EXHIBIT 10.26


                              EMPLOYMENT AGREEMENT

         THIS  AGREEMENT,  made as of the 1st day of March,  1997,  between  THE
UNITED ILLUMINATING COMPANY, a Connecticut corporation (the Company) and ANTHONY
J. VALLILLO, an individual (the Officer),

                                 WITNESSETH THAT

         WHEREAS,  the  Company  desires to  continue to employ the Officer as a
Group Vice President of the Company,  and the Officer  desires to be employed by
the Company as a Group Vice President,

         NOW  THEREFORE,  in  consideration  of the foregoing and the respective
covenants and agreements of the parties herein contained, and the services to be
rendered to the Company pursuant hereto, and in order to provide an incentive to
the Officer to remain in the employ of the Company hereafter and, in particular,
in the event of any  Change in  Control  (as  herein  defined)  of the  Company,
thereby establishing and preserving continuity of management, the Parties hereby
agree as follows:

         (1) EMPLOYMENT

                  The  Company  hereby  agrees to employ  the  Officer,  and the
Officer  hereby  agrees to serve the  Company,  at the  pleasure of the Board of
Directors of the Company, all upon the terms and conditions set forth herein.

         (2)      POSITION AND DUTIES

         The Officer shall be employed by the Company as a Group Vice President,
or in such other  equivalent  or higher  officership  position as the  Company's
Board of Directors may determine.  The Officer shall accept such  employment and
shall  perform  and  discharge,  faithfully,  diligently  and to the best of the
Officer's abilities, the duties and obligations of the Officer's office and such
other  duties as may from time to time be  assigned to the Officer by, or at the
direction  of,  the  Board  of  Directors  of  the  Company,  and  shall  devote
substantially  all of the Officer's working time and efforts to the business and
affairs of the  Company.  Although a Change in Control of the Company  shall not
affect the  obligations  of the  Company and the Officer as set forth in the two
preceding  sentences,  at and  after  the  date of any  Change  in  Control  the
Company's  employment of the Officer shall also be without  diminishment  in the
Officer's management responsibilities, duties or powers.

         (3)      PLACE OF PERFORMANCE

         In his  employment  by the Company,  the Officer  shall be based at the
executive offices of the Company situated within the Company's statutory service
area.



<PAGE>


         (4)      COMPENSATION

                  (a) Base Salary.  During the term of the Officer's  employment
hereunder,  the Officer  shall  receive a base salary (Base Salary) at an annual
rate of One Hundred Forty Thousand Dollars ($140,000). The Officer's Base Salary
rate   shall  be   reviewed   by  the  Board  of   Directors   of  the   Company
contemporaneously  with each review of the salary rates of the  Company's  other
officers by said Board of Directors,  and may be revised  upwards as a result of
any such  review.  The  Officer's  Base Salary may be revised  downwards by said
Board of Directors  contemporaneously  with any general  reduction of the salary
rates of the Company's other officers.

                  (b) Incentive  Compensation.  During the term of the Officer's
employment  hereunder,  the Officer  shall be eligible to be  designated  by the
Board  of  Directors  of  the  Company  as  a  participant   in  each  incentive
compensation program established for all officers of the Company.

                  For purposes of this Agreement,  Total Compensation is defined
as the sum of the Officer's Base Salary and any amount paid or payable  pursuant
to this Section (4)(b).

                  (c)  Business  Expenses.  During  the  term  of the  Officer's
employment   hereunder,   the  Officer  shall  be  entitled  to  receive  prompt
reimbursement for all reasonable expenses incurred by the Officer (in accordance
with the policies and  procedures  established  by the Board of Directors of the
Company  from  time to time for all of the  Company's  officers)  in  performing
services hereunder, provided that the Officer properly accounts therefor.

                  (d)  Benefit  Programs.  During  the  term  of  the  Officer's
employment  hereunder,  the  Officer  shall be entitled  to  participate  in and
receive  full  benefits  under  all of the  Company's  employee  benefit  plans,
programs and arrangements for its officers,  including,  without limitation, its
retirement and pension plan programs. Nothing paid to the Officer under any such
plan,  program  or  arrangement  presently  in effect or made  available  by the
Company  in the  future  shall be  deemed to be in lieu of  compensation  to the
Officer under any other Section of this Agreement.

                  (e) Vacations  and Holidays.  During the term of the Officer's
employment  hereunder,  the  Officer  shall be  entitled  to the  number of paid
vacation days in each calendar year  determined by the Board of Directors of the
Company from time to time for all of the Company's  officers,  and shall also be
entitled to all paid holidays afforded by the Company to its employees.

                  (f) Supplemental Retirement. Upon termination of the Officer's
employment,  a  supplemental  retirement  benefit shall be payable to him or his
beneficiary in accordance with the provisions of this Section (4)(f). The annual
supplemental


                                     - 2 -
<PAGE>

retirement benefit,  expressed in the form of a single life annuity beginning at
the Officer's Normal Retirement Date (as defined in the Company's Pension Plan),
shall be the excess,  if any,  of (A) less (B),  where (A) is 2.0% (.020) of the
Officer's  highest  three-year  average Total  Compensation  times the number of
years at  termination  (not to exceed  thirty)  of the  Officer's  service as an
employee of the  Company,  and (B) is the benefit  payable  under the  Company's
Pension Plan. Payment of the supplemental  retirement benefit shall begin at the
same time as the Officer's Pension Plan benefit payments and shall be subject to
the same reductions for early commencement.  The supplemental retirement benefit
may be paid in any form  available  under the  Pension  Plan,  as elected by the
Officer prior to benefit payment  commencement.  The conversion  factors between
forms of  benefits  used for  purposes  of the  Pension  Plan  shall be used for
purposes  of the  supplemental  retirement  benefit.  The form of payment of the
supplemental  retirement  benefit may be the same or different  from the form of
payment of the Officer's benefits under the Pension Plan. If the form of payment
provides for a death  benefit,  such benefit  shall be payable to the  Officer's
estate,  unless another  beneficiary has been designated by the Officer.  If the
Officer dies prior to the  commencement of benefit  payments,  the death benefit
provisions  of  the  Pension  Plan  shall  apply,   mutatis  mutandis,   to  the
supplemental retirement benefit payable pursuant to this Section (4)(f).

         (5) TERMINATION

                  (a) The Officer's employment hereunder shall terminate upon 
the Officer's death.

                  (b) The Board of  Directors of the Company may  terminate  the
Officer's  employment hereunder at any time, with or without Cause. Prior to the
date of a Change in  Control,  the  Company  shall be  deemed  to have  Cause to
terminate  the  Officer's  employment  hereunder  only  upon the  Officer's  (A)
continued  failure to perform and  discharge  the duties or  obligations  of the
Officer's  office,  or such other duties as may from time to time be assigned to
the  Officer by, or at the  direction  of, the Board of  Directors,  faithfully,
diligently,  to the best of the  Officer's  abilities,  and in  accordance  with
standards  accepted  in the  electric  utility  industry,  in the  opinion  of a
majority  of the  members  of the  Board of  Directors  of the  Company,  or (B)
misconduct  that is  injurious  to the Company,  or (C)  conviction  of a felony
involving  the personal  dishonesty  or moral  turpitude of the Officer,  or (D)
total and permanent physical or mental disability, or (E) absence from work on a
full-time basis, due to physical or mental illness, for an uninterrupted 365-day
period.  On and after  the date of a Change in  Control,  the  Company  shall be
deemed to have Cause to terminate the Officer's  employment  hereunder only upon
the Officer's (F)  conviction of a felony  involving the personal  dishonesty or
moral  turpitude of the Officer,  or (G) total and permanent  physical or mental
disability,  or (H) absence from work on a full-time  basis,  due to


                                     - 3 -
<PAGE>

physical or mental illness, for an uninterrupted 365-day period.

                  (c)  The  Officer  may  terminate  the  Officer's   employment
hereunder, upon at least thirty (30) days' prior Notice of Termination delivered
to the Company, for failure of the Company to observe and perform one or more of
its  obligations  under Sections (1), (2), (3) and/or (4) hereof,  which failure
the Company  fails to remedy within such notice period (a Breach by the Company)
at a time when the Officer is not in default of any of the Officer's obligations
under  Sections (1) and/or (2) hereof.  The Officer may terminate his employment
hereunder in the absence of a Breach by the Company, effective upon at least six
(6) months' prior Notice of Termination delivered to the Company.

                  (d) Notice of Termination.  Any termination of employment,  by
the Company or by the Officer,  shall be  communicated  by delivery of a written
Notice of Termination to the other party.

                  (e) Date of Termination.  For purposes of this Agreement,  the
Date of Termination is defined as: if the Officer's employment is terminated (A)
by his  death,  the date of his death,  or (B)  pursuant  to  Section  (5)(b) or
Section (5)(c) hereof, the date specified in the Notice of Termination.

         (6) CONSEQUENCES OF TERMINATION

                  (a) If the  Officer's  employment  terminates by reason of the
Officer's  death,  the Company shall pay to the personal  representative  and/or
spouse of the Officer the Officer's Total Compensation  earned prior to the Date
of Termination, any amounts payable pursuant to Sections (4)(c), (4)(d) and 4(f)
hereof and any benefits or amounts payable under any deferred  compensation plan
in which the  Officer  had been a  participant,  and the  Company  shall have no
further obligation under this Agreement.

                  (b)  If  the  Officer  terminates  the  Officer's   employment
hereunder  in the  absence of a Breach by the  Company and upon at least six (6)
months' prior Notice of Termination, the Company shall pay to the Officer and/or
the  Officer's  personal   representative  and/or  spouse  the  Officer's  Total
Compensation  earned  prior  to the Date of  Termination,  any  amounts  payable
pursuant  to  Sections  (4)(c),  (4)(d) and (4)(f)  hereof and any  benefits  or
amounts  payable under any deferred  compensation  plan in which the Officer had
been a  participant,  and the Company  shall have no further  obligation  to the
Officer and/or the Officer's  personal  representative  and/or spouse under this
Agreement or on account of, or arising out of, the  termination of the Officer's
employment.  The Officer may  petition the Board of Directors of the Company for
an  immediate  lump sum  payment,  in lieu of any  amounts  payable  pursuant to
Section (4)(f) hereof on account of the Officer's termination of employment,  in
an amount equal to the  actuarial  present  value of a  supplemental  retirement


                                     - 4 -
<PAGE>

benefit,  expressed in the form of a single life annuity  beginning at Officer's
termination of employment  (or age 55, if later),  equal to the excess if any of
(A) less (B)  where  (A) is 2.0%  (.020)  of the  Officer's  highest  three-year
average  Total  Compensation  times the number of years at  termination  (not to
exceed thirty) of the Officer's  service as an employee of the Company,  and (B)
is the  benefit  payable  under  the  Company's  Pension  Plan at the  Officer's
termination of employment (or age 55, if later).  The actuarial present value of
such  supplemental  retirement  benefit  shall be calculated on the basis of the
annual yield on thirty-year  United States  Treasury bonds on the final business
day of the month  preceding the Date of Termination of the Officer's  employment
and the 1983 Group  Annuity  table.  The Board of  Directors  of the Company may
grant or deny any such petition by the Officer in its absolute discretion.

                  (c)  If  the  Company  terminates  the  Officer's   employment
hereunder  with Cause,  or if the Officer  terminates  the Officer's  employment
hereunder  in the  absence of a Breach by the Company and upon less than six (6)
months'  prior Notice of  Termination,  the Company shall pay to the Officer the
Officer's full Base Salary earned prior to the Date of Termination,  any amounts
payable  pursuant  to  Sections  (4)(c) and (4)(d)  hereof and any  benefits  or
amounts  payable under any deferred  compensation  plan in which the Officer had
been a participant,  and,  provided that the Company is not in default of any of
its obligations  hereunder,  the Company shall have no further obligation to the
Officer  under  this  Agreement  or on  account  of,  or  arising  out  of,  the
termination of the Officer's employment.

                  (d)  If  the  Company  terminates  the  Officer's   employment
hereunder without Cause, or if the Officer  terminates the Officer's  employment
hereunder on account of a Breach by the Company:

                           (i)      The Company shall pay to the Officer the
Officer's  Total  Compensation  earned  prior  to the Date of  Termination,  any
amounts  payable  pursuant to Sections  4(c) and 4(d) hereof and any benefits or
amounts  payable under any deferred  compensation  plan in which the Officer had
been a participant.

                           (ii)     The Company shall afford the Officer the
severance benefits set forth on Schedule C attached hereto.

                           (iii) In lieu of any amounts payable pursuant to 
Section (4)(f) hereof on account of the Officer's termination of employment, the
Company  shall pay to the  Officer an  immediate  lump sum  amount  equal to the
actuarial present value of a supplemental  retirement benefit,  expressed in the
form  of a  single  life  annuity  beginning  at the  Officer's  termination  of
employment  (or age 55, if  later),  equal to the excess if any of (A) less (B),
where (A) is 2.0%  (.020) of the  Officer's  highest  three-year  average  Total
Compensation  times the number of years


                                     - 5 -
<PAGE>

at termination (not to exceed thirty) of the Officer's service as an employee of
the Company,  and (B) is the benefit payable under the Company's Pension Plan at
the Officer's  termination  of employment  (or age 55, if later).  The actuarial
present value of such supplemental retirement benefit shall be calculated on the
basis of the annual yield on  thirty-year  United States  Treasury  bonds on the
final  business  day of the  month  preceding  the  Date of  Termination  of the
Officer's employment and the 1983 Group Annuity table.

                           (iv) The payment to, and acceptance by, the Officer
of any sum of money or benefit  prescribed  in this Section  (6)(d) shall effect
and evidence a release by the Officer of any and all claims  against the Company
on account of, or arising out of, the termination of the Officer's employment.

         (7) CHANGE IN CONTROL

         For purposes of this Agreement, Change in Control shall mean any of the
following events:

                  (a) any  merger  or  consolidation  of the  Company  with  any
corporate  shareholder of 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  which  is,  or after  such  merger  or
consolidation  would be, or 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, 


                                     - 6 -
<PAGE>

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.

         The Board of Directors of the Company  may,  from time to time,  by the
affirmative  vote of not less than a majority of the entire  membership  of said
Board of Directors,  at a meeting of said Board of Directors called and held for
the purpose, modify the phrase "twenty-five percent (.25)" in one or more of the
foregoing  Sections  (7)(a),  (7)(b),  (7)(c),  (7)(d) and/or (7)(e) to a lesser
percentage, but not less than twenty percent (.20).

         (8) ADDITIONAL CONSEQUENCES OF A CHANGE IN CONTROL

                  (a) In the event that a Change in Control has been approved by
all necessary  shareholder,  creditor and regulatory actions,  the Company will,
not later  than the day prior to the date of the Change in  Control,  pay to the
Trustee of The United Illuminating Company Supplemental Retirement Benefit Trust
established  pursuant  to the  Agreement,  made as of the 1st day of June,  1995
between the Company and State Street Bank and Trust Company, as Trustee, for the
benefit of the  Officer,  cash in an amount  equal to: (A) In the event that the
Officer's employment has been terminated or will be terminated prior to the date
of the  Change  in  Control,  a sum,  calculated  by the  Company's  independent
certified  public  accountants,  reasonably  sufficient to pay and discharge the
Company's  future  obligations,  if any,  to the  Officer  and/or  his  personal
representative  and/or spouse,  under Section (6)(a),  Section (6)(b) or Section
(6)(d)  hereof;  or (B) in the event that the Officer's  employment has not been
terminated  and  will not be  terminated  prior  to the  date of the  Change  in
Control,  a  sum,  calculated  by the  Company's  independent  certified  public
accountants,   reasonably   sufficient   to  pay  and  discharge  the  Company's
obligations to the Officer under Section (6)(d) hereof assuming, for purposes of
such calculation, that the Officer's employment is terminated under said Section
(6)(d) by a Notice of Termination delivered on the date of the Change in Control
and specifying an immediate Date of Termination.

                  (b) On and  after  the  date of the  Change  in  Control,  the
Officer's  Base Salary may not be reduced by the Board of Directors to an annual
rate less than the rate  fixed by the Board of  Directors  of the  Company  as a
result of its most recent  review of salary  rates,  pursuant to Section  (4)(a)
hereof, prior to the date of the Change in Control.

         (9) TAX SAVINGS PROVISION

         If any  portion  of the  payments  which the  Officer  has the right to
receive from the Company,  or any affiliated entity,


                                     - 7 -
<PAGE>

hereunder would constitute  "excess  parachute  payments" (as defined in Section
280G of the Internal Revenue Code, and not governed by the terms defined in this
Agreement)  subject to the excise tax  imposed by Section  4999 of the  Internal
Revenue Code,  such excess  parachute  payments  shall be reduced to the largest
amount that will result in no portion of such excess  parachute  payments  being
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code.

         (10) SUCCESSORS; BINDING AGREEMENT

                  (a) The Company shall pay to the Officer  and/or the Officer's
personal  representative  and/or  spouse all legal fees and  expenses  and court
costs,  if any,  incurred by the  Officer  and/or the  Officer's  representative
and/or  spouse in successful  litigation  to enforce the Officer's  rights under
this Agreement.

                  (b) The Company will require any successor  (whether direct or
indirect,   by  purchase,   merger,   consolidation  or  otherwise)  to  all  or
substantially all of the business or assets of the Company, by agreement in form
and substance  reasonably  satisfactory to the Officer,  to expressly assume and
agree to perform  this  Agreement in the same manner and to the same extent that
the  Company  would be required  to perform it if no such  succession  had taken
place.  Failure of the Company to obtain such agreement by the  effectiveness of
any such  succession  shall be a breach of this  Agreement and shall entitle the
Officer to  compensation  from the  Company in the same amount and upon the same
terms as the Officer  would be entitled to hereunder  if the Officer  terminated
the Officer's  employment upon Breach by the Company,  except that, for purposes
of implementing  the foregoing,  the date on which any such  succession  becomes
effective  shall be deemed the Date of  Termination.  As used in this Agreement,
the term "the Company" shall include The United Illuminating Company, any parent
and any  successor  to the  business  or assets of  either  as  aforesaid  which
executes and delivers the  agreement  provided for in this Section (10) or which
otherwise  becomes bound by all the terms and  provisions  of this  Agreement by
operation of law.

                  (c) This  Agreement  and all rights of the  Officer  hereunder
shall inure to the benefit of and be  enforceable  by the Officer's  personal or
legal   representatives,    executors,   administrators,    successors,   heirs,
distributees, devisees and legatees. If the Officer should die while any amounts
would still be payable to the Officer  hereunder if the Officer had continued to
live,  all such amounts,  unless  otherwise  provided  herein,  shall be paid in
accordance with the terms of this Agreement to the Officer's devisee, legatee or
other designee or, if there be no such designee, to the Officer's estate.

         (11) NOTICE

         For the purpose of this Agreement, notices and all other communications
to either party hereunder  provided for in the


                                     - 8 -
<PAGE>

Agreement  shall be in writing  and shall be deemed to have been duly given when
delivered  or mailed by United  States  certified  or  registered  mail,  return
receipt requested,  postage prepaid,  addressed,  in the case of the Company, to
The United  Illuminating  Company,  157 Church Street,  New Haven,  Connecticut,
Attention:  Secretary,  or, in the case of the  Officer,  to the  Officer at 157
Church Street, New Haven  Connecticut,  or to such other address as either party
shall designate by giving written notice of such change to the other party.

         (12) MISCELLANEOUS

                  (a) No provision of this Agreement may be modified,  waived or
discharged  unless such  waiver,  modification  or  discharge is approved by the
Board of  Directors  of the  Company  and  agreed to in a writing  signed by the
Officer and such officer of the Company as may be specifically authorized by the
Board of Directors of the Company.  No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition or
provision of this  Agreement to be performed by such other party shall be deemed
a waiver of any similar or dissimilar provisions or conditions at the same or at
any  prior  or  subsequent  time.  No  agreements  or  representations,  oral or
otherwise,  express or implied,  with respect to the subject  matter hereof have
been made by either party that are not set forth  expressly  in this  Agreement.
The validity,  interpretation,  construction  and  performance of this Agreement
shall be governed by the laws of the State of Connecticut.

                  (b) Exhibits A-1 and A-2 attached hereto, showing calculations
of supplemental retirement benefits under Section (4)(f), and Exhibit B attached
hereto,  showing a calculation of a lump sum payment under Section  (6)(d)(iii),
are  incorporated  herein by reference and set forth,  by example,  the parties'
intended interpretation and application of such Sections.

         (13) VALIDITY

         The validity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.

         (14) SURVIVAL

         The provisions of this Agreement  shall not survive the  termination of
this  Agreement  or of the  Officer's  employment  hereunder,  except  that  the
provisions of Sections (4), (6), (8), (9),  (10),  and (11) hereof shall survive
such termination and shall be binding upon the Company's successors and assigns.

         (15) COUNTERPARTS

         This  Agreement  may be executed in one or more  counterparts,


                                     - 9 -
<PAGE>

each of which shall be deemed to be an original but all of which  together  will
constitute one and the same instrument.

         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement on
the date and year first above written.

Attest:                    THE UNITED ILLUMINATING COMPANY



  /s/ Kurt Mohlman         By:        /s/ Richard J. Grossi
----------------------        -------------------------------------
Secretary                     Chairman of the Board of Directors
                              and Chief Executive Officer



                                     /s/ Anthony J. Vallillo
                              -------------------------------------
                                         Anthony J. Vallillo




                                     - 10 -
<PAGE>




                                   EXHIBIT A-1
                                       To
                              EMPLOYMENT AGREEMENT
                                     BETWEEN
                         THE UNITED ILLUMINATING COMPANY
                                       AND

                              MR. ANTHONY VALLILLO
                              --------------------

Sample calculation of supplemental retirement benefits under Section (4)(f).

Assume  the  Officer   retires  upon  the  termination  of  his  employment  and
immediately commences his Pension Plan benefits under the following facts:

(1) Retirement Age                         55 (September 1, 1990)
                                           --------------------------
(2) Actual Service with the Company        33 years 3 months (9/1/90)
                                           --------------------------
(3) Service with the Company               33 years 3 months (9/1/90)
                                           --------------------------
(4) Three-year average Total Compensation  See Calculations Below
                                           --------------------------

Projected Earnings at age 54     $143,580
Projected Earnings at age 53      136,095
Estimated Earnings at age 52      129,000   3-year average - $136,225
Estimated Earnings at age 51      122,275
Estimated Earnings at age 50      115,900   5-year average - $129,370

(A) Target Benefit at Age 55
----------------------------

1. 2.0% of 3-year average earnings times Service (Up to 30 years)
   (.020) x ($136,225) x (30)                                           $81,735
2. Early Retirement Reduction Factor (based on Service)                    .561
                                                                         ------
3. Target Benefit at Age 55: 1 times 2                                   45,853

(B) Pension Benefit at Age 55
-----------------------------

1.  Quantity A                                                          $10,000
2.  Quantity B                                                          119,370
3.  Quantity C                                                          129,370
4.  1% of Quantity A plus 2% of Quantity B:                               2,487
5.  Service with the Company (up to 25 years)                                25
6.  4 time 5                                                             62,175
7.  1/2% of Quantity C (up to $13,000)                                       65
8.  Service with the Company in excess of 25 years                         8.25
9.  7 times 8                                                               536
10. Pension unreduced at age 55: 6 plus 9                                62,711
11. Early Retirement Reduction Factor (based on Service)                   .561
12. Pension payable at age 55: 10 times 11                               35,181
13. Supplemental Pension: A3-B12                                         10,672


<PAGE>



                                   EXHIBIT A-2
                                       To
                              EMPLOYMENT AGREEMENT
                                     BETWEEN
                         THE UNITED ILLUMINATING COMPANY
                                       AND

                              MR. ANTHONY VALLILLO
                              --------------------

Sample calculation of supplemental retirement benefits under Section (4)(f).

Assume the Agreement  terminates but the Officer continues to be employed by the
Company for 2 years  thereafter  before retiring and commencing his Pension Plan
benefits under the following facts:

(1)    Retirement Age                            57 (September 1, 1992)
                                                 --------------------------
(2)    Service with the Company

       (a) Before Expiration of Agreement        33 years 3 months
                                                 --------------------------
       (b) After Expiration of Agreement          2 years
                                                 --------------------------
       (c) Total                                 35 years 3 months (9/1/92)
                                                 --------------------------

(3)    Three-year average total Compensation     See Calculations Below
                                                 --------------------------

Projected Earnings at age 56        $159,808
Projected Earnings at age 55         151,477
Estimated Earnings at age 54         143,580   3-year average - $151,622
Estimated Earnings at age 53         136,095
Estimated Earnings at age 52         129,000   5-year average - $143,992

(A) Target Benefit at Age 57
----------------------------

1. 2.0% of 3-year average earnings times Service (Up to 30 years)
   (.020) x ($151,622) x (30)                                           $90,973
2. Early Retirement Reduction Factor (based on Service)                    .655
                                                                         ------
3. Target Benefit at Age 55: 1 times 2                                   59,587

(B) Pension Benefit at Age 57
-----------------------------

1.  Quantity A                                                          $10,000
2.  Quantity B                                                          133,992
3.  Quantity C                                                          143,992
4.  1% of Quantity A plus 2% of Quantity B:                               2,780
5.  Service with the Company (up to 25 years)                                25
6.  4 times 5                                                            69,500


<PAGE>

7.  1/2% of Quantity C (up to $13,000)                                       65
8.  Service with the Company in excess of 25 years                        10.25
9.  7 times 8                                                               666
10. Pension unreduced at age 57: 6 plus 9                                70,166
11. Early Retirement Reduction Factor (based on Service)                   .655
12. Pension payable at age 57: 10 times 11                               45,959
13. Supplemental Pension: A3-B12                                         13,628


                                     - 2 -
<PAGE>




                                    EXHIBIT B
                                       To
                              EMPLOYMENT AGREEMENT
                                     BETWEEN
                         THE UNITED ILLUMINATING COMPANY
                                       AND
                              MR. ANTHONY VALLILLO
                              --------------------

Sample  calculation  of lump  sum  payment  in lieu of  supplemental  retirement
benefit under Section (6)(d)(iii).  Assume the Officer's  employment  terminates
and Section (6)(d) applies under the following facts:

Assume  the  Officer   retires  upon  the  termination  of  his  employment  and
immediately commences his Pension Plan benefits under the following facts:

(1)  Age of Executive at Termination          53 (May 31, 1988)
                                              --------------------------
(2)  Service with the Company                 31 years         (5/31/88)
                                              --------------------------
(3)  Three-year average Total Compensation    See Calculations Below
                                              --------------------------

Projected Earnings at age 53    $136,095
Estimated Earnings at age 52     129,000
Estimated Earnings at age 51     122,275   3-year average = $129,123
Estimated Earnings at age 50     115,900
Estimated Earnings at age 49     109,858   5-year average = $122,626

(A) Target Benefit at Age 51
----------------------------

1.  2.0% of 3-year average earnings times Service (Up to 30 years)
    (.020) x ($129,123) x (30)                                          $77,474
2.  Early Retirement Reduction Factor (based on Service)                  1.000
                                                                         ------
3.  Target Benefit at Age 51: 1 times 2                                  77,474

(B) Pension Benefit at Age 55
-----------------------------

1.  Quantity A                                                          $10,000
2.  Quantity B                                                          112,626
3.  Quantity C                                                          122,626
4.  1% of Quantity A plus 2% of Quantity B:                               2,353
5.  Service with the Company (up to 25 years)                                25
6.  4 times 5                                                            58,825
7.  1/2% of Quantity C (up to $13,000)                                       65
8.  Service with the Company in excess of 25 years                            6
9.  7 times 8                                                               390
10. Pension unreduced at age 55: 6 plus 9                                59,215
11. Early Retirement Reduction Factor (based on Service)                   .561
12. Pension payable at age 55: 10 times 11                               33,220
13. Supplemental Pension: A3-B12                                         44,254




<PAGE>

14. Annuity Factor for Determining Lump Sum Value at age 55             10.3880
15. Lump Sum Value at age 55: 13 times 14                               459,711
16. Interest discount factor from age 55 to age 53 (based on 7-1/2%)      .8653
17. Lump Sum Value at age 55, discounted to age 53 15 times 16          397,788


                                        - 2 -
<PAGE>

                                   SCHEDULE C



                               Severance Benefits
                               ------------------

At the option of the Officer,  exercised by written  notice to the Company,  the
benefits of either (A) or (B) below will be afforded the Officer:

(A)  a lump sum payment in an amount equal to the product of (X)  multiplied  by
     (Y), where:

          (X)  is the sum of  one-twelfth  of the  Officer's  annual salary rate
               approved by the Board of  Directors of the Company at the time of
               its  most  recent  review  of  the  salary  rates  of  all of the
               Company's  officers,  plus  one-twelfth of the cash award(s) that
               the   Officer   would   earn  under  the   short-term   incentive
               compensation  program(s) in which the Officer is a participant on
               the date of the termination of the Officer's employment, assuming
               that  all of the  Officer's  program  goals  for the  performance
               period are achieved at the target level; and
          (Y)  is the number of whole and partial  years (not to be less than 12
               nor more than 24) of the Officer's  service deemed as an employee
               of the  Company  on the  date  of  termination  of the  Officer's
               employment.

(B)  The  Officer's  choice of the addition of six years of age, or six years of
     service deemed as an employee of the Company,  or any  combination  (not to
     exceed 6) of whole and partial  years of age and whole and partial years of
     service  deemed as an employee of the Company,  in the  calculation  of the
     benefits payable to the Officer under the Company's retiree medical benefit
     plan(s) and in the calculation of the benefits  payable to the Officer as a
     supplemental retirement benefit under his Employment Agreement.

Exhibits C-1 and C-2  attached  hereto,  showing  calculations  of  supplemental
retirement benefits under Schedule C, paragraph (B), set forth, by example,  the
parties' intended interpretation and application of said paragraph.


<PAGE>

                                        EXHIBIT C-1
                                             TO
                                    EMPLOYMENT AGREEMENT
                                          BETWEEN
                               THE UNITED ILLUMINATING COMPANY
                                            AND
                                    MR. ANTHONY VALLILLO
                                    --------------------

Sample  calculation  of  supplemental   retirement  benefits  under  Schedule  A
paragraph (B).

Assume the Officer retires on the date of termination of employment based on the
following facts:

Actual Date of Termination                              4/1/97
Actual Age of Officer at Termination                    56
Actual Years of Service at Termination                  30

Enhanced Age of Officer at Termination                  62 (+6 years)
Enhanced Years of Service at Termination                30 (+0 years)

Three Year Average Total Compensation                   $140,000

(A)  The retirement  benefit  calculated in accordance  with  Company's  Pension
     Plan, but with the addition of six years of age.

Gross Pension (Attachment A-1-1)                        $67,605.84
Reduction for Early Retirement Age: 62 years (.0000)          0.00
                                                         ---------
Net Annual Pension                                      $67,605.84

(B)  The benefit payable to the Officer under the Company's  Pension Plan at the
     age of 56.

Gross Pension (Attachment A-1-2)                        $67,611.44
Reduction for Early Retirement Age 56 (.3950)            26,706.52
                                                         ---------
Net Annual Pension                                      $40,904.92

Supplemental Retirement Benefit
(A) - (B) = ($67,605.84) - ($40,904.92) = $26,700.92


<PAGE>


                                                           Attachment A-1-1



                      THE UNITED ILLUMINATING COMPANY
                      -------------------------------


NAME:    ENHANCED AGE 62

S.S. NUMBER:         -  -


AGE AT RETIREMENT:     62 YRS. AND 0 MOS.
YEARS OF SERVICE:      30 YRS. AND 0 MOS.
VESTED PERCENTAGE:     100%

PREPARER'S NAME:
DATE PREPARED:         4/03/97

                               BENEFIT CALCULATION
                          -------------------------------------         ANNUAL
                                                                        AMOUNT
                                                                       --------
A1 =   1024.00    FIRST 25 YEARS OF PARTICIPATION:
                   1.0%   X   25.0000     X  12076.66 =               $ 3019.17
A2 =    407.00            (NO. OF YRS.)    (QUANTITY A)

A  = 4800XA1/A2    2.0%   X   25.0000     X 127923.34 =                63961.67
   =  12076.66            (NO. OF YRS.)     (QUANTITY B)

B  = 127923.34    YEARS OF PARTICIPATION IN EXCESS OF 25:
                    .5%   X    5.0000     X  25000.00 =                  625.00
C  = 140000.00            (NO. OF YRS.)     (QUANTITY C - MAXIMUM
                                             OF 25000.00)              --------

                                             GROSS PENSION =          $67605.84
                                                                       ========



<PAGE>


                                                              Attachment A-1-2



                            THE UNITED ILLUMINATING COMPANY
                            -------------------------------


NAME:    ENHANCED AGE 56

S.S. NUMBER:         -  -


AGE AT RETIREMENT:         56 YRS. AND 0 MOS.
YEARS OF SERVICE:          30 YRS. AND 0 MOS.
VESTED PERCENTAGE:         100%

PREPARER'S NAME:
DATE PREPARED:    4/03/97

                               BENEFIT CALCULATION
                   ------------------------------------                 ANNUAL
                                                                        AMOUNT
                                                                        ------
A1 =   1223.00    FIRST 25 YEARS OF PARTICIPATION:
                   l.0%  X   25.0000       X   12054.21 =             $ 3013.55
A2 =    487.00             (NO. OF YRS.)      (QUANTITY A)

A  = 4800XA1/A2    2.0%  X   25.0000       X  127945.79 =              63972.89
   =  12054.21             (NO. OF YRS.)      (QUANTITY B)

B  = 127945.79    YEARS OF PARTICIPATION IN EXCESS OF 25:
                    .5%  X    5.0000       X   25000.00 =                625.00
C  = 140000.00             (NO. OF YRS.)      (QUANTITY C - MAXIMUM
                                               OF 25000.00)            --------

                                              GROSS PENSION =         $67611.44
                                                                       ========



<PAGE>


                                EXHIBIT C-2
                                   TO
                            EMPLOYMENT AGREEMENT
                                  BETWEEN
                       THE UNITED ILLUMINATING COMPANY
                                    AND
                            MR. ANTHONY VALLILLO
                            --------------------

Sample  calculation  of  supplemental   retirement  benefits  under  Schedule  A
paragraph (B).

Assume the Officer  terminates  on the date of  termination  of  employment  and
elects to begin receiving  his/her vested pension benefit at age 55 based on the
following facts:

Actual Date of Termination                           4/1/97
Actual Age of Executive at Termination               50
Actual Years of Service at Termination               24

Enhanced Age of Executive at Termination             50 (+0 years)
Enhanced Years of Service at Termination             30 (+6 years)

Three Year Average Total Compensation                $140,000

(A)  The retirement (vested pension) benefit,  payable to the Officer at age 55,
     calculated in accordance with Company's Pension Plan, but with the addition
     of six years of service.

Gross Vested Pension (Attachment A-2-1)              $67,526.96
Reduction for Early Retirement Age: 55 years (.4390)  29,644.34
                                                      ---------
Net Annual Pension                                   $37,882.62

(B)  The vested  pension  benefit  payable to the  Officer  under the  Company's
     Pension Plan at the age of 55.

Gross Vested Pension (Attachment A-2-2)              $63,876.25
Reduction for Early Retirement Age: 55 years (.5730)  36,601.09
                                                      ---------
Net Annual Pension                                   $27,275.16

Supplemental Retirement Benefit
(A) - (B) = ($37,882.62) - ($27,275.16) = $10,607.46


<PAGE>


                                                             Attachment A-2-1



                             THE UNITED ILLUMINATING COMPANY
                             -------------------------------


NAME:    ACTUAL AGE 50

S.S. NUMBER:         -  -


AGE AT TERMINATION:        50 YRS. AND 0 MOS.
YEARS OF SERVICE:          30 YRS. AND 0 MOS.
VESTED PERCENTAGE:         100%

PREPARER'S NAME:
DATE PREPARED:    4/03/97

                               BENEFIT CALCULATION
                   ------------------------------------                 ANNUAL
                                                                        AMOUNT
                                                                        ------
A1 =   1185.00     FIRST 25 YEARS OF PARTICIPATION:
                    1.0%  X   25.0000      X   12392.16 =             $ 3098.04
A2 =    459.00              (NO. OF YRS.)     (QUANTITY A)

A  = 4800XA1/A2     2.0%  X   25.0000      X   127607.84 =             63803.92
   =  12392.16              (NO. OF YRS.)     (QUANTITY B)

B  = 127607.84     YEARS OF PARTICIPATION IN EXCESS OF 25:
                     .5%  X    5.0000      X    25000.00 =               625.00
C  = 140000.00              (NO. OF YRS.)     (QUANTITY C - MAXIMUM
                                               OF 25000.00)            --------

                                              GROSS PENSION =         $67526.96
                                                                       ========


<PAGE>


                                                              Attachment A-2-2



                              THE UNITED ILLUMINATING COMPANY
                              -------------------------------


NAME:    AGE 50

S.S. NUMBER:         -  -


AGE AT TERMINATION:        50 YRS. AND 0 MOS.
YEARS OF SERVICE:          24 YRS. AND 0 MOS.
VESTED PERCENTAGE:         100%

PREPARER'S NAME:
DATE PREPARED:    4/04/97

                          BENEFIT CALCULATION
                  ------------------------------------                 ANNUAL
                                                                       AMOUNT
                                                                       ------
A1 =   1131.00    FIRST 25 YEARS OF PARTICIPATION:
                   1.0%  X  24.0000        X   13848.98 =             $ 3323.76
A2 =    392.00             (NO. OF YRS.)      (QUANTITY A)

A  = 4800XA1/A2    2.0%  X  24.0000        X  126151.02 =              60552.49
   =  13848.98             (NO. OF YRS.)      (QUANTITY B)

B  = 126151.02    YEARS OF PARTICIPATION IN EXCESS OF 25:
                    .5%  X    .0000        X   25000.00 =                   .00
C  = 140000.00             (NO. OF YRS.)      (QUANTITY C - MAXIMUM
                                               OF 25000.00)            --------

                                           GROSS PENSION =            $63876.25
                                                                       ========