THE UNITED ILLUMINATING COMPANY
                             1999 STOCK OPTION PLAN



1. Purpose.
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         The purpose of The United  Illuminating  Company 1999 Stock Option Plan
("the Plan") is to promote the profitability of The United Illuminating  Company
("the Company") and its Subsidiaries by providing members of the Company's Board
of Directors,  officers and certain key employees  ("Optionees") with incentives
to  contribute  to the success of the  Company  and by  enabling  the Company to
attract,   retain  and  reward  the  best  available  Directors  and  managerial
employees. The Plan shall be effective on March 22, 1999 (the "Effective Date").

         On and after the  Effective  Date,  the  Administrator  shall  have the
authority to grant  Nonqualified  Stock Options and  Incentive  Stock Options in
accordance with the terms of the Plan.

         For purposes of the Plan, the term "Incentive  Stock Option" shall have
the meaning set forth in 422 of the Internal  Revenue  Code of 1986,  as amended
("the Code"); a "Nonqualified Stock Option" shall be any option to purchase from
the Company a share of its no par value Common Stock ("Common Stock") other than
an Incentive  Stock Option;  and "Stock  Options"  shall refer  collectively  to
Incentive Stock Options and Nonqualified Stock Options. The term "Subsidiary" or
"Subsidiaries" of an entity shall mean one or more  corporations,  a majority of
the outstanding  shares of voting stock of which is owned directly or indirectly
by that entity.

2. Administration.
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         The Plan shall be administered by a Committee of the Company's Board of
Directors,  as it may be constituted  from time to time,  which  Committee shall
consist of no less than three  members  and shall not include any member of said
Board  who is,  or  within  twelve  (12)  months  prior to the  exercise  of any
discretion  under  this  Plan  has  been,  an  employee  of the  Company  or its
Subsidiaries.  Each member of the Committee  (the  "Administrator")  shall be an
"outside  director" as such term is defined in Section  162(m) of the Code and a
"non-employee  director"  under Section 16(b) of the Securities  Exchange Act of
1934,  as amended.  The  Administrator  is  authorized  to interpret the Plan in
accordance with its terms and may, from time to time,  prescribe,  adopt,  amend
and  rescind  any  rules  and   regulations   it  deems   appropriate   for  the
administration of the Plan and for the continued qualification under the Code of
any Incentive  Stock issued  hereunder.  Decisions of the  Administrator  on all
matters relating to the Plan shall be conclusive and binding on the Company, its
shareowners and Plan participants.

         The validity,  construction  and effect of the Plan,  and any rules and
regulations relating thereto, shall be determined in accordance with the laws of
Connecticut and applicable federal law.


<PAGE>

3. Shares Available For the Plan.
   -----------------------------

         Subject  to the  adjustments  prescribed  in  Section  6, a maximum  of
650,000  shares of Common Stock may be purchased  pursuant to the Plan,  and the
maximum  aggregate number of shares that may be covered by Stock Options granted
in any  one  year  to  any  Optionee  who is an  employee  of  the  Company  (an
"employee-Optionee")  shall not exceed 50,000. If any Stock Option granted under
the  Plan  expires  or  terminates  unexercised  or,  for  any  reason,  becomes
unexercisable,  the  unpurchased  shares  represented by such Stock Option shall
thereafter be available for further grants under the Plan. If the exercise price
of any Stock Option is paid by the Optionee's  surrendering a share or shares of
Common Stock,  either actually or by  attestation,  only the number of shares of
Common Stock issued net of the shares  tendered  shall be deemed  purchased  for
purposes  of  calculating  the maximum  number of shares  that may be  purchased
pursuant to the Plan.

4. Participation.
   -------------

         The Administrator shall, from time to time, select those members of the
Board of Directors,  officers and key full-time employees of the Company to whom
Stock  Options  shall be granted,  and shall  determine  (i) the number of Stock
Options to be granted to each such  individual,  (ii) whether such Stock Options
shall be Nonqualified or Incentive Stock Options,  or some combination  thereof,
(iii) the periods within which such Stock Options shall be exercisable, and (iv)
whether any such Stock  Option shall  include a right to purchase an  additional
share of Common  Stock (a "Reload  Right")  contingent  upon  Optionee's  having
exercised  such  Stock  Option  and having  paid the  exercise  price in full by
surrendering,  either actually,  or by attestation,  a share or shares of Common
Stock  having  a Fair  Market  Value on the  date of the  exercise  equal to the
exercise price of such Stock Option.  A grant of Stock Options at any time shall
neither guarantee nor preclude a grant to such Optionee at any later time.

         Participation  in the Plan  shall be  limited  to those  members of the
Board of Directors, officers and key full-time employees of the Company selected
by the  Administrator in its sole discretion.  Members of the Board of Directors
who are not employees of the Company shall not be eligible to receive  Incentive
Stock  Options.  Nothing in the Plan or in any Stock Option granted shall confer
any right on an  employee  to  continue  in the  employ of the  Company or shall
interfere in any way with the right of the Company to  terminate  an  employee's
employment at any time.

5. Terms and Conditions of Options.
   -------------------------------

The  Stock  Options  granted  shall  be  subject  to  the  following  terms  and
conditions:

         (a) Exercise  Price of Stock  Options.  Regardless of whether the Stock
             ---------------------------------
Option granted is a Nonqualified or Incentive  Stock Option,  the purchase price
per share  deliverable  upon the exercise of each Stock Option shall not be less
than 100% of the Fair  Market  Value of  shares of Common  Stock on the date the
Stock  Option is  granted  or, in the case of a Stock  Option  arising



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<PAGE>

from the  exercise  of a Reload  Right,  on the date  that the  Reload  Right is
exercised. No Stock Option may be repriced by the Administrator.  In the case of
the grant of any  Incentive  Stock Option to an Optionee who, at the time of the
grant,  owns more than 10% of the total combined  voting power of all classes of
stock of the Company or any of its  Subsidiaries,  the option exercise price per
share shall not be less than 110% of the Fair  Market  Value of shares of Common
Stock on the date the Stock Option is granted or, in the case of a Reload Right,
on the date that the Reload Right is exercised.  "Fair Market Value" on any date
shall be the average of the high and low sales  price of shares of Common  Stock
on the New York Stock Exchange  composite tape, or such other recognized  market
source as may be  designated  by the  Administrator  from time to time,  on such
date.  If there is no sale on such  date,  then such  average  price on the last
previous day on which a sale is reported shall govern.

          (b) The  exercise  price of a Stock Option shall be payable in cash or
by the Optionee's  surrendering,  either actually or by attestation,  a share or
shares of Common Stock having a Fair Market Value on the date of exercise  equal
to the exercised price of such Stock Option, or in any combination  thereof,  as
determined by the Administrator.

          (c) Term and Exercisability of Stock Options.  The Administrator shall
              ----------------------------------------
determine the period within which each Stock Option granted shall be exercisable
and may provide  that a number of Stock  Options  shall  become  exercisable  in
installments; provided, however, that

         (i)      except as provided in subsection (f)(iv) of this Section 5, in
                  no event shall any Stock Option be  exercisable  less than one
                  year, or more than ten years, from the date it is granted;

         (ii)     except as provided in subsection (f)(iv) of this Section 5, no
                  more than one-third of the number of Stock Options  granted to
                  an Optionee on any date may first  become  exercisable  in any
                  twelve-month period;

         (iii)    in the case of the grant of an  Incentive  Stock  Option to an
                  Optionee who, at the time of the grant,  owns more than 10% of
                  the total combined voting power of all classes of stock of the
                  Company  or any of its  Subsidiaries,  in no event  shall such
                  Stock Option be exercisable more than five years from the date
                  of the grant;

         (iv)     in the case of Incentive Stock Options,  except as provided in
                  subsection  (h)(iv)  of this  Section  5, the  number of Stock
                  Options  granted  to an  Optionee  on any date  that may first
                  become  exercisable  in any calendar  year shall be limited to
                  $100,000  divided by the exercise  price per Stock Option,  as
                  determined in accordance  with Section  422(d) of the Code and
                  regulations issued thereunder; and

         (v)      a Stock  Option  arising  from the  exercise of a Reload Right
                  shall become  exercisable on the six-month  anniversary of the
                  date when the Reload Right was  exercised  and shall expire on
                  the same date on which the Stock  Option  from  which it arose
                  would have expired if it had not been exercised.



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<PAGE>

          (d) Continued  Employment.  Except as otherwise provided in subsection
              ---------------------
(f) of this Section 5, an employee-Optionee may exercise a Stock Option only (i)
if he or she is, and has  continuously  been since the date the Stock Option was
granted, a full-time employee of the Company or one of its Subsidiaries.

         (e)  Shareowner  Rights.  Prior to the  exercise of a Stock  Option and
              ------------------
delivery of the Common Stock shares purchased  thereby,  the Optionee shall have
no right to  dividends  nor be entitled to voting or any other rights on account
of such Stock Option.

         (f) Exercisability of Options Upon Certain Events. Upon the termination
             ---------------------------------------------
of  an   Optionee's   service  as  a  Director   of  the   Company,   or  of  an
employee-Optionee's  full-time employment,  as a result of retirement,  death or
disability,  all Stock  Options of the  Optionee  that have not  expired or been
exercised,  shall become  immediately  exercisable.  Upon the  termination of an
employee-Optionee's full-time employment for any other reason, including but not
limited to voluntary or involuntary  termination,  all of the  Optionee's  Stock
Options  that  are  not  then  exercisable   shall   automatically   expire.  An
employee-Optionee  shall be considered  "retired" or "disabled"  for purposes of
the Plan if he or she is  entitled  to a service  pension,  disability  pension,
disability  benefit  or  disability  allowance  under the  Company's  pension or
disability plan.

         (i)      Upon Death.  If an  Optionee's  service as a  Director,  or an
                  ----------
                  employee-Optionee's  full-time  employment,  is  terminated by
                  death,  such Optionee's legal  representative  or successor by
                  bequest  or the  laws  of  descent  and  distribution  (each a
                  "Successor  in Interest")  may exercise,  in whole or in part,
                  Stock Options  exercisable by such Optionee on the date of his
                  or her  death,  from time to time  within  one year after such
                  Optionee's date of death.

         (ii)     Upon  Retirement,  or  Termination  Due to  Disability.  If an
                  ------------------------------------------------------
                  employee-Optionee's  full-time employment is terminated due to
                  retirement  or  disability,  such  Optionee,  or  his  or  her
                  guardian or Successor in Interest,  may exercise,  in whole or
                  in part: (A)  Nonqualified  Stock Options  exercisable by such
                  Optionee on the date of  termination  of his or her  full-time
                  employment,  from time to time  within  three years after such
                  date;  and (B)  Incentive  Stock Options  exercisable  by such
                  Optionee  on the date of his or her  retirement,  from time to
                  time within three months after such date.

          (iii)   Upon  Voluntary or  Involuntary  Termination  of Service.
                  --------------------------------------------------------
                    Upon  a  voluntary   or   involuntary   termination   of  an
                    employee-Optionee's  full-time  employment  due to any cause
                    other  than  the  death,  retirement  or  disability,   such
                    Optionee, or his or her Successor in Interest, may exercise,
                    in  whole  or  in  part:  (A)  Nonqualified   Stock  Options
                    exercisable  by such Optionee on the date of  termination of
                    his or her  full-time  employment,  from time to time within
                    five months after such date; and (B) Incentive Stock Options
                    exercisable by such Optionee on such date, from time to time
                    within three months after such date; provided, however, that
                    if  an   employee-Optionee   is  terminated  for  cause  (as
                    determined    by    the    Administrator),    or    if    an
                    employee-Optionee, at any time after his or her voluntary or
                    involuntary


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<PAGE>

                    termination   of  full-time   employment,   engages  in  any
                    occupation   or  business   that,  in  the  opinion  of  the
                    Administrator,  is a competitor of the Company or any of its
                    Subsidiaries,  all  of  such  Optionee's  unexercised  Stock
                    Options may be canceled by the Administrator.

         (iv)     Upon a Change of Control.  In the event of a change of control
                  ------------------------
                  of the Company,  all Stock  Options that have been granted and
                  have not expired or been exercised,  shall become  immediately
                  exercisable.  Change in Control of the Company  shall mean any
                  of the following events:

                  (A)      any merger or  consolidation  of the Company with any
                           corporate   shareholder   or   group   of   corporate
                           shareholders  holding  twenty-five  percent  (.25) or
                           more of the Common  Stock of the  Company or with any
                           other corporation or group of corporations that is or
                           after   such   merger  or   consolidation   would  be
                           affiliated   with  a  shareholder   owning  at  least
                           twenty-five  percent (.25) of the Common Stock of the
                           Company; or

                  (B)      any sale, lease, exchange, mortgage, pledge, transfer
                           or other  disposition  to or with any  shareholder or
                           group of  shareholders  holding  twenty-five  percent
                           (.25) or more of the Common Stock of the Company,  or
                           any  affiliate  of  such   shareholder  or  group  of
                           shareholders,  of any assets of the Company having an
                           aggregate  fair market  value of $50 million or more;
                           or

                  (C)      the issuance or sale by the Company of any securities
                           of  the  Company  to  any  shareholder  or  group  of
                           shareholders  holding  twenty-five  percent  (.25) or
                           more of the Common  Stock of the  Company,  or to any
                           affiliate   of   such   shareholder   or   group   of
                           shareholders,  in exchange  for cash,  securities  or
                           other  consideration  having an aggregate fair market
                           value of $50 million or more; or

                  (D)      the  implementation  of any plan or proposal  for the
                           liquidation or dissolution of the Company proposed by
                           or  on  behalf  of  any   shareholder   or  group  of
                           shareholders  owning  at  least  twenty-five  percent
                           (.25)  of the  Common  Stock of the  Company,  or any
                           affiliate   of   such   shareholder   or   group   of
                           shareholders; or

                  (E)      any  reclassification  of  securities   (including  a
                           reverse  stock  split),  or  recapitalization  of the
                           Company  or  any  other  transaction  which  has  the
                           effect,  directly or  indirectly,  of increasing  the
                           proportionate  share  of  outstanding  shares  of any
                           class of equity securities, or securities convertible
                           into any equity securities,  of the Company, which is
                           directly  or  indirectly  owned by a  shareholder  or
                           group of  shareholders  owning  at least  twenty-five
                           percent (.25) of the Common Stock of the Company,  or
                           any  affiliate  of  such   shareholder  or  group  of
                           shareholders.

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<PAGE>

         The  Administrator  may, from time to time, by the affirmative  vote of
         not less than a majority of the entire membership of the Administrator,
         modify the  phrase  "twenty-five  percent  (.25)" in one or more of the
         foregoing  subsections  (A),  (B),  (C),  (D)  and/or  (E) to a  lesser
         percentage, but not less than twenty percent (.20).

Transfer from the Company to a Subsidiary, from a Subsidiary to the Company, and
from one  Subsidiary  to  another,  shall not be  considered  a  termination  of
employment.  Nor  shall it be  considered  a  termination  of  employment  if an
Optionee  is placed on a military  or sick leave or such other leave of absence,
which is considered as continuing intact the employment relationship;  in such a
case,  the  employment  relationship  shall be continued  until the date when an
employee's right to reemployment  shall no longer be guaranteed either by law or
by contract.

         (g)   Transferability.   Except   as   otherwise   permitted   by   the
               ---------------
Administrator,  Stock  Options  are  not  transferable  otherwise  than  by  the
Optionee's will or by the laws of descent and distribution.

         (h) Listing,  Registration and/or Approvals.  Each Stock Option granted
             ---------------------------------------
shall be  subject  to the  requirement  that if at any  time  the  Administrator
determines it is necessary or desirable to list,  register or qualify any shares
of Common Stock subject to such Option upon any securities exchange or under any
state or federal  law, or to obtain the consent or approval of any  governmental
regulatory  body as a condition of, or in connection  with, the granting of such
Stock Option or the issue or purchase of shares of Common Stock  thereunder,  no
such Stock  Option may be  exercised  in whole or in part unless  such  listing,
registration,  qualification,  consent or approval  shall have been  effected or
obtained, free of any conditions not acceptable to the Administrator.

         (i)  Option  Agreement.  Each person to whom a Stock  Option is granted
              -----------------
shall, as a condition to the receipt  thereof,  enter into an agreement with the
Company, which shall contain such provisions,  consistent with the provisions of
the Plan, as may be prescribed by the Administrator.

6.       Adjustments.
         -----------

         In the event of a reorganization,  recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation,  distribution of assets,
or any other change in the  corporate  structure  or shares of the Company,  the
Administrator  shall make such adjustments as it deems appropriate in the number
and kind of shares  which may be purchased  pursuant to the Plan,  in the number
and kind of shares  covered by the Stock  Options  granted  and in the  exercise
price of outstanding Stock Options. In the event of any merger, consolidation or
other  reorganization  in which the Company is not the  surviving or  continuing
corporation,  all Stock Options granted hereunder and outstanding on the date of
such event shall be assumed by the surviving or continuing  corporation.  In the
event of any  reorganization  in which all of the shares of the Company's Common
Stock are exchanged for shares of the common stock of another  corporation,  all
Stock Options  granted  hereunder and  outstanding  on the effective date of the
share  exchange shall be  automatically  converted into stock options and reload
options to purchase


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<PAGE>

shares of the other  corporation on identical terms,  and the other  corporation
shall assume this Plan,  and the Board of  Directors  of the other  corporation,
excluding any member of said Board who is, or within twelve (12) months prior to
the exercise of any discretion under this Plan has been an employee of the other
corporation,  its subsidiaries,  the Company or its  Subsidiaries,  shall be and
become  the  Administrator  of this  Plan  on the  effective  date of the  share
exchange.

7.       Termination and Modification of the Plan.
         ----------------------------------------

         The Administrator, without approval of the shareholders of the Company,
may  modify  or  terminate  the Plan and from time to time may  suspend,  and if
suspended,  may reinstate any or all of the provisions of the Plan,  except that
no such  modification or termination of the Plan may,  without the consent of an
Optionee, alter or impair any Stock Option previously granted under the Plan and
that no modification shall become effective without prior approval of the Common
Stock shareowners of the Company that would: (a) increase (except in the case of
a readjustment of the Common Stock or a recapitalization)  the maximum number of
shares for which  Stock  Options may be granted  under the Plan;  (b) reduce the
option  price that may be  established  under the Plan;  (c) extend the  maximum
option  term  under  the  Plan  beyond  ten  years,  or (d)  change  the  Plan's
eligibility requirements. Anything in the preceding sentence or elsewhere in any
provision of the Plan to the  contrary  notwithstanding,  if the Company  enters
into  a   transaction   that  is  intended  to  be   accounted   for  using  the
pooling-of-interests   method  of  accounting,  but  it  is  determined  by  the
Administrator  that any Stock Option, or the Plan or any provision thereof could
reasonably be expected to preclude such treatment,  then the  Administrator  may
modify (to the minimum  extent  required)  or revoke (if  necessary)  such Stock
Option or the Plan to the extent  that the  Administrator  determines  that such
modification  or revocation is necessary to enable the transaction to be subject
to pooling-of-interests accounting. Unless previously terminated, the Plan shall
terminate on March 21, 2009.

9.       Effective Date.
         --------------

         The  effective  date of the Plan  shall be March  22,  1999;  provided,
however,  that if the Plan is not approved by the  shareowners of the Company on
or before  January  21,  2000,  the Plan and any and all Stock  Options  granted
thereunder  shall be and become null and void, and of no effect,  on January 22,
2000.



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