SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C.  20549

                                  FORM 10-Q
                                        
 (Mark One)
   [X]                   QUARTERLY REPORT PURSUANT TO
                            SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                                        
               For The Quarterly Period Ended September 30, 1996
                                        
                                       OR
                                        
   [X]                   TRANSITION REPORT PURSUANT TO
                            SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                                        
            For the transition period from __________ to __________.
                                        
                                        
                          Commission File Number 1-5924
                                        
                                        
                          TUCSON ELECTRIC POWER COMPANY
             (Exact Name of Registrant as Specified in its Charter)
                                        
                    ARIZONA                       86-0062700
        (State or Other Jurisdiction of         (IRS Employer
        Incorporation or Organization)       Identification No.)
                                                       
    220 WEST SIXTH STREET, TUCSON, ARIZONA       P.O. BOX 711
                     85701                          85702
   (Address of Principal Executive Offices)       (Zip Code)
                                        
                                 (520) 571-4000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
                                        
                                        
                                        
     Indicate by check mark whether the 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 October 22, 1996, 32,133,586 shares of the registrant's Common Stock,
no par value (the only class of Common Stock), were outstanding.





                                       2
                               TABLE OF CONTENTS
                                                                      Page

Definitions..............................................................ii
Independent Accountants' Report...........................................1

                         PART I - FINANCIAL INFORMATION

Item 1.  --  Financial Statements
     Comparative Condensed Consolidated Statements of Income..............2
     Comparative Condensed Consolidated Statements of Cash Flows..........3
     Comparative Condensed Consolidated Balance Sheets....................4
     Notes to Condensed Consolidated Financial Statements
     Note 1.  Rate Matters................................................5
     Note 2.  Tax Assessments.............................................5
     Note 3.  Consolidated Subsidiaries...................................6
     Note 4.  Voluntary Severance Plan....................................7
     Note 5.  Common Stock Reverse Split..................................7
     Note 6.  Income Taxes................................................7
     Note 7.  Reclassification............................................8

Item 2.  --  Management's Discussion and Analysis of Financial Condition and
Results of Operations
     Overview.............................................................9
     Competition
         Wholesale.......................................................10
         Retail..........................................................11
     Accounting for the Effects of Regulation............................12
     Investments in Energy-Related Ventures..............................13
     Dividends on Common Stock...........................................13
     Earnings............................................................14
Results of Operations
                                       i
     Results of Utility Operations
         Sales and Revenues..............................................15
         Operating Expenses..............................................16
         Other Income....................................................16
         Interest Expense................................................16
         Income Taxes....................................................16
Liquidity and Capital Resources..........................................17
      Cash Flows.........................................................17

                          PART II - OTHER INFORMATION

Item 1. -- Legal Proceedings
        Tax Assessments..................................................19

Item 6.  --  Exhibits and Reports on Form 8-K............................19

Signature Page...........................................................20

Exhibit Index............................................................21

                                  DEFINITIONS

The abbreviations and acronyms used in the 1996 Third Quarter Form 10-Q are
defined below:


ACC...............   Arizona Corporation Commission.
ADOR..............   Arizona Department of Revenue
Banks.............   Various banks with which the Company has credit
                       relationships.
Common Stock......   The Company's common stock, without par value.
Company...........   Tucson Electric Power Company.

                                       ii
Energy Act........   The Energy Policy Act of 1992.
FAS 71............   Statement of Financial Accounting Standards #71:
                      Accounting for the Effects of Certain Types of
                      Regulation.
FAS 92............   Statement of Financial Accounting Standards #92:
                      Regulated Enterprises - Accounting for Phase-In Plans.
FAS 101...........   Statement of Financial Accounting Standards #101:
                      Regulated Enterprises - Accounting for the
                      Discontinuation of Application of FAS 71.
FAS 121...........   Statement of Financial Accounting Standards #121:
                      Accounting for the Impairment of Long-Lived Assets and
                      for Long-Lived Assets to be Disposed Of.
FERC..............   Federal Energy Regulatory Commission.
First Mortgage Bonds  First mortgage bonds issued under the General First
                      Mortgage.
General First Mortgage   The Indenture, dated as of April 1, 1941, of Tucson
                      Gas, Electric Light and Power Company to The Chase
                      National Bank of the City of New York, as trustee, as
                      supplemented and amended.
Global Solar......   Global Solar Energy, LLC, a corporation in which a 50%
                      interest is owned by TEP Solar.
Irvington.........   Irvington Generating Station.
Irvington Lease...   The leveraged lease arrangement relating to Irvington Unit
                      4.
ITC...............   Investment Tax Credit for income tax purposes.
kWh...............   Kilowatt-hour(s).
MRA...............   Master restructuring agreement between the Company and the
                      Banks which includes the Renewable Term Loan, Revolving
                      Credit and certain replacement reimbursement agreement.
MSR...............   Modesto, Santa Clara and Redding Public Power Agency.
MW................   Megawatt(s).
Nations Energy....   Nations Energy Corporation, a wholly-owned subsidiary of
                                      iii
                       the Company.
NEV...............   New Energy Ventures, Inc.
1994 Rate Order...   ACC Rate Order concerning an increase in the Company's
                      retail base rates and certain regulatory write-offs,
                      issued January 11, 1994.
1996 Rate Order.....................    ACC Rate Order concerning an increase in
                      the Company's retail base rates and the recovery of
                      Springerville Unit 2 costs, issued March 29, 1996.
NOL...............   Net Operating Loss carryforward for income tax purposes.
PURPA.............   Public Utility Regulatory Policies Act of 1978, as
                      amended.
Renewable Term Loan   Credit facility that replaced  the Term Loan  pursuant to
                      the MRA Sixth  Amendment, dated as  of November  1, 1994,
                      and effective March 7, 1995.
Revolving Credit..   $50 million revolving credit facility entered into between
                      a syndicate of banks and the Company.
Shareholders......   Holders of Common Stock.
Springerville.....   Springerville Generating Station.
Springerville Coal Handling
  Facilities Leases   Leveraged lease arrangements relating to the coal
                      handling facilities serving Springerville.
Springerville Common Facilities
  Leases..........   Leveraged lease arrangements relating to one-half interest
                      in certain facilities at Springerville used in common
                      with Springerville Unit 1 and Springerville Unit 2.
Springerville Unit 1 Leases        Leveraged lease arrangements relating to
                      Springerville Unit 1, and one half interest in certain
                      facilities at Springerville used in common with
                      Springerville Unit 1 and Springerville Unit 2.
SWPP..............   SWPP Investment Company, a wholly-owned subsidiary of the
                      Company.

                                       iv
TEP Solar.........   TEP Solar Energy Corporation, a wholly-owned subsidiary of
                      the Company.
Valencia..........   Valencia Energy Company, previously a wholly-owned
                      subsidiary of the Company, merged into the Company on May
                      31, 1996.
VSP...............   Voluntary Severance Plan offered to Company employees and
                      implemented in May 1996.

























                                       v
INDEPENDENT ACCOUNTANTS' REVIEW REPORT

Tucson Electric Power Company
220 West Sixth Street
Tucson, Arizona  85701

We have reviewed the accompanying condensed consolidated balance sheet of Tucson
Electric Power Company and subsidiaries (the Company) as of September 30, 1996
and the related condensed consolidated statements of income (loss) for the
three-month and nine-month periods ended September 30, 1996 and 1995, and cash
flows for the nine-month periods ended September 30, 1996 and 1995.  These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants.  A review of interim financial
information consists principally of applying analytical procedures to financial
data and of 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 such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet and statement of capitalization of the
Company as of December 31, 1995 and the related consolidated statements of
income (loss), cash flows, and changes in stockholders' equity (deficit) for the
year then ended (not presented herein); and in our report dated January 29, 1996
(which includes an explanatory paragraph relating to the timing of the recovery
of 37.5% of Springerville Unit 2; see Note 1 to the September 30, 1996 condensed
consolidated financial statements for the current status of this matter), we
expressed an unqualified opinion on those consolidated financial statements.  In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 1995 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.




DELOITTE & TOUCHE LLP
Tucson, Arizona
October 24, 1996



                                     15
                        PART I - FINANCIAL INFORMATION

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

     The September 30 condensed consolidated financial statements are
unaudited but reflect all normal recurring accruals and other adjustments
which are, in the opinion of management, necessary for a fair statement of
the results for the interim periods covered.  Due to seasonal fluctuations in
sales, the quarterly results are not indicative of annual operating results.
Also see Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                       Three Months Ended
                                                          September 30,
                                                         1996       1995
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $195,261    $192,929
 Amortization of MSR Option Gain Regulatory Liability    5,014       5,014
 Sales for Resale                                       22,803      19,844
                                                      ---------   ---------
    Total Operating Revenues                           223,078     217,787
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                               60,198      42,182
 Capital Lease Expense                                  25,824      26,661
 Amortization of Springerville Unit 1 Allowance         (7,273)     (7,108)
 Other Operations                                       23,535      24,710
 Maintenance and Repairs                                 7,991       8,432
 Depreciation and Amortization                          24,735      23,291
 Taxes Other Than Income Taxes                          21,573      15,170
 Voluntary Severance Plan Expense (Gain)                (3,443)          -
 Income Taxes                                           17,322         (23)
                                                      ---------   ---------
    Total Operating Expenses                           170,462     133,315
                                                      ---------   ---------
      Operating Income                                  52,616      84,472
                                                      ---------   ---------

Other Income
 Income Taxes                                           66,510       1,212
 Reversal of Loss Provision                              8,472           -
 Interest Income                                         1,264       2,027
 Gains on Sales of Securities                                -          28
 Other                                                     637        (152)
                                                      ---------   ---------
    Total Other Income                                  76,883       3,115
                                                      ---------   ---------

Interest Expense
 Long-Term Debt - Net                                   14,843      17,039
 Interest Imputed on Losses Recorded at Present Value    8,006       8,098
 Other                                                   4,489       2,009
 Allowance for Borrowed Funds Used During Construction    (337)       (288)
                                                      ---------   ---------
    Total Interest Expense                              27,001      26,858
                                                      ---------   ---------

Net Income                                            $102,498    $ 60,729
                                                      =========   =========


Average Shares of Common Stock Outstanding (000)        32,133      32,136
                                                      =========   =========

Net Income per Average Share                          $   3.19    $   1.89
                                                      =========   =========

See Notes to Condensed Consolidated Financial Statements.
COMPARATIVE CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                                                        Nine Months Ended
                                                          September 30,
                                                         1996       1995
                                                     -Thousands of Dollars-
Operating Revenues
 Retail Customers                                     $482,511    $451,124
 Amortization of MSR Option Gain Regulatory Liability   15,040      15,040
 Sales for Resale                                       58,088      56,673
                                                      ---------   ---------
    Total Operating Revenues                           555,639     522,837
                                                      ---------   ---------
Operating Expenses
 Fuel and Purchased Power                              156,128     126,567
 Capital Lease Expense                                  78,073      78,882
 Amortization of Springerville Unit 1 Allowance        (21,818)    (21,324)
 Other Operations                                       71,983      74,238
 Maintenance and Repairs                                26,345      30,888
 Depreciation and Amortization                          73,285      69,629
 Taxes Other Than Income Taxes                          51,310      45,511
 Voluntary Severance Plan Expense (Gain)                10,555           -
 Income Taxes                                           12,934         (68)
                                                      ---------   ---------
    Total Operating Expenses                           458,795     404,323
                                                      ---------   ---------
      Operating Income                                  96,844     118,514
                                                      ---------   ---------

Other Income
 Income Taxes                                           80,371       3,471
 Reversal of Loss Provision                              8,472           -
 Interest Income                                         4,166       6,806
 Gains on Sales of Securities                                -       2,986
 Other                                                     706         297
                                                      ---------   ---------
    Total Other Income                                  93,715      13,560
                                                      ---------   ---------

Interest Expense
 Long-Term Debt - Net                                   44,600      53,049
 Interest Imputed on Losses Recorded at Present Value   24,592      24,666
 Other                                                   9,197       6,425
 Allowance for Borrowed Funds Used During Construction  (1,036)       (849)
                                                      ---------   ---------
    Total Interest Expense                              77,353      83,291
                                                      ---------   ---------

Net Income                                            $113,206    $ 48,783
                                                      =========   =========

Average Shares of Common Stock Outstanding (000)        32,133      32,139
                                                      =========   =========


Net Income per Average Share                          $   3.52    $   1.52
                                                      =========   =========

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

                                                        Nine Months Ended
                                                          September 30,
                                                         1996       1995
                                                     -Thousands of Dollars-
Cash Flows from Operating Activities
  Cash Receipts from Retail Customers                 $491,791    $459,054
  Cash Receipts from Sales for Resale                   56,096      59,478
  Fuel and Purchased Power Costs Paid                 (137,145)   (124,748)
  Wages Paid, Net of Amounts Capitalized               (61,657)    (50,700)
  Payment of Other Operations and Maintenance Costs    (56,420)    (54,925)
  Capital Lease Interest Paid                          (83,200)    (82,742)
  Interest Paid, Net of Amounts Capitalized            (49,153)    (57,006)
  Taxes Paid, Net of Amounts Capitalized               (65,612)    (79,329)
  Emission Allowance Inventory Sale                      4,120           -
  Interest Received                                      4,716       6,708
  Income Taxes Paid                                     (1,066)     (1,760)
  Other                                                 (3,101)          -
                                                      ---------   ---------
    Net Cash Flows - Operating Activities               99,369      74,030
                                                      ---------   ---------

Cash Flows from Investing Activities
  Construction Expenditures                            (51,092)    (42,049)
  Purchase of Debt Securities                                -     (17,697)
  Investments in Joint Ventures                         (6,116)    (11,529)
  Other                                                    250       3,327
                                                      ---------   ---------
    Net Cash Flows - Investing Activities              (56,958)    (67,948)
                                                      ---------   ---------

Cash Flows from Financing Activities
  Proceeds from Issuance of Long-Term Debt              31,400           -
  Proceeds from Borrowings on the Renewable Term Loan   14,000           -
  Payments to Retire Long-Term Debt                    (25,575)    (36,507)
  Payments on Renewable Term Loan                      (14,000)   (143,060)
  Payments to Retire Capital Lease Obligations         (35,629)    (16,657)
  Other                                                    297         273
                                                      ---------   ---------
    Net Cash Flows - Financing Activities              (29,507)   (195,951)
                                                      ---------   ---------

Net Increase (Decrease) in Cash and Cash Equivalents    12,904    (189,869)
Cash and Cash Equivalents, Beginning of Year            85,094     248,152
                                                      ---------   ---------
Cash and Cash Equivalents, End of Period              $ 97,998    $ 58,283
                                                      =========   =========









See Notes to Condensed Consolidated Financial Statements.


SUPPLEMENTAL CONDENSED CONSOLIDATED CASH FLOW INFORMATION


                                                       Nine Months Ended
                                                          September 30,
                                                         1996       1995
                                                     -Thousands of Dollars-

Net Income                                            $113,206    $ 48,783
Adjustments to Reconcile Net Income
 to Net Cash Flows
  Depreciation and Amortization Expense                 73,285      69,629
  Deferred Income Taxes and
   Investment Tax Credits - Net                        (68,504)     (4,016)
  Deferred Fuel and Purchased Power                          -       5,287
  Lease Payments Deferred                                3,386       4,408
  Regulatory Amortizations, Net of Interest Imputed
   on Losses Recorded at Present Value                 (12,266)    (11,698)
  Reversal of Loss Provision                            (8,472)          -
  Other                                                 (2,673)     (2,250)
  Changes in Assets and Liabilities which
   Provided (Used) Cash Exclusive of
   Changes Shown Separately
    Accounts Receivable                                (25,611)    (20,715)
    Materials and Fuel                                   1,291      (3,630)
    Accounts Payable                                       582     (10,320)
    Taxes Accrued                                       25,313       4,643
    Other Current Assets and Liabilities                (7,717)     (6,982)
    Other Deferred Assets and Liabilities                7,549         891
                                                      ---------   ---------
Net Cash Flows - Operating Activities                 $ 99,369    $ 74,030
                                                      =========   =========















See Notes to Condensed Consolidated Financial Statements.


COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS
                                                  September 30, December 31,
                                                       1996        1995
                                                   - Thousands of Dollars -
Utility Plant
  Plant in Service                                  $2,122,234  $2,095,679
  Utility Plant Under Capital Leases                   893,064     893,064
  Construction Work in Progress                         65,544      50,898
                                                    ----------- -----------
    Total Utility Plant                              3,080,842   3,039,641
  Less Accumulated Depreciation and Amortization      (905,702)   (859,227)
  Less Accumulated Amortization of Capital Leases      (52,152)    (40,113)
  Less Springerville Unit 1 Allowance                 (163,084)   (162,175)
                                                    ----------- -----------
    Total Utility Plant - Net                        1,959,904   1,978,126
                                                    ----------- -----------

Investments and Other Property                          60,965      52,116
                                                    ----------- -----------

Current Assets
  Cash and Cash Equivalents                             97,998      85,094
  Accounts Receivable                                   87,328      61,717
  Materials and Fuel                                    40,877      42,168
  Deferred Income Taxes - Current                        1,937      18,250
  Other                                                 14,342       7,565
                                                    ----------- -----------
    Total Current Assets                               242,482     214,794
                                                    ----------- -----------

Deferred Debits - Regulatory Assets
  Income Taxes Recoverable Through Future Rates        135,957     135,957
  Deferred Common Facility Costs                        61,397      63,303
  Deferred Springerville Unit 2 Costs                   27,100      42,039
  Deferred Lease Expense                                16,341      19,808
  Other Deferred Regulatory Assets                       8,195       8,576
Deferred Debits - Other                                 15,830      16,211
                                                    ----------- -----------
    Total Deferred Debits                              264,820     285,894
                                                    ----------- -----------
Total Assets                                        $2,528,171  $2,530,930
                                                    =========== ===========


See Notes to Condensed Consolidated Financial Statements.


COMPARATIVE CONDENSED CONSOLIDATED BALANCE SHEETS

CAPITALIZATION AND OTHER LIABILITIES
                                                  September 30, December 31,
                                                       1996        1995
                                                   - Thousands of Dollars -
Capitalization
  Common Stock                                      $  645,211  $  645,295
  Capital Stock Expense                                 (6,357)     (6,357)
  Accumulated Deficit                                 (513,244)   (626,450)
                                                    ----------- -----------
  Common Stock Equity                                  125,610      12,488
  Capital Lease Obligations                            894,106     897,958
  Long-Term Debt                                     1,224,160   1,207,460
                                                    ----------- -----------
    Total Capitalization                             2,243,876   2,117,906
                                                    ----------- -----------

Current Liabilities
  Short-Term Debt                                        3,567      12,039
  Current Obligations Under Capital Leases              10,289      33,389
  Current Maturities of Long-Term Debt                   1,200      12,075
  Accounts Payable                                      25,760      25,178
  Interest Accrued                                      41,214      57,389
  Taxes Accrued                                         41,009      15,696
  Accrued Employee Expenses                              9,786      14,297
  Other                                                  6,409       7,372
                                                    ----------- -----------
    Total Current Liabilities                          139,234     177,435
                                                    ----------- -----------

Deferred Credits and Other Liabilities
  MSR Option Gain Regulatory Liability                  12,436      25,610
  Accumulated Deferred Investment Tax Credits
   Regulatory Liability                                 16,168      19,603
  Other Regulatory Liabilities                          13,945      10,343
  Deferred Income Taxes - Noncurrent                    64,600     145,982
  Other                                                 37,912      34,051
                                                    ----------- -----------
    Total Deferred Credits and Other Liabilities       145,061     235,589
                                                    ----------- -----------
Total Capitalization and Other Liabilities          $2,528,171  $2,530,930
                                                    =========== ===========



See Notes to Condensed Consolidated Financial Statements.


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

NOTE 1.  RATE MATTERS
---------------------

     On March 29, 1996, the ACC authorized a 1.1%, or $6.4 million, increase
in base rates effective March 31, 1996.  Pursuant to the 1996 Rate Order, the
Company agreed to not seek an increase in base rates before January 1, 2000,
subject to conditions specified in such order.

     The 1996 Rate Order recognizes all of Springerville Unit 2 as used and
useful for regulatory purposes, so the Company will be able to recover
operating and capital costs associated with the portion of such generating
unit not previously included in rate base.  Prior to the 1996 Rate Order, the
Company was not recovering through retail rates the depreciation, property
taxes, operating and maintenance expenses other than fuel, or interest costs
associated with the 37.5% of Springerville Unit 2 capacity not deemed by the
ACC to be used and useful for the retail jurisdiction and therefore not
included in rate base (hereinafter referred to as "retail excess capacity
deferrals").  The 1994 Rate Order permitted such costs to be deferred for
future recovery over the remaining useful life of Springerville Unit 2.
However, this phase-in plan did not qualify under FAS 92 and, therefore, such
retail excess capacity deferrals, while deferred for regulatory purposes,
were not deferred for financial reporting purposes and were expensed as
incurred.  Such retail excess capacity deferrals totaled $3 million during
the three months ended March 31, 1996, bringing the total to $81 million at
March 30, 1996.  Beginning March 31, 1996, the total retail excess capacity
deferrals are amortized for regulatory purposes over 20 years.

     In addition, prior to the 1996 Rate Order, the Company was not
recovering through retail rates 37.5% of the deferred Springerville Unit 2
rate synchronization costs ($28 million at March 30, 1996), which were non-
fuel costs of Springerville Unit 2 incurred from January 1, 1991 through
October 14, 1991.  Beginning March 31, 1996, these costs are being amortized
over a three-year period on the Consolidated Statements of Income,
in accordance with the 1996 Rate Order.  These costs ($23 million at September
30, 1996), together with the balance of such costs that the Company has been
recovering through rates, pursuant to the 1994 Rate Order, ($4 million at
September 30, 1996), are reported in the Company's Condensed Consolidated
Balance Sheet as Deferred Springerville Unit 2 Costs.  The amortization of
such costs is included in Depreciation and Amortization on the Company's
Condensed Consolidated Statements of Income and amounted to $6 million and $4
million for the three months ended September 30, 1996 and 1995, respectively,
and $15 million and $11 million for the nine months ended September 30, 1996
and 1995, respectively.

NOTE 2.  TAX ASSESSMENTS
------------------------

  Ruling on Arizona Sales Tax Assessments - Coal Sales

     The Arizona Department of Revenue (ADOR) issued transaction privilege
(sales) tax assessments to the Company alleging that Valencia was liable for
sales tax on gross income received from coal sales, transportation and coal-
handling services to the Company for the period November 1985 through May
1993.  The Company protested these assessments.  On March 11, 1994, the
Arizona Tax Court issued a Minute Entry granting Summary Judgment to the ADOR
and upholding the validity of the assessment issued for the period November
1985 through March 1990.  The Company appealed this decision to the Court of
Appeals.  On September 12, 1996, the Arizona Court of Appeals upheld the
validity of the assessment issued for the period November 1985 through March
1990.  The Company filed with the Court of Appeals a motion for
reconsideration of their September 12, 1996 decision. Additionally, the
Company is protesting the assessments for the period April 1990 through May
1993.

     Previously, the Company had recorded an expense through the Consolidated
Statements of Income (Loss) in current and prior years and related liability
for the amount of sales taxes and interest thereon which the Company then
believed was probable of incurrence.  As a result of the Court of Appeals
decision, the Company recorded an additional expense of approximately $9.2
million in September 1996.  Such expense is included in Taxes Other Than
Income Taxes ($7.3 million) and Other Interest Expense ($1.9 million) in the
Condensed Consolidated Statement of Income.  The amounts recorded by the
Company included estimates for the period June 1993 through September 1996,
the period for which the Company has not yet been assessed.

     Generally, Arizona law requires payment of an assessment due prior to
pursuing the appellate process.  The Company has previously paid, under
protest, a total of $23 million of the disputed sales tax assessments,
subject to refund in the event the Company would prevail.  The Court's
decision does not require additional cash payments by the Company at this
time.

     On May 31, 1996, Valencia was merged into the Company (see Note 3).
Effective with the merger, Valencia no longer supplies coal to the Company.
Instead the Company acquires coal directly from the supplier.  As a result,
the Company believes it is not liable for transaction privilege tax computed
on a basis similar to the assessments described above subsequent to May 31,
1996.

  Ruling on New Mexico Sales Tax Liability

     The New Mexico Taxation and Revenue Department issued a gross receipts
tax assessment to a seller from whom Valencia purchased coal, alleging sales
tax liability of approximately $12 million on payments made to the seller for
coal Valencia purchased for resale and which Valencia resold.  The terms of
the coal supply agreement provide that the buyer shall bear and pay all such
gross receipt taxes.  The assessment covered the period June 1993 to April
1996.  On September 18, 1996, the New Mexico Taxation and Revenue Department
issued an amended assessment showing that no such taxes were owed.  No
adjustment was required as a result of this amended assessment.

  Arizona Sales Tax Assessments - Leases

     The ADOR has issued transaction privilege (sales) tax assessments to the
lessors from whom the Company leases certain property.  The assessments
allege sales tax liability on a component of rents paid by the Company on the
Springerville Unit 1 Leases, Springerville Common Facilities Leases,
Irvington Lease and Springerville Coal Handling Facilities Leases.
Assessments cover the period August 1, 1988 to September 30, 1993.  Under the
terms of the lease agreements, if the ADOR prevails the Company must
reimburse the lessors for taxes paid by them pursuant to indemnification
provisions.

     In the opinion of management, the Company has recorded, through the
Consolidated Statements of Income (Loss) in current and prior years,
a liability for the amount of state taxes and interest thereon for which the
Company feels incurrence is probable as of September 30, 1996.  In the event
that the assessments by the ADOR are sustained, an additional liability would
result.  Although it is reasonably possible that the ultimate resolution of
such matter could result in an additional sales tax expense of up to
approximately $19 million in excess of amounts recorded, management and
outside tax counsel believe that the Company has meritorious defenses to
mitigate or eliminate the assessed amounts.

     Based on the current status of the legal proceedings, the Company
believes that the ultimate resolution of such dispute will occur over a
period of two to four years. Based on consultations with counsel, the Company
believes that the resolution of this tax matter should not have a material
adverse effect on the Company's Consolidated Financial Statements.

NOTE 3.  CONSOLIDATED SUBSIDIARIES
----------------------------------

     On May 31, 1996, Valencia Energy Company, a wholly-owned subsidiary of
the Company, was merged into the Company.  Effective with the merger, the
Company assumed all of the assets and liabilities of Valencia; the
responsibilities for the coal procurement, coal transportation and coal
handling services at Springerville Generating Station; and the
responsibilities as the lessee of the Springerville Coal Handling Facilities
Leases.  Certain amounts previously included in Fuel and Purchased Power have
been reclassified to Capital Lease Expense, Other Operations, Maintenance and
Repairs, Depreciation and Amortization and Taxes Other Than Income Taxes on
the Company's Condensed Consolidated Statements of Income to conform to the
current year's presentation.

     In May 1996, TEP Solar Energy Corporation, a wholly-owned subsidiary of
the Company, and ITN Energy Systems formed Global Solar Energy, LLC for the
purpose of development and manufacturing of photovoltaic materials.  TEP
Solar has a 50% interest in Global Solar.  The investment in Global Solar is
included in the Company's Condensed Consolidated Balance Sheet at September
30, 1996 under Investments and Other Property and in the Company's Condensed
Consolidated Statement of Cash Flows for the nine months ended September 30,
1996 as Investments in Joint Ventures.

     In July 1996, the Company's investment subsidiaries satisfied
approximately $8.5 million of short-term debt obligations with the assignment
of certain finance receivables held by such investment subsidiaries.  Upon
settlement, a provision for loss recorded against such receivables in prior
years was reversed, resulting in income of approximately $8.5 million.

NOTE 4.  VOLUNTARY SEVERANCE PLAN
---------------------------------

     In May 1996, the Company implemented a Voluntary Severance Plan (VSP).
The VSP resulted in an expense in June 1996 for termination benefits of
approximately $14 million included in Voluntary Severance Plan Expense (Gain)
on the Company's Condensed Consolidated Statement of Income.  Approximately
$10 million of the termination benefits were paid in July 1996 with the
remaining benefits to be paid over the next three years.  In addition, the
reduction in the workforce resulted in partial settlements and curtailments
of the Company's two pension plans in July 1996.  As a result of such
settlements and curtailments, in the third quarter of 1996 the Company
recognized a gain of approximately $3.7 million due to the reduction of the
projected benefit obligation associated with severed employees' pension
benefits.  This gain is included in Voluntary Severance Plan Expense (Gain)
on the Company's Condensed Consolidated Statement of Income.

NOTE 5.  COMMON STOCK REVERSE SPLIT
-----------------------------------

     In May 1996, Shareholders approved a one-for-five reverse split of the
Company's common stock.  All references in the financial statements to
average number of shares and per share amounts of the Common Stock have been
retroactively restated to reflect the reverse split.  In addition,
Shareholders also approved the reduction in the number of authorized shares
of Common Stock from 200 million to 75 million.






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

     The benefit for income taxes included in the Comparative Condensed
Consolidated Statements of Income consists of the following:

                                               Three Months Ended
                                                  September 30,
                                                 1996       1995
                                              ---------- ----------
                                            - Thousands of Dollars -
Operating Expenses:
 Deferred Tax Benefit (Expense)
   Federal                                    $ (13,785)
   State                                         (3,552)
                                              ---------- ----------
    Total                                       (17,337)
 Investment Tax Credit Amortization                  15  $      23
                                              ---------- ----------
Total Benefit (Expense) Included in
 Operating Expenses                             (17,322)        23
                                              ---------- ----------
Other Income:
 Deferred Tax Benefit (Expense)
   Federal                                       (3,760)         -
   State                                           (978)         -
                                              ---------- ----------
    Total                                        (4,738)         -
 Reduction in Valuation Allowance                70,283          -
 Investment Tax Credit Amortization                 965      1,212
                                              ---------- ----------
Total Benefit Included in
 Other Income                                    66,510      1,212
                                              ---------- ----------
    Total Benefit for Federal and State
     Income Taxes                             $  49,188  $   1,235
                                              ========== ==========
                                                Nine Months Ended
                                                  September 30,
                                                 1996       1995
                                              ---------- ----------
                                            - Thousands of Dollars -
Operating Expenses:
 Deferred Tax Benefit (Expense)
   Federal                                    $ (10,320)
   State                                         (2,659)
                                              ---------- ----------
    Total                                       (12,979)
 Investment Tax Credit Amortization                  45  $      68
                                              ---------- ----------
Total Benefit (Expense) Included in
 Operating Expenses                             (12,934)        68
                                              ---------- ----------
Other Income:
 Deferred Tax Benefit (Expense)
   Federal                                       (3,377)         -
   State                                           (937)         -
                                              ---------- ----------
    Total                                        (4,314)         -
 Reduction in Valuation Allowance                81,296          -
 Investment Tax Credit Amortization               3,389      3,471
                                              ---------- ----------
Total Benefit Included in
 Other Income                                    80,371      3,471
                                              ---------- ----------
    Total Benefit for Federal and State
     Income Taxes                             $  67,437  $   3,539
                                              ========== ==========

     The recognition of $70.3 million of income tax benefit in the third
quarter of 1996 and $81.3 million of income tax benefit for the nine months
ended September 30, 1996 results from a revision in the estimated amount of
NOLs that the Company believes are likely to reduce future taxable income.
The Company recognizes benefits related to prior period NOLs based on changes
in the estimated amount of NOLs that, in the Company's judgment, are more
likely than not to be realized in the future.

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

                                               Three Months Ended
                                                  September 30,
                                                 1996       1995
                                              ---------- ----------
                                            - Thousands of Dollars -
Federal Income Tax Expense at
 Statutory Rate                               $ (18,659) $ (20,823)
  State Income Tax Expense, Net of
   Federal Deduction                             (2,868)         -
  Investment Tax Credit Amortization                980      1,235
  Reduction in Valuation Allowance               70,283          -
  Net Operating Loss Carryforwards                    -     20,823
  Other                                            (548)         -
                                              ---------- ----------
     Total Benefit for Federal and
      State Income Taxes                      $  49,188  $   1,235
                                              ========== ==========

                                                Nine Months Ended
                                                  September 30,
                                                 1996       1995
                                              ---------- ----------
                                            - Thousands of Dollars -
Federal Income Tax Expense at
 Statutory Rate                               $ (16,019) $ (15,835)
  State Income Tax Expense, Net of
   Federal Deduction                             (2,462)         -
  Investment Tax Credit Amortization              3,434      3,539
  Reduction in Valuation Allowance               81,296          -
  Net Operating Loss Carryforwards                    -     15,835
  Use of Capital Loss Carryforwards               1,663          -
  Other                                            (475)         -
                                              ---------- ----------
     Total Benefit for Federal and
      State Income Taxes                      $  67,437  $   3,539
                                              ========== ==========

NOTE 7.  RECLASSIFICATION
-------------------------

     Minor reclassifications, other than those described in Note 3, have been
made to the prior year financial statements to conform to the current year's
presentation.



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

RESULTS OF OPERATIONS


     The following contains information regarding  the results of the  Company's
operations during the third quarter and first nine months of 1996 compared  with
the third quarter and first  nine months of 1995,  the outlook for dividends  on
Common Stock, and  changes in  liquidity and  capital resources  of the  Company
during the  third quarter  and first  nine months  of 1996.   Also  management's
expectations of identifiable material trends are discussed.

 OVERVIEW

     Earnings for the  Company improved significantly  during the third  quarter
and first nine months of 1996 relative to the same periods in 1995.  Net  income
for the third quarter improved to $102.5 million, a 69% increase over the  $60.7
million in net income recorded for the third quarter of 1995.  Net income during
the first  nine months  of 1996  also  increased to  $113.2 million  from  $48.8
million for  the same  period in  1995.     As  described below,  several  items
recorded during 1995 and 1996 had a  one-time effect on earnings.  In  addition,
net income for the third quarter and first  nine months of 1996 was affected  by
the recognition  of substantial  non-cash  tax benefits.     Due  to  continuing
improvement in the Company's profitability, the Company recognized non-cash  tax
benefits associated with the  expected future utilization  of federal and  state
net operating loss carryforwards  generated in prior  periods.  Such  recognized
benefits totaled $70.3 million for the  third quarter of 1996 and $81.3  million
for the first nine months of 1996.  See Results of Utility Operations,
Income Taxes below.  Based on the net income recorded for the first nine
months of 1996, the Company ended the third quarter of 1996 with common
stock equity of $125.6 million, compared to a balance of $12.5 million as of
December 31, 1995.

     Items having a one-time effect on earnings during the third quarter of 1996
include a $9.2 million charge related to a court ruling on contested sales  tax
assessments, a $3.7 million reduction in pension expense related to
implementation of the Company's Voluntary Severance Plan (VSP), and income  of
$9.5 million attributable to the settlement  of claims and property tax refunds
involving the Company's investment subsidiaries.  See Notes 2, 3, and 4 of
Notes to Condensed Consolidated Financial Statements for information
pertaining to these items.  In addition to these items, net income for the
first nine months of 1996 was affected by a one-time second quarter charge
of $14.0 million related to the VSP.  The Company also recorded a one-time
$12.2 million reduction to fuel and purchased power expense in the third
quarter of 1995  due to the  satisfaction of certain fuel contract  provisions.
Net income for the  first nine months of  1995 was also  affected by a  one-time
gain  of  $3.0  million  related  to  sales  of  securities  by  the  investment
subsidiaries.  Excluding each of these one-time items from the periods in  which
they were recorded, the Company's income before income taxes increased to  $49.5
million during the  third quarter  of 1996 from  $47.2 million  during the  same
period in  1995.   Excluding  the  effects of  these  same one-time  items,  the
Company's income before income taxes increased to $56.0 million during the first
nine months of 1996  from $30.0 million during  the same period  in 1995.  This
improvement in adjusted pre-tax income is  attributable, among other things, to
growth in  the  number  of  customers in  the  Company's  retail  service  area,
increased revenues from a 1.1% retail  rate increase implemented in March  1996,
and reductions in both operating and capital costs.

     Despite such improvements, the Company's financial prospects continue to be
subject to significant economic, regulatory and other  uncertainties, some  of
which are beyond the Company's control.  These uncertainties include the  degree
of utilization of generation capacity through either retail electric service  or
wholesale sales and the extent to which the Company, due to continued high
financial and operating leverage,  can alter  operations  and reduce costs in
response to unanticipated economic downturns or industry changes.  The Company's
success will depend, in part, on the  Company's ability to contain the costs  of
serving retail customers and the level of sales to such customers.  Although the
Company anticipates continued growth in sales over the next five years primarily
as a result of anticipated population and economic growth in the Tucson area,  a
number of factors such as changes in the economic and regulatory environment and
the increasingly competitive electric markets could affect the Company's levels
of sales.

     The Company is developing strategies to address the uncertainties discussed
above as well as to position itself to benefit from the changing regulatory
environment.  Such strategies include the implementation of enhanced cost
measurement and management techniques, organizational realignment and staffing
reductions, and the development of new entities to provide energy services to
markets beyond the Company's retail service territory.  See Note 4 of Notes
to Condensed Consolidated Financial Statements, Voluntary Severance Plan,
and Investments in Energy-Related Ventures below.

     If the Company is unable to make sales at prices adequate to recover its
costs or if for other reasons the Company fails to maintain or improve its cash
flows, the Company's ability to meet its obligations may be jeopardized.  During
the period 1999-2003, approximately $250 million of the Company's long-term debt
obligations will mature.  Letters of credit supporting $805 million of the
Company's long-term variable rate debt obligations are also scheduled to expire
during the period 1999-2002.  Should the credit ratings on the Company's senior
debt securities reach investment grade levels on certain dates or during certain
periods subsequent to January 1, 1997, the expiration dates for such letters  of
credit would move forward to the period  1997-2000.  In the event that  expiring
letters of credit are not replaced or extended, the corresponding variable  rate
debt obligations would  be subject to  mandatory redemption.   In addition,  the
Company's borrowings under the Renewable Term Loan, which totaled $31 million as
of October 22,  1996, are scheduled  to be repaid  during the period  1997-1999.
While the Company intends to pay or refinance maturing bonds and bank loans, and
to replace or extend expiring letters of credit, there can be no assurance  that
the Company will be able to pay such debt  or replace or extend such letters  of
credit.  The Company's future cash flows will  also be affected by the level  of
interest rates due to the significant amount of variable rate debt  outstanding.
See Liquidity and Capital Resources below.

     The Company's  capital  structure is  highly  leveraged and  the  Company's
ability to  raise  capital (through  either  public or  private  financings)  is
limited.  The Company's ability to obtain  debt financing is limited due to  the
restrictive covenants contained in  existing obligations to  creditors.  To  the
extent the Company refinances its debt  obligations in order to repay them  when
due, such refinancing may be made on terms which may be adverse to the  Company.
Such terms could include, among other things, higher interest rates and  various
restrictive covenants, such as dividend payment restrictions.  Access to  equity
capital may  be  limited because  of  the  Company's present  inability  to  pay
dividends.  See Dividends on Common Stock below.

     During the  next twelve  months, the  Company expects  to be  able to  fund
continuing operating activities and construction expenditures with internal cash
flows, existing cash balances, and, if necessary, drawdowns under the  Renewable
Term Loan  and/or  borrowings under  the  Revolving  Credit.   As  discussed  in
Liquidity and Capital Resources below, there  are  a variety  of  factors  that
could cause actual cash  flows to differ materially  from projected cash  flows.
Cash balances are invested in investment grade, money-market securities with  an
emphasis on preserving the principal amount invested.

 COMPETITION


        WHOLESALE


     The Company competes with other utilities, marketers and independent  power
producers in the sale of electric  capacity and energy in the wholesale  market.
The Company's rates for wholesale sales  of capacity and energy, generally,  are
not permitted to exceed  rates determined on a  cost of service  basis.  In  the
current market,  wholesale prices are substantially below costs determined on  a
fully allocated cost of  service basis, but, in  all instances, wholesale  sales
have been made at prices  which exceed the level  necessary to recover fuel  and
other variable costs.   It is  expected that competition  to sell capacity  will
remain vigorous, and  that prices will  remain depressed for  at least the  next
several years,  due  to  increased  competition  and  surplus  capacity  in  the
southwestern United States.  Competition for the sale of capacity and energy  is
influenced by  many  factors, including  the  availability of  capacity  in  the
southwestern United States, the availability and prices of natural gas and  oil,
spot energy prices  and transmission access.   In addition,  the Energy Act  has
promoted increased  competition  in  the wholesale  electric  power  markets  by
encouraging the participation of utility affiliates, independent power producers
and other non-utility participants in the development of power generation.   The
Energy Act also confers expanded authority  upon FERC to issue orders  requiring
electric utilities to transmit power and  energy to or for wholesale  purchasers
and  sellers,  and  to  require  electric  utilities  to  enlarge  or  construct
additional transmission capacity to provide these services.

     The FERC issued two orders pertaining  to transmission access on April  24,
1996.  FERC  Order No. 888,  among other things,  requires all public  utilities
that own,  control,  or  operate interstate  transmission  facilities  to  offer
transmission service to others under a  single tariff that incorporates  certain
minimum terms and conditions  of transmission service  established by the  FERC.
This tariff must also be used by public utilities for their own wholesale market
transactions.  Transmission  and generation services  for new wholesale  service
are to  be unbundled  and priced  separately.   A  Phase  I open  access  tariff
containing the  terms and  conditions outlined  in the  Order was  filed by  the
Company on July  9, 1996.   The FERC has  scheduled a hearing  on the  Company's
Phase I open access tariff for May 1997.  A settlement conference on this matter
has also been scheduled for November 6, 1996.

     FERC Order Number 889 requires transmission service providers to establish
or participate  in an  open access  same-time  information system  (OASIS)  that
provides information on the availability  of transmission capacity to  wholesale
market participants.  The order also  establishes standards of conduct that  are
designed to prevent employees of a public utility engaged in marketing functions
from obtaining preferential access to OASIS-related information or from engaging
in unduly discriminatory business practices.  As such, public utilities will  be
required to completely separate their wholesale power marketing and transmission
operation functions.   Compliance with  these rules  is required  by January  3,
1997.

     Given the intense  level of competition  already present  in the  wholesale
market for electricity, the  Company does not believe  that Order Number 888  or
Order Number 889 will have a material effect on the Company's future results  of
operations.   However, these  orders could  assume greater  significance if  the
Company's retail service territory were to  be opened to competing suppliers  of
electricity.


RETAIL

     Under current law, the Company is not in direct competition with any  other
regulated electric utility for electric service in the Company's retail  service
territory.  However, the Company does compete against gas service suppliers  and
others who may provide energy services which would be substitutes for, or bypass
of, the Company's services.  In addition, the ACC is considering a proposed rule
that, if adopted, would phase-in retail  electric competition in Arizona over  a
four year period beginning January 1, 1999.

     Electric energy for meeting retail customers' needs primarily competes with
natural gas, an alternative  fuel source for certain  retail energy uses.   Such
uses may  include  heating,  cooling  and  a  limited  number  of  other  energy
applications.  In most applications, electric energy is a cost effective  source
of energy compared with natural gas.   Also, customers, particularly  industrial
and large commercial customers, may own and operate facilities to generate their
own  electric  energy  requirements  and,  if  such  facilities  are  qualifying
facilities, to require the displaced electric utility to purchase the output  of
such facilities at "avoided  costs" pursuant to PURPA.   Such facilities may  be
operated by  the customers  themselves or  by other  entities engaged  for  such
purpose.

     The Company actively markets energy and customized energy-related  services
to meet customer  needs. The  Company has  to date  lost no  customers to  self-
generation in part  because of  such efforts.   For example,  the Company's  two
mining customers, which provide approximately 10% of the Company's total  annual
revenues from retail customers, each have considered self-generation.   However,
following negotiations with  the Company in  1993 and 1994,  new contracts  were
executed that included, among other things, rate reductions and term extensions.
These contracts  expire  after the  year  2000, subject  to  various  provisions
allowing the  customers  to  terminate  partially  or  entirely,  under  certain
circumstances upon at least one and up to two  years prior notice.  To date,  no
such notice has been received.  The  ability to enter into or extend  contracts,
to avoid early termination, and to retain customers will be dependent on,  among
other things, the Company's ability to contain its costs, market conditions  and
alternatives available to customers.

     On October  9,  1996,  the  ACC  voted to  publish  a  Notice  of  Proposed
Rulemaking (NOPR) and to establish a  procedural schedule for the  consideration
of a  proposed rule  on retail  electric  competition.   The proposed  rule,  if
ultimately adopted  by the  ACC, would  open up  the service  territory of  each
"Affected Utility" to competing electric service providers on a phased-in  basis
over the period 1999 to  2003. Beginning no later  than January 1, 1999,  retail
customers representing at least 20% of each Affected Utility's 1995 peak  demand
would be  eligible to  choose their  electric  service provider  from  companies
certificated by  the ACC.   Beginning  no  later than  January 1,  2001,  retail
customers representing at least 50% of each Affected Utility's 1995 peak  demand
would be  eligible to  choose  their service  provider.   All  remaining  retail
customers would then be eligible to  choose from certificated service  providers
by January  1, 2003.   Under  the  proposed rule,  Affected Utilities  would  be
required to provide  distribution wheeling services  (i.e., retail wheeling)  at
rates approved by  the ACC  in order to  facilitate sales  by competing  service
providers.

     The Affected Utilities whose service territories would be open to competing
service providers under the proposed rule include Tucson Electric Power Company,
Arizona Public Service Company, Citizens Utilities Company, and several electric
cooperatives.  However, electric  cooperatives would be  permitted to request  a
modification to the proposed  phase-in schedule in order  to preserve their  tax
exempt  status  or  to  modify  power  supply  arrangements  and  related   loan
agreements.  Each of the Affected Utilities would be eligible to offer  electric
service  to   customers  of   other   certificated  entities   within   Arizona.
Participation in competitive  retail markets by  other electric utilities  which
are not  regulated by  the ACC,  such  as the  Salt  River Project  and  certain
municipal utilities, would  be permitted under  the proposed rule  on a  similar
reciprocal basis (i.e.,  their service territories  would be  similarly open  to
competing service providers).  However, such participation would likely  require
action by the Arizona legislature.

     The proposed  rule specifies  that  the ACC  shall  allow the  recovery  of
unmitigated stranded costs by Affected Utilities.   Stranded cost is defined  in
the  proposed  rule  as  the  net  difference  between  the  value  of   prudent
jurisdictional assets  and  obligations  under traditional  regulation  and  the
market value of those assets and obligations in a competitive retail market.  In
order to recover stranded costs, utilities would have to demonstrate to the  ACC
that they  have taken  every feasible,  cost effective  measure to  mitigate  or
offset stranded costs, and utilities would have to file estimates of unmitigated
stranded costs with the ACC which are fully supported by analyses and records of
market transactions  undertaken by  willing buyers  and sellers.    Furthermore,
Affected Utilities would have  to seek ACC approval  of distribution charges  or
other means of recovering unmitigated stranded  costs from customers who  reduce
or terminate service  as a direct  result of retail  competition.  The  proposed
rule specifies  that  other issues  related  to  the analysis  and  recovery  of
stranded costs would be  examined by a working  group following adoption of  the
proposed rule.   Until  such time  as  the ACC  adopts specific  guidelines  for
quantifying unmitigated stranded costs, including  the methods used to  identify
and value jurisdictional assets and obligations,  the Company believes that  any
estimate of unmitigated stranded costs would be highly speculative.

     Should the rule become effective in its present form, each Affected Utility
would be required to file unbundled service tariffs with the ACC by December 31,
1997, for the  following services: distribution  wheeling service, metering  and
meter  reading   services,  billing   and  collection   services,  open   access
transmission service (as approved by  the Federal Energy Regulatory  Commission,
if applicable), ancillary services (as defined by the Federal Regulatory  Energy
Commission in Order  No. 888),  information services  such as  the provision  of
customer information to  other service providers,  and other ancillary  services
necessary for safe and reliable  system operation.  Until  such time as the  ACC
determines that  retail competition  has  been substantially  implemented,  each
Affected Utility  would also  have to  provide  standard offer  bundled  service
equivalent to the services  currently being provided at  regulated rates to  all
consumers located in their current retail service areas.

     The proposed rule envisions that new  market entrants would be required  to
obtain a certificate of convenience and necessity from the ACC prior to offering
retail electric service.  New market  entrants would be required to  demonstrate
adequate technical and financial capabilities to the ACC prior to certification.
In addition, all competitive market participants, including Affected  Utilities,
would be required to obtain at least one-half of one percent of the energy  sold
competitively in the Arizona retail market  from new solar generating  resources
by January 1, 1999.  This required  percentage would increase to one percent  on
January 1, 2002.   New solar resources  are defined under  the proposed rule  as
photovoltaic or solar thermal resources that  are installed on or after  January
1, 1997.

     Under the  proposed  rule, certain  issues  pertaining to  retail  electric
competition would be addressed by the ACC in workshops or proceedings to be held
after adoption of the rule.  Such issues  include the guidelines to be used  for
stranded  cost  quantification  and  recovery,  the  possible  formation  of  an
independent system  operator  for  electrical  transmission  facilities,  issues
related to  system  reliability  and safety,  and  the  methods to  be  used  in
determining consumer participation during the early phase-in periods.

     The proposed rule  is subject  to public comment  and approval  by the  ACC
prior to becoming effective.  In comments filed with the ACC on an earlier draft
version of  the  proposed  rule,  the  Company  stated  its  belief  that  major
financial,  legal,  operational,  pricing,  and  reliability  issues  were   not
adequately addressed  by the  draft  rule. The  Company  plans to  file  written
comments with the ACC on the proposed rule  after publication of the NOPR.   The
Company also plans to participate in the oral proceedings scheduled for December
2, 3, and 4,  1996.  At the  present time the Company  is unable to predict  the
effect such a  proposed rule  would have, if  adopted, on  the Company's  future
results of operations.

     The Arizona  legislature  is also  investigating  the potential  merits  of
retail electric competition.   Legislation has been passed  which calls for  the
establishment of  a  joint  legislative study  committee  on  electric  industry
competition.  This committee is charged with studying and making recommendations
on a wide  variety of issues  related to electric  industry competition.     The
committee is to complete a report to the legislature no later than December  31,
1997.  Such report is to contain a proposal for electric utility competition for
implementation by December 31, 1999.  An advisory committee on electric industry
competition was  also  created,  consisting  of  members  representing  electric
consumers, electric utilities,  various State  offices and  agencies, and  other
interested parties.  The Company has a representative on such advisory committee
and intends to actively participate as a committee member.

     The Company continues  to assess the  likely impact of  the ACC's  proposed
rule on retail competition,  FERC Order Nos.  888 and 889,  the Energy Act,  and
other possible legislation on the Company.  The Company is unable to predict the
ultimate impact of increased wholesale and  retail competition on the  Company's
future results of operations.

 ACCOUNTING FOR THE EFFECTS OF REGULATION

     The Company  prepares  its  financial statements  in  accordance  with  the
provisions of  FAS 71.   This  statement  requires a  cost-based  rate-regulated
utility  to  reflect  the  effect  of  regulatory  decisions  in  its  financial
statements.  In certain circumstances, FAS 71 requires that certain costs and/or
obligations be reflected in a deferral account  in the balance sheet and not  be
reflected in  the  statement of  income  or  loss until  matching  revenues  are
recognized.  Therefore, the Company's  Condensed Consolidated Balance Sheets  at
September 30, 1996, and  at December 31, 1995,  contain certain line items  (for
example, Deferred  Debits -  Regulatory Assets  and MSR  Option Gain  Regulatory
Liability, Accumulated Deferred Investment Tax Credits Regulatory Liability, and
Other Regulatory Liabilities) solely as a  result of the application of FAS  71.
In addition, a  number of  line items  in the  Company's Condensed  Consolidated
Statements of Income for the quarters ended September 30, 1996 and 1995, and the
nine months ended September 30, 1996  and 1995, also reflect the application  of
FAS 71.

     If at some point in the future the Company determines that all or a portion
of the Company's regulated operations  no longer meet the criteria for continued
application of FAS 71, the Company would be required to adopt the provisions  of
FAS 101 for that portion of the operations  for which FAS 71 no longer  applied.
Adoption of FAS 101 would require the Company to write off its regulatory assets
and liabilities as of  the date of adoption  of FAS 101  and would preclude  the
future deferral in the balance sheet of costs not recovered through rates at the
time such costs were incurred, even if such costs were expected to be  recovered
in the future.   Based on the  balances of the  Company's regulatory assets  and
liabilities as of September 30, 1996, the Company estimates that future adoption
of FAS 101  for all of  the Company's regulated  operations would  result in  an
extraordinary loss of $139 million, which includes a reduction for the  related
deferred income taxes of  $68 million.   The Company's cash  flows would not  be
affected by the adoption of FAS 101.

     At the present  time, the Company  recovers the costs  of its plant  assets
through its  regulated revenues.   If  in the  future the  Company  discontinues
accounting according to the provisions of FAS 71, the Company would also need to
consider whether the  markets in which  the Company is  then selling power  will
allow the Company to  recover the costs of  its plant assets.   If at that  time
market prices are not expected to allow the Company to recover the costs of  its
plant assets,  additional write-downs  may be  required in  accordance with  the
provisions of FAS 121.  The Company is presently unable to predict the  amounts,
if any, of any  potential future write-downs attributable  to the provisions  of
FAS 121 under such circumstances.

 INVESTMENTS IN ENERGY-RELATED VENTURES

     The Company  continues to  evaluate  and pursue  energy-related  investment
opportunities through its wholly-owned  subsidiaries Nations Energy  Corporation
(Nations Energy), TEP Solar Energy Corporation  (TEP Solar) and SWPP  Investment
Company (SWPP).   In addition, the Company has a currently exercisable option to
purchase for a nominal amount a 50% interest in New Energy Ventures, Inc. (NEV),
a buyer's  agent providing  load aggregation  and  advisory services  to  energy
consumers primarily in the State of California.

     On August 27, 1996, NEV announced that it had reached an agreement with the
Bonneville Power  Administration  (BPA)  to purchase  200  MW  of  surplus  firm
capacity for a five  year period beginning  January 1, 1998.   In addition,  NEV
also obtained an option to purchase an  additional 200 MW of firm capacity  from
BPA for a five  year period beginning  from the time  such option is  exercised.
Through a  companion agreement,  NEV also  agreed to  purchase seasonal  economy
power from BPA.  These agreements were reached by NEV in anticipation of  making
future sales  of electric  capacity  and energy  to  clients.   Retail  electric
competition is presently scheduled to be introduced in California on a phased-in
basis beginning on or before January 1, 1998.

 DIVIDENDS ON COMMON STOCK

     The  Company  is  precluded  by  restrictive  covenants  in  certain   debt
agreements from declaring or paying dividends.  No dividend on Common Stock  has
been declared or paid since 1989.

     Under the  applicable  provisions  of amendments  to  the  Arizona General
Corporation Law, in  effect starting  in 1996, a  company is  permitted to  make
distributions to shareholders unless, after giving effect to such  distribution,
either (i) the company would not  be able to pay its debts  as they come due  in
the usual course of business, or (ii)  the company's total assets would be  less
than the sum of its total liabilities  plus the amount necessary to satisfy  any
liquidation preferences of  shareholders with preferential  rights.  Under  such
provisions, the Company is currently able to declare and pay a dividend.

     The Company's ability to pay a dividend is restricted, however, by  certain
covenants of the General First Mortgage applicable so long as certain series  of
First  Mortgage  Bonds  (aggregating  $184  million  in  principal  amount)  are
outstanding.  These covenants restrict the payment of dividends on Common  Stock
if certain cash flow coverage and retained earnings tests are not met.  The cash
flow coverage test would prevent the Company from paying dividends on its Common
Stock until such  time as  the Company's cash  flow coverage  ratio, as  defined
therein, is greater or  equal to a ratio  of 2 to 1,  and the retained  earnings
test would  permit  dividend  payments if  the  Company  has  positive  retained
earnings rather than  an accumulated  deficit.  As of September  30, 1996,  the
Company had a cash  flow coverage ratio in excess of 2  to 1 and the  Company's
accumulated deficit was  $513 million.   Such  covenants will  remain in  effect
until the First Mortgage Bonds of such series  have been paid or redeemed.   The
latest maturity of such First Mortgage Bonds is in 2003.

     The MRA contains  a similar  dividend restriction  based on  the amount  of
retained earnings.  Such restriction will  no longer apply if (i) the  Renewable
Term Loan and the Revolving  Credit have been paid  in full and the  commitments
relating thereto have been  terminated and (ii)  the Company's senior  long-term
debt is  rated investment  grade.   At  October 22,  1996, the  Company's  total
outstanding amount under the Renewable Term Loan was $31 million, and to date no
amounts have been borrowed under the Revolving Credit.  Commitments relating  to
such facilities permit the  Company to borrow an  additional $133 million  under
the Renewable Term Loan and $50 million  under the Revolving Credit.  Also,  the
Company's senior debt is currently rated below investment grade.

     In order  for the  Company to  pay  a dividend  when such  covenants  would
otherwise restrict such payment, the Company  would have to (i) obtain a  waiver
or an amendment  to the  MRA's retained earnings  covenant and  (ii) redeem  all
outstanding  First  Mortgage   Bonds  of  the   series  that  contain   dividend
restrictions or amend the General First  Mortgage.  Such General First  Mortgage
amendment would require approval by holders of 75% of all First Mortgage Bonds.

     In addition  to  such  restrictive  covenants,  the  Company  may  also  be
restricted under the Federal Power Act from paying dividends from funds properly
included in capital  account.   The provisions of  the Federal  Power Act  leave
unclear the scope of any such restriction and its potential applicability to the
Company.


  EARNINGS


     The Company recorded net income of  $102.5 million in the third quarter  of
1996 compared with net  income of $60.7  million in the  third quarter of  1995.
The net income per average share of Common Stock was $3.19 for the third quarter
of 1996 compared with net income per average share of Common Stock of $1.89  for
the third quarter of 1995.

     For the  first nine  months of  1996, the  Company recorded  net income of
$113.2 million, compared with net income of $48.8 million recorded for the first
nine months of 1995.  The net income per average share of Common Stock was $3.52
for the first nine months of 1996, compared with net income per average share of
Common Stock of $1.52 for the first nine months of 1995.



RESULTS OF OPERATIONS


 RESULTS OF UTILITY OPERATIONS

   SALES AND REVENUES

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


                                                           Increase/(Decrease)

    Three Months Ended September 30      1996      1995     Amount     Percent

     Electric kWh Sales (000):
       Retail Customers                2,240,499 2,232,633    7,866      0.4%
       Sales for Resale                  836,721   633,391  203,330     32.1
          Total                        3,077,220 2,866,024  211,196      7.4


     Electric Revenues (000):
       Retail Customers                 $195,261  $192,929  $ 2,332      1.2%
       Amortization of MSR Option
          Gain Regulatory Liability        5,014     5,014       -        -
       Sales for Resale                   22,803    19,844     2,959    14.9
          Total                         $223,078  $217,787   $ 5,291     2.4


                                                             Increase/(Decrease)

     Nine Months Ended September 30       1996      1995      Amount     Percent

     Electric kWh Sales (000):
       Retail Customers                5,718,042  5,401,473  316,569      5.9%
       Sales for Resale                2,231,072  1,651,537  579,535      35.1
          Total                        7,949,114  7,053,010  896,104      12.7


     Electric Revenues (000):
       Retail Customers                 $482,511   $451,124 $ 31,387      7.0%
       Amortization of MSR Option
          Gain Regulatory Liability       15,040     15,040      -         -
       Sales for Resale                   58,088     56,673    1,415      2.5
          Total                         $555,639   $522,837 $ 32,802      6.3



     KWh sales to  retail customers increased  by 0.4% in  the third quarter  of
1996 compared with the third quarter of 1995.    Despite a 2.9% increase in  the
average number of retail customers, retail  kWh sales remained nearly  unchanged
due to milder temperatures  in the third  quarter of 1996  compared to the  same
period in 1995.   KWh sales to retail  customers increased by 5.9% in the  first
nine months of 1996 compared with the same period in 1995.  Sales were higher in
the first nine months  of 1996 due  to warmer weather  conditions in the  second
quarter, growth in the average number  of retail customers, and a 6.6%  increase
in sales to industrial customers.  Based on cooling degree days, a commonly used
measure in the electric industry that  is calculated by subtracting 75 from  the
average of the  high and low  daily temperatures, the  Tucson area registered  a
decrease of approximately 17% in such cooling degree days for the third  quarter
of 1996 compared with the same period  in 1995, and a decrease of  approximately
9% in such cooling degree days compared with  the ten year average for the  same
period from 1986 to 1995.  Such cooling degree days were 862, 1,040, and 949 for
the third quarter of 1996, 1995, and the ten year average for the third quarter,
respectively.

     Revenues from sales to retail customers increased in the third quarter  and
first nine months of 1996 compared with the  same periods in 1995 due to  higher
kWh sales discussed  above and a  1.1% retail rate  increase implemented by  the
Company on March 31, 1996.  See Note 1 of Notes to Condensed Consolidated
Financial Statements, Rate Matters.

     Sales for resale increased by 32.1%  in the third quarter of 1996  relative
to the same period in 1995 due primarily to increased power sales to  California
from the Southwestern United States.   This increase in regional sales  occurred
due to a reduction  in power transfer capability  between the Pacific  Northwest
and California.   A reduction in  power transfer capability  was imposed by  the
Western Systems  Coordinating Council  due to  transmission system  disturbances
experienced in  July and  August of  1996.   Since the  system disturbances  and
subsequent derating  of transmission  lines occurred  during a  period of  heavy
electrical demand in California, power sales to California from the Southwestern
United States were higher than normal during the third quarter of 1996.    Sales
for resale increased by 35.1% in the first nine months of 1996 compared with the
same period in 1995 due to higher third quarter sales, warmer weather conditions
during the second quarter of 1996,  and the availability of generating  capacity
which had been out of service in early 1995 for planned maintenance  activities.
Higher natural gas prices during the third quarter and first nine months of 1996
also contributed  to  increased  sales  of  surplus  coal-fired  energy  in  the
wholesale market.

     Revenues from sales for resale were  14.9% higher in the third quarter  and
2.5% higher in the  first nine months of  1996 relative to  the same periods  in
1995.  Such revenues did not  increase proportionately with the increase in  kWh
sales during these periods due to the expiration of a firm power sale  agreement
with Nevada Power Company in December  1995.  In addition, lower priced  economy
energy sales represented a higher percentage of total wholesale kWh sales during
the first nine months of 1996 relative to the same period in 1995.

    OPERATING EXPENSES

     Total Fuel and Purchased Power expense  increased in the third quarter  and
first nine  months  of 1996  compared  with the  same  periods in  1995  due  to
increased kWh  sales and  a one-time  $12.2 million  reduction to  fuel  expense
recorded in the third quarter of 1995.  This one-time non-cash reduction to fuel
expense was related to the satisfaction of certain fuel contract provisions.

     Taxes Other Than Income Taxes increased in the third quarter and first nine
months of 1996 compared with the  same periods in 1995 due  to a charge of  $7.3
million in the  third quarter of  1996 related to  a court  ruling on  contested
sales tax assessments. See Note 2 of Notes to Condensed Consolidated
Financial Statements, Tax Assessments.

     Voluntary Severance  Plan Expense  (Gain) for  the  third quarter  of  1996
reflected a net gain  of $3.4 million.   This net gain was  comprised of a  $3.7
million benefit reflecting curtailments  and settlements of pension  liabilities
related to the VSP, as well as additional charges of $0.3 million related to the
VSP.  During the first nine months of 1996,  a net expense of $10.6 million  was
recorded to reflect the Company's implementation of the VSP.  See Note 4 of
Notes to Condensed Consolidated Financial Statements, Voluntary Severance Plan.

     Income Taxes  expense included  in Operating  Expenses increased  to  $17.3
million in the third quarter of  1996, compared with a $23,000 benefit  recorded
                                       29
in the third quarter  of 1995.  For  the first nine months  of 1996, income  tax
expense increased to $12.9  million relative to a  $68,000 benefit recorded  for
the same period in 1995.  See Income Taxes below and Note 6 of Notes to
Condensed Consolidated Financial Statements, Income Taxes.

    OTHER INCOME

     Income Tax benefits included in Other Income increased in the third quarter
of 1996 to $66.5 million, compared with  a $1.2 million benefit recorded in  the
third quarter of 1995.  For the first  nine months of 1996, Income Tax  benefits
included in Other Income increased to $80.4 million, compared with a benefit  of
$3.5 million recorded  for the  same period  in 1995.   See Income Taxes below
and Note 6 of Notes to Condensed Consolidated Financial Statements, Income
Taxes.

     A Reversal of Loss Provision in the amount of $8.5 million was recorded  in
the third  quarter of  1996.   The reversal  of loss  provision relates  to  the
satisfaction by  the Company's  investment  subsidiaries of  approximately  $8.5
million of short-term debt obligations through the assignment of certain finance
receivables held by such investment subsidiaries. See Note 3 of Notes to
Condensed Consolidated Financial Statements, Consolidated Subsidiaries.


  INTEREST EXPENSE

     Interest expense on long-term debt decreased in the third quarter and first
nine months of 1996 relative to the same periods  in 1995 due to a reduction  in
the aggregate amount of debt outstanding and due to lower interest rates on  the
Company's variable rate debt obligations.  The weighted average interest rate on
the Company's tax exempt variable rate  debt obligations was 3.5% for the  first
nine months of 1996 compared with 3.9 percent for the same period in 1995.

      INCOME TAXES

     Net income tax benefits increased $48 million in the third quarter of  1996
compared with the  third quarter  of 1995 due  primarily to  the recognition  of
$70.3 million,  or  $2.19 per  average  share of  Common  Stock, of  income  tax
benefits related to the  expected future utilization of  federal and state  NOLs
generated in prior periods. The Company believes it is more likely than not that
such NOLs will be used in the future to reduce income taxes payable.  The  $70.3
million benefit  is  partially offset  by  income  tax expense  related  to  the
operating results for the third quarter of 1996.

     Net income tax benefits increased $63.9  million for the nine months  ended
September 30, 1996 compared with  the same period in  1995 due primarily to  the
recognition of $81.3  million of  income tax  benefits related  to the  expected
future utilization of NOLs,  partially offset by the  recognition of income  tax
expense related to the operating results for the nine months ended September 30,
1996.

     The recognition of the $70.3 million  benefit in the third quarter of  1996
and the  $81.3 million  benefit for  the nine  months ended  September 30,  1996
results from  a  revision in  the  estimated amount  of  NOLs that  the  Company
believes are likely  to reduce future  taxable income.   The Company  recognizes
benefits related to prior period NOLs  based on changes in the estimated  amount
of NOLs that, in the Company's judgment, are more likely than not to be realized
in the future.   A significant  factor, among others,  considered in  estimating
such amount  is the  three year  historical average  book income  before  income
taxes.

     If the  Company's operating  results continue  to improve,  the three  year
historical average net book income would continue to increase.  Correspondingly,
the Company would likely recognize NOL and ITC carryforward benefits totaling up
to approximately $70 million over the  next two years relating to the  remaining
unrecognized balance of prior period NOLs at September 30, 1996.  The amount  of
NOL and ITC benefits  recognized in periods subsequent  to the third quarter  of
1996, if any, and the timeframe in which such benefits are recognized, may  vary
significantly from the estimates described in  this paragraph.  In addition,  in
future periods when such NOLs are utilized to offset taxable income, income  tax
expense shown on the Company's Consolidated Statements of Income
(Loss) will not be reduced to reflect such utilization.

 LIQUIDITY AND CAPITAL RESOURCES

     The Company expects to generate sufficient  cash flows during 1996 to fund
its continuing operating activities and construction expenditures.  However, the
Company's projected  cash flows  are  subject to  variation  due to  changes  in
wholesale revenues, changes  in short-term  interest rates,  and other  factors.
For example, an increase in short-term  interest rates of 100 basis points  (1%)
would result in an approximate $10 million increase in annual interest payments.
If cash flows  were to fall  short of expectations,  the Company  would rely  on
existing cash  balances,  borrowings  under the  Renewable  Term  Loan  and,  if
necessary, borrowings under the Revolving Credit.

     At October  22,  1996,  the Company  had  a  loan balance  of  $31  million
outstanding under  the Renewable  Term Loan,  and to  date, no  amount has  been
borrowed under the Revolving Credit.  The Renewable Term Loan commitment and the
Revolving Credit commitment were $164 million and $50 million, respectively.

     The Company's cash  and cash equivalents  balance at October 22, 1996  was
approximately $113 million.   Cash  balances are  invested in  investment grade
money-market securities with  an emphasis  on preserving  the principal  amounts
invested.

CASH FLOWS

     The Company's cash  and cash equivalents  increased $39.7  million or  68%,
from the September 30, 1995 ending balance of $58.3 million to the September 30,
1996 ending balance of $98.0 million.  This  increase was due to the receipt  of
net cash flows from  continuing operating activities in  excess of the net  cash
flows required  for investing  and financing  activities  for the  twelve  month
period ended September 30, 1996.

     Net cash flows from continuing operating activities increased in  aggregate
by $25 million in the first nine months of 1996 compared with the same period in
1995.   This increase was due primarily to an increase of $32.7 million in  cash
receipts from retail  customers and a  $7.9 million reduction  in interest  paid
(net of amounts capitalized) during the first nine months of 1996 compared  with
the same period  in 1995,  and a $14.6  million tax  payment made  in the  first
quarter of 1995 related to an  appeal of a transaction privilege tax  assessment
(see Note 2 of Notes to Condensed Consolidated Financial Statements,
Tax Assessments).  Also contributing to the increase in net cash flows in
the first nine months of  1996 was the receipt of $4.1 million in the first
quarter of 1996 related to the sale of emission allowances.  These increases
to net cash flows were partially offset by a $3.4  million decrease in  cash
receipts from  wholesale customers, a  $2.0 million reduction in  interest
received, a  $12.4 million increase  in fuel  and purchase power  costs
paid, an $11.0 million increase in wages paid (due primarily to
implementation of the Company's  Voluntary Severance  Plan in  the second
quarter of 1996), and the payment  of $4.5 million in the second  quarter
of 1996 to establish the Low Income Fund for  Emergencies (LIFE), a low income
customer assistance fund required by the 1996 Rate Order.

     Net cash outflows from investing activities  decreased in aggregate by  $11
million in the first nine months of 1996 compared with the same period in  1995.
Despite a $9.0 million increase in construction expenditures, related  primarily
to the  installation of  sulfur dioxide  emission  reduction facilities  at  the
Navajo Generating Station, net cash outflows from investing activities decreased
due to a $5.4  million reduction in investments  in energy-related ventures  and
the May 1995 purchase of approximately $18 million of Springerville Unit 1 lease
debt securities.

     Net cash outflows from financing activities decreased in aggregate by $166
million in the first nine months of 1996  compared with the same period in  1995
as a result of lower debt principal repayments and the receipt of loan  proceeds
related to  the May  1996 issuance  of pollution  control revenue  bonds by  the
Pollution Control Corporation of Coconino County, Arizona.   Payments toward the
retirement of capital lease obligations increased by $19.0 million due primarily
to a scheduled  $23.8 million lease  payment on Irvington  Unit 4  made in  July
1996.    Lease payments on  Irvington Unit 4  totaled $28.0  million during  the
first nine  months of  1996, compared  with $8.5  million during  the same  time
period in 1995.  Future lease payments on Irvington Unit 4 are scheduled at $8.5
million in 1997 and approximately $13.4 million per year in 1998 and 1999.

                     *              *              *

     Statements contained in Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations relating to anticipated
growth in  sales (See Overview above), anticipated sources of funding for
continuing operating activities and construction expenditures (See Overview
and Liquidity and Capital Resources above), and the anticipated recognition
of NOL and ITC carryforward benefits (See Results of Utility Operations,
Income Taxes above) constitute "forward-looking statements" as defined in
the Securities Litigation Reform Act of  1995. Such forward-looking
statements involve  risks  and uncertainties  which  could cause actual
results or  outcomes to differ materially  from those expressed  in
such forward-looking statements.  The projections  made herein are expressed  in
good faith and believed by the Company to have a reasonable basis, but there can
be no assurance that actual outcomes or results will not differ materially  from
the expected outcomes or results described herein.  Important factors that could
cause actual results  to differ materially  from the forward-looking  statements
identified in this paragraph are discussed in the above referenced sections  and
accompany such forward-looking statements.


                          PART II - OTHER INFORMATION

ITEM 1. -- LEGAL PROCEEDINGS


TAX ASSESSMENTS

     See Note 2 of Notes to Condensed Consolidated Financial Statements, Tax
Assessments.



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


(a)  Exhibits.

     15 - Letter regarding unaudited interim financial information.
                                       35
     27a -     Financial Data Schedule.
     27b -     Financial Data Schedule.



(b)  Reports on Form 8-K.

         -   Dated October 1, 1996, reporting on  the recognition of income  tax
          benefits, a court ruling on contested sales tax assessments, a  ruling
          on New Mexico sales  tax liability, and the  reversal of prior  period
          losses.
          -  Dated October 11, 1996, reporting on a rule proposed by the ACC for
          retail electric competition.



                                   SIGNATURE


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                               TUCSON ELECTRIC POWER COMPANY
                                                        (Registrant)


Date:  October 25, 1996                                 Ira R. Adler
                                                        Ira R. Adler
                                       36
                                             Senior Vice President and Principal
                                                     Financial Officer

                                 EXHIBIT INDEX

     15 - Letter regarding unaudited interim financial information.
     27a -     Financial Data Schedule.
     27b -     Financial Data Schedule.