Portland, Maine (Platts)--3Jul2007

Tucson Electric Power Monday offered Arizona regulators three approaches
for raising the utility's electric rates, which could boost annual revenue
between $117 million, or 14.9%, and $181 million, 23%, according to a Tuesday
filing with the US Securities and Exchange Commission.

     The current rates for TEP, a UniSource Energy subsidiary, are set to 
expire at the end of 2008 and since 2005 the utility has been asking the 
Arizona Corporation Commission to address its rate issues. The utility said it
believes it can charge market-based rates starting in 2009 while other Arizona
stakeholders contend that it must continue using a cost-of-service method.

     In its filing with the ACC, TEP proposed a market-based methodology,
which would determine transmission and distribution rates using
cost-of-service principles, while determining rates for generation through a
market-based proxy. This approach would lead to a 22% hike, TEP said.

     The utility also offered a traditional cost-of-service approach, which 
would cause rates to jump by 23%. In addition, TEP proposed a hybrid approach,
which would allow it to dedicate some of its generation for the wholesale
market instead of its retail customers. Rates would rise 15% under this model.

     TEP is seeking to collect $788 million in the cost-of-service methodology
so it can recover revenue it believes it has foregone under its current rate 
scheme. If the ACC decides to adopt the hybrid or cost-of-serve approach, the 
utility proposed instituting a fuel and purchased power clause that would
allow it to more quickly recoup some of its costs.