UNS Energy Reports Third Quarter 2012 Earnings, Narrows 2012 Earnings Guidance Range

  • UNS Energy’s net income for the third quarter of 2012 was $50.7 million, or $1.21 per share of common stock on a fully-diluted basis, compared with net income of $59.7 million, or $1.46 per diluted share in the third quarter of 2011. For the nine months ended September 30, 2012, UNS Energy’s net income was $83.4 million, or $2.03 per diluted share, compared with net income of $101.8 million, or $2.53 per diluted share, in the same period last year.
  • UNS Energy’s primary subsidiary, Tucson Electric Power Company (TEP), reported net income of $44.6 million in the third quarter of 2012 compared with $53.9 million in the third quarter of 2011. TEP’s results were negatively affected by: (i) a 3.6 percent decrease in retail sales volumes due in part to mild weather compared with last year; and (ii) higher depreciation and amortization expense related to an increase in utility infrastructure investments.
  • Third quarter 2012 results include a $1.1 million after-tax loss related to an unplanned outage at a power plant that TEP operates on behalf of another party. Financial results in the third quarter of 2011 include a $4.5 million after-tax gain related to the settlement of a transmission dispute by TEP.
  • Net income and earnings per share for the third quarter of 2012 were consistent with expectations. UNS Energy is narrowing its 2012 earnings guidance range to $2.15 to $2.30 per diluted share.

TUCSON, Ariz.--()--UNS Energy Corporation (NYSE: UNS) today reported third quarter 2012 net income of $50.7 million, or $1.21 per diluted share of common stock, compared with net income of $59.7 million, or $1.46 per diluted share in the same period last year.

TEP reported net income of $44.6 million for the third quarter of 2012, 17 percent below net income of $53.9 million in the third quarter of 2011.

“Although earnings continue to be pressured by TEP’s retail rate freeze, our operating performance remains strong. We expect to hold full year operating and maintenance expenses at the same level as 2009 while maintaining a high level of reliability and safety,” said Paul Bonavia, UNS Energy’s Chairman and Chief Executive Officer. “Our power plants ran exceptionally well this summer and our safety record to date is outstanding.”

A 2008 settlement agreement approved by the Arizona Corporation Commission (ACC) will keep TEP’s non-fuel base retail rates unchanged until TEP’s pending rate request is finalized and approved in 2013. During this rate freeze period, TEP’s retail sales volumes have remained virtually unchanged due to general economic conditions and energy efficiency requirements passed by the ACC. In order to partially mitigate the effect of stagnant energy demand on UNS Energy’s financial performance, the company successfully aligned operating expenses with retail energy sales through the implementation of new operating efficiencies and cost containment measures.

However, TEP faces cost pressures associated with capital investments in order to maintain safe and reliable service that are not reflected in current retail rates. In July 2012, TEP submitted an application with the ACC seeking its first non-fuel base rate increase since 2008. The filing requests a non-fuel base rate increase of approximately $128 million, or 15 percent, to be effective no later than August 1, 2013.

Tucson Electric Power

Retail kWh Sales and Revenues

TEP’s retail kWh sales decreased by 3.6 percent in the third quarter, due in part to a 12.2 percent decline in cooling degree days compared with the third quarter of 2011. The decrease in retail sales volumes led to a 4.0 percent, or $7.3 million, decrease in TEP’s retail margin revenues compared with the third quarter of 2011.

Other Operating Expenses

TEP’s base O&M expense was $1.2 million lower than the third quarter of 2011. Base O&M excludes costs directly offset by customer surcharges and third-party reimbursements. In the third quarter of 2012, depreciation and amortization expense increased by $2.3 million as a result of additional plant-in-service compared with the same period last year.

Other Factors

TEP’s third quarter 2012 results include an after-tax loss of approximately $1.1 million related to an unplanned outage at Springerville Unit 3, a power plant that TEP operates on behalf of another company. Results in the third quarter of 2011 include an after-tax gain of approximately $4.5 million related to the settlement of a transmission dispute.

Year-to-Date Results

In the first nine months of 2012, TEP reported net income of $65.0 million compared with net income of $83.8 million in the same period last year. That decrease was due to: lower retail and long-term wholesale margin revenues; higher depreciation and amortization expense; a loss recorded in the first nine months of 2012 related to the operation of Springerville Unit 3, described above; and the gain recorded in the first nine months of 2011 related to the settlement of a dispute, described above.

UNS Gas and UNS Electric

UNS Gas reported a net loss of less than $1 million in the third quarters of 2012 and 2011.

UNS Electric reported net income of $6.4 million in the third quarter of 2012 compared with $7.0 million in the third quarter of 2011. The decrease was due to: lower retail kWh sales due in part to a 5.5 percent decline in cooling degree days; and higher depreciation and amortization expense related to an increase in net plant in service.

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.

             
Net Income and Earnings Per Share Summary
     
3rd Quarter YTD September 30,
Net Income       2012     2011       2012     2011
-Millions- -Millions-
Tucson Electric Power $ 44.6 $ 53.9 $ 65.0 $ 83.8
UNS Gas (0.4 ) (0.7 ) 5.1 5.8
UNS Electric 6.4 7.0 13.7 14.4

Other (1)

        0.1         (0.5 )         (0.4 )       (2.2 )
Net Income       $ 50.7       $ 59.7         $ 83.4       $ 101.8  
 
Avg. Basic Shares Outstanding (Millions) 41.4 37.1 40.0 36.9
Avg. Diluted Shares Outstanding (Millions) 41.9 41.8 41.7 41.6
 
3rd Quarter YTD September 30,
Earnings Per UNS Energy Share       2012     2011       2012     2011
Tucson Electric Power $ 1.08 $ 1.45 $ 1.63 $ 2.27
UNS Gas (0.01 ) (0.02 ) 0.13 0.16
UNS Electric 0.15 0.19 0.34 0.39
Other (1)         0.00         (0.01 )         (0.01 )       (0.06 )
Net Income Per Basic Share       $ 1.22       $ 1.61         $ 2.09       $ 2.76  
Net Income Per Diluted Share       $ 1.21       $ 1.46         $ 2.03       $ 2.53  
 

(1) Includes UNS Energy on a stand-alone basis and results from Millennium Energy Holdings, Inc. and UniSource Energy Development, both 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.

Conference Call and Webcast

The company will host a conference call on Friday, November 2, 2012 at 1 p.m. ET. 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 also can be heard live online at uns.com.

A telephone replay will be available for seven days.

Replay number: (800) 633-8284
Reference code: 21609581

In conjunction with this earnings announcement, UNS Energy provided additional information on its performance during the third quarter of 2012. These materials were filed with the Securities and Exchange Commission and are also available at uns.com.

UNS Energy 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 405,000 customers in southern Arizona, and UniSource Energy Services, provider of natural gas and electric service for about 240,000 customers in northern and southern Arizona. Visit uns.com for more information about UNS Energy and its subsidiaries.

This release contains forward-looking information that involves risks and uncertainties, including factors that could affect UNS Energy's ability to reach the 2012 earnings guidance. 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 postretirement 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 2012 RESULTS
 
Condensed Consolidated Statements of Income Three Months Ended
(in Thousands of Dollars, Except Per Share Amounts) September 30, Increase / (Decrease)
(UNAUDITED)       2012     2011       Amount     Percent
 
Operating Revenues
Electric Retail Sales $ 353,473 $ 363,385 $ (9,912 ) (2.7 )
Electric Wholesale Sales 32,494 41,847 (9,353 ) (22.4 )
Gas Revenue 15,407 16,831 (1,424 ) (8.5 )
Other Revenues         35,887         28,884           7,003       24.2  
Total Operating Revenues         437,261         450,947           (13,686 )     (3.0 )
 
Operating Expenses
Fuel 92,873 98,962 (6,089 ) (6.2 )
Purchased Energy 60,238 88,734 (28,496 ) (32.1 )
Transmission 4,500 (1,354 ) 5,854 N/M
Increase (Decrease) to Reflect PPFAC/PGA Recovery Treatment         18,076         (3,576 )         21,652       N/M  
Total Fuel and Purchased Energy 175,687 182,766 (7,079 ) (3.9 )
Other Operations and Maintenance 98,346 90,781 7,565 8.3
Depreciation 35,145 33,553 1,592 4.7
Amortization 9,069 7,882 1,187 15.1
Taxes Other Than Income Taxes         12,605         12,205           400       3.3  
Total Operating Expenses         330,852         327,187           3,665       1.1  
Operating Income         106,409         123,760           (17,351 )     (14.0 )
 
Other Income (Deductions)
Interest Income 340 1,919 (1,579 ) (82.3 )
Other Income 1,726 1,678 48 2.9
Other Expense         (886 )       (1,412 )         526       37.3  
Total Other Income (Deductions)         1,180         2,185           (1,005 )     (46.0 )
 
Interest Expense
Long-Term Debt 17,074 17,945 (871 ) (4.9 )
Capital Leases 8,507 10,248 (1,741 ) (17.0 )
Other Interest Expense, Net of Interest Capitalized         233         (88 )         321       N/M  
Total Interest Expense         25,814         28,105           (2,291 )     (8.2 )
 
Income Before Income Taxes 81,775 97,840 (16,065 ) (16.4 )
Income Tax Expense         31,111         38,128           (7,017 )     (18.4 )
 
Net Income       $ 50,664       $ 59,712         $ (9,048 )     (15.2 )
 
Weighted-Average Shares of Common Stock Outstanding (000)         41,446         37,053           4,393       11.9  
 
Basic Earnings per Share       $ 1.22       $ 1.61         $ (0.39 )     (24.2 )
 
Diluted Earnings per Share       $ 1.21       $ 1.46         $ (0.25 )     (17.1 )
 
Dividends Declared per Share       $ 0.43       $ 0.42         $ 0.01       2.4  
 
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.
 
 
                   
UNS ENERGY 2012 RESULTS
 
Condensed Consolidated Statements of Income Nine Months Ended
(in Thousands of Dollars, Except Per Share Amounts) September 30, Increase / (Decrease)
(UNAUDITED)       2012     2011       Amount     Percent
 
Operating Revenues
Electric Retail Sales $ 850,975 $ 856,216 $ (5,241 ) (0.6 )
Electric Wholesale Sales 98,282 121,506 (23,224 ) (19.1 )
Gas Revenue 85,621 99,041 (13,420 ) (13.5 )
Other Revenues         88,427         88,624           (197 )     (0.2 )
Total Operating Revenues         1,123,305         1,165,387           (42,082 )     (3.6 )
 
Operating Expenses
Fuel 245,933 252,103 (6,170 ) (2.4 )
Purchased Energy 174,891 233,344 (58,453 ) (25.1 )
Transmission 10,738 4,612 6,126 N/M
Decrease to Reflect PPFAC/PGA Recovery Treatment         29,730         (5,174 )         34,904       N/M  
Total Fuel and Purchased Energy 461,292 484,885 (23,593 ) (4.9 )
Other Operations and Maintenance 283,587 281,888 1,699 0.6
Depreciation 105,319 99,653 5,666 5.7
Amortization 26,845 22,513 4,332 19.2
Taxes Other Than Income Taxes         37,385         36,579           806       2.2  
Total Operating Expenses         914,428         925,518           (11,090 )     (1.2 )
Operating Income         208,877         239,869           (30,992 )     (12.9 )
 
Other Income (Deductions)
Interest Income 981 3,739 (2,758 ) (73.8 )
Other Income 5,729 7,155 (1,426 ) (19.9 )
Other Expense         (1,761 )       (2,830 )         1,069       37.8  
Total Other Income (Deductions)         4,949         8,064           (3,115 )     (38.6 )
 
Interest Expense
Long-Term Debt 53,811 54,240 (429 ) (0.8 )
Capital Leases 25,105 30,108 (5,003 ) (16.6 )
Other Interest Expense, Net of Interest Capitalized         66         (1,118 )         1,184       N/M  
Total Interest Expense         78,982         83,230           (4,248 )     (5.1 )
 
Income Before Income Taxes 134,844 164,703 (29,859 ) (18.1 )
Income Tax Expense         51,430         62,916           (11,486 )     (18.3 )
 
Net Income       $ 83,414       $ 101,787         $ (18,373 )     (18.1 )
 
Weighted-Average Shares of Common Stock Outstanding (000)         39,983         36,930           3,053       8.3  
 
Basic Earnings Per Share       $ 2.09       $ 2.76         $ (0.67 )     (24.3 )
 
Diluted Earnings Per Share       $ 2.03       $ 2.53         $ (0.50 )     (19.8 )
 
Dividends Declared Per Share       $ 1.29       $ 1.26         $ 0.03       2.4  
 
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.
 
 
 
TUCSON ELECTRIC POWER COMPANY 2012 RESULTS
                   
Condensed Consolidated Statements of Income Three Months Ended
(in Thousands of Dollars) September 30, Increase / (Decrease)
(UNAUDITED)       2012     2011       Amount     Percent
 
Operating Revenues
Electric Retail Sales $ 302,893 $ 308,924 $ (6,031 ) (2.0 )
Electric Wholesale Sales 25,448 29,608 (4,160 ) (14.1 )
Other Revenues         38,569         31,313           7,256       23.2  
Total Operating Revenues         366,910         369,845           (2,935 )     (0.8 )
 
Operating Expenses
Fuel 88,402 95,977 (7,575 ) (7.9 )
Purchased Power 27,576 40,509 (12,933 ) (31.9 )
Transmission 1,914 (4,266 ) 6,180 N/M
Increase (Decrease) to Reflect PPFAC Recovery Treatment         20,025         1,115           18,910       N/M  
Total Fuel and Purchased Energy 137,917 133,335 4,582 3.4
Other Operations and Maintenance 86,942 79,837 7,105 8.9
Depreciation 27,644 26,541 1,103 4.2
Amortization 10,001 8,798 1,203 13.7
Taxes Other Than Income Taxes         10,327         9,855           472       4.8  
Total Operating Expenses         272,831         258,366           14,465       5.6  
Operating Income         94,079         111,479           (17,400 )     (15.6 )
 
Other Income (Deductions)
Interest Income 28 1,666 (1,638 ) (98.3 )
Other Income 1,553 229 1,324 N/M
Other Expense         (1,965 )       (2,754 )         789       28.6  
Total Other Income (Deductions)         (384 )       (859 )         475       55.3  
 
Interest Expense
Long-Term Debt 13,268 12,081 1,187 9.8
Capital Leases 8,507 10,248 (1,741 ) (17.0 )
Other Interest Expense, Net of Interest Capitalized         201         (44 )         245       N/M  
Total Interest Expense         21,976         22,285           (309 )     (1.4 )
 
Income Before Income Taxes 71,719 88,335 (16,616 ) (18.8 )
Income Tax Expense         27,150         34,423           (7,273 )     (21.1 )
 
Net Income       $ 44,569       $ 53,912         $ (9,343 )     (17.3 )
 
 
Three Months Ended
Tucson Electric Power September 30, Increase / (Decrease)
Electric MWh Sales:       2012     2011       Amount     Percent
Retail Sales 2,877,504 2,985,792 (108,288 ) (3.6 )
Long-Term Wholesale Sales         165,589         230,611           (65,022 )     (28.2 )
 
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.
 
 
                   
TUCSON ELECTRIC POWER COMPANY 2012 RESULTS
 
Condensed Consolidated Statements of Income Nine Months Ended
(in Thousands of Dollars) September 30, Increase / (Decrease)
(UNAUDITED)       2012     2011       Amount     Percent
 
Operating Revenues
Electric Retail Sales $ 716,993 $ 714,278 $ 2,715 0.4
Electric Wholesale Sales 77,488 96,623 (19,135 ) (19.8 )
Other Revenues         95,826         93,765           2,061       2.2  
Total Operating Revenues         890,307         904,666           (14,359 )     (1.6 )
 
Operating Expenses
Fuel 237,930 246,563 (8,633 ) (3.5 )
Purchased Power 62,064 84,189 (22,125 ) (26.3 )
Transmission 4,277 (2,339 ) 6,616 N/M
Decrease to Reflect PPFAC Recovery Treatment         25,150         (5,146 )         30,296       N/M  
Total Fuel and Purchased Energy 329,421 323,267 6,154 1.9
Other Operations and Maintenance 248,092 246,423 1,669 0.7
Depreciation 82,656 78,124 4,532 5.8
Amortization 29,621 25,282 4,339 17.2
Taxes Other Than Income Taxes         30,325         29,803           522       1.8  
Total Operating Expenses         720,115         702,899           17,216       2.4  
Operating Income         170,192         201,767           (31,575 )     (15.6 )
 
Other Income (Deductions)
Interest Income 97 2,983 (2,886 ) (96.7 )
Other Income 4,860 4,597 263 5.7
Other Expense         (5,084 )       (7,751 )         2,667       34.4  
Total Other Income (Deductions)         (127 )       (171 )         44       25.7  
 
Interest Expense
Long-Term Debt 40,562 36,493 4,069 11.2
Capital Leases 25,105 30,107 (5,002 ) (16.6 )
Other Interest Expense, Net of Interest Capitalized         (43 )       (881 )         838       95.1  
Total Interest Expense         65,624         65,719           (95 )     (0.1 )
 
Income Before Income Taxes 104,441 135,877 (31,436 ) (23.1 )
Income Tax Expense         39,423         52,104           (12,681 )     (24.3 )
 
Net Income       $ 65,018       $ 83,773         $ (18,755 )     (22.4 )
 
 
Nine Months Ended
Tucson Electric Power September 30, Increase / (Decrease)
Electric MWh Sales:       2012     2011       Amount     Percent
Retail Sales 7,235,527 7,272,091 (36,564 ) (0.5 )
Long-Term Wholesale Sales         492,446         668,995           (176,549 )     (26.4 )
 
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.

Contacts

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

Release Summary

UNS Energy Corp. reports third quarter 2012 earnings, narrows 2012 earnings guidance range as operating performance remains strong.

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Contacts

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