exh99.htm

Exhibit 99

FOR IMMEDIATE RELEASE	August 6, 2007
Media Contact: Art McDonald, (520) 884-3628	Page 1 of 6
Financial Analyst Contact: Jo Smith, (520) 884-3650

UNISOURCE ENERGY REPORTS SECOND QUARTER EARNINGS FOR 2007

Tucson, Ariz. – UniSource Energy Corp. (NYSE: UNS) today reported earnings for the second quarter of 2007 of $12 million, or $0.32 per diluted share of common stock. Last year, UniSource Energy reported second quarter earnings of $10 million, or $0.28 per diluted share. UniSource Energy modified its 2007 full-year earnings guidance to be between $1.55 and $1.85 per diluted share from its previous range of between $1.55 and $1.95 per diluted share.

The customer base at Tucson Electric Power (TEP), UniSource Energy’s principal subsidiary, continued to grow at an annual rate of 2 percent. Customer growth was offset by a 14 percent decrease in the number of cooling degree days that led to reduced residential energy usage and only a modest increase in retail revenues compared with the same period last year.

Higher fuel and purchased power expenses were largely offset by increased wholesale revenues made possible by the improved availability of TEP’s generating fleet. Revenues from the operation of a new coal-fired unit at TEP’s Springerville Generating Station (SGS) and higher sales of sulfur dioxide (SO₂) emissions credits mitigated increases in other expenses.

UniSource Energy’s second quarter results reflect TEP’s rising power production costs, including a $9 million year-over-year increase in coal-related fuel expense. A 9 percent increase in kilowatt-hours generated from TEP’s coal-fired plants and rising coal and rail costs led to the increase. The cost per ton of coal delivered to TEP’s H. Wilson Sundt Generating Station in Tucson increased nearly 70 percent under a new agreement signed in December 2006. TEP also incurred higher mining costs associated with its interest in the San Juan Generating Station.

“Our reliable generation fleet and efficient operations have helped us manage the rising cost of serving our growing customer base on fixed rates,” said James S. Pignatelli, UniSource Energy’s Chairman, President and CEO.

TEP added 9,252 new customers during the past year, reaching 394,717 total customers by the end of the second quarter. Despite milder weather, the utility set a new retail peak on July 5 with a net hourly load of 2,370 megawatts (MW) compared with a peak retail load of 2,365 MW in 2006.

TEP filed a request last month for its first rate increase in more than a decade. The company has asked the Arizona Corporation Commission (ACC) to use one of three proposed methods to set new rates that would take effect no later than January 1, 2009. The proposals would increase retail rates by an average of 15 to 23 percent, depending on the approach used.

Second quarter earnings were slightly higher than last year at UniSource Energy Services (UES), which provides gas and electric service in northern and southern Arizona through subsidiaries UNS Electric and UNS Gas. UNS Electric reported earnings of $2 million, a small improvement compared with last year, while UNS Gas matched its $1 million quarterly loss.

Tucson Electric Power Company

TEP reported earnings for the second quarter of 2007 of $12 million compared with $11 million in 2006.

Factors affecting TEP's second quarter 2007 results include:

A $13 million increase in retail and wholesale revenues, mostly offset by a $12 million increase in fuel and purchased power costs. Retail revenues increased only $1 million due to milder weather;

A $6 million increase in other revenues for fees and reimbursements received from Tri-State Generation and Transmission Association (Tri-State) for fuel and operations and maintenance (O&M) costs related to SGS Unit 3;

A $3 million increase in O&M expense due primarily to costs related to TEP’s operations of SGS Unit 3 that are reimbursed by Tri-State. O&M expense also includes a pre-tax gain of $5 million related to sales of excess SO₂ Emission Allowances, compared with a pre-tax gain of $2 million in the same period last year;

A $2 million increase in expenses related to the amortization of the transition recovery asset; and

A $2 million decrease in interest expense due to lower capital lease obligation balances.

UNS Gas

UNS Gas reported a net loss of $1 million in the second quarters of 2007 and 2006.

Retail therm sales were flat compared with the second quarter of 2006 as a 3-percent increase in customers was offset by mild weather. Despite similar sales, retail revenues dropped due to a lower commodity surcharge.

UNS Gas filed a general rate case in July 2006 requesting an increase of $9.6 million, or about 7 percent, to cover the growing cost of serving customers. The case is pending before the ACC, and new rates are expected to go into effect in late 2007.

UNS Electric

UNS Electric reported earnings of $2 million for the second quarter of 2007, slightly ahead of last year. UNS Electric’s operations are seasonal in nature, with peak energy demand occurring in the summer months. UNS Electric’s customer base grew by approximately 3-percent from the same period last year.

In December 2006, UNS Electric filed a general rate case seeking an average rate increase of $8.5 million, or approximately 5.5 percent, to recover rising costs. ACC hearings in the case are scheduled to begin in September 2007, and new rates are expected to go into effect in early 2008.

Year-to-Date

UniSource Energy’s consolidated year-to-date earnings through June 30, 2007, were $17 million, or $0.46 per diluted share of common stock. During the same period last year, UniSource Energy reported earnings of $27 million, or $0.73 per diluted share.

Earnings Per Share Summary

	2nd Quarter						Year-to-Date June 30,
Net Income	2007			2006			2007			2006
	-Millions-						-Millions-
Tucson Electric Power	$	12.3		$	11.2		$	13.1		$	27.8
UNS Gas		(1.1	)		(1.3	)		3.4			3.4
UNS Electric		1.5			1.4			1.9			2.1
Other ¹		(0.9	)		(1.3	)		(1.7	)		(3.8	)
Income Before Discontinued Operations and
Cumulative Effect of Accounting Change	$	11.8		$	10.0		$	16.7		$	29.5
Discontinued Operations - Net of Tax ²		-			-			-			(2.7	)
Net Income	$	11.8		$	10.0		$	16.7		$	26.8

Avg. Basic Shares Outstanding (millions)		35.5			35.2			35.4			35.2

	2nd Quarter						Year-to-Date June 30,
Earnings Per UniSource Energy Share	2007			2006			2007			2006
Tucson Electric Power	$	0.35		$	0.32		$	0.37		$	0.79
UNS Gas		(0.03	)		(0.04	)		0.09			0.10
UNS Electric		0.04			0.04			0.06			0.06
Other ¹		(0.03	)		(0.04	)		(0.05	)		(0.11	)
Income Before Discontinued Operations and
Cumulative Effect of Accounting Change	$	0.33		$	0.28		$	0.47		$	0.84
Discontinued Operations - Net of Tax ²		-			-			-			(0.08	)
Net Income per Basic Share	$	0.33		$	0.28		$	0.47		$	0.76
Net Income per Diluted Share	$	0.32		$	0.28		$	0.46		$	0.73

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

(2) Relates to the discontinued operations and sale of Global Solar Energy, Inc. by Millennium on March 31, 2006.

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.

Earnings Outlook

UniSource Energy modified its 2007 full-year earnings to be between $1.55 and $1.85 per diluted share.

Numerous factors can affect UniSource Energy's ability to reach the 2007 estimate, including but not limited to: rising fuel and transportation costs; market prices for power in the second half of 2007; unexpected increases in O&M; performance of TEP's generating plants; resolution of pending litigation matters; regulatory decisions; the weather; the pace and strength of the regional economy and changes in accounting standards.

UniSource Energy's earnings are subject to the seasonal energy sales of its utilities. Generally, TEP records a significant portion of its earnings during the third quarter as a result of peak energy usage during the summer.

Conference Call and Webcast

UniSource Energy officials will discuss second quarter 2007 earnings and outlook for 2007 on Tuesday, August 7, 2007 beginning at 12 p.m. EDT in a conference call that will be available live on the Internet. James S. Pignatelli, UniSource Energy Chairman, President and CEO, will host the call.

Internet Access

A live audio-only webcast of the conference call is available through a link at uns.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 uns.com.

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 10745561. A telephone replay will be available for seven days starting August 7. To listen to the replay, dial 800-642-1687 and reference confirmation code 10745561.

UniSource Energy's primary subsidiaries include Tucson Electric Power, which serves more than 394,000 customers in southern Arizona; UniSource Energy Services, provider of natural gas and electric service for approximately 240,000 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 uns.com.

This news release contains forward-looking information that involves risks and uncertainties that include, but are not limited to: changes in accounting standards; 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; 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 2007 RESULTS

UniSource Energy Corporation

Condensed Consolidated Statements of Income	Three Months Ended
(in thousands of dollars, except per share amounts)	June 30,						Increase / (Decrease)
(UNAUDITED)	2007			2006			Amount			Percent

Operating Revenues
Electric Retail Sales	$	249,462		$	247,387		$	2,075			0.8
Electric Wholesale Sales		44,525			31,867			12,658			39.7
Gas Revenue		22,850			25,720			(2,870	)		(11.2	)
Other Revenues		12,935			10,417			2,518			24.2
Total Operating Revenues		329,772			315,391			14,381			4.6

Operating Expenses
Fuel		72,208			69,143			3,065			4.4
Purchased Energy		81,229			74,403			6,826			9.2
Other Operations and Maintenance		63,304			61,735			1,569			2.5
Depreciation and Amortization		34,515			32,680			1,835			5.6
Amortization of Transition Recovery Asset		19,219			17,279			1,940			11.2
Taxes Other Than Income Taxes		12,166			12,360			(194	)		(1.6	)
Total Operating Expenses		282,641			267,600			15,041			5.6
Operating Income		47,131			47,791			(660	)		(1.4	)

Other Income (Deductions)
Interest Income		4,456			5,142			(686	)		(13.3	)
Other Income		4,328			1,987			2,341		N/M
Other Expense		(1,614	)		(246	)		(1,368	)	N/M
Total Other Income (Deductions)		7,170			6,883			287			4.2

Interest Expense
Long-Term Debt		18,276			19,208			(932	)		(4.9	)
Interest on Capital Leases		16,126			18,526			(2,400	)		(13.0	)
Other Interest Expense		1,651			1,267			384			30.3
Interest Capitalized		(1,634	)		(1,436	)		(198	)		(13.8	)
Total Interest Expense		34,419			37,565			(3,146	)		(8.4	)

Income Before Income Taxes		19,882			17,109			2,773			16.2
Income Tax Expense		8,076			7,111			965			13.6

Net Income	$	11,806		$	9,998		$	1,808			18.1

Weighted-average Shares of Common Stock Outstanding (000)		35,472			35,245			227			0.6

Basic Earnings per Share	$	0.33		$	0.28		$	0.05			17.9

Diluted Earnings per Share	$	0.32		$	0.28		$	0.04			14.3

Dividends Declared per Share	$	0.225		$	0.21		$	0.015			7.1

	Three Months Ended
Tucson Electric Power	June 30,						Increase / (Decrease)
Electric MWh Sales:	2007			2006			Amount			Percent
Retail Sales		2,447,563			2,428,745			18,818			0.8
Wholesale Sales		825,324			647,589			177,735			27.4
Total		3,272,887			3,076,334			196,553			6.4

N/M - Not Meaningful

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

UNISOURCE ENERGY 2007 RESULTS

UniSource Energy Corporation

Condensed Consolidated Statements of Income	Six Months Ended
(in thousands of dollars, except per share amounts)	June 30,						Increase / (Decrease)
(UNAUDITED)	2007			2006			Amount			Percent

Operating Revenues
Electric Retail Sales	$	445,212		$	430,056		$	15,156			3.5
Electric Wholesale Sales		93,290			88,554			4,736			5.3
Gas Revenue		84,960			88,535			(3,575	)		(4.0	)
Other Revenues		24,151			13,672			10,479			76.6
Total Operating Revenues		647,613			620,817			26,796			4.3

Operating Expenses
Fuel		133,288			119,359			13,929			11.7
Purchased Energy		167,036			156,558			10,478			6.7
Other Operations and Maintenance		134,120			115,550			18,570			16.1
Depreciation and Amortization		68,981			63,437			5,544			8.7
Amortization of Transition Recovery Asset		34,205			29,121			5,084			17.5
Taxes Other Than Income Taxes		24,653			24,913			(260	)		(1.0	)
Total Operating Expenses		562,283			508,938			53,345			10.5
Operating Income		85,330			111,879			(26,549	)		(23.7	)

Other Income (Deductions)
Interest Income		8,900			10,069			(1,169	)		(11.6	)
Other Income		5,643			3,622			2,021			55.8
Other Expense		(2,251	)		(974	)		(1,277	)	N/M
Total Other Income (Deductions)		12,292			12,717			(425	)		(3.3	)

Interest Expense
Long-Term Debt		36,265			37,892			(1,627	)		(4.3	)
Interest on Capital Leases		32,278			37,073			(4,795	)		(12.9	)
Other Interest Expense		3,412			2,573			839			32.6
Interest Capitalized		(3,029	)		(3,348	)		319			9.5
Total Interest Expense		68,926			74,190			(5,264	)		(7.1	)

Income From Continuing Operations Before Income Taxes		28,696			50,406			(21,710	)		(43.1	)
Income Tax Expense		11,947			20,917			(8,970	)		(42.9	)

Income From Continuing Operations		16,749			29,489			(12,740	)		(43.2	)
Discontinued Operations - Net of Tax		-			(2,669	)		2,669		N/M

Net Income	$	16,749		$	26,820		$	(10,071	)		(37.6	)

Weighted-average Shares of Common Stock Outstanding (000)		35,447			35,181			266			0.8

Basic Earnings (Loss) per Share
Income from Continuing Operations	$	0.47		$	0.84		$	(0.37	)		(44.0	)
Discontinued Operations - Net of Tax		-		$	(0.08	)	$	0.08		N/M
Net Income	$	0.47		$	0.76		$	(0.29	)		(38.2	)

Diluted Earnings (Loss) per Share
Income from Continuing Operations	$	0.46		$	0.80		$	(0.34	)		(42.5	)
Discontinued Operations - Net of Tax		-		$	(0.07	)	$	0.07		N/M
Net Income	$	0.46		$	0.73		$	(0.27	)		(37.0	)

Dividends Declared per Share	$	0.45		$	0.42		$	0.03			7.1

	Six Months Ended
Tucson Electric Power	June 30,						Increase / (Decrease)
Electric MWh Sales:	2007			2006			Amount			Percent
Retail Sales		4,459,834			4,302,561			157,273			3.7
Wholesale Sales		1,659,962			1,659,579			383			0.0
Total		6,119,796			5,962,140			157,656			2.6

N/M - Not Meaningful

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