2008-05-17 01:03:53 -

www.uesaz.com - Mohave County residents are expected to pay about 19.5 percent more for electric service from UniSource Energy Services (UES) beginning June 1 due to higher energy costs and other expenses.

An increase in the cost of buying power for customers, which UES passes along without any markup, is expected to boost average residential rates

in Mohave County by nearly 14 percent, or about $11 per month. An increase in UES' distribution rates will add another 3 percent, or $2.70 per month, to those bills.

Beginning June 1, UES also will begin collecting new fees to support renewable energy and energy efficiency programs. These two fees are expected to add a combined 2.6 percent, or about $2.15 per month, to average residential bills.

In total, these changes - which were approved by the Arizona Corporation Commission (ACC) - are expected to increase average residential rates in Mohave County by 19.5 percent, or $15.80 per month, over the next 12 months.

The bulk of the increase stems from the expiration of the company's long-term power supply contract. The contract, which has provided energy to UES customers at a cost well below today's market prices, is set to expire May 31.

"For the past few years, our UES customers have been protected from rising energy prices that have driven up electric rates across the country," said James S. Pignatelli, Chairman, President and CEO of UniSource Energy Corporation (NYSE: UNS), UES' parent company. "Now we must pay a market price for power, significantly increasing the costs we pass along to customers."

UES does not profit from higher power costs, which are passed along through the Base Power Supply Charge and the Purchased Power and Fuel Adjustment Clause (PPFAC) on customers' bills. Indeed, because the ACC imposed a cap on the PPFAC, UES does not expect to recover its full costs until long after they are incurred - creating additional expenses that will increase future rates.

"We recognize the impact that higher rates will have on our customers' budgets, particularly during a tough economy," Pignatelli said. "We also regret that customers will face even higher costs in the future due to the debt UES will incur to purchase power on their behalf."

Based on current market prices, UES expects to incur nearly $20 million in debt during the next 12 months to cover purchased power costs that exceed the PPFAC cap. Any uncollected amounts will be added to future rates along with interest charges.

UES' new electric rates will charge less for lower levels of usage, providing customers with an incentive to conserve energy. As a result, customers who use less energy will pay lower rates - and experience a lower-percentage rate increase - than those with above-average usage.

The new rates represent the first electric rate increase for UES customers since August 2003, when UniSource Energy acquired the Arizona gas and electric systems previously operated by Citizens Communications (NYSE: CZN).

To assist low-income residents, UES will continue to offer its CARES program, which provides usage-based discounts of up to $8 per month to qualified customers. The company also will solicit contributions to help local agencies provide emergency bill payment assistance through its new "Warm Spirit" program.

Expanded Energy Efficiency Programs

When the ACC approved UES' new electric rates on May 14, it added a new Demand Side Management surcharge to fund energy conservation programs. That surcharge will add about $0.47 per month, on average, to residential bills beginning June 1.

UES will expand its Energy Smart Homes program, which helps local builders offer energy efficient homes to buyers. The company also will offer new incentives for shade trees and high-efficiency HVAC units while providing more resources to help low-income customers make their homes more energy efficient. More details about these programs will be available soon.

New Renewable Energy Fee

On June 1, UES also will begin collecting a new ACC-mandated surcharge to support the development of renewable energy programs. The Renewable Energy Standard Tariff (REST) will fund UES' efforts to provide an increasing percent of its energy from renewable resources.

The surcharge, initially set at about a half-cent per kilowatt-hour (kWh), will be capped at $2 per month for residential customers, $39 per month for small businesses and $500 per month for large commercial customers. The REST will replace the Environmental Portfolio Surcharge (EPS), a similar fee that has been capped at $0.35 per month for residential customers.

A typical residential customer is expected to pay an average REST fee of $1.61 per month - a $1.26 increase over the average cost of the EPS. The average monthly fee for small business customers is expected to be $9.82, while the average large commercial customer is expected to reach the monthly cap of $500.

UniSource Energy Services, a subsidiary of UniSource Energy Corporation, provides electric service to about 90,000 customers in Santa Cruz and Mohave Counties. The company also provides natural gas service to about 146,000 customers in Mohave, Yavapai, Coconino, Navajo and Santa Cruz Counties. For more information about UES, visit uesaz.com. For more information about UniSource Energy, visit uns.com.

UniSource Energy Services, Tucson
Joe Salkowski, 520-884-3625 (News Media)
Jo Smith, 520-884-3650 (Investor)