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


                                 FORM 10-Q

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

                For The Quarterly Period Ended September 30, 2000

                                    OR

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

         For the transition period from __________ to __________.



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

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

   1-5924           TUCSON ELECTRIC POWER COMPANY      86-0062700
                    (An Arizona Corporation)
                    220 West Sixth Street
                    Tucson, AZ  85701
                    (520) 571-4000


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

     At November 6, 2000, 32,419,314 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 32,139,434
shares  of  the  outstanding Common Stock of  Tucson Electric Power Company.


<PAGE>

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


                                TABLE OF CONTENTS

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

                         PART I - FINANCIAL INFORMATION

Item 1. -- Financial Statements
  UniSource Energy Corporation
    Comparative Condensed Consolidated Statements of Income...............2
    Comparative Condensed Consolidated Statements of Cash Flows...........3
    Comparative Condensed Consolidated Balance Sheets.....................4
  Tucson Electric Power Company
    Comparative Condensed Consolidated Statements of Income...............5
    Comparative Condensed Consolidated Statements of Cash Flows...........6
    Comparative Condensed Consolidated Balance Sheets.....................7
  Notes to Condensed Consolidated Financial Statements
  Note 1.  Regulatory Accounting..........................................8
  Note 2.  Business Segments..............................................8
  Note 3.  Millennium Energy Businesses...................................9
  Note 4.  Debt Retirements and Revolving Credit Facility................11
  Note 5.  San Juan Coal Contract Amendment..............................11
  Note 6   Contingencies.................................................11
  Note 7.  Income Taxes..................................................12
  Note 8.  New Accounting Standard.......................................13
  Note 9.  Review by Independent Accountants.............................14
  Note 10. Other 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.............................................................16
      Wholesale..........................................................18
    Regulatory Matters...................................................18
    San Juan Coal Contract Amendment.....................................19
    Market Risks.........................................................19
  Results of Operations..................................................21
    Contribution by Business Segment.....................................21
    Impact of Regulatory Accounting Changes..............................22
    Utility Sales and Revenues...........................................22
    Operating Expenses...................................................23
    Other Income (Deductions)............................................24
    Interest Expense.....................................................24
  Results of Millennium Energy Businesses................................24
    AET and Global Solar.................................................25
    MEH and NewEnergy....................................................25
    Nations Energy.......................................................25
  Dividends on Common Stock
    UniSource Energy.....................................................25
    TEP..................................................................26
    Millennium...........................................................26
  Liquidity and Capital Resources
    Cash Flows
      UniSource Energy...................................................26
      TEP................................................................27
    Investing and Financing Activities
      TEP
        Capital Expenditures.............................................27
        TEP Credit Agreement.............................................28
      Millennium -- Unregulated Energy Businesses
        Sale of NewEnergy, Inc...........................................28
        Additional Investments in Energy Technologies....................28
        Other Capital Requirements.......................................28
  Safe Harbor for Forward-Looking Statements.............................29

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


                         PART II - OTHER INFORMATION

Item 1. -- Legal Proceedings
  Tax Assessments........................................................31
  ACC Order on the Sierrita Contract.....................................31
Item 5. -- Other Information
  Directors and Executive Officers of the Registrants....................31
  Regulation.............................................................31
  Additional Financial Data..............................................32
Item 6. -- Exhibits and Reports on Form 8-K..............................32
Signature Page...........................................................33
Exhibit Index............................................................34


<PAGE>

                                DEFINITIONS


The abbreviations and acronyms used in the 2000 Third Quarter Form 10-Q
are defined below:
-------------------------------------------------------------------------------

ACC................. Arizona Corporation Commission.
ACC Holding Company
  Order............. The order approved by the ACC in November 1997 allowing
                       TEP to form a holding company.
AET................. Advanced Energy Technologies, Inc., a wholly-owned
                       subsidiary of Millennium and the holder of Millennium's
                       interest in GES.
Affected Utilities.. Electric utilities regulated by the ACC, including
                       TEP, Arizona Public Service, Citizens Utilities
                       Company, and several electric cooperatives.
AISA................ The Arizona Independent Scheduling Administrator
                       Association, a temporary organization required by the
                       ACC Retail Electric Competition Rules.
Common Stock........ UniSource Energy's common stock, without par value.
Company............. UniSource Energy Corporation.
Cooling Degree
  Days.............. Calculated by subtracting 75 from the average of the high
                       and low daily temperatures.
Credit Agreement.... Credit Agreement between TEP and a syndicate of banks,
                       dated as of December 30, 1997.
ESP................. Energy Service Provider.
FAS 71.............. Statement of Financial Accounting Standards No. 71:
                       Accounting for the Effects of Certain Types of
                       Regulation.
FAS 101............. Statement of Financial Accounting Standards No. 101:
                       Regulated Enterprises-Accounting for the Discontinuation
                       of FASB Statement No. 71.
FAS 133............. Statement of Financial Accounting Standards No. 133:
                       Accounting for Derivative Instruments and Hedging
                       Activities.
FERC................ Federal Energy Regulatory Commission.
First Mortgage
  Bonds............. First mortgage bonds issued under the General First
                       Mortgage.
GAAP................ Generally Accepted Accounting Principles.
General First
  Mortgage.......... The Indenture, dated as of April 1, 1941, of Tucson Gas,
                       Electric Light and Power Company to The Chase National
                       Bank of the City of New York, as trustee, as
                       supplemented and amended.
GES................. Global Energy Solutions, Inc., which is 67% owned by AET
                       and 33% owned by ITN, a privately-held company.  GES is
                       the parent company of Global Solar and TFB.
Global Solar........ Global Solar Energy, Inc., a wholly owned-subsidiary of
                       GES, and manufacturer of thin-film solar products.
Heating Degree
  Days.............. Calculated by subtracting the average of the high and
                       low daily temperatures from 75.
IRS................. Internal Revenue Service.
ISO................. Independent System Operator.
ITC................. Investment tax credit.
kWh................. Kilowatt-hour(s).
MEH................. MEH Corporation, a wholly-owned subsidiary of Millennium
                       which formerly held a 50% interest in NewEnergy.
Millennium.......... Millennium Energy Holdings, Inc., a wholly-owned
                       subsidiary of UniSource Energy.
Nations Energy...... Nations Energy Corporation, an independent power developer
                       and wholly-owned subsidiary of Millennium.
NewEnergy........... NewEnergy, Inc., formerly New Energy Ventures, Inc., a
                       company in which a 50% interest was owned by MEH.
NOL................. Net Operating Loss carryback or carryforward for income
                       tax purposes.
Rate Settlement..... TEP's Rate Settlement agreement approved by the ACC in
                       August 1998, which provided 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.
RTO................. Regional Transmission Organization.
Rules............... Retail Electric Competition Rules.
San Juan............ San Juan Generating Station.
Settlement
  Agreement......... TEP's Settlement Agreement approved by the ACC in
                       November 1999 provided for electric retail competition
                       and transition asset recovery.
Springerville....... Springerville Generating Station.
Springerville Common
  Facilities........ Facilities at Springerville used in common with
                       Springerville Unit 1 and Springerville Unit 2
                       Generating Station.
Springerville
  Unit 1............ Unit 1 of the Springerville Generating Station.
Springerville Unit 1
  Lease............. Leveraged lease arrangement relating to Springerville
                       Unit 1 and an undivided one-half interest in certain
                       Springerville Common Facilities.
TEP................. Tucson Electric Power Company, the principal subsidiary
                       of UniSource Energy.
TFB................. TFB, Inc., a wholly-owned subsidiary of GES, and
                     manufacturer of thin film batteries.
UniSource Energy.... UniSource Energy Corporation.


<PAGE>


Report of Independent Accountants



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



We  have reviewed the accompanying condensed consolidated balance sheets of
UniSource  Energy  Corporation and its subsidiaries (the  Company)  and  of
Tucson  Electric Power Company and its subsidiaries (TEP) as  of  September
30,  2000  and the related condensed consolidated statements of income  for
each of the three-month and nine-month periods ended September 30, 2000 and
1999  and the condensed consolidated statements of cash flows for the nine-
month   periods  ended  September  30,  2000  and  1999.   These  financial
statements are the responsibility of the Company's and TEP's management.

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

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

We  previously  audited  in  accordance with auditing  standards  generally
accepted  in the United States of America, the consolidated balance  sheets
and  statements of capitalization of the Company and of TEP as of  December
31, 1999, and the related consolidated statements of income, of changes  in
stockholders'  equity,  and of cash flows for  the  year  then  ended  (not
presented herein), and in our report dated February 2, 2000 we expressed an
unqualified  opinion on those consolidated financial  statements.   In  our
opinion,   the   information  set  forth  in  the  accompanying   condensed
consolidated  balance sheets as of December 31, 1999, is fairly  stated  in
all  material respects in relation to the consolidated balance sheets  from
which it has been derived.




PricewaterhouseCoopers LLP
Los Angeles, California
November 10, 2000


<PAGE>

                        PART I - FINANCIAL INFORMATION

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

The weather causes seasonal fluctuations in UniSource Energy's sales. As a
result, quarterly results are not indicative of annual operating results. The
quarterly financial statements that follow are unaudited but reflect all
normal recurring accruals and other adjustments which we believe are
necessary for a fair presentation of the results for the interim periods
presented. Also see Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations.  This quarterly report should
be reviewed in conjunction with UniSource Energy's 1999 Form 10-K.



UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                       Three Months Ended
                                                           September 30,
                                                         2000        1999
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $214,513    $198,022
 Sales for Resale                                      125,131      66,083
 Other                                                   3,132       3,519
                                                      ---------   ---------
    Total Operating Revenues                           342,776     267,624
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                              169,265     103,604
 Coal Contract Amendment Fee                            13,231           -
 Maintenance and Repairs                                 8,398       5,940
 Other Operations                                       34,956      31,649
 Depreciation and Amortization                          31,003      20,772
 Amortization of Transition Recovery Asset               8,795           -
 Taxes Other Than Income Taxes                          12,362      12,255
 Capital Lease Expense                                       -      25,455
 Amortization of Springerville Unit 1 Allowance              -      (8,729)
 Income Taxes                                            9,473      21,368
                                                      ---------   ---------
    Total Operating Expenses                           287,483     212,314
                                                      ---------   ---------
      Operating Income                                  55,293      55,310
                                                      ---------   ---------
Other Income (Deductions)
 Interest Income                                         2,884       2,449
 Equity in Earnings (Losses) of Unconsolidated Entities    319         610
 Gain on Sale of NewEnergy                                   -      34,651
 Other Income                                              972       1,632
 Income Taxes                                           (1,717)    (14,962)
                                                      ---------   ---------
    Total Other Income (Deductions)                      2,458      24,380
                                                      ---------   ---------
Interest Expense
 Long-Term Debt                                         16,200      16,662
 Interest on Capital Leases                             22,901           -
 Interest Imputed on Losses Recorded at Present Value        -       8,747
 Other Interest Expense                                  1,411       2,612
                                                      ---------   ---------
    Total Interest Expense                              40,512      28,021
                                                      ---------   ---------
Net Income                                            $ 17,239    $ 51,669
                                                      =========   =========
Average Shares of Common Stock Outstanding (000)        32,423      32,332
                                                      =========   =========
Basic Earnings per Share                              $   0.53    $   1.60
                                                      =========   =========
Diluted Earnings per Share                            $   0.52    $   1.58
                                                      =========   =========


See Notes to Condensed Consolidated Financial Statements.


<PAGE>


UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                         Nine Months Ended
                                                           September 30,
                                                         2000       1999
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $518,694    $484,236
 Sales for Resale                                      231,514     128,814
 Other                                                   7,246      10,282
                                                      ---------   ---------
    Total Operating Revenues                           757,454     623,332
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                              328,063     219,391
 Coal Contract Amendment Fee                            13,231           -
 Maintenance and Repairs                                32,092      30,244
 Other Operations                                       97,509      90,556
 Depreciation and Amortization                          86,221      64,890
 Amortization of Transition Recovery Asset              14,377           -
 Taxes Other Than Income Taxes                          37,288      36,945
 Capital Lease Expense                                       -      76,834
 Amortization of Springerville Unit 1 Allowance              -     (26,188)
 Income Taxes                                            4,238      21,290
                                                      ---------   ---------
    Total Operating Expenses                           613,019     513,962
                                                      ---------   ---------
      Operating Income                                 144,435     109,370
                                                      ---------   ---------
Other Income (Deductions)
 Interest Income                                         9,370       6,113
 Equity in Earnings (Losses) of Unconsolidated Entities (1,549)     (3,665)
 Gain on Sale of NewEnergy                                   -      34,651
 Other Income                                            4,622       2,955
 Income Taxes                                           (3,445)    (15,606)
                                                      ---------   ---------
    Total Other Income (Deductions)                      8,998      24,448
                                                      ---------   ---------
Interest Expense
 Long-Term Debt                                         50,229      49,784
 Interest on Capital Leases                             69,453           -
 Interest Imputed on Losses Recorded at Present Value        -      26,243
 Other Interest Expense                                  5,611       7,942
                                                      ---------   ---------
    Total Interest Expense                             125,293      83,969
                                                      ---------   ---------
Net Income                                            $ 28,140    $ 49,849
                                                      =========   =========
Average Shares of Common Stock Outstanding (000)        32,397      32,309
                                                      =========   =========
Basic Earnings per Share                              $   0.87    $   1.54
                                                      =========   =========
Diluted Earnings per Share                            $   0.86    $   1.53
                                                      =========   =========


See Notes to Condensed Consolidated Financial Statements.


<PAGE>


UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                         Nine Months Ended
                                                           September 30,
                                                         2000       1999
                                                            (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Cash Flows from Operating Activities
  Cash Receipts from Retail Customers                 $539,243    $507,319
  Cash Receipts from Sales for Resale                  200,590     118,845
  Fuel and Purchased Power Costs Paid                 (284,917)   (201,317)
  Wages Paid, Net of Amounts Capitalized               (47,426)    (53,356)
  Payment of Other Operations and Maintenance Costs    (76,365)    (78,711)
  Capital Lease Interest Paid                          (90,351)    (81,066)
  Taxes Paid, Net of Amounts Capitalized               (63,168)    (61,804)
  Interest Paid, Net of Amounts Capitalized            (61,377)    (60,638)
  Income Taxes Paid                                         (3)     (6,170)
  Interest Received                                     11,969       6,527
  Transfer of Tax Settlement to Escrow Account               -     (22,403)
  Other                                                  5,974       5,095
                                                      ---------   ---------
    Net Cash Flows - Operating Activities              134,169      72,321
                                                      ---------   ---------
Cash Flows from Investing Activities
  Capital Expenditures                                 (78,677)    (65,743)
  Investments in and Loans to Equity Investees          (7,091)     (5,705)
  Sale of Interest in Millennium Energy Businesses      31,506       4,041
  Sale of Securities                                         -      27,516
  Investment in Lease Debt                             (27,633)    (26,768)
  Other Investments - Net                                  240         595
                                                      ---------   ---------
    Net Cash Flows - Investing Activities              (81,655)    (66,064)
                                                      ---------   ---------
Cash Flows from Financing Activities
  Proceeds from Borrowings under Revolving Credit
   Facility                                             25,000           -
  Payments on Revolving Credit Facility                (25,000)          -
  Proceeds from Issuance of Long-Term Debt                   -       1,977
  Payments to Retire Long-Term Debt                    (50,116)     (1,725)
  Payments to Retire Capital Lease Obligations         (38,907)    (22,338)
  Common Stock Dividends Paid                           (7,752)          -
  Other                                                  2,273       2,320
                                                      ---------   ---------
    Net Cash Flows - Financing Activities              (94,502)    (19,766)
                                                      ---------   ---------
Net Decrease in Cash and Cash Equivalents              (41,988)    (13,509)
Cash and Cash Equivalents, Beginning of Year           145,288     145,167
                                                      ---------   ---------
Cash and Cash Equivalents, End of Period              $103,300    $131,658
                                                      =========   =========


See Notes to Condensed Consolidated Financial Statements.



UNISOURCE ENERGY CORPORATION
SUPPLEMENTAL CONDENSED CONSOLIDATED CASH FLOW INFORMATION

                                                         Nine Months Ended
                                                           September 30,
                                                         2000       1999
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Net Income                                            $ 28,140    $ 49,849
Adjustments to Reconcile Net Income to Net Operating
 Cash Flows
  Depreciation and Amortization Expense                 86,221      64,777
  Coal Contract Amendment Fee                           13,231           -
  Deferred Income Taxes and Investment Tax Credit       15,783      32,924
  Lease Payments Deferred                                    -       3,707
  Amortization of Regulatory Assets & Liabilities,
   Net of Interest Imputed on Losses Recorded at
   Present Value                                        15,634       2,940
  Unremitted Losses of Unconsolidated Subsidiaries       1,549       3,209
  Gain on Sale of NewEnergy                                  -     (34,651)
  Other                                                  1,132       1,135
  Changes in Assets and Liabilities which Provided
    (Used) Cash Exclusive of Changes Shown Separately
    Accounts Receivable                                (47,770)    (24,688)
    Tax Settlement Deposit                                   -     (22,450)
    Materials and Fuel                                   3,583      (5,949)
    Accounts Payable                                    35,549       7,031
    Taxes Accrued                                       14,875      14,427
    Other Current Assets and Liabilities               (38,771)    (12,590)
    Other Deferred Assets and Liabilities                5,013      (7,350)
                                                      ---------   ---------
Net Cash Flows - Operating Activities                 $134,169    $ 72,321
                                                      =========   =========

See Notes to Condensed Consolidated Financial Statements.

<PAGE>


UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS

                                                 September 30,   December 31,
                                                     2000           1999
                                                  (Unaudited)
---------------------------------------------------------------------------
ASSETS                                            - Thousands of Dollars -
Utility Plant
  Plant in Service                                  $2,392,693  $2,301,645
  Utility Plant Under Capital Leases                   741,446     741,446
  Construction Work in Progress                         69,362      96,565
                                                    ----------- -----------
    Total Utility Plant                              3,203,501   3,139,656
  Less Accumulated Depreciation and Amortization    (1,164,651) (1,105,371)
  Less Accumulated Depreciation of Capital Lease
   Assets                                             (326,213)   (304,429)
                                                    ----------- -----------
    Total Utility Plant - Net                        1,712,637   1,729,856
                                                    ----------- -----------
Investments and Other Property                         120,500     114,483
                                                    ----------- -----------
Current Assets
  Cash and Cash Equivalents                            103,300     145,288
  Accounts Receivable                                  115,696      67,926
  Materials and Fuel                                    38,536      42,119
  Deferred Income Taxes - Current                        9,252      17,148
  Prepaid Pension Costs                                 17,387      15,818
  Tax Settlement Deposit                                     -      13,471
  Other                                                 40,681      31,368
                                                    ----------- -----------
    Total Current Assets                               324,852     333,138
                                                    ----------- -----------
Deferred Debits - Regulatory Assets
  Transition Recovery Asset                            355,914     370,291
  Income Taxes Recoverable Through Future Revenues      66,562      79,497
  Other Regulatory Assets                                7,382       8,639
Deferred Debits - Other                                 16,663      20,351
                                                    ----------- -----------
    Total Deferred Debits                              446,521     478,778
                                                    ----------- -----------
Total Assets                                        $2,604,510  $2,656,255
                                                    =========== ===========



See Notes to Condensed Consolidated Financial Statements.



UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS


                                                 September 30,   December 31,
                                                     2000           1999
                                                  (Unaudited)
---------------------------------------------------------------------------
                                                   - Thousands of Dollars -
CAPITALIZATION AND OTHER LIABILITIES
Capitalization
  Common Stock                                      $  642,703  $  641,723
  Accumulated Deficit                                 (294,528)   (317,475)
                                                    ----------- -----------
  Common Stock Equity                                  348,175     324,248
  Capital Lease Obligations                            852,665     880,427
  Long-Term Debt                                     1,132,395   1,135,820
                                                    ----------- -----------
    Total Capitalization                             2,333,235   2,340,495
                                                    ----------- -----------
Current Liabilities
  Current Obligations Under Capital Leases              25,914      36,335
  Current Maturities of Long-Term Debt                   1,725      48,603
  Accounts Payable                                      66,741      34,068
  Interest Accrued                                      33,748      66,311
  Taxes Accrued                                         36,778      31,374
  Other                                                 15,643      18,038
                                                    ----------- -----------
    Total Current Liabilities                          180,549     234,729
                                                    ----------- -----------
Deferred Credits and Other Liabilities
  Deferred Income Taxes - Noncurrent                    37,478      42,526
  Other                                                 53,248      38,505
                                                    ----------- -----------
    Total Deferred Credits and Other Liabilities        90,726      81,031
                                                    ----------- -----------
Total Capitalization and Other Liabilities          $2,604,510  $2,656,255
                                                    =========== ===========


See Notes to Condensed Consolidated Financial Statements.


<PAGE>


TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

The weather causes seasonal fluctuations in TEP's sales.  As a result,
quarterly results are not indicative of annual operating results. The
quarterly financial statements that follow are unaudited but reflect all
normal recurring accruals and other adjustments which we believe are
necessary for a fair presentation of the results for the interim periods
presented. Also see Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations.  This quarterly report should
be reviewed in conjunction with TEP's 1999 Form 10-K.



TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                       Three Months Ended
                                                           September 30,
                                                         2000        1999
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $214,513    $198,022
 Sales for Resale                                      125,131      66,083
 Other                                                     857         651
                                                      ---------   ---------
    Total Operating Revenues                           340,501     264,756
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                              169,265     103,604
 Coal Contract Amendment Fee                            13,231           -
 Maintenance and Repairs                                 8,398       5,940
 Other Operations                                       29,192      27,621
 Depreciation and Amortization                          30,826      20,734
 Amortization of Transition Recovery Asset               8,795           -
 Taxes Other Than Income Taxes                          12,219      12,054
 Capital Lease Expense                                       -      25,455
 Amortization of Springerville Unit 1 Allowance              -      (8,729)
 Income Taxes                                           11,063      22,002
                                                      ---------   ---------
    Total Operating Expenses                           282,989     208,681
                                                      ---------   ---------
      Operating Income                                  57,512      56,075
                                                      ---------   ---------
Other Income (Deductions)
 Interest Income                                         1,665       1,974
 Interest Income-Note Receivable from UniSource Energy   2,345       2,506
 Other Income                                              709         878
 Income Taxes                                           (1,901)     (1,494)
                                                      ---------   ---------
    Total Other Income (Deductions)                      2,818       3,864
                                                      ---------   ---------
Interest Expense
 Long-Term Debt                                         16,200      16,662
 Interest on Capital Leases                             22,890           -
 Interest Imputed on Losses Recorded at Present Value        -       8,747
 Other Interest Expense                                  1,405       2,597
                                                      ---------   ---------
    Total Interest Expense                              40,495      28,006
                                                      ---------   ---------
Net Income                                            $ 19,835    $ 31,933
                                                      =========   =========

See Notes to Condensed Consolidated Financial Statements.


<PAGE>


TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                         Nine Months Ended
                                                           September 30,
                                                         2000        1999
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $518,694    $484,236
 Sales for Resale                                      231,514     128,814
 Other                                                   2,486       2,325
                                                      ---------   ---------
    Total Operating Revenues                           752,694     615,375
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                              328,063     219,391
 Coal Contract Amendment Fee                            13,231           -
 Maintenance and Repairs                                32,092      30,244
 Other Operations                                       84,537      78,016
 Depreciation and Amortization                          85,875      64,777
 Amortization of Transition Recovery Asset              14,377           -
 Taxes Other Than Income Taxes                          36,773      36,400
 Capital Lease Expense                                       -      76,834
 Amortization of Springerville Unit 1 Allowance              -     (26,188)
 Income Taxes                                            7,944      23,401
                                                      ---------   ---------
    Total Operating Expenses                           602,892     502,875
                                                      ---------   ---------
      Operating Income                                 149,802     112,500
                                                      ---------   ---------
Other Income (Deductions)
 Interest Income                                         5,667       4,991
 Interest Income-Note Receivable from UniSource Energy   6,982       7,585
 Other Income                                            1,726       1,675
 Income Taxes                                           (5,790)     (3,829)
                                                      ---------   ---------
    Total Other Income (Deductions)                      8,585      10,422
                                                      ---------   ---------
Interest Expense
 Long-Term Debt                                         50,229      49,784
 Interest on Capital Leases                             69,417           -
 Interest Imputed on Losses Recorded at Present Value        -      26,243
 Other Interest Expense                                  5,605       7,927
                                                      ---------   ---------
    Total Interest Expense                             125,251      83,954
                                                      ---------   ---------
Net Income                                            $ 33,136    $ 38,968
                                                      =========   =========


See Notes to Condensed Consolidated Financial Statements.


<PAGE>


TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                         Nine Months Ended
                                                           September 30,
                                                         2000       1999
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Cash Flows from Operating Activities
  Cash Receipts from Retail Customers                 $539,243    $507,319
  Cash Receipts from Sales for Resale                  200,590     118,845
  Fuel and Purchased Power Costs Paid                 (284,917)   (201,317)
  Wages Paid, Net of Amounts Capitalized               (41,932)    (47,929)
  Payment of Other Operations and Maintenance Costs    (67,135)    (72,814)
  Capital Lease Interest Paid                          (90,315)    (81,066)
  Taxes Paid, Net of Amounts Capitalized               (62,696)    (61,440)
  Interest Paid, Net of Amounts Capitalized            (61,377)    (60,638)
  Income Taxes Paid                                         (3)     (6,168)
  Interest Received                                      7,182      14,799
  Transfer of Tax Settlement of Escrow Account               -     (22,403)
  Other                                                     63         257
                                                      ---------   ---------
    Net Cash Flows - Operating Activities              138,703      87,445
                                                      ---------   ---------
Cash Flows from Investing Activities
  Capital Expenditures                                 (73,679)    (64,245)
  Investment in and Loans to Equity Investees           (2,000)          -
  Investment in Lease Debt                                 132     (26,768)
  Other Investments - Net                                 (543)      1,448
                                                      ---------   ---------
    Net Cash Flows - Investing Activities              (76,090)    (89,565)
                                                      ---------   ---------
Cash Flows from Financing Activities
  Proceeds from Borrowing under Revolving Credit
   Facility                                             25,000           -
  Payments on Revolving Credit Facility                (25,000)          -
  Proceeds from Issuance of Long-Term Debt                   -       1,977
  Payments to Retire Long-Term Debt                    (50,116)     (1,725)
  Payments to Retire Capital Lease Obligations         (38,789)    (22,316)
  Other                                                  1,704       2,126
                                                      ---------   ---------
    Net Cash Flows - Financing Activities              (87,201)    (19,938)
                                                      ---------   ---------
Net Decrease in Cash and Cash Equivalents              (24,588)    (22,058)
Cash and Cash Equivalents, Beginning of Year            88,402     118,236
                                                      ---------   ---------
Cash and Cash Equivalents, End of Period              $ 63,814    $ 96,178
                                                      =========   =========


See Notes to Condensed Consolidated Financial Statements.


TUCSON ELECTRIC POWER COMPANY
SUPPLEMENTAL CONDENSED CONSOLIDATED CASH FLOW INFORMATION

                                                         Nine Months Ended
                                                           September 30,
                                                         2000        1999
                                                            (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Net Income                                            $ 33,136    $ 38,968
Adjustments to Reconcile Net Income to Net
 Operating Cash Flows
  Depreciation and Amortization Expense                 85,875      64,777
  Coal Contract Amendment Fee                           13,231           -
  Deferred Income Taxes and Investment Tax Credit       17,152      20,324
  Lease Payments Deferred                                    -       3,707
  Amortization of Regulatory Assets & Liabilities, Net
   of Interest Imputed on Losses Recorded at
    Present Value                                       15,634       2,940
  Interest Accrued on Note Receivable from UniSource
   Energy                                               (6,983)      1,744
  Other                                                  5,605       4,064
  Changes in Assets and Liabilities which Provided
    (Used) Cash Exclusive of Changes Shown Separately
    Accounts Receivable                                (45,526)    (22,820)
    Tax Settlement Deposit                                   -     (22,450)
    Materials and Fuel                                   3,631      (5,898)
    Accounts Payable                                    35,084       7,433
    Taxes Accrued                                       14,002      14,118
    Other Current Assets and Liabilities               (34,132)    (12,117)
    Other Deferred Assets and Liabilities                1,994      (7,345)
                                                      ---------   ---------
Net Cash Flows - Operating Activities                 $138,703    $ 87,445
                                                      =========   =========


See Notes to Condensed Consolidated Financial Statements.


<PAGE>


TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS

                                                  September 30,  December 31,
                                                      2000          1999
                                                   (Unaudited)
---------------------------------------------------------------------------
ASSETS                                            - Thousands of Dollars -
Utility Plant
  Plant in Service                                  $2,392,693  $2,301,645
  Utility Plant Under Capital Leases                   741,446     741,446
  Construction Work in Progress                         69,362      96,565
                                                    ----------- -----------
    Total Utility Plant                              3,203,501   3,139,656
  Less Accumulated Depreciation and Amortization    (1,164,651) (1,105,371)
  Less Accumulated Depreciation of Capital Lease
   Assets                                             (326,213)   (304,429)
                                                    ----------- -----------
    Total Utility Plant - Net                        1,712,637   1,729,856
                                                    ----------- -----------
Investments and Other Property                          68,705      67,838
                                                   ----------- -----------
Note Receivable from UniSource Energy                   77,115      70,132
                                                    ---------- -----------
Current Assets
  Cash and Cash Equivalents                             63,814      88,402
  Accounts Receivable                                  117,424      70,739
  Materials and Fuel                                    38,404      42,035
  Deferred Income Taxes - Current                        8,425      17,190
  Prepaid Pension Costs                                 17,387      15,818
  Tax Settlement Deposit                                     -      13,471
  Other                                                  8,904       6,249
                                                    ----------- -----------
    Total Current Assets                               254,358     253,904
                                                    ----------- -----------
Deferred Debits - Regulatory Assets
  Transition Recovery Asset                            355,914     370,291
  Income Taxes Recoverable Through Future Revenues      66,562      79,497
  Other Regulatory Assets                                7,382       8,639
Deferred Debits - Other                                 16,663      20,351
                                                    ----------- -----------
    Total Deferred Debits                              446,521     478,778
                                                    ----------- -----------
Total Assets                                        $2,559,336  $2,600,508
                                                    =========== ===========


See Notes to Condensed Consolidated Financial Statements.



TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS

                                                  September 30,  December 31,
                                                      2000          1999
                                                   (Unaudited)
---------------------------------------------------------------------------
                                                  - Thousands of Dollars -
CAPITALIZATION AND OTHER LIABILITIES
Capitalization
  Common Stock                                      $  647,878  $  647,366
  Capital Stock Expense                                 (6,357)     (6,357)
  Accumulated Deficit                                 (337,739)   (370,875)
                                                    ----------- -----------
  Common Stock Equity                                  303,782     270,134
  Capital Lease Obligations                            852,303     880,111
  Long-Term Debt                                     1,132,395   1,135,820
                                                    ----------- -----------
    Total Capitalization                             2,288,480   2,286,065
                                                    ----------- -----------
Current Liabilities
  Current Obligations Under Capital Leases              25,797      36,263
  Current Maturities of Long-Term Debt                   1,725      48,603
  Accounts Payable                                      75,089      42,864
  Interest Accrued                                      33,748      66,311
  Taxes Accrued                                         32,269      27,738
  Other                                                 14,678      15,289
                                                    ----------- -----------
    Total Current Liabilities                          183,306     237,068
                                                    ----------- -----------
Deferred Credits and Other Liabilities
  Deferred Income Taxes - Noncurrent                    34,365      38,913
  Other                                                 53,185      38,462
                                                    ----------- -----------
    Total Deferred Credits and Other Liabilities        87,550      77,375
                                                    ----------- -----------
Total Capitalization and Other Liabilities          $2,559,336  $2,600,508
                                                    =========== ===========

See Notes to Condensed Consolidated Financial Statements.


<PAGE>

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

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

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

     In November 1999, upon approval by the ACC of a Settlement
Agreement relating to recovery of TEP's transition costs and standard
retail rates, we discontinued application of FAS 71 to our generation
operations.  As a result, many costs in the UniSource Energy and TEP
income statements are reflected in different line items in 2000 than
they were in 1999.  The primary differences are:

 - In 2000, amortization of our capital lease assets and interest
related to Capital Leases are reflected in Depreciation and
Amortization and Interest on Capital Leases, respectively.  Through
October 1999, these expenses were included as Capital Lease Expense.

 - Amortization of Springerville Unit 1 Allowance and Interest Imputed
on Losses Recorded at Present Value are no longer presented in 2000.
In November 1999, the unamortized balance of the Springerville Unit 1
Allowance reduced the Springerville Unit 1 capital lease amount.

 - Amortization of Transition Recovery Asset appears as an expense
beginning in November 1999.

 - Amortization of Investment Tax Credit no longer contributes to
Income Taxes included in Other Income (Deductions) in 2000.  All ITC
was recognized in November 1999.

     We continue to apply FAS 71 to our regulated operations, the
distribution and transmission portions of TEP's business.  To apply the
accounting policies and practices of FAS 71, the following conditions
must exist:
 - 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 can continue to apply FAS 71
to these operations.  If we stopped applying FAS 71 to TEP's remaining
regulated operations, we would write off the related balances of TEP's
regulatory assets as a charge in our income statement.  Based on the
balances of TEP's regulatory assets at September 30, 2000, if we had
stopped applying FAS 71 to TEP's remaining regulated operations, we
would have recorded a net after-tax extraordinary loss of approximately
$258 million.  While regulatory orders and market conditions may affect
our cash flows, our cash flows would not be affected if we stopped
applying FAS 71.


NOTE 2.  BUSINESS SEGMENTS
--------------------------

     We determine our business segments based on the way we organize
our operations and evaluate performance.  We currently have two
reportable business segments that are managed separately based on
fundamental differences in their operations.  UniSource Energy's
principal business segment is TEP, an electric utility business.

     The other reportable business segment is comprised of the
unregulated energy businesses of Millennium:

 - Ownership of 67% of Global Energy Solutions, Inc. (GES) the parent
company of Global Solar Energy, Inc. (Global Solar), a developer and
manufacturer of photovoltaic materials and other energy technology
businesses.  In June 2000, our share of GES increased from 50% to 67%.
See Note 3;

 - Nations Energy Corporation (Nations Energy) which is an independent
power developer.  See Note 3 regarding the sale of Nations Energy
Holland Holding;

 - Southwest Energy Solutions, Inc. which provides energy support
services to electric consumers; and

 - ION International, Inc. which provides technology applications for
efficient use of energy.

                                 Segments
                            ----------------------
                                                            UniSource
                                             Reconciling      Energy
                          TEP    Millennium  Adjustments  Consolidated
----------------------------------------------------------------------
                                     - Thousands of Dollars  -
Income Statement
----------------
Three months ended
 September 30, 2000:
  Operating Revenues   $340,501    $ 2,381      $ (106)       $342,776
----------------------------------------------------------------------
  Net Income (Loss)
   Before Income Taxes   32,799     (2,138)     (2,232)         28,429
----------------------------------------------------------------------
  Net Income (Loss)      19,835     (1,254)     (1,342)         17,239
----------------------------------------------------------------------
Three months ended
 September 30, 1999:
  Operating Revenues    264,756      2,933         (65)        267,624
----------------------------------------------------------------------
  Net Income Before
   Income Taxes          55,429     34,743      (2,173)         87,999
----------------------------------------------------------------------
  Net Income             31,933     21,000      (1,264)         51,669
----------------------------------------------------------------------


                                 Segments
                            ----------------------
                                                            UniSource
                                             Reconciling      Energy
                          TEP    Millennium  Adjustments  Consolidated
----------------------------------------------------------------------
                                     - Thousands of Dollars  -
Nine months ended
 September 30, 2000:
  Operating Revenues   $752,694    $ 5,044      $ (284)       $757,454
----------------------------------------------------------------------
  Net Income (Loss)
   Before Income Taxes   46,870     (4,765)     (6,282)         35,823
----------------------------------------------------------------------
  Net Income (Loss)      33,136     (1,218)     (3,778)         28,140
----------------------------------------------------------------------
Nine months ended
 September 30, 1999:
  Operating Revenues    615,375      8,161        (204)        623,332
----------------------------------------------------------------------
  Net Income Before
   Income Taxes          66,198     27,512      (6,965)         86,745
----------------------------------------------------------------------
  Net Income             38,968     15,027      (4,146)         49,849
----------------------------------------------------------------------
Balance Sheet
-------------
Total Assets,
 September 30, 2000  $2,559,336   $145,936   $(100,762)     $2,604,510
Total Assets,
 December 31, 1999    2,600,508    100,289     (44,542)      2,656,255
----------------------------------------------------------------------

Intersegment revenues are not material.  The reconciling adjustments
include the following:

 - Elimination of TEP's Note Receivable from UniSource Energy and
related interest; and
 - Elimination of intercompany activity and balances.


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

  Sale of Interest in Nations Holland and COPESA Market Adjustment

     In January 2000, Nations Energy sold Nations Energy Holland
Holding, including its minority interest in a power project located in
the Czech Republic.  Nations Energy recorded a pre-tax gain of $2.5
million on the sale.  Nations Energy received $20 million in cash
proceeds from the sale which is reflected in the Cash Flows from
Investing Activities in the UniSource Energy cash flow statement for
the nine months ended September 30, 2000.

     In March 2000, Nations International, a wholly owned subsidiary of
Nations Energy, recorded a $1.4 million decrease in the market value of
its minority interest investment in a project in Panama.  At September
30, 2000, Nations International's investment in this project was $3.2
million.  Nations International intends to sell its 40% equity interest
in this project.  We cannot predict whether future market adjustments
will be necessary for this project.

  Additional Investments in Energy Technologies

     Effective June 1, 2000, Millennium increased its ownership
percentage in GES from 50% to 67%.  The remaining 33% of GES is owned
by ITN Energy Systems, Inc. (ITN), a privately held company.  Under the
agreement, ITN transferred its rights to certain assets and proprietary
and intellectual property, including thin-film battery technology, to
GES.  Millennium agreed to contribute to GES up to $14 million in
additional equity.  As of September 30, 2000, Millennium funded $11.4
million under this agreement, including $3.5 million in the third
quarter of 2000.  As of October 31, 2000, Millennium had funded the
full $14 million under this agreement.

     In September 2000, Millennium and ITN agreed to form a jointly-
owned space systems company for the purpose of developing and
commercializing small-scale satellites.  Millennium agreed to provide
$10 million in equity and $10 million in credit to the venture.  ITN
will contribute development contracts and proprietary technologies.

     Separately, ITN and Millennium agreed to form a jointly-owned
product development company, which will provide research and
development services to AET affiliates and third parties.  Millennium
committed to provide $4 million in credit to the company, and ITN will
provide additional technologies, including direct energy conversion,
fuel cells and thermal desalinization.

     Millennium also agreed to provide an additional $20 million in
credit to Global Solar over a 4-year period to fund production and
expansion, and $6 million in credit to TFB, Inc. to fund the start-up
of a thin-film battery pilot line.

     Because we own 67% of GES as of June 1, 2000, it is consolidated
with UniSource Energy for financial reporting purposes.  Previously,
Millennium reported GES's earnings (losses) using the equity method. By
the end of 1999, all of ITN's equity contributions had been written
down to zero for financial reporting purposes.  As a result, minority
interest is not reflected in the financial statements and Millennium
records 100% of GES's losses for accounting purposes. When GES
generates net income, Millennium will recognize 100% of net income to
the extent Millennium's recognized losses are greater than Millennium's
ownership percentage of such losses.

  NewEnergy Note Receivable and Expiration of Guarantees

     In consideration for the July 1999 sale of Millennium's 50%
interest in NewEnergy to The AES Corporation (AES), Millennium received
shares of AES common stock, which were sold in the third quarter of
1999, and two $11.4 million promissory notes issued by NewEnergy.  The
maturity dates of the promissory notes are July 23, 2000 and July 23,
2001.   In July 2000, Millennium collected $11.4 million from NewEnergy
as scheduled.

     Subsequent to the sale of NewEnergy in July 1999, all guarantees
of performance bonds and contractual obligations that UniSource Energy
made on behalf of NewEnergy have been terminated.

  Other Energy Related Investments

     In July 2000, Millennium made a $15 million capital commitment to
a limited partnership which will fund energy related investments. As of
November 6, 2000 Millennium has funded approximately $1 million under
this commitment.  The remaining $14 million is expected to be invested
within three to five years.  A member of the UniSource Energy Board of
Directors will also have a minor investment in the project.  An
affiliate of such board member will serve as the general partner.

  Reclassification of Millennium Energy Businesses Results

     The operating revenues and expenses from the Millennium Energy
businesses are currently included as part of UniSource Energy's
Operating Revenues and Operating Expenses.  Previously, these revenues
and expenses were included in the Millennium Energy Businesses line
item in the Other Income and Deduction section of the income statement.
The income statements for the three- and nine-months ended September
30, 1999 have been reclassified to conform to the new presentation.


NOTE 4.  DEBT RETIREMENTS AND REVOLVING CREDIT FACILITY
--------------------------------------------------------

  Retirement of 12.22% First Mortgage Bonds

     In June 2000, TEP retired its remaining $46.9 million principal
amount of 12.22% First Mortgage Bonds as scheduled.

  Purchase of 7.50% First Collateral Trust Bonds

     In August 2000, TEP purchased at a discount and retired $1.7
million principal amount of 7.50% First Collateral Trust Bonds due in
2008.

  Revolving Credit Facility

     As of September 30, 2000, TEP had no borrowings under its
Revolving Credit Facility.  However, in July 2000, TEP borrowed $25
million under its Revolving Credit Facility and repaid it in August
2000.  Proceeds were used to fund on-going cash expenditures.


NOTE 5.  SAN JUAN COAL CONTRACT AMENDMENT
-----------------------------------------

     In September 2000, to reduce fuel costs over the next 17 years,
TEP entered into an agreement to amend the San Juan Generating
Station's coal supply contract, replacing two surface mining operations
with one underground operation.  To amend the contract, TEP is required
to make a $15 million payment in 2003.  In September 2000, as a result
of this scheduled payment, TEP recorded a pre-tax $13 million Coal
Contract Amendment Fee expense which equals the present-value of the
$15 million payment.  TEP expects the contract amendment to reduce its
future coal costs by $275 million over the term of the new contract
which expires in 2017.  On a net present value basis, TEP expects the
savings to be at least $50 million.


NOTE 6.  CONTINGENCIES
----------------------

  Income Tax Assessments

     In February 1998, the IRS issued an income tax assessment for the
1992 and 1993 tax years.  The IRS challenged 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.  In the second quarter of 2000, we
resolved the 1992 and 1993 audits.  In the second quarter we also
received an IRS assessment related to tax years 1994, 1995, and 1996.
After reviewing the impact of these items on our accrued tax
liabilities and the potential for assessments related to later tax
years, we reversed $7 million of the deferred tax valuation allowance
in the second quarter of 2000.   The $7 million reversal is included in
the $8.2 million reduction in the valuation allowance discussed in Note
7.

   Due to the financial restructuring, a change in TEP's ownership
occurred for tax purposes in December 1991.  This change limits our use
of the NOL and ITC generated before 1992 under the tax code.  At
December 31, 1999, we had approximately $199 million of NOL and $21
million of ITC subject to the pre-1992 limitation and $175 million of
NOL not subject to the limitation.  Because of the valuation allowance
amounts recorded, we do not expect these annual limitations to have a
material adverse impact on the financial statements.

  ACC Order on the Sierrita Contract

     On May 14, 1999, TEP filed a complaint with the ACC against Cyprus
Sierrita Corporation (now known as Phelps Dodge Sierrita, Inc.)
(Sierrita) over energy costs that TEP charged to Sierrita under an ACC-
approved contract.  Sierrita has disputed these charges.  The dispute
concerns the proper method of calculating energy charges under the
contract.  In March 2000, the ACC ruled in favor of TEP and ordered
Sierrita to pay a significant portion of the disputed charges from May
14, 1999 forward.  Sierrita has appealed the ACC's order.  We believe
that the appeal process will take between one and two years.  We do not
expect resolution of this matter to have a material adverse impact on
the financial statements.  We reversed a $2.5 million reserve in
September 2000 resulting in $2.5 million of revenue, because we now
believe it is probable that TEP will prevail in the matters before the
Court of Appeals.  The $2.5 million reserve related to disputed charges
for the period of May 17, 1999 through September 30, 2000.  We do not
expect to record a reserve for the disputed charges billed after
September 2000.


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

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




                                            UniSource Energy
                                ---------------------------------------
                                Three Months Ended    Nine Months Ended
                                  September 30,           September 30,
                                 2000       1999        2000       1999
                                ---------------------------------------
                                       - Thousands of Dollars -
Federal Income Tax Expense at
 Statutory Rate                $ 9,950   $ 30,800  $ 12,538    $30,361
  State Income Tax Expense,
   Net of Federal Deduction      1,393      4,270     1,756      4,209
  Depreciation Differences
   (Flow Through Basis)          1,066      1,829     3,201      2,511
  Reduction in Valuation
  Allowance - Benefit
  (see Note 6)                  (1,200)         -    (8,200)         -
  Investment Tax Credit
   Amortization                      -       (700)        -     (2,100)
  Foreign Operations of
   Millennium Energy Businesses     18       (115)   (1,655)     1,563
  Other                            (37)       246        43        352
                               --------  ---------  --------  ---------
Total Expense for Federal and
 State Income Taxes            $11,190   $ 36,330   $ 7,683    $36,896
                               ========  =========  ========  =========

                                                   TEP
                                ---------------------------------------
                                Three Months Ended    Nine Months Ended
                                   September 30,        September 30,
                                 2000       1999        2000       1999
                                ---------------------------------------
                                       - Thousands of Dollars -
Federal Income Tax Expense
 at Statutory Rate           $11,480   $ 19,400    $ 16,405   $ 23,169
 State Income Tax Expense,
  Net of Federal Deduction     1,607      2,689       2,296      3,212
 Depreciation Differences
  (Flow Through Basis)         1,066      1,829       3,201      2,511
 Reduction in Valuation
  Allowance - Benefit
  (see Note 6)                (1,200)         -      (8,200)         -
 Investment Tax Credit
  Amortization                     -       (700)          -     (2,100)
 Other                            11        278          32        438
                             -------   --------     -------   --------
Total Expense for Federal
 and State Income Taxes      $12,964   $ 23,496     $13,734   $ 27,230
                             =======   ========     =======   ========


     Income taxes are included in the income statements as follows:


                                            UniSource Energy
                               ---------------------------------------
                               Three Months Ended    Nine Months Ended
                                  September 30,          September 30,
                                2000       1999        2000       1999
                               ---------------------------------------
                                       - Thousands of Dollars -
Operating Expenses             $ 9,473  $ 21,368    $ 4,238   $ 21,290
Other Income (Deductions)        1,717    14,962      3,445     15,606
                               -------  --------    -------    -------
Total Income Tax Expense       $11,190  $ 36,330    $ 7,683   $ 36,896
                               =======  =========   =======   ========

                                                  TEP
                               ---------------------------------------
                               Three Months Ended    Nine Months Ended
                                  September 30,         September 30,
                                2000       1999        2000       1999
                               ---------------------------------------
                                       - Thousands of Dollars -
Operating Expenses             $11,063    $22,002   $ 7,944    $23,401
Other Income (Deductions)        1,901      1,494     5,790      3,829
                               -------    -------   -------    -------
Total Income Tax Expense       $12,964    $23,496   $13,734    $27,230
                               =======    =======   =======    =======


NOTE 8.  NEW ACCOUNTING STANDARD
--------------------------------

     In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133 (FAS 133),
Accounting for Derivative Instruments and Hedging Activities.  A
derivative financial instrument or other contract derives its value
from another investment or designated benchmark.  This Statement
requires all derivative instruments to be recognized as either assets
or liabilities on the balance sheet.  Some derivative instruments
offset, or hedge, exposure to a specific risk.  If a derivative
qualifies as a hedge, the accounting for the changes in fair value will
depend on the specific exposure being hedged.  If the derivative is not
a hedging instrument, measurement is at fair value and changes in fair
value (i.e., unrealized gains and losses) are recognized in earnings in
the period of change.  We are required to comply with FAS 133 effective
January 1, 2001.

     Based on our analysis to date, we expect that the most significant
impact of complying with FAS 133 will be the ongoing market adjustments
to the income statement from some of our wholesale trading activity.
We buy and sell wholesale power using forward contracts.  Based on our
current interpretation of FAS 133 and other guidance, we believe our
wholesale forward contracts will be classified as follows:

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

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

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

     Unrealized gains and losses of our forward contracts represent the
differences between the forward contract prices and the market prices
at any given date until the final settlement of the contract.  The
realized gain or loss on the forward contract recorded at the contract
settlement represents the difference between the contract price and our
actual cost of the commodity that was purchased or sold.  Based on our
current analysis and interpretation of FAS 133, if we had adopted FAS
133 at September 30, 2000, we would have recorded a $1 million
unrealized loss on the income statement and a $12 million unrealized
loss as part of Other Comprehensive Income.  If we had adopted FAS 133
at September 30, 1999 we would have recorded a $1 million unrealized
loss on the income statement and a $1 million unrealized loss as part
of Other Comprehensive Income.  Because the forward contract volume in
2000 is roughly the same as 1999, the difference between adoption of
FAS 133 at September 30, 1999 and 2000 reflects the substantial
increase in energy market prices in 2000.  Because of the volatility of
the wholesale power market and continual changes in the types of
forward contracts that we have, we do not know if these amounts are
representative of the amounts that we will recognize in the future
after we adopt FAS 133.  There are also certain issues that still need
to be addressed by the FASB Derivatives Implementation Group that may
also impact the amounts we will recognize under FAS 133.


NOTE 9.  REVIEW BY INDEPENDENT ACCOUNTANTS
------------------------------------------

     With respect to the unaudited condensed consolidated financial
information of UniSource Energy and TEP for the three-month and nine-
month periods ended September 30, 2000 and 1999, PricewaterhouseCoopers
LLP reported that they have applied limited procedures in accordance
with professional standards for a review of such information.  However,
their separate report dated November 10, 2000 appearing herein states
that they did not audit and they do not express an opinion on that
unaudited condensed consolidated financial information. Accordingly,
the degree of reliance on their report on such information should be
restricted in light of the limited nature of the review procedures
applied.  PricewaterhouseCoopers LLP is not subject to the liability
provisions of section 11 of the Securities Act of 1933 for their report
on the unaudited condensed consolidated financial information because
that report is not a "report" or a "part" of a registration statement
prepared or certified by PricewaterhouseCoopers LLP within the meaning
of sections 7 and 11 of the Act.


NOTE 10.  OTHER RECLASSIFICATIONS
---------------------------------

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


<PAGE>

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

     UniSource Energy 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  is  a  holding   company   that   owns
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 electric utility business of  TEP  and  the
unregulated energy businesses of Millennium, and includes the following:

     * operating results during the third quarter and the first nine months
       of 2000 compared with the same periods in the prior year,
     * changes in liquidity and capital resources during the third quarter
       and first nine months of 2000, and
     * expectations of identifiable material trends which may affect our
       business in the future.

      TEP  is  the principal operating subsidiary of UniSource  Energy  and
accounts  for substantially all of its assets and revenues.  The  financial
condition  and  results  of operations of TEP are currently  the  principal
factors  affecting  the financial condition and results  of  operations  of
UniSource  Energy on an annual basis.  The seasonal nature of the  electric
utility  business  causes  operating results  to  vary  significantly  from
quarter  to  quarter.   The results from the energy related  businesses  of
Millennium and certain of its subsidiaries and interests have also  had  an
impact  on earnings reported by UniSource Energy for the quarters  and  the
nine-month periods ended September 30, 2000 and 1999.

     Management's  Discussion and Analysis should be  read  in  conjunction
with the Condensed Consolidated Financial Statements, beginning on page  2,
which  present the results of operations for the quarters and  nine  months
ended  September 30, 2000 and 1999.  Management's Discussion  and  Analysis
explains  the  differences between periods for specific line items  of  the
Condensed Consolidated Financial Statements.

OVERVIEW
--------

     UniSource  Energy recorded net income of $17.2 million for  the  third
quarter of 2000, and net income of $28.1 million for the first nine  months
of  2000.   This  compares with net income of $51.7 million  in  the  third
quarter  of 1999 and net income of $49.8 million for the first nine  months
of 1999.

     Growth in retail electricity sales, wholesale marketing activities and
efficient  performance  of  generating units  at  TEP  contributed  to  the
earnings  recorded  in  the  third quarter of 2000.   Despite  this  strong
underlying performance at the utility, several factors contributed  to  the
lower  net income reported for the third quarter of 2000 compared with  the
third quarter of 1999:

     * a one-time $8 million after-tax expense  related to the amendment of
       a coal supply contract in the third quarter of 2000;
     * the $20.8 million after-tax gain on the sale of one of our unregulated
       energy businesses in the third quarter of 1999; and
     * the impact of accounting changes related to the discontinuation of FAS
       71 regulatory accounting for TEP's generation operations in November
       1999.

     The  same  factors  outlined above account for the  lower  net  income
reported for the first nine months of 2000 compared with the same period of
1999.   See  Factors  Affecting  Results  of  Operations  and  Results   of
Operations, below for further detail.

     Our  financial  prospects  are  subject  to  significant  competitive,
regulatory,  economic  and  other uncertainties.   The  approval  of  TEP's
Settlement  Agreement  in November 1999 resolved a  significant  amount  of
regulatory  uncertainty and provides TEP with a reasonable  opportunity  to
recover 100 percent of its transition recovery assets.  However, we  cannot
predict  the  full  impact of retail competition on TEP's future  operating
results  or financial condition.  Some of the factors which may affect  our
future  financial  results  include weather  variations  which  may  affect
customer  usage, load growth and demand levels in the current  TEP  service
territory,  and  market  prices  for  wholesale  and  retail  energy.   See
Competition below.

     Other  uncertainties  include the  extent to  which,  in  response  to
industry  changes  or  unanticipated  economic  downturns,  TEP  can  alter
operations and reduce costs, which may be limited due to high financial and
operating  leverage.   Future results 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  and  energy  market
environment.   In  November  1998,  TEP  organized  its  utility   business
activities  into  two  separate  business units:  (1)  generation  and  (2)
transmission  and  distribution, and in January 1999, TEP  formed  a  third
business  unit  which  provides  administrative  services  to  the  utility
business   units.   We  are  improving  cost  measurement  and   management
techniques at TEP.  We have also extended contracts, where appropriate, for
large  wholesale and retail customers.  We are investing in our unregulated
affiliates  to provide energy products and services to markets both  within
and  beyond TEP's retail service territory.  See Factors Affecting  Results
of  Operations, Competition, Retail; Results of Operations and  Results  of
Millennium Energy Businesses below.

     Our financial prospects are also subject to  uncertainties relating to
the   start-up  and  developmental  activities  of  the  Millennium  Energy
Businesses segment.  At September 30, 2000, Millennium's unregulated energy-
related affiliates comprised approximately 6% of total assets, but at times
have  had  a  significant impact on our consolidated net  income  and  cash
flows.  In the third quarter 2000, Millennium agreed to  provide additional
funding  to  expand   its  existing  solar  energy  and  thin-film  battery
businesses  and  to  make  new  investments in  research  and   development
and   small-scale   satellite   technologies.    Millennium  also  made   a
commitment  to  contribute $15 million in capital to a limited  partnership
that  will  invest in energy-related investments.  We continue to  evaluate
our affiliates for opportunities to realize value from our investments.  In
the  third  quarter  of 1999, we sold our ownership interest  in  affiliate
NewEnergy  and  recorded a pre-tax gain of $35 million on the  transaction.
In  January 2000, we sold our interest in a power project in which  Nations
Energy  had  invested,  recording a pre-tax gain of  $2.5  million  on  the
transaction.  See Results of Millennium Energy Businesses below.

     Our  consolidated  capital structure remains highly leveraged.   Since
April  1997,  however, we have made significant progress in  our  financial
strategy  to reduce TEP refinancing risk by extending maturities  of  long-
term  debt  and  letters  of credit and by reducing  exposure  to  variable
interest rates by refinancing over $475 million in variable rate debt  with
fixed  interest rate securities.  With a more stabilized regulatory outlook
and  with  ongoing improvements in our capital structure, UniSource  Energy
paid  its first dividend to common shareholders in March 2000.  We had  not
paid a common dividend to public shareholders since 1989.  See Dividends on
Common Stock and Investing and Financing Activities, below.

     TEP's  capital  requirements  include  construction  expenditures  and
scheduled  maturities  of debt 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,  when  necessary,  borrowings under  the  Revolving  Credit  Facility.
Millennium's  unregulated  energy  businesses  will  continue  to   require
additional  funding to meet their capital and credit needs.  We  expect  to
use  existing cash balances to fulfill these needs, or if necessary, we may
seek  investments  by  unaffiliated parties to  meet  the  ongoing  capital
requirements  of  Millennium's  businesses.   See  Liquidity  and   Capital
Resources, Investing and Financing Activities, below.


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

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

     RETAIL

     The  electric  utility industry  is undergoing significant  regulatory
change  designed  to encourage competition in the sale of  electricity  and
related services. Approximately 20% of TEP's retail customers are currently
eligible to choose an alternate energy supplier.  Currently, no competitors
are providing electric service to customers  in our retail service area nor
has  TEP  lost  any  significant  customers to  self-generation.   However,
beginning in January 2001, the University of Arizona intends to buy 6 MW or
approximately 20%  of its load  from an  alternate energy  supplier.  It is
likely that, with open access in our retail  service territory,  additional
customers will elect to purchase their energy requirements from other energy
suppliers when available.  TEP also competes against gas service  suppliers
and others who provide energy services.

     TEP'S SETTLEMENT AGREEMENT AND RETAIL ELECTRIC COMPETITION RULES

     In  November  1999, the ACC approved the Settlement Agreement  between
TEP  and  certain customer groups relating to recovery of TEP's  transition
recovery  assets  and unbundling of tariffs.  For TEP, the Retail  Electric
Competition  Rules  (Rules) provide a framework  for  the  introduction  of
retail  electric  competition  in Arizona.  Direct  access  to  competitive
electricity  by customers became effective in January 2000, 60  days  after
the   effective  date  of  the  Settlement  Agreement.   However,   certain
conditions must be met before competitive electricity will be sold in TEP's
service territory, such as certification of Energy Service Providers (ESPs)
by  the  ACC  and  execution of and compliance with direct  access  service
agreements  by  ESPs and other service providers with TEP.  Currently,  one
ESP  has  met  all the necessary conditions but has not yet  begun  selling
electricity in TEP's service territory.

     As  required by the Rules,  consumer choice for energy supply will  be
phased  in  beginning in 2000 until January 1, 2001, when  consumer  choice
will be available to all customers.

     In  accordance with the Rate Settlement Agreement approved by the  ACC
in  1998, TEP decreased rates to retail customers by 1.1% on July 1,  1998,
1%  on July 1, 1999 and 1% on July 1, 2000.  These reductions apply to  all
retail  customers  except for certain customers that have  negotiated  non-
standard  rates.  In accordance with the Settlement Agreement  approved  in
November  1999,  now that these three rate reductions have occurred,  TEP's
retail  rates will be frozen until December 31, 2008, except under  certain
circumstances.  TEP will recover the costs of transmission and distribution
under  regulated  unbundled rates.  TEP's frozen  rates  will  include  two
Competition Transition Charge (CTC) components, a Fixed CTC and a  Floating
CTC,  which  are  designated for the recovery of  its  transition  recovery
assets.

     Other  major provisions of the  Settlement Agreement were reported  in
the  1999  Form  10-K.  See TEP's Settlement Agreement and Retail  Electric
Competition Rules in the 1999 Form 10-K.

     Approval  of  the  Settlement  Agreement  caused  TEP  to  discontinue
regulatory  accounting  for  its generation operations  under  FAS  71,  in
November  1999.   See  Note 1 of Notes to Condensed Consolidated  Financial
Statements, Regulatory Accounting.

     Several  parties  filed  lawsuits in  Maricopa  County Superior  Court
challenging the ACC's  Retail Electric  Competition Rules  order and in the
Arizona Court  of Appeals challenging the  ACC's order which approved TEP's
Settlement  Agreement.   It had  been contended  that allowing  marketplace
competition to determine rates violated the ACC's constitutional duty to set
rates.

     On  July  12,  2000 a  Maricopa County Superior Court judge  issued  a
preliminary  ruling  on the consolidated cases that  generally  upheld  the
Retail Electric Competition Rules but concluded that some of the Rules were
invalid.   Specifically, the court held that several  non-ratemaking  Rules
were  required  to  be  submitted  to  the  Arizona  Attorney  General  for
certification.   Additionally, the judge determined  that,  in  determining
rates, the Arizona Constitution requires the ACC to consider the fair value
of  the  property of an ESP upon its certification.  Based on  the  judge's
decision, the ACC can decide to permit marketplace competition to determine
rates,  as it has already done in the Rules.  However, since the  Rules  do
not   require   a   fair  value  determination,  the   judge   ruled   them
unconstitutional regarding this matter.  The action in the Arizona Court of
Appeals was dismissed  as a result  of stipulation by the parties involved.

     On November 1, 2000 the Maricopa County Superior Court judge entered a
minute entry affirming the July 12, 2000 preliminary ruling that some of the
ACC's rules violated provisions of the Arizona Constitution. The minute entry
held that "the Commission's consistent and repeated failure  to comply with
Article 15, section 14  of  the  Arizona Constitution,  affects the  entire
electrical  deregulation  process."  The  minute  entry then specified that
plaintiff's counsel submit an amended form of judgment to be rendered by the
court.  The amended form of judgment was requested, among  other things, to
state  that  the  "decisions  are vacated  for being  'unconstitutional and
unlawful.'"  On November 8, 2000, plaintiff's counsel filed an amended form
of judgment for the court's consideration.

     We  believe that the  Retail Electric Competition Rules are  still  in
effect  pending the acceptance or revision of the proposed form of judgment
by  the court.  We cannot predict when the court will render a judgment  or
the  outcome of these actions.  We cannot predict whether the decision will
be appealed or the effect of such appeal.

     WHOLESALE

     TEP  competes  with other utilities, power marketers  and  independent
power producers in the sale of electric capacity and energy at market-based
rates in the wholesale market.  We expect competition to sell capacity  and
energy 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;
     * restructuring of the electric utility industry in Arizona, California
       and other western states;
     * the availability and prices of natural gas, oil and coal;
     * spot energy prices;
     * effect of precipitation on temperature; and
     * transmission access.

     TRANSMISSION ACCESS

     TEP, along with several neighboring transmission owners located in the
southwestern  United States, filed a report with the FERC  on  October  16,
2000  which  detailed the progress in establishing a Regional  Transmission
Organization  (RTO)  that  would be responsible for  ensuring  transmission
reliability and nondiscriminatory access to the regional transmission grid.
We expect that Desert STAR, the non-profit corporation named in the filing,
will  make additional filings with the FERC in the near future to establish
itself as an RTO for the region.

     The  October 16, 2000 filing complied with FERC Order No. 2000,  which
required  all  public  utilities that are transmission  owners  to  file  a
proposal  for  an  RTO  by  October 2000.  An RTO  is  an  organization  or
institution  which  is  envisioned  by the  FERC  to  operate  an  electric
transmission   system   on  a  regional  basis  and   enhance   operational
transmission  efficiencies  and reliability.  The  FERC  has  not  dictated
specific  RTO  structures but has instead adopted a  flexible  approach  to
considering  proposed organizational structures, including the  possibility
of  a  transmission  company  which  would  own  and  operate  all  of  the
transmission assets in a particular region.  As an alternative  to  an  RTO
proposal,  transmission-owning public utilities were  required  to  file  a
description of any efforts made by the utility to participate  in  an  RTO,
the  reasons for not participating and any obstacles to participation,  and
any  plans  for  further  work  toward  participation.   This  order  is  a
culmination  of  the FERC's efforts to promote the regional development  of
transmission   system  operation  and  contemplates  that  RTOs   will   be
operational by December 15, 2001.  While FERC Order 2000 takes a  voluntary
approach to participation in RTOs, the FERC has indicated that it will take
any  action  it considers necessary, including requiring RTO formation,  to
address  any  undue market power that may exist on the part of transmission
owners.

     The  ACC Retail Electric Competition Rules  require the formation  and
implementation   of   an   Arizona  Independent  Scheduling   Administrator
Association (AISA).  The AISA is anticipated to be a temporary organization
until  the  formation and implementation of an ISO  or  RTO.   TEP,  as  an
Affected  Utility, participated in the creation of the AISA.  This includes
its  incorporation as a not-for-profit entity, the filing at the  FERC  for
approval  of its proposed structure, rates and procedures, and drafting  of
its protocols for operation.  Recently, the board of AISA approved a set of
operating protocols which have been tendered for filing with the  FERC  and
are  currently under review.  TEP continues to participate with  the  other
Affected  Utilities  in developing the AISA's structure  and  protocols  in
response to retail competition.


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

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

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

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

     Under  GAAP,  FAS  71 must be discontinued once sufficiently  detailed
deregulation  guidance  is issued for a separable portion  of  a  business.
However,  a  company may continue to recognize regulatory  assets  formerly
associated with the deregulated portion of the business, to the extent  the
transition   plan  provides  for  their  recovery  through  the   regulated
transmission and distribution portion of the business.

     Effective  November  1,  1999,  TEP stopped applying  FAS  71  to  its
generation  operations because the Settlement Agreement provided sufficient
details  regarding the deregulation of TEP's generation operations.   As  a
result,  we  changed  certain accounts in our  financial  statements.   See
Regulatory  Matters  in  the  1999 Form 10-K  for  a  discussion  of  these
accounting changes.

     We  continue  to apply FAS 71 in  accounting for the distribution  and
transmission  portions  of  TEP's business, our regulated  operations.   We
periodically  assess  whether we can continue to  apply  FAS  71  to  these
operations.   If  we  stopped applying FAS 71 to TEP's remaining  regulated
operations,  we  would write off the related balances of  TEP's  regulatory
assets as a charge in our income statement.  Based on the balances of TEP's
regulatory assets at September 30, 2000, if we had stopped applying FAS  71
to TEP's remaining regulated operations, we would have recorded a net after-
tax  extraordinary  loss of approximately $258 million.   While  regulatory
orders  and  market conditions may affect our cash flows,  our  cash  flows
would not be affected if we stopped applying FAS 71.

See  Note  1  of  Notes  to  Condensed Consolidated  Financial  Statements,
Regulatory Accounting.


   SAN JUAN COAL CONTRACT AMENDMENT
   --------------------------------

     In the third quarter 2000,  TEP entered into an agreement to amend the
San Juan Generating Station's coal supply contract.  Under the terms of the
amended contract among TEP, San Juan Coal Company (SJCC) and Public Service
Company of New Mexico (a co-owner of the San Juan generating station), SJCC
will phase out the current surface mining operation and replace it with  an
underground  mining operation to be in full production  by  November  2002.
The  underground  mine will provide higher quality coal  to  San  Juan  and
reduce production costs.

     TEP owns 50 percent of Units 1 and 2 of San Juan,  which represent 322
MW of installed capacity.  TEP expects the contract amendment to reduce its
future  coal  costs  by $275 million over the life of the  contract,  which
expires in 2017.  On a net present value basis, TEP expects the savings  to
be  at  least $50 million.  To amend the contract, TEP and the other owners
will  make a one-time payment to SJCC in 2003.  TEP's share of that payment
will  be  approximately $15 million.  TEP recorded a $13.2 million  pre-tax
($8.0  million after-tax) expense in the third quarter of 2000 to recognize
the present value of that payment.


   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.  The market risks  resulting  from  changes  in
interest  rates,  returns on marketable securities and changes  in  foreign
currency  exchange rates have not changed materially from the market  risks
reported in the 1999 Form 10-K.

     COMMODITY PRICE RISKS

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

     TEP  measures  its market risk related to  its commodity  exposure  by
using  a  sensitivity analysis.  The market prices used to  determine  fair
value  are  estimated  based on various factors  including  broker  quotes,
exchange,  over  the counter prices and time value.  As  of  September  30,
2000, the estimated potential unfavorable impact on pre-tax earnings  of  a
hypothetical  10%  adverse shift in quoted market prices  was  $8  million.
However,  because  TEP's  derivative commodity  instruments  are  primarily
hedges  of  forward  long  generation positions which  could  generally  be
settled  with TEP generation and are not used for trading purposes,  we  do
not  believe  that this commodity price risk is material to  our  financial
position.

     For  accounting purposes,  TEP recognizes gains and losses  of  energy
sales  and  purchases  in  the  income statement  upon  settlement  of  the
contracts.   In June 1998, the Financial Accounting Standards Board  (FASB)
issued  Statement  of Financial Accounting Standards  No.  133  (FAS  133),
Accounting   for  Derivative  Instruments  and  Hedging  Activities.   This
Statement  requires all derivative instruments to be recognized  as  either
assets  or  liabilities on 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 comply with FAS 133 effective January 1, 2001.

     Based  on  our analysis to date, we expect that  the most  significant
impact of complying with FAS 133 will be the ongoing market adjustments  to
the  income statement from some of our wholesale trading activity.  We  buy
and  sell  wholesale power using forward contracts.  Based on  our  current
interpretation  of FAS 133  and other guidance,  we believe  our  wholesale
forward contracts will be classified as follows:

     * Normal Purchases and Sales: These forward contracts are excluded from
       the requirements of FAS 133.  The realized gains and losses on these
       contracts  are reflected  in  the  income statement at the  contract
       settlement date.  The wholesale contracts that generally qualify  as
       normal purchases  and sales  are our off-peak forward  purchases and
       sales.
     * Cash Flow Hedge:  The unrealized  gains and losses  related to these
       forward contracts will be included in Other Comprehensive Income,  a
       component of stockholders' equity. On-peak forward purchase contracts
       to meet our retail  and firm commitments as well as  on-peak forward
       sales contracts of our excess system capacity are generally classified
       as cash flow hedges. We define our on-peak purchases and sales as
       occurring daily from 6 a.m. until 10 p.m.,  Monday through Saturday.
     * Trading Activity:  The unrealized gains and losses related  to these
       forward contracts will be reflected in the  income statements.   Our
       trading  activity  generally consists  of forward on-peak  sales and
       purchases that do not qualify for cash flow hedge treatment.

     Unrealized  gains  and  losses  of  our  forward  contracts  represent
the  differences  between  the forward  contract   prices  and  the  market
prices  at any given date until the final settlement of the contract.   The
realized  gain  or loss on the forward contract recorded  at  the  contract
settlement  represents the difference between the contract  price  and  our
actual  cost  of the commodity that was purchased or sold.   Based  on  our
current  analysis and interpretation of FAS 133, if we had adopted FAS  133
at  September 30, 2000, we would have recorded a $1 million unrealized loss
on  the income statement and a $12 million unrealized loss as part of Other
Comprehensive Income.  If we had adopted FAS 133 at September 30,  1999  we
would  have  recorded a $1 million unrealized loss on the income  statement
and  a  $1  million unrealized loss as part of Other Comprehensive  Income.
Because  the forward contract volume in 2000 is roughly the same  as  1999,
the  difference between adoption of FAS 133 at September 30, 1999 and  2000
reflects the substantial increase in energy market prices in 2000.  Because
of  the  volatility of the wholesale power market and continual changes  in
the  types  of  forward contracts that we have, we do  not  know  if  these
amounts  are  representative of the amounts that we will recognize  in  the
future  after we adopt FAS 133.  There are also certain issues  that  still
need to be addressed by the FASB Derivatives Implementation Group that  may
also impact the amounts we will recognize under FAS 133.

     TEP is exposed to credit risk in its energy trading activities related
to  potential nonperformance by counterparties.  TEP manages  the  risk  of
counterparty  default by performing financial credit  reviews  and  setting
limits,   requiring  collateral  when  needed,  and  using  a  standardized
agreement which allows for the netting of current period exposures  to  and
from a single counterparty.  TEP does not anticipate any nonperformance  by
any  of its counterparties and did not experience any material counterparty
default during the nine months ended September 30, 2000.

     TEP  also  purchases  coal and natural gas  in the  normal  course  of
business for fuel for its generating plants.  Purchases of gas historically
provided  fuel for only 3-4% of total generation.  During the  nine  months
ended September 30, 2000, however, approximately 7% of TEP's generation was
fueled  by  natural  gas.   Market prices of  natural  gas  also  increased
significantly  in  2000, which, combined with increased usage,  caused  gas
costs  to  comprise  22% of total fuel expense for the  nine  months  ended
September  30,  2000,  compared with 9% in 1999.  Despite  the  significant
increases in market prices for natural gas in the second and third quarters
of  2000,  it  was  cost-effective for TEP to run its gas-fired  generating
units  to  sell into the wholesale market or to supply generation  for  its
retail  load  during  peak periods.  TEP has historically  purchased  fixed
price  natural  gas prior to the summer for a portion of its expected  use.
TEP  plans to purchase forward gas contracts as a means of mitigating price
risk  of  this increasingly volatile commodity in the future.  TEP acquires
its  coal  under long-term coal supply contracts.  See Fuel Supply  in  the
1999  Form 10-K for additional information on TEP's coal contracts and  gas
purchases.


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

     UniSource  Energy recorded net income of $17.2 million  or  $0.53  per
average share of Common Stock in the third quarter of 2000, and net  income
of $28.1 million or $0.87 per share in the first nine months of 2000.  This
compares  with  net income of $51.7 million or $1.60 per average  share  of
Common  Stock in the third quarter of 1999, and net income of $49.8 million
or $1.54 per share in the first nine months of 1999.

     Growth in retail electricity sales, wholesale marketing activities and
efficient  performance  of  generating units  at  TEP  contributed  to  the
earnings  recorded  in  the  third quarter of 2000.   Despite  this  strong
underlying performance at the utility, several factors contributed  to  the
lower  net income reported for the third quarter of 2000 compared with  the
third quarter of 1999:

     * a one-time $8 million after-tax expense related to  the amendment of
       a coal supply contract in the third quarter of 2000;
     * the $20.8 million after-tax gain on the sale of one of our unregulated
       energy businesses in the third quarter of 1999; and
     * the  impact of accounting  changes related to the discontinuation of
       regulatory accounting  for  TEP's generation operations under FAS 71
       in November 1999.

     The  same  factors  outlined above account for the  lower  net  income
reported for the first nine months of 2000 compared with the same period of
1999.   See  Factors  Affecting  Results  of  Operations  and  Results   of
Operations, below for further detail.

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

     The  table below shows the contributions to our consolidated after-tax
earnings  by our two business segments, as well as parent company  expenses
and inter-company eliminations, for the third quarter and first nine months
of 2000 and 1999, respectively:


                               Three Months Ended         Nine Months Ended
                                  September 30,               September 30,
                                  2000      1999             2000      1999
  -------------------------------------------------------------------------
                                           - Millions of Dollars -
  Business Segment
    TEP                           $19.8    $31.9           $33.1     $39.0
    Millennium                     (1.3)    21.0            (1.2)     15.0
    Parent Company and Inter-
      Company Eliminations         (1.3)    (1.2)           (3.8)     (4.2)
  -------------------------------------------------------------------------
      Consolidated Net Income     $17.2    $51.7           $28.1     $49.8
  =========================================================================


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

     The  operating  revenues  and  expenses  from  the  Millennium  Energy
Businesses  are currently included as part of UniSource Energy's  Operating
Revenues  and Operating Expenses.  Previously, these revenues and  expenses
were  included in the Millennium Energy Businesses line item in  the  Other
Income   and  Deduction  section  of  the  income  statement.   The  income
statements  for the three and nine-months ended September  30,  1999  have
been  reclassified to conform to the new presentation.  See Note 3 of Notes
to   Condensed   Consolidated  Financial  Statements,   Millennium   Energy
Businesses.

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

   IMPACT OF REGULATORY ACCOUNTING CHANGES
   ---------------------------------------

     TEP stopped applying regulatory accounting (FAS 71)  to its generation
operations  during the fourth quarter of 1999 in response to its Settlement
Agreement  with the ACC.  As a result, the operating results for  1999  and
2000  are  not directly comparable because the presentation and calculation
of  certain financial statement line items changed.  Reported earnings  are
lower in 2000 than in 1999 due primarily to:

     * the change in accounting for capital leases. Previously, we recorded
       lease expense consistent with our rate-making treatment and recorded
       equal  annual  expense  amounts  over the lease term.  Under current
       accounting treatment, capital lease expense is higher in the earlier
       years of the lease term  because the  interest expense  component is
       calculated on a mortgage basis.
     * the reclassification of our generation-related  regulatory assets to
       the  Transition  Recovery  Asset,  which shortened the  amortization
       period for these assets to nine  years  and  thereby  increased  the
       annual amortization amounts.

     TEP will continue to  experience downward pressure on earnings due  to
the  changes in expense recognition from the discontinuation of FAS 71  for
our  generation  operations.   However, TEP expects  that  the  changes  in
expense  recognition may be offset, and earnings provided by, the following
factors:

     * customer growth in TEP's service territory  is  expected to continue
       at approximately 2% annually over the next five years;
     * margins on wholesale sales are expected to increase as market prices
       in the region increase over time; and
     * a  portion  of  free  cash  flow  may  be used to reduce TEP's debt,
       thereby lowering interest expense.

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

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


                                                            Increase
                                                         ---------------
                                   2000       1999       Amount  Percent
Three Months Ended September 30,   ----       ----       ------  -------
--------------------------------              - Thousands-
Electric kWh Sales:
   Retail Customers             2,515,101  2,343,480    171,621    7.3%
   Sales for Resale             1,729,286  1,657,115     72,171    4.4%
                                ---------  ---------    -------
       Total                    4,244,387  4,000,595    243,792    6.1%
                                =========  =========    =======

Electric Revenues:
   Retail Customers              $214,513   $198,022    $16,491    8.3%
   Sales for Resale               125,131     66,083     59,048   89.4%
                                 --------   --------    -------
       Total                     $339,644   $264,105    $75,539   28.6%
                                 ========   ========    =======


Nine Months Ended September. 30,
--------------------------------
Electric kWh Sales:
   Retail Customers             6,363,815  5,951,879    411,936    6.9%
   Sales for Resale             4,447,089  3,833,957    613,132   16.0%
                               ----------  ---------  ---------
       Total                   10,810,904  9,785,836  1,025,068   10.5%
                               ==========  =========  =========

Electric Revenues:
   Retail Customers              $518,694   $484,236   $ 34,458    7.1%
   Sales for Resale               231,514    128,814    102,700   79.7%
                                 --------   --------   --------
       Total                     $750,208   $613,050   $137,158   22.3%
                                 ========   ========   ========


     TEP's  kWh sales to retail customers increased by  7.3% in  the  third
quarter  of  2000 compared with the same period in 1999.   The  retail  kWh
sales increase was due to a 2.8% increase in the number of retail customers
and  warmer   summer temperatures as measured by a 26% increase in  Cooling
Degree  Days  compared  with the third quarter of  1999.   Retail  revenues
increased  by  8.3%  in the third quarter of 2000 compared  with  the  same
period  in  1999,  reflecting the higher kWh  sales  and  $2.5  million  in
revenues  from  the  reversal  of a reserve for  disputed  charges.   These
increases were offset, in part, by a 1.0% rate decrease effective  July  1,
2000.   For the first nine months of 2000, retail kWh sales increased  6.9%
compared with the same period in 1999 as a result of an increase in  retail
customers  and  weather  changes.  Retail revenues increased  7.1%  due  to
increased retail kWh sales.  TEP established a new annual energy use record
on  August  4,  2000.   The maximum momentary peak on that  day  was  1,871
megawatts  and the net hourly peak was 1,862 megawatts, compared  with  the
maximum momentary peak of 1,767 megawatts and the net hourly peak of  1,754
megawatts in the third quarter 1999.

     Kilowatt-hour sales for resale increased 4.4% and the related revenues
increased  by  89.4% in the third quarter of 2000 compared  with  the  same
period  in  1999.   Wholesale  sales volume  increased  primarily  from  an
increase   in   short-term  buy/resale  activity.    Market   prices   were
significantly higher in the three months ended September, 2000 than in  the
same  prior year quarterly period, causing the revenue increase  to  exceed
the  volume increase on a percentage basis.  Higher natural gas prices  and
warmer regional temperatures contributed to higher market prices.  For  the
first  nine  months of 2000, wholesale sales increased 16.0% compared  with
the  same  period  in  1999  due primarily to  an  increase  in  buy/resale
activity.   Revenues from wholesale sales increased 79.7% as  a  result  of
increased sales volume and higher market prices as described above.

   OPERATING EXPENSES
   ------------------

     Fuel and Purchased Power expense increased by $66 million in the third
quarter  of  2000  compared with the same period  the  year  before.   Fuel
expense at TEP's generating plants increased $17 million primarily  due  to
higher  natural  gas prices and increased usage of gas generation  to  meet
increased kWh sales.  Purchased Power expense also increased by $49 million
primarily because of increased purchases in response to the large  increase
in  wholesale  energy sales made by TEP during the quarter.  For  the  nine
months ended September 30, 2000, Fuel and Purchased Power expense increased
by  $109  million  primarily for the same reasons  discussed  above.   Fuel
expense  increased  $22 million while Purchased Power expense  was  up  $87
million.

     Despite the large increases in Fuel and Purchased Power expense, TEP's
gross  margin  (Operating Revenues less Fuel and Purchased  Power  expense)
improved by 6% in the third quarter and 7% in the first nine months of 2000
compared  with the prior year periods.  This improvement was primarily  due
to higher prices in the wholesale energy markets.

     TEP  recorded a $13.2 million pre-tax ($8 million after-tax)  one-time
charge  in the third quarter of 2000 as a result of a coal supply  contract
amendment.  See San Juan Coal Contract Amendment above.

     The  presentation and calculation  of certain financial statement line
items  changed  in  November  1999 as a result of  the  discontinuation  of
regulatory   accounting   (FAS   71)  for  TEP's   generation   operations.
Accordingly, beginning in November 1999, Capital Lease expense is now being
reflected  in  Depreciation and Amortization and  in  Interest  on  Capital
Leases.   The  increase  in  Depreciation and Amortization  for  the  third
quarter and first nine months of 2000 compared to the same periods the year
before  is  primarily  due  to  this new  presentation.   Also,  additional
property  and  equipment were placed in service during  2000.   Because  we
stopped  applying FAS 71, we discontinued amortization of the Springerville
Unit 1 Allowance contra-asset and the corresponding recognition of Interest
Imputed on Losses Recorded at Present Value.

     Other  Operations  and Maintenance and Repair  expenses  increased  to
support customer growth and higher kWh sales for both the third quarter and
the first nine months of 2000 compared to the prior year periods.

     The Transition Recovery Asset and its related amortization is a result
of  the  Settlement Agreement reached with the ACC in 1999.  The amount  of
Amortization  of Transition Recovery Asset totaled $8.8 million  and  $14.4
million  for  the  quarter  and  nine  months  ended  September  30,  2000,
respectively.   Quarterly amortization amounts are a  function  of  various
factors including kWh sales.

     Income  Taxes  were  lower in both the third quarter  and  first  nine
months  of  2000  compared to the prior year periods due to  lower  pre-tax
income.  We also recognized tax benefits from the resolution of various IRS
audit  issues  in  the  second quarter of 2000. See  Note  6  of  Notes  to
Condensed Consolidated Financial Statements, Contingencies.

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

     INTEREST INCOME

     TEP's income statements for the quarters ended September 30, 2000  and
1999  include  $2.3  million  and $2.5 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  inter-company  income  is
eliminated.   For the nine months ended September 30, 2000  and  1999,  the
interest  income on the promissory note was $7.0 million and $7.6  million,
respectively.

     UniSource Energy recorded higher interest income for the quarter ended
September  30,  2000 and the first nine months of 2000,  due  primarily  to
interest  earned  on  lease debt investments.  See  Liquidity  and  Capital
Resources below.

     EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED ENTITIES

     Results from unconsolidated entities include various operations of the
unregulated  energy businesses of Millennium.  Because  of  the  change  in
ownership   of  GES,  the  results  of  operations  from  the  consolidated
unregulated energy subsidiaries of Millennium are now included in Operating
Revenues  and Operating Expenses.  Previously, these revenues and  expenses
were  included  in  Other Income (Deductions).  See  Note  3  of  Notes  to
Condensed  Consolidated Financial Statements, Millennium Energy Businesses.
The  decrease in Equity in Losses of Unconsolidated Entities for  the  nine
months  ended September 30, 2000, compared with the same prior year period,
is primarily due to the $2.5 million pre-tax gain on the sale of a minority
interest  in  a  power project in the Czech Republic in the  first  quarter
2000.

   INTEREST EXPENSE
   ----------------

     Because  we stopped applying FAS 71 to generation operations,  we  had
the  following  changes  which had the net effect  of  increasing  interest
expense:

     * We  reclassified  Capital  Lease  Interest  Expense  from  Operating
       Expenses to Interest Expense; and
     * We no longer record the Interest Imputed on Losses Recorded at Present
       Value due to the elimination of the Springerville Unit 1  Allowance.

Absent these accounting changes, Interest Expense for the third quarter and
first  nine  months  of  2000 would have been lower compared  to  the  same
periods of the prior year due primarily to lower amortization of losses  on
reacquired debt and lower letter of credit fees.


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

     The unregulated energy businesses of Millennium reported a net loss of
$1.3  million for the third quarter of 2000, and net loss of $1.2  for  the
first  nine  months  of 2000.  This compares with a  net  income  of  $21.0
million  in  the  third quarter and a net income of $15.0 million  for  the
first  nine  months  of  1999.  The table below  provides  a  breakdown  by
Millennium-owned subsidiaries of the after tax net income/(losses) recorded
for the three months and nine months ended September 30, 2000 and 1999.


                         Three Months Ended        Nine Months Ended
                            September 30,             September 30,
                          2000        1999          2000        1999
----------------------------------------------------------------------
                               -Thousands of Dollars-
   Subsidiary
      AET              $(1,466)    $   (80)      $(3,274)   $   (691)
      MEH                  200      21,200           877      20,550
      Nations Energy      (339)       (181)          592      (5,151)
      Other                351          61           587         319
----------------------------------------------------------------------
   Total Millennium    $(1,254)    $21,000       $(1,218)   $ 15,027
======================================================================


     AET AND GLOBAL SOLAR

     Millennium  owns  100%  of AET,  which  owns 67%  of  GES,  the parent
company  of  Global  Solar  Energy,  Inc.,   a  manufacturer  of  thin-film
photovoltaic  cells.   Effective June  1, 2000,  Millennium  increased  its
ownership  percentage  in GES from 50% to 67%.  See  Note  3  of  Notes  to
Condensed  Consolidated Financial Statements, Millennium Energy Businesses.
AET's  net  losses in the third quarter and first nine months of 2000  were
primarily due to research and development-related costs and delays  at  the
manufacturing facility.

     MEH AND NEWENERGY

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

     MEH's  net income for the third quarter and first nine months of  2000
was  derived primarily from interest income from a note receivable received
as part of the sale of NewEnergy to AES Corporation.

     NATIONS ENERGY

     Nations Energy develops independent power projects worldwide.  For the
third  quarter of 2000, Nations Energy recorded a net loss of $0.3  million
due  to operating expenses at existing projects.  The results for the  nine
months  ended September 30, 2000 and 1999 reflect transactions  related  to
Nations Energy's investment in a power project in the Czech Republic.   The
loss  reported in 1999 was principally from development costs and  expenses
related to the exercise of an option to invest in this power project.   The
minority  investment interest in this plant was sold in the  first  quarter
2000.   Management  is considering the sale of Nation's  remaining  assets.
Currently the book value of these assets is approximately $20.3 million.


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

     UNISOURCE ENERGY

     On  August 4, 2000,  UniSource Energy declared a cash dividend in  the
amount of $0.08 per share on its Common Stock, payable September 8, 2000 to
shareholders  of  record  at the close of business  August  15,  2000.   On
November  3, 2000, UniSource Energy declared a cash dividend in the  amount
of  $.08  per  share  on  its Common Stock, payable  December  8,  2000  to
shareholders of record at the close of business November 15, 2000.

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

     TEP

     In December 1999,  TEP declared and paid a dividend of $34 million  to
UniSource Energy, its sole shareholder.

     TEP  can pay dividends if it maintains  compliance with the TEP Credit
Agreement  and  certain  financial covenants,  including  a  covenant  that
requires TEP to maintain a minimum level of net worth.  As of September 30,
2000,  the  required minimum net worth was $226 million.  TEP's actual  net
worth  at September 30, 2000 was $304 million.  See Investing and Financing
Activities, TEP Credit Agreement, below.  As of September 30, 2000, TEP was
in compliance with the terms of the Credit Agreement.

     The ACC Holding Company Order states that TEP may not pay dividends to
UniSource Energy in excess of 75% of its earnings until TEP's equity  ratio
equals 37.5% of total capital (excluding capital lease obligations).  As of
September 30, 2000, TEP's equity ratio on that basis was 21%.

     In  addition to these limitations,  the Federal Power Act states  that
dividends  shall not be paid out of funds properly included in the  capital
account.   Although  the terms of the Federal Power  Act  are  unclear,  we
believe that there is a reasonable basis to pay dividends from current year
earnings.   Therefore, TEP declared its December 1999  dividend  from  1999
earnings  since  TEP  had  an  accumulated deficit,  rather  than  positive
retained earnings.

     MILLENNIUM

     In  the  third  quarter of 1999,  Millennium paid a $10  million  cash
dividend  to  UniSource Energy. We cannot predict the amount or  timing  of
future dividends from Millennium.


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

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

     UNISOURCE ENERGY

     Consolidated  cash and cash equivalents  decreased from the  September
30,  1999  ending balance of $131.7 million to $103.3 million at  September
30,   2000.   For  the  twelve-month  period  ended  September  30,   2000,
consolidated  net  cash  outflows for investing  and  financing  activities
exceeded the cash generated from operating activities.

     Net cash flows from operating activities increased by $61.8 million in
the  first nine months of 2000 compared with the same period in 1999.   The
net increase primarily resulted from the following factors:

     * $113.6 million  increase  in  cash receipts  from sales to wholesale
       and retail customers;
     * $83.6 million increase  in  Fuel  and  Purchased Power Costs paid to
       support the higher sales;
     * no  cash outflows for tax settlements,  compared  with $22.4 million
       paid in 1999; and
     * $9.3 million increase in capital lease interest paid.

     Net  cash used for investing activities  totaled $81.7 million  during
the  first nine months of 2000 compared with $66.1 million during the  same
period  in 1999.  Capital expenditures were $12.9 million higher  in  2000.
Other  significant  investing activities in 2000 included:  (i)  the  $27.6
million  purchase  of Springerville Unit 1 Lease debt by  Millennium,  (ii)
Nations Energy's $19.9 million in proceeds from the sale of its interest in
the  Czech Republic power project, and (iii) $11.4 million in proceeds from
the  payment  of  the  promissory note from NewEnergy  to  MEH.   In  1999,
investing  activities  included  :   (i)  the  $26.8  million  purchase  of
Springerville Unit 1 Lease debt by TEP and (ii) Millennium's  sale  of  the
AES  Corporation stock received as consideration from the sale of NewEnergy
for $27.5 million.

     Net  cash used  for financing activities totaled $94.5 million in  the
first  nine  months  of 2000 compared with $19.8 million  during  the  same
period  in  1999.  In 2000, the major use of cash for financing  activities
was  $46.9  million to retire TEP's maturing 12.22% Series  First  Mortgage
Bonds  on June 1, 2000 and $38.9 million of scheduled payments that retired
capital  lease  obligations.   In  1999, $22.3  million  of  capital  lease
obligations  were  retired.  In the first nine months  of  2000,  UniSource
Energy paid $7.8 million in dividends on Common Stock.

     UniSource  Energy's   consolidated   cash   balance,    including cash
equivalents, at November 6, 2000 was approximately $132 million.  We invest
cash  balances  in high-grade money market securities with an  emphasis  on
preserving the principal amounts invested.

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

     TEP

     Cash and cash equivalents decreased from the September 30, 1999 ending
balance  of $96.2 million to $63.8 million at September 30, 2000.  For  the
twelve-month  period  ended  September 30, 2000,  net  cash  outflows  from
investing  and financing activities exceeded net cash inflows for operating
activities.

     Net cash flows from operating activities increased by $51.3 million in
the  first  nine  months of 2000 compared with the  same  period  in  1999,
principally  due to cash receipts from wholesale sales and  from  sales  to
retail  customers,  net  of  related  fuel  purchases.    See  Cash  Flows,
UniSource  Energy,  above for a discussion of other factors  affecting  net
cash flows from operating activities.

     Net  cash used for investing activities  totaled $76.1 million  during
the  first nine months of 2000 compared with $89.6 million during the  same
period of 1999.  Capital expenditures were $9.4 million higher in 2000.  In
1999,  $26.8  million of Springerville Unit 1 Lease debt was  purchased  by
TEP.

     Net  cash  used for financing activities totaled $87.2 million  during
the  first nine months of 2000 compared with $19.9 million during the  same
period  in  1999.   The  retirement of maturing First  Mortgage  Bonds  and
scheduled  Payments to Retire Capital Lease Obligations were the  principal
reasons  for the increase in financing activities.  On June 1,  2000  TEP's
maturing $46.9 million 12.22% Series First Mortgage Bonds were retired.

     TEP's  consolidated  cash  balance,  including  cash  equivalents,  at
November 6, 2000 was approximately $92 million.

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


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

     TEP
     ---

     CAPITAL EXPENDITURES

     TEP's  capital expenditures for the three months and nine months ended
September  30,  2000  were $23.6 million and $73.7  million,  respectively.
TEP's capital budget for the year ending December 31, 2000 is approximately
$95 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 differ from budgeted amounts due  to  changes
in  business conditions, construction schedules, environmental requirements
and changes to our business arising from retail competition.  TEP plans  to
fund these expenditures through internally generated cash flow.

     TEP CREDIT AGREEMENT

     As  of  September  30, 2000 and as of November 6, 2000,  TEP  had  no
borrowings 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  2000  and  gradually  increasing to 1.55 in 2002,  and  (c)  a  maximum
Leverage Ratio ranging from 6.60 in 2000 and gradually decreasing  to  6.20
in 2002.  TEP is in compliance with each of these covenants.

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

     SALE OF NEWENERGY, INC.

     On  July 23, 1999, MEH sold its 50% ownership in NewEnergy to The  AES
Corporation (AES) for approximately $50 million in consideration.  As  part
of  the transaction, two promissory notes were issued by NewEnergy totaling
$22.8  million.   One  of the promissory notes in the principal  amount  of
$11.4  million was paid on July 24, 2000 and the remaining promissory  note
for  an  additional $11.4 million is due on July 23, 2001.   This  note  is
secured by AES stock and bears interest at 9.5%.

     ADDITIONAL INVESTMENTS IN ENERGY TECHNOLOGIES

     Effective  June 1, 2000, Millennium increased its ownership percentage
in  GES  from 50% to 67%.  The remaining 33% of GES is owned by ITN  Energy
Systems,  Inc.  (ITN), a privately-held company.  Under the agreement,  ITN
transferred  its rights to certain assets and proprietary and  intellectual
property,  including  thin-film  battery technology,  to  GES.   Millennium
agreed to contribute to GES up to $14 million in additional equity.  As  of
September  30, 2000, Millennium funded $11.4 million under this  agreement,
including $3.5 million in the third quarter of 2000. As of October 31, 2000,
Millennium had funded the full $14 million under this agreement.

     In  September 2000,  Millennium and ITN agreed to form a jointly-owned
space  systems  company for the purpose of developing  and  commercializing
small-scale satellites.  Millennium agreed to provide $10 million in equity
and  $10 million in credit to the venture.  ITN will contribute development
contracts and proprietary technologies.

     Separately,  ITN and Millennium agreed to form a jointly-owned product
development  company, which will provide research and development  services
to  AET  affiliates and third parties.  Millennium committed to provide  $4
million  in  credit  to  the  company,  and  ITN  will  provide  additional
technologies,  including direct energy conversion, fuel cells  and  thermal
desalinization.

     Millennium also agreed  to provide an additional $20 million in credit
to  Global Solar over a 4-year period to fund production and expansion, and
$6  million  in  credit to TFB, Inc. to fund the start-up  of  a  thin-film
battery pilot line.

     OTHER CAPITAL REQUIREMENTS

     During 1999 and in 2000,  we have taken the opportunity to realize the
value  from certain of Millennium's capital-intensive investments and focus
on emerging energy production and storage technologies.

     In  January  2000,  Nations Energy sold its interest  in  the  project
located in the Czech Republic resulting in a $2.5 million pre-tax gain.

     In  July 2000,  Millennium made a $15 million capital commitment to  a
limited partnership which will fund energy related investments.  Initially,
$3  million is expected to be invested during the next six months.   As  of
November 6, 2000 Millennium has funded approximately $1 million under  this
commitment.   The  remaining $12 million is expected to be invested  within
three  to  five years.  A member of the UniSource Energy Board of Directors
will  also  have a minor investment in the project.  An affiliate  of  such
board member will serve as the general partner.

     Our  ability  to fund additional  future capital requirements  of  our
unregulated  business segment will depend to a great extent on  the  amount
and  availability of dividends UniSource Energy receives from  our  primary
operating subsidiary, TEP.


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

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

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

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

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

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

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

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

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

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

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

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


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

     The information contained in this Item updates, and should be read  in
conjunction  with, information included in Part II, Item  7A  in  UniSource
Energy's  and TEP's Annual Report on Form 10-K for the year ended  December
31,  1999,  in  addition  to the interim condensed  consolidated  financial
statements and accompanying notes presented in Items 1 and 2 of  this  Form
10-Q.

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


<PAGE>

                            PART II - OTHER INFORMATION

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

TAX ASSESSMENTS

     See  Note  6 of Notes to Condensed Consolidated Financial Statements,
Contingencies.

ACC ORDER on the SIERRITA CONTRACT

     See  Note  6 of Notes to Condensed Consolidated Financial Statements,
Contingencies.


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

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

The following changes were effective October 1, 2000:

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

     Ira R. Adler was named President and Chief Executive Officer of Global
Energy Solutions, the parent company of Global Solar Energy.  Mr. Adler was
also elected to serve on the Millennium Board of Directors and continues to
serve  on the UniSource Energy Board of Directors, to which he was  elected
in  1998.  He had been Executive Vice President and Chief Financial Officer
at  UniSource Energy and TEP, and had served on the TEP Board of  Directors
since 1998.  He had been an officer of TEP since 1988.

     Kevin  P. Larson was named  Vice President and Chief Financial Officer
of both UniSource Energy and  TEP.  Mr. Larson had been Vice President  and
Treasurer at TEP.

     Vincent  Nitido, Jr. was named  Vice President and General Counsel  of
both  UniSource  Energy and TEP.  Mr. Nitido had been  Vice  President  and
Assistant General Counsel of TEP.

     Michael  J.  DeConcini was named  Senior Vice President for  Strategic
Planning  and  Investments.   Mr. DeConcini  had  been  Vice  President  of
UniSource Energy.

   Tucson Electric Power Company
   -----------------------------

     Dennis  R. Nelson was named  Senior Vice President and Chief Operating
Officer of the Energy Resources Business Unit.  Mr. Nelson had been  Senior
Vice President and General Counsel.

     Steven  J. Glaser was named  Senior Vice President and Chief Operating
Officer  of  the Utility Distribution Business Unit.  Mr. Glaser  had  been
Vice President of the Utility Distribution Business Unit.


REGULATION

   Franchise
   ---------

     In the general election of  November 2000, the voters of  the City  of
Tucson approved a new 25-year franchise for TEP to provide electric service
to customers in the City of Tucson.  The previous franchise  was to  expire
in  2001.  Under the new franchise, TEP will pay to the city a fee based on
the amount of  energy  delivered  (on a kWh basis)  within the city limits.
This payment will be assessed to TEP's customers.

   Arizona Corporation Commission
   ------------------------------

     In the  2000  general  election,  the voters  of  Arizona  approved an
amendment to the Arizona Constitution, expanding the membership of the  ACC
from  three to five members.  The amendment also changed the term of office
from a single six-year term to  up to two  terms of four years.   The first
election  for the  two new  seats will take place  in 2002 and  their first
term  will  be  a  two-year term  beginning in  January 2003.   Thereafter,
members will serve four-year terms.

     The 2000 general election filled two open seats on the ACC.  Incumbent
Commissioner  William  Mundell (Republican) was  elected  to  complete  the
remaining  four  years of the six-year term to which he  was  appointed  in
1999.  Mr. Mundell's term will end in 2004.

     Marc Spitzer (Republican), was elected to a  six-year  term  replacing
Carl Kunasek  (Republican), who was  ineligible to run due to  term limits.
Mr. Spitzer's term will  end in  2006.

     The third member of the ACC, Jim Irvin, (Republican) will complete his
six-year term in 2002.


ADDITIONAL FINANCIAL DATA

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

                              9 Months Ended        12 Months Ended
                               September 30,          September 30,
                                   2000                  2000
                              --------------        ---------------
    Ratio of Earnings to           1.32                  1.32
    Fixed Charges


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

(a)  Exhibits.

     -- See Exhibit Index.

(b)  Reports on Form 8-K.

     UniSource Energy and TEP filed the following current reports on Form
8-K during the quarter ended September 30, 2000:

     * None.


<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:  November 14, 2000                /s/  Kevin Larson
                                       ----------------------------
                                             Kevin Larson
                                        Vice President and Principal
                                             Financial Officer



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


Date:  November 14, 2000                /s/  Kevin Larson
                                      -----------------------------
                                             Kevin Larson
                                        Vice President and Principal
                                             Financial Officer





                                 EXHIBIT INDEX

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