UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): April 1, 2003
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification Number
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1-13739 UNISOURCE ENERGY CORPORATION 86-0786732
(An Arizona Corporation)
One South Church, Suite 100
Tucson, AZ 85701
(520) 571-4000
1-5924 TUCSON ELECTRIC POWER COMPANY 86-0062700
(An Arizona Corporation)
One South Church, Suite 100
Tucson, AZ 85701
(520) 571-4000
Item 5. Other Events
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On April 1, 2003, UniSource Energy Corporation (UniSource Energy) and
Citizens Communications Company (Citizens) reached a proposed settlement
agreement (Settlement Agreement) with the Arizona Corporation Commission
Staff addressing rate case and financing issues in the planned acquisition by
UniSource Energy of the Citizens Arizona gas and electric assets. If the ACC
approves the Settlement Agreement, the changes in rates and financing
approvals will take effect once the acquisition is completed, which is
expected to occur in July 2003. The acquisition has not yet been approved by
the Federal Energy Regulatory Commission or the Securities and Exchange
Commission.
Under the terms of the Settlement Agreement, UniSource Energy will form
one or more wholly-owned subsidiaries to own and operate the acquired assets
(collectively, the New Companies) and it may also form an intermediate
holding company to finance and own the New Companies.
The Settlement Agreement includes the resolution of two pending rate
issues before the ACC: (1) a gas utility base rate case and (2) a review of
the electric utility purchase power and fuel adjustment clause. The
Settlement Agreement provides for a 20.9 percent increase in gas rates
compared with the 29 percent increase requested by Citizens. Because
UniSource Energy is acquiring the gas utility assets at a discounted purchase
price, the amount of rate recovery required is less than under the Citizens
rate case. The gas utility rate case also takes into account a $10 million
permanent reduction to the gas rate base due to a disallowance for certain
capital expenditures for gas infrastructure, thereby reducing the revenue
level to be recovered from ratepayers. In addition, the Settlement Agreement
allows for a 22 percent increase in electric utility rates, compared with the
45 percent requested by Citizens. The allowed electric rate increase
represents the full recovery in rates of the costs of a long-term purchase
power contract on a going forward basis. At the same time, UniSource Energy
agreed to forfeit the collection of approximately $135 million in deferred
purchased power costs under the same contract that had been incurred by
Citizens but had not been collected from Citizens' customers. If the
Settlement Agreement is approved, the revised electric and gas tariffs would
be effective upon the completion of the acquisition. The Settlement
Agreement also imposes a general rate case moratorium for a period of three
years from the date the ACC approves the settlement order.
The financing provisions of the Settlement Agreement authorize the New
Companies to issue new debt and equity securities to fund the acquisition of
the Citizens gas and electric assets and to provide for initial working
capital requirements. The Settlement Agreement also authorizes UniSource
Energy's wholly-owned subsidiary, Tucson Electric Power Company (TEP), to
loan up to $50 million to UniSource Energy to fund the purchase. In
addition, the Settlement Agreement waives the existing requirement that 30
percent of the proceeds of public stock issuance be invested in TEP, so long
as the purpose of the equity issuance is to help finance the Citizens
purchase.
The Settlement Agreement limits dividends from the New Companies to 75
percent of earnings until equity capitalization of 40 percent is attained.
The Settlement Agreement also modifies TEP's dividend limitation. Currently,
TEP may not pay dividends in excess of 75 percent of its earnings until
equity capitalization of 37.5 percent is attained. Under the Settlement
Agreement, equity capitalization of 40 percent must be attained by TEP to
exceed the dividend limitation.
The Settlement Agreement is subject to the review and approval of the
ACC and may be amended or supplemented prior to, or in conjunction with, the
approval. An administrative law judge for the ACC will review the Settlement
Agreement during a hearing that begins May 1, 2003. UniSource Energy expects
that the ACC will approve a settlement agreement by June or July 2003.
Item 7. Financial Statements and Exhibits
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Exhibit 99 Settlement Agreement - UniSource Energy Corporation's
Acquisition of Citizens Communication Company's Gas
and Electric Utility Assets.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized. The signature for each
undersigned company shall be deemed to relate only to matters having
reference to such company or its subsidiary.
UNISOURCE ENERGY CORPORATION
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(Registrant)
Date: April 11, 2003 /s/ Kevin P. Larson
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Kevin P. Larson
Vice President and Principal
Financial Officer
TUCSON ELECTRIC POWER COMPANY
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(Registrant)
Date: April 11, 2003 /s/ Kevin P. Larson
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Kevin P. Larson
Vice President and Principal
Financial Officer
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