RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2022

RELATED PARTY TRANSACTIONSTEP engages in various transactions with Fortis, UNS Energy, and UNS Energy Affiliates. These transactions include: (i) the sale and purchase of power and transmission services; (ii) common cost allocations; and (iii) the provision of corporate and other labor-related services.

The following table presents the components of related party balances included in Accounts Receivable and Accounts Payable on the Consolidated Balance Sheets:


	December 31,
(in millions)	2022		2021
Receivables from Related Parties

UNS Electric	$	22	$	8
UNS Energy	2		7
UNS Gas	2		2
Total Due from Related Parties	$	26	$	17

Payables to Related Parties
UNS Electric	$	5	$	—
UNS Gas	1		1
UNS Energy	1		1

Total Due to Related Parties	$	7	$	2

The following table presents the components of related party transactions included in the Consolidated Statements of Income:


	Years Ended December 31,
(in millions)	2022		2021		2020
Goods and Services Provided by TEP to Affiliates
Transmission Revenues, UNS Electric (1)	$	5	$	11	$	9
Wholesale Revenues, UNS Electric (1)(2)	50		25		1
Control Area Services, UNS Electric (3)	3		6		4
Common Costs, UNS Energy Affiliates (4)	22		21		19


Goods and Services Provided by Affiliates to TEP
Wholesale Revenues, UNS Electric (1)	2		1		—
Supplemental Workforce, SES (5)	—		—		14
Corporate Services, UNS Energy (6)	8		7		5
Corporate Services, UNS Energy Affiliates (7)	1		3		4
Capacity Charges, UNS Gas	1		—		—
Corporate Services, Fortis Affiliates (8)	—		—		1

(1)TEP and UNS Electric sell power and transmission services to each other. Wholesale power is sold at prevailing market prices, while transmission services are sold at FERC-approved rates through the applicable OATT.

(2)In the second quarter of 2021, TEP began charging UNS Electric for capacity, power, and ancillary services under a tolling PPA. See Note 8 for additional information related to the tolling PPA. In May 2022, TEP began charging UNS Electric for power purchased in the EIM on behalf of UNS Electric.

(3)TEP charges UNS Electric for control area services under a FERC-filed Control Area Services Agreement.

(4)Common costs (information systems, facilities, etc.) are allocated on a cost-causative basis and recorded as revenue by TEP. The method of allocation is deemed reasonable by management and is reviewed by the ACC as part of the rate case process.

(5)SES provided supplemental workforce and meter-reading services to TEP based on related party service agreements. The charges were based on cost of services performed and deemed reasonable by management.

(6)Costs for corporate services at UNS Energy are allocated to its subsidiaries using the Massachusetts Formula, an industry accepted method of allocating common costs to affiliated entities. TEP's allocation is approximately 85% of UNS Energy's allocated costs. Corporate Services, UNS Energy includes legal, audit, and Fortis' management fees. TEP's share of Fortis' management fees was $7 million in 2022, and $6 million in each of 2021 and 2020.

(7)Costs for corporate services (e.g., finance, accounting, tax, legal, and information technology) and other labor services for UNS Energy Affiliates are directly assigned to the benefiting entity at a fully burdened cost when possible.

(8)Fortis charges TEP for its share of payroll tax, insurance, and other costs paid by Fortis for affiliated employees.