May 21, 2002

Jonathan G. Katz
Secretary, Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549

Re: Proposed Rule: Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports (File No. S7-08-02)

This letter is submitted in [MS WORD.]

Dear Mr. Katz:

I am the Principal Financial Officer of UniSource Energy Corporation (UniSource Energy). UniSource Energy is the holding company for Tucson Electric Power Company (TEP), Millennium Energy Holdings, Inc. (Millennium) and UniSource Energy Development Company (UED). TEP is the second largest investor owned electric utility in Arizona. TEP provides electric service to the Tucson area and has generating facilities in Arizona and New Mexico. Millennium invests in unregulated ventures related primarily to the energy business and UED engages in developing electric generation resources. UniSource Energy is publicly traded on the New York Stock Exchange under the ticker symbol UNS.

UniSource Energy has reviewed the Securities & Exchange Commission proposal to shorten the filing deadlines for quarterly 10-Q reports from 45 to 30 calendar days after the period end and for annual 10-K reports from 90 to 60 calendar days after fiscal year end. Under the proposed rules, we would be subject to the accelerated reporting requirements. UniSource Energy has a number of concerns about the effects of the proposed rules. We appreciate the opportunity to respond to the Commission's proposal and offer the following specific comments and questions.

Comments regarding accelerating filing due dates:

  • Do the proposed Form 10-Q and 10-K due dates provide affected companies with enough time to prepare their reports? Do affected companies anticipate any significant problems in complying with the accelerated deadlines?

    We do not believe that the proposed accelerated due dates to the 10-Q and 10-K reports will allow companies enough time to prepare a high quality transparent report. We believe that the accelerated due dates will result in the greater use of estimates and that the quality of financial reporting will suffer.

    UniSource Energy agrees with the Commission's objective to provide more transparent information to the public that is accurate and timely. We agree that the advances in information technology over the past 30 years have made it easier for companies to process information more quickly. However, the benefits from the advances in technology have not resulted in earlier filing capabilities due to the increase in accounting and reporting requirements. The preparation of Management's Discussion and Analysis (MD&A) and the footnote disclosure to the financial statements still requires a great amount of human effort. In recent years the accounting rules have become more complex and highly technical. For example, since the FASB issued Statement No. 96, Accounting for Income Taxes in December 1987, the FASB has issued the following standards:

    The increase in standards equates to roughly seven new accounting standards/guidance issued per quarter. Applying the new standards to the financial statements and writing the disclosures to comply with all of these standards, in Plain English, will be more difficult in a shorter period of time. In addition, the SEC has issued recent standards that have increased the reporting requirements in the MD&A (i.e. FR 60 and 61 and the new proposal for disclosure of critical accounting policies). The objective of trying to get better information to the investing public in less time than is currently required could lead to an increase in incomplete information upon which estimates are based. This could lead to an increase in filing of 10-K/As and 10-Q/As.

  • Are there ways other than our proposal to get important information out to investors sooner? Would our proposals cause a delay in the release of earnings announcements? Should we only require that certain information, such as the audited or reviewed financial statements and management's discussion and analysis, be filed on an accelerated basis?

    Expanding the requirements for Form 8-K filings would be an alternate method to getting information out to investors sooner. The Commission has proposed rules for Form 8-K disclosure of certain management transactions (Release No. 33-8090: 34-45742). If there are other specific concerns of the Commission or if there is a certain subject matter that the Commission wants disclosed in a timely manner then the Form 8-K rules should be revised to require such information be disclosed within a defined period of time. We do not believe that the MD&A or financial statements and footnotes should be filed separately on an accelerated basis. This information needs to be filed along with the relevant business and strategic information as part of a complete 10-K and 10-Q. The information contained in these sections of the 10-K is inter-related; preparation of these sections are, in our view, inseparable.

  • Would auditors, audit committees and boards of directors have sufficient time to perform their review functions?

    UniSource Energy is committed to providing the investing public a high quality and accurate MD&A. The Commission's requirements for forward-looking, qualitative and quantitative information has added a level of complexity to the preparation and review of the MD&A. The ability to obtain management's review, the review of the external auditors, outside counsel and the Audit Committee will be extremely difficult with the proposed accelerated schedule. The filing of an accelerated 10-Q would be more difficult than the filing of for the 10-K. In addition, the accelerated filing requirement could lead to a shorter amount of time for the audit to be performed. The audits may not be as thorough if the auditors are attempting to complete their work for all registrants within a shorter period of time.

  • Would the proposal impose any significant costs?

    The proposal may require additional staff to be added for a relatively short period of time, in order to prepare the accelerated filings. The audit and legal firms may also need to add additional staff to complete their reviews of filings in a shorter period of time. Additional costs of the audit and legal firms will lead to clients paying higher fees.

    Another significant, albeit non-monetary cost of the proposal that concerns us is the potential for mid-market companies such as ourselves (i.e. those greater than $75 million but smaller than the Fortune 500) being dropped by the big audit and legal firms. Recently, many Fortune 500 companies changed audit firms because of the Arthur Andersen situation. The other big five audit firms are doing more work for the large companies and are spending less time dealing with mid-market companies. We are concerned that the big five audit firms may drop clients our size as audit clients. With so many Fortune 500 firms seeking new auditors at present, there may be less interest in auditing the smaller firms, especially if all the filing requirements fall in the same tight window.

  • Would the reliability and accuracy of the reports suffer as a result of the shortened due dates?

    The ability to get good data from unconsolidated affiliates could be impacted. Many agreements were negotiated under the presumption that there were 90 days to file a Form 10-K. If the agreements can not be amended for the accelerated filing requirements, there will be less actual data available and greater reliance on estimates.

  • Should we require companies to file their reports by the earlier of the existing deadlines or some earlier time after their first release of earnings information for the period?

    The accelerated reporting schedule should be a definite day after year-end or quarter close and not x number of days after the earnings release. The earnings release focus is on the operating results and earnings per share. There is a lot more disclosure and information required in SEC filings that needs to be prepared and reviewed after earnings are released (footnotes to the financial statements, management discussion and analysis, information about the business and properties, etc.). Additionally, many companies' audits and reviews are not substantially complete at the time of their earnings release; auditors may have completed procedures with respect to the income statement, but not the remaining financial statements or footnotes.

  • Should the proposed filing periods be longer or shorter than proposed? Should we only accelerate the annual report due date, or only the quarterly report due date?

    UniSource Energy believes that the current 45- and 90-day requirements should not be changed. We feel that the 30-and 60-day filing requirements are too early. We would be more able to appropriately address needed issues for a 10-K filing requirement that is less than 90 days, such as 75 days. We believe we would have an extremely difficult time obtaining appropriate information as well as approvals from audit committees, auditors and outside counsel within 30 days of quarter end.

    In order to get all of the necessary approvals for our filings from the outside auditors, the audit committee and legal counsel, we would more than likely be filing late in the period when the volume of filings to the Commission will be higher. We have experienced filing delays in the past due to a high volume of companies trying to file at the same time. We are concerned that, under a much more abbreviated filing requirement, more companies will be filing late in the process rather than earlier. Will EDGAR be able to handle the volume created by everyone trying to file at the same time?

    Comments regarding website access proposal:

  • Would our proposal aid in encouraging companies to make information available in a variety of locations and hence make corporate information more widely accessible and disseminated? Would investors find this information useful? Would the proposed disclosure requirement provide sufficient notice to investors of the available sources of corporate information?

    UniSource Energy agrees with the Commission's objective of having companies make Exchange Act filings broadly available to the public. We support the Commission's proposal to require companies to disclose in their annual reports on Form 10-K where the Exchange Act filings can be accessed, free of charge, on the company's website. We also support the Commission's proposal to provide website access as soon as practicable after reports are filed. We do not support a mandate to provide access on the same day that the reports are filed. We believe that a 24-hour requirement would be more reasonable. Even with the latest information technology, there are circumstances beyond our control that may prohibit same-day posting and access. For instance, the recent waves of computer viruses have virtually shut down many companies' information systems for a period of time. If there are firm time commitments established, we believe there should be some relief for filings in cases where a virus or some other unexpected event causes the filing not to be available within the required time frame; especially since the information would be available through EDGAR and other public portals (i.e. Free EDGAR).

    * * * * * * * * * * * *

    UniSource Energy appreciates the opportunity to respond to the proposed accelerated filing requirements. Should the Commission desire to speak to someone at UniSource Energy directly regarding these comments, please contact Kevin Larson at (520) 884-3660.


    Kevin Larson
    Vice President and
    Principal Financial Officer