Regulatory Matters (Tables)

12 Months Ended

Dec. 31, 2012

The table below summarizes TEP’s and UNS Electric’s PPFAC rates in cents per kWh that are compared against actual fuel cost to create regulatory assets or liabilities:


	2012									2011
	June - December			April - May			January - March			June - December			April - May			January - March
TEP
PPFAC		0.77			0.77			0.53			0.53			0.53			0.09
CTC ⁽¹⁾		0.00			0.00			(0.53	)		(0.53	)		(0.53	)		(0.09	)

Total PPFAC Rate		0.77			0.77			—			—			—			—
UNS Electric		(1.44	)		(0.88	)		(0.88	)		(0.88	)		0.08			0.08

⁽¹⁾	Competition Transition Charge

RES and DSM Tariffs Collected

The following table shows RES and DSM tariffs collected:


	TEP RES		UNS Electric RES		TEP DSM		UNS Gas DSM		UNS Electric DSM
	-Millions of Dollars-
2012	$	30	$	7	$	11	$	1	$	7
2011		35		7		11		1		2
2010		32		7		10		1		2

Summary of Regulatory Assets and Liabilities

The following tables summarize regulatory assets and liabilities:


	December 31, 2012
	TEP			UNS Gas			UNS Electric			UNS Energy
	-Millions of Dollars-
Regulatory Assets—Current
Property Tax Deferrals ⁽¹⁾	$	18		$	—		$	—		$	18
Derivative Instruments (Notes 11 and 16)		2			3			6			11
PPFAC ⁽³⁾		7			—			8			15
DSM ⁽³⁾		5			—			—			5
Other Current Regulatory Assets ⁽⁴⁾		2			1			—			3

Total Regulatory Assets—Current		34			4			14			52

Regulatory Assets—Noncurrent
Pension and Other Retiree Benefits (Note 9)		130			4			5			139
Income Taxes Recoverable through Future Revenues ⁽⁵⁾		8			—			2			10
PPFAC—Final Mine Reclamation and Retiree Health Care Costs ⁽⁶⁾		22			—			—			22
Tucson to Nogales Transmission Line ⁽⁷⁾		5			—			—			5
Other Regulatory Assets ⁽⁴⁾		13			1			1			15

Total Regulatory Assets—Noncurrent		178			5			8			191

Regulatory Liabilities—Current
PGA ⁽⁸⁾		—			(17	)		—			(17	)
RES ⁽⁸⁾		(19	)		—			(4	)		(23	)
Other Current Regulatory Liabilities		(2	)		(1	)		(1	)		(4	)

Total Regulatory Liabilities—Current		(21	)		(18	)		(5	)		(44	)

Regulatory Liabilities—Noncurrent
Net Cost of Removal for Interim Retirements ⁽⁹⁾		(231	)		(25	)		(11	)		(267	)
Income Taxes Payable through Future Rates		(5	)		(1	)		—			(6	)
Deferred Investment Tax Credit ⁽¹⁰⁾		(5	)		—			—			(5	)
Other Regulatory Liabilities		—			—			(1	)		(1	)

Total Regulatory Liabilities—Noncurrent		(241	)		(26	)		(12	)		(279	)

Total Net Regulatory Assets (Liabilities)	$	(50	)	$	(35	)	$	5		$	(80	)


	December 31, 2011
	TEP			UNS Gas			UNS Electric			UNS Energy
	-Millions of Dollars-
Regulatory Assets—Current
Property Tax Deferrals ⁽¹⁾	$	16		$	—		$	—		$	16
Derivative Instruments (Notes 11 and 16)		7			7			10			24
Deregulation Costs ⁽²⁾		3			—			—			3
PPFAC ⁽³⁾		34			—			7			41
DSM ⁽³⁾		8			—			1			9
Other Current Regulatory Assets ⁽⁴⁾		4			—			—			4

Total Regulatory Assets—Current		72			7			18			97

Regulatory Assets—Noncurrent
Pension and Other Retiree Benefits (Note 9)		107			3			4			114
Income Taxes Recoverable through Future Revenues ⁽⁵⁾		10			—			2			12
PPFAC ⁽³⁾		6			—			—			6
PPFAC—Final Mine Reclamation and Retiree Health Care Costs ⁽⁶⁾		20			—			—			20
Derivative Instruments (Notes 11 and 16)		2			2			3			7
Other Regulatory Assets ⁽⁴⁾		12			1			1			14

Total Regulatory Assets—Noncurrent		157			6			10			173

Regulatory Liabilities—Current
PGA ⁽⁸⁾		—			(15	)		—			(15	)
RES ⁽⁸⁾		(22	)		—			(3	)		(25	)
Other Current Regulatory Liabilities		(2	)		—			—			(2	)

Total Regulatory Liabilities—Current		(24	)		(15	)		(3	)		(42	)

Regulatory Liabilities—Noncurrent
Net Cost of Removal for Interim Retirements ⁽⁹⁾		(198	)		(23	)		(10	)		(231	)
Other Regulatory Liabilities		(3	)		(1	)		—			(4	)

Total Regulatory Liabilities—Noncurrent		(201	)		(24	)		(10	)		(235	)

Total Net Regulatory Assets (Liabilities)	$	4		$	(26	)	$	15		$	(7	)

Regulatory assets are either being collected in Retail Rates or are expected to be collected through Retail Rates in a future period. We describe regulatory assets and state when we earn a return below:

⁽¹⁾	Property Tax is recovered over an approximate six-month period as costs are paid, rather than as costs are accrued.

⁽²⁾	Deregulation costs represent deferred expenses that TEP incurred to comply with various ACC deregulation orders, as authorized by the ACC. TEP earned a return on this asset and recovered these costs through Retail Rates over a four-year period ended November 2012.

⁽³⁾	See Cost Recovery Mechanisms discussion above.

⁽⁴⁾

TEP’s other assets include unamortized loss on reacquired debt (recovery through 2032), coal contract amendment (recovery through 2017), and other assets (recovery through 2014). UNS Gas’ other assets consist of rate case costs (recovery over 3 years), and costs of the low income assistance program.

⁽⁵⁾	Income Taxes Recoverable through Future Revenues are amortized over the life of the assets.

⁽⁶⁾

Final Mine Reclamation and Retiree Health Care Costs stem from TEP’s jointly-owned facilities at the San Juan Generating Station, the Four Corners Generating Station, and the Navajo Generating Station. TEP is required to recognize the present value of its liability associated with final mine reclamation and retiree health care obligations. TEP recorded a regulatory asset because TEP is permitted to fully recover these costs through the PPFAC when the costs are invoiced by the miners. TEP expects to recover these costs over the remaining life of the mines, which is estimated to be between 14 and 20 years.

⁽⁷⁾	The Tucson to Nogales Transmission Line regulatory asset does not earn a return. TEP and UNS Electric will request recovery from FERC for the prudent cost incurred to develop a high-voltage transmission line, which we expect to abandon. See Note 4.

Regulatory liabilities represent items that we 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, as described below:

⁽⁸⁾	See Cost Recovery Mechanisms discussion above.

⁽⁹⁾

Net Cost of Removal for Interim Retirements represents an estimate of the cost of future AROs net of salvage value. These are amounts collected through revenue for the net cost of removal of interim retirements for transmission, distribution, general, and intangible plant which are not yet expended. TEP and UNS Electric have also collected amounts for generation plant, which they have not yet expended.

⁽¹⁰⁾	The Deferred Investment Tax Credit is related to federal energy credits generated in 2012 and are deferred as Regulatory Liabilities – Noncurrent and amortized over the tax life of the underlying asset.

Income Statement Impact of Applying Regulatory Accounting

Regulatory accounting had the following effects on TEP’s net income:


	Years Ended December 31,
	2012			2011			2010
	-Millions of Dollars-
TEP
Operating Revenues
Amortization of the Fixed CTC Revenue to be Refunded	$	—		$	36		$	10
Operating Expenses
Depreciation (related to Net Cost of Removal for Interim Retirements)		(33	)		(29	)		(30	)
(Amortization)/Deferral of PPFAC Costs		(31	)		6			22
Other		(7	)		—			(8	)
Non-Operating Income/Expenses
Long-Term Debt (Amortization of Loss on Reacquired Debt Costs)		1			1			1
AFUDC—Equity		3			4			4
Income Taxes—Deferral		(3	)		(8	)		1
Offset by the Tax Effect of the Above Adjustments		26			(4	)		—

Net (Decrease)/Increase to Net Income	$	(44	)	$	6		$	—

UNS Gas and UNS Electric Income Statement Impact of Applying Regulatory Accounting

UNS Gas and UNS Electric not applied regulatory accounting each would have recognized the difference between expected and actual purchased energy costs and commodity derivative unrealized gains or losses as a change in income statement expense, rather than as a change in regulatory balances. Regulatory accounting had the following effects on UNS Gas’ and UNS Electric’s net income:


	Years Ended December 31,
	2012			2011			2010
	-Millions of Dollars-
UNS Gas
Net (Decrease)/Increase to Net Income	$	(6	)	$	(5	)	$	(1	)
UNS Electric
Net (Decrease)/Increase to Net Income		(7	)		3			(7	)

Tucson Electric Power Company [Member]

Summary of Authorized 2010-2012 RES Programs

The following table summarizes TEP’s authorized 2010-2012 RES programs:


	Years Ended December 31,
	2012⁽²⁾		2011		2010
	-Millions of Dollars-
Investment in Company Owned Solar Projects	$	28	$	28	$	14
Return on Investment for Company Owned Solar Projects		2		1		—
Program Budget⁽¹⁾		30		36		44

⁽¹⁾	The authorized program budget for 2010 includes $12 million in carryforward of 2008 and 2009 RES funds.

⁽²⁾	TEP met the 2012 renewable energy target of 3.5%.

UNS Electric [Member]

Summary of Authorized 2010-2012 RES Programs

The following table summarizes UNS Electric’s authorized 2010-2012 RES programs:


	Years Ended December 31,
	2012⁽¹⁾		2011		2010
	-Millions of Dollars-
Investment in Company-Owned Solar Projects	$	5	$	5	$	—
Return on Investment for Company-Owned Solar Projects		1		—		—
Program Budget		8		8		9

⁽¹⁾	UNS Electric met the 2012 renewable energy target of 3.5%.