unisource energy corporation

UniSource Energy

Corporation

2007 Annual Shareholders’

Meeting

2

Business Agenda

3

James S. Pignatelli Chairman

• Director since 1998

• Boards

– TEP, Chairman

– UniSource Energy Services

– Millennium Energy Holdings

4

Lawrence J. Aldrich

• Director since 2000

• Boards

– TEP

– UniSource Energy Services

– Millennium Energy Holdings

• UNS Committees

– Audit

– Compensation

– Environmental, Safety & Security

5

Barbara M. Baumann

• Director since 2005

• Boards

– TEP

– UniSource Energy Services

• UNS Committees

– Audit, Chairperson

– Compensation

– Corporate Governance & Nominating

6

Larry W. Bickle

• Director since 1998• Boards

– TEP– UniSource Energy Services– Millennium Energy Holdings

• UNS Committees– Finance– Environmental, Safety &

Security, Chairperson

7

Elizabeth T. Bilby

• Director since 1995

• Boards

– TEP

– UniSource Energy Services

– Millennium Energy Holdings

• UNS Committees

– Finance

– Environmental, Safety & Security

8

Harold W. Burlingame

• Director since 1998

• Boards

– TEP

– UniSource Energy Services

• UNS Committees

– Compensation, Chairperson

– Corporate Governance &

– Nominating

– Finance

9

John L. Carter

• Director since 1996

• Boards

– UniSource Energy, Lead Director

– TEP

– UniSource Energy Services

– Millennium Energy Holdings

• UNS Committees

– Audit

– Compensation

– Corporate Governance &

– Nominating

– Finance

– Environmental, Safety & Security

10

Robert A. Elliott

• Director since 2003

• Boards

– TEP

– UniSource Energy Services

• UNS Committees

– Compensation

– Corporate Governance & Nominating, Chairperson

– Finance

11

Daniel W.L. Fessler

• Director: 1998-2003; since 2005

• Boards

– TEP

– UniSource Energy Services

• UNS Committees

– Compensation

– Corporate Governance & Nominating

– Environmental, Safety & Security

12

Kenneth Handy

• Director since 2001

• Boards

– TEP

– UniSource Energy Services

• UNS Committees

– Audit

– Finance

– Environmental, Safety & Security

13

Warren Y. Jobe

• Director since 2001

• Boards

– TEP

– UniSource Energy Services

• UNS Committees

– Audit

– Corporate Governance & Nominating

– Finance, Chairperson

14

Ramiro G. Peru

• Director since 2008

• Boards

– TEP

– UniSource Energy Services

• UNS Committees

– Compensation

– Finance

15

Gregory A. Pivirotto

• Director since 2008

• Boards

– TEP

– UniSource Energy Services

• UNS Committees

– Audit

– Corporate Governance & Nominating

16

Joaquin Ruiz

• Director since 2005

• Boards

– TEP

– UniSource Energy Services

• UNS Committees

– Audit

– Compensation

– Environmental, Safety & Security

17

UniSource Energy Corporation and Tucson Electric Power Company

Officers• James S. Pignatelli

• Michael J. DeConcini

• Raymond S. Heyman

• Kevin P. Larson

• Philip J. Dion III

• Kentton C. Grant

• Thomas N. Hansen

• Arie Hoekstra

• David G. Hutchens

• Karen G. Kissinger

• Steven W. Lynn

• Thomas A. McKenna

• Catherine E. Ries

• Herlinda H. Kennedy

UniSource Energy

Corporation

2007 Annual Shareholders’

Meeting

19

2007: Stepping Up to Meet Challenges

• Incurred higher fuel and purchased power costs to meet rising

customer demand

• Reliability challenged by severe summer storms, including

flood at Irvington campus

• Increased investment in system infrastructure

• TEP’s long-frozen rates limited ability to recover rising costs

• Rate cases underway for TEP and UNS Electric

• Rate increase approved in November 2007 for UNS Gas does

not cover costs of service; new case filed in February 2008

• Raised dividend for 8th consecutive year

UNS Net Income(millions)

$67 $67

$9

2006 2007

$58 $53

$9

UNS TEP UES

20

Total Shareholder Return

Value of $100 Invested January 1, 2002

$212

$237

$176

$0

$50

$100

$150

$200

$250

2002 2003 2004 2005 2006 2007 YTDMay 1, 2008

UniSource Energy

EEI Index

S&P 500

2008 Year-to-Date Returns

UniSource Energy 1.8%

S&P 500 (3.5%)

EEI Index (4.5%)

21

Dividend Growth

Annual Dividend Per Share

15% Annual Growth Rate

$0.32

$0.40

$0.50

$0.60$0.64

$0.76

$0.84

2000 2001 2002 2003 2004 2005 2006

* Estimated based on 1st quarter dividend of $0.24

2007

$0.90

2008*

$0.96*

22

Rising Energy Demand from TEP Customers

Residential Use Per Customer Retail Peak Energy Use

(in kWh)

13% Total Increase

(in Megawatts)

26% Total Increase

1,899

2,060 2,088

2,225

2,365 2,386

2002 2003 2004 2005 2006 2007

9,842

10,249 10,231

10,48410,681

11,129

2002 2003 2004 2005 2006 2007

Customer Growth

2.0%

Residential Energy Use per Customer

2.5%

Retail Peak Energy Use

4.7%

Change in TEP’s Average Residential rate

(1%)

2002-2007 Average Annual Growth Rates

+ =

23

Dynamic Growth at UniSource Energy Services

• Subsidiaries UNS Gas and UNS Electric have added a combined 27,000 customers over the last four years, increasing UES’ total customer base by 13%

• Annual customer growth has moderated and is expected to be 3% to 4% going forward

• Total capital investments of nearly $230 million since 2003

UES Retail Customers

180,000

190,000

200,000

210,000

220,000

230,000

240,000

250,000

2003 2004 2005 2006

13% Increase

2007

24

Laying a Foundation for the Future

Distribution$532 million

Transmission $363 million

Generation$361 million

Environmental$102 million

TEP Capital Investments2008-2012$1.4 billion

Pinal West Substation

25

Laying a Foundation for the Future

UNS Gas$120 million

UNS Electric$199 million

BMGS$15 million

UES Capital Investments2008-2012

$330 million

Black Mountain Generating Station

26

Focused on Future Rates

TEP

• Seeking ACC approval of tentative settlement to pending rate case

UNS Gas

• Request for 7% rate increase on hold

• 4% rate increase approved Nov. 2007 does not cover current costs of service

UNS Electric

• Seeking a 5.5% rate increase

• Requesting fuel and purchased power clause to cover cost of replacing power supply contract

• Current rates have been frozen since August 2003

27

TEP & ACC StaffTentative Settlement Agreement

• 6% base rate increase over TEP’s current average retail rate• Purchased power and fuel adjustor clause• Base rates frozen until January 1, 2013• Rates for generation based on cost-of-service methodology• Termination of 1999 Settlement Agreement

28

Monthly Bill Comparison

$82.55

$108.22

$92.53

TEP Current

APS Current

SRP Current

$87.35

$116.98

TEP Proposed

APS Requested

Average Monthly Residential Bill

29

Clean Renewable Energy Resources

• TEP’s 4.6 Springerville Solar System is the most productive PV array in the Western Hemisphere

• SunShare subsidies support installation of solar energy systems across Arizona

• GreenWatts program has sponsored solar installations at dozens of schools, parks and public places

• New Renewable Energy Standard calls for TEP and UES to secure 15% of power from renewable resources by 2025

30

Award-Winning Volunteer Program

• During 2007, UniSource Energy employees joined friends and family members in contributing more than 40,000 volunteer hours to local charities

• UniSource Energy backed employees’ efforts with more than $850,000 of direct and indirect assistance

• TEP’s Community Action Team was recognized with the 2007 Governor’s Volunteer Service Award

UniSource Energy

Corporation

2007 Annual Shareholders’

Meeting