UNS Energy Reports 2012 Earnings, Declares Dividend

• UNS Energy's net income for 2012 was $90.9 million, or $2.20 per share of common stock on a fully diluted basis, compared with net income of $110.0 million, or $2.75 per diluted share in 2011.
• Financial results in 2012 include a $3 million after-tax loss related to the partial write-off of a transmission project at Tucson Electric Power (TEP), UNS Energy’s primary subsidiary, and a $2 million after-tax reduction to net income related to an unscheduled outage at a power plant operated by TEP. Financial results in 2011 include a $5 million after-tax gain related to the settlement of a transmission dispute involving TEP.
• UNS Energy’s Board of Directors declared a first quarter 2013 dividend for common shareholders of 43.5 cents per share. The Board also reiterated their long-term dividend payout target of 60 percent to 70 percent of UNS Energy’s net income.

TUCSON, Ariz.--(BUSINESS WIRE)--UNS Energy Corporation (NYSE: UNS) today reported 2012 net income of $90.9 million, or $2.20 per diluted share of common stock, compared with net income of $110.0 million, or $2.75 per diluted share in 2011. TEP reported net income of $65.5 million in 2012, 23 percent below net income of $85.3 million in 2011.

“We achieved all of our key operational and financial objectives in 2012”

“We achieved all of our key operational and financial objectives in 2012,” said Paul Bonavia, UNS Energy’s Chairman and Chief Executive Officer. “We exceeded our safety and service reliability targets and held operating and maintenance costs below our initial 2012 budget, as well as below 2009 levels.”

“And earnings were in the middle of our guidance range, even though we were challenged by slow economic recovery, customer implementation of energy efficiency measures and TEP’s out-dated retail rate structure,” Bonavia said.

In July 2012, TEP submitted an application with the Arizona Corporation Commission (ACC) seeking the company’s first non-fuel base rate increase since 2008. On February 4, 2013, TEP, ACC Staff and several other parties entered into a rate settlement agreement. 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.

“The proposed settlement agreement is broadly supported by many of our key stakeholder groups. The agreement contains provisions that provide tangible benefits to our customers, while supporting TEP’s long-term financial stability,” Bonavia said.

The ACC must approve the settlement agreement before new rates can become effective. If approved, the average bill for an average residential customer would increase by less than $3 per month.

Tucson Electric Power

Retail kWh Sales and Revenues

TEP’s retail kWh sales decreased by 0.7 percent in 2012, due in part to fewer cooling degree days during the summer months compared with 2011. The decrease in retail sales volumes led to a 1.2 percent, or $6.6 million, decrease in TEP’s retail margin revenues compared with 2011.

Excluding the effects of weather in both periods, TEP estimates its 2012 retail kWh sales were approximately 0.4 percent below 2011.

Other Operating Expenses

TEP’s base O&M expense was $4.0 million lower than 2011 due in part to the success of various cost containment efforts, as well as fewer scheduled and unscheduled power plant outages. Base O&M excludes costs directly offset by customer surcharges and third-party reimbursements.

In 2012, depreciation and amortization expense increased by $10.9 million, primarily the result of an increase in plant-in-service compared with 2011.

Other Factors

TEP’s 2012 results include:

• an after-tax loss of approximately $2 million related to an unplanned outage at Springerville Unit 3, a power plant that TEP operates for another company; and
• an after-tax loss of approximately $3 million related to the partial write-off of transmission assets related to a proposed high voltage line that was to be built between Tucson, Ariz. and Nogales, Ariz. The project is expected to be abandoned due to various factors, including difficulties with the permitting process and a provision in TEP’s pending settlement agreement.

Results in 2011 include an after-tax gain of approximately $5 million related to the settlement of a transmission dispute.

UNS Gas and UNS Electric

UNS Gas reported net income of $9.1 million in 2012 compared with $10.2 million in 2011. Retail therm sales in 2012 declined by 8.5 percent compared with 2011, primarily due to an 11.4 percent decline in heating degree days. The decrease in retail therm sales led to a $1.4 million reduction in retail margin revenues compared with 2011.

UNS Electric reported net income of $16.9 million in 2012 compared with $17.7 million in 2011. The decrease was due in part to higher depreciation and amortization expense related to an increase in net plant-in-service.

Seasonality of Earnings

The net income and results of operations of TEP, UNS Gas and UNS Electric 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.

Common Stock Dividend

UNS Energy’s Board of Directors declared a first quarter dividend of 43.5 cents per share. The dividend will be paid on March 25, 2013, to common shareholders of record as of March 13, 2013.

The board reiterated their long-term targeted dividend payout ratio range of 60 percent to 70 percent of UNS Energy's net income.

The declaration of dividend payments is at the board's sole discretion and is subject to numerous factors that ordinarily affect dividend policy, including the results of UNS Energy's operations and its financial position as well as general economic and business conditions.

2013 Outlook

In conjunction with this earnings announcement, UNS Energy has provided detailed information on its performance during 2012 and outlook for 2013. These materials have been filed with the Securities and Exchange Commission and are also available at uns.com. UNS Energy is not providing diluted earnings per share guidance for 2013 due to the uncertainty of the outcome and timing of TEP’s pending rate case proceeding before the ACC.

Net Income and Earnings Per Share Summary
	4th Quarter						YTD December 31,
Net Income	2012			2011			2012			2011
	-Millions-						-Millions-
Tucson Electric Power	$	0.5		$	1.6		$	65.5		$	85.3
UNS Gas		4.1			4.3			9.1			10.2
UNS Electric		3.2			3.3			16.9			17.7
Other ^(1)		(0.3	)		(1.0	)		(0.6	)		(3.2	)
Net Income	$	7.5		$	8.2		$	90.9		$	110.0
Avg. Basic Shares Outstanding (Millions)		41.5			37.1			40.4			37.0
Avg. Diluted Shares Outstanding (Millions)		41.9			37.4			41.8			41.6
	4th Quarter						YTD December 31,
Earnings Per UNS Energy Share	2012			2011			2012			2011
Tucson Electric Power	$	0.01		$	0.04		$	1.62		$	2.31
UNS Gas		0.10			0.12			0.23			0.27
UNS Electric		0.08			0.09			0.42			0.48
Other ^(1)		(0.01	)		(0.03	)		(0.02	)		(0.08	)
Net Income Per Basic Share	$	0.18		$	0.22		$	2.25		$	2.98
Net Income Per Diluted Share	$	0.18		$	0.22		$	2.20		$	2.75

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

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.

Conference Call and Webcast

The company will host a conference call on Tuesday, February 26, 2013 at 11 a.m. ET. 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: [phone]

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

A telephone replay will be available for seven days.

Replay number: [phone]
Reference code: 21649272

UNS Energy 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 406,000 customers in southern Arizona, and UniSource Energy Services, provider of natural gas and electric service for about 241,000 customers in northern and southern Arizona. Visit uns.com for more information about UNS Energy and its subsidiaries.

This release contains forward-looking information that involves risks and uncertainties, including, but 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 postretirement 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.

In the fourth quarter of 2012, we identified that we had incorrectly reported UNS Electric’s sales and purchase contracts which did not result in the physical delivery of energy. The transactions were reported on a gross basis rather than on a net basis during the first three quarters of 2012, as well as the calendar year 2011. This error resulted in an equal and offsetting overstatement of Electric Wholesale Sales and Purchased Energy in the income statements of $31 million in 2011. This error had no impact to operating income, net income, retained earnings, or cash flows. We assessed the impact of these errors on prior period financial statements and concluded they were not material to any period. However, the errors were significant to the individual line items. As a result, in accordance with Staff Accounting Bulletin 108, we have revised the 2011 financial statements included herein to correct these errors. For more information, please refer to UNS Energy’s and TEP's 2012 annual report on SEC form 10-K, which is expected to be filed on or before March 1, 2013.

UNS ENERGY 2012 RESULTS
Condensed Consolidated Statements of Income	Three Months Ended
(in Thousands of Dollars, Except Per Share Amounts)	December 31,						Increase / (Decrease)
(UNAUDITED)	2012			2011			Amount			Percent
Operating Revenues
Electric Retail Sales	$	236,304		$	229,606		$	6,698		2.9
Electric Wholesale Sales		36,946			31,352			5,594		17.8
Gas Revenue		37,512			46,012			(8,500	)	(18.5	)
Other Revenues		37,512			26,857			10,655		39.7
Total Operating Revenues		348,274			333,827			14,447		4.3
Operating Expenses
Fuel		81,899			72,417			9,482		13.1
Purchased Energy		59,618			63,778			(4,160	)	(6.5	)
Transmission		3,802			2,722			1,080		39.7
Increase (Decrease) to Reflect PPFAC/PGA Recovery Treatment		2,516			242			2,274		N/M
Total Fuel and Purchased Energy		147,835			139,159			8,676		6.2
Operations and Maintenance		100,102			97,332			2,770		2.8
Depreciation		35,984			34,179			1,805		5.3
Amortization		8,939			8,470			469		5.5
Taxes Other Than Income Taxes		12,495			12,850			(355	)	(2.8	)
Total Operating Expenses		305,355			291,990			13,365		4.6
Operating Income		42,919			41,837			1,082		2.6
Other Income (Deductions)
Interest Income		125			829			(704	)	(84.9	)
Other Income		1,501			1,257			244		19.4
Other Expense		(6,373	)		(2,573	)		(3,800	)	N/M
Total Other Income (Deductions)		(4,747	)		(487	)		(4,260	)	N/M
Interest Expense
Long-Term Debt		18,098			18,977			(879	)	(4.6	)
Capital Leases		8,507			10,251			(1,744	)	(17.0	)
Other Interest Expense, Net of Interest Capitalized		(236	)		(100	)		(136	)	N/M
Total Interest Expense		26,369			29,128			(2,759	)	(9.5	)
Income Before Income Taxes		11,803			12,222			(419	)	(3.4	)
Income Tax Expense		4,298			4,035			263		6.5
Net Income	$	7,505		$	8,187		$	(682	)	(8.3	)
Weighted-Average Shares of Common Stock Outstanding (000)		41,500			37,055			4,445		12.0
Basic Earnings per Share	$	0.18		$	0.22		$	(0.04	)	(18.2	)
Diluted Earnings per Share	$	0.18		$	0.22		$	(0.04	)	(18.2	)
Dividends Declared per Share	$	0.43		$	0.42		$	0.01		2.4
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.

UNS ENERGY 2012 RESULTS
Condensed Consolidated Statements of Income	Year Ended
(in Thousands of Dollars, Except Per Share Amounts)	December 31,						Increase / (Decrease)
(UNAUDITED)	2012			2011			Amount			Percent
Operating Revenues
Electric Retail Sales	$	1,087,279		$	1,085,822		$	1,457		0.1
Electric Wholesale Sales		125,414			132,346			(6,932	)	(5.2	)
Gas Revenue		123,133			145,053			(21,920	)	(15.1	)
Other Revenues		125,940			115,481			10,459		9.1
Total Operating Revenues		1,461,766			1,478,702			(16,936	)	(1.1	)
Operating Expenses
Fuel		327,832			324,520			3,312		1.0
Purchased Energy		224,696			276,610			(51,914	)	(18.8	)
Transmission		14,540			7,334			7,206		98.3
Decrease to Reflect PPFAC/PGA Recovery Treatment		32,246			(4,932	)		37,178		N/M
Total Fuel and Purchased Energy		599,314			603,532			(4,218	)	(0.7	)
Operations and Maintenance		383,689			379,220			4,469		1.2
Depreciation		141,303			133,832			7,471		5.6
Amortization		35,784			30,983			4,801		15.5
Taxes Other Than Income Taxes		49,881			49,428			453		0.9
Total Operating Expenses		1,209,971			1,196,995			12,976		1.1
Operating Income		251,795			281,707			(29,912	)	(10.6	)
Other Income (Deductions)
Interest Income		1,106			4,568			(3,462	)	(75.8	)
Other Income		7,085			8,288			(1,203	)	(14.5	)
Other Expense		(7,988	)		(5,279	)		(2,709	)	(51.3	)
Total Other Income (Deductions)		203			7,577			(7,374	)	(97.3	)
Interest Expense
Long-Term Debt		71,909			73,217			(1,308	)	(1.8	)
Capital Leases		33,613			40,359			(6,746	)	(16.7	)
Other Interest Expense, Net of Interest Capitalized		(170	)		(1,218	)		1,048		86.0
Total Interest Expense		105,352			112,358			(7,006	)	(6.2	)
Income Before Income Taxes		146,646			176,926			(30,280	)	(17.1	)
Income Tax Expense		55,727			66,951			(11,224	)	(16.8	)
Net Income	$	90,919		$	109,975		$	(19,056	)	(17.3	)
Weighted-Average Shares of Common Stock Outstanding (000)		40,362			36,962			3,400		9.2
Basic Earnings Per Share	$	2.25		$	2.98		$	(0.73	)	(24.5	)
Diluted Earnings Per Share	$	2.20		$	2.75		$	(0.55	)	(20.0	)
Dividends Declared Per Share	$	1.72		$	1.68		$	0.04		2.4
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.

TUCSON ELECTRIC POWER COMPANY 2012 RESULTS
Condensed Consolidated Statements of Income	Three Months Ended
(in Thousands of Dollars)	December 31,						Increase / (Decrease)
(UNAUDITED)	2012			2011			Amount			Percent
Operating Revenues
Electric Retail Sales	$	198,886		$	189,652		$	9,234		4.9
Electric Wholesale Sales		33,706			33,238			468		1.4
Other Revenues		38,761			28,829			9,932		34.5
Total Operating Revenues		271,353			251,719			19,634		7.8
Operating Expenses
Fuel		80,971			71,705			9,266		12.9
Purchased Power		18,073			21,577			(3,504	)	(16.2	)
Transmission		1,445			904			541		59.8
Increase (Decrease) to Reflect PPFAC Recovery Treatment		5,962			(1,019	)		6,981		N/M
Total Fuel and Purchased Energy		106,451			93,167			13,284		14.3
Operations and Maintenance		86,462			84,378			2,084		2.5
Depreciation		28,274			26,770			1,504		5.6
Amortization		9,872			9,368			504		5.4
Taxes Other Than Income Taxes		9,998			10,397			(399	)	(3.8	)
Total Operating Expenses		241,057			224,080			16,977		7.6
Operating Income		30,296			27,639			2,657		9.6
Other Income (Deductions)
Interest Income		39			584			(545	)	(93.3	)
Other Income		1,326			1,118			208		18.6
Other Expense		(8,832	)		(4,333	)		(4,499	)	N/M
Total Other Income (Deductions)		(7,467	)		(2,631	)		(4,836	)	N/M
Interest Expense
Long-Term Debt		14,476			13,365			1,111		8.3
Capital Leases		8,507			10,251			(1,744	)	(17.0	)
Other Interest Expense, Net of Interest Capitalized		(292	)		(65	)		(227	)	N/M
Total Interest Expense		22,691			23,551			(860	)	(3.7	)
Income Before Income Taxes		138			1,457			(1,319	)	(90.5	)
Income Tax Expense		(314	)		(104	)		(210	)	N/M
Net Income	$	452		$	1,561		$	(1,109	)	(71.0	)
	Three Months Ended
Tucson Electric Power	December 31,						Increase / (Decrease)
Electric MWh Sales:	2012			2011			Amount			Percent
Retail Sales		2,029,291			2,060,016			(30,725	)	(1.5	)
Long-Term Wholesale Sales		165,294			233,144			(67,850	)	(29.1	)
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.

TUCSON ELECTRIC POWER COMPANY 2012 RESULTS
Condensed Consolidated Statements of Income	Year Ended
(in Thousands of Dollars)	December 31,						Increase / (Decrease)
(UNAUDITED)	2012			2011			Amount			Percent
Operating Revenues
Electric Retail Sales	$	915,879		$	903,930		$	11,949		1.3
Electric Wholesale Sales		111,194			129,861			(18,667	)	(14.4	)
Other Revenues		134,587			122,595			11,992		9.8
Total Operating Revenues		1,161,660			1,156,386			5,274		0.5
Operating Expenses
Fuel		318,901			318,268			633		0.2
Purchased Power		80,137			105,766			(25,629	)	(24.2	)
Transmission		5,722			(1,435	)		7,157		N/M
Decrease to Reflect PPFAC Recovery Treatment		31,113			(6,165	)		37,278		N/M
Total Fuel and Purchased Energy		435,873			416,434			19,439		4.7
Operations and Maintenance		334,553			330,801			3,752		1.1
Depreciation		110,931			104,894			6,037		5.8
Amortization		39,493			34,650			4,843		14.0
Taxes Other Than Income Taxes		40,323			40,199			124		0.3
Total Operating Expenses		961,173			926,978			34,195		3.7
Operating Income		200,487			229,408			(28,921	)	(12.6	)
Other Income (Deductions)
Interest Income		136			3,567			(3,431	)	(96.2	)
Other Income		6,043			5,589			454		8.1
Other Expense		(13,772	)		(11,960	)		(1,812	)	(15.2	)
Total Other Income (Deductions)		(7,593	)		(2,804	)		(4,789	)	N/M
Interest Expense
Long-Term Debt		55,038			49,858			5,180		10.4
Capital Leases		33,613			40,358			(6,745	)	(16.7	)
Other Interest Expense, Net of Interest Capitalized		(336	)		(946	)		610		64.5
Total Interest Expense		88,315			89,270			(955	)	(1.1	)
Income Before Income Taxes		104,579			137,334			(32,755	)	(23.9	)
Income Tax Expense		39,109			52,000			(12,891	)	(24.8	)
Net Income	$	65,470		$	85,334		$	(19,864	)	(23.3	)
	Year Ended
Tucson Electric Power	December 31,						Increase / (Decrease)
Electric MWh Sales:	2012			2011			Amount			Percent
Retail Sales		9,264,818			9,332,107			(67,289	)	(0.7	)
Long-Term Wholesale Sales		657,740			902,139			(244,399	)	(27.1	)
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.