FOR IMMEDIATE RELEASE
Jul 2 2012 12:00:00:000AM
News Media Contact: Joseph Barrios, (520) 884-3725
Financial Analyst Contact: Chris Norman, (520) 884-3649

TEP SEEKS RATE INCREASE TO COVER FIVE YEARS OF INVESTMENT IN SERVICE QUALITY

Tucson, Ariz. — Tucson Electric Power (TEP) is seeking new, higher rates no later than August 2013 to cover rising service costs, including more than $1 billion the company invested over the past five years to continue providing safe, reliable service.

The rates TEP proposed today in a filing with the Arizona Corporation Commission (ACC) would increase typical residential customers' average monthly bills by about $13, or less than 16 percent. The average residential monthly bill would remain under $100.

"Our current rates don't reflect the significant investments and expenses we've incurred over the last five years to improve upon the high level of service our customers have come to expect from TEP," said Paul Bonavia, Chairman and CEO of TEP and its parent company, UNS Energy Corp. (NYSE: UNS). "Our proposed rates will cover those costs while supporting our continued investments in renewable energy and energy efficiency."

"We've reinforced and expanded our system infrastructure, upgraded our energy resources and invested in the ongoing efficiency of our operations," Bonavia said. "Those investments have resulted in safer, cleaner and more reliable service for our customers. That added value is reflected in our proposed rates."

These new rates would represent TEP's first base-rate increase since 2008 and only the third such increase in the last 20 years. TEP's base rates have risen just 8 percent since 1992 while the Consumer Price Index has increased nearly 60 percent over that time.

Other rate components such as renewable energy and energy efficiency surcharges required to satisfy state-mandated programs, and a fuel surcharge, have contributed to bill increases during that period.

TEP's total rates lag significantly behind its service costs. TEP's current rate structure is based on costs incurred by the company in 2006. Since then, the company has invested more than $1 billion to strengthen its distribution system, upgrade its power plants and make other improvements to serve customers' needs. Operating costs also have increased over the last five years due to such things as rising materials costs, cyber security enhancements and expanding environmental regulatory requirements. During this period, sales have remained essentially flat due in part to a weak economy and government mandates.

"While we have focused great effort on tightly managing our expenses, some increases are simply unavoidable," Bonavia said. "We also have made several investments that will improve our ability to serve customers efficiently and effectively for many years to come."

Those investments include adding new solar generating facilities in the Tucson area, enhanced power generation environmental controls, a new downtown headquarters building, improved information technology systems that support automating distribution functions, and online customer service options. TEP also retired a lease and took full ownership of its largest local power plant, generating long-term savings and supporting plans to develop a solar thermal system on the site.

TEP's proposal includes a new funding plan for energy efficiency programs that reflects the company's focus on energy efficiency as a low-cost resource. Customers could partially offset monthly bill increases associated with higher base rates by participating in one or more of the company's energy efficiency programs.

TEP's proposed rates include a mechanism to help ensure the recovery of its system costs. A portion of these costs are recovered through rates that generate revenue based on consumption levels, which are reduced by state-mandated energy efficiency and renewable power programs. The mechanism would be adjusted annually to account for the reduced energy sales that result from these programs. A similar fee has been authorized for other Arizona utilities, including Phoenix-based Arizona Public Service and TEP's sister company, UNS Gas.

The proposed rates also would adjust annually to reflect required environmental upgrades at TEP's generating plants, where compliance with new regulatory mandates are expected to increase costs significantly in the near future. Promptly passing along these costs to customers will reduce future rate increase requests while potentially reducing the company's financing costs, a benefit which would be passed on to customers.

TEP's rate-increase request will be reviewed by the ACC, a five-member panel of elected officials that sets utility rates and oversees other aspects of the company's operations. That review typically includes public hearings before an administrative law judge who recommends a proposed order for the ACC. The review process typically takes about a year.

Additional details about TEP's rate proposal are available at tep.com, including frequently asked questions, a virtual tour of recent system improvements and a copy of the application.

Tucson Electric Power provides safe, reliable service to 404,000 customers in southern Arizona. To learn more, visit tep.com. For more information about TEP's parent company, UNS Energy, visit uns.com.