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Item 7. Management’s Discussion and Analysis

2021-11-15 compared with 2020-11-17 · 685 added, 585 removed, 693 unchanged (65% of the section changed)

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(Dollars in millions except where noted)

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the Tennessee Valley Authority ("TVA"), its operations, and its present business environment.

The MD&A is provided as a supplement to, and should be read in conjunction with, TVA's consolidated financial statements and the accompanying notes thereto contained in Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K for the fiscal year ended September 30, 2021 (the "Annual Report").

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in TVA's Annual Report on Form 10-K/A for the year ended September 30, 2019, filed with the Securities and Exchange Commission on November 15, 2019, for a discussion of variance drivers for the year ended September 30, 2019, as compared to the year ended September 30, 2018.

See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in TVA's Annual Report on Form 10-K for the year ended September 30, 2020, filed with the Securities and Exchange Commission ("SEC") on November 16, 2020, for a discussion of variance drivers for the year ended September 30, 2020, as compared to the year ended September 30, 2019.

The MD&A includes the following sections:

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• Key Initiatives and Challenges — an overview of current and future initiatives and challenges facing TVA;

• Critical Accounting Policies and Estimates — a summary of accounting policies that require critical judgments and estimates;

• Fair Value Measurements — a description of TVA's investments and derivative instruments and valuation considerations;

• Critical Accounting Estimates — a summary of significant estimates, judgements, and assumptions that effect the amounts reported in the consolidated financial statements and accompanying notes;

• Legislative and Regulatory Matters — a summary of laws and regulations that may impact TVA;

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TVA operates the nation's largest public power system.

At September 30, 2020, TVA provided electricity to approximately 49 large industrial customers, seven federal agency customers, and 153 local power company customers ("LPCs") that serve approximately 10 million people in parts of seven southeastern states.

At September 30, 2021, TVA provided electricity to approximately 57 directly served customers, which include seven federal agency customers, and 153 local power company customers ("LPCs") that serve approximately 10 million people in parts of seven southeastern states.

TVA generates nearly all of its revenues from the sale of electricity, and in 2021 revenues from the sale of electricity totaled $10.4 billion.

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• The area in which TVA sells power is limited by the Tennessee Valley Authority Act of 1933, as amended (the "TVA Act") under a provision known as the "fence";

however, another provision of federal law known as the "anti-cherrypicking" provision generally protects TVA from being forced to provide access to its transmission lines to others for the purpose of delivering power to customers within substantially all of TVA's defined service area.

however, another provision of federal law known as the Anti-Cherrypicking Amendment ("ACPA") generally protects TVA from being forced to provide access to its transmission lines to others for the purpose of delivering power to customers within substantially all of TVA's defined service area.

• The rates TVA charges for power are set solely by the TVA Board of Directors ("TVA Board") and are not set or reviewed by another entity, such as a public utility commission.

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• TVA is not authorized to raise capital by issuing equity securities.

TVA relies primarily on cash from operations and proceeds from power program borrowings to fund its operations and is authorized by the TVA Act to issue bonds, notes, or other evidences of indebtedness (collectively, "Bonds") in an amount not to exceed $30.0 billion outstanding at any given time.

outstanding at any given time.

Although TVA's operations were originally funded primarily with appropriations from Congress, TVA has not received any appropriations from Congress for any activities since 1999 and, as directed by Congress, has funded essential stewardship activities primarily with power revenues.

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ENERGY ENVIRONMENT ECONOMIC DEVELOPMENT

• Energy — Delivering affordable, reliable power;

• Energy — Delivering reliable, low cost, clean energy;

• Environment — Caring for the region's natural resources;

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and the need to diversify its power supply and adapt to changing customer usage behaviors, new technologies, and emerging, non-traditional competition.

To continue to deliver its mission of service while evolving for future success, TVA must realize five strategic priorities:

• Powerful Partnerships — Promoting progress through the shared success of TVA's customers and stakeholders;

• People Advantage — Amplifying the energy, passion, and creativity within each TVA employee;

• Operational Excellence — Building on TVA's best-in-class reputation for reliable service and competitively priced power;

• Igniting Innovation — Pursuing innovative solutions for TVA and its customers and communities;

• Financial Strength — Investing in the future, while keeping energy costs as low as possible.

To continue to deliver its mission of service while evolving for future success, TVA must realize five strategic priorities, which are comprised of several strategic elements each:

Enhance our Role as a Community Leader and Trusted Partner Create a Culture that Lives up to TVA's Values Nation’s Top Nuclear Fleet by 2025 Advance Energy Transformation in the Valley through Innovation Deliver Value to Enhance Prosperity in the Valley

Champion the Unique Value of the Valley Public Power Model Accelerate the Impact of Inclusion with Diversity within TVA and the Communities TVA Serves Evolve TVA's Reliable and Clean Energy Supply into the Energy System of the Future Establish a Focused Innovation Framework and Mindset Balance Commitments & Obligations

Region’s Top Choice for Business and Industry Lead the Industry in Cost-effective Carbon Reduction Develop Long-Term Business Model

Meet Resource and Environmental Stewardship Commitments Build the Integrated and Reliable Grid of Tomorrow Achieve Sustainable Debt Level

TVA's mission sets the stage for its strategic planning process that includes strategic objectives, initiatives, and scorecards for performance designed to provide clear direction for improving TVA's core business.

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TVA has formulated key performance measures to support its strategic priorities.

The intent of these measures is to align employees to TVA's mission by focusing its collective efforts on operational excellence, fiscal responsibility, economic

development, and environmental stewardship.

The intent of these measures is to align employees to TVA's mission by focusing its collective efforts on operational excellence, fiscal responsibility, economic development, and environmental stewardship.

The measures are designed to promote teamwork, encourage high performance behaviors, and motivate TVA employees to achieve goals aligned with TVA's mission and values.

The 2020 corporate results compared with targets for these key measures are reflected in the chart below, in addition to the 2021 corporate measures approved effective November 2020.

The 2021 corporate results compared with targets for these key measures are reflected in the chart below, in addition to the 2022 approved corporate measures.

See Item 11, Executive Compensation — Compensation Discussion and Analysis for information regarding how the measures are calculated.

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Load not served (system minutes) 30% 3.2 4.6 3.9 3.4

Nuclear unit capability factor (UCF) (%) 15% 90.0 % 89.5 % 90.9 % 92.2 %

Annualized nuclear unit capability factor (%) 15% 90.5 % 89.5 % 90.2 % 91.9 %

Combined cycle equivalent availability factor (%) 10% 85.3 % 75.9 % 80.9 % 85.8 %

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Load not served (system minutes) 30% 4.5 3.9 3.2

Nuclear unit capability factor (UCF) (%) 15% 91.3 % 92.0 % 93.7 %

Annualized nuclear online reliability loss factor (%) 15% 3.73 % 2.71 % 1.69 %

Combined cycle equivalent availability factor (%) 10% 77.6 % 82.6 % 84.9 %

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TVA's operating revenues were $10.5 billion and $10.2 billion for the years ended September 30, 2021 and 2020, respectively.

The decrease in operating revenue was primarily due to lower sales volume as a result of milder weather for the TVA service area and impacts from the COVID-19 pandemic, as well as lower fuel cost recovery revenue from lower fuel rates.

Despite record-setting heat experienced during October 2019 and record-setting cold during November 2019, TVA's service territory experienced overall milder weather during the year ended September 30, 2020, which decreased energy sales.

TVA also experienced lower energy sales as a result of the COVID-19 pandemic, driven by certain commercial and industrial customers curtailing operations in response to COVID-19 pandemic social distancing standards and economic conditions.

TVA estimates base revenues were reduced by approximately $185 million for the year ended September 30, 2020, due to the impacts of COVID-19.

Despite the reduction in revenue due to the COVID-19 pandemic, TVA was able to meet its financial targets, which would not have been possible without the financial discipline of TVA employees.

TVA expects the COVID-19 pandemic to continue impacting revenue for 2021 and has planned for $10.0 billion in operating revenue.

It is uncertain at this time the extent to which TVA's revenues may be impacted beyond 2021.

Fuel and purchased power expen se decreased $439 million for th e year ended September 30, 2020, as compared to the prior year.

This decrease was primarily due to lower effective fuel rates and lower purchased power and fuel volume driven by decreased demand, resulting from overall milder weather and the COVID-19 pandemic.

Operating and maintenance expense decreased $370 million for the year ended September 30, 2020, as compared to the prior year.

This was primarily driven by prior year recovery of the regulatory asset for environmental cleanup costs related to the Kingston ash spill.

Depreciation and amortization expense decreased $147 million for the year ended September 30, 2020, as compared to the same period of the prior year.

This decrease was primarily due to a decrease in depreciation expense as a result of the decision in 2019 to accelerate the retirements of Bull Run Fossil Plant ("Bull Run") and Paradise Fossil Plant ("Paradise").

In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic, which continues to be a serious challenge throughout the U.S.

In addition to impacts to TVA, 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, in March 2020, the TVA Board approved the Public Power Support and Stabilization Program, offering up to $1.0 billion of credit support to provide temporary financial relief for its LPCs in the form of deferred payments of power bills under certain circumstances.

In addition, in August 2020, the TVA Board approved a $200 million Pandemic Relief Credit that will apply to service provided to TVA's LPCs, their large commercial and industrial customers, and TVA's directly served customers as a 2.5 percent monthly base rate credit during 2021.

TVA continues to coordinate with LPCs and partners to understand the impact of the COVID-19 pandemic to its service territory.

TVA's operations and delivery of energy to customers have not been materially impacted by the COVID-19 pandemic at this time.

TVA experienced fluctuations related to its pension plan assets and other investment portfolios during the year ended September 30, 2020, which had substantially recovered as of September 30, 2020.

In response to the reductions in revenue, TVA has implemented various cost savings initiatives, such as deferring and prioritizing certain capital projects and decreasing discretionary spending.

Due to higher volatility in the financial markets associated with the COVID-19 pandemic, TVA increased its target balance of Cash and cash equivalents beginning in March 2020 and continued to hold higher target cash balances at September 30, 2020.

TVA continues to monitor the situation and will adjust its response as necessary to ensure reliable service while protecting the safety and health of its workforce and sustaining business operations.

See Key Initiatives and Challenges — Coronavirus Pandemic for an expanded discussion of the impact to TVA and related initiatives.

Operating revenues increased for the year ended September 30, 2021 as compared to the prior year, primarily as a result of higher energy sales and an increase in fuel cost recovery revenue attributable to higher fuel rates.

These increases were partially offset by lower effective rates primarily from the Pandemic Relief Credit that the TVA Board approved in 2020, which was in effect for 2021.

The 2.5 percent monthly base rate credit, applied to service provided to TVA's local power company customers ("LPCs"), their large commercial and industrial customers, and TVA's directly served customers.

For the year ended September 30, 2021, these credits accounted for $221 million of a decrease to operating revenue.

In August 2021, the TVA Board approved a 2.5 percent monthly base rate credit, the Pandemic Recovery Credit, which will be effective for 2022.

The credit, expected to approximate $220 million, will also apply to service provided to TVA's LPCs, their large commercial and industrial customers, and TVA directly served customers.

Total operating expenses increased $120 million for the year ended September 30, 2021 as compared to the prior year, primarily as a result of a $257 million increase in fuel and purchased power expense and a $170 million increase in operating and maintenance expense.

The increase in fuel and purchased power expense was primarily due to higher effective fuel rates from higher natural gas prices and higher market rates of purchased power, as well as an increase in volume due to higher demand.

The increase in Operating and maintenance expense was primarily due to an increase in contract labor driven by operational needs and work to support the company's strategic priorities and an increase in payroll and benefit costs driven by labor escalation for cost of living increases.

These increases were partially offset by a $293 million decrease in Depreciation and amortization expense for the year ended September 30, 2021 as compared to the same period of the prior year.

This decrease was primarily driven by a decrease in depreciation expense as a result of the decision in 2019 to accelerate the retirements of Bull Run Fossil Plant ("Bull Run") and Paradise Fossil Plant ("Paradise").

Paradise was fully depreciated in the second quarter of 2020.

TVA continues to closely monitor developments associated with the Coronavirus Disease 2019 ("COVID-19") pandemic, including impacts from variants.

Based on current internal models, TVA estimates that the COVID-19 pandemic had little impact on TVA's sales volume for the year ended September 30, 2021.

At this time, TVA does not anticipate sales volume will be materially impacted due to the COVID-19 pandemic beyond 2021.

In addition, operations and delivery of energy to customers have not been materially impacted by the COVID-19 pandemic at this time.

TVA issued its first green global power bond in September 2021.

The $500 million bond has a 10-year maturity and carries a coupon interest rate of 1.500%, which set a record for the lowest rate achieved by TVA on a 10-year financing since TVA began issuing debt in the public capital markets.

TVA intends to use amounts equal to the proceeds from the sale for capital investments in renewable energy, energy efficiency, climate adaptation, and green innovation, including research and development expenditures related to the deployment of carbon-free and/or energy efficient solutions and other innovations.

During 2021, TVA continued to achieve 99.999 percent reliability in delivering energy to its customers.

TVA's reliability and economic development efforts continued to attract and encourage the expansion of business and industries in the Tennessee Valley, with over $8.6 billion in investments and approximately 67,000 jobs created or retained during the year.

TVA's reliability, competitive rates, and economic development efforts continued to attract and encourage the expansion of business and industries in the Tennessee Valley, with over $8.8 billion in investments and approximately 80,900 jobs created or retained during the year.

Results of Operations

Sales of Electricity

Sales of electricity, which accounted for nearly all of TVA's operating revenues, were 151,251 and 158,443 million kilowatt hours ("kWh") in 2020 and 2019, respectively.

TVA sells power at wholesale rates to LPCs who then resell the power to their customers at retail rates.

Sales of electricity, which accounted for nearly all of TVA's operating revenues, were 157,353 million and 151,251 million kilowatt hours ("kWh") for 2021 and 2020, respectively.

TVA sells power at wholesale rates to LPCs that then resell the power to their customers at retail rates.

TVA also sells power to directly served customers, consisting primarily of federal agencies and customers with large or nonstandard loads.

In addition, power exceeding the TVA system's needs is sold under exchange power arrangements with certain other power systems.

In addition, power exceeding TVA's system needs is sold under exchange power arrangements with certain other power systems.

The following chart compares TVA's sales of electricity by customer type for the years ended September 30, 2021 and 2020:

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

Although weather is generally a primary driver of changes in demand for TVA power, the COVID-19 pandemic has also had a significant impact on sales of electricity for the year ended September 30, 2020.

2021 Normal Percent Variation 2020 Normal Percent Variation 2021 2020 Percent Change

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Cooling Degree Days 1,611 1,686 (4.4) % 1,688 1,691 (0.2) % 1,611 1,688 (4.6) %

Sales of electricity decreased approximately five percent for the year ended September 30, 2020, as compared to the prior year, primarily due to overall milder weather and the COVID-19 pandemic.

Despite record-setting heat experienced during October 2019 and record-setting cold during November 2019, overall milder weather across TVA's service territory accounted for approximately 60 percent of the change in sales of electricity from the prior year.

The remaining decrease in sales of electricity was predominantly due to COVID-19, driven by certain commercial and industrial customers curtailing operations in response to social distancing standards and economic conditions.

Sales of electricity increased approximately four percent for the year ended September 30, 2021, as compared to the prior year primarily due to lower energy sales for 2020, associated with the COVID-19 pandemic.

Sales of electricity from

industries directly served increased as a result of certain customers shifting maintenance outages from December 2020 to the summer of 2020, while businesses were closed due to the COVID-19 pandemic.

Financial Results

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Summary Consolidated Statements of Operations

(in millions)

2021 2020 Change Percent Change

Operating revenues $ 10,503 $ 10,249 $ 254 2.5 %

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Operating income 2,845 2,711 134 4.9 %

Other income, net 36 62

Other income (expense), net 13 36 (23) (63.9) %

Other net periodic benefit cost 258 253 5 2.0 %

Interest expense, net 1,142 1,198

Interest expense 1,088 1,142 (54) (4.7) %

Net income $ 1,512 $ 1,352 $ 160 11.8 %

Operating Revenues.

Operating revenues for the years ended September 30, 2020 and 2019, consisted of the following:

Operating Revenues

For the years ended September 30

Operating revenues for the years ended September 30, 2021 and 2020, were $10.5 billion and $10.2 billion, respectively.

The following chart compares TVA's operating revenues for the periods indicated:

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 during both the years ended September 30, 2021 and 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 ("RFPs") to validate the cost estimates included in the IRP.

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

Certain LPCs, including MLGW, are evaluating options for future energy choices.

In addition, in January 2021, four LPCs filed a complaint and petition with the Federal Energy Regulatory Commission ("FERC") asking FERC to order TVA to provide transmission and interconnection service to the LPCs or other suppliers that want to serve them.

In August 2021, one of the LPCs notified FERC of its withdrawal from the complaint and petition.

The remaining three LPCs accounted for three percent of TVA's total operating revenues for the year ended September 30, 2021.

See Note 23 — Commitments and Contingencies — Legal Proceedings — Challenge to Anti-Cherrypicking Amendment for updates to this legal proceeding.

TVA's rate structure uses pricing signals to indicate seasons and hours of higher cost to serve its customers and to capture a portion of TVA's fixed costs in fixed charges.

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The GAC also reduces the impact of weather variability to the overall rate structure.

Additionally, 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.

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

Under the partnership arrangement, the LPC power contracts automatically renew each year and have a 20-year termination notice.

The partnership arrangements can be terminated under certain circumstances, including TVA's failure to limit rate increases as provided for in the agreements 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.

As of November 12, 2021, 145 LPCs had signed the 20-year Partnership Agreement with TVA.

In addition to base revenues, the rate structure also includes a separate fuel rate that recovers the costs of natural gas, fuel oil, purchased power, coal, emission allowances, nuclear fuel, and other fuel-related commodities;

In August 2020, the TVA Board approved a Pandemic Relief Credit that was effective for 2021.

The 2.5 percent monthly base rate credit, which totaled $221 million for 2021, applied to service provided to TVA's LPCs, their large commercial and industrial customers, and TVA directly served customers through September 2021.

In August 2021, the TVA Board approved a 2.5 percent monthly base rate credit, the Pandemic Recovery Credit, which will be effective for 2022.

The credit, expected to approximate $220 million, will also apply to service provided to TVA's LPCs, their large commercial and industrial customers, and TVA directly served customers.

In November 2021, the TVA Board approved a 1.5 percent monthly base rate credit, which is an extension of the Pandemic Recovery Credit, to be effective for 2023.

The 2023 credit is expected to approximate $133 million, and it will be administered in a manner similar to the Pandemic Recovery Credit.

In addition to base revenues, the rate structure includes a separate fuel rate that includes the costs of natural gas, fuel oil, purchased power, coal, emission allowances, nuclear fuel, and other fuel-related commodities;

realized gains and losses on derivatives purchased to hedge the costs of such commodities;

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The changes in revenue components are summarized below:

2020 2019 (2)

Changes in Revenue Components

For the years ended September 30

(in millions)

2021 2020 Change

Energy revenue $ 4,719 $ 4,546 $ 173

Demand revenue 3,478 3,426 52

3,426 3,609 (183)

Grid access charge 596 597 (1)

Long-term partnership credits for LPCs (189) (163) (26)

Pandemic relief credits (221) — (221)

Other charges and credits (1)

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Total operating revenues $ 10,503 $ 10,249 $ 254

(1) Includes approximately $10 million in Back-to-Business credits in 2020 to provide relief to certain large customers affected by the COVID-19 pandemic.

(2) For the year ended September 30, 2019, $14 million previously classified as Other charges and credits (a component of Base revenue), has been reclassified to Long-term partnership credits for LPCs (a component of Base revenue) to conform with current year presentation.

(1) Includes economic development credits to promote growth in the Tennessee Valley, hydro preference credits for residential customers of LPCs, and demand response credits allowing TVA to reduce industrial customer usage in periods of peak demand to balance system demand.

See Note 18 — Revenue.

(4) All LPCs were presented with the option to implement the GAC in October 2018 or defer the implementation until October 2019.

Seventy-nine LPCs elected to implement in October 2018, while the remaining LPCs implemented the wholesale changes in October 2019.

Operating revenues decreased $1.1 billion for the year ended September 30, 2020, as compared to the prior year, primarily due to a $566 million decrease in base revenue and a $489 million decrease in fuel cost recovery revenue.

The $566 million decrease in base revenue was driven by a decrease of $379 million attributable to lower sales volume and a decrease of $187 million attributable to lower effective rates.

Lower sales volume resulted primarily from overall milder weather for the TVA service territory during year ended September 30, 2020 and from the COVID-19 pandemic.

TVA estimates that the COVID-19 impact accounted for approximately $185 million of decreased base revenue.

TVA expects the COVID-19 pandemic to continue impacting revenue for 2021 and has planned for $10.0 billion in operating revenue.

It is uncertain at this time the extent to which TVA's revenues may be impacted beyond 2021.

The $489 million decrease in fuel cost recovery revenue was driven by a $362 million decrease attributable to lower fuel rates and a $127 million decrease attributable to lower energy sales.

The lower fuel rates experienced were primarily driven by lower market prices for natural gas.

Operating revenues increased $254 million for the year ended September 30, 2021, as compared to the prior year, primarily due to a $291 million increase in fuel cost recovery revenue, and partially offset by a $38 million decrease in base revenue.

The $291 million increase in fuel cost recovery revenue was driven by a $198 million increase attributable to higher fuel rates and a $93 million increase attributable to higher energy sales during 2021.

Higher fuel rates resulted from an increase in natural gas and coal market prices in 2021.

The $38 million decrease in base revenue was driven by a decrease of $352 million attributable to lower effective rates and partially offset by an increase of $314 million attributable to higher sales volume.

Lower effective rates resulted primarily from the Pandemic Relief Credit, which was effective for 2021, totaling $221 million for the year ended September 30, 2021.

Higher sales volume was primarily due to lower energy sales in 2020, associated with the COVID-19 pandemic, compared to 2021.

See Sales of Electricity above for further discussion of the change in the volume of sales of electricity and Operating Expenses below for further discussion of the change in fuel expense.

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(in millions)

2020 2019 Change

2021 2020 Change Percent Change

Operating expenses

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Total fuel $ 1,781 $ 1,571 $ 1.44 $ 1.33

(1) Excludes effects of the fuel cost adjustment deferrals and amortization on fuel expense in the amount of $13 million for the year ended September 30, 2020.

The effect on fuel expense from the fuel cost adjustment deferrals and amortization was less than $1 million for the year ended September 30, 2019, and therefore is not represented in the table above.

(1) Excludes effects of the fuel cost adjustment deferrals and amortization on fuel expense in the amounts of $(44) million and $13 million for the years ended September 30, 2021 and 2020, respectively.

(2) Fuel expense related to oil consumed for startup at coal-fired facilities was $18 million and $17 million for the years ended September 30, 2021 and 2020, respectively.

(3) Fuel expense related to oil consumed for generation at natural gas and/or oil-fired facilities was $2 million for both the years ended September 30, 2020 and 2019.

(3) Fuel expense related to oil consumed for generation at natural gas and/or oil-fired facilities was $4 million and $2 million for the years ended September 30, 2021 and 2020.

(4) Total cost per kWh is based on a weighted average.

Fuel expense decreased $312 million for the year ended September 30, 2020, as compared to the prior year.

This decrease was primarily due to lower effective fuel rates of $260 million resulting from lower natural gas prices.

Also, the milder weather and COVID-19 pandemic reduced demand, resulting in a decrease in volume of $66 million.

Partially offsetting these decreases was an increase of $14 million driven by variances in fuel rate recovery.

Purchased power expense decreased $127 million for the year ended September 30, 2020, as compared to the prior year.

This was primarily due to a reduction in volume of $110 million driven by decreased demand, resulting from the milder weather and COVID-19 pandemic.

Lower effective rates contributed an additional $18 million to the decrease resulting from lower market prices for natural gas.

Operating and maintenance expense decreased $370 million for the year ended September 30, 2020, as compared to the prior year.

This was primarily driven by a decrease of $266 million of prior year recovery of the regulatory asset for environmental cleanup costs related to the Kingston ash spill.

Additionally, project write-offs and materials and supplies inventory reserves and write-offs related to the retirement of Bull Run and Paradise decreased $157 million as compared to the prior year.

Partially offsetting these decreases was $85 million of increased payroll and benefit costs due to labor escalation for cost of living increases and $28 million of increased contract labor related to the timing of nuclear outages, emergent work, and contract model transition.

Fuel expense increased $153 million for the year ended September 30, 2021, as compared to the prior year.

This increase was primarily due to higher effective fuel rates of $153 million resulting from higher natural gas prices, as well as an increase in fuel volume of $58 million due to higher demand primarily met by TVA-owned generation.

Partially offsetting these increases was a decrease in fuel cost recovery of $58 million resulting from volatility in the natural gas and purchased power markets in the year ended September 30, 2021.

Purchased power expense increased $104 million for the year ended September 30, 2021, as compared to the prior year.

This was primarily due to an increase in the effective rate of purchased power of $82 million resulting from higher market prices, as well as an increase in volume of $46 million.

Partially offsetting these increases was a decrease in fuel cost recovery of $24 million resulting from volatility in the natural gas and purchased power markets in the year ended September 30, 2021.

Operating and maintenance expense increased $170 million for the year ended September 30, 2021, as compared to the prior year.

This was primarily due to a $97 million increase in contract labor driven by operational needs and work to support the company's strategic priorities, a $60 million increase in payroll and benefit costs primarily due to labor escalation for cost of living increases, and an increase in outage expense of $30 million driven by an increase in nuclear outage days.

Partially offsetting these increases was a decrease of other post-employment benefit expense of $32 million primarily due to the increase in the discount rate assumption used in the actuarial valuation of the liability related to workers’ compensation claims and a reduction related to TVA's capital spare program of $15 million.

Depreciation and amortization expense decreased $293 million for the year ended September 30, 2021, as compared to the prior year.

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Paradise was fully depreciated in the second quarter of 2020.

Partially offsetting this decrease was a $25 million increase in amortization expense of non-nuclear decommissioning costs recovered in rates.

The remaining variance was due to depreciation of additions to Completed plant.

Additionally, amortization expense of decommissioning costs recovered in rates decreased $96 million.

Partially offsetting these decreases was an increase due to depreciation of additions to completed plant.

Depreciation rates are determined based on an external depreciation study.

See Note 1 — Summary of Significant Accounting Policies — Property, Plant, and Equipment, and Depreciation — Depreciation .

TVA obtained and implemented a new depreciation study related to its completed plant during the first quarter of 2022.

The new study includes a decline in the service life estimates of TVA’s coal-fired plants based on planning assumptions to potentially retire the remainder of the coal-fired fleet by 2035.

Any decision to retire individual plants would include environmental review, public input, and TVA Board approval.

Implementation of the new study is expected to result in an increase to depreciation and amortization expense of approximately $369 million during 2022.

This estimate represents the impact of implementing the new study only and does not include any potential impact of other possible changes, including additions to or retirements of net completed plant, that may occur during 2022.

Tax equivalents expense decreased $14 million for the year ended September 30, 2021, as compared to the prior year.

This change is primarily driven by a decrease in the tax equivalents collected in the fuel rate recovery.

This change is primarily driven by a decrease in TVA's revenue from sales of electricity in 2020, which is used as the basis for calculating tax equivalent expense.

Partially offsetting this decrease was an increase in tax equivalents collected in the fuel cost recovery.

Generating Sources.

The following table shows TVA's generation and purchased power by generating source as a percentage of all electrical power generated and purchased (based on kWh) for the periods indicated:

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(millions of kWh)

Coal-fired 19,825 13 % 27,934 17 %

Nuclear 66,265 41 % 64,531 42 %

Hydroelectric 16,003 10 % 16,058 10 %

Natural gas and/or oil-fired 33,290 21 % 33,479 22 %

Coal-fired 23,391 15 % 19,732 13 %

Hydroelectric 16,354 10 % 16,644 10 %

Total TVA-operated generation facilities (1)(2)

139,300 87 % 134,386 87 %

Purchased power (non-renewable) (2)

Purchased power (natural gas and/or oil-fired) (3)

10,836 7 % 9,343 6 %

Purchased power (renewable) (3)

Purchased power (other renewables) (4)

5,113 3 % 4,784 3 %

Purchased power (hydroelectric) 2,156 2 % 2,899 2 %

Purchased power (coal-fired) 2,373 1 % 2,409 2 %

Total purchased power (2)

20,478 13 % 19,435 13 %

Total power supply 159,778 100 % 153,821 100 %

(1) Generation from TVA-owned non-hydroelectric renewable resources is less than one percent for all periods shown and therefore is not represented in the table above.

(2) Purchased power (non-renewable) includes generation from Caledonia Combined Cycle Plant ("Caledonia CC"), which is currently a leased facility operated by TVA.

(1) Generation from TVA-owned renewable resources (non-hydroelectric) is less than one percent for all periods shown and therefore is not represented in the table above.

(2) Raccoon Mountain Pumped-Storage Plant net generation is allocated against each TVA-operated generation facility and purchased power type for both 2021 and 2020.

See Item1, Business — Power Supply and Load Management Resources — Raccoon Mountain Pumped-Storage Plant for a discussion of Raccoon Mountain Pumped-Storage Plant.

(3) Purchased power (gas) includes generation from Caledonia Combined Cycle Plant ("Caledonia CC"), which is currently a leased facility operated by TVA.

Generation from Caledonia CC was 4,255 million kWh and 4,229 million kWh for the years ended September 30, 2021 and 2020, respectively.

(3) Purchased power (renewable) includes power purchased from the following renewable sources:

hydroelectric, solar, wind, and cogeneration.

(4) Purchased power (other renewables) includes purchased power from the following renewable sources:

solar, wind, biomass, and renewable cogeneration.

In addition to power supply sources included here, TVA offers energy efficiency programs that effectively reduced 2021 energy needs by about 2,300 GWh or 1.4%.

Interest Expense .

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Total interest expense decreased $54 million for the year ended September 30, 2021, as compared to the prior year.

This was primarily driven by a decrease of $42 million due to lower average debt balances and $14 million due primarily to lower average short-term rates.

This was primarily driven by a decrease of $56 million due to lower average debt balances and partially offset by an increase of $2 million due primarily to higher average long-term rates.

Other Income (Expense), Net

During 2020, Other income (expense), net decreased $26 million, primarily driven by $21 million of other income in 2019 related to a deposit liability received by TVA as a down payment on the sale of Bellefonte.

The purchaser, Nuclear Development, LLC, failed to fulfill the requirements of the sales contract with respect to obtaining Nuclear Regulatory Commission ("NRC") approval of the transfer of required nuclear licenses and payment of the remainder of the selling price before the November 30, 2018 closing date.

Additionally, Interest income decreased $7 million primarily as a result of lower interest rates.

See Note 22 — Commitments and Contingencies — Legal proceedings for a discussion of the lawsuit filed by Nuclear Development, LLC.

During 2021, Other income (expense), net decreased $23 million, primarily driven by a $28 million court directed payment related to the sale of Bellefonte.

In 2019, the purchaser, Nuclear Development, LLC ("Nuclear Development"), failed to fulfill the requirements of the sales contract with respect to obtaining Nuclear Regulatory Commission ("NRC") approval of the transfer of required nuclear licenses and payment of the remainder of the selling price before the November 30, 2018 closing date.

In August 2021, the court found that, under the contract's termination provision, Nuclear Development was entitled to have TVA return Nuclear Development's down payment and its payments of compensated costs, along with prejudgment interest, which was fully paid in 2021.

Partially offsetting this expense was a $7 million increase in gains (losses) on investments driven by higher market returns in 2021.

See Note 23 — Commitments and Contingencies — Legal Proceedings — Case Involving Bellefonte Nuclear Plant for a discussion of the lawsuit filed by Nuclear Development.

Other Net Periodic Benefit Cost

Other net periodic benefit cost decreased $5 million for the year ended September 30, 2020, as compared to the prior year.

Other net periodic benefit cost increased $5 million for the year ended September 30, 2021, as compared to the prior year.

Other net periodic benefit cost is subject to significant economic assumptions, such as changes in the discount rate used to measure the benefit plans, that can materially impact TVA.

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See Note 22 — Benefit Plans .

In 2020, U.S.

GAAP pension expense exceeded contributions resulting in additional amounts deferred as a regulatory asset as compared to the prior year.

Liquidity and Capital Resources

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In addition to cash from operations and proceeds from the issuance of short-term and long-term debt, TVA's sources of liquidity include a $150 million credit facility with the United States Department of the Treasury ("U.S.

Treasury"), four long-term revolving credit facilities totaling $2.7 billion, and proceeds from other financings.

Treasury"), four long-term revolving credit facilities totaling approximately $2.7 billion, and proceeds from other financings.

See Note 14 — Debt and Other Obligations — Credit Facility Agreements.

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Other options for financing not subject to the limit on Bonds, including lease financings (see Lease Financings below and Note 11 — Variable Interest Entities ), could provide supplementary funding if needed.

Currently, TVA expects to have adequate capability to fund its ongoing operational liquidity needs and make planned capital investments over the next decade.

Currently, TVA expects to have adequate capability to

fund its ongoing operational liquidity needs and make planned capital investments over the next decade.

See Lease Financings below, Note 11 — Variable Interest Entities , and Note 14 — Debt and Other Obligations for additional information.

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The amounts involved may be material.

Due to higher volatility in the financial markets associated with the COVID-19 pandemic, TVA increased its target balance of Cash and cash equivalents beginning in March 2020.

TVA continued to hold higher target cash balances at September 30, 2020, and may hold higher balances in future periods due to potential market volatility.

Due to higher volatility in the financial markets associated with the COVID-19 pandemic, TVA increased its balance of Cash and cash equivalents beginning in March 2020.

TVA may hold higher cash balances from time to time in response to potential market volatility or other business conditions.

TVA has maintained continued debt market access since the outbreak of the pandemic.

TVA successfully funded the maturity of $1.0 billion of power bonds in March 2020 with cash from operations and proceeds from the issuance of discount notes.

In May 2020, TVA issued $1.0 billion of power bonds to take advantage of the historically low interest rate environment and to meet its ongoing funding needs.

TVA's next significant power bond maturity of $1.5 billion is in February 2021.

TVA successfully funded the maturity of $1.5 billion of power bonds in February 2021 and $331 million of power bonds in June 2021 with cash from operations and proceeds from the issuance of discount notes.

In September 2021, TVA issued $500 million of green global power bonds at the lowest interest rate achieved by TVA on a 10-year maturity financing since TVA began issuing debt in the public capital markets.

TVA intends to use amounts equal to the proceeds from the sale for capital investments in renewable energy, energy efficiency, climate change adaptation, and green innovation, including research and development expenditures related to the deployment of carbon-free and energy efficient solutions and other innovations.

TVA’s next significant power bond maturity is $1.0 billion in August 2022.

Debt Securities .

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• Payments to the U.S.

Treasury in repayment of and as a return on the Power Program Appropriation Investment;

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 in advance of maturity, additional reduction of the Power Program Appropriation Investment, and other purposes connected wit h TVA's pow er 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.

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Discount notes 0.03 % 0.03 % 0.06 % 0.77 %

TVA ended the year at September 30, 2020, with a lower balance for both short-term debt and average short-term debt as compared to 2019.

The decrease was primarily due to the decision to issue $1.0 billion of power bonds in 2020 and the timing of cash flows.

TVA ended the year at September 30, 2021, with a higher balance for both short-term debt and average short-term debt as compared to 2020.

The increase was primarily due to the timing of cash flows and lower issuance of long-term debt in 2021 than 2020.

TVA generally uses proceeds from the issuance of power bonds to refinance maturing power bonds or other financing obligations, as necessary, or for other power system purposes.

The total balance of power bonds may decline in periods where redemptions of power bonds exceed issuance due to net positive cash flow from operating and investing activities.

In 2020, TVA achieved and surpassed its strategic goal of reducing debt to $21.8 billion by 2023.

TVA issued $1.0 billion of power bonds during 2020, and no power bonds were issued in 2019.

In 2020, TVA achieved and surpassed its strategic goal of reducing debt to $21.8 billion by 2023, and made even further reductions in debt in 2021.

TVA anticipates the balance of Bonds and other financing obligations may increase slightly through 2022 due to an expected increase in capital expenditures, consistent with TVA's strategic financial plan.

TVA issued $500 million and $1.0 billion of power bonds during 2021 and 2020, respectively.

TVA redeemed $1.9 billion and $1.5 billion of Bonds during 2021 and 2020, respectively.

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TVA Bonds are traded in the public bond markets and are listed on the New York Stock Exchange ("NYSE") except for TVA's discount notes, the 2009 Series B power bonds, and the power bonds issued under TVA's electronotes ® program.

TVA's Putable Automatic Rate Reset Securities are traded on the NYSE under the exchange symbols "TVC" and "TVE." Other bonds listed on the NYSE are assigned various symbols by the exchange, which are noted on the NYSE's website.

TVA's Putable Automatic Rate Reset Securities ("PARRS") are traded on the NYSE under the exchange symbols "TVC" and "TVE." Other bonds listed on the NYSE are assigned various symbols by the exchange, which are noted on the NYSE's website.

TVA has also listed certain bonds on foreign exchanges from time to time, including the Luxembourg, Hong Kong, and Singapore Stock Exchanges.

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government addresses situations of approaching its statutory debt limit.

According to statements made by

nationally recognized credit rating agencies, downward pressure on the ratings of the U.S.

According to statements made by nationally recognized credit rating agencies, downward pressure on the ratings of the U.S.

could eventually develop if there are no changes in current policies and budget deficits and the trajectory of debt continues to increase;

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TVA may seek to enter into similar arrangements in the future.

In March 2019, TVA made final rent payments under lease/leaseback transactions involving eight combustion turbine units ("CTs"), and in July 2019, these transactions were terminated.

In May 2020, TVA made final rent payments under lease/leaseback transactions involving eight additional CTs and anticipate these transactions will be terminated in 2021.

TVA will continue making rent payments under the remaining lease/leaseback transactions through 2022.

In 2019, TVA made final rent payments under lease/leaseback transactions involving eight combustion turbine units ("CTs"), and terminated these transactions.

In 2020, TVA made final rent payments under lease/leaseback transactions involving eight additional CTs.

In 2021, TVA made final rent payments under lease/leaseback transactions involving four additional CTs.

TVA will continue making rent payments under the remaining lease/

leaseback transactions through 2022.

Summary Cash Flows

A major source of TVA's liquidity is operating cash flows resulting from the generation and sale of electricity.

Cash, cash equivalents, and restricted cash were $521 million and $322 million at September 30, 2020 and 2019, respectively.

A summary of cash flow components for years ended September 30 follows:

Cash, cash equivalents, and restricted cash totaled $518 million and $521 million at September 30, 2021 and 2020, respectively.

A summary of cash flow components for the years ended September 30 follows:

Cash provided by (used in):

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The timing and level of cash flows from operations can be affected by the weather, changes in working capital, commodity price fluctuations, outages, and other project expenses.

Net cash flows provided by operating activities decreased $84 million for 2020 compared to 2019, due to lower revenue collections from decreased sales of electricity driven predominantly by overall milder weather and the COVID-19 pandemic, in addition to lower effective rates as a result of the long-term partnership credits for LPCs.

Increases in post-employment claims, asset retirement obligation ("ARO") settlements, and other payments due to timing also contributed to the decrease in cash flows from operations.

These decreases were partially offset by lower fuel and purchased power payments as a result of lower natural gas prices and decreased electricity demand, lower interest payments, and decreased discretionary spend to mitigate COVID-19 financial impacts.

Net cash flows provided by operating activities decreased $380 million for the year ended September 30, 2021, as compared to 2020.

The decrease was primarily due to increased fuel and purchased power payments as a result of higher natural gas and market prices, as well as increased electricity demand.

Increases in payroll and benefit costs due to labor escalation for cost of living increases and higher cash used for asset retirement obligation ("ARO") settlements also contributed to the decrease in cash flows from operations.

These decreases were partially offset by less cash paid for interest and inventory purchases.

Investing Activities .

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Nuclear fuel expenditures vary depending on the number of outages and the prices and timing of purchases of uranium and enrichment services.

Net cash flows used in investing activities decreased $228 million for 2020 compared to 2019, primarily driven by decreases in the number of nuclear fuel outages as compared to the prior year, deferral of certain capital project spend to mitigate COVID-19 financial impacts, and a reduction in capital expenditures for capacity expansion due primarily to the completion of the Browns Ferry Nuclear Plant ("Browns Ferry") extended power uprate in the prior year and the Pickwick South Embankment remediation project nearing completion.

These decreases were partially offset by an increase in expenditures for the Boone Dam Embankment Remediation capacity expansion project.

Net cash flows used in investing activities increased $323 million for the year ended September 30, 2021, as compared to the prior year driven by an increase in capacity expansion projects primarily related to two combustion turbine gas facilities at TVA's Paradise and Colbert Fossil Plant ("Colbert") sites, the Johnsonville aeroderivative combustion turbine project, and nuclear fleet improvement projects.

This increase was partially offset by a decrease in expenditures for the Pickwick South Embankment remediation project nearing completion.

Financing Activities .

TVA's cash flows provided by or used in financing activities are primarily driven by the timing and level of cash flows provided by operating activities, cash flows used in investing activities, and net issuance and redemption of debt instruments to maintain a strategic balance of cash on hand.

Net cash flows used in financing activities decreased $55 million for 2020 compared to 2019.

TVA's financing activities continue to reflect an overall reduction in debt driven by strong financial performance and execution of long-range financial plans to reduce debt and keep TVA's electric rates competitive.

Impact of COVID-19 to Liquidity

As a result of certain commercial and industrial customers curtailing operations in response to the COVID-19 pandemic, TVA experienced decreases in base revenue.

TVA estimates base revenues were reduced by approximately $185 million for the year ended September 30, 2020 due to the impacts of COVID-19.

TVA expects the COVID-19 pandemic to continue impacting revenue for 2021.

It is uncertain at this time the extent to which TVA's revenues may be impacted beyond 2021.

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

Due to reductions in TVA's revenue for the year ended September 30, 2020 and expected reductions in revenue in 2021 associated with the COVID-19 pandemic, TVA has and will continue to implement various cost savings initiatives such as deferring and prioritizing certain capital projects and decreasing discretionary spending.

TVA may also experience an increase in interest cost, fuel cost, and other additional operating costs.

The ultimate impact of the COVID-19 pandemic on TVA's financial condition depends on factors beyond TVA's knowledge or control, including the duration and severity of this outbreak, actions taken to contain its spread and mitigate its effects, and broader impacts of the COVID-19 pandemic on the country and region's economy.

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.

Net cash flows used in financing activities decreased $501 million for the year ended September 30, 2021, as compared to 2020.

TVA had $678 million in net debt redemptions in 2021 compared to $1.4 billion in net debt redemptions in 2020.

In addition, payments on leaseback transactions were $195 million higher in 2021 compared to 2020.

TVA's financing activities continue to reflect an overall reduction in debt driven by strong financial performance.

Impact of COVID-19

Based on current internal models, TVA estimates that the COVID-19 pandemic had little impact on TVA's sales volume for the year ended September 30, 2021.

At this time, TVA does not anticipate sales volume will be materially impacted due to the COVID-19 pandemic beyond 2021.

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

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 these initiatives.

Cash Requirements and Contractual Obligations

See Key Initiatives and Challenges — COVID-19 Pandemic for an expanded discussion of these initiatives and the impact to TVA.

Cash Requirements

Actual capital expenditures and future planned capital expenditures for property, plant, and equipment additions, including clean air projects and new generation, and nuclear fuel are as follows:

Capital Expenditures

For the year ended September 30

For the years ended September 30

Actual Estimated Capital Expenditures (1)

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(2) Other capital expenditures are primarily associated with short lead time construction projects aimed at the continued safe and reliable operation of generating assets.

(3) The numbers above include construction in progress and nuclear fuel expenditures included in Accounts payable and accrued liabilities of $73 million.

(3) The numbers above include construction in progress and nuclear fuel expenditures included in Accounts payable and accrued liabilities of $240 million, nuclear fuel vendor credits of $6 million, and nuclear fuel prepayments made in prior years of $2 million.

TVA continually reviews its capital expenditures and financing programs.

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TVA has certain obligations and commitments to make future payments under contracts, including contracts executed in connection with certain of the planned construction expenditures.

The following table sets forth TVA's estimates of future payments at September 30, 2020.

See Note 7 — Leases , Note 10 — Variable Interest Entities , Note 11 — Other Long-Term Liabilities , Note 13 — Debt and Other Obligations , Note 21 — Benefit Plans , and Note 22 — Commitments and Contingencies for a further description of these obligations and commitments.

Commitments and Contingencies

Payments due in the year ending September 30

TVA estimates total commitments and contingencies at September 30, 2021 are approximately $5.4 billion for the year ended September 30, 2022 and $45.9 billion for the years thereafter.

See Note 8 — Leases , Note 11 — Variable Interest Entities , Note 14 — Debt and Other Obligations , and Note 22 — Benefit Plans for the obligations and commitments attributable to leases, VIEs and membership interests of VIEs subject to mandatory redemption, debt and leaseback obligations, and the retirement plan, respectively.

TVA's estimate of future payments for other commitments and contingencies at September 30, 2021 are set forth in the table below.

Other Commitments and Contingencies

Payments due for the years ending September 30

2022 2023 2024 2025 2026 Thereafter Total

$ 1,917 $ 1,028 $ 29 $ 1,022 $ 1,022 $ 15,057 $ 20,075

Interest payments relating to debt (1)

$ 958 $ 936 $ 935 $ 906 $ 852 $ 12,250 $ 16,837

Debt of VIEs (3)

41 43 40 36 37 900 1,097

Interest payments relating to debt of VIEs 49 47 45 44 42 363 590

Lease obligations

92 93 92 87 86 592 1,042

Operating (5)

66 51 39 37 34 16 243

Interest payments relating to membership interests of VIEs subject to mandatory redemption 2 1 1 1 1 5 11

Purchase obligations

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171 90 44 28 52 201 586

Environmental Agreements 2 2 2 1 1 3 11

Membership interests of VIEs subject to mandatory redemption 3 3 2 1 1 15 25

Interest payments related to membership interests of VIEs subject to mandatory redemption 2 2 1 1 1 6 13

Flood response commitment to NRC 27 — — — — — 27

Unfunded loan commitments 1 — — — — — 1

Long-term monitoring costs - Kingston ash spill 1 1 — 1 — 9 12

Leaseback obligations (9)

207 25 — — — — 232

Retirement Plan (10)

300 300 300 300 300 3,300 4,800

Other contractual obligations 2 — — — — — 2

Total $ 3,045 $ 2,057 $ 1,768 $ 1,577 $ 1,366 $ 15,101 $ 24,914

(1) Does not include non-cash items of foreign currency exchange gain of $153 million, unamortized debt issue costs of $45 million, and net discount on sale of Bonds of $77 million.

(1) Includes the effects of interest rate derivatives employed to manage interest rate risk.

(3) Debt of VIEs does not include the non-cash item of unamortized debt issue costs of $8 million.

(4) Includes the interest component of finance leases based on the interest rates stated in the lease agreements and excludes certain related non-lease costs.

(5) Excludes commitments related to non-lease costs, which are included in purchase obligations.

(6) Includes commitments for energy and/or capacity under power purchase agreements from coal-fired, hydroelectric, diesel, renewable, and gas-fired facilities, as well as transmission service agreements to support purchases of power from the market.

Certain power purchase agreements ("PPAs") are accounted for as leases and have lease and non-lease components.

For these contracts, the lease component is included in lease obligations and the non-lease component is included in power.

(2) Includes commitments for energy and/or capacity under power purchase agreements ("PPAs") from coal-fired, hydroelectric, diesel, renewable, and gas-fired facilities, as well as transmission service agreements to support purchases of power from the market.

Certain PPAs are accounted for as leases and have lease and non-lease components.

For these contracts, the lease component is included in lease obligations (see Note 8 — Leases ) and the non-lease component is included in power, except for PPA contracts containing a lease component that have not commenced in which case the entire contract amount is included above.

(3) Includes commitments to purchase nuclear fuel, coal, and natural gas, as well as related transportation and storage services.

(8) Primarily includes long-term service contracts, contracts that contain minimum purchase levels for the purchase of limestone along with related storage and transportation, and contractual obligations related to load control programs.

(9) In 2020, Paradise Pipeline Financing Obligation was derecognized due to a modification of a contract.

See Note 11 – Other Long-Term Liabilities – Paradise Pipeline Financing Obligation .

(10) Pursuant to amendments to the TVA Retirement System ("TVARS") Rules and Regulations that became effective October 1, 2016, TVA will contribute to TVARS for a period of 20 years (2017-2036) or, if earlier, through the fiscal year in which it is determined by actuarial valuation that TVARS has reached and remained at a 100 percent funded status, which is an amount not less than the greater of (a) the minimum required TVARS actuarial valuation contribution or (b) $300 million.

(4) Primarily includes long-term service contracts, contracts that contain minimum purchase levels for the purchase of limestone along with related storage and transportation, and contractual obligations related to TVA's load control program.

EnergyRight ® Program.

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The loans receivable are then transferred to a third-party bank with which TVA has agreed to repay in full any loan receivable that has been in default for 180 days or more or that TVA has determined is uncollectible.

As of September 30, 2020, the total carrying amount of the loans receivable, net of discount, was approximately $87 million.

Such amounts are not reflected in the Commitments and Contingencies table above.

At September 30, 2021, the total carrying amount of the loans receivable, net of discount, was approximately $72 million.

Such amounts are not reflected in the Other Commitments and Contingencies table above.

The total carrying amount of the financing obligation was approximately $82 million at September 30, 2021.

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COVID-19 Pandemic

In December 2019, a novel strain of coronavirus was reported in China.

As this strain continued to spread across the globe, the World Health Organization declared the outbreak of the 2019 novel coronavirus a pandemic on March 11, 2020.

TVA has performed risk analyses across the company to determine potential impacts and monitor performance throughout the situation and 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.

In 2020, in response to the spread of COVID-19, TVA implemented a company-wide pandemic plan to address specific aspects of the COVID-19 pandemic, and the pandemic plan continually evolves based on medical guidance and federal, regional, and local requirements and guidelines.

The pandemic plan included mandatory telework for those employees who do not have to be physically present at a TVA facility or office building to provide mission-essential activities or produce safe, reliable power.

Based on ongoing monitoring, COVID-19 continues to pose a significant risk in the U.S.

and in the Tennessee Valley region, and as a result TVA has extended the timeframe for workforce reintegration and continues to limit non-essential travel.

Mandatory telework has been implemented for those employees who do not have to be physically present at a TVA facility or office building to provide mission-essential activities or produce safe, reliable power.

and in the Tennessee Valley region, and as a result TVA has extended the timeframe for workforce reintegration and continues to limit non-essential travel for those not fully vaccinated.

At this time, TVA does not anticipate that the telework restrictions will be lifted until January 2022.

TVA has and will continue to monitor risk and potential impacts throughout the situation, including impacts from variants.

TVA continues to implement strong physical and cybersecurity measures to ensure that systems remain functional to keep employees, customers, and communities safe and enable TVA to continue achieving its mission to serve the people of the Valley.

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Operations and delivery of energy to customers have not been materially impacted by the COVID-19 pandemic at this time.

Certain TVA recreation areas including TVA campgrounds, day use areas, trails, and undeveloped lands have reopened since TVA had initially closed them to slow the spread of the virus.

However, for public and staff safety, restrooms and pavilions remain closed.

These changes will continue until it is safe to resume full operations.

For the year ended September 30, 2020, TVA estimates base revenues were reduced by approximately $185 million due to the impacts of COVID-19.

Certain commercial and industrial customers curtailed operations in response to COVID-19 pandemic social distancing standards and economic conditions.

As a result, TVA experienced decreased energy demand from those customers in 2020.

TVA expects the COVID-19 pandemic to continue impacting revenue for 2021.

It is uncertain at this time the extent to which TVA's revenues may be impacted beyond 2021.

All TVA recreation areas that had initially closed to slow the spread of the virus have now reopened.

Visitor centers at TVA dams remain closed for public and staff safety.

Based on current internal models, TVA estimates that the COVID-19 pandemic had little impact on TVA's sales volume for the year ended September 30, 2021.

At this time, TVA does not anticipate sales volume will be materially impacted due to the COVID-19 pandemic beyond 2021.

The ultimate impact of the COVID-19 pandemic on TVA's financial condition depends on factors beyond TVA's knowledge or control, including the duration and severity, actions taken to contain its spread and mitigate its effects, and broader impacts of the COVID-19 pandemic on the country and region's economy.

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

Due to reductions in TVA's revenue for the year ended September 30, 2020 and expected reductions in revenue in 2021 associated with the COVID-19 pandemic, TVA has and will continue to implement various cost savings initiatives, such as deferring and prioritizing certain capital projects and decreasing discretionary spending.

In addition, TVA may also experience increases in interest cost, fuel cost, and other additional operating costs.

TVA also continues to assess potential supplier performance risks, including procurement of fuel, parts, and services.

If suppliers are unable to perform under TVA's existing contracts or if TVA is unable to obtain similar services from other vendors, TVA could experience delays, disruptions, additional costs, or other operational outcomes that may impact generation, maintenance, and capital programs.

At this time, TVA has experienced minimal impacts due to force majeure events, with the exception of a manufacturing delay for a major turbine component.

A mitigation strategy was developed by TVA and the vendor to reduce projected delays and impacts to TVA's outage schedule.

TVA will continue to monitor the supply base and remain in contact with suppliers to identify potential risks.

TVA has seen an increase in supplier impacts as a result of COVID-19, such as delays and price fluctuations, but has been able to manage these impacts through existing contracts and increased lead times and communications with suppliers;

therefore, TVA has not experienced significant business disruptions at this time.

TVA has also experienced minimal impacts due to force majeure events, with the exception of a manufacturing delay for a major turbine component.

A mitigation strategy was developed by TVA and the vendor which reduced impacts to TVA's outage schedule.

TVA will continue to monitor the supply base and remain in contact with suppliers to identify potential risks, including impacts on workforce availability due to recently announced special protocols for unvaccinated federal government employees and contractors.

Regulatory Actions.

On January 20, 2021, President Biden issued Executive Order 13991, directing federal agencies to implement COVID-19 countermeasures consistent with CDC guidance and establishing a Safer Federal Workforce Task Force (“Task Force”) to develop model safety principles to which all federal agencies would subsequently align their pandemic countermeasures.

TVA continues to implement these principles and remains in regular contact with the Office of Management and Budget (“OMB”), which chairs the Task Force.

On September 9, 2021, President Biden issued two new executive orders in response to the COVID-19 pandemic.

The first executive order required that all federal employees be vaccinated against COVID-19.

Only employees entitled to certain accommodations under law would be exempt from this requirement.

The Task Force has stated that all employees must be fully vaccinated by November 22, 2021.

TVA is working with its union partners and workforce to meet this deadline.

As part of the process to implement the vaccination requirement, TVA and its union partners have negotiated and implemented a standalone disciplinary process for employees who have neither been vaccinated by the deadline nor received an exemption allowed by law.

This policy includes a progression of counseling for employees and, for those who do not get vaccinated after counseling, a testing program.

The second executive order required that federal agencies include clauses in contracts with federal contractors requiring the contractors to comply with guidance issued by the Task Force concerning contractors.

This executive order does not apply to TVA, and therefore TVA is not requiring the clauses at this time.

On November 4, 2021, the Occupational Safety and Health Administration (“OSHA”) issued an Emergency Temporary Standard ("ETS") in response to the COVID-19 pandemic.

The ETS, among other things, obligates employers with at least 100 employees to adopt a vaccination policy that requires employees to either be fully vaccinated or submit to at least weekly testing.

The deadline for implementing the vaccination/testing program is January 4, 2022.

The ETS does not apply to any federal contractors that must comply with the Task Force contractor guidance.

TVA has not required its contractors to comply with the Task Force guidance.

Therefore, unless those contractors are required to follow Task Force guidance based on contractual relationships with other federal agencies, TVA's contractors would be covered by the ETS.

OSHA has also stated that the ETS does not apply to federal agencies;

rather, federal agencies are covered by the vaccination requirement established by President Biden on September 9, 2021.

The Task Force has stated that federal employees should be vaccinated by November 22, 2021, and has confirmed that this deadline remains in effect.

Accordingly, TVA is continuing to work toward this deadline.

On November 5, 2021, the United States Court of Appeals for the Fifth Circuit issued an order staying the ETS pending further action by the court.

Employers will not be required to comply with the ETS until the stay is lifted.

Customer Pandemic Initiatives .

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

To support and strengthen the public power response to the COVID-19 pandemic, TVA announced the following initiatives in 2020:

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

To support and strengthen the public power response to the COVID-19 pandemic, TVA announced the following initiatives:

Regulatory Flexibility .

TVA provided regulatory flexibility for LPCs to halt disconnection of services and respond to the local needs of their customers and communities.

TVA continues to provide regulatory flexibility for LPCs to halt disconnection of services and respond to the local needs of their customers and communities.

Program Flexibility .

In April 2020, TVA established flexibility provisions for certain economic development programs for participating customers impacted by the COVID-19 pandemic, as well as deferral options for EnergyRight ® program loan payments, through October 31, 2020, for customers experiencing financial hardship.

In 2020, TVA established flexibility provisions for certain economic development programs for participating customers impacted by the COVID-19 pandemic.

These provisions were made available through the December 2020 application period, which provided flexibility to customers through 2021.

TVA also offered deferral options for EnergyRight ® program loan payments, through October 31, 2020, for customers experiencing financial hardship.

All EnergyRight ® loans approved for the deferral period resumed payments in the second quarter of 2021.

See Note 9 — Other Long-Term Assets, Note 12 — Other Long-Term Liabilities , and Note 18 — Revenue .

Financial Support .

In March 2020, the TVA Board approved the Public Power Support and Stabilization Program.

Through this program, TVA is offering up to $1.0 billion of credit support to LPCs that demonstrate the need for temporary financial relief, through the deferral of a portion of LPCs' wholesale power payments owed to TVA.

The program requires LPCs to apply for the deferral, which is subject to approval by TVA.

If approved, TVA will establish and approve a repayment schedule with the LPC by December 31, 2020, with a repayment term not to exceed two years.

The program is available through CY 2020, and as of November 16, 2020, $1 million of credit support has been approved under the program.

In 2020, the TVA Board approved the Public Power Support and Stabilization Program.

Through this program, TVA offered up to $1.0 billion of credit support to LPCs that demonstrated the need for temporary financial relief, through the deferral of a portion of LPCs' wholesale power payments owed to TVA.

The program ended December 31, 2020, with a total of $1 million of credit support approved under the program.

The $1 million was fully repaid in the second quarter of 2021.

Back-to-Business Credit Program .

TVA created the Back-to-Business Credit Program to enable TVA and LPCs the ability to provide relief to certain large customers affected by the COVID-19 pandemic by providing certain credits when returning to operations.

As of September 30, 2020, TVA had provided approximately $10 million in Back-to-Business credits under this program.

TVA created the Back-to-Business Credit Program to enable TVA and LPCs to provide relief to certain large customers affected by the COVID-19 pandemic by providing certain credits when returning to operations.

As of September 30, 2021, TVA had provided approximately $13 million in Back-to-Business credits under this program since its inception, with over $3 million provided for the year ended September 30, 2021.

This program ended September 30, 2021.

Community Care Fund .

TVA is also partnering with LPCs through the Community Care Fund by making available over $4 million in matching funds to support local initiatives that address hardships created by the COVID-19 pandemic.

Over $2 million in matching funds had been provided as of September 30, 2020.

Pandemic Relief Credit .

In August 2020, the TVA Board approved a $200 million Pandemic Relief Credit.

The 2.5 percent base rate credit will be applied beginning in October 2020 and will remain in effect through the end of 2021.

The credit will apply to service provided to TVA's LPCs, their large commercial and industrial customers, and TVA directly served customers.

These actions continue to show TVA's commitment to support the financial integrity of LPCs along with communities and customers across the Tennessee Valley during these challenging economic conditions caused by the COVID-19 pandemic.

The COVID-19 pandemic is an evolving situation that may lead to extended disruption of economic activity and an adverse impact on TVA's results of operations.

TVA is closely monitoring developments and will continue adjusting its response as necessary to ensure reliable service while protecting the safety and health of its workforce.

TVA also continues to partner with LPCs through the Community Care Fund by making available over $9 million in TVA matching funds to support local initiatives that address hardships created by the COVID-19 pandemic.

As of September 30, 2021, over $4 million in matching funds had been provided by TVA, with nearly $2 million provided for the year ended September 30, 2021.

Pandemic Credits .

In August 2020, the TVA Board approved a Pandemic Relief Credit that was effective for 2021.

In August 2021, the TVA Board approved a 2.5 percent monthly base rate credit, the Pandemic Recovery Credit, which will be effective for 2022.

The credit, expected to approximate $220 million, will also apply to service provided to TVA's LPCs, their large commercial and industrial customers, and TVA directly served customers.

In November 2021, the TVA Board approved a 1.5 percent monthly base rate credit, which is an extension of the Pandemic Recovery Credit, to be effective for 2023.

The 2023 credit is expected to approximate $133 million, and it will be administered in a manner similar to the Pandemic Recovery Credit.

These actions show TVA's commitment to support the financial integrity of LPCs along with communities and customers across the Tennessee Valley during these challenging economic conditions caused by the COVID-19 pandemic.

The COVID-19 pandemic is an evolving situation that may lead to extended disruption of economic activity and an adverse impact on TVA's

results of operations.

TVA continues to closely monitor developments and will adjust its response as necessary to ensure reliable service while protecting the safety and health of its workforce.

Distributed Energy Resources

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Additional regulatory considerations and analysis may be required as the distributed energy resources ("DER") market, technologies, and programs evolve.

TVA is working to develop pricing and regulatory structures with a deliberate and thoughtful analysis of each current and future program offering.

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

Fiber Optic Network .

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.

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As of September 30, 2021 , TVA had spent $151 million on installation of the fiber optic lines and expects to spend an additional $149 million.

Electric Vehicles .

TVA is partnering with LPCs and others to support the electrification of transportation in the Valley in a multi-year electric vehicle ("EV") initiative.

The initiative focuses on reducing or eliminating EV market barriers by setting EV policies, improving charging infrastructure availability, expanding EV availability and offerings, and spreading EV consumer awareness.

In November 2020, the TVA Board approved new policies and an optional wholesale EV rate aimed at encouraging the development of charging infrastructure in the Valley.

The updated policies enable LPC investment in public charging infrastructure and allow for the conditional resale of electricity, for transportation purposes only, by any charging developer on a kWh basis.

The optional wholesale rate was developed with high power EV charging in mind and provides a stable option for those developing charging infrastructure.

TVA is also working with state agencies, LPCs, and third-party charging developers to create a network of public fast charging stations along major travel corridors in its seven-state region, known as the Fast Charge Network program.

In February 2021, TVA began a partnership with the State of Tennessee to develop funding programs for a statewide EV fast charging network with plans for fast charging stations every 50 miles along Tennessee's interstates and major highways.

In March 2021, TVA and five other major utilities formed the Electric Highway Coalition to develop a network of fast charging stations along all major highway routes within their service territories.

Since formation, the Electric Highway Coalition has gained additional members committed to coordination on the development of EV charging infrastructure across the central U.S.

Changing Customer Preferences

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Many companies are focusing on sustainability and requiring more energy efficiency and renewable energy options.

The continuing challenge for TVA and others is finding ways to meet the needs and preferences of customers while successfully developing flexible pricing models to accommodate the evolving markets.

Low-Income Energy Efficiency Program.

Through the Home Uplift Program, TVA is partnering with LPCs, state and local governments, non-profit agencies, energy efficiency advocates, and the Tennessee Valley Public Power Association to complete home evaluations and make high-impact home energy upgrades for qualifying homeowners.

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

In addition, TVA also seeks to obtain greater amounts of its power supply from clean resources to work towards carbon emission reductions.

As a result, TVA is increasing its renewable energy portfolio by investing in existing assets and securing power purchase agreements from out-of-Valley wind and in-Valley solar generation facilities.

New utility-scale solar is increasing, in part driven by customers’ demand.

TVA also encourages renewable power and offers renewable solutions through various current programs and offerings.

Renewable Power Solutions.

TVA encourages renewable power through various current programs and offerings.

These solutions include:

Small-scale Solutions .

The Green Connect Program, launched in January 2021, connects residential customers interested in on-site solar installations with qualified solar installers.

Mid-scale Solutions .

The Flexibility Research Project was a joint pilot project with LPCs to enable solutions for situations where the end-use consumer needs onsite renewable or distributed generation.

The Flexibility Research Project ceased accepting new applications in January 2021 as TVA introduced other flexible programs and offerings discussed in this section.

Utility-scale Solutions .

The Green Invest Program matches customer demand with renewable supply through a Green Invest Agreement.

The goal of the Green Invest program is to meet the long-term sustainability needs of customers at scale.

TVA will procure the needed renewable supply through a diversified approach, which could include a competitive procurement process, strategic partnerships, or construction of renewable facilities to meet these needs.

In addition, Generation Flexibility is

a solution available to long-term LPC partners and supports the deployment of up to 2,000 MW of distributed solar to provide clean, local generation.

See Ratemaking below.

What changed 10-K

Item 7. Management’s Discussion and Analysis