TEP is a regulated utility that generates, transmits, and distributes electricity to approximately 459,000 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 September 30, 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 $87 million and $275 million for the three and nine months ended September 30, 2026, respectively, and $91 million and $261 million for three and nine months ended September 30, 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:


	Nine Months Ended September 30,
(in millions)	2026		2025
Cash and Cash Equivalents	$	81	$	43
Restricted Cash included in:
Investments and Other Property	16		20
Current Assets—Other	8		7
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	105	$	70

TEP's effective tax rate for the three and nine months ended September 30, 2026, differed from the federal statutory tax rate primarily due to ITC amortization, including the incremental benefit associated with the Roadrunner Reserve II energy community bonus credit, and PTCs. The ITC benefit associated with Roadrunner Reserve II is being recognized in 2026, while recognition of the Roadrunner Reserve I ITC benefit is substantially deferred until the effective date of new rates as established in the 2025 Rate Case.

Roadrunner Reserve II was placed in service in June 2026 and has generated approximately $130 million of ITCs, which includes a 10% energy community bonus credit. The amount of ITCs generated is subject to adjustments to qualifying project costs. TEP recorded a deferred tax asset with a corresponding regulatory liability to reflect the anticipated return of benefits to customers. TEP also recorded a valuation allowance against the deferred tax asset reflecting the discount in proceeds from a planned sale of ITCs to a third-party.

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 the transfer of ITCs from Roadrunner Reserve II, TEP has agreed to provide customary indemnifications to the buyer for certain tax-related risks, including potential disallowance or recapture of credits. See Note 7 for additional information regarding tax credit transfer indemnifications. In July 2026, TEP transferred $50 million of the ITCs and received $46 million in cash proceeds. As of September 30, 2026, TEP had a $67 million deferred tax asset, net of the remaining $2 million valuation allowance, in Deferred Income Taxes, Net on the Condensed Consolidated Balance Sheets. On October 1, 2026, TEP transferred an additional $40 million of ITCs related to Roadrunner Reserve II and received $37 million in cash proceeds.

Roadrunner Reserve I was placed in service in July 2025 and generated $98 million of ITCs. TEP transferred $49 million of ITCs related to Roadrunner Reserve I in December 2025 and an additional $49 million of such ITCs in April 2026, receiving cash proceeds of $46 million for each transaction.

TEP realized PTC benefits associated with Oso Grande of $11 million and $18 million in Income Tax Expense on the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2026, respectively, and $9 million and $17 million for the three and nine months ended September 30, 2025, respectively.

The following new authoritative accounting guidance issued by the FASB has not yet been adopted and reflected in TEP’s financial statements. Unless otherwise indicated, TEP is assessing the impact such guidance may have on TEP’s financial position, results of operations, cash flows, and disclosures.

In May 2026, the FASB issued accounting guidance that establishes accounting requirements for environmental credits and related obligations. The update introduces recognition, measurement, presentation, and disclosure requirements, including: (i) classification of credits based on intended use (compliance versus noncompliance); (ii) initial measurement at cost with subsequent measurement models varying based on classification; and (iii) recognition and measurement of environmental credit obligations based on a “linked” approach, which reflects the cost of credits on hand, contractual arrangements, or current market prices. The guidance also requires expanded disclosures, including the intended use of credits, changes in the intended use of credits, and the nature and measurement of related obligations. The update is effective for public business entities beginning with annual and interim reporting periods that start on or after January 1, 2028. Entities are required to apply the guidance on a retrospective basis, with a cumulative-effect adjustment recorded to the opening retained earnings. 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 January 1, 2028. The guidance may be applied prospectively, retrospectively, or using a modified transition approach. Early adoption is permitted. TEP does not expect the amendments to have a material impact on its financial position, results of operations, cash flows or disclosures.

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 disclosure of climate‑related risks and GHG 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 to the rules, pending further action by the SEC. In May 2026, the SEC proposed rescinding the March 2024 climate-related disclosure rules in their entirety. The proposal was published in the Federal Register in June 2026, and the public comment period with respect to such proposed rescission ended in August 2026. No final action has been taken, and the rules remain stayed and are not currently effective. TEP does not expect the proposed rule to have a significant impact on TEP's financial position, results of operations, cash flows and disclosures.