Fair Values of TVA Derivatives
At June 30, 2019 At September 30, 2018
Derivatives That Receive Hedge Accounting Treatment:
Balance Balance Sheet Presentation Balance Balance Sheet Presentation
Currency swaps
£200 million Sterling $ (80 ) Accounts payable and accrued liabilities $(5); Other long-term liabilities $(75) $ (67 ) Accounts payable and
accrued liabilities $(5); Other long-term liabilities $(62)
£250 million Sterling (44 ) Accounts payable and accrued liabilities $(5); Other long-term liabilities $(39) (12 ) Accounts payable and accrued liabilities $(5); Other long-term liabilities $(7)
£150 million Sterling (46 ) Accounts payable and accrued liabilities $(3); Other long-term liabilities $(43) (15 ) Accounts payable and
accrued liabilities $(3); Other long-term liabilities $(12)

Derivatives That Do Not Receive Hedge Accounting Treatment:
Balance Balance Sheet Presentation Balance Balance Sheet Presentation
Interest rate swaps ��
$1.0 billion notional $ (1,107 ) Accounts payable and
accrued liabilities $(60);
Other long-term liabilities
$(1,047) $ (878 ) Accounts payable and
accrued liabilities $(56); Other long-term liabilities $(822)
$476 million notional (425 ) Accounts payable and
accrued liabilities $(22);
Other long-term liabilities
$(403) (317 ) Accounts payable and
accrued liabilities $(20);
Other long-term liabilities
$(297)
$42 million notional (6 ) Accounts payable and
accrued liabilities $(2); Other long-term liabilities $(4) (4 ) Accounts payable and
accrued liabilities $(1); Other long-term liabilities $(3)
Commodity contract derivatives (22 ) Other current assets $14; Other long-term assets $6; Other long-term liabilities $(9); Accounts payable and accrued liabilities $(33) 60
Other current assets $41; Other long-term assets $31; Other long-term liabilities $(8); Accounts payable and accrued liabilities $(4)

o ntents

Cash Flow Hedging Strategy for Currency Swaps

To protect against exchange rate risk related to ~~three~~3 British pound sterling denominated Bond transactions, TVA entered into foreign currency hedges at the time the Bond transactions occurred. TVA had ~~three~~3 currency swaps outstanding ~~as of~~at June 30, ~~2019,~~2020, with total currency exposure of ~~£600~~£600 million and expiration dates ranging ~~from~~from 2021 to 2043.

When the dollar strengthens against the British pound sterling, the exchange gain on the Bond liability and related accrued interest is offset by an equal amount of loss on the swap contract that is reclassified out of AOCI. Conversely, the exchange loss on the Bond liability and related accrued interest is offset by an equal amount of gain on the swap contract that is reclassified out of AOCI. All such exchange gains or losses on the Bond liability and related accrued interest are included in Long-term debt, net and Accounts payable and accrued liabilities, respectively. The offsetting exchange losses or gains on the swap contracts are recognized in AOCI. If any gain (loss) were to be incurred as a result of the early termination of the foreign currency swap contract, the resulting income (expense) would be amortized over the remaining life of the associated Bond as a component of Interest expense. The values of the currency swap liabilities are included in Accounts payable and accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets.

Derivatives Not Receiving Hedge Accounting Treatment

Interest Rate Derivatives. Generally TVA uses interest rate swaps to fix variable short-term debt to a fixed rate, and TVA uses regulatory accounting treatment to defer the mark-to-market ("MtM") gains and losses on its interest rate swaps. The net deferred unrealized gains and losses are classified as regulatory assets or liabilities on TVA's Consolidated Balance Sheets and are included in the ratemaking formula when gains or losses are realized. The values of these derivatives are included in Accounts payable and accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets, and realized gains and losses, if any, are included inon TVA's Consolidated Statements of Operations. For the three months ended June 30, 2020 and 2019, the changes in fair market value of the interest rate swaps resulted in the deferral of unrealized gains of $15 million and ~~2018,~~unrealized losses of $159 million, respectively. For the nine months ended June 30, 2020 and 2019, the changes in fair market value of the interest rate swaps resulted in the deferral of unrealized losses of ~~$159~~$370 million and ~~unrealized gains of $56~~$369 million, respectively. For the nine months ended June 30, 2019 and 2018, the changes in fair market value of the interest rate swaps resulted in the deferral of unrealized losses of $369 million and unrealized gains of $227 million, respectively.

Commodity Derivatives. TVA enters into certain derivative contracts for coal and natural gas that require physical delivery of the contracted quantity of the commodity. TVA marks to market all such contracts and defers the fair market values as regulatory assets or liabilities on a gross basis. At June 30, ~~2019,~~2020, TVA's coal and natural gas contract derivatives ~~both~~ had terms of up to ~~three years.~~2 and 4 years, respectively.


Commodity Contract Derivatives
	At June 30, 2020						At September 30, 2019
	Number of Contracts	Notional Amount	Fair Value (MtM)		Number of Contracts	Notional Amount	Fair Value (MtM)
Coal contract derivatives	6	8 million tons	$	(10)	8	9 million tons	$	(4)
Natural gas contract derivatives	44	355 million mmBtu	(20)		65	330 million mmBtu	(37)

Commodity Contract Derivatives
At June 30, 2019 At September 30, 2018

Number of Contracts
Notional Amount Fair Value (MtM) Number of Contracts Notional Amount
Fair Value (MtM)
Coal contract derivatives 8 12 million tons $ 19
13 20 million tons $ 58
Natural gas contract derivatives 48 359 million mmBtu $ (41 ) 61 359 million mmBtu $ 2

~~Derivatives Under FTP.~~ ~~TVA has suspended its FTP and no longer uses financial instruments to hedge risks related to commodity prices.~~ Prior to the suspension of the FTP, TVA deferred all FTP unrealized gains (losses) as regulatory liabilities (assets) and recorded only realized gains or losses to match the delivery period of the underlying commodity. TVA did not experience any unrealized gains and losses related to the FTP at June 30, 2019 or September 30, 2018. TVA experienced the following realized losses related to the FTP during the periods set forth in the table below:

Financial Trading Program Realized Gains (Losses)
Three Months Ended
June 30 Nine Months Ended
June 30
2019 2018 2019 2018
Decrease (increase) in fuel expense
Natural gas $ —
$ —
$ —
$ (6 )
Decrease (increase) in purchased power expense
Natural gas —
—
—
(2 )

Table of ~~Contents~~C o ntents

Offsetting of Derivative Assets and Liabilities

The amounts of TVA's derivative instruments as reported inon the Consolidated Balance Sheets at June 30, ~~2019~~,2020, and September 30, ~~2018~~,2019, are shown in the table below:

Derivative Assets and Liabilities
At June 30, 2019
Gross Amounts of Recognized Assets/Liabilities
Gross Amounts Offset in the Balance Sheet⁽¹⁾

Net Amounts of Assets/Liabilities Presented in the Balance Sheet⁽²⁾
Assets
Commodity derivatives not subject to master netting or similar arrangement $ 20
$ —
$ 20

Liabilities
Currency swaps⁽³⁾
$ 170
$ —
$ 170
Interest rate swaps⁽³⁾
1,538
—
1,538
Total derivatives subject to master netting or similar arrangement 1,708
—
1,708
Commodity derivatives not subject to master netting or similar arrangement 42
—
42
Total liabilities $ 1,750
$ —
$ 1,750

At September 30, 2018
Gross Amounts of Recognized Assets/Liabilities
Gross Amounts Offset in the Balance Sheet⁽¹⁾

Net Amounts of Assets/Liabilities Presented in the Balance Sheet⁽²⁾
Assets
Commodity derivatives not subject to master netting or similar arrangement $ 72
$ —
$ 72

Liabilities

Currency swaps⁽³⁾
$ 94
$ —
$ 94
Interest rate swaps⁽³⁾
1,199
—
1,199
Total derivatives subject to master netting or similar arrangement 1,293
—
1,293
Commodity derivatives not subject to master netting or similar arrangement 12
—
12
Total liabilities $ 1,305
$ —
$ 1,305


Derivative Assets and Liabilities⁽¹⁾(in millions)
	At June 30, 2020		At September 30, 2019
Assets

Commodity derivatives not subject to master netting or similar arrangement	$	10	$	12


Liabilities
Currency swaps⁽²⁾	$	264	$	208
Interest rate swaps⁽²⁾	2,108		1,764
Total derivatives subject to master netting or similar arrangement	2,372		1,972
Commodity derivatives not subject to master netting or similar arrangement	40		53
Total liabilities	$	2,412	$	2,025

Notes

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

~~(2)~~ There ~~are~~were no ~~derivative contracts subject to a master netting arrangement or similar agreement that are not offset in the~~offsetting amounts on TVA's Consolidated Balance ~~Sheets.~~Sheets at either June 30, 2020, or September 30, 2019.

~~(3)~~(2) Letters of credit of approximately ~~$1.1~~$1.5 billion and ~~$921 million~~$1.3 billion were posted as collateral at June 30, ~~2019,~~2020, and September 30, ~~2018,~~2019, respectively, to partially secure the liability positions of one of the currency swaps and one of the interest rate swaps in accordance with the collateral requirements for these derivatives.

Other Derivative Instruments

Investment Fund Derivatives. Investment funds consist primarily of funds held in the Nuclear Decommissioning Trust ("NDT"), the Asset Retirement Trust ("ART"), the Supplemental Executive Retirement Plan ("SERP"), and the TVA Deferred Compensation Plan ("DCP"). See Note 15 — Fair Value Measurements — Investment Funds for a discussion of the trusts, plans, and types of investments. The NDT and ART may invest in derivative instruments which may include swaps, futures, options, forwards, and other instruments. At June 30, ~~2019,~~2020, and September 30, ~~2018,~~2019, the NDT held investments in forward contracts to purchase debt securities. The fair values of these derivatives were in net asset positions totaling ~~$25~~$11 million and ~~$45~~$22 million at June 30, ~~2019,~~2020, and September 30, ~~2018,~~2019, respectively.

Collateral. TVA's interest rate swaps and currency swaps contain contract provisions that require a party to post collateral (in a form such as cash or a letter of credit) when the party's liability balance under the agreement exceeds a certain threshold. At June 30, ~~2019,~~2020, the aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a liability position was ~~$1.7~~$2.4 billion. TVA's collateral obligations at June 30, ~~2019,~~2020, under these arrangements were approximately ~~$1.1~~$1.5 billion, for which TVA had posted approximately ~~$1.1~~$1.5 billion in letters of credit. These letters of credit reduce

~~Table of Contents~~

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

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

•If TVA remains a majority-owned U.S. government entity but Standard & Poor's Financial Services, LLC ~~("S&P")~~ or Moody's Investors Service, Inc. ("Moody's") downgrades TVA's credit rating to AA or Aa2, respectively, TVA's collateral obligations would likely increase by $22 million, and

•If TVA ceases to be majority-owned by the U.S. government, TVA's credit rating would likely be downgraded and TVA would be required to post additional collateral.

Counterparty Risk

TVA may be exposed to certain risks when a counterparty has the potential to fail to meet its obligations in accordance with agreed terms. These risks may be related to credit, operational, or nonperformance matters. To mitigate certain counterparty risk, TVA analyzes the ~~counterparty’s~~counterparty's financial condition prior to entering into an agreement, establishes credit limits, monitors the appropriateness of those limits, as well as any changes in the creditworthiness of the counterparty, on an ongoing basis, and when required, employs credit mitigation measures, such as collateral or prepayment arrangements and master purchase and sale ~~agreements, to mitigate credit risk.~~agreements.

Customers. TVA is exposed to counterparty credit risk associated with trade accounts receivable from delivered power sales to LPCs, and from industries and federal agencies directly served, all located in the Tennessee Valley region. Of the $1.3

Table of C o ntents

billion and $1.6 billion of receivables from power sales outstanding at June 30, 2020, and September 30, 2019, respectively, nearly all counterparties were rated investment grade. The obligations of customers that are not investment grade are secured by collateral. TVA is also exposed to risk from exchange power arrangements with a small number of investor-owned regional utilities related to either delivered power or the replacement of open positions of longer-term purchased power or fuel agreements. TVA believes its policies and procedures for counterparty performance risk reviews have generally protected TVA against significant exposure related to market and economic conditions. See Note 1— Summary of Significant Accounting Policies — Allowance for Uncollectible Accounts and Note 3.3 — Accounts Receivable, Net.

TVA had revenue from two LPCs that collectively accounted for 18 percent of total operating revenues for both the three months ended June 30, 2020 and 2019. TVA had revenue from two LPCs that collectively accounted for 17 percent and 16 percent of total operating revenues for the nine months ended June 30, 2020 and 2019, respectively.

Suppliers. TVA assesses potential supplier performance risks, including procurement of fuel, parts, and services. If suppliers are unable to perform under TVA's existing contracts or if TVA is unable to obtain similar services from other vendors, TVA could experience delays, disruptions, additional costs, or other operational outcomes that may impact generation,

maintenance, and capital programs. If one of TVA's fuel or purchased power suppliers fails to perform under the terms of its contract with TVA, TVA might lose the money that it paid to the supplier under the contract and have to purchase replacement fuel or power on the spot market, perhaps at a significantly higher price than TVA was entitled to pay under the contract. In addition, TVA might not be able to acquire replacement fuel or power in a timely manner and thus might be unable to satisfy its own obligations to deliver power. ~~Nuclear fuel requirements, including uranium mining and milling, conversion services, enrichment services, and fabrication services, are met from various suppliers, depending on the type of service.~~

Natural Gas. TVA purchases the majority of its natural gas requirements from a variety of suppliers under short-term contracts. In the event of nonperformance by these suppliers, TVA believes that it can obtain replacement natural gas.

Coal. To help ensure a reliable supply of coal, TVA had coal contracts with multiple suppliers at June 30, ~~2019.~~2020. The contracted supply of coal is sourced from multiple geographic regions of the ~~United States~~U.S. and is to be delivered via various transportation methods (e.g., barge, rail, and truck). Emerging technologies, environmental regulations, and low natural gas prices have contributed to weak demand for coal. As a result, coal suppliers are facing increased financial pressure, which has led to relatively poor credit ratings and bankruptcies. Continued difficulties by coal suppliers, including impacts from the COVID-19 pandemic, could result in consolidations, additional bankruptcies, restructuring, contract renegotiations, or other scenarios. ~~Under these scenarios and TVA’s potential available responses, TVA does not anticipate a significant financial impact in obtaining continued fuel supply for its coal-fired generation.~~

Nuclear Fuel. Nuclear fuel is obtained predominantly through long-term uranium concentrate supply contracts, contracted conversion services, contracted enrichment services, or a combination thereof, and contracted fuel fabrication services. The supply markets for uranium concentrates and certain nuclear fuel services are subject to price fluctuations and availability restrictions. Supply market conditions may make procurement contracts subject to credit risk related to the potential nonperformance of counterparties. In the event of nonperformance by these or other suppliers, TVA believes that replacement uranium concentrate and nuclear fuel services can be obtained, although at prices that may be unfavorable when compared to the prices under the current supply agreements.

Purchased Power. TVA has a power purchase agreement that expires on March 31, 2032, with a supplier of electricity for 440 megawatts ("MW") of summer net capability from a lignite-fired generating plant. TVA has determined that the supplier has the equivalent of a non-investment grade credit rating; therefore, the supplier has provided credit assurance to TVA under the terms of the agreement.

Other Suppliers. At this time, TVA has experienced minimal impacts due to force majeure events, with the exception of a manufacturing delay for a major turbine component. TVA and the vendor have developed a mitigation strategy to reduce projected delays and impacts to TVA's outage schedule.

Derivative Counterparties. ~~TVA~~TVA has entered into physical and financial contracts that qualify as derivatives for hedging purposes, and TVA's NDT, ~~fund,~~ ART, ~~fund,~~ and qualified defined benefit pension plan have entered into derivative contracts for investment purposes. If a counterparty to one of the physical or financial derivative transactions defaults, TVA might incur substantial costs in connection with entering into a replacement transaction. If a counterparty to the derivative contracts into which the NDT, ~~fund,~~ the ART, ~~fund,~~ and the qualified pension plan have entered for investment purposes defaults, the value of the investment could decline significantly or perhaps become worthless. TVA has concentrations of credit risk from the banking, coal, and ~~coal~~gas industries because multiple companies in these industries serve as counterparties to TVA in various derivative transactions. At June 30, ~~2019,~~2020, all of TVA's currency swaps and interest rate swaps as well as all of the derivatives in the NDT and ~~the~~ ART were with banking counterparties whose Moody's credit ratings were A3 or higher.

~~Table of Contents~~

TVA classifies qualified forward coal and natural gas contracts as derivatives. See Derivatives Not Receiving Hedge Accounting Treatment above. At June 30, ~~2019,~~2020, the coal contracts were with counterparties whose Moody's credit rating, or ~~TVA’s~~TVA's internal analysis when such information was unavailable, ranged from DB1 to ~~Ba3.~~Ba1. At June 30, ~~2019,~~2020, the natural gas contracts were with counterparties whose ratings ranged from B1Caa2 to ~~A1.~~A2. See Suppliers above for discussion of challenges facing the coal industry. ~~TVA's total value for derivative contracts with coal~~TVA recognizes the oil and ~~natural~~ gas ~~counterparties~~industry has been impacted as the result of the COVID-19 pandemic and the slowdown in ~~an asset position as~~demand. TVA will continue to monitor the impacts and affected credit ratings and enforce contract performance assurance provisions when applicable.

Table of ~~June 30, 2019, was approximately $20 million.~~C o ntents

15. Fair Value Measurements

Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the asset or liability's principal market, or in the absence of a principal market, the most advantageous market for the asset or liability in an orderly transaction between market participants. TVA uses market or observable inputs as the preferred source of values, followed by assumptions based on hypothetical transactions in the absence of market inputs.

Valuation Techniques

The measurement of fair value results in classification into a hierarchy by the inputs used to determine the fair value as follows:



Level 1	—	Unadjusted quoted prices in active markets accessible by the reporting entity for identical assets or liabilities. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing.
Level 2	—	Pricing inputs other than quoted market prices included in Level 1 that are based on observable market data and that are directly or indirectly observable for substantially the full term of the asset or liability. These include quoted market prices for similar assets or liabilities, quoted market prices for identical or similar assets in markets that are not active, adjusted quoted market prices, inputs from observable data such as interest rate and yield curves, volatilities and default rates observable at commonly quoted intervals, and inputs derived from observable market data by correlation or other means.
Level 3	—	Pricing inputs that are unobservable, or less observable, from objective sources. Unobservable inputs are only to be used to the extent observable inputs are not available. These inputs maintain the concept of an exit price from the perspective of a market participant and should reflect assumptions of other market participants. An entity should consider all market participant assumptions that are available without unreasonable cost and effort. These are given the lowest priority and are generally used in internally developed methodologies to generate management's best estimate of the fair value when no observable market data is available.

A financial instrument's level within the fair value hierarchy (where Level 1 is the highest and Level 3 is the lowest) is based on the lowest level of input significant to the fair value measurement.

The following sections describe the valuation methodologies TVA uses to measure different financial instruments at fair value. Except for gains and losses on SERP and DCP assets, all changes in fair value of these assets and liabilities have been recorded as changes in regulatory assets, regulatory liabilities, or AOCI on TVA's Consolidated Balance Sheets and Consolidated Statements of Comprehensive Income (Loss). Except for gains and losses on SERP and DCP assets, there has been no impact to the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows related to these fair value measurements.

Investment Funds

At June 30, ~~2019,~~2020, Investment funds were ~~composed~~comprised of ~~$2.9~~$3.0 billion of equity securities and debt securities classified as trading measured at fair value. Equity and trading debt securities are held in the NDT, ART, SERP, and DCP. The NDT holds funds for the ultimate decommissioning of TVA's nuclear power plants. The ART holds funds primarily for the costs related to the future closure and retirement of TVA's other long-lived assets. The balances in the NDT and ART were $2.1 billion and ~~$717~~$777 million, respectively, at June 30, ~~2019.~~2020.

TVA established a SERP to provide benefits to selected employees of TVA which are comparable to those provided by competing organizations. The DCP is designed to provide participants with the ability to defer compensation until employment with TVA ends. The NDT, ART, SERP, and DCP funds are invested in portfolios of securities generally designed to achieve a return in line with overall equity and debt market performance.

The NDT, ART, SERP, and DCP are composed of multiple types of investments and are managed by external institutional investment managers. Most U.S. and international equities, U.S. Treasury inflation-protected securities, real estate investment trust securities, and cash securities and certain derivative instruments are measured based on quoted exchange prices in active markets and are classified as Level 1 valuations. Fixed-income investments, high-yield fixed-income investments, currencies, and most derivative instruments are non-exchange traded and are classified as Level 2 valuations. These measurements are based on market and income approaches with observable market inputs.

~~Table of Contents~~

Private equity limited partnerships, private real ~~estate~~asset investments, and private credit investments may include holdings of investments in private real estate, venture capital, buyout, mezzanine or subordinated debt, restructuring or distressed debt, and special situations through funds managed by third-party investment managers. These investments generally involve a three-to-four-year period where the investor contributes capital, followed by a period of distribution, typically over several years. The

Table of C o ntents

investment period is generally, at a minimum, 10 years or longer. The NDT had unfunded commitments related to private equity limited partnerships of ~~$185~~$216 million, unfunded commitments related to private real ~~estate~~assets of ~~$35~~$58 million, and unfunded commitments related to private credit of $4$20 million at June 30, ~~2019.~~2020. The ART had unfunded commitments related to private equity limited partnerships of ~~$95~~$133 million, unfunded commitments related to private real ~~estate~~assets of ~~$16~~$50 million, and unfunded commitments related to private credit of $2$10 million at June 30, ~~2019~~.2020. These investments have no redemption or limited redemption options and may also impose restrictions on the NDT's and ART's ability to liquidate their investments. There are no0 readily available quoted exchange prices for these investments. The fair value of these investments is based on information provided by the investment managers. These investments are valued on a quarterly basis. TVA's private equity limited partnerships, private real ~~estate~~asset investments, and private credit investments are valued at net asset values ("NAV") as a practical expedient for fair value. TVA classifies its interest in these types of investments as investments measured at net asset value in the fair value hierarchy.

Commingled funds represent investment funds comprising multiple individual financial instruments. The commingled funds held by the NDT, ART, SERP, and DCP consist of either a single class of securities, such as equity, debt, or foreign currency securities, or multiple classes of securities. All underlying positions in these commingled funds are either exchange traded or measured using observable inputs for similar instruments. The fair value of commingled funds is based on NAV per fund share (the unit of account), derived from the prices of the underlying securities in the funds. These commingled funds can be redeemed at the measurement date NAV and are classified as Commingled funds measured at net asset value in the fair value hierarchy.

Realized and unrealized gains and losses on equity and trading debt securities are recognized in current earnings and are based on average cost. The gains and losses of the NDT and ART are subsequently reclassified to a regulatory asset or liability account in accordance with TVA's regulatory accounting policy. See Note 1 — Summary of Significant Accounting Policies — Cost-Based Regulation and Note 8 — Regulatory Assets and Liabilities. TVA recorded unrealized gains and losses related to its equity and trading debt securities held during each period as follows:


Unrealized Investment Gains (Losses) (in millions)
		Three Months Ended June 30						Nine Months Ended June 30
Fund	Financial Statement Presentation	2020		2019		2020		2019
NDT	Regulatory asset	$	235	$	(37)	$	(11)	$	(84)
ART	Regulatory asset	97		(6)		(1)		(58)
SERP	Other income (expense)	7		1		(1)		—
DCP	Other income (expense)	2		1		—		(1)

Unrealized Investment Gains (Losses)
Three Months Ended
June 30 Nine Months Ended
June 30
Fund Financial Statement Presentation 2019 2018 2019 2018
SERP Other income (expense) $ 1
$ —
$ —
$ —

DCP Other income (expense) 1
—
(1 ) —

NDT Regulatory asset (37 ) 9
(84 ) (19 )
ART Regulatory asset (6 ) 1
(58 ) 7

Due to higher volatility in the financial markets associated with the COVID-19 pandemic, TVA has experienced fluctuations related to its ART and NDT investment portfolio during the nine months ended June 30, 2020. The losses experienced during the three months ended March 31, 2020, have been recovered. For the nine months ended June 30, 2020, the NDT has increased in value $17 million. Despite this volatility, TVA’s NDT funding as of June 30, 2020, continues to be fully funded per the Nuclear Regulatory Commission’s (“NRC”) funding requirements.

Currency and Interest Rate Derivatives

See Note 14 — Risk Management Activities and Derivative Transactions — Cash Flow Hedging Strategy for Currency Swaps and Derivatives Not Receiving Hedge Accounting Treatment for a discussion of the nature, purpose, and contingent features of TVA's currency swaps and interest rate swaps. These swaps are classified as Level 2 valuations and are valued based on income approaches using observable market inputs for similar instruments.

Commodity Contract Derivatives

Most of these contracts are valued based on market approaches which utilize ~~short-~~short-term and mid-term market-quoted prices from an external industry brokerage service. A small number of these contracts are valued based on a pricing model using long-term price estimates from TVA's coal price forecast. To value the volume option component of applicable coal contracts, TVA uses a Black-Scholes pricing model which includes inputs from the forecast, contract-specific terms, and other market inputs. These contracts are classified as Level 3 valuations.

Table of C o ntents

Nonperformance Risk

The assessment of nonperformance risk, which includes credit risk, considers changes in current market conditions, readily available information on nonperformance risk, letters of credit, collateral, other arrangements available, and the nature of master netting arrangements. TVA is a counterparty to currency swaps, interest rate swaps, commodity contracts, and other derivatives which subject TVA to nonperformance risk. Nonperformance risk on the majority of investments and certain exchange-traded instruments held by TVA is incorporated into the exit price that is derived from quoted market data that is used to mark the investment to market.

~~Table of Contents~~

Nonperformance risk for most of TVA's derivative instruments is an adjustment to the initial asset/liability fair value. TVA adjusts for nonperformance risk, both of TVA (for liabilities) and the counterparty (for assets), by applying credit valuation adjustments ("CVAs"). TVA determines an appropriate CVA for each applicable financial instrument based on the term of the instrument and TVA's or the counterparty's credit rating as obtained from Moody's. For companies that do not have an observable credit rating, TVA uses internal analysis to assign a comparable rating to the counterparty. TVA discounts each financial instrument using the historical default rate (as reported by Moody's for CY 1983 to CY ~~2018)~~2019) for companies with a similar credit rating over a time period consistent with the remaining term of the contract. The application of CVAs resulted in a less than $1 million decrease in the fair value of assets and a $1 million decrease in the fair value of liabilities at June 30, ~~2019.~~2020.

Table of C o ntents

Fair Value Measurements

The following tables set forth by level, within the fair value hierarchy, TVA's financial assets and liabilities that were measured at fair value on a recurring basis ~~as of~~ at June 30, ~~2019~~,2020, and September 30, ~~2018~~.2019. Financial assets and liabilities have been classified in their entirety based on the lowest level of input that is significant to the fair value measurement. TVA's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the determination of the fair value of the assets and liabilities and their classification in the fair value hierarchy levels.

Fair Value Measurements
At June 30, 2019
Quoted Prices in Active
Markets for
Identical Assets
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Total
Assets
Investments
Equity securities $ 330
$ —
$ —
$ 330
Government debt securities 235
60
—
295
Corporate debt securities —
430
—
430
Mortgage and asset-backed securities —
35
—
35
Institutional mutual funds 245
—
—
245
Forward debt securities contracts —
25
—
25
Private credit funds measured at net asset value⁽¹⁾
—
—
—
30
Private equity funds measured at net asset value⁽¹⁾
—
—
—
135
Private real estate funds measured at net asset value⁽¹⁾
—
—
—
131
Commingled funds measured at net asset value⁽¹⁾
—
—
—
1,243
Total investments 810
550
—
2,899
Commodity contract derivatives —
1
19
20
Total $ 810
$ 551
$ 19
$ 2,919

Quoted Prices in Active Markets for Identical Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Total
Liabilities
Currency swaps⁽²⁾
$ —
$ 170
$ —
$ 170
Interest rate swaps —
1,538
—
1,538
Commodity contract derivatives —
42
—
42
Total $ —
$ 1,750
$ —
$ 1,750


Fair Value Measurements At June 30, 2020 (in millions)
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets
Investments
Equity securities	$	470	$	—	$	—	$	470
Government debt securities	366		52		—		418
Corporate debt securities	—		322		—		322
Mortgage and asset-backed securities	—		28		—		28
Institutional mutual funds	173		—		—		173
Forward debt securities contracts	—		11		—		11
Private credit funds measured at net asset value⁽¹⁾	—		—		—		57
Private equity funds measured at net asset value⁽¹⁾	—		—		—		181
Private real asset funds measured at net asset value⁽¹⁾	—		—		—		162
Commingled funds measured at net asset value⁽¹⁾	—		—		—		1,169
Total investments	1,009		413		—		2,991

Commodity contract derivatives	—		8		2		10


Total	$	1,009	$	421	$	2	$	3,001

	Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Liabilities
Currency swaps⁽²⁾	$	—	$	264	$	—	$	264
Interest rate swaps	—		2,108		—		2,108
Commodity contract derivatives	—		28		12		40
Total	$	—	$	2,400	$	12	$	2,412

Notes

(1) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented inon the Consolidated Balance Sheets.

(2) TVA records currency swaps net of cash collateral received from or paid to the counterparty, to the extent such amount is not recorded in Accounts payable and accrued liabilities. See Note 14 — Risk Management Activities and Derivative Transactions — Offsetting of Derivative Assets and Liabilities.

Table of ~~Contents~~C

o ntents

Fair Value Measurements
At September 30, 2018

Quoted Prices in Active
Markets for
Identical Assets
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Total
Assets

Investments
Equity securities $ 220
$ —
$ —
$ 220
Government debt securities 199
37
—
236
Corporate debt securities —
499
—
499
Mortgage and asset-backed securities —
50
—
50
Institutional mutual funds 126
—
—
126
Forward debt securities contracts —
45
—
45
Private equity funds measured at net asset value⁽¹⁾
—
—
—
132
Private real estate funds measured at net asset value⁽¹⁾
—
—
—
124
Commingled funds measured at net asset value⁽¹⁾
—
—
—
1,430
Total investments 545
631
—
2,862
Commodity contract derivatives —
13
59
72
Total $ 545
$ 644
$ 59
$ 2,934

Quoted Prices in Active Markets for Identical Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Total
Liabilities

Currency swaps⁽²⁾
$ —
$ 94
$ —
$ 94
Interest rate swaps —
1,199
—
1,199
Commodity contract derivatives —
11
1
12
Total $ —
$ 1,304
$ 1
$ 1,305


Fair Value Measurements At September 30, 2019 (in millions)
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets
Investments
Equity securities	$	464	$	—	$	—	$	464
Government debt securities	279		65		—		344
Corporate debt securities	—		417		—		417
Mortgage and asset-backed securities	—		32		—		32
Institutional mutual funds	250		—		—		250
Forward debt securities contracts	—		22		—		22
Private equity funds measured at net asset value⁽¹⁾	—		—		—		140
Private real estate funds measured at net asset value⁽¹⁾	—		—		—		135
Private credit funds measured at net asset value⁽¹⁾	—		—		—		33
Commingled funds measured at net asset value⁽¹⁾	—		—		—		1,131
Total investments	993		536		—		2,968

Commodity contract derivatives	—		7		5		12


Total	$	993	$	543	$	5	$	2,980


	Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Liabilities
Currency swaps⁽²⁾	$	—	$	208	$	—	$	208
Interest rate swaps	—		1,764		—		1,764
Commodity contract derivatives	—		44		9		53


Total	$	—	$	2,016	$	9	$	2,025

Notes

TVA uses internal valuation specialists for the calculation of its commodity contract derivatives fair value measurements classified as Level 3. Analytical testing is performed on the change in fair value measurements each period to ensure the valuation is reasonable based on changes in general market assumptions. Significant changes to the estimated data used for unobservable inputs, in isolation or combination, may result in significant variations to the fair value measurement reported.

Table of ~~Contents~~C

o ntents

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


Fair Value Measurements Using Significant Unobservable Inputs (in millions)
	Commodity Contract Derivatives
	Three Months Ended June 30		Nine Months Ended June 30
Balance at beginning of period	$	38	$	58




Change in net unrealized gains (losses) deferred as regulatory assets and liabilities	(19)		(39)
Balance at June 30, 2019	$	19	$	19

Balance at beginning of period	$	(7)	$	(4)



Settlements	(1)		(1)
Change in net unrealized gains (losses) deferred as regulatory assets and liabilities	(2)		(5)
Balance at June 30, 2020	$	(10)	$	(10)

Fair Value Measurements Using Significant Unobservable Inputs
Commodity Contract Derivatives
Three Months Ended
June 30 Nine Months Ended
June 30
Balance at beginning of period $ (52 ) $ (67 )
Change in net unrealized gains (losses) deferred as regulatory assets and liabilities 57
72
Balance at June 30, 2018 $ 5
$ 5

Balance at beginning of period $ 38
$ 58
Change in net unrealized gains (losses) deferred as regulatory assets and liabilities (19 ) (39 )
Balance at June 30, 2019 $ 19
$ 19

The following table presents quantitative information related to the significant unobservable inputs used in the measurement of fair value of TVA's assets and liabilities classified as Level 3 in the fair value hierarchy:

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at

June 30, 2020

Valuation Technique(s)

Unobservable Inputs

Range⁽¹⁾

Assets

Commodity contract derivatives

Pricing model

Coal supply and demand

0.5 - 0.6 billion tons/year

Long-term market prices

$11.90 - $43.00/ton

Liabilities

Commodity contract derivatives

Pricing model

Coal supply and demand

0.5 - 0.6 billion tons/year

Long-term market prices

$11.90 - $43.00/ton

Quantitative Information about Level 3 Fair Value Measurements
Fair Value at June 30,
2019 Valuation Technique(s) Unobservable Inputs Range
Assets
Commodity contract derivatives $ 19

Pricing model Coal supply and demand 0.6 - 0.8 billion tons/year
Long-term market prices $12.20 - $106.35/ton
Liabilities
There were no commodity contract derivatives in liability positions at June 30, 2019.

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at September 30, 2019

Valuation Technique(s)

Unobservable Inputs

Range

Assets

Commodity contract derivatives

Pricing model

Coal supply and demand

0.4 - 0.8 billion tons/year

Long-term market prices

$12.10 - $94.51/ton

Liabilities

Commodity contract derivatives

Pricing model

Coal supply and demand

0.4 - 0.8 billion tons/year

Long-term market prices

$12.10 - $94.51/ton

Note

(1) During the third quarter of 2020, TVA updated the range estimate to align with the maximum contract term of related commodity contract derivatives.

Quantitative Information about Level 3 Fair Value Measurements
Fair Value at September 30, 2018 Valuation Technique(s) Unobservable Inputs Range
Assets
Commodity contract derivatives $ 59
Pricing model Coal supply and demand 0.7 - 0.8 billion tons/year
Long-term market prices $12.25 - $112.24/ton
Liabilities
Commodity contract derivatives $ 1
Pricing model Coal supply and demand 0.7 - 0.8 billion tons/year
Long-term market prices $12.25 - $112.24/ton

Table of ~~Contents~~C o ntents

Other Financial Instruments Not Recorded at Fair Value

TVA uses the methods and assumptions described below to estimate the fair value of each significant class of financial ~~instrument.~~instruments. The fair value of the financial instruments held at June 30, ~~2019~~,2020, and September 30, ~~2018~~,2019, may not be representative of the actual gains or losses that will be recorded when these instruments mature or are called or presented for early redemption. The estimated values of TVA's financial instruments not recorded at fair value at June 30, ~~2019~~,2020, and September 30, ~~2018~~,2019, were as follows:


Estimated Values of Financial Instruments Not Recorded at Fair Value (in millions)
		At June 30, 2020						At September 30, 2019
	Valuation Classification	Carrying Amount		Fair Value		Carrying Amount		Fair Value
EnergyRight^®receivables (including current portion)	Level 2	$	91	$	90	$	101	$	100

Loans and other long-term receivables, net (including current portion)	Level 2	134		122		131		120

EnergyRight^®financing obligations (including current portion)	Level 2	101		112		113		126

Unfunded loan commitments	Level 2	—		7		—		10

Membership interests of VIEs subject to mandatory redemption (including current portion)	Level 2	27		38		28		37

Long-term outstanding power bonds (including current maturities), net	Level 2	19,849		26,749		20,124		26,059

Long-term debt of VIEs (including current maturities), net	Level 2	1,109		1,437		1,128		1,371

Long-term notes payable (including current maturities)	Level 2	—		—		23		23

Estimated Values of Financial Instruments Not Recorded at Fair Value
At June 30, 2019 At September 30, 2018
Valuation Classification Carrying
Amount Fair
Value Carrying
Amount Fair
Value
EnergyRight^®receivables (including current portion)
Level 2 $ 103
$ 102
$ 112
$ 112

Loans and other long-term receivables, net (including current portion) Level 2 $ 125
$ 111
$ 138
$ 123

EnergyRight^®financing obligation (including current portion)
Level 2 $ 115
$ 129
$ 127
$ 143

Unfunded loan commitments Level 2 $ —
$ 9
$ —
$ 3

Membership interest of variable interest entities subject to mandatory redemption (including current portion) Level 2 $ 29
$ 37
$ 30
$ 37

Long-term outstanding power bonds (including current maturities), net Level 2 $ 20,145
$ 24,846
$ 21,189
$ 23,896

Long-term debt of variable interest entities (including current maturities), net Level 2 $ 1,147
$ 1,351
$ 1,165
$ 1,256

Long-term notes payable (including current maturities) Level 2 $ 23
$ 23
$ 69
$ 68

The carrying value of Cash and cash equivalents, Restricted cash and cash equivalents, and Short-term debt, net approximate their fair values.

The fair value for loans and other long-term receivables is estimated by determining the present value of future cash flows using a discount rate equal to lending rates for similar loans made to borrowers with similar credit ratings and for similar remaining maturities, where applicable. The fair value of long-term debt and membership interests of ~~VIE~~VIEs subject to mandatory redemption is estimated by determining the present value of future cash flows using current market rates for similar obligations, giving effect to credit ratings and remaining maturities.

Table of C o ntents

16. Revenue

~~As described in Note 2, TVA adopted~~ ~~Revenue from Contracts with Customers~~ effective October 1, 2018, using the modified retrospective method of adoption, which does not require restatement of prior year reported results. As a result of the adoption of this standard, no cumulative effect adjustment was recorded. Additionally, comparative disclosures for 2018 operating results with the previous revenue recognition rules are not applicable as TVA’s revenue recognition has not materially changed as a result of the new standard.

Revenue from Sales of Electricity

~~TVA’s~~TVA's revenue from contracts with customers is primarily derived from the generation and sale of electricity to its customers and is included in Revenue from sales of electricity on the Consolidated Statements of Operations. Electricity is sold primarily to LPCs for distribution to their end-use customers. In addition, TVA sells electricity to directly served industrial companies, federal agencies, and others.

~~Table of Contents~~



LPC sales			Approximately 9293 percent of ~~TVA’s~~TVA's revenue from sales of electricity isfor the three and nine months ended June 30, 2020 was to LPCs, which then distribute the power to their customers using their own distribution systems. Power is delivered to each LPC at delivery points within the LPC's service territory. TVA recognizes revenue when the customer takes possession of the power at the delivery point. For power sales, the performance obligation to deliver power is satisfied in a series over time because the sales of electricity over the term of the customer contract are a series of distinct goods that are substantially the same and have the same pattern of transfer to the customer. TVA has no continuing performance obligations subsequent to delivery. Using the output method for revenue recognition provides a faithful depiction of the transfer of electricity as customers obtain control of the power and benefit from its use at delivery. Additionally, TVA has an enforceable right to consideration for energy delivered at any discrete point in time and will recognize revenue at an amount that reflects the consideration to which TVA is entitled for the energy delivered. The amount of revenue is based on contractual prices approved by the TVA Board. Customers are invoiced monthly for power delivered as measured by meters located at the delivery points. The net transaction price is offset by certain credits available to customers that are known at the time of billing. Credits are designed to achieve objectives of the TVA Act and include items such as hydro preference credits for residential customers of LPCs, economic development credits to promote growth in the Tennessee Valley, wholesale bill credits to LPCs participating in the long-term Partnership Agreement, and interruptible credits allowing TVA to reduce industrial customer usage in periods of peak demand to balance system demand. Payments are typically due within approximately one month of invoice issuance.

Directly served customers			Directly served customers, including industrial customers, federal agencies, and other customers, take power for their own consumption. Similar to LPCs, power is delivered to a delivery point, at which time the customer takes possession and TVA recognizes revenue. For all power sales, the performance obligation to deliver power is satisfied in a series over time since the sales of electricity over the term of the customer contract are a series of distinct goods that are substantially the same and have the same pattern of transfer to the customer. TVA has no continuing performance obligations subsequent to delivery. Using the output method for revenue recognition provides a faithful depiction of the transfer of electricity as customers obtain control of the power and benefit from its use at delivery. Additionally, TVA has an enforceable right to consideration for energy delivered at any discrete point in time and will recognize revenue at an amount that reflects the consideration to which TVA is entitled for the energy delivered. The amount of revenue is based on contractual prices approved by the TVA Board. Customers are invoiced monthly for power delivered as measured by meters located at the delivery points. The net transaction price is offset by certain credits available to customers that are known at the time of billing. Examples of credits include items such as economic development credits to promote growth in the Tennessee Valley and interruptible credits allowing TVA to reduce industrial customer usage in periods of peak demand to balance system demand. Payments are typically due within approximately one month of invoice issuance.

Other Revenue

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

Table of ~~Contents~~C o ntents

Disaggregated ~~Revenue~~Revenues

During the three and nine months ended June 30, ~~2019,~~2020, revenues generated from ~~TVA’s~~TVA's electricity sales were ~~$2.6~~$2.2 billion and ~~$8.0~~$7.2 billion, respectively, and accounted for virtually all of ~~TVA’s~~TVA's revenues. ~~TVA’s~~TVA's operating revenues by state for the three and nine months endedJune 30, ~~2019~~2020 and ~~2018~~2019, are detailed in the table below:


Operating Revenues By State (in millions)
	Three Months Ended June 30						Nine Months Ended June 30
	2020		2019		2020		2019
Alabama	$	312	$	367	$	1,041	$	1,146
Georgia	52		59		179		196
Kentucky	140		157		455		498
Mississippi	204		250		668		751
North Carolina	13		15		50		56
Tennessee	1,485		1,705		4,809		5,273
Virginia	9		10		32		35
Subtotal	2,215		2,563		7,234		7,955
Off-system sales	1		2		3		3
Revenue from sales of electricity	2,216		2,565		7,237		7,958
Other revenue	35		39		113		121
Total operating revenues	$	2,251	$	2,604	$	7,350	$	8,079

Operating Revenues By State
(in millions)
Three Months Ended
June 30 Nine Months Ended
June 30
2019 2018 2019 2018
Alabama $ 367
$ 383
$ 1,146
$ 1,152
Georgia 59
59
196
196
Kentucky 157
171
498
504
Mississippi 250
258
751
746
North Carolina 15
14
56
49
Tennessee 1,705
1,771
5,273
5,252
Virginia 10
11
35
37
Subtotal 2,563
2,667
7,955
7,936
Off-system sales 2
2
3
6
Revenue capitalized during pre-commercial plant operations⁽¹⁾
—
—
—
(11 )
Revenue from sales of electricity 2,565
2,669
7,958
7,931
Other revenues 39
38
121
117
Total operating revenues $ 2,604
$ 2,707
$ 8,079
$ 8,048

~~Note~~

~~(1) Represents revenue capitalized during pre-commercial operations of less than $1 million and $11 million for the three and nine months ended June 30, 2018, respectively. See Note 1 —~~ ~~Pre-Commercial Plant Operations~~.

~~TVA’s~~TVA's operating revenues by customer type for the three and nine months ended June 30, ~~2019~~2020 and ~~2018~~2019, are detailed in the table below:


Operating Revenues by Customer Type (in millions)	Operating Revenues by Customer Type (in millions)									Operating Revenues by Customer Type (in millions)
	Three Months Ended June 30				Nine Months Ended June 30						Three Months Ended June 30						Nine Months Ended June 30
	2019		2018		2019		2018				2020		2019		2020		2019
Revenue from sales of electricity										Revenue from sales of electricity
Local power companies	$	2,366	$	2,464	$	7,347	$	7,344
Local power companies⁽¹⁾										Local power companies⁽¹⁾	$	2,058	$	2,366	$	6,716	$	7,347
Industries directly served	168		172		521		506			Industries directly served	132		168		442		521
Federal agencies and other	31		33		90		92			Federal agencies and other	26		31		79		90
Revenue capitalized during pre-commercial plant operations⁽¹⁾	—		—		—		(11		)
Revenue from sales of electricity	2,565		2,669		7,958		7,931			Revenue from sales of electricity	2,216		2,565		7,237		7,958
Other revenues	39		38		121		117
Other revenue										Other revenue	35		39		113		121
Total operating revenues	$	2,604	$	2,707	$	8,079	$	8,048		Total operating revenues	$	2,251	$	2,604	$	7,350	$	8,079

Note

(1) ~~Represents revenue capitalized during pre-commercial operations of less than $1 million and $11 million~~The amount for the three and nine months ended June 30, ~~2018, respectively. See Note 1 —~~ ~~Pre-Commercial Plant Operations~~.2020, is net of $38 million and $108 million, respectively, of wholesale bill credits to LPCs participating in the long-term Partnership Agreement.

TVA and LPCs continue to work together to meet the changing needs of consumers around the Tennessee Valley. At its August 2019 meeting, the TVA Board approved a 20-year Partnership Agreement option that better aligns the length of LPC contracts with TVA's long-term commitments. These agreements are automatically extended each year after their initial effective date, contingent upon certain circumstances, including agreement on flexibility options and limited rate increases going forward. Participating LPCs will receive benefits including a 3.1 percent wholesale bill credit in exchange for their long-term commitment, which enables TVA to recover its long-term financial commitments over a commensurate period. In June 2020, TVA provided participating LPCs a flexibility option that allows them to locally generate up to approximately five percent of average total hourly energy sales over the prior five years in order to meet their individual customers' needs. As of August 3, 2020, 141 LPCs had signed the 20-year Partnership Agreement with TVA, and 42 LPCs had signed a Flexibility Agreement.

Table of ~~Contents~~C

o ntents

The number of LPCs with the contract arrangements described below, the revenues derived from such arrangements for the three and nine months endedJune 30, ~~2019,~~2020, and the percentage of ~~TVA’s~~TVA's total operating revenues for the three and nine months ended June 30, ~~2019~~2020 represented by these revenues, are summarized in the tables below:

TVA Local Power Company Contracts
At June 30, 2019
Contract Arrangements⁽¹⁾
Number of LPCs Sales to LPCs
in the Three Months Ended June 30, 2019
(in millions) Percentage of Total Operating Revenues in the Three Months Ended June 30, 2019
20-year termination notice 3
$ 28
1.1 %
15-year termination notice 11
112
4.3 %
12-year termination notice 1
6
0.2 %
10-year termination notice 52
822
31.6 %
6-year termination notice 1
11
0.4 %
5-year termination notice 86
1,387
53.3 %
Total 154
$ 2,366
90.9 %


TVA Local Power Company Contracts At and for the Three Months Ended June 30, 2020
Contract Arrangements⁽¹⁾	Number of LPCs	Revenue from Sales of Electricity to LPCs (in millions)		Percentage of Total Operating Revenues
20-year termination notice	141	$	1,630	72.4	%


10-year termination notice	1	1		—	%

5-year termination notice	12	427		19.0	%
Total	154	$	2,058	91.4	%

Note

(1) Ordinarily, the LPCs and TVA have the same termination notice period; however, in contracts with ~~five~~two of the LPCs with five-year termination notices, TVA has a 10-year termination notice (which becomes a five-year termination notice if TVA loses its discretionary wholesale rate-setting authority). ~~Two of the~~Certain LPCs have five-year termination notices or a shorter period if any act of Congress, court decision, or regulatory change requires or permits that election.

TVA Local Power Company Contracts
At June 30, 2019
Contract Arrangements⁽¹⁾
Number of LPCs Sales to LPCs
in the Nine Months Ended June 30, 2019
(in millions) Percentage of Total Operating Revenues in the
Nine Months Ended June 30, 2019
20-year termination notice 3
$ 96
1.2 %
15-year termination notice 11
362
4.5 %
12-year termination notice 1
19
0.2 %
10-year termination notice 52
2,536
31.4 %
6-year termination notice 1
36
0.4 %
5-year termination notice 86
4,298
53.2 %
Total 154
$ 7,347
90.9 %


TVA Local Power Company Contracts At and for the Nine Months Ended June 30, 2020
Contract Arrangements⁽¹⁾	Number of LPCs	Revenue from Sales of Electricity to LPCs (in millions)		Percentage of Total Operating Revenues
20-year termination notice	141	$	5,399	73.5	%


10-year termination notice	1	1		—	%

5-year termination notice	12	1,316		17.9	%
Total	154	$	6,716	91.4	%

Note

~~TVA’s~~

TVA's two largest LPCs — Memphis Light, Gas and Water Division ("MLGW") and Nashville Electric Service ("NES") — have contracts with a five-year and a ~~10-year~~20-year termination notice period, respectively. Sales to MLGW and NES accounted for 9 percent and 8 percent, respectively, of TVA's total operating revenues during the nine months ended June 30, 2020. Sales to MLGW and NES each accounted for 8 percent of ~~TVA’s~~TVA's total operating revenues during the nine months ended June 30, 2019. In May 2020, MLGW published a draft Integrated Resource Plan to guide energy choices in the future, and in July 2020, TVA made a proposal to MLGW that highlights the benefits of remaining a TVA customer.

Contract Balances

Contract assets represent an ~~entity’s~~entity's right to consideration in exchange for goods and services that the entity has transferred to customers. TVA does not have any material contract assets ~~as of~~at June 30, ~~2019.~~2020.

Contract liabilities represent an ~~entity’s~~entity's obligations to transfer goods or services to customers for which the entity has received consideration (or an amount of consideration is due) from the customers. These contract liabilities are primarily related to upfront consideration received prior to the satisfaction of the performance obligation.

~~Energy Prepayment Obligations.~~ ~~In 2004,~~ TVA and its largest customer, Memphis Light, Gas and Water Division ("MLGW"), entered into an energy prepayment agreement under which MLGW prepaid TVA $1.5 billion for the future costs of electricity to be delivered by TVA to MLGW over a period of 15 years. TVA accounted for the prepayment as unearned revenue and reported the obligation to deliver power under this arrangement as Energy prepayment obligations and Current portion of energy prepayment obligations on the September 30, 2018, Consolidated Balance Sheets. TVA recognized approximately $100 million of noncash revenue in each year of the arrangement as electricity was delivered to MLGW based on the ratio of units of kilowatt hours delivered to total units of kilowatt hours under contract. Atdoes not have any material contract liabilities at June 30, ~~2019, $1.5 billion had been recognized as~~2020.

~~Table of Contents~~

noncash revenue on a cumulative basis during the life of the agreement, $25 million of which was recognized as noncash revenue and a corresponding reduction in the balance of Energy prepayment obligations during the three months ended June 30, 2018. There was no recognized noncash revenue during the three months ended June 30, 2019. During the nine months ended June 30, 2019 and 2018, $10 million and $75 million, respectively, were recognized as noncash revenue and a corresponding reduction in the balance of Energy prepayment obligations. Discounts to account for the time value of money, which were recorded as a reduction to electricity sales, amounted to $12 million for the three months ended June 30, 2018. There were no discounts to account for the time value of money during the three months ended June 30, 2019. Discounts to account for the time value of money, which were recorded as a reduction to electricity sales, amounted to $4 million and $34 million for the nine months ended June 30, 2019 and 2018, respectively.

Economic Development Incentives. Under certain economic development programs, TVA offers incentives to existing and potential power customers in certain business sectors that make multi-year commitments to invest in the Tennessee Valley. TVA records those incentives as reductions of revenue. Incentives recorded as a reduction to revenue were ~~$76~~$78 million and ~~$70~~$76 million during the three months ended June 30, ~~2019,~~2020 and ~~2018,~~2019, respectively. Incentives recorded as a reduction to revenue were ~~$231~~$238 million and ~~$206~~$231 million during the nine months ended June 30, ~~2019,~~2020 and ~~2018,~~2019, respectively. Incentives that have been approved but have not been paid are recorded in Accounts payable and accrued liabilities and Other long-term liabilities inon the Consolidated Balance Sheets. At June 30, ~~2019~~2020, and September 30, ~~2018,~~2019, the outstanding unpaid incentives were ~~$154~~$169 million and ~~$145~~$157 million, respectively. These incentives may be subject to clawback provisions if the customers fail to meet certain program requirements. In April 2020, TVA established flexibility provisions to support the continued operations and recovery of participating customers impacted by the COVID-19 pandemic.

Table of C o ntents

17. Other Income (Expense), Net

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


Other Income (Expense), Net
	Three Months Ended June 30						Nine Months Ended June 30
	2020		2019		2020		2019
Bellefonte deposit	$	—	$	—	$	—	$	21
Interest income	3		7		14		19
External services	3		3		9		9
Gains (losses) on investments	10		3		4		2
Miscellaneous	—		1		—		1
Total Other income (expense), net	$	16	$	14	$	27	$	52

Other Income (Expense), Net
Three Months Ended
June 30 Nine Months Ended
June 30
2019 2018 2019 2018
Bellefonte deposit $ —
$ —
$ 21
$ —

Interest income 7
6
19
17

External services 3
2
9
10

Gains (losses) on investments 3
1
2
4

Miscellaneous 1
2
1
3

Total Other income (expense), net $ 14
$ 11
$ 52
$ 34

During the three months ended June 30, ~~2019,~~2020, Other income (expense), net increased $3$2 million ~~primarily~~as compared to the same period of the prior year, driven by $2an increase of $7 million ofin Gains on investments primarily related to unrealized gains on the SERP and DCP investments ~~and an~~as a result of higher volatility in the financial markets associated with the COVID-19 pandemic. Partially offsetting this increase was a decrease of $1$4 million related to Interest income primarily as a result of lower interest ~~income during the quarter.~~ rates.

During the nine months ended June 30, ~~2019,~~2020, Other income (expense), net ~~increased $18~~decreased $25 million, primarily driven by $21 million of other income in 2019 related to a deposit liability received by TVA as a down payment on the sale of ~~Bellefonte.~~Bellefonte Nuclear Plant ("Bellefonte"). The purchaser, Nuclear Development, LLC, failed to fulfill the requirements of the sales contract with respect to obtaining NRC approval of the transfer of required nuclear licenses and payment of the remainder of the selling price before the November 30, 2018, closing date. ~~Partially offsetting this increase was $2~~See Note 20 — Contingencies and Legal Proceedings — Legal Proceedings for a discussion of the lawsuit filed by Nuclear Development, LLC.

18. Supplemental Cash Flow Information

Construction in progress and Nuclear fuel expenditures included in Accounts payable and accrued liabilities at June 30, 2020 and 2019, were $339 million and $266 million, respectively, and are excluded from the Statements of ~~unrealized losses on~~Consolidated Cash Flows for the ~~SERP~~nine months ended June 30, 2020 and ~~DCP investments.~~2019, as non-cash investing activities.

Excluded from the Statements of Consolidated Cash Flows at June 30, 2020 and 2019, as non-cash financing activities were lease obligations incurred related to lease equipment of $3 million and $6 million, respectively.

~~18.~~

19. Benefit Plans

TVA sponsors a qualified defined benefit plan ("pension plan") that covers most of its full-time employees hired before July 1, 2014, a qualified defined contribution plan ("401(k) plan") that covers most of its full-time employees, ~~two~~2 unfunded post-retirement health care plans that provide for non-vested contributions toward the cost of eligible retirees' medical coverage, other post-employment benefits, such as workers' compensation, and the SERP. The pension plan and the 401(k) plan are administered by a separate legal entity, the TVA Retirement System ("TVARS"), which is governed by its own board of directors.

Table of ~~Contents~~C

o ntents

The components of net periodic benefit cost and other amounts recognized as changes in regulatory assets for the three and nine months endedJune 30, ~~2019~~2020 and ~~2018~~,2019, were as follows:


Components of TVA's Benefit Plans⁽¹⁾
	For the Three Months Ended June 30														For the Nine Months Ended June 30
	Pension Benefits						Other Post-Retirement Benefits						Pension Benefits				Other Post-Retirement Benefits
	2020		2019		2020		2019		2020		2019		2020		2019
Service cost	$	14	$	11	$	4	$	2	$	41	$	33	$	12	$	8
Interest cost	104		125		4		5		312		374		12		14
Expected return on plan assets	(122)		(119)		—		—		(366)		(358)		—		—
Amortization of prior service credit	(25)		(25)		(6)		(6)		(73)		(74)		(18)		(18)
Recognized net actuarial loss	109		84		2		1		327		252		7		3
Total net periodic benefit cost as actuarially determined	80		76		4		2		241		227		13		7
Amount (capitalized) / expensed due to actions of regulator	(3)		—		—		—		(11)		1		—		—
Total net periodic benefit cost	$	77	$	76	$	4	$	2	$	230	$	228	$	13	$	7

Components of TVA's Benefit Plans⁽¹⁾
For the Three Months Ended
June 30 For the Nine Months Ended
June 30
Pension Benefits Other Post-Retirement Benefits Pension Benefits Other Post-Retirement Benefits
2019 2018 2019 2018 2019 2018 2019 2018
Service cost $ 11
$ 13
$ 2
$ 4
$ 33
$ 40
$ 8
$ 11

Interest cost 125
118
5
5
374
355
14
14

Expected return on plan assets (119 ) (119 ) —
—
(358 ) (358 ) —
—

Amortization of prior service credit (25 ) (25 ) (6 ) (5 ) (74 ) (74 ) (18 ) (16 )
Recognized net actuarial loss 84
103
1
1
252
307
3
5

Total net periodic benefit cost as actuarially determined 76
90
2
5
227
270
7
14

Amount expensed (capitalized) due to actions of regulator —
(13 ) —
—
1
(40 ) —
—

Total net periodic benefit cost $ 76
$ 77
$ 2
$ 5
$ 228
$ 230
$ 7
$ 14

Note

(1) The components of net benefit cost other than the service cost component are included in Other net periodic benefit cost inon the Consolidated Statements of Operations.

TVA's minimum required pension plan contribution for ~~2019~~2020 is $300 million. TVA contributes $25 million per month to TVARS and as of June 30, ~~2019,~~2020, had contributed $225 million. The remaining $75 million will be contributed by September 30, ~~2019.~~2020. For the nine months ended June 30, ~~2019,~~2020, TVA also contributed ~~$64~~$67 million to the 401(k) plan, ~~and $28~~$19 million (net of $3$4 million in rebates) to the other post-retirement ~~plans. TVA has contributed $7~~plans, and $5 million to the ~~SERP~~SERP.

Financial markets have experienced higher volatility since September 30, 2019, due to the COVID-19 pandemic. The uncertainty as to the duration and severity of the COVID-19 pandemic has resulted in significantly lower market valuations for many investments. The impact of these events on TVA’s pension system is reflected in changes in the ~~nine months ended~~asset portfolio values from $8.0 billion at September 30, 2019, to $6.8 billion at March 31, 2020, and rebounding to $7.8 billion at June 30, ~~2019.~~2020. TVA has not determined at this time whether additional contributions will be made to TVARS during 2020. Additionally, other post-retirement contributions related to the retiree health plans may be higher than previously assumed as a result of the COVID-19 pandemic increasing health care costs, but cannot be estimated at this time.

The ultimate impact of the COVID-19 pandemic on the pension plan and other post-retirement plans depends on factors beyond TVA’s knowledge or control, including the duration and severity of this outbreak, actions taken to contain its spread and mitigate its effects, and broader impacts of the COVID-19 pandemic on the country and region’s economy. Therefore, TVA cannot estimate the potential impact to the pension plan and other post-retirement plans at this time.

~~19.~~

20. Contingencies and Legal Proceedings

Contingencies

Nuclear Insurance. Section 170 of the Atomic Energy Act, commonly known as the Price-Anderson Act, provides a layered framework of financial protection to compensate for liability claims of members of the public for personal injury and property damages arising from a nuclear ~~event~~incident in the U.S. This financial protection consists of two layers of coverage:

•The primary level is private insurance underwritten by American Nuclear Insurers ("ANI") and provides public liability insurance coverage of $450 million for each ~~operating reactor.~~nuclear power plant licensed to operate. If this amount is not sufficient to cover claims arising from ~~an accident,~~a nuclear incident, the second level, Secondary Financial Protection, applies.

•Within the Secondary Financial Protection level, the ~~owner~~licensee of each nuclear reactor has a contingent obligation to pay a retrospective premium, equal to its proportionate share of the loss in excess of the primary level, regardless of proximity to the incident of fault, up to a maximum of approximately $138 million per reactor per incident. With ~~TVA’s seven~~TVA's 7 reactors, the maximum total contingent obligation per incident is $963 million. This retrospective premium is payable at a maximum rate currently set at approximately $20 million per year per incident per reactor. Currently, 9897 reactors are participating in the Secondary Financial Protection program.

In the event that a nuclear ~~power plant event~~incident results in ~~third-party damages,~~public liability claims, the primary level provided by ANI combined with the Secondary Financial Protection ~~would~~should provide up to approximately ~~$14.0~~$13.8 billion in coverage.

Table of C o ntents

Federal law requires that each NRC power reactor licensee obtain property insurance from private sources to cover the

cost of stabilizing ~~or shutting down~~and decontaminating a reactor and its station site after an accident. TVA carries property, decommissioning liability, and decontamination

liability insurance from Nuclear Electric Insurance Limited ("NEIL")~~, totaling $5.1 billion~~. The limits for ~~its licensed nuclear plants with~~each site vary depending on the site and range from up to $2.1 billion to $2.8 billion available for a loss at ~~any one site.~~TVA's three sites. Some of this insurance may require the payment of retrospective premiums up to a

maximum of approximately ~~$139~~$145 million.

TVA purchases accidental outage (business interruption) insurance for TVA's nuclear sites from NEIL. In the event that an accident covered by this policy takes a nuclear unit offline or keeps a nuclear unit offline, NEIL will pay TVA, after a waiting period, an indemnity (a set dollar amount per week) ~~up to~~with a maximum indemnity of $490 million per unit. This insurance policy may require the payment of retrospective premiums up to a maximum of approximately ~~$46 million.~~

~~Workers' Compensation.~~ The Federal Employees' Compensation Act ("FECA") governs liability to TVA employees for service-connected injuries. TVA purchases insurance that compensates TVA for certain FECA costs. In addition, TVA sponsors an Owner Controlled Insurance Program ("OCIP") that provides workers' compensation and liability insurance for a select group

~~Table of Contents~~

~~of contractors performing maintenance, modifications, outage, and new construction activities at TVA facilities. The insurance and OCIP are subject~~$43 million, but only to the ~~terms and conditions~~extent the retrospective premium is deemed necessary by the NEIL Board of the relevant policies including deductibles and self-insured retentions. To the extent insurance would not provide either a partial or total recovery of the costs associated with a loss, TVA would haveDirectors to ~~recover any such costs through other means, including through power rates.~~pay losses unable to be covered by NEIL's surplus.

Decommissioning Costs. TVA recognizes legal obligations associated with the future retirement of certain tangible long-lived assets related primarily to nuclear generating plants, coal-fired generating plants, hydroelectric generating plants/dams, transmission structures, and other property-related assets. See Note ~~11.~~11 — Asset Retirement Obligations.

Nuclear Decommissioning. Provision for decommissioning costs of nuclear generating units is based on options prescribed by the NRC procedures to dismantle and decontaminate the facilities to meet the NRC criteria for license termination. At June 30, ~~2019,~~2020, $3.2 billion, representing the discounted value of future estimated ~~future~~ decommissioning ~~cost of $3.1 billion~~costs, was included in AROs. The actual decommissioning costs may vary from the derived estimates because of, among other things, changes in current assumptions, such as the assumed dates of decommissioning, changes in regulatory requirements, changes in technology, and changes in the cost of labor, materials, and equipment. Utilities that own and operate nuclear plants are required to use different procedures in calculating nuclear decommissioning costs under GAAP than those that are used in calculating nuclear decommissioning costs when reporting to the NRC. The ~~two~~2 sets of procedures produce different estimates for the costs of decommissioning primarily because of differences in the underlying assumptions. Decommissioning costs studies are updated for each of TVA's nuclear units at least every five years.

TVA maintains a NDT to provide funding for the ultimate decommissioning of its nuclear power plants. See Note 15 — Fair Value Measurements — Investment Funds. TVA monitors the value of its NDT and believes that, over the long term and before cessation of nuclear plant operations and commencement of decommissioning activities, adequate funds from investments and additional contributions, if necessary, will be available to support decommissioning. TVA's operating nuclear power units are licensed through various dates between ~~2033 - 2055,~~2033-2055, depending on the unit. It may be possible to extend the operating life of some of the units with approval from the NRC. See Note 8 — Regulatory Assets and Liabilities and Note 11 — Asset Retirement Obligations.

Non-Nuclear Decommissioning. The estimated future non-nuclear decommissioning ARO was ~~$2.5~~$2.8 billion at June 30, ~~2019.~~2020. This decommissioning cost estimate involves estimating the amount and timing of future expenditures and making judgments concerning whether or not such costs are considered a legal obligation. Estimating the amount and timing of future expenditures includes, among other things, making projections of the timing and duration of the asset retirement process and how costs will escalate with inflation. The actual decommissioning costs may vary from the derived estimates because of changes in current assumptions, such as the assumed dates of decommissioning, changes in regulatory requirements, changes in ~~selected closure methodology, changes in available~~ technology, and changes in the cost of labor, materials, and equipment. TVA updates its underlying assumptions for non-nuclear decommissioning AROs at least every five years. However, material changes in underlying assumptions that impact the amount and timing of undiscounted cash flows are continuously monitored and incorporated into ARO balances in the period identified.

TVA maintains an ART to help fund the ultimate decommissioning of its non-nuclear power assets. See Note ~~15.~~15 — Fair Value Measurements — Investment Funds. Estimates involved in determining if additional funding will be made to the ART include inflation rate, rate of return projections on the fund investments, and the planned use of other sources to fund decommissioning costs. See Note 8 — Regulatory Assets and Liabilities and Note 11 — Asset Retirement Obligations.

Environmental Matters. TVA's power generation activities, like those across the utility industry and in other industrial sectors, are subject to federal, state, and local environmental laws and regulations. Major areas of regulation affecting TVA's activities include air quality control, water quality control, and management and disposal of solid and hazardous wastes. In the future, regulations in all of these areas are expected to become more stringent. Regulations are also expected to ~~apply to new emissions and sources, with~~have a particular emphasis on climate change, renewable generation, and energy efficiency.

TVA has incurred, and expects to continue to incur, substantial capital and operating and maintenance costs to comply with evolving environmental requirements primarily associated with, but not limited to, the operation of TVA's coal-fired generating units. Environmental requirements placed on the operation of TVA's coal-fired and other generating units will likely continue to become more restrictive over time. Litigation over emissions or discharges from coal-fired generating units is also ~~occurring, including litigation against TVA.~~occurring. Failure to comply with environmental and safety laws can result in TVA being subject to enforcement actions, which can lead to the imposition of significant civil liability, including fines and penalties, criminal sanctions, and/or the shutting down of non-compliant facilities.

Table of C o ntents

TVA estimates that compliance with existing and future Clean Air Act ("CAA") requirements (excluding greenhouse gas ("GHG") requirements) could lead to costs of ~~approximately $189~~$132 million from ~~2019~~2020 to ~~2029,~~2024, which include ~~future clean air controls,~~ existing controls capital projects and air operations and maintenance projects. TVA also estimates additional expenditures of ~~$1.4~~approximately $1.0 billion from ~~2019~~2020 to ~~2023~~2024 relating to TVA's CCR conversion program, as well as expenditures of approximately ~~$324~~$211 million from ~~2019~~2020 to ~~2025~~2024 relating to compliance with Clean Water Act requirements. Future costs could differ from these estimates if new environmental laws or regulations become applicable to TVA or the facilities it operates, or if existing environmental laws or regulations are revised or reinterpreted. There could also be costs that cannot reasonably be predicted at this time, due to uncertainty of actions, that could increase these estimates.

Liability for releases and cleanup of hazardous substances is primarily regulated by the federal Comprehensive Environmental Response, Compensation, and Liability Act, and other federal and parallel state statutes. In a manner similar to many other industries and power systems, TVA has generated or used hazardous substances over the years. TVA operations at some facilities have resulted in contamination that TVA is addressing. At both June 30, ~~2019,~~2020, and September 30, ~~2018,~~2019, TVA's

~~Table of Contents~~

estimated liability for cleanup and similar environmental work for those sites for which sufficient information is available to develop a cost estimate was approximately ~~$16~~$15 million ~~and $12 million, respectively,~~ on a non-discounted basis, and was included in Accounts payable and accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets.

Potential Liability Associated with ~~Workers’~~Workers' Exposure to CCR Materials. In response to the 2008 ash spill at Kingston, TVA hired Jacobs Engineering Group, Inc. ("Jacobs") to oversee certain aspects of the cleanup. After the cleanup was completed, Jacobs was sued in the United States District Court for the Eastern District of Tennessee ("Eastern District") by employees of a contractor involved in the cleanup and family members of some of the employees. The plaintiffs alleged that Jacobs had failed to take or provide proper health precautions and misled workers about the health risks associated with exposure to coal fly ash, which is a CCR material. The plaintiffs alleged that exposure to the fly ash caused a variety of significant health issues and illnesses, including in some cases death. The case was split into two phases, with the first phase considering, among other issues, general causation and the second determining specific causation and damages. On November 7, 2018, a jury hearing the first phase returned a verdict in favor of the plaintiffs, including determinations that Jacobs failed to adhere to its contract with TVA or the Site Wide Safety and Health ~~Plan in place;~~Plan; Jacobs failed to provide reasonable care to the plaintiffs; and ~~Jacobs’s~~Jacobs's failures were capable of causing a list of medical conditions, ranging from hypertension to cancer. On January 11, 2019, the ~~district court~~Eastern District referred the parties to mediation. ~~Depending on~~Mediation has concluded, but the ~~outcome of mediation,~~parties did not resolve the matter. The litigation will now proceed to the second phase on the question of whether ~~Jacobs’s~~Jacobs's failures did in fact cause the ~~plaintiffs’~~plaintiffs' alleged injuries and damages.

On May 13, 2019, an additional group of contractor employees and family members filed suit against Jacobs in the Circuit Court for Roane County, Tennessee. These plaintiffs have raised similar claims to those being litigated in the case referenced above.

While TVA is not a party to either of these lawsuits, TVA ~~could be contractually obligated~~may potentially have an indemnity obligation to reimburse Jacobs for some amounts that Jacobs is required to pay. ~~Further,~~ TVA will continue monitoring the litigation to determine whether ~~this~~these or similar cases could have broader implications for the utility industry. TVA does not expect any potential liability to have a material adverse impact on its results of operations or financial condition.

Legal Proceedings

~~Legal Proceedings~~

From time to time, TVA is party to or otherwise involved in lawsuits, claims, proceedings, investigations, and other legal matters ("Legal Proceedings") that have arisen in the ordinary course of conducting TVA's activities, as a result of a catastrophic event or otherwise.

General. At June 30, ~~2019,~~2020, TVA had accrued $14 million of probable losses with respect to Legal Proceedings. Of the accrued amount, ~~$12~~$13 million is included in Other long-term liabilities and $2$1 million is included in Accounts payable and accrued liabilities. No assurance can be given that TVA will not be subject to significant additional claims and liabilities. If actual liabilities significantly exceed the estimates made, TVA's results of operations, liquidity, and financial condition could be materially adversely affected.

Environmental Agreements. In April 2011, TVA entered into ~~two~~2 substantively similar agreements, ~~one~~1 with the Environmental Protection Agency ("EPA") and the other with Alabama, Kentucky, North Carolina, Tennessee, and three environmental advocacy groups: the Sierra Club, the National Parks Conservation Association, and Our Children's Earth Foundation (collectively, the "Environmental Agreements"). ~~They became effective in June 2011.~~ Under the Environmental Agreements, TVA committed to, ~~(1) retire on a phased schedule 18 coal-fired~~among other things, take actions regarding coal units with a combined summer net dependable capability of 2,200 MW, (2) control, convert, or retire additional coal-fired units with a combined summer net dependable capability of 3,500 MW, (3) comply with annual, declining emission caps for sulfur dioxide ("SO₂~~") and nitrogen oxide, (4)~~that have been completed. TVA also agreed to invest $290 million in certain TVA environmental projects ~~(of~~of which TVA had spent approximately ~~$278~~$279 million as of June 30, ~~2019), (5) provide $60 million to Alabama, Kentucky, North Carolina, and Tennessee to fund environmental projects, and (6) pay civil penalties of $10 million.~~2020. In exchange for these commitments, most past claims against TVA based on alleged New Source Review and associated violations were waived and cannot be brought against TVA. Future claims, including those for sulfuric acid mist and GHG emissions, can still be brought against TVA, and claims for increases in particulates can also be pursued at many of TVA's coal-fired units. Additionally, the Environmental Agreements do not address compliance with new laws and regulations or the cost associated with such compliance.TVA.

The liabilities related to the Environmental Agreements are included in Accounts payable and accrued liabilities and

Other long-term liabilities on the June 30, ~~2019,~~2020, Consolidated Balance ~~Sheet.~~Sheets. In conjunction with the approval of the

Table of C o ntents

Environmental Agreements, the TVA Board determined that it was appropriate to record TVA's obligations under the

Environmental Agreements as regulatory assets, and they are included as such on the June 30, ~~2019,~~2020, Consolidated

Balance ~~Sheet~~Sheets and will be recovered in rates in future periods. ~~TVA has substantially completed the requirements in the~~

~~Environmental Agreements related to retiring coal-fired units or installing controls on such units.~~

Case Involving Kingston Fossil Plant. On May 7, 2019, Roane County and the Cities of Kingston and Harriman (“("local ~~governments”~~governments") filed a lawsuit in the Circuit Court for Roane County, Tennessee, against TVA and Jacobs for monetary damages and unspecified injunctive relief relating to ~~TVA’s~~TVA's cleanup response to the 2008 ash spill at ~~Kingston Fossil Plant.~~Kingston. The local governments allege that TVA and Jacobs failed to take proper measures to mitigate environmental and health risks during the

~~Table of Contents~~

cleanup response and misled the local governments and their citizens about health and environmental risks associated with exposure to coal fly ash. The local governments seek to recover monetary damages on behalf of their citizens for personal injury and property loss claims, damages for lost tax revenue, damages for increased emergency and medical response costs claims, punitive damages, and unspecified injunctive relief. On June 6, 2019, TVA removed the lawsuit to the Eastern ~~District.~~District, and TVA ~~has~~and Jacobs filed separate motions to dismiss. Plaintiffs, in response, filed a response opposing both motions and a separate motion seeking leave to file a proposed amended class action complaint in which Roane County would serve as class representative for the municipalities and their citizens.

In December 2019, the federal court ruled that the local governments did not have standing to assert representative claims on behalf of their citizens and rejected their motion to proceed as a class action on behalf of their citizens because of the dissimilarity of the injuries allegedly suffered by the local governments (lost tax revenue) and the personal injuries and personal medical expenses allegedly suffered by the individuals. The court indicated, however, that the local governments may have legal standing to assert claims for their direct injuries (claims relating to municipally owned property) and directed the local governments to file an amended pleading in conformance with the court's order by January 16, 2020. The plaintiffs filed their amended complaint on January 15, 2020. On February 26, 2020, TVA and Jacobs moved to dismiss the ~~case.~~amended complaint and the court has not yet ruled on this motion. Discovery is ongoing, and trial is set for April 20, 2021.

~~Cases~~ Class Action Lawsuit Involving ~~Gallatin~~Kingston Fossil Plant. On November 7, 2019, a resident of Roane County, Tennessee, filed a proposed class action lawsuit against Jacobs and TVA in the Eastern District. The complaint alleges that the class representative and all other members of the proposed class were damaged as a result of the 2008 ash spill at Kingston and the resulting cleanup activities. The complaint alleges, among other things, that (1) TVA was negligent in its construction and operation of the Kingston CCR ~~Facilities~~facility, (2) TVA and Jacobs failed to take proper measures to mitigate environmental and health risks during the cleanup response, and (3) TVA and Jacobs misled the community about health and environmental risks associated with exposure to coal fly ash. The complaint seeks monetary damages and injunctive relief in the form of an order requiring the defendants to establish a blood testing program and medical monitoring protocol and to remediate damage to the properties of the proposed class. On April 22, 2020, TVA moved to dismiss the complaint and the court has not yet ruled on this motion.

Case Involving Bull Run Fossil Plant. On February 5, 2020, two plaintiffs who reside near Bull Run filed suit against TVA isin the Circuit Court for Anderson County, Tennessee, on behalf of themselves and their two minor children. The plaintiffs allege that they and their children were injured from direct exposures to CCR material originating from Bull Run and from second-hand exposures to coal ash through contact with a ~~party~~family member who worked at an undisclosed TVA facility. TVA

removed the case to the Eastern District on March 5, 2020, and the plaintiffs filed an amended complaint in ~~two lawsuits relating~~federal court on

March 12, 2020. On June 19, 2020, TVA moved to ~~alleged releases of waste materials from~~dismiss the ~~CCR facilities at Gallatin. See Note 9 —~~ ~~Background~~ — ~~Lawsuit Brought by TDEC~~ amended complaint and — ~~Lawsuit Brought by TSRA and TCWN~~.the court has not yet ruled on this motion.

Consent Decree Involving Colbert Fossil Plant. In May 2013, the Alabama Department of Environmental Management

("ADEM") and TVA entered into a consent decree concerning alleged violations of the Alabama Water Pollution Control Act. The

consent decree required, among other things, that TVA continue remediation efforts TVA had begun prior to the suit being filed

and stop using an unlined landfill after a lined landfill is approved and constructed. ~~TVA also paid $150,000 to Alabama under this 2013 consent decree.~~ In August 2018, the parties agreed to amend the consent decree to deal with groundwater issues identified after TVA published groundwater monitoring reports in accordance with the EPA's CCR rule. The amended consent decree requires TVA to investigate the nature and extent of any groundwater contamination, develop and implement a remedy, provide semiannual status reports to ADEM, and remedy any seeps identified during inspections. TVA also paid $100,000 to Alabama under the amended consent decree. In accordance with the amended consent decree, TVA submitted to ADEM a Comprehensive Groundwater Investigation Report on May 17, 2019, and an Assessment of Corrective Measures on July 17, 2019. TVA is continuing to develop the groundwater remedy and submit reports to ADEM.

Case Involving Tennessee River Boat Accident. On July 23, 2015, plaintiffs filed suit in the United States District Court for the Northern District of Alabama ("Northern District"), seeking recovery for personal injuries sustained when the ~~plaintiffs’~~plaintiffs' boat struck a TVA transmission line which was being raised from the Tennessee River during a repair operation. The district court dismissed the case, finding that ~~TVA’s~~TVA's exercise of its discretion as a governmental entity in deciding how to carry out the operation barred any liability for negligence. In August 2017, the ~~United States~~U.S. Court of Appeals for the Eleventh Circuit (“("Eleventh ~~Circuit”~~Circuit") affirmed the decision. The plaintiffs petitioned the U.S. Supreme Court ("Supreme Court") for review of the decision, arguing that the provision of the TVA Act which allows suit to be brought against TVA does not allow TVA to claim immunity for discretionary actions. On April 29, 2019, the Supreme Court issued its opinion reversing the judgment of the Eleventh Circuit

Table of C o ntents

and remanding the case to the Eleventh Circuit. On July 17, 2019, the Eleventh Circuit remanded the case to the district court for further proceedings consistent with the Supreme ~~Court’s~~Court's opinion. Trial is currently scheduled for February 16, 2021.

Case Involving Bellefonte Nuclear Plant. On November 30, 2018, Nuclear Development, LLC, filed suit against TVA in the ~~United States District Court for the~~ Northern ~~District of Alabama.~~District. The plaintiff alleges that TVA breached its agreement to sell Bellefonte to the plaintiff. The plaintiff seeks, among other things, (1) an injunction requiring TVA to maintain Bellefonte and the associated NRC permits until the case is concluded, (2) an order compelling TVA to complete the sale of Bellefonte to the plaintiff, and (3) if the court does not order TVA to complete the sale, monetary damages in excess of $30 million. On December 26, 2018, Nuclear Development, LLC, and TVA filed a joint stipulation with the court. Under the stipulation, Nuclear Development, LLC, withdrew its request for an expedited hearing on its injunction in exchange for ~~TVA’s~~TVA's agreement to continue to maintain Bellefonte in accordance with the NRC permits and to give Nuclear Development, LLC, and the court five days prior notice of any filing by TVA to terminate the permits or sell the site. TVA filed a motion to dismiss the case on February 4, 2019. On May 15, 2019, the court denied TVA's motion. ~~Trial~~Discovery is ~~currently~~ongoing, and the case is scheduled to be ready for ~~May~~trial by December 2020.

Case Involving Rate Changes. On June 9, 2020, a proposed class action lawsuit was filed in federal court in Abingdon, Virginia, by a LPC customer, asserting claims for breach of contract and violation of the Administrative Procedure Act. The lawsuit alleges that the customers of TVA's LPCs are third-party beneficiaries under TVA's wholesale power contracts with its LPCs and that TVA’s rate changes dating back to 2010 violate Section 11 of the TVA Act. Section 11 of the TVA Act establishes the broad policy that TVA power projects shall be considered primarily for the benefit of the people of the Tennessee Valley and that service to industry is a secondary purpose to be used principally to secure a sufficiently high load factor and revenue returns to permit domestic and rural use at the lowest possible rates. The remedies requested include an injunction prohibiting TVA rate changes that violate Section 11, monetary damages, and repayment of rates charged in violation of Section 11.

21. Subsequent Events

Redemption of Power Bonds

On June 15, 2020, TVA provided notice of its intent to redeem on July 15, 2020, all of its 6.235 percent 1995 Series B Power Bonds (CUSIP number 880591CF7) due July 15, 2045. The bonds, with a principal amount outstanding of $140 million, were redeemed at 100 percent of par value.

United States Credit Rating

On July 31, 2020, Fitch Ratings affirmed the United States' Long-Term Foreign-Currency, Local-Currency, and Issuer Default Ratings ("credit ratings") at AAA, but revised the ratings outlooks from stable to negative. The change in outlooks on the United States’ credit ratings is expected to result in a similar action by Fitch Ratings on the outlook for TVA’s credit ratings.

Federal Contracting and Hiring Practices

On August 3, 2020, President Trump issued an "Executive Order ("EO") on Aligning Federal Contracting and Hiring Practices With the Interests of American Workers." Among other things, the EO directs federal agencies to review their contracting and hiring practices and assess negative impacts from the use of temporary foreign labor or offshoring of work. TVA is reviewing this EO and has not yet determined the extent to which this EO may impact TVA’s operations.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions except where noted)

~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") explains the results of operations and general financial condition of the Tennessee Valley Authority ("TVA"). The MD&A should be read in conjunction with the accompanying unaudited consolidated financial statements and TVA's Annual Report on Form ~~10-K~~10-K/A for the ~~fiscal~~ year ended September 30, ~~2018~~2019 (the "Annual Report").

Executive Overview

TVA's net income for the three and nine months ended June 30, ~~2019,~~2020, was ~~$165~~$205 million and ~~$829~~$652 million, respectively, as compared with net income of ~~$470~~$165 million and ~~$1.2 billion~~$829 million for the same periods of the prior year. ~~TVA’s~~While weather is typically one of the primary drivers of TVA's sales and revenue, impacts due to the Coronavirus Disease 2019 ("COVID-19") pandemic had a greater impact on sales of electricity for the third quarter of 2020. TVA estimates base revenues were reduced by approximately $130 million for the nine months ended June 30, 2020 due to the impacts of COVID-19, and based on current estimates, TVA anticipates base revenue could be up to $100 million lower than plan for the fourth quarter of 2020. It is uncertain at this time the extent to which TVA's revenues may be impacted beyond 2020. In addition, TVA's service territory experienced overall milder ~~than normal~~ weather during the nine months ended June 30, ~~2019,~~2020, despite record-setting ~~cold weather~~heat experienced during October 2019 and record-setting cold during November ~~2018.~~2019. This overall milder weather drove lower energy sales. ~~However,~~As such, revenue from sales of electricity ~~increased $27~~decreased $721 million for the nine months ended June 30, ~~2019,~~2020, as compared to the same period of the prior ~~year primarily driven by the base rate adjustment that became effective October 1, 2018.~~year.

Table of C o ntents

Fuel and purchased power expense decreased ~~$70~~$290 million for the nine months ended June 30, ~~2019,~~2020, as compared to the same period of the prior year. This decrease was primarily due to ~~an overall decrease in~~lower energy sales, ~~of electricity~~as well as lower effective fuel and ~~significant hydroelectric generation resulting from record rainfall in the second quarter of 2019. This decrease was partially offset by an increase in~~ purchased power ~~utilized to meet increased demand during the first quarter~~rates and availability of ~~2019.~~lower cost TVA-owned generation. Operating and maintenance

~~Table of Contents~~

expense ~~increased $408~~decreased $275 million for the nine months ended June 30, ~~2019,~~2020, as compared to the same period of the prior year. This was primarily driven by prior year recovery of the regulatory asset for environmental cleanup costs related to the Kingston ash spill. Depreciation and amortization expense increased $43 million for the nine months ended June 30, 2020, as compared to the same period of the prior year. This increase was primarily ~~driven by accelerated recovery~~due to net additions to Completed plant.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the ~~regulatory asset for Environmental cleanup costs related~~United States. TVA continues to coordinate with local power company customers (“LPCs”) and partners to understand the ~~Kingston ash spill in accordance with~~impact to its service territory. During March 2020, the TVA Board approved the Public Power Support and Stabilization Program, offering up to $1.0 billion of Directors (the "TVA Board") ratemaking authority, an increase in project write-offs and Materials and supplies inventory reserves and write-offs associated with the anticipated retirement of Paradise Fossil Plant (“Paradise”) and Bull Run Fossil Plant (“Bull Run”), and increased outage expense driven by additional planned nuclear outage days.

TVA remains committed to planning its system in a way that ensures evolving resource portfolios remain reliable and provide the most value to all customers. TVA utilizes an Integrated Resource Plan ("IRP")credit support to provide direction on how to best meet future electricity demand. During the third quarter of 2019, TVA finalized the 2019 IRP, which considered many views of the future to determine how TVA can continue to provide low-cost, reliable electricity, support environmental stewardship, and spur economic developmenttemporary financial relief for its LPCs in the ~~Tennessee Valley over the next 20 years. The final 2019 IRP will be presented~~form of deferred payments of power bills under certain circumstances. Operations and delivery of energy to ~~the~~customers have not been materially impacted at this time. TVA ~~Board for consideration at its August 2019 meeting.~~

During the third quarter of 2019, TVA completed power ascension testing on the third and final phase of the extended power uprate ("EPU") project at Browns Ferry Nuclear Plant ("Browns Ferry"). The generating capacity is expected to increase by an estimated 465 MW after completion of the project and sufficient run time to validate the new capacity.

~~TVA also~~ continues to ~~achieve~~monitor the situation and will adjust its response as necessary to ensure reliable service while protecting the safety and health of its workforce and sustaining business operations.

TVA continues to maintain 99.999 percent reliability in delivering energy to its customers. TVA's reliability and economic development efforts ~~continued~~continue to attract and encourage the expansion of business and industries in the Tennessee Valley, with over ~~$8.0~~$7.1 billion in investments and more than ~~58,500~~58,400 jobs created or retained through the third quarter of ~~2019.~~2020.

Results of Operations

Sales of Electricity

~~The following charts compare TVA's sales~~ Sales of electricity for ~~the three and nine months ended June 30, 2019 and 2018:~~



	~~Sales of Electricity~~
~~Three Months Ended June 30~~
	~~(millions of kWh)~~



	~~Sales of Electricity~~
~~Nine Months Ended June 30~~
	~~(millions of kWh)~~

~~Notes~~

~~(1) Pre-commercial generation included in~~ the three months ended June 30, ~~2018, was less than 1 million kilowatt hours ("kWh"). See Note 1 —~~ ~~Pre-Commercial Plant Operations~~.

~~(2) Includes approximately 429 million~~2020 and 2019, were 34,272 and 37,272 millions of kWh, respectively. Sales of ~~pre-commercial generation~~electricity for the nine months ended June 30, ~~2018. See Note 1 —~~ ~~Pre-Commercial Plant Operations~~.2020 and 2019 were 108,396 and 113,609 millions of kWh, respectively. The following charts show a breakdown of TVA's sales of electricity by customer type for the periods indicated:

Sales of Electricity

Three Months Ended June 30

Nine Months Ended June 30

(millions of kWh)

Table of ~~Contents~~C

o ntents

The following charts show a breakdown of TVA's energy load:

Note

Information included in the charts above was derived from energy usage of directly served customers and customers served by LPCs during calendar year 2019, and these graphs will continue to be updated on a calendar year basis.

Weather affects both the demand for TVA power and the price for that power. TVA uses degree days to measure the impact of weather on its power operations. Degree days measure the extent to which the TVA system 23-station average temperatures vary from 65 degrees Fahrenheit. ~~During 2019,~~Although weather is generally the primary driver of changes in demand for TVA ~~transitioned degree day calculation methodologies, moving~~power, the COVID-19 pandemic has had a greater impact on sales of electricity for the three months ended June 30, 2020.


	Degree Days
	Variation from Normal										Variation from Prior Period
	2020	Normal	Percent Variation		2019	Normal	Percent Variation		Percent Change
Heating Degree Days
Three Months Ended June 30	305	191	59.7	%	139	191	(27.2)	%	119.4	%
Nine Months Ended June 30	3,039	3,362	(9.6)	%	3,219	3,350	(3.9)	%	(5.6)	%

Cooling Degree Days
Three Months Ended June 30	473	565	(16.3)	%	612	565	8.3	%	(22.7)	%
Nine Months Ended June 30	586	619	(5.3)	%	730	617	18.3	%	(19.7)	%

Sales of electricity decreased approximately eight percent for the three months ended June 30, 2020, as compared to the same period of the prior year. This was primarily due to decreased sales volume as a result of the COVID-19 pandemic, which accounted for approximately 75 percent of the change in sales of electricity from the ~~average~~prior period. Also, the Tennessee Valley's weather averaged milder temperatures over this period, thereby reducing energy sales. Cooling degree days generally have a greater impact on sales of electricity per degree day. As such, the ~~five largest cities~~decrease in ~~TVA's service area to~~cooling degree days for the ~~average temperatures~~three months ended June 30, 2020, resulted in a net decrease in sales of ~~23 stations throughout TVA's service area. This transition provides TVA with increased geographic granularity throughout its service territory and improved modeling accuracy.~~

electricity.

Degree Days
Variation from Normal Variation from Prior Period

2019
Actual
Normal Percent Variation
2018
Actual⁽¹⁾

Normal⁽¹⁾
Percent Variation Percent Change
Heating Degree Days
Three Months Ended June 30 139
191
(27.2 )% 292
191
52.9 % (52.4 )%
Nine Months Ended June 30 3,219
3,350
(3.9 )% 3,381
3,350
0.9 % (4.8 )%

Cooling Degree Days
Three Months Ended June 30 612
565
8.3 % 706
565
25.0 % (13.3 )%
Nine Months Ended June 30 730
617
18.3 % 809
617
31.1 % (9.8 )%

Total Degree Days
Three Months Ended June 30 751
756
(0.7 )% 998
756
32.0 % (24.7 )%
Nine Months Ended June 30 3,949
3,967
(0.5 )% 4,190
3,967
5.6 % (5.8 )%

~~Note~~

(1) The prior period degree day information has been adjusted in order to incorporate a change in TVA’s current calculation of this information. Every five years this calculation is updated in order to incorporate the current 15-year period of weather history. The most recent update, to incorporate weather history for CYs 2001-2015, occurred during the first quarter of 2019.

Sales of electricity decreased approximately five percent for the ~~three~~nine months ended June 30, ~~2019,~~2020, as compared to the same period of the prior ~~year,~~year. This was primarily due to decreased sales volume driven predominantly by overall milder weather and the COVID-19 pandemic, which each accounted for ~~LPCs driven by a 25~~approximately 50 percent ~~decrease~~of the change in ~~total degree days. Additionally,~~ sales ~~to industries directly served decreased slightly, particularly in the chemical and metal sectors.~~

~~Sales~~ of electricity ~~decreased approximately two percent for the nine months ended June 30, 2019, as compared to the same period of~~from the prior ~~year, primarily due to decreased sales volume for LPCs driven by a six percent decrease in total degree days. Milder than normal weather during the months of January~~period. During October 2019, ~~and February 2019 offset record-setting cold experienced during November 2018, where~~ TVA recorded its ~~second~~third largest peak power demand for the month of October, and during November 2019, TVA recorded its highest peak power demand for the month of November. ~~Partially offsetting~~Despite record-setting heat experienced during October 2019 and record-setting cold during November 2019, TVA's service territory experienced overall milder weather during the ~~decreased sales volume for LPCs, sales to industries directly served increased slightly, particularly in the polysilicon sector.~~nine months ended June 30, 2020.

Table of C o ntents

Financial Results

The following table compares operating results for the three and nine months endedJune 30, ~~2019~~2020 and ~~2018:~~2019:


Summary Consolidated Statements of Operations (in millions)
	Three Months Ended June 30										Nine Months Ended June 30
	2020		2019		Percent Change		2020		2019		Percent Change
Operating revenues	$	2,251	$	2,604	(13.6)	%	$	7,350	$	8,079	(9.0)	%
Operating expenses	1,716		2,088		(17.8)	%	5,676		6,206		(8.5)	%
Operating income	535		516		3.7	%	1,674		1,873		(10.6)	%
Other income (expense), net	16		14		14.3	%	27		52		(48.1)	%
Other net periodic benefit cost	63		65		(3.1)	%	190		194		(2.1)	%
Interest expense	283		300		(5.7)	%	859		902		(4.8)	%
Net income (loss)	$	205	$	165	24.2	%	$	652	$	829	(21.4)	%

Summary Consolidated Statements of Operations
Three Months Ended June 30 Nine Months Ended June 30
2019 2018 Percent Change 2019 2018 Percent Change
Operating revenues $ 2,604
$ 2,707
(3.8 )% $ 8,079
$ 8,048
0.4 %
Operating expenses 2,088
1,877
11.2 % 6,206
5,727
8.4 %
Operating income 516
830
(37.8 )% 1,873
2,321
(19.3 )%
Other income, net 14
11
27.3 % 52
34
52.9 %
Other net periodic benefit cost 65
65
— % 194
193
0.5 %
Interest expense, net 300
306
(2.0 )% 902
942
(4.2 )%
Net income $ 165
$ 470
(64.9 )% $ 829
$ 1,220
(32.0 )%

~~Table of Contents~~

Operating Revenues. Operating revenues for the three and nine months ended June 30, ~~2019~~2020 and ~~2018,~~2019, consisted of the following:



			Operating Revenues
Three Months Ended June 30



	Operating Revenues
Nine Months Ended June 30

~~Notes~~

~~(1) Excludes~~TVA's two largest LPCs — Memphis Light, Gas and Water Division ("MLGW") and Nashville Electric Service ("NES") — have contracts with a ~~contra-revenue amount~~five-year and a 20-year termination notice period, respectively. Sales to MLGW and NES accounted for 9 percent and 8 percent, respectively, of ~~less than $1 million representing revenue capitalized~~TVA's total operating revenues during ~~pre-commercial operations for the three months ended June 30, 2018. See Note 1 —~~ ~~Pre-Commercial Plant Operations~~.

~~(2) Excludes a contra-revenue amount of approximately $11 million representing revenue capitalized during pre-commercial operations for~~ the nine months ended June 30, ~~2018. See Note 1 —~~ ~~Pre-Commercial Plant Operations~~.2020. Sales to MLGW and NES each accounted for 8 percent of TVA's total operating revenues during the nine months ended June 30, 2019. In May 2020, MLGW published a draft Integrated Resource Plan to guide energy choices in the future, and in July 2020, TVA made a proposal to MLGW that highlights the benefits of remaining a TVA customer.

Table of ~~Contents~~C o ntents

TVA's current rate structure provides pricing signals intended to signal higher cost periods to serve its customers and capture a portion of ~~TVA’s~~TVA's fixed costs in fixed charges. The structure includes three base revenue components: time of use demand charges, time of use energy charges, and a grid access charge ("GAC"). The demand charges are based upon the customer's peak monthly usage and increase as the peak increases. The energy charges are based on time differentiated kWh used by the customer. Both of these components can be significantly impacted by weather. The GAC ~~which was implemented in October 2018,~~ captures a portion of fixed costs and ~~will be~~is offset by a corresponding reduction to the energy rates. The GAC ~~will~~ also ~~reduce~~reduces the impact of weather variability to the overall rate structure. ~~Recognizing~~

Additionally, at its August 2019 meeting, the ~~need~~TVA Board approved a 20-year Partnership Agreement option that better aligns the length of LPC contracts with TVA's long-term commitments. Participating LPCs will receive benefits including a 3.1 percent wholesale bill credit in exchange for ~~flexibility, all~~their long-term commitment, which enables TVA to recover its long-term financial commitments over a commensurate period. As of August 3, 2020, 141 LPCs ~~were presented~~had signed the 20-year Partnership Agreement with the option to implement the GAC in October 2018 or defer the implementation until October 2019. Seventy-nine LPCs elected to implement in October 2018, while the remaining 75 have elected to implement wholesale changes in October 2019.TVA.

In addition to base revenues, the rate structure also includes a separate fuel rate that includes the costs of natural gas, fuel oil, purchased power, coal, emission allowances, nuclear fuel, and other fuel-related commodities; realized gains and losses on derivatives purchased to hedge the costs of such commodities; and payments to states and counties in lieu of taxes ("tax equivalents") associated with the fuel cost adjustments.

The changes in revenue components for the three and nine months ended June 30, ~~2019,~~2020, compared to ~~the three andnine months ended June 30, 2018, are summarized below:~~

Changes in Revenue Components
Three Months Ended June 30 Nine Months Ended June 30
2019 2018 Change 2019 2018 Change
Base revenue

Energy revenue $ 1,171
$ 1,271
⁽¹⁾
$ (100 ) $ 3,596
$ 3,796
⁽¹⁾
$ (200 )
Demand revenue 849
824
25
2,565
2,464
101
Grid access charge 64
—
64
193
—
193
Other charges and credits⁽²⁾
(144 ) (158 ) 14
(460 ) (483 ) 23
Total base revenue 1,940
1,937
3
5,894
5,777
117
Fuel cost recovery 623
730
(107 ) 2,061
2,148
(87 )
Off-system sales 2
2
—
3
6
(3 )
Revenue from sales of electricity 2,565
2,669
(104 ) 7,958
7,931
27
Other revenue 39
38
1
121
117
4
Total operating revenues $ 2,604
$ 2,707
$ (103 ) $ 8,079
$ 8,048
$ 31

~~Notes~~

~~(1) Includes the impact of revenue capitalized during pre-commercial operations of less than $1 million and approximately $11 million for~~ the three and nine months ended June 30, ~~2018, respectively. See Note 1 —~~ ~~Pre-Commercial Plant Operations~~.2019, are summarized below:

~~(2)~~


Changes in Revenue Components (in millions)
	Three Months Ended June 30										Nine Months Ended June 30
	2020		2019		Change		2020		2019		Change
Base revenue
Energy revenue	$	1,011	$	1,171	$	(160)	$	3,190	$	3,596	$	(406)
Demand revenue	750		849		(99)		2,427		2,565		(138)
Grid access charge	149		64		85		448		193		255
Long-term partnership credits for LPCs	(38)		—		(38)		(108)		—		(108)
Other charges and credits⁽¹⁾	(137)		(144)		7		(447)		(460)		13
Total base revenue	1,735		1,940		(205)		5,510		5,894		(384)
Fuel cost recovery	480		623		(143)		1,724		2,061		(337)
Off-system sales	1		2		(1)		3		3		—
Revenue from sales of electricity	2,216		2,565		(349)		7,237		7,958		(721)
Other revenue	35		39		(4)		113		121		(8)
Total operating revenues	$	2,251	$	2,604	$	(353)	$	7,350	$	8,079	$	(729)

Note

(1) Includes economic development credits to promote growth in the Tennessee Valley, hydro preference credits for residential customers of LPCs, and interruptible credits allowing TVA to reduce industrial customer usage in periods of peak demand to balance system demand. See Note 16 — ~~Revenue from Sales of Electricity.~~Revenue.

Operating revenues decreased ~~$103~~$353 million for the three months ended June 30, ~~2019,~~2020, as compared to the same period of the prior year, primarily due to a ~~$107~~$205 million decrease in base revenue and a $143 million decrease in fuel cost recovery ~~revenues.~~revenue. The ~~$107~~$205 million decrease in base revenue was driven by a decrease of $163 million attributable to lower sales volume and a decrease of $42 million attributable to lower effective rates. The $143 million decrease in fuel cost recovery ~~revenues~~revenue was driven by a ~~$73~~$94 million decrease attributable to lower fuel rates and a ~~$34~~$49 million decrease attributable to lower energy ~~sales. Base revenue was slightly higher driven by an increase of $97 million attributable to higher effective rates resulting~~sales during the quarter. Lower energy sales resulted primarily from the ~~base rate adjustment that became effective October 1, 2018, offset by a $94~~impact of the COVID-19 pandemic, which accounted for approximately $120 million ~~decrease attributable~~of decreased sales. TVA's service area also experienced milder weather during the three months ended June 30, 2020, as compared to ~~lower sales volume.~~the prior period.

Operating revenues ~~increased $31~~decreased $729 million for the nine months ended June 30, ~~2019,~~2020, as compared to the same period of the prior year, primarily due to a ~~$117~~$384 million ~~increase~~decrease in base revenue and a $337 million decrease in fuel cost recovery revenue. The ~~$117~~$384 million ~~increase~~decrease in base revenue was driven by ~~an increase~~a decrease of ~~$239~~$258 million attributable to ~~higher~~lower sales volume and a decrease of $126 million attributable to lower effective ~~rates resulting from the base rate adjustment that became effective October 1, 2018, partially offset~~rates. The $337 million decrease in fuel cost recovery revenue was driven by a ~~$133~~$241 million decrease attributable to lower fuel rates and a $96 million decrease attributable to lower energy sales ~~volume. Milder than normal weather~~ during the ~~months~~period. Lower energy sales resulted primarily from the COVID-19 pandemic, which accounted for approximately $130 million of ~~January 2019~~decreased sales, and ~~February 2019 offset record-setting cold experienced during November 2018, where TVA recorded its second highest peak power demand~~the overall milder weather for the ~~month of November. Further, there were no pre-commercial plant operations~~Tennessee Valley service area during the nine months ended June 30, 2019. Therefore, revenue capitalized as a result of pre-commercial generation during the nine months ended June 30, 2018, contributed $11 million to the additional base revenue for the nine months ended June 30, 2019. See Note 1 — ~~Pre-Commercial Plant Operations~~. Partially offsetting these increases was an $87 million decrease in fuel cost recovery revenues, driven by a $44 million decrease attributable to lower energy sales and a $43 million decrease attributable to lower fuel rates.2020.

Table of ~~Contents~~C

o ntents

Operating Expenses. Operating ~~expense components as a percentage of total operating~~ expenses for the three and nine months ended June 30, ~~2019~~2020 and ~~2018,~~2019, consisted of the following:

~~Table of Contents~~


Operating Expenses (in millions)
	Three Months Ended June 30										Nine Months Ended June 30
	2020		2019		Change		2020		2019		Change
Operating expenses
Fuel	$	312	$	417	$	(105)	$	1,164	$	1,359	$	(195)
Purchased power	209		223		(14)		680		775		(95)
Operating and maintenance	681		744		(63)		2,014		2,289		(275)
Depreciation and amortization	389		576		(187)		1,430		1,387		43
Tax equivalents	125		128		(3)		388		396		(8)
Total operating expenses	$	1,716	$	2,088	$	(372)	$	5,676	$	6,206	$	(530)

Three Months Ended June 30, ~~2019,~~2020, Compared to Three Months Ended June 30, ~~2018~~2019

Fuel expense decreased $105 million for the three months ended June 30, 2020, as compared to the same period of the prior year. This decrease was primarily due to lower effective fuel rates of $80 million, resulting from lower natural gas prices and more hydroelectric generation. Also, the COVID-19 pandemic and milder weather reduced demand, resulting in a decrease in volume of $33 million. Partially offsetting these decreases was an increase of $8 million in fuel rate recovery.

Purchased power expense decreased $14 million for the three months ended June 30, 2020, as compared to the same period of the prior year. This was due to a reduction in volume driven by decreased demand from the COVID-19 pandemic and milder weather.

Table of C o ntents

Operating and maintenance expense decreased $63 million for the three months ended June 30, 2020, as compared to the same period of the prior year. This was primarily driven by a decrease of $22 million in project write-offs and materials and supplies inventory reserves and write-offs related to the retirement of Bull Run and Paradise. Additionally, $65 million of prior year recovery of the regulatory asset for Environmental cleanup costs related to the Kingston ash spill contributed to the decrease. Partially offsetting these decreases was $20 million of increased payroll and benefit costs due to labor escalation for cost of living increases and an increase of $15 million due to additional planned nuclear outage days. In addition, contract labor related to timing of nuclear outages, emergent work, and contract model transition contributed $11 million to the increase.

Depreciation and amortization expense decreased $187 million for the three months ended June 30, 2020, as compared to the same period of the prior year. This was primarily driven by a net decrease in depreciation expense of $199 million related to the decision in the second quarter of 2019 to accelerate the retirements of Bull Run and Paradise. As Paradise was fully depreciated prior to the third quarter of 2020, no depreciation was recognized for the three months ended June 30, 2020. Partially offsetting this decrease was a $6 million increase in amortization expense of non-nuclear decommissioning costs recovered in rates. The remaining variance was due to depreciation of additions to Completed plant.

Tax equivalents expense decreased $3 million for the three months ended June 30, 2020, as compared to the same period of the prior year. The change is primarily driven by a decrease in the tax equivalents collected in the fuel rate recovery.

Nine Months Ended June 30, 2020, Compared to Nine Months Ended June 30, 2019

Fuel expense decreased $195 million for the nine months ended June 30, 2020, as compared to the same period of the prior year. Lower effective fuel rates contributed $200 million to the decrease, resulting from lower natural gas prices. Also, the COVID-19 pandemic and milder weather reduced demand, resulting in a decrease in volume of $34 million. Partially offsetting these decreases was an increase of $39 million driven by variances in fuel rate recovery.

Purchased power expense decreased $95 million for the nine months ended June 30, 2020, as compared to the same period of the prior year. This was primarily due to a decrease in volume of $111 million driven by decreased demand from the COVID-19 pandemic and overall milder weather. Partially offsetting this decrease was an increase of $20 million in fuel rate recovery.

Operating and maintenance expense decreased $275 million for the nine months ended June 30, 2020, as compared to the same period of the prior year. This was primarily driven by a decrease of $148 million in project write-offs and materials and supplies inventory reserves and write-offs related to the retirement of Bull Run and Paradise. Additionally, $195 million of prior year recovery of the regulatory asset for Environmental cleanup costs related to the Kingston ash spill contributed to the decrease. Partially offsetting these decreases were $69 million of increased payroll and benefit costs due to labor escalation for cost of living increases, $24 million of increased contract labor related to timing of nuclear outages, emergent work, and contract model transition, and a $15 million increase to TVA's capital spare program.

Depreciation and amortization expense increased $43 million for the nine months ended June 30, 2020, as compared to the same period of the prior year. This was primarily driven by net additions to Completed plant of $23 million and an increase of $19 million in amortization expense of non-nuclear decommissioning costs recovered in rates.

Tax equivalents expense decreased $8 million for the nine months ended June 30, 2020, as compared to the same period of the prior year. The change is primarily driven by a decrease in the tax equivalents collected in the fuel rate recovery.

Table of C o ntents

The following ~~table shows~~tables show TVA's ~~net~~ generation and purchased power by generating source as a percentage of all electrical power generated and purchased (based on kWh) for the periods indicated:


Power Supply from TVA-Operated Generation Facilities and Purchased Power	Power Supply from TVA-Operated Generation Facilities and Purchased Power											Power Supply from TVA-Operated Generation Facilities and Purchased Power
		Three Months Ended June 30												Three Months Ended June 30
		2019			2018									2020							2019
		kWh (millions)	Percent of Power Supply		kWh (millions)	Percent of Power Supply		Change		Percentage Change				kWh (millions)		Percent of Power Supply			kWh (millions)		Percent of Power Supply			Change		Percentage Change
Coal-fired		5,774	15	%	7,694	19	%	(1,920	)	(25	)%	Coal-fired		2,835		8	%		5,774		15	%		(2,939)		(51)	%
Nuclear		16,438	44	%	15,665	40	%	773		5	%	Nuclear		15,223		44	%		16,438		44	%		(1,215)		(7)	%
Hydroelectric		3,503	9	%	3,499	9	%	4		—	%	Hydroelectric		4,273		12	%		3,503		9	%		770		22	%
Natural gas and/or oil-fired⁽¹⁾		7,129	19	%	7,574	19	%	(445	)	(6	)%
Natural gas and/or oil-fired												Natural gas and/or oil-fired		7,929		23	%		7,129		19	%		800		11	%

Total TVA-operated generation facilities⁽²⁾⁽¹⁾		32,844	87	%	34,432	87	%	(1,588	)	(5	)%		30,260		87	%		32,844		87	%		(2,584)		(8)	%
Purchased power (non-renewable)⁽³⁾⁽²⁾		2,853	8	%	3,322	8	%	(469	)	(14	)%		2,360		7	%		2,853		8	%		(493)		(17)	%
Purchased power (renewable)⁽⁴⁾⁽³⁾		2,081	5	%	1,875	5	%	206		11	%		2,232		6	%		2,081		5	%		151		7	%
Total purchased power		4,934	13	%	5,197	13	%	(263	)	(5	)%	Total purchased power		4,592		13	%		4,934		13	%		(342)		(7)	%
Total power supply		37,778	100	%	39,629	100	%	(1,851	)	(5	)%	Total power supply		34,852		100	%		37,778		100	%		(2,926)		(8)	%

Notes

(1) The natural gas and/or oil-fired amount includes less than 1 million kWh of pre-commercial generation at the Allen Combined Cycle Plant ("Allen CC") for the three months ended June 30, 2018. See Note 1 — ~~Pre-Commercial Plant Operations~~.

~~(2)~~ Generation from TVA-owned renewable resources (non-hydroelectric) is less than one percent for all periods shown and therefore is not represented in the table above.

~~(3)~~(2) Includes generation from Caledonia Combined Cycle Plant, which is currently a leased facility operated by TVA. Generation from Caledonia Combined Cycle Plant was ~~882~~1,013 million kWh and ~~695~~882 million kWh for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

~~(4)~~(3) Includes purchased power ~~purchased~~ from the following renewable sources: hydroelectric, solar, wind, and cogeneration.

~~Fuel~~

Fuel expense decreased $86 million for the three months ended June 30, 2019, as compared to the same period of the prior year, due to decreases of $33 million in the fuel rate driven by lower commodity prices and $22 million in lower fuel volume resulting from lower sales of electricity. In addition, variances in fuel rate recovery contributed $31 million to the decrease.

~~Purchased Power~~

Purchased power expense decreased $15 million for the three months ended June 30, 2019, as compared to the same period of the prior year. This was primarily driven by a $12 million decrease in volume resulting from lower overall demand and an $11 million decrease in fuel rate recovery. Partially offsetting these decreases was an increase of $8 million in the price of purchased power.

~~Operating and Maintenance~~

Operating and maintenance expense increased $141 million for the three months ended June 30, 2019, as compared to the same period of the prior year. This was primarily driven by an increase of $108 million due to accelerated recovery of the regulatory asset for Environmental cleanup costs related to the Kingston ash spill in accordance with the TVA Board's ratemaking authority and $25 million for project write-offs and Materials and supplies inventory reserves related to the anticipated retirements of Bull Run and Paradise. Additionally, there was an increase in planned nuclear outage days which increased outage expense by $18 million.

~~Table of Contents~~

~~Depreciation and Amortization~~

Depreciation and amortization expense increased $172 million for the three months ended June 30, 2019, as compared to the same period of the prior year. This was primarily driven by accelerated depreciation expense of $225 million due to the decision to accelerate the retirements of Bull Run and Paradise. The increase also included $5 million from new additions to Completed plant. Partially offsetting these increases was a decrease of $58 million of prior year accelerated amortization of Deferred nuclear generating units and Nuclear training costs regulatory assets due to excess revenues collected in 2018 in accordance with the TVA Board's ratemaking authority.

~~Tax Equivalents~~

Tax equivalents expense decreased $1 million for the three months ended June 30, 2019, as compared to the same period of the prior year. This change primarily reflects a decrease in the accrued tax equivalent expense related to the fuel cost adjustment mechanism. The accrued tax equivalent expense is equal to five percent of the fuel cost adjustment mechanism revenues and decreased for the three months ended June 30, 2019, as compared to the same period of the prior year.

~~Nine Months Ended June 30, 2019, Compared to Nine Months Ended June 30, 2018~~

~~The following table shows TVA's net generation and purchased power by generating source for the periods indicated:~~


Power Supply from TVA-Operated Generation Facilities and Purchased Power	Power Supply from TVA-Operated Generation Facilities and Purchased Power											Power Supply from TVA-Operated Generation Facilities and Purchased Power
		Nine Months Ended June 30												Nine Months Ended June 30
		2019			2018									2020							2019
		kWh (millions)	Percent of Power Supply		kWh (millions)	Percent of Power Supply		Change		Percentage Change				kWh (millions)		Percent of Power Supply			kWh (millions)		Percent of Power Supply			Change		Percentage Change
Coal-fired		17,971	16	%	22,226	19	%	(4,255	)	(19	)%	Coal-fired		11,767		11	%		17,971		16	%		(6,204)		(35)	%
Nuclear		46,890	41	%	47,768	41	%	(878	)	(2	)%	Nuclear		47,740		43	%		46,890		41	%		850		2	%
Hydroelectric		13,162	11	%	10,444	9	%	2,718		26	%	Hydroelectric		12,869		12	%		13,162		11	%		(293)		(2)	%
Natural gas and/or oil-fired⁽¹⁾		20,690	18	%	21,783	18	%	(1,093	)	(5	)%
Natural gas and/or oil-fired												Natural gas and/or oil-fired		23,791		21	%		20,690		18	%		3,101		15	%

Total TVA-operated generation facilities⁽²⁾⁽¹⁾		98,713	86	%	102,221	87	%	(3,508	)	(3	)%		96,167		87	%		98,713		86	%		(2,546)		(3)	%
Purchased power (non-renewable)⁽³⁾⁽²⁾		10,299	9	%	9,645	8	%	654		7	%		7,565		7	%		10,299		9	%		(2,734)		(27)	%
Purchased power (renewable)⁽⁴⁾⁽³⁾		6,202	5	%	5,982	5	%	220		4	%		6,531		6	%		6,202		5	%		329		5	%
Total purchased power		16,501	14	%	15,627	13	%	874		6	%	Total purchased power		14,096		13	%		16,501		14	%		(2,405)		(15)	%
Total power supply		115,214	100	%	117,848	100	%	(2,634	)	(2	)%	Total power supply		110,263		100	%		115,214		100	%		(4,951)		(4)	%



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



Table of Contents

			Page
GLOSSARY OF COMMON ACRONYMS......................................................................................................................................			3
FORWARD-LOOKING INFORMATION.........................................................................................................................................			5
GENERAL INFORMATION............................................................................................................................................................			6

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.............................................................................................................................................			7
Consolidated Statements of Operations ~~(unaudited)~~(Unaudited)............................................................................................................			7
Consolidated Statements of Comprehensive Income (Loss) ~~(unaudited).............................................................................~~(Unaudited)............................................................................			7
Consolidated Balance Sheets ~~(unaudited)............................................................................................................................~~ (Unaudited)...........................................................................................................................			8
Consolidated Statements of Cash Flows ~~(unaudited)...........................................................................................................~~ (Unaudited)..........................................................................................................			10
Consolidated Statements of Changes in Proprietary Capital ~~(unaudited).............................................................................~~ (Unaudited)............................................................................			11
Notes to Consolidated Financial Statements ~~(unaudited).....................................................................................................~~ (Unaudited)....................................................................................................			12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...			4551
Executive Overview...............................................................................................................................................................			4551
Results of Operations............................................................................................................................................................			4652
Liquidity and Capital Resources............................................................................................................................................			5459
Key Initiatives and Challenges..............................................................................................................................................			5662
Environmental Matters..........................................................................................................................................................			6370
Legal Proceedings................................................................................................................................................................			6676
Off-Balance Sheet ~~Arrangements.........................................................................................................................................~~Arrangements..........................................................................................................................................			6676
Critical Accounting Policies and Estimates...........................................................................................................................			6676
New Accounting Standards and Interpretations....................................................................................................................			6676
Legislative and Regulatory Matters.......................................................................................................................................			6676

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................................................			6677

ITEM 4. CONTROLS AND PROCEDURES..................................................................................................................................			6677
Disclosure Controls and Procedures.....................................................................................................................................			6677
Changes in Internal Control over Financial Reporting..........................................................................................................			6777

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS..................................................................................................................................................			6777

ITEM 1A. RISK FACTORS~~...........................................................................................................................................................~~............................................................................................................................................................			6777

ITEM 5. OTHER INFORMATION..................................................................................................................................................			78

ITEM 6. EXHIBITS~~.......................................................................................................................................................................~~........................................................................................................................................................................			6879

SIGNATURES...............................................................................................................................................................................			6980


MtM						Mark-to-market
MW						~~Megawatt~~Megawatts
NAAQS						National Ambient Air Quality Standards
NAV						Net asset value


NDT
~~NDT~~	Nuclear Decommissioning Trust
~~NEPA~~NEIL			Nuclear Electric Insurance Limited
NEPA			National Environmental Policy Act
NERC			North American Electric Reliability Corporation
NO_x			Nitrogen oxide
NPDES			National Pollutant Discharge Elimination System
NRC			Nuclear Regulatory Commission
~~NSR~~NWP			~~New Source Review~~Nationwide Permit
OCI			Other comprehensive income (loss)
~~OCIP~~PARRS			~~Owner Controlled Insurance Program~~
~~PARRS~~	Putable Automatic Rate Reset Securities
PM			Particulate matter
~~QER~~QTE			~~Quadrennial Energy Review~~
~~QTE~~	Qualified technological equipment and software
~~REIT~~RCRA			~~Real Estate Investment Trust~~Resource Conservation and Recovery Act
~~SCCG~~RECs			Renewable Energy Certificates
SCCG			Southaven Combined Cycle Generation LLC
SCRs			Selective catalytic reduction systems
SEC			Securities and Exchange Commission
SERP			Supplemental Executive Retirement Plan
SHLLC			Southaven Holdco LLC
SIPs			State implementation plans
SMR			Small modular reactor(s)
SO₂			Sulfur dioxide
~~TCWN~~SPC			~~Tennessee Clean Water Network~~Summer Place Complex
~~TDEC~~SSSL			Seven States Southaven LLC
TDEC			Tennessee Department of Environment &and Conservation
~~TOU~~		~~Time-of-use~~
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


ASSETS
	June 30, 2020		September 30, 2019
Current assets
Cash and cash equivalents	$	800	$	299


Accounts receivable, net	1,364		1,739
Inventories, net	1,060		999
Regulatory assets	149		156
Other current assets	90		85
Total current assets	3,463		3,278

Property, plant, and equipment
Completed plant	64,027		62,944
Less accumulated depreciation	(32,753)		(31,384)
Net completed plant	31,274		31,560
Construction in progress	2,088		1,893
Nuclear fuel	1,533		1,534
Finance leases	139		146
Total property, plant, and equipment, net	35,034		35,133

Investment funds	2,991		2,968

Regulatory and other long-term assets
Regulatory assets	9,251		8,763
Operating lease assets, net of amortization	332		—
Other long-term assets	339		325
Total regulatory and other long-term assets	9,922		9,088

Total assets	$	51,410	$	50,467
The accompanying notes are an integral part of these consolidated financial statements.



ASSETS
	June 30, 2019			September 30, 2018
Current assets
Cash and cash equivalents	$	300		$	299
Accounts receivable, net	1,551			1,657
Inventories, net	1,051			961
Regulatory assets	183			414
Other current assets	87			86
Total current assets	3,172			3,417

Property, plant, and equipment
Completed plant	62,716			61,114
Less accumulated depreciation	(30,928		)	(29,335		)
Net completed plant	31,788			31,779
Construction in progress	1,783			1,999
Nuclear fuel	1,408			1,487
Capital leases	146			149
Total property, plant, and equipment, net	35,125			35,414

Investment funds	2,899			2,862

Regulatory and other long-term assets
Regulatory assets	6,755			6,612
Other long-term assets	324			362
Total regulatory and other long-term assets	7,079			6,974

Total assets	$	48,275		$	48,667
The accompanying notes are an integral part of these consolidated financial statements.


LIABILITIES AND PROPRIETARY CAPITAL
	June 30, 2020		September 30, 2019
Current liabilities
Accounts payable and accrued liabilities	$	2,055	$	1,812

Accrued interest	280		296
Current portion of leaseback obligations	177		40

Regulatory liabilities	197		150
Short-term debt, net	777		922
Current maturities of power bonds	1,917		1,030
Current maturities of long-term debt of variable interest entities	40		39
Current maturities of notes payable	—		23
Total current liabilities	5,443		4,312

Other liabilities
Post-retirement and post-employment benefit obligations	5,912		6,181
Asset retirement obligations	5,805		5,453
Operating lease liabilities	244		—
Other long-term liabilities	2,748		2,490
Leaseback obligations	46		223


Regulatory liabilities	5		—
Total other liabilities	14,760		14,347

Long-term debt, net
Long-term power bonds, net	17,932		19,094
Long-term debt of variable interest entities, net	1,069		1,089

Total long-term debt, net	19,001		20,183

Total liabilities	39,204		38,842

Contingencies and legal proceedings (Note 20)

Proprietary capital
Power program appropriation investment	258		258
Power program retained earnings	11,476		10,823
Total power program proprietary capital	11,734		11,081
Nonpower programs appropriation investment, net	550		556
Accumulated other comprehensive income (loss)	(78)		(12)
Total proprietary capital	12,206		11,625

Total liabilities and proprietary capital	$	51,410	$	50,467
The accompanying notes are an integral part of these consolidated financial statements.


	2020		2019
Cash flows from operating activities
Net income (loss)	$	652	$	829
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization⁽¹⁾	1,447		1,402
Amortization of nuclear fuel cost	284		277
Non-cash retirement benefit expense	243		235

Other regulatory amortization and deferrals	65		240



Changes in current assets and liabilities
Accounts receivable, net	376		149
Inventories and other current assets, net	(86)		(145)
Accounts payable and accrued liabilities	(126)		(217)
Accrued interest	(20)		(21)

Pension contributions	(230)		(232)



Other, net	(109)		(38)
Net cash provided by operating activities	2,496		2,479

Cash flows from investing activities
Construction expenditures	(1,221)		(1,292)

Nuclear fuel expenditures	(251)		(223)

Loans and other receivables
Advances	(6)		(8)
Repayments	5		6
Other, net	6		(16)
Net cash used in investing activities	(1,467)		(1,533)

Cash flows from financing activities
Long-term debt
Issues of power bonds	997		—

Redemptions and repurchases of power bonds	(1,286)		(1,034)
Redemptions of notes payable	(23)		(46)
Redemptions of debt of variable interest entities	(20)		(19)
Short-term debt issues (redemptions), net	(145)		196
Payments on leases and leasebacks	(44)		(41)

Financing costs, net	(4)		—



Other, net	(3)		(1)
Net cash provided by (used in) financing activities	(528)		(945)
Net change in cash, cash equivalents, and restricted cash	501		1
Cash, cash equivalents, and restricted cash at beginning of period	322		322
Cash, cash equivalents, and restricted cash at end of period	$	823	$	323





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


Note			Page
1	Summary of Significant Accounting Policies	13
2	Impact of New Accounting Standards and Interpretations	17
3	Accounts Receivable, Net	18
4	Inventories, Net	19
5	Plant Closures	19
6	Leases	19
7	Other Long-Term Assets	23
8	Regulatory Assets and Liabilities	24
9	Variable Interest Entities	25
10	Other Long-Term Liabilities	27
11	Asset Retirement Obligations	27
12	Debt and Other Obligations	28
13	Accumulated Other Comprehensive Income (Loss)	30
14	Risk Management Activities and Derivative Transactions	31
15	Fair Value Measurements	36
16	Revenue	43
17	Other Income (Expense), Net	46
18	Supplemental Cash Flow Information	46
19	Benefit Plans	46
20	Contingencies and Legal Proceedings	47
21	Subsequent Events	51



Note		Page
1	Nature of Operations and Summary of Significant Accounting Policies	12
2	Impact of New Accounting Standards and Interpretations	15
3	Accounts Receivable, Net	18
4	Inventories, Net	18
5	Plant Closures	18
6	Other Long-Term Assets	19
7	Regulatory Assets and Liabilities	20
8	Variable Interest Entities	20
9	Gallatin Coal Combustion Residual Facilities	22
10	Other Long-Term Liabilities	23
11	Asset Retirement Obligations	24
12	Debt and Other Obligations	25
13	Accumulated Other Comprehensive Income (Loss)	26
14	Risk Management Activities and Derivative Transactions	27
15	Fair Value Measurements	32
16	Revenue	37
17	Other Income (Expense), Net	41
18	Benefit Plans	41
19	Contingencies and Legal Proceedings	42



Cash, Cash Equivalents, and Restricted Cash
	At June 30, 2019		At September 30, 2018
Cash and cash equivalents	$	300	$	299
Restricted cash and cash equivalents included in Other long-term assets	23		23
Total Cash, cash equivalents, and restricted cash	$	323	$	322



~~Revenue from Contracts with Customers~~
~~Description~~Practical Expedient	This guidance, including subsequent amendments, replaces the existing accounting standard and industry specific guidance for revenue recognition with a five-step model for recognizing and measuring revenue from contracts with customers. The underlying principle of the guidance is to recognize revenue related to the transfer of goods or services to customers at the amount expected to be collected. The objective of the new standard is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within and across industries. The new standard also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows arising from contracts with customers. Description
~~Effective Date for TVA~~	~~October 1, 2018~~
~~Effect on the Financial Statements or Other Significant Matters~~	TVA adopted this standard using the modified retrospective method with no material changes to the amount or timing of revenue recognition. In accordance with the modified retrospective method, TVA’s previously issued financial statements have not been restated to comply with the new accounting standard. TVA recognizes revenue when it satisfies a performance obligation by transferring control to the customer. For the generation and transmission of electricity, this is generally at the time the power is delivered to a metered customer delivery point for a customer's consumption or distribution. As a result, revenues from power sales are recorded as electricity is delivered to customers. TVA utilized certain practical expedients including applying the guidance to open contracts at the date of adoption, applying the guidance to a portfolio of contracts with similar characteristics, and recognizing revenue in the amount for which it has the right to invoice. ~~As a result of adoption of the standard, TVA did not have a cumulative-effect adjustment to proprietary capital.~~

~~Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments~~
~~Description~~	This standard adds or clarifies guidance on the classification of certain cash receipts and payments on the statement of cash flows as follows: debt prepayment or extinguishment costs, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies and bank-owned life insurance policies, distributions received from equity method investees, beneficial interest in securitization transactions, and the application of the predominance principle to separately identifiable cash flows.
~~Effective Date for TVA~~	~~October 1, 2018~~
~~Effect on the Financial Statements or Other Significant Matters~~	~~TVA's previous treatment of the classification of certain cash receipts and cash payments is consistent~~ ~~with the new standard, and adoption of the standard had no impact on TVA's financial condition, results of operations, or presentation or disclosure of cash flows.~~

~~Statement of Cash Flows - Restricted Cash~~
~~Description~~	This guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance does not provide a definition of restricted cash or restricted cash equivalents.
~~Effective Date for TVA~~	~~October 1, 2018~~
~~Effect on the Financial Statements or Other Significant Matters~~	Adoption of this standard resulted in a change to the beginning-of-period and end-of-period cash and cash equivalents and restricted cash amounts shown on the Consolidated Statements of Cash Flows. TVA applied this standard on a retrospective basis for the prior periods presented.



























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~~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 will adopt this standard using the modified retrospective method through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Upon adoption, TVA will recognize an allowance for credit losses based on management's estimate of losses expected to be incurred over the life of certain financial assets. This standard will primarily impact TVA's long-term loans receivable. Adoption of this standard is ~~evaluating the potential~~not expected to have a material impact on TVA's financial condition, results of ~~these changes on its consolidated financial statements and related disclosures.~~

operations, or cash flows.

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~~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~~TVA's financial condition, results of operations, or cash flows. TVA is ~~evaluating~~continuing to evaluate 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.


Lease Costs⁽¹⁾
	Three Months Ended June 30, 2020		Nine Months Ended June 30, 2020
Operating lease costs⁽¹⁾	$	26	$	65
Variable lease costs⁽¹⁾	26		52
Short-term lease costs⁽¹⁾	2		5
Finance lease costs
Amortization of lease assets⁽²⁾	2		7
Interest on lease liabilities⁽³⁾⁽⁴⁾	9		24
Total finance lease costs	11		31
Total lease costs	$	65	$	153


Amounts Recognized on TVA's Consolidated Statements of Cash Flows For the Nine Months Ended June 30, 2020
Operating cash flows for operating leases	$	57
Operating cash flows for finance leases	24
Financing cash flows for finance leases	4

Lease assets obtained in exchange for lease obligations (non-cash)
Operating leases⁽¹⁾	$	188
Finance leases	3


Weighted Averages At June 30, 2020
Weighted average remaining lease terms
Operating leases			4 years
Finance leases			12 years

Weighted average discount rate⁽¹⁾
Operating leases			1.6%
Finance leases			35.1%


Future Minimum Lease Payments Minimum Payments Due at June 30, 2020
Operating leases
2020 (remaining)	$	38
2021	106
2022	91
2023	43
2024	35
Thereafter	44
Minimum annual payments	357
Less: present value discount	(12)
Operating present value of net minimum lease payments	$	345

Finance leases
2020 (remaining)	$	14
2021	53
2022	53
2023	56
2024	52
Thereafter	418
Minimum annual payments	646
Less: amount representing interest	(460)
Finance present value of net minimum lease payments	$	186


Summary of Impact of VIEs on Consolidated Balance Sheets (in millions)
	At June 30, 2020		At September 30, 2019




Current liabilities
Accrued interest	$	24	$	11
Accounts payable and accrued liabilities	3		3
Current maturities of long-term debt of variable interest entities	40		39
Total current liabilities	67		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	$	1,160	$	1,167


Other Long-Term Liabilities (in millions)
	At June 30, 2020		At September 30, 2019
Interest rate swap liabilities	$	1,997	$	1,676

Finance lease liabilities	180		182
Currency swap liabilities	166		193





EnergyRight^® financing obligations	81		90
Paradise pipeline financing obligation	79		80
Accrued long-term service agreements	59		66
Other	186		203
Total other long-term liabilities	$	2,748	$	2,490


Asset Retirement Obligation Activity⁽¹⁾	Asset Retirement Obligation Activity⁽¹⁾									Asset Retirement Obligation Activity⁽¹⁾
	Nuclear			Non-Nuclear			Total				Nuclear		Non-Nuclear		Total
Balance at September 30, 2018	$	2,989		$	1,790		$	4,779
Balance at September 30, 2019										Balance at September 30, 2019	$	3,136	$	2,480	$	5,616
Settlements	(2		)	(56		)	(58		)	Settlements	—		(85)		(85)
Revisions in estimate	—			89			89			Revisions in estimate	—		387		387
Additional obligation	18			—			18
Gallatin CCR	—			667			667

Accretion (recorded as regulatory asset)	102			35			137			Accretion (recorded as regulatory asset)	106		47		153
Balance at June 30, 2019	$	3,107		$	2,525		$	5,632

Balance at June 30, 2020										Balance at June 30, 2020	$	3,242	$	2,829	$	6,071


Debt Outstanding  (in millions)
	At June 30, 2020		At September 30, 2019
Short-term debt
Short-term debt, net	$	777	$	922
Current maturities of power bonds issued at par⁽¹⁾	1,917		1,030
Current maturities of long-term debt of VIEs issued at par	40		39
Current maturities of notes payable	—		23
Total current debt outstanding, net	2,734		2,014
Long-term debt
Long-term power bonds⁽²⁾	18,057		19,225
Long-term debt of VIEs, net	1,069		1,089

Unamortized discounts, premiums, issue costs, and other	(125)		(131)
Total long-term debt, net	19,001		20,183
Total debt outstanding	$	21,735	$	22,197



Debt Outstanding
	At June 30, 2019			At September 30, 2018
Short-term debt
Short-term debt, net	$	1,444		$	1,216
Current maturities of power bonds	1,030			1,032
Current maturities of long-term debt of variable interest entities	39			38
Current maturities of notes payable	23			46
Total current debt outstanding, net	2,536			2,332
Long-term debt
Long-term power bonds⁽¹⁾	19,249			20,300
Long-term debt of variable interest entities, net	1,108			1,127
Long-term notes payable	—			23
Unamortized discounts, premiums, issue costs, and other	(134		)	(143		)
Total long-term debt, net	20,223			21,307
Total outstanding debt	$	22,759		$	23,639


Debt Securities Activity
	Date	Amount (in millions)		Interest Rate
Issues⁽¹⁾
2020 Series A Power Bonds	May 2020	$	1,000	0.75	%

Discount on debt issues		(3)
Total long-term debt issues		$	997

Redemptions/Maturities⁽²⁾
electronotes^®	First Quarter 2020	$	217	3.33	%
electronotes^®	Third Quarter 2020	1		2.65	%



2009 Series B	December 2019	1		3.77	%

2018 Series A	March 2020	1,000		2.25	%
1999 Series A PARRS (TVE)	May 2020	23		3.36	%
1998 Series D PARRS (TVC)	June 2020	17		3.55	%
2009 Series B	June 2020	27		3.77	%
Total redemptions/maturities of power bonds		1,286
Notes payable		23		1.64	%
Debt of variable interest entities		20		4.32	%
Total redemptions/maturities of debt		$	1,329



Debt Securities Activity
	Date	Amount⁽¹⁾		Interest Rate
Redemptions/Maturities
electronotes^®	First Quarter 2019	$	1	2.65	%
electronotes^®	Second Quarter 2019	1		3.48	%
electronotes^®	Third Quarter 2019	2		2.89	%
2013 Series A	October 2018	1,000		1.75	%
2009 Series B	December 2018	1		3.77	%
2009 Series B	June 2019	29		3.77	%
Total redemptions/maturities of power bonds		1,034
Notes payable		46		1.27	%
Debt of variable interest entities		19		4.31	%
Total redemptions/maturities of debt		$	1,099


Summary of Long-Term Credit Facilities At June 30, 2020 (in millions)
	Facility Limit		Letters of Credit Outstanding		Cash Borrowings		Availability
Maturity Date
December 2021	$	150	$	38	$	—	$	112
June 2023	1,000		522		—		478
September 2023	1,000		450		—		550
February 2025	500		500		—		—
Total	$	2,650	$	1,510	$	—	$	1,140


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 June 30						Nine Months Ended June 30
Derivatives in Cash Flow Hedging Relationship	Objective of Hedge Transaction	Accounting for Derivative Hedging Instrument	2020		2019		2020		2019
Currency swaps	To protect against changes in cash flows caused by changes in foreign currency exchange rates (exchange rate risk)	Unrealized gains and losses are recorded in AOCI and reclassified to Interest expense to the extent they are offset by gains and losses on the hedged transaction	$	31	$	(47)	$	(56)	$	(76)


Summary of Derivative Instruments That Do Not Receive Hedge Accounting Treatment Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾	Summary of Derivative Instruments That Do Not Receive Hedge Accounting Treatment Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾															Summary of Derivative Instruments That Do Not Receive Hedge Accounting Treatment Amount of Gain (Loss) Recognized in Income on Derivatives⁽¹⁾
				Three Months Ended June 30						Nine Months Ended June 30									Three Months Ended June 30						Nine Months Ended June 30
Derivative Type		Objective of Derivative	Accounting for Derivative Instrument	2019			2018			2019			2018			Derivative Type	Objective of Derivative	Accounting for Derivative Instrument	2020		2019		2020		2019
Interest rate swaps		To fix short-term debt variable rate to a fixed rate (interest rate risk)	Mark-to-market gains and losses are recorded as regulatory assets or liabilities Realized gains and losses are recognized in interest expense when incurred during the settlement period	$	(19	)	$	(21	)	$	(59	)	$	(68	)	Interest rate swaps	To fix short-term debt variable rate to a fixed rate (interest rate risk)	Mark-to-market gains and losses are recorded as regulatory assets or liabilities Realized gains and losses are recognized in Interest expense when incurred during the settlement period and are presented in operating cash flow	$	(25)	$	(19)	$	(69)	$	(59)

Commodity derivatives under FTP		To protect against fluctuations in market prices of purchased commodities (price risk)	Mark-to-market gains and losses are recorded as regulatory assets or liabilities Realized gains and losses are recognized in fuel expense or purchased power expense when the related commodity is used in production	—			—			—			(8		)
Commodity contract derivatives																Commodity contract derivatives	To protect against fluctuations in market prices of purchased coal or natural gas (price risk)	Mark-to-market gains and losses are recorded as regulatory assets or liabilities Realized gains and losses due to contract settlements are recognized in Fuel expense as incurred	(2)		—		(1)		—



Fair Values of TVA Derivatives
	At June 30, 2019				At September 30, 2018
Derivatives That Receive Hedge Accounting Treatment:
	Balance			Balance Sheet Presentation	Balance			Balance Sheet Presentation
Currency swaps
£200 million Sterling	$	(80	)	Accounts payable and accrued liabilities $(5); Other long-term liabilities $(75)	$	(67	)	Accounts payable and accrued liabilities $(5); Other long-term liabilities $(62)
£250 million Sterling	(44		)	Accounts payable and accrued liabilities $(5); Other long-term liabilities $(39)	(12		)	Accounts payable and accrued liabilities $(5); Other long-term liabilities $(7)
£150 million Sterling	(46		)	Accounts payable and accrued liabilities $(3); Other long-term liabilities $(43)	(15		)	Accounts payable and accrued liabilities $(3); Other long-term liabilities $(12)

Derivatives That Do Not Receive Hedge Accounting Treatment:
	Balance			Balance Sheet Presentation	Balance			Balance Sheet Presentation
Interest rate swaps								��
$1.0 billion notional	$	(1,107	)	Accounts payable and accrued liabilities $(60); Other long-term liabilities $(1,047)	$	(878	)	Accounts payable and accrued liabilities $(56); Other long-term liabilities $(822)
$476 million notional	(425		)	Accounts payable and accrued liabilities $(22); Other long-term liabilities $(403)	(317		)	Accounts payable and accrued liabilities $(20); Other long-term liabilities $(297)
$42 million notional	(6		)	Accounts payable and accrued liabilities $(2); Other long-term liabilities $(4)	(4		)	Accounts payable and accrued liabilities $(1); Other long-term liabilities $(3)
Commodity contract derivatives	(22		)	Other current assets $14; Other long-term assets $6; Other long-term liabilities $(9); Accounts payable and accrued liabilities $(33)	60			Other current assets $41; Other long-term assets $31; Other long-term liabilities $(8); Accounts payable and accrued liabilities $(4)



Derivative Assets and Liabilities
	At June 30, 2019
	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset in the Balance Sheet⁽¹⁾		Net Amounts of Assets/Liabilities Presented in the Balance Sheet⁽²⁾
Assets
Commodity derivatives not subject to master netting or similar arrangement	$	20	$	—	$	20

Liabilities
Currency swaps⁽³⁾	$	170	$	—	$	170
Interest rate swaps⁽³⁾	1,538		—		1,538
Total derivatives subject to master netting or similar arrangement	1,708		—		1,708
Commodity derivatives not subject to master netting or similar arrangement	42		—		42
Total liabilities	$	1,750	$	—	$	1,750

	At September 30, 2018
	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset in the Balance Sheet⁽¹⁾		Net Amounts of Assets/Liabilities Presented in the Balance Sheet⁽²⁾
Assets
Commodity derivatives not subject to master netting or similar arrangement	$	72	$	—	$	72

Liabilities
Currency swaps⁽³⁾	$	94	$	—	$	94
Interest rate swaps⁽³⁾	1,199		—		1,199
Total derivatives subject to master netting or similar arrangement	1,293		—		1,293
Commodity derivatives not subject to master netting or similar arrangement	12		—		12
Total liabilities	$	1,305	$	—	$	1,305



Unrealized Investment Gains (Losses)
		Three Months Ended June 30					Nine Months Ended June 30
Fund	Financial Statement Presentation	2019			2018		2019			2018
SERP	Other income (expense)	$	1		$	—	$	—		$	—
DCP	Other income (expense)	1			—		(1		)	—
NDT	Regulatory asset	(37		)	9		(84		)	(19		)
ART	Regulatory asset	(6		)	1		(58		)	7



Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at June 30, 2019		Valuation Technique(s)	Unobservable Inputs	Range
Assets
Commodity contract derivatives	$	19	Pricing model	Coal supply and demand	0.6 - 0.8 billion tons/year
				Long-term market prices	$12.20 - $106.35/ton
Liabilities
There were no commodity contract derivatives in liability positions at June 30, 2019.



Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at September 30, 2018		Valuation Technique(s)	Unobservable Inputs	Range
Assets
Commodity contract derivatives	$	59	Pricing model	Coal supply and demand	0.7 - 0.8 billion tons/year
				Long-term market prices	$12.25 - $112.24/ton
Liabilities
Commodity contract derivatives	$	1	Pricing model	Coal supply and demand	0.7 - 0.8 billion tons/year
				Long-term market prices	$12.25 - $112.24/ton



Components of TVA's Benefit Plans⁽¹⁾
	For the Three Months Ended June 30												For the Nine Months Ended June 30
	Pension Benefits						Other Post-Retirement Benefits						Pension Benefits						Other Post-Retirement Benefits
	2019			2018			2019			2018			2019			2018			2019			2018
Service cost	$	11		$	13		$	2		$	4		$	33		$	40		$	8		$	11
Interest cost	125			118			5			5			374			355			14			14
Expected return on plan assets	(119		)	(119		)	—			—			(358		)	(358		)	—			—
Amortization of prior service credit	(25		)	(25		)	(6		)	(5		)	(74		)	(74		)	(18		)	(16		)
Recognized net actuarial loss	84			103			1			1			252			307			3			5
Total net periodic benefit cost as actuarially determined	76			90			2			5			227			270			7			14
Amount expensed (capitalized) due to actions of regulator	—			(13		)	—			—			1			(40		)	—			—
Total net periodic benefit cost	$	76		$	77		$	2		$	5		$	228		$	230		$	7		$	14



Changes in Revenue Components
	Three Months Ended June 30										Nine Months Ended June 30
	2019			2018				Change			2019			2018				Change
Base revenue
Energy revenue	$	1,171		$	1,271		⁽¹⁾	$	(100	)	$	3,596		$	3,796		⁽¹⁾	$	(200	)
Demand revenue	849			824				25			2,565			2,464				101
Grid access charge	64			—				64			193			—				193
Other charges and credits⁽²⁾	(144		)	(158		)		14			(460		)	(483		)		23
Total base revenue	1,940			1,937				3			5,894			5,777				117
Fuel cost recovery	623			730				(107		)	2,061			2,148				(87		)
Off-system sales	2			2				—			3			6				(3		)
Revenue from sales of electricity	2,565			2,669				(104		)	7,958			7,931				27
Other revenue	39			38				1			121			117				4
Total operating revenues	$	2,604		$	2,707			$	(103	)	$	8,079		$	8,048			$	31