Nat Woodson and Lou Paglia offer concise answers to questions you may have about 2002 and UIL’s plans for the year to come.

What decisions did the DPUC render in UI’s recent rate review case?

The DPUC reduced UI’s revenue requirements; reduced UI’s allowed return on equity (for all non-transmission assets) from 11.50 percent to 10.45 percent; realigned our capital structure; and reduced rates 3 percent, to 13 percent below 1996 levels. Although the decision approved the pension and post-retirement expense estimated at that time, significant changes in the financial markets have resulted in a $15.5 million increase in those expenses for 2003. As of this writing, the DPUC has agreed to reopen the rate proceeding to determine possible future action relating to our petition for reconsideration of pension-related expenses.

How does the DPUC decision affect UI?

The decision negatively affects earnings, and operating the company within DPUC-approved financial parameters will be a significant challenge.

How did the poor economy affect UIL’s earnings in 2002?

The weak stock market substantially reduced investment returns on pension fund assets and resulted in a substantial increase in annual pension expenses. The sluggish economy resulted in low growth of electricity sales in UI’s service territory. The worst construction-industry slowdown in decades meant lower earnings for Xcelecom. APS was largely unaffected by the poor economy. Because wholesale electric prices in 2002 did not reflect local power demand conditions in Connecticut, our investment in Bridgeport Energy, a generating facility in energy-congested southwestern Connecticut, did not provide the level of return we had hoped to see. Bridgeport Energy should realize greater value in 2003 as a result of new wholesale pricing rules that took effect this year. We experienced other market-to-market reductions in our passive investment portfolio as well.

What is UIL doing to mitigate the effects of a sluggish economy and an uncertain regulatory climate on UI?

We are reexamining corporate and departmental budgets, increasing efficiency through continuous process improvement, temporarily eliminating philanthropic contributions, seeking cost recovery of our pension expense, and working to help government officials better understand the impact of legislation and regulation on Connecticut’s businesses, economy and quality of life.