REGULATORY MATTERS (Tables)

12 Months Ended

Dec. 31, 2021

Schedule of Purchased Power and Fuel Adjustment Rates

The table below summarizes the PPFAC regulatory asset (liability) balance:


	Years Ended December 31,
(in millions)	2021		2020
Beginning of Period	$	23	$	36
Deferred Fuel and Purchased Power Costs (1)	343		283
PPFAC and Base Power Recoveries (2)	(275)		(296)
End of Period	$	91	$	23

(1)Includes costs eligible for recovery through the PPFAC and base power rates.

(2)In March 2021 and 2020, the ACC approved a PPFAC surcharge as part of TEP's annual rate adjustment request, which went into effect on June 1, 2021 and June 1, 2020.

Schedule of Regulatory Assets and Liabilities

Regulatory assets and liabilities recorded in the balance sheet are summarized in the table below:


	Remaining Recovery Period (years)	December 31,
($ in millions)		2021		2020
Regulatory Assets
Pension and Other Postretirement Benefits (Note 10)	Various	$	128	$	166
Under Recovered Purchased Energy Costs	2	91		23
Early Generation Retirement Costs	Various	38		43
Lost Fixed Cost Recovery	1	37		59
Property Tax Deferrals (1)	1	27		26
Income Taxes Recoverable through Future Rates (2)	Various	17		27
Final Mine Reclamation and Retiree Healthcare Costs (3)	7	17		20
Derivatives (Note 13)	8	8		55
Springerville Unit 1 Leasehold Improvements (4)	2	4		7
Tax Expense Adjustor Mechanism	1	3		—
Other Regulatory Assets	Various	14		16
Total Regulatory Assets		384		442
Less Current Portion	1	116		124
Total Non-Current Regulatory Assets		$	268	$	318


Regulatory Liabilities
Income Taxes Payable through Future Rates (2)	Various	$	268	$	298
Net Cost of Removal (5)	Various	73		125
Renewable Energy Standard	Various	66		63
Derivatives (Note 13)	8	19		4
Transmission Revenue Subject to Refund—FERC	1	15		15
Demand Side Management	1	12		6


Transmission Cost Adjustor	1	9		—
Tax Expense Adjustor Mechanism	1	—		29
Other Regulatory Liabilities	Various	1		1
Total Regulatory Liabilities		463		541
Less Current Portion	1	111		151
Total Non-Current Regulatory Liabilities		$	352	$	390

(1)Recorded as a regulatory asset based on historical ratemaking treatment allowing regulated utilities recovery of property taxes on a pay-as-you-go or cash basis. TEP records a liability to reflect the accrual for financial reporting purposes and an offsetting regulatory asset to reflect recovery for regulatory purposes. This asset is fully recovered in rates with a recovery period of approximately six months.

(2)Amortized over five years, 10 years, or the lives of the assets. See Note 1 and Note 14 for additional information regarding income taxes.

(3)Represents costs associated with TEP’s jointly-owned facilities at San Juan and Four Corners. TEP recognizes these costs at future value and is permitted to fully recover these costs on a pay-as-you-go basis through the PPFAC mechanism. Final mine reclamation costs are expected to be funded by TEP through 2028.

(4)Represents investments TEP made, which were previously recorded in Plant in Service on the Consolidated Balance Sheets, to ensure that the facilities continued to provide safe, reliable service to TEP's customers. TEP received ACC authorization to recover leasehold improvement costs at Springerville Unit 1 over a 10-year period.

(5)Represents an estimate of the future cost of retirement, net of salvage value. These are amounts collected through revenue for transmission, distribution, generation, and general and intangible plant which are not yet expended. As a result of the 2020 Rate

Order, TEP transferred costs from Net Cost of Removal to Accumulated Depreciation and Amortization. See Note 3 for additional information related to new depreciation rates approved as part of the 2020 Rate Order.