ACC Approves TEP Price Decreases.

TUCSON, Ariz.--(BUSINESS WIRE)--Aug. 25, 1998--The Arizona Corporation Commission (ACC) Tuesday approved a rate settlement agreement between Tucson Electric Power Co. (TEP) and ACC Staff that ensures all customers receive immediate benefits during the transition to a competitive electricity market.

The approved settlement provides TEP's customers with a base price decrease of 3.1 percent over the next two years. According to the agreement, TEP's base prices will decrease by the following percentages:

-- an initial 1.1 percent (about $7.0 million) decrease effective July 1, 1998;

-- a second decrease of 1 percent (about $5.5 million) on July 1, 1999; and

-- an additional 1 percent (about $5.5 million) decrease on July 1, 2000.

The latter two decreases will apply to all customers of TEP who do not have access to retail competition during the two-year phase-in of the ACC's Electric Competition Rules beginning Jan. 1, 1999.

The agreement was approved by the Commissioners by a 3-0 vote and resolves TEP's application for a rate decrease filed on July 9, 1997.

"We are pleased to implement these price decreases for our customers, and to provide them with certainty as to how much they pay for electric service," said James S. Pignatelli, chairman, president and chief executive officer of TEP and its parent, UniSource Energy Corp. (NYSE:UNS). "We will continue working to identify and implement cost efficiencies that will benefit the Company and its customers."

As approved, the initial price reduction will result in an average decrease of $0.79 in monthly residential bills, from $70.79 to $70.00 for customers using an average of 750 kilowatt-hours per month, effective Sept. 1, 1998, for all usage on or after July 1, 1998. The average monthly residential decrease in 1999 and 2000 will be an additional $0.70 and $0.69, respectively.

Under terms of the approved settlement, the Company also will:

-- accelerate the recovery of an additional $4.3 million annually of deferred regulatory assets, thus helping mitigate certain portions of potential stranded costs.

-- finalize an interim accounting order issued by the ACC in July 1997. That order allows TEP to treat a $50 million termination fee as a regulatory deferred asset. As previously disclosed, the fee was incurred when the Company negotiated a new coal contract reducing its annual fuel bill by approximately $10 million; and

-- continue funding its LIFE (Low Income Fund for Emergencies) program and other existing low-income assistance programs. The earnings from investment of the Fund (nearly $730,000 to date) have been made available to needy customers through The Salvation Army, which administers the program.

Tucson Electric Power Co., a wholly-owned subsidiary of UniSource Energy Corp., is a Tucson-based utility engaged in the generation, purchase, transmission, distribution and sale of electric energy to retail and wholesale customers.

UniSource Energy's other principal subsidiaries include New Energy Ventures, LLC, one of the nation's leading representatives for energy buyers; Nations Energy Corp., an independent power developer; Advanced Energy Technologies Inc., a developer of renewable energy and distributed generation technologies; Southwest Energy Solutions, and SWPP Investment Co.

CONTACT: UniSource Energy Corp., Tucson

Alan Lee Bunnell, 520/884-3797 (Media)

Victoria Jedicke, 520/884-3931 (Analysts)

www.tucsonelectric.com

www.unisourceenergy.com