UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549


                                 FORM 10-Q

  (Mark One)
     [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                    THE SECURITIES EXCHANGE ACT OF 1934

               For The Quarterly Period Ended March 31, 2001

                                    OR

     [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                    THE SECURITIES EXCHANGE ACT OF 1934

         For the transition period from __________ to __________.



                  Registrant; State of
   Commission     Incorporation; Address;               IRS Employer
   File Number    and Telephone Number                  Identification Number
  ------------    -----------------------               ---------------------

   1-13739        UNISOURCE ENERGY CORPORATION          86-0786732
                  (An Arizona Corporation)
                  One South Church Avenue, Suite 100
                  Tucson, AZ  85701
                  (520) 571-4000

   1-5924         TUCSON ELECTRIC POWER COMPANY         86-0062700
                  (An Arizona Corporation)
                  One South Church Avenue, Suite 100
                  Tucson, AZ  85701
                  (520) 571-4000


      Indicate  by  check mark whether each registrant (1)  has  filed  all
reports  required  to  be filed by Section 13 or 15(d)  of  the  Securities
Exchange  Act  of 1934 during the preceding 12 months (or for such  shorter
period that the registrant was required to file such reports), and (2)  has
been subject to such filing requirements for the past 90 days.
Yes X  No ___

      At  May  4, 2001, 33,310,398 shares of UniSource Energy Corporation's
Common  Stock,  no  par  value  (the  only  class  of  Common  Stock)  were
outstanding.

     UniSource Energy Corporation is the holder of 32,139,434 shares of the
outstanding Common Stock of Tucson Electric Power Company.


<PAGE>
---------------------------------------------------------------------------

This combined Form 10-Q is separately filed by UniSource Energy Corporation
and  Tucson Electric Power Company.  Information contained in this document
relating  to  Tucson  Electric Power Company is filed by  UniSource  Energy
Corporation  and  separately by Tucson Electric Power Company  on  its  own
behalf.   Tucson  Electric  Power Company makes  no  representation  as  to
information  relating to UniSource Energy Corporation or its  subsidiaries,
except as it may relate to Tucson Electric Power Company.


                              TABLE OF CONTENTS

                                                                        Page
                                                                        ----
Definitions............................................................. iv
Report of Independent Accountants.........................................1

                        PART I - FINANCIAL INFORMATION

Item 1. -- Financial Statements
  UniSource Energy Corporation
    Comparative Condensed Consolidated Statements of Income...............2
    Comparative Condensed Consolidated Statements of Cash Flows...........3
    Comparative Condensed Consolidated Balance Sheets.....................4
    Condensed Consolidated Statement of Changes in
      Stockholders' Equity................................................5
  Tucson Electric Power Company
    Comparative Condensed Consolidated Statements of Income (Loss)........6
    Comparative Condensed Consolidated Statements of Cash Flows...........7
    Comparative Condensed Consolidated Balance Sheets.....................8
    Condensed Consolidated Statement of Changes in
      Stockholders' Equity................................................9
  Notes to Condensed Consolidated Financial Statements
  Note 1. Regulatory Accounting..........................................10
  Note 2. Accounting for Derivative Instruments and Hedging
            Activities...................................................10
  Note 3. Millennium Energy Businesses...................................11
  Note 4. Business Segments..............................................14
  Note 5. Commitments and Contingencies..................................14
  Note 6. Wholesale Accounts Receivable and Allowances...................15
  Note 7. Income Taxes...................................................16
  Note 8. Review by Independent Accountants..............................17
  Note 9. Reclassifications..............................................17

Item 2. -- Management's Discussion and Analysis of Financial
  Condition and Results of Operations
  Overview...............................................................18
  Factors Affecting Results of Operations
    Competition
      Retail.............................................................19
      Wholesale..........................................................20
    Western Energy Markets...............................................21
    Regulatory Matters...................................................23
    Market Risks.........................................................23
    Future Generating Resources..........................................25
  Results of Operations..................................................26
  Results of Millennium Energy Businesses................................29
  Dividends on Common Stock..............................................29
  Liquidity and Capital Resources
    Cash Flows
      UniSource Energy...................................................30
      TEP................................................................30

<PAGE>

                                 TABLE OF CONTENTS
                                   (concluded)


  Investing and Financing Activities
      UniSource Energy...................................................31
      TEP................................................................31
      Millennium -- Unregulated Energy Businesses........................31
  Safe Harbor for Forward-Looking Statements.............................32

Item 3. -- Quantitative and Qualitative Disclosures About
  Market Risk............................................................33

                           PART II - OTHER INFORMATION

Item 1. -- Legal Proceedings.............................................34
Item 5. -- Other Information
  Additional Financial Data..............................................34
Item 6. -- Exhibits and Reports on Form 8-K..............................34
Signature Page...........................................................35
Exhibit Index............................................................36


<PAGE>

                                  DEFINITIONS

The abbreviations and acronyms used in the 2001 First Quarter Form 10-Q are
defined below:
----------------------------------------------------------------------------

ACC.......................  Arizona Corporation Commission.
ACC Holding Company
  Order...................  The order approved by the ACC in November 1997
                              allowing TEP to form a holding company.
AISA......................  Arizona Independent Scheduling Administrator
                              Association, a temporary organization required
                              by the ACC Retail Electric Competition Rules.
AMT.......................  Alternative Minimum Tax.
CDWR......................  California Department of Water Resources.
CISO......................  California Independent System Operator.
Common Stock..............  UniSource Energy's common stock, without
                              par value.
Company or UniSource
  Energy..................  UniSource Energy Corporation.
CPX.......................  California Power Exchange.
Credit Agreement..........  Credit Agreement between TEP and the banks,
                              dated as of December 30, 1997.
Desert STAR...............  The ISO formed in the southwestern United
                              States, in which TEP is a participant.
ESP.......................  Energy Service Provider.
FAS 71....................  Statement of Financial Accounting Standards
                              No. 71: Accounting for the Effects of Certain
                              Types of Regulation.
FAS 133...................  Statement of Financial Accounting Standards
                              No. 133: Accounting for Derivative Instruments
                              and Hedging Activities.
FERC......................  Federal Energy Regulatory Commission.
First Mortgage Bonds......  First mortgage bonds issued under the First
                              Mortgage Indenture, dated as of April 1, 1941,
                              of Tucson Gas, Electric Light and Power
                              Company to the Chase National Bank of the City
                              of New York, as trustee, as supplemented
                              and amended.
GAAP......................  Generally Accepted Accounting Principles.
GES.......................  Global Energy Solutions, Inc., which owns 100%
                              of Global Solar and Infinite Power Solutions.
Global Solar..............  Global Solar Energy, Inc., a wholly-owned
                              subsidiary of GES, which develops and
                              manufactures thin-film photovoltaic cells.
Heating Degree Days.......  Calculated by subtracting the average of the
                              high and low daily temperatures from 65.
Infinite Power Solutions..  A developer of thin-film batteries which is
                              wholly-owned by GES.
IRS.......................  Internal Revenue Service.
ISO.......................  Independent System Operator.
ITC.......................  Investment tax credit.
ITN.......................  ITN Energy Systems, Inc., a Colorado Corporation.
kWh.......................  Kilowatt-hour(s).
MEH.......................  MEH Corporation, a wholly-owned subsidiary of
                              Millennium, which formerly held a 50% interest
                              in NewEnergy.
MicroSat..................  MicroSat Systems, Inc., a company owned 49% by
                              Millenium and 51% by ITN, which was formed to
                              develop and commercialize small-scale
                              satellites.
Millennium................  Millennium Energy Holdings, Inc., a wholly-owned
                              subsidiary of UniSource Energy.
MW........................  Megawatt(s).
MWh.......................  Megawatt-hour(s).
Nations Energy............  Nations Energy Corporation, a wholly-owned
                              subsidiary of Millennium and holder of
                              interests in independent power projects in
                              Curacao and Panama.
NewEnergy.................  NewEnergy, Inc., formerly New Energy Ventures,
                              Inc., a company in which a 50% interest was
                              owned by MEH.
NOL.......................  Net Operating Loss carryback or carryforward for
                              income tax purposes.
NTUA......................  Navajo Tribal Utility Authority.
PDES......................  Phelps Dodge Energy Services.
PG&E......................  Pacific Gas and Electric Company.

<PAGE>

                                  DEFINITIONS
                                  (concluded)

Revolving Credit
  Facility...............  $100 million revolving credit facility entered
                              into under the Credit Agreement between a
                              syndicate of banks and TEP.
RTO.......................  Regional Transmission Organization.
Rules.....................  Retail Electric Competition Rules.
SCE.......................  Southern California Edison Company.
Settlement Agreement......  TEP's Settlement Agreement approved by the ACC
                              in November 1999 which provided for electric
                              retail competition and transition asset
                              recovery.
Springerville.............  Springerville Generating Station.
Springerville Common
  Facilities..............  Facilities at Springerville used in common with
                              Springerville Unit 1 and Springerville Unit 2.
Springerville Unit 1......  Unit 1 of the Springerville Generating Station.
Springerville Unit 1
  Lease...................  Leveraged lease arrangement relating to
                              Springerville Unit 1 and an undivided one-half
                              interest in certain Springerville Common
                              Facilities.
TEP.......................  Tucson  Electric Power Company, the principal
                              subsidiary of UniSource Energy.
UniSource Energy..........  UniSource Energy Corporation.


<PAGE>

                     REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of
UniSource Energy Corporation and
to the Board of Directors of
Tucson Electric Power Company


We  have reviewed the accompanying condensed consolidated balance sheets of
UniSource Energy Corporation and its subsidiaries (the Company) and  Tucson
Electric Power Company and its subsidiaries (TEP) as of March 31, 2001  and
the  related condensed consolidated statements of income (loss) and of cash
flows for each of the three-month periods ended March 31, 2001 and 2000 and
the condensed consolidated statements of  changes in  stockholders'  equity
for the three-month period ended March 31, 2001. These financial statements
are the responsibility of the Company's and TEP's management.

We  conducted our reviews in accordance with standards established  by  the
American  Institute of Certified Public Accountants.  A review  of  interim
financial   information   consists  principally  of   applying   analytical
procedures  to  financial data and making inquiries of persons  responsible
for  financial and accounting matters.  It is substantially less  in  scope
than  an  audit  conducted in accordance with generally  accepted  auditing
standards, the objective of which is the expression of an opinion regarding
the  financial statements taken as a whole.  Accordingly, we do not express
such an opinion.

Based  on our reviews, we are not aware of any material modifications  that
should be made to the accompanying condensed consolidated interim financial
statements  for  them  to  be  in  conformity  with  accounting  principles
generally accepted in the United States of America.

We  previously  audited  in  accordance with auditing  standards  generally
accepted  in the United States of America, the consolidated balance  sheets
and statements of capitalization of the Company and TEP as of December  31,
2000, and the  related  consolidated  statements of  income,  of changes in
stockholders'  equity,  and  of  cash  flows  for the year then  ended (not
presented herein), and in our report dated  February 1, 2001  we  expressed
an   unqualified  opinion  on  those   consolidated   financial statements.
In our opinion,  the  information set forth in the  accompanying  condensed
consolidated  balance  sheet  information as of December 31, 2000 is fairly
stated  in  all material respects in relation to  the  consolidated balance
sheets from which it has been derived.



PricewaterhouseCoopers LLP
Los Angeles, California
May 4, 2001


<PAGE>


                        PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

The weather causes seasonal fluctuations in UniSource Energy's sales. As a
result, quarterly results are not indicative of annual operating results. The
quarterly financial statements that follow are unaudited but reflect all
normal recurring accruals and other adjustments which we believe are
necessary for a fair presentation of the results for the interim periods
presented. Also see Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations. This quarterly report should
be reviewed in conjunction with UniSource Energy's 2000 Form 10-K.


UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                       Three Months Ended
                                                            March 31,
                                                         2001       2000
                                                           (Unaudited)
----------------------------------------------------------------------------
                                                    -Thousands of Dollars-
Operating Revenues
 Electric Retail Sales                              $  134,677  $  131,290

 Electric Sales for Resale:
  Electric Sales for Resale Delivered                  143,687      44,780
  Unrealized Gain (Loss) on Forward Sales              (39,767)          -
----------------------------------------------------------------------------
   Total Electric Sales for Resale                     103,920      44,780

 Other                                                   2,609       1,409
----------------------------------------------------------------------------
  Total Operating Revenues                             241,206     177,479
----------------------------------------------------------------------------
Operating Expenses
 Fuel                                                   70,951      43,549

 Purchased Power:
  Purchased Power Received                              46,372      16,991
  Unrealized (Gain) Loss on Forward Purchases          (42,459)          -
----------------------------------------------------------------------------
   Total Purchased Power                                 3,913      16,991

 Other Operations                                       40,424      31,765
 Maintenance and Repairs                                12,179       8,344
 Depreciation and Amortization                          28,698      27,456
 Amortization of Transition Recovery Asset               2,346         903
 Taxes Other Than Income Taxes                          11,873      12,414
 Income Taxes                                           13,572      (1,998)
----------------------------------------------------------------------------
  Total Operating Expenses                             183,956     139,424
----------------------------------------------------------------------------
   Operating Income                                     57,250      38,055
----------------------------------------------------------------------------
Other Income (Deductions)
 Income Taxes                                           (1,244)       (286)
 Interest Income                                         3,915       3,233
 Other Income (Deductions)                              (1,184)      1,700
----------------------------------------------------------------------------
  Total Other Income (Deductions)                        1,487       4,647
----------------------------------------------------------------------------
Interest Expense
 Long-Term Debt                                         15,772      16,874
 Interest on Capital Leases                             22,706      23,265
 Other Interest Expense                                  1,464       2,321
----------------------------------------------------------------------------
  Total Interest Expense                                39,942      42,460
----------------------------------------------------------------------------
Income Before Cumulative Effect of Accounting Change    18,795         242

Cumulative Effect of Accounting Change - Net of Tax        470           -
----------------------------------------------------------------------------

Net Income                                          $   19,265  $      242
============================================================================
Average Shares of Common Stock Outstanding (000)        33,266      32,374
============================================================================
Basic Earnings per Share
 Income Before Cumulative Effect of Accounting Change    $0.57       $0.01
 Cumulative Effect of Accounting Change - Net of Tax     $0.01           -
 Net Income                                              $0.58       $0.01
============================================================================
Diluted Earnings per Share
 Income Before Cumulative Effect of Accounting Change    $0.56       $0.01
 Cumulative Effect of Accounting Change - Net of Tax     $0.01           -
 Net Income                                              $0.57       $0.01
============================================================================
See Notes to Condensed Consolidated Financial Statements.


<PAGE>


UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                       Three Months Ended
                                                            March 31,
                                                         2001       2000
                                                           (Unaudited)
----------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Cash Flows from Operating Activities
 Cash Receipts from Electric Retail Sales           $  157,671  $  153,005
 Cash Receipts from Electric Sales for Resale          152,969      41,107
 Fuel Costs Paid                                       (80,603)    (44,551)
 Purchased Power Costs Paid                            (49,194)    (17,284)
 Wages Paid, Net of Amounts Capitalized                (20,415)    (18,500)
 Payment of Other Operations and Maintenance Costs     (33,337)    (25,638)
 Capital Lease Interest Paid                           (42,457)    (43,733)
 Taxes Paid, Net of Amounts Capitalized                (12,971)    (11,450)
 Interest Paid, Net of Amounts Capitalized             (23,792)    (23,564)
 Income Taxes Paid                                     (10,450)         (2)
 Interest Received                                       5,777       4,618
 Other                                                   4,680       2,146
----------------------------------------------------------------------------
  Net Cash Flows - Operating Activities                 47,878      16,154
----------------------------------------------------------------------------
Cash Flows from Investing Activities
 Capital Expenditures                                  (39,561)    (26,307)
 Investments in and Loans to
  Millennium Energy Businesses                          (7,897)     (2,118)
 Proceeds from the Sale of
  Millennium Energy Businesses                               -      19,950
 Purchase of Springerville Lease Debt                        -     (27,633)
 Other                                                  (1,376)        (96)
----------------------------------------------------------------------------
  Net Cash Flows - Investing Activities                (48,834)    (36,204)
----------------------------------------------------------------------------
Cash Flows from Financing Activities
 Payments to Retire Long-Term Debt                      (1,225)     (1,225)
 Payments to Retire Capital Lease Obligations          (14,500)    (20,725)
 Common Stock Dividends Paid                            (3,329)     (2,583)
 Other                                                   1,302         795
----------------------------------------------------------------------------
  Net Cash Flows - Financing Activities                (17,752)    (23,738)
----------------------------------------------------------------------------
Net Decrease in Cash and Cash Equivalents              (18,708)    (43,788)
Cash and Cash Equivalents, Beginning of Year           163,004     145,288
----------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period            $  144,296  $  101,500
============================================================================

SUPPLEMENTAL CONDENSED CONSOLIDATED CASH FLOW INFORMATION
----------------------------------------------------------------------------

Net Income                                          $   19,265  $      242
Adjustments to Reconcile Net Income to Net Cash
 Flows
  Depreciation and Amortization Expense                 28,698      27,456
  Amortization of Transition Recovery Asset              2,346         903
  Unrealized (Gains) Losses on
  Forward Sales and Purchase Contracts                  (3,162)          -
  Amortization of Deferred Debt-Related Costs
   Included in Interest Expense                            504       1,192
  Deferred Income Taxes                                  3,644       5,587
  Unremitted Losses of Unconsolidated Subsidiaries       2,262         685
  Gain on Sale of Nations Energy's
   Czech Republic Interest                                   -      (2,527)
  Market Value Adjustments Related to Nations Energy         -       1,499
  Other                                                 (1,244)        955
 Changes in Assets and Liabilities which Provided
 (Used)
  Cash Exclusive of Changes Shown Separately
   Accounts Receivable                                  28,052       6,264
   Materials and Fuel                                   (1,537)       (998)
   Accounts Payable                                    (12,550)     (2,985)
   Interest Accrued                                    (29,971)    (25,862)
   Taxes Accrued                                        10,446      10,671
   Other Current Assets                                   (194)     (5,457)
   Other Current Liabilities                            (1,201)     (1,851)
   Other Deferred Assets                                  (303)        916
   Other Deferred Liabilities                            2,823        (536)
----------------------------------------------------------------------------
Net Cash Flows - Operating Activities               $   47,878  $   16,154
============================================================================
See Notes to Condensed Consolidated Financial Statements.


<PAGE>


UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS

                                                    March 31,  December 31,
                                                      2001        2000
                                                   (Unaudited)
---------------------------------------------------------------------------
                                                  - Thousands of Dollars -
ASSETS
Utility Plant
 Plant in Service                                   $2,399,033  $2,389,587
 Utility Plant Under Capital Leases                    741,446     741,446
 Construction Work in Progress                         112,929      94,789
---------------------------------------------------------------------------
  Total Utility Plant                                3,253,408   3,225,822
 Less Accumulated Depreciation and Amortization     (1,209,630) (1,186,035)
 Less Accumulated Depreciation of
  Capital Lease Assets                                (340,851)   (333,497)
---------------------------------------------------------------------------
  Total Utility Plant - Net                          1,702,927   1,706,290
---------------------------------------------------------------------------

Investments and Other Property                         141,273     121,811
---------------------------------------------------------------------------
Current Assets
 Cash and Cash Equivalents                             144,296     163,004
 Accounts Receivable                                    87,690     115,742
 Materials and Fuel                                     45,936      44,399
 Deferred Income Taxes - Current                        17,879      17,790
 Other                                                  19,467      19,273
---------------------------------------------------------------------------
  Total Current Assets                                 315,268     360,208
---------------------------------------------------------------------------
Regulatory and Other Assets
 Transition Recovery Asset                             350,937     353,283
 Income Taxes Recoverable Through Future Revenues       71,381      73,459
 Other Regulatory Assets                                 7,999       7,690
Other Assets                                            48,133      48,643
---------------------------------------------------------------------------
  Total Regulatory and Other Assets                    478,450     483,075
---------------------------------------------------------------------------
Total Assets                                        $2,637,918  $2,671,384
===========================================================================

CAPITALIZATION AND OTHER LIABILITIES
Capitalization
 Common Stock Equity                                $  374,915  $  372,169
 Capital Lease Obligations                             848,571     857,829
 Long-Term Debt                                      1,131,170   1,132,395
----------------------------------------------------------------------------
  Total Capitalization                               2,354,656   2,362,393
----------------------------------------------------------------------------
Current Liabilities
 Current Obligations Under Capital Leases               23,001      21,147
 Current Maturities of Long-Term Debt                    1,725       1,725
 Accounts Payable                                       50,737      65,891
 Interest Accrued                                       29,347      63,852
 Taxes Accrued                                          37,257      26,811
 Forward Sale and Purchase Contracts                    19,946           -
 Accrued Employee Expenses                              11,496      14,405
 Other                                                   7,694       8,547
----------------------------------------------------------------------------
  Total Current Liabilities                            181,203     202,378
----------------------------------------------------------------------------
Deferred Credits and Other Liabilities
 Deferred Income Taxes - Noncurrent                     43,658      51,035
 Other                                                  58,401      55,578
----------------------------------------------------------------------------
  Total Deferred Credits and Other Liabilities         102,059     106,613
----------------------------------------------------------------------------
Total Capitalization and Other Liabilities          $2,637,918  $2,671,384
============================================================================
See Notes to Condensed Consolidated Financial Statements.


<PAGE>


UNISOURCE ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY


                                                  Accumulated
                                     Accumulated     Other          Total
                             Common    Earnings  Comprehensive  Stockholders'
                             Stock    (Deficit)  Income (Loss)     Equity
----------------------------------------------------------------------------
                                        - Thousands of Dollars -

Balances at
 December 31, 2000       $  655,539  $ (283,370)  $        -    $  372,169
----------------------------------------------------------------------------
Comprehensive Income
 (Loss):
  2001 Year-to-Date Net
   Income                         -      19,265            -        19,265
  Cumulative Effect of
   Accounting Change (net
   of $9,179,000 income
   tax benefit)                   -           -      (13,827)      (13,827)
  Unrealized Loss on Cash
   Flow Hedges Not Yet
   Settled (net of
   $4,721,000 income tax
   benefit)                       -           -       (7,111)       (7,111)
  Reversal of Previously
   Recorded Unrealized
   Losses for Contracts
   which Settled During
   the Period (net of
   $4,556,000 income tax
   expense)                       -           -        6,863         6,863
                                                                 -----------
Total Comprehensive Income                                           5,190
                                                                 -----------

  46,794 Shares Issued under
   Stock Compensation
   Plans                        779           -            -           779
  5,264 Shares Distributed
   by Deferred Compensation
   Trust                        106           -            -           106
  Dividend Declared               -      (3,329)           -        (3,329)
----------------------------------------------------------------------------

Balances at
 March 31, 2001          $  656,424  $ (267,434)  $  (14,075)   $  374,915
============================================================================
See Notes to Condensed Consolidated Financial Statements.


<PAGE>


TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

The weather causes seasonal fluctuations in TEP's sales. As a result,
quarterly results are not indicative of annual operating results. The
quarterly financial statements that follow are unaudited but reflect all
normal recurring accruals and other adjustments which we believe are
necessary for a fair presentation of the results for the interim periods
presented. Also see Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations.  This quarterly report should
be reviewed in conjunction with TEP's 2000 Form 10-K.


<PAGE>


TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

                                                       Three Months Ended
                                                            March 31,
                                                         2001       2000
                                                           (Unaudited)
----------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Operating Revenues
 Electric Retail Sales                              $  134,677  $  131,290

 Electric Sales for Resale:
  Electric Sales for Resale Delivered                  143,687      44,780
  Unrealized Gain (Loss) on Forward Sales              (39,767)          -
----------------------------------------------------------------------------
   Total Electric Sales for Resale                     103,920      44,780

 Other                                                     744         553
----------------------------------------------------------------------------
  Total Operating Revenues                             239,341     176,623
----------------------------------------------------------------------------
Operating Expenses
 Fuel                                                   70,951      43,549

 Purchased Power:
  Purchased Power Received                              46,372      16,991
  Unrealized (Gain) Loss on Forward Purchases          (42,459)          -
----------------------------------------------------------------------------
   Total Purchased Power                                 3,913      16,991

 Other Operations                                       35,074      28,873
 Maintenance and Repairs                                12,179       8,344
 Depreciation and Amortization                          28,480      27,387
 Amortization of Transition Recovery Asset               2,346         903
 Taxes Other Than Income Taxes                          11,523      12,194
 Income Taxes                                           15,195      (1,062)
----------------------------------------------------------------------------
  Total Operating Expenses                             179,661     137,179
----------------------------------------------------------------------------
   Operating Income                                     59,680      39,444
----------------------------------------------------------------------------
Other Income (Deductions)
 Income Taxes                                           (2,102)     (1,956)
 Interest Income                                         2,773       2,036
 Interest Income - Note Receivable from
  UniSource Energy                                       2,300       2,326
 Other Income                                              317         513
----------------------------------------------------------------------------
  Total Other Income (Deductions)                        3,288       2,919
----------------------------------------------------------------------------
Interest Expense
 Long-Term Debt                                         15,772      16,874
 Interest on Capital Leases                             22,692      23,254
 Other Interest Expense                                  1,463       2,321
----------------------------------------------------------------------------
  Total Interest Expense                                39,927      42,449
----------------------------------------------------------------------------
Income (Loss) Before Cumulative Effect of
 Accounting Change                                      23,041         (86)

Cumulative Effect of Accounting Change - Net of Tax        470           -
----------------------------------------------------------------------------
Net Income (Loss)                                   $   23,511  $      (86)
============================================================================
See Notes to Condensed Consolidated Financial Statements.


<PAGE>


TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                       Three Months Ended
                                                            March 31,
                                                         2001       2000
                                                           (Unaudited)
----------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Cash Flows from Operating Activities
 Cash Receipts from Electric Retail Sales           $  157,671  $  153,005
 Cash Receipts from Electric Sales for Resale          152,969      41,107
 Fuel Costs Paid                                       (80,603)    (44,551)
 Purchased Power Costs Paid                            (49,194)    (17,284)
 Wages Paid, Net of Amounts Capitalized                (18,361)    (16,489)
 Payment of Other Operations and Maintenance Costs     (25,689)    (23,055)
 Capital Lease Interest Paid                           (42,450)    (43,721)
 Taxes Paid, Net of Amounts Capitalized                (12,303)    (11,344)
 Interest Paid, Net of Amounts Capitalized             (23,792)    (23,564)
 Income Taxes Paid                                     (10,450)         (2)
 Interest Received                                       4,536       3,333
----------------------------------------------------------------------------
  Net Cash Flows - Operating Activities                 52,334      17,435
----------------------------------------------------------------------------
Cash Flows from Investing Activities
 Capital Expenditures                                  (29,210)    (23,616)
 Other Investments - Net                                  (339)        159
----------------------------------------------------------------------------
  Net Cash Flows - Investing Activities                (29,549)    (23,457)
----------------------------------------------------------------------------
Cash Flows from Financing Activities
 Payments to Retire Long-Term Debt                      (1,225)     (1,225)
 Payments to Retire Capital Lease Obligations          (14,482)    (20,705)
 Other                                                     830         630
----------------------------------------------------------------------------
  Net Cash Flows - Financing Activities                (14,877)    (21,300)
----------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents     7,908     (27,322)
Cash and Cash Equivalents, Beginning of Year            88,712      88,402
----------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period            $   96,620  $   61,080
============================================================================

SUPPLEMENTAL CONDENSED CONSOLIDATED CASH FLOW INFORMATION
----------------------------------------------------------------------------

Net Income (Loss)                                   $   23,511  $      (86)
Adjustments to Reconcile Net Income (Loss) to
 Net Cash Flows
  Depreciation and Amortization Expense                 28,480      27,387
  Amortization of Transition Recovery Asset              2,346         903
  Unrealized (Gains) Losses on
   Forward Sales and Purchase Contracts                 (3,162)          -
  Amortization of Deferred Debt-Related Costs
   Included in Interest Expense                            504       1,192
  Deferred Income Taxes                                  6,117       5,767
  Unremitted Losses of Unconsolidated Subsidiaries         409         114
  Interest on Note Receivable from UniSource Energy     (2,300)     (2,326)
  Other                                                  1,774         830
  Changes in Assets and Liabilities which Provided
   Used) Cash Exclusive of Changes Shown Separately
   Accounts Receivable                                  27,545       8,070
   Materials and Fuel                                     (834)     (1,000)
   Accounts Payable                                    (14,112)     (3,185)
   Interest Accrued                                    (29,971)    (25,862)
   Taxes Accrued                                        10,353      10,788
   Other Current Assets                                  1,448      (3,502)
   Other Current Liabilities                            (1,428)     (2,029)
   Other Deferred Assets                                (1,263)        916
   Other Deferred Liabilities                            2,917        (542)
----------------------------------------------------------------------------
Net Cash Flows - Operating Activities               $   52,334  $   17,435
============================================================================
See Notes to Condensed Consolidated Financial Statements.


<PAGE>


TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS

                                                    March 31,  December 31,
                                                      2001        2000
                                                   (Unaudited)
---------------------------------------------------------------------------
                                                  - Thousands of Dollars -
ASSETS
Utility Plant
 Plant in Service                                   $2,399,033  $2,389,587
 Utility Plant Under Capital Leases                    741,446     741,446
 Construction Work in Progress                         112,929      94,789
---------------------------------------------------------------------------
  Total Utility Plant                                3,253,408   3,225,822
 Less Accumulated Depreciation and Amortization     (1,209,630) (1,186,035)
 Less Accumulated Depreciation of
  Capital Lease Assets                                (340,851)   (333,497)
---------------------------------------------------------------------------
  Total Utility Plant - Net                          1,702,927   1,706,290
---------------------------------------------------------------------------
Investments and Other Property                          91,642      92,334
---------------------------------------------------------------------------
Note Receivable from UniSource Energy                   70,132      70,132
---------------------------------------------------------------------------
Current Assets
 Cash and Cash Equivalents                              96,620      88,712
 Interest on Note Receivable from UniSource Energy       2,300           -
 Accounts Receivable                                    89,373     116,580
 Materials and Fuel                                     44,681      43,847
 Deferred Income Taxes - Current                        10,751      10,662
 Other                                                   5,137       6,585
---------------------------------------------------------------------------
  Total Current Assets                                 248,862     266,386
---------------------------------------------------------------------------
Regulatory and Other Assets
 Transition Recovery Asset                             350,937     353,283
 Income Taxes Recoverable Through Future Revenues       71,381      73,459
 Other Regulatory Assets                                 7,999       7,690
Other Assets                                            31,811      31,361
---------------------------------------------------------------------------
  Total Regulatory and Other Assets                    462,128     465,793
---------------------------------------------------------------------------
Total Assets                                        $2,575,691  $2,600,935
===========================================================================

CAPITALIZATION AND OTHER LIABILITIES
Capitalization
 Common Stock Equity                                $  305,413  $  295,660
 Capital Lease Obligations                             848,260     857,519
 Long-Term Debt                                      1,131,170   1,132,395
---------------------------------------------------------------------------
  Total Capitalization                               2,284,843   2,285,574
---------------------------------------------------------------------------
Current Liabilities
 Current Obligations Under Capital Leases               22,871      21,031
 Current Maturities of Long-Term Debt                    1,725       1,725
 Accounts Payable                                       57,245      73,955
 Interest Accrued                                       29,347      63,852
 Taxes Accrued                                          35,838      25,485
 Forward Sale and Purchase Contracts                    19,946           -
 Accrued Employee Expenses                              11,168      14,152
 Other                                                   5,329       5,671
---------------------------------------------------------------------------
  Total Current Liabilities                            183,469     205,871
---------------------------------------------------------------------------
Deferred Credits and Other Liabilities
 Deferred Income Taxes - Noncurrent                     49,076      53,980
 Other                                                  58,303      55,510
---------------------------------------------------------------------------
  Total Deferred Credits and Other Liabilities         107,379     109,490
---------------------------------------------------------------------------
Total Capitalization and Other Liabilities          $2,575,691  $2,600,935
===========================================================================
See Notes to Condensed Consolidated Financial Statements.


<PAGE>


TUCSON ELECTRIC POWER COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                                                   Accumulated
                               Capital Accumulated    Other         Total
                        Common  Stock   Earnings  Comprehensive Stockholders'
                        Stock  Expense (Deficit)  Income (Loss)    Equity
----------------------------------------------------------------------------
                                     - Thousands of Dollars -

Balances at
 December 31, 2000   $ 651,723 $ (6,357) $(349,706) $      -      $ 295,660
----------------------------------------------------------------------------
Comprehensive
 Income (Loss):
  2001 Year-to-Date
   Net Income                -        -     23,511         -         23,511
  Cumulative Effect of
   Accounting Change
   (net of $9,179,000
   income tax benefit)       -        -          -   (13,827)       (13,827)
  Unrealized Loss on
   Cash Flow Hedges
   Not Yet Settled
   (net of $4,721,000
   income tax benefit)       -        -          -    (7,111)        (7,111)
  Reversal of Previously
   Recorded Unrealized
   Losses for Contracts
   which Settled During
   the Period (net of
   $4,556,000 income
   tax expense)              -        -          -     6,863          6,863
                                                                 -----------
Total Comprehensive Income                                            9,436
                                                                 -----------
Other                      317        -          -         -            317
----------------------------------------------------------------------------

Balances at
 March 31, 2001      $ 652,040 $ (6,357) $(326,195) $(14,075)     $ 305,413
============================================================================
See Notes to Condensed Consolidated Financial Statements.


<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------------

NOTE 1.  REGULATORY ACCOUNTING
------------------------------

     TEP generally uses the same accounting policies and practices used
by unregulated companies for financial reporting under GAAP.  However,
sometimes these principles, such as FAS 71, require special accounting
treatment for regulated companies to show the effect of regulation.
For example, in setting TEP's retail rates, the ACC may not allow TEP
to currently charge its customers to recover certain expenses, but
instead requires that these expenses be charged to customers in the
future.  In this situation, FAS 71 requires that TEP defer these items
and show them as regulatory assets on the balance sheet until TEP is
allowed to charge its customers.  TEP then amortizes these items as
expense to the income statement as those charges are recovered from
customers.  Similarly, certain revenue items may be deferred as
regulatory liabilities, which are also eventually amortized to the
income statement as rates to customers are reduced.

    The conditions a regulated company must satisfy to apply the
accounting policies and practices of FAS 71 include:

- an independent regulator sets rates;
- the regulator sets the rates to cover specific costs of delivering
service; and
- the service territory lacks competitive pressures to reduce rates
below the rates set by the regulator.

     In November 1999, upon approval by the ACC of a Settlement
Agreement relating to recovery of TEP's transition costs and standard
retail rates, we discontinued application of FAS 71 to our generation
operations.

     We continue to apply FAS 71 to the distribution and transmission
portions of TEP's business, our regulated operations.  We periodically
assess whether we can continue to apply FAS 71 to these operations.  If
we stopped applying FAS 71 to TEP's remaining regulated operations, we
would write off the related balances of TEP's regulatory assets as a
charge in our income statement.  Based on the balances of TEP's
regulatory assets at March 31, 2001, if we had stopped applying FAS 71
to TEP's remaining regulated operations, we would have recorded an
extraordinary loss, after-tax, of approximately $260 million.  While
regulatory orders and market conditions may affect our cash flows, our
cash flows would not be affected if we stopped applying FAS 71.


NOTE 2.  ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
---------------------------------------------------------------------

     In 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (FAS 133),
Accounting for Derivative Instruments and Hedging Activities.  A
derivative financial instrument or other contract derives its value
from another investment or designated benchmark.  We buy and sell
wholesale power using forward contracts which are considered to be
derivatives. Under forward contracts, TEP commits to purchase or sell a
specified amount of capacity or energy at a specified price over a
given period of time, typically for one month, three months or one
year.  Forward contracts may consist of sales of TEP's excess
generating capacity, purchases to meet our retail and firm energy
commitments, or trading activity, where forward sales and purchases may
be made within established limits to take advantage of favorable market
opportunities.

     There are two types of gains and losses related to forward
contracts:
 - An unrealized gain or loss is the difference between the contract
price and the market price at any interim date until the contract is
settled.
 - A realized gain or loss is the difference between the contract price
and the actual cost of the commodity that was purchased or sold.
Realized gains or losses are recorded in the financial statements at
the settlement date.  We base our decision to enter into forward
contracts based on an estimated realized gain.

     On January 1, 2001, we adopted FAS 133. The financial statements
for 2000 do not reflect the requirements of FAS 133, as we recorded
realized gains and losses at the contract settlement date.  FAS 133
requires us to recognize all derivative instruments on the balance
sheet as either assets or liabilities measured at fair value and to
record the related unrealized gains and losses throughout the contract
period until settlement.  Based on our interpretation of FAS 133 and
other guidance, we have classified our wholesale forward contracts as
follows:

 - Normal Purchases and Sales: Our off-peak forward purchases and sales
generally qualify as normal purchases and sales and are excluded from
the requirements of FAS 133.  The realized gains and losses on these
contracts are reflected in the income statement at the contract
settlement date.

 - Cash Flow Hedge: On-peak forward purchase contracts to meet our
retail and firm commitments, as well as on-peak forward sales contracts
of our excess system capacity are generally classified as cash flow
hedges.  Our on-peak purchases and sales occur daily from 6 a.m. until
10 p.m., Monday through Saturday.  The unrealized gains and losses
related to these forward contracts are included in Other Comprehensive
Income, a component of stockholders' equity.  These unrealized gains
and losses are reversed from Other Comprehensive Income when the
contracts are settled.

 - Trading Activity:  Our trading activity generally consists of
forward on-peak sales and purchases that do not qualify for cash flow
hedge treatment.  The unrealized gains and losses related to these
forward contracts are reflected in the income statement.

     On January 1, 2001, we recorded the cumulative effects of adopting
FAS 133 in our financial statements by recognizing all derivatives at
fair value and recording the following amounts on our forward contracts
as of January 1, 2001:

  Income Statement: after-tax unrealized gain of $470,000.
  Balance Sheet:
   - Other Comprehensive Income, a component of stockholders' equity:
     after-tax unrealized loss of $14 million, and
   - Forward Sale and Purchase Contract Liability of $22 million.

     Under FAS 133, we record unrealized gains and losses on our
forward contracts and adjust the related liability on a monthly basis
to reflect the market prices at the end of the month.  In the first
quarter of 2001, we recorded the following amounts on our forward
contracts:

  Income Statement: after-tax unrealized loss on forward sales of $24
                    million and after-tax unrealized gain on forward
                    purchases of $26 million.
  Balance Sheet:
   - Other Comprehensive Income, a component of stockholders' equity: a
     net after-tax unrealized loss of $248,000, consisting of:
      - an unrealized loss of $7 million; and
      - a $7 million reversal of previously recorded unrealized losses
        on cash flow hedges which settled during the period.
   - We adjusted the Forward Sale and Purchase Contract Liability to
     $20 million.

     All hedged contracts open at March 31, 2001 will be settled by
December 31, 2001, and as a result, the unrealized losses included in
Other Comprehensive Income as of March 31, 2001 will be reversed from
Other Comprehensive Income by year-end.

     The market prices used to determine fair value for forward
contracts are estimated based on various factors including broker
quotes, exchange prices, over the counter prices and time value.

     Because of the complexity of derivatives, the FASB established a
Derivatives Implementation Group (DIG).  To date, the DIG has issued
more than 100 interpretations to provide guidance in applying FAS 133.
As the DIG continues to issue interpretations, we may change the
conclusions that we have reached and, as a result, the accounting
treatment and financial statement impact could change in the future.


NOTE 3. MILLENNIUM ENERGY BUSINESSES
------------------------------------

  ENERGY TECHNOLOGY INVESTMENTS

     At March 31, 2001, Millennium owned 67% of the following entities.
ITN Energy Systems, Inc., a privately held company (ITN) owned the
remaining 33%.  The financial statements for these entities are
consolidated into the first quarter 2001 financial statements included
in this document.

 - Global Solar Energy, Inc. (Global Solar) is a developer and
manufacturer of flexible thin-film photovoltaic cells.  Global Solar
began limited production of photovoltaic cells in 1999.  Target markets
for its products include military, space and commercial applications.

     In 2000, Millennium agreed to provide $20 million in credit to
Global Solar over a maximum period of 4 years to fund its production
and expansion.  As of March 31, 2001, Millennium has funded $9 million
under this credit commitment, $5 million of which was funded in the
first quarter of 2001.

     Global Solar has certain federal government contracts that require
Global Solar to contribute to the research and development effort under
a cost share arrangement.  Global Solar's share of costs is expensed as
incurred or capitalized in accordance with the terms of the contract.
Global Solar's remaining cost share commitment under these contracts at
March 31, 2001 was approximately $700,000.

 - Infinite Power Solutions, Inc. is a developer of thin-film batteries
and was established in 2000.  In 2000, Millennium committed to provide
$6 million of credit to this entity.  As of March 31, 2001, Millennium
had not provided any funding under this agreement.  ITN contributed
certain assets and proprietary and intellectual property relating to
thin-film battery technology.

     During the first quarter of 2001, Millennium and ITN formed and
began to provide funding to the following entities, which are accounted
for under the equity method of accounting:

 - MicroSat Systems Inc. is a space systems company formed for the
purpose of developing and commercializing small-scale satellites.
Millennium owns 49%, and the remaining 51% is owned by ITN.  Millennium
has agreed to provide $10 million in equity and $10 million in credit
to the venture.  ITN will contribute development contracts and
proprietary technologies.

MicroSat has certain federal government contracts that require MicroSat
to contribute to the research and development effort under a cost share
arrangement.  MicroSat's share of costs is expensed as incurred or
capitalized in accordance with the terms of the contract.  MicroSat's
remaining cost share commitment under these contracts at March 31, 2001
was approximately $9 million.

 - A product development company, was formed to provide research and
development services to Global Energy Solutions, Inc.'s affiliates,
MicroSat and third parties.  Millennium owns 49%, and the remaining 51%
is owned by ITN.  Millennium committed to provide $3 million in equity
and $1 million in credit.  ITN will contribute certain contracts,
technologies and intellectual property, including its thermal
desalinization technology.

     Millennium provided $4 million in equity funding to these entities
in the first quarter of 2001.

     Millennium expects to fund a total of $25 million to $35 million
to its various Energy Technology Investments in 2001.  A significant
portion of the funding under these agreements will be used for research
and development purposes, establishment of the production line, and
other administrative costs.  As funds are expended for these purposes,
it is expected that a major portion will be expensed.

  NATIONS ENERGY COMMITMENTS

     Nations Energy, a wholly-owned subsidiary of Millennium, develops
independent power projects in foreign energy markets.  Through its
subsidiaries, Nations Energy has a 26% equity interest in a power
project located in Curacao, Netherland Antilles.  The 160 MW project is
scheduled for completion in 2003.  Once completed, the generating
facility will provide all electricity, steam, desalinated water and
compressed air for use in the oil refinery on the island of Curacao and
electricity for distribution to the community of Curacao.  As of March
31, 2001, Nations Energy's total investment in this project was $4
million, of which $1 million was contributed in the first quarter of
2001.  In addition, in December 2000, Nations Energy provided a $7
million deposit to fund scheduled equity contributions through April
2003, which is held by a financial institution.  At March 31, 2001, $6
million of this deposit remained.  Nations Energy holds a $10 million
deposit primarily for possible construction overruns and a guarantee of
$6 million of equity on behalf of another participant in the project.

  OTHER MILLENNIUM INVESTMENTS AND COMMITMENTS

     In July 2000, Millennium made a $15 million capital commitment to
a limited partnership which will fund energy related investments.  As
of March 31, 2001, Millennium has funded $5 million under this
commitment, $4 million of which was funded in the first quarter of
2001.  The remaining $10 million is expected to be invested within two
to three years. A member of the UniSource Energy Board of Directors has
a minor investment in the project.  An affiliate of such board member
serves as the general partner.

     In November 2000, Millennium made a $5 million capital commitment
to a venture capital fund that will focus on information technology,
optics and biotechnology in Tucson, Arizona.  The company that manages
the fund is owned by a member of the UniSource Energy Board of
Directors.  As of March 31, 2001, Millennium had funded $150,000 under
this commitment.  Millennium expects to fund approximately $1 million
under this agreement in 2001.

     In the first quarter of 2001, Millennium incurred expenditures of
$11 million in relation to the purchase of a 20 MW gas turbine, which
will be constructed at a site in Tucson.  The unit is expected to be in
operation by mid-2001 to provide energy to help meet TEP's summer
peaking needs.  These expenditures are included in capital expenditures
on UniSource Energy's cash flow statement for the three months ended
March 31, 2001.


  RECLASSIFICATION OF MILLENNIUM ENERGY BUSINESSES RESULTS

     The operating revenues and expenses from the Millennium Energy
businesses are currently included as part of UniSource Energy's
Operating Revenues and Operating Expenses.  Previously, these revenues
and expenses were included in the Millennium Energy Businesses line
item in the Other Income and Deduction section of the income statement.
The income statement for the three months ended March 31, 2000 has been
reclassified to conform to the new presentation.


NOTE 4.  BUSINESS SEGMENTS
--------------------------

     Based on the way we organize our operations and evaluate
performance, we have two reportable business segments.  UniSource
Energy's principal business segment is TEP, an electric utility
business.  The other reportable business segment consists of the
unregulated energy businesses of Millennium (see Note 3).

     Intersegment revenues are not material.  The only significant
reconciling adjustment is for the elimination of the intercompany note
between UniSource Energy and TEP as well as the related interest income
and expense.  All other intercompany activity and balances have been
eliminated. We disclose selected financial data for our business
segments in the following tables:

----------------------------------------------------------------------
                              Segments
                        ---------------------
                                                            UniSource
                                             Reconciling     Energy
                          TEP    Millennium  Adjustments  Consolidated
----------------------------------------------------------------------
                                     - Thousands of Dollars  -
Income Statement
----------------
Three months ended
 March 31, 2001:
  Operating Revenues  $  239,341  $   3,945    $ (2,080)    $  241,206
-----------------------------------------------------------------------
  Net Income (Loss)
   Before Income Taxes
   and Cumulative Effect
   of Accounting Change   40,338     (4,427)     (2,300)        33,611
-----------------------------------------------------------------------
  Cumulative Effect of
   Accounting Change         470          -           -            470
-----------------------------------------------------------------------
  Net Income (Loss)       23,511     (2,863)     (1,383)        19,265
-----------------------------------------------------------------------
Three months ended
 March 31, 2000:
  Operating Revenues  $  176,623  $   1,054    $   (198)    $  177,479
-----------------------------------------------------------------------
  Net Income (Loss)
   Before Income Taxes       808       (380)     (1,898)        (1,470)
-----------------------------------------------------------------------
  Net Income (Loss)          (86)     1,469      (1,141)           242
-----------------------------------------------------------------------

Balance Sheet
-------------
Total Assets,
 March 31, 2001       $2,575,691  $ 139,646    $(77,419)    $2,637,918
Total Assets,
 December 31, 2000     2,600,935    167,331     (96,882)     2,671,384
-----------------------------------------------------------------------


NOTE 5.  COMMITMENTS AND CONTINGENCIES
--------------------------------------

  TEP COMMITMENTS AND CONTINGENCIES

     Four Corners Generating Station Commitment

     TEP is a 7% owner of Four Corners Generating Station.  The station
participation agreement requires that if one of the participants fails
to make its payments for operation of the station when due, the other
station participants must make such payments on behalf of the
defaulting party, in proportion to their ratable ownership interest in
the station, for a period of up to six months.  During this time the
defaulting participant is entitled to its share of the power generated
by the station.  After the grace period, the defaulting participant
must make its payments in arrears before it would be entitled to its
continuing share of power.

     Southern California Edison Company (SCE) is a 48% owner of the
station.  SCE has publicly disclosed that due to the high cost of
wholesale power in California which to date it has not been able to
recover from customers, it may no longer be able to continue to meet
its financial obligations.  SCE has made all of its payments for the
station for periods through April 30, 2001.  However, we are uncertain
whether SCE will be able to continue to make its payments for the
remainder of 2001.  Based on the operating budget for the station for
the year 2001, in the event that SCE were to fail to pay, TEP may be
required to pay on SCE's behalf, for the power SCE receives, an average
amount of $1 million per month for up to six months.

      TEP is unable to predict whether TEP will be required to make any
such payments in the future.

  MILLENNIUM COMMITMENTS

     See Note 3 for a description of Millennium's commitments.


NOTE 6.  WHOLESALE ACCOUNTS RECEIVABLE AND ALLOWANCES
-----------------------------------------------------

     Market prices for wholesale power were significantly higher during
the first quarter of 2001 and the third and fourth quarters of 2000
than in the first two quarters of 2000 due to a shortage of generation
and the rising price of natural gas. During January and February 2001,
SCE and Pacific Gas & Electric Company (PG&E), two of the largest
utility market participants in California, defaulted on payments due to
the California Power Exchange (CPX) and California Independent System
Operator (CISO) for power consumed in the fourth quarter of 2000 and
the first quarter of 2001. On January 30, 2001, the CPX suspended its
day-ahead and day-of energy trading and subsequently ceased operations
and filed for bankruptcy.  Beginning in January 2001, the California
Department of Water Resources (CDWR) was authorized to make energy
purchases on behalf of California customers. PG&E filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code on April 6,
2001. SCE signed a Memorandum of Understanding with the CDWR on April
9, 2001, which sets forth a comprehensive plan calling for legislation,
regulatory action and definitive agreements designed to resolve certain
aspects of the energy crisis and restore SCE's creditworthiness and
liquidity.  Although TEP did not make sales directly to either SCE or
PG&E in 2000 or 2001, it did sell approximately $58 million of power to
the CPX and the CISO during 2000 and $7 million in January 2001.  TEP
sold $9 million of power to the CDWR in the first quarter of 2001, all
of which has been paid according to terms.

     The CPX has withheld some amounts due to parties, including TEP,
that sold power to the CPX in the fourth quarter of 2000 and the first
quarter of 2001.  In addition, under default provisions contained in
the CPX tariff, the CPX has allocated the defaults of CPX participants
to remaining participants based upon the level of trading activity of
each participant during the preceding three-month period.  Not only
have initial defaults of a CPX debtor been charged back to the other
participants, but defaults by other participants on charge-backs have
also been charged back. TEP has not collected the full amount due for
sales to the CPX and CISO in the fourth quarter of 2000 and the first
quarter of 2001 and TEP has been assessed amounts due as charge-backs.
A number of CPX participants filed suit against the CPX in February
2001, and a preliminary injunction was implemented that precluded the
CPX from issuing any more invoices for charge-backs, attempting to
collect on charge-backs or exercising against collateral.  In April
2001, the FERC ordered the CPX to issue new invoices reflecting the
reversal of the charge-backs on the CPX accounting records.

     Also during 2000, the FERC established certain soft caps on prices
for power sold at the CPX.  The caps did not have a significant impact
on sales to the CPX during the first three quarters of 2000.  However,
during the fourth quarter of 2000 and the first quarter of 2001, prices
for power in the day-ahead and real-time markets frequently exceeded
the caps established by FERC. During March 2001, the FERC issued two
orders requiring certain generators that sold power to California in
January and February 2001 to either refund amounts over specified
market prices or provide further data to defend their transactions. The
FERC has not yet addressed whether any refunds are due on sales made
from October 2, 2000 through December 31, 2000.  TEP was not named in
these FERC orders and to date, no TEP sales have been rescinded due to
a price in excess of the cap.  Other parties in California have
indicated an intent to seek return of revenues earned by wholesale
power suppliers which they determine to be "unlawful profits."  The
determination of what would constitute "unlawful profits" is unclear at
the present time.  In January 2001, the cities of San Francisco and San
Diego publicly disclosed that they had filed suit against several large
generators seeking return of what may be determined to be excessive
profits.

     TEP has not been named as a defendant in any suits; TEP sales to
the CPX were insignificant as a percent of total sales to the CPX.
Substantially all of the sales TEP made to the CPX in 2000 and in 2001
were at prices at or below the soft caps imposed by FERC. TEP believes
that it has minimal, if any, exposure for any return of revenues earned
in excess of the caps.

     On February 21, 2001, TEP filed a complaint at the FERC charging
that the State of California, California Governor Gray Davis, and the
CPX violated the Federal Power Act by letting the CDWR seize the
forward contracts of SCE and PG&E at the CPX without prior FERC
approval.  TEP contends that this seizure violates the CPX tariff which
provides for the liquidation of favorable forward positions to mitigate
a market participant's default amount.

     We considered the potential non-payment for certain amounts due to
TEP but not yet paid, the charge-back billings to TEP and the potential
implication of the soft caps if they were extended retroactively to the
CPX and CISO markets when we calculated our allowances for doubtful
accounts and potential refunds for wholesale transactions for 2000 and
2001.  We have recorded allowances amounting to approximately $16
million, $7 million of which was recorded in the first quarter of 2001
and $9 million of which was recorded in the fourth quarter of 2000.
These allowances reserve in full the unpaid amounts which are past due
to TEP.  We recorded no such allowances in periods prior to the fourth
quarter of 2000.


NOTE 7.  INCOME TAXES
---------------------


     The differences between the income tax expense (benefit) and the
amount obtained by multiplying pre-tax income by the U.S. statutory
federal income tax rate of 35% are as follows:


                                 UniSource Energy        TEP
                               ------------------  ------------------
                               Three Months Ended  Three Months Ended
                                     March 31,          March 31,
                                  2001      2000     2001      2000
----------------------------------------------------------------------
                                       -Thousands of Dollars -
Federal Income Tax Expense
 (Benefit) at Statutory Rate  $ 12,038  $   (515)  $  14,392  $   283
   State Income Tax Expense
    (Benefit), Net of Federal
     Deduction                   1,685       (72)      2,015       40
   Depreciation Differences
    (Flow Through Basis)         1,250       561       1,250      561
   Foreign Operations of
     Millennium Energy
     Businesses                     (8)   (1,735)          -        -
   Other                           163        49         (48)      10
----------------------------------------------------------------------
Total Federal and State
 Income Tax Expense (Benefit) $ 15,128  $ (1,712)  $  17,609  $   894
======================================================================

Income tax expense (benefit) included in the income statements consists
of the following:

                                 UniSource Energy        TEP
                               ------------------  ------------------
                               Three Months Ended  Three Months Ended
                                   March 31,            March 31,
                                  2001      2000     2001      2000
----------------------------------------------------------------------
                                       -Thousands of Dollars -
Operating Expenses            $ 13,572  $ (1,998)  $  15,195  $(1,062)
Other Income (Deductions)        1,244       286       2,102    1,956
Cumulative Effect of
 Accounting Change                 312         -         312        -
----------------------------------------------------------------------
Total Income Tax
 Expense (Benefit)            $ 15,128  $ (1,712)  $  17,609  $   894
======================================================================

     Due to the financial restructuring, a change in TEP's ownership
occurred for tax purposes in December 1991.  This change limits our use
of the NOL and ITC generated before 1992 under the tax code.  At
December 31, 2000, we had approximately $138 million of NOL and $20
million of ITC subject to the pre-1992 limitation and $164 million of
NOL not subject to the limitation.  Because of the appropriate
valuation allowance amounts recorded, we do not expect these annual
limitations to have a material adverse impact on the financial
statements.


NOTE 8.  REVIEW BY INDEPENDENT ACCOUNTANTS
------------------------------------------

     With respect to the unaudited condensed consolidated financial
information of UniSource Energy and TEP for the three-month periods
ended March 31, 2001 and 2000, PricewaterhouseCoopers LLP reported that
they have applied limited procedures in accordance with professional
standards for a review of such information.  However, their separate
report dated May 4, 2001 appearing herein states that they did not
audit and they do not express an opinion on that unaudited condensed
consolidated financial information. Accordingly, the degree of reliance
on their report on such information should be restricted in light of
the limited nature of the review procedures applied.
PricewaterhouseCoopers LLP is not subject to the liability provisions
of Section 11 of the Securities Act of 1933 (the "Act") for their
report on the unaudited condensed consolidated financial information
because that report is not a "report" or a "part" of a registration
statement prepared or certified by PricewaterhouseCoopers LLP within
the meaning of Sections 7 and 11 of the Act.


NOTE 9.  RECLASSIFICATIONS
--------------------------

     In addition to the reclassifications discussed in Note 3, we have
made reclassifications to the prior year financial statements for
comparative purposes.  These reclassifications had no effect on net
income.


<PAGE>

ITEM 2. -  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------------------

      UniSource Energy Corporation (UniSource Energy) is a holding  company
that  owns  the  outstanding common stock of Tucson Electric Power  Company
(TEP)  and  Millennium  Energy  Holdings, Inc.  (Millennium).   TEP  is  an
electric  utility which has provided electric service to the  community  of
Tucson,  Arizona, for over 100 years and whose revenues reached $1 billion,
for  the first time, in 2000.  Millennium is a holding company that invests
in  unregulated  ventures related to the energy business.  We  conduct  our
business  in  these  two primary business segments--TEP's  Electric  Utility
Segment and the Millennium Energy Businesses Segment.

      Management's  Discussion and Analysis explains the general  financial
condition  and the results of operations for UniSource Energy and  its  two
primary business segments and includes the following:

      *  operating  results  during the first quarter of 2001 compared with
         the same period in 2000,
      *  changes in  liquidity  and  capital  resources  during  the  first
         quarter of 2001, and
      *  expectations  of identifiable material trends which may affect our
         business in the future.

      TEP  is  the principal operating subsidiary of UniSource  Energy  and
accounts  for substantially all of its assets and revenues.  The  financial
condition  and  results  of operations of TEP are currently  the  principal
factors  affecting  the financial condition and results  of  operations  of
UniSource  Energy on an annual basis.  The seasonal nature of the  electric
utility  business  causes  operating results  to  vary  significantly  from
quarter  to  quarter.  At March 31, 2001, Millennium's unregulated  energy-
related affiliates comprised approximately 5% of total assets, but at times
have  had  a  significant impact on our consolidated net  income  and  cash
flows.

      Management's  Discussion and Analysis should be read  in  conjunction
with the Condensed Consolidated Financial Statements, beginning on page  2,
which  present the results of operations for the quarters ended  March  31,
2001   and  2000.   Management's  Discussion  and  Analysis  explains   the
differences  between  periods  for specific line  items  of  the  Condensed
Consolidated Financial Statements.

OVERVIEW
--------

      UniSource  Energy recorded net income of $19.3 million for  the first
quarter  of  2001, compared with net income of $0.2 million  in  the  first
quarter  of  2000.  The improvement in first quarter performance  over  the
prior  year  is  primarily  the  result of  increased  wholesale  marketing
activities  and  growth  in retail electricity  sales  at  TEP.   Wholesale
revenues  more than tripled due to sales of available generating  capacity,
increased trading activities and significantly higher prices in the western
U.S. energy markets.  See Results of Operations for further detail.

      OUTLOOK AND STRATEGY

      Our  financial prospects and outlook for the next few years  will  be
affected  by many competitive, regulatory and economic factors.  Our  plans
and strategies include the following:

   *  Continue to  maintain  our  transmission and distribution  system  to
      reliably serve our retail customers.
   *  Efficiently  manage  our  generating resources and  add  capacity  as
      necessary  to  serve  our  retail customers.  We  are  adding peaking
      resources  in  the  Tucson  area  to support expected growth in 2001.
   *  Evaluate  the  expansion of  the Springerville Generating Station  by
      constructing Springerville  Units 3 and 4. This additional generating
      capacity would provide energy under  long-term contracts to potential
      wholesale power  purchasers in Arizona and New Mexico and allow us to
      spread  the  fixed  costs of the existing common faciltities over two
      additional generating units.
   *  Take advantage  of  opportunities  to  sell in  the  wholesale  power
      markets  while  carefully  managing  the  risks associated  with such
      activities.  We believe  that  over the near-term,  average prices in
      the  wholesale  power  markets will remain at  or above  the  average
      pricing levels of 2000.
   *  Look for  ways  to  reduce  or  control operating  costs  in order to
      improve  profitability.  Because  our  Settlement Agreement  provides
      for  a  retail  rate  cap  through  2008, we  can  benefit from  cost
      savings and from expected growth in our retail customer base.
   *  Continue  to use  some  of  our  cash flows to  de-leverage  TEP.  In
      addition  to  our required  debt retirements, in the last three years
      we retired  approximately  $34  million  in  First Mortgage Bonds and
      invested  $54  million  in  Springerville Unit 1 lease debt.  We will
      continue  to look  for opportunities  to  retire or  refinance higher
      coupon debt and make additional investments in lease debt.
   *  Make  ongoing  investments in our technology affiliates.  Although we
      will record  certain development expenses  and experience some losses
      in these investments, we believe  that  over time these ventures will
      be profitable.

      While we believe that our plans and strategies will continue  to have
a positive  impact on our financial  prospects  and  position, we recognize
that we continue to be highly leveraged, and as a result, our access to the
capital  markets may be limited or more expensive than for  less  leveraged
companies.


FACTORS AFFECTING RESULTS OF OPERATIONS
---------------------------------------

      COMPETITION
      -----------

      RETAIL

      The  electric  utility industry is undergoing significant  regulatory
change  designed  to encourage competition in the sale of  electricity  and
related  services.   As of January 1, 2001, all of TEP's  retail  customers
became  eligible to choose an alternate energy supplier.  Currently,  there
is  one  certified  energy service provider (ESP) in TEP's  retail  service
area.   During the first quarter of 2001, five commercial customers  at  19
locations,  totaling  10  MW  of load, elected  to  purchase  their  energy
requirements  from  an alternate energy supplier.  However,  all  of  these
customers  have  since  returned to TEP's customer base.  It  is  possible,
however,  that  with  open  access in our retail service  territory,  these
customers may return to the ESP, and other customers may elect to  purchase
their  energy requirements from other energy suppliers.  TEP also  competes
against gas service suppliers and others who provide energy services.

      TEP  will continue  to  serve certain large  retail  customers  under
contracts  negotiated  by TEP.  TEP has contracts  with  two  major  mining
customers, one of which extends to 2006, with pricing tied to the price  of
copper.  TEP's other major mining customer publicly announced in March 2001
that because of certain economic conditions, it plans to curtail production
at  its facilities in TEP's service area during August and September  2001.
TEP  believes that it will be able to use this excess capacity  to  service
its  retail  load during this peak energy demand period, or sell  into  the
wholesale market.

      TEP'S SETTLEMENT AGREEMENT AND RETAIL ELECTRIC COMPETITION RULES

      In  December  1996,  the ACC adopted the Retail Electric  Competition
Rules  that  provided a framework for the introduction of  retail  electric
competition  in  Arizona.   These  Rules, as  amended  and  modified,  were
approved by the ACC in September 1999.  For TEP, the Rules became effective
in  January  2000,  and consumer choice was available to all  customers  by
January  1,  2001.   However,  certain conditions  had  to  be  met  before
electricity  could  be  sold  competitively  in  TEP's  service  territory.
Examples of these include ACC approval of TEP's direct access tariffs,  ACC
certification  of ESPs, and execution of and compliance with direct  access
service agreements by ESPs and TEP.

      In  November 1999, the ACC approved the Settlement Agreement  between
TEP  and  certain customer groups relating to the implementation of  retail
electric  competition, including TEP's recovery of its transition  recovery
assets  and the unbundling of tariffs.  The Settlement Agreement  provides,
among  other  things, that TEP freeze its retail rates until  December  31,
2008, except under certain circumstances.  These include the impact of  (a)
termination of the Fixed Competitive Transition Charge component of  retail
rates  as  a  result of the early collection of $450 million of  transition
recovery  assets;  (b)  changes in transmission  charges  due  to  regional
transmission  organizations; and (c) a transmission and  distribution  rate
filing  required  in  June  2004 which may  result  in  lower  rates.   The
Settlement Agreement also requires TEP to transfer its generating and other
competitive assets to a subsidiary by December 31, 2002.

      The  status of the Rules and the ability of ESPs to continue to  sell
competitive  services  may  be  subject  to  change  due  to  recent  court
proceedings.    Several   parties,   including   certain   rural   electric
cooperatives  (Cooperatives), filed lawsuits in  Maricopa  County  Superior
Court  challenging the Rules, contending, among other things, that allowing
marketplace   competition   to   determine   rates   violated   the   ACC's
constitutional  duty  to  set  rates.  The Court  found  the  Rules  to  be
unconstitutional and unlawful due to the failure of the Rules to  establish
a  fair  value  rate  base for competitive electric service  providers  and
because  certain of the Rules were not submitted for certification  to  the
Arizona  Attorney  General.   The Court also  invalidated  all  ACC  orders
granting  certificates of convenience and necessity to competitive electric
service providers in Arizona.

      The ACC, RUCO (Residential Utility Consumer Office) and certain large
industrial  customers have appealed the decision to the Court  of  Appeals.
In  addition,  the  Cooperatives have filed a notice  of  cross  appeal  of
certain aspects of the decision.  Implementation of the judgment is  stayed
and the Rules remain in effect pending the outcome of the appeals.

      TEP  cannot  predict  the  effect of the recent court decision on the
outcome  of  the  appeals  to which it is a party  or  the  effect  of  the
judgment,  if affirmed upon appeal, on the introduction of retail  electric
competition in Arizona.

      WHOLESALE

      TEP  competes  with other utilities, power marketers  and independent
power producers in the sale of electric capacity and energy at market-based
rates  in the wholesale market.  We expect the market price and demand  for
capacity  and energy to continue to be influenced by the following  factors
during the next few years:

      *  continued population growth in the western United States;
      *  limited availability of capacity  throughout  the  western  United
         States;
      *  restructuring  of  the   electric  utility  industry  in  Arizona,
         California and other western states;
      *  the reduced availability and high prices of natural gas;
      *  precipitation, which affects hydropower availability;
      *  transmission constraints; and
      *  environmental restrictions and the cost of compliance.

      The average market price for around-the-clock energy based on CPX Palo
Verde  hub  prices increased significantly in 2000 to $87 per MWh  compared
with  $26  per  MWh in 1999.  In the first quarter of 2001, the  comparable
average market price based on the Dow Jones Palo Verde Index, was $188  per
MWh  compared  with $27 per MWh in the first quarter of 2000.   As  of  May
2001, we estimate the average forward around-the-clock market price for the
balance  of  the year 2001 to be approximately $250 per MWh.   Although  we
cannot  predict whether such prices are sustainable for the  long-term,  we
expect  that average market prices during 2001 will remain at or above  the
average pricing levels of 2000.  See Western Energy Markets below.

      NEW LONG-TERM WHOLESALE POWER CONTRACT

      In  the  first  quarter  of 2001, TEP signed  a  five-year  wholesale
contract  to  supply 60 MW of electricity to Phelps Dodge  Energy  Services
(PDES).  The contract calls for TEP, beginning in March 2001, to supply the
power  at all times except during TEP's peak customer energy demand period,
from July through September of each year.  It also gives PDES the option of
receiving  the  power  at several of its operations outside  TEP's  service
territory in Arizona and New Mexico.  Under the contract, TEP can interrupt
delivery  of  power  if  the utility experiences significant  loss  of  any
electric  generating  resources.   TEP expects  the  contract  to  generate
revenues of about $30 million annually through 2006.

      TRANSMISSION ACCESS

      In  1997, TEP, along with other transmission owners and users located
in  the  southwestern U.S., began to investigate the feasibility of forming
an  Independent  System  Operator (ISO) for the region.   Over  50  parties
participated  in  a  Development Agreement, and as a result,  a  non-profit
corporation  named Desert STAR was formed in September 1999.   In  December
1999, the FERC issued FERC Order 2000, which established timelines for  all
transmission  owning entities to join a Regional Transmission  Organization
(RTO) and defined the minimum characteristics and functions of an RTO.   An
ISO  would satisfy the requirements of an RTO and would be responsible  for
ensuring  transmission  reliability and  nondiscriminatory  access  to  the
regional  transmission  grid.  Over 140 entities  have  become  members  of
Desert STAR.

      TEP,  along with  several neighboring  transmission owners located in
the southwestern  United  States and  Desert STAR,  filed a report with the
FERC on October 16, 2000 that detailed their progress in establishing an RTO.
On December 27, 2000,  Desert STAR, TEP, and other neighboring transmission
owners  and  other customers of the transmission system filed an additional
letter  with FERC in which Desert STAR stated that it expected to  file  an
application by the end of March 2001 to become an RTO, and that it expected
to  begin operation late in 2002.  In February 2001, TEP, along with  other
stakeholders, filed a request for extension to May 2001 for completing  the
filing  with  the FERC.  The formation of Desert STAR will  be  subject  to
approval by the FERC and state regulatory authorities in the region.

      The  ACC Retail Electric Competition Rules also require the formation
and  implementation  of  an  Arizona Independent  Scheduling  Administrator
Association (AISA).  The AISA is anticipated to be a temporary organization
until  the formation and implementation of an ISO or RTO.  TEP participated
in the creation of the AISA.  This includes its incorporation as a not-for-
profit  entity,  the  filing  at  the FERC for  approval  of  its  proposed
structure,  rates  and procedures, and the drafting of  its  protocols  for
operation.   During  2000, the board of AISA approved a  set  of  operating
protocols, which it submitted to the FERC for approval.  The FERC  approved
the  protocols  in  part  but rejected other parts,  effectively  requiring
modifications  to  the  protocols.   The  Board  of  the  AISA   had   been
unsuccessful  in approving a compliance filing relative to the  FERC  Order
and asked FERC for an indefinite stay of implementation until such time  as
the  AISA  Board could work out issues in the compliance filing.  The  FERC
approved  a stay, subject to the filing of status updates by the AISA.   On
May  1,  2001, the Board of the AISA approved the compliance filing  and  a
filing  to  make  minor  modifications to  the  wording  of  the  operating
protocols  for the AISA.  The compliance filing will meet the  requirements
of  the  FERC  order relative to the AISA and will provide sunset  language
should  a  future  filing be needed to further modify the  protocols.   TEP
continues  to  participate with the other Affected Utilities in  developing
the AISA's structure and protocols in response to retail competition.

      WESTERN ENERGY MARKETS
      ----------------------

      Due  to  the  high market prices and the various factors  influencing
supply  and  demand (as detailed above), the California energy markets,  as
administered  by  the CPX and the CISO, became dysfunctional  during  2000.
These  high  prices  and extraordinary market conditions  affect  not  only
California, but the entire Western Region of the United States and  Canada.
During  January  and  February 2001, SCE and PG&E, two  of  the  California
utilities  that are the largest market participants, defaulted on  payments
due  to  the CPX and CISO for power consumed in the fourth quarter of  2000
and  the first quarter of 2001.  On January 30, 2001, the CPX suspended its
day-ahead and day-of energy trading and subsequently ceased operations  and
filed for bankruptcy.  Beginning in January 2001, the California Department
of Water Resources (CDWR) was authorized to make energy purchases on behalf
of California customers.  PG&E filed for reorganization under Chapter 11 of
the  U.S.  Bankruptcy Code on April 6, 2001.  SCE signed  a  Memorandum  of
Understanding  (MOU) with the CDWR on April 9, 2001,  which  sets  forth  a
comprehensive   plan  calling  for  legislation,  regulatory   action   and
definitive  agreements designed to resolve certain aspects  of  the  energy
crisis and restore SCE's creditworthiness and liquidity.

      Although TEP did not make sales directly to either of these utilities
in  2000  or  2001, it did make sales to the CPX and CISO and therefore  is
affected  by  the defaults noted above.  We cannot predict the  outcome  of
either  the  PG&E bankruptcy or the implementation of the SCE MOU  and  the
effect,  if  any,  on  the introduction of retail electric  competition  in
Arizona or TEP's ability to collect the full amounts it is owed by the  CPX
and CISO.

      PAYMENT DEFAULTS AND ALLOWANCES FOR DOUBTFUL ACCOUNTS

      TEP sold approximately  $58  million of power to  the  CPX  and  CISO
during 2000 and $7 million during January of 2001.  As a result of  payment
defaults   by   market   participants,  TEP's  collection   shortfall   was
approximately  $9 million for sales made in 2000 and $7 million  for  sales
made in 2001.  We recorded an allowance for doubtful accounts and potential
refunds for wholesale transactions for the full amount of these uncollected
amounts in the fourth quarter of 2000 and the first quarter of 2001.  Total
reserves for potential non-payment of amounts due to TEP for sales  to  the
CPX  and  CISO during 2000 and 2001 total $16 million.  TEP sold $9 million
of  power  to the CDWR in the first quarter of 2001, all of which has  been
paid according to terms.

      Under  default  provisions  contained in  the  CPX  tariff,  the  CPX
allocated the defaults of CPX participants to remaining participants  based
upon the level of trading activity of each participant during the preceding
three-month period.  Not only were initial defaults of a CPX debtor charged
back  to  the  other  participants, but defaults by other  participants  on
charge-backs  have  also been charged back.  A number of  CPX  participants
filed  suit  against the CPX in February 2001, and a preliminary injunction
was  implemented that precluded the CPX from issuing any more invoices  for
charge-backs,  attempting to collect on charge-backs or exercising  against
collateral.  In April 2001, the FERC ordered the CPX to issue new  invoices
reflecting the reversal of the charge-backs on the CPX accounting  records.
As  noted  above,  the CPX has ceased operations and filed for  bankruptcy.
TEP has cash collateral of approximately $1 million on deposit in an escrow
account  with  the CPX which is currently unavailable to  TEP  due  to  the
bankruptcy stay.

      On February 21, 2001, TEP filed a complaint at the FERC charging that
the  State  of  California, California Governor Gray  Davis,  and  the  CPX
violated  the  Federal  Power Act by letting the  CDWR  seize  the  forward
contracts  of  SCE  and PG&E at the CPX without prior FERC  approval.   TEP
contends that this seizure violates the CPX tariff which provides  for  the
liquidation   of   favorable  forward  positions  to  mitigate   a   market
participant's default amount.  TEP's complaint requests the FERC  to:  void
the  seizure  of  these  assets by Governor Davis;  require  the  State  of
California  to  pay  fair  market value for the  contracts  or  assume  the
wholesale power liabilities of PG&E and SCE to the PX; and declare that the
wholesale rates produced under the CPX tariffs are just and reasonable  and
should be collected from the utilities' retail customers.

      During  March  2001,  the  FERC issued two orders  requiring  certain
generators  that sold power to California in January and February  2001  to
either refund amounts over specified market prices or provide further  data
to defend their transactions.  TEP was not named in either of these orders.
The  FERC  has not yet addressed whether any refunds are due on sales  made
from October 2, 2000 through December 31, 2000.

      There  are  several other outstanding legal issues,  complaints,  and
lawsuits concerning the FERC, wholesale power suppliers, SCE, PG&E, the CPX
and  CISO.   New events and issues related to the California energy  crisis
arise  each  day,  and we cannot predict the outcome  of  these  issues  or
lawsuits.   We  believe, however, that we are adequately reserved  for  our
transactions  with  the  CPX and CISO.  See Note 6 of  Notes  to  Financial
Statements.

      DEPARTMENT OF ENERGY ORDERS

      On December 14, 2000, the Secretary of Energy issued an order designed
to  address  the  electric  emergency in California.   The  order  required
entities, including TEP, to "sell electricity to the California ISO that is
available in excess of electricity needed by each entity to render  service
to  its firm customers."  This order was extended several times due to  the
continuation of the emergency situation.  The order was allowed  to  expire
on  February  7,  2001.  Another emergency order requiring four  generators
(not  including TEP) to continue to sell power was extended  through  March
16, 2001.

      During  January 2001, TEP sold approximately $7 million of energy  to
the  CPX  and  the  CISO.   Since January 12,  however,  planned  generator
maintenance  and increased firm customer demand resulted in a  decrease  of
excess energy available for sale from TEP to California.  Furthermore,  the
most  critical energy shortages have been in Northern California.   Due  to
transmission constraints, energy cannot be moved from the South, where  our
generation  is located, to the North.  Therefore, requests for power  under
the  Department  of  Energy order were minimal after  January  12.   During
February  and March, sales to California amounting to $9 million were  made
through the CDWR.

      SCE POWER EXCHANGE AGREEMENT

      As part of a 1992 litigation settlement, TEP and SCE agreed to a ten-
year  power  exchange  agreement.  The agreement  began  in  May  1995  and
requires SCE to provide firm system capacity of 110 MW to TEP during summer
months.   TEP is obligated to return to SCE in the winter months  the  same
amount  of  energy  that  it  received during the  preceding  summer.   For
example, in the summer of 2000 TEP received approximately 140,000 MWh  from
SCE  and  returned the same amount during the winter months  from  November
2000 to February 2001.  Since 1995, TEP has relied upon the 110 MW provided
under  this agreement as a firm source of energy to supply its retail  load
during  the peak summer months.  During the summer of 2000 there  were  two
days  when  power  emergencies were called in California and  SCE  did  not
deliver  energy  to  TEP.  This caused TEP to have to  purchase  power  for
several  peak hours of the day at high spot power prices. TEP believes  the
agreement  requires  SCE to purchase power for TEP's  benefit  under  those
circumstances,  and during subsequent power alerts, SCE  did  purchase  and
provide power to TEP under the agreement.

      Since  then,  the  continuing energy crisis  in  California  and  the
deteriorating financial condition of SCE has created uncertainty as to  the
availability of this power for TEP.  In the event that this resource is not
available  to  TEP  in  2001 and 2002, TEP would need to  seek  alternative
sources of capacity and energy at prices that would likely be in excess  of
the cost of this resource.  To the extent possible, TEP would rely upon the
new  peaking  units  it  plans to have in place by mid-2001,  interruptible
contracts, load-shifting by large industrial customers, and reserve sharing
arrangements  with other utilities as resources before having  to  purchase
power  on the spot markets.  Using TEP's current summer load forecast,  and
assuming all other resources are available, TEP estimates that the loss  of
energy   under  this  contract  would  cause  TEP  to  need   to   purchase
approximately 4,000 MWh to meet its summer peaking needs.  At an  estimated
average cost of $500 per MWh, TEP's purchased power costs would increase by
$2 million.

      To  the  extent that TEP takes less power during the summer than  the
maximum allowed under the contract, TEP's obligation to return power in the
winter to SCE would be decreased by a similar amount.  TEP could then  sell
this power into the wholesale energy markets.

      FOUR CORNERS GENERATING STATION COMMITMENT

      TEP  is  a 7% owner of Four Corners Generating Station.  The  station
participation agreement requires that if one of the participants  fails  to
make  its payments for operation of the station when due, the other station
participants must make such payments on behalf of the defaulting party,  in
proportion to their ratable ownership interest in the station, for a period
of  up  to  six  months.   During this time the defaulting  participant  is
entitled  to  its share of the power generated by the station.   After  the
grace  period, the defaulting participant must make its payments in arrears
before it would be entitled to its continuing share of power.

      SCE  is a 48% owner of the station.  SCE has publicly disclosed  that
due  to the high cost of wholesale power in California which to date it has
not  been  able  to  recover from customers, it may no longer  be  able  to
continue  to  meet  its financial obligations.  SCE has  made  all  of  its
payments for the operation of the station through April 30, 2001.  However,
we  are uncertain whether SCE will be able to continue to make its payments
for  the  remainder of 2001.  Based on the operating budget for the station
for  the year 2001, in the event that SCE were to fail to pay, TEP  may  be
required  to  pay on SCE's behalf, for the power SCE receives,  an  average
amount  of  $1  million per month for up to six months.  TEP is  unable  to
predict  whether  TEP  will be required to make any such  payments  in  the
future.

   REGULATORY MATTERS
   ------------------

      TEP generally uses the same accounting policies and practices used by
unregulated  companies  for  financial  reporting  under  GAAP.    However,
sometimes  these  principles, such as FAS 71,  require  special  accounting
treatment  for  regulated companies to show the effect of regulation.   For
example,  in  setting  TEP's retail rates, the ACC may  not  allow  TEP  to
currently  charge  its customers to recover certain expenses,  but  instead
requires that these expenses be charged to customers in the future. In this
situation,  FAS  71 requires that TEP defer these items and  show  them  as
regulatory  assets on the balance sheet until TEP is allowed to charge  its
customers.  TEP  then  amortizes  these items  as  expense  to  the  income
statement as those charges are recovered from customers. Similarly, certain
revenue  items  may be deferred as regulatory liabilities, which  are  also
eventually  amortized  to the income statement as rates  to  customers  are
reduced.

      The   conditions  a  regulated company  must  satisfy  to  apply  the
accounting policies and practices of FAS 71 include:

      *  an independent regulator sets rates;
      *  the regulator sets the rates to cover specific costs of delivering
         service; and
      *  the service territory lacks  competitive pressures to reduce rates
         below the rates set by the regulator.

      In November 1999, upon approval by the ACC of a  Settlement Agreement
relating  to recovery of TEP's transition costs and standard retail  rates,
we discontinued application of FAS 71 to our generation operations.

      We  continue  to  apply FAS 71 to the distribution  and  transmission
portions  of  TEP's  business, our regulated operations.   We  periodically
assess whether we can continue to apply FAS 71 to these operations.  If  we
stopped  applying FAS 71 to TEP's remaining regulated operations, we  would
write  off  the related balances of TEP's regulatory assets as a charge  in
our income statement.  Based on the balances of TEP's regulatory assets  at
March  31,  2001,  if  we had stopped applying FAS 71  to  TEP's  remaining
regulated  operations, we would have recorded an extraordinary loss,  after
tax,  of  approximately $260 million.  While regulatory orders  and  market
conditions may affect our cash flows, our cash flows would not be  affected
if we stopped applying FAS 71.

   MARKET RISKS
   ------------

      We  are exposed to various forms of market risk.  Changes in interest
rates,  returns  on marketable securities, and changes in commodity  prices
may  affect our future financial results.  The market risks resulting  from
changes  in  interest rates and returns on marketable securities  have  not
changed materially from the market risks reported in the 2000 Form 10-K.

      For  additional information concerning risk factors, including market
risks, see Safe Harbor for Forward-Looking Statements below.

      COMMODITY PRICE RISK

      TEP  is exposed to commodity price risk primarily relating to changes
in  the  market  price  of electricity, as well as changes  in  fuel  costs
incurred to generate electricity.  TEP enters into forward contracts to buy
or  sell energy at a specified price at a future date.  These contracts are
considered to be derivative commodity instruments.  Generally, TEP  commits
to  future sales based on expected excess generating capability.   However,
rather  than  producing  additional power, TEP may  enter  into  a  forward
purchase  contract  to  satisfy the forward sales contract  if  the  market
prices are favorable.  The forward sales contracts that are satisfied  with
forward  purchase contracts do not require any physical delivery of  energy
by  TEP.   However, to take advantage of anticipated market  opportunities,
TEP  is at various times in a net open position.  A net open position means
it  has  either  committed to sell more electricity than  it  has  purchase
contracts to cover or it has committed to purchase more power than it needs
for  its  selling commitments.  To limit exposure to price  risk,  TEP  has
trading  policies with limits as to total open positions.  TEP  continually
reviews  its  trading  policies and limits to  respond  to  the  constantly
changing market conditions.

      TEP  measures  its market risk related to its commodity  exposure  by
using  a  sensitivity analysis.  The market prices used to  determine  fair
value  are  estimated  based on various factors  including  broker  quotes,
exchange  prices, over the counter prices and time value.  As of March  31,
2001,  TEP  had  no open trading positions; however, it  had  a  number  of
forward  sales  positions which are considered to be  derivative  commodity
instruments and hedges of forward long generation positions.  As  of  March
31,  2001,  an increase of 10% in the market prices of electric power  from
quarter-end levels would have decreased the fair value of these instruments
by  $3  million.   Beginning in 2001, changes in the fair  value  of  these
derivative  instruments  are  measured  in  our  financial  statements   in
accordance  with FAS 133.  See Note 2 of Notes to Financial Statements  and
Accounting for Derivative Instruments and Hedging Activities, below.

      TEP may have increased commodity price risk during 2001 and 2002, due
to a potential need to replace a power resource previously available  to it
during  the  summer  peak usage periods.  See Western Energy  Markets,  SCE
Power  Exchange  Agreement, above.  In the event that  this  resource  were
unavailable  to TEP, or if other unexpected losses of generation  resources
were to occur due to unplanned outages or natural disasters, TEP would need
to  seek alternative sources of capacity and energy at prices likely to  be
significantly  in  excess of the cost of these resources.   To  the  extent
possible,  TEP would rely upon the new peaking units it plans  to  have  in
place   by  mid-2001,  interruptible  contracts,  load-shifting  by   large
industrial customers, and reserve sharing arrangements with other utilities
as  resources  before having to purchase power on the spot markets.   Under
the  terms  of  its  Settlement Agreement, TEP's retail  rates  are  frozen
through  December  31,  2008,  except  under  certain  circumstances.   See
Competition, Retail above.  As such, TEP would not be able to  recover  any
such increased purchased power costs without further action by the ACC.

      TEP  also  purchases  coal and natural gas in the  normal  course  of
business  for fuel for its generating plants.  TEP acquires its coal  under
long-term  coal  supply contracts.  Purchases of gas historically  provided
fuel for only 3-4% of total generation.  During the quarter ended March 31,
2001,  approximately  10% of TEP's generation was fueled  by  natural  gas.
Market  prices  of natural gas also increased significantly  in  the  first
quarter  2001, which, combined with increased usage, caused  gas  costs  to
comprise  39% of total fuel expense for the quarter ended March  31,  2001.
In  contrast,  TEP  used almost no gas for generation  fuel  in  the  first
quarter  of 2000.  The sustained high levels of wholesale energy prices  in
the  first  quarter of 2001 made it profitable for TEP to run its gas-fired
generating units to sell into the wholesale market.  TEP is assured of  its
gas  supply  as a retail customer of the local gas supplier in the  region.
TEP periodically negotiates its contract with its gas supplier to establish
terms  relating to pricing and scheduling of gas delivery.   TEP  has  also
entered into a contract to hedge a portion of its gas requirements for  the
summer of 2001.

      CREDIT RISK

      TEP is exposed to credit risk in its energy trading activities related
to  potential nonperformance by counterparties.  TEP manages  the  risk  of
counterparty  default by performing financial credit  reviews  and  setting
limits  and  monitoring exposures, requiring collateral  when  needed,  and
using  a  standardized agreement which allows for the  netting  of  current
period  exposures  to  and  from  a  single  counterparty.   Despite   such
mitigation efforts, there is a potential for defaults by counterparties  to
occur  from  time  to time.  In the fourth quarter of 2000  and  the  first
quarter  of 2001, TEP was impacted by payment defaults by SCE and PG&E  for
amounts owed to the CPX and CISO.

      TEP  sold  approximately $58  million of power to the  CPX  and  CISO
during 2000 and $7 million during January of 2001.  As a result of  payment
defaults  by SCE and PG&E, TEP's collection shortfall was approximately  $9
million  for sales made in 2000 and $7 million for sales made in 2001.   We
recorded  an allowance for doubtful accounts for the full amount  of  these
uncollected amounts in the fourth quarter of 2000 and the first quarter  of
2001.   We recorded no such allowances in years prior to 2000.  See Western
Energy  Markets,  Payment Defaults and Allowances  for  Doubtful  Accounts,
above.   Based on a review of its credit exposures at March 31,  2001,  TEP
does not anticipate any nonperformance by any of its other counterparties.

      ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

      In  1998,  the  Financial Accounting Standards  Board  (FASB)  issued
Statement  of Financial Accounting Standards No. 133 (FAS 133),  Accounting
for  Derivative Instruments and Hedging Activities. A derivative  financial
instrument  or other contract derives its value from another investment  or
designated  benchmark.   We  buy  and sell wholesale  power  using  forward
contracts which are considered to be derivatives.  See Note 2 of  Notes  to
Financial Statements.

      On  January 1, 2001,  we recorded  the cumulative effects of adopting
FAS 133  in our financial statements by recognizing all derivatives at fair
value  and recording the following amounts on our forward contracts  as  of
January 1, 2001:

      Income Statement: after-tax unrealized gain of $470,000.
      Balance Sheet:
      *  Other  Comprehensive  Income, a component of stockholders' equity:
         after-tax unrealized loss of $14 million, and
      *  Forward Sale and Purchase Contract Liability of $22 million.

      Under  FAS 133, we record unrealized gains and losses on our  forward
contracts  and adjust the related liability on a monthly basis  to  reflect
the  market prices at the end of the month.  In the first quarter of  2001,
we recorded the following amounts on our forward contracts:

      Income  Statement: after-tax unrealized loss on forward sales  of $24
        million and after-tax unrealized gain on  forward purchases of  $26
        million.
      Balance Sheet:
      *  Other Comprehensive Income, a component of stockholders' equity: a
         net after-tax unrealized loss of $248,000, consisting of:
         -  an unrealized loss of $7 million; and
         -  a $7 million reversal of previously recorded unrealized  losses
            on cash flow hedges which settled during the period.
      *  Forward Sale and Purchase Contract Liability of $20 million.

      All  hedged  contracts  open  at  March 31, 2001  will  be settled by
December 31, 2001, and as a result, the unrealized losses included in Other
Comprehensive Income  as of  March 31, 2001  will be  reversed  from  Other
Comprehensive Income by year-end.

   FUTURE GENERATING RESOURCES
   ---------------------------

      TEP

      To  improve local system reliability, TEP determined that  additional
peaking  resources would be needed in Tucson beginning in 2001.  To address
this need, TEP purchased a 75 MW gas turbine and Millennium purchased a  20
MW  gas  turbine.  Construction is proceeding on both turbine sites and  we
continue  to expect these units to be in operation by mid-2001 to meet  our
summer peaking needs.  In the short and intermediate term, TEP's need  will
be for additional peaking resources, not for base-load generating capacity.
TEP  will  continue to add peaking resources in the Tucson area  as  needed
based upon our forecasts of retail and firm wholesale load.

      Millennium

      In recognition of the strong retail growth in Arizona and New Mexico,
as  well  as existing and projected base-load generation capacity needs  in
the  western  region,  we are evaluating the expansion  of  the  coal-fired
Springerville Generating Station by constructing Springerville Units 3  and
4.   Springerville was originally designed for four units.  Units 3  and  4
would  consist of two 380 MW coal-fired base-load generating units  at  the
same site as Springerville Units 1 and 2, and would allow us to spread  the
fixed   costs  of  the  existing  common  facilities  over  two  additional
generating  units.  We have retained outside consultants to  assist  us  in
developing   the   project  scope  and  schedule,  determining   permitting
requirements,  and defining the terms of an engineering,  procurement,  and
construction contract.

      In  addition,  we  are  continuing to  study  various  financing  and
ownership  structures  and  identifying equity participants  and  long-term
power   purchasers.    We  also  are  continuing  to  evaluate   permitting
requirements,   potential   fuel   sources,   and   electric   transmission
requirements to potential wholesale electric purchasers.  Should we  decide
to  go forward with this project, we anticipate that Letters of Intent with
project  participants  will be signed in mid-year  2001.   We  expect  that
construction  would begin during the second half of 2001,  with  commercial
operation of Unit 3 expected to occur in 2004, followed by Unit 4 in  2005.
See also Future Generating Resources, Millennium in the 2000 Form 10-K.

RESULTS OF OPERATIONS
---------------------

      UniSource  Energy recorded net income of $19.3 million  or  $0.58 per
average  share of Common Stock in the first quarter of 2001.  This compares
with  net income of $0.2 million or $0.01 per average share of Common Stock
in the first quarter of 2000.  The primary factors affecting the results of
operations in the first quarter of 2001 were strong results from  wholesale
marketing  activities  and  growth  in retail  electricity  sales  at  TEP.
Wholesale  revenues more than tripled due to sales of available  generating
capacity,  increased trading activities and significantly higher prices  in
the Western U.S. energy markets.

   CONTRIBUTION BY BUSINESS SEGMENT
   --------------------------------

      The table below shows the contributions to our consolidated after-tax
earnings  by our two business segments, as well as parent company  expenses
and inter-company eliminations, for the first quarter of 2001 and 2000:


                                                      Three Months Ended
                                                           March 31,
                                                        2001       2000
---------------------------------------------------------------------------
                                                    - Millions of Dollars -
Business Segment
  TEP                                                 $ 23.5     $ (0.1)
  Millennium                                            (2.9)       1.5
  Parent Company and Inter-Company Eliminations         (1.3)      (1.2)
---------------------------------------------------------------------------
    Consolidated Net Income                           $ 19.3     $  0.2
===========================================================================


      Parent company results include the after-tax interest expense accrued
on  a note payable from UniSource Energy to TEP.  This note was provided to
TEP  in  exchange  for the stock of Millennium in January  1998.   Electric
Utility results include interest income from this note.

      TEP's  electric  utility business accounts for  substantially  all of
UniSource Energy's assets and revenues. The financial condition and results
of  operations  of  TEP are currently the principal factors  affecting  the
financial  condition and results of operations of UniSource  Energy  on  an
annual  basis.   The  following  discussion is  related  to  TEP's  utility
operations, unless otherwise noted.  The results of our unregulated  energy
businesses are discussed in Results of Millennium Energy Businesses below.

   NEW ACCOUNTING STANDARD
   -----------------------

      On  January  1,  2001, we adopted FAS 133, Accounting for  Derivative
Instruments  and  Hedging Activities.  As a result, TEP  began  recognizing
unrealized  gains  and losses related to forward sale and  purchase  energy
contracts  in  its  income statement in the first  quarter  of  2001.   The
unrealized  gain (loss) on forward sales is a component of  Total  Electric
Sales for Resale, and the unrealized (gain) loss on forward purchases is  a
component of Total Purchased Power.  Although the FASB requires that  these
unrealized  gains and losses be recorded separately for forward  sales  and
purchases,  the  net  total  of  the two  line  items  represents  the  net
unrealized  gain  or loss on TEP's forward trading activity  at  any  given
point in time.  See Note 2 of Notes to Financial Statements.

      The analysis of sales for resale and purchased power costs below will
exclude  the  impact of these unrealized gains and losses  required  to  be
recorded by FAS 133.

   UTILITY KWH SALES AND REVENUES
   ------------------------------

      Customer growth, weather and other consumption factors affect  retail
sales  of electricity.  Price changes also contribute to changes in  retail
revenues.   Sales for resale are affected by market prices in the wholesale
energy market, competing sources of energy and capacity in the region.

      During the first quarter 2001, TEP experienced significant growth  in
wholesale energy sales and revenues, primarily due to significantly  higher
regional  market  prices and opportunities to sell  its  excess  generating
capacity  to  California and other western wholesale  market  participants.
These revenues more than tripled in the first quarter of 2001 compared with
the  first  quarter  of 2000, and comprised 52% of total  revenues.   TEP's
sales for resale consist primarily of four types of sales:

     (1)  Sales  of firm  capacity under long-term contracts for periods of
          more than one year.  TEP  currently has long-term  contracts with
          three  entities  to sell  firm capacity:  Salt River Project, the
          NTUA, and effective March 2001, PDES.
     (2)  Forward contracts  to  sell energy for periods of up to one year.
          Under forward contracts,  TEP  commits to sell a specified amount
          of capacity or energy at a specified price over a given period of
          time, typically for one month,  three months or one year periods.
          Forward contracts may consist of sales of TEP's excess generating
          capacity, or may represent  trading activity, where forward sales
          and  purchases  may  be  made  within  established limits to take
          advantage of favorable market opportunities.
     (3)  Short-term economy energy sales in the daily or hourly markets at
          fluctuating spot market prices.
     (4)  Sales of transmission service.

Comparisons  of  TEP's kilowatt-hour sales delivered and the  corresponding
electric revenues are shown below:




                                        Three Months Ended
                                            March 31,           Increase
Sales:                                   2001      2000    Amount    Percent
----------------------------------------------------------------------------
                                                 - Millions of kWh -

Electric Retail Customers               1,769     1,722       47       2.7%
----------------------------------------------------------------------------
Electric Sales for Resale Delivered:
  Long-term Contracts                     334       333        1       0.3%
  Forward Contracts                       618       474      144      30.4%
  Short-term Sales                        583       685     (102)    (14.9%)
----------------------------------------------------------------------------
Total Electric Sales for Resale         1,535     1,492       43       2.9%
----------------------------------------------------------------------------
        Total                           3,304     3,214       90       2.8%
============================================================================



                                        Three Months Ended
                                            March 31,           Increase
Operating Revenues:                      2001      2000    Amount    Percent
----------------------------------------------------------------------------
                                               - Millions of Dollars -

Electric Retail Customers             $ 134.7   $ 131.3   $   3.4      2.6%
----------------------------------------------------------------------------
Electric Sales for Resale Delivered:
  Long-term Contracts                    16.6      13.2       3.4     25.8%
  Forward Contracts                      49.1      12.4      36.7    296.0%
  Short-term Sales                       77.1      18.4      58.7    319.0%
  Transmission                            0.9       0.8       0.1     12.5%
----------------------------------------------------------------------------
Total Electric Sales for Resale         143.7      44.8      98.9    220.8%
----------------------------------------------------------------------------
        Total                         $ 278.4   $ 176.1   $ 102.3     58.1%
============================================================================


      TEP's  kWh sales to retail customers increased by 2.7% in  the  first
quarter  of  2001 compared with the same period in 2000.   The  retail  kWh
sales increase was due to a 2.6% increase in the number of retail customers
and  cooler  winter  temperatures as measured by a 19% increase in  Heating
Degree  Days  compared  with the first quarter of  2000.   Retail  revenues
increased  by  2.6%  in the first quarter of 2001 compared  with  the  same
period in 2000, reflecting the higher kWh sales.  This increase was offset,
in  part, by the effect of a 1.0% across-the-board rate reduction effective
July 1, 2000.

      Kilowatt-hour sales for resale increased by 2.9% in the first quarter
of  2001 compared with 2000, while revenues from sales for resale more than
tripled in the same period.  The largest increase in revenues was in short-
term  economy  sales  in  the daily and hourly markets.   Sustained  higher
market prices made it economical for TEP to run its gas generation units to
produce  energy to sell to other regional utilities and marketers.  Factors
contributing  to the higher market prices include increased demand  due  to
population  and economic growth in the region, higher natural  gas  prices,
dysfunction  in  the California marketplace, increased maintenance  outages
due  to  higher  than  normal  operating  levels,  lower  availability   of
hydropower   resources,   transmission   constraints,   and   environmental
constraints.

   FUEL AND PURCHASED POWER RECEIVED EXPENSES
   ------------------------------------------

      Fuel and Purchased Power Received expenses increased by  $57  million
or 94%  in the first quarter of 2001 compared with the same period the year
before to support robust wholesale sales.  Fuel expense at TEP's generating
plants  increased by $27 million or 63% primarily because of higher natural
gas  prices  and  increased usage of gas generation to meet  increased  kWh
sales.  The average cost of fuel per kWh generated was 2.40 cents for first
quarter  2001  and  1.58  cents  for first  quarter  2000,  reflecting  the
increased  usage of gas as fuel in 2001.  Purchased Power Received  expense
increased by $29 million or 173% because of higher wholesale energy  prices
and  increased purchases in the forward and spot energy markets for trading
purposes and under agreements to resell to wholesale customers.

   OTHER OPERATING EXPENSES
   ------------------------

      Other  Operations expense increased $6 million,  or  21%  because  of
additional  reserves to cover our credit exposure for risk  of  non-payment
from  wholesale sales to California made in January 2001.  See  Note  6  of
Notes to Financial Statements.

      Maintenance  Expense increased $4 million over the  first quarter  of
2000  because  of scheduled maintenance at the Irvington and  Springerville
Unit 2 generating plants.

      Income Taxes increased $16 million in the first quarter of  2001  due
to higher pre-tax income than in the first quarter of 2000.

   OTHER INCOME (DEDUCTIONS)
   -------------------------

      INTEREST INCOME

      TEP's  income  statements  for the  quarters ended March 31, 2001 and
2000 each  include $2 million of interest income on the promissory note TEP
received from UniSource Energy in exchange for the transfer of its stock in
Millennium.   On  UniSource Energy's consolidated  income  statement,  this
income is eliminated as an inter-company transaction.

      Other interest income for the quarter ended March 31, 2001 was higher
than  the  same  quarter in 2000 due to higher average cash balances.   See
Liquidity and Capital Resources below.

      INTEREST EXPENSE

      Interest Expense for the first quarter decreased by $3 million or  6%
primarily  due  to lower amortization of losses on reacquired  debt  and  a
decrease in the average interest rate on long-term variable rate tax-exempt
debt.


RESULTS OF MILLENNIUM ENERGY BUSINESSES
---------------------------------------

      The table below provides a breakdown by Millennium-owned subsidiaries
of  the  after-tax net income and losses recorded by the Millennium  Energy
Businesses for the first quarter 2001 compared  to the same period in 2000.


                                        Three Months Ended
                                            March 31,
                                        2001       2000
-------------------------------------------------------------
                                     - Millions of Dollars -

Energy Technology Investments         $ (2.2)    $ (0.5)
Nations Energy                          (0.1)       1.6
Other                                   (0.6)       0.4
-------------------------------------------------------------
Total Millennium                      $ (2.9)    $  1.5
=============================================================

      ENERGY TECHNOLOGY INVESTMENTS

      Millennium  recorded a net loss of $2 million related to  its  Energy
Technology  Investments in the quarter ended March 31, 2001 resulting  from
Global  Solar's  increased development efforts of  its  solar  modules  and
Infinite  Power  Solutions' expenditures to develop thin-film  solid  state
rechargeable batteries.  See Note 3 of Notes to Financial Statements.

      NATIONS ENERGY

      Nations  Energy  recorded a small loss in the first quarter  of  2001
compared  with net income of nearly $2 million in the quarter  ended  March
31,  2000.  Nations Energy's earnings in the first quarter 2000 included  a
$2.5  million pre-tax gain on the sale of a minority interest  in  a  power
project  in  the Czech Republic and a $1.5 million decrease in  the  market
value of its Panama investment.

      OTHER MILLENNIUM INVESTMENTS

      The  net loss shown in the "Other" line item in the first quarter  of
2001  relates  primarily to a $1 million after-tax loss  from  Millennium's
investment  in MicroSat, partially offset by approximately $0.5 million  in
after-tax interest income on Millennium investments.  The net gain  in  the
first quarter of 2000 reflects interest income on Millennium investments.


DIVIDENDS ON COMMON STOCK
-------------------------

      UNISOURCE ENERGY

      On  February 1, 2001 UniSource Energy declared a cash dividend in the
amount  of  $0.10 per share on its Common Stock, which was a  25%  increase
from  the prior quarter.  This dividend, totaling approximately $3 million,
was  paid  March 9, 2001 to shareholders of record at the close of business
February 15, 2001.

      UniSource Energy's Board of Directors will review our dividend policy
on  a  continuing  basis, taking into consideration  a  number  of  factors
including  our  results  of  operations and  financial  condition,  general
economic  and competitive conditions and the cash flow from our  subsidiary
companies, TEP and Millennium.

      TEP

      In December 2000, TEP declared and paid a dividend of $30 million  to
UniSource Energy.

      TEP  can pay dividends if it maintains compliance with the TEP Credit
Agreement  and  certain  financial covenants,  including  a  covenant  that
requires  TEP  to maintain a minimum level of net worth.  As of  March  31,
2001,  the  required minimum net worth was $242 million.  TEP's actual  net
worth  at  March  31, 2001 was $305 million.  See Investing  and  Financing
Activities, TEP Credit Agreement, below.  As of March 31, 2001, TEP was  in
compliance with the terms of the Credit Agreement.

     The ACC Holding Company Order states that TEP may not pay dividends to
UniSource Energy in excess of 75% of its earnings until TEP's equity  ratio
equals 37.5% of total capital (excluding capital lease obligations).  As of
March 31, 2001, TEP's equity ratio on that basis was 21.3%.

      In  addition to these limitations, the Federal Power Act states  that
dividends  shall not be paid out of funds properly included in the  capital
account.   Although  the terms of the Federal Power  Act  are  unclear,  we
believe that there is a reasonable basis to pay dividends from current year
earnings.   Therefore, TEP declared its December 2000  dividend  from  2000
earnings  since  TEP  had  an  accumulated deficit,  rather  than  positive
retained earnings.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

   CASH FLOWS
   ----------

      UNISOURCE ENERGY

      Consolidated cash and cash equivalents increased from the  March  31,
2000  balance of $102 million to $144 million at March 31, 2001.   For  the
twelve-month  period  ended March 31, 2001, cash generated  from  operating
activities  exceeded  consolidated net  cash  outflows  for  investing  and
financing.

      Net cash flows from operating activities increased by $32 million  in
the  first quarter of 2001 compared with the same period in 2000.  The  net
increase  resulted  primarily  from higher  cash  receipts  from  sales  to
wholesale  and retail customers, net of increased fuel and purchased  power
costs.

      Net cash used for investing activities totaled $49 million during the
first  quarter of 2001 compared with $36 million during the same period  in
2000.   Capital expenditures were $13 million higher in 2001, and  included
$11  million incurred by Millennium in relation to the purchase  of  a  gas
turbine to be placed in service in mid-year 2001.  Investments in and loans
to  Millennium  Energy Businesses also increased by  $6  million  in  2001.
Other  significant  investing activities in  2000  included:  (i)  the  $28
million purchase of Springerville Unit 1 Lease debt by Millennium and  (ii)
Nations  Energy's $20 million in proceeds from the sale of its interest  in
the Czech Republic power project.

      Net  cash  used for financing activities totaled $18 million  in  the
first  quarter of 2001 compared with $24 million during the same period  in
2000.   Scheduled payments that retired capital lease obligations  were  $6
million lower in first quarter 2001 than in first quarter 2000.

      UniSource   Energy's  consolidated   cash  balance,  including   cash
equivalents, at May 4, 2001 was approximately $138 million.  We invest cash
balances  in  high-grade  money  market  securities  with  an  emphasis  on
preserving the principal amounts invested.

      TEP

      Cash and cash equivalents  increased from the March 31, 2000  balance
of $61 million to $97 million at March 31, 2001. For the twelve-month period
ended  March 31, 2001, net cash inflows from operating activities  exceeded
net cash outflows from investing and financing activities.

      The  reasons  for  the changes in TEP's statement of  cash flows  are
incorporated  above  in the analysis of the changes in  UniSource  Energy's
consolidated cash flows.

      TEP's  consolidated  cash  balance,  including  cash  equivalents, at
May 4, 2001 was approximately $96 million.

      TEP expects to generate enough cash flow during the next 12 months to
fund  continuing operating activities, capital expenditures, required  debt
maturities, and to pay dividends to UniSource Energy.  However, TEP's  cash
flows  may  vary due to changes in wholesale market conditions, changes  in
short-term  interest rates and other factors.  If cash flows were  to  fall
short  of  our  expectations, or if monthly cash  requirements  temporarily
exceed  available cash balances, TEP would borrow from the Revolving Credit
Facility.


INVESTING AND FINANCING ACTIVITIES
----------------------------------

   UNISOURCE ENERGY
   ----------------

      During  the next 12 months, UniSource Energy expects to use  cash  to
fund  investments in Millennium's unregulated energy businesses and to  pay
dividends  to shareholders.  We expect our sources of cash to be  dividends
from  our subsidiaries, primarily TEP.  Although no specific offerings  are
currently contemplated, UniSource Energy may also issue debt and/or  equity
securities  from  time  to  time.   If  available  cash  falls   short   of
expectations,   we   would  reevaluate  the  investment   requirements   of
Millennium's unregulated energy businesses and/or seek additional financing
for, or investments in, those businesses by unrelated parties.


   TEP
   ---

      CAPTIAL EXPENDITURES

      TEP's capital expenditures for the quarter ended March 31, 2001  were
$29 million.  TEP's capital budget for the year ending December 31, 2001 is
approximately $99 million.  These authorized expenditures include costs for
TEP  to  comply  with current federal and state environmental  regulations.
All  of  these  estimates are subject to continuing review and  adjustment.
Actual construction expenditures may be different from these estimates  due
to  changes  in  business conditions, construction schedules, environmental
requirements  and changes to our business arising from retail  competition.
TEP  plans  to  fund these expenditures through internally  generated  cash
flow.

      In  January 2001, TEP and Citizens Communications Company  (Citizens)
entered  into  a  project development agreement for the construction  of  a
transmission  line from Tucson to Nogales, Arizona.  The proposed  line  is
planned  to  be in service by December 31, 2003.  Construction  costs  will
range from $20 million to $70 million, depending on the size of the line to
be   built.   This  project  could  provide  an  opportunity  for  TEP   to
interconnect  with  Mexico,  providing  further  reliability   and   market
opportunities in the region.

      The  estimated expenditures of $99 million for the year 2001  do  not
include any amounts for the new transmission line described above,  or  for
the   potential   expansion  of  the  Springerville   Generating   Station.
Springerville  generation expenditures are expected to be made  by  another
UniSource  Energy  subsidiary.   See Investing  and  Financing  Activities,
Millennium, below.

      TEP BANK CREDIT AGREEMENT

      As  of  March  31, 2001 and as of May 4, 2001, TEP had no  borrowings
outstanding under its $100 million Revolving Credit Facility.

      TEP is required by its Credit Agreement to maintain certain financial
covenants including (a) a minimum Consolidated Tangible Net Worth equal  to
the  sum  of  $133 million plus 40% of cumulative Consolidated  Net  Income
since January 1, 1997, (b) a minimum Cash Coverage Ratio ranging from  1.50
in  2001  and increasing to 1.55 in 2002, and (c) a maximum Leverage  Ratio
ranging  from  6.40  in 2001 and decreasing to 6.20 in  2002.   TEP  is  in
compliance with each of these covenants.

   MILLENNIUM -- UNREGULATED ENERGY BUSINESSES
   -------------------------------------------

      During  the past few years, some of the unregulated energy businesses
of  Millennium have required significant amounts of capital.   During  1999
and  2000,  however,  we  took the opportunity to realize  the  value  from
certain  of these more capital intensive investments and focus on  emerging
energy  production  and  storage technologies.  We  expect  this  trend  to
continue in 2001 as we look to sell our interests in our remaining  Nations
Energy  investments  and  continue to make investments  in  our  technology
companies.

      Below   we   provide   an  update  on  our  significant  investments,
commitments and investment proceeds in the first quarter of 2001.

      INVESTMENTS IN ENERGY TECHNOLOGIES

      Under an  agreement  reached with ITN in September  2000,  Millennium
agreed to certain equity and credit commitments:

   *  a $20 million credit line to Global Solar,
   *  a $6 million credit line to Infinite Power Solutions,
   *  a  $10  million equity commitment and a $10  million credit  line  to
      MicroSat, and
   *  a  $3 million equity commitment and a $1 million  credit  line to the
      product development subsidiary.

      As  of  March 31, 2001, Millennium had funded $9 million  of its  $20
million commitment to Global Solar, $5 million of which was funded  in  the
first quarter of 2001.  As of March 31, 2001, Millennium had also funded $4
million  in  equity  under its $10 million equity commitment  to  MicroSat.
Millennium  expects to fund a total of $25 million to $35  million  to  its
various  Energy Technology investments in 2001.  A significant  portion  of
the   funding  under  these  agreements  will  be  used  for  research  and
development  purposes,  establishment of the  production  line,  and  other
administrative costs.  As these funds are expended for these  purposes,  it
is expected that a major portion will be expensed.

      OTHER INVESTMENTS AND COMMITMENTS

      In  July 2000, Millennium made a $15 million capital commitment to  a
limited  partnership  which will fund energy related  investments.   As  of
March 31, 2001, Millennium has funded $5 million under this commitment,  $4
million  of  which was funded in the first quarter of 2001.  The  remaining
$10 million is expected to be invested within two to three years.  A member
of  the  UniSource  Energy  Board  of Directors  will  also  have  a  minor
investment in the project.  An affiliate of such board member will serve as
the general partner.

      In November 2000, Millennium made a $5 million capital  commitment to
a venture capital fund that will focus on  information  technology,  optics
and biotechnology in Tucson, Arizona. The company that manages the fund  is
owned  by a member of the UniSource Energy Board of Directors.  As of March
31,  2001 Millennium had funded $150,000 under this commitment.  Millennium
expects to fund approximately $1 million under this agreement in 2001.

      In the first quarter of 2001, Millennium incurred expenditures of $11
million in relation to the purchase of a 20 MW gas turbine, which is  being
constructed at the North Loop site in Tucson.  This unit is expected to  be
in  operation  by mid-2001 to provide energy to meet TEP's  summer  peaking
needs.

      We  are  evaluating  the  expansion of the  coal-fired  Springerville
Generating   Station  by  constructing  Springerville  Units   3   and   4.
Springerville was originally designed for four units.  Units 3 and 4  would
consist  of  two 380 MW coal-fired base-load generating units at  the  same
site as Springerville Units 1 and 2, and would allow us to spread the fixed
costs of the existing  common  facilities  over  two  additional generating
units.  We have retained outside consultants to assist us in developing the
project  scope  and  schedule,  determining  permitting  requirements,  and
defining the terms of an engineering, procurement, and construction contract.

      We are studying various financing and ownership structures, but expect
the project to be financed by a subsidiary of Millennium through the use of
limited or non-recourse project financing, secured in whole or in part,  by
long-term  power  purchase agreements with unaffiliated wholesale  electric
purchasers. Millennium is seeking to identify equity participants and long-
term  power  purchasers  and expects to own at least  51%  of  the  equity.
Permitting requirements and potential fuel sources are being evaluated, and
electric   transmission  requirements  are  being  studied  with  potential
wholesale  electric purchasers.  Should we decide to go forward  with  this
project,  we  anticipate that Letters of Intent with  project  participants
will be signed in mid-year 2001.  We expect construction would begin during
the  second  half of 2001, with commercial operation of Unit 3 expected  to
occur  in  2004, followed by Unit 4 in 2005.  Total construction costs  for
this  project are  expected to range from $800 million to $900 million from
2001  to 2005,  and  total project costs, which include construction costs,
various development costs and interest during construction, are expected to
exceed $1 billion.


SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
------------------------------------------

      This Quarterly Report on Form 10-Q contains forward-looking statements
as  defined  by  the  Private Securities Litigation  Reform  Act  of  1995.
UniSource  Energy and TEP are including the following cautionary statements
to  make applicable and take advantage of the safe harbor provisions of the
Private  Securities  Litigation Reform Act of 1995 for any  forward-looking
statements made by or for UniSource Energy or TEP in this Quarterly  Report
on  Form  10-Q.   Forward-looking statements include statements  concerning
plans,  objectives,  goals, strategies, future events  or  performance  and
underlying  assumptions and other statements that  are  not  statements  of
historical facts.  Forward-looking statements may be identified by the  use
of words such as "anticipates," "estimates," "expects," "intends," "plans,"
"predicts," "projects," and similar expressions.  From time to time, we may
publish  or  otherwise make available forward-looking  statements  of  this
nature.  All such forward-looking statements, whether written or oral,  and
whether  made  by  or on behalf of UniSource Energy or TEP,  are  expressly
qualified   by  these  cautionary  statements  and  any  other   cautionary
statements   which  may  accompany  the  forward-looking  statements.    In
addition,  UniSource Energy and TEP disclaim any obligation to  update  any
forward-looking  statements to reflect events or  circumstances  after  the
date of this report.

      Forward-looking statements involve risks and uncertainties that could
cause  actual results or outcomes to differ materially from those expressed
in  the  forward-looking statements.  We express our expectations,  beliefs
and  projections in good faith and believe them to have a reasonable basis.
However,  we make no assurances that management's expectations, beliefs  or
projections  will  be  achieved or accomplished.  We  have  identified  the
following  important  factors that could cause  actual  results  to  differ
materially  from those discussed in our forward-looking statements.   These
may be in addition to other factors and matters discussed in other parts of
this report:

      1.  Effects of restructuring initiatives in the electric industry and
          other energy-related industries.

      2.  Effects of competition  in  retail  and wholesale energy markets.

      3.  Changes in economic  conditions, demographic patterns and weather
          conditions in TEP's retail service area.

      4.  Supply  and  demand  conditions  in  wholesale  energy   markets,
          including volatility in market prices and illiquidity in markets,
          which  are  affected by  a  variety  of  factors.  These  factors
          include  the  availability  of  generating  capacity in the West,
          including hydroelectric resources, weather, natural gas prices and
          the impact of utility restructuring and  generation  divestitures
          in various states.

     5.  Changes  affecting  TEP's  cost  of  providing  electrical service
         including  changes  in  fuel  costs,   generating  unit  operating
         performance,  scheduled  and  unscheduled  plant outages, interest
         rates,  tax  laws,  environmental  laws,  and the  general rate of
         inflation.

     6.  Changes  in  governmental  policies  and  regulatory  actions with
         respect to financings and rate structures.

     7.  Changes  affecting  the  cost  of  competing  energy alternatives,
         including changes in available generating technologies and changes
         in the cost of natural gas.

     8.  Changes  in  accounting  principles  or  the  application  of such
         principles to UniSource Energy or TEP.

     9.  Market  conditions  and  technological changes affecting UniSource
         Energy's unregulated businesses.


ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
---------------------------------------------------------------------------

      The information contained in this Item updates, and should be read in
conjunction  with, information included in Part II, Item  7A  in  UniSource
Energy's  and TEP's Annual Report on Form 10-K for the year ended  December
31,  2000,  in  addition  to the interim condensed  consolidated  financial
statements and accompanying notes presented in Items 1 and 2 of  this  Form
10-Q.

      See   Item  2-  Management's  Discussion  and  Analysis  of Financial
Condition   and  Results  of  Operations,  Factors  Affecting  Results   of
Operations, Market Risks.


<PAGE>

                        PART II - OTHER INFORMATION


ITEM 1. -  LEGAL PROCEEDINGS
---------------------------------------------------------------------------

None.


ITEM 5. - OTHER INFORMATION
---------------------------------------------------------------------------

ADDITIONAL FINANCIAL DATA

The  following  table reflects the ratio of earnings to fixed  charges  for
TEP:

                                3 Months Ended     12 Months Ended
                                   March 31,           March 31,
                                     2001                2001
                                --------------     ---------------

      Ratio of Earnings to           1.68                1.72
      Fixed Charges


ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
---------------------------------------------------------------------------
(a)  Exhibits.

     -- See Exhibit Index.

(b)  Reports on Form 8-K.

     UniSource Energy  and TEP filed the  following current reports on Form
8-K during the quarter ended March 31, 2001:

     *  Dated January 11, 2001  regarding  appeals to  the Arizona Superior
        Court rulings related to Retail Electric Competition Rules.


<PAGE>

                                  Signature



      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
                                       ----------------------------
                                              (Registrant)


Date:  May 10, 2001                     /s/  Kevin Larson
                                       ----------------------------
                                             Kevin Larson
                                        Vice President and Principal
                                             Financial Officer



                                      TUCSON ELECTRIC POWER COMPANY
                                      -----------------------------
                                              (Registrant)


Date:  May 10, 2001                     /s/  Kevin Larson
                                      -----------------------------
                                             Kevin Larson
                                        Vice President and Principal
                                             Financial Officer


<PAGE>

                               EXHIBIT INDEX

      11 - Statement re: computation of per share earnings - UniSource
           Energy.
      12 - Computation of Ratio of Earnings to Fixed Charges - TEP.
      15 - Letter regarding unaudited interim financial information.