Company Quick10K Filing
Tucson Electric Power
10-Q 2020-09-30 Filed 2020-10-30
10-Q 2020-06-30 Filed 2020-07-30
10-Q 2020-03-31 Filed 2020-05-06
10-K 2019-12-31 Filed 2020-02-13
10-Q 2019-09-30 Filed 2019-11-01
10-Q 2019-06-30 Filed 2019-08-02
10-Q 2019-03-31 Filed 2019-05-01
10-K 2018-12-31 Filed 2019-02-15
10-Q 2018-09-30 Filed 2018-11-02
S-1 2018-09-14 Public Filing
10-Q 2018-06-30 Filed 2018-07-31
10-Q 2018-03-31 Filed 2018-05-01
10-K 2017-12-31 Filed 2018-02-15
10-Q 2017-09-30 Filed 2017-11-03
10-Q 2017-06-30 Filed 2017-07-28
10-Q 2017-03-31 Filed 2017-05-02
10-K 2016-12-31 Filed 2017-02-16
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-07-29
10-Q 2016-03-31 Filed 2016-05-03
10-K 2015-12-31 Filed 2016-02-18
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-07-31
10-Q 2015-03-31 Filed 2015-05-05
10-K 2014-12-31 Filed 2015-02-19
10-Q 2014-09-30 Filed 2014-11-07
10-Q 2014-06-30 Filed 2014-07-29
10-Q 2014-03-31 Filed 2014-04-28
10-K 2013-12-31 Filed 2014-02-25
10-Q 2013-09-30 Filed 2013-11-07
10-Q 2013-06-30 Filed 2013-07-30
10-Q 2013-03-31 Filed 2013-04-29
10-K 2012-12-31 Filed 2013-02-27
10-Q 2012-09-30 Filed 2012-11-02
10-Q 2012-06-30 Filed 2012-07-30
10-Q 2012-03-31 Filed 2012-04-30
10-K 2011-12-31 Filed 2012-02-28
10-Q 2011-09-30 Filed 2011-10-31
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-02
10-K 2010-12-31 Filed 2011-03-01
10-Q 2010-09-30 Filed 2010-10-27
10-Q 2010-06-30 Filed 2010-08-05
10-Q 2010-03-31 Filed 2010-05-04
10-K 2009-12-31 Filed 2010-02-26
8-K 2020-09-22 Other Events, Exhibits
8-K 2020-08-10 Other Events, Exhibits
8-K 2020-06-26 Other Events, Exhibits
8-K 2020-04-09
8-K 2020-02-13
8-K 2019-12-11
8-K 2019-12-04
8-K 2019-03-28
8-K 2018-11-06

TEP 10Q Quarterly Report

Part I
Item 1. Financial Statements
Note 1. Nature of Operations and Financial Statement Presentation
Note 2. Regulatory Matters
Note 3. Revenue
Note 4. Accounts Receivable
Note 5. Related Party Transactions
Note 6. Debt and Credit Agreements
Note 7. Commitments and Contingencies
Note 8. Employee Benefit Plans
Note 9. Fair Value Measurements and Derivative Instruments
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.A tepex31a09302020.htm
EX-31.B tepex31b09302020.htm
EX-32 tepex3209302020.htm

Tucson Electric Power Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
Assets, Equity
Rev, G Profit, Net Income
Ops, Inv, Fin


Washington, D.C. 20549
(Mark One)

For the quarterly period ended September 30, 2020
For the transition period from                     to                     .
Commission File Number 1-5924
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
88 East Broadway Boulevard, Tucson, AZ 85701
(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.

Table of Contents


The abbreviations and acronyms used in this Form 10-Q are defined below:
2015 Credit AgreementThe 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 AgreementThe 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 CaseIn April 2019, TEP filed a general rate case with the ACC based on a test year ended December 31, 2018
2019 FERC Rate CaseIn 2019, the FERC issued an order approving TEP's proposed OATT revisions effective August 1, 2019, subject to refund and further proceedings
2020 IRPTEP's 2020 Integrated Resource Plan filed with the ACC in June 2020, which outlines TEP's energy portfolio over the next 15 years
ABRAlternate Base Rate
ACCArizona Corporation Commission
ACC Refund OrderAn 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
ADEQArizona Department of Environmental Quality
AFUDCAllowance for Funds Used During Construction
ALJAdministrative Law Judge
AMTAlternative Minimum Tax
COVID-19Coronavirus Disease 2019
DGDistributed Generation
DSMDemand Side Management
EDITExcess Deferred Income Taxes
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission
GAAPGenerally Accepted Accounting Principles in the United States of America
LFCRLost Fixed Cost Recovery
LIBORLondon Interbank Offered Rate
LOCLetter(s) of Credit
OATTOpen Access Transmission Tariff
PPAPower Purchase Agreement
PPFACPurchased Power and Fuel Adjustment Clause
RESRenewable Energy Standard
Retail RatesRates designed to allow a regulated utility recovery of its costs of providing services and an opportunity to earn a reasonable return on its investment
RICEReciprocating Internal Combustion Engine
Summer MoratoriumEmergency 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
TCATransmission Cost Adjustor
TCJATax Cuts and Jobs Act
TEAMTax Expense Adjustor Mechanism


FortisFortis 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 CornersFour Corners Generating Station
Gila RiverGila River Generating Station
LunaLuna Generating Station
NavajoNavajo Generating Station
Oso GrandeA 250 MW nominal capacity wind-powered electric generation facility, which is under construction in southeastern New Mexico
San JuanSan Juan Generating Station
SESSouthwest Energy Solutions, Inc.
SpringervilleSpringerville Generating Station
SRPSalt River Project Agricultural Improvement and Power District
SundtH. Wilson Sundt Generating Station
TEPTucson Electric Power Company, the principal subsidiary of UNS Energy Corporation
UNS ElectricUNS Electric, Inc., an indirect wholly-owned subsidiary of UNS Energy Corporation
UNS EnergyUNS Energy Corporation, the parent company of TEP, whose principal executive offices are located at 88 East Broadway Boulevard, Tucson, Arizona 85701
UNS Energy AffiliatesAffiliated subsidiaries of UNS Energy Corporation including UniSource Energy Services, Inc., UNS Electric, Inc., UNS Gas, Inc., and Southwest Energy Solutions, Inc.
UNS GasUNS Gas, Inc., an indirect wholly-owned subsidiary of UNS Energy Corporation
BBtuBillion 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
GWhGigawatt-hour(s), a measure of electricity that represents one billion watts of power expended over one hour
kWhKilowatt-hour(s), a measure of electricity that represents one thousand watts of power expended over one hour
MWMegawatt(s), a measure of electricity that represents one million watts of power


Table of Contents
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.


Table of Contents
(Amounts in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
Operating Revenues$471,672 $441,171 $1,089,933 $1,100,265 
Operating Expenses
Fuel90,900 112,961 216,896 277,820 
Purchased Power71,562 37,049 118,713 97,244 
Transmission and Other PPFAC Recoverable Costs16,966 14,976 39,566 38,995 
Increase (Decrease) to Reflect PPFAC Recovery Treatment(83)(15,532)5,113 (20,244)
Total Fuel and Purchased Power179,345 149,454 380,288 393,815 
Operations and Maintenance88,504 94,154 259,991 272,787 
Depreciation47,462 42,187 141,084 124,931 
Amortization7,330 7,039 21,328 22,053 
Taxes Other Than Income Taxes14,571 14,054 44,123 42,375 
Total Operating Expenses337,212 306,888 846,814 855,961 
Operating Income134,460 134,283 243,119 244,304 
Other Income (Expense)
Interest Expense(23,159)(22,132)(66,212)(66,407)
Allowance For Borrowed Funds2,246 1,521 7,141 4,098 
Allowance For Equity Funds5,823 4,034 16,046 10,755 
Unrealized Gains (Losses) on Investments842 456 (2,309)4,470 
Other, Net1,278 (551)3,470 (434)
Total Other Income (Expense)(12,970)(16,672)(41,864)(47,518)
Income Before Income Tax Expense121,490 117,611 201,255 196,786 
Income Tax Expense21,029 19,441 35,386 30,358 
Net Income$100,461 $98,170 $165,869 $166,428 
The accompanying notes are an integral part of these financial statements.


(Amounts in thousands)
Three Months Ended September 30,Nine Months Ended September 30,
Comprehensive Income
Net Income $100,461 $98,170 $165,869 $166,428 
Other Comprehensive Income
Net Changes in Fair Value of Cash Flow Hedges:
Net of Income Tax Expense of $0 and $13
Net of Income Tax Expense of $0 and $30
Supplemental Executive Retirement Plan Adjustments:
Net of Income Tax Expense of $45 and $22
135 66 
Net of Income Tax Expense of $134 and $66
405 198 
Total Other Comprehensive Income, Net of Tax135 106 405 290 
Total Comprehensive Income $100,596 $98,276 $166,274 $166,718 
The accompanying notes are an integral part of these financial statements.


(Amounts in thousands)
Nine Months Ended September 30,
Cash Flows from Operating Activities
Net Income $165,869 $166,428 
Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
Depreciation Expense141,084 124,931 
Amortization Expense21,328 22,053 
Amortization of Debt Issuance Costs2,010 1,735 
Use of Renewable Energy Credits for Compliance32,672 28,083 
Deferred Income Taxes38,809 37,168 
Pension and Other Postretirement Benefits Expense11,162 13,321 
Pension and Other Postretirement Benefits Funding(14,503)(15,038)
Allowance for Equity Funds Used During Construction(16,046)(10,755)
Regulatory Deferral, ACC Refund Order16,364 5,946 
Changes in Current Assets and Current Liabilities:
Accounts Receivable(57,208)(28,547)
Materials, Supplies, and Fuel Inventory(8,392)(6,724)
Regulatory Assets4,948 4,426 
Other Current Assets(5,100)(961)
Accounts Payable and Accrued Charges(939)(13,832)
Income Taxes Receivable, Net6,865 (6,987)
Regulatory Liabilities8,944 (5,335)
Other, Net7,260 715 
Net Cash Flows—Operating Activities355,127 316,627 
Cash Flows from Investing Activities
Capital Expenditures(597,375)(322,142)
Purchase Intangibles, Renewable Energy Credits(41,117)(39,419)
Purchase, Other Investments(8,500) 
Contributions in Aid of Construction2,816 4,520 
Note Receivable (1,000)
Net Cash Flows—Investing Activities(644,176)(358,041)
Cash Flows from Financing Activities
Proceeds from Borrowings, Revolving Credit Facility105,000  
Repayments of Borrowings, Revolving Credit Facility(105,000) 
Proceeds from Borrowings, Term Loan60,000  
Repayments of Borrowings, Term Loan(225,000) 
Proceeds from Issuance, Long-Term DebtNet of Discount
Repayments of Long-Term Debt(180,410) 
Dividend Paid to Parent (37,500)(37,500)
Payments of Finance Lease Obligations(17,086)(10,889)
Contribution from Parent200,000  
Other, Net(4,731)67 
Net Cash Flows—Financing Activities441,041 (48,322)
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash151,992 (89,736)
Cash, Cash Equivalents, and Restricted Cash, Beginning of Period28,472 152,747 
Cash, Cash Equivalents, and Restricted Cash, End of Period$180,464 $63,011 
The accompanying notes are an integral part of these financial statements.

(Amounts in thousands, except share data)
September 30, 2020December 31, 2019
Utility Plant
Plant in Service$6,944,251 $6,663,912 
Utility Plant Under Finance Leases151,467 151,467 
Construction Work in Progress546,497 303,488 
Total Utility Plant7,642,215 7,118,867 
Accumulated Depreciation and Amortization(2,592,399)(2,506,686)
Accumulated Amortization of Finance Lease Assets(84,675)(77,285)
Total Utility Plant, Net4,965,141 4,534,896 
Investments and Other Property67,769 62,136 
Current Assets
Cash and Cash Equivalents163,009 9,762 
Accounts Receivable (Net of Allowance for Credit Losses of $9,572 and $5,716)
211,488 154,847 
Fuel Inventory31,163 23,731 
Materials and Supplies122,502 121,542 
Regulatory Assets118,734 138,412 
Derivative Instruments13,763 3,596 
Other20,564 21,416 
Total Current Assets681,223 473,306 
Regulatory and Other Assets
Regulatory Assets308,973 326,860 
Derivative Instruments2,567 2,763 
Other92,046 89,196 
Total Regulatory and Other Assets403,586 418,819 
Total Assets$6,117,719 $5,489,157 
The accompanying notes are an integral part of these financial statements.


(Amounts in thousands, except share data)
September 30, 2020December 31, 2019
Common Stock Equity:
Common Stock (No Par Value, 75,000,000 Shares Authorized, 32,139,434 Shares Outstanding as of September 30, 2020 and December 31, 2019)
$1,596,539 $1,396,539 
Capital Stock Expense(6,357)(6,357)
Retained Earnings724,161 595,792 
Accumulated Other Comprehensive Loss(7,366)(7,771)
Total Common Stock Equity2,306,977 1,978,203 
Preferred Stock (No Par Value, 1,000,000 Shares Authorized, None Outstanding as of September 30, 2020 and December 31, 2019)
Finance Lease Obligations 67,316 
Long-Term Debt, Net2,063,352 1,522,087 
Total Capitalization4,370,329 3,567,606 
Current Liabilities
Current Maturities of Long-Term Debt, Net 80,330 
Borrowings Under Credit Agreements, Net 165,000 
Finance Lease Obligations67,316 17,086 
Accounts Payable115,633 136,465 
Accrued Taxes Other than Income Taxes68,170 42,741 
Accrued Employee Expenses29,717 32,567 
Accrued Interest17,503 16,700 
Regulatory Liabilities107,458 96,017 
Customer Deposits18,303 24,568 
Derivative Instruments18,379 27,615 
Other19,287 23,678 
Total Current Liabilities461,766 662,767 
Regulatory and Other Liabilities
Deferred Income Taxes, Net489,409 432,484 
Regulatory Liabilities453,393 477,495 
Pension and Other Postretirement Benefits124,333 133,452 
Derivative Instruments39,589 48,697 
Other178,900 166,656 
Total Regulatory and Other Liabilities1,285,624 1,258,784 
Commitments and Contingencies
Total Capitalization and Other Liabilities$6,117,719 $5,489,157 
The accompanying notes are an integral part of these financial statements.


(Amounts in thousands)
Three Months Ended
Common StockCapital Stock ExpenseRetained EarningsAccumulated Other Comprehensive LossTotal Stockholder's Equity
Balances as of June 30, 2019$1,346,539 $(6,357)$552,535 $(4,530)$1,888,187 
Net Income98,170 98,170 
Other Comprehensive Income, Net of Tax106 106 
Dividend Declared to Parent(37,500)(37,500)
Balances as of September 30, 2019$1,346,539 $(6,357)$613,205 $(4,424)$1,948,963 
Balances as of June 30, 2020$1,596,539 $(6,357)$661,200 $(7,501)$2,243,881 
Net Income100,461 100,461 
Other Comprehensive Income, Net of Tax135 135 
Dividend Declared to Parent(37,500)(37,500)
Balances as of September 30, 2020$1,596,539 $(6,357)$724,161 $(7,366)$2,306,977 
Nine Months Ended
Common StockCapital Stock ExpenseRetained EarningsAccumulated Other Comprehensive LossTotal Stockholder's Equity
Balances as of December 31, 2018$1,346,539 $(6,357)$484,277 $(4,714)$1,819,745 
Net Income166,428 166,428 
Other Comprehensive Income, Net of Tax290 290 
Dividend Declared to Parent(37,500)(37,500)
Balances as of September 30, 2019$1,346,539 $(6,357)$613,205 $(4,424)$1,948,963 
Balances as of December 31, 2019$1,396,539 $(6,357)$595,792 $(7,771)$1,978,203 
Net Income165,869 165,869 
Other Comprehensive Income, Net of Tax405 405 
Dividend Declared to Parent(37,500)(37,500)
Contribution from Parent200,000 200,000 
Balances as of September 30, 2020$1,596,539 $(6,357)$724,161 $(7,366)$2,306,977 
The accompanying notes are an integral part of these financial statements.

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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.
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 FiledAmount ReclassifiedAs ReclassifiedAs FiledAmount ReclassifiedAs Reclassified
(in thousands)Three Months Ended September 30, 2019Nine 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.

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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)20202019
Cash and Cash Equivalents$163 $49 
Restricted Cash included in:
Investments and Other Property15 13 
Current Assets—Other2 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.
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 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.

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.
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%;

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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.
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.
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)2020201920202019
Beginning of Period$1 $1 $ $4 
ACC Refund (Reduction in Operating Revenues)(15)(11)(31)(27)
Amount Returned to Customers through Bill Credits6 7 14 17 
Regulatory Deferral7 3 16 6 
End of Period$(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

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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.
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)2020201920202019
Beginning of Period$28 $(9)$36 $(17)
Deferred Fuel and Purchased Power Costs (1)
109 104 224 232 
PPFAC and Base Power Recoveries (2)
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.

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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)2020201920202019
LFCR Revenues$12 $9 $34 $25 
Regulatory assets and liabilities recorded in the balance sheet are summarized in the table below:
($ in millions)Remaining Recovery Period
September 30, 2020December 31, 2019
Regulatory Assets
Pension and Other Postretirement BenefitsVarious$129 $135 
Early Generation Retirement CostsVarious63 68 
Lost Fixed Cost Recovery257 46 
Derivatives (Note 9)948 72 
Income Taxes Recoverable through Future Rates (1)
Various28 38 
Under Recovered Purchased Energy Costs127 36 
Property Tax Deferrals (2)
126 24 
Final Mine Reclamation and Retiree Healthcare Costs (3)
823 19 
Springerville Unit 1 Leasehold Improvements (4)
37 9 
Other Regulatory AssetsVarious20 18 
Total Regulatory Assets428 465 
Less Current Portion1119 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)
Various151 164 
Renewable Energy StandardVarious63 59 
Deferred Investment Tax Credits (6)
Various2 3 
Other Regulatory LiabilitiesVarious44 20 
Total Regulatory Liabilities560 573 
Less Current Portion1107 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.

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(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.
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.

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:
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2020201920202019
Retail$361 $333 $818 $771 
Wholesale (1)
61 60 127 187 
Other Services24 30 71 84 
Revenues from Contracts with Customers446 423 1,016 1,042 
Alternative Revenues12 9 36 27 
Other14 9