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.

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 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. 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 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.

OtherProceedings

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.

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.