SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

[ X ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDING SEPTEMBER 30, 1997

                                       OR

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the transition period from              to
                                       --------------   ---------------


Commission file number 1-6788

                         THE UNITED ILLUMINATING COMPANY

             (Exact name of registrant as specified in its charter)

            CONNECTICUT                               06-0571640
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)           

157 CHURCH STREET, NEW HAVEN, CONNECTICUT                          06506
(Address of principal executive offices)                         (Zip Code)

         REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 203-499-2000


                                      NONE
        (Former name,  former address and former fiscal year, if changed
         since last report.)


   Indicate  by check mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                                 YES  X  NO
                                                     ---    ---

     The  number of shares  outstanding  of the  issuer's  only  class of common
stock, as of September 30, 1997, was 14,101,291.


                                     - 1 -
<PAGE>


                                      INDEX

                          PART I. FINANCIAL INFORMATION

                                                                          PAGE
                                                                         NUMBER
                                                                         ------

Item 1.  Financial Statements.                                               3

         Consolidated Statement of Income for the three and nine
           months ended September 30, 1997 and 1996.                         3
         Consolidated Balance Sheet as of September 30, 1997 and
           December 31, 1996.                                                4
         Consolidated Statement of Cash Flows for the three and nine
          months ended September 30, 1997 and 1996.                          6

         Notes to Consolidated Financial Statements.                         7
           -   Statement of Accounting Policies                              7
           -   Capitalization                                                8
           -   Income Taxes                                                 10
           -   Short-term Credit Arrangements                               11
           -   Supplementary Information                                    12
           -   Fuel Financing Obligations and Other Lease Obligations       13
           -   Commitments and Contingencies                                13
               -  Capital Expenditure Program                               13
               -  Nuclear Insurance Contingencies                           13
               -  Other Commitments and Contingencies                       14
                  - Connecticut Yankee                                      14
                  - Hydro-Quebec                                            14
                  - Voluntary Early Retirement and Separation Programs      14
                  - Property Taxes                                          14
                  - Site Decontamination, Demolition and Remediation Costs  15
           -   Nuclear Fuel Disposal and Nuclear Plant Decommissioning      15

Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations.                                        17

           -   Major Influences on Financial Condition                      17
           -   Capital Expenditure Program                                  19
           -   Liquidity and Capital Resources                              20
           -   Subsidiary Operations                                        21
           -   Results of Operations                                        21
           -   Looking Forward                                              24

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings.                                                 30

Item 6.  Exhibits and Reports on Form 8-K.                                  31

         SIGNATURES                                                         33



                                     - 2 -
<PAGE>
<TABLE>
                          PART I: FINANCIAL INFORMATION
                          ITEM I: FINANCIAL STATEMENTS
                         THE UNITED ILLUMINATING COMPANY
                        CONSOLIDATED STATEMENT OF INCOME
                      (THOUSANDS EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<CAPTION>
                                                                       Three Months Ended             Nine Months Ended
                                                                          September 30,                 September 30,
                                                                       1997           1996            1997          1996
                                                                       ----           ----            ----          ----
<S>                                                                    <C>            <C>             <C>           <C>     
OPERATING REVENUES (NOTE G)                                            $196,563       $209,167        $540,662      $548,817
                                                                   -------------  -------------   -------------  ------------
OPERATING EXPENSES
  Operation
     Fuel and energy                                                     44,024         48,825         137,965       114,220
     Capacity purchased                                                   8,359         11,851          30,198        33,799
     Early retirement program charges                                         -         14,946               -        23,033
     Other                                                               38,415         36,269         115,324       113,250
  Maintenance                                                            10,122          9,112          30,016        28,054
  Depreciation                                                           17,239         16,866          57,945        49,518
  Amortization of cancelled nuclear project and deferred return           3,440          3,440          10,319        10,319
  Income taxes (Note E)                                                  23,101         18,449          35,128        43,722
  Other taxes (Note G)                                                   13,512         14,943          40,574        43,523
                                                                   -------------  -------------   -------------  ------------
       Total                                                            158,212        174,701         457,469       459,438
                                                                   -------------  -------------   -------------  ------------
OPERATING INCOME                                                         38,351         34,466          83,193        89,379
                                                                   -------------  -------------   -------------  ------------
OTHER INCOME AND (DEDUCTIONS)
  Allowance for equity funds used during construction                       (12)           165             330           547
  Other-net (Note G)                                                         83            (89)          1,589          (555)
  Non-operating income taxes                                              1,981          1,669           4,920         4,487
                                                                   -------------  -------------   -------------  ------------
       Total                                                              2,052          1,745           6,839         4,479
                                                                   -------------  -------------   -------------  ------------
INCOME BEFORE INTEREST CHARGES                                           40,403         36,211          90,032        93,858
                                                                   -------------  -------------   -------------  ------------
INTEREST CHARGES
  Interest on long-term debt                                             16,233         16,270          48,481        49,063
  Interest on Seabrook obligation bonds owned by the company             (1,691)             -          (5,073)            -
  Other interest (Note G)                                                   872            483           2,490         1,761
  Allowance for borrowed funds used during construction                    (288)          (286)         (1,127)       (1,030)
                                                                   -------------  -------------   -------------  ------------
                                                                         15,126         16,467          44,771        49,794
  Amortization of debt expense and redemption premiums                      672            637           1,998         1,947
                                                                   -------------  -------------   -------------  ------------
       Net Interest Charges                                              15,798         17,104          46,769        51,741
                                                                   -------------  -------------   -------------  ------------

MINORITY INTEREST IN PREFERRED SECURITIES                                 1,203          1,203           3,609         3,609
                                                                   -------------  -------------   -------------  ------------

NET INCOME                                                               23,402         17,904          39,654        38,508
Discount on preferred stock redemptions                                     (29)           (14)            (48)       (1,840)
Dividends on preferred stock                                                 51             52             154           279
                                                                   -------------  -------------   -------------  ------------
INCOME APPLICABLE TO COMMON STOCK                                       $23,380        $17,866         $39,548       $40,069
                                                                   =============  =============   =============  ============

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                              13,887         14,101          14,029        14,101

EARNINGS PER SHARE OF COMMON STOCK                                        $1.68          $1.27           $2.82         $2.84

CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK                         $0.72          $0.72           $2.16         $2.16
</TABLE>

                The accompanying Notes to Consolidated Financial Statements
                    are an integral part of the financial statements.

                                        - 3 -

<PAGE>
<TABLE>
                         THE UNITED ILLUMINATING COMPANY
                           CONSOLIDATED BALANCE SHEET

                                     ASSETS
                             (Thousands of Dollars)

<CAPTION>
                                                          September 30,        December 31,
                                                               1997               1996*
                                                               ----               ----
                                                           (Unaudited)
<S>                                                           <C>                 <C>
Utility Plant at Original Cost
  In service                                                  $1,863,176          $1,843,952
  Less, accumulated provision for depreciation                   634,488             585,646
                                                          ---------------     ---------------
                                                               1,228,688           1,258,306

Construction work in progress                                     33,231              40,998
Nuclear fuel                                                      27,073              23,010
                                                          ---------------     ---------------
     Net Utility Plant                                         1,288,992           1,322,314
                                                          ---------------     ---------------


Other Property and Investments                                    30,836              26,081
                                                          ---------------     ---------------

Current Assets
  Cash and temporary cash investments                             86,865               6,394
  Accounts receivable
   Customers, less allowance for doubtful
     accounts of $1,800 and $2,300                                64,138              63,722
   Other                                                          21,534              38,367
  Accrued utility revenues                                        23,630              29,139
  Fuel, materials and supplies, at average cost                   20,044              22,010
  Prepayments                                                      7,886               3,608
  Other                                                              159                 110
                                                          ---------------     ---------------
     Total                                                       224,256             163,350
                                                          ---------------     ---------------

Deferred Charges
  Unamortized debt issuance expenses                               6,781               6,580
  Other                                                            2,350               1,485
                                                          ---------------     ---------------
     Total                                                         9,131               8,065
                                                          ---------------     ---------------

Regulatory Assets (future amounts due from customers
                   through the ratemaking process)
  Income taxes due principally to book-tax differences           279,600             289,672
  Connecticut Yankee                                              56,830              64,851
  Deferred return - Seabrook Unit 1                               28,318              37,757
  Unamortized redemption costs                                    27,458              25,063
  Unamortized cancelled nuclear projects                          12,417              13,297
  Uranium enrichment decommissioning cost                          1,281               1,377
  Other                                                            6,626               9,068
                                                          ---------------     ---------------
     Total                                                       412,530             441,085
                                                          ---------------     ---------------

                                                              $1,965,745          $1,960,895
                                                          ===============     ===============
</TABLE>
*Derived from audited financial statements

                The accompanying Notes to Consolidated Financial
             Statements are an integral part of the financial statements.

                                        - 4 -

<PAGE>
<TABLE>
                         THE UNITED ILLUMINATING COMPANY
                           CONSOLIDATED BALANCE SHEET

                         CAPITALIZATION AND LIABILITIES
                             (Thousands of Dollars)

<CAPTION>
                                                           September 30,        December 31,
                                                                1997               1996*
                                                           -------------        ------------
                                                            (Unaudited)
<S>                                                            <C>                 <C>
Capitalization (Note B)
  Common stock equity
    Common stock                                                 $284,579            $284,579
    Paid-in capital                                                   772                 772
    Capital stock expense                                          (2,182)             (2,182)
    Unearned employee stock ownership plan equity                 (10,390)                  -
    Retained earnings                                             166,140             156,847
                                                           ---------------     ---------------
                                                                  438,919             440,016
  Preferred stock                                                   4,351               4,461
  Minority interest in preferred securities                        50,000              50,000
  Long-term debt
    Long-term debt                                                795,459             826,527
    Investment in Seabrook obligation bonds                       (66,847)            (66,847)
                                                           ---------------     ---------------
      Net Long-term debt                                          728,612             759,680

          Total                                                 1,221,882           1,254,157
                                                           ---------------     ---------------

Noncurrent Liabilities
  Pensions accrued                                                 46,287              49,205
  Connecticut Yankee contract obligation                           45,731              54,752
  Obligations under capital leases                                 16,941              17,193
  Nuclear decommissioning obligation                               16,168              12,851
  Other                                                             5,294               4,815
                                                           ---------------     ---------------
          Total                                                   130,421             138,816
                                                           ---------------     ---------------

Current Liabilities
  Current portion of long-term debt                               112,135              69,900
  Notes payable                                                    43,995              10,965
  Accounts payable                                                 42,886              68,058
  Dividends payable                                                10,000              10,205
  Taxes accrued                                                    11,606                 503
  Interest accrued                                                 16,443              13,835
  Obligations under capital leases                                    333                 315
  Other accrued liabilities                                        33,771              36,091
                                                           ---------------     ---------------
          Total                                                   271,169             209,872
                                                           ---------------     ---------------

Customers' Advances for Construction                                1,874               1,888
                                                           ---------------     ---------------

Regulatory Liabilities (future amounts owed to customers
                        through the ratemaking process)
  Accumulated deferred investment tax credits                      16,576              17,147
  Other                                                             2,047               1,811
                                                           ---------------     ---------------
          Total                                                    18,623              18,958
                                                           ---------------     ---------------

Deferred Income Taxes (future tax liabilities owed                321,776             337,204
                       to taxing authorities)
Commitments and Contingencies (Note L)
                                                           ---------------     ---------------
                                                               $1,965,745          $1,960,895
                                                           ===============     ===============
</TABLE>

* Derived from audited financial statements

                   The accompanying Notes to Consolidated Financial
              Statements are an integral part of the financial statements.

                                        - 5 -

<PAGE>
<TABLE>
                         THE UNITED ILLUMINATING COMPANY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                             (THOUSANDS OF DOLLARS)
                                   (UNAUDITED)

<CAPTION>
                                                                      Three Months Ended         Nine  Months Ended
                                                                         September 30,              September 30,
                                                                      1997          1996         1997           1996
                                                                      ----          ----         ----           ----
<S>                                                                    <C>          <C>           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Income                                                           $23,402      $17,904       $39,654        $38,508
                                                                   ------------  -----------  ------------  -------------
  Adjustments  to  reconcile  net  income
   to net  cash  provided  by  operating activities:
     Depreciation and amortization                                      18,405       17,915        61,460         52,734
     Deferred income taxes                                               5,609       (1,421)       (5,356)       (10,569)
     Deferred investment tax credits - net                                (190)        (190)         (571)          (571)
     Amortization of nuclear fuel                                        1,785        1,604         4,662          4,090
     Allowance for funds used during construction                         (276)        (451)       (1,457)        (1,577)
     Amortization of deferred return                                     3,146        3,146         9,439          9,439
     Early retirement costs accrued                                          -       14,946             -         23,033
     Changes in:
             Accounts receivable - net                                  (6,754)     (11,731)       16,417        (15,773)
             Fuel, materials and supplies                                1,007          815         1,966           (489)
             Prepayments                                                (3,687)      (4,006)       (4,278)        (5,291)
             Accounts payable                                             (517)        (539)      (25,172)        (9,652)
             Interest accrued                                           (6,529)      (8,090)        2,608          1,872
             Taxes accrued                                               9,202        6,444        11,103         11,675
             Other assets and liabilities                                  336       19,745        (1,998)        13,870
                                                                   ------------  -----------  ------------  -------------
     Total Adjustments                                                  21,537       38,187        68,823         72,791
                                                                   ------------  -----------  ------------  -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                               44,939       56,091       108,477        111,299
                                                                   ------------  -----------  ------------  -------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Common stock                                                        (10,390)           -       (10,390)            40
   Long-term debt                                                       98,500            -        98,500          7,500
   Notes payable                                                         8,354      (35,000)       33,030              -
   Securities redeemed and retired:
     Preferred stock                                                       (70)         (33)         (110)        (6,078)
     Long-term debt                                                    (55,749)      (7,725)      (88,334)       (18,525)
   Discount on preferred stock redemption                                   29           14            48          1,840
   Expense of issue                                                     (1,500)        (275)       (1,500)          (275)
   Lease obligations                                                       (80)         (74)         (234)          (216)
   Dividends
     Preferred stock                                                       (51)         (52)         (155)          (358)
     Common stock                                                      (10,153)     (10,153)      (30,459)       (30,246)
                                                                   ------------  -----------  ------------  -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                     28,890      (53,298)          396        (46,318)
                                                                   ------------  -----------  ------------  -------------

CASH FLOWS FROM INVESTING ACTIVITIES
    Plant expenditures, including nuclear fuel                          (4,215)     (12,331)      (28,402)       (33,865)
                                                                   ------------  -----------  ------------  -------------
NET CASH USED IN INVESTING ACTIVITIES                                   (4,215)     (12,331)      (28,402)       (33,865)
                                                                   ------------  -----------  ------------  -------------

CASH AND TEMPORARY CASH INVESTMENTS:
NET CHANGE FOR THE PERIOD                                               69,614       (9,538)       80,471         31,116
BALANCE AT BEGINNING OF PERIOD                                          17,251       45,724         6,394          5,070
                                                                   ------------  -----------  ------------  -------------
BALANCE AT END OF PERIOD                                               $86,865      $36,186       $86,865        $36,186
                                                                   ============  ===========  ============  =============

CASH PAID DURING THE PERIOD FOR:
   Interest (net of amount capitalized)                                $19,819      $24,377       $40,578        $47,960
                                                                   ============  ===========  ============  =============
   Income taxes                                                         $9,000      $14,200       $26,773        $40,825
                                                                   ============  ===========  ============  =============
</TABLE>

                The accompanying Notes to Consolidated Financial Statements
                    are an integral part of the financial statements.

                                        - 6 -

<PAGE>


                         THE UNITED ILLUMINATING COMPANY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)

     The consolidated  financial  statements of the Company and its wholly-owned
subsidiary, United Resources, Inc., have been prepared pursuant to the rules and
regulations of the Securities and Exchange  Commission.  The statements  reflect
all  adjustments  that are, in the opinion of  management,  necessary  to a fair
statement of the results for the periods presented.  All such adjustments are of
a normal recurring nature. Certain information and footnote disclosures normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations.  The Company believes that the disclosures are adequate to make the
information  presented not misleading.  These consolidated  financial statements
should be read in conjunction with the consolidated financial statements and the
notes to consolidated financial statements included in the annual report on Form
10-K for the year  ended  December  31,  1996.  Such notes are  supplemented  as
follows:

(A)  STATEMENT OF ACCOUNTING POLICIES

ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC)

     The weighted  average  AFUDC rates applied in the first nine months of 1997
and 1996 were 7.83% and 8.50%, respectively, on a before-tax basis.

CASH AND CASH EQUIVALENTS

     For cash flow  purposes,  the  Company  considers  all highly  liquid  debt
instruments  with a maturity of three  months or less at the date of purchase to
be cash equivalents.

NUCLEAR DECOMMISSIONING TRUSTS

     External  trust  funds  are   maintained  to  fund  the  estimated   future
decommissioning  costs of the nuclear  generating units in which the Company has
an  ownership  interest.  These  costs are  accrued as a charge to  depreciation
expense over the estimated service lives of the units and are recovered in rates
on a current basis.  The Company paid $1.9 million and $1.6 million in the first
nine months of 1997 and 1996, respectively, into the decommissioning trust funds
for Seabrook Unit 1 and Millstone  Unit 3. At September 30, 1997,  the Company's
shares of the trust fund balances,  which included  accumulated  earnings on the
funds,  were $11.4  million and $4.8 million for Seabrook  Unit 1 and  Millstone
Unit 3,  respectively.  These fund balances are included in "Other  Property and
Investments"  and  the  accrued   decommissioning   obligation  is  included  in
"Noncurrent Liabilities" on the Company's Consolidated Balance Sheet.

INTEREST RATE AND FUEL PRICE MANAGEMENT

     The  Company   utilizes   interest  rate  and  fuel  oil  price  management
instruments to manage interest rate and fuel oil price risk.  Interest rate swap
agreements have been entered into that effectively convert the interest rates on
$225 million of variable  rate term loan  borrowings  to fixed rate  borrowings.
Amounts  receivable  or payable  under  these swap  agreements  are  accrued and
charged  to  interest  expense.  The  Company  enters  into basic fuel oil price
management instruments to help minimize fuel oil price risk by fixing the future
price for fuel oil used for  generation.  Amounts  receivable  or payable  under
these instruments are recognized in income when realized.

     At September  30, 1997,  the Company had entered into swap  agreements  for
400,000 barrels of fuel oil, for the period October 1 through December 31, 1997,
at a weighted average price of $15.82 per barrel and has call options for 99,999
barrels of fuel oil at $19.25 per barrel. The Company has entered into swap


                                     - 7 -
<PAGE>

                         THE UNITED ILLUMINATING COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

agreements for 275,000 barrels of fuel oil at a weighted average price of $16.74
and has call options for 240,000 barrels of fuel oil at a weighted average price
of $18.29 per barrel for the first three quarters of 1998.

NEW ACCOUNTING STANDARDS

     In February 1997, the Financial  Accounting Standards Board issued SFAS No.
128,  "Earnings  per Share".  This  statement,  which is effective for financial
statements issued for periods ending after December 15, 1997,  including interim
periods,  establishes simplified standards for computing and presenting earnings
per share (EPS).  It requires dual  presentation of basic and diluted EPS on the
face of the income  statement for entities with complex  capital  structures and
disclosure  of the  calculation  of  each  EPS  amount.  The  Company  does  not
anticipate  that  adoption of the  standard  will have a  significant  impact on
reported EPS.

(B)  CAPITALIZATION

     (A) COMMON STOCK

     The  Company  had  14,101,291  shares of its  common  stock,  no par value,
outstanding  at September  30, 1997, of which  307,700  shares were  unallocated
shares held by the  Company's  Employee  Stock  Ownership  Plan ("ESOP") and not
recognized as outstanding for accounting purposes.

     In 1990, the Company's  Board of Directors and the  shareowners  approved a
stock  option plan for  officers  and key  employees  of the  Company.  The plan
provides  for the  awarding of options to  purchase up to 750,000  shares of the
Company's  common stock over periods from one to ten years  following  the dates
when the options are  granted.  The  Connecticut  Department  of Public  Utility
Control  (DPUC) has approved the issuance of 500,000 shares of stock pursuant to
this plan.  The  exercise  price of each  option  cannot be less than the market
value of the stock on the date of the grant.  Options to purchase  17,799 shares
of stock at an exercise  price of $30 per share,  188,200  shares of stock at an
exercise price of $30.75 per share,  600 shares of stock at an exercise price of
$31.1875 per share,  4,000  shares of stock at an exercise  price of $35.625 per
share,  34,332 shares of stock at an exercise  price of $39.5625 per share,  and
5,000  shares of stock at an  exercise  price of  $42.375  per  share  have been
granted by the Board of Directors  and  remained  outstanding  at September  30,
1997.

     The Company has entered into an arrangement  under which it will loan up to
$15 million to The United  Illuminating  Company ESOP.  The trustee for the ESOP
will use the funds to  purchase  shares of the  Company's  common  stock in open
market  transactions.  The shares will be allocated to employees' ESOP accounts,
as the loan is  repaid,  to  cover a  portion  of the  Company's  required  ESOP
contributions.  The loan will be repaid by the ESOP over a  twelve-year  period,
using the Company  contributions and dividends paid on the unallocated shares of
the stock held by the ESOP. As of September  30, 1997,  307,700  shares,  with a
fair market value of $11.2  million,  had been purchased by the ESOP and had not
been allocated to ESOP participants.

     (B) RETAINED EARNINGS RESTRICTION

     The indenture under which $200 million principal amount of Notes are issued
places  limitations  on the payment of cash dividends on common stock and on the
purchase  or  redemption  of common  stock.  Retained  earnings in the amount of
$107.2 million were free from such limitations at September 30, 1997.

     (C) PREFERRED STOCK

     In February 1997,  the Company  purchased at a discount on the open market,
and canceled,  403 shares of its $100 par value 4.35%, Series A preferred stock.
The shares, having a par value of $40,300, were purchased for $21,271,  creating
a net gain of $19,029.



                                     - 8 -
<PAGE>

                         THE UNITED ILLUMINATING COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     In August 1997, the Company purchased at a discount on the open market, and
canceled,  500 shares of its $100 par value 4.72%,  Series B preferred stock and
200 shares of its $100 par value 4.64%,  Series C preferred stock. These shares,
having a par value of $70,000,  were purchased for $41,100,  creating a net gain
of $28,900.

     (D) LONG-TERM DEBT

     On December 30, 1996,  the Company  transferred  $51.3 million to a trustee
under an escrow  agreement.  The funds,  which were invested in Treasury  Notes,
were used to pay $50  million  principal  amount  of 7% Notes  that  matured  on
January 15, 1997 plus accrued interest.

     On February 15, 1997, the Company repaid $10.8 million  principal amount of
maturing 9.44% First  Mortgage  Bonds,  Series B, and redeemed,  at a premium of
$185,328,  the remaining  $21.6 million  outstanding  principal  amount of 9.44%
First  Mortgage  Bonds,  Series B,  issued by  Bridgeport  Electric  Company,  a
wholly-owned subsidiary of the Company that was merged with and into the Company
in September 1994.

     On July 30,  1997,  the Company  borrowed  $98.5  million from the Business
Finance Authority of the State of New Hampshire (BFA), representing the proceeds
from the issuance by the BFA of $98.5  million  principal  amount of  tax-exempt
Pollution Control  Refunding  Revenue Bonds (PCRRBs).  The Company is obligated,
under its borrowing  agreement with the BFA, to pay to a trustee for the PCRRBs'
bondholders  such  amounts  as will pay,  when  due,  the  principal  of and the
premium, if any, and interest on the PCRRBs. The PCRRBs will mature in 2027, and
their interest rate can be adjusted  periodically to reflect  prevailing  market
conditions.  The PCRRBs were issued at an initial interest rate of 3.75%,  which
is being  adjusted  weekly.  The  Company  has used the  proceeds  of this $98.5
million  borrowing  to cause the  redemption  and  repayment of $25 million of 9
3/8%, 1987 Series A, Pollution Control Revenue Bonds,  $43.5 million of 10 3/4%,
1987 Series B, Pollution  Control  Revenue Bonds,  and $30 million of Adjustable
Rate,  1990 Series A, Solid Waste  Disposal  Revenue  Bonds,  three  outstanding
series of tax-exempt bonds on which the Company also had a payment obligation to
a trustee  for the  bondholders.  Expenses  associated  with  this  transaction,
including   redemption  premiums  totaling  $2,055,000  and  other  expenses  of
approximately $1,500,000, are being borne by the Company.

     On November 12, 1997, the Company  refinanced the secured lease  obligation
bonds that were issued in 1990 in connection  with the sale and leaseback by the
Company  of a portion  of its  ownership  share in  Seabrook  Unit 1. All of the
outstanding  $69,593,000  principal  amount of 9.76% Series 2006 Seabrook  Lease
Obligation Bonds (the "9.76% Bonds") and $129,055,000 principal amount of 10.24%
Series 2020 Seabrook Lease  Obligation Bonds (the "10.24% Bonds") were redeemed.
The  redemption  premiums  paid on the 9.76%  Bonds and the  10.24%  Bonds  were
$1,884,549  and  $8,589,901,  respectively.  The Bonds  were  refunded  with the
proceeds from the issuance of  $203,088,000  principal  amount of 7.83% Seabrook
Lease  Obligation Bonds due January 2, 2019 (the "7.83% Bonds") the principal of
which will be payable from time to time in  installments.  Transaction  expenses
totaling  $1,530,022 and redemption  premiums totaling $8,139,978 were paid from
the  proceeds  of the 7.83%  Bonds  and will be repaid as part of the  Company's
Lease  payments  over the  remaining  term of the Lease.  The  remainder  of the
redemption  premiums  ($2,334,472)  and  transaction  expenses  were paid by the
Company  and will be  amortized  over  the  remainder  of the  Lease  term.  The
transaction  reduces the interest  rate on the leaseback  arrangement,  which is
treated as long-term  debt on the Company's  Consolidated  Balance  Sheet,  from
8.45% to 7.56%.  The Company  owned  $16,997,000  principal  amount of the 9.76%
Bonds and $49,850,000 principal amount of the 10.24% Bonds. The Company used the
proceeds from the redemption of these bonds ($70,662,688,  including  redemption
premiums totaling $3,815,688),  plus available funds and short-term  borrowings,
to  purchase  $101,388,000  principal  amount of the 7.83%  Bonds.  The  Company
intends to hold the 7.83% Bonds until maturity and has recognized the investment
as an offset to long-term debt on its Consolidated Balance Sheet.


                                     - 9 -
<PAGE>
<TABLE>
                         THE UNITED ILLUMINATING COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


<CAPTION>
                                                            Three Months Ended             Nine Months Ended
(E) INCOME  TAXES                                              September 30,                 September 30,
                                                            1997          1996            1997          1996
                                                            ----          ----            ----          ----
Income tax expense consists of:                                   (000's)                       (000's)

Income tax provisions:
  Current
<S>                                                          <C>           <C>             <C>           <C>    
             Federal                                         $11,899       $13,887         $27,346       $37,932
             State                                             3,802         4,504           8,789        12,443
                                                         ------------  ------------    ------------  ------------
                Total current                                 15,701        18,391          36,135        50,375
                                                         ------------  ------------    ------------  ------------
  Deferred
             Federal                                           4,602          (585)         (3,397)       (6,265)
             State                                             1,007          (836)         (1,959)       (4,304)
                                                         ------------  ------------    ------------  ------------
                Total deferred                                 5,609        (1,421)         (5,356)      (10,569)
                                                         ------------  ------------    ------------  ------------

  Investment tax credits                                        (190)         (190)           (571)         (571)
                                                         ------------  ------------    ------------  ------------

     Total income tax expense                                $21,120       $16,780         $30,208       $39,235
                                                         ============  ============    ============  ============

Income tax components charged as follows:
  Operating expenses                                         $23,101       $18,449         $35,128       $43,722
  Other income and deductions - net                           (1,981)       (1,669)         (4,920)       (4,487)
                                                         ------------  ------------    ------------  ------------

     Total income tax expense                                $21,120       $16,780         $30,208       $39,235
                                                         ============  ============    ============  ============


The following table details the components of the
 deferred income taxes:
     Fossil fuel decommissioning reserve                       ($142)            -         ($7,144)            -
     Conservation and load management                           (931)         (464)         (5,022)         (954)
     Accelerated depreciation                                  1,459         1,374           4,378         4,122
     Tax depreciation on unrecoverable plant investment        1,232         1,244           3,695         3,732
     Seabrook sale/leaseback transaction                       1,486         1,575          (3,686)       (3,669)
     Pension benefits                                          1,983        (5,298)          2,092        (9,302)
     Unit overhaul and replacement power costs                  (287)         (641)          1,099        (2,651)
     Deferred fossil fuel costs                                    -          (263)           (686)          402
     Postretirement benefits                                     187           126            (105)         (671)
     Other - net                                                 622           926              23        (1,578)
                                                         ------------  ------------    ------------  ------------

Deferred income taxes - net                                   $5,609       ($1,421)        ($5,356)     ($10,569)
                                                         ============  ============    ============  ============
</TABLE>
                                        - 10 -

<PAGE>
                         THE UNITED ILLUMINATING COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(F)  SHORT-TERM CREDIT ARRANGEMENTS

     The  Company has a revolving  credit  agreement  with a group of banks that
currently  extends to December 10, 1997. The borrowing limit of this facility is
$75 million.  The facility  permits the Company to borrow funds at a fluctuating
interest  rate  determined  by the prime  lending  market in New York,  and also
permits the Company to borrow money for fixed  periods of time  specified by the
Company at fixed interest rates determined by the Eurodollar interbank market in
London, or by bidding,  at the Company's option. If a material adverse change in
the business, operations,  affairs, assets or condition, financial or otherwise,
or  prospects  of the Company and its  subsidiaries,  on a  consolidated  basis,
should  occur,  the banks may  decline to lend  additional  money to the Company
under this revolving credit agreement,  although  borrowings  outstanding at the
time of such  an  occurrence  would  not  then  become  due and  payable.  As of
September  30,  1997,  the  Company  had $40  million of  short-term  borrowings
outstanding under this facility.


                                     - 11 -
<PAGE>
<TABLE>
                         THE UNITED ILLUMINATING COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(G)  SUPPLEMENTARY INFORMATION


<CAPTION>
                                                                Three Months Ended                Nine Months Ended
                                                                   September 30,                    September 30,
                                                               1997            1996             1997             1996
                                                               ----            ----             ----             ----
                                                                      (000's)                          (000's)

<S>                                                            <C>             <C>              <C>              <C>    
Operating Revenues
------------------
     Retail                                                     $177,323        $184,450         $473,848         $497,973
     Wholesale - capacity                                          2,483           1,784            7,265            5,286
               - energy                                           15,510          22,097           56,783           43,355
     Other                                                         1,247             836            2,766            2,203
                                                           --------------  --------------   --------------   --------------
          Total Operating Revenues                              $196,563        $209,167         $540,662         $548,817
                                                           ==============  ==============   ==============   ==============

Sales by Class(MWH's)
---------------------
    Retail
     Residential                                                 505,070         490,460        1,415,844        1,432,544
     Commercial                                                  613,924         609,643        1,697,625        1,719,858
     Industrial                                                  305,492         304,451          867,082          858,926
     Other                                                        12,008          11,931           36,256           35,897
                                                           --------------  --------------   --------------   --------------
                                                               1,436,494       1,416,485        4,016,807        4,047,225
    Wholesale                                                    608,754         759,416        2,104,892        1,608,917
                                                           --------------  --------------   --------------   --------------
          Total Sales by Class                                 2,045,248       2,175,901        6,121,699        5,656,142
                                                           ==============  ==============   ==============   ==============

Other Taxes

    Charged to:
     Operating:
        State gross earnings                                      $6,777          $7,608          $18,005          $20,507
        Local real estate and personal property                    5,451           6,106           17,742           18,637
        Payroll taxes                                              1,284           1,229            4,827            4,379
                                                           --------------  --------------   --------------   --------------
                                                                  13,512          14,943           40,574           43,523
     Nonoperating and other accounts                                 111              78              343              474
                                                           --------------  --------------   --------------   --------------
          Total Other Taxes                                      $13,623         $15,021          $40,917          $43,997
                                                           ==============  ==============   ==============   ==============

Other Income and (Deductions) - net
-----------------------------------
     Interest and dividend income                                   $458            $283           $1,384             $924
     Equity earnings from Connecticut Yankee                         312             331            1,000            1,080
     Loss from subsidiary companies                                  (75)           (579)            (970)          (2,134)
     Miscellaneous other income and (deductions) - net              (612)           (124)             175             (425)
                                                           --------------  --------------   --------------   --------------
          Total Other Income and (Deductions) - net                  $83            ($89)          $1,589            ($555)
                                                           ==============  ==============   ==============   ==============

Other Interest Charges
----------------------
     Notes Payable                                                  $749            $167           $1,949             $882
     Other                                                           123             316              541              879
                                                           --------------  --------------   --------------   --------------
          Total Other Interest Charges                              $872            $483           $2,490           $1,761
                                                           ==============  ==============   ==============   ==============
</TABLE>

                                        - 12 -

<PAGE>
                         THE UNITED ILLUMINATING COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(K)  FUEL FINANCING OBLIGATIONS AND OTHER LEASE OBLIGATIONS

     The Company has a Fossil Fuel Supply Agreement with a financial institution
providing for financing up to $37.5 million of fossil fuel purchases. Under this
agreement,  the financing  entity may acquire and/or store natural gas, coal and
fuel oil for sale to the  Company,  and the Company may  purchase  these  fossil
fuels from the financing entity at a price for each type of fuel that reimburses
the  financing  entity for the direct  costs it has incurred in  purchasing  and
storing  the  fuel,  plus a charge  for  maintaining  an  inventory  of the fuel
determined  by  reference  to  the  fluctuating  interest  rate  on  thirty-day,
dealer-placed  commercial  paper in New York. The Company is obligated to insure
the  fuel  inventories  and  to  indemnify  the  financing  entity  against  all
liabilities,  taxes and other  expenses  incurred as a result of its  ownership,
storage and sale of fossil fuel to the Company. This agreement currently extends
to November 1998. At September 30, 1997,  approximately  $21.5 million of fossil
fuel purchases were being financed under this agreement.

(L)  COMMITMENTS AND CONTINGENCIES

CAPITAL EXPENDITURE PROGRAM

     The Company's continuing capital expenditure program is presently estimated
at approximately $196.0 million, excluding AFUDC, for 1997 through 2001.

NUCLEAR INSURANCE CONTINGENCIES

     The  Price-Anderson  Act, currently extended through August 1, 2002, limits
public liability  resulting from a single incident at a nuclear power plant. The
first $200 million of liability  coverage is provided by purchasing  the maximum
amount of commercially  available insurance.  Additional liability coverage will
be provided by an assessment of up to $75.5 million per incident, levied on each
of the  nuclear  units  licensed to operate in the United  States,  subject to a
maximum  assessment of $10 million per incident per nuclear unit in any year. In
addition,  if the sum of all public  liability  claims and legal costs resulting
from any nuclear  incident  exceeds the maximum amount of financial  protection,
each reactor  operator can be assessed an  additional  5% of $75.5  million,  or
$3.775 million.  The maximum assessment is adjusted at least every five years to
reflect  the impact of  inflation.  With  respect  to each of the three  nuclear
generating  units in which the Company  has an  interest,  the  Company  will be
obligated  to  pay  its  ownership  and/or  leasehold  share  of  any  statutory
assessment  resulting from a nuclear  incident at any nuclear  generating  unit.
Based on its interests in these nuclear  generating units, the Company estimates
its  maximum  liability  would be  $23.2  million  per  incident.  However,  any
assessment would be limited to $3.1 million per incident per year.

     The NRC requires each nuclear  generating unit to obtain property insurance
coverage  in a minimum  amount of $1.06  billion  and to  establish  a system of
prioritized  use of the insurance  proceeds in the event of a nuclear  incident.
The system  requires that the first $1.06 billion of insurance  proceeds be used
to  stabilize  the  nuclear  reactor to prevent any  significant  risk to public
health and safety and then for  decontamination  and  cleanup  operations.  Only
following completion of these tasks would the balance, if any, of the segregated
insurance  proceeds become available to the unit's owners. For each of the three
nuclear  generating  units in which the Company has an interest,  the Company is
required to pay its ownership  and/or  leasehold share of the cost of purchasing
such  insurance.  Although  each of these units has  purchased  $2.75 billion of
property  insurance  coverage,  representing  the limits of  coverage  currently
available  from  conventional  nuclear  insurance  pools,  the cost of a nuclear
incident could exceed  available  insurance  proceeds.  In addition,  two of the
nuclear  insurance  pools  that  provide  portions  of this  coverage  may  levy
assessments  against  the insured  owner  companies  if pool  losses  exceed the
accumulated  funds  available  to the pool.  The maximum  potential  assessments
against the Company with respect to losses occurring during current policy years
are approximately $7.5 million.



                                     - 13 -
<PAGE>
                        THE UNITED ILLUMINATING COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

OTHER COMMITMENTS AND CONTINGENCIES

                               CONNECTICUT YANKEE

     On December  4, 1996,  the Board of  Directors  of the  Connecticut  Yankee
Atomic  Power  Company  (Connecticut  Yankee)  voted  unanimously  to retire the
Connecticut  Yankee nuclear plant (the Connecticut  Yankee Unit) from commercial
operation.  The Company has a 9.5% stock ownership  share in Connecticut  Yankee
and  relied  on the  Connecticut  Yankee  Unit  for  approximately  3.7%  of the
Company's 1995 total  generating  resources.  The power purchase  contract under
which the Company has purchased its 9.5%  entitlement to the Connecticut  Yankee
Unit's power  output  permits  Connecticut  Yankee to recover 9.5% of all of its
costs  from UI.  Connecticut  Yankee  has  filed  revised  decommissioning  cost
estimates and amendments to the power contracts with its owners with the Federal
Energy Regulatory  Commission (FERC). The preliminary  estimate of the amount of
future payments for the closing,  decommissioning  and recovery of the remaining
investment in the Connecticut Yankee Unit is approximately  $763 million.  Based
on regulatory precedent, Connecticut Yankee believes it will continue to collect
from its owners its  decommissioning  costs,  the unrecovered  investment in the
Connecticut  Yankee Unit and other costs associated with the permanent  shutdown
of the  Connecticut  Yankee Unit. UI expects that it will continue to be allowed
to recover all FERC-approved  costs from its customers through retail rates. The
Company's  estimate of its remaining  share of costs,  less return of investment
(approximately  $10  million)  and  return  on  investment  (approximately  $7.6
million) at September 30, 1997, is approximately  $45.7 million.  This estimate,
which is subject  to  ongoing  review and  revision,  has been  recorded  by the
Company as a regulatory  asset and an  obligation  on the  Consolidated  Balance
Sheet.

                                  HYDRO-QUEBEC

     The Company is a  participant  in the  Hydro-Quebec  transmission  intertie
facility linking New England and Quebec,  Canada. Phase II of this facility,  in
which UI has a 5.45%  participating  share,  increased the capacity value of the
intertie from 690  megawatts to a maximum of 2000  megawatts in 1991. A ten-year
Firm Energy  Contract,  which provides for the sale of 7 million  megawatt-hours
per  year by  Hydro-Quebec  to the New  England  participants  in the  Phase  II
facility,  became effective on July 1, 1991. The Company is obligated to furnish
a guarantee for its  participating  share of the debt financing for the Phase II
facility.  As of September 30, 1997, the Company's  guarantee liability for this
debt was approximately $7.6 million.

               VOLUNTARY EARLY RETIREMENT AND SEPARATION PROGRAMS

     In July 1996, the Company offered a Voluntary  Early  Retirement Plan and a
Voluntary  Separation  Plan to virtually  all of its  employees.  A total of 163
employees  accepted  one or the other of these  plans.  In the third  quarter of
1996,  the  Company  recognized  a charge to  earnings  of $14.9  million  ($8.7
million,  after-tax) to reflect the cost of these plans. The employees accepting
the offer will terminate employment on or before December 30, 1997.

                                 PROPERTY TAXES

     On November 2, 1993, the Company received  "updated"  personal property tax
bills  from  the  City of New  Haven  (the  City)  for the tax  year  1991-1992,
aggregating $6.6 million,  based on an audit by the City's tax assessor.  On May
7, 1994,  the Company  received a  "Certificate  of  Correction....to  correct a
clerical  omission  or  mistake"  from the City's tax  assessor  relative to the
assessed value of the Company's  personal  property for the tax year  1994-1995,
which certificate  purports to increase said assessed value by approximately 53%
above the tax assessor's  valuation at February 28, 1994,  generating tax claims
of approximately $3.5 million. On March 1, 1995, the Company received notices of
assessment  changes  relative to the assessed  value of the  Company's  personal
property for the tax year  1995-1996,  which  notices  purport to increase  said
assessed value by approximately 48%


                                     - 14 -
<PAGE>
                        THE UNITED ILLUMINATING COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

over  the  valuation   declared  by  the  Company,   generating  tax  claims  of
approximately  $3.5 million.  On May 11, 1995, the Company  received  notices of
assessment  changes  relative to the assessed  values of the Company's  personal
property for the tax years  1992-1993 and  1993-1994,  which notices  purport to
increase said assessed values by approximately 45% and 49%,  respectively,  over
the valuations  declared by the Company,  generating tax claims of approximately
$4.1  million  and $3.5  million,  respectively.  On March 8, 1996,  the Company
received  notices of assessment  changes  relative to the assessed  value of the
Company's personal property for the tax year 1996-1997, which notices purport to
increase said assessed value by approximately  57% over the valuations  declared
by the Company and are  expected to generate  tax claims of  approximately  $3.8
million.  On March 7, 1997, the Company received  notices of assessment  changes
relative to the assessed  value of the Company's  personal  property for the tax
year  1997-1998,  which  notices  purport to  increase  said  assessed  value by
approximately  54% over the valuations  declared by the Company and are expected
to generate tax claims of approximately $3.7 million.  The Company is vigorously
contesting  each of these actions by the City's tax  assessor.  In January 1996,
the Connecticut Superior Court granted the Company's motion for summary judgment
against the City relative to the earliest tax year at issue,  1991-1992,  ruling
that,  after  January 31, 1992,  the tax assessor had no statutory  authority to
revalue  personal  property  listed and valued on the Company's tax list for the
tax year  1991-1992.  This Superior Court  decision,  which would also have been
applicable  to and  defeated  the  assessor's  valuation  increases  for the two
subsequent  tax years,  1992-1993  and  1993-1994,  was appealed by the City. On
April 11, 1997,  the  Connecticut  Supreme Court  reversed the Superior  Court's
decisions  in this and two other  companion  cases  involving  other  taxpayers,
ruling  that the tax  assessor  had a  three-year  period  in which to audit and
revalue  personal  property  listed and valued on the Company's tax list for the
tax year 1991-1992.  It is currently  anticipated  that all of the pending cases
for all of the tax  years in  dispute  will now be  scheduled  for  trial in the
Superior Court relative to the Company's claim that the tax assessor's increases
in personal  property tax assessments for the three earliest years were unlawful
for other reasons and relative to the vigorously contested issue, for all of the
tax years, as to the reasonableness of the tax assessor's valuation method, both
as to amount and methodology.  It is the present opinion of the Company that the
ultimate  outcome  of this  dispute  will not have a  significant  impact on the
long-term financial position of the Company.

             SITE DECONTAMINATION, DEMOLITION AND REMEDIATION COSTS

     The  Company  has  estimated  that the total  cost of  decontaminating  and
demolishing its decommissioned and demolished Steel Point Station and completing
requisite  environmental  remediation  of the site will be  approximately  $11.3
million,  of which  approximately $7.9 million had been incurred as of September
30, 1997,  and that the value of the  property  following  remediation  will not
exceed $6.0  million.  As a result of a 1992  Connecticut  Department  of Public
Utility Control retail rate decision, beginning January 1, 1993, the Company has
been recovering through retail rates $1.075 million of the remediation costs per
year. The remediation costs,  property value and recovery from customers will be
subject to true-up in the Company's next retail rate proceeding  based on actual
remediation costs and actual gain on the Company's disposition of the property.

(M)  NUCLEAR FUEL DISPOSAL AND NUCLEAR PLANT DECOMMISSIONING

     New   Hampshire   has   enacted  a  law   requiring   the   creation  of  a
government-managed  fund to finance the  decommissioning  of nuclear  generating
units  in  that  state.  The New  Hampshire  Nuclear  Decommissioning  Financing
Committee  (NDFC)  has  established  $451  million  (in  1997  dollars)  as  the
decommissioning  cost estimate for Seabrook Unit 1, of which the Company's share
would be approximately $79 million. This estimate assumes the prompt removal and
dismantling  of the unit at the end of its estimated  36-year  energy  producing
life.  Monthly  decommissioning  payments  are being  made to the  state-managed
decommissioning  trust fund.  UI's share of the  decommissioning  payments  made
during the first nine months of 1997 was  $1,563,000.  UI's share of the fund at
September 30, 1997 was approximately $11.4 million.



                                     - 15 -
<PAGE>
                        THE UNITED ILLUMINATING COMPANY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     Connecticut has enacted a law requiring the operators of nuclear generating
units  to file  periodically  with  the  DPUC  their  plans  for  financing  the
decommissioning  of the units in that state.  The current  decommissioning  cost
estimate for Millstone  Unit 3 is $463 million (in 1997  dollars),  of which the
Company's share would be  approximately  $17 million.  This estimate assumes the
prompt removal and  dismantling of the unit at the end of its estimated  40-year
energy producing life.  Monthly  decommissioning  payments,  based on these cost
estimates,  are being made to a decommissioning  trust fund managed by Northeast
Utilities (NU). UI's share of the Millstone Unit 3 decommissioning payments made
during the first  nine  months of 1997 was  $365,000.  UI's share of the fund at
September 30, 1997 was approximately  $4.8 million.  The  decommissioning  trust
fund for the  Connecticut  Yankee Unit is also managed by NU. For the  Company's
9.5% equity ownership in Connecticut Yankee, decommissioning costs of $1,533,000
were  funded by UI during the first nine  months of 1997,  and UI's share of the
fund at September 30, 1997 was $23.8 million.  The current  decommissioning cost
estimate  for the  Connecticut  Yankee  Unit,  assuming  the prompt  removal and
dismantling of the unit commencing in 1997, is $436 million, of which UI's share
would be $41 million.


                                     - 16 -
<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

                     MAJOR INFLUENCES ON FINANCIAL CONDITION

     The  Company's  financial  condition  will  continue to be dependent on the
level of its retail and  wholesale  sales and the  Company's  ability to control
expenses.  The two  primary  factors  that  affect  sales  volume  are  economic
conditions  and  weather.  Annual  growth  in total  operation  and  maintenance
expense,  excluding  one-time items and  cogeneration  capacity  purchases,  has
averaged  less than 1.5% during the past 5 years.  The Company hopes to continue
to restrict this average to less than the rate of inflation in future years (see
"Looking Forward").

     The Company's financial status and financing capability will continue to be
sensitive to many other factors, including conditions in the securities markets,
economic conditions,  interest rates, the level of the Company's income and cash
flow,  and  legislative  and  regulatory  developments,  including  the  cost of
compliance with increasingly stringent environmental legislation and regulations
and competition within the electric utility industry.

     A major factor  affecting  the  Company's  earnings  prospects  will be the
success of the Company's  efforts to implement the regulatory  framework ordered
by the DPUC at the end of 1996.  On  December  31,  1996,  the DPUC  completed a
financial  and  operational  review  of the  Company  and  ordered  a  five-year
incentive  regulation plan for the years 1997-2001.  The DPUC did not change the
retail base rates charged to customers.  Its order increased amortization of the
Company's conservation and load management program investments during 1997-1998,
accelerated  the recovery of  unspecified  regulatory  assets during  1999-2001,
reduced the level of conservation  adjustment revenues in retail rates, provided
a reduction  in  customer  bills  through a  surcredit  in each of the five plan
years, and accepted the Company's proposal to modify the operation of its fossil
fuel cost rate adjustment  mechanism.  The Company's authorized return on common
equity was  reduced  from 12.4% to 11.5%.  Earnings  above  11.5%,  on an annual
basis, are to be utilized  one-third for customer bill reductions,  one-third to
increase  amortization  of  regulatory  assets,  and  one-third for retention as
earnings.  The DPUC did not  order  accelerated  depreciation  of the  Company's
Seabrook   Unit  1  plant   investment   costs  and  the   establishment   of  a
performance-based regulation mechanism measured by customer satisfaction surveys
and reliability of service indices,  which the Company had proposed. As a result
of the DPUC's order,  customer bills are expected to be reduced on average by 3%
in  1997-1999,  4% in the year 2000,  and 5% in the year 2001 (all  compared  to
1996).  Also,  earnings from utility  operations will be reduced from the levels
requested by the Company, such that it appears unlikely that the Company will be
able to achieve its 4% growth goal going forward.

     Federal  legislation  has fostered  competition  in the wholesale  electric
power market, as has a FERC rulemaking  requiring  electric utilities to furnish
transmission  service  to all  buyers and  sellers  in the  marketplace.  In its
rulemaking, the FERC stated that state regulatory commissions should address the
issue of  recovery  by electric  utilities  of the costs of existing  facilities
that,  on account of "retail  access",  become  unrecoverable  by the  utilities
through the regulated rates charged to their service  territory  customers.  The
legislatures and regulatory commissions in several states have considered or are
considering  "retail access".  This, in general terms, means the transmission by
an  electric  utility of energy  produced by another  entity over the  utility's
transmission and  distribution  system to a retail customer in the utility's own
service  territory.  A retail  access  requirement  has the effect of permitting
retail customers to purchase  electric  capacity and energy,  at the election of
such customers, from the electric utility in whose service area they are located
or from  any  other  electric  utility,  independent  power  producer  or  power
marketer.  The costs of existing  facilities  that become  unrecoverable  by the
service area electric utility on account of the loss of sales to these customers
are  said  to  be  "stranded  costs".  In  1995,  the  Connecticut   Legislature
established a task force to review these issues and to make  recommendations  on
electric industry restructuring within Connecticut. The task force concluded its
work in December 1996, and issued a report and related  recommendations.  In its
1997 session,  the  Connecticut  legislature  drafted,  but failed to bring to a
vote,  comprehensive  legislation  that would have  introduced  retail access in
Connecticut  over a period of several years,  with provision for the recovery of
stranded costs by service area utilities.



                                     - 17 -
<PAGE>

     Although the Company is unable to predict the future effects of competitive
forces in the electric utility industry, competition could result in a change in
the regulatory structure of the industry, and costs that have traditionally been
recoverable through the ratemaking process may not be recoverable in the future.
This  effect  could have a material  impact on the  financial  condition  and/or
results of operations of the Company.

     Currently,  the Company's  electric service rates are subject to regulation
and are based on the Company's costs. Therefore, the Company, and most regulated
utilities,  are subject to certain accounting  standards (Statement of Financial
Accounting  Standards  No. 71,  "Accounting  for the Effects of Certain Types of
Regulation"  (SFAS  No.  71)) that are not  applicable  to other  businesses  in
general. These accounting rules allow regulated utilities, where appropriate, to
defer the income  statement  impact of certain  costs  that are  expected  to be
recovered in future regulated  service rates and to establish  regulatory assets
on balance sheets for such costs.  The effects of competition or a change in the
cost-based  regulatory structure could cause the operations of the Company, or a
portion  of its  assets  or  operations,  to  cease  meeting  the  criteria  for
application of these accounting rules.  While the Company expects to continue to
meet these criteria in the foreseeable  future, if the Company,  or a portion of
its assets or  operations,  were to cease  meeting  these  criteria,  accounting
standards  for  businesses  in general  would become  applicable  and  immediate
recognition of any previously  deferred  costs,  or a portion of deferred costs,
would be required in the year in which the  criteria  are no longer met, if such
deferred  costs  are  not  recoverable  in that  portion  of the  business  that
continues  to meet the  criteria  for the  application  of SFAS No.  71. If this
change in accounting were to occur,  it would have a material  adverse effect on
the  Company's  earnings  and  retained  earnings  in that year and could have a
material adverse effect on the Company's ongoing financial condition as well.


                                     - 18 -
<PAGE>


                           CAPITAL EXPENDITURE PROGRAM

The Company's  1997-2001 capital  expenditure  program,  excluding allowance for
funds used during construction (AFUDC) and its effect on certain capital related
items, is presently budgeted as follows:

<TABLE>
<CAPTION>
                                            1997         1998        1999         2000        2001         TOTAL
                                            ----         ----        ----         ----        ----         -----
                                                                         (000's)
<S>                                     <C>           <C>         <C>          <C>           <C>         <C>    
Production                                  $9,498      $14,153     $24,332      $10,752     $17,741      $76,476
Distribution                                13,060       12,588      13,041       13,298      13,059       65,046
Transmission                                   626        1,118       2,425        3,752       1,300        9,221
Other                                        6,939        3,219       1,196          997         949       13,301
                                        ----------   ----------  ----------   ----------  ----------   ----------
SUBTOTAL                                    30,123       31,078      40,994       28,799      33,049      164,044

Nuclear Fuel                                 7,612       11,208         965       11,924         221       31,930
                                        ----------   ----------  ----------   ----------  ----------   ----------

 TOTAL EXPENDITURES                        $37,735      $42,286     $41,959      $40,723     $33,270     $195,974
                                          ========     ========    ========     ========    ========     ========

Rate Base and Other Selected Data
AFUDC (Pre-tax)                              2,051        2,228       1,624        1,886       1,161
Depreciation
  Book Plant                                53,239       56,497      57,722       57,959      57,862
  Conservation                              10,223       10,223       8,906        6,312       4,332
  Decommissioning                            2,235        2,328       2,435        2,547       2,660
Additional Required
  Amortization (pre-tax) (1)
    Conservation Assets                      6,400       13,000      (3,517)      (6,312)     (4,332)
    Other Regulatory Assets                      0            0      20,300       49,500      54,500
Amortization of Deferred
  Return on Seabrook Unit 1
  Phase-In (after tax)                      12,586       12,586      12,586            0           0

Estimated Rate Base
  (end of period)                        1,183,674    1,132,169   1,067,561    1,026,295     958,657
</TABLE>

(1)   Additional   amortization  of  pre-1997   conservation   costs  and  other
      unspecified  regulatory assets, as ordered by the DPUC in its December 31,
      1996 Order,  provided  that  common  equity  return on utility  investment
      exceeds 10.5% after recording the additional amortization.

Note:  Capital  Expenditures  and their effect on certain  capital related items
       are estimates  subject to change due to future events and conditions that
       may  be  substantially  different  than  those  used  in  developing  the
       projections.



                                     - 19 -
<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES

     At September 30, 1997,  the Company had $86.9 million of cash and temporary
cash investments,  an increase of $80.5 million from the balance at December 31,
1996. The components of this  increase,  which are detailed in the  Consolidated
Statement of Cash Flows, are summarized as follows:

                                                                     (Millions)

       Balance, December 31, 1996                                       $ 6.4
                                                                        -----

       Net cash provided by operating activities                        108.5

       Net cash provided by (used in) financing activities:
       -   Financing activities, excluding dividend payments             31.0
       -   Dividend payments                                            (30.6)

       Cash invested in plant, including nuclear fuel                   (28.4)
                                                                        -----

             Net increase                                                80.5
                                                                        -----

       Balance,  September 30, 1997                                     $86.9
                                                                        =====


     The Company's capital requirements are presently projected as follows:
<TABLE>
<CAPTION>

                                                           1997       1998       1999       2000       2001
                                                           ----       ----       ----       ----       ----
                                                                              (millions)
<S>                                                        <C>       <C>      <C>        <C>         <C>   
Cash on Hand - Beginning of Year                           $ 6.4     $ 24.2    $  -       $  -       $  -
Internally Generated Funds less Dividends                   87.9      111.0     110.9      113.5      105.9
                                                           -----      -----     -----      -----      -----
         Subtotal                                           94.3      135.2     110.9      113.5      105.9

Less:
Capital Expenditures                                        37.7       42.3      41.9       40.7       33.3
                                                           -----      -----     -----      -----      -----

Cash Available to pay Debt Maturities and Redemptions       56.6       92.9      69.0       72.8       72.6

Less:
Maturities and Mandatory Redemptions                        10.8      104.6     105.0      155.5       81.0
Optional Redemptions                                        21.6        -          -          -          -
                                                           -----      -----     -----      -----      -----

External Financing Requirements                           $(24.2)     $11.7     $36.0      $82.7       $8.4
                                                           =====      =====     =====      =====      =====
</TABLE>

Note:  Internally  Generated  Funds less  Dividends,  Capital  Expenditures  and
       External  Financing  Requirements are estimates based on current earnings
       and cash flow  projections and are subject to change due to future events
       and  conditions  that may be  substantially  different from those used in
       developing the projections.

     All of the Company's  capital  requirements that exceed available cash will
have  to be  provided  by  external  financing.  Although  the  Company  has  no
commitment to provide such financing from any source of funds,  other than a $75
million  revolving credit agreement with a group of banks,  described below, the
Company  expects to be able to satisfy its external  financing  needs by issuing
additional  short-term  and long-term  debt, and by issuing  preferred  stock or
common stock,  if  necessary.  The  continued  availability  of these methods of
financing  will  be


                                     - 20 -
<PAGE>

dependent on many  factors,  including  conditions  in the  securities  markets,
economic conditions, and the level of the Company's income and cash flow.

     The Company has a revolving credit  agreement with a group of banks,  which
currently  extends to December 10, 1997. The borrowing limit of this facility is
$75 million.  The facility  permits the Company to borrow funds at a fluctuating
interest  rate  determined  by the prime  lending  market in New York,  and also
permits the Company to borrow money for fixed  periods of time  specified by the
Company at fixed interest rates determined by the Eurodollar interbank market in
London, or by bidding,  at the Company's option. If a material adverse change in
the business, operations,  affairs, assets or condition, financial or otherwise,
or  prospects  of the Company and its  subsidiaries,  on a  consolidated  basis,
should  occur,  the banks may  decline to lend  additional  money to the Company
under this revolving credit agreement,  although  borrowings  outstanding at the
time of such  an  occurrence  would  not  then  become  due and  payable.  As of
September  30,  1997,  the  Company  had $40  million of  short-term  borrowings
outstanding under this facility.

                              SUBSIDIARY OPERATIONS

     UI has one wholly-owned  subsidiary,  United  Resources,  Inc. (URI),  that
serves as the parent  corporation for several  unregulated  businesses,  each of
which is incorporated  separately to participate in business  ventures that will
complement and enhance UI's electric utility business and serve the interests of
the Company and its shareholders and customers.

     URI  has  four  wholly-owned  subsidiaries.  The  largest  URI  subsidiary,
American  Payment  Systems,  Inc.,  manages a national network of agents for the
processing  of bill  payments  made by  customers  of other  utilities.  Another
subsidiary of URI, Thermal  Energies,  Inc., is participating in the development
of district  heating  and cooling  facilities  in the  downtown  New Haven area,
including  the energy  center  for an office  tower and  participation  as a 62%
partner in the energy center for a city hall and office tower  complex.  A third
URI subsidiary,  Precision Power,  Inc.,  provides  power-related  equipment and
services to the owners of commercial buildings and industrial facilities.  URI's
fourth  subsidiary,  United  Bridgeport  Energy,  Inc.,  is  participating  in a
merchant  wholesale  electric  generating  facility  being  constructed  on land
proposed to be leased from UI at its Bridgeport Harbor Station generating plant.

     The Board of Directors of the Company has  authorized  the  investment of a
maximum of $27  million,  in the  aggregate,  of the  Company's  assets into its
unregulated  subsidiary  ventures,  and, at September 30, 1997,  $27 million had
been so invested.

                              RESULTS OF OPERATIONS

THIRD QUARTER OF 1997 VS. THIRD QUARTER OF 1996
-----------------------------------------------

     Earnings  for the third  quarter of 1997 were $23.4  million,  or $1.68 per
share,  up $5.5  million,  or $.41 per  share,  from the third  quarter of 1996.
Earnings  from  operations,  which  exclude  one-time  items,  decreased by $3.9
million,  or $.25 per share,  in the third quarter of 1997 compared to the third
quarter of 1996.  The one-time  item recorded in the third quarter of 1996 was a
charge of $8.7 million (after-tax), or $.61 per share, from early retirement and
voluntary severance programs. The one-time gain recorded in the third quarter of
1997 was $.05 per share related to subleasing office space.

     Retail  operating  revenues  decreased  by about $7.1  million in the third
quarter of 1997 compared to the third quarter of 1996:

  .   A  retail  kilowatt-hour  sales  increase  of 1.4%  from  the  prior  year
     increased  retail  revenues by $2.6 million and sales margin  (revenue less
     fuel expense and revenue-based  taxes) by $2.0 million.  The third quarters
     of both 1997 and 1996  experienced  roughly  the same  milder  than  normal
     temperatures.  This would


                                     - 21 -
<PAGE>

     indicate  that  "real"  (i.e.  not   attributable   to  abnormal   weather)
     kilowatt-hour  sales increased by about 1.0 percent in the third quarter of
     1997  compared to the third  quarter of 1996.  Normal  weather in the third
     quarter of 1997 would have added  about $2.3  million to sales  margin,  or
     about $.10 per share.

  .   Reductions in customer  bills, as agreed to by the Company and the DPUC in
     December 1996,  decreased retail revenues by about $7.1 million,  including
     suspension  of the fossil  fuel  adjustment  clause  (FAC)  mechanism  that
     reduced  revenues by $2.3 million.  This was consistent  with the Company's
     expectations,  as  previously  reported in the Company's  Quarterly  Report
     (Form 10-Q) for the fiscal quarter ended June 30, 1997. Other reductions in
     customer bills, due to rate mix,  contract  pricing and other  pass-through
     reductions, amounted to $2.6 million.

     Wholesale  "capacity"  revenues increased $0.7 million in the third quarter
of 1997  compared to the third  quarter of 1996.  Wholesale  "energy"  revenues,
which  decreased  during the third quarter of 1997 compared to the third quarter
of 1996,  are a direct offset to wholesale  energy expense and do not contribute
to sales margin.

     Retail  fuel and energy  expenses  increased  by $1.8  million in the third
quarter of 1997 compared to the third quarter of 1996. These expenses  increased
by $1.1  million due to the need to purchase  more  expensive  energy to replace
generation by the Connecticut  Yankee nuclear  generating  unit, which was taken
out of service on July 23, 1996,  to replace some  generation  from the Seabrook
nuclear  generating  unit,  which ran at virtually  100 percent  capacity in the
third quarter of 1996 but at 98 percent in the third  quarter of 1997,  and from
the write-off of some fuel  assemblies  related to the Seabrook  unit  refueling
outage in the second quarter of 1997. For more on the status of the  Connecticut
Yankee and Millstone Unit 3 nuclear  generating  units,  see the LOOKING FORWARD
section.  Retail fuel and energy expenses also increased in the third quarter of
1997 compared to the third quarter of 1996 by about $0.5 million,  due to higher
sales.

     Operating  expenses for  operations,  maintenance  and  purchased  capacity
charges  increased by $1.0 million in the third  quarter of 1997 compared to the
third quarter of 1996:

  .   Purchased capacity expense decreased $3.5 million,  due to declining costs
     from the retired  Connecticut  Yankee nuclear  generating  unit,  more than
     offsetting the impact on margin from the loss of its generation.

  .   Operation and maintenance expense increased by $4.5 million. Some expenses
     associated  with  the  second  quarter  Seabrook  nuclear  generating  unit
     refueling outage were booked in the third quarter,  and increased  expenses
     by $0.8 million.  Millstone 3 nuclear generating unit expenses increased by
     $1.1  million.  Other power  supply  expenses  increased  by $1.2  million.
     Expenses associated with the Company's  re-engineering efforts increased by
     a net $2.0 million.  Other expenses,  including  conservation programs that
     are expensed in 1997 compared to being  capitalized  in 1996,  increased by
     $1.4  million.  These  increases  were  partly  offset  by a  $2.0  million
     reduction in pension expense,  due to changes in actuarial  assumptions and
     methodologies and an increase in the expected return on plan assets to 10%.

     Depreciation  expense,   exclusive  of  any  accelerated   amortization  of
conservation and load management program costs, increased by $0.4 million in the
third  quarter of 1997  compared  to the third  quarter of 1996.  Income  taxes,
exclusive of the effects of one-time items,  changed based on changes in taxable
income and tax rates.

     Other net income  increased  slightly in the third quarter of 1997 compared
to the third  quarter  of 1996,  due to a small  improvement  in  earnings  from
unregulated subsidiaries. The Company's largest unregulated subsidiary, American
Payment Systems (APS), earned about $229,000 (after-tax) in the third quarter of
1997, an  improvement  of $568,000  over third quarter 1996 losses,  marking the
first positive  earnings  quarter in its history.  Similar  positive results are
expected going forward,  and APS is currently expected to "break even" for 1997,
compared to a $2.2 million  operating  loss  (after-tax  and excluding  one-time
charges) in 1996.



                                     - 22 -
<PAGE>

     Interest charges continued their downward trend, decreasing by $1.3 million
in the third  quarter of 1997  compared to the third quarter of 1996 as a result
of the Company's refinancing program and strong cash flow.


NINE MONTHS OF 1997 VS. NINE MONTHS OF 1996
-------------------------------------------

     Earnings for the first nine months of 1997 were $39.5 million, or $2.82 per
share, down $0.5 million, or $.02 per share, from the first nine months of 1996.
Earnings  from   operations,   which  exclude  one-time  items  and  accelerated
amortization  of  costs  attributable  to  one-time  items,  decreased  by $16.2
million,  or $1.14 per share,  in the first nine months of 1997  compared to the
first nine months of 1996.  The one-time items recorded in the first nine months
of 1997 were: a gain from an income tax expense  reduction of $6.7  million,  or
$.48 per share,  which makes provision for the cumulative  deferred tax benefits
associated with the future decommissioning of fossil fuel generating plants, and
a $.05 per share gain related to  subleasing  office space.  The one-time  items
recorded in the first nine months of 1996, which amounted to a net loss of $0.88
per share, were: charges of $23 million ($13.4 million  after-tax),  or $.95 per
share, from early retirement and voluntary severance programs,  a charge of $1.4
million ($0.8 million after-tax),  or $.06 per share, for the cumulative loss on
an office space sublease,  and a gain of $1.8 million  (after-tax),  or $.13 per
share, from the repurchase of preferred stock at a discount to par value.

     In an order by the Connecticut  Department of Public Utility Control (DPUC)
issued on December  31,  1996,  the Company was  instructed  to  accelerate  the
amortization  of regulatory  assets by as much as $4.1 million  (after-tax),  or
$.29 per share, in 1997, provided that the return on utility common stock equity
exceeded 10.5 percent for the year. The Company  currently  projects that,  with
the  one-time  tax  benefit   mentioned   above,  the  full  $4.1  million  1997
amortization  amount can be charged and the 1997 return on utility  common stock
equity will still equal or exceed 10.5  percent.  The full amount was charged in
the second quarter of 1997.  Absent one-time gains,  the Company does not expect
to achieve a 10.5  percent  level of return on utility  common stock equity from
earnings from  operations for the year. See the LOOKING FORWARD section for more
information.

     Retail  operating  revenues  decreased by about $24.1  million in the first
nine months of 1997 compared to the first nine months of 1996:

  .   A  retail  kilowatt-hour  sales  decrease  of 0.8%  from  the  prior  year
     decreased  retail  revenues by $3.4 million and sales margin  (revenue less
     fuel expense and  revenue-based  taxes) by $2.7  million.  Sales  decreased
     about  0.8%  from  milder  weather  during  the first  nine  months of 1997
     compared to the mild,  but less so,  weather  experienced  during the first
     nine months of 1996, and about 0.4% due to the leap year day in 1996. There
     appears  to be a small,  about  0.5%,  "real"  (i.e.  not  attributable  to
     abnormal weather or leap year)  kilowatt-hour  sales increase in the first
     nine months of 1997 compared to the first nine months of 1996.

  .   Reductions in customer  bills, as agreed to by the Company and the DPUC in
     December 1996, decreased retail revenues by about $15.1 million,  including
     suspension  of the fossil  fuel  adjustment  clause  (FAC)  mechanism  that
     reduced  revenues by $3.6 million.  This was consistent  with the Company's
     expectations,  as  previously  reported in the Company's  Quarterly  Report
     (Form 10-Q) for the fiscal quarter ended June 30, 1997. Other reductions in
     customer bills, due to rate mix,  contract  pricing and other  pass-through
     reductions, decreased retail revenues by about $5.6 million.

     Wholesale  "capacity"  revenues  increased  $2.0  million in the first nine
months of 1997  compared  to the first nine months of 1996.  Wholesale  "energy"
revenues,  which increased  during the first nine months of 1997 compared to the
first nine months of 1996 as a result of nuclear  generating unit outages in the
region, are a direct offset to wholesale energy expense and do not contribute to
sales margin.

     Retail fuel and energy  expenses  increased  by $10.3  million in the first
nine months of 1997  compared to the first nine months of 1996.  These  expenses
increased by $8.8 million due to the need to purchase more  expensive


                                     - 23 -
<PAGE>

energy to replace  generation by nuclear  generating  units: for the Connecticut
Yankee  unit,  which ran at nearly full  capacity in the first six and  one-half
months of 1996,  for Millstone  Unit 3, which ran at nearly full capacity in the
first quarter of 1996,  and for an unplanned  eight-day  extension of a Seabrook
nuclear  generating  unit  refueling  outage in the second  quarter of 1997 that
increased the Company's  replacement  generation cost by about $0.7 million. The
Seabrook  unit was  returned to service on June 28, 1997.  Millstone  Unit 3 was
taken out of service on March 30, 1996 and  Connecticut  Yankee was taken out of
service on July 23, 1996. For more on the status of the  Connecticut  Yankee and
Millstone Unit 3 units, see the LOOKING FORWARD section.  Retail fuel and energy
expenses  increased in the first nine months of 1997  compared to the first nine
months of 1996 by about $1.8 million, due primarily to higher fossil fuel prices
over the nine-month period. Under current DPUC regulations,  these costs are not
passed on to customers through the FAC.

     Operating  expenses for  operations,  maintenance  and  purchased  capacity
charges  increased by $3.1 million in the first nine months of 1997  compared to
the first nine months of 1996:

  .   Purchased capacity expense decreased $3.6 million,  due to declining costs
     from the retired  Connecticut  Yankee nuclear generating unit, and also due
     to slightly lower cogeneration costs.

  .   Operation  and  maintenance  expense  increased by $6.7  million.  General
     expenses at the Seabrook and Millstone 3 nuclear generating units increased
     by $1.7 million and $3.5 million respectively,  and a refueling outage cost
     overrun at the  Seabrook  unit  increased  expenses by about $0.8  million.
     Expenses associated with the Company's  re-engineering efforts increased by
     a net $1.7 million. Other general expenses increased by about $1.0 million.
     The  increase at  Millstone  Unit 3 was partly  offset by the reversal of a
     portion  of a 1996  provision  in "Other  income  (deductions)";  and other
     expense increases were partly offset by a $2.0 million reduction in pension
     expense,  due to changes in actuarial  assumptions and methodologies and an
     increase in the expected return on plan assets to 10%.

     Depreciation  expense,   exclusive  of  any  accelerated   amortization  of
conservation and load management program costs, increased by $2.1 million in the
first nine  months of 1997  compared  to the first nine  months of 1996.  Income
taxes,  exclusive of the effects of one-time items,  changed based on changes in
taxable income and tax rates.

     Other net income increased by $1.5 million in the first nine months of 1997
compared to the first nine  months of 1996,  due to an  improvement  in earnings
(reduction  in losses) from  unregulated  subsidiaries.  The  Company's  largest
unregulated  subsidiary,  American  Payment  Systems,  had  losses  of  $197,000
(after-tax)  in the first nine months of 1997, an  improvement  of $954,000 over
losses in the first nine months of 1996 of about $1,151,000.

     Interest charges  continued their significant  decline,  decreasing by $4.9
million,  or 9 percent,  in the first nine months of 1997  compared to the first
nine months of 1996 as a result of the Company's  refinancing program and strong
cash flow. Also, total preferred  dividends  (net-of-tax)  decreased slightly in
the first nine  months of 1997  compared  to the first nine  months of 1996 as a
result of purchases of preferred stock by the Company in 1996.

                                 LOOKING FORWARD

(THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS, WHICH ARE SUBJECT
TO UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CURRENTLY  EXPECTED.  READERS ARE CAUTIONED  THAT THE COMPANY  REGARDS  SPECIFIC
NUMBERS AS ONLY THE "MOST LIKELY" TO OCCUR WITHIN A RANGE OF POSSIBLE VALUES.)

Five-year rate plan
-------------------

     On December 31, 1996, the DPUC issued an order (the Order) that implemented
a 5-year  rate plan that would  reduce  rates and  accelerate  the  recovery  of
certain  "regulatory"  assets  beginning with deferred  conservation  costs. The
Order's schedule of rate reductions and accelerated amortizations was based on a
DPUC pro forma  financial


                                     - 24 -
<PAGE>

analysis that  anticipated  the Company  would earn an allowed  return on common
stock  equity  invested  in utility  rate base of 11.5% over the period  1997 to
2001. The Order established a set formula to share income that produces a return
above the 11.5% level: one-third applied to customer bill reductions,  one-third
applied to more rapid  amortization of regulatory assets, and one-third retained
by  shareowners.  If the Company were to achieve an 11.5% return on common stock
equity from its utility investment,  then earnings from utility operations would
be in the $3.30-$3.40 range for 1997 and succeeding years as well.

     It should be noted that,  although the Order was for the  five-year  period
1997-2001 and the Company agreed that it would begin to implement the multi-year
plan, it did not agree to commit to the five-year period. In addition, the DPUC,
in the Order, acknowledged that the Order could be revisited in the light of any
new  legislation.  The Connecticut  legislature did not pass an electric utility
restructuring  bill in the 1997  legislative  session,  but it is expected  such
legislation will be reintroduced in 1998.

1997
----

     There is no  assurance  that the Company  will  achieve the 11.5% return on
common  stock  equity  from its  utility  investment  allowed by the DPUC in the
Order. Utility income is greatly affected by weather-related  sales, fossil fuel
prices,  nuclear  generating unit availability,  and interest  rates...all items
over which the  Company  has little  control,  although  the Company is actively
engaged in hedging its exposure to fluctuating fuel costs and interest rates.

     Absent the  one-time  gains  recorded  in the second and third  quarters of
1997, the Company does not  anticipate,  at this time,  achieving a 10.5 percent
return on  utility  common  stock  equity for the year.  Even with the  one-time
gains, achievement of an 11.5% return, or roughly $3.30-$3.40 per share, may not
be  possible.  Consistently  milder  than  normal  weather  for the first  three
quarters of 1997 has reduced sales margin by about $4.0-$6.0  million,  or about
$.17-$.25 per share.  Unanticipated  retail revenue  reductions due to rate mix,
possibly caused by milder weather sales  patterns,  have reduced sales margin by
an additional $1.4 million,  or $.06 per share, with the most significant impact
in the summer months.

     It is unlikely that the Company's  aggressive cost control measures will be
able to  overcome  these  impacts  in the fourth  quarter,  where  earnings  are
expected to be in the $.45-$.55 per share range (assuming normal weather). Based
on these  assumptions,  earnings from  operations  for the year should be in the
neighborhood  of  $3.05-$3.10  per share,  while total  earnings would be higher
based on the level of any net one-time gains for the year.

     As a result of the Order,  it is anticipated  that retail revenues for 1997
will decrease from 1996 levels.  A reduction of about $15 million will be due to
reductions  in  customer  bills  as  agreed  to by the  Company  and the DPUC in
December 1996. (These reductions will be partially offset by about $3 million in
conservation  spending  reductions.  New  conservation  spending  is  no  longer
capitalized,  and changes in conservation  expense,  relative to the assumptions
used by the DPUC in the Order,  will be reflected  in retail  rates  through the
operation of the Conservation Adjustment Mechanism.)  Year-to-date,  the Company
has  experienced  $11.5 million of the anticipated  decline,  with the remainder
expected to occur in the fourth quarter.

     Also, as part of the Order,  the  operation of the Company's  long-standing
fossil fuel adjustment  clause (FAC) mechanism,  that allowed recovery in retail
rates of changes in fossil fuel  costs,  was  suspended  within a broad range of
fuel prices.  Revenues will decline by about $6 million in 1997 compared to 1996
due to this  suspension of the FAC.  While the Company  stands to benefit if the
prices  that the  Company  pays for its oil  purchases  fall  below  about $15 a
barrel, current prices are above that level. Although the Company cannot predict
the  direction  that fossil fuel prices will take in 1997 or 1998 and whether it
can  mitigate  entirely  this loss of FAC  revenue,  it is  actively  engaged in
hedging transactions to limit the Company's exposure to increases in fossil fuel
prices.

     The Company's revenues are also dependent on the level of retail sales. The
two primary factors that affect retail sales volume are economic  conditions and
weather.  Overall, 1996 weather was milder than normal;


                                     - 25 -
<PAGE>

however,  1996 also had a leap year day.  These two factors were  offsetting  in
their  impact  on  retail  sales,  and  actual  retail  sales  for 1996 of 5,340
gigawatt-hours should be considered about "normal" for that year. On this basis,
the Company experienced about 1% of "real" sales growth in 1996 (i.e.  exclusive
of weather and leap year factors)  over "normal" 1995 sales.  A similar level of
growth in 1997 from all  customer  groups  would have added  about $6 million to
sales margin (revenue less fuel expense and revenue-based  taxes).  Year-to-date
net  retail  sales  for 1997  are 0.8  percent  less  than  those  in 1996,  due
principally to weather-related  factors. If "normal" retail sales for the fourth
quarter of 1997 are  realized,  and  assuming 0.5 percent real growth from 1996,
total 1997 retail  gigawatt-hour  sales would be 5,322  gigawatt-hours,  or 0.3%
below the total 1996 sales level. On a weather-corrected basis, 1997 sales would
be 5,366 gigawatt-hours, or 0.5% above 1996 sales.

     No significant  change in wholesale  capacity sales revenue was anticipated
for 1997.  However,  wholesale  capacity  price has  strengthened  in short-term
markets, due to regional outages of nuclear generating plants and changes in the
New  England  Power  Pool  capability   responsibility   requirements   for  its
participants.  The Company has increased revenue by $2.1 million from such sales
in the  first  nine  months  of 1997.  The  strength  of these  markets  for the
remainder  of the year and into 1998 will  depend on the timing of the return to
service of the  nuclear  units at  Millstone  Station and how the  capacity  and
energy markets  perform under the new New England Power Pool bidding system when
it is implemented. Implementation of the bidding system is currently expected in
mid-1998.

     The Company has dealt with the  potential  loss of customers as a result of
self-generation,  relocation or  discontinuation  of operations by  successfully
negotiating 60 multi-year contracts with major customers,  including its largest
customer,  Yale University,  which is constructing a cogeneration unit that will
produce  approximately  one  half of this  customer's  electricity  requirements
(about  1% of the  Company's  total  1997  estimated  retail  sales)  commencing
sometime in early 1998.  Additional  multi-year customer contracts may be signed
in the future.  While providing cost reduction and price stability for customers
and helping the Company  maintain  its  customer  base for the long term,  these
contracts are expected to cause  reductions in retail revenue that have averaged
$2-$3  million  per  year,  incrementally,  in  the  recent  past.  Year-to-date
reductions of $3-$4 million have been experienced in 1997 compared to 1996.

     The Company  expects that  generating  output from its ownership  shares in
nuclear  generating  units  (Seabrook Unit 1, Millstone Unit 3, and  Connecticut
Yankee)  will be  significantly  less in 1997  than  in  1996.  Seabrook  Unit 1
operated  at a nearly  97%  capacity  factor in 1996,  well  above  the  assumed
"normal" 90% level between  refueling  outages.  A more normal level of Seabrook
Unit 1 operation in 1997, and the downtime for a 50-day  refueling outage in the
second  quarter of 1997,  will cause the Company to purchase or generate  energy
using higher cost fuels,  leading to about a $3 million increase in fuel expense
for the year, net of a replacement  fuel  provision  accrued  between  scheduled
refueling  outages.  The Company's total operation and maintenance  expenses for
Seabrook Unit 1, including costs of the refueling  outage,  will also contribute
to an expected $7 million increase in operations and maintenance expense in 1997
over 1996 levels,  which will be partly  offset by a decrease of $1.2 million in
provisions for routine plant outage costs.

     Millstone  Unit 3 was taken out of  service  on March  30,  1996,  and will
remain shut down pending a comprehensive  Nuclear  Regulatory  Commission  (NRC)
inquiry into the conformity of the unit and its  operations  with all applicable
NRC  regulations  and standards.  Relative to 1996, the loss of low-cost  energy
from this unit for all of 1997  should add about $1.5  million to the  Company's
fuel  expense.  It is not  likely  that  Unit 3 will  return to  service  before
year-end 1997, but when it does commence generating,  the Company's sales margin
will improve from a fuel expense  decline of about  $500,000,  partly  offset by
replacement  fuel  provision  of about  $100,000,  for  every  month  of  normal
operation.  The Company's total operation and maintenance expenses for Millstone
Unit 3 are  now  estimated  to be $12  million  for  1997,  which  includes  the
increased costs of correcting deficiencies resulting from the NRC's inquiry. The
Company  anticipates  that,  once NRC  deficiencies  are corrected and Unit 3 is
returned to service,  operating costs should ramp down to more normal levels for
an efficient and safe nuclear unit of this class. On August 7, 1997, the Company
and the other nine  minority,  non-operating  joint owners of  Millstone  Unit 3
filed lawsuits against Northeast  Utilities (NU) and its trustees,  as well as a
demand for  arbitration


                                     - 26 -
<PAGE>

against  The  Connecticut  Light and Power  Company  and  Western  Massachusetts
Electric  Company,  the  subsidiaries of NU who are the majority joint owners of
the unit and who have  contracted  with the minority joint owners to operate it.
The nine  non-operating  joint owners, who together own about 19.5% of the unit,
claim that NU and its subsidiaries failed to comply with NRC regulations, failed
to operate Millstone Station in accordance with good utility operating  practice
and concealed  their failures from the  non-operating  joint owners and the NRC.
The  arbitration  and lawsuits seek to recover  costs of purchasing  replacement
power and increased  operation and maintenance costs resulting from the shutdown
of Millstone Unit 3.

     The Connecticut  Yankee unit was taken out of service on July 23, 1996 and,
by decision of the Board of Directors  of that company in December of 1996,  has
been retired.  Relative to 1996,  the loss of low cost energy from this unit for
all of 1997 (it operated at virtually 100% output in 1996 before  shutting down)
should add about $4.5 million to the Company's fuel expense. This increased fuel
expense is  expected  to be more than  offset by a ramping  down of  Connecticut
Yankee's  operating  expenses,  which are now expected to DECREASE by about $5.8
million for the entire year 1997 ( from $18.3  million in 1996 to $12.5  million
in 1997).  These  expenses  are  expected to continue to decline by  substantial
amounts  before  leveling  out at about $6  million  per year  after  1999 until
decommissioning is complete.  However, the ability of the Company to recover its
ownership  share  of  future  costs   associated  with  the  retirement  of  the
Connecticut Yankee unit will be dependent upon the outcome of pending regulatory
proceedings before the Federal Energy Regulatory Commission.

     To  summarize,  the total  incremental  impact of nuclear  generating  unit
outages on the Company's expense levels anticipated for 1997 relative to 1996 is
currently  estimated as an increase of about $9 million in fuel expense and $4.5
million in  operation  and  purchased  capacity  expense.  This amount  would be
equivalent to about $.55 per share of the Company's common stock.

     Another major factor affecting the Company's earnings prospects will be the
Company's ability to control operating  expenses.  The Company offered voluntary
early retirement programs and a voluntary  severance program to union,  nonunion
and management  employees in 1996. The cost of these programs resulted in a 1996
pre-tax  charge of $23 million and should lead to a 1997  employee  reduction of
230 employees (by year-end)  from a level of  approximately  1,300  employees at
year-end  1995. A portion of the resulting  personnel  cost savings  occurred in
1996, but the majority of the savings will be realized as the Company's  process
re-engineering  efforts are completed over the next several  years.  Incremental
savings from personnel  reductions of $4 million in 1997 ($2.4 million  realized
in the first nine  months) and another $6 million in 1998 are  estimated.  Other
unquantified process re-engineering savings are anticipated over this time frame
as well.

     Anticipated  depreciation  expense should  increase by $2-3 million in 1997
from 1996  levels,  a slower rate of increase  than in prior years  because 1996
capital spending of $45 million (excluding nuclear fuel) was at its lowest level
in over 15 years,  and also  because  new  conservation  program  spending is no
longer capitalized and depreciated.

     The Company  expects  continued  reductions in annual  interest  expense of
about $7-8 million to a 1997 level of $62-63 million, at current interest rates.
This reduction is due to refinancings of some Company debt in 1996 and 1997, and
to a  significant  repayment  of debt in 1996  and  1997  made  possible  by the
Company's excellent cash flow position. In fact, although the Company had no net
change in  retained  earnings in 1996,  it was able to improve its equity  ratio
from 31.7% to 33.2% as a result of debt reduction. The anticipated 1997 interest
expense  level is about  45% below the 1989  level  and  would  mark the  eighth
consecutive year of net interest expense decline.

     In the fall of 1996,  using  proceeds  of a lower cost bank term loan,  the
Company was  successful  in  purchasing  $67 million of the  approximately  $200
million principal amount of outstanding Seabrook Secured Lease Obligation Bonds,
for its own account.  The interest income that the Company receives from its $67
million investment in these bonds appears on the income statement as a credit to
interest  expense,  partially  offsetting the interest  expense  incurred on the
Seabrook Secured Lease Obligation Bonds.



                                     - 27 -
<PAGE>

     The Company  expects an improvement in unregulated  subsidiary  earnings in
1997 compared to the results of 1996, due partly to  non-recurrence  of one-time
pre-tax  charges   incurred  in  1996  totaling  $4.3  million  and,  also,  the
achievement of a near  "break-even"  level in earnings from its American Payment
Systems,  Inc.  subsidiary  operations,  which  improvement  would  result in an
increase in the Company's pre-tax income of $3-$4 million. In the near term, the
Company's  investments  in  these  subsidiaries  are  unlikely  to  have a major
positive  effect on  earnings,  but the Company  continues to believe that these
investments will contribute to future earnings growth.

     As announced in a press release dated July 1, 1997,  the Company has agreed
to lend  up to $15  million  to the  Company's  Employee  Stock  Ownership  Plan
("ESOP") for the purpose of purchasing  shares of the Company's  common stock in
open-market  transactions.  As of October 22, 1997, approximately 314,000 shares
had been purchased by the ESOP.  Based on this number of shares  purchased,  the
net effect will be to increase  earnings  per share by about $.02 in 1997 and by
an  additional  $.04 per share in 1998 over 1997.  The earnings per share impact
will gradually  reverse,  to no net change at the end of the 12-year period,  as
the shares are allocated to employees' ESOP accounts and the loan is repaid.

     The Company  expects that 1997  quarterly  earnings  from  operations  will
follow  a  pattern  similar  to  that  of  1996,  with  third  quarter  earnings
contributing  over half of the annual total.  Summer  seasonal  retail sales and
summer pricing are the predominant factors contributing to this pattern.

1998 and on
-----------

     Looking  forward to 1998,  the  Company is  expecting  significant  expense
declines  from a number of sources.  From the nuclear  generating  units,  it is
expected that operation and maintenance expenses associated with Seabrook Unit 1
and  Connecticut  Yankee should decline by a total of about $8 million (about $2
million  less of a decrease  than  previously  estimated,  due to recent  budget
changes);  if Millstone Unit 3 returns to service,  the expense  associated with
that unit  should  decline as well.  Seabrook  Unit 1 should  have no  refueling
outage in 1998 and,  if it  operates at normal 90%  availability,  fuel  expense
should  decline by about $1.4 million,  net of the  replacement  fuel  provision
accrual  between  scheduled  refueling  outages;  if Millstone Unit 3 returns to
service,  fuel expense  should decline by $400,000 for every month of operation,
net of the replacement  fuel provision  accrual of $100,000 per month...up to $4
million for the year if full power is reached by April 1, 1998.  As noted above,
personnel  costs should  decline by about $6 million  from the full  benefits of
voluntary  separation  programs.  Interest  costs are  expected  to  continue to
decline by about $10 million from  reductions in interest rates and repayment of
debt, reaching a level (about $51 million) last experienced in 1984.

     To  summarize,  the  potential  for 1998 expense  reduction  from the items
identified  above is $27 to $31  million.  While  there  will  probably  be some
decline in 1997 retail  revenues due to bill  reductions (no net sales growth is
anticipated,   as  Yale  University  begins  to  cogenerate  a  portion  of  its
electricity requirements), and while other factors may increase costs (e.g. wage
increases,  depreciation),  the substantial expense reductions  identified above
should allow earnings from operations to increase into the above-11.5% return on
common stock equity "sharing" range of the DPUC Order and well above a $3.40 per
share level.

     On  June  30,  1997,  the  Company's  unionized  employees  accepted  a new
five-year  agreement,  amending and  extending the existing  agreement  that was
scheduled to remain in effect through May 15, 1998.  The new agreement  provides
for,  among other things,  2% annual wage  increases  beginning in May 1998, and
annual  lump  sum  bonuses  of 2.5% of base  annual  straight  time  wages  (not
cumulative).  These  provisions  will  restrict  the  growth  of  the  Company's
bargaining unit base wage expense to about $500,000 per year. The agreement also
provides for job security for longer term bargaining  unit  employees,  and will
allow the Company some  flexibility  in adjusting  work methods,  as part of its
ongoing process re-engineering efforts.

     Although the $2.88  indicated  annual common stock  dividend level for 1996
represented a payout of 100% of total 1996  earnings,  the  Company's  cash flow
remains,  and is expected to remain, very strong. Net cash provided by operating
activities  was  $144.8  million  in 1996,  nearly  3.6 times the  common  stock
dividend  payout,  one of the 


                                     - 28 -
<PAGE>

highest  such  "coverage"  levels in the utility  industry.  The DPUC Order will
limit earnings from utility  operations such that further dividend increases may
have to be delayed  for  several  years.  However,  the Order  should  allow the
Company to recover some of its regulatory  assets more rapidly,  help it prepare
for  competition in the electric  utility  industry,  and help maintain its cash
flow at its  excellent  current  level  through  the end of the  decade.  If the
Company is able to grow income and earnings into the Order's  "sharing" range in
1998, the common stock dividend payout ratio at the current  indicated  dividend
rate would be close to 80%.


                                     - 29 -
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

     On November 2, 1993, the Company received  "updated"  personal property tax
bills  from  the  City of New  Haven  (the  City)  for the tax  year  1991-1992,
aggregating $6.6 million,  based on an audit by the City's tax assessor.  On May
7, 1994,  the Company  received a  "Certificate  of  Correction....to  correct a
clerical  omission  or  mistake"  from the City's tax  assessor  relative to the
assessed value of the Company's  personal  property for the tax year  1994-1995,
which certificate  purports to increase said assessed value by approximately 53%
above the tax assessor's  valuation at February 28, 1994,  generating tax claims
of approximately $3.5 million. On March 1, 1995, the Company received notices of
assessment  changes  relative to the assessed  value of the  Company's  personal
property for the tax year  1995-1996,  which  notices  purport to increase  said
assessed value by approximately 48% over the valuation  declared by the Company,
generating  tax claims of  approximately  $3.5  million.  On May 11,  1995,  the
Company received  notices of assessment  changes relative to the assessed values
of the Company's  personal  property for the tax years  1992-1993 and 1993-1994,
which notices purport to increase said assessed values by approximately  45% and
49%, respectively,  over the valuations declared by the Company,  generating tax
claims of approximately $4.1 million and $3.5 million, respectively. On March 8,
1996,  the  Company  received  notices of  assessment  changes  relative  to the
assessed value of the Company's  personal  property for the tax year  1996-1997,
which notices purport to increase said assessed value by approximately  57% over
the  valuations  declared by the Company and are expected to generate tax claims
of approximately $3.8 million. On March 7, 1997, the Company received notices of
assessment  changes  relative to the assessed  value of the  Company's  personal
property for the tax year  1997-1998,  which  notices  purport to increase  said
assessed value by approximately 54% over the valuations  declared by the Company
and are  expected to generate  tax claims of  approximately  $3.7  million.  The
Company  is  vigorously  contesting  each of these  actions  by the  City's  tax
assessor.  In January 1996, the Connecticut Superior Court granted the Company's
motion for summary  judgment  against the City relative to the earliest tax year
at issue,  1991-1992,  ruling that, after January 31, 1992, the tax assessor had
no statutory  authority to revalue  personal  property  listed and valued on the
Company's tax list for the tax year  1991-1992.  This Superior  Court  decision,
which would also have been  applicable to and defeated the assessor's  valuation
increases  for the two  subsequent  tax  years,  1992-1993  and  1993-1994,  was
appealed by the City. On April 11, 1997, the Connecticut  Supreme Court reversed
the Superior  Court's  decisions in this and two other companion cases involving
other taxpayers,  ruling that the tax assessor had a three-year  period in which
to audit and revalue  personal  property  listed and valued on the Company's tax
list for the tax year  1991-1992.  It is currently  anticipated  that all of the
pending  cases for all of the tax years in  dispute  will now be  scheduled  for
trial  in the  Superior  Court  relative  to the  Company's  claim  that the tax
assessor's increases in personal property tax assessments for the three earliest
years were unlawful for other reasons and relative to the  vigorously  contested
issue, for all of the tax years, as to the  reasonableness of the tax assessor's
valuation method,  both as to amount and methodology.  It is the present opinion
of the  Company  that  the  ultimate  outcome  of this  dispute  will not have a
significant impact on the long-term financial position of the Company.


                                     - 30 -
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Exhibits.
<TABLE>
<CAPTION>
           Exhibit
          Table Item            Exhibit
           Number               Number                                   Description
          ----------            -------                                  -----------

            <S>                  <C>          <C>                                                                 
            (10)                 10.22        Copy of Amended and Restated Employment  Agreement,  effective as
                                              of March 1,  1997,  between The United  Illuminating  Company and
                                              Richard  J.  Grossi,  amending  and  replacing  Exhibits 10.14a*,
                                              10.14b** and 10.14c***.

            (10)                 10.23        Copy of Amended and Restated Employment  Agreement,  effective as
                                              of March 1,  1997,  between The United  Illuminating  Company and
                                              Robert  L.  Fiscus,  amending  and  replacing   Exhibits 10.15a*,
                                              10.15b** and 10.15c***.

            (10)                 10.24        Copy of Amended and Restated Employment  Agreement,  effective as
                                              of March 1,  1997,  between The United  Illuminating  Company and
                                              James  F.  Crowe,   amending  and   replacing   Exhibits 10.16a*,
                                              10.16b** and 10.16c***.

            (10)                 10.25        Copy of Employment Agreement,  dated as of March 1, 1997, between
                                              The United Illuminating Company and Albert N. Henricksen.

            (10)                 10.26        Copy of Employment Agreement,  dated as of March 1, 1997, between
                                              The United Illuminating Company and Anthony J. Vallillo.

            (10)                 10.27        Copy of Employment Agreement,  dated as of March 1, 1997, between
                                              The United Illuminating Company and Rita L. Bowlby.

            (10)                 10.28        Copy of Employment Agreement,  dated as of March 1, 1997, between
                                              The United Illuminating Company and Stephen F. Goldschmidt.

            (10)                 10.29        Copy of Employment Agreement,  dated as of March 1, 1997, between
                                              The United Illuminating Company and James L. Benjamin.

            (10)                 10.30        Copy of Employment Agreement,  dated as of March 1, 1997, between
                                              The United Illuminating Company and Kurt D. Mohlman.

            (10)                 10.31        Copy of Employment Agreement,  dated as of March 1, 1997, between
                                              The United Illuminating Company and Charles J. Pepe.
</TABLE>


                                     - 31 -
<PAGE>
<TABLE>
<CAPTION>
           Exhibit
          Table Item            Exhibit
           Number               Number                                   Description
          ----------            -------                                  -----------

            <S>                  <C>          <C>                                                                           
            (12), (99)           12           Statement  Showing  Computation  of Ratios of  Earnings  to Fixed
                                              Charges  and Ratios of Earnings  to  Combined  Fixed  Charges and
                                              Preferred  Stock  Dividend   Requirements  (Twelve  Months  Ended
                                              September 30,  1997 and Twelve  Months Ended  December 31,  1996,
                                              1995, 1994, 1993 and 1992).

            (27)                 27           Financial Data Schedule
</TABLE>

    * Filed with Annual  Report  (Form 10-K) for fiscal year ended  December 31,
      1992.
   ** Filed with Annual Report (Form 10-K) for fiscal year ended  December 31,
      1995.
  *** Filed with Quarterly  Report (Form 10-Q) for fiscal quarter ended June 30,
      1995.


     (b) Reports on Form 8-K.

          None


                                     - 32 -
<PAGE>




                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                         THE UNITED ILLUMINATING COMPANY




Date      ll/13/97                 Signature       /s/ Robert L.Fiscus
    -----------------                       ----------------------------------
                                                       Robert L. Fiscus
                                                       President and
                                                       Chief Financial Officer



                                     - 33 -
<PAGE>


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
        Exhibit
      Table Item    Exhibit
        Number      Number                                      Description                                   Page No.
      ----------    -------                                     -----------                                   --------

          <S>        <C>          <C>                                                                       
          (10)       10.22        Copy of Amended and  Restated  Employment  Agreement,  effective  as of
                                  March 1,  1997, between The United Illuminating  Company and Richard J.
                                  Grossi,   amending  and   replacing   Exhibits 10.14a*,   10.14b**  and
                                  10.14c***.

          (10)      10.23         Copy of Amended and  Restated  Employment  Agreement,  effective  as of
                                  March 1,  1997, between The United  Illuminating  Company and Robert L.
                                  Fiscus,   amending  and   replacing   Exhibits 10.15a*,   10.15b**  and
                                  10.15c***.

          (10)      10.24         Copy of Amended and  Restated  Employment  Agreement,  effective  as of
                                  March 1,  1997,  between The United  Illuminating  Company and James F.
                                  Crowe, amending and replacing Exhibits 10.16a*, 10.16b** and 10.16c***.

          (10)      10.25         Copy of Employment  Agreement,  dated as of March 1,  1997, between The
                                  United Illuminating Company and Albert N. Henricksen.

          (10)      10.26         Copy of Employment  Agreement,  dated as of March 1,  1997, between The
                                  United Illuminating Company and Anthony J. Vallillo.

          (10)      10.27         Copy of Employment  Agreement,  dated as of March 1,  1997, between The
                                  United Illuminating Company and Rita L. Bowlby.

          (10)      10.28         Copy of Employment  Agreement,  dated as of March 1,  1997, between The
                                  United Illuminating Company and Stephen F. Goldschmidt.

          (10)      10.29         Copy of Employment  Agreement,  dated as of March 1,  1997, between The
                                  United Illuminating Company and James L. Benjamin.

          (10)      10.30         Copy of Employment  Agreement,  dated as of March 1,  1997, between The
                                  United Illuminating Company and Kurt D. Mohlman.

          (10)      10.31         Copy of Employment  Agreement,  dated as of March 1,  1997, between The
                                  United Illuminating Company and Charles J. Pepe.

        (12), (99)  12            Statement  Showing  Computation  of Ratios of Earnings to Fixed Charges
                                  and Ratios of Earnings to Combined  Fixed Charges and  Preferred  Stock
                                  Dividend  Requirements  (Twelve  Months  Ended  September 30,  1997 and
                                  Twelve Months Ended December 31, 1996, 1995, 1994, 1993 and 1992).

          (27)      27            Financial Data Schedule

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