2.2.0.7 false Accounting for Derivative Instruments Trading Activities and Hedging Activities 0217 - Disclosure - Accounting for Derivative Instruments Trading Activities and Hedging Activities true false false false 1 false false 2 Accounting for Derivative Instruments, Trading Activities and Hedging Activities [Abstract] 0 us-gaap_DerivativeInstrumentsAndHedgesAbstract us-gaap true na duration No definition available. false false false false false true false false false false false false 1 false false false false 0 0 false false false xbrli:stringItemType string No definition available. false 3 ACCOUNTING FOR DERIVATIVE INSTRUMENTS, TRADING ACTIVITIES AND HEDGING ACTIVITIES 1 us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock us-gaap true na duration No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0   <div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 10pt"><u><b>NOTE 17. ACCOUNTING FOR DERIVATIVE INSTRUMENTS, TRADING ACTIVITIES AND HEDGING ACTIVITIES</b></u> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>RISKS AND OVERVIEW</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The three utilities are exposed to energy price risk associated with their gas and purchased power requirements, volumetric risk associated with their seasonal load and operational risk associated with their power plants, transmission and transportation systems. The energy price risk is mitigated through the PPFAC and PGA mechanisms which provide an adjustment to the three utilities’ retail rates to recover the actual costs of purchased power, gas, transmission and transportation. The three utilities further reduce their energy price risk through a variety of derivative and non-derivative instruments. The objectives for entering into such contracts include: creating price stability for the three utilities; ensuring the three utilities can meet their load and reserve requirements; and reducing the three utilities’ exposure to price volatility that may result from delayed recovery under the PPFAC or PGA. While current procurement methodologies allow the three utilities to recover electric and gas procurement costs from customers, future regulatory structures could change, potentially impacting the recoverability of electric and gas procurement costs. See Note 2 for further information regarding regulatory matters. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">We consider the effect of counterparty credit risk in determining the fair value of derivative instruments that are in a net asset position, after incorporating collateral posted by counterparties, and allocating the credit risk adjustment to individual contracts. We also consider the impact of our own credit risk, after considering collateral posted, on instruments that are in a net liability position and allocating the credit risk adjustment to all individual contracts. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">Although TEP’s gains and losses on trading activities are recorded on a net basis in the income statement, we report the related cash receipts and cash payments separately in the statement of cash flows. We present cash collateral and derivative assets and liabilities, associated with the same counterparty, separately in our financial statements and we bifurcate all derivatives into their current and long-term portions on the balance sheet. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>CASH FLOW HEDGES</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">TEP hedges the cash flow risk associated with unfavorable changes in the variable interest rates related to LIBOR on the Springerville Common Facilities Lease. In addition, TEP hedges the cash flow risk associated with a six-year power supply agreement using a six-year power purchase swap agreement. TEP accounts for cash flow hedges as follows: </div> <div style="margin-top: 10pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="4%" style="background: transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>The effective portion of the changes in the fair value of TEP’s interest rate swaps and TEP’s six-year power purchase swap agreement are recorded in AOCI and the ineffective portion, if any, is recognized in earnings.</td> </tr> </table> </div> <div style="margin-top: 10pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="4%" style="background: transparent"> </td> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td>When TEP determines a contract is no longer effective in offsetting the changes in cash flow of a hedged item, TEP recognizes the changes in fair value in earnings. The gains and losses at that time remain in AOCI and are reclassified into earnings as the underlying hedged transaction occurs.</td> </tr> </table> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">We formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives have been and are expected to remain highly effective in offsetting changes in the cash flows of hedged items. We discontinue hedge accounting when: (1) the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; or (4) we determine that designating the derivative as a hedging instrument is no longer appropriate. </div>   </div>  <div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>MARK-TO-MARKET</b> </div> <div style="margin-top: 10pt"> <table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left"> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td><b>TEP</b></td> </tr> <tr> <td style="font-size: 8pt"> </td> </tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td> <td>TEP non-trading hedges, such as forward power purchase contracts indexed to gas, short-term forward power sales contracts, or call and put options (gas collars), that were not designated as cash flow hedges or did not qualify for the normal scope exception, are considered mark-to-market transactions. TEP hedges a portion of its monthly natural gas exposure for plant fuel, gas-indexed purchased power and spot market purchases with fixed price contracts for a maximum of three years. Unrealized gains and losses are recorded as either a regulatory asset or regulatory liability only to the extent they qualify for recovery under the PPFAC mechanism.</td> </tr> <tr> <td style="font-size: 8pt"> </td> </tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td> <td>TEP enters into certain energy-related derivatives for trading purposes which are forward power purchase and sale contracts entered into purely to profit from market price changes. As unrealized gains and losses resulting from changes in the market prices of trading derivatives are not recoverable in the PPFAC, unrealized gains and losses are recorded in the income statement in Electric Wholesale Sales. The net trading activities represent a very small portion (less than 1%) of TEP’s revenue from wholesale sales.</td> </tr> <tr> <td style="font-size: 8pt"> </td> </tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td><b>UNS Electric</b></td> </tr> <tr> <td style="font-size: 8pt"> </td> </tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td> <td>UNS Electric enters into derivatives, such as fixed price forward power purchases, natural gas-indexed forward power purchase contracts and financial gas swaps, to hedge a portion of its purchased power exposure. In April 2009, UNS Electric also began using call and put options, creating price stability and reducing exposure to price volatility that may result in delayed recovery under the PPFAC. These contracts are considered mark-to-market transactions. As UNS Electric’s PPFAC mechanism permits recovery of the prudent costs of hedging transactions, unrealized gains and losses resulting from changes in the market prices of such contracts are recorded as either regulatory assets or regulatory liabilities.</td> </tr> <tr> <td style="font-size: 8pt"> </td> </tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"><b>•</b></td> <td width="1%"> </td> <td><b>UNS Gas</b></td> </tr> <tr> <td style="font-size: 8pt"> </td> </tr> <tr valign="top" style="font-size: 10pt; color: #000000; background: transparent"> <td width="3%" nowrap="nowrap" align="left"> </td> <td width="1%"> </td> <td>UNS Gas enters into derivatives, such as forward gas purchases and financial gas swaps to ensure supply, create price stability and reduce exposure to natural gas price volatility that may result in delayed recovery under the PGA. Unrealized gains and losses are recorded as either a regulatory asset or regulatory liability, as the UNS Gas PGA mechanism permits the recovery of the prudent cost of hedging contracts.</td> </tr> </table> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>NORMAL PURCHASE AND NORMAL SALE</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">TEP and UNS Electric enter into forward energy purchase and sales contracts, including call options, to support the current load forecast. When these contracts are entered into with counterparties that have generating capacity or load serving requirements, these contracts are not required to be marked to market and are accounted for on an accrual basis. UNS Gas enters into forward gas purchases, based on forecasted needs, with counterparties that can supply its physical requirements. These contracts meet the normal purchase scope exception and are not required to be marked to market. On an ongoing basis, we evaluate our counterparties for non-performance risk to ensure such risk does not impact our ability to obtain the normal scope exception. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>FINANCIAL IMPACT OF DERIVATIVES</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>Cash Flow Hedges</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">At June 30, 2010 and December 31, 2009, UniSource Energy and TEP had liabilities related to their cash flow hedges of $12 million and $7 million, respectively. UniSource Energy and TEP had net after-tax unrealized losses on derivative activities reported in AOCI of $2 million for the three months ended June 30, 2010 and $1 million in net after-tax unrealized gains for the three months ended June 30, 2009. UniSource Energy and TEP had net after-tax unrealized losses on derivative activities reported in AOCI of $5 million for the six months ended June 30, 2010 and $1 million in net after-tax unrealized gains for the six months ended June 30, 2009. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>Regulatory Treatment of Commodity Derivatives</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">UniSource Energy and TEP report unrealized gains and losses on energy contracts that are recoverable through the PPFAC or PGA on the balance sheet as a regulatory asset or a regulatory liability rather than as a component of AOCI or in the income statement. For the three months ended June 30, 2010, UniSource Energy and TEP recorded net decreases to regulatory assets of $9 million and $6 million, respectively and net decreases of $15 million and $6 million, respectively for the three months ended June 30, 2009. For the six months ended June 30, 2010, UniSource Energy recorded net increases to regulatory assets of $4 million and TEP recorded net decreases to regulatory assets of $3 million. UniSource Energy and TEP recorded net increases to regulatory assets of $10 million and $8 million, respectively for the six months ended June 30, 2009. </div>   </div>  <div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">At June 30, 2010, UniSource Energy and TEP had liabilities of $44 million and $9 million, respectively, and assets of $13 million and $4 million, respectively, related to their energy derivatives that will be recovered through the PPFAC or PGA. At December 31, 2009, UniSource Energy and TEP had liabilities of $34 million and $9 million, respectively, and assets of $7 million and $2 million, respectively, related to their energy derivatives that will be recovered through the PPFAC or PGA. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">Realized gains and losses on settled gas swaps are fully recovered through the PPFAC or PGA. For the three months ended June 30, 2010, UniSource Energy and TEP realized losses of $5 million and $3 million, respectively and $12 million and $8 million, respectively for the three months ended June 30, 2009. For the six months ended June 30, 2010, UniSource Energy and TEP realized losses of $9 million and $3 million, respectively and $20 million and $8 million, respectively for the six months ended June 30, 2009. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">At June 30, 2010, TEP had contracts that will settle through the third quarter of 2015; UNS Electric had contracts that will settle through the fourth quarter of 2013; and UNS Gas had contracts that will settle through the second quarter of 2013. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>Other Commodity Derivatives</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">UniSource Energy and TEP record realized and unrealized gains and losses on other energy contracts on a net basis in Wholesale Sales. For each three and six month period ended June 30, 2010 and 2009, net realized and unrealized gains and losses were less than $1 million. At June 30, 2010, TEP had no other energy contracts outstanding. At December 31, 2009, TEP had assets of $4 million and liabilities of $4 million related to other energy contracts. TEP’s other energy contracts were with an affiliated counterparty; therefore, related assets and liabilities were eliminated in the UniSource Energy financial statements. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The settlement of forward power purchase and sales contracts that did not result in physical delivery were as follows: </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="44%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>UniSource Energy and TEP</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6">Three Months</td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6">Six Months</td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Ended June 30,</td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Ended June 30,</td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14">-Millions of Dollars-</td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Recorded in Wholesale Sales: </div></td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px">Forward Power Sales </div></td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>5</b></td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">9</td> <td> </td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>7</b></td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">12</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Forward Power Purchases </div></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>(6</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(9</td> <td nowrap="nowrap">)</td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right"><b>(7</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td nowrap="nowrap" align="left"> </td> <td align="right">(12</td> <td nowrap="nowrap">)</td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:30px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:30px; text-indent:-15px"><b>Total Sales and Purchases Not Resulting in Physical Delivery</b> </div></td> <td> </td> <td nowrap="nowrap" align="left"><b>$</b></td> <td align="right"><b>(1</b></td> <td nowrap="nowrap"><b>)</b></td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>—</b></td> <td> </td> <td> </td> <td align="left">$</td> <td align="right">—</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>DERIVATIVE VOLUMES</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">At June 30, 2010, UniSource Energy and TEP had gas swaps totaling 15,690 GBtu and 7,286 GBtu, respectively, and power contracts totaling 4,825 GWh and 1,234 GWh, respectively, which were accounted for as derivatives. At December 31, 2009, UniSource Energy and TEP had gas swaps totaling 13,321 GBtu and 5,658 GBtu, respectively, and power contracts totaling 3,859 GWh and 1,247 GWh, respectively, which were accounted for as derivatives. </div>   </div>  <div style="font-family: Helvetica,Arial,sans-serif; margin-left: 0in; "> <div align="left" style="font-size: 10pt; margin-top: 0pt"> <b> </b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>CREDIT RISK ADJUSTMENT</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">When the fair value of our derivative contracts is reflected as an asset, the counterparty owes us and this creates credit risk. We minimize our credit risk by: (1) entering into transactions with high-quality counterparties, (2) limiting our exposure to each counterparty, (3) monitoring the financial condition of the counterparties and (4) requiring collateral in accordance with the counterparty master agreements. Using a combination of market credit default swap data and historical recovery rates for bonds, we consider the impact of counterparty creditworthiness in determining the fair value of our derivatives as well as its possible effect on continued qualification for cash flow hedge accounting. At June 30, 2010, and at December 31, 2009, the impact of counterparty credit risk on the fair value of derivative asset contracts was less than $1 million. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">We also consider the impact of our own credit risk on instruments that are in a net liability position, after deducting collateral posted, using market credit default swap data and allocating the credit risk adjustment to all individual contracts in a net liability position. At June 30, 2010, and at December 31, 2009, the impact of our own credit risk was less than $1 million. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt"><b>CONCENTRATION OF CREDIT RISK</b> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The use of contractual arrangements to manage the risks associated with changes in energy commodity prices creates credit risk exposure resulting from the possibility of nonperformance by counterparties pursuant to the terms of their contractual obligations. The three utilities enter into contracts for the physical delivery of energy and gas which contain remedies in the event of non-performance by the supply counterparties. In addition, volatile energy prices can create significant credit exposure from energy market receivables and mark-to-market valuations. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The three utilities have contractual agreements for their energy procurement and hedging activities that contain certain provisions that require each company to post collateral under certain circumstances. These circumstances include: exposures in excess of unsecured credit limits provided to TEP, UNS Gas or UNS Electric; credit rating downgrades; or a failure to meet certain financial ratios. In the event that such credit events were to occur, the three utilities would have to provide certain credit enhancements in the form of cash or letters of credit to fully collateralize their exposure to these counterparties. </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">The following table shows the sum of the fair value of all derivative instruments under contracts with credit-risk related contingent features that are in a net liability position at June 30, 2010. It also shows cash collateral and letters of credit posted, and additional collateral to be posted if credit-risk related contingent features were triggered. </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="44%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>UniSource</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>TEP</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>UNS Gas</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>UNS Electric</b></td> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Energy</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14">June 30, 2010</td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="14">-Millions of Dollars-</td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Net Liability Position </div></td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>42</b></td> <td> </td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>16</b></td> <td> </td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>26</b></td> <td> </td> <td> </td> <td align="left"><b>$</b></td> <td align="right"><b>84</b></td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Cash Collateral Posted </div></td> <td> </td> <td> </td> <td align="right"><b>—</b></td> <td> </td> <td> </td> <td> </td> <td align="right"><b>1</b></td> <td> </td> <td> </td> <td> </td> <td align="right"><b>1</b></td> <td> </td> <td> </td> <td> </td> <td align="right"><b>2</b></td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Letters of Credit </div></td> <td> </td> <td> </td> <td align="right"><b>1</b></td> <td> </td> <td> </td> <td> </td> <td align="right"><b>—</b></td> <td> </td> <td> </td> <td> </td> <td align="right"><b>15</b></td> <td> </td> <td> </td> <td> </td> <td align="right"><b>16</b></td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Additional Collateral to Post if Contingent Features Triggered </div></td> <td> </td> <td> </td> <td align="right"><b>42</b></td> <td> </td> <td> </td> <td> </td> <td align="right"><b>16</b></td> <td> </td> <td> </td> <td> </td> <td align="right"><b>15</b></td> <td> </td> <td> </td> <td> </td> <td align="right"><b>73</b></td> <td> </td> </tr>  </table> </div> <div align="left" style="font-size: 10pt; margin-top: 10pt">As of June 30, 2010, TEP had $18 million of credit exposure to other counterparties’ creditworthiness related to its wholesale marketing and gas hedging activities, and UNS Electric had $2 million related to its supply and hedging contracts. TEP had six counterparties which individually composed greater than 10% of the total credit exposure and UNS Electric had one. At June 30, 2010, UNS Gas had immaterial exposure to other counterparties. </div> <div align="left"> </div> </div>  <!-- Begin Block Tagged Note false false false us-types:textBlockItemType textblock This element can be used to disclose the entity's entire derivative instruments and hedging activities disclosure as a single block of text. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising there from, and the amounts of and methodologies and assumptions used in determining the amounts of such items. 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