FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File Number 1-5924
TUCSON ELECTRIC POWER COMPANY
(Exact name of registrant as specified in its charter)
ARIZONA 86-0062700
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
220 WEST SIXTH STREET, TUCSON, ARIZONA P.O. BOX 711
85701 85702
(Address of principal executive offices) (Zip Code)
(520) 571-4000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
At May 9, 1995, 160,723,702 shares of the registrant's Common Stock, no par
value (the only class of Common Stock), were outstanding.
TABLE OF CONTENTS
Page
Definitions
Independent Accountants' Report
PART I - FINANCIAL INFORMATION
Item 1. -- Financial Statements
Comparative Condensed Consolidated Statements of Loss
Comparative Condensed Consolidated Balance Sheets
Comparative Condensed Consolidated Statements of Cash Flows
Supplemental Condensed Consolidated Cash Flow Information
Notes to Condensed Consolidated Financial Statements
Note 1. Springerville Unit 2 Deferrals
Note 2. Commitments and Contingencies
Coal and Transportation Contracts
Tax Assessments
SDGE/FERC Proceeding
San Diego Gas & Electric v. Tucson Electric Power Company
Alamito Company, Docket No. ER79-97-009
Note 3. Consolidated Subsidiaries
Note 4. Income Taxes
Note 5. Long-Term Debt
Note 6. New Accounting Standard
Item 2. -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Proposed Holding Company
Competition
Wholesale
Retail
Accounting for the Effects of Regulation
Earnings
Dividends on Common Stock
Results of Operations
Results of Utility Operations
Sales and Revenues
Operating Expenses
Other Income
Interest Expense
Liquidity and Capital Resources
Cash Flows
PART II - OTHER INFORMATION
Item 1. -- Legal Proceedings
Tax Assessments
SDGE/FERC Proceeding
San Diego Gas & Electric v. Tucson Electric Power Company
Alamito Company, Docket No. ER79-97-009
Item 6. -- Exhibits and Reports on Form 8-K
Signature Page
Exhibit Index
DEFINITIONS
The abbreviations and acronyms used in the 1995 First Quarter Form 10-Q are
defined below:
ACC Arizona Corporation Commission.
Articles Company's Amended and Restated Articles of Incorporation.
Banks Various banks with which the Company has credit
relationships.
Board of Directors The Company's board of directors.
Century Century Power Corporation, an indirect subsidiary of
Catalyst and formerly known as Alamito Company.
Common Stock The Company's common stock, without par value.
Company Tucson Electric Power Company.
Creditors Certain of the Company's creditors and lease
participants and Century and the Springerville Unit 1
Leases' participants.
Energy Act The Energy Policy Act of 1992.
FAS 71 Statement of Financial Accounting Standards #71:
Accounting for the Effects of Certain Types of
Regulation.
FAS 92 Statement of Financial Accounting Standards #92:
Regulated Enterprises - Accounting for Phase-In Plans.
FAS 101 Statement of Financial Accounting Standards #101:
Regulated Enterprises - Accounting for the
Discontinuation of Application of FAS 71.
FERC The Federal Energy Regulatory Commission.
Financial Restructuring The comprehensive restructuring of the
Company's obligations to Creditors and the
reclassification of all shares of the Company's
previously outstanding preferred stock into Common Stock,
which closed on December 15, 1992.
First Mortgage Bonds The Company's first mortgage bonds issued under the
General First Mortgage.
General First Mortgage The Indenture, dated as of April 1, 1941, of Tucson
Gas, Electric Light and Power Company to The Chase
National Bank of the City of New York, as trustee, as
supplemented and amended.
Irvington Irvington Generating Station.
Irvington Lease The leveraged lease arrangement relating to Irvington Unit
4.
kWh Kilowatt-hour(s).
LOC(s) Letter(s) of Credit.
MRA The master restructuring agreement between the
Company and the Banks which includes the Renewable Term
Loan, Revolving Credit and certain replacement
reimbursement agreement.
MSR Modesto, Santa Clara and Redding Public Power Agency.
MW Megawatt(s).
Nations Energy Nations Energy Corporation, a wholly-owned subsidiary of
the Company.
1994 Rate Order The ACC's January 11, 1994, Rate Order concerning an
increase in the Company's retail base rates and certain
regulatory write-offs.
P&M Pittsburg & Midway Coal Mining Co.
PURPA The Public Utility Regulatory Policies Act of 1978,
as amended.
RTGs Regional Transmission Groups.
Renewable Term Loan The credit facility that replaces the Term Loan
pursuant to the MRA Sixth Amendment, dated as of November
1, 1994, and completed March 7, 1995.
Revolving Credit The $50 million revolving credit facility entered
into between a syndicate of banks party to the
Restructuring and the Company, as part of the
Restructuring.
San Juan The Company's 50% ownership in San Juan Generating Station
Units 1 and 2.
SDGE San Diego Gas & Electric Company.
SEC Securities and Exchange Commission.
Shareholders The Company's existing holders of Common Stock.
Springerville Springerville Generating Station.
Springerville Unit 1 Leases The leveraged lease arrangement pursuant to
which Century leased Springerville Unit 1 through
December 15, 1992 and the Company leases Springerville
Unit 1 subsequent to December 15, 1992.
SWRTA Southwest Regional Transmission Association.
DEFINITIONS
(concluded)
Term Loan The $243.4 million original principal amount term
loan provided by a syndicate of certain Banks as part of
the Financial Restructuring.
Valencia Leases Valencia's leveraged lease arrangement relating to
the coal handling facilities serving Springerville.
WRTA Western Regional Transmission Association.
INDEPENDENT ACCOUNTANTS' REPORT
Tucson Electric Power Company:
We have reviewed the accompanying condensed consolidated balance sheet of Tucson
Electric Power Company and subsidiaries (the Company) as of March 31, 1995 and
the related condensed consolidated statements of loss, and cash flows for the
three-months ended March 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
As discussed in Note 1 (and Note 2 to the annual financial statements for the
year ended December 31, 1994 (not presented herein)), the timing of the recovery
of the costs associated with 37.5% of Springerville Unit 2 cannot presently be
determined because the Company has not yet received rate relief for such costs.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet and statement of capitalization of the
Company as of December 31, 1994 and the related consolidated statements of
income (loss), cash flows, and changes in stockholders' equity (deficit) for the
year then ended (not presented herein); and in our report dated January 31, 1995
(March 7, 1995 as to Note 6) (which includes an explanatory paragraph relating
to the timing of the recovery of the costs associated with 37.5% of
Springerville Unit 2 which cannot presently be determined), we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1994 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Tucson, Arizona
May 8, 1995
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
The March 31 condensed consolidated financial statements are unaudited
but reflect all normal recurring accruals and other adjustments which are, in
the opinion of management, necessary for a fair statement of the results for
the interim periods covered. Due to seasonal fluctuations in sales, the
quarterly results are not indicative of annual operating results. Also see
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF LOSS
Three Months Ended
March 31,
1995 1994
-Thousands of Dollars-
Operating Revenues
Retail Customers $118,187 $115,742
Amortization of MSR Option Gain Regulatory Liability 5,013 5,013
Other Utilities 19,545 25,824
--------- ---------
Total Operating Revenues 142,745 146,579
--------- ---------
Operating Expenses
Fuel and Purchased Power 45,716 52,275
Capital Lease Expense 23,443 23,102
Amortization of Springerville Unit 1 Allowance (7,108) (6,551)
Other Operations 24,820 24,135
Maintenance and Repairs 10,683 9,150
Depreciation and Amortization 22,886 21,933
Taxes Other Than Income Taxes 15,557 14,276
--------- ---------
Total Operating Expenses 135,997 138,320
--------- ---------
Operating Income 6,748 8,259
--------- ---------
Other Income
Gains on Sales of Securities 2,958 -
Interest Income 2,721 1,051
Other 1,098 1,692
--------- ---------
Total Other Income 6,777 2,743
--------- ---------
Interest Expense
Long-Term Debt - Net 18,378 15,801
Regulatory Interest 8,345 8,234
Other 2,039 1,746
Allowance for Borrowed Funds Used During Construction (277) (199)
--------- ---------
Total Interest Expense 28,485 25,582
--------- ---------
Net Loss $(14,960) $(14,580)
========= =========
Average Shares of Common Stock Outstanding (000) 160,724 160,724
========= =========
Net Loss per Average Share $ (0.09) $ (0.09)
========= =========
See Notes to Condensed Consolidated Financial Statements.
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1995 1994
- Thousands of Dollars -
Utility Plant
Plant in Service $2,059,938 $2,053,123
Utility Plant Under Capital Leases 893,064 893,064
Construction Work in Progress 46,591 40,870
----------- -----------
Total Utility Plant 2,999,593 2,987,057
Less Accumulated Depreciation and Amortization (809,101) (791,617)
Less Accumulated Amortization of Capital Leases (28,830) (25,595)
Less Allowance for Springerville Unit 1 (162,361) (162,423)
----------- -----------
Total Utility Plant - Net 1,999,301 2,007,422
----------- -----------
Investments
Investments and Other Property 18,863 4,307
Net Assets of Discontinued Operations - 8,685
----------- -----------
Total Investments 18,863 12,992
----------- -----------
Current Assets
Cash and Cash Equivalents 143,557 233,300
Accounts Receivable 49,717 66,332
Materials and Fuel 46,235 36,109
Deferred Income Taxes - Current 13,671 12,870
Other 9,525 8,376
----------- -----------
Total Current Assets 262,705 356,987
----------- -----------
Deferred Debits - Regulatory Assets
Income Taxes Recoverable Through Future Rates 141,518 143,372
Deferred Common Facility Costs 65,208 65,843
Deferred Springerville Unit 2 Costs 51,744 54,983
Deferred Lease Expense 23,955 25,228
Deferred Fuel and Purchased Power Expense 4,115 5,872
Other Deferred Regulatory Assets 9,166 9,362
Deferred Debits - Other 16,326 17,532
----------- -----------
Total Deferred Debits 312,032 322,192
----------- -----------
Total Assets $2,592,901 $2,699,593
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND OTHER LIABILITIES
March 31, December 31,
1995 1994
- Thousands of Dollars -
Capitalization
Common Stock $ 645,479 $ 645,479
Capital Stock Expense (6,357) (6,357)
Accumulated Deficit (696,315) (681,355)
----------- -----------
Common Stock Deficit (57,193) (42,233)
Capital Lease Obligations 924,241 922,735
Long-Term Debt 1,296,935 1,381,935
----------- -----------
Total Capitalization 2,163,983 2,262,437
----------- -----------
Current Liabilities
Short-Term Debt 12,039 -
Current Maturities of Long-Term Debt 11,015 17,167
Accounts Payable 46,555 39,777
Interest Accrued 42,089 59,480
Taxes Accrued 31,798 29,215
Accrued Employee Expenses 6,050 15,247
Current Obligations Under Capital Leases 12,426 12,803
Other 8,899 6,624
----------- -----------
Total Current Liabilities 170,871 180,313
----------- -----------
Deferred Credits and Other Liabilities
MSR Option Gain Regulatory Liability 37,500 41,214
Accumulated Deferred Investment Tax Credits
Regulatory Liability 23,216 24,368
Deferred Income Taxes - Noncurrent 163,288 164,341
Other 34,043 26,920
----------- -----------
Total Deferred Credits and Other Liabilities 258,047 256,843
----------- -----------
Total Capitalization and Other Liabilities $2,592,901 $2,699,593
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1995 1994
-Thousands of Dollars-
Cash Flows from Continuing Operating Activities
Cash Receipts from Retail Customers $137,231 $133,239
Cash Receipts from Other Utilities 25,476 27,572
Fuel and Purchased Power Costs Paid (37,246) (43,150)
Wages Paid, Net of Amounts Capitalized (23,962) (12,036)
Payment of Other Operations and Maintenance Costs (20,044) (18,708)
Capital Lease Interest Paid (37,912) (37,915)
Interest Paid, Net of Amounts Capitalized (17,119) (13,381)
Taxes Paid, Net of Amounts Capitalized (26,293) (10,613)
Interest Received 2,919 1,036
--------- ---------
Net Cash Flows - Continuing Operating Activities 3,050 26,044
--------- ---------
Net Cash Flows - Discontinued Operations - 7,843
--------- ---------
Cash Flows from Capital Transactions
Construction Expenditures (14,577) (15,817)
Other 2,768 (3)
--------- ---------
Net Cash Flows - Capital Transactions (11,809) (15,820)
--------- ---------
Cash Flows from Financing Activities
Payments to Retire Long-Term Debt (35,492) (303)
Payments on Renewable Term Loan (55,660) -
Payments to Retire Capital Lease Obligations (4,911) (6,302)
Other 227 118
--------- ---------
Net Cash Flows - Financing Activities (95,836) (6,487)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (104,595) 11,580
Cash and Cash Equivalents, Beginning of Year * 248,152 161,996
--------- ---------
Cash and Cash Equivalents, End of Period ** $143,557 $173,576
========= =========
* Beginning of year balance includes cash and cash equivalents from
discontinued operations of $14,852,000 for 1995 and $22,179,000 for 1994.
** End of period balance includes cash and cash equivalents from discontinued
operations of $30,022,000 for 1994.
See Notes to Condensed Consolidated Financial Statements.
SUPPLEMENTAL CONDENSED CONSOLIDATED CASH FLOW INFORMATION
Three Months Ended
March 31,
1995 1994
-Thousands of Dollars-
Net Loss $(14,960) $(14,580)
Adjustments to Reconcile Net Loss
to Net Cash Flows
Depreciation and Amortization Expense 22,886 21,933
Taxes Accrued 2,583 14,972
Deferred Investment Tax Credits (1,152) (1,303)
Deferred Fuel and Purchased Power 1,757 2,086
Lease Payments Deferred (9,006) (9,503)
Deferred Springerville Unit 2 Costs (278) (320)
Amortization of Regulatory Adjustments (3,776) (3,330)
Other (1,088) (97)
Changes in Assets and Liabilities which
Provided (Used) Cash Exclusive of
Changes Shown Separately
Accounts Receivable - Other 5,993 2,068
Materials and Fuel (10,095) (2,017)
Unbilled Revenues 4,893 5,086
Other Current Assets and Liabilities 3,689 9,622
Other Deferred Assets and Liabilities 1,604 1,427
--------- ---------
Net Cash Flows - Continuing Operating Activities $ 3,050 $ 26,044
========= =========
See Notes to Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 1. SPRINGERVILLE UNIT 2 DEFERRALS
- ---------------------------------------
The Company is not presently recovering through retail rates the
depreciation, property taxes, operating and maintenance expenses other than
fuel, or interest costs associated with the 37.5% of Springerville Unit 2
capacity which is currently not deemed by the ACC to be used and useful for
the retail jurisdiction and therefore is not in rate base (hereinafter
referred to as "retail excess capacity deferrals"). These expenses are being
expensed as incurred. However, the 1994 Rate Order permits such costs to be
deferred for future recovery over the remaining useful life of Springerville
Unit 2. This phase-in plan does not qualify under FAS 92 and, therefore,
such retail excess capacity deferrals, while deferred for regulatory
purposes, cannot be deferred for financial reporting purposes. Such retail
excess capacity deferrals totaled $1 million during the three months ended
March 31, 1995, bringing the total to $64 million at March 31, 1995. Either
inclusion in costs recoverable through retail rates or additional wholesale
sales at sufficient prices of an equivalent amount of capacity (or a
combination thereof) will be required to recover these retail excess capacity
deferrals.
In addition, the Company is not presently recovering through retail
rates 37.5% of the deferred Springerville Unit 2 rate synchronization costs
($27 million at March 31, 1995), which were non-fuel costs of Springerville
Unit 2 incurred from January 1, 1991 through October 14, 1991. This amount,
together with the balance of such costs ($25 million at March 31, 1995) that
the Company is presently recovering through rates, are reported in the
Company's Condensed Consolidated Balance Sheet as Deferred Springerville Unit
2 Costs.
The 1994 Rate Order provided that the rate synchronization and retail
excess capacity deferrals associated with the 37.5% of Springerville Unit 2
capacity not found to be used and useful for the retail jurisdiction will
continue to incur an interest charge of 7.19% until authorized to be included
in rate base or for a period of three years ending in 1997, whichever occurs
first.
NOTE 2. COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Coal and Transportation Contracts
On October 14, 1991, amendments to the contract with the Springerville
coal supplier were entered into, and became effective, which, among other
things, reduced the price of coal shipments at Springerville. The amended
contract contains provisions which protect the claims of the Springerville
coal supplier under the original agreement in the event that the Company does
not perform its obligations under the terms of the amended agreement at any
time prior to August 23, 1995. If such a failure to perform occurs, the
Company would be responsible for approximately $7 million per year in
additional payments to the Springerville coal supplier. Also, at March 31,
1995, a $3 million accrued liability remained on the Company's Condensed
Consolidated Balance Sheet which will be forgiven if all conditions are met
during the four years subsequent to the amendment of the Springerville coal
agreement.
The Company has contracted with P&M to supply coal to Irvington.
Originally, all units at Irvington were scheduled to be converted and coal
supplies were contracted for those units. The original contract required
annual minimum quantities of 650,000 tons. However, the conversion of Units
1, 2 and 3 at Irvington was canceled. The then-existing P&M contract
contained minimum take-or-pay provisions which required the Company to pay
one-half of the base price of coal for any contract quantities not scheduled
and delivered. On November 5, 1991, amendments to the contract with P&M were
entered into and became effective, which, among other things, substantially
reduced the minimum annual coal quantities to levels which the Company
estimates can be utilized by Irvington Unit 4 alone (Irvington Unit 4 is
expected to burn approximately 225,000 tons of coal per year) and extended
the expiration date of the agreement from 2002 to 2015. Additionally, to
satisfy an unpaid $8 million 1990 penalty, the amendments provided for P&M to
receive either the proceeds from any sale of, or, at P&M's option, the title
to, an undeveloped parcel of land (book value of $2 million). P&M has not
exercised its option to take title to the land and no sale of the land has
occurred. If the Company continues to perform under the amended contract
through November 4, 1995, the $8 million penalty which remains an accrued
liability on the Company's Condensed Consolidated Balance Sheet at March 31,
1995 will be forgiven. If the Company fails to perform at any time prior to
November 4, 1995, the Company would be required, pursuant to the prior
contract, to pay for approximately 5.1 million tons, that would not be
delivered to the Company, at one-half the base price of coal through 2002, at
an estimated aggregate cost of $98 million.
Amendments to transportation agreements have also been executed,
effective October 18, 1991, with the Springerville and Irvington rail
transportation suppliers which, among other things, reduced the price for
coal shipments and limited annual changes in the contract price. The
Springerville amended rail transportation agreement includes provisions which
protect the supplier's claims under their original contract in the event the
Company does not perform its obligations under the terms of the amended
agreement at any time prior to September 19, 1995. If such a failure to
perform occurs, the Company would be responsible for approximately $3 million
per year to the Springerville transportation supplier at current contract
prices. At March 31, 1995, a $3 million accrued liability remained on the
Company's Condensed Consolidated Balance Sheet which will be forgiven, if all
conditions are met during the four years ending September 19, 1995.
Tax Assessments
The Arizona Department of Revenue has issued transaction privilege tax
assessments to the Company for the period November 1985 through May 1993
alleging that Valencia is liable for sales tax on gross income received from
coal sales, transportation, and coal-handling services to the Company during
such period. The Company protested the assessments. On March 11, 1994, the
Arizona Tax Court issued a Minute Entry granting Summary Judgment to the
Arizona Department of Revenue and upholding the validity of the assessment
issued for the period November 1985 through March 1990. The Company appealed
this decision to the Court of Appeals. Generally, Arizona law requires
payment of the assessment due prior to appealing a decision from the Arizona
Tax Court. Accordingly, the Company paid, under protest, a total of $8.4
million of disputed sales tax, interest and penalties, subject to refund in
the event the Company prevails. A similar payment of $14.6 million was made
on March 9, 1995, subject to refund in the event the Company prevails,
relating to taxes assessed from April 1990 through May 1993.
Also, the Arizona Department of Revenue has issued transaction privilege
tax assessments to the lessors from whom the Company leases certain property
alleging sales tax liability on a component of rents paid by the Company on
the Springerville Unit 1 Lease, Springerville Common Facilities Leases,
Irvington Lease and Valencia Lease. Assessments cover the period August 1,
1988 to September 30, 1993. Under the terms of the lease agreements, if the
Arizona Department of Revenue prevails the Company must indemnify the lessors
for taxes paid.
In the opinion of management, the Company has recorded, through the
Condensed Consolidated Statement of Income (Loss) in current and prior years,
a liability for the amount of federal and state taxes and interest thereon
for which the Company feels incurrence is probable as of March 31, 1995. In
the event that all or most of the Arizona Department of Revenue's proposed
assessments are sustained, additional liabilities would result. Based on the
current status of the legal proceedings, the Company believes that the
ultimate resolution of such disputes will occur over a period of one and a
half to four years. Although it is reasonably possible that the ultimate
resolution of such matters could result in a loss of up to approximately $25
million in excess of amounts accrued, management and outside tax counsel
believe that the Company has meritorious defenses to mitigate or eliminate
the assessed amounts. Based on consultations with counsel, the Company
believes that the resolution of the tax matters described herein should not
have a material adverse effect on the Company's Condensed Consolidated
Financial Statements.
SDGE/FERC Proceedings
San Diego Gas & Electric v. Tucson Electric Power Company
On February 11, 1993, SDGE filed a complaint and motion for summary
disposition against the Company and Century before the FERC (San Diego Gas &
Electric Company v. Tucson Electric Power Company and Century Power
Corporation, Docket No. EL93-13-000). The complaint alleged that the Company
and Century overbilled SDGE during Phases 3 through 5 of the Ten Year Power
Sale Agreement (Ten Year Agreement) and requested that the FERC order refunds
by the Company of an aggregate amount of approximately $14.5 million, plus
interest. On April 23, 1993, the Company filed an answer denying the
allegations of the complaint. On May 3, 1995, the FERC issued an order
dismissing SDGE's complaint.
Alamito Company, Docket No. ER79-97-009
On September 27, 1993, SDGE filed a motion for decision by the FERC in
Alamito Company, Docket No. ER79-97-009. This proceeding involved the proper
capital structure and rate of return for rates under which Century Power
Corporation (formerly Alamito Company) sold Company system power to SDGE
during Phase 5 of the Ten Year Agreement, from June 1, 1987 through May 31,
1989. An initial decision of an administrative law judge in January 1986,
found the Company's capital structure was inflated and its return on equity
excessive. SDGE claimed that the Company would owe Century on SDGE's behalf
up to approximately $12 million plus interest. On October 8, 1993, the
Company filed an answer opposing SDGE's motion. It was the Company's
position that the FERC's order of July 19, 1991 approving a settlement
between SDGE and Century in Docket No. ER79-97-009, as well as the Company's
and Century's mutual release of all claims against each other as part of
their Financial Restructuring, bars SDGE's claim. On December 23, 1993, the
FERC issued an order confirming that the July 19, 1991 order disposed of this
case, and denied SDGE's September 27, 1993 motion. On January 21, 1994, SDGE
requested rehearing of the FERC's order. On May 3, 1995, the FERC issued an
order denying SDGE's request for rehearing.
NOTE 3. CONSOLIDATED SUBSIDIARIES
- ----------------------------------
As of December 31, 1994, the Company had substantially completed its
disposal of discontinued operations. The remaining assets and liabilities
are accounted for as a part of continuing operations beginning January 1,
1995 and are included in the Company's condensed consolidated financial
statements. For example, Short-Term Debt of $12 million was previously
classified as Net Assets of Discontinued Operations.
In 1995 the Company established Nations Energy Corporation (formerly
known as Escalante Resources Inc.) for the purpose of exploring independent
power prospects in the domestic and foreign energy markets. The 1995
condensed consolidated financial statements reflect the accounts of Nations
Energy, a wholly-owned subsidiary of the Company.
NOTE 4. INCOME TAXES
- ---------------------
The income tax benefit included in results of continuing operations for
the three months ended March 31, 1995 and 1994 was comprised solely of the
amortization of accumulated deferred investment tax credits. The differences
between income tax benefit and the amount obtained by multiplying income
(loss) before income taxes by the U.S. statutory federal income tax rate for
the three months ended March 31, 1995 and 1994 are as follows:
Three Months Ended
March 31,
1995 1994
-------- --------
-Thousands of Dollars-
Federal Income Benefit at Statutory Rate $ 5,639 $ 5,559
Investment Tax Credit Amortization 1,152 1,303
Loss for Which No Tax Benefit is Available (5,639) (5,559)
-------- --------
Total Benefit for Federal and
State Income Taxes $ 1,152 $ 1,303
======== ========
The income tax benefit is included in the Condensed Consolidated
Statements of Loss in the following accounts:
Three Months Ended
March 31,
1995 1994
-------- --------
-Thousands of Dollars-
Operating Expenses - Other Operations $ 22 $ 23
Other Income - Other 1,130 1,280
-------- --------
Total Income Tax Benefit $ 1,152 $ 1,303
======== ========
NOTE 5. LONG-TERM DEBT
- -----------------------
The Company reduced its Long-Term Debt as a result of $16 million of
first mortgage bond maturities, a $19 million permanent repayment of the Term
Loan and a $56 million repayment of the Renewable Term Loan, an amount that
can be reborrowed.
NOTE 6. NEW ACCOUNTING STANDARD
- --------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 (FAS 121), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This statement requires that an asset be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company anticipates adopting FAS 121 on
January 1, 1996, and does not expect the adoption will have a material impact
on the Company's financial statements. This conclusion may change in the
future depending on the extent that the Company's regulated and non-regulated
operations are influenced by an increasingly competitive environment.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following contains information regarding the results of the Company's
operations during the first quarter of 1995 compared with the first quarter of
1994, the outlook for dividends on Common Stock, and changes in liquidity and
capital resources of the Company during the first quarter of 1995. Also
management's expectations of identifiable material trends are discussed.
OVERVIEW
The Company's capital structure is highly leveraged and the Company's
financial prospects and cash flows are subject to significant economic,
regulatory and other uncertainties, some of which are beyond the Company's
control. These uncertainties include the degree of utilization of capacity
through either retail electric service or wholesale sales and the extent to
which the Company can alter operations and reduce costs in response to
unanticipated economic downturns or industry changes due to continued high
financial and operating leverage. The Company's ability to recover the costs of
serving retail customers is dependent upon pricing of the Company's services,
which requires ACC approval, and the level of sales to such customers. The
Company anticipates continued growth in sales over the next five years primarily
as a result of anticipated population and economic growth in the Tucson area.
However, a number of factors such as changes in economic conditions and the
increasingly competitive electric markets could affect the Company's levels of
sales.
Increased revenues, including increases for the recovery of plant and
operating costs associated with the remaining 37.5% of Springerville Unit 2,
which is not currently included in rate base, may be required in order for the
Company to maintain its existing level of liquidity over the longer term as
obligations become due. The level of cash flow from wholesale sales is affected
generally by factors affecting the market for such sales, including the
availability of capacity and energy in the western United States. In addition,
because the Company has a significant amount of variable rate debt, the
Company's future cash flows are also affected by the level of interest rates.
See Liquidity and Capital Resources below.
If the Company is unable to make sales at prices adequate to recover its
costs or if for other reasons the Company fails to maintain or improve its cash
flows, the Company's ability to meet its obligations may be jeopardized. The
Company has approximately $1.1 billion of long-term debt maturing, including
approximately $774 million in reimbursement agreements relating to letters of
credit which expire, during the 1997-2001 period. The Company intends to pay or
refinance maturing bonds and bank loans and to replace or extend such
reimbursement agreements. There can be no assurance, however, that the Company
will be able to pay such debt or replace or extend such reimbursement
agreements.
In addition, the Company's ability to raise capital (through either public
or private financings) is limited. The Company's ability to obtain debt
financing will be limited by reason of limited free cash flow available to meet
additional interest expense and due to the restrictive covenants contained in
its obligations to creditors. Further, if the Company is required to refinance
its debt obligations in order to repay them when due, such refinancing may be
made on terms which are adverse to the Company. Access to equity capital may be
limited because of the Company's likely limited future profitability and its
inability to pay dividends for the foreseeable future. See Dividends on Common
Stock below.
During the next twelve months, the Company does not expect any need to
obtain new debt financing to fund continuing operating activities and
construction expenditures. The Company instead expects to rely on internal cash
flows, existing cash balances, the Renewable Term Loan and, if necessary,
borrowings under a revolving credit line provided under the MRA. At March 31,
1995, the Company's cash balance including cash equivalents was approximately
$144 million. Cash balances are invested in investment grade, money-market
securities with an emphasis on preserving the principal amount invested.
PROPOSED HOLDING COMPANY
The Company intends to establish in early 1996 a new corporate structure in
which the Company will be a subsidiary of a new holding company, UniSource
Energy Corporation (UniSource). The Company proposes to establish a holding
company structure because the Company believes that it is in the best interests
of its shareholders for the Company to participate in various segments of the
evolving and expanding electric energy business. The Company believes that such
participation would be enhanced by the holding company structure, a commonly
used structure in the electric and other industries, to conduct different lines
of business.
Approval of a holding company structure will require the affirmative vote
of holders of shares of common stock representing not less than a majority of
all votes entitled to be cast by all holders of shares of common stock. In
addition to shareholder approval, consummation of the holding company plan is
predicated upon receiving approval from the ACC and FERC. The Company will also
seek a "no action" position from the Staff of the SEC under the Public Utility
Holding Company Act of 1935, as amended, or, in the alternative, will seek
approval of the SEC under such Act. The Company is in the process of obtaining
such approvals.
If approved by the requisite vote of the Company shareholders and if
required regulatory approvals are satisfactorily obtained, the outstanding
shares of the Company common stock would be exchanged, on a share-for-share
basis, for shares of UniSource. As a result, the holders of the Company common
stock will become the owners of UniSource common stock, and UniSource will
become the owner of the Company common stock.
COMPETITION
WHOLESALE
Under current law, the Company is not in direct competition with any other
regulated electric utility for electric service in the Company's retail service
territory. Regardless of such regulation, the Company competes for retail
markets against gas service suppliers and others who may provide energy services
which would be substitutes for, or bypass of, the Company's services.
The Company does compete with other utilities, marketers and independent
power producers in the sale of electric capacity and energy in the wholesale
market. The Company's rates for wholesale sales of capacity and energy,
generally, are not permitted to exceed rates determined on a cost of service
basis. With respect to long-term firm sales, the Company's wholesale prices are
substantially below costs determined on a fully allocated cost of service basis,
but, in all instances, prices exceed the level necessary to recover fuel and
other variable costs. It is expected that competition to sell capacity will
remain vigorous, and that prices will remain depressed for several years, due to
increased competition and surplus capacity in the southwestern United States.
Competition for the sale of capacity and energy is influenced by many factors,
including the availability of capacity of the 3,810 MW Palo Verde nuclear
generating station and other generating stations in the southwestern United
States, the availability and prices of natural gas and oil, spot energy prices
and transmission access. In addition, the Energy Act has promoted increased
competition in the wholesale electric power markets.
The Energy Act addresses a wide range of energy issues, including several
matters affecting bulk power competition in the electric utility industry. It
creates exemptions from regulation under the Holding Company Act for persons or
corporations that own and/or operate in the United States certain generating and
interconnecting transmission facilities dedicated exclusively to wholesale
sales, thereby encouraging the participation of utility affiliates, independent
power producers and other non-utility participants in the development of power
generation. In order to facilitate competition in power generation, the Energy
Act also confers expanded authority upon FERC to issue orders requiring electric
utilities to transmit power and energy to or for wholesale purchasers and
sellers, and to require electric utilities to enlarge or construct additional
transmission capacity to provide these services. While the Energy Act prohibits
FERC from issuing any such order that would unreasonably impair the continuing
reliability of affected electric systems or that would be conditioned upon or
require transmission services directly to an ultimate consumer, the Energy Act
creates the potential for utilities and other power producers to gain increased
access to the transmission systems of other entities to facilitate wholesale
sales. FERC is encouraging all parties interested in transmission access to
form RTGs to facilitate access to and development of transmission service and to
assist in settling disputes regarding such matters. RTGs will not relieve FERC
of its responsibilities related to transmission access; however, such
organizations could provide for more efficient handling of transmission service
requests and planning for regional transmission needs. The Company is currently
involved in the development of two RTGs in the West, SWRTA and WRTA. WRTA and
SWRTA both filed applications for approval with the FERC during 1994 which have
yet to be accepted. The Company currently intends to become a member of SWRTA
and is also considering membership in WRTA.
In late March 1995, the FERC issued two Notices of Proposed Rulemaking
(NOPR). The first NOPR on open access non-discriminatory transmission services
by public utilities and transmitting utilities is intended to facilitate
competition among suppliers to the bulk power market. If adopted, public
utilities would be required to open access to their transmission systems within
certain guidelines, and at pre-established tariffs. The second and supplemental
NOPR would provide a basis for recovery by regulated public utilities of
legitimate and verifiable stranded costs associated with existing wholesale
requirements customers and retail customers who become unbundled wholesale
transmission customers of the utility.
A final rule on both NOPRs is expected to take effect in early 1996.
RETAIL
On the retail level, customers, particularly industrial and large
commercial customers, may have the ability to own and operate facilities to
generate their own electric energy requirements and, if such facilities are
qualifying facilities, to require the displaced electric utility to purchase the
output of such facilities at "avoided costs" pursuant to PURPA. Such facilities
may be operated by the customers themselves or by other entities engaged for
such purpose.
The Company is active in marketing energy and customizing energy-related
services to meet customer needs. In part as a result of such efforts, the
Company has to date lost no customers to self-generation. The Company's two
mining customers, which provide approximately 11% of the Company's total annual
revenues from retail customers, each have considered self-generation. However,
following negotiations with the Company in 1993 and 1994, new contracts were
executed that included, among other things, rate reductions. These contracts
expire after the year 2000, subject to various provisions allowing the customers
to terminate partially or entirely, under certain circumstances upon at least
one and up to two years prior notice. The ability to enter into or extend
contracts, to avoid early termination, and to retain customers will be dependent
on, among other things, market conditions and alternatives available to
customers from time to time.
The legislatures and/or the regulatory commissions in several states have
considered or are considering "retail wheeling" which, in general terms, means
the transmission by an electric utility of energy produced by another entity
over its transmission and distribution system to a retail customer in such
utility's service territory. A requirement to transmit directly to retail
customers could have the result of permitting retail customers to purchase
electric capacity and energy from, at the election of such customers, the
electric utility in whose service area they are located or from other electric
utilities or independent power producers.
In Arizona, the ACC Staff issued its first report on a retail electric
competition workshop held in October of 1994. This report is the first in a
series of reports that will be issued on various workshops that will be held
from time to time to identify and address policy issues related to competition.
While other states are considering competition proposals, the ACC effort is
designed to obtain information about competition. No specific proposals are
currently being considered. The report proposes that Staff develop a
comprehensive set of options to better inform the ACC about its choices. Staff
recommended that three options be considered: 1) encouraging retail
competition, 2) permitting limited retail competition, and 3) discouraging
retail competition by prohibiting retail wheeling and allowing distributed
energy services. The ACC has also established a working group on retail
electric competition. Membership in the working group includes ACC Staff,
Arizona utilities, and other interested parties, and the first meeting of the
group took place in January 1995. A report from the group is expected by August
1995. The Company cannot predict what the working group will recommend and
what, if any, changes in electric regulation and competition will be implemented
by the ACC.
The Company continues to assess the impact of the Energy Act and other
possible legislation on the Company's ability to remain competitive in the
electric utility industry. The Company is unable to predict the ultimate impact
the Energy Act or any other possible legislation will have on its operations.
ACCOUNTING FOR THE EFFECTS OF REGULATION
The Company prepares its financial statements in accordance with the
provisions of FAS 71. A regulated enterprise can prepare its financial
statements in accordance with FAS 71 only if (i) the enterprise's rates for
regulated services are established by or subject to approval by an independent
third-party regulator, (ii) the regulated rates are designed to recover the
enterprise's costs of providing the regulated services and (iii) in view of
demand for the regulated services and the level of competition, it is reasonable
to assume that rates set at levels that will recover the enterprise's costs can
be charged to and collected from customers. FAS 71 requires a cost-based, rate-
regulated enterprise to reflect the impact of regulatory decisions in its
financial statements. In certain circumstances, FAS 71 requires that certain
costs and/or obligations (such as incurred costs not currently recovered through
rates, but expected to be so recovered in the future) be reflected in a deferral
account in the balance sheet and not be reflected in the statement of income or
loss until matching revenues are recognized.
If at some future point, the Company determines that it no longer meets the
criteria for continued application of FAS 71, the Company would be required to
adopt the provisions of FAS 101. Adoption of FAS 101 would require the Company
to write off its regulatory assets and liabilities as of the date of adoption of
FAS 101 and would preclude the future deferral in the balance sheet of costs not
recovered through rates at the time such costs were incurred, even if such costs
were expected to be recovered in the future. Based on the balances of the
Company's regulatory assets and liabilities as of March 31, 1995, the Company
estimates that the adoption of FAS 101 would have resulted in an extraordinary
loss of $139 million, which includes a reduction for the related deferred income
taxes. The Company does not expect that its cash flows would be affected by the
adoption of FAS 101. However, as a result of the increase in the Company's
accumulated deficit which would result from such loss, the Company's ability to
pay dividends could be further impaired.
EARNINGS
The losses from continuing operations were $15 million and $14.6 million
during the first quarter of 1995 and the first quarter of 1994, respectively.
The net loss per average share of Common Stock was $0.09 in both the first
quarter of 1995 and the first quarter of 1994. The average number of shares was
160.7 million in both periods.
DIVIDENDS ON COMMON STOCK
The Company does not expect to be able to pay cash dividends on its Common
Stock for the foreseeable future. The Company is currently precluded by
restrictive covenants in certain debt agreements from declaring or paying
dividends. Certain State statutes also limit the Company's ability to pay
dividends. No dividends on Common Stock have been declared or paid since 1989.
Under current applicable provisions of the Arizona General Corporation Law,
the Company is permitted to declare and pay dividends on its shares in cash,
property, or its own shares, only out of unreserved and unrestricted earned
surplus or out of the unreserved and unrestricted net earnings of the current
fiscal year and the immediately preceding fiscal year taken as a single period,
except that the Company may not declare or pay dividends when the Company is
insolvent (unable to pay its debts as they become due in the ordinary course of
business) or when the payment of the dividend would render the Company
insolvent, or when the declaration or payment of the dividend would be contrary
to any restriction contained in the Articles.
At March 31, 1995, the Company had no earned surplus (its accumulated
deficit on that date was $696 million), and the Company expects limited net
earnings for the 1994 and 1995 fiscal years taken together. The Company expects
to have no earned surplus for the forseeable future and limited net earnings and
cash flow for several years.
Under applicable provisions of amendments to the Arizona General
Corporation Law, which will be effective in 1996, a company will be permitted to
make distributions to shareholders unless, after giving effect to such
distribution, either (i) the company would not be able to pay its debts as they
come due in the usual course of business, or (ii) the company's total assets
would be less than the sum of its total liabilities plus the amount necessary to
satisfy any liquidation preferences of shareholders with preferential rights.
As of March 31, 1995, the Company's common stock deficit was $57 million.
Although the Company expects to meet the requirements under the amended
corporation law for making distributions to shareholders within several years,
restrictive covenants in certain existing debt agreements may continue to
preclude the Company from declaring or paying dividends.
The General First Mortgage contains covenants, applicable so long as
certain series of First Mortgage Bonds (aggregating $194 million in principal
amount) are outstanding, which restrict the payment of dividends on Common Stock
if certain cash flow coverage and retained earnings tests are not met. The
retained earnings test will prevent the Company from paying dividends on its
Common Stock until such time as the Company has positive retained earnings
rather than an accumulated deficit. Such covenants will remain in effect until
the First Mortgage Bonds of such series have been paid or redeemed. The latest
maturity of such First Mortgage Bonds is in 2003. The MRA includes a similar
dividend restriction based on retained earnings.
RESULTS OF OPERATIONS
RESULTS OF UTILITY OPERATIONS
SALES AND REVENUES
Comparisons of kilowatt-hour sales and electric revenues are shown below:
Increase/Decrease
Three Months Ended March 31 1995 1994 Amount Percent
Electric kWh Sales (000):
Retail Customers 1,493,302 1,466,034 27,268 1.9 %
Other Utilities 577,343 794,578 (217,235) (27.3)
--------- --------- ---------
Total 2,070,645 2,260,612 (189,967) (8.4)
========= ========= =========
Electric Revenues (000):
Retail Customers $118,187 $115,742 $ 2,445 2.1 %
Amortization of MSR Option
Gain Regulatory Liability 5,013 5,013 0 0.0
Other Utilities 19,545 25,824 (6,279) (24.3)
-------- -------- --------
Total $142,745 $146,579 $(3,834) (2.6)
======== ======== ========
KWh sales to retail customers increased in the first quarter of 1995
compared with the same period in 1994 as a result of growth in the average
number of retail customers. There were 295,512 electric customers on average
during the first quarter of 1995, a 2.8% increase over the same period of 1994.
Revenues from sales to retail customers increased in the first quarter of 1995
due to higher kWh sales discussed above.
Lower kWh sales to other utilities in the first quarter of 1995 compared
with the first quarter of 1994 resulted from lower regional loads due to mild
weather conditions and the increased availability of lower cost hydroelectric
power in the western United States. Lower revenues from sales to other
utilities resulted from lower sales and lower energy prices in the first quarter
of 1995 than in the first quarter of 1994.
OPERATING EXPENSES
Fuel and purchased power expense decreased in the first quarter of 1995
compared with the same period in 1994 as a result of lower generation
requirements.
Maintenance and repairs expense increased in the first quarter of 1995
compared with the first quarter of 1994 as a result of scheduled overhaul work
at Springerville Unit 1 and San Juan.
OTHER INCOME
Gains on Sales of Securities increased in the first quarter of 1995
compared with the first quarter of 1994, because of gains realized on sales of
certain equity securities by the investment subsidiaries. During the periods
when the investment subsidiaries were classified as discontinued operations for
financial statement purposes, no income or loss related to discontinued
operations were recorded unless the estimates of proceeds from the disposition
of investment subsidiary assets changed materially. The Company ceased to
account for the investment subsidiaries as discontinued operations as of January
1, 1995.
Interest income increased as a result of greater balances invested at a
higher rate during the first quarter of 1995 than during the first quarter of
1994.
Other income decreased in the first quarter of 1995 compared with the same
period in 1994 in part due to operating expenses relating to Nations Energy and
in part due to a decrease in the amortization of investment tax credits.
INTEREST EXPENSE
Long-term debt interest expense increased in the first quarter of 1995
compared with the same period in 1994 as a result of higher interest rates on
the Company's variable rate debt outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to generate sufficient cash flows during 1995 to fund
its continuing operating activities and construction expenditures. Furthermore,
the Company believes it has sufficient cash flow along with adequate cash and
temporary investments to meet expected cash obligations for the remainder of
1995. If cash flows were to fall short of expectations, the Company would rely
on existing cash balances, the Renewable Term Loan and, if necessary, borrowings
under a revolving credit line provided under the MRA.
The Company's cash and cash equivalents balance at May 9, 1995 was
approximately $121 million. Cash balances are invested in investment grade
money-market securities with an emphasis on preserving the principal amounts
invested.
CASH FLOWS
The Company's cash and cash equivalents decreased $30 million or 17%, over
the first quarter 1994 ending balance of $174 million, to the first quarter 1995
ending balance of $144 million.
Net cash flows from continuing operating activities decreased in aggregate
$23 million in the first quarter of 1995 compared with the first quarter of 1994
due primarily to a $14.6 million tax payment made by the Company, under protest,
to allow the Company to appeal a transaction privilege tax assessment that was
upheld by the Arizona Tax Court in 1994; increased wages paid due to one more
pay period in the first quarter of 1995 than in the same period in 1994,
payments on the 1994 incentive plan and increased employee compensation and
pension benefits; and higher interest payments on long-term debt. Such
increased cash expenditures were offset during the quarter by higher cash
receipts from retail customers, greater interest income received and lower fuel
and purchased power expenses.
Net cash flows from financing activities decreased $89 million in the first
quarter of 1995 compared with the same period in 1994 as a result of $16 million
of first mortgage bond maturities, a $19 million permanent repayment of the Term
Loan and $56 million repayment of the Renewable Term Loan, an amount that can be
reborrowed.
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
TAX ASSESSMENTS
See Note 2 of Notes to Condensed Consolidated Financial Statements, Tax
Assessments.
SDGE/FERC PROCEEDINGS
SAN DIEGO GAS & ELECTRIC V. TUCSON ELECTRIC POWER COMPANY
See Note 2 of Notes to Condensed Consolidated Financial Statements, San
Diego Gas & Electric v. Tucson Electric Power Company.
ALAMITO COMPANY, DOCKET NO. ER79-97-009
See Note 2 of Notes to Condensed Consolidated Financial Statements, Alamito
Company, Docket No. ER79-97-009.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
15 - Letter regarding unaudited interim financial information.
27 - Financial Data Schedule.
(b) Reports on Form 8-K.
- The Company did not file any Current Reports on Form 8-K during
the quarter for which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TUCSON ELECTRIC POWER COMPANY
(Registrant)
Date: May 15, 1995 Ira R. Adler
Ira R. Adler
Senior Vice President and Principal
Financial Officer
EXHIBIT INDEX
15(a) - Letter regarding unaudited interim financial information.
27(a) - Financial Data Schedule.
Exhibit 15
May 11, 1995
Tucson Electric Power Company
220 West Sixth Street
Tucson, Arizona 85701
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Tucson Electric Power Company and subsidiaries (the Company) for
the periods ended March 31, 1995 and 1994, as indicated in our report dated
May 8, 1995 (which included an explanatory paragraph relating to the timing of
the recovery of the costs associated with 37.5% of Springerville Unit 2 which
cannot presently be determined); because we did not perform an audit, we
expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, is
incorporated by reference in Post-Effective Amendment No. 1 to Registration
Statement No. 33-55732 of the Company on Form S-3, Registration Statement
No. 33-58173 of UniSource Energy Corporation on Form S-4, and Registration
Statements No. 33-56523, No. 33-57233 and No. 33-57231 of the Company on
Form S-8.
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Tucson, Arizona
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