falsedesktopTEP2020-09-30000010012220000031{"tbl_sim": "https://q10k.com/tbl-sim", "search": "https://q10k.com/search"}{"q10k_tbl_0": "Definitions\tiii\nForward-Looking Information\tv\nPART I\t\nItem 1. Financial Statements\t\nCondensed Consolidated Statements of Income\t1\nCondensed Consolidated Statements of Comprehensive Income\t2\nCondensed Consolidated Statements of Cash Flows\t3\nCondensed Consolidated Balance Sheets\t4\nCondensed Consolidated Statements of Changes in Stockholder's Equity\t6\nNotes to Condensed Consolidated Financial Statements\t7\nItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations\t22\nCritical Accounting Policies and Estimates\t37\nNew Accounting Standards Issued and Not Yet Adopted\t37\nItem 3. Quantitative and Qualitative Disclosures about Market Risk\t37\nItem 4. Controls and Procedures\t37\nPART II\t\nItem 1. Legal Proceedings\t38\nItem 1A. Risk Factors\t38\nItem 6. Exhibits\t39\nSignatures\t40\n", "q10k_tbl_1": "2015 Credit Agreement\tThe 2015 Credit Agreement provides for a $250 million revolving credit and letter of credit facilities with a sublimit of $50 million; the credit agreement matures in October 2022\n2019 Credit Agreement\tThe 2019 Credit Agreement provided for $225 million in term loans. In April 2020 the term loans were repaid and the agreement terminated\n2019 ACC Rate Case\tIn April 2019 TEP filed a general rate case with the ACC based on a test year ended December 31 2018\n2019 FERC Rate Case\tIn 2019 the FERC issued an order approving TEP's proposed OATT revisions effective August 1 2019 subject to refund and further proceedings\n2020 IRP\tTEP's 2020 Integrated Resource Plan filed with the ACC in June 2020 which outlines TEP's energy portfolio over the next 15 years\nABR\tAlternate Base Rate\nACC\tArizona Corporation Commission\nACC Refund Order\tAn order issued in 2018 by the ACC approving TEP's proposal to return savings from the Company's federal corporate income tax rate under the TCJA to its customers through a combination of customer bill credits and a regulatory liability deferral that reflects the return of a portion of the savings effective May 1 2018\nADEQ\tArizona Department of Environmental Quality\nAFUDC\tAllowance for Funds Used During Construction\nALJ\tAdministrative Law Judge\nAMT\tAlternative Minimum Tax\nCOVID-19\tCoronavirus Disease 2019\nDG\tDistributed Generation\nDSM\tDemand Side Management\nEDIT\tExcess Deferred Income Taxes\nFASB\tFinancial Accounting Standards Board\nFERC\tFederal Energy Regulatory Commission\nGAAP\tGenerally Accepted Accounting Principles in the United States of America\nLFCR\tLost Fixed Cost Recovery\nLIBOR\tLondon Interbank Offered Rate\nLOC\tLetter(s) of Credit\nOATT\tOpen Access Transmission Tariff\nPPA\tPower Purchase Agreement\nPPFAC\tPurchased Power and Fuel Adjustment Clause\nRES\tRenewable Energy Standard\nRetail Rates\tRates designed to allow a regulated utility recovery of its costs of providing services and an opportunity to earn a reasonable return on its investment\nRICE\tReciprocating Internal Combustion Engine\nSummer Moratorium\tEmergency rules first enacted by the ACC in 2019 that suspend service disconnections and late fees for electric residential customers who otherwise would be eligible for service disconnection during the period from June 1 through October 15\nTCA\tTransmission Cost Adjustor\nTCJA\tTax Cuts and Jobs Act\nTEAM\tTax Expense Adjustor Mechanism\n", "q10k_tbl_2": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n\t2020\t2019\t2020\t2019\nOperating Revenues\t471672\t441171\t1089933\t1100265\nOperating Expenses\t\t\t\t\nFuel\t90900\t112961\t216896\t277820\nPurchased Power\t71562\t37049\t118713\t97244\nTransmission and Other PPFAC Recoverable Costs\t16966\t14976\t39566\t38995\nIncrease (Decrease) to Reflect PPFAC Recovery Treatment\t(83)\t(15532)\t5113\t(20244)\nTotal Fuel and Purchased Power\t179345\t149454\t380288\t393815\nOperations and Maintenance\t88504\t94154\t259991\t272787\nDepreciation\t47462\t42187\t141084\t124931\nAmortization\t7330\t7039\t21328\t22053\nTaxes Other Than Income Taxes\t14571\t14054\t44123\t42375\nTotal Operating Expenses\t337212\t306888\t846814\t855961\nOperating Income\t134460\t134283\t243119\t244304\nOther Income (Expense)\t\t\t\t\nInterest Expense\t(23159)\t(22132)\t(66212)\t(66407)\nAllowance For Borrowed Funds\t2246\t1521\t7141\t4098\nAllowance For Equity Funds\t5823\t4034\t16046\t10755\nUnrealized Gains (Losses) on Investments\t842\t456\t(2309)\t4470\nOther Net\t1278\t(551)\t3470\t(434)\nTotal Other Income (Expense)\t(12970)\t(16672)\t(41864)\t(47518)\nIncome Before Income Tax Expense\t121490\t117611\t201255\t196786\nIncome Tax Expense\t21029\t19441\t35386\t30358\nNet Income\t100461\t98170\t165869\t166428\n", "q10k_tbl_3": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n\t2020\t2019\t2020\t2019\nComprehensive Income\t\t\t\t\nNet Income\t100461\t98170\t165869\t166428\nOther Comprehensive Income\t\t\t\t\nNet Changes in Fair Value of Cash Flow Hedges:\t\t\t\t\nNet of Income Tax Expense of $0 and $13\t0\t40\t\t\nNet of Income Tax Expense of $0 and $30\t\t\t0\t92\nSupplemental Executive Retirement Plan Adjustments:\t\t\t\t\nNet of Income Tax Expense of $45 and $22\t135\t66\t\t\nNet of Income Tax Expense of $134 and $66\t\t\t405\t198\nTotal Other Comprehensive Income Net of Tax\t135\t106\t405\t290\nTotal Comprehensive Income\t100596\t98276\t166274\t166718\n", "q10k_tbl_4": "\tNine Months Ended September 30\t\n\t2020\t2019\nCash Flows from Operating Activities\t\t\nNet Income\t165869\t166428\nAdjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:\t\t\nDepreciation Expense\t141084\t124931\nAmortization Expense\t21328\t22053\nAmortization of Debt Issuance Costs\t2010\t1735\nUse of Renewable Energy Credits for Compliance\t32672\t28083\nDeferred Income Taxes\t38809\t37168\nPension and Other Postretirement Benefits Expense\t11162\t13321\nPension and Other Postretirement Benefits Funding\t(14503)\t(15038)\nAllowance for Equity Funds Used During Construction\t(16046)\t(10755)\nRegulatory Deferral ACC Refund Order\t16364\t5946\nChanges in Current Assets and Current Liabilities:\t\t\nAccounts Receivable\t(57208)\t(28547)\nMaterials Supplies and Fuel Inventory\t(8392)\t(6724)\nRegulatory Assets\t4948\t4426\nOther Current Assets\t(5100)\t(961)\nAccounts Payable and Accrued Charges\t(939)\t(13832)\nIncome Taxes Receivable Net\t6865\t(6987)\nRegulatory Liabilities\t8944\t(5335)\nOther Net\t7260\t715\nNet Cash Flows-Operating Activities\t355127\t316627\nCash Flows from Investing Activities\t\t\nCapital Expenditures\t(597375)\t(322142)\nPurchase Intangibles Renewable Energy Credits\t(41117)\t(39419)\nPurchase Other Investments\t(8500)\t0\nContributions in Aid of Construction\t2816\t4520\nNote Receivable\t0\t(1000)\nNet Cash Flows-Investing Activities\t(644176)\t(358041)\nCash Flows from Financing Activities\t\t\nProceeds from Borrowings Revolving Credit Facility\t105000\t0\nRepayments of Borrowings Revolving Credit Facility\t(105000)\t0\nProceeds from Borrowings Term Loan\t60000\t0\nRepayments of Borrowings Term Loan\t(225000)\t0\nProceeds from Issuance Long-Term Debt-Net of Discount\t645768\t0\nRepayments of Long-Term Debt\t(180410)\t0\nDividend Paid to Parent\t(37500)\t(37500)\nPayments of Finance Lease Obligations\t(17086)\t(10889)\nContribution from Parent\t200000\t0\nOther Net\t(4731)\t67\nNet Cash Flows-Financing Activities\t441041\t(48322)\nNet Increase (Decrease) in Cash Cash Equivalents and Restricted Cash\t151992\t(89736)\nCash Cash Equivalents and Restricted Cash Beginning of Period\t28472\t152747\nCash Cash Equivalents and Restricted Cash End of Period\t180464\t63011\n", "q10k_tbl_5": "\tSeptember 30 2020\tDecember 31 2019\nASSETS\t\t\nUtility Plant\t\t\nPlant in Service\t6944251\t6663912\nUtility Plant Under Finance Leases\t151467\t151467\nConstruction Work in Progress\t546497\t303488\nTotal Utility Plant\t7642215\t7118867\nAccumulated Depreciation and Amortization\t(2592399)\t(2506686)\nAccumulated Amortization of Finance Lease Assets\t(84675)\t(77285)\nTotal Utility Plant Net\t4965141\t4534896\nInvestments and Other Property\t67769\t62136\nCurrent Assets\t\t\nCash and Cash Equivalents\t163009\t9762\nAccounts Receivable (Net of Allowance for Credit Losses of $9572 and $5716)\t211488\t154847\nFuel Inventory\t31163\t23731\nMaterials and Supplies\t122502\t121542\nRegulatory Assets\t118734\t138412\nDerivative Instruments\t13763\t3596\nOther\t20564\t21416\nTotal Current Assets\t681223\t473306\nRegulatory and Other Assets\t\t\nRegulatory Assets\t308973\t326860\nDerivative Instruments\t2567\t2763\nOther\t92046\t89196\nTotal Regulatory and Other Assets\t403586\t418819\nTotal Assets\t6117719\t5489157\n", "q10k_tbl_6": "\tSeptember 30 2020\tDecember 31 2019\nCAPITALIZATION AND OTHER LIABILITIES\t\t\nCapitalization\t\t\nCommon Stock Equity:\t\t\nCommon Stock (No Par Value 75000000 Shares Authorized 32139434 Shares Outstanding as of September 30 2020 and December 31 2019)\t1596539\t1396539\nCapital Stock Expense\t(6357)\t(6357)\nRetained Earnings\t724161\t595792\nAccumulated Other Comprehensive Loss\t(7366)\t(7771)\nTotal Common Stock Equity\t2306977\t1978203\nPreferred Stock (No Par Value 1000000 Shares Authorized None Outstanding as of September 30 2020 and December 31 2019)\t0\t0\nFinance Lease Obligations\t0\t67316\nLong-Term Debt Net\t2063352\t1522087\nTotal Capitalization\t4370329\t3567606\nCurrent Liabilities\t\t\nCurrent Maturities of Long-Term Debt Net\t0\t80330\nBorrowings Under Credit Agreements Net\t0\t165000\nFinance Lease Obligations\t67316\t17086\nAccounts Payable\t115633\t136465\nAccrued Taxes Other than Income Taxes\t68170\t42741\nAccrued Employee Expenses\t29717\t32567\nAccrued Interest\t17503\t16700\nRegulatory Liabilities\t107458\t96017\nCustomer Deposits\t18303\t24568\nDerivative Instruments\t18379\t27615\nOther\t19287\t23678\nTotal Current Liabilities\t461766\t662767\nRegulatory and Other Liabilities\t\t\nDeferred Income Taxes Net\t489409\t432484\nRegulatory Liabilities\t453393\t477495\nPension and Other Postretirement Benefits\t124333\t133452\nDerivative Instruments\t39589\t48697\nOther\t178900\t166656\nTotal Regulatory and Other Liabilities\t1285624\t1258784\nCommitments and Contingencies\t\t\nTotal Capitalization and Other Liabilities\t6117719\t5489157\n", "q10k_tbl_7": "\tThree Months Ended\t\t\t\t\n\tCommon Stock\tCapital Stock Expense\tRetained Earnings\tAccumulated Other Comprehensive Loss\tTotal Stockholder's Equity\nBalances as of June 30 2019\t1346539\t(6357)\t552535\t(4530)\t1888187\nNet Income\t\t\t98170\t\t98170\nOther Comprehensive Income Net of Tax\t\t\t\t106\t106\nDividend Declared to Parent\t\t\t(37500)\t\t(37500)\nBalances as of September 30 2019\t1346539\t(6357)\t613205\t(4424)\t1948963\n", "q10k_tbl_8": "Balances as of June 30 2020\t1596539\t(6357)\t661200\t(7501)\t2243881\nNet Income\t\t\t100461\t\t100461\nOther Comprehensive Income Net of Tax\t\t\t\t135\t135\nDividend Declared to Parent\t\t\t(37500)\t\t(37500)\nBalances as of September 30 2020\t1596539\t(6357)\t724161\t(7366)\t2306977\n", "q10k_tbl_9": "\tNine Months Ended\t\t\t\t\n\tCommon Stock\tCapital Stock Expense\tRetained Earnings\tAccumulated Other Comprehensive Loss\tTotal Stockholder's Equity\nBalances as of December 31 2018\t1346539\t(6357)\t484277\t(4714)\t1819745\nNet Income\t\t\t166428\t\t166428\nOther Comprehensive Income Net of Tax\t\t\t\t290\t290\nDividend Declared to Parent\t\t\t(37500)\t\t(37500)\nBalances as of September 30 2019\t1346539\t(6357)\t613205\t(4424)\t1948963\n", "q10k_tbl_10": "Balances as of December 31 2019\t1396539\t(6357)\t595792\t(7771)\t1978203\nNet Income\t\t\t165869\t\t165869\nOther Comprehensive Income Net of Tax\t\t\t\t405\t405\nDividend Declared to Parent\t\t\t(37500)\t\t(37500)\nContribution from Parent\t200000\t\t\t\t200000\nBalances as of September 30 2020\t1596539\t(6357)\t724161\t(7366)\t2306977\n", "q10k_tbl_11": "\tAs Filed\tAmount Reclassified\tAs Reclassified\tAs Filed\tAmount Reclassified\tAs Reclassified\n(in thousands)\tThree Months Ended September 30 2019\t\t\tNine Months Ended September 30 2019\t\t\nOther Income (Expense)\t\t\t\t\t\t\nOther Net\t(95)\t(456)\t(551)\t4036\t(4470)\t(434)\nUnrealized Gains (Losses) on Investments\t0\t456\t456\t0\t4470\t4470\n", "q10k_tbl_12": "\tSeptember 30\t\n(in millions)\t2020\t2019\nCash and Cash Equivalents\t163\t49\nRestricted Cash included in:\t\t\nInvestments and Other Property\t15\t13\nCurrent Assets-Other\t2\t1\nTotal Cash Cash Equivalents and Restricted Cash\t180\t63\n", "q10k_tbl_13": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n(in millions)\t2020\t2019\t2020\t2019\nBeginning of Period\t1\t1\t0\t4\nACC Refund (Reduction in Operating Revenues)\t(15)\t(11)\t(31)\t(27)\nAmount Returned to Customers through Bill Credits\t6\t7\t14\t17\nRegulatory Deferral\t7\t3\t16\t6\nEnd of Period\t(1)\t0\t(1)\t0\n", "q10k_tbl_14": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n(in millions)\t2020\t2019\t2020\t2019\nBeginning of Period\t28\t(9)\t36\t(17)\nDeferred Fuel and Purchased Power Costs (1)\t109\t104\t224\t232\nPPFAC and Base Power Recoveries (2)\t(110)\t(91)\t(233)\t(211)\nEnd of Period\t27\t4\t27\t4\n", "q10k_tbl_15": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n(in millions)\t2020\t2019\t2020\t2019\nLFCR Revenues\t12\t9\t34\t25\n", "q10k_tbl_16": "($ in millions)\tRemaining Recovery Period (years)\tSeptember 30 2020\tDecember 31 2019\nRegulatory Assets\t\t\t\nPension and Other Postretirement Benefits\tVarious\t129\t135\nEarly Generation Retirement Costs\tVarious\t63\t68\nLost Fixed Cost Recovery\t2\t57\t46\nDerivatives (Note 9)\t9\t48\t72\nIncome Taxes Recoverable through Future Rates (1)\tVarious\t28\t38\nUnder Recovered Purchased Energy Costs\t1\t27\t36\nProperty Tax Deferrals (2)\t1\t26\t24\nFinal Mine Reclamation and Retiree Healthcare Costs (3)\t8\t23\t19\nSpringerville Unit 1 Leasehold Improvements (4)\t3\t7\t9\nOther Regulatory Assets\tVarious\t20\t18\nTotal Regulatory Assets\t\t428\t465\nLess Current Portion\t1\t119\t138\nTotal Non-Current Regulatory Assets\t\t309\t327\n", "q10k_tbl_17": "Regulatory Liabilities\t\t\t\nIncome Taxes Payable through Future Rates (1)\tVarious\t300\t327\nNet Cost of Removal (5)\tVarious\t151\t164\nRenewable Energy Standard\tVarious\t63\t59\nDeferred Investment Tax Credits (6)\tVarious\t2\t3\nOther Regulatory Liabilities\tVarious\t44\t20\nTotal Regulatory Liabilities\t\t560\t573\nLess Current Portion\t1\t107\t96\nTotal Non-Current Regulatory Liabilities\t\t453\t477\n", "q10k_tbl_18": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n(in millions)\t2020\t2019\t2020\t2019\nRetail\t361\t333\t818\t771\nWholesale (1)\t61\t60\t127\t187\nOther Services\t24\t30\t71\t84\nRevenues from Contracts with Customers\t446\t423\t1016\t1042\nAlternative Revenues\t12\t9\t36\t27\nOther\t14\t9\t38\t31\nTotal Operating Revenues\t472\t441\t1090\t1100\n", "q10k_tbl_19": "(in millions)\tSeptember 30 2020\tDecember 31 2019\nRetail\t114\t61\nRetail Unbilled\t57\t42\nRetail Allowance for Credit Losses\t(10)\t(6)\nWholesale (1)\t30\t31\nDue from Affiliates (Note 5)\t7\t8\nOther\t13\t19\nAccounts Receivable\t211\t155\n", "q10k_tbl_20": "(in millions)\tSeptember 30 2020\tDecember 31 2019\nReceivables from Related Parties\t\t\nUNS Electric\t5\t6\nUNS Gas\t2\t2\nTotal Due from Related Parties\t7\t8\nPayables to Related Parties\t\t\nSES\t3\t2\nUNS Energy\t2\t1\nUNS Electric\t0\t1\nTotal Due to Related Parties\t5\t4\n", "q10k_tbl_21": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n(in millions)\t2020\t2019\t2020\t2019\nGoods and Services Provided by TEP to Affiliates\t\t\t\t\nTransmission Revenues UNS Electric (1)\t3\t2\t7\t5\nWholesale Revenues UNS Electric (1)\t1\t0\t1\t0\nControl Area Services UNS Electric (2)\t1\t1\t3\t3\nCommon Costs UNS Energy Affiliates (3)\t5\t4\t14\t14\nGoods and Services Provided by Affiliates to TEP\t\t\t\t\nSupplemental Workforce SES (4)\t3\t4\t10\t11\nCorporate Services UNS Energy (5)\t1\t1\t4\t4\nCorporate Services UNS Energy Affiliates (6)\t1\t1\t3\t3\n", "q10k_tbl_22": "\tCapacity\tSub-Limit LOC\tBorrowed (1)\tAvailable\tWeighted Average Interest Rate\tPricing (2)\t\n(in millions)\tSeptember 30 2020\t\t\t\t\t\t\nRevolver and LOC\t250\t50\t12\t238\t-%\tLIBOR + 1.000%\tor ABR + 0.00%\n", "q10k_tbl_23": "\tPension Benefits\t\tOther Postretirement Benefits\t\n\tThree Months Ended September 30\t\t\t\n(in millions)\t2020\t2019\t2020\t2019\nService Cost\t4\t3\t1\t1\nNon-Service Cost (1)\t\t\t\t\nInterest Cost\t4\t5\t0\t1\nExpected Return on Plan Assets\t(7)\t(6)\t0\t(1)\nAmortization of Net Loss\t2\t2\t0\t0\nNet Periodic Benefit Cost\t3\t4\t1\t1\n", "q10k_tbl_24": "\tPension Benefits\t\tOther Postretirement Benefits\t\n\tNine Months Ended September 30\t\t\t\n(in millions)\t2020\t2019\t2020\t2019\nService Cost\t12\t9\t3\t3\nNon-Service Cost (1)\t\t\t\t\nInterest Cost\t12\t14\t1\t2\nExpected Return on Plan Assets\t(22)\t(19)\t(1)\t(1)\nAmortization of Net Loss\t6\t6\t0\t0\nNet Periodic Benefit Cost\t8\t10\t3\t4\n", "q10k_tbl_25": "\tLevel 1\tLevel 2\tTotal\n(in millions)\tSeptember 30 2020\t\nAssets\t\t\nRestricted Cash (1)\t17\t0\t17\nEnergy Derivative Contracts Regulatory Recovery (2)\t0\t12\t12\nEnergy Derivative Contracts No Regulatory Recovery (2)\t0\t4\t4\nTotal Assets\t17\t16\t33\nLiabilities\t\t\t\nEnergy Derivative Contracts Regulatory Recovery (2)\t0\t(57)\t(57)\nEnergy Derivative Contracts No Regulatory Recovery (2)\t0\t(1)\t(1)\nTotal Liabilities\t0\t(58)\t(58)\nTotal Assets (Liabilities) Net\t17\t(42)\t(25)\n", "q10k_tbl_26": "(in millions)\tDecember 31 2019\t\nAssets\t\t\nRestricted Cash (1)\t18\t0\t\t\t\t18\t\t\nEnergy Derivative Contracts Regulatory Recovery (2)\t0\t3\t\t\t\t3\t\t\nEnergy Derivative Contracts No Regulatory Recovery (2)\t0\t3\t\t\t\t3\t\t\nTotal Assets\t18\t6\t\t\t\t24\t\t\nLiabilities\t\t\t\t\t\t\t\t\nEnergy Derivative Contracts Regulatory Recovery (2)\t0\t(76)\t\t\t\t(76)\t\t\nTotal Liabilities\t0\t(76)\t\t\t\t(76)\t\t\nTotal Assets (Liabilities) Net\t18\t(70)\t\t\t\t(52)\t\t\n", "q10k_tbl_27": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n(in millions)\t2020\t2019\t2020\t2019\nUnrealized Net Gain (Loss)\t13\t1\t28\t(19)\n", "q10k_tbl_28": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n(in millions)\t2020\t2019\t2020\t2019\nOperating Revenues\t0\t0\t5\t5\n", "q10k_tbl_29": "\tSeptember 30 2020\tDecember 31 2019\nPower Contracts GWh\t5119\t4740\nGas Contracts BBtu\t104030\t122779\n", "q10k_tbl_30": "\tFair Value Hierarchy\t\tNet Carrying Value\t\t\t\tFair Value\t\t\n(in millions)\t\tSeptember 30 2020\t\tDecember 31 2019\t\tSeptember 30 2020\t\tDecember 31 2019\nLiabilities\t\t\t\t\t\t\t\t\t\nLong-Term Debt including Current Maturities\tLevel 2\t\t2063\t\t1602\t\t2366\t\t1755\n", "q10k_tbl_31": "\tNine Months Ended September 30\t\t\t\t\t\n(sales in GWh)\t2020\t\t2019\t\t2018\t\nElectric Sales\t\t\t\t\t\t\nResidential\t3356\t47%\t2986\t43%\t3074\t44%\nCommercial\t1556\t22%\t1620\t24%\t1683\t24%\nIndustrial non-Mining\t1409\t20%\t1456\t21%\t1500\t21%\nIndustrial Mining\t829\t11%\t807\t12%\t762\t11%\nOther\t12\t-%\t12\t-%\t12\t-%\nTotal Retail Sales by Customer Class\t7162\t100%\t6881\t100%\t7031\t100%\n", "q10k_tbl_32": "\tThree Months Ended September 30\t\tIncrease (Decrease)\tNine Months Ended September 30\t\tIncrease (Decrease)\n(in millions)\t2020\t2019\tPercent\t2020\t2019\tPercent\nOperating Revenues\t\t\t\t\t\t\nRetail\t361\t333\t8.4%\t818\t771\t6.1%\nWholesale Long-Term\t12\t11\t9.1%\t26\t27\t(3.7)%\nWholesale Short-Term (1)\t44\t46\t(4.3)%\t98\t153\t(35.9)%\nTransmission\t8\t7\t14.3%\t21\t23\t(8.7)%\nSpringerville Units 3 and 4 Participant Billings\t20\t26\t(23.1)%\t58\t72\t(19.4)%\nOther\t27\t18\t50.0%\t69\t54\t27.8%\nTotal Operating Revenues\t472\t441\t7.0%\t1090\t1100\t(0.9)%\n", "q10k_tbl_33": "\tThree Months Ended September 30\t\tIncrease (Decrease)\tNine Months Ended September 30\t\tIncrease (Decrease)\n(kWh in millions)\t2020\t2019\tPercent\t2020\t2019\tPercent\nElectric Sales (kWh) (1)\t\t\t\t\t\t\nRetail Sales\t3064\t2940\t4.2%\t7162\t6881\t4.1%\nWholesale Long-Term\t225\t173\t30.1%\t373\t382\t(2.4)%\nWholesale Short-Term\t1199\t1915\t(37.4)%\t3547\t5568\t(36.3)%\nTotal Electric Sales\t4488\t5028\t(10.7)%\t11082\t12831\t(13.6)%\nAverage Revenue Per kWh (2)\t\t\t\t\t\t\nRetail\t11.78\t11.31\t4.2%\t11.42\t11.20\t2.0%\nWholesale Long-Term\t5.65\t6.11\t(7.5)%\t7.08\t6.90\t2.6%\nWholesale Short-Term\t4.01\t2.77\t44.8%\t2.75\t2.86\t(3.8)%\nTotal Retail Customers (3)\t\t\t\t432727\t427888\t1.1%\n", "q10k_tbl_34": "\tThree Months Ended September 30\t\tIncrease (Decrease)\tNine Months Ended September 30\t\tIncrease (Decrease)\n(kWh in millions)\t2020\t2019\tPercent\t2020\t2019\tPercent\nSources of Energy\t\t\t\t\t\t\nCoal-Fired Generation\t1646\t1956\t(15.8)%\t4181\t5328\t(21.5)%\nGas-Fired Generation\t2366\t2698\t(12.3)%\t5685\t6379\t(10.9)%\nUtility-Owned Renewable Generation\t21\t19\t10.5%\t66\t58\t13.8%\nTotal Generation\t4033\t4673\t(13.7)%\t9932\t11765\t(15.6)%\nPurchased Power Non-Renewable\t557\t450\t23.8%\t1136\t1124\t1.1%\nPurchased Power Renewable\t165\t152\t8.6%\t533\t502\t6.2%\nTotal Generation and Purchased Power (1)\t4755\t5275\t(9.9)%\t11601\t13391\t(13.4)%\n", "q10k_tbl_35": "(cents per kWh)\t\t\t\t\t\t\nAverage Fuel Cost of Generated Power (2)\t\t\t\t\t\t\nCoal\t2.43\t2.63\t(7.6)%\t2.49\t2.41\t3.3%\nNatural Gas (3)\t2.10\t2.25\t(6.7)%\t1.93\t2.29\t(15.7)%\nAverage Cost of Purchased Power (4)\t\t\t\t\t\t\nPurchased Power Non-Renewable\t9.99\t5.16\t93.6%\t6.41\t4.24\t51.2%\nPurchased Power Renewable\t9.55\t9.68\t(1.3)%\t9.46\t9.48\t(0.2)%\n", "q10k_tbl_36": "\tNine Months Ended September 30\t\tIncrease (Decrease)\n(in millions)\t2020\t2019\tPercent\nOperating Activities\t355\t317\t12.0%\nInvesting Activities\t(644)\t(358)\t79.9%\nFinancing Activities\t441\t(48)\t*\nNet Increase (Decrease)\t152\t(89)\t270.8%\nBeginning of Period\t28\t153\t(81.7)%\nEnd of Period (1)\t180\t64\t181.3%\n", "q10k_tbl_37": "\tYears Ended December 31\t\t\t\t\n(in millions)\t2020\t2021\t2022\t2023\t2024\nGeneration Facilities:\t\t\t\t\t\nRenewable Energy (1)\t366\t30\t4\t97\t226\nOther Generation Facilities (2)\t185\t57\t49\t51\t37\nTotal Generation Facilities\t551\t87\t53\t148\t263\nTransmission and Distribution (3)\t218\t301\t371\t353\t268\nGeneral and Other (4)\t115\t118\t57\t55\t49\nTotal Capital Expenditures\t884\t506\t481\t556\t580\n", "q10k_tbl_38": "EXHIBIT INDEX\t\nExhibit No.\tDescription\n31(a)\tCertification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by David G. Hutchens\n31(b)\tCertification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Frank P. Marino\n*32\tStatements of Corporate Officers (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)\n101.INS\tXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document\n101.SCH\tXBRL Taxonomy Extension Schema Document\n101.CAL\tXBRL Taxonomy Extension Calculation Linkbase Document\n101.LAB\tXBRL Taxonomy Extension Label Linkbase Document\n101.PRE\tXBRL Taxonomy Extension Presentation Linkbase Document\n101.DEF\tXBRL Taxonomy Extension Definition Linkbase Document\n104\tThe cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30 2020 formatted in Inline XBRL and contained in Exhibit 101\n"}{"bs": "q10k_tbl_6", "is": "q10k_tbl_2", "cf": "q10k_tbl_4"}None
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 1-5924
TUCSON ELECTRIC POWER COMPANY
(Exact name of registrant as specified in its charter)
Arizona
86-0062700
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
88 East Broadway Boulevard, Tucson, AZ85701
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (520) 571-4000
Former name, former address and former fiscal year, if changed since last report: N/A
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐Accelerated Filer ☐Non-Accelerated Filer☒Smaller Reporting Company ☐Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
All shares of outstanding common stock of Tucson Electric Power Company are held by its parent company, UNS Energy Corporation, which is an indirect, wholly-owned subsidiary of Fortis Inc. There were 32,139,434 shares of common stock, no par value, outstanding as of October 29, 2020.
The abbreviations and acronyms used in this Form 10-Q are defined below:
INDUSTRY ACRONYMS AND CERTAIN DEFINITIONS
2015 Credit Agreement
The 2015 Credit Agreement provides for a $250 million revolving credit and letter of credit facilities with a sublimit of $50 million; the credit agreement matures in October 2022
2019 Credit Agreement
The 2019 Credit Agreement provided for $225 million in term loans. In April 2020, the term loans were repaid and the agreement terminated
2019 ACC Rate Case
In April 2019, TEP filed a general rate case with the ACC based on a test year ended December 31, 2018
2019 FERC Rate Case
In 2019, the FERC issued an order approving TEP's proposed OATT revisions effective August 1, 2019, subject to refund and further proceedings
2020 IRP
TEP's 2020 Integrated Resource Plan filed with the ACC in June 2020, which outlines TEP's energy portfolio over the next 15 years
ABR
Alternate Base Rate
ACC
Arizona Corporation Commission
ACC Refund Order
An order issued in 2018 by the ACC approving TEP’s proposal to return savings from the Company’s federal corporate income tax rate under the TCJA to its customers through a combination of customer bill credits and a regulatory liability deferral that reflects the return of a portion of the savings, effective May 1, 2018
ADEQ
Arizona Department of Environmental Quality
AFUDC
Allowance for Funds Used During Construction
ALJ
Administrative Law Judge
AMT
Alternative Minimum Tax
COVID-19
Coronavirus Disease 2019
DG
Distributed Generation
DSM
Demand Side Management
EDIT
Excess Deferred Income Taxes
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
GAAP
Generally Accepted Accounting Principles in the United States of America
LFCR
Lost Fixed Cost Recovery
LIBOR
London Interbank Offered Rate
LOC
Letter(s) of Credit
OATT
Open Access Transmission Tariff
PPA
Power Purchase Agreement
PPFAC
Purchased Power and Fuel Adjustment Clause
RES
Renewable Energy Standard
Retail Rates
Rates designed to allow a regulated utility recovery of its costs of providing services and an opportunity to earn a reasonable return on its investment
RICE
Reciprocating Internal Combustion Engine
Summer Moratorium
Emergency rules first enacted by the ACC in 2019 that suspend service disconnections and late fees for electric residential customers who otherwise would be eligible for service disconnection during the period from June 1 through October 15
TCA
Transmission Cost Adjustor
TCJA
Tax Cuts and Jobs Act
TEAM
Tax Expense Adjustor Mechanism
iii
ENTITIES AND GENERATING STATIONS
Fortis
Fortis Inc., a corporation incorporated under the Corporations Act of Newfoundland and Labrador, Canada, whose principal executive offices are located at Fortis Place, Suite 1100, 5 Springdale Street, St. John's, NL A1E 0E4
Four Corners
Four Corners Generating Station
Gila River
Gila River Generating Station
Luna
Luna Generating Station
Navajo
Navajo Generating Station
Oso Grande
A 250 MW nominal capacity wind-powered electric generation facility, which is under construction in southeastern New Mexico
San Juan
San Juan Generating Station
SES
Southwest Energy Solutions, Inc.
Springerville
Springerville Generating Station
SRP
Salt River Project Agricultural Improvement and Power District
Sundt
H. Wilson Sundt Generating Station
TEP
Tucson Electric Power Company, the principal subsidiary of UNS Energy Corporation
UNS Electric
UNS Electric, Inc., an indirect wholly-owned subsidiary of UNS Energy Corporation
UNS Energy
UNS Energy Corporation, the parent company of TEP, whose principal executive offices are located at 88 East Broadway Boulevard, Tucson, Arizona 85701
UNS Energy Affiliates
Affiliated subsidiaries of UNS Energy Corporation including UniSource Energy Services, Inc., UNS Electric, Inc., UNS Gas, Inc., and Southwest Energy Solutions, Inc.
UNS Gas
UNS Gas, Inc., an indirect wholly-owned subsidiary of UNS Energy Corporation
UNITS OF MEASURE
BBtu
Billion British thermal unit(s), a measure of the quantity of heat required to raise the temperature of one pound of liquid water by one degree Fahrenheit at the temperature at which water has its greatest density, in billions
GWh
Gigawatt-hour(s), a measure of electricity that represents one billion watts of power expended over one hour
kWh
Kilowatt-hour(s), a measure of electricity that represents one thousand watts of power expended over one hour
MW
Megawatt(s), a measure of electricity that represents one million watts of power
This Quarterly Report on Form 10-Q contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. TEP, or the Company, is including the following cautionary statements to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by TEP in this Quarterly Report on Form 10-Q. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, future economic conditions, future operational or financial performance and underlying assumptions, and other statements that are not statements of historical facts. Forward-looking statements may be identified by the use of words such as anticipates, believes, estimates, expects, intends, may, plans, predicts, potential, projects, would, and similar expressions. From time to time, we may publish or otherwise make available forward-looking statements of this nature. All such forward-looking statements, whether written or oral, and whether made by or on behalf of TEP, are expressly qualified by these cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, TEP disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report, except as may otherwise be required by the federal securities laws.
Forward-looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed therein. We express our estimates, expectations, beliefs, and projections in good faith and believe them to have a reasonable basis. However, we make no assurances that management’s estimates, expectations, beliefs, or projections will be achieved or accomplished. We have identified the following important factors that could cause actual results to differ materially from those discussed in our forward-looking statements. These may be in addition to other factors and matters discussed in: Part I, Item 1A. Risk Factors of our 2019 Annual Report on Form 10-K; Part II, Item 1A. Risk Factors; Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations; and other parts of this report. These factors include: voter initiatives and state and federal regulatory and legislative decisions and actions, including changes in tax and energy policies and any change in the structure of utility service in Arizona resulting from the ACC's examination of the state's energy policies; changes in, and compliance with, environmental laws and regulatory decisions and policies that could increase operating and capital costs, reduce generation facility output, or accelerate generation facility retirements; the outcome of the general rate case filed with the ACC in April 2019; the final outcome of the FERC order effective August 2019, subject to refund, approving revisions to TEP's OATT; regional economic and market conditions that could affect customer growth and energy usage; changes in energy consumption by retail customers; weather variations affecting energy usage; our forecasts of peak demand and whether existing generation capacity and PPAs are sufficient to meet the expected demand plus reserve margin requirements; the cost of debt and equity capital and access to capital markets and bank markets, which may affect our ability to raise additional capital and use the proceeds from any capital that we do raise as originally intended; the performance of the stock market and a changing interest rate environment, which affect the value of our pension and other postretirement benefit plan assets and the related contribution requirements and expenses; the potential inability to make additions to our existing high voltage transmission system; unexpected increases in operations and maintenance expense; resolution of pending litigation matters; changes in accounting standards; changes in our critical accounting policies and estimates; the ongoing impact of mandated energy efficiency and DG initiatives; changes to long-term contracts; the cost of fuel and power supplies; the ability to obtain coal from our suppliers; cyber-attacks, data breaches, or other challenges to our information security, including our operations and technology systems; the performance of TEP's generation facilities, including renewable generation resources; the development of our wind-powered electric generation facility in southeastern New Mexico; participation in the Energy Imbalance Market; the extent of the impact of the COVID-19 pandemic on our business and operations, and the economic and societal disruptions resulting from the COVID-19 pandemic; the impact of the TCJA on our financial condition and results of operations, including the assumptions we make relating thereto; and the implementation of our 2020 IRP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND FINANCIAL STATEMENT PRESENTATION
TEP is a regulated utility that generates, transmits, and distributes electricity to approximately 433,000 retail customers in a 1,155 square mile area in southeastern Arizona. TEP also sells electricity to other utilities and power marketing entities, located primarily in the western United States. TEP is a wholly-owned subsidiary of UNS Energy, a utility services holding company. UNS Energy is an indirect wholly-owned subsidiary of Fortis.
BASIS OF PRESENTATION
TEP's Condensed Consolidated Financial Statements and disclosures are presented in accordance with GAAP, including specific accounting guidance for regulated operations and the Securities and Exchange Commission's (SEC) interim reporting requirements.
The Condensed Consolidated Financial Statements include the accounts of TEP and its subsidiaries. In the consolidation process, accounts of the parent and subsidiaries are combined and intercompany balances and transactions are eliminated. TEP jointly owns several generation and transmission facilities with both affiliated and non-affiliated entities. TEP records its proportionate share of: (i) jointly-owned facilities in Utility Plant on the Condensed Consolidated Balance Sheets; and (ii) operating costs associated with these facilities in the Condensed Consolidated Statements of Income. These Condensed Consolidated Financial Statements exclude some information and footnotes required by GAAP and the SEC for annual financial statement reporting and should be read in conjunction with the Consolidated Financial Statements and footnotes in TEP's 2019 Annual Report on Form 10-K.
The Condensed Consolidated Financial Statements are unaudited, but, in management's opinion, include all normal, recurring adjustments necessary for a fair statement of the results for the interim periods presented. Because weather and other factors cause seasonal fluctuations in sales, TEP's quarterly operating results are not indicative of annual operating results.
Certain amounts from prior periods have been reclassified to conform to the current period presentation. Most notably, TEP bifurcated Other, Net on the Condensed Consolidated Statements of Income as follows:
As Filed
Amount Reclassified
As Reclassified
As Filed
Amount Reclassified
As Reclassified
(in thousands)
Three Months Ended September 30, 2019
Nine Months Ended September 30, 2019
Other Income (Expense)
Other, Net
$
(95)
$
(456)
$
(551)
$
4,036
$
(4,470)
$
(434)
Unrealized Gains (Losses) on Investments
—
456
456
—
4,470
4,470
Variable Interest Entities
TEP regularly reviews contracts to determine if it has a variable interest in an entity, if that entity is a Variable Interest Entity (VIE), and if TEP is the primary beneficiary of the VIE. The primary beneficiary is required to consolidate the VIE when it has: (i) the power to direct activities that most significantly impact the economic performance of the VIE; and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
TEP has entered into long-term renewable PPAs with various entities. Some of these entities are VIEs due to the long-term fixed price component in the agreements. These PPAs effectively transfer commodity price risk to TEP, the buyer of the power, creating a variable interest. TEP has determined it is not a primary beneficiary of these VIEs as it lacks the power to direct the activities that most significantly impact the economic performance of the VIEs. TEP reconsiders whether it is a primary beneficiary of the VIEs on a quarterly basis.
As of September 30, 2020, the carrying amounts of assets and liabilities on the balance sheet that relate to variable interests under long-term PPAs are predominantly related to working capital accounts and generally represent the amounts owed by TEP for the deliveries associated with the current billing cycle. TEP's maximum exposure to loss is limited to the cost of replacing the power if the providers do not meet the production guarantee. However, the exposure to loss is mitigated as TEP would likely recover these costs through cost recovery mechanisms. See Note 2 for additional information related to cost recovery mechanisms.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restricted Cash
Restricted cash includes cash balances restricted with respect to withdrawal or usage based on contractual or regulatory considerations.The following table presents the line items and amounts of cash, cash equivalents, and restricted cash reported on the balance sheet and reconciles their sum to the cash flow statement:
September 30,
(in millions)
2020
2019
Cash and Cash Equivalents
$
163
$
49
Restricted Cash included in:
Investments and Other Property
15
13
Current Assets—Other
2
1
Total Cash, Cash Equivalents, and Restricted Cash
$
180
$
63
Restricted cash included in Investments and Other Property on the Condensed Consolidated Balance Sheets represents cash contractually required to be set aside to pay TEP's share of mine reclamation costs at San Juan and various contractual agreements. Restricted cash included in Current Assets—Other represents the current portion of TEP's share of San Juan's mine reclamation costs.
NEW ACCOUNTING STANDARDS ISSUED AND ADOPTED
The following new authoritative accounting guidance issued by the FASB has been adopted as of January 1, 2020. Unless otherwise indicated, adoption of the new guidance in each instance had an insignificant impact on TEP’s financial position, results of operations, cash flows, and disclosures.
Credit Losses
TEP adopted accounting guidance that requires entities to incorporate reasonable and supportable forecasts in an entity's estimates of credit losses and recognition of expected losses upon the initial recognition of a financial instrument, in addition to using past events and current conditions. The new guidance also requires quantitative and qualitative disclosures regarding the activity in the allowance for credit losses for financial assets within the scope of the guidance. See Note 4 for additional disclosure about TEP's allowance for credit losses.
NEW ACCOUNTING STANDARDS ISSUED AND NOT YET ADOPTED
New authoritative accounting guidance issued by the FASB was assessed and either determined to not be applicable or is expected to have an insignificant impact on TEP’s financial position, results of operations, cash flows, and disclosures.
NOTE 2. REGULATORY MATTERS
The ACC and the FERC each regulate portions of the utility accounting practices and rates of TEP. The ACC regulates rates charged to retail customers, the siting of generation and transmission facilities, the issuance of securities, transactions with affiliated parties, and other utility matters. The ACC also enacts other regulations and policies that can affect TEP's business decisions and accounting practices. The FERC regulates rates and services for electric transmission and wholesale power sales in interstate commerce.
2019 ACC RATE CASE
In April 2019, TEP filed a general rate case with the ACC based on a test year ended December 31, 2018.
TEP's key proposals of the rate case, adjusted for rebuttal testimony filed in November 2019, include:
•a non-fuel retail revenue increase of $99 million, partially offset by a reduction in base fuel revenue of approximately $39 million for a net increase of $60 million over test year retail revenues;
•a 7.49% return on original cost rate base of $2.7 billion, which includes a cost of equity of 10.00% and an average cost of debt of 4.65%;
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•a request to recover costs of changes in generation resources, including: (i) the retirement of Navajo and Sundt Units 1 and 2; and (ii) the replacement generation capacity associated with the purchase of Gila River Unit 2 and the installation of the Sundt RICE Units;
•a TEAM that would be updated for income tax changes that materially affect TEP’s authorized revenue requirement; and
•a TCA mechanism, updated annually, allowing TEP to recover any changes in transmission costs approved by the FERC.
Hearings before an ALJ concluded in June 2020. Parties to the rate case filed post-hearing briefs in July and August 2020. As a result of work schedule disruptions arising from the COVID-19 pandemic, the timing of when new rates will go into effect remains uncertain.
TEP cannot predict the outcome of the proceeding.
2019 FERC RATE CASE
In 2019, the FERC issued an order approving TEP's proposed OATT revisions effective August 1, 2019, subject to refund and further proceedings.
Provisions of the order include, but are not limited to:
•replacing TEP's stated transmission rates with a forward-looking formula rate;
•a 10.4% return on equity; and
•elimination of transmission rates that are bifurcated between high-voltage and lower-voltage facilities, as well as elimination of the bifurcated loss factor rate.
The requested forward-looking formula rate is intended to allow for a more timely recovery of transmission related costs. As part of the order, the FERC established hearing and settlement procedures. All revisions to the OATT in the FERC order are subject to refund. Settlement discussions in the proceeding are ongoing. TEP had reserved $11 million as of September 30, 2020, and $4 million as of December 31, 2019, of wholesale revenues in Current Liabilities—Regulatory Liabilities on the Condensed Consolidated Balance Sheets. TEP cannot predict the outcome of the proceeding.
FEDERAL TAX LEGISLATION
Arizona Corporation Commission
In December 2017, the ACC opened a docket requesting that all regulated utilities submit proposals to address passing the benefits of the TCJA through to customers. In 2018, the ACC approved TEP’s proposal to return savings from the Company’s federal corporate income tax rate under the TCJA to its customers through a combination of customer bill credits and a regulatory liability deferral that reflects the return of a portion of the savings, effective May 1, 2018 (ACC Refund Order). The ACC Refund Order represents the reduction in the federal corporate income tax rate and an estimate of EDIT amortization that will be trued-up annually for actuals. The bill credit was designed to return the refund amount to customers based on forecasted kWh sales for the calendar year. Any over or under collected amounts are deferred to a regulatory liability or asset and will be used to adjust the following year's bill credit amounts.
The table below summarizes the regulatory asset (liability) over or under collected balance related to the ACC Refund Order:
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2020
2019
2020
2019
Beginning of Period
$
1
$
1
$
—
$
4
ACC Refund (Reduction in Operating Revenues)
(15)
(11)
(31)
(27)
Amount Returned to Customers through Bill Credits
6
7
14
17
Regulatory Deferral
7
3
16
6
End of Period
$
(1)
$
—
$
(1)
$
—
Customer bill credits are trued-up annually to reflect actuals for both kWh sales and EDIT amortization. In October 2019, TEP filed an informational filing with the ACC to establish a 2020 customer refund of $35 million. The refund is being returned to
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
customers through a combination of a customer bill credit and a regulatory liability in 2020. The customer bill credit will account for 50% of the returned savings in 2020 and through the completion of our rate case. A regulatory liability balance related to the deferred TCJA customer refunds of $24 million as of September 30, 2020, and $8 million as of December 31, 2019, was recorded in Regulatory and Other Liabilities—Regulatory Liabilities on the Condensed Consolidated Balance Sheets. On October 1, 2020, TEP filed an informational filing with the ACC to establish a 2021 customer refund of $38 million.
COST RECOVERY MECHANISMS
TEP has received regulatory decisions that allow for more timely recovery of certain costs through the recovery mechanisms described below.
Purchased Power and Fuel Adjustment Clause
TEP's PPFAC rate is typically adjusted annually on April 1st and goes into effect for the subsequent 12-month period unless the schedule is modified by the ACC. The PPFAC rate includes: (i) a forward component which is calculated by taking the difference between forecasted fuel and purchased power costs and the amount of those costs established in Retail Rates; and (ii) a true-up component that reconciles the difference between actual costs and those recovered in the preceding 12-month period.
The table below summarizes the PPFAC regulatory asset (liability) balance:
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2020
2019
2020
2019
Beginning of Period
$
28
$
(9)
$
36
$
(17)
Deferred Fuel and Purchased Power Costs (1)
109
104
224
232
PPFAC and Base Power Recoveries (2)
(110)
(91)
(233)
(211)
End of Period
$
27
$
4
$
27
$
4
(1)Includes costs eligible for recovery through the PPFAC and base power rates.
(2)In March 2019, the ACC approved a PPFAC credit as part of TEP's annual rate adjustment request, which went into effect on April 1, 2019. In March 2020, the ACC approved a PPFAC surcharge as part of TEP's annual rate adjustment request, which went into effect on June 1, 2020.
Renewable Energy Standard
The ACC’s RES requires Arizona-regulated utilities to supply an increasing percentage of their retail sales from renewable generation sources each year. The renewable energy requirement in 2020 is 10% of retail electric sales, which will increase annually until renewable retail sales represent at least 15% by 2025. DG will account for 30% of the annual renewable energy requirement. Arizona utilities are required to file an annual RES implementation plan for review and approval by the ACC.
In 2019, the ACC approved TEP's 2019 RES implementation plan with a budget amount of $55 million. The recovery funds: (i) above market cost of renewable power purchases; (ii) previously awarded incentives for customer-installed DG; and (iii) various other program costs.
Energy Efficiency Standards
TEP is required to implement cost-effective DSM programs to comply with the ACC’s Energy Efficiency Standards (EE Standards). The EE Standards provide regulated utilities a DSM surcharge to recover from retail customers the costs to implement DSM programs, as well as an annual performance incentive. TEP records its annual DSM performance incentive for the prior calendar year in the first quarter of each year. TEP recorded $2 million in both 2020 and 2019 related to performance in Operating Revenues on the Condensed Consolidated Statements of Income.
In 2019, the ACC approved TEP’s 2018 energy efficiency implementation plan with a budget of approximately $23 million, which is collected through the DSM surcharge, and approved a waiver of the 2018 EE Standard. In addition, the ACC ordered that TEP's 2018 energy efficiency implementation plan be considered as its 2019 and 2020 energy efficiency implementation plans. In June 2020, TEP filed its 2021 energy efficiency implementation plan with a budget of approximately $23 million. TEP cannot predict the outcome of the proceeding.
TEP filed a request with the ACC in April 2020 to refund to customers approximately $8 million of over-collected DSM funds as a result of the COVID-19 pandemic. In May 2020, the ACC approved the request and TEP returned the funds in the form of customer bill credits over the June 2020 billing cycle.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Lost Fixed Cost Recovery Mechanism
The LFCR mechanism provides for recovery of certain non-fuel costs that would go unrecovered due to reduced retail kWh sales as a result of implementing ACC-approved energy efficiency programs and customer-installed DG. TEP records a regulatory asset and recognizes LFCR revenues when amounts are verifiable regardless of when the lost retail kWh sales occurred. TEP is required to make an annual filing with the ACC requesting recovery of LFCR revenues recognized in the prior year. The recovery is subject to a year-over-year increase cap of 2% of TEP's applicable retail revenues.
The table below summarizes the LFCR revenues recognized in Operating Revenues on the Condensed Consolidated Statements of Income:
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2020
2019
2020
2019
LFCR Revenues
$
12
$
9
$
34
$
25
REGULATORY ASSETS AND LIABILITIES
Regulatory assets and liabilities recorded in the balance sheet are summarized in the table below:
($ in millions)
Remaining Recovery Period (years)
September 30, 2020
December 31, 2019
Regulatory Assets
Pension and Other Postretirement Benefits
Various
$
129
$
135
Early Generation Retirement Costs
Various
63
68
Lost Fixed Cost Recovery
2
57
46
Derivatives (Note 9)
9
48
72
Income Taxes Recoverable through Future Rates (1)
Various
28
38
Under Recovered Purchased Energy Costs
1
27
36
Property Tax Deferrals (2)
1
26
24
Final Mine Reclamation and Retiree Healthcare Costs (3)
8
23
19
Springerville Unit 1 Leasehold Improvements (4)
3
7
9
Other Regulatory Assets
Various
20
18
Total Regulatory Assets
428
465
Less Current Portion
1
119
138
Total Non-Current Regulatory Assets
$
309
$
327
Regulatory Liabilities
Income Taxes Payable through Future Rates (1)
Various
$
300
$
327
Net Cost of Removal (5)
Various
151
164
Renewable Energy Standard
Various
63
59
Deferred Investment Tax Credits (6)
Various
2
3
Other Regulatory Liabilities
Various
44
20
Total Regulatory Liabilities
560
573
Less Current Portion
1
107
96
Total Non-Current Regulatory Liabilities
$
453
$
477
(1)Amortized over the lives of the assets.
(2)Recorded as a regulatory asset based on historical ratemaking treatment allowing regulated utilities recovery of property taxes on a pay-as-you-go or cash basis. TEP records a liability to reflect the accrual for financial reporting purposes and an offsetting regulatory asset to reflect recovery for regulatory purposes. This asset is fully recovered in rates with a recovery period of approximately six months.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3)Represents costs associated with TEP’s jointly-owned facilities at San Juan and Four Corners. TEP recognizes these costs at future value and is permitted to fully recover these costs on a pay-as-you-go basis through the PPFAC mechanism. The majority of final mine reclamation costs are expected to be funded by TEP through 2028.
(4)Represents investments TEP made, which were previously recorded in Plant in Service on the Condensed Consolidated Balance Sheets, to ensure that the facilities continued to provide safe and reliable service to TEP's customers. TEP received ACC authorization to recover leasehold improvement costs at Springerville Unit 1 over a 10-year period.
(5)Represents an estimate of the future cost of retirement, net of salvage value. These are amounts collected through revenue for transmission, distribution, generation plant, and general and intangible plant which are not yet expended.
(6)Represents federal energy credits generated after 2011 that are amortized over the tax life of the underlying asset.
Regulatory assets are either being collected or are expected to be collected through Retail Rates. With the exception of Early Generation Retirement Costs, Income Taxes Recoverable through Future Rates, and Springerville Unit 1 Leasehold Improvements, TEP does not earn a return on regulatory assets. Regulatory liabilities represent items that TEP either expects to pay to customers through billing reductions in future periods or plans to use for the purpose for which they were collected from customers. With the exception of over-recovered PPFAC costs and Income Taxes Payable through Future Rates, TEP does not pay a return on regulatory liabilities.
PLANT IN SERVICE
Under an air permit approved by the Pima County Department of Environmental Quality, TEP placed in service five natural gas RICE units at Sundt in December 2019 and an additional five units in March 2020. There was $186 million as of September 30, 2020, and $82 million as of December 31, 2019, related to the Sundt RICE Units recorded in Plant in Service on the Condensed Consolidated Balance Sheets. The 10 units have a total nominal generation capacity of 188 MW.
NOTE 3. REVENUE
DISAGGREGATION OF REVENUES
TEP earns the majority of its revenues from the sale of power to retail and wholesale customers based on regulator-approved tariff rates. The following table presents the disaggregation of TEP’s Operating Revenues on the Condensed Consolidated Statements of Income by type of service: