{"url_path":"/sec/cik-0000100122/10-k/2026/item-1","section_key":"item-1","section_title":"Item 1 BUSINESS","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-02-12","source_url":"https://www.sec.gov/Archives/edgar/data/100122/0000100122-26-000006-index.html","accession_number":"0000100122-26-000006","cik":"0000100122","ticker":null,"issuer_name":"TUCSON ELECTRIC POWER CO","edgar_url":"https://www.sec.gov/Archives/edgar/data/100122/0000100122-26-000006-index.html","primary_entity_key":"0000100122","primary_entity_name":"TUCSON ELECTRIC POWER CO"},"word_count":5130,"has_tables":true,"body_markdown":"ITEM 1. BUSINESS\n\nOVERVIEW OF BUSINESS\n\nGeneral\n\nTEP and its predecessor companies have served the greater Tucson metropolitan area for 133 years. TEP was incorporated in the State of Arizona in 1963. TEP is a regulated electric utility company serving approximately 457,000 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.\n\nTEP is a wholly-owned subsidiary of UNS Energy, a utility services holding company. UNS Energy is an indirect wholly-owned subsidiary of Fortis, whose principal executive offices are located in St. John's, Newfoundland and Labrador, Canada.\n\nRegulated Electric Utility Operations\n\nTEP delivers electricity to retail customers in southern Arizona. TEP owns or has contracts for natural gas-fired, coal-fired, and renewable generation resources, as well as battery storage to provide electricity. This electricity, together with electricity purchased in the wholesale market, is delivered over transmission lines within the Western Interconnection, a regional U.S. grid. The electricity is then transformed to lower voltages and delivered to customers through TEP's distribution system.\n\nFERC Regulation and Rates\n\nThe FERC regulates portions of TEP's utility accounting practices and rates, including rates and services for electric transmission and wholesale power sales in interstate commerce. The FERC establishes rates that allow a utility to recover transmission related costs.\n\nFERC Rates\n\nTEP has a forward-looking OATT formula rate, which updates annually and allows for timely recovery of transmission-related costs and an opportunity to earn a reasonable return on its investment.\n\nACC Regulation and Rates\n\nTEP operates under a certificate of public convenience and necessity as regulated by the ACC, under which TEP is obligated to provide electric 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.\n\nThe ACC regulates rates charged to retail customers, the siting of generation facilities and transmission systems, 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.\n\nRenewable Energy Standard\n\nThe ACC’s RES required Arizona regulated electric utilities to increase their use of renewable energy each year until it represented at least 15% of their total annual retail energy sales by the end of 2025. In 2025, the percentage of TEP's retail kWh sales attributable to the RES was approximately 21%, exceeding the overall RES requirement. Consistent with prior years, TEP met these requirements through a combination of utility-owned resources, PPAs, and customer-sited DG.\n\nIn October 2025, a NOPR recommending the repeal of the RES rules was published in the Arizona Administrative Register. TEP is unable to predict the timing or outcome of this rulemaking proceeding.\n\nEnergy Efficiency Standard\n\nUnder the EE Standards, the ACC requires electric utilities to implement cost-effective programs to reduce customers' energy consumption. TEP has continued to exceed the ACC's cumulative annual targeted retail kWh savings each year since the 2020 compliance date. As of December 31, 2025, TEP’s cumulative annual energy savings was approximately 30%.\n\n1\n\n[Table of Contents](#iaa4bfb93949147c689d89e1563a40f0a_7)\n\nIn October 2025, a NOPR recommending the repeal of the EE Standards was published in the Arizona Administrative Register. TEP is unable to predict the timing or outcome of this rulemaking proceeding.\n\nSee Note 2 of Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information regarding RES and EE Standards.\n\nACC Rates\n\nCustomer Rates are generally established in rate case proceedings. TEP's last rate case proceeding was finalized in 2023. 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 ACC. TEP's usage-based cost recovery mechanisms include:\n\n•PPFAC — a charge or credit that reflects changes in energy costs that are under- or over-recovered through base rates established in a rate case.\n\n•RES tariff — a charge that recovers the cost of complying with the RES.\n\n•DSM — a charge that recovers the cost of complying with the EE Standards.\n\n•LFCR — a charge that partially offsets the revenue TEP loses when customers reduce their bills as a result of energy efficiency programs and DG system installations.\n\n•ECA — a charge that recovers certain costs incurred at TEP's generation facilities to comply with environmental regulations.\n\n•TEAM — a charge or credit used to pass through certain income tax effects to retail customers, which may include impacts of post-test year tax law changes.\n\n•TCA — a charge or credit that allows TEP to reflect changes in costs related to investments and expenses included in TEP's FERC OATT formula rate.\n\nSee Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Factors Affecting Results of Operations and Note 2 of Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information on TEP's 2025 Rate Case and cost recovery mechanisms.\n\n2\n\n[Table of Contents](#iaa4bfb93949147c689d89e1563a40f0a_7)\n\nCustomers\n\nElectricity sold to retail and wholesale customers by class of customer and the average number of retail customers over the last five years were as follows:\n\n(sales in GWh)20252024202320222021\n\nElectric Sales\n\nResidential3,915 28 %3,964 27 %3,967 27 %3,879 27 %3,820 25 %\n\nCommercial1,956 14 %1,956 13 %1,948 13 %1,917 13 %1,939 13 %\n\nIndustrial, non-Mining1,997 14 %1,952 13 %1,944 13 %1,946 13 %1,893 12 %\n\nIndustrial, Mining1,052 8 %1,078 7 %1,080 7 %1,053 7 %1,050 7 %\n\nOther13 — %14 — %15 — %15 — %16 — %\n\nTotal Retail Sales 8,93364 %8,96460 %8,95460 %8,81060 %8,71857 %\n\nWholesale, Long-Term (1)\n914 7 %940 6 %1,314 9 %1,659 11 %837 6 %\n\nWholesale, Short-Term4,072 29 %5,061 34 %4,486 31 %4,203 29 %5,643 37 %\n\nTotal Electric Sales13,919100 %14,965100 %14,754100 %14,672100 %15,198100 %\n\nAverage Number of Retail Customers\n\nResidential414,31791 %409,54891 %404,61691 %400,75191 %396,56290 %\n\nCommercial40,1669 %39,9589 %39,7029 %39,5479 %39,3959 %\n\nIndustrial, non-Mining557— %564— %570— %574— %523— %\n\nIndustrial, Mining4— %4— %4— %4— %4— %\n\nOther1,859— %1,862— %1,870— %1,875— %1,8731 %\n\nTotal Retail Customers456,903100 %451,936100 %446,762100 %442,751100 %438,357100 %\n\n(1)Decreases in 2024 and 2023 due to reductions in sales to certain long-term wholesale customers. Increase in 2022 primarily due to favorable market conditions.\n\nRetail Customers\n\nTEP 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, DSM initiatives and the increasing use of energy-efficient products, and customer-sited DG. Retail sales may also be affected by emerging economic trends as companies expand operations and adjust supply chains to support growing AI‑driven demand for raw materials.\n\nLocal, 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 approximately 1%. TEP expects the number of retail customers to increase at a rate of approximately 1% in 2026 based on the estimated population growth in its service territory.\n\nTEP’s retail sales volume in 2025 was 8,933 GWh, which is an increase of 3% from 2021 levels. During the past five years, increased sales volumes due to customer growth have been tempered by variations in weather and state requirements to promote energy efficiency and DG.\n\nIn 2025, TEP reached an agreement, subject to contractual contingencies, to serve a data center campus expected to be located in its service territory, requiring potential power demand of approximately 300 MW. In December 2025, the ACC approved the ESA. TEP also entered into a related construction agreement to design, engineer, procure, construct, install, and place into service transmission and switchyard facilities needed to provide retail electric service to this customer. In September 2025, the FERC approved the project construction agreement. The data center campus is projected to be operational as early as 2027, with a ramp schedule through 2029. TEP currently expects to serve this customer from its existing and planned generation resources. See Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Factors Affecting Results of Operations of this Form 10-K for additional information regarding the related ESA.\n\n3\n\n[Table of Contents](#iaa4bfb93949147c689d89e1563a40f0a_7)\n\nWholesale Customers\n\nTEP’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.\n\nGenerally, 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.\n\nLong-Term Wholesale Sales\n\nContracts 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.\n\nTEP's primary long-term wholesale sale contracts are presented in the table below:\n\nCounterparty\nContracts Expire (1)\n\nNavajo Tribal Utility Authority2026\n\nCentral Arizona Water Conservation District 2026\n\nNavopache Electric Cooperative2027\n\n(1)All contracts expire December 31st, except for Navopache Electric Cooperative which expires April 17th.\n\nShort-Term Wholesale Sales\n\nCertain 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 wholesale 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 TEP's 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.\n\nIn 2022, TEP began to participate in the EIM, a voluntary, real-time energy market operated by the California Independent System Operator. TEP expects that its participation in the EIM will continue to: (i) reduce costs to serve customers through more efficient dispatch of a larger and more diverse pool of resources; (ii) allow for more effective integration of renewables; and (iii) enhance reliability through improved system utilization and responsiveness.\n\nIn November 2024, TEP and other Arizona utilities announced plans to join Southwest Power Pool Markets+, a day-ahead and real-time wholesale energy market, with anticipated participation as early as 2027. The FERC conditionally approved the Markets+ tariff in January 2025. In April 2025, the FERC accepted the funding agreement signed by TEP and other participating utilities to support the market's development and implementation. TEP’s participation in Markets+ is expected to (i) reduce our cost to serve customers; (ii) increase access to clean energy resources; and (iii) enhance system reliability.\n\nCompetition\n\nRetail Customers\n\nTEP is the only 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.\n\nThe Tucson City Council engaged a consulting and engineering firm to analyze alternatives to TEP’s provision of electric service, including a study of a potential municipal electric service utility. While an initial draft of the study, published in April 2025, suggests that a city-owned utility serving primarily Tucson customers could offer potential customer savings, the study also notes that the City of Tucson would assume significant risks and incur substantial costs if it pursued municipalization. These costs would include purchasing TEP's property and plant at fair value and separating TEP's remaining electrical grid from the City of Tucson.\n\nBefore moving forward, the City of Tucson would need to authorize additional funding for extensive due diligence to demonstrate engineering and economic feasibility. Establishing a municipal electric service utility would ultimately require approval by a majority of the voters of the residents of the City of Tucson in a general or special municipal election. If voters approved municipalization, the City of Tucson would need to exercise its right of eminent domain by filing an action for condemnation in Pima County Superior Court, and any determination in such condemnation proceedings would be subject to\n\n4\n\n[Table of Contents](#iaa4bfb93949147c689d89e1563a40f0a_7)\n\nappeal. In May 2025, the Tucson City Council voted to accept the study and has not taken further action to pursue municipalization at this time.\n\nWholesale Customers\n\nTEP 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 wholesale markets.\n\nGeneration Facilities\n\nAs of December 31, 2025, TEP had 3,127 MW of nominal generation capacity, as presented in the table below. Nominal rating is based on current unit design basis net output, measured in AC:\n\nUnitDateCapacityOperatingTEP’s Share\n\nGeneration SourceNo.LocationIn Service(MW)Agent%(MW)\n\nNatural Gas\n\nGila River2Gila Bend, AZ2003607SRP100607 \n\nGila River 3Gila Bend, AZ2003607SRP75.0455 \n\nLuna 1Deming, NM2006555PNM33.3185 \n\nSundt3Tucson, AZ1962104TEP100104 \n\nSundt4Tucson, AZ1967156TEP100156 \n\nSundt Reciprocating Internal Combustion EnginesTucson, AZ2019-2020188TEP100188 \n\nSundt Internal Combustion TurbinesTucson, AZ1972-197350TEP10050 \n\nDeMoss PetrieTucson, AZ200175TEP10075 \n\nNorth LoopTucson, AZ200196TEP10096 \n\nCoal\n\nSpringerville (1)\n1Springerville, AZ1985387TEP100387 \n\nSpringerville (1) (2)\n2Springerville, AZ1990406TEP100406 \n\nFour Corners4Farmington, NM1969785APS7.055 \n\nFour Corners5Farmington, NM1970785APS7.055 \n\nRenewables\n\nUtility-Owned RenewablesVarious2002-2023308TEP100308 \n\nTotal Capacity3,127 \n\n(1)In July 2025, TEP announced a plan to convert Springerville Units 1 and 2 from coal-fired generation to natural gas-fired generation by 2030.\n\n(2)Springerville Unit 2 is owned by San Carlos Resources, Inc., a wholly-owned subsidiary of TEP.\n\nSpringerville 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, the lessee of Springerville Unit 3, and SRP, the owner of Springerville Unit 4, compensate TEP for operating the facilities, including performance incentives depending on unit availability. Tri-State pays an allocated portion of the fixed costs related to the Springerville Common Facilities and Springerville Coal Handling Facilities. SRP owns 17.05% of the Springerville Coal Handling Facilities and 14% of the Springerville Common Facilities. In November 2025, SRP announced its plan to convert Springerville Unit 4 from coal-fired generation to natural gas-fired generation.\n\n5\n\n[Table of Contents](#iaa4bfb93949147c689d89e1563a40f0a_7)\n\nUtility-Owned Renewables\n\nAs of December 31, 2025, TEP owned 58 MW of PV solar generation capacity and 250 MW of wind generation capacity, measured in AC. The following table presents TEP's owned renewable generation resources:\n\nGeneration SourceLocationDate in ServiceIn Service\nCapacity (MW)Under Development Capacity (MW)\n\nSolar\n\nFort Huachuca Phase I & II (1)\nSierra Vista, AZ2014-201718 \n\nRaptor RidgeTucson, AZ202213 \n\nSpringerville SolarSpringerville, AZ2002-201413 \n\nUASTP Phase I & II (2)\nTucson, AZ2010-20116 \n\nSolon Prairie Fire (2)\nTucson, AZ20125 \n\nSmall Solar Generation (<5MW) (3)\nTucson, AZ2012-20233 3 \n\nWind\n\nOso Grande (4)\nChaves County, NM2021250 \n\nTotal Capacity308 3 \n\n(1)TEP has a 30-year easement agreement to facilitate operations on behalf of the Department of the Army.\n\n(2)UASTP Phase I & II and Solon Prairie Fire are located on properties held under land easements and leases.\n\n(3)Under Development Capacity expected to be placed in service in 2028.\n\n(4)Oso Grande is located on properties held under leases.\n\nRenewable Power Purchase Agreements\n\nAs of December 31, 2025, TEP had renewable PPAs for 256 MW from solar resources and 179 MW from wind resources as presented in the table below. The solar PPAs contain options that allow TEP to purchase all or part of the related project at a future date. The following table's capacity is measured in AC:\n\nGeneration SourceLocationDate/Projected Date\nin ServiceIn Service\nCapacity (MW)Under Development\nCapacity (MW)\n\nSolar\n\nWilmot ITucson, AZ2021100 \n\nRed HorseWillcox, AZ201541 \n\nAvalon ISahuarita, AZ201429 \n\nAvra ValleyMarana, AZ201225 \n\nPicture RocksMarana, AZ201220 \n\nAvalon IISahuarita, AZ201616 \n\nValenciaTucson, AZ201310 \n\nGato MontesTucson, AZ20125 \n\nE.On Tech ParkTucson, AZ20125 \n\nSmall PPAs (<5MW)VariousVarious5 \n\nBabacomari NorthCochise County, AZ2026160 \n\nWilmot IITucson, AZ2026100 \n\nWinchesterCochise County, AZ202780 \n\nWind\n\nBorderlands Wind\nCatron County, NM202199 \n\nMacho SpringsDeming, NM201150 \n\nRed Horse WindWillcox, AZ201530 \n\nTotal Capacity435 340 \n\n6\n\n[Table of Contents](#iaa4bfb93949147c689d89e1563a40f0a_7)\n\nNon-Renewable Purchased Power\n\nTEP 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 8 of Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information related to purchased power commitments.\n\nTEP 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. TEP also purchases power in the daily and hourly markets: (i) to meet higher than anticipated demands; (ii) during periods of generation outages; or (iii) when doing so is more economical than TEP generating its own power.\n\nTEP 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, which reduces the number of reserves TEP is required to carry as a participant in the regional reserve-sharing organization.\n\nBattery Storage\n\nTEP's battery storage capacity (measured in AC) as of December 31, 2025, is presented in the table below:\n\nFacilityLocationDate/Projected Date\nin ServiceIn Service\nCapacity (MW)Under Development\nCapacity (MW)\n\nUtility-Owned Battery Storage\n\nRoadrunner Reserve ITucson, AZ2025200 \n\nRoadrunner Reserve IITucson, AZ2026200 \n\nPPA Battery Storage (1)\n\nWilmot ITucson, AZ202130 \n\nIron HorseTucson, AZ201710 \n\nPima Energy Storage (2)\nTucson, AZ201710 \n\nWilmot IITucson, AZ2026100 \n\nWinchesterCochise County, AZ202780 \n\nTotal Capacity250 380 \n\n(1)Payments for battery storage are accounted for as variable lease costs.\n\n(2)Battery storage is attached to DeMoss Petrie substation.\n\nPeak Demand and Future Resources\n\nPeak Demand\n\n(in MW)20252024202320222021\n\nRetail Customers2,498 2,357 2,393 2,273 2,427 \n\nIn 2025, 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 entity with delegated authority from NERC.\n\nPeak 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. The impacts of remote work as a result of COVID-19 increased peak demand for residential customers in 2021. The decrease in retail peak demand in 2022 was primarily due to less extreme heat during peak load. The increase in retail peak demand in 2025 was primarily due to extreme heat during peak load.\n\nForecasted retail peak demand for 2026 is 2,463 MW compared with actual peak demand of 2,498 MW in 2025. TEP’s 2026 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 2026.\n\n7\n\n[Table of Contents](#iaa4bfb93949147c689d89e1563a40f0a_7)\n\nFuture Resources\n\nTEP's strategy on future resources is to continue its transition to a less carbon-intensive energy portfolio, while preserving customer reliability and affordability.\n\nIn 2023, TEP filed its 2023 IRP with the ACC, which outlines the Company's plan to expand its clean energy portfolio to support anticipated growth and maintain affordable, reliable service as the Company works towards an aspirational goal of net zero direct GHG emissions by 2050. While TEP still intends to exit all ownership interests in coal-fired generation by 2032, the Company is reevaluating its interim goal which aimed to reduce carbon emissions by 80% (compared to 2005) by 2035. TEP's ability to achieve these goals could be impacted by various federal and state energy policies, significant load growth, and the pace of development of clean energy technologies.\n\nTEP’s transition to a less carbon-intensive energy portfolio focuses on reducing the Company's dependency on coal-fired generation, while developing new renewable energy projects and energy storage projects to meet customer demand. Investments in new natural gas-fired capacity will support the integration of these new renewable energy projects while maintaining system reliability and meeting future load growth. To meet the anticipated load identified in the 2023 IRP, the Company plans to convert Springerville Units 1 and 2 from coal-fired generation to natural gas-fired generation by 2030. This conversion allows TEP to leverage existing infrastructure while developing replacement energy sources, advancing the Company's goals of ending its use of coal-fired generation and supporting both customer affordability and reliability. TEP's plan to convert Springerville Units 1 and 2 from coal-fired generation is expected to result in additional natural gas-fired generation compared to the 2023 IRP.\n\nSee Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Factors Affecting Results of Operations of this Form 10-K for additional information regarding TEP's 2023 IRP.\n\nFuel, Purchased Power, and Other Resources\n\nA summary of fuel, purchased power, and other resource information is provided below:\n\nAverage Cost (cents per kWh)Percentage of Total kWh Resources\n\n202520242023202520242023\n\nCoal (1)\n4.46 4.51 3.17 20 %20 %24 %\n\nNatural Gas2.60 2.20 3.27 53 %56 %48 %\n\nUtility-Owned, RenewableN/AN/AN/A5 %5 %4 %\n\nPurchased Power (2)\n4.16 4.41 6.11 22 %19 %24 %\n\nTotal Fuel, Purchased Power and Other Resources100 %100 %100 %\n\n(1)In 2024, coal prices increased due to the execution of a coal supply agreement for Springerville Units 1 and 2 through 2031, which includes price adjustment components that will affect future costs.\n\n(2)The decrease in the average cost of purchased power is due to the expiration of a tolling agreement in October 2023.\n\nCoal Supply\n\nThe coal used for generation is low-sulfur, bituminous or sub-bituminous coal sourced from mines in New Mexico. The table below provides information on TEP's coal supply contracts. The average cost of coal per MMBtu, including transportation, was $3.98 in 2025, $3.77 in 2024, and $2.92 in 2023.\n\nStationCoal Supplier2025 Coal Consumption (tons in 000s)Contract Expiration DateAverage Sulfur ContentCoal Obtained From\n\nSpringervillePeabody CoalSales1,44620310.7%Lee Ranch Mine/El Segundo Mine\n\nFour Corners NTEC35320310.9%Navajo Mine\n\nThe coal supplies for Springerville Units 1 and 2 are transported approximately 200 miles by railroad from northwestern New Mexico. TEP expects to have access to coal supplies to fulfill the estimated requirements for each of the Springerville units over its respective remaining life.\n\n8\n\n[Table of Contents](#iaa4bfb93949147c689d89e1563a40f0a_7)\n\nCoal-Fired Generation Facilities Operated by Others\n\nTEP participates in a jointly-owned coal-fired generation facility at Four Corners. Four Corners, which is operated by APS, is a mine-mouth generation facility located adjacent to the coal reserves. TEP expects coal reserves available to this jointly-owned generation facility to be sufficient for the remaining life of the station.\n\nNatural Gas Supply\n\nThe table below provides information on the natural gas transportation agreements that deliver natural gas to TEP's generation facilities. The average cost of natural gas per MMBtu, including transportation, was $2.41 in 2025, $1.53 in 2024, and $3.72 in 2023. The increase in cost in 2025 compared to 2024 was primarily due to an increase in natural gas prices resulting from increased demand and colder weather conditions in early 2025. The decrease in cost in 2024 compared to 2023 was primarily due to a decrease in natural gas prices resulting from an increase in natural gas production.\n\nStationNatural Gas Transportation CounterpartyContract Expiration Date(s)\n\nGilaTranswestern Pipeline Co./El Paso Natural Gas Company, LLC2029-2040\n\nLunaEl Paso Natural Gas Company, LLC2032\n\nSundtEl Paso Natural Gas Company, LLC2039-2048\n\nDeMoss PetrieSouthwest Gas CorporationRetail Tariff\n\nNorth LoopSouthwest Gas CorporationRetail Tariff\n\nTransmission and Distribution\n\nTEP owns and operates distribution and transmission facilities located in Arizona and New Mexico. These facilities are located on property owned by: (i) TEP; (ii) public entities; (iii) private entities; and (iv) Tribal Nations. TEP's transmission and distribution systems include approximately 2,233 miles of transmission lines and 8,088 miles of distribution lines as of December 31, 2025.\n\nTEP's transmission facilities transmit the output from TEP’s electric generation facilities to the Tucson area 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 systems, enables TEP to integrate and access generation resources to meet its energy load requirements.\n\nENVIRONMENTAL MATTERS\n\nThe EPA regulates, or has the authority to regulate, the amount of SO2, NOx, CO2, particulate matter, mercury, and other by-products produced by generation facilities. TEP may incur additional costs to comply with future changes in federal and state environmental laws, regulations, and permit requirements at its facilities. Environmental laws and regulations are subject to a range of interpretations, which may ultimately be resolved by the courts. Because these laws and regulations continue to evolve, TEP is unable to predict the impact of the changing laws and regulations on its operations and consolidated financial results. TEP expects recovery of the cost of environmental compliance through Customer Rates and cost recovery mechanisms.\n\nRefer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources of this Form 10-K for additional information related to environmental laws and regulations as well as environmental compliance capital expenditures.\n\nHUMAN CAPITAL\n\nAs of December 31, 2025, TEP had 1,809 employees, of which approximately 760 were represented by the IBEW. The current collective bargaining agreement between the IBEW and TEP was ratified in June 2023 and expires on June 30, 2028. TEP also engages with independent contractors in the ordinary course of its business, as necessary.\n\nHuman Capital Strategy and Code of Ethics Oversight\n\nTEP is dedicated to cultivating a positive work environment for its employees through various initiatives consistent with its values. By fostering a strong organizational culture, TEP attracts and retains skilled talent while preserving institutional knowledge and mentorship opportunities. Active participation by the Executive Officers and Board of Directors in shaping strategies that support employee success is crucial. As part of its business strategy, TEP focuses on helping employees thrive by providing learning opportunities, fostering collaboration and inclusion, and further enhancing the Company’s safety culture.\n\n9\n\n[Table of Contents](#iaa4bfb93949147c689d89e1563a40f0a_7)\n\nTEP's compliance team and Board of Directors conduct an annual review of the Company's Code of Ethics and Business Conduct (Code), and considers employee feedback, as appropriate, when making any updates. The Code serves as TEP's ethical compass and expressly prohibits: (i) retaliation; (ii) discrimination; (iii) harassment; or (iv) abuse of positions of trust. The Code is designed to promote a safe and respectful workplace where employees feel valued and secure.\n\nEmployee Engagement, Inclusion, and Development\n\nEngagement and inclusion are fundamental to TEP’s vision and values. TEP is committed to fostering an inclusive culture that respects varied perspectives and experiences. The Company remains dedicated to developing and strengthening capabilities that empower and motivate employees to achieve excellence together.\n\nBusiness Resource Groups\n\nThe Company supports several BRGs, which are voluntary, employee-led organizations with defined missions, objectives, and practices designed to foster career development and engagement. BRGs are open to all employees, regardless of background or identity. These groups also support alignment with TEP’s strategic business priorities. Members collaborate by exchanging ideas and addressing issues, thereby contributing to an inclusive and respectful work environment. Notable BRGs include:\n\n•Veterans in Energy — dedicated to: (i) building relationships among members; (ii) providing support and mentorship for military veterans and families; and (iii) promoting engagement and retention of military veteran employees.\n\n•Women in Energy — dedicated to: (i) inspiring women in their professional growth; and (ii) promoting engagement.\n\n•Native American, Tribal, and Indigenous Voices in Energy — dedicated to: (i) offering resources and a welcoming workplace for Native American employees; and (ii) supporting Native American employees' access to professional development opportunities.\n\nWorkforce Talent Pipeline\n\nTEP's workforce talent pipeline initiatives center on attracting, engaging, and developing a workforce with a range of backgrounds and experiences.\n\nTEP participates in the Troops to Energy Jobs program that works with the Center for Energy Workforce Development to match military skills with open positions across the Company. TEP has sponsored multiple military internships for separating or retiring service members in partnership with Davis-Monthan Air Force Base and other military bases. As of December 31, 2025, 10% of TEP's employees were military veterans.\n\nEmployee Safety\n\nTEP maintains comprehensive programs designed to support employee safety and well-being, with an emphasis on occupational health, structured safety management practices, injury case management, and active safety committees. These efforts are intended to reduce the frequency and severity of workplace injuries and to promote a strong safety culture through prevention, employee involvement, and continuous improvement. Safety performance is closely monitored by management and overseen through TEP's ERM framework.\n\n10\n\n[Table of Contents](#iaa4bfb93949147c689d89e1563a40f0a_7)\n\nINFORMATION ABOUT OUR EXECUTIVE OFFICERS\n\nExecutive Officers, who are elected annually by TEP’s Board of Directors, acting at the direction of the Board of Directors of UNS Energy, as of January 1, 2026, are as follows:\n\nNameAgePosition(s) HeldExecutive Officer Since\n\nSusan M. Gray (1)\n53Chief Executive Officer2015\n\nErik B. Bakken53President2018\n\nJ. Caleb Adcock (1)\n42Chief Financial Officer and Senior Vice President2023\n\nCynthia A. Garcia58Chief Operating Officer and Senior Vice President2020\n\nErik D. Keller62Chief Information Officer and Vice President2025\n\nAmy J. Welander (1)\n47Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer2023\n\nDallas J. Dukes58Senior Vice President of Customer and Strategic Affairs2019\n\nD. Eric Bronner56Vice President, Energy Management, Planning and Development2025\n\nAna M. Bustamante53Vice President, Energy Delivery2025\n\nOrrin T. Nay61Vice President of Energy Resources2022\n\nChristopher W. Norman50Vice President, Public Policy2022\n\nJason J. Rademacher48Vice President, Finance and Rates2025\n\nMichael E. Sheehan58Vice President, Fuels and Resource Planning2020\n\nGail M. Zody-Serbia48Vice President of Human Resources2022\n\nMartha B. Pritz64Treasurer2017\n\n(1)Member of TEP's Board of Directors. The directors of TEP are elected annually by TEP's sole shareholder, UNS Energy, acting at the direction of the board of directors of UNS Energy.\n\nSEC REPORTS AVAILABLE\n\nTEP makes available its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practical after it electronically files or furnishes them to the SEC. The SEC maintains a website at https://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically. TEP's reports are also available free of charge through TEP’s website at https://www.tep.com/investor-information/.\n\nTEP is providing the address of its website solely for the information of investors and does not intend for the address to be an active link. The information contained on TEP’s website is not a part of, or incorporated by reference into, any report or other filing by TEP filed with the SEC."}