TUCSON ELECTRIC POWER COMPANY
STANDARDS OF CONDUCT
COMPLIANCE PROCEDURES

BACKGROUND:

On November 25, 2003, the Federal Energy Regulatory Commission (“FERC”) issued Order No. 2004, which adopts Standards of Conduct for public utilities that own, operate or control facilities used in the interstate transmission of electric energy and for interstate natural gas pipelines (collectively known as “Transmission Providers”). The purpose of Order No. 2004 was to ensure that Transmission Providers cannot extend their market power in transmission to wholesale energy markets by giving energy affiliates preferential treatment. Order No. 2004 requires Transmission Providers to develop a plan for complying with the Standards of Conduct.

APPLICABILITY:

In accordance with Order No. 2004, these Standards of Conduct Compliance Procedures (“SOCC Procedures”) shall apply to all Tucson Electric Power Company (“TEP”) employees, including agents, contractors or consultants, and their Marketing or Energy Affiliates.

STATEMENT OF POLICY:

  1. TEP’s Transmission Function Employees shall function independently from TEP’s Wholesale Marketing Department and from any Energy Affiliate employees.
  1. TEP must treat all Transmission Customers, affiliated and non-affiliated, on a non-discriminatory basis and shall not operate its transmission system to preferentially benefit TEP’sWholesale Marketing Departmentor Energy Affiliates.

DEFINITIONS:

Affiliate– An entity that controls, is controlled by or is under common control with,another entity.

Employees –For purposes of these SOCC Procedures,“employees” refers toTEP’s employees, as well as TEP’s agents, contractors or consultants.

Energy Affiliate – An affiliate of TEP that: (1) engages in or is involved in transmission transactions in U.S. energy or transmission markets; or (2) manages or controls transmission capacity of TEP in U.S. energy or transmission markets; or (3) buys, sells, trades or administers natural gas or electric energy in U.S. energy or transmission markets; or (4) engages in financial transactions relating to the sale or transmission of natural gas or electric energy in U.S. energy or transmission markets.

Executives – Corporate Directors and Senior Officers.

FERC – Federal Energy Regulatory Commission.

FERC Regulations:Title 18, Part 37 and Part 358 of the Code of Federal Regulations.

Marketing Affiliate – An affiliate or a business unit, such as TEP’s Wholesale Marketing Department, that engages in marketing, sales or brokering activities.

Marketing, Sales or Brokering – Refers to a sale for resale of natural gas or electric energy. Marketing or sales does not include incidental purchases or sales of natural gas to operate interstate natural gas pipeline transmission facilities.

Open Access Same-time Information System (“OASIS”) – The Internet location,[ where a public utility posts the information, by electronic means, required by FERC regulations.

Sales and Marketing Employee or Business Unit– Refers to (1) a Transmission Provider’s energy sales unit, such as TEP’s Wholesale Marketing Department, unless such unit engages solely in bundled retail sales; and/or (2) an interstate natural gas pipeline’s sales operating unit, to the extent provided in FERC regulations.

Shared Support Employee –TEP employees or officers that provide field, administrative, management and other services to both a transmission business unit and sales and marketing employee or business unit.

Transmission– Electric transmission, including network or point-to-point service, reliability service, ancillary services or other methods of transportation or the interconnection with FERC jurisdictional transmission facilities; and natural gas transportation, storage, exchange, backhaul, or displacement service as provided for in FERC regulations.

Transmission Customer –Any eligible customer, shipper or designated agent that can or does execute a transmission service agreement, or can or does receive transmission service, including all persons who have pending requests for transmission service or for information regarding transmission.

Transmission Function Employee – An employee, and, for purposes of these SOCC Procedures, a contractor, consultant or agent of TEP who conducts transmission system operations or reliability functions, including but not limited to those who are engaged in day-to-day duties and responsibilities for planning, directing, organizing or carrying out transmission-related operations.

Transmission Provider – Any public utilitythat owns, operates or controls facilities used for the transmission of electric energy in interstate commerce such as TEP; or any interstate natural gas pipeline that transports gas for others pursuant to FERC regulations.

INDEPENDENT FUNCTIONING:

1.Separation of functions

a.The reporting structure for Transmission Function Employees, as well as the Wholesale Marketing Department or Energy Affiliate Employees will be functionally separated at the Executive level of management.

b.Except in emergency circumstances affecting transmission system reliability, TEP’s Transmission Function Employees shall function independently of TEP’s Wholesale Marketing Department or Energy Affiliate employees.

c.TEP shall report to FERC and post on the OASIS any emergency affecting system reliability that results in any deviation from the Standards of Conduct requirements within twenty-four (24) hours of such deviation.

d.TEP’s Marketing Department or Energy Affiliate employees are prohibited from:

(i)Conducting transmission system operations or reliability functions, but may acquire services necessary for reliability upon request from TEP’s Transmission Function Employees.

(ii)Having access to the system control center or similar facilities used for transmission operations or reliability functions that differ in any way from the access available to other Transmission Customers.

e.Access to TEP’s system control centers requires approved key card access and each visitor to the control center (who is not a Transmission Function Employee) shall have their visit logged.

f.TEP’s TransmissionFunction Employees may share the Shared Support Employees, and field and maintenance employees with TEP’s Wholesale Marketing Department or Energy Affiliates.

2.Identifying Affiliates on the Public Internet

  1. The name and address of TEP’s Marketing or Energy Affiliate is posted on the TEP’s OASIS at
  1. A list of TEP’s shared facilities, including the type of facilities shared and their addresses are posted on TEP’s OASIS at
  1. TEP’s comprehensive organization charts are posted on TEP’s OASIS at

(i)TEP’s Human Resources Department (“HR”) will be responsible for maintaining all organization charts and job descriptions. Such postings include, but are not limited to, the organization chart of the parent corporation and the relative position of the Transmission Function Employees and the Wholesale Marketing Department or Energy Affiliates and the chain of command for all positions, job titles and descriptions.

(ii)TEP shall post and update information on its OASIS as required by FERC regulation. When changes are made to either organization charts or job descriptions, HR will provide the revisions to the TEP Transmission Coordinator. The Transmission Coordinator will post this information onto TEP’s OASIS website upon receipt. Such posting shall be updated within seven(7) days of any change, including the date that the information was updated. TEP shall post information concerning potential merger partners and related energy affiliates within seven (7) days after the merger is announced.

3.Transfers

TEP shall post notices of transfers of employees between its Transmission Functionand its Wholesale Marketing Department or Energy Affiliates on the OASIS. Such postings shall remain on the OASIS for ninety (90) days and shall include:

  • Name of the transferring employee;
  • Respective titles held while performing each function (i.e., on behalf of the Transmission Function, Marketing or Energy Affiliate); and
  • Effective date of transfer.

4.Books and Records

TEP must maintain a comprehensive set of books and records independent from those of its Marketing or Energy Affiliates. The books and records include accounting records and all other records, such as contracts, reports, requests for discounts, memorandum that are relevant to a sale or purchase of open access transmission service transaction. These records will be available for FERC inspection.

5.Training and Compliance Procedures

a.These SOCC Procedures, as may be amended from time to time, shall remain posted on TEP’s OASIS.

b.TEP shall distribute these procedures to Transmission Function Employees, employees of the Marketing or Energy Affiliates and Shared SupportEmployees.

c.TEP shall require its Transmission Function Employees, Wholesale Sales Department employees, Energy Affiliates employees, Shared Support Employees and TEP’s Executives tocomplete Standards of Conduct training and certify to the Compliance Officers(“COs”) that training has been completed.

(i)TEP utilizes a Computer Based Training (“CBT”) module on Standards of Conduct requirements from the Edison Electric Institute. The CBT includes a certification form that is only accessible to Employees once training has been successfully completed. This electronic certification procedure satisfies the above reporting requirement to the COs.

(ii)TEP requires all new or transferring Transmission Function Employees and employees of the Wholesale Marketing Department or Energy Affiliates to complete Standards of Conduct training and submit a certification form within fourteen (14) days of the effective date of their hiring or transfer date.

(iii)These training and certification requirements shall also apply to Shared Support Employees, who through shared support functions, have or may gain access to information related to the Transmission Function or Marketing, Sales or Brokering activities.

(iv)TEP Employees shall be required to complete refresher training annually.

(v)Key card access to areas accessible only by key card will be revalidated based on compliance with the Standards of Conduct training requirement set forth above. No key card access will be permitted unless Employee has successfully completed the Standards of Conduct training. Upon certification of training, a decal shall be affixed to employee I.D. badges indicating to Control Area Personnel that that employee has been certified.

(vi) Visitors to restricted access areas are provided a copy of the SOCC Procedures. Visitor are required to sign a log book indicating receipt and understanding of the SOCC Procedures. After certifying that they understand the SOCC Procedures, they will be issued a temporary visitor’s badge to display while in the restricted area.

  1. TEP has designated the following individuals as their COs:

Title:Corporate Counsel

Name:Erik Bakken

Phone:(520) 884-3615

Address:1 S. Church Avenue

Tucson, AZ85701

E-mail:

Title:General Counsel

Name:Vince Nitido

Phone:(520) 884-3670

Address:1 S. Church Avenue

Tucson, AZ85701

E-mail:

The COs shall be responsible for employee training, responding to employee questions, coordinating audits and investigations with FERC staff and other duties that are necessary to ensure that TEP complies with the Standards of Conduct.

NON-DISCRIMINATION REQUIREMENTS:

  1. Information Access

a.TEP shall ensure that employees of the Wholesale Marketing Department or Energy Affiliates only have access to that information that is available to all Transmission Customers and do not have access to any information about TEP’s transmission system that is not available to all users of the OASIS.

b.TEP’s Transmission Function Employees may share generation information necessary to perform generation dispatch with the Wholesale MarketingDepartment or Energy Affiliate employees that does not include specific information about individual third party transmission transactions or potential transmission arrangements.

c.TEP’s Transmission Function Employees and Wholesale Marketing Department or Energy Affiliate employees may share information on system and area load, operating status of TEP’s own generation facilities and control area net interchange.

d.TEP’s Transmission Function Employees are permitted to share operating information necessary to maintain operations of the transmission system with the Wholesale Marketing Department or Energy Affiliates.

e.TEP’s Transmission Function Employees shall only share information about a non-affiliated Transmission Customer with TEP’s Marketing or Energy Affiliate employees upon written consent from the non-affiliated Transmission Customer. TEP shall post notice of the consent on the OASIS, including a statement that TEP did not provide any preference to the non-affiliated Transmission Customer in exchange for the consent.

f.To comply with these information access requirements,TEP shall implement the following measures:

(i)TEP’s Transmission Function Employees shall direct all Transmission Customers, including TEP’s Wholesale Marketing Department or Energy Affiliate employees, to the OASIS website for information about TEP’s transmission system.

(ii)TEP’s Transmission Function Employees shall use an independent scheduling system and database for processing and storing information about individual interchange and transmission transactions. These systems are not and shall not become accessible to any Transmission Customers (including TEP’s Wholesale Marketing Department or Energy Affiliate employees). These systems are protected through the use of security measures administered by theEnergy Management Systems data security function within the Control Area Operations Department

(iii)Each TEP Employee shall be assigned a uniquenetwork user identification and assigned to a network users group.

(iv)Established approval procedures shall be followed to allow access to any user group. User groups shall be restricted by job functions. All directories and files containing transmission information shall be inaccessible to the Wholesale Marketing Department or Energy Affiliate employees through the use of security measures administered through the corporate data security functions within the Information Technology Department.

  1. Prohibited Disclosure
  1. TEP’s Transmission Function Employees shall not disclose any information concerning TEP’s transmission system or the transmission system of anotherits Wholesale Marketing Department or Energy Affiliate employees through:

(i)Non-public communications conducted off the OASIS;

(ii)Access to information not posted on the OASIS that is not contemporaneously available to the public; or

(iii)Information on the OASIS that is not at the same time available to the public.

This information includes, but is not limited to, information received from non-affiliates or information about available transmission capability, price, curtailments, storage, ancillary services, balancing, maintenance activity, capacity expansion plans or similar information.

  1. TEP’s Transmission Function Employees shall not share any information acquired from non-affiliated Transmission Customers or potential non-affiliated Transmission Customers or developed in the course of responding to requests for transmission or ancillary service on the OASIS with its Wholesale Marketing Department or Energy Affiliate employees, except to the limited extent information is required to be posted on the OASIS in response to a request for transmission service or ancillary service.

c. TEP shall enforce the above requirements on prohibited disclosure by directing all Transmission Customers (including TEP’s Wholesale Marketing Department or Energy Affiliate employees) to TEP’s OASIS for all the above listed information.

d. If TEP discloses information in a manner contrary to the above requirements, TEP shall immediately post the disclosed information on the OASIS.

e. TEP shall not disclose to any Transmission Customers (or potential transmission customers) information related solely to specific requests for transmission service by TEP’s Wholesale Marketing Department or Energy Affiliate.

f. TEP’s Transmission Function Employees shall not share generation information on Independent Power Producers within TEP’s control areas or information on the transmission arrangements or individual transmission transactions of third party Transmission Customers with the Wholesale Marketing Department or Energy Affiliate employees.

g. TEP shall not use any Employees as a conduit for sharing information covered by the above prohibitions with its Wholesale Marketing Department or Energy Affiliates.

3.Fair and Impartial Treatment

a.TEP shall comply with all FERC tariff provisions related to the sale or purchase of open access transmission service.

b.Where discretion related to the sale or purchase of open access transmission service is permitted by FERC tariff, TEP will act in a fair and impartial manner and treat all Transmission Customers in a non-discriminatory manner. TEP shall not, through the tariff or otherwise, give preference to TEP’s Wholesale Marketing Department or Energy Affiliates over any other Transmission Customer in matters relating to the sale or purchase of transmission service (including, but not limited to, price, curtailments, scheduling, priority, ancillary service, or balancing).

c.TEP shall process all similar requests for transmission service in the same manner and within the same period of time.

d.TEP shall maintain a written log, available for FERCaudit, detailing the circumstances and manner in which it exercised discretion under any terms of the tariff. The information contained in this log shall be posted on the OASIS within twenty-four (24) hours of when TEP exercised discretion under any terms of the tariff.

4.Discounts

TEP shall post any offerings of a discount for any transmission service on TEP’s OASIS contemporaneously with the time that the offer is contractually binding. The OASIS posting shall include:

  • Name of the customer and whether the customer is an Affiliate or an Affiliate is involved in the transaction;
  • Rate offered;
  • Maximum rate;
  • Time period for which the discount would apply;
  • Quantity of power or gas scheduled to be moved;
  • Delivery points under the transaction;
  • And any conditions or requirements applicable to the discount.

Any such postings associated with discounts shall remain on the OASIS for sixty (60) days from the date of posting.

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