Stable operating costs, along with the collection of competition transition charges (CTC) and a return on equity based on a capital structure that excludes TEP's sizable capital leases and has in recent years provided TEP with cash flows sufficient to self fund capital expenditures and pay down debt to improve its highly leveraged capital structure, which stood at an adjusted 73.7% at year-end 2006. TEP-owned generation is predominately composed of low-cost coal, resulting in modest exposure to gas-based purchased and generation. About 6% of TEP's 2006 generation was from gas-based resources and TEP's purchases of about 12% of total supply are mostly required to meet its summer peak. As a result, exposure to natural gas volatility is modest, which is
