Tennessee Valley Authority 10-K

tve-20220930 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) x ANNUAL REPORT PURSUANT TO SECTION 13, 15(d), OR 37 OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30 , 2022 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 000-52313 TENNESSEE VALLEY AUTHORITY (Exact name of registrant as specified in its charter) A corporate agency of the United States created by an act of Congress (State or other jurisdiction of incorporation or organization) 62-0474417 (IRS Employer Identification No.) 400 W. Summit Hill Drive Knoxville , Tennessee (Address of principal executive offices) 37902 (Zip Code) (865) 632-2101 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered N/A N/A N/A Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13, Section 15(d), or Section 37 of the Act. Yes o No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13, 15(d), or 37 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer o Emerging growth company o Smaller reporting company o Non-accelerated filer x Accelerated filer o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x Estimated aggregate market value of the common equity held by non-affiliates of TVA at March 31, 2022: N/A Number of shares of common stock outstanding at November 14, 2022: N/A 1 Table of Contents Table of Contents GLOSSARY OF COMMON ACRONYMS....................................................................................................................................................................................................... 4 FORWARD-LOOKING INFORMATION......................................................................................................................................................................................................... 6 GENERAL INFORMATION............................................................................................................................................................................................................................ 8 PART I ITEM 1. BUSINESS...................................................................................................................................................................................................................................... 9 The Corporation................................................................................................................................................................................................................................. 9 Service Area....................................................................................................................................................................................................................................... 10 Customers.......................................................................................................................................................................................................................................... 11 Rates.................................................................................................................................................................................................................................................. 12 Power Supply and Load Management Resources............................................................................................................................................................................. 13 Fuel Supply......................................................................................................................................................................................................................................... 20 Transmission...................................................................................................................................................................................................................................... 22 Weather and Seasonality.................................................................................................................................................................................................................... 23 Competition........................................................................................................................................................................................................................................ 23 Research and Development............................................................................................................................................................................................................... 23 Flood Control Activities....................................................................................................................................................................................................................... 24 Environmental Stewardship Activities................................................................................................................................................................................................. 25 Economic Development Activities...................................................................................................................................................................................................... 25 Regulation.......................................................................................................................................................................................................................................... 25 Taxation and Tax Equivalents............................................................................................................................................................................................................. 27 Environmental Matters....................................................................................................................................................................................................................... 27 Human Capital Management.............................................................................................................................................................................................................. 34 ITEM 1A. RISK FACTORS............................................................................................................................................................................................................................ 40 ITEM 1B. UNRESOLVED STAFF COMMENTS............................................................................................................................................................................................ 54 ITEM 2. PROPERTIES.................................................................................................................................................................................................................................. 55 Generating Properties........................................................................................................................................................................................................................ 55 Transmission Properties..................................................................................................................................................................................................................... 57 Natural Resource Stewardship Properties......................................................................................................................................................................................... 57 Buildings............................................................................................................................................................................................................................................. 57 Disposal of Property........................................................................................................................................................................................................................... 57 ITEM 3. LEGAL PROCEEDINGS.................................................................................................................................................................................................................. 58 ITEM 4. MINE SAFETY DISCLOSURES...................................................................................................................................................................................................... 58 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES............ 59 ITEM 6. RESERVED........................................................................................................................................................................................................ 59 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................................... 59 Business and Mission......................................................................................................................................................................................................................... 59 Executive Overview............................................................................................................................................................................................................................ 62 Results of Operations......................................................................................................................................................................................................................... 63 Liquidity and Capital Resources......................................................................................................................................................................................................... 69 Off-Balance Sheet Arrangements....................................................................................................................................................................................................... 73 Key Initiatives and Challenges........................................................................................................................................................................................................... 73 Critical Accounting Estimates......................................................................................................................................................................................... 81 New Accounting Standards and Interpretations................................................................................................................................................................................. 86 Legislative and Regulatory Matters.................................................................................................................................................................................................... 86 Environmental Matters....................................................................................................................................................................................................................... 87 Legal Proceedings.............................................................................................................................................................................................................................. 87 Risk Management Activities............................................................................................................................................................................................................... 87 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................................................................................................................... 89 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................................................................................................................................................... 90 Consolidated Balance Sheets............................................................................................................................................................................................................ 90 Consolidated Statements of Operations............................................................................................................................................................................................. 92 Consolidated Statements of Comprehensive Income (Loss)............................................................................................................................................................. 93 Consolidated Statements of Cash Flows........................................................................................................................................................................................... 94 Consolidated Statements of Changes in Proprietary Capital............................................................................................................................................................. 95 Notes to Consolidated Financial Statements..................................................................................................................................................................................... 96 Report of Independent Registered Public Accounting Firm (PCAOB ID 42 ) ...................................................................................................................................... 154 2 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............................................................... 156 ITEM 9A. CONTROLS AND PROCEDURES............................................................................................................................................................................................... 156 Disclosure Controls and Procedures.................................................................................................................................................................................................. 156 Internal Control over Financial Reporting........................................................................................................................................................................................... 156 Report of Independent Registered Public Accounting Firm................................................................................................................................................................ 157 ITEM 9B. OTHER INFORMATION................................................................................................................................................................................................................ 158 ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS ..................................................................................................... 158 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE............................................................................................................................. 159 Directors.............................................................................................................................................................................................................................................. 159 Executive Officers............................................................................................................................................................................................................................... 160 Disclosure and Financial Code of Ethics............................................................................................................................................................................................ 161 Committees of the TVA Board............................................................................................................................................................................................................ 161 ITEM 11. EXECUTIVE COMPENSATION..................................................................................................................................................................................................... 163 Compensation Discussion and Analysis............................................................................................................................................................................................. 163 CEO Pay Ratio Disclosure................................................................................................................................................................................................................. 200 Executive Compensation Tables and Narrative Disclosures.............................................................................................................................................................. 206 Retirement and Pension Plans........................................................................................................................................................................................................... 210 Nonqualified Deferred Compensation................................................................................................................................................................................................ 212 Potential Payments on Account of Resignation, Retirement, Termination without Cause, Termination with Cause, Death, or Disability........................................... 215 Other Agreements.............................................................................................................................................................................................................................. 220 Director Compensation....................................................................................................................................................................................................................... 220 Compensation Committee Interlocks and Insider Participation.......................................................................................................................................................... 221 Compensation Committee Report...................................................................................................................................................................................................... 221 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS...................................... 222 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE......................................................................................... 222 Director Independence....................................................................................................................................................................................................................... 222 Related Party Transactions................................................................................................................................................................................................................ 222 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES...................................................................................................................................................................... 224 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES..................................................................................................................................................................... 225 ITEM 16. FORM 10-K SUMMARY................................................................................................................................................................................................................. 228 SIGNATURES................................................................................................................................................................................................................................................ 229 3 Table of Contents GLOSSARY OF COMMON ACRONYMS Following are definitions of some of the terms or acronyms that may be used in this Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (the "Annual Report"): Term or Acronym Definition ACE Affordable Clean Energy ACPA Anti-Cherrypicking Amendment AOCI Accumulated other comprehensive income (loss) ARO Asset retirement obligation ART Asset Retirement Trust Bonds Bonds, notes, or other evidences of indebtedness CAA Clean Air Act CCR Coal combustion residuals CERCLA Comprehensive Environmental Response, Compensation, and Liability Act CO 2 Carbon dioxide COVID-19 Coronavirus Disease 2019 COLA(s) Cost-of-living adjustment(s) CSAPR Cross-State Air Pollution Rule CTs Combustion turbine unit(s) CVA Credit valuation adjustment CWA Clean Water Act CY Calendar year DBOT Down-blend offering for Tritium DCP Deferred Compensation Plan DEIA Diversity, Equity, Inclusion and Accessibility DER Distributed Energy Resources DOE Department of Energy EIS Environmental Impact Statement ELGs Effluent Limitation Guidelines EMPs Electromagnetic pulses EO(s) Executive Order(s) EPA Environmental Protection Agency EPRI Electric Power Research Institute ERC Enterprise Risk Council FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission FHP Financial Hedging Program FIP Federal Implementation Plan FPA Federal Power Act GAAP Accounting principles generally accepted in the United States of America GAC Grid Access Charge GHG Greenhouse gas IRP Integrated Resource Plan IwD Inclusion with Diversity JSCCG John Sevier Combined Cycle Generation LLC kW Kilowatts kWh Kilowatt hours LPCs Local power company customers LTA Long-Term Agreement MATS Mercury and Air Toxics Standards 4 Table of Contents MD&A Management's Discussion and Analysis of Financial Condition and Results of Operations MLGW Memphis Light, Gas and Water Division mmBtu Million British thermal unit(s) MtM Mark-to-market MW Megawatts NAAQS National Ambient Air Quality Standards NAV Net asset value NDT Nuclear Decommissioning Trust NEIL Nuclear Electric Insurance Limited NEPA National Environmental Policy Act NERC North American Electric Reliability Corporation NES Nashville Electric Service NO x Nitrogen oxides NPDES National Pollutant Discharge Elimination System NRC Nuclear Regulatory Commission Nuclear Development Nuclear Development, LLC NYSE New York Stock Exchange OCI Other comprehensive income (loss) OMB Office of Management and Budget PARRS Putable Automatic Rate Reset Securities QTE Qualified technological equipment and software RCRA Resource Conservation and Recovery Act RECs Renewable Energy Certificates SCCG Southaven Combined Cycle Generation LLC SCRs Selective catalytic reduction systems SEC Securities and Exchange Commission SERP Supplemental Executive Retirement Plan SHLLC Southaven Holdco LLC SIPs State implementation plans SMR Small modular reactor(s) SO 2 Sulfur dioxide SOA Society of Actuaries TDEC Tennessee Department of Environment & Conservation TIPS Treasury Inflation-Protected Securities TPBAR Tritium-producing burnable absorber rods TVA Act The Tennessee Valley Authority Act of 1933, as amended TVA Board TVA Board of Directors TVARS Tennessee Valley Authority Retirement System U.S. Treasury United States Department of the Treasury USACE U.S. Army Corps of Engineers VIE(s) Variable interest entity(s) XBRL eXtensible Business Reporting Language 5 Table of Contents FORWARD-LOOKING INFORMATION This Annual Report on Form 10-K for the fiscal year ended September 30, 2022 ("Annual Report") contains forward-looking statements relating to future events and future performance. All statements other than those that are purely historical may be forward-looking statements. In certain cases, forward-looking statements can be identified by the use of words such as "may," "will," "should," "expect," "anticipate," "believe," "intend," "project," "plan," "predict," "assume," "forecast," "estimate," "objective," "possible," "probably," "likely," "potential," "speculate," "aim," "aspiration," "goal," "seek," "strategy," "target," the negative of such words, or other similar expressions. Although the Tennessee Valley Authority ("TVA") believes that the assumptions underlying any forward-looking statements are reasonable, TVA does not guarantee the accuracy of these statements. Numerous factors could cause actual results to differ materially from those in any forward-looking statements. These factors include, among other things: • Significant delays and additional costs, and/or inability to obtain necessary regulatory approvals, licenses, or permits, for major projects, including for assets that TVA needs to serve its existing and future load and to meet its carbon reduction aspirations; • Events at a nuclear facility, whether or not operated by or licensed to TVA, which, among other things, could lead to increased regulation or restriction on the construction, ownership, operation, or decommissioning of nuclear facilities or on the storage of spent fuel, obligate TVA to pay retrospective insurance premiums, reduce the availability and affordability of insurance, increase the costs of operating TVA's existing nuclear units, or cause TVA to forego future construction at these or other facilities; • Risks associated with the operation of nuclear facilities or other generation and related facilities, including coal combustion residuals ("CCR") facilities; • Inability to continue to operate certain assets, especially nuclear facilities, including due to the inability to obtain, or loss of, regulatory approval for the operation of assets; • Significant additional costs for TVA to manage and operate its CCR facilities; • Physical attacks, threats, or other interference causing damage to TVA's facilities or interfering with TVA's operations; • The failure of TVA's generation, transmission, navigation, flood control, and related assets and infrastructure, including CCR facilities and spent nuclear fuel storage facilities, to operate as anticipated, resulting in lost revenues, damages, or other costs that are not reflected in TVA's financial statements or projections, including due to aging or technological issues; • Costs or liabilities that are not anticipated in TVA's financial statements for third-party claims, natural resource damages, environmental cleanup activities, or fines or penalties associated with unexpected events such as failures of a facility or infrastructure; • Events at a TVA facility, which, among other things, could result in loss of life, damage to the environment, damage to or loss of the facility, or damage to the property of others; • Events that negatively impact TVA's reliability, including from problems at other utilities or at TVA facilities or the increase in intermittent sources of power; • Events or changes involving transmission lines, dams, and other facilities not operated by TVA, including those that affect the reliability of the interstate transmission grid of which TVA's transmission system is a part and those that increase flows across TVA's transmission grid; • Disruption of supplies of fuel, purchased power, or other critical items or services, which may result from, among other things, economic conditions, weather conditions, physical or cyber attacks, political developments, international trade restrictions or tariffs, legal actions, mine closures or reduced mine production, increases in fuel exports, environmental regulations affecting TVA's suppliers, transportation or delivery constraints, shortages of raw materials, supply chain difficulties, labor shortages, strikes, inflation, or similar events and which may, among other things, hinder TVA's ability to operate its assets and to complete projects on time and on budget; • Circumstances that cause TVA to change its determinations regarding the appropriate mix of generation assets; • Costs or other challenges resulting from a failure by TVA to meet its carbon reduction aspirations; • New, amended, or existing laws, regulations, executive orders ("EOs"), or administrative orders or interpretations, including those related to climate change and other environmental matters, and the costs of complying with these laws, regulations, EOs, or administrative orders or interpretations; • The cost of complying with known, anticipated, or new environmental requirements, some of which could render continued operation of many of TVA's aging coal-fired generation units not cost-effective or result in their removal from service, perhaps permanently; • Actions taken, or inaction, by the United States ("U.S.") government relating to the national debt ceiling or automatic spending cuts in government programs; • Inability to respond quickly enough to current or potential customer demands or needs or to act solely in the interest of ratepayers; • Negative outcomes of current or future legal or administrative proceedings; • Federal legislation aimed specifically at curtailing TVA's activities, including legislation that may cause TVA to lose its protected service territory, its sole authority to set rates, or its authority to manage the Tennessee River system or the real property currently entrusted to TVA; subject TVA to additional environmental regulation or additional requirements of the North American Electric Reliability Corporation; require the divestiture of TVA or the sale of certain of TVA's assets; lower the debt ceiling on bonds, notes, or other evidences of indebtedness (collectively, "Bonds") specified in 6 Table of Contents the Tennessee Valley Authority Act of 1933, as amended, 16 U.S.C. §§ 831-831ee ("TVA Act"); or restrict TVA's access to its funds; • Cyber attacks on TVA's assets or the assets of third parties upon which TVA relies; • Other unforeseeable occurrences negatively impacting TVA assets or their supporting infrastructure; • The need for significant future contributions associated with TVA's pension plans, other post-retirement benefit plans, or health care plans; • Increases in TVA's financial liabilities for decommissioning its nuclear facilities and retiring other assets; • The requirement or decision to make additional contributions to TVA's Nuclear Decommissioning Trust ("NDT") or Asset Retirement Trust ("ART"); • Differences between estimates of revenues and expenses and actual revenues earned and expenses incurred; • Limitations on TVA's ability to borrow money, which may result from, among other things, TVA's approaching or substantially reaching the debt ceiling or TVA's losing access to the debt markets; • An increase in TVA's cost of capital, which may result from, among other things, changes in the market for Bonds, changes in the credit rating of TVA or the U.S. government, or, potentially, an increased reliance by TVA on alternative financing should TVA approach its debt limit; • The inaccuracy of certain assumptions about the future, including economic forecasts, anticipated energy and commodity prices, cost estimates, construction schedules, power demand forecasts, the appropriate generation mix to meet demand, and assumptions about potential regulatory environments; • Significant decline in the demand for electricity that TVA produces, which may result from, among other things, economic downturns or recessions, loss of customers, reductions in demand for electricity generated from non-renewable sources or centrally located generation sources, increased utilization of distributed energy resources ("DER"), increased energy efficiency and conservation, or improvements in alternative generation and energy storage technologies; • Changes in customer preferences for energy produced from cleaner generation sources; • Addition or loss of customers by TVA or TVA's local power company customers ("LPCs"); • Potential for increased demand for energy resulting from, among other things, an increase in the population of TVA's service area; • Changes in technology, which, among other things, may affect relationships with customers and require TVA to change how it conducts its operations; • Changes in the economy and volatility in financial markets; • Reliability or creditworthiness of counterparties; • Changes in the market price of commodities such as purchased power, coal, uranium, natural gas, fuel oil, crude oil, construction materials, reagents, or emission allowances; • Changes in the market price of equity securities, debt securities, or other investments; • Changes in interest rates, currency exchange rates, or inflation rates; • Failure to attract or retain an appropriately qualified, diverse, and inclusive workforce; • Loss of quorum of the TVA Board of Directors ("TVA Board"), which may limit TVA's ability to adapt to meet changing business conditions; • Changes in the membership of the TVA Board or TVA senior management, which may impact how TVA operates; • Weather conditions, including changing weather patterns, extreme weather conditions, and other events such as flooding, droughts, wildfires, and snow or ice storms that may result from climate change, which may hamper TVA's ability to supply power, cause customers' demand for power to exceed TVA's then-present power supply, or otherwise negatively impact net revenue; • Events affecting the supply or quality of water from the Tennessee River system or Cumberland River system, or elsewhere, which could interfere with TVA's ability to generate power; • Catastrophic events, such as fires, earthquakes, explosions, solar events, electromagnetic pulses, geomagnetic disturbances, droughts, floods, hurricanes, tornadoes, polar vortexes, icing events, or other casualty events, wars, national emergencies, terrorist activities, pandemics, or other similar destructive or disruptive events; • Inability to use regulatory accounting for certain costs; • Ineffectiveness of TVA's financial control system to control issues and instances of fraud or to detect errors; • Ineffectiveness of TVA's disclosure controls and procedures or its internal control over financial reporting; • Adverse affects from the Coronavirus Disease 2019 ("COVID-19") or future pandemics; • Inability of TVA to implement its business strategy successfully, including due to the increased use in the public of DER or energy-efficiency programs; • Inability of TVA to adapt its business model to changes in the utility industry and customer preferences and to remain cost competitive; • Negative impacts on TVA's reputation; or • Other unforeseeable events. See also Part I, Item 1A, Risk Factors, and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for a discussion of factors that could cause actual results to differ materially from those in any forward-looking statement. New factors emerge from time to time, and it is not possible for TVA to predict all such factors or to assess the extent to which any factor or combination of factors may impact TVA's business or cause results to differ materially from those contained in any forward-looking statement. TVA undertakes no obligation to update any forward-looking statement to reflect developments that occur after the statement is made, except as required by law. 7 Table of Contents GENERAL INFORMATION Fiscal Year References to years (2022, 2021, etc.) in this Annual Report on Form 10-K for the fiscal year ended September 30, 2022 are to TVA's fiscal years ending September 30 except for references to years in the biographical information about directors and executive officers in Part III, Item 10, Directors, Executive Officers and Corporate Governance, as well as to years that are preceded by "CY," which references are to calendar years. Notes References to "Notes" are to the Notes to Consolidated Financial Statements contained in Part II, Item 8, Financial Statements and Supplementary Data in this Annual Report. Property TVA does not own real property and generally does not own real property interests (collectively, "real property"). TVA acquires real property in the name of the United States ("U.S."), and such legal title in real property is entrusted to TVA as the agent of the U.S. to accomplish the purposes of the TVA Act. TVA acquires personal property in the name of TVA. Accordingly, unless the context indicates the reference is to TVA's personal property, any statement in this Annual Report referring to TVA property shall be read as referring to the real property of the U.S. that has been entrusted to TVA as its agent. Available Information TVA files annual, quarterly, and current reports with the Securities and Exchange Commission ("SEC") under Section 37 of the Securities Exchange Act of 1934 (the "Exchange Act"). TVA's SEC filings are available to the public at www.tva.com, free of charge, as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. Information contained on or accessible through TVA's website shall not be deemed to be incorporated into, or to be a part of, this Annual Report or any other report or document that TVA files with the SEC. All TVA SEC reports are available to the public without charge from the website maintained by the SEC at http://www.sec.gov. 8 Table of Contents PART I ITEM 1. BUSINESS The Corporation General The Tennessee Valley Authority ("TVA") is a corporate agency and instrumentality of the United States ("U.S.") that was created in 1933 by federal legislation in response to a proposal by President Franklin D. Roosevelt. TVA was created to, among other things, improve navigation on the Tennessee River, reduce the damage from destructive flood waters within the Tennessee River system and downstream on the lower Ohio and Mississippi Rivers, further the economic development of TVA's service area in the southeastern U.S., and sell the electricity generated at the facilities TVA operates. Today, TVA operates the nation's largest public power system and supplies power to a population of approximately 10 million people. TVA also manages the Tennessee River, its tributaries, and certain shorelines to provide, among other things, year-round navigation, flood damage reduction, and affordable and reliable electricity. Consistent with these primary purposes, TVA also manages the river system and public lands to provide recreational opportunities, adequate water supply, improved water quality, cultural and natural resource protection, and economic development. TVA performs these management duties in cooperation with other federal and state agencies that have jurisdiction and authority over certain aspects of the river system. In addition, the TVA Board of Directors ("TVA Board") has established two councils — the Regional Resource Stewardship Council and the Regional Energy Resource Council — to advise TVA on its stewardship activities in the Tennessee Valley and its energy resource activities. Initially, all TVA operations were funded by federal appropriations. Direct appropriations for the TVA power program ended in 1959, and appropriations for TVA's stewardship, economic development, and multipurpose activities ended in 1999. Since 1999, TVA has funded all of its operations almost entirely from the sale of electricity and power system financings. TVA's power system financings consist primarily of the sale of bonds, notes, or other evidences of indebtedness (collectively, "Bonds") and secondarily of alternative forms of financing, such as lease arrangements. As a wholly-owned government corporation, TVA is not authorized to issue equity securities. TVA's Mission of Service TVA was built for the people, created by federal legislation, and charged with a unique mission - to improve the quality of life in a seven-state region through the integrated management of the region's resources. TVA's mission focuses on three key areas: • Energy — Delivering reliable, low cost, clean energy; • Environment — Caring for the region's natural resources; and • Economic Development — Creating sustainable economic growth. TVA's Strategic Priorities While TVA's mission has not changed since it was established in 1933, the climate in which TVA operates continues to evolve. To continue to deliver its mission of service while evolving for future success, TVA must realize five strategic priorities: • Powerful Partnerships — Promoting progress through the shared success of TVA's customers and stakeholders; • People Advantage — Amplifying the energy, passion, and creativity within each TVA employee; • Operational Excellence — Building on TVA's best-in-class reputation for reliable service and competitively priced power; • Igniting Innovation — Pursuing innovative solutions for TVA and its customers and communities; and • Financial Strength — Investing in the future, while keeping energy costs as low as possible. TVA's Strategic Financial Plan TVA developed the Strategic Financial Plan in order to help achieve its strategic priorities and mission. TVA's Strategic Financial Plan, which extends from 2020 through 2030, is flexible in aligning customer preferences and TVA's mission while at the same time establishing a long-term forecast of financial results. Key focus areas of the Strategic Financial Plan include maintaining flat base rates, stabilizing debt, establishing alignment between the length of LPC contracts and TVA's long-term commitments, driving efficiencies into the business, and advancing the public power model. As TVA executes the plan, key 9 Table of Contents assumptions and focus areas may change. Service Area TVA's service area, the area in which it sells power, is defined by the Tennessee Valley Authority Act of 1933, as amended ("TVA Act"). TVA supplies power in most of Tennessee, northern Alabama, northeastern Mississippi, and southwestern Kentucky, and in portions of northern Georgia, western North Carolina, and southwestern Virginia. Under the TVA Act, subject to certain minor exceptions, TVA may not, without the enactment of authorizing federal legislation, enter into contracts that would have the effect of making it, or the wholesale customers that distribute TVA power ("local power company customers" or "LPCs"), a source of power supply outside the area for which TVA or its LPCs were the primary source of power supply on July 1, 1957. This provision is referred to as the "fence" because it bounds TVA's sales activities, essentially limiting TVA to power sales within a defined service area. Note In addition to the locations above, TVA owns approximately 1 MW of solar capability among 13 solar installations across the Tennessee Valley region with seven installations in Tennessee, two in Alabama, two in Mississippi, one in Virginia, and one in Kentucky. See Power Supply and Load Management Resources for a description of all of TVA's power supply resources. In addition, the Federal Power Act ("FPA") includes a provision that helps protect TVA's ability to sell power within its service area. This provision, called the "anti-cherrypicking" provision, prevents the Federal Energy Regulatory Commission ("FERC") from ordering TVA to provide access to its transmission lines to others to deliver power to customers within TVA's defined service area. As a result, the anti-cherrypicking provision reduces TVA's exposure to loss of its customers. However, there have been some efforts to circumvent the anti-cherrypicking provision, and the protection of the provision could be limited and perhaps eliminated by federal legislation at some time in the future. See Competition, Item 1A, Risk Factors — Regulatory, Legislative, and Legal Risks — TVA may lose its protected service territory, Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Legislative and Regulatory Matters, and Note 21 — Commitments and Contingencies — Legal Proceedings — Challenge to Anti-Cherrypicking Amendment . 10 Table of Contents In 2022, the revenues generated from TVA's electricity sales were $12.4 billion and accounted for virtually all of TVA's revenues. See Note 17 — Revenue for details regarding revenues by state for each of the last three years. Customers TVA is primarily a wholesaler of power, selling power to LPCs that then resell power to their customers at retail rates. TVA's LPCs consist of (1) municipalities and other local government entities ("municipalities") and (2) customer-owned entities ("cooperatives"). These municipalities and cooperatives operate public power electric systems whose primary purpose is not to make a profit but to supply electricity to the general public or the cooperatives' members. TVA also sells power directly to certain end-use customers, primarily large commercial and industrial loads and federal agencies with loads larger than 5,000 kilowatts ("kW"). Whether TVA or an LPC serves a new power customer is determined by the applicable TVA-LPC wholesale power contract. Each contract contains a formula that balances the size of the LPC and the amount of any TVA infrastructure investment to determine which party is entitled to serve the new customer. In addition, power in excess of the needs of the TVA system may, where consistent with the provisions of the TVA Act, be sold under exchange power arrangements with other specific electric systems. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Financial Results — Operating Revenues and Note 17 — Revenue for details regarding operating revenues for each of the last three years. Local Power Company Customers Revenues from LPCs accounted for approximately 90 percent of TVA's total operating revenues for 2022. TVA had wholesale power contracts with 153 LPCs at September 30, 2022. Each of these contracts requires the LPC to purchase from TVA all of the electric power required for service to the LPC's customers; however, Power Supply Flexibility Agreements available to LPCs that have executed long-term contracts with TVA allow LPCs to locally generate or purchase up to approximately five percent of their average total hourly energy sales over a certain time period in order to meet their individual customers' needs. LPCs purchase power under contracts with terms of five or 20 years to terminate. TVA's two largest LPCs — Memphis Light, Gas and Water Division ("MLGW") and Nashville Electric Service ("NES") — have contracts with a five-year and a 20-year termination notice period, respectively. Sales to MLGW and NES accounted for nine percent and eight percent, respectively, of TVA's total operating revenues for 2022. Certain LPCs, including MLGW, are evaluating options for future energy choices. TVA and LPCs continue to work together to meet the changing needs of consumers around the Tennessee Valley. TVA has 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. TVA has provided participating LPCs a flexibility option, named Generation Flexibility, that allows them to locally generate or purchase up to approximately five percent of their average total hourly energy sales over a certain time period in order to meet their individual customers' needs. As of November 14, 2022, 147 LPCs had signed the Partnership Agreement with TVA, and 80 LPCs had signed a Power Supply Flexibility Agreement. The power contracts between TVA and LPCs provide for the purchase of power by LPCs at the wholesale rates established by the TVA Board. Under the TVA Act, the TVA Board is authorized to regulate LPCs to carry out the purposes of the TVA Act through contract terms and conditions as well as through rules and regulations. TVA regulates LPCs primarily through the provisions of TVA's wholesale power contracts. All of the power contracts between TVA and the LPCs require that power purchased from TVA be sold and distributed to the ultimate consumer without discrimination among consumers of the same class and prohibit direct or indirect discriminatory rates, rebates, or other special concessions. In addition, there are a number of wholesale power contract provisions through which TVA seeks to ensure that the electric system revenues of the LPCs are used only for electric system purposes. Furthermore, almost all of these contracts specify the resale rates and charges at which the LPC must resell TVA power to its customers. These rates are revised from time to time, subject to TVA approval, to reflect changes in costs, including changes in the wholesale cost of power. TVA also regulates LPC policies for customer deposits, termination of service for non-payment, information to consumers, and billing through a service practice policy framework. TVA's regulatory framework provides for consistent regulatory policy for ratepayers across the Tennessee Valley, while recognizing local considerations. The regulatory provisions in TVA's wholesale power contracts are designed to carry out the objectives of the TVA Act, including the objective of providing for an adequate supply of power at the lowest feasible rates. See Rates — Rate Methodology below. 11 Table of Contents Other Customers Revenues from directly served industrial customers accounted for approximately seven percent of TVA's total operating revenues in 2022. Contracts with these customers are subject to termination by the customer or TVA upon a minimum notice period that varies according to a number of factors, including the customer's contract demand and the period of time service has been provided. TVA also serves seven federal customers, including U.S. Department of Energy ("DOE") facilities and military installations, which accounted for approximately one percent of TVA's total operating revenues in 2022. Other Revenue Other revenue consists primarily of wheeling and network transmission charges, sales of steam that is a by-product of power production, delivery point charges for interconnection points between TVA and the customer, Renewable Energy Certificate ("REC") sales, and certain other minor items. Other revenue accounted for approximately one percent of TVA's total operating revenues in 2022. Rates Rate Authority The TVA Act gives the TVA Board sole responsibility for establishing the rates TVA charges for power. These rates are not subject to judicial review or to review or approval by any state or other federal regulatory body. Under the TVA Act, TVA is required to charge rates for power that will produce gross revenues sufficient to provide funds for: • Operation, maintenance, and administration of its power system; • Payments to states and counties in lieu of taxes ("tax equivalents"); • Debt service on outstanding indebtedness; • Payments to the United States Department of the Treasury ("U.S. Treasury") in repayment of and as a return on the government's appropriation investment in TVA's power facilities (the "Power Program Appropriation Investment"); and • Such additional margin as the TVA Board may consider desirable for investment in power system assets, retirement of outstanding Bonds in advance of their maturity, additional reduction of the Power Program Appropriation Investment, and other purposes connected with TVA's power business, having due regard for the primary objectives of the TVA Act, including the objective that power shall be sold at rates as low as are feasible. See Note 22 — Related Parties . TVA fulfilled its requirement to repay $1.0 billion of the Power Program Appropriation Investment in 2014; therefore, the repayment of this amount is no longer a component of rate setting. Rate Methodology TVA uses a seasonal time of use wholesale rate structure comprised of base demand and energy rates, a fuel rate, and a grid access charge ("GAC") . In setting the base rates, TVA uses a debt-service coverage ("DSC") methodology to derive annual revenue requirements in a manner similar to that used by other public power entities that also use the DSC rate methodology. Under the DSC methodology, rates are calculated so that an entity will be able to cover its operating costs and to satisfy its obligations to pay principal and interest on debt, plus an additional margin. This ratemaking approach is particularly suitable for use by entities financed primarily, if not entirely, by debt, such as TVA, and helps ensure that TVA produces gross revenues sufficient to fund requirements specified in the TVA Act listed under Rate Authority above. TVA recovers fuel costs and tax equivalent payments associated with fuel cost adjustments through a monthly rate reflecting the forecasted costs of fuel. Fuel costs are allocated to three groups of customers: (1) Standard Service (residential and small commercial customers), (2) large general service customers with contract demands greater than 5 megawatts ("MW"), and (3) large manufacturing customers with contract demands greater than 5 MW. Fuel costs are allocated to these three classes of customers in relation to their hourly loads and TVA's hourly incremental dispatch cost. Total monthly fuel costs include costs for natural gas, fuel oil, coal, purchased power, emission allowances, nuclear fuel, and other fuel-related commodities as well as realized gains and losses on derivatives purchased to hedge the costs of such commodities. TVA's rate structure includes a focus on TVA's long-term pricing by aligning rates with underlying cost drivers and by sending pricing signals, while maintaining competitive industrial rates and keeping residential rates affordable. The GAC better recovers fixed costs and the pricing approach more accurately reflects the wholesale cost of energy and recognizes the value of the grid's reliability and associated fixed costs. TVA's modernized approach to pricing provides bill stability while maintaining reliability and fairness for all TVA's customers. TVA will continue to collaborate with LPCs and directly served industries as necessary to ensure alignment with this approach. 12 Table of Contents Power Supply and Load Management Resources General TVA seeks to balance production capabilities with power supply requirements by promoting the conservation and efficient use of electricity and, when necessary, buying, building, or leasing assets or entering into power purchase agreements ("PPAs"). TVA also seeks to employ a diverse mix of energy generating sources and works toward obtaining greater amounts of its power supply from clean (low or zero carbon-emitting) resources. TVA is making investments in its generating portfolio to modernize the fleet while also allowing TVA to maintain competitive rates and high reliability and work toward carbon emission reductions. As TVA continues to evaluate the impact of retiring its coal-fired fleet by 2035, it is also evaluating adding flexible lower carbon-emitting gas plants as a strategy to maintain reliability, such as the ongoing projects at TVA’s Paradise and Colbert sites. In addition, TVA is committed to investing in the future of nuclear with the evaluation of emerging advanced nuclear technologies, such as small modular reactors ("SMRs"). TVA is also implementing the Hydro Life Extension Program with a focus on improving the availability and flexibility of the hydroelectric fleet. In August 2022, the Inflation Reduction Act of 2022 ("Inflation Reduction Act") was signed into law, which makes certain tax-exempt entities, including TVA, eligible for a direct-pay option for certain tax credits that encourage investment in clean energy, in some circumstances. TVA is currently evaluating the Inflation Reduction Act to determine whether it will be able to benefit from any of these tax credits for related eligible investments. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives — Optimum Energy Portfolio. In addition, an automated energy exchange platform that facilitates more short-term power exchanges took effect in 2022. The energy exchange will be an enhancement to the existing market. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives — Optimum Energy Portfolio — Automated Energy Exchange Platform . Power generating facilities operated by TVA at September 30, 2022, included three nuclear sites, 17 natural gas and/or oil-fired sites, five coal-fired sites, 29 conventional hydroelectric sites, one pumped-storage hydroelectric site, one diesel generator site, and 13 solar installations. See Item 2, Properties — Generating Properties — Net Capability for a discussion of the units at these facilities. TVA also acquires power under PPAs of varying durations, including short-term contracts of less than 24-hours in duration. See Power Purchase and Other Agreements below. The following table shows TVA's generation and purchased power by generating source as a percentage of all electric power generated and purchased (based on kilowatt hours ("kWh")) for the periods indicated: Total Power Supply by Generating Source For the years ended September 30 Generation Resource (1) 2022 2021 2020 Nuclear 39% 41% 42% Natural gas and/or oil-fired 22% 21% 22% Coal-fired 13% 15% 13% Hydroelectric 8% 10% 10% Purchased power 18% 13% 13% Note (1) TVA's non-hydro renewable resources from TVA facilities are less than one percent for all periods shown, and therefore are not represented on the table above. Purchased power contains the majority of non-hydro renewable energy supply. TVA sells the RECs resulting from some of its purchased power to certain customers. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Optimum Energy Portfolio — Renewable Power Purchase Agreements. While TVA continues down the path of reducing power generation from carbon-emitting sources, there will be fluctuations in usage due to electricity demands. Also, TVA continues to make operational decisions to keep the system reliable and to deliver low-cost energy . 13 Table of Contents Nuclear At September 30, 2022, TVA had three nuclear sites consisting of seven units in operation. The units at Browns Ferry Nuclear Plant ("Browns Ferry") are boiling water reactor units, and the units at Sequoyah Nuclear Plant ("Sequoyah") and Watts Bar Nuclear Plant ("Watts Bar") are pressurized water reactor units. Operating information for each of these units is included in the table below. TVA Nuclear Power At September 30, 2022 Nuclear Unit Summer Net Capability (MW) Net Capacity Factor for 2022 (%) Date of Expiration of Operating License Browns Ferry Unit 1 1,227 92.8 2033 Browns Ferry Unit 2 1,208 100.2 2034 Browns Ferry Unit 3 1,227 83.5 2036 Sequoyah Unit 1 1,152 97.7 2040 Sequoyah Unit 2 1,140 84.8 2041 Watts Bar Unit 1 1,157 85.3 2035 Watts Bar Unit 2 1,121 64.1 2055 Other Nuclear Initiatives . TVA has an Early Site Permit to potentially construct and operate SMRs at TVA's Clinch River Nuclear Site in Oak Ridge, Tennessee, and in 2022, the TVA Board approved a programmatic approach to exploring advanced nuclear technology (the "New Nuclear Program"). See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Optimum Energy Portfolio — Small Modular Reactors . Other Nuclear Matters. Operating nuclear facilities subjects TVA to waste disposal, decommissioning, and insurance requirements, as well as litigation risks. See Fuel Supply — Nuclear Fuel below for a discussion of spent nuclear fuel and low-level radioactive waste, Note 21 — Commitments and Contingencies — Contingencies for a discussion of TVA's nuclear decommissioning liabilities and the related trust and nuclear insurance, and Note 21 — Commitments and Contingencies — Legal Proceedings for a discussion of legal proceedings related to TVA's nuclear program, which discussions are incorporated herein by reference. Natural Gas and/or Oil-Fired At September 30, 2022, TVA's natural gas and oil-fired fleet consisted of 101 combustion turbine power blocks (81 simple-cycle units, one cogeneration unit, and 14 combined-cycle power units, accounting for 11,777 MW of summer net capability, and five idled units at Allen Combustion Turbine Facility: Units 2, 3, 11, 17, and 18). Sixty-six of the simple-cycle units are currently capable of quick-start response allowing full generation capability in approximately 10 minutes. The economic dispatch of natural gas-fired plants depends on both the day-to-day price of natural gas and the price of other available intermediate resources such as coal-fired plants. TVA uses simple-cycle units to meet peaking or backup power needs. TVA's 2019 Integrated Resource Plan ("IRP") projects significant solar expansion over the next decade. The natural gas-fired fleet supports that expansion by providing reliability across all hours, as well as the flexibility to help manage ramping and intermittency. In addition, as TVA evaluates its coal-fired fleet, it will also evaluate adding flexible lower carbon-emitting gas plants as a strategy to maintain reliability. See Item 2, Properties — Generating Properties, Note 8 — Leases , Note 11 — Variable Interest Entities , and Note 14 — Debt and Other Obligations for a discussion of lease arrangements into which TVA has entered in connection with certain combustion turbine units ("CTs"). Because of TVA's strategy of portfolio diversification and reduction of air emissions, TVA may decide to make further strategic investments in natural gas-fired facilities in the future by purchase, construction, or lease. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Optimum Energy Portfolio — Natural Gas-Fired Units for a discussion of ongoing projects at certain natural gas-fired facilities . Coal-Fired At September 30, 2022, TVA had five coal-fired plants consisting of 25 active units, accounting for 6,580 MW of summer net capability. TVA considers units to be in an active state when the unit is generating, available for service, or temporarily unavailable due to equipment failures, inspections, or repairs. All other coal-fired units are considered retired. In 2019, the TVA Board approved the retirement of Bull Run Fossil Plant ("Bull Run") by December 2023. Coal-fired plants have been subject to increasingly stringent regulatory requirements over the last few decades, including those under the Clean Air Act ("CAA"), the Clean Water Act ("CWA"), and the Resource Conservation and Recovery Act ("RCRA"). TVA has committed to a programmatic approach for the evaluation of its sites where coal combustion residuals ("CCR") are stored to meet all applicable state and federal regulations. See Part II, Item 7, Management's Discussion and 14 Table of Contents Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Coal Combustion Residuals — Coal Combustion Residuals Facilities. TVA is moving toward a more balanced generation plan with greater reliance on lower-cost and cleaner energy generation technologies. Since September 30, 2010, TVA has reduced its summer net capability of coal-fired units by 7,653 MW. Following the publication of the 2019 IRP, TVA conducted end-of-life evaluations of the remaining coal fleet to inform long-term planning. These evaluations confirmed that the aging coal fleet is among the oldest in the nation and is experiencing deterioration of material condition and performance challenges. The performance challenges are projected to increase due to the coal fleet’s advancing age and the difficulty of adapting the coal fleet’s generation within the changing generation profile. 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. Environmental reviews evaluating the potential retirement of the Cumberland Fossil Plant ("Cumberland") and Kingston Fossil Plant ("Kingston") and replacement with other generation are now underway, in addition to the public input process. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Optimum Energy Portfolio . Diesel Generators At September 30, 2022, TVA had one diesel generator plant consisting of five units, and this facility accounted for 9 MW of summer net capability. These units are not currently dispatched for generation to the transmission grid. Raccoon Mountain Pumped-Storage Plant At September 30, 2022, TVA had four units at Raccoon Mountain Pumped-Storage Plant ("Raccoon Mountain") with a total net summer capability of 1,654 MW. These units are utilized to balance the transmission system as well as generate power. TVA uses electricity generated by its fleet during periods of low demand to operate pumps that fill the reservoir at Raccoon Mountain. Then, during periods of high or peak demand, the water is released and the pumps reverse to work as power generating turbines. New hydroelectric pumped storage is one of several technologies that TVA is exploring as part of its decarbonization efforts to ensure the reliability and resiliency of the grid. Renewable Energy Resources As more consumers and businesses are seeking cleaner energy, the utility industry is evolving to meet those needs. As TVA also evolves, it will see impacts to the way it does business through the pricing of products, transmission of energy, and development of new products and services for its customers in support of changing customer preferences. Many companies are focusing on sustainability and requiring more energy efficiency and renewable energy options. In addition, TVA also seeks to obtain greater amounts of its power supply from clean resources to work towards carbon emission reductions. As a result, TVA is increasing its renewable energy portfolio, by investing in existing hydroelectric assets through the Hydro Life Extension Program and securing renewable power purchase agreements. New utility-scale solar is increasing, in part driven by customers’ demand through TVA’s Green Invest Program. TVA also encourages renewable power and offers renewable resources through various current programs and offerings. See below for information on renewable energy resources and Power Purchase and Other Agreements for information on TVA’s power purchase agreements, including renewable agreements. Conventional Hydroelectric Dams. At September 30, 2022, TVA's hydroelectric fleet consisted of 29 conventional hydroelectric dams throughout the Tennessee River system with 106 active generating units that accounted for 3,754 MW of summer net capability and three units at Wilbur Hydroelectric Facility: Units 1-3, that were in long-term outage and unavailable for service at September 30, 2022. The amount of electricity that TVA is able to generate from its hydroelectric plants depends on a number of factors, including the amount of precipitation and runoff, initial water levels, generating unit availability, and the need for water for competing water management objectives. When these factors are unfavorable, TVA must increase its reliance on higher cost generation plants and purchased power. In addition, a portion of energy generated by nine U.S. Army Corps of Engineers ("USACE") dams on the Cumberland River system contributes to the TVA power system, and electric generation from the USACE dams is dependent on the same factors that affect generation from the TVA-owned dams . See Weather and Seasonality below and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Dam Safety Assurance Initiatives. Hiwassee Hydro Unit 2 has a unique reversible turbine/generator that acts as a pump and a turbine enhancing TVA's ability to balance baseload generation. At September 30, 2022, Hiwassee Hydro Unit 2 accounted for 86 MW of the conventional hydroelectric summer net capability. Hydro Life Extension Program. TVA's Hydro Life Extension Program began in 2021 with a focus on recovering and preserving TVA's extensive hydroelectric fleet, improving efficiency and flexibility, and ensuring long-term reliability of this vital clean energy asset. Hydroelectric generation will continue to be an important part of TVA's energy mix in the future. It plays a vital role in carbon reduction initiatives, the ability to integrate other renewables into the power portfolio, and TVA's ability to meet changing customer preferences for cleaner energy sources. 15 Table of Contents Dam Safety Assurance Program. TVA has an established dam safety program, which includes procedures based on the Federal Guidelines for Dam Safety, with the objective of reducing the risk of a dam safety event. The program analyzes, evaluates, and manages risks through a systematic and thorough process that facilitates decision-making for the safety of a structure, identifying necessary actions to reduce risk, including remediation projects, and prioritization of actions for TVA's river dams. Prioritization is driven by reducing risk to the public and asset preservation. TVA also continues to provide routine care of the dams as part of the dam safety program through inspections, monitoring, and maintenance, among other activities. Self-Directed Solar. During 2019, the TVA Board approved the opportunity for TVA to explore being directly involved in the development of a utility-scale solar project, contingent on the successful completion of environmental reviews under the National Environmental Policy Act ("NEPA") and other applicable laws. Mounting solar supply chain constraints are being seen in TVA’s Self-Directed Solar project, which have resulted in a delay in the estimated completion date. Project cost increases are also anticipated due to cost escalations from the state of global supply chains. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Optimum Energy Portfolio — Self-Directed Solar . Other Renewable Energy Resources. In addition to the hydroelectric units above, TVA owns 13 solar installations that account for approximately one MW of summer net capability. Other renewable energy resources also include renewable energy purchases, a majority associated with TVA renewable programs. See Power Purchase and Other Agreements for information on renewable PPAs. TVA's current renewable programs and offerings include: Small-scale Solutions . The Green Connect Program connects residential customers who are interested in on-site solar photovoltaic ("PV") and/or battery storage systems with qualified solar and battery storage installers who agree to install to Green Connect Program Standards. These qualified installers, who are members of TVA's Quality Contractor Network, are insured and licensed and have also completed special training on TVA guidelines. Participants have access to objective information and assurance that their solar PV system has met Green Connect Program Standards through installation verifications. Utility-scale Solutions . The Green Invest Program matches customer demand with renewable supply through a Green Invest Agreement. The goal of the Green Invest Program is to meet the long-term sustainability needs of customers at scale. TVA procures the needed renewable supply through a diversified approach, which could include a competitive procurement process, strategic partnerships, or construction of renewable facilities to meet these needs. As of September 30, 2022, more than 2,000 MW of renewable PPAs have been matched to customers through the Green Invest Program. In addition, Generation Flexibility is a solution available to long-term LPC partners and supports the deployment of up to 2,000 MW of distributed solar to provide clean, local generation. See Note 17 — Revenue . Other Renewable Solutions. The Green Switch Program allows customers to support solar renewable resources through purchasing renewable solar energy generated in the Tennessee Valley. The product is sold in blocks of 200 kWh or matches 100% of a customer's electricity usage (available through select LPCs). During the year ended September 30, 2022, participants purchased 82,097 MWh through the Green Switch Program. The Green Flex Program gives commercial and industrial customers the ability to meet sustainability goals and to make renewable energy claims through RECs from wind generation located outside TVA's service area. During the year ended September 30, 2022, participants purchased approximately one million RECs through the Green Flex Program. TVA tracks its renewable energy commitments and claims through the management of RECs. The RECs, which each represent 1 megawatt-hour ("MWh") of renewable energy generation, are principally associated with wind, solar, biomass, and low-impact hydroelectric. TVA continues to evaluate ways to adjust to customer preferences and requirements for cleaner and greener energy, including the acquisition of RECs from renewable purchased power that can be sold to customers to meet their needs. Overall, TVA will procure needed renewable supply through a diversified approach, which could include a competitive procurement process, strategic partnerships, or construction of renewable facilities to meet these needs. 16 Table of Contents Total Renewable Energy Resources . As of September 30, 2022, TVA's total renewable energy resources amounted to 8,264 MW. Of this amount, 6,236 MW are operating while 2,028 MW are contracted but not yet online, including the 200 MW from TVA's self-directed solar project. As of September 30, 2021, TVA's total renewable energy resources amounted to 8,269 MW, with 6,086 MW operating and 2,183 MW contracted but not yet online, which included TVA's self-directed solar project. Notes (1) Contracted resources are executed power purchase agreements expected to come online at a future date. (2) Hydroelectric power consists of 3,754 MW from TVA-owned conventional hydroelectric facilities and 402 MW from a renewable PPA. (3) TVA sells the RECs resulting from some of its purchased power to certain customers. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Optimum Energy Portfolio — Renewable Power Purchase Agreements. TVA's operating renewables by location and by source are detailed below: Notes (1) In-Valley refers to the renewable energy that is sourced within TVA's service territory. Out-of-Valley refers to the renewable energy that is sourced outside of TVA's service territory and solely consists of wind power. (2) See Power Purchase and Other Agreements below. PPAs also include capability from various historical renewable energy programs primarily with individuals and small businesses. (3) TVA sells the RECs resulting from some of its purchased power to certain customers. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Optimum Energy Portfolio — Renewable Power Purchase Agreements. Energy Equity Programs An equitable energy system is one where the economic, health, and social benefits of participation extend to all levels of society. TVA plans to address energy equity disparities through inclusive energy programming focused on expanding partnerships, improving program access, and catalyzing investment in communities where all individuals can benefit from TVA's resources. TVA's Low Income Energy Efficiency Programs include: 17 Table of Contents Home Uplift Program. Through the Home Uplift Program, TVA is partnering with LPCs, state and local governments, non-profit agencies, energy efficiency advocates, third-party contributors, and the Tennessee Valley Public Power Association ("TVPPA") to complete home evaluations and make high-impact home energy upgrades for qualifying homeowners. In addition, TVA and LPCs conduct workshops to educate homeowners about low and no-cost energy efficiency upgrades that improve their quality of life. School Uplift Program. Through the School Uplift Program pilot, TVA is partnering with LPCs as well as state and local governments to assist schools with adopting strategic energy management practices. The engagement with each school includes monthly virtual workshops and fosters performance through competitions for energy efficiency grants and grants for learning environment improvements. Community Centered Growth Program. Through the Community Centered Growth Program, TVA is partnering with LPCs to assist small businesses located within underserved communities with energy evaluations and energy improvement investments provided by TVA at no cost to the small business. Distributed Energy Resources Consumer desire for energy choice, among other things, is driving the expectation for flexible options in the electric industry. TVA and LPCs are working together to leverage the strengths of the Tennessee Valley public power model to provide distributed energy solutions that are economical, sustainable, and flexible. TVA will focus on the safety and reliability impacts of these resources as they are interconnected to the grid and will aim to ensure that the pricing of electricity remains as low as feasible. Additional regulatory considerations and analysis may be required as the distributed energy resources ("DER") market, technologies, and programs evolve. In 2017, the TVA Board authorized up to $300 million to be spent over the next 10 years, subject to annual budget availability and necessary environmental reviews, to build an enhanced fiber optic network that will better connect TVA's operational assets. Fiber is a vital part of TVA's modern communication infrastructure and is needed to help manage DER as they enter the market. The new fiber optic lines will also improve the reliability and resiliency of the generation and transmission system. New energy management systems and energy storage technologies present opportunities for more sophisticated and integrated operation of the entire grid. The advent of electric vehicles and small-scale renewable generation has hastened the development of energy storage technologies that have the potential to mitigate the intermittent supply issues associated with many renewable generation options. Implementation of these technologies in conjunction with two-way communication to the site creates the potential for more efficient usage of other DER on the grid. TVA is partnering with LPCs and others to support the electrification of transportation in the Tennessee Valley in a multi-year EV initiative. The initiative focuses on reducing or eliminating EV market barriers by setting EV policies, improving charging infrastructure availability, expanding EV availability and offerings, and spreading EV consumer awareness. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Electric Vehicles. Onsite energy management technologies and the proliferation of companies interested in providing services to support and aggregate the impacts of such systems provide another DER opportunity. Such systems can afford the consumer benefits through reduced consumption, increased comfort, detailed energy use data, and savings from time-sensitive rate structures. TVA and LPCs must consider the integration of the impacts from changes in energy usage patterns resulting from the operation of such systems. Demand response systems that take advantage of the increasing sophistication in communication to homes, businesses, and distribution system assets also afford the opportunity for more granular control of system demand. Technologies can manage individual customer systems to shift usage from peak to off-peak periods and create significant reductions in the need for peak generation output or curtail usage for short periods to balance system demand. More sophisticated distribution control systems can also lower peak demand through control of excess voltage on the grid on either a dispatchable or continuous basis. Some large industrial customers also have the capacity to respond instantaneously and can augment operational flexibility by providing ancillary services. TVA is leading an initiative to determine the value of DER for its system. Initial efforts are focused on small-scale distributed (rooftop) solar, but the efforts are general enough to allow for other distributed options. These efforts are ongoing, led by a team that includes technical support from the Electric Power Research Institute ("EPRI"), to develop a methodology to identify site preferences on the distribution systems of the LPCs. This work, along with locational analysis already completed by TVA, will help in placing utility-scale solar in furtherance of the IRP recommendations as well as distributed solar to meet the needs of LPCs. See Research and Development below. 18 Table of Contents Power Purchase and Other Agreements TVA acquires power from a variety of power producers generally through long-term and short-term PPAs as well as through spot market purchases. During 2022, TVA acquired approximately 94 percent of the power that it purchased through the long-term PPAs described below, including agreements for long-term renewable generation resources, approximately three percent through short-term PPAs, and approximately three percent on the spot market. During 2021, TVA acquired approximately 94 percent of the power that it purchased through long-term PPAs, approximately one percent through short-term PPAs, and approximately five percent on the spot market. TVA's capability provided by PPAs is primarily provided under contracts that expire between 2022 and 2045 and are described in the table below. Power Purchase Agreements (1) At September 30, 2022 Type of Facility Location Number of Contracts Summer Net Capability (MW) Contract Termination Date Renewable PPAs Operating Solar (2) Tennessee 3 208 2032 - 2042 Solar Alabama 2 302 2037 - 2041 Total Operating Solar 5 510 Wind Tennessee 1 25 2025 Wind Iowa 2 299 2030 - 2031 Wind Kansas 2 366 2032 - 2033 Wind Illinois 3 550 2032 - 2033 Total Operating Wind 8 1,240 Hydroelectric Tennessee and Kentucky 1 402 Upon three years' notice Landfill Gas Tennessee 1 5 2031 Subtotal Operating 15 2,157 Contract Renewable Resources (3) 324 Total Renewable Operating PPAs 2,481 Contracted (not yet online) Solar (4) 15 1,828 Total Renewable Contracted PPAs 15 1,828 Nonrenewable PPAs Operating Diesel Tennessee 4 59 2023 - 2032 Diesel Alabama 1 10 2035 Diesel Mississippi 2 46 2023 - 2028 Total Operating Diesel 7 115 Natural Gas (5) Alabama 3 2,068 2022 - 2033 Natural Gas (5) Georgia 1 500 2022 Natural Gas (2) Illinois 1 495 2024 Total Operating Natural Gas 5 3,063 Lignite Mississippi 1 440 2032 Total Nonrenewable Operating PPAs 13 3,618 Contracted (not yet online) Battery Storage (4) 5 246 Total Nonrenewable Contracted PPAs 5 246 Notes (1) TVA sells the RECs resulting from some of its purchased power to certain customers. See Part II, Item 7, Management's Discussion and Analysis of Financial 19 Table of Contents Condition and Results of Operations — Key Initiatives and Challenges — Optimum Energy Portfolio — Renewable Power Purchase Agreements. (2) 150 MW of power delivery in Solar and 495 MW of power delivery in Natural Gas commenced in 2022. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives — Optimum Energy Portfolio — Renewable Power Purchase Agreements . (3) Contract Renewable Resources is capability from various historical renewable energy programs that consist of PPAs primarily with individuals and small businesses. (4) Power delivery is expected to commence between 2023 - 2025. See challenges associated with contracted PPAs not yet online in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives — Optimum Energy Portfolio — Renewable Power Purchase Agreements . (5) Included in the table above are 500 MW of power delivery in Alabama and 500 MW in Georgia that expired on September 30, 2022. The Alabama and Georgia contracts were replaced with 500 MW and 250 MW of Natural Gas, respectively, and both commenced on October 1, 2022. The two new contracts are not reported in the table above. Under federal law, TVA is required to purchase energy from qualifying facilities (cogenerators and small power producers) at TVA's avoided cost of either generating this energy itself or purchasing this energy from another source. TVA fulfills this requirement through the Dispersed Power Production Program. At September 30, 2022, there were 642 generation sources, with a combined qualifying capacity of 278 MW, whose power TVA purchases under this program. Fuel Supply General TVA's consumption of various types of fuel depends largely on the demand for electricity by TVA's customers, the availability of various generating units, and the availability and cost of fuel. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Financial Results — Operating Expenses. Nuclear Fuel Current Fuel Supply . Converting uranium to nuclear fuel generally involves four stages: the mining and milling of uranium ore to produce uranium concentrates; the conversion of uranium concentrates to uranium hexafluoride gas; the enrichment of uranium hexafluoride; and the fabrication of the enriched uranium hexafluoride into fuel assemblies. TVA plans to continue using contracts of various products, lengths, and terms as well as inventory to meet the projected nuclear fuel needs of its nuclear fleet. The net book value of TVA's nuclear fuel was $1.5 billion and $1.6 billion at September 30, 2022 and 2021, respectively. See Note 15 — Risk Management Activities and Derivative Transactions — Counterparty Risk . TVA, the DOE, and certain nuclear fuel contractors have entered into agreements, referred to as the Down-blend Offering for Tritium ("DBOT"), that provide for the production, processing, and storage of low-enriched uranium that is to be made using surplus DOE highly enriched uranium and other uranium. Low-enriched uranium can be fabricated into fuel for use in a nuclear power plant. Production of the low-enriched uranium began in 2019 and is contracted to continue through September 2025. Contract activity after that date will consist of storage and flag management. Flag management ensures that the uranium is free from foreign obligations, and unencumbered by policy restrictions, so that it can be used in connection with the production of tritium. Under the terms of the interagency agreement between the DOE and TVA, the DOE will reimburse TVA for a portion of the costs of converting the highly enriched uranium to low-enriched uranium. See Note 1 — Summary of Significant Accounting Policies — Down-blend Offering for Tritium for a more detailed discussion of the DBOT project. Low-Level Radioactive Waste. Certain materials and supplies used in the normal operation of nuclear electrical generating units are potentially exposed to low levels of radiation. TVA sends shipments of low-level radioactive waste to burial facilities in Clive, Utah and Andrews, Texas. TVA is capable of storing some low-level radioactive waste at its own facilities for an extended period of time, if necessary. Spent Nuclear Fuel. All three nuclear sites have dry cask storage facilities. Sequoyah will need additional capacity by 2029. Watts Bar will need additional capacity by 2039. Browns Ferry will need additional capacity by 2037. To recover the cost of providing long-term, onsite storage for spent nuclear fuel, TVA filed a breach of contract suit against the U.S. in the Court of Federal Claims in 2001. As a result of this lawsuit and related agreements, TVA has collected approximately $414 million through 2022. Tritium-Related Services. TVA and the DOE are engaged in a long-term interagency agreement under which TVA will, at the DOE's request, irradiate tritium-producing burnable absorber rods ("TPBARs") to assist the DOE in producing tritium for the Department of Defense ("DOD"). This agreement, which ends in 2035, requires the DOE to reimburse TVA for the costs that TVA incurs in connection with providing irradiation services and to pay TVA an irradiation services fee at a specified rate per TPBAR over the period when irradiation occurs. In general, TPBARs are irradiated for one operating cycle, which lasts about 18 months. At the end of the cycle, TVA removes the irradiated rods and loads them into a shipping cask. The DOE then ships them to its tritium-extraction facility. TVA loads a fresh set of TPBARs into the reactor during each refueling outage. Irradiating the TPBARs does not affect TVA's ability to safely operate the reactors to produce electricity. TVA has provided irradiation services using Watts Bar Unit 1 since 2003. Although the interagency agreement provides for irradiation services to be performed at Watts Bar and Sequoyah, TVA expects the Watts Bar site to provide sufficient capacity 20 Table of Contents to fulfill this agreement in the near term. The DOE notified TVA of future increased needs for tritium requiring the use of a second reactor. In 2019, TVA received approval from the Nuclear Regulatory Commission ("NRC") for a license amendment to authorize the irradiation of TPBARs in Watts Bar Unit 2. TVA began tritium production in Watts Bar Unit 2 in 2021. The DOE's decision also allows for irradiation of TPBARs at Sequoyah in the future; however, TVA does not have plans to employ Sequoyah units for tritium production in the near term. TVA does intend to increase its production within currently licensed limits beginning in November 2024 for Watts Bar Unit 1 and April 2025 for Watts Bar Unit 2, to align with a DOE request for increased tritium. TVA is currently working to submit a license amendment request with the NRC to fulfill this request. Natural Gas and Fuel Oil During 2022, TVA purchased a significant amount of its natural gas requirements from a variety of suppliers under contracts with terms of up to 2 years and purchased substantially all of its fuel oil requirements on the spot market . The net book value of TVA's natural gas inventory was $54 million and $22 million at September 30, 2022 and 2021, respectively. Natural gas inventory increased primarily due to higher gas prices, as well as an increase in the amount of stored gas to mitigate fuel price volatility. The net book value of TVA's fuel oil inventory was $84 million and $69 million at September 30, 2022 and 2021, respectively. At September 30, 2022, 80 of the combustion turbine assets were dual-fuel capable, and TVA has fuel oil stored on each of these sites as a backup to natural gas. TVA purchases natural gas from multiple suppliers on a daily, monthly, seasonal, and term basis. During 2022, daily, monthly, seasonal, and term contracts accounted for 27 percent, 4 percent, 29 percent, and 40 percent of purchases, respectively. TVA plans to continue using contracts of various lengths and terms to meet the projected natural gas needs of its natural gas fleet. During 2022, TVA arranged for the transportation of natural gas on eight separate pipelines, with approximately 68 percent being transported on two pipelines. During 2022, TVA maintained a total of approximately 1,501,000 million British thermal unit(s) ("mmBtu") per day of firm transportation capacity on eight major pipelines, with approximately 66 percent of total firm transportation capacity being maintained on two pipelines. TVA utilizes natural gas storage services at seven facilities with a total capacity of 7.25 billion per cubic feet ("Bcf") of firm service and 5.00 Bcf of interruptible service to manage the daily balancing requirements of the eight pipelines used by TVA, with approximately 59 percent of the total storage capacity being maintained at two facilities. During 2022, storage levels were generally maintained at between 40 and 80 percent of the maximum contracted capacity at each facility. As TVA's natural gas requirements grow, it is anticipated that additional storage capacity may need to be acquired to meet the needs of the generating assets. In 2023, TVA expects to increase its storage portfolio by approximately 10 percent. Coal Coal consumption at TVA's coal-fired generating facilities during both 2022 and 2021 was approximately 12 million tons. At September 30, 2022 and 2021, TVA had 25 days and 21 days of system-wide coal supply at full burn rate, respectively, with net book values of $165 million and $107 million, respectively. TVA utilizes both short-term and long-term coal contracts. During 2022, long-term contracts made up 92 percent of coal purchases, and short-term contracts accounted for the remaining 8 percent. TVA plans to continue using contracts of various lengths, terms, and coal quality to meet its expected consumption and inventory requirements. During 2022 and 2021, TVA purchased coal by basin as follows: 21 Table of Contents The following charts present the proportion of each delivery method TVA utilizes for its coal supply for the periods indicated: Coal inventory increased at September 30, 2022 as compared to September 30, 2021. This increase was primarily due to higher costs of fuel, including transportation costs, coal conservation efforts, and an increase in inventory levels in preparation for winter inventory needs. The increased inventory levels will help mitigate expected constraints on fuel supply and continued natural gas price volatility which may cause coal to be a more favorable economic fuel choice during that period. However, total system coal inventories were lower than planned throughout 2022 primarily due to higher than forecasted coal generation and continued constraints on fuel supply. Higher coal generation was driven by an increase in sales of electricity, primarily due to economic growth in the Tennessee Valley region and weather patterns, and an increase in natural gas prices making coal a more favorable economic fuel choice. Fuel supply constraints were due to limited mine production, labor shortages, an increase in coal exports, and a reallocation of transportation capacity to support export sales and other commodities. TVA will continue to monitor these constraints and coal inventory levels, as TVA anticipates that these challenges will continue into 2023. See also Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Operational Challenges — Coal Supply . Transmission The TVA transmission system is one of the largest high-voltage transmission systems in North America. TVA's transmission system has 69 interconnections with 13 neighboring electric systems and delivered approximately 163 billion kWh of electricity to TVA customers in 2022. In carrying out its responsibility for transmission grid reliability in the TVA service area, TVA has operated with 99.999 percent reliability since 2000 in delivering electricity to customers. See Item 2, Properties — Transmission Properties . Pursuant to its Transmission Service Guidelines, TVA offers transmission services to eligible customers to transmit wholesale power in a manner that is comparable to TVA's own use of the transmission system. TVA has also adopted and operates in accordance with its published Transmission Standards of Conduct and separates its transmission function from its power marketing function. As a Balancing Authority, Distribution Provider, Generator Owner, Generator Operator, Planning Coordinator, Reliability Coordinator, Resource Planner, Transmission Owner, Transmission Operator, Transmission Planner, and Transmission Service Provider, as those terms are defined for purposes of North American Electric Reliability Corporation ("NERC") regulations, TVA is also subject to federal reliability standards that are set forth by the NERC and approved by FERC. See Regulation . Additional transmission upgrades may be required to maintain reliability. Upgrades may include enhancements to existing lines and substations or new installations as necessary to provide adequate power transmission capacity, maintain voltage support, and ensure generating plant and transmission system stability. In addition to upgrades to maintain reliability, TVA’s Grid of Tomorrow initiative aims to increase grid flexibility to enable greater use of renewable resources such as solar, wind, and other forms of distributed generation and includes making data and communications upgrades as demonstrated by investments in the new system operations center, energy management system, and fiber optic network. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Optimum Energy Portfolio. In addition, TVA is working on various projects with universities, EPRI, and others to help enable a dynamic and multi-directional grid. TVA is also working in partnership with LPCs to modernize their distribution systems by developing a shared vision and roadmap for transforming the Tennessee Valley’s transmission and distribution systems into an integrated regional grid. 22 Table of Contents These initiatives support TVA’s decarbonization efforts while helping ensure TVA continues to achieve its mission to deliver reliable power at the lowest feasible rate. Investments in a modernized grid will help enable enhanced monitoring and control of TVA’s transmission and generation portfolio. Weather and Seasonality Weather affects both the demand for and the market prices of electricity. TVA's power system is generally a dual-peaking system in which the demand for electricity peaks during the summer and winter months to meet cooling and heating needs. TVA uses degree days to measure the impact of weather on its power operations. Degree days measure the extent to which the TVA system 23-station average temperatures vary from 65 degrees Fahrenheit. See Item 1, Business — Flood Control Activities, Item 1, Business — Environmental Matters — Climate Change — Physical Impacts of Climate Change, and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Sales of Electricity. Competition TVA provides electricity in a service area that is largely free of competition from other electric power providers. This service area is defined primarily by provisions of law and long-term contracts. The region in which TVA or LPCs that distribute TVA power may provide power is limited and is often referred to as "the fence." Under the FPA, the Anti-Cherrypicking Amendment ("ACPA") limits the ability of others to use the TVA transmission system for the purpose of serving customers within TVA's service area. State service territory laws limit unregulated third parties' ability to sell electricity to consumers. All TVA wholesale power contracts are all requirements contracts; however, Power Supply Flexibility Agreements available to LPCs that have executed long-term contracts with TVA allow LPCs to locally generate or purchase up to approximately five percent of their average total hourly energy sales over a certain time period in order to meet their individual customers' needs. In addition, other utilities may use their own transmission lines to serve customers within TVA's service area, and third parties are able to avoid the restrictions on serving end-use customers by selling or leasing generating assets to a customer rather than selling electricity. These threats underscore the need for TVA to design rates and strategically price its products and services to be competitive. There have also been some efforts to erode the ACPA, and the protection of the provision could be limited and perhaps eliminated by federal legislation at some time in the future. See Note 21 — Commitments and Contingencies — Legal Proceedings — Challenge to Anti-Cherrypicking Amendment for updates to a legal proceeding challenging the ACPA. TVA also faces competition in the form of emerging technologies. Improvements in energy efficiency technologies, smart technologies, and energy storage technologies may reduce the demand for centrally provided power. The growing interest by customers in generating their own power through DER has the potential to lead to a reduction in the load served by TVA as well as cause TVA to re-evaluate how it operates the overall grid system to continue to provide highly reliable power at affordable rates. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Optimum Energy Portfolio — Fiber Optic Network. Finally, TVA and other utility companies are facing an evolving marketplace of increased competition driven by customer choice and behavior. As technology develops, consumers' demands for access to diverse products and services may increase, and customers could choose another utility to meet some or all of their power needs where available, pursue self-generation to meet some or all of their power needs, or move their operations outside of TVA's service territory. Research and Development Investments in TVA's research portfolio are supported through partnership and collaboration with LPCs, EPRI, the DOE, federal agencies, peer utilities, universities, and industry vendors and through participation in professional societies and other research consortiums. Annual investments made in science and technological innovation help meet future business and operational challenges. Each year, TVA's annual research portfolio is updated based on a broad range of operational and industry drivers to assess key technology gaps, performance issues, or other significant issues, addressed through research and development. Core research activities directly support optimization of TVA's generation and transmission assets, air and water quality, energy utilization, and distributed/clean energy integration. TVA also provides research and development services on behalf of LPCs by helping optimize their distribution systems and helping minimize technology gaps in energy utilization and consumer technologies. Beginning in 2020, TVA placed a high priority on providing research which aligns to and supports its six transformative initiatives: decarbonization, energy storage, electric vehicles, advanced nuclear, connected communities, and regional grid transformation. TVA has placed a special emphasis on research leading to the understanding and application of clean resources to support the reduction of carbon emissions from its power supply. This research supports both TVA and national strategic interests to reduce carbon emissions and will serve to both catalyze and support TVA’s decarbonization initiative. TVA is in the second year of a coalition of utilities and researchers, led by EPRI and Gas Technology Institute, whose purpose is to engage, inform, and support global low-carbon resources initiatives to develop the pathways for the advancement 23 Table of Contents of carbon reducing technologies for large scale utility deployment. This is a five-year program and includes research to support creating resource options, such as alternative fuels (hydrogen, ammonia, and methanized derivatives), carbon capture, electrification, and utilization of clean DER as part of the overall low-carbon resource mix. TVA has made progress understanding regional geology and carbon capture technologies and is evaluating both with an emphasis on the potential for carbon capture in TVA's future. TVA is also exploring the potential for hydrogen to serve as a tool in the decarbonization of the Tennessee Valley, both within the electrical sector and elsewhere. TVA and other major utility companies are working together to respond to the recently announced funding opportunity from the DOE with the intention of obtaining federal financial support for a Southeast Hydrogen Hub. At the forefront of the energy storage initiative is deploying grid-scale battery energy storage technology to optimize the existing TVA generation assets and improve the resiliency of the transmission system. In 2020, TVA launched its first TVA-owned, grid scale, lithium-ion demonstration battery project and in 2022, TVA broke ground for the battery project, which will be located near Vonore, Tennessee. The system integration learnings from this project will guide future application of battery storage as part of the evolving bulk power system in the region. TVA continues to develop potential electrification programs, in addition to the Fast Charge Network, that improve resource use and reduce environmental impacts (especially in the transportation sector). TVA programs are based on previous assessments, which included a multi-stakeholder vision and roadmap effort aimed at identifying the path forward for electric vehicles in Tennessee. The approach provides for broad engagement from industry, government, and utilities that could be applied in other states in the TVA service territory. In addition, TVA is continuing its evaluation of potential electric vehicle adoption strategies through coordination of activities with EPRI and state and industry stakeholders related to operational fleet requirements. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Electric Vehicles. TVA is committed to investing in the future of nuclear and continues to evaluate the licensing and design of emerging nuclear technologies, such as advanced light water SMRs and advanced non-light water reactors, as part of technology innovation efforts aimed at developing the energy system of the future. In December 2019, TVA became the first utility in the nation to successfully obtain approval for an early site permit from the NRC to potentially construct and operate SMRs at its Clinch River Site. Additionally, TVA is partnering with technology progressive organizations to evaluate the economic feasibility of advanced nuclear reactors. TVA has entered into memorandums of understanding and agreements that allow for mutual collaboration to explore advanced reactor designs as a next-generation nuclear technology while leveraging the expertise of federally funded research and development centers, utilities, vendors, and academic institutions. These partnerships are important steps in the early stages of evaluation as TVA considers the prospect of new nuclear. These partnerships are also leveraged to develop innovations to improve advanced nuclear designs, streamline licensing pathways, find efficiencies in construction methods, and optimize operating expenses. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Optimum Energy Portfolio — Small Modular Reactors for additional discussion and total costs related to SMR work. TVA established 13 connected communities pilot projects with stakeholders and has been engaging in advanced buildings research to support the initiative. Connected communities projects are aimed at addressing today’s challenges with community-driven information and technology solutions to improve the quality of life in the Tennessee Valley. Research will continue to identify best practices, better understand challenges in the Tennessee Valley, and scale up the learnings from the pilots to broader application throughout the Tennessee Valley. Finally, TVA and LPCs are engaged in several initiatives related to grid modernization. Research includes technologies and applications advancement in intelligent transmission and distribution systems. Smart meter technology has the potential to shift usage patterns away from peak demand times which could change costs significantly. Additionally, intelligent transmission systems would give TVA the ability to nearly instantaneously diagnose problems, make corrections, and engage transmission and generation resources quickly so that power would keep flowing. This could promote reduced emissions, lower energy costs, and add greater flexibility to accommodate the new consumer-generated sources under TVA's renewable energy programs. TVA also worked with LPC partners to execute a survey of LPC technology capabilities and plans, and the results are helping shape a realistic path toward TVA's long-term goals. See Power Supply and Load Management Resources — Distributed Energy Resources and Transmission . Flood Control Activities The Tennessee River watershed has one of the highest annual rainfall totals of any watershed in the U.S., averaging 51 inches per year. During 2022, approximately 55 inches of rain fell in the Tennessee Valley. TVA manages the Tennessee River system in an integrated manner, which includes managing minimum river flows and minimum depths for navigation, reducing flood damage, generating low-cost hydroelectric power, maintaining flows that support habitat for fish and other aquatic species, maintaining water supply, and providing recreational opportunities for the Tennessee Valley. In addition, having cool water available helps TVA to meet thermal compliance and support normal operation of TVA's nuclear and fossil-fueled plants, while oxygenating water helps fish species remain healthy. TVA spills or releases excess water through its dams in order to reduce flood damage to the Tennessee Valley. TVA typically spills only when all available hydroelectric generating turbines are operating at full capacity and additional water still needs to be moved downstream. 24 Table of Contents The Tennessee Valley experienced above normal rainfall during 2022 with rainfall and runoff at 108 percent and 106 percent of normal, respectively. The above normal rainfall and runoff during the period supported TVA's objective to generate low-cost hydroelectric power while also meeting its river system commitments, including flood mitigation, which is estimated to have prevented damages across the Tennessee Valley of approximately $3 million in 2022 and $9.7 billion over TVA's recorded history. Environmental Stewardship Activities TVA's mission includes managing the Tennessee River, its tributaries, and federal lands along the shoreline to provide, among other things, year-round navigation, flood damage reduction, affordable and reliable electricity, recreational opportunities, adequate water supply, improved water quality, and natural resource protection. There are 49 dams that comprise TVA's integrated reservoir system. Each dam may also have ancillary structures used to support or assist the main dam's function. The reservoir system provides approximately 800 miles of commercially navigable waterways and also provides significant flood reduction benefits both within the Tennessee River system and downstream on the lower Ohio and Mississippi Rivers. The reservoir system also provides a water supply for residential and industrial customers, as well as cooling water for TVA's coal-fired plants, combined cycle plants, and nuclear power plants. TVA's Environmental Policy provides objectives for an integrated approach related to providing reliable, affordable, and increasingly clean energy; engaging in proactive stewardship of the Tennessee River system and public lands; and supporting sustainable economic growth. The Environmental Policy also provides additional direction in several environmental stewardship areas related to reducing environmental impacts on the Tennessee Valley's natural resources, including reducing carbon intensity and air emissions; minimizing waste; and protecting water resources and cultural resources. TVA's Biodiversity Policy further builds on the TVA record of environmental stewardship by acknowledging the critical role of natural systems in achieving its mission of improving the quality of life in the region. The policy commits to seeking conservation opportunities within capital projects and improving current operational practices to help minimize impacts, reduce costs, and enhance biodiversity. TVA serves the people of the TVA region through the integrated management of the Tennessee River system and public lands, which include approximately 11,000 miles of shoreline; 650,000 surface acres of reservoir water; and 293,000 acres of reservoir lands. TVA accomplishes this mission and supports the objectives of the TVA Environmental Policy through implementation of its natural resources stewardship strategy. Within this strategy, TVA confirms a desire to remain agile, balance competing demands, and be a catalyst for collaboration in order to protect and enhance biological, cultural, and water resources as well as create and sustain destinations for recreation and opportunities for learning and research. As part of the strategy, TVA intends to assist water-based community development with the issuance of permits, technical support, and land agreements using planning, clear regulations, meaningful guidelines, and consistent enforcement. Additional guidance for carrying out many of TVA's essential stewardship responsibilities is provided in TVA's Natural Resource Plan . The plan aligns TVA's mission through economic development, energy, and environmental stewardship and guides business planning. It includes ten focus areas, providing a comprehensive view of resource stewardship efforts. Economic Development Activities Economic development, along with energy production and environmental stewardship, is one of the primary statutory purposes of TVA. Economic development programs developed by TVA support all communities, including rural and economically distressed communities, across the Tennessee Valley . Through its economic development activities, TVA endeavors to recruit and retain companies in targeted business sectors, foster capital investment and job growth, and assist communities in the Tennessee Valley with economic growth opportunities. TVA seeks to achieve these goals through a combination of initiatives and partnerships with LPCs, regional, state, and local agencies, and communities by providing financial incentives, technical services, industry expertise, and site-selection assistance to new and existing businesses in the Tennessee Valley. TVA's economic development incentive programs offer competitive incentives to new and existing power customers in certain business sectors that make multi-year commitments to invest in the Tennessee Valley. See Note 17 — Revenue — Contract Balances — Economic Development Incentives for total incentives recorded. In addition to providing financial support to businesses, TVA offers communities and economic developers site selection services, technical and project development assistance, and leadership training services. In 2022, TVA's economic development efforts, reliability, and competitive rates helped attract or expand 245 companies into the TVA service area. These companies announced projected capital investments of over $10.2 billion and are expected to create or retain approximately 66,500 jobs. Regulation TVA is required to comply with comprehensive and complex laws, regulations, and orders. The costs of complying with these laws, regulations, and orders are expected to be substantial, and costs could be significantly more than TVA anticipates. 25 Table of Contents Congress TVA exists pursuant to the TVA Act as enacted by Congress and carries on its operations in accordance with this legislation. Congress can enact legislation expanding or reducing TVA's activities, change TVA's structure, and even eliminate TVA. Congress can also enact legislation requiring the sale of some or all of the assets TVA operates or reduce the U.S.'s ownership in TVA. To allow TVA to operate more flexibly than a traditional government agency, Congress exempted TVA from all or parts of certain general federal laws that govern other agencies, such as federal labor relations laws and the laws related to the hiring of federal employees, the procurement of supplies and services, and the acquisition of land. Other federal laws enacted since the creation of TVA that are applicable to other agencies have been made applicable to TVA, including those related to paying employees overtime and protecting the environment, cultural resources, and civil rights. Securities and Exchange Commission Section 37 of the Securities Exchange Act of 1934 (the "Exchange Act") requires TVA to file with the Securities and Exchange Commission ("SEC") such periodic, current, and supplementary information, documents, and reports as would be required pursuant to Section 13 of the Exchange Act if TVA were an issuer of a security registered pursuant to Section 12 of the Exchange Act. Section 37 of the Exchange Act exempts TVA from complying with Section 10A(m)(3) of the Exchange Act, which requires each member of a listed issuer's audit committee to be an independent member of the board of directors of the issuer. Since TVA is an agency and instrumentality of the U.S., securities issued or guaranteed by TVA are "exempted securities" under the Securities Act of 1933, as amended (the "Securities Act"), and may be offered and sold without registration under the Securities Act. In addition, securities issued or guaranteed by TVA are "exempted securities" and "government securities" under the Exchange Act. TVA is also exempt from Sections 14(a)-(d) and 14(f)-(h) of the Exchange Act (which address proxy solicitations) insofar as those sections relate to securities issued by TVA, and transactions in TVA securities are exempt from rules governing tender offers under Regulation 14E of the Exchange Act. Also, since TVA securities are exempted securities under the Securities Act, TVA is exempt from the Trust Indenture Act of 1939 insofar as it relates to securities issued by TVA, and no independent trustee is required for these securities. Federal Energy Regulatory Commission Under the FPA, TVA is not a "public utility," a term which primarily refers to investor-owned utilities. Therefore, TVA is not subject to the full jurisdiction that FERC exercises over public utilities under the FPA. TVA is, however, an "electric utility" and a "transmitting utility" as defined in the FPA and, thus, is directly subject to certain aspects of FERC's jurisdiction. Under the FPA, for example, TVA (1) must comply with certain standards designed to maintain transmission system reliability; (2) can be ordered to interconnect its transmission facilities with the electrical facilities of independent generators and of other electric utilities that meet certain requirements; (3) can be ordered to transmit wholesale power provided that the order (a) does not impair the reliability of the TVA or surrounding systems, (b) meets the applicable requirements concerning terms, conditions, and rates for service, and (c) does not implicate the ACPA; (4) could be subject to FERC review of the transmission rates and the terms and conditions of service that TVA provides; and (5) is prohibited from (a) reporting false information on the price of electricity sold at wholesale or the availability of transmission capacity to a federal agency with intent to fraudulently affect the data being compiled by the agency and (b) using manipulative or deceptive devices or contrivances in connection with the purchase or sale of power or transmission services subject to FERC's jurisdiction. In addition, the FPA provides FERC with authority (1) to order refunds of excessive prices on short-term sales (transactions lasting 31 days or less) by all market participants, including TVA, in price gouging situations if such sales are through an independent system operator or regional transmission organization under a FERC-approved tariff; (2) to issue regulations requiring the reporting, on a timely basis, of information about the availability and prices of wholesale power and transmission service by all market participants, including TVA; (3) to investigate electric industry practices, including TVA's operations that are subject to FERC's jurisdiction; and (4) to impose civil penalties of up to $1 million per day for each violation of the provisions of the FPA discussed in the prior paragraph that are applicable to TVA. Criminal penalties may also result from such violations. Finally, while not required to do so, TVA has elected to implement various FERC orders and regulations pertaining to public utilities on a voluntary basis to the extent that they are consistent with TVA's obligations under the TVA Act. NERC Compliance TVA is subject to federal reliability standards that are set forth by NERC and approved by FERC. These standards are designed to maintain the reliability of the bulk electric system, including TVA's generation and transmission system, and include areas such as maintenance, training, operations, planning, modeling, critical infrastructure, physical and cyber security, vegetation management, and facility ratings. TVA recognizes that reliability standards and expectations continue to become more complex and stringent for transmission systems. Nuclear Regulatory Commission TVA operates its nuclear facilities in a highly regulated environment and is subject to the oversight of the NRC, an 26 Table of Contents independent federal agency that sets the rules that users of radioactive materials must follow. The NRC has broad authority to impose requirements relating to the licensing, operation, and decommissioning of nuclear generating facilities. In addition, if TVA fails to comply with requirements promulgated by the NRC, the NRC has the authority to impose fines, shut down units, or modify, suspend, or revoke TVA's operating licenses. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Operational Challenges. Environmental Protection Agency TVA is subject to regulation by the Environmental Protection Agency ("EPA") in a variety of areas, including air quality control, water quality control, and management and disposal of solid and hazardous wastes. See Environmental Matters below and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges. States The Supremacy Clause of the U.S. Constitution prohibits states, without federal legislative consent, from regulating the manner in which the federal government conducts its activities. As a federal agency, TVA is exempt from regulation, control, and taxation by states except in certain areas where Congress has clearly made TVA subject to state regulation. See Environmental Matters below. Other Federal Entities TVA's activities and records are also subject to review to varying degrees by other federal entities, including the Government Accountability Office and the Office of Management and Budget ("OMB"). There is also an Office of the Inspector General which reviews TVA's activities and records. Taxation and Tax Equivalents TVA is not subject to federal income taxation. In addition, neither TVA nor its property, franchises, or income is subject to taxation by states or their subdivisions. The TVA Act, however, does require TVA to make tax equivalent payments to states and counties in which TVA conducts power operations or in which TVA has acquired properties previously subject to state and local taxation. The total amount of these payments is five percent of gross revenues from the sale 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. Except for certain direct payments TVA is required to make to counties, distribution of tax equivalent payments within a state is determined by individual state legislation. Environmental Matters TVA's activities, particularly its power generation activities, are subject to comprehensive regulation under environmental laws and regulations relating to air pollution, water pollution, and management and disposal of solid and hazardous wastes, among other matters. The environmental laws and regulations that have the largest impact on TVA's operations and financial condition are discussed below. Clean Air Act Programs and Regulations National Ambient Air Quality Standards. The CAA requires the EPA to set National Ambient Air Quality Standards ("NAAQS") for certain air pollutants. The EPA has set NAAQS for ozone, particulate matter, sulfur dioxide ("SO 2 "), nitrogen oxides ("NO x "), carbon monoxide, and lead. Over the years, the EPA has made the NAAQS more stringent. Each state must develop a plan to be approved by the EPA for achieving and maintaining NAAQS within its borders. These plans impose limits on emissions from pollution sources, which are applicable to certain TVA generating units, including fossil fuel-fired plants. Areas meeting a NAAQS are designated as attainment areas. Areas not meeting a NAAQS are designated as non-attainment areas, and more stringent requirements apply in those areas, including stricter controls on industrial facilities and more complicated and public permitting processes. TVA fossil fuel-fired plants can be impacted by these requirements. Currently, all TVA generating units are located in areas designated as attainment areas. Revised Cross-State Air Pollution Rule. TVA power plants are subject to the EPA's Cross-State Air Pollution Rule ("CSAPR"). CSAPR addresses air pollution from upwind states in the United States that affect air quality in downwind states and is focused on NO x and SO 2 . To comply with CSAPR, TVA power plants must obtain one NO x allowance for every ton of NO x emitted during the ozone season. Under a revised version of CSAPR, the Shawnee Fossil Plant ("Shawnee") facility is subject to reduced ozone-season NO x allowances and has been required to surrender most of its allowance inventory. TVA is monitoring forecasted needs and has purchased allowances for the Shawnee facility with plans to continue doing so as needed to comply with the rule in 2023. A longer-term compliance strategy for the facility is being developed that could include a combination of NO x control upgrades, operational changes, and allowance purchases. 27 Table of Contents Proposed Federal Implementation Plan Addressing Regional Ozone Transport for the 2015 Ozone NAAQS. On April 6, 2022, the EPA issued a proposed Federal Implementation Plan (“FIP”) to address cross-state air pollution with respect to the 2015 ozone NAAQS, and the comment period was subsequently extended on May 12, 2022. The proposed FIP establishes ozone-season NO x allowance budgets that will apply to TVA electric generating units in Alabama, Kentucky, Mississippi, and Tennessee, beginning with the 2023 ozone season. It also establishes daily NO x emissions limits applicable to TVA's individual coal-fired units. TVA is currently evaluating potential impacts from this proposal. A compliance strategy for affected facilities in Kentucky and Tennessee could include a combination of NO x control upgrades, operational changes, and allowance purchases. Mercury and Air Toxics Standards for Electric Utility Units . On January 31, 2022, the EPA proposed reaffirming that it is appropriate and necessary to regulate hazardous air pollutants ("HAP"), including mercury emitted from steam electric utilities. If adopted in its current form, the EPA's proposed rule addressing HAP would not change TVA’s compliance requirements. Environmental Agreements. In 2011, TVA entered into two substantively similar agreements, one with the EPA and the other with Alabama, Kentucky, North Carolina, Tennessee, and three environmental advocacy groups (collectively, the "Environmental Agreements"). To resolve alleged New Source Review claims, TVA committed under the Environmental Agreements to, among other things, take now-completed actions regarding coal units and invest $290 million in certain TVA environmental projects. See Note 21 — Commitments and Contingencies — Legal Proceedings — Environmental Agreements , which discussion is incorporated herein by reference. Acid Rain Program. The EPA's Acid Rain Program is intended to help reduce emissions of SO 2 and NO x , which are the primary pollutants implicated in the formation of acid rain. The program includes a cap-and-trade emission reduction program for SO 2 emissions from power plants. TVA continues to reduce SO 2 and NO x emissions from its coal-fired plants, and the SO 2 allowances allocated to TVA under the Acid Rain Program are sufficient to cover the operation of its coal-fired plants. In the TVA service area, the limitations imposed on SO 2 and NO x emissions by the CSAPR program are more stringent than the Acid Rain Program. Therefore, TVA does not anticipate that the Acid Rain Program will impose any additional material requirements on TVA. Regional Haze Program . The EPA issued the Clean Air Visibility Rule, which required certain older sources to install best available retrofit technology. No additional controls or lower operating limits are required for any TVA units to meet best available retrofit technology requirements. In 2017, the EPA published the final rule that changed some of the requirements for Regional Haze State Implementation Plans ("SIPs"). Specific impacts on TVA cannot be determined until future Regional Haze SIPs are developed for the next decennial review under the visibility haze provisions of the CAA. States were required to submit their Regional Haze SIPs to the EPA by July 31, 2021. In response to requests from state air pollution control agencies in Tennessee and Kentucky, TVA submitted regional haze analyses for its Cumberland and Shawnee facilities, respectively, to those state agencies. The reports evaluate SO 2 emission reduction options for these facilities and will be considered by these state agencies in preparing their Regional Haze SIPs. On August 25, 2022, the EPA issued a final action stating that 15 states, including Kentucky, failed to submit a complete SIP, which triggers a two-year deadline for the EPA to promulgate a FIP for the state unless Kentucky submits, and the EPA approves, a SIP satisfying the visibility protection requirements of the CAA. TVA cannot predict the outcome of the EPA's evaluation of the SIP submitted by Tennessee or the FIP to be developed by the EPA for Kentucky. Start Up, Shutdown, and Malfunctions. Opacity, or visible emissions, measures the denseness or color of power plant plumes and has traditionally been used by states as a means of monitoring good maintenance and operation of particulate control equipment. Under some conditions, retrofitting a unit with additional equipment to better control SO 2 and NO x emissions can adversely affect opacity emissions, and TVA and other utilities have addressed this issue. The evaluation of utilities' compliance with opacity requirements is coming under increased scrutiny, especially during periods of startup, shutdown, and malfunction. Historically, SIPs developed under the CAA typically excluded periods of startup, shutdowns, and malfunctions, but in June 2015, the EPA finalized a rule to eliminate such exclusions ("2015 Rule"). Environmental petitioners and several states filed petitions for judicial review of the 2015 Rule before the U.S. Court of Appeals for the District of Columbia Circuit ("D.C. Circuit"), and oral arguments were heard on March 25, 2022. Separately, on September 8, 2021, environmental petitioners filed a lawsuit to enforce the SIP calls under the 2015 Rule. On January 12, 2022, the EPA determined that Alabama and Tennessee (Shelby County) failed to submit a revised SIP as required by the 2015 Rule. On June 27, 2022, the EPA entered into a consent decree that would require the agency to take final action on SIP revisions submitted in response to the 2015 SIP call by dates ranging from 180 to 480 days from the date of the consent decree. TVA cannot predict the outcome of future SIP evaluations. New York Petition to Address Impacts from Upwind High Emitting Sources . In 2018, the State of New York filed a petition with the EPA under Section 126(b) of the CAA to address ozone impacts on New York from the NO x emissions from sources emitting at least 400 tons of NO x in CY 2017 from nine states including Kentucky. The New York petition requests that the EPA require daily NO x limits for utility units with selective catalytic reduction systems ("SCRs") such as Shawnee Units 1 and 4 and emission reductions from utility units without SCRs such as Shawnee Units 2, 3, and 5 - 9. Kentucky utility unit NO x emissions are already limited under CSAPR and are declining, and current EPA modeling projects that no additional requirements to reduce Kentucky NO x emissions are necessary. In 2019, the EPA finalized its denial of New York's petition. The State of New York filed a petition in the D.C. Circuit for judicial review of the EPA's denial of the petition, and in July 2020, the D.C. Circuit vacated the EPA's denial of the petition and remanded the petition to the EPA for reconsideration. Specific impacts to TVA cannot be determined until the EPA takes further action on the petition. 28 Table of Contents Affordable Clean Energy Rule . In 2019, the EPA finalized the Affordable Clean Energy ("ACE") rule addressing greenhouse gas ("GHG") emissions from existing fossil fuel-fired units. The ACE rule established guidelines, under Section 111(d) of the CAA, for GHG emissions from existing coal-fired units based on efficiency improvements that can be achieved at those units at reasonable cost. States were then required to adapt these guidelines into individual SIPs to be submitted to the EPA for its approval. Several industry, environmental, and state and local petitioners filed for judicial review of the ACE rule. On January 19, 2021, the D.C. Circuit vacated and remanded the ACE rule. On October 29, 2021, the U.S. Supreme Court accepted the request filed by a coalition of states and other parties to review the D.C. Circuit's decision to vacate the ACE rule. On June 30, 2022, the U.S. Supreme Court issued its decision in West Virginia v. EPA , in which it restricted the EPA's authority to regulate GHG from existing power plants under Section 111(d). The U.S. Supreme Court concluded that Congress did not grant the EPA authority under the CAA to demand generation-shifting to achieve reduction of GHG emissions, but the court did not hold that the EPA is limited in future rulemakings to just the heat-rate improvements that made up the ACE rule. The judgment of the D.C. Circuit was thus reversed and the case remanded for further proceedings consistent with the U.S. Supreme Court's opinion. TVA is unable to predict the future course of the litigation on remand, nor the direction that the EPA may take in the future to regulate GHG emissions from existing fossil fuel-fired units. As such, it is not possible at this time to predict the impacts the EPA’s effort to develop a rule to replace the ACE rule will have on the level of GHG emissions control to be required at applicable TVA plants. On September 8, 2022, the EPA announced the opening of a non-rulemaking docket for public comments on the EPA's efforts to reduce GHG emissions from existing fossil-fuel fired electric generating units. Comments may be submitted to the EPA until March 27, 2023. New Source Performance Standards . In 2018, the EPA proposed revisions to the 2015 GHG emission standards for new, modified, and reconstructed electric utility generating units required under Section 111(b) of the CAA. For coal-fired units, the EPA proposed to revise the current new source standards such that carbon capture and sequestration technology would no longer be necessary to meet the standards of performance that reflect the best system of emission reduction. The resulting limits are less stringent than limits under the 2015 rule and can be met by modern coal-fired units (e.g., supercritical steam generators) in combination with best operating practices, without carbon capture or sequestration. The EPA is not proposing to revise the new source performance standard in the 2015 rule for GHG emissions from gas-fired units. In January 2021, the EPA finalized a significant contribution finding for purposes of regulating source categories for GHGs under Section 111(b) of the Clean Air Act for electric generating units which was subsequently vacated and remanded. The 2015 GHG emission standards are currently in effect, and on September 8, 2022, the EPA announced the opening of a non-rulemaking docket for public comments on the EPA’s efforts to reduce GHG emissions from new fossil-fuel fired electric generating units. Comments may be submitted to the EPA until March 27, 2023. Any formal rulemaking will have separate opportunities for public comment. In its spring 2022 Unified Regulatory Agenda, the EPA indicated that it is undertaking a comprehensive review of the new source performance standards for GHG emissions from electric utility steam generating units, including a review of all aspects of the 2018 proposed amendments and the requirements in the 2015 rule that the agency did not propose to amend in the 2018 proposal. TVA is unable to predict the direction that the EPA may take in the future to regulate GHG emissions from new, modified, or reconstructed fossil fuel-fired units. Climate Change Emissions. Though many of TVA's facilities continue to emit air pollutants, emissions from all TVA-owned and operated units (including small CTs of less than 25 MW) have been reduced from historic peaks. Emissions of NO x and SO 2 began being regulated in 1995 and 1977, respectively. Emissions of NO x and SO 2 have been reduced by 97 percent and 99 percent, respectively, since their initial year of regulation. Emissions and Intensity Rates (1) CY 2021 CY 2020 Nitrogen Oxide (NO x ) (2) Total NO x Emissions (MT) 15,210 12,577 Total NO x Emissions Intensity (MT/Net MWh) 0.000109 0.000094 Sulfur Dioxide (SO 2 ) (2) Total SO 2 Emissions (MT) 25,226 17,082 Total SO 2 Emissions Intensity (MT/Net MWh) 0.000181 0.000127 Mercury (Hg) Total Hg Emissions (kg) 22.3 17.5 Total Hg Emissions Intensity (kg/Net MWh) 0.0000002 0.0000001 Notes (1) Intensity rates are calculated based on generation from TVA's most recent fiscal year for years indicated and emissions data from the most recent CYs. (2) Emissions data is consistent with Edison Electric Institute Environmental, Social, Governance and Sustainability Report standards, which are based on metric tons ("MTs"), whereas overall CO 2 emission rates and baseline reductions from historical levels are based on short tons. For CY 2021, TVA's emissions of carbon dioxide ("CO 2 ") from its owned and operated units, including purchased power and REC retirement adjustments which reduce the reportable CO 2 emissions, were 50 million tons, resulting in a TVA system average, as delivered, CO 2 emission rate of 638 lbs/MWh. This represents a 57 percent reduction in mass carbon emissions 29 Table of Contents from 2005 levels. While TVA continues down the path of lowering emissions, including GHG emissions, there will be fluctuations in TVA's emission numbers. Between CY 2020 and CY 2021, TVA's GHG emissions reflect higher electricity usage in the Tennessee Valley as the region recovered from the effects of the Coronavirus Disease 2019 (" COVID-19") pandemic and experienced economic growth. Changes in the power supply mix between CY 2020 and CY 2021 also impacted the emissions fluctuation, as TVA continues to make operational decisions to keep the system reliable and deliver low-cost energy. Executive Actions. President Biden has issued several executive orders relating to climate change. On January 20, 2021, President Biden issued EO 13990, "Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis." EO 13990 directs federal agencies to review and revise regulations consistent with broad policy goals to improve public health and the environment, reduce GHG emissions, and prioritize environmental justice. On January 27, 2021, President Biden issued EO 14008, "Executive Order on Tackling the Climate Crisis at Home and Abroad." EO 14008 seeks to promote safe global temperatures, increase climate resilience, and support low greenhouse gas emissions and climate-resilient development by, among other things, (1) using federal procurement authorities to achieve or facilitate (a) a carbon pollution-free electricity sector no later than 2035 and (b) clean and zero-emission vehicles for federal, state, local, and tribal government fleets, (2) putting the U.S. on a path to achieve net-zero emissions, economy-wide, by no later than 2050, and (3) establishing the Justice40 Initiative, instructing federal agencies to direct 40 percent of the benefit from eligible projects toward disadvantaged communities. On May 20, 2021, President Biden issued EO 14030, “Climate-Related Financial Risk,” which calls for a governmental-wide strategy on the disclosure of climate-related financial risk that includes, among other things, the measurement, assessment, mitigation, and disclosure of climate-related financial risk to federal government programs, assets, and liabilities in order to increase the long-term stability of federal operations. On December 8, 2021, President Biden issued EO 14057, "Executive Order on Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability," which details the administration’s policy to take a whole of government approach to lead by example to achieve a carbon pollution-free electricity sector by 2035 and net-zero emissions economy-wide by no later than 2050. Implementing Instructions for EO 14057 issued in August 2022 provided instructions to federal agencies regarding agency planning, reporting requirements, and accountability. Agencies must issue or revise existing agency policies, directives, and guidance, as appropriate, including employee training, to ensure alignment with the goals and requirements of EO 14057. On September 12, 2022, President Biden issued EO 14082, “Implementation of the Energy and Infrastructure Provisions of the Inflation Reduction Act of 2022.” EO 14082 provides that in implementing the Inflation Reduction Act of 2022, federal agencies shall, as appropriate and to the extent consistent with law, prioritize, among other things, (1) driving progress to achieve the climate goals of the United States to reduce greenhouse gas emissions 50 to 52 percent below 2005 levels in 2030, achieve a carbon pollution-free electricity sector by 2035, and achieve net-zero emissions by no later than 2050, (2) advancing environmental and climate justice through an all-of-government approach, including through the Justice40 Initiative set forth in EO 14008, and (3) promoting construction of clean energy generation, storage, transmission, and enabling technologies through efficient, effective mechanisms that incorporate community engagement. TVA is voluntarily pursuing multiple policies and programs in the Tennessee Valley that support the goals and policies of these executive orders. See Actions Taken by TVA to Reduce GHG Emissions below. TVA must consider executive orders within the context of statutory requirements imposed by Congress when carrying out its mission such as the TVA Act and the Energy Policy Act of 1992 that require power be sold at rates as low as feasible and the use of least-cost resource planning, respectively. TVA performs long-term least-cost resource planning through its Integrated Resource Plan process. Paris Agreement . The United States is currently part of the Paris Agreement. The Paris Agreement tracks emissions targets through nationally determined contributions ("NDCs"). Each nation that is a party to the Paris Agreement is asked to prepare five-year, successive NDCs that it plans to achieve. On April 22, 2021, the Biden Administration announced its GHG NDCs for 2030 under the Paris Agreement, and these NDCs establish a new target for the U.S. to achieve a 50 to 52 percent reduction from 2005 levels in economy-wide net GHG pollution in 2030. Specific impacts to TVA cannot be determined at this time. Litigation . Climate change issues have been the subject of a number of lawsuits, including lawsuits against TVA, and TVA may be subject to additional lawsuits in the future. See Note 21 — Commitments and Contingencies — Legal Proceedings for additional information. Indirect Consequences of Regulation or Business Trends . Legal, technological, political, and scientific developments regarding climate change may create new opportunities and risks. The potential indirect consequences could include an increase or decrease in electricity demand, increased demand for clean generation from alternative energy sources, and subsequent impacts to business reputation and public opinion. See Power Supply and Load Management Resources above. 30 Table of Contents Physical Impacts of Climate Change. Physical impacts of climate change may include, but not be limited to, changing weather patterns, extreme weather conditions, and other events such as flooding, droughts, wildfires, and snow or ice storms, and these events can impact TVA's system in terms of system operability, customer demand, and the health of regional economies. TVA has a Climate Change Action Plan which it updated in 2021 in support of EO 14008. TVA submitted its draft Climate Change Action Adaptation and Resiliency Plan to the White House in May 2021 and its final plan in August 2021. The goal of the action planning process is to ensure TVA continues to achieve its mission and program goals and to operate in a secure, effective, and efficient manner in a changing climate by integrating climate change adaptation efforts in coordination with state and local partners, tribal governments, and private stakeholders. TVA manages the risks proposed by climate change on its mission, programs, and operations within its environmental management processes, though such risks cannot be completely eliminated. Actions Taken by TVA to Reduce GHG Emissions . TVA has reduced GHG emissions from both its generation facilities and its other operations. TVA Board actions have focused on further reducing GHG emissions from its generation fleet by evaluating the potential retirement of its coal-fired fleet, increasing its nuclear capacity, modernizing its hydroelectric generation system, increasing natural gas-fired generation, installing emission control equipment on certain of its coal-fired units, increasing its purchases of renewable energy, building solar facilities, and investing in energy efficiency initiatives to reduce energy use in the Tennessee Valley. Additionally, TVA has invested to increase energy efficiency in its operations and offers renewable energy programs. See Power Supply and Load Management Resources — Renewable Energy Resources . These changes support the broad electrification and carbon emission reduction efforts in other sectors of the economy. There are inherent challenges each year in both operations and asset changes. TVA will not sacrifice reliability at any time, which means that TVA must make certain operational decisions at times to keep the system reliable, possibly impacting annual performance on carbon emissions. Therefore, while TVA continues to strive to lower GHG emissions, there will be fluctuations in TVA’s emission numbers resulting from changes in the power supply mix, weather impacts, economic conditions, and generating unit performance. As TVA evolves its generation portfolio, and after appropriate environmental review under NEPA, the TVA Board could make decisions about the timing, retirement, and replacement of aging fossil units or other expiring capacity, which may further TVA’s CO 2 and other emissions reductions. The Environmental Policy also provides additional direction in several environmental stewardship areas related to reducing environmental impacts on the Tennessee Valley's natural resources, including reducing carbon intensity and air emissions. Renewable/Clean Energy Standards Thirty-eight states and the District of Columbia have established enforceable or mandatory requirements for electric utilities to generate a certain amount of electricity from renewable sources or have established a renewable goal. In 12 of those states and the District of Columbia, the requirement is for a 100% clean electricity standard or goal by 2050 or earlier. Two states within the TVA service area, North Carolina and Virginia, have mandatory renewable and clean energy goals that, while not applying directly to TVA, do apply to TVA's LPCs serving retail customers in those states. TVA's policy is to provide compliance assistance to any distributor of TVA power, and TVA is providing assistance to the covered LPCs that sell TVA power in North Carolina. In 2020, Virginia signed into law the Clean Economy Act. This act establishes a mandatory requirement for utilities to generate a certain amount of electricity from renewable sources. At this time, TVA is not impacted by the legislation due to the relatively small amount of electricity that TVA provides in Virginia compared to other utilities. Likewise, the Mississippi Public Service Commission adopted an energy efficiency rule applying to electric and natural gas providers in the state, and TVA is supplying information on participation in TVA's energy efficiency programs to support the covered Mississippi LPCs. Water Quality Control Developments Waters of the United States . In 2015, the EPA and the USACE issued the Clean Water Rule, which redefined waters of the United States ("WOTUS") in the agencies' regulations for the first time since the 1980s and was intended to clarify the regulatory jurisdiction of the EPA and the USACE ("2015 WOTUS Rule"). In April 2020, the USACE and the EPA issued the Navigable Waters Protection Rule ("NWPR"), which established a new regulatory definition of WOTUS and replaced the definition set forth in the 2015 WOTUS Rule. The NWPR was challenged in multiple courts. Two courts vacated the rule; two others declined to vacate it, instead remanding it to the EPA and the USACE. On June 9, 2021, the EPA and the USACE announced their intention to initiate a new rulemaking process to restore the definition of WOTUS that was in place prior to the 2015 WOTUS Rule and to develop a second new rule to establish a new definition of WOTUS. The rule to restore the pre-2015 WOTUS Rule definition was proposed in December 2021, and the EPA has not yet proposed a rule for a new definition of WOTUS. The impact of the rulemaking process cannot be ascertained at this time. Cooling Water Intake Structures. In 2014, the EPA released a final rule under Section 316(b) of the CWA relating to cooling water intake structures ("CWIS") for existing power generating facilities. The rule requires changes in CWIS used to cool the vast majority of coal, gas, and nuclear steam-electric generating plants and a wide range of manufacturing and industrial facilities in the U.S. The final rule requires CWIS to reflect the best technology available ("BTA") for minimizing adverse environmental impacts, primarily by reducing the amount of fish and shellfish that are impinged or entrained at a CWIS. These new requirements will potentially affect a number of TVA's fossil- and nuclear-fueled facilities and will likely require capital upgrades to ensure compliance. Most TVA facilities are projected to require retrofit of CWIS with "fish-friendly" screens and fish return systems to achieve compliance with the new rule. The rule is being implemented through permits issued under the National Pollutant Discharge Elimination System ("NPDES") in Section 402 of the CWA. State agencies administer the NPDES 31 Table of Contents permit program in most states including those in which TVA's facilities are located. In addition, the responsible state agencies must provide all permit applications to the U.S. Fish and Wildlife Service for a 60-day review prior to public notice and an opportunity to comment during the public notice. As a result, the permit may include requirements for additional studies of threatened and endangered species arising from U.S. Fish and Wildlife Service comments and may require additional measures be taken to protect threatened and endangered species and critical habitats directly or indirectly related to the plant cooling water intake. TVA's review of the final rule indicates that the rule offers adequate flexibility for cost-effective compliance. The required compliance timeframe is linked to plant-specific NPDES permit renewal cycles (i.e., technology retrofits), and compliance activities have begun and are expected to continue through the 2028 - 2030 timeframe. The EPA has never previously applied the requirements under Section 316(b) to hydroelectric facilities. However, on September 30, 2021, EPA Region 10, which covers an area outside TVA’s service area, issued NPDES permits to four hydroelectric plants that include Section 316(b) requirements. In determining the BTA to minimize adverse impacts on the environment using best professional judgment, Region 10 analyzed the existing controls that the hydroelectric facilities were already implementing and concluded that those controls constitute BTA. It is not clear whether this approach will be adopted nationwide or how the BTA standard would be applied to TVA's hydroelectric facilities; accordingly, the specific impacts to TVA from the Region 10 permits cannot be determined at this time. Hydrothermal Discharges. The EPA and many states continue to focus regulatory attention on potential effects of hydrothermal discharges. Many TVA plants have variances from thermal standards under Section 316(a) of the CWA that are subject to review as NPDES permits are renewed. Specific data requirements in the future will be determined based on negotiations between TVA and state regulators. If plant thermal limits are made more stringent, TVA may have to install cooling towers at some of its plants and operate installed cooling towers more often. This could result in a substantial cost to TVA. Steam-Electric Effluent Guidelines . In 2015, the EPA revised existing steam-electric effluent limitation guidelines ("ELGs"), which regulate water discharge pollutants and require the application of certain pollutant control technologies. The 2015 ELGs established more stringent performance standards for existing and new sources and required major upgrades to wastewater treatment options at all coal-fired plants. Compliance with new requirements was originally required in the CYs 2018 - 2023 timeframe, but the EPA delayed the compliance dates for flue gas desulfurization ("FGD") wastewater and bottom ash transport water until CYs 2020 - 2023 to allow the EPA time to review and potentially revise the ELGs with regard to these waste streams. In October 2020, the EPA issued final revised ELGs for bottom ash transport water and FGD wastewater. The primary impact for TVA is on the operation of existing coal-fired generation facilities. The revised ELGs could impact long-term investment decisions being made relative to the long-term compliance and operability of these plants. The revisions may require TVA to install additional wastewater treatment systems for FGD wastewater and bottom ash transport water, and TVA could incur substantial costs to comply with the new rule. In addition, the revised ELGs could cause TVA to further reduce utilization of its coal-fired generation facilities or even to decommission such facilities. The revision also includes a subcategory for which Cumberland would qualify that provides TVA greater flexibility in meeting the ELGs. The revision includes two additional subcategories for low utilization units and units that cease coal combustion by the end of CY 2028. TVA is evaluating the applicability of those subcategories to its plants as appropriate. In October 2021, TVA filed Notices of Planned Participation preserving the option for TVA's Bull Run, Cumberland, and Kingston plants to participate in the subcategory for units that cease coal combustion by the end of CY 2028. Petitions for judicial review of the October 2020 ELG rule were filed in the D.C. Circuit and the U.S. Court of Appeals for the Fourth Circuit (the "Fourth Circuit") and have been consolidated in the Fourth Circuit in the case Appalachian Voices, et al. v. EPA . On August 3, 2021, the EPA announced a supplemental rulemaking to revise the Steam Electric Power Generating Effluent Limitations Guidelines and Standards. As part of the rulemaking process, the EPA will determine whether more stringent limitations and standards are appropriate and consistent with the technology-forcing statutory scheme and the goals of the CWA. Because this rulemaking could result in more stringent ELGs, the EPA has requested that the Appalachian Voices, et al. v. EPA litigation in the Fourth Circuit be stayed pending the outcome of the supplemental rulemaking process. Consistent with the 2020 rule, on January 8, 2021, TVA submitted requests to state regulatory authorities to modify NPDES permits for Kingston, Cumberland, Bull Run, Shawnee, and Gallatin Fossil Plant ("Gallatin") to incorporate into the permits limitations in the 2020 rule. The Kentucky Department for Environmental Protection issued a final revised permit for Shawnee in the fourth quarter of 2021 and an additional revision in the second quarter of 2022, and the Tennessee Department of Environment and Conservation ("TDEC") issued a final revised permit for Kingston in the first quarter of 2022. TDEC issued a final revised permit for Gallatin in May 2022, and TDEC issued a draft permit for Bull Run in August 2022. TVA anticipates TDEC will issue a draft permit for Cumberland later in 2022. The Sierra Club and the Center for Biological Diversity administratively appealed the NPDES permit issued for Kingston. See Note 21 — Commitments and Contingencies — Legal Proceedings — Administrative Proceeding Regarding National Pollutant Discharge Elimination System Permit for Kingston . Other Clean Water Act Requirements . As is the case in other industrial sectors, TVA and other utilities are also facing more stringent requirements related to the protection of wetlands, reductions in storm water impacts from construction activities, 32 Table of Contents new water quality criteria for nutrients and other pollutants, new wastewater analytical methods, and changes in regulation of pesticide application. Cleanup of Solid and Hazardous Wastes TVA Sites. TVA historical operations at certain facilities have resulted in releases of contaminants that TVA is addressing, including at TVA's Environmental Research Center at Muscle Shoals, Alabama. TVA has completed several removal, remedial, and characterization actions at the site, as required by a RCRA permit issued by the Alabama Department of Environmental Management ("ADEM"). At September 30, 2022, TVA's estimated liability for required cleanup and similar environmental work for those sites for which sufficient information was available to develop a cost estimate was approximately $17 million and was included in Accounts payable and accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheet. TVA has submitted an application for renewal of the RCRA permit. Although the current permit expired on September 27, 2022, ADEM has determined that TVA's permit application is complete, and the current permit will remain in effect until ADEM issues a new permit. Both the renewal process and the resulting renewed permit may include additional mandates for further remedial activities under RCRA's corrective action authorities. TVA has evaluated the potential impact that a permit renewal could have on its operations and does not believe that the renewal will have any adverse impacts at this time. In addition, the Environmental Research Center has an active groundwater monitoring program as part of a permitted corrective action plan. Non-TVA Sites. TVA is aware of alleged hazardous-substance releases at certain non-TVA areas for which it may have some liability. See Note 21 — Commitments and Contingencies — Environmental Matters . Coal Combustion Residuals. The EPA published its final rule governing CCR in 2015. The rule regulates CCR as nonhazardous waste under Subtitle D of RCRA and establishes standards for landfill and surface impoundment placement, design, operation, and closure; groundwater monitoring; corrective action; and post-closure care. While states may adopt the rule's requirements into their regulatory programs, the rule does not require states to adopt the requirements. The initial version of the rule provided for self-implementation by utilities and allowed enforcement through citizen suits in federal court. The Water Infrastructure Improvements for the Nation Act subsequently allowed state or federal-based permitting to implement the EPA's CCR rule instead of self-implementation and citizen suits. In 2020, the EPA issued the final Part A revision to its CCR rule. Among other things, the final Part A rule requires unlined CCR surface impoundments to stop receiving CCR and non-CCR wastestreams and to initiate closure or retrofit by no later than April 11, 2021. TVA ceased sending CCR and non-CCR wastestreams to, and initiated closure of, unlined CCR surface impoundments by the specified deadline. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Coal Combustion Residuals — Coal Combustion Residuals Facilities for a discussion of the impact on TVA's operations, including the cost and timing estimates of related projects. In addition to the requirements of the EPA's CCR rule, CCR landfills and surface impoundments will continue to be regulated by the states. In August 2015, TDEC issued an order that (1) established a process for TDEC to oversee TVA's implementation of the EPA's CCR rule and to ensure coordination and compliance with Tennessee laws and regulations that govern the management of CCR and (2) required TVA to investigate and assess CCR contamination risks at seven of TVA's eight coal-fired plants in Tennessee and to remediate any unacceptable risks. The TDEC order does not allege that TVA is violating any CCR regulatory requirements nor does it assess TVA penalties. The TDEC order sets out an iterative process through which TVA and TDEC will identify and evaluate any CCR contamination risks and, if necessary, respond to such risks. TVA submitted to TDEC an environmental assessment report (“EAR”) for Allen in the fourth quarter of 2021 and an EAR for Cumberland in the third quarter of 2022. At TDEC's request, to address a potential data gap, TVA is conducting additional investigation work at Allen around the West Ash Disposal Area and will submit a revised EAR upon completion of that work. TVA is currently conducting environmental investigations for the remaining five sites in accordance with TDEC-approved Environmental Investigation Plans and will submit EARs to TDEC upon completion of the related investigations. Upon TVA's submittal of each EAR, TDEC will review the document and provide comments, and TVA will make revisions until TDEC approves a final EAR for each site. After the EARs are approved, TVA will submit Corrective Action/Risk Assessment Plans that will identify the unacceptable risks and TVA's proposed remediation. It is too early to accurately predict the scope of any remedial activities that may arise as a result of these pending investigations, and as such cost estimates for any required remedies are not possible to predict at this time. In October 2019, 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. 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. Groundwater Contamination . The EPA, environmental groups, and state regulatory agencies are increasing their attention on alleged groundwater contamination associated with CCR management activities. As a result, TVA may have to change how it manages CCR at some of its plants, potentially resulting in higher costs. See Part II, Item 7, Management's 33 Table of Contents Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Coal Combustion Residuals — Coal Combustion Residuals Facilities and — Allen Groundwater Investigation and Note 13 — Asset Retirement Obligations. Environmental Investments From 1970 to 2022, TVA spent approximately $6.8 billion on controls to reduce emissions from its coal-fired power plants. In addition, TVA has reduced emissions by idling or retiring coal-fired units and relying more on cleaner energy resources including natural gas and nuclear generation. TVA currently anticipates spending significant amounts on environmental projects in the future, including investments in new clean energy generation including renewables to reduce TVA's overall environmental footprint. TVA environmental project expenditures could also result from coal-fired plant decommissioning and from effective ash management modernization. Based on TVA's decisions regarding certain coal-fired units, the amount and timing of expenditures could change. See Power Supply and Load Management Resources — Coal-Fired above and Estimated Required Environmental Expenditures below. SO 2 Emissions and NO x Emissions. To reduce SO 2 emissions, TVA operates scrubbers on 18 of its coal-fired units and switched to lower-sulfur coal at certain coal-fired units. To reduce NO x emissions, TVA operates SCRs on 18 coal-fired units, operates low-NO x burners or low-NO x combustion systems on 21 units, optimized combustion on all 25 units, and operates NO x control equipment year round when units are operating (except during start-up, shutdown, and maintenance periods). TVA has also retired 34 of 59 coal-fired units. Except for seven units at Shawnee, the remaining coal-fired units in the TVA fleet have scrubbers and SCRs. See Power Supply and Load Management Resources — Coal-Fired above. Particulate Emissions. To reduce particulate emissions of air pollutants, TVA has equipped all of its coal-fired units with scrubbers, mechanical collectors, electrostatic precipitators, and/or bag houses. Greenhouse Gas Emissions . Various federal agencies, including the EPA and the Department of Commerce, may issue regulations establishing more stringent air and waste requirements, as well as GHG accounting requirements, and these requirements could result in significant changes in the structure of the U.S. power industry, especially in the eastern half of the country. There could be additional material costs if further reductions of GHGs, including CO 2 , are mandated by legislative, executive, regulatory, or judicial actions and if more stringent emission reduction requirements for conventional pollutants are established. These costs cannot reasonably be predicted at this time because of the uncertainty of these actions. Estimated Required Environmental Expenditures The following table contains information about TVA's current estimates on projects related to environmental laws and regulations. Estimated Potential Environmental Expenditures (1)(2) As of September 30, 2022 (in millions) 2023 2024 2025 - 2027 (3)(4) Total Coal Combustion Residual Program (5) $ 286 $ 382 $ 232 $ 900 Clean Air Act control projects (6) 24 33 71 128 Clean Water Act requirements (7) 78 33 — 111 Notes (1) These estimates are subject to change as additional information becomes available and as regulations change. (2) These estimates include $132 million, $75 million, and $41 million for 2023, 2024, and 2025 - 2027, respectively, in capital environmental expenditures. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Cash Requirements . (3) See Note 21 — Commitments and Contingencies . (4) These estimates do not include expenditures expected to be incurred after 2027. (5) Includes costs associated with the closure of facilities and landfill activities. TVA is continuing to evaluate the rules and their impact on its operations, including the cost and timing estimates of related projects. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Coal Combustion Residuals — Coal Combustion Residuals Facilities and Note 13 — Asset Retirement Obligations. (6) Includes air quality projects that TVA is currently performing to comply with existing air quality regulations, but does not include any projects that may be required to comply with potential GHG regulations or transmission upgrades. (7) Includes projects that TVA is currently planning to comply with revised rules under the Clean Water Act regarding CWIS and ELGs for steam electric power plants. Human Capital Management People Strategy and TVA's Values In 2022, TVA employees kept TVA's mission in focus and continued to create a culture that lives up to TVA's values - Safety, Integrity, Inclusion, and Service - all as pandemic headwinds persisted and as a competition for talent ensued. TVA employees collectively came together to address business needs and enable strong performance while serving the 10 million people of the Tennessee Valley. As part of its People Advantage strategic priority, TVA strives to create a work environment that supports and responds 34 Table of Contents to the changing needs of the workforce. People Advantage is one of TVA's five strategic priorities and a multi-year commitment to evolve TVA's culture. The recent pandemic provided TVA the opportunity to demonstrate the importance of employee health, well-being, and retention by establishing action plans to address vaccine mandates and executive orders. TVA continues to strive to effectively demonstrate the value of its human capital and putting its people first by sustaining and evolving these programs. The focus on People Advantage, along with the other four strategic priorities of Operational Excellence, Financial Strength, Powerful Partnerships, and Igniting Innovation, allows TVA to fulfill its daily mission of service to the people of the Tennessee Valley. TVA's People Advantage priority is anchored on three specific pillars: (1) Inclusion with Diversity ("IwD"), (2) Talent, and (3) Engagement. To help shape an inclusive work environment that values all voices, TVA has intensified its efforts over the past few years to integrate diversity and inclusion into its culture and make its efforts and progress sustainable and a part of TVA's daily operations. Similarly, TVA has promoted a people-focused organization that amplifies and harnesses the energy, power, and creativity of an experienced and talented workforce - one that continues to bring about the best from its people - manifesting itself as a "destination for difference makers" for highly-skilled candidates. TVA is working to cultivate a positive employee experience to heighten workforce engagement. This work is focused on equipping leaders to champion engagement across the enterprise through the understanding and leveraging of employee surveys, workplace flexibility opportunities, and health, safety, and well-being programs. Management illustrates its commitment to human capital by including a safety metric in its incentive compensation metrics that tracks serious injury incident rate and applies to all eligible participants in TVA’s annual program. Compensation derived from this program is based on TVA performance and individual achievements. As a result, success in measures like safety and similar principles grounded in human capital matters helps TVA meet and exceed its goals in workforce engagement. TVA’s transparency in this area was further illustrated by the inaugural release of its Diversity, Equity, Inclusion and Accessibility ("DEIA") report and appointment of its first-ever Chief Diversity and Inclusion Officer to help elevate the importance and visibility of inclusion and diversity both internally and externally. The DEIA report plays a critical role in TVA's ability to achieve its strategic priorities and to meet the objectives laid out by its People Advantage priorities discussed above, which are anchored in the pillars of IwD, Talent, and Engagement. The DEIA report builds upon TVA's transparency efforts by providing valuable insights into DEIA promotion in the workplace and DEIA promotion across the region and communities served. DEIA promotion in the workplace includes the establishment of TVA's first Chief Diversity and Inclusion Officer, IwD Council, Inclusion as a core value, and a dashboard for People Advantage metrics and for the facilitation of Employee Resource Groups ("ERGs") and union partnerships. DEIA promotion across the TVA region and communities served includes Home Uplift, School Uplift, the Community Care Fund, TVA's Supplier Diversity, and Diversity Alliance programs, among others. Ethics Ethics and integrity are highly valued at TVA. Since its establishment in 1933, a commitment to ethics has been a part of TVA's DNA. TVA's Ethics & Compliance office aims to help employees make the right decisions for the right reasons and offers guidance when the right decisions may not be clear. The office is focused on educating and creating awareness while also assisting employees with ethical decision-making inside and outside of the TVA workplace. Further, TVA requires all employees and certain contractors to take its annual ethics training and attest to its Code of Conduct, which sets forth standards for adhering to TVA's core values and conducting its affairs with openness, honesty, and integrity every day. In 2022, TVA contracted with Ethisphere ® to take a deep dive review of TVA's corporate ethics and compliance program. After this review, TVA became the first federal agency to receive the Compliance Leader Verification TM certification. TVA Board Governance and Oversight The TVA Board’s People and Governance Committee ("Committee") assists the TVA Board in fulfilling its responsibilities under the TVA Act by overseeing policies and strategies that affect a wide array of people-related programs inclusive of leadership development, culture, engagement, labor relations, safety, communications, compensation, performance incentives, benefits, and well-being. Specifically, the Committee advises the TVA Board in areas of overall Board governance, CEO goals, performance, compensation, and succession planning. Emergent people issues are discussed by this Committee, or in TVA Board briefings, as appropriate. The TVA Board's Audit, Finance, Risk, and Cybersecurity Committee oversees TVA's compliance and ethics programs. Inclusion with Diversity In 2020, TVA added Inclusion as one of its core values and adopted IwD as an enterprise-wide transformational strategic element. Since then, IwD has become increasingly integrated into TVA’s daily operations. To accelerate the impact of IwD within TVA and the communities it serves, TVA is working to shape an inclusive work environment that values all voices, recognizes and sustains diversity as an imperative, and leverages the public power model to advance IwD in all TVA communities. 35 Table of Contents In 2022, TVA's initiatives and accomplishments in promoting diversity and inclusion included the following: • Appointed TVA’s first Chief Diversity and Inclusion Officer; • Published TVA’s inaugural DEIA Report; • Affirmed a shift in performance goals for management and specialist employees for a second year from an "awareness" of inclusion to an action-oriented "demonstration of behaviors" of inclusion; • Established Inclusion Councils, tasked with developing IwD strategies and plans within each of TVA’s six strategic business units that align with IwD enterprise strategies and plans; • Provided the business case for IwD to leaders, highlighting the proven business value of IwD; • Released a “People Dashboard” to increase transparency into TVA’s progress and performance; • Initiated an independent assessment to identify people policies, processes, programs, and behaviors that could be improved to further drive inclusion and equity across TVA; • Sustained TVA’s inclusion score, which measures sense of belonging, at median of 72; • Created leadership forums for safe and open conversations about diversity and inclusion, including the importance of leader commitment and ownership; and • Maintained CEO accountability for reinforcement of IwD as an enterprise priority through assessment of the CEO’s individual performance in 2022. TVA continues to advance IwD in the communities it serves and is enhancing its economic development program support for women-, minority- and veteran-owned businesses . TVA has established a Supplier Diversity Stakeholder Advisory Council. One of the priorities of the council is the Supplier Diversity Mentoring Program, which is designed to support and position diverse suppliers seeking to do business with TVA. Specific skills enhancements include: inventory management, technology integration, accounting practices, program implementation, and continuous improvement. In addition, TVA has strengthened and focused IwD in the communities TVA serves, as part of advancing the public power model at TVA. This was accomplished through support of TVA’s regional model, community engagement, and focused partnerships with deliberate outreach to LPCs and community-based organizations. Employee Resource Groups. TVA is powered by its people and strengthened by its diversity. TVA supports eight ERGs to help strengthen an inclusive culture and make life better for the people it serves: • ABLED Events — allows TVA employees to bring unique perspectives and gifts together as a united team to celebrate commonalities and differences through "Awareness Benefitting Leaders & Employees about disAbilities" in the workplace. • ACTion — celebrates and honors the many Asian cultures represented within TVA, from Japan to India, and to the Philippines and beyond. It regularly highlights social events and supports career-enriching workshops. • African American Voices — provides an avenue for African American and others interested in fellowship and smart career connections within TVA. It promotes mentoring and development opportunities, as well as group workshop events on such topics as personal branding, personal finance, and networking and negotiation skills. • New Employee Network — makes life easier for new employees entering a large company. It provides organizational information and cross-functional connections not only on the front-end to new employees but throughout an employee’s tenure at the company. • Spectrum — highlights the open, accepting, and safe work environment TVA provides for all employees and focuses increasing visibility on educational and social opportunities on LGBTQ+ issues by offering employees a variety of community and professional networking opportunities within the Tennessee Valley. • TVA & Amigos — provides an avenue for TVA's Hispanic employees and those interested in Latin culture to be involved in professional, educational, and service-oriented events. • TVA Veterans Association — allows employees unique camaraderie opportunities as they support a wide array of local and national ceremonies and events and is one of the oldest and most active resource groups at TVA, with all branches of the military represented. • Women Empowered — supports women at all stages of their careers and advocates for the equal rights of all 36 Table of Contents female employees across TVA. This extends externally as TVA supports inclusion, networking, and developmental opportunities for girls and young women in local communities. Together, TVA and its employees collectively champion personal and professional growth through a network of professional, social, and volunteer opportunities made available by each ERG and TVA’s diverse mix of employees. Talent To bring out the best from its people, TVA utilizes a set of business functions that operate together to address the enterprise’s workforce needs around human capital talent selection, organization, development, engagement, and performance. Attracting and Retaining Talent. TVA is enriched by the diversity of a talented, highly skilled workforce made up of people from all backgrounds. To achieve this, TVA endeavors to ensure that all qualified candidates receive fair consideration for open jobs at TVA and that all employees are encouraged, engaged, and empowered to contribute their talents and time while bringing their authentic selves to work each day. Recruiting efforts also support the strategic element of IwD to build a culture that lives up to TVA's values, as TVA actively recruits employees of all races, colors, sexual orientations, ethnicities, gender identities, abilities, religions, and ages. TVA continues to improve employment opportunities for underrepresented populations within TVA’s workforce, to partner with colleges and universities for internships and recent graduates, and to maintain its status as a top industry employer for military veterans. While TVA’s voluntary attrition rate reflects a slight year-over-year rise, it aligns with TVA’s historical rates over the past several years and further aligns with TVA’s projection for 2023 at 2.4 percent. In addition, the TVA voluntary attrition rate in 2021 and 2022 fell well below the national, utility, and government benchmarks. The stability that results from retaining talent is an area of strength that is critical to TVA’s success. TVA believes this is largely attributable to its People Advantage focus, which includes competitive compensation and comprehensive benefits programs, inclusion and well-being programs, flexible workplace practices, and an environment that promotes the retention of its complex and valuable workforce. Competitive Total Rewards. TVA’s total rewards package is a significant factor in attracting and retaining top talent. TVA’s competitive benefits portfolio supports the values and needs of its employees. TVA provides market-based and competitive compensation which includes an annual incentive plan designed to reward accomplishments against established annual business and individual goals. All eligible employees participate in TVA's annual incentive plan, including TVA's represented employee population. Additionally, in support of its cultural commitment to IwD, TVA periodically reviews compensation practices to promote fairness and equity. TVA has engaged third party vendors to conduct independent pay equity analyses and continues to monitor its pay practices and to provide its leaders with tools to assist in making equitable pay decisions. To support and care for the well-being of employees and their families, examples of comprehensive and competitive benefits currently offered by TVA include: • medical, vision, dental, life, accident, and disability insurance • flexible spending accounts • tuition reimbursement • well-being incentives • employee assistance programs • behavioral and medical telemedicine • 401(k) retirement • family caregiving benefits • leave donation • dependent scholarship program • family building benefits • paid time-off • flexible work schedules • health savings account Development and Training. As TVA continues to adapt to the evolving demands of the industry, it is imperative that it cultivate a work environment that motivates people to do their best work by aligning employee development, skills, and capabilities with what TVA needs to succeed now and in the future. TVA provides multiple training and development opportunities at all employee levels. Those opportunities include: • individual learning-ability • team learning • mentoring • career pathing, including rotational development • professional, technical, and leadership career pathways • over 6,600 on-line learning courses TVA also invests in the development of its employees through tuition reimbursement for academic programs aligned with TVA’s business and workforce development needs. In 2022, employees and contractors engaged in over 738,2 00 hours of training. Leadership Development and Succession Planning. TVA encourages personal and professional development and has strategic leadership development programs designed to prepare employees to step into leadership positions and to accept the 37 Table of Contents additional responsibilities, expectations, and challenges faced by each level of leadership. TVA also has advanced leadership programs designed to further prepare leaders for executive level positions, which require an extensive interview and assessment process for selection. Through TVA’s talent review and succession planning program, 98 percent of director and executive level roles have at least one succession candidate identified, with 94 percent having at least one ready-now succession candidate. Continuous focus on and support of leadership development is maintained through means such as talent discussions at least annually at every level of the organization, which include attention to developing a diverse leadership pipeline. TVA has established goals for female and people of color representation in leadership and plans to update these goals to continuously improve this representation. Engagement Strong engagement levels impact all TVA strategic priorities. TVA's work in this key area is focused on enhancing the people experience by focusing on the whole person, maximizing engagement and organizational performance, equipping leaders to build an engaged workforce, and advancing the environment for active and ongoing communication between employees and leaders. Employee Engagement Survey. TVA’s Employee Engagement Survey is a key tool for understanding and leveraging the employee voice. The survey is administered a minimum of twice annually to all employees and measures overall engagement and drivers of engagement. The survey results provide real-time insights and analytics and are compared to a normative database comprised of other relative external benchmarks to help identify strengths and opportunities for improvement. Results from the surveys are shared with employees and used by TVA leadership and business units to improve and monitor progress against People Advantage objectives. Two scores are used as key People Advantage metrics: Engagement, which measures the sense of commitment and involvement, and Inclusion, which measures the sense of belonging at work. Workplace Flexibility. As part of its People Advantage strategic priority, TVA strives to create a work environment that is welcoming, supportive, and responsive to the changing needs of the workforce. Recognizing the changing work environment, largely fostered by the COVID-19 pandemic, and the strength in performance that was achieved by the workforce in 2021, TVA continued “Reimagining How We Work” with the objective to maximize flexibility and performance. As TVA transitions out of the COVID-19 pandemic, it is exploring how to continue to work effectively and deliver on TVA’s mission of service while providing flexibility to a workforce that includes on-site, field, and hybrid workers. Safety, Employee Health, and Well-being. Safety is one of TVA’s core values. TVA's safety program is based on the fundamentals of a safety management system, which includes management commitment, employee engagement, hazard recognition and control, worksite analysis, contractor safety management, training, review, and continuous improvement. TVA’s safety training aims to educate employees on the elements of the safety program and foster a culture of awareness. In 2022, TVA launched an active shooter training series and enhanced existing programs regarding heat stress and various chemical awareness courses. Employees’ tactical skills and knowledge are enhanced through participation in dynamic learning programs that teach employees how to work together safely. Employee engagement is critical to the success of the program. TVA's vital safety behaviors are employee-driven and developed with the collaboration of represented employees, union leadership, and management. As a federal agency, TVA is also required to complete regulatory compliance inspections of its facilities on an annual basis. In 2022, TVA Safety expanded efforts to recognize safety successes by recognizing contractors for the first time during the TVA Annual Safety Awards. TVA has also focused on engaging with industry leaders and developing internal safety talent through participation in Middle Tennessee Occupational Safety and Health Administration Council, the American Society of Occupational Safety Professional Executive Forum, and Edison Electric Institute, and appointment to the Department of Labor’s Federal Advisory Council on Occupational Safety and Health. TVA has provided support for its employees throughout the pandemic to ensure the retention of valuable talent and to enhance well-being. This support includes implementing emergency back-up care support for child and adult dependents, establishing a mental health advocacy program, providing unlimited Employee Assistance Program sessions, enhancing paid leave, and providing tutoring resources, onsite vaccination clinics, and wellness incentives for vaccinations. TVA’s safety and well-being accomplishments in 2022 include a focus on psychological safety to enable a deeper understanding of how TVA’s response to failure directly impacts employees and their ability to learn and improve, being a recipient of the Meritorious Award for work associated with the Middle Tennessee Federal Field Health and Safety Council, and maintaining top quartile serious injury performance. Partnerships with Unions. TVA has a long-standing policy of acknowledging and working with recognized representatives of its employees, and that policy is reflected in long-term agreements to recognize the unions (or their successors) that represent TVA employees. TVA’s labor construct is complex and unique. Primarily governed by the TVA Act, its labor population is different from private utility peers, with an influence that has the ability to reach national levels. Neither the federal labor relations laws covering most private sector employers, nor those covering most federal agencies, apply to TVA. 38 Table of Contents TVA’s labor strategy is critical to the achievement of its strategic priorities as it prepares the workforce for the future. Its employees and contractors are represented by seven collective bargaining agreements and a total of 17 labor unions. This reflects 58 percent of TVA’s workforce, or approximately 6,000 employees. TVA’s partnerships with these unions go back more than 80 years and form the backbone of TVA and its ability to serve the people of the Tennessee Valley. Recent accomplishments to strengthen the relationship between TVA and its labor unions include integrating union partners in TVA’s comprehensive workforce optimization strategy, in alignment with operational and asset transition strategies that position TVA to meet strategic imperatives over the next decade; renewing the Collective Bargaining Agreement between TVA and the Engineering Association ("EA") through September 2024; establishing the Professionalism, Integrity, Excellence, Relationships, and Service team, which is a union-led partnership between the EA and TVA focused on enterprise issues that could be solved by leaders and employees; and collaborating with union partners in support of “We Work Everywhere to Serve” to provide structured flexibility to TVA’s leaders and represented employees in how employees work. Awards Awards and other recognition help TVA understand its strengths, identify opportunities for improvement, bolster employee pride, and better attract and retain diverse talent. 2022 TVA recognition included: • 2022 – Ethisphere ® Compliance Leader Verification TM – first federal agency to receive certification • Chief Learning Officer – 2022 Learning Elite Bronze • Urban League of Greater Chattanooga, Inc. – Inclusion by Design Award • 2022 Diversity Impact Award – Top 10 Diversity Action Award • 2022 VETS Indexes Employer Awards – VETS Indexes 5 Star Employer • 2022 National Organization on Disability – Leading Disability Employer • 2022 Military Friendly ® Employers – Ranked No. 3 • 2022 Forbes List of America's Best Employers by State – Ranked Top 15 in Tennessee for Fourth Consecutive Year • 2022 Military Friendly ® Supplier Diversity Program Award – Ranked No. 1; Top 10, three years in a row • One of the largest U.S. Contributor to Helmets to Hardhats Program • 2022 DiversityInc’s – Top Companies for Utilities Award – Ranked No. 4 Key Metrics TVA actively monitors internal metrics to remain aware of human capital trends and to strive to ensure that it is making measurable progress on its People Advantage objectives. Through monitoring sources such as data and performance dashboards, one-on-one engagements between leaders and employees, and engagement surveys, TVA obtains information that helps it understand its performance and make adjustments, as needed. Key measures of success in TVA’s People Advantage strategic priority are set forth below: Goal Actual Performance Measure 2023 2022 2021 People of color representation in leadership (%) (1) 11.0 % 10.4 % 9.6 % Female representation in leadership (%) (1) 20.0 % 19.2 % 18.0 % Diverse external hires (%) (2) 40.0 % 41.4 % 39.4 % Voluntary attrition (%) (3) 2.4 % 2.4 % 1.5 % Engagement (100-point scale) (4) Top Quartile (≥79) 81 82 Inclusion (100-point scale) (5) Median (≥72) 72 74 Recordable injuries (#) (6) 32 54 30 Serious injury incident rate (7) 0.00 0.02 0.03 Serious injury incidents (7) 0 2 3 Ethics violations 0 28 33 39 Table of Contents Notes (1) Defined as first line supervisors and above. (2) Defined as external hires who are female, persons of color, and persons with disabilities. (3) Voluntary Attrition measures and accounts for all employees who leave the business voluntarily during a fiscal year. The slight increase in voluntary attrition rates from 2021 to 2022 still aligns with historical TVA rates and remains significantly below those of the greater external market. (4) Based on score from Employee Engagement Survey defined as degree to which employees invest their cognitive, emotional, and behavioral energies toward positive organizational outcomes. The score of 82 reported in TVA’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021, was based on results from a February 2021 survey instead of results received later from a September 2021 survey (79). Benchmark data is provided by the third party administer of the survey, based on data collected from over 750 organizations. Benchmarks are updated at least annually using data from the previous 12-month period. (5) Based on score from Employee Engagement Survey defined as the degree to which employees sense they belong at work. The score of 74 reported in TVA’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021 , was based on results from a February 2021 survey instead of results received later from a September 2021 survey (72). Benchmark data is provided by the third party administer of the survey, based on data collected from over 750 organizations. Benchmarks are updated at least annually using data from the previous 12-month period. (6) Retroactive cases may affect annual recordable injury counts as reported. The final number for 2021 reflects an adjustment from 29 to 30 due to a retroactive case submitted after filing the 2021 Annual Report. (7) Based on the Edison Electric Institute criteria developed by industry peers. Workforce Demographics Employee Demographics 2022 2021 Number of employees on September 30 10,390 10,192 Employees represented by collective bargaining unit 58% of employees represented, or approximately 6,000 employees 60% of employees represented, or approximately 6,000 employees Trades and labor employees 3,198 3,261 Average tenure (years) 13 13 Average age 45.7 44.1 All Employees Leadership New Hires 2022 2021 2022 2021 2022 2021 Female 2,159 2,076 288 270 276 211 People of Color 1,227 1,146 156 143 186 122 Military, Veteran 1,822 1,822 315 318 122 107 Disabled 773 779 114 112 38 24 Note All data is based upon self-reported information provided to TVA. In addition to the employees above, TVA also had approximately 16,200 and 15,500 contractors on September 30, 2022 and 2021, respectively, providing intermittent or full-time services. The majority of these contractors are managed by TVA suppliers that are providing services to TVA. ITEM 1A. RISK FACTORS The risk factors described below, as well as the other information included in this Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (the "Annual Report"), should be carefully considered. Risks and uncertainties described in these risk factors could cause future results of TVA operations to differ materially from historical results as well as from the results anticipated in forward-looking statements. Although the risk factors described below are the ones that TVA considers material, additional risk factors that are not presently known to TVA or that TVA presently does not consider material may also impact TVA's business operations. See Forward Looking Information above for a description of some matters that could affect the below risks or generate new risks. The occurrence of any of the following could have a material adverse effect on TVA's cash flows, results of operations, or financial condition. For ease of reference, the risk factors are presented in nine categories: (1) operational risks; (2) regulatory, legislative, and legal risks; (3) cybersecurity risks; (4) financial, economic, and market risks; (5) human capital and management risks; (6) risks related to the environment and catastrophic events; (7) accounting and financial reporting risks; (8) COVID-19 related risks; and (9) general risk factors. OPERATIONAL RISKS TVA may incur delays and additional costs in its major projects or may be unable to obtain necessary regulatory approval for them. Among other projects, TVA is seeking to improve the reliability and resiliency of its transmission system, undertaking repairs at certain hydroelectric facilities and dams, building natural gas-fired facilities, and closing some coal-fired plants and their supporting infrastructure. These activities involve risks of overruns in the cost of labor and materials, as well 40 Table of Contents as potential delays, in beginning or completing these repairs, closures, or other projects. Further cancellation or delay of projects related to these activities may adversely affect TVA's cash flows, financial condition, and results of operations. Such cancellation or delays may result from, among other things, changes in market conditions, changes in laws or regulations, lack of productivity, human error, supply chain challenges, and the failure to schedule activities properly, TVA's inability to obtain the necessary regulatory approvals or licenses, TVA's decision to cancel construction of a facility or cancel another type of project, including due to delays, cost overruns, or changes in customer preferences, or changes in requirements applicable to how TVA conducts construction, repair, or closure activities. Further, if projects are not completed according to specifications, TVA may suffer, among other things, delays in receiving licenses, reduced plant efficiency, reduced transmission system integrity and reliability, and higher operating costs. TVA faces certain risks arising solely from its operation of nuclear units. TVA has seven operating nuclear units. Unique risks associated with these units include the following: Hazard Risks . Hazards exist with the use of radioactive material in energy production, including management, handling, storage, and disposal. Further, a nuclear incident at one of TVA's facilities could have significant consequences including loss of life, damage to the environment, damage to or loss of the facility, and damage to non-TVA property. Although TVA carries certain types of nuclear insurance, the amount that TVA is required to pay in connection with a nuclear incident could significantly exceed the amount of coverage provided by insurance. The licensee of each nuclear reactor has a contingent obligation to pay a retrospective premium, equal to its proportionate share of the loss in excess of the primary level, regardless of proximity to the incident of fault, up to a maximum of approximately $138 million per reactor, per incident. With TVA's seven reactors, the maximum total contingent obligation per incident is $963 million. This retrospective premium is payable at a maximum rate currently set at approximately $20 million per year, per incident, per reactor. In addition, following an incident TVA may have to pay retrospective insurance premiums, and may experience a reduction in the availability of nuclear insurance, an increase in the cost of nuclear insurance, an increase in the costs of operating nuclear units, or increased regulation or restrictions on the construction, operation, and decommissioning of nuclear facilities. Moreover, federal legislation could impose revenue-raising measures on the nuclear industry to pay claims exceeding the limit for a single incident under the Price-Anderson Act. Further, the availability or price of insurance may be impacted by TVA's acts or omissions, such as a failure to properly maintain a facility, or events outside of TVA's control, such as an equipment manufacturer's inability to meet a guideline, specification, or requirement. Decommissioning Costs . TVA maintains a Nuclear Decommissioning Trust ("NDT") for the purpose of providing funds to decommission its nuclear facilities. The NDT is invested in securities generally designed to achieve a return in line with overall equity and debt market performance. See Note 16 — Fair Value Measurements — Investment Funds for the NDT balance at September 30, 2022 . TVA might have to make unplanned contributions to the NDT if, among other things: • The value of the investments in the NDT declines significantly or the investments fail to achieve the assumed real rate of return; • The decommissioning funding requirements are changed by law or regulation; • The assumed real rate of return on plan assets, which is currently five percent, is lowered by the TVA Board or the actual real rate of return does not achieve the assumed rate; • The actual costs of decommissioning are more than planned; • Changes in technology and experience related to decommissioning cause decommissioning cost estimates to increase significantly; • TVA is required to decommission a nuclear plant sooner than it anticipates; or • The NRC guidelines for calculating the minimum amount of funds necessary for decommissioning activities are significantly changed. If TVA were to have to make additional contributions to the NDT, the contributions may negatively affect TVA's cash flows, results of operations, and financial condition. Increased Regulation . The NRC has broad authority to adopt regulations related to the licensing, operating, and decommissioning of nuclear generation facilities and may adopt regulations as a result of events that occur at nuclear facilities in the U.S. or throughout the world, such as the events that occurred at Fukushima in 2011. These regulations can result in significant restrictions or requirements on TVA. For example, supplementary NRC rulemaking has been developed to mitigate beyond-design basis flooding and seismic events. To comply with existing, new, or modified regulations, TVA may be required to make substantial capital expenditures at its nuclear plants or make substantial contributions to the NDT. In addition, if TVA were to fail to comply with requirements promulgated by the NRC, the NRC has the authority to impose fines, shut down units, or modify, suspend, or revoke TVA's operating licenses. 41 Table of Contents Waste Disposal. TVA's nuclear operations produce various types of nuclear waste materials, including spent fuel. TVA has been storing the spent fuel in accordance with NRC regulations in anticipation that a final storage site for all such waste will be developed and put in operation by the U.S. government. If no such site is forthcoming or if no alternative disposal or reuse plan were developed, then TVA might be required to arrange for the safe and permanent disposal of the spent fuel itself. Such a requirement would cause TVA to incur substantial expense, including substantial capital expenditures, and could cause TVA to change how it operates its nuclear plants. Availability of Components. Nuclear facilities require specialized components and access to intellectual property for operation. As the number of reliable suppliers of such components decreases and access to intellectual property is reduced, the availability of the components and access to the intellectual property also will likely decrease. If TVA were unable to secure either the original components, intellectual property, or replacements approved for use by the NRC, TVA might have to change how it conducts its operations, which may result in substantial expense. Further, limitations on global trade resulting from COVID-19 or limitations on global shipping could materially decrease the availability or increase the cost of necessary or desired equipment. TVA may not be able to operate one or more of its nuclear power units. If operating issues were to develop with certain TVA nuclear power units that were not correctable, TVA may choose to shut down one or more units or be ordered to do so by the NRC. Returning the unit(s) to operation could be a lengthy and expensive process, or might not be feasible depending on circumstances. In either case, TVA's cash flows, results of operations, financial condition, and reputation may be negatively affected. As discussed below, TVA may retire certain fossil fuel facilities to achieve carbon reduction aspirations, which will likely cause TVA to be more reliant on nuclear generation. Further, as discussed below, not being able to operate all of TVA's nuclear units may cause TVA to rely more on forms of generation that produce more carbon, thus making it more difficult for TVA to meet its carbon reduction aspirations or meet reliability goals. TVA's management and operation of CCR facilities expose it to additional costs and risks. TVA operates coal-fired units which produce CCR as byproducts of the power production process. TVA contains its CCR in dedicated facilities operated by TVA. TVA has closed some of these facilities and is in the process of closing others. Many of these facilities do not have liners, as they were constructed prior to the requirement that such facilities be built with liners. TVA has been ordered by TDEC to undertake investigations at all CCR facilities in Tennessee. TVA has also been involved in litigation related to certain CCR facilities, and to resolve one such lawsuit, TVA agreed to remove or beneficially reuse some CCR material at Gallatin Fossil Plant ("Gallatin"). TVA could be subject to similar litigation or orders in the future and could be required to restrict or stop the use of some or all CCR facilities that were not required to be closed by the CCR Rule or relocate CCR material to lined facilities. Further, TVA has decided to move all CCR material at Allen Fossil Plant rather than closing the CCR facilities in place as originally planned, and moving the CCR material subjects TVA to additional costs and transportation-related risks. TVA may change its closure plans at other facilities depending on the particular facts of each situation, subject to the completion of any required environmental investigations or studies and any required approval of appropriate state regulators. The ultimate resolution of matters relating to CCR obligations could have a material adverse effect on TVA's cash flows, results of operation, and financial condition. Physical attacks, threats, or other interference may damage or interfere with TVA's facilities and operations. TVA has an extensive generation and transmission system and supporting infrastructure that includes, among other things, TVA's generation facilities and transmission infrastructure such as substations, towers, and control centers. Some of TVA's hydroelectric facilities include navigation locks for commerce along the Tennessee River system. TVA also operates flood control dams and supporting infrastructure. Because of TVA's status as a government corporation and TVA's role as predominantly the sole power provider for its service territory, individuals, groups, or nation states may target TVA with physical attacks or threats of such attacks. Although TVA's operations are protected by automated monitoring systems, designated TVA business units (TVA Police and Emergency Management), TVA employees, local law enforcement, or a combination thereof, it may not be possible to effectively deter or prevent such attacks. These attacks could pose health and safety risks, significantly disable or destroy TVA assets, interfere with TVA's operations, result in additional regulatory or security requirements, and otherwise negatively affect TVA's cash flows, results of operations, and financial condition. TVA's assets or their supporting infrastructure may not operate as planned. Many of TVA's assets, including generation, transmission, navigation, and flood control assets, have been operating for several decades and have been in nearly constant service since they were completed. As such, they require regular maintenance, repair, and replacement in order to continue uninterrupted operation. Additionally, certain of TVA's newer assets utilize advanced technology that could experience technical or operating issues. The failure of TVA's assets or supporting infrastructure, including information technology systems, to perform as planned may cause health, safety, or environmental problems and may even result in events such as the failure of a dam, the inability to maintain a reservoir 42 Table of Contents at the normal or expected level, or an incident at a coal-fired, gas-fired, or nuclear plant or a CCR facility. If these assets or their supporting infrastructure were to fail to operate as planned, if necessary repairs or upgrades were delayed or could not be completed as quickly as anticipated, or if necessary spare parts were unavailable, TVA, among other things: • May have to invest a significant amount of resources to repair or replace the assets or the supporting infrastructure; • May have to remediate collateral damage caused by a failure of the assets or the supporting infrastructure; • May not be able to maintain the integrity or reliability of the transmission system at normal levels; • May have to operate less economical sources of power; • May have to purchase replacement power on the open market at prices greater than its generation costs; • May be required to invest substantially to meet more stringent reliability standards; • May be unable to maintain insurance on affected facilities, may be required to pay higher premiums for coverage, or may have to make certain repairs or upgrades to maintain insurance or to avoid higher premiums; • May be unable to operate the assets for a significant period of time; and/or • May not be able to meet its contractual obligations to deliver power. Any of these potential outcomes may negatively affect TVA's cash flows, results of operations, financial condition, and reputation. TVA's operations present significant safety risks that are not able to be completely eliminated. TVA's safety program, no matter how well designed and operated, may not completely prevent accidents. In addition to the potential human cost of accidents, which could include injury to employees or members of the public, significant accidents could impact TVA's ability to carry out operations, cause it to shut down facilities, subject it to additional regulatory scrutiny, expose it to litigation, damage its reputation, interfere with its ability to attract or retain a skilled workforce, or harm its financial condition. TVA's service reliability could be affected by problems at other utilities or at TVA facilities, or by the increase in intermittent sources of power. TVA's transmission facilities are directly interconnected with the transmission facilities of neighboring utilities and are thus part of the larger interstate power transmission grid. Certain of TVA's generation and transmission assets are critical to maintaining reliability of the transmission system. Additionally, TVA uses certain assets that belong to third parties to transmit power and maintain reliability. Accordingly, problems at other utilities as well as at TVA's facilities may cause interruptions in TVA's service to its customers, increase congestion on the transmission grid, or reduce service reliability. The increasing contribution of intermittent sources of power, such as wind and solar, as well as the retirement of coal-fired plants, may place additional strain on TVA's system, and additional transmission upgrades may be required to maintain reliability. Upgrades may include enhancements to existing lines and substations or new installations as necessary to provide adequate power transmission capacity, maintain voltage support, and ensure generating plant and transmission system stability. TVA's supplies of fuel, purchased power, or other critical items may be disrupted or obtained at a higher cost than planned. TVA purchases coal, uranium, natural gas, fuel oil, and electricity from a number of suppliers. TVA contracts for conversion of uranium into nuclear fuel and purchases other items, such as anhydrous ammonia, liquid oxygen, or replacement parts that are critical to the operation of certain generation assets. TVA also purchases power from other power producers when the purchase of such power is appropriate due to economic opportunities or operational concerns. TVA's reliance on purchased power may increase if the demand for power suddenly increases in TVA's service territory, and purchased power may become more costly, or perhaps be unavailable, if the demand for power also increases in surrounding service territories. The spike in natural gas prices in 2022 is a recent example of how external factors beyond TVA's control may significantly and unexpectedly increase the cost of an essential fuel resource. Examples of circumstances that may disrupt, or materially increase the cost of, the future delivery of fuel, purchased power, contracted services, or other critical supplies include but are not limited to physical attacks or cyber attacks; political developments, international trade restrictions or tariffs, or legal actions; mine closures or reduced mine production; increase in demand for power by other power systems which reduces the amount of power that is available for purchase by TVA; increases in fuel exports; environmental regulations affecting TVA's suppliers; or transportation or delivery constraints, including the failure of suppliers to timely deliver the services or supplies to TVA at budgeted costs due to force majeure events, shortages of raw materials, supply chain difficulties, increased cost of components and labor, availability of personnel being impacted by COVID-19, strikes, inflation, or similar events. If one of TVA's suppliers were to fail to perform under the terms of its contract with TVA, TVA might have to purchase replacement fuel, power, or other critical supplies, perhaps at a significantly higher price than TVA is entitled to pay under the contract. In some circumstances, TVA may not be able to recover this difference from the supplier. In 43 Table of Contents addition, any disruption of TVA's supplies could require TVA to operate higher cost generation assets, thereby negatively affecting TVA's cash flows, results of operations, and financial condition. Moreover, if TVA were unable to acquire enough replacement fuel, power, or supplies, or were to have insufficient reserves to offset the loss, TVA may not be able to operate certain assets in the manner TVA determines is in its best interests or provide enough power to meet demand. As a result, power curtailments, brownouts, or even blackouts could occur. Circumstances may arise that result in TVA changing its mix of generation assets. TVA has determined that its power generation assets should consist of a mix of nuclear, coal-fired, natural gas-fired, and renewable power sources, including hydroelectric. In making this determination, TVA took various factors into consideration, including the anticipated availability of its nuclear units, the availability of non-nuclear facilities, the forecasted cost of natural gas and coal, the forecasted demand for electricity, achievement of its carbon reduction aspirations, and environmental compliance including the expense of adding air pollution controls to its coal-fired units. If any of these assumptions materially change or are impacted by subsequent events, TVA's generation mix may not address its operational needs in the most efficient and cost-effective manner. Additionally, reallocating the mix of power generation assets from the planned mix may result in additional capital and operational expense. Furthermore, achieving TVA's carbon reduction aspirations may require TVA to make significant capital investments, including investments in new technologies. TVA may retire coal-fired and natural-gas fired generation facilities sooner than planned in order to meet carbon reduction aspirations, which also may require significant capital expenditures or additional power purchases, potentially causing an adverse effect on TVA's cash flows, results of operations, financial condition, and reputation. TVA may not be able to meet its carbon reduction aspirations, which may result in additional capital expenditures or higher operating expense. The achievement of TVA's carbon reduction aspirations is subject to numerous risks beyond TVA's control that are difficult to predict and may prevent TVA from timely achieving such aspirations. Occurrences that may prevent TVA from achieving its carbon reduction aspirations in a timely manner include, but are not limited to, the following: • Federal law or policy could restrict TVA's ability use natural gas or nuclear power, which are each essential for TVA to reduce its carbon emissions. • TVA may not receive timely approval from federal and state regulators for construction and operation of new natural gas assets and attendant infrastructure (e.g., pipelines). • TVA may have difficulty obtaining resources or labor needed to complete projects on time and within budget. • Legal challenges may slow or restrict TVA's ability to replace coal generation with cleaner forms of energy. These challenges may, for instance, come in the form of direct legal challenges to TVA projects or through challenges to TVA's attempts to obtain necessary licenses and permits. • Potential delays in projects, along with now-anticipated load growth, may force TVA to rely on coal powered generation more heavily, or longer, than it had previously projected. • As to TVA's longer term carbon reduction aspirations, the development of new technology necessary to meet these aspirations may not occur as quickly, feasibly, or cost-effectively as necessary. • TVA's unique federal least-cost planning obligations may prevent TVA from moving forward with carbon-free generation as quickly as utilities that do not have the same requirements. REGULATORY, LEGISLATIVE, AND LEGAL RISKS Existing laws, regulations, and orders may negatively affect TVA's cash flows, results of operations, and financial condition, as well as the way TVA conducts its business. TVA is required to comply with comprehensive and complex laws, regulations, and orders. The costs of complying with these laws, regulations, and orders are substantial, and costs could be significantly more than TVA anticipates, especially with respect to environmental and nuclear compliance. In addition, TVA is required to obtain numerous permits and approvals from governmental agencies that regulate its business, and TVA may be unable to obtain or maintain all desired regulatory approvals. If there were a delay in obtaining desired regulatory approvals or if TVA were to fail to obtain or maintain any approvals or to comply with any law, regulation, or order, TVA may have to change how it operates certain assets, may be unable to operate certain assets, or may have to pay fines or penalties for continuing to operate the assets. TVA's quasi-governmental status may interfere with its ability to quickly respond to the needs of its current or potential customers or to act solely in the interest of its ratepayers. As a quasi-governmental entity, TVA has certain legal requirements that prevent it from responding as quickly to potential changes in the market or requests from current or potential customers as might be desired or in comparison to other utilities. For example, TVA is required to comply with the National Environmental Policy Act ("NEPA"), which 44 Table of Contents requires environmental reviews to be performed in connection with certain projects. The delay in responding to requests could damage relationships with current customers, deter potential customers from moving into TVA's service territory, or damage TVA's reputation. TVA's nature as a quasi-governmental entity imposes additional pressures that most companies do not face, including most significantly the requirements to support economic development, simultaneously manage a river system for commerce, recreation, flood control, and power generation, and promote recreational opportunities within its service territory. TVA funds these operations almost entirely from the sale of electricity. In addition, TVA must balance these obligations with the requirement to provide power at the lowest feasible rates. If TVA does not adequately communicate how it fulfills its various missions and the value it provides, its reputation may be harmed, which may result in political pressure to change its nature or operations as well as in the loss of public support. TVA is involved in various legal and administrative proceedings, the outcomes of which may affect TVA's finances and operations. TVA is involved in a wide range of legal and administrative proceedings and is likely to become involved in future additional proceedings in the ordinary course of business or as a result of, among other things, catastrophic events or environmental conditions arising from TVA property or areas where TVA has disposed of materials or property. The additional proceedings could involve, among other things, challenges to TVA’s CCR facilities, challenges to TVA's natural gas-fired plants and related pipelines, nuisance suits involving TVA’s coal-fired plants, challenges to the anti-cherrypicking provision, challenges under NEPA, and challenges to TVA’s authority to set rates and enter into contracts. Although TVA cannot predict the outcome of the individual matters in which TVA is involved or will become involved, the resolution of these matters could require TVA to make expenditures in excess of established reserves and in substantial amounts. Similarly, resolution of any such proceedings may require TVA to change its business practices or procedures, incur additional capital or operational expense, change how it operates its fossil-fueled units, cease construction of new natural gas-fired plants, reduce emissions to a greater extent than TVA had planned, close existing CCR facilities sooner than planned, build new CCR facilities sooner than planned, build new CCR facilities that were not planned, cease operation of some coal-fired units, adjust its rates, or terminate or modify contracts. These events individually or in the aggregate could also have a material adverse effect on TVA’s cash flows, results of operations, and financial condition. For a discussion of certain current material legal proceedings, see Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges and Note 21 — Commitments and Contingencies — Legal Proceedings . New laws, regulations, or administrative or executive orders, or congressional actions or inactions, may negatively affect TVA's cash flows, results of operations, and financial condition, as well as the way TVA conducts its business in ways that are different from most other utilities. Because TVA is a corporate agency and instrumentality established by federal law, it may be affected by a variety of laws, regulations, and administrative or executive orders that do not directly apply to other electric utilities. For example, federal legislation may expand or reduce TVA's activities, change its governance structure, require TVA to sell some or all of the assets that it operates, require TVA to take certain other operational or regulatory actions, reduce or eliminate the United States' ownership of TVA, or even liquidate TVA. Congress could act, or fail to take action, on various issues that may impact TVA, including but not limited to action or inaction related to the national debt ceiling or automatic spending cuts in government programs. Furthermore, federal administrative or executive orders could induce TVA to change the way it conducts its business. See Item 1, Business — Environmental Matters — Climate Change — Executive Actions for a discussion of recent executive orders regarding climate change. Although it is difficult to predict new laws, regulations, or administrative or executive orders or congressional action or inaction, or how such laws, regulation, orders, actions, or inactions may impact TVA, some of the possible effects are described below. TVA may lose its protected service territory. TVA’s service area is defined primarily by provisions of law and long-term contracts. The fence limits the region in which TVA or LPCs that distribute TVA power may provide power. The anti-cherrypicking provision precludes FERC from ordering TVA to transmit power for others if that power would be consumed within the TVA service area. State service territory laws limit unregulated third parties’ ability to sell electricity to consumers. From time to time, there have been efforts to circumvent the protection of the anti-cherrypicking provision. For example, in 2021, four LPCs filed a complaint and petition with FERC to order TVA to provide transmission and interconnection service to the LPCs or other suppliers that want to serve them, although three of the four LPCs subsequently withdrew from the complaint and petition. See Note 21 — Commitments and Contingencies — Legal Proceedings — Challenge to Anti-Cherrypicking Amendment . In addition, the protections afforded by the anti-cherrypicking provision conceivably could be affected by future federal legislation. If FERC were to limit the application of the anti-cherrypicking provision or if federal legislation 45 Table of Contents were to eliminate or limit the application of the anti-cherrypicking provision without corresponding legislative modifications to the territorial limitations imposed by the fence, TVA's ability to respond to any resulting customer attrition would be constrained. Because TVA's ability to expand its customer base is constrained by the fence, reductions in demand have to be offset by such actions as reducing TVA’s internal costs or increasing rates. Any failure of such measures to fully offset the reduced demand for power may negatively affect TVA’s cash flows, results of operations, and financial condition. TVA may become subject to additional environmental regulation. New environmental laws, regulations, or orders may become applicable to TVA or the facilities it operates, and existing environmental laws or regulations may be revised or reinterpreted in a way that adversely affects TVA, including substantially increasing TVA's cost of operations, prompting the early retirement of generation facilities, or requiring significant capital expenditures. Possible areas of future laws or regulations include, but are not limited to, GHGs, CCR, ELGs, water quality, renewable energy portfolio standards, and natural gas production and transmission. See Item 1, Business — Environmental Matters — Water Quality Control Developments for a discussion of the EPA's new effluent limitation guidelines, Item 1, Business — Environmental Matters — Cleanup of Solid and Hazardous Wastes — Coal Combustion Residuals for a discussion of recent revisions to the EPA's CCR rule, and Item 1, Business — Environmental Matters — Climate Change — Executive Actions for a discussion of recent executive orders regarding climate change. Litigation may affect the timing and requirements of new regulatory proposals or may indirectly affect TVA, potentially even when TVA is not involved. Failure to comply with environmental requirements can result in enforcement actions and litigation, which can lead to the imposition of significant civil liability, including fines and penalties, criminal sanctions, and/or temporary or permanent closure of non-compliant facilities. TVA may become subject to additional NERC requirements. TVA is subject to federal reliability standards that are set forth by NERC and approved by FERC. TVA recognizes that reliability standards and expectations continue to become more complex and stringent for transmission systems. Complying with these or additional requirements set forth by NERC may require significant capital expenditures and may negatively affect TVA's cash flows, results of operations, and financial condition. TVA could become subject to other federal legislation aimed specifically at curtailing TVA’s activities. In addition to potential adverse impacts from changes to more general laws and regulations, because of TVA’s federal-entity status, TVA could become subject to laws or other restraints specifically aimed at TVA, including but not limited to the following examples. Divestment or Forced Sale of TVA Assets. From time to time, federal officials have suggested that the federal government should either divest TVA or require TVA to sell some or all of its assets, including its transmission system. Either event could trigger change of control provisions in certain material contracts or covenants in TVA’s bond documents that concern the sale or disposal of a substantial portion of TVA’s power properties. TVA may then, among other things, be required to pay off debt more quickly than anticipated, be unable to access credit facilities, or both. Additionally, the loss of the transmission system could interfere with TVA’s operations and require TVA to contract for the transmission of electricity to customers, likely at a higher cost. These factors could negatively affect TVA’s operations, change the way it conducts such operations, and increase costs. Restriction on TVA Accessing or Controlling Its Funds. Other federal entities may attempt to restrict TVA’s ability to access or control its funds that are on deposit in TVA’s account in the U.S. Treasury. For example, should the U.S. Treasury approach its debt ceiling, the U.S. Treasury might, as part of an effort to control cash disbursements, attempt to require TVA to receive approval before disbursement of funds from TVA’s U.S. Treasury account. Additionally, the OMB might, in the event that automatic spending cuts go into effect, attempt to require TVA to reduce its budget by a specified percentage (although the legal applicability of such a situation to TVA would depend upon the specific legislation making the automatic spending cuts). Such attempts to restrict TVA’s ability to control or allocate funds could adversely affect TVA’s cash flows, results of operations, financial condition, business relationships, the way it conducts its business, and its reputation. Loss of TVA’s Sole Authority to Set Rates. Under the TVA Act, the TVA Board has the sole authority to set the rates that TVA charges for electricity, and these rates are not subject to further regulation. This authority provides the TVA Board the flexibility to set rates at a level sufficient to generate adequate revenues to service TVA’s financial obligations, properly operate and maintain its assets, and provide for reinvestment in its power program. If the TVA Board were to lose this authority, or if such authority were to be restricted, such as through becoming subject to an external review process or other regulatory oversight, such an occurrence could result in material adverse impacts on TVA’s ability to meet financial obligations, operate its system in a manner that it considers most efficient or appropriate, and adapt its business to changing circumstances. 46 Table of Contents Loss of TVA’s Authority to Manage the Tennessee River System. TVA’s management of the Tennessee River system helps TVA effectively operate its power system. TVA’s ability to integrate management of the Tennessee River system with power system operations increases power system reliability and reduces costs. Restrictions on how TVA manages the Tennessee River system could negatively affect its operations or increase costs. Lowering of TVA’s Debt Ceiling . The TVA Act provides that TVA may issue Bonds in an amount not to exceed $30.0 billion outstanding at any time. On September 30, 2022, TVA had $19.3 billion of Bonds outstanding (not including non-cash items of foreign currency exchange gain of $150 million, unamortized debt issue costs of $42 million, and net discount on sale of Bonds of $82 million). Future federal legislation could lower TVA’s debt ceiling or broaden the types of financial instruments that are covered by the ceiling, thus inhibiting TVA’s ability to raise capital necessary for essential business functions or for investing in carbon free technologies. Loss or Limitation of TVA’s Authority to Manage Real Property Currently Entrusted to TVA. TVA’s management of real property containing power generation and transmission structures, as well as that consisting of reservoir shorelines, is important for the effective operation of the power system. Restrictions on or the loss of the authority to manage these properties could negatively affect TVA’s operations or increase costs. CYBERSECURITY RISKS TVA’s facilities and information infrastructure may not operate as planned due to cyber threats to TVA’s assets and operations. TVA’s operations are heavily computerized and include assets such as information technology and networking systems. As with all industries, the reliance on computerization and networking makes TVA a target for cyber attacks, and the risk of such attacks may increase as individual devices and equipment become accessible via the internet. TVA has been targeted by cyber attacks in the past and anticipates that it will be targeted in the future. These attacks may have been carried out, or in the future could be carried out, by individuals, groups, or nation states. Although TVA employs extensive cyber safeguards and works with industry specialists and relevant governmental authorities to deter, stop, or mitigate cyber attacks, it is possible that these measures might not prevent all attacks. Furthermore, as technology becomes more prevalent in energy infrastructure, TVA's infrastructure may be subject to increased cyber vulnerability in the future. Cyber attacks could come through one or more of a number of means, such as computer viruses, malicious or destructive code, phishing attacks, denial of service attacks, or ransomware. Cyber attacks may result in security breaches that may be detrimental to TVA operations, including third parties improperly accessing TVA's system and demanding ransom based on threats to expose sensitive data, including data from employees, customers, and financial parties, to gain operational control, or to expose security vulnerabilities specific to TVA’s facilities. In such a case, a cyber attack could compromise sensitive data, significantly disrupt operations, require additional expenditures for cybersecurity, negatively affect TVA’s cash flows, results of operations, financial condition, and reputation, and pose health and safety risks to TVA personnel and the customers and communities that TVA serves. Because the investigation of any cybersecurity breach is inherently unpredictable and would require substantial time to complete, TVA may not be able to quickly remediate the consequences of any breach, which may increase the costs and enhance the negative consequences associated with a breach. Additionally, the theft, damage, or improper disclosure of sensitive data may subject TVA to penalties and claims from third parties or increased government oversight. Cyber attacks on third parties could interfere with or harm TVA. Many third parties on which TVA relies for services, including for transferring funds to non-TVA entities or receiving delivery of products in the ordinary course of business, are heavily computerized and use assets such as information technology and networking systems. If these third parties were to experience interferences from cyber attacks, which attacks have occurred and may continue to occur, the services they provide TVA could be disrupted. This disruption could interfere with TVA’s ability to perform its obligations to others, transfer funds, obtain fuel or critical parts, supplies, or services, or make payments, which in turn could negatively affect TVA’s cash flow, results of operation, financial condition, and reputation. Additionally, the theft, damage, or improper disclosure of sensitive data held by these third parties may subject TVA to further harm. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Safeguarding Assets — Cybersecurity for a discussion of recent cyber attacks on third parties. 47 Table of Contents FINANCIAL, ECONOMIC, AND MARKET RISKS TVA may have to make significant future contributions to fund its qualified pension plan. On September 30, 2022, TVA's qualified pension plan had assets of approximately $8.1 billion compared to liabilities of approximately $10.5 billion. The plan is mature with approximately 22,000 retirees and beneficiaries receiving benefits of over $700 million per year. The costs of providing benefits depend upon a number of factors, including, but not limited to, provisions of the plan; changing experience and assumptions related to terminations, retirements, and mortality; rates of increase in compensation levels; rates of return on plan assets; discount rates used in determining future benefit obligations and required funding levels; optional forms of benefit payments selected; future government regulation; and levels of contributions made to the plan. The pension plan covers substantially all of TVA's full-time annual employees hired prior to July 1, 2014. Although the plan has been frozen to new participants since July 1, 2014, TVA's payment obligation under the pension plan is substantial and changes in any one or more of these factors could cause TVA's benefit expenditures under the plan to increase and significantly exceed TVA's planned contributions. Unfavorable financial market conditions, including those arising from the COVID-19 pandemic, may cause lower-than expected rates of return on plan assets, loss in value of the investments, and lower discount rates used in determining future benefit obligations. These changes would negatively impact the funded status of the plan and may require TVA to make contributions in excess of the amounts planned. Additional contributions to the plan and absorption of additional costs would negatively affect TVA's cash flows, results of operations, and financial condition. TVA’s reliance on debt markets may make TVA more vulnerable to being unable to meet cash requirements than private utilities that can issue equity securities. TVA uses cash provided by operations together with proceeds from power system financings to fund its current cash requirements. TVA's power system financings consist primarily of the sale of Bonds and secondarily of alternative forms of financing, such as lease arrangements. It is critical that TVA continues to have access to the debt markets in order to meet its cash requirements. The importance of having access to the debt markets is enhanced by the fact that TVA, unlike most utilities, relies almost entirely on debt capital, since as a governmental instrumentality, TVA cannot issue equity securities. TVA’s access to the debt markets could be negatively impacted by market disruptions, including disruptions that result from systemic risks to the banking system and the financial markets. Moreover, disruptions resulting from rapid increases in interest rates or expectations for future increases could impact TVA’s ability to raise funds to finance its cash requirements. TVA's debt ceiling could limit TVA's ability to carry out its business in the event that TVA were to approach or reach it. Approaching or reaching the debt ceiling may negatively affect TVA's business by limiting TVA's ability to access capital markets and by increasing the amount of debt TVA must service without new debt capital. This occurrence may restrict TVA's ability to raise debt capital to acquire new power program assets or maintain existing ones, to carry out upgrades or improvements to existing assets or build new ones, to purchase power under long-term power purchase agreements, or to meet regulatory requirements. In addition, approaching or reaching the debt ceiling may lead to increased legislative or regulatory oversight of TVA's activities and could lead to negative rating actions by credit rating agencies. TVA, together with owners of TVA securities, may be impacted by downgrades of TVA's credit ratings. TVA’s current credit ratings are not based solely on its underlying business or financial condition but are based to a large extent on the legislation that defines TVA’s business structure. Key characteristics of TVA’s business defined by legislation include (1) the TVA Board's ratemaking authority; (2) the current competitive environment, which is defined by the fence and the anti-cherrypicking provision; and (3) TVA’s status as a corporate agency and instrumentality of the United States. If Congress takes any action that effectively alters any of these characteristics, TVA's credit ratings could be downgraded. Although TVA Bonds are not obligations of the United States, TVA, as a corporate agency and instrumentality of the United States, may be impacted by a downgrade of the United States’ sovereign credit ratings. Such a downgrade could, among other things, lead to a downgrade of TVA’s credit rating. Additionally, future events that may negatively impact TVA’s financial condition or reputation, including those discussed elsewhere in these Risk Factors, may lead to downgrades of TVA’s credit ratings, and the criteria used by the credit rating agencies to assign ratings could be changed at any time, which could result in changes to TVA’s ratings. Downgrades of TVA’s credit ratings may have material adverse effects on TVA’s cash flows, results of operations, and financial condition, as well as on investors in TVA securities. Among other things, a downgrade could increase TVA’s interest expense by increasing the interest rates that TVA pays on new debt securities that it issues. Such an increase may reduce the amount of cash available for other purposes, which may require TVA to borrow more, to reduce other expenses or capital investments, or to increase power rates. A downgrade may also result in TVA’s having to post collateral under certain physical and financial contracts that contain ratings triggers. A downgrade below a contractual threshold may specifically prevent TVA from borrowing under four credit facilities totaling $2.7 billion or posting letters of 48 Table of Contents credit as collateral under these facilities. As of September 30, 2022, there were $704 million of letters of credit outstanding under these facilities. If TVA were no longer able to post letters of credit as collateral, TVA would likely have to post cash as collateral, which would negatively affect TVA’s liquidity. Further, a downgrade may lower the price of TVA securities in the secondary market, thereby negatively impacting investors who sell TVA securities after the downgrade and diminishing the attractiveness and marketability of TVA securities in the secondary market and for new TVA debt securities. TVA relies on certain assumptions about the future that may turn out to be inaccurate. TVA uses certain assumptions that are presently justifiable in order to develop its plans for the future. Such assumptions include economic forecasts, anticipated energy and commodity prices, cost estimates, construction schedules, power demand forecasts, the appropriate generation mix to meet demand, and potential regulatory environments. Should these assumptions be inaccurate, or be superseded by subsequent events, TVA's plans may not be effective in achieving the intended results. This situation could negatively affect cash flows, results of operations, and financial condition, as well as TVA's ability to meet electricity demand and the way TVA conducts its business. Demand for electricity may significantly decline or change, negatively affecting TVA's cash flows, results of operations, and financial condition. The fence limits the area in which TVA or LPCs that distribute TVA power may provide power. Accordingly, TVA is limited in its ability to replace or attract new customers to offset reduced demand for electricity among its existing customers. Some of the factors that could reduce or change the demand for electricity include, but are not limited to, the following: Economic Downturns or Recessions . The economic wake of the COVID-19 pandemic, as well as geopolitical developments involving Russia and/or China, could have adverse effects on the U.S. and global economies that may indirectly impact TVA’s financial condition and results of operations due to the nature of TVA’s business. • Renewed economic downturns or a recession in TVA’s service area or other parts of the United States could reduce overall demand for power and thus reduce TVA’s power sales and cash flows, especially if TVA’s industrial customers were to reduce their operations and thus their consumption of power. • TVA could be further adversely affected by a downturn in the economy and financial markets, including differences in the recovery of specific economic sectors or regions of the Tennessee Valley and continued volatility in interest rates, commodity prices, investment performance, and foreign currency exchange rates. • An extended slowdown in the recovery of the United States’ economic growth, changes in the demand for commodities, or material changes in governmental policy could result in lower economic growth and thus lower demand for electricity in TVA’s key markets. • Contractual counterparties could be impaired in their ability to perform their obligations to TVA, or may choose to abandon contracts, which could result in more costly operation of TVA’s facilities. Loss of Customers . TVA could lose customers, particularly LPCs, if customers were to choose another utility to meet some or all of their power needs where available, pursue self-generation to meet some or all of their power needs, or move their operations outside of TVA's service territory. As of November 14, 2022, TVA had wholesale power contracts with 153 LPCs, and 80 LPCs had entered into Power Supply Flexibility Agreements with TVA that allow the LPCs to locally generate or purchase up to approximately five percent of their average total hourly energy sales over a certain time period in order to meet their individual customers' needs. A significant portion of TVA's total operating revenues is concentrated in a small number of these LPCs. In May 2020, MLGW, which is TVA's largest LPC and accounts for nine percent of total operating revenues, published a draft Integrated Resource Plan to guide energy choices in the future, the outcome of which is uncertain. In addition, certain other LPCs are evaluating options for future energy choices. The loss of customers could have a material adverse effect on TVA's cash flows, results of operations, or financial condition, and could result in higher rates, especially because of the difficulty in replacing customers due to the fence. A significant loss of customers could also impact investor confidence, resulting in TVA paying higher rates on its securities. Change in Demand for Electricity Generated from Renewable Sources . TVA has been adapting its generation mix to account for the growing preference for electricity generated by renewable sources, such as solar or wind. Demand by customers for power that is largely or exclusively generated from renewable sources may currently or in the future exceed TVA's ability to produce such power, and TVA might be compelled to change how it operates and may incur additional expense in meeting this demand. Increased Utilization of DER . As the amount of DER grows on the TVA system, the need for TVA's traditional generation resources may be reduced, and the ability of the system to reliably and economically operate in conjunction with these DER may become more challenging. If TVA were unable to compensate for the resulting 49 Table of Contents decrease in demand for TVA electricity, TVA's cash flows, results of operations, and financial condition could be negatively impacted, likely resulting in higher rates and changes to TVA's operations. Increased Energy Efficiency and Conservation . Increasingly efficient use of energy as well as conservation efforts and DER may reduce the demand for power supplied by TVA. Reductions, if TVA is unable to compensate for them by reducing its cost of production of electricity or by increasing rates, could negatively affect TVA's cash flows, results of operations, and financial condition and could result in changes to TVA's operations, especially if the reductions occur during an economic downturn or a period of slow economic growth. In addition, higher rates may lead to further reduced demand through increased conservation efforts and DER. Changes in technology could affect relationships with customers, require TVA to change how it conducts its operations, or impact TVA's financial condition. TVA's primary business is to sell power it produces, for the most part, from large facilities such as nuclear power plants, hydroelectric facilities, natural gas-fired facilities, and coal-fired units. TVA sells power to LPCs and directly served customers. Research and development activities are ongoing to improve existing and alternative technologies to produce or store electricity, including large-scale energy storage, gas or wind turbines, fuel cells, microturbines, solar cells, and distributed energy or storage resources. Advances in these or other alternative technologies could reduce the costs of such production methods to a level that will enable these technologies to compete effectively with traditional power plants such as those used by TVA. These technologies could be more appealing to customers and could lead them to pressure TVA to modify power contracts to allow customers to generate some of their own power requirements or purchase power from other suppliers. Other customers might also cease purchasing power from TVA altogether. To the extent that sales to such customers are reduced or eliminated, TVA's cash flows, results of operations, and financial condition could be negatively affected. TVA could also be required to modify how it operates its traditional plants or further modify its generation mix to reduce reliance on these facilities. Additionally, demand could change in terms of amount or timing as more devices and equipment become connected to the internet, allowing for real-time adjustments in consumption of power. Such increased control over power consumption could, among other things, affect how TVA operates its facilities or dispatches power, or require TVA to change its pricing structure or rates. TVA is subject to a variety of market risks that may negatively affect TVA's cash flows, results of operations, and financial condition. TVA is subject to a variety of market risks, including but not limited to the following: Commodity Price Risk . TVA's rates may increase if prices of commodities critical to operations, including coal, uranium, natural gas, fuel oil, crude oil, construction materials, or emission allowances, were to increase. An increase in rates may reduce demand and negatively impact TVA's cash flows, results of operations, and financial condition. Investment Price Risk . TVA is exposed to investment price risk in its NDT, Asset Retirement Trust ("ART"), Supplemental Executive Retirement Plan ("SERP"), Deferred Compensation Plan ("DCP"), and pension plan. If the value of the investments held in the NDT or the pension fund were to either decrease or fail to increase in accordance with assumed rates of return, TVA may be required to make substantial contributions to these funds. In addition, although TVA is not required to make contributions to the ART, it may choose to do so, particularly if TVA's estimates of its non-nuclear asset retirement obligation liabilities were to increase. TVA may also choose to make contributions to the SERP and DCP from time to time. Interest Rate Risk . Changes in interest rates may, variably, increase the amount of interest that TVA pays on new Bonds that it issues, decrease the return that TVA receives on short-term investments, decrease the value of the investments in the NDT, ART, pension fund, SERP, and DCP, increase the amount of collateral that TVA is required to post in connection with certain of its derivative transactions, increase the losses on the mark-to-market valuation of certain derivative transactions into which TVA has entered, or some combination of these. Counterparty Credit and Performance Risk . TVA is exposed to the risk that its counterparties will not be able to perform their contractual obligations. If TVA's counterparties were to fail to perform their obligations, TVA's cash flows, results of operations, and financial condition may be adversely affected. In addition, the failure of a counterparty to perform may make it difficult for TVA to perform its obligations, particularly if the counterparty were a supplier of electricity or fuel. Currency Exchange Rate Risk . Over the next several years, TVA expects to spend a significant amount of capital on various projects. A portion of this amount may be spent on contracts that are denominated in one or more foreign currencies. TVA's two issues of Bonds denominated in British pounds sterling are hedged by currency swap agreements. The value of the U.S. dollar compared with other currencies has fluctuated widely in recent years, including fluctuations in the U.S. dollar to British pound sterling exchange rate primarily driven by the 50 Table of Contents "BREXIT" vote for the United Kingdom to leave the European Union. If not effectively managed, foreign currency exposure could negatively impact TVA's counterparty risk, cash flows, results of operations, and financial condition. The market for TVA Bonds might be limited. Although many TVA Bonds are listed on stock exchanges, there can be no assurances that any market will develop or continue to exist for any Bonds. Additionally, no assurances can be made as to the ability of the holders to sell their Bonds or as to the price at which holders will be able to sell their Bonds. Future trading prices of Bonds will depend on many factors, including prevailing interest rates, the then-current ratings assigned to the Bonds, the amount of Bonds outstanding, the time remaining until the maturity of the Bonds, the redemption features of the Bonds, the market for similar securities, and the level, direction, and volatility of interest rates generally, as well as the liquidity of the markets for those securities. When a particular series of Bonds is offered through underwriters, those underwriters may attempt to make a market in the Bonds. Dealers other than underwriters may also make a market in TVA Bonds. However, the underwriters and dealers are not obligated to make a market in any TVA Bonds and may terminate any market-making activities at any time without notice. Further, certain investors and underwriters use the environmental impact or sustainability of a company or industry as a criterion for deciding whether to invest in that company or industry. TVA's use of fossil fuels, among other things, could lead such investors or underwriters to not purchase TVA Bonds or reduce the attractiveness of TVA Bonds as compared to other investments, thereby limiting the market for TVA Bonds. In addition, legal limitations may affect the ability of banks and others to invest in Bonds. For example, national banks may purchase TVA Bonds for their own accounts in an amount not to exceed 10 percent of unimpaired capital and surplus. Also, TVA Bonds are "obligations of a corporation which is an instrumentality of the United States" within the meaning of Section 7701(a)(19)(C)(ii) of the Internal Revenue Code for purposes of the 60 percent of assets limitation applicable to U.S. building and loan associations. These limitations on TVA Bond investors also may limit the market for TVA Bonds. Payment of principal and interest on TVA securities is not guaranteed by the U.S government. Although TVA is a corporate agency and instrumentality of the U.S. government, TVA securities are not backed by the full faith and credit of the United States. Principal and interest on TVA securities are payable solely from TVA's net power proceeds. Net power proceeds are the remainder of TVA's gross power revenues after deducting the costs of operating, maintaining, and administering its power properties and payments to states and counties in lieu of taxes, but before deducting depreciation accruals or other charges representing the amortization of capital expenditures, plus the net proceeds from the sale or other disposition of any power facility or interest therein. If TVA were to experience extreme financial difficulty and were unable to make payments of principal or interest on its Bonds, the federal government would not be legally obligated to prevent TVA from defaulting on its obligations. An inability to pay some or all of the principal or interest owed on a TVA security would likely have a negative impact on the market for TVA Bonds generally and TVA's financial condition, reputation, and relationship with the investment community, and could result in cross-defaults in other financial arrangements. HUMAN CAPITAL AND MANAGEMENT RISKS Failure to attract and retain an appropriately qualified, diverse, and inclusive workforce may negatively affect TVA's results of operations. TVA's business depends on its ability to recruit and retain key executive officers as well as skilled professional and technical employees. Labor is subject to external factors that are beyond TVA's control, including the highly competitive market for skilled workers and leaders, inflation, the COVID-19 pandemic, and workforce participation rates. The inability to attract and retain an appropriately qualified, diverse, and inclusive workforce could adversely affect TVA's ability to, among other things, operate and maintain generation and transmission facilities, complete large construction projects, and successfully implement its continuous improvement initiatives. If Congress were to reduce the salary of TVA's CEO or otherwise amend TVA's compensation philosophy, TVA's ability to attract and retain key executives or other employees may be compromised. Loss of a quorum of the TVA Board could limit TVA's ability to adapt to meet changing business conditions. Under the TVA Act, a quorum of the TVA Board is five members. Becoming a member of the TVA Board requires confirmation by the U.S. Senate following appointment by the President. This process has and could again in the future be subject to extended delays. The President may remove TVA Board members, and the TVA Board members may resign or otherwise leave office before a successor is commissioned. As a result, a delay in the appointment or confirmation of directors, or the removal of directors by the President, can threaten the TVA Board's quorum. The TVA 51 Table of Contents Board is responsible for, among other things, establishing the rates TVA charges for power as well as TVA's long-term objectives, policies, and plans. Accordingly, the loss of a quorum for an extended period of time would impair TVA's ability to change rates and to modify these objectives, policies, and plans. Such an impairment would likely have a negative impact on TVA's ability to respond to significant changes in technology, the regulatory environment, or the industry overall and, in turn, negatively affect TVA's cash flows, results of operations, financial condition, and reputation. The TVA Board currently has five members. Changes in the membership of the TVA Board and TVA senior management could impact how TVA operates. The TVA Board is comprised of up to nine part-time members serving staggered, five-year terms. One to two Board members' terms typically expire each year. In addition, there is always the possibility that one or more members of TVA's senior management may retire or otherwise leave TVA. The individuals filling either the TVA Board or senior management positions may wish to change how TVA operates in whole or in part. If the changes were not successful or TVA were unable to adapt properly to such changes, TVA's financial condition, results of operations, reputation, and relationship with customers could be negatively affected. RISKS RELATED TO THE ENVIRONMENT AND CATASTROPHIC EVENTS Weather conditions may hamper TVA's ability to supply power or negatively impact net revenue, and weather conditions may cause customers' demands for power to exceed TVA's then-present power supply capabilities. Weather may have a material adverse effect on TVA’s cash flows, results of operations, and financial condition, including through the following non-exclusive foreseeable scenarios: • Extreme temperatures may increase the demand for power and require TVA to purchase power at high prices to meet customer demand, whereas unusually mild weather may result in decreased demand for power and lead to reduced electricity sales. • In periods of below-normal rainfall or drought, TVA's low-cost hydroelectric generation may be reduced, requiring TVA to purchase power or use more costly means of producing power. • Periods of either high or low levels of rainfall may impede river traffic, impacting barge deliveries of critical items such as coal and equipment for power facilities. • High river water temperatures in the summer may limit TVA's ability to use water from the Tennessee or Cumberland River systems for cooling at certain of TVA's generating facilities, thereby limiting its ability to operate these generating facilities. This situation would be aggravated during periods of reduced rainfall or drought. • Changes in the climate may make, or may be making, such shifts in weather more common or extreme. Climate change may cause catastrophic events like droughts, floods, wildfires, and snow or ice storms to occur more frequently in the Tennessee Valley region. In response, TVA may be required to, among other things, change its generation mix or change how it conducts its operations. Events that affect the supply or quality of water from the Tennessee River system and Cumberland River system, or elsewhere, may interfere with TVA's ability to generate power. An inadequate supply of water in the Tennessee River system and Cumberland River system could negatively impact TVA's cash flows, results of operations, and financial condition, including potentially reducing generation at TVA's hydroelectric plants, which may require TVA to increase reliance on more expensive generation sources or purchase more energy in the market likely at higher costs; negatively affecting generation at coal-fired and nuclear plants, which depend on water from the river systems near which they are located for cooling and for use in boilers where water is converted into steam to drive turbines; or negatively affecting generation at TVA's gas-fired facilities not located near a river, which nonetheless require alternative sources of water, such as from wells or local utility companies. Further, the water for these purposes must be of a particular quality for use in TVA's equipment. When the available water is not of sufficient quality for TVA's use, TVA must either treat the water or obtain alternate sources. An inadequate supply of quality water could result, among other things, from periods of low rainfall or drought, the withdrawal of water from the river systems by governmental entities or others, incidents affecting bodies of water not managed by TVA, supply issues that affect water providers, or intrusive aquatic plants and animals such as eel grass, algae, and mussels that block cooling water intake pipes or otherwise interfere with the operation of TVA's generation facilities. While TVA manages the Tennessee River and a large portion of its tributary system to provide much of the water necessary for the operation of its power plants, the USACE operates and manages other bodies of water upon which some of TVA's facilities rely. Events at these bodies of water or their associated hydroelectric facilities may interfere with the flow of water and may result in TVA's having insufficient water quality to meet the needs of some of its generating plants. If TVA were to have insufficient water supply of the quality necessary to meet the needs of its plants, TVA may be required to reduce generation at its affected facilities to levels compatible with the available supply of quality water, or take additional steps that change how TVA conducts its operations or that otherwise cause TVA to incur additional expense. 52 Table of Contents Catastrophic events may negatively affect TVA's cash flows, results of operations, and financial condition. TVA's cash flows, results of operations, and financial condition may be adversely affected, either directly or indirectly, by catastrophic events such as fires, earthquakes, explosions, solar events, electromagnetic pulses ("EMPs"), geomagnetic disturbances, droughts, floods, hurricanes, tornadoes, polar vortexes, icing events, or other casualty events, wars, national emergencies, terrorist activities, pandemics, or other similar destructive or disruptive events. These events, the frequency and severity of which are unpredictable, may, among other things, limit or disrupt TVA's ability to generate and transmit power; lead to legislative or regulatory changes that affect the construction, operation, and decommissioning of nuclear units and the storage of spent fuel; limit or disrupt TVA's ability to provide flood control and river management; reduce the demand for power; disrupt fuel or other supplies; require TVA to produce additional tritium; cause or exacerbate an economic downturn; require TVA to make substantial capital investments for repairs, improvements, or modifications; or cause or exacerbate instability in the financial markets. These destructive or disruptive events may present special risks to TVA’s nuclear plants. If public opposition to nuclear power were to make operating nuclear plants less feasible as a result of any of these events, TVA may be forced to shut down its nuclear plants. This would make it substantially more difficult for TVA to obtain greater amounts of its power supply from low or zero carbon emitting resources and to replace its generation capacity when faced with retiring or idling certain coal-fired units. Additionally, some studies have predicted that climate change may cause catastrophic events, such as droughts and floods, to occur more frequently or with greater intensity in the Tennessee Valley region, which could adversely impact TVA. ACCOUNTING AND FINANCIAL REPORTING RISKS TVA may be unable to use regulatory accounting for some or all costs. TVA uses regulatory accounting to defer certain costs. To qualify for regulatory accounting, costs must meet certain accounting criteria and be approved for regulatory accounting treatment by the TVA Board in its capacity as TVA's regulator. When costs do not meet, or cease to meet, these criteria, or if the TVA Board were to disallow the treatment or were to cease to be TVA's sole regulator in such areas, TVA may not be able to defer those costs. Such an inability to defer costs would likely have a substantial impact on TVA's financial condition and results of operations and could impact the timing and amounts of TVA's rate recovery. For a discussion of regulatory accounting, see Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates . TVA's financial control system cannot guarantee that all control issues and instances of fraud or errors will be detected. No financial control system, no matter how well designed and operated, can provide absolute assurance that the objectives of the control system will be met, and no evaluation of financial controls can provide absolute assurance that all control issues and instances of fraud or errors can or will be detected. The design of any system of financial controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. COVID-19 RELATED RISKS The COVID-19 pandemic has adversely affected, and may continue to adversely affect, TVA's business, financial condition, and results of operations. The extent to which the COVID-19 pandemic will impact TVA's business, financial condition, cash flows, and results of operations in the future is uncertain and will depend on numerous evolving factors beyond TVA's control including, among other things, the duration and severity of the pandemic, actions taken to contain its spread and mitigate its effects, including vaccination programs, and the broader impact of the COVID-19 pandemic on the country, the region's economy, and global trade. However, TVA reasonably anticipates that any of a prolonged outbreak, impacts of variants of COVID-19, and resulting commercial or social restrictions could have a material adverse impact on its business, financial condition, and results of operations, and could require TVA to change how it conducts certain operations, takes power under certain agreements, or dispatches its own facilities. The economic wake of the COVID-19 pandemic could adversely impact TVA’s ability to develop, construct, and operate facilities; could delay or prevent the completion of projects; or could lead to impairments of TVA’s long-lived assets and accounts or loans receivable. Examples of potential impacts include delivery of force majeure notices from contractual counterparties, closure or reduced operation of global ports, or limitations on shipping key equipment as anticipated or at budgeted costs. These impacts could cause delays in construction projects or the performance of necessary maintenance to TVA’s generation or transmission facilities, which could impact the availability of TVA’s facilities for their intended operations. 53 Table of Contents GENERAL RISK FACTORS TVA may not be able to implement its business strategy successfully. TVA's financial condition and results of operations are largely dependent on the extent to which it can implement its business strategy successfully. TVA's strategy includes maintaining low rates, aligning operations and maintenance spending with revenues, being responsible stewards, living within its means, meeting reliability expectations, and providing a balanced portfolio, in light of TVA's strategic priorities. The strategic priorities are powerful partnerships, people advantage, operational excellence, igniting innovation, and financial strength. This strategy is subject to business, economic, and competitive uncertainties and contingencies, many of which are beyond TVA’s control. Such uncertainties include customer energy-efficiency programs that are designed to reduce energy demand; energy-efficiency efforts by customers not related to TVA’s energy-efficiency programs; increased customer use of DER, such as solar panels and other technologies, as well as the use of energy storage technologies; and macroeconomic factors impacting economic growth or contraction within TVA’s service territory, which could affect energy demand. If TVA is unable to successfully implement its business strategy, TVA’s financial condition and results of operations could be negatively affected. See Item 1, Business — Environmental Matters and Human Capital Management , Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges , and Part III, Item 11, Executive Compensation — C ompensation Discussion and Analysis for additional information regarding TVA's strategic objectives. TVA's organizational structure may not adequately support TVA's anticipated business needs or enable it to meet the needs of its current or potential customers. TVA has been modifying its organizational structure to better adapt to the forecasted economic environment. If TVA's assumptions about either its forecasts or the proper internal structure of the company to meet the expected environment are inaccurate or if this structure does not adequately support TVA's needs, TVA could face operational or financial challenges that could adversely affect its cash flows, results of operations, and financial condition as well as TVA's ability to attract or retain a skilled workforce and to meet the needs of its current or potential customers. TVA may have difficulty adapting its business model to changes in the utility industry and customer preferences. The traditional business model for power production, selling power from centrally located plants, is facing pressure from a variety of sources, including the potential for self-generation by current or potential customers, new technologies such as energy storage, and increased energy efficiency. These pressures may reduce the demand for TVA power. If TVA does not or cannot adapt to this pressure by adequately changing its business model, TVA's financial condition and results of operations could be negatively affected. TVA's reputation may be negatively impacted. As with any company, TVA's reputation is a vital element of its ability to effectively conduct its business. TVA's reputation could be harmed by a variety of factors, including: failure of a generating asset or supporting infrastructure; failure to effectively manage land and other natural resources entrusted to TVA; real or perceived violations of environmental regulations, including those related to climate change; real or perceived issues with TVA's safety culture or work environment; inability to meet its human capital management goals; inability to keep its electricity rates stable; involvement in a class-action or other high-profile lawsuit; significant delays in construction projects; occurrence of or responses to cyber attacks or security vulnerabilities; acts or omissions of TVA management or acts or omissions of a contractor or other third-party working with or for TVA, which actually or perceivably reflect negatively on TVA; measures taken to offset reductions in demand or to supply rising demand; or a significant dispute with one of TVA's customers. Any deterioration in TVA's reputation may harm TVA's relationships with its customers and stakeholders, may increase its cost of doing business, may interfere with its ability to attract and retain a qualified, inclusive, and diverse workforce, may impact TVA's ability to raise debt capital, and may potentially lead to the enactment of new laws and regulations, or the modification of existing laws and regulations, that negatively affect the way TVA conducts its business. ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. 54 Table of Contents ITEM 2. PROPERTIES TVA holds personal property in its own name but holds real property as agent for the U.S. TVA may acquire real property as an agent of the U.S. by negotiated purchase or by eminent domain. Generating Properties At September 30, 2022, TVA-operated generating assets consisted of seven nuclear units, 25 active coal-fired units, 86 simple-cycle units (81 active units and five idled units), one cogeneration unit, 14 combined-cycle power blocks, 109 conventional hydroelectric units (106 active units and three units in long-term outage and unavailable for service), four pumped-storage hydroelectric units, five diesel generator units, and 13 solar installations. As of September 30, 2022, eight of the simple-cycle CTs and four of the combined-cycle power blocks were leased to special purpose entities ("SPEs") and leased back to TVA under long-term leases. See Note 11 — Variable Interest Entities and Note 14 — Debt and Other Obligations — Lease/Leasebacks . In addition, TVA is leasing the three Caledonia combined-cycle power blocks under a long-term lease. For a discussion of these assets, see Item 1, Business — Power Supply and Load Management Resources . Net Capability Net capability is defined as the ability of an electric system, generating unit, or other system component to carry or generate power for a specified time period. It does not include real-time bulk electrical system operating constraints such as transmission line loading limitations, fuel availability such as coal, gas, and seasonal river reservoir levels, fuel blend, severe weather events, intermittency of renewable resources associated with weather and other factors, environmental and/or other regulatory constraints, transmission system outages, generator outages, or generator derates. Summer net capability as presented in the table below reflects the expected output of individual resources at TVA’s anticipated summer demand peak. The summation of those individual resources does not include the real-time bulk electrical system operating constraints previously noted. See also Item 1A, Risk Factors — Operational Risks and Risks Related to the Environment and Catastrophic Events. 55 Table of Contents The following table summarizes TVA's summer net capability in MW at September 30, 2022: SUMMER NET CAPABILITY At September 30, 2022 Source of Capability Location Number of Units Summer Net Capability (MW) Date First Unit Placed in Service (CY) Date Last Unit Placed in Service (CY) TVA-Operated Generating Facilities Nuclear Browns Ferry Alabama 3 3,662 1974 1977 Sequoyah Tennessee 2 2,292 1981 1982 Watts Bar Tennessee 2 2,278 1996 2016 Total Nuclear 7 8,232 Coal-Fired Bull Run Tennessee 1 765 1967 1967 Cumberland Tennessee 2 2,470 1973 1973 Gallatin Tennessee 4 976 1956 1959 Kingston Tennessee 9 1,298 1954 1955 Shawnee Kentucky 9 1,071 1953 1955 Total Coal-Fired 25 6,580 Natural Gas and/or Oil-Fired (1)(2) Simple-Cycle Combustion Turbine Allen (3) Tennessee 20 287 1971 1972 Brownsville Tennessee 4 438 1999 1999 Colbert Alabama 8 360 1972 1972 Gallatin Tennessee 8 580 1975 2000 Gleason Tennessee 3 455 2000 2000 Johnsonville Tennessee 19 1,028 1975 2000 Kemper Mississippi 4 292 2002 2002 Lagoon Creek Tennessee 12 884 2001 2002 Marshall County Kentucky 8 592 2002 2002 Subtotal Simple-Cycle Combustion Turbine 86 4,916 Combined-Cycle Combustion Turbine Ackerman (4) Mississippi 1 713 2007 2007 Allen (5) Tennessee 1 1,106 2018 2018 Caledonia (6) Mississippi 3 765 2003 2003 John Sevier (7) Tennessee 1 871 2012 2012 Lagoon Creek (8) Tennessee 1 525 2010 2010 Magnolia Mississippi 3 918 2003 2003 Paradise (9) Kentucky 1 1,100 2017 2017 Southaven Mississippi 3 780 2003 2003 Subtotal Combined-Cycle Combustion Turbine 14 6,778 Co-Generation Johnsonville Tennessee 1 83 1975 2000 Total Natural Gas and/or Oil-Fired 101 11,777 Hydroelectric Conventional Plants Alabama 36 1,176 1925 1962 Georgia 2 35 1931 1956 Kentucky 5 223 1944 1948 North Carolina 6 492 1940 1956 Tennessee (3)(10) 60 1,828 1912 1972 Pumped-Storage (11) Tennessee 4 1,654 1978 1979 Total Hydroelectric 113 5,408 Diesel Generator Meridian Mississippi 5 9 1998 1998 TVA Non-hydro Renewable Resources (12) 1 TVA Other Nonrenewable Resources (12) 5 Total TVA-Operated Generating Facilities 32,012 Contract Renewable Resources (13) 324 Power Purchase and Other Agreements - Renewable (14) 2,157 Power Purchase and Other Agreements - Nonrenewable (14) 3,618 Total Summer Net Capability 38,111 56 Table of Contents Notes (1) See Generating Properties above for a discussion of TVA-operated natural gas and/or oil-fired facilities subject to leaseback and long-term lease arrangements. (2) As of September 30, 2022, 326 MW of peak firing short-term capability of simple-cycle combustion turbine units was not operational and would require additional investment for dependable use; therefore, this short-term capability is not presented in the table above. (3) As of September 30, 2022, TVA had five idled units at Allen Combustion Turbine Facility: Units 2, 3, 11, 17, and 18 and three units that were in long-term outage and unavailable for service at Wilbur Hydroelectric Facility: Units 1-3. These units are included in their respective locations in the table above; however, the capability from these units is excluded. (4) Ackerman Combined Cycle Facility is a single steam cycle unit driven by two gas turbines (2x1 configuration). (5) Allen Combined Cycle Facility is a single steam cycle unit driven by two gas turbines (2x1 configuration). (6) Caledonia Combined Cycle Plant ("Caledonia CC") is currently a leased facility operated by TVA. (7) John Sevier Combined Cycle Facility ("John Sevier CCF") is a single steam cycle unit driven by three gas turbines (3x1 configuration). (8) Lagoon Creek Combined Cycle Facility is a single steam cycle unit driven by two gas turbines (2x1 configuration). (9) Paradise Combined Cycle Facility is a single steam cycle unit driven by three gas turbines (3x1 configuration). (10) Includes 86 MW of summer net capability associated with Hiwassee Hydro Unit 2. See Item 1, Business — Power Supply and Load Management Resources — Conventional Hydroelectric Dam s. (11) See Item 1, Business — Power Supply and Load Management Resources — Raccoon Mountain Pumped-Storage Plant for a discussion of Raccoon Mountain Pumped-Storage Plant. (12) TVA owns approximately one MW of renewable solar capability among 13 solar installations and Allen Combined Cycle Facility has five MW of nonrenewable biomass capability that came online in 2022. (13) Contract Renewable Resources is capability from various historical renewable energy programs that consist of PPAs primarily with individuals and small businesses. (14) See Item 1, Business — Power Supply and Load Management Resources — Power Purchase and Other Agreements for information on renewable and non-renewable energy power purchase contracts. TVA sells the RECs resulting from some of this purchased power to certain customers. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Optimum Energy Portfolio — Renewable Power Purchase Agreements . Transmission Properties TVA's transmission system interconnects with systems of surrounding utilities and, at September 30, 2022, consisted primarily of approximately 2,500 circuit miles of 500 kilovolt, 11,900 circuit miles of 161 kilovolt, and 2,000 circuit miles of other voltage transmission lines; 4,412 miles of fiber optic lines; 534 transmission substations, power switchyards, and switching stations; and 1,341 customer connection points (customer, generation, and interconnection). Natural Resource Stewardship Properties TVA operates and maintains 49 dams and manages approximately 11,000 miles of reservoir shoreline, 293,000 acres of reservoir land, 650,000 surface acres of reservoir water, and approximately 100 public recreation areas throughout the Tennessee Valley, including campgrounds, day-use areas, and boat launching ramps. Additionally, TVA manages over 150 agreements for commercial recreation (such as campgrounds and marinas). As part of its stewardship responsibilities, TVA approval is required to be obtained before any obstruction affecting navigation, flood control, or public lands can be constructed in or along the Tennessee River and its tributaries. These public lands and waters managed by TVA provide both conservation and responsible recreation. Buildings TVA has a variety of buildings and structures located throughout its service area including generation and transmission facilities, corporate offices, customer service centers, power service centers, warehouses, visitor centers, and crew quarters. Two significant buildings are its Knoxville Office Complex and the Chattanooga Office Complex ("COC") in Tennessee. TVA continues to study its real property portfolio as part of the Strategic Real Estate Plan, which is aimed at reducing cost, right-sizing the portfolio, and aligning real estate holdings with TVA's strategic direction. In addition, as a result of the COVID-19 pandemic, TVA continues to assess a hybrid work environment for those who do not have to be physically present at TVA offices. TVA is also assessing and reviewing the pandemic's long-term impacts to the real property portfolio, including the COC. Disposal of Property TVA has broad authority to dispose of personal property but only limited authority to dispose of real property. TVA's primary, but not exclusive, authority to dispose of real property is as follows: TVA has authority to dispose of surplus real property at a public auction; TVA may dispose of real property for certain specified purposes, including providing replacement lands for certain entities whose lands were flooded or destroyed by dam or reservoir construction, providing real property for recreational use, and granting easements and rights-of-way upon which are located transmission or distribution lines; TVA can dispose of real property in connection with the construction of generating plants or other facilities under certain circumstances; and TVA has authority to grant easements for rights-of-way and other purposes. 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") prohibits TVA (1) from mortgaging any part of its power properties and (2) from disposing of all or any substantial portion of these properties unless TVA provides for a continuance of the interest, principal, and sinking fund payments due and to become due on all outstanding Bonds, or for the retirement of such Bonds. 57 Table of Contents ITEM 3. LEGAL PROCEEDINGS From time to time, TVA is party to or otherwise involved in lawsuits, claims, proceedings, investigations, and other legal matters ("Legal Proceedings") that have arisen in the ordinary course of conducting its activities, as a result of catastrophic events or otherwise. While the outcome of the Legal Proceedings to which TVA is a party cannot be predicted with certainty, any adverse outcome to a Legal Proceeding involving TVA may have a material adverse effect on TVA's financial condition, results of operations, and cash flows. For a discussion of Legal Proceedings involving TVA, see Note 21 — Commitments and Contingencies — Legal Proceedings, which discussion is incorporated by reference into this Item 3. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 58 Table of Contents PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Not applicable. ITEM 6. RESERVED Not applicable. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in millions except where noted) The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the Tennessee Valley Authority ("TVA"), its financial condition, results of operations, and cash flows, and its present business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, TVA's consolidated financial statements and the accompanying notes thereto contained in Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (the "Annual Report"). See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in TVA's Annual Report on Form 10-K for the year ended September 30, 2021, filed with the Securities and Exchange Commission ("SEC") on November 12, 2021, for a discussion of variance drivers for the year ended September 30, 2021, as compared to the year ended September 30, 2020. The MD&A includes the following sections: • Business and Mission — a general description of TVA's business, objectives, strategic priorities, and core capabilities; • Executive Overview — a general overview of TVA's activities and results of operations for 2022; • Results of Operations — an analysis of TVA's consolidated results of operations for 2021 and 2022; • Liquidity and Capital Resources — an analysis of cash flows, a description of aggregate contractual obligations, and an overview of financial position; • Key Initiatives and Challenges — an overview of current and future initiatives and challenges facing TVA; • Critical Accounting Estimates — a summary of significant estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes; • Legislative and Regulatory Matters — a summary of laws and regulations that may impact TVA; and • Risk Management Activities — a description of TVA's risk governance and exposure to various market risks. Business and Mission Business TVA operates the nation's largest public power system. At September 30, 2022, TVA had 58 directly served customers, which include seven federal agency customers, and 153 local power company customers ("LPCs") that serve approximately 10 million people in parts of seven southeastern states. TVA generates nearly all of its revenues from the sale of electricity, and in 2022 revenues from the sale of electricity totaled $12.4 billion. As a wholly-owned agency and instrumentality of the United States ("U.S."), however, TVA differs from other electric utilities in a number of ways: • TVA is a government corporation. • The area in which TVA sells power is limited by the Tennessee Valley Authority Act of 1933, as amended (the "TVA Act") under a provision known as the "fence"; however, another provision of federal law known as the Anti-Cherrypicking Amendment ("ACPA") generally protects TVA from being forced to provide access to its transmission lines to others for the purpose of delivering power to customers within substantially all of TVA's defined service area. • The rates TVA charges for power are set solely by the TVA Board of Directors ("TVA Board") and are not set or reviewed by another entity, such as a public utility commission. In setting rates, however, the TVA Board is charged by the TVA Act to have due regard for the primary objectives of the TVA Act, including the objective that power be sold at rates as low as feasible. 59 Table of Contents • TVA is not authorized to raise capital by issuing equity securities. TVA relies primarily on cash from operations and proceeds from power program borrowings to fund its operations and is authorized by the TVA Act to issue bonds, notes, or other evidences of indebtedness (collectively, "Bonds") in an amount not to exceed $30.0 billion outstanding at any given time. Although TVA's operations were originally funded primarily with appropriations from Congress, TVA has not received any appropriations from Congress for any activities since 1999 and, as directed by Congress, has funded essential stewardship activities primarily with power revenues. TVA's Mission of Service TVA was built for the people, created by federal legislation, and charged with a unique mission - to improve the quality of life in a seven-state region through the integrated management of the region's resources. TVA's mission focuses on three key areas: ENERGY ENVIRONMENT ECONOMIC DEVELOPMENT • Energy — Delivering reliable, low cost, clean energy; • Environment — Caring for the region's natural resources; and • Economic Development — Creating sustainable economic growth. 60 Table of Contents While TVA's mission has not changed since it was established in 1933, the climate in which TVA operates continues to evolve. The business and economic environment has become more challenging due to economic conditions; tougher environmental standards; and the need to diversify its power supply and adapt to changing customer usage behaviors, new technologies, and emerging, non-traditional competition. To continue to deliver its mission of service while evolving for future success, TVA must realize five strategic priorities, which are comprised of several strategic elements each: Accelerate the impact of inclusion with diversity within TVA and the communities TVA serves Nation’s top nuclear fleet by 2025 Deliver value to enhance prosperity in the Tennessee Valley Enhance TVA's role as a community leader and trusted partner Advance energy transformation in the Tennessee Valley through innovation Create an enterprise talent strategy that will bring TVA's business priorities to life Evolve TVA's reliable and clean energy supply into the energy system of the future Balance commitments and obligations Champion the unique value of the Tennessee Valley public power model Establish a focused innovation framework and mindset Cultivate a positive employee experience to heighten workforce engagement and performance as TVA works everywhere to serve Lead the industry in reliable, resilient, cost-effective carbon reduction Develop long-term business model Region’s top choice for business and industry Build the integrated and reliable grid of tomorrow Achieve sustainable debt level Meet resource and environmental stewardship commitments TVA's mission sets the stage for its strategic planning process that includes strategic objectives, initiatives, and scorecards for performance designed to provide clear direction for improving TVA's core business. Linking the Mission to Performance TVA has formulated key performance measures to support its strategic priorities. The intent of these measures is to align employees to TVA's mission by focusing its collective efforts on operational excellence, fiscal responsibility, economic development, and environmental stewardship. The measures are designed to promote teamwork, encourage high performance behaviors, and motivate TVA employees to achieve goals aligned with TVA's mission and values. The 2022 corporate results compared with targets for these key measures are reflected in the chart below, and the subsequent chart reflects the 2023 approved corporate measures. See Part III, Item 11, Executive Compensation — Compensation Discussion and Analysis for information regarding how the measures are calculated. 2022 Corporate Measure Weight Actual Threshold Target Stretch TVA total spending ($ millions) 40% $ 5,580 $ 6,482 $ 6,291 $ 6,100 Load not served (system minutes) 30% 4.5 4.5 3.9 3.2 Annualized nuclear online reliability loss factor (%) 15% 1.13 % 3.73 % 2.71 % 1.69 % Combined cycle equivalent availability factor (%) 10% 83.3 % 75.0 % 80.0 % 84.9 % Coal equivalent availability factor (%) 5% 74.9 % 58.2 % 63.2 % 69.6 % 61 Table of Contents 2023 Corporate Measure Weight Threshold Target Stretch TVA total spending ($ millions) 40% Budget Load not served (system minutes) 30% 4.5 3.9 3.2 Annualized nuclear online reliability loss factor (%) 15% 3.14 % 2.00 % 1.26 % Combined cycle equivalent availability factor (%) 10% 78.6 % 83.6 % 89.0 % Coal equivalent availability factor (%) 5% 58.8 % 63.8 % 73.3 % Executive Overview TVA's operating revenues were $12.5 billion and $10.5 billion for the years ended September 30, 2022 and 2021, respectively. Operating revenues increased for the year ended September 30, 2022 as compared to the prior year, primarily as a result of higher fuel cost recovery revenue. The higher fuel cost recovery revenue was driven by higher fuel rates as a result of higher natural gas, coal, and purchased power market prices. In addition, higher sales volume primarily due to economic growth in the Tennessee Valley region and an increase in cooling degree days contributed to the increase in operating revenue. In May and June 2022, TVA experienced multiple record-setting peak and daily energy records for these months, and the TVA power system was able to deliver energy reliably through these demands. Total operating expenses increased $2.5 billion for the year ended September 30, 2022 as compared to the prior year, primarily due to increases in Fuel expense, Purchased power expense, and Depreciation and amortization expense. Fuel and purchased power expense contributed to $1.8 billion of the increase primarily due to higher effective fuel rates and market prices of purchased power and less availability of lower cost TVA-operated generation due to the outage at Watts Bar Unit 2 for its steam generator replacement project and fewer significant rain events. Depreciation and amortization expense increased $521 million as compared to the prior year. This increase was primarily driven by the implementation of a new depreciation study during the first quarter of 2022, which included 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. In addition, increases in amortization expense of decommissioning costs recovered in rates and depreciation due to additions to completed plant also contributed to the increase. In the second quarter of 2022, the TVA Board approved a programmatic approach to exploring advanced nuclear technology (the "New Nuclear Program"). The New Nuclear Program provides a systematic roadmap for TVA’s exploration of advanced nuclear technology. It also coordinates TVA’s collaborative efforts with other utilities, government agencies, research institutions, and organizations on advanced nuclear technologies. In May 2022, Boone Dam was re-opened to the public, after a sinkhole was discovered near the base of the embankment in 2015, and the reservoir has now returned to normal operations. In July 2022, TVA returned Watts Bar Unit 2 to service after an outage to replace the originally installed steam generators was completed, which began in March 2022. The project included removal of all four original steam generators and installation of four new, more efficient steam generators that will support reliable, carbon-free generation in the Tennessee Valley. In addition, in 2022 TVA continued to make investments in and work on projects such as the new system operations center, energy management system, fiber optic network, and natural gas-fired units, among others. In 2022, TVA's economic development efforts, reliability, and competitive rates continued to help attract or expand businesses and industries in the Tennessee Valley. These companies announced projected capital investments of over $10.2 billion and are expected to create or retain approximately 66,500 jobs. TVA also continued to achieve 99.999 percent reliability in delivering energy to its customers during 2022. 62 Table of Contents Results of Operations Sales of Electricity Sales of electricity, which accounted for nearly all of TVA's operating revenues, were 162,608 million and 157,353 million kilowatt hours ("kWh") for 2022 and 2021, respectively. TVA sells power at wholesale rates to LPCs that then resell the power to their customers at retail rates. TVA also sells power to directly served customers, consisting primarily of federal agencies and customers with large or nonstandard loads. In addition, power exceeding TVA's system needs is sold under exchange power arrangements with certain other power systems. The following chart compares TVA's sales of electricity by customer type for the years ended September 30, 2022 and 2021: Sales of Electricity For the years ended September 30 (millions of kWh) The following charts show a breakdown of TVA's energy load: Note Information included in the charts above was derived from energy usage of directly served customers and customers served by LPCs during calendar year 2021, and these graphs will continue to be updated on a calendar year basis. 63 Table of Contents Weather affects both the demand for TVA power and the price for that power. TVA uses degree days to measure the impact of weather on its power operations. Degree days measure the extent to which the TVA system 23-station average temperatures vary from 65 degrees Fahrenheit. Degree Days Variation from Normal Change from Prior Period 2022 Normal Percent Variation 2021 Normal Percent Variation Percent Change Heating Degree Days 3,031 3,360 (9.8) % 3,216 3,360 (4.3) % (5.8) % Cooling Degree Days 1,974 1,686 17.1 % 1,611 1,686 (4.4) % 22.5 % Sales of electricity increased approximately three percent for the year ended September 30, 2022, as compared to the same period of the prior year. The increased sales volume was driven by both economic growth and weather impacts. TVA is seeing economic growth in the Tennessee Valley region primarily as a result of migration into the Tennessee Valley which has driven population growth and load growth. Cooling degree days increased approximately 23 percent for the year ended September 30, 2022, as compared to the same period of the prior year, also resulting in an increase in energy sales. In May and June 2022, TVA experienced multiple record-setting peak and daily energy records for these months. For LPCs, sales of electricity increased due to the weather impacts and also due to economic growth. For industries directly served, sales of electricity increased due to economic growth, as these industries directly served are not driven primarily by weather, but mainly from changes in the economy and respective industry sectors. Financial Results The following table compares operating results for 2022 and 2021: Summary Consolidated Statements of Operations For the years ended September 30 (in millions) 2022 2021 Change Percent Change Operating revenues $ 12,540 $ 10,503 $ 2,037 19.4 % Operating expenses 10,129 7,658 2,471 32.3 % Operating income 2,411 2,845 (434) (15.3) % Other income, net 7 13 (6) (46.2) % Other net periodic benefit cost 258 258 — — % Interest expense 1,052 1,088 (36) (3.3) % Net income $ 1,108 $ 1,512 $ (404) (26.7) % 64 Table of Contents Operating Revenues. Operating revenues for the years ended September 30, 2022 and 2021, were $12.5 billion and $10.5 billion, respectively. The following chart compares TVA's operating revenues for the periods indicated: TVA's two largest LPCs — Memphis Light, Gas and Water Division ("MLGW") and Nashville Electric Service ("NES") — have contracts with a five-year and a 20-year termination notice period, respectively. Sales to MLGW and NES accounted for nine percent and eight percent, respectively, of TVA's total operating revenues during both the years ended September 30, 2022 and 2021. Certain LPCs, including MLGW, are evaluating options for future energy choices. TVA's rate structure uses pricing signals to indicate seasons and hours of higher cost to serve its customers and to capture a portion of TVA's fixed costs in fixed charges. The structure includes three base revenue components: time of use demand charges, time of use energy charges, and a grid access charge ("GAC"). The demand charges are based upon the customer's peak monthly usage and increase as the peak increases. The energy charges are based on time differentiated kWh used by the customer. Both of these components can be significantly impacted by weather. The GAC captures a portion of fixed costs and is offset by a corresponding reduction to the energy rates. The GAC also reduces the impact of weather variability to the overall rate structure. TVA has a Partnership Agreement option that better aligns the length of LPC power contracts with TVA's long-term commitments. Under the partnership arrangement, the LPC power contracts automatically renew each year and have a 20-year termination notice. The partnership arrangements can be terminated under certain circumstances, including TVA's failure to limit rate increases as provided for in the agreements going forward. Participating LPCs receive benefits including a 3.1 percent wholesale bill credit in exchange for their long-term commitment, which enables TVA to recover its long-term financial commitments over a commensurate period. As of November 14, 2022, 147 LPCs had signed the 20-year Partnership Agreement with TVA. In 2020, the TVA Board approved a Pandemic Relief Credit which was effective for 2021 as a 2.5 percent monthly base rate credit. In 2021, the TVA Board approved a 2.5 percent monthly base rate credit, the Pandemic Recovery Credit, which was effective for 2022. These pandemic credits apply to service provided to TVA's LPCs, their large commercial and industrial customers, and TVA directly served customers. For the years ended September 30, 2022 and 2021, pandemic credits totaled $228 million and $221 million, respectively. In addition, 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, and on July 28, 2022, the TVA Board notationally approved increasing the credit from 1.5 percent to 2.5 percent. The 2023 credit is expected to approximate $230 million, and it will be administered in a manner similar to the Pandemic Recovery Credit. In addition to base revenues, the rate structure includes a separate fuel rate that includes the costs of natural gas, fuel oil, purchased power, coal, emission allowances, nuclear fuel, and other fuel-related commodities; realized gains and losses on derivatives purchased to hedge the costs of such commodities; and payments to states and counties in lieu of taxes ("tax equivalents") associated with the fuel cost adjustments. See Item 1, Business — Rates — Rate Methodology . 65 Table of Contents The changes in revenue components are summarized below: Changes in Revenue Components For the years ended September 30 (in millions) 2022 2021 Change Base revenue Energy revenue $ 4,885 $ 4,719 $ 166 Demand revenue 3,610 3,478 132 Grid access charge 590 596 (6) Long-term partnership credits for LPCs (199) (189) (10) Pandemic relief credits (228) (221) (7) Other charges and credits (1) (673) (631) (42) Total base revenue 7,985 7,752 233 Fuel cost recovery 4,379 2,601 1,778 Off-system sales 7 4 3 Revenue from sales of electricity 12,371 10,357 2,014 Other revenue 169 146 23 Total operating revenues $ 12,540 $ 10,503 $ 2,037 Note (1) Includes economic development credits to promote growth in the Tennessee Valley, hydro preference credits for residential customers of LPCs, and demand response credits allowing TVA to reduce industrial customer usage in periods of peak demand to balance system demand. See Note 17 — Revenue. Operating revenues increased $2.0 billion for the year ended September 30, 2022, as compared to the prior year, primarily due to a $1.8 billion increase in fuel cost recovery revenue. The $1.8 billion increase in fuel cost recovery revenue was driven by a $1.7 billion increase attributable to higher fuel rates and an $87 million increase attributable to higher sales volume during 2022. The higher fuel rates were primarily due to higher natural gas, coal, and purchased power market prices. In addition, there was a $233 million increase in base revenue driven by an increase of $259 million attributable to higher sales volume, partially offset by a decrease of $26 million attributable to lower effective rates. Sales volume increased due to economic growth in the Tennessee Valley region and an increase in cooling degree days in 2022. See Sales of Electricity above for further discussion of the change in the volume of sales of electricity and Operating Expenses below for further discussion of the change in fuel expense. Operating Expenses. Operating expense components as a percentage of total operating expenses for 2022 and 2021 consisted of the following: 66 Table of Contents Operating Expenses For the years ended September 30 (in millions) 2022 2021 Change Percent Change Operating expenses Fuel $ 2,567 $ 1,737 $ 830 47.8 % Purchased power 1,921 984 937 95.2 % Operating and maintenance 2,986 2,890 96 3.3 % Depreciation and amortization 2,054 1,533 521 34.0 % Tax equivalents 601 514 87 16.9 % Total operating expenses $ 10,129 $ 7,658 $ 2,471 32.3 % The following table summarizes TVA's expenses for various fuels for the years indicated: Fuel Expense for TVA-Operated Facilities (1) For the years ended September 30 Fuel Expense By Source Cost per kWh (4) 2022 2021 2022 2021 Coal (2) $ 627 $ 577 $ 2.97 $ 2.46 Natural gas and/or oil-fired (3) 1,590 841 4.37 2.52 Nuclear fuel 329 363 0.51 0.55 Total fuel $ 2,546 $ 1,781 $ 2.08 $ 1.44 Notes (1) Excludes effects of the fuel cost adjustment in the amounts of $21 million and $(44) million for the years ended September 30, 2022 and 2021, respectively. (2) Fuel expense related to oil consumed for startup at coal-fired facilities was $30 million and $18 million for the years ended September 30, 2022 and 2021, respectively. (3) Fuel expense related to oil consumed for generation at natural gas and/or oil-fired facilities was $2 million and $4 million for the years ended September 30, 2022 and 2021, respectively. (4) Total cost per kWh is based on a weighted average. Fuel expense increased $830 million for the year ended September 30, 2022, as compared to the prior year. This increase was primarily due to higher effective fuel rates of $810 million resulting from higher natural gas and coal prices, as well as an increase in fuel cost recovery of $66 million primarily due to higher natural gas prices toward the end of 2021 that were not included in fuel rates in the prior year but were recovered and expensed in the current year. Partially offsetting these increases was a decrease in fuel volume of $46 million driven primarily by less availability of lower cost TVA-operated generation. Purchased power expense increased $937 million for the year ended September 30, 2022, as compared to the prior year. This increase was primarily due to higher purchased power market prices, resulting in an increase of $458 million, and additional volume, resulting in an increase of $479 million. The volume impacts were driven primarily by less availability of lower cost TVA-operated generation due to the outage at Watts Bar Unit 2 for its steam generator replacement project, decreased coal generation due to fuel supply constraints, and fewer significant rain events. Operating and maintenance expense increased $96 million for the year ended September 30, 2022 as compared to the prior year. This increase was primarily due to $57 million of increased payroll and benefit costs primarily due to labor escalation for cost of living increases and additional headcount to support operational needs and work to support the company's strategic priorities, $21 million of increased costs in information technology primarily due to investments in new technology and an increase in contract labor to support modernization efforts and enterprise technology business needs, an $18 million net increase in inventory reserves and project write-offs for TVA's coal-fired plants, and $18 million of increased costs primarily related to natural gas, hydroelectric, and coal maintenance projects. Additionally, there was an increase in nuclear outage expense of $10 million driven by an increase in outage days. Partially offsetting these increases was a decrease of other post-employment benefit expense of $19 million primarily due to the increase in the discount rate assumption used in the actuarial valuation of the liability related to workers’ compensation claims and a reduction in capital write-offs of $30 million due to asset decisions made in the prior year. Depreciation and amortization expense increased $521 million for the year ended September 30, 2022, as compared to the prior year. Implementation of a new depreciation study during the first quarter of 2022 resulted in approximately $345 million more depreciation expense in 2022, as compared to 2021. The increase in depreciation expense as a result of the new depreciation study was primarily driven by 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. Amortization expense of decommissioning costs recovered in rates increased $65 million. Additionally, there was an increase due to depreciation of additions to completed plant. See Note 1 — Summary of Significant Accounting Policies — Property, Plant, and Equipment, and Depreciation — Depreciation . 67 Table of Contents Tax equivalents expense increased $87 million for the year ended September 30, 2022, as compared to the prior year. This change is primarily driven by an increase in the tax equivalents collected in the fuel cost recovery. Generating Sources. The following table shows TVA's generation and purchased power by generating source as a percentage of all electrical power generated and purchased (based on kWh) for the periods indicated: Total Power Supply by Generating Source For the years ended September 30 (millions of kWh) 2022 2021 Nuclear 64,475 39 % 66,265 41 % Natural gas and/or oil-fired 36,259 22 % 33,290 21 % Coal-fired 20,999 13 % 23,391 15 % Hydroelectric 13,934 8 % 16,354 10 % Total TVA-operated generation facilities (1)(2) 135,667 82 % 139,300 87 % Purchased power (natural gas and/or oil-fired) (3) 18,352 11 % 10,836 7 % Purchased power (other renewables) (4) 6,141 4 % 5,113 3 % Purchased power (hydroelectric) 2,543 1 % 2,156 2 % Purchased power (coal-fired) 2,753 2 % 2,373 1 % Total purchased power (2) 29,789 18 % 20,478 13 % Total power supply 165,456 100 % 159,778 100 % Notes (1) Generation from TVA-owned renewable resources (non-hydroelectric) is less than one percent for all periods shown and therefore is not represented in the table above. (2) Raccoon Mountain Pumped-Storage Plant net generation is allocated against each TVA-operated generation facility and purchased power type for both the year ended September 30, 2022, and the year ended September 30, 2021. See Item 1, Business — Power Supply and Load Management Resources — Raccoon Mountain Pumped-Storage Plant for a discussion of Raccoon Mountain Pumped-Storage Plant. (3) Purchased power (natural gas and/or oil-fired) includes generation from Caledonia CC, which is currently a leased facility operated by TVA. Generation from Caledonia CC was 4,797 million kWh and 4,255 million kWh for the years ended September 30, 2022 and 2021, respectively. (4) Purchased power (other renewables) includes purchased power from the following renewable sources: solar, wind, biomass, and renewable cogeneration. TVA sells the RECs resulting from some of this purchased power to certain customers. See Key Initiatives and Challenges — Optimum Energy Portfolio — Renewable Power Purchase Agreements . In addition to power supply sources included here, TVA offers energy efficiency programs that effectively reduced 2022 energy needs by about 2,200 GWh or 1.3%. Interest Expense . Interest expense and interest rates for 2022 and 2021 were as follows: Interest Expense and Rates For the years ended September 30 2022 2021 Percent Change Interest expense (1) $ 1,052 $ 1,088 (3.3) % Average blended debt balance (2) $ 20,596 $ 20,916 (1.5) % Average blended interest rate (3) 4.96 % 5.06 % (2.0) % Notes (1) Includes amortization of debt discounts, issuance, and reacquisition costs, net. (2) Includes average balances of long-term power bonds, debt of VIEs, and discount notes. (3) Includes interest on long-term power bonds, debt of VIEs, and discount notes. Total interest expense decreased $36 million for the year ended September 30, 2022, as compared to the prior year. This was primarily driven by a decrease of $22 million due to lower average debt balances, and the remaining decrease was primarily due to lower average long-term rates. Other Income, Net Other income, net decreased $6 million for the year ended September 30, 2022, as compared to the prior year. This decrease was primarily driven by market losses on TVA's Investment funds. Partially offsetting this decrease was the 2021 court directed payment of $28 million related to the sale of Bellefonte, and no such payments were made in 2022. See Note 21 — Commitments and Contingencies — Legal Proceedings — Case Involving Bellefonte Nuclear Plant for a discussion of the lawsuit filed by Nuclear Development, LLC. 68 Table of Contents Other Net Periodic Benefit Cost Other net periodic benefit cost for the year ended September 30, 2022, was the same as compared to the prior year. Other net periodic benefit cost is subject to significant economic assumptions, such as changes in the discount rate used to measure the benefit plans, that can materially impact TVA. However, TVA uses regulatory accounting to recognize other net periodic benefit cost as a regulatory asset to the extent that the amount calculated under accounting principles generally accepted in the United States of America ("GAAP") as pension expense differs from the amount TVA contributes to the pension plan as pension plan contributions. See Note 20 — Benefit Plans . Liquidity and Capital Resources Sources of Liquidity TVA depends on various sources of liquidity to meet cash needs and contingencies. TVA's primary sources of liquidity are cash from operations and proceeds from the issuance of short-term debt in the form of discount notes, along with periodic issuances of long-term debt. TVA's balance of short-term debt typically changes frequently as TVA issues discount notes to meet short-term cash needs and pay scheduled maturities of discount notes and long-term debt. TVA's next significant power bond maturity is $1.0 billion in September 2024. The periodic amounts of short-term debt issued are determined by near-term expectations for cash receipts, cash expenditures, and funding needs, while seeking to maintain a target range of cash and cash equivalents on hand. In addition to cash from operations and proceeds from the issuance of short-term and long-term debt, TVA's sources of liquidity include four long-term revolving credit facilities totaling approximately $2.7 billion, a $150 million credit facility with the United States Department of the Treasury ("U.S. Treasury"), and proceeds from other financings. See Note 14 — Debt and Other Obligations — Credit Facility Agreements. Other financing arrangements may include sales of receivables, loans, or other assets. The TVA Act authorizes TVA to issue Bonds in an amount not to exceed $30.0 billion outstanding at any time. Power bonds outstanding, excluding unamortized discounts and premiums and net exchange gains from foreign currency transactions, at September 30, 2022 and 2021, were $19.3 billion (including current maturities) and $19.4 billion (including current maturities), respectively. The balance of Bonds outstanding directly affects TVA's capacity to meet operational liquidity needs and to strategically use Bonds to fund certain capital investments as management and the TVA Board may deem desirable. Other options for financing not subject to the limit on Bonds, including lease financings (see Lease Financings below and Note 11 — Variable Interest Entities ), could provide supplementary funding if needed. Currently, TVA expects to have adequate capability to fund its ongoing operational liquidity needs and make planned capital investments over the next decade. See Lease Financings below, Note 11 — Variable Interest Entities , and Note 14 — Debt and Other Obligations for additional information. TVA may from time to time seek to retire or purchase its outstanding debt through cash purchases and/or exchanges for securities, in open market purchases, privately negotiated transactions, or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, TVA's liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. TVA may hold higher cash balances from time to time in response to potential market volatility or other business conditions. In addition, cash balances may include collateral received from counterparties. TVA has maintained continued debt market access since the outbreak of the Coronavirus Disease 2019 (" COVID-19") pandemic. Debt Securities . TVA's Bonds are not obligations of the U.S., and the U.S. does not guarantee the payments of principal or interest on Bonds. TVA's Bonds consist of power bonds and discount notes. Power bonds have maturities of between one and 50 years. At September 30, 2022, the average maturity of long-term power bonds was 15.96 years, and the weighted average interest rate was 4.65 percent. Discount notes have maturities of less than one year. Power bonds and discount notes have a first priority and equal claim of payment out of net power proceeds. Net power proceeds are defined as the remainder of TVA's gross power revenues after deducting the costs of operating, maintaining, and administering its power properties and payments to states and counties in lieu of taxes, but before deducting depreciation accruals or other charges representing the amortization of capital expenditures, plus the net proceeds from the sale or other disposition of any power facility or interest therein. In addition to power bonds and discount notes, TVA had long-term debt associated with certain VIEs outstanding at September 30, 2022. See Lease Financing below, Note 11 — Variable Interest Entities , and Note 14 — Debt and Other Obligations for additional information. 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"). The TVA Act and the Basic Resolution each contain two bond tests: the rate test and the bondholder protection test. Under the rate test, TVA must charge rates for power which will produce gross revenues sufficient to provide funds for operation, maintenance, and administration of its power system; tax equivalents; debt service on outstanding Bonds; payments 69 Table of Contents to the U.S. Treasury in repayment of and as a return on the government's appropriation investment in TVA's power facilities (the "Power Program Appropriation Investment"); and such additional margin as the TVA Board may consider desirable for investment in power system assets, retirement of outstanding Bonds in advance of maturity, additional reduction of the Power Program Appropriation Investment, and other purposes connected with TVA's power business, having due regard for the primary objectives of the TVA Act, including the objective that power shall be sold at rates as low as are feasible. See Note 22 — Related Parties . TVA fulfilled its requirement to repay $1.0 billion of the Power Program Appropriation Investment in 2014; therefore, the repayment of this amount is no longer a component of rate setting. The rate test for the one-year period ended September 30, 2022, was calculated after the end of 2022, and TVA met the test's requirements. Under the bondholder protection test, TVA must, in successive five-year periods, use an amount of net power proceeds at least equal to the sum of the depreciation accruals and other charges representing the amortization of capital expenditures and the net proceeds from any disposition of power facilities, for either the reduction of its capital obligations (including Bonds and the Power Program Appropriation Investment) or investment in power assets. The bondholder protection test for the five-year period ended September 30, 2020, was calculated after the end of 2020, and TVA met the test's requirements. TVA must next meet the bondholder protection test for the five-year period ending September 30, 2025, and expects to meet the test. TVA uses proceeds from the issuance of discount notes, in addition to other sources of liquidity, to fund short-term cash needs and scheduled maturities of long-term debt. The following table provides additional information regarding TVA's short-term borrowings. Short-Term Borrowings (in millions) At September 30, 2022 For the year ended September 30, 2022 At September 30, 2021 For the year ended September 30, 2021 Gross Amount Outstanding (at End of Period) or Average Gross Amount Outstanding (During Period) Discount notes $ 1,173 $ 1,014 $ 780 $ 876 Maximum Month-End Gross Amount Outstanding (During Period) Discount notes N/A $ 2,062 N/A $ 1,598 Weighted Average Interest Rate Discount notes 2.93 % 0.83 % 0.03 % 0.03 % TVA ended the year at September 30, 2022, with a higher balance for both short-term debt and average short-term debt as compared to 2021. The increase was primarily due to the timing of cash flows in 2022 than 2021. TVA generally uses proceeds from the issuance of power bonds to refinance maturing power bonds or other financing obligations, as necessary, or for other power system purposes. The total balance of power bonds may decline in periods where redemptions of power bonds exceed issuance due to net positive cash flow from operating and investing activities. In 2020, TVA achieved and surpassed its strategic goal of reducing debt to $21.8 billion by 2023, and TVA made even further reductions in debt in 2021 and 2022. TVA anticipates the balance of Bonds and other financing obligations will increase in future years due to an expected increase in capital expenditures, consistent with TVA's strategic financial plan. TVA issued $500 million of power bonds during both 2022 and 2021. TVA redeemed $1.0 billion and $1.9 billion of Bonds during 2022 and 2021, respectively. For additional information about TVA debt issuance activity and debt instruments issued and outstanding at September 30, 2022 and 2021, including rates, maturities, outstanding principal amounts, and redemption features, see Note 14 — Debt and Other Obligations — Debt Securities Activity and Debt Outstanding . TVA Bonds are traded in the public bond markets and are listed on the New York Stock Exchange ("NYSE") except for TVA's discount notes, the 2009 Series B power bonds, and the power bonds issued under TVA's electronotes ® program. TVA's Putable Automatic Rate Reset Securities ("PARRS") are traded on the NYSE under the exchange symbols "TVC" and "TVE." Other bonds listed on the NYSE are assigned various symbols by the exchange, which are noted on the NYSE's website. TVA has also listed certain bonds on foreign exchanges from time to time, including the Luxembourg, Hong Kong, and Singapore Stock Exchanges. See Item 1A, Risk Factors — Financial, Economic, and Market Risks for additional information regarding the market for TVA's Bonds. 70 Table of Contents Although TVA Bonds are not obligations of the U.S., TVA, as a corporate agency and instrumentality of the U.S. government, may be impacted if the sovereign credit ratings of the U.S. are downgraded. Additionally, TVA may be impacted by how the U.S. government addresses situations of approaching its statutory debt limit. According to statements made by nationally recognized credit rating agencies, downward pressure on the ratings of the U.S. could eventually develop if there are no changes in current policies and budget deficits and the trajectory of debt continues to increase; additionally, current ratings factor in the prospect that debates over raising the debt ceiling of the U.S. government could continue to be protracted and difficult. The outlook on the ratings of the U.S. government and TVA is currently stable with all three agencies that provide ratings on TVA Bonds. TVA's rated senior unsecured Bonds are currently rated Aaa, AAA, and AA+. TVA's short-term discount notes are not rated. Lease Financings . TVA has entered into certain leasing transactions with special purpose entities ("SPEs") to obtain third-party financing for its facilities. These SPEs are sometimes identified as VIEs of which TVA is determined to be the primary beneficiary. TVA is required to account for these VIEs on a consolidated basis. In addition, TVA previously entered into leasing transactions to obtain third-party financing for 24 peaking combustion turbine units ("CTs") as well as certain qualified technological equipment and software ("QTE"). See Note 11 — Variable Interest Entities and Note 14 — Debt and Other Obligations for information about TVA's lease financing activities. Summary Cash Flows A major source of TVA's liquidity is operating cash flows resulting from the generation and sale of electricity. Cash, cash equivalents, and restricted cash totaled $520 million and $518 million at September 30, 2022 and 2021, respectively. A summary of cash flow components for the years ended September 30 follows: Cash provided by (used in): Operating Activities . TVA's cash flows from operations are primarily driven by sales of electricity, fuel expense, and operating and maintenance expense. The timing and level of cash flows from operations can be affected by the weather, changes in working capital, commodity price fluctuations, outages, and other project expenses. Net cash flows provided by operating activities decreased $308 million for the year ended September 30, 2022, as compared to 2021. The decrease was primarily due to increased fuel and purchased power payments as a result of higher natural gas, coal, and purchased power market prices coupled with an increase in fuel inventory; increased payroll and benefit costs due to labor escalation for cost of living increases; and higher cash used for asset retirement obligation ("ARO") settlements. These decreases were partially offset by a decrease in cash paid for interest. Investing Activities . The majority of TVA's investing cash flows are due to investments to acquire, upgrade, or maintain generating and transmission assets, including environmental projects and the purchase of nuclear fuel. Net cash flows used in investing activities increased $325 million for the year ended September 30, 2022, as compared to the prior year primarily driven by the Watts Bar Unit 2 steam generator replacement project and combustion turbine projects. See Key Initiatives and Challenges — Optimum Energy Portfolio — Natural Gas-Fired Units and Watts Bar Unit 2 . These increases were partially offset by decreased nuclear fuel expenditures for the year ended September 30, 2022, as compared to the prior year. Nuclear fuel expenditures vary depending on the number of outages and the prices and timing of purchases of uranium and enrichment services. Financing Activities . TVA's cash flows provided by or used in financing activities are primarily driven by the timing and level of cash flows provided by operating activities, cash flows used in investing activities, and net issuance and redemption of debt instruments to maintain a strategic balance of cash on hand. Net cash flows used in financing activities decreased $638 million for the year ended September 30, 2022, as compared to the prior year, primarily due to a reduction in net debt redemptions and payments on leaseback transactions. Despite lower 71 Table of Contents net cash flows from operating activities and higher net cash used in investing activities during the current year, TVA was able to maintain targeted cash balance levels without the need for additional net debt issuances. TVA may have a need to increase debt in the coming years as it continues to invest in power system assets, which may result in positive net cash flows provided by financing activities in future periods. Cash Requirements Actual capital expenditures and future planned capital expenditures for property, plant, and equipment additions, including environmental projects and new generation, and nuclear fuel are as follows: Capital Expenditures For the years ended September 30 (in millions) Actual Estimated Capital Expenditures (1) 2022 2023 2024 2025 2026 2027 Capacity expansion expenditures $ 802 $ 1,340 $ 2,190 $ 1,997 $ 1,465 $ 930 Environmental expenditures 79 132 75 36 5 — Nuclear fuel 274 263 284 252 387 321 Transmission expenditures 642 653 551 570 528 527 Other capital expenditures (2) 817 857 764 801 816 816 Total capital expenditures $ 2,614 (3) $ 3,245 $ 3,864 $ 3,656 $ 3,201 $ 2,594 Notes (1) TVA plans to fund these expenditures with cash from operations and proceeds from power program financings. Estimated capital expenditures only include expenditures that are currently planned. Additional expenditures may be required, among other things, for TVA to meet growth in demand for power in its service area or to comply with new environmental laws, regulations, or orders. (2) Other capital expenditures are primarily associated with short lead time construction projects aimed at the continued safe and reliable operation of generating assets. (3) The numbers above include the change in construction in progress and nuclear fuel expenditures included in Accounts payable and accrued liabilities of $30 million. TVA continually reviews its capital expenditures and financing programs. The amounts shown in the table above are forward-looking amounts based on a number of assumptions and are subject to various uncertainties. Amounts may differ materially based upon a number of factors, including, but not limited to, changes in assumptions about system load growth, environmental regulation, rates of inflation, total cost of major projects, and availability and cost of external sources of capital. See Forward-Looking Information and Part I, Item 1A, Risk Factors . TVA has certain obligations and commitments to make future payments, including contracts executed in connection with certain of the planned construction expenditures. TVA estimates total commitments and contingencies at September 30, 2022, are approximately $5.5 billion for the year ended September 30, 2023, and $45.6 billion for the years thereafter. Of these amounts, $3.6 billion and $21.6 billion of TVA's estimates for future payments are set forth in the table below. See Note 8 — Leases , Note 11 — Variable Interest Entities , Note 14 — Debt and Other Obligations , and Note 20 — Benefit Plans for the obligations and commitments attributable to leases, VIEs and membership interests of VIEs subject to mandatory redemption, debt and leaseback obligations, and the retirement plan, respectively, for remaining amounts. Other Commitments and Contingencies Payments due for the years ending September 30 (in millions) 2023 2024 2025 2026 2027 Thereafter Total Interest payments relating to debt (1) $ 958 $ 957 $ 927 $ 873 $ 812 $ 11,990 $ 16,517 Interest payments relating to debt of VIEs 47 45 44 42 40 323 541 Interest payments relating to membership interests of VIEs subject to mandatory redemption 1 1 1 1 1 4 9 Purchase obligations Power (2) 336 344 249 218 191 1,198 2,536 Fuel (3) 2,165 891 500 324 268 1,000 5,148 Other (4) 105 55 35 27 19 165 406 Flood response commitment to NRC — — — — — 27 27 Total $ 3,612 $ 2,293 $ 1,756 $ 1,485 $ 1,331 $ 14,707 $ 25,184 Notes (1) Includes the effects of interest rate derivatives employed to manage interest rate risk. (2) Includes commitments for energy and/or capacity under power purchase agreements ("PPAs") from coal-fired, hydroelectric, diesel, renewable, and gas-fired facilities, as well as transmission service agreements to support purchases of power from the market. Certain PPAs are accounted for as leases and have lease 72 Table of Contents and non-lease components. For these contracts, the lease component is included in lease obligations (see Note 8 — Leases ) and the non-lease component is included in power purchase obligations in the table above. For PPA contracts containing a lease component that have not commenced, the entire contract amount is included in the table above. (3) Includes commitments to purchase nuclear fuel, coal, and natural gas, as well as related transportation and storage services. (4) Primarily includes long-term service contracts, contracts that contain minimum purchase levels for the purchase of limestone along with related storage and transportation, and contractual obligations related to TVA's load control program. EnergyRight ® Program. TVA purchases certain loans receivable from its LPCs in association with the EnergyRight ® program. Depending on the nature of the energy-efficiency project, loans may have a maximum term of five years or 10 years. The loans receivable are then transferred to a third-party bank with which TVA has agreed to repay in full any loan receivable that has been in default for 180 days or more or that TVA has determined is uncollectible. At September 30, 2022, the total carrying amount of the loans receivable, net of discount, was $62 million. Such amounts are not reflected in the Other Commitments and Contingencies table above. The total carrying amount of the financing obligation was $72 million at September 30, 2022. See Note 9 — Other Long-Term Assets and Note 12 — Other Long-Term Liabilities for additional information. Off-Balance Sheet Arrangements At September 30, 2022, TVA had no off-balance sheet arrangements. Key Initiatives and Challenges Optimum Energy Portfolio TVA must continuously evaluate all generating assets to ensure an optimal energy portfolio that provides safe, clean, and reliable power while maintaining flexibility and fiscal responsibility to the people of the Tennessee Valley. TVA is considering plans for additional generating facilities to replace retiring or expiring capacity and to support a low cost, reliable, flexible, and increasingly clean power system. As TVA continues to evaluate the impact of retiring its coal-fired fleet by 2035, it is also evaluating adding flexible lower carbon-emitting gas plants as a strategy to maintain reliability. TVA is making investments in its generating portfolio and its infrastructure to both modernize its fleet and ensure a flexible energy grid of the future. In addition, TVA is committed to investing in the future of nuclear with the evaluation of emerging advanced nuclear technologies, such as small modular reactors ("SMRs"), and is increasing its renewable energy portfolio by securing PPAs and developing projects such as TVA's Self-Directed Solar. TVA plans to initiate work no later than 2024 to develop a new Integrated Resource Plan ("IRP"). The IRP will be a comprehensive study, with extensive engagement from the public and stakeholders, and will provide TVA direction on how to best meet future electricity demands from now to 2050. The process to develop a new IRP, while complex, will be designed to be inclusive, transparent, and comprehensive. TVA anticipates the process will take approximately two years to complete. Coal-Fired Fleet. Based on results of assessments presented to the TVA Board in 2019, the retirement of Bull Run by December 2023 was approved. See Note 7 — Plant Closures . TVA is also evaluating the impact of retiring the balance of the coal-fired fleet by 2035. TVA will prepare environmental reviews pursuant to the National Environmental Policy Act ("NEPA") prior to making a decision on retiring or building any plant. Environmental reviews evaluating the potential retirement of the Cumberland Fossil Plant ("Cumberland") and Kingston Fossil Plant ("Kingston") and replacement with other generation are now underway. On April 25, 2022, TVA made available to the public a draft environmental impact statement ("EIS") to assess the impacts associated with the potential retirement of Cumberland and the construction and operation of facilities to replace part of that generation. TVA received public input on the draft EIS during the 45-day public comment period of April 29, 2022 through June 13, 2022. TVA is currently reviewing comments submitted on the draft EIS, and a final EIS is expected to be published in December 2022. In addition, on November 10, 2021, the TVA Board authorized the Chief Executive Officer to evaluate, decide upon, and complete, if necessary, the retirements of Cumberland and Kingston and replacement generation projects, subject to completing all required environmental reviews, periodically updating the TVA Board on plans and actions, and notifying the TVA Board before making final decisions. The TVA Board approved costs up to $3.5 billion for these projects to develop generation and transmission assets and complete required demolition activities. Natural Gas-Fired Units. During 2019, the TVA Board approved an expansion of approximately 1,500 MW of peaking gas replacement capacity at two combustion turbine gas facilities to coincide with the retirement of Allen CTs 1-20 and Johnsonville CTs 1-16, contingent on the successful completion of environmental reviews under NEPA and other applicable laws. In 2020, detailed design and engineering work began at TVA’s Paradise and Colbert sites to further scope out the projects and supply information needed for the NEPA review. In 2021, environmental reviews under NEPA and other applicable laws were complete, and TVA received the air permits for the Paradise and Colbert facilities. Each project is expected to increase combustion turbine generation capacity by 750 MW. As of September 30, 2022 , TVA had spent approximately $545 million on these expansions, and TVA expects to spend an additional $424 million. Both projects are anticipated to enter commercial operations by the end of CY 2023. A 500 MW aeroderivative CT project at TVA’s Johnsonville site has been approved for $599 million, contingent on the successful completion of environmental reviews under NEPA and other applicable laws. In 2020, detailed design and engineering work began to further scope out the project and supply information needed for the NEPA review. In July 2022, 73 Table of Contents environmental reviews under NEPA and other applicable laws were complete, and TVA received the air permits for the Johnsonville facility. As of September 30, 2022, TVA had spent approximately $325 million on this project. TVA expects to spend an additional $274 million on this project and anticipates the project to enter commercial operations by the end of CY 2024. Watts Bar Unit 2. During 2014, the TVA Board approved a project for the replacement of the steam generators at Watts Bar Unit 2. During the refueling outage in 2021, TVA identified degraded steam generator conditions on Watts Bar Unit 2. Watts Bar Unit 2 remained at or below 95 percent of rated thermal output until the outage to replace the originally installed steam generators was completed, which began in March 2022. Watts Bar Unit 2 was returned to service in July 2022. As of September 30, 2022, TVA had spent $572 million related to this project and expects to spend less than $1 million in 2023. Renewable Power Purchase Agreements . In recent years, TVA has issued requests for proposals ("RFPs") in order to meet customer preferences and requirements for cleaner energy. TVA will procure the renewable energy and sell the resulting Renewable Energy Certificates ("RECs") to specific customers, allowing TVA to increase its renewable energy portfolio without additional costs to other TVA customers. These agreements help to align the core values of TVA and the public power model with the desire of TVA's customers for renewable energy. Additionally, TVA issued an RFP during 2021 for up to 200 MW of new renewable energy and anticipates making selections in the first quarter of 2023. Mounting solar supply chain constraints, commodity price increases, and the recent trade policy investigation into solar panel imports have created challenges for the U.S. solar industry, threatening project delays, cancellations, and price increases. These challenges are affecting contracted PPAs from previous RFPs that are not yet online and were reflected in submissions to TVA's 2021 RFP. TVA issued a carbon-free RFP in July 2022 for up to 5,000 MW of carbon-free and renewable energy projects. This RFP includes a broad range of potential generation sources, including nuclear, green gas, solar, storage, and wind, among others. TVA anticipates making selections for the carbon-free RFP in the second half of 2023. Self-Directed Solar. During 2019, the TVA Board approved the opportunity for TVA to explore being directly involved in the development of a utility-scale solar project, contingent on the successful completion of environmental reviews under the NEPA and other applicable laws. In 2021, TVA purchased land for this development. In 2022, environmental reviews were complete. As of September 30, 2022, TVA had spent approximately $27 million on the project and expects to spend an additional $290 million. The mounting solar supply chain constraints affecting TVA’s RFPs are also being seen in TVA’s Self-Directed Solar project. This has resulted in a delay in the estimated completion, with the project now expected to be complete in 2025. Project cost increases are also anticipated due to cost escalations from the state of global supply chains. In November 2022, the TVA Board approved the opportunity for TVA to explore the development of an additional utility-scale solar project, contingent on the successful completion of environmental reviews under the NEPA and other applicable laws, including state permits. The project would utilize TVA-owned land, deploying a solar cap system on the closed coal ash management unit at the TVA Shawnee Fossil Plant in Paducah, Kentucky. The project is in early project development stage and is approved for $216 million. Small Modular Reactors . In December 2019, TVA became the first utility in the nation to successfully obtain approval for an early site permit from the Nuclear Regulatory Commission ("NRC") to potentially construct and operate SMRs at TVA’s Clinch River Nuclear Site. The permit is valid through 2039 and therefore provides TVA a great deal of flexibility to make new nuclear decisions based on energy needs and economic factors. In 2021, TVA initiated a Programmatic EIS ("PEIS") that evaluates a variety of alternatives for a proposed advanced nuclear technology park at the Clinch River Nuclear Site and will provide additional flexibility for future decision making. The PEIS was issued for public comment in March 2022 and the Record of Decision was signed in September 2022. In 2022, the TVA Board approved the New Nuclear Program and approved up to $200 million to explore advanced reactor technology options. Of this amount, TVA had spent approximately $13 million as of September 30, 2022. The New Nuclear Program provides a systematic roadmap for TVA’s exploration of advanced nuclear technology. Collaboration with other interested parties will be an important aspect of this program, and TVA has entered into several agreements with technology progressive organizations that allow for mutual collaboration to explore advanced reactor designs as a next-generation nuclear technology. One of the first tasks the New Nuclear Program is pursuing is a project to develop an NRC construction permit application at the Clinch River Nuclear Site. In addition, while evaluating alternatives for potential advanced nuclear at the Clinch River Nuclear Site, TVA is exploring the feasibility of applying a similar approach that could deploy additional SMRs. The decision to potentially build SMRs continues to be part of the ongoing discussion as part of the asset strategy for TVA’s future generation portfolio, and any future decision to construct any reactor, advanced or otherwise, would require approval by the TVA Board and the NRC. As of September 30, 2022, TVA had spent $104 million on work regarding SMRs, including work to complete the early site permit application for the Clinch River Nuclear Site and work associated with the New Nuclear Program above. Of these amounts, DOE had reimbursed TVA $29 million. Additional expenditures will be determined based on future project development. Fiber Optic Network . In 2017, the TVA Board authorized up to $300 million to be spent over the next 10 years, subject 74 Table of Contents to annual budget availability and necessary environmental reviews, to build an enhanced fiber optic network that will better connect TVA's operational assets. Fiber is a vital part of TVA's modern communication infrastructure. The new fiber optic lines will improve the reliability and resiliency of the generation and transmission system while enabling the system to better accommodate DER as they enter the market. As of September 30, 2022 , TVA had spent $197 million on installation of the fiber optic lines and expects to spend an additional $103 million through 2027. System Operations Center . A new system operations center has been approved for $297 million. The new secured facility is being built to accommodate a new energy management system and adapt to new regulatory requirements, and will improve reliability, have improved physical security from the previous center, and be flexible to help accommodate operational growth requirements, including future renewables. The facility is expected to be constructed by the end of CY 2023 and fully operational in 2025. As of September 30, 2022, TVA had spent approximately $167 million on the project and expects to spend an additional $130 million. Energy Management System. A new energy management system has been approved for $90 million. As the current energy management system is nearing the end of its life cycle, this project will replace the existing analog system with a digital system. The new digital system will have higher capacity and speed, for communications with the TVA grid and for inputs from monitoring equipment, which will also network the new control center with existing locations and enable better remote visibility and control to help mitigate reliability implications of climate change. The system is expected to be complete in 2026. As of September 30, 2022, TVA had spent approximately $44 million on the project and expects to spend an additional $46 million. Automated Energy Exchange Platform. In October 2021, an automated energy exchange, the Southeast Energy Exchange Market ("SEEM"), took effect. The exchange was created to facilitate more short-term power exchanges and will be an enhancement to the existing market. TVA’s participation is subject to certain TVA Board approvals and the completion of appropriate environmental reviews. TVA has completed the appropriate environmental reviews and during the third quarter of 2022, the TVA Board approved the creation of a zero-cost, non-firm transmission service to allow TVA to participate in SEEM and authorized the Chief Executive Officer ("CEO") to amend the TVA Transmission Service Guidelines to offer the zero-cost, non-firm transmission service and to develop a methodology for calculating a loss rate for SEEM transactions. In September 2022, the CEO amended the TVA Transmission Service Guidelines to offer the service, and a methodology for calculating a loss rate for SEEM transactions was developed. In November 2022, the SEEM market began transacting. Inflation Reduction Act. On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 ("Inflation Reduction Act"). Among other things, the Inflation Reduction Act makes certain tax-exempt entities, including TVA, eligible for a direct-pay option for certain tax credits that encourage investment in clean energy. In addition, on September 12, 2022, President Biden issued Executive Order 14082, Implementation of the Energy and Infrastructure Provisions of the Inflation Reduction Act of 2022, which provides policy guidance to federal agencies on implementation and prioritization of the Inflation Reduction Act, establishes a new office within the White House charged with implementing the energy and infrastructure provisions of the Inflation Reduction Act, and makes a series of edits to previous executive orders to implement personnel and policy changes. TVA is currently evaluating the Inflation Reduction Act to determine whether it will be able to benefit from any these tax credits. Electric Vehicles TVA is partnering with LPCs and others to support the electrification of transportation in the Tennessee Valley in a multi-year electric vehicle ("EV") initiative. The initiative focuses on reducing or eliminating EV market barriers by setting EV policies, improving charging infrastructure availability, expanding EV availability and offerings, and spreading EV consumer awareness. In 2021, the TVA Board approved new policies and an optional wholesale EV rate aimed at encouraging the development of charging infrastructure in the Tennessee Valley. The updated policies enable LPC investment in public charging infrastructure and allow for the conditional resale of electricity, for transportation purposes only, by any charging developer on a $/kWh basis. The optional wholesale rate was developed with high power EV charging in mind and provides a stable option for those developing charging infrastructure. TVA is also working with LPCs, state agencies, and third-party charging developers to create the Fast Charge Network. This will be a foundational network of public fast charging stations at least every 50 miles along interstates and major highways across its seven-state service area. In 2021, TVA began a partnership with the State of Tennessee for the development and funding of Fast Charge Tennessee, the portion of the Fast Charge Network that covers Tennessee, and in 2022 TVA launched the Fast Charge Network. As of September 30, 2022, four sites were complete and operational with 28 additional sites under contract for development. TVA had spent less than $1 million on fast charging network charging stations as of September 30, 2022. TVA also plans to electrify 100% of its light-duty and 50% of its medium-duty vehicles in the TVA fleet. The adoption of EVs in the Tennessee Valley continues to grow, and TVA is working to ensure that the benefits of this rapid growth are secured, while also helping LPCs proactively avoid issues in their distribution systems. Also in 2021, TVA and five other major utilities formed the Electric Highway Coalition to develop a network of fast charging stations along all major highway routes within their service area. Since formation, the Electric Highway Coalition has gained significant interest from additional utilities and other EV collaboratives. In 2022, the Electric Highway Coalition merged with the Midwest Electric Vehicle Charging Infrastructure Collaboration to create the National Electric Highway Coalition with members committed to coordinate the development of EV charging infrastructure across the central U.S. 75 Table of Contents Sustainability and Social Responsibility Sustainability has been and continues to be a focus in support of TVA's mission to deliver affordable and reliable energy, steward the environment, and create sustainable economic growth. TVA has a Chief Sustainability Officer (“CSO”) who oversees an Enterprise Wide Environmental Executive Council, a Sustainability Steering Committee, and a Sustainability Working Group, which together are responsible for the governance of sustainability at TVA. The CSO is also a member of TVA’s Risk Management Steering Committee. TVA’s sustainability work is categorized into four areas: • Economic Impact — Partnering to build the region’s clean energy economy • Environment — Stewarding the region’s resources • Social — Serving people and communities across the region • Governance — Driving progress through accountability and transparency Economic Impact Environment Social Governance Energy affordability Climate change and resilience Health and safety Transparency Reliability and resiliency Air quality Environmental justice Board and executive diversity Jobs created and retained Water quality and availability Community vitality and engagement Systemic risk management Flood and drought management Waste management Reservoir and stewardship benefits Ethics Energy innovations Habitat and biodiversity protection Local power company partnerships Cyber and physical security Renewable energy Cultural resource management Diversity and inclusion Sustainable financing framework Investor relations Labor relations Supplier partners Recruitment, development, and retention Skilled workforce availability In 2021, TVA highlighted its sustainability efforts with issuances of its Corporate Sustainability Report, a supplemental Carbon Report, and an Edison Electric Institute Environmental, Social, Governance ("EEI ESG") Sustainability Report, among others. TVA continued to highlight its sustainability efforts in 2022 and released its 2021 Corporate Sustainability Report in May 2022 and its 2021 EEI ESG Sustainability Report in September 2022. In 2022, TVA also issued its first Diversity, Equity, Inclusion and Accessibility ("DEIA") Report. The report highlights the actions TVA has taken in the DEIA area, the results achieved, and the plans to continue to focus and improve. Operational Challenges Coal Supply. Coal supply challenges continued in 2022 as a result of supply limitation and transportation constraints, and are anticipated to continue into 2023. Total system coal inventories were lower than planned throughout 2022 primarily as a result of higher than forecasted coal generation and continued constraints on fuel supply. Coal inventory increased at September 30, 2022, as compared to September 30, 2021, due to higher costs of fuel, including transportation costs, coal conservation efforts, and an increase in inventory levels in preparation for winter inventory needs. The increased inventory levels will help mitigate expected constraints on fuel supply and continued natural gas price volatility which may cause coal to be a more favorable economic fuel choice during that period. Supply constraints are driven by both domestic and export demand, limited production capacity, and market volatility. Rail service continues to limit TVA’s ability to receive contracted supply due primarily to continued crew and congestion issues; however, TVA is actively working to acquire alternate routes and arrangements for transport. TVA is also monitoring potential strikes that could affect rail transportation should they occur. In addition, TVA is seeing significant supply constraints and price increases for reagents, diesel fuel, and fuel surcharges associated with coal transport, which are also expected to continue. TVA is seeking additional reagent sources to diversify the supply base and improve resiliency. TVA will continue to monitor the coal supply challenges and utilize its contracting strategy and diverse generation portfolio to balance needs and ensure adequate fuel supplies. 76 Table of Contents Aquatic Vegetation. In 2020, the unprecedented growth and breakaway of aquatic vegetation in Wheeler Reservoir challenged the Browns Ferry intake structures and impacted the source of cooling water for the plant. Two units were removed from operation and power was reduced on the third unit to accommodate the decreased capability of the cooling systems. Nuclear safety was not challenged during the event. Breakaway of aquatic vegetation will continue to be a concern until a permanent solution is finalized. However, mitigation solutions have been identified to reduce marine biofouling of the plant intake system, and permanent design solutions are expected to be implemented by the end of CY 2025. Thermal Compliance . TVA is subject to requirements of the Clean Water Act ("CWA") for maintaining discharge water temperatures and pollutant concentrations below certain limits. In the latter part of June 2022 and beginning of July 2022, TVA experienced abnormally high air temperatures, which, combined with fewer significant rain events during this time as compared to previous years, caused river temperatures to warm. This sustained heat, along with lower rainfall, can create a challenge for TVA’s plants which depend on water from the river systems for cooling while maintaining compliance with thermal requirements. TVA has had and will continue to have temporary reductions of generation at affected plants to ensure compliance with thermal requirements and anticipates water temperature will continue to pose a risk during times of higher air temperatures and fewer significant rain events. See Item 1A, Risk Factors – Risks Related to the Environmental and Catastrophic Events – Events that affect the supply or quality of water from the Tennessee River system and Cumberland River system, or elsewhere, may interfere with TVA's ability to generate power . Extreme Flooding Preparedness. Updates to the TVA analytical hydrology model completed in 2009 indicated that under "probable maximum flood" conditions, some of TVA's dams might not have been capable of regulating the higher flood waters. A "probable maximum flood" is an extremely unlikely event; however, TVA has a responsibility to provide protection for its nuclear plants against such events. As a result, TVA installed a series of modifications at four dams. Since 2009, TVA has performed further hydrology modeling of portions of the TVA watershed using updated modeling tools. The revised hydrology models were reviewed and approved by the NRC for Watts Bar Nuclear Plant ("Watts Bar") Units 1 and 2. However, TVA identified an error in the modeling that will require the models for Watts Bar Units 1 and 2 to be resubmitted. TVA plans to resubmit models for Watts Bar Units 1 and 2 in 2023. In addition, TVA submitted models for Sequoyah Nuclear Plant ("Sequoyah") Units 1 and 2 in 2020. As a result of the recently identified necessary changes to dam stability assumptions, TVA will submit a revision to the Sequoyah model in 2023. TVA will subsequently address conditions at Browns Ferry Nuclear Plant ("Browns Ferry") as needed. As of September 30, 2022, TVA had spent $155 million on the modifications and improvements related to extreme flooding preparedness. TVA is deferring the decision on the need for additional modifications until after the modeling work is complete. Dam Remediation . In 2015, a sinkhole was discovered near the base of the earthen embankment at Boone Dam, and a small amount of water and sediment was found seeping from the river bank below the dam. TVA identified underground pathways contributing to the seepage and prepared a plan to repair the dam, which consists of the construction of a composite seepage barrier wall in the dam's earthen embankment. The site was re-opened to the public in May 2022, and the reservoir has returned to normal operations. As of September 30, 2022, TVA had spent $325 million related to this project and expects to spend an additional $1 million in 2023. In addition, reassessments of Pickwick Landing Dam ("Pickwick") found low safety factors for post-earthquake stability indicating that the dam is at significant risk for slope stability failure following a seismic event in portions of the south embankment. Slope stability failure could lead to a breach of the south embankment and loss of the reservoir, resulting in loss of life and damage to property downstream, disruption to navigation, and loss of generation and recreation. The remaining remediation work is estimated to be complete by the third quarter of 2023. As of September 30, 2022, TVA had spent $127 million related to this project and expects to spend an additional $1 million in 2023. Decarbonization TVA's decarbonization initiative is aimed at understanding and applying clean resources to support the reduction of carbon emissions from its power supply. Related to its carbon reduction efforts, TVA has established six guiding principles which are as follows: • Prioritize the needs of Tennessee Valley stakeholders as TVA works to achieve its goals by maintaining low rates and high reliability, and attracting new jobs in the Tennessee Valley. • Use best-available science and support research and policies that further carbon-free dispatchable technologies. • Partner with long-term LPCs and other customers and communities to support economy-wide decarbonization efforts and the strategic electrification of other sectors, such as transportation. • Maintain nuclear generation, hydro generation, and a strong transmission grid as key enabling assets. • Be transparent with stakeholders in measuring and sharing TVA's progress, and listen and work effectively with all its stakeholders to understand their priorities and needs. 77 Table of Contents • Adapt to new technologies and changing policies, and be willing and open to changing TVA's plans and projects to achieve deep carbon reduction. As part of the decarbonization efforts, in 2022, the TVA Board approved a programmatic approach to exploring advanced nuclear technology, which is one of several technologies TVA is exploring. Other decarbonization technologies TVA is exploring in addition to advanced nuclear include battery storage, carbon capture, carbon sequestration and utilization, new hydroelectric pumped storage, electrification, and hydrogen. TVA also is increasing its renewable energy portfolio to work towards carbon emission reductions and meet customer preferences by investing in existing assets, encouraging renewable power through various current programs and offerings, and securing renewable PPAs through RFPs, among others. See Optimum Energy Portfolio above, Item 1, Business — Power Supply and Load Management Resources — Renewable Energy Resources , and Item 1, Business — Research and Development for further discussion. See also Item 1, Business — Environmental Matters — Climate Change for a discussion on the impact of executive actions and climate-related regulations on TVA. Coal Combustion Residuals Coal Combustion Residuals Facilities . TVA has committed to a programmatic approach for the elimination of wet storage of coal combustion residuals ("CCR") within the TVA service area. Under this program ("CCR Program"), TVA performed stability remediation, completed the conversion of all operational coal-fired plants to dry CCR storage, and is now closing all remaining wet storage facilities. Dry generation and dewatering projects . TVA has accomplished the conversion from wet to dry handling of CCR materials at all operating coal plants with the completion of dry generation and/or dewatering projects at Bull Run, Cumberland, Gallatin Fossil Plant ("Gallatin"), Kingston, and Shawnee Fossil Plant ("Shawnee"). Landfills . TVA has made strategic decisions to build and maintain lined and permitted dry storage facilities on TVA-owned property at some TVA locations, allowing these facilities to operate beyond existing dry storage capacity. Lined and permitted landfills are operational at Bull Run, Gallatin, Kingston, and Shawnee; TVA received the permit for the construction of a new lined landfill at Gallatin and construction started in 2022; and TVA continues to work through the permitting process for a new landfill at Cumberland and expects construction to begin in 2023. Construction of additional lined and dry permitted storage facilities may occur to support future business requirements . CCR facilities closures . TVA is working to close CCR facilities in accordance with federal and state requirements. Closure project schedules and costs are driven by the selected closure methodology (such as closure-in-place or closure-by-removal). Closure initiation dates are driven by environmental regulations. TVA's predominant closure methodology is closure-in-place, with exceptions at certain facilities. TVA issued an EIS in June 2016 that addresses the closure of CCR impoundments at TVA's coal-fired plants. TVA issued its associated Record of Decision in July 2016. Although the EIS was designed to be programmatic in order to address the mode of impoundment closures, it specifically addressed closure methods at 10 impoundments. TVA subsequently decided to close those impoundments. The method of final closure for each of these facilities will depend on various factors, including approval by appropriate state regulators and applicable closure requirements of state and federal regulations. Additional site-specific NEPA studies will be conducted as other facilities are designated for closure. See Note 13 — Asset Retirement Obligations . Groundwater monitoring . Compliance with the Environmental Protection Agency's ("EPA's") CCR rule ("CCR Rule") required implementation of a groundwater monitoring program, additional engineering, and ongoing analysis. As further analyses are performed, including evaluation of monitoring results and possible remedies, there is the potential for additional costs for investigation and/or remediation. These costs cannot reasonably be predicted until investigations and evaluations are complete and a final remedy is selected where required. The final Part A revision to the CCR Rule became effective September 28, 2020. Among other things, the final Part A rule requires unlined CCR surface impoundments to stop receiving CCR and non-CCR waste streams and to initiate closure or retrofit by no later than April 11, 2021. TVA ceased sending CCR and non-CCR waste streams to, and initiated closure of, unlined CCR surface impoundments by the specified deadline. In compliance with the CCR Rule, TVA published the results of 2021 groundwater testing at its CCR facilities during the second quarter of 2022. Similar to prior years, the tests identified several CCR units with constituents at statistically significant levels above site-specific groundwater protection standards. TVA has completed an assessment of corrective measures (“ACM”), which analyzes the effectiveness of potential corrective actions, and has published ACM reports to its CCR Rule Compliance Data and Information website. Based on the results of the ACM, TVA is required to select a remedy as soon as feasible. TVA continues to investigate and evaluate remedies and will continue posting semi-annual progress reports on the status of remedy selection until the final remedy is selected. The cost of these final remedies cannot reasonably be predicted until investigations and evaluations are complete and remedial methods are selected. As of September 30, 2022, TVA had spent approximately $2.6 billion on its CCR Program. Through 2027, TVA expects to spend an additional $900 million on the CCR Program. Estimates for these amounts and costs after 2027 may change 78 Table of Contents depending on the final closure method selected for each facility. While the conversion portion of the CCR Program is completed, TVA will continue to undertake CCR closure and storage projects, including building new landfill cells under existing permits and closing existing cells once they reach capacity. TVA was involved in two lawsuits concerning the CCR facilities at Gallatin. One of these cases was decided in TVA's favor by the Sixth Circuit, and the other case was resolved by the entry of a consent order and agreement in Davidson County Chancery Court that became effective July 24, 2019. Under the consent order, TVA agreed to close the existing ash facility by removal, either to an onsite landfill or to an offsite facility. TVA may also consider options for beneficial reuse of the CCR. TVA has submitted the removal plan for approval to the Tennessee Department of Environment and Conservation ("TDEC") and other applicable parties pursuant to the consent order. See Note 13 — Asset Retirement Obligations . In October 2019, 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. 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. Allen Groundwater Investigation . The CCR Rule required TVA to implement a comprehensive groundwater monitoring program at units subject to the rule. As a result of this groundwater monitoring program, TVA reported to TDEC in 2017 elevated levels of arsenic, lead, and fluoride in groundwater samples collected from two shallow-aquifer groundwater monitoring wells around the Allen East Ash Disposal Area. TVA, under the oversight of TDEC, conducted a remedial investigation into the nature and extent of the contamination. The remedial investigation confirmed that the high arsenic, fluoride, and lead concentrations are limited to the shallow alluvial aquifer in the north and south areas of the Allen East Ash Disposal Area. These areas are not adversely impacting the Memphis aquifer, which is the source of the public drinking water supply. All samples taken from the Memphis aquifer through TVA production wells were within the EPA drinking water standards. As the result of a pumping test conducted on TVA production wells at the nearby Allen Combined Cycle Plant ("Allen CC") by the United States Geological Survey and the University of Memphis, TVA has committed to not using these production wells until additional data is generated that supports safe use. TVA constructed water tanks on site and is purchasing cooling water from MLGW in lieu of utilizing the projection wells. Purchasing cooling water in combination with the use of water tanks, rather than wells, could impose some operational limitations, such as limitations on capacity, on the Allen CC due to lower availability of cooling water. Pursuant to a remedial action plan that has been approved by TDEC, TVA has begun installing a groundwater extraction system and treatment system at the East Ash Disposal Area. In addition, TVA is taking steps to close both the East Ash Disposal Area and the nearby West Ash Disposal Area. On November 29, 2021, after obtaining the necessary approvals from TDEC, TVA began removing CCR materials to an offsite, lined landfill, and removal activities are expected to continue through 2029. Potential Liability Associated with Workers' Exposure to CCR Materials. In response to the 2008 ash spill at Kingston, TVA hired Jacobs Engineering Group, Inc. ("Jacobs") to oversee aspects of the cleanup. After the cleanup was completed, Jacobs was sued in the U.S. District Court for the Eastern District of Tennessee ("Eastern District") by employees of a contractor involved in the cleanup and family members of some of the employees. The plaintiffs alleged that Jacobs failed to take or provide proper health precautions and misled workers about the health risks associated with exposure to coal fly ash, which is a CCR material. The plaintiffs also alleged that exposure to the fly ash caused significant illnesses, including in some cases death. In 2018, a jury found in favor of the plaintiffs regarding general causation, including that Jacobs failed to adhere to its contract with TVA or the Site Wide Safety and Health Plan; Jacobs failed to provide reasonable care to the plaintiffs; and Jacobs's failures were capable of causing a variety of employee medical conditions. Currently, the Eastern District has stayed all proceedings in the case pending the Tennessee Supreme Court's review of four questions from the Eastern District. An oral argument on these questions was held on June 1, 2022. If the litigation proceeds to a damages phase, the principal question for resolution will be whether Jacobs's breaches were the specific medical cause of the plaintiffs' alleged injuries and damages. Other contractor employees and family members also have filed lawsuits against Jacobs that are pending in the Eastern District. These pending lawsuits are stayed and raise similar claims to those being litigated against Jacobs. While TVA is not a party to any of these lawsuits, TVA may potentially have an indemnity obligation to reimburse Jacobs in some circumstances. TVA does not expect any potential liability to have a material adverse impact on its results of operations or financial condition. See Note 21 — Commitments and Contingencies — Contingencies . Real Property Portfolio TVA continues to study its real property portfolio as part of the Strategic Real Estate Plan, which is aimed at reducing cost, right-sizing the portfolio, and aligning real estate holdings with TVA's strategic direction. In addition, as TVA continues to explore a hybrid work environment for those whose physical presence is not required, it is also assessing and 79 Table of Contents reviewing long-term impacts to and plans for its current real estate holdings. The Knoxville regional consolidation, including consolidation of the centralized field offices in Norris, Tennessee, and Greenway Transmission Service Center, has been completed. As part of TVA's initiative to ensure appropriate workspaces for employees to carry out their mission of service now and into the future, TVA has signed a lease for office space in a building located near downtown Nashville. Occupancy is expected for early 2024. In addition, TVA is continuing to evaluate its real property portfolio, including the Chattanooga Office Complex. Supply Chain and Inflation Pressures TVA has experienced an increase in supplier impacts as a result of COVID-19 and the state of global supply chains and the economy, such as project delays, limited availability of supplies, and price increases. Russia's invasion of Ukraine has further intensified the state of global supply chains and inflationary pressures. TVA is actively managing costs to mitigate inflationary pressures; however, broader inflationary pressures are expected to persist in 2023. TVA is also managing supplier impacts through existing contracts and increased lead times and communications with suppliers. TVA has been able to manage these challenges with limited business disruptions at this time; however, should pressures continue long-term, TVA could experience more significant disruptions. Board Quorum The terms of John L. Ryder and Kenneth E. Allen as members of the TVA Board ended January 3, 2022, with the adjournment of the most recent session of Congress. There are currently five TVA Board members; however, the terms of two additional TVA Board members – Jeff W. Smith and A.D. Frazier – expired on May 18, 2022, although they are permitted under the TVA Act to remain in office until the earlier of the end of the current session of Congress or the date a successor takes office. Under the TVA Act, a quorum of the TVA Board is five members. The TVA Board is responsible for, among other things, establishing the rates TVA charges for power as well as TVA's long-term objectives, policies, and plans. Accordingly, loss of a quorum for an extended period of time would impair TVA's ability to change rates and to modify these objectives, policies, and plans. See Item 1A, Risk Factors — Human Capital and Management Risks — Loss of a quorum of the TVA Board could limit TVA’s ability to adapt to meet changing business conditions . Safeguarding Assets Physical Security — Non-Nuclear Asset Protection. TVA utilizes a variety of security technologies, security awareness activities, and security personnel to prevent sabotage, vandalism, and thefts. Any of these activities could negatively impact the ability of TVA to generate, transmit, and deliver power to its customers. TVA's Police and Emergency Management personnel are active participants with numerous professional and peer physical security organizations in both the electric industry and law enforcement communities. TVA works with the North American Electric Reliability Corporation ("NERC"), the SERC Reliability Corporation, the North American Transmission Forum, and other utilities to implement industry approved recommendations and standards. Nuclear Security . Nuclear security is carried out in accordance with federal regulations as set forth by the NRC. These regulations are designed for the protection of TVA's nuclear power plants, the public, and employees from the threat of radiological sabotage and other nuclear-related terrorist threats. TVA has security forces to guard against such threats. Cybersecurity. TVA operates in a highly regulated environment with respect to cybersecurity. TVA's cybersecurity program aligns or complies with the Federal Information Security Management Act, the NERC Critical Infrastructure Protection requirements, and the NRC requirements for cybersecurity, as well as industry best practices. As part of the U.S. government, TVA coordinates with and works closely with the U.S. Department of Homeland Security's Cybersecurity and Infrastructure Security Agency ("CISA") and the U.S. Computer Emergency Readiness Team ("US-CERT"). CISA serves as the agency assisting other federal entities in defending against threats and securing critical infrastructure. US-CERT functions as a liaison between the U.S. Department of Homeland Security and the public and private sectors to coordinate responses to security threats. The risk of cybersecurity events such as malicious code attacks, unauthorized access attempts, and social engineering attempts continues to intensify across all industries, including the energy sector. Over the last few years, TVA has observed a significant increase in malicious activity including phishing campaigns, malicious websites, distributed denial of service attacks, and activity specific to the COVID-19 pandemic, among others. These types of malicious activity have also been observed by TVA's external vendors, stakeholders, and partners, which has caused the need for heightened awareness and preparedness. In addition, TVA has increased cybersecurity efforts as a precautionary measure due to Russia's invasion of Ukraine. TVA has also observed an increase in activity from Russia. On May 12, 2021, President Biden signed EO 14028, "Improving the Nation's Cybersecurity." This EO is intended to improve the nation's cybersecurity posture and protect federal government networks by improving information-sharing between the U.S. government and the private sector on cyber issues and strengthening the United States' ability to respond to incidents 80 Table of Contents when they occur. This EO is focused on specific goals and requirements including actions for zero trust architectures; cloud services; FedRAMP programs; supply chain and contracts; secure software development; endpoint detection and response, standardized vulnerability, and incident response operational plans; threat and vulnerability analysis; assessment and threat-hunting; event logging, monitoring, and retention; and information sharing. TVA continues to evaluate and respond to the EO, associated Office of Management and Budget memorandums, and other emerging requirements in alignment with the order. TVA has submitted all reports as required, established response teams and an oversight structure, and initiated projects as necessary to address the required actions. In December 2021, TVA was notified of a potential cyber vulnerability, known as Log4j, that had the ability to impact many applications and services. TVA immediately responded and through its vulnerability and patch management program, implemented remediations and mitigations to address potential impact. TVA is continuing to work with vendors to ensure all services and applications are secure. At this time, this event has not impacted TVA’s ability to operate as planned. TVA is leveraging federal and other partners to better identify, detect, protect, and respond to these potential attacks. TVA also has a vulnerability and patch management program in place; when vulnerabilities are identified, the program is utilized to identify and prioritize remediation and mitigation activities to reduce the risk to TVA. While TVA and its third-party vendors and service providers have been, and will likely continue to be, subjected to such attacks and attempts to disrupt operations, to date the attacks have not had a significant or material impact on business or operations and have not impacted TVA's ability to operate as planned. See Item 1A, Risk Factors — Cybersecurity Risks — TVA's facilities and information infrastructure may not operate as planned due to cyber threats to TVA's assets and operations . Critical Accounting Estimates TVA's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), which require management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Each of these estimates varies in regard to the level of judgment