TEP is a regulated utility that generates, transmits, and distributes electricity to approximately 450,000 retail customers in a 1,155 square mile area in southeastern Arizona. TEP also sells electricity to other utilities and power marketing entities, located primarily in the western United States. TEP is a wholly-owned subsidiary of UNS Energy, a utility services holding company. UNS Energy is an indirect wholly-owned subsidiary of Fortis.

TEP's Condensed Consolidated Financial Statements and disclosures are presented in accordance with GAAP, including specific accounting guidance for regulated operations and the United States Securities and Exchange Commission's (SEC) interim reporting requirements.

The Condensed Consolidated Financial Statements include the accounts of TEP and its subsidiaries. In the consolidation process, accounts of TEP and its subsidiaries are combined, and intercompany balances and transactions are eliminated. TEP jointly owns several generation facilities and transmission systems with both affiliated and non-affiliated entities. TEP records its proportionate share of: (i) jointly-owned facilities in Utility Plant on the Condensed Consolidated Balance Sheets; and (ii) operating costs associated with these facilities in the Condensed Consolidated Statements of Income. These Condensed Consolidated Financial Statements exclude some information and footnotes required by GAAP and the SEC for annual financial statement reporting and should be read in conjunction with the Consolidated Financial Statements and footnotes in TEP's 2023 Annual Report on Form 10-K.

The Condensed Consolidated Financial Statements are unaudited, but, in management's opinion, include all normal, recurring adjustments necessary for a fair statement of the results for the interim periods presented. Because weather and other factors cause seasonal fluctuations in sales, TEP's quarterly operating results are not indicative of annual operating results. Certain amounts from prior periods have been reclassified to conform to the current period presentation. These reclassifications had no impact on TEP’s results of operation, financial position, or cash flows.

A Variable Interest Entity (VIE) is an entity in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity investment at risk for the entity to finance its activities without additional subordinated financial support. TEP regularly reviews contracts to determine if it has a variable interest in an entity, if that entity is a VIE, and if TEP is the primary beneficiary of the VIE. The primary beneficiary is required to consolidate the VIE when it has: (i) the power to direct activities that most significantly impact the economic performance of the VIE; and (ii) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.

TEP has entered into long-term renewable PPAs with various entities. Some of these entities are VIEs due to the long-term fixed price component in the agreements. These PPAs effectively transfer commodity price risk to TEP, the buyer of the power, creating a variable interest. TEP has determined it is not a primary beneficiary of these VIEs as it lacks the power to direct the activities that most significantly impact the economic performance of the VIEs. TEP reconsiders whether it is the primary beneficiary of the VIEs on a quarterly basis.

As of March 31, 2024, the carrying amounts of assets and liabilities in the balance sheet that relate to variable interests under long-term renewable PPAs are predominantly related to working capital accounts and generally represent the amounts owed by TEP for the deliveries associated with the current billing cycle. TEP's maximum exposure to loss is limited to the cost of replacing the power if the providers do not meet the production guarantee. However, the exposure to loss is mitigated as the Company would likely recover these costs through cost recovery mechanisms. See Note 2 for additional information related to cost recovery mechanisms.

Restricted cash includes cash balances restricted with respect to withdrawal or usage based on contractual or regulatory considerations. The following table presents the line items and amounts of cash, cash equivalents, and restricted cash reported in the balance sheet and reconciles their sum to Cash, Cash Equivalents, and Restricted Cash, End of Period on the Condensed Consolidated Statements of Cash Flows:


	Three Months Ended March 31,
(in millions)	2024		2023
Cash and Cash Equivalents	$	57	$	144
Restricted Cash included in:
Investments and Other Property	22		21
Current Assets—Other	10		13
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	89	$	178

TEP realized PTC benefits associated with Oso Grande of $4 million in Income Tax Expense on the Condensed Consolidated Statements of Income for the three months ended March 31, 2024 and 2023, respectively.

The following new authoritative accounting guidance issued by the Financial Accounting Standards Board (FASB) and the SEC has not yet been adopted and is not reflected in TEP’s financial statements. TEP is assessing the impact such guidance may have on TEP’s financial position, results of operations, cash flows, and disclosures.

In December 2023, the FASB issued accounting guidance that requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The amendments are effective for annual periods beginning January 1, 2025. The guidance should be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted.

In November 2023, the FASB issued accounting guidance that requires disclosure of significant segment expenses and new disclosures for entities with a single reportable segment. The amendments are effective for annual periods beginning on January 1, 2024 and interim periods beginning on January 1, 2025 and are to be applied retrospectively. Early adoption is permitted.

In March 2024, the SEC issued a final rule that requires disclosure of: (i) financial statement impacts of severe weather events and other natural conditions; (ii) a roll forward of carbon offset and REC balances if material to the Company's plan to achieve climate-related targets or goals; and (iii) material impacts on estimates and assumptions in the financial statements. The rule is effective for TEP for annual periods beginning January 1, 2027 and is to be applied prospectively. In April 2024, the SEC issued an order staying the final rule pending judicial review of consolidated challenges to the rules by the Court of Appeals for the Eighth Circuit. TEP cannot predict what, if any, changes in scope or timing may occur as a result of the pending litigation. TEP continues its assessment to prepare for the new rule.