Company Quick10K Filing
Tennessee Valley Authority
10-Q 2020-03-31 Filed 2020-05-05
10-K 2019-09-30 Filed 2019-11-15
10-Q 2019-06-30 Filed 2019-08-02
10-Q 2019-03-31 Filed 2019-05-02
10-Q 2018-12-31 Filed 2019-01-31
10-K 2018-09-30 Filed 2018-11-15
10-Q 2018-06-30 Filed 2018-08-03
10-Q 2018-03-31 Filed 2018-05-04
10-Q 2017-12-31 Filed 2018-02-02
10-K 2017-09-30 Filed 2017-11-15
10-Q 2017-06-30 Filed 2017-08-01
10-Q 2017-03-31 Filed 2017-05-02
10-Q 2016-12-31 Filed 2017-01-31
10-K 2016-09-30 Filed 2016-11-15
10-Q 2016-06-30 Filed 2016-08-02
10-Q 2016-03-31 Filed 2016-05-03
10-Q 2015-12-31 Filed 2016-02-03
10-K 2015-09-30 Filed 2015-11-20
10-Q 2015-06-30 Filed 2015-08-04
10-Q 2015-03-31 Filed 2015-05-01
10-Q 2014-12-31 Filed 2015-02-04
10-K 2014-09-30 Filed 2014-11-17
10-Q 2014-06-30 Filed 2014-08-05
10-Q 2014-03-31 Filed 2014-05-06
10-Q 2013-12-31 Filed 2014-02-04
10-K 2013-09-30 Filed 2013-11-18
10-Q 2013-06-30 Filed 2013-08-05
10-Q 2013-03-31 Filed 2013-05-03
10-Q 2012-12-31 Filed 2013-02-05
10-K 2012-09-30 Filed 2012-11-16
10-Q 2012-06-30 Filed 2012-08-03
10-Q 2012-03-31 Filed 2012-05-04
10-Q 2011-12-31 Filed 2012-02-03
10-K 2011-09-30 Filed 2011-11-18
10-Q 2011-06-30 Filed 2011-08-11
10-Q 2011-03-31 Filed 2011-05-03
10-Q 2010-12-31 Filed 2011-02-02
10-K 2010-09-30 Filed 2010-11-19
10-Q 2010-06-30 Filed 2010-08-02
10-Q 2010-03-31 Filed 2010-04-30
10-Q 2009-12-31 Filed 2010-02-03
8-K 2020-05-06
8-K 2020-05-06
8-K 2019-12-09
8-K 2019-08-28
8-K 2019-08-28
8-K 2019-08-06
8-K 2019-05-14
8-K 2019-02-28
8-K 2019-02-14
8-K 2019-01-03
8-K 2018-12-11
8-K 2018-12-03
8-K 2018-11-14
8-K 2018-10-01
8-K 2018-09-28
8-K 2018-09-13
8-K 2018-08-22
8-K 2018-06-13
8-K 2018-03-05
8-K 2018-03-05
8-K 2018-02-21
8-K 2018-02-12
8-K 2018-01-03

TVE 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 5. Other Information
Item 6. Exhibits
EX-5 exhibit101-xcreditfacility.htm
EX-10.2 exhibit102amendeddeferredc.htm
EX-31.1 tve-33120xex3112ndquarter2.htm
EX-31.2 tve-33120xex3122ndquarter2.htm
EX-32.1 tve-33120xex3212ndquarter2.htm
EX-32.2 tve-33120xex3222ndquarter2.htm

Tennessee Valley Authority Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
554433221102012201420172020
Assets, Equity
3.32.61.91.10.4-0.32012201420172020
Rev, G Profit, Net Income
1.51.00.4-0.1-0.7-1.22012201420172020
Ops, Inv, Fin

10-Q 1 tve-10q2ndquarter2020x0331.htm 10-Q Document

 

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 March 31, 2020
OR
 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____

Commission file number 000-52313
tva-logob94.jpg
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
 

1


Table of Contents
 
 
 
Page
GLOSSARY OF COMMON ACRONYMS......................................................................................................................................
FORWARD-LOOKING INFORMATION.........................................................................................................................................
GENERAL INFORMATION............................................................................................................................................................
 
 
 
 
ITEM 1. FINANCIAL STATEMENTS.............................................................................................................................................
Consolidated Statements of Operations (Unaudited)............................................................................................................
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)............................................................................
Consolidated Balance Sheets (Unaudited)...........................................................................................................................
Consolidated Statements of Cash Flows (Unaudited)..........................................................................................................
Consolidated Statements of Changes in Proprietary Capital (Unaudited)............................................................................
Notes to Consolidated Financial Statements (Unaudited)....................................................................................................
 
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...
Executive Overview...............................................................................................................................................................
Results of Operations............................................................................................................................................................
Liquidity and Capital Resources............................................................................................................................................
Key Initiatives and Challenges..............................................................................................................................................
Environmental Matters..........................................................................................................................................................
Legal Proceedings................................................................................................................................................................
Off-Balance Sheet Arrangements..........................................................................................................................................
Critical Accounting Policies and Estimates...........................................................................................................................
New Accounting Standards and Interpretations....................................................................................................................
Legislative and Regulatory Matters.......................................................................................................................................
 
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................................................
 
 
ITEM 4. CONTROLS AND PROCEDURES..................................................................................................................................
Disclosure Controls and Procedures.....................................................................................................................................
Changes in Internal Control over Financial Reporting..........................................................................................................
 
 
             PART II - OTHER INFORMATION 
 
 
ITEM 1. LEGAL PROCEEDINGS..................................................................................................................................................
 
 
ITEM 1A. RISK FACTORS............................................................................................................................................................
 
 
ITEM 5. OTHER INFORMATION..................................................................................................................................................
 
 
ITEM 6. EXHIBITS........................................................................................................................................................................
 
 
SIGNATURES...............................................................................................................................................................................

2


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 March 31, 2020 (the "Quarterly Report"):
 
Term or Acronym
 
Definition
AOCI
 
Accumulated other comprehensive income (loss)
ARO
 
Asset retirement obligation
ART
 
Asset Retirement Trust
ASLB
 
Atomic Safety and Licensing Board
Bonds
 
Bonds, notes, or other evidences of indebtedness
CAA
 
Clean Air Act
CCR
 
Coal combustion residuals
CEL
 
Chilling Effect Letter
CME
 
Chicago Mercantile Exchange
CO2
 
Carbon dioxide
COLA
 
Cost-of-living adjustment
COVID-19
 
Coronavirus Disease 2019
CSAPR
 
Cross-State Air Pollution Rule
CTs
 
Combustion turbine unit(s)
CVA
 
Credit valuation adjustment
CY
 
Calendar year
DCP
 
Deferred Compensation Plan
DER
 
Distributed energy resources
DOE
 
Department of Energy
EIS
 
Environmental Impact Statement
ELGs
 
Effluent Limitation Guidelines
EO
 
Executive Order
EPA
 
Environmental Protection Agency
EPRI
 
Electric Power Research Institute
EPU
 
Extended Power Uprate
ESPA
 
Early Site Permit Application
FASB
 
Financial Accounting Standards Board
FCM
 
Futures Commission Merchant
FERC
 
Federal Energy Regulatory Commission
FTP
 
Financial Trading Program
GAAP
 
Accounting principles generally accepted in the United States of America
GHG
 
Greenhouse gas
GMDs
 
Geomagnetic disturbances
GWh
 
Gigawatt hour(s)
HAP
 
Hazardous Air Pollutants
IRP
 
Integrated Resource Plan
JSCCG
 
John Sevier Combined Cycle Generation LLC
KOC
 
Knoxville Office Complex
kW
 
Kilowatts
kWh
 
Kilowatt hours
LPC
 
Local power company customers
MATS
 
Mercury and Air Toxics Standards
MD&A
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
mmBtu
 
Million British thermal unit(s)
MtM
 
Mark-to-market

3


MW
 
Megawatts
NAAQS
 
National Ambient Air Quality Standards
NAV
 
Net asset value
NDT
 
Nuclear Decommissioning Trust
NEIL
 
Nuclear Electric Insurance Limited
NEPA
 
National Environmental Policy Act
NERC
 
North American Electric Reliability Corporation
NOx
 
Nitrogen oxide
NPDES
 
National Pollutant Discharge Elimination System
NRC
 
Nuclear Regulatory Commission
NSR
 
New Source Review
NWP
 
Nationwide Permit
OCI
 
Other comprehensive income (loss)
OCIP
 
Owner Controlled Insurance Program
PARRS
 
Putable Automatic Rate Reset Securities
PM
 
Particulate matter
QER
 
Quadrennial Energy Review
QTE
 
Qualified technological equipment and software
RECs
 
Renewable Energy Certificates
REIT
 
Real Estate Investment Trust
SCCG
 
Southaven Combined Cycle Generation LLC
SCRs
 
Selective catalytic reduction systems
SEC
 
Securities and Exchange Commission
SERP
 
Supplemental Executive Retirement Plan
SHLLC
 
Southaven Holdco LLC
SIPs
 
State implementation plans
SMR
 
Small modular reactor(s)
SO2
 
Sulfur dioxide
SPC
 
Summer Place Complex
TCWN
 
Tennessee Clean Water Network
TDEC
 
Tennessee Department of Environment and Conservation
TVA Act
 
The Tennessee Valley Authority Act of 1933, as amended, 16 U.S.C. §§ 831-831ee
TVARS
 
Tennessee Valley Authority Retirement System
U.S. Treasury
 
United States Department of the Treasury
VIE
 
Variable interest entity
XBRL
 
eXtensible Business Reporting Language


4


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," 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:

The impact of the pandemic resulting from the outbreak of the Coronavirus Disease 2019 (“COVID-19”) on TVA's revenues, the demand for electricity, TVA’s workforce and operations, the availability of fuel and critical parts, supplies, and services, and the business and financial condition of TVA’s customers and counterparties;
The duration and severity of the COVID-19 pandemic, actions taken to contain its spread and mitigate its effects, and broader impacts of the COVID-19 pandemic on economic and market conditions, including impacts on interest rates, commodity prices, investment performance, and foreign currency exchange rates;
New, amended, or existing laws, regulations, or administrative orders or interpretations, including those related to environmental matters, and the costs of complying with these laws, regulations, or administrative orders or interpretations;
The cost of complying with known, anticipated, or new emissions reduction 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;
Significant reductions in demand for electricity produced through non-renewable or centrally located generation sources that may result from, among other things, economic downturns, increased energy efficiency and conservation, increased utilization of distributed generation and microgrids, and improvements in alternative generation and energy storage technologies;
Changes in customer preferences for energy produced from cleaner generation sources;
Changes in technology;
Actions taken, or inaction, by the U.S. government relating to the national or TVA debt ceiling or automatic spending cuts in government programs;
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;
Addition or loss of customers by TVA or the local power company customers ("LPCs");
Significant delays, cost increases, or cost overruns associated with the construction and maintenance of generation, transmission, navigation, flood control, or related assets;
Requirements or decisions changing the amount or timing of funding obligations 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 or retiring other assets;
Risks associated with the operation of nuclear facilities or other generation and related facilities, including coal combustion residuals ("CCR") facilities;
Physical attacks on TVA's assets;
Cyber attacks on TVA's assets or the assets of third parties upon which TVA relies;
The outcome of legal or administrative proceedings;
The failure of TVA's generation, transmission, navigation, flood control, and related assets and infrastructure, including CCR facilities, to operate as anticipated, resulting in lost revenues, damages, or other costs that are not reflected in TVA's financial statements or projections;
Differences between estimates of revenues and expenses and actual revenues earned and expenses incurred;
Weather conditions;
Catastrophic events such as fires, earthquakes, explosions, solar events, electromagnetic pulses ("EMP"), geomagnetic disturbances ("GMDs"), droughts, floods, hurricanes, tornadoes, or other casualty events or pandemics, wars, national emergencies, terrorist activities, or other similar events, especially if these events occur in or near TVA's service area;
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, and damage to the property of others;
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 fuel supplies, which may result from, among other things, economic conditions, weather conditions, production or transportation difficulties, labor challenges, or environmental laws or regulations affecting TVA's fuel suppliers or transporters;
Purchased power price volatility and disruption of purchased power supplies;
Events which affect the supply of water for TVA's generation facilities;
Changes in TVA's determinations of the appropriate mix of generation assets;

5


Ineffectiveness of TVA's efforts at adapting its organization to an evolving marketplace and remaining cost competitive;
Inability to use regulatory accounting or loss of regulatory accounting approval for certain costs;
Inability to obtain, or loss of, regulatory approval for the construction or operation of assets;
The requirement or decision to make additional contributions to TVA's Nuclear Decommissioning Trust ("NDT") or Asset Retirement Trust ("ART");
Limitations on TVA's ability to borrow money which may result from, among other things, TVA's approaching or substantially reaching the limit on bonds, notes, and other evidences of indebtedness specified in the Tennessee Valley Authority Act of 1933 ("TVA Act");
An increase in TVA's cost of capital that may result from, among other things, changes in the market for TVA's debt securities, 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;
Changes in the economy and volatility in financial markets;
Reliability or creditworthiness of counterparties;
Changes in the market price of commodities such as coal, uranium, natural gas, fuel oil, crude oil, construction materials, reagents, electricity, 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;
Ineffectiveness of TVA's disclosure controls and procedures or its internal control over financial reporting;
Inability to eliminate identified deficiencies in TVA's systems, standards, controls, or corporate culture;
Inability to attract or retain a skilled workforce;
Inability to respond quickly enough to current or potential customer demands or needs;
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;
Loss of quorum of the TVA Board of Directors ("TVA Board");
Changes in the priorities of the TVA Board or TVA senior management; or
Other unforeseeable events.

See also Item 1A, Risk Factors, and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in TVA's Annual Report on Form 10-K/A for the year ended September 30, 2019 (the "Annual Report"), and Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 1A, Risk Factors 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.

GENERAL INFORMATION

Fiscal Year

References to years (2020, 2019, 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's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, are available on TVA's website, free of charge, as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission ("SEC").  TVA's website is www.tva.gov.  Information contained on TVA's website shall not be deemed to be incorporated into, or to be a part of, this Quarterly Report.  All TVA SEC reports are available to the public without charge from the website maintained by the SEC at www.sec.gov.  


6


PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

TENNESSEE VALLEY AUTHORITY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions)
 
Three Months Ended March 31
 
Six Months Ended March 31
 
2020
 
2019
 
2020
 
2019
Operating revenues
 
 
 
 
 
 
 
Revenue from sales of electricity
$
2,489

 
$
2,712

 
$
5,021

 
$
5,393

Other revenue
32

 
38

 
78

 
82

Total operating revenues
2,521


2,750


5,099


5,475

Operating expenses
 

 
 

 
 

 
 

Fuel
429

 
501

 
852

 
942

Purchased power
252

 
255

 
471

 
552

Operating and maintenance
644

 
800

 
1,333

 
1,545

Depreciation and amortization
457

 
466

 
1,041

 
811

Tax equivalents
132

 
136

 
263

 
268

Total operating expenses
1,914

 
2,158

 
3,960

 
4,118

Operating income
607

 
592

 
1,139

 
1,357

Other income (expense), net
(1
)
 
14

 
11

 
38

Other net periodic benefit cost
62

 
65

 
127

 
129

Interest expense
289

 
300

 
576

 
602

Net income (loss)
$
255

 
$
241

 
$
447

 
$
664

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


TENNESSEE VALLEY AUTHORITY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(in millions)
 
Three Months Ended March 31
 
Six Months Ended March 31
 
2020
 
2019
 
2020
 
2019
Net income (loss)
$
255

 
$
241

 
$
447

 
$
664

Other comprehensive income (loss)
 
 
 
 
 
 
 
Net unrealized gain (loss) on cash flow hedges
(163
)
 
23

 
(87
)
 
(29
)
Reclassification to earnings from cash flow hedges
56

 
(14
)
 
(3
)
 
4

Total other comprehensive income (loss)
(107
)
 
9

 
(90
)
 
(25
)
Total comprehensive income (loss)
$
148

 
$
250

 
$
357

 
$
639

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


7


TENNESSEE VALLEY AUTHORITY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
ASSETS
 
March 31, 2020

September 30, 2019
Current assets
 

 
Cash and cash equivalents
$
835

 
$
299

Accounts receivable, net
1,264

 
1,739

Inventories, net
1,071

 
999

Regulatory assets
161

 
156

Other current assets
93

 
85

Total current assets
3,424

 
3,278

 
 
 
 
Property, plant, and equipment
 

 
 

Completed plant
63,453

 
62,944

Less accumulated depreciation
(32,237
)
 
(31,384
)
Net completed plant
31,216

 
31,560

Construction in progress
2,095

 
1,893

Nuclear fuel
1,547

 
1,534

Finance leases
140

 
146

Total property, plant, and equipment, net
34,998

 
35,133

 
 
 
 
Investment funds
2,607

 
2,968

 
 
 
 
Regulatory and other long-term assets
 

 
 

Regulatory assets
9,433

 
8,763

Operating lease assets, net of amortization
354

 

Other long-term assets
332

 
325

Total regulatory and other long-term assets
10,119

 
9,088

 
 
 
 
Total assets
$
51,148

 
$
50,467

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



8


TENNESSEE VALLEY AUTHORITY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
LIABILITIES AND PROPRIETARY CAPITAL
 
March 31, 2020
 
September 30, 2019
Current liabilities
 
 
 
Accounts payable and accrued liabilities
$
1,764

 
$
1,812

Accrued interest
305

 
296

Current portion of leaseback obligations
136

 
40

Regulatory liabilities
207

 
150

Short-term debt, net
1,875

 
922

Current maturities of power bonds
1,552

 
1,030

Current maturities of long-term debt of variable interest entities
40

 
39

Current maturities of notes payable
22

 
23

Total current liabilities
5,901

 
4,312

 
 
 
 
Other liabilities
 
 
 
Post-retirement and post-employment benefit obligations
5,984

 
6,181

Asset retirement obligations
5,582

 
5,453

Operating lease liabilities
262

 

Other long-term liabilities
2,914

 
2,490

Leaseback obligations
87

 
223

Total other liabilities
14,829

 
14,347

 
 
 
 
Long-term debt, net
 
 
 
Long-term power bonds, net
17,370

 
19,094

Long-term debt of variable interest entities, net
1,069

 
1,089

Total long-term debt, net
18,439

 
20,183

 
 
 
 
Total liabilities
39,169

 
38,842

 
 
 
 
Contingencies and legal proceedings (Note 19)
 
 
 
 
 
 
 
Proprietary capital
 
 
 
Power program appropriation investment
258

 
258

Power program retained earnings
11,271

 
10,823

Total power program proprietary capital
11,529

 
11,081

Nonpower programs appropriation investment, net
552

 
556

Accumulated other comprehensive income (loss)
(102
)
 
(12
)
Total proprietary capital
11,979

 
11,625

 
 
 
 
Total liabilities and proprietary capital
$
51,148

 
$
50,467

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


9


TENNESSEE VALLEY AUTHORITY
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 For the Six Months Ended March 31
 (in millions)
 
2020
 
2019
Cash flows from operating activities
 
 
 
Net income (loss)
$
447

 
$
664

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

 
 

Depreciation and amortization(1)
1,052

 
821

Amortization of nuclear fuel cost
194

 
179

Non-cash retirement benefit expense
162

 
157

Other regulatory amortization and deferrals
81

 
184

Changes in current assets and liabilities
 

 
 

Accounts receivable, net
475

 
269

Inventories and other current assets, net
(101
)
 
(83
)
Accounts payable and accrued liabilities
(218
)
 
(274
)
Accrued interest
13

 
6

Pension contributions
(155
)
 
(155
)
Other, net
(80
)
 
(21
)
Net cash provided by operating activities
1,870

 
1,747

 
 
 
 
Cash flows from investing activities
 

 
 

Construction expenditures
(840
)
 
(862
)
Nuclear fuel expenditures
(184
)
 
(172
)
Loans and other receivables
 

 
 

Advances
(3
)
 
(4
)
Repayments
4

 
4

Other, net
13

 
(6
)
Net cash used in investing activities
(1,010
)
 
(1,040
)
 
 
 
 
Cash flows from financing activities
 

 
 

Long-term debt
 

 
 

Redemptions and repurchases of power bonds
(1,218
)
 
(1,003
)
Redemptions of notes payable

 
(21
)
Redemptions of debt of variable interest entities
(20
)
 
(19
)
Short-term debt issues (redemptions), net
953

 
378

Payments on leases and leasebacks
(43
)
 
(40
)
Other, net
4

 
(1
)
Net cash provided by (used in) financing activities
(324
)
 
(706
)
Net change in cash, cash equivalents, and restricted cash
536

 
1

Cash, cash equivalents, and restricted cash at beginning of period
322

 
322

Cash, cash equivalents, and restricted cash at end of period
$
858

 
$
323

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


10


TENNESSEE VALLEY AUTHORITY
CONSOLIDATED STATEMENTS OF CHANGES IN PROPRIETARY CAPITAL (Unaudited)
For the Three Months Ended March 31, 2020 and 2019
(in millions)
 
Power Program Appropriation Investment
 
 
Power Program Retained Earnings
 
Nonpower Programs Appropriation Investment, Net
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
Total
Balance at December 31, 2018
$
258

 
$
9,827

 
$
562

 
$
23

 
$
10,670

Net income (loss)

 
243

 
(2
)
 

 
241

Total other comprehensive income (loss)

 

 

 
9

 
9

Return on power program appropriation investment

 
(1
)
 

 

 
(1
)
Balance at March 31, 2019
$
258

 
$
10,069

 
$
560

 
$
32

 
$
10,919

 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2019
$
258

 
$
11,015

 
$
554

 
$
5

 
$
11,832

Net income (loss)

 
257

 
(2
)
 

 
255

Total other comprehensive income (loss)

 

 

 
(107
)
 
(107
)
Return on power program appropriation investment

 
(1
)
 

 

 
(1
)
Balance at March 31, 2020
$
258

 
$
11,271

 
$
552

 
$
(102
)
 
$
11,979

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


TENNESSEE VALLEY AUTHORITY
CONSOLIDATED STATEMENTS OF CHANGES IN PROPRIETARY CAPITAL (Unaudited)
For the Six Months Ended March 31, 2020 and 2019
(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, 2018
$
258

 
$
9,404

 
$
564

 
$
57

 
$
10,283

Net income (loss)

 
668

 
(4
)
 

 
664

Total other comprehensive income (loss)

 

 

 
(25
)
 
(25
)
Return on power program appropriation investment

 
(3
)
 

 

 
(3
)
Balance at March 31, 2019
$
258

 
$
10,069

 
$
560

 
$
32

 
$
10,919

 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2019
$
258

 
$
10,823

 
$
556

 
$
(12
)
 
$
11,625

Net income (loss)

 
451

 
(4
)
 

 
447

Total other comprehensive income (loss)

 

 

 
(90
)
 
(90
)
Return on power program appropriation investment

 
(3
)
 

 

 
(3
)
Balance at March 31, 2020
$
258

 
$
11,271

 
$
552

 
$
(102
)
 
$
11,979

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


11


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions except where noted)

Note
Page
1
 
Summary of Significant Accounting Policies
2
 
Impact of New Accounting Standards and Interpretations
3
 
Accounts Receivable, Net
4
 
Inventories, Net
5
 
Plant Closures
6
 
Leases
7
 
Other Long-Term Assets
8
 
Regulatory Assets and Liabilities
9
 
Variable Interest Entities
10
 
Other Long-Term Liabilities
11
 
Asset Retirement Obligations
12
 
Debt and Other Obligations
13
 
Accumulated Other Comprehensive Income (Loss)
14
 
Risk Management Activities and Derivative Transactions
15
 
Fair Value Measurements
16
 
Revenue
17
 
Other Income (Expense), Net
18
 
Supplemental Cash Flow Information
19
 
Benefit Plans
20
 
Contingencies and Legal Proceedings
21
 
Subsequent Events

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 nearly 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.

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 U.S. 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 revenues derived in connection with those activities.  The activities related to stewardship properties do not meet the criteria of

12


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 of Directors ("TVA Board") as authorized by the Tennessee Valley Authority Act of 1933, as amended ("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 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 business. TVA fulfilled its requirement to repay $1.0 billion of the Power Program Appropriation Investment with the 2014 payment; therefore, this item is no longer a component of rate setting.  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 federal regulatory body.

Fiscal Year

TVA's fiscal year ends September 30.  Years (2020, 2019, 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 any of the other factors described above cease to be applicable, TVA would no longer be considered to be a regulated entity and would be required to write off these costs.  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, 2019, and the notes thereto, which are contained in TVA's Annual Report on Form 10-K/A for the year ended September 30, 2019 (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, wholly-owned direct subsidiaries, and variable interest entities ("VIE") of which TVA is the primary beneficiary. See Note 9Variable 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.





13


Reclassifications

Certain historical amounts have been reclassified in the accompanying consolidated financial statements to the current presentation. In the March 31, 2019, Consolidated Statements of Cash Flows, amounts previously reported as $(10) million of Prepayment credits applied to revenue were reclassified to Other, net in cash flows from operating activities.

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 includes cash held in trusts that are currently restricted for TVA economic development loans and for certain TVA environmental programs in accordance with agreements related to compliance with certain environmental regulations. See Note 20Contingencies and Legal ProceedingsLegal Proceedings Environmental Agreements.

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
 
At March 31, 2020
 
At September 30, 2019
Cash and cash equivalents
$
835

 
$
299

Restricted cash and cash equivalents included in Other long-term assets
23

 
23

Total cash, cash equivalents, and restricted cash
$
858

 
$
322


Due to recent higher volatility in the financial markets associated with the Coronavirus Disease 2019 ("COVID-19") pandemic, TVA increased its target balance of Cash and cash equivalents in March 2020 by $500 million through short-term discount note issuances.

Allowance for Uncollectible Accounts

The allowance for uncollectible accounts reflects TVA's estimate of probable losses inherent in its accounts and loans receivable balances, excluding the EnergyRight® loans receivable.  TVA determines the allowance based on known accounts, historical experience, and other currently available information including events such as customer bankruptcy and/or a customer failing to fulfill payment arrangements after 90 days.  It also reflects TVA's corporate credit department's assessment of the financial condition of customers and the credit quality of the receivables. TVA continues to monitor the impact of the COVID-19 pandemic on accounts and loans receivable balances to evaluate the allowance for uncollectible accounts.

The allowance for uncollectible accounts was less than $1 million at both March 31, 2020, and September 30, 2019, for accounts receivable. Additionally, loans receivable of $137 million and $131 million at March 31, 2020, and September 30, 2019, respectively, are included in Accounts receivable, net and Other long-term assets, for the current and long-term portions, respectively, and are reported net of allowances for uncollectible accounts of less than $1 million at both March 31, 2020, and September 30, 2019.

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

Leases

TVA recognizes a lease asset and lease liability for leases with terms of greater than 12 months. Lease assets represent TVA's right to use an underlying asset for the lease term, and lease liabilities represent TVA's obligation to make lease

14


payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.  TVA has certain lease agreements that include variable lease payments that are based on energy production levels. These variable lease payments are not included in the measurement of the lease assets or lease liabilities but are recognized in the period in which the expenses are incurred.
    
While not specifically structured as leases, certain power purchase agreements are deemed to contain a lease of the underlying generating units when the terms convey the right to control the use of the assets. Amounts recorded for these leases are generally based on the amount of the scheduled capacity payments due over the remaining terms of the power purchase agreements, the terms of which vary. The total lease obligation included in Accounts payable and accrued liabilities and Operating lease liabilities related to these agreements was $296 million at March 31, 2020.

TVA has agreements with lease and non-lease components and has elected to account for the components separately. Consideration is allocated to lease and non-lease components generally based on relative standalone selling prices.

TVA has lease agreements which include options for renewal and early termination. The intent to renew a lease varies depending on the lease type and asset. Renewal options that are reasonably certain to be exercised are included in the lease measurements. The decision to terminate a lease early is dependent on various economic factors. No termination options have been included in TVA's lease measurements.
    
Leases with an initial term of 12 months or less, which do not include an option to extend the initial term of the lease to greater than 12 months that TVA is reasonably certain to exercise, are not recorded on the Consolidated Balance Sheets at March 31, 2020.
 
Operating leases are recognized on a straight-line basis over the term of the lease agreement. Rent expense associated with short-term leases and variable leases is recorded in Operating and maintenance expense, Fuel expense, or Purchased power expense on the Consolidated Statements of Operations. Expenses associated with finance leases result in the separate presentation of interest expense on the lease liability and amortization expense of the related lease asset on the Consolidated Statements of Operations.

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 the external depreciation studies. These studies are updated at least every five years. Depreciation expense was $407 million and $424 million for the three months ended March 31, 2020 and 2019, respectively. Depreciation expense was $946 million and $732 million for the six months ended March 31, 2020 and 2019, respectively. See Note 5Plant Closures for a discussion of the impact of plant closures.


15


2.  Impact of New Accounting Standards and Interpretations     

The following are accounting standard updates issued by the Financial Accounting Standards Board ("FASB") that TVA adopted during 2020:
Lease Accounting
Description
This guidance changes the provisions of recognition in both the lessee and lessor accounting models. The standard requires entities that lease assets ("lessees") to recognize on the balance sheet the assets and liabilities for the rights and obligations created by leases with terms of more than 12 months, while also refining the definition of a lease. In addition, lessees are required to disclose key information about the amount, timing, and uncertainty of cash flows arising from leasing arrangements. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily depend on its classification as a finance lease (formerly referred to as capital lease) or operating lease. The standard requires both types of leases to be recognized on the balance sheet. Operating leases will result in straight-line expense, while finance leases will result in recognition of interest on the lease liability separate from amortization expense. The accounting rules for the owner of assets leased by the lessee ("lessor accounting") remain relatively unchanged.

The standard allows for certain practical expedients to be elected related to lease term determination, separation of lease and non-lease elements, reassessment of existing leases, and short-term leases. The standard is to be applied using a modified retrospective transition.
Effective Date for TVA
October 1, 2019
Effect on the Financial Statements or Other Significant Matters
TVA has elected the modified retrospective method of adoption effective October 1, 2019. Under the modified retrospective method of adoption, prior year reported results are not restated.

TVA recorded $205 million and $210 million of lease assets and lease liabilities, respectively, for operating leases in effect at the adoption date. The accounting for finance leases remained substantially unchanged. Adoption of the standard did not materially impact results of operations or cash flows.

TVA has elected to apply the following practical expedients:
 
Practical Expedient
Description
 
 
Package of transition practical expedients (for leases commenced prior to adoption date; expedients must be adopted as a package)
Do not need to (1) reassess whether any expired or existing contracts are leases or contain leases, (2) reassess the lease classification for any expired or existing leases, or (3) reassess initial direct costs for any existing leases.
 
 
Short-term lease expedient (elect by class of underlying asset)
Elect as an accounting policy to not apply the recognition requirements to short-term leases by asset class.
 
 
Existing and expired land easements not previously accounted for as leases
Elect to not evaluate existing or expired easements under the new guidance and carry forward current accounting treatment.
 
 
Comparative reporting requirements for initial adoption
Elect to apply transition requirements at adoption date, recognize cumulative effect adjustment to retained earnings in period of adoption, and not apply the new requirements to comparative periods, including disclosures.
 
 
 
 
 
 
Derivatives and Hedging - Improvements to Accounting for Hedging Activities
Description
This guidance better aligns an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.
Effective Date for TVA
October 1, 2019
Effect on the Financial Statements or Other Significant Matters
TVA has adopted the standard on a prospective basis. The adoption of this standard did not have a material impact on TVA's financial condition, results of operations, or cash flows. TVA only uses hedge accounting under its foreign currency swap arrangements, and the adoption of this standard had no impact on those arrangements.
 
Customer's Accounting for Implementation Costs in a Cloud Arrangement That Is a Service Contract
Description
This guidance relates to the accounting for a customer's implementation costs in a hosting arrangement that is a service contract. The amendments align the requirements for capitalizing those implementation costs with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The amendments also provide requirements for the classification of the capitalized costs and related expense and cash flows in the financial statements, the application of impairment guidance to the capitalized costs, and the application of abandonment guidance to the capitalized costs. Entities are required to apply the amendments either retrospectively or prospectively to all implementation costs incurred after the adoption date.
Effective Date for TVA
October 1, 2019
Effect on the Financial Statements or Other Significant Matters
TVA has adopted the standard on a prospective basis. Adoption of this standard did not have a material impact on TVA's financial condition, results of operations, or cash flows. TVA records qualified implementation costs in a cloud arrangement that is a service contract as a prepaid asset and amortizes the prepaid asset to Operating and maintenance expense based on the term of the contract.

16


The following accounting standards have been issued but at March 31, 2020, were not effective and had not been adopted by TVA:
Financial Instruments - Credit Losses
Description
This guidance eliminates the probable initial recognition threshold in current GAAP and, instead, requires an allowance to be recorded for all expected credit losses for certain financial assets that are not measured at fair value. The allowance for credit losses is based on historical information, current conditions, and reasonable and supportable forecasts. The new standard also makes revisions to the other than temporary impairment model for available-for-sale debt securities. Disclosures of credit quality indicators in relation to the amortized cost of financing receivables are further disaggregated by year of origination.
Effective Date for TVA
The new standard is effective for TVA's interim and annual reporting periods beginning October 1, 2020. While early adoption is permitted, TVA does not plan to adopt the standard early.
Effect on the Financial Statements or Other Significant Matters
TVA is working to develop a model to calculate the allowance for credit losses based on management's estimate of the losses expected to be incurred over the life of the asset. TVA is evaluating the potential impact of the changes on its consolidated financial statements and related disclosures.
 
Fair Value Measurement Disclosure
Description
The guidance changes certain disclosure requirements for fair value measurements. It removes certain disclosure requirements, such as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of the transfers between levels; and the valuation processes for Level 3 fair value measurements.  Some disclosure requirements are added, such as the change in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.
Effective Date for TVA
The new standard is effective for TVA's interim and annual reporting periods beginning October 1, 2020. While early adoption is permitted, TVA does not plan to adopt the 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 TVA's financial condition, results of operations, or cash flows. TVA is evaluating the potential impact on related disclosures.
 
Reference Rate Reform
Description
The guidance provides temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rates.
Effective Date for TVA
The new standard is effective for adoption at any time between March 12, 2020, and December 31, 2022. TVA currently plans to adopt the standard by December 31, 2022.
Effect on the Financial Statements or Other Significant Matters
TVA continues to review this standard and evaluate the impact of using an alternative reference rate instead of LIBOR in its interest rate swap contracts. TVA expects the adoption of the standard will simplify the accounting for any modifications to its interest rate swap contracts.

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 
 
At March 31, 2020
 
At September 30, 2019
Power receivables
$
1,182

 
$
1,624

Other receivables
82

 
115

Accounts receivable, net(1)
$
1,264

 
$
1,739

Note
(1) Allowance for uncollectible accounts was less than $1 million at March 31, 2020, and September 30, 2019, and therefore is not represented in the table
above.

In response to the COVID-19 pandemic, the TVA Board approved the Public Power Support and Stabilization Program, which includes alternative wholesale payment arrangements for LPCs, on March 25, 2020. TVA is offering up to $1.0 billion of credit support to LPCs who demonstrate the need for temporary financial relief, through the deferral of a portion of LPCs' wholesale power payments owed to TVA. The program requires LPCs to apply monthly beginning in April 2020 for the deferral, which is subject to approval by TVA. If approved, TVA will establish a repayment schedule based on the LPC's need, not to exceed two years, and an initial repayment date will be approved by TVA no later than December 31, 2020. The earliest deferral may be related to the May bill, and no such deferrals are included in the balances above. As of May 4, 2020, $1 million of credit support has been approved under the Public Power Support and Stabilization Program.

17


4.  Inventories, Net

The table below summarizes the types and amounts of TVA's inventories:
Inventories, Net 
 
At March 31, 2020
 
At September 30, 2019
Materials and supplies inventory
$
773

 
$
742

Fuel inventory
328

 
294

Renewable energy certificates/emission allowance inventory, net
18

 
16

Allowance for inventory obsolescence
(48
)
 
(53
)
Inventories, net
$
1,071

 
$
999


5. 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 Paradise Fossil Plant ("Paradise") Unit 3 by December 2020 and Bull Run Fossil Plant ("Bull Run") by December 2023 was approved. Subsequent to the TVA Board approval, TVA determined that Paradise would not be restarted after January 2020 due to the plant's material condition. Paradise Fossil Plant Unit 3 was taken offline on February 1, 2020, effectively retiring the plant.

Financial Impact

As a result of TVA's decision to accelerate the retirements of Paradise and Bull Run, certain construction projects at these locations were identified as probable of abandonment or were no longer expected to be in service for greater than one year prior to the plants' retirement dates. The write-off of these projects resulted in $124 million of Operating and maintenance expense during the second quarter of 2019. TVA has since recognized a cumulative $34 million of Operating and maintenance expense related to other activities including certain regulatory compliance projects at these facilities. Of this amount, $3 million and $7 million were recognized during the three and six months ended March 31, 2020, respectively. TVA has also recognized a cumulative $21 million of Operating and maintenance expense related to materials and supplies inventory reserves and write-offs identified at Paradise. Of this amount, $2 million was recognized for both the three and six months ended March 31, 2020. Additional amounts for Bull Run may be written off during closure activities.

TVA's policy is to adjust depreciation rates to reflect the most current assumptions, ensuring units will be fully depreciated by the applicable retirement dates. As a result of TVA's decision to accelerate the retirement of Paradise and Bull Run, TVA has recognized a cumulative $882 million of accelerated depreciation, with $91 million and $316 million being recognized during the three and six months ended March 31, 2020, respectively.

6. Leases

As described in Note 2Impact of New Accounting Standards and Interpretations, TVA has elected the modified retrospective method of adoption for the new lease accounting standard effective October 1, 2019. Under the modified retrospective method of adoption, prior year reported results are not restated.

TVA recorded $205 million and $210 million of lease assets and lease liabilities, respectively, for operating leases in effect at the adoption date. The accounting for finance leases remained substantially unchanged. Adoption of the standard did not materially impact results of operations or cash flows.


18


The following table provides additional information regarding the presentation of leases on the Consolidated Balance Sheets at March 31, 2020:
Amounts Recognized on TVA's Consolidated Balance Sheets
At March 31, 2020
Assets
 
 
  Operating
Operating lease assets, net of amortization
$
354

  Finance
Finance leases
140

Total lease assets
 
$
494

 
 
 
Liabilities
 
 
Current
 
 
  Operating
Accounts payable and accrued liabilities
$
101

  Finance
Accounts payable and accrued liabilities
6

Non-current
 
 
  Operating
Operating lease liabilities
262

  Finance
Other long-term liabilities
179

Total lease liabilities
 
$
548


TVA's leases consist primarily of railcars, equipment, real estate/land, power generating facilities, and gas pipelines. TVA's leases have various terms and expiration dates remaining from one to 27 years. The components of lease costs for the three and six months ended March 31, 2020, were as follows:
Lease Costs(1)
 
Three Months Ended
March 31, 2020
 
Six Months Ended
March 31, 2020
Operating lease costs(1)
$
21

 
$
39

Variable lease costs(1)
20

 
26

Short-term lease costs(1)
3

 
3

Finance lease costs
 
 
 
Amortization of lease assets(2)
3

 
5

Interest on lease liabilities(3)(4)
9

 
15

Total finance lease costs
12

 
20

     Total lease costs
$
56


$
88

Notes
(1) Costs are included in Operating and maintenance expense, Fuel expense, and Purchased power expense on the Consolidated Statements of Operations. TVA's rental expense for operating leases was approximately $18 million and $36 million for the three and six months ended March 31, 2019, respectively.
(2) Expense is included in Depreciation and amortization expense on the Consolidated Statements of Operations.
(3) Expense is included in Interest expense on the Consolidated Statements of Operations.
(4) Certain finance leases receive regulatory accounting treatment and are reclassified to Fuel expense and Purchased power expense.

TVA's variable lease costs are related to renewable energy purchase agreements that require TVA to purchase all output from the underlying facility. Payments under those agreements are solely based on the actual output over the lease term. Certain TVA lease agreements contain renewal options. Those renewal options that are reasonably certain to be exercised are included in the lease measurements.

The following table contains additional information with respect to cash and non-cash activities related to leases:
Amounts Recognized on TVA's Consolidated Statements of Cash Flows
For the Six Months Ended March 31, 2020
Operating cash flows for operating leases
$
36

Operating cash flows for finance leases
15

Financing cash flows for finance leases
2

 
 
Lease assets obtained in exchange for lease obligations (non-cash)
 
Operating leases(1)
186

Finance leases

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

19


TVA has certain finance leases under power purchase agreements under which the present value of the minimum lease payments exceeds the fair value of the related lease asset at the date of measurement.  This resulted in an interest rate that was higher than TVA's incremental borrowing rate. At March 31, 2020, the weighted average remaining lease term in years and the weighted average discount rate for TVA's operating and financing leases were as follows:
Weighted Averages
At March 31, 2020
Weighted average remaining lease terms
 
Operating leases
4 years
Finance leases
13 years
 
 
Weighted average discount rate(1)
 
Operating leases
1.6%
Finance leases
35.2%
Note
(1) The discount rate is calculated using the rate implicit in a lease if it is readily determinable. If the rate used by the lessor is not readily determinable, TVA uses its incremental borrowing rate as permitted by accounting guidance. The incremental borrowing rate is influenced by TVA's credit rating and lease term and as such may differ for individual leases, embedded leases, or portfolios of leased assets.

The following table presents maturities of lease liabilities and a reconciliation of the undiscounted cash flows to lease liabilities at March 31, 2020:
Future Minimum Lease Payments
Minimum Payments Due at March 31, 2020
Operating leases
 
  2020 (remaining)
$
59

  2021
105

  2022
91

  2023
43

  2024
35

Thereafter
43

Minimum annual payments
376

Less: present value discount
(13
)
Operating present value of net minimum lease payments
$
363

 
 
Finance leases
 
  2020 (remaining)
$
27

  2021
53

  2022
53

  2023
55

  2024
51

    Thereafter
418

Minimum annual payments
657

Less: amount representing interest
(472
)
Finance present value of net minimum lease payments
$
185


20


The following table presents the future minimum lease payments under operating leases and the finance lease maturities as reported under the previous lease standard at September 30, 2019:
Future Minimum Lease Payments
Minimum Payments Due at September 30, 2019
Operating leases
 
2020
$
76

2021
75

2022
60

2023
12

2024
3

    Thereafter
2

Minimum annual payments
228

Less: present value discount

Operating present value of net minimum lease payments
$
228

 
 
Finance leases
 
2020
$
53

2021
53

2022
53

2023
55

2024
51

    Thereafter
418

Minimum annual payments
683

Less: amount representing interest
(495
)
Finance present value of net minimum lease payments
$
188


TVA entered into a power purchase agreement with a renewable resource provider for solar generation and rights to charge and discharge a battery energy storage system. The system is considered a lease component in this agreement. This lease has a term of 20 years, and is expected to commence on October 1, 2022. Payments made over the term of this lease are expected to total approximately $89 million.

7.  Other Long-Term Assets

The table below summarizes the types and amounts of TVA's other long-term assets:
Other Long-Term Assets
 
At March 31, 2020
 
At September 30, 2019
Loans and other long-term receivables, net
$
126

 
$
125

EnergyRight® receivables
76

 
81

Prepaid long-term service agreements(1)
33

 
22

Restricted cash and cash equivalents
23

 
23

Prepaid capacity payments
15

 
19

Other
59

 
55

Total other long-term assets
$
332

 
$
325

Note
(1) Certain amounts have been reclassified to conform with current year presentation.

EnergyRight® Receivables. In association with the EnergyRight® Solutions 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 March 31, 2020, and September 30, 2019, the carrying amount of the loans receivable,

21


net of discount, reported in Accounts receivable, net was $19 million and $20 million, respectively. See Note 10Other Long-Term Liabilities for information regarding the associated financing obligation.

In response to the COVID-19 pandemic, customers experiencing a financial hardship can request a deferral of loan payments for a period of up to six months. This deferral option is available beginning April 20, 2020, through October 31, 2020. Deferred loans will not accrue interest during the deferral months.

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 March 31, 2020, and September 30, 2019, prepayments of $1 million and $5 million, respectively, were recorded in Other current assets.

8.  Regulatory Assets and 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(1)
 
At March 31, 2020
 
At September 30, 2019
Current regulatory assets
 
 
 
Unrealized losses on interest rate derivatives
$
109

 
$
89

Unrealized losses on commodity derivatives
52

 
39

Fuel cost adjustment receivable

 
28

Total current regulatory assets
161

 
156

 
 
 
 
Non-current regulatory assets
 

 
 

Deferred pension costs and other post-retirement benefits costs
4,602

 
4,756

Non-nuclear decommissioning costs
1,859

 
1,741

Nuclear decommissioning costs
1,200

 
868

Unrealized losses on interest rate derivatives
1,615

 
1,241

Unrealized losses on commodity contracts
8

 
15

Other non-current regulatory assets
149

 
142

Total non-current regulatory assets
9,433

 
8,763

Total regulatory assets
$
9,594

 
$
8,919

 
 
 
 
Current regulatory liabilities
 

 
 

Fuel cost adjustment tax equivalents
$
131

 
$
138

Fuel cost adjustment
72

 

Unrealized gains on commodity derivatives
4

 
12

Total current regulatory liabilities
$
207

 
$
150

Note
(1) Amounts for Non-current regulatory liabilities were less than $1 million at March 31, 2020, and September 30, 2019, and are therefore not represented in the table above.

Due to recent higher volatility in the financial markets associated with the COVID-19 pandemic, TVA experienced unrealized losses related to its investment portfolios and derivative instruments for the six months ended March 31, 2020. TVA does not recognize unrealized gains and losses from the investment portfolios and derivative instruments within earnings but rather defers all such gains and losses within a regulatory liability or asset in accordance with its accounting policy. See Note 14Risk Management Activities and Derivative Transactions and Note 15Fair Value Measurements.


22


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.

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 ("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 ("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 conduct, 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 ("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 ("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 on the Consolidated Statements of Operations. SHLLC is required to pay a pre-determined portion of the return on investment to Seven States Southaven, LLC ("SSSL") 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 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

23


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

Impact on Consolidated Financial Statements

The financial statement items attributable to carrying amounts and classifications of JSCCG, Holdco, and SCCG at March 31, 2020, and September 30, 2019, as reflected on the Consolidated Balance Sheets, are as follows:
Summary of Impact of VIEs on Consolidated Balance Sheets
 
At March 31, 2020
 
At September 30, 2019
Current liabilities
 
 
 

Accrued interest
$
10

 
$
11

Accounts payable and accrued liabilities
3

 
3

Current maturities of long-term debt of variable interest entities
40

 
39

Total current liabilities
53

 
53

Other liabilities
 
 
 
Other long-term liabilities
24

 
25

Long-term debt, net
 
 
 
Long-term debt of variable interest entities, net
1,069

 
1,089

Total liabilities
$
1,146

 
$
1,167


Interest expense of $14 million for both the three months ended March 31, 2020 and 2019, and $27 million and $28 million for the six months ended March 31, 2020 and 2019, respectively, is included on the Consolidated Statements of Operations related to debt of VIEs and membership interests of VIEs subject to mandatory redemption.

Creditors of the VIEs have no 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 and finance leases, as well as liabilities for environmental remediation and liabilities under agreements related to compliance with certain environmental regulations. The table below summarizes the types and amounts of Other long-term liabilities:
Other Long-Term Liabilities
 
At March 31, 2020
 
At September 30, 2019
Interest rate swap liabilities
$
2,045

 
$
1,676

Finance lease liabilities
179

 
182

Currency swap liabilities
280

 
193

EnergyRight® financing obligations
85

 
90

Paradise pipeline financing obligation
79

 
80

Accrued long-term service agreements
61

 
66

Other
185

 
203

Total other long-term liabilities
$
2,914

 
$
2,490



24


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 and Other long-term liabilities on the Consolidated Balance Sheets. At March 31, 2020, and September 30, 2019, the carrying amount of the interest rate swap liabilities reported in Accounts payable and accrued liabilities was $105 million and $88 million, respectively. See Note 14Risk Management Activities and Derivative TransactionsDerivatives Not Receiving Hedge Accounting TreatmentInterest Rate Derivatives for information regarding the interest rate swap liabilities. As of March 31, 2020, interest rate swap liabilities increased $369 million as compared to September 30, 2019, primarily due to a decrease in interest rates resulting in higher mark-to-market values on future expected net cash flows.
 
EnergyRight® Financing Obligations. TVA purchases certain loans receivable from its LPCs in association with the EnergyRight® Solutions program. The current and long-term portions of the resulting financing obligations are reported in Accounts payable and accrued liabilities and Other long-term liabilities, respectively, on TVA's Consolidated Balance Sheets. At March 31, 2020, and September 30, 2019, the carrying amount of the financing obligations reported in Accounts payable and accrued liabilities was $21 million and $23 million, respectively. See Note 7Other Long-Term Assets for information regarding the associated loans receivable.

In response to the COVID-19 pandemic, customers experiencing a financial hardship can request a deferral of loan payments for a period of up to six months. This deferral option is available beginning April 20, 2020, through October 31, 2020. Deferred loans will not accrue interest during the deferral months.

Paradise Pipeline Financing Obligation. TVA reserves firm pipeline capacity on an approximately 19-mile pipeline owned by Texas Gas, which serves TVA's Paradise Combined Cycle Plant. The capacity contract contains a lease component due to TVA's exclusive right to use the pipeline. TVA accounts for this lease component as a financing transaction. 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 both March 31, 2020, and September 30, 2019, related liabilities of less than $1 million were recorded in Accounts payable and accrued liabilities.

Accrued 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, parts received and services rendered exceed payments made. The current and long-term portions of the resulting obligation are reported in Accounts payable and accrued liabilities and Other long-term liabilities, respectively, on TVA's Consolidated Balance Sheets. At March 31, 2020, and September 30, 2019, related liabilities of $13 million and $12 million, respectively, were recorded in Accounts payable and accrued liabilities.

11.  Asset Retirement Obligations

During the six months ended March 31, 2020, TVA's total asset retirement obligations ("ARO") liability increased $159 million as a result of periodic accretion and revisions in estimate, partially offset by settlement projects that were conducted during the period. The nuclear and non-nuclear accretion amounts were deferred as regulatory assets.  During the six months ended March 31, 2020, $84 million of the related regulatory assets were amortized into expense as these amounts were collected in rates. See Note 8Regulatory Assets and Liabilities. TVA maintains investment trusts to help fund its decommissioning obligations. See Note 15 Fair Value MeasurementsInvestment Funds and Note 20Contingencies and Legal ProceedingsContingenciesDecommissioning Costs for disclosure of the current balances of the trusts and a discussion of the trusts' objectives.
Asset Retirement Obligation Activity(1)
 
Nuclear
 
Non-Nuclear
 
Total
Balance at September 30, 2019
$
3,136

 
$
2,480

 
$
5,616

Settlements

 
(62
)
 
(62
)
Revisions in estimate

 
120

 
120

Accretion (recorded as regulatory asset)
70

 
31

 
101

Balance at March 31, 2020
$
3,206

 
$
2,569

 
$
5,775

Note
(1) The current portions of the ARO liability in the amounts of $193 million and $163 million at March 31, 2020, and September 30, 2019, respectively, are included in Accounts payable and accrued liabilities.

The revisions in non-nuclear estimates increased $120 million for the six months ended March 31, 2020. In November 2019, the Tennessee Department of Environment and Conservation ("TDEC") released amendments to its regulations which govern solid waste disposal facilities, including TVA's active Coal Combustion Residuals ("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 will, among other things, add an additional 50-year period after the end of the

25


post-closure care period, require TVA to submit recommendations as to what activities must be performed during this 50-year period to protect human health and the environment, and require TVA to submit revised closure plans every 10 years. This regulatory revision resulted in an increase of $129 million, of which $38 million was related to operating CCR facilities and $91 million was related to inactive or closed CCR facilities.

12.  Debt and Other Obligations

Debt Outstanding

Total debt outstanding at March 31, 2020, and September 30, 2019, consisted of the following:
Debt Outstanding 
(in millions)
 
At March 31, 2020
 
At September 30, 2019
Short-term debt
 
 
 
Short-term debt, net
$
1,875

 
$
922

Current maturities of power bonds issued at par
1,552

 
1,030

Current maturities of long-term debt of VIEs issued at par
40

 
39

Current maturities of notes payable
22

 
23

Total current debt outstanding, net
3,489

 
2,014

Long-term debt
 

 
 

Long-term power bonds(1)
17,491

 
19,225

Long-term debt of VIEs, net
1,069

 
1,089

Unamortized discounts, premiums, issue costs, and other
(121
)
 
(131
)
Total long-term debt, net
18,439

 
20,183

Total debt outstanding
$
21,928

 
$
22,197

Note
(1) Includes net exchange gain from currency transactions of $183 million and $191 million at March 31, 2020, and September 30, 2019, respectively.

The increase in short-term debt of approximately $1.0 billion is primarily a result of power bond maturities and increased short-term debt issuance to hold a higher cash balance. Due to recent higher volatility in the financial markets associated with the COVID-19 pandemic, TVA increased its target balance of Cash and cash equivalents by $500 million through discount note issuances.

Debt Securities Activity

The table below summarizes the long-term debt securities activity for the period from October 1, 2019, to March 31, 2020:
Debt Securities Activity(1)
 
 
Date
 
Amount(2)
(in millions)
 
Interest Rate
Redemptions/Maturities
 
 
 
 
 
 
electronotes®
 
First Quarter 2020
 
$
217

 
3.33
%

 

 
 
 
 
2009 Series B
 
December 2019
 
1

 
3.77
%
2018 Series A
 
March 2020
 
1,000

 
2.25
%
Total redemptions/maturities of power bonds
 
 
 
1,218

 


Debt of variable interest entities
 
 
 
20

 
4.32
%
Total redemptions/maturities of debt
 
 
 
$
1,238

 


Notes
(1) Amounts for notes payable were less than $1 million at March 31, 2020, and are therefore not represented in the table above.
(2) All redemptions were at 100 percent of par.


26


Credit Facility Agreements

TVA has funding available under four long-term revolving credit facilities totaling $2.7 billion: a $150 million credit facility that matures on December 11, 2021, a $1.0 billion credit facility that matures on June 13, 2023, a $1.0 billion credit facility that matures on September 28, 2023, and a $500 million credit facility that matures on February 1, 2025. 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 March 31, 2020, and September 30, 2019, there were approximately $1.4 billion and $1.3 billion, respectively, of letters of credit outstanding under these facilities, and there were no borrowings outstanding. See Note 14Risk Management Activities and Derivative TransactionsOther Derivative InstrumentsCollateral.

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 March 31, 2020
(in millions)
 
 
Facility Limit
 
Letters of Credit Outstanding
 
Cash Borrowings
 
Availability
Maturity Date
 
 
 
 
 
 
 
 
 December 2021
 
$
150

 
$
38

 
$

 
$
112

 June 2023
 
1,000

 
409

 

 
591

 September 2023
 
1,000

 
450

 

 
550

 February 2025
 
500

 
500

 

 

Total
 
$
2,650

 
$
1,397

 
$

 
$
1,253


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 in 2019 with a maturity date of September 30, 2020. 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 one year or less. There were no outstanding borrowings under the facility at March 31, 2020. 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. At March 31, 2020, and September 30, 2019, the outstanding leaseback obligations related to the remaining CTs and QTE were $223 million and $263 million, respectively. In March 2019, TVA made final rent payments under lease/leaseback transactions involving eight CTs, and TVA had previously acquired the equity interests related to these transactions. These transactions were terminated in July 2019. Final rent payments are scheduled to be made under the remaining CT lease/leaseback transactions on various dates from May 2020 to January 2022. TVA has already acquired the equity interests related to transactions involving eight of these CTs and will have the option to acquire the equity interests related to transactions involving the remaining eight CTs for additional amounts. In addition, on October 30, 2019, TVA provided notice of its intent to purchase the ownership interest in certain QTE. Repurchase payments are expected to be paid through a series of installments in 2021 and 2022, after which the associated leases will be terminated.


27


13.  Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) ("AOCI") represents market valuation adjustments related to TVA's currency swaps. The currency swaps are cash flow hedges and are the only derivatives in TVA's portfolio that have been designated and qualify for hedge accounting treatment. TVA records exchange rate gains and losses on its foreign currency-denominated debt and any related accrued interest in net income and marks its currency swap assets and liabilities to market through other comprehensive income (loss) ("OCI"). TVA then reclassifies an amount out of AOCI into net income, offsetting the exchange gain/loss recorded on the debt. During the three months ended March 31, 2020 and 2019, TVA reclassified $56 million of losses and $14 million of gains, respectively, related to its cash flow hedges from AOCI to Interest expense. During the six months ended March 31, 2020 and 2019, TVA reclassified $3 million of gains and $4 million of losses, respectively, related to its cash flow hedges from AOCI to Interest expense. See Note 14Risk Management Activities and Derivative Transactions.

TVA records certain assets and liabilities that result from the regulated ratemaking process that would not be recorded under GAAP for non-regulated entities. As such, certain items that would generally be reported in AOCI or that would impact the statements of operations are recorded as regulatory assets or regulatory liabilities. See Note 8Regulatory Assets and Liabilities for a schedule of regulatory assets and liabilities.  See Note 14Risk Management Activities and Derivative Transactions for a discussion of the recognition in AOCI of gains and losses associated with certain derivative contracts. See Note 15Fair Value Measurements for a discussion of the recognition of certain investment fund gains and losses as regulatory assets and liabilities.  See Note 19Benefit Plans for a discussion of the regulatory accounting related to components of TVA's benefit plans.
    
14.  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. TVA suspended its Financial Trading Program ("FTP") in 2014 and no longer uses financial instruments to hedge risks related to commodity prices; however, TVA plans to continue to manage fuel price volatility through other methods and to periodically reevaluate its suspended FTP program for future use of financial instruments.

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).

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
March 31
 
Six Months Ended
March 31
 
Derivatives in Cash Flow Hedging Relationship
 
Objective of Hedge Transaction
 
Accounting for Derivative
Hedging Instrument
 
2020