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 June 30, 1999

                                    OR

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

         For the transition period from __________ to __________.



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

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

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


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

       At   August  10,  1999,  32,315,790 shares  of  UniSource  Energy
Corporation's  Common Stock, no par value (the only class of Common  Stock)
were outstanding.

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


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

Item   2.   --  Management's  Discussion  and  Analysis   of
Financial Condition and Results of Operations
 Overview........................................................16
 Factors Affecting Results Of Operations
   Competition
     Retail......................................................17
     Wholesale...................................................20
   Accounting For The Effects Of Regulation......................20
   Market Risks..................................................22
   Future Generating Resources...................................22
   Impact  Of  The  Year  2000  On  Computer
    Systems  and Applications....................................23
 Results Of Operations...........................................25
   Contribution By Business Segment..............................25
   Utility Sales and Revenues....................................26
   Operating Expenses............................................27
   Other Income (Deductions).....................................27
   Interest Expense..............................................27
 Results Of Unregulated Energy Businesses........................28
   AET and Global Solar..........................................28
   MEH and NewEnergy.............................................28
   Nations Energy................................................28

<PAGE>

 Dividends On Common Stock
   UniSource Energy..............................................28
   TEP...........................................................29
 Liquidity And Capital Resources
   Cash Flows
     UniSource Energy............................................29
     TEP.........................................................30
   Investing And Financing Activities
     UniSource Energy
      Loans and Guarantees.......................................30
      TEP
      Capital Expenditures.......................................30
      TEP Credit Agreement.......................................31
      Springerville Common Facilities Leases.....................31
     Millennium -- Unregulated Energy Businesses
      Sale of NewEnergy, Inc.....................................31
      Capital Requirements.......................................31
 Safe Harbor For Forward-Looking Statements......................32

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


                 PART II - OTHER INFORMATION

Item 1. -- Legal Proceedings
 Tax Assessments.................................................34
Item  4.   --  Submission Of Matters To A Vote
  Of  Security Holders...........................................34
Item 5.  -- Other Information
 Additional Financial Data.......................................34
Item 6.  -- Exhibits and Reports on Form 8-K.....................34
Signature Page...................................................36
Exhibit Index....................................................37

<PAGE>


                               DEFINITIONS

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

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


<PAGE>



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 June
30,  1999,  and  the  related condensed consolidated statements  of  income
(loss)  and of cash flows for each of the three-month and six-month periods
ended  June  30,  1999  and  1998.   These  financial  statements  are  the
responsibility of the Company's and TEP's management.

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

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

     We  previously audited in accordance with generally accepted  auditing
standards, the consolidated balance sheets and statements of capitalization
as of December 31, 1998, and the related consolidated statements of income,
of  changes  in stockholders' equity, and of cash flows for the  year  then
ended  (not presented herein); and in our report dated February 4, 1999  we
expressed   an   unqualified  opinion  on  those   consolidated   financial
statements.   In our opinion, the information set forth in the accompanying
consolidated balance sheet information as of December 31, 1998,  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
August 12, 1999


<PAGE>

                        PART I - FINANCIAL INFORMATION

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

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



UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

                                                       Three Months Ended
                                                             June 30,
                                                         1999        1998
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $159,098    $150,652
 Sales for Resale                                       30,872      28,951
                                                      ---------   ---------
    Total Operating Revenues                           189,970     179,603
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                               60,868      56,693
 Capital Lease Expense                                  25,918      26,558
 Amortization of Springerville Unit 1 Allowance         (8,730)     (7,630)
 Other Operations                                       26,772      27,130
 Maintenance and Repairs                                14,667       8,431
 Depreciation and Amortization                          20,962      22,883
 Taxes Other Than Income Taxes                          12,192      12,634
 Income Taxes                                            3,958       3,038
                                                      ---------   ---------
    Total Operating Expenses                           156,607     149,737
                                                      ---------   ---------
      Operating Income                                  33,363      29,866
                                                      ---------   ---------
Other Income (Deductions)
 Income Taxes                                             (193)      3,016
 Interest Income                                         1,666       3,524
 Unregulated Energy Businesses - Net                    (3,180)     (5,649)
 Other                                                     278       1,134
                                                      ---------   ---------
    Total Other Income (Deductions)                     (1,429)      2,025
                                                      ---------   ---------
Interest Expense
 Long-Term Debt                                         16,797      19,792
 Interest Imputed on Losses Recorded at Present Value    8,748       8,545
 Other                                                   2,681       2,496
                                                      ---------   ---------
    Total Interest Expense                              28,226      30,833
                                                      ---------   ---------
Net Income (Loss)                                     $  3,708    $  1,058
                                                      =========   =========
Average Shares of Common Stock Outstanding (000)        32,316      32,138
                                                      =========   =========
Basic and Diluted Earnings (Loss) per Share           $   0.11    $   0.03
                                                      =========   =========






See Notes to Condensed Consolidated Financial Statements.
UNISOURCE ENERGY CORPORATION
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

                                                         Six Months Ended
                                                             June 30,
                                                         1999       1998
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $287,749    $288,739
 Sales for Resale                                       62,731      51,805
                                                      ---------   ---------
    Total Operating Revenues                           350,480     340,544
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                              115,787     105,093
 Capital Lease Expense                                  51,379      52,336
 Amortization of Springerville Unit 1 Allowance        (17,459)    (15,261)
 Other Operations                                       50,395      53,428
 Maintenance and Repairs                                24,304      19,155
 Depreciation and Amortization                          44,043      45,446
 Taxes Other Than Income Taxes                          24,346      25,560
 Income Taxes                                            1,399       1,101
                                                      ---------   ---------
    Total Operating Expenses                           294,194     286,858
                                                      ---------   ---------
      Operating Income                                  56,286      53,686
                                                      ---------   ---------
Other Income (Deductions)
 Income Taxes                                             (425)      2,385
 Interest Income                                         3,304       5,240
 Unregulated Energy Businesses - Net                    (5,973)     (9,685)
 Other                                                     936       1,944
                                                      ---------   ---------
    Total Other Income (Deductions)                     (2,158)       (116)
                                                      ---------   ---------
Interest Expense
 Long-Term Debt                                         33,122      36,903
 Interest Imputed on Losses Recorded at Present Value   17,496      17,090
 Other                                                   5,330       5,554
                                                      ---------   ---------
    Total Interest Expense                              55,948      59,547
                                                      ---------   ---------
Net Income (Loss)                                     $ (1,820)   $ (5,977)
                                                      =========   =========
Average Shares of Common Stock Outstanding (000)        32,301      32,138
                                                      =========   =========
Basic and Diluted Earnings (Loss) per Share              (0.06)   $  (0.19)
                                                      =========   =========




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

                                                         Six Months Ended
                                                             June 30,
                                                         1999       1998
                                                            (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Cash Flows from Operating Activities
  Cash Receipts from Retail Customers                 $296,616    $293,242
  Cash Receipts from Sales for Resale                   61,526      53,386
  Fuel and Purchased Power Costs Paid                 (112,826)    (94,642)
  Wages Paid, Net of Amounts Capitalized               (36,969)    (34,932)
  Payment of Other Operations and Maintenance Costs    (50,055)    (45,811)
  Capital Lease Interest Paid                          (46,693)    (44,789)
  Taxes Paid, Net of Amounts Capitalized               (48,410)    (48,752)
  Interest Paid, Net of Amounts Capitalized            (36,221)    (35,357)
  Contract Termination Fee Paid                              -     (10,000)
  Income Taxes Paid                                     (5,920)         (3)
  Emission Allowance Inventory Sales                        39      11,368
  Interest Received                                      3,253       3,966
  Other                                                  2,991        (786)
                                                      ---------   ---------
    Net Cash Flows - Operating Activities               27,331      46,890
                                                      ---------   ---------
Cash Flows from Investing Activities
  Capital Expenditures                                 (42,633)    (39,787)
  Investments in and Loans to Unregulated
    Energy Businesses                                   (5,050)    (11,066)
  Sale of Interest in Unregulated Energy  Businesses     4,050           -
  Purchase of Debt Securities                          (15,728)          -
  Other Investments - Net                                 (232)      2,130
                                                      ---------   ---------
    Net Cash Flows - Investing Activities              (59,593)    (48,723)
                                                      ---------   ---------
Cash Flows from Financing Activities
  Proceeds from Issuance of Long-Term Debt               1,977       2,321
  Payments to Retire Long-Term Debt                     (1,225)     (2,600)
  Payments to Retire Capital Lease Obligations         (16,611)     (9,481)
  Other                                                  1,629      (2,565)
                                                      ---------   ---------
    Net Cash Flows - Financing Activities              (14,230)    (12,325)
                                                      ---------   ---------
Net Decrease in Cash and Cash Equivalents              (46,492)    (14,158)
Cash and Cash Equivalents, Beginning of Year           145,167     146,256
                                                      ---------   ---------
Cash and Cash Equivalents, End of Period              $ 98,675    $132,098
                                                      =========   =========





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

                                                         Six Months Ended
                                                             June 30,
                                                         1999       1998
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Net Loss                                              $ (1,820)   $ (5,977)
Adjustments to Reconcile Net Loss
 to Net Operating Cash Flows
  Depreciation and Amortization Expense                 44,043      45,446
  Deferred Income Taxes and Investment Tax Credit         (842)     (7,816)
  Lease Payments Deferred                                9,670      12,350
  Amortization of Regulatory Assets & Liabilities,
   Net of Interest Imputed on Losses Recorded at
   Present Value                                            36       1,828
  Deferred Contract Termination Fee                      1,923      (8,077)
  Unremitted (Earnings) Losses of Unconsolidated
   Subsidiaries                                          3,816      15,689
  Emission Allowances                                       39      11,368
  Other                                                  2,595      (2,673)
  Changes in Assets and Liabilities which Provided(Used)
    Cash Exclusive of Changes Shown Separately
    Accounts Receivable                                (11,101)    (16,850)
    Materials and Fuel                                  (7,640)       (577)
    Accounts Payable                                    (1,967)      1,189
    Taxes Accrued                                       (2,706)       (236)
    Other Current Assets and Liabilities                (7,516)       (936)
    Other Deferred Assets and Liabilities               (1,199)      2,162
                                                      ---------   ---------
Net Cash Flows - Operating Activities                 $ 27,331    $ 46,890
                                                      =========   =========

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




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

                                                     June 30,   December 31,
                                                       1999        1998
                                                   (Unaudited)
---------------------------------------------------------------------------
ASSETS                                            - Thousands of Dollars -
Utility Plant
  Plant in Service                                  $2,285,966  $2,263,871
  Utility Plant Under Capital Leases                   886,901     886,902
  Construction Work in Progress                         68,952      74,050
                                                    ----------- -----------
    Total Utility Plant                              3,241,819   3,224,823
  Less Accumulated Depreciation and Amortization    (1,069,348) (1,051,994)
  Less Accumulated Amortization of Capital Leases      (95,450)    (85,826)
  Less Springerville Unit 1 Allowance                 (171,449)   (171,413)
                                                    ----------- -----------
    Total Utility Plant - Net                        1,905,572   1,915,590
                                                    ----------- -----------
Investments and Other Property                         128,268     110,318
                                                    ----------- -----------
Current Assets
  Cash and Cash Equivalents                             98,675     145,167
  Accounts Receivable                                   81,951      70,850
  Materials and Fuel                                    44,077      37,040
  Deferred Income Taxes - Current                       18,390      14,820
  Other                                                 26,671      26,867
                                                    ----------- -----------
    Total Current Assets                               269,764     294,744
                                                    ----------- -----------
Deferred Debits - Regulatory Assets
  Income Taxes Recoverable Through Future Revenues     146,848     152,111
  Deferred Springerville Generation Costs               96,719     102,211
  Deferred Lease Expense                                 9,197       9,877
  Other Regulatory Assets                               17,739      18,886
Deferred Debits - Other                                 30,214      30,443
                                                    ----------- -----------
    Total Deferred Debits                              300,717     313,528
                                                    ----------- -----------
Total Assets                                        $2,604,321  $2,634,180
                                                    =========== ===========



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


                                                     June 30,   December 31,
                                                       1999       1998
                                                    (Unaudited)
---------------------------------------------------------------------------
CAPITALIZATION AND OTHER LIABILITIES              - Thousands of Dollars -
Capitalization
  Common Stock                                      $  641,225  $  640,640
  Accumulated Deficit                                 (395,814)   (393,994)
                                                    ----------- -----------
  Common Stock Equity                                  245,411     246,646
  Capital Lease Obligations                            867,302     889,543
  Long-Term Debt                                     1,136,320   1,184,423
                                                    ----------- -----------
    Total Capitalization                             2,249,033   2,320,612
                                                    ----------- -----------
Current Liabilities
  Current Obligations Under Capital Leases              18,444      11,647
  Current Maturities of Long-Term Debt                  48,603       1,725
  Accounts Payable                                      30,628      32,595
  Interest Accrued                                      69,567      70,771
  Taxes Accrued                                         24,461      27,167
  Accrued Employee Expenses                             12,160      16,730
  Other                                                  6,162       6,705
                                                    ----------- -----------
    Total Current Liabilities                          210,025     167,340
                                                    ----------- -----------
Deferred Credits and Other Liabilities
  Deferred Income Taxes - Noncurrent                    60,893      62,028
  Deferred Investment Tax Credits Regulatory Liability   9,036      10,436
  Emission Allowance Gain Regulatory Liability          31,352      31,335
  Other                                                 43,982      42,429
                                                    ----------- -----------
    Total Deferred Credits and Other Liabilities       145,263     146,228
                                                    ----------- -----------
Total Capitalization and Other Liabilities          $2,604,321  $2,634,180
                                                    =========== ===========



See Notes to Condensed Consolidated Financial Statements.
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 the TEP's 1998 Form 10-K.



TUCSON ELECTRIC POWER COMPANY
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                       Three Months Ended
                                                             June 30,
                                                         1999        1998
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $159,111    $150,735
 Sales for Resale                                       30,872      28,951
                                                      ---------   ---------
    Total Operating Revenues                           189,983     179,686
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                               60,868      56,693
 Capital Lease Expense                                  25,918      26,558
 Amortization of Springerville Unit 1 Allowance         (8,730)     (7,630)
 Other Operations                                       26,772      27,130
 Maintenance and Repairs                                14,667       8,431
 Depreciation and Amortization                          20,962      22,883
 Taxes Other Than Income Taxes                          12,192      12,634
 Income Taxes                                            3,958       3,038
                                                      ---------   ---------
    Total Operating Expenses                           156,607     149,737
                                                      ---------   ---------
      Operating Income                                  33,376      29,949
                                                      ---------   ---------
Other Income (Deductions)
 Income Taxes                                           (1,166)      2,076
 Interest Income                                         1,552       3,524
 Interest Income-Note Receivable from UniSource Energy   2,554       2,326
 Other                                                     265       1,031
                                                      ---------   ---------
    Total Other Income (Deductions)                      3,205       8,957
                                                      ---------   ---------
Interest Expense
 Long-Term Debt                                         16,797      19,792
 Interest Imputed on Losses Recorded at Present Value    8,748       8,545
 Other                                                   2,681       2,496
                                                      ---------   ---------
    Total Interest Expense                              28,226      30,833
                                                      ---------   ---------

Net Income                                            $  8,355    $  8,073
                                                      =========   =========



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

                                                         Six Months Ended
                                                             June 30,
                                                         1999        1998
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $287,888    $288,884
 Sales for Resale                                       62,731      51,805
                                                      ---------   ---------
    Total Operating Revenues                           350,619     340,689
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                              115,787     105,093
 Capital Lease Expense                                  51,379      52,336
 Amortization of Springerville Unit 1 Allowance        (17,459)    (15,261)
 Other Operations                                       50,395      53,428
 Maintenance and Repairs                                24,304      19,155
 Depreciation and Amortization                          44,043      45,446
 Taxes Other Than Income Taxes                          24,346      25,560
 Income Taxes                                            1,399       1,101
                                                      ---------   ---------
    Total Operating Expenses                           294,194     286,858
                                                      ---------   ---------
      Operating Income                                  56,425      53,831
                                                      ---------   ---------
Other Income (Deductions)
 Income Taxes                                           (2,335)        516
 Interest Income                                         3,017       5,240
 Interest Income-Note Receivable from UniSource Energy   5,079       4,626
 Other                                                     797       1,800
                                                      ---------   ---------
    Total Other Income (Deductions)                      6,558      12,182
                                                      ---------   ---------
Interest Expense
 Long-Term Debt                                         33,122      36,903
 Interest Imputed on Losses Recorded at Present Value   17,496      17,090
 Other                                                   5,330       5,554
                                                      ---------   ---------
    Total Interest Expense                              55,948      59,547
                                                      ---------   ---------
Net Income                                            $  7,035    $  6,466
                                                      =========   =========



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

                                                         Six Months Ended
                                                             June 30,
                                                         1999       1998
                                                           (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Cash Flows from Operating Activities
  Cash Receipts from Retail Customers                 $296,616    $293,242
  Cash Receipts from Sales for Resale                   61,526      53,386
  Fuel and Purchased Power Costs Paid                 (112,826)    (94,642)
  Wages Paid, Net of Amounts Capitalized               (33,499)    (33,308)
  Payment of Other Operations and Maintenance Costs    (46,557)    (42,655)
  Capital Lease Interest Paid                          (46,693)    (44,789)
  Taxes Paid, Net of Amounts Capitalized               (48,143)    (48,690)
  Interest Paid, Net of Amounts Capitalized            (36,221)    (35,357)
  Contract Termination Fee Paid                              -     (10,000)
  Income Taxes Paid                                     (5,918)         (3)
  Emission Allowance Inventory Sales                        39      11,368
  Interest Received                                      2,787       2,970
  Other                                                    185         872
                                                      ---------   ---------
    Net Cash Flows - Operating Activities               31,296      52,394
                                                      ---------   ---------
Cash Flows from Investing Activities
  Capital Expenditures                                 (41,295)    (39,677)
  Transfer of Millennium Cash to UniSource Energy            -     (45,412)
  Purchase of Debit Securities                         (15,728)          -
  Other Investments - Net                                 (833)      1,792
                                                      ---------   ---------
    Net Cash Flows - Investing Activities              (57,856)    (83,297)
                                                      ---------   ---------
Cash Flows from Financing Activities
  Proceeds from Issuance of Long-Term Debt               1,977       2,321
  Payments to Retire Long-Term Debt                     (1,225)     (2,600)
  Payments to Retire Capital Lease Obligations         (16,611)     (9,481)
  Other                                                  1,450      (2,391)
                                                      ---------   ---------
    Net Cash Flows - Financing Activities              (14,409)    (12,151)
                                                      ---------   ---------
Net Decrease in Cash and Cash Equivalents              (40,969)    (43,054)
Cash and Cash Equivalents, Beginning of Year           118,236     146,256
                                                      ---------   ---------
Cash and Cash Equivalents, End of Period              $ 77,267    $103,202
                                                      =========   =========



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

                                                         Six Months Ended
                                                             June 30,
                                                         1999        1998
                                                            (Unaudited)
---------------------------------------------------------------------------
                                                     -Thousands of Dollars-
Net Income                                            $  7,035    $  6,466
Adjustments to Reconcile Net Income to Net
 Operating Cash Flows
  Depreciation and Amortization Expense                 44,043      45,446
  Deferred Income Taxes and
   Investment Tax Credit                                   293         745
  Lease Payments Deferred                                9,670      12,350
  Amortization of Regulatory Assets & Liabilities, Net
   of Interest Imputed on Losses Recorded at
   Present Value                                            36       1,828
  Deferred Contract Termination Fee                      1,923      (8,077)
  Unremitted Earnings of Unconsolidated Subsidiaries      (460)       (528)
  Interest Accrued on Note Receivable from UniSource
   Energy                                               (5,079)     (4,626)
  Emission Allowances                                       39      11,368
  Other                                                  2,800        (838)
  Changes in Assets and Liabilities which Provided(Used)
    Cash Exclusive of Changes Shown Separately
    Accounts Receivable                                (10,811)    (18,327)
    Materials and Fuel                                  (6,383)       (577)
    Accounts Payable                                    (1,243)      3,680
    Tax Accrued                                         (2,758)       (224)
    Other Current Assets and Liabilities                (6,633)      1,601
    Other Deferred Assets and Liabilities               (1,176)      2,107
                                                      ---------   ---------
Net Cash Flows - Operating Activities                 $ 31,296    $ 52,394
                                                      =========   =========

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



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

                                                     June 30,  December 31,
                                                       1999       1998
                                                   (Unaudited)
---------------------------------------------------------------------------
ASSETS                                            - Thousands of Dollars -
Utility Plant
  Plant in Service                                  $2,285,966  $2,263,871
  Utility Plant Under Capital Leases                   886,901     886,902
  Construction Work in Progress                         68,952      74,050
                                                    ----------- -----------
    Total Utility Plant                              3,241,819   3,224,823
  Less Accumulated Depreciation and Amortization    (1,069,348) (1,051,994)
  Less Accumulated Amortization of Capital Leases      (95,450)    (85,826)
  Less Springerville Unit 1 Allowance                 (171,449)   (171,413)
                                                    ----------- -----------
    Total Utility Plant - Net                        1,905,572   1,915,590
                                                    ----------- -----------
Investments and Other Property                          80,272      62,978
                                                   ----------- -----------
Note Receivable from UniSource Energy                   70,132      79,462
                                                    ---------- -----------
Current Assets
  Cash and Cash Equivalents                             77,267     118,236
  Interest on Note Receivable from UniSource Energy     14,408           -
  Accounts Receivable                                   87,015      72,239
  Materials and Fuel                                    43,981      36,995
  Deferred Income Taxes - Current                       18,537      14,820
  Other                                                 13,506      14,735
                                                    ----------- -----------
    Total Current Assets                               254,714     257,025
                                                    ----------- -----------
Deferred Debits - Regulatory Assets
  Income Taxes Recoverable Through Future Revenues     146,848     152,111
  Deferred Springerville Generation Costs               96,719     102,211
  Deferred Lease Expense                                 9,197       9,877
  Other Regulatory Assets                               17,739      18,886
Deferred Debits - Other                                 30,214      30,443
                                                    ----------- -----------
    Total Deferred Debits                              300,717     313,528
                                                    ----------- -----------
Total Assets                                        $2,611,407  $2,628,583
                                                    =========== ===========





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

                                                     June 30,  December 31,
                                                       1999       1998
                                                    (Unaudited)
---------------------------------------------------------------------------
                                                  - Thousands of Dollars -
CAPITALIZATION AND OTHER LIABILITIES
Capitalization
  Common Stock                                      $  647,001  $  646,568
  Capital Stock Expense                                 (6,357)     (6,357)
  Accumulated Deficit                                 (403,315)   (410,350)
                                                    ----------- -----------
  Common Stock Equity                                  237,329     229,861
  Capital Lease Obligations                            867,302     889,543
  Long-Term Debt                                     1,136,320   1,184,423
                                                    ----------- -----------
    Total Capitalization                             2,240,951   2,303,827
                                                    ----------- -----------
Current Liabilities
  Current Obligations Under Capital Leases              18,444      11,647
  Current Maturities of Long-Term Debt                  48,603       1,725
  Accounts Payable                                      36,645      35,735
  Interest Accrued                                      69,567      70,771
  Taxes Accrued                                         24,324      27,082
  Accrued Employee Expenses                             11,760      16,418
  Other                                                  6,100       6,705
                                                    ----------- -----------
    Total Current Liabilities                          215,443     170,083
                                                    ----------- -----------
Deferred Credits and Other Liabilities
  Deferred Income Taxes - Noncurrent                    70,651      70,504
  Deferred Investment Tax Credits Regulatory Liability   9,036      10,436
  Emission Allowance Gain Regulatory Liability          31,352      31,335
  Other                                                 43,974      42,398
                                                    ----------- -----------
    Total Deferred Credits and Other Liabilities       155,013     154,673
                                                    ----------- -----------
Total Capitalization and Other Liabilities          $2,611,407  $2,628,583
                                                    =========== ===========


See Notes to Condensed Consolidated Financial Statements.

<PAGE>

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

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

  Accounting Implications

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

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

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

     We periodically assess whether we continue to meet these
conditions.  If we were required to stop applying FAS 71 to all or a
portion of TEP's regulated utility operations, we would write off the
related balances of TEP's regulatory assets and liabilities as a charge
in our income statement.  In that event, our earnings would be reduced
by the net amount of regulatory assets and liabilities, after
applicable deferred income taxes.  Based on the balances of TEP's
regulatory assets and liabilities at June 30, 1999, if we ceased
applying FAS 71 to all of TEP's regulated operations, we would record
an extraordinary loss of approximately $138 million, net of the related
deferred income tax benefit of $92 million.  In addition, TEP would
immediately recognize, as a reduction to the extraordinary loss, the
portion, or all of, the $23 million ITC carryforward balance that TEP
believes it would use on a future tax return.  Approximately 60% of
TEP's net regulatory assets on the balance sheet relate to electric
generation.  While our cash flows may be affected by regulatory orders
and market conditions, our cash flows would not be affected if we
ceased to apply FAS 71.

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

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

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

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

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

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

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

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

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

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

     It is expected that the Rules will be resubmitted to the ACC for
their final approval in the third quarter of 1999.




Settlement Agreement

     On June 9, 1999, TEP entered into a Settlement Agreement
(Settlement) with certain customer groups related to the implementation
of retail electric competition.  The Settlement will become effective
if and when the ACC approves the Settlement without modification.
Hearings to approve the Settlement commenced August 11.  If the
Settlement is approved in the third quarter, competition could begin
early in the fourth quarter of 1999.  Major provisions of the
Settlement include:

 - Consumer choice for energy supply would begin sixty (60) days after
the ACC approves the Settlement and will be phased in as required by
the ACC's retail competition rules.  By January 1, 2001, consumer
choice would be available to all customers.

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

 - TEP would recover its stranded costs, including regulatory assets,
through two Competition Transition Charges (CTC):
    - A Fixed CTC component which would terminate when $450 million has
been recovered, but no later than December 31, 2008.  When the Fixed
CTC terminates, TEP's retail rates would decrease by the amount of the
Fixed CTC.
    - A Floating CTC component would be equal to the amount of the
frozen rates less the sum of unbundled transmission and distribution
charges and amounts based on the Palo Verde Futures Index for electric
energy.  Because TEP's total retail rate would be frozen, the Floating
CTC would enable TEP to recoup the balance of stranded costs as
follows:
       - when wholesale market prices for electric energy are strong,
stranded costs would be lower and the Floating CTC would be lower; and
       - when wholesale market prices for electric energy are weak,
stranded costs would be greater and the Floating CTC would be higher.
    The Floating CTC would terminate no later than December 31, 2008.

 - By June 1, 2004, TEP would recommend to the ACC any required
modifications to the CTCs and other service charges.  A rate change, to
take effect no later than January 1, 2005, would only be made if it
results in a net rate reduction.

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

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

     There can be no assurance that the Settlement filed with the ACC
will be accepted as filed.

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

     In addition, if the Settlement is approved we will immediately
recognize as income the following Investment Tax Credit (ITC) amounts:

 - Deferred ITC:  On our financial statements we have deferred the
benefit relating to ITC claimed on tax returns.  This Deferred ITC was
then amortized to income over the tax lives of the related property.
The balance remaining when the Settlement is approved will be
recognized immediately.  At June 30, 1999, the Deferred ITC balance was
$9 million.

 - ITC Carryforward:  This ITC is generated but not yet claimed on a
tax return, and will be recognized immediately as income to the extent
that we expect to use the ITC on future tax returns.  At June 30, 1999,
the total ITC Carryforward was $23 million.  The amounts expected to be
used on future returns have not presently been determined.

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

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


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

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

 - Advanced Energy Technologies, Inc. (Advanced Energy) which owns 50
percent of Global Solar Energy, L.L.C., a developer and manufacturer of
photovoltaic materials;
 - Nations Energy Corporation (Nations) which is an independent power
developer; and
 - MEH Corporation (MEH) which held a 50 percent interest in NewEnergy,
Inc. (NewEnergy), an energy buyer representative.  See Note 3 regarding
the sale of our interest in NewEnergy.

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

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

                                 Segments
                            ----------------------
                          TEP:     Millennium:
                       Regulated  Unregulated              UniSource
                        Electric    Energy                 Energy
                        Utility   Businesses  Eliminations Consolidated
----------------------------------------------------------------------
                                     - Thousands of Dollars  -
Income Statement
----------------
Three months ended
 June 30, 1999:
  Operating Revenues   $189,983     $ 3,601     $(3,614)     $189,970
----------------------------------------------------------------------
  Net Income (Loss):
   Advanced Energy                  $  (237)
   MEH                                  (73)
   Nations                           (3,028)
   Other Entities                       158
                                     --------
    Total Net
      Income (Loss)    $  8,355     $(3,180)    $(1,467)     $  3,708
----------------------------------------------------------------------

Three months ended
 June 30, 1998:
  Operating Revenues   $179,686     $   319     $  (402)     $179,603
----------------------------------------------------------------------
  Net Income (Loss):
   Advanced Energy                  $  (187)
   MEH                               (5,248)
   Nations                             (200)
   Other Entities                       (14)
                                     --------
    Total Net
      Income (Loss)    $  8,073     $(5,649)    $(1,366)     $  1,058
----------------------------------------------------------------------










                                 Segments
                            ----------------------
                          TEP:     Millennium:
                       Regulated  Unregulated              UniSource
                        Electric    Energy                   Energy
                        Utility   Businesses  Eliminations Consolidated
----------------------------------------------------------------------
                                     - Thousands of Dollars  -
Income Statement
----------------
Six months ended
 June 30, 1999:
  Operating Revenues   $350,619     $ 5,228     $(5,367)     $350,480
----------------------------------------------------------------------
  Net Income (Loss):
   Advanced Energy                  $  (611)
   MEH                                 (650)
   Nations                           (4,970)
   Other Entities                       258
                                     --------
    Total Net
      Income (Loss)    $  7,035     $(5,973)    $(2,882)     $ (1,820)
----------------------------------------------------------------------
Six months ended
 June 30, 1998:
  Operating Revenues   $340,689     $   660     $  (805)     $340,544
----------------------------------------------------------------------
  Net Income (Loss):
   Advanced Energy                  $   (17)
   MEH                               (9,298)
   Nations                             (404)
   Other Entities                        34
                                     --------
    Total Net
      Income (Loss)    $  6,466     $(9,685)    $(2,758)     $ (5,977)
----------------------------------------------------------------------

The eliminations include the following:

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


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

  Sale of NewEnergy

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

 - Shares of AES common stock valued at $27 million as of July 23,
1999; and
 - Two promissory notes issued by NewEnergy totaling $22.8 million.
The notes are secured, bear interest at 9.5%, and $11.4 million of the
principal amount is due July 23, 2000 and the remaining $11.4 million
is due July 23, 2001.

     UniSource Energy expects to recognize a pre-tax gain of
approximately $34 million from the sale.  As part of the agreement, AES
repaid a $10 million loan NewEnergy obtained from an unrelated party
that was guaranteed by UniSource Energy.  UniSource Energy will
continue to guarantee up to $55.6 million of certain performance bonds
and contractual obligations relating to NewEnergy's purchases and sales
of electricity.  AES will replace UniSource Energy as guarantor no
later than October 15, 1999.  NewEnergy's repayment obligations to
UniSource Energy, including the guarantees and performance bonds
provided by UniSource Energy, are fully secured.

     MEH (formerly Millennium) originally acquired its 50% ownership in
NewEnergy in September 1997.  In the first quarter of 1999, MEH
transferred its ownership in New Energy Ventures Southwest (NEV SW) to
NewEnergy.  MEH recorded after-tax income (loss) related to NewEnergy
and NEV SW of $0.2 million and ($5.5) million for the quarters ended
June 30, 1999 and 1998, respectively, and after-tax losses of ($0.3)
million and ($9.6) million for the six months ended June 30, 1999 and
1998, respectively.  At June 30, 1999, the net investment in NewEnergy,
including NEV SW, included in Investments and Other Property on
UniSource Energy's balance sheet, was approximately $14 million.

  Purchase and Sale of Generating Assets by Nations Energy

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


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

  Ruling on Arizona Sales Tax Assessments - Coal Sales

     We received from the ADOR and are protesting, sales tax
assessments which allege that a former TEP subsidiary is liable for
sales tax on gross income from coal sales, transportation and coal-
handling services provided to TEP from November 1985 through May 1996.
Arizona law generally requires payment of an assessment prior to
pursuing the appellate process.  We have previously paid, under
protest, a total of $23 million of the disputed sales tax assessments.
In September 1996, the Arizona Court of Appeals upheld the validity of
the assessment issued for the period November 1985 through March 1990.
However, in May 1998, the Arizona Supreme Court remanded the case back
to the Arizona Tax Court.  The payments previously made will be
refunded if we are successful in the appeal.

     TEP has recorded an expense and a related liability for the sales
taxes and interest for the period November 1985 through May 1996 that
we believe are probable of incurrence.  On May 31, 1996, the former
subsidiary was merged into TEP.  Because TEP now acquires coal directly
from unaffiliated companies, we do not believe we are liable for sales
tax computed on a basis similar to the assessments described above
after May 31, 1996.  For periods prior to May 31, 1996, we continue to
record an estimated interest expense on the disputed assessments.

  Arizona Sales Tax Assessments - Leases

     The ADOR has issued sales tax assessments to some of the lessors
of TEP's generation-related facilities and equipment.  The assessments
allege sales tax liability on a component of rents we paid on the
Springerville Unit 1 Leases, the Springerville Common Facilities
Leases, the Irvington Lease and the Springerville Coal Handling
Facilities Lease from August 1, 1988 to June 30, 1997.  Under the
indemnification provisions in the lease agreements, if the ADOR
prevails, we would be required to reimburse the lessors for the sales
taxes that they pay.  We filed an appeal of the assessments in the
Arizona Tax Court in February 1998.  In July 1998, the Arizona Tax
Court upheld the assessment issued on the Irvington lease for the
period August 1988 through September 1990, and we have appealed the
decision.   Arizona law generally requires payment of an assessment
prior to pursuing the appellate process.  Under protest, we paid a
total of $2 million of the disputed assessments.  These payments will
be refunded if we are successful in the appeals process.

     We have recorded a liability for the probable amount of sales
taxes and interest due as of June 30, 1999.  If the ADOR prevails, we
would need to record an additional expense and related liability.  Even
though it is reasonably possible that the resolution of this issue
could result in approximately $24 million of additional sales tax
expense, we do not believe this outcome is likely.  We do not expect
that the resolution of this assessment will have a material negative
impact on the financial statements.  We believe that the ultimate
resolution of this issue could occur between two to four years from
now.

  Income Tax Assessments

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

     Due to a financial restructuring, a change in TEP's ownership
occurred for tax purposes in December 1991.  As a result, our use of
the NOL and ITC generated before 1992 may be limited under the tax
code.  The IRS is challenging our calculation of this limitation.  At
June 30, 1999, pre-1992 federal NOL and ITC carryforwards were
approximately $200 million and $23 million, respectively.  In addition
to the pre-1992 NOL and ITC which are subject to the limitation, $175
million of federal NOL at June 30, 1999, is not subject to the
limitation.

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


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

     Under the terms of the Springerville Common Facilities lease
agreement, we must ensure that $70 million of secured notes underlying
this lease are refinanced by December 31, 1999 in order to avoid a
special event of loss under the lease. This special event of loss would
require us to repurchase the Springerville Common Facilities at the
higher of a specified price or the fair market value of the facilities.
TEP intends, and believes it has the ability, to refinance the
underlying debt on these leases in 1999.


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

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

                                            UniSource Energy
                                ---------------------------------------
                                Three Months Ended    Six Months Ended
                                    June 30,              June 30,
                                 1999       1998        1999       1998
                                ---------------------------------------
                                       - Thousands of Dollars -
Federal Income Tax (Benefit)
 Expense at Statutory Rate     $ 2,601   $   (923)  $  (439)  $ (4,826)
  State Income Tax (Benefit)
   Expense, Net of Federal
   Deduction                       361       (144)      (61)      (745)
  Depreciation Differences
   (Flow Through Basis)            356      2,419       682      3,459
  Capital Loss Carryforwards         -     (4,463)        -     (4,463)
  Investment Tax Credit
   Amortization                   (700)      (572)   (1,400)    (1,145)
  Foreign Operations of
   Unregulated Energy Businesses 1,065         93     1,678        331
  Other                             41       (105)      106       (423)
                               --------  ---------  --------  ---------
Total (Benefit) Expense for
 Federal and State Income
 Taxes                         $ 3,724   $ (3,695)  $   566   $ (7,812)
                               ========  =========  ========  =========




















                                                  TEP
                                ---------------------------------------
                                Three Months Ended     Six Months Ended
                                    June 30,               June 30,
                                 1999       1998        1999       1998
                                ---------------------------------------
                                       - Thousands of Dollars -
Federal Income Tax Expense
 at Statutory Rate             $ 4,718   $  3,162   $ 3,769   $  2,468
 State Income Tax Expense,
  Net of Federal Deduction         654        488       523        381
 Depreciation Differences
  (Flow Through Basis)             356      2,419       682      3,459
 Capital Loss Carryforwards          -     (4,463)        -     (4,463)
 Investment Tax Credit
   Amortization                   (700)      (572)   (1,400)    (1,145)
 Other                              96        (72)      160       (115)
                               --------  ---------   -------  ---------
Total Expense for Federal
 and State Income Taxes        $ 5,124   $    962   $ 3,734   $    585
                               ========  =========  ========  =========


     Income taxes are included in the income statements as follows:

                                            UniSource Energy
                               ---------------------------------------
                               Three Months Ended     Six Months Ended
                                    June 30,               June 30,
                                1999       1998        1999       1998
                               ---------------------------------------
                                       - Thousands of Dollars -
Operating Expenses             $ 3,958   $  3,038   $ 1,399   $  1,101
Other Income (Deductions)          193     (3,016)      425     (2,385)
Unregulated Energy
  Businesses - Net                (427)    (3,717)   (1,258)    (6,528)
                               --------  ---------  --------  ---------
Total Income Tax (Benefit)
 Expense                       $ 3,724   $ (3,695)  $   566   $ (7,812)
                               ========  =========  ========  =========

                                                  TEP
                               ---------------------------------------
                               Three Months Ended     Six Months Ended
                                    June 30,               June 30,
                                1999       1998        1999       1998
                               ---------------------------------------
                                       - Thousands of Dollars -
Operating Expenses             $ 3,958   $  3,038   $ 1,399   $ 1,101
Other Income (Deductions)        1,166     (2,076)    2,335      (516)
                               --------  ---------  --------  ---------
Total Income Tax Expense       $ 5,124   $    962   $ 3,734   $   585
                               ========  =========  ========  =========


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


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

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

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


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

     With respect to the unaudited consolidated financial information
of UniSource Energy and Tucson Electric Power Company for the three-
month and six-month periods ended June 30, 1999 and 1998,
PricewaterhouseCoopers LLP reported that they have applied limited
procedures in accordance with professional standards for a review of
such information.  However, their separate report dated August 12,
1999, appearing herein, states that they did not audit and they do not
express an opinion on that unaudited consolidated financial
information. Accordingly, the degree of reliance on their report on
such information should be restricted in light of the limited nature of
the review procedures applied.  PricewaterhouseCoopers LLP is not
subject to the liability provisions of Section 11 of the Securities Act
of 1933 for their report on the unaudited consolidated financial
information because that report is not a "report" or a "part" of a
registration statement prepared or certified by PricewaterhouseCoopers
LLP within the meaning of Sections 7 and 11 of the Act.


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

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

<PAGE>

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

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

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

     - operating results during the second quarter and the first six months
       of 1999 compared with the same periods in the prior year,
     - the outlook for dividends on common stock,
     - changes in liquidity and capital resources during the second  quarter
       and first six months of  1999, and
     - expectations of identifiable material trends which may affect our
       business in the future.

      TEP  is  the principal operating subsidiary of UniSource  Energy  and
accounts for substantially all of its assets, revenues and net income.  The
financial  condition  and results of operations of TEP  are  currently  the
principal  factors  affecting  the  financial  condition  and  results   of
operations  of  UniSource Energy on an annual basis, although  losses  from
energy-related businesses of Millennium and certain of its subsidiaries and
interests  have reduced the earnings reported by UniSource Energy  for  the
quarters and the six month periods ended June 30, 1999 and 1998.

     Management's  Discussion and Analysis should be  read  in  conjunction
with the Condensed Consolidated Financial Statements, beginning on page  2,
which  present the results of operations for the quarters and the six month
periods ended June 30, 1999 and 1998.  Management's Discussion and Analysis
analyzes  and  explains the differences between periods for  specific  line
items of the Condensed Consolidated Financial Statements.

OVERVIEW

     UniSource  Energy recorded net income of $3.7 million for  the  second
quarter of 1999, and a net loss of $1.8 million for the first six months of
1999.   This compares with net income of $1.1 million in the second quarter
and  a  net loss of $6.0 million for the first six months of 1998.   Second
quarter  net income for 1999 was higher than second quarter net income  for
1998  due  primarily to a 5.7% increase in recorded revenues from  our  TEP
subsidiary  combined  with $2.5 million in lower  net  losses  recorded  by
Millennium's unregulated energy businesses.  The increase in TEP's revenues
contributed to improvement in UniSource Energy's net income since operating
expenses  remained  at  approximately  the  same  percentage  of  revenues.
Additionally,  interest  expense  decreased  by  8.5%.   See   Results   of
Operations below for further detail.  The net loss for the first six months
of  1999  was less than the net loss in the prior year period due primarily
to  lower net losses at Millennium's unregulated energy businesses combined
with  TEP's  higher  revenues of 2.9% and stable operating  expenses  as  a
percentage  of  revenues over the same prior year period.  See  Results  of
Operations below for further detail.

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

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

<PAGE>

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

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

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

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


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

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

     RETAIL

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

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

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

<PAGE>

     Retail Electric Competition Rules

      In  December 1996, the ACC adopted retail electric competition  rules
(Rules)  that  provided  a framework for the phase-in  of  retail  electric
competition  for generation services in Arizona beginning in January  1999.
The  Rules  were amended and adopted on an emergency basis in August  1998.
The  Rules,  as  originally adopted, assumed a competition  start  date  of
January   1,  1999.   However,  in  January  1999,  the  ACC  delayed   the
implementation  of the Rules pending additional proceedings  to  resolve  a
number of important issues.

     On  April  14,  1999, the ACC approved amendments to the  Rules.   The
approved Rules include:

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

     - If an Affected Utility's service territory is open prior to January 1,
       2001, the existing phase-in schedule would be retained, calling for 20
       percent of the market to initially have access to competitive generation
       supply.  As part of the 20 percent, each Affected Utility would reserve
       an increasing percentage for residential customers according to  a  set
       schedule.

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

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

     The  amended Rules adopt a similar phase-in to the competitive  market
as  the original rules, calling for three customer classes to be given  the
initial opportunity for choice:

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

     - Smaller commercial customers whose individual peak usage totals 40
       kilowatts (kW) or greater, who can aggregate with similar entities to
       reach a total load of 1 MW, also are eligible.  Examples of these
       customers are convenience stores, small fast-food restaurants and
       large retail stores; and

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

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

     Under  these Rules, competition will begin in each Affected  Utility's
service  territory  after  the Affected Utility's  stranded  cost  plan  is
approved by the ACC.

     Stranded Costs

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

      In  accordance with the June 1998 order, TEP filed with  the  ACC  in
August  1998  a  proposed  plan for divestiture of  generating  assets  and
stranded  cost  recovery.  In this plan, TEP estimated that stranded  costs
resulting  from  the divestiture of all generating facilities  could  range
from  $600 million to $1.1 billion, and proposed to recover stranded  costs

<PAGE>

and a return on any unamortized balance over a ten-year period.  In January
1999,  the  ACC stayed the effectiveness of the electric competition  rules
and the June 1998 order.

     On  April  14, 1999, the ACC issued an order modifying its  June  1998
order and providing additional options for stranded cost recovery.  Details
on  these  methods  are  available in the 1998 Form  10-K  at  Item  1.   -
Business,  Rates And Regulation, ACC Orders On Stranded Cost Recovery,  ACC
Hearing Officer Proposed Order on Stranded Costs.

     Rate Settlement Agreement

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

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

     Settlement Agreement On Retail Competition

     On  June 9, 1999, TEP entered into a Settlement Agreement (Settlement)
with  certain  customer  groups  related to the  implementation  of  retail
electric competition.  The Settlement will become effective if and when the
ACC  approves the Settlement without modification.  Hearings to approve the
Settlement commenced August 11.  If the Settlement is approved in the third
quarter,  competition  could begin early in the  fourth  quarter  of  1999.
Major provisions of the Settlement include:

     - Consumer choice for energy supply would begin sixty (60) days after
       the ACC approves the Settlement and will be phased in as required by the
       ACC's retail competition rules.  By January 1, 2001, consumer choice
       would be available to all customers.

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

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

       -  A Fixed CTC component which would terminate when $450 million has been
          recovered, but no later than December 31, 2008.  When the Fixed CTC
          terminates, TEP's retail rates would decrease by the amount of the
          Fixed CTC.

       -  A Floating CTC component would be equal to the amount of the frozen
          rates less the sum of unbundled transmission and distribution charges
          and amounts based on the Palo Verde Futures Index for electric energy.
          Because TEP's total retail rate would be frozen, the Floating CTC
          would enable TEP to recoup the balance of stranded costs as follows:

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

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

<PAGE>

     -  By  June  1,  2004, TEP would recommend to the ACC any  required
        modifications to the CTCs and other service charges.  A rate change, to
        take effect no later than January 1, 2005, would only be made if it
        results in a net rate reduction.

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

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

      The  ACC  may vote on approval of the Settlement during the third  or
fourth quarter of 1999.  If, and when, the Settlement is approved, TEP will
stop accounting for its generation operations using FAS 71.  See Accounting
For  The Effects Of Regulation, below.  There can be no assurance, however,
that  the Settlement will be accepted as filed or that key assumptions  and
related events will be realized.

     WHOLESALE

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

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


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

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

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

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

      We  periodically assess whether we continue to meet these conditions.
If  we  were required to stop applying FAS 71 to all or a portion of  TEP's
regulated  utility operations, we would write off the related  balances  of
TEP's  regulatory

<PAGE>

assets  and  liabilities  as  a  charge  in  our  income
statement.  In that event, our earnings would be reduced by the net  amount
of  regulatory  assets  and liabilities, after applicable  deferred  income
taxes.  Based on the balances of TEP's regulatory assets and liabilities at
June  30,  1999,  if  we ceased applying FAS 71 to all of  TEP's  regulated
operations,  we  would record an extraordinary loss of  approximately  $138
million, net of the related deferred income tax benefit of $92 million.  In
addition,  TEP  would  immediately  recognize,  as  a  reduction   to   the
extraordinary  loss,  the  portion,  or  all  of,  the  $23   million   ITC
carryforward balance that TEP believes it would use on a future tax return.
Approximately  60%  of  TEP's net regulatory assets on  the  balance  sheet
relate  to  electric generation.  While our cash flows may be  affected  by
regulatory  orders  and  market conditions, our cash  flows  would  not  be
affected if we ceased to apply FAS 71.

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

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

     In  addition,  if  the  Settlement is  approved  we  will  immediately
recognize as income the following Investment Tax Credit (ITC) amounts:

     - Deferred ITC:  On our financial statements we have deferred  the
       benefit relating to ITC claimed on tax returns.  This Deferred ITC was
       then amortized to income over the tax lives of the related property.
       The balance remaining when the Settlement is approved will be recognized
       immediately.  At June 30, 1999, the Deferred ITC balance was $9 million.

     - ITC Carryforward: This ITC is generated but not yet claimed on a tax
       return, and will be recognized immediately as income to the extent that
       we expect to use the ITC on future tax returns.  At June 30, 1999, the
       total ITC Carryforward was $23 million.  The amounts expected to be
       used on future returns have not presently been determined.

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

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

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

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

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

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

<PAGE>

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

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

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

     Interest Rate Risk

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

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

     Marketable Securities Risk

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

     Foreign Currency Exchange Risk

     Exposure to changes in foreign currency exchange rates may arise from
transactions  conducted by Nations Energy in foreign  currencies.   Nations
Energy's  investment  in a power project in the Czech  Republic  is  highly
leveraged.  Portions of the project's debt are denominated in U.S. Dollars,
German  Deutschmarks, and Czech Korunas.  The project bears the  risk  that
the  value  of the debt in each currency changes with fluctuations  in  the
applicable exchange rates, as well as the risk that the amount of  interest
due each period changes with fluctuations in the applicable exchange rates.
The  impact  of  recording  the  exchange rate  fluctuations  on  UniSource
Energy's  income statement for the second quarter of 1999  was  a  gain  of
approximately $1.3 million, and for the first six months of 1999 was a loss
of $275,000.

     Commodity Price Risk

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


FUTURE GENERATING RESOURCES

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

<PAGE>

      Regardless  of  who supplies electric power in TEP's  retail  service
area,  TEP  believes additional peaking resources are needed in  Tucson  by
2001  to improve local system reliability.  Therefore, in the first quarter
of 1999, TEP issued a request for proposals for third parties to provide 75
MW  of  peaking  resources to be located in TEP's service  territory.   The
request for proposals contemplated designation of the peaking capacity as a
"must-run generation" facility.  Must-run generating units are those  which
are  required  to run in order to maintain distribution system  reliability
and  meet  load requirements.  Following a review of the initial responses,
TEP  requested proposals for the design and construction of a 75 MW peaking
unit in TEP's service territory.


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

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

     State of Readiness

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

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

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

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


     Department or Area                      Comments
Customer  Services, Billing,  Vendor identified Y2K patches for  the
Receivables                   Customer Information System have  been
                              delivered  and  are  being  installed.
                              The upgraded release of the underlying
                              software   is  also  being  installed.
                              Testing  was  scheduled for  July  and
                              August, and the software upgrades  are
                              expected  to  be in production  during
                              August.

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

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

<PAGE>

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

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

An  integrated test is scheduled for all enterprise information systems for
the  third  quarter  of 1999 to include the enterprise hardware,  operating
software and all major applications with year 2000 date processing.

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

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

     Costs

     From  1996  through  June 30, 1999, we have  expensed  $1.35  million
addressing  the  Y2K  issue.  This amount does  not  include  major  system
replacement costs that, along with other functional changes, addressed  Y2K
issues.   A $1.8 million estimate, which includes the $1.35 million already
expensed,  has  been  established for Y2K project costs.   All  remediation
costs will be expensed as incurred.

     Risks

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

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

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

     Contingency Plans

     We  have  prepared contingency plans for the possibility that not  all
remediation  efforts  will  succeed.  We  have  documented  the  events  or
scenarios that might significantly impact the delivery of electric service,
including  loss  of generation, communications, and other  conditions  that
could result in electric power outages.  Our contingency plans are intended
to  minimize  the potential impact of any of these conditions.   The  plan,
which  was finalized June 30, 1999, includes contingency procedures, tests,
and  drills  which  coincide  with the WSCC  and  North  American  Electric
Reliability Council (NERC) contingency plans.

     TEP   performed  compliance  testing  with  the  first  NERC  industry
coordinated  drill on April 9, 1999, and did not experience any significant
events or difficulties.  TEP will perform additional compliance testing  to
coincide with the second NERC drill on September 8 and 9, 1999.

<PAGE>

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

     UniSource  Energy  recorded net income of $3.7 million  or  $0.11  per
average share of Common Stock in the second quarter, and a net loss of $1.8
million  or $0.06 per share in the first six months of 1999.  This compares
with  net income of $1.1 million or $0.03 per average share of Common Stock
in  the second quarter of 1998, and a net loss of $6.0 million or $0.19 per
share in the first six months of 1998.

     The  primary factors contributing to higher net income in  the  second
quarter of 1999 relative to the same period in 1998 were (i) a $2.4 million
reduction  in  net  losses  recorded  by  Millennium's  unregulated  energy
businesses,  (ii)  an $8.4 million increase in TEP's retail  revenues,  and
(iii)  a  $2.6 million reduction in interest expense recorded by TEP.   The
increase  in  TEP's  revenues was due to a 3% increase  in  average  retail
customers  and a 3.9% increase in average retail energy consumption  during
the  second  quarter of 1999 relative to the same period  in  1998.   Lower
interest  expense  for the period is discussed in Interest  Expense  below.
The  primary factors contributing to the smaller net loss for the first six
months  of 1999 relative to the same period in 1998 were (i) a $3.7 million
reduction  in  net  losses  recorded  by  Millennium's  unregulated  energy
businesses, (ii) a $10.0 million increase in TEP's operating revenues,  and
(iii) a $3.6 million reduction in interest expense recorded by TEP.  A  21%
increase in wholesale sales contributed to the increase in revenues at  TEP
during the first six months of 1999 compared with the same period in  1998.
Lower  interest  expense for the period is discussed  in  Interest  Expense
below.

     Contribution By Business Segment

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

--------------------------------------------------------------------------
                                   Three Months Ended    Six Months Ended
                                         June 30             June 30
                                     1999      1998      1999      1998
--------------------------------------------------------------------------
                                        -Millions-          -Millions-
   Regulated Electric Utility        $ 8.4    $ 8.1     $ 7.0     $ 6.5
   Unregulated Energy Businesses      (3.2)    (5.6)     (6.0)     (9.7)
   Parent Company and
	Inter-Company Eliminations        (1.5)    (1.4)     (2.8)     (2.8)
--------------------------------------------------------------------------
     Consolidated Net Income (Loss)  $(3.7)   $(1.1)    $(1.8)    $(6.0)
==========================================================================

     These segment results reflect the after-tax amount of interest accrued
on  a note payable from UniSource Energy to TEP.  This note was provided to
TEP  in  exchange  for the stock of Millennium in January 1998.   Regulated
Electric  Utility  income  includes interest income  on  this  note,  while
interest expense on this note is shown as a parent company expense.

     TEP's  regulated electric utility business accounts for  substantially
all  of  UniSource Energy's assets, revenues and net income  on  an  annual
basis.   The  following discussion is related to TEP's utility  operations,
unless  otherwise noted.  The results of our unregulated energy  businesses
are discussed in Results of Unregulated Energy Businesses below.

<PAGE>

     Utility Sales and Revenues

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


                                              Increase/(Decrease)
                                              -------------------
Three Months Ended June 30         1999      1998    Amount  Percent
--------------------------         ----      ----    ------  -------
Electric kWh Sales (000):

  Retail Customers               1,945,855  1,819,112  126,743   7.0%
  Sales for Resale                 997,556  1,036,756  (39,200) (3.8)
                                   -------  ---------   ------   ---
        Total                    2,943,411  2,855,868   87,543   3.1%
                                 =========  =========


Electric Revenues (000):
  Retail Customers                $159,111   $150,735  $ 8,376   5.6%
  Sales for Resale                  30,872     28,951    1,921   6.6
                                    ------     ------    -----   ---
        Total                     $189,983   $179,686  $10,297   5.7%
                                  ========   ========


                                               Increase/(Decrease)
                                               -------------------
Six Months Ended June 30           1999      1998     Amount  Percent
------------------------           ----      ----     ------  -------
Electric kWh Sales (000):

  Retail Customers               3,608,399  3,609,421   (1,022)  0.0%
  Sales for Resale               2,176,842  1,886,888  289,954  15.4
                                 ---------  ---------  -------- ----
        Total                    5,785,241  5,496,309  288,932   5.3%
                                 =========  =========


Electric Revenues (000):
  Retail Customers                $287,888   $288,884  $  (996) (0.3)%
  Sales for Resale                  62,731     51,805   10,926  21.1
                                    ------     ------   ------  ----
           Total                  $350,619   $340,689  $ 9,930   2.9%
                                  ========   ========

      TEP's  kWh  sales to retail customers increased by 7% in  the  second
quarter  of  1999 compared with the same period in 1998.   The  retail  kWh
sales increase was due to a 3.0% increase in the number of retail customers
and  a  3.9% increase in average retail energy consumption.  A 35% increase
in  cooling degree days contributed to the increase in customer demand  for
power.  Revenues from sales to retail customers increased $8.4 million,  or
5.6%,  in the second quarter of 1999 compared with the same period in  1998
despite  a  1.1% rate decrease which was effective July 1, 1998.   For  the
first  six  months  of  1999, kWh sales to retail customers  remained  flat
compared  with  the  same  period in 1998 due  primarily  to  mild  weather
conditions  in  the  first  quarter  of 1999.   Retail  revenues  decreased
slightly due to the 1.1% rate decrease noted above.

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

     Sales for Resale decreased 3.8% in the second quarter of 1999 from the
same  period in 1998.  The decrease reflected lower availability of  energy
for  resale because of scheduled maintenance during the 1999 quarter at the
Navajo, Four Corners, and Springerville generating stations.  Despite lower
sales,  higher regional wholesale energy prices resulted in a 6.6% increase
in revenues from Sales for Resale.  The higher prices and limited available
capacity  resulted from a number of coal and nuclear generators being  down
for  scheduled  maintenance.  Additionally, mild weather in  the  Northwest
during   the   second   quarter  delayed  snowmelt  and   reduced   typical
hydroelectric  output.  The 15.4% increase in kWh sales for the  first  six
months  of  1999 from the same period in 1998 reflected increased wholesale
trading  activity.  Revenues from Sales for Resale were 21%  higher  during
the  first  six months of 1999 relative to the same period in 1998  due  to
higher sales volume and higher wholesale prices as described above.

<PAGE>

     Operating Expenses

     Operating  expenses remained constant as a percentage of revenues  for
the  quarter  and  six  months  ended June 30,1999. Total  Operating
Expenses increased 4.6% in the second quarter of 1999 compared with the same
period last  year.  The increase was due primarily to a 7.4% increase in Fuel
and Purchased  Power expense that resulted from higher sales and higher
prices for  energy  purchased.  The increase was also due to significantly
higher Maintenance  and  Repair expense that resulted from generation
maintenance activities  during  the  second  quarter of  1999.   These
increases  were partially  offset  by  a decrease in Depreciation and
Amortization  expense resulting from the completion of amortization of
certain Springerville Unit 2 costs in the first quarter of 1999.

     Total  Operating Expenses increased 2.6% in the first  six  months  of
1999 compared with the same period in the prior year.  The increase was due
primarily   to  higher  Fuel  and  Purchased  Power  expenses  and   higher
Maintenance  and  Repair expenses.  The increase was  partially  offset  by
higher amortization of the Springerville Unit 1 Allowance contra-asset.


     Other Income (Deductions)

     Interest Income

     TEP's income statements for the quarters ended June 30, 1999 and 1998
include $2.6 million and $2.3 million, respectively, of interest income  on
the  promissory note TEP received from UniSource Energy in exchange for the
transfer  of  its stock in Millennium.  On UniSource Energy's  consolidated
income   statement,   this  income  is  eliminated  as   an   inter-company
transaction.  For the six months ended June 30, 1999 and 1998, the interest
income   on  the  promissory  note  was  $5.1  million  and  $4.6  million,
respectively.

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

     Income Taxes

     For  the  second  quarter and six months ended June  30,  1999,  both
UniSource Energy and TEP recorded income tax expense rather than income tax
benefits  in  Other Income.  Income tax benefits recorded in 1998  resulted
from  the  recognition of capital loss carryforwards.  See Note  6.  Income
Taxes in the Notes to Condensed Consolidated Financial Statements.

     Income (Losses) from Unregulated Energy Businesses

      Our  unregulated  energy businesses contributed a net  loss  of  $3.2
million  for the second quarter ended June 30, 1999, compared  with  a  net
loss  of  $5.6 million in the second quarter of 1998.  For the  six  months
ended  June  30, 1999 and 1998, our unregulated energy businesses  reported
losses of $6.0 million and $9.7 million respectively.  See Note 3 of  Notes
To  Condensed Consolidated Financial Statements and Results of  Unregulated
Energy  Businesses,  below for more information  on  the  results  of  this
business segment.

     Interest Expense

	 Interest  expense decreased by approximately $2.6 million and $3.6  million
in  the  second quarter and the first six months of 1999 compared with  the
same periods in 1998, respectively, due primarily to (i) reductions in long
term  debt,  and  (ii)  higher interest expense in  1998  due  to  interest
payments on two bond issues for up to 75 days before the redemption of  old
bonds.  Additionally, average interest rates on variable rate debt were  50
basis points lower for both the second quarter and first six months of 1999
relative to the prior year periods.

<PAGE>

RESULTS OF UNREGULATED ENERGY BUSINESSES
----------------------------------------

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

-----------------------------------------------------------------------
                      Three Months Ended          Six Months Ended
                            June 30                   June 30
      Subsidiary         1999       1998           1999       1998
-----------------------------------------------------------------------
                     -Thousands of Dollars-     -Thousands of Dollars-
      AET              $  (237)    $  (187)     $  (611)   $   (17)
      MEH                  (73)     (5,248)        (650)    (9,298)
      Nations Energy    (3,028)       (200)      (4,970)      (404)
      Other                158         (14)         258         34
-----------------------------------------------------------------------
      Total Millennium $(3,180)    $(5,649)     $(5,973)   $(9,685)
=======================================================================


     AET and Global Solar

     Advanced  Energy Technologies, Inc. (AET) holds a 50% interest  in
Global  Solar Energy, L.L.C. (Global Solar), a manufacturer of thin-film
photovoltaic  cells.  AET's net losses in the second quarter  and  first
six months of 1999 were due to manufacturing startup-related expenses of
the  Tucson-based production facility and the formation of  an  overseas
affiliate to manufacture thin-film photovoltaic cells in India.   Small-
scale  manufacturing  of thin film photovoltaic cells  are  expected  to
begin in the third quarter of 1999.

     MEH and NewEnergy

     As of June 30, 1999, MEH held a 50% interest in NewEnergy.  NewEnergy
was   formed  to  provide  electricity,  energy  products,  services,   and
technology-based  energy  solutions to  customers  in  deregulating  energy
markets.  NewEnergy was sold to The AES Corporation on July 23, 1999.   See
discussion  of  NewEnergy and the terms of the sale below at Investing  and
Financing Activities, Millennium - Unregulated Energy Businesses.

     Nations Energy

     Nations Energy Corporation (Nations Energy) develops independent power
projects worldwide.  The net loss of $3.0 million in the second quarter  of
1999  resulted principally from development costs and expenses  related  to
the  exercise  of  an  option to invest in a power  project  in  the  Czech
Republic.


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

     UniSource Energy

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

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

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

<PAGE>

     TEP

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

      TEP  can pay dividends if it maintains compliance with the TEP Credit
Agreement  and  certain  financial covenants,  including  a  covenant  that
requires  TEP  to maintain a minimum level of net worth.  As  of  June  30,
1999,  the  required minimum net worth was $186 million.  TEP's actual  net
worth  at  June  30,  1999 was $237 million.  See Investing  and  Financing
Activities, TEP Credit Agreement, below.  As of June 30, 1999, TEP  was  in
compliance with the terms of the Credit Agreement.

     The ACC Holding Company Order states that TEP may not pay dividends to
UniSource Energy in excess of 75% of its earnings until TEP's equity  ratio
equals 37.5% of total capital (excluding capital lease obligations).  As of
June  30,  1999,  TEP's equity ratio on that basis was 16.7%.   TEP  is  in
compliance with this order.

      In  addition to these limitations, the Federal Power Act states  that
dividends  shall not be paid out of funds properly included in the  capital
account.   Although  the terms of the Federal Power  Act  are  unclear,  we
believe that there is a reasonable basis to pay dividends from current year
earnings.


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

 CASH FLOWS

     UniSource Energy

      Consolidated cash and cash equivalents decreased by $33.4 million, or
25%,  from  June  30,  1998 to the June 30, 1999 ending  balance  of  $98.7
million.  For the twelve-month period ended June 30, 1999, consolidated net
cash  outflows  for  investing and financing activities exceeded  the  cash
generated from operating activities.

      Net  cash flows from operating activities decreased by $19.6 million
in the first six months of 1999 compared with the same period in 1998.  The
net decrease resulted from:

     -     $18.2 million increase in fuel and purchased power payments, due
            primarily to sales increases;
     -    $8.1 million increase in  cash receipts from wholesale sales;
     -    $5.9 million increase in income taxes paid;
     -    $4.3 million increase in other operations and maintenance costs;
     -    $11.3 million reduction of cash inflows from net emission allowance
           sales which occurred in 1998; and
     -    no cash outflows for contract termination fees in 1999, compared with
          $10 million paid to a coal supplier in  1998.

      Total  net cash outflows for investing activities increased by  $10.9
million  during the first six months of 1999 compared with the same  period
in  1998  due  primarily  to the purchase of $14.9  million  par  value  of
Springerville lease debt by TEP.

      Total  net cash outflows for financing activities increased  by  $1.9
million  in the first six months of 1999 compared with the same  period  in
1998  due  primarily to an increase in payments applied  to  the  principal
balance of the Springerville Unit 1 capital lease obligation.

      Our  consolidated cash balance, including cash equivalents, at August
11,  1999 was approximately $92 million.  We invest cash balances in  high-
grade  money market securities with an emphasis on preserving the principal
amounts invested.

      During the next 12 months, UniSource Energy may require cash to  fund
investments  in our unregulated energy businesses, to pay interest  on  the
promissory  note  from UniSource Energy to TEP, and  to  pay  dividends  to
shareholders.   We  expect our sources of cash to  be  dividends  from  our
subsidiaries, primarily TEP.  Although no specific offerings are currently

<PAGE>

contemplated, UniSource Energy may also issue debt and/or equity securities
from  time  to time.  If cash flows were to fall short of expectations,  we
would  reevaluate  the  investment requirements of our  unregulated  energy
businesses  and/or  seek  additional  financing  for  those  businesses  by
unrelated parties.

     TEP

     Cash  and cash equivalents decreased by $26 million, or 25%, from  the
June 30, 1998 ending balance of $103.2 million to the March 31, 1999 ending
balance of $77.3 million.  For the twelve-month period ended June 30, 1999,
net cash outflows from investing and financing activities exceeded net cash
inflows for operating activities.

     Net cash flows from operating activities decreased by $21.1 million in
the  first  six months of 1999 compared with the same period in 1998.   See
UniSource  Energy,  Cash Flows above for a discussion of factors  affecting
net cash flows from operating activities.

     Net cash outflows for investing activities decreased $25.4 million in
first  six  months  of  1999  relative to the first  six  months  of  1998.
Although TEP purchased $14.9 million of Springerville Unit 1 Lease debt  in
1999,  the transfer of Millennium and its $45 million of cash from  TEP  to
UniSource Energy on January 1, 1998 was reflected as a use of cash on TEP's
statement  of cash flows in 1998.  The subsidiaries holding that cash  were
subsidiaries of TEP at year-end 1997, and became subsidiaries of  UniSource
Energy  on  January  1,  1998.  As a consequence, net  cash  outflows  from
investing  activities decreased during the first half of 1999  relative  to
the same period in 1998.

     Net cash outflows for financing activities increased $2.2 million  in
1999's first six months over the same period in 1998.  The increase was due
primarily  to  higher scheduled rent payments related to the  Springerville
Unit 1 Lease.

     TEP's consolidated cash balance, including cash equivalents, at August
11, 1999 was approximately $72.5 million.

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


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

     UniSource Energy

     Loans and Guarantees

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


     TEP

     Capital Expenditures

      TEP's capital expenditures for the three months and six months  ended
June  30,  1999 were $25.8 and $41.3 million, respectively.  TEP's  capital
budget  for the year ending December 31, 1999 is approximately $90 million.
These  authorized expenditures include costs for TEP to comply with current
federal  and  state environmental regulations.  All of these estimates  are
subject   to   continuing  review  and  adjustment.   Actual   construction
expenditures  may  be different from budgeted amounts  due  to  changes  in
business  conditions,  construction schedules, environmental  requirements,
and changes to our business arising from retail competition.  TEP plans  to
fund these expenditures through internally generated cash flow.

<PAGE>

     TEP Credit Agreement

     As  of June 30, 1999 and as of August 11, 1999, TEP had no borrowings
outstanding under its $100 million Revolving Credit Facility.

     TEP is required by its Credit Agreement to maintain certain financial
covenants including (a) a minimum Consolidated Tangible Net Worth equal  to
the  sum  of  $133 million plus 40% of cumulative Consolidated  Net  Income
since January 1, 1997, (b) a minimum Cash Coverage Ratio ranging from  1.40
in  1999  and  gradually  increasing to 1.55 in 2002,  and  (c)  a  maximum
Leverage Ratio ranging from 6.80 in 1999 and gradually decreasing  to  6.20
in 2002.  TEP is in compliance with each of these covenants.

     Springerville Common Facilities Lease

     Under  the  terms  of  the  Springerville  Common  Facilities  lease
agreement,  the secured notes underlying this lease must be  refinanced  or
refunded  by  December 31, 1999 in order to avoid a special event  of  loss
under  the lease.  If a special event of loss were to occur, TEP  would  be
required to repurchase the facilities for an amount equal to the higher  of
the  stipulated loss value of $144 million or the fair market value of  the
facilities.  Upon such purchase, the lease would be terminated.   Based  on
the  current amortization schedule for these notes, a principal  amount  of
approximately  $70  million will be outstanding as of  December  31,  1999.
Interest  on  the  lease  notes is currently paid at  a  variable  rate  of
interest  equal  to the Federal Funds rate plus 0.625%.  TEP  intends,  and
believes  it  has the ability, to refinance the underlying  debt  on  these
leases in 1999.


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

     Sale of NewEnergy, Inc.

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

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

      -    Two promissory notes issued by NewEnergy totaling $22.8 million.  The
            notes  are secured, bear interest at 9.5%, and $11.4 million of  the
            principal amount is due July 23, 2000 and the remaining $11.4
            million is July 23, 2001.

     As  part  of  the  agreement, AES repaid a $10 million loan  NewEnergy
obtained  from an unrelated party that was guaranteed by UniSource  Energy.
UniSource Energy will continue to guarantee up to $55.6 million of  certain
performance  bonds  and  contractual obligations  relating  to  NewEnergy's
purchases and sales of electricity.  AES will replace UniSource Energy as
guarantor no later than October 15, 1999.  NewEnergy's  repayment obligations
to UniSource Energy, including the guarantees and  performance bonds  provided
by  UniSource Energy, are  fully  secured.   See  Note  3.  Unregulated
Energy  Businesses  in the  Notes  To  Condensed  Consolidated Financial
Statements.

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

     UniSource  Energy  will recognize a pre-tax gain of approximately  $34
million in the third quarter of 1999 on the transaction.  Proceeds  of  the
NewEnergy  sale will be available for reinvestment in other  affiliates  or
for payment as a dividend to UniSource Energy.

     Capital Requirements

     Our   Unregulated  Energy  Businesses  owned  by  Millennium   require
significant amounts of capital and we expect these needs to continue in the
near   future.   The  unregulated  energy  businesses  had  actual  capital

<PAGE>

expenditures,  and investments in and loans to their subsidiaries  for  the
three months and six months ended June 30, 1999 and 1998 were as follows:

----------------------------------------------------------------------
                      Three Months Ended          Six Months Ended
                            June 30                   June 30
      Subsidiary         1999       1998           1999       1998
----------------------------------------------------------------------
                     -Thousands of Dollars-     -Thousands of Dollars-
      AET              $   -     $(1,095)     $ (2,870)   $ (1,091)
      MEH                (144)    (3,998)         (260)     (9,982)
      Nations Energy    3,547        (78)          745        (101)
      Other               (88)       (81)         (112)       (136)
----------------------------------------------------------------------
      Total Millennium $3,315    $(5,252)     $ (2,497)   $(11,310)
======================================================================

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


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

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

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

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

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

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

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

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

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

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



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


     The information contained in this Item updates, and should be read  in
conjunction with, information included in Part II, Item 7A in the Company's
Annual  Report  on  Form  10-K for the year ended  December  31,  1998,  in
addition  to  the interim condensed consolidated financial  statements  and
accompanying notes presented in Items 1 and 2 of this Form 10-Q.

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

<PAGE>

                        PART II - OTHER INFORMATION

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

TAX ASSESSMENTS

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


ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------------------------------

     The Company conducted its annual meeting of shareholders on May 21,
1999.  At that meeting, the shareholders of the Company elected members of
the Board of Directors.

     The total votes were as follows:

 Election of Directors                  Against              Broker
                            For       or Withheld  Abstain  Non-Votes
                            ---       -----------  -------  ---------

 Ira R. Adler            28,746,934      736,487     --        --
 Larry W. Bickle         28,750,099      733,322     --        --
 Elizabeth T. Bilby      28,727,812      755,609     --        --
 Harold W. Burlingame    28,760,557      722,864     --        --
 Jose L. Canchola        28,704,402      779,019     --        --
 John L. Carter          28,761,175      722,246     --        --
 Daniel W. L. Fessler    28,727,079      756,342     --        --
 John A. Jeter           28,731,606      751,815     --        --
 R. B. O'Rielly          28,715,840      767,581     --        --
 James S. Pignatelli     28,743,173      740,248     --        --
 Martha R. Seger         28,724,977      758,444     --        --
 H. Wilson Sundt         28,734,509      748,912     --        --


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

ADDITIONAL FINANCIAL DATA

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

                                     12 Months Ended
                                     ---------------
                                 June 30,      December 31,
                                   1999            1998
                                   ----            ----
    Ratio of Earnings to           1.38            1.35
    Fixed Charges



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

(a)  Exhibits.

     -- See Exhibit Index.

(b)  Reports on Form 8-K.

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

<PAGE>

     UniSource Energy Corporation and Tucson Electric Power Company

     -  Form 8-K dated June 18,1999 (filed June 21, 1999), reporting on TEP's
        Settlement Agreement filed with the ACC regarding the implementation of
        retail electric competition and removal of an ACC Commissioner.

     -  Form 8-K dated June 25, 1999 (filed June 28, 1999), reporting on the
        sale of NewEnergy, Inc., appointment of an ACC Commissioner, and the
        procedural order schedule related to holding hearings and public
        meetings necessary for the ACC to approve the Settlement Agreement.


<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:  August 16, 1999                     Ira R. Adler
                                   --------------------------------------
                                           Ira R. Adler
                                   Executive Vice President and Principal
                                           Financial Officer



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


Date:  August 16, 1999                     Ira R. Adler
                                   --------------------------------------
                                           Ira R. Adler
                                   Executive Vice President and Principal
                                           Financial Officer



<PAGE>
                               EXHIBIT INDEX

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