This Annual Report on Form 10-K contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Tucson Electric Power Company (TEPTEP, or the Company)Company, is including the following cautionary statements to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by TEP in this Annual Report on Form 10-K. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, future economic conditions, future operational or financial performance and underlying assumptions, and other statements that are not statements of historical facts. Forward-looking statements may be identified by the use of words such as anticipates, believes, estimates, expects, intends, may, plans, predicts, potential, projects, would, and similar expressions. From time to time, we may publish or otherwise make available forward-looking statements of this nature. All such forward-looking statements, whether written or oral, and whether made by or on behalf of TEP, are expressly qualified by these cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, TEP disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date of this report, except as may otherwise be required by the federal securities laws.

TEP and its predecessor companies have served the greater Tucson metropolitan area for 126127 years. TEP was incorporated in the State of Arizona in 1963. TEP is a regulated electric utility company serving approximately 425,000429,000 retail customers. TEP’s service territory covers 1,155 square miles and includes a population of over one million people in Pima County, as well as parts of Cochise County. TEP's principal business operations include generating, transmitting, and distributing electricity to its retail customers. In addition to retail sales, TEP sells electricity, transmission, and ancillary services to other utilities, municipalities, and energy marketing companies on a wholesale basis. TEP is subject to comprehensive state and federal regulation. The regulated electric utility operation is TEP's only segment.

TEP is a wholly owned subsidiary of UNS Energy, Corporation (UNS Energy), a utility services holding company. UNS Energy is an indirect wholly owned subsidiary of Fortis Inc. (Fortis) which is a leader in the North American electric and gas utility business.

TEP delivers electricity to retail customers in southern Arizona. TEP owns or has contracts for coal, natural gas, wind, and solar generation resources to provide electricity. This electricity, together with electricity purchased onin the wholesale market, is delivered over transmission lines which are part of the Western Interconnection, a regional grid in the United States. The electricity is then transformed to lower voltages and delivered to customers through TEP's distribution system.

TEP operates under a certificate of public convenience and necessity as regulated by the Arizona Corporation Commission (ACC),ACC, under which TEP is obligated to provide electricity service to customers within its service territory. The ACC establishes rates that are designed to allow a regulated utility recovery of its cost of providing services and an opportunity to earn a reasonable return on its investment (Retail Rates).

TEP provides electric utility service to a diverse group of residential, commercial, industrial, and public sector customers. Major industries served include copper mining, cement manufacturing, defense, healthcare, education, military bases, and governmental entities. TEP’s retail sales are influenced by several factors including economic conditions, seasonal weather patterns, Demand Side Management (DSM)DSM initiatives and the increasing use of energy-efficient products, and customer-sited DG.

Local, regional, and national economic factors impact the growth in the number of customers in TEP’s service territory. In each of the past five years, TEP’s average number of retail customers increased by less than 1%. TEP expects the number of retail customers to increase at a rate of approximately 1% in 20192020 based on the estimated population growth in its service territory.

TEP’s retail sales volume in 20182019 was 8,900 gigawatt-hours (GWh),8,744 GWh, which is a decrease of 3% from 20142015 levels. During the past five years, mining load reductions and state requirements to promote energy efficiency and DG have resulted in lower sales volumes.

TEP’s utility operations include the wholesale marketing of electricity to other utilities and power marketers. Wholesale sales transactions are made on both a firm and interruptible basis. A firm contract requires TEP to supply power on demand (except under limited emergency circumstances), while an interruptible contract allows TEP to stop supplying power under defined conditions.

Generally, TEP commits to future sales based on expected generation capability, forward prices, and generation costs using a diversified portfolio approach to provide a balance between long-term, mid-term, and spot power sales. TEP’s wholesale sales consist primarily of two types:

Contracts for long-term wholesale sales cover periods of one year or greater. TEP typically uses its own generation to serve the requirements of its long-term wholesale customers.

Certain contracts for short-term wholesale sales cover periods of less than one year and obligate TEP to sell capacity or power at a fixed price. TEP also engages in short-term sales by selling power in the daily or hourly markets at fluctuating spot market prices and making other non-firm power sales. The majority of our revenues from short-term wholesale sales are passed through to TEP’s retail customers offsetting fuel and purchased power costs. TEP uses short-term wholesale sales as part of its hedging strategy to reduce customer exposure to fluctuating power prices. Short-term wholesale sales increased

TEP is the primary electric service provider to retail customers within its service territory and operates under a certificate of public convenience and necessity as regulated by the ACC.

In August 2018, the ACC opened a docket to evaluate several energy policies including retail competition for generation services. A workshop wasIn 2019, the ACC staff prepared a draft of retail electric competition rules and workshops have been held related to retail competition inon the subject. Such

December 2018.rules have not been officially proposed and no changes have been made. The adoption of new policies or rules would be subject to rulemaking proceedings at the ACC. TEP cannot predict what additional steps, if any, the ACC may take to further evaluate retail competition in this docket.

The Federal Energy Regulatory Commission (FERC) regulates rates for wholesale power sales and transmission services. TEP engages in long-term wholesale sales to optimize its generation resources. As a result of its wholesale power activity, TEP competes with other utilities, power marketers, and independent power producers in the wholesale markets.

Springerville Units 3 and 4 are each approximately 400 MW coal-fired generation facilities that are operated but not owned by TEP. These facilities are located at the same site as Springerville Units 1 and 2. Tri-State, Generation and Transmission Association, Inc. (Tri-State), the lessee of Springerville Unit 3, compensates TEP for operating the facilities and pays an allocated portion of the fixed costs related to the Springerville Common Facilities and Springerville Coal Handling Facilities.

The ACC’s Renewable Energy Standard (RES)RES requires Arizona regulated utilities to increase their use of renewable energy each year until it represents at least 15% of their total annual retail energy requirements by 2025, with DG accounting for 30% of the annual renewable energy

requirement. Arizona utilities must file an annual RES implementation plan for review and approval by the ACC. TEP plans to meet these requirements through a combination of utility-owned resources, PPAs, and customer-sited DG.

In 2018,2019, the percentage of retail kilowatt-hour (kWh)kWh sales attributable to the RES was approximately 14%16%, exceeding the 20182019 requirement of 8%9%. The ACC approved a waiver of the 20182019 DG requirement.

TEP purchases power from other utilities and power marketers. TEP may enter into contracts to purchase: (i) power under long-term contracts to serve retail load and long-term wholesale contracts; (ii) capacity or power during periods of planned outages or for peak summer load conditions; and (iii) power for resale to certain wholesale customers under load and resource management agreements. See Note 89 of Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K related to purchased power commitments.

TEP typically uses its generation, supplemented by purchased power, to meet the summer peak demands of its retail customers. TEP hedges a portion of its total energy price exposure with forward priced contracts. Certain of these contracts are at a fixed price per megawatt-hour (MWh)MWh and others are indexed to natural gas prices. TEP also purchases power in the daily and hourly marketsmarkets: (i) to meet higher than anticipated demands, to coverdemands; (ii) during periods of generation outages,outages; or (iii) when doing so is more economical than generating its own power.

TEP is a member of a regional reserve-sharing organization and has reliability and power-sharing relationships with other utilities. These relationships allow TEP to call upon other utilities during emergencies, such as generation facility outages and system disturbances, and reducewhich reduces the amount of reserves TEP is required to carry.

In 2018,2019, TEP's generation and purchased resources were sufficient to meet total retail and long-term wholesale peak demand, while maintaining a reserve margin in compliance with reliability criteria set forth by the Western Electricity Coordinating Council, a regional council of North American Reliability Corporation (NERC).

Peak demand occurs during the summer months due to the cooling requirements of retail customers in TEP’s service territory. Retail peak demand varies from year-to-year due to weather, energy conservation, DG, economic conditions, and other factors. Retail peak demand in 2019, 2018, was comparable toand 2017 but significantlywas higher than peak demand in 2014 through 2016 and 2015 primarily due to warmer than normal summer temperatures.

Forecasted retail peak demand for 20192020 is 2,3052,325 MW compared with actual peak demand of 2,4132,367 MW in 2018.2019. TEP’s 20192020 estimated retail peak demand is based on weather patterns observed over a 10-year period and other factors, including estimates of customer usage. TEP believes that existing generation capacity and PPAs are sufficient to meet the expected demand and reserve margin requirements in 2019.2020.

The coal supplies for Springerville Units 1 and 2 are transported approximately 200 miles by railroad from northwestern New Mexico. TEP expects coal reserves from the supplying mines to be sufficient to supplyfulfill the estimated requirements for each of the Springerville Units 1 and 2 for theirunits' estimated remaining lives.

TEP also participates in jointly-owned coal-fired generation facilities at Four Corners Generating Station (Four Corners), Navajo, and San Juan Generating Station (San Juan).Juan. Four Corners, which is operated by Arizona Public Service Company (APS),APS, and San Juan, which is operated by Public Service Company of New Mexico (PNM),PNM, are mine-mouth generation facilities located adjacent to the coal reserves. Navajo, which is operated by SRP, obtains its coal supply from the nearby Kayenta coal mine and receives deliveries on a dedicated electric railroad delivery system. TEP expects coal reserves available to these threetwo jointly-owned generation facilities to be sufficient for the remaining lives of the stations.

TransmissionTEP's distribution and transmission facilities owned by TEP and third parties are located in Arizona and New MexicoMexico. These facilities are located on property owned by: (i) TEP; (ii) public entities; (iii) private entities; and (iv) Indian Nations. TEP's transmission and distribution systems included approximately 2,189 miles of transmission lines and 7,740 miles of distribution lines as of December 31, 2019.

TEP's transmission facilities transmit the output from TEP’s electric generation facilities to the Tucson area. TEP'sarea and power markets. The transmission system is part of the Western Interconnection, which includes the interconnected transmission systems of 14 western states, two Canadian provinces, and parts of Mexico. TEP's transmission system, together with contractual rights on other transmission systems, enables TEP to integrate and access generation resources to meet its customer load requirements. TEP's transmission and distribution systems included approximately 2,189 miles of transmission lines and 7,680 miles of distribution lines as of December 31, 2018.

The ACC and the FERC each regulate portions of utility accounting practices and rates of TEP. The ACC regulates rates charged to retail customers, the siting of generation and transmission facilities, the issuance of securities, transactions with affiliated parties, and other utility matters. The ACC also enacts other regulations and policies that can affect TEP's business decisions and accounting practices. The FERC regulates termsrates and prices ofservices for electric transmission services and wholesale electricity sales.power sales in interstate commerce.

The ACC’s RES requires Arizona utilities to increase their use of renewable energy each year until it represents at least 15% of their total annual retail energy requirements in 2025, with DG accounting for 30% of the annual renewable energy requirement. Arizona utilities must file an annual RES implementation plan for review and approval by the ACC. The approved costs of carrying out this plan are recovered from retail customers through the RES surcharge. The associated lost revenues attributable to meeting DG targets are partially recovered through the Lost Fixed Cost Recovery (LFCR) mechanism.

As a result of past regulatory decisions, TEP has cost recovery mechanisms that allow for more timely recovery of certain costs between rate case proceedings. These mechanisms are generally reset annually through separate filings with the FERC issued orders relating to certain late-filed Transmission Service Agreements (TSA), which resulted in TEP recording a liabilityACC. TEP's cost recovery mechanisms include:

As of December 31, 2018,2019, TEP had 1,5281,587 employees, of which approximately 634675 are represented by the International Brotherhood of Electrical Workers Local No. 1116 (IBEW). The current collective bargaining agreements between the IBEW and TEP expire in July 2022 with wages in effect through December 2022.

TEP's financial condition is influenced by how regulatory authorities, including the ACC and FERC, establish the rates TEP can charge customers and authorize rates of return, common equity levels, and the amount of costs that may be recovered from customers. The Company's ability to timely obtain rate adjustments that provide TEP with the opportunity to earn authorized rates of return depends upon timely regulatory action under applicable statutes and regulations, and cannot be guaranteed.

In 2018, the ACC opened rulemaking dockets to evaluate possible modifications to various state energy policies, including renewable energy goals and retail competition for generation services. In 2019, the ACC staff prepared a draft of rules that, if adopted, would change the renewable energy goals requiring Arizona regulated utilities to acquire 45% of the retail energy it sells from renewable generation by 2035. Increases to the renewable energy goals could accelerate the Company's long-term resource diversification strategy and significantly increase capital expenditures and operating expenses. TEP would seek to recover the costs associated with any such requirements through rates. TEP's ability to recover costs, including its investments, associated with these and other legislative and regulatory initiatives will, in large part, depend on the final form of legislative or regulatory requirements, and whether the associated ratemaking mechanisms can be adjusted in a timely manner.requirements. Further increases to rates could negatively affect the affordability of the rates charged to customers, which may negatively affect TEP’s results of operations, net income, and cash flows. In addition, the ACC staff and two commissioners have prepared different drafts of retail competition rules for utilities in Arizona. These rules have not been officially proposed, but if such rules were adopted, retail competition could have a negative impact on the Company's retail sales. TEP cannot predict the final outcome of these proposals. The adoption of any new policies or rules would be subject to rulemaking proceedings at the ACC.

None.

TEP has land easements for transmission facilities related to San Juan, Four Corners, and Navajo located on tribal lands of the Zuni, Navajo, and Tohono O’odham Nations. Four Corners and Navajo are located on properties held under land easements from the United States and under leases from the Navajo Nation. TEP, individually and in conjunction with PNM, acquired land rights, land easements, and leases for San Juan's generation facilities, transmission lines, and water diversion facility located on land owned by the Navajo Nation. TEP, in conjunction with PNM and Samchully Power & Utilities 1 LLC, holds an undivided ownership interest in the property on which Luna Generating Station (Luna) is located.

TEP’s rights under various land easements and leases may be subject to defects such as:

These possible defects have not interfered, and are not expected to materially interfere, with TEP’s interest in and operation of its facilities.

TEP is party to a variety of legal actions arising out of the normal course of business. Plaintiffs occasionally seek punitive or exemplary damages. The Company believes such normal and routine litigation will not have a material impact on its operations or financial results. TEP is also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines, penalties, and other costs in substantial amounts on TEP.

See Note 89 of Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information.

Not applicable.

TEP’s common stock is wholly-owned by UNS Energy and is not listed for trading on any stock exchange.

Management’s Discussion and Analysis explains the results of operations, the financial condition, and the outlook for TEP. It includes the following:

This section of this Form 10-K primarily discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions of 2017 activity and year-to-year comparisons between 2018 and 2017 that are not included in the United Statesthis Form 10-K can be found in Part II, Item 7. Management Discussion and Analysis of America.Financial Condition and Results of Operations of our 2018 Annual Report on Form 10-K.

Management’s Discussion and Analysis should be read in conjunction with Part II, Item 6. Selected Financial Data and the Consolidated Financial Statements and Notes in Part II, Item 8 of this Form 10-K. For information on factors that may cause our actual future results to differ from those we currently seek or anticipate, see Forward-Looking Information at the front of this report and Part I, Item 1A. Risk Factors for additional information.

References in this discussion and analysis to "we" and "our" are to TEP.

TEP reported net income of $187 million in 2019 compared with $188 million in 2018 compared with $177 million in 2017.2018. The increasedecrease of $11$1 million, or 6%1%, was primarily due to: