Tucson Electric Power Co.

This report does not constitute a rating action. Overview Key strengths Key risks Relatively low-risk, vertically integrated electric utility operations regulated by the Arizona Corp. Commission (ACC) and the Federal Energy Regulatory Commission (FERC). Exposed to energy transition risk with coal-fired assets accounting for close to 30% of the power generation mix. Limited commodity exposure with ability to pass on costs to its ratepayers. Lacks geographic and regulatory diversity, which renders it mostly dependent on the ACC to sustain its credit quality. Rating on the company is tied to our rating on its parent, Fortis Inc., which provides one notch of uplift. Vulnerable to physical risks including wildfires. The utility derives most of its operations and cash flow from its

...TEP operates under a generally supportive framework. The utility derives most of its operations and cash flow from its low-risk, vertically integrated, regulated utility operations under constructive regulatory mechanisms that support the timely recovery of its cash flow. These include the purchased power and fuel adjustment clause (PPFAC), which helps it recover commodity costs, and the lost fixed cost recovery (LFCR) mechanism, which mitigates the...

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