The project has experienced its expected share of controversy. At issue, however, is no longer the question of need for the project but, rather, the length of transmission cable that can technologically be placed underground without compromising electric service reliability. UI has been closely engaged with the communities we serve, presenting proposed designs and evaluating alternatives that comply with today’s strict requirements. The project is currently under review by the Connecticut Siting Council. As of this writing, a decision is expected in April 2005. Once the upgrade is complete, the additional transmission will increase electric service reliability, and help mitigate rising congestion charges imposed on customers because of insufficient transmission infrastructure. Our share of the project cost is approximately twenty percent of this potentially $840 million to $990 million project.

Xcelecom Inc., (Xcelecom) is our specialty contracting and systems integration business, which operates in markets from Boston, Massachusetts, to Orlando, Florida. In 2004, our goal was to return Xcelecom to profitability after Xcelecom’s financial results had been severely affected by the worst non-residential construction market in over forty years. Xcelecom’s profitability in 2004 was negatively impacted by the succession of four major hurricanes to strike Florida within a six-week period. Despite this setback, by year-end we had achieved our goal of returning to profitability and are now focused on managing this business for greater returns and productivity. We hold ourselves to exceptionally high performance standards and are striving to ensure that our project results reach the industry’s first-quartile performance level. Historically, first-quartile performance is double or triple the median performance level. The potential for achieving this level of profitability makes Xcelecom a very valuable franchise.

Our Xcelecom strategy demands that we focus intensely on managing a project business exceedingly well. We have organized Xcelecom with precisely that expertise, and hold ourselves accountable to the goals and metrics we have in place to ensure we continue to measure up to your expectations. By the end of 2004, Xcelecom’s backlog of work orders increased thirty-five percent over the comparable 2003 level. Backlog has grown at virtually all of Xcelecom’s construction operating entities, and the near-term sales order outlook in our systems integration segment has improved. Xcelecom is in a healthy financial position. Through management’s focus on the business and Xcelecom’s participation in key, rapidly expanding markets, we are dramatically improving the Company’s performance.

Xcelecom’s strategy is much different than the strategy we utilized with American Payment Systems (APS), our walk-in bill payment and financial services business. APS was launched several years ago and we expanded the business operationally and strategically through a multi-year plan focused on reinvesting in the business. This proved to be just the right strategy to earn the highest return for you. While growing the business and operating APS at a loss in 2001 and 2002, in late 2003 we identified a buyer for APS whose business was aligned to increasing APS’ value even further. In June 2004, we concluded the sale of APS for more than four times our equity investment.

United Capital Investments, Inc. holds a twenty-five percent ownership interest in the highly publicized Cross-Sound Cable Company, LLC (CSC), a 330 megawatt high-voltage direct current transmission line connecting Connecticut with Long Island, New York, under Long Island Sound. The cable is an important link in the greater Northeast electric grid, supporting the exchange of power between New York and Connecticut. As a private business venture, CSC illustrates the evolving electric industry changes now underway that challenge us to provide innovative solutions to twenty-first century problems. In June 2004, following a lengthy period of public debate and negotiations among cable partners and authorities in Connecticut and New York State, the parties reached an agreement that allowed the cable to be energized. Remediation efforts to address specific cable and seabed concerns were completed in January 2005. As a result, CSC should contribute to increased earnings in the years ahead.

Our subsidiary, United Bridgeport Energy, Inc. (UBE) holds a thirty-three and one-third percent ownership interest in Bridgeport Energy, LLC (BE), a gas-fired 520 megawatt merchant wholesale electric generating facility located in Bridgeport, Connecticut, part of the transmission-constrained southwestern Connecticut energy market. UBE has not eroded UIL cash reserves in any significant manner, although its performance had a negative impact on earnings in 2004. However, UIL management considers current UBE earnings performance unacceptable and, in light of lower energy prices and higher natural gas prices that continue to affect the plant, has been discussing with the majority owner alternatives that would create more value in the plant and potentially greater value for UBE.