To: Editors, News Directors

Date: July 2, 2003

For: Immediate Release

Unisource Approved to Take Over Citizens Electric & Gas
New Rates Cannot Increase Again Until After August 1, 2007

PHOENIX - After months of public comment, testimony and deliberations, Arizona Corporation Commissioners reached a unanimous decision yesterday on the proposed acquisition of Citizens Communications Electric and Gas Divisions by UniSource, parent company of Tucson Electric Power.

The Commissioners characterized the case as one of the most complex and difficult matters facing the Commission. It was a challenging case because it will usher in a round of rate increases but, at the same time, customers will be served by an Arizona-based utility that plans to strengthen customer service and infrastructure throughout the areas formerly served by Citizens.

Yesterday's decision represented the conclusion of three cases that were moving through the regulatory process:

• The acquisition of Citizens' Electric and Gas Divisions by UniSource Energy Corporation, parent company of Tucson Electric Power, ACC docket E-01933A-02-0914,

• A rate case for Citizens' Gas Division, ACC Docket G-01032A-02-0598, and

• Citizens' Electric Division's request to recover costs stemming from an increase in the cost of electricity (Purchased Power Fuel Adjustor Case or PPFAC case), ACC docket E-01032C-00-0751.

While the decision results in increases for electric and gas customers, it followed years of litigation, negotiation and testimony conducted to ensure that whatever decision the Commission made, it was based on the facts.

An administrative law judge determined that a settlement agreement reached in April 2003 was reasonable and in the public interest. The judge made one change, requiring any savings resulting from the renegotiation of a power supply contract to be split 90 percent in favor of ratepayers with only 10 percent going to UniSource.

The consequences of not approving the deal, the Commissioners said, would have hurt ratepayers more. That's because UniSource agreed to buy Citizens at a reduced price. In exchange, UniSource agreed not to collect the more than $135 million sought by Citizens to reimburse it for money it already spent to buy electricity for its customers.

In reaching their decision, the Commissioners pointed out that denying the acquisition package meant that Citizens could come back to the Commission and essentially say: "Now that we don't have a buyer who is willing to take us over at a discount, we need to recover the $135 million we've already spent for increased power costs. We expect you to approve our electric rate increase of nearly 50 percent."

Major Provisions

• Electric rates will rise an average of 22 percent. Rates can go down, if UniSource successfully renegotiates its contract for electric power but no increases could take effect before August 1, 2007. Essentially, rates are capped for four years but could go down.
  
  "I am pleased that the Commissioners supported my amendment to ensure that no additional increases could take effect before August 1, 2007," Commissioner Bill Mundell said.

• Gas rates will increase approximately 21 percent. The Commissioners passed an amendment that leaves the door open for rates to go down but orders that no increases could take effect before August 1, 2007.

• The company completely forgoes collection of the Purchased Power Fuel Adjuster Clause (PPFAC) balance, which is estimated at $135 million. Without yesterday's approval, this $135 million would put direct upward pressure on rates with no offsets.
  
  "This is a very tight deal," Commissioner Mike Gleason said. "I don't like 20 percent increases either but better that than face 40 or 50 percent later."

• The company must begin efforts to renegotiate the contract between Citizens and Pinnacle West for wholesale power. If any savings can be achieved by renegotiating that contract, those savings will be split 90 percent in favor of ratepayers and 10 percent in favor of UniSource.
  
  "We want to get as much money back into the hands of ratepayers as possible," Commissioner Jeff Hatch-Miller said in support of the 90/10 split.

• The company will notify customers of all available programs that could help lower their energy bills - whether by qualifying for low-income rates, or taking advantage of levelized billing, energy conservation, renewable resource programs, net metering, time-of-use programs or any other similar programs. Notice will be provided in English and Spanish.

• UniSource will open the territory for electric competition, opening the door for customers to purchase electricity for less. Under such a scenario, transmission and distribution would be provided by UniSource but the customer could select another firm to provide the actual megawatts it needs. The company will file an application to open the market by December 31, 2003.

Areas Served by the Companies

• Citizens' Arizona Gas Division serves approximately 118,000 customers in portions of Coconino, Mohave, Navajo and Yavapai counties. Another 7,000 customers in southern Arizona are served by the Santa Cruz Gas Division.

• Citizens' Arizona Electric Division serves approximately 59,000 customers in Mohave County and 16,000 customers in Santa Cruz County.

• According to its website, UniSource is the largest corporation headquartered in southern Arizona. It is the parent company of Tucson Electric Power, a utility providing electric service to more than 350,000 customers and over 1,155 square miles in southern Arizona. The case does not affect the rates for Tucson Electric Power customers.

Comments from Commissioners

Commissioner Jeff Hatch-Miller:

"We worked hard to ensure that Citizens' customers will have more reliable energy provided by a stable, time-proven company that understands Arizona's electric and gas markets. UniSource is a locally-managed company that plans to keep its roots here. Even better, the company has a strong track record of customer service. We will work to ensure that their track record gets even better."

Commissioner Mike Gleason:

"Customers who spoke out at the public comment sessions said they did not want to pay for the company's poor business decisions. Absent this settlement agreement, Citizens would be asking for $135 million in extra costs to be spread among its customers - you folks. We heard you - if we approve this today, you will not be paying for this company's bad business decisions in the form of a 45 or 50 percent increase."