BUSINESS ORGANIZATION AND STATEMENT OF ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2013

BUSINESS ORGANIZATION AND STATEMENT OF ACCOUNTING POLICIES

Fair Value of Gross Derivative Assets and Liabilities

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, 2013 and December 31, 2012 were as follows:

	June 30,		December 31,
	2013		2012
	(In Thousands)
Gross derivative assets:
Current Assets	$	9,380	$	12,671
Deferred Charges and Other Assets	$	49,320	$	67,167

Gross derivative liabilties:
Current Liabilities	$	27,486	$	30,804
Noncurrent Liabilities	$	184,556	$	224,639

Unrealized Gains and Losses From Mark-To-Market Adjustments

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, 2013 and 2012 were as follows:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2013			2012		2013			2012
	(In Thousands)					(In Thousands)

Regulatory Assets - Derivative liabilities	$	(15,099	)	$	2,167	$	(23,263	)	$	(5,781	)

Regulatory Liabilities - Derivative assets	$	-		$	40	$	-		$	12

Reconciliation of Basic and Diluted 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, 2013 and 2012:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In Thousands, except per share amounts)
Numerator:
Net income	$	17,924	$	11,999	$	69,715	$	59,049
Less: Net income allocated to unvested units		18		18		83		105
Net income attributable to common shareholders	$	17,906	$	11,981	$	69,632	$	58,944

Denominator:
Basic average number of shares outstanding		50,972		50,793		50,939		50,740
Effect of dilutive securities		229		248		238		262
Diluted average number of shares outstanding		51,201		51,041		51,177		51,002

Earnings per share:
Basic	$	0.35	$	0.24	$	1.37	$	1.16
Diluted	$	0.35	$	0.23	$	1.36	$	1.16

Regulatory Assets and Liabilities

UIL Holdings’ regulatory assets and liabilities as of June 30, 2013 and December 31, 2012 included the following:

	Remaining	June 30,		December 31,
	Period	2013		2012
		(In Thousands)
Regulatory Assets:
Nuclear plant investments – above market	(a)	$	242,275	$	252,498
Connecticut Yankee	Not applicable		-		11,129
Unamortized redemption costs	8 to 20 years		11,702		12,103
Pension and other post-retirement benefit plans	(b)		448,252		458,019
Environmental remediation costs	4 to 5 years		15,006		14,772
Hardship programs	(c)		23,915		29,852
Debt premium	1 to 24 years		37,452		41,016
Deferred purchased gas	(d)		-		12,444
Unfunded future income taxes	(e)		21,545		17,319
Contracts for differences	(f)		153,286		176,597
Excess generation service charge	(g)		14,967		8,864
Deferred transmission income/expense	(h)		24,761		21,379
Storm costs	(i)		53,465		52,009
Other	(j)		28,343		27,449
Total regulatory assets			1,074,969		1,135,450
Less current portion of regulatory assets			120,766		120,935
Regulatory Assets, Net		$	954,203	$	1,014,515

Regulatory Liabilities:
Accumulated deferred investment tax credits	30 years	$	4,538	$	4,612
Income taxes due principally to book-tax differences	(j)		51,260		41,928
Deferred gain on sale of property	(a)		37,933		37,933
Middletown/Norwalk local transmission network service collections	36 years		21,688		21,975
Pension and other post-retirement benefit plans	1 to 7 years		12,995		15,016
Deferred income taxes	(e)		45,570		41,816
Asset retirement obligation	(k)		4,504		4,995
Deferred purchased gas	(d)		32,248		-
Low income programs	(l)		22,475		17,651
Asset removal costs	(j)		251,548		243,854
Other	(j)		43,685		36,660
Total regulatory liabilities			528,444		466,440
Less current portion of regulatory liabilities			27,948		21,284
Regulatory Liabilities, Net		$	500,496	$	445,156

(a) Asset/Liability relates to the Competitive Transition Assessment (CTA). Total CTA costs recovery is currently projected to be completed in 2013, with stranded cost amortization expected to end in the fourth quarter of 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." See Note (G) “Pension and Other Benefits” for additional information.

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

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

(f) Asset life is equal to delivery term of related contracts (which vary from approximately 7 - 14 years); balance fluctuates based upon quarterly market analysis performed on the related derivatives (Note K).

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

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

(i) Storm costs include accumulated costs for major storms occurring from January 2009 forward. UI is seeking recovery of these costs in its rate proceeding discussed in Note (C) “Regulatory Proceedings – Electric Distribution and Transmission – Rates.”

(j) Amortization period and/or balance vary depending on the nature, cost of removal and/or remaining life of the underlying assets/liabilities.

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

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