REVENUE

12 Months Ended

Dec. 31, 2021

Revenue from Contract with Customer [Abstract]

REVENUE

REVENUE

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 has certain contracts with variable transaction pricing that require it to estimate the expected consideration.

DISAGGREGATION OF REVENUES

The following table presents the disaggregation of TEP’s Operating Revenues on the Consolidated Statements of Income by type of service:

	Years Ended December 31,
(in millions)	2021		2020		2019
Retail	$	1,088	$	1,039	$	972
Wholesale	278		190		247
Other Services	114		95		124
Revenues from Contracts with Customers	1,480		1,324		1,343
Alternative Revenues	12		48		35
Other	101		53		40
Total Operating Revenues	$	1,593	$	1,425	$	1,418

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 the spring and summer months and decrease during the 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. See Note 2 for more information regarding the 2020 Rate Order.

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.

Pursuant to a FERC order, all rates charged under TEP's revised OATT are subject to refund until the 2019 FERC Rate Case proceedings conclude. Wholesale Revenues exclude an estimate of revenues probable of refund. See Note 2 for more information regarding the 2019 FERC Rate Case.

Other Services Revenues

Other Services Revenues primarily include fees earned as operator of Springerville Units 3 and 4, miscellaneous service-related revenues, and reimbursement of various operating expenses for the use of the Springerville Common Facilities and the Springerville Coal Handling Facilities by the operator of Springerville Unit 3. When TEP recognizes revenue for reimbursement of Springerville Common Facilities and Springerville Coal Handling Facilities' operating expenses, the associated expenses are recorded in their respective line items on the income statement based on the nature of services provided.

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 LFCR, TCA, and ECA mechanisms and DSM performance incentive 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, common cost allocations to affiliates, and asset management agreement service fees and optimization gains. See Note 6 for information regarding revenue from related parties and Note 13 for information regarding derivative instruments.