TVC filing — read by section

Item 7. Management’s Discussion and Analysis

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
 (Dollars in millions except where noted) 
 
 The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand the Tennessee Valley Authority ("TVA"), its financial condition, results of operations, and cash flows, and its present business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, TVA's consolidated financial statements and the accompanying notes thereto contained in Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K for the fiscal year ended September 30, 2024 (the "Annual Report"). See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in TVA's Annual Report on Form 10-K for the year ended September 30, 2023, filed with the Securities and Exchange Commission ("SEC") on November 14, 2023, for a discussion of variance drivers for the year ended September 30, 2023, as compared to the year ended September 30, 2022. The MD&A includes the following sections: 
 
 • Business and Mission — a general description of TVA's business, objectives, strategic priorities, and core capabilities; 
 
 • Executive Overview — a general overview of TVA's activities and results of operations for 2024; 
 
 • Results of Operations — an analysis of TVA's consolidated results of operations for 2023 and 2024; 
 
 • Liquidity and Capital Resources — an analysis of cash flows, a description of aggregate contractual obligations, and an overview of financial position; 
 
 • Key Initiatives and Challenges — an overview of current and future initiatives and challenges facing TVA; 
 
 • Critical Accounting Estimates — a summary of significant estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes; 
 
 • Legislative and Regulatory Matters — a summary of laws and regulations that may impact TVA; and 
 
 • Risk Management Activities — a description of TVA's risk governance and exposure to various market risks. 
 
 Business and Mission 
 
 Business 
 
 TVA operates the nation's largest public power system. At September 30, 2024, TVA had 61 directly served customers, which include seven federal agency customers, and 153 local power company customers ("LPCs") that serve approximately 10 million people in parts of seven southeastern states. TVA generates nearly all of its revenues from the sale of electricity, and in 2024 revenues from the sale of electricity totaled $12.1 billion. As a wholly-owned agency and instrumentality of the United States ("U.S."), however, TVA differs from other electric utilities in a number of ways: 
 
 • TVA is a government corporation. 
 
 • The area in which TVA sells power is limited by the Tennessee Valley Authority Act of 1933, as amended, (the "TVA Act"), under a provision known as the "fence"; however, another provision of federal law known as the Anti-Cherrypicking Amendment ("ACPA") generally protects TVA from being forced to provide access to its transmission lines to others for the purpose of delivering power to customers within substantially all of TVA's defined service area. 
 
 • The rates TVA charges for power are set solely by the TVA Board of Directors ("TVA Board") and are not set or reviewed by another entity, such as a public utility commission. In setting rates, however, the TVA Board is charged by the TVA Act to have due regard for the primary objectives of the TVA Act, including the objective that power be sold at rates as low as feasible. 
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 • TVA is not authorized to raise capital by issuing equity securities. TVA relies primarily on cash from operations and proceeds from power program borrowings to fund its operations and is authorized by the TVA Act to issue bonds, notes, or other evidences of indebtedness (collectively, "Bonds") in an amount not to exceed $30.0 billion outstanding at any given time. Although TVA's operations were originally funded primarily with appropriations from Congress, TVA has not received any appropriations from Congress for any activities since 1999 and, as directed by Congress, has funded essential stewardship activities primarily with power revenues. 
 
 TVA's Mission of Service 
 
 TVA was built for the people, created by federal legislation, and charged with a unique mission - to improve the quality of life in a seven-state region through the integrated management of the region's resources. TVA's mission focuses on three key areas: 
 
 ENERGY ENVIRONMENT ECONOMIC DEVELOPMENT 

 • Energy — Delivering reliable, low cost, clean energy; 
 
 • Environment — Caring for the region's natural resources; and 
 
 • Economic Development — Creating sustainable economic growth. 
 
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 While TVA's mission has not changed since it was established in 1933, the climate in which TVA operates continues to evolve. The business and economic environment has become more challenging due to economic conditions; tougher environmental standards; and the need to diversify its power supply and adapt to changing customer usage behaviors, new technologies, and emerging, non-traditional competition. To continue to deliver its mission of service while evolving for future success, TVA must realize five strategic priorities, which are comprised of several strategic elements each: 
 
 Foster a culture that embraces, adapts quickly to, and anticipates changes needed for TVA to excel in the future public power utility marketplace
 
 Support inclusion with diversity efforts to attract and retain the best talent for TVA
 
 Deliver an efficient and agile HR service model that enables enterprise effectiveness
 
 Develop the next generation of
TVA leaders Nation’s top nuclear fleet by 2025
 
 Achieve leading operational performance by managing the generation fleet based on the mission of each asset
• Gas and hydro to top quartile
• Coal fleet based on end of life
 
 Increase generation and transmission capacity while fostering excellence in project management and construction
 
 Advance TVA’s grid capabilities to increase flexibility for future additions and to meet the reliability and resiliency needs of the future
 
 Accelerate the deployment of existing clean technologies including solar, storage, energy efficiency, and demand response Maintain financial health while funding TVA's energy transition
 
 Ensure sufficient revenues to meet financial commitments
(revenue requirements)
 
 Evolve the public power model while incorporating Valley Vision 2035 Build partnerships and
community connections to enable solutions
 
 Champion the public power model through the region’s energy expansion
 
 Align with TVA's customers and
economic development
agencies to target industries that are critical to the Valley’s long-term success
 
 Responsibly foster excellence in natural resource management and environmental stewardship as TVA transitions to the energy system of the future Advance energy transformation in the Valley through leveraging technology and innovation in all of TVA's work
 
 Refine innovation framework to align with TVA’s strategic intent
 
 Support the development of new technologies to further
accelerate decarbonization and prepare to deploy commercially viable technologies 
 
 TVA's mission sets the stage for its strategic planning process that includes strategic objectives, initiatives, and scorecards for performance designed to provide clear direction for improving TVA's core business. 
 
 Linking the Mission to Performance 
 
 TVA has formulated key performance measures to support its strategic priorities. The intent of these measures is to align employees to TVA's mission by focusing its collective efforts on operational excellence, fiscal responsibility, economic development, and environmental stewardship. The measures are designed to promote teamwork, encourage high performance behaviors, and motivate TVA employees to achieve goals aligned with TVA's mission and values. The 2024 corporate results compared with targets for these key measures are reflected in the chart below, and the subsequent chart reflects the 2025 approved corporate measures. See Part III, Item 11, Executive Compensation — Compensation Discussion and Analysis for information regarding how the 2024 measures are calculated. 
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 2024 Corporate Measure Weight Actual Threshold Target Stretch 
 TVA total spending ($ millions) 40% $ 7,496 $ 8,049 $ 7,810 $ 7,570 
 Load not served (system minutes) 30% 2.3 4.5 4.1 3.2 
 Annualized nuclear online reliability loss factor (%) 15% 3.22 % 3.00 % 2.00 % 1.00 % 
 Combined cycle equivalent forced outage rate (%) 10% 1.2 % 6.4 % 5.5 % 4.0 % 
 Coal equivalent forced outage rate (%) 5% 4.8 % 18.2 % 15.2 % 8.6 % 

 2025 Corporate Measure Weight Threshold Target Stretch 
 Strategic Business Unit ("SBU") Controllable / Operating and Maintenance ("O&M") and Base Capital Spend 40% $5,187 $5,061 $4,935 
 Transmission Performance Indicator 
 15% 50 100 200 
 Nuclear Performance Indicator 15% 2.77 2.00 1.23 
 Power Operations Performance Indicator 15% 50 100 200 
 Serious Injury Incident Rate 15% 0.04 0.02 0.00 

 Executive Overview 
 
 TVA's operating revenues were $12.3 billion and $12.1 billion for the years ended September 30, 2024 and 2023, respectively. Operating revenues increased for the year ended September 30, 2024 as compared to the prior year, primarily as a result of higher effective base rates and higher sales volume, partially offset by lower fuel rates. Effective base rates were higher primarily due to the TVA Board action to approve a 4.5 percent wholesale base rate increase beginning in 2024 and the pandemic credits ending on September 30, 2023. The higher sales volume was driven by a 20 percent increase in cooling degree days as compared to the same period of the prior year. Lower fuel rates were primarily due to lower coal, natural gas, and purchased power prices. 
 
 On January 17, 2024, TVA reached an all-time record high peak power demand of approximately 34,577 megawatts ("MW"). This peak was nearly 1,100 MW greater than TVA's previous all-time peak and over 1,100 MW greater than TVA's peak power demand during Winter Storm Elliott in December 2022. In addition, TVA reached a second highest peak power demand of approximately 34,284 MW on January 21, 2024. 
 
 Total operating expenses decreased $274 million for the year ended September 30, 2024, as compared to the prior year, primarily due to a decrease in fuel and purchased power expense. Fuel and purchased power expense decreased $432 million for the year ended September 30, 2024, as compared to the same period of the prior year, primarily due to lower coal, natural gas, and purchased power prices. Depreciation and amortization expense decreased $75 million for the year ended September 30, 2024, as compared to the prior year, primarily driven by a decrease in depreciation expense associated with the retirement of Bull Run Fossil Plant ("Bull Run"). These decreases were partially offset by a $269 million increase in Operating and maintenance expense primarily due to increases in payroll and benefit costs due to labor escalation for cost of living increases and additional headcount to support operational needs, outage expense driven by an increase in nuclear outage days, and contract labor costs primarily related to strategic project work and power operations performance improvement activities. 
 Commercial operations began on Paradise Combustion Turbine Units ("CTs") 5-7 on December 29, 2023. TVA also has ongoing natural gas projects at its Johnsonville, Cumberland, and Kingston sites and is evaluating natural gas projects for the replacement generation for the second unit at Cumberland, a new Caledonia CT plant on TVA land, and an aeroderivative CT project at TVA's Allen site. In addition, the first license renewal application was submitted to the Nuclear Regulatory Commission in January 2024 for the three units at Browns Ferry Nuclear Plant following the completion of a Supplemental Environmental Impact Statement ("EIS"). TVA documented its final decision related to the retirement of Kingston with the Record of Decision on April 2, 2024. TVA plans to retire the nine coal-fired units at Kingston by the end of calendar year ("CY") 2027 and replace the retired generation with an energy complex that includes natural gas, battery storage, and solar. 
 On May 8, 2024, the Environmental Protection Agency ("EPA") published its final legacy coal combustion residual ("CCR") rule ("Legacy CCR Rule"), which expands the scope of the existing regulatory requirements of EPA's 2015 CCR rule, as revised ("2015 CCR Rule"), to include two additional classes of CCR units: legacy CCR surface impoundments ("Legacy SIs") and CCR management units ("CCRMUs"). As a result of the enactment of the final rule, during 2024, TVA recorded additional estimated AROs of $3.1 billion and recorded a corresponding regulatory asset of $3.1 billion due to these AROs being associated with closed sites and asset retirement costs having been fully depreciated. 
 
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 TVA's economic development efforts and programs continued to help attract or expand businesses and industries in the Tennessee Valley. These companies announced projected capital investments of $8.9 billion and are expected to create 10,368 jobs and retain 42,393 jobs. These amounts are forward-looking and are subject to various uncertainties. Amounts may differ materially based upon a number of factors, including, but not limited to, economic downturns or recessions. See Forward-Looking Information and Part I, Item 1A, Risk Factors for a discussion of additional factors, and see Part I, Item 1, Business — Economic Development Activities for definitions of "new jobs" and "retained jobs." 
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 Results of Operations 
 
 Sales of Electricity 
 
 Sales of electricity, which accounted for nearly all of TVA's operating revenues, were 162,933 million and 157,311 million kilowatt hours ("kWh") for 2024 and 2023, respectively. Total sales of electricity in 2024 includes 137 million kWh of pre-commercial generation at Paradise CTs 5-7, all of which was recognized in the three months ended December 31, 2023. Total sales of electricity in 2023 includes 99 million kWh of pre-commercial generation at Colbert CT Units 9-11. TVA sells power at wholesale rates to LPCs that then resell the power to their customers at retail rates. TVA also sells power to directly served customers, consisting primarily of federal agencies and customers with large or nonstandard loads. In addition, power exceeding TVA's system needs is sold under exchange power arrangements with certain other power systems. 
 
 The following chart compares TVA's sales of electricity by customer type for the years ended September 30, 2024 and 2023: 
 
 Sales of Electricity 
 For the years ended September 30 
 (millions of kWh) 

 The following charts show a breakdown of TVA's energy load: 
 
 Note 
 Information included in the charts above was derived from energy usage of directly served customers and customers served by LPCs during CY 2023, and these graphs will continue to be updated on a CY basis. 
 
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 Weather affects both the demand for TVA power and the price for that power. TVA uses degree days to measure the impact of weather on its power operations. Degree days measure the extent to which the TVA system 23-station average temperatures vary from 65 degrees Fahrenheit. 
 
 Degree Days 
 Variation from Normal Change from Prior Period 
 2024 Normal Percent Variation 2023 Normal Percent Variation Percent Change 
 Heating Degree Days 2,801 3,152 (11.1) % 2,774 3,132 (11.4) % 1.0 % 
 
 Cooling Degree Days 1,954 1,824 7.1 % 1,634 1,824 (10.4) % 19.6 % 
 
 Sales of electricity increased approximately four percent for the year ended September 30, 2024, as compared to the same period of the prior year. The increased sales volume for LPCs was primarily driven by an increase in cooling degree days of 20 percent. For industries directly served, sales of electricity increased primarily within the data processing, hosting, and related services sector due to business-specific factors. 
 
 Financial Results 
 
 The following table compares operating results for 2024 and 2023: 
 
 Summary Consolidated Statements of Operations 
 For the years ended September 30 
 (in millions) 
 
 2024 2023 Change Percent Change 
 Operating revenues $ 12,314 $ 12,054 $ 260 2.2 % 
 Operating expenses 10,086 10,360 (274) (2.6) % 
 Operating income 2,228 1,694 534 31.5 % 
 Other income, net 71 61 10 16.4 % 
 Other net periodic benefit cost 98 199 (101) (50.8) % 
 Interest expense 1,066 1,056 10 0.9 % 
 Net income $ 1,135 $ 500 $ 635 127.0 % 

 Operating Revenues. Operating revenues for the years ended September 30, 2024 and 2023, were $12.3 billion and $12.1 billion, respectively. The following table compares TVA's operating revenues for the periods indicated: 
 
 Operating Revenues by Customer Type 
 For the years ended September 30 
 (in millions) 
 
 2024 2023 Change Percent Change 
 Operating revenues 
 Local power companies $ 11,138 $ 10,903 $ 235 2.2 % 
 Industries directly served 868 864 4 0.5 % 
 Federal agencies and other 125 135 (10) (7.4) % 
 Revenue capitalized during pre-commercial plant operations (1) 
 (3) (3) — — % 
 
 Other revenue 186 155 31 20.0 % 
 Total operating revenues $ 12,314 $ 12,054 $ 260 2.2 % 

 Note 
 (1) Represents revenue capitalized during pre-commercial operations at Paradise CTs 5-7 in 2024 and Colbert CTs 9-11 in 2023. 
 
 TVA's two largest LPCs — Memphis Light, Gas and Water Division ("MLGW") and Nashville Electric Service ("NES") — have contracts with a five-year and a 20-year termination notice period, respectively. Sales to MLGW and NES accounted for nine percent and eight percent, respectively, of TVA's total operating revenues during both the years ended September 30, 2024 and 2023. 
 
 TVA's rate structure uses pricing signals to indicate seasons and hours of higher cost to serve its customers and to capture a portion of TVA's fixed costs in fixed charges. The structure includes three base revenue components: time of use demand charges, time of use energy charges, and a grid access charge ("GAC"). The demand charges are based upon the customer's peak monthly usage. The energy charges are based on time differentiated kWh used by the customer. Both of these components can be significantly impacted by weather. The GAC captures a portion of fixed costs and is offset by a corresponding reduction to the energy rates. The GAC also reduces the impact of weather variability to the overall rate structure. 
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 TVA has a Partnership Agreement option that better aligns the length of LPC power contracts with TVA's long-term commitments. Under the partnership arrangement, the LPC power contracts automatically renew each year and have a 20-year termination notice. The partnership arrangements can be terminated under certain circumstances, including TVA’s failure to limit rate increases to no more than 10 percent during any consecutive five-fiscal-year period, as more specifically described in the agreements. Participating LPCs receive benefits including a 3.1 percent wholesale bill credit in exchange for their long-term commitment, which enables TVA to recover its long-term financial commitments over a commensurate period. As of September 30, 2024, 148 LPCs had signed the 20-year Partnership Agreement with TVA. 
 
 In addition to base revenues, the rate structure includes a separate fuel rate that includes the costs of natural gas, fuel oil, purchased power, coal, emission allowances, nuclear fuel, and other fuel-related commodities; realized gains and losses on derivatives purchased to hedge the costs of such commodities; and payments to states and counties in lieu of taxes ("tax equivalents") associated with the fuel cost adjustments. See Part I, Item 1, Business — Rates — Rate Methodology . 
 
 In August 2024, the TVA Board approved a 5.25 percent wholesale base rate increase (excluding fuel) effective October 1, 2024. This adjustment is estimated to produce an additional $495 million of revenue during 2025. 
 
 The changes in revenue components are summarized below: 
 
 Changes in Revenue Components 
 For the years ended September 30 
 (in millions) 
 
 2024 2023 Change Percent Change 
 Base revenue 
 Energy revenue $ 5,065 $ 4,687 $ 378 8.1 % 
 Demand revenue 3,891 3,654 237 6.5 % 
 Grid access charge 622 589 33 5.6 % 
 Long-term partnership credits for LPCs (215) (199) (16) 8.0 % 
 Pandemic relief credits (1) 
 — (225) 225 (100.0) % 
 Other charges and credits (2) 
 (638) (643) 5 (0.8) % 
 Total base revenue 8,725 7,863 862 11.0 % 
 Fuel cost recovery 3,398 4,025 (627) (15.6) % 
 Off-system sales 8 14 (6) (42.9) % 
 Pre-commercial operations (3) 
 (3) (3) — — % 
 Revenue from sales of electricity 12,128 11,899 229 1.9 % 
 Other revenue 186 155 31 20.0 % 
 Total operating revenues $ 12,314 $ 12,054 $ 260 2.2 % 

 Notes 
 (1) In 2022, the TVA Board approved a 2.5 percent monthly base rate credit, the Pandemic Recovery Credit, which was effective for 2023. The pandemic credits ended September 30, 2023. 
 (2) Includes economic development credits to promote growth in the Tennessee Valley, hydro preference credits for residential customers of LPCs, and demand response credits allowing TVA to reduce industrial customer usage in periods of peak demand to balance system demand. See Note 17 — Revenue. 
 (3) Represents revenue capitalized during pre-commercial operations at Paradise CTs 5-7 in 2024 and Colbert CTs 9-11 in 2023. 
 
 Operating revenues increased $260 million for the year ended September 30, 2024, as compared to the prior year, primarily due to a $862 million increase in base revenue. The $862 million increase in base revenue was driven by a $637 million increase attributable to higher effective base rates and a $225 million increase attributable to higher sales volume. The increase in effective base rates was primarily due to the TVA Board action to approve a 4.5 percent wholesale base rate increase beginning in 2024 and the pandemic credits ending on September 30, 2023. The higher sales volume was primarily due to an increase in cooling degree days of 20 percent. Partially offsetting the increase in base revenue was a $627 million decrease in fuel cost recovery revenue. The $627 million decrease in fuel cost recovery revenue was driven by a $774 million decrease attributable to lower fuel rates partially offset by a $147 million increase attributable to higher sales volume. The lower fuel rates were primarily due to lower coal, natural gas, and purchased power prices. 
 
 See Sales of Electricity above for further discussion of the change in the volume of sales of electricity and Operating Expenses below for further discussion of the change in fuel expense. 
 
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 Operating Expenses. Operating expense components as a percentage of total operating expenses for 2024 and 2023 consisted of the following: 
 
 Operating Expenses 
 For the years ended September 30 
 (in millions) 
 
 2024 2023 Change Percent Change 
 Operating expenses 
 Fuel $ 2,169 $ 2,549 $ (380) (14.9) % 
 Purchased power 1,581 1,633 (52) (3.2) % 
 Operating and maintenance 3,641 3,372 269 8.0 % 
 Depreciation and amortization 2,138 2,213 (75) (3.4) % 
 Tax equivalents 557 593 (36) (6.1) % 
 Total operating expenses $ 10,086 $ 10,360 $ (274) (2.6) % 

 The following table summarizes TVA's expenses for various fuels for the years indicated: 
 
 Fuel Expense for TVA-Operated Facilities (1) 
 For the years ended September 30 
 (in millions) 
 
 Fuel Expense By Source Cost per kWh (4) 
 
 2024 2023 2024 2023 
 Coal (2) 
 $ 770 $ 877 $ 3.53 $ 4.18 
 Natural gas and/or oil-fired (3) 
 1,062 1,293 2.76 3.74 
 Nuclear fuel 341 337 0.52 0.50 
 Total fuel $ 2,173 $ 2,507 $ 1.73 $ 2.04 

 Notes 
 (1) Excludes effects of the fuel cost adjustment in the amounts of $(4) million and $42 million for the years ended September 30, 2024 and 2023, respectively. 
 (2) Fuel expense related to oil consumed for startup at coal-fired facilities was $23 million and $33 million for the years ended September 30, 2024 and 2023, respectively. 
 (3) Fuel expense related to oil consumed for generation at natural gas and/or oil-fired facilities was $8 million and $14 million for the years ended September 30, 2024 and 2023, respectively. 
 (4) Total cost per kWh is based on a weighted average. 
 
 Fuel expense decreased $380 million for the year ended September 30, 2024, as compared to the prior year. This decrease was primarily due to a decrease in effective fuel rates due to lower coal and natural gas prices, resulting in a $373 million decrease in fuel expense. Additionally, fuel expense decreased $46 million due to the deferral of unplanned coal costs during the summer of 2024 and the recovery of unplanned fuel costs in the prior year that were deferred in the summer of 2022. Partially offsetting these decreases was an increase of $39 million in fuel expense due to higher demand for energy. 
 
 Purchased power expense decreased $52 million for the year ended September 30, 2024, as compared to the prior year. This decrease was primarily due to lower purchased power market prices compared to the same period of the prior year, resulting in a decrease of $259 million. Additionally, purchased power expense decreased $43 million due to the deferral of unplanned purchased power costs from less availability of nuclear and hydro generation and the recovery of unplanned 
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 purchased power costs in the prior year that were deferred in the summer of 2022. Partially offsetting these decreases was an increase of $250 million in purchased power expense due to higher demand for energy, and to a lesser extent, less availability of nuclear and hydro generation. 
 
 Operating and maintenance expense increased $269 million for the year ended September 30, 2024, as compared to the prior year. This increase was primarily due to $126 million of increased payroll and benefit costs primarily due to labor escalation for cost of living increases and additional headcount to support operational needs, a $39 million increase in outage expense primarily due to an increase in nuclear outage days, and $30 million of increased contract labor costs primarily related to strategic project work and power operations performance improvement activities. In addition, there was a $12 million increase in materials and supplies related to power operations performance improvement activities and other natural gas project work and a $9 million increase in expenditures related to TVA's New Nuclear Program. 
 
 Depreciation and amortization expense decreased $75 million for the year ended September 30, 2024, as compared to the prior year. The decrease was primarily driven by a decrease in depreciation expense of $206 million related to the decision to retire Bull Run, as Bull Run became fully depreciated in the fourth quarter of 2023. Partially offsetting this decrease was a $44 million increase in depreciation primarily related to TVA's decision to retire Cumberland and Kingston, a $38 million increase in amortization expense from amortization of finance leases and retirement of regulatory assets, and a $19 million increase due to Colbert CTs 9-11 and Paradise CTs 5-7 being placed into service in the fourth quarter of 2023 and the first quarter of 2024, respectively. The remainder of the partially offsetting increase was primarily due to depreciation of other additions to net completed plant. See Note 1 — Summary of Significant Accounting Policies — Property, Plant, and Equipment, and Depreciation — Depreciation . 
 
 Tax equivalents expense decreased $36 million for the year ended September 30, 2024, as compared to the prior year. This change was primarily driven by a decrease in the tax equivalents collected in the fuel cost recovery. 
 
 Generating Sources. The following tables show TVA's generation and purchased power by generating source as a percentage of all electrical power generated and purchased (based on kWh) for the periods indicated: 
 
 Total Power Supply by Generating Source 
 For the years ended September 30 
 (millions of kWh) 
 
 2024 2023 
 
 Nuclear 65,235 39 % 67,102 42 % 
 Natural gas and/or oil-fired (1) 
 38,390 23 % 34,467 22 % 
 Coal-fired 21,752 13 % 20,896 13 % 
 
 Hydroelectric 12,284 7 % 13,063 8 % 
 Total TVA-operated generation facilities (2)(3) 
 137,661 82 % 135,528 85 % 
 Purchased power (natural gas and/or oil-fired) (4) 
 17,144 11 % 13,703 9 % 
 Purchased power (other renewables) (5) 
 5,930 4 % 6,247 4 % 
 
 Purchased power (coal-fired) 2,207 1 % 2,722 1 % 
 Purchased power (hydroelectric) 2,751 2 % 1,591 1 % 
 Total purchased power (3) 
 28,032 18 % 24,263 15 % 
 Total power supply 165,693 100 % 159,791 100 % 

 Notes 
 (1) The generation for 2023 includes 99 million kWh of pre-commercial generation at Colbert CTs 9-11. The generation for 2024 includes 137 million kWh of pre-commercial generation at Paradise CTs 5-7. 
 (2) Generation from TVA-owned renewable resources (non-hydroelectric) is less than one percent for all periods shown and therefore is not represented in the table above. 
 (3) Raccoon Mountain Pumped-Storage Plant net generation is allocated against each TVA-operated generation facility and purchased power type for both the year ended September 30, 2024, and the year ended September 30, 2023. See Part I, Item 1, Business — Power Supply and Load Management Resources — Hydroelectric Pumped-Storage for a discussion of Raccoon Mountain Pumped-Storage Plant. 
 (4) Purchased power (natural gas and/or oil-fired) includes generation from Caledonia CC, which is currently a leased facility operated by TVA. Generation from Caledonia Combined Cycle Plant (" Caledonia CC") was 4,798 million kWh and 4,030 million kWh for the years ended September 30, 2024 and 2023, respectively. 
 (5) Purchased power (other renewables) includes purchased power from the following renewable sources: solar, wind, biomass, and renewable cogeneration. TVA acquires Renewable Energy Certificates ("RECs") in connection with certain purchased power transactions and sells some of these RECs to customers. 
 
 In addition to power supply sources included here, TVA offers energy efficiency programs that effectively reduce energy 
 needs. In 2024, TVA invested $71 million on its energy efficiency programs and effectively reduced 2024 energy needs by approximately 205 gigawatt hours of net incremental energy efficiency savings. 
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 Interest Expense . Interest expense and interest rates for 2024 and 2023 were as follows: 
 
 Interest Expense and Rates 
 For the years ended September 30 
 
 2024 2023 Percent Change 
 Interest expense (1) 
 $ 1,066 $ 1,056 0.9 % 
 
 Average blended debt balance (2) 
 $ 20,936 $ 20,613 1.6 % 
 
 Average blended interest rate (3) 
 4.90 % 4.92 % (0.4) % 

 Notes 
 (1) Includes amortization of debt discounts, issuance, and reacquisition costs, net. 
 (2) Includes average balances of long-term power bonds, debt of VIEs, and discount notes. 
 (3) Includes interest on long-term power bonds, debt of VIEs, and discount notes. 
 
 Total interest expense increased $10 million for the year ended September 30, 2024, as compared to the prior year. This was primarily driven by a $23 million increase from higher average balances on long-term debt and an $8 million increase from higher average rates on short-term debt, partially offset by a $13 million decrease from lower average rates on long-term debt, a $5 million decrease from lower average balances on short-term debt, and a $3 million decrease due to lower interest expense related to finance leases. 
 
 Other Income, Net 
 
 Other income, net increased $10 million for the year ended September 30, 2024, as compared to the prior year. This increase was primarily driven by market gains on TVA's Investment funds and increases in interest income due to higher interest rates as compared to the prior year. 
 
 Other Net Periodic Benefit Cost 
 
 Other net periodic benefit cost decreased $101 million for the year ended September 30, 2024, as compared to the prior year. The decrease is primarily due to a decrease in the amount of deferred pension costs recognized. As a result of plan design changes, future contributions are expected to exceed the expense under U.S. GAAP. Accordingly, TVA discontinued this regulatory accounting practice as all such deferred costs were recovered as of September 30, 2023. In addition, Other net periodic benefit cost is subject to significant economic assumptions, such as changes in the discount rate used to measure the benefit plans, that can materially impact TVA. See Note 20 — Benefit Plans . 
 
 Liquidity and Capital Resources 
 
 Sources of Liquidity 
 
 TVA depends on various sources of liquidity to meet cash needs and contingencies. TVA's primary sources of liquidity 
 are cash from operations and proceeds from the issuance of short-term debt in the form of discount notes, along with periodic 
 issuances of long-term debt. TVA's balance of short-term debt typically changes frequently as TVA issues discount notes to 
 meet short-term cash needs and pay scheduled maturities of discount notes and long-term debt. TVA's next significant power bond maturity is $1.0 billion in May 2025. The periodic amounts of short-term debt issued are determined by near-term expectations for cash receipts, cash expenditures, and funding needs, while seeking to maintain a target range of cash and cash equivalents on hand. TVA may hold higher cash balances from time to time in response to potential market volatility or other business conditions. In addition, cash balances may include collateral received from counterparties. 
 
 In addition to cash from operations and proceeds from the issuance of short-term and long-term debt, TVA's sources of liquidity include four long-term revolving credit facilities totaling $2.7 billion, a $150 million credit facility with the United States Department of the Treasury ("U.S. Treasury"), and proceeds from other financings. See Note 14 — Debt and Other Obligations — Credit Facility Agreements. The TVA Board authorized TVA to issue power bonds and enter into other financing arrangements in an aggregate amount not to exceed $4.0 billion during 2025. In the fourth quarter of 2024, TVA issued $1.0 billion of power bonds maturing in August 2034. Other financing arrangements may include, but are not limited to, lease financings, energy prepayments from customers, and other similar agreements. TVA may also engage in other alternative forms of financing such as sales of receivables, or loans, from time to time. 
 
 The TVA Act authorizes TVA to issue Bonds in an amount not to exceed $30.0 billion outstanding at any time. Bonds outstanding, excluding unamortized discounts and premiums and net exchange gains from foreign currency transactions, at September 30, 2024 and 2023, were $20.2 billion (including current maturities) and $19.5 billion (including current maturities), respectively. The balance of Bonds outstanding directly affects TVA's capacity to meet operational liquidity needs and to strategically use Bonds to fund certain capital investments as management and the TVA Board may deem desirable. Other options for financing not subject to the limit on Bonds, including lease financings (see Lease Financings below and Note 11 — 
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 Variable Interest Entities ), could provide supplementary funding if needed. Currently, TVA expects to utilize a combination of Bonds and additional power revenues through power rate increases to meet its ongoing operational liquidity needs while making planned capital investments through the decade. TVA may also utilize available funding through the Inflation Reduction Act of 2022 ("Inflation Reduction Act") and the Bipartisan Infrastructure Law ("BIL"), other federal funding opportunities, or other third-party financing arrangements. See Lease Financing s, Key Initiatives and Challenges — Optimum Energy Portfolio — Decarbonization , Note 11 — Variable Interest Entities , and Note 14 — Debt and Other Obligations for additional information. 
 
 TVA may from time to time seek to retire or purchase its outstanding debt through cash purchases and/or exchanges for securities, in open market purchases, privately negotiated transactions, or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, TVA's liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. 
 
 Debt Securities . TVA's Bonds are not obligations of the U.S., and the U.S. does not guarantee the payments of principal or interest on Bonds. TVA's Bonds consist of power bonds and discount notes. Power bonds have maturities of between one and 50 years. At September 30, 2024, the average maturity of long-term power bonds was 13.96 years, and the weighted average interest rate was 4.69 percent. Discount notes have maturities of less than one year. Power bonds and discount notes have a first priority and equal claim of payment out of net power proceeds. Net power proceeds are defined as the remainder of TVA's gross power revenues after deducting the costs of operating, maintaining, and administering its power properties and tax equivalents, but before deducting depreciation accruals or other charges representing the amortization of capital expenditures, plus the net proceeds from the sale or other disposition of any power facility or interest therein. In addition to power bonds and discount notes, TVA had long-term debt associated with certain VIEs outstanding at September 30, 2024. See Lease Financing below, Note 11 — Variable Interest Entities , and Note 14 — Debt and Other Obligations for additional information. 
 
 Power bonds and discount notes are both issued pursuant to Section 15d of the TVA Act and pursuant to the Basic Tennessee Valley Authority Power Bond Resolution adopted by the TVA Board on October 6, 1960, as amended on September 28, 1976, October 17, 1989, and March 25, 1992 (the "Basic Resolution"). The TVA Act and the Basic Resolution each contain two bond tests: the rate test and the bondholder protection test. 
 
 Under the rate test, TVA must charge rates for power which will produce gross revenues sufficient to provide funds for operation, maintenance, and administration of its power system; tax equivalents; debt service on outstanding Bonds; payments to the U.S. Treasury in repayment of and as a return on the government's appropriation investment in TVA's power facilities (the "Power Program Appropriation Investment"); and such additional margin as the TVA Board may consider desirable for investment in power system assets, retirement of outstanding Bonds in advance of maturity, additional reduction of the Power Program Appropriation Investment, and other purposes connected with TVA's power business, having due regard for the primary objectives of the TVA Act, including the objective that power shall be sold at rates as low as are feasible. See Note 23 — Related Parties . 
 
 The rate test for the one-year period ended September 30, 2024, was calculated after the end of 2024, and TVA met the test's requirements. 
 
 Under the bondholder protection test, TVA must, in successive five-year periods, use an amount of net power proceeds at least equal to the sum of the depreciation accruals and other charges representing the amortization of capital expenditures and the net proceeds from any disposition of power facilities, for either the reduction of its capital obligations (including Bonds and the Power Program Appropriation Investment) or investment in power assets. 
 
 The bondholder protection test for the five-year period ended September 30, 2020, was calculated after the end of 2020, and TVA met the test's requirements. TVA must next meet the bondholder protection test for the five-year period ending September 30, 2025, and expects to meet the test. 
 
 TVA uses proceeds from the issuance of discount notes, in addition to other sources of liquidity, to fund short-term cash needs and scheduled maturities of long-term debt. 
 
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 The following table provides additional information regarding TVA's short-term borrowings. 
 
 Short-Term Borrowings 
 (in millions) 
 
 At September 30, 2024 For the year ended September 30, 2024 At September 30, 2023 For the year ended September 30, 2023 
 Gross Amount Outstanding (at End of Period) or Average Gross Amount Outstanding (During Period) 
 Discount notes $ 1,168 $ 787 $ 432 $ 890 
 Maximum Month-End Gross Amount Outstanding (During Period) 
 Discount notes N/A $ 1,205 N/A $ 1,864 
 Weighted Average Interest Rate 
 Discount notes 4.76 % 5.37 % 5.29 % 4.34 % 

 TVA ended the year at September 30, 2024, with a higher balance of short-term debt as compared to September 30, 2023. The increase was primarily due to higher redemptions of long-term debt compared to the previous year, and the timing of cash flows. 
 
 TVA generally uses proceeds from the issuance of power bonds to refinance maturing power bonds or other financing obligations, as necessary, or for other power system purposes. The total balance of power bonds may decline in periods where redemptions of power bonds exceed issuance due to net positive cash flow from operating and investing activities. At this time, TVA anticipates the balance of Bonds and other financing obligations will increase in future years due to an expected increase in capital expenditures. 
 
 TVA issued $1.0 billion of power bonds during both 2024 and 2023. TVA redeemed $1.0 billion and $29 million of power bonds during 2024 and 2023, respectively. For additional information about TVA debt issuance activity and debt instruments issued and outstanding at September 30, 2024 and 2023, including rates, maturities, outstanding principal amounts, and redemption features, see Note 14 — Debt and Other Obligations — Debt Securities Activity and Debt Outstanding . 
 
 TVA Bonds are traded in the public bond markets and are listed on the New York Stock Exchange ("NYSE") except for TVA's discount notes, the 2009 Series B power bonds, and the power bonds issued under TVA's electronotes ® program. TVA's Putable Automatic Rate Reset Securities ("PARRS") are traded on the NYSE under the exchange symbols "TVC" and "TVE." Other bonds listed on the NYSE are assigned various symbols by the exchange, which may be noted on the NYSE's website. TVA has also listed certain bonds on foreign exchanges from time to time, including the Luxembourg, Hong Kong, and Singapore Stock Exchanges. See Part I, Item 1A, Risk Factors — Financial, Economic, and Market Risks for additional information regarding the market for TVA's Bonds. 
 
 Although TVA Bonds are not obligations of the U.S., TVA, as a corporate agency and instrumentality of the U.S. government, may be impacted if the sovereign credit ratings of the U.S. are downgraded. According to statements made by the credit rating agencies, the U.S. credit rating may face additional downward pressure if policymakers are unable to respond to the country's growing fiscal challenges, if it appears deterioration in debt affordability or fiscal strength is likely to undermine U.S. economic strength or the role of the U.S. dollar or U.S. Treasury bond market, or if a weakening of governance were to occur. Additionally, TVA may be impacted by how the U.S. government addresses situations of approaching its debt limit. The outlook on the ratings of TVA is currently stable with S&P Global Ratings ("S&P") and Fitch Ratings, Inc. ("Fitch"); however, the outlook on TVA's ratings from Moody's Investors Service, Inc. ("Moody's") is negative due to Moody's change in the U.S. government rating outlook. TVA's rated senior unsecured Bonds are currently rated Aaa, AA+, and AA+, by Moody's, Fitch, and S&P, respectively. TVA's short-term discount notes are not rated. TVA is not able to predict the outcome of any rating changes on the U.S. government or any actions that may be taken on TVA because of actions on the government. 
 
 Lease Financings . TVA has entered into certain leasing transactions with special purpose entities ("SPEs") to obtain third-party financing for its facilities. These SPEs are sometimes identified as VIEs of which TVA is determined to be the primary beneficiary. TVA is required to account for these VIEs on a consolidated basis. See Note 11 — Variable Interest Entities. In addition, TVA previously entered into leasing transactions to obtain third-party financing for 24 peaking CTs as well as certain qualified technological equipment and software ("QTE"). See Note 1 — Summary of Significant Accounting Policies for information about reacquired rights associated with these lease financing activities. 
 
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 Summary Cash Flows 
 
 A major source of TVA's liquidity is operating cash flows resulting from the generation and sale of electricity. Cash, cash equivalents, and restricted cash totaled $523 million and $521 million at September 30, 2024 and 2023, respectively. A summary of cash flow components for the years ended September 30 follows: 
 
 Cash provided by (used in): 
 
 Operating Activities . TVA's cash flows from operations are primarily driven by sales of electricity, fuel expense, and operating and maintenance expense. The timing and level of cash flows from operations can be affected by the weather, changes in working capital, commodity price fluctuations, outages, and other project expenses. 
 
 Net cash flows provided by operating activities increased $131 million for the year ended September 30, 2024, as compared to the same period of the prior year. The increase was primarily due to lower fuel prices and purchased power payments. This increase was partially offset by lower revenue collections and higher payroll and benefit related payments compared to the same period of the prior year. Revenue collections decreased primarily due to lower fuel and purchased power prices that were partially offset by the wholesale base rate increase that began in 2024, pandemic credits which ended in September 2023, and higher sales volume. 
 
 Investing Activities . The majority of TVA's investing cash flows are due to investments to acquire, upgrade, or maintain generating and transmission assets, including environmental projects and the purchase of nuclear fuel. 
 
 Net cash flows used in investing activities increased $597 million for the year ended September 30, 2024, as compared to the prior year, primarily driven by increased expenditures for capacity expansion projects partially offset by decreased expenditures for nuclear fuel during the period. Nuclear fuel expenditures vary depending on the number of outages and the prices and timing of purchases of uranium and enrichment services. 
 
 Financing Activities . TVA's cash flows provided by or used in financing activities are primarily driven by the timing and level of cash flows provided by operating activities, cash flows used in investing activities, and net issuance and redemption of debt instruments to maintain a strategic balance of cash on hand. 
 
 Net cash flows provided by financing activities increased $467 million for the year ended September 30, 2024, as compared to the prior year, primarily due to higher net short-term debt issuances for capacity expansion projects. Higher net cash flows provided by operating activities were offset by higher net cash used in investing activities which resulted in the need for net debt issuances to maintain targeted cash balance levels during the period. TVA anticipates a need to increase debt in the coming years as it continues to invest in power system assets, which may result in positive net cash flows provided by financing activities in future periods. 
 
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 Cash Requirements 
 
 Actual capital expenditures and future planned capital expenditures for property, plant, and equipment additions, including environmental projects and new generation, and nuclear fuel are as follows: 
 
 Capital Expenditures 
 For the years ended September 30 
 (in millions) 
 
 Actual Estimated Capital Expenditures (1) 
 
 2024 2025 2026 2027 2028 2029 
 Capacity expansion expenditures $ 2,020 $ 3,492 $ 2,643 $ 1,896 $ 1,425 $ 1,188 
 Environmental expenditures (2) 
 136 111 116 163 61 34 
 Nuclear fuel 281 265 216 231 526 528 
 Transmission expenditures 676 811 887 893 613 613 
 Other capital expenditures (3) 
 810 1,097 1,220 1,054 793 738 
 Total capital expenditures $ 3,923 (4) 
 $ 5,776 $ 5,082 $ 4,237 $ 3,418 $ 3,101 

 Notes 
 (1) Currently, TVA expects to utilize a combination of Bonds and additional power revenues through power rate increases to meet its ongoing operational liquidity needs while making planned capital investments through the decade. TVA may also utilize available funding through the Inflation Reduction Act and the BIL, other federal funding opportunities, or other third-party financing arrangements. Estimated capital expenditures only include expenditures that are currently planned. Additional expenditures may be required, among other things, for TVA to meet growth in demand for power in its service area or to comply with new environmental laws, regulations, or orders. 
 (2) The table includes the capital portion of estimated environmental expenditures. See Part I, Item 1, Business — Environmental Matters — Estimated Required Environmental Expenditures for total estimates on projects related to environmental laws and regulations. 
 (3) Other capital expenditures are primarily associated with short lead time construction projects aimed at the continued safe and reliable operation of generating assets. 
 (4) The numbers above include the change in construction in progress and nuclear fuel expenditures included in Accounts payable and accrued liabilities of $348 million. 
 
 TVA continually reviews its capital expenditures and financing programs. The amounts shown in the table above are forward-looking amounts based on a number of assumptions and are subject to various uncertainties. Amounts may differ materially based upon a number of factors, including, but not limited to, changes in assumptions about system load growth, environmental regulation, rates of inflation, total cost of major projects, and availability and cost of external sources of capital. See Forward-Looking Information and Part I, Item 1A, Risk Factors . 
 
 TVA has certain obligations and commitments to make future payments, including contracts executed in connection with certain of the planned construction expenditures. TVA estimates total commitments and contingencies at September 30, 2024, are approximately $6.8 billion for the year ended September 30, 2025, and $47 billion for the years thereafter, of which $3.9 billion and $22.1 billion, respectively, are set forth in the table below. See Note 8 — Leases , Note 11 — Variable Interest Entities , Note 14 — Debt and Other Obligations , Note 20 — Benefit Plans, and Note 22 — Commitments and Contingencies for the obligations and commitments attributable to leases, VIEs and membership interests of VIEs subject to mandatory redemption, debt and leaseback obligations, the retirement plan, and unconditional purchase obligations, respectively, for remaining amounts. 
 
 Other Commitments and Contingencies 
 Payments due for the years ending September 30 
 (in millions) 
 
 2025 2026 2027 2028 2029 Thereafter Total 
 
 Interest payments relating to debt (1) 
 $ 1,008 $ 956 $ 895 $ 859 $ 834 $ 10,622 $ 15,174 
 
 Interest payments relating to debt of VIEs 44 42 40 39 36 247 448 
 Interest payments relating to membership interests of VIEs subject to mandatory redemption 1 1 1 1 1 2 7 
 
 Purchase obligations 
 Power (2) 
 412 343 260 219 200 1,227 2,661 
 Fuel (3) 
 1,438 884 576 426 353 1,969 5,646 
 Other (4) 
 1,017 643 224 58 30 113 2,085 
 
 Total $ 3,920 $ 2,869 $ 1,996 $ 1,602 $ 1,454 $ 14,180 $ 26,021 

 Notes 
 (1) Includes the effects of interest rate derivatives employed to manage interest rate risk. 
 (2) Includes commitments for energy and/or capacity under power purchase agreements ("PPAs") from hydroelectric, diesel, renewable, and gas-fired facilities, as well as transmission service agreements to support purchases of power from the market. Certain PPAs are accounted for as leases and have lease and non-lease components. For these contracts, the lease component is included in lease obligations (see Note 8 — Leases ) and the non-lease component is included in power purchase obligations in the table above. For PPA contracts containing a lease component that have not commenced, the entire commitment amount is included in the table above. 
 (3) Includes commitments to purchase nuclear fuel, coal, and natural gas, as well as related transportation and storage services. 
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 (4) Primarily includes long-term service contracts, contracts that contain minimum purchase levels for the purchase of limestone along with related storage and transportation, and contractual obligations related to TVA's load control program. 
 
 EnergyRight ® Program. TVA purchases certain loans receivable from its LPCs in association with the EnergyRight ® program. Depending on the nature of the energy-efficiency project, loans may have a maximum term of five years or 10 years. The loans receivable are then transferred to a third-party bank with which TVA has agreed to repay in full any loan receivable that has been in default for 180 days or more or that TVA has determined is uncollectible. At September 30, 2024, the total carrying amount of the loans receivable, net of discount, was $56 million. Such amounts are not reflected in the Other Commitments and Contingencies table above. The total carrying amount of the financing obligation was $66 million at September 30, 2024. See Note 9 — Other Long-Term Assets and Note 12 — Other Long-Term Liabilities for additional information. 
 
 Key Initiatives and Challenges 
 
 Optimum Energy Portfolio 
 
 TVA must continuously evaluate all generation and transmission 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. 
 Additional load growth for the foreseeable future is expected to challenge capacity position. New capacity will be needed to support this load growth, replace retiring and expiring capacity, and enable further electrification of the economy. As discussed in Liquidity and Capital Resources , at this time, TVA anticipates the balance of Bonds and other financing obligations will increase in future years due to an expected increase in capital expenditures. In addition, TVA expects inflationary pressures to persist in 2025. See Supply Chain and Inflation Pressures below. To ensure TVA continues to provide affordable, reliable, and clean energy, it will need to be efficient in managing its operating costs and is undertaking a cost optimization project designed to reduce planned cost increases by approximately $950 million from 2024-2026 to address these pressures. 
 
 TVA is making investments in its generating portfolio and infrastructure to both help meet the growing demand for electricity and modernize the fleet while also allowing TVA to maintain competitive rates and high reliability and work toward an increasingly clean power system. As TVA continues to evaluate the impact of retiring its coal-fired fleet by 2035 and works to accelerate the growth of renewables, it also continues to evaluate adding flexible lower carbon-emitting gas plants as a strategy to maintain reliability. TVA is also evaluating other capacity expansion projects, and in the third quarter of 2024, TVA issued a request for proposal ("RFP") for capacity for terms through December 2029. TVA is currently evaluating proposals related to the RFP. In addition, TVA is committed to investing in the future of nuclear with the evaluation of emerging advanced nuclear technologies, such as small modular reactors ("SMRs"), and is increasing its renewable energy portfolio by securing PPAs and developing projects such as TVA's Self-Directed Solar. It is also investing in research and development for decarbonization technologies including battery storage, carbon capture, carbon sequestration and utilization, new hydroelectric pumped-storage, energy efficiency, demand response, electrification, commercial resiliency, and hydrogen. 
 
 TVA is working with stakeholders and the public on the 2025 Integrated Resource Plan ("IRP"), a comprehensive plan that will help shape TVA's energy system through 2050. TVA is also preparing an EIS to evaluate the impacts associated with the IRP in alignment with the National Environmental Policy Act ("NEPA"). The draft IRP and EIS were published on September 23, 2024. TVA will be holding in-person meetings across the region and public webinars to gather feedback during the public comment period, which runs through December 11, 2024. TVA will review and evaluate public input and conduct further analysis to appropriately incorporate feedback provided during the public comment period. Public comments on the draft IRP and EIS will be addressed in the final EIS. The final IRP, which is expected to be published in 2025, will include power supply mix ranges, recommendations for strategic portfolio direction through 2035, and information on factors that will influence portfolio direction from 2035 to 2050. The final IRP is expected to be presented to the TVA Board in 2025 for its consideration of the IRP recommendations. 
 
 TVA continues to evaluate and pursue funding opportunities under the Inflation Reduction Act and the BIL to help offset the cost of qualifying projects. In many cases, TVA is directly or indirectly eligible to seek BIL funded opportunities through agency-sponsored and implemented funding opportunities. The Inflation Reduction Act makes certain tax-exempt entities, including TVA, eligible for a direct-pay option for certain tax credits for clean energy generation projects. Projects eligible for funding under the Inflation Reduction Act or the BIL tend to be capital intensive. In addition, the funding legislation requires TVA to expend large sums of its own funds before becoming eligible to receive funding. For example, grant programs typically require at least a 50 percent cost share, and the Inflation Reduction Act credits may cover only about 30 percent to 40 percent of qualified basis of projects, generally received as a tax refund the year following when the project is placed in service. In addition, obtaining this funding often requires TVA to meet certain additional requirements, to submit information returns to the IRS, and to retain adequate books and records to support its filings. For TVA to receive direct pay under the Inflation Reduction Act for projects beginning construction on or after January 1, 2026, TVA will be required to meet domestic content requirements, unless a cost or availability exception applies. While meeting these requirements would automatically qualify the project for a 10 percent addition to the base credit, the cost of complying with these requirements may exceed this additional bonus. 
 
 TVA has established a Federal Funding Project Management Office (“FFPMO”) that governs and supports TVA’s federal funding strategy to help position TVA and Tennessee Valley partners to leverage funding from the Inflation Reduction Act and the BIL. The FFPMO is responsible for overseeing opportunities, assessing TVA's BIL and Inflation Reduction Act eligibility, 
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 prioritizing and coordinating proposal development, and seeking to capture funding opportunities for TVA. The FFPMO also acts as a conduit for LPCs and business partners to potentially access the Inflation Reduction Act and BIL funds. TVA is currently exploring funding opportunities of various types, including opportunities involving pumped-storage, solar, carbon capture, hydrogen, energy efficiency, and transmission, among others. This exploration does not guarantee that TVA or its partners will receive funds. 
 
 In October 2024, a TVA-led coalition that includes 10 LPCs was selected by the Department of Energy to enter negotiations for the Grid Resilience and Innovation Partnership grant. This $250 million grant would provide for more than 80 TVA and LPC transmission projects to increase grid capacity, mitigate extreme weather risks, and expedite development of clean energy projects. TVA is also currently pursuing efforts to claim Inflation Reduction Act credits. 
 
 Coal-Fired Fleet. TVA is evaluating the impact of retiring the balance of the coal-fired fleet by 2035. TVA will prepare environmental reviews pursuant to NEPA prior to making a decision on retiring or building any plant. TVA plans to retire the two coal-fired units at Cumberland, which at September 30, 2024, accounted for 2,470 MW of TVA's summer net capability. TVA plans to replace generation for one unit with a 1,450 MW combined cycle plant that is expected to be operational by the end of CY 2026 when the first unit is scheduled to be retired. The second unit is scheduled to be retired by the end of CY 2028, and in May 2023, TVA published the notice of intent to conduct an EIS to study potential environmental impacts associated with the proposed construction and operation of facilities to replace part of that generation. See Natural Gas-Fired Units below. 
 
 In 2023, TVA made available to the public a draft EIS to assess the impacts associated with the potential retirement of Kingston and the construction and operation of facilities to replace that generation. The final EIS was published in February 2024, and TVA documented its final decision with the Record of Decision on April 2, 2024. TVA plans to retire the nine coal-fired units at Kingston by the end of CY 2027 and replace the retired generation with an energy complex that includes 1,500 MW of natural gas, 100 MW of battery storage, and 3-4 MW of solar. See Natural Gas-Fired Units below. TVA expects to issue an RFP in the future for the battery storage and solar related to the energy complex. 
 
 Natural Gas-Fired Units. As TVA continues to evaluate the impact of retiring its coal-fired fleet by 2035 and works to accelerate the growth of renewables, it also continues to evaluate adding flexible lower carbon-emitting gas plants as a strategy to maintain reliability. During 2019, the TVA Board approved an expansion of peaking gas replacement capacity at the Paradise facility. Pre-commercial plant operations began on Paradise CTs 5-7 in the first quarter of 2024, and the units became operational on December 29, 2023, with a total summer net capability of 681 MW. As of September 30, 2024 , TVA had spent $394 million on this expansion. 
 
 A 500 MW aeroderivative CT project at TVA’s Johnsonville site has been approved for $619 million, contingent on the successful completion of environmental reviews under NEPA and other applicable laws. TVA completed the NEPA review and received the air permits for the Johnsonville facility, and as of September 30, 2024, TVA had spent $568 million on this project. TVA expects to spend an additional $51 million on this project and anticipates the project will enter commercial operations in the third quarter of 2025. See Note 22 — Commitments and Contingencies — Legal Proceedings — Case Involving Johnsonville Aeroderivative Combustion Turbine Project for a discussion of a lawsuit involving this project. See Note 24 — Subsequent Events for financing related to this project. 
 
 As discussed in Coal-Fired Fleet above, TVA is replacing generation for one unit at Cumberland with a 1,450 MW combined cycle plant that is expected to be operational by the end of CY 2026. As of September 30, 2024, TVA had spent $945 million on this project, and expects to spend an additional $1.2 billion through CY 2026. In addition, as of September 30, 2024, TVA had spent $48 million on long lead time equipment in connection with the potential project to replace generation for the second unit at Cumberland. However, this equipment could be used at other TVA sites if the final project is not approved. TVA could spend up to an additional $1.4 billion on this potential project. 
 
 To operate the Cumberland Combined Cycle Plant, TVA has contracted for the transportation of gas from a gas pipeline that will need to be constructed. Numerous permits from various state and federal agencies are required for construction of the pipeline. Two cases are currently pending before the United States Court of Appeals for the Sixth Circuit ("Sixth Circuit"), one challenging the Tennessee Department of Environment and Conservation’s order issuing a water quality certification under § 401 of the Clean Water Act (“CWA”) for construction of the pipeline and one challenging the Army Corps of Engineers’ issuance of a permit for construction pursuant to § 404 of the CWA. On October 11, 2024, the Sixth Circuit issued an order staying the permit in each respective case until the court can review the merits of these cases. The court is scheduled to review the merits on December 10, 2024. A case is also pending before the United States Court of Appeals for the District of Columbia Circuit challenging FERC’s issuance of a certificate for the pipeline. While TVA is not a party in these cases, they could result in delays to commercial operation of the Cumberland facility or may lead to additional costs if the gas pipeline must be constructed in an alternate location than is currently planned. TVA is currently unable to predict the outcome of these cases. See Note 22 — Commitments and Contingencies — Legal Proceedings — Case Involving Cumberland Combined Cycle Plant for a discussion of another lawsuit involving this project. 
 
 As discussed in Coal-Fired Fleet above, TVA is constructing a 1,500 MW combined cycle plant that is expected to be operational by the end of CY 2027. As of September 30, 2024, TVA had spent $662 million on this project and expects to spend 
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 an additional $2.1 billion through CY 2027. To operate the Kingston combined cycle plant, TVA will contract for the transportation of gas from a gas pipeline that will need to be constructed. 
 
 TVA is continuing to explore a 500 MW New Caledonia simple cycle CT project on TVA land contingent on the successful completion of environmental reviews under NEPA and other applicable laws . The draft EIS for New Caledonia was made available for public comment in July 2024, and the final EIS is expected to be published in 2025. As of September 30, 2024 , TVA had spent $121 million on the New Caledonia project and could spend up to an additional $427 million. TVA is also exploring a 200 MW aeroderivative CT project at TVA's Allen site. As of September 30, 2024, TVA had spent $190 million on the project at Allen and could spend up to an additional $163 million. Finally, TVA is exploring a potential project at Lagoon Creek. 
 
 Decarbonization. TVA's decarbonization initiative is aimed at understanding and applying clean resources to support the reduction of carbon emissions from its power supply. Related to its carbon reduction efforts, TVA has established six guiding principles which are as follows: 
 
 • Prioritize the needs of Tennessee Valley stakeholders as TVA works to achieve its goals by maintaining low rates and high reliability, and attracting new jobs in the Tennessee Valley. 
 
 • Use best-available science and support research and policies that further carbon-free dispatchable technologies. 
 
 • Partner with LPCs and other customers and communities to support economy-wide decarbonization efforts and the strategic electrification of other sectors, such as transportation. 
 
 • Maintain nuclear generation, hydro generation, and a strong transmission grid as key enabling assets. 
 
 • Be transparent with stakeholders in measuring and sharing TVA's progress, and listen and work effectively with all its stakeholders to understand their priorities and needs. 
 
 • Adapt to new technologies and changing policies, and be willing and open to changing TVA's plans and projects to achieve deep carbon reduction. 
 
 TVA has partnered with the University of Tennessee Baker School for Public Policy and Public Affairs and with diverse stakeholders from across the Tennessee Valley to conduct a Valley Pathways Study, which is focused on building a competitive and clean economy for the Tennessee Valley. This study examines potential scenarios for all economic sectors across the Tennessee Valley that will support sustainable growth and a viable and preferred decarbonization pathway. The preliminary findings from the Valley Pathways Study were released in February 2024. 
 
 As part of the decarbonization efforts, in 2022, the TVA Board approved a programmatic approach to exploring advanced nuclear technology, which is one of several technologies TVA is exploring. Other decarbonization technologies TVA is exploring in addition to advanced nuclear include battery storage, carbon capture, carbon sequestration and utilization, new hydroelectric pumped-storage, energy efficiency, demand response, electrification, commercial resiliency, and hydrogen. TVA also is increasing its renewable energy portfolio to work towards carbon emission reductions and meet customer preferences by investing in existing assets, encouraging renewable power through various current programs and offerings, and securing renewable PPAs through RFPs, among others. See below, Part I, Item 1, Business — Power Supply and Load Management Resources — Renewable Energy Resources and Community Energy Portfolio , and Part I, Item 1, Business — Research and Development for further discussion of TVA's decarbonization efforts. See also Part I, Item 1, Business — Environmental Matters — Climate Change for a discussion of the impact of executive actions and climate-related regulations on TVA. 
 
 Renewable Power Purchase Agreements . In recent years, TVA has issued RFPs in order to meet customer preferences and requirements for cleaner energy. TVA will procure the renewable energy and sell the resulting 
 RECs to specific customers, allowing TVA to increase renewable energy in the Tennessee Valley without additional costs to other TVA customers. These agreements help to align the core values of TVA and the public power model with the desire of TVA's customers for renewable energy. TVA issued a carbon-free RFP in 2022, and during 2024, TVA signed six power purchase agreements totaling 991 MW of solar generation and 220 MW of battery storage capacity from the carbon-free RFP that are expected to come online by the end of CY 2028. 
 
 TVA’s existing solar PPA portfolio is not immune from the challenges affecting the U.S. solar industry. Similar to the experience of the rest of the industry, the majority of TVA’s contracted PPAs from previous RFPs that are not yet online have been impacted by project delays and price increases. 
 
 Self-Directed Solar. During 2019, the TVA Board approved the opportunity for TVA to explore being directly involved in the development of a utility-scale solar project, contingent on the successful completion of environmental reviews under NEPA and other applicable laws. In 2021, TVA purchased land for this development, and in 2022, environmental reviews were completed. The challenges affecting TVA’s RFPs are also being seen in TVA's Self-Directed Solar project. The project has experienced delays and cost increases due to escalations from supply chain limitations. As of September 30, 2024, TVA had spent $53 million on the 200 MW project. TVA has elected to pursue a competitive selection process with third parties for the 
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 development of the photovoltaic solar facility to be located on the site. TVA plans to enter into a long-term PPA to purchase the energy generated by the facility. An RFP has been issued to this effect, and selection of the awardee is anticipated in early CY 2025. 
 
 In November 2022, the TVA Board approved the opportunity for TVA to explore the development of an additional utility-scale solar project, contingent on successfully completing environmental reviews under the NEPA and other applicable laws and obtaining the necessary state permits. The project would utilize TVA land, deploying a solar cap system on the closed CCR facility at the TVA Shawnee Fossil Plant in Paducah, Kentucky. As of September 30, 2024, TVA had spent $56 million on the 99 MW project and expects to spend an additional $206 million. 
 
 Small Modular Reactors . In December 2019, TVA became the first utility in the nation to successfully obtain approval for an early site permit from the Nuclear Regulatory Commission ("NRC") to potentially construct and operate SMRs at TVA’s Clinch River Nuclear Site. The permit is valid through 2039 and therefore provides TVA a great deal of flexibility to make new nuclear decisions based on energy needs and economic factors. In 2021, TVA initiated a Programmatic EIS ("PEIS") that evaluated a variety of alternatives for a proposed advanced nuclear technology park at the Clinch River Nuclear Site and will provide additional flexibility for future decision making. The Record of Decision was signed in 2022. 
 
 The TVA Board has approved up to $350 million to explore advanced reactor technology options under the New Nuclear Program. Of this amount, TVA had spent $196 million as of September 30, 2024. The New Nuclear Program provides a systematic roadmap for TVA’s exploration of advanced nuclear technology. Collaboration with other interested parties will be an important aspect of this program, and TVA has entered into several agreements with technology progressive organizations that allow for mutual collaboration to explore advanced reactor designs as a next-generation nuclear technology. In December 2022, TVA entered into a multi-party collaborative arrangement to advance the global deployment of the GE Hitachi Nuclear Energy ("GEH") BWRX-300 SMR. GEH is responsible for standard design development. See Note 21 — Collaborative Arrangement for additional information. One of the first tasks the New Nuclear Program is pursuing is a project to develop an NRC construction permit application at the Clinch River Nuclear Site. In addition, while evaluating alternatives for potential advanced nuclear at the Clinch River Nuclear Site, TVA is exploring the feasibility of applying a similar approach that could deploy additional SMRs at Clinch River and other TVA-owned properties. 
 
 The decision to potentially build SMRs continues to be part of the ongoing discussion as part of the asset strategy for TVA’s future generation portfolio, and any future decision to construct any reactor, advanced or otherwise, would require approval by the TVA Board and the NRC. As of September 30, 2024, TVA had spent $287 million to date on work regarding SMRs, including work to complete the early site permit application for the Clinch River Nuclear Site and work associated with the New Nuclear Program above. Of these amounts, the U.S. Department of Energy ("DOE") had reimbursed TVA $29 million. Additional expenditures will be determined based on future project development. 
 
 Nuclear Fleet License Extensions . Subject to the completion of all appropriate environmental reviews, TVA is seeking to renew all nuclear generation units' licenses for an additional 20 years. The first license renewal application was submitted to the NRC in January 2024 for the three units at Browns Ferry following the completion of a Supplemental EIS prepared by TVA to assess the environmental impacts associated with renewing the Browns Ferry Nuclear Plant licenses. As of September 30, 2024, TVA had spent $32 million to support the subsequent license renewal ("SLR") of the three units at Browns Ferry and expects to spend up to an additional $10 million to complete the Browns Ferry SLR. 
 
 Fiber Optic Network . In 2017, the TVA Board authorized up to $300 million to be spent over the next 10 years, subject to annual budget availability and necessary environmental reviews, to build an enhanced fiber optic network that will better connect TVA's operational assets. Fiber is a vital part of TVA's modern communication infrastructure. The new fiber optic lines will improve the reliability and resiliency of the generation and transmission system while enabling the system to better accommodate distributed energy resources ("DER") as they enter the market. As of September 30, 2024 , TVA had spent $266 million on installation of the fiber optic lines and expects to spend an additional $34 million through 2027. 
 
 System Operations Center . A new system operations center was approved by the TVA Board. The new secured facility is being built to accommodate a new energy management system and adapt to new regulatory requirements, and will improve reliability, have improved physical security from the previous center, and be flexible to help accommodate operational growth requirements, including future renewables. Construction of the facility is expected to be complete in CY 2024, and the facility is expected to be fully operational in CY 2026. As of September 30, 2024, TVA had spent $307 million on the project and expects to spend an additional $25 million. 
 
 Energy Management System. A new energy management system was approved by the TVA Board. As the current energy management system is nearing the end of its life cycle, this project will replace the existing analog system with a digital system. The new digital system will have higher capacity and speed for communications with the TVA grid and for inputs from monitoring equipment, will network the new control center with existing locations, and will enable better remote visibility and control to help mitigate reliability implications of climate change. The system is expected to be complete in CY 2027. As of September 30, 2024, TVA had spent $76 million on the project and expects to spend an additional $32 million. 
 
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 Automated Energy Exchange Platform. In October 2021, an automated energy exchange, the Southeast Energy Exchange Market ("SEEM"), took effect. The exchange was created to facilitate more short-term power exchanges and will be an enhancement to the existing market. TVA completed the appropriate environmental reviews, and during the third quarter of 2022, the TVA Board approved the creation of a zero-cost, non-firm transmission service to allow TVA to participate in SEEM. In November 2022, the SEEM market began transacting. 
 
 In July 2023, the United States Court of Appeals for the District of Columbia Circuit ("D.C. Circuit") remanded the Federal Energy Regulatory Commission's ("FERC") approval of SEEM, sending the matter back to FERC for additional proceedings. On December 17, 2023, the petitioners filed another appeal on the theory that FERC's failure to act promptly after the D.C. Circuit's remand created a new appealable event. On June 14, 2024, in response to the D.C. Circuit's remand directives, FERC issued an order directing the parties to submit briefs to supplement the record on the issues of whether SEEM is a loose power pool and whether SEEM's geographic requirement violates the open access principles of FERC Order No. 888. The SEEM market is continuing to transact pending the disposition of the legal challenges. 
 
 Electric Vehicles 
 
 TVA is partnering with LPCs and others to support the electrification of transportation in the Tennessee Valley in a multi-year electric vehicle ("EV") initiative. The initiative focuses on reducing or eliminating EV market barriers by setting EV policies, improving charging infrastructure availability, expanding EV availability and offerings, and spreading EV consumer awareness. In 2021, the TVA Board approved new policies and an optional wholesale EV rate aimed at encouraging the development of charging infrastructure in the Tennessee Valley. The updated policies enable LPC investment in public charging infrastructure and allow for the conditional resale of electricity, for transportation purposes only, by any charging developer on a $/kWh basis. The optional wholesale rate was developed with high power EV charging in mind and provides a stable option for those developing charging infrastructure. 
 
 TVA is also working with LPCs, state agencies, and third-party charging developers to create the Fast Charge Network. This will be a foundational network of public fast charging stations at least every 50 miles along interstates and major highways across its seven -state service area. In 2021, TVA began a partnership with the State of Tennessee for the development and funding of Fast Charge Tennessee, the portion of the Fast Charge Network that covers Tennessee, and in 2022 TVA launched the Fast Charge Network. As of September 30, 2024, 39 sites were complete and operational with 39 additional sites under contract for development. TVA had spent $7 million on fast charging network charging stations as of September 30, 2024. TVA also plans to electrify 100 percent of its light-duty and 50 percent of its medium-duty vehicles in the TVA fleet. The adoption of EVs in the Tennessee Valley continues to grow, and TVA is working to ensure that the benefits of this rapid growth are secured, while also helping LPCs proactively avoid issues in their distribution systems. Also in 2021, TVA and five other major utilities formed the Electric Highway Coalition to develop a network of fast charging stations along all major highway routes within their service area. Since formation, the Electric Highway Coalition has gained significant interest from additional utilities and other EV collaboratives. In 2022, the Electric Highway Coalition merged with the Midwest Electric Vehicle Charging Infrastructure Collaboration to create the National Electric Highway Coalition with members committed to coordinate the development of EV charging infrastructure across the central U.S. 
 
 Sustainability and Social Responsibility 
 
 Sustainability has been and continues to be a focus in support of TVA's mission to deliver affordable and reliable energy, steward the environment, and create sustainable economic growth. TVA has a Chief Sustainability Officer (“CSO”) who oversees an enterprise-wide Sustainability Steering Council and a Sustainability Working Group, which together provide guidance and support for the development of TVA's Sustainability Program. The CSO is also a member of TVA’s Risk Management Steering Committee. 
 
 TVA’s sustainability work is categorized into five areas: 
 
 • Economic Impact — Affordable, reliable power supports residents and attracts businesses 
 
 • Environment — Protecting the region's air, land, water, and historic resources 
 
 • Social — Investing in communities and employees to uplift all 
 
 • Governance — Governance enables TVA to build a clean energy future 
 
 • Foundational — Values most fundamental to carrying out TVA's mission 
 
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 Economic Impact Environment Social Governance Foundational 
 
 Clean energy Air, water, and waste management Community vitality and engagement Corporate impact Energy affordability and reliability 
 Flood and drought management 
 Biodiversity and stewardship Customer engagement and partnerships Cyber and physical security Ethics and compliance 
 Innovation Climate adaptation and resilience Diversity, equity, and inclusion Financial health Health and safety 
 Supply chain Cultural resource management 
 Environmental justice 
 Valley economy Workforce preparedness 

 TVA issued its 2023 Sustainability Report on May 6, 2024. This comprehensive Sustainability Report aligns with global reporting standards and will serve as a baseline for annual corporate sustainability reporting. TVA also publishes two other sustainability-related documents: a Federal Sustainability Report and Implementation Plan, which addresses TVA's responsibilities related to federal sustainability performance, and an Environmental, Social, and Governance Sustainability Report, which uses a utility-focused and investor-driven reporting template developed by the Edison Electric Institute. TVA also issues other reports related to sustainability and social responsibility, including a Diversity, Equity, Inclusion and Accessibility Report, which highlights the actions TVA has taken in the Diversity, Equity, Inclusion, and Accessibility area, the results achieved, and the plans to continue to focus and improve, among other reports. 
 
 Extreme Flooding Preparedness 
 
 Updates to the TVA analytical hydrology model completed in 2009 indicated that under "probable maximum flood" conditions, some of TVA's dams might not have been capable of regulating the higher flood waters. A "probable maximum flood" is an extremely unlikely event; however, TVA has a responsibility to provide protection for its nuclear plants against such events. As a result, TVA installed a series of modifications at four dams. 
 
 Since 2009, TVA has performed further hydrology modeling of portions of the TVA watershed using updated modeling tools. Hydrology models were submitted for Sequoyah Nuclear Plant ("Sequoyah") Units 1 and 2 in 2012. However, concerns regarding TVA dam stability and revised hydrology analyses led to the submittal of a new hydrologic analysis for Sequoyah Units 1 and 2 in 2020. To resolve additional dam stability issues identified later in 2020, TVA submitted a revision to the Sequoyah model in April 2023. The new hydrologic analysis for Sequoyah Units 1 and 2 was approved by the NRC in March 2024. TVA submitted models for Watts Bar Nuclear Plant ("Watts Bar") Units 1 and 2 in December 2023 to incorporate a methodology approved by the NRC subsequent to its review of a previous hydrology submittal for Watts Bar. TVA will subsequently address conditions at Browns Ferry as needed. As of September 30, 2024, TVA had spent $158 million on the modifications and improvements related to extreme flooding preparedness. TVA has concluded that the revised hydraulic modeling and associated submittal of license amendment requests to update the Sequoyah and Watts Bar licensing bases have demonstrated appropriate design margins such that additional flood mitigating systems are no longer needed at these two sites. Therefore, TVA submitted a letter to the NRC in September 2024 to decommit from the commitment to implement an improved flood model mitigation system at these two sites. 
 
 Sequoyah Nuclear Plant Unit 2 
 
 Sequoyah Unit 2 tripped on July 30, 2024, due to failure of the main generator. As a result, the project to restack and rewind the main generator was pulled forward in the Nuclear Life Extension ("NLE") plan. The unit will remain offline until project completion, which is expected in spring 2025. As of September 30, 2024, TVA had spent $25 million related to this project and expects to spend an additional $57 million. 
 
 Hurricane Helene 
 
 In late September 2024, Hurricane Helene caused significant damage in communities in East Tennessee and Western North Carolina. Flood of record was approached or exceeded in many areas. TVA completed inspections at numerous dams, finding no substantial impacts. Shoreline erosion at Nolichucky Dam did not impact the dam's integrity and has subsequently been repaired. In addition, TVA stored a substantial amount of water in tributary reservoirs that has since been released downstream in a controlled manner to recover flood storage capacity. TVA is working on debris management at Douglas Reservoir to help mitigate potential downstream movement. TVA's efforts may also include aiding other agencies in their recovery efforts, including supporting major disaster declarations with the Federal Emergency Management Agency. TVA is evaluating the financial impact of the storm. 
 
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 Coal Combustion Residuals 
 
 Coal Combustion Residuals Facilities . TVA is pursuing a programmatic approach to address environmental impacts related to the previous storage and disposal of its CCR in accordance with applicable law (“CCR Program”). Under the CCR Program, TVA performed stability remediation of all at-risk facilities, completed the conversion of all operational coal-fired plants to dry CCR storage, and ceased operation of wet CCR storage facilities. 
 
 Dry generation and dewatering projects . TVA has accomplished the conversion from wet to dry handling of CCR materials at all operating coal plants with the completion of dry generation and/or dewatering projects at Bull Run, Cumberland, Gallatin Fossil Plant ("Gallatin"), Kingston, and Shawnee Fossil Plant ("Shawnee"). 
 
 Landfills . TVA has made strategic decisions to build and maintain lined and permitted dry storage facilities on TVA-owned property at some TVA locations, enabling these facilities to generate CCR beyond existing dry storage capacity. Lined and permitted landfills are operational at Bull Run, Gallatin, Kingston, and Shawnee. TVA received a State of Tennessee permit for the construction and operation of a new lined landfill at Gallatin, and construction started in 2022. TVA received a State of Tennessee permit for a new lined landfill at Cumberland in 2023, and TVA is currently evaluating the need for construction. Construction of additional lined and dry permitted storage facilities may occur to support future business requirements . 
 
 CCR facilities closures . TVA is working to close CCR facilities in accordance with federal and state requirements. Closure project schedules and costs are driven by the selected closure methodology (such as closure-in-place or closure-by-removal) and regulatory requirements. TVA's predominant closure methodology is currently closure-in-place, with exceptions at certain facilities, although EPA has recently interpreted its CCR Rule in a way that could challenge TVA's predominant closure methodology for many units, thereby potentially creating significant additional costs with implementing closure. TVA issued a PEIS in June 2016 that programmatically evaluated the closure of CCR impoundments at TVA's coal-fired plants. TVA issued its associated Record of Decision in July 2016. The PEIS assessed the potential environmental effects associated with various modes of impoundment closures and through subsequent NEPA documents specifically evaluated and addressed closure methods at 10 impoundments. TVA subsequently decided to close those impoundments. The method of final closure for each of these facilities will depend on various factors, including approval by appropriate state regulators and applicable closure requirements of state and federal regulations. Additional site-specific NEPA studies will be conducted, as warranted, as other facilities are considered for closure. See Note 13 — Asset Retirement Obligations . 
 
 Groundwater monitoring . Compliance with the Environmental Protection Agency's ("EPA's") CCR rule ("CCR Rule") requires implementation of a groundwater monitoring program and ongoing analysis. In compliance with the CCR Rule, TVA published the results of the 2023 groundwater testing at its CCR facilities during the second quarter of 2024. Similar to prior years, the tests identified certain CCR units with constituents at statistically significant levels above site-specific groundwater protection standards. TVA has completed an assessment of corrective measures ("ACM"), which analyzes the effectiveness of potential corrective actions, and has published ACM reports to its CCR Rule Compliance Data and Information website. Based on the results of the ACM, TVA is required to select a remedy as soon as feasible. TVA has selected remedies for two of its plants: a groundwater pump and treat system at the Allen East Ash Disposal Area and monitored natural attenuation at Shawnee. TVA continues to investigate and evaluate remedies for its other plants and will continue posting semi-annual progress reports on the status of remedy selection until the final remedy is selected. The cost of these final remedies cannot reasonably be predicted until investigations and evaluations are complete and remedial methods are selected. 
 
 The final Part A revision to the CCR Rule became effective September 28, 2020. Among other things, the final Part A rule requires unlined CCR surface impoundments to stop receiving CCR and non-CCR waste streams and to initiate closure or retrofit by no later than April 11, 2021. TVA ceased sending CCR and non-CCR waste streams to, and initiated closure of, unlined CCR surface impoundments by the specified deadline. 
 
 As of September 30, 2024, TVA had spent approximately $3.2 billion on its CCR Program. Through 2029, TVA expects to spend an additional $2.4 billion on the CCR Program. Estimates for these amounts and costs after 2029 may change depending on the final closure method selected for each facility. While the conversion portion of the CCR Program is completed, TVA will continue to undertake CCR closure and storage projects, including building new landfill cells under existing permits and closing existing cells once they reach capacity. 
 
 TVA was involved in two lawsuits concerning the CCR facilities at Gallatin. One of these cases was decided in TVA's favor by the Sixth Circuit, and the other case was resolved by the entry of a consent order and agreement in Davidson County Chancery Court that became effective July 24, 2019. Under the consent order, TVA agreed to close the existing ash facility by removal, either to an on-site landfill or to an offsite facility. TVA may also consider options for beneficial reuse of the CCR. TVA submitted the removal plan for approval to the Tennessee Department of Environment and Conservation ("TDEC") and other applicable parties pursuant to the consent order, which was approved on November 7, 2023. In addition, TVA submitted an Environmental Assessment Report ("EAR") to TDEC, and TDEC approved the EAR on June 6, 2023. TVA submitted the Gallatin Ash Pond Complex Corrective Action/Risk Assessment ("CARA") Plan to TDEC in January 2024. See Note 13 — Asset Retirement Obligations . 
 
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 In October 2019, TDEC released amendments to its regulations which govern solid waste disposal facilities, including TVA's active CCR facilities covered by a solid waste disposal permit and those which closed pursuant to a TDEC approved closure plan. Such facilities are generally subject to a 30-year post-closure care period during which the owner or operator must undertake certain activities, including monitoring and maintaining the facility. The amendments, among other things, add an additional 50-year period after the end of the post-closure care period, require TVA to submit recommendations as to what activities must be performed during this 50-year period to protect human health and the environment, and require TVA to submit revised closure plans every 10 years. 
 
 On May 8, 2024, EPA published its Legacy CCR Rule, which expands the scope of the existing regulatory requirements of the 2015 CCR Rule to include two additional classes of units: Legacy SIs and CCRMUs. As a result of the enactment of the final rule, during 2024, TVA recorded additional estimated AROs of $3.1 billion and recorded a corresponding regulatory asset of $3.1 billion due to these AROs being associated with closed sites and asset retirement costs having been fully depreciated. These amounts are forward-looking and are subject to various uncertainties, and actual amounts may differ materially based upon a number of factors, including, but not limited to, the outcome of legal challenges to the Legacy CCR Rule, ongoing evaluations of the number and scope of newly regulated units, and determinations on final closure requirements and performance standards. See Part I, Item 1, Business — Environmental Matters — Cleanup of Solid and Hazardous Wastes — Coal Combustion Residuals, Part I, Item 1A , Risk Factors — Regulatory, Legislative, and Legal Risks , and Note 13 — Asset Retirement Obligations. 
 
 Allen Groundwater Investigation . The CCR Rule required TVA to implement a comprehensive groundwater monitoring program at units subject to the rule. As a result of this groundwater monitoring program, TVA reported to TDEC in 2017 elevated levels of arsenic, lead, and fluoride in groundwater samples collected from two shallow-aquifer groundwater monitoring wells around the Allen East Ash Disposal Area. TVA, under the oversight of TDEC, conducted a remedial investigation into the nature and extent of the contamination. 
 
 The remedial investigation confirmed that the high arsenic, fluoride, and lead concentrations are limited to the shallow alluvial aquifer in the north and south areas of the Allen East Ash Disposal Area. These areas are not adversely impacting the Memphis aquifer, which is the source of the public drinking water supply. All samples taken from the Memphis aquifer through TVA production wells were within the EPA drinking water standards. As the result of a pumping test conducted on TVA production wells at the nearby Allen Combined Cycle Plant ("Allen CC") by the United States Geological Survey and the University of Memphis, TVA has committed to not using these production wells until additional data is generated that supports safe use. TVA constructed water tanks on site and is purchasing cooling water from MLGW in lieu of utilizing the production wells. Purchasing cooling water in combination with the use of water tanks, rather than wells, could impose some operational limitations, such as limitations on capacity, on the Allen CC due to lower availability of cooling water. 
 
 Pursuant to a remedial action plan that has been approved by TDEC, TVA has installed a groundwater pump and treat system at the Allen East Ash Disposal Area. In addition, TVA is taking steps to close both the East Ash Disposal Area and the nearby West Ash Disposal Area at Allen. On November 29, 2021, after obtaining the necessary approvals from TDEC, TVA began removing CCR materials to an offsite, lined landfill, and removal and closure activities are expected to continue through 2030. 
 
 Real Property Portfolio 
 
 TVA engages in ongoing Tennessee Valley-wide real property portfolio evaluations of buildings, structures, and land as part of the strategic real estate program, which focuses on reducing cost, right-sizing the portfolio, and aligning real estate holdings with TVA's strategic direction. In addition, TVA continues to operate in a hybrid work environment for those who do not have to be physically present at a TVA facility. TVA is evaluating its use of the Chattanooga Office Complex and issued an RFP in August 2023 to determine availability for a new Chattanooga, Tennessee facility based on TVA's workplace needs. No final decisions have been made, and TVA is considering multiple options. 
 
 Supply Chain and Inflation Pressures 
 
 TVA continues to experience impacts due to inflation, supply chain material challenges, and labor availability. This has led to project delays, limited availability, and/or price increases for supplies and labor. TVA actively manages supply chain volatility with contracting, inventory strategies, and supplier engagement and support. TVA expects inflationary pressures to persist in 2025. TVA has been able to manage these challenges with limited business disruptions at this time; however, should pressures continue long term, TVA could experience more significant disruptions and pressure to further increase power rates. 
 
 Safeguarding Assets 
 
 Physical Security — Non-Nuclear Asset Protection. TVA utilizes a variety of security technologies, security awareness activities, and security personnel to prevent sabotage, vandalism, and thefts. Any of these activities could negatively impact the ability of TVA to generate, transmit, and deliver power to its customers. TVA's Police and Emergency Management personnel are active participants with numerous professional and peer physical security organizations in both the electric industry and law 
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 enforcement communities. 
 
 TVA works with the North American Electric Reliability Corporation ("NERC"), the SERC Reliability Corporation, the North American Transmission Forum, and other utilities to implement industry approved recommendations and standards. 
 
 Nuclear Security . Nuclear security is carried out in accordance with federal regulations as set forth by the NRC. These regulations are designed for the protection of TVA's nuclear power plants, the public, and employees from the threat of radiological sabotage and other nuclear-related terrorist threats. TVA has security forces to guard against such threats. 
 
 Cybersecurity. TVA operates in a highly regulated environment with respect to cybersecurity. TVA's cybersecurity program aligns or complies with the Federal Information Security Modernization Act, the NERC Critical Infrastructure Protection requirements, and the NRC requirements for cybersecurity, as well as industry best practices. As part of the U.S. government, TVA coordinates with and works closely with the U.S. Department of Homeland Security's Cybersecurity and Infrastructure Security Agency ("CISA"). CISA serves as the agency assisting other federal entities in defending against threats and securing critical infrastructure. The U.S. Computer Emergency Readiness Team functions as a liaison between the U.S. Department of Homeland Security and the public and private sectors to coordinate responses to security threats. 
 
 The risk of cybersecurity events such as malicious code attacks, unauthorized access attempts, and social engineering 
 attempts is intensifying across all industries, including the energy sector. TVA continues to see increases in malicious activity including phishing campaigns, malicious websites, distributed denial of service attacks, and activity related to business partner compromise, among others. These types of malicious activity have also been observed by TVA's external vendors, stakeholders, and partners, which has caused the need for heightened awareness and preparedness. 
 
 On May 12, 2021, President Biden signed EO 14028, "Improving the Nation's Cybersecurity." This EO is intended to improve the nation's cybersecurity posture and protect federal government networks by improving information-sharing between the U.S. government and the private sector on cyber issues and strengthening the United States' ability to respond to incidents when they occur. This EO is focused on specific goals and requirements including actions for zero trust architectures; cloud services; FedRAMP programs; supply chain and contracts; secure software development; endpoint detection and response, standardized vulnerability, and incident response operational plans; threat and vulnerability analysis; assessment and threat-hunting; event logging, monitoring, and retention; and information sharing. TVA continues to respond to the EO, associated Office of Management and Budget memorandums, and other emerging requirements in alignment with the order. TVA has submitted all reports as required, established response teams and an oversight structure, and initiated projects as necessary to address the required actions. 
 
 See Part I, Item 1C, Cybersecurity for a description of TVA's cybersecurity program and integrated risk management process. See also Part I, Item 1A, Risk Factors — Cybersecurity and Information Technology Risks — TVA's facilities and information infrastructure may not operate as planned due to cyber threats to TVA's assets and operations . 
 
 Critical Accounting Estimates 
 
 TVA's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"), which require management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Each of these estimates varies in regard to the level of judgment involved and its potential impact on TVA's financial results. Estimates are deemed critical either when a different estimate could have reasonably been used, or where changes in the estimate are reasonably likely to occur from period to period, and such use or change also would materially impact TVA's financial condition, results of operations, or cash flows. TVA's critical accounting policies are discussed in Note 1 — Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements. 
 
 TVA believes that its most critical accounting estimates relate to AROs, fair value measurements, and pension and other post-retirement benefits. 
 
 Management has discussed the development, selection, and disclosure of critical accounting estimates with the Audit, Risk, and Cybersecurity Committee of the TVA Board. While TVA's estimates and assumptions are based on its knowledge of current events and actions it may undertake in the future, actual results may ultimately differ from these estimates and assumptions. 
 
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 Asset Retirement Obligations 
 
 TVA recognizes legal obligations associated with the future retirement of certain tangible long-lived assets. These obligations relate to TVA's generating facilities, including coal-fired, nuclear, hydroelectric, and natural gas and/or oil-fired. They also pertain to coal ash impoundments, transmission facilities, and other property-related assets. Activities involved with the retirement of these assets could include decontamination and demolition of structures, removal and disposal of wastes, and site restoration. TVA periodically reviews its estimated ARO liabilities. Revisions to the ARO estimates are made whenever factors indicate that the timing or amounts of estimated cash flows have changed. Any change to an ARO liability is recognized prospectively as an equivalent increase or decrease in the carrying value of the capitalized asset. 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 for explanations of changes in estimates. 
 
 The initial obligation is measured at its estimated fair value using various judgments and assumptions. Fair value is developed using an expected present value technique that is based on assumptions of market participants and that considers estimated retirement costs in current period dollars that are inflated to the anticipated decommissioning date and then discounted back to the date the ARO was incurred. Changes in assumptions and estimates included within the calculations of the value of the AROs could result in different results than those identified and recorded in the financial statements, including amortization of the regulatory assets. 
 
 Nuclear Decommissioning . Decommissioning cost studies are updated for each of TVA's nuclear unit's long-lived assets at least every five years. At September 30, 2024, the estimated future nuclear decommissioning cost recognized in the financial statements was $3.8 billion and was included in AROs, and the unamortized regulatory asset related to nuclear decommissioning ARO costs of $362 million was included in Regulatory assets. 
 
 The following key assumptions can have a significant effect on estimates related to the nuclear decommissioning costs reported in TVA's nuclear ARO liability: 
 
 Timing and Method – In projecting decommissioning costs, two assumptions must be made to estimate the timing of plant decommissioning. First, the date of the plant's retirement must be estimated. At Browns Ferry and Sequoyah, the estimated retirement date is based on the unit with the longest license period remaining. At Watts Bar, the estimated retirement date is based on each unit's license period. Second, an assumption must be made on the timing of the decommissioning. TVA has ascribed probabilities to two different decommissioning methods related to its nuclear decommissioning obligation estimate: the DECON method and the SAFSTOR method. The DECON method requires that radioactive contamination be removed from a site and safely disposed of or decontaminated to a level that permits the site to be released for unrestricted use shortly after it ceases operation. 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, which are updated for each of TVA's nuclear units at least every five years. Changes in probabilities ascribed to the assumptions or the timing of decommissioning can significantly change the present value of TVA's obligations. 
 
 Cost Estimates – There is limited experience with actual decommissioning of large nuclear facilities. Changes in technology and experience as well as changes in regulations regarding nuclear decommissioning could cause cost estimates to change significantly. TVA's cost studies assume current technology and regulations. 
 
 Cost Escalation Rate – TVA uses expected inflation rates over the remaining timeframe until the costs are expected to be incurred to estimate the amount of future cash flows required to satisfy TVA's decommissioning obligations. 
 
 Discount Rate – TVA uses its incremental borrowing rate over a period consistent with the remaining timeframe until the costs are expected to be incurred to calculate the present value of the weighted estimated cash flows required to satisfy TVA's decommissioning obligations. 
 
 The actual decommissioning costs may vary from the derived estimates because of changes in current assumptions, such as the assumed dates of decommissioning, changes in regulatory requirements, changes in technology, and changes in the cost of labor, materials, and equipment. A 10 percent change in TVA's forecasted costs for nuclear decommissioning activities at September 30, 2024, would have affected the liability by approximately $381 million. 
 
 Non-Nuclear Decommissioning. At September 30, 2024, the estimated future non-nuclear decommissioning cost recognized in the financial statements was $7.0 billion and was included in AROs, and the unamortized regulatory asset related to non-nuclear decommissioning ARO costs of $6.2 billion was included in Regulatory assets. 
 
 This decommissioning cost estimate involves estimating the amount and timing of future expenditures and making judgments concerning whether or not such costs are considered a legal obligation. Estimating the amount and timing of future expenditures includes, among other things, making projections of the timing and duration of the asset retirement process and predicting how costs will escalate with inflation. These costs are predominantly CCR closure, CCR post-closure care and 
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 monitoring, and plant powerhouse asbestos removal. CCR closure estimates are primarily closure-in-place except for specific ponds located at Allen and Gallatin, which are closure-by-removal. CCR post-closure care and monitoring primarily includes costs for grounds maintenance, cover system and mechanical maintenance, inspections, and groundwater monitoring costs. Asbestos removal is based on cost per square foot to remove and dispose of asbestos-containing materials. TVA revises estimates of CCR closure on a project by project basis when updated cost information becomes available that causes management's expectation of cost to change materially. 
 
 The following key assumptions can have a significant effect on estimates related to the non-nuclear decommissioning costs: 
 
 Timing and Method – In projecting non-nuclear decommissioning costs, the date of the asset's retirement must be estimated. In instances where the retirement of a specific asset will precede the retirement of the generating plant, the anticipated retirement date of the specific asset is used. Additionally, TVA expects to incur certain ongoing costs subsequent to the initial asset retirement. TVA develops its cost estimates based on likelihood of decommissioning method where options exist in fulfilling legal obligations (e.g., closure-in-place or closure-by-removal for coal ash impoundments). The decommissioning method is determined based on several factors including available technologies, environmental studies, cost factors, resource availability, and timing requirements. As these factors are considered and decommissioning methods are determined, the detailed project schedules and estimates are adjusted. Non-nuclear decommissioning cost estimates, including CCR post-closure care and monitoring costs and asbestos removal, are studied for revision at least every five years, but revised more frequently if updated cost information becomes available that causes management's expectation of cost to change materially. See Note 10 — Regulatory Assets and Liabilities — Non-Nuclear Decommissioning Costs . 
 
 Technology and Regulation – Changes in technology and experience as well as changes in regulations regarding non-nuclear decommissioning could cause cost estimates to change significantly. TVA's cost estimates generally assume current technology and regulations. In April 2015, EPA published its final rule governing CCR, which regulates landfill and impoundment location, design, and operations; dictates certain pond-closure conditions; and establishes groundwater monitoring and closure and post-closure standards. On May 8, 2024, EPA published its Legacy CCR Rule, which expands the scope of the existing regulatory requirements of the 2015 CCR Rule to include two additional classes of units: Legacy SIs and CCRMUs. As a result of the enactment of the final rule, during 2024, TVA recorded additional estimated AROs of $3.1 billion and recorded a corresponding regulatory asset of $3.1 billion due to these AROs being associated with closed sites and asset retirement costs having been fully depreciated. TVA continues to evaluate the impact of the rule on its operations, including cost and timing estimates of related projects. As a result, further adjustments to its ARO liabilities may be required as estimates are refined. 
 
 Cost Escalation Rate – TVA uses expected inflation rates over the remaining timeframe until the costs are expected to be incurred to estimate the amount of future cash flows required to satisfy TVA's decommissioning obligations. 
 
 Discount Rate – TVA uses its incremental borrowing rate over a period consistent with the remaining timeframe until the costs are expected to be incurred to calculate the present value of the weighted estimated cash flows required to satisfy TVA's decommissioning obligations. 
 
 The actual decommissioning costs may vary from the derived estimates because of changes in current assumptions, such as the assumed dates of decommissioning, changes in the discount or escalation rates, changes in regulatory requirements, changes in technology, and changes in the cost of labor, materials, and equipment. A 10 percent change in TVA's forecasted costs for non-nuclear decommissioning activities at September 30, 2024, would have affected the liability by approximately $699 million. 
 
 Fair Value Measurements 
 
 Investments. Investment funds are comprised of equity securities and debt securities and are classified as trading. These securities are held in the Nuclear Decommissioning Trust ("NDT"), Asset Retirement Trust ("ART"), Supplemental Executive Retirement Plan ("SERP"), Deferred Compensation Plan ("DCP"), Restoration Plan ("RP"), and qualified benefit pension plan. 
 
 Investment Funds . The assets in the NDT, ART, SERP, DCP, and RP are generally measured at fair value based on quoted market prices or other observable market data such as interest rate indices. These investments are primarily U.S. and international equities, real estate investment trusts, fixed income investments, high-yield fixed income investments, U.S. Treasury Inflation-Protected Securities ("TIPS"), treasuries, currencies, derivative instruments, and other investments. TVA has classified all of these trading securities as either Level 1, Level 2, or Investments measured at net asset value ("NAV"). Private equity limited partnerships, private real asset investments, and private credit investments may include holdings of investments in private real estate, venture capital, buyout, mezzanine or subordinated debt, restructuring or distressed debt, and special situations through funds managed by third-party investment managers. These investments are valued at NAV as a practical expedient for fair value. There are no readily available quoted exchange prices for these investments. The fair value of these investments is based on information provided by the investment managers. These investments are valued on a quarterly basis. See Note 16 — Fair Value Measurements — Valuation Techniques for a discussion of valuation levels of the investments. 
 
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 Plan Investments . TVA's qualified benefit pension plan is funded with qualified plan assets. These investments are primarily global public equities, private equities, fixed income securities, public real assets, and private real assets. See Note 20 — Benefit Plans — Fair Value Measurements for disclosure of fair value measurements for investments held by the TVA Retirement System ("TVARS") that support TVA's qualified defined benefit pension plan. 
 
 Pricing . Prices provided by third parties for the assets in investment funds and plan investments are subjected to automated tolerance checks by the investment portfolio trustee to identify and avoid, where possible, the use of inaccurate prices. Any such prices identified as outside the tolerance thresholds are reported to the vendor that provided the price. If the prices are validated, the primary pricing source is used. If not, a secondary source price that has passed the applicable tolerance check is used (or queried with the vendor if it is out of tolerance), resulting in either the use of a secondary price, where validated, or the last reported default price, as in the case of a missing price. For monthly valued accounts, where secondary price sources are available, an automated inter-source tolerance report identifies prices with an inter-vendor pricing variance of over two percent at an asset class level. For daily valued accounts, each security is assigned, where possible, an indicative major market index, against which daily price movements are automatically compared. Tolerance thresholds are established by asset class. Prices found to be outside of the applicable tolerance threshold are reported and queried with vendors as described above. 
 
 For investment funds, TVA additionally performs its own analytical testing on the change in fair value measurements each period to ensure the valuations are reasonable based on changes in general market assumptions. TVA also performs pricing tests on various portfolios comprised of securities classified in Levels 1 and 2 on a quarterly basis to confirm accuracy of the values received from the investment portfolio trustee. For plan investments, TVARS reviews the trustee's Service Organization Controls report and the pricing policies of the trustee's largest pricing vendor. 
 
 Derivatives. TVA has historically entered into various derivative transactions, including commodity option contracts, forward contracts, swaps, swaptions, futures, and options on futures, to manage various market risks. Other than certain derivative instruments included in investment funds, it is TVA's policy to enter into these derivative transactions solely for hedging purposes and not for speculative purposes. See Note 10 — Regulatory Assets and Liabilities and Note 15 — Risk Management Activities and Derivative Transactions for explanations of changes in estimates. 
 
 Currency and Interest Rate Derivatives . TVA has two currency swaps and two "fixed for floating" interest rate swaps. The currency swaps protect against changes in cash flows caused by volatility in exchange rates related to outstanding Bonds denominated in British pounds sterling. TVA uses interest rate swaps to fix variable short-term debt to a fixed rate. The currency and interest rate swaps are classified as Level 2 valuations as the rate curves and interest rates affecting the fair value of the contracts are based on observable data. 
 
 Commodity Derivatives . TVA enters into commodity contracts for natural gas that require physical delivery of the contracted quantity of the commodity. The natural gas derivative contracts are classified as Level 2 valuations based on market approaches which utilize short-term and mid-term market-quoted prices from an external industry brokerage firm. 
 
 TVA maintains policies and procedures to value commodity contracts using what is believed to be the best and most relevant data available. In addition, TVA's risk management group reviews valuations and pricing data. 
 
 Commodity Derivatives under the Financial Hedging Program ("FHP") . In 2022, the FHP was reinstated and hedging activity began. The TVA Board also 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 commodity derivatives under the FHP are classified as Level 2 valuations based on market approaches which utilize short-term and mid-term market-quoted prices from an external industry brokerage firm. 
 
 Fair Value Considerations. In determining the fair value of its financial instruments, TVA considers the source of observable market data inputs, liquidity of the instrument, credit risk, and risk of nonperformance of itself or the counterparty to the contract. The conditions and criteria used to assess these factors are described below. 
 
 Sources of Market Assumptions. TVA derives its financial instrument market assumptions from market data sources (e.g., Chicago Mercantile Exchange and Moody's Investors Service, Inc. ("Moody's")). In some cases, where market data is not readily available, TVA uses comparable market sources and empirical evidence to derive market assumptions and determine a financial instrument's fair value. 
 
 Market Liquidity . Market liquidity is assessed by TVA based on criteria as to whether the financial instrument trades in an active or inactive market. A financial instrument is considered to be in an active market if the prices are fully transparent to the market participants, the prices can be measured by market bid and ask quotes, the market has a relatively high trading volume, and the market has a significant number of market participants that will allow the market to rapidly absorb the quantity of the assets traded without significantly affecting the market price. Other factors TVA considers when determining whether a market is active or inactive include the presence of government or regulatory control over pricing that could make it difficult to establish a market-based price upon entering into a transaction. 
 
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 Nonperformance Risk . In determining the potential impact of nonperformance risk, which includes credit risk, TVA considers changes in current market conditions, readily available information on nonperformance risk, letters of credit, collateral, other arrangements available, and the nature of master netting arrangements. TVA is a counterparty to derivative instruments that subject TVA to nonperformance risk. Nonperformance risk on the majority of investments and certain exchange-traded instruments held by TVA is incorporated into the exit price that is derived from quoted market data that is used to value the investment. 
 
 Nonperformance risk for most of TVA's derivative instruments is an adjustment to the initial asset/liability fair value. TVA adjusts for nonperformance risk, both of TVA (for liabilities) and the counterparty (for assets), by applying a credit valuation 
 adjustment ("CVA"). 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 company. TVA discounts each financial instrument using the historical default rate (as reported by Moody's for CY 1983 to CY 2023) for companies with a similar credit rating over a time period consistent with the remaining term of the contract. 
 
 All derivative instruments are analyzed individually and are subject to unique risk exposures. 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, 2024. 
 
 Collateral. 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. See Note 15 — Risk Management Activities and Derivative Transactions — Other Derivative Instruments — Collateral for a discussion of collateral related to TVA's derivative liabilities. 
 
 Pension and Other Post-Retirement Benefits 
 
 TVA sponsors a defined benefit pension plan that is qualified under section 401(a) of the Internal Revenue Code and covers substantially all of its full-time annual employees hired prior to July 1, 2014. TVARS, a separate legal entity governed by its own board of directors (the "TVARS Board"), administers the qualified defined benefit pension plan. TVA also provides a SERP to certain executives in critical positions, which provides supplemental pension benefits tied to compensation levels that exceed limits imposed by IRS rules applicable to the qualified defined benefit pension plan. Additionally, TVA provides post-retirement health care benefits for most of its full-time employees who reach retirement age while still working for TVA. 
 
 TVA's pension and other post-retirement benefits contain uncertainties because they require management to make certain assumptions related to TVA's cost to provide these benefits. Numerous factors are considered including the provisions of the plans, changing employee demographics, various actuarial calculations, assumptions, and accounting mechanisms. 
 
 Certain key actuarial assumptions critical to the pension and postretirement accounting estimates include expected long-term rate of return on plan assets, discount rates, projected health care cost trend rates, cost of living adjustments ("COLA"), and mortality rates. Every five years, a formal actuarial experience study that compares assumptions to the actual experience is conducted. Additional ad-hoc experience studies are performed as needed to review recent experience and validate recommended changes to the actuarial assumptions used based upon TVA's last experience study in 2023. See Note 20 — Benefit Plans for explanations of changes in assumptions and estimates. 
 
 Expected Return on Plan Assets . The qualified defined benefit pension plan is the only plan that is funded with qualified plan assets. In determining the expected long-term rate of return on pension plan assets, TVA uses a process that incorporates actual historical asset class returns and an assessment of expected future performance and takes into consideration external actuarial advice, the current outlook on capital markets, the asset allocation policy, and the anticipated impact of active management. In September 2023, the TVARS Board approved a new asset allocation policy, but had no changes in 2024 or 2023 to the 6.50 percent expected return on assets assumption adopted in 2022. 
 
 TVA recognizes the impact of asset performance on pension expense over a three-year phase-in period through a market-related value of assets ("MRVA") calculation. The MRVA recognizes investment gains and losses over a three-year period and is used in calculating the expected return on assets and the recognized net actuarial loss components of pension net periodic benefit cost. 
 
 A higher expected rate of return assumption decreases the net periodic pension benefit costs, whereas a lower expected rate of return assumption increases the net periodic pension benefit cost. The plan's actual rate of return for 2024 was 12.72 percent compared to the assumption of 6.50 percent. The difference between the expected and actual return on plan assets resulted in an actuarial gain of $510 million that is recognized as a decrease in the related regulatory asset and a decrease in the pension benefit obligation at September 30, 2024. 
 
 Discount Rate. TVA's discount rates are derived by identifying a theoretical settlement portfolio of high quality corporate bonds of Aa quality or higher sufficient to provide for the projected benefit payments. The model matches the present value of the projected benefit payments to the market value of the theoretical settlement bond portfolio with any resulting excess funds 
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 presumed to be reinvested and used to meet successive year benefit payments. A single equivalent discount rate is determined to align the present value of the required cash flow with the value of the bond portfolio. The resulting discount rates are reflective of both the current interest rate and the distinct liability of the pension and post-retirement benefit plans. 
 
 The discount rate is somewhat volatile because it is determined based upon the prevailing rate of long-term corporate bonds as of the measurement date. A higher discount rate decreases the plan obligations and correspondingly decreases the net periodic pension and net post-retirement benefit costs for those plans where actuarial losses are being amortized. Alternatively, a lower discount rate increases net periodic pension and net periodic post-retirement benefit costs. The discount rates used to determine the pension and post-retirement benefit obligations were 4.95 percent and 5.00 percent, respectively, at September 30, 2024. 
 
 Health Care Cost Trends. In establishing health care cost trend rates for the post-retirement obligation, TVA reviews actual recent cost trends and projected future trends considering health care inflation, changes in health care utilization, and changes in plan benefits and premium experience. The pre-Medicare eligible per capita claims costs and per capita contributions trend rates are both 7.25 percent, declining 0.25 percent per year until it reaches the ultimate trend rate of 5.00 percent in 2034. The post-Medicare current health care cost trend rate is zero percent for years 2023 through 2025, reaching the ultimate rate of 4.00 percent in 2026. TVA recognized a $30 million actuarial gain as a result of updating the pre-Medicare health care cost trend rates to reflect observed and anticipated plan experience that is recognized as an increase in the related regulatory liability and a decrease in the post-retirement obligation at September 30, 2024. 
 
 Cost of Living Adjustments. Cost of living adjustments ("COLAs") are an increase in the benefits for eligible retirees to help maintain the purchasing power of benefits as consumer prices increase. This assumption is based on the long-term expected future rate of inflation, which is based on the capital market outlooks, economic forecasts, and the Federal Reserve policy. See Note 20 — Benefit Plans — Plan Assumptions — Cost of Living Adjustment for further discussion on the calculation of the COLA. The actual COLA for CY 2024 was 4.44 percent. The CY 2025 COLA is assumed to be 2.79 percent, and for years thereafter the COLA is assumed to be 2.00 percent. A higher COLA increases the pension benefit obligation whereas a lower COLA assumption decreases the obligation. The actual calendar year COLA and the long-term COLA assumption are used to determine the benefit obligation at September 30 and the net periodic benefit costs for the following fiscal year. 
 
 Mortality . TVA's mortality assumptions are based upon actuarial projections in combination with actuarial studies of the actual mortality experience of TVARS's pension and post-retirement benefit plan participants taking into consideration the Society of Actuaries ("SOA") mortality table and projection scales as of September 30, 2024. TVA continues to monitor the availability of updates to mortality tables, longevity improvement scales, and mortality reviews and experience studies to consider whether these updates should be reflected in the current year mortality assumption. 
 
 The following tables illustrate the estimated effects of changing certain of the critical actuarial assumptions discussed above, while holding all other assumptions constant and excluding any impact for unamortized actuarial gains and losses: 
 
 Sensitivity to Certain Changes in Pension Assumptions 
 (in millions) 
 
Actuarial Assumption Actual Assumption Change in Assumption Impact 
 Effect on 2024 pension expense: 
 
 Discount rate 5.95 % (0.25) % $ 11 
 Expected return on assets 6.50 % (0.25) % 19 
 COLA 2.00 % 0.25 % 22 
 
 Effect on benefit obligation at September 30, 2024: 
 
 Discount rate 4.95 % (0.25) % $ 273 
 COLA 2.00 % 0.25 % 188 

 Sensitivity to Changes in Assumed Health Care Cost Trend Rates 
 1% Increase 1% Decrease 
 Effect on total of service and interest cost components for 2024 
 $ 4 $ (4) 
 Effect on end-of-year accumulated post-retirement benefit obligation at September 30, 2024 
 48 (45) 

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 New Accounting Standards and Interpretations 
 
 See Note 2 — Impact of New Accounting Standards and Interpretations for a discussion of recent accounting standards and pronouncements that were issued by the Financial Accounting Standards Board ("FASB"), became effective for TVA, or were adopted by TVA during the presented periods. 
 
 Legislative and Regulatory Matters 
 
 For additional discussion on legislative and regulatory matters, including a discussion of environmental legislation and regulation, see Part I, Item 1, Business — Environmental Matters, Part I, Item 1, Business — Regulation, and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges. 
 
 TVA does not engage, and does not control any entity that is engaged, in any activity listed under Section 13(r) of the Securities Exchange Act of 1934 (the "Exchange Act"), which requires certain issuers to disclose certain activities relating to Iran involving the issuer and its affiliates. Based on information supplied by each such person, none of TVA's directors and executive officers are involved in any such activities. While TVA is an agency and instrumentality of the U.S., TVA does not believe its disclosure obligations, if any, under Section 13(r) extend to the activities of any other departments, divisions, or agencies of the U.S. 
 
 Environmental Matters 
 
 See Part I, Item 1, Business — Environmental Matters, which discussion is incorporated by reference into this Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. 
 
 Legal Proceedings 
 
 From time to time, TVA is party to or otherwise involved in lawsuits, claims, proceedings, investigations, and other legal matters ("Legal Proceedings") that have arisen in the ordinary course of conducting its activities. As of September 30, 2024, TVA had accrued approximately $10 million with respect to Legal Proceedings. No assurance can be given that TVA will not be subject to significant additional claims and liabilities. If actual liabilities significantly exceed the estimates made, TVA's results of operations, liquidity, and financial condition could be materially adversely affected. 
 
 For a discussion of certain current material Legal Proceedings, see Note 22 — Commitments and Contingencies — Legal Proceedings , which discussions are incorporated into this Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations . 
 
 Risk Management Activities 
 
 TVA is exposed to various market risks. These market risks include risks related to commodity prices, investment prices, interest rates, currency exchange rates, inflation, and counterparty credit and performance risk. To help manage certain of these risks, TVA has entered into various derivative transactions, including commodity option contracts, forward contracts, swaps, swaptions, futures, and options on futures. 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. See Note 15 — Risk Management Activities and Derivative Transactions . 
 
 Risk Governance 
 
 The Enterprise Risk Council ("ERC") is responsible for the highest level of risk oversight at TVA and is also responsible for communicating enterprise-wide risks with policy implications to the TVA Board or a designated TVA Board committee. The ERC is comprised of the Senior Management Council and the Chief Risk Officer ("CRO") who acts as Chair. ERC members may invite additional attendees to meetings as non-voting participants. The ERC has also established subordinate committees, consisting of business unit leaders, to assist in the oversight of fuel and power procurement, DER programs and products, security, artificial intelligence, privacy, and technology risks, and general risk management. 
 
 TVA has a designated Enterprise Risk Management ("ERM") organization within its Financial Services organization responsible for (1) establishing enterprise risk management policies and guidelines, (2) developing an enterprise risk profile aligned with TVA's strategic objectives, (3) performing annual risk assessments across all TVA business units, (4) monitoring and reporting on identified enterprise risks and emerging risks, (5) facilitating enterprise risk discussions with the risk subject matter experts across the organization and at the ERC and TVA Board levels, and (6) developing and improving TVA's risk awareness culture. TVA has cataloged major short-term and long-term enterprise level risks across the organization. A discussion of significant risks is presented in Part I, Item 1A, Risk Factors. 
 
 Commodity Price Risk 
 
 TVA is exposed to effects of market fluctuations in the price of commodities that are critical to its operations, including 
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 electricity, coal, and natural gas. The magnitude of exposure to these risks is influenced by many factors including contract terms and market liquidity. TVA's commodity price risk is substantially mitigated by its cost-based rates, including its total fuel cost adjustment, and long-term fixed price commodity contracts. 
 
 Commodity Derivatives. TVA manages risk with commodity contracts for natural gas that require physical delivery of the contracted quantity. An immediate 10 percent decline in the market price of natural gas on September 30, 2024 and 2023, would have resulted in decreases of less than $1 million and $1 million, respectively, in the fair value of TVA's natural gas derivative instruments at these dates. 
 
 Commodity Derivatives under the FHP. TVA manages risk with commodity derivatives under the FHP by hedging exposure to the price of natural gas. An immediate 10 percent decline in the market price of natural gas on September 30, 2024 and 2023, would have resulted in a decrease of approximately $72 million and $127 million, respectively, in the fair value of TVA's natural gas derivative instruments under the FHP. 
 
 Investment Price Risk 
 
 TVA's investment price risk relates primarily to investments in TVA's NDT, ART, pension fund, SERP, DCP, and RP. 
 
 Nuclear Decommissioning Trust. The NDT is generally designed to achieve a return in line with overall equity and debt market performance. The assets of the trust are invested in debt and equity securities, private partnerships, and certain derivative instruments including forwards, futures, options, and swaps, and through these investments the trust has exposure to U.S. equities, international equities, real estate investment trusts, natural resource equities, high-yield debt, domestic debt, U.S. TIPS, treasuries, private real assets, private equity, and private credit strategies. At September 30, 2024 and 2023, an immediate 10 percent decrease in the price of the investments in the trust would have reduced the value of the trust by $333 million and $279 million, respectively. 
 
 Asset Retirement Trust. The ART is presently invested to achieve a return in line with overall equity and debt market performance. The assets of the trust are invested in debt and equity securities, private partnerships, and certain derivative instruments including options, and through these investments the trust has exposure to U.S. equities, real estate investment trusts, natural resource equities, high-yield debt, domestic debt, TIPS, treasuries, private real assets, private equity, and private credit strategies. At September 30, 2024 and 2023, an immediate 10 percent decrease in the price of the investments in the trust would have reduced the value of the trust by $152 million and $124 million, respectively. 
 
 Qualified Pension Plan . In 2021, a new asset allocation policy was put in place to reduce risk and volatility in the TVARS investment portfolio. Furthermore, in September 2023, based on current market conditions and updated capital market assumptions, the asset allocation policy was modified to further progress towards these goals. TVARS investments will be reallocated in a prudent manner over time to move toward the new asset allocation targets. The TVARS asset allocation policy for qualified pension plan assets has targets of 17 percent growth assets, 30 percent defensive growth assets, 33 percent defensive assets, and 20 percent inflation-sensitive assets. Pursuant to the TVARS Rules and Regulations, any proposed changes in asset allocation that would change TVARS's assumed rate of investment return are subject to the review and veto of the TVA Board. 
 
 As set forth above, the qualified pension plan assets are invested across growth assets, defensive growth assets, defensive assets, and inflation-sensitive assets. The TVARS asset allocation policy includes permissible deviations from target allocations, and action can be taken, as appropriate, to rebalance the plan's assets consistent with the asset allocation policy. At September 30, 2024 and 2023, an immediate 10 percent decrease in the value of the net assets of the fund would have reduced the value of the fund by approximately $867 million and $813 million, respectively. 
 
 Supplemental Executive Retirement Plan . The SERP is a non-qualified defined benefit pension plan similar to those typically found in other companies in TVA's peer group and is provided to selected employees of TVA. TVA's SERP was created to recruit and retain key executives. The plan is designed to provide a competitive level of retirement benefits in excess of the limitations on contributions and benefits imposed by TVA's qualified defined benefit plan and Internal Revenue Code Section 415 limits on qualified retirement plans. The SERP currently targets an asset allocation policy for its plan assets of 64 percent equity securities, which includes U.S. and non-U.S. equities, and 36 percent fixed income securities. The SERP plan assets are presently invested to achieve a return in line with overall equity and debt market performance. At September 30, 2024 and 2023, an immediate 10 percent decrease in the value of the SERP investments would have reduced the value of the investments by $10 million and $8 million, respectively. 
 
 Deferred Compensation Plan. The DCP is designed to provide participants with the ability to defer compensation to future periods. The plan assists in the recruitment of top executive talent for TVA. As in other corporations, deferred compensation can be an integral part of a total compensation package. Assets currently include deferral balances. The default return on investment of the accounts is interest calculated based on the composite rate of all marketable U.S. Treasury issues. Executives may alternatively choose to have their balances adjusted based on the return of certain mutual funds. At both September 30, 2024 and 2023, an immediate 10 percent decrease in the value of the deferred compensation accounts would have reduced the value of the accounts by $2 million. 
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 Restoration Plan . The RP is a non-qualified excess 401(k) plan designed to allow certain eligible employees whose contributions to the 401(k) plan are limited by IRS rules to save additional amounts for retirement and receive non-elective and matching employer contributions. The plan is designed to provide a competitive level of retirement benefits and assist in the recruitment of executive talent for TVA. The default return on investment of the accounts is interest calculated based on the composite rate of all marketable U.S. Treasury issues. Executives may alternatively choose to have their balances adjusted based on the return of certain mutual funds. At September 30, 2024 and 2023, an immediate 10 percent decrease in the value of the RP accounts would have reduced the value of the accounts by less than $1 million. 
 
 Interest Rate Risk 
 
 TVA's interest rate risk is related primarily to its short-term investments, short-term debt, long-term debt, and interest rate derivatives. 
 
 Investments. At September 30, 2024, TVA had $502 million of cash and cash equivalents, and the average balance of cash and cash equivalents for 2024 was $600 million. The average interest rate that TVA received on its short-term investments during 2024 was 5.39 percent. If the rates of interest that TVA received on its short-term investments during 2024 were 4.39 percent, TVA would have received $6 million less in interest from its short-term investments. At September 30, 2023, TVA had $501 million of cash and cash equivalents, and the average balance of cash and cash equivalents for 2023 was $544 million. The average interest rate that TVA received on its short-term investments during 2023 was 4.65 percent. If the rates that TVA received on its short-term investments during 2023 were 3.65 percent, TVA would have received approximately $5 million less in interest from its short-term investments. In addition to affecting the amount of interest that TVA receives from its short-term investments, changes in interest rates could affect the value of the investments in its NDT, ART, pension plan, SERP, DCP, and RP. See Risk Management Activities — Investment Price Risk above. 
 
 Short-Term Debt . At September 30, 2024, TVA's short-term borrowings were $1.2 billion, and the current maturities of power bonds and debt of variable interest entities were $1.1 billion. Based on TVA's interest rate exposure at September 30, 2024, an immediate one percentage point increase in interest rates would have resulted in an increase of $22 million in TVA's short-term interest expense. At September 30, 2023, TVA's short-term borrowings were $432 million, and the current maturities of long-term debt were $1.1 billion. Based on TVA's interest rate exposure at September 30, 2023, an immediate one percentage point increase in interest rates would have resulted in an increase of $15 million in TVA's short-term interest expense. 
 
 Long-Term Debt. At September 30, 2024 and 2023, the interest rates on all of TVA's outstanding long-term debt were fixed (or subject only to downward adjustment under certain conditions). Accordingly, an immediate one percentage point increase in interest rates would not have affected TVA's interest expense associated with its long-term debt. When TVA's long-term debt matures or is redeemed, however, TVA typically refinances debt in whole or in part by issuing additional debt. Accordingly, if interest rates are high when TVA issues this additional debt, TVA's cash flows, results of operations, and financial condition may be adversely affected. This risk is somewhat mitigated by the fact that TVA's debt portfolio is diversified in terms of maturities and has a long average life. At September 30, 2024 and 2023, the average life of TVA's debt portfolio was 13.96 years and 14.43 years, respectively. At September 30, 2024 and 2023, the average interest rate of TVA's debt portfolio was 4.69 percent and 4.61 percent, respectively. See Note 14 — Debt and Other Obligations — Debt Outstanding for a schedule of TVA's debt maturities. 
 
 Interest Rate Derivatives. Changes in interest rates also affect the mark-to-market ("MtM") valuation of TVA's interest rate derivatives. See Note 15 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Interest Rate Derivatives . TVA had two interest rate swaps outstanding at both September 30, 2024 and 2023. Net unrealized gains and losses on the swaps are reflected on TVA's Consolidated Balance Sheets in a regulatory liability or asset account, and realized gains and losses are reflected in earnings. Based on TVA's interest rate exposure at September 30, 2024, an immediate one percentage point decrease in interest rates would have increased the interest rate swap liabilities by $293 million. Based on TVA's interest rate exposure at September 30, 2023, an immediate one percentage point decrease in interest rates would have increased the interest rate swap liabilities by $272 million. 
 
 Currency Exchange Rate Risk 
 
 Over the next several years, TVA plans to spend a significant amount of capital on clean air projects, capacity expansion, and other projects. A portion of this amount may be spent on contracts that are denominated in one or more foreign currencies. Additionally, TVA's two issues of Bonds denominated in British pounds sterling are hedged by currency swap agreements. If not effectively managed, foreign currency exposure could negatively impact TVA's counterparty risk, cash flows, results of operations, and financial condition. 
 
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Tennessee Valley Authority 10-K

Item 7. Management’s Discussion and Analysis
