ACC approves settlement agreement on TEP rate case.

TUCSON, Ariz.--(BUSINESS WIRE)--March 27, 1996--Tucson Electric Power Co. (NYSE:TEP) customers will benefit from price stability and have more options in managing their energy costs under a rate settlement agreement approved Wednesday by the Arizona Corporation Commission (ACC).

The approved settlement provides TEP with a 1.1 percent, or $5.3 million, across-the-board base rate increase. In addition, the agreement allows TEP to implement certain pricing flexibilities to help transition the company from traditional cost-of-service/rate-of-return regulation into competitive-based pricing necessary for the changes taking place in the electric industry.

The agreement was approved by the commissioners by a 2-1 vote and resolves TEP's application for a rate increase filed on June 13, 1995.

"By resolving these issues without a prolonged process, the settlement agreement lets us forge ahead with the important business of managing our costs and serving our customers," said Charles E. Bayless, TEP chairman, president and chief executive officer.

"The company, the ACC staff and other parties to the case have worked together to minimize the impact on customers and to provide them with certainty as to how much they pay for electric service while not precluding the opportunity to reduce prices."

The settlement agreement contains all of the provisions of a proposed rate settlement agreement filed in November 1995, including a commitment not to seek an increase in base rates before Jan. 1, 2000. This will provide customers with a high degree of certainty regarding rates at a time of increasing uncertainty in the competitive electric industry.

The rate changes are intended primarily to recover in retail rates the operating and capital costs of the remaining 37.5 percent of Unit 2 of the Springerville Generating Station which the ACC now has agreed is 100 percent "used and useful" to serve retail customers. The unit has been in operation since 1990.

The approved settlement also provides TEP with the opportunity to serve its customers and compete in a variety of methods, including:

-- Time-of-Use Rates. The agreement provides customers the opportunity to better manage their energy costs through the addition of Time-of-Use rates for residential customers and customers on the low-income Lifeline and Senior Lifeline rates. In addition, charges and rates for existing Time-of-Use customers were adjusted for peak periods. Time-of-Use rates are designed for customers to achieve savings by shifting usage from peak periods of the day, primarily weekday afternoons, to off-peak times. Customers taking advantage of these new rates may be able to offset the proposed rate increase -- or possibly lower their monthly bills.

-- Pricing Flexibility. The agreement allows TEP to negotiate a specific rate for all commercial and industrial customers. This will limit the amount TEP charges retail customers to approved tariff levels, while permitting TEP to enter into special contracts at lower rates, if there is a demonstrated need for special contracts in order to retain or attract retail customers.

-- Low Income Fund for Emergencies (LIFE). The agreement establishes a $4.5 million fund to assist residential customers having difficulty paying electricity bills, and who are not eligible for assistance through other local or State/Federal programs. The earnings from investment of the fund will be made available to needy customers through a social service agency which will administer the program.

-- The Residential Lifeline/Medical Life-Support Discount Rate. The agreement establishes a discount for low-income customers whose medical conditions necessitate the use of electrical equipment.

In addition, the agreement ensures a continued commitment to demand-side management/renewables, and provides the incentive for TEP to pursue operational enhancements, efficiencies and cost-savings that can be passed on to its customers.

The approved "across-the-board" increase is expected to be implemented on or about March 31, 1996, and will result in an average increase of $0.78 in monthly residential bills, from $70.47 to $71.25 for residential customers using an average of 750 kilowatt-hours per month.

"The community's support for our efforts to improve TEP's financial health has been essential to final approval of this settlement," Bayless said. "The company's management and employees recognize and appreciate the participation of the community. More importantly, we will continue to strive to ensure that the confidence placed in TEP enhances the growing partnership with all of our customers and the communities in which they live."

CONTACT: Tucson Electric Power Co., Tucson

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

Victoria Jedicke, 520/884-3905 (Analysts)