UniSource Energy Reports Third Quarter Earnings for 2005
The unplanned, four-week outage of a 380-megawatt generator serving Tucson Electric Power (TEP), UniSource Energy's largest subsidiary, and charges related to mark-to-market adjustments on forward energy sales contributed to lower earnings this past quarter.
The outage of Unit 2 at TEP's coal-fired Springerville Generating Station (SGS) reduced TEP's utility gross margin (the sum of retail and wholesale electric revenues less fuel and purchased power expense) by $14 million due to replacement power costs and lost wholesale sales opportunities.
"The outage occurred during a period of high energy use by TEP customers, so our replacement power costs were significant," said James S. Pignatelli, chairman, president and CEO of UniSource Energy.
"We've fully repaired the damage and addressed the control system malfunction that caused it," Pignatelli said. "So we're well positioned to take advantage of higher market power prices by capitalizing on wholesale sales opportunities at a time when moderate weather leads to lower energy use by TEP's retail customers."
TEP's pre-tax unrealized losses increased $8 million due to forward energy sales made before Gulf Coast hurricanes drove up wholesale power prices. Because those contracts are now priced below market, TEP recorded a negative mark-to-market adjustment. This adjustment will be reversed when TEP delivers that energy in the fourth quarter of 2005 and the first six months of 2006.
UniSource Energy Services, which provides gas and electric service in northern and southern Arizona through subsidiaries UNS Gas and UNS Electric, reported earnings of $0.2 million during the third quarter of 2005, compared to earnings of $0.4 million from the same period last year.
Tucson Electric Power Co.
TEP reported earnings for the third quarter of 2005 of $20.4 million, or $0.58 per basic UniSource Energy share, compared with earnings of $26.2 million, or $0.76 per basic share, during the same period last year.
Factors impacting TEP's third quarter 2005 results include:
-- a $16.2 million increase in retail revenues due to warmer weather and the expansion of TEP's customer base, which grew to 382,325 by the end of the third quarter -- a 3 percent increase from the same period last year. Those gains were offset by higher replacement power costs and unrealized losses recorded on forward energy sales, leading to a $27.1 million decline in utility gross margin;
-- a $5.6 million reduction in interest expense due to a financial restructuring completed earlier this year; and
-- a $4.2 million gain from the sale of excess sulfur dioxide (SO2) emissions allowances.
Other factors affecting TEP's third quarter earnings include lower depreciation expense resulting from the extension of depreciation lives of various generation assets as of July 2004 and April 2005, and higher expenses related to amortization of the Transition Recovery Asset (TRA).
UNS Gas
UNS Gas reported a net loss in the third quarter of 2005 of $2.1 million, compared with a net loss of $1.8 million during the same period last year.
Retail therm sales for the quarter decreased 1.2 percent over last year due to warmer weather in northern Arizona. UNS Gas' retail customer base grew to 136,207 by the end of the third quarter, a 4.4 percent increase from the same period last year.
UNS Electric
UNS Electric reported earnings for the third quarter of 2005 of $2.3 million, compared with earnings of $2.2 million for the third quarter of 2004.
Warmer weather and customer growth led to a 6 percent increase in kilowatt hour sales compared with the same period last year. UNS Electric's customer base grew to 88,362 customers, a 4.9 percent increase over the same period last year.
Millennium Energy Holdings
Millennium Energy Holdings, a subsidiary that oversees UniSource Energy's unregulated investments, reported a net loss of $0.4 million during this past quarter, compared with a loss of $1.4 million from the same period last year.
Year to Date
UniSource Energy's consolidated year-to-date earnings through Sept. 30, 2005, were $24.1 million, or $0.69 per basic share of common stock. During the same period last year, UniSource Energy reported earnings of $43.0 million, or $1.25 per basic share.
Earnings Per Basic Share Summary
Year-to-Date
3rd Quarter Sept. 30,
Net Income (Loss) - In Millions 2005 2004 2005 2004
---------------------------------------------------------------------
TEP $20.4 $26.2 $27.8 $45.0
UNS Gas (2.1) (1.8) 2.2 1.6
UNS Electric 2.3 2.2 3.7 4.2
MEH(1) (0.4) (1.4) (4.9) (2.7)
Other(2) (1.8) (1.4) (4.7) (5.1)
---------------------------------------------------------------------
UniSource Energy Consolidated $18.4 $23.8 $24.1 $43.0
=====================================================================
Year-to-Date
3rd Quarter Sept. 30,
Per Basic UniSource Energy Share 2005 2004 2005 2004
---------------------------------------------------------------------
TEP $0.58 $0.76 $0.80 $1.31
UNS Gas (0.06) (0.05) 0.06 0.05
UNS Electric 0.07 0.06 0.11 0.12
MEH(1) (0.01) (0.04) (0.14) (0.08)
Other(2) (0.05) (0.04) (0.14) (0.15)
---------------------------------------------------------------------
UniSource Energy Consolidated $0.53 $0.69 $0.69 $1.25
=====================================================================
Avg. Basic Shares Outstanding
(millions) 34.9 34.4 34.8 34.3
(1) Includes net losses from Global Solar of: $1.6 million in the
third quarters of 2005 and 2004; $4.9 million in the first nine
months of 2005; and $4.0 million in the first nine months of 2004.
(2) Includes: for 2005, UniSource Energy stand-alone; and for 2004,
also includes income and losses from UniSource Energy Development.
UniSource Energy believes that the presentation of TEP, UNS Gas, UNS Electric, Millennium, and Other segment net income or loss on a per basic UniSource 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 UniSource Energy's reported earnings.
Earnings Outlook
UniSource Energy's management reaffirms its estimate given on Sept. 8, 2005, that 2005 full-year earnings will be between $1.30 and $1.60 per basic share.
Numerous factors can affect UniSource Energy's ability to reach the 2005 estimate. The factors include, but are not limited to: changes in accounting standards; uncertainties prevailing in the wholesale power market; regulatory decisions; performance of TEP's generating plants; the weather; the pace and strength of the economic recovery in the region; fuel and purchased power expense; changes to long-term contracts; changes in asset depreciable lives; and the amount of losses incurred by Millennium.
UniSource Energy's earnings are subject to its utilities' seasonal energy sales. Generally, TEP records a significant portion of its earnings during the third quarter as a result of peak energy usage during the summer.
Third Quarter 2005 Earnings Discussion
UniSource Energy officials will discuss the company's third quarter 2005 earnings on Friday, Nov. 4, beginning at 11 a.m. EST in a conference call that will be available live on the Internet. James S. Pignatelli, UniSource Energy chairman, president and chief executive officer, and Kevin P. Larson, senior vice president and chief financial officer, will host the call.
Telephone Access
To listen to the live conference call, dial 877-582-0446 five to 10 minutes prior to the event and reference confirmation code 1733759. A telephone replay will be available for seven days starting Nov. 4. To listen to the replay, dial 800-642-1687 and reference confirmation code 1733759.
Internet Access
A live audio-only webcast of the conference call is available through a link at www.uns.com. Listeners are encouraged to visit the Web site at least 30 minutes before the event to register, download and install any necessary audio software. A recording of the webcast will be available for 30 days through a link at uns.com.
UniSource Energy's primary subsidiaries include Tucson Electric Power, which serves more than 380,000 customers in southern Arizona; UniSource Energy Services, provider of natural gas and electric service for more than 224,000 customers in northern and southern Arizona; and Millennium Energy Holdings, parent company of UniSource Energy's unregulated energy businesses. For more information about UniSource Energy and its subsidiaries, visit uns.com.
This news release contains forward-looking information that involves risks and uncertainties, that include, but are not limited to: changes in accounting standards; the outcome of regulatory proceedings; the ongoing restructuring of the electric industry; regional economic and market conditions which could affect customer growth and the cost of fuel and power supplies; changes to long-term contracts; performance of TEP's generating plants; the weather; changes in asset depreciable lives; changes related to the recognition of unbilled revenue; the cost of debt and equity capital; and other factors listed in UniSource 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 UniSource Energy.
UNISOURCE ENERGY 2005 RESULTS
UniSource Energy Corp.
Condensed Consolidated Statements of Income
Three
(in thousands of dollars, Months Ended Increase/(Decrease)
except per share amounts) Sept. 30, -------------------
(UNAUDITED) 2005 2004 Amount Percent
---------------------------------------------------------------------
Operating Revenues
Electric Retail Sales $296,003 $277,089 $18,914 6.8
Electric Wholesale Sales 30,830 37,310 (6,480) (17.4)
Gas Revenue 16,231 15,812 419 2.6
Other Revenues 6,188 5,098 1,090 21.4
---------------------------------------------------------------------
Total Operating
Revenues 349,252 335,309 13,943 4.2
---------------------------------------------------------------------
Operating Expenses
Fuel 66,510 63,514 2,996 4.7
Purchased Energy 105,982 69,749 36,233 51.9
Other Operations and
Maintenance 52,827 58,332 (5,505) (9.4)
Depreciation and
Amortization 33,878 36,372 (2,494) (6.9)
Amortization of
Transition Recovery
Asset 20,242 19,112 1,130 5.9
Taxes Other Than Income
Taxes 10,305 12,769 (2,464) (19.3)
---------------------------------------------------------------------
Total Operating
Expenses 289,744 259,848 29,896 11.5
---------------------------------------------------------------------
Operating Income 59,508 75,461 (15,953) (21.1)
---------------------------------------------------------------------
Other Income (Deductions)
Interest Income 4,657 5,006 (349) (7.0)
Other Income 3,261 1,330 1,931 N/M
Other Expense (25) (298) 273 91.6
---------------------------------------------------------------------
Total Other Income
(Deductions) 7,893 6,038 1,855 30.7
---------------------------------------------------------------------
Interest Expense
Long-Term Debt 18,002 19,549 (1,547) (7.9)
Interest on Capital
Leases 20,078 20,792 (714) (3.4)
Loss on Reacquired Debt - 204 (204) N/M
Other Interest Expense,
Net of Amounts
Capitalized (12) 56 (68) N/M
---------------------------------------------------------------------
Total Interest Expense 38,068 40,601 (2,533) (6.2)
---------------------------------------------------------------------
Income Before Income Taxes 29,333 40,898 (11,565) (28.3)
Income Tax Expense 10,936 17,099 (6,163) (36.0)
---------------------------------------------------------------------
Net Income $18,397 $23,799 $(5,402) (22.7)
=====================================================================
Weighted-average Shares of
Common Stock Outstanding
(000) 34,915 34,434 481 1.4
=====================================================================
Basic Earnings per Share $0.53 $0.69 $(0.16) (23.2)
=====================================================================
Diluted Earnings per Share $0.49 $0.68 $(0.19) (27.9)
=====================================================================
Dividends Declared per
Share $0.19 $0.16 $0.03 18.8
=====================================================================
Three
Months Ended Increase/(Decrease)
Tucson Electric Power Sept. 30, -------------------
Electric MWh Sales: 2005 2004 Amount Percent
---------------------------------------------------------------------
Retail Sales 2,828,827 2,655,193 173,634 6.5
Wholesale Sales 659,776 727,140 (67,364) (9.3)
---------------------------------------------------------------------
Total 3,488,603 3,382,333 106,270 3.1
=====================================================================
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the
current period's presentation.
UNISOURCE ENERGY 2005 RESULTS
UniSource Energy Corp.
Condensed Consolidated Statements of Income
Nine
(in thousands of dollars, Months Ended Increase/(Decrease)
except per share amounts) Sept. 30, -------------------
(UNAUDITED) 2005 2004 Amount Percent
---------------------------------------------------------------------
Operating Revenues
Electric Retail Sales $699,378 $675,508 $23,870 3.5
Electric Wholesale Sales 107,881 121,199 (13,318) (11.0)
Gas Revenue 88,838 84,825 4,013 4.7
Other Revenues 14,676 13,942 734 5.3
---------------------------------------------------------------------
Total Operating Revenues 910,773 895,474 15,299 1.7
---------------------------------------------------------------------
Operating Expenses
Fuel 169,664 166,303 3,361 2.0
Purchased Energy 239,286 184,838 54,448 29.5
Other Operations and
Maintenance 175,567 178,320 (2,753) (1.5)
Depreciation and
Amortization 102,046 108,068 (6,022) (5.6)
Amortization of Transition
Recovery Asset 43,865 39,712 4,153 10.5
Taxes Other Than Income
Taxes 36,314 38,491 (2,177) (5.7)
---------------------------------------------------------------------
Total Operating Expenses 766,742 715,732 51,010 7.1
---------------------------------------------------------------------
Operating Income 144,031 179,742 (35,711) (19.9)
---------------------------------------------------------------------
Other Income (Deductions)
Interest Income 14,694 14,888 (194) (1.3)
Other Income 6,064 9,271 (3,207) (34.6)
Other Expense (2,267) (2,900) 633 21.8
---------------------------------------------------------------------
Total Other Income
(Deductions) 18,491 21,259 (2,768) (13.0)
---------------------------------------------------------------------
Interest Expense
Long-Term Debt 58,098 61,064 (2,966) (4.9)
Interest on Capital Leases 59,225 60,901 (1,676) (2.8)
Loss on Reacquired Debt 5,261 1,839 3,422 N/M
Other Interest Expense, Net
of Amounts Capitalized (732) (487) (245) (50.3)
---------------------------------------------------------------------
Total Interest Expense 121,852 123,317 (1,465) (1.2)
---------------------------------------------------------------------
Income Before Income Taxes 40,670 77,684 (37,014) (47.6)
Income Tax Expense 16,588 34,663 (18,075) (52.1)
---------------------------------------------------------------------
Net Income $24,082 $43,021 $(18,939) (44.0)
=====================================================================
Weighted-average Shares of
Common Stock Outstanding
(000) 34,786 34,347 439 1.3
=====================================================================
Basic Earnings per Share $0.69 $1.25 $(0.56) (44.8)
=====================================================================
Diluted Earnings per Share $0.68 $1.23 $(0.55) (44.7)
=====================================================================
Dividends Declared per Share $0.57 $0.48 $0.09 18.8
=====================================================================
Nine
Months Ended Increase/(Decrease)
Tucson Electric Power Sept. 30, -------------------
Electric MWh Sales: 2005 2004 Amount Percent
---------------------------------------------------------------------
Retail Sales 6,897,412 6,642,001 255,411 3.8
Wholesale Sales 2,175,145 2,551,994 (376,849) (14.8)
---------------------------------------------------------------------
Total 9,072,557 9,193,995 (121,438) (1.3)
=====================================================================
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the
current period's presentation.
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