less:  Net income allocated to unvested units		18		29		105		143
Net income attributable to common shareholders	$	11,981	$	14,127	$	58,944	$	66,057
Denominator:
Basic average number of shares outstanding		50,793		50,628		50,740		50,574
Effect of dilutive securities		248		244		262		250
Diluted average number of shares outstanding		51,041		50,872		51,002		50,824
Earnings per share:
Basic	$	0.24	$	0.28	$	1.16	$	1.31
Diluted	$	0.23	$	0.28	$	1.16	$	1.30

As of June 30, 2011, options to purchase an average amount of 89,336 and 97,669 shares of common stock were outstanding but not included in the three or six-month respective computations of diluted earnings per share, because the options' exercise prices were greater than the average market price of the common shares during the three and six month periods ended June 30, 2011.

Equity Investments

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 $126.6 million and $131.1 million as of June 30, 2012 and December 31, 2011, respectively.

UI's income from its equity investment in GenConn was $8.4 million and $4.7 million for the six month periods ended June 30, 2012 and 2011, respectively.  For the three month periods ended June 30, 2012 and 2011, such income was $3.9 million and $2.6 million, respectively.  As of June 30, 2012, the undistributed earnings from UI's equity investment in GenConn were immaterial.

Stock-Based Compensation

Stock-Based Compensation

Pursuant to the UIL Holdings 2008 Stock and Incentive Compensation Plan (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.

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.

Total stock-based compensation expense for the six month periods ended June 30, 2012 and 2011 was $3.7 million and $3.3 million, respectively.  Total stock-based compensation expense for the three month periods ended June 30, 2012 and 2011 was $0.9 million and $1.4 million, respectively.

Variable Interest Entities

Variable Interest Entities

GenConn is a variable interest entity (VIE), 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 equally 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.