NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)	12 Months Ended
Dec. 31, 2022
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Basis of Presentation and Accounting for Regulated Operations	BASIS OF PRESENTATION TEP's consolidated financial statements and disclosures are presented in accordance with GAAP, including specific accounting guidance for regulated operations. The 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 facilities and transmission systems with both affiliated and non-affiliated entities. The Company records its proportionate share of: (i) jointly-owned facilities in Utility Plant on the Consolidated Balance Sheets; and (ii) operating costs associated with these facilities in the Consolidated Statements of Income. Certain amounts from prior periods have been reclassified to conform to the current year presentation. These reclassifications had no impact on TEP’s results of operation, financial position, or cash flows. Accounting for Regulated Operations TEP applies accounting standards that recognize the economic effects of rate regulation. As a result, TEP capitalizes certain costs that would be recorded as expense or in AOCI by unregulated companies. Regulatory assets represent incurred costs that have been deferred because they are probable of future recovery in Retail Rates charged to retail customers or in rates charged to wholesale customers through transmission tariffs. Regulatory liabilities represent expected future costs that have already been collected from customers or amounts that are expected to be returned to customers through billing reductions in future periods. Estimates of recovering deferred costs and returning deferred credits are based on specific ratemaking decisions or precedent for each item. Regulatory assets and liabilities are amortized consistent with the treatment in the rate setting process. TEP evaluates regulatory assets and liabilities each period and believes future recovery or settlement is probable. If future recovery of costs ceases to be probable, the assets would be written off as a charge to current period earnings or AOCI. See Note 2 for additional information regarding regulatory matters. TEP applies regulatory accounting as the following conditions exist: •an independent regulator sets rates; •the regulator sets the rates to recover the specific enterprise’s costs of providing service; and •rates are set at levels that will recover the entity’s costs and can be charged to and collected from ratepayers.
Variable Interest Entities	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 the primary beneficiary of the VIEs on a quarterly basis. As of December 31, 2022, the carrying amounts of assets and liabilities in 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 the Company would likely recover these costs through cost recovery mechanisms.
New Accounting Standards Issued and Not Yet Adopted	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. In 2020, the FASB issued Accounting Standards Update (ASU) 2020-04 establishing Accounting Standards Codification (ASC) Topic 848, Reference Rate Reform, and in 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope (collectively, ASC 848). ASC 848 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASC 848 is optional and may be elected over time as reference rate reform activities occur. In 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 (ASU 2022-06), to defer the sunset date of ASC 848 to December 31, 2024. ASU 2022-06 is effective immediately for all companies. TEP continues to evaluate the impact of ASC 848.
Use of Accounting Estimates	USE OF ACCOUNTING ESTIMATES Management uses estimates and assumptions when preparing financial statements according to GAAP. These estimates and assumptions affect: •assets and liabilities in the balance sheet at the dates of the financial statements; •disclosures about contingent assets and liabilities at the dates of the financial statements; and •revenues and expenses in the income statement during the periods presented. Because these estimates involve judgments based upon management's evaluation of relevant facts and circumstances, actual results may differ from these estimates.
Asset Retirement Obligations	Asset Retirement Obligations TEP has identified legal AROs related to the retirement of certain assets as a result of environmental regulations, decommissioning agreements, and land leases or land easement agreements. Liabilities are recorded for legal AROs in the period in which they are incurred if it can be reasonably estimated. When a new obligation is recorded, the cost of the liability is capitalized by increasing the carrying amount of the related long-lived asset. The increase in the liability due to the passage of time is recorded by recognizing accretion expense in Operations and Maintenance Expense on the Consolidated Statements of Income. Capitalized cost is depreciated over the useful life of the related asset or, when applicable, the term of the lease. TEP primarily defers the accretion and depreciation expense associated with its legal AROs into a regulatory asset or liability account based on the ACC's approval of these costs in its depreciation rates. Depreciation rates also include a component for estimated future removal costs that have not been identified as legal obligations. TEP recovers estimated future removal costs in Retail Rates and records an obligation for estimated costs of removal as regulatory liabilities.
Contingencies	Contingencies Reserves for specific legal proceedings are established when the likelihood of an unfavorable outcome is probable, and the amount of loss can be reasonably estimated. Significant judgment is required in predicting the outcome of these legal proceedings and claims, many of which take years to complete. TEP identifies certain other legal matters where the Company believes an unfavorable outcome is reasonably possible or no estimate of possible losses can be made. All contingencies are regularly reviewed to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made.
Cash and Cash Equivalents	CASH AND CASH EQUIVALENTS TEP considers all highly liquid investments with a remaining maturity of three months or less at acquisition to be cash equivalents.
Restricted Cash	RESTRICTED CASHRestricted cash includes cash balances restricted with respect to withdrawal or usage based on contractual or regulatory considerations. Restricted cash primarily represents cash contractually required to be set aside to pay TEP's share of mine reclamation and decommissioning costs at San Juan.
Allowance for Credit Losses	ALLOWANCE FOR CREDIT LOSSESTEP records an allowance for credit losses to reduce accounts receivable for amounts estimated to be uncollectible. The allowance is estimated based on historical credit loss patterns, sales, current conditions, and reasonable and supportable forecasts. Accounts receivables are written-off in the period in which the receivable is deemed uncollectible.
Inventory	INVENTORY TEP values materials, supplies, and fuel inventory at the lower of weighted average cost and net realizable value. Materials and supplies consist of generation, transmission, and distribution construction and repair materials. The majority of TEP's inventory will be recovered in rates charged to ratepayers. Handling and procurement costs (such as labor, overhead costs, and transportation costs) are capitalized as part of the cost of the inventory.
Utility Plant	UTILITY PLANT Utility plant includes the business property and equipment that supports electric service, consisting primarily of generation facilities and transmission and distribution systems. Utility plant is reported at original cost. Original cost includes materials and labor, contractor services, construction overhead (when applicable), and AFUDC, less contributions in aid of construction. The cost of repairs and maintenance, including planned generation facility overhauls, are expensed to Operations and Maintenance Expense on the Consolidated Statements of Income as costs are incurred. When TEP determines it is probable that a utility plant asset will be abandoned or retired early, the cost of that asset is removed from utility plant-in-service and is recorded as a regulatory asset if recovery is probable. When TEP retires a unit of regulated property, accumulated depreciation is reduced by: (i) the original cost; (ii) plus removal costs; (iii) less any salvage value. There is no impact to the income statement.
AFUDC and Capitalized Interest	AFUDC and Capitalized Interest AFUDC reflects the cost of debt and equity funds used to finance construction and is capitalized as part of the cost of regulated utility plant. AFUDC amounts are capitalized and amortized through depreciation expense as a recoverable cost in rates. The capitalized interest that relates to debt is recorded in Allowance For Borrowed Funds on the Consolidated Statements of Income. The capitalized cost for equity funds is recorded in Allowance For Equity Funds on the Consolidated Statements of Income.
Depreciation	Depreciation Depreciation is recorded for owned utility plant on a group method straight-line basis, excluding software intangible plant, at depreciation rates based on the economic lives of the assets, including estimates for salvage value and removal costs. The ACC approves depreciation rates for all generation facilities, distribution systems, and general plant assets. Transmission system assets are subject to the jurisdiction of the FERC.
Computer Software and Cloud Computing Costs	Computer Software and Cloud Computing Costs Costs incurred to purchase and develop internal use computer software and cloud computing arrangements that include a software license are capitalized and amortized over the estimated economic life of the product. Implementation costs incurred in a cloud computing arrangement that is a service contract are included in Regulatory and Other Assets—Other on the Consolidated Balance Sheets and amortized over three to five years. Amortization expense is presented in Operations and Maintenance Expense on the Consolidated Statements of Income. If the associated software is impaired, the carrying value is reduced and recorded as an expense on the income statement.
Evaluation of Assets for Impairment	EVALUATION OF ASSETS FOR IMPAIRMENT Long-lived assets and investments are evaluated for impairment whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. If estimated future undiscounted cash flows are less than the carrying amount, the Company estimates the fair value and records an impairment for the amount by which the carrying value exceeds the fair value. For these estimates, TEP may consider data from multiple valuation methods, including data from market participants. The Company exercises judgment to: (i) estimate the future cash flows and the useful lives of long-lived assets; and (ii) determine the Company’s intent to use the assets. TEP’s intent to use or dispose of assets is subject to re-evaluation and can change over time.
Deferred Financing Costs	DEFERRED FINANCING COSTS Costs to issue debt are deferred and amortized to interest expense on a straight-line basis over the life of the debt. Deferred debt issuance costs are presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability. These costs include underwriters’ commissions, discounts or premiums, and other costs such as legal, accounting, regulatory fees, and filing costs. TEP accounts for debt issuance costs related to credit facility arrangements as an asset. The gains and losses on reacquired debt associated with regulated operations are deferred and amortized to interest expense over the remaining life of the original debt.
Operating Revenues	OPERATING REVENUES TEP earns the majority of its revenues from the sale of power to retail and wholesale customers based on regulator-approved tariff rates. Most of the Company's contracts have a single performance obligation, the delivery of power. TEP satisfies the performance obligation over time as power is delivered and control is transferred to the customer. The Company bills for power sales based on the reading of electric meters on a systematic basis throughout the month. In general, TEP's contracts have payment terms of 10 to 20 days from the date the bill is rendered. TEP considers any payment not received by the due date delinquent and charges the customer a late payment fee, except during service disconnection moratoriums. No component of the transaction price is allocated to unsatisfied performance obligations. TEP has certain contracts with variable transaction pricing that require it to estimate the resulting variable consideration. TEP estimates variable consideration at the most likely amount to which it expects to be entitled and recognizes a refund liability until it is certain it will be entitled to the consideration. The Company includes estimated amounts of variable consideration in the transaction price to the extent it is probable that changes in its estimate will not result in significant reversals of revenue in subsequent periods.
Leases	LEASES When a contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration, a right-of-use asset and lease liability are recognized. TEP measures the right-of-use asset and lease liability at the present value of future lease payments, excluding variable payments based on usage or performance. TEP calculates the present value using the rate implicit in the lease or a lease-specific secured interest rate based on the lease term. TEP has lease agreements with lease components (e.g., rent, real estate taxes and insurance costs) and non-lease components (e.g., common area maintenance costs), which are accounted for as a single lease component. TEP includes options to extend a lease in the lease term when it is reasonably certain that the option will be exercised. Leases with an initial term of twelve months or less are not recorded on the balance sheet.
Purchased Power and Fuel Adjustment Clause	PURCHASED POWER AND FUEL ADJUSTMENT CLAUSETEP recovers the actual fuel, purchased power, and transmission costs to provide electric service to retail customers through base fuel rates and through a PPFAC mechanism. The ACC periodically adjusts the PPFAC rate at which TEP recovers these costs. The difference between costs recovered through rates and actual fuel, purchased power, transmission, and other approved costs to provide retail electric service is deferred. Cost over-recoveries are deferred as regulatory liabilities, and cost under-recoveries are deferred as regulatory assets.
Renewable Energy and Energy Efficiency Programs and Energy Credits	RENEWABLE ENERGY AND ENERGY EFFICIENCY PROGRAMS The ACC’s RES requires Arizona regulated utilities to increase their use of renewable energy each year until it represents at least 15% of their total annual retail energy sales by 2025, with DG accounting for 30%. Arizona utilities must file annual RES implementation plans for review and approval by the ACC. The approved costs of carrying out this plan are recovered from retail customers through a RES surcharge. The associated lost revenues attributable to meeting DG targets are partially recovered through the LFCR mechanism. TEP is required to implement cost-effective DSM programs to comply with the ACC’s EE Standards. The EE Standards provide regulated utilities a DSM surcharge to recover from retail customers the costs to implement DSM programs. The associated lost revenues attributable to meeting the EE Standards are partially recovered through the LFCR mechanism. Any RES or DSM surcharges collected above or below the costs incurred to implement the plans are deferred and reflected in the balance sheet as a regulatory liability or asset. TEP recognizes RES and DSM surcharge revenue in Operating Revenues on the Consolidated Statements of Income in amounts necessary to offset recognized qualifying expenditures. RENEWABLE ENERGY CREDITS The ACC measures compliance with the RES requirements through RECs. A REC represents one kWh generated from renewable resources. When TEP purchases renewable energy, the premium paid above the market cost of conventional power, or the REC purchase price, equals the REC cost recoverable through the RES surcharge. As described above, the market cost of conventional power or contract price for power is recoverable through the PPFAC mechanism. When RECs are purchased, TEP records the cost of the RECs, an indefinite-lived intangible asset, as other assets, and a corresponding regulatory liability to reflect the obligation to use the RECs for future RES compliance. When RECs are reported to the ACC for compliance with RES requirements, TEP recognizes purchased power expense and retail revenues in an equal amount.TEP expenses the cost of internally developed RECs, including PBI activity that is not included in the table above and recoverable through the RES surcharge.
Pension and Other Post Retirement Benefits	PENSION AND OTHER POSTRETIREMENT BENEFITS TEP sponsors noncontributory, defined benefit pension plans for substantially all employees. Benefits are based on years of service and average compensation. The Company also provides limited healthcare and life insurance benefits for retirees. The Company recognizes an asset for a defined benefit plan's overfunded status or a liability for a plan's underfunded status in the balance sheet. The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation for the pension plans or accumulated postretirement obligation for the other postretirement plan. TEP recognizes a regulatory asset to the extent these future costs are probable of recovery in the rates charged to retail customers. The Company expects recovery of these costs over the estimated service lives of employees. Additionally, TEP maintains a SERP for senior management. Changes in SERP benefit obligations not yet recognized in the income statement are recognized as a component of AOCI. Pension and other postretirement benefit expenses are determined by actuarial valuations based on assumptions that the Company evaluates annually.
Fair Value	FAIR VALUEAs defined under GAAP, fair value is the price that would be received to sell an asset or paid to transfer a liability between market participants in the principal market or in the most advantageous market when no principal market exists. Adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value. Different valuation techniques may be appropriate under the circumstances to determine the value that would be received to sell an asset or paid to transfer a liability in an orderly transaction. Market participants are assumed to be independent, knowledgeable, able and willing to transact an exchange and not under duress. Nonperformance or credit risk is considered in determining fair value. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a current or future market exchange.
Derivative Instruments	DERIVATIVE INSTRUMENTS The Company uses various physical and financial derivative instruments, including forward contracts, financial swaps, and call and put options, to: (i) meet forecasted load and reserve requirements; and (ii) reduce exposure to energy commodity price volatility. Derivative instruments that do not meet the normal purchase or normal sale scope exception are recognized as either assets or liabilities on the balance sheet and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Commodity derivatives used in normal business operations that are settled by physical delivery, among other criteria, are eligible for, and may be designated as, normal purchases or normal sales. Normal purchases or normal sales contracts are not recorded at fair value and settled amounts are recognized as cost of fuel, energy, and capacity on the income statement. For derivatives not designated as hedging contracts, the settled amount is generally included in regulated rates. Accordingly, the net unrealized gains and losses associated with interim price movements on contracts that are accounted for as derivatives and probable of inclusion in regulated rates are recorded as regulatory assets and liabilities. DERIVATIVE INSTRUMENTS TEP enters into various derivative and non-derivative contracts to reduce exposure to energy price risk associated with its natural gas and purchased power requirements. The objectives for entering into such contracts include: (i) creating price stability; (ii) meeting load and reserve requirements; and (iii) reducing exposure to price volatility that may result from delayed recovery under the PPFAC mechanism. In addition, TEP enters into derivative and non-derivative contracts to optimize the system's generation resources by selling power in the wholesale market for the benefit of TEP's retail customers. TEP primarily applies the market approach for recurring fair value measurements. When TEP has observable inputs for substantially the full term of the asset or liability or uses quoted prices in an inactive market, it categorizes the instrument in Level 2. TEP categorizes derivatives in Level 3 when an aggregate pricing service or published prices that represent a consensus reporting of multiple brokers is used. For both purchased power and natural gas prices, TEP obtains quotes from brokers, major market participants, exchanges, or industry publications and relies on its own price experience from active transactions in the market. TEP primarily uses one set of quotations each for purchased power and natural gas and then validates those prices using other sources. TEP believes that the market information provided is reflective of market conditions as of the time and date indicated. Published prices for energy derivative contracts may not be available due to the nature of contract delivery terms such as non-standard time blocks and non-standard delivery points. In these cases, TEP applies adjustments based on historical price curve relationships, transmission costs, and real power line losses. TEP also considers the impact of counterparty credit risk using current and historical default and recovery rates, as well as its own credit risk using credit default swap data. The inputs and the Company's assessments of the significance of a particular input to the fair value measurements require judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. TEP reviews the assumptions underlying its price curves monthly.
Taxes Other Than Income Taxes	TAXES OTHER THAN INCOME TAXES TEP acts as a conduit or collection agent for sales taxes, utility taxes, franchise fees, and regulatory assessments. Trade receivables are recorded as the Company bills customers for these taxes and assessments. Simultaneously, liabilities payable to governmental agencies are recorded in the balance sheet for these taxes and assessments. These amounts are not reflected in the income statement.
Income Taxes	INCOME TAXES Due to the difference between GAAP and income tax laws, many transactions are treated differently for income tax purposes than for financial statement presentation purposes. Temporary differences are accounted for by recording deferred income tax assets and liabilities on the balance sheet. These assets and liabilities are recorded using enacted income tax rates expected to be in effect when the deferred tax assets and liabilities are realized or settled. TEP reduces deferred tax assets by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or the entire deferred income tax asset, will not be realized. Tax benefits are recognized when it is more likely than not that a tax position will be sustained upon examination by the tax authorities based on the technical merits of the position. The tax benefit recorded is the largest amount that is more than 50% likely to be realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Interest expense accruals relating to income tax obligations are recorded in Interest Expense on the Consolidated Statements of Income. Federal ITCs are deferred and amortized as a reduction to income tax expense over the life of the underlying asset. All other federal and state income tax credits, including PTCs, are treated as a reduction to income tax expense in the year the credit arises.
Revenues	Retail Revenues TEP’s tariff-based sales to residential, commercial, and industrial customers are regulated by the ACC and recognized when power is delivered at the amount of consideration that the Company expects to receive in exchange. Retail revenues include an estimate for unbilled revenues from service that has been provided but not billed by the end of an accounting period. At the end of the month, amounts of power delivered since the last meter reading are estimated and the corresponding unbilled revenue is calculated using anticipated Retail Rates. Unbilled revenues are dependent upon a number of factors that require management’s judgment including estimates of retail sales, customer usage patterns, and pricing. Unbilled revenues primarily increase during spring and summer months then decrease during fall and winter months due to the seasonal fluctuations of TEP’s actual load. The timing of revenue recognition, billings, and cash collections results in billed and unbilled accounts receivable balances. See Note 5 for components of Accounts Receivable on the Consolidated Balance Sheets. In December 2020, the ACC issued a rate order for new rates that took effect January 1, 2021. Wholesale Revenues TEP’s operations include the wholesale marketing of electricity and transmission to other utilities and power marketers, which may include capacity, power, transmission, and ancillary services. When TEP promises to provide distinct services within a contract, the Company identifies one or more performance obligations. The Company recognizes revenue for wholesale and transmission sales at FERC-approved rates based on demand (for capacity) or the reading of meters (for power). For contracts with multiple performance obligations, all deliverables are eligible for recognition in the month of production; therefore, it is not necessary to allocate the transaction price among the identified performance obligations. For purchased power and wholesale sales contracts that are settled financially, TEP nets the purchased power contracts with the sales contracts and reflects the amount in Operating Revenues on the Consolidated Statements of Income. See Note 2 for more information regarding the 2022 Final FERC Rate Order. Other Services Revenues Other Services Revenues primarily include fees earned as operator of Springerville Units 3 and 4, reimbursement of various operating expenses for the use of the Springerville Common Facilities and the Springerville Coal Handling Facilities by the lessee of Springerville Unit 3, and miscellaneous service-related revenues. Alternative Revenues Alternative revenue programs allow utilities to adjust future rates in response to past activities or completed events if certain criteria established by a regulator are met. TEP has identified its TCA and ECA mechanisms, LFCR, DSM performance incentive, and OATT balancing activity as alternative revenues. See Note 2 for additional information regarding these cost recovery mechanisms and performance incentive. Other Revenues Other Revenues include gains and losses on derivative contracts, asset management agreement service fees, late and returned payment finance charges and common cost allocations to affiliates. See Note 6 for information regarding revenue from related parties and Note 12 for information regarding derivative instruments.

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Accounting for Regulated Operations

BASIS OF PRESENTATION

TEP's consolidated financial statements and disclosures are presented in accordance with GAAP, including specific accounting guidance for regulated operations. The 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 facilities and transmission systems with both affiliated and non-affiliated entities. The Company records its proportionate share of: (i) jointly-owned facilities in Utility Plant on the Consolidated Balance Sheets; and (ii) operating costs associated with these facilities in the Consolidated Statements of Income. Certain amounts from prior periods have been reclassified to conform to the current year presentation. These reclassifications had no impact on TEP’s results of operation, financial position, or cash flows.

Accounting for Regulated Operations

TEP applies accounting standards that recognize the economic effects of rate regulation. As a result, TEP capitalizes certain costs that would be recorded as expense or in AOCI by unregulated companies. Regulatory assets represent incurred costs that have been deferred because they are probable of future recovery in Retail Rates charged to retail customers or in rates charged to wholesale customers through transmission tariffs. Regulatory liabilities represent expected future costs that have already been collected from customers or amounts that are expected to be returned to customers through billing reductions in future periods.

Estimates of recovering deferred costs and returning deferred credits are based on specific ratemaking decisions or precedent for each item. Regulatory assets and liabilities are amortized consistent with the treatment in the rate setting process. TEP evaluates regulatory assets and liabilities each period and believes future recovery or settlement is probable. If future recovery of costs ceases to be probable, the assets would be written off as a charge to current period earnings or AOCI. See Note 2 for additional information regarding regulatory matters.

TEP applies regulatory accounting as the following conditions exist:

•an independent regulator sets rates;

•the regulator sets the rates to recover the specific enterprise’s costs of providing service; and

•rates are set at levels that will recover the entity’s costs and can be charged to and collected from ratepayers.

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 the primary beneficiary of the VIEs on a quarterly basis.

As of December 31, 2022, the carrying amounts of assets and liabilities in 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 the Company would likely recover these costs through cost recovery mechanisms.

New Accounting Standards Issued and Not Yet Adopted

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.

In 2020, the FASB issued Accounting Standards Update (ASU) 2020-04 establishing Accounting Standards Codification (ASC) Topic 848, Reference Rate Reform, and in 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope (collectively, ASC 848). ASC 848 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASC 848 is optional and may be elected over time as reference rate reform activities occur. In 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 (ASU 2022-06), to defer the sunset date of ASC 848 to December 31, 2024. ASU 2022-06 is effective immediately for all companies. TEP continues to evaluate the impact of ASC 848.

Use of Accounting Estimates

USE OF ACCOUNTING ESTIMATES

Management uses estimates and assumptions when preparing financial statements according to GAAP. These estimates and assumptions affect:

•assets and liabilities in the balance sheet at the dates of the financial statements;

•disclosures about contingent assets and liabilities at the dates of the financial statements; and

•revenues and expenses in the income statement during the periods presented.

Because these estimates involve judgments based upon management's evaluation of relevant facts and circumstances, actual results may differ from these estimates.

Asset Retirement Obligations

TEP has identified legal AROs related to the retirement of certain assets as a result of environmental regulations, decommissioning agreements, and land leases or land easement agreements. Liabilities are recorded for legal AROs in the period in which they are incurred if it can be reasonably estimated. When a new obligation is recorded, the cost of the liability is capitalized by increasing the carrying amount of the related long-lived asset. The increase in the liability due to the passage of time is recorded by recognizing accretion expense in Operations and Maintenance Expense on the Consolidated Statements of Income. Capitalized cost is depreciated over the useful life of the related asset or, when applicable, the term of the lease. TEP primarily defers the accretion and depreciation expense associated with its legal AROs into a regulatory asset or liability account based on the ACC's approval of these costs in its depreciation rates.

Depreciation rates also include a component for estimated future removal costs that have not been identified as legal obligations. TEP recovers estimated future removal costs in Retail Rates and records an obligation for estimated costs of removal as regulatory liabilities.

Contingencies

Reserves for specific legal proceedings are established when the likelihood of an unfavorable outcome is probable, and the amount of loss can be reasonably estimated. Significant judgment is required in predicting the outcome of these legal proceedings and claims, many of which take years to complete. TEP identifies certain other legal matters where the Company believes an unfavorable outcome is reasonably possible or no estimate of possible losses can be made. All contingencies are regularly reviewed to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made.

Cash and Cash Equivalents

CASH AND CASH EQUIVALENTS

TEP considers all highly liquid investments with a remaining maturity of three months or less at acquisition to be cash equivalents.

Restricted Cash

RESTRICTED CASHRestricted cash includes cash balances restricted with respect to withdrawal or usage based on contractual or regulatory considerations. Restricted cash primarily represents cash contractually required to be set aside to pay TEP's share of mine reclamation and decommissioning costs at San Juan.

Allowance for Credit Losses

ALLOWANCE FOR CREDIT LOSSESTEP records an allowance for credit losses to reduce accounts receivable for amounts estimated to be uncollectible. The allowance is estimated based on historical credit loss patterns, sales, current conditions, and reasonable and supportable forecasts. Accounts receivables are written-off in the period in which the receivable is deemed uncollectible.

Inventory

INVENTORY

TEP values materials, supplies, and fuel inventory at the lower of weighted average cost and net realizable value. Materials and supplies consist of generation, transmission, and distribution construction and repair materials. The majority of TEP's inventory will be recovered in rates charged to ratepayers. Handling and procurement costs (such as labor, overhead costs, and transportation costs) are capitalized as part of the cost of the inventory.

Utility Plant

UTILITY PLANT

Utility plant includes the business property and equipment that supports electric service, consisting primarily of generation facilities and transmission and distribution systems. Utility plant is reported at original cost. Original cost includes materials and labor, contractor services, construction overhead (when applicable), and AFUDC, less contributions in aid of construction.

The cost of repairs and maintenance, including planned generation facility overhauls, are expensed to Operations and Maintenance Expense on the Consolidated Statements of Income as costs are incurred.

When TEP determines it is probable that a utility plant asset will be abandoned or retired early, the cost of that asset is removed from utility plant-in-service and is recorded as a regulatory asset if recovery is probable. When TEP retires a unit of regulated property, accumulated depreciation is reduced by: (i) the original cost; (ii) plus removal costs; (iii) less any salvage value. There is no impact to the income statement.

AFUDC and Capitalized Interest

AFUDC reflects the cost of debt and equity funds used to finance construction and is capitalized as part of the cost of regulated utility plant. AFUDC amounts are capitalized and amortized through depreciation expense as a recoverable cost in rates. The capitalized interest that relates to debt is recorded in Allowance For Borrowed Funds on the Consolidated Statements of Income. The capitalized cost for equity funds is recorded in Allowance For Equity Funds on the Consolidated Statements of Income.

Depreciation

Depreciation is recorded for owned utility plant on a group method straight-line basis, excluding software intangible plant, at depreciation rates based on the economic lives of the assets, including estimates for salvage value and removal costs. The ACC approves depreciation rates for all generation facilities, distribution systems, and general plant assets. Transmission system assets are subject to the jurisdiction of the FERC.

Computer Software and Cloud Computing Costs

Costs incurred to purchase and develop internal use computer software and cloud computing arrangements that include a software license are capitalized and amortized over the estimated economic life of the product. Implementation costs incurred in a cloud computing arrangement that is a service contract are included in Regulatory and Other Assets—Other on the Consolidated Balance Sheets and amortized over three to five years. Amortization expense is presented in Operations and Maintenance Expense on the Consolidated Statements of Income. If the associated software is impaired, the carrying value is reduced and recorded as an expense on the income statement.

Evaluation of Assets for Impairment

EVALUATION OF ASSETS FOR IMPAIRMENT

Long-lived assets and investments are evaluated for impairment whenever events or changes in circumstances indicate that an asset’s carrying amount may not be recoverable. If estimated future undiscounted cash flows are less than the carrying amount, the Company estimates the fair value and records an impairment for the amount by which the carrying value exceeds the fair value. For these estimates, TEP may consider data from multiple valuation methods, including data from market participants. The Company exercises judgment to: (i) estimate the future cash flows and the useful lives of long-lived assets; and (ii) determine the Company’s intent to use the assets. TEP’s intent to use or dispose of assets is subject to re-evaluation and can change over time.

Deferred Financing Costs

DEFERRED FINANCING COSTS

Costs to issue debt are deferred and amortized to interest expense on a straight-line basis over the life of the debt. Deferred debt issuance costs are presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability. These costs include underwriters’ commissions, discounts or premiums, and other costs such as legal, accounting, regulatory fees, and filing costs.

TEP accounts for debt issuance costs related to credit facility arrangements as an asset.

The gains and losses on reacquired debt associated with regulated operations are deferred and amortized to interest expense over the remaining life of the original debt.

Operating Revenues

OPERATING REVENUES

TEP earns the majority of its revenues from the sale of power to retail and wholesale customers based on regulator-approved tariff rates. Most of the Company's contracts have a single performance obligation, the delivery of power. TEP satisfies the performance obligation over time as power is delivered and control is transferred to the customer. The Company bills for power sales based on the reading of electric meters on a systematic basis throughout the month. In general, TEP's contracts have payment terms of 10 to 20 days from the date the bill is rendered. TEP considers any payment not received by the due date delinquent and charges the customer a late payment fee, except during service disconnection moratoriums. No component of the transaction price is allocated to unsatisfied performance obligations.

TEP has certain contracts with variable transaction pricing that require it to estimate the resulting variable consideration. TEP estimates variable consideration at the most likely amount to which it expects to be entitled and recognizes a refund liability until it is certain it will be entitled to the consideration. The Company includes estimated amounts of variable consideration in the transaction price to the extent it is probable that changes in its estimate will not result in significant reversals of revenue in subsequent periods.

Leases

LEASES

When a contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration, a right-of-use asset and lease liability are recognized. TEP measures the right-of-use asset and lease liability at the present value of future lease payments, excluding variable payments based on usage or performance. TEP calculates the present value using the rate implicit in the lease or a lease-specific secured interest rate based on the lease term. TEP has lease agreements with lease components (e.g., rent, real estate taxes and insurance costs) and non-lease components (e.g., common area maintenance costs), which are accounted for as a single lease component. TEP includes options to extend a lease in the lease term when it is reasonably certain that the option will be exercised. Leases with an initial term of twelve months or less are not recorded on the balance sheet.

Purchased Power and Fuel Adjustment Clause

PURCHASED POWER AND FUEL ADJUSTMENT CLAUSETEP recovers the actual fuel, purchased power, and transmission costs to provide electric service to retail customers through base fuel rates and through a PPFAC mechanism. The ACC periodically adjusts the PPFAC rate at which TEP recovers these costs. The difference between costs recovered through rates and actual fuel, purchased power, transmission, and other approved costs to provide retail electric service is deferred. Cost over-recoveries are deferred as regulatory liabilities, and cost under-recoveries are deferred as regulatory assets.

Renewable Energy and Energy Efficiency Programs and Energy Credits

RENEWABLE ENERGY AND ENERGY EFFICIENCY PROGRAMS

The ACC’s RES requires Arizona regulated utilities to increase their use of renewable energy each year until it represents at least 15% of their total annual retail energy sales by 2025, with DG accounting for 30%. Arizona utilities must file annual RES implementation plans for review and approval by the ACC. The approved costs of carrying out this plan are recovered from retail customers through a RES surcharge. The associated lost revenues attributable to meeting DG targets are partially recovered through the LFCR mechanism.

TEP is required to implement cost-effective DSM programs to comply with the ACC’s EE Standards. The EE Standards provide regulated utilities a DSM surcharge to recover from retail customers the costs to implement DSM programs. The associated lost revenues attributable to meeting the EE Standards are partially recovered through the LFCR mechanism.

Any RES or DSM surcharges collected above or below the costs incurred to implement the plans are deferred and reflected in the balance sheet as a regulatory liability or asset. TEP recognizes RES and DSM surcharge revenue in Operating Revenues on the Consolidated Statements of Income in amounts necessary to offset recognized qualifying expenditures.

RENEWABLE ENERGY CREDITS

The ACC measures compliance with the RES requirements through RECs. A REC represents one kWh generated from renewable resources. When TEP purchases renewable energy, the premium paid above the market cost of conventional power, or the REC purchase price, equals the REC cost recoverable through the RES surcharge. As described above, the market cost of conventional power or contract price for power is recoverable through the PPFAC mechanism.

When RECs are purchased, TEP records the cost of the RECs, an indefinite-lived intangible asset, as other assets, and a corresponding regulatory liability to reflect the obligation to use the RECs for future RES compliance. When RECs are reported to the ACC for compliance with RES requirements, TEP recognizes purchased power expense and retail revenues in an equal amount.TEP expenses the cost of internally developed RECs, including PBI activity that is not included in the table above and recoverable through the RES surcharge.

Pension and Other Post Retirement Benefits

PENSION AND OTHER POSTRETIREMENT BENEFITS

TEP sponsors noncontributory, defined benefit pension plans for substantially all employees. Benefits are based on years of service and average compensation. The Company also provides limited healthcare and life insurance benefits for retirees.

The Company recognizes an asset for a defined benefit plan's overfunded status or a liability for a plan's underfunded status in the balance sheet. The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation for the pension plans or accumulated postretirement obligation for the other postretirement plan. TEP recognizes a regulatory asset to the extent these future costs are probable of recovery in the rates charged to retail customers. The Company expects recovery of these costs over the estimated service lives of employees.

Additionally, TEP maintains a SERP for senior management. Changes in SERP benefit obligations not yet recognized in the income statement are recognized as a component of AOCI.

Pension and other postretirement benefit expenses are determined by actuarial valuations based on assumptions that the Company evaluates annually.

Fair Value

FAIR VALUEAs defined under GAAP, fair value is the price that would be received to sell an asset or paid to transfer a liability between market participants in the principal market or in the most advantageous market when no principal market exists. Adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value. Different valuation techniques may be appropriate under the circumstances to determine the value that would be received to sell an asset or paid to transfer a liability in an orderly transaction. Market participants are assumed to be independent, knowledgeable, able and willing to transact an exchange and not under duress. Nonperformance or credit risk is considered in determining fair value. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized in a current or future market exchange.

Derivative Instruments

DERIVATIVE INSTRUMENTS

The Company uses various physical and financial derivative instruments, including forward contracts, financial swaps, and call and put options, to: (i) meet forecasted load and reserve requirements; and (ii) reduce exposure to energy commodity price volatility. Derivative instruments that do not meet the normal purchase or normal sale scope exception are recognized as either assets or liabilities on the balance sheet and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.

Commodity derivatives used in normal business operations that are settled by physical delivery, among other criteria, are eligible for, and may be designated as, normal purchases or normal sales. Normal purchases or normal sales contracts are not recorded at fair value and settled amounts are recognized as cost of fuel, energy, and capacity on the income statement.

For derivatives not designated as hedging contracts, the settled amount is generally included in regulated rates. Accordingly, the net unrealized gains and losses associated with interim price movements on contracts that are accounted for as derivatives and probable of inclusion in regulated rates are recorded as regulatory assets and liabilities.

DERIVATIVE INSTRUMENTS

TEP enters into various derivative and non-derivative contracts to reduce exposure to energy price risk associated with its natural gas and purchased power requirements. The objectives for entering into such contracts include: (i) creating price stability; (ii) meeting load and reserve requirements; and (iii) reducing exposure to price volatility that may result from delayed recovery under the PPFAC mechanism. In addition, TEP enters into derivative and non-derivative contracts to optimize the system's generation resources by selling power in the wholesale market for the benefit of TEP's retail customers.

TEP primarily applies the market approach for recurring fair value measurements. When TEP has observable inputs for substantially the full term of the asset or liability or uses quoted prices in an inactive market, it categorizes the instrument in Level 2. TEP categorizes derivatives in Level 3 when an aggregate pricing service or published prices that represent a consensus reporting of multiple brokers is used.

For both purchased power and natural gas prices, TEP obtains quotes from brokers, major market participants, exchanges, or industry publications and relies on its own price experience from active transactions in the market. TEP primarily uses one set of quotations each for purchased power and natural gas and then validates those prices using other sources. TEP believes that the market information provided is reflective of market conditions as of the time and date indicated.

Published prices for energy derivative contracts may not be available due to the nature of contract delivery terms such as non-standard time blocks and non-standard delivery points. In these cases, TEP applies adjustments based on historical price curve relationships, transmission costs, and real power line losses.

TEP also considers the impact of counterparty credit risk using current and historical default and recovery rates, as well as its own credit risk using credit default swap data.

The inputs and the Company's assessments of the significance of a particular input to the fair value measurements require judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. TEP reviews the assumptions underlying its price curves monthly.

Taxes Other Than Income Taxes

TAXES OTHER THAN INCOME TAXES

TEP acts as a conduit or collection agent for sales taxes, utility taxes, franchise fees, and regulatory assessments. Trade receivables are recorded as the Company bills customers for these taxes and assessments. Simultaneously, liabilities payable to governmental agencies are recorded in the balance sheet for these taxes and assessments. These amounts are not reflected in the income statement.

Income Taxes

INCOME TAXES

Due to the difference between GAAP and income tax laws, many transactions are treated differently for income tax purposes than for financial statement presentation purposes. Temporary differences are accounted for by recording deferred income tax assets and liabilities on the balance sheet. These assets and liabilities are recorded using enacted income tax rates expected to be in effect when the deferred tax assets and liabilities are realized or settled. TEP reduces deferred tax assets by a valuation

allowance when, in the opinion of management, it is more likely than not that some portion, or the entire deferred income tax asset, will not be realized.

Tax benefits are recognized when it is more likely than not that a tax position will be sustained upon examination by the tax authorities based on the technical merits of the position. The tax benefit recorded is the largest amount that is more than 50% likely to be realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Interest expense accruals relating to income tax obligations are recorded in Interest Expense on the Consolidated Statements of Income.

Federal ITCs are deferred and amortized as a reduction to income tax expense over the life of the underlying asset. All other federal and state income tax credits, including PTCs, are treated as a reduction to income tax expense in the year the credit arises.

Revenues

Retail Revenues

TEP’s tariff-based sales to residential, commercial, and industrial customers are regulated by the ACC and recognized when power is delivered at the amount of consideration that the Company expects to receive in exchange. Retail revenues include an estimate for unbilled revenues from service that has been provided but not billed by the end of an accounting period. At the end of the month, amounts of power delivered since the last meter reading are estimated and the corresponding unbilled revenue is calculated using anticipated Retail Rates. Unbilled revenues are dependent upon a number of factors that require management’s judgment including estimates of retail sales, customer usage patterns, and pricing. Unbilled revenues primarily increase during spring and summer months then decrease during fall and winter months due to the seasonal fluctuations of TEP’s actual load. The timing of revenue recognition, billings, and cash collections results in billed and unbilled accounts receivable balances. See Note 5 for components of Accounts Receivable on the Consolidated Balance Sheets.

In December 2020, the ACC issued a rate order for new rates that took effect January 1, 2021.

Wholesale Revenues

TEP’s operations include the wholesale marketing of electricity and transmission to other utilities and power marketers, which may include capacity, power, transmission, and ancillary services. When TEP promises to provide distinct services within a contract, the Company identifies one or more performance obligations. The Company recognizes revenue for wholesale and transmission sales at FERC-approved rates based on demand (for capacity) or the reading of meters (for power). For contracts with multiple performance obligations, all deliverables are eligible for recognition in the month of production; therefore, it is not necessary to allocate the transaction price among the identified performance obligations. For purchased power and wholesale sales contracts that are settled financially, TEP nets the purchased power contracts with the sales contracts and reflects the amount in Operating Revenues on the Consolidated Statements of Income. See Note 2 for more information regarding the 2022 Final FERC Rate Order.

Other Services Revenues

Other Services Revenues primarily include fees earned as operator of Springerville Units 3 and 4, reimbursement of various operating expenses for the use of the Springerville Common Facilities and the Springerville Coal Handling Facilities by the lessee of Springerville Unit 3, and miscellaneous service-related revenues.

Alternative Revenues

Alternative revenue programs allow utilities to adjust future rates in response to past activities or completed events if certain criteria established by a regulator are met. TEP has identified its TCA and ECA mechanisms, LFCR, DSM performance incentive, and OATT balancing activity as alternative revenues. See Note 2 for additional information regarding these cost recovery mechanisms and performance incentive.

Other Revenues

Other Revenues include gains and losses on derivative contracts, asset management agreement service fees, late and returned payment finance charges and common cost allocations to affiliates. See Note 6 for information regarding revenue from related parties and Note 12 for information regarding derivative instruments.