Business Segments

9 Months Ended

Sep. 30, 2011

Business Segments [Abstract]

BUSINESS SEGMENTS

NOTE 3. BUSINESS SEGMENTS

Based on the way we organize our operations and evaluate performance, we have three reportable segments:

(1) TEP, a regulated vertically integrated electric utility and UniSource Energy’s largest subsidiary;

(2) UNS Gas, a regulated gas distribution utility business; and

(3) UNS Electric, a regulated electric distribution utility business.

Results for the UniSource Energy and UES holding companies, Millennium and UED are included in Other below.

In accordance with accounting rules related to the transfer of a business held under common control, we reflect UNS Electric’s purchase of BMGS as if it occurred on January 1, 2009. The transaction increased UNS Electric’s net income and reconciling adjustments in the table below by $2 million for the three months ended September 30, 2010, and had no impact to the three months ended September 30, 2011. UNS Electric’s net income and reconciling adjustments in the table below increased by $2 million for the nine months ended September 30, 2011, and $4 million for the nine months ended September 30, 2010. The transaction had no impact on UniSource Energy’s consolidated financial statements.

We disclose selected financial data for our reportable segments in the following table:

	Reportable Segments													UniSource
			UNS			UNS					Reconciling			Energy
	TEP		Gas			Electric		Other			Adjustments			Consolidated
	-Millions of Dollars-
Income Statement
Three Months Ended September 30, 2011:
Operating Revenues — External	$	366	$	17		$	68	$	—		$	—		$	451
Operating Revenues — Intersegment		4		1			—		4			(9	)		—
Income (Loss) Before Income Taxes		88		(1	)		11		—			—			98
Net Income (Loss)		54		(1	)		7		—			—			60
Three Months Ended September 30, 2010:
Operating Revenues — External	$	350	$	17		$	72	$	—		$	—		$	439
Operating Revenues — Intersegment		5		2			1		8			(16	)		—
Income (Loss) Before Income Taxes		97		(2	)		7		(1	)		(2	)		99
Net Income (Loss)		60		(1	)		5		(6	)		(2	)		56
Nine Months Ended September 30, 2011:
Operating Revenues — External	$	894	$	101		$	169	$	1		$	—		$	1,165
Operating Revenues — Intersegment		11		2			2		19			(34	)		—
Income Before Income Taxes		136		10			23		—			(4	)		165
Net Income		84		6			14		—			(2	)		102
Nine Months Ended September 30, 2010:
Operating Revenues — External	$	837	$	99		$	160	$	1		$	—		$	1,097
Operating Revenues — Intersegment		23		4			2		21			(50	)		—
Income (Loss) Before Income Taxes		157		9			20		(6	)		(6	)		174
Net Income (Loss)		98		5			12		(9	)		(4	)		102

When UniSource Energy consolidates its subsidiaries, we have additional significant reconciling adjustments that include the elimination of investments in subsidiaries held by UniSource Energy.

	Reportable Segments
			UNS		UNS
	TEP		Gas		Electric		Other
	-Millions of Dollars-
Intersegment Revenue
Three Months Ended September 30, 2011:
Wholesale Sales — TEP to UNS Electric (4)	$	1	$	—	$	—	$	—
Gas Revenue — UNS Gas to UNS Electric (5)		—		1		—		—
Other Revenue — TEP to Affiliates (1)		2		—		—		—
Other Revenue — Millennium to TEP, UNS Gas & UNS Electric (2)		—		—		—		4
Other Revenue — TEP to UNS Electric (3)		1		—		—		—
Total Intersegment Revenue	$	4	$	1	$	—	$	4

	Reportable Segments
			UNS		UNS
	TEP		Gas		Electric		Other
	-Millions of Dollars-
Three Months Ended September 30, 2010:
Wholesale Sales — TEP to UNS Electric (4)	$	2	$	—	$	—	$	—
Wholesale Sales — UNS Electric to TEP (4)		—		—		1		—
Wholesale Sales — UED to UNS Electric (5)		—		—		—		3
Gas Revenue — UNS Gas to UNS Electric (5)		—		2		—		—
Other Revenue — TEP to Affiliates (1)		2		—		—		—
Other Revenue — Millennium to TEP, UNS Gas & UNS Electric (2)		—		—		—		5
Other Revenue — TEP to UNS Electric (3)		1		—		—		—
Total Intersegment Revenue	$	5	$	2	$	1	$	8
Nine Months Ended September 30, 2011:
Wholesale Sales — TEP to UNS Electric (4)	$	2	$	—	$	—	$	—
Wholesale Sales — UNS Electric to TEP (4)		—		—		2		—
Wholesale Sales — UED to UNS Electric (5)		—		—		—		6
Gas Revenue — UNS Gas to UNS Electric (5)		—		2		—		—
Other Revenue — TEP to Affiliates (1)		7		—		—		—
Other Revenue — Millennium to TEP, UNS Gas & UNS Electric (2)		—		—		—		13
Other Revenue — TEP to UNS Electric (3)		2		—		—		—
Total Intersegment Revenue	$	11	$	2	$	2	$	19
Nine Months Ended September 30, 2010:
Wholesale Sales — TEP to UNS Electric (4)	$	15	$	—	$	—	$	—
Wholesale Sales — UNS Electric to TEP (4)		—		—		2		—
Wholesale Sales — UED to UNS Electric (5)		—		—		—		8
Gas Revenue — UNS Gas to UNS Electric (5)		—		4		—		—
Other Revenue — TEP to Affiliates (1)		6		—		—		—
Other Revenue — Millennium to TEP, UNS Gas & UNS Electric (2)		—		—		—		13
Other Revenue — TEP to UNS Electric (3)		2		—		—		—
Total Intersegment Revenue	$	23	$	4	$	2	$	21

(1)	Common costs (systems, facilities, etc.) are allocated on a cost-causative basis and recorded as revenue by TEP. Management believes this method of allocation is reasonable.
(2)	Millennium provides a supplemental workforce and meter-reading services to TEP, UNS Gas and UNS Electric. Millennium bases the charges on the costs of services performed. Management believes the charges are reasonable for the services rendered.
(3)	TEP charges UNS Electric for control area services based on a FERC-approved tariff.
(4)	TEP and UNS Electric sell power to each other at prices based on the Dow Jones Four Corners Daily Index.
(5)	Transactions between non-registrant wholly-owned subsidiaries that eliminate in consolidation.