EX-99 2 pressrelease.txt PRESS RELEASE [GRAPHIC OMITTED] UNISOURCE ENERGY NEWS LOGO FOR IMMEDIATE RELEASE August 7, 2005 Media Contact: Art McDonald, (520) 884-3628 Page 1 of 7 Financial Analyst Contact: Jo Smith, (520) 884-3650 UNISOURCE ENERGY REPORTS SECOND QUARTER EARNINGS FOR 2005 TUCSON, ARIZ. - UniSource Energy Corp. (NYSE: UNS) today reported earnings for the second quarter of 2005 of $9.5 million, or $0.27 per basic share of common stock. For the same quarter last year, UniSource Energy reported earnings of $12.8 million, or $0.37 per share Warmer weather and continued growth in the number of customers at UniSource Energy's largest subsidiary, Tucson Electric Power Company (TEP), led to an increase of $6.6 million, or 3.5 percent, in TEP's retail revenues compared with the same period last year. However, planned outages at generating units serving TEP and the expiration of a power exchange agreement led to lower wholesale revenues and higher purchased power costs. These factors led to a $6.4 million reduction in TEP's utility gross margin (the sum of retail and wholesale electric revenues less fuel and purchased power expense) which contributed to the year-over-year reduction in quarterly earnings. UniSource Energy also incurred costs of $5.4 million during the second quarter of 2005 related to the completion of the financial restructuring of TEP. UniSource Energy expects its on-going interest costs to be reduced by approximately $10 million per year as a result of its 2005 financing activities. "We took advantage of the favorable financial markets and entered into new credit agreements for UniSource Energy, UES and TEP," said James S. Pignatelli Chairman, President and CEO of UniSource Energy. "These financings improved TEP's capital structure, provided additional sources of liquidity, and lowered interest costs." UniSource Energy Services, which provides gas and electric service in northern and southern Arizona through subsidiaries UNS Gas and UNS Electric, earned $1.1 million in the second quarter of 2005, compared with earnings of $0.5 million in the same period last year. Millennium Energy Holdings, a subsidiary that oversees UniSource Energy's unregulated investments, reported a net loss of $2.1 million in the second quarter of 2005 compared with a net loss of $3.3 million in the same period last year. TUCSON ELECTRIC POWER COMPANY TEP reported earnings in the second quarter of 2005 of $12.1 million, or $0.35 per basic UniSource Energy share, compared with earnings of $18.0 million, or $0.52 per share, during the same period last year. Retail revenues increased to $195.5 million due, in part, to warmer weather and continued growth in the number of customers. Cooling degree days in TEP's service area increased 11.5 percent over the second quarter of 2004 and were 4.6 percent higher than the 10-year average. TEP's retail customer base expanded to 379,250 in the second quarter of 2005, a 2.4 percent increase from the second quarter of 2004. Wholesale revenues declined by $4.3 million in the second quarter of 2005 compared with the same period last year. TEP's wholesale opportunities were limited by increased retail demand, power plant outages, and the expiration of a power exchange agreement with Southern California Edison. Plant outages during the second quarter of 2005 included a three-week planned maintenance shutdown of Unit 2 at San Juan Generating Station. TEP owns 50 percent, or 158 MW of capacity, of Unit 2. Unit 5 at Four Corners Generating Station also was taken out of service for more than two weeks for maintenance. TEP owns 55 MW of capacity from Four Corners Unit 5. "Buying energy to replace those resources proved costly during the second quarter, particularly with the increased energy use by retail customers and high market power prices," Pignatelli said. TEP expects to realize benefits from the higher power prices later this year when more energy from our lower cost coal-fired generation is available to sell into the wholesale market, Pignatelli said. TEP's Other Operations & Maintenance (O&M) expense increased $4.6 million in the second quarter of 2005 compared with the same period last year due primarily to higher maintenance costs at the utility's coal-fired power plants. Other O&M includes a $1.6 million gain from the sale of excess sulfur dioxide (SO2) emission allowances in the second quarter of 2005. Other factors affecting TEP's second quarter earnings include higher expenses related to refinancing costs and additional amortization of the Transition Recovery Asset (TRA). Depreciation expense was reduced as a result of extending the depreciation lives of various generation assets as of July 2004 and April 2005. UNS GAS UNS Gas reported earnings in the second quarter of 2005 of $0.1 million, compared with a $1.0 million net loss during the same period last year. Retail therm sales for the quarter increased 36 percent over last year due to cooler weather in northern Arizona and a growing customer base. UNS Gas' retail customer base grew to 135,870 by the end of the second quarter, a 4.2 percent increase from last year. UNS ELECTRIC UNS Electric reported earnings for the second quarter of 2005 of $1.0 million, compared with earnings of $1.5 million during the second quarter of 2004. Warmer weather and customer growth led to a 3.8 percent increase in kWh sales compared with the same period last year. UNS Electric's customer base grew to 87,461 customers by the end of the second quarter. YEAR TO DATE UniSource Energy's consolidated year-to-date earnings through June 30, 2005, were $5.7 million, or $0.16 per basic share of common stock, compared with earnings of $19.2 million, or $0.56 per share, during the same period last year. EARNINGS PER SHARE SUMMARY

2ND QUARTER YEAR-TO-DATE JUNE 30, NET INCOME (LOSS) - IN MILLIONS 2005 2004 | 2005 2004 ------------------------------------------------------------------------------------------ TEP $12.1 $18.0 | $7.5 $18.8 UNS Gas 0.1 (1.0) | 4.2 3.4 UNS Electric 1.0 1.5 | 1.4 2.0 MEH (2.1) (3.3) | (4.5) (1.2) Other (1.6) (2.4) | (2.9) (3.8) ------------------------------------------------------------------------------------------ UniSource Energy Consolidated $9.5 $12.8 | $5.7 $19.2 ========================================================================================== 2ND QUARTER YEAR-TO-DATE JUNE 30, PER UNISOURCE ENERGY SHARE 2005 2004 | 2005 2004 ------------------------------------------------------------------------------------------ TEP $0.35 $0.52 | $0.22 $0.55 UNS Gas 0.00 (0.03) | 0.12 0.10 UNS Electric 0.03 0.04 | 0.04 0.05 MEH (0.06) (0.09) | (0.13) (0.03) Other (0.05) (0.07) | (0.09) (0.11) ------------------------------------------------------------------------------------------ UniSource Energy Consolidated $0.27 $0.37 | $0.16 $0.56 ========================================================================================== Avg. Basic Shares Outstanding (millions) 34.8 34.4 34.7 34.3 (1) Includes net losses from Global Solar of: $1.8 million in the second quarter of 2005; $1.4 million in the second quarter of 2004; $3.3 million in the first six months of 2005; and $2.4 million in the first six months of 2004. (2) Includes: for 2005, UniSource Energy stand-alone; and for 2004, also includes income and losses from UniSource Energy Development.

UniSource Energy believes that the presentation of TEP, UNS Gas, UNS Electric, Millennium, 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 losses incurred by Millennium. 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. SECOND QUARTER 2005 EARNINGS DISCUSSION UniSource Energy officials will discuss the company's second quarter 2005 earnings on Monday, August 8, beginning at 2 p.m. EDT in a conference call that will be available live on the Internet. James S. Pignatelli, UniSource Energy Chairman, President and Chief Executive Officer, and Kevin P. 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 8145125. A telephone replay will be available for seven days starting August 8. To listen to the replay, dial (800) 642-1687 and reference confirmation code 8145125. 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 TEP, which serves more than 379,000 customers in southern Arizona; UniSource Energy Services, provider of natural gas and electric service for more than 223,000 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 (in thousands of dollars, except per share Three Months Ended amounts) June 30, INCREASE / (DECREASE) ------------------------ (UNAUDITED) 2005 2004 AMOUNT PERCENT ---------------------------------------------------------------------------------------------------------- OPERATING REVENUES Electric Retail Sales $ 231,785 $ 224,056 $ 7,729 3.4 Electric Wholesale Sales 37,871 42,189 (4,318) (10.2) Gas Revenue 26,058 20,212 5,846 28.9 Other Revenues 4,878 3,624 1,254 34.6 ---------------------------------------------------------------------------------------------------------- TOTAL OPERATING REVENUES 300,592 290,081 10,511 3.6 ---------------------------------------------------------------------------------------------------------- OPERATING EXPENSES Fuel 55,863 55,340 523 0.9 Purchased Energy 68,897 55,586 13,311 23.9 Other Operations and Maintenance 61,248 56,410 4,838 8.6 Depreciation and Amortization 33,344 36,560 (3,216) (8.8) Amortization of Transition Recovery Asset 14,136 12,003 2,133 17.8 Taxes Other Than Income Taxes 12,510 12,611 (101) (0.8) ---------------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 245,998 228,510 17,488 7.7 ---------------------------------------------------------------------------------------------------------- OPERATING INCOME 54,594 61,571 (6,977) (11.3) ---------------------------------------------------------------------------------------------------------- OTHER INCOME (DEDUCTIONS) Interest Income 5,076 5,013 63 1.3 Other Income 1,649 1,338 311 23.2 Other Expense (998) (3,698) 2,700 73.0 ---------------------------------------------------------------------------------------------------------- TOTAL OTHER INCOME (DEDUCTIONS) 5,727 2,653 3,074 N/M ---------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Long-Term Debt 19,744 20,032 (288) (1.4) Interest on Capital Leases 19,401 20,065 (664) (3.3) Loss on Reacquired Debt 5,427 - 5,427 N/M Other Interest Expense, Net of Amounts (897) (329) (568) N/M Capitalized ---------------------------------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 43,675 39,768 3,907 9.8 ---------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 16,646 24,456 (7,810) (31.9) Income Tax Expense 7,178 11,655 (4,477) (38.4) ---------------------------------------------------------------------------------------------------------- NET INCOME $ 9,468 $ 12,801 $ (3,333) (26.0) ========================================================================================================== WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING (000) 34,807 34,392 415 1.2 ========================================================================================================== BASIC EARNINGS PER SHARE $0.27 $0.37 $(0.10) (27.0) ========================================================================================================== DILUTED EARNINGS PER SHARE $0.27 $0.37 $(0.10) (27.0) ========================================================================================================== DIVIDENDS PAID PER SHARE $0.19 $0.16 $0.03 18.8 ========================================================================================================== Three Months Ended TUCSON ELECTRIC POWER June 30, INCREASE / (DECREASE) ------------------------- ELECTRIC MWH SALES: 2005 2004 AMOUNT PERCENT ---------------------------------------------------------------------------------------------------------- Retail Sales 2,292,184 2,178,061 114,123 5.2 Wholesale Sales 753,391 935,564 (182,173) (19.5) ---------------------------------------------------------------------------------------------------------- TOTAL 3,045,575 3,113,625 (68,050) (2.2) ========================================================================================================== N/M - Not Meaningful Reclassifications have been made to prior periods to conform to the current period's presentation.

UNISOURCE ENERGY 2005 RESULTS

UNISOURCE ENERGY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands of dollars, except per share Six Months Ended INCREASE / (DECREASE) amounts) June 30, -------------------------- (UNAUDITED) 2005 2004 AMOUNT PERCENT ------------------------------------------------------------------------------------------------------------ OPERATING REVENUES Electric Retail Sales $403,375 $ 398,419 $ 4,956 1.2 Electric Wholesale Sales 77,051 83,889 (6,838) (8.2) Gas Revenue 72,607 69,013 3,594 5.2 Other Revenues 8,488 8,844 (356) (4.0) ------------------------------------------------------------------------------------------------------------ TOTAL OPERATING REVENUES 561,521 560,165 1,356 0.2 ------------------------------------------------------------------------------------------------------------ OPERATING EXPENSES Fuel 103,154 102,789 365 0.4 Purchased Energy 133,304 115,088 18,216 15.8 Other Operations and Maintenance 122,740 119,989 2,751 2.3 Depreciation and Amortization 68,168 71,696 (3,528) (4.9) Amortization of Transition Recovery Asset 23,623 20,600 3,023 14.7 Taxes Other Than Income Taxes 26,009 25,722 287 1.1 ------------------------------------------------------------------------------------------------------------ TOTAL OPERATING EXPENSES 476,998 455,884 21,114 4.6 ------------------------------------------------------------------------------------------------------------ OPERATING INCOME 84,523 104,281 (19,758) (18.9) ------------------------------------------------------------------------------------------------------------ OTHER INCOME (DEDUCTIONS) Interest Income 10,037 9,882 155 1.6 Other Income 2,803 7,941 (5,138) (64.7) Other Expense (2,242) (2,602) 360 13.8 ------------------------------------------------------------------------------------------------------------ TOTAL OTHER INCOME (DEDUCTIONS) 10,598 15,221 (4,623) (30.4) ------------------------------------------------------------------------------------------------------------ INTEREST EXPENSE Long-Term Debt 40,096 41,515 (1,419) (3.4) Interest on Capital Leases 39,147 40,109 (962) (2.4) Loss on Reacquired Debt 5,427 1,635 3,792 N/M Other Interest Expense, Net of Amounts (886) (543) (343) (63.2) Capitalized ------------------------------------------------------------------------------------------------------------ TOTAL INTEREST EXPENSE 83,784 82,716 1,068 1.3 ------------------------------------------------------------------------------------------------------------ INCOME BEFORE INCOME TAXES 11,337 36,786 (25,449) (69.2) Income Tax Expense 5,652 17,564 (11,912) (67.8) ------------------------------------------------------------------------------------------------------------ NET INCOME $ 5,685 $ 19,222 $ (13,537) (70.4) ============================================================================================================ WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING (000) 34,721 34,288 433 1.3 ============================================================================================================ BASIC EARNINGS PER SHARE $0.16 $0.56 $(0.40) (71.4) ============================================================================================================ DILUTED EARNINGS PER SHARE $0.16 $0.55 $(0.39) (70.9) ============================================================================================================ DIVIDENDS PAID PER SHARE $0.38 $0.32 $0.06 18.8 ============================================================================================================ Six Months Ended TUCSON ELECTRIC POWER June 30, INCREASE / (DECREASE) --------------------------- ELECTRIC MWH SALES: 2005 2004 AMOUNT PERCENT ------------------------------------------------------------------------------------------------------------ Retail Sales 4,068,585 3,986,808 81,777 2.1 Wholesale Sales 1,515,369 1,824,854 (309,485) (17.0) ------------------------------------------------------------------------------------------------------------ TOTAL 5,583,954 5,811,662 (227,708) (3.9) ============================================================================================================ N/M - Not Meaningful Reclassifications have been made to prior periods to conform to the current period's presentation.