LOAN AGREEMENT

Exhibit 4(b)

LOAN AGREEMENT
(2009 SERIES A)

BETWEEN

THE INDUSTRIAL DEVELOPMENT AUTHORITY
OF THE COUNTY OF PIMA

AND

TUCSON ELECTRIC POWER COMPANY

DATED AS OF OCTOBER 1, 2009

RELATING TO

POLLUTION CONTROL REVENUE BONDS,
2009 SERIES A
(TUCSON ELECTRIC POWER COMPANY SAN JUAN PROJECT)

TABLE OF CONTENTS ^*

LOAN AGREEMENT

THIS LOAN AGREEMENT (2009 Series A), dated as of October 1, 2009 (this “Agreement”), between THE INDUSTRIAL DEVELOPMENT AUTHORITY OF THE COUNTY OF PIMA, an Arizona nonprofit corporation designated by law as a political subdivision of the State of Arizona (hereinafter called the “Authority”), and TUCSON ELECTRIC POWER COMPANY, a corporation organized and existing under the laws of the State of Arizona (hereinafter called the “Company”),

W I T N E S S E T H:

WHEREAS, the Authority is authorized and empowered under Title 35, Chapter 5, Arizona Revised Statutes, as amended (the “Act”), to issue its bonds in accordance with the Act and to make secured or unsecured loans for the purpose of financing or refinancing the acquisition, construction, improvement or equipping of projects consisting of land, any building or other improvement, and all real and personal properties, including but not limited to machinery and equipment, whether or not now in existence or under construction, whether located within or without the State of Arizona or Pima County, which shall be suitable for, among other things, facilities for the furnishing of electric energy, gas or water, air and water pollution control facilities and sewage and solid waste disposal facilities, and to charge and collect interest on such loans and pledge the proceeds of loan agreements as security for the payment of the principal of and interest on bonds, or designated issues of bonds, issued by the Authority and any agreements made in connection therewith, whenever the Board of Directors of the Authority finds such loans to further advance the interest of the Authority or the public and in the public interest;

WHEREAS, pursuant to the provisions of the Pollution Control Revenue Bond Act, Chapter 397, Laws of 1973 of the State of New Mexico, 31st Legislature, 1st Session, as amended, the City of Farmington, New Mexico (the “City”) has heretofore issued and sold $80,410,000 aggregate principal amount of City of Farmington, New Mexico Pollution Control Revenue Bonds, 1997 Series A (Tucson Electric Power Company San Juan Project), all of which remain outstanding (the “1997 Bonds”), the proceeds of which were used to refund and redeem prior bonds issued by the City, which financed certain costs of the acquisition, construction and installation of projects consisting of undivided interests in certain air and water pollution control facilities at the San Juan Generating Station (the “Facilities”), an electric power generating plant located in San Juan County, New Mexico, undivided interests in which are owned by Tucson Electric Power Company, a corporation organized and existing under the laws of the State of Arizona (the “Company”);

WHEREAS, the Authority proposes to issue and sell its revenue bonds (the “Bonds”) to refinance, by the payment or redemption of the 1997 Bonds, or provision therefor, the portion of the costs of the acquisition, construction and installation of the Facilities paid from the proceeds of the 1997 Bonds, all as described in Exhibit A to this Agreement;

NOW, THEREFORE, the parties hereto, intending to be legally bound hereby and in consideration of the premises, DO HEREBY AGREE as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. Definitions. The terms defined in this Article I shall for all purposes of this Agreement have the meanings herein specified, unless the context clearly requires otherwise:

Act:

“Act” shall mean Title 35, Chapter 5, Arizona Revised Statutes, and all acts supplemental thereto or amendatory thereof.

Administration Expenses:

“Administration Expenses” shall mean the reasonable expenses incurred by the Authority with respect to this Agreement, the Indenture and any transaction or event contemplated by this Agreement or the Indenture, including the compensation and reimbursement of expenses and advances payable to the Trustee, to the Paying Agent, any Co-Paying Agent and the Registrar under the Indenture and a pro rata share of the Authority’s annual operating expenses in accordance with the provisions of Section 4.02(c) of the Industrial Development Authority of the County of Pima Procedural Pamphlet II.

Agreement:

“Agreement” shall mean this Loan Agreement, dated as of October 1, 2009, between the Authority and the Company, and any and all modifications, alterations, amendments and supplements hereto.

Authority:

“Authority” shall mean The Industrial Development Authority of the County of Pima, an Arizona nonprofit corporation designated by law as a political subdivision of the State of Arizona incorporated for and with the approval of Pima County, Arizona, pursuant to the provisions of the Constitution of the State of Arizona and the Act, its successors and their assigns.

Authorized Company Representative:

“Authorized Company Representative” shall mean each person at the time designated to act on behalf of the Company by written certificate furnished to the Authority and the Trustee containing the specimen signature of such person and signed on behalf of the Company by its President, any Vice President or its Treasurer, together with its Secretary or any Assistant Secretary.

Bond Counsel:

“Bond Counsel” shall mean any firm or firms of nationally recognized bond counsel experienced in matters pertaining to the validity of, and exclusion from gross income for federal tax purposes of interest on bonds issued by states and political subdivisions, selected by the Company and acceptable to the Authority.

Bond Fund:

“Bond Fund” shall mean the fund created by Section 4.01 of the Indenture.

Bonds:

“Bond” or “Bonds” shall mean The Industrial Development Authority of the County of Pima Pollution Control Revenue Bonds, 2009 Series A (Tucson Electric Power Company San Juan Project).

Code:

“Code” shall mean the Internal Revenue Code of 1986, as amended, or any successor statute thereto. Each reference to a section of the Code herein shall be deemed to include the United States Treasury Regulations proposed or in effect thereunder and applicable to the Bonds or the use of the proceeds thereof, unless the context clearly requires otherwise. Reference to any particular Code section shall, in the event of a successor Code, be deemed to be a reference to the successor to such Code section.

Company:

“Company” shall mean Tucson Electric Power Company, a corporation organized and existing under the laws of the State of Arizona, its successors and their assigns, including, without limitation, any successor obligor under Section 6.01 or 7.01 to the extent of the obligations assumed thereunder.

Facilities:

“Facilities” shall mean the systems and facilities for the reduction, abatement or prevention of pollution caused by the operation of the Plant which are described in Exhibit A hereto, as from time to time amended or modified, and related improvements, as revised from time to time to reflect any changes herein, additions hereto, substitutions herefor and deletions herefrom permitted hereunder, subject, however, to the provisions of Section 7.01 hereof.

Indenture:

“Indenture” shall mean the Indenture of Trust, dated as of October 1, 2009, between the Authority and the Trustee relating to the Bonds, and any and all modifications, alterations, amendments and supplements thereto.

Loan Payments:

“Loan Payments” shall mean the payments required to be made by the Company pursuant to Section 5.01 hereof.

1954 Code:

“1954 Code” shall mean the Internal Revenue Code of 1954, as amended.

1997 Bonds:

“1997 Bonds” shall mean the $80,410,000 aggregate principal amount of City of Farmington, New Mexico Pollution Control Revenue Bonds, 1997 Series A (Tucson Electric Power Company San Juan Project) issued by the City of Farmington, New Mexico, all of which remain outstanding.

Outstanding:

“Outstanding”, when used in reference to the Bonds, shall mean, as at any particular date, the aggregate of all Bonds authenticated and delivered under the Indenture except:

(a) those canceled by the Trustee at or prior to such date or delivered to or acquired by the Trustee at or prior to such date for cancellation;

(b) those paid pursuant to Section 2.07 of the Indenture;

(c) those deemed to be paid in accordance with Article VIII of the Indenture; and

(d) those in lieu of or in exchange or substitution for which other Bonds shall have been authenticated and delivered pursuant to the Indenture, unless proof satisfactory to the Trustee and the Company is presented that such Bonds are held by a bona fide holder in due course.

Person:

“Person” means (i) any corporation, limited liability company, partnership, joint venture, association, joint-stock company, business trust, or unincorporated organization, in each case formed or organized under the laws of the United States of America, any state thereof or the District of Columbia, or (ii) the United States of America or any state thereof, or any political subdivision of either thereof, or any agency, authority or other instrumentality of any of the foregoing.

Plant:

“Plant” shall mean Units 1 and 2 and related common facilities of the San Juan Generating Station, an electric power generating plant located northwest of and within 15 miles of the corporate limits of the City in San Juan County, New Mexico, and any additions or improvements thereto or replacements thereof.

Plant Agreements:

“Plant Agreements” shall mean all contracts relating to the ownership, construction and operation of the Plant, including the Facilities, as from time to time amended or supplemented.

Tax Agreement:

“Tax Agreement” shall mean that tax certificate and agreement, dated the date of the initial authentication and delivery of the Bonds, between the Authority and the Company, relating to the requirements of the 1954 Code, Title XIII of the Tax Reform Act of 1986, and any and all modifications, alterations, amendments and supplements thereto.

Trustee:

“Trustee” shall mean U.S. Bank Trust National Association, as trustee under the Indenture, its successors in trust and their assigns.

SECTION 1.02. Incorporation of Certain Definitions by Reference. Each capitalized term used herein and not otherwise defined herein shall have the meaning set forth in the Indenture.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

SECTION 2.01. Representations and Warranties of the Authority. The Authority makes the following representations and warranties as the basis for the undertakings on the part of the Company contained herein:

(a) The Authority is an Arizona nonprofit corporation designated by law as a political subdivision of the State of Arizona created and existing under the Constitution and laws of the State of Arizona;

(b) The Authority has the power to enter into this Agreement and the Indenture and to perform and observe the agreements and covenants on its part contained herein and therein, including without limitation the power to issue and sell the Bonds as contemplated herein and in the Indenture, and by proper action has duly authorized the execution and delivery hereof and thereof; and

(c) The execution and delivery of this Agreement and the Indenture by the Authority do not, and consummation of the transactions contemplated hereby and fulfillment of the terms hereof and thereof by the Authority will not, result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Authority is now a party or by which it is now bound, or, to the best knowledge of the Authority, any order, rule or regulation applicable to the Authority of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction over the Authority or over any of its properties, or the Constitution or laws of the State of Arizona.

SECTION 2.02. Representations and Warranties of the Company. The Company makes the following representations and warranties as the basis for the undertakings on the part of the Authority contained herein:

(a) The Company is a corporation duly organized and existing in good standing under the laws of the State of Arizona and duly qualified as a foreign corporation in the State of New Mexico;

(b) The Company has power to enter into this Agreement and to perform and observe the agreements and covenants on its part contained herein and by proper corporate action has duly authorized the execution and delivery hereof and all other documents hereby executed by the Company;

(c) The execution and delivery of this Agreement by the Company do not, and consummation of transactions contemplated hereby and fulfillment of the terms hereof by the Company will not, result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company is a party or by which it is now bound, or the Restated Articles of Incorporation or bylaws of the Company, or any order, rule or regulation applicable to the Company of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction over the Company or over any of its properties, or any statute of any jurisdiction applicable to the Company;

(d) The Arizona Corporation Commission has approved all matters relating to the Company’s participation in the transactions contemplated by this Agreement which require said approval, and no other consent, approval, authorization or other order of any regulatory body or administrative agency or other governmental body is legally required for the Company’s participation therein, except such as may have been obtained or may be required under the securities laws of any jurisdiction;

(e) The Facilities consist of those facilities described in Exhibit A attached hereto, and so long as the Company owns an interest in the Facilities, the Company shall cause the Facilities to be used solely for purposes contemplated by the Act ;

(f) The Facilities are located in the State of New Mexico;

(g) The Company presently owns an undivided interest in the Plant; and

(h) All of the proceeds of the Bonds will be expended to refinance the Facilities through the payment or redemption of the 1997 Bonds, or provisions therefor.

ARTICLE III

THE FACILITIES

SECTION 3.01. Facilities; Property of the Company. The Company presently owns an undivided interest in the Plant and the Authority shall have no right, title or interest in the Facilities.

SECTION 3.02. Maintenance of Facilities; Remodeling. The Company shall at all times exercise all of its rights, powers, elections and options under the Plant Agreements to cause the Facilities, and every element and unit thereof, to be maintained, preserved and kept in thorough repair, working order and condition and cause all needful and proper repairs and renewals thereto to be made; provided, however, that the Company may exercise all of its rights, powers, elections and options under the Plant Agreements to cause the operation of the Facilities, or any element or unit thereof, to be discontinued if, in the judgment of the Company, it is no longer advisable to operate the same, or if the Company intends to sell or dispose of the same and within a reasonable time shall endeavor to effectuate such sale or disposition.

The Company may, subject to the provisions of Section 6.05 hereof, at its own expense remodel the Facilities or make such substitutions, modifications and improvements to the Facilities from time to time as it, in its discretion, may deem to be desirable for its uses and purposes, which remodeling, substitutions, modifications and improvements shall be included under the terms of this Agreement as part of the Facilities.

SECTION 3.03. Insurance. The Company shall exercise all of its rights, powers, elections and options under the Plant Agreements to keep the Facilities insured against fire and other risks to the extent usually insured against by companies owning and operating similar property, by reputable insurance companies or, at the Company’s election, with respect to all or any element or unit of the Facilities, by means of an adequate insurance fund set aside and maintained by it out of its own earnings or in conjunction with other companies through an insurance fund, trust or other agreement or, by means of unfunded self-insurance as may be reasonable and customary by companies owning and operating similar property. All proceeds of such insurance shall be for the account of the Company.

SECTION 3.04. Condemnation. The Company shall be entitled to the entire proceeds of any condemnation award or portion thereof made for damages to or takings of the Facilities or other property of the Company.

ARTICLE IV

ISSUANCE OF THE BONDS; THE LOANS; DISPOSITION OF PROCEEDS
OF THE BONDS

SECTION 4.01. Issuance of the Bonds. The Authority shall issue the Bonds under and in accordance with the Indenture, subject to the provisions of the bond purchase agreement among the Authority, the initial purchaser or purchasers of the Bonds and the Company. The Company hereby approves the issuance of the Bonds and all terms and conditions thereof.

SECTION 4.02. Issuance of Other Obligations . The Authority and the Company expressly reserve the right to enter into, to the extent permitted by law, but shall not be obligated to enter into, an agreement or agreements other than this Agreement with respect to the issuance by the Authority, under an indenture or indentures other than the Indenture, of obligations to provide additional funds to pay the cost of construction of the Facilities or obligations to refund all or any principal amount of the Bonds, or any combination thereof.

SECTION 4.03. The Loan; Disposition of Bond Proceeds . The Authority shall cause the proceeds of the Bonds to be deposited with the trustee for the 1997 Bonds to be applied to the payment of the 1997 Bonds upon the redemption thereof.

The Authority shall establish the Bond Fund with the Trustee in accordance with Section 4.01 of the Indenture.

SECTION 4.04. Investment of Moneys in Funds and Accounts . The Company and the Authority agree that any moneys held in any fund or account created by the Indenture shall be invested as provided in the Indenture.

ARTICLE V

LOAN PAYMENTS; OTHER OBLIGATIONS

SECTION 5.01. Loan Payments. In consideration of the issuance of the Bonds and the disposition of the proceeds thereof as contemplated in Section 4.03 hereof, the Company shall pay, or cause to be paid, to the Trustee for the account of the Authority an amount equal to the aggregate principal amount of the Bonds from time to time Outstanding and, as interest on its obligation to pay such amount, an amount equal to premium, if any, and interest on such Bonds, such amounts to be paid in installments due on the dates, in the amounts and in the manner provided in the Indenture for the Authority to cause amounts to be deposited in the Bond Fund for the payment of the principal of and premium, if any, and interest on the Bonds whether at stated maturity, upon redemption or acceleration or otherwise; provided, however, that the obligation of the Company to make any such payment hereunder shall be reduced by the amount of any reduction under the Indenture of the amount of the corresponding payment required to be made by the Authority thereunder.

SECTION 5.02. Payments Assigned; Obligation Absolute. It is understood and agreed that all Loan Payments are, by the Indenture, to be pledged by the Authority to the Trustee, and that all rights and interest of the Authority hereunder (except for the Authority’s rights under Sections 5.03, 5.04, 6.03 and 8.05 hereof and any rights of the Authority to receive notices, certificates, requests, requisitions and other communications hereunder) are to be pledged and assigned to the Trustee. The Company assents to such pledge and assignment and agrees that the obligation of the Company to make the Loan Payments shall be absolute, irrevocable and unconditional and shall not be subject to cancellation, termination or abatement, or to any defense other than payment or to any right of set-off, counterclaim or recoupment arising out of any breach by the Authority or the Trustee or any other party under this Agreement, the Indenture or otherwise, or out of any obligation or liability at any time owing to the Company by the Authority, the Trustee or any other party, and, further, that the Loan Payments and the other payments due hereunder shall continue to be payable at the times and in the amounts herein and therein specified, whether or not the Facilities, or any portion thereof, shall have been completed or shall have been destroyed by fire or other casualty, or title thereto, or the use thereof, shall have been taken by the exercise of the power of eminent domain, and that there shall be no abatement of or diminution in any such payments by reason thereof, whether or not the Facilities shall be used or useful, whether or not any applicable laws, regulations or standards shall prevent or prohibit the use of the Facilities, or for any other reason, all of the foregoing being subject, however, to the provisions of Sections 6.01 and 7.01 hereof.

SECTION 5.03. Payment of Expenses. The Company shall pay all Administration Expenses, including, without limitation, Administration Expenses incurred at and subsequent to the time the Bonds are deemed to have been paid in accordance with Article VIII of the Indenture. The payment of the compensation and the reimbursement of expenses and advances of the Trustee, of the Paying Agent, any Co-Paying Agent and the Registrar under the Indenture shall be made directly to such entities.

SECTION 5.04. Indemnification. The Company releases the Authority, the Trustee, the County of Pima, Arizona and their directors, officers, employees and agents from, agrees that the Authority, the County of Pima, Arizona and the Trustee shall not be liable for, and agrees to indemnify and hold the Authority, the County of Pima, Arizona and the Trustee and their directors, officers, employees and agents free and harmless from, any liability (including, without limitation, attorneys’ and other agents’ fees and expenses) for any loss or damage to property or any injury to or death of any person that may be occasioned by any cause whatsoever pertaining to the Facilities, except (i) in the case of the Trustee, as a result of the negligence or bad faith or willful misconduct of the Trustee or its directors, officers, employees and agents; and (ii) in the case of the Authority and the County of Pima, Arizona, as a result of gross negligence or bad faith of the Authority or the County of Pima, Arizona or their directors, officers, employees and agents.

The Company will