Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

All shares of outstanding common stock of Tucson Electric Power Company are held by its parent company, UNS Energy Corporation, which is an indirect, wholly-owned subsidiary of Fortis Inc. There were 32,139,434 shares of common stock, no par value, outstanding as of October 29, 2020.28, 2021.

This Quarterly Report on Form 10-Q contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. TEP, or the 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 Quarterly Report on Form 10-Q. 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 thesuch 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.

Forward-looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed therein. We express our estimates, expectations, beliefs, and projections in good faith and believe them to have a reasonable basis. However, we make no assurances that management’s estimates, expectations, beliefs, or projections will be achieved or accomplished. We have identified the following important factors that could cause actual results to differ materially from those discussed in our forward-looking statements. These may be in addition to other factors and matters discussed in: Part I, Item 1A. Risk Factors of our 20192020 Annual Report on Form 10-K; Part II, Item 1A. Risk Factors;Factors of this Form 10-Q; Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations;Operations of this Form 10-Q; and other parts of this report. These factors include: voter initiatives and state and federal regulatory and legislative decisions and actions, including changes in tax and energy policies and the adoption of new regulations regarding electric service disconnections; any change in the structure of utility service in Arizona resulting from the ACC's or state legislature's examination of the state's energy policies;policies and applications by other companies to the ACC requesting a certificate of public convenience and necessity to provide competitive electric generation service to customers in our service territory; changes in, and compliance with, environmental laws and regulatory decisions and policies that could increase operating and capital costs, reduce generation facility output, or accelerate generation facility retirements; the outcome of the general rate case filed with the ACC in April 2019; the final outcome of the 2019 FERC order effective August 2019, subject to refund, approving revisions to TEP's OATT;Rate Case; the outcome of Phase 2 of the 2020 Rate Order; unfavorable rulings, penalties, or findings by the FERC; regional economic and market conditions that could affect customer growth and energy usage; changes in energy consumption by retail customers; weather variations affecting energy usage; our forecasts of peak demand and whether existing generation capacity and PPAs are sufficient to meet the expected demand plus reserve margin requirements; the cost of debt and equity capital and access to capital markets and bank markets, which may affect our ability to raise additional capital and use the proceeds from any capital that we do raise as originally intended; the performance of the stock market and a changing interest rate environment, which affect the value of our pension and other postretirement benefit plan assets and theour related contribution requirements and expenses; the potential inability to make additions to our existing high voltage transmission system; unexpected increases in operations and maintenance expense; resolution of pending litigation matters; changes in accounting standards; changes in our critical accounting policies and estimates; the ongoing impact of mandated energy efficiency and DG initiatives; changes to long-term contracts; the cost of fuel and power supplies; the ability to obtain coal from our suppliers; cyber-attacks, data breaches, or other challenges to our information security, including our operations and technology systems; the performance of TEP's generation facilities, including renewable generation resources; the development of our wind-powered electric generation facility in southeastern New Mexico; participation in the Energy Imbalance Market; the extent of the impact of the COVID-19 pandemic on our business and operations, and the economic and societal disruptions resulting from the COVID-19 pandemic; the impact of the TCJA on our financial conditionpandemic and results of operations, including the assumptions we make relatinggovernment actions taken in response thereto; and the implementation of our 2020 IRP.

TEP is a regulated utility that generates, transmits, and distributes electricity to approximately 433,000438,000 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 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 the parentTEP and subsidiaries are combined and intercompany balances and transactions are eliminated. TEP jointly owns several generation and transmission facilities 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 20192020 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.

TEP regularly reviews contracts to determine if it has a variable interest in an entity, if that entity is a Variable Interest Entity (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 a primary beneficiary of the VIEs on a quarterly basis.

As of September 30, 2020,2021, the carrying amounts of assets and liabilities on the balance sheet that relate to variable interests under long-term 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 TEP would likely recover these costs through cost recovery mechanisms. See Note 2 for additional information related to cost recovery mechanisms.

Restricted cash included in Investments and Other Property on the Condensed Consolidated Balance Sheets represents cash contractually required to be set aside to pay TEP's share of mine reclamation costs at San Juan and various contractual agreements. Restricted cash included in Current Assets—Other represents the current portion of TEP's share of San Juan's mine reclamation costs.

Depreciation is recorded for owned utility plant on a group method straight-line basis at depreciation rates based on the economic lives of the assets. The followingACC approves depreciation rates for all generation and distribution assets. Transmission assets are subject to the jurisdiction of the FERC. As part of the 2020 Rate Order, the ACC approved new authoritative accounting guidance issued byannual depreciation rates based on a 2018 depreciation study for the FASB has been adopted asmajor classes of Plant in Service, except transmission, effective January 1, 2020. Unless otherwise indicated, adoption2021. In March 2021, TEP transferred $33 million from Regulatory Liabilities to Accumulated Depreciation and Amortization on the Condensed Consolidated Balance Sheets to reflect the impact of the new guidance in each instance had an insignificant impactrevised depreciation rates on TEP’s financial position, resultsestimated cost of operations, cash flows, and disclosures.

New authoritative accounting guidance issued by the FASBFinancial Accounting Standards Board was assessed and either determined to not be applicable or is expected to have an insignificant impact on TEP’s financial position, results of operations, cash flows, and disclosures.

The ACC and the FERC each regulate portions of the 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 rates and services for electric transmission and wholesale power sales in interstate commerce.

In 2019, the FERC issued an order approving TEP's proposed OATT revisions effective August 1, 2019, subject to refund and further proceedings.

Provisions of the order include, but are not limited to:

The requested forward-looking formula rate is intended to allow for a more timely recovery of transmission relatedtransmission-related costs. As part of the order, the FERC established hearing and settlement procedures. In February 2021, a Presiding Judge was appointed to continue the formula rate case proceeding after the settlement procedures resulted in an impasse. In August 2021, TEP filed an unopposed motion requesting that the Chief Judge suspend the litigation procedural schedule to allow the parties time to prepare and file a comprehensive settlement package, as parties in the proceeding reached a settlement in principle. The motion was granted and the parties are continuing their negotiations to finalize the terms and conditions of the settlement. All revisionsrates charged under the revised OATT pursuant to the OATT in the FERC order are subject to refund. Settlement discussions inrefund until the proceeding are ongoing.concludes. TEP had reserved $11$24 million as of September 30, 2020,2021, and $4$15 million as of December 31, 2019,2020, of wholesale revenues in Current Liabilities—Regulatory Liabilities on the Condensed Consolidated Balance Sheets. TEP cannot predict the outcome of the proceeding.

In December 2017,January 2021, the ACC opened a docket requestingFERC notified TEP that all regulated utilities submit proposalsit was commencing an audit that intends to address passingevaluate TEP's compliance with: (i) the benefitsaccounting requirements of the TCJA through to customers. In 2018,Uniform System of Accounts; and (ii) the ACC approved TEP’s proposal to return savings from the Company’s federal corporate income tax rate under the TCJA to its customers through a combination of customer bill credits and a regulatory liability deferral that reflects the return of a portionreporting requirements of the savings, effective MayFERC Form 1 Annual Report and Supplemental Form 3-Q Quarterly Financial Reports. The audit will cover the period of January 1, 2018 (ACC Refund Order). The ACC Refund Order represents the reduction in the federal corporate income tax rate and an estimate of EDIT amortization that will be trued-up annually for actuals. The bill credit was designed to return the refund amount to customers based on forecasted kWh sales for the calendar year. Any over or under collected amounts are deferred to a regulatory liability or asset and will be used to adjust the following year's bill credit amounts.

TEP has received regulatory decisions that allow for more timely recovery of certain costs through therecovery mechanisms. Cost recovery mechanisms that have a material impact on TEP's operations or financial results are described below.

TEP's PPFAC rate is typically adjusted annually on April 1st and goes into effect for the subsequent 12-month period unless the schedule is modified by the ACC. The PPFAC rate includes: (i) a forward component which is calculated by taking the difference between forecasted fuel and purchased power costs and the amount of those costs established in Retail Rates; and (ii) a true-up component that reconciles the difference between actual costs and those recovered in the preceding 12-month period.

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

In 2018, the ACC approved TEP’s proposal to return savings from TEP’s federal corporate income tax rate under the TCJA to its customers through a combination of customer bill credits and a regulatory liability deferral that reflected the return of a portion of the savings. TEP recognized a reduction in Operating Revenues on the Condensed Consolidated Statements of Income of $15 million and $31 million in the three and nine months ended September 30, 2020, respectively, related to the ACC approved refunds. As part of the 2020 Rate Order, the balances in the regulatory liability deferral and TCJA balancing account were moved to the TEAM regulatory account in December 2020.

The ACC’s RES requires Arizona-regulated utilities to supply an increasing percentage of their retail sales from renewable generation sources each year. The renewable energy requirement in 20202021 is 10%11% of retail electric sales, which will increase annually until renewable retail sales represent at least 15% by 2025. The RES also requires that DG will account for 30% of the annual renewable energy requirement. Arizona utilities are required to file an annual RES implementation planplans for review and approval by the ACC.

In 2019,September 2021, the ACC approved TEP's 2019 RES implementation plan for the years 2021 and 2022 with a budget amount of $55$66 million. The recovery funds:approved amounts fund: (i) above market cost of renewable power purchases; (ii) previously awarded incentives for customer-installed DG; and (iii) various other program costs. Additionally, the ACC directed TEP to collaborate with the ACC to develop and file a proposal by July 1, 2022 to phase out TEP's RES tariff.

TEP is required to implement cost-effective DSM programs to comply with the ACC’s Energy Efficiency Standards (EE Standards).EE Standards. The EE Standards provide regulated utilities a DSM surcharge to recover from retail customers the costs to implement DSM programs, as well as an annual performance incentive. TEP records its annual DSM performance incentive for the prior calendar year in the first quarter of each year. TEP recorded $2 million in both 20202021 and 20192020 related to the performance incentive in Operating Revenues on the Condensed Consolidated Statements of Income.

In 2019, the ACC approved TEP’s 2018 energy efficiency implementation plan with a budget of approximately $23 million, which is collected through the DSM surcharge, and approved a waiver of the 2018 EE Standard.Standards. In addition, the ACC ordered that TEP's 2018 energy efficiency implementation plan be considered as its 2019 and 2020 energy efficiency implementation plans. In June 2020,2021, TEP filed its 20212022 energy efficiency implementation plan with a budget of approximately $23 million. TEP cannot predict the outcome of the proceeding.

The LFCR mechanism provides for recovery of certain non-fuel costs that would go unrecovered between rate cases due to reduced retail kWh sales as a result of implementing ACC-approved energy efficiency programs and customer-installed DG. The LFCR mechanism is adjusted in each rate case when the ACC approves new base rates. TEP records a regulatory asset and recognizes LFCR revenues when amounts are verifiable regardless of when the lost retail kWh sales occurred. TEP is required to make an annual filing with the ACC requesting recovery of LFCR revenues recognized in the prior year. The recovery is subject to a year-over-year increase cap of 2% of TEP's applicable retail revenues.

The table below summarizes the LFCR revenues recognized in Operating Revenues on the Condensed Consolidated Statements of Income:

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

Regulatory assets are either being collected or are expected to be collected through Retail Rates. With the exception of Early Generation Retirement Costs, Income Taxes Recoverable through Future Rates, and Springerville Unit 1 Leasehold Improvements, TEP does not earn a return on regulatory assets. Regulatory liabilities represent items that TEP either expects to pay to customers through billing reductions in future periods or plans to use for the purpose for which they were collected from customers. With the exception of over-recovered PPFAC costs and Income Taxes Payable through Future Rates, TEP does not paypays a return on the majority of its regulatory liabilities.liability balances.

Under an air permit approved by the Pima County Department of Environmental Quality,In 2019, TEP entered into a BTA to develop Oso Grande. In May 2021, Oso Grande was placed in service, 5 natural gas RICE units at Sundt in December 2019adding 250 MW of wind-powered electric generation, increasing TEP's total renewable nominal generation capacity, including PPAs and an additional 5 units in March 2020. There was $186 million asowned utility-scale generation, to over 600 MW. As of September 30, 2020, and $822021, there was $442 million as of December 31, 2019,in costs related to the Sundt RICE Units recordedOso Grande in Plant in Service on the Condensed Consolidated Balance Sheets. The 10 units have a total nominal generation capacity of 188 MW.

TEP earns the majority of its revenues from the sale of power to retail and wholesale customers based on regulator-approved tariff rates. The following table presents the disaggregation of TEP’s Operating Revenues on the Condensed Consolidated Statements of Income by type of service: