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Item 8. Financial Statements and Supplementary Data

2022-11-15 compared with 2021-11-15 · 583 added, 614 removed, 1967 unchanged (38% of the section changed)

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TENNESSEE VALLEY AUTHORITY

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended September 30

(in millions)

2021 2020 2019

Operating revenues

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

Other revenue 146 145 159

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

Operating expenses

Fuel 1,737 1,584 1,896

Purchased power 984 880 1,007

Operating and maintenance 2,890 2,720 3,090

Depreciation and amortization 1,533 1,826 1,973

Tax equivalents 514 528 541

Total operating expenses 7,658 7,538 8,507

Operating income 2,845 2,711 2,811

Other income (expense), net 13 36 62

Other net periodic benefit cost 258 253 258

Interest expense

Interest expense 1,088 1,142 1,198

Net income (loss) $ 1,512 $ 1,352 $ 1,417

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

TENNESSEE VALLEY AUTHORITY

CONSOLIDATED BALANCE SHEETS

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Other long-term liabilities 1,485 2,041

Leaseback obligations — 25

Regulatory liabilities 172 40

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Nonpower programs appropriation investment, net 533 540

Accumulated other comprehensive income (loss) ( 22 ) ( 51 )

Accumulated other comprehensive loss ( 86 ) ( 22 )

Total proprietary capital 15,505 14,465

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TENNESSEE VALLEY AUTHORITY

CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended September 30

(in millions)

2022 2021 2020

Operating revenues

Revenue from sales of electricity $ 12,371 $ 10,357 $ 10,104

Other revenue 169 146 145

Total operating revenues 12,540 10,503 10,249

Operating expenses

Fuel 2,567 1,737 1,584

Purchased power 1,921 984 880

Operating and maintenance 2,986 2,890 2,720

Depreciation and amortization 2,054 1,533 1,826

Tax equivalents 601 514 528

Total operating expenses 10,129 7,658 7,538

Operating income 2,411 2,845 2,711

Other income, net 7 13 36

Other net periodic benefit cost 258 258 253

Interest expense

Interest expense 1,052 1,088 1,142

Net income $ 1,108 $ 1,512 $ 1,352

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

TENNESSEE VALLEY AUTHORITY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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2022 2021 2020

Net income (loss) $ 1,512 $ 1,352 $ 1,417

Net income $ 1,108 $ 1,512 $ 1,352

Other comprehensive income (loss)

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Total other comprehensive income (loss) ( 64 ) 29 ( 39 )

Total comprehensive income (loss) $ 1,541 $ 1,313 $ 1,348

Total comprehensive income $ 1,044 $ 1,541 $ 1,313

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

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Cash flows from operating activities

Net income (loss) $ 1,512 $ 1,352 $ 1,417

Adjustments to reconcile net income (loss) to net cash provided by operating activities

Net income $ 1,108 $ 1,512 $ 1,352

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization (1)

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Non-cash retirement benefit expense 328 333 324

Prepayment credits applied to revenue — — ( 10 )

Other regulatory amortization and deferrals 70 ( 72 ) ( 21 )

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Other, net — 9 ( 6 )

Net cash (used in) provided by financing activities ( 921 ) ( 1,422 ) ( 1,477 )

Net cash used in financing activities ( 283 ) ( 921 ) ( 1,422 )

Net change in cash, cash equivalents, and restricted cash 2 ( 3 ) 199

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Power Program Appropriation Investment

Power Program Retained Earnings Nonpower Programs Appropriation Investment, Net Accumulated Other Comprehensive Income (Loss)

Power Program Retained Earnings Nonpower Programs Appropriation Investment, Net Accumulated Other Comprehensive Loss

Balance at September 30, 2019

$ 258 $ 10,823 $ 556 $ ( 12 ) $ 11,625

Net income (loss) — 1,360 ( 8 ) — 1,352

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Balance at September 30, 2020

$ 258 $ 12,177 $ 548 $ ( 51 ) $ 12,932

Net income (loss) — 1,520 ( 8 ) — 1,512

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

Implementation of Financial Instruments - Credit Losses Standard — ( 4 ) — — ( 4 )

Balance at September 30, 2021

$ 258 $ 13,689 $ 540 $ ( 22 ) $ 14,465

Net income (loss) — 1,115 ( 7 ) — 1,108

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

Implementation of new accounting standard (1)

— ( 4 ) — — ( 4 )

Balance at September 30, 2022

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

$ 258 $ 14,800 $ 533 $ ( 86 ) $ 15,505

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

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14 Debt and Other Obligations 116

15 Accumulated Other Comprehensive Income (Loss) 127

15 Risk Management Activities and Derivative Transactions 120

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17 Revenue 131

19 Proprietary Capital 140

20 Other Income (Expense), Net 141

18 Other Income, Net 134

19 Supplemental Cash Flow Information 134

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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.

The power program has historically been separate and distinct from the stewardship programs.

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Accordingly, these assets and properties are included as part of the power program, TVA's only operating segment.

Power rates are established by the TVA Board of Directors (the "TVA Board") as authorized by the Tennessee Valley Authority Act of 1933, as amended (the "TVA Act").

Power rates are established by the TVA Board as authorized by the Tennessee Valley Authority Act of 1933, as amended, 16 U.S.C.

§§ 831-831ee ("TVA Act").

The TVA Act requires TVA to charge rates for power that will produce gross revenues sufficient to provide funds for operation, maintenance, and administration of its power system;

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TVA fulfilled its requirement to repay $ 1.0 billion of the Power Program Appropriation Investment with the 2014 payment;

therefore, this item is no longer a component of rate setting.

therefore, this repayment obligation is no longer a component of rate setting.

In setting TVA's rates, 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 shall be sold at rates as low as are feasible.

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

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

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

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At September 30

(in millions)

Cash and cash equivalents $ 500 $ 499

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Total cash, cash equivalents, and restricted cash $ 520 $ 518

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

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

Allowance for Uncollectible Accounts

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

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

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

TVA recognizes an allowance that reflects the current estimate for credit losses expected to be incurred over the life of the financial assets based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.

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

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

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

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

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

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

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Additionally, loans receivable of $ 105 million and $ 99 million at September 30, 2022 and 2021, respectively, are included in Accounts receivable, net and Other long-term assets, for the current and long-term portions, respectively.

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

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

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

Loans receivables are reported net of allowances for uncollectible accounts of $ 3 million and $ 4 million at September 30, 2022 and 2021, respectively.

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

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

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

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

Certain Fuel, Materials, and Supplies .

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A new weighted average cost is computed monthly, and monthly issues are priced accordingly.

Renewable Energy Credits.

Renewable Energy Certificates.

TVA accounts for Renewable Energy Certificates ("RECs") using the specific identification cost method.

RECs that are acquired through power purchases are recorded as inventory and charged to purchased power expense when the RECs are subsequently used or sold.

TVA assigns a value to the RECs at the inception of the power purchase arrangement using a relative fair value approach.

TVA assigns a value to the RECs at the inception of the power purchase arrangement using a relative standalone selling price approach.

RECs created through TVA-owned asset generation are recorded at zero cost.

Emission Allowances .

TVA has emission allowances for sulfur dioxide ("SO 2 ") and nitrogen oxide ("NO x ") which are accounted for as inventory.

The cost of specific allowances used each month is charged to operating expense based on tons of SO 2 and NO x emitted during the respective compliance periods.

Allowances granted to TVA by the Environmental Protection Agency ("EPA") are recorded at zero cost.

TVA accounts for emission allowances using the specific identification cost method.

Allowances that are acquired through third party purchases are recorded as inventory at cost and charged to operating expense based on tons emitted during the respective compliance periods.

Allowance for Inventory Obsolescence .

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Gains or losses are only recognized upon the sale of land or an entire operating unit.

TVA capitalizes certain costs incurred in connection with developing or obtaining internal-use software.

Capitalized software costs are included in Property, plant, and equipment on the Consolidated Balance Sheets and are generally amortized over seven years .

Depreciation.

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

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

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

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

The new study 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.

Implementation of the study resulted in an estimated increase to depreciation and amortization expense of approximately $ 345 million during 2022.

This estimate represents the effect of using the new depreciation rates on the property, plant, and equipment balances at September 30, 2021, and does not include any potential impact from additions to or retirements of net completed plant, that occurred since September 30, 2021.

Depreciation expense for the years ended September 30, 2022, 2021, and 2020 was $ 1.8 billion, $ 1.4 billion, and $ 1.6 billion, respectively.

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Other 3.64 7.12 7.26

(1) The rates include the acceleration of depreciation related to retiring certain coal-fired units.

As a result of TVA's decision to idle or retire certain units since the previous depreciation study, TVA recognized $ 136 million, $ 387 million, and $ 566 million in accelerated depreciation expense related to the units during the years ended September 30, 2021, 2020, and 2019, respectively.

Accelerated depreciation is based on the remaining useful life of the asset at the time the decision is made to idle or retire a unit.

(1) The rates include the acceleration of depreciation related to retiring certain coal-fired units and potentially retiring the remainder of the coal-fired fleet by 2035.

See Note 7 — Plant Closures .

Reacquired Rights .

Property, plant, and equipment includes intangible reacquired rights, net of amortization, of $ 178 million and $ 184 million as of September 30, 2022 and 2021, respectively, related to the purchase of residual interests from lease/leaseback agreements of certain combustion turbine units ("CTs").

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

Amortization expense was $ 8 million for all years 2021, 2020, and 2019.

Software Costs.

TVA capitalizes certain costs incurred in connection with developing or obtaining internal-use software.

Capitalized software costs are included in Property, plant, and equipment on the Consolidated Balance Sheets and are generally amortized over seven years .

At September 30, 2021 and 2020, unamortized computer software costs totaled $ 27 million and $ 54 million, respectively.

Amortization expense related to capitalized computer software costs was $ 38 million, $ 42 million, and $ 38 million for 2021, 2020, and 2019, respectively.

Software costs that do not meet capitalization criteria are expensed as incurred.

Reacquired rights are amortized over the estimated useful lives of the underlying CTs which range from 33 to 35 years.

Amortization expense was $ 6 million for 2022 and $ 8 million for the years 2021 and 2020, and accumulated amortization at September 30, 2022 and 2021 totaled $ 42 million and $ 36 million,

respectively.

At September 30, 2022, the estimated aggregate amortization expense (in millions) for each of the next five years and thereafter is shown below:

2023 2024 2025 2026 2027 Thereafter

Reacquired Rights $ 6 $ 6 $ 6 $ 6 $ 6 $ 148

Impairment of Assets.

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Additionally, TVA regularly evaluates construction projects.

If the project is canceled or deemed to have no future economic benefit, the project is written off as an asset impairment or, upon TVA Board approval, reclassified as a regulatory asset.

If the project is canceled or deemed to have no future economic benefit, the project is written off as an asset impairment or, upon TVA Board approval, reclassified as a regulatory asset and amortized over the Board-approved period.

See Note 7 — Plant Closures .

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

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

The total lease obligations included in Accounts payable and accrued liabilities and Other long-term liabilities and Finance lease liabilities related to these agreements were $ 425 million and $ 133 million for finance and operating leases, respectively, at September 30, 2022.

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

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

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

Revisions to the estimates of asset retirement obligations ("AROs") are made whenever factors indicate that the timing or amounts of estimated cash flows have changed materially.

Revisions to the forecasted costs of decommissioning activities are made whenever factors indicate that the timing or amounts of estimated cash flows have changed materially.

Studies are updated for both nuclear and non-nuclear decommissioning costs at least every five years.

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

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

See Note 10 — Regulatory Assets and Liabilities — Nuclear Decommissioning Costs and Non-Nuclear Decommissioning Costs and Note 13 —

Asset Retirement Obligations.

Down-blend Offering for Tritium

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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 October 2027.

Beginning October 2027, contract activity will consist of storage and flag management.

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

Contract activity will consist of storage and flag management.

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

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TVA recovers the costs of claims through power rates and through adjustments to the participants' contributions to their benefit plans.

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

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

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

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

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

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

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

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

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The following are accounting standard updates issued by the Financial Accounting Standards Board ("FASB") that TVA adopted during 2022:

Financial Instruments - Credit Losses

Description This guidance eliminates the probable initial recognition threshold in current GAAP and, instead, requires an allowance to be recorded for all expected credit losses for certain financial assets that are not measured at fair value.

The allowance for credit losses is based on historical information, current conditions, and reasonable and supportable forecasts.

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

Effective Date for TVA October 1, 2020

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

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

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

Fair Value Measurement Disclosure

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

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

the policy for timing of the transfers between levels;

and the valuation processes for Level 3 fair value measurements.

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

Effective Date for TVA October 1, 2020

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

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

Reference Rate Reform

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

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

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

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

Lessor-Certain Leases with Variable Lease Payments

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

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

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

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

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

Effective Date for TVA October 1, 2021

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

Adoption of this standard did not have a material

impact on TVA's financial condition, results of operations, or cash flows.

Reference Rate Reform

Effective Date for TVA December 31, 2021

Effect on the Financial Statements or Other Significant Matters TVA had interest rate swap contracts that totaled a notional value of $ 1.5 billion at December 31, 2021,

that were indexed to LIBOR.

TVA adopted the International Swaps and Derivative Association’s

("ISDA’s") LIBOR fallback protocol for interest rate swaps prior to December 31, 2021.

protocol, U.S.

dollar LIBOR transactions would fall back to the SOFR upon cessation of the related

LIBOR publication.

The interest rate swap contracts did not receive hedge accounting treatment, and

therefore TVA did not elect any optional expedients for this modification.

TVA does not have any other

significant contracts, including lease agreements, that include payments indexed to LIBOR.

the change of reference rate did not have a material impact on TVA’s financial condition, results of

operations, or cash flows.

The following accounting standards have been issued but as of September 30, 2022, were not effective and had not been adopted by TVA:

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

Description This guidance requires an entity (acquirer) to recognize and measure contract assets and contract

liabilities acquired in a business combination in accordance with revenue with customers.

expected that an acquirer will generally recognize and measure acquired contract assets and contract

liabilities in a manner consistent with how the acquiree recognized and measured contract assets and

contract liabilities in the acquiree’s financial statement.

The entity should apply the standard prospectively to business combinations occurring on or after the effective date of the standard.

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

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

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

While early adoption is permitted, TVA does not currently plan to adopt this standard early.

Effect on the Financial Statements or Other Significant Matters TVA does not expect the adoption of this standard to have a material impact on its financial condition,

results of operations, or cash flows.

Troubled Debt Restructurings and Vintage Disclosures

Description This guidance eliminates the recognition and measurement guidance on troubled debt restructuring for

creditors that have adopted Financial Instruments-Credit Losses and requires enhanced disclosures

about loan modifications for borrowers experiencing financial difficulty.

Additionally, the guidance

requires public business entities to present current-period gross write-offs by year of origination in their

vintage disclosures.

The entity should apply the standard prospectively except for the transition method related to the recognition and measurement of troubled debt restructuring.

For the transition method, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

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

While early adoption is permitted, TVA does not currently plan to adopt this standard early.

Effect on the Financial Statements or Other Significant Matters TVA does not expect the adoption of this standard to have a material impact on its financial condition,

results of operations, or cash flows.

Accounts Receivable, Net

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At September 30

(in millions)

Power receivables $ 1,899 $ 1,480

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$ 2,007 $ 1,566

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

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

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

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

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

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

(1) Allowance for uncollectible accounts was less than $ 1 million at both September 30, 2022 and 2021, and therefore is not represented in the table above.

Inventories, Net

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At September 30

(in millions)

Materials and supplies inventory $ 808 $ 775

Fuel inventory 303 198

Renewable energy certificates inventory, net 12 15

Renewable energy certificates/emissions allowance inventory, net 18 12

Allowance for inventory obsolescence ( 57 ) ( 35 )

Inventories, net $ 1,072 $ 950

Fuel inventory increased $ 105 million at September 30, 2022, as compared to September 30, 2021, primarily due to an increase in coal inventory of $ 58 million and an increase in natural gas inventory of $ 32 million.

Coal inventory increased primarily due to higher costs of fuel, including transportation costs, as a result of continued supply constraints driven by both domestic and export demand, limited production capacity, and market volatility.

Coal inventory also increased over the prior year due to coal conservation efforts and an increase in inventory levels as TVA prepares for winter inventory needs.

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.

Other Current Assets

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At September 30

(in millions)

Commodity contract derivative assets $ 172 $ 210

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Commodity Contract Derivative Assets.

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

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

TVA enters into certain derivative contracts for natural gas that require physical

delivery of the contracted quantity of the commodity.

TVA also reinstated the Financial Hedging Program ("FHP") (formerly the

Financial Trading Program, which was suspended in 2014) in December 2021, and hedging activity began under the program in

the second quarter of 2022.

Commodity contract derivative assets classified as current include deliveries or settlements that will

occur within 12 months or less.

See Note 15 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Commodity Derivatives and — Commodity Derivatives under the FHP for a discussion of TVA's commodity contract derivatives.

Net Completed Plant

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At September 30

(in millions)

Cost Accumulated Depreciation

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Other electrical plant 1,724 807 917 1,943 1,103 840

Intangible software 3 2 1 3 2 1

Multipurpose dams 900 396 504 900 388 512

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Total $ 66,442 $ 34,239 $ 32,203 $ 66,411 $ 34,663 $ 31,748

(1) TVA recognized accelerated depreciation as a result of the decision to idle or retire certain units.

(1) TVA recognized accelerated depreciation as a result of the decision to idle or retire certain units and the potential retirement of the remainder of the coal-fired fleet by 2035.

See Note 7 — Plant Closures .

(2) In 2020, TVA recorded approximately $ 1.1 billion in upward revisions to asset retirement costs for coal-fired assets.

See Note 13 — Asset Retirement Obligations .

Plant Closures

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.

Based on results of assessments presented to the TVA Board in 2019, the retirement of Paradise Fossil Plant ("Paradise") Unit 3 by December 2020 and Bull Run Fossil Plant ("Bull Run") by December 2023 was approved.

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

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

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

Based on results of assessments presented to the TVA Board in 2019, the retirement of Bull Run Fossil Plant ("Bull Run") by December 2023 was approved.

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

Due to these evaluations, certain planning assumptions were updated, and their financial impacts are discussed below.

Financial Impact

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

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

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

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

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

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

As a result of TVA's decision to accelerate the retirement of Bull Run, TVA has recognized a cumulative $ 482 million of accelerated depreciation since the second quarter of 2019.

Of this amount, $ 140 million, $ 136 million, and $ 125 million were recognized for the years ended September 30, 2022, 2021, and 2020, respectively.

In addition, service lives for Cumberland Fossil Plant ("Cumberland"), Gallatin Fossil Plant ("Gallatin"), Kingston Fossil Plant ("Kingston"), and Shawnee Fossil Plant ("Shawnee") were shortened in a new depreciation study implemented during the first quarter of 2022 to reflect current planning assumptions to potentially retire the remainder of the coal-fired fleet by 2035.

As a result, TVA recognized an estimated $ 339 million of additional depreciation related to these four coal-fired plants during the year ended September 30, 2022.

For the years ended September 30, 2022, 2021, and 2020, respectively, TVA also recognized $ 22 million , $ 4 million , and $ 13 million in Operating and maintenance expense related to additional inventory reserves and project write-offs for the coal-fired fleet, including Bull Run.

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

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At September 30

(in millions)

Operating Operating lease assets, net of amortization $ 155 $ 165

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(in millions)

2022 2021 2020

Operating lease costs (1)

$ 56 $ 52 $ 84

Variable lease costs (1)

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

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

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

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(in millions)

2022 2021 2020

Operating cash flows for operating leases $ 57 $ 53 $ 85

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

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

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

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Minimum payments due at September 30, 2022

(in millions)

Operating leases

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The systems are considered a lease component in these agreements.

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

These PPAs have terms of 20 years, and are expected to commence between April 2023 and December 2024.

Payments made over the term of these PPAs are expected to total approximately $ 414 million.

During the fourth quarter of 2022, TVA entered into an office lease with a term of approximately 11 years and an expected commencement date of April 2023.

Payments made over the term of this lease are expected to total approximately $ 15 million.

Other Long-Term Assets

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At September 30

2021 2020 (1)

(in millions)

Loans and other long-term receivables, net $ 99 $ 96

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Total other long-term assets $ 394 $ 320

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

Loans and Other Long-Term Receivables .

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

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

The current and long-term portions of the loans receivable are reported in Accounts

receivable, net and Other long-term assets, respectively, on TVA's Consolidated Balance Sheets.

At September 30, 2022 and 2021, the carrying amount of the loans receivable, net of discount, reported in Accounts receivable, net was approximately $ 6 million and $ 3 million, respectively.

EnergyRight ® Receivables .

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

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

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

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

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

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

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

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

Allowance for Loan Losses.

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

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

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TVA's Consolidated Balance Sheets.

At September 30, 2021 and 2020, prepayments of $ 12 million and $ 3 million,

respectively, were recorded in Other current assets.

At both September 30, 2022 and 2021, prepayments of $ 12 million were recorded in Other current assets.

Commodity Contract Derivative Assets.

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

TVA also reinstated the FHP in December 2021, and hedging activity began under the program in the second quarter of 2022.

See Note 15 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Commodity Derivatives and — Commodity Derivatives under the FHP f or a discussion of TVA's commodity contract derivatives.

Regulatory Assets and Liabilities

TVA records certain assets and liabilities that result from the regulated ratemaking process that would not be recorded under GAAP for non-regulated entities.

As such, certain items that would generally be reported in earnings or that would impact the Consolidated Statements of Operations are recorded as regulatory assets or regulatory liabilities.

Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates.

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At September 30

(in millions)

Current regulatory assets

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Non-current regulatory assets

Deferred pension costs and other post-retirement benefits costs 3,668 5,193

Retirement benefit plans deferred costs 1,839 3,668

Non-nuclear decommissioning costs 2,856 2,653

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Nuclear decommissioning costs 821 363

Unrealized losses on commodity derivatives 1 —

Other non-current regulatory assets 138 150

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Non-current regulatory liabilities

Retirement benefit plans deferred credits 70 —

Unrealized gains on commodity derivatives 102 40

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Total regulatory liabilities $ 563 $ 380

Deferred Pension Costs and Other Post-retirement Benefit Costs .

Retirement Benefit Plans Deferred Costs (Credits) .

TVA measures the funded status of its pension and post-retirement ("OPEB") benefit plans at each year-end balance sheet date.

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

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

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

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

In the cases of pension and OPEB

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

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

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

Through historical and current year expense included in ratemaking, the TVA Board has demonstrated the ability and intent to include pension and OPEB costs in allowable costs and in rates for ratemaking purposes.

Through historical and current year expense included in ratemaking, the TVA Board has demonstrated the ability and intent to include pension and

OPEB costs in allowable costs and in rates for ratemaking purposes.

As a result, it is probable that future revenue will result from inclusion of the pension and OPEB regulatory assets or regulatory liability in allowable costs for ratemaking purposes.

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

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

In 2022 and 2021, TVA recovered in rates an amount determined by the average life of debt financed for non-nuclear decommissioning expenditures, assuming a 20-year debt service period, and contributions to the ART.

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

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

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

Due to rising interest rates in the financial markets and net settlement payments made during 2022, TVA experienced a reduction in unrealized losses related to its derivative instruments for the year ended September 30, 2022.

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

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

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

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

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

Nuclear decommissioning costs increased $ 458 million for the year ended September 30, 2022 as compared to the same period of the prior year, primarily due to investment losses in the NDT and accretion of the related AROs.

See Note 13 — Asset Retirement Obligations and Note 16 — Fair Value Measurements

Unrealized Gains (Losses) on Commodity Derivatives.

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

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

As a result, the associated net regulatory assets

were derecognized.

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

The natural gas purchase contracts qualify as derivative contracts but do not qualify for cash

flow hedge accounting treatment.

As a result, TVA recognizes the changes in the market value of these derivative contracts as a regulatory liability or asset.

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TVA recognizes the actual cost of fuel received under these contracts in fuel expense at the time the fuel is used to generate electricity.

These contracts expire at various times through 2024.

These contracts expire at various times through October 2024.

Unrealized gains and losses on contracts with a maturity of less than one year are included as a current regulatory asset or liability on TVA's Consolidated Balance Sheets.

See Note 15 — Risk Management Activities and Derivative Transactions .

TVA reinstated the FHP in December 2021, and hedging activity began under the program in the second quarter of 2022.

Currently, TVA is hedging exposure to the price of natural gas under the FHP.

Deferred gains and losses relating to TVA's FHP are included as part of unrealized gains and losses on commodity derivatives.

TVA defers all MtM unrealized gains or losses as regulatory liabilities or assets, respectively, and records the realized gains or losses in fuel and purchased power expense as the contracts settle to match the delivery period of the underlying commodity.

This accounting treatment reflects TVA's ability and intent to include the realized gains or losses of these commodity contracts in future periods through the fuel cost adjustment.

Net unrealized gains and losses for any settlements that occur within 12 months or less are classified as a current regulatory liability or asset.

See Note 15 — Risk Management Activities and Derivative Transactions.

Fuel Cost Adjustment Receivable.

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Deferred Lease Asset and Other Financing Obligations .

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

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

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

However, the annual expense recognized in rates is equal to the annual payments, which differs from GAAP treatment for non-regulated entities.

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

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John Sevier VIEs

In 2012, TVA entered into a $ 1.0 billion construction management agreement and lease financing arrangement with John Sevier Combined Cycle Generation LLC ("JSCCG") for the completion and lease by TVA of the John Sevier Combined Cycle Facility ("John Sevier CCF").

In 2012, TVA entered into a $ 1.0 billion construction management agreement and lease financing arrangement with

John Sevier Combined Cycle Generation LLC ("JSCCG") for the completion and lease by TVA of the John Sevier Combined Cycle Facility ("John Sevier CCF").

JSCCG is a special single-purpose limited liability company formed in January 2012 to finance the John Sevier CCF through a $ 900 million secured note issuance (the "JSCCG notes") and the issuance of $ 100 million of membership interests subject to mandatory redemption.

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

The payment dates for the

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

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

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

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Certain agreements related to this transaction contain default and acceleration provisions.

Due to its participation in the design, business conduct, and credit and financial support of JSCCG and Holdco, TVA

Due to its participation in the design, business activity, and credit and financial support of JSCCG and Holdco, TVA

has determined that it has a variable interest in each of these entities.

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TVA also has the right, at any time and without any early redemption of the other portions of the Southaven facility lease payments due to SCCG, to fully repay SHLLC's investment, upon which repayment SHLLC will transfer the membership interests to a designee of TVA.

TVA participated in the design, business conduct, and financial support of SCCG and has determined that it has a direct variable interest in SCCG resulting from risk associated with the value of the Southaven CCF at the end of the lease term.

TVA participated in the design, business activity, and financial support of SCCG and has determined that it has a direct variable interest in SCCG resulting from risk associated with the value of the Southaven CCF at the end of the lease term.

Based on its analysis, TVA has determined that it is the primary beneficiary of SCCG and, as such, is required to account for the VIE on a consolidated basis.

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At September 30

(in millions)

Current liabilities

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Maturities Due in the Year Ending September 30

(in millions)

2023 2024 2025 2026 2027 Thereafter

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Other Long-Term Liabilities

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

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

Other long-term liabilities consist primarily of liabilities related to certain derivative agreements as well as liabilities related to operating leases.

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

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At September 30

(in millions)

2022 2021 (1)

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Long-term deferred compensation 39 42

Advances for construction 53 24

Long-term deferred revenue 39 37

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Total other long-term liabilities $ 1,485 $ 2,041

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

(1) At September 30, 2021, $5 million and $19 million previously classified as Long-term deferred revenue (a component of Other long-term liabilities) and Other (a

component of Other long-term liabilities), respectively, were reclassified to Advances for construction (a component of Other long-term liabilities) to conform

with current year presentation.

Interest Rate Swap Liabilities .

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See Note 15 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Interest Rate Derivative s for information regarding the interest rate swap liabilities.

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

As of September 30, 2022, interest rate swap liabilities (including current portion) decreased $ 734 million as compared to September 30, 2021, primarily due to increases in market interest rates along with net settlement payments made during the year.

Operating Lease Liabilities .

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At September 30, 2022 and 2021, the carrying amount of the currency swap liabilities reported in Accounts payable and accrued liabilities was $ 12 million and $ 7 million, respectively.

As of September 30, 2022, currency swap liabilities (including current portion) increased $ 157 million as compared to September 30, 2021, primarily due to the strengthening of the U.S.

dollar against the British pound sterling.

See Note 15 — Risk Management Activities and Derivative Transactions — Cash Flow Hedging Strategy for Currency Swaps for more information regarding the currency swap liabilities.

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

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

At September 30, 2022 and 2021, the carrying amount of the financing obligation reported in Accounts payable and accrued liabilities was $ 14 million and $ 16 million, respectively.

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

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

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

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

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

Long-Term Deferred Compensation .

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

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

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

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

The current and long-term portions are recorded in Accounts payable and accrued liabilities and Other long-term liabilities, respectively, on TVA’s Consolidated Balance Sheets.

At September 30, 2022 and 2021, the current amount of deferred compensation recorded in Accounts payable and accrued liabilities was $ 53 million and $ 51 million, respectively.

Advances for Construction .

TVA receives refundable and non-refundable advances for construction that are generally intended to defray all or a portion of the costs of building or extending TVA’s existing power assets.

Amounts received are

deferred as a liability with the long-term portion representing amounts that will not be recognized within the next 12 months.

As projects meet milestones or other contractual obligations, the refundable portion is refunded to the customer and the non-refundable portion is recognized as contributions in aid of construction and offsets the cost of plant assets.

At September 30, 2022 and 2021, the current amount of advances for construction recorded in Accounts payable and accrued liabilities was $ 33 million and $ 38 million, respectively.

Long-Term Deferred Revenue .

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

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

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

Accrued Long-Term Service Agreement.

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

At September 30, 2022 and 2021, the current amount of deferred revenue recorded in Accounts payable and accrued liabilities was $ 16 million and $ 17 million, respectively.

Accrued Long-Term Service Agreements.

TVA has entered into various long-term service agreements for major

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The current and long-term portions

of the resulting obligation are reported in Accounts payable and accrued liabilities and Other long-term liabilities, respectively, on

of the resulting obligation are recorded in Accounts payable and accrued liabilities and Other long-term liabilities, respectively, on

TVA's Consolidated Balance Sheets.

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

At September 30, 2022 and 2021, the current amount of accrued long-term service agreements recorded in Accounts payable and accrued liabilities was $ 32 million and $ 28 million, respectively.

Asset Retirement Obligations

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The SAFSTOR method allows nuclear facilities to be placed and maintained in a condition that allows the facilities to be safely stored and subsequently decontaminated to levels that permit release for unrestricted use.

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

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

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

The revisions in nuclear estimates increased the liability balance by $ 61 million for the year ended September 30, 2022.

This was primarily due to approval and implementation of the most recent site-specific cost study in September 2022 resulting in an increase of $ 58 million.

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

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

The revisions in non-nuclear estimates increased the liability balance by $ 186 million for the year ended September 30, 2022.

During the year, TVA completed an engineering review of its cost estimates for closure of certain areas containing coal fines at Paradise Fossil Plant ("Paradise"), which resulted in an increase of $ 119 million due to expected cost increases for necessary changes in activities associated with proper completion of the closure.

Coal combustion residuals ("CCR") closure liabilities at Paradise and Cumberland increased $ 82 million due to new vendor bids, modified closure designs, and revised estimates for construction costs.

Refined project cost assumptions and scope changes related to TVA's AROs for the closure of certain coal yards at its fossil plants resulted in an increase of $ 57 million.

In addition, effective October 1, 2022, TVA implemented revised depreciation rates applicable to its completed plant due to the results of a new depreciation study.

The study 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.

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

Based on the assessment, TVA increased AROs by $ 47 million due to identified changes in the projections of timing of certain asset retirement activities.

Partially offsetting these increases, expected reductions in CCR post-closure costs for maintenance and monitoring at Paradise, Shawnee, and Colbert Fossil Plant ("Colbert") resulted in a decrease of $ 53 million.

CCR closure liabilities at Gallatin decreased $ 30 million due to selection of a new vendor bid and changes to anticipated timing

of certain asset retirement activities.

In addition, CCR closure liabilities at Allen Fossil Plant decreased $ 15 million as a result of changes in cost estimates and anticipated timing of various retirement activities.

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

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

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

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

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

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

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

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

The amendments, among other things, add an additional 50-year period after the end of the post-closure care period, require TVA to submit recommendations as to what activities must be performed during this 50-year period to protect human health and the environment, and require TVA to submit revised closure plans every 10 years.

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

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

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

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

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

TVA increased its plant decommissioning obligations by $ 19 million, primarily due to asbestos and hazardous material abatement costs.

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

Additionally, during the years ended September 30, 2022 and 2021, both the nuclear and non-nuclear liabilities were increased by periodic accretion, partially offset by settlement projects that were conducted during these periods.

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Asset Retirement Obligation Activity

(in millions)

Nuclear Non-Nuclear Total

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Revisions in estimate 12 191 203

Additional obligations — 43 43

Accretion (recorded as regulatory asset) 149 64 213

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Revisions in estimate 61 186 247

Additional obligations — 43 43

Accretion (recorded as regulatory asset) 156 68 224

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(1) Includes $ 275 million a nd $ 266 million at September 30, 2022 and 2021, respectively, in Current liabilities.

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

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

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

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

(2) Settlements include the change in asset retirement obligation project accruals included in Accounts payable and accrued liabilities of $ 20 million.

Debt and Other Obligations

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

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

TVA's payments on the Bonds.

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

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

Treasury required by the TVA Act as repayment of, and as a return on, the Power Program Appropriation Investment;

Treasury required by the TVA Act as repayment of, and as a return on, the Power Program Appropriation

(2) investment in power system assets;

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

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

Secured Notes

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

On November 14, 2001, the entities issued secured notes totaling $ 272 million that had an interest rate of 5.572 percent and required amortizing semi-annual payments on each May 1 and November 1 with a maturity date of May 1, 2020.

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

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

Secured debt of VIEs, including current maturities, outstanding at both September 30, 2022 and 2021 totaled $ 1.0 billion.

Short-Term Debt

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At September 30

2021 2020 2019

Gross amount outstanding - discount notes $ 780 $ 57 $ 922

Gross amount outstanding - discount notes (in millions) $ 1,173 $ 780

Weighted average interest rate - discount notes 2.93 % 0.03 %

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For the years ended September 30

(in millions)

2021 Series A (1)

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Redemptions/Maturities (3)

electronotes ®

2009 Series B $ 28 $ 29

2011 Series A — 1,500

1999 Series A PARRS (TVE) — 23

1998 Series D PARRS (TVC) — 17

1995 Series B — 140

2011 Series A 1,500 —

1998 Series H — 331

2012 Series A 1,000 —

Total redemptions/maturities of power bonds 1,028 1,860

Notes payable — 23

Variable interest entities 41 39

Total $ 1,901 $ 1,489

Debt of variable interest entities 43 41

Total redemptions/maturities of debt $ 1,071 $ 1,901

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

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At September 30

(in millions)

CUSIP or Other Identifier

Call/(Put) Date

Coupon Rate 2022 2021

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Current maturities of long-term debt of VIEs issued at par 39 43

Current maturities of notes payable — —

Current maturities of power bonds issued at par

8/15/2022 1.875 % 1,000 —

880591EN8 8/15/2022 1.875 % — 1,000

880591EF5 12/15/2022 3.770 % 1 1

880591EF5 6/15/2023 3.770 % 28 27

880591EL2 2/15/2021 3.875 % — 1,500

880591DC3 6/7/2021 5.805 % — 258 (1)

Total current maturities of power bonds issued at par 29 1,028

Total current debt outstanding, net $ 1,240 $ 1,851

(1) Includes net exchange gain from currency transactions of $ 73 million at September 30, 2020.

Long-Term Debt

At September 30

(in millions)

CUSIP or Other Identifier

Rate Effective Call Date 2021 Par 2020 Par Stock Exchange Listings

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

Rate 2022 Par 2021 Par Stock Exchange Listings

880591ER9 9/15/2024 2.875 % $ 1,000 $ 1,000 New York

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880591ES7 9/15/2065 4.250 % 1,000 1,000 New York

880591EY4 9/15/2052 4.250 % 500 — New York

Subtotal 17,950 17,572

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(3) TVA PARRS, CUSIP numbers 880591300 and 880591409, may be redeemed under certain conditions.

See Put and Call Options above.

See Put Options above.

Maturities Due in the Year Ending September 30

(in millions)

2023 2024 2025 2026 2027 Thereafter Total

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$ 29 $ 1,022 $ 1,022 $ 1,370 $ 1,020 $ 13,666 $ 18,129

Short-term debt, net of discounts 780 — — — — — 780

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

Short-term debt (2)

1,173 — — — — — 1,173

(1) Long-term power bonds does not include 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.

(2) Short-term debt does not include the non-cash item of discount on issuance of discount notes of $ 1 million.

Credit Facility Agreements

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

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

a $ 150 million credit facility that matures on February 9, 2024, a $ 500 million credit facility that matures on February 1, 2025, a $ 1.0 billion credit facility that matures on September 21, 2026, and a $ 1.0 billion credit facility that matures on March 25, 2027.

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

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

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

At September 30, 2022 and 2021, there were approximately $ 704 million and $ 1.2 billion of letters of credit outstanding under these facilities, and there were no borrowings outstanding.

See Note 15 — Risk Management Activities and Derivative Transactions — Other Derivative Instruments — Collateral .

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At September 30, 2022

(in millions)

Maturity Date Facility Limit Letters of Credit Outstanding Cash Borrowings Availability

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

February 2024 $ 150 $ 38 $ — $ 112

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September 2026 1,000 99 — 901

March 2027 1,000 67 — 933

Total $ 2,650 $ 704 $ — $ 1,946

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The interest rate on any borrowing under this facility is based on the average rate on outstanding marketable obligations of the U.S.

with maturities from date of issue of one year or less.

with maturities from date of issue of 12 months or less.

There were no outstanding borrowings under the facility at September 30, 2022.

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Due to TVA's continuing involvement with the combustion turbine facilities and the QTE during the leaseback term, TVA accounted for the lease proceeds as financing obligations.

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

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

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

TVA does have the option to acquire the equity interests related to transactions involving the remaining eight CTs for additional amounts.

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

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

Accumulated Other Comprehensive Income (Loss)

AOCI represents market valuation adjustments related to TVA's currency swaps.

The currency swaps are cash flow hedges and are the only derivatives in TVA's portfolio that have been designated and qualify for hedge accounting treatment.

TVA records exchange rate gains and losses on its foreign currency-denominated debt and any related accrued interest in net income and marks its currency swap assets and liabilities to market through other comprehensive income (loss) ("OCI").

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

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

See Note 16 — Risk Management Activities and Derivative Transactions .

TVA records certain assets and liabilities that result from the regulated ratemaking process that would not be recorded under GAAP for non-regulated entities.

As such, certain items that would generally be reported in AOCI or that would impact the statements of operations are recorded as regulatory assets or regulatory liabilities.

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

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

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

See Note 22 — Benefit Plans for a discussion of the regulatory accounting related to components of TVA's benefit plans.

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

There were no outstanding leaseback obligations related to the remaining CTs and QTE at September 30, 2022.

Prior to 2021, TVA made final rent payments involving 16 CTs, and acquired the equity interest related to these transactions.

Rent payments under the remaining CT lease/leaseback transactions were made through January 2022.

TVA gave notice in December 2021 of its election to acquire the equity interests related to the remaining eight CTs for a total of $ 155 million.

The associated acquisitions are expected to close in December 2022 and May 2023.

In October 2019, TVA provided notice of its intent to purchase the ownership interest in certain QTE through a series of installments.

TVA made its last repurchase payment in December 2021, after which the associated leases were terminated.

Risk Management Activities and Derivative Transactions

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

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

In 2014, TVA suspended its Financial Trading Program.

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

In November 2021, the TVA Board approved the elimination of the Value at Risk aggregate transaction limit for the FHP

and authorized the use of tolerances and measures that will be reviewed annually by the TVA Board.

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

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

In addition, the TVA Board approved certain administrative changes to the FHP.

In December 2021, TVA reinstated the FHP, and hedging activity began under the program in the second quarter of 2022.

Overview of Accounting Treatment

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(1) There were no amounts excluded from effectiveness testing for any of the periods presented.

Based on forecasted foreign currency exchange rates, TVA expects to reclassify approximately $ 25 million of gains from AOCI to Interest expense within the next 12 months to offset amounts anticipated to be recorded in Interest expense related to exchange gain on the debt.

Based on forecasted foreign currency exchange rates, TVA expects to reclassify approximately $ 29 million of gains from AOCI to Interest expense within the next 12 months to offset amounts anticipated to be recorded in Interest expense related to the forecasted exchange loss on the debt.

Summary of Derivative Instruments That Do Not Receive Hedge Accounting Treatment

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For the years ended September 30

Derivative Type Objective of Derivative (2)

Accounting for Derivative Instrument 2021 2020

Interest rate swaps To fix short-term debt variable rate to a fixed rate (interest rate risk) Mark-to-market gains and losses are recorded as regulatory assets or liabilities

Derivative Type Objective of Derivative Accounting for Derivative Instrument 2022 2021

Interest rate swaps To fix short-term debt variable rate to a fixed rate (interest rate risk) Mark-to-market gains and losses are recorded as regulatory liabilities and assets, respectively

Realized gains and losses are recognized in Interest expense when incurred during the settlement period and are presented in operating cash flow $ ( 103 ) $ ( 115 )

Commodity contract derivatives To protect against fluctuations in market prices of purchased coal or natural gas (price risk) Mark-to-market gains and losses are recorded as regulatory assets or liabilities

Realized gains and losses due to contract settlements are recognized in Fuel expense as incurred — ( 1 )

(1) All of TVA's derivative instruments that do not receive hedge accounting treatment have unrealized gains (losses) that would otherwise be recognized in income but instead are deferred as regulatory assets and liabilities.

Commodity derivatives

under the FHP To protect against fluctuations in market prices of purchased commodities (price risk) Mark-to-market gains and losses are recorded as regulatory liabilities and assets, respectively

Realized gains and losses are recognized in Fuel expense or Purchased power expense as the contracts settle to match the delivery period of the underlying commodity (2)

As such, there were no related gains (losses) recognized in income for these unrealized gains (losses) for the years ended September 30, 2022 and 2021.

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

(2) Of the amount recognized in 2022, $38 million and $9 million were reported in Fuel expense and Purchased power expense, respectively.

Fair Values of TVA Derivatives

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$ ( 130 ) Accounts payable and accrued liabilities $( 7 );

£250 million Sterling

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

Other long-term liabilities $( 123 )

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$42 million notional (1)

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

Accrued interest $( 1 )

( 4 ) Accounts payable and

— N/A ( 2 ) Accounts payable and

accrued liabilities $( 1 );

Other long-term liabilities $( 2 )

Accrued interest $(1)

Commodity contract derivatives 145 Other current assets $ 118 ;

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Accounts payable and accrued liabilities $( 6 );

Other long-term liabilities $( 1 )

247 Other current assets $ 210 ;

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Accounts payable and accrued liabilities $( 3 )

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

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

Commodity derivatives under the FHP 115 Accounts receivable, net $ 1 ;

Other current assets $ 54 ;

Other long-term assets $ 68 ;

Accounts payable and accrued liabilities $( 8 )

(1) At September 30, 2021, represented two interest rate swaps with notional amounts of $ 28 million and $ 14 million.

In 2022, final payments were made on both of the interest rate swaps.

Cash Flow Hedging Strategy for Currency Swaps

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Generally TVA uses interest rate swaps to fix variable short-term debt to a fixed rate, and TVA uses regulatory accounting treatment to defer the MtM gains and losses on its interest rate swaps.

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

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

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

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

For the years ended September 30, 2022 and 2021, the changes in fair market value of the interest rate swaps resulted in the reduction in unrealized losses of $ 728 million and $ 402 million, respectively.

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

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

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

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

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

At September 30, 2022, TVA's natural gas contract derivatives had terms of up to two years.

Commodity Contract Derivatives

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Number of Contracts

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

Notional Amount Fair Value (MtM)

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

(in millions)

Natural gas contract derivatives 44 296 million mmBtu $ 145 40 263 million mmBtu $ 247

Commodity Derivatives under the FHP.

In December 2021, TVA reinstated the FHP, and hedging activity began under the program in the second quarter of 2022.

Currently, TVA is hedging exposure to the price of natural gas under the FHP.

There is no Value at Risk aggregate transaction limit under the current FHP structure, but the TVA Board reviews and authorizes the use of tolerances and measures annually.

TVA's policy prohibits trading financial instruments under the FHP for speculative purposes.

At September 30, 2022, TVA's natural gas swap contracts under the FHP had remaining terms of up to four years.

Commodity Derivatives under Financial Hedging Program (1)

At September 30, 2022 At September 30, 2021

Number of Contracts

Notional Amount Fair Value (MtM)

(in millions)

Number of Contracts

Notional Amount Fair Value (MtM)

(in millions)

Swap contracts 225 256 million mmBtu $ 115 — — million mmBtu $ —

(1) Fair value amounts presented are based on the net commodity position with the counterparty.

Notional amounts disclosed represent the net value of contractual amounts.

TVA defers all FHP unrealized gains (losses) as regulatory liabilities (assets) and records the realized gains or losses in Fuel expense and Purchased power expense to match the delivery period of the underlying commodity.

Offsetting of Derivative Assets and Liabilities

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Derivative Assets and Liabilities (1)

(in millions)

At September 30

At September 30, 2020

Commodity derivatives not subject to master netting or similar arrangement $ 250 $ 49

(in millions)

Commodity contract derivatives $ 152 $ 250

Commodity derivatives under the FHP (2)

Total derivatives subject to master netting or similar arrangement $ 275 $ 250

Currency swaps $ 240 $ 83

Interest rate swaps (3)

Commodity contract derivatives 7 3

Commodity derivatives under the FHP (2)

Total derivatives subject to master netting or similar arrangement $ 1,160 $ 1,725

Commodity derivatives not subject to master netting or similar arrangement 3 3

Total liabilities $ 1,725 $ 2,253

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

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

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

(1) Offsetting a mounts include counterparty netting of derivative contracts.

Except as discussed below, there were no other material offsetting amounts on TVA's Consolidated Balance Sheets at either September 30, 2022 or 2021.

(2) At September 30, 2022, the gross derivative asset and gross derivative liability was $ 168 million and $ 53 million, respectively, with offsetting amounts for each totaling $ 45 million.

TVA received $ 68 million of collateral from counterparties as of September 30, 2022, which is recorded separately from the fair values of the derivative assets and liabilities and reported in Accounts payable and accrued liabilities.

(3) Letters of credit of approximately $ 704 million and $ 1.2 billion were posted as collateral at September 30, 2022 and 2021, respectively, to partially secure the liability positions of one of the interest rate swaps in accordance with the collateral requirements for this derivative.

Other Derivative Instruments

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The fair values of these derivatives were in net asset positions totaling $ 4 million and $ 2 million at September 30, 2022 and 2021, respectively.

TVA's interest rate swaps and currency swaps contain contract provisions that require a party to post collateral (in a form such as cash or a letter of credit) when the party's liability balance under the agreement exceeds a certain threshold.

TVA's interest rate swaps, currency swaps, and commodity derivatives under the FHP contain contract provisions that require a party to post collateral (in a form such as cash or a letter of credit) when the party's liability balance under the agreement exceeds a certain threshold.

At September 30, 2022, the aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a liability position was $ 1.2 billion.

TVA's collateral obligations at September 30, 2021, under these arrangements were approximately $ 1.1 billion, for which TVA had posted approximately $ 1.2 billion in letters of credit.

TVA's collateral obligations at September 30, 2022, under these arrangements were $ 602 million, for which TVA had posted $ 704 million in letters of credit.

These letters of credit reduce the available balance under the related credit facilities.

TVA's assessment of the risk of its nonperformance includes a reduction in its exposure under the contract as a result of this posted collateral.

TVA's assessment of the risk of its nonperformance includes a reduction in its exposure under the interest rate swap contracts as a result of this posted collateral.

In addition, as of September 30, 2022, TVA received $ 68 million of collateral from counterparties related to the commodity derivatives under the FHP.

For all of its derivative instruments with credit-risk related contingent features:

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The obligations of customers that are not investment grade are secured by collateral.

TVA is also exposed to risk from exchange power arrangements with a small number of investor-owned regional

utilities related to either delivered power or the replacement of open positions of longer-term purchased power or fuel agreements.

TVA is also exposed to risk from exchange power arrangements with a small number of investor-owned regional utilities related to either delivered power or the replacement of open positions of longer-term purchased power or fuel agreements.

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

2 unchanged sentences

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

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

If one of TVA's fuel or purchased power suppliers fails to perform under the terms of its contract with TVA, TVA might lose the money that it paid to the supplier under the contract and have to purchase replacement fuel or power on the spot market, perhaps at a significantly higher price than TVA was entitled to pay under the contract.

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

If certain fuel or purchased power suppliers fail to perform under the terms of their contract with TVA, TVA might lose the money that it paid to the supplier under the contract and have to purchase replacement fuel or power on the spot market, perhaps at a significantly higher price than TVA was entitled to pay under the contract.

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

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

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

TVA continues evaluating potential supplier performance risks and supplier impact but cannot determine or predict the duration of such risks/impacts or the extent to which such risks/impacts could affect TVA's business, operations, and financial results or cause potential business disruptions.

TVA has experienced an increase in supplier impacts as a result of Coronavirus Disease 2019 ("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, and TVA will continue to monitor these pressures.

Natural Gas .

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

TVA purchases a significant amount of its natural gas requirements through contracts with a variety of suppliers and purchases substantially all of its fuel oil requirements on the spot market.

TVA delivers to its gas fleet under firm and non-firm transportation contracts on multiple interstate natural gas pipelines.

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

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

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

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

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

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

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

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

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

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

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

In the event suppliers are unable to perform under existing contracts, TVA can utilize its storage portfolio or other suppliers to help secure replacement natural gas volumes.

To ensure a reliable supply of coal, TVA had coal contracts with multiple suppliers at September 30, 2022.

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

and is delivered via barge and rail.

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

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

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

TVA experienced challenges in 2021 related to coal supply, as a result of supply limitation and transportation challenges.

Coal supply and transportation continued to be constrained in 2022, and these constraints are anticipated to continue into 2023.

Rail service continues to limit TVA’s ability to receive contracted supply, and TVA is also seeing supply constraints and price increases for reagents, diesel fuel, and fuel surcharges associated with coal transport, which are also expected to continue.

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.

Nuclear Fuel .

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In the event of nonperformance by these or other suppliers, TVA believes that replacement uranium concentrate and nuclear fuel services can be obtained, although at prices that may be unfavorable when compared to the prices under the current supply agreements.

As a result of Russia’s invasion of Ukraine, new contracts for Russian origin nuclear fuel have been limited by Executive Order 14066, and further restrictions on the purchase or use of Russian origin fuel may be forthcoming.

TVA should have no direct impact from existing or future restrictions since TVA has no Russian origin nuclear fuel in inventory for use in its reactors and it is not contracted to purchase any Russian origin nuclear fuel.

TVA could be impacted by higher market prices as a result

of general market impacts associated with supply restrictions;

however, at this time TVA's nuclear fuel is obtained predominantly through long-term contracts.

Purchased Power .

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

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

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

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

therefore, the supplier has provided credit assurance to TVA under the terms of the agreement.

Because of the long-term nature and reliability of purchased power, TVA requires that the PPAs contain certain counterparty performance assurance requirements to help insure counterparty performance during the term of the agreements.

Other Suppliers .

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

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

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

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

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

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

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

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 constraints are affecting contracted PPAs from previous requests for proposals that are not yet online and TVA's Self-Directed Solar project.

Derivative Counterparties .

TVA has entered into physical and financial contracts that qualify as derivatives for hedging purposes, and TVA's NDT, ART, and qualified defined benefit pension plan have entered into derivative contracts for investment purposes.

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

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

TVA has entered into physical and financial contracts that are classified as derivatives for hedging purposes, and TVA's NDT, ART, and qualified defined benefit plan ("pension plan") have entered into derivative contracts for investment purposes.

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

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

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

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

TVA classifies qualified forward natural gas contracts as derivatives.

At September 30, 2022, all of TVA's commodity derivatives under the FHP, currency swaps, and interest rate swaps were with counterparties whose Moody's credit ratings were A2 or higher.

TVA classifies forward natural gas contracts as derivatives.

See Derivatives Not Receiving Hedge Accounting Treatment above.

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

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

TVA will continue to monitor the impacts and affected credit ratings and enforce contract performance assurance provisions when applicable.

At September 30, 2022, the natural gas contracts were with counterparties whose ratings ranged from B1 to A1 .

Fair Value Measurements

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The balances in the NDT and ART were $ 2.5 billion and $ 1.1 billion, respectively, at September 30, 2022.

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

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

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

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

Fixed-income investments, high-yield fixed-income

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

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

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

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Unrealized Investment Gains (Losses)

At or for the years ended September 30

For the years ended September 30

(in millions)

Fund Financial Statement Presentation 2022 2021

NDT Regulatory asset $ 279 $ 37

ART Regulatory asset 145 32

SERP Other income (expense) 7 3

DCP Other income (expense) 1 2

NDT Regulatory assets $ ( 396 ) $ 279

ART Regulatory assets ( 190 ) 145

SERP Other income, net ( 19 ) 7

DCP Other income, net ( 5 ) 1

Currency and Interest Rate Swap Derivatives

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These swaps are classified as Level 2 valuations and are valued based on income approaches using observable market inputs for similar instruments.

Commodity Contract Derivatives and Commodity Derivatives under the FHP

Commodity Contract Derivatives.

See Note 16 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment.

Most of these contracts are valued based on market approaches which utilize short-term and mid-term market-quoted prices from an external industry brokerage service.

Most of these derivative contracts are valued based on market approaches, which utilize short-term and mid-term market-quoted prices from an external industry brokerage service.

Commodity Derivatives under the FHP.

Swap contracts are valued using a pricing model based on New York Mercantile Exchange inputs and are subject to nonperformance risk outside of the exit price.

These contracts are classified as Level 2 valuations .

See Note 15 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Commodity Derivatives and — Commodity Derivatives under the FHP .

Nonperformance Risk

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

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

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

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

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

TVA discounts each financial instrument using the historical default rate (as reported by Moody's for CY 1983 to CY 2021) for companies with a similar credit rating over a time period consistent with the remaining term of the contract.

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

The application of CVAs resulted in a $ 2 million decrease in the fair value of assets and a $ 2 million decrease in the fair value of liabilities at September 30, 2022.

Fair Value Measurements

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At September 30, 2022

(in millions)

Quoted Prices in Active

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Commodity contract derivatives — 152 — 152

Commodity derivatives under the FHP — 123 — 123

Total $ 1,134 $ 650 $ — $ 3,946

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Commodity contract derivatives — 7 — 7

Commodity derivatives under the FHP — 8 — 8

Total $ — $ 1,160 $ — $ 1,160

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

(4) TVA records currency swaps net of cash collateral received from or paid to the counterparty, to the extent such amount is not recorded in Accounts payable and accrued liabilities.

(4) TVA records currency swaps net of cash collateral received from or paid to the counterparty if applicable, to the extent such amount is not recorded in Accounts payable and accrued liabilities.

See Note 15 — Risk Management Activities and Derivative Transactions — Offsetting of Derivative Assets and Liabilities .

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At September 30, 2021

(in millions)

Quoted Prices in Active

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Total $ — $ 1,725 $ — $ 1,725

(1) Includes government-sponsored entities.

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

Treasury securities within Level 1 of the fair value hierarchy.

(2) Includes both U.S.

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See Note 15 — Risk Management Activities and Derivative Transactions — Offsetting of Derivative Assets and Liabilities .

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

Fair Value Measurements Using Significant Unobservable Inputs

(in millions)

Commodity Contract Derivatives (1)

Balance at October 1, 2019 $ ( 4 )

Settlements ( 1 )

Change in net unrealized gains (losses) deferred as regulatory assets and liabilities 5

Balance at September 30, 2020 $ —

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

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

Other Financial Instruments Not Recorded at Fair Value

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Other Revenue

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

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, REC sales, and certain other minor items.

Disaggregated Revenues

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

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

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

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

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

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

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

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

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

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

The total wholesale bill credits to LPCs participating in the Partnership Agreement were $ 199 million, $ 189 million, and $ 163 million, respectively, for the years ended September 30, 2022, 2021, and 2020.

In 2020, TVA 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.

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 current Pandemic Recovery Credit.

The number of LPCs by contract arrangement, the revenues derived from such arrangements for 2022, and the percentage those revenues comprised of TVA's total operating revenues for 2022, are summarized in the table below:

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

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

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

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

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

Contract Balances

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

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

TVA did not have any material contract assets at September 30, 2022.

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

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

See Economic Development Incentives below.

See Economic Development Incentives below and Note 12 — Other Long-Term Liabilities — Long-Term Deferred Revenue .

Economic Development Incentives.

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

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

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

The provisions did not have a material impact to TVA.

Proprietary Capital

Appropriation Investment

TVA's power program and stewardship (nonpower) programs were originally funded primarily by appropriations from Congress.

In 1959, Congress passed an amendment to the TVA Act that required TVA's power program to be self-financing from power revenues and proceeds from power program financings.

While TVA's power program did not directly receive appropriated funds after it became self-financing, TVA continued to receive appropriations for certain multipurpose and other nonpower mission-related activities as well as for its stewardship activities.

TVA has not received any appropriations from Congress for any activities since 1999, and since that time, TVA has funded stewardship program activities primarily with power revenues.

The 1959 amendment to the TVA Act also required TVA, beginning in 1961, to make annual payments to the U.S.

Treasury from net power proceeds as a repayment of and as a return on the Power Program Appropriation Investment until a total of $ 1.0 billion of the Power Program Appropriation Investment has been repaid in accordance with the 1959 amendment.

TVA fulfilled its requirement to repay $ 1.0 billion of the Power Program Appropriation Investment in 2014.

The TVA Act requires TVA to continue making payments to the U.S.

Treasury as a return on the remaining $ 258 million of the Power Program Appropriation Investment.

The table below summarizes TVA's activities related to appropriated funds and retained earnings.

Summary of Proprietary Capital Activity

At or for the years ended September 30

Power Program Nonpower

Programs Power Program Nonpower

Appropriation Investment $ 258 $ 4,351 $ 258 $ 4,351

Proprietary Capital

Balance at beginning of year 12,177 ( 3,803 ) 10,823 ( 3,795 )

Net income (loss) for year 1,520 ( 8 ) 1,360 ( 8 )

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

Implementation of new accounting standard (1)

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

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

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

Payments to the U.S.

TVA paid the U.S.

Treasury $ 4 million, $ 6 million, and $ 6 million in 2021, 2020, and 2019, respectively, as a return on the Power Program Appropriation Investment.

The amount of the return on the Power Program Appropriation Investment is based on the Power Program Appropriation Investment balance at the beginning of that year and the computed average interest rate payable by the U.S.

Treasury on its total marketable public obligations at the same date.

The interest rates payable by TVA on the Power Program Appropriation Investment were 1.64 percent, 2.44 percent, and 2.37 percent for 2021, 2020, and 2019, respectively.

Accumulated Other Comprehensive Income (Loss)

The items included in AOCI consist of market valuation adjustments for certain derivative instruments.

See Note 16 — Risk Management Activities and Derivative Transactions.

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

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

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

The amounts reclassified from OCI into net income resulted in increases (decreases) to net income of $ 97 million, $ 38 million, and $( 45 ) million in 2021, 2020, and 2019, respectively.

These reclassifications, coupled with the recording of the exchange gain/loss on the debt and related accrued interest, did not have an impact on net income in 2021, 2020, and 2019.

Based on forecasted foreign currency exchange rates, TVA expects to reclassify approximately $ 25 million of gains from AOCI to interest expense within the next 12 months to offset amounts anticipated to be recorded in interest expense related to exchange gain on the debt and related accrued interest.

Other Income (Expense), Net

Other Income, Net

Income and expenses not related to TVA's operating activities are summarized in the following table:

Other Income (Expense), Net

Other Income, Net

For the years ended September 30

(in millions)

2022 2021 2020

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Miscellaneous ( 7 ) — ( 3 )

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

During 2021, TVA made a $ 28 million court directed payment related to the sale of Bellefonte.

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

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

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

Total other income, net $ 7 $ 13 $ 36

Supplemental Cash Flow Information

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

Interest paid was $ 1.1 billion for each of 2022, 2021, and 2020.

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

There was no interest capitalized in 2022, 2021, or 2020.

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

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

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

Construction in progress and asset retirement obligation project accruals and nuclear fuel expenditures included in Accounts payable and accrued liabilities at September 30, 2022, 2021, and 2020 were $ 629 million, $ 637 million, and $ 398 million, respectively, and are excluded from the Statements of Consolidated Cash Flows for the years ended September 30, 2022, 2021, and 2020 as non-cash investing activities.

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

Excluded from the Statement of Consolidated Cash Flows for the year ended September 30, 2020, as non-cash financing activities, was $ 394 million related to lease obligations incurred primarily in connection with a PPA.

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

Also excluded from the Statement of Consolidated Cash Flows for the year ended September 30, 2020, were $ 80 million and $ 73 million as non-cash financing and investing activities, respectively, due to derecognition of the Paradise pipeline financing obligation and asset.

No material finance leases were entered into during the year ended September 30, 2022.

Cash flows from swap contracts that are accounted for as hedges are classified in the same category as the item being hedged or on a basis consistent with the nature of the instrument.

Benefit Plans

TVA sponsors a qualified defined benefit plan ("pension plan") that covers most of its full-time employees hired prior to July 1, 2014, a qualified defined contribution plan ("401(k) plan") that covers most of its full-time employees, two unfunded post-retirement health care plans that provide for non-vested contributions toward the cost of eligible retirees' medical coverage, other post-employment benefits such as workers' compensation, and the SERP.

TVA sponsors a pension plan that covers most of its full-time employees hired prior to July 1, 2014, a qualified defined contribution plan ("401(k) plan") that covers most of its full-time employees, two unfunded post-retirement health care plans that provide for non-vested contributions toward the cost of eligible retirees' medical coverage, other post-employment benefits such as workers' compensation, and the SERP.

The pension plan and the 401(k) plan are administered by a separate legal entity, the TVA Retirement System ("TVARS"), which is governed by its own board of directors (the "TVARS Board").

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

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

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

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

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The second plan is designed to place a limit on the out-of-pocket amount certain eligible retirees pay for medical coverage and provides a credit based on years of TVA service and monthly base pension amount, reduced by any TVARS supplemental pension benefits or any TVA contribution from the first plan, described above.

Effective January 2017, all Medicare-eligible retirees and spouses were provided Medicare supplement coverage through a private exchange.

Transition to the exchange does not affect any TVARS supplemental benefits for eligible retirees, and the credit will continue to be calculated in the same manner as before.

In January 2017, TVA began providing all Medicare-eligible retirees and spouses Medicare supplement coverage through a private exchange.

Transition to the exchange did not affect any TVARS supplemental benefits for eligible retirees, and the credit continues to be calculated in the same manner as before.

What changed 10-K

Item 8. Financial Statements and Supplementary Data