UES Seeks Lower Surcharge to Reflect Reduced Natural Gas Prices.

FLAGSTAFF, Ariz. -- UniSource Energy Services (UES) is seeking to reduce its customers' natural gas bills this winter to reflect a recent drop in wholesale gas prices.

UES filed a request today with the Arizona Corporation Commission (ACC) to reduce the Purchased Gas Adjustor (PGA) Surcharge on its monthly bills to $.05 per therm from December 2006 through April 2007. That surcharge, currently $.25 per therm, is set to fall to $.20 per therm in December 2006 and January 2007 before rising to $.25 per therm in March and April 2007.

The proposed change would reduce the typical UES residential customer's gas bills by an average of $13.60 per month, or 13 percent, from December 2006 through April 2007. If the change is approved, the typical UES residential customer's winter gas bills are projected to be nearly 6 percent lower than those from the same period last winter.

"After years of rising natural gas costs, the recent reduction in wholesale prices has been a pleasant surprise for us and our customers," said James S. Pignatelli, Chairman, President and Chief Executive Officer of UniSource Energy Corporation (NYSE: UNS), the parent company of UES and Tucson Electric Power Company.

"Although the wholesale market is still extremely volatile, it's time for us to roll back the surcharge to reflect those lower costs," Pignatelli said.

UES does not produce natural gas for sale to its customers. Instead, it buys gas at wholesale market prices and passes those costs along to customers without any markup. UES can profit only on the rates it charges to distribute that gas, which haven't changed since August 2003.

The current surcharge, approved by the ACC in October 2005, was designed to recover gas purchase costs that were expected to exceed the company's standard rates. Since then, though, falling market prices have resulted in UES collecting about $4.5 million more from customers than it has spent on natural gas purchases. The proposed surcharge reduction will allow that over-collected amount to be returned to customers.

The surcharge change would not affect UES' recent request for higher distribution rates. Those rates, which would take effect after August 2007, would increase residential bills by approximately 7 percent over the course of a year. The ACC is considering that request.

UES has asked the ACC to expedite its consideration of the proposed surcharge reduction in hopes it will take effect in time for this winter.

UniSource Energy Services provides natural gas service to more than 142,000 customers and electric service to more than 92,000 customers across Arizona. For more information about UES, visit uesaz.com. For more information about UniSource Energy Corporation, visit uns.com.