[GRAPHIC OMITTED] Unisource Energy
NEWS
FOR IMMEDIATE RELEASE May 5, 2005
Media Contact: Joe Salkowski, (520) 884-3625 Page 1 of 5
Financial Analyst Contact: Jo Smith, (520) 884-3650
UNISOURCE ENERGY REPORTS FIRST QUARTER EARNINGS FOR 2005
TUCSON, ARIZ. - UniSource Energy Corporation (NYSE: UNS) today reported a loss
for the first quarter of 2005 of $3.8 million, or $0.11 per basic share of
common stock. In the first quarter of 2004, UniSource Energy reported earnings
of $6.4 million, or $0.19 per basic share of common stock.
Mild winter weather and a lengthy scheduled outage at a key generating unit of
Tucson Electric Power Company (TEP), UniSource Energy's principal subsidiary,
contributed substantially to the loss.
"We've traditionally reported a loss in the first quarter while making up the
difference in the hot summer months," said James S. Pignatelli, Chairman,
President and Chief Executive Officer of UniSource Energy. "This year, though,
the extended outage made for an unusually challenging quarter."
One of two 380-MW units at TEP's Springerville Generating Station (SGS) was out
of service for nearly six weeks during the first quarter of 2005 to allow the
installation of updated emissions control equipment. The outage at SGS Unit 2
required TEP to purchase replacement power to serve its retail customers and
reduced TEP's wholesale sales opportunities.
"Although this outage affected our short term results, the operational
improvements to SGS Unit 2 and similar upgrades made last year to SGS Unit 1
represent a valuable investment in TEP's long-term performance," Pignatelli
said.
Tri-State Generation and Transmission Association (Tri-State) paid for the
improvements as part of the ongoing construction of SGS Unit 3, a 400-MW coal
fired generator expected to be operational in the third quarter of 2006.
Tri-State will lease the completed unit from a financial owner and control its
output, while TEP will operate the unit and purchase up to 100 MW of its output
for up to five years.
Weather during the first quarter of 2005 was milder in areas served by TEP and
UniSource Energy Services (UES), which provides gas and electric service in
northern and southern Arizona. UNS Gas, Inc. and UNS Electric, Inc., operating
subsidiaries of UES, each produced similar earnings to last year. A five-percent
increase in UES customers was offset by reduced overall energy demand in the
service territory.
UniSource Energy's interest expense decreased by $2.8 million compared with the
first quarter of 2004 due in part to lower balances on long-term debt and
capital lease obligations, as well as lower rates under TEP's credit facility.
Millennium Energy Holdings (MEH), which oversees UniSource Energy's unregulated
energy investments, reported a $2.4 million loss in the first quarter of 2005
compared with earnings of $2.1 million in the same period last year. Results
from the first quarter of 2004 included an after-tax gain of $3 million related
to its investment in Haddington Energy Partners II, LP, a limited partnership
that funds energy-related investments.
TUCSON ELECTRIC POWER COMPANY
TEP reported a loss of $4.7 million, or $0.14 per basic UniSource Energy share,
during the first quarter of 2005, compared with earnings of $0.8 million, or
$0.02 per share, during the same period last year. The difference stems from a
$12 million year-over-year decrease in TEP's gross margin (total operating
revenues less fuel and purchased power expense) due to mild weather and the
outage at SGS Unit 2.
Total revenues from kWh sales to retail customers decreased by $3 million, or 2
percent, from the same period last year. Heating degree days in TEP's service
territory declined 12 percent from the same period last year and were 3 percent
lower than the 10-year average. Lower retail demand was partly offset by a 5
percent increase in industrial energy usage and a 14 percent increase in kWh
sales to mining customers. TEP's retail customer base expanded to 378,014 in the
first quarter, a 2.3 percent increase from the first quarter of 2004.
TEP's wholesale sales revenues decreased $2.5 million, or 7 percent, in the
first quarter of 2005 due largely to the outage at SGS Unit 2. The outage, which
extended from Feb. 19 through Apr. 2, also required TEP to increase its market
power purchases and make greater use of its gas-fired generators to serve the
needs of its retail customers. Purchased power costs increased $6.6 million over
the same period last year.
Other factors affecting TEP's first quarter earnings include a $0.9 million
increase in Transition Recovery Asset (TRA) amortization, a $3.4 million
reduction in interest expense and a $2.2 million tax benefit resulting from
TEP's pre-tax losses.
UNS GAS
UNS Gas, an operating subsidiary of UES, reported net income of $4.1 million, or
$0.12 per basic UniSource Energy share, compared with net income of $4.4
million, or $0.13 per basic UniSource Energy share in the same period last year.
First quarter retail therm sales declined by 3 percent compared with the same
period last year due to mild winter weather in northern Arizona. Retail revenues
fell $1 million, or 2 percent, in the first quarter despite a customer base that
grew 5 percent to 135,652.
UNS ELECTRIC
UNS Electric, another UES operating subsidiary, reported net income of $0.5
million, or $0.01 per basic UniSource Energy share, matching first quarter
results from last year.
Retail kWh sales and revenues held steady due to mild winter weather despite a
growing customer base that reached 86,478 by the end of the first quarter - a 5
percent increase over the same period last year.
QUARTERLY REPORTED BASIC EARNINGS PER SHARE SUMMARY
(Millions) 1ST QUARTER
NET INCOME (LOSS) 2005 2004
- ------------------------------------------------------------------------
Tucson Electric Power ($4.7) $0.8
UNS Gas 4.1 4.4
UNS Electric 0.5 0.5
Global Solar (1.5) (0.9)
Other (1) (2.2) 1.6
- ------------------------------------------------------------------------
UniSource Energy Consolidated ($3.8) $6.4
========================================================================
1ST QUARTER
PER UNISOURCE ENERGY SHARE 2005 2004
- ------------------------------------------------------------------------
Tucson Electric Power ($0.14) $0.02
UNS Gas 0.12 0.13
UNS Electric 0.01 0.01
Global Solar (0.04) (0.03)
Other (1) (0.06) 0.06
- ------------------------------------------------------------------------
UniSource Energy Consolidated ($0.11) $0.19
========================================================================
Average Basic Shares Outstanding (millions) 34.6 34.2
<FN>
(1) Includes: for 2005, interest expense on the convertible notes issued by
UniSource Energy; interest expense on the note payable from UniSource Energy to
TEP; for 2004, costs associated with the proposed acquisition of UniSource
Energy by Saguaro Utility; UniSource Energy parent company expenses; income and
losses from other Millennium investments; and for 2004, income and losses from
UED.
</FN>
UniSource Energy believes that the presentation of TEP, UNS Gas, UNS Electric,
Global Solar, 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.
EARNINGS OUTLOOK
UniSource Energy's management reaffirms its estimate that 2005 full year
earnings will be between $1.50 and $1.75 per basic share.
Numerous factors can affect UniSource Energy's ability to reach the 2005
estimates. The factors include, but are not limited to: uncertainties prevailing
in the wholesale power market; regulatory decisions; performance of TEP's
generating plants; the weather; the pace and strength of the economic recovery
in the region; fuel and purchased power expense; changes to long-term contracts;
changes in asset depreciable lives; changes in accounting standards; and the
amount of research, development and operating expenses incurred by UniSource
Energy's unregulated energy technology investments.
UniSource Energy's earnings are subject to its utilities' seasonal energy sales.
Generally, TEP records a significant portion of its earnings during the third
quarter as a result of peak energy usage during the summer.
FIRST QUARTER 2005 EARNINGS DISCUSSION
UniSource Energy officials will discuss the company's first quarter earnings
during a conference call on Thursday May 5 at 2:00 p.m. EDT that will be
available live on the Internet. James S. Pignatelli, UniSource Energy Chairman,
President and Chief Executive Officer, and Kevin Larson, Vice President and
Chief Financial Officer, will host the call.
Telephone Access
- ----------------
To listen to the live conference call, dial (877) 582-0446 five to 10 minutes
prior to the event and reference confirmation code 5959422. A telephone replay
will be available for seven days starting May 5. To listen to the replay, dial
(800) 642-1687 and reference confirmation code 5959422.
Internet Access
- ---------------
A live audio-only webcast of the conference call is available through a link at
www.UniSourceEnergy.com. Listeners are encouraged to visit the Web site at least
30 minutes before the event to register, download and install any necessary
audio software. A recording of the webcast will be available for 30 days through
a link at www.UniSourceEnergy.com.
UniSource Energy's primary subsidiaries include Tucson Electric Power Co., which
serves more than 375,000 customers in southern Arizona; UniSource Energy
Services, provider of natural gas and electric service for more than 218,000
customers in northern and southern Arizona; and Millennium Energy Holdings,
parent company of UniSource Energy's unregulated energy businesses. For more
information about UniSource Energy and its subsidiaries, visit
www.UniSourceEnergy.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; the ongoing restructuring of the electric industry; 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; changes in accounting standards; 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 2005 RESULTS
UNISOURCE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended INCREASE/(DECREASE)
(in thousands of dollars, except per share amounts) March 31, ---------------------
(UNAUDITED) 2005 2004 AMOUNT PERCENT
- --------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Electric Retail Sales $ 171,590 $ 174,363 $ (2,773) (1.6)
Electric Wholesale Sales 39,180 41,700 (2,520) (6.0)
Gas Revenue 46,549 48,801 (2,252) (4.6)
Other Revenues 3,610 5,220 (1,610) (30.8)
- -------------------------------------------------------------------------------------------------------------
TOTAL OPERATING REVENUES 260,929 270,084 (9,155) (3.4)
- -------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Fuel 47,291 47,449 (158) (0.3)
Purchased Energy 64,407 59,502 4,905 8.2
Other Operations and Maintenance 61,492 63,579 (2,087) (3.3)
Depreciation and Amortization 34,824 35,136 (312) (0.9)
Amortization of Transition Recovery Asset 9,487 8,597 890 10.4
Taxes Other Than Income Taxes 13,499 13,111 388 3.0
- -------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 231,000 227,374 3,626 1.6
- -------------------------------------------------------------------------------------------------------------
OPERATING INCOME 29,929 42,710 (12,781) (29.9)
- -------------------------------------------------------------------------------------------------------------
OTHER INCOME (DEDUCTIONS)
Interest Income 4,961 4,869 92 1.9
Other Income 2,261 8,715 (6,454) (74.1)
Other Expense (2,351) (1,016) (1,335) N/M
- -------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (DEDUCTIONS) 4,871 12,568 (7,697) (61.2)
- -------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Long-Term Debt 20,352 23,118 (2,766) (12.0)
Interest on Capital Leases 19,746 20,044 (298) (1.5)
Other Interest Expense, Net of Amounts Capitalized 11 (214) 225 N/M
- -------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 40,109 42,948 (2,839) (6.6)
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (5,309) 12,330 (17,639) N/M
Income Tax Expense (Benefit) (1,526) 5,909 (7,435) N/M
- -------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (3,783) $ 6,421 $ (10,204) N/M
=============================================================================================================
WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING (000) 34,635 34,185 450 1.3
=============================================================================================================
BASIC EARNINGS (LOSS) PER SHARE $(0.11) $0.19 $(0.30) N/M
=============================================================================================================
DILUTED EARNINGS (LOSS) PER SHARE $(0.11) $0.18 $(0.29) N/M
=============================================================================================================
DIVIDENDS PAID PER SHARE $0.19 $0.16 $0.03 18.8
=============================================================================================================
Three Months Ended INCREASE/(DECREASE)
TUCSON ELECTRIC POWER March 31, ---------------------
ELECTRIC MWH SALES (000): 2005 2004 AMOUNT PERCENT
- -------------------------------------------------------------------------------------------------------------
Retail Sales 1,776,401 1,808,747 (32,346) (1.8)
Wholesale Sales 761,978 889,290 (127,312) (14.3)
- -------------------------------------------------------------------------------------------------------------
TOTAL 2,538,379 2,698,037 (159,658) (5.9)
=============================================================================================================
<FN>
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.
</FN>