April 29, 2013

UNS Energy Reports First Quarter 2013 Earnings

  • UNS Energy's net income for the first quarter of 2013 was $11.3 million, or $0.27 per share of common stock on a fully diluted basis, compared with net income of $6.5 million, or $0.17 per diluted share in the first quarter of 2012.
  • UNS Energy's primary subsidiary, Tucson Electric Power Company (TEP), reported net income of $1.5 million in the first quarter of 2013 compared with a net loss of $1.5 million in the first quarter of 2012. TEP's results benefited from cold winter weather that led to higher residential and commercial kilowatt-hour (kWh) sales. Cold winter weather also benefited the results of UNS Gas, UNS Energy's gas distribution subsidiary, where net income was $7.4 million during the first quarter of 2013 compared with $5.4 million in the first quarter of 2012.

TUCSON, Ariz.--(BUSINESS WIRE)-- UNS Energy Corporation (NYSE: UNS) today reported first quarter 2013 net income of $11.3 million, or $0.27 per share of common stock on a fully diluted basis, compared with $6.5 million, or $0.17 per diluted share in the same period last year.

"While our first quarter financial results benefited from cold weather, we are still managing the cost pressures associated with TEP's rate freeze," said Paul Bonavia, UNS Energy's Chairman and Chief Executive Officer. "Our focus continues to be operational excellence, especially as we enter the warmer months of the year when electricity demand is at its highest."

In February, TEP, ACC Staff and several other parties entered into a rate settlement agreement. An Arizona Corporation Commission (ACC) administrative law judge (ALJ) is expected to issue a preliminary recommendation on the proposed agreement, which will then be subject to approval by the ACC. Hearings before the ALJ concluded in March.

Provisions of the settlement include an increase in TEP's non-fuel revenues of approximately $76 million, as well as rate adjustment mechanisms related to energy efficiency and environmental compliance. If approved, the proposal would result in an average bill increase of less than $3 per month for a typical residential customer.

"The settlement provides tangible benefits to our customers and represents the hard work and good faith negotiations of a diverse group of stakeholders. I am hopeful it will be approved as requested by those parties," Bonavia said.

Tucson Electric Power

Retail kWh Sales and Revenues

TEP's retail kWh sales increased by 4.0 percent in the first quarter, primarily due to cold weather that led to a 29.0 percent increase in heating degree days compared with the first quarter of 2012. The increase in retail sales volumes led to a $4.5 million, or 4.3 percent, increase in TEP's retail margin revenues compared with the first three months of 2012.

Excluding the effects of weather in both periods, TEP estimates its first quarter 2013 retail kWh sales were approximately 0.3% above the first quarter of 2012.

Other Expenses

TEP's Base operations and maintenance (O&M) expense was $60.5 million in the first quarter of 2013 compared with $60.6 million in the first quarter of 2012. Base O&M excludes costs directly offset by customer surcharges and third-party reimbursements. In the first quarter of 2013, depreciation and amortization expense increased by $0.7 million as a result of additional plant-in-service compared with the same period last year.

TEP's total interest expense declined by $2.3 million in the first quarter of 2013 primarily due to the expected decline in the balance of capital lease obligations compared with the first quarter of 2012.

UNS Gas

UNS Gas reported net income of $7.4 million in the first quarter of 2013 compared with $5.4 million in the first quarter of 2012. Retail gas sales increased 12.2 percent compared with the same period last year due to cold winter weather. Heating degree days in UNS Gas' service territory increased by 8.7 percent compared with the first quarter of 2012. The higher retail sales volumes, as well as a base rate increase that was effective in May 2012, contributed to a $2.5 million increase in UNS Gas' retail margin revenues.

Excluding the effects of weather in both periods, UNS Gas estimates its first quarter 2013 retail sales volumes were approximately 4.0% above the first quarter of 2012.

UNS Electric

UNS Electric reported net income of $2.3 million in the first quarter of 2013 compared with $2.9 million in the first quarter of 2012. The decrease in net income was due in part to increases in depreciation and amortization expense, and taxes other than income taxes.

Net Income and Earnings Per Share Summary
                 
1st Quarter
Net Income (Loss) 2013 2012
Millions of Dollars
Tucson Electric Power

$

1.5

$

(1.5

)
UNS Gas 7.4 5.4
UNS Electric 2.3 2.9
Other(1)   0.1     (0.3 )
Net Income (Loss)

$

11.3

 

$

6.5

 
Avg. Basic Shares Outstanding (millions) 41.5

38.0

Avg. Diluted Shares Outstanding (millions) 41.9 38.3
 
1st Quarter
Earnings (Loss) Per UNS Energy Share 2013 2012
Tucson Electric Power 0.04 (0.04 )
UNS Gas 0.18 0.14
UNS Electric 0.06 0.08
Other(1)   (0.01 )   (0.01 )
Net Income per Basic Share

$

0.27

 

$

0.17

 
Net Income per Diluted Share

$

0.27

 

$

0.17

 
       

(1)

 

Includes UNS Energy on a stand-alone basis and results from Millennium Energy Holdings, Inc. and UNS Energy Development, wholly owned subsidiaries of UNS Energy.

UNS Energy believes the presentation of TEP, UNS Gas and UNS Electric net income or loss on a per basic UNS Energy share basis (which are non-GAAP financial measures) provides useful information to investors by disclosing the results of operations of its business segments on a basis consistent with UNS Energy's reported earnings or losses.

Seasonality of Earnings

The net income and results of operations of TEP as well as of UNS Gas and UNS Electric — operating subsidiaries of UniSource Energy Services (UES) — are seasonal in nature. TEP and UNS Electric typically record the majority of their net income during the second and third quarters when hot weather contributes to higher energy consumption. TEP's retail rates, which include higher charges for higher levels of energy use, also shift a larger share of the company's earnings into those periods.

Energy demand from UNS Gas customers typically peaks during the winter. Accordingly, UNS Gas typically records the majority of its net income during the first and fourth quarters.

Conference Call and Webcast

The company will host a conference call on Monday, April 29, 2013 at 12 p.m. EDT to discuss the financial results and outlook. To participate in the call, please dial in 5 to 10 minutes prior to the start time. A reference code is not necessary to access the live call.

Dial-in number: (800) 695-3360

The conference call can also be heard live online at uns.com.

A telephone replay will be available for seven days.

Replay number: (800) 633-8284
Reference code: 21655765

In conjunction with this earnings announcement, UNS Energy has provided information on its performance during the first quarter of 2013. These materials have been filed with the Securities and Exchange Commission and are also available at uns.com. UNS Energy and TEP are providing the address of such website solely for the information of investors and do not intend the address to be an active link. Information contained at such website is not part of the report filed with the SEC by UNS Energy and TEP.

UNS Energy Corporation is a Tucson, Arizona-based company with consolidated assets of approximately $4 billion. UNS Energy's primary subsidiaries include Tucson Electric Power, which serves more than 407,000 customers in southern Arizona; and UniSource Energy Services, provider of natural gas and electric service for approximately 242,000 customers in northern and southern Arizona. For more information about UNS Energy and its subsidiaries, visit uns.com.

This release contains forward-looking information that involves risks and uncertainties. These risks and uncertainties include, but are not limited to: state and federal regulatory and legislative decisions and actions; regional economic and market conditions, which could affect customer growth and energy usage; weather variations affecting energy usage; the cost of debt and equity capital and access to capital markets; the performance of the stock market and changing interest rate environment, which affect the value of the company's pension and other retiree benefit plan assets and the related contribution requirements and expense; unexpected increases in O&M expense; resolution of pending litigation matters; changes in accounting standards; changes in critical accounting estimates; changes to long-term contracts; the cost of fuel and power supplies; performance of TEP's generating plants; and other factors listed in UNS Energy's Form 10-K and 10-Q filings with the Securities and Exchange Commission. The preceding factors may cause future results to differ materially from outcomes currently expected by UNS Energy.

               

UNS Energy Corporation

Comparative Condensed Consolidated Statements of Income

 
Three Months Ended
(in thousands of dollars, except per share amounts) March 31, Increase / (Decrease)
(UNAUDITED) 2013     2012 Amount Percent
Operating Revenues
Electric Retail Sales $ 220,860 $ 205,431 $ 15,429 7.5
Electric Wholesale Sales 34,398 33,617 781 2.3
Gas Retail Sales 50,988 50,209 779 1.6
Other Revenues 25,895   26,130   (235 ) (0.9 )
Total Operating Revenues 332,141   315,387   16,754   5.3  
Operating Expenses
Fuel 81,689 70,735 10,954 15.5
Purchased Energy 64,159 59,790 4,369 7.3
Transmission 3,186 2,826 360 12.7
Decrease to Reflect PPFAC/PGA Recovery Treatment (5,368 ) (2,561 ) (2,807 ) 109.6  
Total Fuel and Purchased Energy 143,666 130,790 12,876 9.8
Operations and Maintenance 89,901 94,317 (4,416 ) (4.7 )
Depreciation 36,300 34,984 1,316 3.8
Amortization 8,289 8,664 (375 ) (4.3 )
Taxes Other Than Income Taxes 14,090   12,229   1,861   15.2  
Total Operating Expenses 292,246   280,984   11,262   4.0  
Operating Income 39,895   34,403   5,492   16.0  
Other Income (Deductions)
Interest Income 10 258 (248 ) (96.1 )
Other Income 2,805 3,095 (290 ) (9.4 )
Other Expense (572 ) (466 ) (106 ) 22.7  
Total Other Income (Deductions) 2,243   2,887   (644 ) (22.3 )
Interest Expense
Long-Term Debt 18,254 19,135 (881 ) (4.6 )
Capital Leases 6,249 8,296 (2,047 ) (24.7 )
Other Interest Expense, Net of Interest Capitalized (1,068 ) 175   (1,243 ) N/M
Total Interest Expense 23,435   27,606   (4,171 ) (15.1 )
Income Before Income Taxes 18,703 9,684 9,019 93.1
Income Tax Expense 7,358   3,208   4,150   129.4  
Net Income 11,345   6,476   4,869   75.2  
Weighted-Average Shares of Common Stock Outstanding (000) 41,540   38,031   3,509   9.2  
Basic Earnings per Share $ 0.27   $ 0.17   $ 0.10   58.8  
Diluted Earnings per Share $ 0.27   $ 0.17   $ 0.10   58.8  
Dividends Declared per Share $ 0.435   $ 0.43   $ 0.005   1.2  
 

N/M—Not Meaningful

Reclassifications have been made to prior periods to conform to the current period's presentation.

 
 
               

TUCSON ELECTRIC POWER COMPANY

Comparative Condensed Consolidated Statements of Income

 
Three Months Ended
(in thousands of dollars) March 31, Increase / (Decrease)
(UNAUDITED) 2013     2012 Amount Percent
Operating Revenues
Electric Retail Sales $ 184,881 $ 166,331 $ 18,550 11.2
Electric Wholesale Sales 34,398 29,766 4,632 15.6
Other Revenues 28,472   27,881   591   2.1  
Total Operating Revenues 247,751   223,978   23,773   10.6  
Operating Expenses
Fuel 80,798 69,974 10,824 15.5
Purchased Power 18,928 13,626 5,302 38.9
Transmission 865 963 (98 ) (10.2 )
Decrease to Reflect PPFAC Recovery Treatment (2,360 ) (7,686 ) 5,326   (69.3 )
Total Fuel and Purchased Energy 98,231 76,877 21,354 27.8
Other Operations and Maintenance 77,824 82,466 (4,642 ) (5.6 )
Depreciation 28,558 27,467 1,091 4.0
Amortization 9,222 9,591 (369 ) (3.8 )
Taxes Other Than Income Taxes 11,169   9,679   1,490   15.4  
Total Operating Expenses 225,004   206,080   18,924   9.2  
Operating Income 22,747   17,898   4,849   27.1  
Other Income (Deductions)
Interest Income (4 ) 26 (30 ) (115.4 )
Other Income 2,206 2,461 (255 ) (10.4 )
Other Expense (2,245 ) (1,493 ) (752 ) 50.4  
Total Other Income (Deductions) (43 ) 994   (1,037 ) (104.3 )
Interest Expense
Long-Term Debt 14,573 13,916 657 4.7
Capital Leases 6,249 8,296 (2,047 ) (24.7 )
Other Interest Expense, Net of Interest Capitalized (853 ) 110   (963 ) N/M
Total Interest Expense 19,969   22,322   (2,353 ) (10.5 )
Income Before Income Taxes 2,735 (3,430 ) 6,165 N/M
Income Tax Expense 1,257   (1,969 ) 3,226   N/M
Net Income 1,478   (1,461 ) 2,939   N/M
 

N/M—Not Meaningful

Reclassifications have been made to prior periods to conform to the current period's presentation.

UNS Energy Corporation
Media Contact:
Joseph Barrios, 520-884-3725
Financial Analyst Contact:
Chris Norman, 520-884-3649

Source: UNS Energy Corporation

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