TEP is a regulated utility that generates, transmits, and distributes electricity to approximately 458,000 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.

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 on 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 2025 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. To conform with the current period presentation, TEP combined four prior period Operating Expense line items: (i) Fuel; (ii) Purchased Power; (iii) Transmission and Other PPFAC Recoverable Costs; and (iv) Increase (Decrease) to Reflect PPFAC Recovery Treatment, into a single line item titled Fuel and Purchased Power on the Condensed Consolidated Statements of Income. Additionally, TEP has reclassified Income Taxes Receivable/Payable in the prior period from a separately disclosed line into Other, Net on the Condensed Consolidated Statements of Cash Flows to conform with the current period presentation. Both the change in presentation and reclassification had no impact on TEP’s results of operation, financial position, or cash flows.

A 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 regularly evaluates its primary beneficiary conclusions to determine if changes have occurred that impact its VIE assessment.

As of March 31, 2026, 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.

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 has one operating segment, its regulated utility operations. TEP’s CODM is Susan M. Gray who holds the position of Chief Executive Officer of TEP and its parent company, UNS Energy. The CODM uses net income to assess performance and decide how to allocate resources for UNS Energy overall (including employees and

financial or capital resources) predominantly in the annual budget and forecasting process. Net income is reported on the Condensed Consolidated Statements of Income. Operations and Maintenance expense includes expenses reimbursed by third-parties and expenses related to customer-funded RES and DSM programs. Operations and Maintenance expense excluding these reimbursable and customer funded expenses totaled $92 million and $82 million for the three months ended March 31, 2026 and 2025, respectively. Total assets, the measure of segment assets, is reported on the Condensed Consolidated Balance Sheets. Capital expenditures are reported on the Condensed Consolidated Statements of Cash Flows.

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)	2026		2025
Cash and Cash Equivalents	$	11	$	188
Restricted Cash included in:
Investments and Other Property	19		24
Current Assets—Other	9		9
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	39	$	221

In March 2026, TEP entered into an agreement to transfer ITCs related to Roadrunner Reserve II in the second half of 2026. In connection with ITCs expected to be generated by the Roadrunner Reserve II project, TEP recorded a $10 million deferred tax asset in Deferred Income Taxes, Net on the Condensed Consolidated Balance Sheets as of March 31, 2026, with a corresponding regulatory liability in Regulatory Liabilities on the Condensed Consolidated Balance Sheets to reflect the anticipated return of benefits to customers. As of March 31, 2026, TEP recorded a $1 million valuation allowance against the deferred tax asset reflecting the expected discount in proceeds from a third-party sale.

Roadrunner Reserve I was placed in service in July 2025 and generated $98 million of ITCs. In December 2025, TEP entered into an agreement to transfer ITCs, under which it transferred $49 million of ITCs and received $46 million in cash proceeds. On April 9, 2026, TEP transferred the remaining $49 million of ITCs related to Roadrunner Reserve I and received $46 million in cash proceeds.

The following new authoritative accounting guidance issued by the FASB has not yet been adopted and 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 2025, the FASB issued accounting guidance that establishes recognition, measurement, and presentation requirements for government grants for business entities. The update applies to transfers of monetary or tangible nonmonetary assets from a government to a business entity, excluding certain transaction types such as tax incentives. The recognition, measurement, and presentation of a government grant is dependent on the classification of the grant as either related to an asset or related to income. Grants cannot be recognized until it is probable that the entity will comply with the conditions attached to

the grant and that the grant will be received. The amendments are effective for annual and interim reporting periods beginning after January 1, 2029, for public business entities. The guidance may be applied using a modified prospective, modified retrospective, or full retrospective approach. Early adoption is permitted.

In September 2025, the FASB issued accounting guidance that updates the recognition criteria for internal-use software. The update removes references to software development project stages and requires capitalization of software costs once: (i) management has authorized and committed to funding the project; and (ii) it is probable that the project will be completed and the software will perform its intended function. Evaluating the probability that the project will be completed includes an assessment of whether significant development uncertainty exists. The amendment requires entities to apply the disclosure requirements applicable to property, plant, and equipment to all capitalized internal-use software costs, irrespective of financial statement presentation. The amendments are effective for annual and interim reporting periods beginning after January 1, 2028. The guidance may be applied prospectively, retrospectively, or using a modified transition approach. Early adoption is permitted.

In November 2024, the FASB issued accounting guidance that requires disaggregation of income statement expenses into specified categories in the footnotes to the financial statements. In January 2025, the FASB issued accounting guidance clarifying the effective date of this standard. The amendments are effective for annual periods beginning January 1, 2027, and interim reporting periods beginning after January 1, 2028. The guidance is to be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted.

In March 2024, the SEC issued final rules requiring the disclosure of climate‑related risks and greenhouse gas emissions, which were subsequently stayed pending judicial review. In September 2025, the Court of Appeals for the Eighth Circuit paused its consideration of legal challenges against the rules, pending further action by the SEC. TEP awaits the SEC's decision whether it will defend, amend, or withdraw the rules, the timing of which TEP cannot currently predict.