What changed in this filing

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Item 1. Business

2020-11-17 compared with 2019-11-15 · 390 added, 248 removed, 505 unchanged (56% of the section changed)

The Corporation

Tennessee Valley Authority ("TVA") is a corporate agency and instrumentality of the United States ("U.S.") that was created in 1933 by federal legislation in response to a proposal by President Franklin D.

The Tennessee Valley Authority ("TVA") is a corporate agency and instrumentality of the United States ("U.S.") that was created in 1933 by federal legislation in response to a proposal by President Franklin D.

TVA was created to, among other things, improve navigation on the Tennessee River, reduce the damage from destructive flood waters within the Tennessee River system and downstream on the lower Ohio and Mississippi Rivers, further the economic development of TVA's service area in the southeastern United States, and sell the electricity generated at the facilities TVA operates.

Today, TVA operates the nation's largest public power system and supplies power to a population of nearly 10 million people.

Today, TVA operates the nation's largest public power system and supplies power to a population of approximately 10 million people.

TVA manages the Tennessee River, its tributaries, and certain shorelines to provide, among other things, year-round navigation, flood damage reduction, and affordable and reliable electricity.

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TVA performs these management duties in cooperation with other federal and state agencies that have jurisdiction and authority over certain aspects of the river system.

In addition, the TVA Board of Directors (the "TVA Board") has established two councils — the Regional Resource Stewardship Council and the Regional Energy Resource Council — to advise TVA on its stewardship activities in the Tennessee Valley and its energy resource activities.

In addition, the TVA Board of Directors ("TVA Board") has established two councils — the Regional Resource Stewardship Council and the Regional Energy Resource Council — to advise TVA on its stewardship activities in the Tennessee Valley and its energy resource activities.

Initially, all TVA operations were funded by federal appropriations.

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As a wholly-owned government corporation, TVA is not authorized to issue equity securities.

TVA's service area, the area in which it sells power, is defined by the TVA Act.

TVA's service area, the area in which it sells power, is defined by the Tennessee Valley Authority Act of 1933, as amended ("TVA Act").

TVA supplies power in most of Tennessee, northern Alabama, northeastern Mississippi, and southwestern Kentucky, and in portions of northern Georgia, western North Carolina, and southwestern Virginia.

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As a result, the anti-cherrypicking provision reduces TVA's exposure to loss of its customers.

However, there have been some efforts to circumvent the anti-cherrypicking provision, and the protection of the provision could be limited and perhaps eliminated by federal legislation at some time in the future.

See Competition and Item 1A, Risk Factors — Regulatory, Legislative, and Legal Risks — TVA may lose its protected service territory .

In 2020, the revenues generated from TVA's electricity sales were $10.1 billion and accounted for virtually all of TVA's revenues.

See Note 17 — Revenue for details regarding revenues by state for each of the last three years.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of the Coronavirus Disease 2019 ("COVID-19") to be a pandemic, which continues to be a serious challenge throughout the United States.

TVA has implemented a company-wide

pandemic plan to address specific aspects of the COVID-19 pandemic.

TVA's pandemic plan continues to evolve based on medical guidance and federal, regional, and local requirements and guidelines.

TVA has put in place measures to protect its workforce, stakeholders, and critical operations, such as extending the timeframe for workforce reintegration and continuing to implement strong physical and cybersecurity measures.

Generation, transmission, and distribution functions are being actively monitored, and TVA's operations and delivery of energy to customers have not been materially impacted at this time.

TVA has experienced a reduction in revenue through September 30, 2020 due to a decrease in energy demand, resulting from the COVID-19 pandemic, and therefore has implemented various cost savings initiatives such as deferring and prioritizing certain capital projects and decreasing discretionary spending.

TVA continues to assess potential supplier risk and through September 30, 2020, has experienced minimal impacts in this regard.

The COVID-19 pandemic has also created economic uncertainty for TVA's LPCs and the communities they serve.

To support LPCs and strengthen the public power response to the COVID-19 pandemic, TVA has created initiatives such as the Public Power Support and Stabilization Program, Back-to-Business Credit Program, Community Care Fund, and Pandemic Relief Credit.

TVA has also provided regulatory flexibility for LPCs to halt disconnection of services.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives — Coronavirus Pandemic for an expanded discussion of the impact to TVA and related initiatives.

The COVID-19 pandemic is an evolving situation, and TVA will continue to monitor and adjust its response as necessary to ensure reliable service while protecting the safety and health of its workforce.

TVA is primarily a wholesaler of power, selling power to LPCs that then resell power to their customers at retail rates.

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Each contract contains a formula that balances the size of the LPC and the amount of any TVA infrastructure investment to determine which party is entitled to serve the new customer.

In addition, power in excess of the needs of the TVA system may, where consistent with the provisions of the Tennessee Valley Authority Act of 1933 (the "TVA Act") , be sold under exchange power arrangements with other specific electric systems.

In addition, power in excess of the needs of the TVA system may, where consistent with the provisions of the TVA Act, be sold under exchange power arrangements with other specific electric systems.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Financial Results — Operating Revenues .

See Note 17 — Revenue for details regarding operating revenues for each of the last three years.

Local Power Companies

Local Power Company Customers

Revenues from LPCs accounted for approximately 92 percent of TVA's total operating revenues in 2020.

At September 30, 2019 , TVA had wholesale power contracts with 154 LPCs.

Following the merger in July 2020 of two LPCs, TVA had wholesale power contracts with 153 LPCs at September 30, 2020.

Each of these contracts requires the LPC to purchase from TVA all of the electric power required for service to the LPC's customers;

LPCs purchase power under contracts with terms that range from five to 20 years to terminate.

however, flexibility agreements available to LPCs that have executed long-term contracts with TVA allow LPCs to locally generate up to approximately five percent of average total hourly energy sales over the prior five years to meet their individual customers' needs.

LPCs purchase power under contracts with terms of five or 20 years to terminate.

TVA's two largest LPCs — Memphis Light, Gas and Water Division ("MLGW") and Nashville Electric Service ("NES") — have contracts with a five-year and a 20-year termination notice period, respectively.

Sales to MLGW and NES accounted for nine percent and eight percent, respectively, of TVA's total operating revenues in 2020.

In May 2020, MLGW published a draft Integrated Resource Plan ("IRP") to guide energy choices in the future, and in July 2020, TVA made a proposal to MLGW that highlights the benefits of remaining a TVA customer.

In August 2020, MLGW published a final IRP and announced their plan to issue requests for proposal to validate the cost estimates included in the IRP.

In addition, certain other LPCs are evaluating options for future energy choices.

TVA and LPCs continue to work together to meet the changing needs of consumers around the Tennessee Valley.

At its August 2019 meeting, the TVA Board approved a 20-year Partnership Agreement option that better aligns the length of LPC contracts with TVA's long-term commitments.

Participating LPCs will receive benefits including a 3.1 percent wholesale bill credit in exchange for their long-term commitment, which enables TVA to recover its long-term financial commitments over a commensurate period.

As of September 30, 2019, 131 LPCs had signed the 20-year Partnership Agreement with TVA, which represents 56 percent of total operating revenues in 2019.

In 2019, the TVA Board approved a 20-year Partnership Agreement option that better aligns the length of LPC contracts with TVA's long-term commitments.

These agreements are automatically extended each year after their initial effective date, contingent upon certain circumstances, including limited rate increases going forward.

Participating LPCs receive benefits including a 3.1 percent wholesale bill credit in exchange for their long-term commitment, which enables TVA to recover its long-term financial commitments over a commensurate period.

In June 2020, TVA provided participating LPCs a flexibility option that allows them to locally generate up to approximately five percent of average total hourly energy sales over the prior five years in order to meet their individual customers' needs.

As of November 16, 2020, 142 LPCs had signed the 20-year Partnership Agreement with TVA, and 64 LPCs had signed a Flexibility Agreement.

The power contracts between TVA and LPCs provide for the purchase of power by LPCs at the wholesale rates established by the TVA Board.

Under the TVA Act, the TVA Board is authorized to regulate LPCs to carry out the purposes of the TVA Act through contract terms and conditions as well as through rules and regulations.

Under the TVA Act, the TVA Board is authorized to regulate LPCs to carry out the purposes of the

TVA Act through contract terms and conditions as well as through rules and regulations.

TVA regulates LPCs primarily through the provisions of TVA's wholesale power contracts.

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Other revenue consists primarily of wheeling and network transmission charges, sales of excess steam that is a by-product of power production, delivery point charges for interconnection points between TVA and the customer, and certain other minor items.

Other revenue accounted for approximately two percent of TVA's total operating revenues in 2019 .

Other revenue accounted for approximately one percent of TVA's total operating revenues in 2020.

Rate Authority

The TVA Act gives the TVA Board sole responsibility for establishing the rates TVA charges for power.

These rates are not subject to judicial review or to review or approval by any state or federal regulatory body.

These rates are not subject to judicial review or to review or approval by any state or other federal regulatory body.

Under the TVA Act, TVA is required to charge rates for power that will produce gross revenues sufficient to provide funds for:

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Treasury in repayment of and as a return on the government's appropriation investment in TVA's power facilities (the "Power Program Appropriation Investment");

Such additional margin as the TVA Board may consider desirable for investment in power system assets, retirement of outstanding bonds, notes, or other evidences of indebtedness (collectively, "Bonds") in advance of their maturity, additional reduction of the Power Program Appropriation Investment, and other purposes connected with TVA's power business, having due regard for the primary objectives of the TVA Act, including the objective that power shall be sold at rates as low as are feasible.

• Such additional margin as the TVA Board may consider desirable for investment in power system assets, retirement of outstanding Bonds in advance of their maturity, additional reduction of the Power Program Appropriation Investment, and other purposes connected with TVA's power business, having due regard for the primary objectives of the TVA Act, including the objective that power shall be sold at rates as low as are feasible.

See Note 18 — Proprietary Capital .

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In setting the base rates, TVA uses a debt-service coverage ("DSC") methodology to derive annual revenue requirements in a manner similar to that used by other public power entities that also use the DSC rate methodology.

Under the DSC methodology, rates are calculated so that an entity will be able to cover its operating costs and to satisfy its obligations to pay principal and interest on debt.

Under the DSC methodology, rates are calculated so that an entity will be able to cover its operating costs and to satisfy its obligations to pay principal and interest on debt, plus an additional margin.

This ratemaking approach is particularly suitable for use by entities financed primarily, if not entirely, by debt, such as TVA, and helps ensure that TVA produces gross revenues sufficient to fund requirements specified in the TVA Act listed under Rate Authority above.

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Standard Service (residential and small commercial customers), large manufacturing customers with contract demands greater than 5 megawatts ("MW"), and large general service customers with contract demands greater than 5 MW.

Fuel costs are allocated to these three classes of customers in relation to their hourly loads and TVA's hourly incremental dispatch cost.

Fuel costs are

allocated to these three classes of customers in relation to their hourly loads and TVA's hourly incremental dispatch cost.

Total monthly fuel costs include costs for natural gas, fuel oil, coal, purchased power, emission allowances, nuclear fuel, and other fuel-related commodities as well as realized gains and losses on derivatives purchased to hedge the costs of such commodities.

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The rate structures are also designed to reduce wholesale energy rates for Standard Service and introduce a GAC at an offsetting rate to better recover fixed costs.

This approach will more accurately reflect the wholesale cost of energy and recognize the value of the grid's reliability and associated fixed costs.

This approach more accurately reflects the wholesale cost of energy and recognizes the value of the grid's reliability and associated fixed costs.

TVA's modernized approach to pricing provides bill stability while maintaining reliability and fairness for all TVA's customers.

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TVA also seeks to employ a diverse mix of energy generating sources and works toward obtaining greater amounts of its power supply from clean (low or zero carbon emitting) resources.

Power generating facilities operated by TVA at September 30, 2019 , included three nuclear sites, 17 natural gas and/or oil-fired sites, six coal-fired sites, 29 conventional hydroelectric sites, one pumped-storage hydroelectric site, one diesel generator site, and 14 solar energy sites, although certain of these facilities were out of service as of September 30, 2019 .

See Item 2, Properties — Generating Properties — Net Capability for a discussion of these facilities.

TVA also acquires power under power purchase agreements of varying durations, including short-term contracts of less than 24-hours in duration.

Power generating facilities operated by TVA at September 30, 2020, included three nuclear sites, 17 natural gas and/or oil-fired sites, five coal-fired sites, 29 conventional hydroelectric sites, one pumped-storage hydroelectric site, one diesel generator site, and 14 solar energy sites, although a certain number of these facilities were out of service as of September 30, 2020.

See Item 2, Properties — Generating Properties — Net Capability for a discussion of the units at these facilities.

TVA also acquires power under power purchase agreements ("PPAs") of varying durations, including short-term contracts of less than 24-hours in duration.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Financial Results — Operating Expenses .

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electric power generated and purchased (based on kilowatt hours ("kWh")) for the periods indicated:

Power Supply by Generating Source

Total Power Supply by Generating Source

For the years ended September 30

Generation Resource (1)

2020 2019 2018

Nuclear 42% 39% 39%

Natural gas and/or oil-fired 22% 20% 20%

Coal-fired 13% 17% 19%

Hydroelectric 10% 10% 9%

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At September 30, 2020

Summer Net Capability (MW)

Summer Net Capability (MW) Net Capacity

Date of Expiration

Browns Ferry Unit 1 (1)

1,101 107.9 2033

Browns Ferry Unit 2 (1)

1,103 100.7 2034

Browns Ferry Unit 3 (1)

1,105 91.7 2036

Sequoyah Unit 1 1,152 82.3 2040

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On August 14, 2017, the Nuclear Regulatory Commission ("NRC") approved TVA's request for a 465 MW extended power uprate ("EPU") project at Browns Ferry.

As of September 30, 2019 , physical work on all units was complete and the generation capacity is expected to increase 465 MW after sufficient run time to validate the new capacity.

Physical work on all units was completed in 2019.

The generating capacity is expected to increase 465 MW after sufficient run time to validate the new capacity, which is expected to occur in 2021.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Generation Resources — Extended Power Uprate.

Other Nuclear Initiatives .

TVA has submitted an Early Site Permit Application to the NRC to license small modular reactors ("SMRs") at TVA's Clinch River Site in Oak Ridge, Tennessee.

The NRC issued an Early Site Permit to TVA in December 2019 to license small modular reactors ("SMRs") at TVA's Clinch River Site in Oak Ridge, Tennessee.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Generation Resources — Small Modular Reactors .

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Operating nuclear facilities subjects TVA to waste disposal, decommissioning, and insurance requirements, as well as litigation risks.

See Fuel Supply — Nuclear Fuel below for a discussion of spent nuclear fuel and low-level radioactive waste, Note 22 — Commitments and Contingencies — Contingencies for a discussion of TVA's nuclear decommissioning liabilities and the related trust and nuclear insurance, and Note 22 — Commitments and Contingencies — Legal Proceedings for a discussion of legal and administrative proceedings related to TVA's nuclear program, which discussions are incorporated herein by reference.

See Fuel Supply — Nuclear Fuel below for a discussion of spent nuclear fuel and low-level radioactive waste, Note 22 — Commitments and Contingencies — Contingencies for a discussion of TVA's nuclear decommissioning liabilities and the related trust and nuclear insurance, and Note 22 — Commitments and Contingencies — Legal Proceedings and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Apparent Violations of NRC Regulations for a discussion of legal and administrative proceedings related to TVA's nuclear program, which discussions are incorporated herein by reference.

Natural Gas and/or Oil-Fired

As of September 30, 2019 , TVA's natural gas and oil-fired fleet consisted of 101 combustion turbine power blocks ( 86 simple-cycle units and 14 combined-cycle power units).

At September 30, 2020, TVA's natural gas and oil-fired fleet consisted of 101 combustion turbine power blocks (86 simple-cycle units, one cogeneration unit, and 14 combined-cycle power units), accounting for 12,509 MW of summer net capability.

Sixty of the simple-cycle units are currently capable of quick-start response allowing full generation capability in approximately 10 minutes.

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TVA uses simple-cycle units to meet peaking or backup power needs.

TVA also uses cogeneration at one simple-cycle unit.

TVA's 2019 Integrated Resource Plan ("IRP") projects significant solar expansion over the next decade.

TVA's 2019 IRP projects significant solar expansion over the next decade.

The natural gas-fired fleet supports that expansion by providing reliability across all hours, as well as the flexibility to help manage ramping and intermittency.

See Item 2, Properties — Generating Properties, Note 9 , Note 10 , and Note 13 for a discussion of lease arrangements into which TVA has entered in connection with certain combustion turbine units.

See Item 2, Properties — Generating Properties, Note 7 — Leases , Note 10 — Variable Interest Entities , and Note 13 — Debt and Other Obligations for a discussion of lease arrangements into which TVA has entered in connection with certain combustion turbine units.

Because of TVA's strategy of portfolio diversification and reduction of air emissions, TVA may decide to make further strategic investments in natural gas-fired facilities in the future by purchase, construction, or lease.

As of September 30, 2019 , TVA had six coal-fired plants consisting of 26 active units, accounting for 7,886 MW of summer net capability.

At September 30, 2020, TVA had five coal-fired plants consisting of 25 active units, accounting for 6,915 MW of summer net capability.

TVA considers units to be in an active state when the unit is generating, available for service, or temporarily unavailable due to equipment failures, inspections, or repairs.

All other coal-fired units are considered retired.

During its August 2018 meeting, the TVA Board approved a plan to perform assessments of Bull Run Fossil Plant ("Bull Run") and Paradise Fossil Plant ("Paradise").

In 2018, the TVA Board approved a plan to perform assessments of Bull Run Fossil Plant ("Bull Run") and Paradise Fossil Plant

("Paradise").

Results of these assessments were presented to the TVA Board at its February 2019 meeting, and the Board approved the retirement of Paradise Unit 3 by December 2020 and Bull Run by December 2023.

Subsequent to the Board approval, TVA determined Paradise would not be restarted after January 2020 due to the plant's material condition.

Coal-fired plants have been subject to increasingly stringent regulatory requirements over the last few decades, including those under the Clean Air Act ("CAA") , the Environmental Protection Agency's ("EPA") Coal Combustion Residuals ("CCR") Rule, and the associated regulations.

TVA has committed to a programmatic approach for the evaluation of its sites where CCR is stored to meet all applicable state and federal regulations.

Paradise Unit 3 was taken offline on February 1, 2020, effectively retiring the plant.

Coal-fired plants have been subject to increasingly stringent regulatory requirements over the last few decades, including those under the Clean Air Act ("CAA"), the Clean Water Act ("CWA"), and the Resource Conservation and Recovery Act ("RCRA").

TVA has committed to a programmatic approach for the evaluation of its sites where coal combustion residuals ("CCR") are stored to meet all applicable state and federal regulations.

Increasing regulatory costs have caused TVA to consider whether to make the required capital investments to continue operating its coal-fired facilities.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Generation Resources — Coal Combustion Residual Facilities.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Generation Resources — Coal Combustion Residuals Facilities.

TVA is moving toward a more balanced generation plan with greater reliance on lower-cost and cleaner energy generation technologies.

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TVA's long-range plans will continue to consider the costs and benefits of significant environmental and other major capital investments at its remaining coal-fired plants.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Generation Resources — Optimum Energy Portfolio.

Hydroelectric

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Raccoon Mountain Pumped-Storage Plant .

As of September 30, 2019 , TVA has four units at Raccoon Mountain Pumped-Storage Plant ("Raccoon Mountain") with a total net summer capability of 1,616 MW.

At September 30, 2020, TVA had four units at Raccoon Mountain Pumped-Storage Plant ("Raccoon Mountain") with a total net summer capability of 1,635 MW.

These units are utilized to balance the transmission system as well as generate power.

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Hydro Modernization Program .

TVA is scheduled to complete the Hydro Modernization Program in 2020 with the completion of South Holston Unit 1 and Pickwick Landing Dam ("Pickwick") Unit 2.

The Hydro Modernization Program began in

1992 and focuses on units with potential to increase peaking capacity and improve reliability.

As of September 30, 2019 , modernization had been completed on 61 conventional hydroelectric units.

TVA's Hydro Modernization Program began in 1992 and focused on units with potential to increase peaking capacity and improve reliability.

With the completion of Pickwick Landing Dam ("Pickwick") Unit 2 in 2020, the initial Hydro Modernization Program has concluded with modernization completed on 62 conventional hydroelectric units under the program.

The modernization projects resulted in 453 MW of increased capacity from the conventional hydroelectric units, with an average efficiency gain of approximately five percent.

In 2019, TVA began its transition to a new program, the Hydro Major Maintenance Program, intended to focus on life extension and addressing reliability risks that will support the preservation of TVA's hydroelectric fleet capacity.

Hydroelectric generation will continue to be an important part of TVA's energy mix.

In 2019, TVA began its transition to a new program, the Hydro Major Maintenance Program, intended to focus on addressing reliability risks that will support the preservation of TVA's hydroelectric fleet capacity.

Hydroelectric generation will continue to be an important part of TVA's energy mix since it plays a vital role in carbon reduction initiatives, the ability to integrate other renewables into the power portfolio, and, ultimately, TVA's ability to meet changing customer preferences for cleaner energy sources.

As such, TVA is currently evaluating the need to revitalize the Hydro Modernization Program to increase the capability, flexibility, and availability of the hydroelectric fleet to help meet these changing customer preferences.

Other Renewable Energy Resources

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TVA owns 14 solar sites with a total net summer capability of approximately 1 MW.

TVA currently plans to meet renewable goals through power purchases and arrangements with LPCs.

See Distributed Energy Resources and Power Purchase and Other Agreements below.

TVA tracks its renewable energy commitments and claims through the management of Renewable Energy Certificates ("RECs").

The RECs, which each represent 1 MWh of renewable energy generation, are principally associated with wind, solar, biomass, and low-impact hydroelectric.

TVA continues to evaluate ways to adjust to customer preferences and requirements for cleaner and greener energy, including the acquisition of RECs from renewable purchased power.

The RECs, which each represent 1 megawatt-hour ("MWh") of renewable energy generation, are principally associated with wind, solar, biomass, and low-impact hydroelectric.

TVA continues to evaluate ways to adjust to customer preferences and requirements for cleaner and greener energy, including the acquisition of RECs from renewable purchased

These RECs can be sold to customers to meet their needs.

Diesel Generators

As of September 30, 2019 , TVA had one diesel generator plant consisting of five units, and this facility accounted for 9

At September 30, 2020, TVA had one diesel generator plant consisting of five units, and this facility accounted for 9

MW of summer net capability.

These units are not currently dispatched for generation.

Distributed Energy Resources

Consumer desire for energy choice is, among other things, driving the expectation for flexible options in the electric industry.

TVA and LPCs are working together to leverage the strengths of the Tennessee Valley public power model to provide economic, sustainable, and flexible distributed energy solutions.

Consumer desire for energy choice, among other things, is driving the expectation for flexible options in the electric industry.

TVA and LPCs are working together to leverage the strengths of the Tennessee Valley public power model to provide distributed energy solutions that are economical, sustainable, and flexible.

TVA will focus on the safety and reliability impacts of these resources as they are interconnected to the grid and will ensure that the pricing of electricity remains as low as feasible.

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This requires strong partnerships with LPCs to give customers choices and provide end-use consumers the flexibility they desire.

During its February 2019 meeting, the TVA Board approved new renewable power solutions, including a mid-scale option.

The mid-scale option, also known as the Flexibility Research Project, is a joint project with LPCs to enable solutions for situations where the end-use consumer needs onsite renewable or distributed generation and for TVA to gain market knowledge and operational insights from these research projects.

In 2019, the TVA Board approved new renewable power solutions, including a utility-scale option and a mid-scale option, that better equip TVA and LPCs with the flexibility to meet changing end-use customer needs.

The utility-scale option, which aggregates demand through a competitive procurement process, is implemented by a renewable investment agreement through TVA's Green Invest Program.

TVA may also construct its own renewable facilities to meet these needs.

The mid-scale option, also known as the Flexibility Research Project, is a joint project with LPCs to enable solutions for situations where the end-use consumer needs onsite renewable or distributed generation and to enable TVA to gain market knowledge and operational insights from these research projects.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Renewable Power Solutions.

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In addition, TVA and LPCs conduct workshops to educate homeowners about low and no-cost energy efficiency upgrades that improve their quality of life.

TVA has encouraged the development of solar, wind, biomass, and low-impact hydroelectric generation systems across the Tennessee Valley through various current and former offerings.

As of September 30, 2019 , the combined participation for all such renewable solutions is 415 MW of installed operating capacity with nearly 685 MW of additional approved capacity.

Additionally, TVA contracts for approximately 1,215 MW of operating wind capacity from outside the Tennessee Valley via power purchase agreements.

In May 2017, the TVA Board authorized up to $300 million to be spent over the next 10 years, subject to annual budget availability and necessary environmental reviews, to build an enhanced fiber optic network by adding up to 3,500 additional miles that will better connect its operational assets.

TVA has encouraged the development of solar, wind, biomass, and low-impact hydroelectric generation systems through various current and former program offerings, with total operating capacity of 1,705 MW and nearly 1,178 MW of additional approved capacity as of September 30, 2020.

Inside the Tennessee Valley, the combined participation for all such renewable solutions is 490 MW of installed operating capacity through both TVA-owned sites and PPAs.

Outside the Tennessee Valley, TVA contracts for approximately 1,215 MW of operating wind capacity through PPAs.

In 2017, the TVA Board authorized up to $300 million to be spent over the next 10 years, subject to annual budget availability and necessary environmental reviews, to build an enhanced fiber optic network that will better connect TVA's operational assets.

Fiber is a vital part of TVA's modern communication infrastructure.

The new fiber optic lines will improve the reliability and resiliency of the generation and transmission system while enabling the system to better accommodate DER as they enter the market.

The new fiber optic lines will improve the reliability and resiliency of the generation and transmission system while enabling the system to better accommodate DER as these resources enter the market.

New energy management systems and energy storage technologies present opportunities for more sophisticated and integrated operation of the entire grid.

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TVA's electric vehicle ("EV") strategy is a staged approach that will evolve as the local EV market matures.

Since 2011, TVA has focused on utilizing more EVs and installing charging stations inside the Tennessee Valley.

This approach has

enabled TVA to gain insights on the value and impact to utilities of large-scale electrification.

TVA continues to focus on utilizing more EVs and installing charging stations inside the Tennessee Valley.

This approach has enabled TVA to gain insights on the value and impact to utilities of large-scale electrification.

TVA has also partnered with over 30 organizations across the State of Tennessee (known as the "Drive Electric Tennessee" collaborative) to create a roadmap to outline local market needs for widespread adoption.

This foundational information is crucial as more affordable, longer range EVs come to the market in the next few years.

In November 2020, the TVA Board approved changes that remove market barriers facing EV adoptions, including setting supportive utility level policies such as rate options and regulatory policies.

Onsite energy management technologies and the proliferation of companies interested in providing services to support and aggregate the impacts of such systems provide another DER opportunity.

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Demand response systems that take advantage of the increasing sophistication in communication to homes, businesses, and distribution system assets also afford the opportunity for more granular control of system demand.

Technologies can manage individual customer systems to shift usage from peak to off-peak periods and create significant reductions in the need for peak generation output.

Technologies can manage individual customer systems to shift usage from peak to off-peak periods and create significant reductions in the need for peak generation output or curtail usage for short periods to balance system demand.

More sophisticated distribution control systems can also lower peak demand through control of excess voltage on the grid on either a dispatchable or continuous basis.

Some large industrial customers also have the capacity to respond instantaneously and can augment operational flexibility by providing ancillary services.

TVA is leading an initiative to determine the value of DER for its system.

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See Research and Development below.

Purchased Power and Other Agreements

TVA acquires power from a variety of power producers through long-term and short-term power purchase agreements ("PPAs") as well as through spot market purchases.

During 2019 , TVA acquired approximately 87 percent of the power that it purchased through the long-term PPA described below, including agreements for long-term renewable generation resources, approximately one percent through short-term PPAs, and approximately 12 percent on the spot market.

Power Purchase and Other Agreements

TVA acquires power from a variety of power producers generally through long-term and short-term PPAs as well as through spot market purchases.

During 2020, TVA acquired approximately 93 percent of the power that it purchased through the long-term PPAs described below, including agreements for long-term renewable generation resources, and approximately seven percent on the spot market.

Renewable Power Purchase Agreements.

In order to meet customer preferences and requirements for cleaner and greener energy, TVA has entered into certain PPAs with renewable resource providers during 2019.

In order to meet customer preferences and requirements for cleaner and greener energy, TVA has entered into certain PPAs with renewable resource providers.

As of September 30, 2020, TVA is contracted for 2,958 MW of summer net capability under renewable PPAs.

These agreements are part of progressive partnerships that align the core values of TVA and the public power model with the desire of TVA's customers for renewable energy.

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At September 30, 2020

Type of Facility

Summer Net Capability

Contract Termination Date

Hydroelectric (2)

Tennessee and Kentucky

Upon three years' notice

Type of Facility Location Summer Net Capability

(MW) Contract Termination Date

Lignite Mississippi 440 2032

Natural gas Alabama 790 2033

Natural gas Alabama 735 2026

Solar Alabama 75 2037

Alabama 227 2041

Alabama 150 2042

Solar Tennessee 53 2039

Solar Tennessee 5 2032

Tennessee 147 2042

Tennessee 69 2038

Tennessee 100 2038

Tennessee 70 2038

Tennessee 35 2038

Tennessee 177 2043

Mississippi 200 2043

Landfill gas Tennessee 6 2031

Hydroelectric Tennessee and Kentucky 402 Upon three years' notice

Wind Iowa 198 2031

Wind Iowa 101 2030

Wind Kansas 201 2032

Wind Kansas 165 2033

Wind Illinois 150 2032

Wind Illinois 200 2032

Wind Illinois 200 2033

Wind Tennessee 27 2025

Diesel Tennessee 23 2029

Diesel Tennessee 20 2032

Diesel Tennessee 8 2023

Diesel Tennessee 8 2028

Diesel Mississippi 20 2023

Diesel Mississippi 26 2028

Diesel Alabama 10 2028

Battery storage (3)

Mississippi 50 2043

(1) Power delivery is expected to commence in 2021.

(2) TVA's contract with Southeastern Power Administration ("SEPA") is for 405 MW of capacity;

however, at September 30, 2019, TVA's capacity under the contract was 347 MW because of repairs being completed by the USACE.

TVA expects this period of reduced capacity to be in effect until January 2020.

Of the four solar PPAs TVA signed in 2019, one of the counterparties failed to comply with the terms of its PPA.

TVA terminated this 150 MW PPA in 2020, and it is excluded from the table above.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives — Changing Customer Preferences — Renewable Power Purchase Agreements .

(2) Power delivery is expected to commence in 2022.

(3) Power delivery is expected to commence in 2023.

Under federal law, TVA is required to purchase energy from qualifying facilities (cogenerators and small power producers) at TVA's avoided cost of either generating this energy itself or purchasing this energy from another source.

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See Note 15 — Risk Management Activities and Derivative Transactions — Counterparty Risk .

TVA, the DOE, and certain nuclear fuel contractors have entered into agreements providing for surplus DOE highly enriched uranium (uranium that is too highly enriched for use in a nuclear power plant) to be blended with other uranium.

The enriched uranium that results from this blending process, which is called blended low-enriched uranium ("BLEU") , is fabricated into fuel that can be used in a nuclear power plant.

This blended nuclear fuel was first loaded in a Browns Ferry reactor in 2005, and the last fuel under this program is currently being utilized.

Under the terms of the interagency agreement between the DOE and TVA, the DOE participated in the savings generated by TVA's use of the BLEU.

See Note 1 — Summary of Significant Accounting Policies — Blended Low-Enriched Uranium Program for a more detailed discussion of the BLEU project.

TVA, the DOE, and certain nuclear fuel contractors have entered into agreements, referred to as the Down-blend Offering for Tritium ("DBOT"), that provide for the production, processing, and storage of low-enriched uranium that is to be made using surplus DOE highly enriched uranium and other uranium.

Low-enriched uranium can be fabricated into fuel for use in a nuclear power plant.

Production of the low-enriched uranium began in the summer of 2019 and is contracted to continue through October 2027.

Production of the low-enriched uranium began in 2019 and is contracted to continue through September 2025.

Beginning October 2025, contract activity will consist of storage and flag management.

Flag management ensures that the uranium is of U.S.

origin, free from foreign obligations, and unencumbered by policy restrictions, so that it can be used in connection with the production of tritium.

Flag management ensures that the uranium is free from foreign obligations, and unencumbered by policy restrictions, so that it can be used in connection with the production of tritium.

Under the terms of the interagency agreement between the DOE and TVA, the DOE will reimburse TVA for a portion of the costs of converting the highly enriched uranium to low-enriched uranium.

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Watts Bar will need additional capacity by 2041.

Browns Ferry will need additional storage capacity by the end of 2020.

A project is underway at Browns Ferry to build another independent spent fuel storage installation pad and is scheduled for completion by January 2020.

Browns Ferry completed a project in early 2020 to build another independent spent fuel storage installation pad.

To recover the cost of providing long-term, onsite storage for spent nuclear fuel, TVA filed a breach of contract suit against the U.S.

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The DOE notified TVA of future increased needs for tritium requiring the use of a second reactor.

TVA submitted a license amendment to the NRC in December 2017 to authorize the irradiation of TPBARs in Watts Bar Unit 2.

The NRC approved the license amendment request in May 2019.

In 2019, TVA received approval from the NRC for a license amendment to authorize the irradiation of TPBARs in Watts Bar Unit 2.

TVA is projecting to begin tritium production in Watts Bar Unit 2 in the fall of 2021.

Natural Gas and Fuel Oil

During 2019 , TVA purchased a significant amount of its natural gas requirements from a variety of suppliers under contracts with terms of up to three years and purchased substantially all of its fuel oil requirements on the spot market.

During 2020, TVA purchased a significant amount of its natural gas requirements from a variety of suppliers under contracts with terms of up to four years and purchased substantially all of its fuel oil requirements on the spot market.

The net book value of TVA's natural gas inventory was $19 million and $15 million at September 30, 2020 and 2019, respectively.

The net book value of TVA's fuel oil inventory was $82 million and $84 million at September 30, 2019 and 2018 , respectively.

The net book value of TVA's fuel oil inventory was $82 million at both September 30, 2020 and 2019.

At September 30, 2020, 80 of the combustion turbines that TVA operates were dual-fuel capable, and TVA has fuel oil stored on each of these sites as a backup to natural gas.

TVA purchases natural gas from multiple suppliers on a daily, monthly, seasonal, and term basis.

During 2019 , daily, monthly, seasonal, and term contracts accounted for 21 percent, five percent, 30 percent, and 44 percent of purchases, respectively.

During 2020, daily, monthly, seasonal, and term contracts accounted for 26 percent, nine percent, 16 percent, and 49 percent of purchases, respectively.

TVA plans to continue using contracts of various lengths and terms to meet the projected natural gas needs of its natural gas fleet.

During 2019 , TVA transported natural gas on eight separate pipelines, with approximately 31 percent being transported on a single pipeline.

During 2019 , TVA maintained a total of approximately 1,405,000 million British thermal unit(s) ("mmBtu") per day of firm transportation capacity on six major pipelines, with approximately 33 percent of total firm transportation capacity being maintained on a single pipeline.

TVA utilizes natural gas storage services at seven facilities with a total capacity of 8.35 billion per cubic feet ("Bcf") of firm service and 2.30 Bcf of interruptible service to manage the daily balancing requirements of the eight pipelines used by TVA, with approximately 42 percent of the total storage capacity being maintained at a single facility.

During 2020, TVA arranged for the transportation of natural gas on eight separate pipelines, with approximately 63 percent being transported on two pipelines.

During 2020, TVA maintained a total of approximately 1,485,000 million British thermal unit(s) ("mmBtu") per day of firm transportation capacity on six major pipelines, with approximately 59 percent of total firm transportation capacity being maintained on two pipelines.

TVA utilizes natural gas storage services at seven facilities with a total capacity of 7.25 billion per cubic feet ("Bcf") of firm service and 4.40 Bcf of interruptible service to manage the daily balancing requirements of the eight pipelines used by TVA, with approximately 62 percent of the total storage capacity being maintained at two facilities.

During 2020, storage levels were generally maintained at between 40 and 80 percent of the maximum contracted capacity at each facility.

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The following charts present the proportion of each delivery method TVA utilizes for its coal supply for the periods indicated:

Generally, total system coal inventories were at or below target levels for 2019.

TVA began 2019 with low coal inventories due to higher than expected utilization during the summer of 2018.

Inventory balances were restored throughout the year to meet winter and summer peak demands.

Total system coal inventories fluctuated significantly throughout the year.

TVA began 2020 with average coal inventory levels and increased to high levels due to the mild winter, demand reduction resulting from the COVID-19 pandemic, and low natural gas prices.

Inventory balances were significantly reduced during the summer peak months due to higher than forecasted load, nuclear outages, and natural gas outages.

The TVA transmission system is one of the largest in North America.

TVA's transmission system has 69 interconnections with 13 neighboring electric systems, and delivered nearly 158 billion kWh of electricity to TVA customers in 2019 .

TVA's transmission system has 69 interconnections with 13 neighboring electric systems and delivered approximately 151 billion kWh of electricity to TVA customers in 2020.

In carrying out its responsibility for transmission grid reliability in the TVA service area, TVA has operated with 99.999 percent reliability since 2000 in delivering electricity to customers.

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TVA has also adopted and operates in accordance with its published Transmission Standards of Conduct and separates its transmission function from its power marketing function.

TVA is subject to federal reliability standards that are set forth by the North American Electric Reliability Corporation ("NERC") and approved by FERC.

These standards are designed to maintain the reliability of the bulk electric system, including TVA's generation and transmission system, and include areas such as maintenance, training, operations, planning, modeling, critical infrastructure, physical and cyber security, vegetation management, and facility ratings.

TVA recognizes that reliability standards and expectations for transmission systems continue to become more complex and stringent.

TVA also is subject to federal reliability standards that are set forth by the North American Electric Reliability Corporation ("NERC") and approved by FERC.

See Regulation .

Additional transmission upgrades may be required to maintain reliability.

Upgrades may include enhancements to existing lines and substations or new installations as necessary to provide adequate power transmission capacity, maintain voltage support, and ensure generating plant and transmission system stability.

In May 2017, the TVA Board approved a $300 million, multi-year, strategic fiber optic initiative that will expand TVA's fiber capacity and improve the reliability and resiliency of the transmission system.

In 2017, the TVA Board authorized a strategic fiber optic initiative of up to $300 million to be spent over the next 10 years, subject to annual budget availability and necessary environmental reviews, that will expand TVA's fiber capacity and improve the reliability and resiliency of the generation and transmission system.

The network expansion is designed to help meet the power system's growing need for bandwidth as well as accommodate the integration of new DER.

As of September 30, 2019 , TVA had installed 483 miles of fiber optic lines and spent $79 million on installation of the fiber optic lines.

TVA expects to spend an additional $221 million to complete the project.

The TVA Board approved $245 million for the construction of a new system operations center.

As of September 30, 2020, TVA had spent $121 million on installation of the fiber optic lines and expects to spend an additional $179 million.

A new system operations center has been approved for $255 million.

The new secured facility is being built to accommodate a new energy management system and to adapt to new regulatory requirements.

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Degree days measure the extent to which the TVA system 23-station average temperatures vary from 65 degrees Fahrenheit.

During 2019, TVA transitioned degree

day calculation methodologies, moving from the average temperatures of the five largest cities in TVA's service area to the average temperatures of 23 stations throughout TVA's service area.

This transition provides TVA with increased geographic granularity throughout its service territory and improves modeling accuracy.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Sales of Electricity.

TVA provides electricity in a service area that is largely free of competition from other electric power providers based on the provisions of the TVA Act.

TVA provides electricity in a service area that is largely free of competition from other electric power providers.

This service area is defined primarily by provisions of law and long-term contracts.

The fence limits the region in which TVA or LPCs that distribute TVA power may provide power.

The anti-cherrypicking provision limits the ability of others to use the TVA transmission system for the purpose of serving customers within TVA's service area.

The region in which TVA or LPCs that distribute TVA power may provide power is limited and is often referred to as "the fence." Under the Federal Power Act ("FPA"), the anti-cherrypicking provision limits the ability of others to use the TVA transmission system for the purpose of serving customers within TVA's service area.

State service territory laws limit unregulated third parties' ability to sell electricity to consumers.

All TVA wholesale power contracts are all requirements contracts;

However, other utilities may use their own transmission lines to serve customers within TVA's service area, and third parties are able to avoid the restrictions on serving end-use customers by selling or leasing generating assets to a customer rather than selling electricity.

These threats underscore the need for TVA to strategically price its products and services and design rates to be competitive.

There have also been some efforts in the past to erode the anti-cherrypicking provision, and the protection of the anti-cherrypicking provision could be limited and perhaps eliminated by federal legislation at some time in the future.

however, Flexibility Agreements available to LPCs that have executed long-term contracts with TVA allow LPCs to locally generate up to approximately five percent of average total hourly energy sales over the prior five years to meet their individual customers' needs.

In addition, other utilities may use their own transmission lines to serve customers within TVA's service area, and third parties are able to avoid the restrictions on serving end-use customers by selling or leasing generating assets to a customer rather than selling electricity.

These threats underscore the need for TVA to design rates and strategically price its products and services to be competitive.

There have also been some efforts to erode the anti-cherrypicking provision, and the protection of the provision could be limited and perhaps eliminated by federal legislation at some time in the future.

TVA also faces competition in the form of emerging technologies.

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Research and Development

Investments in TVA's research portfolio are supported through partnership and collaboration with LPCs, EPRI, DOE, federal agencies, national labs, peer utilities, universities, industry vendors, participation in professional societies, and other research consortiums.

Investments in TVA's research portfolio are supported through partnership and collaboration with LPCs, EPRI, the DOE, federal agencies, national labs, peer utilities, universities, and industry vendors and through participation in professional societies and other research consortiums.

Annual investments made in science and technological innovation help meet future business and operational

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Core research activities directly support optimization of TVA's generation and transmission assets, air and water quality, energy utilization, and distributed/clean energy integration.

TVA has launched a research program focused on evaluating the potential to deploy grid-scale battery energy storage technology to optimize the existing TVA generation assets and improve the resiliency of the transmission system.

This research will guide future application of battery storage as part of the evolving bulk power system in the region.

TVA also provides research and development services on behalf of LPCs by helping optimize their distribution systems and helping minimize technology gaps in energy utilization and consumer technologies.

TVA's research program is also focused on enabling transformational innovation.

At the forefront is deploying grid-scale battery energy storage technology to optimize the existing TVA generation assets and improve the resiliency of the transmission system.

In 2020, TVA launched its first TVA-owned, grid scale, lithium-ion demonstration battery project.

The system integration learnings from this project will guide future application of battery storage as part of the evolving bulk power system in the region.

Additionally, TVA has joined a coalition of utilities and researchers, led by EPRI and Gas Technology Institute, whose purpose is to engage, inform, and support global low-carbon resources initiatives to develop the pathways for the advancement of carbon reducing technologies for large scale utility deployment.

This is a five-year program and includes research to optimize the utilization of clean DER as part of the overall low-carbon resource mix.

TVA evaluates emerging energy efficiency and load management technologies for market and program readiness.

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Additional areas of focus include LPC engagement on plug-in electric vehicle grid integration and readiness for various transportation electrification technologies.

In addition, research in electrification applications on charging stations, impacts from charging stations to the power grid, refinement of power-system control processes, and development of smart charging strategies to maximize the potential of electricity to replace petroleum as the transportation fuel of choice.

TVA and LPCs engage in several initiatives related to grid modernization.

In addition, research continues in electrification applications on charging stations, impacts from charging stations to the power grid, refinement of power-system control processes, and development of smart charging strategies to maximize the potential of electricity to replace petroleum as the transportation fuel of choice.

Finally, TVA and LPCs engage in several initiatives related to grid modernization.

Research includes technologies and applications advancement in intelligent transmission and distribution systems.

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Additionally, intelligent transmission systems would give TVA the ability to nearly instantaneously diagnose problems, make corrections, and engage transmission and generation resources quickly so that power would keep flowing.

This could promote reduced emissions, lower energy costs,

and add greater flexibility to accommodate the new consumer-generated sources under TVA's renewable energy programs.

This could promote reduced emissions, lower energy costs, and add greater flexibility to accommodate the new consumer-generated sources under TVA's renewable energy programs.

See Power Supply and Load Management Resources — Distributed Energy Resources .

Finally, TVA is evaluating small clean power resources that can be aggregated to meet regular demand.

Research efforts into clean DER seek to understand the scope and impact on operations and business economics and to develop strategies for adapting to the evolving electricity landscape in the Tennessee Valley.

Battery storage and solar power models deployed in the Tennessee Valley are also being evaluated to better understand their impacts to the grid.

Initial economic analyses have been conducted to identify the value of DER (particularly photovoltaic solar generation) to both TVA and the LPC system.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Distributed Energy Resources.

Flood Control Activities

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TVA typically spills only when all available hydroelectric generating turbines are operating at full capacity and additional water still needs to be moved downstream.

Significant flooding occurred in portions of the Tennessee Valley in February 2019.

During this time, the Tennessee Valley received 11.6 inches of rainfall, which was 269 percent of normal.

Although many locations along the Tennessee River reached or exceeded flood stage, TVA's efforts, including storing water in large tributary reservoirs, accounted for approximately $1.6 billion in avoided damages in areas such as Chattanooga, Tennessee.

The Tennessee Valley experienced above normal rainfall during 2020, setting a new record for the wettest October through September period in TVA's history.

Despite significant rainfall, runoff, and flooding during the period, TVA continued to generate low-cost hydroelectric power while meeting its river system commitments, including flood mitigation, which prevented approximately $1.0 billion in damages across the Tennessee Valley.

Environmental Stewardship Activities

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The reservoir system also provides a water supply for residential and industrial customers, as well as cooling water for TVA's coal-fired plants, combined cycle plants, and nuclear power plants.

TVA's Environmental Policy provides objectives for an integrated approach related to providing cleaner, reliable, and low-cost energy, supporting sustainable economic growth, and engaging in proactive environmental stewardship in a balanced and ecologically sound manner.

The Environmental Policy provides additional direction in several environmental stewardship areas, including water resource protection and improvements, sustainable land use, and natural resource management.

In May 2020, the TVA Board approved a new Environmental Policy.

TVA's updated policy provides objectives for an integrated approach related to providing reliable, affordable, and increasingly clean energy;

engaging in proactive stewardship of the Tennessee River system and public lands;

and supporting sustainable economic growth.

The Environmental Policy also provides additional direction in several environmental stewardship areas related to reducing environmental impacts on the Valley's natural resources, including reducing carbon intensity and air emissions;

minimizing waste;

and protecting water resources, biodiversity, and cultural resources.

TVA serves the people of the TVA region through the integrated management of the Tennessee River system and public lands, which include approximately 11,000 miles of shoreline;

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Additional guidance for carrying out many of TVA's essential stewardship responsibilities is provided in TVA's Natural Resource Plan ("NRP") .

TVA is currently updating its NRP.

In May 2020, the TVA Board of Directors accepted changes to TVA's NRP to support a more strategic, flexible, and comprehensive management approach to TVA's natural resource stewardship work.

TVA published its Record of Decision to complete its environmental review process in July 2020.

The updated plan enhances alignment with TVA's mission through economic development, energy, and environmental stewardship and guides business planning.

In the newly published NRP, TVA expanded from six resource areas to ten focus areas, ensuring the NRP provides a more comprehensive view of resource stewardship efforts.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Natural Resource Plan .

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Economic development, along with energy production and environmental stewardship, is one of the primary statutory purposes of TVA.

TVA works with its LPCs;

regional, state, and local agencies;

and communities to showcase the advantages available to businesses locating or expanding in TVA's service area.

TVA's primary economic development goals are to recruit companies to locate in the Tennessee Valley, encourage expansion of existing business and industry that provide quality jobs, and assist communities in the Tennessee Valley with economic growth opportunities.

TVA seeks to meet these goals through a combination of initiatives and partnerships designed to provide financial assistance, technical services, industry expertise, and site-selection assistance to new and existing businesses.

Economic development programs developed by TVA include those which focus on supporting all communities, including rural and economically distressed communities, across the Tennessee Valley by working in close partnership with other federal and state organizations.

TVA also jointly offers incentive programs with participating LPCs.

These programs offer competitive incentives to existing and potential power customers in certain business sectors that make multi-year commitments to invest in

the Tennessee Valley.

In addition to financial support for these programs, TVA offers resources to communities and economic developers in the areas of recruitment, leadership development, industrial product preparedness (sites and buildings), planning, and project assistance.

TVA's economic development efforts helped recruit or expand 215 companies into the TVA service area during 2019 .

These companies announced capital investments of over $8.9 billion and the expected creation and/or retention of approximately 66,500 jobs.

Economic development programs developed by TVA support all communities, including rural and economically distressed communities, across the Tennessee Valley .

Through its economic development activities, TVA endeavors to recruit and retain companies in targeted business sectors, foster capital investment and job growth, and assist communities in the Tennessee Valley with economic growth opportunities.

TVA seeks to achieve these goals through a combination of initiatives and partnerships with LPCs, regional, state, and local agencies, and communities by providing financial incentives, technical services, industry expertise, and site-selection

assistance to new and existing businesses in the Tennessee Valley.

TVA's economic development incentive programs offer competitive incentives to new and existing power customers in certain business sectors that make multi-year commitments to invest in the Tennessee Valley.

In addition to providing financial support to businesses, TVA offers communities and economic developers site selection services, technical and project development assistance, and leadership training services.

In 2020, TVA's economic development efforts helped recruit or expand 188 companies into the TVA service area.

These companies announced capital investments of over $8.6 billion and expect to create and/or retain approximately 67,000 jobs.

TVA is required to comply with comprehensive and complex laws, regulations, and orders.

The costs of complying with these laws, regulations, and orders are expected to be substantial, and costs could be significantly more than TVA anticipates.

TVA exists pursuant to the TVA Act as enacted by Congress and carries on its operations in accordance with this legislation.

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TVA is, however, an "electric utility" and a "transmitting utility" as defined in the FPA and, thus, is directly subject to certain aspects of FERC's jurisdiction.

Under the FPA, for example, TVA (1) must comply with certain standards designed to maintain transmission system reliability, (2) can be ordered to interconnect its transmission facilities with the electrical facilities of independent generators and of other electric utilities that meet certain requirements, (3) can be ordered to transmit wholesale power provided that the order (a) does not impair the reliability of the TVA or surrounding systems and (b) meets the applicable requirements concerning terms, conditions, and rates for service, as well as the anti-cherrypicking provision, (4) is subject to FERC review of the transmission rates and the terms and conditions of service that TVA provides, and (5) is prohibited from (a) reporting false information on the price of electricity sold at wholesale or the availability of transmission capacity to a federal agency with intent to fraudulently affect the data being compiled by the agency and (b) using manipulative or deceptive devices or contrivances in connection with the purchase or sale of power or transmission services subject to FERC's jurisdiction.

In addition, the FPA provides FERC with authority (1) to order refunds of excessive prices on short-term sales (transactions lasting 31 days or less) by all market participants, including TVA, in price gouging situations if such sales are through an independent system operator or regional transmission organization under a FERC-approved tariff, (2) to issue regulations requiring the reporting, on a timely basis, of information about the availability and prices of wholesale power and transmission service by all market participants, including TVA, (3) to investigate electric industry practices, including TVA's operations that are subject to FERC's jurisdiction, and (4) to impose civil penalties of up to $1 million per day for each violation of the provisions of the FPA discussed in the prior paragraph that are applicable to TVA.

Under the FPA, for example, TVA (1) must comply with certain standards designed to maintain transmission system reliability;

(2) can be ordered to interconnect its transmission facilities with the electrical facilities of independent generators and of other electric utilities that meet certain requirements;

(3) can be ordered to transmit wholesale power provided that the order (a) does not impair the reliability of the TVA or surrounding systems, (b) meets the applicable requirements concerning terms, conditions, and rates for service, and (c) does not implicate the anti-cherrypicking provision;

(4) is subject to FERC review of the transmission rates and the terms and conditions of service that TVA provides;

and (5) is prohibited from (a) reporting false information on the price of electricity sold at wholesale or the availability of transmission capacity to a federal agency with intent to fraudulently affect the data being compiled by the agency and (b) using manipulative or deceptive devices or contrivances in connection with the purchase or sale of power or transmission services subject to FERC's jurisdiction.

(2) to issue regulations requiring the reporting, on a timely basis, of information about the availability and prices of wholesale power and transmission service by all market participants, including TVA;

(3) to investigate electric industry practices, including TVA's operations that are subject to FERC's jurisdiction;

and (4) to impose civil penalties of up to $1 million per day for each violation of the provisions of the FPA discussed in the prior paragraph that are applicable to TVA.

Criminal penalties may also result from such violations.

Finally, while not required to do so, TVA has elected to implement various FERC orders and regulations pertaining to public utilities on a voluntary basis to the extent that they are consistent with TVA's obligations under the TVA Act.

Finally, while not required to do so, TVA has elected to implement various FERC orders and regulations pertaining to

public utilities on a voluntary basis to the extent that they are consistent with TVA's obligations under the TVA Act.

NERC Compliance

TVA is subject to federal reliability standards that are set forth by NERC and approved by FERC.

TVA recognizes that reliability standards and expectations continue to become more complex and stringent for transmission systems.

Nuclear Regulatory Commission

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In addition, if TVA fails to comply with requirements promulgated by the NRC, the NRC has the authority to impose fines, shut down units, or modify, suspend, or revoke TVA's operating licenses.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Generation Resources.

Environmental Protection Agency

TVA is subject to regulation by the EPA in a variety of areas, including air quality control, water quality control, and management and disposal of solid and hazardous wastes.

See Environmental Matters below .

See Environmental Matters below and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges.

The Supremacy Clause of the U.S.

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Environmental Matters

TVA's activities, particularly its power generation activities, are subject to comprehensive regulation under environmental laws and regulations relating to air pollution, water pollution, and management and disposal of solid and hazardous wastes, among other issues.

Emissions from all TVA-owned and operated units (including small combustion turbine units of less than 25 MW) have been reduced from historic peaks.

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Clean Air Act

The CAA establishes a comprehensive program to protect and improve the nation's air quality and control sources of air pollution.

The Clean Air Act ("CAA") establishes a comprehensive program to protect and improve the nation's air quality and control sources of air pollution.

The major CAA programs that affect TVA's power generation activities are described below.

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The CAA requires the EPA to set National Ambient Air Quality Standards ("NAAQS") for certain air pollutants.

The EPA has done this for ozone, particulate matter ("PM") , SO 2 , nitrogen dioxide ("NO 2 "), carbon monoxide, and lead.

The EPA has done this for ozone, particulate matter ("PM"), SO 2 , nitrogen dioxide, carbon monoxide, and lead.

Over the years, the EPA has made the NAAQS more stringent.

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Court of Appeals for the District of Columbia Circuit ("D.C.

Circuit") has remanded a portion of the CSAPR Update Rule back to the EPA to address its failure to require upwind states to eliminate substantial contributions to downwind nonattainment by the statutory deadline.

Circuit") has remanded a portion of the CSAPR Update Rule back to the EPA to address its failure to require upwind states to eliminate substantial contributions to downwind non-attainment areas by the statutory deadline.

Circuit also vacated the CSAPR Close-Out Rule.

TVA has not had and does not currently anticipate significant changes to its operations based on the CSAPR Update Rule and CSAPR Close-Out Rule in its current form.

On October 15, 2020, the EPA proposed revisions to the CSAPR Update Rule to address the court's remand, which must be finalized by March 2021.

On October 30, 2020, the EPA published the proposed rule in the Federal Register.

TVA is currently analyzing the proposed rule to determine whether its provisions could affect operations.

Mercury and Air Toxics Standards for Electric Utility Units .

Following litigation over the Mercury and Air Toxics Standards ("MATS") and the question of whether the EPA was required to consider cost before deciding whether the regulation of hazardous air pollutants ("HAP") emitted from steam electric utilities was appropriate and necessary, the EPA released a proposed finding that it is not appropriate and necessary to regulate HAP emissions from steam electric utilities.

However, the EPA also proposed that notwithstanding this new finding, it would not remove electric generating units from the source categories listed under Section 112 of the CAA and it would not rescind the MATS requirements.

Additionally, the EPA proposed to find that further restrictions on HAP emissions are not warranted upon conducting a residual risk and technology review for this source category.

Until a final rule is issued, specific impacts to TVA cannot be determined;

however, as proposed, the rule is not expected to change TVA's MATS compliance requirements or strategy.

On April 16, 2020, the EPA issued a final rule which revokes the agency's earlier finding that regulation of hazardous air pollutants ("HAP") emitted from steam electric utilities is appropriate and necessary.

The rule does not remove electric generating units from the source categories listed under Section 112 of the CAA nor does it rescind the Mercury and Air Toxics Standards ("MATS") requirements.

Additionally, the EPA determined that further restrictions on HAP emissions are not warranted based on a residual risk and technology review for this source category.

TVA does not anticipate that the final rule will change TVA's MATS compliance requirements or strategy.

Certain states and environmental groups have filed petitions in the D.C.

Circuit challenging the EPA's finding that regulating HAPs from electric generating units is not appropriate and necessary.

TVA cannot predict the outcome of these judicial petitions at this time.

Environmental Agreements.

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In the TVA service area, the limitations imposed on SO 2 and NO x emissions by the CSAPR program are more stringent than the Acid Rain Program.

Therefore, TVA forecasts that the Acid Rain Program will not impose any additional material requirements on TVA.

Therefore, TVA does not anticipate that the Acid Rain Program will impose any additional material requirements on TVA.

Regional Haze Program .

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In January 2017, the EPA published the final rule that changed some of the requirements for Regional Haze State Implementation Plans ("SIPs").

TVA does not expect significant impacts to its operations from these changes, but specific impacts cannot be determined until future Regional Haze SIPs are developed.

Specific impacts cannot be determined until future Regional Haze SIPs are developed for the next decennial review under the visibility haze provisions of the CAA.

States must submit their Regional Haze SIPs to the EPA by July 31, 2021.

Opacity, or visible emissions, measures the denseness (or color) of power plant plumes and has traditionally been used by states as a means of monitoring good maintenance and operation of particulate control equipment.

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TVA does not expect significant impacts from these rule changes.

Petition to Expand the Ozone Transport Region .

In December 2013, eight of the twelve states that make up the Ozone Transport Region ("OTR") submitted a petition requesting the EPA to add nine states, including Kentucky and Tennessee, to the OTR.

If states within TVA's service territory were included in the OTR, TVA would be required to further reduce NO x emissions.

Six of the states filed suit when the EPA failed to act on the petition.

In January 2017, the EPA subsequently published a notice in the Federal Register proposing to deny the petition on the basis that the CAA provides other options.

The EPA then denied the petition in October 2017.

In December 2017, the eight petitioning states filed in the D.C.

Circuit a petition for judicial review of the EPA's denial of the petition to add states to the OTR.

On April 23, 2019, the D.C.

Circuit denied the petition for judicial review of the EPA's refusal to expand the OTR to include nine additional states.

Kentucky Startup/Shutdown Regulations .

In April 2018, the Kentucky Division for Air Quality published final revised startup/shutdown regulations for new and existing indirect heat exchangers.

Shawnee Fossil Plant ("Shawnee") and Paradise have boilers which will be subject to these rules when incorporated into their air permits.

The revised rules do not significantly impact operations at Shawnee or Paradise.

Kentucky State Implementation Plan to Address Downwind Ozone Impacts .

Emissions from utility units in Kentucky that contribute to ozone are already limited by the CSAPR Update Rule and are declining.

In February 2018, Kentucky submitted a proposed revision to its SIP to address downwind state ozone impacts.

The proposed SIP did not require emission reductions beyond current requirements, and in July 2018, the EPA issued a final rule approving Kentucky's revised SIP.

No additional emission reductions are required by the SIP for TVA's Kentucky generating units.

New York Petition to Address Impacts from Upwind High Emitting Sources .

In March 2018, the State of New York filed a petition with the EPA under Section 126(b) of the CAA to address ozone impacts on New York from the NO x emissions from sources emitting at least 400 tons of NO x in CY 2017 from nine states including Kentucky.

The New York petition requests that the EPA require daily NO x limits for utility units with SCRs such as Paradise Unit 3 and emission reductions from utility units without SCRs such as Shawnee Units 2, 3 and 5-9.

Kentucky utility unit NO x emissions are already limited by the CSAPR Update Rule and are declining, and current EPA modeling projects no additional requirements to reduce Kentucky NO x emissions are necessary.

During its February 2019 meeting, the TVA Board approved the retirement of Paradise Unit 3 by December 2020.

On September 20, 2019, the EPA finalized its denial of New York's petition because the state did not demonstrate, and the EPA could not independently establish, that sources in the states listed in the petition contribute to exceedances of the 2008 and 2015 ozone NAAQS in New York.

On October 29, 2019, the state of New York filed a petition in the D.C.

The New York petition requests that the EPA require daily NO x limits for utility units with selective catalytic reduction systems ("SCRs") such as Shawnee Units 1 and 4 and emission reductions from utility units without SCRs such as Shawnee Units 2, 3, and 5-9.

Kentucky utility unit NO x emissions are already limited by the CSAPR Update Rule and are declining, and current EPA modeling projects no additional

requirements to reduce Kentucky NO x emissions are necessary.

In September 2019, the EPA finalized its denial of New York's petition because the state did not demonstrate, and the EPA could not independently establish, that sources in the states listed in the petition contribute to exceedances of the 2008 and 2015 ozone NAAQS in New York.

The State of New York filed a petition in the D.C.

Circuit for judicial review of the EPA's denial of the petition.

Specific impacts to TVA as a result of the filing of the petition for judicial review cannot be determined at this time.

On July 14, 2020, the D.C.

Circuit vacated the EPA's denial of the petition and remanded the petition to the EPA for reconsideration.

Specific impacts to TVA cannot be determined until the EPA takes further action on the petition.

Affordable Clean Energy Rule .

On June 19, 2019, the EPA finalized the final Affordable Clean Energy ("ACE") rule and repealed the EPA's previous regulation addressing greenhouse gas ("GHG") emissions from existing fossil fuel-fired units.

In June 2019, the EPA finalized the final Affordable Clean Energy ("ACE") rule and repealed the EPA's previous regulation addressing greenhouse gas ("GHG") emissions from existing fossil fuel-fired units.

The ACE rule establishes guidelines for GHG emissions from existing coal-fired units based on efficiency improvements that can be achieved at those units at reasonable cost.

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The ACE rule allows states three years to submit their SIPs and allows the EPA 18 months for approval.

In addition, lawsuits challenging the ACE rule are pending in the D.C.

Circuit, and the outcome of the litigation could change requirements under the ACE rule and modify the timeline for compliance.

New Source Performance Standards .

On December 6, 2018, the EPA proposed revisions to the GHG emission standards for new, modified, and reconstructed electric utility generating units that were finalized by the EPA in October 2015.

In December 2018, the EPA proposed revisions to the GHG emission standards for new, modified, and reconstructed electric utility generating units that were finalized by the EPA in October 2015.

For coal-fired units, the EPA proposes to revise the current new source standards such that carbon capture and sequestration technology is no longer necessary to meet the standards of performance that reflect the best system of emission reduction.

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In September 2017, the State of Maryland filed a lawsuit against the EPA for failing to act within 60 days on Maryland's petition under Section 126 of the CAA to address ozone impacts on Maryland from the NO x emissions of 36 electric generating units, including TVA's Paradise coal-fired Unit 3.

Paradise coal-fired Unit 3 is equipped with a SCR that TVA continuously operates to the greatest extent technically practicable in order to minimize NO x emissions.

The EPA has denied the petition because existing regulations already address emissions from the generating units at issue.

On October 15, 2018, the State of Maryland filed a petition for judicial review with the D.C.

Circuit asking the court to review the EPA's decision.

The EPA denied the petition for electric generating units with SCR units because existing regulations already address emissions from such units.

In addition, the EPA denied the petition with respect to electric generating units with non-catalytic controls because of cost.

In October 2018, the State of Maryland filed a petition for judicial review with the D.C.

Circuit, and on May 19, 2020, the D.C.

Circuit remanded the EPA's denial of the petition back to the EPA with respect to the operation of four units with non-catalytic controls.

With the retirement of Paradise Unit 3 on February 1, 2020, the partial remand of the petition to the EPA will not affect TVA.

Climate Change

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EO 13783 did not mandate that the EPA reconsider its finding under the CAA that GHG emissions cause climate change and therefore endanger public health and the environment.

While EO 13783 requires review of all agency actions that potentially burden the safe, efficient development of domestic energy resources, the final specific requirements and impacts from implementation of this EO are not possible to predict at this time.

It is likely that there will be some delay in the development of future GHG reduction requirements.

Implementation of EO 13783 has resulted in the replacement of the Clean Power Plan rule for existing fossil generation units by the ACE rule and revisions to the GHG emission standards for new, modified, and reconstructed electric utility generating units.

The impact of the ACE rule and the GHG emission standards are discussed above.

In May 2018, EO 13834, "Efficient Federal Operations," was signed.

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The order seeks to consolidate requirements related to energy and water efficiency, high performance buildings, renewable energy consumption, and federal vehicle fleet management.

TVA consistently seeks to improve its operations in order to optimize energy and environmental performance and does not anticipate significant changes in its planning or operations as a result of the new EO.

International Accords .

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The agreement met the threshold of at least 55 countries that account for at least 55 percent of global GHG emissions and formally entered into force in November 2016.

The durability of the Paris Agreement commitments is uncertain after President Trump's announcement in

June 2017 that the U.S.

would withdraw from the agreement.

On November 4, 2019, the United States formally notified the United Nations that it would withdraw from the agreement.

Under the terms of the agreement, the effective date for the withdrawal will be November 4, 2020.

On November 4, 2019, the U.S.

formally notified the United Nations that it would withdraw from the agreement.

Under the terms of the agreement, the effective date for the withdrawal was November 4, 2020.

Specific impacts to TVA cannot be determined at this time.

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Among other commitments, each state commits to implement policies that advance the goals of the Paris Agreement, aiming to reduce GHG emissions by at least 26-28 percent below CY 2005 levels by CY 2025 and to accelerate new and existing policies to reduce carbon pollution and promote clean energy deployment at the state and federal level.

In June 2017, America's Pledge was announced as a collaborative opportunity for these states to work with U.S.

cities and businesses representing more than half of the U.S.

In September 2018, America's Pledge released its economy-wide policy analysis with recommendations of how states, cities, businesses, and other stakeholders can influence U.S.

In June 2017, U.S.

states, cities, and businesses representing more than half of the U.S.

economy made a pledge to meet the GHG reduction targets of the Paris Agreement, called "America's Pledge." In September 2020, America's Pledge released its second economy-wide policy analysis with recommendations of how states, cities, businesses, and other stakeholders can influence U.S.

decarbonization.

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In addition to legislative activity, climate change issues have been the subject of a number of lawsuits, including lawsuits against TVA.

See Note 22 for additional information.

See Note 22 — Commitments and Contingencies for additional information.

Indirect Consequences of Regulation or Business Trends .

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Physical Impacts of Climate Change.

TVA manages the potential effects of climate change on its mission, programs, and operations within its environmental management processes.

TVA's Climate Change Adaptation Plan was last updated in July 2020.

The goal of the adaptation planning process is to ensure TVA continues to achieve its mission and program goals and to operate in a secure, effective, and efficient manner in a changing climate by integrating climate change adaptation efforts in coordination with state and local partners, tribal governments, and private stakeholders.

TVA's Climate Change Adaptation Plan was last updated in June 2018.

TVA manages the potential effects of climate change on its mission, programs, and operations within its environmental management processes.

Actions Taken by TVA to Reduce GHG Emissions .

TVA has reduced GHG emissions from both its generation stations and its operations.

As discussed earlier in this Item 1, Business, recent TVA Board actions have focused on TVA's plan to balance its coal-fired generation by increasing its nuclear capacity, modernizing its hydroelectric generation system, increasing natural gas-fired generation, installing emission control equipment on certain of its coal-fired units, increasing its purchases of renewable energy, building solar facilities, and investing in energy efficiency initiatives to reduce energy use in the Tennessee Valley.

Additionally, TVA has invested to reduce energy use in its operations.

Recent TVA Board actions have focused on TVA's plan to balance its coal-fired generation by increasing its nuclear capacity, modernizing its hydroelectric generation system, increasing natural gas-fired generation, installing emission control equipment on certain of its coal-fired units, increasing its purchases of renewable energy, building solar facilities, and investing in energy efficiency initiatives to reduce energy use in the Tennessee Valley.

Additionally, TVA has invested to increase energy efficiency in its operations.

The combination of more stringent environmental regulations, lower natural gas prices, and lower demand for energy across the Tennessee Valley has reduced the utilization of coal-fired generation.

These factors have resulted in lower CO 2 emissions from the TVA system.

These factors have resulted in lower CO 2 emissions from the TVA system, as previously discussed in this section.

Renewable/Clean Energy Standards

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TVA's policy is to provide compliance assistance to any distributor of TVA power, and TVA is providing assistance to the covered LPCs that sell TVA power in North Carolina.

In 2020, Virginia signed into law the Clean Economy Act.

The Act establishes a mandatory requirement for utilities to generate a certain amount of electricity from renewable sources.

At this time, TVA is not impacted by the legislation due to the relatively small amount of electricity that TVA provides in Virginia compared to other utilities.

Likewise, the Mississippi Public Service Commission adopted an energy efficiency rule applying to electric and natural gas providers in the state, and TVA is supplying information on participation in TVA's energy efficiency programs to support the covered Mississippi LPCs.

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In addition, the responsible state agencies must provide all permit applications to the U.S.

Fish & Wildlife Service for a 60-day review prior to public notice and an opportunity to comment during the public notice.

Fish and Wildlife Service for a 60-day review prior to public notice and an opportunity to comment during the public notice.

As a result, the permit may include requirements for additional studies of threatened and endangered species arising from U.S.

Fish & Wildlife Service comments and may require additional measures be taken to protect threatened and endangered species and critical habitats directly or indirectly related to the plant cooling water intake.

TVA's review of the final rule indicates that the rule offers adequate

flexibility for cost-effective compliance.

The required compliance timeframe is linked to plant specific NPDES permit renewal cycles (i.e., technology retrofits), and compliance is expected to be required in the CYs 2022-2024 timeframe.

Fish and Wildlife Service comments and may require additional measures be taken to protect threatened and endangered species and critical habitats directly or indirectly related to the plant cooling water intake.

TVA's review of the final rule indicates that the rule offers adequate flexibility for cost-effective compliance.

The required compliance timeframe is linked to plant-specific NPDES permit renewal

cycles (i.e., technology retrofits), and compliance is expected to be required in the CYs 2022-2024 timeframe.

The EPA has never applied the requirements under Section 316(b) to hydroelectric facilities.

However, two EPA regions that do not cover TVA's activities are proposing to include Section 316(b) requirements in NPDES permits for hydroelectric facilities in those regions that withdraw water used for cooling purposes.

It is not clear whether the requirements will be adopted nationwide or, given the unique features of hydroelectric facilities and the manner in which they withdraw water for cooling purposes, how the best technology available standard would be applied to TVA's hydroelectric facilities.

The specific impacts to TVA from this potential policy change cannot be determined at this time.

Hydrothermal Discharges.

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Many TVA plants have variances from thermal standards under Section 316(a) of the Clean Water Act that are subject to review as NPDES permits are renewed.

Specific data requirements in the future will be determined based on negotiations between TVA and regulators.

Specific data requirements in the future will be determined based on negotiations between TVA and state regulators.

If plant thermal limits are made more stringent, TVA may have to install cooling towers at some of its plants and operate installed cooling towers more often.

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In 2015, the EPA revised existing steam-electric effluent limitation guidelines ("ELGs"), which regulate water discharge pollutants and require the application of certain pollutant control technologies.

The 2015 ELGs establish more stringent performance standards for existing and new sources and will require major upgrades to wastewater treatment options at all coal-fired plants.

Compliance with new requirements was originally required in the CYs 2018-2023 timeframe, but the EPA delayed the compliance for flue gas desulfurization ("FGD") wastewater and bottom ash transport water until CYs 2020-2023 to allow the EPA time to review and potentially revise the ELGs with regard to these waste streams.

In August 2017, the EPA Administrator announced his decision to conduct a rulemaking to potentially revise the new, more stringent effluent limitations that apply to bottom ash transport water and FGD wastewater in the CY 2015 ELG rule.

In April 2019, the United States Court of Appeals for the Fifth Circuit ("Fifth Circuit") remanded portions of the 2015 ELG because it determined that some of the standards did not comply with statutory requirements.

The EPA proposed revised ELGs for bottom ash transport water and FGD wastewater on November 4, 2019, but did address the portions of the ELG that were remanded by the Fifth Circuit.

The 2015 ELGs established more stringent performance standards for existing and new sources and required major upgrades to wastewater treatment options at all coal-fired plants.

Compliance with new requirements was originally required in the CYs 2018-2023 timeframe, but the EPA delayed the compliance dates for flue gas desulfurization ("FGD") wastewater and bottom ash transport water until CYs 2020-2023 to allow the EPA time to review and potentially revise the ELGs with regard to these waste streams.

In April 2019, the U.S.

Court of Appeals for the Fifth Circuit ("Fifth Circuit") remanded portions of the 2015 ELG rule because it determined that some of the standards did not comply with statutory requirements.

The EPA proposed revised ELGs for bottom ash transport water and FGD wastewater on November 4, 2019, but did not address the portions of the ELG that were remanded by the Fifth Circuit.

The final ELGs were published on October 13, 2020.

The primary impact for TVA is on the operation of existing coal-fired generation facilities.

The proposed revised ELGs could impact long-term investment decisions being made relative to the long-term compliance and operability of these plants.

The proposed revisions may require TVA to install additional wastewater treatment systems for FGD wastewater and bottom ash transport water and TVA could incur substantial costs to comply with the new rule.

The proposed revision also includes a subcategory for which the Cumberland Fossil Plant (“Cumberland”) would qualify that provides TVA greater flexibility in meeting the ELGs.

However, given that these are proposed rules, it is unclear what the final impact to TVA will be.

The revised ELGs will impact long-term investment decisions relative to the long-term compliance and operability of these plants.

The revisions may require TVA to install additional wastewater treatment systems for FGD wastewater and bottom ash transport water, and TVA could incur substantial costs to comply with the new rule.

The revision also includes a subcategory for which the Cumberland Fossil Plant ("Cumberland") would qualify that provides TVA greater flexibility in meeting the ELGs.

The revision includes two additional subcategories for low utilization units and units that cease coal combustion by the end of 2028.

TVA will evaluate the applicability of those subcategories to its plants as appropriate.

Litigation on the final rule is anticipated which introduces additional uncertainty in what will be required at each facility.

Other Clean Water Act Requirements .

As is the case in other industrial sectors, TVA and other utilities are also facing more stringent requirements related to the protection of wetlands, reductions in storm water impacts from construction activities, new water quality criteria for nutrients and other pollutants, new wastewater analytical methods, and regulation of pesticide discharges.

Recent Clean Water Act Decisions

On April 23, 2020, in County of Maui v.

Hawaii Wildlife Fund , the Supreme Court held that the Clean Water Act requires a permit when there is a direct discharge of pollutants from a point source to waters of the U.S.

and when there is "the functional equivalent" of a direct discharge to such waters.

The Court suggested seven factors for determining when such a discharge is the functional equivalent of a direct discharge and acknowledged that the new test would be somewhat difficult to apply, potentially requiring evaluation of multiple factors.

The Court noted that "time and distance" of pollutant migration often will be the most important factor but that other relevant factors may include, for example, the nature of the material through which the pollutant travels and the extent to which the pollutant is diluted or chemically changed as it travels.

TVA is evaluating what potential impact the decision and application of the test could have on its operations.

On April 15, 2020, in Northern Plains Resource Council v.

Army Corps of Engineers , the U.S.

District Court for the District of Montana ("District Court of Montana") vacated the Nationwide Permit ("NWP") 12, which authorizes discharges of dredged or fill material into waters of the U.S., and enjoined the U.S.

Army Corps of Engineers from authorizing projects nationwide under the permit.

The District Court of Montana subsequently amended its order on May 11, 2020, to allow NWP 12 to remain in place pending appeal for non-pipeline construction projects.

The Supreme Court further granted a stay of the decision on July 6, 2020, allowing NWP 12 to remain in place for all pipeline construction projects except the Keystone XL pipeline.

Consequently, the District Court of Montana's decision vacating NWP 12 does not have an immediate effect on TVA;

however, unless the District Court of Montana's decision is reversed on appeal, there remains a risk that NWP 12 will not be available for TVA projects in the future.

On September 15, 2020, the U.S.

Army Corps of Engineers published a notice of proposed rulemaking in the Federal Register for the reissuance and modification of NWPs, including NWP 12.

The notice also

included a proposal to limit the applicability of NWP 12 to oil and natural gas pipelines, modify certain pre-construction notification requirements, and create new NWPs for certain utility line activities.

The proposed rule is unlikely to have a material impact on TVA, but the impact cannot be evaluated until the proposed rule is finalized and any related litigation is resolved.

Cleanup of Solid and Hazardous Wastes

Liability for releases and cleanup of hazardous substances is imposed under the federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") , and other federal and parallel state statutes.

Liability for releases and cleanup of hazardous substances is imposed under the federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the Resource Conservation and Recovery Act ("RCRA"), and other federal and parallel state statutes.

In a manner similar to many other industries and power systems, TVA has generated or used hazardous substances over the years.

TVA operations at some of its facilities have resulted in contamination that TVA is addressing including at TVA's Environmental Research Center at Muscle Shoals, Alabama.

At September 30, 2019 , TVA's estimated liability for cleanup and similar environmental work for those sites for which sufficient information was available to develop a cost estimate is approximately $15 million and was included in Accounts payable and accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheet.

In addition, the ERC has an active groundwater monitoring program as part of a Resource Conservation and Recovery Act ("RCRA") Corrective Action Permit.

TVA operations at some of its facilities have resulted in releases of contaminants that TVA is addressing including at TVA's Environmental Research Center at Muscle Shoals, Alabama.

At September 30, 2020, TVA's estimated liability for cleanup and similar environmental work for those sites for which sufficient information was available to develop a cost estimate is approximately $14 million and was included in Accounts payable and accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets.

In addition, the Environmental Research Center has an active groundwater monitoring program as part of a permitted corrective action plan.

Non-TVA Sites.

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Coal Combustion Residuals.

The EPA published its final rule governing CCR in April 2015.

The EPA published its final rule governing CCR in 2015.

The rule regulates CCR as nonhazardous waste under Subtitle D of the RCRA.

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The Water Infrastructure Improvements for the Nation Act ("WIIN Act") subsequently allowed state or federal-based permitting to implement the CCR rule as an alternative to self-implementation and citizen suits.

The rule, which became effective in October 2015, has later effective dates for certain provisions.

In July 2018, the EPA issued a final rule which provided additional flexibility and an extension of certain deadlines.

On March 13, 2019, the D.C.

Circuit granted the EPA's request to remand this final rule to allow the EPA to reconsider the amendments to the CCR Rule.

The remand also allows the EPA additional time to complete a new rulemaking to establish revised timelines for unlined impoundments to initiate closure and to reexamine the October 2020 deadline for closing some unlined impoundments.

On August 14, 2019, the EPA issued a proposed rule to amend portions of the CCR Rule regarding beneficial use, temporary piles, and public access to information.

As a result of these developments, it is not possible to predict potential impacts on TVA.

In July 2018, the EPA issued a final CCR rule which provided additional flexibility and an extension of certain deadlines.

In March 2019, the D.C.

Circuit granted the EPA's request to remand the final rule to allow the EPA to reconsider the amendments.

The remand also allowed the EPA time to complete a new rulemaking to establish revised timelines for unlined impoundments to initiate closure and to reexamine the October 2020 deadline for closing some unlined impoundments.

In August 2019, the EPA issued a proposed rule to amend portions of the CCR Rule regarding beneficial use, temporary piles, and public access to information.

On November 4, 2019, the EPA announced a proposed rule that will revise portions of the CCR Rule requiring closure of unlined surface impoundments.

This proposal, if finalized, will require all unlined CCR surface impoundments to stop receiving CCR and non-CCR wastestreams and to initiate closure by no later than August 31, 2020.

The proposed rule would allow a utility to demonstrate the need for a short-term extension to continue to use the unlined CCR surface impoundment until November 30, 2020 if the alternative disposal capacity (i.e., new landfills or non-CCR water management systems) is not complete.

Additionally, the proposed rule provides a process for a utility to seek site-specific approval from the EPA to continue to use the unlined CCR surface impoundment until no later than October 15, 2023.

TVA does not currently anticipate the proposed rule will have a significant impact because TVA is already planning to close its unlined CCR surface impoundments.

In August 2015, the Tennessee Department of Environment and Conservation ("TDEC") issued an order that (1) allowed TDEC to oversee TVA's implementation of the EPA's CCR rule and (2) required TVA to assess CCR contamination risks at seven of TVA's eight coal-fired plants in Tennessee and to remediate any unacceptable risks.

The final Part A rule was published in the Federal Register on August 28, 2020, and became effective September 28, 2020.

Among other things, the final Part A rule requires all unlined CCR surface impoundments to stop receiving CCR and non-CCR wastestreams and to initiate closure or retrofit by no later than April 11, 2021.

Additionally, the final rule provides a process for a utility to seek site-specific approval from the EPA to continue to use the unlined CCR surface impoundment until October 15, 2023, and possibly longer under certain circumstances.

The final rule also includes requirements that enhance the public's access to groundwater monitoring and corrective action reports.

TVA does not currently anticipate the final rule will have a significant impact because TVA is already planning to close its unlined CCR surface impoundments by the regulatory deadline and already makes groundwater monitoring and corrective action reports publicly available.

A prepublication copy of a separate final Part B rule was released on October 16, 2020.

This rule provides an alternative liner demonstration procedure for utilities with clay lined units which are being forced to close under the Part A rule.

However, TVA does not have any units which qualify for this demonstration.

In August 2015, the Tennessee Department of Environment and Conservation ("TDEC") issued an order that (1) established a process for TDEC to oversee TVA's implementation of the EPA's CCR rule to ensure coordination and compliance with Tennessee laws and regulations that govern the management of CCR and (2) required TVA to investigate and assess CCR contamination risks at seven of TVA's eight coal-fired plants in Tennessee and to remediate any unacceptable risks.

The TDEC order does not allege that TVA is violating any CCR regulatory requirements nor does it assess TVA penalties.

The TDEC order sets out an iterative process through which TVA and TDEC will identify and evaluate any CCR contamination risks and, if necessary, respond to such risks.

TVA has been involved in two lawsuits concerning CCR facilities at Gallatin.

These lawsuits have been resolved.

See Note 22 — Commitments and Contingencies — Legal Proceedings — Lawsuit Brought by TDEC Involving Gallatin Fossil Plant CCR Facilities and Lawsuit Brought by TSRA and TCWN Involving Gallatin Fossil Plant CCR Facilities for additional information.

Currently, TVA is conducting environmental investigations of the seven sites in accordance with the TDEC-approved Environmental Investigation Plans for each site.

Upon the completion of the investigations, TVA will submit an environmental assessment report for each site.

Groundwater Contamination .

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As a result, TVA may have to change how it manages CCR at some of its plants, potentially resulting in higher costs.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Generation Resources — Coal Combustion Residual Facilities, Note 10 — Asset Retirement Obligations , and Note 22 — Commitments and Contingencies — Legal Proceedings — Lawsuit Brought by TDEC Involving Gallatin Fossil Plant CCR Facilities and Lawsuit Brought by TSRA and TCWN Involving Gallatin Fossil Plant CCR Facilities .

Environmental Investments

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In addition, TVA has reduced emissions by idling or retiring coal-fired units and relying more on cleaner energy resources including natural gas and nuclear generation.

TVA currently anticipates spending significant amounts on environmental projects through 2024, including investments in new clean energy generation including renewables to reduce TVA's overall environmental footprint.

TVA currently anticipates spending significant amounts on environmental projects in the future, including investments in new clean energy generation including renewables to reduce TVA's overall environmental footprint.

TVA environmental project expenditures also result from coal-fired plant decommissioning and from effective ash management modernization.

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Coal Combustion Residual Conversion Program (5)

Clean air control projects (6)

$ 313 $ 224 $ 412 $ 949

Clean Air Act control projects (6)

Clean Water Act requirements (7)

(1) These estimates are subject to change as additional information becomes available and as regulations change.

(2) These estimates include $254 million, $207 million, and $256 million for the remainder of 2020, 2021, and thereafter, respectively, in capital expenditures.

(2) These estimates include $145 million, $134 million, and $121 million for 2021, 2022, and thereafter, respectively, in capital expenditures.

(3) See Note 22 — Commitments and Contingencies .

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TVA is continuing to evaluate the rules and their impact on its operations, including the cost and timing estimates of related projects.

See Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Generation Resources — Coal Combustion Residual Facilities and Note 12 — Asset Retirement Obligations .

See Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Generation Resources — Coal Combustion Residuals Facilities and Note 12 — Asset Retirement Obligations.

(6) Includes air quality projects that TVA is currently performing to comply with existing air quality regulations, but does not include any projects that may be required to comply with potential GHG regulations or transmission upgrades.

(7) Includes projects that TVA is currently planning to comply with revised rules under the Clean Water Act regarding CWIS and ELGs for steam electric power plants.

(7) Includes projects that TVA is currently planning to comply with revised rules under the CWA regarding CWIS and ELGs for steam electric power plants.

Human Capital Resources

On September 30, 2020, TVA had 9,989 employees, of whom 3,287 were trades and labor employees.

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Federal law prohibits TVA employees from engaging in strikes against TVA.

TVA also had approximately 13,800 contractors providing both intermittent or full-time services.

The majority of these contractors are managed by TVA suppliers who are providing services to TVA.

Over the past year, TVA has worked to evolve its strategic direction to place an intentional focus on its people through a strategic priority identified as People Advantage.

As part of this strategic priority, there are three key transformational elements:

to accelerate the impact of inclusion with diversity within TVA and the communities it serves, to create a talent-focused

organization to amplify the energy, power, and creativity within each TVA employee, and to create a culture that lives up to its values.

TVA employees share common core values and strategic objectives, and it is these values that are the fundamental beliefs that guide actions, behaviors, and decisions as a company.

The TVA values include:

• Safety — Committing to the safety and well-being of each TVA employee and the communities TVA serves;

• Integrity — Conducting business in an honest and straightforward way;

• Inclusion — Treating everyone with dignity and respect, emphasizing inclusion by welcoming each person's individuality so that full potential is reached;

• Service — Serving in the communities in which TVA employees live, work, and play.

Each and every day, TVA is responsible for making life better in the Tennessee Valley.

TVA is dedicated to keeping its employees inspired and empowered toward achieving this primary mission of service and invests in people areas including employee health and safety, employee benefits and development, and diversity and inclusion efforts.

TVA continues to focus on safety, and as a result, TVA has seen a consistent decline in injuries for the last seven years and has achieved industry top decile performance in safety.

TVA's safety program is based on the fundamentals of a safety management system, which includes management commitment, employee engagement, hazard recognition and control, worksite analysis, contractor safety management, training, review, and continuous improvement.

Employee engagement is critical to the success of the program.

TVA's vital safety behaviors are employee driven and developed with the collaboration of represented employees, union leadership, and management to improve safety behaviors.

Audits and assessments are a key component of continuous improvement and in overseeing TVA's safety and health program and are performed regularly.

As a federal agency, TVA is also required to complete regulatory compliance inspections of its facilities on an annual basis.

To care for the well-being of employees and their families, TVA offers quality healthcare, insurance, and retirement benefits.

Other benefits also include flexible work schedules, wellness incentives, scholarships for dependents of employees, tuition reimbursement, training and education opportunities, and employee development.

TVA offers career opportunities and training for military veterans, college students, and recent graduates.

Employee development involves individual learning-ability, team learning, mentoring, and career pathing including rotational development.

As TVA continues to adapt to the evolving demands of the industry, it is imperative that it cultivate a work environment that fosters the attributes and capabilities of an interconnected workforce.

TVA is enriched by the diversity of a talented, highly skilled workforce made up of people from all backgrounds.

To achieve this, TVA endeavors to ensure that all qualified candidates receive fair consideration for open jobs at TVA and that all employees are encouraged, engaged, and empowered to contribute 100 percent of their talents, 100 percent of the time while bringing their authentic selves to work each day.

Recruiting efforts also support the strategic element of inclusion with diversity and a culture that lives up to TVA's values, and TVA actively recruits employees of all races, colors, sexual orientations, ethnicities, gender identities, abilities, religions, and ages.

TVA continues to work to improve the minority share and women share of the workforce and maintain its status as best in industry for the military veteran share of the workforce.

In addition, TVA has Employee Resource Groups that support and empower employees based on their personal association to the diverse groups present at TVA.

Through the People Advantage strategic priority, TVA strives to become the destination for difference makers, where TVA and employees believe the best in each other, give the best to each other, and expect the best from each other.

Key measures of success are engagement and inclusion scores, regrettable losses, recordable injuries, and people of color and female representation, both in leadership.

The 2019 and 2020 results for these key measures are reflected in the chart below, in addition to the performance goals for 2021.

2019 2020 2021

Performance Measure Actual Actual Plan

People of Color Representation in Leadership (%) 9 % 9 % 10 %

Female Representation in Leadership (%) 17 % 18 % 19 %

Regrettable Losses (%) 1.1 % 1.0 % 0 %

Engagement (100 point scale) (1)

Inclusion (100 point scale) (1)

Recordable Injuries (#) 54 38 0

(1) A new vendor was used to facilitate the Engagement and Inclusion Survey in 2020;

therefore, weightings and results may vary when comparing 2020 to 2019.

See also Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations – B usiness and Mission – TVA's Mission of Service for a discussion of TVA's mission, strategic priorities, and linking the mission to performance through corporate measures.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business