NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions except where noted)
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Note No.
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Page No.
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7
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Variable Interest Entities
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8
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9
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10
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11
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Debt
and Other Obligations
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12
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Lease/Leaseback Obligations
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13
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14
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15
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16
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17
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1. Summary of Significant Accounting Policies
General
The
Tennessee Valley Authority ("TVA")
is a corporate agency and instrumentality of the United States that was created in 1933 by legislation enacted by the
United States ("U.S.")
Congress in response to a request by President Franklin D. Roosevelt. TVA was created to, among other things, improve navigation on the Tennessee River, reduce the damage from destructive flood waters within the Tennessee River system and downstream on the lower Ohio and Mississippi Rivers, further the economic development of TVA's service area in the southeastern United States, and sell the electricity generated at the facilities TVA operates.
Today, TVA operates the nation's largest public power system and supplies power in most of Tennessee, northern Alabama, northeastern Mississippi, and southwestern Kentucky and in portions of northern Georgia, western North Carolina, and southwestern Virginia to a population of over
nine million
people.
TVA also manages the Tennessee River, its tributaries, and certain shorelines to provide, among other things, year-round navigation, flood damage reduction, and affordable and reliable electricity. Consistent with these primary purposes, TVA also manages the river system to provide recreational opportunities, adequate water supply, improved water quality, natural resource protection, and economic development.
The power program has historically been separate and distinct from the stewardship programs. It is required to be self-supporting from power revenues and proceeds from power financings, such as proceeds from the issuance of
bonds, notes, or other evidences of indebtedness ("Bonds")
. Although TVA does not currently receive congressional appropriations, it is required to make annual
payments to the U.S. Treasury in repayment of and as a return on the government's appropriation investment in TVA's power facilities (the "Power Program Appropriation Investment")
. In the 1998 Energy and Water Development Appropriations Act, Congress directed TVA to fund essential stewardship activities related to its management of the Tennessee River system and nonpower or stewardship properties with power revenues in the event that there were insufficient appropriations or other available funds to pay for such activities in any fiscal year. Congress has not provided any appropriations to TVA to fund such activities since 1999. Consequently, during 2000, TVA began paying for essential stewardship activities primarily with power revenues, with the remainder funded with user fees and other forms of revenues derived in connection with those activities. The activities related to stewardship properties do not meet the criteria of an operating segment under
accounting principles generally accepted in the United States of America ("GAAP")
. Accordingly, these assets and properties are included as part of the power program, TVA's only operating segment.
Power rates are established by the
TVA Board of Directors (the "TVA Board")
as authorized by
the Tennessee Valley Authority Act of 1933, as amended, 16 U.S.C. §§ 831-831ee
(as amended, the “TVA Act”). The TVA Act requires TVA to charge rates for power that will produce gross revenues sufficient to provide funds for operation, maintenance, and administration of its
power system;
payments to states and counties in lieu of taxes ("tax equivalents")
; debt service on outstanding indebtedness; payments to the U.S. Treasury in repayment of and as a return on the Power Program Appropriation Investment; and such additional margin as the TVA Board may consider desirable for investment in power system assets, retirement of outstanding Bonds in advance of maturity, additional reduction of the Power Program Appropriation Investment, and other purposes connected with TVA's power business. In setting TVA's rates, the TVA Board is charged by the TVA Act to have due regard for the primary objectives of the TVA Act, including the objective that power shall be sold at rates as low as are feasible. Rates set by the TVA Board are not subject to review or approval by any state or other federal regulatory body.
Fiscal Year
TVA's fiscal year ends September 30. Years (
2013
,
2012
, etc.) refer to TVA's fiscal years unless they are preceded by “CY,” in which case the references are to calendar years.
Cost-Based Regulation
Since the TVA Board is authorized by the TVA Act to set rates for power sold to its customers, TVA is self-regulated. Additionally, TVA's regulated rates are designed to recover its costs of providing electricity. In view of demand for electricity and the level of competition, TVA believes that rates, set at levels that will recover TVA's costs, can be charged and collected. As a result of these factors, TVA records certain assets and liabilities that result from the regulated ratemaking process that would not be recorded under GAAP for non-regulated entities. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory liabilities generally represent obligations to make refunds to customers for previous collections for costs that are not likely to be incurred or deferrals of gains that will be credited to customers in future periods. TVA assesses whether the regulatory assets are probable of future recovery by considering factors such as applicable regulatory changes, potential legislation, and changes in technology. Based on these assessments, TVA believes the existing regulatory assets are probable of recovery. This determination reflects the current regulatory and political environment and is subject to change in the future. In the event that accounting rules for rate regulation were no longer applicable, TVA would be required to write off its regulatory assets and liabilities, resulting in changes to net income and other comprehensive income.
Basis of Presentation
TVA prepares its consolidated interim financial statements in conformity with GAAP for consolidated interim financial information. Accordingly, TVA's consolidated interim financial statements do not include all of the information and notes required by GAAP for annual financial statements. As such, they should be read in conjunction with the audited financial statements for the year ended
September 30, 2012
, and the notes thereto, which are contained in TVA's Annual Report on Form 10-K for the year ended
September 30, 2012
(the “Annual Report”). In the opinion of management, all adjustments (consisting of items of a normal recurring nature) considered necessary for fair presentation are included in the interim financial statements.
The accompanying consolidated interim financial statements include the accounts of TVA and
two
variable interest entities ("VIEs")
, created in January 2012, of which TVA is the primary beneficiary. See
Note 7
. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements requires TVA to estimate the effects of various matters that are inherently uncertain as of the date of the consolidated financial statements. Although the consolidated financial statements are prepared in conformity with GAAP, TVA is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses reported during the reporting period. Each of these estimates varies in regard to the level of judgment involved and its potential impact on TVA's financial results. Estimates are deemed critical either when a different estimate could have reasonably been used or where changes in the estimate are reasonably likely to occur from period to period and such use or change would materially impact TVA's financial condition, results of operations, or cash flows.
Reclassifications
Certain reclassifications have been made to the 2012 financial statements to conform to the 2013 presentation. In the Cash flows from operating activities section of the Consolidated Statements of Cash Flows, $
119 million
previously reported as changes in Other, net and $
(318) million
previously reported as changes in Margin cash collateral, net for the
nine
months ended
June 30, 2012
, were reclassified as changes in Inventory and other, net.
Allowance for Uncollectible Accounts
The allowance for uncollectible accounts reflects TVA's estimate of probable losses inherent in its accounts and loans receivable balances. TVA determines the allowance based on known accounts, historical experience, and other currently available information including events such as customer bankruptcy and/or a customer failing to fulfill payment arrangements
after
90 days
. It also reflects TVA's corporate credit department's assessment of the financial condition of customers and the credit quality of the receivables.
The allowance for uncollectible accounts was $
4 million
and $
7 million
at
June 30, 2013
and September 30, 2012, respectively, for accounts receivable. Additionally, loans receivable of $
84 million
and $
76 million
at
June 30, 2013
and September 30, 2012, respectively, are included in Other long-term assets and reported net of allowances for uncollectible accounts of $
10 million
and $
12 million
, respectively.
Depreciation
On July 15, 2013, TVA determined that
Colbert Fossil Plant ("Colbert")
Unit 5 will be idled on October 1, 2013. Colbert Unit 5 had been scheduled to idle on October 1, 2014. It is expected that the decision to idle Colbert Unit 5 on October 1, 2013 will increase depreciation expense by approximately $
14 million
during the fourth quarter of 2013 due to the acceleration of the idling date.
Blended Low-Enriched Uranium Program
Under the
blended low-enriched uranium ("BLEU")
program, TVA, the
Department of Energy ("DOE")
, and certain nuclear fuel contractors have entered into agreements providing for the DOE's surplus of enriched uranium to be blended with other uranium down to a level that allows the blended uranium to be fabricated into fuel that can be used in nuclear power plants. Under the terms of an interagency agreement between TVA and the DOE, in exchange for supplying highly enriched uranium materials to the appropriate third-party fuel processors for processing into usable BLEU fuel for TVA, the DOE participates to a degree in the savings generated by TVA’s use of this blended nuclear fuel. Over the life of the program, TVA projects that the DOE’s share of savings generated by TVA’s use of this blended nuclear fuel could result in payments to the DOE of as much as $
175 million
. TVA accrues an obligation with each BLEU reload batch related to the portion of the ultimate future payments estimated to be attributable to the BLEU fuel currently in use. At
June 30, 2013
, TVA had paid out approximately $
106 million
for this program and the obligation recorded was $
6 million
.
Insurance
In May 2013, TVA discontinued its directors and officers insurance program after determining that TVA's internal indemnification policies and procedures provided sufficient protection to TVA's directors and officers.
2. Impact of New Accounting Standards and Interpretations
Comprehensive Income.
In June 2011, the
Financial Accounting Standards Board ("FASB")
issued guidance that requires adjustments to the presentation of TVA's financial information. The guidance eliminated the option to report comprehensive income and its components in the statement of changes in proprietary capital. The guidance required the presentation of net income and other comprehensive income in either one continuous statement or in two separate but consecutive statements. TVA chose the two statement approach. These changes became effective for TVA on October 1, 2012. The adoption of this guidance did not have an impact on TVA's financial condition, results of operations, or cash flows.
The following accounting standards have been issued, but as of
June 30, 2013
, were not effective and had not been adopted by TVA.
Balance Sheet
. In December 2011, FASB issued guidance that requires additional disclosures relating to the rights of offset or other netting arrangements of assets and liabilities that are presented on a net or gross basis in the consolidated balance sheets. The guidance applies to derivative and other financial instruments and requires the disclosure of the gross amounts subject to offset, actual amounts offset in accordance with GAAP, and the related net exposure. These changes will become effective for TVA on October 1, 2013, and will be applied on a retrospective basis. This guidance relates solely to enhanced disclosures in the notes to the consolidated financial statements and will not have an impact on TVA's financial condition, results of operations, or cash flows.
Comprehensive Income
. In February 2013, FASB issued guidance that requires public reporting companies under the Securities Act of 1933 to present information about reclassification adjustments from accumulated other comprehensive income in their annual and interim financial statements in a single location. The guidance requires that companies present the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. This information may be disclosed either in a single note or parenthetically on the face of the financial statements. If a component is not required to be reclassified to net income in its entirety, companies must cross reference to the related footnote for additional information. These changes will become effective for TVA on October 1, 2013, and will be applied on a prospective basis. This guidance relates solely to enhanced disclosures and will not have an impact on TVA’s financial condition, results of operations, or cash flows.
3. Accounts Receivable, Net
Accounts receivable primarily consist of amounts due from customers for power sales. The table below summarizes the types and amounts of TVA’s accounts receivable:
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Accounts Receivable, Net
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At June 30, 2013
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At September 30, 2012
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Power receivables
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$
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1,440
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$
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1,585
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Other receivables
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56
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|
88
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Allowance for uncollectible accounts
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(4
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)
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(7
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)
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Accounts receivable, net
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$
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1,492
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$
|
1,666
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4. Inventories, Net
The table below summarizes the types and amounts of TVA’s inventories:
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Inventories, Net
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At June 30, 2013
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At September 30, 2012
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Materials and supplies inventory
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$
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621
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$
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605
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Fuel inventory
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563
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508
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Emission allowance inventory
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14
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12
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Allowance for inventory obsolescence
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(34
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)
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(28
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)
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Inventories, net
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$
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1,164
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$
|
1,097
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5. Other Long-Term Assets
The table below summarizes the types and amounts of TVA’s other long-term assets:
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Other Long-Term Assets
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At June 30, 2013
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At September 30, 2012
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EnergyRight
®
receivables
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$
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115
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$
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115
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Loans and other long-term receivables, net
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84
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|
|
76
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|
Currency swap asset
|
16
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|
|
21
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Coal contract derivative assets
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4
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|
107
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Other
|
201
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|
|
190
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Total other long-term assets
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$
|
420
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$
|
509
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|
TVA guarantees repayment on certain loans receivable from customers of TVA's distributors in association with the EnergyRight
®
Solutions program. TVA sells the loans receivable to a third-party bank and has agreed with the bank to purchase any loan receivable that has been in default for
180 days
or more or that TVA has determined is uncollectible. The loans receivable, and the associated obligation to purchase those loans, are shown in Other long-term assets and Other long-term liabilities, respectively, on TVA's consolidated balance sheets. The current portion of the loans receivable and the associated obligation to purchase those loans are shown in Current assets and Current liabilities, respectively, on TVA's consolidated balance sheets. At
June 30, 2013
, the carrying amount of the loans receivable, net of discount, was approximately $
149 million
. The carrying amount of the associated obligation to purchase those loans was approximately $
184 million
. See
Note 9
.
6. Regulatory Assets and Liabilities
Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory liabilities generally represent obligations to make refunds to customers for previous collections for costs that are not likely to be incurred or deferrals of gains that will be credited to customers in future periods. Components of regulatory assets and regulatory liabilities are summarized in the table below.
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Regulatory Assets and Liabilities
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|
At June 30, 2013
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|
At September 30, 2012
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Current regulatory assets
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|
|
|
Deferred nuclear generating units
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$
|
237
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|
|
$
|
237
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|
Unrealized losses on commodity derivatives
|
176
|
|
|
310
|
|
Environmental agreements
|
74
|
|
|
87
|
|
Environmental cleanup costs - Kingston ash spill
|
72
|
|
|
72
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|
Fuel cost adjustment receivable
|
—
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|
|
68
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|
Total current regulatory assets
|
559
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|
|
774
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|
|
|
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|
Non-current regulatory assets
|
|
|
|
|
|
Deferred pension costs and other post-retirement benefits costs
|
5,237
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|
|
5,517
|
|
Unrealized losses on interest rate derivatives
|
867
|
|
|
1,332
|
|
Nuclear decommissioning costs
|
922
|
|
|
914
|
|
Environmental cleanup costs - Kingston ash spill
|
738
|
|
|
797
|
|
Construction costs
|
619
|
|
|
619
|
|
Non-nuclear decommissioning costs
|
573
|
|
|
550
|
|
Deferred nuclear generating units
|
295
|
|
|
473
|
|
Environmental agreements
|
219
|
|
|
237
|
|
Unrealized losses on commodity derivatives
|
137
|
|
|
335
|
|
Other non-current regulatory assets
|
338
|
|
|
353
|
|
Total non-current regulatory assets
|
9,945
|
|
|
11,127
|
|
Total regulatory assets
|
$
|
10,504
|
|
|
$
|
11,901
|
|
|
|
|
|
Current regulatory liabilities
|
|
|
|
|
|
Fuel cost adjustment tax equivalents
|
$
|
176
|
|
|
$
|
173
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|
Fuel cost adjustment liability
|
25
|
|
|
—
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|
Unrealized gains on commodity derivatives
|
7
|
|
|
18
|
|
Total current regulatory liabilities
|
208
|
|
|
191
|
|
|
|
|
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Non-current regulatory liabilities
|
|
|
|
|
|
Unrealized gains on commodity derivatives
|
4
|
|
|
109
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|
Total non-current regulatory liabilities
|
4
|
|
|
109
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|
Total regulatory liabilities
|
$
|
212
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|
|
$
|
300
|
|
7. Variable Interest Entities
On January 17, 2012, TVA entered into a $
1.0 billion
construction management agreement and lease financing arrangement with
John Sevier Combined Cycle Generation LLC ("JSCCG")
for the completion and lease by TVA of the
John Sevier Combined Cycle Facility ("John Sevier CCF")
. JSCCG is a special single-purpose limited liability company formed in January 2012 to finance the John Sevier CCF through a $
900 million
secured note issuance
(the “JSCCG notes”) and the issuance of $
100 million
of membership interests subject to mandatory redemption. The membership interests were purchased by
John Sevier Holdco LLC ("Holdco")
. Holdco is a special single-purpose entity, also formed in January 2012, established to acquire and hold the membership interests in JSCCG. A non-controlling interest in Holdco is held by a third party through nominal membership interests, to which none of the income or expenses of Holdco are allocated.
The membership interests held by Holdco in JSCCG were purchased with proceeds from the issuance of $
100 million
of secured notes
(the “Holdco notes") and are subject to mandatory redemption pursuant to scheduled amortizing, semi-annual payments due each January 15 and July 15, with a final payment due on January 15, 2042. The payment dates for the mandatorily redeemable membership interests are the same as those of the Holdco notes. The sale of the JSCCG notes, the membership interests in JSCCG, and the Holdco notes closed on January 17, 2012. The JSCCG notes are secured by TVA’s lease payments, and the Holdco notes are secured by Holdco's investment in, and amounts receivable from, JSCCG. TVA’s lease payments to JSCCG are equal to and payable on the same dates as JSCCG’s and Holdco’s semi-annual debt service payments. In addition to the lease payments, TVA pays the administrative or miscellaneous expenses incurred by JSCCG and Holdco. Certain agreements related to this transaction contain default and acceleration provisions.
Due to its participation in the design, business conduct, and credit and financial support of JSCCG and Holdco, TVA is deemed to have a variable interest in each of these entities. Accordingly,
TVA performs continual qualitative evaluations regarding which interest holders have the power to direct the activities that most significantly impact the economic performance of the entities and have the obligation to absorb losses or receive benefits that could be significant to the entities. The evaluations consider the purpose and design of the businesses, the risks that the businesses were designed to create and pass along to other entities, the activities of the businesses that can be directed and which party can direct them, and the expected relative impact of those activities on the economic performance of the businesses. TVA has the power to direct the activities of an entity when it has the ability to make key operating, investing and financing decisions, including, but not limited to, capital investment and the issuance or redemption of debt. Based on its analysis, TVA has determined that it is the primary beneficiary of JSCCG and Holdco and, as such, is required to account for the VIEs on a consolidated basis. Holdco’s membership interests in JSCCG are eliminated in consolidation.
The financial statement items attributable to carrying amounts and classifications of JSCCG and Holdco as reflected in the Consolidated Balance Sheets are as follows:
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JSCCG and Holdco
Summary of Impact on Consolidated Balance Sheets
|
|
At June 30, 2013
|
|
At September 30, 2012
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Current liabilities
|
|
|
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Accrued interest
|
$
|
22
|
|
|
$
|
10
|
|
Current maturities of long-term debt of variable interest entities
|
13
|
|
|
13
|
|
Total current liabilities
|
35
|
|
|
23
|
|
Long-term debt, net
|
|
|
|
Long-term debt of variable interest entities
|
975
|
|
|
981
|
|
Total long-term debt, net
|
975
|
|
|
981
|
|
Total liabilities
|
$
|
1,010
|
|
|
$
|
1,004
|
|
JSCCG’s and Holdco’s creditors do not have any recourse to the general credit of TVA. TVA does not have any obligations to provide financial support to JSCCG or Holdco other than as prescribed in the terms of the agreements related to this transaction.
8. Kingston Fossil Plant Ash Spill
The Event
In December 2008,
one
of the dredge cells at the
Kingston Fossil Plant ("Kingston")
failed, and approximately
five million
cubic yards of water and coal fly ash flowed out of the cell. TVA is continuing cleanup and recovery efforts in conjunction with federal and state agencies. TVA completed the removal of time-critical ash from the river during the third quarter of 2010, and removal of the remaining ash is considered to be non-time-critical. In November 2012, the
Environmental Protection Agency ("EPA")
and the
Tennessee Department of Environment and Conservation ("TDEC")
approved a plan to allow the Emory River's natural processes to remediate the remaining ash in the river, and to conduct a long-term monitoring program. TVA estimates that the physical cleanup work (final removal) will be completed in the spring of 2015. A final assessment, issuance of a completion report, and approval by the State of Tennessee and the EPA are expected to occur by the third quarter of 2015.
Claims and Litigation
See
Note 17
—
Legal Proceedings Related to the Kingston Ash Spill
and
Civil Penalty and Natural Resource Damages for the Kingston Ash Spill
.
Financial Impact
Because of the uncertainty at this time of the final costs to complete the work prescribed by the ash disposal plan, a range of reasonable estimates has been developed by cost category. Known amounts, most likely scenarios, or the low end of the range for each category have been accumulated and evaluated to determine the total estimate. The range of costs varies from approximately $
1.1 billion
to approximately $
1.2 billion
.
TVA recorded an estimate of $
1.1 billion
for the cost of cleanup related to this event. In August 2009, TVA began using regulatory accounting treatment to defer all actual costs already incurred and expected future costs related to the ash spill. The cost is being charged to expense as it is collected in rates over
15 years
, beginning October 1, 2009. As the estimate changes, additional costs may be deferred and charged to expense prospectively as they are collected in future rates.
As work continues to progress and more information is available, TVA will review its estimates and revise them as appropriate. TVA has accrued a portion of the estimated cost in current liabilities, with the remaining portion shown as a long-term liability on TVA's consolidated balance sheets. Amounts spent since the event through
June 30, 2013
, totaled $
938 million
. The remaining estimated liability at
June 30, 2013
, was $
187 million
.
TVA has not included the following categories of costs in the above estimate since it has been determined that these costs are currently either not probable or not reasonably estimable: penalties (other than the penalties set out in a June 2010 TDEC order), regulatory directives, natural resources damages (other than payments required under a memorandum of agreement with TDEC and the U.S. Fish and Wildlife Service establishing a process and a method for resolving the natural resource damages claim), future lawsuits, future claims, long-term environmental impact costs, final long-term disposition of the ash processing area, and costs associated with new laws and regulations. There are certain other costs that will be incurred that have not been included in the estimate as they are appropriately accounted for in other areas of the consolidated financial statements. Associated capital asset purchases are recorded in property, plant, and equipment. Ash handling and disposition costs from current plant operations are recorded in operating expenses. A portion of the dredge cell closure costs are also excluded from the estimate, as they are included in the non-nuclear
asset retirement obligations ("ARO")
liability.
Insurance
TVA had property and excess liability insurance programs in place at the time of the Kingston ash spill. TVA pursued claims under both the property and excess liability programs and has settled all of its property insurance claims and some of its excess liability insurance claims. TVA has received insurance proceeds of $
50 million
. In April 2012, TVA initiated arbitration proceedings against the remaining excess liability insurance companies in accordance with the policies’ dispute resolution provisions. TVA is seeking recovery of certain costs incurred in the cleanup project, including the costs of removing ash from property or waters owned by the State of Tennessee, and related expenses. Any amounts received related to insurance settlements are being recorded as reductions to the regulatory asset and will reduce amounts collected in future rates.
9. Other Long-Term Liabilities
Other long-term liabilities consist primarily of liabilities related to certain derivative instruments as well as liabilities under agreements related to compliance with certain environmental regulations (see
Note 17
—
Environmental Agreements
). The table below summarizes the types and amounts of Other long-term liabilities:
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|
|
|
|
|
|
|
|
Other Long-Term Liabilities
|
|
At June 30, 2013
|
|
At September 30, 2012
|
Interest rate swap liabilities
|
$
|
1,258
|
|
|
$
|
1,723
|
|
Environmental agreements liability
|
219
|
|
|
237
|
|
EnergyRight
®
purchase obligation
|
147
|
|
|
148
|
|
Currency swap liabilities
|
56
|
|
|
54
|
|
Commodity swap derivative liabilities
|
41
|
|
|
59
|
|
Coal contract derivative liabilities
|
27
|
|
|
205
|
|
Other
|
219
|
|
|
254
|
|
Total other long-term liabilities
|
$
|
1,967
|
|
|
$
|
2,680
|
|
TVA guarantees repayment on certain loans receivable from end-use customers in association with the EnergyRight
®
Solutions program. TVA sells the loans receivable to a third-party bank and has agreed with the bank to purchase any loan receivable that has been in default for
180 days
or more or that TVA has determined is uncollectible. As of
June 30, 2013
, the carrying amount of the associated obligation to purchase those loans was approximately $
184 million
, of which $
37 million
is current and included in Accounts payable and accrued liabilities. See
Note 5
.
10. Asset Retirement Obligations
During the
nine
months ended
June 30, 2013
, TVA's total ARO liability increased $
149 million
. The increase in the liability resulted from accretion and a change in estimate. These items were partially offset by ash area settlement projects that were conducted during the
nine
months ended
June 30, 2013
. The nuclear and non-nuclear accretion were deferred as regulatory assets, and $
30 million
of the related regulatory assets was amortized into expense as this amount was collected in rates.
The change in estimate is a result of TVA's biennial update to its nuclear ARO in order to adjust for changes in expected labor factors, burial rates, and fuel expenses, among other factors. This review resulted in a
$48 million
increase to the nuclear ARO.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Asset Retirement Obligation Liability
|
|
|
|
|
|
|
|
|
|
Nuclear
|
|
Non-Nuclear
|
|
Total
|
|
Balance at September 30, 2012
|
$
|
2,208
|
|
|
$
|
1,081
|
|
|
$
|
3,289
|
|
|
Settlements (ash storage areas)
|
—
|
|
|
(25
|
)
|
|
(25
|
)
|
|
Accretion (recorded as regulatory asset)
|
93
|
|
|
33
|
|
|
126
|
|
|
Change in estimate
|
48
|
|
|
—
|
|
|
48
|
|
|
Balance at June 30, 2013
|
$
|
2,349
|
|
|
$
|
1,089
|
|
|
$
|
3,438
|
|
*
|
Note
* The current portion of ARO in the amount of $
34 million
is included in Accounts payable and accrued liabilities at June 30, 2013.
11. Debt and Other Obligations
Debt Outstanding
Total debt outstanding at
June 30, 2013
, and
September 30, 2012
, consisted of the following:
|
|
|
|
|
|
|
|
|
Debt Outstanding
|
|
At June 30, 2013
|
|
At September 30, 2012
|
Short-term debt
|
|
|
|
Short-term debt, net
|
$
|
2,395
|
|
|
$
|
1,507
|
|
Current maturities of long-term debt of variable interest entities
|
13
|
|
|
13
|
|
Current maturities of power bonds
|
972
|
|
|
2,308
|
|
Total current debt outstanding, net
|
3,380
|
|
|
3,828
|
|
Long-term debt
|
|
|
|
|
|
Long-term debt of variable interest entities
|
975
|
|
|
981
|
|
Long-term power bonds
|
21,296
|
|
|
20,330
|
|
Unamortized discounts, premiums and other
|
(82
|
)
|
|
(61
|
)
|
Total long-term debt, net
|
22,189
|
|
|
21,250
|
|
Total outstanding debt
|
$
|
25,569
|
|
|
$
|
25,078
|
|
Debt Securities Activity
The table below summarizes the long-term debt securities activity for the period from October 1, 2012, to
June 30, 2013
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities Activity
|
|
Date
|
|
Amount
|
|
Interest Rate
|
|
|
|
|
|
|
Issues
|
|
|
|
|
|
2012 Series B
(1)
|
December 2012
|
|
$
|
1,000
|
|
|
3.50
|
%
|
electronotes
®
|
Second Quarter 2013
|
|
92
|
|
|
3.21
|
%
|
electronotes
®
|
Third Quarter 2013
|
|
13
|
|
|
3.15
|
%
|
Discount on debt issues
|
|
|
(25
|
)
|
|
|
Total long-term debt issuances
|
|
|
$
|
1,080
|
|
|
|
|
|
|
|
|
|
Redemptions/Maturities
(2)
|
|
|
|
|
|
2009 Series A
|
November 2012
|
|
$
|
2
|
|
|
2.25
|
%
|
2009 Series B
|
December 2012
|
|
1
|
|
|
3.77
|
%
|
1998 Series C
|
March 2013
|
|
1,359
|
|
|
6.00
|
%
|
1999 Series A
|
May 2013
|
|
1
|
|
|
4.15
|
%
|
2009 Series A
|
May 2013
|
|
2
|
|
|
2.25
|
%
|
1998 Series D
|
June 2013
|
|
2
|
|
|
4.06
|
%
|
2009 Series B
|
June 2013
|
|
1
|
|
|
3.77
|
%
|
electronotes
®
|
First Quarter 2013
|
|
8
|
|
|
4.91
|
%
|
electronotes
®
|
Second Quarter 2013
|
|
17
|
|
|
4.98
|
%
|
electronotes
®
|
Third Quarter 2013
|
|
24
|
|
|
4.18
|
%
|
Total redemptions/maturities
|
|
|
$
|
1,417
|
|
|
|
Notes
(1) The 2012 Series B bonds were issued at
97.49 percent
of par.
(2) All redemptions were at
100 percent
of par.
Credit Facility Agreements
. TVA and the U.S. Treasury, pursuant to the TVA Act, have entered into a memorandum of understanding under which the U.S. Treasury provides TVA with a $
150 million
credit facility. This credit facility was renewed for fiscal year 2014 with a maturity date of September 30, 2014. Access to this credit facility or other similar financing arrangements with the U.S. Treasury has been available to TVA since the 1960s. TVA plans to use the U.S. Treasury credit facility as a secondary source of liquidity. The interest rate on any borrowing under this facility is based on the average rate on outstanding marketable obligations of the United States with maturities from date of issue of one year or less. There were
no
outstanding borrowings under the facility at
June 30, 2013
or
September 30, 2012
.
TVA also has funding available in the form of
three
long-term revolving credit facilities totaling $
2.5 billion
. One $
1.0 billion
credit facility matures on June 25, 2017, another $
1.0 billion
credit facility matures on December 13, 2017, and the $
0.5 billion
credit facility matures on April 5, 2018. The interest rate on any borrowing under these facilities varies based on market factors and the rating of TVA's senior unsecured long-term non-credit enhanced debt. TVA is required to pay an unused facility fee on the portion of the total $
2.5 billion
that TVA has not borrowed or committed under letters of credit. This fee, along with letter of credit fees, may fluctuate depending on the rating of TVA's senior unsecured long-term non-credit enhanced debt. At
June 30, 2013
, there were $
1.0 billion
of letters of credit outstanding under the facilities, and there were
no
borrowings outstanding. See
Note 13
—
Other Derivative Instruments
—
Collateral
.
12. Lease/Leaseback Obligations
Prior to 2004, TVA received approximately $
945 million
in proceeds by entering into leaseback transactions for
24
new peaking
combustion turbine units ("CTs")
. TVA also received approximately $
389 million
in proceeds by entering into a leaseback transaction for
qualified technological equipment and software ("QTE")
in 2003. Due to TVA's continuing involvement in the operation and maintenance of the leased units and equipment and its control over the distribution of power
produced by the combustion turbine facilities during the leaseback term, TVA accounted for the lease proceeds as financing obligations. At
June 30, 2013
, and
September 30, 2012
, the outstanding leaseback obligations, related to CTs and QTE, were $
762 million
and $
825 million
, respectively.
Seven States Power Corporation ("Seven States")
, through its subsidiary,
Seven States Southaven, LLC ("SSSL")
, exercised its option to purchase from TVA an undivided
90 percent
interest in a combined-cycle combustion turbine facility in Southaven, Mississippi. As part of interim joint-ownership arrangements, Seven States has the right at any time during the interim period, and for any reason, to require TVA to buy back SSSL's interest in the facility. The interim period under the joint-ownership arrangements was to expire on April 23, 2013. On April 18, 2013, TVA and Seven States, through SSSL, agreed to extend the expiration date of the interim joint ownership arrangements to September 5, 2013. The other material terms and conditions of the arrangements were not changed and remain in full force and effect. TVA intends to re-acquire SSSL's interest in the facility and the related assets either on or prior to the extended expiration date of September 5, 2013. The carrying amount of the Southaven obligation on TVA's consolidated balance sheets was approximately $
365 million
at
June 30, 2013
, and $
378 million
at
September 30, 2012
. At
June 30, 2013
, this obligation was recorded in Current portion of leaseback obligations on the Consolidated Balance Sheets.
13. Risk Management Activities and Derivative Transactions
TVA is exposed to various risks. These include risks related to commodity prices, investment prices, interest rates, currency exchange rates, inflation, and counterparty credit and performance risks. To help manage certain of these risks, TVA has entered into various derivative transactions, principally commodity option contracts, forward contracts, swaps, swaptions, futures, and options on futures. Other than certain derivative instruments in investment funds, it is TVA's policy to enter into these derivative transactions solely for hedging purposes and not for speculative purposes.
Overview of Accounting Treatment
TVA recognizes certain of its derivative instruments as either assets or liabilities on its consolidated balance sheets at fair value. The accounting for changes in the fair value of these instruments depends on (1) whether TVA uses regulatory accounting to defer the derivative gains and losses, (2) whether the derivative instrument has been designated and qualifies for hedge accounting treatment, and (3) if so, the type of hedge relationship (for example, cash flow hedge).
The following tables summarize the accounting treatment that certain of TVA's financial derivative transactions receive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Derivative Instruments That Receive Hedge Accounting Treatment (part 1)
|
|
|
|
|
|
|
Amount of Mark-to-Market
(1)
Gain (Loss) Recognized in Other Comprehensive Income (Loss)
(2)
Three Months Ended
June 30
|
|
Amount of Mark-to-Market
Gain (Loss) Recognized in Other Comprehensive Income (Loss)
Nine Months Ended
June 30
|
Derivatives in Cash Flow Hedging Relationship
|
|
Objective of Hedge Transaction
|
|
Accounting for Derivative
Hedging Instrument
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Currency swaps
|
|
To protect against changes in cash flows caused by changes in foreign currency exchange rates (exchange rate risk)
|
|
Cumulative unrealized gains and losses are recorded in OCI and reclassified to interest expense to the extent they are offset by cumulative gains and losses on the hedged transaction
|
|
$
|
9
|
|
|
$
|
(36
|
)
|
|
$
|
(7
|
)
|
|
$
|
27
|
|
Notes
(1) Mark-to-Market ("MtM")
(2) Other Comprehensive Income (Loss) ("OCI")
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Derivative Instruments That Receive Hedge Accounting Treatment (part 2)
|
|
|
Amount of Gain (Loss) Reclassified from
OCI to Interest Expense
Three Months Ended
June 30
|
|
Amount of Gain (Loss) Reclassified from
OCI to Interest Expense
Nine Months Ended
June 30
|
Derivatives in Cash Flow
Hedging Relationship
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Currency swaps
|
|
$
|
(1
|
)
|
|
$
|
18
|
|
|
$
|
57
|
|
|
$
|
(7
|
)
|
Note
There were
no
ineffective portions or amounts excluded from effectiveness testing for any of the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Derivative Instruments That Do Not Receive Hedge Accounting Treatment
|
|
|
|
|
|
|
Amount of Gain
(Loss) Recognized in Income on Derivatives
Three Months Ended
June 30
(1)
|
|
Amount of Gain
(Loss) Recognized in Income on Derivatives
Nine Months Ended
June 30
(1)
|
Derivative Type
|
|
Objective of Derivative
|
|
Accounting for Derivative Instrument
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Interest rate swaps
|
|
To fix short-term debt variable rate to a fixed rate (interest rate risk)
|
|
MtM gains and losses are recorded as regulatory assets or liabilities until settlement, at which time the gains/losses are recognized in gain/loss on derivative contracts.
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contract derivatives
|
|
To protect against fluctuations in market prices of purchased coal or natural gas (price risk)
|
|
MtM 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
|
)
|
|
(6
|
)
|
|
(2
|
)
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
under financial trading program ("FTP")
|
|
To protect against fluctuations in market prices of purchased commodities (price risk)
|
|
MtM 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.
|
|
(21
|
)
|
|
(104
|
)
|
|
(99
|
)
|
|
(248
|
)
|
Note
(1) All of TVA's derivative instruments that do not receive hedge accounting treatment have unrealized gains (losses) that would otherwise be recognized in income
but instead are deferred as regulatory assets and liabilities. As such, there was
no
related gain (loss) recognized in income for these unrealized gains (losses) for the
three
and
nine
months ended
June 30, 2013
, and
2012
.
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-Market Values of TVA Derivatives
|
|
At June 30, 2013
|
|
At September 30, 2012
|
Derivatives that Receive Hedge Accounting Treatment:
|
|
Balance
|
|
Balance Sheet Presentation
|
|
Balance
|
|
Balance Sheet Presentation
|
Currency swaps
|
|
|
|
|
|
|
|
£200 million Sterling
|
$
|
(36
|
)
|
|
Other long-term liabilities
|
|
$
|
(23
|
)
|
|
Other long-term liabilities
|
£250 million Sterling
|
16
|
|
|
Other long-term assets
|
|
21
|
|
|
Other long-term assets
|
£150 million Sterling
|
(20
|
)
|
|
Other long-term liabilities
|
|
(31
|
)
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
Derivatives that Do Not Receive Hedge Accounting Treatment:
|
|
Balance
|
|
Balance Sheet Presentation
|
|
Balance
|
|
Balance Sheet Presentation
|
Interest rate swaps
|
|
|
|
|
|
|
|
$1.0 billion notional
|
(926
|
)
|
|
Other long-term liabilities
|
|
(1,247
|
)
|
|
Other long-term liabilities
|
$476 million notional
|
(319
|
)
|
|
Other long-term liabilities
|
|
(458
|
)
|
|
Other long-term liabilities
|
$42 million notional
|
(13
|
)
|
|
Other long-term liabilities
|
|
(18
|
)
|
|
Other long-term liabilities
|
Commodity contract derivatives
|
(111
|
)
|
|
Other long-term assets $4; Other current assets $4; Other long-term liabilities $(27); Accounts payable and accrued liabilities $(92)
|
|
(267
|
)
|
|
Other long-term assets $107; Other current assets $12; Other long-term liabilities $(205); Accounts payable and accrued liabilities $(181)
|
FTP
|
|
|
|
|
|
|
|
Margin cash account
(1)
|
18
|
|
|
Other current assets
|
|
43
|
|
|
Other current assets
|
Derivatives under FTP
|
(181
|
)
|
|
Other long-term assets $0; Other current assets $(98); Other long-term liabilities $(41); Accounts payable and accrued liabilities $(42)
|
|
(229
|
)
|
|
Other long-term assets $2; Other current assets $(104); Other long-term liabilities $(60); Accounts payable and accrued liabilities $(67)
|
Note
(1) In accordance with certain credit terms, TVA uses leverage to trade financial instruments under the FTP. Therefore, the margin cash account balance does not represent 100 percent of the net market value of the derivative positions outstanding as shown in the Derivatives Under Financial Trading Program table.
Cash Flow Hedging Strategy for Currency Swaps
To protect against exchange rate risk related to three British pound sterling denominated Bond transactions, TVA entered into foreign currency hedges at the time the Bond transactions occurred. TVA had the following currency swaps outstanding as of
June 30, 2013
:
|
|
|
|
|
|
|
|
Currency Swaps Outstanding
At June 30, 2013
|
Effective Date of Currency Swap Contract
|
|
Associated TVA Bond Issues Currency Exposure
|
|
Expiration Date of Swap
|
|
Overall Effective
Cost to TVA
|
1999
|
|
£200 million
|
|
2021
|
|
5.81%
|
2001
|
|
£250 million
|
|
2032
|
|
6.59%
|
2003
|
|
£150 million
|
|
2043
|
|
4.96%
|
When the dollar strengthens against the British pound sterling, the transaction gain on the Bond liability is offset by a currency exchange loss on the swap contract. Conversely, when the dollar weakens against the British pound sterling, the transaction loss on the Bond liability is offset by an exchange gain on the swap contract. All such exchange gains or losses on the Bond liability are included in Long-term debt, net. The offsetting exchange losses or gains on the swap contracts are recognized in Accumulated other comprehensive income (loss). 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.
Derivatives Not Receiving Hedge Accounting Treatment
Interest Rate Derivatives
. TVA uses regulatory accounting treatment to defer the MtM gains and losses on its interest rate swaps. The net deferred unrealized gains and losses are classified as regulatory assets or liabilities on TVA's consolidated balance sheets and are included in the ratemaking formula when the transactions settle. The values of these derivatives are included in Other long-term assets or Other long-term liabilities on the consolidated balance sheets, and realized gains and losses, if any, are included in TVA's Consolidated Statements of Operations.
For the
three
and
nine months ended
June 30, 2013
, the changes in market value of the interest rate swaps resulted in deferred unrealized gains of $
252 million
and $
465 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. At
June 30, 2013
, and
September 30, 2012
, TVA's coal contract derivatives had net market values of $
(109) million
and $
(267) million
, respectively, which TVA deferred as regulatory assets or liabilities on a gross basis. At
June 30, 2013
, TVA's coal contract derivatives had terms of up to
five years
. At
June 30, 2013
, and
September 30, 2012
, TVA's natural gas derivative contracts had total market values of less than $
2 million
. At
June 30, 2013
, these natural gas derivative contracts had terms of up to
two years
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Contract Derivatives
|
|
At June 30, 2013
|
|
At September 30, 2012
|
|
Number of
Contracts
|
|
Notional Amount
|
|
Fair Value (MtM)
|
|
Number of Contracts
|
|
Notional Amount
|
|
Fair Value
(
MtM
)
|
Coal contract derivatives
|
23
|
|
44 million tons
|
|
$
|
(109
|
)
|
|
23
|
|
46 million tons
|
|
$
|
(267
|
)
|
Natural gas contract derivatives
|
28
|
|
49 million mmBtu
|
|
$
|
(2
|
)
|
|
25
|
|
51 million mmBtu
|
|
$
|
—
|
|
Derivatives Under FTP.
TVA has an FTP under which it purchases and sells futures, swaps, options, and combinations of these instruments (as long as they are standard in the industry) to hedge TVA’s exposure to (1) the price of natural gas, fuel oil, electricity, coal, emission allowances, nuclear fuel, and other commodities included in TVA’s fuel cost adjustment calculation, (2) the price of construction materials, and (3) contracts for goods priced in or indexed to foreign currencies. The combined transaction limit for the fuel cost adjustment and construction material transactions is $
130 million
(based on one-day value at risk). In addition, the maximum hedge volume for the construction material transactions is
75 percent
of the underlying net notional volume of the material that TVA anticipates using in approved TVA projects, and the market value of all outstanding hedging transactions involving construction materials is limited to $
100 million
at the execution of any new transaction. The portfolio value at risk limit for the foreign currency transactions is $
5 million
and is separate and distinct from the $
130 million
transaction limit discussed above. TVA's policy prohibits trading financial instruments under the FTP for speculative purposes.
At
June 30, 2013
, the risks hedged under the FTP were the economic risks associated with the prices of natural gas, fuel oil and crude oil. All futures contracts and option contracts under the FTP have expired. Swap contracts under the FTP had remaining terms of
five years
or less.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Under Financial Trading Program
|
|
At June 30, 2013
|
|
At September 30, 2012
|
|
Notional Amount
|
|
Fair Value (MtM)
(in millions)
|
|
Notional Amount
|
|
Fair Value (MtM)
(in millions)
|
Natural gas (in mmBtu)
|
|
|
|
|
|
|
|
Futures contracts
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Swap contracts
|
165,662,500
|
|
|
(179
|
)
|
|
294,462,500
|
|
|
(232
|
)
|
Option contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Natural gas financial positions
|
165,662,500
|
|
|
$
|
(179
|
)
|
|
294,462,500
|
|
|
$
|
(232
|
)
|
|
|
|
|
|
|
|
|
Fuel oil/crude oil (in barrels)
|
|
|
|
|
|
|
|
|
|
Futures contracts
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Swap contracts
|
1,313,000
|
|
|
(2
|
)
|
|
1,390,000
|
|
|
4
|
|
Option contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Fuel oil/crude oil financial positions
|
1,313,000
|
|
|
$
|
(2
|
)
|
|
1,390,000
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
Coal (in tons)
|
|
|
|
|
|
|
|
|
|
|
|
Futures contracts
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Swap contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Option contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Coal financial positions
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Note
Due to the right of setoff and method of settlement, TVA elects to record commodity derivatives under the FTP based on its net commodity position with the broker or other counterparty. Notional amounts disclosed represent the net absolute value of contractual amounts.
TVA defers all FTP unrealized gains (losses) as regulatory liabilities (assets) and records only realized gains or losses to match the delivery period of the underlying commodity. In addition to the open commodity derivatives disclosed above, TVA had closed derivative contracts with market values of $
(9) million
at
June 30, 2013
, and $
(21) million
at
September 30, 2012
. TVA experienced the following unrealized and realized gains and losses related to the FTP at the dates and during the periods, as applicable, set forth in the tables below:
|
|
|
|
|
|
|
|
|
|
FTP Unrealized Gains (Losses)
|
|
|
|
|
|
FTP unrealized gains (losses) deferred as regulatory liabilities (assets)
|
|
At June 30, 2013
|
|
At September 30, 2012
|
|
|
|
|
|
Natural gas
|
|
$
|
(179
|
)
|
|
$
|
(232
|
)
|
Fuel oil/crude oil
|
|
(2
|
)
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTP Realized Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30
|
|
For the Nine Months Ended
June 30
|
(Increase) decrease in fuel expense
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
Natural gas
|
|
$
|
(13
|
)
|
|
$
|
(53
|
)
|
|
$
|
(60
|
)
|
|
$
|
(69
|
)
|
Fuel oil/crude oil
|
|
—
|
|
|
1
|
|
|
2
|
|
|
9
|
|
Coal
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FTP Realized Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30
|
|
For the Nine Months Ended
June 30
|
(Increase) decrease in purchased power expense
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
Natural gas
|
|
$
|
(8
|
)
|
|
$
|
(53
|
)
|
|
$
|
(40
|
)
|
|
$
|
(189
|
)
|
Other Derivative Instruments
Investment Fund Derivatives
. Investment funds consist primarily of funds held in the
Nuclear Decommissioning Trust ("NDT")
,
Asset Retirement Trust ("ART")
, and
Supplemental Executive Retirement Plan ("SERP")
. All securities in the trusts are classified as trading. See
Note 14
—
Investments
for a discussion of the trusts' objectives and the types of investments included in the various trusts. These trusts may invest in derivative instruments which may include swaps, futures, options, forwards, and other instruments. At
June 30, 2013
, and
September 30, 2012
, the fair value of derivative instruments in these trusts was not material to TVA's consolidated financial statements.
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, 2013
, the aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a liability position was $
1.3 billion
. TVA's collateral obligations at
June 30, 2013
, under these arrangements was $
1.0 billion
, for which TVA had posted $
1.0 billion
in letters of credit. These letters of credit reduce the available balance under the related credit facilities. TVA's assessment of the risk of its nonperformance includes a reduction in its exposure under the contract as a result of this posted collateral.
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 ("S&P")
or
Moody's Investors Service ("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 Credit Risk
Credit risk is the exposure to economic loss that would occur as a result of a counterparty's nonperformance of its contractual obligations. Where exposed to counterparty credit risk, TVA analyzes the 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 employs credit mitigation measures, such as collateral or prepayment arrangements and master purchase and sale agreements, to mitigate credit risk.
Credit of Customers
. The majority of TVA's counterparty credit risk is associated with trade accounts receivable from delivered power sales to municipal and cooperative customers, all located in the Tennessee Valley region. To a lesser extent, TVA is exposed to credit risk from industries and federal agencies directly served and 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 had concentrations of accounts receivable from
three
municipal and cooperative customers that represented
26 percent
of total outstanding accounts receivable at
June 30, 2013
and at
September 30, 2012
. Power sales to TVA's largest directly served industrial customer represented
five percent
of TVA's total operating revenues for the
nine months ended
June 30, 2013
. This customer's senior unsecured credit ratings are currently rated below investment grade by both S&P and Moody's. As a result of its credit ratings, this customer has provided credit assurance to TVA under the terms of its power contract. On May 24, 2013, the customer announced the cessation of enrichment activities at one of its sites. TVA and the customer subsequently completed agreements to extend power sales to facilitate the cessation of enrichment activities and to support non-enrichment activities at the site for June and July 2013 at a greatly reduced level. These sales may continue to be extended.
Credit of Derivative Counterparties
. TVA has entered into derivative contracts for hedging purposes, and TVA's NDT fund and defined benefit pension plan have entered into derivative contracts for investment purposes. If a counterparty to one of TVA's hedging transactions defaults, TVA might incur substantial costs in connection with entering into a replacement hedging transaction. If a counterparty to the derivative contracts into which the NDT fund and the pension plan have entered for investment purposes defaults, the value of the investment could decline significantly or perhaps become worthless. TVA has concentrations of credit risk from the banking and coal industries because multiple companies in these industries serve as counterparties to TVA in various derivative transactions. At
June 30, 2013
, all of TVA's currency swaps, interest rate swaps, and
commodity derivatives under the FTP were with counterparties whose Moody's credit rating was Baa1 or higher. At
June 30, 2013
, all of TVA's coal contract derivatives were with counterparties whose Moody's credit rating, or TVA's internal analysis when such information was unavailable, was B3 or higher. See
Derivatives Not Receiving Hedge Accounting Treatment
.
TVA currently utilizes two active
futures commission merchants ("FCMs")
to clear commodity contracts, including futures, options and similar financial derivatives. These transactions are executed under the FTP by the FCMs on exchanges on behalf of TVA. TVA maintains margin cash accounts with the FCMs. See notes to the
Mark-to-Market Values of TVA Derivatives
table.
Credit of Suppliers
. 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. To help ensure a reliable supply of coal, TVA had coal contracts with multiple suppliers at
June 30, 2013
. The contracted supply of coal is sourced from multiple geographic regions of the United States and is to be delivered via various transportation methods (for example, barge, rail, and truck). TVA purchases the majority of its natural gas requirements from a variety of suppliers under short-term contracts.
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.
The senior unsecured credit ratings of TVA's largest supplier of uranium enrichment services, which is also TVA's largest directly served industrial customer, are currently rated below investment grade by both S&P and Moody's. Any nonperformance by this company could result in TVA incurring additional costs.
14. 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 3 is the lowest and Level 1 is the highest) 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 assets, all changes in fair value of these assets and liabilities have been reflected as changes in regulatory assets, regulatory liabilities, or accumulated other comprehensive loss on TVA's Consolidated Balance Sheet as of
June 30, 2013
, and Consolidated Statements of Changes in Proprietary Capital for the
nine
months ended
June 30, 2013
. Except for gains and losses on SERP 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.
Investments
At
June 30, 2013
, Investment funds were composed of $
1.6 billion
of securities classified as trading and measured at fair value and $
1 million
of equity investments not required to be measured at fair value. Trading securities are held in the NDT, ART, and SERP. 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. TVA established a SERP for certain executives in critical positions to provide supplemental pension benefits tied to compensation that exceeds limits set by Internal Revenue Service rules applicable to the qualified defined benefit pension plan. The NDT, ART and SERP are invested in a mix of investments generally designed to achieve a return in line with overall equity market performance.
The NDT, ART, and SERP are composed of multiple types of investments and are managed by external institutional managers. Most U.S. and international equities, 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.
Private partnership 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. Investments in private partnerships generally involve a three-to four-year period where the investor contributes capital. This is followed by a period of distribution, typically over several years. The investment period is generally, at a minimum, ten years or longer. The NDT had unfunded commitments related to private partnerships of $
157 million
at
June 30, 2013
. These investments have no redemption or limited redemption options and may also have imposed restrictions on the NDT’s ability to liquidate its investment. There are no readily available quoted exchange prices for these investments. The fair value of the investments is based on TVA’s ownership percentage of the fair value of the underlying investments as provided by the investment managers. These investments are typically valued on a quarterly basis. TVA’s private partnership 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 Level 3 within the fair value hierarchy.
Commingled funds represent investment funds comprising multiple individual financial instruments. The commingled funds held by the NDT, ART and SERP consist of 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 (Level 1) or measured using observable inputs for similar instruments (Level 2). 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 Level 2 valuations.
Realized and unrealized gains and losses on trading 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 liability or asset account in accordance with TVA's regulatory accounting policy. See
Note 1
—
Cost-Based Regulation
. TVA recorded unrealized gains and losses related to its trading securities held as of the end of each period as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Investment Gains (Losses)
|
|
|
|
For the Three Months Ended
June 30
|
|
For the Nine Months Ended
June 30
|
|
Financial Statement Presentation
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
SERP
|
Other income (expense)
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
2
|
|
NDT
|
Regulatory asset
|
|
(42
|
)
|
|
(21
|
)
|
|
16
|
|
|
97
|
|
ART
|
Regulatory asset
|
|
(6
|
)
|
|
(8
|
)
|
|
16
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
Currency and Interest Rate Swaps
See
Note 13
—
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 and Commodity Derivatives Under FTP
Commodity Contract Derivatives.
These contracts are classified as Level 3 valuations and are valued based on income approaches. TVA develops an overall coal price forecast using widely used short-term and mid-range market data from an external pricing specialist in addition to long-term internal estimates. To value the volume option component of applicable coal contracts, TVA uses a Black-Scholes pricing model which includes inputs from the overall coal price forecast, contract-specific terms, and other market inputs.
Commodity Derivatives Under FTP.
These contracts are valued based on market approaches which utilize
Chicago Mercantile Exchange ("CME")
quoted prices and other observable inputs. Futures and options contracts settled on the CME are classified as Level 1 valuations. Swap contracts are valued using a pricing model based on CME inputs and are subject to nonperformance risk outside of the exit price. These contracts are classified as Level 2 valuations.
See
Note 13
—
Derivatives Not Receiving Hedge Accounting Treatment
—
Commodity Derivatives
and
—
Derivatives Under FTP
for a discussion of the nature and purpose of coal contracts and derivatives under TVA's FTP.
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.
Nonperformance risk for most of TVA's derivative instruments is an adjustment to the initial asset/liability fair value. TVA adjusts for nonperformance risk, both of TVA (for liabilities) and the counterparty (for assets), by applying a
credit valuation adjustment ("CVA")
. TVA determines an appropriate CVA for each applicable financial instrument based on the term of the instrument and TVA's or the counterparty's credit rating as obtained from Moody's. For companies that do not have an observable credit rating, TVA uses internal analysis to assign a comparable rating to the company. TVA discounts each financial instrument using the historical default rate (as reported by Moody's for CY 1983 to CY 2011) 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 $
2 million
decrease in the fair value of assets and a $
1 million
decrease in the fair value of liabilities at
June 30, 2013
.
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
June 30, 2013
, and
September 30, 2012
. 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, 2013
|
Assets
|
Quoted Prices in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Netting
(1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
136
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
136
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government corporations and
agencies
|
43
|
|
|
80
|
|
|
—
|
|
|
—
|
|
|
123
|
|
Corporate debt securities
|
—
|
|
|
143
|
|
|
—
|
|
|
—
|
|
|
143
|
|
Residential mortgage-backed securities
|
—
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Commercial mortgage-backed securities
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Collateralized debt obligations
|
—
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
22
|
|
Private partnerships
|
—
|
|
|
—
|
|
|
150
|
|
|
—
|
|
|
150
|
|
Commingled funds
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity security commingled funds
|
—
|
|
|
714
|
|
|
—
|
|
|
—
|
|
|
714
|
|
Debt security commingled funds
|
—
|
|
|
263
|
|
|
—
|
|
|
—
|
|
|
263
|
|
Total investments
|
179
|
|
|
1,241
|
|
|
150
|
|
|
—
|
|
|
1,570
|
|
Currency swaps
|
—
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
16
|
|
Commodity contract derivatives
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Commodity derivatives under FTP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap contracts
|
—
|
|
|
112
|
|
|
—
|
|
|
(110
|
)
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
179
|
|
|
$
|
1,369
|
|
|
$
|
158
|
|
|
$
|
(110
|
)
|
|
$
|
1,596
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
Quoted Prices in Active Markets for Identical Liabilities
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Netting
(1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Currency swaps
|
$
|
—
|
|
|
$
|
56
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56
|
|
Interest rate swaps
|
—
|
|
|
1,258
|
|
|
—
|
|
|
—
|
|
|
1,258
|
|
Commodity contract derivatives
|
—
|
|
|
2
|
|
|
117
|
|
|
—
|
|
|
119
|
|
Commodity derivatives under FTP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap contracts
|
—
|
|
|
293
|
|
|
—
|
|
|
(110
|
)
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
1,609
|
|
|
$
|
117
|
|
|
$
|
(110
|
)
|
|
$
|
1,616
|
|
Notes
(1) Due to the right of setoff and method of settlement, TVA elects to record commodity derivatives under the FTP based on its net commodity position with the counterparty or broker.
(2) Commingled funds represent investment funds comprising multiple individual financial instruments and are classified in the table based on their existing investment portfolio as of the measurement date. Commingled funds exclusively composed of one class of security are classified in that category. Commingled funds comprising multiple classes of securities are classified as “other commingled funds.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
At September 30, 2012
|
Assets
|
Quoted Prices in Active
Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Netting
(1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
173
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
173
|
|
Debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government corporations and
agencies
|
59
|
|
|
103
|
|
|
—
|
|
|
—
|
|
|
162
|
|
Corporate debt securities
|
—
|
|
|
197
|
|
|
—
|
|
|
—
|
|
|
197
|
|
Residential mortgage-backed securities
|
—
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
Commercial mortgage-backed securities
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Collateralized debt obligations
|
—
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
Private partnerships
|
—
|
|
|
—
|
|
|
53
|
|
|
—
|
|
|
53
|
|
Commingled funds
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity security commingled funds
|
—
|
|
|
657
|
|
|
—
|
|
|
—
|
|
|
657
|
|
Debt security commingled funds
|
—
|
|
|
182
|
|
|
—
|
|
|
—
|
|
|
182
|
|
Total investments
|
232
|
|
|
1,177
|
|
|
53
|
|
|
—
|
|
|
1,462
|
|
Currency swaps
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
21
|
|
Commodity contract derivatives
|
—
|
|
|
—
|
|
|
119
|
|
|
—
|
|
|
119
|
|
Commodity derivatives under FTP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap contracts
|
—
|
|
|
123
|
|
|
—
|
|
|
(115
|
)
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
232
|
|
|
$
|
1,321
|
|
|
$
|
172
|
|
|
$
|
(115
|
)
|
|
$
|
1,610
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
Quoted Prices in Active Markets for Identical Liabilities
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Netting
(1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Currency swaps
|
$
|
—
|
|
|
$
|
54
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
54
|
|
Interest rate swaps
|
—
|
|
|
1,723
|
|
|
—
|
|
|
—
|
|
|
1,723
|
|
Commodity contract derivatives
|
—
|
|
|
—
|
|
|
386
|
|
|
—
|
|
|
386
|
|
Commodity derivatives under FTP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap contracts
|
—
|
|
|
351
|
|
|
—
|
|
|
(115
|
)
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
2,128
|
|
|
$
|
386
|
|
|
$
|
(115
|
)
|
|
$
|
2,399
|
|
Notes
(1) Due to the right of setoff and method of settlement, TVA elects to record commodity derivatives under the FTP based on its net commodity position with the counterparty or broker.
(2) Commingled funds represent investment funds comprising multiple individual financial instruments and are classified in the table based on their existing investment portfolio as of the measurement date. Commingled funds exclusively composed of one class of security are classified in that category. Commingled funds comprising multiple classes of securities are classified as “other commingled funds.”
TVA uses internal and external valuation specialists for the calculation of its 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.
The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs
|
|
For the Three Months Ended
June 30
|
|
For the Nine Months Ended
June 30
|
|
Private
Partnerships
|
|
Commodity Contract Derivatives
|
|
Interest Rate Swaption
|
|
Private
Partnerships
|
|
Commodity Contract Derivatives
|
|
Interest Rate Swaption
|
Balance at beginning of period
|
$
|
36
|
|
|
$
|
(311
|
)
|
|
$
|
(993
|
)
|
|
$
|
22
|
|
|
$
|
239
|
|
|
$
|
(1,077
|
)
|
Purchases
|
9
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
Issuances
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Sales
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
Settlements
|
—
|
|
|
—
|
|
|
993
|
|
|
—
|
|
|
—
|
|
|
1,077
|
|
Net unrealized gains (losses) deferred as regulatory assets and liabilities
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
4
|
|
|
(570
|
)
|
|
—
|
|
Balance at June 30, 2012
|
$
|
45
|
|
|
$
|
(331
|
)
|
|
$
|
—
|
|
|
$
|
45
|
|
|
$
|
(331
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
137
|
|
|
$
|
(148
|
)
|
|
$
|
—
|
|
|
$
|
53
|
|
|
$
|
(267
|
)
|
|
$
|
—
|
|
Purchases
|
9
|
|
|
—
|
|
|
—
|
|
|
93
|
|
|
—
|
|
|
—
|
|
Issuances
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Sales
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
Settlements
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net unrealized gains (losses) deferred as regulatory assets and liabilities
|
5
|
|
|
39
|
|
|
—
|
|
|
7
|
|
|
158
|
|
|
—
|
|
Balance at June 30, 2013
|
$
|
150
|
|
|
$
|
(109
|
)
|
|
$
|
—
|
|
|
$
|
150
|
|
|
$
|
(109
|
)
|
|
$
|
—
|
|
TVA has used interest rate swaption agreements in the past to protect against decreases in the value of embedded call provisions on certain of its Bond issues. A swaption is a derivative instrument that grants a third party the right to enter into a receive fixed/pay variable interest rate swap agreement with TVA based on the interest rate of the underlying Bond issue. In
March 2012, the counterparty to TVA's only outstanding interest rate swaption agreement exercised its option to enter into an interest rate swap agreement, effective April 15, 2012. In association with exercising its option to enter into the interest rate swap with TVA, the counterparty was required to pay TVA $
60 million
on the effective date of the transaction. The net deferred unrealized gains and losses on the interest rate swaption were assigned to the resulting interest rate swap upon the effective date of the exercise.
Prior to its conversion to an interest rate swap, the swaption was classified as a Level 3 valuation and was valued based on an income approach. The valuation was computed using a broker-provided pricing model utilizing interest and volatility rates. While most of the fair value measurement was based on observable inputs, volatility for TVA's swaption was generally unobservable. Therefore, the valuation was derived from an observable volatility measure with adjustments.
There were
no
realized gains or losses related to the instruments measured at fair value using significant unobservable inputs that affected net income during the
nine months ended
June 30, 2013
. All unrealized gains and losses related to these instruments have been reflected as increases or decreases in regulatory assets and liabilities. See
Note 6
.
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, 2013
|
|
Valuation Technique(s)
|
|
Unobservable Inputs
|
|
Range
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Commodity contract derivatives
|
$
|
8
|
|
|
Discounted cash flow
|
|
Credit risk
|
|
21
|
%
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Pricing model
|
|
Coal supply and demand
|
|
0.9 - 1.0 billion tons/year
|
|
|
|
|
|
|
|
Long-term market prices
|
|
$14.45 - $90.31/ton
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Commodity contract derivatives
|
$
|
117
|
|
|
Pricing model
|
|
Coal supply and demand
|
|
0.9 - 1.0 billion tons/year
|
|
|
|
|
|
|
|
Long-term market prices
|
|
$14.45 - $90.31/ton
|
|
|
* Applies to only one contract.
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. The fair market values of the financial instruments held at
June 30, 2013
, and
September 30, 2012
, 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, 2013
, and
September 30, 2012
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Values of Financial Instruments Not Recorded at Fair Value
|
|
|
|
At June 30, 2013
|
|
At September 30, 2012
|
|
Valuation Classification
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
EnergyRight
®
receivables (including current portion)
|
Level 2
|
|
$
|
149
|
|
|
$
|
149
|
|
|
$
|
150
|
|
|
$
|
150
|
|
|
|
|
|
|
|
|
|
|
|
Loans and other long-term receivables, net
|
Level 2
|
|
$
|
84
|
|
|
$
|
78
|
|
|
$
|
76
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
EnergyRight
®
purchase obligation (including current portion)
|
Level 2
|
|
$
|
184
|
|
|
$
|
208
|
|
|
$
|
185
|
|
|
$
|
209
|
|
|
|
|
|
|
|
|
|
|
|
Long-term outstanding power bonds (including current maturities), net
|
Level 2
|
|
$
|
22,186
|
|
|
$
|
24,514
|
|
|
$
|
22,577
|
|
|
$
|
28,041
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt of variable interest entities (including current maturities)
|
Level 2
|
|
$
|
988
|
|
|
$
|
1,033
|
|
|
$
|
994
|
|
|
$
|
1,116
|
|
Due to the short-term maturity of Cash and cash equivalents, Restricted cash and investments, and Short-term debt, net, each considered a Level 1 valuation classification, the carrying amounts of these instruments approximate their fair values.
The fair values of the EnergyRight
®
Solutions receivables and loans and other long-term receivables are estimated by determining the present values of future cash flows using discount rates equal to lending rates for similar loans made to borrowers with similar credit ratings and similar remaining maturities, where applicable.
The fair value of the long-term debt traded in the public market is determined by multiplying the par value of the debt by the indicative market price at the balance sheet date. The fair values of the EnergyRight
®
Solutions purchase obligation and other long-term debt are 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.
15. Other Income (Expense), Net
Income and expenses not related to TVA’s operating activities are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense), Net
|
|
For the Three Months Ended
June 30
|
|
For the Nine Months Ended
June 30
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
External services
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
2
|
|
Interest income
|
5
|
|
|
27
|
|
|
17
|
|
|
14
|
|
Gains (losses) on investments
|
—
|
|
|
(1
|
)
|
|
2
|
|
|
3
|
|
Miscellaneous
|
(1
|
)
|
|
(5
|
)
|
|
—
|
|
|
(3
|
)
|
Total other income (expense), net
|
$
|
10
|
|
|
$
|
21
|
|
|
$
|
36
|
|
|
$
|
16
|
|
16. Benefit Plans
TVA sponsors a qualified defined benefit pension plan that covers most of its full-time employees, a qualified defined contribution plan that covers most of its full-time employees,
two
unfunded post-retirement health care plans that provide for non-vested contributions toward the cost of certain retirees' medical coverage, other postemployment benefits, such as workers' compensation, and the SERP.
The components of net periodic benefit cost and other amounts recognized as changes in regulatory assets for the
three
and
nine months ended
June 30, 2013
, and
2012
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of TVA’s Benefit Plans
|
|
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
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Service cost
|
$
|
38
|
|
|
$
|
34
|
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
115
|
|
|
$
|
103
|
|
|
$
|
18
|
|
|
$
|
14
|
|
Interest cost
|
117
|
|
|
123
|
|
|
8
|
|
|
9
|
|
|
351
|
|
|
368
|
|
|
23
|
|
|
27
|
|
Expected return on plan assets
|
(107
|
)
|
|
(109
|
)
|
|
—
|
|
|
—
|
|
|
(321
|
)
|
|
(327
|
)
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
(6
|
)
|
|
(6
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
(17
|
)
|
|
(18
|
)
|
|
(5
|
)
|
|
(4
|
)
|
Recognized net actuarial loss
|
95
|
|
|
90
|
|
|
6
|
|
|
8
|
|
|
283
|
|
|
270
|
|
|
19
|
|
|
23
|
|
Total net periodic benefit cost recognized
|
$
|
137
|
|
|
$
|
132
|
|
|
$
|
18
|
|
|
$
|
21
|
|
|
$
|
411
|
|
|
$
|
396
|
|
|
$
|
55
|
|
|
$
|
60
|
|
During the
nine
months ended
June 30, 2013
, TVA did not make contributions to its qualified defined benefit pension plan. TVA does not separately set aside assets to fund other benefit costs, but rather funds such costs on an as-paid basis. TVA provided approximately $
34 million
and $
31 million
for other benefit costs during the
nine
months ended
June 30, 2013
, and
2012
, respectively.
17. 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, 2013
, TVA had accrued approximately $
319 million
of probable losses with respect to Legal Proceedings and estimated the range of these losses to be from $
319 million
to $
349 million
. Of the accrued amount, $
219 million
is included in Other long-term liabilities, $
90 million
is included in Accounts payable and accrued liabilities, and $
10 million
is included in Regulatory assets. TVA is currently unable to estimate any amount or any range of amounts of reasonably possible losses, and 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
substantively similar agreements, a Federal Facilities Compliance Agreement with the EPA and a consent decree with Alabama, Kentucky, North Carolina, Tennessee, and
three
environmental advocacy groups: the Sierra Club, 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 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
("SO
2
") and
nitrogen oxides
("NO
x
"), (4) invest $
290 million
in certain TVA environmental projects, (5) provide $
60 million
to Alabama, Kentucky, North Carolina, and Tennessee to fund environmental projects, and (6) pay civil penalties of $
10 million
. In exchange for these commitments, most existing and possible claims against TVA based on alleged New Source Review and associated violations were waived and cannot be brought against TVA. Some possible claims for sulfuric acid mist and
greenhouse gas ("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.
The liabilities related to the Environmental Agreements are included in Accounts payable and accrued liabilities and Other long-term liabilities on the
June 30, 2013
Consolidated Balance Sheet. In conjunction with the approval of the Environmental Agreements, the TVA Board determined that it was appropriate to record TVA's liabilities under the Environmental Agreements as regulatory assets, with the costs charged to expense as they are collected in rates.
Several legal and administrative clean air proceedings have already been terminated in connection with the Environmental Agreements. Additionally, the proceeding discussed below involving the
John Sevier Fossil Plant ("John Sevier")
Clean Air Act ("CAA")
permit is expected to be narrowed in scope.
Legal Proceedings Related to the Kingston Ash Spill
.
Seventy-eight
lawsuits based on the Kingston ash spill have been filed in the United States District Court for the Eastern District of Tennessee.
Fifteen
of these lawsuits have been dismissed, and
63
lawsuits are active and in various stages of litigation. Plaintiffs are residents, businesses, and property owners in the Kingston area and allege tort claims for damage to property (for example, nuisance, strict liability, trespass, and negligence), with some plaintiffs also alleging claims for personal injury, business loss, and inverse condemnation. Plaintiffs seek unspecified compensatory and punitive damages, court orders to clean up properties and other relief. TVA is the only active defendant in these actions.
A bench trial on the issue of dike failure causation in the
seven
earliest
cases was held in September and October 2011 ("Phase I trial")
. Plaintiffs in the
56
remaining cases have agreed to be bound by the Phase I trial record and decision. In August 2012, the court issued its Phase I decision, finding that certain actions by TVA contributed to the ash spill. On November 20, 2012, the court ordered the parties to participate in mediation within
120 days
of the issuance of the order. The court has extended the mediation period twice: by
120 days
on March 21, 2013, and by
75 days
on July 12, 2013.
If the case is not resolved through mediation, the case will
proceed to the damages phase ("Phase II")
trial, during which the individual plaintiffs must prove both that they incurred damages and that the ash spill was the cause of the damages. The date for the Phase II trial has not yet been set.
TVA has received several notices of intent to sue under various environmental statutes from both individuals and environmental groups, but
no
such suits have been filed.
Civil Penalty and Natural Resource Damages for the Kingston Ash Spill
. In June 2010, TDEC issued a civil penalty order of approximately $
12 million
to TVA for the Kingston ash spill, citing violations of the Tennessee Solid Waste Disposal Act and the Tennessee Water Quality Control Act. Of the $
12 million
, TVA has satisfied $
10 million
, and TDEC has approved environmental projects valued at $
2 million
as a credit against the penalty amount. In January 2011, TVA entered into a memorandum of agreement with TDEC and the U.S. Fish and Wildlife Service establishing a process and a method for resolving the natural resource damage claim associated with the Kingston ash spill. As part of this memorandum of agreement, TVA agreed to pay $
250 thousand
each year for
three
years as a down payment on the amount of natural resource damages ultimately established, and to reimburse TDEC and the U.S. Fish and Wildlife Service for their costs.
Case Involving Tennessee Valley Authority Retirement System
. In March 2010,
eight
current and former participants in and beneficiaries of the
Tennessee Valley Authority Retirement System ("TVARS")
filed suit in the United States District Court for the Middle District of Tennessee against the
six
then-current members of the TVARS Board. The lawsuit challenged the TVARS Board's decision to suspend the TVA contribution requirements for 2010 through 2013, and to amend the TVARS Rules and Regulations to (1) reduce the calculation for
cost of living adjustment ("COLA")
benefits for CY 2010 through CY 2013, (2) reduce the interest crediting rate for the fixed fund accounts, and (3) increase the eligibility age to receive COLAs from age 55 to 60. The plaintiffs allege that TVA's actions violated the TVARS Board members' fiduciary duties to the plaintiffs (and the purported class) and the plaintiffs' contractual rights, among other claims. The plaintiffs sought, among other things, unspecified damages, an order directing the TVARS Board to rescind the amendments, and the appointment of a seventh TVARS Board member.
Five
of the
six
individual defendants filed motions to dismiss the lawsuit, while the remaining defendant filed an answer to the complaint. In July 2010, TVA moved to intervene in the suit in the event it was not dismissed. In September 2010, the district court dismissed the breach of fiduciary duty claim against the directors without prejudice, allowing the plaintiffs to file an amended complaint within
14 days
against TVARS and TVA but not the individual directors. The plaintiffs previously had voluntarily withdrawn their constitutional claims, so the court also dismissed those claims without prejudice. The court dismissed
with prejudice the plaintiffs' claims for breach of contract, violation of the Internal Revenue Code, and appointment of a seventh TVARS Board member.
In September 2010, the plaintiffs filed an amended complaint against TVARS and TVA. The plaintiffs allege, among other things, violations of their constitutional rights (due process, equal protection, and property rights), violations of the Administrative Procedure Act, and breach of statutory duties owed to the plaintiffs. They seek a declaratory judgment and appropriate relief for the alleged statutory and constitutional violations and breaches of duty. TVA filed its answer to the amended complaint in December 2010. In May 2012, the court granted the parties' joint motion to administratively close the case subject to reopening to allow the parties the opportunity to engage in mediation. In July 2013, the court granted the plaintiffs' motion to reopen the lawsuit.
Case Arising out of Hurricane Katrina
. In April 2006, TVA was added as a defendant to a class action lawsuit brought in the United States District Court for the Southern District of Mississippi by
14
Mississippi residents allegedly injured by Hurricane Katrina. The plaintiffs sued
seven
large oil companies and an oil company trade association,
three
large chemical companies and a chemical trade association, and
31
large companies involved in the mining and/or burning of coal, alleging that the defendants' GHG emissions contributed to global warming and were a proximate and direct cause of Hurricane Katrina's increased destructive force. Action by the United States Supreme Court in January 2011 ended this case in a manner favorable to TVA.
However, in May 2011, under a Mississippi state statute that permits the re-filing of lawsuits that were dismissed on procedural grounds, the plaintiffs filed another lawsuit in the United States District Court for the Southern District of Mississippi against the same and additional defendants, again alleging that the defendants' GHG emissions contributed to global warming and were a proximate and direct cause of Hurricane Katrina's increased destructive force. The court dismissed the lawsuit in March 2012 for a variety of reasons, including that the lawsuit presented a non-justiciable political question and that all of the claims were preempted by the CAA. The plaintiffs appealed the case to the United States Court of Appeals for the Fifth Circuit, which affirmed the dismissal on May 14, 2013.
Case Involving the
Nuclear Regulatory Commission ("NRC")
Waste Confidence Decision on Spent Nuclear Fuel Storage.
In June 2012,
the U.S. Court of Appeals for the District of Columbia Circuit ("D.C. Circuit")
vacated the NRC's updated
Waste Confidence Decision ("WCD")
. The WCD is a generic determination by the NRC that spent nuclear fuel can be safely managed until a permanent off-site repository is established and has been a key component of the NRC licensing activities since 1984. The most recent update provided that the permanent repository would be available when necessary and that spent fuel could be stored for
60 years
after a plant's license terminated. The D.C. Circuit vacated this update on the grounds that, among other things, the NRC failed to support it with an adequate National Environmental Policy Act review and the NRC did not evaluate what would happen if the repository was never built.
In June 2012, multiple intervenor groups submitted a petition to the NRC to (a) hold in abeyance all pending reactor licensing decisions that would depend upon the WCD and (b) establish a process for ensuring that the remanded proceeding complies with the public participation requirements of Section 189a of the Atomic Energy Act. In August 2012,
the NRC issued an order (the "August NRC Order")
preventing the issuance of a final licensing decision in all proceedings affected by the petition, including
Watts Bar Nuclear Plant ("Watts Bar")
Unit 2 and
Bellefonte Nuclear Plant ("Bellefonte")
Units 3 and 4. While resolution of unrelated contentions can proceed, the NRC stated that it will not issue final licensing decisions until it has “appropriately addressed” the D.C. Circuit decision and all pending contentions concerning the WCD are being held in abeyance pending NRC's completion of an environmental review and generic rulemaking addressing the shortcomings identified by the D.C. Circuit. A draft rule and Environmental Impact Statement addressing the D.C. Circuit decision were issued by the NRC staff for NRC comment in June 2013. The NRC is currently scheduled to address this issue by September 2014.
Administrative Proceeding Regarding Renewal of Operating License for Sequoyah Nuclear Plant.
In May 2013, the
Blue Ridge Environmental Defense League ("BREDL")
, the
Bellefonte Efficiency and Sustainability Team ("BEST")
, and Mothers Against Tennessee River Radiation filed a petition with the NRC opposing the renewal of the operating license for Sequoyah Nuclear Plant Units 1 and 2. The petition contains
eight
specific contentions challenging the adequacy of the license renewal application that TVA submitted to the NRC in January 2013. TVA filed a response with the
Atomic Safety and Licensing Board ("ASLB")
opposing the admission of all
eight
of the petitioners' contentions. In July 2013, the ASLB concluded that BREDL is the only
one
of the
three
petitioners that has standing to intervene in this proceeding. The ASLB also held that
seven
of the contentions were inadmissible, and held
one
portion of the remaining contention related to WCD in abeyance pending further direction from the NRC.
Administrative Proceedings Regarding Bellefonte Units 3 and 4
. TVA submitted its
combined construction and operating license application ("CCOLA")
for
two
Advanced Passive 1000 reactors at Bellefonte Units 3 and 4 to the NRC in October 2007. In June 2008, BEST, BREDL, and
Southern Alliance for Clean Energy ("SACE")
submitted a joint petition for intervention and a request for a hearing. The ASLB denied standing to BEST and admitted
four
of the
20
contentions submitted by BREDL and SACE. The NRC reversed the ASLB's decision to admit
two
of the
four
contentions, leaving only
two
contentions (concerning the estimated costs of the new nuclear plant and the impact of the facility's operations on aquatic ecology) to be litigated in a future hearing. In January 2012, TVA notified the ASLB that the NRC had placed the CCOLA in “suspended” status
indefinitely at TVA's request, and TVA requested that the ASLB hold the proceeding in abeyance pending a decision by TVA regarding the best path forward with regards to the CCOLA.
In July 2012, BREDL petitioned for the admission of another new, late-filed contention stemming from the D.C. Circuit's order vacating the NRC's Waste Confidence Decision. This contention is being held in abeyance pursuant to the August NRC Order.
Administrative Proceedings Regarding Watts Bar Unit 2
. In July 2009, SACE, the Tennessee Environmental Council, the Sierra Club, We the People, and BREDL filed a request for a hearing and petition to intervene in the NRC administrative process reviewing TVA's application for an operating license for Watts Bar Unit 2. In November 2009, the ASLB granted SACE's request for hearing, admitted
two
of SACE's
seven
contentions for hearing, and denied the request for hearing submitted on behalf of the other
four
petitioners. The ASLB subsequently dismissed
one
contention, leaving
one
aquatic impact contention. In November 2011, TVA filed a motion for summary disposition, arguing that additional aquatic studies conducted by TVA indicate there is no longer a genuine issue of material fact in connection with SACE's remaining aquatic impact contention. In March 2012, the ASLB denied TVA's motion. In July 2013, SACE filed a motion to withdraw its aquatic impact contention. The ASLB has granted this motion.
In July 2012, SACE petitioned for the admission of another new, late-filed contention, similar to the one filed in the Bellefonte Units 3 and 4 proceeding, stemming from the D.C. Circuit's order vacating the WCD. Similarly, this contention is being held in abeyance pursuant to the August NRC Order.
John Sevier Fossil Plant Clean Air Act Permit
. In September 2010, the Environmental Integrity Project, the Southern Environmental Law Center, and the Tennessee Environmental Council filed a petition with the EPA, requesting that the EPA Administrator object to the CAA permit issued to TVA for operation of the John Sevier. Among other things, the petitioners allege that repair, maintenance, or replacement activities undertaken at John Sevier Unit 3 in 1986 triggered the
Prevention of Significant Deterioration ("PSD")
requirements for SO
2
and NO
x
. The CAA permit, issued by TDEC, remains in effect pending the disposition of the petition. The Environmental Agreements should narrow the scope of this proceeding. See
Environmental Agreements
.
Kingston NPDES Permit Administrative Appeal
. The Sierra Club filed a challenge to the
National Pollutant Discharge Elimination System ("NPDES")
permit issued by Tennessee for the scrubber-gypsum pond discharge at Kingston in November 2009 before the
Tennessee Water Quality, Oil, and Gas Board ("TN Board")
. In addition to its allegation that Tennessee violated the Clean Water Act by failing to set specific limits on certain toxic discharges, the Sierra Club alleges that no discharges from the pond infrastructure should be allowed because zero-discharge scrubbers exist. TDEC is the defendant in the challenge, and TVA has intervened in support of TDEC's decision to issue the permit. The matter was set for a hearing before the TN Board in February 2011, but has since been stayed by agreement of the parties.
Bull Run Fossil Plant NPDES Permit Administrative Appeal.
SACE and the
Tennessee Clean Water Network ("TCWN")
filed a challenge to the NPDES permit for the Bull Run Fossil Plant in November 2010. TDEC is the defendant in the challenge and TVA's motion to intervene to support TDEC's decision to issue the permit was granted in January 2011. Petitioners' motion for summary judgment was denied, but TVA and TDEC appealed
two
findings in the decision denying summary judgment to the TN Board. This appeal was scheduled to be heard in January 2013, but was removed from the agenda by order of another administrative law judge. The case was scheduled for a hearing before the TN Board in May 2013, but the hearing was postponed.
Johnsonville Fossil Plant NPDES Permit Administrative Appeal.
SACE and TCWN filed a challenge to the NPDES permit for the Johnsonville Fossil Plant in March 2011. TDEC is the defendant in the challenge. TVA's motion to intervene was granted in August 2011. The matter has not yet been given a hearing date before the TN Board.
John Sevier Fossil Plant NPDES Permit Administrative Appeal.
SACE and TCWN filed a challenge to the NPDES permit for John Sevier in May 2011. TDEC is the defendant in the challenge. TVA's motion to intervene was granted in August 2011. The matter has not yet been given a hearing date before the TN Board.
Gallatin Fossil Plant NPDES Permit Administrative Appeal
. SACE, TCWN, and the Sierra Club filed a challenge to the NPDES permit for the Gallatin Fossil Plant in June 2012. TDEC is the defendant in the challenge. TVA's motion to intervene was granted in September 2012. Administrative discovery is underway.
Petitions Resulting from Japanese Nuclear Events.
As a result of events that occurred at the Fukushima Daiichi Nuclear Power Plant in March 2011, petitions have been filed with the NRC which could impact TVA's nuclear program. While some petitions have been dismissed after review, petitions that remain open include the following:
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•
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Petition to Immediately Suspend the Operating Licenses of GE BWR Mark I Units Pending the Full NRC Review With Independent Expert and Public Participation From Affected Emergency Planning Zone Communities
|
Beyond Nuclear filed a petition in April 2011, requesting that the NRC take emergency enforcement action against all nuclear reactor licensees that operate units that use the General Electric Mark I BWR design. TVA uses this design at
Browns Ferry Nuclear Plant ("Browns Ferry")
Units 1, 2, and 3. The petition requests the NRC to take several actions, including the suspension of the operating licenses at the affected nuclear units, including Browns Ferry, until several milestones have been met. In December 2011, the NRC provided its initial response to the petition. The NRC accepted
five
specific requests that would apply directly or indirectly to Browns Ferry, including issues relating to spent fuel pool use and location, Mark I containment hardened vent systems and design, and backup electrical power. Each of these items was accepted for further investigation, but the requests for immediate action were rejected. The NRC has not yet rendered a decision regarding the petition.
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•
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Twelve
separate petitions on various issues
|
In August 2011, the Natural Resources Defense Council submitted
twelve
separate letters to the NRC requesting action on various health and safety aspects of operating nuclear facilities in the United States. The NRC is treating these as a single 2.206 Petition. The NRC has not yet rendered a decision regarding the petition.
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Petition Pursuant to 10 CFR 2.206 - Demand For Information Regarding Compliance with 10 CFR 50, Appendix A, General Design Criterion 44, Cooling Water, and 10 CFR 50.49, Environmental Qualification of Electric Equipment Important to Safety for Nuclear Power Plants
|
A petition was filed by the Union of Concerned Scientists in July 2011, requesting that a demand for information be issued for affected licensees, including TVA with regards to Browns Ferry, describing how the facilities comply with General Design Criterion 44, Cooling Water, within Appendix A to 10 CFR Part 50, and with 10 CFR 50.49, Environmental Qualification of Electric Equipment Important to Safety for Nuclear Power Plants, for all applicable design and licensing bases events. The NRC has not yet rendered a decision regarding the petition.
National Environmental Policy Act Challenge at Gallatin Fossil Plant.
To comply with the Environmental Agreements and the Mercury and Air Toxics Standards, TVA chose to reduce emissions at the Gallatin Fossil Plant by installing controls and an associated landfill. Pursuant to the
National Environmental Policy Act ("NEPA")
, TVA completed an Environmental Assessment in March 2013 to assess the impact of installing these emission controls. In April 2013, the Tennessee Environmental Council, Tennessee Scenic Rivers Association, Sierra Club, and Center for Biological Diversity filed suit in the United States District Court for the Middle District of Tennessee alleging that TVA violated NEPA when it decided to install additional emission controls and construct an associated landfill at the Gallatin Fossil Plant. Plaintiffs demand that TVA prepare an Environmental Impact Statement, and are asking the court to enjoin TVA from taking any further action relating to these matters pending compliance with NEPA. This case has been transferred to the United States District Court for the Eastern District of Tennessee.
Case Involving Colbert Fossil Plant.
On April 1, 2013, the
Alabama Department of Environmental Management ("ADEM")
filed suit in the Circuit Court of Colbert County, Alabama, alleging that unauthorized discharges from TVA's Colbert Fossil Plant were violating the Alabama Water Pollution Control Act. On May 13, 2013, TVA and ADEM entered into a consent decree which resolves this lawsuit. The decree requires, 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 agreed to pay $
150 thousand
.