With its core utility accounting for all of the net profits, Tucson, AZ-based UniSource Energy Corp. Thursday reported second quarter results that were up slightly over the same quarter last year — $10 million, or 28 cents/basic share, compared with $9 million, or 27 cents/basic share, in the second quarter of 2005. The holding company for Tucson Electric Power Co. (TEP) also increased its 2006 full-year earnings guidance to between $1.75/basic share and $2.15/basic share.

A combination of searing heat and record peak demand, along with bringing online some new generation sources, has sparked the bullish outlook among the company’s senior executives for the rest of this year.

TEP reported second quarter earnings of $11 million, or 32 cents/basic share, compared with $12 million, or 35 cents/basic share, during the same period in 2005. Despite a $7 million reduction in interest expenses and $13 million in increased retail revenues in the most recent quarter, the utility faced offsetting higher costs and a decrease in gross margin that totaled about $9 million, leading to the lower earnings this year on a quarter-to-quarter comparison with last year’s same period.

UniSource’s other utility operations — UNS Gas and UNS Electric — reported offsetting results for the second quarter. The gas utility operations showed a $1 million net loss due to milder weather that drove down total retail sales, and the electric operations reported a profit of $1 million. The gas operations showed earnings of less than $1 million, and the electric side about $1 million of profits for the second quarter last year.

UniSource and TEP CEO James Pignatelli said energy demand has continued to increase in the third quarter on the record heat and demand. TEP reached a new peak demand level of 2,550 MW (July 21), a 6% increase from last year’s peak demand record. He said the utility has tapped new generation resources from the 190 MW Luna Generation Facility that began commercial operations last April near Deming, NM, and the 100 MW Unit #3 at Springerville Generating Station began operating late last month.

“In addition to an unplanned outage at one of our key Springerville units, we took two generators offline for scheduled maintenance in April to make sure they would be in peak operating condition for our summer high-usage season,” Pignatelli said.

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