UNS Energy Reports First Quarter 2013 Earnings

UNS Energy Corporation (NYSE: UNS) today reported first quarter 2013 net income of $11.3 million, or $0.27 per share of common stock on a fully diluted basis, compared with $6.5 million, or $0.17 per diluted share in the same period last year.

"While our first quarter financial results benefited from cold weather, we are still managing the cost pressures associated with TEP's rate freeze," said Paul Bonavia, UNS Energy's Chairman and Chief Executive Officer. "Our focus continues to be operational excellence, especially as we enter the warmer months of the year when electricity demand is at its highest."

In February, TEP, ACC Staff and several other parties entered into a rate settlement agreement. An Arizona Corporation Commission (ACC) administrative law judge (ALJ) is expected to issue a preliminary recommendation on the proposed agreement, which will then be subject to approval by the ACC. Hearings before the ALJ concluded in March.

Provisions of the settlement include an increase in TEP's non-fuel revenues of approximately $76 million, as well as rate adjustment mechanisms related to energy efficiency and environmental compliance. If approved, the proposal would result in an average bill increase of less than $3 per month for a typical residential customer.

"The settlement provides tangible benefits to our customers and represents the hard work and good faith negotiations of a diverse group of stakeholders. I am hopeful it will be approved as requested by those parties," Bonavia said.

Tucson Electric Power

Retail kWh Sales and Revenues

TEP’s retail kWh sales increased by 4.0 percent in the first quarter, primarily due to cold weather that led to a 29.0 percent increase in heating degree days compared with the first quarter of 2012. The increase in retail sales volumes led to a $4.5 million, or 4.3 percent, increase in TEP’s retail margin revenues compared with the first three months of 2012.

Excluding the effects of weather in both periods, TEP estimates its first quarter 2013 retail kWh sales were approximately 0.3% above the first quarter of 2012.

Other Expenses

TEP’s Base operations and maintenance (O&M) expense was $60.5 million in the first quarter of 2013 compared with $60.6 million in the first quarter of 2012. Base O&M excludes costs directly offset by customer surcharges and third-party reimbursements. In the first quarter of 2013, depreciation and amortization expense increased by $0.7 million as a result of additional plant-in-service compared with the same period last year.

TEP's total interest expense declined by $2.3 million in the first quarter of 2013 primarily due to the expected decline in the balance of capital lease obligations compared with the first quarter of 2012.

UNS Gas

UNS Gas reported net income of $7.4 million in the first quarter of 2013 compared with $5.4 million in the first quarter of 2012. Retail gas sales increased 12.2 percent compared with the same period last year due to cold winter weather. Heating degree days in UNS Gas’ service territory increased by 8.7 percent compared with the first quarter of 2012. The higher retail sales volumes, as well as a base rate increase that was effective in May 2012, contributed to a $2.5 million increase in UNS Gas' retail margin revenues.

Excluding the effects of weather in both periods, UNS Gas estimates its first quarter 2013 retail sales volumes were approximately 4.0% above the first quarter of 2012.

UNS Electric

UNS Electric reported net income of $2.3 million in the first quarter of 2013 compared with $2.9 million in the first quarter of 2012. The decrease in net income was due in part to increases in depreciation and amortization expense, and taxes other than income taxes.

UNS Energy believes the presentation of TEP, UNS Gas and UNS Electric net income or loss on a per basic UNS 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 UNS Energy's reported earnings or losses.

Seasonality of Earnings

The net income and results of operations of TEP as well as of UNS Gas and UNS Electric – operating subsidiaries of UniSource Energy Services (UES) – are seasonal in nature. TEP and UNS Electric typically record the majority of their net income during the second and third quarters when hot weather contributes to higher energy consumption. TEP’s retail rates, which include higher charges for higher levels of energy use, also shift a larger share of the company’s earnings into those periods.

Energy demand from UNS Gas customers typically peaks during the winter. Accordingly, UNS Gas typically records the majority of its net income during the first and fourth quarters.

Conference Call and Webcast

The company will host a conference call on Monday, April 29, 2013 at 12 p.m. EDT to discuss the financial results and outlook. To participate in the call, please dial in 5 to 10 minutes prior to the start time. A reference code is not necessary to access the live call.

Dial-in number: (800) 695-3360

The conference call can also be heard live online at uns.com.

A telephone replay will be available for seven days.

Replay number: (800) 633-8284
Reference code: 21655765

In conjunction with this earnings announcement, UNS Energy has provided information on its performance during the first quarter of 2013. These materials have been filed with the Securities and Exchange Commission and are also available at uns.com. UNS Energy and TEP are providing the address of such website solely for the information of investors and do not intend the address to be an active link. Information contained at such website is not part of the report filed with the SEC by UNS Energy and TEP.

UNS Energy Corporation is a Tucson, Arizona-based company with consolidated assets of approximately $4 billion. UNS Energy's primary subsidiaries include Tucson Electric Power, which serves more than 407,000 customers in southern Arizona; and UniSource Energy Services, provider of natural gas and electric service for approximately 242,000 customers in northern and southern Arizona. For more information about UNS Energy and its subsidiaries, visit uns.com.

This release contains forward-looking information that involves risks and uncertainties. These risks and uncertainties include, but are not limited to: state and federal regulatory and legislative decisions and actions; regional economic and market conditions, which could affect customer growth and energy usage; weather variations affecting energy usage; the cost of debt and equity capital and access to capital markets; the performance of the stock market and changing interest rate environment, which affect the value of the company’s pension and other retiree benefit plan assets and the related contribution requirements and expense; unexpected increases in O&M expense; resolution of pending litigation matters; changes in accounting standards; changes in critical accounting estimates; changes to long-term contracts; the cost of fuel and power supplies; performance of TEP's generating plants; and other factors listed in UNS 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 UNS Energy.