EX-99.1 2 exhibit99.htm PRESS RELEASE, DATED FEBRUARY 27, 2007 Reporting Period
Exhibit 99
 
 
FOR IMMEDIATE RELEASE
February 27, 2007
Media Contact: Joe Salkowski, (520) 884-3625
Page 1 of 7
Financial Analyst Contact: Jo Smith, (520) 884-3650
  
 
UNISOURCE ENERGY REPORTS 2006 EARNINGS,
ISSUES EARNINGS OUTLOOK FOR 2007
 
Tucson, Ariz. - UniSource Energy Corp. (NYSE: UNS) today reported earnings for 2006 of $67 million. This amounts to $1.91 per basic share of common stock or $1.80 per share on a diluted basis. UniSource Energy also announced it expects the company’s 2007 earnings will be between $1.55 and $1.95 per diluted share ($1.65 and $2.05 per basic share).
 
Strong utility customer growth, improved performance of generating plants at Tucson Electric Power Co. (TEP) and the benefits of bringing a new unit at the Springerville Generating Station (SGS) online contributed to the increase over UniSource Energy’s 2005 earnings of $46 million ($1.33 per basic share or $1.28 per share on a diluted basis). UniSource Energy’s March 2006 sale of Global Solar Energy also contributed to higher earnings by reducing losses on discontinued operations linked to that investment.

“Our improved financial results can be credited in part to the steady operations of TEP’s cost-effective generation assets," said James S. Pignatelli, Chairman, President and CEO of UniSource Energy. "In 2005, we experienced an extended summer shutdown of SGS Unit 2. This year, our plant availability was better than 90 percent for the year and exceeded 95 percent from June through September when customer demand is at its highest."

TEP added approximately 7,500 new customers in 2006, a 2 percent increase over the previous year. Sister company UniSource Energy Services (UES) added 10,000 customers in 2006, bringing UniSource Energy's customer growth rate to 3 percent for the combined companies. This year-over-year increase is double the utility industry's average growth rate of 1.5 percent.
 
UES reported earnings of $10 million in both 2006 and 2005. The company provides gas and electric service in northern and southern Arizona through subsidiaries UNS Gas and UNS Electric.
 
On a consolidated basis, UniSource Energy generated $283 million of cash flow from operations in 2006, allowing the company to internally fund capital expenditures of $238 million while increasing its dividend to shareholders.
 
Tucson Electric Power Co.
 
TEP reported earnings for 2006 of $67 million, or $1.89 per basic UniSource Energy share, compared with $49 million, or $1.41 per basic UniSource Energy share, in 2005.

Factors affecting TEP's 2006 results include:
 
1

·  
Retail revenues increased $28 million, or 4 percent compared with 2005, due primarily to warmer weather in the second quarter and customer growth of 2 percent;

·  
Fuel costs increased $31 million due to increased generation at TEP’s coal-fired plants, generation from the Luna Energy Facility (Luna) beginning in April 2006 and fuel costs associated with SGS Unit 3. This increase was partially offset by a $24 million decrease in purchased power costs;

·  
A $31 million increase in operating and maintenance expenses due primarily to generating plant maintenance, operating expenses at Luna, $9 million of operating costs related to SGS Unit 3 and a $7 million decrease in pre-tax gains from the sale of excess SO2 emission allowances;

·  
An $8 million benefit from Tri-State for operating fees and its share of the common costs and transmission charges related to SGS Unit 3. This benefit is separate from reimbursements TEP receives from Tri-State for fuel and O&M expenses related to SGS Unit 3 as described above;

·  
A $10 million increase in expenses related to the amortization of the Transition Recovery Asset; and

·  
A $13 million decrease in total interest expense due primarily to debt retirements made in 2005 and the refinancing of its credit agreement in August 2006.
 
UNS Gas
 
UNS Gas reported net income for 2006 of $4 million, compared with net income of $5 million in 2005.
 
An increase in purchased energy expense of 26 percent and a $1 million increase in O&M expenses offset a $24 million increase in retail revenues. A 2 percent increase in retail therm sales coupled with a higher fuel surcharge during 2006 contributed to the increase in retail revenues. UNS Gas' retail customer base grew to approximately 145,000 by the end of 2006, a 5 percent increase from the previous year.
 
UNS Gas filed a general rate case in 2006 requesting an average 7 percent rate increase, or $10 million, to recover the costs of serving its growing customer base.
 
UNS Electric
 
UNS Electric reported earnings of $5 million for both 2006 and 2005.
 
A 6 percent increase in retail kWh sales was offset by higher O&M expenses, both of which were primarily due to customer growth. UNS Electric's customer base grew to approximately 93,000 customers, a 4 percent increase over 2005.
 
In December 2006, UNS Electric filed a general rate case seeking an average rate increase of approximately 5.5 percent, or $8.5 million, to recover its increasing capital and operating costs.
 
2
 
Discontinued Operations - Global Solar
 
UniSource Energy’s net income and earnings per share include Global Solar as a discontinued operation. Global Solar recorded losses of $2 million in 2006 and $6 million in 2005. Millennium Energy Holdings, a subsidiary that oversees UniSource Energy's unregulated investments, completed the sale of its interest in Global Solar on March 31, 2006.
 
Net Income and Earnings Per Share Summary
 
   
Year-End
  
4th Quarter
  
Net Income (millions)
  
2006
  
2005
  
2006
  
2005
  
Tucson Electric Power
  
$
66.7
  
$
48.9
  
$
9.3
  
$
21.1
  
UNS Gas
    
4.4
   
5.0
   
2.7
   
2.9
 
UNS Electric
    
5.1
   
5.0
   
0.7
   
1.3
 
Other 1
    
(7.0
)
  
(6.7
)
  
(1.2
)
  
(1.5
)
Income Before Discontinued Operations and
                          
Cumulative Effect of Accounting Change
  
$
69.2
  
$
52.2
  
$
11.5
  
$
23.8
  
Discontinued Operations - Net of Tax 2
    
(1.8
)
  
(5.5
)
  
0.9
   
(1.1
)
Cumulative Effect of Accounting Change - Net of Tax
    
-
   
(0.6
)
  
-
   
(0.6
)
Net Income
 
$
67.4
  
$
46.1
  
$
12.4
  
$
22.1
  
                           
Avg. Basic Shares Outstanding (millions)
    
35.3
   
34.8
   
35.4
   
35.0
 
                           
   
Year-End
    
4th Quarter
  
Basic Earnings Per UniSource Energy Share
    
2006
    
2005
    
2006
    
2005
  
Tucson Electric Power
  
$
1.89
  
$
1.41
  
$
0.26
  
$
0.60
  
UNS Gas
    
0.12
   
0.14
   
0.08
   
0.08
 
UNS Electric
    
0.14
   
0.14
   
0.02
   
0.04
 
Other 1
    
(0.19
)
  
(0.18
)
  
(0.03
)
  
(0.04
)
Income Before Discontinued Operations and
                          
Cumulative Effect of Accounting Change
  
$
1.96
  
$
1.51
  
$
0.33
  
$
0.68
  
Discontinued Operations - Net of Tax 2
    
(0.05
)
  
(0.16
)
  
0.02
   
(0.03
)
Cumulative Effect of Accounting Change - Net of Tax
    
-
   
(0.02
)
  
-
   
(0.02
)
Net Income
  
$
1.91
  
$
1.33
  
$
0.35
  
$
0.63
  
                           
Diluted Earnings per Share
                          
Income Before Discontinued Operations and
  
$
1.85
  
$
1.44
  
$
0.32
  
$
0.63
  
Discontinued Operations - Net of Tax 2
    
(0.05
)
  
(0.14
)
  
0.02
   
(0.03
)
Cumulative Effect of Accounting Change - Net of Tax
    
-
   
(0.02
)
  
-
   
(0.02
)
Net Income
  
$
1.80
  
$
1.28
    
0.34
   
0.58
 
 
(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.
 
3
 
UniSource Energy believes that 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's management currently estimates that its 2007 full-year earnings will be between $1.55 and $1.95 per diluted share. Earnings in 2007 will be impacted by various factors including: rising fuel and transportation costs; increases in depreciation and amortization, including an increase in the amortization of the Transition Recovery Asset; lower interest expense; and a full-year of benefits from Springerville Unit 3.
 
Numerous factors can affect UniSource Energy's ability to reach the 2007 estimate. The factors include, but are not limited to: changes in accounting standards; uncertainties prevailing in the wholesale power market; regulatory decisions; performance of TEP's generating plants; the weather; the pace and strength of the regional economy; fuel and purchased power expense; changes to long-term contracts; changes in asset depreciable lives; and the amount of losses incurred by Millennium.
 
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.
 
Discussion of 2006 Earnings and 2007 Outlook
 
UniSource Energy officials will discuss the company's 2006 year-end earnings and outlook for 2007 on February 28, 2007 beginning at 11:00 a.m. EST in a conference call that will be available live on the Internet. James S. Pignatelli, UniSource Energy Chairman, President and Chief Executive Officer will host the call.
 
Internet Access
 
A live audio-only webcast of the conference call is available through a link at www.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 1050924. A telephone replay will be available for seven days starting February 28, 2007. To listen to the replay, dial 800-642-1687 and reference confirmation code 1050924.
 
UniSource Energy's primary subsidiaries include Tucson Electric Power, which serves 392,000 customers in southern Arizona; UniSource Energy Services, provider of natural gas and electric service for 238,000 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.
 
4
 
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.
 
5
 
UNISOURCE ENERGY 2006 RESULTS
                
                 
UniSource Energy Corporation
                
Condensed Consolidated Statements of Income
Three Months Ended
         
(in thousands of dollars, except per share amounts)
December 31,
  
Increase / (Decrease)
  
(UNAUDITED)
2006
  
2005
  
Amount
  
Percent
  
                 
Operating Revenues
                
 Electric Retail Sales
$
203,610
  
$
196,033
  
$
7,577
    
3.9
 
 Electric Wholesale Sales
  
50,204
   
70,786
   
(20,582
)
  
(29.1
)
 Gas Revenue
  
50,448
   
47,071
   
3,377
   
7.2
 
 Other Revenues
  
13,618
   
3,203
   
10,415
   
N/M
  
  Total Operating Revenues
  
317,880
   
317,093
   
787
   
0.2
 
                         
Operating Expenses
                        
 Fuel
  
59,855
   
56,614
   
3,241
   
5.7
 
 Purchased Energy
  
79,099
   
85,065
   
(5,966
)
  
(7.0
)
 Other Operations and Maintenance
  
71,663
   
48,636
   
23,027
   
47.3
 
 Depreciation and Amortization
  
33,735
   
32,777
   
958
   
2.9
 
 Amortization of Transition Recovery Asset
  
14,905
   
12,553
   
2,352
   
18.7
 
 Taxes Other Than Income Taxes
 
10,991
   
11,291
   
(300
)
  
(2.7
)
  Total Operating Expenses
  
270,248
   
246,936
   
23,312
   
9.4
 
   Operating Income
  
47,632
   
70,157
   
(22,525
)
  
(32.1
)
                         
Other Income (Deductions)
                        
 Interest Income
  
4,559
   
5,144
   
(585
)
  
(11.4
)
 Other Income
 
2,017
   
4,921
   
(2,904
)
  
(59.0
)
 Other Expense
  
(706
)
  
112
   
(818
)
  
N/M
  
  Total Other Income (Deductions)
  
5,870
   
10,177
   
(4,307
)
  
(42.3
)
                         
Interest Expense
                        
 Long-Term Debt
  
18,292
   
18,664
   
(372
)
  
(2.0
)
 Interest on Capital Leases
  
17,539
   
19,873
   
(2,334
)
  
(11.7
)
 Other Interest Expense
  
1,046
   
650
   
396
   
60.9
 
 Interest Capitalized
  
(232
)
  
(743
)
  
511
   
68.8
 
  Total Interest Expense
  
36,645
   
38,444
   
(1,799
)
  
(4.7
)
                         
Income Before Income Taxes, Discontinued Operations, and Cumulative Effect of Accounting Change
  
16,857
   
41,890
   
(25,033
)
  
(59.8
)
 Income Tax Expense
 
5,306
   
18,140
   
(12,834
)
  
(70.7
)
                         
Income Before Discontinued Operations and
Cumulative Effect of Accounting Change
  
11,551
   
23,750
   
(12,199
)
  
(51.4
)
Discontinued Operations - Net of Tax
  
873
   
(1,062
)
  
1,935
   
N/M
  
Cumulative Effect of Accounting Changes - Net of Tax
  
-
   
(626
)
  
626
   
N/M
  
                         
Net Income
$
12,424
  
$
22,062
  
$
(9,638
)
  
(43.7
)
                         
Weighted-average Shares of Common Stock Outstanding(000)
  
35,387
   
34,990
   
397
   
1.1
 
                         
Basic Earnings per Share
                        
 Income Before Discontinued Operations and
 Cumulative Effect of Accounting Change
$
0.33
  
$
0.68
  
$
(0.35
)
  
(51.5
)
 Discontinued Operations - Net of Tax
$
0.02
  
$
(0.03
)
$
0.05
    
N/M
  
 Cumulative Effect of Accounting Change - Net of Tax
  
-
 
$
(0.02
)
$
0.02
    
N/M
  
 Net Income
$
0.35
  
$
0.63
  
$
(0.28
)
  
(44.4
)
                         
Diluted Earnings per Share
                        
 Income Before Discontinued Operations and
Cumulative Effect of Accounting Change
$
0.32
  
$
0.63
  
$
(0.31
)
  
(49.2
)
 Discontinued Operations - Net of Tax
$
0.02
  
$
(0.03
)
$
0.05
    
N/M
  
 Cumulative Effect of Accounting Change - Net of Tax
  
-
 
$
(0.02
)
$
0.02
    
N/M
  
 Net Income
$
0.34
  
$
0.58
  
$
(0.24
)
  
(41.4
)
                         
Dividends Declared per Share
$
0.21
  
$
0.19
  
$
0.02
    
10.5
 
                         
                         
 
  
Three Months Ended
             
Tucson Electric Power
  
December 31,
    
Increase / (Decrease)
  
Electric MWh Sales:
  
2006
    
2005
    
Amount
    
Percent
  
 Retail Sales
  
2,060,940
   
1,977,573
   
83,367
   
4.2
 
 Wholesale Sales
 
970,458
   
1,006,755
   
(36,297
)
  
(3.6
)
  Total
  
3,031,398
   
2,984,328
   
47,070
   
1.6
 
                         
N/M - Not Meaningful
                        
Reclassifications have been made to prior periods to conform to the current period's presentation.
  
 
6
 
UNISOURCE ENERGY 2006 RESULTS
                  
                   
UniSource Energy Corporation
                  
Condensed Consolidated Statements of Income
  
Twelve Months Ended
         
(in thousands of dollars, except per share amounts)
  
December 31,
  
Increase / (Decrease)
  
(UNAUDITED)
  
2006
  
2005
  
Amount
  
Percent
  
                   
Operating Revenues
                          
 Electric Retail Sales
  
$
932,307
  
$
895,411
  
$
36,896
    
4.1
 
 Electric Wholesale Sales
    
187,994
   
178,667
   
9,327
   
5.2
 
 Gas Revenue
    
159,598
   
135,909
   
23,689
   
17.4
 
 Other Revenues
    
36,970
   
14,069
   
22,901
   
N/M
  
  Total Operating Revenues
    
1,316,869
   
1,224,056
   
92,813
   
7.6
 
                           
Operating Expenses
                          
 Fuel
    
257,515
   
226,278
   
31,237
   
13.8
 
 Purchased Energy
    
329,516
   
324,351
   
5,165
   
1.6
 
 Other Operations and Maintenance
    
247,069
   
215,600
   
31,469
   
14.6
 
 Depreciation and Amortization
    
130,502
   
132,577
   
(2,075
)
  
(1.6
)
 Amortization of Transition Recovery Asset
    
65,985
   
56,418
   
9,567
   
17.0
 
 Taxes Other Than Income Taxes
   
46,136
   
47,328
   
(1,192
)
  
(2.5
)
  Total Operating Expenses
    
1,076,723
   
1,002,552
   
74,171
   
7.4
 
   Operating Income
    
240,146
   
221,504
   
18,642
   
8.4
 
                           
Other Income (Deductions)
                          
 Interest Income
    
19,210
   
19,838
   
(628
)
  
(3.2
)
 Other Income
   
7,453
   
10,985
   
(3,532
)
  
(32.2
)
 Other Expense
    
(1,887
)
  
(2,155
)
  
268
   
12.4
 
  Total Other Income (Deductions)
    
24,776
   
28,668
   
(3,892
)
  
(13.6
)
                           
Interest Expense
                          
 Long-Term Debt
    
75,039
   
76,762
   
(1,723
)
  
(2.2
)
 Interest on Capital Leases
    
72,586
   
79,098
   
(6,512
)
  
(8.2
)
 Loss on Extinguishment of Debt
    
1,080
   
5,261
   
(4,181
)
  
(79.5
)
 Other Interest Expense
    
7,922
   
3,153
   
4,769
   
N/M
  
 Interest Capitalized
    
(4,884
)
  
(3,978
)
  
(906
)
  
(22.8
)
  Total Interest Expense
    
151,743
   
160,296
   
(8,553
)
  
(5.3
)
                           
Income Before Income Taxes, Discontiued Operations, and Cumulative Effect of Accounting Change
    
113,179
   
89,876
   
23,303
   
25.9
 
 Income Tax Expense
    
43,936
   
37,623
   
6,313
   
16.8
 
 
                          
Income Before Discontiued Operations and Cumulative Effect of Accounting Change
    
69,243
   
52,253
   
16,990
   
32.5
 
Discontinued Operations - Net of Tax
    
(1,796
)
  
(5,483
)
  
3,687
   
67.2
 
Cumulative Effect of Accounting Change - Net of Tax
    
-
   
(626
)
  
626
   
N/M
  
                           
Net Income
 
$
67,447
  
$
46,144
  
$
21,303
    
46.2
 
                           
Weighted-average Shares of Common Stock Outstanding (000)
    
35,264
   
34,798
   
466
   
1.3
 
                           
Basic Earnings per Share
                          
 Income Before Discontinued Operations and
 Cumulative Effect of Accounting Change
  
$
1.96
  
$
1.51
  
$
0.45
    
29.8
 
 Discontinued Operations - Net of Tax
  
$
(0.05
)
$
(0.16
)
$
0.11
    
68.8
 
 Cumulative Effect of Accounting Change - Net of Tax
    
-
 
$
(0.02
)
$
0.02
    
N/M
  
 Net Income
  
$
1.91
  
$
1.33
  
$
0.58
    
43.6
 
                           
Diluted Earnings per Share
                          
 Income Before Discontinued Operations and
 Cumulative Effect of Accounting Change
  
$
1.85
  
$
1.44
  
$
0.41
    
28.5
 
 Discontinued Operations - Net of Tax
  
$
(0.05
)
$
(0.14
)
$
0.09
    
64.3
 
 Cumulative Effect of Accounting Change - Net of Tax
    
-
 
$
(0.02
)
$
0.02
    
N/M
  
 Net Income
 
$
1.80
  
$
1.28
  
$
0.52
    
40.6
 
                           
Dividends Declared per Share
  
$
0.84
  
$
0.76
  
$
0.080
    
10.5
 
                           
                           
 
    
Twelve Months Ended
             
Tucson Electric Power
    
December 31,
    
Increase / (Decrease)
  
Electric MWh Sales:
    
2006
    
2005
    
Amount
    
Percent
  
 Retail Sales
    
9,201,419
   
8,874,985
   
326,434
   
3.7
 
 Wholesale Sales
   
3,440,965
   
3,181,900
   
259,065
   
8.1
 
Total
    
12,642,384
   
12,056,885
   
585,499
   
4.9
 
                           
N/M - Not Meaningful
                          
Reclassifications have been made to prior periods to conform to the current period's presentation.
  
 
7