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The proposed acquisition of UNS Energy Corporation would provide new financial strength while preserving local control over utility operations.

UNS Energy Corporation, parent company of Tucson Electric Power (TEP) and UniSource Energy Services (UES), has agreed to be acquired by Fortis, Inc., Canada's largest investor-owned gas and electric distribution utility company.

The transaction would provide additional capital and new resources to TEP and UES, helping us maintain safe, reliable and affordable service for our customers. Both companies would remain headquartered in Tucson under local control with current management and staffing levels and no planned changes to existing operations or rates.

The proposed acquisition has been approved by UNS Energy shareholders and the Federal Energy Regulatory Commission and now awaits review by the Arizona Corporation Commission. Pending final regulatory approval and the satisfaction of customary closing conditions, UNS Energy anticipates the transaction will be finalized before the end of 2014.

Please read on for more details about this transaction.

December 11, 2013

Dear Customer:

The energy industry is changing rapidly, forcing utilities to invest in new technologies and business practices to maintain the reliable service customers need in the face of evolving environmental goals and regulatory requirements.

To address such challenges, our company must change as well. That's why UNS Energy, the parent company of Tucson Electric Power (TEP) and UniSource Energy Services (UES), has agreed to be acquired by Fortis, Inc., the largest publicly owned gas and electric distribution company in Canada. Depending on when the necessary regulatory and other approvals are secured, UNS Energy could become a wholly-owned subsidiary of Fortis before the end of 2014.

For TEP and UES, this partnership will provide access to new resources to help us maintain and improve the utility systems our customers rely on. UNS Energy is relatively small for an investor owned utility company, so Fortis would provide us with new financial strength to address even the most daunting future challenges.

TEP and UES also would gain access to best practices and technology from an international family of well-run utilities. Fortis serves more than 2.4 million customers in Canada, the United States and two Caribbean countries through utilities that share a commitment to operational excellence and customer service.

Even more important than what our company will gain from this transaction is what we will keep.

TEP and UES will remain thoroughly local utilities. Our corporate headquarters will remain in Arizona under our current management team, and all of our employees across the state will continue working to serve our customers' diverse energy needs. Our rates, which remain among the lowest in the region, will not change because of this transaction. We'll also remain engaged in the communities we serve by supporting local nonprofit groups and the award-winning efforts of our employee volunteers.

We'll keep you posted on the progress of this new partnership as the proposal works its way through the necessary regulatory reviews. Additional details are available on tep.com or uesaz.com, and we'll update the site with new information when it becomes available.

Through it all, you can continue counting on TEP and UES for safe, reliable service – just like you do today.

Sincerely,
Paul Bonavia
Chairman & CEO
UNS Energy Corporation

Q: Why has UNS Energy agreed to join Fortis?
A: In addition to providing shareholders with an immediate premium, this acquisition will provide UNS Energy and its utility subsidiaries, Tucson Electric Power (TEP) and UniSource Energy Services (UES), with new financial strength as part of a respected family of well-run local utilities.

As a relatively small investor owned utility (IOU), UNS Energy faces financial challenges posed by increasing environmental compliance requirements, prospective carbon costs, growing renewable energy mandates, stricter cyber-security laws and other new regulatory mandates.  Joining the Fortis group will improve our access to the capital we'll need to address those challenges. 

Fortis shares our commitment to customer service and community support and has a strong record of supporting the local operations of its utility companies. UNS Energy will remain headquartered in Tucson under local control with current management and staffing levels and no planned changes to our existing operations or rates.

Q: Why wouldn't UNS Energy want to remain independent? 
A: UNS Energy is a strong, stable company with sound finances and a history of generating shareholder value through safe, reliable utility operations. While those characteristics have served us well as a standalone company, they also attracted a compelling offer from Fortis that would allow us to maintain our current course with additional resources and support from a world class family of well-run utilities.

In our capital-intensive industry, consolidation is an increasingly common response to the stark cost of complying with stricter environmental controls and expanding regulatory mandates. The ranks of IOUs have dwindled over the past decade through mergers and acquisitions, leaving UNS Energy among the smallest in terms of market capitalization.

This acquisition will provide UNS Energy with new financial strength to help us execute our long-term strategy.  Fortis has agreed to inject $220 million of equity into UNS Energy when the acquisition is finalized, strengthening our balance sheet and helping us fund our plan to purchase Unit 3 at the natural gas-fired Gila River Power Plant. Fortis' strong credit rating also will improve our access to financial markets for other needs. Projects that might have proven out of reach will become more accessible as part of a new, larger Fortis family of utilities.

Q: What approvals are necessary before the transaction can be finalized?
A: The proposed acquisition received approval from UNS shareholders on March 26, 2014, from the Federal Energy Regulatory Commission (FERC) on April 2, 2014, and from the Committee on Foreign Investment in the United States on May 20, 2014. The transaction also must be approved by the Arizona Corporation Commission (ACC) and is subject to the satisfaction of customary closing conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Q: When will the company request approval from the ACC?
A: We filed a request in January 2014 asking the ACC to approve the transaction.

Q: Why should regulators approve of this acquisition?
A: We believe this transaction provides compelling benefits for our company, our customers and the communities we serve. Fortis is a respected provider of regulated utility service with a strong reputation for customer focus and community support. Fortis has pledged to maintain or enhance our volunteer programs and other charitable efforts, honor our existing labor agreements and preserve our local management's ability to establish staffing levels, oversee regulatory affairs and make other key decisions. These commitments, combined with Fortis' strong track record and financial standing, should reassure the ACC and others that this transaction would serve the public interest.

Q: What additional benefits would be provided through the settlement agreement reached among stakeholders in the ACC’s review of the proposed acquisition?
A: If the proposed settlement agreement is approved by the ACC, Fortis and UNS Energy would provide bill credits totaling $30 million to TEP and UES customers during the first five years after the acquisition is finalized. Those credits would total $10 million in the first year after the transaction is finalized and $5 million annually in years two through five. Fortis also has agreed to invest $220 million of equity into TEP and UES through UNS Energy, $20 million more than was originally proposed.

The settlement – which was endorsed by both companies as well as by ACC Staff, the Residential Utility Consumer Office, customer representatives, organized labor and other parties – also includes dividend limitations and other measures intended to protect each regulated utility and its customers. Additionally, it would require that UNS Energy establish an independent Board of Directors, with a majority of its members comprised of Arizona residents.

Q: When will the acquisition be complete?
A: We anticipate the transaction will be finalized before the end of 2014

Q: How will UNS Energy be managed once the acquisition is complete?
A: Fortis believes in letting the management teams of its local utilities make the key decisions on how to best serve their customers.  Fortis will collaborate with our management team on major investment decisions.

Fortis has committed to retaining our current management under the direction of a newly constituted, independent UNS Energy Board of Directors, with a majority of its members residing in Arizona. Our local managers will make decisions regarding staffing levels, hiring practices, and regulatory matters; negotiate future collective bargaining agreements; and oversee daily operations just as they do today.

Q: How will this transaction affect customers?    
A: Customers won't notice any changes resulting from this transaction.  Our corporate headquarters will remain in Tucson under our current management team, and all of our employees will continue working to serve our customers' diverse energy needs. Our rates, which remain among the lowest in the region, will not be affected by this transaction, other than the bill credits proposed in the settlement agreement. Our company names won't change, either. We will remain a nationally recognized leader in renewable energy through our growing portfolio of local solar power systems. We also will remain engaged in our community by supporting local nonprofit groups and the award-winning efforts of our employee volunteers.

Q: Will this transaction affect rates?
A: If the proposed settlement agreement is approved by the ACC, the monthly customer charge for customers of TEP and UES would be reduced from October through March in each of the first five years after the transaction is finalized. The savings would range from about $1 per month for residential customers to $200 per month for the largest commercial and industrial customers. Additional year-one savings would be realized through reductions in usage-based charges from October through March; those savings would vary with usage.

These potential savings represent the only direct impact on rates that would result from this acquisition. Neither TEP nor UES will seek to recover any transaction-related costs in future rates. The ACC will continue to set our rates based on the costs that TEP and UES incur to provide safe reliable service.

Q: Will TEP and UES maintain the same level of community support after the acquisition?
A: Yes.  Fortis shares our commitment to community service and has pledged to maintain or enhance our nationally recognized employee volunteer programs, charitable contributions and support for low income customers.

Q: Will TEP and UES maintain their renewable energy and energy efficiency programs?
A: Yes. We will continue to operate our renewable energy and energy efficiency programs in accordance with rules established by the ACC. The programs are not expected to change as a result of this transaction.

 

Q: What does this transaction mean for UNS Energy shareholders?
A: The agreement calls for Fortis to pay $60.25 per share for UNS Energy common stock upon closing of the transaction.

Q: When will shareholders vote on the acquisition?
A: Shareholders voted on and approved the acquisition on March 26, 2014.

Q: What other approvals are necessary before the transaction can be finalized?
A: The transaction received Federal Regulatory Energy Commission (FERC) approval on April 2, 2014. The transaction also must be approved by the Arizona Corporation Commission (ACC) and is subject to the satisfaction of customary closing conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Q: When is the transaction expected to close?
A: UNS Energy anticipates the transaction will be finalized before the end of 2014.

Q: Can I continue buying shares of UNS Energy?
A: Yes. UNS Energy common stock will continue to be traded on the New York Stock Exchange (NYSE) until the transaction is finalized.

Q: Will UNS Energy continue paying dividends?
A: Future dividend payments are considered separately by the Board of Directors and are subject to numerous factors that ordinarily affect dividend. However, the merger agreement does allow for the continuation of dividends at the discretion of the Board of Directors.

Q: Do I have to sell my shares?
A: If a majority of shareholders vote for the acquisition, and all other necessary approvals are secured and closing conditions satisfied, then all shares will be cancelled and converted into the right to receive the proposed purchase price. UNS Energy will notify shareholders upon completion of the transaction.

Q: Do I have to wait until the acquisition closes to sell my shares?
A: No. UNS Energy common stock will continue to be traded on the NYSE until the transaction is finalized.

Q: What if I have additional questions about my UNS Energy shares?
A: If you hold your shares in a brokerage account, please contact your broker. If you are a registered shareholder, you may contact Computershare toll-free at 866-537-8709.

 

 

 

Like UNS Energy, Fortis was established as the publicly traded corporate parent of a local utility – Newfoundland Power – that has provided electric service since the late 1800s. As the company has expanded through a series of acquisitions, it has retained its commitment to disciplined, patient growth through continued focus on operational excellence.

Today, Fortis is the largest investor-owned gas and electric distribution utility in Canada, providing gas and electric service to more than 2.4 million customers. Its regulated holdings include gas and electric distribution utilities in five Canadian provinces, New York and two Caribbean countries.

Visit the Fortis website »

Read the Fortis press release »