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FAIR VALUE MEASUREMENTS AND DERIVATIVE INSTRUMENTS (Tables)
 12 Months Ended
Dec. 31, 2016
Disclosure Text Block [Abstract]  
Financial Instruments Measured at Fair Value on a Recurring Basis
FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE ON A RECURRING BASIS
The following tables present, by level within the fair value hierarchy, TEP’s assets and liabilities accounted for at fair value on a recurring basis. These assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
 
Level 1
 
Level 2
 
Level 3
 
Total
(in millions)
December 31, 2016
Assets
 
Cash Equivalents(1)
$
23

 
$
—

 
$
—

 
$
23

Restricted Cash(1)
7

 
—

 
—

 
7

Energy Derivative Contracts, Regulatory Recovery(2)
—

 
3

 
—

 
3

Energy Derivative Contracts, No Regulatory Recovery(2)
—

 
—

 
2

 
2

Total Assets
30

 
3

 
2

 
35

Liabilities
 
 
 
 
 
 
 
Energy Derivative Contracts, Regulatory Recovery(2)
—

 
(2
)
 
(1
)
 
(3
)
Interest Rate Swap(3)
—

 
(2
)
 
—

 
(2
)
Total Liabilities
—

 
(4
)
 
(1
)
 
(5
)
Net Total Assets (Liabilities)
$
30

 
$
(1
)
 
$
1

 
$
30

(in millions)
December 31, 2015
Assets
 
Cash Equivalents(1)
$
33

 
$
—

 
$
—

 
$
33

Restricted Cash(1)
4

 
—

 
—

 
4

Energy Derivative Contracts, Regulatory Recovery(2)
—

 
1

 
—

 
1

Energy Derivative Contracts, No Regulatory Recovery(2)
—

 
—

 
1

 
1

Total Assets
37

 
1

 
1

 
39

Liabilities
 
 
 
 
 
 
 
Energy Derivative Contracts, Regulatory Recovery(2)
—

 
(10
)
 
(3
)
 
(13
)
Interest Rate Swap(3)
—

 
(3
)
 
—

 
(3
)
Total Liabilities
—

 
(13
)
 
(3
)
 
(16
)
Net Total Assets (Liabilities)
$
37

 
$
(12
)
 
$
(2
)
 
$
23

(1) 
Cash Equivalents and Restricted Cash represent amounts held in money market funds and certificates of deposit valued at cost, including interest, which approximates fair market value. Cash Equivalents are included in Cash and Cash Equivalents on the Consolidated Balance Sheets. Restricted Cash is included in Investments and Other Property on the Consolidated Balance Sheets.
(2) 
Energy Contracts include gas swap agreements (Level 2), gas options (Level 3), and forward purchased power and sales contracts (Level 3) entered into to reduce exposure to energy price risk. These contracts are included in Derivative Instruments on the Consolidated Balance Sheets. The valuation techniques are described below.
(3) 
The Interest Rate Swap is valued using an income valuation approach based on the 6-month LIBOR and is included in Derivative Instruments on the Consolidated Balance Sheets.
Potential Offset of Assets by Counterparty Netting and Cash Collateral
All energy derivative contracts are subject to legally enforceable master netting arrangements to mitigate credit risk. TEP presents derivatives on a gross basis in the balance sheet. The tables below present the potential offset of counterparty netting and cash collateral.
 
Gross Amount Recognized in the Balance Sheets
 
Gross Amount Not Offset in the Balance Sheets
 
Net Amount
 
 
Counterparty Netting of Energy Contracts
 
Cash Collateral Received/Posted
 
(in millions)
December 31, 2016
Derivative Assets
 
 
 
 
 
 
 
Energy Derivative Contracts
$
5

 
$
2

 
$
—

 
$
3

Derivative Liabilities
 
 
 
 
 
 
 
Energy Derivative Contracts
(3
)
 
(2
)
 
—

 
(1
)
Interest Rate Swap
(2
)
 
—

 
—

 
(2
)
(in millions)
December 31, 2015
Derivative Assets
 
 
 
 
 
 
 
Energy Derivative Contracts
$
2

 
$
1

 
$
—

 
$
1

Derivative Liabilities
 
 
 
 
 
 
 
Energy Derivative Contracts
(13
)
 
(1
)
 
—

 
(12
)
Interest Rate Swap
(3
)
 
—

 
—

 
(3
)
Potential Offset of Liabilities by Counterparty Netting and Cash Collateral
All energy derivative contracts are subject to legally enforceable master netting arrangements to mitigate credit risk. TEP presents derivatives on a gross basis in the balance sheet. The tables below present the potential offset of counterparty netting and cash collateral.
 
Gross Amount Recognized in the Balance Sheets
 
Gross Amount Not Offset in the Balance Sheets
 
Net Amount
 
 
Counterparty Netting of Energy Contracts
 
Cash Collateral Received/Posted
 
(in millions)
December 31, 2016
Derivative Assets
 
 
 
 
 
 
 
Energy Derivative Contracts
$
5

 
$
2

 
$
—

 
$
3

Derivative Liabilities
 
 
 
 
 
 
 
Energy Derivative Contracts
(3
)
 
(2
)
 
—

 
(1
)
Interest Rate Swap
(2
)
 
—

 
—

 
(2
)
(in millions)
December 31, 2015
Derivative Assets
 
 
 
 
 
 
 
Energy Derivative Contracts
$
2

 
$
1

 
$
—

 
$
1

Derivative Liabilities
 
 
 
 
 
 
 
Energy Derivative Contracts
(13
)
 
(1
)
 
—

 
(12
)
Interest Rate Swap
(3
)
 
—

 
—

 
(3
)
Realized Losses from Cash Flow Hedges
Realized losses from cash flow hedges are shown in the following table:
 
Years Ended December 31,
(in millions)
2016
 
2015
 
2014
Capital Lease Interest Expense
$
1

 
$
2

 
$
2

Long-Term Debt Interest Expense
—

 
—

 
1

Purchased Power
—

 
1

 
1
Financial Impact of Energy Contracts
Energy Derivative Contracts - Regulatory Recovery
TEP records unrealized gains and losses on energy purchase contracts that are recoverable through the PPFAC on the balance sheet as a regulatory asset or a regulatory liability rather than reporting the transaction in the income statement or in the statement of other comprehensive income, as shown in following table:
 
Years Ended December 31,
(in millions)
2016
 
2015
 
2014
Unrealized Net Gain (Loss) Recorded to Regulatory (Assets) Liabilities
$
12

 
$
6

 
$
(18
)
Derivative Volumes
Derivative Volumes
As of December 31, 2016, TEP has energy contracts that will settle through 2019. The volumes associated with the energy contracts were as follows:
 
December 31,
 
2016
 
2015
Power Contracts GWh
2,610

 
1,752

Gas Contracts BBtu
12,355

 
17,214
Fair Value Inputs, Assets, Quantitative Information Regarding Significant Unobservable Inputs
Level 3 Fair Value Measurements
The following tables provide quantitative information regarding significant unobservable inputs in TEP’s Level 3 fair value measurements:
 
Valuation
 
Fair Value of
 
 
 
Range of
 
Approach
 
Assets
 
Liabilities
 
Unobservable Inputs
 
Unobservable Input
(in millions)
December 31, 2016
Forward Power Contracts
Market approach
 
$
2

 
$
(1
)
 
Market price per MWh
 
$
20.90

 
$
40.00

 
 
 
 
 
 
 
 
 
 
 
 
Level 3 Energy Contracts
 
 
$
2

 
$
(1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
December 31, 2015
Forward Power Contracts
Market approach
 
$
1

 
$
(2
)
 
Market price per MWh
 
$
19.20

 
$
31.35

 
 
 
 
 
 
 
 
 
 
 
 
Gas Option Contracts
Option model
 
—

 
(1
)
 
Market price per MMbtu
 
$
2.17

 
$
2.69

 
 
 
 
 
 
 
Gas volatility
 
31.0%
 
58.3%
Level 3 Energy Contracts
 
 
$
1

 
$
(3
)
 
 
 
 
 
 
Fair Value Inputs, Liabilities, Quantitative Information Regarding Significant Unobservable Inputs
Level 3 Fair Value Measurements
The following tables provide quantitative information regarding significant unobservable inputs in TEP’s Level 3 fair value measurements:
 
Valuation
 
Fair Value of
 
 
 
Range of
 
Approach
 
Assets
 
Liabilities
 
Unobservable Inputs
 
Unobservable Input
(in millions)
December 31, 2016
Forward Power Contracts
Market approach
 
$
2

 
$
(1
)
 
Market price per MWh
 
$
20.90

 
$
40.00

 
 
 
 
 
 
 
 
 
 
 
 
Level 3 Energy Contracts
 
 
$
2

 
$
(1
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(in millions)
December 31, 2015
Forward Power Contracts
Market approach
 
$
1

 
$
(2
)
 
Market price per MWh
 
$
19.20

 
$
31.35

 
 
 
 
 
 
 
 
 
 
 
 
Gas Option Contracts
Option model
 
—

 
(1
)
 
Market price per MMbtu
 
$
2.17

 
$
2.69

 
 
 
 
 
 
 
Gas volatility
 
31.0%
 
58.3%
Level 3 Energy Contracts
 
 
$
1

 
$
(3
)
 
 
 
 
 
 
Level 3 Fair Value Reconciliation of Changes
The following table presents a reconciliation of changes in the fair value of assets and liabilities classified as Level 3 in the fair value hierarchy:
 
Years Ended December 31,
(in millions)
2016
 
2015
Beginning of Period
$
(2
)
 
$
(9
)
Gains (Losses) Recorded (1)
 
 
 
Net Regulatory Assets or Liabilities, Derivative Instruments
2

 
(4
)
Electric Wholesale Sales
4

 
3

Settlements
(3
)
 
8

End of Period
$
1

 
$
(2
)

(1) 
Includes gains (losses) attributable to the change in unrealized gains (losses) relating to assets (liabilities) still held at the end of the period of $1 million and $(1) million for the years ended December 31, 2016 and 2015, respectively.
Face Value and Estimated Fair Value of Long-Term Debt
The following table includes the face value and estimated fair value of TEP's long-term debt:
 
Fair Value
Hierarchy
 
Face Value
 
Fair Value
 
 
 
December 31,
(in millions)
 
 
2016
 
2015
 
2016
 
2015
Liabilities
 
 
 
 
 
 
 
 
 
Long-Term Debt, including Current Maturities
Level 2
 
$
1,466

 
$
1,466

 
$
1,472

 
$
1,529