The ratings on Tucson Electric Power Co. (TEP) reflect an average business profile and a financial profile characterized by very high long-term debt and weak financial ratios associated with servicing such a large debt burden, despite healthy cash flow at the vertically integrated utility. TEP's business profile reflects a service territory encompassing the city of Tucson and two neighboring counties with growth in overall customers, particularly residential customers, yet a continued lack of diversity in the industrial base (copper mining, defense, and health care) that accounted for more than 40% of retail sales in 2001. The business profile also reflects a supportive regulatory environment that prohibits the distribution of dividends of more than 75% of the utility's earnings in any
