Dear Fellow Shareowner:

A year of challenges in our industries and the national economy defined the past year for UIL. UIL faced these challenges with the same determination with which we have faced obstacles in the past. We achieved success on several issues, experienced setbacks on others and continue to address issues as they arise, while focusing on the long-term value of the company. Overall, earnings for the year were lower than we originally anticipated due to performance in our non-utility businesses.

Along with a difficult economy, we worked through a year full of regulatory challenges and persevered to reach a favorable resolution to an important issue regarding recoverable pension expenses. These challenges have brought out the best in our management team, compelling our employees to creatively and diligently position the company for the future. Our team demonstrated the flexibility to adjust as events and economic changes unfolded. UIL possesses the right vision, the right plan and a strong, versatile management team. These challenges, though troublesome, will not deter us from achieving our long-term goals.

Valuable Investment

For you, our shareowners, 2003 was a year of UIL stock price appreciation. Total shareowner return for the year, including dividends, was more than 37 percent. The year-end dividend yield was above 6 percent, a level far above many other investments in this low interest rate environment. Plus, in 2003, federal legislation was adopted which reduced the dividend tax rate. This further enhanced your return, making your investment even more valuable.

Changing Times for All Businesses

No longer a producer of electric power, The United Illuminating Company (UI), our regulated utility, continues to transition from its historical way of doing business to an electricity transmission and distribution company. Since Connecticut’s landmark 1998 legislation governing electric industry restructuring, UI has had the challenge of reinventing the utility, the chief economic engine which drives the company, to better support the company for the future.

During 2003, we worked with industry leaders and Connecticut lawmakers to help craft effective revisions to the electric industry restructuring legislation. These revisions were signed in to law in June of last year and are helping to more clearly define Connecticut’s evolving energy landscape. One of its most significant components created the Transitional Standard Offer (TSO), which extends through 2006. The TSO requires us to serve our customers who do not choose an alternate energy supplier. In October of 2003, after a competitive bid process, we contracted with PSEG Energy Resources & Trade (PSEG) as our new provider of wholesale energy, replacing Dominion Energy Marketing of Virginia. Our three-year contract with PSEG ensures that our TSO customers will continue to receive an uninterrupted supply of reliable and affordable energy. Our contract with PSEG protects you, our investors, and our customers from bearing the risks associated with market supply and price fluctuations.