DEBT, CREDIT FACILITY, AND CAPITAL LEASE OBLIGATIONS

DEBT

Long-term debt matures more than one year from the date of the financial statements. The following table presents the components of Long-Term Debt, Net on the Consolidated Balance Sheets:



		Maturity Date	December 31,
($ in millions)	Interest Rate	Maturity Date	2018		2017
Notes
2011 Notes	5.15%	2021	$	250	$	250
2012 Notes	3.85%	2023	150		150
2014 Notes	5.00%	2044	150		150
2015 Notes	3.05%	2025	300		300
2018 Notes	4.85%	2048	300		—
Tax-Exempt Local Furnishings Bonds
2010 Pima A	5.25%	2040	100		100
2012 Pima A	4.50%	2030	16		16
2013 Pima A	4.00%	2029	91		91
2013 Apache A ⁽¹⁾	2.42%	2032	—		100
Tax-Exempt Pollution Control Bonds
2009 Pima A	4.95%	2020	80		80
2009 Coconino A	5.13%	2032	15		15
2010 Coconino A⁽²⁾	2.34%	2032	—		37
2012 Apache A	4.50%	2030	177		177
Total Long-Term Debt ⁽³⁾			1,629		1,466
Less Unamortized Discount and Debt Issuance Costs			14		12
Less Current Maturities of Long-Term Debt			—		100
Total Long-Term Debt, Net			$	1,615	$	1,354


⁽¹⁾	Variable rate debt for which rates were reset monthly. The weighted average interest rate was calculated based on a percentage of an index equal to one-month LIBOR plus a credit spread. The interest rate for 2018 was calculated through the redemption date.


⁽²⁾	Variable rate debt for which rates were reset weekly. The weighted average interest rate was calculated using a weighted average and includes LOC fees and remarketing fees. The interest rate for 2018 was calculated through the redemption date.


⁽³⁾	As of December 31, 2018, all of TEP's debt is unsecured.

Debt Issuances and Redemptions

Fixed Rate Debt

In November 2018, TEP issued and sold $300 million aggregate principal amount of senior unsecured notes. TEP may redeem the notes prior to June 1, 2048, with a make-whole premium plus accrued interest. On or after June 1, 2048, TEP may redeem the notes at par plus accrued interest.

Variable Rate Debt

In December 2018, TEP redeemed at par a series of variable rate tax-exempt bonds with an aggregate principal amount of $37 million prior to the maturity of the bonds. The bonds were backed by an LOC issued pursuant to the 2010 Reimbursement Agreement which was scheduled to expire in February 2019. In connection with the redemption of the related bonds, the $37 million LOC and the associated 2010 Reimbursement Agreement were terminated.

In November 2018, TEP redeemed at par a series of variable rate tax-exempt bonds with an aggregate principal amount of $100 million prior to the maturity of the bonds. The bonds were subject to mandatory tender for purchase in November 2018.

CREDIT FACILITY

TEP's unsecured credit agreement with a maturity date of October 2022 included in Current Liabilities on the Consolidated Balance Sheets consists of the following:



	Capacity		Sub-Limit LOC		Borrowed		Available		Weighted Average Interest Rate		Pricing ⁽¹⁾
(in millions)	December 31, 2018
Credit Facility	$	250	$	50	$	—	$	250	—	%	LIBOR + 1.000	%	or ABR + 0.00%



(in millions)	December 31, 2017
Credit Facility	$	250	$	50	$	35	$	215	2.56	%	LIBOR + 1.000	%	or ABR + 0.00%


⁽¹⁾	Interest rates and fees under the credit facility are based on a pricing grid tied to TEP's credit rating.

TEP expects that amounts borrowed under the credit agreement will be used for working capital and other general corporate purposes. TEP will issue LOCs from time to time to support energy procurement and hedging transactions. As of February 14, 2019, there was $250 million available under the revolving credit commitments and LOC facilities.

CAPITAL LEASE OBLIGATIONS

The following table details Capital Lease Obligations on the Consolidated Balance Sheets:



	December 31,
(in millions)	2018		2017
Gila River Unit 2	$	164	$	—
Springerville Common Facilities	29		39
Total Capital Lease Obligations	193		39
Less Current Portion	173		11
Total Capital Lease Obligations, Non-Current	$	20	$	28

Gila River Unit 2

In 2017, TEP entered into the Tolling PPA agreement, which includes a three-year option to purchase Gila River Unit 2. TEP’s obligations under the agreement were contingent upon the Gila Acquisition, which SRP completed in May 2018. As a result, TEP recorded an increase to both capital lease obligations and utility plant. TEP anticipates exercising its option to purchase Gila River Unit 2 in December 2019 for approximately $164 million, the fair value of the unit as determined based on SRP's purchase price. Over the expected 20-month lease term, TEP will pay a monthly demand charge consisting of: (i) a fixed capacity charge of approximately $1 million, and (ii) an operating fee to compensate SRP for the non-fuel costs of operating Gila River Unit 2. TEP recovers the monthly demand charge through the PPFAC.

Utility Plant Under Capital Leases on the Consolidated Balance Sheets reflects a balance related to the Tolling PPA of $164 million as of December 31, 2018.

Springerville Unit 1 Capital Lease Purchase

In September 2016, TEP purchased an undivided interest in Springerville Unit 1 for $85 million, bringing its total ownership of the assets to 100% for a total generation capacity of 387 MW. See Note 8 for more information regarding the settlement agreement relating to Springerville Unit 1.

Springerville Common Facilities Leases

As of December 31, 2018, the Springerville Common Facilities Leases include two leases with initial terms ending January 2021 and fixed price purchase options totaling $68 million. Under the two leases, TEP has options to: (i) renew the leases for periods of two or more years at fair market value; or (ii) exercise the fixed price purchase options under these contracts. In addition, TEP entered into agreements with Tri-State, the lessee of Springerville Unit 3, and SRP, the owner of Springerville Unit 4, that contain the following conditions that become effective if the Common Facilities Leases are not renewed: (i) TEP will exercise the purchase options under these contracts; (ii) SRP will be obligated to buy a 14% undivided interest in the facilities; and (iii) Tri-State will be obligated to either: (a) buy a 14% undivided interest in the facilities; or (b) continue to make payments to TEP for the use of these facilities. If renewed, Tri-State and SRP will each pay 14% of the new fair market value rent.

In December 2017, TEP purchased a 17.8% undivided interest in the Springerville Common Facilities for $38 million, bringing its total ownership of the assets to 67.8%. Upon purchase of the leased interest, TEP reduced Current Lease Obligations on the Consolidated Balance Sheets by $36 million.

Springerville Common Facilities Lease Interest Rate Swap

TEP entered into an interest rate swap agreement in 2006 that hedges a portion of the floating interest rate risk associated with the Springerville Common Facilities lease debt. The swap has the effect of fixing the benchmark LIBOR rate on a portion of the amortizing principal balance. The swap matures in January 2020 with interest on the lease debt payable at a swapped rate of 5.77% plus an applicable margin per the lease agreement. The lease debt outstanding as of December 31, 2018, consisted of a notional amount of $12 million on which interest was fixed by the swap and a notional amount of $2 million of debt that was not hedged. The applicable margin was 2.00% and 1.88% as of December 31, 2018 and 2017, respectively.

TEP recorded the interest rate swap as a cash flow hedge for financial reporting purposes. See Cash Flow Hedges in Note 12 for additional information.

DEBT MATURITIES

Long-term debt, including revolving credit facilities classified as long-term, and capital lease obligations mature on the following dates:



(in millions)	Long-Term Debt⁽¹⁾		Capital Lease Obligations		Total Debt Maturities
2019	$	—	$	187	$	187
2020	80		20		100
2021	250		—		250
2022	—		—		—
2023	150		—		150
Total 2019 - 2023	480		207		687
Thereafter	1,149		—		1,149
Less: Imputed Interest	—		14		14
Total	$	1,629	$	193	$	1,822


⁽¹⁾	Total long-term debt excludes $11 million of related unamortized debt issuance costs and $3 million of unamortized original issue discount.