UniSource Energy Reports Third Quarter 2009 Earnings, Maintains 2009 Earnings Guidance

http://www.businesswire.com/news/home/20091028006646/en

* UniSource Energy`s net income for the third quarter of 2009 was $58 million,
or $1.45 per diluted share of common stock, compared with a net loss of $11
million, or $0.31 per diluted share, in the third quarter of 2008.
* Improvement in third quarter 2009 earnings is due primarily to hot summer
weather, significantly lower fuel and purchased power expenses and operating
cost containment.
* UniSource Energy is maintaining its 2009 reported GAAP earnings guidance of
$2.55 to $2.70 per diluted share.

TUCSON, Ariz.--(Business Wire)--
UniSource Energy Corporation (NYSE: UNS) today reported third quarter 2009 net
income of $58 million, or $1.45 per diluted share of common stock, compared with
a net loss of $11 million, or $0.31 per diluted share, in the same period last
year. For the nine months that ended September 30, 2009, UniSource Energy
reported net income of $94 million, or $2.40 per diluted share of common stock,
compared with a net loss of $9 million, or $0.25 per diluted share of common
stock, in the same period of 2008.

UniSource Energy`s financial results reflect those of its principal subsidiary,
Tucson Electric Power (TEP), which reported net income of $55 million for the
third quarter of 2009, compared with a net loss of $12 million during the third
quarter of 2008.

TEP`s improved financial performance in the third quarter of 2009 can be
attributed to hot summer weather, a 32 percent decrease in net fuel and
purchased power costs, revenue reserves recorded in 2008, new retail rates and
prudent management of operating expenses.

Hotter than usual summer weather led to a 2.4 percent increase in retail
kilowatt-hour (kWh) sales compared with the same period last year. Higher retail
sales levels and a new rate structure that charges higher rates for higher
levels of energy use helped drive TEP`s retail revenues $33 million higher than
those from the third quarter of 2008. This increase excludes the impact of
revenue reserves in 2008 and surcharges that pass along to customers the cost of
renewable power and energy efficiency programs.

"Although hot weather boosted sales beyond our expectations our retail energy
sales on a weather-adjusted basis are in line with the levels we anticipated,"
said Paul Bonavia, UniSource Energy`s Chairman, President and CEO.

TEP`s fuel and purchased power expense was lower by $50 million due to the
nearly 60% decline in the average market price of natural gas and power from the
same period last year. That decline contributed to a $79 million increase in
TEP`s third-quarter utility gross margin, which reflects retail and wholesale
revenues net of costs for fuel, purchased power and transmission.

UniSource Energy`s base operating and maintenance expense, excluding costs
directly offset by customer surcharges or third party reimbursements, increased
by less than $1 million from the third quarter of 2008 despite a nearly $2
million increase in pension-related expenses. Pension expense is primarily a
function of stock market performance and other factors not under the company`s
control.

"I am pleased with our ability to keep our operating costs under control,"
Bonavia said. "While there are signs that the current economic downturn may have
reached its bottom here in Arizona, we`re continuing to align our costs with the
lower sales levels while maintaining investment levels necessary to safely and
reliably meet our customers` energy needs," Bonavia said.

The expansion of TEP`s customer base grew at the rate projected by the company,
gaining 0.5 percent over the past year. "The economy has certainly slowed TEP`s
growth, but I`m encouraged to see that we`re still adding customers," Bonavia
said.

TEP`s cash flows remain strong and are expected to combine with those of sister
utilities UNS Gas and UNS Electric to push UniSource Energy`s 2009 consolidated
operating cash flows above $330 million. Cash flows from operations are expected
to be more than adequate to cover the company`s estimated consolidated capital
expenditures of approximately $290 million.

Tucson Electric Power

Third Quarter 2009 Results of Operations

TEP reported net income of $55 million in the third quarter of 2009, compared
with a net loss of $12 million during the same period in 2008.

* Retail electric revenues increased 12.6 percent, or $33 million, excluding
non-cash revenue deferrals in 2008 and the pass-through components for renewable
energy and energy efficiency surcharges. The increases resulted from a 2.4
percent increase in total retail kWh sales combined with a new rate structure
that charges higher rates for higher levels of energy use.

* kWh sales to residential customers increased 6.8 percent compared with the
third quarter of 2008. Hot summer weather led to a 32 percent increase in
cooling degree days over last year`s level.
* Third-quarter kWh sales to commercial customers were up 1 percent compared
with those from last year. The sluggish economy continues to impact TEP`s
industrial customer base, whose usage declined 4.2% compared with the third
quarter of 2008.

* Long-term wholesale revenues decreased $4 million, or 29 percent, due to lower
sales volumes. The margin on long-term wholesale sales for the third quarter of
2009 was $6 million.
* A $30 million revenue reserve recorded in the third quarter of 2008 did not
recur in 2009.
* PPFAC-related expenses, net of offsets, decreased by $50 million compared with
the fuel and purchased power expenses net of short term wholesale revenues
recorded during the third quarter of 2008. The decrease was due primarily to
lower wholesale market prices for energy and natural gas.
* O&M expense, excluding a $5 million increase in expenses directly offset by
customer surcharges and third party reimbursements, increased by less than $1
million. Higher pension and generating plant maintenance expenses were mostly
offset by cost containment measures.
* Depreciation and amortization increased $7 million due primarily to plant
additions, new depreciation rates for generating assets and amortization of
regulatory assets resulting from the 2008 TEP rate order.
* Interest expense decreased $2 million due primarily to lower rates on variable
rate debt and lower balances of capital lease obligations.

UNS Gas

UNS Gas reported net losses of $1.3 million in the third quarters of 2009 and
2008. UNS Gas` operations are seasonal in nature with peak usage occurring in
the winter months.

In November 2008, UNS Gas filed a general rate case with the Arizona Corporation
Commission (ACC) requesting an average base rate increase of 6 percent, or
approximately $9.5 million, to cover increases in capital and operating costs.
The ACC`s staff has recommended rates that would provide a $3.4 million revenue
increase. Hearings before an administrative law judge (ALJ) concluded in August
2009, and a recommendation from the ALJ is pending.

UNS Electric

UNS Electric reported net income of $3.6 million for the third quarter of 2009,
compared with $2.5 million in the same period last year. The improvement is due
primarily to hot summer weather. Like TEP, UNS Electric`s operations are
seasonal in nature with peak energy demand occurring in the summer months.

Third-quarter retail kWh sales rose 8.2 percent compared with the same period
last year due to the operations of a new copper mine in the company`s service
area. Excluding mining sales, UNS Electric`s retail kWh sales rose 1.4 percent
compared with the same period last year due to hot weather.

In April 2009, UNS Electric filed a general rate case with the ACC requesting an
average base rate increase of $13.5 million, or 7.4 percent over 2008 retail
revenues, to cover its rising service costs. Hearings before an ALJ are
scheduled to begin Feb. 2, 2010.

Net Income and Earnings per Share Summary

3rd Quarter YTD Sept. 30,
Net Income 2009 2008 2009 2008
-Millions- -Millions-
Tucson Electric Power $ 55.3 ($12.2 ) $ 81.2 ($15.3 )
UNS Gas (1.3 ) (1.3 ) 3.6 5.3
UNS Electric 3.6 2.5 5.9 3.7
Other (1) - - 3.1 (2.6 )
Net Income $ 57.6 ($11.0 ) $ 93.8 ($8.9 )

Avg. Basic Shares Outstanding (millions) 35.9 35.7 35.8 35.6
Avg. Diluted Shares Outstanding (millions) 40.5 35.7 40.4 35.6

3rd Quarter YTD Sept. 30,
Earnings Per UniSource Energy Share 2009 2008 2009 2008
Tucson Electric Power $ 1.54 ($0.34 ) $ 2.27 ($0.43 )
UNS Gas (0.04 ) (0.04 ) 0.10 0.15
UNS Electric 0.10 0.07 0.16 0.10
Other (1) 0.00 0.00 0.09 (0.07 )
Net Income per Basic Share $ 1.60 ($0.31 ) $ 2.62 ($0.25 )
Net Income per Diluted Share (2) $ 1.45 ($0.31 ) $ 2.40 ($0.25 )

(1) Includes UniSource Energy on a stand-alone basis and results from Millennium
Energy Holdings, Inc. and UniSource Energy Development, wholly owned
subsidiaries of UniSource Energy.

(2) For the three and nine months ended September 30, 2008, 4 million
potentially dilutive shares from the conversion of convertible senior notes, and
after-tax interest expense of $1 million and $3 million, respectively, were not
included in the computation of diluted EPS because to do so would have been
anti-dilutive.

UniSource Energy believes the presentation of TEP, UNS Gas, UNS Electric and
Other segment net income or loss on a per basic UniSource Energy share basis,
which are non-GAAP financial measures, provides useful information to investors
by disclosing the results of operations of its business segments on a basis
consistent with UniSource Energy's reported earnings or losses.

Seasonality of Earnings

The net income and results of operations of UniSource Energy`s utility
businesses are seasonal in nature. TEP and UNS Electric are summer-peaking
utilities and historically have recorded a majority of their net income during
the second and third quarters, when hot weather drives increases in energy
consumption.

Energy demand from UNS Gas customers typically peaks during the winter and
accordingly UNS Gas records the majority of its net income during the first and
fourth quarters.

Conference Call and Webcast

The company will host a conference call on Thursday, Oct. 29 at 12 p.m. EDT to
discuss the financial results and outlook. To participate in the call, please
dial in five to 10 minutes prior to the start.

Dial-in number: (877) 582-0446
Reference code: 36550961

The conference call also can be heard live on UniSource Energy`s Web site. The
webcast can be accessed at uns.com and will be available for replay for seven
days.

Replay number: (800) 642-1687
Reference code: 36550961

UniSource Energy is a Tucson, Arizona-based company with consolidated assets of
approximately $3.5 billion. UniSource Energy's primary subsidiaries include
Tucson Electric Power Company, which serves more than 400,000 customers in
southern Arizona, and UniSource Energy Services, provider of natural gas and
electric service for about 236,000 customers in northern and southern Arizona.
For more information about UniSource Energy and its subsidiaries, visit uns.com.

This release contains forward-looking information that involves risks and
uncertainties, including factors that could affect UniSource Energy's ability to
reach the 2009 earnings guidance.These risks and uncertainties include, but are
not limited to: state and federal regulatory and legislative decisions and
actions; regional economic and market conditions which could affect customer
growth and energy usage; weather variations affecting energy usage; the cost of
debt and equity capital and access to capital markets; the performance of the
stock market and changing interest rate environment, which affect the value of
the company`s pension and other postretirement benefit plan assets and the
related contribution requirements and expense; unexpected increases in O&M
expense; resolution of pending litigation matters; changes in accounting
standards; changes in critical accounting estimates; the ongoing restructuring
of the electric industry; changes to long-term contracts; the cost of fuel and
power supplies; performance of TEP's generating plants; 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.

UNISOURCE ENERGY 2009 RESULTS

UniSource Energy Corporation
Comparative Condensed Consolidated Statements of Income (Loss) Three Months Ended
(in thousands of dollars, except per share amounts) September 30, Increase / (Decrease)
(UNAUDITED) 2009 2008 Amount Percent

Operating Revenues
Electric Retail Sales $ 348,938 $ 322,690 $ 26,248 8.1
Provision for Rate Refunds - CTC Revenue - (29,517 ) 29,517 N/M
Net Electric Retail Sales 348,938 293,173 55,765 19.0
Electric Wholesale Sales 28,785 57,279 (28,494 ) (49.7 )
Gas Revenue 16,226 19,831 (3,605 ) (18.2 )
Other Revenues 20,290 17,569 2,721 15.5
Total Operating Revenues 414,239 387,852 26,387 6.8

Operating Expenses
Fuel 99,895 112,389 (12,494 ) (11.1 )
Purchased Energy 76,207 135,086 (58,879 ) (43.6 )
Transmission 2,356 8,114 (5,758 ) (71.0 )
Increase (Decrease) to reflect PPFAC/PGA Recovery Treatment (15,403 ) (1,842 ) (13,561 ) N/M
Total Fuel and Purchased Energy 163,055 253,747 (90,692 ) (35.7 )
Other Operations and Maintenance 79,549 73,364 6,185 8.4
Depreciation and Amortization 43,679 36,762 6,917 18.8
Taxes Other Than Income Taxes 11,098 10,079 1,019 10.1
Total Operating Expenses 297,381 373,952 (76,571 ) (20.5 )
Operating Income 116,858 13,900 102,958 N/M

Other Income (Deductions)
Interest Income 2,609 2,520 89 3.5
Other Income 1,899 1,069 830 77.6
Other Expense (812 ) (2,837 ) 2,025 71.4
Total Other Income (Deductions) 3,696 752 2,944 N/M

Interest Expense
Long-Term Debt 14,317 18,182 (3,865 ) (21.3 )
Interest on Capital Leases 12,504 13,180 (676 ) (5.1 )
Other Interest Expense 980 (349 ) 1,329 N/M
Interest Capitalized (436 ) (1,304 ) 868 66.6
Total Interest Expense 27,365 29,709 (2,344 ) (7.9 )

Income (Loss) Before Income Taxes 93,189 (15,057 ) 108,246 N/M
Income Tax Expense (Benefit) 35,543 (4,018 ) 39,561 N/M

Net Income (Loss) $ 57,646 $ (11,039 ) $ 68,685 N/M

Weighted-average Shares of Common Stock Outstanding (000) 35,928 35,677 251 0.7

Basic Earnings (Loss) per Share $ 1.60 $ (0.31 ) $ 1.91 N/M

Diluted Earnings (Loss) per Share $ 1.45 $ (0.31 ) $ 1.76 N/M

Dividends Declared per Share $ 0.29 $ 0.24 $ 0.05 20.8

Three Months Ended
Tucson Electric Power September 30, Increase / (Decrease)
Electric kWh Sales - In Millions: 2009 2008 Amount Percent
Retail Sales 3,036 2,966 70 2.4
Long-Term Wholesale Sales 126 253 (127 ) (50.2 )
Total Retail and Long-Term Wholesale Sales 3,162 3,219 (57 ) (1.8 )

N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.

UNISOURCE ENERGY 2009 RESULTS

UniSource Energy Corporation
Comparative Condensed Consolidated Statements of Income (Loss) Nine Months Ended
(in thousands of dollars, except per share amounts) September 30, Increase / (Decrease)
(UNAUDITED) 2009 2008 Amount Percent

Operating Revenues
Electric Retail Sales $ 817,490 $ 769,983 $ 47,507 6.2
Provision for Rate Refunds - CTC Revenue - (44,415 ) 44,415 N/M
Net Electric Retail Sales 817,490 725,568 91,922 12.7
Electric Wholesale Sales 92,031 187,103 (95,072 ) (50.8 )
Gas Revenue 99,189 115,002 (15,813 ) (13.8 )
Other Revenues 55,169 50,635 4,534 9.0
Total Operating Revenues 1,063,879 1,078,308 (14,429 ) (1.3 )

Operating Expenses
Fuel 223,758 257,594 (33,836 ) (13.1 )
Purchased Energy 217,121 366,644 (149,523 ) (40.8 )
Transmission 7,607 16,735 (9,128 ) (54.5 )
Increase (Decrease) to reflect PPFAC/PGA Recovery Treatment (5,083 ) (13,073 ) 7,990 61.1
Total Fuel and Purchased Energy 443,403 627,900 (184,497 ) (29.4 )
Other Operations and Maintenance 243,432 211,524 31,908 15.1
Depreciation and Amortization 131,881 109,196 22,685 20.8
Amortization of Transition Recovery Asset - 23,945 (23,945 ) N/M
Taxes Other Than Income Taxes 35,915 35,198 717 2.0
Total Operating Expenses 854,631 1,007,763 (153,132 ) (15.2 )
Operating Income 209,248 70,545 138,703 N/M

Other Income (Deductions)
Interest Income 9,530 8,724 806 9.2
Other Income 16,284 6,267 10,017 N/M
Other Expense (2,040 ) (5,719 ) 3,679 64.3
Total Other Income (Deductions) 23,774 9,272 14,502 N/M

Interest Expense
Long-Term Debt 43,680 53,603 (9,923 ) (18.5 )
Interest on Capital Leases 36,762 39,331 (2,569 ) (6.5 )
Other Interest Expense 2,411 1,375 1,036 75.3
Interest Capitalized (1,780 ) (4,480 ) 2,700 60.3
Total Interest Expense 81,073 89,829 (8,756 ) (9.7 )

Income (Loss) Before Income Taxes 151,949 (10,012 ) 161,961 N/M
Income Tax Expense (Benefit) 58,110 (1,106 ) 59,216 N/M

Net Income (Loss) $ 93,839 $ (8,906 ) $ 102,745 N/M

Weighted-average Shares of Common Stock Outstanding (000) 35,829 35,616 213 0.6

Basic Earnings (Loss) per Share $ 2.62 $ (0.25 ) $ 2.87 N/M

Diluted Earnings (Loss) per Share $ 2.40 $ (0.25 ) $ 2.65 N/M

Dividends Declared per Share $ 0.87 $ 0.72 $ 0.15 20.8

Nine Months Ended
Tucson Electric Power September 30, Increase / (Decrease)
Electric kWh Sales - In Millions: 2009 2008 Amount Percent
Retail Sales 7,322 7,396 (75 ) (1.0 )
Long-Term Wholesale Sales 566 823 (257 ) (31.2 )
Total Retail and Long-Term Wholesale Sales 7,888 8,219 (332 ) (4.0 )

N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.

TUCSON ELECTRIC POWER COMPANY 2009 RESULTS

TUCSON ELECTRIC POWER COMPANY
Comparative Condensed Consolidated Statements of Income (Loss) Three Months Ended
(in thousands of dollars) September 30, Increase / (Decrease)
(UNAUDITED) 2009 2008 Amount Percent

Operating Revenues
Electric Retail Sales $ 297,418 $ 260,555 $ 36,863 14.1
Provision for Rate Refunds - CTC Revenue - (29,517 ) 29,517 N/M
Net Electric Retail Sales 297,418 231,038 66,380 28.7
Electric Wholesale Sales 38,018 72,896 (34,878 ) (47.8 )
Other Revenues 21,753 19,378 2,375 12.3
Total Operating Revenues 357,189 323,312 33,877 10.5

Operating Expenses
Fuel 92,330 108,350 (16,020 ) (14.8 )
Purchased Energy 52,999 100,418 (47,419 ) (47.2 )
Transmission 632 5,098 (4,466 ) (87.6 )
Increase (Decrease) to reflect PPFAC Recovery Treatment (12,895 ) - (12,895 ) N/M
Total Fuel and Purchased Energy 133,066 213,866 (80,800 ) (37.8 )
Other Operations and Maintenance 69,232 63,837 5,395 8.5
Depreciation and Amortization 37,719 31,201 6,518 20.9
Taxes Other Than Income Taxes 9,117 8,079 1,038 12.8
Total Operating Expenses 249,134 316,983 (67,849 ) (21.4 )
Operating Income 108,055 6,329 101,726 N/M

Other Income (Deductions)
Interest Income 2,367 2,238 129 5.8
Other Income 1,686 927 759 81.9
Other Expense (702 ) (2,526 ) 1,824 72.2
Total Other Income (Deductions) 3,351 639 2,712 N/M

Interest Expense
Long-Term Debt 8,829 12,317 (3,488 ) (28.3 )
Interest on Capital Leases 12,502 13,176 (674 ) (5.1 )
Other Interest Expense 420 (457 ) 877 N/M
Interest Capitalized (261 ) (1,279 ) 1,018 79.6
Total Interest Expense 21,490 23,757 (2,267 ) (9.5 )

Income (Loss) Before Income Taxes 89,916 (16,789 ) 106,705 N/M
Income Tax Expense (Benefit) 34,639 (4,552 ) 39,191 N/M

Net Income (Loss) $ 55,277 $ (12,237 ) $ 67,514 N/M

N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.

TUCSON ELECTRIC POWER COMPANY 2009 RESULTS

TUCSON ELECTRIC POWER COMPANY
Comparative Condensed Consolidated Statements of Income (Loss) Nine Months Ended
(in thousands of dollars) September 30, Increase / (Decrease)
(UNAUDITED) 2009 2008 Amount Percent

Operating Revenues
Electric Retail Sales $ 675,190 $ 627,963 $ 47,227 7.5
Provision for Rate Refunds - CTC Revenue - (44,415 ) 44,415 N/M
Net Electric Retail Sales 675,190 583,548 91,642 15.7
Electric Wholesale Sales 107,762 207,791 (100,029 ) (48.1 )
Other Revenues 59,055 54,716 4,339 7.9
Total Operating Revenues 842,007 846,055 (4,048 ) (0.5 )

Operating Expenses
Fuel 208,808 251,565 (42,757 ) (17.0 )
Purchased Energy 112,416 211,194 (98,778 ) (46.8 )
Transmission 2,439 9,567 (7,128 ) (74.5 )
Increase (Decrease) to reflect PPFAC Recovery Treatment (16,898 ) - (16,898 ) N/M
Total Fuel and Purchased Energy 306,765 472,326 (165,561 ) (35.1 )
Other Operations and Maintenance 213,069 183,902 29,167 15.9
Depreciation and Amortization 114,539 93,198 21,341 22.9
Amortization of Transition Recovery Asset - 23,945 (23,945 ) N/M
Taxes Other Than Income Taxes 29,413 29,143 270 0.9
Total Operating Expenses 663,786 802,514 (138,728 ) (17.3 )
Operating Income 178,221 43,541 134,680 N/M

Other Income (Deductions)
Interest Income 9,176 7,704 1,472 19.1
Other Income 9,671 4,943 4,728 95.7
Other Expense (1,616 ) (3,255 ) 1,639 50.4
Total Other Income (Deductions) 17,231 9,392 7,839 83.5

Interest Expense
Long-Term Debt 27,232 36,654 (9,422 ) (25.7 )
Interest on Capital Leases 36,753 39,315 (2,562 ) (6.5 )
Other Interest Expense 1,104 1,012 92 9.1
Interest Capitalized (1,393 ) (3,632 ) 2,239 61.6
Total Interest Expense 63,696 73,349 (9,653 ) (13.2 )

Income (Loss) Before Income Taxes 131,756 (20,416 ) 152,172 N/M
Income Tax Expense (Benefit) 50,527 (5,081 ) 55,608 N/M

Net Income (Loss) $ 81,229 $ (15,335 ) $ 96,564 N/M

N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.

UniSource Energy Corp., Tucson
Media: Joe Salkowski, 520-884-3625
Financial Analyst: Jo Smith, 520-884-3650

Copyright Business Wire 2009