Uns Energy (UNS) 8-K Unisource Energy Reports Third Quarter 2009 Earnings Maintains 2009 Earnings Guidance

Exhibit 99.1

FOR IMMEDIATE RELEASE
Media Contact: Joe Salkowski, (520) 884-3625
Financial Analyst Contact: Jo Smith, (520) 884-3650 October 28, 2009
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UNISOURCE ENERGY REPORTS THIRD QUARTER 2009 EARNINGS
MAINTAINS 2009 EARNINGS GUIDANCE

• 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. –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.

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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.

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• 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.

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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, 2009, 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.

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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’sForm 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 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.

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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.

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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.

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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.

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