UniSource Energy Reaches Settlement in Arizona Gas and Electric Asset Purchase

UniSource Energy Corp. and Citizens Communications Co. (CCC) said Wednesday that they have reached an initial agreement with state officials that would clear the way for UniSource Energy's planned acquisition of Arizona gas and electric system assets from CCC.

While the Utilities Division Staff of the Arizona Corporation Commission (ACC) has agreed to a settlement of rates and other issues related to the proposed purchase, the agreement must still receive ACC approval. Pending that approval, the companies said the new rates will take effect once the purchase is completed, which is expected to happen in July.

Under terms of the settlement, Tucson, AZ-based UniSource Energy said a newly-formed subsidiary would acquire CCC's gas systems in Santa Cruz, Coconino, Navajo, Yavapai and Mohave Counties as well as electric systems in Santa Cruz and Mohave Counties.

"This proposed settlement represents a big step toward expanding our utility services across Arizona," said James S. Pignatelli, CEO of UniSource Energy. "If the settlement is approved, we'll be reducing previously requested rate increases while delivering the system reliability, customer service and community involvement that have become hallmarks of UniSource Energy companies."

The settlement agreement stipulates that UniSource Energy will forego approximately $135 million in compensation for increased energy costs that weren't passed along to Citizens' customers. In return, the company would receive a 22% increase in electric rates for Citizens' customers, less than half of the 45% increase CCC had requested.

Natural gas rates for Citizens' customers will also increase by 20.9% under the settlement, a significant reduction from the 29% increase requested by CCC. UniSource Energy had previously proposed a 23% increase, but the company agreed to reduce that request after discussions with ACC staff.

The settlement also called for the new UniSource Energy subsidiary to open its electric service territories to retail competition by the end of 2004. The subsidiary will also participate in Arizona's Environmental Portfolio Standard, which encourages the use of renewable energy. UniSource Energy has also agreed to look for synergies between Tucson Electric Power Co., its principal subsidiary, and the electric system in Santa Cruz County.

UniSource Energy said an administrative law judge for the ACC will review the proposed settlement during a hearing that begins May 1 in Phoenix.

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