_ fellow shareowners continued

We did not anticipate the financial crisis that occurred in the fourth quarter of 2008 and the extent to which it would exacerbate the recession that was already underway. This became clear as numerous customers asked the DPUC not to grant our request to raise rates for 2009 and 2010. Our request for a rate increase came only after we proposed an alternative that would have accomplished our goals but would not have increased customers’ rates in 2009. Unfortunately, the Connecticut Attorney General and Office of Consumer Counsel refused to accept our proposal.

Another impact of the collapse of the equity markets was the decline in the asset value of our pension plan, resulting in a tripling of our annual pension expense to more than $30 million. It was fortuitous that we were already in a rate proceeding and were able to supplement our request to reflect this increase. The requests for the pension expense recovery and the decoupling mechanism were ultimately approved, but an increase in rates in 2009 was not.

Now the question remains: What is your Company doing to weather the recession? And, more importantly, what are we doing for the future? Is all of this jeopardizing our plans for growth? To answer the first question, we have temporarily reduced our operating and maintenance expenses significantly, and have scaled back our capital spending plans for 2009. We will strive to minimize service reductions and other impacts on customers. Nevertheless, it is impossible to maintain service levels without adequate funding.

Looking ahead, there will be a slowing of our expansion plans as we negotiate the recession, but over the longer term I view our future as bright. The opportunities to expand the transmission system as outlined by Washington policy-makers are even more pressing, especially when one looks at the requirements to use renewable energy. The renewable energy in this country is available only in certain areas; for New England, wind energy is generated primarily in northern Maine and in the Maritime provinces of Canada. Today there exists a paucity of transmission to bring this energy to customers in metropolitan areas. This should present an opportunity for us to invest in transmission.

Investing directly in renewable energy presents another opportunity, whether it is wind, solar or even distributed generation located in our service territory. We are presently precluded from making these investments and including them in our regulated operations. Therefore, we are working with legislators toward making appropriate changes.