_ fellow shareowners

From Wall Street to the White House to Bridgeport, Connecticut, the operative word for 2008 was “change.”

As many have said, we have entered a period like nothing we have seen before. We are clearly in a recession, but only history will tell if the current economic crisis is a modern Great Depression. Financial institutions have disappeared, and equity and debt markets have tightened to the point where even the most credit-worthy companies are paying significant premiums to borrow. We all have witnessed the astonishing losses in the equity markets and the lack of buyers for even the most attractive stocks.

UIL began 2008 with successes. The United Illuminating Company (UI), our utility operation, was recognized by the Connecticut Department of Public Utility Control (DPUC) for its leadership in developing new peaking generation resources for customers. The agency granted GenConn Energy LLC, UIL’s joint venture with NRG Energy, the right to build and operate 200 megawatts of peaking generation. Later in the year, GenConn was awarded an additional 200 megawatts after another party withdrew its proposal. The opportunity, however, is not without its challenges. This $400 million project requires financing in a time when the credit markets are in the worst shape in recent memory. We remain confident, however, that our staunch resolve in maintaining our investment grade credit rating should pave the way to success.

Another success was the completion of our portion of the Middletown-to-Norwalk 345-kilovolt transmission line. The full line became operational ahead of schedule. The investment in this line has already benefited the region – and Connecticut in particular – by reducing the congestion costs resulting from previously existing transmission constraints. The transmission investments also provided significant earnings to UI at a time when the distribution business is experiencing declining sales.

As I mentioned in my letter to you last year, our customers are conserving energy and using electricity more efficiently. We recognized this trend and realized we needed to reflect this reality in our distribution rates. We demonstrated our leadership role by being one of the first utilities in the nation to be granted a full “decoupling” of the sale of electricity from our revenues. What this means is that our distribution business will receive the revenues, as determined by the DPUC, needed to operate our business regardless of the amount of sales of kilowatt hours of electricity.