Tucson Electric Power 8-K Unisource Energy Reports Second Quarter 2011 Earnings, Maintains 2011 Earnings Guidance Range

Exhibit 99.1

FOR IMMEDIATE RELEASE	August 4, 2011
Media Contact: Joe Salkowski, (520) 884-3625, jsalkowski@uns.com	Page 1 of 8
Financial Analyst Contact: Chris Norman, (520) 884-3649, cnorman@uns.com

UNISOURCE ENERGY REPORTS SECOND QUARTER 2011 EARNINGS,
MAINTAINS 2011 EARNINGS GUIDANCE RANGE

• UniSource Energy’s net income for the second quarter of 2011 was $28.6 million, or $0.71 per share of common stock on a fully-diluted basis, compared with net income of $25.9 million, or $0.66 per diluted share, in the second quarter of 2010.

• Earnings at UniSource Energy’s primary subsidiary, Tucson Electric Power Company (TEP), were $25.1 million in the second quarter of 2011 compared with $27.9 million in the second quarter of 2010. Higher retail margin revenues were offset by higher depreciation and amortization expense and a reduction in margin on long-term wholesale sales.

• Retail kilowatt-hour (kWh) sales at both TEP and UNS Electric increased compared with the second quarter of 2010.

• Financial results for the second quarter were in line with expectations. UniSource Energy is maintaining its estimated 2011 earnings range of $2.60 to $2.90 per diluted share.

Tucson, Ariz. —UniSource Energy Corporation (NYSE: UNS) today reported second quarter 2011 net income of $28.6 million, or $0.71 per share of common stock on a fully-diluted basis, compared with $25.9 million, or $0.66 per diluted share, in the same period last year. For the six months ended June 30, 2011, UniSource Energy’s net income was $42.0 million, or $1.07 per diluted share of common stock, compared with net income of $46.0 million, or $1.18 per diluted share, in the first six months of 2010.

“Our operating and financial results are consistent with our expectations,” said Paul Bonavia, UniSource Energy’s Chairman, President and CEO. “We continue to focus our efforts on managing our costs while safely and efficiently operating our utility businesses.”

UniSource Energy’s financial results primarily reflect those of TEP, which reported income of $25.1 million in the second quarter of 2011, compared with net income of $27.9 million in the same period last year. An increase in TEP’s retail margin revenues was offset by higher depreciation and amortization expense and reduced margins on long-term wholesale sales.

TEP’s second-quarter retail kWh sales were 1.6 percent higher than last year. Sales to residential and commercial customers increased 3.7 percent and 1.7 percent, respectively, compared with the second quarter of 2010. For the first six months of 2011, TEP’s total retail kWh sales were up 1.5 percent compared with the same period last year.

“We are encouraged by the higher sales levels,” Bonavia said. “However cost increases associated with maintaining our generating units and higher depreciation expense have put pressure on our year-to-date earnings.” TEP’s current base rates have been in effect since December 2008 and cannot be increased before January 2013.

Tucson Electric Power

Retail kWh Sales and Revenues

TEP’s retail kWh sales grew by 1.6 percent compared with the second quarter of 2010. Residential, commercial, and mining sales were up 3.7 percent, 1.7 percent, and 0.3 percent, respectively; industrial sales were down 0.8 percent.

Higher retail sales volumes led to an increase in retail margin revenues of approximately $3 million, or 1.8 percent, compared with the same period last year. Margin revenues do not include customer surcharges used to fund renewable energy and energy efficiency programs or revenues collected to recover the cost of fuel and purchased power.

Long-Term Wholesale and Transmission Revenues

The margin on TEP’s long-term wholesale kWh sales fell by $3 million compared with the second quarter of 2010. The decrease reflects a change in the terms of TEP’s wholesale sales contract with Salt River Project (SRP). Effective June 1, 2011, SRP no longer pays TEP a monthly demand charge of approximately $2 million. Instead, SRP is required to purchase 73,000 MWh per month, or 876,000 MWh annually, at an energy price set at a discount to the Palo Verde Market Index.

Other Operating Expenses

TEP’s base operations and maintenance expense (O&M) increased by $0.5 million in the second quarter of 2011 over the same period last year. Base O&M excludes costs directly offset by customer surcharges and third-party reimbursements. In the second quarter of 2011, depreciation expense increased by $1 million as a result of additional plant-in-service compared with the same period last year.

Year-to-Date Results

In the first six months of 2011, TEP reported net income of $29.8 million compared with net income of $38.4 million in the same period last year. That decrease was due to: a decline in long-term wholesale margin revenues; a decrease in wholesale transmission revenues; an increase in Base O&M due to planned generating plant maintenance expense; and higher depreciation expense. Those factors were partially offset by an increase in retail margin revenues

UNS Gas

UNS Gas reported net income of less than $1 million in the second quarters of 2011 and 2010.

UNS Gas filed a request in April for a base rate increase of $5.6 million, or 4 percent. UNS Gas’ current rates reflect costs from late 2007 and early 2008, and the proposed rate increase would help recover higher operating and capital costs incurred since that time. The administrative law judge assigned to the case issued a procedural order that could lead to a final decision by the Arizona Corporation Commission in the first half of 2012.

UNS Electric

UNS Electric reported net income of $3 million in the second quarter of 2011 compared with $2 million in the same period last year. UNS Electric’s retail kWh sales increased 3.2 percent compared with the second quarter of 2010 due primarily to higher energy usage by its two mining customers and a 5.0 percent increase in kWh sales to industrial customers.

Seasonality of Earnings

The net income and results of operations of TEP as well as of UNS Gas and UNS Electric — operating subsidiaries of UniSource Energy Services (UES) — are seasonal in nature. TEP and UNS Electric typically record the majority of their net income during the second and third quarters when hot weather contributes to higher energy consumption. TEP’s retail rates, which include higher charges for higher levels of energy use, also shift a larger share of the company’s earnings into those periods.

2

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

Net Income and Earnings Per Share Summary

	2nd Quarter					YTD June 30,
Net Income	2011		2010			2011		2010
	-Millions-					-Millions-
Tucson Electric Power	$	25.1	$	27.9		$	29.8	$	38.4
UNS Gas		0.4		0.6			6.5		6.4
UNS Electric		2.9		2.1			5.1		5.1
Other (1)		0.2		(4.7	)		0.6		(3.9	)
Net Income	$	28.6	$	25.9		$	42.0	$	46.0
Avg. Basic Shares Outstanding (millions)		37.0		36.3			36.9		36.2
Avg. Diluted Shares Outstanding (millions)		41.6		40.9			41.5		40.8

	2nd Quarter					YTD June 30,
Earnings Per UniSource Energy Share	2011		2010			2011		2010
Tucson Electric Power	$	0.68	$	0.77		$	0.81	$	1.06
UNS Gas		0.01		0.01			0.18		0.18
UNS Electric		0.08		0.06			0.14		0.14
Other (1)		0.00		(0.13	)		0.01		(0.11	)
Net Income per Basic Share	$	0.77	$	0.71		$	1.14	$	1.27
Net Income per Diluted Share	$	0.71	$	0.66		$	1.07	$	1.18

(1) Includes UniSource Energy on a stand-alone basis and results from Millennium Energy Holdings, Inc. (Millennium) and UniSource Energy Development, wholly-owned subsidiaries of UniSource Energy. Millennium’s year-to-date June 30, 2010 results included an after-tax loss of $3 million related to the impairment of an investment.

UniSource Energy believes the presentation of TEP, UNS Gas and UNS Electric 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.

During the first half of 2011, we identified errors related to prior periods in two categories: (i) deliveries of electricity related to transmission agreements at TEP; and (ii) the calculation of income tax expense as it relates to Allowance for Equity Funds Used During Construction (AFUDC). We assessed the materiality of these errors on prior period financial statements and concluded they were not material to any prior annual or interim periods, but the cumulative impact could be material to the annual period ending December 31, 2011 and the interim period ended June 30, 2011, if included in 2011. As a result, in accordance with Staff Accounting Bulletin 108, we have revised our prior period financial statements.

3

The income tax adjustment impacted fiscal years 2003 through 2010 for UniSource Energy and fiscal years 2009 and 2010 for TEP. The adjustment for electricity deliveries settled or to be settled in-kind impacted fiscal years 2004 through 2010. We previously recorded the entire income tax adjustment of $3.5 million, or $0.08 per diluted share, in the first quarter of 2011. UniSource Energy and TEP’s financial statements for the first three months of 2011, as well as other periods, have been revised to reflect the impact of the income tax adjustment for that particular period. Please refer to UniSource Energy’s and TEP’s second quarter SEC form 10-Q, which is expected to be filed on or before August 9, 2011, for more information.

Conference Call and Webcast

The company will host a conference call on Friday, August 5 at 9 a.m. EDT to discuss the financial results and outlook. To participate in the call, please dial in 5 to 10 minutes prior to the start time.

Dial-in number: (877) 582-0446
Reference code:87100432

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

Replay number: (855) 859-2056
Reference code: 87100432

In conjunction with this earnings announcement, UniSource Energy has provided detailed information on its performance during the second quarter of 2011. These materials have been filed with the Securities and Exchange Commission and are also available at uns.com.

UniSource Energy is a Tucson, Arizona-based company with consolidated assets of approximately $3.9 billion. UniSource Energy’s primary subsidiaries include Tucson Electric Power, which serves more than 403,000 customers in southern Arizona, and UniSource Energy Services, provider of natural gas and electric service for about 237,000 customers in northern and southern Arizona. Visit uns.com for more information about UniSource Energy and its subsidiaries.

This release contains forward-looking information that involves risks and uncertainties, including factors that could affect UniSource Energy’s ability to reach the 2011 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; 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.

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UNISOURCE ENERGY 2011 RESULTS

UniSource Energy Corporation
Condensed Consolidated Statements of Income
(in thousands of dollars, except per share amounts)
(UNAUDITED)

	Three Months Ended
	June 30,						Increase / (Decrease)
	2011			2010			Amount			Percent
Operating Revenues
Electric Retail Sales	$	275,616		$	259,940		$	15,676			6.0
Electric Wholesale Sales		38,744			28,466			10,278			36.1
Gas Revenue		25,020			24,677			343			1.4
Other Revenues		30,293			26,030			4,263			16.4
Total Operating Revenues		369,673			339,113			30,560			9.0
Operating Expenses
Fuel		82,563			69,304			13,259			19.1
Purchased Energy		66,336			66,591			(255	)		(0.4	)
Transmission		3,464			2,878			586			20.4
Increase (Decrease) to Reflect PPFAC/PGA Recovery Treatment		3,227			(10,313	)		13,540			N/M
Total Fuel and Purchased Energy		155,590			128,460			27,130			21.1
Other Operations and Maintenance		90,052			87,134			2,918			3.3
Depreciation		33,310			32,223			1,087			3.4
Amortization		7,253			7,048			205			2.9
Taxes Other Than Income Taxes		12,229			11,952			277			2.3
Total Operating Expenses		298,434			266,817			31,617			11.8
Operating Income		71,239			72,296			(1,057	)		(1.5	)
Other Income (Deductions)
Interest Income		826			1,953			(1,127	)		(57.7	)
Other Income		2,646			1,158			1,488			N/M
Other Expense		(813	)		(6,138	)		5,325			86.8
Total Other Income (Deductions)		2,659			(3,027	)		5,686			N/M
Interest Expense
Long-Term Debt		18,203			15,816			2,387			15.1
Capital Leases		9,931			11,425			(1,494	)		(13.1	)
Other Interest Expense, Net of Interest Capitalized		(109	)		186			(295	)		N/M
Total Interest Expense		28,025			27,427			598			2.2
Income Before Income Taxes		45,873			41,842			4,031			9.6
Income Tax Expense		17,299			15,956			1,343			8.4
Net Income	$	28,574		$	25,886		$	2,688			10.4
Weighted-Average Shares of Common Stock Outstanding (000)		36,950			36,322			628			1.7
Basic Earnings per Share	$	0.77		$	0.71		$	0.06			8.5
Diluted Earnings per Share	$	0.71		$	0.66		$	0.05			7.6
Dividends Declared per Share	$	0.42		$	0.39		$	0.03			7.7

N/M — Not Meaningful

Reclassifications have been made to prior periods to conform to the current period’s presentation.

5

UNISOURCE ENERGY 2011 RESULTS

UniSource Energy Corporation
Condensed Consolidated Statements of Income
(in thousands of dollars, except per share amounts)
(UNAUDITED)

	Six Months Ended
	June 30,						Increase / (Decrease)
	2011			2010			Amount			Percent
Operating Revenues
Electric Retail Sales	$	492,831		$	464,686		$	28,145			6.1
Electric Wholesale Sales		79,658			65,558			14,100			21.5
California Power Exchange (CPX) Provision for Wholesale Refunds		—			(2,970	)		2,970			N/M
Gas Revenue		82,210			80,458			1,752			2.2
Other Revenues		59,740			50,230			9,510			18.9
Total Operating Revenues		714,439			657,962			56,477			8.6
Operating Expenses
Fuel		154,692			129,909			24,783			19.1
Purchased Energy		144,610			149,396			(4,786	)		(3.2	)
Transmission		5,966			5,308			658			12.4
Decrease to Reflect PPFAC/PGA Recovery Treatment		(3,008	)		(23,058	)		20,050			87.0
Total Fuel and Purchased Energy		302,260			261,555			40,705			15.6
Other Operations and Maintenance		191,107			170,042			21,065			12.4
Depreciation		66,100			63,322			2,778			4.4
Amortization		14,631			13,620			1,011			7.4
Taxes Other Than Income Taxes		24,374			24,225			149			0.6
Total Operating Expenses		598,472			532,764			65,708			12.3
Operating Income		115,967			125,198			(9,231	)		(7.4	)
Other Income (Deductions)
Interest Income		1,820			3,880			(2,060	)		(53.1	)
Other Income		5,477			7,137			(1,660	)		(23.3	)
Other Expense		(1,417	)		(6,903	)		5,486			79.5
Total Other Income (Deductions)		5,880			4,114			1,766			42.9
Interest Expense
Long-Term Debt		36,296			31,056			5,240			16.9
Capital Leases		19,860			23,509			(3,649	)		(15.5	)
Other Interest Expense, Net of Interest Capitalized		(1,030	)		514			(1,544	)		N/M
Total Interest Expense		55,126			55,079			47			0.1
Income Before Income Taxes		66,721			74,233			(7,512	)		(10.1	)
Income Tax Expense		24,731			28,201			(3,470	)		(12.3	)
Net Income	$	41,990		$	46,032		$	(4,042	)		(8.8	)
Weighted-Average Shares of Common Stock Outstanding (000)		36,869			36,215			654			1.8
Basic Earnings per Share	$	1.14		$	1.27		$	(0.13	)		(10.2	)
Diluted Earnings per Share	$	1.07		$	1.18		$	(0.11	)		(9.3	)
Dividends Declared per Share	$	0.84		$	0.78		$	0.06			7.7

N/M — Not Meaningful

Reclassifications have been made to prior periods to conform to the current period’s presentation.

6

TUCSON ELECTRIC POWER COMPANY 2011 RESULTS

TUCSON ELECTRIC POWER COMPANY
Condensed Consolidated Statements of Income
(in thousands of dollars)
(UNAUDITED)

	Three Months Ended
	June 30,						Increase / (Decrease)
	2011			2010			Amount			Percent
Operating Revenues
Electric Retail Sales	$	231,652		$	217,555		$	14,097			6.5
Electric Wholesale Sales		31,759			29,276			2,483			8.5
Other Revenues		31,822			27,864			3,958			14.2
Total Operating Revenues		295,233			274,695			20,538			7.5
Operating Expenses
Fuel		80,831			66,753			14,078			21.1
Purchased Power		26,445			33,337			(6,892	)		(20.7	)
Transmission		1,232			1,049			183			17.4
Increase (Decrease) to Reflect PPFAC Recovery Treatment		2,112			(7,601	)		9,713			N/M
Total Fuel and Purchased Energy		110,620			93,538			17,082			18.3
Other Operations and Maintenance		78,094			74,613			3,481			4.7
Depreciation		25,850			24,893			957			3.8
Amortization		8,180			8,024			156			1.9
Taxes Other Than Income Taxes		10,043			9,730			313			3.2
Total Operating Expenses		232,787			210,798			21,989			10.4
Operating Income		62,446			63,897			(1,451	)		(2.3	)
Other Income (Deductions)
Interest Income		582			1,696			(1,114	)		(65.7	)
Other Income		1,727			1,115			612			54.9
Other Expense		(2,498	)		(2,397	)		(101	)		(4.2	)
Total Other Income (Deductions)		(189	)		414			(603	)		N/M
Interest Expense
Long-Term Debt		12,157			10,154			2,003			19.7
Capital Leases		9,930			11,423			(1,493	)		(13.1	)
Other Interest Expense, Net of Interest Capitalized		(91	)		68			(159	)		N/M
Total Interest Expense		21,996			21,645			351			1.6
Income Before Income Taxes		40,261			42,666			(2,405	)		(5.6	)
Income Tax Expense		15,133			14,728			405			2.7
Net Income	$	25,128		$	27,938		$	(2,810	)		(10.1	)

	Three Months Ended
Tucson Electric Power	June 30,				Increase / (Decrease)
Electric MWh Sales:	2011		2010		Amount			Percent
Retail Sales		2,331,563		2,294,004		37,559			1.6
Long-Term Wholesale Sales		208,046		215,936		(7,890	)		(3.7	)

N/M — Not Meaningful

Reclassifications have been made to prior periods to conform to the current period’s presentation.

7

TUCSON ELECTRIC POWER COMPANY 2011 RESULTS

TUCSON ELECTRIC POWER COMPANY
Condensed Consolidated Statements of Income
(in thousands of dollars)
(UNAUDITED)

	Six Months Ended
	June 30,						Increase / (Decrease)
	2011			2010			Amount			Percent
Operating Revenues
Electric Retail Sales	$	405,354		$	384,974		$	20,380			5.3
Electric Wholesale Sales		67,015			70,265			(3,250	)		(4.6	)
California Power Exchange (CPX) Provision for Wholesale Refunds		—			(2,970	)		2,970			N/M
Other Revenues		62,452			53,507			8,945			16.7
Total Operating Revenues		534,821			505,776			29,045			5.7
Operating Expenses
Fuel		152,138			125,260			26,878			21.5
Purchased Power		43,680			57,992			(14,312	)		(24.7	)
Transmission		1,927			1,845			82			4.4
Decrease to Reflect PPFAC Recovery Treatment		(7,671	)		(10,833	)		3,162			29.2
Total Fuel and Purchased Energy		190,074			174,264			15,810			9.1
Other Operations and Maintenance		166,587			144,977			21,610			14.9
Depreciation		51,583			48,953			2,630			5.4
Amortization		16,484			15,810			674			4.3
Taxes Other Than Income Taxes		19,947			19,681			266			1.4
Total Operating Expenses		444,675			403,685			40,990			10.2
Operating Income		90,146			102,091			(11,945	)		(11.7	)
Other Income (Deductions)
Interest Income		1,317			3,386			(2,069	)		(61.1	)
Other Income		4,367			2,333			2,034			87.2
Other Expense		(4,996	)		(4,883	)		(113	)		(2.3	)
Total Other Income (Deductions)		688			836			(148	)		(17.7	)
Interest Expense
Long-Term Debt		24,412			20,032			4,380			21.9
Capital Leases		19,859			23,504			(3,645	)		(15.5	)
Other Interest Expense, Net of Interest Capitalized		(837	)		42			(879	)		N/M
Total Interest Expense		43,434			43,578			(144	)		(0.3	)
Income Before Income Taxes		47,400			59,349			(11,949	)		(20.1	)
Income Tax Expense		17,624			20,953			(3,329	)		(15.9	)
Net Income	$	29,776		$	38,396		$	(8,620	)		(22.5	)

	Six Months Ended
Tucson Electric Power	June 30,				Increase / (Decrease)
Electric MWh Sales:	2011		2010		Amount			Percent
Retail Sales		4,286,300		4,222,816		63,484			1.5
Long-Term Wholesale Sales		438,384		503,742		(65,358	)		(13.0	)

N/M — Not Meaningful

Reclassifications have been made to prior periods to conform to the current period’s presentation.

8