Arizona Corporation Commission

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Arizona Corporation Commission Natural Gas
Workshop September 8, 2005
Presented by David Hutchens, General Manager,
Fuels and Wholesale Power Joe Salkowski,
Director, Corporate Communications
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Tucson Electric Power

• 1999 Settlement capped rates through 2008
• TEP hedges its summer gas and purchased power
  exposure on a three-year forward basis (similar
  to UNS Gas)
• Minimal need for winter gas and purchased power
  to serve retail and long-term firm customers
• No mechanism to pass through fuel cost to
  customers
• Gas cost increases will not be passed through to
  customers before the end of 2008

3
UNS Electric

• Power supplied through fixed-price, full
  requirements contract with PWCC through May 2008
• Changes in gas cost dont affect the price of
  this contract
• UNS Electric incurs minimal natural gas costs for
  Valencia substation, which is used only for
  emergency load restoration or economic dispatch
  by PWCC

4
UNS Gas

• Winter gas commodity prices are currently
  projected to be in the 1.00/therm range
  (10/mmBtu)
• UNS Gas has 45 of total expected gas
  consumption hedge for the 2005/2006 Winter (Oct
  Mar)
• Fixed price hedges 0.59/therm
• Average price for winter gas commodity could be
  in the 0.80/therm range (including hedges)

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UNS GasPrice Stabilization Policy

• Part of UNS Wide Risk Control Policies
• Timeframe next 3 years in varying s
• Target fixed price hedges 45
• Utilizes trigger dates and discretionary
  purchases
• Discretionary purchases must be approved by Risk
  Management Committee
• Includes purchases made before trigger dates
• Includes purchases over 45
• Products used
• Physical gas
• Options evaluated but not currently used
• Remainder of gas is purchased at First Of Month
  and Gas Daily index

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UNS GasCurrent Hedges
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UNS GasValue of Current Hedges
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UNS Gas Cost OutreachGoals

• Provide customers with specific information about
  gas cost increases for this winter.
• Explain issues that have driven those costs
• Help customers make their winter bills more
  manageable through conservation, budget billing
  and low-income assistance programs

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UNS Gas Cost OutreachMethods

• Meetings with local government leaders
• Bill Inserts
• Press Releases
• Direct Advertising
• Proposed press conferences with ACC, local
  government representatives

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UNS Gas Cost OutreachJune 2005

• Bill inserts announcing UES expectation of
  higher gas prices this winter (at right)
• UES press release announcing volunteer
  weatherization campaign in Northern Arizona calls
  attention to benefits of weatherizing homes,
  directs readers to weatherization resources

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UNS Gas Cost OutreachJuly 2005

• Press Release July 5 UES Urges Customers to
  Prepare for Higher Winter Gas Bills
• Bill inserts promoting Budget Billing program as
  a way to make winter costs more manageable (at
  right)

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UNS Gas Cost OutreachAugust 2005

• Bill inserts promoting CARES low income program
  (as they were in March and May)
• Print and radio advertising campaign promoting
  CARES program in UES gas markets (at right)

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UNS Gas Cost OutreachAugust 2005 (continued)

• Press Release August 17 Higher Natural Gas
  Costs force UES to Seek New Surcharge
• UESAZ.com web site updated with further
  information about surcharge, gas cost issues
• Meetings and telephone conversations with local
  officials in Kingman, Lake Havasu City, Williams,
  Flagstaff, Prescott, Prescott Valley, Chino
  Valley and Santa Cruz County to discuss winter
  gas costs and pending PGA Surcharge filing

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UNS Gas Cost OutreachSeptember 2005

• Advertising campaign advising customers of higher
  winter gas prices and promoting budget billing
  (Note example at right is not the final ad)
• Bill insert notifying customers of PGA Surcharge
  Request, hearing date

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UNS Gas Cost OutreachOctober 2005

• Bill inserts promoting energy efficiency
  distributed to all customers (note example at
  right is not final insert)

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UNS Gas Cost OutreachNovember 2005

• Bill insert promoting CARES program
• Bill insert announcing updated winter gas cost
  projections and average bill impacts
• Advertising campaign advising customers of higher
  winter gas prices including the final impact of
  any adopted PGA surcharge and suggested
  responses, including conservation, low income
  assistance and Budget Billing
• Possible joint press conferences with ACC, local
  officials calling attention to higher winter
  heating costs

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UNS Gas Cost OutreachDecember 2005

• Bill inserts promoting energy efficiency
  distributed to all customers (note example at
  right is not final insert)

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UNS Gas Cost OutreachOngoing

• Customer Care Representatives offer energy saving
  tips, promote Budget Billing and billing programs
  to customers who call for assistance
• UESAZ.com Web site offers energy saving tips,
  interactive UES Energy Advisor and up to date
  information on gas cost issues and company
  programs
• Printed brochures available on request to promote
  Budget Billing, CARES and other programs

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UNS Gas Cost AssistanceBudget Billing

• Eliminates seasonal swings in gas costs by
  allowing customers to pay a fixed monthly amount
  based on an estimate of their annual gas usage
• Customers can sign up at any time
• Budget Billing amount adjusted periodically to
  account for actual usage and gas cost changes
• Easiest way for any customer to make winter gas
  costs more manageable

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UNS Gas Cost AssistanceBudget Billing
Participation
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UNS Gas Cost AssistanceCARES

• CARES (Customer Assistance Residential Energy
  Support) provides a 15 cent-per-therm discount
  for up to 100 therms of usage per month from
  November through April
• Customers whose household income does not exceed
  150 percent of the federal poverty level are
  eligible to apply
• This winter, a family of four with a monthly
  income of less than 2,420 qualifies for CARES

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UNS Gas Cost AssistanceCARES Program
Participation
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UNS Gas Cost AssistanceTotal CARES Discounts
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UNS Gas Cost AssistanceWarm Spirit

• Provides low-income customers with emergency bill
  payment assistance from funds provided through
  voluntary customer contributions and company
  funds
• UES will match customer contributions dollar for
  dollar in 2005 contribution will be timed to
  make funds available for winter months
• Program administered by local community agencies

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UNS Gas Cost AssistanceCustomer Support of Warm
Spirit
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UNS Gas Cost AssistanceLow-Income Weatherization

• Supports the efforts of local service agencies to
  help low-income customers make their homes more
  energy efficient
• Elderly and disabled receive priority for funding
• Provides up to 2,000 per home for increased
  insulation, weather stripping, furnace
  replacement and other improvements
• Program Funding Increased from 25,000 in 2003 to
  75,000 in 2004, 2005
• Augmented by volunteer weatherization efforts of
  UNS Gas Community Action Team (Five homes in
  2005)

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UNS Gas Cost AssistanceHomes Weatherized with
UES Funds, Volunteer Efforts
Figures represent best estimates based on
community group invoices
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UniSource Energy Summary

• Higher gas costs will not affect customers of TEP
  or UNS Electric this winter
• Impact of higher wholesale prices on UNS Gas
  customers has been mitigated somewhat by price
  stabilization policy for gas purchases
• UNS Gas is making proactive, continuous efforts
  to communicate with customers about gas costs and
  inform them of programs that can make their home
  heating bills more manageable