UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549
                                     
                                     
                                 FORM 10-Q
                                     
 (Mark One)
     [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF
                    THE SECURITIES EXCHANGE ACT OF 1934
                                     
               For The Quarterly Period Ended March 31, 1999
                                     
                                    OR
                                     
     [X]      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              
                    Incorporation; Address             IRS Employer
   Commission       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.
YeYes  X     No _____

      At  May  7, 1999, 32,303,281 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.

	In accordance with Rule 12b-25, the following disclosure items have been 
omitted from the UniSource Energy Corporation Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1999: Note 3, Unregulated Energy
Businesses, of Item 1. -- Financial Statements excludes certain financial
information for New Energy Ventures, Inc., an affiliate owned 50% by
UniSource Energy Corporation.

<PAGE>

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



                             TABLE OF CONTENTS

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

                      PART I - FINANCIAL INFORMATION

Item 1.  -- Financial Statements
     UniSource Energy Corporation
         Comparative  Condensed Consolidated Statements of Loss...2
         Comparative Condensed Consolidated Statements of
           Cash Flows.............................................3
         Comparative Condensed Consolidated Balance Sheets........4
     Tucson Electric Power Company
         Comparative  Condensed Consolidated Statements of Loss...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.....................9
     Note 3.  Unregulated Energy Businesses......................10
     Note 4.  Tax Assessments....................................11
     Note 5.  Springerville Common Facilities Lease..............12
     Note 6.  Income Taxes.......................................12
     Note 7.  New Accounting Standards...........................13
     Note 8.  Review by Independent Public Accoutants............14
     Note 9.  Reclassifications..................................14

Item 2.  -- Management's Discussion and Analysis of Financial
            Condition and Results of Operations
    Overview.....................................................15
    Factors Affecting Results Of Operations
        Competition
           Retail................................................15
           Wholesale.............................................16
    Accounting For The Effects Of Regulation.....................18
    Market Risks.................................................19
    Future Generating Resources..................................20
    Impact Of The Year 2000 On Computer Systems and Applications.21
 Results Of Operations...........................................21
      Contribution By Business Segment...........................23
      Utility Sales and Revenues.................................23
      Operating Expenses.........................................24
      Other Income (Deductions)..................................24
      Interest Expense...........................................25
 Results Of Unregulated Energy Businesses........................25
      AET and Global Solar.......................................25
      MEH and NEV................................................25

<PAGE>
      Nations Energy.............................................25
 Dividends On Common Stock
      UniSource Energy...........................................26
      TEP........................................................26
 Liquidity And Capital Resources
    Cash Flows
      UniSource Energy...........................................26
      TEP........................................................27
    Investing And Financing Activities
       UniSource Energy
       Loans and Guarantees......................................28
       Stock Warrants............................................28
       TEP
       Capital Expenditures......................................28
       TEP Credit Agreement......................................28
       Springerville Common Facilities Leases....................29
       Millennium -- Unregulated Energy Businesses
      Capital Requirements.......................................29
 Safe Harbor For Forward-Looking Statements......................30

Item 3.  -- Quantitative And Qualitative Disclosures
            About Market Risk....................................30


                        PART II - OTHER INFORMATION

Item 1. -- Legal Proceedings
     Tax Assessments.............................................31
Item 5. -- Other Information
     Additional Financial Data...................................31
Item 6.  -- Exhibits and Reports on Form 8-K.....................31
Signature Page...................................................32
Exhibit Index....................................................33

<PAGE>
                                DEFINITIONS
                                                                         
The abbreviations and acronyms used in the 1999 First Quarter Form 10-Q are
defined below:

ACC................. Arizona Corporation Commission.
ADOR................ Arizona Department of Revenue.
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.
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  in
                      which a 50% interest is owned by AET.
IRS................. Internal Revenue Service.
Irvington........... Irvington Generating Station.
ISO................. Independent System Operator.
ITC................. Investment tax credit.
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 NEV
New Energy Ventures,
 Inc................ a company in which a 50% interest is owned by MEH.
NEV Southwest....... New Energy Ventures Southwest, L.L.C., a wholly-
                       owned subsidiary of NEV.
NOL................. Net Operating Loss carryforward for income tax purposes.
OASIS............... Open Access Same-Time Information System is  an
                       Internet-based information network that the  electric
                       industry developed in response to the FERC policy  on
                       open transmission access.
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 Leases. 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 Leases.......... 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.
TEP Warrants........ Warrants  for the purchase of TEP Common  Stock
                       which were issued in 1992.
UniSource Energy.... UniSource Energy Corporation.
UniSource Energy
  Warrants.......... Warrants  for  the purchase  of  UniSource
                      Energy  Common  Stock which were issued  in  exchange
                      for  TEP  Warrants,  pursuant to  an  exchange  offer
                      which expired October 23, 1998.
WSCC...............  Western Systems Coordinating Council.
               

<PAGE>


           REVIEW REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors of
Tucson Electric Power Company

We have reviewed the accompanying condensed consolidated
balance sheets and the related condensed consolidated
statements of loss and of cash flows of Tucson Electric Power
Company and its subsidiaries (TEP) as of March 31, 1999 and for
the three-month periods ended March 31, 1999 and 1998. This
financial information is the responsibility of TEP's
management.

We conducted our review 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 review, we are not aware of any material
modifications that should be made to the accompanying financial
information for it to be in conformity with generally accepted
accounting principles.

We previously audited in accordance with generally accepted
auditing standards, the consolidated balance sheet and
statement of capitalization as of December 31, 1998, and the
related consolidated statements of income, of changes in
stockholder's 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
May 17, 1999

>Page>

                        PART I - FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS
-----------------------------------------------------------------------------

The weather causes seasonal fluctuations in UniSource Energy's sales. As a
result, quarterly results are not indicative of annual operating results. The
quarterly financial statements that follow are unaudited but reflect all
normal recurring accruals and other adjustments which we believe are
necessary for a fair presentation of the results for the interim periods
presented. Also see Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations.  This quarterly report should
be reviewed in conjunction with the Company's 1998 Form 10-K.
UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF LOSS

                                                       Three Months Ended
                                                            March 31,
                                                         1999       1998
                                                           (Unaudited)
                                                    -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $128,651    $138,087
 Sales for Resale                                       31,859      22,854
                                                      ---------   ---------
    Total Operating Revenues                           160,510     160,941
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                               54,919      48,400
 Capital Lease Expense                                  25,461      25,778
 Amortization of Springerville Unit 1 Allowance         (8,729)     (7,631)
 Other Operations                                       23,623      26,298
 Maintenance and Repairs                                 9,637      10,724
 Depreciation and Amortization                          23,081      22,563
 Taxes Other Than Income Taxes                          12,154      12,926
 Income Taxes                                           (2,559)     (1,937)
                                                      ---------   ---------
    Total Operating Expenses                           137,587     137,121
                                                      ---------   ---------
      Operating Income                                  22,923      23,820
                                                      ---------   ---------

Other Income (Deductions)
 Income Taxes                                             (232)       (631)
 Interest Income                                         1,638       1,716
 Unregulated Energy Businesses - Net                    (2,793)     (4,036)
 Other                                                     658         810
                                                      ---------   ---------
    Total Other Income (Deductions)                       (729)     (2,141)
                                                      ---------   ---------

Interest Expense
 Long-Term Debt                                         16,325      17,111
 Interest Imputed on Losses Recorded at Present Value    8,748       8,545
 Other                                                   2,649       3,058
                                                      ---------   ---------
    Total Interest Expense                              27,722      28,714
                                                      ---------   ---------

Net Loss                                              $ (5,528)   $ (7,035)
                                                      =========   =========


Average Shares of Common Stock Outstanding (000)        32,287      32,139
                                                      =========   =========

Basic and Diluted Loss per Share                      $  (0.17)   $  (0.22)
                                                      =========   =========




See Notes to Condensed Consolidated Financial Statements.
UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                       Three Months Ended
                                                            March 31,
                                                         1999       1998
                                                           (Unaudited)
                                                     -Thousands of Dollars-
Cash Flows from Operating Activities
  Cash Receipts from Retail Customers                 $147,388    $146,532
  Cash Receipts from Sales for Resale                   31,511      27,000
  Fuel and Purchased Power Costs Paid                  (58,132)    (42,978)
  Wages Paid, Net of Amounts Capitalized               (15,857)    (21,925)
  Payment of Other Operations and Maintenance Costs    (25,501)    (23,593)
  Capital Lease Interest Paid                          (44,505)    (41,319)
  Taxes Paid, Net of Amounts Capitalized               (11,110)    (11,519)
  Interest Paid, Net of Amounts Capitalized            (24,004)    (17,198)
  Contract Termination Fee Paid                              -     (10,000)
  Income Taxes Paid                                     (4,819)          -
  Emission Allowance Inventory Sales                         -          29
  Interest Received                                      2,222       2,361
  Other                                                  1,294       1,907
                                                      ---------   ---------
    Net Cash Flows - Operating Activities               (1,513)      9,297
                                                      ---------   ---------

Cash Flows from Investing Activities
  Capital Expenditures                                 (16,729)    (18,443)
  Investments in and Loans to Unregulated
   Energy Businesses                                    (5,050)     (6,000)
  Distributions from Unregulated Energy Businesses         500           -
  Other                                                     85         193
                                                      ---------   ---------
    Net Cash Flows - Investing Activities              (21,194)    (24,250)
                                                      ---------   ---------

Cash Flows from Financing Activities
  Proceeds from Issuance of Long-Term Debt                 255       1,105
  Payments to Retire Long-Term Debt                     (1,225)          -
  Payments to Retire Capital Lease Obligations         (16,552)     (8,737)
  Other                                                    837      (1,876)
                                                      ---------   ---------
    Net Cash Flows - Financing Activities              (16,685)     (9,508)
                                                      ---------   ---------

Net Decrease in Cash and Cash Equivalents              (39,392)    (24,461)
Cash and Cash Equivalents, Beginning of Year           145,167     146,256
                                                      ---------   ---------
Cash and Cash Equivalents, End of Period              $105,775    $121,795
                                                      =========   =========









See Notes to Condensed Consolidated Financial Statements.
UNISOURCE ENERGY CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATED CASH FLOW INFORMATION


                                                       Three Months Ended
                                                            March 31,
                                                         1999       1998
                                                            (Unaudited)
                                                     -Thousands of Dollars-

Net Loss                                              $ (5,528)   $ (7,035)
Adjustments to Reconcile Net Loss
   to Net Operating Cash Flows
  Depreciation and Amortization Expense                 23,081      22,563
  Deferred Income Taxes and Investment Tax Credit       (8,459)     (4,117)
  Lease Payments Deferred                              (16,404)    (12,616)
  Amortization of Regulatory Assets & Liabilities,
   Net of Interest Imputed on Losses Recorded at
   Present Value                                            18         914
  Deferred Contract Termination Fee                        962      (9,038)
  Unremitted (Earnings) Losses of Unconsolidated
   Subsidiaries                                          1,385       6,591
  Other                                                  3,083        (123)
  Changes in Assets and Liabilities which Provided
   (Used) Cash Exclusive of Changes Shown Separately
    Accounts Receivable                                  6,379         987
    Materials and Fuel                                  (3,146)        251
    Accounts Payable                                    (7,805)        508
    Taxes Accrued                                        8,311      11,961
    Other Current Assets and Liabilities                (2,578)     (1,928)
    Other Deferred Assets and Liabilities                 (812)        379
                                                      ---------   ---------
Net Cash Flows - Operating Activities                 $ (1,513)    $ 9,297
                                                      =========   =========

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

                                                    March 31,  December 31,
                                                      1999       1998
                                                   (Unaudited)
                                                   - Thousands of Dollars -
ASSETS
Utility Plant
  Plant in Service                                  $2,250,056  $2,263,871
  Utility Plant Under Capital Leases                   886,902     886,902
  Construction Work in Progress                         82,007      74,050
                                                    ----------- -----------
    Total Utility Plant                              3,218,965   3,224,823
  Less Accumulated Depreciation and Amortization    (1,048,456) (1,051,994)
  Less Accumulated Amortization of Capital Leases      (90,624)    (85,826)
  Less Springerville Unit 1 Allowance                 (171,431)   (171,413)
                                                    ----------- -----------
    Total Utility Plant - Net                        1,908,454   1,915,590
                                                    ----------- -----------

Investments and Other Property                         116,070     110,318
                                                    ----------- -----------

Current Assets
  Cash and Cash Equivalents                            105,775     145,167
  Accounts Receivable                                   66,388      72,767
  Materials and Fuel                                    40,025      37,040
  Deferred Income Taxes - Current                        9,594      14,820
  Other                                                 21,587      24,950
                                                    ----------- -----------
    Total Current Assets                               243,369     294,744
                                                    ----------- -----------

Deferred Debits - Regulatory Assets
  Income Taxes Recoverable Through Future Revenues     148,244     152,111
  Deferred Springerville Generation Costs               98,316     102,211
  Deferred Lease Expense                                 9,523       9,877
  Other Regulatory Assets                               18,210      18,886
Deferred Debits - Other                                 30,468      30,443
                                                    ----------- -----------
    Total Deferred Debits                              304,761     313,528
                                                    ----------- -----------
Total Assets                                        $2,572,654  $2,634,180
                                                    =========== ===========














See Notes to Condensed Consolidated Financial Statements.
UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS

                                                     March 31,  December 31,
                                                       1999         1998
                                                    (Unaudited)
                                                   - Thousands of Dollars -
CAPITALIZATION AND OTHER LIABILITIES
Capitalization
  Common Stock                                      $  641,089  $  640,640
  Accumulated Deficit                                 (399,522)   (393,994)
                                                     ----------- -----------
  Common Stock Equity                                  241,567     246,646
  Capital Lease Obligations                            869,649     889,543
  Long-Term Debt                                     1,183,198   1,184,423
                                                    ----------- -----------
    Total Capitalization                             2,294,414   2,320,612
                                                    ----------- -----------

Current Liabilities
  Current Obligations Under Capital Leases              14,989      11,647
  Current Maturities of Long-Term Debt                   1,725       1,725
  Accounts Payable                                      26,313      34,118
  Interest Accrued                                      42,765      70,771
  Taxes Accrued                                         35,478      27,167
  Accrued Employee Expenses                             17,388      15,207
  Other                                                  6,011       6,705
                                                    ----------- -----------
    Total Current Liabilities                          144,669     167,340
                                                    ----------- -----------

Deferred Credits and Other Liabilities
  Deferred Income Taxes - Noncurrent                    49,992      62,028
  Deferred Investment Tax Credits Regulatory Liability   9,736      10,436
  Emission Allowance Gain Regulatory Liability          31,324      31,335
  Other                                                 42,519      42,429
                                                    ----------- -----------
    Total Deferred Credits and Other Liabilities       133,571     146,228
                                                    ----------- -----------
Total Capitalization and Other Liabilities          $2,572,654  $2,634,180
                                                    =========== ===========


















See Notes to Condensed Consolidated Financial Statements.
TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF LOSS

The weather causes seasonal fluctuations in TEP's sales. As a result,
quarterly results are not indicative of annual operating results. The
quarterly financial statements that follow are unaudited but reflect all
normal recurring accruals and other adjustments which we believe are
necessary for a fair presentation of the results for the interim periods
presented. Also see Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations.  This quarterly report should
be reviewed in conjunction with the TEP's 1998 Form 10-K.
TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF LOSS

                                                       Three Months Ended
                                                           March 31,
                                                         1999       1998
                                                           (Unaudited)
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $128,777    $138,149
 Sales for Resale                                       31,859      22,854
                                                      ---------   ---------
    Total Operating Revenues                           160,636     161,003
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                               54,919      48,400
 Capital Lease Expense                                  25,461      25,778
 Amortization of Springerville Unit 1 Allowance         (8,729)     (7,631)
 Other Operations                                       23,623      26,298
 Maintenance and Repairs                                 9,637      10,724
 Depreciation and Amortization                          23,081      22,563
 Taxes Other Than Income Taxes                          12,154      12,926
 Income Taxes                                           (2,559)     (1,937)
                                                      ---------   ---------
    Total Operating Expenses                           137,587     137,121
                                                      ---------   ---------
      Operating Income                                  23,049      23,882
                                                      ---------   ---------

Other Income (Deductions)
 Income Taxes                                           (1,169)     (1,560)
 Interest Income                                         1,465       1,716
 Interest Income-Note Receivable from UniSource Energy   2,525       2,300
 Other                                                     532         769
                                                      ---------   ---------
    Total Other Income (Deductions)                      3,353       3,225
                                                      ---------   ---------

Interest Expense
 Long-Term Debt                                         16,325      17,111
 Interest Imputed on Losses Recorded at Present Value    8,748       8,545
 Other                                                   2,649       3,058
                                                      ---------   ---------
    Total Interest Expense                              27,722      28,714
                                                      ---------   ---------

Net Loss                                              $ (1,320)   $ (1,607)
                                                      =========   =========











See Notes to Condensed Consolidated Financial Statements.
TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                       Three Months Ended
                                                            March 31,
                                                         1999       1998
                                                           (Unaudited)
                                                     -Thousands of Dollars-
Cash Flows from Operating Activities
  Cash Receipts from Retail Customers                 $147,388    $146,532
  Cash Receipts from Sales for Resale                   31,511      27,000
  Fuel and Purchased Power Costs Paid                  (58,132)    (42,978)
  Wages Paid, Net of Amounts Capitalized               (14,406)    (20,971)
  Payment of Other Operations and Maintenance Costs    (23,516)    (22,109)
  Capital Lease Interest Paid                          (44,505)    (41,319)
  Taxes Paid, Net of Amounts Capitalized               (11,000)    (11,477)
  Interest Paid, Net of Amounts Capitalized            (24,004)    (17,198)
  Contract Termination Fee Paid                              -     (10,000)
  Income Taxes Paid                                     (4,818)          -
  Emission Allowance Inventory Sales                         -          29
  Interest Received                                      1,962       1,828
  Other                                                     86         862
                                                      ---------   ---------
    Net Cash Flows - Operating Activities                  566      10,199
                                                      ---------   ---------

Cash Flows from Investing Activities
  Capital Expenditures                                 (15,493)    (18,414)
  Transfer of Millennium Cash to UniSource Energy            -     (45,412)
  Other Investments - Net                                 (411)         18
                                                      ---------   ---------
    Net Cash Flows - Investing Activities              (15,904)    (63,808)
                                                      ---------   ---------

Cash Flows from Financing Activities
  Proceeds from Issuance of Long-Term Debt                 255       1,105
  Payments to Retire Long-Term Debt                     (1,225)          -
  Payments to Retire Capital Lease Obligations         (16,552)     (8,737)
  Other                                                    703      (1,859)
                                                      ---------   ---------
    Net Cash Flows - Financing Activities              (16,819)     (9,491)
                                                      ---------   ---------

Net Decrease in Cash and Cash Equivalents              (32,157)    (63,100)
Cash and Cash Equivalents, Beginning of Year           118,236     146,256
                                                      ---------   ---------
Cash and Cash Equivalents, End of Period              $ 86,079    $ 83,156
                                                      =========   =========











See Notes to Condensed Consolidated Financial Statements.
TUCSON ELECTRIC POWER COMPANY
SUPPLEMENTAL CONDENSED CONSOLIDATED CASH FLOW INFORMATION


                                                       Three Months Ended
                                                            March 31,
                                                         1999       1998
                                                           (Unaudited)
                                                     -Thousands of Dollars-

Net Loss                                             $ (1,320)    $ (1,607)
Adjustments to Reconcile Net Loss to Net
   Operating Cash Flows
  Depreciation and Amortization Expense                23,081       22,563
  Deferred Income Taxes and
   Investment Tax Credit                               (7,117)        (377)
  Lease Payments Deferred                             (16,404)     (12,616)
  Amortization of Regulatory Assets & Liabilities, Net
   of Interest Imputed on Losses Recorded at
   Present Value                                           18          914
  Deferred Contract Termination Fee                       962       (9,038)
  Unremitted Earnings of Unconsolidated Subsidiaries     (234)        (213)
  Interest Accrued on Note Receivable from
   UniSource Energy                                    (2,525)      (2,300)
  Other                                                 1,451          340
  Changes in Assets and Liabilities which Provided
   (Used) Cash Exclusive of Changes Shown Separately
    Accounts Receivable                                10,306          (74)
    Materials and Fuel                                 (2,792)         250
    Accounts Payable                                   (7,346)       1,561
    Taxes Accrued                                       8,390       11,962
    Other Current Assets and Liabilities               (5,097)      (1,545)
    Other Deferred Assets and Liabilities                (807)         379
                                                     ---------    ---------
Net Cash Flows - Operating Activities                $    566     $ 10,199
                                                     =========    =========

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

                                                   March 31,  December 31,
                                                      1999        1998
                                                   (Unaudited)
                                                   - Thousands of Dollars -
ASSETS
Utility Plant
  Plant in Service                                  $2,250,056  $2,263,871
  Utility Plant Under Capital Leases                   886,902     886,902
  Construction Work in Progress                         82,007      74,050
                                                    ----------- -----------
    Total Utility Plant                              3,218,965   3,224,823
  Less Accumulated Depreciation and Amortization    (1,048,456) (1,051,994)
  Less Accumulated Amortization of Capital Leases      (90,624)    (85,826)
  Less Springerville Unit 1 Allowance                 (171,431)   (171,413)
                                                    ----------- -----------
    Total Utility Plant - Net                        1,908,454   1,915,590
                                                    ----------- -----------

Investments and Other Property                          64,017      62,978
                                                   ----------- -----------

Note Receivable from UniSource Energy                   70,132      79,462
                                                    ---------- -----------
Current Assets

  Cash and Cash Equivalents                             86,079     118,236
  Interest on Note Receivable from UniSource Energy     11,855           -
  Accounts Receivable                                   64,572      72,239
  Materials and Fuel                                    39,948      36,995
  Deferred Income Taxes - Current                        9,594      14,820
  Other                                                 13,748      14,735
                                                    ----------- -----------
    Total Current Assets                               225,796     257,025
                                                    ----------- -----------

Deferred Debits - Regulatory Assets
  Income Taxes Recoverable Through Future Revenues     148,244     152,111
  Deferred Springerville Generation Costs               98,316     102,211
  Deferred Lease Expense                                 9,523       9,877
  Other Regulatory Assets                               18,210      18,886
Deferred Debits - Other                                 30,468      30,443
                                                    ----------- -----------
    Total Deferred Debits                              304,761     313,528
                                                    ----------- -----------
Total Assets                                        $2,573,160  $2,628,583
                                                    =========== ===========










See Notes to Condensed Consolidated Financial Statements.
TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS

                                                    March 31,  December 31,
                                                      1999        1998
                                                   (Unaudited)
                                                   - Thousands of Dollars -
CAPITALIZATION AND OTHER LIABILITIES
Capitalization
  Common Stock                                      $  646,873  $  646,568
  Capital Stock Expense                                 (6,357)     (6,357)
  Accumulated Deficit                                 (411,670)   (410,350)
                                                    ----------- -----------
  Common Stock Equity                                  228,846     229,861
  Capital Lease Obligations                            869,649     889,543
  Long-Term Debt                                     1,183,198   1,184,423
                                                    ----------- -----------
    Total Capitalization                             2,281,693   2,303,827
                                                    ----------- -----------

Current Liabilities
  Current Obligations Under Capital Leases              14,989      11,647
  Current Maturities of Long-Term Debt                   1,725       1,725
  Accounts Payable                                      30,207      37,256
  Interest Accrued                                      42,765      70,771
  Taxes Accrued                                         35,472      27,082
  Accrued Employee Expenses                             16,935      14,897
  Other                                                  6,011       6,705
                                                    ----------- -----------
    Total Current Liabilities                          148,104     170,083
                                                    ----------- -----------

Deferred Credits and Other Liabilities
  Deferred Income Taxes - Noncurrent                    59,810      70,504
  Deferred Investment Tax Credits Regulatory Liability   9,736      10,436
  Emission Allowance Gain Regulatory Liability          31,324      31,335
  Other                                                 42,493      42,398
                                                    ----------- -----------
    Total Deferred Credits and Other Liabilities       143,363     154,673
                                                    ----------- -----------
Total Capitalization and Other Liabilities          $2,573,160  $2,628,583
                                                    =========== ===========


See Notes to Condensed Consolidated Financial Statements.

<PAGE>

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, 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 March 31, 1999, if we ceased
applying FAS 71 to all of TEP's regulated operations, we would record
an extraordinary loss of approximately $140 million, net of the related
deferred income tax benefit of $93 million.  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 are less than the carrying
value of those plant assets that we continue to own, then we would need
to write off as an expense a portion of those plant assets to reflect
their current market value.  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.

     TEP and other affected utilities have until June 14, 1999 to amend
their previously filed stranded cost recovery plans. TEP's original
stranded cost plan filed on August 21, 1998, specified divestiture of
generation assets as the preferred method for recovery given the then-
available options.  TEP expects to file an amended plan in accordance
with the April 14 order.

     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.  Retail electric competition in Arizona
had been scheduled to begin on January 1, 1999, but the ACC delayed the
opening of the market by staying the previous Competition Rules pending
further review.

     Under the amendments, consumer choice will be available to all
customers by January 1, 2001.  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 provide
operation and maintenance of the lines.

     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.  In addition, the
proposed rules replace certain affiliated interest rules  with a code
of conduct to be filed by each utility.

     The amended rules will be submitted to the Secretary of State's
Office for publication in the Arizona Administrative Register. It is
anticipated that public comment sessions will be held in June, and the
Rules will be resubmitted to the ACC for their final approval in July
or August 1999.

     TEP will stop accounting for its generation operations using FAS
71 when the ACC approves a cost recovery plan specific to TEP which
includes the amount of stranded costs (including regulatory assets, net
of regulatory liabilities) that TEP can recover and a cost recovery
method.  The amount and method of recovery that the ACC approves for
TEP will determine whether write-offs or other adjustments will occur
at that time.  Until the ACC approves the amount and recovery method,
we are unable to predict the amount of write-offs or other adjustments,
if any, which would be recorded at that time.

     We cannot predict the outcome of the ACC's retail competition
rules.  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 it's 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. (Advanced Energy) which owns 50
percent of Global Solar Energy, L.L.C., a developer and manufacturer of
photovoltaic materials;
 - MEH Corporation (MEH) which holds a 50 percent interest in New
Energy Ventures, Inc. (NEV), an energy buyer representative; and
 - Nations Energy Corporation (Nations) which is an independent power
developer.

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

We disclose selected financial data for our business segments in the
following table:





----------------------------------------------------------------------
                                   Segments
                            ----------------------
                          TEP:     Millennium:
                       Regulated  Unregulated              UniSource
                        Electric    Energy    Reconciling    Energy
                        Utility   Businesses  Adjustments Consolidated
----------------------------------------------------------------------
                                     - Thousands of Dollars  -
Income Statement
----------------
Three months ended
 March 31, 1999:
  Operating Revenues   $160,636    $  1,627    $ (1,753)    $ 160,510
----------------------------------------------------------------------
  Net Income (Loss):
   Advanced Energy                     (374)
   MEH                                 (577)
   Nations                           (1,942)
   Other Entities                       100
                                     --------
    Total Net
      Income (Loss)      (1,320)     (2,793)     (1,415)       (5,528)
----------------------------------------------------------------------

Three months ended
 March 31, 1998:
  Operating Revenues    161,003         341        (403)      160,941
----------------------------------------------------------------------
  Net Income (Loss):
   Advanced Energy                      170
   MEH                               (4,050)
   Nations                             (204)
   Other Entities                        48
                                     --------
    Total Net
      Income (Loss)      (1,607)     (4,036)     (1,392)       (7,035)
----------------------------------------------------------------------

The reconciling adjustments include the following:

 - Elimination of the revenues of Millennium's unregulated energy
businesses to show this activity in Unregulated Energy Businesses - Net
in the Other Income (Deductions) section of UniSource Energy's income
statements, and
 - Elimination of intercompany activity and balances.

NOTE 3. UNREGULATED ENERGY BUSINESSES

Purchase of Generating Assets by Nations Energy

     In March 1999, Nations Energy funded $3.3 million of equity in a
Curacao refinery project. The investment was made through a special
purpose company, Curacao Energy Company, Ltd., which will own a
controlling interest in the project. The project is a 167MW
cogeneration facility that will supply power, steam, water and
compressed air to Refineria di Korsou.  Construction is planned to
begin later this year.

     Nations Energy Holland Holding increased its minority equity
interest in a power project located in the Czech Republic with an $0.8
million payment in the first quarter of 1999.  The $400 million, 340 MW
project is scheduled for completion in late 1999.  Once completed, the
generating facility will sell power to a regional distribution company
and to an adjacent industrial complex.

NOTE 4.  TAX ASSESSMENTS

  Ruling on Arizona Sales Tax Assessments - Coal Sales

     We received from the ADOR and are protesting, sales tax
assessments which allege that a former TEP subsidiary is liable for
sales tax on gross income from coal sales, transportation and coal-
handling services provided to TEP from November 1985 through May 1996.
Arizona law generally requires payment of an assessment prior to
pursuing the appellate process.  We have previously paid, under
protest, a total of $23 million of the disputed sales tax assessments.
In September 1996, the Arizona Court of Appeals upheld the validity of
the assessment issued for the period November 1985 through March 1990.
However, in May 1998, the Arizona Supreme Court remanded the case back
to the Arizona Tax Court to be reheard.  The case is set for trial in
the first week of June 1999.  The payments previously made will be
refunded if we are successful in the appeal.
   
     TEP has recorded an expense and a related liability for the sales
taxes and interest for the period November 1985 through May 1996 that
we believe are probable of incurrence.  On May 31, 1996, the former
subsidiary was merged into TEP.  Because TEP now acquires coal directly
from unaffiliated companies, we do not believe we are liable for sales
tax computed on a basis similar to the assessments described above
after May 31, 1996.  For periods prior to May 31, 1996, we continue to
record an estimated interest expense on the disputed assessments.

  Arizona Sales Tax Assessments - Leases

     The ADOR has issued sales tax assessments to some of the lessors
of TEP's generation-related facilities and equipment.  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.  Under the
indemnification provisions in the lease agreements, if the ADOR
prevails, we would be required to reimburse the lessors for the sales
taxes that they pay.  We filed an appeal of the assessments in the
Arizona Tax Court in February 1998.  In July 1998, the Arizona Tax
Court upheld the assessment issued on the Irvington lease for the
period August 1988 through September 1990, and we have appealed the
decision.  Oral argument on the appeal is scheduled to begin on May 25,
1999.  Arizona law generally requires payment of an assessment prior to
pursuing the appellate process.  Under protest, we paid a total of $2
million of the disputed assessments.  These payments will be refunded
if we are successful in the appeals process.

     We have recorded a liability for the probable amount of sales
taxes and interest due as of March 31, 1999.  If the ADOR prevails, we
would need to record an additional expense and related liability.  Even
though it is reasonably possible that the resolution of this issue
could result in approximately $23 million of additional sales tax
expense, we do not believe this outcome is likely.  We do not expect
that the resolution of this assessment will have a material negative
impact on the financial statements.  We believe that the ultimate
resolution of this issue could occur between two to four years from
now.

  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
March 31, 1999, pre-1992 federal NOL and ITC carryforwards were
approximately $200 million and $23 million, respectively.  In addition
to the pre-1992 NOL and ITC which are subject to the limitation, $203
million of federal NOL at March 31, 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, we must ensure that $70 million of secured notes underlying
this lease are refinanced by December 31, 1999 in order to avoid a
special event of loss under the lease. This special event of loss would
require us to repurchase the Springerville Common Facilities at the
higher of a specified price or the fair market value of the facilities.
TEP has intends, and believes it has the ability, to refinance the
underlying debt on these leases in 1999.

NOTE 6.  INCOME TAXES

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

                                    UniSource
                                      Energy             TEP
                               ------------------ ------------------
                               Three Months Ended Three Months Ended
                                     March 31,          March 31,
                                  1999      1998     1999      1998
--------------------------------------------------------------------
                                  -Thousands of Dollars -
Federal Income Tax
 Benefit at Statutory Rate    $ (3,040) $ (3,903)  $   (949) $ (694)
State Income Tax Benefit,
 Net of Federal Benefit           (422)     (601)      (132)   (107)
Depreciation Differences
 (Flow Through Basis)              326     1,040        326   1,040
Investment Tax Credit
 Amortization                     (700)     (573)      (700)   (573)
Adjustment for Unregulated
 Energy Businesses                   -      (276)         -       -
Foreign Operations of
 Unregulated Energy Businesses     613       238          -       -
Other                               65       (42)        65     (43)
--------------------------------------------------------------------
Total Benefit for Federal
 and State Income Taxes       $ (3,158) $ (4,117)  $ (1,390) $ (377)
====================================================================

Income taxes are included in the income statements as follows:

                                   UniSource
                                     Energy              TEP
                             -------------------  -----------------
                             Three Months Ended  Three Months Ended
                                  March 31,           March 31,
                           1999          1998    1999          1998
--------------------------------------------------------------------
                                   -Thousands of Dollars -
Operating (Benefits)      $ (2,559)  $ (1,937)   $ (2,559) $ (1,937)
Other Deductions               232        631       1,169     1,560
Unregulated Energy
Businesses - Net              (831)    (2,811)          -         -
--------------------------------------------------------------------
Total Income Tax Benefit  $ (3,158)  $ (4,117)   $ (1,390)  $  (377)
====================================================================

     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 in the first quarter of 2000.
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 engage in some forms
of energy trading but does not engage in the type of energy purchases
and sales 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 TEP for the three-month  periods ended March 31, 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 May 17 , 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.


<PAGE>

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 first quarter compared with  the  same
          period in the prior year,
     -- the outlook for dividends on common stock,
     -- changes in liquidity and capital resources during the first quarter 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, revenues and net income.  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, although  losses  from
energy-related businesses of Millennium and certain of its subsidiaries and
interests  have reduced the earnings reported by UniSource Energy  for  the
quarters ended March 31, 1999 and 1998.

     Management's  Discussion and Analysis should be  read  in  conjunction
with  the  Company's Condensed Consolidated Financial Statements, beginning
on  page 2, which present the results of operations for the quarters  ended
March 31, 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 a net loss of $5.5 million  for  the  first
quarter  of  1999, compared with a net loss of $7.0 million  in  the  first
quarter  of 1998.  The improvement in first quarter results over the  prior
year  was  due  primarily  to  lower net losses  recorded  by  Millennium's
unregulated energy businesses.  This factor, along with other factors which
affected first quarter results, are discussed in more detail in Results  of
Operations and Results of Unregulated Energy Businesses below.
     
      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.
     
     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, and 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.

<PAGE>

      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.

     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.  Our ability to invest additional amounts
of  capital in our unregulated businesses will depend on dividends from TEP
and  possible  sales  of  equity securities.  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

      Under  current  law,  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.   We  have
not  lost any customers to self-generation partly because of these efforts.
For example, in recent years, TEP executed new contracts with two principal
customers  that  provide  approximately 10% of TEP's  total  annual  retail
revenues.   Both  customers  are in the copper mining  business.   The  new
contracts  include price reductions, term extensions, and a  provision  for
interruptible  service.  These contracts expire in March 2001  and  January
2003.   These mining customers cannot terminate the contracts early without
at  least  one and up to two years notice.  We have not received  any  such
notices.

      The  electric  utility industry is undergoing significant  regulatory
change  designed to encourage competition in the sale of electric services.
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  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.  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.   The
approved Rules include:
     
    -- 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.

<PAGE>

    -- If an Affected Utility's service territory is open prior to January 1,
       2001, the existing phase-in schedule would be retained, calling for 20
       percent of the market to 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.

    -- Competitive Energy Service Provider affiliates of Affected Utilities
       would  not be permitted to enter another Affected Utility's  service
       territory until its own territory is open to competition.  For example,
       NEV Southwest may not sell energy to retail customers of other  Affected
       Utilities until TEP's territory is open to competition.

    -- Requirements that a portion of energy sold competitively be generated
       from solar sources would be eliminated.

     The  amended Rules adopt a similar phase-in to the competitive  market
as  the original rules, calling for three customer classes to be given  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 whose individual peak usage totals 40
       kilowatts (kW) or greater, who can aggregate with similar entities to 
       reach a total load of 1 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.

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

     Under  these Rules, competition will begin in each Affected  Utility's
service  territory  after  the Affected Utility's  stranded  cost  plan  is
approved  by the ACC.  We anticipate that public comment sessions  will  be
held  in June 1999, and the Rules could be resubmitted to the ACC for their
final approval in July or August of 1999.

     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) on July 1, 1999; and
     -- an additional 1.0% decrease (about $5.5 million) on July 1, 2000.

     The  latter two decreases will apply to all tariffed retail  customers
prior  to  the  start  of  competition and to all Standard  Offer  Electric
Service  customers who do not have, or do not choose, access  to  competing
electric  service  providers  during the proposed  phase-in  of  the  ACC's
electric  competition rules.  The Rate Settlement meets the requirement  in
the ACC's electric competition rules for a 3-5% rate reduction.

     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.

<PAGE>

      In  accordance with the June 1998 order, TEP filed with  the  ACC  in
August  1998  a  proposed  plan for divestiture of  generating  assets  and
stranded  cost  recovery.  In this plan, TEP estimated that stranded  costs
may  range  from  $600  million to $1.1 billion, and  proposed  to  recover
stranded  costs  and a return on any unamortized balance  over  a  ten-year
period.   In January 1999, the ACC stayed the effectiveness of the electric
competition rules and the June 1998 order.
     
     On  April  14, 1999, the ACC issued an order modifying the  June  1998
order and providing the following options for stranded cost recovery:
     
     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 all 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
       10 years.
  
     3.Financial Integrity Methodology -- The affected utility would recover
       costs sufficient 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 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.

     Additional  details for each method listed above is available  in  the
     1998 Form 10-K.

     TEP  has  until  June 14, 1999 to amend its previously filed  stranded
cost  recovery plan.  Although TEP's original stranded cost plan  specified
divestiture of generation assets as the preferred method for recovery given
the  options available at the time, TEP is currently evaluating each of the
five  methodologies described above. In any case, TEP continues to seek 100%
recovery of its stranded costs.

     
     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.

     TEP,  along  with other transmission owners and users located  in  the
southwestern United States, is investigating the feasibility of forming  an
ISO  for the region.  An ISO would be responsible for ensuring transmission
reliability and nondiscriminatory access to the regional transmission grid.
Over 50 participants have signed a Development Agreement.  The formation of
an  ISO  would  be  subject to approval by the FERC  and  state  regulatory
authorities  in  the  region.  The financial aspects  of  forming  an  ISO,
including the potential effects on TEP's future results of operations, will
be examined as part of the developmental work.

<PAGE>

     The  ACC  electric competition rules, as discussed above, require  the
formation   and   implementation  of  an  Arizona  Independent   Scheduling
Administrator Association (AISA).  The purpose of the AISA is to:
     
    -- calculate available transmission capacity for Arizona transmission
         facilities that belong to the Affected Utilities or other participants;
    -- develop  and  operate  an OASIS which covers  all  participants'
         transmission systems;
    -- implement and oversee the nondiscriminatory application of protocols
         to ensure statewide consistency for transmission access; and
    -- provide dispute resolution processes and receive all requests for
         reservation and scheduling of Arizona transmission facilities.

     TEP, as an Affected Utility, participated in the creation of the AISA.
This  includes incorporation as a not-for-profit entity, the filing at  the
FERC for approval of its proposed structure, rates and procedures, and  the
drafting  of its protocols for operation.  At the AISA's request, FERC  has
not  ruled  upon the filing pending the outcome of the electric competition
rules.   TEP  continues to participate, however, with  the  other  Affected
Utilities  in  developing the AISA's corporate structure and  protocols  in
anticipation of the implementation of retail competition.  See Competition,
Retail.


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, 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
March  31,  1999,  if we ceased applying FAS 71 to all of  TEP's  regulated
operations,  we  would record an extraordinary loss of  approximately  $140
million,  net  of the related deferred income tax benefit of  $93  million.
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 are less than the carrying value of those plant
assets  that  we  continue to own, then we would need to write  off  as  an
expense  a  portion of those plant assets to reflect their  current  market
value.  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.

     TEP  will stop accounting for its generation operations using  FAS  71
when  the  ACC approves a cost recovery plan specific to TEP which includes
the  amount  of  stranded  costs  (including  regulatory  assets,  net   of
regulatory  liabilities) that TEP can recover and a cost  recovery  method.
The  amount  and  method  of recovery that the ACC approves  for  TEP  will
determine whether write-offs or other adjustments will occur at that  time.
Until  the  ACC approves the amount and recovery method, we are  unable  to
predict the amount of write-offs or other adjustments, if any, which  would
be recorded at that time.

<PAGE>


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.

        NEV,  which  is accounted for as a 50% owned equity  investment  of
Millennium,  is also exposed to changes in the market price of electricity.
As an equity investment, our exposure to NEV is restricted to the amount of
our  investment, advances and guarantees which are described in Note  3  of
Notes  to  Condensed Consolidated Financial Statements, Unregulated  Energy
Businesses.
     
      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.  The Company'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.  The Company'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 period January  through  March
1999 was a loss of approximately $1.6 million.

     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.  The Company's market risks  related  to
changes  in  commodity prices have not changed materially from  the  market
risks reported in the 1998 Form 10-K.

<PAGE>

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  serve
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.

      Regardless  of  who supplies electric power in TEP's  retail  service
area,  TEP  believes additional peaking resources are needed in  Tucson  by
2001  to  improve  system  reliability locally.  Therefore,  in  the  first
quarter  of  1999, TEP issued  request for proposals for third  parties  to
provide  75  MW  of  peaking  resources to  be  located  in  TEP's  service
territory.   The request for proposals contemplates TEP purchasing  peaking
capacity  on  an as-needed basis through a "Must-Run Generation"  contract.
Must-run  generating units are those which are required to run in order  to
maintain distribution system reliability and meet load requirements.


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 believe that all
identified  mission  critical systems and applications within  our  control
will  be  Y2K  ready  by  June 30, 1999.  We believe  that  all  identified
business critical systems and applications within our control will  be  Y2K
ready  by  September  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  TEP's
critical  and  non-critical information systems and embedded  technologies.
The  following  areas  are being addressed: control and  embedded  systems;
enterprise information systems; suppliers; and subsidiaries.

Control  and  Embedded Systems - We are reviewing 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.

The  testing and remediation efforts are over 90% complete for the critical
systems  and  are scheduled to be completed by June 30, 1999.   A  software
upgrade  for the Energy Management (SCADA) System was placed in service  on
April  1, 1999 and this system is now Y2K ready.  Major upgrades for  power
generation  systems  are scheduled for the second quarter  of  1999  during
scheduled outages.  All protective field devices are prepared for Y2K.

Enterprise Information Systems - We began the remediation, replacement,  or
upgrade  of  these systems in 1996.  We expect to complete this process  by
the end of second quarter 1999.  The following systems are included:


     Department or Area                      Comments
     ------------------                      --------
Customer  Services, Billing,  The   vendor  supplying  the  Customer
Receivables                   Information   System   has    recently
                              identified some Y2K patches that  will
                              be  installed in the second quarter of
                              1999.   Also, the current  version  of
                              the underlying software upon which the
                              system   is  built  is  not  yet   Y2K
                              compliant.    We  expect  an   updated
                              release of this software, which is Y2K
                              compliant, to be installed before  the
                              end of the second quarter of 1999.
      
<PAGE>
                        
Human Resources, Payroll      Y2K  ready - System installed in  1993
                              and upgraded to be Y2K ready in 1998.
                              
Work Management               The    vendor   supplying   the   Work
                              Management    System   has    recently
                              identified  an  upgraded  release  for
                              Year  2000.  The upgrade is  scheduled
                              for installation in the second quarter
                              of 1999.  Also, the current version of
                              the underlying software upon which the
                              system  is built is not Y2K compliant.
                              We  expect an updated release of  this
                              software,  which is Y2K compliant,  to
                              be  installed before the  end  of  the
                              second quarter of 1999.
                              
General    Ledger,Fixed       Scheduled  for replacement  in  second
Assets, Projects              quarter 1999. Current systems are  now
                              being remediated as a contingency with
                              a  scheduled  completion date  in  the
                              second quarter of 1999.
                              
Accounts Payable,             Y2K  ready - Remediation completed  in
Purchasing, Inventory         1998.
                              
Testing  of  the  current  general ledger  and  fixed  assets  applications
continued  in  the  first  quarter of 1999 to  cover  additional  month-end
closings.  Upgrades to the operating system software are scheduled  through
the  second quarter of 1999.  An integrated test is then scheduled for  the
third quarter of 1999 for the enterprise hardware, operating software,  and
major applications with year 2000 date processing.

Suppliers - We have identified the major vendors from whom we buy goods  or
services  for  the generation, transmission and distribution of  electrical
service.  We are working with these vendors to determine their plans and to
investigate  any  potential  impact on TEP.  Major  vendors  of  other  TEP
business areas are also being reviewed for Y2K compliance.

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

     Costs
     -----

      From  1996  through  March 31, 1999, we have  expensed  $1.0  million
addressing  the  Y2K  issue.  This amount does  not  include  major  system
replacement costs that, along with other functional changes, addressed  Y2K
issues.   A  $1.4  million budget, which includes the $1.0 million  already
expensed,  has  been  established for Y2K project costs.   All  remediation
costs will be expensed as incurred.

     Risks
     -----

     Currently we believe that all identified modifications to systems that
TEP  operates  will be made within the required time frames.   Despite  our
efforts,  we  cannot be certain that all Y2K problems with 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 major, it is possible
that   such   failure  could  disrupt  the  generation,   transmission   or
distribution of electric energy or the billing and collection process.

      We  cannot  assure  that systems or parties we  do  not  control  are
prepared for Y2K, or how this may affect TEP.  As an example, the  loss  of
communications systems supplied by our vendors could affect our ability  to
operate  generation  and transmission facilities.  Also,  interruptions  of
generating capacity could result from instability of the electric grid.

     TEP  and  other  electric service providers in the 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.

<PAGE>

     Contingency Plans
     ----------------- 

     We  are  preparing contingency plans for the possibility that not  all
remediation  efforts,  both internal and external, will  succeed.   We  are
documenting  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.  We  are
attempting to minimize the potential impact of these events with our  draft
contingency  plan that we completed in 1998.  The plan includes  developing
procedures, tests, and drills to coincide with the WSCC and NERC plans  and
is scheduled to be finalized by June 30, 1999.
     
       TEP  performed  compliance testing with  the  first  North  American
Electric Reliability Council (NERC) industry coordinated drill on April  9,
1999,  and did not experience any significant events or difficulties.   TEP
has scheduled to perform additional compliance testing to coincide with the
second drill on September 9, 1999.


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

      UniSource  Energy recorded a net loss of $5.5 million  or  $0.17  per
average  share of Common Stock in the first quarter of 1999.  This compares
with  a net loss of $7.0 million or $0.22 per average share of Common Stock
in  the first quarter of 1998.  The primary reason for the smaller net loss
in  the  first quarter of 1999 was lower losses recorded by Millennium  and
its unregulated energy businesses.

     Contribution By Business Segment
     --------------------------------

      The  table below shows the contributions to our consolidated earnings
and  earnings  per share by our two business segments, as  well  as  parent
company expenses, for the three months ended March 31, 1999 and 1998:

                                        Three Months Ended March 31
                                        ---------------------------
                                          (Millions)      Per Share
                                         1999    1998    1999   1998
                                         ----    ----    ----   ----
     Regulated Electric Utility         $(1.3)  $(1.6) $(0.04) $(0.05)
     Unregulated Energy Businesses       (2.8)   (4.0)  (0.09)  (0.13)
     Parent  Company and  Inter-Company
     Eliminations                        (1.4)   (1.4)  (0.04)  (0.04)      
                                         -----   -----  ------  ------   
     Consolidated Net Income(Loss)      $(5.5)  $(7.0) $(0.17) $(0.22)
                                         =====   =====  ======  ======     
                                                                 
     TEP's  regulated electric utility business accounts for  substantially
all  of  UniSource Energy's assets, revenues, and net income 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.   The
results  of  the parent company for the quarters ended March 31,  1999  and
1998  relate  to the after-tax interest expense on the note we provided  to
TEP in exchange for the stock of Millennium.  See Interest Income  below.

<PAGE>

     Utility Sales and Revenues
     --------------------------

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

                                                    Increase/(Decrease)
                                                    -------------------
    Three Months Ended March 31    1999      1998      Amount  Percent
    ---------------------------    ----      ----      ------  ------- 
                                                     
    Electric kWh Sales (000):                              
       Retail Customers         1,662,544  1,790,309  (127,765)  (7.1)%
       Sales for Resale         1,179,286    850,132   329,154   38.7
                                ---------  ---------   -------               
           Total                2,841,830  2,640,441   201,389    7.6%
                                                 
                                                            
     Electric Revenues (000):                               
       Retail Customers         $ 128,777  $ 138,149   $(9,372)  (6.8)%
        Sales for Resale           31,859     22,854     9,005   39.4
                                ---------  ---------    -------          
           Total                $ 160,636  $ 161,003     $(367)  (0.2)%
                                   
                          
   TEP's  kWh  sales to retail customers decreased by 7%  in  the  first
quarter  of  1999 compared with the same period in 1998.   Despite  a  2.6%
increase  in  the  number of retail customers in the first  quarter,  total
retail kWh sales decreased due to a mild winter that reduced the demand for
electric  heat in TEP's retail service territory.  Revenues from  sales  to
retail  customers were 7% lower in the first quarter of 1999  than  in  the
same period of 1998 because of the lower kWh sales.

      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.  KWh sales for resale and the revenues from
these  sales increased by 39% in the first quarter of 1999 relative to  the
same period in 1998.  This increase in wholesale energy sales was due to 1)
increased   power   marketing  activity,  and   2)   increased   generation
availability from Irvington Unit 4, which was out of service in  the  first
quarter of 1998.

     Operating Expenses
     ------------------

      Total Operating Expenses remained stable in the first quarter of 1999
compared with the same period last year.  Fuel and Purchased Power  expense
increased 13.5% in the first quarter of 1999 compared with the same  period
in  1998.     This percentage increase exceeded the percentage increase  in
kWh  sales due to greater purchases of energy at higher prices relative  to
the  first  quarter  of 1998.  Partially offsetting  the  higher  fuel  and
purchased  power  expenses was a 10.2% reduction in  other  operations  and
maintenance  expenses.   This reduction was due to a  shift  in  generation
maintenance  activities from the first quarter to  the  second  quarter  of
1999.

     Other Income (Deductions)
     -------------------------

     Interest Income
     --------------- 

     TEP's income statements for the quarters ended March 31, 1999 and 1998
include  $2.5 million and $2.3 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.

     Income (Losses) from Unregulated Energy Businesses
     --------------------------------------------------

      Our  unregulated  energy businesses contributed a net  loss  of  $2.8
million  for the first quarter ended March 31, 1999, compared  with  a  net
loss of $4.0 million in the first quarter of 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.

<PAGE>


     Interest Expense
     ----------------

      Interest  expense decreased by approximately $1 million in the  first
quarter of 1999 compared with the same period in 1998 due primarily to  the
retirement   of   $30   million  of  long-term  debt  in   December   1998.
Additionally, interest rates on variable rate debt were lower in the  first
quarter  of 1999 than in the first quarter of 1998 and contributed  to  the
interest expense decrease.


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 periods ended March 31,
1999 and 1998.

                                    Three Months
                                   Ended March 31
                                   --------------
          Subsidiary                1999     1998
          ---------------------------------------
                        -  Thousands  of Dollars -

          AET                    $  (374)  $   170
          MEH                       (577)   (4,050)
          Nations Energy          (1,942)     (204)
          Other                      100        48 
                                  -------   -------           
          Total  Millennium      $(2,793)  $(4,036)
                                  =======   =======                      


     AET and Global Solar
     --------------------

      Advanced  Energy Technologies, Inc. (AET) holds a 50% interest  in
Global  Solar Energy, L.L.C. (Global Solar), a manufacturer of thin-film
photovoltaic cells.  AET's net loss in the first quarter of 1999 was 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 would begin in the second quarter of 1999.

     MEH and NEV
     -----------
      MEH holds a 50% interest in New Energy Ventures, Inc. (NEV).  NEV was
formed to provide electricity, energy products and services, and technology-
based energy solutions to customers in deregulating energy markets. In  the
first  quarter  of  1999,  ownership of New Energy Ventures  Southwest  was
transferred from MEH to NEV.  MEH recorded $0.9 million of losses  for  NEV
Southwest during the first three months of 1999.  MEH has committed to fund
100%  of the operating expenses of NEV Southwest until a competitive market
opens in Arizona.

      MEH's  net loss in the first quarter of 1998 consists of losses  from
its   equity  investment  in  NEV.   See  Note  3  of  Notes  to  Condensed
Consolidated Financial Statements, Unregulated Energy Businesses, for  more
information regarding losses incurred by NEV.

     Nations Energy
     --------------

     Nations Energy Corporation (Nations Energy) develops independent power
projects worldwide.  The net loss of $1.9 million in first quarter of  1999
resulted  principally from losses on foreign currency transactions  related
to projects in the Czech Republic.

<PAGE>

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.

      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  March  31,
1999,  the  required minimum net worth was $183 million.  TEP's actual  net
worth  at  March  31, 1999 was $229 million.  See Investing  and  Financing
Activities, TEP Credit Agreement, below.  As of March 31, 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
March  31,  1999,  TEP's equity ratio on that basis was  16%.   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 by $16  million,  or
13.2%,  from  the March 31, 1998 ending balance of $121.8  million  to  the
March  31,  1999  ending balance of $105.8 million.  For  the  twelve-month
period  ended March 31, 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 $10.8 million
in  the  first quarter of 1999 compared with the same period in 1998.   The
decrease was due in part to higher cash outflows for the following:
     
     -- $15.2 million in fuel and purchased power payments, due primarily to
          sales increases;
     -- $6.8  million in interest payments, due primarily to refinancing
          activities in 1998 and related changes in interest payment dates;
     -- $4.8 million for income taxes due primarily to the exhaustion of
          certain tax benefits in 1998; and
     -- $3.2 million in capital lease interest paid.

<PAGE>

      These cash outflows were partially offset by:

     -- no cash outflows for contract termination fees in 1999, compared to
          $10 million paid to a coal supplier in  1998;
     -- wages  paid  were $6.1 million lower due primarily to  a  timing
          difference in the payment of year-end incentive compensation to TEP
          employees; and
     -- higher cash receipts of $4.5 million from wholesale sales.

      Total  net cash outflows for investing activities decreased  by  $3.1
million  during the first quarter of 1999 compared with the same period  in
1998  due  primarily  to  lower  capital expenditures  and  investments  in
unregulated energy businesses.

      Total  net cash outflows for financing activities increased  by  $7.2
million in the first quarter of 1999 compared with the same period in  1998
due  primarily to an increase in payments applied to the principal  balance
of the Springerville Unit 1 capital lease obligation.

      Our consolidated cash balance, including cash equivalents, at May  7,
1999  was approximately $78 million.  We invest cash balances in high-grade
money  market  securities  with an emphasis  on  preserving  the  principal
amounts invested.

      During 1999, UniSource Energy may require cash to fund investments in
our unregulated energy businesses and to pay dividends to shareholders.  We
expect our sources of cash to be dividends from our subsidiaries, primarily
TEP.   Although no specific offerings are currently contemplated, UniSource
Energy may also issue debt and/or equity securities from time to time.  Our
cash  flows may be subject to variation if TEP's actual results differ from
forecasts.   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 increased by $2.9 million, or 3.5%, from the
March 31, 1998 ending balance of $83.2 million to the March 31, 1999 ending
balance  of  $86.1 million.  For the twelve-month period  ended  March  31,
1999, net cash inflows for operating activities exceeded cash outflows from
investing and financing activities.
     
     Net cash flows from operating activities decreased by $9.6 million  in
the  first  quarter  of 1999 compared with the same period  in  1998.   See
UniSource  Energy,  Cash Flows above for a discussion of factors  affecting
net cash flows from operating activities.

      Net cash outflows for investing activities decreased $47.9 million in
first quarter of 1999 from the first quarter of 1998.  Prior to January  1,
1998,  the  Unregulated Energy Businesses were subsidiaries  of  TEP.   The
transfer  of  Millennium and its $45 million of cash from TEP to  UniSource
Energy  on January 1, 1998 is reflected as a use of cash on TEP's statement
of cash flows.  The subsidiaries holding that cash were subsidiaries of TEP
at year-end 1997, and became subsidiaries of UniSource Energy on January 1,
1998.  Additionally, TEP's capital expenditures were $2.9 million lower  in
the first quarter of 1999 than in the first quarter of 1998.

      Net cash outflows for financing activities increased $7.3 million  in
1999's  first quarter over the same quarter in 1998.  The increase was  due
primarily  to higher required payments on the Springerville Unit 1  capital
lease obligation.

     TEP's consolidated cash balance, including cash equivalents, at May 7,
1999 was approximately $65 million.

      TEP  expects  to  generate  enough cash  flow  during  1999  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, TEP would use existing cash  balances
and, if necessary, borrow from the Revolving Credit Facility.


<PAGE>

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

     UniSource Energy
     ----------------

     Loans and Guarantees
     --------------------

      Effective September 1, 1997, MEH exercised an option to acquire a 50%
ownership in NEV and made a $0.8 million capital contribution.

      In  December 1997, MEH committed to provide NEV with $20  million  of
funding.   At March 31, 1999, NEV had received $19 million in debt  funding
under  the commitment, resulting in a remaining commitment amount available
of  $1  million  at March 31, 1999.  Additionally, in September  1998,  NEV
issued  a  $4.8  million promissory note to MEH for a $3 million  loan  MEH
extended  to  NEV in September 1997, as well as preferred operating  return
due MEH under the terms of NEV's original operating agreement.

      In December 1998, UniSource Energy committed $30 million in credit to
NEV.  NEV has drawn $15 million on the credit commitment at March 31, 1999.
NEV  also  had accrued interest and other accounts payable to MEH that 
reduces the amount available to MEH under this credit  commitment.  Under
the terms of the commitment,  NEV  must provide collateral prior to any amounts
being drawn under this credit commitment.

      Additionally,  in  August 1998, UniSource  Energy  guaranteed  a  $10
million  loan that NEV obtained from an unrelated party.  The note is callable
at any time after May 17, 1999.  UniSource Energy is the guarantor  of
performance bonds and other guarantees that secure amounts  NEV may  owe  to
the utility distribution companies (UDCs) and energy suppliers in connection
with NEV's sales to retail electric customers.  NEV bills its customers for
these charges.  UniSource Energy's guarantees are secured  by various NEV
accounts receivable and other assets.

     Stock Warrants
     --------------

     In  1998,  UniSource  Energy  offered  to  exchange  UniSource  Energy
warrants for TEP warrants.  As of March 31, 1999:
     
     --   4.6 million TEP warrants,which expire December 15,2002, remained
            outstanding;
     --   1.5 million UniSource Energy warrants expired; and
     --   1.5 million UniSource Energy warrants, which expire on December 15,
            2000, remain outstanding.

     TEP
     --- 
     
     Capital Expenditures
     --------------------    

      TEP's capital expenditures for the quarter ended March 31, 1999  were
$15.5 million.  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  March  31, 1999 and as of May 7, 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.  As of  March 31, 1999, TEP was in compliance with each of  these
covenants.

<PAGE>

     SPRINGERVILLE COMMON FACILITIES LEASES
     --------------------------------------

       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
believes it has the ability, to refinance the underlying debt on these
leases in 1999.


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

     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.   Actual capital expenditures, investments in  and  loans  to
Unregulated Energy Businesses, net of distributions, for the quarters ended
March 31, 1999 and 1998 were as follows:

                                      March 31
                                      -------- 
          Subsidiary               1999        1998
          ------------------------------------------
                           -  Thousands of Dollars -
          AET                    $ (2,870)   $      0
          MEH                        (116)     (6,000)                         
          Nations Energy           (2,802)        (23)        
          Other                       (25)         (5)           
              Total  Millennium  $ (5,813)   $ (6,028)                
                
                            
                           
                           
     Significant first quarter 1999 investments include:

     --   $1.1 million in capital expenditures for Advanced Energy Technologies;
     --   $1.75 million in capital contributions and loans to Advanced Energy
            Technologies;
     --   $3.3 million by Nations Energy for a controlling interest  in  a
            refinery project located in Curacao.

     Total   forecasted  investments  for  1999  are  $30  million.   These
forecasts  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  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.

<PAGE>

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.



<PAGE>

                        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
                                     ---------------
                                 March 31,     December 31,
                                   1999            1998
                                   ----            ----
    Ratio of Earnings to           
    Fixed Charges                  1.36            1.41



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

(a)  Exhibits.
     
     -- See Exhibit Index.

(b)  Reports on Form 8-K.

      The  Company and TEP filed the following current reports on Form  8-K
during the quarter ended March 31, 1999:

     UniSource Energy Corporation and Tucson Electric Power Company

     -- Form 8-K dated January 4, 1999 (filed January 8, 1999), reporting on
          the delay of retail electric competition in Arizona.
     -- Form 8-K dated February 5, 1999 (filed February 16, 1999), reporting
          on Proposed Orders by ACC Hearing Officer and 1998 Earnings.
          
     UniSource Energy Corporation
     
     -- Form 8-K dated March 5, 1999 (filed March 15, 1999), reporting on
          adoption of a shareholder rights plan.
     
     
     <PAGE>

                                 Signature


      Pursuant to the requirements of the Securities Exchange Act of  1934,
each  registrant has duly caused this report to be signed on its behalf  by
the   undersigned  thereunto  duly  authorized.   The  signature  for  each
undersigned  company  shall  be deemed to relate  only  to  matters  having
reference to such company or its subsidiary.


                                   UNISOURCE ENERGY CORPORATION
                                             (Registrant)


Date:  May 17, 1999                          Ira R. Adler
                                   --------------------------------
                                             Ira R. Adler
                                    Executive Vice President and
                                     Principal Financial Officer



                                   TUCSON ELECTRIC POWER COMPANY
                                             (Registrant)


Date:  May 17, 1999                          Ira R. Adler
                                   --------------------------------  
                                             Ira R. Adler
                                    Executive Vice President and
                                     Principal Financial Officer


<PAGE>


                               EXHIBIT INDEX
                                     
     11 -    Statement re computation of per share earnings - UniSource
              Energy.
     12 -    Computation of Ratio of Earnings to Fixed Charges - TEP.
     15 -    Letter regarding unaudited interim financial information.
     27a -   Financial Data Schedule - UniSource Energy.
     27b -   Financial Data Schedule - TEP.