What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-11-15 compared with 2020-11-17 · 570 added, 587 removed, 2011 unchanged (37% of the section changed)

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Current maturities of long-term debt of variable interest entities 43 41

Current maturities of notes payable — 23

Total current liabilities 4,979 4,711

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Return on power program appropriation investment — ( 4 ) — — ( 4 )

Implementation of new accounting standard (1)

— ( 4 ) — — ( 4 )

Balance at September 30, 2021 $ 258 $ 13,689 $ 540 $ ( 22 ) $ 14,465

(1) See Note 2 — Impact of New Accounting Standards and Interpretations.

The accompanying notes are an integral part of these consolidated financial statements.

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4 Inventories, Net 109

5 Other Current Assets 109

6 Net Completed Plant 109

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24 Related Parties 160

24 Unaudited Quarterly Financial Information 150

Summary of Significant Accounting Policies

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This determination reflects the current regulatory and political environment and is subject to change in the future.

If future recovery of regulatory assets ceases to be probable, or any of the other factors described above cease to be applicable, TVA would no longer be considered to be a regulated entity and would be required to write off these costs.

If future recovery of regulatory assets ceases to be probable, or TVA is no longer considered to be a regulated entity, then costs would be required to be written off.

All regulatory asset write offs would be required to be recognized in earnings in the period in which future recovery ceases to be probable.

Basis of Presentation

The accompanying consolidated financial statements, which have been prepared in accordance with GAAP, include the accounts of TVA, wholly-owned direct subsidiaries, and variable interest entities ("VIE") of which TVA is the primary beneficiary.

The accompanying consolidated financial statements, which have been prepared in accordance with GAAP, include the accounts of TVA and variable interest entities ("VIEs") of which TVA is the primary beneficiary.

See Note 11 — Variable Interest Entities .

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The preparation of financial statements requires TVA to estimate the effects of various matters that are inherently uncertain as of the date of the consolidated financial statements.

Although the consolidated financial statements are prepared in conformity with GAAP, TVA is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses, including impacts from the COVID-19 pandemic, reported during the reporting period.

Although the consolidated financial statements are prepared in conformity with GAAP, TVA is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses, including impacts from the Coronavirus Disease 2019 ("COVID-19") pandemic, reported during the reporting period.

Each of these estimates varies in regard to the level of judgment involved and its potential impact on TVA's financial results.

Estimates are considered critical either when a different estimate could have reasonably been used, or where changes in the estimate are reasonably likely to occur from period to period, and such use or change would materially impact TVA's financial condition, results of operations, or cash flows.

Reclassifications

Certain historical amounts have been reclassified in the accompanying consolidated financial statements to the current presentation.

In the Consolidated Balance Sheet at September 30, 2019, TVA reclassified $ 163 million from Accounts payable and accrued liabilities to Asset retirement obligations in Current liabilities.

In addition, as a result of the adoption of the new lease accounting standard effective for TVA October 1, 2019, TVA reclassified $ 182 million from Other long-term liabilities to Finance lease liabilities in the Consolidated Balance Sheet at September 30, 2019.

Cash, Cash Equivalents, and Restricted Cash

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Cash and cash equivalents that are restricted, as to withdrawal or use under the terms of certain contractual agreements, are recorded in Other long-term assets on the Consolidated Balance Sheets.

Restricted cash and cash equivalents includes cash held in trusts that are currently restricted for TVA economic development loans and for certain TVA environmental programs in accordance with agreements related to compliance with certain environmental regulations.

Restricted cash and cash equivalents include cash held in trusts that are currently restricted for TVA economic development loans and for certain TVA environmental programs in accordance with agreements related to

compliance with certain environmental regulations.

See Note 23 — Commitments and Contingencies — Legal Proceedings — Environmental Agreements .

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the Consolidated Balance Sheets and Consolidated Statements of Cash Flows:

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the Consolidated Balance Sheets and Consolidated Statements of Cash Flows:

Cash, Cash Equivalents, and Restricted Cash

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Total cash, cash equivalents, and restricted cash $ 518 $ 521

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.

Allowance for Uncollectible Accounts

The allowance for uncollectible accounts reflects TVA's estimate of probable losses inherent in its accounts and loans receivable balances excluding the EnergyRight ® loans receivable.

TVA determines the allowance based on known accounts, historical experience, and other currently available information including events such as customer bankruptcy and/or a customer failing to fulfill payment arrangements after 90 days .

It also reflects TVA's corporate credit department's assessment of the financial condition of customers and the credit quality of the receivables.

As described in Note 2 — Impact of New Accounting Standards and Interpretations , TVA adopted Financial Instruments - Credit Losses on October 1, 2020, using a modified retrospective method through a cumulative-effect adjustment to retained earnings.

The standard, Current Expected Credit Losses ("CECL"), requires TVA to recognize an allowance that reflects the current estimate for credit losses expected to be incurred over the life of the financial assets based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amounts.

TVA has reviewed the current portfolio of financial receivables and developed a methodology to reasonably measure the estimate of credit losses for each major financial receivable type.

The appropriateness of the allowance is evaluated at the end of each reporting period.

TVA continues to monitor the impact of the COVID-19 pandemic on accounts and loans receivable balances to evaluate the allowance for uncollectible accounts.

The allowance for uncollectible accounts was less than $ 1 million at both September 30, 2020 and 2019, for accounts receivable.

Additionally, loans receivable of $ 105 million and $ 131 million at September 30, 2020 and 2019, respectively, are included in Accounts receivable, net and Other long-term assets, for the current and long-term portions, respectively, and are reported net of allowances for uncollectible accounts of less than $ 1 million at both September 30, 2020 and 2019, respectively.

To determine the allowance for trade receivables, TVA considers historical experience and other currently available information, including events such as customer bankruptcy and/or a customer failing to fulfill payment arrangements by the due date.

TVA's corporate credit department also performs an assessment of the financial condition of customers and the credit quality of the receivables.

In addition, TVA reviews other reasonable and supportable forecasts to determine if the allowance for uncollectible amounts should be further adjusted in accordance with the accounting guidance for CECL.

To determine the allowance for loans receivables, TVA aggregates loans into the appropriate pools based on the existence of similar risk characteristics such as collateral types and internal assessed credit risks.

In situations where a loan exhibits unique risk characteristics and is no longer expected to experience similar risks to the rest of its pool, the loan will be evaluated separately.

TVA derives an annual loss rate based on historical loss and then adjusts the rate to reflect TVA's consideration of available information on current conditions and reasonable and supportable future forecasts.

This information may include economic and business conditions, default trends, and other internal and external factors.

For periods beyond the reasonable and supportable forecast period, TVA uses the current calculated long-term average historical loss rate for the remaining life of the loan portfolio.

The allowance for uncollectible accounts was less than $ 1 million at both September 30, 2021 and 2020, for trade accounts receivable.

Additionally, loans receivable of $ 99 million and $ 105 million at September 30, 2021 and 2020, respectively, are included in Accounts receivable, net and Other long-term assets, for the current and long-term portions, respectively.

Loans receivables are reported net of allowances for uncollectible accounts of $ 4 million and less than $ 1 million at September 30, 2021 and 2020, respectively.

The increase in allowances for uncollectible accounts is due to the adoption of CECL.

See Note 2 — Impact of New Accounting Standards and Interpretations.

TVA recognizes revenue from contracts with customers to depict the transfer of goods or services to customers in an amount to which the entity expects to be entitled in exchange for those goods or services.

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TVA engages in other arrangements in addition to power sales.

Certain other revenue from activities related to TVA's overall mission are recorded in Other revenue.

Certain other revenue from activities related to TVA's overall mission is recorded in Other revenue.

Revenues that are not related to the overall mission are recorded in Other income (expense), net.

Pre-Commercial Plant Operations

As part of the process of completing the construction of a generating unit, the electricity produced is used to serve the

demands of the electric system.

TVA estimates revenue from such pre-commercial generation based on the guidance provided by Federal Energy Regulatory Commission ("FERC") regulations.

The Allen Combined Cycle Plant ("Allen CC") began pre-commercial plant operations in September 2017, and began commercial operations in April 2018.

Cogeneration capability at Johnsonville Combustion Turbine Unit 20 commenced pre-commercial plant operations in September 2017, and was placed in service during December 2017.

Estimated revenue of $ 11 million related to Allen CC was capitalized to offset project costs for the year ended September 30, 2018.

TVA also capitalized related fuel costs for these construction projects of approximately $ 19 million during the year ended September 30, 2018.

No such amounts were capitalized during 2019 or 2020.

Certain Fuel, Materials, and Supplies .

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Each category is assigned a probability of becoming obsolete based on the type of material and historical usage data.

In 2018, TVA started moving from a site-specific inventory management policy to a fleet-wide strategy for each generation type.

TVA has a fleet-wide inventory management policy for each generation type.

Based on the estimated value of the inventory, TVA adjusts its allowance for inventory obsolescence.

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The estimation of asset useful lives requires management judgment, supported by external depreciation studies of historical asset retirement experience.

Depreciation rates are determined based on the external depreciation studies.

These studies will be updated approximately every five years.

Depreciation rates are determined based on external depreciation studies that are updated approximately every five years.

During the first quarter of 2022, TVA implemented a new depreciation study related to its completed plant.

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

Implementation of the 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.

Depreciation expense for the years ended September 30, 2021, 2020, and 2019 was $ 1.4 billion, $ 1.6 billion, and $ 1.8 billion, respectively.

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Reacquired Rights .

Property, plant, and equipment includes intangible reacquired rights, net of amortization, of $ 192 million and $ 200 million as of September 30, 2020 and 2019, respectively, related to the purchase of residual interests from

lease/leaseback agreements of certain combustion turbine units ("CTs").

Property, plant, and equipment includes intangible reacquired rights, net of amortization, of $ 184 million and $ 192 million as of September 30, 2021 and 2020, respectively, related to the purchase of residual interests from lease/leaseback agreements of certain combustion turbine units ("CTs").

Reacquired rights are amortized over the estimated useful life of the underlying CTs.

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While not specifically structured as leases, certain power purchase agreements ("PPAs") are deemed to contain a lease of the underlying generating units when the terms convey the right to control the use of the assets.

Amounts recorded for these leases are generally based on the amount of the scheduled capacity payments due over the remaining terms of the power purchase agreements, the terms of which vary.

The total lease obligation included in Accounts payable and accrued liabilities and lease liabilities related to these agreements were $ 500 million and $ 174 million for finance and operating leases, respectively, at September 30, 2020.

Amounts recorded for these leases are generally based on the amount of the scheduled capacity payments due over the remaining terms of the PPAs, the terms of which vary.

The total lease obligations included in Accounts payable and accrued liabilities and lease liabilities related to these agreements were $ 464 million and $ 143 million for finance and operating leases, respectively, at September 30, 2021.

TVA has agreements with lease and non-lease components and has elected to account for the components separately.

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These obligations relate to fossil fuel-fired generating plants, nuclear generating plants, hydroelectric generating plants/dams, transmission structures, and other property-related assets.

These other property-related assets include, but are not limited to, easements and coal rights.

Activities involved with retiring these assets could include decontamination and demolition of structures, removal and disposal of wastes, and site restoration.

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Any accretion or depreciation expense related to these liabilities and assets is charged to a regulatory asset.

Regulatory Assets and Liabilities — Nuclear Decommissioning Costs and Non-Nuclear Decommissioning Costs and Note 12 — Asset Retirement Obligations.

See Note 10 — Regulatory Assets and Liabilities — Nuclear Decommissioning Costs and Non-Nuclear Decommissioning Costs and Note 13 — Asset Retirement Obligations.

Down-blend Offering for Tritium

TVA, the Department of Energy ("DOE"), and certain nuclear fuel contractors have entered into agreements, referred to as the Down-blend Offering for Tritium, 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.

TVA, the U.S.

Department of Energy ("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.

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The NDT, ART, SERP, and DCP funds are all classified as trading.

Energy Prepayment Obligations

In 2004, TVA and its largest customer, Memphis Light, Gas and Water Division ("MLGW"), entered into an energy prepayment agreement under which MLGW prepaid TVA $ 1.5 billion for the future costs of electricity to be delivered by TVA to MLGW over a period of 180 months .

TVA accounted for the prepayment as unearned revenue and reported the obligation to deliver power under this arrangement as Energy prepayment obligations.

The arrangement ceased in 2019.

Revenue was recognized in each year of the arrangement as electricity was delivered to MLGW based on the ratio of units of kilowatt hours delivered to total units of kilowatt hours under contract.

As of September 30, 2019, $ 1.5 billion had been recognized as non-cash revenue on a cumulative basis during the life of the agreement, $ 10 million and $ 100 million of which was recognized as non-cash revenue during 2019 and 2018, respectively.

Discounts to account for the time value of money, which are recorded as a reduction to electricity sales, amounted to $ 4 million and $ 46 million for the years ended September 30, 2019 and 2018, respectively.

Although TVA uses private companies to administer its healthcare plans for eligible active and retired employees not covered by Medicare, TVA does not purchase health insurance.

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These liabilities are included in Other liabilities on the Consolidated Balance Sheets.

TVA sponsors an Owner Controlled Insurance Program which provides workers' compensation and liability insurance for a select group of contractors performing maintenance, modifications, outage, and new construction activities at TVA facilities.

The Federal Employees' Compensation Act ("FECA") governs liability to employees for service-connected injuries.

TVA purchases excess workers' compensation insurance above a self-insured retention.

In addition to excess workers' compensation insurance, TVA purchases the following types of insurance:

• Nuclear liability insurance;

nuclear property, decommissioning, and decontamination insurance;

and nuclear accidental outage insurance.

In addition to excess workers' compensation insurance, TVA purchases property and liability insurance for nuclear assets and operations.

See Note 23 — Commitments and Contingencies — Nuclear Insurance .

• Excess liability insurance for aviation, auto, marine, and general liability exposures.

• Property insurance for certain conventional (non-nuclear) assets.

TVA also purchases liability insurance and property insurance for certain conventional (non-nuclear) assets, and other insurance policies when commercially feasible.

The insurance policies are subject to the terms and conditions of the specific policy, including deductibles or self-insured retentions.

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In addition, neither TVA nor its property, franchises, or income is subject to taxation by states or their subdivisions.

The TVA Act requires TVA to make payments to states and counties in which TVA conducts its power operations and in which TVA has acquired power properties previously subject to state and local taxation.

The TVA Act requires TVA to make payments to states and counties in which TVA

conducts its power operations and in which TVA has acquired power properties previously subject to state and local taxation.

The total amount of these payments is five percent of gross revenues from sales of power during the preceding year, excluding sales or deliveries to other federal agencies and off-system sales with other utilities, with a provision for minimum payments under certain circumstances.

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Maintenance Costs

TVA records maintenance costs and repairs related to its property, plant, and equipment in the Consolidated Statements of Operations as they are incurred except for the recording of certain regulatory assets for retirement and removal costs.

TVA records maintenance costs and repairs related to its property, plant, and equipment on the Consolidated Statements of Operations as they are incurred except for the recording of certain regulatory assets for retirement and removal costs.

Impact of New Accounting Standards and Interpretations

The following are accounting standard updates issued by the Financial Accounting Standards Board ("FASB") that TVA adopted during 2021:

Lease Accounting

Description This guidance changes the provisions of recognition in both the lessee and lessor accounting models.

The standard requires entities that lease assets ("lessees") to recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases with terms of more than 12 months, while also refining the definition of a lease.

In addition, lessees are required to disclose key information about the amount, timing, and uncertainty of cash flows arising from leasing arrangements.

The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily depend on its classification as a finance lease (formerly referred to as capital lease) or operating lease.

The standard requires both types of leases to be recognized on the balance sheet.

Operating leases will result in straight-line expense, while finance leases will result in recognition of interest on the lease liability separate from amortization expense.

The accounting rules for the owner of assets leased by the lessee ("lessor accounting") remain relatively unchanged.

The standard allows for certain practical expedients to be elected related to lease term determination, separation of lease and non-lease elements, reassessment of existing leases, and short-term leases.

The standard is to be applied using a modified retrospective transition.

Effective Date for TVA October 1, 2019

Effect on the Financial Statements or Other Significant Matters TVA elected the modified retrospective method of adoption effective October 1, 2019.

Under the modified retrospective method of adoption, prior year reported results are not restated.

TVA recorded $ 205 million and $ 210 million of lease assets and lease liabilities, respectively, for operating leases in effect at the adoption date.

The accounting for finance leases remained substantially unchanged.

Adoption of the standard did not materially impact results of operations or cash flows.

TVA has elected to apply the following practical expedients:

Practical Expedient Description

Package of transition practical expedients (for leases commenced prior to adoption date;

expedients must be adopted as a package) Do not need to (1) reassess whether any expired or existing contracts are leases or contain leases, (2) reassess the lease classification for any expired or existing leases, or (3) reassess initial direct costs for any existing leases.

Short-term lease expedient (elect by class of underlying asset) Elect as an accounting policy to not apply the recognition requirements to short-term leases by asset class.

Existing and expired land easements not previously accounted for as leases Elect to not evaluate existing or expired easements under the new guidance and carry forward current accounting treatment.

Comparative reporting requirements for initial adoption Elect to (1) apply transition requirements at adoption date, (2) recognize cumulative effect adjustment to retained earnings in period of adoption, and (3) not apply the new requirements to comparative periods, including disclosures.

Derivatives and Hedging - Improvements to Accounting for Hedging Activities

Description This guidance better aligns an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.

To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.

Effective Date for TVA October 1, 2019

Effect on the Financial Statements or Other Significant Matters TVA has adopted the standard on a prospective basis.

The adoption of this standard did not have a material impact on TVA's financial condition, results of operations, or cash flows.

TVA only uses hedge accounting under its foreign currency swap arrangements, and the adoption of this standard had no impact on those arrangements.

Customer's Accounting for Implementation Costs in a Cloud Arrangement That Is a Service Contract

Description This guidance relates to the accounting for a customer's implementation costs in a hosting arrangement that is a service contract.

The amendments align the requirements for capitalizing those implementation costs with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license.

The amendments also provide requirements for the classification of the capitalized costs and related expense and cash flows in the financial statements, the application of impairment guidance to the capitalized costs, and the application of abandonment guidance to the capitalized costs.

Entities are required to apply the amendments either retrospectively or prospectively to all implementation costs incurred after the adoption date.

Effective Date for TVA October 1, 2019

Effect on the Financial Statements or Other Significant Matters TVA has adopted the standard on a prospective basis.

Adoption of this standard did not have a material impact on TVA's financial condition, results of operations, or cash flows.

TVA records qualified implementation costs in a cloud arrangement that is a service contract as a prepaid asset and amortizes the prepaid asset to Operating and maintenance expense based on the term of the contract.

The following accounting standards have been issued but as of September 30, 2020, were not effective and had not been adopted by TVA:

Financial Instruments - Credit Losses

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The new standard also makes revisions to the other than temporary impairment model for available-for-sale debt securities.

Disclosures of credit quality indicators in relation to the amortized cost of financing receivables are further disaggregated by year of origination.

Effective Date for TVA The new standard is effective for TVA's interim and annual reporting periods beginning October 1, 2020.

Effect on the Financial Statements or Other Significant Matters TVA adopted this standard using the modified retrospective method through a cumulative-effect adjustment to retained earnings on October 1, 2020.

TVA will recognize an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial assets based on historical experience, current conditions, and reasonable and supportable forecasts.

This standard will primarily impact TVA's long-term loans receivable.

Adoption of this standard is not expected to have a material impact on TVA's financial condition, results of operations, or cash flows.

Effective Date for TVA October 1, 2020

Effect on the Financial Statements or Other Significant Matters TVA adopted this standard on a modified retrospective method through a cumulative-effect adjustment to retained earnings on October 1, 2020.

TVA recorded an initial transition adjustment of $ 4 million to retained earnings.

The adoption of this standard did not materially impact TVA's financial condition, results of operations, or cash flows.

Fair Value Measurement Disclosure

Description The guidance changes certain disclosure requirements for fair value measurements.

Description This guidance changes certain disclosure requirements for fair value measurements.

It removes certain disclosure requirements, such as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy;

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Some disclosure requirements are added, such as the change in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

Effective Date for TVA The new standard is effective for TVA's interim and annual reporting periods beginning October 1, 2020.

Effect on the Financial Statements or Other Significant Matters TVA does not expect the adoption of this standard to have a material impact on TVA's financial condition, results of operations, or cash flows.

Effective Date for TVA October 1, 2020

Effect on the Financial Statements or Other Significant Matters Adoption of this standard did not have a material impact on TVA's financial condition, results of operations, or cash flows.

The following accounting standards have been issued but as of September 30, 2021, were not effective and had not been adopted by TVA:

Reference Rate Reform

Description The guidance provides temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rates.

Description This guidance provides temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rates.

Effective Date for TVA The new standard is effective for adoption at any time between March 12, 2020, and December 31, 2022.

TVA currently plans to adopt the standard by December 31, 2022.

Effect on the Financial Statements or Other Significant Matters TVA continues to review this standard and evaluate the impact of using an alternative reference rate instead of LIBOR in its interest rate swap contracts.

TVA expects the adoption of the standard will simplify the accounting for any modifications to its interest rate swap contracts.

TVA does not expect the adoption of this standard to have a material impact on its financial condition, results of operations, or cash flows.

Lessor-Certain Leases with Variable Lease Payments

Description This guidance amends the lessor lease classification for leases that have variable lease payments that are not based on an index or rate.

If the lease meets the criteria for classification as either (1) a sale-type or (2) direct finance lease, and application of the lease guidance would result in recognition of a day-one selling loss, then the lease should be classified as an operating lease.

There are two transition methods provided by the guidance for entities that have adopted the standard:

• Retrospective application to leases that commenced or were modified after the beginning of the period in which the standard was adopted, or

• Prospective application to leases that commence or are modified subsequent to the date that amendments in the guidance are first applied.

Effective Date for TVA This new standard is effective for TVA's interim and annual reporting periods beginning October 1, 2022.

Early adoption is permitted, and TVA adopted this standard on October 1, 2021, on a prospective basis.

Effect on the Financial Statements or Other Significant Matters Adoption of this standard did not have a material impact on TVA's financial condition, results of operations, or cash flows.

Accounts Receivable, Net

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(1) Allowance for uncollectible accounts was less than $ 1 million at September 30, 2021 and 2020, and therefore is not represented in the table above.

In response to the COVID-19 pandemic, the TVA Board approved the Public Power Support and Stabilization program in March 2020, which includes alternative wholesale payment arrangements for LPCs.

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.

The allowance at September 30, 2021 includes the impact from adopting CECL on October 1, 2020.

In response to the COVID-19 pandemic, the TVA Board approved the Public Power Support and Stabilization program in 2020.

Through this program, TVA offered up to $ 1.0 billion of credit support to local power company customers ("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 on 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.

Inventories, Net

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Fuel inventory 198 253

RECs inventory, net 15 16

Renewable energy certificates inventory, net 12 15

Allowance for inventory obsolescence ( 35 ) ( 35 )

Inventories, net $ 950 $ 1,003

Other Current Assets

Other current assets consisted of the following:

Other Current Assets

At September 30

Commodity contract derivative assets $ 210 $ 26

Other current assets $ 287 $ 84

Commodity Contract Derivative Assets.

TVA enters into certain derivative contracts for natural gas that require physical delivery of the contracted quantity of the commodity.

See Note 16 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Commodity Derivatives for a discussion of TVA's commodity contract derivatives.

Net Completed Plant

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

In addition, TVA is evaluating the impact of retiring the balance of the coal-fired fleet by 2035, and that evaluation includes environmental review, public input, and TVA Board approval.

Financial Impact

As a result of TVA's decision to accelerate the retirements of Paradise and Bull Run, certain construction projects at these locations were identified as probable of abandonment or were no longer expected to be in service for greater than one year prior to the plants' retirement dates.

The write-off of these projects resulted in $ 11 million and $ 151 million of Operating and maintenance expense during the years ended September 30, 2020 and 2019, respectively.

The write-off of these projects resulted in $ 4 million , $ 11 million , and $ 151 million of Operating and maintenance expense during the years ended September 30, 2021, 2020, and 2019, respectively.

TVA also recognized losses of $ 2 million and $ 19 million in Operating and maintenance expense related to additional materials and supplies inventory reserves and write-offs identified at Paradise during the years ended September 30, 2020 and 2019, respectively.

Losses recognized during the year ended September 30, 2021, were less than $ 1 million.

TVA's policy is to adjust depreciation rates to reflect the most current assumptions, ensuring units will be fully depreciated by the applicable retirement dates.

As a result of TVA's decision to accelerate the retirement of Paradise and Bull Run, TVA recognized an additional $ 387 million and $ 566 million of accelerated depreciation for the years ended September 30, 2020 and 2019, respectively.

As described in Note 2 — Impact of New Accounting Standards and Interpretations , TVA elected the modified retrospective method of adoption for the new lease accounting standard effective October 1, 2019.

Under the modified retrospective method of adoption, prior year reported results are not restated.

TVA recorded $ 205 million and $ 210 million of lease assets and lease liabilities, respectively, for operating leases in effect at the adoption date.

The accounting for finance leases remained substantially unchanged.

Adoption of the standard did not materially impact results of operations or cash flows.

The following table provides additional information regarding the presentation of leases on the Consolidated Balance Sheets at September 30, 2020 :

As a result of TVA's decision to accelerate the retirement of Paradise and Bull Run, TVA has recognized a cumulative $ 1.1 billion of accelerated depreciation.

Of this amount, $ 136 million, $ 387 million, and $ 566 million were recognized for the years ended September 30, 2021, 2020, and 2019, respectively.

The following table provides information regarding the presentation of leases on the Consolidated Balance Sheets:

Amounts Recognized on TVA's Consolidated Balance Sheets

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TVA's leases consist primarily of railcars, equipment, real estate/land, power generating facilities, and gas pipelines.

TVA's leases have various terms and expiration dates remaining from less than one year to 26 years.

The components of lease costs for the year September 30, 2020, were as follows:

For the year ended September 30, 2020

TVA's leases have various terms and expiration dates remaining from less than one year to approximately 25 years.

The components of lease costs were as follows:

For the years ended September 30

(in millions)

Operating lease costs (1)

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(1) Costs are included in Operating and maintenance expense, Fuel expense, Purchased power expense, and Tax equivalents expense on the Consolidated Statements of Operations.

TVA's rental expense for operating leases was approximately $ 97 million and $ 92 million for the years ended September 30, 2019 and 2018, respectively.

TVA's rental expense for operating leases was approximately $ 97 million for the year ended September 30, 2019.

(2) Expense is included in Depreciation and amortization expense on the Consolidated Statements of Operations.

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Amounts Recognized on TVA's Consolidated Statements of Cash Flows

For the Year Ended September 30, 2020

For the years ended September 30

(in millions)

Operating cash flows for operating leases $ 53 $ 85

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Operating leases (1)

$ ( 22 ) $ 110

Finance leases 233 394

(1) Amount excludes operating lease assets recorded as a result of the adoption of the new lease standard.

(1) Amount for 2021 represents a non-cash reduction due to a lease that was amended during the fiscal year resulting in derecognition of the operating lease asset and obligation upon remeasurement.

Amount for 2020 excludes operating lease assets recorded as a result of the adoption of the new lease standard.

TVA has certain finance leases under PPAs under which the present value of the minimum lease payments exceeds the fair value of the related lease asset at the date of measurement.

This resulted in an interest rate that was higher than TVA's incremental borrowing rate.

At September 30, 2020 , the weighted average remaining lease term in years and the weighted average discount rate for TVA's operating and financing leases were as follows:

The weighted average remaining lease term in years and the weighted average discount rate for TVA's operating and financing leases were as follows:

Weighted Averages

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Weighted average remaining lease terms

Operating leases 5 years

Finance leases 12 years

Operating leases 5 years 5 years

Finance leases 12 years 12 years

Weighted average discount rate (1)

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Operating leases

Thereafter 16

Minimum annual payments 168

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Finance present value of net minimum lease payments $ 747

The following table presents the future minimum lease payments under operating leases and the finance lease maturities as reported under the previous lease standard at September 30, 2019:

Future Minimum Lease Payments

Minimum Payments Due at September 30, 2019

Operating leases

Minimum annual payments 228

present value discount —

Operating present value of net minimum lease payments $ 228

Finance leases

Thereafter 418

Minimum annual payments 683

amount representing interest ( 495 )

Finance present value of net minimum lease payments $ 188

TVA entered into a PPA with a renewable resource provider for solar generation and rights to charge and discharge a battery energy storage system.

The system is considered a lease component in this agreement.

This lease has a term of 20 years, and is expected to commence on October 1, 2022.

Payments made over the term of this lease are expected to total approximately $ 89 million.

TVA has entered into five PPAs with renewable resource providers for solar generation and rights to charge and discharge battery energy storage systems.

The systems are considered a lease component in these agreements.

These PPAs have terms of 20 years, and are expected to commence between October 2022 and December 2024.

Payments made over the term of these PPAs are expected to total approximately $ 413 million.

Other Long-Term Assets

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Loans and other long-term receivables, net $ 96 $ 100

EnergyRight ® receivables

EnergyRight ® receivables, net

Prepaid long-term service agreements 44 42

Commodity contract derivative assets 40 23

Restricted cash and cash equivalents 21 23

Prepaid capacity payments 11 19

Total other long-term assets $ 320 $ 325

(1) At September 30, 2019, $ 22 million previously classified as Other (a component of Other long-term assets) has been reclassified to Prepaid long-term service agreements (a component of Other long-term assets) to conform with current year presentation.

(1) At September 30, 2020, $ 21 million previously classified as Restricted cash and cash equivalents (a component of Other long-term assets) and $ 11 million previously classified as Prepaid capacity payments (a component of Other long-term assets) have been reclassified to Other (a component of Other long-term assets) to conform with current year presentation.

Loans and Other Long-Term Receivables .

TVA's loans and other long-term receivables primarily consist of economic development loans for qualifying organizations and a receivable for reimbursements to recover the cost of providing long-term, on-site storage for spent nuclear fuel.

The current and long-term portions of the loans receivable are reported in Accounts receivable, net and Other long-term assets, respectively, on TVA's Consolidated Balance Sheets.

At September 30, 2021 and 2020, the carrying amount of the loans receivable, net of discount, reported in Accounts receivable, net was approximately $ 3 million and $ 5 million, respectively.

EnergyRight ® Receivables .

In association with the EnergyRight ® program, TVA's local power company customers ("LPCs") offer financing to end-use customers for the purchase of energy-efficient equipment.

In association with the EnergyRight ® program, TVA's LPCs offer financing to end-use customers for the purchase of energy-efficient equipment.

Depending on the nature of the energy-efficiency project, loans may have a maximum term of five years or 10 years.

TVA purchases the resulting loans receivable from its LPCs.

The loans receivable are then transferred to a third-party bank with which TVA has agreed to repay in

full any loans receivable that have been in default for 180 days or more or that TVA has determined are uncollectible.

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

Given this continuing involvement, TVA accounts for the transfer of the loans receivable as secured borrowings.

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See Note 12 — Other Long-Term Liabilities for information regarding the associated financing obligation.

In response to the COVID-19 pandemic, customers experiencing financial hardship can request a deferral of EnergyRight ® loan payments for a period of up to six months.

This deferral option began April 20, 2020, and is available through October 31, 2020.

Deferred loans will not accrue interest during the deferral months.

These deferred loans have resulted in a less than $ 1 million impact to TVA.

In response to the COVID-19 pandemic, customers experiencing financial hardship could request a deferral of EnergyRight ® loan payments for a period of up to six months.

The deferral option began in April 2020 and ended October 31, 2020.

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

The deferred loans did not accrue interest during the deferral months and totaled less than $ 1 million.

Allowance for Loan Losses.

As described in Note 2 — Impact of New Accounting Standards and Interpretations, TVA adopted CECL on October 1, 2020, to determine its allowance for loan loss.

The allowance for loan loss is an estimate of expected credit losses, measured over the estimated life of the loan receivables, that considers reasonable and supportable forecasts of future economic conditions in addition to information about historical experience and current conditions.

See Note 1 — Summary of Significant Accounting Policies — Allowance for Uncollectible Accounts .

The allowance components, which consist of a collective allowance and specific loans allowance, are based on the risk characteristics of TVA's loans.

Loans that share similar risk characteristics are evaluated on a collective basis in measuring credit losses, while loans that do not share similar risk characteristics with other loans are evaluated on an individual basis.

Allowance Components

At September 30, 2021

(in millions)

EnergyRight ® loan reserve

Economic development loan collective reserve 1

Economic development loan specific loan reserve 2

Total allowance for loan losses $ 4

Prepaid Long-Term Service Agreements.

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respectively, were recorded in Other current assets.

Commodity Contract Derivative Assets.

TVA enters into certain derivative contracts for natural gas that require physical delivery of the contracted quantity of the commodity.

Regulatory Assets and Liabilities

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At September 30

2020 2019 (1)

Current regulatory assets

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Nuclear decommissioning costs 363 896

Unrealized losses on commodity derivatives — 15

Other non-current regulatory assets 150 138

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Total regulatory liabilities $ 380 $ 164

(1) At September 30, 2019, $ 12 million previously classified as Environmental agreements (a component of Regulatory assets) has been reclassified to Other non-current regulatory assets (a component of Regulatory assets) to conform with current year presentation.

In 2017, the TVA Board authorized management to accelerate amortization of certain regulatory assets to the extent actual net income in 2018 exceeded the budgeted amount, up to the aggregate amount of those certain regulatory assets.

Assets included in this TVA Board action include:

deferred nuclear generating units, environmental cleanup costs related to the Kingston ash spill, and nuclear training costs related to the refurbishing and restarting of Browns Ferry Nuclear Plant ("Browns Ferry") Unit 1 and the construction of Watts Bar Nuclear Plant ("Watts Bar") Unit 2.

TVA recorded $ 857 million of accelerated amortization of the Deferred nuclear generating units and Nuclear training costs regulatory assets in 2018.

The TVA Board authorized TVA to use the amount included in the 2019 rate action for these two regulatory assets, to the extent needed, to accelerate amortization of the Environmental cleanup costs - Kingston ash spill regulatory asset in 2019.

TVA recorded $ 266 million of accelerated recovery for the Kingston ash spill regulatory asset in 2019.

No accelerated amortization was recorded in 2020.

Deferred Pension Costs and Other Post-retirement Benefit Costs .

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The changes in funded status are actuarial gains and losses that are recognized on TVA's Consolidated Balance Sheets by adjusting the recognized pension and OPEB liabilities, with the offset deferred as a regulatory asset or a regulatory liability.

In an unregulated

environment, these deferred costs would be recognized as an increase or decrease to accumulated other comprehensive income (loss) ("AOCI").

In an unregulated environment, these deferred costs would be recognized as an increase or decrease to accumulated other comprehensive income (loss) ("AOCI").

"Incurred cost" is a cost arising from cash paid out or an obligation to pay for an acquired asset or service, and a loss from any cause that has been sustained and for which payment has been or must be made.

In the cases of pension and OPEB costs, the unfunded obligation represents a projected liability to the employee for services rendered, and thus it meets the definition of an incurred cost.

In the cases of pension and OPEB

costs, the unfunded obligation represents a projected liability to the employee for services rendered, and thus it meets the definition of an incurred cost.

Therefore, amounts that otherwise would be charged to AOCI for these costs are recorded as a regulatory asset or liability since TVA has historically recovered pension and OPEB expense in rates.

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Additionally on October 1, 2014, TVA began recognizing pension costs as a regulatory asset to the extent that the amount calculated under GAAP as pension expense differs from the amount TVA contributes to the pension plan.

As a result of recent plan design changes, future contributions are expected to exceed the expense calculated under U.S.

As a result of previous plan design changes, future contributions are expected to exceed the expense calculated under U.S.

Accordingly, TVA will discontinue this regulatory accounting practice once all such deferred costs have been recovered, at which time it will recognize pension costs in accordance with U.S.

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The funds from the ART may be used, among other things, to pay the costs related to the future closure and retirement of non-nuclear long-lived assets under various legal requirements.

These future costs can be funded through a combination of investment funds already set aside in the ART, future earnings on those investment funds, and future cash contributions to the ART and future earnings thereon.

For 2020, TVA recovered in rates a portion of its estimated current year non-nuclear decommissioning costs and contributions to the ART.

These future costs can be funded through a combination of investment funds set aside in the ART, future earnings on those investment funds, and future cash contributions to the ART.

In 2021, TVA recovered in rates an amount determined by the average life of debt financed for non-nuclear decommissioning expenditures, assuming a 20-year debt service period, and contributions to the ART.

Deferred charges will be recovered in rates based on an analysis of the expected expenditures, contributions, and investment earnings required to recover the decommissioning costs.

There is not a specified recovery period;

therefore, the regulatory asset is classified as long-term consistent with the ART investments and ARO liability.

Recovery of future decommissioning costs is dependent upon the future earnings of the ART, timing of decommissioning activities, and changes in decommissioning estimates.

The regulatory asset is classified as long-term as amounts recovered are used to service debt or to contribute to the ART, which is restricted for future decommissioning costs.

Unrealized Losses on Interest Rate Derivatives .

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Gains and losses on interest rate derivatives that are expected to be realized within the next year are included as a current regulatory asset or liability on TVA's Consolidated Balance Sheet.

Due to changing interest rates in the financial markets associated with the COVID-19 pandemic, TVA has experienced unrealized losses related to its derivative instruments for the year ended September 30, 2020.

Due to changing interest rates in the financial markets associated with the COVID-19 pandemic, TVA experienced unrealized losses related to its derivative instruments for the year ended September 30, 2020.

TVA does not recognize unrealized gains and losses from the investment portfolios and derivative instruments within earnings but rather defers all such gains and losses within a regulatory liability or asset in accordance with its accounting policy.

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(1) certain deferred charges related to the future closure and decommissioning of TVA's nuclear generating units under the Nuclear Regulatory Commission ("NRC") requirements, (2) recognition of changes in the liability, (3) recognition of changes in the value of TVA's NDT, and (4) certain other deferred charges under the accounting rules for AROs.

These future costs can be funded through a combination of investment funds set aside in the NDT and ART, future earnings on the investment funds, and future earnings thereon.

These future costs can be funded through a combination of investment funds set aside in the NDT and ART and future earnings on those investment funds.

For 2021, TVA recovered in rates a portion of the contributions to the ART that are expected to settle liabilities included in the nuclear ARO.

Deferred charges will be recovered in rates based on the analysis of expected expenditures, contributions, and investment earnings required to recover the decommissioning costs.

See Note 1 — Summary of Significant Accounting Policies — Investment Funds.

There is not a specified recovery period;

therefore, the regulatory asset is classified as long-term consistent with the NDT investments and ARO liability.

Recovery of future decommissioning costs is dependent upon the future earnings of the NDT and ART, timing of decommissioning activities, and changes in decommissioning estimates.

The regulatory asset is classified as long-term as amounts recovered are contributed to the NDT or the ART, which are restricted for future decommissioning costs.

Unrealized Gains (Losses) on Commodity Derivatives.

Unrealized gains (losses) on natural gas purchase contracts, included as part of unrealized gains (losses) on commodity derivatives, relate to the mark-to-market ("MtM") valuation of natural

gas purchase contracts.

TVA enters into certain derivative contracts for natural gas that require the physical delivery of the contracted quantity of the commodity.

Unrealized gains (losses) on natural gas purchase contracts, included as part of unrealized gains (losses) on commodity derivatives, relate to the mark-to-market ("MtM") valuation of natural gas purchase contracts.

During the fourth quarter of 2020, TVA discontinued derivative accounting for forward coal contracts because these contracts no longer meet the criteria of net settlement.

As a result, the associated net regulatory assets have been derecognized.

As a result, the associated net regulatory assets

were derecognized.

The natural gas purchase contracts qualify as derivative contracts but do not qualify for cash flow hedge accounting treatment.

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Other non-current regulatory assets consist of the following:

Deferred Capital Leases and Other Financing Obligations .

For certain leases that were determined prior to TVA's adoption of the new lease accounting standard effective October 1, 2019, TVA recognized the initial capital lease liability and asset at inception.

However, the annual expense recognized in rates is equal to the annual lease payments, which differs from GAAP treatment.

This practice results in TVA's asset balances being higher than they otherwise would have been under GAAP, with the difference representing a regulatory asset related to each capital lease.

These costs will be amortized over the respective lease as lease payments are made.

Deferred Lease Asset and Other Financing Obligations .

For certain leases, TVA recognized the initial capital lease and other financing asset and liability at inception of the lease or other obligation.

However, the annual expense recognized in rates is equal to the annual payments, which differs from GAAP treatment.

This practice results in TVA's asset balances being higher than they otherwise would have been under GAAP, with the difference representing a regulatory asset related to the lease or other financing obligation.

These costs will be amortized over the respective lease or other financing obligation terms as payments are made.

As the costs associated with this regulatory asset are not currently being considered in rates and the asset is expected to increase over the next year, the regulatory asset has been classified as long-term.

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The membership interests held by Holdco in JSCCG were purchased with proceeds from the issuance of $ 100 million of secured notes (the "Holdco notes") and are subject to mandatory redemption pursuant to a schedule of amortizing, semi-annual payments due each January 15 and July 15, with a final payment due in January 2042.

The payment dates for the mandatorily redeemable membership interests are the same as those of the Holdco notes.

The payment dates for the

mandatorily redeemable membership interests are the same as those of the Holdco notes.

The sale of the JSCCG notes, the membership interests in JSCCG, and the Holdco notes closed in January 2012.

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Total liabilities $ 1,082 $ 1,125

Interest expense of $ 54 million, $ 56 million, and $ 58 million related to debt of VIEs and membership interests of variable interest entity subject to mandatory redemption is included in the Consolidated Statements of Operations for the years ended September 30, 2020, 2019, and 2018, respectively.

Interest expense of $ 52 million, $ 54 million, and $ 56 million related to debt of VIEs and membership interests of variable interest entity subject to mandatory redemption is included on the Consolidated Statements of Operations for the years ended September 30, 2021, 2020, and 2019, respectively.

At September 30, 2021, TVA had outstanding debt of VIEs of $ 1.0 billion and outstanding membership interests subject to mandatory redemption (including current portion) of $ 23 million issued by one of its VIEs of which it is the primary beneficiary.

The following table sets forth TVA's future payments at September 30, 2021:

Maturities Due in the Year Ending September 30

2022 2023 2024 2025 2026 Thereafter

Long-term debt of VIEs including current maturities (1)

$ 43 $ 40 $ 36 $ 37 $ 39 $ 861

Membership interests of variable interest entity subject to mandatory redemption 3 2 1 1 1 15

(1) Long-term debt of VIEs does not include non-cash item of unamortized debt issue costs of $ 7 million.

Creditors of the VIEs do not have any recourse to the general credit of TVA.

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Other long-term liabilities consist primarily of liabilities related to certain derivative agreements as well as for environmental remediation liabilities and liabilities under agreements related to compliance with certain environmental regulations.

See Note 12 — Asset Retirement Obligations , Note 15 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Interest Rate Derivatives , and Note 22 — Commitments and Contingencies — Legal Proceedings — Environmental Agreements .

See Note 8 — Leases , Note 13 — Asset Retirement Obligations , and Note 16 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Interest Rate Derivatives .

The table below summarizes the types and amounts of Other long-term liabilities:

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At September 30

2021 2020 (1)

Interest rate swap liabilities $ 1,524 $ 1,927

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EnergyRight® financing obligation 66 78

Paradise pipeline financing obligation — 80

Long-term deferred compensation 42 38

Long-term deferred revenue 42 38

Accrued long-term service agreements 29 56

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Total other long-term liabilities $ 2,041 $ 2,548

(1) Due to the implementation of the new lease accounting standard effective October 1, 2019, TVA reclassified $ 182 million of finance leases from Other long-term liabilities to Finance lease liabilities in the Consolidated Balance Sheet for the year ending September 30, 2019.

(1) At September 30, 2020, $38 million and $38 million previously classified as Other (a component of Other long-term liabilities) have been reclassified to Long-term deferred compensation (a component of Other long-term liabilities) and Long-term deferred revenue (a component of Other long-term liabilities), respectively, to conform with current year presentation.

Interest Rate Swap Liabilities .

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The values of these derivatives are included in Accounts payable and accrued liabilities, Accrued interest, and Other long-term liabilities on the Consolidated Balance Sheets.

As of September 30, 2020 and 2019, the carrying amount of the interest rate swap liabilities reported in Accounts payable and accrued liabilities and Accrued interest was approximately $ 114 million and $ 88 million, respectively.

At September 30, 2021 and 2020, the carrying amount of the interest rate swap liabilities reported in Accounts payable and accrued liabilities and Accrued interest was $ 115 million and $ 114 million, respectively.

See Note 16 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Interest Rate Derivative s for information regarding the interest rate swap liabilities.

As of September 30, 2020, Interest rate swap liabilities increased $ 277 million as compared to September 30, 2019, primarily due to a decrease in interest rates resulting in higher mark-to-market values on future expected net cash flows.

As of September 30, 2021, Interest rate swap liabilities decreased $ 402 million as compared to September 30, 2020, primarily due to an increase in market interest rates along with net settlement payments made during the year.

Operating Lease Liabilities .

TVA's operating leases consist primarily of railcars, equipment, real estate/land, and power generating facilities.

At September 30, 2021 and 2020, the current portion of TVA's operating leases reported in Accounts payable and accrued liabilities was $ 40 million and $ 63 million, respectively.

See Note 8 — Leases for more information regarding leases.

Currency Swap Liabilities .

To protect against exchange rate risk related to British pound sterling denominated Bond transactions, TVA entered into foreign currency hedges.

The values of these derivatives are included in Accounts payable and accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets.

At September 30, 2021 and 2020, the carrying amount of the currency swap liabilities reported in Accounts payable and accrued liabilities was $ 7 million and $ 86 million, respectively.

See Note 16 — Risk Management Activities and Derivative Transactions — Cash Flow Hedging Strategy for Currency Swaps for more information regarding the currency swap liabilities.

EnergyRight ® Financing Obligation .

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The current and long-term portions of the resulting financing obligation are reported in Accounts payable and accrued liabilities and Other long-term liabilities, respectively, on TVA's Consolidated Balance Sheets.

As of September 30, 2020 and 2019, the carrying amount of the financing obligation reported in Accounts payable and accrued liabilities was approximately $ 19 million and $ 23 million, respectively.

At September 30, 2021 and 2020, the carrying amount of the financing obligation reported in Accounts payable and accrued liabilities was approximately $ 16 million and $ 19 million, respectively.

See Note 9 — Other Long-Term Assets for information regarding the associated loans receivable.

In response to the COVID-19 pandemic, customers experiencing financial hardship can request a deferral of EnergyRight ® loan payments for a period of up to six months.

This deferral option began April 20, 2020, and is available through October 31, 2020.

Deferred loans will not accrue interest during the deferral months.

These deferred loans have resulted in a less than $ 1 million impact to TVA.

Paradise Pipeline Financing Obligation.

TVA reserves firm pipeline capacity on an approximately 19-mile pipeline

owned by Texas Gas, which serves TVA's Paradise Combined Cycle Facility.

TVA had been accounting for the contract covering this arrangement as a financing transaction due to failed sale-leaseback treatment.

The contract was revised during the fourth quarter of 2020 and is no longer deemed to contain a lease component.

Accordingly, amounts related to the pipeline asset and financing obligation recorded in connection with this transaction were derecognized as of September 30, 2020.

The current and long-term portions of less than $ 1 million and $ 80 million, respectively, of the financing obligation are reported in Accounts payable and accrued liabilities and Other long-term liabilities, respectively, on TVA's Consolidated Balance Sheet at September 30, 2019.

In response to the COVID-19 pandemic, customers experiencing financial hardship could request a deferral of EnergyRight ® loan payments for a period of up to six months.

The deferral option began in April 2020 and ended October 31, 2020.

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

The deferred loans did not accrue interest during the deferral months and totaled less than $ 1 million.

Long-Term Deferred Compensation .

TVA provides compensation arrangements to engage and retain certain employees, both executive and non-executive, which are designed to provide participants with the ability to defer compensation to future periods.

The current and long-term portions are reported in Accounts payable and accrued liabilities and Other long-

term liabilities, respectively, on TVA’s Consolidated Balance Sheets.

At September 30, 2021 and 2020, the current amount of deferred compensation reported in Accounts payable and accrued liabilities was $ 51 million and $ 47 million, respectively.

Long-Term Deferred Revenue .

Long-term deferred revenue represents payments received that exceed services rendered resulting in the deferral of revenue.

This long-term portion represents amounts that will not be recognized within the next 12 months primarily related to fiber and transmission agreements.

The current and long-term portions of the deferral are reported in Accounts Payable and accrued liabilities and Other long-term liabilities, respectively, on TVA’s Consolidated Balance Sheets.

At September 30, 2021 and 2020, the current amount of deferred revenue was $ 10 million and $ 11 million, respectively, and is included in Accounts payable and accrued liabilities.

Accrued Long-Term Service Agreement.

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TVA's Consolidated Balance Sheets.

As of September 30, 2020 and 2019, related liabilities of $ 15 million and $ 12 million, respectively, were recorded in Accounts payable and accrued liabilities.

At September 30, 2021 and 2020, related liabilities of $ 28 million and $ 15 million, respectively, were recorded in Accounts payable and accrued liabilities.

Asset Retirement Obligations

During the year ended September 30, 2020, TVA's total ARO liability increased $ 1.2 billion.

During the year ended September 30, 2021, TVA's total ARO liability increased $ 217 million.

To estimate its decommissioning obligation related to its nuclear generating stations, TVA uses a probability-weighted, discounted cash flow model which, on a unit-by-unit basis, considers multiple outcome scenarios that include significant estimations and assumptions.

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TVA bases its nuclear decommissioning estimates on site-specific cost studies.

The most recent study was approved and implemented in September 2017.

An increase of $ 250 million was recorded to the nuclear AROs as a result of the updates.

Site-specific cost studies are updated for each of TVA's nuclear units at least every five years.

These cost studies are updated for each of TVA's nuclear units at least every five years.

TVA plans to complete new cost studies for its nuclear units in 2022.

TVA also has decommissioning obligations related to its non-nuclear generating sites, ash impoundments, transmission substation and distribution assets, and certain general facilities.

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TVA bases its decommissioning estimates for each asset on its identified preferred closure method.

During 2020, the revisions in non-nuclear es timates increased $ 1.1 billion for the year ended September 30, 2020.

In November 2019, the Tennessee Department of Environment and Conservation ("TDEC") released amendments to its regulations which govern solid waste disposal facilities, including TVA's active CCR facilities covered by a solid waste disposal permit and those which closed pursuant to a TDEC approved closure plan.

The revisions in non-nuclear estimates increased $ 191 million for the year ended September 30, 2021.

This increase was primarily driven by revisions of approximately $ 122 million to certain coal combustion residuals ("CCR") closure liabilities at Shawnee Fossil Plant ("Shawnee"), Paradise, Colbert Fossil Plant, Cumberland Fossil Plant, and Gallatin Fossil Plant ("Gallatin") resulting from revised engineering estimates for construction costs, new vendor bids, modified closure designs, and expected costs associated with post-closure care of the closed areas.

CCR ARO liabilities associated with groundwater well monitoring also increased approximately $ 69 million due to expansion in the scope of recurring activities including measuring, modeling, and reporting.

In addition, TVA's use of a new CCR landfill at Shawnee and expansion of landfill acreage used at Gallatin resulted in new obligations of $ 30 million and $ 13 million, respectively.

The revisions in non-nuclear estimates increased $ 1.1 billion for the year ended September 30, 2020.

In November 2019, the Tennessee Department of Environment and Conservation ("TDEC") released amendments to its regulations that govern solid waste disposal facilities, including TVA's active CCR facilities covered by a solid waste disposal permit and those which closed pursuant to a TDEC approved closure plan.

Such facilities are generally subject to a 30-year post-closure care period during which the owner or operator must undertake certain activities, including monitoring and maintaining the facility.

The amendments, among other things, add an additional 50-year period after the end of the post-closure care period, require TVA to submit recommendations as to what activities must be performed during this 50-year period to protect human health and

the environment, and require TVA to submit revised closure plans every 10 years.

This regulatory revision resulted in an increase of $ 129 million, of which $ 38 million was related to operating CCR facilities and $ 91 million was related to inactive or closed CCR facilities.

In June 2020, based on recent project cost data and estimates, TVA revised its AROs for closure-by-removal of certain CCR facilities at Allen Fossil Plant, resulting in an increase to AROs of $ 273 million.

In September 2020, TVA completed an engineering review of its cost estimates to close the ash pond complex at Gallatin Fossil Plant, resulting in an increase of $ 173 million due to expected cost increases for excavation, disposal, and other activities required in a closure-by-removal project.

In June 2020, based on recent project cost data and estimates, TVA revised its AROs for closure-by-removal of certain

CCR facilities at Allen Fossil Plant, resulting in an increase to AROs of $ 273 million.

In September 2020, TVA completed an engineering review of its cost estimates to close the ash pond complex at Gallatin, resulting in an increase of $ 173 million due to expected cost increases for excavation, disposal, and other activities required in a closure-by-removal project.

Also in September 2020, TVA completed a study of its plant decommissioning obligations and CCR post-closure care and monitoring obligations.

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TVA increased its CCR post-closure care and monitoring AROs primarily as a result of expected cost increases to monitor groundwater and maintain CCR areas after closure as well as increases in expected acreage to maintain after closure, totaling $ 460 million.

During 2019, the revisions in non-nuclear estimates increased $ 50 million for the year ended September 30, 2019.

As a result of recent experience in completing settlements at certain facilities, costs for asbestos abatement activities across TVA's fossil fleet increased $ 114 million.

TVA changed the preferred closure method for Allen West Impoundment from closure-in-place to closure-by-removal, which resulted in a cost increase of $ 33 million.

Partially offsetting these increases was a $ 57 million decrease in costs for Paradise closure projects, and a $ 44 million decrease in costs for the Allen East Impoundment closure project.

Additionally, as a result of the decision in TVA's favor by the Sixth Circuit in the lawsuit brought by TSRA and TCWN, as well as the June 2019 consent order filed in the case brought by TDEC, Gallatin discounted cash flows related to CCR closure and post-closure costs of $ 672 million have been recorded as Asset retirement obligations.

The obligation is based upon the assumptions outlined in the consent order, including a new lined facility will be permitted and constructed on the Gallatin site and existing CCR materials in the existing wet ash disposal impoundments at Gallatin will be moved to this new facility over a 20-year period.

Additionally, during the years ended September 30, 2021 and 2020, both the nuclear and non-nuclear liabilities were increased by periodic accretion, partially offset by settlement projects that were conducted during these periods.

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Revisions in estimate — 1,077 1,077

Additional obligations 18 — 18

Gallatin CCR — 672 672

Accretion (recorded as regulatory asset) 143 63 206

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Revisions in estimate 12 191 203

Additional obligations — 43 43

Accretion (recorded as regulatory asset) 149 64 213

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(1) Includes $ 266 million a nd $ 345 million at September 30, 2021 and 2020, respectively, in Current liabilities.

TVA implemented revised depreciation rates during the first quarter of 2022 applicable to its completed plant as a result of the completion of a new depreciation study.

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

As a result of the accelerated retirements reflected in the depreciation study, TVA performed an assessment of the assumptions used in the timing of cash flows related to its non-nuclear AROs.

Based on the assessment, TVA identified changes to its projections of timing of certain asset retirement processes, that will be recorded in 2022.

Debt and Other Obligations

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power bonds and discount notes.

Power bonds have maturities between one and 50 years, and discount notes have maturities of less than one year.

Power bonds have maturities between one year and 50 years, and discount notes have maturities of less than one year.

Power bonds and discount notes are both issued pursuant to Section 15d of the TVA Act and pursuant to the Basic Tennessee Valley Authority Power Bond Resolution adopted by the TVA Board on October 6, 1960, as amended on September 28, 1976, October 17, 1989, and March 25, 1992 (the "Basic Resolution").

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TVA considers its scheduled rent payments under its leaseback transactions, as well as its scheduled payments under its lease financing arrangements involving John Sevier CCF and Southaven CCF, as costs of operating, maintaining, and administering its power properties.

Costs of operating, maintaining, and administering TVA's power properties have priority over TVA's payments on the Bonds.

Costs of operating, maintaining, and administering TVA's power properties have priority over

TVA's payments on the Bonds.

Once net power proceeds have been applied to payments on power bonds and discount notes as well as any other Bonds that TVA may issue in the future that rank on parity with or subordinate to power bonds and discount notes, Section 2.3 of the Basic Resolution provides that the remaining net power proceeds shall be used only for (1) minimum payments into the U.S.

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TVA used the proceeds from the transaction to meet its requirements under the TVA Act.

Secured debt of VIEs, including current maturities, outstanding at both September 30, 2020 and 2019 totaled $ 1.1 billion.

Secured debt of VIEs, including current maturities, outstanding at September 30, 2021 and 2020 totaled $ 1.0 billion and $ 1.1 billion, respectively.

Secured Notes

On July 20, 2016, TVA acquired two entities, in a business combination, designed to administer rent payments TVA makes under certain of its lease/leaseback arrangements.

On September 27, 2000, the entities issued secured notes totaling $ 255 million that had an interest rate of 7.299 percent and required amortizing semi-annual payments on each March 15 and September 15 with a maturity date of March 15, 2019.

In 2016, TVA assumed these secured notes in the acquisition at a fair value of $ 78 million.

The secured notes of the entities were paid in full in 2019.

On September 20, 2017, TVA acquired two entities, in an asset acquisition, designed to administer rent payments TVA makes under certain of its lease/leaseback arrangements.

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In 2017, TVA assumed these secured notes in the acquisition at a fair value of $ 74 million.

The secured notes of the entities, including current maturities, outstanding at September 30, 2019, totaled approximately $ 23 million, and are included in Notes payable on TVA's Consolidated Balance Sheet.

The secured notes of the entities were paid in full in 2020.

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Weighted average interest rate - discount notes 0.03 % 0.06 % 2.15 %

Put and Call Options

At September 30, 2019, bond issues of $ 357 million held by the public were redeemable in whole or in part, at TVA's option, on call dates through 2020 and at call prices of 100 percent of the principal amount.

Nine of these bond issues totaling $ 217 million, with maturity dates ranging from 2025 to 2043, included a "survivor's option," which allowed for right of redemption upon the death of a beneficial owner in certain specified circumstances.

These bonds were classified as long-term at September 30, 2019.

TVA subsequently announced in October 2019 that $ 217 million of callable bonds were redeemed at par on November 15, 2019.

Additionally, TVA has two issues of Putable Automatic Rate Reset Securities ("PARRS") outstanding.

TVA has two issues of Putable Automatic Rate Reset Securities ("PARRS") outstanding.

After a fixed-rate period of five years, the coupon rate on the PARRS may automatically be reset downward under certain market conditions on an annual basis.

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2020 Series A (1)

2021 Series A (2)

Discount on debt issues — ( 3 )

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electronotes ®

2013 Series A 1,000

2009 Series B 29 28

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1995 Series B — 140

2011 Series A 1,500 —

1998 Series H 331 —

Total redemptions/maturities of power bonds 1,860 1,427

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(1) The 2020 Series A Bonds were issued at 99.706 percent of par.

(2) The 2021 Series A Bonds were issued at 99.982 percent of par.

(3) All redemptions were at 100 percent of par.

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880591EF5 6/15/2022 3.770 % 27 28

880591EF5 6/15/2021 3.770 % 28 —

88059TEL1 11/15/2019 2.650 % — 1

88059TEL1 5/15/2020 2.650 % — 1

880591EV0 3/15/2020 2.250 % — 1,000

880591EL2 2/15/2021 3.875 % — 1,500

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Rate Effective Call Date 2021 Par 2020 Par Stock Exchange Listings

electronotes ®(2)

5/15/2020 - 2/15/2043 2.375% - 3.625% 2/15/2015 - 2/15/2018 (5)

$ — $ 217 None

880591EL2 2/15/2021 3.875 % — 1,500 New York

880591DC3 6/7/2021 5.805 % (3)

New York, Luxembourg

880591EN8 8/15/2022 1.875 % $ — $ 1,000 New York

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880591DM1 5/1/2030 7.125 % 1,000 1,000 New York, Luxembourg

880591EX6 9/15/2031 1.500 % 500 — New York

880591DP4 6/7/2032 6.587 % (2)

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New York, Luxembourg

880591CF7 7/15/2045 6.235 % 7/15/2020 — 140 New York

880591EB4 1/15/2048 4.875 % 500 500 New York, Luxembourg

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(1) Includes net exchange gain from currency transactions of $ 58 million and $ 80 million at September 30, 2021 and 2020 , respectively.

(2) Includes one electronotes ® issue with partial maturities of principal for each required annual payment.

(2) The coupon rate represents TVA's effective interest rate.

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See Put and Call Options above.

(5) The bonds were callable on or after the dates shown.

Maturities Due in the Year Ending September 30

2022 2023 2024 2025 2026 Thereafter Total

Long-term power bonds, long-term debt of VIEs, and notes payable including current maturities (1)

Long-term power bonds including current maturities (1)

$ 1,028 $ 29 $ 1,022 $ 1,022 $ 1,370 $ 14,187 $ 18,658

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(1) Long-term power bonds does not include non-cash items of foreign currency exchange gain of $ 58 million, unamortized debt issue costs of $ 43 million, and net discount on sale of Bonds of $ 72 million.

Long-term debt of VIE does not include non-cash item of unamortized debt issue costs of $ 8 million.

Credit Facility Agreements

TVA has funding available under four long-term revolving credit facilities totaling $ 2.7 billion:

a $ 150 million credit facility that matures on December 11, 2021, a $ 1.0 billion credit facility that matures on June 13, 2023, a $ 1.0 billion credit facility that matures on September 28, 2023, and a $ 500 million credit facility that matures on February 1, 2025.

TVA has funding available under four long-term revolving credit facilities totaling approximately $ 2.7 billion:

a $ 1.0 billion credit facility that matures on September 28, 2023, a $ 150 million credit facility that matures on February 9, 2024, a $ 500 million credit facility that matures on February 1, 2025, and a $ 1.0 billion credit facility that matures on September 21, 2026.

The interest rate on any borrowing under these facilities varies based on market factors and the rating of TVA's senior unsecured, long-term, non-credit-enhanced debt.

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This fee, along with letter of credit fees, may fluctuate depending on the rating of TVA's senior unsecured, long-term, non-credit-enhanced debt.

At September 30, 2020 and 2019, there were $ 1.5 billion and $ 1.3 billion, respectively, of letters of credit outstanding under these facilities, and there were no borrowings outstanding.

At September 30, 2021 and 2020, there were approximately $ 1.2 billion of letters of credit outstanding under these facilities, and there were no borrowings outstanding.

See Note 16 — Risk Management Activities and Derivative Transactions — Other Derivative Instruments — Collateral .

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Maturity Date Facility Limit Letters of Credit Outstanding Cash Borrowings Availability

December 2021 $ 150 $ 38 $ — $ 112

June 2023 1,000 432 — 568

September 2023 $ 1,000 $ 328 $ — $ 672

February 2024 150 38 — 112

February 2025 500 500 — —

September 2026 1,000 301 — 699

Total $ 2,650 $ 1,167 $ — $ 1,483

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On September 30, 2021 and 2020, the outstanding le aseback obligations related to the remaining CTs and QTE were $ 25 million and $ 223 million , respectively.

In March 2019, TVA made final rent payments under lease/leaseback transactions involving eight CTs, and TVA had previously acquired the equity interests related to these transactions.

These transactions were terminated in July 2019.

In May 2020, TVA made final rent payments under lease/leaseback transactions involving eight additional CTs, and TVA had previously acquired the equity interest related to these transactions.

In May 2020, TVA made final rent payments under lease/leaseback transactions involving eight CTs, and TVA had previously acquired the equity interest related to these transactions.

Rent payments under the remaining CT lease/leaseback transactions are scheduled to be made through January 2022.

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In addition, on October 30, 2019, TVA provided notice of its intent to purchase the ownership interest in certain QTE.

Repurchase payments are expected to be paid through a series of installments in 2021 and 2022, after which the associated leases will be terminated.

Repurchase payments are being made through a series of installments in 2021 and 2022, after which the associated leases will be terminated.

Accumulated Other Comprehensive Income (Loss)

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TVA then reclassifies an amount out of AOCI into net income, offsetting the exchange gain/loss recorded on the debt.

For the years ended September 30, 2020 and 2019, TVA reclassified $ 38 million of gains and $ 45 million of losses, respectively, related to its cash flow hedges from AOCI to Interest expense.

For the years ended September 30, 2021 and 2020, TVA reclassified $ 97 million and $ 38 million of gains, respectively, related to its cash flow hedges from AOCI to Interest expense.

See Note 16 — Risk Management Activities and Derivative Transactions .

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See Note 10 — Regulatory Assets and Liabilities for a schedule of regulatory assets and liabilities.

See Note 15 — Risk Management Activities and Derivative Transactions for a discussion of the recognition in AOCI of gains and losses associated with certain derivative contracts.

See Note 16 — Risk Management Activities and Derivative Transactions for a discussion of the recognition in AOCI of gains and losses associated with certain derivative instruments.

See Note 17 — Fair Value Measurements for a discussion of the recognition of certain investment fund gains and losses as regulatory assets and liabilities.

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Other than certain derivative instruments in its trust investment funds, it is TVA's policy to enter into these derivative transactions solely for hedging purposes and not for speculative purposes.

During the fourth quarter of 2020, TVA discontinued derivative accounting for forward coal contracts because these contracts no longer meet the criteria of net settlement.

As a result, the associated $ 10 million net derivative liabilities have been derecognized.

TVA suspended its FTP in 2014 and no longer uses financial instruments to hedge risks related to commodity prices;

however, TVA plans to continue to manage fuel price volatility through other methods and is currently reevaluating its suspended FTP program for future use of financial instruments.

During the fourth quarter of 2020, TVA discontinued derivative accounting for forward coal contracts because these contracts no longer met the criteria of net settlement, and, as a result, the associated net derivative liabilities were derecognized at that time.

In 2014, TVA suspended its Financial Trading Program.

In anticipation of lifting the suspension in 2022, the TVA Board, in November 2021, approved the elimination of the Value at Risk aggregate transaction limit for the Financial Hedging Program (formerly, the Financial Trading Program) and authorized the use of tolerances and measures that will be reviewed annually by the TVA Board.

The tolerances will address counterparty exposure, liquidity risk, and reduction in fuel cost volatility.

In addition, the TVA Board approved certain administrative changes to the Financial Hedging Program.

Overview of Accounting Treatment

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Summary of Derivative Instruments That Receive Hedge Accounting Treatment (part 2) (1)

Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income to Interest Expense

Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest Expense

For the years ended September 30

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£200 million Sterling (1)

$ ( 78 ) Accounts payable and accrued liabilities $(78) $ ( 90 ) Accounts payable and accrued liabilities $(6);

Other long-term liabilities $(84)

$ ( 78 ) Accounts payable and accrued liabilities $( 78 )

£250 million Sterling

( 36 ) Accounts payable and accrued liabilities $( 4 );

Other long-term liabilities $(58) ( 61 ) Accounts payable and accrued liabilities $(5);

Other long-term liabilities $( 32 )

( 63 ) Accounts payable and accrued liabilities $( 5 );

Other long-term liabilities $( 58 )

£150 million Sterling

( 47 ) Accounts payable and accrued liabilities $( 3 );

Other long-term liabilities $(65) ( 57 ) Accounts payable and accrued liabilities $(4);

Other long-term liabilities $( 44 )

( 68 ) Accounts payable and accrued liabilities $( 3 );

Other long-term liabilities $( 65 )

Derivatives That Do Not Receive Hedge Accounting Treatment:

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Accrued interest $( 37 );

Other long-term liabilities $(1,369) $ ( 1,261 ) Accounts payable and

Other long-term liabilities $( 1,101 )

$ ( 1,449 ) Accounts payable and

accrued liabilities $( 43 );

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Accrued interest $( 10 );

Other long-term liabilities $(556) ( 498 ) Accounts payable and

Other long-term liabilities $( 423 )

( 588 ) Accounts payable and

accrued liabilities $( 22 );

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Other long-term liabilities

$42 million notional ( 4 ) Accounts payable and accrued liabilities $(2);

Other long-term liabilities $(2) ( 5 ) Accounts payable and

accrued liabilities $(1);

$42 million notional (2)

( 2 ) Accounts payable and accrued liabilities $( 1 );

Accrued interest $( 1 )

( 4 ) Accounts payable and

accrued liabilities $( 2 );

Other long-term liabilities $( 2 )

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Other long-term assets $ 40 ;

Accounts payable and accrued liabilities $(3) ( 41 ) Other current assets $12;

Other long-term liabilities $(16);

Accounts payable and accrued liabilities $( 3 )

46 Other current assets $ 26 ;

Other long-term assets $ 23 ;

Accounts payable and accrued liabilities $( 3 )

(1) On June 7, 2021, the 1998 Series H Sterling Global bond matured, and the final payment was made on the related currency swap.

(2) Represents two interest rate swaps with notional amounts of $ 28 million and $ 14 million.

Cash Flow Hedging Strategy for Currency Swaps

To protect against exchange rate risk related to three British pound sterling denominated Bond transactions, TVA entered into foreign currency hedges at the time the Bond transactions occurred.

To protect against exchange rate risk related to British pound sterling denominated Bond transactions, TVA entered into foreign currency hedges at the time the Bond transactions occurred.

TVA had the following currency swaps outstanding at September 30, 2021:

Currency Swaps Outstanding

September 30, 2020

Effective Date of Currency Swap Contract Associated TVA Bond Issues Currency Exposure Expiration Date of Swap Overall Effective

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2003 £ 150 million 2043 4.96 %

When the dollar strengthens against the British pound sterling, the exchange gain on the Bond liability and related accrued interest is offset by an equal amount of loss on the swap contract that is reclassified out of AOCI.

Conversely, the exchange loss on the Bond liability and related accrued interest is offset by an equal amount of gain on the swap contract that is reclassified out of AOCI.

All such exchange gains or losses on the Bond liability and related accrued interest are included in Long-term debt, net and Accounts payable and accrued liabilities, respectively.

All such exchange gains or losses on the Bond liability and related accrued interest are included in Long-term debt, net and Accrued interest, respectively.

The offsetting exchange losses or gains on the swap contracts are recognized in AOCI.

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The net deferred unrealized gains and losses are classified as regulatory assets or liabilities on TVA's Consolidated Balance Sheets and are included in the ratemaking formula when gains or losses are realized.

The values of these derivatives are included in Accounts payable and accrued liabilities, Accrued interest, and Other long-term liabilities on the Consolidated Balance Sheets, and realized gains and losses, if any, are included in TVA's Consolidated Statements of Operations.

For the years ended September 30, 2020 and 2019, the changes in fair market value of the interest rate swaps resulted in the deferral of unrealized losses of $ 272 million and $ 565 million, respectively.

For the years ended September 30, 2021 and 2020, the changes in fair market value of the interest rate swaps resulted in the deferral of unrealized gains of $ 402 million and unrealized losses of $ 272 million, respectively.

TVA may hold short-term debt balances lower than the notional amount of the interest rate swaps from time to time due to changes in business conditions and other factors.

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Commodity Derivatives .

TVA enters into certain commodity contracts for coal and natural gas that require physical delivery of the contracted quantity of the commodity.

During the fourth quarter of 2020, TVA discontinued derivative accounting for forward coal contracts.

TVA enters into certain derivative contracts for natural gas that require physical delivery of the contracted quantity of the commodity.

TVA marks to market natural gas contracts and defers the fair market values as regulatory assets or liabilities on a gross basis.

At September 30, 2020, TVA's natural gas contract derivatives had terms of up to four years.

At September 30, 2021, TVA's natural gas contract derivatives had terms of up to three years.

Commodity Contract Derivatives

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Notional Amount Fair Value (MtM) Number of Contracts Notional Amount Fair Value ( MtM )

Coal contract derivatives — — million tons $ — 8 9 million tons $ ( 4 )

Natural gas contract derivatives 40 263 million mmBtu $ 247 42 302 million mmBtu $ 46

Offsetting of Derivative Assets and Liabilities

The amounts of TVA's derivative instruments as reported on the Consolidated Balance Sheets at September 30, 2020 and 2019, are shown in the table below.

The amounts of TVA's derivative instruments as reported on the Consolidated Balance Sheets are shown in the table below:

Derivative Assets and Liabilities (1)

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(1) Offsetting a mounts primarily include counterparty netting of derivative contracts, margin account deposits for futures commission merchants transactions, and cash collateral received or paid in accordance with the accounting guidance for derivatives and hedging transactions.

There were no offsetting amounts on TVA's Consolidated Balance Sheets at either September 30, 2020 or 2019.

There were no material offsetting amounts on TVA's Consolidated Balance Sheets at either September 30, 2021 or 2020.

(2) Letters of credit of approximately $ 1.2 billion and $ 1.5 billion were posted as collateral at September 30, 2021 and 2020, respectively, to partially secure the liability positions of one of the currency swaps and one of the interest rate swaps in accordance with the collateral requirements for these derivatives.

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TVA believes its policies and procedures for counterparty performance risk reviews have generally protected TVA against significant exposure related to market and economic conditions.

See Note 1 — Summary of Significant Accounting Policies — Allowance for Uncollectible Accounts and Note 3 — Accounts Receivable, Net .

TVA had revenue from two LPCs that collectively accounted for 17 percent of total operating revenue for the years ended both September 30, 2020 and September 30, 2019.

See Note 1 — Summary of Significant Accounting Policies — Allowance for Uncollectible Accounts, Note 3 — Accounts Receivable, Net , and Note 9 — Other Long-Term Assets .

TVA had revenue from two LPCs that collectively accounted for 17 percent of total operating revenues for both the years ended September 30, 2021 and 2020.

TVA assesses potential supplier performance risks, including procurement of fuel, parts, and services.

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In addition, TVA might not be able to acquire replacement fuel or power in a timely manner and thus might be unable to satisfy its own obligations to deliver power.

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.

Natural Gas .

TVA purchases the majority of its natural gas requirements from a variety of suppliers under primarily short-term contracts.

In the event of nonperformance by these suppliers, TVA believes that it can obtain replacement natural gas.

TVA purchases its natural gas requirements from a variety of suppliers and delivers to its gas fleet under firm and non-firm transportation contracts on multiple interstate natural gas pipelines.

TVA contracts for storage capacity that allows for operational flexibility and increased supply during peak gas demand scenarios or supply disruptions.

TVA also maintains on-site, fuel oil backup to operate at a majority of the combustion turbine sites in the event of major supply disruptions.

In the event of nonperformance by suppliers, TVA believes that it can obtain replacement natural gas.

To help ensure a reliable supply of coal, TVA had coal contracts with multiple suppliers at September 30, 2021.

The contracted supply of coal is sourced from multiple geographic regions of the United States and is to be delivered via various transportation methods (e.g., barge, rail, and truck).

Emerging technologies, environmental regulations, and low natural gas prices have contributed to weak demand for coal.

As a result, coal suppliers are facing increased financial pressure, which has led to relatively poor credit ratings and bankruptcies.

Continued difficulties by coal suppliers, including impacts from the COVID-19 pandemic, could result in consolidations, additional bankruptcies, restructuring, contract renegotiations, or other scenarios.

The contracted supply of coal is sourced from multiple geographic regions of the U.S.

and is to be delivered via various transportation methods (e.g., barge, rail, and truck).

As a result of emerging technologies, environmental regulations, and lower gas prices on average over the past few years, coal suppliers are facing increased financial pressure, which has led to relatively poor credit ratings and bankruptcies, restructuring, mine closures, or other scenarios.

A continued decline in demand for coal could result in further consolidations, additional bankruptcies, restructuring, mine closures, or other scenarios.

Current market conditions indicate limited availability of spot market coal due to increased exports, utility demand, and mine capacity capability.

Nuclear Fuel .

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Purchased Power .

TVA has a power purchase agreement that expires on March 31, 2032, with a supplier of electricity for 440 megawatts ("MW") of summer net capability from a lignite-fired generating plant.

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

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

TVA also has a PPA that expires on March 31, 2032, with a supplier of electricity for 440 megawatts ("MW") of summer net capability from a lignite-fired generating plant.

TVA has determined that the supplier has the equivalent of a non-investment grade credit rating;

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Other Suppliers .

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 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 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.

In May 2021, TVA was notified of the Colonial Pipeline ransomware attack that shut down the pipeline for a period of time.

The Colonial Pipeline delivers a portion of TVA’s refined products, such as gasoline and diesel fuel, among others.

This event did not have a material impact on TVA business or operations.

No alternative fuel supply sources or dispatch of alternative generation sources were necessary during this time, primarily as a result of having sufficient existing inventory.

Derivative Counterparties .

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If a counterparty to one of the physical or financial derivative transactions defaults, TVA might incur substantial costs in connection with entering into a replacement transaction.

If a counterparty to the derivative contracts into which the NDT, the ART, and the qualified pension plan have entered for investment purposes defaults, the value of the investment could decline significantly or perhaps become worthless.

If a counterparty to the derivative contracts into which the NDT, the ART, or the qualified pension plan have entered for investment purposes defaults, the value of the investment could decline significantly or perhaps become worthless.

TVA has concentrations of credit risk from the banking, coal, and gas industries because multiple companies in these industries serve as counterparties to TVA in various derivative transactions.

At September 30, 2020, all of TVA's currency swaps and interest rate swaps as well as all of the derivatives in the NDT and ART were with banking counterparties whose Moody's credit ratings were A3 or higher.

September 30, 2021, all of TVA's currency swaps and interest rate swaps as well as all of the derivatives in the NDT and ART were with banking counterparties whose Moody's credit ratings were A2 or higher.

TVA classifies qualified forward natural gas contracts as derivatives.

See Derivatives Not Receiving Hedge Accounting Treatment above.

At September 30, 2020, the natural gas contracts were with counterparties whose ratings ranged from Caa2 to A2.

At September 30, 2021, the natural gas contracts were with counterparties whose ratings ranged from B1 to Aa2 .

TVA recognizes the slowdown in demand and the impacts on the oil and gas industry as a result of the COVID-19 pandemic.

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The ART holds funds primarily for the costs related to the future closure and retirement of TVA's other long-lived assets.

The balances in the NDT and ART were $ 2.2 billion and $ 866 million, respectively, at September 30, 2020.

TVA established a SERP to provide benefits to selected employees of TVA which are comparable to those provided by competing organizations.

The balances in the NDT and ART were $ 2.8 billion and $ 1.1 billion, respectively, at September 30, 2021.

TVA established a SERP to provide benefits to selected employees of TVA that are comparable to those provided by competing organizations.

The DCP is designed to provide participants with the ability to defer compensation to future periods.

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and international equities, U.S.

Treasury inflation-protected securities, real estate investment trust securities, and cash securities and certain derivative instruments are measured based on quoted exchange prices in active markets and are classified as Level 1 valuations.

Fixed-income investments, high-yield fixed-income investments, currencies, and most derivative instruments are non-exchange traded and are classified as Level 2 valuations.

Treasury inflation-protected securities ("TIPS"), real estate investment trust securities, and cash securities and certain derivative instruments are measured based on quoted exchange prices in active markets and are classified as Level 1 valuations.

Fixed-income investments, high-yield fixed-income

investments, currencies, and most derivative instruments are non-exchange traded and are classified as Level 2 valuations.

These measurements are based on market and income approaches with observable market inputs.

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The investment period is generally, at a minimum, 10 years or longer.

The NDT had unfunded commitments related to limited partnerships in private equity of $ 218 million, private real assets of $ 67 million, and private credit of $ 33 million at September 30,

The NDT had unfunded commitments related to private equity limited partnerships of $ 221 million, private real assets of $ 96 million, and private credit of $ 44 million at September 30, 2021.

The ART had unfunded commitments related to limited partnerships in private equity of $ 123 million, private real assets of $ 65 million, and private credit of $ 21 million at September 30, 2021.

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The fair value of commingled funds is based on NAV per fund share (the unit of account), derived from the prices of the underlying securities in the funds.

These commingled funds can be redeemed at the measurement date NAV and are classified as Commingled funds measured at net asset value in the fair value hierarchy.

These commingled funds can be redeemed at the measurement date NAV and are classified as Commingled funds measured at NAV in the fair value hierarchy.

Realized and unrealized gains and losses on equity and trading debt securities are recognized in current earnings and are based on average cost.

The gains and losses of the NDT and ART are subsequently reclassified to a regulatory asset or liability account in accordance with TVA's regulatory accounting policy.

See Note 1 — Summary of Significant Accounting Policies — Cost-Based Regulation .

See Note 1 — Summary of Significant Accounting Policies — Cost-Based Regulation and Note 10 — Regulatory Assets and Liabilities .

TVA recorded unrealized gains and losses related to its equity and trading debt securities held during each period as follows:

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DCP Other income (expense) 1 2

Due to higher volatility in the financial markets associated with the COVID-19 pandemic, TVA has experienced fluctuations related to its ART and NDT investment portfolio during 2020.

The losses experienced during the three months ended March 31, 2020, have been recovered.

For the year ended September 30, 2020, the NDT increased in value $ 123 million compared to the year ended September 30, 2019.

Despite this volatility, TVA's NDT funding as of September 30, 2020, continues to be fully funded per the NRC funding requirements.

Currency and Interest Rate Derivatives

Currency and Interest Rate Swap Derivatives

See Note 16 — Risk Management Activities and Derivative Transactions — Cash Flow Hedging Strategy for Currency Swaps and Derivatives Not Receiving Hedge Accounting Treatment for a discussion of the nature, purpose, and contingent features of TVA's currency swaps and interest rate swaps.

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TVA adjusts for nonperformance risk, both of TVA (for liabilities) and the counterparty (for assets), by applying credit valuation adjustments ("CVAs").

TVA determines an appropriate CVA for each applicable financial instrument based on the term of the instrument and TVA's or the counterparty's credit rating as obtained from Moody's.

TVA determines an appropriate CVA for each applicable financial instrument based on the term of the

instrument and TVA's or the counterparty's credit rating as obtained from Moody's.

For companies that do not have an observable credit rating, TVA uses internal analysis to assign a comparable rating to the counterparty.

TVA discounts each

financial instrument using the historical default rate (as reported by Moody's for CY 1983 to CY 2019) for companies with a similar credit rating over a time period consistent with the remaining term of the contract.

TVA discounts each financial instrument using the historical default rate (as reported by Moody's for CY 1984 to CY 2020) for companies with a similar credit rating over a time period consistent with the remaining term of the contract.

The application of CVAs resulted in a less than $ 1 million decrease in the fair value of assets and a $ 1 million decrease in the fair value of liabilities at September 30, 2021.

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Total $ — $ 1,725 $ — $ 1,725

(1) Includes government-sponsored entities.

(1) Includes government-sponsored entities, including $ 573 million of U.S.

Treasury securities within Level 1 of the fair value hierarchy.

(2) Includes both U.S.

and foreign debt.

(3) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.

(3) Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented on the Consolidated Balance Sheets.

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Total $ — $ 2,253 $ — $ 2,253

(1) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.

(1) Includes government-sponsored entities.

(2) Includes both U.S.

and foreign debt.

(3) Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented on the Consolidated Balance Sheets.

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See Note 16 — Risk Management Activities and Derivative Transactions — Offsetting of Derivative Assets and Liabilities .

During the fourth quarter of 2020, TVA discontinued derivative accounting for forward coal contracts.

TVA previously used internal valuation specialists for the calculation of its commodity contract derivatives fair value measurements classified as Level 3.

Analytical testing was performed on the change in fair value measurements each period to ensure the valuation is reasonable based on changes in general market assumptions.

Significant changes to the estimated data used for unobservable inputs, in isolation or combination, may result in significant variations to the fair value measurement reported.

The following table presents a reconciliation of all commodity contract derivatives measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

Fair Value Measurements Using Significant Unobservable Inputs

(in millions)

Commodity Contract Derivatives (1)

Balance at October 1, 2019 $ ( 4 )

Change in net unrealized gains (losses) deferred as regulatory assets and liabilities ( 62 )

Balance at September 30, 2019 ( 4 )

Settlements ( 1 )

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Balance at September 30, 2020 $ —

The following table presents quantitative information related to the significant unobservable inputs used in the measurement of fair value of TVA's assets and liabilities classified as Level 3 in the fair value hierarchy:

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at September 30, 2019

Valuation Technique(s) Unobservable Inputs Range

Commodity contract derivatives $ 5 Pricing model Coal supply and demand 0.4 - 0.8 billion tons/year

Long-term market prices $12.10 - $94.51/ton

Commodity contract derivatives $ 9 Pricing model Coal supply and demand 0.4 - 0.8 billion tons/year

Long-term market prices $12.10 - $94.51/ton

(1) During the fourth quarter of 2020, TVA discontinued derivative accounting for forward coal contracts.

Therefore, the fair value measurement using significant unobservable inputs was zero at September 30, 2020, and September 30, 2021.

Other Financial Instruments Not Recorded at Fair Value

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Estimated Values of Financial Instruments Not Recorded at Fair Value

(in millions)

At September 30, 2021 At September 30, 2020

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Value Carrying

EnergyRight ® receivables (including current portion)

EnergyRight ® receivables, net (including current portion)

Level 2 $ 72 $ 71 $ 87 $ 86

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Membership interests of VIEs subject to mandatory redemption (including current portion) Level 2 23 30 26 35

Long-term outstanding power bonds (including current maturities), net Level 2 $ 19,743 $ 26,630 $ 20,124 $ 26,059

Long-term debt of VIEs (including current maturities), net Level 2 $ 1,089 $ 1,419 $ 1,128 $ 1,371

Long-term notes payable (including current maturities) Level 2 $ — $ — $ 23 $ 23

The carrying value of Cash and cash equivalents, Restricted cash and cash equivalents, and Short-term debt, net approximate their fair values.

Long-term outstanding power bonds, net (including current maturities) Level 2 18,485 24,309 19,743 26,630

Long-term debt of VIEs, net (including current maturities) Level 2 1,049 1,307 1,089 1,419

The carrying value of Cash and cash equivalents, Restricted cash and cash equivalents, Accounts receivable, net, and Short-term debt, net approximate their fair values.

The fair value for loans and other long-term receivables is estimated by determining the present value of future cash flows using a discount rate equal to lending rates for similar loans made to borrowers with similar credit ratings and for similar remaining maturities, where applicable.

The fair value of long-term debt and membership interests of VIEs subject to mandatory redemption is estimated by determining the present value of future cash flows using current market rates for similar obligations, giving effect to credit ratings and remaining maturities.

TVA adopted Revenue from Contracts with Customers effective October 1, 2018, using the modified retrospective method of adoption, which does not require restatement of prior year reported results.

As a result of the adoption of this standard, no cumulative effect adjustment was recorded.

Additionally, comparative disclosures for 2018 operating results with

the previous revenue recognition rules are not applicable as TVA's revenue recognition has not materially changed as a result of the new standard.

Revenue from Sales of Electricity

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In addition, TVA sells electricity to directly served industrial companies, federal agencies, and others.

LPC sales Approximately 93 percent of TVA's revenue from sales of electricity is to LPCs, which then distribute the power to their customers using their own distribution systems.

LPC sales Approximately 92 percent of TVA's revenue from sales of electricity for the year ended September 30, 2021 was to LPCs, which then distribute the power to their customers using their own distribution systems.

Power is delivered to each LPC at delivery points within the LPC's service territory.

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The net transaction price is offset by certain credits available to customers that are known at the time of billing.

Credits are designed to achieve objectives of the TVA Act and include items such as hydro preference credits for residential customers of LPCs, economic development credits to promote growth in the Tennessee Valley, wholesale bill credits to maintain long-term partnerships with LPCs, and demand response credits allowing TVA to reduce industrial customer usage in periods of peak demand to balance system demand.

Credits are designed to achieve objectives of the TVA Act and include items such as hydro preference credits for residential customers of LPCs, economic development credits to promote growth in the Tennessee Valley, wholesale bill credits to maintain long-term partnerships with LPCs, pandemic credits created to support LPCs and strengthen the public power response to the COVID-19 pandemic, and demand response credits allowing TVA to reduce industrial customer usage in periods of peak demand to balance system demand.

Payments are typically due within approximately one month of invoice issuance.

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The net transaction price is offset by certain credits available to customers that are known at the time of billing.

Examples of credits include items such as economic development credits to promote growth in the Tennessee Valley and demand response credits allowing TVA to reduce industrial customer usage in periods of peak demand to balance system demand.

Examples of credits include items such as economic development credits to promote growth in the Tennessee Valley, pandemic credits created to support directly served customers in response to the COVID-19 pandemic, and demand response credits allowing TVA to reduce industrial customer usage in periods of peak demand to balance system demand.

Payments are typically due within approximately one month of invoice issuance.

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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 ancillary goods or services.

Disaggregated Revenue

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

TVA's revenues by state for each of the last three years are detailed in the table below:

Disaggregated Revenues

During 2021, revenues generated from TVA's electricity sales were $ 10.4 billion and accounted for virtually all of TVA's revenues.

TVA's operating revenues by state for each of the last three years are detailed in the table below:

Operating Revenues By State

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Off-system sales 7 4 4

Revenue capitalized during pre-commercial plant operations (1)

Revenue from sales of electricity 10,357 10,104 11,159

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Total operating revenues $ 10,503 $ 10,249 $ 11,318

(1) Represents revenue capitalized during pre-commercial operations of $ 11 million at Allen CC in 2018.

See Note 1 — Summary of Significant Accounting Policies — Pre-Commercial Plant Operations .

TVA's operating revenues by customer type for each of the last three years are detailed in the table below:

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Local power companies $ 9,534 $ 9,406 $ 10,351

$ 9,406 $ 10,351 $ 10,262

Industries directly served 707 588 686

Federal agencies and other 116 110 122

Revenue capitalized during pre-commercial plant operations (2)

Revenue from sales of electricity 10,357 10,104 11,159

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Total operating revenues $ 10,503 $ 10,249 $ 11,318

(1) The amount for the years ended September 30, 2020 and 2019, is net of $ 163 million and $ 14 million, respectively, of wholesale bill credits to LPCs participating in the long-term Partnership Agreement.

There were no such credits in 2018.

(2) Represents revenue capitalized during pre-commercial operations of $ 11 million at Allen CC in 2018.

See Note 1 — Summary of Significant Accounting Policies — Pre-Commercial Plant Operations .

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

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 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.

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.

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.

The total wholesale bill credits to LPCs participating in the long-term Partnership Agreement were $ 189 million, $ 163 million, and $ 14 million, respectively, for the years ended September 30, 2021, 2020, and 2019.

In June 2020, TVA provided participating LPCs a flexibility option that allows them to locally generate or purchase up to approximately five percent of average total hourly energy sales over 2015 - 2019 in order to meet their individual customers' needs.

As of November 12, 2021, 145 LPCs had signed the 20-year Partnership Agreement with TVA, and 74 LPCs had signed a Flexibility Agreement.

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 local power company customers, their large commercial and industrial customers, and TVA directly served customers.

The number of LPCs with the contract arrangements described below, the revenues derived from such arrangements during 2020, and the percentage of TVA's total operating revenues during 2020 represented by these revenues are summarized in the tables below:

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.

The number of LPCs by contract arrangement, the revenues derived from such arrangements for 2021, and the percentage those revenues comprised of TVA's total operating revenues for 2021, are summarized in the table below:

TVA Local Power Company Contracts

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5-year termination notice 8 1,547 14.7 %

153 $ 9,406 91.8 %

Total 153 $ 9,534 90.7 %

(1) Ordinarily, the LPCs and TVA have the same termination notice period;

however, in contracts with two of the LPCs with five-year termination notices, TVA has a 10-year termination notice (which becomes a five-year termination notice if TVA loses its discretionary wholesale rate-setting authority).

however, in a contract with one of the LPCs with a five-year termination notice, TVA has a 10-year termination notice (which becomes a five-year termination notice if TVA loses its discretionary wholesale rate-setting authority).

Certain LPCs have five-year termination notices or a shorter period if any act of Congress, court decision, or regulatory change requires or permits that election.

(2) TVA wholesale power contracts decreased to 153 in 2020 due to a merger between two LPCs in July 2020.

TVA's two largest LPCs — MLGW and 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 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 its 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's two largest LPCs — 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 2021, 2020, and 2019.

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 account 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.

Contract Balances

Contract assets represent an entity's right to consideration in exchange for goods and services that the entity has transferred to customers.

TVA does not have any material contract assets as of September 30, 2020.

TVA does not have any material contract assets at September 30, 2021.

Contract liabilities represent an entity's obligations to transfer goods or services to customers for which the entity has received consideration (or an amount of consideration is due) from the customers.

These contract liabilities are primarily related to upfront consideration received prior to the satisfaction of the performance obligation.

Energy Prepayment Obligations.

In 2004, TVA and its largest customer, MLGW, entered into an energy prepayment agreement under which MLGW prepaid TVA $ 1.5 billion for the future costs of electricity to be delivered by TVA to MLGW over a period of 15 years.

TVA accounted for the prepayment as unearned revenue and reported the obligation to deliver power under this arrangement as Energy prepayment obligations.

The arrangement ceased in 2019.

TVA recognized approximately $ 100 million of noncash revenue in each year of the arrangement as electricity was delivered to MLGW based on the ratio of units of kilowatt hours delivered to total units of kilowatt hours under contract.

As of September 30, 2019, $ 1.5 billion had been recognized as noncash revenue on a cumulative basis during the life of the agreement, $ 100 million of which was recognized as noncash revenue and a corresponding reduction in the balance of Energy prepayment obligations during 2018.

During 2019, $ 10 million was recognized as noncash revenue and a corresponding reduction in the balance of Energy prepayment obligations.

Discounts to account for the time value of money, which were recorded as a reduction to electricity sales, amounted to $ 4 million and $ 46 million during 2019 and 2018, respectively.

See Economic Development Incentives below.

Economic Development Incentives.

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TVA records those incentives as reductions of revenue.

In 2020 and 2019, TVA recorded a total of $ 318 million and $ 310 million, respectively, in incentives as a reduction of revenue.

Incentives recorded as a reduction to revenue were $ 315 million, $ 318 million, and $ 310 million for 2021, 2020, and 2019, respectively.

Incentives that have been approved but have not been paid are recorded in Accounts payable and accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets.

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Incentives that have been paid out may be subject to claw back if the customer fails to meet certain program requirements.

Additionally, in May 2020, TVA established flexibility provisions to support the continued operations and recovery of participating customers experiencing financial and operational hardships as a result of the COVID-19 pandemic and corresponding economic downturn.

These provisions have not had a material impact to TVA.

In May 2020, TVA established flexibility provisions to support the continued operations and recovery of participating customers experiencing financial and operational hardships as a result of the COVID-19 pandemic and corresponding economic downturn.

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

The provisions did not have a material impact to TVA.

Proprietary Capital

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Return on power program appropriation investment ( 4 ) — ( 6 ) —

Implementation of new accounting standard (1)

Balance at end of year 13,689 ( 3,811 ) 12,177 ( 3,803 )

Net proprietary capital at September 30 $ 13,947 $ 540 $ 12,435 $ 548

(1) See Note 2 — Impact of New Accounting Standards and Interpretations.

Payments to the U.S.

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TVA records exchange rate gains and losses on debt and related accrued interest in net income and marks its currency swap assets and liabilities to market through OCI.

TVA recognized unrealized gains (losses) of $( 1 ) million and $( 114 ) million in 2020 and 2019, respectively, into AOCI on the mark-to-market of currency swaps.

TVA recognized unrealized gains (losses) of $ 126 million and $( 1 ) million in 2021 and 2020, respectively, into AOCI on the MtM of currency swaps.

TVA then reclassified an amount out of AOCI into net income, offsetting the gain/loss from recording the exchange gain/loss on the debt and related accrued interest.

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2021 2020 2019

Bellefonte deposit $ — $ 21 $ —

Bellefonte $ ( 28 ) $ — $ 21

Interest income 12 18 25

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Total other income (expense), net $ 13 $ 36 $ 62

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 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, TVA made 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 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 payment of compensated costs, along with prejudgment interest, which was fully paid 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.

Supplemental Cash Flow Information

Interest paid was $ 1.1 billion for 2020 and $ 1.2 billion for both 2019 and 2018.

Interest paid was $ 1.1 billion, $ 1.1 billion, and $ 1.2 billion for 2021, 2020, and 2019, respectively.

These amounts differ from interest expense in certain years due to the timing of payments.

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Construction in progress and Nuclear fuel expenditures included in Accounts payable and accrued liabilities at September 30, 2021, 2020, and 2019 were $ 637 million, $ 398 million, and $ 324 million, respectively, and are excluded from the Statements of Consolidated Cash Flows for the years ended September 30, 2021, 2020, and 2019 as non-cash investing activities.

Excluded from the Statements of Consolidated Cash Flows for the years ended September 30, 2020 and 2019, as non-cash financing activities were $ 394 million related to lease obligations incurred primarily in connection with a PPA and $ 10 million related to lease obligations incurred for leased equipment, respectively.

There were no capital leases incurred during 2018.

Excluded from the Statements of Consolidated Cash Flows for the year ended September 30, 2021, were non-cash investing and financing activities of $ 233 million related primarily to an increase in lease assets and liabilities incurred for a finance lease that was amended in March 2021.

Excluded from the Statement of Consolidated Cash Flows for the years ended September 30, 2020 and 2019, as non-cash financing activities were $ 394 million related to lease obligations incurred primarily in connection with a PPA and $ 10 million related to lease obligations incurred for leased equipment, respectively.

See Note 8 — Leases for further information regarding TVA's finance leases.

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The cash balance pension benefit is based on pay and interest credits accumulated in the participant's account and the participant's age.

Participants in the pension plan are also eligible to receive 401(k) plan matching contributions, may be eligible to receive 401(k) plan non-elective contributions, and may be eligible to make after-tax contributions of up to $ 10,000 per year to the pension plan, which at the election of the participant are invested in either the fixed fund, which receives a fixed interest rate set forth in the plan, or the variable fund, which receives a rate of return based on an S&P 500 index fund.

Participants in the

pension plan may also become eligible for a supplemental pension benefit based on age and years of service at retirement, which is provided to help offset the cost of retiree medical insurance.

the pension plan, which at the election of the participant are invested in either the fixed fund, which receives a fixed interest rate set forth in the plan, or the variable fund, which receives a rate of return based on an S&P 500 index fund.

Participants in the pension plan may also become eligible for a supplemental pension benefit based on age and years of service at retirement, which is provided to help offset the cost of retiree medical insurance.

Employees first hired on or after July 1, 2014, are participants in the 401(k) plan only and receive both non-elective and matching contributions to their accounts in the 401(k) plan.

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What changed 10-K

Item 8. Financial Statements and Supplementary Data