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Questions & Answers Jim Torgerson and Rich Nicholas offer concise answers to questions you may have about 2006 and UIL’s plans for the year to come. With the divestiture of UIL’s non-utility investments what is next? The decision to divest the non-utility investments allows UIL to concentrate its strategic focus on the utility, The United Illuminating Company, and to explore other transmission business opportunities. The cash received from the non-utility divestitures will give us the financial flexibility to pursue our capital investment program. We are going to invest more than $500 million over the next three years in capital projects, and for a company of our size, that is a significant commitment to capital. Why has UIL elected a non-executive as Chairman of UIL’s Board of Directors? UIL’s decision to elect a Non-Executive Chairman is consistent with our practice of being an industry leader in corporate governance. The Non-Executive Chairman’s role is to focus on the operation of the Board, which will enhance the independence of the Board and provide strong support to the Chief Executive Officer in running the company. Pat McFadden, our Non-Executive Chairman, has been a member of the company’s Board of Directors for 20 years, and most recently served as Lead Director. He has a thorough knowledge of UIL and its vision for the future. What is the mission of the newly formed Transmission Business Unit at UI? We expect transmission to be the growth engine of UI. In 2006, we formed a Transmission Business Unit. Its main goal is to explore future local and regional transmission opportunities. The unit will create value by vigorously pursuing incentives authorized by the Federal Energy Regulatory Commission, bringing our utility perspective to bear on ISO-New England’s planning process, and overseeing all of UI’s transmission infrastructure projects. Why did UI’s electricity rates go up so dramatically in 2007? When the Connecticut Legislature enacted deregulation in 1998, UI was required to divest itself of all generation assets and become a classic “lines and poles” utility company. Since we no longer generate power, we must now purchase the electricity required for our customers. Our procurement process is dictated by Connecticut state statute and Department of Public Utility Control (DPUC) requirements. We do not profit from this activity. Faced with our three-year supply contract ending on December 31, 2006, we worked closely with the DPUC’s independent consultant and the Office of Consumer Counsel to procure our power supply for 2007 and beyond, subject to the DPUC’s approval. As of January 1, 2007, we must pay for electricity at the new contract prices. High natural gas fuel costs are part of the reason for the dramatic increase in supply costs, but the situation is also exacerbated by procurement limitations and restrictions. Under current regulatory decisions, UI cannot procure electric energy for periods in excess of three years. Three years is considered “short-term” and thus we’ve seen premium short-term pricing in the bids we received. To be more attractive to suppliers and to reduce the consumer impact, we need to be able to acquire energy for longer periods of time (fifteen years or more) in a structured portfolio that provides our customers the benefits of base load generation. To effect real change to the electricity laws and regulation, UI is working with state legislators and regulators. What should be included in Connecticut’s proposed energy legislation? We support legislation that presents good overall, practical solutions. We recognize the State must intervene in the wholesale electric market by building new generation facilities of the right type, in the right place, with the right fuel; and by attempting to change behavior in the wholesale market with changes to the distribution companies’ power procurement process. It is important to recognize that meeting the goal of reducing electricity prices begins with planning. We fully support the development of a comprehensive energy plan that will include consideration of the three basic resource elements: generation, transmission and conservation/load management. Generation will improve reliability and positively impact the wholesale market by providing additional capacity that will increase competition at the wholesale level. New transmission will also facilitate the construction of the new generation, allowing the importation of cost-effective electricity. This should go a long way toward eliminating the locational congestion charges currently costing the state’s customers hundreds of millions of dollars. Conservation and load management must be considered as “equal partners” in the plan. |
James P. Torgerson President and Richard J. Nicholas Executive Vice President and Chief Financial Officer, |