TEP Officials Disappointed by ''Reckless'' Rate Proposals

TUCSON, Ariz.--(Business Wire)--
A pair of proposed alternatives to Tucson Electric Power's (TEP's)
requested rate increase would compromise the utility's ability to
provide safe, reliable service, company officials said today.

TEP estimates that a proposal filed Friday by consultants to the
staff of the Arizona Corporation Commission (ACC) would reduce current
rates by 2 to 3 percent - even though the company currently charges
less than it did in 1994. The state's Residential Utility Consumer
Office (RUCO) also proposed rates lower than TEP's current retail
average of 8.4 cents per kilowatt-hour.

TEP has requested a 15 to 23 percent rate increase, but
residential customers with average usage would see a smaller increase
- from about 8 to 13 percent.

"The proposals from staff's consultants and RUCO are simply
reckless," said James S. Pignatelli, Chairman, President and CEO for
TEP and its parent company, UniSource Energy Corporation (NYSE: UNS).

"The rates proposed by staff's consultants and RUCO would not
provide the increases we need to cover our rising costs and serve our
customers' growing energy needs," Pignatelli said. "They clearly did
not consider the financial impact their recommendations would have on
this company."

The ACC is expected to address TEP's rate request late this year.
Before the commission votes, an administrative law judge (ALJ) will
review testimony and evidence filed by TEP, ACC staff, RUCO and other
parties and will prepare a recommended opinion and order.

While consultants working for ACC staff recommended a nearly
10-percent reduction in TEP's base rates, they proposed a Purchased
Power and Fuel Adjustment Clause (PPFAC) that would generate enough
revenue to bring rates back up within 2 or 3 percent of current
levels, Pignatelli said. That estimate is based on a natural gas price
of $9 per million British Thermal Units.

"The proposed PPFAC would at least help us recover our rising fuel
and purchased power costs," Pignatelli said. "But after going more
than a decade without a rate increase, a decrease in base rates would
threaten our financial stability and, frankly, defies logic."

ACC staff's consultants and RUCO advised against incorporating
market power prices in rates through the alternate "market" and
"hybrid" rate structures proposed by TEP. They also recommended that
the ACC deny any compensation for the excess costs TEP incurred under
terms of the 1999 agreement that capped the company's rates through
the end of 2008.

"These consultants are recommending that the state of Arizona
simply ignore its obligations in the 1999 agreement, which would be a
serious mistake given our performance under that contract," Pignatelli
said. "We're early in the process, though, so the ACC still has plenty
of time to work toward a resolution that recognizes TEP's costs and
places TEP in the financial position it would have been in without the
contract."

TEP's rates were reduced three times between 1998 and 2000 and
currently are lower than they were in 1994. Consumer prices have
increased more than 40 percent since then, while the cost of labor,
fuel, construction materials and other business needs have risen even
more dramatically.

In addition to facing higher operating costs, TEP is preparing to
invest nearly $1.4 billion over the next five years in transmission
lines, transformers, substations and other improvements that will be
needed to serve customers' growing energy needs. The rates proposed by
ACC staff and RUCO would deny TEP the revenues needed to fund such
projects while increasing the company's borrowing costs.

"I'm hopeful that the ALJ, commissioners and even the ACC staff
itself will recognize the shortsighted nature of these consultants'
proposals," Pignatelli said. "Their recommendations might appear to
benefit customers, but they would increase our costs, reduce our
ability to invest in service reliability and erode the financial
stability we've worked so hard to re-establish at TEP."

Copies of the proposals submitted by ACC staff consultants and
RUCO as well as other materials from TEP's rate case are available
online at uns.com. TEP expects to file its rebuttal testimony on April
1, and a hearing before the ALJ is scheduled to begin May 12.

TEP, a subsidiary of UniSource Energy, provides safe, reliable
electric service to nearly 400,000 customers in the Tucson
metropolitan area. For more information about the company, visit
TEP.com. For more information about UniSource Energy, visit uns.com.

This news release contains forward-looking information that
involves risks and uncertainties that include, but are not limited to:
the outcome of regulatory proceedings and the rate levels TEP, UNS Gas
and UNS Electric are authorized to charge their customers; changes in
accounting standards; regional economic and market conditions which
could affect customer growth and the cost of fuel and power supplies;
changes to long-term contracts; performance of TEP's generating
plants; the weather; changes in asset depreciable lives; changes
related to the recognition of unbilled revenue; the cost of debt and
equity capital; the ongoing restructuring of the electric industry;
and other factors listed in UniSource Energy's Form 10-K and 10-Q
filings with the Securities and Exchange Commission. The preceding
factors may cause future results to differ materially from outcomes
currently expected by UniSource Energy.

Tucson Electric Power
Joe Salkowski, 520-884-3625 (News Media)
Jo Smith, 520-884-3650 (Financial Analyst)

Copyright Business Wire 2008