UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): June 22, 1998
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification Number
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1-13739 UNISOURCE ENERGY CORPORATION 86-0786732
(An Arizona Corporation)
220 West Sixth Street
Tucson, AZ 85701
(520) 571-4000
1-5924 TUCSON ELECTRIC POWER COMPANY 86-0062700
(An Arizona Corporation)
220 West Sixth Street
Tucson, AZ 85701
(520) 571-4000
<PAGE>
Item 5. Other Events
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Changes in Executive Officers and Directors of the
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Registrants
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On June 23, 1998, James S. Pignatelli was elected
Chairman, President and Chief Executive Officer of
UniSource Energy Corporation, replacing Charles E. Bayless,
who has accepted the positions of Chairman, President and
CEO of Illinova Corporation, based in Decatur, IL. The
Company's Board of Directors also elected Pignatelli to
replace Bayless as Chairman, President and CEO of Tucson
Electric Power Company (TEP), the Company's principal
subsidiary. Pignatelli, 54, has been Senior Vice President
and Chief Operating Officer of TEP since 1996. He was
named UniSource Energy Senior Vice President and Chief
Operating Officer upon the formation of UniSource Energy as
TEP's holding company. In 1998, he was named Executive
Vice President of TEP and was elected to TEP's Board of
Directors.
Additionally, Ira R. Adler, UniSource Energy Senior
Vice President and Chief Financial Officer, was named
Executive Vice President and elected to the Company's Board
of Directors. George W. Miraben, TEP Senior Vice President
of Policy and Human Resources, was named TEP Executive Vice
President and elected to the TEP Board of Directors.
The changes are effective July 6, 1998.
ACC Order Regarding Stranded Cost Recovery
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On June 22, 1998, the Arizona Corporation Commission
(ACC) adopted an order which outlines its policy for
stranded cost recovery by Arizona utilities in a
competitive energy market. The ACC Competition Rules,
adopted in December 1996, phase-in the state's electric
industry to generation competition beginning January 1,
1999. The order is an amended version of the original
order proposed by the ACC Hearing Officer on May 6, 1998.
The proposed order was discussed in the Company's and TEP's
Report on Form 10-Q for the period ended March 31, 1998.
The order provides two methods for stranded cost
recovery for the Affected Utilities (such as TEP, Arizona
Public Service, Citizens Utilities Company, and several
electric cooperatives): (1) Divestiture/Auction Methodology
and (2) Transition Revenues Methodology. The order
encourages, but does not require, full divestiture of
generating assets. The order states that only those
Affected Utilities choosing divestiture shall have the
opportunity to recover 100% of unmitigated stranded costs.
The key components of the order are summarized below:
Divestiture/Auction Methodology
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-- Affected Utilities choosing divestiture must file a
divestiture plan for ACC approval no later than October 1,
1998. Divestiture must be completed by January 1, 2001.
-- An Affected Utility's generation affiliate may acquire the
generation assets of its parent or sister company, or the
generation assets of another Affected Utility if it
establishes that it is the highest bidder and that the
acquisition will not result in the entity having more than
40% of the state's total generation megawatts of capacity.
-- An Affected Utility that divests all its generation costs
to non-affiliated entities, that results in negative stranded
costs (not including regulatory assets), shall be entitled to
keep 50% of the negative stranded costs.
-- The amount of stranded costs shall be the difference
between the value of generation assets (generating plants,
purchased power contracts, fuel contracts, and regulatory
assets) under traditional regulation and the market value
of the assets after divestiture. The definition of
stranded costs shall include reasonable costs incurred for
premiums, penalties or other payments necessary to effect
divestiture, income tax ramifications of divestiture,
redemption costs associated with tax-exempt two-county debt
which may have to be redeemed upon transfer of the assets,
and other reasonable costs necessarily incurred to
accomplish divestiture. Unmitigated stranded costs shall
also include reasonable employee severance and retraining
costs necessitated by electric competition.
-- An Affected Utility shall be permitted to collect 100%
of its stranded costs, including a return on its
unamortized balance over a ten-year period, with a true-up
mechanism.
-- The ACC will work with the Affected Utility to provide
sufficient assurances in order to avoid triggering write-
offs related to the application of FAS 71.
-- All Affected Utilities' customers shall pay their
appropriate share of stranded costs either through a
Competitive Transition Charge (CTC) or a standard offer
rate, collected over a maximum of ten years.
Transition Revenues Methodology
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-- The order states that "this option would be to provide
sufficient revenues necessary to maintain financial
integrity, such as avoiding default under currently
existing financial instruments for a period of ten years,
at the end of which time there would be no remaining
stranded costs, or for the Commission to otherwise provide
an allocation of stranded cost responsibilities and risks
between ratepayers and shareholders as is determined to be
in the public interest for a given Affected Utility".
Each Affected Utility must file its choice of options
for stranded cost recovery by August 21, 1998. In
addition, the Affected Utility will need to file an
implementation plan that would include the following items
if appropriate for their option choice: the estimation of
stranded costs separated out into regulatory assets and
other generation related assets; a preliminary plan for
auction/divestiture; the minimum financial ratios to
maintain financial viability for ten years; the amount of
regulatory assets requested, how much of those assets are
generation related, and the Commission Decision Number that
approved such assets; and other information as necessary.
The Company will cease accounting for its generation
operations in accordance with the provisions of Statement
of Financial Accounting Standard No. 71, Accounting for the
Effects of Certain Types of Regulation, at the time the
Commission approves a cost recovery plan specific to TEP,
including the specific amount of stranded costs that TEP
can recover and a determination of a cost recovery method.
The amount and method of recovery that the Commission
approves for the Company will determine whether write-offs
will be incurred at that time. The Commission is not
expected to make a final determination of a stranded cost
recovery plan for the Company until at least the fourth
quarter of 1998. The Company is unable to predict the
amount of write-offs, if any, that may be incurred at that
time.
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, each registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized. The signature for each
undersigned company shall be deemed to relate only to
matters having reference to such company or its subsidiary.
UNISOURCE ENERGY CORPORATION
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(Registrant)
Date: June 26, 1998
Ira R. Adler
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Ira R. Adler
Senior Vice President and
Principal Financial Officer
TUCSON ELECTRIC POWER COMPANY
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(Registrant)
Date: June 26, 1998
Ira R. Adler
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Ira R. Adler
Executive Vice President and
Principal Financial Officer
