UniSource Energy Reports 2011 Earnings, Increases Quarterly Dividend, And Issues Earnings Guidance For 2012

UniSource Energy Corporation (NYSE: UNS) today reported 2011 net income of $110 million, or $2.75 per share of common stock on a fully diluted basis, compared with $113 million, or $2.86 per diluted share in 2010.

“Our financial results in 2011 were consistent with our expectations,” said Paul Bonavia, UniSource Energy’s Chairman and CEO. “Providing safe, reliable service to our customers remains our number one priority, and we took several important steps during the year to strengthen the operational performance and improve the long-term financial position of our utility companies.”

UniSource Energy and its utility subsidiaries completed various financing activities during 2011 that strengthened the companies’ balance sheets, enhanced liquidity, and reduced exposure to variable rate debt. The companies invested in infrastructure improvements that will enhance reliability and increase operational flexibility.

“TEP is in the fourth year of a base-rate freeze,” said Bonavia. “Frozen rates and an economy in the very early stages of recovery will constrain our financial performance in 2012,” Bonavia said. “We will continue to focus on operational efficiencies to maintain tight control of our costs.”

UniSource Energy’s earnings for 2012 are estimated to be in the range of $2.05 to $2.35 per diluted share. The mid-point of the range assumes consolidated base operations and maintenance (O&M) expense of $270 million, which is the same level of base O&M expense recorded in 2011. TEP’s estimated retail kWh sales in 2012, which assume normal weather patterns, are expected to be approximately 0.7 percent below 2011 sales. Cooling degree days during 2011 were 3.7 percent above normal.

Under the terms of TEP’s last settlement agreement, approved by the Arizona Corporation Commission (ACC) in November 2008, the company can file a rate case on or after July 1, 2012. The parties to the 2008 settlement committed to using best efforts to implement new rates within 13 months of the filing date.

“We are focusing our efforts on completing TEP’s rate case application, which we intend to file with the ACC this summer. We look forward to working with the commission, its staff, and our community to reach an outcome that enhances the long-term financial and operating stability of TEP,” Bonavia said.

Common Stock Dividend

UniSource Energy’s board of directors declared a first quarter dividend for common shareholders of 43 cents per share. The dividend will be paid on March 22, 2012 to common shareholders of record as of March 12, 2012. In 2011, the company’s quarterly dividend was 42 cents per share.

The board’s long-term targeted dividend payout ratio range is 60 percent to 70 percent of UniSource Energy’s net income.

The declaration of dividend payments is at the board’s sole discretion and is subject to numerous factors that ordinarily affect dividend policy, including the results of UniSource Energy’s operations and its financial position as well as general economic and business conditions.

Tucson Electric Power

Retail kWh Sales and Revenues

TEP’s retail kilowatt-hour (kWh) sales in 2011 increased 0.4 percent from 2010 levels. Although the weather in TEP’s service area was hotter than normal, there were 1.0 percent fewer cooling degree days than in 2010. Sales volumes to residential customers increased 0.5 percent, while kWh sales to TEP’s commercial and industrial customers increased by 0.5 percent and 0.3 percent, respectively. Sales to TEP’s mining customers increased by 0.3 percent in 2011 compared with 2010. TEP’s retail customer base grew by 0.4 percent, or approximately 1,500 customers, during 2011.

Despite the increase in retail sales volumes, TEP’s retail margin revenues did not change compared with 2010. The sluggish economy led some of TEP’s large industrial customers to alter their energy usage patterns in order to reduce the demand charge on their electric bills. Retail margin revenues do not include customer surcharges used to fund renewable energy and energy efficiency programs or charges to cover fuel and purchased power costs.

Long-Term Wholesale and Transmission Revenues

In 2011, the margin on long-term wholesale sales of electricity was $13 million compared with $28 million in 2010. The decrease reflects a pricing change in TEP’s largest wholesale contract that took effect in June 2011. Wholesale revenues from the sale of transmission services were $16 million in 2011 compared with $21 million in 2010. The decrease is related to the sale of short-term transmission services in 2010 that did not recur in 2011.

Other Operating Expenses

TEP’s 2011 base O&M expense of $237 million increased by $9 million compared with 2010. Base O&M excludes costs directly offset by customer surcharges and third-party reimbursements. The increase reflects the impact of higher planned generation maintenance outage expense.

Depreciation and amortization expense increased by $8 million primarily due to new plant additions.

Other Items

TEP’s 2011 results include a $4 million after-tax gain related to the settlement of a transmission dispute.

Results in 2010 include a $2 million after-tax loss related to the settlement of a dispute over transactions with the California Power Exchange.

UNS Gas

UNS Gas reported net income of $10 million in 2011 compared with $9 million in 2010. The increase resulted from colder winter weather in 2011 as well as the full-year impact of a 2 percent non-fuel base-rate increase that took effect in April 2010.

Hearings before an ACC administrative law judge regarding UNS Gas’ pending rate case concluded in February 2012. UNS Gas supports the ACC staff’s proposal, which includes a base-rate increase of $2.7 million and a fixed-cost recovery rate mechanism designed to mitigate the erosion of revenues resulting from the ACC’s energy efficiency rules. UNS Gas expects the ACC to issue a final ruling on this case in the second quarter of this year.

UNS Electric

UNS Electric reported net income of $18 million in 2011 compared with $16 million in 2010. The increase is due primarily to the full-year impact of a 4 percent non-fuel base-rate increase that took effect October 1, 2010.

UNS Electric’s 2010 results include a $2 million after-tax gain related to a settlement with Arizona Public Service related to transactions with the California Power Exchange.

Millennium

Millennium recorded net income of approximately $2 million due in part to interest on a note receivable. In 2010, Millennium recorded a $13 million net loss related to the write-off of deferred tax assets and impairment losses related to its investments.

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 prices, which include higher rates 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 records the majority of its net income during the first and fourth quarters.
                       
Net Income and Earnings Per Share Summary
4th Quarter Full Year
Net Income       2011       2010       2011       2010
-Millions- -Millions-
Tucson Electric Power $ 1.6 $ 10.1 $ 85.3 $ 108.3
UNS Gas 4.3 3.3 10.2 8.6
UNS Electric 3.3 3.4 17.7 15.5
Other Non-Reportable Segments and Adjustments (1)         (1.0 )         (5.5 )         (3.2 )         (19.4 )
Net Income       $ 8.2         $ 11.3         $ 110.0         $ 113.0  
Avg. Basic Shares Outstanding (millions) 37.1 36.7 37.0 36.4
Avg. Diluted Shares Outstanding (millions) 37.4 41.4 41.6 41.0
 
4th Quarter Full Year
Earnings Per UniSource Energy Share       2011       2010       2011       2010
Tucson Electric Power $ 0.04 $ 0.28 $ 2.31 $ 2.97
UNS Gas 0.12 0.09 0.27 0.24
UNS Electric 0.09 0.09 0.48 0.43
Other Non-Reportable Segments and Adjustments (1)         (0.03 )         (0.15 )         (0.08 )         (0.54 )
Net Income per Basic Share       $ 0.22         $ 0.31         $ 2.98         $ 3.10  
Net Income per Diluted Share       $ 0.22         $ 0.30         $ 2.75         $ 2.86  
 
(1) Includes: UniSource Energy on a stand-alone basis; consolidating adjustments; and results from Millennium and UniSource Energy Development.
 

UniSource Energy believes the presentation of TEP, UNS Gas, UNS Electric, and Millennium 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 or losses.

Conference Call and Webcast

The company will host a conference call on Monday, February 27 at 11 a.m. EST to discuss the financial results and outlook. To participate in the call, please dial in 5 to 10 minutes prior to the start time.

Dial-in number: (877) 582-0446Reference code: 55207232

The conference call can be heard live on UniSource Energy’s website. The webcast can be accessed at uns.com and will be available for replay for seven days.

Replay number: (800) 642-1687Reference code: 55207232

In conjunction with this earnings announcement, UniSource Energy has provided detailed information on its performance during 2011 and outlook for 2012. These materials have been filed with the Securities and Exchange Commission and are also available at uns.com.

UniSource Energy is a Tucson, Arizona-based company with consolidated assets of approximately $4.0 billion. UniSource Energy's primary subsidiaries include Tucson Electric Power, which serves more than 404,000 customers in southern Arizona; and UniSource Energy Services, provider of natural gas and electric service for about 239,000 customers in northern and southern Arizona. For more information about UniSource Energy and its subsidiaries, visit uns.com.

This release contains forward-looking information that involves risks and uncertainties, including factors that could affect UniSource Energy's ability to reach 2012 earnings guidance. These factors include: state and federal regulatory and legislative decisions and actions, including environmental legislation and renewable energy requirements; regional economic and market conditions that 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 energy supplies; performance of TEP's generating plants; 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 2011 RESULTS
 
UniSource Energy Corporation
Consolidated Statements of Income Years Ended
(in thousands of dollars, except per share amounts) December 31, Increase / (Decrease)
(UNAUDITED)       2011     2010       Amount     Percent
 
Operating Revenues
Electric Retail Sales $ 1,085,822 $ 1,051,002 $ 34,820 3.3
Electric Wholesale Sales 163,159 151,962 11,197 7.4
California Power Exchange (CPX) Provision for Wholesale Refunds - (2,970 ) 2,970 N/M
Gas Revenue 145,053 141,036 4,017 2.8
Other Revenues         115,481         112,936           2,545       2.3  
Total Operating Revenues         1,509,515         1,453,966           55,549       3.8  
 
Operating Expenses
Fuel 324,520 295,652 28,868 9.8
Purchased Energy 307,423 307,288 135 0.0
Transmission 7,334 10,945 (3,611 ) (33.0 )
Decrease to Reflect PPFAC/PGA Recovery Treatment         (4,932 )       (29,622 )         24,690       83.4  
Total Fuel and Purchased Energy 634,345 584,263 50,082 8.6
Other Operations and Maintenance 379,220 370,037 9,183 2.5
Depreciation 133,832 128,215 5,617 4.4
Amortization 30,983 28,094 2,889 10.3
Taxes Other Than Income Taxes         49,463         46,243           3,220       7.0  
Total Operating Expenses         1,227,843         1,156,852           70,991       6.1  
Operating Income         281,672         297,114           (15,442 )     (5.2 )
 
Other Income (Deductions)
Interest Income 4,568 7,779 (3,211 ) (41.3 )
Other Income 8,293 11,038 (2,745 ) (24.9 )
Other Expense         (5,249 )       (15,202 )         9,953       65.5  
Total Other Income (Deductions)         7,612         3,615           3,997       N/M  
 
Interest Expense
Long-Term Debt 73,217 65,020 8,197 12.6
Capital Leases 40,359 46,740 (6,381 ) (13.7 )
Other Interest Expense 2,535 1,651 884 53.5
Interest Capitalized         (3,753 )       (2,587 )         (1,166 )     (45.1 )
Total Interest Expense         112,358         110,824           1,534       1.4  
 
Income Before Income Taxes 176,926 189,905 (12,979 ) (6.8 )
Income Tax Expense         66,951         76,921           (9,970 )     (13.0 )
 
Net Income       $ 109,975       $ 112,984         $ (3,009 )     (2.7 )
 
Weighted-Average Shares of Common Stock Outstanding (000)
 
Basic         36,962         36,415           547       1.5  
 
Diluted         41,609         41,041           568       1.4  
 
Earnings per Share
 
Basic       $ 2.98       $ 3.10         $ (0.12 )     (3.9 )
 
Diluted       $ 2.75       $ 2.86         $ (0.11 )     (3.8 )
 
Dividends Declared per Share       $ 1.68       $ 1.56         $ 0.12       7.7  
 
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.
 
 
                   
UNISOURCE ENERGY 2011 RESULTS
 
UniSource Energy Corporation
Consolidated Statements of Income Three Months Ended
(in thousands of dollars, except per share amounts) December 31, Increase / (Decrease)
(UNAUDITED)       2011     2010       Amount     Percent
 
Operating Revenues
Electric Retail Sales

$

229,606
$ 226,288 $ 3,318 1.5
Electric Wholesale Sales 41,653 49,565 (7,912 ) (16.0 )
Gas Revenue 46,012 44,438 1,574 3.5
Other Revenues         26,857         36,882           (10,025 )     (27.2 )
Total Operating Revenues         344,128         357,173           (13,045 )     (3.7 )
 
Operating Expenses
Fuel 72,417 76,460 (4,043 ) (5.3 )
Purchased Energy 74,079 64,003 10,076 15.7
Transmission 2,722 2,257 465 20.6
Increase to Reflect PPFAC/PGA Recovery Treatment         242         4,638           (4,396 )     (94.8 )
Total Fuel and Purchased Energy 149,460 147,358 2,102 1.4
Other Operations and Maintenance 97,332 111,058 (13,726 ) (12.4 )
Depreciation 34,179 32,442 1,737 5.4
Amortization 8,470 7,297 1,173 16.1
Taxes Other Than Income Taxes         12,884         10,684           2,200       20.6  
Total Operating Expenses         302,325         308,839           (6,514 )     (2.1 )
Operating Income         41,803         48,334           (6,531 )     (13.5 )
 
Other Income (Deductions)
Interest Income 829 1,888 (1,059 ) (56.1 )
Other Income 1,138 1,704 (566 ) (33.2 )
Other Expense         (2,420 )       (5,842 )         3,422       58.6  
Total Other Income (Deductions)         (453 )       (2,250 )         1,797       79.9  
 
Interest Expense
Long-Term Debt 18,977 18,036 941 5.2
Capital Leases 10,251 11,616 (1,365 ) (11.8 )
Other Interest Expense 607 1,281 (674 ) (52.6 )
Interest Capitalized         (707 )       (1,004 )         297       29.6  
Total Interest Expense         29,128         29,929           (801 )     (2.7 )
 
Income Before Income Taxes 12,222 16,155 (3,933 ) (24.3 )
Income Tax Expense         4,035         4,903           (868 )     (17.7 )
 
Net Income       $ 8,187       $ 11,252         $ (3,065 )     (27.2 )
 
Weighted-Average Shares of Common Stock Outstanding (000)
 
Basic         37,055         36,696           359       1.0  
 
Diluted         37,381         41,396           (4,015 )     (9.7 )
 
Earnings per Share
 
Basic       $ 0.22       $ 0.31         $ (0.09 )     (29.0 )
 
Diluted       $ 0.22       $ 0.30         $ (0.08 )     (26.7 )
 
Dividends Declared per Share       $ 0.42       $ 0.39         $ 0.03       7.7  
 
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.
 
 
                   
TUCSON ELECTRIC POWER COMPANY 2011 RESULTS
 
TUCSON ELECTRIC POWER COMPANY
Consolidated Statements of Income Years Ended
(in thousands of dollars) December 31, Increase / (Decrease)
(UNAUDITED)       2011     2010       Amount     Percent
 
Operating Revenues
Electric Retail Sales $ 903,930 $ 868,188 $ 35,742 4.1
Electric Wholesale Sales 129,861 141,103 (11,242 ) (8.0 )
California Power Exchange (CPX) Provision for Wholesale Refunds - (2,970 ) 2,970 N/M
Other Revenues         122,595         118,946           3,649       3.1  
Total Operating Revenues         1,156,386         1,125,267           31,119       2.8  
 
Operating Expenses
Fuel 318,268 284,744 33,524 11.8
Purchased Power 105,766 118,716 (12,950 ) (10.9 )
Transmission (1,435 ) 3,254 (4,689 ) N/M
Decrease to Reflect PPFAC Recovery Treatment         (6,165 )       (21,541 )         15,376       71.4  
Total Fuel and Purchased Energy 416,434 385,173 31,261 8.1
Other Operations and Maintenance 330,801 316,625 14,176 4.5
Depreciation 104,894 99,510 5,384 5.4
Amortization 34,650 32,196 2,454 7.6
Taxes Other Than Income Taxes         40,226         37,732           2,494       6.6  
Total Operating Expenses         927,005         871,236           55,769       6.4  
Operating Income         229,381         254,031           (24,650 )     (9.7 )
 
Other Income (Deductions)
Interest Income 3,567 6,707 (3,140 ) (46.8 )
Other Income 5,693 6,629 (936 ) (14.1 )
Other Expense         (12,037 )       (11,506 )         (531 )     (4.6 )
Total Other Income (Deductions)         (2,777 )       1,830           (4,607 )     N/M  
 
Interest Expense
Long-Term Debt 49,858 42,378 7,480 17.7
Capital Leases 40,358 46,734 (6,376 ) (13.6 )
Other Interest Expense 1,127 433 694 N/M
Interest Capitalized         (2,073 )       (1,880 )         (193 )     (10.3 )
Total Interest Expense         89,270         87,665           1,605       1.8  
 
Income Before Income Taxes 137,334 168,196 (30,862 ) (18.3 )
Income Tax Expense         52,000         59,936           (7,936 )     (13.2 )
 
Net Income       $ 85,334       $ 108,260         $ (22,926 )     (21.2 )
 
 
Electric MWh Sales:                            
Retail Sales 9,332,107 9,291,788 40,319 0.4
Long-Term Wholesale Sales         902,139         987,957           (85,818 )     (8.7 )
 
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.
 
 
                   
TUCSON ELECTRIC POWER COMPANY 2011 RESULTS
 
TUCSON ELECTRIC POWER COMPANY
Consolidated Statements of Income Three Months Ended
(in thousands of dollars) December 31, Increase / (Decrease)
(UNAUDITED)       2011     2010       Amount     Percent
 
Operating Revenues
Electric Retail Sales $ 189,652 $ 182,866 $ 6,786 3.7
Electric Wholesale Sales 33,238 44,106 (10,868 ) (24.6 )
Other Revenues         28,829         37,880           (9,051 )     (23.9 )
Total Operating Revenues         251,719         264,852           (13,133 )     (5.0 )
 
Operating Expenses
Fuel 71,705 74,901 (3,196 ) (4.3 )
Purchased Power 21,577 12,816 8,761 68.4
Transmission 904 436 468 N/M
Increase (Decrease) to Reflect PPFAC Recovery Treatment         (1,019 )       1,482           (2,501 )     N/M  
Total Fuel and Purchased Energy 93,167 89,635 3,532 3.9
Other Operations and Maintenance 84,378 96,961 (12,583 ) (13.0 )
Depreciation 26,770 25,367 1,403 5.5
Amortization 9,368 8,233 1,135 13.8
Taxes Other Than Income Taxes         10,423         8,829           1,594       18.1  
Total Operating Expenses         224,106         229,025           (4,919 )     (2.1 )
Operating Income         27,613         35,827           (8,214 )     (22.9 )
 
Other Income (Deductions)
Interest Income 584 1,596 (1,012 ) (63.4 )
Other Income 1,096 2,278 (1,182 ) (51.9 )
Other Expense         (4,285 )       (4,154 )         (131 )     (3.2 )
Total Other Income (Deductions)         (2,605 )       (280 )         (2,325 )     N/M  
 
Interest Expense
Long-Term Debt 13,365 12,123 1,242 10.2
Capital Leases 10,251 11,616 (1,365 ) (11.8 )
Other Interest Expense 381 867 (486 ) (56.1 )
Interest Capitalized         (446 )       (673 )         227       33.7  
Total Interest Expense         23,551         23,933           (382 )     (1.6 )
 
Income Before Income Taxes 1,457 11,614 (10,157 ) (87.5 )
Income Tax Expense (Benefit)         (104 )       1,489           (1,593 )     N/M  
 
Net Income       $ 1,561       $ 10,125         $ (8,564 )     (84.6 )
 
 
Electric MWh Sales:                            
Retail Sales 2,060,016 2,042,740 17,276 0.8
Long-Term Wholesale Sales         233,144         260,487           (27,343 )     (10.5 )
 
N/M - Not Meaningful
Reclassifications have been made to prior periods to conform to the current period's presentation.

Copyright Business Wire 2010

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