Tennessee Valley Authority [TVC] Filings

10-Q 1 tve-20221231.htm 10-Q tve-20221231

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

x QUARTERLY REPORT PURSUANT TO SECTION 13, 15(d), OR 37 OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2022

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 000-52313

TENNESSEE VALLEY AUTHORITY

(Exact name of registrant as specified in its charter)


A corporate agency of the United States created by an act of Congress (State or other jurisdiction of incorporation or organization)									62-0474417 (I.R.S. Employer Identification No.)

400 W. Summit Hill Drive Knoxville, Tennessee (Address of principal executive offices)									37902 (Zip Code)

(865) 632-2101

(Registrant's telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13, 15(d), or 37 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o

Non-accelerated filer x Smaller reporting company o

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Number of shares of common stock outstanding at January 30, 2023: N/A

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			Page
GLOSSARY OF COMMON ACRONYMS......................................................................................................................................			3
FORWARD-LOOKING INFORMATION.........................................................................................................................................			5
GENERAL INFORMATION............................................................................................................................................................			7

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.............................................................................................................................................			8
Consolidated Balance Sheets (Unaudited)...........................................................................................................................			8
Consolidated Statements of Operations (Unaudited)............................................................................................................			10
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)............................................................................			10
Consolidated Statements of Cash Flows (Unaudited)..........................................................................................................			11
Consolidated Statements of Changes in Proprietary Capital (Unaudited)............................................................................			12
Notes to Consolidated Financial Statements (Unaudited)....................................................................................................			13

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...			44
Executive Overview...............................................................................................................................................................			44
Results of Operations............................................................................................................................................................			45
Liquidity and Capital Resources............................................................................................................................................			51
Key Initiatives and Challenges..............................................................................................................................................			53
Environmental Matters..........................................................................................................................................................			54
Legal Proceedings................................................................................................................................................................			55
Off-Balance Sheet Arrangements..........................................................................................................................................			55
Critical Accounting Estimates................................................................................................................................................			55
New Accounting Standards and Interpretations....................................................................................................................			55
Legislative and Regulatory Matters.......................................................................................................................................			55

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................................................			55

ITEM 4. CONTROLS AND PROCEDURES..................................................................................................................................			55
Disclosure Controls and Procedures.....................................................................................................................................			55
Changes in Internal Control over Financial Reporting..........................................................................................................			56

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS..................................................................................................................................................			56

ITEM 1A. RISK FACTORS............................................................................................................................................................			56



ITEM 6. EXHIBITS........................................................................................................................................................................			57

SIGNATURES...............................................................................................................................................................................			58

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GLOSSARY OF COMMON ACRONYMS
Following are definitions of some of the terms or acronyms that may be used in this Quarterly Report on Form 10-Q for the quarter ended December 31, 2022 (the "Quarterly Report"):

Term or Acronym						Definition




AOCI						Accumulated other comprehensive income (loss)
ARO						Asset retirement obligation
ART						Asset Retirement Trust
Bonds						Bonds, notes, or other evidences of indebtedness


CAA						Clean Air Act
Caledonia CC						Caledonia Combined Cycle Plant
CCR						Coal combustion residuals

CERCLA						Comprehensive Environmental Response, Compensation, and Liability Act


COVID-19						Coronavirus Disease 2019

CSAPR						Cross-State Air Pollution Rule
CTs						Combustion turbine unit(s)
CVA						Credit valuation adjustment
CWA						Clean Water Act

CY						Calendar year

DCP						Deferred Compensation Plan
DER						Distributed energy resources


EIS						Environmental Impact Statement


EO(s)						Executive Order(s)
EPA						Environmental Protection Agency




FERC						Federal Energy Regulatory Commission

FHP						Financial Hedging Program

GAAP						Accounting principles generally accepted in the United States of America
GAC						Grid access charge
GHG						Greenhouse gas

HAP						Hazardous Air Pollutants


Holdco						John Sevier Holdco LLC
JSCCG						John Sevier Combined Cycle Generation LLC

kWh						Kilowatt hours
LPCs						Local power company customers


MD&A						Management's Discussion and Analysis of Financial Condition and Results of Operations
MLGW						Memphis Light, Gas and Water Division
mmBtu						Million British thermal unit(s)
MtM						Mark-to-market
MW						Megawatts
MWh						Megawatt hours

NAV						Net asset value
NDT						Nuclear Decommissioning Trust
NEIL						Nuclear Electric Insurance Limited
NEPA						National Environmental Policy Act

NES						Nashville Electric Service
NOx						Nitrogen oxides

NRC						Nuclear Regulatory Commission









PPA(s)						Power Purchase Agreement(s)

QTE						Qualified technological equipment and software

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RCRA						Resource Conservation and Recovery Act
RECs						Renewable Energy Certificates

RFP(s)						Request(s) for proposals
SCCG						Southaven Combined Cycle Generation LLC
SCRs						Selective catalytic reduction systems
SEC						Securities and Exchange Commission

SERP						Supplemental Executive Retirement Plan
SHLLC						Southaven Holdco LLC




TDEC						Tennessee Department of Environment and Conservation

TVA						Tennessee Valley Authority
TVA Act						The Tennessee Valley Authority Act of 1933, as amended, 16 U.S.C. §§ 831-831ee
TVA Board						TVA Board of Directors
TVARS						Tennessee Valley Authority Retirement System

U.S. Treasury						United States Department of the Treasury


VIE						Variable interest entity

XBRL						eXtensible Business Reporting Language

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FORWARD-LOOKING INFORMATION

This Quarterly Report contains forward-looking statements relating to future events and future performance. All statements other than those that are purely historical may be forward-looking statements. In certain cases, forward-looking statements can be identified by the use of words such as "may," "will," "should," "expect," "anticipate," "believe," "intend," "project," "plan," "predict," "assume," "forecast," "estimate," "objective," "possible," "probably," "likely," "potential," "speculate," "aim," "aspiration," "goal," "seek," "strategy," "target," the negative of such words, or other similar expressions.

Although the Tennessee Valley Authority ("TVA") believes that the assumptions underlying any forward-looking statements are reasonable, TVA does not guarantee the accuracy of these statements. Numerous factors could cause actual results to differ materially from those in any forward-looking statements. These factors include, among other things:

•Significant delays and additional costs, and/or inability to obtain necessary regulatory approvals, licenses, or permits, for major projects, including for assets that TVA needs to serve its existing and future load and to meet its carbon reduction aspirations;

•Events at a nuclear facility, whether or not operated by or licensed to TVA, which, among other things, could lead to increased regulation or restriction on the construction, ownership, operation, or decommissioning of nuclear facilities or on the storage of spent fuel, obligate TVA to pay retrospective insurance premiums, reduce the availability and affordability of insurance, increase the costs of operating TVA's existing nuclear units, or cause TVA to forego future construction at these or other facilities;

•Risks associated with the operation of nuclear facilities or other generation and related facilities, including coal combustion residuals ("CCR") facilities;

•Inability to continue to operate certain assets, especially nuclear facilities, including due to the inability to obtain, or loss of, regulatory approval for the operation of assets;

•Significant additional costs for TVA to manage and operate its CCR facilities;

•Physical attacks, threats, or other interference causing damage to TVA's facilities or interfering with TVA's operations;

•The failure of TVA's generation, transmission, navigation, flood control, and related assets and infrastructure, including CCR facilities and spent nuclear fuel storage facilities, to operate as anticipated, resulting in lost revenues, damages, or other costs that are not reflected in TVA's financial statements or projections, including due to aging or technological issues;

•Costs or liabilities that are not anticipated in TVA's financial statements for third-party claims, natural resource damages, environmental cleanup activities, or fines or penalties associated with unexpected events such as failures of a facility or infrastructure;

•Events at a TVA facility, which, among other things, could result in loss of life, damage to the environment, damage to or loss of the facility, or damage to the property of others;

•Events that negatively impact TVA's reliability, including from problems at other utilities or at TVA facilities or the increase in intermittent sources of power;

•Events or changes involving transmission lines, dams, and other facilities not operated by TVA, including those that affect the reliability of the interstate transmission grid of which TVA's transmission system is a part and those that increase flows across TVA's transmission grid;

•Disruption of supplies of fuel, purchased power, or other critical items or services, which may result from, among other things, economic conditions, weather conditions, physical or cyber attacks, political developments, international trade restrictions or tariffs, legal actions, mine closures or reduced mine production, increases in fuel exports, environmental regulations affecting TVA's suppliers, transportation or delivery constraints, shortages of raw materials, supply chain difficulties, labor shortages, strikes, inflation, or similar events and which may, among other things, hinder TVA's ability to operate its assets and to complete projects on time and on budget;

•Circumstances that cause TVA to change its determinations regarding the appropriate mix of generation assets;

•Costs or other challenges resulting from a failure by TVA to meet its carbon reduction aspirations;

•New, amended, or existing laws, regulations, executive orders ("EOs"), or administrative orders or interpretations, including those related to climate change and other environmental matters, and the costs of complying with these laws, regulations, EOs, or administrative orders or interpretations;

•The cost of complying with known, anticipated, or new environmental requirements, some of which could render continued operation of many of TVA's aging coal-fired generation units not cost-effective or result in their removal from service, perhaps permanently;

•Actions taken, or inaction, by the United States ("U.S.") government relating to the national debt ceiling or automatic spending cuts in government programs;

•Inability to respond quickly enough to current or potential customer demands or needs or to act solely in the interest of ratepayers;

•Negative outcomes of current or future legal or administrative proceedings;

•Federal legislation aimed specifically at curtailing TVA's activities, including legislation that may cause TVA to lose its protected service territory, its sole authority to set rates, or its authority to manage the Tennessee River system or the real property currently entrusted to TVA; subject TVA to additional environmental regulation or additional requirements of the North American Electric Reliability Corporation; require the divestiture of TVA or the sale of certain of TVA's assets; lower the debt ceiling on bonds, notes, or other evidences of indebtedness (collectively, "Bonds") specified in the Tennessee Valley Authority Act of 1933, as amended, 16 U.S.C. §§ 831-831ee ("TVA Act"); or restrict TVA's access to its

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funds;

•Cyber attacks on TVA's assets or the assets of third parties upon which TVA relies;

•Other unforeseeable occurrences negatively impacting TVA assets or their supporting infrastructure;

•The need for significant future contributions associated with TVA's pension plans, other post-retirement benefit plans, or health care plans;

•Increases in TVA's financial liabilities for decommissioning its nuclear facilities and retiring other assets;

•The requirement or decision to make additional contributions to TVA's Nuclear Decommissioning Trust ("NDT") or Asset Retirement Trust ("ART");

•Differences between estimates of revenues and expenses and actual revenues earned and expenses incurred;

•Limitations on TVA's ability to borrow money, which may result from, among other things, TVA's approaching or substantially reaching the debt ceiling or TVA's losing access to the debt markets;

•An increase in TVA's cost of capital, which may result from, among other things, changes in the market for Bonds, changes in the credit rating of TVA or the U.S. government, or, potentially, an increased reliance by TVA on alternative financing should TVA approach its debt limit;

•The inaccuracy of certain assumptions about the future, including economic forecasts, anticipated energy and commodity prices, cost estimates, construction schedules, power demand forecasts, the appropriate generation mix to meet demand, and assumptions about potential regulatory environments;

•Significant decline in the demand for electricity that TVA produces, which may result from, among other things, economic downturns or recessions, loss of customers, reductions in demand for electricity generated from non-renewable sources or centrally located generation sources, increased utilization of distributed energy resources ("DER"), increased energy efficiency and conservation, or improvements in alternative generation and energy storage technologies;

•Changes in customer preferences for energy produced from cleaner generation sources;

•Addition or loss of customers by TVA or TVA's local power company customers ("LPCs");

•Potential for increased demand for energy resulting from, among other things, an increase in the population of TVA's service area;

•Changes in technology, which, among other things, may affect relationships with customers and require TVA to change how it conducts its operations;

•Changes in the economy and volatility in financial markets;

•Reliability or creditworthiness of counterparties;

•Changes in the market price of commodities such as purchased power, coal, uranium, natural gas, fuel oil, crude oil, construction materials, reagents, or emission allowances;

•Changes in the market price of equity securities, debt securities, or other investments;

•Changes in interest rates, currency exchange rates, or inflation rates;

•Failure to attract or retain an appropriately qualified, diverse, and inclusive workforce;

•Changes in the membership of the TVA Board of Directors ("TVA Board") or TVA senior management, which may impact how TVA operates;

•Weather conditions, including changing weather patterns, extreme weather conditions, and other events such as flooding, droughts, wildfires, and snow or ice storms that may result from climate change, which may hamper TVA's ability to supply power, cause customers' demand for power to exceed TVA's then-present power supply, or otherwise negatively impact net revenue;

•Events affecting the supply or quality of water from the Tennessee River system or Cumberland River system, or elsewhere, which could interfere with TVA's ability to generate power;

•Catastrophic events, such as fires, earthquakes, explosions, solar events, electromagnetic pulses, geomagnetic disturbances, droughts, floods, hurricanes, tornadoes, polar vortexes, icing events, or other casualty events, wars, national emergencies, terrorist activities, pandemics, or other similar destructive or disruptive events;

•Inability to use regulatory accounting for certain costs;

•Ineffectiveness of TVA's financial control system to control issues and instances of fraud or to detect errors;

•Ineffectiveness of TVA's disclosure controls and procedures or its internal control over financial reporting;

•Adverse effects from the Coronavirus Disease 2019 ("COVID-19") or future pandemics;

•Inability of TVA to implement its business strategy successfully, including due to the increased use in the public of DER or energy-efficiency programs;

•Inability of TVA to adapt its business model to changes in the utility industry and customer preferences and to remain cost competitive;

•Loss of quorum of the TVA Board, which may limit TVA's ability to adapt to meet changing business conditions;

•Negative impacts on TVA's reputation; or

•Other unforeseeable events.

See also Part I, Item 1A, Risk Factors, and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in TVA's Annual Report on Form 10-K for the year ended September 30, 2022 (the "Annual Report"), and Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report for a discussion of factors that could cause actual results to differ materially from those in any forward-looking statement. New factors emerge from time to time, and it is not possible for TVA to predict all such factors or to assess the extent to which any factor or combination of factors may impact TVA's business or cause results to differ materially from those contained in any forward-looking statement. TVA undertakes no obligation to update any forward-looking statement to reflect developments that occur after the statement is made, except as required by law.

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GENERAL INFORMATION

Fiscal Year

References to years (2023, 2022, etc.) in this Quarterly Report are to TVA's fiscal years ending September 30. Years that are preceded by "CY" are references to calendar years.

Notes

References to "Notes" are to the Notes to Consolidated Financial Statements contained in Part I, Item 1, Financial Statements in this Quarterly Report.

Available Information

TVA files annual, quarterly, and current reports with the Securities and Exchange Commission ("SEC") under Section 37 of the Securities Exchange Act of 1934 (the "Exchange Act"). TVA's SEC filings are available to the public at www.tva.com, free of charge, as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. Information contained on or accessible through TVA's website shall not be deemed to be incorporated into, or to be a part of, this Quarterly Report or any other report or document that TVA files with the SEC. All TVA SEC reports are available to the public without charge from the website maintained by the SEC at www.sec.gov.

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TENNESSEE VALLEY AUTHORITY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions)


ASSETS
	December 31, 2022		September 30, 2022
Current assets
Cash and cash equivalents	$	500	$	500


Accounts receivable, net	1,749		2,007
Inventories, net	1,207		1,072
Regulatory assets	320		138
Other current assets	221		257
Total current assets	3,997		3,974

Property, plant, and equipment
Completed plant	66,728		66,442
Less accumulated depreciation	(34,517)		(34,239)
Net completed plant	32,211		32,203
Construction in progress	2,648		2,535
Nuclear fuel	1,520		1,492
Finance leases	615		630
Total property, plant, and equipment, net	36,994		36,860

Investment funds	3,913		3,671

Regulatory and other long-term assets
Regulatory assets	5,909		6,134
Operating lease assets, net of amortization	144		155
Other long-term assets	353		394
Total regulatory and other long-term assets	6,406		6,683

Total assets	$	51,310	$	51,188
The accompanying notes are an integral part of these consolidated financial statements.

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TENNESSEE VALLEY AUTHORITY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions)


LIABILITIES AND PROPRIETARY CAPITAL
	December 31, 2022		September 30, 2022
Current liabilities
Accounts payable and accrued liabilities	$	2,362	$	2,466

Accrued interest	255		273
Asset retirement obligations	287		275


Regulatory liabilities	277		391
Short-term debt, net	1,618		1,172
Current maturities of power bonds	29		29
Current maturities of long-term debt of variable interest entities	39		39

Total current liabilities	4,867		4,645

Other liabilities
Post-retirement and post-employment benefit obligations	2,998		3,072
Asset retirement obligations	6,868		6,887
Finance lease liabilities	619		628
Other long-term liabilities	1,374		1,485

Regulatory liabilities	109		172
Total other liabilities	11,968		12,244

Long-term debt, net
Long-term power bonds, net	17,865		17,826
Long-term debt of variable interest entities, net	968		968

Total long-term debt, net	18,833		18,794

Total liabilities	35,668		35,683

Contingencies and legal proceedings (Note 20)

Proprietary capital
Power program appropriation investment	258		258
Power program retained earnings	14,902		14,800
Total power program proprietary capital	15,160		15,058
Nonpower programs appropriation investment, net	531		533
Accumulated other comprehensive loss	(49)		(86)
Total proprietary capital	15,642		15,505

Total liabilities and proprietary capital	$	51,310	$	51,188
The accompanying notes are an integral part of these consolidated financial statements.

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TENNESSEE VALLEY AUTHORITY

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Three Months Ended December 31

(in millions)



	2022		2021
Operating revenues
Revenue from sales of electricity	$	2,963	$	2,538
Other revenue	52		45
Total operating revenues	3,015		2,583
Operating expenses
Fuel	615		466
Purchased power	491		369
Operating and maintenance	827		780
Depreciation and amortization	533		510
Tax equivalents	151		133
Total operating expenses	2,617		2,258
Operating income	398		325
Other income, net	16		14
Other net periodic benefit cost	51		65
Interest expense	262		263
Net income	$	101	$	11
The accompanying notes are an integral part of these consolidated financial statements.

TENNESSEE VALLEY AUTHORITY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

Three Months Ended December 31

(in millions)



	2022		2021
Net income	$	101	$	11
Other comprehensive income (loss)
Net unrealized gain on cash flow hedges	71		5
Net unrealized gain reclassified to earnings from cash flow hedges	(34)		(1)
Total other comprehensive income	37		4
Total comprehensive income	$	138	$	15
The accompanying notes are an integral part of these consolidated financial statements.

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TENNESSEE VALLEY AUTHORITY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Three Months Ended December 31

(in millions)


	2022		2021
Cash flows from operating activities
Net income	$	101	$	11
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization(1)	538		515
Amortization of nuclear fuel cost	88		88
Non-cash retirement benefit expense	63		82

Other regulatory amortization and deferrals	(69)		32



Changes in current assets and liabilities
Accounts receivable, net	256		181
Inventories and other current assets, net	(216)		(101)
Accounts payable and accrued liabilities	(86)		(140)
Accrued interest	(16)		(13)

Pension contributions	(75)		(76)



Other, net	(145)		(86)
Net cash provided by operating activities	439		493

Cash flows from investing activities
Construction expenditures	(605)		(612)

Nuclear fuel expenditures	(192)		(137)

Acquisition of leasehold interests in combustion turbine assets	(78)		—
Loans and other receivables
Advances	—		(3)
Repayments	3		6
Other, net	(4)		12
Net cash used in investing activities	(876)		(734)

Cash flows from financing activities
Long-term debt


Redemptions and repurchases of power bonds	(1)		(1)


Short-term debt issues, net	446		286
Payments on leases and leasebacks	(10)		(31)





Other, net	2		(5)
Net cash provided by financing activities	437		249
Net change in cash, cash equivalents, and restricted cash	—		8
Cash, cash equivalents, and restricted cash at beginning of period	520		518
Cash, cash equivalents, and restricted cash at end of period	$	520	$	526





Note (1) Includes amortization of debt issuance costs and premiums/discounts.
The accompanying notes are an integral part of these consolidated financial statements.

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TENNESSEE VALLEY AUTHORITY

CONSOLIDATED STATEMENTS OF CHANGES IN PROPRIETARY CAPITAL (Unaudited)

For the Three Months Ended December 31, 2022 and 2021

(in millions)


	Power Program Appropriation Investment		Power Program Retained Earnings		Nonpower Programs Appropriation Investment, Net		Accumulated Other Comprehensive Income (Loss)		Total
Balance at September 30, 2021	$	258	$	13,689	$	540	$	(22)	$	14,465
Net income (loss)	—		13		(2)		—		11
Total other comprehensive income	—		—		—		4		4
Return on power program appropriation investment	—		(1)		—		—		(1)

Balance at December 31, 2021	$	258	$	13,701	$	538	$	(18)	$	14,479

Balance at September 30, 2022	$	258	$	14,800	$	533	$	(86)	$	15,505
Net income (loss)	—		103		(2)		—		101
Total other comprehensive income	—		—		—		37		37
Return on power program appropriation investment	—		(1)		—		—		(1)
Balance at December 31, 2022	$	258	$	14,902	$	531	$	(49)	$	15,642
The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions except where noted)


Note		Page
1	Summary of Significant Accounting Policies	13
2	Impact of New Accounting Standards and Interpretations	16
3	Accounts Receivable, Net	17
4	Inventories, Net	17
5	Other Current Assets	17
6	Plant Closures	17

7	Other Long-Term Assets	18
8	Regulatory Assets and Liabilities	20
9	Variable Interest Entities	20
10	Other Long-Term Liabilities	22
11	Asset Retirement Obligations	23
12	Debt and Other Obligations	24

13	Risk Management Activities and Derivative Transactions	25
14	Fair Value Measurements	31
15	Revenue	37
16	Other Income, Net	39
17	Supplemental Cash Flow Information	40
18	Benefit Plans	40
19	Collaborative Arrangement	40
20	Contingencies and Legal Proceedings	40
21	Subsequent Events	43

1. Summary of Significant Accounting Policies

General

The Tennessee Valley Authority ("TVA") is a corporate agency and instrumentality of the United States ("U.S.") that was created in 1933 by federal legislation in response to a proposal by President Franklin D. Roosevelt. TVA was created to, among other things, improve navigation on the Tennessee River, reduce the damage from destructive flood waters within the Tennessee River system and downstream on the lower Ohio and Mississippi Rivers, further the economic development of TVA's service area in the southeastern U.S., and sell the electricity generated at the facilities TVA operates. Today, TVA operates the nation's largest public power system and supplies power in most of Tennessee, northern Alabama, northeastern Mississippi, and southwestern Kentucky and in portions of northern Georgia, western North Carolina, and southwestern Virginia to a population of approximately 10 million people.

TVA also manages the Tennessee River, its tributaries, and certain shorelines to provide, among other things, year-round navigation, flood damage reduction, and affordable and reliable electricity. Consistent with these primary purposes, TVA also manages the river system and public lands to provide recreational opportunities, adequate water supply, improved water quality, cultural and natural resource protection, and economic development. TVA performs these management duties in cooperation with other federal and state agencies that have jurisdiction and authority over certain aspects of the river system. In addition, the TVA Board of Directors ("TVA Board") has established two councils — the Regional Resource Stewardship Council and the Regional Energy Resource Council — to advise TVA on its stewardship activities in the Tennessee Valley and its energy resource activities.

The power program has historically been separate and distinct from the stewardship programs. It is required to be self-supporting from power revenues and proceeds from power financings, such as proceeds from the issuance of bonds, notes, or other evidences of indebtedness (collectively, "Bonds"). Although TVA does not currently receive Congressional appropriations, it is required to make annual payments to the United States Department of the Treasury ("U.S. Treasury") as a return on the government's appropriation investment in TVA's power facilities (the "Power Program Appropriation Investment"). In the 1998 Energy and Water Development Appropriations Act, Congress directed TVA to fund essential stewardship activities related to its management of the Tennessee River system and nonpower or stewardship properties with power revenues in the event that there were insufficient appropriations or other available funds to pay for such activities in any fiscal year. Congress has not provided any appropriations to TVA to fund such activities since 1999. Consequently, during 2000, TVA began paying for essential stewardship activities primarily with power revenues, with the remainder funded with user fees and other forms of

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revenues derived in connection with those activities. The activities related to stewardship properties do not meet the criteria of an operating segment under accounting principles generally accepted in the United States of America ("GAAP"). Accordingly, these assets and properties are included as part of the power program, TVA's only operating segment.

Power rates are established by the TVA Board as authorized by the Tennessee Valley Authority Act of 1933, as amended, 16 U.S.C. §§ 831-831ee ("TVA Act"). The TVA Act requires TVA to charge rates for power that will produce gross revenues sufficient to provide funds for operation, maintenance, and administration of its power system; payments to states and counties in lieu of taxes ("tax equivalents"); debt service on outstanding indebtedness; payments to the U.S. Treasury in repayment of and as a return on 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. TVA fulfilled its requirement to repay $1.0 billion of the Power Program Appropriation Investment with the 2014 payment; therefore, this repayment obligation is no longer a component of rate setting. In setting TVA's rates, the TVA Board is charged by the TVA Act to have due regard for the primary objectives of the TVA Act, including the objective that power shall be sold at rates as low as are feasible. Rates set by the TVA Board are not subject to review or approval by any state or other federal regulatory body.

Fiscal Year

TVA's fiscal year ends September 30. Years (2023, 2022, etc.) refer to TVA's fiscal years unless they are preceded by "CY," in which case the references are to calendar years.

Cost-Based Regulation

Since the TVA Board is authorized by the TVA Act to set rates for power sold to its customers, TVA is self-regulated. Additionally, TVA's regulated rates are designed to recover its costs. Based on current projections, TVA believes that rates, set at levels that will recover TVA's costs, can be charged and collected. As a result of these factors, TVA records certain assets and liabilities that result from the regulated ratemaking process that would not be recorded under GAAP for non-regulated entities. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory liabilities generally represent obligations to make refunds to customers for previous collections for costs that are not likely to be incurred or deferral of gains that will be credited to customers in future periods. TVA assesses whether the regulatory assets are probable of future recovery by considering factors such as applicable regulatory changes, potential legislation, and changes in technology. Based on these assessments, TVA believes the existing regulatory assets are probable of recovery. This determination reflects the current regulatory and political environment and is subject to change in the future. If future recovery of regulatory assets ceases to be probable, or TVA is no longer considered to be a regulated entity, then costs would be required to be written off. All regulatory asset write-offs would be required to be recognized in earnings in the period in which future recovery ceases to be probable.

Basis of Presentation

TVA prepares its consolidated interim financial statements in conformity with GAAP for consolidated interim financial information. Accordingly, TVA's consolidated interim financial statements do not include all of the information and notes required by GAAP for annual financial statements. As such, they should be read in conjunction with the audited financial statements for the year ended September 30, 2022, and the notes thereto, which are contained in TVA's Annual Report on Form 10-K for the year ended September 30, 2022 (the "Annual Report"). In the opinion of management, all adjustments (consisting of items of a normal recurring nature) considered necessary for fair presentation are included on the consolidated interim financial statements.

The accompanying consolidated interim financial statements, which have been prepared in accordance with GAAP, include the accounts of TVA and variable interest entities ("VIEs") of which TVA is the primary beneficiary. See Note 9 — Variable Interest Entities. Intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements requires TVA to estimate the effects of various matters that are inherently uncertain as of the date of the consolidated financial statements. Although the consolidated financial statements are prepared in conformity with GAAP, TVA is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses, reported during the reporting period. Each of these estimates varies in regard to the level of judgment involved and its potential impact on TVA's financial results. Estimates are considered critical either when a different estimate could have reasonably been used, or where changes in the estimate are reasonably likely to occur from period to period, and such use or change would materially impact TVA's financial condition, results of operations, or cash flows.

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Cash, Cash Equivalents, and Restricted Cash

Cash includes cash on hand, non-interest bearing cash, and deposit accounts. All highly liquid investments with original maturities of three months or less are considered cash equivalents. Cash and cash equivalents that are restricted, as to withdrawal or use under the terms of certain contractual agreements, are recorded in Other long-term assets on the Consolidated Balance Sheets. Restricted cash and cash equivalents include cash held in trusts that are currently restricted for TVA economic development loans and for certain TVA environmental programs in accordance with agreements related to compliance with certain environmental regulations.

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


Cash, Cash Equivalents, and Restricted Cash (in millions)
	At December 31, 2022		At September 30, 2022
Cash and cash equivalents	$	500	$	500

Restricted cash and cash equivalents included in Other long-term assets	20		20
Total cash, cash equivalents, and restricted cash	$	520	$	520

Allowance for Uncollectible Accounts

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

To determine the allowance for trade receivables, TVA considers historical experience and other currently available information, including events such as customer bankruptcy and/or a customer failing to fulfill payment arrangements by the due date. TVA's corporate credit department also performs an assessment of the financial condition of customers and the credit quality of the receivables. In addition, TVA reviews other reasonable and supportable forecasts to determine if the allowance for uncollectible amounts should be further adjusted in accordance with the accounting guidance for Current Expected Credit Losses.

To determine the allowance for loans receivables, TVA aggregates loans into the appropriate pools based on the existence of similar risk characteristics such as collateral types and internal assessed credit risks. In situations where a loan exhibits unique risk characteristics and is no longer expected to experience similar risks to the rest of its pool, the loan will be evaluated separately. TVA derives an annual loss rate based on historical loss and then adjusts the rate to reflect TVA's consideration of available information on current conditions and reasonable and supportable future forecasts. This information may include economic and business conditions, default trends, and other internal and external factors. For periods beyond the reasonable and supportable forecast period, TVA uses the current calculated long-term average historical loss rate for the remaining life of the loan portfolio.

The allowance for uncollectible accounts was less than $1 million at both December 31, 2022, and September 30, 2022, for trade accounts receivable. Additionally, loans receivable of $109 million and $105 million at December 31, 2022, and September 30, 2022, respectively, are included in Accounts receivable, net and Other long-term assets, for the current and long-term portions, respectively. Loans receivables are reported net of allowances for uncollectible accounts of $3 million at both December 31, 2022 and September 30, 2022.

Inventories

Certain Fuel, Materials, and Supplies. Materials and supplies inventories are valued using an average unit cost method. A new average cost is computed after each inventory purchase transaction, and inventory issuances are priced at the latest moving weighted average unit cost. Coal, fuel oil, and natural gas inventories are valued using an average cost method. A new weighted average cost is computed monthly, and monthly issues are priced accordingly.

Renewable Energy Certificates. TVA accounts for Renewable Energy Certificates ("RECs") using the specific identification cost method. RECs that are acquired through power purchases are recorded as inventory and charged to purchased power expense when the RECs are subsequently used or sold. TVA assigns a value to the RECs at the inception of the power purchase arrangement using a relative standalone selling price approach. RECs created through TVA-owned asset generation are recorded at zero cost.

Emission Allowances. TVA accounts for emission allowances using the specific identification cost method. Allowances that are acquired through third party purchases are recorded as inventory at cost and charged to operating expense based on tons emitted during the respective compliance periods.

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Allowance for Inventory Obsolescence. TVA reviews materials and supplies inventories by category and usage on a periodic basis. Each category is assigned a probability of becoming obsolete based on the type of material and historical usage data. TVA has a fleet-wide inventory management policy for each generation type. Based on the estimated value of the inventory, TVA adjusts its allowance for inventory obsolescence.

Revenues

TVA recognizes revenue from contracts with customers to depict the transfer of goods or services to customers in an amount to which the entity expects to be entitled in exchange for those goods or services. For the generation and transmission of electricity, this is generally at the time the power is delivered to a metered customer delivery point for the customer's consumption or distribution. As a result, revenues from power sales are recorded as electricity is delivered to customers. In addition to power sales invoiced and recorded during the month, TVA accrues estimated unbilled revenues for power sales provided to five customers whose billing date occurs prior to the end of the month. Exchange power sales are presented in the accompanying Consolidated Statements of Operations as a component of sales of electricity. Exchange power sales are sales of excess power after meeting TVA native load and directly served requirements. Native load refers to the customers on whose behalf a company, by statute, franchise, regulatory requirement, or contract, has undertaken an obligation to serve. TVA engages in other arrangements in addition to power sales. Certain other revenue from activities related to TVA's overall mission is recorded in Other revenue. Revenues that are not related to the overall mission are recorded in Other income, net.

Depreciation

TVA accounts for depreciation of its properties using the composite depreciation convention of accounting. Under the composite method, assets with similar economic characteristics are grouped and depreciated as one asset. Depreciation is generally computed on a straight-line basis over the estimated service lives of the various classes of assets. The estimation of asset useful lives requires management judgment, supported by external depreciation studies of historical asset retirement experience. Depreciation rates are determined based on external depreciation studies that are updated approximately every five years, with the latest study implemented during the first quarter of 2022. Depreciation expense was $466 million and $453 million for the three months ended December 31, 2022 and 2021, respectively. See Note 6 — Plant Closures for a discussion of the impact of plant closures.

2. Impact of New Accounting Standards and Interpretations

The following accounting standards have been issued but, at December 31, 2022, were not effective and had not been adopted by TVA:



























Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
Description			This guidance requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with revenue with customers. It is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured contract assets and contract liabilities in the acquiree’s financial statements. The entity should apply the standard prospectively to business combinations occurring on or after the effective date of the standard.
Effective Date for TVA			This new standard is effective for TVA’s interim and annual reporting periods beginning October 1, 2023. While early adoption is permitted, TVA does not currently plan to adopt this standard early.
Effect on the Financial Statements or Other Significant Matters			TVA does not expect the adoption of this standard to have a material impact on its financial condition, results of operations, or cash flows.



























Troubled Debt Restructurings and Vintage Disclosures
Description			This guidance eliminates the recognition and measurement guidance on troubled debt restructuring for creditors that have adopted Financial Instruments-Credit Losses and requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty. Additionally, the guidance requires public business entities to present current-period gross write-offs by year of origination in their vintage disclosures. The entity should apply the standard prospectively except for the transition method related to the recognition and measurement of troubled debt restructuring. For the transition method, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.
Effective Date for TVA			This new standard is effective for TVA’s interim and annual reporting periods beginning October 1, 2023. While early adoption is permitted, TVA does not currently plan to adopt this standard early.
Effect on the Financial Statements or Other Significant Matters			TVA does not expect the adoption of this standard to have a material impact on its financial condition, results of operations, or cash flows.

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3. Accounts Receivable, Net

Accounts receivable primarily consist of amounts due from customers for power sales. The table below summarizes the types and amounts of TVA's accounts receivable:


Accounts Receivable, Net (in millions)
	At December 31, 2022		At September 30, 2022
Power receivables	$	1,633	$	1,899
Other receivables	116		108

Accounts receivable, net(1)	$	1,749	$	2,007

Note

(1) Allowance for uncollectible accounts was less than $1 million at both December 31, 2022, and September 30, 2022, and therefore is not represented in the table above.

4. Inventories, Net

The table below summarizes the types and amounts of TVA's inventories:


Inventories, Net (in millions)
	At December 31, 2022		At September 30, 2022
Materials and supplies inventory	$	824	$	808
Fuel inventory	426		303
Renewable energy certificates/emissions allowance inventory, net	19		18
Allowance for inventory obsolescence	(62)		(57)
Inventories, net	$	1,207	$	1,072

5. Other Current Assets

Other current assets consisted of the following:


Other Current Assets (in millions)
	At December 31, 2022		At September 30, 2022
Commodity contract derivative assets	$	59	$	172
Collateral receivable	50		—
Other	112		85
Other current assets	$	221	$	257

Commodity Contract Derivative Assets. TVA enters into certain derivative contracts for natural gas that require physical delivery of the contracted quantity of the commodity as well as certain financial derivative contracts to hedge exposure to the price of natural gas. Commodity contract derivative assets classified as current include deliveries or settlements that will occur within 12 months or less. See Note 13 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Commodity Derivatives and — Commodity Derivatives under the FHP for a discussion of TVA's commodity contract derivatives.

Collateral Receivable. On December 27, 2022, TVA deposited $50 million of cash collateral with PJM Settlement Inc. (“PJM”) to provide security for TVA’s power purchases from PJM during the winter season.

6. Plant Closures

Background

TVA must continuously evaluate all generating assets to ensure an optimal energy portfolio that provides safe, clean, and reliable power while maintaining flexibility and fiscal responsibility to the people of the Tennessee Valley. Based on results of assessments presented to the TVA Board in 2019, the retirement of Bull Run Fossil Plant ("Bull Run") by December 2023 was approved. In addition, TVA is evaluating the impact of retiring the balance of the coal-fired fleet by 2035, and that evaluation

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includes environmental reviews, public input, and TVA Board approval. Due to these evaluations, certain planning assumptions were updated, and their financial impacts are discussed below.

In January 2023, TVA issued its Record of Decision to retire the two remaining coal-fired units at Cumberland Fossil Plant ("Cumberland") by the end of CY 2026 and CY 2028.

Financial Impact

TVA's policy is to adjust depreciation rates to reflect the most current assumptions, ensuring units will be fully depreciated by the applicable retirement dates. As a result of TVA's decision to accelerate the retirement of Bull Run, TVA has recognized a cumulative $518 million of accelerated depreciation since the second quarter of 2019. Of this amount, $36 million and $35 million were recognized for Bull Run during the three months ended December 31, 2022 and 2021, respectively.

TVA also recognized $4 million and $6 million in Operating and maintenance expense related to additional inventory reserves and write-offs for the coal-fired fleet, including Bull Run, during the three months ended December 31, 2022 and 2021, respectively.

7. Other Long-Term Assets

The table below summarizes the types and amounts of TVA's other long-term assets:


Other Long-Term Assets (in millions)
	At December 31, 2022		At September 30, 2022

Loans and other long-term receivables, net	$	106	$	99
EnergyRight® receivables, net	48		49
Prepaid long-term service agreements	63		74
Commodity contract derivative assets	43		102



Other	93		70
Total other long-term assets	$	353	$	394

Loans and Other Long-Term Receivables. TVA's loans and other long-term receivables primarily consist of economic development loans for qualifying organizations and a receivable for reimbursements to recover the cost of providing long-term, on-site storage for spent nuclear fuel. The current and long-term portions of the loans receivable are reported in Accounts receivable, net and Other long-term assets, respectively, on TVA's Consolidated Balance Sheets. At December 31, 2022 and September 30, 2022, the carrying amount of the loans receivable, net of discount, reported in Accounts receivable, net was approximately $3 million and $6 million, respectively.

EnergyRight® Receivables. In association with the EnergyRight® program, TVA's local power company customers ("LPCs") offer financing to end-use customers for the purchase of energy-efficient equipment. Depending on the nature of the energy-efficiency project, loans may have a maximum term of five years or 10 years. TVA purchases the resulting loans receivable from its LPCs. The loans receivable are then transferred to a third-party bank with which TVA has agreed to repay in full any loans receivable that have been in default for 180 days or more or that TVA has determined are uncollectible. Given this continuing involvement, TVA accounts for the transfer of the loans receivable as secured borrowings. The current and long-term portions of the loans receivable are reported in Accounts receivable, net and Other long-term assets, respectively, on TVA's Consolidated Balance Sheets. At both December 31, 2022, and September 30, 2022, the carrying amount of the loans receivable, net of discount, reported in Accounts receivable, net was approximately $13 million. See Note 10 — Other Long-Term Liabilities for information regarding the associated financing obligation.

Allowance for Loan Losses. The allowance for loan loss is an estimate of expected credit losses, measured over the estimated life of the loan receivables, that considers reasonable and supportable forecasts of future economic conditions in addition to information about historical experience and current conditions. See Note 1 — Summary of Significant Accounting Policies — Allowance for Uncollectible Accounts.

The allowance components, which consist of a collective allowance and specific loans allowance, are based on the risk characteristics of TVA's loans. Loans that share similar risk characteristics are evaluated on a collective basis in measuring credit losses, while loans that do not share similar risk characteristics with other loans are evaluated on an individual basis.

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Allowance Components (in millions)
	At December 31, 2022		At September 30, 2022
EnergyRight® loan reserve	$	1	$	1
Economic development loan collective reserve	1		1
Economic development loan specific loan reserve	1		1

Total allowance for loan losses	$	3	$	3

Prepaid Long-Term Service Agreements. TVA has entered into various long-term service agreements for major maintenance activities at certain of its combined cycle plants. TVA uses the direct expense method of accounting for these arrangements. TVA accrues for parts when it takes ownership and for contractor services when they are rendered. Under certain of these agreements, payments made exceed the value of parts received and services rendered. The current and long-term portions of the resulting prepayments are reported in Other current assets and Other long-term assets, respectively, on TVA's Consolidated Balance Sheets. At December 31, 2022, and September 30, 2022, prepayments of $17 million and $12 million, respectively, were recorded in Other current assets.

Commodity Contract Derivative Assets. TVA enters into certain derivative contracts for natural gas that require physical delivery of the contracted quantity of the commodity as well as certain financial derivative contracts to hedge exposure to the price of natural gas. See Note 13 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Commodity Derivatives and — Commodity Derivatives under the FHP for a discussion of TVA's commodity contract derivatives.

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8. Regulatory Assets and Liabilities

TVA records certain assets and liabilities that result from the regulated ratemaking process that would not be recorded under GAAP for non-regulated entities. As such, certain items that would generally be reported in earnings or that would impact the Consolidated Statements of Operations are recorded as regulatory assets or regulatory liabilities. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory liabilities generally represent obligations to make refunds to customers for previous collections for costs that are not likely to be incurred or deferral of gains that will be credited to customers in future periods. Components of regulatory assets and regulatory liabilities are summarized in the table below.


Regulatory Assets and Liabilities (in millions)
	At December 31, 2022		At September 30, 2022
Current regulatory assets

Unrealized losses on interest rate derivatives	$	41	$	47

Unrealized losses on commodity derivatives	137		14


Fuel cost adjustment receivable	142		77

Total current regulatory assets	320		138

Non-current regulatory assets
Retirement benefit plans deferred costs	1,809		1,839
Non-nuclear decommissioning costs	2,769		2,856

Unrealized losses on interest rate derivatives	474		479
Nuclear decommissioning costs	705		821

Unrealized losses on commodity derivatives	15		1


Other non-current regulatory assets	137		138
Total non-current regulatory assets	5,909		6,134
Total regulatory assets	$	6,229	$	6,272

Current regulatory liabilities
Fuel cost adjustment tax equivalents	$	218	$	218

Unrealized gains on commodity derivatives	59		173
Total current regulatory liabilities	277		391

Non-current regulatory liabilities
Retirement benefit plans deferred credits	66		70
Unrealized gains on commodity derivatives	43		102
Total non-current regulatory liabilities	109		172

Total regulatory liabilities	$	386	$	563

9. Variable Interest Entities

A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of owning a controlling financial interest. When TVA determines that it has a variable interest in a VIE, a qualitative evaluation is performed to assess which interest holders have the power to direct the activities that most significantly impact the economic performance of the entity and have the obligation to absorb losses or receive benefits that could be significant to the entity. The evaluation considers the purpose and design of the business, the risks that the business was designed to create and pass along to other entities, the activities of the business that can be directed and which party can direct them, and the expected relative impact of those activities on the economic performance of the business through its life. TVA has the power to direct the activities of an entity when it has the ability to make key operating and financing decisions, including, but not limited to, capital investment and the issuance of debt. Based on the evaluation of these criteria, TVA has determined it is the primary beneficiary of certain entities and as such is required to account for the VIEs on a consolidated basis.

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John Sevier VIEs

In 2012, TVA entered into a $1.0 billion construction management agreement and lease financing arrangement with John Sevier Combined Cycle Generation LLC ("JSCCG") for the completion and lease by TVA of the John Sevier Combined Cycle Facility ("John Sevier CCF"). JSCCG is a special single-purpose limited liability company formed in January 2012 to finance the John Sevier CCF through a $900 million secured note issuance (the "JSCCG notes") and the issuance of $100 million of membership interests subject to mandatory redemption. The membership interests were purchased by John Sevier Holdco LLC ("Holdco"). Holdco is a special single-purpose entity, also formed in January 2012, established to acquire and hold the membership interests in JSCCG. A non-controlling interest in Holdco is held by a third party through nominal membership interests, to which none of the income, expenses, and cash flows are allocated.

The membership interests held by Holdco in JSCCG were purchased with proceeds from the issuance of $100 million of secured notes (the "Holdco notes") and are subject to mandatory redemption pursuant to a schedule of amortizing, semi-annual payments due each January 15 and July 15, with a final payment due in January 2042. The payment dates for the mandatorily redeemable membership interests are the same as those of the Holdco notes. The sale of the JSCCG notes, the membership interests in JSCCG, and the Holdco notes closed in January 2012. The JSCCG notes are secured by TVA's lease payments, and the Holdco notes are secured by Holdco's investment in, and amounts receivable from, JSCCG. TVA's lease payments to JSCCG are equal to and payable on the same dates as JSCCG's and Holdco's semi-annual debt service payments. In addition to the lease payments, TVA pays administrative and miscellaneous expenses incurred by JSCCG and Holdco. Certain agreements related to this transaction contain default and acceleration provisions.

Due to its participation in the design, business activity, and credit and financial support of JSCCG and Holdco, TVA has determined that it has a variable interest in each of these entities. Based on its analysis, TVA has concluded that it is the primary beneficiary of JSCCG and Holdco and, as such, is required to account for the VIEs on a consolidated basis. Holdco's membership interests in JSCCG are eliminated in consolidation.

Southaven VIE

In 2013, TVA entered into a $400 million lease financing arrangement with Southaven Combined Cycle Generation LLC ("SCCG") for the lease by TVA of the Southaven Combined Cycle Facility ("Southaven CCF"). SCCG is a special single-purpose limited liability company formed in June 2013 to finance the Southaven CCF through a $360 million secured notes issuance (the "SCCG notes") and the issuance of $40 million of membership interests subject to mandatory redemption. The membership interests were purchased by Southaven Holdco LLC ("SHLLC"). SHLLC is a special single-purpose entity, also formed in June 2013, established to acquire and hold the membership interests in SCCG. A non-controlling interest in SHLLC is held by a third party through nominal membership interests, to which none of the income, expenses, and cash flows of SHLLC are allocated.

The membership interests held by SHLLC were purchased with proceeds from the issuance of $40 million of secured notes (the "SHLLC notes") and are subject to mandatory redemption pursuant to a schedule of amortizing, semi-annual payments due each February 15 and August 15, with a final payment due on August 15, 2033. The payment dates for the mandatorily redeemable membership interests are the same as those of the SHLLC notes, and the payment amounts are sufficient to provide returns on, as well as returns of, capital until the investment has been repaid to SHLLC in full. The rate of return on investment to SHLLC is 7.0 percent, which is reflected as interest expense in the Consolidated Statements of Operations. SHLLC is required to pay a pre-determined portion of the return on investment to Seven States Southaven, LLC on each lease payment date as agreed in SHLLC's formation documents (the "Seven States Return"). The current and long-term portions of the Membership interests of VIE subject to mandatory redemption are included in Accounts payable and accrued liabilities and Other long-term liabilities, respectively.

The payment dates for the mandatorily redeemable membership interests are the same as those of the SHLLC notes. The SCCG notes are secured by TVA's lease payments, and the SHLLC notes are secured by SHLLC's investment in, and amounts receivable from, SCCG. TVA's lease payments to SCCG are payable on the same dates as SCCG's and SHLLC's semi-annual debt service payments and are equal to the sum of (i) the amount of SCCG's semi-annual debt service payments, (ii) the amount of SHLLC's semi-annual debt service payments, and (iii) the amount of the Seven States Return. In addition to the lease payments, TVA pays administrative and miscellaneous expenses incurred by SCCG and SHLLC. Certain agreements related to this transaction contain default and acceleration provisions.

In the event that TVA were to choose to exercise an early buy out feature of the Southaven facility lease, in part or in whole, TVA must pay to SCCG amounts sufficient for SCCG to repay or partially repay on a pro rata basis the membership interests held by SHLLC, including any outstanding investment amount plus accrued but unpaid return. TVA also has the right, at any time and without any early redemption of the other portions of the Southaven facility lease payments due to SCCG, to fully repay SHLLC's investment, upon which repayment SHLLC will transfer the membership interests to a designee of TVA.

TVA participated in the design, business activity, and financial support of SCCG and has determined that it has a direct variable interest in SCCG resulting from risk associated with the value of the Southaven CCF at the end of the lease term. Based on its analysis, TVA has determined that it is the primary beneficiary of SCCG and, as such, is required to account for the VIE on a consolidated basis.

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Impact on Consolidated Financial Statements

The financial statement items attributable to carrying amounts and classifications of JSCCG, Holdco, and SCCG at December 31, 2022, and September 30, 2022, as reflected on the Consolidated Balance Sheets, are as follows:


Summary of Impact of VIEs on Consolidated Balance Sheets (in millions)
	At December 31, 2022		At September 30, 2022




Current liabilities
Accrued interest	$	22	$	10
Accounts payable and accrued liabilities	2		2
Current maturities of long-term debt of variable interest entities	39		39
Total current liabilities	63		51
Other liabilities
Other long-term liabilities	18		18
Long-term debt, net
Long-term debt of variable interest entities, net	968		968
Total liabilities	$	1,049	$	1,037

Interest expense of $12 million and $13 million related to debt of VIEs and membership interests of VIEs subject to mandatory redemption is included on the Consolidated Statements of Operations for the three months ended December 31, 2022 and 2021, respectively.

Creditors of the VIEs do not have any recourse to the general credit of TVA. TVA does not have any obligations to provide financial support to the VIEs other than as prescribed in the terms of the agreements related to these transactions.

10. Other Long-Term Liabilities

Other long-term liabilities consist primarily of liabilities related to certain derivative agreements as well as liabilities related to operating leases. The table below summarizes the types and amounts of Other long-term liabilities:


Other Long-Term Liabilities (in millions)
	At December 31, 2022		At September 30, 2022
Interest rate swap liabilities	$	816	$	851
Operating lease liabilities	85		93
Currency swap liabilities	159		228
EnergyRight® financing obligation	57		58
Long-term deferred compensation	28		39
Advances for construction	42		53
Long-term deferred revenue	40		39

Other	147		124
Total other long-term liabilities	$	1,374	$	1,485

Interest Rate Swap Liabilities. TVA uses interest rate swaps to fix variable short-term debt to a fixed rate. The values of these derivatives are included in Accounts payable and accrued liabilities, Accrued interest, and Other long-term liabilities on the Consolidated Balance Sheets. At December 31, 2022, and September 30, 2022, the carrying amount of the interest rate swap liabilities reported in Accounts payable and accrued liabilities and Accrued interest was $41 million and $54 million, respectively. See Note 13 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Interest Rate Derivatives for information regarding the interest rate swap liabilities.

Operating Lease Liabilities. TVA's operating leases consist primarily of railcars, equipment, real estate/land, and power generating facilities. At December 31, 2022 and September 30, 2022, the current portion of TVA's operating leases reported in Accounts payable and accrued liabilities was $60 million and $59 million, respectively.

Currency Swap Liabilities. To protect against exchange rate risk related to British pound sterling denominated Bond transactions, TVA entered into foreign currency hedges. The values of these derivatives are included in Accounts payable and

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accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets. At December 31, 2022 and September 30, 2022, the carrying amount of the currency swap liabilities recorded in Accounts payable and accrued liabilities was $10 million and $12 million, respectively. See Note 13 — Risk Management Activities and Derivative Transactions — Cash Flow Hedging Strategy for Currency Swaps for more information regarding the currency swap liabilities.

EnergyRight® Financing Obligation. TVA purchases certain loans receivable from its LPCs in association with the EnergyRight® program. The current and long-term portions of the resulting financing obligation are reported in Accounts payable and accrued liabilities and Other long-term liabilities, respectively, on TVA's Consolidated Balance Sheets. At December 31, 2022, and September 30, 2022, the carrying amount of the financing obligation reported in Accounts payable and accrued liabilities was $15 million and $14 million, respectively. See Note 7 — Other Long-Term Assets for information regarding the associated loans receivable.

Long-Term Deferred Compensation. TVA provides compensation arrangements to engage and retain certain employees, both executive and non-executive, which are designed to provide participants with the ability to defer compensation to future periods. The current and long-term portions are recorded in Accounts payable and accrued liabilities and Other long-term liabilities, respectively, on TVA’s Consolidated Balance Sheets. At December 31, 2022 and September 30, 2022, the current amount of deferred compensation recorded in Accounts payable and accrued liabilities was $29 million and $53 million, respectively.

Advances for Construction. TVA receives refundable and non-refundable advances for construction that are generally intended to defray all or a portion of the costs of building or extending TVA’s existing power assets. Amounts received are deferred as a liability with the long-term portion representing amounts that will not be recognized within the next 12 months. As projects meet milestones or other contractual obligations, the refundable portion is refunded to the customer and the non-refundable portion is recognized as contributions in aid of construction and offsets the cost of plant assets. At December 31, 2022 and September 30, 2022, the current amount of advances for construction recorded in Accounts payable and accrued liabilities was $52 million and $33 million, respectively.

Long-Term Deferred Revenue. Long-term deferred revenue represents payments received that exceed services rendered resulting in the deferral of revenue. The long-term portion represents amounts that will not be recognized within the next 12 months primarily related to fiber and transmission agreements. The current and long-term portions of the deferral are reported in Accounts payable and accrued liabilities and Other long-term liabilities, respectively, on TVA’s Consolidated Balance Sheets. At December 31, 2022 and September 30, 2022, the current amount of deferred revenue recorded in Accounts payable and accrued liabilities was $19 million and $16 million, respectively.

11. Asset Retirement Obligations

During the three months ended December 31, 2022, TVA's total asset retirement obligations ("ARO") liability decreased $7 million as a result of settlements related to retirement projects that were conducted during the period, partially offset by periodic accretion. The nuclear and non-nuclear accretion amounts were deferred as regulatory assets. During the three months ended December 31, 2022, $47 million of the related regulatory assets were amortized into expense as these amounts were collected in rates. See Note 8 — Regulatory Assets and Liabilities. TVA maintains investment trusts to help fund its decommissioning obligations. See Note 14 — Fair Value Measurements — Investment Funds and Note 20 — Contingencies and Legal Proceedings — Contingencies — Decommissioning Costs for a discussion of the trusts' objectives and the current balances of the trusts.


Asset Retirement Obligation Activity
	Nuclear		Non-Nuclear		Total
Balance at September 30, 2022	$	3,643	$	3,519	$	7,162	(1)
Settlements	—		(68)		(68)		(2)
Revisions in estimate	3		(1)		2


Accretion (recorded as regulatory asset)	41		18		59

Balance at December 31, 2022	$	3,687	$	3,468	$	7,155	(1)

Notes

(1) Includes $287 million and $275 million at December 31, 2022, and September 30, 2022, respectively, in Current liabilities.

(2) Settlements include the change in asset retirement obligation project accruals included in Accounts payable and accrued liabilities of ($57) million.

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12. Debt and Other Obligations

Debt Outstanding

Total debt outstanding at December 31, 2022, and September 30, 2022, consisted of the following:


Debt Outstanding (in millions)
	At December 31, 2022		At September 30, 2022
Short-term debt
Short-term debt, net of discounts	$	1,618	$	1,172
Current maturities of power bonds issued at par	29		29
Current maturities of long-term debt of VIEs issued at par	39		39

Total current debt outstanding, net	1,686		1,240
Long-term debt
Long-term power bonds(1)	17,987		17,950
Long-term debt of VIEs, net	968		968

Unamortized discounts, premiums, issue costs, and other	(122)		(124)
Total long-term debt, net	18,833		18,794
Total debt outstanding	$	20,519	$	20,034

Note

(1) Includes net exchange gain from currency transactions of $114 million and $150 million at December 31, 2022, and September 30, 2022, respectively.

Debt Securities Activity

The table below summarizes the long-term debt securities activity for the period from October 1, 2022, to December 31, 2022:

Debt Securities Activity

Date

Amount

(in millions)

Redemptions/Maturities(1)

2009 Series B

December 2022

Total redemptions/maturities of debt

Note

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

Credit Facility Agreements

TVA has funding available under four long-term revolving credit facilities totaling approximately $2.7 billion: a $150 million credit facility that matures on February 9, 2024, a $500 million credit facility that matures on February 1, 2025, a $1.0 billion credit facility that matures on September 21, 2026, and a $1.0 billion credit facility that matures on March 25, 2027. The interest rate on any borrowing under these facilities varies based on market factors and the rating of TVA's senior unsecured, long-term, non-credit-enhanced debt. TVA is required to pay an unused facility fee on the portion of the total $2.7 billion that TVA has not borrowed or committed under letters of credit. This fee, along with letter of credit fees, may fluctuate depending on the rating of TVA's senior unsecured, long-term, non-credit-enhanced debt. At December 31, 2022, and September 30, 2022, there were approximately $586 million and $704 million, respectively, of letters of credit outstanding under these facilities, and there were no borrowings outstanding. See Note 13 — Risk Management Activities and Derivative Transactions — Other Derivative Instruments — Collateral.

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The following table provides additional information regarding TVA's funding available under the four long-term revolving credit facilities:


Summary of Long-Term Credit Facilities At December 31, 2022 (in millions)
Maturity Date	Facility Limit		Letters of Credit Outstanding		Cash Borrowings		Availability

February 2024	$	150	$	38	$	—	$	112
February 2025	500		302		—		198
September 2026	1,000		100		—		900
March 2027	1,000		146		—		854
Total	$	2,650	$	586	$	—	$	2,064

TVA and the U.S. Treasury, pursuant to the TVA Act, have entered into a memorandum of understanding under which the U.S. Treasury provides TVA with a $150 million credit facility. This credit facility was renewed for 2023 with a maturity date of September 30, 2023. Access to this credit facility or other similar financing arrangements with the U.S. Treasury has been available to TVA since the 1960s. TVA can borrow under the U.S. Treasury credit facility only if it cannot issue Bonds in the market on reasonable terms, and TVA considers the U.S. Treasury credit facility a secondary source of liquidity. The interest rate on any borrowing under this facility is based on the average rate on outstanding marketable obligations of the U.S. with maturities from date of issue of 12 months or less. There were no outstanding borrowings under the facility at December 31, 2022. The availability of this credit facility may be impacted by how the U.S. government addresses the possibility of approaching its debt limit.

Lease/Leasebacks

TVA previously entered into leasing transactions to obtain third-party financing for 24 peaking combustion turbine units ("CTs") as well as certain qualified technological equipment and software ("QTE"). Due to TVA's continuing involvement with the combustion turbine facilities and the QTE during the leaseback term, TVA accounted for the lease proceeds as financing obligations. There were no outstanding leaseback obligations related to the remaining CTs and QTE at December 31, 2022 and September 30, 2022. Prior to 2021, TVA made final rent payments involving 16 CTs and acquired the equity interest related to these transactions. Rent payments under the remaining CT lease/leaseback transactions were made through January 2022. In December 2021, TVA gave notice of its election to acquire the leasehold interests related to the remaining eight CTs for a total of $155 million. One associated acquisition closed in December 2022 for $78 million. As a result, TVA recorded the cash consideration as reacquired rights, which is an intangible asset included in Completed plant on the Consolidated Balance Sheet. The amount will be amortized over the remaining estimated useful life of the underlying CTs. TVA recognized less than $1 million of amortization expense related to the reacquired rights within the Consolidated Statement of Operations for the three months ended December 31, 2022. Transaction costs were not material. The estimated amortization expense for the remainder of 2023 is $2 million and will be $3 million annually through December 2052. The other acquisition is expected to close in May 2023.

13. Risk Management Activities and Derivative Transactions

TVA is exposed to various risks related to commodity prices, investment prices, interest rates, currency exchange rates, and inflation as well as counterparty credit and performance risks. To help manage certain of these risks, TVA has historically entered into various derivative transactions, principally 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.

Overview of Accounting Treatment

TVA recognizes certain of its derivative instruments as either assets or liabilities on its Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of these instruments depends on (1) whether TVA uses regulatory accounting to defer the derivative gains and losses, (2) whether the derivative instrument has been designated and qualifies for hedge accounting treatment, and (3) if so, the type of hedge relationship (for example, cash flow hedge).

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The following tables summarize the accounting treatment that certain of TVA's financial derivative transactions receive:


Summary of Derivative Instruments That Receive Hedge Accounting Treatment (part 1) Amount of Mark-to-Market Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) (in millions)
			Three Months Ended December 31
Derivatives in Cash Flow Hedging Relationship	Objective of Hedge Transaction	Accounting for Derivative Hedging Instrument		2022		2021
Currency swaps	To protect against changes in cash flows caused by changes in foreign currency exchange rates (exchange rate risk)	Unrealized gains and losses are recorded in AOCI and reclassified to Interest expense to the extent they are offset by gains and losses on the hedged transaction		$	71	$	5

Summary of Derivative Instruments That Receive Hedge Accounting Treatment (part 2)(1)
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest Expense
(in millions)

Three Months Ended December 31

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