Innovation, Customer Experience Key to UNS Energy 2012 Strategic Plan

From a monopoly-era point of view, TEP’s recent award for its solar energy programs could be interpreted simply as an acknowledgment of the company’s aggressive diversifi cation of its energy resources portfolio.

During the industrial age, the economy was based on tangible assets – power plants, transformers, pipes and regulators – that turned raw materials into fi nished products – fuel to electricity to consumer goods.

However, the company’s success in solar energy has very little to do with the nuts and bolts that have mounted photovoltaic panels on homes and businesses across Arizona.

In the information age, intangible assets – employee skills and knowledge, customer relationships and information technologies – are increasingly the most important competitive advantages for a business.

These intangible assets drove the innovation, problem solving and organizationalimprovements that allowed TEP to achieve the desired results in solar.

First, leadership set an aggressive, but realistic vision for solar expansion. Next, employees formed strategic partnerships with regulators, solar manufacturers and municipalities to create a framework that supported economic development for the entire community. Third, employees solved the technical challenges for solar integration. Lastly, and most important, TEP delivered a product that customers said they wanted.

Replicating this process is key to UNS Energy Corporation’s future success. And it’s the impetus behind the UNS Strategic Plan that is included in this issue of InsideUNS.

“We’re in an evolving time for our industry and economy,” Dave Hutchens said. “As an organization, we must shift from a regulated monopoly mentality to a new role as our community’s trusted energy advisor.”

To do so requires transitioning from transactional interactions with customers to value-added, engaged customer experiences.

“For many customers, going solar is an emotional decision, not a fi nancial one,” Hutchens said. “Moving forward, customers expect us to deliver products and services that add value to their lives, not just keep the lights on.”

Employees serving as company ambassadors is a cornerstone strategy. “The voice of the employee has never been more important to our success,” Hutchens said.

“We need to tap into the potential of our employees, harness their expertise and maximize their interactions with customers.”

The strategic process map is designed to provide clear direction on how departments and individual employees contribute to reaching company objectives.

“We want employees to take ownership and be part of the strategic planning process,” Hutchens said. “All 2,000 of our people should be working toward a common goal.”

June 2012The employee newsletter for UNS Energy Corp.

inside This issue

Dave Hutchens’ ColumnEmployees are the foundation of the UNS Energy Strategic Plan. PAGE 2

UES Volunteer AwardsThe CAT celebrated the good deeds of employees at events across the state.

PAGE 4

Credit BoostMoody’s Investors Service has upgraded the senior unsecured ratings of UES operating utilities.

PAGE 7

Teachers as StudentsTeachers learned about job opportunities at TEP for their students.

PAGE 8

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Employees Are the Foundation of the UNS Energy Strategic Plan

Things are changing in the world around us; technology is shifting the way we do business and interact with each other and information has become the new hot commodity that everyone wants – and they want it fast.

Like nearly every other business, the utility industry is transforming to respond to this new customer- and technology-driven era. But utilities have additional pressures — new energy policy at both the federal and state levels is being implemented through us, fundamentally changing how we provide our service.

Set against that backdrop, we’re faced with some monumental questions: “What do we need our business to look like in the future?” and “How do we get there?”

While many of the opportunities of tomorrow remain unknown, it’s crystal clear that our ability to adapt to evolving business conditions to seize on those opportunities is key to our success.

For that reason, our strategic planning process is designed to be a continuous process of communication and feedback across the organization so that we can tap into our employees’ vast knowledge base to adapt to our changing business environment and adjust our plans accordingly.

We started the process several months ago with an honest assessment of our strengths and weaknesses and an evaluation of the opportunities and threats to our enterprise.

Using this information of “who we are” and “the business environment we are in,” we reviewed our vision and core values to develop a view of “who we want to be in the business environment we expect.”

Answering the next question of “How do we get there?” gave us our Strategic Plan map, which is included in this issue of InsideUNS. Take a look at the map and you will see descriptions of our strategies and the customer engagement, processes and resources (people, technology and communication) needed to execute the strategy.

We’ll go over the map in detail during upcoming employee meetings and other educational sessions being planned at the departmental level.

But I can already tell you the most exciting part of the plan: Where we go from here is up to you.

Dave HutchensPresident

UNS Energy Corp.

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Moody’s Investors Service has upgraded the senior unsecured ratings of UNS Gas, Inc. (UNSG) and UNS Electric, Inc. (UNSE) to Baa2 from Baa3 and assigned a stable outlook.

The upgrade places UNSG and UNSE just one level below Baa1, which is the highest rating within the Baa category. According to the Edison Electric Institute, the average credit rating for regulated utilities is the equivalent of a Baa2 rating from Moody’s.

In addition, Moody’s affi rmed the ratings of UNS Energy Corp. and TEP, and changed their outlooks to positive from stable.

“The upgrade to the UNSG and UNSE ratings refl ects recent improvements in the Arizona regulatory environment, including a favorable rate case settlement for UNSG, combined with strong credit metrics for both entities,” said Moody’s Analyst Mitchell Moss.

“UNS and TEP could be upgraded in the next 12 to 18 months if TEP also achieves a supportive outcome in its upcoming rate case.”

The upgraded ratings should allow the company to issue debt at lower interest rates for capital improvement projects and other business needs. This ultimately helps the company keep energy costs as aff ordable as possible for customers, said Chris Norman, Manager of Investor Relations.

“The upgrades at UNSG and UNSE refl ect their solid fi nancial position and the constructive outcomes of their most recent rate cases,” Norman said. “Improving credit ratings gives the company greater fi nancial fl exibility, and ultimately, supports long-term rate stability for our customers.”

Moody’s Upgrades UNS Gas and UNS Electric;Changes UNS Energy Corp. and TEP Outlook to Positive

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Kingman Volunteer of the Year: Debbie HamiltonDebbie, who has worked in customer care billing for six years, volunteered a total of 574 hours in 2011. In addition to helping organizations such as the American Cancer Society and Kingman Regional Medical Center, she also served as a board member of the Kingman Aid to Abused People.

American Cancer Society “Relay for Life” Outstanding Project of the Year: Valerie ParsonsValerie recruited more than 58 individuals to volunteer a total of 350 hours at the American Cancer Society’s “Relay for Life” event. She and her outstanding volunteer team helped to raise nearly $7,500 to help in the fi ght against cancer.

Prescott Volunteer of the Year: Donna MilsteadDonna is always ready to volunteer for whatever event is most in need. And for her, no task is too small. She has given out water at the Whiskey Row Marathon and March of Dimes “March for Babies” events, helped with registration at Step Out: Walk to Fight Diabetes, and picked up trash for the Granite Creek Cleanup. Donna is also a member of the Prescott CAT Committee.

Show Low “Light Parade” Outstanding Project of the Year: Mike PittsMany employees and their families helped to make The Light Parades shine by constructing amazing fl oats. Both they and their creations were in the spotlight during the parades—participating volunteers got to ride the fl oats they constructed!

The Town of Camp Verde “Light Parade” Outstanding Project of the Year: Rob Justus The Verde Valley Cottonwood Offi ce participated in the Lighted Christmas Parade in Camp Verde for the fi rst time. The overall turnout was great, with many employees and their families helping to decorate and hand out candy, and more than 12 fl oats lighting up Main Street.

Verde Valley Volunteer of the Year: William (Bill) ParryBill dedicated more than 60 hours of volunteer time to make several projects a success. Volunteer eff orts he contributed to include the City of Cottonwood’s Adopt-a-Street, National Night Out, Old Town Mission Back-to-School Backpacks, and Adopt-a-Family for the Holidays. He also helped out at the Camp Verde Light Parade.

Navajo/Show Low Volunteer of the Year: Michael BoucherMike volunteered an impressive 366 hours in 2011 to a number of organizations, with a special focus on helping children. Organizations that benefi tted from his eff orts include: Show Low Little League, Mountain Christian School, and Northeastern Youth Football. Michael Boucher

Light Parade

Big Brothers Big Sisters bowling event inFlagstaff

Flagstaff Cancer Walk

UES CAT Awards

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BBBS “Bowl for Kids’ Sake” Outstanding Project of the Year: Pam Torian and Rebecca QuintanaFour teams of volunteers had a striking time at the annual “Bowl for Kids’ Sake” in Show Low. Employee participants not only had fun at the lanes, but also enjoyed knowing their eff orts were supporting a wonderful cause—ensuring kids’ success through Big Brothers Big Sisters.

Santa Cruz Volunteer of the Year: isabel MartinezIsabel is consistently willing to step up and help with every CAT project, and last year she did a particularly amazing job recruiting volunteers for the Autism Walk. Due, in part, to her eff orts, TEP received the largest team award for the year.

Santa Cruz Volunteer of the Year: Norma LuceroNorma is an outstanding volunteer. In addition to serving as chair of CAT, she also acts as a liaison between the volunteer team and local Tucson schools to help with many projects. These include the American Cancer Society’s “Relay for Life” and breast cancer walks, Thanksgiving food drives, and events at Reid Park Zoo.

Crossroads Nogales Mission “Thanksgiving and Christmas Dinners” Outstanding Project of the Year: irene Rubio Irene was a dynamic organizer for the Thanksgiving and Christmas Dinners, incorporating the Mission, the local Community Food Bank, and Toys for Tots. Thanks, in part, to her eff orts, approximately 400 bags of beans and rice were prepared, children were able to pick out a holiday toy, and meals were served to about 400 low-income and homeless Nogales residents.

Flagstaff Volunteer of the Year: Phil ByrumSince 2001, Phil has volunteered more than 250 hours, and he’s serving his second consecutive year as chair of CAT for Flagstaff . In 2011, he was involved in many projects and assisted several agencies, including: Northland Palliative Hospice Services, Big Brothers Big Sisters, Ongoing Flagstaff Food Kitchen Help, and the American Cancer Society.

American Cancer Society “Climb to Conquer Cancer” Outstanding Project of the Year: Heidi Poturalaski Heidi was a whirlwind of activity for this amazingly uplifting event. She recruited 286 volunteers for the largest climb to date! Volunteers from all over the state gave more than 1,100 hours of their time, helped raise funds individually, and wore special ribbons in honor of Team JerBear for Jeremy Sandall, encouraging him to keep up the good fi ght.

Norma Lucero

Phil Byrum

(L-R) Rebecca Quintana and Pam Torian

(L-R) Rebecca Quintana and Pam Torian

UES CAT Awards

Phil Byrum

Lake Havasu Breast Cancer Awareness Walk

Big Brothers Big Sisters bowling event in Show Low

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Norma Lucero really puts an emphasis on giving back as much as she can—to wherever she can—in the community.

In addition to acting as the CAT Steering Committee Chair in Nogales for the last couple of years, she has given more than

770 volunteer hours since 2004, and has served on the Board of the United Way of Santa Cruz for the past eight years.

“I really enjoy what the United Way does,” said Lucero, a UES Administrative Specialist and May’s Volunteer of the Month. “All the monies that are brought into the county go through a grant review process, and I get to help allocate dollars to the local agencies.”

Participation in community events includes serving as the March of Dimes Chair, recruiting for the SANDS Buddy Walk and the Flagstaff Climb to Conquer Cancer, and participating in the Nogales High School Walk for Breast Cancer and the Child Abuse Awareness Walks.

She also acts as a community liaison with the Nogales school district to involve seniors in a volunteer project and to encourage elementary students’ participation in a competitive food drive.

Her volunteer passions are many, but her mission is simple. “I try my best to be an advocate for our community’s needs,” she said.

Mission accomplished.

Volunteer of the Month

Norma Lucero Lives United in Her Community Efforts

Bonnie Demorotski, Development Director for AVIVA Children’s Services would like to thank TEP for the “amazing and very much appreciated thirty nine Easter Baskets for our children in the CPS system. It was a ray of sunshine for them. ”

Chris Huyett, Division Director of March of Dimes, reports that a record-breaking 2,300 attendees were at this year’s “March for Babies” on April 29. More than $313,000 was raised in support of babies who will be born prematurely and face weeks or even months in the newborn intensive care unit (NICU). “Thanks to TEP CAT Volunteers for your part in helping make this event a success!”

Lorraine Morgan, Vice President of Communications and Fund Development for the Boys & Girls Club of Tucson, wrote a letter of thanks for TEP’s recent donation of $25,000. “This donation will support the 8,000 youth from Tucson communities most at-risk neighborhoods; Boys & Girls Club provide a variety of programs that promote healthy lifestyle choices, social, educational, vocational, and character development, civic involvement and cultural appreciation.”

Sue Krahe, Executive Director for Our Family, was thrilled to receive 12 refurbished desktop computers from TEP. “Thanks to gifts like this, homeless teens who come to Our Family will continue to receive the help and services they need to finish school, find jobs, obtain permanent housing, and become independent adults with success in their future.”

8th grade science teacher Chessa Frei wrote a letter of thanks for including her students at Thunderbolt Middle School in Lake Havasu City in the company’s Physics Factory program. “The students raved about the program and had an amazing experience. Please pass on our appreciation to anyone else who had a hand in the event.”

TEP customer Barbara Jacobson’s friend Bill had always wanted to tour a power plant, so Barbara gave him such an opportunity as a birthday gift in 2011. When it finally materialized, she wrote: “We enjoyed every minute. It was interesting, actually fascinating at times and our tour guide – Reland Kane – couldn’t have been better. So knowlegable and with a sense of humor too. Such a fun surprise for Bill.

CAT Kudos

Community Food Bank - July 14 “Assembling Food Boxes” on Saturday from 9 a.m. to noon at the Community Food Bank, 3003 South Country Club Road. Volunteers, ages 16 and older, are needed to work in an assembly line and assemble/pack food boxes. Contact Alison Rothwell (520) 884-3681 or arothwell@tep.com.

Perimeter Bicycling Association of America presents El Tour de Tucson - Nov. 17Register at http://www1.perimeterbicycling.com/el-tour-de-tucson/register-now/ and return your completed hardcopy form to Greg Strang, Mail Stop HQE807. Questions? Contact Greg Strang at (520) 884-3701 or gstrang@tep.com. To assure you’re on a team please submit your completed registration form as soon as possible.

Volunteer Opportunities

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Higher Dividend Taxes Would Hurt Company, Customers

Anniversaries

UNS Energy Corp. is supporting a campaign that urges lawmakers to act before a temporary reduction in dividend taxes expires at the end of 2012.

Current tax rates on dividend income, which now are capped at 15 percent, are set to expire on December 31.

“We’re concerned that the increase could put dividend-paying companies like ours at a disadvantage while threatening our nation’s slow economic recovery,” Paul Bonavia said. “Letting this tax rate expire will have the unintended consequence of making it more expensive to run our business, and in turn, force us to pass on those higher costs to customers.”

Like many utility companies, UNS Energy Corp. has benefi ted from the lower tax rate. Among the many benefi ts, lower dividend tax rates make it easier for the company to attract the capital it

needs to fund major infrastructure and other investment projects at lower interest rates. The lower borrowing rate helps the company keep energy costs low for customers.

With interest rates at record low levels, many seniors and other investors view dividend-paying stocks as a safer alternative to other investments.

According to a recent study by J.P. Morgan, total dividend distributions jumped from $340 billion in 2008 to about $680 billion in 2011. The study cautions that “the current premium that investors are placing on dividend-paying stocks may be negatively impacted by a change in tax rates.”

UNS Energy’s management and government relations teams have joined with other utilities in urging Congress to retain lower dividend tax rates.

1. Visit defendmydividend.org.

2. Click “take action”.

3. Enter your zip code to fi nd your legislators and electronically send them a letter asking them to prevent the impending increase.

40 yearsCarole E. McMullenCharles T. Hastings

35 YearsOscar M. Garcia

30 YearsHerenia B. Rubio

25 YearsMarvin W Yarbrough Jr.Amy S. PulsiferFrank L. PereaThomas Martin Brown

20 YearsLawrence T. LuceroJoy E. BartonJuanita P. LopezSusan E. FloresRoger T. Johnson

15 YearsRichard D. WillettKin K. Liu

10 YearsCarlos David DiazCindy L. DavisAnja K. Price

5 YearsJoseph F. BranchKristin M. Page-IversonMarlenne Aracely CoronadoKevin M. FukunagaJoel James Monroe HolmanGarland L. SaulsPatty J. Tilghman

Edward V. AvilaGregory S. Chambers Jr.Catherine E. RiesJose Arnulfo BracamonteTeddy LeybaMark T. WilhelmJoshua W. MyersSteven Devin NighNathan G. WardNicholas S. FinchQuinn A. TillmanJohn A. Cantrell

Defend My DividendEmployees and retirees are also strongly encouraged to participate in the campaign.

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Local teachers assumed the role of students recently as participants in the Arizona K12 Center’s “Lesson2Life” program. The program is designed to help teachers learn about the range of job opportunities at TEP and to help them better prepare their own students for the world of work.

The statewide program attempts to bridge the gap between Arizona’s K-12 educators and the business world. Participants observe fi rsthand how to apply the classroom-based Arizona Workplace Skills Standards to actual work environments by spending a half-day with fi ve local employers.

During the program, Ernesto Ortiz and Jon Aguirre outlined TEP’s Building for Success initiative and gave a safety briefi ng. They then introduced the teachers to a sample of skills and trades in the industry with help from Mark King and Harold Hatten (ERTF), John Pedrazza (Warehouse) and Dylan Bearce (Power Production).

During lunch at the Ken Saville Training Center, Marji Morris from Human Resources answered questions from the teachers and discussed the variety of unclassifi ed job opportunities at TEP.

Company representatives complimented the teachers on their questions, and Bearce even commented that he “would have greatly benefi tted from a program like this” as a student.

In other eff orts to expand teachers’ understanding of the electric utility industry, Reland Kane will lead a tour of the power plant for about 20 middle and high school teachers in July. The tour is part of another Arizona K12 Center program, “STEM Institute 2.0: Global to Local - Energy in Your World, Energy in Your Classroom.”

As a regulated utility, public policy at all levels of government directly infl uences how UNS Energy Corporation operates its business and makes plans for the future.

Federal guidelines provide corporations an avenue of policy advocacy through the formation of a Political Action Committee (PAC) that enables eligible employees to make pooled contributions to political candidates the PAC believes will support the interests of the company, industry, employees and customers.

The PAC is the company’s most eff ective method to counter special interest groups that support legislation that negatively impacts the company’s profi tability, well-being of employees, and our eff orts to keep energy prices as aff ordable as possible for customers.

A PAC is a voluntary, not-for-profi t, special segregated fund and committee supported solely by voluntary contributions. Federal Election Commission rules strictly govern the operations and outreach of the PAC.

The UNS Energy Corp. PAC is overseen by an Executive Committee, a group of seven to 11 employees appointed to represent their fellow PAC donors. Participation is voluntary.

An informational packet about the UNS Energy Corporation PAC will be mailed to the home address of employees who may be eligible for participation. If you have any questions regarding the laws that govern the PAC or how it operates, please contact Jennifer Cox at (520) 884-3658 or jcox@tep.com.

Local teachers get a tour of Sundt Generating Station.

PACAdvocates for Public Policy that Supports Utility Industry, Customers

Don Carlisle gives the teachers an overview of the electrical equipment in the training yard at KSTC.

K-12 Teachers Learn About Utility Careers

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HOMES & LODGiNG

For rent: Beautiful home in the Continental Ranch area. 1,850 sqft., 4 bedroom, 2 bath, living room, family room, kitchen with dining area, 3-car garage. Great neighborhood, with small park across the street. Asking $1300/mo, which includes association fees for access to the community pool, which is within walking distance. Contact Jennifer Cox in Tucson at (520) 235-0164.

For rent: Spacious three bedroom home with 1 full bath & 3/4 bath, living room and family room. Includes newer appliances in kitchen, washer/dryer, and evaporative cooling. Large fenced back yard with porch, includes play set for the kids. Nice neighborhood, and within walking distance of Park Place Mall and Kellond Elementary School. Ready for move in today! Price is $850/month (not including utilities). Location: 6542 E Fordham Drive (Between 22nd and Broadway, and Wilmot & Kolb). Contact David Crobbe at (520) 885-0328.

For rent: 2 bedroom condo in West University area, 3 blocks from the UA Main Gate. 1100 sq. ft., 1.5 bath, fully furnished w/fl at screen TV, sectional sofa and more. Granite countertops recently re-modeled. Pool, laundry facilities, and reserved parking space. Asking $1,250/month, double occupancy. Water & basic cable included. Available August 2012. Contact Kent Grant at (520) 760-1684.

For sale: 2009 Park Home. Size is 33’ x 11’, has upgraded heat/ac unit. Must be moved from current location. Contact Robert Elgersma at (520) 762-5456.

For sale: 2-bed-2 bath townhome, end unit, 2-car garage, 12th fairway at Rolling Hills C.C, senior 55+, all major appliances, asking $150k. Call Mike Michaels at 298-6516.

HOUSEHOLD iTEMS

For sale: My dad is selling some of the Kachina dolls and Native American art he has been collecting from Northern Arizona, Albuquerque and Santa Fe for more than 20 years. Navajo ceramic bowl $275; Navajo and Hopi Kachina dolls range from $100 to $250; more items available. You can talk to my dad about the collection by calling Bob Chavez at (520) 820-1959. He lives in St. You can contact me after 6 p.m. for any questions. Rebecca Chavez, 520-514-5312.

For sale: Semi-auto hospital bed, little usage. Asking $100. Also for sale is a small Sanyo Refrigerator-18.5” tall & 32”wide. Very good shape, asking $100. Call (520) 909-5688.

Wanted: I buy military helmets, daggers, patches, medals, badges, fl ags, etc. Anything military wanted for up and coming museum in Lake Havasu. Please contact Stephen Licher at (928) 230-2508.

For sale: Journeyman choice full fl oating body belt (28) black leather and bashlin climbers

complete with adjustable hooks, all for $300. Contact Phil Nanez at (520) 628-7195.

VEHiCLES, ETC.

For sale: 2005 HD Road King with sidecar has cruise control, xm radio and heated clothing plug-ins. Ultra sidecar removes easily with 3 bolts. Asking fi rm $13,000. Contact Shelley Leek in Tucson at (520) 235-6629 or sleekandbleek@q.com.

For sale: 1999 Trans Am w/ 5.7L V8, AT. All stock/original, original owner with only @ 139,000 miles. New radiator, hoses, water pump, tires, and compressor. Bright red with dark gray leather interior. Carfax available. Asking $7,000. Contact Mark Albertson at (520) 299-5051.

For sale: 2010 Harley Sportster 883 for sale. Only 5,298 miles and in great condition. Has a double seat and pegs added, but will also come with the single seat. Asking $9,300 OBO. Please contact Justin for more info. (520) 906-8180.

SERViCES & SALES

Selling Parents’ Extra Burial Site: Going plot prices are $2,200. Will sell for $1,800 and will pay the $300 transfer fee. Located at Desert Vista Cemetery in Tucson. Contact Nancy Hughes, (520) 990-6401 or nhughes33@cox.net, or Ken Gilbert at (941) 697-4145.

Cox Communications Services/Advice: If you are in need of Cox Communications’ services such as cable, phone, internet, or home security, or you would like

information about these services, please contact Nathaniel Burks at Nathaniel.Burks@cox.com or (520) 370-4582. Or, you can see him in person at the Best Buy store on Broadway. Tell him Lisa Capristo sent you.

For sale: Southern Arizona Arts and Cultural Alliance (SAACA) presents The Tucson Symphony Orchestra in the Master Works Concert Series. October 2012 - March 2013. From Mozart to Mendelssohn. Individual tickets start at $49. Season ticket discount of up to 35% off . Contact SAACA for details at (520) 797-3959.

PETS & SUCH

Free Cat Needs Good Home: 3 years old. Vet history available. He’s a good kitty, albeit a bit excitable, and very playful. He gets along quite well with other cats. He’s always been an indoor cat. Contact Tim Rouse at (520) 395-7650.

For sale: Chinese Crested puppies, 6 wks old on 5/28 3-male 2-female, 1 powder puff , 1 hairless and the rest have hair on thier feet, head and tail. Crate trained indoor dogs very loving need a good home. $500 Call April Hurley at 520-404-0344.

For sale: 3ft King snake. The snake is not aggressive, comes with a 55 gal tank w/screen lid and hiding place. Good eater and sheds in one piece. Asking $100. Please call or text Lynn at 520-409-9740.

Announcements

PO Box 711 Tucson, AZ 85702 -0711

PresortedStandardU.S. PostagePAIDPermit No. 21Tucson, AZ

InsideUNS is a monthly publication of UNS Energy Corp.

PO Box 711Tucson, AZ 85702-0711uns.com

UNS Marketing & Communications

EDiTOR: John Brown - jcbrown@tep.com

CONTRiBUTORS: Betsy Bolding, Melissa Dulaney

PHOTOS: Betsy Bolding, John Brown, David Sanders, CAT volunteers

17th Annual EmployeeThursday, June 21st

10:30 a.m. to 1 p.m.OH Warehouse Receiving Area