UNS NONQUALIFIED STOCK OPTION AGREEMENT

Option Agreement

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TUCSON ELECTRIC POWER CO | UNISOURCE ENERGY CORPORATION

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Title: UNS NONQUALIFIED STOCK OPTION AGREEMENT
Date: 2/29/2008

UNISOURCE ENERGY CORPORATION

NONQUALIFIED STOCK OPTION AGREEMENT

THIS NONQUALIFIED STOCK OPTION AGREEMENT (this “ Option Agreement ”) dated September 15, 2005 by and between UniSource Energy Corporation, an Arizona corporation (the “ Corporation ”), and Raymond S. Heyman (the “ Grantee ”) evidences the nonqualified stock option (the “Option” ) granted by the Corporation to the Grantee as to the number of shares of the Corporation’s common stock, no par value per share (the “ Common Stock ”), first set forth below.

Number of Shares of Common Stock : 1 50,000 Award Date: September 15, 2005

Exercise Price per Share : 1 $33.55 Expiration Date: 1,2 September 15, 2015

Vesting 1 ,2 The Option shall become vested as to 33-1/3% of the total number of shares of Common Stock subject to the Option on each of the first, second and third anniversaries of the Award Date.

The Option is subject to the Terms and Conditions of Nonqualified Stock Option (the “ Terms ”) attached to this Option Agreement (incorporated herein by this reference). The Option has been granted to the Grantee in addition to, and not in lieu of, any other form of compensation otherwise payable or to be paid to the Grantee and is in full satisfaction of the Corporation’s obligation to grant stock options to the Grantee pursuant to the Offer Letter dated July 8, 2005. The parties agree to the terms of the Option set forth herein, and the Grantee acknowledges receipt of, and having read and understanding, a copy of the Terms.

“GRANTEE”

______________________________________

Signature

______________________________________

Print Name

UNISOURCE ENERGY CORPORATION

an Arizona corporation

By:__________________________________

Print Name:___________________________

Title:_________________________________

CONSENT OF SPOUSE

In consideration of the Corporation’s execution of this Option Agreement, the undersigned spouse of the Grantee agrees to be bound by all of the terms and provisions hereof.

__________________________________ ______________________

Signature of Spouse Date

1 Subject to adjustment under Section 4.1 of the Terms.

2 Subject to early termination under Section 4 and Section 5 of the Terms.

TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTION

1.	Vesting; Limits on Exercise; Incentive Stock Option Status .

The Option shall vest and become exercisable in percentage installments of the aggregate number of shares subject to the Option as set forth on the cover page of this Option Agreement. The Option may be exercised only to the extent the Option is vested and exercisable.

Cumulative Exercisability . To the extent that the Option is vested and exercisable, the Grantee has the right to exercise the Option (to the extent not previously exercised), and such right shall continue, until the expiration or earlier termination of the Option.

No Fractional Shares . Fractional share interests shall be disregarded, but may be cumulated.

Minimum Exercise . No fewer than 100 1 shares of Common Stock may be purchased at any one time, unless the number purchased is the total number at the time exercisable under the Option.

Nonqualified Stock Option . The Option is a nonqualified stock option and is not, and shall not be, an incentive stock option within the meaning of Section 422 of the Code.

2.	Continuance of Employment/Service Required; No Employment/Service Commitment .

The vesting schedule requires continued employment or service through each applicable vesting date as a condition to the vesting of the applicable installment of the Option and the rights and benefits under this Option Agreement. Employment or service for only a portion of the vesting period, even if a substantial portion, will not entitle the Grantee to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of employment or services as provided in Section 5.

Nothing contained in this Option Agreement constitutes a continued employment or service commitment by the Corporation or any corporation or other entity a majority of whose outstanding voting stock or voting power is beneficially owned directly or indirectly by the Corporation (a “ Subsidiary ”), affects the Grantee’s status, if he or she is an employee, as an employee at will who is subject to termination without cause, confers upon the Grantee any right to remain employed by or in service to the Corporation or any Subsidiary, interferes in any way with the right of the Corporation or any Subsidiary at any time to terminate such employment or service, or affects the right of the Corporation or any Subsidiary to increase or decrease the Grantee’s other compensation.

3.	Exercise of Option .

3.1 Method of Exercise. The Option shall be exercisable by the delivery to the Secretary of the Corporation (or such other person as the Corporation may require pursuant to

such administrative exercise procedures as the Corporation may implement from time to time) of:

a written notice stating the number of shares of Common Stock to be purchased pursuant to the Option or by the completion of such other administrative exercise procedures as the Corporation may require from time to time,

payment in full for the Exercise Price of the shares to be purchased in cash, check or by electronic funds transfer to the Corporation, or (subject to compliance with all applicable laws, rules, regulations and listing requirements and further subject to such rules as the Corporation may adopt as to any non-cash payment) in shares of Common Stock already owned by the Grantee, valued at their Fair Market Value (as defined below) on the exercise date, provided , however , that any shares initially acquired upon exercise of a stock option or otherwise from the Corporation must have been owned by the Grantee for at least six (6) months before the date of such exercise;

any written statements or agreements required pursuant to Section 7; and

satisfaction of the tax withholding provisions of Section 3.2.

The Corporation also may, but is not required to, authorize a non-cash payment alternative by notice and third party payment in such manner as may be authorized by the Corporation.

For purposes of this Option Agreement, “ Fair Market Value ” means, unless otherwise determined or provided by the Corporation in the circumstances, the closing price of a share of Common Stock as reported on the composite tape for securities listed on the New York Stock Exchange (the “ Exchange ”) for the date in question or, if no sales of Common Stock were made on the Exchange on that date, the closing price of a share of Common Stock as reported on said composite tape for the next preceding day on which sales of Common Stock were made on the Exchange. If the Common Stock is no longer listed or is no longer actively traded on the Exchange as of the applicable date, the fair market value of the Common Stock shall be the value as reasonably determined by the Corporation for purposes of the Option in the circumstances.

3.2 Tax Withholding. Upon any exercise of the Option, the Corporation shall have the right at its option to:

require the Grantee (or his personal representative or beneficiary, as the case may be) to pay or provide for payment of the amount of any taxes which the Corporation may be required to withhold with respect to such Option event;

deduct from any amount payable to the Grantee (or his personal representative or beneficiary, as the case may be) in cash or equivalent (in respect of the Option or otherwise) the amount of any taxes which the Corporation may be required to withhold with respect to such Option event; or

reduce the number of shares of Common Stock to be delivered by (or otherwise reacquire shares held by the Grantee for at least 6 months) the appropriate number of shares of Common Stock, valued at their then Fair Market Value, to satisfy such withholding obligation.

In no event will the value of any shares withheld exceed the minimum amount of required withholding under applicable law.

4.	Adjustments; Acceleration .

4.1 Adjustments. Upon or in contemplation of: any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend) or reverse stock split (“stock split”); any merger, combination, consolidation, or other reorganization; any spin-off, split-up, or similar extraordinary dividend distribution in respect of the Common Stock (whether in the form of securities or property); any exchange of Common Stock or other securities of the Corporation, or any similar, unusual or extraordinary corporate transaction in respect of the Common Stock; or a sale of all or substantially all the business or assets of the Corporation as an entirety; then the Corporation shall, in such manner, to such extent (if any) and at such time as it deems appropriate and equitable in the circumstances:

(a)

proportionately adjust any or all of (1) the number and type of shares of Common Stock (or other securities) that thereafter may be made the subject of the Option, (2) the Exercise Price of the Option, and (3) the securities, cash or other property deliverable upon exercise or vesting of the Option, or

(b)

make provision for a cash payme

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