LEASES

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

LEASES

LEASES

TEP’s leases are included on the balance sheet as follows:

		December 31,
(in millions)	Lease Type	2021		2020
Lease Assets
Regulatory and Other Assets, Other	Operating	$	7	$	8
Lease Liabilities
Current Liabilities, Other	Operating	1		1
Regulatory and Other Liabilities, Other	Operating	6		7

OPERATING LEASES

TEP leases office facilities, land, rail cars, and communication tower space with remaining terms of one to 20 years. Most leases include one or more options to renew, with renewal terms that may extend a lease term for up to 10 years. Certain lease agreements include rental payments adjusted periodically for inflation or require TEP to pay real estate taxes, insurance, maintenance, or other operating expenses associated with the lease premises.

LEASE COST

The following table presents the components of TEP’s lease costs:

	Years Ended December 31,
(in millions)	2021		2020		2019
Finance
Amortization of Leased Assets (1)(2)	$	—	$	10	$	13
Interest on Lease Liabilities (3)	—		2		13
Operating	1		1		1
Variable (4)	4		2		16
Short Term	2		1		1
Total Lease Cost	$	7	$	16	$	44

(1)Finance lease amortization is recorded in Depreciation on the Consolidated Statements of Income. In 2020, TEP deferred $2 million of amortization related to the Springerville Common Facilities in Regulatory and Other Assets—Regulatory Assets on the Consolidated Balance Sheets based on recovery over the expected life of the asset. See Note 3 for additional information about TEP's purchase of Springerville Common Facilities.

(2)TEP entered into a tolling PPA to purchase and receive capacity, power, and ancillary services from Gila River Unit 2, which was accounted for as a finance lease. In 2019, TEP deferred $6 million of amortization in Regulatory and Other Assets—Regulatory Assets on the Consolidated Balance Sheets based on PPFAC recovery of TEP's fixed capacity payment. TEP purchased Gila River Unit 2 in December 2019.

(3)In 2020, TEP deferred $1 million of lease interest expense related to the Springerville Common Facilities in Regulatory and Other Assets —Regulatory Assets on the Consolidated Balance Sheets based on recovery over the expected life of the asset. Finance lease interest expense related to Gila River Unit 2 was $12 million in 2019.

(4)Variable lease cost is primarily comprised of battery storage with variable payments contingent on performance. In April 2021, a 20-year renewable PPA, accompanied by battery storage, achieved commercial operation. See Note 9 for additional information about TEP's renewable PPAs.

MATURITY ANALYSIS OF LEASE LIABILITIES

As of December 31, 2021, TEP's future minimum lease payments, excluding payments to lessors for variable costs, follow:

(in millions)	Operating Leases
2022	$	1
2023	1
2024	1
2025	1
2026	1
Thereafter	3
Total Lease Payments	8
Less Imputed Interest	1
Total Lease Obligations	7
Less Current Portion	1
Total Non-Current Lease Obligations	$	6

LEASE TERMS AND DISCOUNT RATES

The following table presents TEP's lease terms and discount rates related to its leases:

	December 31,
	2021		2020
Weighted-Average Remaining Lease Term (years)
Operating Leases	11		11
Weighted-Average Discount Rate
Operating Leases	3.9	%	3.9	%

LEASE CASH FLOWS

The following table presents cash paid for amounts included in the measurement of lease liabilities:

	Years Ended December 31,
(in millions)	2021		2020		2019
Operating Cash Flows used for Finance Leases	$	—	$	1	$	13
Operating Cash Flows used for Operating Leases	1		1		1
Financing Cash Flows used for Finance Leases	—		17		11
Investing Cash Flows used for Finance Leases	—		68		164

See Note 12 for non-cash transactions that resulted in recognition of right-of-use assets in exchange for lease liabilities.

LEASE INCOME

TEP leases limited office facilities and utility property to others with remaining terms of two to 21 years. Most leases include one or more options to renew with renewal terms that may extend a lease term for up to three years.

TEP's operating lease income was $1 million in each of 2021, 2020, and 2019, included in Other, Net on the Consolidated Statements of Income. TEP's expected operating lease payments to be received as of December 31, 2021, are $1 million or less in each year from 2022 through 2026 and $2 million thereafter.

LEASES

LEASES

TEP’s leases are included on the balance sheet as follows:

		December 31,
(in millions)	Lease Type	2021		2020
Lease Assets
Regulatory and Other Assets, Other	Operating	$	7	$	8
Lease Liabilities
Current Liabilities, Other	Operating	1		1
Regulatory and Other Liabilities, Other	Operating	6		7

OPERATING LEASES

TEP leases office facilities, land, rail cars, and communication tower space with remaining terms of one to 20 years. Most leases include one or more options to renew, with renewal terms that may extend a lease term for up to 10 years. Certain lease agreements include rental payments adjusted periodically for inflation or require TEP to pay real estate taxes, insurance, maintenance, or other operating expenses associated with the lease premises.

LEASE COST

The following table presents the components of TEP’s lease costs:

	Years Ended December 31,
(in millions)	2021		2020		2019
Finance
Amortization of Leased Assets (1)(2)	$	—	$	10	$	13
Interest on Lease Liabilities (3)	—		2		13
Operating	1		1		1
Variable (4)	4		2		16
Short Term	2		1		1
Total Lease Cost	$	7	$	16	$	44

(1)Finance lease amortization is recorded in Depreciation on the Consolidated Statements of Income. In 2020, TEP deferred $2 million of amortization related to the Springerville Common Facilities in Regulatory and Other Assets—Regulatory Assets on the Consolidated Balance Sheets based on recovery over the expected life of the asset. See Note 3 for additional information about TEP's purchase of Springerville Common Facilities.

(2)TEP entered into a tolling PPA to purchase and receive capacity, power, and ancillary services from Gila River Unit 2, which was accounted for as a finance lease. In 2019, TEP deferred $6 million of amortization in Regulatory and Other Assets—Regulatory Assets on the Consolidated Balance Sheets based on PPFAC recovery of TEP's fixed capacity payment. TEP purchased Gila River Unit 2 in December 2019.

(3)In 2020, TEP deferred $1 million of lease interest expense related to the Springerville Common Facilities in Regulatory and Other Assets —Regulatory Assets on the Consolidated Balance Sheets based on recovery over the expected life of the asset. Finance lease interest expense related to Gila River Unit 2 was $12 million in 2019.

(4)Variable lease cost is primarily comprised of battery storage with variable payments contingent on performance. In April 2021, a 20-year renewable PPA, accompanied by battery storage, achieved commercial operation. See Note 9 for additional information about TEP's renewable PPAs.

MATURITY ANALYSIS OF LEASE LIABILITIES

As of December 31, 2021, TEP's future minimum lease payments, excluding payments to lessors for variable costs, follow:

(in millions)	Operating Leases
2022	$	1
2023	1
2024	1
2025	1
2026	1
Thereafter	3
Total Lease Payments	8
Less Imputed Interest	1
Total Lease Obligations	7
Less Current Portion	1
Total Non-Current Lease Obligations	$	6

LEASE TERMS AND DISCOUNT RATES

The following table presents TEP's lease terms and discount rates related to its leases:

	December 31,
	2021		2020
Weighted-Average Remaining Lease Term (years)
Operating Leases	11		11
Weighted-Average Discount Rate
Operating Leases	3.9	%	3.9	%

LEASE CASH FLOWS

The following table presents cash paid for amounts included in the measurement of lease liabilities:

	Years Ended December 31,
(in millions)	2021		2020		2019
Operating Cash Flows used for Finance Leases	$	—	$	1	$	13
Operating Cash Flows used for Operating Leases	1		1		1
Financing Cash Flows used for Finance Leases	—		17		11
Investing Cash Flows used for Finance Leases	—		68		164

See Note 12 for non-cash transactions that resulted in recognition of right-of-use assets in exchange for lease liabilities.

LEASE INCOME

TEP leases limited office facilities and utility property to others with remaining terms of two to 21 years. Most leases include one or more options to renew with renewal terms that may extend a lease term for up to three years.

TEP's operating lease income was $1 million in each of 2021, 2020, and 2019, included in Other, Net on the Consolidated Statements of Income. TEP's expected operating lease payments to be received as of December 31, 2021, are $1 million or less in each year from 2022 through 2026 and $2 million thereafter.

LEASES

LEASES

TEP’s leases are included on the balance sheet as follows:

		December 31,
(in millions)	Lease Type	2021		2020
Lease Assets
Regulatory and Other Assets, Other	Operating	$	7	$	8
Lease Liabilities
Current Liabilities, Other	Operating	1		1
Regulatory and Other Liabilities, Other	Operating	6		7

OPERATING LEASES

TEP leases office facilities, land, rail cars, and communication tower space with remaining terms of one to 20 years. Most leases include one or more options to renew, with renewal terms that may extend a lease term for up to 10 years. Certain lease agreements include rental payments adjusted periodically for inflation or require TEP to pay real estate taxes, insurance, maintenance, or other operating expenses associated with the lease premises.

LEASE COST

The following table presents the components of TEP’s lease costs:

	Years Ended December 31,
(in millions)	2021		2020		2019
Finance
Amortization of Leased Assets (1)(2)	$	—	$	10	$	13
Interest on Lease Liabilities (3)	—		2		13
Operating	1		1		1
Variable (4)	4		2		16
Short Term	2		1		1
Total Lease Cost	$	7	$	16	$	44

(1)Finance lease amortization is recorded in Depreciation on the Consolidated Statements of Income. In 2020, TEP deferred $2 million of amortization related to the Springerville Common Facilities in Regulatory and Other Assets—Regulatory Assets on the Consolidated Balance Sheets based on recovery over the expected life of the asset. See Note 3 for additional information about TEP's purchase of Springerville Common Facilities.

(2)TEP entered into a tolling PPA to purchase and receive capacity, power, and ancillary services from Gila River Unit 2, which was accounted for as a finance lease. In 2019, TEP deferred $6 million of amortization in Regulatory and Other Assets—Regulatory Assets on the Consolidated Balance Sheets based on PPFAC recovery of TEP's fixed capacity payment. TEP purchased Gila River Unit 2 in December 2019.

(3)In 2020, TEP deferred $1 million of lease interest expense related to the Springerville Common Facilities in Regulatory and Other Assets —Regulatory Assets on the Consolidated Balance Sheets based on recovery over the expected life of the asset. Finance lease interest expense related to Gila River Unit 2 was $12 million in 2019.

(4)Variable lease cost is primarily comprised of battery storage with variable payments contingent on performance. In April 2021, a 20-year renewable PPA, accompanied by battery storage, achieved commercial operation. See Note 9 for additional information about TEP's renewable PPAs.

MATURITY ANALYSIS OF LEASE LIABILITIES

As of December 31, 2021, TEP's future minimum lease payments, excluding payments to lessors for variable costs, follow:

(in millions)	Operating Leases
2022	$	1
2023	1
2024	1
2025	1
2026	1
Thereafter	3
Total Lease Payments	8
Less Imputed Interest	1
Total Lease Obligations	7
Less Current Portion	1
Total Non-Current Lease Obligations	$	6

LEASE TERMS AND DISCOUNT RATES

The following table presents TEP's lease terms and discount rates related to its leases:

	December 31,
	2021		2020
Weighted-Average Remaining Lease Term (years)
Operating Leases	11		11
Weighted-Average Discount Rate
Operating Leases	3.9	%	3.9	%

LEASE CASH FLOWS

The following table presents cash paid for amounts included in the measurement of lease liabilities:

	Years Ended December 31,
(in millions)	2021		2020		2019
Operating Cash Flows used for Finance Leases	$	—	$	1	$	13
Operating Cash Flows used for Operating Leases	1		1		1
Financing Cash Flows used for Finance Leases	—		17		11
Investing Cash Flows used for Finance Leases	—		68		164

See Note 12 for non-cash transactions that resulted in recognition of right-of-use assets in exchange for lease liabilities.

LEASE INCOME

TEP leases limited office facilities and utility property to others with remaining terms of two to 21 years. Most leases include one or more options to renew with renewal terms that may extend a lease term for up to three years.

TEP's operating lease income was $1 million in each of 2021, 2020, and 2019, included in Other, Net on the Consolidated Statements of Income. TEP's expected operating lease payments to be received as of December 31, 2021, are $1 million or less in each year from 2022 through 2026 and $2 million thereafter.