The choice between mobilizing for a fight or embracing change may now
seem obvious, but there were many that chose the former path, wasting
significant resources and time. We chose the latter – a position that
allowed us to be positioned well for the new environment.

The board and management team, which preceded my tenure as chairman and
CEO, deserves tremendous credit for its prescience and determination,
which I believe are distinct factors in UIL Holdings’ current strategic
position.

During the early days of legislative discussion, we mobilized support
for enacting legislation that was right for our company and the industry.
We chose not to try and over-reach in the legislative debate. It was important
to us that we stay focused on the end game – lower energy prices for our
customers and acceptable returns for our shareowners. We were able to
function as an agent of change that was not problematic to the legislative
process because we were an organization that was well-run and well-respected.
Our motives were generally not questioned.

When the debate was concluded and the restructuring legislation enacted
in 1998, we moved with great alacrity to sell our generation assets and
the standard offer. It was time to accelerate the transition to a wires
company.

The senior management team at UIL Holdings became convinced that our
strength was not as an energy marketer or generator. Our relatively small
territory and generation portfolio would place us at a distinct disadvantage
in the evolving industry that would be dominated by large regional, national,
and international companies. We felt our strengths were as a company that
would grow through solid management of our utility distribution business
– (the Wires Company) – and growth in non-regulated businesses that we
knew and managed well.

Figure 1
Significant growth of UIL earnings

Manage and Eliminate Risk

As we prepared for and ultimately began the actual transformation process,
we employed several parallel initiatives to manage and eliminate risk.

First, our strategic preparation for the 1999 regulatory restructuring
decisions energized our organization and allowed us to remain with a solid
base of regulated operations. Diligent preparation led to responsible
decisions by the State Department of Public Utility Control (DPUC) in
every major proceeding, including those involving stranded cost recovery
and the standard offer, which set customer price components for the next
four years.

Second, as the industry restructuring legislation was enacted, UI made
a number of strategic moves that have given us a distinct advantage.

We used a comprehensive approach to eliminate all energy exposure for
our shareholders and customers. In addition to selling our fossil generation
and preparing to sell our nuclear and fossil, we reached an agreement
with Enron to provide our standard offer service for the next four years,
thus managing what could be significant risk and exposure for customers
and shareowners.

As evidenced by the experience of the developing power markets – and
the spikes in clearing prices – our financial exposure would have been
enormous if we had taken another approach. It serves as a reminder that
we’re on the right path.

As we exited the electric generation business, we used the proceeds from
asset sales to strengthen our balance sheet. This has significantly improved
our credit rating and positioned us for a dynamic, yet balanced approach
to growth.

Focusing on Strength

The end of our role as an electric generation company gave us the opportunity
to focus on and augment our strengths – first, as a reliable and responsive
energy distribution company – and second, as a provider of energy-related
services.

Investing wisely in the right people has paid dividends in our principal
non-regulated units, just as the right people did for the utility.

One of these, American Payment Systems (APS), is the nation’s leading
supplier of walk-in bill payment processing services to the utility industry.
Last year, it processed 81 million payments and handled more than $8 billion;
it should handle close to $9 billion this year. APS recently acquired
QuikPay!, which gives it a PC-based technology to rapidly reach significantly
more customers.

Our other principal non-regulated business, Xcelecom (formerly Precision
Power, or PPI), has set out to become the leading provider of electrical,
and voice-data-video (VDV) services to industrial, commercial, and institutional
customers throughout the New England and the Mid-Atlantic regions.

In 1999, Xcelecom acquired Allan Electric Company and has recently acquired
the DataStore, JBL Electric, and Orlando Diefenderfer, profitable and
respected companies in New Jersey and Pennsylvania. Xcelecom will acquire
other strategically relevant companies in the coming months to complement
the Xcelecom businesses. Both Allan Electric and APS were profitable in
1999, and we anticipate increased profitability in 2000.

The goal of expanding our earnings base has led us into related growth
centers. We invested in other promising non-regulated businesses including
the most advanced combined cycle plant in Connecticut, built by Duke Energy
and Siemens Power, in which UIL Holdings now holds one-third interest
on a non-operating basis.

Investing Wisely

We’re also actively considering other purely financial investments of
commensurate profit potential. For instance, we’re working with a project
developer to assess the growth potential of a high voltage DC transmission
cable that will connect New England to Long Island as an alternate energy
supply path.

We’re carefully making modest investments in regional economic development
initiatives to benefit our shareowners and the region we serve. Even though
these investments are small, we’re already seeing significant returns
from them.

Our expectation for these non-regulated businesses over the next three
to five years is that they will yield at least 20 percent of our total
earnings, and their performance to date more than justifies this optimism.

The expectations for the non-regulated units are underscored by our recent
move to restructure UI as the holding company known as UIL Holdings. The
regulated and non-regulated businesses are separated under the holding
company, which provides the unregulated businesses with a better platform
for growth.

Our focus on plans, people and performance is showing tangible results.
Over the past four years, we have seen earnings growth of eight to ten
percent a year, a level we consider very respectable for our industry.

As we embarked on our ambitious initiative to get the plans in place,
one of the foundations was an active and aggressive communications program
for all of our major audiences – employees, customers, legislators, regulators
(and their respective staffs) and shareowners. We endeavored to ensure
each audience was receiving one consistent message of our proposals, plans,
and results.

Being visible with each constituent group, we were better able to work
with the forces of change anticipating needs and ensuring we had sufficient
time to make adjustments when needed.

Over the past 16 months, The Corporation has been carefully building
its managerial and employee team to meet the demands dictated by change.
Our role as a widely-recognized leading energy distributor, our promise
as a holding company of growth-oriented business units, and the changes
we foresaw in our industry have all been deftly managed by a team of enormous
insight and foresight. We have a team of leaders who have proven that
change can always be turned to our advantage.

Clearly, UIL Holdings Corporation has emerged from restructuring all
the stronger, having embraced change and prepared for the inevitable with
an aggressive plan carefully balanced by prudence. We’ve proven ourselves
to be a solid investment and a company willing to seize the moment, ruling
out no relevant opportunity that offers us real potential to grow in value
to our shareowners and customers.

As we underscore our vision of a solidly managed utility distribution
business and growth in non-regulated businesses that we know and manage
well, every manager and team leader at UIL Holdings has personally committed
to run this company as aggressively and intelligently as we can. That
is a continuing promise, and the results to date confirm that we are a
company that consistently delivers on its promises.