RELATED PARTY TRANSACTIONS RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2014

TEP engages in various transactions with affiliated subsidiaries of UNS Energy including UNS Electric, Inc., (UNS Electric), UNS Gas, Inc. (UNS Gas) and Southwest Energy Solutions, Inc. (SES) (collectively, UNS Energy affiliates). These transactions include sales and purchases of power, common cost allocations, and the provision of corporate and other labor related services. Additionally, TEP and UNS Electric are planning the joint purchase of a generating station unit. See Note 6.

The following table summarizes related party transactions:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	Millions of Dollars
Wholesale Sales - TEP to UNS Electric ⁽¹⁾	$	2	$	—	$	3	$	1
Wholesale Sales - UNS Electric to TEP ⁽¹⁾	2		—		3		1
Control Area Services - TEP to UNS Electric ⁽²⁾	1		1		2		3
Common Costs - TEP to UNS Energy Affiliates ⁽³⁾	3		3		10		9
Supplemental Workforce - SES to TEP ⁽⁴⁾	4		4		12		11
Corporate Services and Other Labor Charges - TEP to UNS Energy Affiliates ⁽⁵⁾	3		4		7		10
Corporate Services - UNS Energy Affiliates to TEP ⁽⁵⁾	—		—		1		1


⁽¹⁾	TEP and UNS Electric sell power to each other at prevailing market prices.


⁽²⁾	TEP charges UNS Electric for control area services under a FERC-accepted Control Area Services Agreement.


⁽³⁾	Common costs (systems, facilities, etc.) are allocated on a cost-causative basis and recorded as revenue by TEP. Management believes this method of allocation is reasonable.


⁽⁴⁾	SES provides supplemental workforce and meter-reading services to TEP. Amounts are based on costs of services performed, and management believes that the charges for the services are reasonable.


⁽⁵⁾	All Corporate Services (finance, accounting, tax, legal and information technology) and other labor services are directly assigned to the benefiting entity at a fully burdened cost when possible; other costs are allocated using the Massachusetts' Formula, an industry accepted method of allocating common costs to affiliated entities.

At September 30, 2014 and December 31, 2013, our Balance Sheets include the following intercompany balances:



	Balances at
	September 30, 2014		December 31, 2013
	Millions of Dollars
Receivables from Related Parties
UNS Electric	$	2	$	3
UNS Gas	1		2
UNS Energy	—		1
Total Due from Related Parties	$	3	$	6

Payables to Related Parties
SES	$	3	$	2
UNS Electric	1		—
UNS Energy	—		7
Total Due to Related Parties	$	4	$	9

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

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