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