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 September 30, 1999

                                    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;                    IRS Employer
File Number         Address; and Telephone Number     Identification Number
-----------         -----------------------------     ---------------------

   1-13739          UNISOURCE ENERGY CORPORATION       86-0786732
                    (An Arizona Corporation)
                    220 West Sixth Street
                    Tucson, AZ  85701
                    (520) 571-4000

   1-5924           TUCSON ELECTRIC POWER COMPANY      86-0062700
                    (An Arizona Corporation)
                    220 West Sixth Street
                    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 November 8, 1999, 32,339,606 shares of UniSource Energy
Corporation's Common Stock, no par value (the only class of Common Stock)
were outstanding.

      UniSource Energy Corporation is the sole holder of the 32,162,167
shares of the outstanding Common Stock of Tucson Electric Power Company.




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
Review 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
 Tucson Electric Power Company
  Comparative Condensed Consolidated Statements of Income.........5
  Comparative  Condensed Consolidated Statements
   of Cash Flows..................................................6
  Comparative Condensed Consolidated Balance Sheets...............7
 Notes to Condensed Consolidated Financial Statements
 Note 1.  Accounting for the Effects of Regulation................8
 Note 2.  Segment and Related Information........................10
 Note 3.  Unregulated Energy Businesses..........................12
 Note 4.  Tax Assessments........................................12
 Note 5.  Springerville Common Facilities Lease..................13
 Note 6.  Income Taxes...........................................13
 Note 7.  New Accounting Standards...............................14
 Note 8.  Review by Independent Public Accountants...............15
 Note 9.  Reclassifications......................................15

Item   2.   --  Management's  Discussion  and  Analysis   of
Financial Condition and Results of Operations
 Overview........................................................16
 Factors Affecting Results of Operations
   Competition
     Retail......................................................17
     Wholesale...................................................20
   Accounting for the Effects of Regulation......................20
   Market Risks..................................................21
   Future Generating Resources...................................22
   Impact of the Year 2000  on  Computer
    Systems and Applications.....................................22
 Results of Operations...........................................24
   Contribution by Business Segment..............................24
   Utility Sales and Revenues....................................25
   Operating Expenses............................................26
   Other Income (Deductions).....................................26
   Interest Expense..............................................26
 Results of Unregulated Energy Businesses........................27
   AET and Global Solar..........................................27
   MEH and NewEnergy.............................................27
   Nations Energy................................................27
 Dividends on Common Stock
   UniSource Energy..............................................28
   TEP...........................................................28
 Liquidity and Capital Resources
   Cash Flows
     UniSource Energy............................................28
     TEP.........................................................29
   Investing and Financing Activities
     UniSource Energy
      Loans and Guarantees.......................................30
     TEP
      Capital Expenditures.......................................30
      TEP Credit Agreement.......................................30
      Springerville Common Facilities Leases.....................30
     Millennium -- Unregulated Energy Businesses
      Sale of NewEnergy, Inc.....................................31
      Capital Requirements.......................................31
 Safe Harbor for Forward-Looking Statements......................32

Item  3.  -- Quantitative and Qualitative
  Disclosures  about Market Risk.................................32


                 PART II - OTHER INFORMATION

Item 1. -- Legal Proceedings
 Tax Assessments.................................................33
Item 5.  -- Other Information
 Additional Financial Data.......................................33
Item 6.  -- Exhibits and Reports on Form 8-K.....................33
Signature Page...................................................34
Exhibit Index....................................................35






                                DEFINITIONS

The  abbreviations and acronyms used in the 1999 Third Quarter Form 10-Q
are defined below:

ACC................. Arizona Corporation Commission.
AET................. Advanced Energy Technologies, Inc., a wholly-owned
                      subsidiary of Millennium.
Affected Utilities.. Electric  utilities  regulated  by  the   ACC,
                      including TEP, Arizona Public Service, Citizens
                      Utilities company, and several electric cooperatives.
Common Stock........ UniSource Energy's common stock, without par value.
Company............. UniSource Energy Corporation.
Cooling Degree Days. Calculated by subtracting 75 from the average of the
                      high and low daily temperatures.
Credit Agreement.... Credit Agreement between TEP and the banks,
                      dated as of December 30, 1997.
FAS 71.............. Statement of Financial Accounting Standards No.
                      71:  Accounting for the Effects of Certain Types of
                      Regulation.
FERC................ Federal Energy Regulatory Commission.
First Mortgage
 Bonds ............. First  mortgage bonds issued under the General
                      First Mortgage.
GAAP................ Generally Accepted Accounting Principles.
Global Solar........ Global Solar Energy, L.L.C., a corporation which is
                      50% owned by AET and 50% owned by ITN.
IRS................. Internal Revenue Service.
Irvington........... Irvington Generating Station.
ITC................. Investment tax credit.
ITN................. ITN Energy Systems, Inc., an unaffiliated company
                      which owns 50% of Global Solar.
kWh................. Kilowatt-hour(s).
MEH................. MEH  Corporation, a wholly-owned subsidiary  of
                      Millennium.
MW.................. Megawatt(s).
MWh................. Megawatt-hour(s).
Millennium.......... Millennium Energy Holdings, Inc., a wholly-
                      owned subsidiary of UniSource Energy.
Nations Energy..... Nations Energy Corporation, a wholly-owned subsidiary
                      of Millennium.
NewEnergy........... NewEnergy, Inc., formerly New Energy Ventures, Inc., a
                      company in which a 50% interest was owned by MEH.
NOL................. Net Operating Loss carryforward for income tax
                      purposes.
Rate Settlement..... TEP's Rate Settlement agreement approved by the
                      ACC in August 1998, which provides retail base price
                      decreases over a two-year period.
Revolving Credit
 Facility........... $100 million revolving credit facility entered
                      into under the Credit Agreement between a
                      syndicate of banks and TEP.
Springerville....... Springerville Generating Station.
Springerville Common
  Facilities........ Facilities at Springerville used in common with
                      Springerville Unit 1 and Springerville Unit 2.
Springerville Common
  Facilities Lease.. Leveraged lease arrangements relating to an
                      undivided one-half interest in certain Springerville
                      Common Facilities.
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.
WSCC................ Western Systems Coordinating Council.






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  of  Tucson  Electric Power Company and its subsidiaries  (TEP)  as  of
September  30,  1999, and the related condensed consolidated statements  of
income and of cash flows for each of the three-month and nine-month periods
ended  September  30, 1999 and 1998.  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 generally  accepted
accounting principles.

     We  previously audited in accordance with generally accepted  auditing
standards, the consolidated balance sheets and statements of capitalization
as of December 31, 1998, 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 4, 1999  we
expressed   an   unqualified  opinion  on  those   consolidated   financial
statements.   In our opinion, the information set forth in the accompanying
condensed consolidated  balance sheet as of December 31, 1998, is fairly
stated in all  material respects in relation to the consolidated balance
sheet  from which it has been derived.



PricewaterhouseCoopers LLP
Los Angeles, California
November 10, 1999




                        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 1998 Form 10-K.


UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                       Three Months Ended
                                                           September 30,
                                                         1999        1998
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $198,608    $196,398
 Sales for Resale                                       66,083      56,831
                                                      ---------   ---------
    Total Operating Revenues                           264,691     253,229
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                              103,604      94,705
 Capital Lease Expense                                  25,455      25,469
 Amortization of Springerville Unit 1 Allowance         (8,729)     (7,631)
 Other Operations                                       27,621      24,980
 Maintenance and Repairs                                 5,940       8,172
 Depreciation and Amortization                          20,734      22,033
 Taxes Other Than Income Taxes                          12,054      12,594
 Income Taxes                                           22,002      18,297
                                                      ---------   ---------
    Total Operating Expenses                           208,681     198,619
                                                      ---------   ---------
      Operating Income                                  56,010      54,610
                                                      ---------   ---------
Other Income (Deductions)
 Income Taxes                                          (14,328)     (4,535)
 Interest Income                                         2,222       3,075
 Gain on the Sale of NewEnergy                          34,651           -
 Unregulated Energy Businesses                              92       9,259
 Other                                                   1,028         536
                                                      ---------   ---------
    Total Other Income (Deductions)                     23,665       8,335
                                                      ---------   ---------
Interest Expense
 Long-Term Debt                                         16,662      18,591
 Interest Imputed on Losses Recorded at Present Value    8,747       8,544
 Other                                                   2,597       2,137
                                                      ---------   ---------
    Total Interest Expense                              28,006      29,272
                                                      ---------   ---------
Net Income                                            $ 51,669    $ 33,673
                                                      =========   =========
Average Shares of Common Stock Outstanding (000)        32,332      32,174
                                                      =========   =========
Basic Earnings per Share                              $   1.60    $   1.05
                                                      =========   =========
Diluted Earnings per Share                            $   1.58    $   1.05
                                                      =========   =========



See Notes to Condensed Consolidated Financial Statements.


UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                         Nine Months Ended
                                                           September 30,
                                                         1999       1998
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $486,357    $485,137
 Sales for Resale                                      128,814     108,636
                                                      ---------   ---------
    Total Operating Revenues                           615,171     593,773
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                              219,391     199,798
 Capital Lease Expense                                  76,834      77,805
 Amortization of Springerville Unit 1 Allowance        (26,188)    (22,892)
 Other Operations                                       78,016      78,408
 Maintenance and Repairs                                30,244      27,327
 Depreciation and Amortization                          64,777      67,479
 Taxes Other Than Income Taxes                          36,400      38,154
 Income Taxes                                           23,401      19,398
                                                      ---------   ---------
    Total Operating Expenses                           502,875     485,477
                                                      ---------   ---------
      Operating Income                                 112,296     108,296
                                                      ---------   ---------
Other Income (Deductions)
 Income Taxes                                          (13,495)      4,378
 Interest Income                                         5,526       8,315
 Gain on the Sale of NewEnegy                           34,651           -
 Unregulated Energy Businesses                          (7,139)     (6,954)
 Other                                                   1,964       2,480
                                                      ---------   ---------
    Total Other Income (Deductions)                     21,507       8,219
                                                      ---------   ---------
Interest Expense
 Long-Term Debt                                         49,784      55,494
 Interest Imputed on Losses Recorded at Present Value   26,243      25,634
 Other                                                   7,927       7,691
                                                      ---------   ---------
    Total Interest Expense                              83,954      88,819
                                                      ---------   ---------
Net Income                                            $ 49,849    $ 27,696
                                                      =========   =========
Average Shares of Common Stock Outstanding (000)        32,309      32,150
                                                      =========   =========
Basic Earnings per Share                              $   1.54    $   0.86
                                                      =========   =========
Diluted Earnings per Share                            $   1.53    $   0.86
                                                      =========   =========


See Notes to Condensed Consolidated Financial Statements.


UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                         Nine Months Ended
                                                           September 30,
                                                         1999       1998
                                                            (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Cash Flows from Operating Activities
  Cash Receipts from Retail Customers                 $507,319    $494,694
  Cash Receipts from Sales for Resale                  118,845     101,679
  Fuel and Purchased Power Costs Paid                 (201,317)   (180,613)
  Wages Paid, Net of Amounts Capitalized               (53,356)    (51,209)
  Payment of Other Operations and Maintenance Costs    (78,711)    (68,435)
  Capital Lease Interest Paid                          (81,066)    (80,837)
  Taxes Paid, Net of Amounts Capitalized               (61,804)    (61,732)
  Interest Paid, Net of Amounts Capitalized            (60,638)    (57,193)
  Contract Termination Fee Paid                              -     (10,000)
  Income Taxes Paid                                     (6,170)         (3)
  Emission Allowance Inventory Sales                        75      11,368
  Interest Received                                      6,527       7,880
  Transfer of Tax Settlement to Escrow Account         (22,403)          -
  Other                                                  5,020      (1,606)
                                                      ---------   ---------
    Net Cash Flows - Operating Activities               72,321     103,993
                                                      ---------   ---------
Cash Flows from Investing Activities
  Capital Expenditures                                 (65,743)    (56,367)
  Investments in and Loans to Unregulated
    Energy Businesses                                   (5,505)    (27,103)
  Sale of Interest in Unregulated Energy Businesses      4,041      20,000
  Sale of Securities                                    27,516           -
  Purchase of Springerville Lease Debt                 (26,768)          -
  Other Investments - Net                                  403       1,788
                                                      ---------   ---------
    Net Cash Flows - Investing Activities              (66,056)    (61,682)
                                                      ---------   ---------
Cash Flows from Financing Activities
  Proceeds from Issuance of Long-Term Debt               1,977      99,014
  Payments to Retire Long-Term Debt                     (1,725)    (99,472)
  Payments to Retire Capital Lease Obligations         (22,338)    (17,178)
  Other                                                  2,312      (6,401)
                                                      ---------   ---------
    Net Cash Flows - Financing Activities              (19,774)    (24,037)
                                                      ---------   ---------
Net Increase (Decrease) in Cash and Cash Equivalents   (13,509)     18,274
Cash and Cash Equivalents, Beginning of Year           145,167     146,256
                                                      ---------   ---------
Cash and Cash Equivalents, End of Period              $131,658    $164,530
                                                      =========   =========


See Notes to Condensed Consolidated Financial Statements.


UNISOURCE ENERGY CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATED CASH FLOW INFORMATION

                                                         Nine Months Ended
                                                           September 30,
                                                         1999       1998
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-

Net Income                                            $ 49,849    $ 27,696
Adjustments to Reconcile Net Income
 to Net Operating Cash Flows
  Depreciation and Amortization Expense                 64,777      67,479
  Deferred Income Taxes and Investment Tax Credit       32,924      14,768
  Lease Payments Deferred                                3,707       4,127
  Amortization of Regulatory Assets & Liabilities,
   Net of Interest Imputed on Losses Recorded at
   Present Value                                            55       2,742
  Deferred Contract Termination Fee                      2,885      (7,115)
  Unremitted Losses of Unconsolidated
   Subsidiaries                                          3,209       6,373
  Gain on Sale of NewEnergy                           (34,651)          -
  Emission Allowances                                       75      11,368
  Other                                                  1,060       1,842
  Changes in Assets and Liabilities which Provided(Used)
    Cash Exclusive of Changes Shown Separately
    Accounts Receivable                                (24,688)    (34,543)
    Tax Settlement Deposit                             (22,450)          -
    Materials and Fuel                                  (5,949)     (3,405)
    Accounts Payable                                     7,031       6,711
    Taxes Accrued                                       14,427      14,610
    Other Current Assets and Liabilities               (12,590)     (7,219)
    Other Deferred Assets and Liabilities               (7,350)     (1,441)
                                                      ---------   ---------
Net Cash Flows - Operating Activities                 $ 72,321    $103,993
                                                      =========   =========

Non-Cash Financing Activities (these activities do not affect the statements
of cash flows):
The proceeds from the issuance of $200 million of Pollution Control Revenue
Bonds in March 1998 were held in trust and used in May 1998 to redeem $200
million of previously issued bonds.

See Notes to Condensed Consolidated Financial Statements.


UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS

                                                 September 30,   December 31,
                                                       1999        1998
                                                   (Unaudited)
---------------------------------------------------------------------------
ASSETS                                            - Thousands of Dollars -
Utility Plant
  Plant in Service                                  $2,286,101  $2,263,871
  Utility Plant Under Capital Leases                   886,901     886,902
  Construction Work in Progress                         92,018      74,050
                                                    ----------- -----------
    Total Utility Plant                              3,265,020   3,224,823
  Less Accumulated Depreciation and Amortization    (1,090,210) (1,051,994)
  Less Accumulated Amortization of Capital Leases     (100,442)    (85,826)
  Less Springerville Unit 1 Allowance                 (171,468)   (171,413)
                                                    ----------- -----------
    Total Utility Plant - Net                        1,902,900   1,915,590
                                                    ----------- -----------
Investments and Other Property                         139,366     110,318
                                                    ----------- -----------
Current Assets
  Cash and Cash Equivalents                            131,658     145,167
  Accounts Receivable                                   95,538      70,850
  Materials and Fuel                                    43,433      37,040
  Note Receivable                                       11,400           -
  Deferred Income Taxes - Current                       15,597      14,683
  Tax Settlement Deposit                                22,450           -
  Other                                                 26,533      26,867
                                                    ----------- -----------
    Total Current Assets                               346,609     294,607
                                                    ----------- -----------
Deferred Debits - Regulatory Assets
  Income Taxes Recoverable Through Future Revenues     146,372     152,111
  Deferred Springerville Generation Costs               95,237     102,211
  Deferred Lease Expense                                 9,264       9,877
  Other Regulatory Assets                               16,210      18,886
Deferred Debits - Other                                 30,954      30,443
                                                    ----------- -----------
    Total Deferred Debits                              298,037     313,528
                                                    ----------- -----------
Total Assets                                        $2,686,912  $2,634,043
                                                    =========== ===========


See Notes to Condensed Consolidated Financial Statements.



UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS


                                                September 30,   December 31,
                                                       1999       1998
                                                    (Unaudited)
---------------------------------------------------------------------------
CAPITALIZATION AND OTHER LIABILITIES              - Thousands of Dollars -
Capitalization
  Common Stock                                      $  641,366  $  640,640
  Accumulated Deficit                                 (344,145)   (393,994)
                                                    ----------- -----------
  Common Stock Equity                                  297,221     246,646
  Capital Lease Obligations                            852,529     889,543
  Long-Term Debt                                     1,135,820   1,184,423
                                                    ----------- -----------
    Total Capitalization                             2,285,570   2,320,612
                                                    ----------- -----------
Current Liabilities
  Current Obligations Under Capital Leases              37,045      11,647
  Current Maturities of Long-Term Debt                  48,603       1,725
  Accounts Payable                                      39,626      32,595
  Interest Accrued                                      43,561      70,771
  Taxes Accrued                                         41,594      27,167
  Accrued Employee Expenses                             13,162      16,730
  Other                                                  5,880       6,705
                                                    ----------- -----------
    Total Current Liabilities                          229,471     167,340
                                                    ----------- -----------
Deferred Credits and Other Liabilities
  Deferred Income Taxes - Noncurrent                    92,090      61,891
  Deferred Investment Tax Credits Regulatory Liability   8,336      10,436
  Emission Allowance Gain Regulatory Liability          31,376      31,335
  Other                                                 40,069      42,429
                                                    ----------- -----------
    Total Deferred Credits and Other Liabilities       171,871     146,091
                                                    ----------- -----------
Total Capitalization and Other Liabilities          $2,686,912  $2,634,043
                                                    =========== ===========


See Notes to Condensed Consolidated Financial Statements.





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 1998 Form 10-K.


TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                       Three Months Ended
                                                           September 30,
                                                         1999        1998
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $198,673    $196,449
 Sales for Resale                                       66,083      56,831
                                                      ---------   ---------
    Total Operating Revenues                           264,756     253,280
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                              103,604      94,705
 Capital Lease Expense                                  25,455      25,469
 Amortization of Springerville Unit 1 Allowance         (8,729)     (7,631)
 Other Operations                                       27,621      24,980
 Maintenance and Repairs                                 5,940       8,172
 Depreciation and Amortization                          20,734      22,033
 Taxes Other Than Income Taxes                          12,054      12,594
 Income Taxes                                           22,002      18,297
                                                      ---------   ---------
    Total Operating Expenses                           208,681     198,619
                                                      ---------   ---------
      Operating Income                                  56,075      54,661
                                                      ---------   ---------
Other Income (Deductions)
 Income Taxes                                           (1,494)     (1,924)
 Interest Income                                         1,974       3,075
 Interest Income-Note Receivable from UniSource Energy   2,506       2,352
 Other                                                     878         482
                                                      ---------   ---------
    Total Other Income (Deductions)                      3,864       3,985
                                                      ---------   ---------
Interest Expense
 Long-Term Debt                                         16,662      18,591
 Interest Imputed on Losses Recorded at Present Value    8,747       8,544
Other                                                    2,597       2,137
                                                      ---------   ---------
    Total Interest Expense                              28,006      29,272
                                                      ---------   ---------

Net Income                                            $ 31,933    $ 29,374
                                                      =========   =========



See Notes to Condensed Consolidated Financial Statements.



TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                         Nine Months Ended
                                                           September 30,
                                                         1999        1998
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $486,561    $485,333
 Sales for Resale                                      128,814     108,636
                                                      ---------   ---------
    Total Operating Revenues                           615,375     593,969
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                              219,391     199,798
 Capital Lease Expense                                  76,834      77,805
 Amortization of Springerville Unit 1 Allowance        (26,188)    (22,892)
 Other Operations                                       78,016      78,408
 Maintenance and Repairs                                30,244      27,327
 Depreciation and Amortization                          64,777      67,479
 Taxes Other Than Income Taxes                          36,400      38,154
 Income Taxes                                           23,401      19,398
                                                      ---------   ---------
    Total Operating Expenses                           502,875     485,477
                                                      ---------   ---------
      Operating Income                                 112,500     108,492
                                                      ---------   ---------
Other Income (Deductions)
 Income Taxes                                           (3,829)     (1,408)
 Interest Income                                         4,991       8,315
 Interest Income-Note Receivable from UniSource Energy   7,585       6,978
 Other                                                   1,675       2,282
                                                      ---------   ---------
    Total Other Income (Deductions)                     10,422      16,167
                                                      ---------   ---------
Interest Expense
 Long-Term Debt                                         49,784      55,494
 Interest Imputed on Losses Recorded at Present Value   26,243      25,634
 Other                                                   7,927       7,691
                                                      ---------   ---------
    Total Interest Expense                              83,954      88,819
                                                      ---------   ---------
Net Income                                            $ 38,968    $ 35,840
                                                      =========   =========


See Notes to Condensed Consolidated Financial Statements.



TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                         Nine Months Ended
                                                           September 30,
                                                         1999       1998
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Cash Flows from Operating Activities
  Cash Receipts from Retail Customers                 $507,319    $494,694
  Cash Receipts from Sales for Resale                  118,845     101,679
  Fuel and Purchased Power Costs Paid                 (201,317)   (180,613)
  Wages Paid, Net of Amounts Capitalized               (47,929)    (48,843)
  Payment of Other Operations and Maintenance Costs    (72,814)    (63,650)
  Capital Lease Interest Paid                          (81,066)    (80,837)
  Taxes Paid, Net of Amounts Capitalized               (61,440)    (61,644)
  Interest Paid, Net of Amounts Capitalized            (60,638)    (57,193)
  Contract Termination Fee Paid                              -     (10,000)
  Income Taxes Paid                                     (6,168)         (3)
  Emission Allowance Inventory Sales                        75      11,368
  Interest Received                                     14,799       6,479
  Transfer of Tax Settlement to Escrow Account         (22,403)         -
  Other                                                    182      (1,142)
                                                      ---------   ---------
    Net Cash Flows - Operating Activities               87,445     110,295
                                                      ---------   ---------
Cash Flows from Investing Activities
  Capital Expenditures                                 (64,245)    (56,245)
  Transfer of Millennium Cash to UniSource Energy            -     (45,412)
  Purchase of Springerville Lease Debt                 (26,768)          -
  Other Investments - Net                                1,459       1,420
                                                      ---------   ---------
    Net Cash Flows - Investing Activities              (89,554)   (100,237)
                                                      ---------   ---------
Cash Flows from Financing Activities
  Proceeds from Issuance of Long-Term Debt               1,977      99,014
  Payments to Retire Long-Term Debt                     (1,725)    (99,472)
  Payments to Retire Capital Lease Obligations         (22,316)    (17,178)
  Other                                                  2,115      (6,269)
                                                      ---------   ---------
    Net Cash Flows - Financing Activities              (19,949)    (23,905)
                                                      ---------   ---------
Net Decrease in Cash and Cash Equivalents              (22,058)    (13,847)
Cash and Cash Equivalents, Beginning of Year           118,236     146,256
                                                      ---------   ---------
Cash and Cash Equivalents, End of Period              $ 96,178    $132,409
                                                      =========   =========



See Notes to Condensed Consolidated Financial Statements.



TUCSON ELECTRIC POWER COMPANY
SUPPLEMENTAL CONDENSED CONSOLIDATED CASH FLOW INFORMATION

                                                         Nine Months Ended
                                                           September 30,
                                                         1999        1998
                                                            (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Net Income                                            $ 38,968    $ 35,840
Adjustments to Reconcile Net Income to Net
 Operating Cash Flows
  Depreciation and Amortization Expense                 64,777      67,479
  Deferred Income Taxes and
   Investment Tax Credit                                20,324      20,877
  Lease Payments Deferred                                3,707       4,127
  Amortization of Regulatory Assets & Liabilities, Net
   of Interest Imputed on Losses Recorded at
   Present Value                                            55       2,742
  Deferred Contract Termination Fee                      2,885      (7,115)
  Unremitted Earnings of Unconsolidated Subsidiaries      (456)       (753)
  Interest Accrued on Note Receivable from UniSource
   Energy                                                1,744      (6,978)
  Emission Allowances                                       75      11,368
  Other                                                  4,445       3,196
  Changes in Assets and Liabilities which Provided(Used)
    Cash Exclusive of Changes Shown Separately
    Accounts Receivable                                (22,820)    (34,624)
    Tax Settlement Deposit                             (22,450)          -
    Materials and Fuel                                  (5,898)     (3,406)
    Accounts Payable                                     7,433       7,632
    Taxes Accrued                                       14,118      14,626
    Other Current Assets and Liabilities               (12,117)     (3,219)
    Other Deferred Assets and Liabilities               (7,345)     (1,497)
                                                      ---------   ---------
Net Cash Flows - Operating Activities                 $ 87,445    $110,295
                                                      =========   =========

Non-Cash Financing Activities (these activities do not affect the statements
of cash flows):
The proceeds from the issuance of $200 million of Pollution Control Revenue
Bonds in March 1998 were held in trust and used in May 1998 to redeem $200
million of previously issued bonds.



See Notes to Condensed Consolidated Financial Statements.



TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS

                                                 September 30,  December 31,
                                                       1999       1998
                                                   (Unaudited)
---------------------------------------------------------------------------
ASSETS                                            - Thousands of Dollars -
Utility Plant
  Plant in Service                                  $2,286,101  $2,263,871
  Utility Plant Under Capital Leases                   886,901     886,902
  Construction Work in Progress                         92,018      74,050
                                                    ----------- -----------
    Total Utility Plant                              3,265,020   3,224,823
  Less Accumulated Depreciation and Amortization    (1,090,210) (1,051,994)
  Less Accumulated Amortization of Capital Leases     (100,442)    (85,826)
  Less Springerville Unit 1 Allowance                 (171,468)   (171,413)
                                                    ----------- -----------
    Total Utility Plant - Net                        1,902,900   1,915,590
                                                    ----------- -----------
Investments and Other Property                          91,368      62,978
                                                   ----------- -----------
Note Receivable from UniSource Energy                   70,132      79,462
                                                    ---------- -----------
Current Assets
  Cash and Cash Equivalents                             96,178     118,236
  Interest on Note Receivable from UniSource Energy      7,585           -
  Accounts Receivable                                   97,000      72,239
  Materials and Fuel                                    43,337      36,995
  Deferred Income Taxes - Current                       15,653      14,820
  Tax Settlement Deposit                                22,450           -
  Other                                                 13,849      14,735
                                                    ----------- -----------
    Total Current Assets                               296,052     257,025
                                                    ----------- -----------
Deferred Debits - Regulatory Assets
  Income Taxes Recoverable Through Future Revenues     146,372     152,111
  Deferred Springerville Generation Costs               95,237     102,211
  Deferred Lease Expense                                 9,264       9,877
  Other Regulatory Assets                               16,210      18,886
Deferred Debits - Other                                 30,954      30,443
                                                    ----------- -----------
    Total Deferred Debits                              298,037     313,528
                                                    ----------- -----------
Total Assets                                        $2,658,489  $2,628,583
                                                    =========== ===========


See Notes to Condensed Consolidated Financial Statements.



TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS

                                                 September 30,  December 31,
                                                       1999       1998
                                                    (Unaudited)
---------------------------------------------------------------------------
                                                  - Thousands of Dollars -
CAPITALIZATION AND OTHER LIABILITIES
Capitalization
  Common Stock                                      $  647,124  $  646,568
  Capital Stock Expense                                 (6,357)     (6,357)
  Accumulated Deficit                                 (371,382)   (410,350)
                                                    ----------- -----------
  Common Stock Equity                                  269,385     229,861
  Capital Lease Obligations                            852,194     889,543
  Long-Term Debt                                     1,135,820   1,184,423
                                                    ----------- -----------
    Total Capitalization                             2,257,399   2,303,827
                                                    ----------- -----------
Current Liabilities
  Current Obligations Under Capital Leases              36,975      11,647
  Current Maturities of Long-Term Debt                  48,603       1,725
  Accounts Payable                                      44,323      35,735
  Interest Accrued                                      43,561      70,771
  Taxes Accrued                                         41,200      27,082
  Accrued Employee Expenses                             12,864      16,418
  Other                                                  5,787       6,705
                                                    ----------- -----------
    Total Current Liabilities                          233,313     170,083
                                                    ----------- -----------
Deferred Credits and Other Liabilities
  Deferred Income Taxes - Noncurrent                    88,022      70,504
  Deferred Investment Tax Credits Regulatory Liability   8,336      10,436
  Emission Allowance Gain Regulatory Liability          31,376      31,335
  Other                                                 40,043      42,398
                                                    ----------- -----------
    Total Deferred Credits and Other Liabilities       167,777     154,673
                                                    ----------- -----------
Total Capitalization and Other Liabilities          $2,658,489  $2,628,583
                                                    =========== ===========


See Notes to Condensed Consolidated Financial Statements.



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

NOTE 1.  ACCOUNTING FOR THE EFFECTS OF REGULATION
-------------------------------------------------

  Accounting Implications

     The ACC regulates TEP's retail utility business.  TEP generally
uses the same accounting policies and practices used by unregulated
companies for financial reporting under generally accepted accounting
principles.  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 charge its customers currently to recover
certain expenses, but instead, require that these expenses be recovered
from customers in the future.  In this situation, FAS 71 requires that
TEP capitalize and report these expenses as regulatory assets on the
balance sheet until TEP is allowed to charge its customers.  TEP then
amortizes these items to the income statement as those amounts are
recovered from customers.  Similarly, certain items of revenue may be
deferred as regulatory liabilities, which are also eventually amortized
to the income statement.

     We have recorded regulatory assets and liabilities in our balance
sheets in accordance with FAS 71.  A regulated company must satisfy
certain conditions to apply the accounting policies and practices of
FAS 71.  These conditions 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.

     We periodically assess whether we continue to meet these
conditions.  If we were required to stop applying FAS 71 to all or a
portion of TEP's regulated utility operations, without regulatory
recovery, we would write off the related balances of TEP's regulatory
assets and liabilities as a charge in our income statement.  In that
event, our earnings would be reduced by the net amount of regulatory
assets and liabilities, after applicable deferred income taxes.  Based
on the balances of TEP's regulatory assets and liabilities at September
30, 1999, if we ceased applying FAS 71 to all of TEP's regulated
operations, we would record an extraordinary loss of approximately $137
million, net of the related deferred income tax benefit of $91 million.
In addition, TEP would immediately recognize, as a reduction to the
extraordinary loss, the $23 million ITC carryforward balance that TEP
believes it would use on a future tax return.  Approximately 60% of
TEP's net regulatory assets on the balance sheet relate to electric
generation.  While our cash flows may be affected by regulatory orders
and market conditions, our cash flows would not be affected if we
ceased to apply FAS 71.

     If we stop applying FAS 71, we would need to evaluate the
likelihood that we could recover the cost of TEP's electric plant in
the marketplace.  If undiscounted cash flows related to these plant
assets are less than the carrying value of those assets that we
continue to own, then we would need to write off as an expense a
portion of those plant assets to reflect the present value of future
cash flows.  Plant assets to be disposed of would be written down to
fair value if it is less than carrying value.  We cannot predict if we
would write off any plant assets as a result of these evaluations.

  Recent Events That May Impact TEP's Application of FAS 71

     In December 1996, the ACC adopted retail electric competition
rules (Rules) that provided a framework for the phase-in of retail
electric competition in Arizona beginning in January 1999.  The Rules
were amended and adopted on an emergency basis in August 1998.  The
Rules, as originally adopted, assumed a competition start date of
January 1, 1999.  On January 5, 1999, the ACC delayed implementation of
the Rules.

     On April 14, 1999, the ACC approved a modified order that provides
affected utilities with five options for stranded cost recovery.  The
following recovery options are provided by the ACC's written order:

1. Net Revenues Lost Methodology -- Stranded costs would be determined
by comparing generation revenues under competition to revenues under
regulation. Using growth as a mitigating factor, the amount of recovery
would be reduced over a five-year period.

2. Divestiture/Auction Methodology -- Stranded costs would be
determined by auctioning non-essential generation assets. The amount of
stranded costs would be the difference between the assets' market value
and their book value. Recovery of stranded costs would occur over a
maximum 10-year period.

3. Financial Integrity Methodology -- The ACC would provide sufficient
revenues necessary to maintain financial integrity, such as avoiding
default under currently existing financial instruments for a period of
ten years, at which time there would be no remaining stranded costs.

4. Settlement Methodology -- This option provides for some combination
of the three preceding methods, submitted as a settlement option.

5. Alternative Methodology -- This option approved by the ACC would
allow affected utilities to file an alternative plan. Under this
option, utilities would be required to demonstrate how an alternative
plan would be in the best interests of all stakeholders.

     Also on April 14, 1999, the ACC approved amendments to the
electric competition rules that require a phase-in to a competitive
market, ensuring all customers will have access to competitive
generation by January 1, 2001.  Under these rules, competitive electric
service will be available in each affected utility's service territory
after the affected utility's stranded cost plan is approved by the ACC.
TEP, as the regulated local distribution company, will continue to
provide delivery of electricity over existing power lines to homes and
businesses and will continue to operate and maintain these lines.

     On September 21, 1999, the ACC approved the final amendments to
the Rules governing retail electric competition in Arizona.  The final
amendments did not have a significant impact on the electric
competition rules as previously drafted.


Settlement Agreement

      On  June 9, 1999, TEP and certain customer groups entered into  a
Settlement  Agreement  (Settlement) related to  the  implementation  of
retail  electric competition. The ACC held hearings on TEP's Settlement
in August 1999.  On October 26, 1999, the ACC Hearing Officer issued  a
recommended opinion and order to approve TEP's Settlement with  certain
modifications.  The ACC has scheduled an Open Meeting to  consider  the
Settlement on November 22 and 23, 1999.

Major  provisions  of  the  Settlement as recommended  by  the  Hearing
Officer include:

-  Consumer choice for energy supply would begin after
   the ACC approves the Settlement and will be phased in as required by
   the ACC's retail competition rules.  By January 1, 2001, consumer
   choice would be available to all customers.

-  In accordance with the Rate Settlement Agreement approved by the ACC
   in 1998, TEP decreased rates to retail customers by 1% on July 1,
   1999 and will decrease rates an additional 1% on July 1, 2000.
   These reductions will apply to all retail customers.  The Settlement
   provides that, after these reductions, TEP's rates would be frozen
   until December 31, 2008, except under certain circumstances.  TEP
   would recover the costs of transmission and distribution under
   regulated unbundled rates.

-  TEP would recover its stranded costs, including regulatory assets,
   through two Competition Transition Charges (CTC):
   -  A Fixed CTC component which would equal a fixed charge per
      kilowatt-hour.  It would terminate when $450 million has been
      recovered, but no later than December 31, 2008.  When the Fixed
      CTC terminates, TEP's retail rates would decrease by the amount
      of the Fixed CTC.
   -  A Floating CTC component would be equal to the amount of the
      frozen tariff rates less the sum of unbundled transmission and
      distribution charges and amounts based on the Palo Verde Futures
      Index for electric energy.  Because TEP's total retail rate would
      be frozen, the Floating CTC would enable TEP to recoup the
      balance of stranded costs not otherwise recovered through the
      fixed charge as follows:
      -  when wholesale market prices for electric energy are strong,
         stranded costs would be lower and the Floating CTC would be
         lower;and
      -  when wholesale market prices for electric energy are weak,
         stranded costs would be greater and the Floating CTC would be
         higher.
    The Floating CTC would terminate no later than December 31, 2008.

-  By June 1, 2004, TEP would be required to file a general rate case
   including an updated cost-of-service study.  Any rate change
   resulting from this rate case would be effective no sooner than
   June 1, 2005 and would only be made if the changes result in a net
   rate reduction.

-  By December 31, 2002, TEP would transfer its generation and other
   competitive assets to a subsidiary of TEP, at market value.  At the
   time that TEP makes this transfer, it would be required, under the
   ACC's electric competition rules, to provide energy to any
   distribution customer who does not choose another energy service
   provider.  TEP's generation subsidiary would sell energy into the
   wholesale market.  TEP, as a utility distribution company, would
   bid for energy in the wholesale market for its standard offer energy
   requirements.

-  On final approval of the Settlement by the ACC, TEP will dismiss all
   pending litigation brought by TEP against the ACC.

     As mentioned above, the ACC Hearing Officer recommended certain
modifications to the Settlement.  TEP filed an exception to one of the
recommended modifications related to the proper allocation of stranded
costs between contract customers and non-contract customers.  Contract
customers are certain large industrial and mining customers with which
TEP has negotiated non-standard rates approved by the ACC.  The
proposed order requires that TEP file a report for approval by the
Director of the Utilities Division that demonstrates how stranded costs
will be collected from customer classes.  TEP believes that the
recommendation is unclear as to the methodology to be utilized to
allocate stranded costs to customer classes.  If the intent of the
modification in the proposed order is to make a determination that non-
contract customers are picking up an alleged stranded cost shortfall
from contract customers, then TEP strongly disagrees with this proposed
modification.  TEP believes that no such subsidization exists.

     However, if and when the Settlement is approved, TEP will stop
accounting for its generation operations using FAS 71 and begin using
the same accounting policies and practices used by unregulated
companies for financial reporting.   The regulatory assets of the
generation business, together with certain above-market generation
plant costs, totaling approximately $450 million, will be recovered
through the distribution business.  No net gain or loss to TEP or
UniSource Energy is expected due to the recognition of stranded cost
regulatory assets on TEP's balance sheet.  These regulatory assets will
amortize to expense over the period ending in 2008, as provided for in
the Settlement Agreement.

     In addition, if the Settlement is approved, we will immediately
recognize net after-tax extraordinary income primarily as a result of
recognition of the following Investment Tax Credit (ITC) amounts:

-  Deferred ITC:  On our financial statements we have deferred the
   benefit relating to ITC claimed on tax returns.  This Deferred ITC
   is being amortized to income over the tax lives of the related
   property.  The balance remaining when the Settlement is approved
   will be recognized immediately.  At September 30, 1999, the Deferred
   ITC balance was $8 million.

-  ITC Carryforward:  This ITC is generated but not yet claimed on a
   tax return, and will be recognized immediately as income based on
   our expectation that this ITC will be claimed on future tax returns.
   At September 30, 1999, the total ITC Carryforward was $23 million.

     Certain other generation expenses such as lease expenses, will be
amortized differently in the future, although total amounts of such
expenses will remain the same over the life of the leases.

     We cannot predict the outcome of hearings on the Settlement.
Additionally, federal legislators introduced several retail competition
initiatives in Congress which, if passed, could modify or override the
actions taken by the ACC.  We will continue to monitor the progress of
the legislation and assess its impact on retail electric competition in
Arizona.


NOTE 2.  SEGMENT AND RELATED INFORMATION
----------------------------------------

     In 1998, we adopted Statement of Financial Accounting Standards
No.131 (FAS 131), Disclosures about Segments of an Enterprise and
Related Information, which requires that we report financial and
descriptive information about our operating segments.  These segments
are determined based on the way we organize our operations and evaluate
performance.  UniSource Energy's principal business segment is the
regulated electric utility business of TEP.  The other reportable
business segment is the unregulated energy businesses of Millennium:

- Advanced Energy Technologies, Inc. (AET) which owns 50 percent of
  Global Solar Energy, L.L.C. (Global Solar), a developer and
  manufacturer of thin-film photovoltaic materials.  In November 1999,
  an agreement was entered into that changed the ownership structure of
  both AET and Global Solar. See Note 3 regarding this agreement;
- Nations Energy Corporation (Nations Energy) which is an independent
  power developer; and
- MEH Corporation (MEH) which held a 50 percent interest in NewEnergy,
  Inc. (NewEnergy), an energy buyer representative.  See Note 3
  regarding the sale of our interest in NewEnergy.

See Note 3 for more information on our unregulated energy businesses.
Intersegment revenues are not material.

Selected financial data for our business segments is contained in the
following table:


                                 Segments
                            ----------------------
                          TEP:     Millennium:
                       Regulated  Unregulated              UniSource
                        Electric    Energy                   Energy
                        Utility   Businesses  Eliminations Consolidated
----------------------------------------------------------------------
                                     - Thousands of Dollars  -
Income Statement
----------------
Three months ended
 September 30, 1999:
  Operating Revenues   $264,756     $ 2,933     $(2,998)     $264,691
----------------------------------------------------------------------
  Net Income (Loss):
   AET                              $   (80)
   MEH                               21,200
   Nations Energy                      (181)
   Other Entities                        61
                                     --------
    Total Net
      Income (Loss)    $ 31,933     $21,000     $(1,264)     $ 51,669
----------------------------------------------------------------------

Three months ended
 September 30, 1998:
  Operating Revenues   $253,280     $   356     $  (407)     $253,229
----------------------------------------------------------------------
  Net Income (Loss):
   AET                              $  (102)
   MEH                                  101
   Nations Energy                     5,767
   Other Entities                       (68)
                                     --------
    Total Net
      Income (Loss)    $ 29,374     $ 5,698     $(1,399)     $ 33,673
----------------------------------------------------------------------
Nine months ended
 September 30, 1999:
  Operating Revenues   $615,375     $ 8,161     $(8,365)     $615,171
----------------------------------------------------------------------
  Net Income (Loss):
   AET                              $  (691)
   MEH                               20,550
   Nations Energy                    (5,151)
   Other Entities                       319
                                     --------
    Total Net
      Income (Loss)    $ 38,968     $15,027     $(4,146)     $ 49,849
----------------------------------------------------------------------




                                  Segments
                            ----------------------
                          TEP:     Millennium:
                       Regulated  Unregulated              UniSource
                        Electric    Energy                   Energy
                        Utility   Businesses  Eliminations Consolidated
----------------------------------------------------------------------
                                     - Thousands of Dollars  -
Income Statement
----------------
Nine months ended
 September 30, 1998:
  Operating Revenues   $593,969     $ 1,016     $(1,212)     $593,773
----------------------------------------------------------------------
  Net Income (Loss):
   AET                              $  (119)
   MEH                               (9,197)
   Nations Energy                     5,363
   Other Entities                       (34)
                                     --------
    Total Net
      Income (Loss)    $ 35,840     $(3,987)    $(4,157)     $ 27,696
----------------------------------------------------------------------
Balance Sheet
-------------
  Total Assets,
  September 30, 1999 $2,658,489    $100,670    $(72,247)   $2,686,912
  Total Assets,
  December 31, 1998  $2,628,583    $ 74,007    $(68,547)   $2,634,043
----------------------------------------------------------------------

The eliminations include the following:

-  Elimination of the revenues of Millennium's unregulated energy
   businesses to show this activity in Unregulated Energy Businesses
   in the Other Income (Deductions) section of UniSource Energy's
   income statements;
-  Elimination of TEP's Note Receivable and related interest receivable
   from UniSource Energy; and
-  Elimination of intercompany activity and balances.


NOTE 3. UNREGULATED ENERGY BUSINESSES
-------------------------------------

  Sale of NewEnergy

     On July 23, 1999, MEH sold its 50% ownership interest in NewEnergy
to the AES Corporation (AES) for approximately $50 million in
consideration, consisting of:

-  Shares of AES common stock valued at $27 million as of July 23,
   1999 which were subsequently sold in the third quarter at a slight
   gain; and
-  Two promissory notes issued by NewEnergy totaling $22.8 million.
   The notes are secured by AES stock, bear interest at 9.5%, and $11.4
   million of the principal amount is due July 23, 2000 and July 23,
   2001, respectively.

     UniSource Energy recognized a pre-tax gain of approximately $35
million from the sale.  As part of the agreement, AES repaid a $10
million loan NewEnergy obtained from an unrelated party that was
guaranteed by UniSource Energy. Previously, UniSource Energy provided
guarantees of up to $55.6 million of certain performance bonds and
contractual obligations relating to NewEnergy's purchases and sales of
electricity.  On October 1, 1999, termination notices were sent on all
guarantees and the master surety agreement.  The effective dates of
all terminations have passed, except for one guarantee up to the
amount of $6.5 million, which has a termination date of November 29,
1999. The termination of the guarantees means that UniSource Energy
will not incur any additional guarantee liability under these
agreements but does not extinguish any obligation existing prior to
the time of termination.  The $6.5 million guarantee provided by
UniSource Energy is fully secured.

     MEH originally acquired its 50% ownership in NewEnergy in
September 1997.  In the first quarter of 1999, MEH transferred its
ownership in New Energy Ventures Southwest (NEV SW) to NewEnergy.  MEH
recorded after-tax losses related to NewEnergy and NEV SW of $0.4
million and $9.6 million for the nine months ended September 30, 1999
and 1998, respectively.

  Purchase and Sale of Generating Assets by Nations Energy

     In March 1999, Nations Energy funded $3.3 million of equity in a
Curacao refinery project. In May 1999, Nations Energy sold this
interest for $3.3 million.  No gain or loss was recorded on the
transaction.

  Agreement to Acquire Additional Interest in Global Solar

     Millennium currently owns a 50% interest in Global Solar through
its subsidiary AET.  The other 50% is owned by ITN Energy Systems, Inc.
(ITN).  On November 1, 1999, Millennium and ITN entered into an
Agreement (Agreement) pursuant to which ITN will contribute its 50%
ownership interest in Global Solar to AET, in exchange for a 33.3%
ownership in AET.  ITN has agreed to transfer its rights to certain
assets and proprietary and intellectual property, including thin-film
battery technology, to AET.  Under the Agreement, Millennium retains a
66.7% interest in AET, and will contribute to AET up to $10 million in
additional equity and a $4 million working capital loan, upon the
occurrence of certain agreed-upon production and business milestones.
As of November 12, 1999, Millennium has funded $1.1 million of working
capital under this agreement.


NOTE 4.  TAX ASSESSMENTS
------------------------

TEP has been contesting the Coal Sales Assessments and Lease
Assessments, described below, since 1990.

-  Coal Sales Assessments:  The ADOR issued sales tax assessments which
   alleged that a former TEP subsidiary was liable for sales tax on
   gross income from coal sales, transportation and coal-handling
   services provided to TEP from November 1985 through May 1996.  On
   May 31, 1996, the former subsidiary was merged into TEP.  Because
   TEP now acquires coal directly from unaffiliated companies, we are
   not liable for sales tax computed on a basis similar to the
   assessments described above after May 31, 1996.

-  Lease Assessments:  The ADOR  issued sales tax assessments to some
   of the lessors of TEP's generation-related facilities and equipment.
   Under the indemnification provisions in the lease agreements, we are
   required to pay any sales tax assessments owed by the lessors.  The
   assessments allege sales tax liability on a component of rents we
   paid on the Springerville Unit 1 Leases, the Springerville Common
   Facilities Leases, the Irvington Lease and the Springerville Coal
   Handling Facilities Lease from August 1, 1988 to June 30, 1997.
   Because the applicable sales tax rate went to zero on July 1, 1997,
   no additional assessments are expected.

     In August 1999, a settlement was reached with the Arizona
Department of Revenue (ADOR) to settle these issues for $47.5 million.
The settlement agreement became effective upon execution by the lessors
of the generating facilities and their trustees subject to the lease
assessment in November 1999.  TEP previously paid $25.1 million of the
settlement amount in order to file an appeal in the Arizona courts.
Under the terms of the agreement, the remaining $22.4 million was
deposited into an escrow account for the benefit of the ADOR and the
funds are to be released to the ADOR in 5 equal installments.   As of
November 9, 1999, two of the installments had been released to the
ADOR, totaling $9 million.  The remaining installments are scheduled to
be paid on January 15, April 15 and September 15, 2000.  Interest
expense will be accrued on any payments made after their respective due
dates.  This settlement does not result in additional sales tax expense
since we have previously recorded an expense for the amount of the
settlement.

  Income Tax Assessments

     In February 1998, the IRS issued an income tax assessment for the
1992 and 1993 tax years.  The IRS is challenging our treatment of
various items relating to a 1992 financial restructuring, including the
amount of NOL and ITC generated before December 1991 that may be used
to reduce taxes in future periods.

     Due to a financial restructuring, a change in TEP's ownership
occurred for tax purposes in December 1991.  As a result, our use of
the NOL and ITC generated before 1992 may be limited under the tax
code.  The IRS is challenging our calculation of this limitation.  At
September 30, 1999, pre-1992 federal NOL and ITC carryforwards were
approximately $151 million and $23 million, respectively.  In addition
to the pre-1992 NOL and ITC which are subject to the limitation, $167
million of federal NOL at September 30, 1999, is not subject to the
limitation.

     We do not expect the resolution of these issues to have a material
adverse impact on the financial statements.


NOTE 5.  SPRINGERVILLE COMMON FACILITIES LEASE
----------------------------------------------

     Under the terms of the Springerville Common Facilities lease
agreement, the secured notes underlying this lease must be refinanced
or refunded by December 31, 1999 in order to avoid a special event of
loss under the lease.  If a special event of loss were to occur, TEP
would be required to repurchase the facilities for an amount equal to
the higher of the stipulated loss value of $144 million or the fair
market value of the facilities.  Upon such purchase, the lease would be
terminated.  Based on the current amortization schedule for these
notes, a principal amount of approximately $70 million will be
outstanding as of December 31, 1999.  Interest on the lease notes is
currently paid at a variable rate of interest equal to the Federal
Funds rate plus 0.625%.  TEP intends, and has the ability, to refinance
the underlying debt on these leases in 1999.  TEP filed a financing
application with the ACC requesting approval to refinance these leases
in the fourth quarter of 1999.  TEP is in negotiations with the owner
participants of the common facilities and expects to complete this
refinancing transaction prior to year-end 1999.



NOTE 6.  INCOME TAXES
---------------------

     The differences between the income tax expense and the amount
obtained by multiplying income before income taxes by the U.S.
statutory federal income tax rate are as follows:

                                            UniSource Energy
                                ---------------------------------------
                                Three Months Ended    Nine Months Ended
                                   September 30,          September 30,
                                 1999       1998        1999       1998
                                ---------------------------------------
                                       - Thousands of Dollars -
Federal Income Tax
 Expense at Statutory Rate     $30,800    $19,777   $30,361    $14,951
  State Income Tax
   Expense, Net of Federal
   Deduction                     4,270      3,049     4,209      2,304
  Depreciation Differences
   (Flow Through Basis)          1,829        890     2,511      4,349
  Capital Loss Carryforwards         -          -        -      (4,463)
  Investment Tax Credit
   Amortization                   (700)      (661)   (2,100)    (1,806)
  Foreign Operations of
   Unregulated Energy Businesses  (115)       247     1,563        578
  Other                            246       (470)      352       (893)
                               --------  ---------  --------  ---------
Total Expense for
 Federal and State Income
 Taxes                         $36,330    $22,832   $36,896    $15,020
                               =======    =======   =======    =======




                                                TEP
                                ---------------------------------------
                                Three Months Ended     Six Months Ended
                                   September 30,          September 30,
                                 1999       1998        1999       1998
                                ---------------------------------------
                                       - Thousands of Dollars -
Federal Income Tax Expense
 at Statutory Rate             $19,400    $17,358   $23,169    $19,826
 State Income Tax Expense,
  Net of Federal Deduction       2,689      2,673     3,212      3,054
 Depreciation Differences
  (Flow Through Basis)           1,829        890     2,511      4,349
 Capital Loss Carryforwards          -          -         -     (4,463)
 Investment Tax Credit
   Amortization                   (700)      (661)   (2,100)    (1,806)
 Other                             278        (39)      438       (154)
                               --------  ---------   -------  ---------
Total Expense for Federal
 and State Income Taxes        $23,496    $20,221   $27,230    $20,806
                               ========  =========  ========  =========


     Income taxes are included in the income statements as follows:

                                            UniSource Energy
                               ---------------------------------------
                               Three Months Ended     Six Months Ended
                                   September 30,         September 30,
                                1999       1998        1999       1998
                               ---------------------------------------
                                       - Thousands of Dollars -
Operating Expenses             $22,002    $18,297   $23,401    $19,398
Other Income (Deductions)          585        974     1,010     (1,411)
Unregulated Energy
  Businesses                    13,743      3,561    12,485     (2,967)
                               --------  ---------  --------  ---------
Total Income Tax Expense       $36,330    $22,832   $36,896    $15,020
                               ========  =========  ========  =========

                                                  TEP
                               ---------------------------------------
                               Three Months Ended     Nine Months Ended
                                  September 30,          September 30,
                                1999       1998        1999       1998
                               ---------------------------------------
                                       - Thousands of Dollars -
Operating Expenses             $22,002    $18,297   $23,401    $19,398
Other Income (Deductions)        1,494      1,924     3,829      1,408
                               -------    -------    -------   -------
Total Income Tax Expense       $23,496    $20,221   $27,230    $20,806
                               =======    =======   =======    =======


     As of December 31, 1997 both UniSource Energy and TEP had recorded
the amount of prior period NOL benefit that we expect to use on future
income tax returns.  At the present time, we are not able to estimate
future additional amounts of NOL benefit that we may recognize in the
income statements of either UniSource Energy or TEP.  This is because
there are still open tax years for which there may be additional
assessments and because federal and state NOL carryforwards have
varying expiration dates.  We do not expect to recognize additional
amounts of NOL benefit until such items are resolved.


NOTE 7.  NEW ACCOUNTING STANDARDS
---------------------------------

     In June 1998, the Financial Accounting Standards Board 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.  This Statement
requires all derivative instruments to be recognized as either assets
or liabilities in the balance sheet.  Some derivative instruments
offset, or hedge, exposure to a specific risk.  If the derivative is
not a hedging instrument, measurement is at fair value and changes in
fair value (i.e., gains and losses) are recognized in earnings in the
period of change.  If a derivative qualifies as a hedge, the accounting
for changes in fair value will depend on the specific exposure being
hedged.  We are required to adopt FAS 133 effective January 1, 2001.
We are still in the process of quantifying the effect, if any, that the
adoption of FAS 133 will have on our financial statements.

     In November 1998, the Emerging Issues Task Force issued guidance
on accounting for energy trading activities (EITF 98-10).  Energy
trading activities are intended to generate profits from changes in the
market prices for energy-related commodities such as electricity,
natural gas and coal.  These activities include certain purchase power
and transmission contracts.  This guidance would require us to measure
the difference between cost and market value for our energy contracts
and include any resulting gains or losses in earnings.  We adopted this
guidance in the first quarter of 1999.  TEP does purchase and sell
electricity but does not engage in the type of activities defined in
EITF 98-10 as energy trading.  Therefore the adoption of this guidance
had no effect on our financial statements.


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

     With respect to the unaudited consolidated financial information
of UniSource Energy and Tucson Electric Power Company for the three-
month and nine-month periods ended September 30, 1999 and 1998,
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 November 10,
1999, appearing herein, states that they did not audit and they do not
express an opinion on that unaudited 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 for their report on the unaudited 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
--------------------------

     Minor reclassifications have been made to the prior year financial
statements to conform to the current year's presentation.



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

     UniSource Energy is a holding company that owns all of the outstanding
common  stock  of TEP and Millennium.  TEP is an operating  public  utility
engaged in the generation, purchase, transmission, distribution and sale of
electricity  for  customers  in the greater Tucson,  Arizona  area  and  to
wholesale  customers.  Millennium owns all of the outstanding common  stock
of  four subsidiaries established for the purpose of operating or investing
in various unregulated energy-related businesses.

      Management's Discussion and Analysis centers on the general financial
condition  and the results of operations for UniSource Energy and  its  two
primary business segments, the regulated electric utility business  of  TEP
and  the  unregulated  energy businesses of Millennium,  and  includes  the
following:

     * operating results during the third quarter and the first nine months
       of 1999 compared with the same periods in the prior year,
     * the outlook for dividends on common stock,
     * changes in liquidity and capital resources during the third quarter
       and first nine months of  1999, 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.

     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 and the nine month
periods  ended  September 30, 1999 and 1998.  Management's  Discussion  and
Analysis analyzes and explains the differences between periods for specific
line items of the Condensed Consolidated Financial Statements.

OVERVIEW
--------

     UniSource  Energy recorded net income of $51.7 million for  the  third
quarter of 1999, and net income of $49.8 million for the first nine  months
of  1999.   This  compares with net income of $33.7 million  in  the  third
quarter and net income of $27.7 million for the first nine months of  1998.
The  increase  in earnings for both the third quarter and  the  first  nine
months  of  1999  is  due primarily to a gain on the sale  of  one  of  our
unregulated  energy  businesses and strong operating  performance  by  TEP.
See Results of Operations below for further detail.

      Our  financial  prospects  are  subject  to  significant  regulatory,
economic  and  other uncertainties.  Regulatory uncertainties  include  the
impact  of  the  introduction  of retail competition  in  Arizona  and  the
resolution  of stranded cost recovery.  Until the uncertainties surrounding
the  introduction of retail competition in Arizona are resolved, predicting
the  level  of TEP's future energy sales and the composition of its  future
revenues is difficult.  See Competition, Retail below.

     In a deregulated environment, revenues from sales of energy may become
less certain although revenues from transmission and distribution services,
which  we expect to remain regulated, would likely continue to grow.   Even
in  a deregulated environment, TEP expects to continue to benefit from  the
anticipated  population  and economic growth in  the  Tucson  area  through
increased  revenues  from  its  regulated  services.   Other  uncertainties
include  the extent to which TEP's ability to alter operations  and  reduce
costs  in  response to industry changes or unanticipated economic downturns
may  be  limited due to high financial and operating leverage.  Our  future
success  will depend, in part, on our ability to contain and/or reduce  the
costs of serving retail customers and the level of sales to such customers.

     In June 1999, TEP filed a Settlement Agreement with the ACC, which, if
approved, will resolve a significant amount of the regulatory uncertainties
and will provide TEP the opportunity to recover 100 percent of its stranded
costs.   We are addressing the uncertainties discussed above by positioning
our  subsidiaries to benefit from the changing regulatory environment.   We
have  aligned  our  corporate structure to better meet  the  needs  of  the
emerging  energy  markets.  In November 1998, TEP organized  its  regulated
business   activities  into  three  separate  business  units:  generation,
transmission and distribution, and in January 1999, formed a business  unit
which  provides  administrative services to  the  utility  business  units.
Also,  we are improving cost measurement and management techniques at  TEP.
We  have  extended  contracts, where appropriate, for large  wholesale  and
retail  customers.   We  are developing new affiliates  to  provide  energy
services   to   markets  beyond  TEP's  retail  service   territory.    See
Competition, Retail; Results of Unregulated Energy Businesses; and  Results
of Operations below.

      Our financial prospects are also subject to uncertainties relating to
the  start-up  and  developmental  activities  of  our  unregulated  energy
business  segment.  Although our investments in unregulated  energy-related
affiliates  comprise approximately 3% of total assets, start-up  costs  and
other  subsidiary developmental activities have contributed to losses  from
certain  of  these  activities in 1999 and 1998.  We continue  to  evaluate
these  affiliates for opportunities to realize value from our  investments.
In  the  third  quarter  of  1999, we sold our  ownership  interest  in  an
unregulated energy-related affiliate, NewEnergy, Inc., and recorded a  gain
on the transaction.

     Our  consolidated  capital structure remains highly leveraged.   Since
April  1997,  however, we have made significant progress in  our  financial
strategy  to  reduce refinancing risk by extending maturities of  long-term
debt  and  letters of credit and by reducing exposure to variable  interest
rates by refinancing with fixed interest rate securities.

      Our  businesses  require  large amounts of  capital.   TEP's  capital
requirements  include construction expenditures, scheduled debt  maturities
and  capital lease obligations.  During the next twelve months, TEP expects
to  be able to fund operating activities and construction expenditures with
internal  cash flows, existing cash balances, and, if necessary, borrowings
under  the  Revolving  Credit Facility.  Some  of  our  unregulated  energy
businesses  also  require significant amounts of capital  in  the  form  of
investments, loans or guarantees.  We expect to reinvest proceeds from  the
NewEnergy  sale  to help fulfill these needs.  If necessary,  we  may  seek
investments   by   unaffiliated  parties  to  meet  the   ongoing   capital
requirements  of  some  of  these businesses.  See  Liquidity  and  Capital
Resources; Investing and Financing Activities, below.


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.  Under current law and regulation, TEP does not  compete
with   other  companies  for  electric  service  in  TEP's  retail  service
territory.  However, TEP competes against gas service suppliers and  others
who  provide  energy services.  TEP actively markets energy and  customized
energy-related services and, partly because of these efforts,  to  date  we
have not lost any customers to self-generation.  It is likely however, that
when  open  access in our retail service territory begins,  some  customers
will  elect  to  purchase  their  energy  requirements  from  other  energy
suppliers.

      In  order to retain customers in preparation for open access, TEP has
renegotiated  the  contracts of some of its large  retail  customers.   TEP
recently  entered  into a new contract with a major mining  customer  which
extends the term by over four years to 2006.  The contract includes reduced
pricing  that  will  lower TEP's annual revenues by approximately  $2-   $5
million depending on the price of copper.

      In  this section, we discuss the current status of regulatory actions
of  the  ACC  regarding the introduction of retail electric competition  in
Arizona.   We  also  outline TEP's responses to these  actions.   There  is
considerable  uncertainty regarding the timing and  the  outcome  of  these
matters.   As  a result, we cannot predict the impact of retail competition
on TEP's future operating results or financial condition.

     Retail Electric Competition Rules

      In  December 1996, the ACC adopted retail electric competition  rules
(Rules)  that  provided  a framework for the phase-in  of  retail  electric
competition  for generation services in Arizona beginning in January  1999.
The  Rules  were amended and adopted on an emergency basis in August  1998.
However,  in January 1999, the ACC delayed the implementation of the  Rules
pending additional proceedings to resolve a number of important issues.  On
April  14,  1999, the ACC approved amendments to the Rules and on September
21, 1999, voted to approve the final Rules.  The approved Rules include the
following major provisions:

 * The date to open an Affected Utility's service  territory  to
   competition would be set upon the resolution its of Stranded Costs and
   Unbundled Tariffs by final ACC order.

 * If an Affected Utility's service territory is open prior to January 1,
   2001, the phase-in schedule requires that customers whose load equals 20
   percent of the Affected Utility's total load initially have access to
   competitive generation supply.  As part of the 20 percent, each Affected
   Utility would reserve an increasing percentage for residential customers
   according to a set schedule.  Three customer classes will have the initial
   opportunity for choice:

   * Large customers whose average usage/load is 1 megawatt (MW) or above,
     such as mines, refineries, factories, and resorts.  TEP currently
     serves about 80 such customers in this category, representing 351 MW
     of load. Of this load, approximately 60 percent is under contract
     through 2001;

   * Smaller commercial customers that can aggregate with similar entities
     to reach a total load of one MW also are eligible.  Examples of these
     customers are convenience stores, small fast-food restaurants and large
     retail stores; and

   * A percentage of TEP's residential customers will be able to choose to
     participate in the new market on a first-come, first-served basis.
     Every three months, an additional one and one-quarter percent of
     residential consumers will have the opportunity to choose.

  * Competitive Energy Service Provider affiliates of Affected Utilities
    would not be permitted to enter another Affected Utility's  service
    territory until their own territory is open to competition.

  * By  January  1, 2001, consumer choice will be available  to all
    customers. TEP, as the regulated local distribution company, will
    continue to deliver electricity over its power lines to homes and
    businesses. TEP also will continue to be responsible for the operation
    and maintenance of the lines. TEP remains obligated to provide energy
    to those customers who do not, or cannot, choose other energy providers.

     Stranded Costs

     In  June 1998, the ACC adopted an order that outlined two options  for
stranded cost recovery: 1) Divestiture/ Auction of all generation assets to
determine the amount of stranded costs for 100 percent recovery,  or  2)  a
Transition  Revenues Methodology, where the Affected Utility  would  retain
generation  assets  in  a  separate  affiliate  with  sufficient   revenues
necessary  to maintain financial integrity, such as avoiding default  under
current existing financial instruments for a period of ten years.

     On  April 14, 1999, the ACC authorized a modifcation of its June  1998
order permitting 100% stranded cost recovery without divestiture, providing
additional  options for stranded cost recovery.  Details on  these  methods
are  available  in  the 1998 Form 10-K at Item 1.  -  Business,  Rates  and
Regulation,  ACC  Orders  on Stranded Cost Recovery,  ACC  Hearing  Officer
Proposed Order on Stranded Costs.

      TEP's  original stranded cost recovery plan, filed with  the  ACC  in
August  1998,  specified divestiture of generation assets as the  preferred
method for stranded cost recovery given the available options at that time.
In  June  1999, TEP and certain customer groups entered into the Settlement
Agreement  now pending before the ACC.  See Settlement Agreement on  Retail
Competition below.

     Rate Settlement Agreement

     On August 25, 1998, the ACC approved a rate settlement agreement (Rate
Settlement)  which  gives TEP's retail customers the following  base  price
decreases:

     * an initial 1.1% decrease (about $7.0 million) which was effective July
       1, 1998;
     * a second decrease of 1.0% (about $5.5 million) which was effective on
       July 1, 1999; and
     * an additional 1.0% decrease (about $5.5 million) on July 1, 2000.

     Settlement Agreement On Retail Competition

     On  June  9,  1999,  TEP and certain customer groups  entered  into  a
Settlement Agreement (Settlement) related to the implementation  of  retail
electric competition.  The ACC held hearings on TEP's Settlement in  August
1999.   On  October 26, 1999, the ACC Hearing Officer issued a  recommended
opinion  and  order to approve TEP's Settlement with certain modifications.
The ACC has scheduled an Open Meeting to consider the Settlement on November
22 and  23,  1999.

     Major provisions of the Settlement as recommended  by  the Hearing
Officer include:

     * Consumer choice for energy supply would begin after the ACC approves
       the Settlement and will be phased in as required by the ACC's retail
       competition rules.  By January 1, 2001, consumer choice would be
       available to all customers.

     * In accordance with the Rate Settlement Agreement approved by the ACC
       in 1998, TEP decreased rates to retail customers by 1% on July 1, 1999
       and will decrease rates an additional 1% on July 1, 2000. These
       reductions will apply to all retail customers.  The Settlement provides
       that, after these reductions, TEP's retail rates would be frozen until
       December 31, 2008, except under certain circumstances.  TEP would
       recover the costs of transmission and distribution under regulated
       unbundled rates.

     * TEP would recover its stranded costs, including regulatory assets,
       through two Competition Transition Charge (CTC) components:

       *  A Fixed CTC component which would equal a fixed charge per kilowatt-
          hour.  It would terminate when $450 million has been recovered, but
          no later than December 31, 2008. When the Fixed CTC terminates,
          TEP's retail rates would decrease by the amount of the Fixed CTC.
       *  A Floating CTC component would be equal to the amount of the frozen
          tariff rates less the sum of unbundled transmission and distribution
          charges and amounts based on the Palo Verde Futures Index for
          electric energy.  Because TEP's total retail rate would be frozen,
          the Floating CTC would enable TEP to recoup the balance of stranded
          costs not otherwise recovered through the fixed charge as follows:

          *  when wholesale market prices for electric energy are strong,
             stranded costs would be lower and the Floating CTC would be
             lower; and
          *  when wholesale market prices for electric energy are weak,
             stranded costs would be greater and the Floating CTC would
             be higher.

          The Floating CTC would terminate no later than December 31, 2008.

     *  By June 1, 2004, TEP will be required to file a general rate case
        including an updated cost-of-service study.  Any rate change
        resulting from this rate case would be effective no sooner than
        June 1, 2005 and would only be made if the changes result in a net
        rate reduction.

     *  By December 31, 2002, TEP would transfer its generation and other
        competitive assets to a subsidiary of TEP, at market value.
        At the time that TEP makes this transfer, it would be required,
        under the ACC's electric competition rules, to provide energy to
        any distribution customer who does not choose another energy service
        provider.  TEP's generation subsidiary would sell energy into the
        wholesale market.  TEP, as a utility distribution company (UDC),
        would bid for energy in the wholesale market for its standard offer
        energy requirements.

     *  On final, and unappealable, approval of the Settlement by the ACC,
        TEP will dismiss all pending litigation brought by TEP against
        the ACC.

      As  mentioned  above,  the  ACC Hearing Officer  recommended  certain
modifications  to the Settlement.  TEP filed an exception  to  one  of  the
recommended  modifications  related to the  allocation  of  stranded  costs
between  contract customers and non-contract customers.  Contract customers
are  certain  large  industrial and mining customers  with  which  TEP  has
negotiated  non-standard  rates approved by the ACC.   The  proposed  order
requires  that  TEP  file  a report for approval by  the  Director  of  the
Utilities  Division that demonstrates how stranded costs will be  collected
from customer classes.  TEP believes that the recommendation is unclear  as
to  the  methodology to be utilized to allocate stranded costs to  customer
classes.   If  the intent of the modification in the proposed order  is  to
make  a determination that non-contract customers are picking up an alleged
stranded   cost  shortfall  from  contract  customers,  then  TEP  strongly
disagrees   with   the  proposed  modification.   TEP  believes   no   such
subsidization exists.

     If, and when, the Settlement is approved, TEP will stop accounting for
its generation operations using FAS 71.  See Accounting For The Effects  Of
Regulation, below.  There can be no assurance, however, that the Settlement
will  be accepted as filed or that key assumptions and related events  will
be realized.

     WHOLESALE

     TEP  competes  with other utilities, power marketers  and  independent
power  producers  in  the  sale of electric  capacity  and  energy  in  the
wholesale  market.   FERC  generally  does  not  permit  TEP's  prices  for
wholesale sales of capacity and energy to exceed rates determined on a cost
of  service basis.  However, in the fall of 1997, FERC granted TEP a tariff
to sell at market-based rates.  In the current market, wholesale prices are
typically  substantially below TEP's total cost  of  service,  but  in  all
instances,  we make wholesale sales at prices which exceed fuel  and  other
variable costs.  We expect competition to sell capacity to remain vigorous.
Competition  for  the  sale of capacity and energy  is  influenced  by  the
following factors:

     *  availability of capacity in the southwestern United States,
     *  the availability and prices of natural gas, oil and coal,
     *  spot energy prices, and
     *  transmission access.


     ACCOUNTING FOR THE EFFECTS OF REGULATION
     ----------------------------------------

     The  ACC regulates TEP's retail utility business.  TEP generally  uses
the  same  accounting policies and practices used by unregulated  companies
for  financial  reporting under generally accepted  accounting  principles.
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 charge its customers currently to recover certain  expenses,
but instead, require that these expenses be recovered from customers in the
future.  In this situation, FAS 71 requires that TEP capitalize and  report
these  expenses  as  regulatory assets on the balance sheet  until  TEP  is
allowed  to  charge its customers.  TEP then amortizes these items  to  the
income statement as those amounts are recovered from customers.  Similarly,
certain  items of revenue may be deferred as regulatory liabilities,  which
are also eventually amortized to the income statement.

      We  have  recorded regulatory assets and liabilities in  our  balance
sheets in accordance with FAS 71.  A regulated company must satisfy certain
conditions to apply the accounting policies and practices of FAS 71.  These
conditions 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.

      We  periodically assess whether we continue to meet these conditions.
If  we  were required to stop applying FAS 71 to all or a portion of  TEP's
regulated  utility operations, without regulatory recovery, we would  write
off  the related balances of TEP's regulatory assets and liabilities  as  a
charge  in  our  income statement.  In that event, our  earnings  would  be
reduced  by  the  net  amount of regulatory assets and  liabilities,  after
applicable  deferred  income  taxes.   Based  on  the  balances  of   TEP's
regulatory  assets  and liabilities at September 30,  1999,  if  we  ceased
applying  FAS 71 to all of TEP's regulated operations, we would  record  an
extraordinary  loss  of  approximately $137 million,  net  of  the  related
deferred  income  tax  benefit  of $91 million.   In  addition,  TEP  would
immediately  recognize, as a reduction to the extraordinary loss,  the  $23
million ITC carryforward balance that TEP believes it would use on a future
tax  return.   Approximately  60% of TEP's net  regulatory  assets  on  the
balance sheet relate to electric generation.  While our cash flows  may  be
affected  by regulatory orders and market conditions, our cash flows  would
not be affected if we ceased to apply FAS 71.

      If  we stop applying FAS 71, we would need to evaluate the likelihood
that  we could recover the cost of TEP's electric plant in the marketplace.
If  undiscounted cash flows related to these plant assets are less than the
carrying value of those assets that we continue to own, then we would  need
to write off as an expense a portion of those plant assets to reflect the
present value of future cash flows.  Plant assets to be disposed of would
be written down to  fair value if it is less than carrying value.  We cannot
predict if we would write off any plant assets as a result of these
evaluations.

     However,  if  and  when  the Settlement is  approved,  TEP  will  stop
accounting for its generation operations using FAS 71 and begin  using  the
same  accounting policies and practices used by unregulated  companies  for
financial  reporting.   The regulatory assets of the  generation  business,
together   with  certain  above-market  generation  plant  costs,  totaling
approximately  $450  million, will be recovered  through  the  distribution
business.   No net gain or loss to TEP or UniSource Energy is expected  due
to  the  recognition of stranded cost regulatory assets  on  TEP's  balance
sheet.   These regulatory assets will amortize to expense over  the  period
ending in 2008, as provided for in the Settlement Agreement.

     In  addition,  if  the  Settlement is  approved  we  will  immediately
recognize  net  after-tax extraordinary income primarily  as  a  result  of
recognition of the following Investment Tax Credit (ITC) amounts:

     * Deferred ITC:  On our financial statements we have deferred  the
       benefit relating to ITC claimed on tax returns.  This Deferred ITC
       is being amortized to income over the tax lives of the related
       property. The balance remaining when the Settlement is approved
       will be recognized immediately. At September 30, 1999, the Deferred
       ITC balance was $8 million.

     * ITC Carryforward: This ITC is generated but not yet claimed on a tax
       return,  and will be recognized immediately as income based  on  our
       expectation that this ITC will be claimed on future tax returns.  At
       September 30, 1999, the total ITC Carryforward was $23 million.

     Certain  other  generation expenses, such as lease  expense,  will  be
amortized  differently  in  the  future, although  total  amounts  of  such
expenses will remain the same over the life of the leases.

     Overall, if the Settlement is approved in 1999, reported earnings will
increase  in  1999,  primarily as a result of the recognition  of  the  ITC
described  above, and earnings will be reduced in the next  few  subsequent
years, primarily as a result of the changes in ceasing to apply FAS  71  to
generation  related  assets.   However,  TEP  expects  that  such  earnings
reductions will be offset, provided:

     * customer growth in TEP's service territory continues at its current
       pace, about 2% to 3% annually;

     * margins on wholesale sales grow as market prices for energy increase
       over time in the region; and

     * a portion of free cash flow is used to reduce TEP's debt.

      We  cannot  predict  the  outcome  of  hearings  on  the  Settlement.
Additionally,  federal  legislators introduced several  retail  competition
initiatives  in  Congress which, if passed, could modify  or  override  the
actions taken by the ACC.  We will continue to monitor the progress of  the
legislation  and  assess  its  impact on  retail  electric  competition  in
Arizona.


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

      We  are potentially exposed to various forms of market risk.  Changes
in  interest  rates, returns on marketable securities, changes  in  foreign
currency  exchange rates, and changes in commodity prices  may  affect  our
future   financial  results.   TEP  currently  uses  derivative   commodity
instruments  such as forward contracts to buy or sell energy but  does  not
use  derivative  financial instruments for hedging, trading or  speculative
purposes.   TEP continues to evaluate to what extent, if any,  it  may  use
derivative financial and commodity instruments in the normal course of  its
future  business.  Nations Energy uses derivative financial instruments  to
manage  certain  interest rate risks, as described in  Interest  Rate  Risk
below.

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

     Interest Rate Risk

     Exposure to interest rate changes relates primarily to TEP's long-term
debt  obligations.  UniSource Energy's market risks related to TEP's  long-
term  debt  obligations have not changed materially from the  market  risks
reported in the 1998 Form 10-K.

     Nations  Energy has exposure to interest rate changes for  certain  of
its  overseas projects and uses swap agreements to manage its interest rate
exposure.   The  agreements have the effect of converting certain  variable
rate obligations to fixed rate obligations.

     Marketable Securities Risk

      Exposure  to  fluctuations  in the return  on  marketable  securities
relates to TEP's investment in debt securities.  UniSource Energy's  market
risks related to marketable securities have not changed materially from the
market risks reported in the 1998 Form 10-K.

     Foreign Currency Exchange Risk

      Exposure to changes in foreign currency exchange rates may arise from
transactions  conducted by Nations Energy in foreign  currencies.   Nations
Energy's  investment  in a power project in the Czech  Republic  is  highly
leveraged.  Portions of the project's debt are denominated in U.S. Dollars,
German  Deutschmarks, and Czech Korunas.  The project bears the  risk  that
the  value  of the debt in each currency changes with fluctuations  in  the
applicable exchange rates, as well as the risk that the amount of  interest
due each period changes with fluctuations in the applicable exchange rates.
The  impact  of  recording  the  exchange rate  fluctuations  on  UniSource
Energy's  income  statement for the third quarter of 1999  was  a  gain  of
approximately  $1.0 million, and for the first nine months of  1999  was  a
gain of $746,000.

     Commodity Price Risk

      Exposure to changes in commodity prices at TEP relates to changes  in
the  market  price  of  electricity, as well as to changes  in  fuel  costs
incurred to generate electricity.  UniSource Energy's market risks  related
to  changes in commodity prices have not changed materially from the market
risks reported in the 1998 Form 10-K.


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

      In  the  past, TEP assessed its need for future generating  resources
based  on  the  premise  of  a continued regulatory  requirement  to  serve
customers in TEP's retail service area.  However, the obligation to provide
generation services to all customers will likely be modified by  the  ACC's
electric competition rules.  Further, the need for future resources will be
affected  by these rules and TEP's ability to retain and attract customers.
Under  the  electric  competition rules as adopted, some  of  TEP's  retail
customers  will  be  eligible to choose alternative energy  providers  when
retail competition is introduced.  For those customers who do not or cannot
choose  other  energy providers, TEP remains obligated to  provide  energy.
However,  this  energy  is not required to come from  TEP-owned  generating
assets.  See Competition, Retail.

     TEP believes additional peaking resources are needed in Tucson by 2001
to  improve local system reliability.  To address this need, in  the  third
quarter  of  1999, TEP entered into an agreement to purchase a  75  MW  gas
turbine.   This peaking unit will be designated as a "must-run  generation"
facility.  Must-run generating units are those which are required to run in
certain  circumstances in order to maintain distribution system reliability
and meet load requirements.  TEP expects to spend approximately $28 million
from  1999  through 2001 on this project.  We expect this  unit  to  be  in
operation by the second quarter of 2001.

     IMPACT OF THE YEAR 2000 ON COMPUTER SYSTEMS AND APPLICATIONS
     ------------------------------------------------------------

      Our  Year 2000 (Y2K) efforts began in 1996 and involve the inventory,
assessment,  remediation  and  testing  of  our  operational  and  business
systems.   Our  goal is to provide uninterrupted electric  service  and  to
process  business  transactions at year 2000 and beyond.   We  successfully
completed  our mission critical Year 2000 readiness preparation process  on
June  30,  1999.  This process was to ensure that the systems necessary  to
provide  safe  reliable  power  to our customers  are  ready  for  the  new
millennium.   We believe that all identified business critical systems  and
applications within our control will be Y2K ready as of November 30,  1999.
"Y2K ready" means the systems have been checked for date processing and are
expected to operate properly for their specific business requirements  into
year 2000.

     State of Readiness

     We have completed an inventory and assessment for each of our critical
and  non-critical  information systems and embedded technologies  including
the  following areas: control and embedded systems; enterprise  information
systems; suppliers; and subsidiaries.

Control  and  Embedded Systems - We have reviewed the control and  embedded
systems of TEP's utility plant, including generation units partly owned but
not  operated  by  TEP.  Many of these systems are critical  to  the  power
generation,  transmission  and  distribution  of  electric  service.    The
inventory and assessment stages of this program were completed by September
30, 1998.

We  completed the testing and remediation efforts for our mission  critical
systems  by June 30, 1999.  Our mission critical systems which were  tested
and  determined  to  be  Y2K  ready include  the  Springerville  Generating
Station, the Irvington Generating Station, all transmission facilities, all
distribution facilities and our energy control centers.

Enterprise Information Systems - We began the remediation, replacement,  or
upgrade  of  these systems in 1996, and completed this process  in  October
1999.  The following systems are included:

     Department or Area                      Comments
Customer  Services, Billing,  Vendor identified Y2K patches for  the
Receivables                   Customer Information System have  been
                              delivered and installed.  The upgraded
                              release of the underlying software has
                              also been installed.

Human Resources, Payroll      Y2K  ready - System installed in  1993
                              and upgraded to be Y2K ready in 1998.

Work Management               The  upgraded  release  for  the  Work
                              Management  System has  been  received
                              from  the  vendor  and  tested.    The
                              upgrade  for  the underlying  software
                              has    also    been    received    and
                              successfully  tested.  The  production
                              installation of this software occurred
                              in July 1999.

General Ledger, Fixed         New   vendor-supplied  Y2K   compliant
Assets, Projects              software   for  these  functions   was
                              implemented in the second  quarter  of
                              1999.   Additional  Y2K  testing   was
                              conducted in September and October  of
                              1999.

Accounts Payable,             Y2K  ready - Remediation completed  in
Purchasing, Inventory         1998.


An   integrated   test  was  successfully  performed  for  all   enterprise
information  systems in the third quarter of 1999.  The test  included  the
enterprise  hardware,  operating software and all major  applications  with
year 2000 date processing.

Suppliers  - We have identified the major vendors from which we  buy  goods
and/or  services  for  the  generation, transmission  and  distribution  of
electrical  service.  We continue to work with these vendors  to  determine
their  plans and to investigate any potential impact on us.  Major  vendors
of our business areas also continue to be reviewed for Y2K compliance.

Millennium Subsidiaries - We have contacted Nations Energy and Global Solar
to determine their state of readiness.  These companies will continue to be
monitored to ensure plans are in place to avoid Y2K disruptions.

     Costs

      From  1996 through September 30, 1999, we have expensed $1.7  million
addressing  the  Y2K  issue.  This amount does  not  include  major  system
replacement costs that, along with other functional changes, addressed  Y2K
issues.   A  $1.8  million  estimate, which  includes  the  amount  already
expensed, is anticipated for Y2K project costs.  All remediation costs will
be expensed as incurred.

     Risks

      We currently believe that all identified modifications to the systems
that  TEP  operates  will be implemented within the required  time  frames.
Despite  our efforts, we cannot be certain that all Y2K problems  affecting
the  systems  we  operate  will be identified and remediated  in  a  timely
manner.  Although we do not expect any of our potential Y2K problems to  be
significant,  it  is  possible  that  such  problems  could   disrupt   the
generation, transmission or distribution of electric energy or the  billing
and collection process.

      We  cannot assure that systems or parties outside of our control  are
prepared for Y2K, or how their level of preparedness may affect us.  As  an
example,  the loss of communications systems supplied by our vendors  could
affect  our  ability  to  operate generation and  transmission  facilities.
Furthermore, any instability of the electric grid caused by parties outside
of  our  control  may  result in interruptions of generating  capacity  and
impact our ability to provide electric services.

     TEP  and  other  electric  service providers  in  the  Western  System
Coordinating Counsel (WSCC) are studying possible Y2K risks resulting  from
interconnected   electric  and  information  systems.   The  interconnected
systems  are  critical to the reliability and integrity  of  each  electric
service provider.  As an example, the failure of an interconnected provider
to  meet  Y2K  readiness could possibly disrupt the provision  of  electric
services  by utilities.  TEP and other electric providers in the  WSCC  are
working together in an effort to avoid such disruptions.

     Contingency Plans

      We  have prepared contingency plans for the possibility that not  all
remediation  efforts  will  succeed.  We  have  documented  the  events  or
scenarios that might significantly impact the delivery of electric service,
including  loss  of generation, communications, and other  conditions  that
could  result in electric power outages. TEP has also prepared  contingency
plans  to  mitigate  the  risk of business function  interruptions  in  the
unlikely  case of a date processing related failure in one of our  business
computer or communications systems.  Our contingency plans are intended  to
minimize the potential impact of any of these conditions.  The plan,  which
was  finalized June 30, 1999, includes contingency procedures,  tests,  and
drills which coincide with the WSCC and North American Electric Reliability
Council  (NERC) contingency plans.  TEP performed compliance  testing  with
NERC  industry  coordinated drills on April 9, 1999, and on September  8-9,
1999, and did not experience any significant events or difficulties.


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

     UniSource  Energy recorded net income of $51.7 million  or  $1.60  per
average share of Common Stock in the third quarter, and net income of $49.8
million or $1.54 per share in the first nine months of 1999.  This compares
with net income of $33.7 million or $1.05 per average share of Common Stock
in  the third quarter of 1998, and net income of $27.7 million or $0.86 per
share in the first nine months of 1998.

     Net  income was $18.0 million higher in the third quarter of 1999 than
in  the  same  period  in 1998 due to (i) a gain on  the  sale  of  one  of
Millennium's   unregulated  energy  businesses  and  (ii)  strong   utility
operating  performance by TEP.  Millennium's net income was  $15.3  million
higher  in  the third quarter of 1999 because of a $20.8 million  after-tax
gain  from the sale of NewEnergy.  This compares with a $5.8 million after-
tax  gain  in  the  third quarter of 1998 on the sale of  Nations  Energy's
interest  in  a  partnership  which owned and operated  the  Coors  Brewing
Company power plant.  TEP's net income increased $2.5 million in the  third
quarter  of  1999  because of an improvement in operating income  and  from
lower interest expense.

     Net  income was $22.1 million higher for the first nine months of 1999
relative  to  the  same  period in 1998 due to the same  factors  described
above:  (i)  a  gain  of  the sale of NewEnergy  and  (ii)  strong  utility
operating performance by TEP.

     Contribution By Business Segment

      The table below shows the contributions to our consolidated after-tax
earnings  and earnings per share by our two business segments, as  well  as
parent  company expenses and inter-company eliminations, for the three  and
nine months ended September 30, 1999 and 1998:

---------------------------------------------------------------------------
                                     Three Months Ended  Nine Months Ended
                                        September 30      September 30
                                        1999    1998      1999    1998
---------------------------------------------------------------------------
                                        -Millions -        -Millions-
   Regulated Electric Utility          $31.9   $29.4     $39.0   $35.8
   Unregulated Energy Businesses        21.0     5.7      15.0    (4.0)
   Parent Company and Inter-Company
        Eliminations                    (1.2)   (1.4)     (4.2)   (4.1)
---------------------------------------------------------------------------
      Consolidated Net Income          $51.7   $33.7     $49.8   $27.7
===========================================================================



      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.   Regulated
Electric Utility results include interest income on this note.

     TEP's  regulated 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 Unregulated Energy Businesses below.

     Utility Sales and Revenues

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


                                                     Increase/(Decrease)
                                                     -------------------
Three Months Ended September 30   1999       1998      Amount  Percent
-------------------------------   ----       ----      ------  -------
Electric kWh Sales (000):
   Retail Customers             2,343,480  2,280,253   63,227   2.8%
   Sales for Resale             1,657,115  1,417,787  239,328  16.9
                                ---------  ---------  -------
       Total                    4,000,595  3,698,040  302,555   8.2%
                                =========  =========  =======

Electric Revenues (000):
   Retail Customers              $198,673  $196,449   $ 2,224   1.1%
   Sales for Resale                66,083    56,831     9,252  16.3
                                   ------    ------     -----
       Total                     $264,756  $253,280   $11,476   4.5%
                                 ========  ========   =======


                                                     Increase/(Decrease)
                                                     -------------------
Nine Months Ended September 30   1999       1998      Amount  Percent
------------------------------   ----       ----      ------  -------
Electric kWh Sales (000):
   Retail Customers             5,951,879  5,889,674   62,205   1.1%
   Sales for Resale             3,833,957  3,304,675  529,282  16.0
                                ---------  ---------  -------
       Total                    9,785,836  9,194,349  591,487   6.4%
                                =========  =========  =======

Electric Revenues (000):
   Retail Customers              $486,561  $485,333   $ 1,228   0.3%
   Sales for Resale               128,814   108,636    20,178  18.6
                                   ------    ------     -----
       Total                     $615,375  $593,969   $21,406   3.6%
                                 ========  ========   =======



      TEP's  kWh sales to retail customers increased by 2.8% in  the  third
quarter  of  1999 compared with the same period in 1998.   The  retail  kWh
sales  increase  was  due  to  a 2.6% increase  in  the  number  of  retail
customers. Average retail energy consumption was also up slightly,  despite
milder summer temperatures as measured by a 15% reduction in cooling degree
days  compared  with the third quarter of 1998.  Retail revenues  increased
only  1.1%  in the third quarter of 1999 compared with the same  period  in
1998,  reflecting  the impact of the 1.0% rate decrease effective  July  1,
1999.

     For  the  first  nine  months of 1999, kWh sales to  retail  customers
increased  1.1%  compared  with  the same period  in  1998.   Mild  weather
conditions  in  both the winter (first quarter 1999) and the summer  (third
quarter  1999)  reduced  customer demand for  power  and  offset  the  2.7%
increase  in  average retail customers for the nine-month  period.   Retail
revenues  were  up less than 1.0% for the nine-month period reflecting  the
impact  of the 1.1% rate decrease effective July 1, 1998 and the 1.0%  rate
decrease effective July 1, 1999.

      TEP makes sales for resale on both a firm and interruptible basis  to
the extent TEP's generating capacity is not needed for providing energy  to
TEP's  retail  customers.   TEP  also enters into  short-term  energy  sale
transactions   (under  one-year)  that  are  offset  by  similar   purchase
transactions.    Rates   for   short-term  energy   sales   are   typically
substantially below rates determined on a fully allocated cost  of  service
basis,  but, in all instances, rates exceed the level necessary to  recover
fuel and other variable costs.

     Kilowatt-hour  sales  for  resale  increased  16.9%  and  the  related
revenues grew by 16.3% in the third quarter of 1999 compared with the  same
period  in  1998.  Wholesale sales volume increased due to  both  increased
buy/resale  activity  as  well as an increase in generation  available  for
resale.   In  the first nine months of 1999, kWh sales for resale  were  up
16.0%  and  the related revenues were 18.6% higher than the same period  in
1998.   Market  prices  were  slightly higher  in  the  nine  months  ended
September  30, 1999 than in the prior year period, causing the year-to-date
revenue increase to exceed the volume increase.

     Operating Expenses

     Operating  expenses remained constant as a percentage of revenues  for
the  third quarter of 1999 compared with the third quarter of 1998.   Total
Operating  Expenses  increased  5.1% in the  third  quarter  of  1999,  due
primarily  to  a  9.4% increase in Fuel and Purchased  Power  expense  that
resulted from higher wholesale energy sales.

     Operating  expenses were also stable as a percentage of  revenues  for
the  nine months ended September 30, 1999 compared with the same period  of
1998.  Total Operating Expenses increased 3.6% in the first nine months  of
1999.   The  increase was due primarily to higher Fuel and Purchased  Power
expense  as  well  as  higher Maintenance and Repair  expense  for  planned
generation  maintenance activities in the second quarter  of  1999.   These
increases were partially offset by higher amortization of the Springerville
Unit 1 Allowance contra-asset.

     Other Income (Deductions)

     Interest Income

     TEP's income statements for the quarters ended September 30, 1999 and
1998  include  $2.5  million  and $2.4 million, respectively,  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.  For the nine months ended September  30,  1999
and  1998, the interest income on the promissory note was $7.6 million  and
$7.0 million, respectively.

     Lower interest income for the quarter ended September 30, 1999 and the
first  nine  months of 1999 was due primarily to lower cash balances.   See
Liquidity and Capital Resources below.

     Income (Losses) from Unregulated Energy Businesses

     Our  unregulated energy businesses contributed net  income  of  $21.0
million  for the third quarter ended September 30, 1999, compared with  net
income  of $5.7 million in the third quarter of 1998.  For the nine  months
ended September 30, 1999 our unregulated businesses reported net income  of
$15.0  million compared with a net loss of $4.0 million for the same period
in  1998.   See  Note  3  of  Notes  To  Condensed  Consolidated  Financial
Statements  and  Results of Unregulated Energy Businesses  below  for  more
information on the results of this business segment.

     Interest Expense

     Interest  expense  decreased by approximately $1.3  million  and  $4.9
million  in  the third quarter and the first nine months of  1999  compared
with  the  same  periods  in  1998,  respectively,  due  primarily  to  (i)
reductions  in  long  term debt, and (ii) higher interest  expense  in  the
second  quarter of 1998 due to interest payments on two bond issues for  up
to  75  days  before  the  redemption of old bonds.  Additionally,  average
interest  rates on variable rate debt were lower in both the third  quarter
and first nine months of 1999 relative to the prior year periods.


RESULTS OF UNREGULATED ENERGY BUSINESSES

     The table below provides a breakdown by Millennium-owned subsidiary of
the  after tax net income/(losses) recorded for the three months  and  nine
months ended September 30, 1999 and 1998.



---------------------------------------------------------------------------
                      Three Months Ended         Nine Months Ended
                          September 30              September 30
      Subsidiary         1999       1998           1999       1998
---------------------------------------------------------------------------
                     -Thousands of Dollars-     -Thousands of Dollars-
      AET               $   (80)   $ (102)       $  (691)   $  (119)
      MEH                21,200       101         20,550     (9,197)
      Nations Energy       (181)    5,767         (5,151)     5,363
      Other                  61       (68)           319        (34)
---------------------------------------------------------------------------
      Total Millennium  $21,000    $5,698        $15,027    $(3,987)
===========================================================================




     AET and Global Solar

     Advanced  Energy  Technologies, Inc. (AET) currently  owns  a  50%
interest  in  Global Solar Energy, L.L.C. (Global Solar), a manufacturer
of  thin-film  photovoltaic cells.  In November 1999, an  agreement  was
entered into that changed the ownership structure of both AET and Global
Solar.   See  Note  3. Unregulated Energy Businesses  in  the  Notes  to
Condensed  Consolidated Financial Statements.  AET's net losses  in  the
third  quarter  and first nine months of 1999 were due to  manufacturing
startup-related expenses of the Tucson-based production facility and the
formation of an overseas affiliate to manufacture thin-film photovoltaic
cells  in  India.   Small-scale manufacturing of thin film  photovoltaic
cells began in the third quarter of 1999.

     MEH and NewEnergy

     Prior  to  the  third quarter of 1999, MEH held  a  50%  interest  in
NewEnergy,  a  provider  of  electricity,  energy  products,  services  and
technology  based  energy  solutions to customers  in  deregulating  energy
markets.  NewEnergy was sold to The AES Corporation on July 23, 1999.   MEH
recorded an after-tax gain of $20.8 million on the sale of NewEnergy in the
third  quarter of 1999.  See discussion of NewEnergy and the terms  of  the
sale  below at Investing and Financing Activities, Millennium - Unregulated
Energy Businesses.

     The  net  loss  of  $9.2 million for the first nine  months  of  1998
represents NewEnergy's start-up costs, development activities, and costs of
expansion into additional regions of the country.

     Nations Energy

     Nations Energy Corporation (Nations Energy) develops independent power
projects worldwide.  Nations Energy recorded a small net loss in the  third
quarter of 1999.  This compares to net income of $5.8 million in the  third
quarter of 1998, resulting from the sale of its interest in the partnership
which  owned and operated the Coors Brewing Company power plant in  Golden,
CO.

     For the first nine months of 1999, Nations Energy recorded a net loss
of  $5.2 million due primarily to development costs and expenses related to
the  exercise  of  an  option to invest in a power  project  in  the  Czech
Republic.   This compares to net income of $5.4 million for the first  nine
months  of  1998,  resulting  from the sale  of  the  partnership  interest
described above.


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

     UniSource Energy

     Our ability to pay cash dividends on common stock outstanding depends,
in  part,  on  the  cash  flow  from  our  subsidiary  companies,  TEP  and
Millennium.   TEP  is  our  primary  operating  subsidiary  and   comprises
substantially  all  of UniSource Energy's assets.  In  December  1998,  TEP
declared and paid a $30 million cash dividend to UniSource Energy.  In  the
third  quarter  of  1999, Millennium paid a $10 million  cash  dividend  to
UniSource Energy.

     Our Board of Directors may consider the declaration and payment of  a
cash  dividend to the common shareholders of UniSource Energy during  1999.
We will consider several factors in making this decision, including:

     *    the capital needs of our affiliates;
     *    our earnings;
     *    our business prospects; and
     *    the impact and status of deregulation in Arizona.

     TEP

     In December 1998, TEP declared and paid a dividend of $30 million  to
UniSource  Energy,  its sole shareholder.  TEP declared the  dividend  from
current  year (1998) earnings since TEP has an accumulated deficit,  rather
than positive retained earnings.

     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 September 30,
1999,  the  required minimum net worth was $199 million.  TEP's actual  net
worth  at September 30, 1999 was $269 million.  See Investing and Financing
Activities, TEP Credit Agreement, below.  As of September 30, 1999, 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
September 30, 1999, TEP's equity ratio on that basis was 18.5%.  TEP is  in
compliance with this order.

     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.


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

 CASH FLOWS

     UniSource Energy

     Consolidated  cash and cash equivalents decreased from the  September
30,  1998  ending balance of $164.5 million to $131.7 million at  September
30,   1999.   For  the  twelve-month  period  ended  September  30,   1999,
consolidated  net  cash  outflows for investing  and  financing  activities
exceeded the cash generated from operating activities.

     Net cash flows from operating activities decreased by $31.7 million in
the  first nine months of 1999 compared with the same period in 1998.   The
net decrease resulted from the following principal factors:

     *  $22.4 million transfer of cash to an escrow account related to a tax
        settlement (see Note 4 of Notes to Condensed Consolidated Financial
        Statements);
     *  $20.7 million increase in fuel and purchased power payments, due
        primarily to sales increases;
     *  $17.2 million increase in cash receipts from wholesale sales;
     *  $12.6 million increase in cash receipts from retail customers;
     *  $10.3 million increase in other operations and maintenance costs,
        primarily due to planned generation maintenance activities in the
        second quarter of 1999;
     *  $11.3 million reduction of cash inflows from net emission allowance
        sales which occurred in 1998; and
     *  no cash outflows for contract termination fees in 1999, compared with
        $10 million paid to a coal supplier in 1998.

      Net  cash used for investing activities totaled $66.1 million  during
the  first nine months of 1999 compared with $61.7 million during the  same
period  in  1998.  Capital expenditures were $9.4 million higher  in  1999.
Other  significant investing activities in 1999 included: (i) TEP purchased
$24.9  million  par  value of Springerville Unit  1  lease  debt  and  (ii)
Millennium  sold  the AES Corporation stock received as consideration  from
the  sale of NewEnergy for $27.5 million.  In 1998, Nations Energy received
$20  million in cash proceeds from the sale of its partnership interest  in
the Coors Brewing Company power plant and $27.1 million was invested in  or
loaned to other unregulated energy businesses.

      Net  cash used for financing activities totaled $19.8 million in  the
first  nine  months  of 1999 compared with $24.0 million  during  the  same
period  in  1998.  In 1999, the major use of cash for financing  activities
was  $22.3  million to retire capital lease obligations.   In  1998,  $17.2
million  of  capital  lease  obligations were retired.   Other  significant
financing  activities in 1998 included: (i) TEP issued long-term debt  with
net  cash  proceeds of $99.0 million and (ii) TEP retired $99.5 million  in
First Mortgage Bonds.

      The  Company's consolidated cash balance, including cash equivalents,
at  November  8,  1999  was  approximately $168 million.   We  invest  cash
balances  in  high-grade  money  market  securities  with  an  emphasis  on
preserving the principal amounts invested.

      During the next 12 months, UniSource Energy may require cash to  fund
investments  in our unregulated energy businesses, to pay interest  on  the
promissory  note  from UniSource Energy to TEP, 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 cash flows were to fall short of expectations,  we
would  reevaluate  the  investment requirements of our  unregulated  energy
businesses  and/or  seek  additional  financing  for  those  businesses  by
unrelated parties.

     TEP

     Cash and cash equivalents decreased from the September 30, 1998 ending
balance of $132.4 million to $96.2 million at September 30, 1999.  For  the
twelve-month  period  ended  September 30, 1999,  net  cash  outflows  from
investing  and financing activities exceeded net cash inflows for operating
activities.

     Net cash flows from operating activities decreased by $22.9 million in
the  first  nine  months of 1999 compared with the  same  period  in  1998,
principally  due  to the payment of $22.4 million into  an  escrow  account
related to a tax settlement.  See UniSource Energy, Cash Flows above for  a
discussion of factors affecting net cash flows from operating activities.

      Net  cash used for investing activities totaled $89.6 million  during
the  first nine months of 1999 compared with $100.2 million during the same
period  of  1998.  Capital expenditures were $8.0 million higher  in  1999.
Other  investing activities for 1999 included the purchase of $24.9 million
par  value of Springerville Unit 1 lease debt.  In 1998, net cash  outflows
from investing activities included the transfer of Millennium and its $45.4
million  of  cash from TEP to UniSource Energy on January  1,  1998.    The
subsidiaries  holding that cash were subsidiaries of TEP at year-end  1997,
and became subsidiaries of UniSource Energy on January 1, 1998.

     Net  cash used for financing activities totaled $19.9 million  in  the
first  nine  months  of 1999 compared with $23.9 million  during  the  same
period in 1998.  See UniSource Energy, Cash Flows above for a discussion of
factors affecting net cash flows from financing activities.

      TEP's  consolidated  cash  balance, including  cash  equivalents,  at
November 8, 1999 was approximately $133 million.

      TEP expects to generate enough cash flow during the next 12 months to
fund  continuing operating activities, construction expenditures,  required
debt  maturities,  and to pay dividends to UniSource Energy.   Actual  cash
flows may vary from projections if there are changes in wholesale revenues,
changes in short-term interest rates or other factors.  If cash flows  were
to  fall  short  of  our  expectations, or  if  monthly  cash  requirements
temporarily  exceeded available cash balances, TEP would  borrow  from  the
Revolving Credit Facility.


INVESTING AND FINANCING ACTIVITIES

     UniSource Energy

     Loans and Guarantees

     As described below, UniSource Energy sold its interest in NewEnergy on
July 23, 1999.  Pursuant to the sale, UniSource Energy continues to provide
guarantees on certain of NewEnergy's transactions. See  Note  3.
Unregulated Energy Businesses in  the  Notes  to  Condensed
Consolidated Financial Statements and Sale of NewEnergy, Inc.  below.

     TEP

     Capital Expenditures

      TEP's capital expenditures for the three months and nine months ended
September  30,  1999  were $23.0 million and $64.2  million,  respectively.
TEP's capital budget for the year ending December 31, 1999 is approximately
$90 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 budgeted  amounts  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.

     TEP Credit Agreement

      As  of  September  30, 1999 and as of November 8, 1999,  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  1.40
in  1999  and  gradually  increasing to 1.55 in 2002,  and  (c)  a  maximum
Leverage Ratio ranging from 6.80 in 1999 and gradually decreasing  to  6.20
in 2002.  TEP is in compliance with each of these covenants.

     SPRINGERVILLE COMMON FACILITIES LEASE

       Under  the  terms  of  the  Springerville  Common  Facilities  lease
agreement,  the secured notes underlying this lease must be  refinanced  or
refunded  by  December 31, 1999 in order to avoid a special event  of  loss
under  the lease.  If a special event of loss were to occur, TEP  would  be
required to repurchase the facilities for an amount equal to the higher  of
the  stipulated loss value of $144 million or the fair market value of  the
facilities.  Upon such purchase, the lease would be terminated.   Based  on
the  current amortization schedule for these notes, a principal  amount  of
approximately  $70  million will be outstanding as of  December  31,  1999.
Interest  on  the  lease  notes is currently paid at  a  variable  rate  of
interest equal to the Federal Funds rate plus 0.625%.  TEP intends, and has
the ability, to refinance the underlying debt on these leases in 1999.  TEP
filed a financing application with the ACC requesting approval to refinance
these  leases  in the fourth quarter of 1999.  TEP is in negotiations  with
the  owner  participants of the common facilities and expects  to  complete
this refinancing transaction prior to year-end 1999.


     Millennium -- Unregulated Energy Businesses
     -------------------------------------------

     Sale of NewEnergy, Inc.

      On  July 23, 1999, MEH sold its 50% ownership in NewEnergy to The AES
Corporation   (AES)   for  approximately  $50  million  in   consideration,
consisting of:

     *    Shares of AES common stock valued at  $27.0 million as of July 23,
          1999; and

     *    Two promissory notes issued by NewEnergy totaling $22.8 million.
          The notes are secured by AES stock, bear interest at 9.5%, and
          $11.4 million ofthe principal amount is due July 23, 2000 and
          July 23, 2001, respectively.

     As  part  of  the  agreement, AES repaid a $10 million loan  NewEnergy
obtained  from an unrelated party that was guaranteed by UniSource  Energy.
Previously, UniSource Energy provided guarantees of up to $55.6 million
of certain performance bonds and contractual obligations relating
to NewEnergy's purchases and sales of electricity.  On October 1, 1999,
termination notices were sent on all guarantees and the master surety
agreement.  The effective dates of all terminations have passed,
except for one guarantee up to the amount of $6.5 million, which
has a termination date of November 29, 1999. The termination
of the guarantees means that UniSource Energy will not incur any
additional guarantee liability under these agreements but does
not extinguish any obligation existing prior to the time of termination.
The $6.5 million guarantee provided by UniSource Energy
is fully secured. See Note 3.  Unregulated Energy Businesses
in  the  Notes  To  Condensed Consolidated Financial Statements.

     Prior to closing, AES agreed to extend up to $25 million in credit for
the  benefit  of  NewEnergy.  Amounts extended  under  that  facility  were
guaranteed by MEH and New Energy Holdings until the closing, at which  time
the guarantees terminated.  AES also provided, prior to closing, additional
guarantees as needed to support NewEnergy's business activities.

     UniSource Energy recognized an after-tax gain of $20.8 million in  the
third  quarter  of 1999 on the transaction.  MEH sold the  AES  Corporation
common  stock  received in consideration for the sale of NewEnergy  in  the
third quarter of 1999.  Millennium used some of the proceeds from the  sale
of  AES stock to pay a $10 million cash dividend to UniSource Energy.   The
remaining  proceeds from the stock sale as well as other  proceeds  of  the
NewEnergy sale will be available for reinvestment in other affiliates.

     CAPITAL REQUIREMENTS

     Our   Unregulated  Energy  Businesses  owned  by  Millennium   require
significant amounts of capital and we expect these needs to continue in the
near  future.  The schedule below shows the amounts our unregulated  energy
businesses recorded for capital expenditures, investments in and  loans  to
their  subsidiaries and affiliates, as well as cash proceeds from sales  of
investments for the three months and nine months ended September  30,  1999
and 1998:

---------------------------------------------------------------------------
                        Three Months Ended         Nine Months Ended
                          September 30              September 30
      Subsidiary         1999       1998           1999       1998
---------------------------------------------------------------------------
                     -Thousands of Dollars-     -Thousands of Dollars-
      AET               $  (600)   $ (606)      $(3,470)  $ (1,697)
      MEH                27,489    (7,991)       27,229    (17,973)
      Nations Energy       (155)   12,507           590     12,406
      Other                 (94)       (8)         (207)       (33)
---------------------------------------------------------------------------
      Total Millennium  $26,640    $3,902       $24,142   $ (7,297)
===========================================================================


      Our  forecasted investments in our unregulated energy businesses  are
subject to continuing review and revision, and contain assumptions for each
subsidiary  regarding  investment  opportunities,  growth  strategies,  and
potential investments by unaffiliated parties.  Actual expenditures may  be
higher or lower than these forecasts, or may be allocated to our businesses
in  proportions  different than planned.  Our ability to  fund  the  future
capital requirements of our unregulated business segment will depend  to  a
great  extent on the amount and predictability of the dividends we  receive
from our primary operating subsidiary, TEP.


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

     This Quarterly Report on Form 10-Q contains forward-looking statements
as  defined  by  the Private Securities Litigation 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. Changes in economic conditions, demographic patterns and weather
     conditions in TEP's retail service area.

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

  4. Changes in governmental policies and regulatory actions with respect
     to allowed rates of return, financings, and rate structures.

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

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

  7. Y2K disruptions resulting from unidentified or unremediated problems
     for systems which we control, and Y2K disruptions resulting from
     systems or parties which we do not control.




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 the Company's
Annual  Report  on  Form  10-K for the year ended  December  31,  1998,  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 Risk, Foreign Currency Exchange Risk.


                        PART II - OTHER INFORMATION

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

TAX ASSESSMENTS

      See  Note  4 of Notes to Condensed Consolidated Financial Statements,
Tax Assessments.



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

ADDITIONAL FINANCIAL DATA

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

                                     12 Months Ended
                                     ---------------
                               September 30,   December 31,
                                   1999            1998
                                   ----            ----
    Ratio of Earnings to           1.42            1.35
    Fixed Charges



ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------

(a)  Exhibits.

     -- See Exhibit Index.

(b)  Reports on Form 8-K.

       The  Company filed the following current reports on Form 8-K  during
the quarter ended September 30, 1999:

     * Form 8-K dated July 23, 1999 (filed August 9, 1999) reporting on the
       closing of the sale of NewEnergy, Inc.




                                 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:  November 15, 1999                     Ira R. Adler
                                     -------------------------------------
                                             Ira R. Adler
                                     Executive Vice President and Principal
                                             Financial Officer



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


Date:  November 15, 1999                     Ira R. Adler
                                     -------------------------------------
                                             Ira R. Adler
                                     Executive Vice President and Principal
                                             Financial Officer



                               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.
     27a -   Financial Data Schedule - TEP.
     27b -   Financial Data Schedule - UniSource Energy.