EX-99 2 f8k_exh99.txt UNISOURCE ENERGY THIRD QUARTER 2004 PRESS RELEASE Exhibit 99 [LOGO OMITTED] UNISOURCE ENERGY NEWS FOR IMMEDIATE RELEASE November 4, 2004 Media Contact: Art McDonald, (520) 884-3628 Page 1 of 6 Financial Analyst Contact: Jo Smith, (520) 884-3650 UNISOURCE ENERGY REPORTS THIRD QUARTER 2004 EARNINGS TUCSON, ARIZ. - UniSource Energy Corporation (NYSE: UNS) reported earnings today for the third quarter of 2004 of $24 million, or $0.69 per share of common stock. UniSource Energy reported earnings of $27 million, or $0.81 per share, in the third quarter of 2003, as restated. Milder summer weather, increased Transition Recovery Asset amortization, acquisition-related expenses and costs associated with Sarbanes-Oxley Section 404 compliance contributed to the decrease in quarterly earnings. "We anticipated these higher operating costs and our utilities are performing in line with expectations." said James S. Pignatelli, Chairman, President and CEO of UniSource Energy and its principal subsidiary, Tucson Electric Power Company (TEP). UniSource Energy Services (UES), a subsidiary that began providing natural gas and electricity in northern and southern Arizona on August 11, 2003, contributed $0.4 million to third quarter earnings. Higher operating costs during the third quarter were partially offset by lower interest expense and a lower net loss at Millennium Energy Holdings (MEH). MEH, which oversees UniSource Energy's unregulated investments, reported a net loss of $1 million in the third quarter of 2004, compared with a net loss of $3 million in the same period last year. In November 2003, UniSource Energy entered into an agreement that provides for the acquisition of all of the company's outstanding common stock for $25.25 per share by Saguaro Utility Group L.P., an Arizona limited partnership whose general partner is Sage Mountain, L.L.C. and whose limited partners include investment funds affiliated with Kohlberg Kravis Roberts & Co., L.P., J.P. Morgan Partners, LLC, and Wachovia Capital Partners. On March 29, 2004, UniSource Energy's shareholders voted to approve the acquisition agreement. The requirements under the Hart-Scott-Rodino Act were satisfied on March 19, 2004. On October 12, 2004, the Federal Energy Regulatory Commission issued an order approving the proposed acquisition. The acquisition still requires approval by the Arizona Corporation Commission and the Securities and Exchange Commission under the Public Utility Holding Company Act. The acquisition is now expected to occur prior to the end of the first quarter of 2005. Page 2 of 6 TUCSON ELECTRIC POWER COMPANY TEP reported third quarter 2004 earnings of $26 million, or $0.76 per UniSource Energy share, compared with restated earnings of $32 million, or $0.95 per UniSource Energy share, in the same period last year. TEP's utility gross margin (the sum of electric retail and wholesale revenues less fuel and purchased power expenses) did not change from the third quarter of 2003. TEP's customer base grew by 2 percent to 372,899 between the third quarters of 2003 and 2004. Sales to residential customers of TEP fell 2 percent from the third quarter of 2003 due to a 15 percent decrease in cooling degree days. Sales to commercial and mining customers increased 4 and 14 percent, respectively, over the same period last year. Other factors affecting TEP's third quarter earnings include a $5 million increase in Transition Recovery Asset amortization and a $3 million decline in total interest expense resulting from lower rates under TEP's credit agreement and lower capital lease obligation balances compared with last year. UNISOURCE ENERGY SERVICES UES reported earnings of $0.4 million, or $0.01 per UniSource Energy share, during the third quarter of 2004. During the third quarter of 2004, UNS Electric recorded retail revenues of $45 million, while UNS Gas produced retail revenues of $16 million. Customer growth at UES remains strong. Since the third quarter of 2003, UNS Gas' retail customer base grew by 2 percent and UNS Electric's retail customer bases grew by more than 4 percent. YEAR-TO-DATE UniSource Energy's consolidated year-to-date earnings through September 30, 2004, were $43 million, or $1.25 per share, compared to $87 million, or $2.56 per share, during the same period last year as restated. Last year's results reflected the adoption of Financial Accounting Standard 143 (FAS 143), a new rule related to accounting for asset retirement and removal costs. Excluding the impact of FAS 143, UniSource Energy's consolidated year-to-date restated earnings through September 2003 were $19 million, or $0.56 per share. Page 3 of 6

EARNINGS PER SHARE 3rd Quarter 2004 2003 Per UniSource Energy share (Restated)(3) --------------------------------------------------------------------------- Tucson Electric Power $0.76 $0.95 UniSource Energy Services (1) 0.02 - Millennium Energy Holdings (0.04) (0.08) Inter-Company and Other (0.05) (0.06) --------------------------------------------------------------------------- UniSource Energy Consolidated $0.69 $0.81 =========================================================================== Avg. Shares Outstanding (millions) 34.5 33.8

Year-to-Date September 30 2004 2003 Per UniSource Energy share (Restated)(3) --------------------------------------------------------------------------- Tucson Electric Power $1.31 $1.11 UniSource Energy Services (1) 0.17 - Millennium Energy Holdings (0.08) (0.36) Inter-Company and Other (0.15) (0.19) --------------------------------------------------------------------------- Income Before Cumulative Effect of Accounting Change 1.25 0.56 Cumulative Effect of Accounting Change - Net of Tax (2) - 2.00 --------------------------------------------------------------------------- UniSource Energy Consolidated $1.25 $2.56 =========================================================================== Avg. Shares Outstanding (millions) 34.3 33.8 (1) UniSource Energy Services began operations on August 11, 2003. (2) TEP results in the first nine months of 2003 include an after-tax gain of $67 million for the Cumulative Effect of Accounting Change related to the adoption of FAS 143. (3) During the second quarter of 2004, TEP determined that its methodology for estimating unbilled revenues resulted in an under reporting of revenues in prior periods. As a result, TEP adopted a new methodology for estimating unbilled revenues and restated prior period financial statement.

UniSource Energy believes that the presentation of TEP, UES and MEH net income or loss on a per 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 has reaffirmed its 2004 full-year earnings estimate of $1.25 to $1.60 per share. Numerous factors can affect UniSource Energy's ability to reach the 2004 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; the amount of research, development and operating expenses incurred by UniSource Energy's unregulated Page 4 of 6 energy technology investments; acquisition related costs and our compliance with the restrictive covenants contained in the acquisition agreement. 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. THIRD QUARTER EARNINGS DISCUSSION UniSource Energy officials will discuss third quarter 2004 results on Friday, Nov. 5, during a conference call that will begin at 9:30 a.m. EST. James S. Pignatelli, UniSource Energy Chairman, President and Chief Executive 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 2020537. A telephone replay will be available for seven days starting Nov. 5, 2004. To listen to the replay, dial (800) 642-1687 and reference confirmation code 2020537. 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 Company; UniSource Energy Services, provider of natural gas and electric service 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 ability to obtain necessary approvals and satisfy other closing conditions contained in the acquisition agreement; 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. Page 5 of 6

UNISOURCE ENERGY 2004 RESULTS UniSource Energy Corporation Condensed Consolidated Statements of Income Three Months Ended (in thousands of dollars, except per share amounts) September 30, Increase / (Decrease) ------------------------ (UNAUDITED) 2004 2003 Restated Amount Percent ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues Electric Retail Sales $277,089 $ 254,680 $ 22,409 8.8 Electric Wholesale Sales 37,310 32,612 4,698 14.4 Gas Revenue 15,812 10,215 5,597 54.8 Other Revenues 5,098 6,745 (1,647) (24.4) ------------------------------------------------------------------------------------------------------------------------------------ Total Operating Revenues 335,309 304,252 31,057 10.2 ------------------------------------------------------------------------------------------------------------------------------------ Operating Expenses Fuel 63,514 64,247 (733) (1.1) Purchased Energy 69,749 46,282 23,467 50.7 Other Operations and Maintenance 58,332 49,649 8,683 17.5 Depreciation and Amortization 36,372 34,032 2,340 6.9 Amortization of Transition Recovery Asset 19,112 13,647 5,465 40.0 Taxes Other Than Income Taxes 12,769 12,676 93 0.7 ------------------------------------------------------------------------------------------------------------------------------------ Total Operating Expenses 259,848 220,533 39,315 17.8 ------------------------------------------------------------------------------------------------------------------------------------ Operating Income 75,461 83,719 (8,258) (9.9) ------------------------------------------------------------------------------------------------------------------------------------ Other Income (Deductions) Interest Income 5,006 5,090 (84) (1.7) Other Income 2,064 1,358 706 52.0 Other Expense (1,032) (950) (82) (8.6) ------------------------------------------------------------------------------------------------------------------------------------ Total Other Income (Deductions) 6,038 5,498 540 9.8 ------------------------------------------------------------------------------------------------------------------------------------ Interest Expense Long-Term Debt 19,753 20,532 (779) (3.8) Interest on Capital Leases 20,792 21,257 (465) (2.2) Other Interest Expense, Net of Amounts Capitalized 56 603 (547) (90.7) ------------------------------------------------------------------------------------------------------------------------------------ Total Interest Expense 40,601 42,392 (1,791) (4.2) ------------------------------------------------------------------------------------------------------------------------------------ Income Before Income Taxes 40,898 46,825 (5,927) (12.7) Income Tax Expense 17,099 19,449 (2,350) (12.1) ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 23,799 $ 27,376 $ (3,577) (13.1) ==================================================================================================================================== Weighted-average Shares of Common Stock Outstanding (000) 34,464 33,838 626 1.8 ==================================================================================================================================== Basic Earnings per Share $0.69 $0.81 $(0.12) (14.8) ==================================================================================================================================== Diluted Earnings per Share $0.68 $0.80 $(0.12) (15.0) ==================================================================================================================================== Dividends Paid per Share - $0.15 $(0.15) N/M ==================================================================================================================================== Three Months Ended Tucson Electric Power September 30, Increase / (Decrease) Electric kWh Sales (000): 2004 2003 Restated Amount Percent ------------------------------------------------------------------------------------------------------------------------------------ Retail Sales 2,655,193 2,662,623 (7,430) (0.3) Wholesale Sales 727,140 638,770 88,370 13.8 ------------------------------------------------------------------------------------------------------------------------------------ Total 3,382,333 3,301,393 80,940 2.5 ==================================================================================================================================== 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 2004 RESULTS UniSource Energy Corporation Condensed Consolidated Statements of Income Nine Months Ended (in thousands of dollars, except per share amounts) September 30, Increase / (Decrease) ------------------------ (UNAUDITED) 2004 2003 Restated Amount Percent ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues Electric Retail Sales $675,508 $ 561,052 $ 114,456 20.4 Electric Wholesale Sales 121,199 108,056 13,143 12.2 Gas Revenue 84,825 10,215 74,610 N/M Other Revenues 13,942 13,249 693 5.2 ------------------------------------------------------------------------------------------------------------------------------------ Total Operating Revenues 895,474 692,572 202,902 29.3 ------------------------------------------------------------------------------------------------------------------------------------ Operating Expenses Fuel 166,303 162,512 3,791 2.3 Purchased Energy 184,838 79,839 104,999 N/M Other Operations and Maintenance 178,320 151,295 27,025 17.9 Depreciation and Amortization 108,068 95,472 12,596 13.2 Amortization of Transition Recovery Asset 39,712 25,266 14,446 57.2 Taxes Other Than Income Taxes 38,491 35,419 3,072 8.7 ------------------------------------------------------------------------------------------------------------------------------------ Total Operating Expenses 715,732 549,803 165,929 30.2 ------------------------------------------------------------------------------------------------------------------------------------ Operating Income 179,742 142,769 36,973 25.9 ------------------------------------------------------------------------------------------------------------------------------------ Other Income (Deductions) Interest Income 14,888 15,380 (492) (3.2) Other Income 12,724 4,152 8,572 N/M Other Expense (6,353) (3,952) (2,401) (60.8) ------------------------------------------------------------------------------------------------------------------------------------ Total Other Income (Deductions) 21,259 15,580 5,679 36.5 ------------------------------------------------------------------------------------------------------------------------------------ Interest Expense Long-Term Debt 62,903 58,917 3,986 6.8 Interest on Capital Leases 60,901 62,791 (1,890) (3.0) Other Interest Expense, Net of Amounts Capitalized (487) 903 (1,390) N/M ------------------------------------------------------------------------------------------------------------------------------------ Total Interest Expense 123,317 122,611 706 0.6 ------------------------------------------------------------------------------------------------------------------------------------ Income Before Income Taxes and Cumulative Effect of Accounting Change 77,684 35,738 41,946 N/M Income Tax Expense 34,663 16,567 18,096 N/M ------------------------------------------------------------------------------------------------------------------------------------ Income Before Cumulative Effect of Accounting Change 43,021 19,171 23,850 N/M Cumulative Effect of Accounting Change - Net of Tax - 67,471 (67,471) N/M ------------------------------------------------------------------------------------------------------------------------------------ Net Income $ 43,021 $ 86,642 $ (43,621) (50.3) ==================================================================================================================================== Weighted-average Shares of Common Stock Outstanding (000) 34,347 33,799 548 1.6 ==================================================================================================================================== Basic Earnings per Share Income Before Cumulative Effect of Accounting Change $1.25 $0.56 $0.69 N/M Cumulative Effect of Accounting Change - Net of Tax - 2.00 (2.00) N/M ------------------------------------------------------------------------------------------------------------------------------------ Net Income $1.25 $2.56 $(1.31) (51.2) ==================================================================================================================================== Diluted Earnings per Share Income Before Cumulative Effect of Accounting Change $1.23 $0.56 $0.67 N/M Cumulative Effect of Accounting Change - Net of Tax - 1.97 (1.97) N/M ------------------------------------------------------------------------------------------------------------------------------------ Net Income $1.23 $2.53 $(1.30) (51.4) ==================================================================================================================================== Dividends Paid per Share $0.32 $0.45 $(0.13) (28.9) ==================================================================================================================================== Nine Months Ended September 30, Increase / (Decrease) Tucson Electric Power ------------------------ Electric kWh Sales (000): 2004 2003 Restated Amount Percent ------------------------------------------------------------------------------------------------------------------------------------ Retail Sales 6,642,001 6,379,054 262,947 4.1 Wholesale Sales 2,551,994 2,372,512 179,482 7.6 ------------------------------------------------------------------------------------------------------------------------------------ Total 9,193,995 8,751,566 442,429 5.1 ==================================================================================================================================== N/M - Not Meaningful Reclassifications have been made to prior periods to conform to the current period's presentation.