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UniSource Energy Corporation

2007 Annual Shareholders’ Meeting. UniSource Energy Corporation. Business Agenda. James S. Pignatelli Chairman. Director since 1998 Boards TEP, Chairman UniSource Energy Services Millennium Energy Holdings. Lawrence J. Aldrich. Director since 2000 Boards TEP

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UniSource Energy Corporation

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  1. 2007 Annual Shareholders’ Meeting UniSource Energy Corporation

  2. Business Agenda

  3. James S. Pignatelli Chairman • Director since 1998 • Boards • TEP, Chairman • UniSource Energy Services • Millennium Energy Holdings

  4. Lawrence J. Aldrich • Director since 2000 • Boards • TEP • UniSource Energy Services • Millennium Energy Holdings • UNS Committees • Audit • Compensation • Environmental, Safety & Security

  5. Barbara M. Baumann • Director since 2005 • Boards • TEP • UniSource Energy Services • UNS Committees • Audit, Chairperson • Compensation • Corporate Governance & Nominating

  6. Larry W. Bickle • Director since 1998 • Boards • TEP • UniSource Energy Services • Millennium Energy Holdings • UNS Committees • Finance • Environmental, Safety & Security, Chairperson

  7. Elizabeth T. Bilby • Director since 1995 • Boards • TEP • UniSource Energy Services • Millennium Energy Holdings • UNS Committees • Finance • Environmental, Safety & Security

  8. Harold W. Burlingame • Director since 1998 • Boards • TEP • UniSource Energy Services • UNS Committees • Compensation, Chairperson • Corporate Governance & • Nominating • Finance

  9. John L. Carter • Director since 1996 • Boards • UniSource Energy, Lead Director • TEP • UniSource Energy Services • Millennium Energy Holdings • UNS Committees • Audit • Compensation • Corporate Governance & • Nominating • Finance • Environmental, Safety & Security

  10. Robert A. Elliott • Director since 2003 • Boards • TEP • UniSource Energy Services • UNS Committees • Compensation • Corporate Governance & Nominating, Chairperson • Finance

  11. Daniel W.L. Fessler • Director: 1998-2003; since 2005 • Boards • TEP • UniSource Energy Services • UNS Committees • Compensation • Corporate Governance & Nominating • Environmental, Safety & Security

  12. Kenneth Handy • Director since 2001 • Boards • TEP • UniSource Energy Services • UNS Committees • Audit • Finance • Environmental, Safety & Security

  13. Warren Y. Jobe • Director since 2001 • Boards • TEP • UniSource Energy Services • UNS Committees • Audit • Corporate Governance & Nominating • Finance, Chairperson

  14. Ramiro G. Peru • Director since 2008 • Boards • TEP • UniSource Energy Services • UNS Committees • Compensation • Finance

  15. Gregory A. Pivirotto • Director since 2008 • Boards • TEP • UniSource Energy Services • UNS Committees • Audit • Corporate Governance & Nominating

  16. Joaquin Ruiz • Director since 2005 • Boards • TEP • UniSource Energy Services • UNS Committees • Audit • Compensation • Environmental, Safety & Security

  17. Officers James S. Pignatelli Michael J. DeConcini Raymond S. Heyman Kevin P. Larson Philip J. Dion III Kentton C. Grant Thomas N. Hansen Arie Hoekstra David G. Hutchens Karen G. Kissinger Steven W. Lynn Thomas A. McKenna Catherine E. Ries Herlinda H. Kennedy UniSource Energy Corporation and Tucson Electric Power Company

  18. 2007 Annual Shareholders’ Meeting UniSource Energy Corporation

  19. 2007: Stepping Up to Meet Challenges UNS TEP UES • Incurred higher fuel and purchased power costs to meet rising customer demand • Reliability challenged by severe summer storms, including flood at Irvington campus • Increased investment in system infrastructure • TEP’s long-frozen rates limited ability to recover rising costs • Rate cases underway for TEP and UNS Electric • Rate increase approved in November 2007 for UNS Gas does not cover costs of service; new case filed in February 2008 • Raised dividend for 8th consecutive year UNS Net Income (millions) $67 $67 $58 $53 $9 $9 2006 2007

  20. Total Shareholder Return Value of $100 Invested January 1, 2002 $250 UniSource Energy $237 EEI Index $212 $200 S&P 500 $176 $150 2008 Year-to-Date Returns UniSource Energy 1.8% S&P 500 (3.5%) EEI Index (4.5%) $100 $50 $0 2002 2003 2004 2005 2006 2007 YTD May 1, 2008

  21. Dividend Growth Annual Dividend Per Share $0.96* $0.90 15% Annual Growth Rate $0.84 $0.76 $0.64 $0.60 $0.50 $0.40 $0.32 2008* 2007 2000 2001 2002 2003 2004 2005 2006 * Estimated based on 1st quarter dividend of $0.24

  22. Rising Energy Demand from TEP Customers 2002-2007 Average Annual Growth Rates Change in TEP’s Average Residential rate (1%) Customer Growth 2.0% Residential Energy Use per Customer 2.5% Retail Peak Energy Use 4.7% + = Residential Use Per Customer Retail Peak Energy Use (in Megawatts) 26% Total Increase (in kWh) 13% Total Increase 2,386 2,365 11,129 2,225 10,681 10,484 2,088 2,060 10,249 10,231 1,899 9,842 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007

  23. Subsidiaries UNS Gas and UNS Electric have added a combined 27,000 customers over the last four years, increasing UES’ total customer base by 13% Annual customer growth has moderated and is expected to be 3% to 4% going forward Total capital investments of nearly $230 million since 2003 Dynamic Growth at UniSource Energy Services UES Retail Customers 13% Increase 250,000 240,000 230,000 220,000 210,000 200,000 190,000 180,000 2007 2003 2004 2005 2006

  24. Laying a Foundation for the Future TEP Capital Investments 2008-2012 $1.4 billion Environmental $102 million Distribution $532 million Generation $361 million Transmission $363 million Pinal West Substation

  25. Laying a Foundation for the Future UES Capital Investments 2008-2012 $330 million BMGS $15 million UNS Gas $120 million UNS Electric $199 million Black Mountain Generating Station

  26. TEP Seeking ACC approval of tentative settlement to pending rate case UNS Gas Request for 7% rate increase on hold 4% rate increase approved Nov. 2007 does not cover current costs of service UNS Electric Seeking a 5.5% rate increase Requesting fuel and purchased power clause to cover cost of replacing power supply contract Current rates have been frozen since August 2003 Focused on Future Rates

  27. TEP & ACC StaffTentative Settlement Agreement • 6% base rate increase over TEP’s current average retail rate • Purchased power and fuel adjustor clause • Base rates frozen until January 1, 2013 • Rates for generation based on cost-of-service methodology • Termination of 1999 Settlement Agreement

  28. Monthly Bill Comparison Average Monthly Residential Bill $116.98 $108.22 $92.53 $87.35 $82.55 TEP Current TEP Proposed APS Current APS Requested SRP Current

  29. Clean Renewable Energy Resources • TEP’s 4.6 Springerville Solar System is the most productive PV array in the Western Hemisphere • SunShare subsidies support installation of solar energy systems across Arizona • GreenWatts program has sponsored solar installations at dozens of schools, parks and public places • New Renewable Energy Standard calls for TEP and UES to secure 15% of power from renewable resources by 2025

  30. During 2007, UniSource Energy employees joined friends and family members in contributing more than 40,000 volunteer hours to local charities UniSource Energy backed employees’ efforts with more than $850,000 of direct and indirect assistance TEP’s Community Action Team was recognized with the 2007 Governor’s Volunteer Service Award Award-Winning Volunteer Program

  31. 2007 Annual Shareholders’ Meeting UniSource Energy Corporation

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